Interim Management Statement (3371S)

TIDMHSLE TIDMHSLC

RNS Number : 3371S

HarbourVest Senior Loans Europe Ltd

18 November 2011

HARBOURVEST SENIOR LOANS EUROPE LIMITED

INTERIM MANAGEMENT STATEMENT

HarbourVest Senior Loans Europe Limited (the "Company"), is publishing this Interim Management Statement in accordance with DTR 4.3 of the FSA Handbook.

This Interim Management Statement has been produced solely to provide additional information to shareholders as a body to meet the relevant requirements of the UK Listing Authority's Disclosure and Transparency Rules. It should not be relied upon by any other party or for any other purpose. The Statement has not been audited.

This Interim Management Statement relates to the period from 30 June 2011 to 17 November 2011, unless otherwise stated. Through this statement, the Group refers to the Company and its wholly-owned Luxembourg subsidiaries.

Investment Policy & Objective

The Company's investment objective is to provide shareholders with a combination of a high level of income and capital growth over time, whilst preserving capital. The Company invests in senior secured loans of private equity-backed European mid-market companies. The Company purchases loans on a secondary basis, generally at a discount to their par value, from motivated or distressed sellers and invests in primary loans. The Company will not buy distressed loans.

Manager Review

During the period ended 17 November 2011 the global economic situation has deteriorated significantly and financial markets declined while volatility increased considerably. The manager anticipated such developments and managed its investment pace and the positioning of the Company's portfolio accordingly. A high selectivity ratio, a focus on defensive credits and the search for appropriate compensation for the level of risks underwritten have remained the key investment themes for HSLE.

The Company is currently accounting for two separate pools of assets in connection with the net proceeds of its Ordinary Shares, which were admitted to trading on the London Stock Exchange on 26 May 2010, and the net proceeds of its C Shares, which were admitted to trading on the London Stock Exchange on 4 May 2011. This separate accounting procedure will cease after the October NAV announcement, as the two classes of shares will be merging by 12 December 2011 on the basis of their respective net asset values ("NAV") at the close of business on 31 October 2011.

At 31 October 2011 the estimated net asset value of the Company is 95.11 pence per Ordinary Share and 96.66 pence per C Share. The estimated net asset value of the Company's Ordinary and C Shares at 30 November 2011 is due to be published on 19 December 2011.

Ordinary Shares

The net proceeds of the Company's ordinary share capital (the "Ordinary Portfolio") are invested in or committed to 17 loans, representing approximately 97.8% of its net proceeds. The weighted-average coupon on this portfolio of 17 loans is approximately Libor +440 basis points. The NAV exposure of the Ordinary Portfolio is approximately 47% to euros and 53% to sterling. With respect to the committed and completed loans, the currency is split 48% to euro and 52% to sterling at 31 October 2011 as measured by the loans' par value. On a geographical basis, the Company's completed and committed transactions provide exposure to the following six countries as measured by the loans' book value: the UK (51%), the Netherlands (19%), Germany (12%), Italy (9%), France (5%) and Sweden (4%). The Company's Ordinary Portfolio is currently invested in a ratio of 45% to secondary and 55% to primary transactions on a completed and committed basis.

C Shares

The net proceeds of the Company's C share capital (the "C Share Portfolio") are invested in or committed to nine loans, representing approximately 87.0% of its net proceeds. The weighted-average coupon on this portfolio of nine loans is approximately Libor +485 basis points. The Company's NAV exposure of the C Share Portfolio is approximately 31% to euros and 69% to sterling. With respect to the committed and completed loans, the currency is split 56% to euro and 44% to sterling at 31 October 2011 as measured by the loans' par value. On a geographical basis, the Company's completed and committed transactions provide exposure to the following five countries as measured by the loans' book value: the UK (44%), the Netherlands (27%), Belgium (20%), Germany (8%) and France (1%). The Company's portfolio is currently invested in a ratio of 64% to secondary and 36% to primary transactions on a completed and committed basis.

Outlook

Looking forward, the Group is looking to add one or two loans to complete its portfolio and deploy the final GBP2 million to GBP3 million of net proceeds. The pipeline of opportunities remains robust, in particular secondary opportunities.

Material Events and Transactions

On 25 October 2011 the Company announced that, following admission of the C Shares to the Official List and to trading on the London Stock Exchange on 4 May 2011, the assets attributable to the C Shares are now invested or committed in excess of 80%. Calculation time for the conversion of the C Shares into Ordinary Shares is the close of business on 31 October 2011 and the conversion will therefore be made on the basis of the respective NAV of the C Shares and the Ordinary Shares by no later than the close of business on 12 December 2011.

Primary Loan Investments

There are nine primary loans in the Company's Ordinary Portfolio, representing a book value of GBP52.8 million and a current value of GBP50.0 million at 31 October 2011. There are three primary loans in the Company's C Share Portfolio, representing a book value of GBP8.1 million and a current value of GBP7.7 million at 31 October 2011.

