TIDMCIFU
RNS Number : 4481X
Carador Income Fund PLC
28 August 2015
GENERAL TEXT AMENDMENT
The following amendment has been made to the Unaudited Interim
Financial Statements announcement released on 27 August 2015 at
14:21pm under RNS No 3275X
Date on Statement of Director's Responsibilities from 26 August
2014 to 26 August 2015
All other details remain unchanged.
The full amended text is shown below.
RNS Announcement
Carador Income Fund PLC
27 August 2015
FOR IMMEDIATE RELEASE
INTERIM REPORT AND UNAUDITED CONDENSED INTERIM FINANCIAL
STATEMENTS FOR THE PERIOD ENDED 30 JUNE 2015
NOT FOR RELEASE, DISTRIBUTION OR PUBLICATION, DIRECTLY OR
INDIRECTLY, TO U.S. PERSONS OR INTO OR IN THE UNITED STATES,
AUSTRALIA, CANADA OR JAPAN.
A copy of the Company's interim report including unaudited
condensed interim financial statements 2015 are set out below, will
be posted to the shareholders of the Company and will shortly be
available on the Company's website, www.carador.co.uk.
CARADOR INCOME FUND PLC: INVESTMENT OBJECTIVE
The investment objective of Carador Income Fund PLC (the
"Company") is to produce attractive and stable returns with low
volatility compared to equity markets by investing in a diversified
portfolio of senior notes of collateralised loan obligations
("CLOs") collateralised by senior secured bank loans and equity and
mezzanine tranches of CLOs.
The Company's shares have a listing on the premium segment of
the Official List of the UK Listing Authority and are admitted to
trading on the main market of the London Stock Exchange
("LSE").
CHAIRMAN'S REPORT
I am pleased to present the Interim Report including unaudited
condensed interim financial statements for the Company for the six
months ended 30 June 2015.
Uncertainty was a major theme in the markets during the first
half of 2015. Questions continued over the timing of rising rates,
the potential "Grexit" from the Eurozone, the possibility of a
Puerto Rican default, and the direction of the Chinese equity
market. June was a particularly volatile month as the VIX, which
measures the market's implied volatility, spiked over 34% as levels
rose from 14.02 to 18.85 in just one day. Bank loans proved
relatively sheltered as the S&P/LSTA Leveraged Loan Index
returned +2.83% during the period, outperforming emerging market
bonds (+2.76%), high yield bonds (+2.53%), equities (+1.23%), U.S.
Treasuries (+0.03%), and investment grade bonds (-0.92%). Within
the bank loan market, higher quality assets outperformed their
riskier counterparts. Loans rated BB returned +3.29% year to date
while CCC-rated loans returned +2.69%.(1)
Performance
During the six month period ended 30 June 2015 the Company
generated a total net asset value ("NAV") return of 4.58% including
distributions. The Company started the year with a NAV per US
Dollar share of US$0.8993 and ended the first half at US$0.8891, a
-1.13% decline in the NAV per share, although as noted below, the
Company also paid a total of US$0.0500 per share in dividends over
the period.(2)
The Company's shares closed the first half of 2015 at US$0.8700,
a -2.15% discount to the NAV at 30 June 2015. The annualised
historic dividend yield based on the last declared dividends was
11.49%.(3)
Cash Flow and Dividends
In January 2015, based on current market conditions, the Board
reiterated a target dividend of US$0.10 per US Dollar share
distributed evenly in four quarterly payments.(4) The Company seeks
to maintain its status as an "excluded security" under the
Non-Mainstream Pooled Investment ("NMPI") rules, and so the Board
is committed to distributing at least 85% of its net income each
financial year. If the target US$0.10 dividend per share is
forecast to be less than 85% of the Company's net income, the Board
will seek to increase the Q4 2015 dividend commensurately.
On this basis, the Company made the following dividend
announcements in respect of Q4 2014 and the first half of 2015:
-- On 22 January 2015, the Board declared a dividend of
US$0.0250 per US Dollar share in respect of the period from 1
October 2014 to 31 December 2014. The dividend was paid on 4
February 2015.
-- On 23 April 2015, the Board declared a dividend of US$0.0250
per US Dollar share in respect of the period from 1 January 2015 to
31 March 2015. The dividend was paid on 6 May 2015.
-- On 21 July 2015, the Board declared a dividend of US$0.0250
per US Dollar share in respect of the period from 1 April 2015 to
30 June 2015. The dividend was paid on 6 August 2015.
The cashflows received by the Company increased throughout the
first half of the year since many of the post-crisis Income Note
investments commenced distributions. The cashflow coverage
continued to be sound as shown in the table below.
Quarterly declared dividends per US$ Share and Net Cashflow
Coverage of Dividends
Year Dividend Declared Net Cashflow Cover
---- ----------------- ------------------
1Q12 3.3c 1.5x
2Q12 3.4c 1.5x
3Q12 3.8c 1.5x
4Q12 4.3c 1.4x
1Q13 3.4c 1.3x
2Q13 3.4c 1.3x
3Q13 3.4c 1.1x
4Q13 2.9c 1.1x
1Q14 2.5c 1.2x
2Q14 2.5c 1.1x
3Q14 2.5c 1.1x
4Q14 2.5c 1.1x
1Q15 2.5c 1.3x
2Q15 2.5c 1.3x
Material Events
On 30 January 2015, the Company's investment manager, GSO /
Blackstone Debt Funds Management LLC (the "Investment Manager")
(together with its affiliates, "GSO Blackstone"), appointed J.
Richard ("Dik") Blewitt as the Company's new portfolio adviser
following the resignation of Mark Moffat from GSO Blackstone.
On 30 April 2015, the Company released its audited Annual Report
and Accounts for the full year 2014.
At the annual general meeting ("the AGM") of the Company held on
25 June 2015, shareholders approved the following ordinary and
special resolutions:
Ordinary Business
1. Receipt and consideration of the directors' report and the
financial statements of the Company for the
year ended 31 December 2014 and the report of the auditors thereon.
2. Re-appointment of KPMG as auditors of the Company.
3. Authorisation of the Directors to fix the remuneration of the auditors of the Company.
4. Re-election of Nicholas Moss as a Director of the Company.
5. Re-election of Edward D'Alelio as a Director of the Company.
6. Re-election of Werner Schwanberg as a Director of the Company.
7. Re-election of Adrian Waters as a Director of the Company.
8. Re-election of Fergus Sheridan as a Director of the Company.
Special Business
9. Authorisation of the Board to allot and issue up to
54,325,334 shares (or, if lower, such number of shares as represent
10 per cent. of the shares in issue at the date of the AGM), such
authority to expire at the conclusion of the next annual general
meeting of the Company unless previously renewed, varied or revoked
by the Company in general meeting.
10. Authorisation of the Board to allot and issue up to
54,325,334 shares (or, if lower, such number of shares as represent
10 per cent. of the shares in issue at the date of the AGM) without
having previously to offer such shares to shareholders on a
pre-emptive basis, such authority to expire at the conclusion of
the next annual general meeting of the Company unless previously
renewed, varied or revoked by the Company in general meeting.
Outlook
The Board believes that the Company's portfolio was well
positioned in the first half of 2015 to take advantage of
investment opportunities. As at the end of June 2015, the Company's
portfolio consisted of 32.73% Mezzanine Notes, 65.67% Income Notes
and a cash balance (including other assets and liabilities) of
1.60%.
The Board believes that this portfolio allocation will continue
to deliver attractive total returns as well as high current income
via quarterly dividend distributions.
Werner Schwanberg
Chairman
26 August 2015
INVESTMENT MANAGER'S REVIEW
For the six month period ended 30 June 2015
Highlights of the first half of 2015 include:(5)
-- Aggregate declared dividend income of US$0.050 per share, in
line with the target provided by the Board
in January 2015.
-- Total NAV return of 4.58% including dividends paid.
-- Historic dividend yield of 11.49% (share price as at 30 June 2015).(6)
-- 1.32x net cashflow cover for the first half of 2015.
-- The portfolio has been actively traded during the period. The
Company added 7 investments to the portfolio for a total market
value of US$66.7 million and sold 9 investments for a total market
value of US$59.4 million.
-- The Investment Manager believes that the portfolio rotation
from pre-financial crisis CLOs to post-financial crisis deals is
almost complete. We have opportunistically reduced our 1.0 exposure
as we found attractive 2.0 opportunities, although certain 1.0
Income Notes remain strong performers. As at 30 June 2015, the
portfolio NAV consists of 65.67% of Income Notes of which 10.55%
are in pre-financial crisis deals.
Bank Loan Market Overview
As we approach the end of the Federal Reserve's (the "Fed") zero
interest-rate policy, we expect the loan asset class will garner
significant attention from investors concerned about protecting
their fixed-income portfolios from duration risk. The U.S. market
has already seen signs of this as mutual fund flows stabilised in
2015 after outflows totalled US$24.0 billion in 2014.(7) The
impending rate hike in the U.S. should eventually lead to inflows.
Furthermore, CLO creation in both the U.S. and in Europe has
remained steady year on year and continues to help support the
secondary loan market.(8)
(MORE TO FOLLOW) Dow Jones Newswires
August 28, 2015 06:36 ET (10:36 GMT)
U.S. bank loan new issuance reached US$229.0 billion for the
first half of 2015, down 30% relative to last year's US$327.8
billion first-half tally.(8) Volume was heavily weighted in the
second quarter as robust demand spurred an increase in re-pricing
activity. Given the decrease in net new issuance, supply has lagged
demand in the loan market and we expect that trend to continue as
the market adapts to new regulations governing leveraged lending
guidelines.
In Europe, new issuance surged in the first quarter but slowed
in second quarter totaling EUR36 billion of issuance. Similar to
the U.S., re-pricing activity increased dramatically to almost EUR8
billion during Q2, accounting for 51% of the quarter's volume.(8)
Expectations for the remainder of the year are constructive, though
Greece-related concerns may dissuade issuers from tapping the
market.
The loan market is supported by healthy corporate credit
fundamentals. Total debt used to fund large U.S. leveraged buyouts
("LBOs") declined slightly to 5.7x, compared to the end of 2014
(5.8x). Total leverage ratios of European LBOs ticked up slightly
(5.6x) from the end of 2014 (5.3x). Ratios in both the U.S. and in
Europe remain well below their 2007 peaks of 6.2x and 6.6x,
respectively. Sponsors are also contributing more equity to their
LBOs as equity now represents 42% of LBOs compared to 31% in 2006
and 2007 in the U.S. and 44% now versus less than 35% in 2006 and
2007 in Europe. Companies have taken advantage of receptive capital
markets by cutting interest costs and pushing out their
liabilities. Interest coverage ratios are historically high and the
loan maturity wall is manageable with 80% of loans outstanding
maturing in 2019 or later. (8)
Default rates continue to remain below their historical average
of 3.4% as the LTM bank loan default rate was 1.74% at the end of
June. Strategists continue to be constructive on near-term credit
risk and forecast loan default rates of 1.5% for both 2015 and
2016, excluding energy. Including the energy sector, the 2016
default rate may be closer to 2.0%. Companies in the energy and
coal sectors have continued to struggle; nine energy companies and
three coal companies defaulted thus far in 2015, accounting for 35%
and 30% of YTD default volume, respectively.(7)
In Europe, default rates based on principal amount ended the
quarter at 2.13%, as seen in the S&P European Leveraged Loan
Index. Default rates are expected to remain around this level after
averaging 3-5% per year since peaking in 2009.(9)
CLO Market Overview
Global CLO issuance was strong as 112 deals totaling US$59.0
billion and 19 deals totaling EUR8 billion came to market in the
U.S. and Europe, respectively, during the first half of the
year.(8) Morgan Stanley estimates that nearly 40% of CLOs issued
were brought to the market by repeat managers that manage more than
10 pre-crisis CLOs and around 34% were issued by managers with only
CLO 2.0s under management.(10) Six managers have priced three or
more deals YTD, including GSO. The primary pipeline remains quite
large, though collateral sourcing continues to challenge CLO
managers and Greece's debt problems may curtail further European
CLO activity. Strategists forecast full year 2015 volume to be
US$85-US$100 billion in the U.S. and EUR18-EUR20 billion in
Europe.(11)
In the primary market, CLO spreads have tightened across the
capital structure since December, though they started to drift
wider in late May. Given the backlog of CLOs combined with
lacklustre bank loan issuance, we expect that spreads will continue
to widen over the next few months.
