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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Chenavari Toro Income Fund Limited | LSE:TORO | London | Ordinary Share | GG00BWBSDM98 | EUR SHS NPV |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -0.018 | -3.40% | 0.512 | 0.494 | 0.53 | 0.512 | 0.512 | 0.512 | 12,000 | 08:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Trust,ex Ed,religious,charty | 25.88M | 21.06M | 0.0683 | 6.44 | 135.76M |
From May 2019 to May 2024
TIDMTORO
RNS Number : 7101P
Chenavari Toro Income Fund Limited
30 May 2018
Chenavari Toro Income Fund Limited
(a closed-ended investment company limited by shares incorporated under the laws of
Guernsey with registered number 59940)
Unaudited Interim Financial Statements
For the period from 1 October 2017 to 31 March 2018
Potential investors are "qualified eligible persons" and "Non-United States Persons" within the meaning of the US Commodity Futures Trading Commission Regulation 4.7.
Chenavari Credit Partners LLP (the "Portfolio Manager") is registered as a commodity pool operator ("CPO") with the Commodity Futures Trading Commission (the "CFTC") and is a member of the National Futures Association ("NFA") in such capacity under the U.S. Commodity Exchange Act, as amended ("CEA"). With respect to the Company, the Investment Manager has claimed an exemption pursuant to CFTC Rule 4.7 for relief from certain disclosure, reporting and recordkeeping requirements applicable to a registered CPO. Such exemption provides that certain disclosures specified in section 4.22 (c) and (d) of the regulation are not in its interim report.
Contents
Commodity Exchange Affirmation Statement
Highlights for the period from 1 October 2017 to 31 March 2018
Corporate Summary
General Information
Chairman's Statement
Portfolio Manager's Report
Statement of Principal Risks and Uncertainties.
Statement of Directors' Responsibilities
Independent Review Report to the Members of Chenavari Toro Income Fund Limited
Condensed Unaudited Statement of Comprehensive Income
Condensed Unaudited Statement of Financial Position
Condensed Unaudited Statement of Changes in Equity
Condensed Unaudited Statement of Cash Flows.
Condensed Unaudited Schedule of Investments, at Fair Value
Notes to the Condensed Unaudited Financial Statements
FORWARD-LOOKING STATEMENTS
This interim report includes statements that are, or may be considered, "forward-looking statements". These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "anticipates", "plans", "expects", "targets", "aims", "intends", "may", "will", "can", "can achieve", "would" or "should" or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this annual report, including in the Chairman's Statement. They include statements regarding the intentions, beliefs or expectations of the Company or the Portfolio Manager concerning, among other things, the investment objectives and investment policies, financing strategies, investment performance, results of operation, financial condition, liquidity prospects, dividend policy and targeted dividend levels of the Company, the development of its financing strategies and the development of the markets in which it, directly and through special purpose vehicles, will invest in and issue securities and other instruments. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are not guarantees of future performance. The Company's actual investment performance, results of operations, financial condition, liquidity, dividend policy and dividend payments and the development of its financing strategies may differ materially from the impression created by the forward-looking statements contained in this document. In addition, even if the investment performance, results of operations, financial condition, liquidity, dividend policy and dividend payments of the Company and the development of its financing strategies are consistent with the forward-looking statements contained in this document, those results or developments may not be indicative of results or developments in subsequent periods. Important factors that may cause differences include, but are not limited to: changes in economic conditions generally and in the structured finance and credit markets particularly; fluctuations in interest and currency exchange rates, as well as the degree of success of the Company's hedging strategies in relation to such changes and fluctuations; changes in the liquidity or volatility of the markets for the Company's investments; declines in the value or quality of the collateral supporting many of the Company's investments; legislative and regulatory changes and judicial interpretations; changes in taxation; the Company's continued ability to invest its cash in suitable investments on a timely basis; the availability and cost of capital for future investments; the availability of suitable financing; the continued provision of services by the Portfolio Manager and the Portfolio Manager's ability to attract and retain suitably qualified personnel; and competition within the markets relevant to the Company. These forward-looking statements speak only as at the date of this annual report. Subject to its legal and regulatory obligations, the Company expressly disclaims any obligations to update or revise any forward-looking statement (whether attributed to it or any other person) contained herein to reflect any change in expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based. The Company qualifies all such forward-looking statements by these cautionary statements.
Commodity Exchange Affirmation Statement
Commodity Exchange Statement Affirmation Required by the Commodity Exchange Act, Regulation --4.22(h)
I, Loic Fery, hereby affirm that, to the best of my knowledge and belief, the information contained in this Interim Report and Unaudited Interim Financial Statements is accurate and complete.
Loic Fery
Chief Executive Officer and representative of the Managing Member of Chenavari Credit Partners LLP, Commodity Pool Operator of the Company.
29 May 2018
Highlights for the period from 1 October 2017 to 31 March 2018
-- During the period from 1 October 2017 to 31 March 2018 (the "Period"), the Company's net asset value ("NAV") per Ordinary Share ("Share") decreased by (0.34%) net of dividends (30 September 2017: 2.54%) to close at 99.51 cents (30 September 2017: 99.85 cents).
-- The NAV performance, dividends reinvested, was 3.72% during the period. Dividends of 4 cents per Share were paid in respect of each period, with 2 cents per Share related to the quarter to 30 September 2017 and 2 cents per Share related to the quarter to 31 December 2017. On 20 April 2018 the Company announced a further dividend payment of 2 cents per Share for the quarter to 31 March 2018.
-- The Company's mid-market share price at 31 March 2018 was 81.75 cents (30 September 2017: 86.25 cents), representing a discount to NAV of 17.85% (30 September 2017: 13.62%).
-- The profit for the Period was EUR11.9 million (31 March 2017: EUR13.2 million), or 3.66 cents per Share (31 March 2017: 3.88 cents per Share), taking into account recognition of the following significant items:
o total net income of EUR16.45 million (31 March 2017: EUR18.4 million).
o total operating expenses of EUR4.39 million (31 March 2017: EUR5.08 million).
-- At 31 March 2018 the Company was 96.6% invested and its free cash holdings were EUR9.1 million.
Corporate Summary
For the Period from 1 October 2017 to 31 March 2018
The Company
Chenavari Toro Income Fund Limited (the "Company") is a Closed-ended Collective Investment Scheme registered pursuant to The Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended (the "Law") and the Registered Collective Investment Scheme Rules 2008 issued by the Guernsey Financial Services Commission (the "Commission"). The Company's Ordinary Shares (the "Shares") were admitted to trading on the Specialist Fund Segment ("SFS") of the London Stock Exchange and The International Stock Exchange ("TISE") on 8 May 2015.
Investment objective and policy
The investment objective of the Company is to deliver an absolute return from investing and trading in Asset Backed Securities ("ABS") and other structured credit investments in liquid markets, and investing directly or indirectly in asset backed transactions including, without limitation, through the origination of credit portfolios.
Target returns and dividend policy
On the basis of market conditions as at the date of the prospectus (28 April 2015), and whilst not forming part of its investment objective or investment policy, the Company will target a NAV total return (including dividend payments) of 12 to 15 per cent per annum over three to five years once the Company is fully invested. From May 2017, the Company's dividend target was increased from 5 cents to 8 cents per annum payable quarterly in March, June, September and December of each year. Relative to this target return, dividends of 4 cents per Share were declared with respect to the Period.
Asset values
At 31 March 2018, the Company's NAV was EUR323,350,162, with the NAV per Share amounting to 99.51 cents. The Company publishes its NAV on a monthly basis. The NAV is calculated as the Company's assets at fair value less liabilities, measured in accordance with International Financial Reporting Standards ("IFRS").
Duration
The Company has an indefinite life.
Website
The Company's website address is http://www.chenavaritoroincomefund.com/
Listing information
The Company's Shares are admitted to trading on the SFS and TISE.
The ISIN number of the Euro Shares is GG00BWBSDM98 and the SEDOL is BWBSDM9.
The closing price of the Shares quoted on the SFS at 31 March 2018 was 81.75 cents per Share.
The average closing price of the Shares over the Period was 84 cents per Share.
General Information
Hot Features
Premium
Directors Registered Office
Frederic Hervouet (Non-executive
Chairman) Old Bank Chambers
John Whittle (Non-executive Director) La Grande Rue
Roberto Silvotti (Non-executive Director) St Martin's
Guernsey
GY4 6RT
Portfolio Manager AIFM
Carne Global AIFM Solutions (C.I.)
Chenavari Credit Partners LLP Limited
80 Victoria Street Channel House
London Green Street
SW1E 5JL St. Helier
Jersey
JE2 4UH
Corporate Broker Registrar
J.P. Morgan Cazenove* Link Asset Services
25 Bank Street Mont Crevelt House
Canary Wharf Bulwer Avenue
London St Sampson
E14 5JP Guernsey
GY2 4LH
Solicitors to the Company (as to Advocates to the Company (as
English law) to Guernsey law)
Gowling WLG (UK) LLP Mourant Ozannes
4 More London Riverside 1 Le Marchant Street
London St Peter Port
SE1 2AU Guernsey
GY1 4HP
Administrator and Company Secretary Custodian and Principal Bankers
Estera Administration (Guernsey)
Limited J.P. Morgan Chase Bank N.A
Old Bank Chambers Jersey Branch
La Grande Rue J.P. Morgan House
St Martin's Grenville Street
Guernsey St Helier
GY4 6RT Jersey
JE4 8QH
Sub-Administrator Auditor
Quintillion Limited Deloitte LLP
24-26 City Quay P.O. Box 137
Dublin 2 Regency Court
Ireland Glategny Esplanade
D02 NY19 St. Peter Port
Guernsey
GY1 3HW
*Appointed Q1 2018, replacing Fidante Partners Europe Limited.
Chairman's Statement
Introduction
On behalf of the Board, I am pleased to present my report on the Company's progress for the Period.
Financial performance
The Company's share price was 81.75 cents as of 31 March 2018, trading then at a discount to NAV of 17.85%.
During the period from 1 October 2017 to 31 March 2018, the Company's NAV total return was 3.71%.
Over the Period the Company generated a profit of EUR11.9 million or a profit of 3.66 cents per share.
The NAV per share was 99.51 cents at 31 March 2018.
The Company's NAV increased during the period by 3.72% (dividends reinvested).
Dividends
Since inception, the Company has declared eleven dividends. The total dividend for the six months period is 4 cents, to be compared with an annual target of 8 per cent of the Issue Price per Share as set out in the IPO prospectus.
Investment portfolio and outlook
Please refer to the Investment Outlook section of the Portfolio Manager's Report on pages 10 and 11.
A review of the Corporate Broker took place during the period and the Board selected J.P. Morgan Cazenove to act on the Company's behalf. The key focus will be for J.P. Morgan to work with the Board and the Investment Manager to review Marketing of the Company and the efforts to increase liquidity in order to reduce the discount.
Finally, I would like to thank all our shareholders for their continued support.
Frederic Hervouet
Non-executive Chairman
29 May 2018
Portfolio Manager's Report
Performance
During the Period, the Company NAV performance was 3.72% (dividend reinvested).
The month-on-month performance (dividend reinvested) since inception was the following:
Year YTD Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec ------ ------ -------- -------- ------ ------ ------ -------- ------ ------ ------ ------ ------ ------ 2015 4.53% - - - - 2.06% 0.15% 0.45% 0.64% 0.28% 0.02% 0.52% 0.34% 2016 3.86% (0.34%) (2.44%) 0.69% 0.92% 0.95% (0.04%) 0.29% 1.13% 1.23% 0.54% 0.67% 0.24% 2017 7.36% 1.41% 0.88% 1.21% 0.56% 0.30% 1.49% 0.28% 0.49% 0.51% 0.98% 0.33% 0.48% 2018 1.88% 1.37% 0.41% 0.09%
Since inception, the Company has declared the following dividends:
Period ending Dividends Declared
(cents per Share)
30 September 2015 (1 dividend) 2.00
30 September 2016 (4 dividends) 6.50
30 September 2017 (4 dividends) 6.75
31 March 2018 (2 dividend) 4.00
Portfolio breakdown
As at 31 March 2018, the Company was 96.6% invested.
