Australian Secure Capital Fund (ASCF)

We see this as a good short-term trade with low interest rate sensitivity. Underlying loans, which pay down relatively quickly, are secured therefore providing a level of comfort to investors. The average weighted Loan to Value Ratio (LVR) also provides decent buffer versus loan covenant levels to protect against asset quality write-downs/impairments.

In the current environment, interest rate risks can be balanced through a higher allocation to lower duration, fixed rate bonds. ASCF 9% Sept-2023s fit the build and would be a good addition to a corporate bond portfolio (if not already held).

Source: IAM Capital Markets, March 2022 Pool Statistics

Source: IAM Capital Markets, March 2022 Pool Statistics

Source: IAM Capital Markets, March 2022 Pool Statistics

Source: IAM Capital Markets, March 2022 Pool Statistics

ASCF Managed Investors is a special purpose vehicle (SPV) that was set up in late 2018. The SPV was set up to lend money to small and medium-sized enterprises (SMEs) or individuals seeking finance for business purposes, where traditional large financiers were too slow or hard to deal with.

Loans made are always secured via either a first or second ranking mortgage over real property. The loans are short-term, usually 1-12 months. To date, the funds have not experienced any principal loss on any loans. The average weighted LVR across all loans is currently c.58% (below the 72.5% loan covenant level). Furthermore, the value of originated second mortgages is currently c.28% (below the 33% loan covenant level).

The ASCF 9% Sept-2023s have a yield to maturity of 6% based on an expected maturity of 2023, which is fair value to other comparable high yield (HY) bonds. However, if we use a Sept-2022 call, then the yield to call looks around the 7% mark.

Source: March 2022 Pool Statistics

The notes are secured with the following call structure as per below:

Source: Bloomberg

See the three key pool parameters below:

The Pool Parameters in respect of each Loan are as follows:

• the weighted average Loan to Value Ratio of all Eligible Loans does not exceed 72.5% at any time;
• no more than 33.0% of the value of Eligible Loans Originated or Acquired at any time are secured by a second ranking Mortgage; and
• the value of Eligible Loans that have been Acquired by the Issuer from the Sellers at any time is no more than 20.0% of the aggregate sum of the value of Eligible Loans Originated or Acquired at such time and the amount standing to the credit of the Collections Account at such time.

Source: ASCF IM

Source: BondAdviser Pricing