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Bond of the Week: 8 March 2013

Intermediate Capital Group 6.25% 2020


Some time in August last year, we published a piece on the retail bond issued by Intermediate Capital Group, the ICG 6.25% 2020 bond (see here). The retail issue was viewed favourably after combing through firm's business, its accounts, and the pricing of the bond. Six months on,  I am reviewing this security because it is providing good value for new investors.

A tip in using the FII website: When searching for bonds, the first place I recommend is the Sterling yield map, available here . At a glance, this map collates and shows the yields of most sterling corporate bonds in the market. And, more importantly, the map summarises their yield spread versus the equivalent gilt yield. On the map, each blue dot represents the yield of a corporate bond while the gilt curve is approximated by the blue line. The difference between the dot and the line is the spread of the bond versus the 'risk-free' government bond.

The ICG 2020 bond caught my eye simply because it is currently situating at the farther end from the curve (see below, circled in red).

Note that the spread of the various blue dots are widest at around the 2020 region. Even within this group, ICG 2020 stands out. Its yield of 5.89% stretches it towards the 6% region. Only one other bond, the Enterprise 6.5% 2018, provides a higher yield than ICG.

Now, let's us recap the bond's specifics:

Bond Specifics:

  • Issuer: Intermediate Capital Group
  • Maturity: 19th September 2020
  • Coupon: 6.25% s.a.
  • Rank: Senior, unsecured
  • Issue price: 100
  • Min Sub: £2,000
  • ISIN: XS0818634668

Since our analysis in August, has any thing changed? According to ICG's interim update, assets under management increased to €12 billion. This means higher management fee income for the firm. Its European fund raised the maximum amount of €2.5 billion. A new office opened in Singapore.  The management also "see a solid pipeline of investment opportunities." Equally important, the firm has liquidity availability of £406 million. In all, it seems ICG's business is expanding.

Unsurprisingly, the market is becoming more confident about its prospect. ICG's share price appreciated by more than 30% in a less than four months, and broke decisively above the 2011 highs (see right). While I am not sure if its share price can break new all-time highs (800p) soon, reaching 500p would not be too difficult.

Turning to the 2020 bond, it is a glaring fact that the bond gained a mere 2 points over the last six months, vastly under-performing ICG's share price. This is the risk one has to take. In a bull market, bonds' upside is limited while its stock has unlimited. However, in view of its good business prospect, I suspect this bond may attract more interest over the medium term.

View: In the current bullish environment, it is difficult to find decent corporate bonds yielding more than 5.5%. ICG 2020 is providing one such opportunity. The bond is in an up trend and I would not be surprised it breaks new highs soon. This could be one of the bonds to buy for 2013.

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