Larger managers that have issued deals before the crisis were
able to access the market at a cheaper cost of capital. CLO
managers with more than 10 CLO 1.0s under management priced their
transactions at an average discount margin of L+147bps versus
L+150bps for all managers.(10)
Impending U.S. risk retention regulations are becoming a bigger
factor in the new issue market. We expect that equity investors
will become more insistent on risk retention-compliance to ensure
the ability to refinance transactions after the rules become
effective. CLO managers are beginning to move forward with
solutions to risk retention and many have resolved to finance
transactions themselves.
The Volcker Rule is threatening liquidity in the CLO market as
dealers now face severe restrictions in, and potential capital
charges on, owning senior notes of CLOs issued before 2014. Reduced
liquidity is evident in the spreads of non-compliant, pre-crisis
("CLO 1.0") AAA notes. The AAA discount margins of CLO 1.0s widened
from 70bps to 120bps over the 12-week period ending 26 June
2015.(12)
Portfolio Update
The portfolio remains actively managed with over US$126.1
million traded over the first half of the year.
The Investment Manager traded out of relatively low yielding
pre-financial crisis Income and Mezzanine Notes into a number of
post-financial crisis opportunities. We acquired over US$65.3
million of 2.0 Income Notes, primary and secondary, at target risk
adjusted IRR range of 12.4% to 15.0%.
The Investment Manager continues to be comfortable with the
exposure to U.S. CLOs only. Looking at the 2013 and 2014 vintages,
the median cumulative equity tranche cash distributions since
inception for U.S. CLOs stands at 37% and 15%, respectively, while
European performance by this metric is substantially worse at 20%
and 10%, respectively.(10)
As at 30 June 2015, the NAV breakdown by CLO 1.0, CLO 2.0,
Income Notes and Mezzanine Notes and cash balance was as
follows:
Investment Type % of June 2015 NAV
---------------------------------------------- ------------------
CLO 1.0 Mezzanine Notes 8.75%
CLO 2.0 Mezzanine Notes 23.98%
CLO 1.0 Income Notes 6.93%
CLO 2.0 Income Notes 58.74%
Cash (including other assets and liabilities) 1.60%
As at 30 June 2015, the Company's top five exposures were:
Investment Manager Original % NAV
Rating
-------------------------------- ---------------------------- ------------- ------
Sheridan Square CLO Ltd 2013-1 GSO / Blackstone Debt Funds
INC Management LLC NR/NR 6.67%
GSO / Blackstone Debt Funds
Pinnacle Park 2014-1A SUB Management LLC NR/NR 4.88%
Flatiron CLO 2014-1 X SUB New York Life Investors LLC NR/NR 4.85%
Neuberger Berman CLO XVII Neuberger Berman Fixed Income
Ltd 2014-17 SUB LLC NR/NR 4.47%
Keuka Park CLO Ltd 2013-1A GSO / Blackstone Debt Funds
SUB Management LLC NR/NR 4.02%
Outlook
We remain cautious over the short to medium term given the
broader market volatility and current macro environment. As we
receive more clarity around the situation in Greece and China, we
expect volatility to subside somewhat leaving the market with
positive credit fundamentals and potentially better yields,
depending on this year's Fed actions. CLO asset sourcing and
arbitrage will continue to be a challenge for managers that, when
combined with the current volatility, may present better secondary
opportunities in CLO mezzanine and equity tranches. We continue to
look for attractive relative value opportunities with special focus
in downside protection and emphasis on managers we believe select
the most credit resilient loan portfolios in downside
scenarios.
As of the half year end, the Company maintained a cash balance
(including other assets and liabilities) of 1.60% which the
Investment Manager will continue to invest as new attractive
opportunities appears.
Risk Management
The Company's portfolio of CLO investments is managed to
minimise default risk and potential loss through credit analysis
performed by the Investment Manager's experienced credit research
team. Achieving diversity is part of the Company's investment
objective. Each investment is assessed with a view to providing
diversification in terms of underlying assets, issuer, sector and
maturity profile.
The Company invests in a minimum of 20 separate transactions
with a maximum exposure per investment, at the time of investment,
of 20% of the NAV. The Company also limits its exposure to
transactions managed by the same portfolio manager to 15% of the
NAV, at the time of investment. However, if the portfolio manager
is an affiliate of the Investment Manager, this limit is increased
to 60% of the Net Asset Value, at the time of investment.
The Company may invest in assets which are denominated in Euro
and Sterling, as well as U.S. Dollars, however the base currency of
the Company is the U.S. Dollar. The Company therefore may have an
exposure to changes in the exchange rate between the U.S. Dollar
and the Euro/Sterling which, if unhedged, has the potential to have
a significant effect on returns. The Directors believe that it is
in the best interests of Shareholders for the Company to engage in
currency hedging solely to reduce the risk of currency fluctuations
and the volatility of returns which may result from such currency
exposure. This may involve hedging, at the level of the Company,
the Euro/Sterling assets to U.S. Dollars. As at 30 June 2015, the
Company had immaterial non-U.S. Dollar exposure.
The Company only uses currency and other hedging techniques for
the purposes of efficient portfolio management in accordance with
the requirements of the Central Bank of Ireland ("Central Bank").
The Company has no intention of using the currency hedging facility
for the purposes of currency speculation for its own account.
(MORE TO FOLLOW) Dow Jones Newswires
August 28, 2015 06:36 ET (10:36 GMT)
Please also refer to note 10 for a fuller description of the
risks involved in an investment in the Company.
Important Events Post Balance Sheet Date
On 21 July 2015, the Board declared a dividend of US$0.0250 per
US Dollar share in respect of the period from 1 April 2015 to 30
June 2015. This dividend was paid on 6 August 2015.
GSO / Blackstone Debt Funds Management LLC
26 August 2015
STATEMENT OF DIRECTORS' RESPONSIBILITIES AND INTERIM MANAGEMENT
REPORT
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE
INTERIM FINANCIAL REPORT
Each of the Directors, whose names and functions are listed in
the section of the interim report entitled "Management and
Administration" confirm that, to the best of each person's
knowledge and belief:
(a) the unaudited condensed interim financial statements
comprising the unaudited condensed interim statement of financial
position, unaudited condensed interim statement of comprehensive
income, unaudited condensed interim statement of changes in equity,
unaudited condensed interim statement of cash flows and the related
explanatory notes have been prepared in accordance with IAS 34
Interim Financial Reporting as adopted by the EU.
(b) the interim management report, specifically the Investment
Manager's report and the information below, note 9, note 10 and
note 18, includes a fair review of the information required by:
(i) Regulation 8(2) of the Transparency (Directive 2004/109/EC)
Regulations 2007, being an indication of important events that have
occurred during the first six months of the financial year and
their impact on the condensed interim financial statements; and a
description of the principal risks and uncertainties for the
remaining six months of the year; and
(ii) Regulation 8(3) of the Transparency (Directive 2004/109/EC)
Regulations 2007, being related party transactions that have taken
place in the first six months of the current financial year and
that have materially affected the financial position or performance
of the entity during that period; and any changes in the related
party transactions described in the last annual report that could
do so.
PRINCIPAL RISKS, UNCERTAINTIES, RISK MANAGEMENT, OBJECTIVES AND
POLICIES
The Company's investment objective is to produce attractive and
stable returns with a low volatility compared to equity markets, by
investing in a diversified portfolio of senior notes of
collateralised loan obligations ("CLOs") collateralised by senior
secured bank loans and equity and mezzanine tranches of CLOs.
Investment in the Company carries with it a degree of risk
including, but not limited to, business risks and the risks
associated with financial instruments, referred to in note 10 of
these unaudited condensed interim financial statements and the
Investment Manager's review. The primary business risk is the risk
that the Company may not achieve its investment objective. Meeting
that objective is a target but the existence of such an objective
should not be considered as an assurance or guarantee that it can
or will be met.
A summary of the primary risks relating to the Company are:
-- The past performance of the Company is not necessarily
indicative of, and cannot be relied upon as a guide to, the future
performance of the Company.
-- In calculating its NAV, the Company may, if broker quotes are
not available, be required to rely on estimates of the value of
securities in which the Company invests which are unaudited or
subject to little verification or other due diligence.
-- There are risks related to CLO securities, including
leveraged credit risk, the potential for interruption and deferral
of cash flow, asset/liability mismatch risk, currency risk,
volatility risk, liquidity risk, reinvestment risk and risks
associated with collateral.
-- The success of the Company is significantly dependent on the
expertise of the Investment Manager and the Investment Manager's
ability to source CLOs which are suitable to be held in the
Company's portfolio.
-- There can be no assurance that the Investment Manager will be
able to accurately predict the future course of price movements and
performance of securities.
-- Restrictions on withdrawal of capital mean that shareholders
must be prepared to bear the risks of owning an interest in the
shares for an extended period of time.
-- The market price of the shares can fluctuate and there is no
guarantee that the market prices of shares will reflect fully their
underlying NAV.
Please also refer to note 10 for a fuller description of the
risks involved in an investment in the Company.
The Directors anticipate that the principal risks and
uncertainties will remain as outlined above and in note 10 for the
remaining six months of the current financial year.
CONNECTED PARY TRANSACTIONS
The Central Bank of Ireland Non-UCITS Notices, NU 2.10 -
'Dealings by promoter, manager, partner, trustee, investment
adviser and group companies' states in paragraph one that any
transaction carried out with a collective investment scheme by a
promoter, manager, partner, trustee, investment adviser and/or
associated or group companies of these ("connected parties") must
be carried out as if negotiated at arm's length. Transactions must
be in the best interests of the shareholders.
The Directors are satisfied that there are arrangements
(evidenced by written procedures) in place, to ensure that the
obligations set out in paragraph one of NU 2.10 are applied to all
transactions with connected parties; and the Directors are
satisfied that transactions with connected parties entered into
during the period complied with the obligations set out in
paragraph one of NU 2.10.
Werner Schwanberg
Fergus Sheridan
Adrian Waters
Edward D'Alelio
Nicholas Moss
26 August 2015
INDEPENDENT REVIEW REPORT TO Carador Income Fund PLC
Introduction
We have been engaged by Carador Income Fund PLC to review the
condensed set of financial statements in the half-yearly financial
report for the six months ended 30 June 2015 which comprises the
unaudited condensed interim statement of financial position,
unaudited condensed interim statement of comprehensive income,
unaudited condensed interim statement of changes in equity,
unaudited condensed interim statement of cash flow and the related
explanatory notes. We have read the other information contained in
the half-yearly financial report and considered whether it contains
any apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
This report is made solely to the Company in accordance with the
terms of our engagement to assist the Company in meeting the
requirements of the Transparency (Directive 2004/109/EC)
Regulations 2007 as amended ("the TD Regulations") and the
Transparency Rules of the Central Bank of Ireland. Our review has
been undertaken so that we might state to the Company those matters
we are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the Company for our
review work, for this report, or for the conclusions we have
reached.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the Directors. The Directors are responsible
for preparing the half-yearly financial report in accordance with
the TD Regulations and the Transparency Rules of the Central Bank
of Ireland.
