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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 : 4611P
Carador Income Fund PLC
31 August 2017
RNS Announcement
Carador Income Fund plc
31 August 2017
FOR IMMEDIATE RELEASE
INTERIM REPORT AND UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS FOR THE FINANCIAL PERIODED 30 JUNE 2017
NOT FOR RELEASE, DISTRIBUTION 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 and Unaudited Condensed Interim Financial Statements for the financial period ended 30 June 2017 as set out below, will be posted to the shareholders of the Company and will shortly be available on the Company's website http://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 (1)
I am pleased to present the Interim Report including unaudited condensed interim financial statements for the Company for the six months ended 30 June 2017.
The year began with the market's attention shifting from monetary policy to the political picture, with a significant focus on President Trump's attempt to implement "Trumponomics" in a partisan and divided Washington DC, and the outcome of the major European elections throughout 2017. We had seen some softness throughout the market but the tides shifted to end the period in a spectacular reversal, as unexpected hawkish commentary from the Federal Open Market Committee ("FOMC") and European Central Bank ("ECB") left markets scrambling to unwind consensus trades. Despite some deceleration in consumer confidence amid falling oil prices, inflation trends tracking lower, and decreasing odds of fiscal stimulus, we continue to expect relatively contained volatility in the third quarter, with few major macroeconomic catalysts on the horizon throughout the remainder of the summer.
Returns for loans (+1.96%) and high yield (+4.37%) were volatile as Trump's political struggles, heightened geopolitical tensions, and stagnated corporate profitability started to drive consumers into safe haven assets. In June, loans saw some softness as investors began to focus on the disproportionate benefit to fixed income peers from a steady decline in long-end US Treasury yields; however, we are already seeing prices rise.
Risky asset classes outperformed over the period, with large cap equities (S&P 500) rallying +9.34% and emerging markets gaining +5.11%, with returns during the first quarter almost double those of the second. Performance of Treasuries and investment grade bonds were reversed, with the returns of the 10-year Treasury (+2.08%) and US corporates (+3.80%) driven by the risk-off mentality of the second quarter.
Performance
During the six month period ended 30 June 2017, the Company generated a total Net Asset Value ("NAV") return of 4.24% including distributions. The Company started the year with a NAV per share of US$0.7763 and ended the first half at US$0.7580, a 2.36% decline in the NAV per share, although as noted below, the Company also paid a total of $0.0500 per share in dividends over the period.(2)
The Company's shares closed the first half of 2017 at US$0.7288, a 3.85% discount to the NAV at 30 June 2017. The annualised historic dividend yield based on the last declared dividends was 13.04%.(3)
Dividends
The Company declared total dividends of $0.095 per share for 2016, above the target annual dividend of $0.090 per share previously announced in the Dividend Strategy and Outlook for the year. The reversion of the weighting between Mezzanine Notes and Income Notes during 2016 and consequential increase in income received during 2016 enabled a higher distribution to be declared. In addition, the Company has a surplus of $9.9 million of undistributed net income accumulated between 2013 and 2016.
(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 30 June 2017.
Dividends (continued)
In January 2017, the Directors announced that for 2017 the Company will maintain a target dividend of $0.0900 per share distributed evenly in four quarterly payments. Dividends are expected to be covered from net cashflows (after reinvestment of a portion of the cashflows from Income Notes in accordance with the Company's investment policy).(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 2017 dividend commensurately. The Company also maintains the right to distribute in excess of 85% of its net income at its own discretion.
The Company made the following dividend announcements in respect of Q4 2016 and the six months to 30 June 2017:
-- On 19 January 2017, the Board declared a dividend of US$0.0275 per US Dollar share in respect of the period from 1 October 2016 to 31 December 2016. The dividend was paid on 1 February 2017.
-- On 20 April 2017, the Board declared a dividend of US$0.0225 per US Dollar share in respect of the period from 1 January 2017 to 31 March 2017. The dividend was paid on 3 May 2017.
-- On 20 July 2017, the Board declared a dividend of US$0.0225 per US Dollar share in respect of the period from 1 April 2017 to 30 June 2017. The dividend was paid on 2 August 2017.
Material Events
On 27 April 2017, the Company released its audited Annual Report and Accounts for the full year 2016.
At the Annual General Meeting (the "AGM") of the Company held on 31 July 2017, the shareholders approved the following ordinary and special resolutions:
Ordinary Resolutions
1. Receive and consider the reports of the Board and of the auditor of the Company, KPMG, and the accounts for the year ended 31 December 2016.
2. Review of the Company's affairs.
3. Re-appointment of KPMG as auditors of the Company.
4. Authorisation of the Directors to fix the remuneration of the auditors of the Company.
5. Re-election of Mr Edward D'Alelio as a director of the Company.
6. Re-election of Mr Werner Schwanberg as a director of the Company.
7. Re-election of Mr Fergus Sheridan as a director of the Company.
8. Re-election of Mr Adrian Waters as a director of the Company.
9. Approval of the repurchase opportunity, as summarised in the circular accompanying the Notice of the Annual General Meeting.
10. Authorisation of the Directors to allot up to 300 million shares of the Company.
11. Authorisation of the Directors to allot 10% of shares in addition or as an alternative to item 10 above.
Special Resolutions
12. Authorisation of the Directors to allot the shares referred to in items 10 and 11 above, without having previously to offer such shares to shareholders on a pre-emptive basis.
13. Adopt the constitution of the Company in the form presented to the annual general meeting to the exclusion of the existing constitution of the Company.
Subject to receipt of regulatory approval it is anticipated that the repurchase opportunity documents will be published and sent to eligible shareholders in September 2017.
(4) The actual dividend generated by the Company in 2017 will depend on a wide range of factors including, but not limited to, general economic and market conditions, fluctuations in currency exchange rates, prevailing interest rates and credit spreads, and the terms of the investments made by the Company. The target annual dividend set out above should not be taken as an indication of the Company's expected future performance or results. The target annual dividend is a target only and there is no guarantee that it can or will be achieved, and it should not be seen as an indication of the Company's expected or actual return. Target returns are hypothetical and are neither guarantees nor predictions or projections of future performance. Actual events and conditions may differ materially from the assumptions used to establish the target annual dividend. Furthermore, the future performance of the Company may be materially adversely affected by the risks discussed in the section entitled "Risk Factors" of the Company's latest prospectus, available at www.carador.co.uk. Accordingly, investors should not place any reliance on the target annual dividend in deciding whether to invest in the Company's shares.
Outlook
The Board believes that the Company's portfolio is well placed after the first half of 2017 to take advantage of investment opportunities.
As at the end of June 2017, the Company's portfolio investments comprised 14.8% Mezzanine Notes, 86.9% Income Notes, and a cash and cash equivalents balance of -1.73%(5) all as a percentage of NAV. The Board believes that the Company's current portfolio is well positioned to benefit from varying credit cycles and environments given the active approach and the duration of reinvestment period of its income notes.
With over US$8 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 believes, based on the Investment Manager's expectations, bouts of volatility as we have seen over the past two years. The CLO market continues to enjoy positive returns with all tranches of JP Morgan Collateralized Loan Obligation Index ("CLOIE") post-crisis CLOs experiencing no negative returns in 2017 and continues to provide 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
24 August 2017
(5) Reflects trade date cash balance not settled cash balance.
INVESTMENT MANAGER'S REVIEW
For the six month period ended 30 June 2017
Highlights of the first half of 2017 include:(6)
-- Aggregate declared dividend of US$0.0450 per share, in line with the target provided by the Board in January 2017.
-- NAV total return of 4.24%, including dividends paid.
-- Historic dividend yield of 13.04% (share price as at 30 June 2017).(7)
-- 1.29x net cashflow cover.
-- The Company added 15 Income Note investments to the portfolio for a total market value of US$96.94 million. Carador also took advantage of the strong BB and B market and opportunistically sold 8 investments for a total market value of US$25.48 million.
-- Active refinancing and reset of Income Notes. Seven deals refinanced and four deals reset.
Bank Loan Market Overview
The first half closed again this year with the surprising political result in the UK. Much like the Brexit referendum, the general consensus was that the Conservative Party led by the Prime Minister Theresa May would increase her overall majority after calling a snap election. The result was the opposite and Theresa May lost her majority. The market however took the event in its stride which clearly has begun discounting unlikely events more heavily after the election surprises in 2016.
Though we saw a reversal in performance across rating quality during the second quarter of 2017, it was not enough to overcome the outperformance of lower-quality loans during the first quarter. Over the first six months of 2017, the lower tier (CCC, Split CCC and Default) of the CS LLI gained 4.32%, while middle tier loans (Split BB, B, and Split B) and upper tier loans (Split BBB and BB) gained 2.11% and 1.22%, respectively.
The technical backdrop continues to be particularly strong as supply of new paper in the loan market is not matching the incremental demand for these products. The issuer friendly conditions have resulted in consistently low new issue yields and aggressive structures. Many issuers, who tapped the market in early 2016, have returned this year to reprice or refinance.
Institutional U.S. loan issuance totalled $297.0 billion for the first half of 2017, up significantly since last year's US$127.8 billion first-half tally. In Europe, institutional new issuance reached EUR49.7 billion for the first half of 2017 versus EUR27.7 billion during the same period in 2016. Primary market conditions continued to be favourable for issuers in both markets, with repricing and refinancings continuing to account for the majority of loan issuance, resulting in relatively scarce net supply in the face of sustained demand.
The loan market's technical backdrop continues to support valuations, and demand for the asset class remains robust. While repricings continued to dominate new issues, the relentless pace of senior loan repricings did slow slightly towards the end of the second quarter as many issuers had already taken advantage of the borrower-friendly environment, leaving fewer viable candidates. Near term, we expect this more modest repricing trend to continue, but provided the majority of the loan market continues to trade above par, we anticipate the technicals of the secondary market to further strengthen and support the resurgence of repricings later in 2017.
