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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Carador Income Fund Plc | LSE:CIFU | London | Ordinary Share | IE00BL8C5Z40 | ORD NPV (USD) |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0.18 | 0.13 | 0.23 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMCIFU
RNS Number : 4662I
Carador Income Fund PLC
30 August 2016
AMMENT
The following amendments has been made to the Unaudited Interim Financial Statements announcement released on 26 August 2016 at 17:45pm under RNS No 3071l
Page 7 - Numbering under section (b) changed to (i) and (ii)
Page 11 - Changed 'from' to 'form' at the bottom of the Statement of Comprehensive Income
Page 24 - Header 'Interests in Structured Entities' changed to 'Interests in Other Entities'
Pages 24 & 25 - 2(nd) column header updated to read 'Line item in statement of financial position'
All other details remain unchanged.
The full amended text is shown below.
This announcement contains inside information.
INTERIM REPORT AND UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS FOR THE FINANCIAL PERIODED 30 JUNE 2016
NOT FOR RELEASE, DOSTRIBUTION OR PUBLICATION DIRECTLY, OR INDIRECTLY, TO U.S. PERSONS OR IN THE UNITED STATES, AUSTRALIA, CANADA OR JAPAN.
A copy of the Company's interim report including unaudited condensed interim financial statements 2016 are set out below and will shortly be available on the Company's website, www.carador.co.uk
CARADOR: INVESTMENT OBJECTIVE
The investment objective of Carador Income Fund PLC (the "Company" or "Carador") 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 2016.
The first half of 2016 was the best 6-month stretch for sub-investment grade products in years but the stellar returns belie the dramatic swing that began in February. During the first six weeks of the year, the markets continued the free fall that began during the second half of 2015. The high yield market then surged 9.30% through June, turning into the best start to a year since 2009, and marking a 15% recovery from the mid-February low. Loans produced a more modest 4.23% return during the period but senior loans did not fall to the same levels as high yield bonds in 2015. Performance was also very strong in investment grade assets as fixed income profited from the impressive Treasury bull flattening. Investors can be forgiven for forgetting that the 10-year Treasury yield began the year at 2.27%, 80bp above where it closed in June. Given the rate backdrop, investment grade corporates soared 7.68%. Interestingly, equities failed to fully capitalise on the credit and fixed income rally with large cap equities returning a respectable, yet restrained, 3.84% including dividends.([1])
Performance
During the six month period ended 30 June 2016, the Company generated a total Net Asset Value ("NAV") return of 2.68% including distributions. The Company started the year with a NAV per share of US$0.7231 and ended the first half at US$0.6908, a 4.47% decline in the NAV per share, although as noted below, the Company also paid a total of $0.0475 per share in dividends over the period.([2])
The Company's shares closed the first half of 2016 at US$0.6250, a 9.53% discount to the NAV at 30 June 2016. The annualised historic dividend yield based on the last declared dividends was 15.60%.([3])
Dividends
In January 2016, the Board announced a dividend target of US$0.0900 per share for 2016 on the basis of market conditions and the construction of the Company's portfolio. The reduction from prior years in the anticipated dividend for 2016 was driven primarily by a reduction in the portfolio's allocation to Income Notes during 2015 in favour of building some dry powder to take advantage of market volatility. The ongoing active management of the portfolio combined with the rotation into longer duration CLO income notes offers a sustainable longer term income stream.
The Directors also announced that should there be a reversion of the weighting between Mezzanine Notes and Income Notes during the year, as anticipated by GSO / Blackstone Debt Funds Management LLC (the "Investment Manager"), the historic target annual dividend of $0.100 per U.S. Dollar share may be achievable.([4]) Since the Company also seeks to maintain its status as an "excluded security" under the Non-Mainstream Pooled Investment ("NMPI") rules, the Board is committed to distributing at least 85% of its net income each financial year. If the target $0.0900 dividend per share is forecast to be less than 85% of the Company's net income, the Board will seek to increase the Q4 2016 dividend commensurately. The Company also maintains the right to distribute in excess of 85% of its net income at its own discretion.
On this basis, the Company made the following dividend announcements in respect of Q4 2015 and the six months to 30 June 2016:
-- On 22 January 2016, the Board declared a dividend of US$0.0250 per US Dollar share in respect of the period from 1 October 2015 to 31 December 2015. The dividend was paid on 10 February 2016.
-- On 21 April 2016, the Board declared a dividend of US$0.0225 per US Dollar share in respect of the period from 1 January 2016 to 31 March 2016. The dividend was paid on 4 May 2016.
-- On 21 July 2016, the Board declared a dividend of US$0.0225 per US Dollar share in respect of the period from 1 April 2016 to 30 June 2016. The dividend was paid on 3 August 2016.
Quarterly declared dividends per US$ Share and Net Cashflow Coverage of Net Income
Hot Features
Premium
Year Dividend Declared Net Cashflow
Cover
------------------ ------------------------------- --------------------------
1Q12 3.30c 1.5x
2Q12 3.40c 1.5x
3Q12 3.80c 1.5x
4Q12 4.30c 1.4x
1Q13 3.40c 1.3x
2Q13 3.40c 1.3x
3Q13 3.40c 1.1x
4Q13 2.90c 1.1x
1Q14 2.50c 1.2x
2Q14 2.50c 1.1x
3Q14 2.50c 1.1x
4Q14 2.50c 1.1x
1Q15 2.50c 1.3x
2Q15 2.50c 1.3x
3Q15 2.50c 1.4x
4Q15 2.50c 1.4x
1Q16 2.25c 1.5x
2Q16 2.25c 1.5x
Material Events
On 22 April 2016, the Company released its audited Annual Report and Accounts for the full year 2015.
At the Annual General Meeting (the "AGM") of the Company held on 22 June 2016, shareholders approved the following ordinary and special resolutions:
Ordinary Resolutions
1. Receipt and consideration of the Directors' report and the financial statements of the Company for the financial year ended 31 December 2015 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 Edward D'Alelio as a Director of the Company;
5. Re-election of Werner Schwanberg as a Director of the Company;
6. Re-election of Fergus Sheridan as a Director of the Company;
7. Re-election of Adrian Waters as a Director of the Company;
8. 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.
Special Resolutions
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) 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.
10. Adoption of the new objects clauses presented at the annual general meeting to the exclusion of all existing objects clauses and to adopt the constitution of the Company presented at the annual general meeting to the exclusion of the existing memorandum and articles of association of the Company.
Outlook
The Board believes that the Company's portfolio is positioned in the first half of 2016 to take advantage of investment opportunities.
As at the end of June 2016, the Company's portfolio investments comprised 26.91% Mezzanine Notes, 65.49% Income Notes, and a cash balance of 7.6%, all as a percentage of NAV. The Board believes that this portfolio allocation will continue to deliver attractive total returns as well as high current income via quarterly dividend distributions.
With over $11 trillion dollars of negative-yielding fixed income assets globally, the Board expects investors will continue to reach for yield. At the same time, with monetary policy and political developments dominating the markets, the Board also expects bouts of volatility as we've seen over the past two years. The CLO market has enjoyed a sharp rebound from the February lows but still provides investors a unique opportunity to obtain yield in a low-yielding world. Fundamentals, outside of commodity-exposed issuers and retail, remains strong and defaults outside of the aforementioned sectors should remain below long-term averages.
Werner Schwanberg
Chairman
25 August 2016
INVESTMENT MANAGER'S REVIEW
For the six month period ended 30 June 2016
Highlights of the first half of 2016 include:([5])
-- Aggregate declared dividend of US$0.0475 per share, in line with the target provided by the Board in January 2016.
-- NAV total return of 2.68%, including dividends paid. -- Historic dividend yield of 15.60% (share price as at 30 June 2016).([6]) -- 1.48x net cashflow cover for the first half of 2016.
-- The portfolio has been actively traded during the period. The Company added 10 Income Note investments to the portfolio for a total market value of US$28.48 million and sold 9 investments for a total market value of US$30.05 million.
-- The Investment Manager believes it has made significant progress on the portfolio rotation from pre-crisis CLOs to post-crisis deals. We sought to reduce pre-crisis exposure in favourable market conditions and replace those investments with attractive post-crisis opportunities, although certain pre-crisis Income Notes remain strong performers. As at 30 June 2016, the portfolio NAV consists of 65.49% of Income Notes of which 9.32% are in pre-crisis deals.
Bank Loan Market Overview
The first half closed with the surprising result of the UK referendum but the market was not derailed. We interpret the resilience following Brexit as investors expressing confidence that global central bank policy will be effective in supporting asset prices. That has certainly been the case in the sovereign debt market where rising valuations have resulted in over $11 trillion of paper yielding less than 0%, up from $4 trillion at the start of the year. Much of the negative-yielding universe is denominated in euros and yen and, as a result, the U.S. credit markets have received substantial interest from investors in those regions.
Within the senior loan market, two notable trends were apparent. First, the rebound in commodity prices boosted the energy and metals & mining sectors. The loan energy sector climbed 13.65% and metals & mining loans gained 15.82%. Second, low-quality paper outperformed after an extended period of high-quality paper outperformance. The lower tier within the CS LLI returned 9.27%, well above the 3.09% return recorded by upper tier loans.
