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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Uk Mortgages Limited | LSE:UKML | London | Ordinary Share | GG00BXDZMK63 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 78.90 | 78.20 | 79.60 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
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TIDMUKML
UK Mortgages Limited
INTERIM MANAGEMENT REPORT AND UNAUDITED CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
For the period from 1 July 2017 to 31 December 2017
Legal Entity Identifier: 549300388LT7VTHCIT59
(Classified Regulated Information, under DTR 6 Annex 1 section 1.2)
The Company has today, in accordance with DTR 6.3.5, released its Interim
Management Report and Unaudited Condensed Financial Statements for the period
ended 31 December 2017. The Report will shortly be available via the
Company's Portfolio Manager's website www.ukmortgageslimited.com and will
shortly be available for inspection online at www.morningstar.co.uk/uk/NSM
website.
SUMMARY INFORMATION
The Company
UK Mortgages Limited ("UKML") was incorporated with limited liability in
Guernsey, as a closed-ended investment company on 10 June 2015. The Company's
shares were admitted to trading on the Specialist Fund Segment of the London
Stock Exchange on 7 July 2015.
UKML and the affiliate structure has been designed by the Board of Directors,
the Portfolio Manager, the Corporate Broker and legal advisors to ensure the
most efficient structure for regulatory and tax purposes.
UKML established an Acquiring Entity, UK Mortgages Corporate Funding Designated
Activity Company ("DAC") for the purpose of acquiring and securitising
mortgages via Special Purpose Vehicles ("SPVs"). UKML, the Acquiring Entity,
the Issuer SPV and the Warehouse SPVs (collectively, the "Company") are treated
on a consolidated basis for the purpose of the Interim Condensed Financial
Statements.
Investment Objective
The Company's investment objective is to provide Shareholders with access to
stable income returns through the application of relatively conservative levels
of leverage to portfolios of UK mortgages. In accordance with the Listing
Rules, the Company can only make a material change to its investment policy
with the approval of its Shareholders by Ordinary Resolution.
The Company expects that income will constitute the vast majority of the return
to Shareholders and that the return to Shareholders will have relatively low
volatility and demonstrate a low level of correlation with broader markets.
Shareholders' Information
Maitland Institutional Services Limited ("Maitland") is responsible for
calculating the NAV per share of the Company. Maitland has delegated this
responsibility to Northern Trust International Fund Administration Services
(Guernsey) Limited (the "Administrator") however Maitland still performs an
oversight function. The unaudited NAV per Ordinary Share is calculated as at
the last business day of every month by the Administrator and is announced
through a Regulatory Information Service on, or within 2 weeks following, the
last business day of the following month.
Financial Highlights
For the period For the For the period
from 01.07.2017 year ended from 01.07.2016
to 31.12.2017 30.06.2017 to 31.12.2016
Total Net Assets at period/ GBP218,489,263 GBP223,388,138 GBP229,246,078
year end
Net Asset Value per ordinary share at 87.39p 89.36p 91.70p
period/year end
Share price at period/year 90.10p 96.40p 95.25p
end
Premium to Net Asset Value at period/year 3.09% 7.88% 3.87%
end
Dividends declared and paid in the period/ 3.00p 4.50p 3.00p
year
Total dividends declared in relation to the 3.00p 6.00p 3.00p
period/year
Ongoing Charges
- 0.92% 1.07% 1.06%
UKML
- DAC and subsidiaries 1.24% 1.11% 0.59%
Total ongoing charges for the Company 2.16% 2.18% 1.65%
CHAIRMAN'S STATEMENT
for the period from 1 July 2017 to 31 December 2017
I am pleased to present the results of the Company for the period from 1 July
2017 to 31 December 2017, which has seen encouraging progress from the three
components of UKML's portfolio, all of which are performing in line with, or
beyond expectations. The success of the Company over the long-term will be
correlated with its underlying loan performance, therefore this solid
foundation is encouraging.
Malt Hill No. 1, the oldest of the Company's mortgage portfolios was bought
from the Coventry Building Society in 2015 and continues to demonstrate
exemplary performance. The portfolio currently consists of 1,301 loans and
1,256 accounts and, remarkably, at the end of December none were greater than
one month in arrears. Following the end of the initial 2 year fixed rate
period, 904 loans either refinanced with Coventry to a new rate or reverted to
the SVR, whilst 345 loans prepaid but returns from the residual portfolio
remain in-line with the Portfolio Manager's expectations and we would
anticipate a further boost to returns when this portfolio is refinanced next
year.