The NAV allocation per asset class was as follows:
30 September
31 March 2018 2017
Asset class breakdown % NAV % NAV
Equity securities 0.72% 0.78%
Bond - 1.41%
Arbitrage CDO 0.79% 0.88%
Commercial mortgage-backed security 1.42% 1.92%
Arbitrage CLO 20.32% 11.31%
Residential mortgage-backed security 6.48% 6.32%
Balance sheet CLO 3.28% 8.38%
Consumer ABS 2.00% 3.52%
Senior loan 1.15% 1.21%
Whole loan 0.02% 0.02%
Mezzanine loan 0.17% 0.13%
Non-performing loan 7.47% 7.45%
Preferred equity 15.42% 13.98%
Equity 35.72% 22.66%
Cash, hedges and accruals* 5.04% 20.03%
Total 100.00% 100.00%
-------------- -------------
Portfolio Manager's Report (continued)
Portfolio breakdown (continued)
The geographical breakdown of the underlying assets was as follows:
30 September
31 March 2018 2017
Geographic breakdown % NAV % NAV
Other European Union 15.4% 5.36%
France 10.4% 4.42%
Germany 9.4% 8.69%
Great Britain 9.0% 6.39%
Ireland 7.1% 4.55%
Italy 1.6% 2.54%
Netherlands 4.1% 5.47%
Portugal 1.4% 3.69%
Spain 19.1% 20.88%
U.S.A 8.6% 6.01%
Other 10.4% 9.28%
Cash, collateral and accruals* 3.5% 22.72%
Total 100.00% 100.00%
-------------- -------------
* Difference relates to derivative financial assets and liabilities included Asset class breakdown
Investment Strategy
Public ABS Strategy 23.4%: The Company will opportunistically invest or trade in primary and secondary ABS markets to seek out opportunities that aim to unlock significant value from ABS investments that the Portfolio Manager considers to be mispriced by the market relative to their intrinsic value.
Private Asset Backed Finance Strategy 23.3%: Through the Portfolio Manager, the Company will leverage on the extensive relationships it has with European Banks and retail credit firms in order to gain access and invest in private asset backed finance transactions that are otherwise unlisted and difficult to source.
Direct Origination Strategy 47.8%: The Company will primarily invest, on a buy-to-hold basis, in Originators of securitisation vehicles by retaining the requisite Retention Securities in such vehicles, pursuant to the relevant risk retention requirements in the EU or the US. This strategy benefits from a liquidity premium and 'alpha' by participating in the origination, as well as enhanced economics on the retained interests, with further added value derived from the team's sourcing and structuring capabilities. Additional investment opportunities may also include providing warehouse credit facilities.
Gearing
The Company may use borrowings from time to time for the purpose of short term bridging, financing Share buy backs, repurchase agreements with market counterparties or managing working capital requirements, including hedging facilities. Cash borrowings can contribute alongside other forms of leverage to increase the level of gearing of the Company. The Company may also use gearing to increase potential returns to Shareholders. In the past, the Portfolio Manager has employed leverage against senior tranches of ABS to enhance their returns, and expects it will continue to do so, where the economic terms offered by counterparties can increase potential returns to Shareholders.
Portfolio Manager's Report (continued)
Investment Activity
The performance was largely driven by the Direct Origination Strategy in the six months, especially Toro's Originator entity Taurus Corporate Financing ("Taurus"), which represented 35% of Toro's NAV at the end of Q1 2018. An additional investment was made in Project Shamrock, the Irish buy-to-let mortgages investment, as around EUR95m of new loans had been originated at the end of March (up 270% since Q3 2017) on the back of supportive macroeconomic factors and limited competition. As of 31 March 2018, all three CLOs were fully invested with collateral credit quality remaining high across the board. Furthermore, Toro European CLO 5 successfully priced on 14 February 2018. The EUR414m placement was achieved at the tightest execution in the history of the Toro CLO platform with a weighted average coupon of 142bps (including the fixed rate tranche). At pricing, Toro European CLO 5 benefits from a portfolio ramped up in excess of 70% and an attractive portfolio featuring a weighted average price and spread of 99.9% and 382bps, respectively. Toro has retained through Taurus a controlling stake in the equity of Toro European CLO 5, equivalent to EUR20.5m, which will entitle it to a 58% rebate on CLO management fees. The pipeline on Taurus remains good with two other European CLOs managed by third party CLO managers anticipated to price in 2018. The first one, Bosphorus 4 (CLO managed by Commerzbank Debt Fund Management), where Toro retained a controlling stake in the equity (EUR20m) through Taurus, priced in April 2018. Although the weighted average cost of debt has marginally increased recently, the equity arbitrage remains attractive especially as the portfolio is roughly 70% ramped up. The leveraged loan market remained liquid and relatively strong during the various bouts of volatility experienced by the High Yield and Equity markets. Lower coupon loans (margin <350bps) traded off slightly however higher coupon loans remained well bid. Primary issuance continued apace with volumes increasing by 1.4% quarter on quarter. Fundamental credit performance remains good with defaults and stress situations being relatively rare and idiosyncratic in nature.
Whilst it was an uneventful six months for the Private Asset Backed Finance Strategy, trading activity within the Public ABS Strategy proved notable in both quarters. We continued to actively rebalance the exposure to BB and B-rated CLO tranches and also reduced exposure to periphery European ABS where prices are currently at their highest levels since 2015 with limited upside. Therefore, the spread widening on European CLO 2.0 mezzanine tranches witnessed in the second half of the first quarter in 2018 (circa +100bps on both BB and B - rated tranches) had limited impact on the NAV as Toro's exposure primarily consists of shorter-dated CLO tranches with deliberately low or negative convexity.
Outlook
Following strong macro fundamentals in 2017, developed market-growth has moderated in Q1 2018 alongside the mounting risk of protectionism, tightening monetary policies and renewed concerns over the length of the global expansion cycle.
In Europe, even though March data was disappointing, growth is still tracking at a decent annualised 2.5%, still benefiting from an expansionary monetary policy. Not only is the Euro area much less advanced than the US in this business cycle, but there is also significantly more spare capacity resulting in muted inflationary pressures with core inflation stuck around 1%. Consequently, although QE is likely to end this year, monetary policy should remain accommodative with the ECB reluctant to normalise interest rates any time soon.
Moving on to markets, the sell-off in Q1 translated into a negative -0.64% performance for the ICE BofAML Euro High Yield index and could be the evidence of the paradigm shift expected for 2018. The lack of inflows in fixed income/credit products (even notable outflows in High Yield) and the perception that the central bank backstop is weakening are creating a vulnerable picture which could be exacerbated by any negative headlines. Hence, as market volatility is anticipated to return this year, especially within the weakest segments of the credit market such as High Yield, exposure to liquid investments has been reduced as well as the overall credit portfolio sensitivity through active hedging via the Crossover index.
Portfolio Manager's Report (continued)
Outlook (continued)
Simultaneously, further capital was allocated to Taurus with the launch of two CLOs in Q1 where the Originator invested into the subordinated tranches, benefiting from the origination and management fees rebate. The CLO arbitrage is attractive on the back of a lower weighted average funding cost and widening loans spreads. Furthermore, latest CLO transactions offer equity friendly documentation and unpriced long-term optionality. As volatility increases, selective, nimble and active CLO managers should outperform, improving the portfolio metrics as well as generating trading gains for subordinated noteholders.
Rebalancing from liquid instruments to the Direct Origination and Private Asset Backed Finance strategies has accelerated with both strategies accounting for 71% of Toro's NAV at the end of Q1. Indeed, we continue to focus on jurisdictions and sectors which we believe should benefit the most from the economic recovery and where lending by banks to households and firms remains incredibly subdued. Such strategies potentially offer attractive alternatives to crowded and historically tight liquid instruments while being uncorrelated from market volatility. Our private lending strategies in Ireland (Clove, Shamrock) have been growing on the back of limited competition on buy-to-let mortgages and house price appreciation (+1.1% in February 2018, +13% YoY according to the Central Statistics Office Ireland). In Spain, new mortgages and house prices increased by 20% and 7.2% respectively in 2017 (Eurostat). Spanish home sales jumped 23% YoY in January (INE), boosting off-plan sales to 30% on our largest real estate development project in Barcelona (project SpRED).
Chenavari Credit Partners LLP
Portfolio Manager
29 May 2018
Statement of Principal Risks and Uncertainties
Summary
An investment in the Shares is only suitable for institutional investors and professionally advised private investors who understand and are capable of evaluating the merits and risks of such an investment and who have sufficient resources to be able to bear any losses (which may equal the whole amount invested) that may result from such an investment. Furthermore, an investment in the Shares should constitute part of a diversified investment portfolio. It should be remembered that the price of securities and the income from them can go down as well as up.
The risks set out below are those which are considered to be the material risks relating to an investment in the Shares but are not the only risks relating to the Shares or the Company. Additional risks and uncertainties of which the Company is presently unaware or that the Company currently believes are immaterial may also adversely affect its business, financial condition, results of operations or the value of the Shares. The Directors have undertaken a robust assessment of the principal risks facing the Company and have undertaken a detailed review of the effectiveness of the risk management and internal control systems. The Directors are comfortable that the risks are being appropriately monitored.
Risk Explanation/Mitigant
----------------------------- ------------------------------------------------------------
Collateral risk Investment Instruments purchased by the Company
(default, recovery, are linked to the credit performance of the underlying
prepayment) Collateral. This means that defaults or credit losses
in the Collateral may adversely impact the performance
of the company, the NAV and the value of the Shares.
The Portfolio Manager conducts detailed fundamental,
statistical and scenario analyses. Where it is considered
desirable, the Company may enter into hedging transactions
designed to protect against or mitigate the consequences
of single reference obligations defaulting and/or
more generalised credit events. Alongside the fundamental
credit analysis, the structural features of the
transaction are also assessed. This includes a review
of the payment waterfall, the subordination of the
proposed Investment Instrument, the extent of the
reserve fund, the amortisation profile and extension
risk.
----------------------------- ------------------------------------------------------------
Market risk The Company is exposed to several market factors.
In particular, this Company is primarily driven
by underlying asset appreciation/depreciation, captured
in the "Collateral Risk" section above. The market
price of the instruments can also be affected by
the changes in expectations on the underlying collateral
and the ability to pay. In the short term, the unrealised
performance can be affected by the sentiment of
the market, supply/demand of asset types, expectations
on unemployment, GDP growth, credit cycle and stability
of the Eurozone. Because the liquidity of the instruments
is relatively low, prices will tend to be sticky,
but can be at risk to sudden jumps in price when
momentum of sentiment is strong enough and certain
pools of investors are forced to liquidate. The
timing of these technical factors can be quite out
of sync with fundamentals.
The Company is closed ended, and has tight limits
on leverage. It is well setup to ride out any short-term
dislocations in pricing without being forced to
liquidate investments at technically distressed
prices. This is achieved by employing hedging strategies
using liquid instruments. This reduces the beta
of the portfolio compared to some of its peers.
----------------------------- ------------------------------------------------------------
Valuation and classification Investments are valued in accordance with the Company's
of financial assets Valuation Policy which is compiled with reference
at fair value through to key principles comprising; independence, documentation,
profit or loss risk transparency, consistency and relevance and documents
the pricing process and timeline, with particular
reference to difficult to value securities, and
sets out escalation procedures.
The Board has established a committee to review
the valuation of illiquid Investment Instruments,
particularly where a valuation is provided by a
single counterparty or where the Portfolio Manager's
risk officer recommends a more conservative valuation
than that provided by a counterparty.
----------------------------- ------------------------------------------------------------
Statement of Principal Risks and Uncertainties (continued)
Risk Explanation/Mitigant
----------------------------- ----------------------------------------------------------------
Valuation and classification The Portfolio Manager also engaged Duff & Phelps,
of financial assets Ltd ("Duff & Phelps"), on behalf of the Company,
at fair value through as a valuation advisor to provide certain limited
profit or loss risk procedures on some Transactions' valuation which
(continued) the Investment Adviser identified and requested
Duff & Phelps to perform. For the avoidance of doubt,
notwithstanding the Company's engagement with Duff
& Phelps, the Valuation Committee of the Company
remains ultimately responsible for the determination
of the Fair Value of each Transaction, but may consider
Duff & Phelps' input in making such determinations.
Specifically, as of 30 September 2017, Duff & Phelps
estimated ranges of Fair Value for the Company's
interests in one transaction. Duff & Phelps have
not performed specific valuation procedures during
the period.
As a result of the work undertaken by the Audit
Committee, the Board is satisfied that the valuation
of financial assets at fair value through profit
or loss was correctly stated in the Financial Statements.
----------------------------- ----------------------------------------------------------------
Replenishment risk The terms of an investment may permit the relevant
(quality of new counterparty to alter the composition of the collateral.
reference assets) The Portfolio Manager will seek to ensure that the
investment documents clearly define eligible replacement
assets to mitigate the risk of inferior quality
assets being added. In certain cases, and to the
extent possible in respect of primary investments,
the Portfolio Manager may negotiate veto rights
for investors on new names being added to the collateral
pool.
