I tend to keep a close eye on most of the more alternative funds on the London market, with a special focus on unusual forms of income. Aircraft leasing funds top that list – I’ve already commented on them this week.

Today brings news of a research report by an outfit called Scope Analysis which looks at the resale value of A380s. I tend to focus most of my attention on the Amedeo Air Four Plus fund, ticker AA4 which seems the more diversified option.

It is currently trading at around 76p, and yields not far off 11% by my calculations.

I’m not quite sure I’d buy in yet but the share price is approaching much more interesting territory.

Anyway here’s the press release on the Scope paper….

The bottom line seems to be that parts’ values are stabilizing and increasing even though Singapore are dumping A380s. 

“Emirates Airline is retiring its fleet of A380 passenger jets, for which the Dubai-based carrier was Airbus’ biggest customer. Gloomy as the news is for investors in closed-end A380 funds, they can still expect to make a return on their investment. Recent developments, with Emirates following the lead of Air France and Singapore Airlines in pulling A380s out of service, have not fundamentally changed the prospects for investors in the A380 funds. Scope Analysis says that while investors will not suffer any losses – see Scope’s report Airbus A380 – Part-Out as Final Option – they cannot expect the high single-digit percentage returns originally projected in the prospectus, but will have to make do with returns in the lower single-digit range. German investors have invested around EUR 1.6bn in a total of 21 Airbus A380s through closed-end funds. The lessees of these aircraft are Singapore Airlines, Air France and Emirates. In early 2019, Emirates announced that it would reduce its A380 order from a total of 162 to 123 units. As a result, Airbus announced that production of the A380 would cease in 2021. “Emirates’ decision to start retiring its A380s is another blow, albeit not an unexpected one, for investors and Airbus, but the A380’s long-term future has been in doubt for some time given the absence of new customers,” says Frank Netscher, analyst at Scope. “Interestingly, the prices of funds whose A380s are already in a part-out – selling the aircraft for their parts – have risen slightly from previous lows: the process has provided investors with greater certainty in the context of the expiry of the aircraft leases and return of the aircraft to their owners amid near-zero secondary-market demand for the planes,” says Netscher.

According to Emirates President Tim Clark, the airline will gradually retire its A380-800s.The first two aircraft have already been taken out of service and will be subject to a part-out process. Emirates currently operates 112 A380-800s, nearly half of the world’s fleet. The two specific aircraft models were retired because Emirates is planning a comprehensive overhaul of its existing fleet. It can make more economic sense to take older models out of service. Spare parts such as the landing gear can be reused for other existing aircraft. This procedure is usually cheaper than buying a new main landing gear for e.g. USD 25m.”

Download the full report here

Worth a look? Riverstone Credit Opportunities (RCOI)

I used to be quite a big fan of Riverstone Energy, a listed private equity vehicle focused on unconventional North American energy plays. The strategy seemed excellent and the management very experienced. Sadly the reality has been very disappointing and last year I decided to sell my shares after suffering years of big discounts.

Riverstone hasn’t given up entirely on the City though and a while back launched a new credit-oriented fund. On paper, this could be a more appealing idea – it is a simple income play in a sector that is increasingly struggling to raise new cash. Thus yields are high.

That said I wouldn’t be racing to invest in this fund as I think there’s a nasty crash coming in North American shale credit markets. Still, one to watch…here’s the Numis note this morning outlining two recent deals which seem to confirm high yields on offer….

According to Numis Riverstone credit “has originated and executed two new transactions in Q4 2019 for a total commitment of $28.6m. Following these transactions RCOI is 82% committed and 41% invested. The committed capital generates income through undrawn fees. Project Ducks: RCOI committed $13.8m in a $65m first lien delayed-draw term loan for a sponsor-backed exploration and production company with operations in Weld Count, Colorado (the Denver-Julesburg Basin). The expected yield for the loan is 13.6% on a fully drawn basis and maturity is at November 2022. Project Knox: RCOI committed $14.8m in a $75m first lien delayed draw term loan for a sponsor-backed midstream company that provides propane transportation from the Corpus Christi, Texas area to the export market in Houston, Texas. The expected all-in yield to maturity is 11.1% and maturity is at December 2022 with a 1-year extension option

Riverstone Credit Opportunities – Portfolio
Project Name Subsector Commitment Date Commitment Amount at 20 Dec 2019 Invested Amount at 30 Sep 2019
Yellowstone Midstream Jun-19 5.8 5.8
Shiner Exploration & Production Jun-19 6.0 3.1
Alp Exploration & Production Jun-19 13.3 2.7
Mariners Services Jul-19 14.9 13.9
Chase Exploration & Production Jul-19 12.3
Remington Midstream Aug-19 3.4 3.4
Ducks Exploration & Production Nov-19 13.8
Knox Midstream Dec-19 14.8
Total     84.3 28.9
Source: Company & Numis Securities Research

Background: Riverstone Credit Opportunities started trading on 28 May after raising $100m at IPO on the Specialist Fund Segment of the London SE. The mandate is to invest in a portfolio of senior secured loans in the global energy sector, focused on direct lending to middle market energy businesses. NAV at 30 September 2019 was $0.998 per share. The portfolio at 24 October 2019, included six commitments, all secured and floating rate. The weighted average drawn coupon for the first six investments is 10.4%, and undrawn spread at entry was 4.3%. The weight average tenor is 2.6 years.

A bit more detail on the managers behind the new Ag fund

From the Numis note this morning, more detail on Capital Advisory Partners.

“The fund will be managed by Sven Miserey, Ian Monks and Kristof Bulkai. Sven, founded Capital Advisory Partners prior to which he managed over €15bn for the Commerzbank Group as Head of Credit and Money Market Funds division and set up the structured credit portfolio division at GLG Partners. Ian Monks is an experienced rural property professional, is a director and advisor to private farming and property businesses and Kristof was a partner at Liontrust prior to which he built out the agriculture focused investment strategies division for Thames River.”