Could P2P Global Investments dividend be under threat?

Late last Friday afternoon the news popped up that the £1.1bn P2P Global Investments had sold for €250m its debt and equity stakes in Castlehaven Finance, an Irish alternative finance platform. 

These sorts of transactions are the normal course of action for any fund, but the scale and potential of the sale are huge for a portfolio often considered something of a bellwether for the alternative credit and lending market makes it more interesting.

The sale is “a significant disposal” for P2P Gl with the gross proceeds representing 32 per cent of net assets, as analysts at Numis Securities note. 

“As a result, it will raise questions about how and on what timescale the proceeds will be redeployed, as well as any potential impact on the dividend,” Numis said. 

The fund is currently paying quarterly dividends of 12p, equivalent to a 5.6 per cent yield, This is, however, still below its original target of paying a 15p per quarter dividend by the second half of 2018.

For several years now the fund has been pivoting its strategy and its new portfolio now represents about 90 per cent of assets. The market too seems to be backing this approach.

P2P GI originally partnered with Castlehaven Finance in 2016, which was prior to Pollen Street’s appointment as manager, it was classified in the continuing portfolio and exposure has grown significantly in recent years with the company providing financing in excess of €385m. 

The fund’s manager clearly back property-backed loans with exposure before the sale to this area running to nearly half of total assets, a marked change compared with the portfolio three years ago.

P2P GI has delivered NAV total returns of 2.5 per cent in 2019 to June, and 6.0 per cent over the last 12 months and its discount has narrowed from over 20 per cent to 11.4 per cent. 

For P2P and alternative lending funds, a key focus is always on the speed of lending deployment to avoid cash drag as this has to be in line with requirements for its income payouts or dividends have to be cut or paid out of its capital account.

The manager, Pollen Street Capital, says it has a strong pipeline. Numis also notes that given the length of the disposal process they expect them to have been planning to ramp up deployment in other areas of the portfolio as well as new opportunities. Also, the sale of CastleHaven assets came at a modest premium so that should also help.

Lindsey McMurray, managing partner of Pollen Street Capital, said at the time of the sale: "We have had a successful relationship with Castlehaven Finance, provided them with a significant amount of financing and have been delighted with the development of the business since the beginning of the Company's partnership in 2016.  We are happy to have contributed to Castlehaven Finance's growth and wish the team every continued success."

Pollen Street said that the new cash pile will be “steadily redeployed in line with its strategy of partnering with high-quality specialist lenders to deliver attractive returns”.