As disclosed in note 2, the annual financial statements of the
Company are prepared in accordance with IFRSs as adopted by the EU.
The Directors are responsible for ensuring that the condensed set
of financial statements included in this half-yearly financial
report has been prepared in accordance with IAS 34 Interim
Financial Reporting as adopted by the EU.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with the Financial
Reporting Council's International Standard on Review Engagements
(UK and Ireland) 2410 Review of Interim Financial Information
Performed by the Independent Auditor of the Entity. A review of
interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and
Ireland) and consequently does not enable us to obtain assurance
that we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly report for the six months ended 30 June 2015 is
not prepared, in all material respects, in accordance with IAS 34
as adopted by the EU, the TD Regulations and the Transparency Rules
of the Central Bank of Ireland.
Vincent Reilly
For and on behalf of KPMG
KPMG
Chartered Accountants, Statutory Audit Firm
1 Harbourmaster Place
IFSC
Dublin1
Ireland
26 August 2015
(MORE TO FOLLOW) Dow Jones Newswires
August 28, 2015 06:36 ET (10:36 GMT)
UNAUDITED CONDENSED INTERIM STATEMENT OF FINANCIAL POSITION
As at 30 June 2015 31 December
30 June 2015 2014
Notes US$ US$
---------------------------------------------- ------ ------------- ------------
ASSETS
Cash and cash equivalents 5, 10 27,028,029 10,758,356
Other receivables 29,417 -
Financial assets at fair value through 3, 8,
profit or loss* 10 475,240,836 486,340,728
TOTAL ASSETS 502,298,282 497,099,084
---------------------------------------------- ------ ------------- ------------
LIABILITIES
Expenses payable 4 3,604,027 1,887,192
Payable for investments purchased 15,705,000 6,639,790
TOTAL LIABILITIES 19,309,027 8,526,982
---------------------------------------------- ------ ------------- ------------
NET ASSETS ATTRIBUTABLE TO PARTICIPATING EQUITY
SHAREHOLDERS 482,989,255 488,572,102
------------------------------------------------------ ------------- ------------
NET ASSET VALUE PER PARTICIPATING US DOLLAR
SHARE 0.8891 0.8993
---------------------------------------------- ------ ------------- ------------
* Balances include investment in unconsolidated subsidiaries.
Please refer to note 8 for further detail.
The accompanying notes form an integral part of the unaudited
condensed interim financial statements.
UNAUDITED CONDENSED INTERIM STATEMENT OF COMPREHENSIVE
INCOME
For the six months ended 30 June 2015 30 June
30 June 2015 2014
Notes US$ US$
--------------------------------------------------------- ------- ------------- ------------
Interest income on cash and cash equivalents 1,125 740
Miscellaneous income 105,530 68,471
Net gain on derivative financial instruments
and foreign exchange 1,205 132,864
Net gain on financial assets at fair value
through profit or loss 27,117,497 23,517,714
TOTAL REVENUE 27,225,357 23,719,789
--------------------------------------------------------- ------- ------------- ------------
Performance fees 4 (1,144,377) (546,804)
Investment management fee 4 (3,320,488) (3,379,172)
Custodian fee 4 (36,101) (37,562)
Administration fee 4 (178,732) (187,808)
Directors' fees 4, 9 (180,949) (186,345)
Auditor's fee (71,590) (81,277)
Other operating expenses 4 (644,464) (725,253)
TOTAL OPERATING EXPENSES (5,576,701) (5,144,221)
--------------------------------------------------------- ------- ------------- ------------
OPERATING PROFIT BEFORE FINANCE COSTS 21,648,656 18,575,568
--------------------------------------------------------- ------- ------------- ------------
Finance Costs 11 (68,836) (160,382)
PROFIT FOR THE PERIOD ALL ATTRIBUTABLE TO THE PARTICIPATING
EQUITY SHAREHOLDERS 21,579,820 18,415,186
------------------------------------------------------------------ ------------- ------------
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD ALL ATTRIBUTABLE
TO PARTICIPATING EQUITY SHAREHOLDERS 21,579,820 18,415,186
------------------------------------------------------------------ ------------- ------------
EARNING PER SHARE
Earnings per US Dollar share 13 US$0.04 US$0.03
--------------------------------------------------------- ------- ------------- ------------
The accompanying notes form an integral part of the unaudited
condensed interim financial statements.
UNAUDITED CONDENSED INTERIM STATEMENT OF CHANGES IN EQUITY
For the six months ended 30 June 2015 Notes US$
----------------------------------------------------------- ------ -------------
AT 31 DECEMBER 2013 514,219,232
----------------------------------------------------------- ------ -------------
TRANSACTIONS WITH PARTICIPATING EQUITY SHAREHOLDERS
Distributions to participating equity shareholders 16 (29,335,681)
TOTAL TRANSACTIONS WITH PARTICIPATING EQUITY SHAREHOLDERS (29,335,681)
----------------------------------------------------------- ------ -------------
Profit for the period all attributable to participating
equity shareholders 18,415,186
----------------------------------------------------------- ------ -------------
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD ALL
ATTRIBUTABLE TO PARTICIPATING EQUITY SHAREHOLDERS 18,415,186
----------------------------------------------------------- ------ -------------
AT 30 JUNE 2014 503,298,737
----------------------------------------------------------- ------ -------------
AT 31 DECEMBER 2014 488,572,102
----------------------------------------------------------- ------ -------------
TRANSACTIONS WITH PARTICIPATING EQUITY SHAREHOLDERS
Distributions to participating equity shareholders 16 (27,162,667)
TOTAL TRANSACTIONS WITH PARTICIPATING EQUITY SHAREHOLDERS (27,162,667)
Profit for the period all attributable to participating
equity shareholders 21,579,820
----------------------------------------------------------- ------ -------------
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD ALL
ATTRIBUTABLE TO PARTICIPATING EQUITY SHAREHOLDERS 21,579,820
----------------------------------------------------------- ------ -------------
AT 30 JUNE 2015 482,989,255
----------------------------------------------------------- ------ -------------
The accompanying notes form an integral part of the unaudited
condensed interim financial statements.
UNAUDITED CONDENSED INTERIM STATEMENT OF CASH FLOWS
For the six months ended 30 June 2015 30 June 2015 30 June 2014
US$ US$
--------------------------------------------------------- ------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Profit for the period all attributable to participating
equity shareholders 21,579,820 18,415,186
Adjustments for non-cash items and working capital:
Increase in payables 1,716,835 1,016,272
(Increase)/decrease in receivables (29,417) 239,422
Net loss on financial assets and derivatives at
fair value 8,448,916 10,420,254
NET CASH INFLOW FROM OPERATING ACTIVITIES 31,716,154 30,091,134
--------------------------------------------------------- ------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments* (57,623,624) (190,751,690)
Disposal and paydowns of investments 69,339,810 200,282,059
NET CASH INFLOW FROM INVESTING ACTIVITIES 11,716,186 9,530,369
--------------------------------------------------------- ------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to participating equity shareholders (27,162,667) (29,335,681)
NET CASH OUTFLOW FROM FINANCING ACTIVITIES (27,162,667) (29,335,681)
--------------------------------------------------------- ------------- --------------
Net increase in cash and cash equivalents 16,269,673 10,285,822
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF
THE PERIOD 10,758,356 763,739
--------------------------------------------------------- ------------- --------------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 27,028,029 11,049,561
--------------------------------------------------------- ------------- --------------
* Balances include investment in unconsolidated subsidiaries.
Please see note 8 for further detail.
The accompanying notes form an integral part of the unaudited
condensed interim financial statements.
NOTES TO THE UNAUDITED CONDENSED INTERIM FINANCIAL
STATEMENTS
For the six months ended 30 June 2015
1 GENERAL
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Carador Income Fund PLC is a closed-ended limited liability
investment company domiciled and incorporated under the laws of the
Republic of Ireland with variable capital pursuant to the Irish
Companies Act 2014. It was incorporated on 20 February 2006 under
registration number 415764. The Company is authorised by the
Central Bank pursuant to Part 24 of the Companies Act 2014. It is
admitted to the Official List of the UK Listing Authority with a
premium listing and is admitted to trading on the main market of
the London Stock Exchange.
The Company's investment objective is to produce attractive and
stable returns, with low volatility compared to equity markets, by
investing in a diversified portfolio of senior notes of
collateralised loan obligations ("CLOs") collateralised by senior
secured bank loans and equity and mezzanine tranches of CLOs.
At 30 June 2015, all shares in issue were US Dollar shares. The
Company may issue one or more additional classes of shares on prior
notice to and clearance by the Central Bank.
2 SIGNIFICANT ACCOUNTING POLICIES
2A STATEMENT OF COMPLIANCE
These unaudited condensed interim financial statements for the
six months ended 30 June 2015 have been prepared in accordance with
IAS 34 "Interim Financial Reporting" as endorsed by the EU. The
unaudited condensed interim financial statements do not contain all
of the information and disclosures required in the full annual
financial statements and should be read in conjunction with the
financial statements for the year ended 31 December 2014, which
have been prepared in accordance with International Financial
Reporting Standards (IFRS) as issued by the International
Accounting Standards Board ("IASB") and adopted by the EU and also
in accordance with Irish Company Law. The accounting policies
applied by the Company in these unaudited condensed interim
financial statements are the same as those applied in the financial
statements for the year ended 31 December 2014, as described in
those annual financial statements except for the below matters
noted in 2B.
The financial information presented herein does not amount to
statutory financial statements that are required by Section 347 of
the Companies Act 2014 to be annexed to the annual return of the
Company. The financial statements for the year ended 31 December
2014, together with the independent auditor's report thereon, have
been filed with the Irish Registrar of Companies following the
Company's annual general meeting on 25 June 2015 and are also
available on the Company's website. The auditor's report on those
financial statements was unqualified.
2B ADOPTION OF NEW ACCOUNTING STANDARDS AND AMENDMENTS,
INCLUDING ACCOUNTING POLICY CHANGES
The Company has consistently applied the accounting requirements
to all periods presented in these financial statements.
Annual Improvements to IFRSs 2011-2013 Cycle: This is effective
for annual periods beginning on or after 1 January 2015. This does
not have any impact on the Company's financial position or
performance.
There were no other new requirements that impacted the Company's
financial statements.
2C BASIS OF PREPARATION
The Company's unaudited condensed interim financial statements
have been prepared on a historical cost basis, except for financial
instruments measured at fair value through profit or loss.
The functional currency of the Company is US Dollar (US$), as
the Directors have determined that this reflects the Company's
primary economic environment. The presentation currency of the
financial statements is also US Dollar.
The unaudited condensed interim financial statements comprise
the unaudited condensed interim statement of financial position,
unaudited condensed interim statement of comprehensive income,
unaudited condensed interim statement of changes in equity and
unaudited condensed interim statement of cash flows together with
the related notes. The Company qualifies as an investment entity
and is therefore only required to prepare individual financial
statements under IFRS as adopted by the EU.
