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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Harbourvest Sl | LSE:HSLE | London | Ordinary Share | GG00B4N5LG23 | 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% | 26.50 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From May 2019 to May 2024
TIDMHSLE
RNS Number : 2674B
HarbourVest Senior Loans Europe Ltd
28 February 2014
28 February 2014
FOR IMMEDIATE RELEASE
THE BOARD OF DIRECTORS OF HARBOURVEST SENIOR LOANS EUROPE LIMITED ANNOUNCES THE HALF YEARLY RESULTS FOR THE PERIOD ENDED 31 DECEMBER 2013
A COPY OF THE COMPANY'S HALF YEARLY REPORT AND UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS WILL BE AVAILABLE SHORTLY VIA THE FOLLOWING LINK:
http://hvsle.com/download/HSLE_Interim_Report_Feb2014.pdf
Key Highlights
For the six months ended 31 December 2013
45.44 pence per share
Net Asset Value
-- Portfolio comprises 8 loans following realisation of 3 loans during the six-month period
GBP27.5 million
Income and Realisations
-- Three refinancings completed during the period -- Two partial prepayments
14.38 pence per share
Dividends and Capital Return
-- 1.12 pence per share dividend paid on 13 September 2013 -- 13.26 pence per share capital return on 1 November 2013
-- A further 5.85 pence per share capital return was announced on 8 January 2014 to shareholders, bringing total capital returned to shareholders since June 2012 to 55.51 pence per ordinary share.
-- A further dividend of 0.69 pence per ordinary share was approved on 28 February 2014, payable on 21 March 2014
About the Company
The Company's objective is to provide income and capital preservation through investments in existing or new senior secured loans of private equity-backed European mid-market companies.
The portfolio comprises senior secured loans issued by companies diversified by industry and geography. The loans are in the senior secured tier of the debt capital structure of a borrower's holding company (i.e. loans with first ranking security over the borrower's assets, and/or its shares). The Company has not invested in distressed loans.
Returns to shareholders have been in the form of dividends paid twice annually and, following the investment period, which ended on 30 June 2012, capital distributions. Following the investment period, capital realised through loan redemption or refinancing together with loan amortisation or refinancing was returned to shareholders in the form of B share distributons.
During the six months ended 31 December 2013 the Company's shares traded at a median discount to NAV of 7.4%. The share price closed at 42.13 pence per share, representing a discount of 7.3% to NAV.
Key Features
HarbourVest Senior Loans Europe Limited (the "Company" or "HSLE") invests in the senior secured loans of private equity-backed mid-market companies in Europe and the UK. The investment period concluded in 2012 and the Company is currently focused on maximising shareholder value in the portfolio.
-- Pays dividends twice annually -- Secured asset class at the top of a company's capital structure -- Returns capital to shareholders -- Zero gearing -- Shares listed on the main market of the London Stock Exchange
Company Overview
HarbourVest Senior Loans Europe Limited (the "Company" or "HSLE") was incorporated with limited liability in Guernsey under the Companies (Guernsey) Law, 2008, as amended, on 7 April 2010. It is registered as a closed-ended investment scheme in accordance with the Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended and the Registered Collective Investment Scheme Rules 2008 issued by the Guernsey Financial Services Commission (the "Commission").
HarbourVest Senior Loans Europe is managed by Harbourvest Senior Loan Advisers L.P. (the "Investment Manager") a limited partnership organised under the laws of the State of Delaware and which is an affiliate of HarbourVest Partners, LLC ("HarbourVest"), a private equity firm based in Boston, U.S.A, whose history dates back to 1982.
As at 31 December 2013, there were 139,890,249 ordinary shares in issue with each share equalling one voting right.
The Company is regulated by the Commission and is not regulated or authorised by the Financial Conduct Authority, but is subject to the UK Listing Rules applicable to closed-ended investment companies.
Where Libor is referenced in this document, it is used as a generic benchmark term. In regard to the Sterling loans in the Company's portfolio, the benchmark is generally Sterling Libor and for Euro loans the benchmark is generally Euribor.
Chairman's Statement
During the six months to 31 December 2013, your Company maintained its focus on returning capital to Shareholders as efficiently as possible as the assets in its loan portfolio mature. Facilitating this has been a continued rapid pay-down of portfolio loans.
Three portfolio loans were wholly repaid during the period, following refinancing by the underlying borrowers, and the Company also received two partial loan prepayments. In total, portfolio income and realisations reached GBP27.5 million for the period, enabling the Company to make a capital return of 13.26 pence per share (GBP18.5 million in total) through a B share distribution in November, as well as paying a regular dividend of 1.12 pence per share on 13 September 2013.
Since the end of the Company's Investment Period on 30 June 2012, capital returns to Shareholders had totalled 49.66 pence per share as at 31 December 2013.
Subsequent to 31 December 2013, the Company made a further B share capital return of 5.85 pence per share, totalling GBP8.2 million, in January, and we have since been advised of one further portfolio company refinancing which is likely to result shortly in a loan repayment of approximately GBP4.5 million.
The remaining portfolio at 31 December 2013 consisted of 8 loans, compared with 11 at 30 June 2013 and 16 at 31 December 2012. Your Board is pleased with the pace of accelerated loan repayments, which has been assisted by improving credit market conditions, but which also reflects the health of portfolio companies and success of the Investment Manager in creating and managing a high quality portfolio.
Our loan portfolio remains, we believe, in good health and we expect to see further refinancing and loan repayments during the year ahead, although the timing and extent of these is unpredictable and will depend both on underlying portfolio company developments and the evolution of financial markets. Nevertheless, Shareholders should be aware that the portfolio has become substantially more concentrated over this time, and thus more sensitive to events in any individual portfolio company.
In view of the declining asset base of the Company, as capital has been returned to Shareholders, your Board has been concerned to manage costs as efficiently as possible. As I reported in my statement accompanying our Annual Report in October, we reached an agreement with the Investment Manager to receive from them a contribution towards the Company's expenses equivalent to 40 basis points per annum of Net Asset Value, to run from 31 December 2013. In addition, the Board has reduced its own size and costs. John Morris and Michael Stoddart did not seek re-election to the Board at the AGM in November, and the three remaining Directors, Rupert Dorey, Sarah Evans and myself, have agreed reductions in our fees with effect from 1 October 2013. Details of these changes were fully disclosed in the Company's Annual Report.
Your Board has continued to seek opportunities for additional economies and for efficiency in managing the Company.
Spire Partners LLP has been appointed to act as Sub-Investment Adviser with effect from the close of business on 28 February 2014.
In conclusion, I should like to thank the Investment Managers and both my current and former colleagues on the Board for the robust and diligent way in which they have worked for Shareholders' interests during this period. Comments from Shareholders are always welcome; I can be contacted through the Company Secretary whose details can be found at the end of this Report.
Colin Maltby
28 February 2014
Investment Manager's Report
Net Asset Value Performance
At 31 December 2013, HSLE's Net Asset Value ("NAV") was GBP63.57 million, or 45.44 pence per share. This compares to a NAV of 59.52 pence per share reported as at 30 June 2013. The most significant activity during the period was the payment of interim dividends (1.12 pence per share) and capital returns (13.26 pence per share) to shareholders, which together totalled 14.38 pence per share.
Market Environment
During calendar year 2013, European leveraged loan market volumes reached a five-year high of EUR67.4 billion, up 136% from 2012. Refinancings and recapitalisations represented the majority of issuance volume, at around 58%. The high yield market also continued to be a source of refinancings particularly as primary debt yields remained low and spreads compressed over the period.
The market opportunity remains appealing with a strong investor appetite for yield and an ongoing need for alternate sources of debt financing, particularly as bank deleveraging continues. The Investment Manager continues to believe that non-traditional lenders have the opportunity to be a growing source of capital for small and mid-market companies. The trend of borrowers refinancing and seeking more favourable debt packages is expected to continue in 2014, particularly for those companies that are able to demonstrate strength despite ongoing market challenges.
(All data sourced from S&P Capital IQ Leveraged Commentary & Data).
Portfolio Overview
HSLE was invested in 8 senior secured loans at 31 December 2013 with a value of GBP54.0 million. The Company also held GBP9.7 million of cash at 31 December 2013.
