29th May

A Slow Start for ORB, but Ladbrokes’ Retail Bond Set to be Well Backed at 5.125%

Ladbrokes, Britain’s second biggest bookmaker, has launched an eight year sterling retail bond offering 5.125% and early indications are that there has been strong support from income-hungry investors.   

The bond has a due date of 2022 and offers a fixed interest rate of 5.125% paid semi-annually on 16th March and 16th September and is guaranteed by the company.   

The minimum investment stands at £2,000 with £100 multiples thereafter and the company has set a target to raise between £50m and £100m prior to books closing on June 10th; however given the dearth of recent issues those wishing to participate may not wish to gamble on the offer going the distance.   

Chief financial officer Ian Bull confirmed any proceeds would be used to pay down existing short-term bank debt and help "diversify" Ladbrokes' existing debt model – the company currently has debts of £400m. 

An alternative equity fundraising was dismissed as changes to the group's current debt-to-equity mix were deemed "unnecessary". 

Mark Glowrey at lead manager on the issue, Canaccord Genuity, said Ladbrokes would probably wish to avoid the negative effect on pricing that can accompany an issue of new shares and believes the new retail bonds represent the "ongoing maintenance" of Ladbrokes' existing debt pile; rather than buying than buying the company’s shares, investors can now take advantage of the lower-risk instrument on offer. 

Retail bonds have proven very popular with investors looking for strong and reliable income and the recent relaxation of pension rules means that from July those in retirement may consider adding retail bonds to a balanced investment portfolio in preference to purchasing an annuity. 

Many offers have been oversubscribed and further deregulation that will allow bonds with less than five years to duration to be lodged in an ISA wrapper can only fuel demand. 

Mr Bond has been unwavering in advising would-be investors to ensure that they are comfortable with the creditworthiness of any company they are considering and to take professional financial advice if they are not happy with the structure of the product or the guarantees that are on offer.   

Ladbrokes is a listed business and full documentation in support of this issue can be found in the Current Issues section.   

Its first quarter results in April 2014 revealed an operating profit of £18.4m although year-on-year its profits have fallen from £37.4m for the same period last year. Credit ratings agencies Fitch and Standard & Poors both rate the bond at "BB".   

Under its definition, Fitch says a BB bond is “prone to economic changes” whilst S&P grades BB bonds as “less vulnerable in the near-term but faces major ongoing uncertainties to adverse business, financial and economic conditions.”   

As with any retail bond, the main risk is that the business will fail and if that were to happen it is not underwritten by the deposit protection scheme, the Financial Services Compensation Scheme.   

However, albeit that the market is in its infancy, there have been no defaults to date and the Ladbrokes’ offer does come with the guarantees described in the prospectus.   

Those coaxed into the stalls and purchasing the bonds at par are likely to see the paper value of their investment increase as a glance down the Recent Issues section shows retail bonds trading up to 109 in the secondary market; this does of course mean that those buying in further down the line will see the nominal yield on the bond eroded.   

Retail Bond Expert welcomes renewed activity in the primary market and hopes that the interest the Ladbrokes issue appears to be generating encourages others to add to the vibrancy and diversity of the market.

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