Wesps rugby union club defaults on bond investors – but pledges to keep paying 6.5% interest as they try to refinance debt
Investors who lent money to rugby club Wasps through a retail bond bearing 6.5 percent interest are waiting for their money back after it missed the repayment deadline.
Wasps Finance raised £35 million from investors in 2015, in part to repay a loan related to the purchase of a 32,000-seat stadium in Coventry – where it moved after having previously played in High Wycombe – and it had to return capital to investors halfway through -Can.
But it delayed paying off the bonds while trying to refinance the debt, and has since issued statements admitting this deal hasn’t gone through yet.
Most recently, it said it was “pursuing various refinancing options” and making progress on initiatives to increase the group’s profitability and asset value.
Retail bond: investors lent money to rugby union club in deal launched in 2015
This is Money always warns that people should always be careful when buying corporate debt through retail bonds or mini bonds because the money you earn back depends on the company not going bankrupt.
Unlike a savings account, you are not protected by the UK’s Financial Services Compensation Scheme, which protects you against losses of up to £85,000. We highlighted these risks when Wasps launched the bond in 2015.
Wasps’ retail bond was tradable on the London London Stock Exchange’s Orb market – unlike “mini-bonds” that must be held to maturity – but due to default, it was delisted on May 13.
In its most recent stock market update, Wasps Finance said it continued to try to recover its bonds on the London Stock Exchange
It added that it was seeking an extension of the bonds to allow time for the refinancing to complete, and that from May 13, bondholders would continue to receive interest on a semi-annual basis until the date of redemption. The next interest payment is in November.
A spokesman for Wasps Finance said: “We will be requesting an extension of the debt from bondholders as we have not yet been able to agree final terms for refinancing and therefore can redeem the bonds within the expected timeframe.
Bondholders will continue to receive semi-annual interest payments from 13 May 2022 until the bonds are redeemed.
“We expect to launch the consent request this month with full details of our proposals and we thank the bondholders for their patience.”
Laith Khalaf, head of investment analysis at AJ Bell, said: “Retail bonds can offer attractive interest rates, but that really reflects the additional risks investors are taking compared to lending money to their bank, the government or a large corporation with stable income streams.
Wasps may be a giant of the English club rugby world, but in business terms it’s a minnow, so its finances aren’t as robust as the companies of the FTSE 100, for example.
“Investors considering retail bonds should always read the prospectus and turn the financial position of the issuing company upside down.
“Even if they are confident that the interest offered adequately compensates them for the risks, they should only invest a very small amount of their total assets unless the borrower runs into financial difficulties and is unable to repay their money. . money.’
Regulators have issued a permanent ban on companies sending mini-bonds to mainstream investors after thousands lost money in a series of devastating collapses, including London Capital & Finance, wiping out the savings of many older and informal investors.
Retail bonds and mini bonds have always come with serious risk warnings, including the following points.
– The varying interest rates on retail bonds and mini-bonds reflect the risk associated with them – in general, the higher the rate offered, the greater the risk.
– You have to be careful not to put too much of your money in one or just a handful of bonds.
– It is worth considering a corporate bond fund, which provides loans to large companies and spreads your risk.
– Bonds in an Isa may provide tax-free income, but investors should investigate potential tax liabilities on individual investments.
What should you check before buying retail bonds and mini bonds?
* Any investor buying individual stocks or bonds would be wise to learn the basics of reading a balance sheet.
* When looking at bonds, you should thoroughly research all recent issuer reports and accounts. you can find official stock market announcements including corporate results on This is Money here.
* Check that cash flow is healthy and consistent. Also look at the interest coverage – the ratio that shows how easily a company will be able to meet the interest payments on its debt. This is calculated by dividing earnings before interest and taxes (known as EBIT) by what it spends paying interest. Read our guide to making such investment sums here.
* It is very important to find out what the bond debt is secured against and where you would be in the line of creditors if the issuer went bankrupt. This should be included in the details of the bond’s offer, but contact the issuer directly if it is unclear.
* Consider whether you want to diversify your risk by buying a bond fund, rather than committing your money to just one company or organization.
* Inexperienced investors who are unsure of how retail or mini-bonds work or their potential tax liabilities should seek independent financial advice.
* If the interest attracts you to the bond, consider whether it is really worth the risk. In general, the higher the rate offered, the greater the risk.
* If the issuer is a publicly traded company, it is worth checking the dividend yield on the stock to see how it compares to the yield on the bond before deciding whether to buy it. Stock quotes, charts and dividend yields can be found here on This Is Money.
* Investors should note that it can be more difficult to estimate the risk of investing in some bonds than others – it is easier to estimate the probability of Tesco going bankrupt than smaller and more specialized companies.