Solar/Care Home/Renewable Bonds from EIS providers

PeterM

Does anyone have any experience in dealing with Corporate bonds issued by some of the EIS providers such as Downing and Ingenious?

I've just been copied in on an email to our compliance support by my boss asking about permissions needed to advise on them (so it looks like i will be getting some whether I want it or not in the not too distant future, lol).

On the surface they look attractive with rates from 5.5% to 8.5% and are usually 'asset backed,' but from what I can tell they are not as liquid as a normal bond and its hard to judge the level of risk that they entail.

Any suggestions on the following points?

Who are they suitable for in terms of clients? Anyone, experienced, HNW, pre-retirement, at retirement, no one?  
How to classify the level of risk they entail? Low risk, medium risk, High risk?  We use FinaMetrica which would usually class bonds as a 'defensive' asset and therefore low risk, but that doesn't feel right, there is no real secondary market so there is no way as far as i know to look at things like historic returns and volatility to compare it to other asset classes?  
How to diversify a portfolio of them?  
etc

Personally I think that treating them in the same way we would treat an EIS investment seems safest but I am worried that might be overkill.

TomLloyd_Read

I had a look and they didn't pass the sniff test! I guess they are unlisted corporate bonds, pretty illiquid and I'm assuming redemption is financed by either an asset sale or refinancing- they weren't very clear about this part when I asked

I would classify them as high risk, but only on the basis of pricing risk off the yield. You don't get this type of yield for free. Compared to say the listed corporate bond market, where GRYs are 0.3% to 2.5% at the short end. Even at the very long end GRYs rarely get to the same levels as these things, Barclays' 32 year bond has a GRY of 3.75%. High yield bonds give some indication, but even then, iShares Global High Yield ETF only has a yield of 4.72%.

I suspect you only need one to blow up and the rest of the market will collapse (see life settlements as a potentially good concept, busted by a stupid comment). I wouldn't want our clients to be there if / when it does!

Nathan

Agree with Tom on this, the Greek 10 year bond yield is 5.52%, would you buy it? 

For me, to even get through to any further DD, the investment has to pass the, "would I feel happy if my Mum boght it?" test....if the answer is no, why would it be right for clients?

DanAtkinsonUK

Not sure but sounds like Crowd Bonds. We have some info on our website https://eqinvestors.co.uk/investing/crowd-bonds/ (might be some more elsewhere too). The DD from the provider (Downing) is very detailed. We don't advise on them but have them available as an XO (we do the same on VCT). Hope that helps

Brunello

With solar it is important to understand which company installed the systems and to know it is still in business. If it has gone bust, there is every chance the installation was less than optimal and therefore the warranties embedded in the bond offering need to be high quality. Solar cash flows are government backed, but the government only pays for electricity generated, so if the kit is poor quality, poorly installed or poorly metered....... Work out what the company paid to install the systems and from there you can see whether the yield is fair.