The Company's management has made an assessment of the Company's
ability to continue as a going concern and is satisfied that the
Company has the resources to continue in business for the
foreseeable future. Furthermore, the management is not aware of any
material uncertainties that may cast significant doubt upon the
Company's ability to continue as a going concern. Therefore, the
unaudited condensed interim financial statements continue to be
prepared on the going concern basis.
2D NEW STANDARDS AND INTERPRETATIONS APPLICABLE TO FUTURE
REPORTING PERIODS
New standards, amendments and interpretations issued but not
effective in 2015 and not early adopted.
IFRS 9 "Financial Instruments", issued on 24 July 2014, is the
IASB's replacement of IAS 39 "Financial Instruments: Recognition
and Measurement". The Standard includes requirements for
recognition and measurement, impairment, derecognition and general
hedge accounting. The Company has yet to assess IFRS 9's full
impact.
2E KEY JUDGEMENTS AND ESTIMATES
The preparation of the financial statements requires management
to make judgements, estimates and assumptions that affect the
application of accounting policies and the reported amount of
assets, liabilities, income and expenses. Actual results may differ
from these estimates.
When the fair value of financial assets and financial
liabilities recorded in the unaudited condensed interim statement
of financial position cannot be derived from active market
quotations, they are determined using valuation techniques
including the use of broker prices. During the period ended 30 June
2015, there were no internal valuation models used as the fair
value of the financial assets was derived from inputs that were
observable either directly (as prices) or indirectly (derived from
broker price quotations). For the purpose of the fair value
hierarchy, the Directors consider that the use of average broker
price quotations is a valuation technique which uses inputs that do
not require significant adjustment based on unobservable inputs;
hence, the Directors have included the securities in Level 2.
3 FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
As described in the accounting policies note, the Company has
financial assets designated at fair value through profit or loss.
The financial instruments recognised at fair value are analysed
between those whose fair value is based on:
- Level 1: quoted prices (unadjusted) in active markets for
identical assets or liabilities.
- Level 2: inputs other than quoted prices included in Level 1
that are observable for the asset or liability, either directly (as
prices) or indirectly (derived from prices). This category includes
instruments valued using: quoted market prices in active markets
for similar instruments; quoted market prices for identical or
similar instruments in markets that are considered less than
active; or other valuation techniques in which all significant
inputs are directly or indirectly observable from market data.
- Level 3: inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
For the period ended 30 June 2015 and the year ended 31 December
2014, all financial instruments were classified as Level 2 within
the fair value hierarchy.
For collateralised loan obligations that have been categorised
as Level 2, fair value has been determined using independent broker
quotes based on observable inputs. If it could not be verified that
the valuation is based significantly on observable inputs, then the
investments would fall into Level 3.
The Company considers observable data to be that market data
that is readily available, regularly distributed or updated,
reliable, not proprietary, and provided by independent sources that
are actively involved in the relevant market.
For each class of assets and liabilities not measured at fair
value in the unaudited condensed interim statement of financial
position but for which fair value is disclosed, the Company is
required to disclose the level within the fair value hierarchy
which the fair value measurement would be categorised and a
description of the valuation technique and inputs used in the
technique.
For the period ended 30 June 2015 and the year ended 31 December
2014, cash and cash equivalents, other receivables, expenses
payable and payable for investments purchased whose carrying
amounts approximate to fair value, were classified as Level 2
within the fair value hierarchy.
Transfers between Level 1, 2 and 3
There were no transfers between Level 1, Level 2 and Level 3
during the period (2014: no transfers). Where transfers between
levels arise, they are deemed to occur at the end of the reporting
period.
4 OPERATING EXPENSES
INVESTMENT MANAGER
The Investment Manager of the Company is entitled to receive a
management fee from the Company of 1.5% per annum of the NAV of the
Company, calculated and payable monthly in arrears. The base
management fee will be reduced to take into account any fees
received by the Investment Manager or any of its associates or
affiliates as a result of managing any collective investment scheme
that the Company invests in or as a result of managing any CLO that
the Company invests in, if such investment is or has been made in
the primary market (i.e. the market in which investors have the
first opportunity to buy a new security).
The Investment Manager is entitled to a performance fee in
respect of the US Dollar shares equivalent to 13% of the amount by
which the value of the financial year end NAV per US Dollar share
plus dividends per US Dollar share paid in the period exceeds the
value of the NAV per US Dollar share, as increased by the Hurdle
Rate (as defined below) plus 2%, as at the end of the most recent
previous completed accounting reference period or, if greater, the
NAV per US Dollar share as at the end of the previous completed
accounting reference period in respect of which a performance fee
was paid.
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The Performance Fee Hurdle Rate is the greater of 12 month US
Dollar LIBOR or 4%.
If a US Dollar share performance fee was not paid in respect of
the previous accounting reference period, US Dollar LIBOR shall be
the annualised annually compounded US Dollar London Inter-Bank
Offered Rate for 12-month deposits in respect of all previous
relevant accounting periods since such US Dollar share performance
fee was last paid.
The performance fee is accrued on a monthly basis and is paid
annually within 14 days of receipt of the calculation by the
Company from State Street Fund Services (Ireland) Limited (the
"Administrator").
The calculation of the performance fee is verified by State
Street Custodial Services (Ireland) Limited (the "Custodian").
The Company also reimburses the Investment Manager for all
out-of-pocket expenses reasonably incurred in the performance of
its duties.
ADMINISTRATOR AND CUSTODIAN
The Administrator and Custodian shall be entitled to receive
aggregate fees of up to 0.10% per annum of the NAV of the Company
for the provision, respectively, of administration, accounting,
trustee and custodial services to the Company, subject to a minimum
monthly fee of US$10,000. The overall charge for the
above-mentioned fees for the Company for the periods ended 30 June
2015 and 30 June 2014 and the amounts due at 30 June 2015 and 31
December 2014 are disclosed below for information purposes.
DIRECTORS' FEES AND OTHER EXPENSES
The Company's Directors are entitled to a fee in remuneration
for their services as Directors at a rate to be determined from
time to time by the Directors and disclosed in the financial
statements. During the period ended 30 June 2015, the Company paid
Directors' fees of US$162,353, plus out-of-pocket expenses of
US$18,596 (30 June 2014: US$186,345), of which US$17,786 (31
December 2014: US$ Nil) was outstanding at the period end.
During the period ended 30 June 2015, the Company incurred other
operating expenses of US$644,464 (30 June 2014: US$725,253) of
which US$400,936 (31 December 2014: US$288,472) was outstanding at
period end.
Period ended Period ended
30 June 2015 30 June 2014
US$ US$
--------------------------- -------------- --------------
CHARGE
Performance fees 1,144,377 546,804
Investment management fee 3,320,488 3,379,172
Custodian fee 36,101 37,562
Administration fee 178,732 187,808
4,679,698 4,151,346
As at As at
30 June 2015 31 December
US$ 2014
US$
--------------------------- -------------- --------------
ACCRUAL
Performance fees 1,144,377 91,173
Investment management fee 1,703,347 1,180,894
Custodian fee 28,985 25,220
Administration fee 145,090 127,397
Commitment fee 3,769 4,563
Interest payable 8,143 24,267
Upfront fee 17,444 -
Other operating expenses 379,402 288,472
--------------------------- -------------- --------------
3,430,557 1,741,986
--------------------------- -------------- --------------
The balance of the expense accrual consists of audit fees,
Directors fees and other professional fees.
5 CASH AND CASH EQUIVALENTS
Cash and cash equivalents balances are held with the State
Street Bank and Trust Company.
6 PARTICIPATING SHARES
US DOLLAR SHARES
The authorised share capital of the Company shall not be less
than the currency equivalent of EUR2 represented by two subscriber
shares and the maximum issued share capital shall not be more than
the currency equivalent of EUR500 billion divided into an
unspecified number of non-redeemable shares. As at 30 June 2015 and
31 December 2014, the issued share capital consisted of 543,253,359
US Dollar shares and the subscriber shares referred to below.
Voting rights
The Company has issued two subscriber shares of EUR1 each. These
shares do not participate in the profits of the Company. Holders of
US Dollar shares participate in the profits of the Company and have
voting rights with shareholders having one vote in respect of each
whole share held.
ISSUED PARTICIPATING SHARES
The share capital consisted of 543,253,359 shares as at 30 June
2015 and 31 December 2014. There were no shares issued and no
shares converted during the period ended 30 June 2015 or during the
year ended 31 December 2014.
CAPITAL MANAGEMENT
The Company is closed-ended. At the EGM on 26 June 2013, a
resolution was passed which provides that at the annual general
meeting to be held in the year 2022 and in every tenth year
thereafter, the Directors will propose a special resolution to the
effect that the Company continue for a further ten years. If the
continuation vote is not passed, the Directors are required to
formulate proposals to be put to shareholders to wind-up,
reorganise or reconstruct the Company.
The Company's objectives for managing capital are:
- to invest the capital in investments meeting the description,
risk exposure and expected return indicated in its Prospectus;
- to achieve consistent returns while safeguarding capital by
investing in CLOs backed by corporate loans or holding cash;
- to maintain sufficient liquidity to meet the expenses of the
Company and to meet distribution commitments; and
- to maintain sufficient size to make the operation of the
Company cost-efficient.
The Directors will distribute all or part of the Company's net
income (after reasonable expenses and retaining an element of cash
flow receipts on income notes of CLOs) received from the underlying
investments as quarterly dividends in January, April, July and
October each year. The Directors aim to make consistent, quarterly
dividend payments, and may use any retained net income to assist in
implementing this policy.
At the EGM on 26 June 2013, a further resolution was passed to
replace the 2017 continuation vote with a redemption opportunity,
at the Directors' discretion, for investors in 2017 (and every five
years thereafter) if the shares have traded at an average discount
to NAV in excess of 5% over the 12-month period prior to 30 April
in the relevant year.
The Company has no externally imposed capital requirements,
except for the initial subscriber share capital.
7 SOFT COMMISSIONS
There are no agreements for the provision of any services by
means of soft commission.
8 INTERESTS IN OTHER ENTITIES
INTERESTS IN UNCONSOLIDATED STRUCTURED ENTITIES
A structured entity is defined as an entity that has been
designed so that voting or similar rights are not the dominant
factor in deciding who controls the entity, such as when any voting
rights relate to the administrative tasks only and the relevant
activities are directed by means of contractual agreements. A
structured entity often has some of the following features or
attributes:
(a) restricted activities;
(b) a narrow and well defined objective;
(c) insufficient equity to permit the structured entity to
finance its activities without subordinated financial support;
and
(d) financing in the form of multiple contractually linked
instruments that create concentrations of credit or other
risks.
Involvement with unconsolidated structured entities
The Company has concluded that CLOs in which it invests, that
are not subsidiaries, meet the definition of structured entities
because:
- the voting rights in the CLOs are not the dominant rights in
deciding who controls them, as they relate to administrative tasks
only;
- each CLO's activities are restricted by its Prospectus;
and
- the CLOs have narrow and well-defined objectives to provide
investment opportunities to investors.