----------------------------- ----------------------------------------------------------------
Call risk Investments may have call features which, if activated,
would result in re-investment risks for the Company.
This is mitigated by restricting the situations
where an investment can be terminated and/or by
requiring that premiums be payable to investors
when an investment is called.
----------------------------- ----------------------------------------------------------------
Portfolio Manager The Company is dependent on the expertise of the
risks Portfolio Manager and their respective key personnel
to evaluate investment opportunities and to implement
the Company's investment objective and investment
policy.
The Board has instructed the Portfolio Manager to
conduct the Company's investment related activities
in compliance with the applicable law, the Company's
investment objectives and guidelines and the Company's
contractual obligations.
The Management Engagement Committee carried out
its review of the performance and capabilities of
the Portfolio Manager at its meeting on 28 November
2017 and confirmed that the continued appointment
of the Portfolio Manager is deemed to be in the
interest of shareholders.
There can be no assurance that the Portfolio Manager's
past performance will be any guide to future performance
or results.
----------------------------- ----------------------------------------------------------------
Operational risks The Company is exposed to the risk arising from
any failures of systems and controls in the operations
of the Portfolio Manager, Administrator, the Sub-Administrator
and the Custodian. The Board and its Audit Committee
regularly review reports from the Portfolio Manager
and the Administrator on their internal controls.
----------------------------- ----------------------------------------------------------------
Statement of Directors' Responsibilities
We confirm to the best of our knowledge that:
-- these Condensed Unaudited Interim Financial Statements have been prepared in accordance with International Accounting Standard 34;
-- the interim management report (comprising the Chairman's Statement and Portfolio Manager's Report) meets the requirements of an interim management report, and includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the period from 1 October 2017 to 31 March 2018 and their impact on the Unaudited Interim Financial Statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place during the period from 1 October 2017 to 31 March 2018 and that have materially affected the financial position or performance of the entity during that period.
This responsibility statement was approved by the Board of Directors on 29 May 2018 and is signed on its behalf by:
Frederic Hervouet
Non-executive Chairman
Date: 29 May 2018
Independent Review Report to the Members of Chenavari Toro Income Fund Limited
We have been engaged by the company to review the condensed set of financial statements in the interim financial report for the six months ended 31 March 2018 which comprises the Condensed Statement of Comprehensive Income, the Condensed Statement of Financial Position, the Condensed Statement of Changes in Equity, the Condensed Statement of Cash Flows and related notes 1 to 23. We have read the other information contained in the interim financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The interim financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 2, the annual financial statements of the Company are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this interim financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the interim financial report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the interim financial report for the six months ended 31 March 2018 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.
Deloitte LLP
Statutory Auditor
St Peter Port, Guernsey
29 May 2018
Condensed Unaudited Statement of Comprehensive Income
For the period ended 31 March 2018
1 October
1 October 2016
2017 to 31 to 31 March
March 2018 2017
Notes EUR EUR
Income
Net gain on financial assets and financial
liabilities held at fair value through
profit or loss 12 16,449,840 18,420,215
Interest income 315 11,044
Total net income 16,450,155 18,431,259
---------------------- -------------
Expenses
Management fees 4(c) 1,608,542 1,713,068
Performance fees 4(c) 2,097,873 2,847,909
Administration fees 5(b) 39,746 40,643
Sub-administration fees 5(c) 91,081 113,676
Custodian and brokerage fees 5(d) 17,886 18,290
Legal fees 44,371 23,660
Directors' fees 4(a) 68,136 69,674
Audit fees 46,560 47,611
AIFM fees 4(c) 37,475 38,321
Other operating expenses 339,734 171,831
Total operating expenses 4,391,404 5,084,683
---------------------- -------------
Finance costs
Interest expense 175,118 121,794
Profit for the period 11,883,633 13,224,782
====================== =============
Earnings per Share
Basic and diluted 9 3.66 cents 3.88 cents
All items in the above statement derive from continuing operations.
The Condensed Unaudited Schedule of Investments and notes to the financial statements on pages 20 to 45 are an integral part of the financial statements.
Condensed Unaudited Statement of Financial Position
As at 31 March 2018
30 September
31 March 2018 2017
Notes EUR EUR
Assets
Financial assets at fair value through
profit or loss 8,11 308,829,500 260,759,107
Due from broker 13 19,810,516 16,710,630
Other receivables and prepayments 14 49,423 50,302
Cash and cash equivalents 9,127,435 66,758,986
Total assets 337,816,874 344,279,025
-------------- -------------
Equity
Share capital and share premium 16 354,752,496 354,752,496
Treasury reserve (31,277,176) (31,277,176)
Retained earnings (125,158) 841,688
Total equity 323,350,162 324,317,008
-------------- -------------
Current liabilities
Financial liabilities at fair value
through profit or loss 8,11 9,656,894 10,113,545
Due to broker 13 - 4,185,556
Accrued expenses 15 4,809,818 5,662,916
Total liabilities 14,466,712 19,962,017
-------------- -------------
Total equity and liabilities 337,816,874 344,279,025
-------------- -------------
Shares outstanding 16 324,946,323 324,803,047
NAV per Share 10 99.51 cents 99.85 cents
__________________________ __________________________
Director: Director:
Date: 29 May 2018 Date: 29 May 2018
The Condensed Unaudited Schedule of Investments and notes to the financial statements on pages 20 to 45 are an integral part of the financial statements.
Condensed Unaudited Statement of Changes in Equity
For the period ended 31 March 2018
Share capital
Retained and share Treasury
earnings premium reserve Total
Note EUR EUR EUR EUR
At 30 September 2017 841,688 354,752,496 (31,277,176) 324,317,008
Profit for the period 11,883,633 - - 11,883,633
Transfer from treasury
reserve on settling
of performance fees 4(c) - - - -
Repurchase of shares - - - -
Distributions to
equity shareholders 18 (12,850,479) - - (12,850,479)
At 31 March 2018 (125,158) 354,752,496 (31,277,176) 323,350,162
============= ============== ============= =============
For the period ended 31 March 2017
Share capital
Retained and share Treasury
earnings premium reserve Total
Note EUR EUR EUR EUR
At 30 September 2016 (2,761,799) 354,752,496 - 351,990,697
Profit for the period 13,224,782 - - 13,224,782
Transfer from treasury
reserve on settling
of performance fees 4(c) - - 1,654,826 1,654,826
Repurchase of shares - - (25,399,262) (25,399,262)
Distributions to
equity shareholders 18 (8,810,096) - - (8,810,096)
At 31 March 2017 1,652,887 354,752,496 (23,744,436) 332,660,947
============ ============== ============= =============
The Condensed Unaudited Schedule of Investments and notes to the financial statements on pages 20 to 45 are an integral part of the financial statements.
Condensed Unaudited Statement of Cash Flows
For the period ended 31 March 2018
1 October
1 October 2016 to 31
2017 to 31 March
March 2018 2017
EUR EUR
Cash flows from operating activities
Profit for the period 11,883,633 13,224,782
Adjustments for non-cash items and
working capital:
Purchase of investments (95,881,156) (52,017,202)
Disposal and paydown of investments 58,134,356 62,171,199
Net gain on financial assets and derivatives
at fair value (10,780,244) (9,065,278)
Increase in amounts due from brokers (3,099,886) (2,600,967)
Decrease/(increase) in other receivables
and prepayments 879 (131,955)
Increase in amounts due to brokers (4,185,556) (2,923,541)
(Decrease)/increase in accrued expenses (853,098) 1,660,279
Net cash (outflow)/inflow from operating
activities (44,781,072) 10,317,317
------------- -------------
Cash flows from financing activities
Issue of Shares during the period - 1,654,826
Redemption of Shares during the period - (25,399,262)
Distributions to equity shareholders (12,850,479) (8,810,096)
Net cash outflow from financing activities (12,850,479) (32,554,532)
------------- -------------
Net decrease in cash and cash equivalents (57,631,551) (22,237,215)
Cash and cash equivalents at beginning
of the period 66,758,986 24,548,560
Cash and cash equivalents at end of
the period 9,127,435 2,311,345
============= =============
The Condensed Unaudited Schedule of Investments and notes to the financial statements on pages 20 to 45 are an integral part of the financial statements.
Condensed Unaudited Schedule of Investments, at Fair Value
As at 31 March 2018
Great
Europe France Germany Britain Ireland Italy Netherlands Portugal Spain U.S.A Other* Total NAV
EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR %
Financial assets
at fair value
through profit
or loss
Equity
securities
Hotels,
restaurants
& leisure - - - - - - 270,500 - - 2,000,954 - 2,271,454 0.70%
Equities
securities
total - - - - - - 270,500 - - 2,000,954 - 2,271,454 0.70%
-------------- ------------ ------------- ------------- ------------ ---------- -------------------- ------------- --------------- ------------ ------------- ------------------ -------
Debt securities
Arbitrage CDO - 297,832 - 990,531 151,238 - - - - - 1,124,844 2,564,445 0.79%
Commercial
mortgage-backed
security - 323,481 251,776 4,002,464 - - - - - - - 4,577,721 1.42%
Arbitrage CLO 16,288,408 10,164,596 9,110,480 4,089,404 465,011 465,040 4,319,993 16,766 1,818,701 8,701,448 10,288,541 65,728,388 20.33%
Residential
mortgage-backed
security - - 16,855 1,813,729 16,799,927 - - 1,566,029 - - 759,353 20,955,893 6.48%
Balance sheet
CLO - - - - - 4,080,951 - 3,090,000 3,437,508 - - 10,608,459 3.28%
Consumer ABS - - - 5,514,843 - - - - 948,000 - - 6,462,843 2.00%
Senior loan 1,659,054 - - - - - - - - - 2,057,578 3,716,632 1.15%
Whole loan - - - - - - - - - - 74,533 74,533 0.02%
Mezzanine loan - - - - 537,380 - - - - - - 537,380 0.17%
Non-performing
loan - - - - - - - - 24,157,123 - - 24,157,123 7.47%
Preferred equity 30,141,581 - - - - - - - - 19,668,239 - 49,809,820 15.40%
Equity - - - - - - - - - 115,504,320 115,504,320 35.72%
Debt securities
total 48,089,043 10,785,909 9,379,111 16,410,971 17,953,556 4,545,991 4,319,993 4,672,795 30,361,332 28,369,687 129,809,169 304,697,557 94.23%
-------------- ------------ ------------- ------------- ------------ ---------- -------------------- ------------- --------------- ------------ ------------- ------------------ -------
Derivative
financial
asset
CDS - - - - - - - - - - 1,787,466 1,787,466 0.55%
Listed options - - - - - - - - - - 73,023 73,023 0.03%
Derivative
financial
asset total - - - - - - - - - - 1,860,489 1,860,489 0.58%
-------------- ------------ ------------- ------------- ------------ ---------- -------------------- ------------- --------------- ------------ ------------- ------------------ -------
Financial assets
at fair value
through profit
or loss total 48,089,043 10,785,909 9,379,111 16,410,971 17,953,556 4,545,991 4,590,493 4,672,795 30,361,332 30,370,641 131,669,658 308,829,500 95.51%
-------------- ------------ ------------- ------------- ------------ ---------- -------------------- ------------- --------------- ------------ ------------- ------------------ -------
* Investment in the originator (Taurus) is presented in "Equity" and "Other" in the Condensed Unaudited Schedule of Investments.
Condensed Unaudited Schedule of Investments, at Fair Value (continued)
As at 31 March 2018
Great
Europe France Germany Britain Ireland Italy Netherlands Portugal Spain U.S.A Other Total NAV
----------- ----------- ---------- ----------- ----------- ---------- ------------- ----------- ----------- ----------- ------------ ------------- --------
EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR %
Financial
liabilities
at fair
value
through
profit
or loss
Derivative
financial
liabilities
CDS - - - - - - - - - - (9,511,542) (9,511,542) (2.94%)
Forward FX
contracts - - - - - - - - - - (145,352) (145,352) (0.05%)
----------- ----------- ---------- ----------- ----------- ---------- ------------- ----------- ----------- ----------- ------------ ------------- --------
Derivative
financial
liabilities
total - - - - - - - - - - (9,656,894) (9,656,894) (2.99%)
----------- ----------- ---------- ----------- ----------- ---------- ------------- ----------- ----------- ----------- ------------ ------------- --------
Financial
liabilities
at fair
value
through
profit
or loss
total - - - - - - - - - - (9,656,894) (9,656,894) (2.99%)
----------- ----------- ---------- ----------- ----------- ---------- ------------- ----------- ----------- ----------- ------------ ------------- --------
Total net
investments 48,089,043 10,785,909 9,379,111 16,410,971 17,953,556 4,545,991 4,590,493 4,672,795 30,361,332 30,370,641 122,012,764 299,172,606 92.52%
----------- ----------- ---------- ----------- ----------- ---------- ------------- ----------- ----------- ----------- ------------ ------------- --------
Other assets
and
liabilities 24,177,556 7.48%
------------- --------
Net assets 323,350,162 100.00%
------------- --------
* Investment in the originator (Taurus) is presented in "Equity" and "Other" in the Condensed Unaudited Schedule of Investments.