Demand for the asset class continues to be robust as institutional and retail investors search for yield and try to limit duration risk, and CLO issuance accelerates. Weekly loan inflows have reached a magnitude that we have not seen since 2013. According to S&P/LCD, 25 of the first 28 weeks of the year saw positive retail loan flows. As rates rise, we believe that institutional and retail investors will continue to deploy capital and shift exposure to short duration and floating rate assets.
(6) 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.
(7) The 12 month Dividend Yield is based on last four quarterly dividends declared.
Bank Loan Market Overview (continued)
Loan and high yield default activity has been modest year-to-date, with 22 companies defaulting for a total of US$18.0 billion - less than half of the amount of defaults over the same period in 2016 (US$43.4 billion). According to JP Morgan, at the end of June, the last twelve month loan default rate (par-weighted) was 1.42% (0.93% ex-energy), down from 1.49% at the start of the year. High yield par-weighted defaults were down to 1.50% (0.92% ex-energy), from 3.57% at the beginning of the year. Unsurprisingly, energy has accounted for the largest number of defaults and second highest volume (20%) year-to-date with the technology, utility, and retail sectors representing 33%, 15%, and 12% of default volume, respectively. JP Morgan continues to expect 2017 high yield and loan default rates to remain below historical averages at 2.0% and 1.5%, respectively. We also believe that the fundamental backdrop is favourable for the asset class and expect defaults to remain low through the remainder of 2017.(8)
CLO Market Overview
US CLO issuance during the first half of the year was essentially double that of 2016, totalling US$52.5 billion through 93 deals versus last year's tally of US$26.2 billion through 62 deals. European CLO issuance was slightly ahead of last year with EUR8.4 billion through 21 deals compared to EUR7.2 billion and 20 deals for the first half of 2016. Strategists have been increasing their full year 2017 US CLO issuance forecast, with projections of US$85-95 billion versus the US$50-75 billion projected at the end of 2016 and actual 2016 issuance of US$72.3 billion(9) .
Discount margins of US post-crisis CLOs have tightened substantially over the past six months, most likely as a result of the spread compression in the underlying loan portfolios. During that period, "CLOIE" shows that the BB and B discount margins tightened from 725bp and 1011bp to 589bp and 751bp, respectively(10) .
The tightening loan spreads and lack of yield has directed yield-hungry investors towards both new and refinanced CLOs, resulting in CLO liabilities tightening. AAA spreads in Europe hit a post-crisis low of E+83bp, while the US reached a three year tight of L+118bp. Average new issue spreads for the quarter were E+87bp in Europe and L+133bp in the US.
Portfolio Update
During the first half of the year, the Investment Manager has continued to rotate the portfolio. Through actively pursuing reset opportunities and continued portfolio trading, the Investment Manager believes that the Company's portfolio is well positioned to benefit from varying credit cycles given its active approach and the lengthening duration of reinvestment period of its Income Notes exposure to top-tier CLO managers, as well as its long term non-recourse funding. This active approach has produced a portfolio where 69% of its Income Notes have a reinvestment period of 2020 or later. The table below highlights the transition of the reinvestment periods of the portfolio's Income Note over the period as a percentage of NAV:
Year Reinvestment As of Ends As of 30/06/2017 31/12/2016 2013 0.00% 0.35% 2014 0.20% 0.33% 2017 8.92% 21.34% 2018 10.06% 23.04% 2019 11.67% 14.86% 2020 21.71% 22.72% 2021 20.74% 12.95% 2022 26.70% 4.42%
(8) JP Morgan Credit Outlook & Strategy 2017.
(9) Reuters - LCD: Bank increase CLO forecast as issuance thrives
(10) JP Morgan CLOIE Monitor.
Portfolio Update (continued)
The Investment manager has continued to focus on performing managers. The below table lists the top ten managers by exposure to the Income Notes:
Hot Features
Premium
% of Income
Notes Manager
GSO/Blackstone Debt Funds Management
39.2% LLC
11.3% Neuberger Berman Fixed Income LLC
9.5% HPS Investment Partners, LLC
BlackRock Financial Management
9.2% Inc
Prudential Investment Management
6.1% Inc
4.9% Ares Management LLC
4.4% CVC Credit Partners LLC
AEGON USA Investment Management
4.3% LLC
4.0% Carlyle GMS CLO Management LLC
Voya Alternative Asset Management
3.7% LLC
The Investment Manager has completed four resets during the second quarter of 2017, as it believes that resets are supportive of long-term, sustainable income generation for Income Note holders. The average month-on-month valuation increase upon each reset had ranged from 14.0% to 17.0%, and the risk-adjusted IRR has also improved substantially at the new valuation. Please see summary of reset activity below:
Deals CLO Manager Original New AAA Extension of Pricing
AAA Spread Spread Reinvestment Date
Period
HLM 3-2014 HPS L+148bp L+118bp 4.50 years Jun-17
PLMRS 2015-1 Palmer Square L+150bp L+130bp 2.00 years May-17
NEUB 2014-17 Neuberger Berman L+147bp L+118bp 3.75 years Apr-17
NEUB 2013-14 Neuberger Berman L+113bp L+125bp 4.75 years Apr-17
The Company has also benefited from the lower CLO liability costs via 7 refinancings as detailed below:
Deals CLO Manager Original AAA New AAA Refinancing
Spread Spread priced
MAGNE 2014-9 Blackrock L +142bp L+100bp May-17
MAGNE 2014-11 Blackrock L +145bp L+112bp Apr-17
SPARK 2014-1 GSO L +148bp L+112bp Mar-17
Ares 2013-3 Ares L +135bp L+101bp Mar-17
THRPK 2014-1 GSO L +147bp L+116bp Feb-17
BRCHW 2014-1 GSO L +144bp L+118bp Feb-17
BOWPK 2014-1 GSO L +148bp L+118bp Feb-17
As of 30 June 2017, the Company had 4.13% exposure to CCC assets and 0.14% of defaulted assets on a look through basis across its 52 CLOs managed by 15 investment managers.
As at 30 June 2017, the Company's top five investment exposures were:
Investment Manager Original % of Portfolio
Rating
------------------- ------------------------------------------- --------- --------------
CATSK 2017-1A SUB GSO / Blackstone Debt Funds Management LLC NR/NR 7.84%
NEUB 2014-17X SUB Neuberger Berman NR/NR 4.76%
HLM 10A-16 SUB Highbridge Principal Stategies NR/NR 4.33%
MAGNE 2014-11A SUB BlackRock NR/NR 4.20%
HLM 3A-2014 SUB Highbridge Principal Stategies NR/NR 3.82%
Outlook
We believe the current environment is supportive for credit products. Economist forecasts, on average, indicate that the U.S. economy is expected to grow between 2-3% in 2017. The unemployment rate is forecast to fall to 4.3% in 2017, which should support the improvement in U.S. household balance sheets. With the Federal Reserve leading the way with tightening monetary policies, the epoch of "cheap money" may be drawing to a close. Despite this, there is still significant demand from yield-hungry investors with high yield coupons at all-time lows. With Brexit negotiations underway between the UK and Europe, we continue to stand vigilant, knowing from experience the ability of political events to spook markets.
We expect that the ongoing active management of the Company and the rotation into longer-dated CLO Income Note positions and future reset/refinancings will continue to deliver sustainable cash flows as well as help maintain overall portfolio performance.
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 2017, 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 20 July 2017, the Board declared a dividend of US$0.0225 per US Dollar share in respect of the period from 1 April 2017 to 30 June 2017. This dividend was paid on 2 August 2017.
On 31 July 2017, the Company announced the results of the resolutions proposed at its AGM.
At the AGM, Shareholders approved the repurchase opportunity summarised in the circular accompanying the Notice of the AGM and facilities to allow the raising of additional capital. Subject to receipt of regulatory approval it is anticipated that the repurchase opportunity documents will be published and sent to eligible shareholders in September 2017.
Additional information will be provided in due course.
GSO / Blackstone Debt Funds Management LLC
24 August 2017
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 our responsibility for preparing the half year financial report in accordance with the transparency (Directive 2004/109/EC) Regulations 2007, the Transparency Rules of the Central Bank of Ireland and the Disclosure and Transparency Rules of the UK Financial Conduct Authority and with IAS 34 Interim Financial Reporting, as adopted by the EU, and 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 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.
-- Should take up of the repurchase opportunity reach 75% of shares outstanding, the Directors will need to consider whether a winding-up resolution should instead be put to Shareholders.
The primary risks associated with the repurchase opportunity will be enumerated in the repurchase opportunity documents.
Please also refer to note 10 for a fuller description of the risks involved in an investment in the Company and note 2D on the going concern assessment.
The Directors anticipate that the principal risks and uncertainties will remain as outlined above and in note 10 and note 2D for the remaining six months of the current financial year.
CONNECTED PARTY 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 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
24 August 2017
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 2017 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. Our review was conducted having regard to the Financial Reporting Council's ("FRC's") 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 2017 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU, the Transparency (Directive 2004/109/EC) Regulations as amended ("the TD Regulations"), the Transparency Rules of the Central Bank of Ireland and the Disclosure and Transparency Rules of the UK's Financial Conduct Authority.
