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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Chenavari Capital Solutions Limited | LSE:CCSL | London | Ordinary Share | GG00BMGNHZ00 | RED ORD NPV |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 47.58 | 35.00 | 60.16 | 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
TIDMCCSL
RNS Number : 1679G
Chenavari Capital Solutions Limited
25 May 2017
Chenavari Capital Solutions Limited
(a closed-ended investment company limited by shares incorporated under the laws of
Guernsey with registered number 56977)
Unaudited Interim Financial Statements
For the period from 1 October 2016 to 31 March 2017
Potential investors are "qualified eligible persons" and "Non-United States Persons" within the meaning of the US Commodity Futures Trading Commission Regulation 4.7.
Chenavari Credit Partners LLP (the "Investment Manager") is registered as a commodity pool operator ("CPO") with the Commodity Futures Trading Commission (the "CFTC") and is a member of the National Futures Association ("NFA") in such capacity under the U.S. Commodity Exchange Act, as amended ("CEA"). With respect to Chenavari Capital Solutions Limited, the Investment Manager has claimed an exemption pursuant to CFTC Rule 4.7 for relief from certain disclosure, reporting and recordkeeping requirements applicable to a registered CPO. Such exemption provides that certain disclosures specified in section 4.22 (c) and (d) of the regulation are not in its interim report.
Contents
Commodity Exchange Affirmation Statement
Highlights for the period from 1 October 2016 to 31 March 2017
Corporate Summary
General Information
Chairman's Statement
Investment Manager's Report
Statement of Principal Risks and Uncertainties
Statement of Directors' Responsibilities
Independent Review Report to Chenavari Capital Solutions Limited
Condensed Unaudited Statement of Comprehensive Income
Condensed Unaudited Statement of Financial Position
Condensed Unaudited Statement of Changes in Equity
Condensed Unaudited Statement of Cash Flows
Condensed Schedule of Investments, at Fair Value
Notes to the Condensed Unaudited Financial Statements
FORWARD-LOOKING STATEMENTS
This interim report includes statements that are, or may be considered, "forward-looking statements". These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "anticipates", "plans", "expects", "targets", "aims", "intends", "may", "will", "can", "can achieve", "would" or "should" or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this interim report, including in the Chairman's Statement. They include statements regarding the intentions, beliefs or expectations of the Company or the Investment Manager concerning, among other things, the investment objectives and investment policies, financing strategies, investment performance, results of operation, financial condition, liquidity prospects, dividend policy and targeted dividend levels of the Company, the development of its financing strategies and the development of the markets in which it, directly and through special purpose vehicles, will invest in and issue securities and other instruments. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are not guarantees of future performance. The Company's actual investment performance, results of operations, financial condition, liquidity, dividend policy and dividend payments and the development of its financing strategies may differ materially from the impression created by the forward-looking statements contained in this document. In addition, even if the investment performance, results of operations, financial condition, liquidity, dividend policy and dividend payments of the Company and the development of its financing strategies are consistent with the forward-looking statements contained in this document, those results or developments may not be indicative of results or developments in subsequent periods. Important factors that may cause differences include, but are not limited to: changes in economic conditions generally and in the structured finance and credit markets particularly; fluctuations in interest and currency exchange rates, as well as the degree of success of the Company's hedging strategies in relation to such changes and fluctuations; changes in the liquidity or volatility of the markets for the Company's investments; declines in the value or quality of the collateral supporting many of the Company's investments; legislative and regulatory changes and judicial interpretations; changes in taxation; the Company's continued ability to invest its cash in suitable investments on a timely basis; the availability of suitable financing; the continued provision of services by the Investment Manager and the Investment Manager's ability to attract and retain suitably qualified personnel; and competition within the markets relevant to the Company. These forward-looking statements speak only as at the date of this interim report. Subject to its legal and regulatory obligations, the Company expressly disclaims any obligations to update or revise any forward-looking statement (whether attributed to it or any other person) contained herein to reflect any change in expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based. The Company qualifies all such forward-looking statements by these cautionary statements.
Commodity Exchange Affirmation Statement
Commodity Exchange Affirmation Statement Required by the Commodity Exchange Act, Regulation --4.7(b)(3)(i)
I, Loic Fery, hereby affirm that, to the best of my knowledge and belief, the information contained in this interim report and unaudited interim financial statements is accurate and complete.
Loic Fery
Chief Executive Officer and representative of the Chenavari Credit Partners LLP, Commodity Pool Operator of Chenavari Capital Solutions Limited
24 May 2017
Highlights for the period from 1 October 2016 to 31 March 2017
-- During the period from 1 October 2016 to 31 March 2017 (the "Period"), the Company produced a net asset value ("NAV") total return of 2.33% (dividends reinvested).
-- The NAV per Ordinary Share ("Share") declined from 94.26 pence at 30 September 2016 to 92.97 pence* at 31 March 2017 net of distributions.
-- The Company declared two dividends in respect of the period: 2.00 pence per Share on 24 February 2017 for the period ending 31 December 2016 and 1.25 pence per Share to be paid on 26 May 2017 for the period ending 31 March 2017. On 12 December 2016 a dividend of 1.50 pence per Share was paid for the period ending 30 September 2016.
-- On 17 March 2017, the Company announced a compulsory partial redemption payment to be paid to Shareholders on the record date of 31 March 2017. The amount of the redemption payment was GBP4,999,956, which was payable to Shareholders in respect of the redemption of approximately 423 Shares for every 10,000 Shares held, at a rate of 90.72 pence per Share redeemed.
-- The Company's mid-market share price at 31 March 2017 was 90.375 pence, representing a discount to NAV of 2.79%.
-- The profit of the Company for the Period was GBP2.7 million, or a gain of 2.11 pence per Share, taking into account recognition of the following significant items:
o total net income of GBP3.6 million.
o total operating expenses of GBP0.9 million.
-- At 31 March 2017, the Company was 88.7% invested in twelve positions including nine primary transactions valued at GBP81.0 million and three secondary transactions valued at GBP21.9 million. The Company had other assets and liabilities equating to 11.3% of NAV, of which cash equated to 8.2% of NAV at 31 March 2017.
-- On 13 December 2016, the Company announced its intention to cease making any further investments with immediate effect and that, from 1 January 2017, it commenced a realisation period which involves the return of unencumbered cash balances to Shareholders. It is expected that the current portfolio will be substantially realised (assuming no assets are sold or otherwise disposed of) and over 90% of the projected cash proceeds returned to investors before the end of 2020.
* Please refer to Note 19 (Significant events during the period).
Corporate Summary
For the Period
The Company
Chenavari Capital Solutions Limited (the "Company") is a closed-ended Collective Investment Scheme registered pursuant to The Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended (the "Law") and the Registered Collective Investment Scheme Rules 2008 issued by the Guernsey Financial Services Commission (the "Commission").
The IPO of the Company raised gross proceeds of GBP130.3 million and the Company's Shares were admitted to trading on the Specialist Fund Segment of the London Stock Exchange ("SFS") on 7 October 2013.
Investment objective and policy
The investment objective of the Company is to provide Shareholders with an attractive return, while limiting downside risk, through investment in bank capital solutions transactions primarily with UK and European banks.
Investment period and realisation period
Following the extension of the investment period to 31 December 2016 approved by Shareholders at an EGM on 18 December 2015 (the "Investment Period"), the Company continued its ability to invest its cash balances in accordance with its investment policy, to the extent that such cash was not required for working capital purposes or the payment of dividends in accordance with the Company's dividend policy up to and including 31 December 2016, subject to the restrictions applicable to the extension period.
On 13 December 2016 the Company announced its intention to cease making any further investments with immediate effect and that, from 1 January 2017, it would commence a realisation period which will involve the return of unencumbered cash balances to Shareholders. It is expected that the current portfolio will be substantially realised (assuming no assets are sold or otherwise disposed of) and over 90% of the projected cash proceeds returned to investors before the end of 2020.
Target returns and dividend policy
The Company's target NAV total net return to investors is 8-10 % per annum over the life of the Company. From 1 January 2017, returns to Shareholders will be predominantly from the return of unencumbered cash balances arising as a result of investments maturing in accordance with their terms or otherwise and as dividend income.
The Investment Manager and Investment Adviser
The Company's Investment Manager is Chenavari Investment Managers (Luxembourg) SARL, a non-cellular company incorporated in Luxembourg under registered number B 0143992, and is licenced and regulated by the Commission de Surveillance du Secteur Financier ("CSSF") in Luxembourg to undertake the activities of an Alternative Investment Fund Manager ("AIFM"). The Investment Manager is a wholly owned entity within the Chenavari Group.
The Investment Manager has appointed Chenavari Credit Partners LLP (the "Investment Adviser"), which is also a member of the Chenavari Group, to provide investment advisory services to the Investment Manager. The Investment Adviser is a limited liability partnership incorporated in England and Wales under registered number OC337434 and is regulated and authorised in the UK by the FCA under registration number 484392 and in the United States by the SEC under Investment Adviser registration number 801/72662.
Asset Values
At 31 March 2017, the Company's NAV was GBP115.9 million, with the NAV per Share amounting to 92.97 pence. The Company publishes its NAV on a monthly basis. The NAV is calculated as the Company's assets at fair value less liabilities, measured in accordance with International Financial Reporting Standards ("IFRS").
Duration
The Company has an indefinite life.
Website
The Company's website address is www.chenavaricapitalsolutions.com
Corporate Summary (continued)
Listing Information
The Company's Shares are admitted to trading on the SFS.
The ISIN number of the Shares is GG00BDH6YY34 and the SEDOL is BDH6YY3
The closing price of the Shares quoted on the SFS at 31 March 2017 was 90.375 pence per Share.
The average closing price of the Shares over the period to 31 March 2017 was 86.31 pence per Share.