The technical backdrop has been particularly strong as supply of new paper in the loan market is not matching the incremental demand for these products. A combination of regulations and market volatility is limiting the acquisition activity that typically drives much of the market's growth and we do not think the meagre net supply is likely to change any time soon. For example, the forward loan pipeline slumped to $29 billion at the end of June, half of the pipeline at the beginning of 2016 ($57.6 billion).([7])
U.S. loan issuance totalled $209.9 billion for the first half of 2016, down 10% relative to last year's $233.7 billion first-half tally. Similar to 2015, volume was more heavily weighted in the second quarter. Net loan supply disappointed as most issuance was earmarked for refinancing or repricing purposes and demand for loans was strong.(7)
In Europe, new issuance reached EUR30.2 billion for the first half of 2016 versus EUR38.1 billion during the same period in 2015. Only 18% of the issuance by volume was used for refinancing purposes so much of issuance created new supply; however, strong repayment rates held the size of the market to a mere 5% growth.([8])
Default rates accelerated during the first half of 2016 as the loan rate rose to 2.2% from 1.7%. Excluding commodities, defaults remain low, however. Excluding energy and metals & mining defaults lowers the loan default rate to 0.9%. JP Morgan forecasts a 3% default rate in 2016 for senior loans. Adjusting for commodities lowers their projections to 2%, well below the 3.5% long-term average.([9])
CLO Market Overview
US CLO issuance during the first half of the year totalled $26.2 billion through 62 deals, down 56% from the first half of 2015. Issuance was much stronger in Europe with 18 deals totalling EUR7.2 billion, versus 20 deals and EUR7.8 billion - an 8% decline period over period. Strategists at Bank of America have taken a positive view on the US CLO market, increasing their 2016 forecast to $60 billion from $45 billion - an optimistic increase that almost reached their initial $70 billion forecast late last year.([10]) Relative value to secondary and a tougher arbitrage across Q1 and Q2 respectively have constrained issuance. US Risk Retention requirements, which take effect in December, also continue to be a focus for investors and managers alike.
Discount margins of US post-crisis CLOs widened during the first two months of 2016, mirroring other risk asset performance, before starting to tighten prior to 30 June, according to the JP Morgan Collateralized Loan Obligation Index ("CLOIE"). While discount margins of higher-rated tranches were generally flat year to date, B spreads widened 241bp to 1418 bp.([11]) The average price of post-crisis CLO equity tranches increased 4.25% since year-end, according to JP Morgan.
The first half was generally a tale of two quarters. Q1 saw general macro concerns and volatility in the wider markets, with CLO valuations and expected yields reflecting those concerns. With primary issuance low, measured supply in the secondary market, and capital focused on the CLO market, we have seen steady growing technical demand across Q2. This demand dynamic has continued despite the uptick in CCC and defaults in the overall loan market (7.53% as at 30 June versus 6.55% as at 31 December), which seems to be already priced in by the market.
Portfolio Update
During the first half of the year, the Investment Manager has continued to opportunistically rotate the portfolio out of lower quality deals into better quality, longer dated deals. At the same time, the Investment Manager has maintained an average portfolio cash balance above 7%, to be selectively deployed in attractive market opportunities.
As of 30 June 2016, the Company had 4.27% exposure to CCC assets and 0.23% of defaulted assets on a look through basis through investments across 51 CLOs managed by 20 investment managers. The NAV breakdown by pre-crisis, post-crisis, Mezzanine, and Income Notes was as follows:
Investment Type % of Portfolio Pre-Crisis Mezzanine Notes 4.46% Post-Crisis Mezzanine Notes 24.66% Pre-Crisis Income Notes 6.61% Post-Crisis Income Notes 64.27%
As at 30 June 2016, the Company's top five exposures were:
Original % of
Investment Manager Rating Portfolio
---------------- ----------------------- --------- ----------
Sheridan Square GSO / Blackstone Debt
2013-1A INC Funds Management LLC NR/NR 5.61%
NEUB 2014-17X
SUB Neuberger Berman NR/NR 4.80%
PPARK 2014-1A GSO / Blackstone Debt
SUB Funds Management LLC NR/NR 4.71%
VOYA Invest Mg VOYA Alternative Asset
CLO II Management NR/NR 4.17%
VOYA 2015-2X VOYA Alternative Asset
SUB Management NR/NR 3.92%
Outlook
We believe the current environment is supportive for credit products. Sell-side economist forecasts, on average, indicate that the U.S. economy is expected to grow at 2% in 2016. Easy monetary policies from Fed and its global counterparts will continue to encourage investors to seek yield in credit products. However, we continue to monitor many potential market pitfalls such as a sudden reversal of those policies, upcoming elections in the U.S. this year and Europe next year, and international capital flows.
As the effects of the Brexit result were short lived, technicals in the CLO market have begun to improve in both the primary and secondary markets. We expect that the ongoing active risk management of the Company and the rotation into longer dated CLO Income Note positions, which are stress tested against our forward-looking credit expectations, will continue to deliver sustainable cash flows as well as help maintain a robust overall credit portfolio. In addition, the Company has accumulated a surplus of $8.2 million of undistributed net income accumulated between 2013 and 2015.
As of 30 June 2016, the Company's cash balance was 7.6%, which the Investment Manager will continue to invest as new attractive opportunities appear.
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 diversification 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 Net Asset Value. The Company also limits its exposure to transactions managed by the same portfolio manager to 15% of the Net Asset Value, 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 2016, the Company had no 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. The Company has no intention of using the currency hedging facility for the purposes of currency speculation for its own account.
Please also refer to note 10 for a fuller description of the risk involved in an investment in the Company.
Important Events Post Balance Sheet Date
On 21 July 2016, the Board declared a dividend of US$0.0225 per US Dollar share in respect of the period from 1 April 2016 to 30 June 2016. This dividend was paid on 3 August 2016.
GSO / Blackstone Debt Funds Management LLC
25 August 2016
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, note 18 and note 19, 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
25 August 2016
INDEPENT REVIEW REPORT TO Carador Income Fund PLC
Introduction
We have been engaged by Carador Income Fund PLC (the "Company") to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2016 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 flows and the related explanatory notes. The financial reporting framework that has been applied in their preparation is International Financial Reporting Standards as adopted by the EU ("IFRSs"). Our review was conducted in accordance with the Financial Reporting Council's ("FRCs") International Standard on Review Engagements ("ISRE") (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity'.
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 2016 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted by the EU, the Transparency (Directive 2004/109/EC) Regulations 2007 as amended (the "TD Regulations") and the Transparency Rules of the Central Bank of Ireland.
Basis of our report, responsibilities and restriction on use
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 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 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.
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.
We read the other information contained in the half-yearly financial report to identify material inconsistencies with the information in the condensed set of financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the review. If we become aware of any apparent material misstatements or inconsistencies, we consider the implications for our report.
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 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.
KPMG
Chartered Accountants
1 Harbourmaster Place
IFSC
Dublin 1
Ireland
25 August 2016
UNAUDITED CONDENSED INTERIM STATEMENT OF FINANCIAL POSITION
As at 30 June 2016
30 June 31 December
2016 2015
Notes US$ US$
----------------------------------- --------- ------------ ------------
ASSETS
Cash and cash equivalents 5, 10 27,135,534 28,044,711
Other receivables 1,491,559 17,981
Receivable for investments 1,662,115 -
sold
Financial assets at fair
value through profit or loss* 3, 8, 10 346,710,029 379,662,763
TOTAL ASSETS 376,999,237 407,725,455
----------------------------------- --------- ------------ ------------
LIABILITIES
Expenses payable 4 1,742,512 1,868,391
Payable for investments purchased - 13,019,620
TOTAL LIABILITIES 1,742,512 14,888,011
----------------------------------- --------- ------------ ------------
NET ASSETS ATTRIBUTABLE TO PARTICIPATING
EQUITY SHAREHOLDERS 375,256,725 392,837,444
---------------------------------------------- ------------ ------------
NET ASSET VALUE PER PARTICIPATING US
DOLLAR SHARE 0.6908 0.7231
---------------------------------------------- ------------ ------------
* 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 2016
30 June 30 June
2016 2015
Notes US$ US$
------------------------------- ------ ------------------- ------------
Interest income on cash
and cash equivalents 1,354 1,125
Miscellaneous income 29,601 105,530
Net (loss)/gain on foreign
exchange (32,932) 1,205
Net gain on financial assets
at fair value through profit
or loss 11,550,674 27,117,497
------------------------------- ------ ------------------- ------------
TOTAL REVENUE 11,548,697 27,225,357
------------------------------- ------ ------------------- ------------
Performance fees 4 - (1,144,377)
Investment management fees 4 (2,416,524) (3,320,488)
Custodian fees 4 (30,653) (36,101)
Administration fees 4 (140,008) (178,732)
4,
Directors' fees 9 (204,251) (180,949)
Auditor's fees 4 (97,661) (71,590)
Other operating expenses 4 (344,127) (644,464)
------------------------------- ------ ------------------- ------------
TOTAL OPERATING EXPENSES (3,233,224) (5,576,701)
------------------------------- ------ ------------------- ------------
OPERATING PROFIT BEFORE
FINANCE COSTS 8,315,473 21,648,656
------------------------------- ------ ------------------- ------------
Facility costs 11 (76,054) (68,836)
Interest expense (15,604) -
------------------------------- ------ ------------------- ------------
TOTAL FINANCE COSTS (91,658) (68,836)
------------------------------- ------ ------------------- ------------
PROFIT FOR THE FINANCIAL PERIOD
ALL ATTRIBUTABLE TO PARTICIPATING
EQUITY SHAREHOLDERS 8,223,815 21,579,820
--------------------------------------- ------------------- ------------
TOTAL COMPREHENSIVE INCOME
FOR THE FINANCIAL PERIOD ALL
ATTRIBUTABLE TO PARTICIPATING
EQUITY SHAREHOLDERS 8,223,815 21,579,820
EARNINGS PER SHARE
Earnings per US Dollar 13 US$0.02 US$0.04
share
------------------------ ---------------------- ---------- -----------
The accompanying notes form an integral part of the unaudited condensed interim financial statements.