Condensed Unaudited Schedule of Investments, at Fair Value
As at 30 September 2017
Great
Europe France Germany Britain Ireland Italy Netherlands Portugal Spain U.S.A Other* Total NAV
EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR %
Financial assets
at fair value
through profit
or loss
Equity
securities
Hotels,
restaurants
& leisure - - - - - - 270,500 - - - 2,283,205 2,553,705 0.78%
---------- ---------- ----------- ----------- ----------- ---------- ------------ ----------- ----------- ---------- ------------ ------------ -------
Equities
securities
total - - - - - - 270,500 - - - 2,283,205 2,553,705 0.78%
---------- ---------- ----------- ----------- ----------- ---------- ------------ ----------- ----------- ---------- ------------ ------------ -------
Debt securities
Bond - - - - - - - 4,581,786 - - - 4,581,786 1.41%
Arbitrage CDO - 303,741 - 984,916 152,317 - 299,990 - - - 1,128,799 2,869,763 0.88%
Commercial
mortgage-backed
security - - 412,479 5,466,886 - - 340,221 - - - - 6,219,586 1.92%
Arbitrage CLO 306,025 3,765,483 5,487,067 2,700,838 615,658 683,971 3,362,041 2,202 1,105,571 5,987,419 12,659,626 36,675,901 11.31%
Residential
mortgage-backed
security - - 17,158 2,311,436 10,614,291 - - 2,597,613 4,199,557 - 759,002 20,499,057 6.32%
Balance sheet
CLO 9,000,000 - - - - 6,763,652 - 4,798,000 6,612,008 - - 27,173,660 8.38%
Consumer ABS - - 7,957,423 2,604,154 - - - - 840,000 - - 11,401,577 3.52%
Senior loan - - - - 1,659,054 - - - - - 2,263,857 3,922,911 1.21%
Whole loan - - - - - - - - - - 73,080 73,080 0.02%
Mezzanine loan - - - - 407,369 - - - - - - 407,369 0.13%
Non-performing
loan - - - - - - - - 24,157,123 - - 24,157,123 7.45%
Preferred equity - - - 15,434 - - - - 30,272,742 - 15,043,901 45,332,077 13.98%
Equity - - - - - - - - - - 73,486,380 73,486,380 22.66%
---------- ---------- ----------- ----------- ----------- ---------- ------------ ----------- ----------- ---------- ------------ ------------ -------
Debt securities
total 9,306,025 4,069,224 13,874,127 14,083,664 13,448,689 7,447,623 4,002,252 11,979,601 67,187,001 5,987,419 105,414,645 256,800,270 79.19%
---------- ---------- ----------- ----------- ----------- ---------- ------------ ----------- ----------- ---------- ------------ ------------ -------
Derivative
financial
asset
CDS - - - - - - - - - - 1,374,420 1,374,420 0.42%
Listed options - - - - - - - - - - 30,712 30,712 0.01%
---------- ---------- ----------- ----------- ----------- ---------- ------------ ----------- ----------- ---------- ------------ ------------ -------
Derivative
financial
asset total - - - - - - - - - - 1,405,132 1,405,132 0.43%
---------- ---------- ----------- ----------- ----------- ---------- ------------ ----------- ----------- ---------- ------------ ------------ -------
Financial assets
at fair value
through profit
or loss total 9,306,025 4,069,224 13,874,127 14,083,664 13,448,689 7,447,623 4,272,752 11,979,601 67,187,001 5,987,419 109,102,982 260,759,107 80.40%
---------- ---------- ----------- ----------- ----------- ---------- ------------ ----------- ----------- ---------- ------------ ------------ -------
* Investment in the originator (Taurus) is presented in "Equity" and "Other" in the Condensed Unaudited Schedule of Investments.
Condensed Unaudited Schedule of Investments, at Fair Value (continued)
As at 30 September 2017
Great
Europe France Germany Britain Ireland Italy Netherlands Portugal Spain U.S.A Other* Total NAV
------------- ---------- ---------- ----------- ----------- ----------- ---------- ------------ ----------- ----------- ---------- ----------- ------------ --------
EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR %
Financial
liabilities
at fair
value
through
profit
or loss
Derivative
financial
liabilities
CDS - - - - - - - - - - 9,334,547 9,334,547 2.88%
Forward FX
contracts - - - - - - - - - - 778,998 778,998 0.24%
Derivative
financial
liabilities
total - - - - - - - - - - 10,113,545 10,113,545 3.12%
---------- ---------- ----------- ----------- ----------- ---------- ------------ ----------- ----------- ---------- ----------- ------------ --------
Financial
liabilities
at fair
value
through
profit
or loss
total - - - - - - - - - - 10,113,545 10,113,545 3.12%
---------- ---------- ----------- ----------- ----------- ---------- ------------ ----------- ----------- ---------- ----------- ------------ --------
Total net
investments 9,306,025 4,069,224 13,874,127 14,083,664 13,448,689 7,447,623 4,272,752 11,979,601 67,187,001 5,987,419 98,989,437 250,645,562 77.28%
---------- ---------- ----------- ----------- ----------- ---------- ------------ ----------- ----------- ---------- ----------- ------------ --------
Other assets
and
liabilities 73,671,446 22.72%
------------ --------
Net assets 324,317,008 100.00%
------------ --------
* Investment in the originator (Taurus) is presented in "Equity" and "Other" in the Condensed Unaudited Schedule of Investments.
Notes to the Condensed Unaudited Financial Statements
1. General information
Background information on the Company's activities can be found in the Company's prospectus dated 23 April 2015 and the Company's latest Audited Annual Financial Statements, both of which are available on our website address at http://www.chenavaritoroincomefund.com/
2. Summary of significant accounting policies
The principal accounting policies applied in the preparation of these financial statements are set out below.
2.1 Basis of preparation
The Annual Financial Statements of the Company are prepared in accordance with IFRS as adopted by the European Union, the Disclosure and Transparency Rules of the Financial Conduct Authority and applicable legal and regulatory requirements of the Law. The condensed set of financial statements have been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting as adopted by the European Union".
The accounting policies adopted are consistent with those adopted in the 30 September 2017 financial statements.
2.2 Going concern
The Directors believe that it is appropriate to adopt the going concern basis in preparing the Financial Statements in view of its holding in cash and cash equivalents and investments as well as the income deriving from those investments, meaning the Company has adequate financial resources to meet its liabilities as they fall due.
3. Critical accounting judgements and key sources of estimation uncertainty
The preparation of the Company's Financial Statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and the accompanying disclosures. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.
3.1 Key sources of estimation uncertainty
Fair value of financial instruments
The assets held by the Company are mostly valued through a combination of dedicated price feeds from recognised valuation vendors, valuation techniques, and the application of relevant broker quotations where the broker is a recognised dealer in the respective position or derived from valuation models prepared by the Portfolio Manager.
The monthly NAV is derived from the Company's valuation policy. A documented valuation policy determines the hierarchy of prices to be applied to the fair value. Prices are sourced from third party broker or dealer quotes for the relevant security. Where no third party price is available, or where the Portfolio Manager determines that the third parties quote is not an accurate representation of the fair value, the Portfolio Manager will determine the valuation based on the valuation policy. This may include the use of a comparable arm's length transaction, reference to other securities that are substantially the same, discounted cash flow analysis and other valuation techniques commonly used by market participants making the maximum use of market inputs and relying as little as possible on entity-specific inputs.
Based on the hierarchy set out in IFRS 13, transactions are classified as Level 1 or 2 based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs.
The remaining transactions have been classified as Level 3 where broker quotes are unavailable or discounted, or cannot be substantiated by market transactions or where the prices used are derived from internal models. The Directors monitor the availability of observable inputs and if necessary, reclassify to level 3 where observable trading is not available.
Note 8 outlines the Level 3 classifications and the analysis of the impacts of Level 3 investments on the performance of the Company.
Notes to the Condensed Unaudited Financial Statements (continued)
3. Critical accounting judgements and key sources of estimation uncertainty (continued) 3.2 Critical judgements in applying accounting policies
Functional currency
The Board of Directors considers EUR (EUR) as the currency that most fairly represents the economic effect of the underlying transactions, events and conditions. The performance of the Company is measured and reported to the investors in EUR.
Valuation and classification of investments
The Board of Directors consider the valuation of investments and the classification of these investments in the fair value hierarchy as the critical judgements. The fair value of investments is described in 3.1 above and the judgements associated with the disclosures in the fair value hierarchy are described in Note 8.
Investment entity definition
Having considered the criteria set out in IFRS 10, the Directors have determined that both the Company and the Originator meet the definition of an investment entity.
Under the definition of an investment entity, as set out in paragraph 27 in the standard, the entity must satisfy all three of the following tests:
-- Obtains funds from one or more investors for the purpose of providing those investors with investment management services;
-- Commits to its investors that its business purpose is to invest funds solely for returns from capital
appreciation, investment income, or both (including having an exit strategy for investments); and
-- Measure and evaluate the performance of substantially all of its investments on a fair value basis.
4. Related parties (a) Directors' remuneration & expenses
The Directors of the Company are remunerated for their services at such a rate as the Directors determine. The fee for Mr. Hervouet as Non-executive Chairman is GBP50,000 per annum. The fee for Mr. Whittle as Chairman of the Audit Committee is GBP40,000 per annum. The fee for Mr. Silvotti is GBP30,000 per annum.
During the Period ended 31 March 2018, Directors fees of EUR68,136 (31 March 2017: EUR69,674) were charged to the Company, of which EUR2,417 (31 March 2017: EUR5,723 payable) was prepaid at the end of the Period.
(b) Shares held by related parties
As at 31 March 2018, the Directors held the following Shares in the Company.
Frederic Hervouet 114,000 John Whittle 37,091 Roberto Silvotti 954,692
Loic Fery is the representative of the managing partner of Chenavari Credit Partners LLP. Chenavari Credit Partners LLP acts as discretionary portfolio manager for Chenavari European Opportunistic Credit Master Fund LP (the "Managed Account").
Roberto Silvotti is a Director of Chenavari Investment Managers (Luxembourg) S.a.r.l (being a member of the Chenavari Financial Group) and Chenavari Multi Strategy Credit Fund SPC (a company under the management of Chenavari Investment Managers (Luxembourg) S.a.r.l). He forms part of the Concert Party, which includes Chenavari Credit Partners LLP and related Chenavari Group companies, relevant Chenavari Partners and employees and Chenavari European Opportunities Credit Master Fund LP. In total, this Concert Party holds approximately 48.79% of the shares of the Company and is therefore deemed to have a significant influence over the Company through these shareholdings.
Notes to the Condensed Unaudited Financial Statements (continued)
4. Related parties (continued) (c) AIFM and Portfolio Manager
The Company has appointed Carne Global AIFM Solutions (C.I.) Limited as the Company's external AIFM. The AIFM has delegated portfolio management to the Portfolio Manager. Under the terms of the AIFM Agreement, the AIFM is entitled to receive from the Company an annual fee, payable out of the assets of the Company, of GBP66,000. EUR37,475 (31 March 2017: EUR38,321) has been charged during the Period.
The AIFM and the Company have appointed the Portfolio Manager, Chenavari Credit Partners LLP, a member of the Chenavari Financial Group, as the external Portfolio Manager with delegated responsibility for portfolio management functions in accordance with the Company's investment objectives and policy, subject to the overall supervision and control of the Directors and the AIFM.
Under the terms of the Portfolio Management Agreement the Portfolio Manager is entitled to receive from the Company a portfolio management fee calculated and accrued monthly at a rate equivalent to one-twelfth of 1 per cent of the NAV per Share Class (before deducting the amount of that month's portfolio management fee and any accrued liability with respect to any performance fee).
Total portfolio management fees for the Period amounted to EUR1,608,542 (31 March 2017: EUR1,713,068) with EUR542,490 (30 September 2017: EUR547,465) in outstanding accrued fees due at the end of the Period.