Spreads remained under pressure during 2013, ending the period at Euribor + 406 basis points. Average first lien debt / EBITDA levels remained relatively stable at 3.7x in 2013 compared to 3.5x in 2012.
The Company's portfolio had exposure to five countries in Europe at 31 December 2013: the UK, the Netherlands, Germany, Belgium, and Sweden.
The mid-market senior loan asset class is generally considered to be illiquid and loans are often held until maturity. However, the historic level of refinancings in the portfolio has been very strong with three refinancings completed during the period ended December 2013. The Investment Manager believes this level of refinancing (11 refinancings from a portfolio of 19 loans) highlights the attractive profile of the assets in the portfolio.
Adopting a disciplined investment process that focussed on the quality of the assets, the Investment Manager constructed a portfolio that has been able to generate a high rate of repayment and prepayment, ultimately allowing a relatively quick return to shareholders. In total, capital of 49.66 pence of capital per share has been returned to HSLE's shareholders since 30 June 2012, the end of the Investment Period.
As the portfolio was constructed, the Investment Manager maintained a strong bias towards companies that were leaders in niche sectors and in stable and resilient industries. At 30 November 2013 (the latest data available for investee company reporting purposes) the health of the portfolio is demonstrated by the reasonable level of leverage employed by the companies (a 31% weighted average loan to value ratio). As the macro environment showed some signs of stability, the companies in the portfolio were able to generate average EBITDA growth of 7.0% and average revenue growth of 7.8% over the 12 months to 30 November 2013.
Portfolio Statistics
7.0% average portfolio EBITDA growth over 12 months to 30 November 2013
7.8% average portfolio revenue growth over 12 months to 30 November 2013
151 basis points spread per unit of leverage at 30 November 2013
31% loan to value ratio at 30 November 2013
5.02% overall loan portfolio yield at 31 December 2013
97.5-99.5 weighted average range of portfolio valuation at 31 December 2013
Libor + 461 basis points weighted-average coupon at 31 December 2013
In addition to the overall health of the companies, HSLE's portfolio also benefits from a good risk-return profile, as reflected by both a higher than market average spread per unit of leverage of 151 basis points at 30 November 2013 compared to a market average of 79 basis points during the fourth quarter of 2013, according to S&P Capital IQ Leveraged Commentary and Data. The spread per unit of leverage is an indication of how much the Company is getting paid for each unit of risk taken.
Portfolio Management and Activity during the period
As HSLE's investment period is complete, the focus is on monitoring and managing the portfolio of loans. By utilising company updates and its relationships with company management, club lenders, banks and private equity sponsors, the Investment Manager is able to develop a comprehensive assessment of each loan with the aim of ensuring that the risk / reward profile is in line with expectations and with the overall portfolio framework.
Refinancings and prepayments - GBP24.6 million in realisations
The level of refinancing in the portfolio has continued to be strong, with three refinancings during the six months ended 31 December 2013:
-- During July 2013, proceeds of GBP3.0 million were received from the tenth refinancing, approximately four years ahead of the loan's maturity date
-- During August 2013, proceeds of GBP13.6 million were received from the eleventh refinancing, approximately five years ahead of the loan's maturity date.
-- During December 2013, proceeds of GBP8.0 million were received from a refinancing announced in November, approximately five years ahead of the loan's maturity date
Partial Prepayments and Fees - GBP1.2 million
Two companies prepaid debt due to strong operating performance. These were voluntary prepayments that were not imposed by the credit agreements but rather a reflection of excess cash generation and corporate resource allocation.
Geographical and Currency Exposure
The Company's exposure to Euros represented approximately 48% of NAV at 31 December 2013 with the remaining 52% in Sterling. HSLE does not engage in currency hedging owing to the illiquid nature of the portfolio. The Sterling exchange rate depreciated versus the Euro exchange rate by 3.7% in the period, which resulted in a loss of GBP0.8m.
The Company is also exposed to changes in the Libor and Euribor prevailing rates. In accordance with the original prospectus the Company does not enter into any form of interest rate derivative to hedge this risk.
Portfolio Overview at 31 December 2013
Hot Features
Premium
Loan Primary/ Margin Net Country Currency Maturity Average Repayment
Secondary at the Senior Life
Market Time of Leverage (years)
Investment at the
Time of
Investment*
----------- -------------- ----------- ------------ ------------ --------- --------- --------- ----------
Maturing in
2015
Loan
J Secondary 250 4.2x Sweden EUR 2015 1.5 Bullet
Maturing in
2017
Loan
S Secondary 475 1.8x UK GBP 2017 3.4 Bullet
Maturing in 2018
Loan
L Primary 475 4.2x Netherlands EUR 2018 4.1 Bullet
Loan
O Primary 450 4.9x Germany EUR 2018 4.4 Bullet
Loan
R Primary 500 4.8x Belgium EUR 2018 4.7 Bullet
Loan
Q Primary 475 4.8x Netherlands EUR 2018 4.8 Bullet
Loan
K Primary 475 2.6x UK GBP 2018 5.0 Bullet
Maturing in 2020
Loan
E Secondary 525 2.7x UK GBP 2020 6.2 Bullet
Note: Average life (years) means the weighted average period in years required to repay a loan's outstanding principal through scheduled principal payments.
* Amount of leverage to EBITDA at 31 December 2010 or at the time of investment for 2011-2012 loans
At 31 December 2013 or later if terms updated
The Investment Manager
The Investment Manager is HarbourVest Senior Loan Advisers L.P., which was formed as a limited partnership on 9 April 2010 under the laws of (and is domiciled in) the State of Delaware. The Investment Manager is an affiliate of HarbourVest Partners, LLC, ("HarbourVest") which is a registered investment adviser under the US Investment Advisers Act of 1940.
HarbourVest has been registered with the Securities and Exchange Commission ("SEC") in the US since 1997 and an affiliated entity, HarbourVest Partners (U.K.) Limited, is authorised and regulated by the Financial Services Authority in the UK. HarbourVest manages investment funds which have committed more than US$35 billion to investments over 30 years. The firm and its affiliates have locations in Boston, London, Hong Kong, Tokyo, Bogotá, and Beijing.
An Independent Firm
HarbourVest is an independent investment firm owned and controlled by its management team. The firm has 28 managing directors with an average tenure of 17 years with the firm. HarbourVest provides innovative private equity solutions to institutional clients worldwide. As one of the first private equity fund-of-funds, HarbourVest has a long and distinguished history of investing in venture, buyout and mezzanine, and related credit markets including distressed debt, in the US, Europe, Asia Pacific and emerging markets through primary partnerships, secondary purchases and direct investments. For 30 years, the HarbourVest team has focused on private equity, striving for top-quartile returns, refining its industry expertise and cultivating relationships with leading global partners.
All investments made on behalf of HSLE are approved by the Investment Manager's Boston-based credit investment committee (see section below, "Credit Investment Committee"), with the assistance of advice provided by professionals based in HarbourVest's London, Hong Kong, Tokyo, Bogotá and Beijing affiliates.
Secondary Private Equity Investment Experience
HarbourVest has built a substantial business investing in secondary private equity assets and opportunities since 1986 and has invested approximately US$10 billion of capital in secondary investments.
HarbourVest has an extensive network of private equity relationships that helps it gain early (and sometimes exclusive) introductions to potential sellers of private equity assets. HarbourVest also leverages its network as a source of reliable and proprietary information regarding the assets and managers, which it evaluates in any given secondary opportunity. These broad and deep resources enable HarbourVest to evaluate and execute secondary transactions ranging in size, geography and asset type. HarbourVest employs a similar approach, through leveraging and expanding the same network, to source and diligence secondary senior secured loan opportunities for the Company.
Direct Private Equity Investment Experience
HarbourVest has invested directly and co-invested in companies worldwide since 1983, when it made its first direct investment in an operating company. Today, HarbourVest focuses on buyout co-investment opportunities, growth equity transactions and mezzanine investments. The team is comprised of 21 individuals and is complemented by HarbourVest's other investment professionals who assist in the sourcing and evaluating of deal opportunities. Since 1983, HarbourVest has invested US$4.0 billion directly into companies.