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, the Transparency Rules of the Central Bank of Ireland and the Disclosure and Transparency Rules of the UK's Financial Conduct Authority. As disclosed in note 2, the annual financial statements of the Company are prepared in accordance with IFRSs as adopted by the EU. The Directors are responsible for ensuring that the condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU. Our responsibility 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 having regard to the FRC's ISRE (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 (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, Transparency Rules of the Central Bank of Ireland and the Disclosure and Transparency Rules of the UK's Financial Conduct Authority. 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
Date: 24 August 2017
UNAUDITED CONDENSED INTERIM STATEMENT OF FINANCIAL POSITION
As at 30 June 2017
30 June 31 December
2017 2016
Notes US$ US$
------------------------------------------ --------- ------------ ------------
ASSETS
Cash and cash equivalents 5, 10 660,999 16,682,060
Other receivables 10 954,079 1,357,374
Financial assets at fair value through
profit or loss* 3, 8, 10 418,876,327 405,793,835
------------------------------------------ --------- ------------ ------------
TOTAL ASSETS 420,491,405 423,833,269
------------------------------------------ --------- ------------ ------------
LIABILITIES
Expenses payable 4 1,730,590 2,092,950
Payable for investments purchased 5,000,004 -
Credit Facility 11 2,000,000 -
------------------------------------------ --------- ------------ ------------
TOTAL LIABILITIES 8,730,594 2,092,950
------------------------------------------ --------- ------------ ------------
NET ASSETS ATTRIBUTABLE TO PARTICIPATING EQUITY
SHAREHOLDERS 411,760,811 421,740,319
----------------------------------------------------- ------------ ------------
NET ASSET VALUE PER PARTICIPATING US DOLLAR SHARE 0.7580 0.7763
----------------------------------------------------- ------------ ------------
* 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 2017
30 June 30 June
2017 2016
Notes US$ US$
--------------------------------------------- ------- ------------ ------------
Interest income on cash and cash
equivalents 2,148 1,354
Miscellaneous income 6,406 29,601
Net gain/(loss) on foreign exchange 17,790 (32,932)
Net gain on financial assets at
fair value through profit or loss 20,659,595 11,550,674
--------------------------------------------- ------- ------------ ------------
TOTAL REVENUE 20,685,939 11,548,697
--------------------------------------------- ------- ------------ ------------
Investment management fees 4 (2,508,973) (2,416,524)
Custodian fees 4 (32,681) (30,653)
Administration fees 4 (154,587) (140,008)
Directors' fees 4, 9 (194,994) (204,251)
Auditor's fees 4 (97,390) (97,661)
Other operating expenses 4 (407,850) (344,127)
--------------------------------------------- ------- ------------ ------------
TOTAL OPERATING EXPENSES (3,396,475) (3,233,224)
--------------------------------------------- ------- ------------ ------------
OPERATING PROFIT BEFORE FINANCE
COSTS 17,289,464 8,315,473
--------------------------------------------- ------- ------------ ------------
Facility costs 11 (104,833) (76,054)
Interest expense (1,472) (15,604)
------------------------------------------------------ ------------ ------------
TOTAL FINANCE COSTS (106,305) (91,658)
------------------------------------------------------ ------------ ------------
PROFIT FOR THE FINANCIAL PERIOD ALL ATTRIBUTABLE
TO PARTICIPATING EQUITY SHAREHOLDERS 17,183,159 8,223,815
------------------------------------------------------ ------------ ------------
TOTAL COMPREHENSIVE INCOME FOR THE FINANCIAL
PERIOD ALL ATTRIBUTABLE TO PARTICIPATING
EQUITY SHAREHOLDERS 17,183,159 8,223,815
EARNINGS PER SHARE
Earnings per US Dollar share 13 US$0.03 US$0.02
--------------------------------------------- ------- ------------ ------------
The accompanying notes form an integral part of the unaudited condensed interim financial statements.
UNAUDITED CONDENSED INTERIM STATEMENT OF CHANGES IN EQUITY
For the six months ended 30 June 2017
US$
Notes
----------------------------------------------------- ------------ -------------
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
----------------------------------------------------- ------------ -------------
AT 31 DECEMBER 2016 421,740,319
----------------------------------------------------- ------------ -------------
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 17,183,159
----------------------------------------------------- ------------ -------------
TOTAL COMPREHENSIVE INCOME FOR THE FINANCIAL
PERIOD ALL ATTRIBUTABLE TO PARTICIPATING EQUITY
SHAREHOLDERS 17,183,159
AT 30 JUNE 2017 411,760,811
----------------------------------------------------- ------------ -------------
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 2017
30 June 30 June
2017 2016
Notes US$ US$
------------------------------------------- --------- ---------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Profit for the financial period all
attributable to participating equity
shareholders 17,183,159 8,223,815
Adjustments for non-cash items and
working capital:
Decrease in payables 2,4 (362,360) (125,879)
Increase/(decrease) in receivables 2,4 403,295 (1,473,578)
Net loss on financial assets at fair
value 2,4 7,246,440 17,710,595
------------------------------------------------ ---- ---------------- ---------------
NET CASH INFLOW FROM OPERATING ACTIVITIES 24,470,534 24,334,953
------------------------------------------------ ---- ---------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments* (93,448,248) (41,494,620)
Disposal and paydowns of investments* 78,119,320 42,055,024
------------------------------------------------ ---- ---------------- ---------------
Net Cash (Outflow)/Inflow from investing
activities (15,328,928) 560,404
------------------------------------------------ ---- ---------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to participating equity
shareholders 16 (27,162,667) (25,804,534)
Drawdowns on credit facility 11 41,500,000 -
Repayments on credit facility 11 (39,500,000) -
------------------------------------------------ ---- ---------------- ---------------
Net Cash outflow from financing activities (25,162,667) (25,804,534)
------------------------------------------------ ---- ---------------- ---------------
Net decrease in cash and cash equivalents (16,021,061) (909,177)
CASH AND CASH EQUIVALENTS AT THE
BEGINNING OF THE FINANCIAL PERIOD 16,682,060 28,044,711
------------------------------------------------ ---- ---------------- ---------------
CASH AND CASH EQUIVALENTS AT THE OF THE FINANCIAL PERIOD 660,999 27,135,534
------------------------------------------------ ---- ---------------- ---------------
* 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 2017
1 GENERAL
Carador Income Fund PLC is a closed-ended limited liability investment company domiciled and incorporated under the laws of Ireland with variable capital pursuant to the Irish Companies Act 2014 (as amended). 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 (as amended). 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 CLOs collateralised by senior secured bank loans and equity and mezzanine tranches of CLOs.
At 30 June 2017, 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
As previously noted, at the AGM on 31 July 2017, Shareholders approved the repurchase opportunity summarised in the circular accompanying the Notice of the AGM and facilities to allow the raising of additional capital. The basis of preparation of the unaudited condensed interim financial statements in note 2D on the going concern assessment should be considered in light of the repurchase opportunity.
2A STATEMENT OF COMPLIANCE
These unaudited condensed interim financial statements for the six months ended 30 June 2017, 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 2016, 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 2016, as described in those annual financial statements. There are no new requirements that are yet effective for 2017. The audited financial statements for the financial year ended 31 December 2016, together with the independent auditor's report thereon, have been filed with the Central Bank and are also available on the Company's website. The auditor's report on those financial statements was unqualified.
These unaudited condensed interim financial statements for the six months ended 30 June 2017 have been reviewed by the auditors having regard to International Standard on Review Engagements ("ISRE") (UK and Ireland) 2410, whose report is set on page 10.
2B ADOPTION OF NEW ACCOUNTING STANDARDS AND AMMENTS, INCLUDING ACCOUNTING POLICY CHANGES
The Company has consistently applied the accounting requirements to all periods presented in these financial statements. There were no new standards during the financial period ended 30 June 2017 that impacted the Company's financial statements.
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
2C NEW STANDARDS AND INTERPRETATIONS APPLICABLE TO FUTURE REPORTING PERIODS
New standards, amendments and interpretations issued but not effective in 2017 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.
IFRS 9 "Financial instruments", effective for annual periods beginning on or after 1 January 2018 with early adoption permitted, 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 lAS 39. Most of the requirements in lAS 39 for classification and measurement of financial liabilities were carried forward unchanged. The impact of IFRS 9 is not expected to be significant for the Company.
IFRS 15 "Revenue from Contracts with Customers" was issued in May 2014 and will become effective for periods beginning on or after 1 January 2018. The new standard is not expected to have any significant impact on the Company's financial position, performance or disclosures in its financial statements.
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 unaudited condensed interim financial statements is also US Dollar.
The unaudited condensed interim financial statements comprise the Company's unaudited condensed interim statement of financial position, unaudited condensed interim statement of comprehensive income, unaudited condensed interim statement of changes in equity and unaudited condensed interim statement of cash flows together with the related notes.
The Company qualifies as an investment entity and, therefore, the Company does not consolidate subsidiaries but accounts for them at fair value through profit or loss.
The Company's Directors have 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. While there is uncertainty surrounding the take-up of the repurchase opportunity, the Directors believe it is unlikely that they will need to consider whether a winding-up resolution should instead be put to Shareholders should the share repurchase elections reach 75%. Furthermore, the Directors are 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 unaudited condensed interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts 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 unaudited condensed interim statement of financial position cannot be derived from active market quotations, they are determined using valuation techniques including the use of broker prices.
See note 3 for further details of the fair value hierarchy levels at 30 June 2017 and 31 December 2016.
3 FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
Fair value (continued)
The Company has financial assets designated at fair value through profit or loss. The financial instruments recognised at fair value are analysed between those whose fair value is based on:
-- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
-- Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted market prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques in which all significant inputs are directly or indirectly observable from market data.
-- Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
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 31 December
30 June 2017 2016
US$ US$
--------- -------------- -------------
Level 1 - -
Level 2 330,006,478 341,359,581
Level 3 88,869,849 64,434,254
--------- -------------- -------------
418,876,327 405,793,835
--------- -------------- -------------
The Company determines the fair value for the CLOs using independent, unadjusted indicative broker quotes. A broker quote is not generally a binding offer. The categorisation of the CLOs is dependent on whether or not 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.