The Portfolio Manager shall also be entitled to receive a performance fee in respect of each Class of Shares equal to 15 per cent of the total increase in the NAV per Share of the relevant Class at the end of the relevant Performance Period (as adjusted to, (i) add back the aggregate value of any dividends per Share paid to Shareholders since the end of the Performance Period in respect of which a performance fee was last paid in respect of that Class (or the date of First Admission, if no performance fee has been paid in respect of that Class) and, (ii) exclude any accrual for unpaid performance fees) over the highest previously recorded NAV per Share of the relevant Class as at the end of the relevant Performance Period in respect of which a performance fee was last paid (or the NAV per Share of the relevant class as at First Admission (after deduction of launch costs), if no performance fee has been paid in respect of that Class of Shares) multiplied by the number of issued and outstanding Shares of that Class at the end of the relevant Performance Period, having made adjustments for numbers of Shares of that Class issued or repurchased during the relevant Performance Period.
An amount of EUR116,406 was recharged (at cost) by the Portfolio Manager for the period from 1 October 2017 to 31 March 2018 to compensate for the marketing initiatives and time spent to increase the fund's profile and enhance the shares liquidity.
Performance Period
Subject to any regulatory limitations, the Portfolio Manager has agreed that for a given Performance Period (i.e., each twelve month period ending 30 September each year) any performance fee shall be satisfied as to a maximum of 60 per cent in cash and as to a minimum (save as set out below) of 40 per cent by the issuance of new Euro Shares (including the reissue of treasury shares) issued at the latest published NAV per Share. At no time shall the Portfolio Manager (and/or any persons deemed to be acting in concert with it for the purposes of the Takeover Code) be obliged, in the absence of a relevant Whitewash Resolution having been passed, to receive further Shares where to do so would trigger a requirement to make a mandatory offer pursuant to Rule 9 of the Takeover Code.
The issuance of further Shares to the Portfolio Manager will not take place without a Whitewash Resolution from Shareholders. Cash of EUR1,971,246 and 800,181 shares with a value of EUR788,498 were paid to the Portfolio Manager in the period in relation to the Performance Fee for the period ended 30 September 2016. Additionally 896,262 shares with a value of EUR866,328 were paid to the Portfolio Manager in the period in relation to the Performance Fee for the period ended 30 September 2015. Performance fees of EUR2,097,873 (31 March 2017: EUR2,847,909) were accrued in relation to the Period with EUR4,039,218 payable at 31 March 2018 (30 September 2017 EUR4,853,361).
Notes to the Condensed Unaudited Financial Statements (continued)
5. Material agreements
The Company has funded investments with a value of EUR99,944,394 (2017: EUR98,169,195) via hybrid instruments or equity issued by legally segregated compartments of AREO S.à.r.l. ("Areo"), a company incorporated in Luxembourg under the Securitization Law of 2004. Areo is majority owned by funds managed by the Chenavari group and is managed by a Board of Directors composed of a majority of independent directors that consider investment opportunities sourced by the Portfolio Manager. The Company is currently invested in eight compartments of Areo, and which it fair values in accordance with IFRS 13 as set out in the Company's accounting policies. The Portfolio Manager receives no fees from Areo. Areo is a conduit special purpose vehicle sponsored by a member of the Chenavari Financial Group, for the purposes of the Company's application of Listing Rule 11.
(a) Corporate broker
J.P. Morgan Cazenove, replaced Fidante Partners Europe Limited as Corporate Broker 12 March 2018. Their services are not based upon a retainer and will be charged accordingly for incremental costs.
(b) Administration fee
Estera Administration Limited (Guernsey) (the "Administrator") serves as the Company's administrator and secretary. The Administrator is entitled to an annual asset-based fee calculated at a rate of 0.017 per cent per annum of NAV and subject to a minimum fee of GBP70,000 per annum. All fees are payable quarterly in advance. Administration fees for the period amounted to EUR39,746 (31 March 2017: EUR40,643) of which EUR1,924 was prepaid (30 September 2017: EUR6,619 remained payable) at the end of the period.
(c) Sub-administration fee
The Administrator has appointed Quintillion Limited (the "Sub-Administrator") as the Company's Sub-Administrator. The Sub-Administrator is entitled to receive an annual asset-based fee from the Company of up to 0.073% per annum of NAV, excluding certain expenses. Sub-administration fees for the period amounted to EUR91,081 (31 March 2017: EUR113,676) of which EUR28,661 (30 September 2017: EUR16,277) remained payable at the end of the period.
(d) Custodian fee
J.P. Morgan Chase Bank N.A (the "Custodian") has been appointed to act as Custodian to the Company and to provide custodial, settlement and other associated services to the Company. Under the provisions of the custodian agreement dated 27 April 2015 the Custodian is entitled to a safekeeping and administration fee on each transaction calculated using a basis point fee charge based on the country of settlement and the value of the assets together with various other payment/wire charges on outgoing payments, subject to an aggregate minimum fee of EUR31,500 per annum.
(e) AIFM and Portfolio Manager
Contractual arrangements relating to the AIFM and Portfolio Manager are detailed in note 4.
6. Financial risk management
Throughout the investment process and following acquisition of an investment, the Portfolio Manager is proactive in identifying and seeking to mitigate transaction and portfolio risk.
The Portfolio Manager will be responsible for sourcing potential investments. The Portfolio Manager will not be required to, and generally will not, submit decisions concerning the discretionary or on-going management of the Company's assets for the approval of the Board, except where such approval relates to an application of the investment guidelines or a conflict of interest.
6.1 Credit risk
The Company takes on exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due. To the extent that the Portfolio is exposed to underlying concentrations in any one geographical region, borrower sector or credit or asset type, an economic downturn relating generally to such geographical region, borrower type or credit or asset type may result in an increase in underlying defaults or prepayments within a short time period.
Notes to the Condensed Unaudited Financial Statements (continued)
6. Financial risk management (continued)
6.1 Credit risk (continued)
The Portfolio is expected to carry leveraged exposure and an increase in credit losses with respect to any or all Collateral could reduce the Company's income (and thus the ability to pay dividends to Shareholders), the NAV and the value of the Shares.
None of the restrictions set out below shall apply to investments issued or guaranteed by the government of an OECD Member State.
In relation to investments made:
-- no more than 20% of NAV shall be exposed to the credit risk of any underlying single transaction or issue;
o As of 31 March 2018, the largest investment represents 7.47% of the NAV.
-- the top five exposures to any transactions or issues shall not, in aggregate, account for more than 50% of NAV;
o As of 31 March 2018, the top 5 investments represent 29.99% of the NAV.
-- no more than 50% of NAV, in aggregate, shall be invested in unlisted investments;
o As of 31 March 2018, 35.67% of the NAV is invested in unlisted investments.
Additionally, in each case, the restrictions set out above shall not apply to the Company's investment in Originators (the originator or sponsor of a CLO or a securitisation of a pools of consumer loan assets) but shall be applied on a look-through basis to the investments of such Originators; and
-- no more than 20% of NAV, in aggregate, shall be exposed to transactions or issues where the underlying collateral is non-European.
o As of 31 March 2018, less than 20% of the NAV is exposed to non-European underlying collateral as detailed in the geographical breakdown table overleaf.
The Company may use borrowings from time to time for the purpose of short term bridging, financing Share buy backs, repurchase agreements with market counterparties or managing working capital requirements, including hedging facilities.
-- The Company has set a borrowing limit such that the Company's gearing shall not exceed 130% at the time of incurrence and deployment of any borrowing.
o As of 31 March 2018, the gearing of the Company as at 31 March 2018 was 90%.
In addition, the Company may from time to time have surplus cash (for example, following the disposal of an acquired investment). Cash held by the Company pending investment or distribution will be held in either cash or cash equivalents, including but not limited to money market instruments or funds, bonds, commercial paper or other debt obligations with banks or other counterparties provided such bank or counterparty has an investment grade credit rating (as determined by any reputable rating agency selected by the Company on the advice of the Portfolio Manager).
Notes to the Condensed Unaudited Financial Statements (continued)
6. Financial risk management (continued)
6.1 Credit risk (continued)
The Company manages the portfolio with appropriate diversification in terms of sectors and geographical breakdowns. As of 31 March 2018 and 30 September 2017, the breakdown of the NAV per asset class and geography was as follows:
30 September
31 March 2018 2017
Asset class breakdown % NAV % NAV
Equity securities 0.72% 0.78%
Bond - 1.41%
Arbitrage CDO 0.79% 0.88%
Commercial mortgage-backed securities 1.42% 1.92%
Arbitrage CLO 20.32% 11.31%
Residential mortgage-backed securities 6.48% 6.32%
Balance sheet CLO 3.28% 8.38%
Consumer ABS 2.00% 3.52%
Senior loans 1.15% 1.21%
Whole loan 0.02% 0.02%
Mezzanine loan 0.17% 0.13%
Non-performing loan 7.47% 7.45%
Preferred equity 15.42% 13.98%
Equity 35.72% 22.66%
Cash, hedges and accruals 5.04% 20.03%
-------------- -------------
Total 100.00% 100.00%
-------------- -------------
30 September
31 March 2018 2017
Geographic breakdown % NAV % NAV
European Union 15.4% 5.36%
France 10.4% 4.42%
Germany 9.4% 8.69%
Great Britain 9.0% 6.39%
Ireland 7.1% 4.55%
Italy 1.6% 2.54%
Netherlands 4.1% 5.47%
Portugal 1.4% 3.69%
Spain 19.1% 20.88%
U.S.A 8.6% 6.01%
Other 10.4% 9.28%
Cash, collateral and accruals 3.5% 22.72%
-------------- -------------
Total 100.00% 100.00%
-------------- -------------
The Company is also exposed to counterparty credit risk on forwards, cash and cash equivalents, amounts due from brokers and other receivable balances, as shown in the following table:
Royal Bank Deutsche
31 March 2018 of Scotland Bank JP Morgan Barclays Total
S&P rating A-3 A-2 A-2 A-2
EUR EUR EUR EUR EUR
Cash and cash equivalents - - 9,127,435 - 9,127,435
Due from broker 763,796 2,806,660 15,213,106 1,026,954 19,810,516
CDS - - 1,787,466 - 1,787,466
Listed options - - 73,023 - 73,023
Total counterparty
exposure 763,796 2,806,660 26,201,030 1,026,954 30,798,440
------------- ---------- ----------- ---------- -----------
Net asset exposure
% 0.24% 0.87% 8.10% 0.32% 9.52%
Notes to the Condensed Unaudited Financial Statements (continued)
6. Financial risk management (continued)
6.1 Credit risk (continued)
Royal Bank Deutsche
30 September 2017 of Scotland Bank JP Morgan* Barclays Total
S&P rating A-3 A-2 A-2 A-2
EUR EUR EUR EUR EUR
Cash and cash equivalents - - 66,758,986 - 66,758,986
Due from broker 31,672 4,135,115 11,515,035 1,028,808 16,710,630
CDS - - 1,374,420 - 1,374,420
Listed options - - 30,712 - 30,712
Total counterparty
exposure 31,672 4,135,115 79,679,153 1,028,808 84,874,748
------------- ---------- ----------- ---------- -----------
Net asset exposure
% 0.01% 1.28% 24.57% 0.32% 26.17%
* JP Morgan cash and cash equivalents represents cash held in a custodian account.
Offsetting financial assets and financial liabilities
The Company enters into transactions with a number of counterparties whereby the resulting financial instrument is subject to an enforceable master netting arrangement or similar agreement, such as an ISDA Master Agreement (a "Master Netting Agreement"). Such Master Netting Agreements may allow for net settlement of certain open contracts where the Company and the respective counterparty both elect to settle on a net basis. In the absence of such an election, contracts will be settled on a gross basis. All Master Netting Agreements allow for net settlement at the option of the non-defaulting party in an event of default, such as failure to make payment when due or bankruptcy.
