Investment trust insider on Riverstone Credit Opportunities – James Carthew: Riverstone Credit comes with baggage but could see 15% annual gains
Riverstone Credit Opportunities (RCOI) has a market capitalisation of just $79m (£65m), which limits its usefulness as far as most institutional investors are concerned. It would like to trade at or above asset value, be bigger, more liquid, and extend its life. To do that it needs to attract new investors, but most retail investors would have difficulty buying it because it is listed on London’s Specialist Fund Segment. However, if you can overcome that hurdle, I think this might be an interesting opportunity.
RCOI listed in 2019 and, laudably, it built into its structure the option for investors to realise all or part of their investment after five years. Around the time of RCOI’s annual general meeting in 2024 (usually around the middle of May), shareholders will be able to elect to swap their ordinary shares for realisation shares. The portfolio will be split into an ongoing pool and a realisation pool, and the realisation pool will be liquidated. With the shares trading on a 15.6% discount today, that implies about an 18% upside. Alternatively, assuming it takes about a year to liquidate the majority of the portfolio, this works out as a return of about 6% a year up to end May 2025.
In the meantime, RCOI is trading on a historic yield (based on the last four quarters’ dividends) of 8.5%. Since it listed and became fully invested, RCOI has paid dividends of 7 cents per year. This year, its first two quarterly dividends have each been 2 cents, and these have been covered by earnings 1.04 times. I think it is likely – there are a few things working in RCOI’s favour – that the full year dividend for 2022 will end up being 8 cents, which puts it on a prospective yield of 9.2%. That implies annualised returns in excess of 15%.
read more here