The Investment Manager can challenge the marks that come from the independent brokers if they appear off-market or unrepresentative but has no discretion to disregard a mark if a broker dealer does not adjust it after a challenge.
For CLOs that have been categorised as Level 2, fair value has been determined using independent broker quotes based on observable inputs. If valuation cannot be verified as being based significantly on observable inputs, then the investments would fall into Level 3.
The Company considers observable data to be market data that is readily available, regularly distributed or updated, reliable, not proprietary, and provided by independent sources that are actively involved in the relevant market.
For each class of assets and liabilities not measured at fair value in the unaudited condensed interim statement of financial position but for which fair value is disclosed, the Company is required to disclose the level within the fair value hierarchy which the fair value measurement would be categorised and a description of the valuation technique and inputs used in the technique.
For the financial period ended 30 June 2017 and the financial year ended 31 December 2016, 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 (2016: no transfers). Where transfers between levels arise, they are deemed to occur at the end of the reporting period.
At 30 June 2017, CLOs with a fair value of US$88,869,849 (31 December 2016: US$64,434,254) were classified as Level 3. The increase in the Level 3 assets from the period ending 31 December 2016 reflects the higher dispersion in the indicative broker quotes, given the decrease in market liquidity during the financial period. At 30 June 2017, certain CLOs with a fair value of US$44,746,499 were transferred from Level 2 to Level 3. The change in the classification level was a result of the wider spreads reflected by a broader spectrum of indicative broker quotes, which were factors that indicated that the broker quotes were not based on observable prices.
3 FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS (continued)
Transfers between Level 1, 2 and 3 (continued)
For Level 3 instruments, the factors taken into consideration include the spread differential within the different broker quotes received as well as other market information, such as trades, portfolio composition and other market considerations.
The following table shows a reconciliation from the opening balances to the closing balances for fair value measurements in Level 3 of the fair value hierarchy as at 30 June 2017:
Collateralised
Loan Obligations
US$
----------------------------------------------------------- ------------------
Balance at 1 January 2017 64,434,254
Net loss on financial assets at fair value through profit
or loss (5,452,066)
Purchases 3,633,750
Disposal and paydowns of investments (5,713,838)
Transfers into Level 3 44,746,499
Transfers out of Level 3 (12,778,750)
Balance at 30 June 2017 88,869,849
----------------------------------------------------------- ------------------
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 2016:
Collateralised
Loan Obligations
US$
----------------------------------------------------------- ------------------
Balance at 1 January 2016 244,336,199
Net gain on financial assets at fair value through profit
or loss 2,640,450
Purchases 5,444,864
Disposal and paydowns of investments (73,964,227)
Transfers into Level 3 10,224,358
Transfers out of Level 3 (124,247,390)
Balance at 31 December 2016 64,434,254
----------------------------------------------------------- ------------------
Change in unrealised gains or losses (net loss) for the financial period included in profit or loss for the collateralised loan obligations within Level 3 of the fair value hierarchy amounted to US$(6,902,150) (31 December 2016: US$5,509,157). These gains and losses are included in the net gain on financial assets at fair value through profit or loss of the unaudited condensed interim statement of comprehensive income.
The table below sets out information about significant unobservable inputs used at 30 June 2017 in measuring financial instruments categorised as Level 3 in the fair value hierarchy.
Sensitivity to changes
Fair Value Unobservable Weighted in significant unobservable
Asset Class US$ Inputs Ranges Average inputs
-------------- ----------- ------------------ -------------- --------- -------------------------------
1% increase/decrease
will have a fair
Mezzanine Broker value impact of
Notes 12,259,117 Quotes 83.37% - 89.50% 86.44% +/- US$122,591
1% increase/decrease
will have a fair
Broker value impact of
Income Notes 76,610,732 Quotes 38.10%- 93.25%* 66.17% +/- US$766,107
88,869,849
-------------- --------------- ---------- ------------------ ------------- ---------------------------
* The lower range is due to Income Notes which include sub-fee notes.
3 FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS (continued)
Transfers between Level 1, 2 and 3 (continued)
The table below sets out information about significant unobservable inputs used at 31 December 2016 in measuring financial instruments categorised as Level 3 in the fair value hierarchy.
Sensitivity to changes
Fair Value Unobservable Weighted in significant unobservable
Asset Class US$ Inputs Ranges Average inputs
------------- ----------- -------------- ---------------- --------- -----------------------------
1% increase/decrease
will have a fair
Income value impact of +/-
Notes 64,434,254 Broker Quotes 6.70% - 92.00%* 64.98% US$644,343
64,434,254
------------- ----------- -------------- ---------------- --------- -----------------------------
* The lower range is due to Income Notes which include sub-fee notes.
The above analysis also gives an approximation of the sensitivity of the different asset classes to market risk as at 30 June 2017 and 31 December 2016 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 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 CLO or collective investment scheme 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 fees for the financial period ended 30 June 2017 amounted to US$2,508,973 (30 June 2016: US$2,416,524).
The Investment Manager is entitled to a performance fee in respect of the US Dollar shares equivalent to 13% of the amount by which the value of the financial year end NAV per US Dollar share plus dividends per US Dollar share paid in the period exceeds the value of the NAV per US Dollar share, as increased by the performance fee hurdle rate (as defined below) plus 2%, as at the end of the most recent previous completed accounting reference period or, if greater, the NAV per US Dollar share as at the end of the previous completed accounting reference period in respect of which a performance fee was paid.
The performance fee hurdle rate is the greater of 12 month US Dollar LIBOR and 4%.
If a US Dollar share performance fee was not paid in respect of the previous accounting reference period, US Dollar Libor shall be the annualised annually compounded US Dollar London Inter-Bank Offered Rate for 12-month deposits in respect of all previous relevant accounting periods since such US Dollar share performance fee was last paid.
The performance fee is accrued on a monthly basis and is paid annually within 14 days of receipt of the calculation by the Company from State Street Fund Services (Ireland) Limited (the "Administrator").
The calculation of the performance fee is verified by State Street Custodial Services (Ireland) Limited (the "Custodian"). There were no performance fees earned for the financial period ended 30 June 2017 (30 June 2016: US$Nil).
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$10,000. The overall charge for the above-mentioned fees for the Company for the financial periods ended 30 June 2017 and 30 June 2016 and the amounts due at 30 June 2017 and 31 December 2016 are disclosed below for information purposes.
4 OPERATING EXPENSES (continued)
DIRECTORS' FEES AND OTHER EXPENSES
The Company's Directors are entitled to a fee in remuneration for their services as Directors at a rate to be determined from time to time by the remuneration committee of the Company and disclosed in the unaudited condensed interim financial statements.
Operating expenses are disclosed separately in the unaudited condensed interim statement of comprehensive income.
Accruals excluding audit, Directors and other professional fee accruals as at 30 June 2017 and 31 December 2016 are detailed in the table below.
As at
As at 31 December
30 June 2017 2016
ACCRUAL US$ US$
---------------------------- -------------- -------------
Investment management fees 828,567 1,354,568
Custodian fees 15,804 5,165
Administration fees 76,746 24,535
Commitment fees 17,480 22,750
Interest payable 23,918 3,278
Other operating expenses 430,152 347,966
---------------------------- -------------- -------------
1,392,667 1,758,262
---------------------------- -------------- -------------
The remaining balance of the expense accrual consists of auditors' fees of US$117,408 (31 December 2016: US$188,336) inclusive of VAT, Directors' fees and other professional fees of US$220,515 (31 December 2016: US$146,352).
During the financial period ended 30 June 2017, Directors' fees amounted to US$177,767 (30 June 2016: US$185,604), plus out-of-pocket expenses of US$17,227 (30 June 2016: US$18,647), of which US$Nil (31 December 2016: US$Nil) remained payable at the financial period end.
5 CASH AND CASH EQUIVALENTS
Cash and cash equivalents balances are held with State Street Bank and Trust Company and also consist of an investment in Blackrock Money Market Fund which is a short-term, highly liquid investment amounting to US$1,501 (31 December 2016: US$16,024,377).
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 shares of no par value. As at 30 June 2017, the issued share capital consisted of 543,253,359 US Dollar shares (31 December 2016: 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 2017 and 31 December 2016. There were no shares issued and no shares converted during the financial period ended 30 June 2017 or during the financial year 31 December 2016.
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, reorganize or reconstruct the Company.
6 PARTICIPATING SHARES (continued)
CAPITAL MANAGEMENT (continued)
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.
Further to the EGM on 26 June 2013 and in accordance with the current provisions of the Articles of Association the Company shareholders may, at the Directors' discretion, be offered a redemption opportunity in 2017 for up to 100% of the shares in issue if the shares have traded at an average discount to net asset value in excess of 5% over the 12 month period prior to 30 April 2017 ("discount trigger realisation mechanism").
Although the discount trigger realisation mechanism was not activated in 2017, the Directors announced their intention to use the discretion provided to them in the Articles to put forward to shareholders proposals to approve a redemption opportunity for up to 100% of the shares in for any shareholders who may wish to exit their holding in the Company (in whole or in part). As previously noted at the Company's AGM on 31 July 2017, the Shareholders approved the repurchase opportunity summarised in the circular accompanying the Notice of the AGM. The Shareholders also approved the Directors' proposal of allotting up to 300 million shares of the Company.
The Articles provide that, after 2017, the Directors will, every five years, consider at their discretion whether or not to offer redemption opportunities to shareholders on the same basis.
The Directors have determined that they would like to consider whether or not to offer Shareholders potential redemption opportunities on a more frequent basis. Accordingly, whilst the discount trigger realisation mechanism described above will occur every five years, the Directors intend to consider every two and a half years whether to put an ordinary resolution to shareholders to approve a redemption opportunity for up to 100 per cent of the shares in issue, subject to any necessary changes to the Articles being approved. Any such redemption opportunities would be made available at the Directors' discretion and would be implemented through the creation of a Repurchase Pool.
