Asset manager and mezzanine investment specialist Intermediate Capital (ICG) is another beneficiary of retail investors' hunt for yield after it launched a fully subscribed £80m bond issue this month. Its new senior unsecured bond represents the group's second big capital raising in a year and follows on from its well-received 7 per cent 2018 issue - although, at 6.25 per cent, the coupon is lower than on that earlier bond. Some investors may have missed the initial subscription but, with the price still trading near par, it remains a good opportunity.
- Bond looks liquid
- Decent yield
- Earlier bond was well received
- Company trading well
- Mezzanine finance is high risk
- Lower coupon than previous bond
However a key consideration will be whether the London Stock Exchange's trading platform (ORB) proves liquid enough to allow holders to cash out when necessary. Progress so far, however, looks good with roughly £4m - or about 5 per cent of the total issue - having been traded on the market since launch. That's positive and means the average retail order of £10,000 should have little trouble finding a matching buyer. The performance of the earlier 7 per cent issue is also a good guide to liquidity. The average monthly trading value there, which has been trading on ORB for nine months, is close to £2m - allowing for big variations during Isa season and the traditional summer lull.
ICG Bond XS0818634668 | |||
| Price: | 100.4p | Yield: | 6.2% |
| Maturity: | 19 September 2020 | Piece: | £100 |
| Coupon: | 6.25% | Credit rating: | BBB- |
| Payment: | Semi-annual | Issue size: | £80m |
| Sipp & Isa eligible: | Yes | Listed on LSE: | Yes |
The closeness to par also means the income yield sits well ahead of inflation, with a further boost if the bond is held within a tax-free wrapper. It's also yielding something similar to the dividend yield on the company's shares - but without the corresponding price volatility. What's more, the attractions of the coupon on the group's earlier bond hasn't gone unnoticed and demand there has pushed its price out to 104p - which bodes well for the group's latest bond.
True, coupons generally have been more keenly priced in recent months. That's because yields in the gilt market, which remains the reference index for corporate bonds, have been depressed as investors scrambled out of the eurozone. Inevitably, increased investor interest has also played a role as companies, and their advisors, have become more savvy about what coupons will attract retail buyers. Despite that, if the choice comes down to negative real returns or a decent coupon, income investors should choose the latter.
Operationally, the group looks sound enough, too. Pre-tax profit, for instance, grew 31 per cent last year to £244m, with mezzanine finance seeing robust demand as traditional lenders retire to repair their balance sheets. However, the group is in an intrinsically risky line of business and bond investors would be directly exposed to any default, albeit with some security from being higher up the creditor ladder. That's reflected in the lowest-investment grade rating - from both Standard & Poor's and Fitch - although Fitch does have a stable outlook for the company's debt.