General Information
Hot Features
Premium
Directors Registered Office
Rob King (Non-executive Director
and Chairman) Old Bank Chambers
Iain Stokes (Non-executive Director) La Grande Rue
René Mouchotte (Non-executive
Director) St Martin's
Guernsey
GY4 6RT
Investment Manager and AIFM Investment Adviser
Chenavari Investment Managers Chenavari Credit Partners
(Luxembourg) S.àRL. LLP
2, Boulevard de la Foire 80 Victoria Street
L-1528 London
Luxembourg SW1E 5JL
Solicitors to the Company (as Solicitors to the Company
to United States law) (as to English law)
Reed Smith LLP Gowling WLG (UK) LLP
The Broadgate Tower 4 More London Riverside
20 Primrose Street London
London SE1 2AU
EC2A 2RS
Advocates to the Company
Corporate Broker (as to Guernsey law)
Fidante Partners Europe Limited,
trading as Fidante Capital Mourant Ozannes
1 Tudor Street 1 Le Marchant Street
London St Peter Port
EC4Y 0AH Guernsey
GY1 4HP
Administrator and Company Secretary Sub-Administrator
Estera Administration (Guernsey)
Limited (formerly Morgan Sharpe) Quintillion Limited
Old Bank Chambers 24-26 City Quay
La Grande Rue Dublin 2
St Martin's Ireland
Guernsey
GY4 6RT
Custodian and Principal Bankers
and AIFMD Article 36 Custodian Auditor
J.P. Morgan Chase Bank NA, Deloitte LLP
Jersey Branch P.O. Box 137
J.P. Morgan House Regency Court
Grenville Street Glategny Esplanade
St Helier St. Peter Port
Jersey Guernsey
JE4 8QH GY1 3HW
Depository and AIFMD
Registrar Article 36 Custodian
Capita Registrars (Guernsey) Quintillion Services
Limited Limited
Mont Crevelt House 24-26 City Quay
Bulwer Avenue Dublin 2
St Sampson Ireland
Guernsey
Elavon Financial Services
GY2 4LH Limited
Block E
Cherrywood Business
Park
Loughlinstown
Dublin 18
Ireland
Chairman's Statement
Introduction
On behalf of the Board, I am pleased to present the Company's interim report and unaudited financial statements for the period ending 31 March 2017.
Since my last Chairman's Statement, published in January 2017, the Company has commenced the realisation of its investment portfolio with the first capital payment of GBP4,999,956 being made on 12 April 2017. When taking into account the dividend of 1.25p per Share for the period to be paid on 26 May 2017 (GBP2,603,800), the Company has returned GBP7,603,756 for the first quarter of 2017 which was in line with initial expectations.
The Board continue to work with the Investment Manager to realise the underlying portfolio in an orderly and most beneficial fashion and further announcements will be made on realisation payments during 2017 and 2018. There has been no revision to our initial expectations that, based on the cash flows used to calculate the Base Case internal rate of return referred to in the Investment Manager's report, it is expected the current portfolio will be substantially realised (assuming no assets are sold or otherwise disposed of) and over 90% of the projected cash proceeds returned to investors before the end of 2020.
Performance
The Company's NAV at 31 March 2017, was 92.97 pence per Share and we are encouraged by the uplift in the NAV per Share during the first quarter of 2017. More details of the portfolio and performance are set out in the Investment Managers Report on page 10 of these interim financial statements.
During the period, the Company's NAV total return was 2.33% (dividends reinvested) and was 19.44% since inception (net of issue costs and with dividends reinvested). The NAV per Share declined from 94.26 pence at 30 September 2016 to 92.97 pence at 31 March 2017, net of distributions.
During the period the Share Price increased from 85.00 pence at the close of business on 30 September 2016 to 90.375 pence at the close of business 31 March 2017. Accordingly, the discount to NAV fell from 9.83% on 30 September 2016 to 2.68% at the end of the Period.
The share price total return for the Period was 10.69%, dividends reinvested. Since launch, the share price total return to the end of the Period was 3.88% dividends reinvested.
Share Repurchases
During the Period the Company has bought back 121,000 Shares in two transactions. The buyback on 11 January 2017 of 106,000 Shares was at a price of 84.50 pence. This represented a discount of 8.13% to the NAV per share of 91.98 pence as at 31 December 2016. At the time of the buy back, the last published NAV was as at 30 November 2016 (93.01 pence) and the discount to that NAV was 9.15%. The buyback on 10 February of 15,000 Shares was at a price of 86.00 pence, representing a discount of 6.50% to the 31 December 2016 NAV and 7.54% to the 30 November 2016 NAV. The Company has obtained Shareholder approval to buy back up to 14.99% of the Share in issue as at the date of the last AGM being 28 March 2017. The Directors have the discretion to use share buy backs as part of the return of capital process where they feel it is appropriate and in the overall interest of Shareholders. Bought back shares have been cancelled and are not being held in treasury.
Further to the announcements made on 13 December 2016 and 16 February 2017 of the Company's intention to return capital to Shareholders, and in line with the approval received from the Company's Shareholders to adopt the revised Articles of Incorporation to vary the existing rights of the Shares (as described in the Circular dated 15 February 2017), the Company announced on 20 March 2017 that it would return GBP5 million to Shareholders by way of a compulsory partial redemption of 5,511,416 Shares (the "Redemption"). Since the date of record of the Redemption was 31 March 2017, the Redemption is reflected in these interim report and unaudited financial statements. The effect of incorporating the Redemption into the March 2017 NAV, was to decrease it by GBP5 million to GBP115.9 million, decrease the Shares in issue by 5,511,416 to 124,667,584 and to therefore increase the March NAV per Share from the originally published value of 92.87 pence per Share to 92.97 pence per Share.
Dividends
Dividends declared during the Period came to 4.75 pence per Share, of which two dividends were declared and paid and the third was declared and paid after the period end (during the Period: 1.50 pence per Share was paid on 12 December 2016 for the period ending 30 September 2016 and 2.00 pence per Share was paid on 24 February 2017, and following the period end: 1.25 pence per Share was paid on 5 May 2017).
Chairman's Statement (continued)
Board Update
Following the AGM held on 28 March 2017 and listening to the views of Shareholders, the Directors announced on 30 March 2017 that Mr Mouchotte had stepped down as a member of the Audit and Management Engagement Committees but remained a member of the Board of Directors. The Audit Committee is chaired by Mr Stokes and the Management Engagement Committee is chaired by myself. Mr Mouchotte will continue to abstain from any decisions that impact the fees payable to and appointment of the Investment Manager and the AIFM.
Outlook
The key focus of the Board in the coming months will be to work with the Investment Manager in realising the underlying portfolio in an orderly and most beneficial fashion, and returning capital to Shareholders in line with the timelines previously announced.
Shareholder feedback has been positive in response to the introduction of quarterly investor calls, the first two of which were held on 24 January 2017 and 27 April 2017, and I would encourage Shareholders to participate in future calls.
If there is any other matter that you require clarification on, please contact me and/or the Company's broker, Fidante Capital.
Rob King
Non-executive Chairman
24 May 2017
Investment Manager's Report
Investment Review
The Company launched with GBP130.3 million gross proceeds in October 2013. As of 31 March 2017, the Company was 88.7% invested.
The sector allocation as of 31 March 2017 reflected the anticipated target portfolio with a significant representation of corporate and SME loans.
Percentage Percentage Percentage Percentage
of NAV of NAV of NAV of NAV
Asset class 30 September 31 March 30 September 31 March
breakdown 2015 2016 2016 2017
------------------ -------------- ----------- -------------- -----------
SME loans 52.32% 48.57% 47.39% 46.40%
------------------ -------------- ----------- -------------- -----------
Corporate loans 29.01% 31.42% 31.16% 33.60%
------------------ -------------- ----------- -------------- -----------
Mortgages 10.57% 10.16% 8.87% 8.81%
------------------ -------------- ----------- -------------- -----------
Trade finance
loans 0.32% 0.00% 0.00% 0.00%
------------------ -------------- ----------- -------------- -----------
Cash, collateral
& hedges 7.78% 9.85% 12.58% 11.19%
------------------ -------------- ----------- -------------- -----------
Total 100.0% 100.0% 100.0% 100.0%
------------------ -------------- ----------- -------------- -----------
Geographically the portfolio diversification lightly evolved as the consequence of amortizing positions.
Percentage Percentage Percentage Percentage
of NAV of NAV of NAV of NAV
30 September 31 March 30 September 31 March
Geographic breakdown 2015 2016 2016 2017
---------------------- -------------- ----------- -------------- -----------
U.K. 20.91% 20.63% 19.50% 20.73%
---------------------- -------------- ----------- -------------- -----------
Spain 13.07% 14.83% 15.24% 14.32%
---------------------- -------------- ----------- -------------- -----------
Portugal 18.96% 14.15% 13.31% 12.17%
---------------------- -------------- ----------- -------------- -----------
Germany 9.44% 10.20% 10.55% 8.69%
---------------------- -------------- ----------- -------------- -----------
Italy 7.86% 8.72% 9.41% 9.70%
---------------------- -------------- ----------- -------------- -----------
USA 7.00% 7.67% 7.84% 8.45%
---------------------- -------------- ----------- -------------- -----------
Switzerland 7.26% 5.78% 3.66% 4.76%
---------------------- -------------- ----------- -------------- -----------
Netherlands 1.52% 1.67% 1.55% 2.39%
---------------------- -------------- ----------- -------------- -----------
France 1.58% 1.60% 2.07% 2.32%
---------------------- -------------- ----------- -------------- -----------
Other Countries 4.62% 4.90% 4.29% 5.28%
---------------------- -------------- ----------- -------------- -----------
Cash, accruals,
collateral, FX
& hedges 7.78% 9.85% 12.58% 11.19%
---------------------- -------------- ----------- -------------- -----------
Total 100.0% 100.0% 100.0% 100.0%
---------------------- -------------- ----------- -------------- -----------
As at 31 March 2017, the top five holdings were the following:
Underlying Fair
assets value Percentage
Sector Country (GBP) of NAV
----------- ------------ ----------- -----------
SME loans Portugal 14,130,086 12.19%
----------- ------------ ----------- -----------
SME loans Spain 13,766,255 11.88%
----------- ------------ ----------- -----------
SME loans Germany 8,444,477 7.29%
----------- ------------ ----------- -----------
SME loans Italy 7,051,977 6.08%
----------- ------------ ----------- -----------
Mortgages U.K. 6,687,883 5.77%
----------- ------------ ----------- -----------
Investment Manager's Report (continued)
Performance
During the period from 1 October 2016 to 31 March 2017, the Company's NAV performance (dividends reinvested) was
2.33%.