UKML's second investment was Cornhill Mortgages No. 2, which finances the
origination of loans for The Mortgage Lender ("TML"). After an understandably
slow start for this new mortgage lender, TML's loan book has grown steadily to
GBP115 million at the end of December, with a further GBP35 million in its pipeline
for completion. TML operates in a very competitive market and the Portfolio
Manager has spent a great deal of time with TML refining the product mix and
its pricing. Nevertheless, it is pleasing to report that to date the
performance of these assets has also been strong, with only one loan in arrears
at the period end. As TML's portfolio grows beyond GBP150m, the next step is to
prepare for its securitisation and the Portfolio Manager is currently exploring
the options for a transaction later this year.
Oat Hill No.1 is the Company's most recent investment and is a mature portfolio
of 4,697 loans, mostly originated in the 2004 to 2008 period. This was
successfully securitised in May 2017, just before the start of the period under
review and its performance continues to meet our expectations; specifically the
realised losses of GBP331,121 in the period are within the Portfolio Manager's
model numbers. The headline percentage of loans in arrears at 0.42% may appear
relatively high. However, this percentage relates to the gross amount of any
mortgage that has had any arrears marked against it over time. For example, a GBP
200,000 mortgage might have seen one missed payment of a few hundred pounds,
which would most likely be added back at the end of the mortgage term. Yet the
methodology means that this results in the full GBP200,000 being classified as
"in arrears". A closer inspection of the figures reveals that the actual
arrears balances are very small at an average of GBP882. The maturity of the
portfolio gives our investors a higher level of asset coverage which further
reduces the likelihood of future credit losses.
Outlook
The strong performance of the Company's investments, with arrears well below
the levels initially modelled by the Portfolio Manager, provides a solid
foundation for future returns. These returns are also dependent upon further
securitisations, although a feature of securitisations is that the more
attractive the financing terms, the greater the amounts of cash that is
released back to UKML in the process. This was the case with the Oat Hill
transaction last May, which generated approximately GBP40m of capital release.
The priority for the Portfolio Manager remains to reinvest this cash and there
has been a considerable amount of work on potential purchases in the period,
some of which were ultimately declined as being unsuitable or overvalued and
others where bids were unsuccessful. In those examples, our view is that the
bidders' assessment of the target portfolios was too aggressive, or that there
was a willingness to assume higher levels of gearing than UKML is comfortable
with. It is important to emphasise that the board and Portfolio Manager are
unwilling to compromise on credit quality simply to invest in a hurry. The
exceptional credit performance of the portfolio to date is something we wish to
see continue.
To that end it is encouraging to note that there are potential projects in
discussion that will meet UKML's investment criteria and further details will
be made available when negotiations have passed any commercially sensitive
hurdles.
The start of calendar year 2018 marked the introduction of a new version of
IFRS 9, an accounting standard that is intended to give investors greater
clarity over potential future losses from credit risk. The standard is
mandatory for new financial reporting years that start in 2018 so we will
publish our Net Asset Value ("NAV") and financial statements in accordance with
this standard with effect from 1 July 2018, when our new financial year begins.
As many of our peers in the London Stock Exchange ("LSE") listed Investment
Company sector have financial years that start on 1 January 2018, they have
commenced reporting under the standard already. To enable our investors to get
greater clarity on the impact of this standard, we have published in our
January fact sheet an unaudited estimate of the credit impairment provision
that the standard will require us to deduct from our NAV. The estimated impact
of adopting IFRS 9 is expected to be less than 0.5% of the Company's NAV.
Dividend
The regular dividend remains uncovered, although as the more detailed analysis
later in this report shows, this will increasingly be covered by current year
income, especially as the TML portfolio moves towards securitisation. Cash flow
has also improved following the reduction in investment management fees in this
financial year. However, it is worth repeating that an uncovered dividend is
not something the Board takes lightly and it continues to be paid solely on the
basis of the regular modelling of cash flows by the Portfolio Manager which are
periodically updated and published on our website. These indicate that the
profile of 'back-loaded' cash flows remains intact and with it the expectation
of long term returns with a very low correlation to traditional financial
assets.