Subsidiary undertakings
At 30 June 2015, the Company had three (31 December 2014: one)
subsidiary undertakings that are also structured entities. They are
Voya Investment Management CLO II Ltd, Sheridan Square CLO Ltd and
Babson CLO Ltd 2013-IX (31 December 2014: Voya Investment
Management CLO II Ltd). The number of share holdings in Sheridan
Square CLO Ltd and Babson CLO Ltd 2013-IX did not change but the
non call period on both of these investments expired during the
period, resulting in the Company achieving power, as described
below, over these investments. To meet the definition of a
subsidiary under the single control model of IFRS 10, the investor
has to control the investee. Control involves power, exposure to
variability of returns and a linkage between the two:
(i) The investor has existing rights that give it the ability to
direct the relevant activities that significantly affect the
investee's returns;
(ii) The investor has exposure or rights to variable returns
from its involvement with the investee; and
(iii) The investor has the ability to use its power over the
investee to affect the amount of the investor's returns.
In the case of Voya Investment Management CLO II Ltd, Sheridan
Square CLO Ltd and Babson CLO Ltd 2013-IX (the "entities"), the
relevant activities of each are the investment decisions which are
made by their asset managers. Power over the entities' relevant
activities is attributed to the Company through a call option it
has, as the holder of the majority of the preference shares of each
of these entities. The impact of these call options is that it
gives the Company the ability to direct or stop the early
termination of each of the subsidiary deals, and hence, decision
making power on the life of the deals, and therefore the ability to
control the variability of returns.
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The Company is also considered to have contingent power over the
three entities, due to the fact that it may remove any of the
subsidiaries' asset managers in certain contingent circumstances as
the Company is the majority holder of the preference shares. It can
therefore be considered that the Company has contingent power which
may impact the variability of returns in the future.
To determine control, there has to be a linkage between power
and the exposure to the variable returns. The main linkage arises
from the call options which allow the Company to control the
continual payments of returns, and it is therefore an indication of
linkage between power and variability in returns.
The other investments of the Company are not considered to be
subsidiaries due to the lack of control held by the Company.
Investment entity status
To continue to avail of the exemption in IFRS 10 from the
requirement to prepare consolidated financial statements, the
Company must meet the definition of an investment entity. The
Company is satisfied that it meets both the required criteria and
typical characteristics of an investment entity.
Interests in unconsolidated structured entity subsidiaries as at
30 June 2015:
Line item % of
in Total
unaudited Financial
condensed The Assets
interim Range of Company's at Fair Maximum
statement the size Average Holding Value exposure
Structured of of SEs Notional Fair through to
Entity financial No of Notional of SEs Value Profit losses
("SE") position Nature Investments in US$m in US$m in US$m or Loss in US$m Other
------------ ----------- ------------ ------------ --------- --------- ---------- ---------- --------- ----------
Mezzanine
Note
CLOs
------------ ----------- ------------ ------------ --------- --------- ---------- ---------- --------- ----------
North
America
------------ ----------- ------------ ------------ --------- --------- ---------- ---------- --------- ----------
Financial
assets
at fair
value Broadly Syndicated
through sub- Investment
profit or Grade Secured Loans- Non
loss USD 1 725 725 11 2.19% 11 recourse*
----------- ------------------------- ------------ --------- --------- ---------- ---------- --------- ----------
Total Financial assets
Mezzanine at fair value through Non
Note CLOs profit or loss 1 725 725 11 2.19% 11 recourse*
------------ ------------------------- ------------ --------- --------- ---------- ---------- --------- ----------
Income Note
CLOs
------------ ----------- ------------ ------------ --------- --------- ---------- ---------- --------- ----------
Broadly
Financial Syndicated
assets sub-
at fair Investment
value Grade
through Secured
North profit or Loans- Non
America loss USD 2 282-725 499 66 13.65% 66 recourse*
------------ ----------- ------------ ------------ --------- --------- ---------- ---------- --------- ----------
Total Financial assets
Income at fair value through Non
Note CLOs profit or loss 2 282-725 499 66 13.65% 66 recourse*
------------ ------------------------- ------------ --------- --------- ---------- ---------- --------- ----------
Total 3 77 15.84% 77
--------------------------------------- ------------ --------- --------- ---------- ---------- --------- ----------
The Company has a percentage range of 1.6% - 6.0% notional
holding out of the entire outstanding notional balance of its
subsidiaries (Voya Investment Management CLO II Ltd, Sheridan
Square CLO Ltd and Babson CLO Ltd 2013-IX), as at 30 June 2015.
During the period ended 30 June 2015, the Company did not make
any purchases of investments in the subsidiary holdings (31
December 2014: US$ Nil). Nor did the Company make any sales of
investments in the subsidiary holdings during the period (31
December 2014: US$23,258,400). As already explained above under the
heading "Subsidiary undertakings", the number of subsidiaries grew
from 1 to 3 during the period of the relevant non call periods.
For the period ended 30 June 2015 and the year ended 31 December
2014, the Company d id not provide financial support to its
unconsolidated structured entity subsidiaries and has no intention
of providing financial or other support.
Interests in unconsolidated structured entity subsidiary as at
31 December 2014:
Line item % of
in Total
unaudited Financial
condensed The Assets
interim Range of Company's at Fair Maximum
statement the size Average Holding Value exposure
Structured of of SEs Notional Fair through to
Entity financial No of Notional of SEs Value Profit losses
("SE") position Nature Investments in US$m in US$m in US$m or Loss in US$m Other
------------ ----------- ------------ ------------ --------- --------- ---------- ---------- --------- ----------
Mezzanine
Note
CLOs
------------ ----------- ------------ ------------ --------- --------- ---------- ---------- --------- ----------
North
America
------------ ----------- ------------ ------------ --------- --------- ---------- ---------- --------- ----------
Financial Broadly
assets Syndicated
at fair sub-
value Investment
through Grade
profit or Secured
loss Loans- Non
USD - - - - - - recourse*
------------ ----------- ------------ ------------ --------- --------- ---------- ---------- --------- ----------
Total Financial
Mezzanine assets
Note CLOs at fair
value
through
profit or Non
loss - - - - - - recourse*
------------ ----------- ------------ ------------ --------- --------- ---------- ---------- --------- ----------
Income Note
CLOs
------------ ----------- ------------ ------------ --------- --------- ---------- ---------- --------- ----------
Broadly
Financial Syndicated
assets sub-
at fair Investment
value Grade
through Secured
North profit or Loans- Non
America loss USD 1 290 290 14 2.98% 14 recourse*
------------ ----------- ------------ ------------ --------- --------- ---------- ---------- --------- ----------
Total Financial assets
Income at fair value through Non
Note CLOs profit or loss 1 290 290 14 2.98% 14 recourse*
------------ ------------------------- ------------ --------- --------- ---------- ---------- --------- ----------
Total 1 14 2.98% 14
--------------------------------------- ------------ --------- --------- ---------- ---------- --------- ----------
The Company has a 5.86% notional holding out of the entire
outstanding notional balance of its subsidiary, Voya Investment
Management CLO II Ltd, as at 31 December 2014.
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During the year ended 31 December 2014, the Company did not make
any purchases of investments in the subsidiary holding (31 December
2013: US$13,100,188). The Company made sales of investments in the
subsidiary holding amounting to US$23,258,400 (31 December 2013:
US$ Nil).
For the year ended 31 December 2014, the Company did not provide
financial support to its unconsolidated structured entity
subsidiary and has no intention of providing financial or other
support.
* The investments are non-recourse securities with no contingent
liabilities, where the Company's maximum loss is capped at the
current carrying value.
9 RELATED PARTY TRANSACTIONS AND KEY MANAGEMENT PERSONNEL
TRANSACTIONS WITH ENTITIES WITH SIGNIFICANT INFLUENCE
The following note summarises related parties and related party
transactions during the period. GSO / Blackstone Debt Funds
Management LLC acts as Investment Manager to the Company.
Investment management fees earned by the Investment Manager
amounted to US$3,320,488 (30 June 2014: US$3,379,172), of which
US$1,703,347 (31 December 2014: US$1,180,894) was outstanding at
the period end. Performance fees of US$1,144,377 (30 June 2014:
US$546,804) were also earned by the Investment Manager, of which
US$1,144,377 (31 December 2014: US$91,173) was outstanding at the
period end.
TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL
The Directors of the Company and the Investment Manager are the
key management personnel as they are the persons who have the
authority and responsibility for planning, directing and
controlling the activities of the Company for the period ended 30
June 2015.
During the period ended 30 June 2015, the Company incurred
Directors' fees for services as Directors and out-of-pocket
expenses of US$180,949 (30 June 2014: US$186,345), of which
US$17,786 (31 December 2014: US$ Nil) was outstanding at the period
end.
No Director, nor the company secretary of the Company, had any
beneficial interest in the shares of the Company during the period
ended 30 June 2015 or year ended 31 December 2014.
TRANSACTIONS WITH OTHER RELATED PARTIES
At 30 June 2015, current employees and accounts managed or
advised by the Investment Manager and its affiliates do not hold
any US Dollar shares (31 December 2014: 271,957 US Dollar shares
which represented approximately 0.05% of the issued shares of the
Company). The change in these related party holdings is due to a
change in personnel.
The Company may invest in other entities and transactions that
are managed directly or indirectly by the Investment Manager or any
of its affiliates and as at 30 June 2015, 33.85% (31 December 2014:
32.69%) of the Company's underlying investments are managed in this
way and these are listed below:
CLO INVESTMENTS MANAGED BY GSO / BLACKSTONE AND AFFILIATES 30
JUNE 2015
Investment Investment Manager
------------------------------------ ---------------------------------------
GSO / Blackstone Debt Funds Management
Adirondack Park CLO Ltd 2013-1A E LLC
Birchwood Park CLO Ltd 2014-1X INC GSO / Blackstone Debt Funds Management
LLC
Callidus Debt Partners CLO Fund V GSO / Blackstone Debt Funds Management
Ltd LLC
Callidus Debt Partners CLO Fund VII GSO / Blackstone Debt Funds Management
Ltd LLC
Dorchester Park CLO Ltd 2015-1X SUB GSO / Blackstone Debt Funds Management
LLC
Gale Force 3 CLO Ltd 2007-3A E GSO / Blackstone Debt Funds Management
LLC
Inwood Park CDO Ltd 2006-1 E Blackstone Debt Advisors
GSO / Blackstone Debt Funds Management
Keuka Park CLO Ltd 2013-1A E LLC
Keuka Park CLO Ltd 2013-1A SUB GSO / Blackstone Debt Funds Management
LLC
Pinnacle Park CLO Ltd 2014-1A SUB GSO / Blackstone Debt Funds Management
LLC
Seneca Park CLO Ltd 2014-1X SUB GSO / Blackstone Debt Funds Management
LLC
Sheridan Square CLO Ltd 2013-1 F GSO / Blackstone Debt Funds Management
LLC
Sheridan Square CLO Ltd 2013-1 INC GSO / Blackstone Debt Funds Management
LLC
Stewart Park CLO Ltd 2015-1X SUB GSO / Blackstone Debt Funds Management
LLC
Tryon Park CLO Ltd 2013-1X E GSO / Blackstone Debt Funds Management
LLC
Tryon Park CLO Ltd 2013-1X SUB GSO / Blackstone Debt Funds Management
LLC
CLO INVESTMENTS MANAGED BY GSO / BLACKSTONE AND AFFILIATES 31
DECEMBER 2014
Investment Investment Manager
------------------------------------ ---------------------------------------
GSO / Blackstone Debt Funds Management
Adirondack Park CLO Ltd 2013-1A E LLC
Birchwood Park CLO Ltd 2014-1X INC GSO / Blackstone Debt Funds Management
LLC
Callidus Debt Partners CLO Fund V GSO / Blackstone Debt Funds Management
Ltd 5X INC LLC
Callidus Debt Partners CLO Fund VI GSO / Blackstone Debt Funds Management
Ltd 6A INC LLC
Callidus Debt Partners CLO Fund VII GSO / Blackstone Debt Funds Management
Ltd 7A SUB LLC
Gale Force 3 CLO Ltd 2007-3A E GSO / Blackstone Debt Funds Management
LLC
Gale Force 3 CLO Ltd 2007-3A INC GSO / Blackstone Debt Funds Management
LLC
GSO / Blackstone Debt Funds Management
Gale Force 4 CLO Ltd 2007-4A INC LLC
Inwood Park CDO Ltd 2006-1A E Blackstone Debt Advisors
Inwood Park CDO Ltd 2006-1X SUB Blackstone Debt Advisors
Keuka Park CLO Ltd 2013-1A E GSO / Blackstone Debt Funds Management
LLC
Pinnacle Park CLO Ltd 2014-1A SUB GSO / Blackstone Debt Funds Management
LLC
Seneca Park CLO Ltd 2014-1X SUB GSO / Blackstone Debt Funds Management
LLC
Sheridan Square CLO Ltd 2013-1A F GSO / Blackstone Debt Funds Management
LLC
Sheridan Square CLO Ltd 2013-1A INC GSO / Blackstone Debt Funds Management
LLC
Tryon Park CLO Ltd 2013-1X E GSO / Blackstone Debt Funds Management
LLC
Tryon Park CLO Ltd 2013-1X SUB GSO / Blackstone Debt Funds Management
LLC
TRANSACTION WITH SUBSIDIARIES
As at 30 June 2015, the Company had three subsidiaries for
financial reporting purposes, Voya Investment Management CLO II
Ltd, Sheridan Square CLO Ltd and Babson CLO Ltd 2013-IX, all of
which are special purpose vehicles incorporated in the Cayman
Islands that are therefore related parties. The subsidiaries are
unconsolidated subsidiaries and the Company's investment in these
special purpose vehicles is detailed in note 2C and note 8.