Direct Private Equity Investment Experience (continued)
HarbourVest is one of the most active co-investors in buyout transactions in the market. Since 2002, HarbourVest has additionally been an active supplier of mezzanine capital to private equity-backed investments. HarbourVest leads mezzanine rounds in smaller buyout transactions and works with other mezzanine providers in middle-market and large-market deals.
In Europe, including both buyout co-investments and mezzanine transactions, HarbourVest has directly invested into 70 companies in partnership with more than 30 private equity managers over the last 20 years.
The Team
With more than 20 years of combined experience in European leveraged finance, the Investment Manager's credit team is well equipped to originate and evaluate opportunities, provide advice to the credit investment committee and monitor the Company's portfolio of loans.
Karim Flitti is a principal in the direct investment team of HarbourVest's UK subsidiary and focuses on credit transactions. Karim has 13 years of leveraged finance fund management experience, most recently managing senior secured loan portfolios. Prior to joining HarbourVest, he was a senior portfolio manager, Director and co-founder of Winchester Capital's global leveraged finance platform within Deutsche Bank AG in London. Karim helped raise, invest and manage the business unit's leveraged finance credit fund programme assets (the Moorgate Funds Programme), totalling approximately US$2.5 billion of senior secured loans. He was also a senior member of Winchester Capital's global leveraged finance credit committee.
Arnold Berner, a vice president in HarbourVest's UK subsidiary, focuses on credit analysis. Arnold joined from Deutsche Bank in London, where he focused on buy-side leveraged finance credit. In addition, he analysed, recommended and monitored leveraged loans for a global credit fund programme that he helped launch. Arnold's experience also includes leveraged finance and investment grade bond analysis at AXA Investment Managers in London and Paris.
Karim and Arnold are the primary professionals within the direct investment team responsible for providing advice to HarbourVest's Boston-based credit investment committee in relation to the Company's portfolio.
Stuart Howard acts as Chief Operating Officer of European Listed Products for HarbourVest. Stuart oversees HarbourVest's role in the operations of HSLE as well as HarbourVest Global Private Equity Limited ("HVPE") which is also managed by an affiliate of HarbourVest. In his role Stuart continues to implement HarbourVest's vision of providing access to private equity and private debt through listed companies.
Credit investment committee
The Investment Manager has an internal credit investment committee based in Boston. As the Company's investment period has concluded, the credit investment committee's primary area of focus is on-going portfolio monitoring. The committee reviews each loan within the portfolio on a periodic basis to evaluate performance and understand the evolution of the investment thesis.
-- The committee will consider operating performance metrics as well as any market and commercial developments.
-- This provides a comprehensive assessment of each loan with the aim of ensuring that the risk reward profile is in line with the expectations and within the overall portfolio framework.
-- Every portfolio event or activity is brought to the committees attention and all sales (whole or partial) are approved by the committee.
Valuation Policy and Methodology
The Investment Manager is responsible for carrying out the fair market valuation of the Group's investments which is presented to the Directors for their approval and adoption. In assessing the value of investments to be included in the financial reports of the Company, indications of value are developed in accordance with IFRS 13 Fair Value Measurement (IFRS 13). IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. an exit price at the measurement date from the perspective of a market participant that holds the asset or owes the liability).
Most assets in which the Company has invested - and all of the 8 loans in the portfolio at 31 December 2013 - are those where there are unlikely to be readily observable market prices. Therefore in order to value the loans in the portfolio, the discounted cash flow ("DCF") methodology is generally the predominant valuation technique used by the Company. The DCF methodology entails determining relevant cash flows for each loan, adjusted according to an assessment of the probability of refinancing, and discounting those cash flows by an appropriate risk-adjusted discount rate. The risk-adjusted discount rate is an expression of what investors believe to be a fair and reasonable rate of return for holding a particular security over the relevant period given the inherent risks of ownership. Implicit in the estimation of such a discount rate is the assumption that the seller is a willing seller and the buyer is a willing purchaser of the security. The discount rates are derived from the yields required by investors for loans with similar risk profiles and readily observable prices.
The Audit Committee reviews the valuations included in the valuation analysis at the half yearly and annual financial reporting dates. In order to provide comfort to the Audit Committee, and ultimately the Board, the Company has engaged the services of an independent valuation consultant to report on the valuations prepared by the Investment Manager.
Having been presented with the recommendations of the Audit Committee, the Board is ultimately responsible, on behalf of the Company, for determining the fair value of the Group's investments.
In principle the directors will not value a loan above par given that senior loans can be repaid at par (in full or partially) by the borrower at any point in time.
Leverage
The Company does not employ structural gearing. However, the Company may use a revolving credit facility to meet its operational expenses and for efficient cash management in meeting its fluctuating cash requirements under tranches of loans in the portfolio that are themselves revolving facilities. The amount of any credit facility will not exceed 10% of the gross proceeds of the Company at admission. At 31 December 2013 the Company had not employed any such facility for these purposes.
Board and Committees
Directors
The Directors are responsible for the determination of the Company's investment policy and strategy and have overall responsibility for the Company's activities including the review of investment activity and performance, and the control and supervision of the Investment Manager.
The Directors were all appointed on 7 April 2010, with the exception of John Morris who was appointed on 25 March 2013. John Morris and Michael Stoddard resigned as Directors with effect from 28 November 2013. Rupert Dorey was re-elected at the 2013 AGM held on 28 November 2013.
All of the Directors are non-executive and, with the exception of John Morris, are independent of the Investment Manager. The Directors' details are as follows:
Colin Maltby (Chairman)
Mr Maltby is chairman of BlackRock Absolute Return Strategies Limited and a non-executive director of Abingworth BioEquities Fund Limited, BACIT Limited and Ocean Wilson Holdings Limited. He is also a member of the Supervisory Board of Bilfinger Berger Global Infrastructure SICAV SA. He was Head of Investments at BP from August 2000 to June 2007 and was previously Chief Investment Officer of Equitas Limited from its formation in 1996. His career in investment management began in 1975 with NM Rothschild & Sons and included 15 years with the Kleinwort Benson Group, of which he was a Group Chief Executive at the time of its acquisition
by Dresdner Bank AG in 1995. He was Chief Executive of Kleinwort Benson Investment Management from 1988 to 1995.
Mr Maltby has served as a non-executive director of various public companies and agencies and as an adviser to numerous institutional investors, including pension funds and insurance companies and to private equity and venture capital funds in both Europe and the United States. He is currently an investment advisor to Wolfson College, Oxford.
Sarah Evans
Mrs Evans, resident in Guernsey, is a chartered accountant, and a non-executive director of several other listed investment funds, as well as an unlisted fund of hedge funds. Her other non-executive directorships of listed companies include Crystal Amber Fund Ltd, HICL Infrastructure Company Limited, CQS Diversified Fund Limited and JP Morgan Senior Secured Loan Fund Limited. She is also a member of the Institute of Directors. She spent over six years with Barclays Bank plc Group from 1994 to 2001. During that time she was a treasury director, and from 1996 to 1998, was the finance director of Barclays Mercantile, where she was responsible for all aspects of financial control and operational risk management. Prior to joining Barclays she ran her own consultancy business advising financial institutions on all aspects of securitisation. From 1982 to 1988 she was with Kleinwort Benson, latterly as head of group finance.
Rupert Dorey (Senior Independent Director)
Mr Dorey has over 30 years of experience in financial markets. Mr Dorey was at CSFB for 17 years from 1988 to 2005 where he specialised in credit related products, including derivative instruments where his expertise was principally in the areas of debt distribution, origination and trading, covering all types of debt from investment grade to high yield and distressed debt. He held a number of positions at CSFB, including establishing CSFB's high yield debt distribution business in Europe, fixed income credit product coordinator for European offices and head of UK Credit and Rates Sales. For the past eight years Mr Dorey has been acting in a Non-Executive Directorship capacity for a number of Hedge Funds, Private Equity & Infrastructure Funds, for both listed and unlisted vehicles. His other non-executive directorships of listed companies include, Tetragon Financial Group Limited, AP Alternative Assets LP, Partners Group Global Opportunities Limited, International Public Partnerships Limited and CQS Diversified Fund Limited. He is currently the President of the Guernsey Chamber of Commerce and is a member of the Institute of Directors.