Thank you for your continuing support.
Christopher Waldron
Chairman
20 March 2018
PORTFOLIO MANAGER'S REPORT
for the period from 1 July 2017 to 31 December 2017
Market Commentary
Central bank policy changes, political uncertainty and technical drivers were
the major influences on macro market behaviour through the second half of 2017.
The unwinding of QE, and the pace of interest rate normalisation were at the
heart of central bank activity globally. Overall, the US saw three interest
rate rises in 2017, broadly in line with expectations, and US Treasury yields
began to rise steadily from the end of the summer and beyond into 2018, as the
Fed announced the beginning of its balance sheet reduction programme.
Meanwhile, President Trump finally saw the Senate pass his tax reform package,
despite a turbulent summer punctuated by ongoing friction between him and both
US political parties, sparring with the press and in-fighting within his own
cabinet and staff, along with concerns that the escalating war of words and
inflammatory actions between the US and North Korea would develop into a far
worse reality. The passing of the tax reforms did give the current credit cycle
an additional boost, but added volatility to Treasury yields as markets
interpreted the reforms as having the potential to cause rising inflation.
In Europe, yields were more volatile, as despite Draghi's talk of "reflationary
dynamics slowly taking hold" and a EUR30bn per month tapering of asset purchases,
a dovish extension to the programme until at least September 2018 and
confirmation that Euro interest rates will not rise at least until QE has
ended, kept markets guessing. The weakened position of Angela Merkel's party in
the German elections and uncertainty on the formation of a future government,
along with fears of unrest in Spain following the "illegal" Catalonian
independence referendum also contributed to yield volatility throughout the
period.
In the UK, sentiment also turned quite sharply after the summer, as strong
economic data and continuing high inflation numbers saw the Bank of England
("BoE") hint at, and then execute, a reversal of the emergency 25bp rate cut
that had followed the Brexit vote more than a year previously. The view that
further rate increases would follow in mid-2018 became more ingrained early in
the new year. In addition, it was confirmed that the end of the Term Funding
Scheme ("TFS") would take place on schedule in early 2018. In the aftermath of
the near-disastrous general election earlier in the year, the government was
forced to move forward with its Brexit negotiations with a far weaker hand, and
despite finally having been deemed to have progressed sufficiently to start
discussions on transition and future trade agreements, multiple issues are
still outstanding. The waters were further muddied when the government lost a
key vote on the Brexit bill as part of a Tory "Bremainer" revolt, forcing a
parliamentary vote on the final deal with Brussels, whilst pressure from
Brexiteer hardliners on the other side of the party continues to frustrate any
attempts to parley a softer outcome.
Much of this political and Brexit-driven uncertainty has fed through to the
broader UK mortgage and housing markets, where a somewhat nervous - albeit
consistent - picture has emerged throughout the second half of the year at a
national level. Something of a stalling point now appears to have been reached,
although at a regional level the picture continues to be more mixed. The
various house price indicators have oscillated over H2 2017 but in general have
shown a very small increase overall, with prices in London and the South East
continuing to suffer, but being balanced by stronger price action in other
regions. Meanwhile, re-mortgage borrowers and first-time buyers in particular,
who are also likely to be buoyed further by the stamp-duty incentives announced
in the November budget, continue to sustain volumes of mortgage origination,
which remain subdued overall. Additionally, Buy-to-Let ("BTL") lending remains
in negative territory year-on-year due to last year's stamp duty changes and
with further tax and regulatory changes coming down the line.
However, UK Finance, now incorporating the former Council of Mortgage Lenders
("CML"), reported first time buyer numbers have increased 130% since the
post-crisis low of mid-2009.
Competition amongst lenders has been intense, with margins being squeezed
across the high street lenders over the last two years. It was notable however
that as the expectation of a November interest rate rise increased after the
summer several highly competitive shorter-term fixed rate products were pulled
from the shelves after very short periods, possibly because they proved highly
popular and sold out, or perhaps in response to swap markets repricing ahead of
the change in rates.
Despite the competition between lenders, overall volumes continue to be
subdued, and whilst the Chancellor's Autumn Statement allocated resources to
housing and affordability, its focus on first time buyers and Help-to-Buy means
it's likely this will mostly be felt at the lower end of the spectrum.