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.
8 INTERESTS IN OTHER ENTITIES (continued)
INTERESTS IN UNCONSOLIDATED STRUCTURED ENTITIES (continued)
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 2017, the Company had three (31 December 2016: four) subsidiary undertakings for financial reporting purposes that are also structured entities. They are Keuka Park CLO Ltd 2013-1A, Pinnacle Park CLO Ltd 2014-1A and Sheridan Square CLO Ltd (31 December 2016: Keuka Park CLO Ltd 2013-1A, Neuberger Berman CLO Ltd 2014-17X, Pinnacle Park CLO Ltd 2014-1A and Sheridan Square CLO Ltd ). Neuberger Berman CLO Ltd 2014-17X was reset during the period and the non call period has been extended to April 2019. 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 three entities, due to the fact that it may remove any of the subsidiaries' asset managers in certain contingent circumstances as the Company is the majority holder of the preference shares. It can therefore be considered that the Company has contingent power which may impact the variability of returns in the future.
To determine control, there has to be a linkage between power and the exposure to the variable returns. The main linkage arises from the call options which allow the Company to control the continual payments of returns, and it is therefore an indication of linkage between power and variability in returns.
The other investments of the Company are not considered to be subsidiaries due to the lack of control held by the Company. For the avoidance of doubt, 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 the 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)
INTERESTS IN UNCONSOLIDATED STRUCTURED ENTITIES (continued)
Below is a summary of the Company's holdings in non subsidiary unconsolidated structured entities as at 30 June 2017:
% of
Total
Financial
Range of Average Carador's Assets at Maximum
the
size of Notional Holding Fair exposure
SEs Of Value
Line item in statement of No of Notional SEs Fair through to
Value losses
Structured financial Nature Investments in US$m in US$m in US$m Profit or in US$m Other
Entity position Loss
("SE")
------------ ----------- ----------------------- ------------ --------- --------- ---------- ---------- --------- ----------
Mezzanine
Note
CLOs
------------ ----------- ----------------------- ------------ --------- --------- ---------- ---------- --------- ----------
North
America
------------ ----------- ----------------------- ------------ --------- --------- ---------- ---------- --------- ----------
Broadly Syndicated
sub-
Financial Investment Grade
assets Secured Loans
at fair
value
through
profit Non
or loss - USD 9 401-617 496 61 14.56% 61 recourse*
----------- ------------------------------------ ------------ --------- --------- ---------- ---------- --------- ----------
Financial assets at fair value
Total
Mezzanine through profit Non
Note CLOs or loss 9 401-617 496 61 14.56% 61 recourse*
------------ ------------------------------------ ------------ --------- --------- ---------- ---------- --------- ----------
Income Note
CLOs
------------ ----------- ----------------------- ------------ --------- --------- ---------- ---------- --------- ----------
North
America
------------ ----------- ----------------------- ------------ --------- --------- ---------- ---------- --------- ----------
Broadly Syndicated
sub-
Financial Investment Grade
assets Secured Loans
at fair
value
through
profit Non
or loss - USD 45 40-1,029 531 332 79.24% 332 recourse*
----------- ------------------------------------ ------------ --------- --------- ---------- ---------- --------- ----------
Financial assets at fair value
Total
Income through profit Non
Note CLOs or loss 45 40-1,029 531 332 79.24% 332 recourse*
------------ ------------------------------------ ------------ --------- --------- ---------- ---------- --------- ----------
Total 54 393**
-------------------------------------------------- ------------ --------- --------- ---------- ---------- --------- ----------
The Company has a percentage range of 0.03% - 27.40% notional holding out of the entire outstanding notional balances of the structured entities as at 30 June 2017.
During the financial period ended 30 June 2017, 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 unaudited condensed interim statement of financial position.
Interests in unconsolidated structured entity subsidiaries as at 30 June 2017:
% of
Total
Financial
Range Average Carador's Assets Maximum
of the at
size of Notional Holding Fair exposure
SEs of Value
Line item No of Notional SEs Fair through to
in Value losses
statement
of
Structured financial Nature Investments in US$m in US$m in US$m Profit in US$m Other
Entity position or Loss
("SE")
------------ ----------- ------------ ------------ --------- --------- ---------- ---------- --------- ----------
Mezzanine
Note
CLOs
------------ ----------- ------------ ------------ --------- --------- ---------- ---------- --------- ----------
North
America
------------ ----------- ------------ ------------ --------- --------- ---------- ---------- --------- ----------
Broadly
Syndicated
sub-
Financial Investment
assets Grade
at fair Secured
value Loans
through - USD - - - - - - Non
profit recourse*
or loss
------------ ----------- ------------ ------------ --------- --------- ---------- ---------- --------- ----------
Financial
assets
at fair
value
Total through - - - - - - Non
Mezzanine profit recourse*
Note CLOs or loss
------------ ----------- ------------ ------------ --------- --------- ---------- ---------- --------- ----------
Income Note
CLOs
------------ ----------- ------------ ------------ --------- --------- ---------- ---------- --------- ----------
North
America
------------ ----------- ------------ ------------ --------- --------- ---------- ---------- --------- ----------
Broadly
Syndicated
sub-
Financial Investment
assets Grade
at fair Secured
value Loans
through
profit Non
or loss - USD 5 33-510 203 26 6.21% 26 recourse*
----------- ------------------------- ------------ --------- --------- ---------- ---------- --------- ----------
Financial
assets
at fair
value
Total
Income through profit Non
Note CLOs or loss 5 33-510 203 26 6.21% 26 recourse*
------------ ------------------------- ------------ --------- --------- ---------- ---------- --------- ----------
Total 5*** 26**
--------------------------------------- ------------ --------- --------- ---------- ---------- --------- ----------
The Company has a percentage range of 4.90% - 71.78% notional holding out of the entire outstanding notional balance of its subsidiaries (Keuka Park CLO 2013-1A, Pinnacle Park CLO Ltd 2014-1A and Sheridan Square CLO Ltd.), as at 30 June 2017.
During the financial period ended 30 June 2017, Keuka Park CLO Ltd 2013-1A and Sheridan Square CLO Ltd were called and Neuberger Berman CLO Ltd 2014-17X was reset. As already explained above under the heading "Subsidiary undertakings", the number of subsidiaries held is 3 (31 December 2016: 4).
For the financial period ended 30 June 2017, 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.
** 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 23, agrees to the financial assets at fair value through profit or loss in the unaudited condensed interim statement of financial position.
***This refers to the number of investments on a tranche level that the Company has on its 3 unconsolidated structured entity subsidiaries.
Below is a summary of the Company's holdings in non subsidiary unconsolidated structured entities as at 31 December 2016:
% of
Total
Financial
Range of Average Carador's Assets Maximum
the at
size of Notional Holding Fair exposure
SEs Of Value
Line item in statement of No of Notional SEs Fair through to
Value losses
Structured financial Nature Investments in US$m in US$m in US$m Profit in US$m Other
Entity position or Loss
("SE")
------------ ----------- ----------------------- ------------ --------- --------- ---------- ---------- --------- ----------
Mezzanine
Note
CLOs
------------ ----------- ----------------------- ------------ --------- --------- ---------- ---------- --------- ----------
North
America
------------ ----------- ----------------------- ------------ --------- --------- ---------- ---------- --------- ----------
Broadly Syndicated
sub-
Financial Investment Grade
assets Secured Loans
at fair
value
through
profit Non
or loss - USD 15 400-620 497 86 21.18% 86 recourse*
----------- ------------------------------------ ------------ --------- --------- ---------- ---------- --------- ----------
Financial assets at fair value
Total
Mezzanine through profit Non
Note CLOs or loss 15 400-620 497 86 21.18% 86 recourse*
------------ ------------------------------------ ------------ --------- --------- ---------- ---------- --------- ----------
Income Note
CLOs
------------ ----------- ----------------------- ------------ --------- --------- ---------- ---------- --------- ----------
North
America
------------ ----------- ----------------------- ------------ --------- --------- ---------- ---------- --------- ----------
Broadly Syndicated
sub-
Financial Investment Grade
assets Secured Loans
at fair
value
through
profit Non
or loss - USD 41 33-734 468 235 57.88% 235 recourse*
----------- ------------------------------------ ------------ --------- --------- ---------- ---------- --------- ----------
Financial assets at fair value
Total
Income through profit Non
Note CLOs or loss 41 33-734 468 235 57.88% 235 recourse*
------------ ------------------------------------ ------------ --------- --------- ---------- ---------- --------- ----------
Total 56*** 321**
-------------------------------------------------- ------------ --------- --------- ---------- ---------- --------- ----------
The Company has a percentage range of 0.03% - 45.46% notional holding out of the entire outstanding notional balances of the structured entities as at 31 December 2016.
During the financial year ended 31 December 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 unaudited condensed interim statement of financial position.