The month-on-month performances since inception, dividends reinvested, were the following:
Year YTD Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec ------ ------ ------- ------- ------- ------ ------ ------- ------- ------- ------- ------- ------- ------- 2013 0.74% -0.04% -0.19% 0.98% 2014 5.77% 0.68% 0.56% 0.95% 0.67% 0.67% -0.19% -0.58% 1.37% -0.93% 1.52% 0.28% 0.64% 2015 3.08% -0.10% 1.10% -1.01% 0.70% 0.98% 2.25% 0.19% 0.20% 0.70% 0.83% -0.01% -2.72% 2016 5.37% -1.42% -0.19% 2.41% 0.37% 1.81% 1.09% 0.42% -0.18% 1.85% 0.15% 0.11% -1.10% 2017 3.20% -0.41% 1.22% 2.48%
Since inception, the Company recorded the following dividends:
Period ending Dividend (pence
per Share)
30 June
2014 4.00
30 September
2014 1.25
31 December
2014 1.35
31 March
2015 1.20
30 June
2015 2.00
30 September
2015 2.95
31 December
2015 2.00
31 March
2016 2.00
30 June
2016 2.00
30 September
2016 1.50
31 December
2016 2.00
31 March
2017 1.25
Investment Outlook
The Company has commenced the Realisation Period with effect from 1 January 2017. This is explained in the Chairman's Statement on page 8.
The largest position in the portfolio remains the Company's Portuguese SME loans risk-sharing transaction, although the significant capital returned on the position has materially reduced this exposure. As quarterly cash flows continue to be received on this investment, its relative size in the portfolio will continue to decrease. The second largest position is the Spanish NPL portfolio secured on developer loans the valuation of which has reduced by 25% since inception due to amortisation.
Whilst the two largest positions are in periphery European countries (Spain and Portugal) the sum of the Company's exposure to periphery jurisdictions (Portugal, Spain and Italy) was circa 34% of the NAV as of 31 March 2017. The remainder is made up of core European geographies and global loan transactions.
The Investment Adviser maintains a Base Case, an Upside Case and a Stress Case for each investment in the portfolio, depending on its characteristics and underlying collateral. The cases are derived from a combination of: initial cases derived at the time of investment from analysis of the transaction's structure and the underlying portfolio data, regular tracking of the performance of the transaction's underlying collateral pool and market implied factors such as credit spreads or the performance of other similar deals.
The Investment Adviser continued to manage the forex exposure as a significant part of the Company's assets are denominated in Euros or US Dollars. Finally, we continue to assess the opportunistic early sale of the more liquid assets to maximise the return of capital to shareholders.
Chenavari Investment Managers (Luxembourg) S.Arl
Investment Manager
24 May 2017
Statement of Principal Risks and Uncertainties
Summary
An investment in the Shares is only suitable for institutional investors and professionally advised private investors who understand and are capable of evaluating the merits and risks of such an investment and who have sufficient resources to be able to bear any losses (which may equal the whole amount invested) that may result from such an investment. Furthermore, an investment in the Shares should constitute part of a diversified investment portfolio. It should be remembered that the price of securities and the income from them can go down as well as up.
The risks set out below are those which are considered to be the material risks relating to an investment in the Shares but are not the only risks relating to the Shares or the Company. Additional risks and uncertainties of which the Company is presently unaware or that the Company currently believes are immaterial may also adversely affect its business, financial condition, results of operations or the value of the Shares.
The Board have carried out a robust assesssment to identify the principal risks that could affect the Company, including those that would threaten its business model, future performance, solvency or liquidity. The Board has adopted a controls based approach to its risk monitoring requiring each of the relevant service providers including the Investment Manager to establish the necessary controls to ensure that all known risks are monitored and controlled in accordance with agreed procedures. The Directors receive periodic updates at their Board meetings on key risks and have adopted their own control review to ensure where, possible, risks are monitored appropriately.
Risk Explanation/Mitigant
----------------------- --------------------------------------------------
Collateral Investment Instruments issued by Bank
risk (default, counterparties and purchased by the Company
recovery, prepayment) are linked to the credit performance
of the Collateral. This means that defaults
or credit losses in the Collateral may
adversely impact the performance of the
Company, the NAV and the value of the
Shares.
The Investment Adviser undertakes a fundamental
credit review entailing the selection
and optimisation of the Collateral underlying
a Bank Capital Solutions Transaction
and develops quantitative scenarios using
default rates, loss severities and prepayments
applied to sub-pools within the Collateral.
Alongside the fundamental credit analysis,
the structural features of the transaction
are also assessed. This includes a review
of the payment waterfall, the subordination
of the proposed Investment Instrument,
the extent of the reserve fund, the amortisation
profile and extension risk.
Where it is considered desirable, the
Company may enter into hedging transactions
designed to protect against or mitigate
the consequences of single reference
obligations defaulting and/or more generalised
credit events.
----------------------- --------------------------------------------------
Bank counterparty Bank capital solutions transactions may
risk expose the Company to the Bank Counterparty's
credit risk. The terms of such transactions
will generally include credit rating
triggers such that the transaction is
terminated or accelerated, or other credit
support features are activated, if the
Bank Counterparty's credit ratings decline
by more than a predetermined threshold.
The Company may enter into credit hedging
arrangements to ensure that the net exposure
to any Bank Counterparty is no more than
20% of the NAV as at the date that any
relevant credit hedging contract matures
or is adjusted or rolled over.
----------------------- --------------------------------------------------
Currency risk The type of securities in which the Company
invests, to the extent not sterling denominated,
may be sensitive to changes in foreign
exchange rates.
The Company may implement hedging strategies
designed to protect investments from
movements in exchange rates. Such strategies
may include (but are not limited to)
options, forwards, and futures.
----------------------- --------------------------------------------------
Statement of Principal Risks and Uncertainties (continued)
Risk (continued) Explanation/Mitigant (continued)
----------------- -----------------------------------------------
Valuation and Investments are valued in accordance
classification with the Company's Valuation Policy,
of financial which is compiled with reference to
assets at fair key principles comprising independence,
value through documentation, transparency, consistency
profit or loss and relevance. The Valuation Policy
risk documents the pricing process and timeline,
with particular reference to difficult
to value securities, and sets out escalation
procedures.
The Board has established a committee
to review the valuation of illiquid
Investment Instruments, particularly
where a valuation is provided by a single
counterparty or where the Investment
Adviser's risk officer recommends a
materially different valuation than
that provided by a counterparty. The
Company has also engaged Duff & Phelps,
Ltd ("Duff & Phelps"), as a valuation
advisor to provide certain limited procedures
on some Transactions' valuation which
the Investment Adviser identified and
requested Duff & Phelps to perform.
For the avoidance of doubt, notwithstanding
the Company's engagement with Duff &
Phelps, the Valuation Committee of the
Company remains ultimately responsible
for the determination of the Fair Value
of each Transaction, but may consider
Duff & Phelps' input in making such
determinations. Specifically, as of
30 September 2016, Duff & Phelps estimated
ranges of Fair Value for the Company's
interests in 5 transactions. Duff &
Phelps have not performed specific valuation
procedures during the period.
----------------- -----------------------------------------------
Investment The Company is dependent on the expertise
Manager and of the Investment Manager, the Investment
Investment Adviser and their respective key personnel
Adviser risks to evaluate investment opportunities
and to implement the Company's investment
objective and investment policy.
The Board has instructed the Investment
Manager to conduct the Company's investment
related activities in compliance with
the applicable law, the Company's investment
objective, investment policy and guidelines
and the Company's contractual obligations.
The Management Engagement Committee
carried out its annual review of the
performance and capabilities of the
Investment Manager in November 2016
and has confirmed the continued appointment
of the Investment Manager is deemed
to be in the interest of Shareholders.
There can be no assurance that the Investment
Manager's past performance will be any
guide to future performance or results.
----------------- -----------------------------------------------
Tax, legal Changes in the Company's tax status
and regulatory or tax treatment may adversely affect
risks the Company, and if the Company becomes
subject to the UK offshore fund rules
there may be adverse tax consequences
for certain UK resident Shareholders.
The Company expects that US taxpayers
generally would be subject to adverse
US tax consequences in respect of their
investment in the Shares under US tax
rules applicable to passive foreign
investment companies ("PFIC"). Accordingly,
the acquisition of Shares may not be
a suitable investment for U.S. Holders
(other than U.S. Holders that are tax-exempt
organisations). U.S. Holders should
consult their tax advisers regarding
the application of the PFIC rules to
an investment in Shares.
----------------- -----------------------------------------------
Statement of Principal Risks and Uncertainties (continued)
Risk (continued) Explanation/Mitigant (continued)
------------------- -----------------------------------------------------
Tax, legal On 23 November 2015 Guernsey issued
and regulatory regulations to implement the Common
risks (continued) Reporting Standard ("CRS") under Guernsey's
domestic law. The regulations follow
on from the commitment made on 29 October
2014 by Guernsey, along with the other
Crown Dependencies and a number of other
jurisdictions, to start exchanging information
under the CRS in respect of accounts
maintained by financial institutions
in Guernsey by 2017 at the earliest.
The regulations took effect from 1 December
2015 and required Reporting Financial
Institutions in Guernsey to apply from
1 January 2016 prescribed due diligence
procedures to all financial accounts
maintained by them in order to identify
and report, where appropriate, certain
information to Guernsey's income tax
office ("ITO"), which in turn will transmit
that information the following year
to the tax offices of relevant jurisdictions.
The requirements of CRS are closely
aligned to requirements under the FATCA
Model 1 Intergovernmental agreement.
Changes in the Basel III standards or
other changes in the regulation of bank
capital adequacy may make bank capital
solutions transactions unattractive
for Bank Counterparties or reduce the
rates of return available, both of which
may adversely affect the Company.
The AIFMD seeks to regulate AIFMs established
in the EU and prohibits such managers
from managing any AIF or marketing shares
in such funds to investors in the EU
unless the AIFM has been authorised.