Mercifully for BTL borrowers, there were no further changes to this sector
following the multiple blows it has suffered at the hands of the authorities in
the past couple of years. However, given the ongoing Brexit uncertainty, a
dearth of new enquiries is equally matched by a shortage of new instructions
coming on to the market and the stalemate looks set to continue for the time
being.
On a positive note, re-mortgaging continues to be among the strongest portions
of the market, with the number of new loans for re-mortgaging higher than in
any period since 2009. This is partially because uncertainty has driven home
owners to extend or improve their properties rather than risk losing money by
selling, but also because many borrowers took the opportunity to lock in their
mortgage rate ahead of the rate hike. The hike was almost seamlessly passed on
to borrowers by the high street banks and building societies, but at least
initially, saw little or no reaction from the specialist lenders with a few
cases where rates were actually marginally reduced, no doubt driven by
different funding structures and larger margins.
Despite the broad stagnation, the UK housing market does remain relatively
insulated compared to other parts of the economy and more macro events
affecting stock markets, as most activity is driven domestically, with some
prime London areas probably being something of an exception.
Along with the technical factors driving all credit fixed income markets,
encouragingly on the funding side of the equation, the picture is much rosier.
ABS supply in Europe saw a record post-crisis year in 2017 as the market
continues to rebuild. In addition, long awaited new regulation, much of it
designed specifically to help to further revive the use of securitisation as a
funding tool for banks and financial assets, was finally signed into EU law and
will come into effect from 2019, with much of the new framework centred around
promoting the type of high quality product that is at the heart of the
Company's investments.
These changes are also designed to help expand the investor base, and
accordingly increase demand. This, perhaps also buoyed by an attraction to the
floating rate nature of bonds as rates are now expected to rise, has meant the
cost of funding for RMBS issuance has continued to come down, in spite of
expectations of increased issuance as the high street banks are expected to
return to the sector more regularly now that the BoE's TFS and Funding for
Lending Scheme ("FLS") have come to an end. Deals have continued to see
significant oversubscription levels and to price at the tighter end of pricing
guidance and expectations, overflowing strongly into the new year which saw
record levels of UK RMBS issuance, and bodes well for the future of 2018.
Portfolio Review
Whilst no new transactions were completed during the period, a number of
opportunities of different types were assessed in order to redeploy the capital
released from the Oat Hill No.1 securitisation. Some of these potential
investments were progressed further than others, depending on their
suitability, quality, size and prospective economic value to the Company. We
were disappointed not to win one particularly suitable opportunity, which was
very sensitive to assumptive inputs and where the ultimate bid winner's
assumptions may have been overly optimistic. Other opportunities are still in
the process of being analysed, and whilst these are mostly more medium-term
projects, they appear at this early stage to be good fits for our investment
strategy, although will of course be subject to agreement on pricing that is
acceptable to all parties.
The reduction in investment management fees announced in June 2017 was
implemented from the beginning of the Company's new financial year and this,
along with the improved income from the CHL portfolio following the Oat Hill
No.1 securitisation has seen improved cashflow, although the Portfolio Manager
("PM") is still working hard to reinvest the released capital from this as soon
as possible in order to progress towards a fully covered dividend and grow the
NAV.
Aside from analysing potential investments, alongside the monitoring and
administration of the Company's existing investments and the maintenance of the
funding vehicles, the portfolio management team undertook a considerable amount
of work in order to maximise the efficiency of the existing transactions,
specifically relating to those loans in the Malt Hill No.1 (Coventry Building
Society) securitisation that were coming to the end of their initial fixed rate
period, and separately finessing the drawing process under the Cornhill
Mortgages No.2 (The Mortgage Lender) warehouse facility in order to achieve a
number of cost savings.
With the majority (80% of the original pool) of loans in the Malt Hill No.1
portfolio reaching the end of their initial two-year fixed rate period, the PM
identified a possibility that for purely technical reasons, some loans, upon
re-fixing may no longer be eligible to remain in the pool, which would
potentially lead to an acceleration of the amortisation of the senior notes.
