HarbourVest Senior Loans Europe Ltd Interim Management Statement (2635H)

TIDMHSLE

RNS Number : 2635H

HarbourVest Senior Loans Europe Ltd

16 May 2014

Interim Management Statement

FOR THE PERIOD 31 DECEMBER 2013 TO 15 MAY 2014

This Interim Management Statement relates to the period from 31 December 2013 to 15 May 2014, unless otherwise stated. Through this statement, the Group refers to the Company and its wholly-owned Luxembourg subsidiaries.

HarbourVest Senior Loans Europe Limited (the "Company") is publishing this Interim Management Statement in accordance with DTR 4.3 of the FCA 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 31 December 2013 to 15 May 2014, 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 investment period of HSLE has now concluded and the Company has invested in accordance with this original investment policy and objective. The Company has invested in senior secured loans of private equity-backed European mid-market companies.

These loans include 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 Company has invested are 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 did not buy distressed loans.

Manager Review

Despite short term volatility and uncertainty surrounding the Ukrainian political tensions, the period from 31 December 2013 to 15 May 2014 saw signs that a lasting economic recovery is now underway across Europe following the emergence from recession a year ago. In recent months, confidence has improved and business indicators now remain above long term levels. The latest forecasts from the European Commission show that real GDP growth for 2014 is set to reach 1.6% in the EU, improving further to 2.0% in 2015. Domestic demand, combined with falling unemployment rates (10.5% 2014 forecast in the EU, down from 10.8% in 2013) and historically low inflation rates (1.0% 2014 forecast in the EU), has seen a gradual upturn in the medium term economic outlook.

The improved macroeconomic outlook is driving investors' expectations of the forecast European leveraged loan default rate, which is assumed to be approximately 4% by the end of the year (down from 4.2% in February 2014 according to S&P LCD commentary and data).

Since the start of the year, the European leveraged loan market has seen borrowers opportunistically take advantage of the improving outlook, with leverage for new transactions now increasing to circa 5.6x YTD (up from circa 4.6x for 2013), and the re-emergence of structural features such as covenant lite loans and second lien facilities. New issuance YTD stands at EUR14.8 billion, compared to EUR9.4 billion for the prior year, due in part to the EUR3.7 billion loan package for the Numericable / Altice M&A driven recapitalisation.

At 31 March 2014 the estimated Net Asset Value (NAV) of the Company was 39.11 pence per share.

Investment Update

At 31 March 2014, the Company's portfolio consists of seven loans representing approximately GBP49.2 million of NAV. At 31 March 2014, the NAV exposure was approximately 53% to sterling and 47% to euro. The weighted average margin of the Company's portfolio was 459 basis points.

On a geographical basis, the Company's loans, as measured by their current value, provide exposure to the following countries: the UK (47.7%), the Netherlands (31.5%), Germany (12.4%) and Sweden (8.4%).

The level of refinancing across the portfolio remains strong.

Outlook

HSLE benefits from a portfolio of lowly leveraged companies, with loan-to-value ("LTV") at approximately one-third based on the enterprise values (on a weighted average basis) of the investee companies and an above market spread (459 basis points weighted average spread versus the rolling three month weighted average spreads of all new issue leverage buy outs of 392 basis points, according to S&P Capital IQ data). The market opportunity remains appealing with a strong investor demand for yield and the attractions of a floating rate product increasing as expectations for rate rises continue to gather pace, allied to an ongoing need for alternate sources of debt financing.

Material Events and Transactions

While the Company employs a buy-and-hold strategy, the investment manager and sub investment adviser actively monitor the portfolio to achieve liquidity or rebalance sector or company positions

On 28 February 2014, Spire Partners was appointed as sub investment adviser to the Company's investment manager.

During the period, there were two refinancings. One transaction was announced in January 2014 with proceeds received in February 2014, and a second refinancing was completed in April 2014. Finally, in April 2014 one further portfolio company announced that it intends to proceed with an initial public offering. The gross proceeds of the issuance of shares are intended to reduce borrowings, thereby resulting in a full repayment of the existing loan. This remains subject to the successful floatation, which is currently scheduled for later in May 2014.