UNAUDITED CONDENSED INTERIM STATEMENT OF CHANGES IN EQUITY
For the six months ended 30 June 2016
Notes US$
---------------------------------------- ---------- -------------
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 financial period all
attributable to participating equity
shareholders 21,579,820
---------------------------------------- ---------- -------------
TOTAL COMPREHENSIVE INCOME FOR THE
FINANCIAL PERIOD ALL ATTRIBUTABLE TO
PARTICIPATING EQUITY SHAREHOLDERS 21,579,820
AT 30 JUNE 2015 482,989,255
---------------------------------------- ---------- -------------
AT 31 DECEMBER 2015 392,837,444
---------------------------------------- ---------- -------------
TRANSACTIONS WITH PARTICIPATING EQUITY
SHAREHOLDERS
Distributions to participating equity
shareholders 16 (25,804,534)
TOTAL TRANSACTIONS WITH PARTICIPATING
EQUITY SHAREHOLDERS (25,804,534)
---------------------------------------- ---------- -------------
Profit for the financial period all
attributable to participating equity
shareholders 8,223,815
---------------------------------------- ---------- -------------
TOTAL COMPREHENSIVE INCOME FOR THE
FINANCIAL PERIOD ALL ATTRIBUTABLE TO
PARTICIPATING EQUITY SHAREHOLDERS 8,223,815
---------------------------------------- ---------- -------------
AT 30 JUNE 2016 375,256,725
---------------------------------------- ---------- -------------
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 2016
30 June 30 June
2016 2015
Notes US$ US$
-------------------------------------- ------- ------------- -------------
CASH FLOWS FROM OPERATING
ACTIVITIES
Profit for the financial period
all attributable to participating
equity shareholders 8,223,815 21,579,820
Adjustments for non-cash items
and working capital:
(Decrease)/Increase in payables 2,4,10 (125,879) 1,716,835
Increase in receivables 2,10 (1,473,578) (29,417)
Net loss on financial assets
and derivatives at fair value 2,10 17,710,595 8,448,916
NET CASH INFLOW FROM OPERATING
ACTIVITIES 24,334,953 31,716,154
-------------------------------------- ------- ------------- -------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of investments* (41,494,620) (57,623,624)
Disposal and paydowns of investments 42,055,024 69,339,810
NET CASH INFLOW FROM INVESTING
ACTIVITIES 560,404 11,716,186
-------------------------------------- ------- ------------- -------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Distributions to participating
equity shareholders 16 (25,804,534) (27,162,667)
NET CASH OUTFLOW FROM FINANCING
ACTIVITIES (25,804,534) (27,162,667)
-------------------------------------- ------- ------------- -------------
Net (decrease)/increase in
cash and cash equivalents (909,177) 16,269,673
CASH AND CASH EQUIVALENTS
AT THE BEGINNING OF THE FINANCIAL
PERIOD 28,044,711 10,758,356
-------------------------------------- ------- ------------- -------------
CASH AND CASH EQUIVALENTS
AT THE OF THE FINANCIAL
PERIOD 27,135,534 27,028,029
-------------------------------------- ------- ------------- -------------
* 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 2016
1 GENERAL
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 of Ireland ("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 2016, 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 2016, 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 financial year ended 31 December 2015, which have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board ("IASB") as 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 financial year ended 31 December 2015, as described in those annual financial statements. 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 audited financial statements for the financial year ended 31 December 2015, 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 22 June 2016 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 AMMENTS, INCLUDING ACCOUNTING POLICY CHANGES
The Company has consistently applied the accounting requirements to all financial periods presented in these financial statements.
The Company adopted the following new standards during the period ended 30 June 2016:
IFRS 7 "Financial Instruments: Disclosures" amendment was issued in September 2014 and became effective for periods beginning on or after 1 January 2016. The amendment clarifies that disclosure requirements regarding the offsetting of financial assets and financial liabilities are not specifically required in condensed interim financial statements that are prepared in accordance with IAS 34 "Interim Financial Reporting" for all interim periods. However, the additional disclosure is given when its inclusion would be required in accordance with the general principles of IAS 34. This amendment does not have any impact on the Company's financial position or performance but has resulted in extra disclosures.
IAS 1 "Presentation of Financial Statements" amendment was issued in December 2014 and became effective for periods beginning on or after 1 January 2016. The amendment introduces five narrow-focus improvements to the disclosure requirements that relate to materiality, order of the notes, subtotals, accounting policies and disaggregation. The amendment does not have any impact on the Company's financial position or performance or disclosures in its financial statements.
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
2B ADOPTION OF NEW ACCOUNTING STANDARDS AND AMMENTS, INCLUDING ACCOUNTING POLICY CHANGES (continued)
IAS 34 "Interim Financial Reporting" amendment was issued in September 2014 and became effective for periods beginning on or after 1 January 2016. The amendment clarifies the meaning of "elsewhere in the interim financial report" and states that information required by IAS 34 but not included in the interim financial statements must be cross referenced from those interim financial statements to the location of this information within the interim financial report e.g. the Investment Manager Report. This amendment does not have any impact on the Company's financial position or performance and did not result in extra disclosures.
2C NEW STANDARDS AND INTERPRETATIONS APPLICABLE TO FUTURE REPORTING PERIODS
New standards, amendments and interpretations issued but not effective in 2016 and not early adopted
The Company has considered all the upcoming IASB's standards including those not yet endorsed by the EU. The below standards are those deemed to have relevance to the Company and will be adopted from their EU effective dates.
Investment Entities: Applying the Consolidation Exception (Amendments to IFRS 10, IFRS 12 and lAS 28). These amendments, clarify that an investment entity may provide investment-related services to third parties - even if those activities are substantial to the entity - as long as the entity continues to meet the definition of an investment entity. The amendments are effective for annual periods beginning on or after 1 January 2016 (subject to EU endorsement expected to be in Quarter 3 2016). The Company is satisfied that it meets both the required criteria and typical characteristics of an investment entity. The relevant disclosures are included in note 8. The adoption of these new amendments does not have a significant impact on its financial statements.
IFRS 9 "Financial instruments", effective for annual periods beginning on or after 1 January 2018 with early adoption permitted (subject to EU endorsement expected to be in Quarter 3 2016), specifies how an entity should classify and measure financial assets and liabilities, including some hybrid contracts. The standard improves and simplifies the approach for classification and measurement of financial assets compared with the requirements of IAS 39. Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward unchanged. The standard applies a consistent approach to classifying financial assets and replaces the numerous categories of financial assets in IAS 39, each of which had its own classification criteria. The standard is not expected to have a significant impact on the Company's financial position or performance, as it is expected that the Company will continue to classify the majority or almost all of its financial assets as being at fair value through profit or loss.
2D 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 explanatory 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 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.
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.
Estimates and underlying assumptions are required on an ongoing basis. Revisions to estimates are recognised prospectively.
Fair value
In accordance with IFRS 13, the Company applies the definition of fair value, being the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Company has access at that date. The fair value of a liability reflects its non-performance risk.
When the fair value of financial assets and financial liabilities recorded in the statement of financial position cannot be derived from active market quotations, they are determined using valuation techniques including the use of broker prices.
See note 3 for further details of the fair value hierarchy at 30 June 2016 and 31 December 2015.
3 FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
The Company has financial assets designated at fair value through profit or loss classified as held for trading. 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).
The table below analyses financial instruments measured at fair value at the reporting date by the level in the fair value hierarchy into which the fair value measurement is categorised. The amounts are based on the values recognised in the unaudited condensed interim statement of financial position. All fair value measurements below are recurring.
As at As at
30 June 31 December
2016 2015
US$ US$
--------- ------------ -------------
Level 1 - -
Level 2 249,454,879 135,326,564
Level 3 97,255,150 244,336,199
--------- ------------ -------------
346,710,029 379,662,763
--------- ------------ -------------
The Company determines the fair value for the collateralised loan obligations using independent, unadjusted indicative broker quotes. A broker quote is not generally a binding offer. The categorisation of the collateralised loan obligations is dependent if the broker quotes reflect actual current market transactions, or if they are indicative prices based on the broker's valuation models, depending on the significance and observability of the inputs to the model.
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 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 financial period ended 30 June 2016 and the financial year ended 31 December 2015, 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 and Level 2 during the financial period (2015: no transfers). Where transfers between levels arise, they are deemed to occur at the end of the reporting period.
At 31 December 2015, certain collateralised loan obligations with a fair value of US$244,336,199 were transferred from Level 2 to Level 3. The change in the classification level was a result of decreased liquidity in the market and wider spreads reflected by a broader spectrum of indicative broker quotes, which were factors that indicated that the broker quotes were not based on observable prices. At 30 June 2016, collateralised loan obligations with a fair value of US$97,255,150 were classified as Level 3. The reduction in the Level 3 assets reflects the lower dispersion in the indicative broker quotes, given the improvement in the market liquidity during the first half of the year.
The following table shows a reconciliation from the opening balances to the closing balances for fair value measurements in Level 3 of the fair value hierarchy as at 30 June 2016:
Collateralised
Loan Obligations
US$
-------------------------------------------- ------------------
Balance at 1 January 2016 244,336,199
Net loss on financial assets at fair value
through profit or loss (17,615,903)
Purchases 4,160,000
Disposal and paydowns of investments (18,276,193)
Transfers out of Level 3 (115,348,953)
Balance at 30 June 2016 97,255,150
-------------------------------------------- ------------------
Change in unrealised gains or losses (net loss) for the period included in profit or loss for the collateralised loan obligations within Level 3 of the fair value hierarchy amounted to (US$2,839,477). These gains and losses are included in the net gain on financial assets at fair value through profit or loss of the unaudited condensed interim statement of comprehensive income.
The following table shows a reconciliation from the opening balances to the closing balances for fair value measurements in Level 3 of the fair value hierarchy as at 31 December 2015:
Collateralised
Loan Obligations
US$
----------------------------- ------------------
Balance at 1 January 2015 -
Transfers into Level 3 244,366,199
Balance at 31 December 2015 244,366,199
----------------------------- ------------------
The table below sets out information about significant unobservable inputs used at 30 June 2016 in measuring financial instruments categorised as Level 3 in the fair value hierarchy.
