Bonds away! The retail search for yield continues.


We have seen venkman express some concerns in recent days about the potential dangers of chasing attractive bond yields for income starved investors. While we like the idea of banks being disintermediated by alternative lenders to companies we would hope this new trend is not hijacked by indiscriminate risk pricing. We get the retail appeal of UK based global leaders like Tesco and ICAP issuing retail bonds but how long have Workspace Group been around? No matter… Barclays, Brewin Dolphin, Killik, SelfTrade and others have signed up as the retail distributors. Fee takers in other words. And here’s how the FT described the stunning opportunity…

Workspace Group, the provider of small business space in and around London, is to raise up to £75m via an issue of bonds to retail investors on the London Stock Exchange’s Order Book for Retail Bonds (Orb) platform.

The bonds will pay a coupon of 6 per cent each year in two instalments until they mature in 2019. Workspace owns and manages over 100 London properties which are home to some 4,000 businesses across a broad range of sectors.

Workspace doesn’t have a rating from credit agencies and the bond issue is unsecured, but the company says its covenant arrangements offer a high level of protection to individual investors.

Hmmm…no credit rating, no security and exposed to the higher-risk SME space being squeezed to death by domestic banks. The bond has a 7 year maturity term so you have plenty of time to discover the swings and roundabouts of a commercial space model but all veterans in the area will tell you it is not for the faint hearted.

British Land has been around for decades, its tenants are blue-chip names and it pays an equity dividend of almost 5%.  Does the 100bp differential capture the additional risk in Workspace? And what about the liquidity in a £75 million issue? At least British Land shares valued at more than £10 million (ex)change hands each day.

Bonds away but will they hit the target or explode prematurely?



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