The Company, as a Guernsey registered
closed ended fund which is not currently
actively marketed in the EEA, is not
directly impacted by the AIFMD (save
for certain consequential effects arising
from its appointment of an EU domiciled
AIFM, such as the requirement to appoint
a depositary). The Board acknowledges
that if active marketing is undertaken
in the EEA the private placement regime
requirements for the relevant jurisdiction
would need to be met.
The Board and its advisers have also
implemented policies and risk based
controls to monitor both the investment
and operational risks that impact the
Company to facilitate compliance with
AIFMD. The Board is cognisant of the
European Union's ongoing discussions
regarding, inter alia, passporting arrangements
for AIFs and ESMA's recommendations
as regards to so called "third countries",
i.e. non-EU member states. The Board
and its advisers monitor developments
to ensure continued compliance and to
ensure that any potential opportunities
are not missed.
The Administrator, Sub-Administrator,
Broker and Investment Manager provide
regular updates to the Board on compliance
with the prospectus and changes in regulation.
------------------- -----------------------------------------------------
Operational The Company is exposed to the risk arising
risks from any failures of systems and controls
in the operations of the Investment
Manager, AIFM, Administrator, the Sub-Administrator
and the Custodian. The Board and its
Audit Committee regularly review reports
from its Outsourced Service Providers
on their internal controls.
------------------- -----------------------------------------------------
Statement of Directors' Responsibilities
We confirm to the best of our knowledge that:
-- these Condensed Unaudited Interim Financial Statements have been prepared in accordance with International Accounting Standard 34.
-- the interim management report (comprising the Chairman's Statement and Investment Manager's Report) meets the requirements of an interim management report, and includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the period from 1 October 2016 to 31 March 2017 and their impact on the Unaudited Interim Financial Statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place during the period from 1 October 2016 to 31 March 2017 and that have materially affected the financial position or performance of the entity during that period.
This responsibility statement was approved by the Board of Directors on 24 May 2017 and is signed on its behalf by:
Non-Executive Director : Rob King Non-Executive Director: Iain Stokes
Date: 24 May 2017 Date: 24 May 2017
Independent Review Report to Chenavari Capital Solutions Limited
We have been engaged by the Company to review the financial statements in the interim financial report for the period from 1 October 2016 to 31 March 2017 which comprises the Condensed Statement of Comprehensive Income, the Condensed Statement of Financial Position, the Condensed Statement of Changes in Equity, the Condensed Statement of Cash Flows and related notes 1 to 21. We have read the other information contained in the interim financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Company those matters we are required to state to it in an independent review 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 formed.
Directors' responsibilities
The interim financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the interim financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 2, the annual financial statements of the Company are prepared in accordance with IFRS as adopted by the European Union. The condensed set of financial statements included in this interim financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting," as issued by the IASB.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the interim financial report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the interim financial report for the period from 1 October 2016 to 31 March 2017 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as issued by the IASB and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Deloitte LLP
Chartered Accountants
Guernsey
24 May 2017
Condensed Unaudited Statement of Comprehensive Income
For the period ended 31 March 2017
1 October 1 October
2016 to 2015
31 March to 31 March
2017 2016
Notes GBP GBP
Income
Interest income 6,953 11,835
Net gain/(loss) on financial
assets and financial liabilities
held at fair value through
profit or loss 11 3,634,903 (624,283)
Total net income/(expense) 3,641,856 (612,448)
---------- -------------
Expenses
Management fees 4 603,454 622,179
Administration fees 5(b) 26,000 26,000
Sub-administration fees 5(c) 40,761 39,885
Custodian fees 5(d) 15,750 15,750
Corporate broking fees 5(a) 37,681 37,500
Legal and transaction fees 15,351 10,000
Directors' fees 4 57,500 57,500
Audit fees 41,000 36,000
Other operating expenses 52,201 42,492
Total operating expenses 889,698 887,306
---------- -------------
Finance costs
Interest expense 10,981 1,432
Profit/(loss) for the period 2,741,177 (1,501,186)
========== =============
Earnings/(loss) per Share
Basic and diluted 8 2.20p (1.15)p
Non-Executive Director: Non-Executive Director:
Date: 24 May 2017 Date: 24 May 2017
All items in the above statement derive from continuing operations.
The condensed schedule of investments and the notes to the financial statements are an integral part of the financial statements.
Condensed Unaudited Statement of Financial Position
As at 31 March 2017
31 March 30 September
2017 2016
Notes GBP GBP
Assets
Financial assets at fair
value through profit or
loss 10 103,351,883 107,971,102
Due from broker 12 8,723,126 6,095,266
Other receivables and prepayments 13 28,793 75,347
Cash and cash equivalents 9,541,673 11,538,313
Total assets 121,645,475 125,680,028
------------ -------------
Equity
Share capital and share
premium 15 122,591,574 127,694,000
Retained deficit (6,688,216) (4,871,013)
Total equity 115,903,358 122,822,987
------------ -------------
Current liabilities
Financial liabilities at
fair value through profit
or loss 10 494,308 2,037,756
Due to broker 12 50,503 617,079
Partial compulsory redemption
of shares payable 19 4,999,956 -
Accrued expenses 14 197,350 202,206
Total liabilities 5,742,117 2,857,041
------------ -------------
Total equity and liabilities 121,645,475 125,680,028
------------ -------------
Shares outstanding 15 124,667,584 130,300,000
NAV per Share 9 92.97p 94.26p
Non-Executive Director: Non-Executive Director:
Date: 24 May 2017 Date: 24 May 2017
The condensed schedule of investments and the notes to the financial statements are an integral part of the financial statements.
Condensed Unaudited Statement of Changes in Equity
For the period ended 31 March 2017
Share capital
Retained and share
earnings premium Total
Note GBP GBP GBP
At 30 September 2016 (4,871,013) 127,694,000 122,822,987
Profit for the period 2,741,177 - 2,741,177
Shares redeemed during
the period - (5,102,426) (5,102,426)
Distributions to equity
shareholders 17 (4,558,380) - (4,558,380)
At 31 March 2017 (6,688,216) 122,591,574 115,903,358
============ ============== ============
For the period ended 31 March 2016
Share capital
Retained and share
earnings premium Total
Note GBP GBP GBP
At 30 September 2015 1,836,597 127,694,000 129,530,597
Loss for the period (1,501,186) - (1,501,186)
Distributions to equity
shareholders 17 (6,449,850) - (6,449,850)
At 31 March 2016 (6,114,439) 127,694,000 121,579,561
============ ============== ============
The condensed schedule of investments and the notes to the financial statements are an integral part of the financial statements.
Condensed Unaudited Statement of Cash Flows
For the period ended 31 March 2017
1 October 1 October
2016 to 2015
31 March to 31 March
2017 2016
GBP GBP
Cash flows from operating
activities
Profit/(loss) for the period 2,741,177 (1,501,186)
Adjustments for non-cash items
and working capital:
Purchase of investments (598,144) (2,926,859)
Disposals and paydowns of
investments 776,978 9,009,533
Net loss on financial assets
and derivatives at fair value 2,896,937 4,258,630
(Increase)/decrease in amounts
due from brokers (2,627,860) 1,230,975
Decrease in other receivables
and prepayments 46,554 5,975
Decrease in amounts due to
brokers (566,576) (316,505)
Increase in partial compulsory
redemption of shares payable 4,999,956 -
Decrease in accrued expenses (4,856) (1,828)
Net cash inflow from operating
activities 7,664,166 9,758,735
------------ -------------
Cash flows from financing
activities
Shares redeemed during the
period (5,102,426) -
Distributions to equity Shareholders (4,558,380) (6,449,850)
Net cash outflow from financing
activities (9,660,806) (6,449,850)
------------ -------------
Net (decrease)/increase in
cash and cash equivalents (1,996,640) 3,308,885
Cash and cash equivalents
at beginning of the period 11,538,313 4,360,121
Cash and cash equivalents
at end of the period 9,541,673 7,669,006
============ =============
The condensed schedule of investments and the notes to the financial statements are an integral part of the financial statements.
Condensed Schedule of Investments, at Fair Value as At 31 March 2017 and As at 30 September 2016.
Please view the link below:-
http://www.rns-pdf.londonstockexchange.com/rns/1679G_1-2017-5-24.pdf
Notes to the Condensed Unaudited Financial Statements
1. General information
Background information on the Company's activities can be found in the Company's prospectus dated 23 September 2013 and please also refer to the year end 2016 Financial Statements, both of which are available on our website address www.chenavaricapitalsolutions.com.
2. Summary of significant accounting policies
The principal accounting policies applied in the preparation of these financial statements are set out below.
2.1. Basis of preparation
The Interim Financial Statements for the period from 1 October 2016 to 31 March 2017 have been prepared in accordance with IFRS as adopted by the European Union, the Disclosure and Transparency Rules of the Financial Conduct Authority and applicable legal and regulatory requirements of the Law. The condensed set of financial statements have been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting".
The same accounting policies, presentation and methods of computation are followed in the condensed set of financial statements as applied in the Company's latest set of audited financial statements, a copy of which can be found on our website at www.chenavaricapitalsolutions.com.
2.2 Going concern
The Directors believe that it is appropriate to adopt the going concern basis in preparing the Financial Statements. In reaching their view, the Directors have considered that from 1 January 2017 the Realisation Period will commence as explained in the Chairman's Statement on page 8. The Directors have further considered the Company's holding in cash and cash equivalents and the distribution features of the Company's income generating investments, meaning the Company has adequate financial resources to meet its liabilities as they fall due over a period of at least twelve months from the date of approval of the financial statements.
3. Critical accounting judgements and key sources of estimation uncertainty
The preparation of the Company's Financial Statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and the accompanying disclosures. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.
3.1 Key sources of estimation uncertainty
Fair value of financial instruments
The assets held by the Company are mostly valued through a combination of dedicated price feeds from recognised valuation vendors and the application of relevant broker quotations where the broker is a recognised market maker in the respective position and where these are not readily available internal valuations.
A documented valuation policy determines the hierarchy of prices to be applied to the fair value. Prices are sourced from third party broker or dealer quotes for the relevant security. Where no third party price is available, or where the Investment Manager determines that the third party quote is not an accurate representation of the fair value, the Investment Manager will determine the valuation based on the valuation policy. This may include the use of a comparable arm's length transaction, reference to other securities that are substantially the same, discounted cash flow analysis and other valuation techniques commonly used by market participants making the maximum use of market inputs and relying as little as possible on entity-specific inputs.