Dividend and Capital Return

As a result of recent refinancing proceeds and capital repayments, the Company made a capital return to shareholders equivalent to 5.85 pence per share, which was paid to shareholders on 17 January 2014. This brings the total capital return payments since inception to 55.51 pence per share.

The Company also made a dividend payment of 0.69 pence per share on 21 March 2014. This brings total ordinary share dividends since inception to 9.59 pence per share.

Reports and Accounts

The Company's Half Yearly Report and Unaudited Condensed Consolidated Financial Statements were made available to shareholders on 28 February 2014.

The Company's Audited Annual Report and Accounts will be produced for the period ended 30 June 2014 and will be distributed to shareholders within four months of the period end.

Financial Highlights

The financial information for the period ended 15 May 2014 contained within this Interim Management Statement has not been audited.

Other Notices

The Company intends to publish its estimated NAV per share for the month ending 30 April 2014 on 22 May 2014. The estimated NAV per share for the month ending 31 May 2014 is due to be published on 20 June 2014.

By order of the Board.

BNP Paribas Securities Services S.C.A., Guernsey Branch, for and on behalf of HarbourVest Senior Loans Europe Limited as Company Secretary.

Key Metrics at 31 March 2014

   Net Asset Value                                GBP54.71m 
   Market Cap (total)                           GBP50.36m 
   Net Gearing                                       100 
   Share Price                                       36.00p 
   Net Asset Value Per Share              39.11p 
   (Discount)/Premium                       -7.95% 

Share prices are official London Stock Exchange closing prices

Sources

London Stock Exchange

Company's Administrator

HarbourVest Senior Loan Advisers L.P.

Spire Partners LLP

Contacts

 
 INVESTMENT MANAGER      SUB INVESTMENT        REGISTERED OFFICE     KEY INFORMATION 
  HARBOURVEST SENIOR      ADVISER               BNP Paribas House     Fund Type Closed-ended 
  LOAN ADVISERS L.P.      Spire Partners        St Julian's Avenue    Fund 
  c/o HarbourVest         LLP                   St Peter Port         Base Currency UK 
  Partners, LLC           20 Berkeley Square    Guernsey GY1          Sterling 
  One Financial Center    7(th) Floor           1WA                   ISIN GG00B4N5LG23 
  44(th) Floor            London W1J 6EQ        Channel Islands       Ticker HSLE 
  Boston MA 02111         Tel [phone]    Tel [phone]      AIC Sector Global 
  U.S.A.                  6300                  750 850               High Income 
  Tel [phone]                                                      Domicile Guernsey 
  3707                    BROKERS                                     NAV Frequency Monthly 
  Fax [phone]          Liberum Capital                             Dividend Policy 
  0305                    Tel [phone]                          Semi-Annual 
                          2000 
 

The commentary provided in this document is provided by the Company's investment manager and sub investment adviser.

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.. Together, the Company and its subsidiaries, which have been incorporated for the purpose of holding primary and secondary loans respectively, for the Group. All references to the Group in this Factsheet refer to the Company and its wholly-owned Luxembourg subsidiaries. This document is not intended to be an invitation to engage in investment activity or a sales instrument; it constitutes neither an offer nor an attempt to solicit offers for the securities described herein. The report was prepared using financial information contained in HSLE's books and records as of the reporting date. This information is believed to be accurate but has not been audited by a third party. This report describes past performance, which may not be indicative of future results. The opinions and forecasts expressed herein are based on information which HSLE, Spire Partners LLP, and HarbourVest Senior Loan Advisers L.P. believe to be accurate and reliable at the time of publication, however, these opinions and forecasts may change without notice. The information contained herein, including any expressions of opinion or forecast, is for information purposes only and is given on the understanding that it is not a recommendation and anyone who acts on it, or changes their opinion thereon, does so entirely at their own risk. Neither HSLE nor Spire Partners LLP nor HarbourVest Senior Loan Advisers L.P. accept liability for actions taken on the basis of information provided.

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The company news service from the London Stock Exchange

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