Hastings High Yield Fund (HHY)

This is a follow-up to the introductory post on HHY. Re-produced below is the estimated remaining assets and applicable interest rates paid by the investments: 

As pointed out by a commenter following the article, Maher Terminals is probably the biggest risk. Certainly, the face value of Maher is ~50% of HHY's current market capitalisation, so let's start with that. 

Maher Terminals

Below is an excerpt from HHY's presentation 20/2/13 regarding information on Maher Terminals: 

HHY's investment in Maher Terminals is via a US$20m junior debt facility, maturing July 2015. It would be great if this investment could be sold earlier as this will greatly speed up the return of capital to HHY investors. There has been some talk Maher Terminals may be sold, but I have no idea if this will occur and whether it would include the debt; so I personally will treat this  as unplanned but pleasant surprise if that happens - similar to what has just happened with RHG Ltd (RHG). Being debt, the main thing to be concerned about is not the valuation of the debt, but whether interest will continue to be repaid and whether Maher Terminals will be able to pay the loan back in 2015.  

As a pretty broad (and non-original) observation, terminal operations tend to be fairly stable infrastructure assets. This of course says nothing specifically about Maher. It looks like Maher got into trouble during the GFC. Or perhaps more accurately, the new owner Deutsche Bank got itself in trouble by paying too much for the asset. There have been some (seemingly) minor issues at the  New York port of late. Financial details are scant - I can't see an annual report anywhere. Have I missed it? Can't say that I really understand much about this asset at this stage other than what HHY has provided. 

Cory Environmental

The next single largest investment, also in junior debt. Again, here is an excerpt from HHY's investor presentation: 

In case you can't read the last sentence of the Outlook: 

"Hastings continues to closely monitor the investment in the best interests of unitholders however the outlook remains negative." 

Again, financials are scant. Again, can't really say I have a lot of insight to offer. 

Hmmm. 

What to do. 

On the surface, there appears to be value (fact: book value less than market capitalisation). However the underlying assets are opaque. Can we trust the balance sheet to roughly equate to sale price? Is there a big enough return on (my) time to warrant further investigation?   

We are now moving into reporting season. I have not investigated further the other assets, and still digging more into the above two assets. 

Kristian

Disclosure: small position in HHY