Michael Stoddart (resigned with effect from 28 November 2013)
Mr Stoddart joined Singer & Friedlander Limited in 1955. He was responsible for opening a provincial network and thereby much involved with the financing of smaller companies. He retired as joint chief executive in 1973. He then joined Electra Investment Trust, one of the UK's leading providers of private equity, where he became chief executive officer in 1974 and chairman in 1986 and held that position until his retirement in April 2000. He has held a number of non-executive chairmanships and directorships of public and private companies in the UK, and his main role is now as a senior business advisor to Fleming Family and Partners, a position he has held since 2001. He is an Honorary Fellow of the London Business School.
John Morris (resigned with effect from 28 November 2013)
Mr Morris is a managing director of HarbourVest Partners, LLC, based in the Boston office. At HarbourVest, Mr Morris specialises in private equity partnership investments in the buyout, credit and venture markets. He serves on a number of partnership advisory boards including those managed by ABRY Partners, The Blackstone Group, Court Square Capital, GTCR, Providence Equity Partners,
Hellman & Friedman and Sun Capital. Prior to joining HarbourVest in 1996, Mr Morris worked as an investment associate at Abbot Capital Management, LLC. Previously, he was a vice president in the corporate finance department of Canadian Imperial Bank of Commerce (New York) and received formal credit training at manufacturers Hanover Trust Company. Mr Morris received a BA in economics from Clark University in 1986 and an MBA in finance from Columbia University in 1994.
Audit Committee
The Audit Committee comprises Sarah Evans, Rupert Dorey and Colin Maltby. Michael Stoddart resigned with effect from 28 November 2013. Sarah Evans is Chairman of the Committee. The Committee meets formally at least twice a year for the purpose, amongst other things, of considering the appointment, independence and remuneration of the auditors and to review the Company's annual and half yearly report and financial statements ("financial statements"). As part of its work to review the financial statements, the Audit Committee reviews the reasonableness of the valuations of the Group's investments in order to be satisfied that they represent a reasonable estimate of the fair value of the assets held by the Company on the relevant reporting date. The auditors and the independent valuation consultants attend the Audit Committee meetings at which the financial statements are considered. The Committee also reviews the scope, results and cost effectiveness of the audit.
Where non-audit services are to be provided by the auditor, full consideration of the financial and other implications on the independence of the auditors arising from any such engagement will be considered before proceeding.
Management Engagement and Remuneration Committee
The principal duties of the Management Engagement and Remuneration Committee are to review the performance of service providers, their appointment (including the Investment Manager) and their remuneration.
The Company's Management Engagement and Remuneration Committee meets at least annually for the purpose of reviewing the performance of, and contractual relations with, service providers (including the Investment Manager). The Management Engagement and Remuneration Committee comprise each of the Directors, excluding John Morris. Rupert Dorey acts as Chairman of the Management Engagement and Remuneration Committee.
Directors' Report
Principal risks and uncertainties are summarised below together with steps taken by the board to mitigate them.
Investment activity and performance
The Investment Manager operates in accordance with the investment limits and restrictions policy determined by the Board. The Directors review the limits and restrictions on a regular basis and the Investment Manager confirms adherence to them every month. The Investment Manager provides the Board with management information including performance data and reports, and shareholder analyses. The Directors monitor the performance of the portfolio and the underlying companies with the Investment Manager at each Board meeting and monitor risk factors in respect of the portfolio.
Concentration risk
The diversification of the Company's portfolio is intended to reduce the Company's exposure to adverse events associated with specific investments. The portfolio currently comprises senior secured loans to 8 mid-market companies in 5 countries and several different industries.
However, as the individual loans in the portfolio are repaid, the concentration of investments in particular assets, asset classes or market segments will increase relative to the Company's Portfolio as a whole. As a consequence, the Company's total returns may be adversely affected by the unfavourable performance of even a single asset or asset class or market segment.
The Board monitors the concentration risk by reviewing the portfolio on a monthly basis with the Investment Manager; however the Board is aware that the concentration risk will continue to rise as further loans are repaid.
Market
Market risk arises from uncertainty about the future performance of the Company's investments and is discussed in the Market Environment section of the Investment Manager's Report. It is also covered in note 11 to the unaudited condensed consolidated half yearly financial statements.
Accounting, Legal and Regulatory
The Company must comply with the provisions of the Companies (Guernsey) Law, 2008, as amended, and, since its shares are listed on the London Stock Exchange, the UKLA's Listing and Disclosure Rules. A breach of the Guernsey legislation could result in the Company and/or the Directors being fined or subject to criminal proceedings. A breach of the UKLA Rules could result in the suspension of the Company's shares. The Board relies on its Company Secretary and advisers to ensure adherence to the Guernsey legislation and UKLA Rules. The Investment Manager and the Administrator, BNP Paribas Securities Services S.C.A., Guernsey Branch, are contracted to provide investment, company secretarial, administration and accounting services through qualified professionals. The Board receives regular internal control reports which confirm compliance.
Operational
Disruption to, or the failure of either the Investment Manager's or the Administrator's accounting, dealings or payment systems, or the custodians' records could prevent the accurate reporting or monitoring of the Company's financial position.
Details of how the Board monitors the services provided by the Investment Manager and the Administrator, and the key elements designed to provide effective internal control are explained in the 2013 Annual Report.
Alternative Investment Fund Managers Directive
The Board has considered the Alternative Investment Fund Managers Directive (AIFMD) and believes that, due to the fact that the Company is a close ended investment company with a subscription period that ended before 22 July 2013, the Company is exempt from the Directive's remit of the AIFMD.
Going concern
The directors believe that it is appropriate to adopt the going concern basis in preparing these financial statements. The Company has adequate cash resources and a reliable income stream which is significantly greater than its operating costs.
Directors' Responsibility Statement
The Directors confirm to the best of their knowledge that:
-- The unaudited condensed consolidated half yearly financial statements, which have been prepared in accordance with IAS 34, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company, and the undertakings included in the consolidation taken as a whole as required by DTR 4.2.4R;
-- the Investment Manager's Report and this statement include the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and
-- the Interim Management Report includes the information required by DTR 4.2.8R (disclosure of related party transactions, and changes therein). Details are included in note 12 to these unaudited condensed consolidated half yearly financial statements.
By order of the Board
Sarah Evans Rupert Dorey Director Director 28 February 2014 28 February 2014
Independent Review Report to HarbourVest Senior Loans Europe Limited
Introduction
We have been engaged by the Company to review the unaudited condensed consolidated set of financial statements in the half-yearly financial report for the six months ended 31 December 2013 which comprises the Unaudited Condensed Consolidated Statement of Comprehensive Income, Unaudited Condensed Consolidated Statement of Financial Position, Unaudited Condensed Consolidated Statement of Changes in Equity, Unaudited Condensed Consolidated Statement of Cash Flows and the related explanatory notes 1 to 13. We have read the other information contained in the half yearly 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 guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 3 of the unaudited condensed consolidated half yearly financial statements, the consolidated annual financial statements of the Company are prepared in accordance with IFRSs as adopted by the European Union. The unaudited condensed consolidated half yearly financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on the unaudited condensed consolidated half yearly financial statements in the half-yearly 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 enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the unaudited condensed consolidated half yearly financial statements in the half-yearly financial report for the six months ended 31 December 2013 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Ernst & Young LLP
Guernsey, Channel Islands
28 February 2014
Notes:
1. The maintenance and integrity of the HarbourVest Senior Loans Europe Limited website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the web site.
2. Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Unaudited Condensed Consolidated Statement of Comprehensive Income
For the period from 1 July 2013 to 31 December 2013
1 July 2013 1 July 2012 1 July 2012
to 31 December to 31 December to 30 June
2013 (Unaudited) 2012
(Unaudited) 2013
(Audited)
Notes
GBP GBP GBP
Income
Income from investments, cash and
cash equivalents 7 1,740,469 3,246,033 5,718,260
Unrealised foreign exchange (loss)
/ gain on investments (767,996) 957,774 3,522,356
Unrealised gain on revaluation of
investments 338,563 1,015,044 2,288,306
Realised foreign exchange (loss)
on sale or redemption of investments (123,334) (913,719) (1,013,424)
Realised (loss) on sale or redemption
of investments - (1,569,018) (1,837,115)
Total income from investments 1,187,702 2,736,114 8,678,383
Other net foreign exchange (loss)
/ gain (31,084) 30,836 (34,020)
Expenses
4,
Investment manager's fees 12 328,677 593,480 1,089,689
Directors' fees and travel expenses 87,397 94,964 190,350
Administration and company secretarial
fees 69,000 69,000 138,000
Other expenses 250,030 234,212 460,664
Total operating expenses 735,104 991,656 1,878,703
------------------ ---------------- ------------
Operating gain 421,514 1,775,294 6,765,660
Total comprehensive income for the
period / year 421,514 1,775,294 6,765,660
================== ================ ================
Basic and diluted earnings per ordinary
share 5 0.30p 1.27p 4.48p
All items in the above statement are derived from continuing operations.