The Company received US$1,730,269 in coupon payments from Voya
Investment Management CLO II Ltd, US$2,463,045 from Babson CLO Ltd
2013-IX and US$4,188,085 from Sheridan Square CLO Ltd for the
period ended 30 June 2015 (30 June 2014: US$2,441,466).
During the period ended 30 June 2015, the Company did not make
any purchases of investments in the subsidiary holdings (31
December 2014: US$ Nil). Nor did the Company make any sales of
investments in the subsidiary holdings (31 December 2014:
US$23,258,400). However, the number of subsidiaries held by the
Company increased from 1 as at 31 December 2014 to 3 as at 30 June
2015. This was due to the expiration of the non call period over
the investments in Sheridan Square CLO Ltd and Babson CLO Ltd
2013-IX resulting in the Company attaining power over these
companies and re-assessing its investments as holdings in
subsidiaries, as outlined in note 8.
The value of the subsidiary holdings at 30 June 2015 was
US$76,498,634 (31 December 2014: US$14,478,333).
10 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS
INTRODUCTION
Risk is inherent in the Company's activities but it is managed
through a process of ongoing identification, measurement and
monitoring, subject to risks limits and other controls. The process
of risk management is critical to the Company's continuing
profitability. The Company is exposed to market risk (which
includes interest rate risk, currency risk and other price risk),
liquidity and credit risk arising from the financial instruments it
holds. Given the Company's permanent capital structure as a
closed-ended fund, it is not exposed to redemption risk relating to
its own shares in issue. However, its financial assets include
investments in collateralised loan obligations which are not traded
in an organised public market and which may be illiquid.
The Investment Manager considers the risk and concentrations on
a look-through basis level for the CLOs.
RISK MANAGEMENT STRUCTURE
The Board of Directors is ultimately responsible for identifying
and controlling risks but relies on its delegated service
providers, (the Investment Manager, Custodian, Administrator and
Registrar), to carry out ongoing management and monitoring of
risks.
RISK MEASUREMENT AND REPORTING SYSTEM
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The Company's risks are measured using a method which reflects
both the expected loss likely to arise in normal circumstances and
unexpected losses, which are an estimate of the ultimate actual
loss based on models. The models make use of the probabilities
derived from historical experience, adjusted to reflect the
economic environment.
Monitoring and controlling risks is primarily performed based on
limits established by the Board. These limits reflect the business
strategy and market environment of the Company as well as the level
of risk that the Company is willing to accept. In addition, the
Company monitors and measures the overall risk-bearing capacity in
relation to the aggregate risk exposure across risk types and
activities.
RISK MITIGATION
The Company has investment guidelines that set out its overall
business strategies, its tolerance for risk and its general risk
management philosophy and has established processes to monitor and
control economic hedging transactions in a timely and accurate
manner. The Company may use derivatives and other instruments only
in connection with its risk management activities, but not for
trading purposes.
EXCESSIVE RISK CONCENTRATION
Concentration arises when a number of counterparties are engaged
in similar business activities, or activities in the same
geographic region, or have similar economic features that would
cause their ability to meet contractual obligations to be similarly
affected by changes in economic, political or other conditions.
Concentration indicates the relative sensitivity of the Company's
performance to developments affecting a particular issuer, manager,
asset class or geographical location.
In order to avoid excessive concentration of risk, the Company's
policies and procedures include specific guidelines to focus on
maintaining a diversified portfolio. Identified concentration of
credit risks are controlled and managed accordingly.
The Company's investment guidelines specify, among others, that
the Company must invest in a minimum of 20 separate investments
with a maximum exposure per investment, at the time of investment,
of 20% of the NAV of the Company. The Company also limits its
exposure to transactions managed by the same portfolio manager to
15% of the NAV, at the time of investment. However, if the
portfolio manager is an affiliate of the Investment Manager, this
limit is increased to 60% of the NAV at the time of investment.
The concentration risk at 30 June 2015 and 31 December 2014 is
disclosed below in note 10 (A)(iii), and 10(B).
(A) MARKET RISK
Market risk is the risk that the fair value or future cash flows
of a financial instrument will fluctuate because of changes in
market prices and includes interest rate risk, currency risk and
other price risks. The Company may use derivative instruments to
hedge the investment portfolio against currency risk.
The Company's investments are in collateralised loan obligations
vehicles. The CLO vehicles typically have no significant assets
other than the loans as collateral. Accordingly, payments on the
CLO securities are payable solely from the cash flows from the
collateral, net of all management fees and other expenses. Payments
to the Company as a holder of Income Notes and/or Mezzanine Notes
of CLO vehicles are met only after payments due on the Senior Notes
(and, where appropriate, the mezzanine notes) have been made in
full.
The following table shows the securities held by the Company
which are most susceptible to market risk arising from
uncertainties about interest rates, foreign currency fluctuation
and future prices of the instruments.
As at
As at 31 December
30 June 2015 2014
US$ US$
--------------------------------- -------------- -------------
Collateralised loan obligations 398,742,202 471,862,395
Investment in subsidiaries 76,498,634 14,478,333
TOTAL INVESTMENTS AT FAIR VALUE 475,240,836 486,340,728
--------------------------------- -------------- -------------
(i) Interest rate risk
The Company is exposed to interest rate risk on the loans held
and on a look-through basis to the underlying assets in the
CLOs.
The majority of the Company's financial assets are Income Notes
and Mezzanine tranches of cash flow CLOs. The Company's investments
have exposure to interest rate risk but this is limited to floating
LIBOR-based exposure for the CLO's assets.
The following table shows the portfolio profile at 30 June 2015
and 31 December 2014:
31 December
30 June 2015 2014
-------------------------------------- ------------- ------------
Investments with a floating interest
rate 100% 100%
FINANCIAL ASSETS AT FAIR VALUE
THROUGH PROFIT OR LOSS 100% 100%
--------------------------------------- ------------- ------------
The following table shows the Directors' best estimate of the
sensitivity of the portfolio to stressed changes in interest rates,
with all other variables held constant. The table assumes parallel
shifts in the respective forward yield curves.
31 December
30 June 2015 2014
effect on net effect on net
assets and profit assets and
Possible reasonable or loss profit or loss
change in rate US$ US$
-------------------- ------------------- ----------------
1% (13,299,319) (14,267,826)
-1% 13,918,237 14,931,416
-------------------- ------------------- ----------------
(ii) Currency risk
Investments acquired for the Company's portfolio are denominated
in US Dollars. However, the Company may also invest in underlying
assets which are denominated in currencies other than the U.S.
Dollar (e.g., the Euro). Accordingly, the value of such investments
may be affected, favourably or unfavourably predominately, by
fluctuations in currency rates and which, if unhedged, could have
the potential to have a significant effect on returns. To reduce
the impact on the Company of currency fluctuations and the
volatility of returns which may result from currency exposure, the
Investment Manager may hedge the currency exposure of the assets of
the Company with the use of derivative financial instruments.
The Company is exposed to very limited currency risk, as the
vast majority of the Company's assets and liabilities are currently
denominated in US Dollars. As a result, the Company did not have
any foreign exchange forward contracts at the period ended 30 June
2015 (31 December 2014: US$ Nil).
The total net exposure to foreign currencies at the unaudited
condensed interim statement of financial position date was as
follows:
31 December
30 June 2015 2014
EXPOSURE TO FOREIGN EXCHANGE RATES US$ US$
------------------------------------ ------------- ------------
EUR Exposure
Cash and cash equivalents 18,483 6,545
Gross EUR Exposure 18,483 6,545
------------------------------------ ------------- ------------
GBP Exposure
Cash and cash equivalents 198,636 196,937
------------------------------------ ------------- ------------
GBP Exposure 198,636 196,937
------------------------------------ ------------- ------------
NET EXPOSURE 217,119 203,482
------------------------------------ ------------- ------------
30 June 2015 31 December
Possible 30 June effect on net 31 December 2014 effect
change in 2015 assets 2014 on net assets
exchange net exposure and profit net exposure and profit
rate US$ or loss US$ or loss
US$ US$
---------------- ------------ --------------- --------------- --------------- ---------------
Euro/US Dollar +/-5% 18,483 (+/-) 880 6,545 (+/-) 83
GBP/US Dollar +/-5% 198,636 (+/-) 9,459 196,937 (+/-) 3,224
---------------- ------------ --------------- --------------- --------------- ---------------
(iii) Other price risks
The risk that the fair value or future cash flows of a financial
instrument will fluctuate because of changes in market prices
(other than those arising from interest rate risk or currency
risk), whether those changes are caused by factors specific to the
individual financial instrument or its issuer, or factors affecting
all similar financial instruments traded in the market. The
Directors do not believe that the returns on investments are
correlated to any specific index or other price variable.
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The table below analyses the Company's concentration of other
price risk by subsector in the secured loan asset class and by
geographical area.
30 June 31 December
2015 2014
By asset class US$ US$
------------------------------------------------- ------------ ------------
Broadly syndicated sub-investment grade secured
loans - North America 475,240,836 486,340,728
475,240,836 486,340,728
------------------------------------------------- ------------ ------------
If the value of investments was to increase or decrease by 1%,
the impact on the NAV of the Company would be +/-US$4,752,408 (31
December 2014: +/- US$4,863,407).
(B) CREDIT RISK
Credit risk is the risk that one party to a financial instrument
will cause a financial loss for the other party by failing to
discharge an obligation. It is the Company's policy to enter into
financial instruments with a range of reputable counterparties.
Therefore, the Company has a diversified portfolio to reduce credit
risk.
The table below analyses the Company's maximum credit exposure
to credit risk for the components of the unaudited condensed
interim statement of financial position.