Sensitivity
to changes in
Fair significant
Asset Value Unobservable Weighted unobservable
Class US$ Inputs Ranges Average inputs
----------- ------------------ ------------- ---------- --------- -----------------------
1% increase/decrease
will have
a fair value
Mezzanine Broker 64.00% impact of
Notes 11,988,423 Quotes - 75.61% 71.73% +/- US$118,360
1% increase/decrease
will have
a fair value
Income Broker 40.00% impact of
Notes 85,266,727 Quotes - 81.45% 58.90% +/- US$852,667
97,255,150
----------- ------------------ ------------- ---------- --------- ---------------------
The table below sets out information about significant unobservable inputs used at 31 December 2015 in measuring financial instruments categorised as Level 3 in the fair value hierarchy.
Sensitivity
to changes in
Fair significant
Asset Value Unobservable Weighted unobservable
Class US$ Inputs Ranges Average inputs
----------- ------------------- ------------- ---------- --------- -----------------------
1% increase/decrease
will have
a fair value
Mezzanine Broker 52.33% impact of
Notes 47,008,180 Quotes - 87.38% 73.11% +/- US$463,374
1% increase/decrease
will have
a fair value
Income Broker 28.10% impact of
Notes 197,328,019 Quotes - 94.00% 57.93% +/- US$1,973,280
244,336,199
----------- ------------------- ------------- ---------- --------- ---------------------
The above analysis also gives an approximation of the sensitivity of the different asset classes to market risk as at 30 June 2016 and 31 December 2015 that seems reasonable considering the current market environment and the nature of the Company's assets' main underlying risks. This sensitivity analysis presents an approximation of the potential effects of events that could have been reasonably expected to occur as at the reporting date.
4 OPERATING EXPENSES
INVESTMENT MANAGER
The Investment Manager of Carador is entitled to receive a base 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 newly issued security). Please see note 9 for details of deals managed by the Investment Manager or its affiliates and whether they were sourced in the primary or secondary market.
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 performance fee 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.
The performance fee hurdle rate is the greater of 12 month US Dollar LIBOR plus 2%, or 6%.
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 financial periods ended 30 June 2016 and 30 June 2015 and the amounts due at 30 June 2016 and 31 December 2015 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 remuneration committee of the Directors and disclosed in the financial statements. During the financial period ended 30 June 2016, Directors' fees amounted to US$185,604 (30 June 2015: US$162,353), plus out-of-pocket expenses of US$18,647 (30 June 2015: US$18,596), of which US$3,528 remained payable at the financial period end (31 December 2015: US$Nil).
Operating expenses are disclosed separately in the
unaudited condensed interim statement of comprehensive
income.
Accruals excluding audit, directors and other professional
fee accruals as at 30 June 2016 and 31 December 2015
are as follows:
As at As at
30 June 31 December
2016 2015
US$ US$
---------------------------------- ------------- ---------------
ACCRUAL
Investment management fees 1,229,162 936,299
Custodian fees - 11,871
Administration fees - 54,121
Commitment fees 22,500 22,750
Interest payable 3,338 18,171
Other operating expenses 276,042 585,068
---------------------------------- ------------- ---------------
1,531,042 1,628,280
---------------------------------- ------------- ---------------
The remaining balance of the expense accrual consists of auditors' fees of US$89,602 (31 December 2015: US$171,456) inclusive of VAT, Directors' fees and other professional fees of US$121,868 (31 December 2015: US$68,655).
5 CASH AND CASH EQUIVALENTS
Cash and cash equivalents balances are held with 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 2016, the issued share capital consisted of 543,253,359 US Dollar shares (31 December 2015: 543,253,359) 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 SHARE
The share capital consisted of 543,253,359 shares as at 30 June 2016 and 31 December 2015. There were no new shares issued and no shares converted during the financial period ended 30 June 2016 or during the financial year ended 31 December 2015.
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 financial year 2022 and in every tenth financial year thereafter, the Directors will propose a special resolution to the effect that the Company continue for a further ten financial 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 financial 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 financial 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 financial year (the "discount-trigger"). Even if the discount-trigger is not met, the Directors may, at their discretion, propose an ordinary resolution at the 2017 Annual General Meeting for a repurchase opportunity on substantially the same terms.
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
IFRS 12 defines a structured entity 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 for financial reporting purposes, 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 2016, the Company had seven subsidiary undertakings for financial reporting purposes that are also structured entities (31 December 2015: four). They are Babson CLO Ltd 2013-IX, Flatiron CLO 2014-1 Ltd, Keuka Park CLO Ltd 2013-1A, Neuberger Berman CLO XVII Ltd 2013-17X, Pinnacle Park CLO Ltd 2014-1A, Sheridan Square CLO Ltd, Voya Investment Management CLO II Ltd (31 December 2015: Voya Investment Management CLO II Ltd, Sheridan Square CLO Ltd, Babson CLO Ltd 2013-IX and Keuka Park CLO Ltd 2013-1A). The number of share holdings in Flatiron CLO 2014-1 Ltd, Neuberger Berman CLO XVII Ltd 2013-17X and Pinnacle Park CLO Ltd 2014-1A did not change during the financial period but the non-call period on these investments expired, 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 within the meaning of IFRS10.
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 the subsidiary undertakings listed above (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.
The Company is also considered to have contingent power over the seven 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. The Company is subject to an investment restriction which states that the Company will not take legal or management control of the issuers of the underlying investments, nor shall the Company acquire any shares carrying voting rights which would enable it to exercise significant influence over the management of an issuing body. The "control" referred to above for financial reporting purposes does not equate to "legal or management control" or the acquisition of shares which would enable the Company to exercise "significant influence over the management of an issuing body" within the meaning of this investment restriction.
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.
8 INTERESTS IN OTHER ENTITIES (continued)
Below is a summary of the Company's holdings in non subsidiary unconsolidated structured entities as at 30 June 2016:
% of
Total
Financial
Line item Range Average Carador's Assets Maximum
in of the at
unaudited size Notional Holding Fair exposure
condensed of SEs of Value
interim No of Notional SEs Fair through to
statement Value losses
of
Structured financial Nature Investments in US$m in US$m in Profit in Other
Entity position US$m or Loss US$m
("SE")
------------- ----------- ------------ ------------ --------- --------- ---------- ---------- --------- ----------
Mezzanine
Note CLOs
------------ ------------ ------------ ------------ --------- --------- ---------- ---------- --------- ----------
North
America
------------ ------------ ------------ ------------ --------- --------- ---------- ---------- --------- ----------
Broadly
Syndicated
sub-
Financial Investment
assets at Grade
fair value Secured
Loans
through
profit Non
or loss - USD 18 152-620 465 86 24.78% 86 recourse*
------------ ------------------------- ------------ --------- --------- ---------- ---------- --------- ----------
Financial assets at fair
value
Total through
Mezzanine profit Non
Note CLOs or loss 18 152-620 465 86 24.78% 86 recourse*
------------ ------------ ------------ ------------ --------- --------- ---------- ---------- --------- ----------
Income Note
CLOs
------------ ------------ ------------ ------------ --------- --------- ---------- ---------- --------- ----------
North
America
------------ ------------ ------------ ------------ --------- --------- ---------- ---------- --------- ----------
Broadly
Syndicated
sub-
Financial Investment
assets at Grade
fair value Secured
Loans
through
profit Non
or loss - USD 31 33-734 467 143 41.21% 143 recourse*
------------ ------------------------- ------------ --------- --------- ---------- ---------- --------- ----------
Financial assets at fair
value
Total through
Income profit Non
Note CLOs or loss 31 33-734 467 143 41.21% 143 recourse*
------------ ------------ ------------ ------------ --------- --------- ---------- ---------- --------- ----------
Total 49 229**
---------------------------------------- ------------ --------- --------- ---------- ---------- --------- ----------
The Company has a percentage range of 0.2% - 46% notional holding out of the entire outstanding notional balances of the structured entities as at 30 June 2016.
During the financial period ended 30 June 2016, the Company did not provide financial support to the unconsolidated structured entities 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.
** The Company's total fair value holding of its unconsolidated structured entity subsidiaries set out on the next page, plus the total fair value holding in non-subsidiary unconsolidated structured entities, as above, agrees to the financial assets at fair value through profit or loss in the statement of financial position.
8 INTERESTS IN OTHER ENTITIES (continued)
Interests in unconsolidated structured entity subsidiaries as at 30 June 2016:
% of
Total
Financial
Line item Range Average Carador's Assets Maximum
in of the at
unaudited size Notional Holding Fair exposure
condensed of SEs of Value
interim No of Notional SEs Fair through to
statement Value losses
of
Structured financial Nature Investments in US$m in US$m in Profit in Other
Entity position US$m or Loss US$m
("SE")
------------ ------------ ------------ ------------ --------- --------- ---------- ---------- --------- ----------
Mezzanine
Note CLOs
------------ ------------ ------------ ------------ --------- --------- ---------- ---------- --------- ----------
North
America
------------ ------------ ------------ ------------ --------- --------- ---------- ---------- --------- ----------
Broadly
Syndicated
sub-
Financial Investment
assets Grade
at fair Secured
value Loans
through
profit Non
or loss - USD 2 413-725 569 15 4.32% 15 recourse*
------------ ------------------------- ------------ --------- --------- ---------- ---------- --------- ----------
Financial
assets
at fair
value
Total through
Mezzanine profit Non
Note CLOs or loss 2 413-725 569 15 4.32% 15 recourse*
------------ ------------ ------------ ------------ --------- --------- ---------- ---------- --------- ----------
Income Note
CLOs
------------ ------------ ------------ ------------ --------- --------- ---------- ---------- --------- ----------
North
America
------------ ------------ ------------ ------------ --------- --------- ---------- ---------- --------- ----------
Broadly
Syndicated
sub-
Financial Investment
assets Grade
at fair Secured
value Loans
through
profit Non
or loss - USD 8 175-725 482 103 29.69% 103 recourse*
------------ ------------------------- ------------ --------- --------- ---------- ---------- --------- ----------
Financial
assets
at fair
value
Total through
Income profit Non
Note CLOs or loss 8 175-725 482 103 29.69% 103 recourse*
------------ ------------ ------------ ------------ --------- --------- ---------- ---------- --------- ----------
Total 10** 118*** 118
------------- ------------------------ ------------ --------- --------- ---------- ---------- --------- ----------
The Company has a percentage range of 1.6% - 9.7% notional holding out of the entire outstanding notional balance of its subsidiaries as at 30 June 2016.