Interests in unconsolidated structured entity subsidiaries as at 31 December 2016:
% of
Total
Financial
Range Average Carador's Assets Maximum
of the at
size of Notional Holding Fair exposure
SEs of Value
Line item No of Notional SEs Fair through to
in Value losses
statement
of
Structured financial Nature Investments in US$m in US$m in US$m Profit in US$m Other
Entity position or Loss
("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 17 4.19% 17 recourse*
----------- ------------------------- ------------ --------- --------- ---------- ---------- --------- ----------
Financial
assets
at fair
value
Total
Mezzanine through profit Non
Note CLOs or loss 2 413-725 569 17 4.19% 17 recourse*
------------ ------------------------- ------------ --------- --------- ---------- ---------- --------- ----------
Income Note
CLOs
------------ ----------- ------------ ------------ --------- --------- ---------- ---------- --------- ----------
North
America
------------ ----------- ------------ ------------ --------- --------- ---------- ---------- --------- ----------
Broadly
Syndicated
sub-
Financial Investment
assets Grade
at fair Secured
value Loans
through
profit Non
or loss - USD 5 413-725 556 68 16.75% 68 recourse*
----------- ------------------------- ------------ --------- --------- ---------- ---------- --------- ----------
Financial
assets
at fair
value
Total
Income through profit Non
Note CLOs or loss 5 413-725 556 68 16.75% 68 recourse*
------------ ------------------------- ------------ --------- --------- ---------- ---------- --------- ----------
Total 7*** 85**
--------------------------------------- ------------ --------- --------- ---------- ---------- --------- ----------
The Company has a percentage range of 0.30% - 5.65% notional holding out of the entire outstanding notional balance of its subsidiaries as at 31 December 2016.
During the financial year ended 31 December 2016, the Company made 1 sale of investments in the subsidiary holdings: Babson CLO Ltd 2013-IX amounting to US$11,760,000 (31 December 2015: US$Nil). Voya Investment Management CLO II was also redeemed during the year receiving proceeds of US$15,124,149. As already explained above under the heading "Subsidiary undertakings", the number of subsidiaries held is 4 (31 December 2015: 4).
For the financial year ended 31 December 2016, 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.
** 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 25, agrees to the financial assets at fair value through profit or loss in the unaudited condensed interim statement of financial position.
***This refers to the number of investments on a tranche level that the Company has on its 4 unconsolidated structured entity subsidiaries.
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$2,508,973 (30 June 2016: US$2,416,524), of which US$828,567 (31 December 2016: US$1,354,568) was outstanding at the financial period end. No performance fees were earned by the Investment Manager during the financial period (30 June 2016: US$Nil), nor were there any performance fees outstanding at 30 June 2017 or 31 December 2016.
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 2017.
During the financial period ended 30 June 2017, the Company incurred Directors' fees for services as Directors and out-of-pocket expenses of US$194,994 (30 June 2016: US$204,251), of which US$Nil (31 December 2016: 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 2017 or financial year ended 31 December 2016. The Company is domiciled in Ireland where shareholdings held by the non-executive Directors would not be considered the industry norm.
TRANSACTIONS WITH OTHER RELATED PARTIES
At 30 June 2017, 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 200,000 US Dollar shares (31 December 2016: 200,000 US Dollar shares) which represents approximately 0.04% (31 December 2016: 0.04%) 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 2017, 35.10% (31 December 2016: 35.89%) 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 2017
Investment Investment Manager Market
-------------------------------- --------------------------------------- ----------
Birchwood Park CLO Ltd 2014-1X GSO / Blackstone Debt Funds Management Primary*
INC LLC
GSO / Blackstone Debt Funds Management Secondary
Bowman Park CLO Ltd 2014-1A SUB LLC
Burnham Park Clo Ltd 2016-1A GSO / Blackstone Debt Funds Management Primary
SUB LLC
Catskill Park CLO Ltd 2017-1A GSO / Blackstone Debt Funds Management Primary
SUB LLC
Cumberland Park CLO Ltd 2015-2 GSO / Blackstone Debt Funds Management Secondary
SUB LLC
Dorchester Park CLO Ltd 2015-1X GSO / Blackstone Debt Funds Management Primary
SUB LLC
GSO / Blackstone Debt Funds Management Secondary
Jay Park CLO Ltd 2016-1A SUB LLC
GSO / Blackstone Debt Funds Management Secondary
Keuka Park CLO Ltd 2013-1A SUB LLC
Pinnacle Park CLO Ltd 2014-1A GSO / Blackstone Debt Funds Management Secondary
SUB LLC
Sheridan Square CLO Ltd 2013-1A GSO / Blackstone Debt Funds Management Secondary
INC LLC
GSO / Blackstone Debt Funds Management Primary
Seneca Park CLO Ltd 2014-1X SUB LLC
Stewart Park CLO Ltd 2015-1X GSO / Blackstone Debt Funds Management Primary
SUB LLC
Thacher Park CLO Ltd 2014-1X GSO / Blackstone Debt Funds Management Secondary
SUB LLC
Taconic Park CLO Ltd 2016-1A GSO / Blackstone Debt Funds Management Primary
SUB LLC
GSO / Blackstone Debt Funds Management Secondary
Tryon Park CLO Ltd 2013-1X E LLC
GSO / Blackstone Debt Funds Management Secondary
Tryon Park CLO Ltd 2013-1A SUB LLC
GSO / Blackstone Debt Funds Management Secondary
Treman Park CLO Ltd 2015-1A LLC
Webster Park CLO Ltd 2015-1X GSO / Blackstone Debt Funds Management Primary
SUB LLC
* Partial in primary.
9 RELATED PARTY TRANSACTIONS AND KEY MANAGEMENT PERSONNEL (continued)
CLO INVESTMENTS MANAGED BY GSO/BLACKSTONE AND AFFILIATES 31 DECEMBER 2016
Investment Investment Manager Market
-------------------------------- --------------------------------------- ----------
Adirondack Park CLO Ltd 2013-1A GSO / Blackstone Debt Funds Management Secondary
E LLC
Birchwood Park CLO Ltd 2014-1X GSO / Blackstone Debt Funds Management Primary*
INC LLC
Bowman Park CLO Ltd 2014-1X GSO / Blackstone Debt Funds Management Secondary
LLC
Burnham Park CLO Ltd 2014-1A GSO / Blackstone Debt Funds Management Primary
LLC
Callidus Debt Partners CLO Fund GSO / Blackstone Debt Funds Management Secondary
Ltd 5X INC LLC
Callidus Debt Partners CLO Fund GSO / Blackstone Debt Funds Management Secondary
Ltd 7A SUB LLC
Dorchester Park CLO Ltd 2015-1X GSO / Blackstone Debt Funds Management Primary
SUB LLC
Keuka Park CLO Ltd 2013-1A E GSO / Blackstone Debt Funds Management Secondary
LLC
Keuka Park CLO Ltd 2013-1A SUB GSO / Blackstone Debt Funds Management Secondary
LLC
Pinnacle Park CLO Ltd 2014-1A GSO / Blackstone Debt Funds Management Secondary
SUB LLC
Sheridan Square CLO Ltd 2013-1A GSO / Blackstone Debt Funds Management Primary
F LLC
Sheridan Square CLO Ltd 2013-1A GSO / Blackstone Debt Funds Management Secondary
INC LLC
Seneca Park CLO Ltd 2014-1X SUB GSO / Blackstone Debt Funds Management Primary
LLC
Stewart Park CLO Ltd 2015-1X GSO / Blackstone Debt Funds Management Primary
SUB LLC
Thacher Park CLO Ltd 2014-1X GSO / Blackstone Debt Funds Management Secondary
SUB LLC
Taconic Park CLO Ltd 2016-1A GSO / Blackstone Debt Funds Management Primary
SUB LLC
Tryon Park CLO Ltd 2013-1X E GSO / Blackstone Debt Funds Management Secondary
LLC
Tryon Park CLO Ltd 2013-1X SUB GSO / Blackstone Debt Funds Management Secondary
LLC
Treman Park CLO Ltd 2015-1A GSO / Blackstone Debt Funds Management Secondary
LLC
Webster Park CLO Ltd 2015-1X GSO / Blackstone Debt Funds Management Primary
SUB LLC
* Partial in primary.
TRANSACTION WITH SUBSIDIARIES
As at 30 June 2017, the Company had three subsidiaries for financial reporting purposes: Pinnacle Park CLO Ltd 2014-1A, Sheridan Square CLO Ltd and Keuka Park CLO Ltd 2013-1A, 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 four of them.
The Company received US$16,423,585 in coupon payments from the subsidiaries for the financial period ended 30 June 2017 (30 June 2016: US$17,079,550).
During the financial period ended 30 June 2017, Keuka Park CLO Ltd 2013-1A and Sheridan Square CLO Ltd were called and Neuberger Berman CLO Ltd 2014-17X was reset. As already explained above under the heading "Subsidiary undertakings", the number of subsidiaries held is 3 (31 December 2016: 4).
The value of the subsidiary holdings at 30 June 2017 was US$25,988,271 (31 December 2016: US$84,724,423).
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 generally not exposed to redemption risk relating to its own shares in issue. However, please see note 6 on capital management for additional information on potential redemption opportunities. The Company's financial assets include investments in CLOs which are not traded in an organised public market and which may be illiquid, and thus impact the repurchase opportunity.
The Investment Manager considers the risk and concentrations on a look-through basis level for the CLOs.
RISK MANAGEMENT STRUCTURE
The Board of Directors is ultimately responsible for identifying and controlling risks but relies on its delegated service providers, (the Investment Manager, Custodian, Administrator and Registrar), to carry out ongoing management and monitoring of risks.
RISK MEASUREMENT AND REPORTING SYSTEM
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 2017 and 31 December 2016 is disclosed below in note 10 (A)(iii), 10 (B).
10 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
(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 CLOs 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 2017 31 December
2016
US$ US$
--------------------------------- ------------- ------------
Collateralised loan obligations 392,888,056 321,069,412
Investment in subsidiaries 25,988,271 84,724,423
--------------------------------- ------------- ------------
TOTAL INVESTMENTS AT FAIR VALUE 418,876,327 405,793,835
--------------------------------- ------------- ------------
(i) Interest rate risk
The Company is exposed to interest rate risk on CLOs held by the Company and on a look-through basis to the underlying assets in the CLOs.
The majority of the Company's financial assets are Income Notes and Mezzanine tranches of cash flow CLOs. The Company's investments have exposure to interest rate risk but this is limited to floating LIBOR-based exposure for the CLO's assets.