The monthly NAV is derived from the Company's valuation policy. In particular, fair values of credit default swaps ("CDS") are determined with the independent pricing by Markit, which is the benchmark of the industry for CDS pricing data. Markit receives data from the official books of market-makers and then subjects it to a rigorous testing and consistency process to provide closing prices, from which are derived the reported fair values of the financial instruments held by the Company.
Notes to the Condensed Unaudited Financial Statements (continued)
3. Critical accounting judgements and key sources of estimation uncertainty (continued) 3.1 Key sources of estimation uncertainty (continued)
Fair value of financial instruments (continued)
Note 7 outlines the Level 3 classifications and the analysis of the impacts of Level 3 investments on the performance of the Company.
3.2 Critical judgements in applying accounting policies
Functional currency
The Board of Directors considers GBP (GBP) as the currency that most fairly represents the economic effect of the underlying transactions, events and conditions. The performance of the Company is measured and reported to the investors in GBP.
Valuation and classification of investments
The Board of Directors consider the valuation of investments and the classification of these investments in the fair value hierarchy as the critical judgements. The fair value of investments is described in 3.1 above and the judgements associated with the disclosures in the fair value hierarchy are described in note 7.
4. Related parties
(a) Directors' remuneration & expenses
The Directors of the Company are remunerated for their services at such a rate as the Directors determine. The fee for Mr. Mouchotte is GBP37,500 per annum. The fee for Mr. Stokes as Chairman of the Audit Committee is GBP40,000 per annum. The fee for Mr. King as Chairman is GBP40,000 per annum.
During the period ended 31 March 2017, Directors fees of GBP57,500 (for the period ended 31 March 2016: GBP57,500) were charged to the Company, of which GBP1,250 (2016: none) were prepaid at the end of the period.
(b) Shares held by related parties
As at 31 March 2017, the Directors held the following interests: Mr King 30,000 Shares, Mr Stokes 40,000 Shares and Mr Mouchotte 5,000 Shares in the Company.
As at 31 March 2017, neither the Investment Manager nor partners of the Investment Manager held any of the Issued Share Capital. An employee of the Investment Advisor owns 12,202 shares (equating to 0.01% of the shares of the Company). Chenavari Investment Managers Holdings, which is the holding Company of the Investment Manager and the Investment Adviser, held 1,254,538 shares of the Company (approximately 1.01% of the shares of the Company). An investment vehicle managed by the Investment Advisor, Chenavari European Opportunistic Credit Master Fund Ltd. owns 25,052,499 shares of the Company (approximately 20.10% of the shares of the Company).
(c) Investment Manager and AIFM
The Company receives investment management services from the Investment Manager, a limited company (Société à Responsabilité Limitée de Droit Luxembourgeois) incorporated in Luxembourg. Under the terms of the investment management agreement dated 23 September 2013 as novated on 22 July 2014 the Investment Manager receives in return a fee of one-twelfth of 1% on the NAV, payable monthly in arrears. The Investment Manager has appointed the Investment Adviser, to provide investment advisory services to the Investment Manager. The Investment Manager is responsible for paying the Investment Adviser. The Investment Management Agreement is terminable by either the Investment Manager or the Company giving to the other not less than 12 months' written notice, such notice not to be served before the fourth anniversary of Admission.
Notes to the Condensed Unaudited Financial Statements (continued)
4. Related parties (continued) (c) Investment Manager and AIFM (continued)
Total management fees for the period amounted to GBP603,454 for Chenavari Investment Managers (Luxembourg) S.àRL (for the period ended 31 March 2016 the equivalent was GBP622,179 for Chenavari Investment Managers (Guernsey) Ltd) with GBP89,231 (30 September 2016: GBP100,494) in outstanding accrued fees at the period end.
The Investment Manager is also entitled to receive from the Company a performance fee equal to 20% of realised returns (i.e. dividends and capital repayments/returns) to Shareholders, subject to a hurdle of 7.5% per annum with a catch up. The catch-up operates such that a performance fee shall not become payable until the Company has distributed to Shareholders an amount equal to the Gross Issue Proceeds as increased by a hurdle rate of 7.5% per annum (the "Hurdle"). Thereafter, amounts available for distribution in excess of the Hurdle shall be distributed by the Company as to 50% to Shareholders and paid as to 50% to the Investment Manager until the Investment Manager has received 20% of all amounts in excess of the Gross Issue Proceeds. Thereafter, all further amounts available for distribution by the Company shall be distributed as to 80% to Shareholders and paid as to 20% by way of payment of the performance fee to the Investment Manager.
As of 31 March 2017, no performance fee was accrued according to those principles.
The Company has funded investments with a value of GBP41,721,167 via Convertible Preferred Equity Certificates and/or occasionally beneficiary shares issued by legally segregated compartments of AREO S.àRL ("Areo"), a company incorporated in Luxembourg under the Securitization Law of 2004. Areo is owned by the Chenavari group and Chenavari funds and is managed by a Board of Directors composed of a majority of independent directors that consider investment opportunities sourced by the Portfolio Manager. The Company is currently invested in seven compartments of Areo, the investment in which it fair values in accordance with IFRS 13 as set out in the Company's accounting policies. The Investment Manager and Investment Adviser receive no fees from Areo in relation to these transactions.
5. Material agreements
(a) Corporate broker
Fidante Partners Europe Limited, trading as Fidante Capital, receives a retainer for their corporate broking services of GBP75,000 per annum, payable semi-annually in arrears.
(b) Administration fee
Estera Administration Limited (the "Administrator") serves as the Company's administrator and secretary. The Administrator is entitled to a fee of GBP52,000 per annum. All fees are payable quarterly in advance. Administration fees for the period amounted to GBP26,000 (period ended 31 March 2016: GBP26,000).
(c) Sub-administration fee
The Administrator has appointed Quintillion Limited (the "Sub-Administrator") as the Company's sub-administrator.
The Sub-Administrator is entitled to receive an annual asset-based fee from the Company of up to 0.085% per annum of NAV, excluding certain expenses. Sub-administration fees for the period amounted to GBP40,761 (period ended 31 March 2016: GBP39,885) of which GBP5,828 (30 September 2016: GBP7,073) remained payable at the period.
(d) Custodian fee
JPMorgan Chase Bank N.A has been appointed to act as custodian to the Company and to provide custodial, settlement and other associated services to the Company. Under the provisions of the custodian agreement dated 5 September 2013 the Custodian is entitled to a safekeeping and administration fee on each transaction calculated using a basis point fee charge based on the country of settlement and the value of the assets together with various other payment/wire charges on outgoing payments, subject to an aggregate minimum fee of GBP31,500 per annum.
(e) Depository fee
Elavon Financial Services Limited has been appointed to act as depository to the Company. The Depository is entitled to 0.05% per annum of NAV. Depository fees for the period amounted to GBP3,017 (period ended 31 March 2016: GBP3,111) of which GBP446 remained payable at the period.
Notes to the Condensed Unaudited Financial Statements (continued)
5. Material agreements (continued) (f) Investment Manager
Contractual arrangements relating to the Investment Manager are detailed in note 4.
6. Financial risk management
The responsibility for financial risk management lies with the Board of the Company but it has delegated the day to day monitoring of this to the Investment Manager.
The Investment Adviser will be responsible for sourcing potential investments. Recommended investments will be presented to the Investment Manager for its approval. The Investment Manager will not be required to, and generally will not, submit decisions concerning the discretionary or ongoing management of the Company's assets for the approval of the Board, except where such approval relates to an application of the investment guidelines or a conflict of interest. Any investment recommended by the Investment Adviser which the Investment Manager rejects will however, be promptly notified to the Board.
6.1 Credit risk
The main concentration of credit risk to which the Company is exposed arises from the Company's investments in Regulatory Capital Transactions.
The Company mitigates its credit risk on Regulatory Capital transactions through extensive due diligence before investment.
To the extent that the Portfolio is exposed to underlying concentrations in any one geographical region, borrower sector or credit or asset type, an economic downturn relating generally to such geographical region, borrower type or credit or asset type may result in an increase in underlying defaults or prepayments within a short time period. This could reduce the Company's income (and thus the ability to pay dividends to Shareholders), the NAV and the value of the Shares. The Portfolio is expected to carry leveraged exposure and an increase in credit losses with respect to any or all Collateral could reduce the Company's income (and thus the ability to pay dividends to Shareholders), the NAV and the value of the Shares.
No more than 20% of the NAV, calculated at the time of investment, will be exposed to any one Bank Counterparty. Such exposure will be calculated on a net basis, taking into account effective credit hedging arrangements entered into by the Company in relation to the relevant Bank Counterparty. This limit shall increase to 25% net exposure to any one Bank Counterparty where, in the Board's opinion, the relevant Investment Instrument is expected to amortise such that, within one year of investment, the expected capital balance outstanding is less than 20% of NAV, calculated at the time of investment.
Notes to the Condensed Unaudited Financial Statements (continued)
6. Financial risk management (continued)
As of 31 March 2017 (and 30 September 2016), the Company had no exposure above the 20% limit.
Where credit hedging arrangements are used in order to comply with these limits, the hedges will be maintained such that the net exposure to the Bank Counterparty is no more than 20% of the NAV as at the date that any relevant credit hedging contract matures or is adjusted or rolled over.
For the avoidance of doubt, cash pending investment or held on deposit under the terms of an Investment Instrument may be held without limit with a financial institution with short term credit ratings of at least A-2 (Standard & Poor's) or P-2 (Moody's).
The Company manages the portfolio with appropriate diversification in terms of sectors and geographical breakdowns.