The first loan to be completed, representing at the time of investment in August 2010 approximately 2.1% of the Ordinary Portfolio, was to a leading provider of nurseries and pre/after-school care services in the Dutch childcare market. This borrower was acquired by a prominent private equity sponsor with experience and a track record in the industry. The structure and pricing are both favourable, a reflection of the primary market conditions at the time. The Group invested EUR2.5 million in the term loan B tranche of the senior loan package.

The second loan to be completed, representing at the time of investment in November 2010 approximately 8.6% of the Ordinary Portfolio, was made to the dominant local provider of business applications for professional accountants and small and medium enterprises (SMEs) in Italy. The borrower delivers a range of business-critical software products to a diversified base of customers. This business was also acquired recently by a leading and renowned private equity sponsor with considerable experience and a track record in the sector. Leverage and pricing were favourable. The Group invested EUR10 million in the term loan B tranche of the senior loan package.

The third loan, representing approximately 6.1% of the Ordinary Portfolio at the time of investment in March 2011, was made to a Netherlands-based leading specialty chemicals distributor to Europe and the Asia Pacific region. The Group invested EUR7 million in the term loan B tranche of the senior loan package.

The fourth loan, representing approximately 10.1% of the Ordinary Portfolio at the time of investment in March 2011, was made to a UK-based leading provider of specialty healthcare services. The Group invested GBP10 million in the term loan B tranche of the senior loan package.

The fifth loan, representing approximately 4.4% of the Ordinary Portfolio at the time of investment in March 2011, was made to a German specialised retail company. The Group invested EUR5 million in the term loan A tranche of the senior loan package.

The sixth loan, representing approximately 4.5% of the Ordinary Portfolio at the time of investment in April 2011, was made to a French-based specialist provider of calibration services to industries including aeronautics and aerospace, defence, automotive and transport, electronics and microelectronics, utilities and life sciences. As with the first two primary loans, this business is backed by a well-known and long-established private equity sponsor. The Group has invested EUR5 million in the term loan B tranche of the senior loan package.

The seventh loan, representing approximately 7.1% of the Ordinary Portfolio at the time of investment and approximately 7.2% of the C Share Portfolio at the time of investment, was made to a German industrial company. The Group has invested EUR10 million in the term loan B tranche of the senior loan package of and this investment is shared pro rata by the Ordinary Portfolio and the C Share Portfolio.

One secondary loan in the Ordinary Portfolio was refinanced in the second quarter of 2011. The Group has invested in the new loan being arranged by the same issuer although with a slightly smaller exposure (EUR7 million compared to EUR8.7 million previously). This commitment is shared pro rata by the Ordinary Portfolio and the C Share Portfolio. As a consequence of this transaction, the loan has been reclassified as a primary loan and represents the eighth loan in the Company's Ordinary Portfolio and the second loan in the Company's C Share Portfolio.

The ninth loan, representing approximately 5.6% of the Ordinary Portfolio at the time of investment and approximately 19.0% of the C Share Portfolio at the time of investment, was made to a Dutch specialist business process outsourcing company. The Group has invested EUR12 million in the term loan B tranche of the senior loan package and this investment is shared by the Ordinary Portfolio and the C Share Portfolio.

Secondary Loan Investments

The Group has invested or committed to ten distinct senior loans on the secondary market but one of them was refinanced in the second quarter of 2011, as described above. There are eight secondary loans in the Company's Ordinary Portfolio, representing a book value of GBP44.1 million and a current value of GBP43.8 million at 31 October 2011. There are five secondary loans in the Company's C Share Portfolio, representing a book value of GBP7.5 million and a current value of GBP7.4 million at 31 October 2011. The C Share portfolio is committed to two additional secondary transactions representing a book value of GBP7.1 million.

The first investment was made in a small portfolio of four loans on the secondary market sourced from a single lender. The Group invested approximately GBP19.7 million in aggregate, representing approximately 19.9% of the Ordinary Portfolio at the time of investment in November 2010. These loans were purchased at a slight discount to par but offer compelling risk-return profiles. They are moderately leveraged and benefit from tightly drafted and conservative legal documentation and structures. These loans are to firms operating in diverse industries, all based in the UK:

-- A global market leader in the provision of intellectual property and trademark management services to law firms and corporations worldwide, with a core focus on patent and trademark renewal services;

   --    A gaming, leisure and entertainment company; 
   --    A dominant auto auction firm operating throughout Europe; and 
   --    A mid-size provider of pension outsourcing services to trustees, private companies and public organisations 

These four investments had a weighted-average net senior debt to EBITDA ratio of 3.2 times at the time of acquisition by the Group.

Since the initial purchase, the Group made a number of additional purchases in the first and third loans of this portfolio, sourced from a variety of other lenders. An investment was made in September 2011 in the first loan, representing 15.3% of the C Share Portfolio at the time of investment. A second investment was made in August 2011 in the third loan, representing 1.7% of both the Ordinary Portfolio and the C Share Portfolio at the time of investment, while a third investment was made to the same loan in October 2011, representing 10% of the C Share Portfolio at the time of investment.