During the financial period ended 30 June 2016, the Company did not make any purchases of investments in the subsidiary holdings (31 December 2015: US$18,446,500). Nor did the Company make any sales of investments in the subsidiary holdings during the financial period (31 December 2015: US$Nil). The number of subsidiaries grew from 4 to 7 during the financial period due to the expiration of the relevant non call periods. For the financial period ended 30 June 2016 and the financial year ended 31 December 2015, the Company did not provide financial support to its unconsolidated structured entity subsidiaries 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.
** This refers to the number of investments on a tranche level that the Company has on its 7 unconsolidated structured entity subsidiaries.
*** The Company's total fair value holding of its unconsolidated structured entity subsidiaries (above), plus the total fair value holding in non-subsidiary unconsolidated structured entities, as set out on page 22, agrees to the financial assets at fair value through profit or loss in the condensed statement of financial position.
8 INTERESTS IN OTHER ENTITIES (continued)
Below is a summary of the Company's holdings in non subsidiary unconsolidated structured entities as at 31 December 2015:
% of
Total
Financial
Range Average Carador's Assets Maximum
of the at
Line item size Notional Holding Fair exposure
in of SEs of Value
statement No of Notional SEs Fair through to
of Value losses
Structured financial Nature Investments in US$m in US$m in Profit in Other
Entity position US$m or Loss US$m
("SE")
------------- ----------- ------------ ------------ --------- --------- ---------- ---------- --------- ----------
Mezzanine
Note CLOs
------------ ------------ ------------ ------------ --------- --------- ---------- ---------- --------- ----------
North
America
------------ ------------ ------------ ------------ --------- --------- ---------- ---------- --------- ----------
Broadly
Syndicated
sub-
Financial Investment
assets at Grade
fair value Secured
Loans
through
profit Non
or loss - USD 23 107-879 456 116 30.61% 116 recourse*
------------ ------------------------- ------------ --------- --------- ---------- ---------- --------- ----------
Financial assets at fair
value
Total through
Mezzanine profit Non
Note CLOs or loss 23 107-879 456 116 30.61% 116 recourse*
------------ ------------ ------------ ------------ --------- --------- ---------- ---------- --------- ----------
Income Note
CLOs
------------ ------------ ------------ ------------ --------- --------- ---------- ---------- --------- ----------
North
America
------------ ------------ ------------ ------------ --------- --------- ---------- ---------- --------- ----------
Broadly
Syndicated
sub-
Financial Investment
assets at Grade
fair value Secured
Loans
through
profit Non
or loss - USD 29 33-717 460 184 48.55% 184 recourse*
------------ ------------------------- ------------ --------- --------- ---------- ---------- --------- ----------
Financial assets at fair
value
Total through
Income profit Non
Note CLOs or loss 29 33-717 460 184 48.55% 184 recourse*
------------ ------------ ------------ ------------ --------- --------- ---------- ---------- --------- ----------
Total 52 300**
---------------------------------------- ------------ --------- --------- ---------- ---------- --------- ----------
The Company has a percentage range of 0.2% - 46% notional holding out of the entire outstanding notional balances of the structured entities as at 31 December 2015.
During the financial year ended 31 December 2015, the Company did not provide financial support to the unconsolidated structured entities 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.
** The Company's total fair value holding of its unconsolidated structured entity subsidiaries set out on the next page, plus the total fair value holding in non-subsidiary unconsolidated structured entities, as above, agrees to the financial assets at fair value through profit or loss in the statement of financial position.
8 INTERESTS IN OTHER ENTITIES (continued)
Interests in unconsolidated structured entity subsidiaries as at 31 December 2015:
% of
Total
Financial
Range Average Carador's Assets Maximum
of the at
Line item size Notional Holding Fair exposure
in of SEs of Value
statement No of Notional SEs Fair through to
of Value losses
Structured financial Nature Investments in US$m in US$m in Profit in Other
Entity position US$m or Loss US$m
("SE")
------------ ----------- ------------ ------------ --------- --------- ---------- ---------- --------- ----------
Mezzanine
Note CLOs
------------ ----------- ------------ ------------ --------- --------- ---------- ---------- --------- ----------
North
America
------------ ----------- ------------ ------------ --------- --------- ---------- ---------- --------- ----------
Broadly
Syndicated
sub-
Financial Investment
assets at Grade
fair value Secured
Loans
through
profit Non
or loss - USD 2 413-725 569 16 4.22% 16 recourse*
----------- ------------------------- ------------ --------- --------- ---------- ---------- --------- ----------
Financial
assets at
fair value
Total
Mezzanine through profit Non
Note CLOs or loss 2 413-725 569 16 4.22% 16 recourse*
------------ ------------------------- ------------ --------- --------- ---------- ---------- --------- ----------
Income Note
CLOs
------------ ----------- ------------ ------------ --------- --------- ---------- ---------- --------- ----------
North
America
------------ ----------- ------------ ------------ --------- --------- ---------- ---------- --------- ----------
Broadly
Syndicated
sub-
Financial Investment
assets at Grade
fair value Secured
Loans
through
profit Non
or loss - USD 4 215-725 460 64 16.89% 64 recourse*
----------- ------------------------- ------------ --------- --------- ---------- ---------- --------- ----------
Financial
assets at
fair value
Total
Income through profit Non
Note CLOs or loss 4 215-725 460 64 16.89% 64 recourse*
------------ ------------------------- ------------ --------- --------- ---------- ---------- --------- ----------
Total 6*** 80**
--------------------------------------- ------------ --------- --------- ---------- ---------- --------- ----------
The Company has a percentage range of 1.6% - 7.9% notional holding out of the entire outstanding notional balance of its subsidiaries as at 31 December 2015.
During the financial year ended 31 December 2015, the Company purchased Keuka Park CLO Limited 2013-1A at a cost of US$18,446,500 (31 December 2014: US$Nil). The Company made no sales of investments in the subsidiary holdings (31 December 2014: US$23,258,400). The number of subsidiaries grew from 1 to 4 during the financial year due to the expiration of the relevant non call periods.
For the financial year ended 31 December 2015, the Company did not provide financial support to its unconsolidated structured entity subsidiaries 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.
** This refers to the number of investments on a tranche level that the Company has on its 4 unconsolidated structured entity subsidiaries.
*** The Company's total fair value holding of its unconsolidated structured entity subsidiaries (above), plus the total fair value holding in non-subsidiary unconsolidated structured entities, as set out on page 24, agrees to the financial assets at fair value through profit or loss in the condensed statement of financial position.
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 financial period. GSO / Blackstone Debt Funds Management LLC acts as Investment Manager to the Company (the "Investment Manager"). Investment management fees earned by the Investment Manager amounted to US$2,416,524 (30 June 2015: US$3,320,488), of which US$1,229,162 (31 December 2015: US$936,299) was outstanding at the financial period end. No performance fees were earned by the Investment Manager during the financial period (30 June 2015: US$1,144,377), nor were there any performance fees outstanding at 30 June 2016 or 31 December 2015.
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 financial period ended 30 June 2016.
During the financial period ended 30 June 2016, the Company incurred Directors' fees for services as Directors and out-of-pocket expenses of US$204,251 (30 June 2015: US$180,949), of which US$3,528 (31 December 2015: US$Nil) was outstanding at the financial period end.
No Director, nor the Company Secretary, had any beneficial interest in the shares of the Company during the financial period ended 30 June 2016 or financial year ended 31 December 2015.
TRANSACTIONS WITH OTHER RELATED PARTIES
At 30 June 2016, current employees and accounts managed or advised by the Investment Manager and its affiliates within the credit-focused business unit of The Blackstone Group L.P. hold 50,000 US Dollar shares (31 December 2015: 2,271,934 US Dollar shares) which represents approximately 0.01% (31 December 2015: 0.42%) of the issued shares of the Company.