As of 31 March 2017 and 30 September 2016, the breakdown of the NAV per asset class was as follows:
31 March 30 September
Asset class breakdown 2017 2016
% NAV % NAV
Corporate loans 33.60% 31.16%
SME loans 46.40% 47.39%
Mortgages 8.81% 8.87%
Cash, hedges and accruals 11.19% 12.58%
--------- -------------
Total 100.00% 100.00%
--------- -------------
Notes to the Condensed Unaudited Financial Statements (continued)
6. Financial risk management (continued)
6.1 Credit risk (continued)
As of 31 March 2017 and 30 September 2016, the geographic breakdown was as follows:
31 March 30 September
Geographic breakdown 2017 2016
% NAV % NAV
U.K. 20.73% 19.50%
France 2.32% 2.07%
Germany 8.69% 10.55%
Italy 9.70% 9.41%
Netherlands 2.39% 1.55%
Portugal 12.17% 13.31%
Spain 14.32% 15.24%
Switzerland 4.76% 3.66%
USA 8.45% 7.84%
Luxembourg 0.53% 0.42%
Finland 0.62% 0.58%
China 0.23% 0.22%
Japan 0.17% 0.16%
Australia 0.47% 0.44%
Canada 0.25% 0.24%
Denmark 0.43% 0.25%
Austria 0.18% -
Belgium 0.28% -
Others 2.12% 1.98%
Cash, hedges and accruals 11.19% 12.58%
--------- -------------
Total 100.00% 100.00%
--------- -------------
The Company is also exposed to counterparty credit risk on cash and cash equivalents, amounts due from brokers, other receivable balances and forward FX contracts as shown in the following table:
Bank of
31 March 2017 America Citigroup JP Morgan* Total
S&P rating A-2 A-2 A-2
GBP GBP GBP GBP
Cash and cash equivalents - - 9,541,673 9,541,673
8,496,056
Due from broker - 215,035 12,035 8,723,126
Credit default
swaps 35,297 - - 35,297
Forward FX contracts 367,713 - - 367,713
---------- ---------- ----------- -----------
Total counterparty
exposure 8,899,066 215,035 9,553,708 18,667,809
---------- ---------- ----------- -----------
Net asset exposure
% 7.68% 0.19% 8.24% 16.11%
Bank of
30 September 2016 America Citigroup JP Morgan* Total
S&P rating A-2 A-2 A-2
GBP GBP GBP GBP
Cash and cash equivalents - - 11,553,424 11,553,424
Due from broker 5,669,137 - 426,129 6,095,266
Credit default
swaps 223,318 375,649 - 598,967
Forward FX contracts (2,037,756) - - (2,037,756)
------------ ---------- ----------- ------------
Total counterparty
exposure 3,854,699 375,649 11,979,553 16,209,901
------------ ---------- ----------- ------------
Net asset exposure
% 3.14% 0.31% 9.75% 13.20%
* JP Morgan cash and cash equivalents represents cash held in a custodian account.
Notes to the Condensed Unaudited Financial Statements (continued)
6. Financial risk management (continued)
6.1 Credit risk (continued)
Offsetting Financial Assets and Financial Liabilities
The Company enters into transactions with a number of counterparties whereby the resulting financial instrument is subject to an enforceable master netting arrangement or similar agreement, such as an International Swaps and Derivatives Association ("ISDA") Master Agreement (a "Master Netting Agreement"). Such Master Netting Agreements may allow for net settlement of certain open contracts where the Company and the respective counterparty both elect to settle on a net basis. In the absence of such an election, contracts will be settled on a gross basis. All Master Netting Agreements allow for net settlement at the option of the non-defaulting party in an event of default, such as failure to make payment when due or bankruptcy.
The Company receives and provides cash collateral in respect of derivative transactions subject to the standard industry terms of ISDA's Credit Support Annex.
None of the financial assets and financial liabilities are offset in the statement of financial position, as the Master Netting Agreements create a right of set-off of recognised amounts that is enforceable only following an event of default, insolvency or bankruptcy of the Company or counterparties. In addition, the Company and its counterparties do not intend to settle on a net basis or to realise the assets and settle the liabilities simultaneously.
6.2 Foreign currency risk
Foreign currency risk is the risk of gain or loss resulting from exposure to movements on exchange rates on investments priced in currencies other than the base currency of the Company. The Company does not actively take risk in foreign currency, but incurs it as a normal course of business and employs a series of economic hedges to minimise these risks.
The currency exposure as at 31 March 2017 is as follows:
NAV impact
31 March 31 March for a
Other 2017 2017 +/-10%
net Total Total FX rate
Currency Investments FX Hedges Cash assets exposure exposure move
GBP GBP GBP GBP GBP % %
CHF 4,001,049 (4,002,620) 13,006 - 11,435 0.01% 0.00%
EUR 52,420,508 (51,909,559) 1,527,509 74 2,038,532 1.76% 0.02%
USD 25,193,682 (24,657,755) 435 4,658 541,020 0.47% 0.05%
---------- -----------
81,615,239 (80,569,934) 1,540,950 4,732 2,590,987 2.24% 0.07%
------------ ------------- ---------- -------- ---------- ---------- -----------
The currency exposure as at 30 September 2016 is as follows:
NAV impact
30 September 30 September for a
Other 2016 2016 +/-10%
net Total Total FX rate
Currency Investments FX Hedges Cash assets exposure exposure move
GBP GBP GBP GBP GBP % %
CHF 4,008,443 (4,080,061) 116,729 - 45,111 0.04% 0.00%
EUR 57,900,296 (58,351,031) 1,826,765 (9,127) 1,366,903 1.11% 0.11%
USD 24,855,004 (24,838,363) 54,685 4,003 75,329 0.06% 0.01%
------------- -----------
86,763,743 (87,269,455) 1,998,179 (5,124) 1,487,343 1.21% 0.12%
------------ ------------- ---------- -------- ------------- ------------- -----------
Notes to the Condensed Unaudited Financial Statements (continued)
6. Financial risk management (continued)
6.3 Interest rate risk
Interest rate risk is the risk of gain or loss resulting from exposure to movements on interest rates. The Company only holds floating rate financial instruments which have little exposure to fair value interest rate risk as, when the short term interest rates increase, the interest on a floating rate note will increase. The value of assed backed securities may be affected by interest rate movements. Interest receivable on bank deposits or payable on bank overdraft positions will be affected by fluctuations on interest rates; however the underlying cash positions will not be affected.
The Company's continuing position in relation to interest rate risk is monitored by the Investment Manager.
Fixed Floating
rate rate Non-interest
interest interest bearing
GBP GBP GBP
31 March 2017
Financial assets at fair
value through profit or
loss 17,438,302 85,545,868 367,713
Due from broker - 9,541,673 -
Other receivables and prepayments - - 28,793
Cash and cash equivalents - 8,723,126 -
Financial liabilities at
fair value through profit
or loss - (109,990) (384,318)
Due to broker - (50,503) -
Accrued expenses - - (197,350)
----------- ------------ -------------
17,438,302 103,650,174 (185,162)
----------- ------------ -------------
30 September 2016
Financial assets at fair
value through profit or
loss 17,297,258 90,673,844 -
Due from broker - 5,669,137 426,129
Other receivables and prepayments - - 75,347
Cash and cash equivalents - 11,538,313 -
Financial liabilities at
fair value through profit
or loss - - (2,037,756)
Due to broker - (186,475) (430,604)
Accrued expenses - - (202,206)
----------- ------------ -------------
17,297,258 107,694,819 (2,169,090)
----------- ------------ -------------
6.4 Liquidity risk
A proportion of the Company's statement of financial position is made up of assets and liabilities which may not be realisable as cash on demand. As a result an exposure to liquidity risk exists. This risk is mitigated by the closed-ended nature of the Company and distribution features.
The table below analyses the Company's liabilities into relevant maturity groups based on the remaining period at the statement of financial position date to the contractual maturity date.
Greater
Less than than 3
3 months months Total
GBP GBP GBP
31 March 2017
Financial liabilities at
fair value through profit
or loss (384,318) (109,990) (494,308)
Due to broker (50,503) - (50,503)
Accrued expenses (156,350) (41,000) (197,350)
---------- ---------- ----------
(591,171) (150,990) (742,161)
---------- ---------- ----------
30 September 2016
Financial liabilities at
fair value through profit
or loss (2,037,756) - (2,037,756)
Due to broker (617,079) - (617,079)
Accrued expenses (164,207) (38,000) (202,207)
------------
(2,819,042) (38,000) (2,857,042)
------------ --------- ------------
Notes to the Condensed Unaudited Financial Statements (continued)
6. Financial risk management (continued)
6.4 Liquidity risk (continued)
The Company is all equity funded and has been established as a Registered Closed-ended Collective Investment Scheme. Other than in the circumstances and subject to the conditions set out in Part I of the prospectus, Shareholders will have no right to have their Shares redeemed or repurchased by the Company at any time. Shareholders wishing to realise their investment in the Company will normally therefore be required to dispose of their Shares through the secondary market.
6.5 Price risk
Market price risk arises mainly from uncertainty about future prices of financial instruments and credit ratings of debt issuers in which the Company invests. Market price risk represents the potential loss the Company may suffer through price movements on its investments.
The Company is exposed to market price risk arising from the investments in equity securities, debt and derivatives.
The Portfolio Manager manages the Company's price risk and monitors its overall market positions on a daily basis in accordance with the Company's investment objective and policies. The Company's overall market positions are monitored on a quarterly basis by the Board of Directors.
As at 31 March 2017, a 5% movement in prices (with all other variables held constant) would have resulted in a change to the total net assets of GBP5,142,879 (30 September 2016: GBP5,296,667).
7. Fair value of financial instruments
The fair values of financial assets and liabilities traded in active markets (such as publicly traded derivatives and trading securities) are based on quoted market prices at the close of trading on the period end date. The Company has adopted IFRS 13, 'Fair value measurement' and this standard requires the Company to price its financial assets and liabilities using the price in the bid-ask spread that is most representative of fair value for both financial assets and financial liabilities. If a significant movement in fair value occurs subsequent to the close of trading up to midnight on the period end date, valuation techniques will be applied to determine the fair value. No such event occurred. An active market is a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.
For financial assets and liabilities not traded in active markets the fair value is determined by using various methods including internal models, alternative price sources including a combination of dedicated price feeds from recognised valuation vendors and the application of relevant broker quotations where the broker is a recognised dealer in the respective position. Where broker quotes are not available, investment valuations are based on the Investment Advisor's internal models.