The fifth loan was made to a leading global provider of information services to the energy, metals and mining industries. The Group invested GBP9.9 million, representing approximately 10% of the Ordinary Portfolio at the time of investment in November 2010 and in January 2011, in the term loan A and term loan B tranches of the senior loan package. A second investment in this loan was made in September 2011, representing 7.7% of the C Share Portfolio at the time of investment.

The sixth loan was made to a UK market leader in software solutions for small and medium sized accounting and legal businesses. The Group invested GBP6.3 million in the term loan B tranche of the senior loan package on terms that could yield a return in excess of that available in the primary market in the event that it is refinanced ahead of its maturity. This transaction represents approximately 6.4% of the Company's net proceeds at the time of investment in December 2010. A second investment in this loan was made in August 2011, representing 3.4% of the Ordinary Portfolio at the time of investment and 3.3% of the C Share Portfolio at the time of investment.

The seventh loan is to a leading global provider of kidney dialysis services based in Sweden. The Group invested EUR4.6 million in the term loan B tranche of the senior loan package on terms that could yield a return in excess of that available in the primary market in the event that the loan is refinanced ahead of its maturity. This transaction represents approximately 3.9% of the Ordinary Portfolio at the time of investment in December 2010.

The eighth loan, representing approximately 0.7% of the Ordinary Portfolio at the time of investment and approximately 0.7% of the C Share Portfolio at the time of investment, was made to an operator of private hospitals in France. The Group has invested EUR1 million in the term loan B tranche of the senior loan package and this investment is shared pro rata by the Ordinary Portfolio and the C Share Portfolio.

The ninth loan was made in October 2011 to a Belgian publisher of business information. The Group invested EUR5.2 million in the term loan B tranche of the senior loan package on terms that could yield a return in excess of that available in the primary market in the event that the loan is refinanced ahead of its maturity. This transaction represents approximately 17.1% of the C Share Portfolio at the time of investment.

Dividend

During the period, the Company declared its third interim dividend of 1.0 pence per Ordinary Share. The dividend was paid to ordinary shareholders on 30 September 2011 at a total cost of GBP1,010,900.

Holders of C Shares will be entitled to a special dividend in respect of income accrued on the C Share Portfolio assets for the period from Admission on 4 May 2011 to the date on which the C Shares convert to Ordinary Shares. The special dividend will be announced at the same time as the conversion ratio on 24 November 2011.

From 1 July 2011 the investment manager will aim to deliver to shareholders annual returns of dividends of Libor +300 to 350 basis points for the life of the Company, payable in March and September.

Report and Accounts

The Company's second semi-annual Report and Accounts will be produced for the period ended 31 December 2011 and will be distributed to shareholders within two months of the period end.

Financial Highlights

 
                      31 October   30 September   30 June 2011   31 March 
                       2011         2011                          2011 
-------------------  -----------  -------------  -------------  --------- 
 
 Estimated monthly 
  NAV per Ordinary 
  Share               95.11p       94.62p         99.27p         97.30p 
-------------------  -----------  -------------  -------------  --------- 
 Estimated monthly 
  NAV per C Share     96.66p       96.64p         97.67p         N/A 
-------------------  -----------  -------------  -------------  --------- 
 

The financial information for the period ended 17 November 2011 contained within this Interim Management Statement has not been audited.

Other Notices

The Company intends to publish its estimated NAV for the month ending 30 November 2011 on 19 December 2011.

By order of the Board.

BNP Paribas Fund Services (Guernsey) Limited, for and on behalf of HarbourVest Senior Loans Europe Limited as Company Secretary

KEY DATA OVERVIEW

   Ordinary Shares:                                                        101,090,000 
   C Shares:                                                                    26,688,900 
   Total Voting Rights:                                                    127,778,900 

Estimated NAV per Ordinary Share

   at 31 October 2011:                                                   95.11p 

Estimated NAV per C share

   at 31 October 2011:                                                   96.66p 
   Ordinary Share price:                                                 92.00p 
   Premium/Discount to NAV per Ordinary Share:    -3.3% 
   C Share price:                                                            100.50p 
   Premium/Discount to NAV per C share:                  4.0% 

Share prices are official London Stock Exchange closing prices.

Sources:

London Stock Exchange

Company's Administrator

HarbourVest Senior Loan Advisers L.P.

KEY FACTS

Ordinary Shares

   ISIN                                                               GG00B4N5LG23 
   SEDOL                                                        B4N5LG2 
   LSE                                                              HSLE 
   Bloomberg                                                   HSLE.LN 
   Reuters                                                         HSLE.L 
   AIC Sector                                                    Global High Income 

C Shares

   ISIN                                                               GG00B6883D13 
   SEDOL                                                         B6883D1 
   LSE                                                               HSLC.L 
   Bloomberg                                                    HSLC.LN 
   Reuters                                                         HSLC.L 
   AIC Sector                                                    Global High Income 

This information is provided by RNS

The company news service from the London Stock Exchange

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