Property finance specialist LendInvest has issued a third retail bond, this time offering savers the chance to earn a 6.5 per cent income from the publicly-listed business.
The firm, which offers loans to landlords, developers and intermediaries in the UK, is offering investors in its older bonds – returning 5.25 and 5.375 per cent – the option of exchanging them for its new one.
Although 6 per cent-plus is a better rate than you can get from a savings account, people should always tread with care when buying company debt via bonds like this, because the money you make back depends on the firm not going bust.
Property finance specialist: LendInvest offers loans to landlords, developers and intermediaries in the UK
That makes this an investment only for those willing to take a risk and do their research on LendInvest’s financial strength – find out how below.
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.
The LendInvest retail bond will be tradeable on the London London Stock Exchange’s Orb market, differing from ‘mini-bonds’ which must be held to maturity.
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 from This is Money whenever we write about them, 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.
LendInvest says it is a technology focused property finance asset manager, with £2.9billion of funds under management in March this year, and a disruptor within its £1.6trillion market which it describes as ‘dominated by manual paper prcocesses and poor customer care’.
The firm’s latest bond requires a minimum investment of £1,000 and the official deadline is 3 August, but retail bond offers often close early if they prove popular enough to meet firms’ fundraising targets quickly.
It matures in August 2027, when all being well you should get your capital back, and the first interest payment – or coupon – is due in February 2023.
The new bond is expected to start trading on London’s Orb market on or around 9 August. The firm’s older bonds are due to mature later this year and next year.
Retail bonds like LendInvest’s which can be traded on Orb allow investors to make money early if you sell when they trade higher than the offer price, but you can also lose if the price is lower. The Orb market offers an exit route for investors who want to get out.
>>>Find a checklist on how to research the health of companies and assess the prospects of individual bonds below
What do investing experts say about the Orb market and retail bonds?
Laith Khalaf, head of investment analysis at AJ Bell, says: ‘It’s been a bit quiet in terms of new issues for retail bonds of late, and looking forward higher interest rates and an uncertain economic outlook are probably going to mean fewer companies seeking to raise capital, or having to pay a high coupon if they do.
‘When buying a retail bond investors do need to do their homework and read the prospectus to understand the financial strength and risks associated with the company issuing the bond, as well as the terms of the bond itself.’
Jason Hollands: ‘Given high inflation and rising interest rates, bond prices are subject to considerable volatility currently’
Jason Hollands, managing director of Evelyn Partners and Bestinvest, says: ‘While the headline yield of 6.5 per cent on this bond is undoubtedly attractive, the principle of caveat emptor applies.
‘Firstly, it is important to understand that these bonds will be traded on the secondary market once issued, and so if you invest the value of your capital is at risk and you may not get back what you invested if you need to sell before their maturity.
‘This not like a high interest savings account.
‘Given high inflation and rising interest rates, bond prices are subject to considerable volatility currently and with the potential for a recession on the horizon, defaults in the bond market are almost certain to rise over the next couple of years.’
Hollands stressed that unlike investing in a diversified bond fund, here you are putting money directly into the issue of a retail bond, which is not covered by the Financial Services Compensation Scheme.
‘When assessing any individual bond issue, you need to look beyond the headline yield on offer and be comfortable that you understand the credit worthiness of the issuing entity and where your bonds sit within the overall capital structure of the issuing group,’ he says.
Sam Benstead, deputy collectives editor at Interactive Investor, says: ‘Bond markets, sensitive to high inflation and interest rate hikes, have fallen. That means that yields have risen and are starting to look more interesting.
‘But it’s important to remember that bond investors are natural worriers. They want to be confident that when they buy the debt of companies or governments their income is not destroyed by inflation.
‘They also thoroughly research the quality of the bond to ensure they are likely to be paid the interest from it and have their principle returned in full.’
Handy checklist: What do you need to know before buying mini-bonds and retail 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.