Investors who lent money to rugby union club Wasps via a retail bond returning 6.5 per cent interest are waiting for their money back after it missed the repayment deadline.
Wasps Finance raised £35million from investors in 2015, partly to pay back a loan linked to the purchase of a 32,000 seater stadium in Coventry – where it relocated to after previously playing in High Wycombe – and it was due to return capital to investors in mid-May.
But it postponed redemption of the bonds while trying to refinance the debt, and has since issued statements admitting this deal has not yet come off.
Most recently, it said it was ‘pursuing different refinancing options’ and making progress with initiatives to increase the profitability and asset value of the group.
Retail bond: Investors lent money to rugby union club in deal launched in 2015
This is Money always warns people should always tread with care when buying company debt via retail bonds or mini-bonds, because the money you make back depends on the firm not going bust.
Unlike with a savings account, you are not protected by the UK’s Financial Services Compensation Scheme, which guards against losses of up to £85,000. We highlighted these risks when Wasps launched the bond in 2015.
The Wasps retail bond was tradeable on the London London Stock Exchange’s Orb market – differing from ‘mini-bonds’ which must be held to maturity – but it was delisted on 13 May due to the default.
In its most recent update to the stock market, Wasps Finance said it was continuing to seek to get its bonds reinstated on the London Stock Exchange
It added it was seeking an extension of the bonds to allow time for the completion of the refinancing, and that bondholders would continue to receive interest from 13 May on a half yearly basis until the date of redemption. The next interest payment is due in November.
A Wasps Finance spokesperson said: ‘We will be seeking an extension to the debt from bondholders as we have not yet been able to agree final terms for refinancing and therefore redeem the bonds within the expected timeframe.
‘Bondholders will continue to receive interest payments from 13 May 2022 on a half yearly basis until the bonds are redeemed.
‘We expect to launch the consent solicitation with full details of our proposals this month and thank the bondholders for their patience.’
Laith Khalaf, head of investment analysis at AJ Bell, said: ‘Retail bonds might offer attractive levels of interest, but that really reflects the extra risks that investors are taking on compared to loaning money to their bank, the Government, or a large company with stable earnings streams.
‘Wasps may be a giant of the English club rugby world, but in corporate terms, it’s a minnow, and so its finances are not as robust as the companies of the FTSE 100 for example.
‘Investors considering retail bonds should always read the prospectus and kick the tyres of the financial position of the issuing company.
‘Even if they are satisfied that the level of interest on offer is compensating them adequately for the risks, they should only ever invest a very small amount of their overall assets, unless the borrower gets into financial difficulties and is unable to pay them back their money.’
Regulators have slapped a permanent ban on firms pushing mini-bonds to ordinary investors after thousands lost money in a series of devastating collapses, including London Capital & Finance which swept away the savings of many elderly and casual investors.
Retail bonds and minibonds have always come with serious risk warnings, including the following points.
– The varying interest rates on retail bonds and mini-bonds reflect the amount of risk attached to them – generally speaking, the higher the rate on offer, the higher the risk.
– You should beware of putting too much of your money into one or just a handful of bonds.
– It’s worth considering a corporate bond fund, which will lend to large firms and spread your risk.
– Bonds held in an Isa can deliver tax-free income, but investors should investigate the potential tax liabilities on individual investments.
What should you check before buying retail bonds and mini-bonds?
* Any investor buying individual shares or bonds would be wise to learn the basics of reading a balance sheet.
* When looking at bonds, research all recent reports and accounts from the issuer thoroughly. You can find official stock market announcements including company results on This is Money here.
* Check the cash flow is healthy and consistent. Also look at the interest cover – the ratio which shows how easily a firm will be able to meet interest repayments on its debt. This is calculated by dividing earnings before interest and taxes (known as EBIT) by what it spends on paying interest. Read our guide to doing investment sums like this here.
* It is very important to find out what the bond debt is secured against, and where you would stand in the queue of creditors if the issuer went bust. This should be included in the details of the bond offer but contact the issuer direct if it is unclear.
* Consider whether to spread your risk by buying a bond fund, rather than tying up your money with just one company or organisation.
* Inexperienced investors who are unsure about how retail or mini-bonds bonds work or their potential tax liabilities should seek independent financial advice.
* If the interest rate is what attracts you to the bond, weigh up whether it is truly worth the risk involved. Generally speaking, the higher the rate on offer, the higher the risk.
* If the issuer is a listed company, before you decide whether to buy it is worth checking the dividend yield on the shares to see how it compares with the return on the bond. Share prices, charts and dividend yields can be found on This Is Money here.
* Investors should bear in mind that it can be harder to judge the risk involved in investing in some bonds than in others – it is easier to assess the likelihood of Tesco going bust than smaller and more specialist businesses.