Unaudited Condensed Consolidated Statement of Financial Position
As at 31 December 2013
Notes 31 December 31 December 30 June
2013 (Unaudited) 2012 (Unaudited) 2013 (Audited)
GBP GBP GBP
Non-current assets
Investments designated as at fair
value through profit or loss 6 53,982,796 103,468,815 80,343,117
Current assets
Income receivable 335,371 925,277 463,384
Other receivables and prepayments 26,535 34,064 54,286
Cash and cash equivalents 8 9,659,903 13,882,326 2,902,613
------------------ ------------------ ----------------
10,021,809 14,841,667 3,420,283
------------------ ------------------ ----------------
Total assets 64,004,605 118,310,482 83,763,400
------------------ ------------------ ----------------
Current liabilities
Other payables and accrued expenses 439,181 563,957 503,271
439,181 563,957 503,271
------------------ ------------------ ----------------
Net assets 63,565,424 117,746,525 83,260,129
================== ================== ================
Equity
Share capital 9 66,258,735 122,063,442 84,808,183
Reserves (2,693,311) (4,316,917) (1,548,054)
------------------ ------------------ ----------------
63,565,424 117,746,525 83,260,129
================== ================== ================
Number of ordinary shares 9 139,890,249 139,890,249 139,890,249
Net asset value per ordinary share 5 45.44p 84.17p 59.52p
These Unaudited condensed consolidated half yearly financial statements were approved and authorised for issue by the Board of Directors on 28 February 2014, and signed on its behalf by:
Sarah Evans Rupert Dorey Director Director
Unaudited Condensed Consolidated Statement of Changes in Equity
For the period from 1 July 2013 to 31 December 2013
1 July 2013 to 31 December Notes Share capital Reserves Total equity
2013
GBP GBP GBP
Balance at 1 July 2013 84,808,183 (1,548,054) 83,260,129
Gain for the period - 421,514 421,514
---------------- ------------ ---------------
Total gain and comprehensive
income for the period 84,808,183 (1,126,540) 83,681,643
---------------- ------------ ---------------
Payment of interim dividends 10 - (1,566,771) (1,566,771)
Capital return - B shares* 9 (18,549,448) - (18,549,448)
---------------- ------------ ---------------
Total transactions with owners (18,549,448) (1,566,771) (20,116,219)
---------------- ------------ ---------------
Balance at 31 December 2013 66,258,735 (2,693,311) 63,565,424
---------------- ------------ ---------------
1 July 2012 to 31 December Notes Share capital Reserves Total equity
2012
GBP GBP GBP
Balance at 1 July 2012 135,744,708 (3,644,132) 132,100,576
Gain for the period - 1,775,294 1,775,294
Total gain and comprehensive
income for the period 135,744,708 (1,868,838) 133,875,870
---------------- -------------- ---------------
Payment of interim dividends 10 - (2,448,079) (2,448,079)
Capital return - B shares** 9 (13,681,266) - (13,681,266)
---------------- -------------- ---------------
Total transactions with owners (13,681,266) (2,448,079) (16,129,345)
---------------- -------------- ---------------
Balance at 31 December 2012 122,063,442 (4,316,917) 117,746,525
---------------- -------------- ---------------
* On 1 November 2013, the Company made a Capital Return to shareholders equivalent to 13.26 pence per ordinary share by way of a bonus issue and immediate redemption of B shares on a pro rata basis.
** On 26 October 2012, the Company made a Capital Return to shareholders equivalent to 9.78 pence per ordinary share by way of a bonus issue and immediate redemption of B shares on a pro rata basis.
Unaudited Condensed Consolidated Statement of Cash Flows
For the period from 1 July 2013 to 31 December 2013
1 July 2013 1 July 2012
to 31 December to 31 December
2013 (Unaudited) 2012 (Unaudited) 1 July 2012
to 30 June
- Notes 2013 (Audited)
GBP GBP GBP
Operating activities:
Gain for the period / year 421,514 1,775,294 6,765,660
Adjustments for:
Unrealised foreign exchange loss
/ (gain) on investments 767,996 (957,774) (3,522,356)
Unrealised (gain) on revaluation
of investments (338,563) (1,015,044) (2,288,306)
Effect of foreign exchange movements 31,084 (30,836) 34,020
Decrease / (Increase) in receivables 155,764 (402,113) 39,558
(Decrease) / Increase in payables (64,090) (2,991,796) (3,052,482)
Purchase of investments - (9,000,000) (9,002,826)
Sale or redemption of investments 6 25,807,554 24,308,609 50,907,175
Realised foreign exchange loss on
sale or redemption of investments 123,334 913,719 1,013,424
Realised loss on sale or redemption
of investments - 1,569,018 1,837,115
Net cash inflow from operating activities 26,904,593 14,169,077 42,730,982
------------------ ------------------ -----------------
Cash outflow from financing activities
Capital return - B shares (18,549,448) (13,681,266) (50,936,525)
Dividends paid (1,566,771) (2,448,079) (4,669,582)
------------------ ------------------
Net cash flows provided by financing
activities (20,116,219) (16,129,345) 55,606,107
------------------ ------------------ -----------------
Net decrease / (increase) in cash
and cash equivalents 6,788,374 (1,960,268) (12,875,125)
Cash and cash equivalents at start
of the period / year 2,902,613 15,811,758 15,811,758
Effect of exchange rate changes on
cash and cash equivalents (31,084) 30,836 (34,020)
------------------ ------------------
Cash and cash equivalents at end
of the period / year 9,659,903 13,882,326 2,902,613
================== ================== =================
Notes to the Unaudited Condensed Consolidated Half Yearly Financial Statements
1. General Information
The Company was incorporated with limited liability in Guernsey under the Companies (Guernsey) Law 2008, (as amended), on 7 April 2010 with registered number 51719 as a closed-ended investment company. The registered office and principal place of business of the Company is BNP Paribas House, St Julian's Avenue, St Peter Port, Guernsey, GY1 1WA.
For the purposes of efficient portfolio management, the Company has established one wholly-owned, Luxembourg incorporated subsidiary, Orange Senior Loans 1 S.à.r.l. which in turn itself has two wholly-owned, Luxembourg incorporated subsidiaries, Orange Senior Loans 2 S.à.r.l., and Orange Senior Loans 3 S.à.r.l., which are incorporated for the purpose of holding primary and secondary loans respectively of the Group.
The Group invested in senior secured loans of private equity-backed European mid-market companies. These loans included amortising debt (i.e. loans that are repaid over the life of the loan) as well as term debt (i.e. loans that are repaid at maturity) and other forms of credit facility (e.g. loans drawn over time and repaid over the life of the loan or at maturity). All of the loans in which the Group invested were in the senior secured tier of a borrower's debt capital structure (i.e. loans with first ranking security over the borrower's assets and/or its shares).
The Company had an investment period of two years which ended on 30 June 2012.
Although the Company does not have a fixed life, a resolution for the Company to continue in its current form will be proposed at the annual general meeting following the seventh anniversary of the admission, and every year thereafter.
The investment activities of the Company are managed by HarbourVest Senior Loan Advisers L.P. ("the Investment Manager"), and the administration of the Company is carried out by BNP Paribas Securities Services S.C.A., Guernsey Branch ("the Administrator").
These unaudited condensed consolidated half yearly financial statements have been approved for issue by the Board of Directors on 28 February 2014.
2. Going Concern
The directors believe that it is appropriate to adopt the going concern basis in preparing these financial statements. The Company has adequate cash resources and a reliable income stream which is significantly greater than its operating expenses.