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 2016, 36.50 % (31 December 2015: 33.32%) 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 2016
Investment Investment Manager Market --------------------------- ---------------------- ---------- Adirondack Park CLO GSO / Blackstone Debt Secondary Ltd 2013-1A E Funds Management LLC Birchwood Park CLO Ltd GSO / Blackstone Debt Primary 2014-1X INC Funds Management LLC Bowman Park CLO Ltd GSO / Blackstone Debt Secondary 2014-1A Funds Management LLC Callidus Debt Partners GSO / Blackstone Debt Secondary CLO Fund Ltd 5X INC Funds Management LLC Callidus Debt Partners GSO / Blackstone Debt Secondary CLO Fund Ltd 7A SUB Funds Management LLC Dorchester Park CLO GSO / Blackstone Debt Primary Ltd 2015-1X SUB Funds Management LLC Gale Force CLO Ltd 2007-3A GSO / Blackstone Debt Secondary E Funds Management LLC Keuka Park CLO Ltd 2013-1A GSO / Blackstone Debt Secondary E Funds Management LLC Keuka Park CLO Ltd 2013-1A GSO / Blackstone Debt Secondary SUB Funds Management LLC Pinnacle Park CLO Ltd GSO / Blackstone Debt Secondary 2014-1A SUB Funds Management LLC Sheridan Square CLO GSO / Blackstone Debt Primary Ltd 2013-1A F Funds Management LLC Sheridan Square CLO GSO / Blackstone Debt Secondary Ltd 2013-1A INC Funds Management LLC Seneca Park CLO Ltd GSO / Blackstone Debt Primary 2014-1X SUB Funds Management LLC Stewart Park CLO Ltd GSO / Blackstone Debt Primary 2015-1X SUB Funds Management LLC Thacher Park CLO Ltd GSO / Blackstone Debt Secondary 2014-1X SUB Funds Management LLC Tryon Park CLO Ltd 2013-1X GSO / Blackstone Debt Secondary E Funds Management LLC Tryon Park CLO Ltd 2013-1A GSO / Blackstone Debt Secondary SUB Funds Management LLC Treman Park CLO Ltd GSO / Blackstone Debt Secondary 2015-1A Funds Management LLC Webster Park CLO Ltd GSO / Blackstone Debt Primary 2015-1X SUB Funds Management LLC 9 RELATED PARTY TRANSACTIONS AND KEY MANAGEMENT PERSONNEL (continued)
CLO INVESTMENTS MANAGED BY GSO/BLACKSTONE AND AFFILIATES 31 DECEMBER 2015
Investment Investment Manager Market --------------------------- ---------------------- ---------- Adirondack Park CLO GSO / Blackstone Debt Secondary Ltd 2013-1A E Funds Management LLC Birchwood Park CLO Ltd GSO / Blackstone Debt Primary 2014-1X INC Funds Management LLC Callidus Debt Partners GSO / Blackstone Debt Secondary CLO Fund Ltd 5X INC Funds Management LLC Callidus Debt Partners GSO / Blackstone Debt Secondary CLO Fund Ltd 7A SUB Funds Management LLC Dorchester Park CLO GSO / Blackstone Debt Primary Ltd 2015-1X SUB Funds Management LLC Gale Force CLO Ltd 2007-3A GSO / Blackstone Debt Secondary E Funds Management LLC Keuka Park CLO Ltd 2013-1A GSO / Blackstone Debt Secondary E Funds Management LLC Keuka Park CLO Ltd 2013-1A GSO / Blackstone Debt Secondary SUB Funds Management LLC Pinnacle Park CLO Ltd GSO / Blackstone Debt Secondary 2014-1A SUB Funds Management LLC Sheridan Square CLO GSO / Blackstone Debt Primary Ltd 2013-1A F Funds Management LLC Sheridan Square CLO GSO / Blackstone Debt Secondary Ltd 2013-1A INC Funds Management LLC Seneca Park CLO Ltd GSO / Blackstone Debt Primary 2014-1X SUB Funds Management LLC Stewart Park CLO Ltd GSO / Blackstone Debt Primary 2015-1X SUB Funds Management LLC Thacher Park CLO Ltd GSO / Blackstone Debt Secondary 2014-1X SUB Funds Management LLC Tryon Park CLO Ltd 2013-1X GSO / Blackstone Debt Secondary E Funds Management LLC Tryon Park CLO Ltd 2013-1X GSO / Blackstone Debt Secondary SUB Funds Management LLC Webster Park CLO Ltd GSO / Blackstone Debt Primary 2015-1X SUB Funds Management LLC
TRANSACTION WITH SUBSIDIARIES
As at 30 June 2016, the Company had seven subsidiaries for financial reporting purposes, Babson CLO Ltd 2013-IX, Flatiron CLO 2014-1 Ltd, Keuka Park CLO Ltd 2013-1A, Neuberger Berman CLO XVII Ltd 2013-17X, Pinnacle Park CLO Ltd 2014-1A, Sheridan Square CLO Ltd, Voya Investment Management CLO II Ltd, 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 vehicles is detailed in note 8, which include the different mezzanine and equity tranches held in the seven of them.
The Company received US$17,079,550 in coupon payments from the subsidiaries for the financial period ended 30 June 2016 (30 June 2015: US$8,381,399). There were no realised gains or losses arising during the financial period (30 June 2015: US$Nil). The movement in unrealised losses on subsidiary holdings amounted to (US$97,496,040) during the financial period (30 June 2015: (US$9,178,944)).
During the financial period ended 30 June 2016, the Company purchased no new subsidiaries (31 December 2015: US$18,446,500). However, the number of subsidiaries held by the Company grew from 4 as at 31 December 2015 to 7 as at 30 June 2016. This was due to the expiration of the non call period over the investments, resulting in the Company attaining power over these companies and re-assessing its investments as holdings in subsidiaries, as outlined in note 8. The Company made no sales of investments in the subsidiary holdings during the period ended 30 June 2016 (31 December 2015: US$Nil).
The value of the subsidiary holdings at 30 June 2016 was US$117,995,283 (31 December 2015: US$79,330,636).
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.
10 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
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
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 the Investment Manager or 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 2016 and 31 December 2015 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
30 June 2016 31 December
2015
US$ US$
--------------------------------- ------------- ------------
Collateralised loan obligations 228,714,746 300,332,127
Investment in subsidiaries 117,995,283 79,330,636
--------------------------------- ------------- ------------
TOTAL INVESTMENTS AT FAIR
VALUE 346,710,029 379,662,763
--------------------------------- ------------- ------------
10 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
(A) MARKET RISK (continued)
(i) Interest rate risk
The Company is exposed to interest rate risk on collateralised loan obligations held by the Company.
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 2016 and 31 December 2015:
30 June 2016 31 December
2015
----------------------------- ------------- ------------
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.
30 June 2016 31 December
2015
effect on net assets effect on
net assets
Possible reasonable and profit or loss and profit
or loss
change in rate US$ US$
-------------------- --------------------- ------------
1% (5,031,375) 9,462,616
-1% 52,401,027 16,478,185
-------------------- --------------------- ------------
(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 financial period ended 30 June 2016 (December 2015: US$Nil).
The total net exposure to foreign currencies at the unaudited condensed interim statement of financial position date was as follows:
30 June 2016 31 December
2015
EXPOSURE TO FOREIGN EXCHANGE US$ US$
RATES
------------------------------ ------------- ------------
EUR Exposure
Cash and cash equivalents 91,513 77,527
------------------------------ ------------- ------------
EUR Exposure 91,513 77,527
------------------------------ ------------- ------------
GBP Exposure
Cash and cash equivalents 168,841 186,157
------------------------------ ------------- ------------
GBP Exposure 168,841 186,157
------------------------------ ------------- ------------
TOTAL EXPOSURE 260,354 263,684
------------------------------ ------------- ------------
Possible 30 June 2016 31 December 2015
change effect on effect on
in net assets net assets
exchange net exposure and profit net exposure and profit
rate or loss or loss
US$ US$ US$ US$
---------- ------ ------------- ------------ ------------- --------------
Euro/US
Dollar +/-5% 91,513 (+/-) 1,068 77,527 (+/-) 884
GBP/US
Dollar +/-5% 168,841 (+/-) 2,370 186,157 (+/-) 2,881
---------- ------ ------------- ------------ ------------- --------------
10 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
(A) MARKET RISK (continued)
(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.
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
2016 2015
By asset class US$ US$
Broadly syndicated sub-investment
grade secured loans - North America 338,910,029 371,750,263
Broadly syndicated sub-investment
grade secured loans - Ireland 7,800,000 7,912,500
-------------------------------------- ------------ ------------
346,710,029 379,662,763
-------------------------------------- ------------ ------------
If the value of investments was to increase or decrease by 1%, the impact on the NAV of the Company would be +/-US$3,467,100 (2015: +/- US$3,796,628).
(B) CREDIT RISK
Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. It is the Company's policy to enter into financial instruments with a range of reputable counterparties. Therefore, the Company has a diversified portfolio to reduce credit risk.
The table below analyses the Company's maximum credit exposure to credit risk for the components of the unaudited condensed interim statement of financial position.
30 June 31 December
2016 2015
US$ US$
---------------------------- ------------------------ ------------
Cash and cash equivalents 27,135,534 28,044,711
Other receivables 1,491,559 17,981
Receivable for investments -
sold 1,662,115
Financial assets at fair
value through profit or
loss 346,710,029 379,662,763
---------------------------- ------------------------ ------------
376,999,237 407,725,455
---------------------------- ------------------------ ------------
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 2016 was Aa1 (Source: Moody's) (31 December 2015: A2).
Breakdown by country of incorporation at 30 June 2016 and 31 December 2015:
30 June 31 December
2016 2015
US$ US$
---------------- ------------ ------------
Cayman Islands 338,910,029 371,750,263
Ireland 7,800,000 7,912,500
---------------- ------------ ------------
346,710,029 379,662,763
---------------- ------------ ------------
The table below summarises the Company's portfolio concentrations as of 30 June 2016 and 31 December 2015:
Maximum
portfolio holdings Average
of a single portfolio holdings
asset
% of total % of total
portfolio portfolio
------------------ ------------------- -------------------
30 June 2016 5.61% 1.69%
31 December 2015 6.14% 1.72%
------------------ ------------------- -------------------
10 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
(B) CREDIT RISK (continued)
The below table summarises the portfolio by asset class and ratings of the portfolio as of 30 June 2016 and 31 December 2015:
30 June 2016 31 December
2015
By asset class US$ US$
------------------------- ------------- -----------------
CLO 1.0 Mezzanine Notes 15,480,046 32,819,612
CLO 2.0 Mezzanine Notes 85,482,958 99,183,685
CLO 1.0 Income Notes 22,912,309 23,358,259
CLO 2.0 Income Notes 222,834,716 224,301,207
------------------------- ------------- -----------------
346,710,029 379,662,763
------------------------- ------------- -----------------
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"). CLO 1.0 notes refers to the old vintage CLOs (Vintage 2006 - 2007), while CLO 2.0 notes refer to the new vintage CLO investments post crisis (Vintage 2013 - 2015).
The Company's portfolio is partly invested in the income notes tranches of CLOs which are subject to potential non-payment 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 cash flow 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 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 Investment Manager assesses the credit risk of the CLOs on a look-through basis to the underlying loans in each CLO. The Investment Manager seeks to provide diversification in terms of underlying assets, issuer section, geography and maturity profile.