The below table presents the Company's financial assets and liabilities subject to offsetting, enforceable master netting agreements;
Assets
Related amount not offset in the Statement
As at 31 March 2018 of Financial Position
------------------------------------------------
Net amounts of
Gross amounts assets
offset in the presented in
Gross amounts Statement of the Statement
of recognised Financial of Financial Financial Cash collateral
Counterparty assets Position Position instruments received/pledged Net amount
--------------- ---------------- ---------------- --------------- ---------------- ----------------- -----------
EUR EUR EUR EUR EUR EUR
Derivative
CDS
JP Morgan 1,787,466 - 1,787,466 (1,787,466) - -
Listed option
JP Morgan 73,023 - 73,023 - (73,023) -
1,860,489 - 1,860,489 (1,787,466) (73,023) -
---------------- ---------------- --------------- ---------------- ----------------- -----------
Liabilities
Related amount not offset in the Statement
As at 31 March 2018 of Financial Position
------------------------------------------------
Net amounts of
Gross amounts liabilities
offset in the presented in
Gross amounts Statement of the Statement
of recognised Financial of Financial Financial Cash collateral
Counterparty liabilities Position Position instruments received/pledged Net amount
----------------- --------------- --------------- --------------- ---------------- ----------------- -----------
EUR EUR EUR EUR EUR EUR
Derivative
Contracts
CDS
Barclays (870,753) - (870,753) - 870,753 -
JP Morgan
ChasBank (8,640,790) - (8,640,790) 1,787,466 6,853,324 -
Forward FX
Contracts
Deutsche Bank (145,352) - (145,352) - 145,352 -
(9,656,895) - (9,656,895) 1,787,466 7,869,429 -
--------------- --------------- --------------- ---------------- ----------------- -----------
Notes to the Condensed Unaudited Financial Statements (continued)
6. Financial risk management (continued)
6.1 Credit risk (continued)
Offsetting financial assets and financial liabilities (continued)
The below table present the Company's financial asset and liabilities subject to offsetting, enforceable master netting agreements.
Assets
Related amount not offset in the Statement
As at 30 September 2017 of Financial Position
------------------------------------------------
Net amounts of
Gross amounts assets
offset in the presented in
Gross amounts Statement of the Statement
of recognised Financial of Financial Financial Cash collateral
Counterparty assets Position Position instruments received/pledged Net amount
--------------- ---------------- ---------------- --------------- ---------------- ----------------- -----------
EUR EUR EUR EUR EUR EUR
Derivative
CDS
JP Morgan 1,374,420 - 1,374,420 (1,374,420) - -
Listed option
JP Morgan 30,712 - 30,712 - - 30,712
---------------- ---------------- --------------- ---------------- ----------------- -----------
1,405,132 - 1,405,132 (1,374,420) - 30,712
---------------- ---------------- --------------- ---------------- ----------------- -----------
Liabilities
Related amount not offset in the Statement
As at 30 September 2017 of Financial Position
------------------------------------------------
Net amounts of
Gross amounts liabilities
offset in the presented in
Gross amounts Statement of the Statement
of recognised Financial of Financial Financial Cash collateral
Counterparty liabilities Position Position instruments received/pledged Net amount
----------------- --------------- --------------- --------------- ---------------- ----------------- -----------
EUR EUR EUR EUR EUR EUR
Derivative
Contracts
CDS
Barclays (842,858) - (842,858) - 842,858 -
JP Morgan
ChasBank (8,491,689) - (8,491,689) 1,374,420 7,117,270 -
Forward FX
contracts
Deutsche Bank (778,998) - (778,998) - 778,998 -
--------------- --------------- --------------- ---------------- ----------------- -----------
(10,113,545) - (10,113,545) 1,374,420 8,739,126 -
--------------- --------------- --------------- ---------------- ----------------- -----------
None of the financial assets and financial liabilities are offset in the statement of financial position, as the Master Netting Agreements create a right of set-off of recognised amounts that is enforceable only following an event of default, insolvency or bankruptcy of the Company or counterparties. In addition, the Company and its counterparties do not intend to settle on a net basis or to realise the assets and settle the liabilities simultaneously.
6.2 Foreign currency risk
Foreign currency risk is the risk of gain or loss resulting from exposure to movements on exchange rates on investments priced in currencies other than the base currency of the Company. The Company does not actively take risk in foreign currency, but incurs it as a normal course of business and employs a series of economic hedges to minimise these risks.
Notes to the Condensed Unaudited Financial Statements (continued)
6. Financial risk management (continued)
6.2 Foreign currency risk (continued)
The currency exposure as at 31 March 2018 is as follows:
NAV impact
for a
31 March 31 March +/-10%
Other net 2018 Total 2018 Total FX rate
Currency Investments FX hedges Cash assets/(liabilities) exposure exposure move
EUR EUR EUR EUR EUR % %
CHF - - 664 - 664 - -
GBP 11,331,036 (11,377,160) 97,388 (241,285) (189,998) (0.06%) (0.01%)
USD 23,801,328 (24,654,413) 307,598 245,982 (299,528) (0.09%) (0.01%)
------------ ------------- -------- ---------------------- ------------ ------------ -----------
35,132,364 (36,031,573) 405,650 4,697 (488,862) (0.15%) (0.02%)
------------ ------------- -------- ---------------------- ------------ ------------ -----------
The currency exposure as at 30 September 2017 is as follows:
NAV impact
for a
30 September 30 September +/-10%
Other net 2017 Total 2017 Total FX rate
Currency Investments FX hedges Cash liabilities exposure exposure move
EUR EUR EUR EUR EUR % %
CHF - - 687 - 687 - -
GBP 10,318,460 (23,762,818) 13,496,729 (175,430) (123,059) (0.04%) -
USD 19,744,445 (20,592,090) 864,310 (11,500) 5,165 0.00% -
------------ ------------- ----------- ------------- ------------- ------------- -----------
30,062,905 (44,354,908) 14,361,726 (186,930) (117,207) (0.04%) -
------------ ------------- ----------- ------------- ------------- ------------- -----------
6.3 Interest rate risk
Interest rate risk is the risk of gain or loss resulting from exposure to movements on interest rates. The Company does not actively take interest rate risk, but incurs it as a normal course of business and employs a series of hedges to minimise these risks. The Company only holds floating rate financial instruments which have little exposure to fair value interest rate risk as, when the short term interest rates increase, the interest on a floating rate note will increase. The value of asset backed securities may be affected by interest rate movements. Interest receivable on bank deposits or payable on bank overdraft positions will be affected by fluctuations on interest rates, however the underlying cash positions will not be affected.
The Company's continuing position in relation to interest rate risk is monitored by the Portfolio Manager.
Fixed rate Floating rate Non-interest
interest interest bearing
31 March 2018 EUR EUR EUR
Financial assets at fair value through profit or loss 69,635,550 237,192,996 2,000,954
Due from broker - 15,234,873 4,575,643
Other receivables and prepayments - - 49,423
Cash and cash equivalents - 9,127,435 -
Financial liabilities at fair value through profit or loss (7,776,404) (1,735,138) (145,352)
Accrued expenses - - (4,809,818)
61,859,146 259,820,166 1,670,850
------------ -------------- -------------
30 September 2017
Financial assets at fair value through profit or loss 57,124,659 201,320,532 2,313,916
Due from broker - 16,710,630 -
Other receivables and prepayments - - 50,302
Cash and cash equivalents - 66,758,986 -
Financial liabilities at fair value through profit or loss - (9,334,547) (778,998)
Due to broker - (566,131) (3,619,425)
Accrued expenses - - (5,662,916)
57,124,659 274,889,470 (7,697,121)
-------------- --------------- ---------------
Notes to the Condensed Unaudited Financial Statements (continued)
6. Financial risk management (continued)
6.4 Liquidity risk
A proportion of the Company's balance sheet is made up of assets and liabilities which may not be realisable as cash on demand. Under certain market circumstances already seen in the past, most of the portfolio which consists of Asset Backed Securities can become less liquid and the cost of unwinding may become significant. As a result an exposure to liquidity risk exists. This risk is mitigated by the closed-ended nature of the Company.
The table below analyses the Company's liabilities into relevant maturity groups based on the remaining period at the balance sheet date to the contractual maturity date.
Less than
3 Greater than
months 3 months Total
31 March 2018 EUR EUR EUR
Financial liabilities at fair
value through profit or loss - (9,656,894) (9,656,894)
Accrued expenses (4,763,557) (46,261) (4,809,818)
-------------
(4,763,557) (9,703,155) (14,466,712)
------------ ------------- -------------
30 September 2017
Financial liabilities at fair
value through profit or loss - (10,113,545) (10,113,545)
Due to broker (4,185,556) - (4,185,556)
Accrued expenses (5,617,843) (45,073) (5,662,916)
-------------
(9,803,399) (10,158,618) (19,962,017)
------------ ------------- -------------
The Company is all equity funded and has been established as a Registered Closed-ended Collective Investment Scheme. Other than in the circumstances and subject to the conditions set out in Part I of the prospectus, Shareholders will have no right to have their Shares redeemed or repurchased by the Company at any time. Shareholders wishing to realise their investment in the Company will normally therefore be required to dispose of their Shares through the secondary market.
6.5 Price risk
Market price risk arises mainly from uncertainty about future prices of financial instruments and credit ratings of debt issuers in which the Company invests. Market price risk represents the potential loss the Company may suffer through price movements on its investments.
The Company is exposed to market price risk arising from the investments in equity securities, debt and derivatives.
The Portfolio Manager manages the Company's price risk and monitors its overall market positions on a daily basis in accordance with the Company's investment objective and policies. The Company's overall market positions are monitored on a quarterly basis by the Board of Directors.
As at 31 March 2018, a 5% movement in prices (with all other variables held constant) would have resulted in a change to the total net assets of EUR14,958,630 (2017: EUR12,532,278).
7. The current risk profile of the AIF and the risk management systems employed by the AIFM to manage those risks
The AIFM has delegated the portfolio management of the Company to the Portfolio Manager whilst retaining responsibility for the risk management functions for the Company in accordance with the AIFMD. The AIFM's overall risk management process monitors the consistency between the risk profile of the Company and the investment objective, policies and strategy of the Company.
The day to day management of the Company's risk is undertaken by the Portfolio Manager Risk Officer who is functionally and hierarchically separate from portfolio management, and who has full access to risk management information. The risk management systems also include risk reporting, the monitoring of risk limits, and breach alert and actions. The Risk Officer reports to the Risk Committee of the AIFM. The Risk Committee has ultimate responsibility for risk management and controls of the AIF and for reviewing their effectiveness on a regular basis, including taking appropriate remedial action to correct any deficiencies. The Risk Committee has determined the current risk profile of the AIF to be low. The AIFM has also implemented a risk management policy to identify generic risk types and to continuously review the limits and parameters used within the risk management system.
Notes to the Condensed Unaudited Financial Statements (continued)
8. Fair value of financial instruments
The fair values of financial assets and liabilities traded in active markets (such as publicly traded derivatives and trading securities) are based on quoted market prices at the close of trading on the period end date. The Company has adopted IFRS 13, 'Fair value measurement' and this standard requires the Company to price its financial assets and liabilities using the price in the bid-ask spread that is most representative of fair value for both financial assets and financial liabilities. If a significant movement in fair value occurs subsequent to the close of trading up to midnight on the period end date, valuation techniques will be applied to determine the fair value. No such event occurred. An active market is a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an on-going basis.
For financial assets and liabilities not traded in active markets the fair value is determined by using broker quotations where the broker is a recognised dealer in the respective position, valuation techniques and various methods including the use of comparable recent arm's length transactions, reference to other instruments that are substantially same, discounted cash flow analysis, option pricing models, alternative price sources including a combination of dedicated price feeds from recognised valuation vendors and application of relevant broker quotations where the broker is a recognised market maker in the respective position.
For instruments for which there is no active market, the Company may also use internally developed models, which are usually based on valuation methods and techniques generally recognised as a standard within the industry. Some of the inputs to these models may not be market observable and are therefore based on assumptions.
The level of the fair value hierarchy of an instrument is determined considering the inputs that are significant to the entire measurement of such instrument and the level of the fair value hierarchy within those inputs are categorised.
The hierarchy is broken down into three levels based on the observability of inputs as follows:
Level 1: Quoted price (unadjusted) in an active market for an identical instrument.
Level 2: Valuation techniques based on observable inputs, either directly (i.e. as prices) or indirectly (i.e. derived from quoted prices). This category includes instruments valued using: quoted prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques for which all significant inputs are directly or indirectly observable from market data.
Level 3: Valuation techniques using significant unobservable inputs. This category includes all instruments for which the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument's valuation. This category includes instruments that are valued based on quoted prices for similar instruments for which significant unobservable adjustments or assumptions are required to reflect differences between the instruments.
The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability.
The determination of what constitutes 'observable' requires significant judgement by the Company. The Company considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.
