Earlypay Trade Receivables Trust (as at 11 July 2022)
- Pool is performing in-line with IAM’s expectations and Class A and B note holders are being paid significantly higher interest given the increase in BBSY (see below).
- June 2022 (month end) net pool balance was AUD26,477,349. The largest concentration remains in the manufacturing sector, followed by the wholesale sector, both of which have been performing well post COVID-19.
- The amount in the Liquidity Reserve has grown to 14.9% (June 2022) from 7.6% (April 2022), providing more buffer to bondholders in the event of any cashflow shortages.
- Total arrears > 30 days is 0.18%, well below the arrears cap of 8%.
- Net losses are 0%.
- Pool has C note of AUD6,853,586, which provides buffer to A (32% credit enhancement) and B (21% credit enhancement) note holders and is sufficient to cover any unexpected losses. This includes initial credit enhancements plus extra to manage concentration limits.
Table 1. Pool Value
* Initial credit enhancement and extra to manage concentration limits
Table 2. EPY Interest Schedule
|Interest on Notes||April 2022||May 2022||June 2022|
|Class A Rollover BBSY for current Interest Period (rounded up to four decimal places):||0.0750%||0.3900%||0.9434%|
|Total Rate for Payment Period|
|Margin to BBSY: Class A Notes||6.3250%||6.6400%||7.1934%|
|Margin to BBSY: Class B Notes||8.3250%||8.6400%||9.1934%|
Class A Margin: 6.25%
Class B Margin: 8.25%
Chart 1. EPY Class Structure
MME Horizon Warehouse Trust (as at 13 July 2022)
- Pool is performing in-line with IAM’s expectations and Class A, B1, and B2 note holders are being paid significantly higher interest given the increase in BBSY (see below).
- June 2022 (month end) net pool balance was AUD85,180,023.
- The Liquidity Reserve has sufficient surplus to manage any cashflow shortages.
- Total arrears > 30 days is 7.83%, well below the arrears cap of 12%.
- Net losses are 1.52%, well below the net losses cap of 10%.
- Pool has C note of AUD4,250,000, which provides buffer to A, B1, and B2 note holders and is sufficient to cover any unexpected losses.
- The Class B1 and B2 notes carry higher risk, but still compare favourably to other high-yield securities in the market. Nonetheless, the chance of loss remains very minimal on these notes given credit enhancements and excess spread available.
Table 3. MME Interest Schedule
|Interest on Notes||May 2022||June 2022||July 2022|
|Class A Rollover BBSY for current Interest Period (rounded up to two decimal places):||0.04%||0.43%||1.03%|
|Total Rate for Payment Period|
|Margin to BBSY: Class A Notes||5.54%||5.93%||6.53%|
|Margin to BBSY: Class B1 Notes||9.04%||9.43%||10.03%|
|Margin to BBSY: Class B2 Notes||10.54%||10.93%||11.53%|
Class A Margin: 5.50%
Class B1 Margin: 9.00%
Class B2 Margin: 10.50%
Chart 2. MME Class Structure
Capital Alliance (CAIG)
- CAIG is due to report FY22 results in early August 2022.
- As at 31 December 2021, the covenant gearing was 61.1% − CAIG Covenant Group was still in compliance with the 70% level.
- Valuations have improved since 31 December 2021, with a small uptick across its Melbourne hotel portfolio. Based on this, the covenant gearing will now have fallen below 60%, providing more headroom with the 70% level.
- The Australian hotel sector continues to rebound on the back of the general reopening thematic and domestic travel. This is helping occupancy and pricing levels, which inevitably flow through to cashflow − which is used to service CAIG noteholders. For example, the Marriott Docklands occupancy rate is around 55% and AC by Marriott is around the 50% mark.
- CAIG has very little construction risk over 2022 compared to other property developers. This helps given what’s happening in the construction sector. CAIG will still seek fixed price contracts for its developments and only pick the best builders for tender to ensure it receives the best possible terms.
- The six months debt service reserve remains in place to be used to manage any cashflow shortages.
CAIG remains committed to the Dandenong Project, which has continued to meet keep hurdles/milestones.
Pioneer Credit Ltd
- Pioneer is due to report FY22 results in early August 2022.
- Pioneer is exposed to economic conditions − in particular rising interest rates, which may affect the ability of Pioneer’s customers to repay debt or the amount of debt they can repay. This can reduce the value of PDPs Pioneer has purchased. However, rising interest rates may also increase the default rate on debt more generally, potentially increasing the supply of PDPs for Pioneer to purchase at a lower cost and service.
- Pioneer’s biggest issue recently has been not gaining access to PDPs, primarily due to COVID-19.
- In a roundabout/contrary way, the current environment is good for Pioneer because it helps their growth/profitability profile. Remember, Pioneer buys these books of business at very low rates and so there is already significant buffer/slack built into them.
- The recent upgrade to their PDP guidance for FY22 to AUD100m is positive news, but we would reiterate that the improvement will not flow through until FY23. So, investors need to be patient. Collection House has also exited the PDP market, so there are basically two key competitors left – Pioneer and Credit Corp, which will harness the market share.
- The bonds offer value in the high 80s/low 90s. Yes, there is pressure on the company to perform and it remains highly leveraged, but the fundamental environment remains solid.