This could have caused something of a reinvestment predicament for RMBS
noteholders with spreads now at tighter levels, and consequently also could
have locked in a reduction of the Company's investment leverage, thereby
potentially reducing its returns.
We developed a proposed solution during the summer, and following legal
engagement to analyse and document the potential changes efficiently and with
the support of other transaction parties such as the issue's trustee, senior
noteholders were then consulted to seek support for the amendments and
ultimately a bondholders' vote of approval. The proposed amendments were duly
approved in October 2017, meaning that those loans which, having switched to a
new fixed-rate product and no longer meeting certain pre-established conditions
within the original structure, now continue to comply and therefore remain
within the notes' collateral pool. Notably, there were no votes against the
proposed amendments, demonstrating the support of the RMBS investor base for a
highly performing, well-received transaction.
Subsequent prepayments of the Class A notes have proven to be broadly in line
with or even slightly below our initial expectations, representing the small
proportion of borrowers who, following the end of their initial fixed-rate
period, have chosen to migrate to another lender rather than refinancing their
loan with Coventry.
Separately, as the TML portfolio grew in size beyond the initial capital
commitment, the drawing process under the facility provided by Natwest Markets
("NWM") began, and it was identified that some elements of the process and the
facility terms could be streamlined so as to ensure they are carried out in the
most timely and more importantly, cost-efficient manner. A number of players
are involved for each drawing and for the renewal of NWM commitments, and the
amendments, all of which were small but were numerous, have delivered excellent
results so far alongside significant cost savings.
Malt Hill No.1 Portfolio (Coventry Building Society)
The loan portfolio continues to exhibit strong performance, generally in line
with our expectations at the time of purchase in terms of principal prepayment
activity and even better than our best expectations in terms of credit
performance. In the lifetime of the portfolio, just two loans have fallen into
arrears and both of these were quickly cured, meaning the portfolio is
performing at 100%, with none of the 1,301 loans in the portfolio overdue as at
the end of December 2017.
At origination, the Malt Hill No.1 portfolio comprised loans with either an
initial two-year fixed rate period (approx. 80%) or an initial five-year
period. At the end of the fixed rate periods the loans revert to a floating
rate (typically the SVR). Borrowers then have the option to either remain on
the SVR, prepay without penalty (likely switching to a loan with another
lender) or switch to a new fixed rate period with Coventry Building Society (a
"product switch").
Given that the loan portfolio was predominantly originated between May and July
of 2015, those loans with an initial two-year fixed rate period reached the end
of that term during 2017. As is typical origination practice at Coventry and
other similar lenders, the "two-year" period is usually offered for a short
period of time (e.g. three months) to a specific date (e.g. a month end). In
this case the initial two-year loans all reached their reset date in either May
2017 or August 2017.
Prior to May 2017, a combination of scheduled repayments from the loans and
unscheduled prepayments on other loans (e.g. as borrowers sold a property)
meant the initial GBP302m pool had amortised by GBP17m. In the subsequent months,
approximately GBP222m of loans reached their reset date. Of these around GBP55m
prepaid or switched to a product that was no longer eligible for the portfolio,
GBP139m reset to a new Coventry product (in most cases a new fixed rate for 2 or
5 years) and the remaining GBP28m have reverted to the SVR.
The cut in UK interest rates and the introduction of the TFS in August 2016
following the Brexit vote, along with increased competition in the UK mortgage
market means that mortgage lending margins have compressed considerably. As a
result, and unsurprisingly, the rates that were being offered on new fixed rate
loans during 2017 were much lower than those offered two years previously.
Prior to their reset date, the initial two-year loans had a weighted average
rate of 3.27%; by the end of the period, those that had reset to a new product
had a weighted average rate of 2.21%.This was somewhat offset by those that had
moved to the SVR with a rate of 4.74%, and by product switch fees (typically
either GBP999 or GBP1,999) which, for example, boost a two-year rate by between
25bps and 50bps respectively on an average size loan.
Whilst a further small amount of those loans remaining on the SVR may prepay
(for example, borrowers who are currently selling their properties will pay off
their loan once the sale completes) and others, where borrowers are still
weighing up their options may ultimately switch to a new term product with
Coventry, it's likely the vast majority of prepayments have now occurred. As a
high quality lender with a significant focus on customer service and retention,
we expected Coventry to retain approximately 65%-70% of loans following the
initial round of re-fixes. Encouragingly, the actual retention figure is
currently slightly above 75%, which means that whilst the weighted average rate
has fallen, the greater retention level helps to retain higher leverage and
therefore returns for the Company.