3. Principal Accounting Policies
a) Statement of Compliance
The Company produces Consolidated Annual Financial Statements in accordance with The Companies (Guernsey) Law 2008, (as amended), and International Financial Reporting Standards ("IFRS") as adopted by the European Union which comprise standards and interpretations approved by the International Accounting Standards Board ('IASB') together with the interpretations of the International Accounting Standards and Standing Interpretations Committee as approved by the International Accounting Standards Committee ("IASC") which remain in effect.
The condensed consolidated financial statements included in this half yearly report are Unaudited and have been prepared in accordance with International Accounting Standard (IAS) 34, Interim Financial Reporting. Except for the adoption of IFRS 13, the same accounting policies, presentation and methods of computation are followed in the unaudited condensed consolidated half yearly financial statements as compared with the Company's latest annual audited financial statements.
The Directors have reviewed standards, amendments and interpretations to existing standards that become effective in future accounting periods which have not been adopted by the Company. The Directors do not anticipate that the adoption of these standards and interpretations in future periods will have a significant impact on the financial statements of the Company.
(b) Standards issued that are effective and adopted
IFRS 13, 'Fair Value Measurement'
IFRS 13 is effective for periods beginning on or after 1 January 2013, and has been adopted by the Company. The standard improves consistency and reduces complexity by introducing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRS. This standard has not resulted in any changes to the Company's methodology in valuation of its investments but its adoption has increased disclosure requirements particularly with respect to reasonably possible changes in unobservable valuation inputs.
(c) Judgements and Estimates
The critical accounting judgements and estimates and key sources of estimation uncertainty are included in the Company's latest annual audited financial statements. There have been no changes to these during the period.
(d) Operating segments
The Directors are of the opinion that the Company and its subsidiaries are engaged in a single segment of business, being investments in senior loans. The Directors manage the business in this way. The financial results from this segment are equivalent to the financial results of the Company as a whole.
4. Material Agreements
(a) Investment Management Agreement
The Company is managed by HarbourVest Senior Loan Advisers L.P. Under the terms of an Investment Management Agreement dated 27 April 2010, which was amended and restated on 3 May 2011, the Company appointed the Investment Manager to provide management services to the Company. The Investment Manager receives in return a base fee calculated as follows:
-- The base fee is equal to 0.25% per calendar quarter of the net invested assets and is paid quarterly in arrears by the Company or at its discretion by any member of the Group to the Investment Manager within 14 days of receipt from the Administrator of the calculation of the base fee, unless within such period the Company has given notice in writing to the Investment Manager of any error in relation to the calculation, in which case the due date for payment shall be delayed until 14 days after such error is resolved. For the avoidance of any doubt, prior to the conversion of the C shares, any base fee was accounted for on a per class basis, with each class bearing its relevant share of the base fee.
As of 31 December 2013, the Investment Manager has agreed to contribute 40bps of NAV towards the operating expenses of the Company.
For the purposes of the base fee, the net invested assets means the aggregate of:
-- for secondary loans the aggregate value on the first day of each month of the calendar quarter of all outstanding loans at their purchase price plus the aggregate value on the last day of the calendar quarter of all outstanding loans at their purchase price, divided by four; and
-- for primary loans the aggregate value on the first day of each month of the calendar quarter of all outstanding loans at their subscription price inclusive of any fees paid by the borrower in connection with a new financing and any original issue discount plus the aggregate value on the last day of the calendar quarter of all outstanding loans at their subscription price inclusive of any fees paid by the borrower company in connection with a new financing and any original issue discount, as the case may be, divided by four.
The net invested assets exclude loans which have been repaid (in whole or in part) or permanently written-off (in whole or in part) and include committed credit lines including undrawn amounts. In respect of a period that is less than a full calendar quarter, any base fee which may be payable is pro-rated based on the net invested assets.
From such time as a cash distribution causes the Company, in aggregate, to have made cash distributions (by way of dividend and/or capital return) representing the Gross Proceeds and such amounts representing an 8% IRR on the Gross Proceeds, the Investment Manager will be entitled to a 15% performance fee on all distributions above this 8% return.
5. Earnings per Share and Net Asset Value per Share
(a) Ordinary Shares
The calculation of basic and diluted earnings per ordinary share is based on the total net gain on ordinary shares of GBP421,514 (30 June 2013: total net gain of GBP6,765,660, 31 December 2012: total net gain of GBP1,775,294) and on the weighted average number of ordinary shares in issue during the period of 139,890,249 ordinary shares (30 June 2013: 139,890,249, 31 December 2012: 139,890,249).
The calculation of net asset value per ordinary share is based on a net asset value of GBP63,565,424 (30 June 2013: GBP83,260,129, 31 December 2012: GBP117,746,525) and the number of shares in issue at 31 December 2013 of 139,890,249 ordinary shares (30 June 2013: 139,890,249, 31 December 2012: 139,890,249).
6. Investments Designated as Fair Value through Profit or Loss
The company classifies its financial instruments at fair value through profit or loss amongst appropriate levels of the fair value hierarchy based on valuation inputs. The hierarchy is described below:
Level 1: Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2: Inputs that reflect quoted prices of similar assets and liabilities in active markets, and quoted prices of identical assets and liabilities in markets that are considered to be inactive as well as inputs other than quoted prices that are observable for the asset or liability either directly or indirectly.
Level 3: Inputs that are unobservable for the asset or liability and reflect the Investment Manager's own assumptions.
All investments of the Company are classified as Level 3 assets. During the period, there were no transfers between levels of the fair value hierarchy.
Investments comprise unlisted floating rate loans with a fair value of GBP53.98 million, valued using discounted cash flow techniques as described below.
In assessing the fair value of investments, the discounted cash flow (DCF) methodology has been adopted as the principal valuation approach. The DCF methodology entails determining relevant cash flows for each loan, adjusted according to an assessment of the probability of refinancing, and discounting those cash flows by an appropriate risk-adjusted discount rate. The risk-adjusted discount rate is an expression of what investors believe to be a fair and reasonable rate of return for holding a particular security over the relevant period given the inherent risks of ownership. It is calculated based on appropriate Euribor/Libor curve dependent on the location of the borrower and frequency of the coupon payments plus the discount spread.
The discount spreads are derived from the yields required by investors for loans with similar risk profiles and readily observable prices. The approach is primarily a comparables-based approach mixed with dynamic market inputs over the period. As regards the comparables, the selection is based on loans to companies in the same industry or sector, whose spreads are calculated from readily observable prices. This selection is consistent over time and regularly complemented thanks to the inclusion of newly issued relevant loans identified in the market.
The comparable spreads are then adjusted by different factors such as liquidity, size and other qualitative aspects of the borrower, to get to the valued loan spread. In addition, the spread evolution of the comparables over the period is also taken into account to determine the evolution of the valued loan spread over the period and thus its final value at period-end.
Sensitivity analysis to significant changes in unobservable inputs within Level 3 hierarchy
The sensitivity analysis to significant changes in unobservable inputs referred to above has not been presented as a tabular analysis as all investments are valued using a discount spread in the range of 450bp-525bp.
As at 31 December 2013, an increase of 25 basis points in discount rate would result in a decrease in the value of loans of GBP420,411 at the portfolio level. A decrease of 25 basis points in discount rate would result in an increase in the value of loans of GBP224,907 at the portfolio level.
The following table shows a reconciliation of all movements in the fair value of financial instruments categorised within Level 3 between the beginning and the end of the reporting period.
Level 3 financial instruments
1 July 2013 1 July 2012 1 July 2012
to to to
31 December 31 December 30 June
2013 (Unaudited) 2012 (Unaudited) 2013
(Audited)
GBP GBP GBP
Balance at start of the period
/ year 80,343,117 119,287,343 119,287,343
Purchases during the period /
year - 9,000,000 9,002,826
Proceeds on sale or redemption
of investments (25,807,554) (24,308,609) (50,907,175)
Realised foreign exchange (loss)
on sale or redemption of investments (123,334) (913,719) (1,013,424)
Realised (loss) / gain on sale
or redemption of investments - (1,569,018) (1,837,115)
Unrealised foreign exchange gain
/ (loss) on revaluation of investments (767,996) 957,774 3,522,356
Unrealised gain on revaluation
of investments 338,563 1,015,044 2,288,306
Balance at end of the period
/ year 53,982,796 103,468,815 80,343,117
================== ================== =============
The fair value of the investments including accrued interest as at 31 December 2013 was GBP54,318,167 (30 June 2013: GBP80,806,501, 31 December 2012: GBP104,394,092).