The top 10 exposures on a look-through basis for the CLO investments as at 30 June 2016 are disclosed below:
% of
Issuer Rating Industry NAV
------------------------- --------- -------------------------- -------
Valeant Pharmaceuticals Ba2/BB- Healthcare 1.06%
First Data Corp B1/BB Financial Intermediaries 1.02%
Calpine Corp Ba2/BB Utilities 0.88%
Avago Technologies Ba1/BBB Information Technology 0.87%
Community Health Ba3/BB Healthcare 0.86%
Asurion Corp Ba3/B Insurance 0.76%
Albertson Ba3/BB Food and Drug 0.73%
Charter Communications Ba1/BBB Cable Television 0.67%
Cablevision Systems
Corp Ba1/BB- Cable Television 0.67%
Leisure Goods /
Scientific Games Ba3/BB- Activities 0.66%
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).
10 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
(B) CREDIT RISK (continued)
The top 10 exposures on a look-through basis for the CLO investments as at 31 December 2015 are disclosed below:
% of
Issuer Rating Industry NAV
-------------------------- ---------- -------------------------- -------
Valeant Pharmaceuticals Ba1/BB Healthcare 1.10%
First Data Corp B1/BB Financial Intermediaries 0.94%
Community Health Systems Ba2/BB Healthcare 0.86%
Numericable SAS B1/B+ Cable Television 0.82%
Avago Technologies Ba1/BBB Information Technology 0.82%
Calpine Corp Ba3/BB Utilities 0.74%
Asurion Corp Ba3/B Insurance 0.72%
Formula One Group B2/B Leisure Goods/Activities 0.62%
Scientific Games Ba3/BB- Leisure Goods/Activities 0.61%
Cablevision Systems
Corp Baa3/BB+ Cable Television 0.60%
(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.
As at 30 June 2016 and 31 December 2015, 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.
Given the Company's permanent capital structure as a closed-ended fund, it is not exposed to redemption risk during the life of the fund. However, at the EGM on 26 June 2013, a resolution was passed that at the annual general meeting to be held in the financial year 2022 (and in every tenth financial year thereafter), the Directors will propose a special resolution to the effect that the Company continue for a further ten financial 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 shareholders also approved the introduction of a 5-yearly repurchase opportunity as follows: if shares have traded at an average discount to the Net Asset Value per share of the relevant class in excess of 5% over the preceding twelve month period, or such other date as may be set out in the Prospectus, an investor may be offered, subject to certain conditions that are set out in the Prospectus and the requirements of the Central Bank, to realise their shares through a repurchase pool. At the Directors' discretion, the first repurchase offer may be in 2017 and thereafter every 5 years (the "discount-trigger"). Even if the discount-trigger is not met, the Directors may, at their discretion, propose an ordinary resolution at the 2017 Annual General Meeting for a repurchase opportunity on substantially the same terms.
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 financial 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 which then expired on 17 December 2015. On 17 December 2015, the Company renewed this facility again resulting in a new expiry date of 15 December 2016 (the "Renewed Facility", and each together with the Initial Facility, the "Facility"). The Facility limit is determined as the lowest of: (a) 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.
11 CREDIT FACILITY (continued)
Adjusted NAV means the NAV of the Company excluding (without double counting): (a) the amount by which the aggregate current market value of investments relating to a single issuer exceeds 10% of the NAV of the Company; (b) the aggregate market value of any investments in relation to which there is not at least two independent valuations (other than any primary investment which has been acquired within the preceding twelve months; and (c) the aggregate value of any Income Notes, each as determined by the Administrator following the publication of the NAV on a regulatory information service.
The Facility is available for general corporate purposes and may be used to make new purchases, but is not intended to leverage the investment portfolio. Borrowings under the Facility are restricted to a maximum period of 364 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 Carador portfolio investments (including cash agreements).
The following fees applied 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 190bps.
There were no draw downs on the Facility during the financial period ended 30 June 2016.
The only amounts to be paid in relation to the credit facility at 30 June 2016 were the commitment fee and the interest charge as disclosed below.
The Company made the following draw downs on the Facility during the financial 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
During the financial period, the Company was charged a commitment fee of US$60,887 (30 June 2015: US$43,850) of which US$22,500 (30 June 2015: US$3,769) remained unpaid at 30 June 2016, and an interest charge of US$15,167 (30 June 2015: US$24,986) of which US$3,338 (30 June 2015: US$25,587) remained unpaid at 30 June 2016. These fees are included in facility costs in the unaudited condensed interim statement of comprehensive income and expenses payable in the unaudited condensed interim statement of financial position.
12 STOCKLING
The Company did not enter into any stocklending transactions during the financial period (30 June 2015: US$ Nil).
13 EARNINGS PER SHARE
The Earnings Per Share ("EPS") is calculated by dividing the profit for the financial period attributable to the participating shareholders by the weighted average number of shares outstanding in the financial period.
Financial Financial
period ended period ended
30 June 2016 30 June 2015
------------------------------- -------------- --------------
US Dollar US Dollar
Class Class
US$ US$
Profit for the financial
period all attributable
to participating equity
shareholders 8,223,815 21,579,820
Number of ordinary shares
for basic earnings per share 543,253,359 543,253,359
------------------------------- -------------- --------------
Basic Earnings Per Share 0.02 0.04
------------------------------- -------------- --------------
For the financial periods ended 30 June 2016 and 30 June 2015, 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 financial periods ended 30 June 2016 and 30 June 2015. The only share class in issue during the financial periods ended 30 June 2016 and 30 June 2015 is the US Dollar Class.
For the financial periods ended 30 June 2016 and 30 June 2015, the Company's primary exposure was to North America related assets (see note 10 (A)).
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 2016, the Board declared a dividend of US$0.0250 per US Dollar share in respect of the period from 1 October 2015 to 31 December 2015. The dividend was paid on 10 February 2016 to shareholders on the share register as at close of business on 5 February 2016. The amount paid in respect of this dividend was US$13,581,333.
On 21 April 2016, the Board declared a dividend of $0.0225 per U.S. Dollar Share in respect of the period from 1 January 2016 to 31 March 2016. This dividend was paid on 4 May 2016 to shareholders on the register as at the close of business on 29 April 2016. The amount paid in respect of this dividend was US$12,223,201.
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$346,710,029 at 30 June 2016 (31 December 2015: US$379,662,763). 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 2015 financial year end numbers, with a slight decrease of 8.68%. More detail is included in the Chairman's report and Investment Manager's review on performance.
Cash and cash equivalents amounted to US$27,135,534 at 30 June 2016 (31 December 2015: US$28,044,711). There was a decrease in cash and cash equivalents held in comparison to 31 December 2015 due to trading activity.
Payable for investments purchased amounted to US$Nil at 30 June 2016 (31 December 2015: US$13,019,620). There was a decrease in payables in comparison to 31 December 2015 due to trading activity.
Net gain on financial assets at fair value through profit or loss for the financial period ended 30 June 2016 amounted to US$11,550,674 (financial period ended 30 June 2015: US$27,117,497). The decrease reflects the change in the market conditions as explained in the Chairman's report and Investment Manager's review.
19 OTHER EVENTS DURING THE FINANCIAL PERIOD
On 22 April 2016, the Company released its audited Annual Report and Accounts for the full year 2015.
At the AGM of the Company held on 22 June 2016, shareholders approved the following ordinary and special resolutions:
Ordinary Resolutions
1. Receipt and consideration of the Directors' report and the financial statements of the Company for the financial year ended 31 December 2015 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 Mr Edward D'Alelio as a Director of the Company;
5. Re-election of Mr Werner Schwanberg as a Director of the Company;
6. Re-election of Mr Fergus Sheridan as a Director of the Company;
7. Re-election of Mr Adrian Waters as a Director of the Company;
8. 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.
Special Resolutions
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) 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.
10. Adoption of the new objects clauses presented at the annual general meeting to the exclusion of all existing objects clauses and to adopt the constitution of the Company presented at the annual general meeting to the exclusion of the existing memorandum and articles of association of the Company.
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 2016, the Board declared a dividend of US$0.0225 per US Dollar share in respect of the period from 1 April 2016 to 30 June 2016. The dividend was paid on 3 August 2016 to shareholders on the share register as at close of business on 29 July 2016. The amount paid in respect of this dividend was US$12,223,201.
There were no other significant events since the financial period end which would require revision of the figures or disclosures in the financial statements.
21 APPROVAL OF THE FINANCIAL STATEMENTS
The unaudited condensed interim financial statements were approved and authorised for issue by the Directors on 25 August 2016.