The hierarchy is broken down into three levels based on the observability of inputs as follows:
Level 1: Quoted price (unadjusted) in an active market for an identical instrument.
Level 2: Valuation techniques based on observable inputs, either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes instruments valued using: quoted prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques for which all significant inputs are directly or indirectly observable from market data.
Level 3: Valuation techniques using significant unobservable inputs. This category includes all instruments for which the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument's valuation. This category includes instruments that are valued based on quoted prices for similar instruments for which significant unobservable adjustments or assumptions are required to reflect differences between the instruments.
The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety.
Notes to the Condensed Unaudited Financial Statements (continued)
7. Fair value of financial instruments (continued)
If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability.
The determination of what constitutes 'observable' requires significant judgement by the Company. The Company considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.
The following tables show the Company's assets and liabilities at 31 March 2017 based on the hierarchy set out in IFRS 13:
Quoted
prices
in active Significant
markets other Significant
for identical observable unobservable
assets inputs inputs
(Level (Level (Level
Assets 1) 2) 3) Total
GBP GBP GBP GBP
Financial assets held
for trading
Debt securities (by
instrument currency)
Europe: Asset
backed securities - - 56,496,250 56,496,250
UK: Asset backed
securities - 6,687,883 14,571,057 21,258,940
US: Asset backed
securities - 13,337,579 11,856,104 25,193,683
OTC derivatives
CDS - 35,297 - 35,297
Forward FX contracts - 367,713 - 367,713
Total
assets - 20,428,472 82,923,411 103,351,883
--------------- ------------ -------------- ------------
Liabilities
Financial liabilities
held for trading
OTC derivatives
CDS - (109,990) - (109,990)
Forward FX contracts - (384,318) - (384,318)
Total liabilities - (494,308) - (494,308)
---------------- ------------ -------------- ------------
The following tables show the Company's assets and liabilities at 30 September 2016 based on the hierarchy set out in IFRS 13:
Quoted
prices
in active Significant
markets other Significant
for identical observable unobservable
assets inputs inputs
(Level (Level (Level
Assets 1) 2) 3) Total
GBP GBP GBP GBP
Financial assets held
for trading
Debt securities (by
instrument currency)
Europe: Asset
backed securities - - 61,309,771 61,309,771
UK: Asset backed
securities - 6,858,967 14,348,393 21,207,360
US: Asset backed
securities - 13,494,092 11,360,912 24,855,004
OTC derivatives
CDS - 598,967 - 598,967
Total
assets - 20,952,026 87,019,076 107,971,102
---------------- ------------ -------------- ------------
Liabilities
Financial liabilities
held for trading
OTC derivatives
Forward FX
contracts - (2,037,756) - (2,037,756)
Total liabilities - (2,037,756) - (2,037,756)
---------------- ------------ -------------- ------------
Notes to the Condensed Unaudited Financial Statements (continued)
7. Fair value of financial instruments (continued)
Financial instruments that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within Level 2. These include corporate bonds, asset backed bonds, certain non-sovereign obligations and over-the-counter derivatives. As Level 3 investments include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information.
Investments classified within Level 3 have significant unobservable inputs, as they trade infrequently.
There has been no transfers from Level 3 to Level 2 during the Period. The Company identified through its valuation process that market based observable inputs had become available which required this investment to be reclassified as Level 2 investments. Ten Level 3 investments were held during the Period. There has also been no transfers from Level 2 to Level 3.
30/09/2016 31/03/2017
Transfer
from/to
Product Trade Fair Unrealised Level Fair
type Transaction date value Realised & FX Purchases Sales Redemptions 2 value
GBP GBP GBP GBP GBP GBP GBP
BS
CLO 4 26/11/2013 16,350,901 - (2,220,815) - - - - 14,130,086
BS
CLO 5 30/04/2014 11,360,912 - 495,192 - - - - 11,856,104
NPL 8 07/10/2014 15,443,842 54,880 (1,180,281) - (613,043) - - 13,705,398
NPL 9 24/09/2015 3,105,762 - (384,247) - - - - 2,721,515
BS
CLO 11 19/12/2014 7,167,868 - (115,891) - - - - 7,051,977
BS
CLO 12 26/06/2015 3,875,639 - (203,591) - - - - 3,672,048
RMBS 13 18/02/2015 926,774 44,142 (2,179) - (163,935) - - 804,802
BS
CLO 15 11/05/2016 13,421,618 - 344,636 - - - - 13,766,254
BS
CLO 16 26/05/2016 4,008,443 (28,179) 20,785 - - - - 4,001,049
BS
CLO 17 15/07/2016 11,357,316 - (143,138) - - - - 11,214,178
87,019,075 70,843 (3,389,529) - (776,978) - - 82,923,411
----------- ---------- ------------ ----------- ------------- ------------ ------------- -----------
30/09/2015 30/09/2016
Transfer
from/to
Product Trade Fair Unrealised Level Fair
type Transaction date value Realised & FX Purchases Sales Redemptions 2 value
GBP GBP GBP GBP GBP GBP GBP
BS
CLO 4 26/11/2013 24,554,184 - (8,203,283) - - - - 16,350,901
BS
CLO 5 30/04/2014 9,975,204 - 1,385,708 - - - - 11,360,912
BS
CLO 6 23/05/2014 10,041,342 - 1,686,206 1,766,544 - - (13,494,092) -
ARB
CLO 7 25/11/2013 415,964 57,032 43,916 - - (516,912) - -
NPL 8 07/10/2014 13,830,073 61,844 3,696,148 - (2,144,223) - - 15,443,842
NPL 9 24/09/2015 2,947,681 (1,725) 290,574 - (130,768) - - 3,105,762
ARB
CLO 10 09/06/2015 3,792,929 371,748 (162,710) - (4,001,967) - - -
BS
CLO 11 19/12/2014 6,373,322 - 794,546 - - - - 7,167,868
BS
CLO 12 26/06/2015 3,394,292 - 481,347 - - - - 3,875,639
RMBS 13 18/02/2015 3,721,883 874,451 (422,049) - (3,247,511) - - 926,774
BS
CLO 14 29/12/2014 13,763,352 - 236,648 - (14,000,000) - - -
BS
CLO 15 11/05/2016 - - (578,382) 14,000,000 - - - 13,421,618
BS
CLO 16 26/05/2016 - - 566,941 3,441,502 - - - 4,008,443
BS
CLO 17 15/07/2016 - (174,304) 1,093,449 - - - 10,438,171 11,357,316
92,810,226 1,189,046 909,059 19,208,046 (23,524,469) (516,912) (3,055,921) 87,019,075
----------- ---------- ------------ ----------- ------------- ------------ ------------- -----------
Notes to the Condensed Unaudited Financial Statements (continued)
7. Fair value of financial instruments (continued)
Product
type Description
ARB CDO Arbitrage CDO
ARB CLO Arbitrage CLO
BS CLO Balance Sheet CLO
Residential mortgage-backed
RMBS security
NPL Non-performing loan
As of 31 March 2017, ten (2016: ten) investments were categorised within Level 3 of the fair value hierarchy, representing 71.55% (2016: 70.85%) of the NAV.
In order to measure Level 3 assets sensitivities, the Company is using the stress scenario prepared by the Investment Adviser. Those scenario are stressing all main parameters simultaneously and do not represent levels at which a transaction who occur on those investments in normal conditions. Typical parameters stressed are default rates, recovery rates and prepayment rates. The intensity of stress varies across the portfolio and differ according to asset class, sector, vintage and country.
Transaction 4
The main sensitivity of the transaction is to the occurrence of defaults and recovery rates in the underlying reference pool.
In the Investment Adviser's stress case the impact to the Company's NAV is -3.47%.
Transaction 5
The main sensitivity is to extension risk of the deal.
In the Investment Adviser's stress case the impact to the Company's NAV is -0.92%.
Transaction 8
The main sensitivity of the transaction is to the collection level on the pool of loans.
In the Investment Adviser's stress case the impact to the Company's NAV is -1.67%.
Transaction 9
The main sensitivity of the transaction is to the collection level on the pool of loans.
In the Investment Adviser's stress case the impact to the Company's NAV is -0.15%.
Transaction 11
The main sensitivity of the transaction is to the occurrence of defaults and recovery rates in the underlying reference pool.
In the Investment Adviser's stress case the impact to the Company's NAV is -0.30%.
Transaction 12
The main sensitivity of the transaction is to the occurrence of defaults and recovery rates in the underlying reference pool.
In the Investment Adviser's stress case the impact to the Company's NAV is -0.23%.
Transaction 13
The main sensitivity of the transaction is to the exit price for the portfolio.
In the Investment Adviser's stress case the impact to the Company's NAV is -0.04%.
Notes to the Condensed Unaudited Financial Statements (continued)
7. Fair value of financial instruments (continued)
Transaction 15
The main sensitivity of the transaction is to the occurrence of defaults in the underlying reference pool and extension risk.
In the Investment Adviser's stress case the impact to the Company's NAV is -0.80%.
Transaction 16
The main sensitivity of the transaction is to the occurrence of defaults and recovery rates in the underlying reference pool.
In the Investment Adviser's stress case the impact to the Company's NAV is -1.63%.
Transaction 17
The main sensitivity of the transaction is to the occurrence of defaults and recovery rates in the underlying reference pool.
In the Investment Adviser's stress case the impact to the Company's NAV is -1.91%.
8. Earnings per Share - Basic & Diluted
The earnings per Share - Basic and Diluted of 2.11 pence (six months to 31 March 2016: (1.15) pence) has been calculated based on the weighted average number of Shares of 130,242,000 (2016: 130,300,000) and a net gain of GBP2,741,177 (six months to 31 March 2016: net loss of GBP1,501,186).
There were no dilutive elements to Shares issued or repurchased during the Period.
9. NAV per Share
The NAV per Share of 92.97 pence (30 September 2016: 94.26 pence) is determined by dividing the net assets of the Company attributed to the Shares of GBP115,903,358 (30 September 2016: GBP122,822,987) by the number of Shares in issue at 31 March 2017 of 124,667,584 (30 September 2016: 130,300,000).