7. Income from Investments, Cash and Cash Equivalents
The income from investments, cash and cash equivalents comprises as follows:
1 July 2013 1 July 2012 1 July 2012
to to to 30 June
31 December 31 December 2013 (Audited)
2013 (Unaudited) 2012 (Unaudited)
GBP GBP GBP
Income received from investments 1,621,871 3,078,105 5,549,049
Transaction fees 26,250 166,763 188,986
Delayed compensation (paid)
/ received from investment
purchases 91,693 (2,755) (25,639)
Income from cash and cash
equivalents 655 3,920 5,864
------------------ ------------------ ----------------
1,740,469 3,246,033 5,718,260
================== ================== ================
8. Cash and Cash Equivalents
The breakdown of cash and cash equivalents is as follows:
31 December 31 December
2013 (Unaudited) 2012 (Unaudited)
30 June
2013
(Audited)
GBP GBP GBP
Investment in daily money
market funds 32,713 32,587 32,650
Cash at bank 9,627,190 13,849,739 2,869,963
------------------ ------------------ ------------
9,659,903 13,882,326 2,902,613
================== ================== ============
9. Share Capital
The authorisedshare capital of the Company is represented by an unlimited number of ordinary shares of no par value together with 150,000,000 C shares.
31 December 31 December 30 June 2013
2013 2012
Ordinary shares of
no par value
Issued and fully paid 139,890,249 139,890,249 139,890,249
Rights Attached to Shares
Ordinary Shares
The holders of the ordinary shares are entitled to receive and participate in any dividends or other distribution out of profits of the Company available for dividend. On a show of hands, holders of ordinary shares are entitled to one vote irrespective of the number of shares held. On a poll, each ordinary share carries one vote. On a winding up, the ordinary shareholders shall be entitled to the surplus assets remaining after payment of all creditors of the Company.
Redeemable B Shares
As set out in the Company's IPO Prospectus dated 27 April 2010 (the "Prospectus"), following the Investment Period, the Company expected to make distributions of Capital Returns comprising repayments of invested capital and capital gains resulting from the realisation of the discounts to par at which secondary loans were purchased. Capital Returns were to be made from cash arising from investee company loan repayment or refinancing, together with ongoing loan amortisation. In accordance with the terms of the Prospectus, the Company announced that the mechanism for making the Capital Return was to be by way of a bonus issue and immediate redemption of B shares on a pro rata basis.
A Capital Return to shareholders equivalent to 13.26 pence per ordinary share was paid on 1 November 2013.
Significant Share Movements
Ordinary shares
For the period from 1 July 2013 Number GBP
to 31 December 2013
Balance at start of the period 139,890,249 84,808,183
Capital issued during the period (Redeemable 139,890,249 -
B share issued)
Capital redemption during the period
(Redeemable B share distribution) * (139,890,249) (18,549,448)
-------------- -------------
Balance at end of the period 139,890,249 66,258,735
============== =============
For the period from 1 July 2012 Number GBP
to 31 December 2012
Balance at start of the period 139,890,249 135,744,708
Capital issued during the period 139,890,249 -
(Redeemable B share issued)
Capital redemption during the period
(Redeemable B share distribution)
** (139,890,249) (13,681,266)
-------------- -------------
Balance at end of the period 139,890,249 122,063,442
============== =============
For the period from 1 January 2013 Number GBP
to 30 June 2013
Balance at start of the period 139,890,249 122,063,442
Capital issued during the period 279,720,498 -
(Redeemable B share issued)
Capital redemption during the period
(Redeemable B share distribution) *** (279,720,498) (37,255,259)
Balance at end of the period 139,890,249 84,808,183
============== =============
Redeemable B shares do not carry any rights to any dividend or other distribution out of the profits of the Company or any voting rights and are not transferable.
* On 1 November 2013, the Company made a Capital Return to shareholders equivalent to 13.26 pence per ordinary share by way of a bonus issue and immediate redemption of B shares on a pro rata basis.
** On 26 October 2012, the Company made a Capital Return to shareholders equivalent to 9.78 pence per ordinary share by way of a bonus issue and immediate redemption of B shares on a pro rata basis.
*** On 5 April 2013 and 28 June 2013, the Company made a Capital Return to shareholders equivalent to 11.50 pence and 15.12 pence respectively, per ordinary share by way of a bonus issue and immediate redemption of B shares on a pro rata basis. The total cash flow of GBP50,936,525 includes GBP16,474 which relates to C shares.
10. Dividends
In any financial year, the Company makes distributions to shareholders of not more than the cash income it receives less its running costs paid in that year. Cash income comprises cash received by the Company attributable to the running yield of the portfolio and the income arising from cash held by the Company pending investment or distribution. It also includes all fees generated from the portfolio including, for example, arrangement fees from primary loans. Cash income excludes market discounts and premiums that are accounted for as part of interest income.
Such distributions are made by way of semi-annual dividends, payable in March and September of each year in respect of the financial period ending 30 June of that year.
The Company has declared and paid the following dividends to its shareholders:
Date declared Date Paid Rate 31 August 2010 30 September 2010 1.00 pence per ordinary share 21 February 2011 25 March 2011 1.00 pence per ordinary share 18 May 2011 30 September 2011 1.00 pence per ordinary share 24 November 2011 12 December 2011 0.59 pence per C share (special dividend) 22 February 2012 30 March 2012 1.43 pence per ordinary share 22 August 2012 28 September 2012 1.75 pence per ordinary share 27 February 2013 5 April 2013 1.60 pence per ordinary share 5 September 2013 30 September 2013 1.12 pence per ordinary share
11. Risk Management Policies and Procedures
The Company through its investments in senior loans for the long term is exposed to a variety of financial risks, market risk (including market price risk, currency risk and interest rate risk), credit risk and liquidity risk. The Company's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Company's financial performance.
The Company's Investment Manager is responsible for identifying and controlling risks. The Board of Directors is ultimately responsible for the overall risk management approach within the Company.
The Board of Directors has established procedures for monitoring and controlling risk. The Company has investment guidelines that set out its overall business strategies, its tolerance for risk and its general risk management philosophy.
In addition, the Company monitors and measures the overall risk bearing capacity in relation to the aggregate risk exposure across all risks type and activities. Further details regarding these policies are set out below:
Market Risk
The fair value of a financial instrument held by the Company may fluctuate due to changes in market prices. Market risk comprises market price risk, currency risk and interest rate risk. The Investment Manager moderates the risk through a careful selection of investments within specified limits. The maximum risk resulting from financial assets is determined by the fair value of the financial assets. The Company's overall market position is monitored by the Investment Manager and is reviewed by the Board of Directors on an ongoing basis.
Market Price Risk
The Company's investments designated as at fair value through profit or loss are susceptible to market price risk arising from uncertainties about future prices of the investments.
The Board of Directors manages the risks inherent in the investment portfolio by ensuring full and timely reporting of the relevant information from the Investment Manager. Investment performance is reviewed at each Board meeting. The Board monitors the Investment Manager's compliance with the Company's objectives and is directly responsible for investment strategy and asset allocation including that to countries and economies.
At 31 December 2013 the overall market exposure of the Company is equivalent to the fair value of investments designated as fair value through profit or loss of GBP53,982,796 (30 June 2013: GBP80,343,117, 31 December 2012: GBP103,468,815).
Currency Risk
The functional and presentational currency of the Group is Sterling and, therefore, the principal exposure to foreign currency risk comprises investments priced in Euros. The Investment Manager monitors the exposure to foreign currencies and reports to the Board on a regular basis. The Investment Manager measures the risk of the foreign currency exposure by considering the effect on the net asset value and income of a movement in the rates of exchange to which the assets, liabilities, income and expenses are exposed.
Previously the Board sought to mitigate Euro exposure by ensuring the composition of the portfolio by value was never more than 50% ex Sterling. Following the end of the investment period and the subsequent repayment of loans, that ability to control the 50% threshold is less easy to manage and predict. The Company to date, has not and does not use financial instruments to mitigate the portfolio currency exposure nor does it seek to in respect to the repayments of loans.