SCHEDULE OF INVESTMENTS
As at 30 June 2016
Market
Nominal value % of
holdings of US$ NAV
--------------------------------------- ------------ -------------------------- -------------------------
COLLATERALISED LOAN OBLIGATIONS
REGION OF TRADE
North America
COUNTRY OF INCORPORATION
Cayman Islands (December 2015:
74.44%)
ACAS CLO 2013-1X F 5,000,000 3,683,908 0.98
ACAS CLO 2013-2X E 7,000,000 4,991,104 1.33
Adirondack Park CLO Ltd 2013-1A
E 5,500,000 4,541,809 1.21
Apidos CLO 2013-14A F 5,000,000 3,470,383 0.92
Apidos CLO 2013-14X INC 6,060,000 3,333,000 0.89
Apidos CLO 2013-14A E 4,000,000 3,306,062 0.88
Apidos CLO 2014-17X E 11,500,000 7,494,581 2.00
Apidos CLO 2014-18A 3,000,000 1,546,350 0.41
Apidos CLO 2015-20A 10,400,000 7,488,000 2.00
Apidos CLO 2015-20X D 1,538,462 1,329,529 0.35
ARES CLO Ltd 2007-3RA E 7,000,000 6,131,164 1.63
ARES CLO Ltd 2013-3X SUB 21,750,000 9,515,625 2.54
Birchwood Park CLO Ltd 2014-1A 8,000,000 4,546,667 1.21
Birchwood Park CLO Ltd 2014-1X
INC 1,000,000 568,333 0.15
BNPP IP CLO Ltd 2014-1X D 16,500,000 11,988,423 3.19
BNPP IP CLO Ltd 2014-1X E 14,000,000 8,335,001 2.22
Bowman Park CLO Ltd 2014-1X 2,500,000 1,769,250 0.47
Callidus Debt Partners CLO Fund
Ltd 5A INC 4,700,000 115,542 0.03
Callidus Debt Partners CLO Fund
Ltd 5X INC 7,000,000 172,083 0.05
Callidus Debt Partners CLO Fund
Ltd 7A SUB 14,050,000 316,125 0.08
Callidus Debt Partners CLO Fund
Ltd 7X SUB 11,050,000 248,625 0.07
Carlyle Global Market Strategies
CLO Ltd 2015-1A SUB 10,000,000 6,616,667 1.76
Cedar Creek CLO Ltd 2013-1 SUB 10,200,000 5,089,800 1.36
Cedar Funding CLO Ltd 2014-3A
SUB 2,000,000 1,242,500 0.33
Clear Lake CLO Ltd 2006-1A D 6,184,393 5,738,424 1.53
Dryden Senior Loan Fund 2013-26X
SUB 6,000,000 3,318,000 0.88
Dryden Senior Loan Fund 2015-41X
SUB 900,000 666,000 0.18
Eaton Vance CDO Ltd 2014-1X INC 8,000,000 3,480,000 0.93
Gale Force Clo Ltd 2007-3A E 1,600,000 2,201,499 0.59
Gale Force Clo Ltd 2007-3X E 2,500,000 1,408,959 0.38
Highbridge Loan Management 3-2014 1,750,000 1,136,188 0.30
Highbridge Loan Management 4-2015
Ltd 4,900,000 4,009,245 1.07
Magnetite XI Ltd 10,000,000 7,350,000 1.96
Magnetite XV Ltd 3,000,000 2,708,985 0.72
Neuberger Berman CLO Ltd-2013-14A
E 7,000,000 5,450,621 1.45
Neuberger Berman CLO Ltd 2013-14X
SUB 18,554,000 10,291,440 2.74
Neuberger Berman CLO 2013-15X
SUB 3,500,000 1,745,284 0.47
Neuberger Berman CLO Ltd 2013-16X
F 7,500,000 4,381,616 1.17
NYLIM Flatiron CLO Ltd 2006-1X
SUB 2,000,000 548,000 0.15
OHA Park Avenue CLO I Ltd 2007-1A
SUB 10,000,000 4,356,667 1.16
Palmer Square CLO 2015-1 Ltd
2015-1 SUB 5,000,000 3,336,250 0.89
Rampart CLO 2007 Ltd 2007-1A
SUB 11,000,000 2,705,267 0.72
Seneca Park CLO Ltd 2014-1X SUB 6,500,000 3,445,000 0.92
Stewart Park CLO Ltd 2015-1X
SUB 10,000,000 8,175,000 2.18
Thacher Park CLO Ltd 2014-1X
SUB 4,000,000 2,520,000 0.67
SCHEDULE OF INVESTMENTS (continued)
As at 30 June 2016
Market
Nominal value % of
holdings of US$ NAV
--------------------------------------- ------------ -------------------------- -------------------------
COLLATERALISED LOAN OBLIGATIONS
REGION OF TRADE
North America
COUNTRY OF INCORPORATION
Cayman Islands (December 2015:
74.44%)
THL Credit Wind River 2013-2
CLO Ltd 5,000,000 2,919,544 0.78
THL Credit Wind River Ltd 2014-3
CLO 2,500,000 1,887,267 0.50
Treman Park CLO Ltd 2015-1A 4,000,000 2,750,000 0.74
Tryon Park CLO Ltd 2013-1X E 4,700,000 3,267,001 0.87
Tryon Park CLO Ltd 2013-1X SUB 12,000,000 6,653,416 1.77
VOYA Investment Management CLO
Ltd 2015-2X SUB 18,000,000 13,587,042 3.62
Webster Park CLO Ltd 2015-1X
SUB 14,900,000 13,037,500 3.47
--------------------------------------- ------------ -------------------------- -------------------------
220,914,746 58.87
Ireland (December 2015: 2.01%)
Dorchester Park CLO Ltd 2015-1X
SUB 10,000,000 7,800,000 2.08
--------------------------------------- ------------ -------------------------- -------------------------
7,800,000 2.08
TOTAL COLLATERALISED LOAN OBLIGATIONS
(DECEMBER
2015: 76.45%) 228,714,746 60.95
INVESTMENT IN SUBSIDIARIES
REGION OF TRADE
North America
COUNTRY OF INCORPORATION
Cayman Islands (December 2015:
20.20%)
Babson CLO Ltd 2013-IX SUB 21,000,000 10,010,000 2.67
Flatiron CLO 2014-1 Ltd 31,000,000 12,813,333 3.41
Keuka Park CLO Ltd 2013-1A E 8,000,000 6,399,875 1.71
Keuka Park CLO Ltd 2013-1A SUB 23,350,000 12,599,660 3.36
Neuberger Berman CLO XVII Ltd
2013-17X SFN 1,684,737 1,085,532 0.29
Neuberger Berman CLO XVII Ltd
2013-17X SUB 29,100,000 16,628,710 4.43
Pinnacle Park CLO Ltd 2014-1A
SUB 25,000,000 16,328,125 4.35
Sheridan Square CLO Ltd 2013-1A
F 11,900,000 8,237,548 2.20
Sheridan Square CLO Ltd 2013-1A
SUB 20,000,000 10,100,000 2.69
Sheridan Square CLO Ltd 2013-1A
INC 12,000,000 6,060,000 1.61
Sheridan Square CLO Ltd 2013-1X
INC 6,500,000 3,282,500 0.87
VOYA Investment Management CLO
II Ltd (Preference Shares) 17,000 14,450,000 3.85
117,995,283 31.44
--------------------------------------- ------------ -------------------------- -------------------------
TOTAL INVESTMENTS AT FAIR VALUE
(DECEMBER 2015: 96.65%) 346,710,029 92.39
OTHER ASSETS (DECEMBER 2015:
7.14%) 30,289,208 8.07
OTHER LIABILITIES (DECEMBER 2015:
(3.79)%) (1,742,512) (0.46)
--------------------------------------- ------------ -------------------------- -------------------------
TOTAL NET ASSETS ATTRIBUTABLE
TO EQUITY PARTICIPATING SHAREHOLDERS 375,256,725 100.00
--------------------------------------- ------------ -------------------------- -------------------------
MANAGEMENT AND ADMINISTRATION
DIRECTORS* REGISTERED OFFICE
Werner Schwanberg (Chairman)** 78 Sir John Rogerson's Quay
Fergus Sheridan** Dublin 2
Adrian Waters** Ireland
Edward D'Alelio
Nicholas Moss** COMPANY REGISTRATION NUMBER:
415764
US Dollar shares ISIN: IE00B3D60Z08
ADMINISTRATOR AND COMPANY
SECRETARY
State Street Fund Services INVESTMENT MANAGER
(Ireland) Limited
78 Sir John Rogerson's Quay GSO / Blackstone Debt Funds
Management LLC
Dublin 2 345 Park Avenue
Ireland Floor 31
New York
CUSTODIAN NY 10154
State Street Custodial Services United States of America
(Ireland) Limited
78 Sir John Rogerson's Quay
Dublin 2 JOINT FINANCIAL ADVISER
Ireland AND JOINT CORPORATE BROKER
Fidante Partners Europe
Limited (trading as Fidante
Capital)
SOLICITORS AS TO US AND 1 Tudor Street
ENGLISH LAW
Herbert Smith Freehills London EC4Y 0AH
LLP
Exchange House United Kingdom
Primrose Street
London EC2A 2EG JOINT FINANCIAL ADVISER
United Kingdom AND JOINT CORPORATE BROKER
Nplus1 Singer Advisory LLP
SOLICITORS AS TO IRISH LAW One Bartholomew Lane
Arthur Cox London EC2N 2AX
Earlsfort Centre United Kingdom
Earlsfort Terrace
Dublin 2 INDEPENDENT AUDITOR
Ireland KPMG
1 Harbourmaster Place
REGISTRAR IFSC
Computershare Investor Services Dublin1
(Ireland) Limited
Herron House Ireland
Corrig Road
Sandyford Industrial Estate
Dublin 18
Ireland
* All Directors of Carador Income Fund PLC are Non-Executive Directors.
** Independent Directors.
[1] Sources: Credit Suisse High Yield Index, Credit Suisse Leveraged Loan Index ("CS LLI"), Barclays U.S. Treasury Index, Barclays U. S. Corporate Index, and the S&P 500 Index.
[2] Past performance is not necessarily indicative of future results, and there can be no assurance that Carador will achieve comparable results, will meet its target returns, achieve its investment objectives or be able to implement its investment strategy. All returns are net of an accrued performance fee because the NAV and distributions to the end of the month for the U.S. $ Shares were in excess of their respective thresholds.
[3] The 12 month Dividend Yield is based on last four quarterly dividends declared. Share price data is as at the end of the respective month.
[4] This is a target and not a forecast and there can be no guarantee or assurance that the target will be met.
[5] Past performance is not necessarily indicative of, and cannot be relied upon as a guide to, future results, and there can be no assurance that Carador will achieve comparable results, will meet its target returns, achieve its investment objectives or be able to implement its investment strategy. All returns are net of an accrued performance fee because the NAV and distributions to the end of the month for the U.S. $ Shares were in excess of their respective thresholds.
[6] The 12 month Dividend Yield is based on last four quarterly dividends declared.
[7] S&P / LCD Quarterly Leveraged Lending Review (US and Europe).
[8] S&P / LCD Quarterly Leveraged Lending Review (US and Europe).
[9] JP Morgan Leveraged Loan Monitor.
[10] Bank of America Merrill Lynch, CLO Weekly 22 July 2016.
[11] JP Morgan CLOIE Monitor.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR KMGFRKGNGVZM
(END) Dow Jones Newswires
August 30, 2016 12:47 ET (16:47 GMT)
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