10. Financial assets and financial liabilities at fair value through profit or loss
31 March 30 September
2017 2016
GBP GBP
Financial assets at fair value
through profit or loss :
Held for trading:
- Asset backed securities 89,182,618 93,950,517
- Debt securities 13,766,255 13,421,618
- CDS 35,297 598,967
- Forwards FX contracts 367,713 -
------------ -------------
Total financial assets at fair
value through profit or loss 103,351,883 107,971,102
------------ -------------
Financial liabilities at fair
value through profit or loss
:
Held for trading:
- CDS (109,990) -
- Forwards FX contracts (384,318) (2,037,756)
------------ -------------
Total financial liabilities
at fair value through profit
or loss (494,308) (2,037,756)
------------ -------------
Notes to the Condensed Unaudited Financial Statements (continued)
11. Net gain/(loss) on financial assets and financial liabilities at fair value through profit or loss
31 March 31 March
2017 2016
GBP GBP
Net gain/(loss) on financial assets and liabilities
at fair value through profit or loss held for
trading
- Asset backed securities 4,262,191 (2,877,558)
- Debt securities 961,818 246
- CDS (1,393,643) 237,586
- Money market loans - (16,169)
Net gain/(loss) on financial assets and liabilities
at fair value through profit or loss held for
trading 3,830,366 (2,655,895)
------------ ------------
Net gain/(loss) on foreign exchange and forward
contracts
Realised loss on forward contracts (1,794,159) (5,705,953)
Unrealised gain/(loss) on forward contracts 2,021,151 (781,082)
Realised (loss)/gain on foreign exchange (320,929) 857,415
Unrealised (loss)/gain on foreign exchange (101,526) 7,661,232
Net (loss)/gain on foreign exchange and forward
contracts (195,463) 2,031,612
------------ ------------
Net gain/(loss) on financial assets and liabilities
at fair value through profit or loss, foreign
exchange and forward contracts 3,634,903 (624,283)
------------ ------------
12. Due from and to brokers
31 March 30 September
2017 2016
Due from GBP GBP
Collateral and funding cash 8,711,091 5,669,137
Receivables for securities sold 12,035 426,129
8,723,126 6,095,266
---------- -------------
Due to
Collateral and funding cash 30,142 135,045
Payable for securities purchased 20,361 482,034
50,503 617,079
------- --------
Collateral and funding cash is held in respect of the credit default contracts as detailed in note 6.1
13. Other receivables and prepayments
31 March 30 September
2017 2016
GBP GBP
Prepayments 12,713 13,197
Interest receivable 16,080 62,150
28,793 75,347
--------- -------------
14. Accrued expenses
31 March 30 September
2017 2016
GBP GBP
Management fee 89,231 100,494
Audit fee 41,000 38,000
Corporate brokering fee 37,080 37,500
Sub-administration fee 5,828 7,073
Legal fee 4,082 10
Custodian fee 2,575 2,668
Other fees 17,554 16,461
197,350 202,206
--------- -------------
Notes to the Condensed Unaudited Financial Statements (continued)
15. Share capital
The authorised share capital of the Company consists of an unlimited number of unclassified shares of no par value. The unclassified shares may be issued as, (a) Shares in such currencies as the Directors may determine; (b) C Shares in such currencies as the Directors may determine; and (c) such other classes of shares in such currencies as the Directors may determine in accordance with the Articles and the Law. Shares will be redeemable at the option of the Company and not Shareholders.
The rights attaching to the Shares are the same as those presented in the Company's latest audited annual financial statements, a copy of which can be found on our website at www.chenavaricapitalsolutions.com
There were two buy backs within the period amounting to 121,000 shares. 106,000 Shares at 0.85 pence per Share with Gross Consideration of GBP89,570 on 13 January 2017 and on 14 February 2017 15,000 Shares at 0.86 pence per Share with Gross Consideration of GBP12,900.
On 17 March 2017, the Company announced a compulsory partial redemption payment to be paid to Shareholders on the record date 31 March 2017. The amount of the redemption payment was GBP4,999,956, which was payable to Shareholders in respect of the redemption of approximately 423 Shares for every 10,000 Shares held, at a rate of 90.83 pence per Share redeemed.
Capital management
The Company's objectives when managing capital are to safeguard the Company's ability to continue as a going concern to provide returns to Shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. To maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to Shareholders, return capital to shareholders, issue new shares or sell assets.
16. Segmental reporting
The Board is responsible for reviewing the Company's entire portfolio and considers the business to have a single operating segment. The Board's asset allocation decisions are based on a single, integrated investment strategy being investments in bank capital solutions transactions and the Company's performance is evaluated on an overall basis.
The Company invests in a diversified portfolio of bank capital solutions transactions. The fair value of the major financial instruments held by the Company and the equivalent percentages of the total value of the Company, are reported in the Schedule of Investments.
Revenue earned is reported separately on the face of the Statement of Comprehensive Income as investment income being interest income received from bank capital solutions transactions
17. Dividend policy
Subject to compliance with the Companies (Guernsey) Law, 2008 (as amended) and the satisfaction of the solvency test, the Company intends to distribute all its income received from investments, net of expenses, by way of dividends on a quarterly basis with dividends declared in October, January, April and July each year and paid in November, February, May and August. On 12 December 2016 a dividend of 1.50 pence per Share was paid for the period to 30 September 2016. Additionally, dividends of 2 pence per share were paid in respect of the Period and on 21 April 2017 the Company announced a further dividend payment of 1.25 pence per share for the period to 31 March 2017 to be paid on 27 May 2017.
Under the Companies (Guernsey) Law, 2008 (as amended), companies can pay dividends in excess of accounting profit provided they satisfy the solvency test prescribed by the Companies Law. The solvency test considers whether a company is able to pay its debts when they fall due, and whether the value of a company's assets is greater than its liabilities.
Notes to the Condensed Unaudited Financial Statements (continued)
18. Derivative financial instruments
The Company holds the following derivative instruments:
CDS
These are derivative contracts referencing an underlying credit exposure, which can either be a single credit issuer or a portfolio of credit issuers. The Company pays or receives an interest flow in return for the counterparty accepting or selling all or part of the risk of default or failure to pay of a reference entity on which the swap is written. Where the Company has bought protection the maximum potential payout is the value of the interest flows the Company is contracted to pay until the maturity of the contract.
Forward foreign currency contracts
Forward Foreign Currency contracts entered into by the Company represent a firm commitment to buy or sell an underlying currency at a specified value and point in time based upon an agreed or contracted quantity. The realised/unrealised gain or loss is equal to the difference between the value of the contract at trade date and the value of the contract at settlement date/period-end date, and is included in the Statement of Comprehensive Income.
The following table shows the Company's derivative position as at 31 March 2017:
Financial
Financial liabilities
assets at at fair Notional
fair value value amount Maturity
GBP GBP GBP
Credit Default
Swaps
20 June
CDS buy protection - (29,251) 7,697,700 2020
20 December
CDS buy protection - (80,740) 14,454,570 2019
20 September
CDS buy protection 27,368 - 3,848,850 2020
20 June
CDS buy protection 7,929 - 2,138,250 2021
FX contracts
CHF sell 57,799 - (4,060,419) 24 May 2017
19 April
EUR sell - (384,318) (51,525,241) 2017
GBP buy - - 4,060,419 24 May 2017
19 April
GBP buy - - 51,525,241 2017
14 June
GBP buy - - 24,967,669 2017
14 June
USD sell 309,914 - (24,967,669) 2017
403,010 (494,308) 28,139,370
------------ ------------- -------------
Notes to the Condensed Unaudited Financial Statements (continued)
18. Derivative financial instruments (continued)
The following table shows the Company's derivative position as at 30 September 2016:
Financial
Financial liabilities
assets at at fair Notional
fair value value amount Maturity
GBP GBP GBP
Credit Default
Swaps
20 June
CDS buy protection 375,649 - 7,785,900 2020
20 September
CDS buy protection 96,092 - 3,892,950 2020
20 June
CDS buy protection 127,226 - 2,162,750 2021
FX contracts
14 October
CHF sell - (63,560) (4,016,501) 2016
16 November
EUR sell - (1,454,771) (56,896,260) 2016
14 October
GBP buy - - 28,335,439 2016
16 November
GBP buy - - 56,896,260 2016
14 October
USD sell - (519,425) (24,318,938) 2016
598,967 (2,037,756) 13,841,600
------------ ------------- -------------
19. Significant events during the period
On 13 December 2016, the Company announced its intention to cease making any further investments with immediate effect and that, from 1 January 2017, it would commence the Realisation Period.
During the period the Company has bought back 121,000 Shares. On 11 January 2017 106,000 Shares at a price of 84.50 pence per Share and on 10 February 2017 15,000 Shares at a price of 86.00 pence per Share.
On 17 March 2017, the Company announced a compulsory partial redemption payment to be paid to Shareholders on the record date of 31 March 2017. The amount of the redemption payment was GBP4,999,956, which was payable to Shareholders in respect of the redemption of approximately 423 Shares for every 10,000 Shares held, at a rate of 90.72 pence per Share redeemed.
Reconciliation of NAV per Share to published NAV per Share
Further to the announcements made on 13 December 2016 and 16 February 2017 of the Company's intention to return capital to Shareholders, and in line with the approval received from the Company's Shareholders to adopt the revised Articles of Incorporation to vary the existing rights of the Shares (as described in the Circular dated 15 February 2017), the Company announced on 17 March 2017 that it would return GBP5 million to Shareholders by way of a compulsory partial redemption of 5,511,416 Shares (the Redemption). Since the date of record of the Redemption was 31 March 2017, it is reflected in these interim report and unaudited financial statements. The effect of incorporating the Redemption into the March 2017 NAV, was to decrease it by GBP5 million to GBP115.9 million, decrease the Shares in issue by 5,511,416 to 124,667,584 and to increase the March NAV per Share from the value of 92.87 pence per Share published to the market on 21 April 2017 to 92.97 pence per Share. The value of 92.97 pence per Share is used throughout this document.
20. Subsequent events
On 21 April 2017 the Company announced a dividend payment of 1.25 pence per Share for the period to 31 March 2017 to be paid on 26 May 2017.
21. Approval of the financial statements
The financial statements were approved for issue to Shareholders by the Directors on 24 May 2017.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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