Interest income denominated in foreign currencies is converted to Sterling on receipt. The Company does not use financial instruments to mitigate the currency exposure in the period between the time that income is included in the financial statements and its receipt.
The fair value of the financial assets by currency at 31 December 2013 is shown below:
31 December 2013 Note Sterling Euro Total
GBP GBP GBP
Investments designated
as at fair value through
profit or loss 6 23,462,828 30,519,968 53,982,796
Interest receivable 78,037 257,334 335,371
Cash and cash equivalents 8 9,636,472 23,431 9,659,903
Total 33,177,337 30,800,733 63,978,070
============= ============= =============
30 June 2013 Note Sterling Euro Total
GBP GBP GBP
Investments designated
as at fair value through
profit or loss 6 45,756,540 34,586,577 80,343,117
Interest receivable 216,715 246,669 463,384
Cash and cash equivalents 8 2,754,268 148,345 2,902,613
Total 48,727,523 34,981,591 83,709,114
============= ============= =============
Currency Sensitivity Analysis
Should the value of the Euro against Sterling increase or decrease by 5% with all other variables held constant, the net assets of the Company at 31 December 2013 would increase or decrease by GBP1,540,037 (30 June 2013: GBP1,740,080, 31 December 2012: GBP2,300,134).
In accordance with the Company's policy, the Investment Manager monitors the Company's currency position, and the Board of Directors reviews it.
Interest Rate Risk
Interest rate risk is the risk that the value of financial instruments and related income from the cash and cash equivalents will fluctuate due to changes in market interest rates. The Company's exposure to interest rate risk relates to the investments designated as fair value through profit or loss and its cash and cash equivalents. As a result the Company is subject to significant amounts of risk due to fluctuations in the prevailing levels of market interest rates. This primarily affects interest income on investments and the fair value of investments which is determined by applying a discount rate which uses variable interest rates as an input.
Financial instruments at variable rates expose the Company to cash flow risk. Financial instruments at fixed rates expose the Company to fair value interest rate risk. All loans in the portfolio are at floating rates linked to either Libor or Euribor.
Credit Risk
Credit risk is the risk that a counterparty will be unable to pay amounts in full when due.
The Company's main credit risk exposure is in the loan portfolio shown as investments designated as at fair value through profit and loss. Credit risk in respect of other financial assets comprises cash and cash equivalents and accrued interest and dividend receivable. The total exposure to credit risk arises from default of the counterparty and the carrying amounts of financial assets best represent the maximum credit risk exposure at the period end date. As at 31 December 2013, the maximum credit risk exposure was therefore GBP63,978,070 (30 June 2013: GBP83,709,114, 31 December 2012: GBP118,276,094).
Credit risk primarily impacts the valuation of investments and is adjusted for in the discount spread applied to the valuation (see note 6).
The Board gives guidance to the Investment Manager as to the maximum amount of the Company's resources that should be invested in any one company to minimize credit concentration risk. Although the diversification of the Company's investments is intended to reduce the Company's exposure to adverse events associated with specific investments, the number of investments may be limited and investment opportunities may be highly concentrated in particular assets or asset classes or market segments.
In particular, as the Company's Portfolio is realised and loans are repaid, the concentration of investments in particular assets, asset classes or market segments may increase relative to the concentration of the Company's Portfolio. As a consequence, the Company's returns as a whole may be adversely affected by the unfavourable performance of even a single asset or asset class or market segment.
The Board monitors the concentration risk by reviewing the portfolio on a monthly basis with the Investment Manager, however the Board is aware that the concentration risk will continue to rise as further loans are repaid. In addition, as the portfolio decreases in size, the exposure to anyone counterparty increases.
The Investment Manager has adopted procedures to reduce credit risk exposure by conducting credit analysis of the counterparties, their business and reputation which is then monitored on an ongoing basis.
The Company maintains its cash and cash equivalents at BNP Paribas, which is subject to the Company's credit risk monitoring policies as mentioned above.
The credit rating of the custodian, BNP Paribas Securities Services S.C.A., Guernsey Branch is A-1 with Standard & Poor's.
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its liabilities as they fall due.
Liquidity risks relating to other financial liabilities of the Company are those in respect of amounts due to counterparties. However at 31 December 2013 there was sufficient liquidity in the form of cash and cash equivalents to satisfy the Company's obligations.
Except for the investments at fair value through profit or loss, the Company's financial assets and financial liabilities all have maturity dates within one year.
An analysis of the maturity of investments at fair value through profit or loss is shown in the table below.
31 December 2013 31 December 2012
GBP GBP
Within one year - -
Between one and five years 46,229,968 40,776,585
After five years 7,752,828 62,692,230
----------------- -----------------
53,982,796 103,468,815
----------------- -----------------
The carrying amounts of other receivables and prepayments, income receivable and other payables and accrued expenses are deemed to be their fair value due to their short term nature.
12. Related Party Transactions
Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions.
The Investment Manager is deemed to be a related party as John Morris was one of the Directors of the Company (resigned with effect from 28 November) as well as Managing Director of HarbourVest Senior Loan Advisers LP. Total investment management fees due to the Investment Manager for the period amounted to GBP328,677 (30 June 2013: GBP1,089,689, 31 December 2012: GBP593,480) with outstanding fees of GBP153,127 due at 31 December 2013 (30 June 2013: GBP232,638, 31 December 2012: GBP286,723). No performance fee was due to the Investment Manager in respect of the period (31 December 2012: GBPnil).
With effect from 1 October 2013 the Audit Committee agreed with the recommendation made by the Management and Remuneration Committee to reduce remuneration of the Board with effect from 1 October 2013. The Directors of the Company and the Managers of its three Luxembourg subsidiaries are remunerated per annum as follows:
Chairman - GBP40,000 (GBP55,000 prior to 1 October 2013)
Audit Committee Chairman - GBP30,000 (GBP33,000 prior to 1 October 2013)
Director - GBP25,000 per Director (GBP28,000 prior to 1 October 2013)
Subsidiary company Manager (Sarah Evans) - GBP6,250 per subsidiary
Subsidiary company Manager (Michael Vareika) - EUR6,250 per subsidiary
The total Directors' fees and travel expenses for the period amounted to GBP87,397 (30 June 2013: GBP190,350, 31 December 2012: GBP94,964), of which GBP37,072 (30 June 2012: GBP188,320, 31 December 2012: GBP40,788) were due to the Directors at 31 December 2013.
13. Post Balance Sheet Events
On 8 January 2014, a B share distribution was paid to shareholders of GBP8.2m, equivalent to 5.85 pence per ordinary share.
The latest NAV for 31 January 2014 month end was released on 21 February 2014 and was 39.36 pence per share.
On 28 February 2014, the Company approved a dividend of 0.69 pence per ordinary share, in respect to the period ended 31 December 2013. A dividend of GBP965,243 will be paid to shareholders on the 21 March 2014.
Spire Partners LLP has been appointed to act as Sub-Investment Adviser with effect from the close of business on 28 February 2014. HarbourVest Senior Loan Advisers L.P. will continue to act as Investment Manager of the Company and remain responsible for the investment management of the Company.
Spire Partners LLP is an independent fund management firm focused on the European non-investment grade credit market, based in London and authorised and regulated by the Financial Conduct Authority.
Ends
Enquiries:
HarbourVest Senior Loan Advisers L.P.
Stuart Howard Tel: +44 (0)20 7399 9815
Email: showard@harbourvest.com
Secretary
BNP Paribas Securities Services S.C.A., Guernsey Branch
Sara Bourne Tel: +44 (0)1481 750858
Email: sara.bourne@bnpparibas.com
Liberum Capital Limited
Chris Bowman Tel: +44 (0)20 3100 2000
Email: chris.bowman@liberumcapital.com
A copy of the Company's Half Yearly Report and Unaudited Condensed Consolidated Financial Statements will be available shortly from the Company Secretary, (BNP Paribas Securities Services S.C.A., Guernsey Branch, BNP Paribas House, 1 St. Julian's Avenue, St. Peter Port, Guernsey, GY1 1WA).
This information is provided by RNS
The company news service from the London Stock Exchange
END
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