Notes to the Condensed Unaudited Financial Statements (continued)
8. Fair value of financial instruments (continued)
The following tables show the Company's assets and liabilities at 31 March 2018 based on the hierarchy set out in IFRS 13:
Quoted prices
in active
markets Significant Significant
for identical other observable unobservable
assets inputs inputs
(Level 1) (Level 2) (Level 3) Total
2018 2018 2018 2018
Assets EUR EUR EUR EUR
Financial assets held for
trading
Equity securities
Europe: Equity - - 2,271,454 2,271,454
Debt securities
Europe: Corporate
& financials - - 1,560,000 1,560,000
Europe: Private
bond* - 115,504,320 - 115,504,320
Europe: ABS - 83,328,241 38,076,241 121,404,482
UK: ABS - 6,274,196 5,816,193 12,090,389
Europe: Money
market - 32,338,015 - 32,338,015
USA: Money market - 21,725,818 74,533 21,800,351
OTC derivatives
CDS 1,787,466 - 1,787,466
Listed options 73,023 - - 73,023
Total assets 73,023 260,958,056 47,798,421 308,829,500
--------------- ------------------ -------------- ------------
Liabilities
Financial liabilities held
for trading
OTC derivatives
CDS - (9,511,542) - (9,511,542)
Forward FX contracts - (145,352) - (145,352)
Total liabilities - (9,656,894) - (9,656,894)
------------ ------------
*This is the fair value of the subsidiary Taurus Corporate Financing LLP, as described in note 21. Taurus holds subordinated notes of TCLO 1, 2, 3 and 5 valued at EUR78m and other investments valued at EUR23.6m, other debt securities through its investment into TCF Loan Warehouse Designated Activity Company1, valued at EUR34.1m and other assets and liabilities of EUR(20.2)m.
Twenty Level 3 investments were held at the end of the Period.
Notes to the Condensed Unaudited Financial Statements (continued)
8. Fair value of financial instruments (continued)
The following table shows the Company's assets and liabilities at 30 September 2017 based on the hierarchy set out in IFRS 13:
Quoted prices
in active
markets for Significant Significant
identical other observable unobservable
assets inputs inputs
(Level 1) (Level 2) (Level 3) Total
2017 2017 2017 2017
Assets EUR EUR EUR EUR
Financial assets held for
trading
Equity securities
Europe: Equity 270,500 - - 270,500
Other: Equity - - 2,283,205 2,283,205
Debt securities
Europe: Corporate
& financials - 4,581,786 2,158,000 6,739,786
UK: Corporate
& financials - 1,153,343 - 1,153,343
Europe: Private
bond* - 73,486,380 - 73,486,380
Europe: ABS - 84,161,206 31,535,983 115,697,189
UK: ABS - 7,369,195 2,618,941 9,988,136
Europe: Money
market loan - 47,383,066 - 47,383,066
UK: Money market
loan - - 15,434 15,434
USA: Money market
loan - 2,263,856 73,080 2,336,936
OTC derivatives
CDS - 1,374,420 - 1,374,420
Listed options 30,712 - - 30,712
Total assets 301,212 221,773,252 38,684,643 260,759,107
-------------- ------------------ -------------- ------------
Liabilities
Financial liabilities held
for trading
OTC derivatives
CDS - 9,334,547 - 9,334,547
Forward FX contracts - 778,998 - 778,998
Total liabilities - 10,113,545 - 10,113,545
-------------- ------------------ -------------- ------------
*This is the fair value of the subsidiary Taurus Corporate Financing LLP, as described in note 20. Taurus holds subordinated notes of TCLO 2, 3 and 4 valued at EUR55.6m, other debt securities through its investment into TCF Loan Warehouse Designated Activity Company 1, valued of EUR29.9m and other assets and liabilities of (EUR12.0m).
Financial instruments that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within Level 2. Investments classified within Level 3 have significant unobservable inputs, as they trade infrequently.
Sixteen Level 3 investments were held at the end of the period.
Notes to the Condensed Unaudited Financial Statements (continued)
8. Fair value of financial instruments (continued)
Fair value Transfer Fair value
Product at 1 October to/(from) Unrealised at 31 March
type Transaction 2017 Level 2 Realised & FX Purchases Sales Redemptions 2018
ARB CDO 2 299,990 - 756,045 (99,174) - (956,944) - -
ARB CLO 16 24,157,122 - - - - - 24,157,122
BS CLO 18 690,008 (847,508) - 157,500 - - - -
BS CLO 19 2,640,000 - - (1,110,000) - - - 1,530,000
BS CLO 27 2,158,000 - - (598,000) - - - 1,560,000
CMBS 31 386,956 - (485,044) 268,799 - (170,711) - -
CMBS 32 3,071 - - (3,071) - - - -
RMBS 33 17,158 - - (303) - - - 16,855
ARB CLO 35 1,045,654 - 141,564 19,154 - (1,206,372) - -
ARB CLO 36 1,829,584 - 33,301 (469,039) - - (192,680) 1,201,166
CONS ABS 37 840,000 - - 108,000 - - - 948,000
ABS 41 13,396 - - (40) - - - 13,357
Blocked
cash
in AREO 42 15,434 - - (15,434) - - - -
EQUITY 43 2,283,205 - - (282,251) - - - 2,000,954
EQUITY 46 - 270,500 - - - - - 270,500
RMBS 44 2,231,985 - (167,172) (87,622) - (163,462) - 1,813,729
Whole
loan 45 73,080 - - (3,600) 5,053 - - 74,533
CMBS 47 - 41,194 - (4) - - - 41,190
CMBS 48 7,847 - - (16) - - - 7,831
CMBS 49 687,193 - 240,982 (209,146) - - (529,630) 189,399
CMBS 50 - - - 10,045 313,435 - - 323,480
ARB CLO 51 1,231,621 - - (4,597) - - - 1,227,024
CMBS 52 3,866,037 - - 75,570 - - - 3,941,607
CMBS 53 60,550 - - 307 - - - 60,857
RMBS 54 1,404,692 - - 81,586 - - - 1,486,278
RMBS 55 6,606,037 - - 328,502 - - - 6,934,539
ARB CDO 56 - - - - - - - -
ARB CDO 57 - - - - - - - -
CMBS 58 - - - - - - - -
----------------------------- ---------- ----------- ------------- ---------- ------------ ------------ -------------------------------
52,548,620 (535,814) 519,676 (1,832,834) 318,488 (2,497,489) (722,310) 47,798,421
----------------------------- ---------- ----------- ------------- ---------- ------------ ------------ -------------------------------
Notes to the Condensed Unaudited Financial Statements (continued)
8. Fair value of financial instruments (continued)
Fair value
at 1 Transfer Fair value
Product October to/(from) Unrealised at 30 September
type Transaction 2016 Level 2 Realised & FX Purchases Sales Redemptions 2017
ARB CDO 2 488,077 - (15,889) (190,487) - - 18,289 299,990
ARB CLO 9 1,128,000 - 2,732,006 839,994 - - (4,700,000) -
ARB CLO 10 1,092,000 - 272,966 183,226 - (1,548,192) - -
ARB CLO 13 1,642,339 - 134,156 103,395 - (1,879,890) - -
ARB CLO 16 28,046,479 - - (3,889,357) - - - 24,157,122
BS CLO 18 490,024 - 156,124 293,860 - (250,000) - 690,008
BS CLO 19 3,712,500 - - (1,282,500) 210,000 - - 2,640,000
CMBS 20 212,948 - - (212,948) - - - -
RMBS 24 17,000 - 17,000 25,500 - (59,500) - -
WHOLE
LOAN* 26 5,389,701 - (237,787) 563,072 540,746 (6,255,732) - -
BS CLO 27 3,692,000 - - (1,534,000) - - - 2,158,000
RMBS 28 197,796 - 42,850 10,872 - (241,429) (10,089) -
RMBS 29 1,951,883 - 365,733 (207,018) - (2,110,598) - -
RMBS 30 1,656,212 - 399,574 (55,786) - - (2,000,000) -
CMBS 31 1,053,472 - (217,187) 17,909 - (467,238) - 386,956
CMBS 32 1,190,078 - 873,104 271,381 - - (2,331,492) 3,071
RMBS 33 18,780 - - (1,622) - - - 17,158
RMBS 34 71,667 - 12,855 1,456 - (48,858) (37,120) -
ARB CLO 35 1,578,821 - 43,986 672,667 - (1,249,820) - 1,045,654
ARB CLO 36 1,806,476 - 27,861 232,397 - - (237,150) 1,829,584
CONS ABS 37 120,000 - - 720,000 - - - 840,000
RMBS 38 4,149,266 - 17,112 802,208 - (4,968,586) - -
ARB CLO 39 2,104,252 - 181,906 253,755 - (2,539,913) - -
ARB CLO 40 1,078,184 - 69,030 192,586 - (1,339,800) - -
ABS 41 - 24,811 - (11,415) - - - 13,396
Blocked
cash
in AREO 42 - 118,104 116,013 (102,670) - (116,013) - 15,434
EQUITY 43 - - - (3,899,088) 6,182,293 - - 2,283,205
RMBS 44 - - (318,670) (247,915) 3,123,332 (324,762) - 2,231,985
WHOLE
LOAN 45 - - (1,898) 74,978 - 73,080
----------- ---------- ----------- ------------- ------------------- -------------- ------------------------------- -----------------------------
62,887,955 142,915 4,672,743 (6,452,426) 10,131,349 (23,400,331) (9,297,562) 38,684,643
----------- ---------- ----------- ------------- ------------------- -------------- ------------------------------- -----------------------------
Notes to the Condensed Unaudited Financial Statements (continued)
8. Fair value of financial instruments (continued)
* Whole loan secured by real estate asset
Product type Description ARB CDO Arbitrage CDO ARB CLO Arbitrage CLO BS CLO Balance sheet CLO CMBS Commercial mortgage-backed security CONS ABS Consumer asset-backed security RMBS Residential mortgage-backed security
As of 31 March 2018, twenty (30 September 2017: sixteen) investments were categorised within Level 3 of the fair value hierarchy, representing 14.78% (30 September 2016: 18.62%) of the NAV.
The below sensitivity analysis presents an approximation of the potential effects of events that could have occurred as at the reporting date, and mostly based on the Portfolio Manager's stress case of 1.5x and 2xCDR ("Constant Default Rate") per product type expressed as a percentage of the NAV, this analysis excludes transactions 26, 42 and 44. An analysis of which is stated below.
1.5xCDR 2xCDR
ARB CDO 0.00% 0.00%
ARB CLO -0.05% -0.10%
BS CLO -0.02% -0.05%
CMBS -0.10% -0.10%
CONS ABS -0.01% -0.01%
RMBS -0.13% -0.24%
In addition to the CDR sensitivities above, some transactions are sensitive to specific parameters:
ARB CLO - generally vulnerable to increase in default rate and loss severity of leveraged loans (primarily large cap corporates); though due to structural features, some tranches may benefit from moderate increase in defaults. The default rate and loss severity themselves are affected by the state of global and regional economies and capital markets.
BS CLO - generally vulnerable to increase in default rate and loss severity of bank loans to SMEs. The default rate and loss severity themselves are affected by interest rates and the state of local economy in particular growth.
CMBS - most of the pre-2008 deals consist of defaulted assets and have high asset concentration. This makes the deals sensitive to recovery rates (market value of commercial real estate) and ability of borrowers to refinance.
CONS ABS - generally sensitive to default rate and loss severity of consumers. The default rate and loss severity themselves are affected by the state of local economy in particular unemployment.
RMBS - generally sensitive to default rate and loss severity of owner occupied and buy-to-let real estate. The default rate and loss severity themselves are affected by interest rates and the state of local economy in particular unemployment.
However, since most valuations were based upon prices received from banks or other market participants, the sensitivity analyses produced are not necessarily based upon the assumptions used by such banks/market participants as these are not made available to the Company.
Transaction 16
The portfolio of NPL was stressed by reducing the collections on the position by 6.25% and 12.50%, the impact to the NAV in each scenario was a reduction of 0.46% and 0.93% respectively.
Transaction 43
This transaction is a complex situation with a binary sensitivity to an ongoing legal dispute. In the adverse scenario, the impact to the Company's NAV is a reduction of 0.73%.
Notes to the Condensed Unaudited Financial Statements (continued)
8. Fair value of financial instruments (continued)
Transaction 44
This portfolio of auto loans was stressed under 8% and 10% default rates, the impact to the NAV in each scenario was a reduction of 0.01% and 0.02% respectively.
9. Earnings per Share - basic & diluted
The earnings per Share - basic and diluted of 3.66 cents (31 March 2017: 3.88 cents) has been calculated based on the weighted average number of Shares 324,831,919 (31 March 2017: 340,853,557) and a net profit of EUR11,883,633 (31 March 2017: EUR13,224,782) over the Period. There were no dilutive elements to shares issued or repurchased during the Period.