The following table shows the portfolio profile at 30 June 2017 and 31 December 2016:
30 June 2017 31 December
2016
------------------------------------------ -------------- ------------
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 2017 31 December 2016
effect on net assets effect on net
assets
Possible reasonable and profit or loss and profit or
loss
change in rate US$ US$
-------------------- --------------------- -----------------
1% 17,209,235 12,068,226
-1% 3,986,416 11,477,884
-------------------- --------------------- -----------------
(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 2017 (December 2016: US$Nil).
10 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
(A) MARKET RISK (continued)
(ii) Currency risk (continued)
The total net exposure to foreign currencies at the reporting date was as follows:
30 June 2017 31 December 2016
EXPOSURE TO FOREIGN EXCHANGE RATES US$ US$
------------------------------------ ------------- -----------------
EUR Exposure
Cash and cash equivalents 133,613 117,413
------------------------------------ ------------- -----------------
EUR Exposure 133,613 117,413
------------------------------------ ------------- -----------------
GBP Exposure
Cash and cash equivalents 164,061 156,066
------------------------------------ ------------- -----------------
GBP Exposure 164,061 156,066
------------------------------------ ------------- -----------------
TOTAL EXPOSURE 297,674 273,479
------------------------------------ ------------- -----------------
Possible 30 June 2017 31 December 2016
effect on net effect on net
change in assets assets
exchange net exposure and profit net exposure and profit
rate or loss or loss
US$ US$ US$ US$
------------------- ------- ------------- -------------- ------------- --------------
Euro/US Dollar +/-5% 133,613 (+/-) 1,600 117,413 (+/-) 1,298
GBP/US Dollar +/-5% 164,061 (+/-) 2,238 156,066 (+/-) 2,025
------------------- ------- ------------- -------------- ------------- --------------
(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 2016
By asset class US$ US$
Broadly syndicated sub-investment grade secured
loans - North America 411,309,660 397,438,835
Broadly syndicated sub-investment grade secured
loans - Ireland 7,566,667 8,355,000
------------------------------------------------- ------------ ------------
418,876,327 405,793,835
------------------------------------------------- ------------ ------------
If the value of investments was to increase or decrease by 1%, the impact on the NAV of the Company would be +/-US$4,188,763 (2016: +/- US$4,057,938).
(B) CREDIT RISK
Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. It is the Company's policy to enter into financial instruments with a range of reputable counterparties. Therefore, the Company has a diversified portfolio to reduce credit risk.
The table below analyses the Company's maximum credit exposure to credit risk for the components of the unaudited condensed interim statement of financial position.
30 June 31 December
2017 2016
US$ US$
-------------------------------- ------------ ------------
Cash and cash equivalents 660,999 16,682,060
Other receivables 954,079 1,357,374
Financial assets at fair value
through profit or loss 418,876,327 405,793,835
-------------------------------- ------------ ------------
420,491,405 423,833,269
-------------------------------- ------------ ------------
10 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
(B) CREDIT RISK (continued)
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 2017 was A1 (Source: Moody's) (31 December 2016: A1).
Breakdown by country of incorporation at 30 June 2017 and 31 December 2016:
30 June 31 December
2017 2016
US$ US$
---------------- ------------ ------------
Cayman Islands 411,309,660 397,438,835
Ireland 7,566,667 8,355,000
---------------- ------------ ------------
418,876,327 405,793,835
---------------- ------------ ------------
The table below summarises the Company's portfolio concentrations as of 30 June 2017 and 31 December 2016:
Maximum Average
portfolio holdings portfolio holdings
of a single asset of a single asset
% of total portfolio % of total portfolio
------------------ --------------------- ---------------------
30 June 2017 7.84% 1.75%
31 December 2016 4.53% 1.59%
------------------ --------------------- ---------------------
The below table summarises the portfolio by asset class and ratings of the portfolio as of 30 June 2017 and 31 December 2016:
30 June 2017 31 December 2016
By asset class US$ US$
------------------------- ------------- -----------------
CLO 1.0 Mezzanine Notes - -
CLO 2.0 Mezzanine Notes 61,140,094 103,270,576
CLO 1.0 Income Notes 720,500 2,050,667
CLO 2.0 Income Notes 357,015,733 300,472,592
------------------------- ------------- -----------------
418,876,327 405,793,835
------------------------- ------------- -----------------
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 and after).
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 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.
10 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
(B) CREDIT RISK (continued)
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 2017 are disclosed below:
Issuer Rating Industry % of NAV -------------------------- ---------- -------------------------- --------- First Data Corp Ba3/BB Financial Intermediaries 1.01% Transdigm Ba2/B+ Aerospace 0.80% Valeant Pharmaceuticals Ba3/BB- Healthcare 0.79% Dell Inc B1/B Information Technology 0.77% Calpine Corp Ba2/BB Utilities 0.73% Univision Communications B2/BB- Cable Television 0.73% CenturyLink Inc Ba3/BBB- Cable Television 0.71% Community Health Ba3/BB- Healthcare 0.70% Albertson Ba2/BB Food and Drug 0.68% Asurion Corp Ba3/BB- Insurance 0.64%
The Company also quantifies the exposure to the credit risk of all CLO investments based on the country of registration (not necessarily asset class exposure).
The top 10 exposures on a look-through basis for the CLO investments as at 31 December 2016 are disclosed below:
Issuer Rating Industry % of NAV ------------------------- ---------- -------------------------- --------- First Data Corp Ba3/BB Financial Intermediaries 1.07% Valeant Pharmaceuticals Ba3/BB- Healthcare 1.01% Calpine Corp Ba2/BB Utilities 0.85% Community Health Ba3/BB- Healthcare 0.82% Albertson Ba2/BB Food and Drug 0.75% Avago Technologies Ba1/BBB- Information Technology 0.71% Dell Inc Baa3/BBB Information Technology 0.70% Scientific Games Ba3/B+ Leisure Goods/Activities 0.67% Transdigm Ba2/B Aerospace 0.67% Asurion Corp B1/B+ Insurance 0.66%
(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 2017 and 31 December 2016, 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 generally not exposed to redemption risk during the life of the fund. In addition, 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.
10 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
(C) LIQUIDITY RISK (continued)
See also note 6 on capital management for additional information on other potential redemption opportunities and the introduction to note 10 for potential liquidity risk arising from the nature of the Company's financial statements.
All liabilities of the Company including the credit facility are due within one financial year. Please see note 11 for further details regarding the credit facility.
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, 17 December 2015 and 19 December 2016, the Company renewed this facility again resulting in a new expiry date of 14 December 2017 (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.
Adjusted NAV means, the NAV of the Borrower 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 Borrower, (b) the aggregate market value of any investments in relation to which there is not at least two independent valuations (other than any primary investments which have 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 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 180bps. The balance on the Facility at 30 June 2017 was US$2 million (30 June 2016: US$Nil)
During the financial period, the Company was charged a commitment fee of US$39,776 (30 June 2016: US$60,887) of which US$17,480 (30 June 2016: US$22,500) remained unpaid at 30 June 2017, and an interest charge of US$65,057 (30 June 2016: US$15,167) of which US$23,918 (30 June 2016: US$3,338) remained unpaid at 30 June 2017. These fees are included in facility costs in the unaudited condensed interim statement of comprehensive income and expenses payable in the unaudited condensed interim statement of financial position.
12 STOCK LING
The Company did not enter into any stock lending transactions during the financial period (30 June 2016: US$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 period Financial period
ended ended
30 June 2017 30 June 2016
US Dollar Class US Dollar Class
US$ US$
--------------------------------------- ----------------- -----------------
Profit for the financial period all
attributable to participating equity
shareholders 17,183,159 8,223,815
Number of ordinary shares for basic
earnings per share 543,253,359 543,253,359
--------------------------------------- ----------------- -----------------
Basic earnings per share 0.03 0.02
--------------------------------------- ----------------- -----------------
For the financial periods ended 30 June 2017 and 30 June 2016, 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 2017 and 30 June 2016. The only share class in issue during the financial periods ended 30 June 2017 and 30 June 2016 is the US Dollar Class.
For the financial periods ended 30 June 2017 and 30 June 2016, the Company's primary exposure was to North America related assets (see note 10 (A)).
Major Customers
The Company regards the holders of redeemable shares as customers, because it relies on their funding for continuing operations and meeting its objectives. The Company's shareholding structure is not exposed to a significant shareholder concentration. The number of shares held by employees of the Investment Manager can be found in note 9. The largest holder of Redeemable Shares is Nortrust Nominees Limited.
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 financial period:
On 19 January 2017, the Board declared a dividend of US$0.0275 per US Dollar share in respect of the financial period from 1 October 2016 to 31 December 2016. The dividend was paid on 1 February 2017 to shareholders on the share register as at the close of business on 27 January 2017. The amount paid in respect of this dividend was US$14,939,467.
On 20 April 2017, the Board declared a dividend of US$0.0225 per US Dollar share in respect of the financial period from 1 January 2017 to 31 March 2017. The dividend was paid on 3 May 2017 to shareholders on the share register as at the close of business on 28 April 2017. The amount paid in respect of this dividend was US$12,223,200.
17 SEASONAL OR CYCLICAL CHANGES
The Company is not subject to seasonal or cyclical changes.
18 EXPLANATORY NOTE ON SIGNIFICANT MOVEMENTS DURING THE FINANCIAL PERIOD
Financial assets at fair value through profit or loss (including investment in subsidiaries) had a fair value of US$418,876,327 at 30 June 2017 (31 December 2016: US$405,793,835). 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 2016 financial year end numbers, with a slight increase of 3.22%. More detail is included in the Chairman's report and Investment Manager's review on performance.