30 June 31 December
2015 2014
US$ US$
----------------------------------------------- ------------ ------------
Cash and cash equivalents 27,028,029 10,758,356
Other receivables 29,417 -
Financial assets at fair value through profit
or loss 475,240,836 486,340,728
502,298,282 497,099,084
----------------------------------------------- ------------ ------------
The cash and substantially all of the assets of the Company are
held by the Custodian or one or more of its sub-custodians.
Bankruptcy or insolvency of the Custodian or its sub-custodians may
cause the Company's rights with respect to securities held by the
Custodian or its sub-custodians to be delayed or limited. The
Company or its sub-custodians monitor its risk by monitoring the
credit quality and financial positions of the Custodian. State
Street Corporation is the parent company of the Custodian, State
Street Custodial Services (Ireland) Limited, and the long-term
rating of State Street Corporation as at 30 June 2015 was A2
(Source: Moody's) (31 December 2014: A1).
Breakdown by country of incorporation at 30 June 2015 and 31
December 2014:
31 December
30 June 2015 2014
US$ US$
---------------- ------------- ------------
Cayman Islands 465,390,836 486,340,728
Ireland 9,850,000 -
---------------- ------------- ------------
475,240,836 486,340,728
---------------- ------------- ------------
The table below summarises the Company's portfolio
concentrations as of 30 June 2015 and 31 December 2014:
Maximum portfolio Average
holdings of portfolio
a single holdings
asset % of total
% of total portfolio portfolio
------------------ ---------------------- ------------
30 June 2015 6.67% 1.56%
31 December 2014 5.80% 1.43%
------------------ ---------------------- ------------
The below table summarises the portfolio by asset class and
ratings of the portfolio as of 30 June 2015 and 31 December
2014:
31 December
30 June 2015 2014
By Asset Class US$ US$
------------------ ------------- ------------
Mezzanine CLO 158,101,201 169,026,384
Income Notes CLO 317,139,635 317,314,344
475,240,836 486,340,728
------------------ ------------- ------------
For the purposes of the asset class breakdown above, the
Mezzanine CLO investments were originally rated A/BBB/BB/B and
Income Notes were non-rated ("NR").
The Company's portfolio is partly invested in the income notes
tranches of CLOs which are subject to potential nonpayment and are
by definition, non-rated securities. The Company assesses the
quality of non-rated assets based on a fundamental analysis of the
underlying loans in the respective portfolios. The terms and
conditions of the underlying CLOs and the implications of other
rights on the CLOs are reviewed to determine any impact on the
expected cashflow from the underlying CLO.
With the exception of investments in Mezzanine CLO notes, the
Company will typically be in a first loss or subordinated position
with respect to realised losses on the collateral of each CLO
investment. The leveraged nature of the Income Notes and the
Mezzanine Notes, in particular, magnifies the adverse impact of
collateral defaults.
The Company may be adversely impacted by an increase in its
credit exposure related to investing and other activities. The
Company is exposed to the potential for credit-related losses that
can occur as a result of an individual, counterparty or issuer
being unable or unwilling to honour its contractual obligations.
These credit exposures exist within financing relationships,
commitments, derivatives and other transactions. These exposures
may arise, for example, from a decline in the financial condition
of a counterparty, from entering into swap or other derivative
contracts under which counterparties have obligations to make
payments to us, from a decrease in the value of securities of third
parties that the Company holds as collateral, or from extending
credit through guarantees or other arrangements. As the Company's
credit exposure increases, it could have an adverse effect on the
Company's business and profitability if material unexpected credit
losses occur.
The top 10 exposures on a look-through basis for the CLO
investments as at 30 June 2015 are:
Issuer Rating Industry % of NAV
----------------------------- --------- ---------------------------- ---------
Valeant Pharmaceuticals Ba1/BB+ Healthcare 0.86%
First Data Corp B1/BB- Financial Intermediaries 0.83%
Community Health Ba2/BB Healthcare 0.80%
Asurion Corp Ba3/B Insurance 0.70%
Calpine Corp Ba3/BB Utilities 0.70%
Formula One Group B2/B Leisure Goods / Activities 0.60%
Advantage Sales & Marketing B1/B Services 0.60%
Mediacom Broadband Ba2/BB Cable Television 0.59%
Numericable SAS Ba3/B+ Cable Television 0.57%
Scientific Games Ba3/BB- Leisure Goods / Activities 0.55%
The Company also quantifies the exposure to the credit risk of
all CLO investments based on the country of registration (not
necessarily asset class exposure).
The top 10 exposures on a look-through basis for the CLO
investments as at 30 June 2014 are:
Issuer Rating Industry % of NAV
------------------------- --------- ------------------------------- ---------
HCA Ba3/BB Healthcare 0.80%
First Data B1/B+ Financial Intermediaries 0.77%
Chrysler Group Ba1/BB+ Healthcare 0.70%
Mediacom Ba3/BB Cable Television 0.68%
Calpine B1/B+ Utilities 0.65%
Delta Airlines Ba1/BB Air Transport 0.62%
Asurion Ba3/B Insurance 0.61%
Valeant Pharmaceuticals Ba1/BB Healthcare 0.59%
Aramark B1/BBB- Food Services 0.57%
Reynolds Group B1/B+ Containers and Glass Products 0.56%
Netting of Derivative Financial Instruments
State Street Bank London acts as counterparty to the forward
foreign currency exchange contracts, as and when the Company
invests in these contracts. There is no master netting agreement in
place with State Street Bank London or no collateral held against
these contracts when they are open. Therefore, all amounts are
presented gross in the unaudited condensed interim statement of
financial position when the Company holds open forward foreign
currency exchange contracts. The Company did not hold any open
forward foreign currency exchange contracts as at 30 June 2015 or
31 December 2014.
(C) LIQUIDITY RISK
Liquidity risk is defined as the risk that the Company may not
be able to settle or meet its obligations on time or at a
reasonable price.
The Company does not have any long-term or structural
borrowings. The Company's unleveraged capital structure reflects
the long-term investment strategy and matches the illiquidity of
the underlying investments.
On 19 December 2013, as detailed in Note 11, the Company entered
into a revolving credit facility with State Street Bank and Trust
Company. The facility will be available for general corporate
purposes and will not be utilised to leverage the investment
portfolio.
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As at 30 June 2015 and 31 December 2014, working capital
liquidity risk was reduced by the availability of the credit
facility referred to above. This credit facility is available if
needed to meet liabilities (of an amount up to US$30 million) when
they fall due. See note 11 for more details.
At the EGM on 26 June 2013, a resolution was passed that at the
annual general meeting to be held in the year 2022 (and in every
tenth year thereafter), the Directors will propose a special
resolution to the effect that the Company continue for a further
ten years. If the continuation vote is not passed, the Directors
are required to formulate proposals to be put to shareholders to
wind-up, reorganise or reconstruct the Company.
Given the Company's permanent capital structure as a
closed-ended fund, it is not exposed to redemption risk. However,
the Company's financial instruments include investments in
collateralised debt obligations and derivative contracts (if any)
traded over-the-counter which are not traded in an organised public
market and which may be illiquid.
All liabilities of the Company are due within one year.
11 CREDIT FACILITY
On 19 December 2013, the Company agreed a bilateral senior
secured committed 364 day short term revolving credit facility (the
"Initial Facility") with State Street Bank and Trust which expired
on 18 December 2014. On 19 November 2014, the Company renewed this
facility (the "Renewed Facility", and together with the Initial
Facility, the "Facility"). The Renewed Facility will expire on 17
December 2015. The Facility limit is determined as the lowest of:
(a) US$50 million (this is reduced to US$30 million for the Renewed
Facility), (b) 10% of the NAV, (c) 20% of the adjusted NAV, and (d)
the maximum amount of financial indebtedness that the Borrower is
permitted to incur as determined in accordance with: (i) its
constitutional documents, (ii) any resolution of the members, (iii)
its investment policy, and (iv) any law, rule or regulation
applicable to the Borrower.
The Facility is available for general corporate purposes and is
not utilised to leverage the investment portfolio. Borrowings under
the Facility are restricted to a maximum period of 180 days. The
Facility is governed by a conservative structure whereby the
maximum Loan-to-Value ("LTV") is 10% of total NAV and maximum 20%
of the adjusted NAV (unrated notes to be excluded). The NAV of the
Company must at all times be at least US$250m. The Facility is
secured by a first priority security interest in all of the Company
portfolio investments (including cash agreements).
The following fees apply to the Facility: An upfront fee of
10bps, a commitment fee of 30bps on the unused portion of the
Facility and an interest rate of LIBOR plus 200bps.
The Company made the following draw downs on the Facility during
the period ended 30 June 2015:
Start date End date Credit Drawn
----------- ----------- -------------
15/01/2015 22/01/2015 US$8M
22/01/2015 28/01/2015 US$5M
30/01/2015 05/02/2015 US$4M
26/02/2015 04/03/2015 US$2.5M
05/03/2015 11/03/2015 US$4.5M
The Company made the following draw downs on the Facility during
the period ended 30 June 2014:
Start date End date Credit Drawn
----------- ----------- -------------
08/01/2014 31/01/2014 US$22M
24/04/2014 22/05/2014 US$11M
01/05/2014 22/05/2014 US$15M
22/05/2014 28/05/2014 US$6M
During the period, the Company was charged a commitment fee of
US$43,850 (30 June 2014: US$65,242) of which US$3,769 (30 June
2014: US$31,860) remained unpaid at 30 June 2015, an interest
charge of US$9,903 (30 June 2014: US$70,140) of which US$8,143 (30
June 2014: US$39,745) remained unpaid at 30 June 2015 and an
upfront fee of US$15,083 (30 June 2014: US$25,000) of which
US$17,444 (30 June 2014: US$ Nil) remained unpaid at 30 June 2015.
These fees are included in finance costs in the statement of
comprehensive income. The prior unaudited condensed interim
financial statements for the period ended 30 June 2014 included
these finance costs in other operating expenses. The comparative
numbers for the period ended 30 June 2014 have been reclassified
from other operating expenses to finance costs in the statement of
comprehensive income to be consistent with the current
disclosure.
12 STOCKLENDING
The Company did not enter into any stock-lending transactions
during the period (2014: US$ Nil).
13 EARNINGS PER SHARE
The Earnings Per Share ("EPS") is calculated by dividing the
profit/(loss) for the period all attributable to equity
participating shareholders by the weighted average number of shares
outstanding in the period.
PERIOD ENDED 30 JUNE 2015 AND 30 JUNE 2014
US Dollar
Class
US$
--------------------------------------------------------- ------------
Profit for the period all attributable to participating
equity shareholders 21,579,820
Number of ordinary shares for basic earnings per share 543,253,359
--------------------------------------------------------- ------------
Basic Earnings Per Share 0.04
--------------------------------------------------------- ------------
US Dollar
Class
US$
--------------------------------------------------------- ------------
Profit for the period all attributable to participating
equity shareholders 18,415,186
Number of ordinary shares for basic earnings per share 543,253,359
--------------------------------------------------------- ------------
Basic Earnings Per Share 0.03
--------------------------------------------------------- ------------
For the period ended 30 June 2015 and 30 June 2014, there are no
potential ordinary shares in existence hence no diluted EPS is
shown.
14 SEGMENTAL REPORTING
As required by IFRS 8, Operating Segments, the information
provided to the Board of Directors and Investment Manager, who are
the Chief Operating Decision Makers, can be classified into one
segment for the period ended 30 June 2015 and 30 June 2014. The
only share class in issue during the period ended 30 June 2015 and
30 June 2014 is the US Dollar Class.
For the periods ended 30 June 2015 and 30 June 2014, the
Company's primary exposure was to North America related assets.
