Alcentra European Fltng Rate Inc Fd Portfolio Update (9171T)

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RNS Number : 9171T

Alcentra European Fltng Rate Inc Fd

11 January 2017

Alcentra European Floating Rate Income Fund Limited

Market Commentary

The Credit Suisse Western European Leveraged Loan Index ("CS WELLI") (hedged to EUR)([1])

returned +0.63% in December, the sixth successive month of positive returns. For the full year, the CS WELLI returned +6.52%.

European loan primary volumes picked up over December, with full year supply coming in at EUR71.0 billion, 13% up on prior year([2]) . However, a significant proportion of this issuance remains refinancing

rather than true new supply and so with continued strong demand for the asset class the secondary market for loans remained strong over the month.

After a volatile start to the year, 2016 saw strong performance from risk assets globally, with ongoing accommodative central bank policy continuing to drive the hunt for yield. This backdrop resulted in progressively more benign market reactions to some of the political shocks of the year, with the UK Brexit Referendum, US Presidential Election and Italian Constitutional Referendum all seeing surprisingly muted market responses, having been widely touted as potential catalysts for a return of the volatility seen earlier in the year.

Global credit markets performed well and a rally in Energy was behind some of the global performance, particularly in US High Yield which was up +17.49% for the year, having had a difficult 2015 (-4.64%)([3]) . US loans also benefited from the Energy rally and returned +10.16%for 2016(3) . In

European loans, the impact of Energy was smaller but nevertheless felt in the strong CS WELLI performance (which includes some oil related bank loans). This is the reverse of 2015 trend when the Oil & Gas weakness caused the CS WELLI (+3.14%) to be quite a bit weaker than most performing loan portfolios (including this Fund) which typically have little Oil & Gas exposure.

Defaults stayed relatively low during the period with S&P's default rate at 2.4% in 2016, versus 2.1%

at the end of 2015[4]. S&P's Distress Ratio (which measures the percentage of the Index trading

below 80) fell to 3.6% in December. This compares with 3% in December 2015(3) . This is normally a good indicator of future defaults. But will also be influenced by secondary loan price improvements from increased investor demand.

Looking forward we expect to continue to see strong demand for the asset class over 2017, from a broad range of investors, given the continued low yields available elsewhere and an increased appetite for low duration assets as we start to see rate rises. CLO formations (and CLO repricings) are also expected to continue to provide further sources of demand for loans.

Given the strong demand for the European loan asset class and the amount of Private Equity dry powder, we are cautiously optimistic that new issue volumes will improve in 2017, although the immediate new issue pipeline looks relatively light and so we continue to expect repricings and other opportunistic deals in the near term.

Portfolio Update

Within the Fund, the best performers were a clothing retailer that was up +14.9%, recovering from recent weakness, as the business reported both stronger numbers and some progress in restructuring of the junior debt in the capital structure. Other top ten performers were a conviction subordinated debt position which traded up following a partial refinancing in November (+11.3%) and a range of High Yield and FRN positions which performed well in line with that market (+1.8 to +3.4%). The bottom two performers were a global pharma business (-4.7%) following continued news flow around potential regulatory action in the sector, and a consulting business which has some exposure to the Energy sector (-3.6%).

ENDS.

For further information please contact:

Alcentra Limited

   Simon Perry                            [phone] 

Factsheet

An accompanying factsheet which includes the information above as well as wider commentary on the investments made by the Fund can be found on the Fund's website www.aefrif.com.

Background Information

Alcentra European Floating Rate Income Fund Limited, a Guernsey Authorised Closed-Ended Collective Investment Scheme, regulated by the Guernsey Financial Services Commission and listed on the Main Market of the London Stock Exchange invests predominantly in senior secured loans and senior secured bonds issued by European corporates and targets returns (net of fees and expenses) of 7% to 10% per annum. The Fund targets a dividend yield of 5.5 pence per GBP1.00 issue price of the initial offering of shares in the Fund for the first full year of investment, paid quarterly.

Important Notices

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

This report is aimed at existing investors in the fund and has not been approved by any competent regulatory authority.

The information contained in this document is given as at the date of its publication (unless otherwise marked) and is based on past performance. Past performance is not a guide to future performance and the value of investments and investment value can go down as well as up. The future performance of the Fund will depend on numerous factors which are subject to uncertainty. Including changes in market conditions and interest rates and exchange rates and in response to other economic, political or financial developments, investment return and principal value of your investment will fluctuate, so that when your investment is sold, the amount you receive could be less than what you originally invested. Past or current yields are not indicative of future yields.

This document does not contain any representations, does not constitute or form part of any solicitation of any offer to sell or invitation to purchase any securities of the Fund, nor shall it or any part of it or the fact of its distribution form the basis of or be relied upon in connection with any contract therefor, and does not constitute a recommendation regarding the securities of the Fund. Nothing in this document should be construed as a profit or dividend forecast.

This document includes statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements include, without limitation, statements typically containing words such as "believes", "considers", "intends", "expects", "anticipates", "targets", "estimates", "will", "may", or "should" and words of similar import. The forward-looking statements are based on the beliefs, assumptions and expectations of future performance and market development of Alcentra Limited ("Alcentra"), taking into account information currently available and made as at the date of this document. These can change as a result of many possible events or factors, not all of which are known or within Alcentra's control. If a change occurs, the Fund's business, financial condition, liquidity and results of operations may vary materially from those expressed in the forward-looking statements. By their nature, forward-looking statements involve known and unknown risks and uncertainties. Forward-looking statements are not guarantees of future performance. Alcentra qualifies any and all of the forward-looking statements by these cautionary factors. Please keep this cautionary note in mind while reading this document.

An investment in the Fund is suitable only for investors who are capable of evaluating the merits and risks of such an investment and who have sufficient resources to be able to bear losses (which may equal the whole amount invested) that may result from such an investment. An investment in the Fund should constitute part of a diversified investment portfolio. Accordingly, typical investors in the Fund are expected to be sophisticated and/or professional investors who understand the risks involved in investing in the Fund.

Alcentra gives no undertaking to provide recipients of this document with access to any additional information, or to update this document or any additional information, or to correct any inaccuracies in it which may become apparent including in relation to any forward-looking statements. The distribution of this document shall not be deemed to be any form of commitment on the part of Alcentra to proceed with any transaction.

This document is issued by Alcentra Limited, which is authorised and regulated in the United Kingdom by the Financial Conduct Authority and whose registered address is at 10 Gresham Street, London EC2V 7JD

BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may also be used as a generic term to reference the Corporation as a whole or its various subsidiaries generally.

(c) 2016 The Bank of New York Mellon Corporation. All rights reserved. Trademarks and logos belong to their respective owners.

[1] Credit Suisse Western European Leveraged Loan Index, 30 December 2016

[2] S&P LCD European Playbook, 3 January 2017

[3] S&P Index Data as of 30 December 2016

[4] S&P LCD "(EUR) ELLI default rate rose in 2016", 9 January 2017

This information is provided by RNS

The company news service from the London Stock Exchange

END

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January 11, 2017 07:46 ET (12:46 GMT)