Cash and cash equivalents amounted to US$660,999 at 30 June 2017 (31 December 2016: US$16,682,060). There was a decrease in cash and cash equivalents held in comparison to 31 December 2016 due to trading activity.
Payable for investments purchased amounted to US$5,000,004 at 30 June 2017 (31 December 2016: US$Nil). There was a increase in payables in comparison to 31 December 2016 due to trading activity.
Net realized gain on financial assets at fair value through profit or loss for the financial period ended 30 June 2017 amounted to US$20,659,595 (financial period ended 30 June 2016: US$11,550,674). The increase reflects the change in the market conditions as explained in the Chairman's report and Investment Manager's review.
19 SUBSEQUENT EVENTS
On 20 July 2017, the Board declared a dividend of US$0.0225 per US Dollar share in respect of the period from 1 April 2017 to 30 June 2017. This dividend was paid on 2 August 2017.
On 31 July 2017, the Company announced the results of the resolutions proposed at its AGM.
At the AGM, Shareholders approved the repurchase opportunity summarised in the circular accompanying the Notice of the AGM and facilities to allow the raising of additional capital. Subject to receipt of regulatory approval, it is anticipated that the repurchase opportunity documents will be published and sent to eligible shareholders in September 2017.
20 APPROVAL OF THE FINANCIAL STATEMENTS
The unaudited condensed interim financial statements were approved and authorised for issue by the Directors on 24 August 2017.
SCHEDULE OF INVESTMENTS (unaudited)
As at 30 June 2017
Nominal Market value % of
holdings of US$ NAV
------------------------------------------ ------------ ------------- ------
COLLATERALISED LOAN OBLIGATIONS
REGION OF TRADE
North America
COUNTRY OF INCORPORATION
Cayman Islands (December 2016: 74.15%)
Apidos CLO 2013-14A E 4,000,000 3,925,303 0.95
Apidos CLO 2013-14A F 5,000,000 4,872,115 1.18
Apidos CLO 2013-14X INC 6,060,000 3,226,950 0.78
Apidos CLO 2014-17X E 9,500,000 8,984,816 2.18
Apidos CLO 2014-18A 3,000,000 1,855,350 0.45
Apidos CLO 2015-20A 10,400,000 7,761,000 1.88
Apidos CLO 2016-24 SUB 3,500,000 2,747,500 0.67
ARES CLO Ltd 2013-3X SUB 21,750,000 9,570,000 2.32
ARES CLO Ltd 2016-39A SUB 10,000,000 8,075,000 1.96
Birchwood Park CLO Ltd 2014-1A 8,000,000 4,505,333 1.09
Birchwood Park CLO Ltd 2014-1X INC 1,000,000 563,167 0.14
BNPP IP CLO Ltd 2014-1X D 11,000,000 10,498,993 2.55
BNPP IP CLO Ltd 2014-1X E 14,000,000 12,259,117 2.98
Bowman Park CLO Ltd 2014-1X 2,500,000 1,630,375 0.40
Burnham Park CLO Ltd 2014-1A 3,000,000 2,677,500 0.65
Carlyle Global Market Strategies CLO Ltd 2015-1A SUB 10,000,000 6,427,900 1.56 Carlyle Global Market Strategies CLO Ltd 2016-14X INC 7,060,500 5,330,678 1.29 Carlyle Global Market Strategies CLO Ltd 2016-1A SUB 3,000,000 2,529,600 0.61 Catskill Park CLO Ltd 2017-1A SUB 37,100,000 32,831,756 7.97 Cedar Funding CLO Ltd 2014-3A SUB 2,000,000 1,375,000 0.33 Cedar Funding CLO Ltd 2016-5A SUB 14,517,500 14,081,975 3.43 Cumberland Park CLO Ltd 2015-2A SUB 8,800,000 6,292,000 1.53 Dryden Senior Loan Fund 2015-38X SUB 12,000,000 9,159,420 2.22 Dryden Senior Loan Fund 2015-41X SUB 9,260,000 6,644,050 1.61 Dryden Senior Loan Fund 2016-43A SUB 5,000,000 3,974,850 0.97 Dryden Senior Loan Fund 2016-45X SUB 2,368,000 2,057,200 0.50 Highbridge Loan Management 3-2014 21,563,570 16,003,763 3.89 HPS Loan Management 10-2016 Ltd 20,550,000 18,135,374 4.40 Jay Park CLO Ltd 2016-1A SUB 13,900,000 11,474,450 2.79 Magnetite IX Ltd 4,882,743 3,308,303 0.80 Magnetite XI Ltd 21,980,270 17,584,215 4.27 Magnetite XIV Ltd 4,663,717 3,777,611 0.92 Magnetite XVIII Ltd 10,000,000 8,087,500 1.96 MP CLO Ltd 2013-14A E 7,000,000 7,003,125 1.70 Neuberger Berman CLO Ltd 2013-14A SUB 4,846,152 2,789,809 0.68 Neuberger Berman CLO Ltd 2013-14X SUB 18,554,000 10,681,074 2.59 Neuberger Berman CLO Ltd 2013-15X SUB 3,500,000 1,820,000 0.44 Neuberger Berman CLO Ltd 2014-16X F 7,500,000 6,695,943 1.63 Neuberger Berman CLO Ltd 2014-17X SUB 29,100,000 19,933,499 4.85 Neuberger Berman CLO Ltd 2016-21A SUB 2,200,000 2,033,031 0.49 Neuberger Berman CLO Ltd 2016-23A SUB 4,000,000 3,120,000 0.76 Neuberger Berman CLO Ltd 2016-23A SUBF 114,546 94,214 0.02 Palmer Square CLO 2015-1 Ltd 2015-1A SUB 10,000,000 8,475,000 2.06 Rampart CLO 2007 Ltd 2007-1A SUB 11,000,000 720,500 0.17
SCHEDULE OF INVESTMENTS (unaudited) (continued)
As at 30 June 2017
Nominal Market value % of
holdings of US$ NAV
------------------------------------------------- ------------ ------------- --------
COLLATERALISED LOAN OBLIGATIONS
REGION OF TRADE
North America
COUNTRY OF INCORPORATION
Cayman Islands (December 2016: 74.15%)
Seneca Park CLO Ltd 2014-1X SUB 6,500,000 3,285,750 0.80
Stewart Park CLO Ltd 2015-1X SUB 10,000,000 7,856,250 1.91
Taconic Park CLO Ltd 2016-1A SUB 15,000,000 13,218,750 3.22
Thacher Park CLO Ltd 2014-1X SUB 4,000,000 2,347,333 0.57
THL Credit Wind River CLO Ltd 2013-2 5,000,000 3,154,375 0.77
THL Credit Wind River CLO Ltd 2014-3 2,500,000 2,473,644 0.60
Treman Park CLO Ltd 2015-1A 4,000,000 2,400,000 0.58
Tryon Park CLO Ltd 2013-1X E 4,700,000 4,427,038 1.08
Tryon Park CLO Ltd 2013-1X SUB 12,000,000 5,188,500 1.26
VOYA Investment Management CLO Ltd 2015-2X
SUB 18,000,000 13,120,140 3.19
Webster Park CLO Ltd 2015-1X SUB 14,900,000 12,255,250 2.98
385,321,389 93.58
------------------------------------------------- ------------ ------------- --------
Ireland (December 2016: 1.98%)
Dorchester Park CLO Ltd 2015-1X SUB 10,000,000 7,566,667 1.84
------------------------------------------------- ------------ ------------- --------
7,566,667 1.84
------------------------------------------------- ------------ ------------- --------
TOTAL COLLATERALISED LOAN OBLIGATIONS (DECEMBER
2016: 76.13%) 392,888,056 95.42
------------------------------------------------- ------------ ------------- --------
INVESTMENT IN SUBSIDIARIES
REGION OF TRADE
North America
COUNTRY OF INCORPORATION
Cayman Islands (December 2016: 20.09%)
Keuka Park CLO Ltd 2013-1A SUB 23,350,000 5,711,021 1.39
Pinnacle Park CLO Ltd 2014-1A SUB 25,000,000 13,886,250 3.37
Sheridan Square CLO Ltd 2013-1A INC 12,000,000 1,992,000 0.48
Sheridan Square CLO Ltd 2013-1A SUB 20,000,000 3,320,000 0.81
Sheridan Square CLO Ltd 2013-1X INC 6,500,000 1,079,000 0.26
25,988,271 6.31
------------------------------------------------- ------------ ------------- --------
TOTAL INVESTMENTS AT FAIR VALUE (DECEMBER 2016: 96.22%) 418,876,327 101.73
OTHER ASSETS (DECEMBER 2016: 4.28%) 1,615,078 0.39
OTHER LIABILITIES (DECEMBER 2016: (0.50)%) (8,730,594) (2.12)
------------------------------------------------- ------------ ------------- --------
TOTAL NET ASSETS ATTRIBUTABLE TO EQUITY
PARTICIPATING SHAREHOLDERS 411,760,811 100.00
------------------------------------------------- ------------ ------------- --------
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 (Ireland) INVESTMENT MANAGER
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 AND JOINT
Ireland CORPORATE BROKER
Fidante Partners Europe Limited
(trading as Fidante Capital)
SOLICITORS AS TO US AND ENGLISH 1 Tudor Street
LAW
Herbert Smith Freehills LLP London EC4Y 0AH
Exchange House United Kingdom
Primrose Street
London EC2A 2EG JOINT FINANCIAL ADVISER AND JOINT
United Kingdom CORPORATE BROKER
Nplus1 Singer Advisory LLP
SOLICITORS AS TO IRISH LAW One Bartholomew Lane
Arthur Cox London EC2N 2AX
10 Earlsfort Terrace United Kingdom
Dublin 2
D02 T380 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.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR FFLFXDVFBBBD
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August 31, 2017 07:34 ET (11:34 GMT)
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