15 TAXATION
Under current law and Irish practice, the Company qualifies as
an investment undertaking under Section 739B of the Taxes
Consolidation Act 1997 and is not therefore chargeable to Irish tax
on its relevant income or relevant gains. No stamp duty, transfer
or registration tax is payable in the Republic of Ireland on the
issue, redemption or transfer of shares in the Company.
Distributions and interest on securities issued in countries other
than the Republic of Ireland may be subject to taxes including
withholding taxes imposed by such countries. The Company may not be
able to benefit from a reduction in the rate of withholding tax by
virtue of the double taxation agreement in operation between the
Republic of Ireland and other countries. The Company may not
therefore be able to reclaim withholding tax suffered by it in
particular countries.
To the extent that a chargeable event arises in respect of a
shareholder, the Company may be required to deduct tax in
connection with that chargeable event and pay the tax to the Irish
Revenue Commissioners. A chargeable event can include payments to
shareholders, appropriation, cancellation, redemption, repurchase
or transfer of shares, or a deemed disposal of shares every eight
years beginning from the date of acquisition of those shares.
Certain exemptions can apply. In the absence of an appropriate
declaration or written confirmation from the Revenue Commissioners
which confirms that no such declaration is required, the Company
will be liable for Irish tax on the occurrence of a chargeable
event.
16 DISTRIBUTIONS
The Board declared the following distributions during the
period:
On 22 January 2015, the Board declared a dividend of US$0.0250
per US Dollar share in respect of the period from 1 October 2014 to
31 December 2014. This dividend was paid on 4 February 2015 to
shareholders on the register as at the close of business on 30
January 2015. The amount paid in respect of this dividend was
US$13,581,333.
On 23 April 2015, the Board declared a dividend of US$0.0250 per
US Dollar share in respect of the period from 1 January 2015 to 31
March 2015. The dividend was paid on 6 May 2015 to shareholders on
the register as at the close of business on 30 April 2015. The
amount paid in respect of this dividend was US$13,581,333.
17 SEASONAL OR CYCLICAL CHANGES
The Company is not subject to seasonal or cyclical changes.
18 EXPLANATORY NOTE ON SIGNIFICANT MOVEMENTS DURING THE PERIOD
Financial assets at fair value through profit or loss (including
investment in subsidiaries) had a fair value of US$475,240,836 at
30 June 2015 (31 December 2014: US$486,340,728). The fair value of
the Company's financial assets at fair value through profit or loss
is more or less in line with the December 2014 year end numbers,
with a slight decrease of 2.28%. More detail is included in the
Chairman's report and Investment Manager's review on
performance.
Cash and cash equivalents amounted to US$27,028,029 at 30 June
2015 (31 December 2014: US$10,758,356). There was an increase in
cash and cash equivalents held in comparison to 31 December 2014
due to trading activity.
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Payable for investments purchased amounted to US$15,705,000 at
30 June 2015 (31 December 2014: US$6,639,790). The increase in the
payable is due to a large purchase of one CLO holding during the
month of June 2015.
Net gain on financial assets at fair value through profit or
loss for the period ended 30 June 2015 amounted to US$27,117,497
(period ended 30 June 2014: US$23,517,714). The increase reflects
the change in the market conditions as explained in the Chairman's
report and Investment Manager's review.
19 OTHER EVENTS DURING THE PERIOD
On 30 January 2015, the Company announced that the Investment
Manager had appointed J. Richard ("Dik") Blewitt as the Company's
new portfolio adviser following the resignation of Mark Moffat. All
other members of the Investment
Manager's structured credit investment team remained
unchanged.
There were no other significant events during the period which
are not disclosed elsewhere which would require revision of the
figures or disclosures in the financial statements.
20 SUBSEQUENT EVENTS
On 21 July 2015, the Board declared a dividend of US$0.0250 per
US Dollar share in respect of the period from 1 April 2015 to 30
June 2015. This dividend was paid on 6 August 2015 to shareholders
on the register as at the close of business on 31 July 2015. The
amount paid in respect of this dividend was US$13,581,333.
There were no other significant events since period end which
would require revision of the figures or disclosures in the
financial statements.
21 APPROVAL OF THE FINANCIAL STATEMENTS
The unaudited condensed interim financial statements were
approved and authorised for issue by the Directors on 26 August
2015.
SCHEDULE OF INVESTMENTS
As at 30 June 2015
Market
Nominal value % of
holdings of US$ NAV
--------------------------------------------------- ----------- ------------- -------
COLLATERALISED LOAN OBLIGATIONS
REGION OF TRADE
North America
COUNTRY OF INCORPORATION
Cayman Islands (December 2014: 96.58%)
ACAS CLO 2013-1X F 5,000,000 4,498,725 0.93
ACAS CLO 2013-2X E 7,000,000 6,223,056 1.29
Adirondack Park CLO Ltd 2013-1A E 5,500,000 5,220,102 1.08
Apidos CLO XIV 2013-1A E 144A 4,000,000 3,680,547 0.76
Apidos CLO XIV 2013-14A F 144A 5,000,000 4,333,323 0.90
Apidos CLO XIV 2013-14X INC 6,060,000 5,302,500 1.10
Apidos CLO XVII 2014-17X E 11,500,000 10,212,872 2.11
Apidos CLO XX 2015-20X D 1,538,462 1,513,531 0.31
ARES CLO Ltd 2007-3RA E 7,000,000 6,658,739 1.38
ARES CLO Ltd 2013-3X SUB 14,750,000 10,325,000 2.14
Ares XXXII CLO Ltd 2014-32X E 3,750,000 3,492,121 0.72
Birchwood Park CLO Ltd 2014-1X INC 1,000,000 890,000 0.18
BNPP IP CLO Ltd 2014-1X D 16,500,000 15,188,418 3.14
BNPP IP CLO Ltd 2014-1X E 14,000,000 12,192,471 2.52
BNPP IP CLO Ltd 2014-1X SUB 22,300,000 17,254,625 3.57
Callidus Debt Partners CLO Fund V Ltd 11,700,000 5,752,500 1.19
Callidus Debt Partners CLO Fund VII Ltd 25,100,000 847,126 0.19
Carlyle Daytona CLO Ltd 2007-1A B2L 12,190,753 11,851,690 2.45
Carlyle Global Market Strategies CLO Ltd
2015-1A SUB 10,000,000 8,800,000 1.83
Cedar Creek CLO Ltd 2013-1A SUB 10,200,000 7,344,000 1.52
Clear Lake CLO Ltd 2006-1A D 6,184,393 6,012,014 1.24
Dryden XXVI Senior Loan Fund 2013-26X SUB 6,000,000 4,420,000 0.92
Eaton Vance CDO Ltd 2014-1X INC 8,000,000 6,100,000 1.27
ECP CLO 2014-6X Ltd 4,100,000 3,448,433 0.71
Flatiron CLO 2014-1 X SUB 31,000,000 23,405,000 4.85
Gale Force 3 Clo Ltd 2007-3A E 4,100,000 3,949,306 0.81
Highbridge Loan Management 4-2015 Ltd 4,900,000 4,598,378 0.95
Inwood Park CDO Ltd 2006-1 E 7,000,000 6,856,747 1.42
Keuka Park CLO Ltd 2013-1A E 8,000,000 7,443,731 1.54
Keuka Park CLO Ltd 2013-1A SUB 23,350,000 19,419,417 4.02
Nantucket CLO Ltd 2006-1A E 3,000,000 2,947,760 0.61
Neuberger Berman CLO XIV Ltd-2013-14A E 7,000,000 6,351,601 1.32
Neuberger Berman CLO XIV Ltd 2013-14X SUB 18,554,000 15,538,975 3.23
Neuberger Berman CLO XV 2013-15X SUB 3,500,000 2,741,667 0.57
Neuberger Berman CLO XVI Ltd 2013-16X F 12,500,000 10,338,376 2.14
Neuberger Berman CLO XVII Ltd 2014-17 SUB 29,100,000 21,570,374 4.47
Neuberger Berman CLO XVII Ltd 2014-17 SFN 1,684,737 1,467,827 0.31
NYLIM Flatiron CLO 2006-1 Ltd 2006-1X SUB 2,000,000 777,500 0.16
OHA Park Avenue CLO I Ltd 2007-1A SUB 10,000,000 5,183,333 1.07
Pinnacle Park CLO Ltd 2014-1A SUB 25,000,000 23,541,666 4.88
Rampart CLO 2007 Ltd 2007-1A SUB 11,000,000 4,945,875 1.02
Saturn CLO Ltd 2007-1 D 4,200,000 4,006,494 0.83
Seneca Park CLO Ltd 2014-1X SUB 6,500,000 6,183,125 1.28
Silvermore CLO Ltd 2014-1X BSUB 8,300,000 5,768,500 1.19
Stanfield Azure CLO Ltd 75,000 - 0.00
Stewart Park CLO Ltd 2015-1X SUB 10,000,000 10,000,000 2.07
Thacher Park CLO Ltd 2014-1X SUB 4,000,000 3,626,667 0.75
THL Credit Wind River 2013-2 CLO Ltd 5,000,000 4,112,500 0.85
THL Credit Wind River Ltd 2014-3 CLO 2,500,000 2,328,437 0.48
Tryon Park CLO Ltd 2013-1X SUB 12,000,000 10,360,000 2.14
Tryon Park CLO Ltd 2013-1X E 4,700,000 4,162,153 0.86
VOYA Investment Management CLO Ltd 2015-2X
SUB 18,000,000 15,705,000 3.25
--------------------------------------------------- ----------- ------------- -------
388,892,202 80.52
--------------------------------------------------- ----------- ------------- -------
Ireland (December 2014: 0.00%)
Dorchester Park CLO Ltd 2015-1X SUB 10,000,000 9,850,000 2.04
--------------------------------------------------- ----------- ------------- -------
10,000,000 9,850,000 2.04
--------------------------------------------------- ----------- ------------- -------
TOTAL COLLATERALISED LOAN OBLIGATIONS (DECEMBER
2014: 96.58%) 398,742,202 82.56
--------------------------------------------------- ----------- ------------- -------
INVESTMENT IN SUBSIDIARIES
REGION OF TRADE
North America
COUNTRY OF INCORPORATION
Cayman Islands (December 2014: 2.96%)
Babson CLO Ltd 2013-IX SUB 21,000,000 17,745,000 3.68
Sheridan Square CLO Ltd 2013-1 INC 38,500,000 32,195,625 6.67
Sheridan Square CLO Ltd 2013-1 F 11,900,000 10,592,177 2.19
VOYA Investment Management CLO II Ltd (Preference
Shares) 17,000 15,965,832 3.30
76,498,634 15.84
--------------------------------------------------- ----------- ------------- -------
TOTAL INVESTMENTS AT FAIR VALUE (DECEMBER
2014: 99.54%) 475,240,836 98.40
OTHER ASSETS (DECEMBER 2014: 2.20%) 27,057,446 5.60
OTHER LIABILITIES (DECEMBER 2014: (1.74)%) (19,309,027) (4.00)
--------------------------------------------------- ----------- ------------- -------
TOTAL NET ASSETS ATTRIBUTABLE TO EQUITY
PARTICIPATING SHAREHOLDERS 482,989,255 100.00
--------------------------------------------------- ----------- ------------- -------
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