10. NAV per Share
The NAV per Share of 99.51 cents (2017: 99.85 cents) is determined by dividing the net assets of the Company attributed to the Shares of EUR323,350,162 (2017: EUR324,317,008) by the number of Shares in issue at 31 March 2018 of 324,946,323 (2017: 324,803,047).
11. Financial assets and financial liabilities at fair value through profit or loss
31 March 30 September
2018 2017
EUR EUR
Financial assets at fair value through
profit or loss :
Held for trading:
- Debt securities 36,341,031 29,818,856
- ABS 98,713,840 103,759,597
- Equity securities 2,271,454 2,553,705
- Investment in Taurus Corporate Financing
LLP 115,504,320 73,486,380
- Listed options 73,023 30,712
- Money market loan 54,138,366 49,735,437
- CDS 1,787,466 1,374,420
Total financial assets at fair value
through profit or loss 308,829,500 260,759,107
------------ -------------
Financial liabilities at fair value through
profit or loss:
Held for trading:
- CDS (9,511,542) (9,334,547)
- Forward FX contracts (145,352) -
- Repurchase agreement - (778,998)
Total financial liabilities at fair value
through profit or loss (9,656,894) (10,113,545)
------------ -------------
Notes to the Condensed Unaudited Financial Statements (continued)
12. Net gain/(loss) on financial assets and financial liabilities held at fair value through profit or loss
31 March
2018 31 March 2017
EUR EUR
Net gain/(loss) on financial assets and liabilities
at fair value through profit or loss held for
trading
- Debt securities 2,661,387 2,714,854
- ABS 4,913,505 15,525,069
- Sovereign bonds - 25,315
- Equity securities (56,173) 145,172
- Investment in Taurus Corporate Financing LLP 8,017,940 1,119,155
- Listed options (717,055) (73,605)
- Money market loan 3,222,934 1,142,601
- CDS (1,165,436) (2,044,976)
- Futures 45,446 -
- Repurchase agreements - (12,719)
------------- --------------
Net gain on financial assets and liabilities
at fair value through profit or loss held for
trading 16,922,548 18,540,866
------------- --------------
Net gain/(loss) on foreign exchange and forward
contracts
Realised (loss)/gain on forward contracts (365,825) 146,682
Unrealised gain/(loss) on forward contracts 633,646 (1,470,006)
Realised loss on foreign exchange (352,993) (373,250)
Unrealised (loss)/gain on foreign exchange (387,536) 1,575,923
------------- --------------
Net loss on foreign exchange and forward contracts (472,708) (120,651)
------------- --------------
Net gain on financial assets and liabilities
at fair value through profit or loss, foreign
exchange and forward contracts 16,449,840 18,420,215
------------- --------------
13. Due from and to brokers
31 March 30 September
2018 2017
Due from EUR EUR
Collateral and funding cash 19,801,027 16,710,630
Receivables for securities sold 9,489 -
19,810,516 16,710,630
----------- -------------
Due to
Collateral and funding cash - 566,131
Payable for securities purchased - 3,619,425
- 4,185,556
---- ----------
14. Other receivables and prepayments
31 March 30 September
2018 2017
EUR EUR
Prepayments 38,169 6,899
Interest receivable 11,254 43,403
49,423 50,302
--------- -------------
Notes to the Condensed Unaudited Financial Statements (continued)
15. Accrued expenses
31 March 30 September
2018 2017
EUR EUR
Management fee (542,490) (547,465)
Performance fee (4,039,218) (4,853,361)
Administration fee - (6,619)
Audit fee (46,261) (45,073)
Corporate brokering fee - (35,465)
Sub-administration fee (28,661) (16,277)
Custodian fee (10,533) (10,533)
Other fees (142,655) (148,123)
(4,809,818) (5,662,916)
------------ -------------
16. Share capital
The authorised share capital of the Company consists of an unlimited number of unclassified shares of no par value. The unclassified shares may be issued as, (a) Shares in such currencies as the Directors may determine; (b) C Shares in such currencies as the Directors may determine; and (c) such other classes of shares in such currencies as the Directors may determine in accordance with the Articles and the Law. Shares will be redeemable at the option of the Company and not Shareholders.
The rights attaching to the Shares are the same as those presented in the Company's latest audited annual financial statements, a copy of which can be found on our website at http://www.chenavaritoroincomefund.com/
Movements in share capital
Shares held in
Shares outstanding treasury Total
As at 30 September 2017 324,803,047 36,646,953 361,450,000
Performance fee shares
issued 143,276 (143,271) -
As at 31 March 2018 324,946,323 36,503,672 361,450,000
Capital management
The Company's objectives when managing capital are to safeguard the Company's ability to continue as a going concern to provide returns to shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
To maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets. There are currently no external capital requirements.
17. Segmental reporting
The Board is responsible for reviewing the Company's entire portfolio and considers the business to have a single operating segment. The Board's asset allocation decisions are based on a single, integrated investment strategy of investing in ABS and other structured credit investments in liquid markets and the Company's performance is evaluated on an overall basis.
The Company invests in a diversified portfolio. The fair value of the major financial instruments held by the Company and the equivalent percentages of the total value of the Company are reported in the Condensed Schedule of Investments.
Notes to the Condensed Unaudited Financial Statements (continued)
18. Dividend policy
Subject to compliance with the Companies (Guernsey) Law, 2008 (as amended) and the satisfaction of the solvency test, the Company intends to distribute income by way of dividends in line with the prospectus on a quarterly basis with dividends declared in October, January, April and July each year and paid in March, June, September and December. The Company declared a dividend of 2 cents per Share in April 2018 (April 2017: 1.5 cents per Share) for the Period from 1 January 2018 to 31 March 2018. The dividend was paid on 5 June 2018.
Under the Companies (Guernsey) Law, 2008 (as amended), companies can pay dividends in excess of accounting profit provided they satisfy the solvency test prescribed by the Companies Law. The solvency test considers whether a company is able to pay its debts when they fall due, and whether the value of a company's assets is greater than its liabilities.
19. Derivative financial instruments
The Company holds the following derivative instruments:
CDS
These are derivative contracts referencing an underlying credit exposure, which can either be a single credit issuer or a portfolio of credit issuers. The Company pays or receives an interest flow in return for the counterparty accepting or selling all or part of the risk of default or failure to pay of a reference entity on which the swap is written. Where the Company has bought protection, the maximum potential payout is the value of the interest flows the Company is contracted to pay until the maturity of the contract.
For short CDS positions, where the Company has sold protection, the maximum potential payout in the event of a default of the underlying instrument is the nominal value of the protection sold.
The market for CDS may from time to time be less liquid than debt securities markets. Due to the lower amount of cash required to hold a position in the CDS versus cash bond markets, the opposite has shown to be true during times of market illiquidity. In relation to CDS where the Company sells protection the Company is subject to the risk of a credit event occurring in relation to the reference issuer. Furthermore, in relation to CDS where the Company buys protection, the Company is subject to the risk of the counterparty of the CDS defaulting.
Listed options (equity options)
A listed option is a derivative financial instrument that establishes a contract between two parties concerning the buying or selling of an asset at a reference price during a specified time frame. During this time frame, the buyer of the option gains the right, but not the obligation, to engage in some specific transaction on the asset, while the seller incurs the obligation to fulfil the transaction if so requested by the buyer.
Forward FX contracts
Forward FX contracts entered into by the Company represent a firm commitment to buy or sell an underlying currency at a specified value and point in time based upon an agreed or contracted quantity. The realised/unrealised gain or loss is equal to the difference between the value of the contract at trade date and the value of the contract at settlement date/period-end date, and is included in the Condensed Statement of Comprehensive Income.
Notes to the Condensed Unaudited Financial Statements (continued)
19. Derivative financial instruments (continued)
Forward FX contracts (continued)
The following table shows the Company's derivative position as at 31 March 2018:
Financial assets Financial liabilities
at fair value at fair value Notional amount Maturity
EUR EUR EUR
CDS buy protection 185,879 - 300,000,000 18 April 2018
20 December
CDS buy protection - (864,385) 10,000,000 2020
20 December
CDS buy protection - (1,424,572) 12,500,000 2021
CDS buy protection - (870,753) 10,000,000 20 June 2022
20 December
CDS buy protection 1,436,121 (6,186,367) 43,000,000 2022
20 December
CDS buy protection 165,466 (165,466) - 2027
Listed options 73,023 - 73,023 15 June 2018
Forward FX contracts
GBP sell - (83,072) (11,294,088) 15 June 2018
USD sell - (62,280) (24,592,133) 15 June 2018
- - 35,886,221 15 June 2018
1,860,489 (9,656,895) 375,573,023
----------------- ---------------------- ----------------
The following table shows the Company's derivative position as at 30 September 2017:
Financial
assets Financial liabilities Notional
at fair value at fair value amount Maturity
EUR EUR EUR
20 December
CDS buy protection - (1,647,772) 16,000,000 2020
20 December
CDS buy protection - (2,219,909) 17,500,000 2021
CDS buy protection 1,015,555 (1,964,353) 15,300,000 20 June 2022
20 December
CDS buy protection - (3,502,513) 29,500,000 2022
CDS buy protection 358,865 - (43,000,000) 20 June 2027
24 November
Listed options 29,760 - 29,760 2017
19 January
Listed options 952 - 952 2018
Forward FX contracts
16 January
GBP sell - (491,207) (23,271,612) 2018
16 January
USD sell - (287,791) (20,304,299) 2018
16 January
EUR buy - - 43,575,911 2018
--------------- ---------------------- -------------
1,405,132 (10,113,545) 35,330,712
--------------- ---------------------- -------------
20. Securities sold under agreements to repurchase and securities purchased under agreements to resell
Securities sold under agreements to repurchase ("repurchase agreements") and securities purchased under agreements to resell ("reverse repurchase agreements") are treated as collateralised financing transactions. The financing is carried at the amount at which the securities were sold or acquired plus accrued interest, which approximates fair value. It is the Company's policy to deliver securities sold under agreements to repurchase and to take possession of securities purchased under agreements to resell.
As of 31 March 2018, there are no repurchase agreements in place (at 31 March 2017: none).
Notes to the Condensed Unaudited Financial Statements (continued)
21. Interests in other entities
List of subsidiaries
Taurus Corporate Financing LLP (the "Originator") meets the definition of a subsidiary in accordance with IFRS 10. The Originator is a fully owned subsidiary of the Company and is measured at fair value through profit or loss. The Originator carrying value per the financial statements is shown below:
Carrying value
EUR
Taurus Corporate Financing
LLP 115,504,320
The Board determined that the Originator meets the definition of an investment entity as set out under IFRS 10 and that therefore the Originator should measure its investments in TCF Loan Warehouse 1 Designated Activity Company and TCF Loan Warehouse 3 Designated Activity Company (the "Warehouses") at fair value rather than consolidate their results. The Warehouses are fully owned subsidiaries of the Originator and were measured at fair value through profit or loss.
In accordance with IFRS 12 paragraph 19, the Company is also required to disclose the following information:
(i) Name; Taurus Corporate Financing LLP (ii) Place of business;
Old Bank Chambers
La Grande Rue
St Martin's
Guernsey
GY4 6RT
(iii) Ownership interests held; 100%
The Company is also required to disclose the following additional information for unconsolidated subsidiaries of a subsidiary which is an investment entity:
TCF Loan Warehouse 1 Designated TCF Loan Warehouse 3 Designated
Name: Activity Company Activity Company
Place of Business: 3rd Floor, 3rd Floor
Kilmore House, Kilmore House
Park Lane, Park Lane
Spencer Dock, Spencer Dock
Dublin 1, Dublin 1
Ireland Ireland
Ownership interests
held: 100% 100%
22. Significant events during the Period and post Condensed Unaudited Statement of Financial Position events
J.P. Morgan Cazenove appointed as corporate broker to Chenavari Toro Income Fund Limited replacing Fidante Partners Europe Limited.
The Company changed its name on 15 November 2017 to Chenavari Toro Income Fund Limited.
Dividends of 4 cents per Share were paid in respect of each period, with 2 cents per Share related to the quarter to 30 September 2017 and 2 cents per Share related to the quarter to 31 December 2017. On 20 April 2018 the Company announced a further dividend payment of 2 cents per Share for the quarter to 31 March 2018 to be paid 6 June 2018.
23. Approval of the financial statements
The financial statements were approved for issue to shareholders by the Directors on 29 May 2018.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
IR BBGDUIUXBGIG
(END) Dow Jones Newswires
May 30, 2018 08:30 ET (12:30 GMT)
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