Key Performance Indicators
The Malt Hill No.1 portfolio is an exceptionally high quality pool of loans.
The pool is well diversified with low (and therefore lower-risk) Loan to Value
("LTV") ratios, loan balances and, importantly for BTL properties, generally
high Debt Service Coverage Ratios ("DSCR" - being the level of rental income
versus the contractual monthly payment on the loan).
As the end of the period, 1,301 loans with a value of approximately GBP226m (down
from 1,561 loans worth GBP270m in June 2017) remain outstanding. The Weighted
Average Indexed LTV fell slightly from 63.8% to 63.5%, and there are no loans >
80% LTV.
The vast majority of the pool has a very healthy DSCR with 65% of the loans
having more than 2x coverage, up from 52% in June 2017 and a benefit of the
lower rate re-fixes discussed above. Most loans in the UK BTL mortgage market
are interest-only loans, as given the intention to rent the property on an
ongoing basis, the loan can ultimately be repaid either by refinancing the loan
or from a property sale. In this portfolio, approximately 13% of the loans are
repayment mortgages, further enhancing the quality of the pool. Of those loans
at the lower end of the coverage spectrum (<1.25x), 122 out of 126 loans,
including all 35 of the loans with <1x coverage are repayment mortgages,
reflecting that the interest portion of the contractual monthly payment is
lower than the actual payment amount, and therefore for those loans the
interest coverage ratio is actually higher.
Cornhill No.2 Portfolio (The Mortgage Lender - TML)
Completions and pipeline reached around GBP150m at the end of December 2017, with
completed origination at approximately GBP115m. The portfolio continues to show
underlying asset performance that beats the most optimistic expectations, with
only one loan currently in arrears; the first and only occurrence since lending
began.
Other than a slight seasonal dip in the pipeline in December, the pace of
completions and origination has been relatively stable and is expected to pick
up with the traditional first quarter momentum in the housing and mortgage
markets, albeit increased competition and subdued volumes across the lending
market has imposed pressure on loan rates. However, with the expectation of
further interest rate rises in the UK through 2018 and beyond some of the rate
and margin pressure is expected to be released as rates move up.
Given the volume now originated, the PM is beginning the early stages of
preparing the securitisation structure, to ensure readiness for deployment when
the pool is expected to reach a suitable size later in the year.
As might be expected with a relatively new and growing business, the product
range, pricing, funding strategies etc., are reviewed on an ongoing basis. In
particular as UK interest rates begin to move upwards after a long period of
stability at record low levels, regular pricing and product offering reviews
are key to developing the portfolio. Since launching the business, TML has
originated loans graded by quality into tiers numbering from 1 (highest) to 9
(lowest). These tiers are then further grouped into 3 categories, 1-3, 4-6 and
7-9, where borrowers in each category share similar characteristics, but are
differentiated by credit score and thereby pricing. The quality of the
portfolio continues to be higher than initially expected, with a greater
proportion of lending and applications seen in the highest quality credit
category, albeit with the consequence that these loans pay a lower interest
rate. Feedback from the distribution networks and intermediaries who generate
borrower introductions for TML, along with competitor analysis has shown that
the complexity of the 9-tier model is constraining origination volumes.
Therefore, early in 2018 TML will be simplifying their product range, initially
focusing essentially on the 3 broader current categories, with a blended
interest rate in each category. This should help to boost returns going forward
(as historically more loans have fallen towards the higher end of each
category), whilst still retaining a similarly strong focus on credit.
Key Performance Indicators
Due to the risk-priced nature of loans there is a wide spread of mortgage rates
across the portfolio. However, as noted above, the portfolio has a high
concentration of loans in the higher credit quality categories and therefore
the majority of loans are concentrated in the 2% - 4% range, with a weighted
average interest rate for the whole pool at 3.60%, up from 3.51% in June 2017.
As can be seen in the chart below, the base rate increase in November has moved
almost all of the loans that were previously paying less than 2% out of that
band. Given that most of the floating rate loans in the portfolio are from the
higher credit quality categories, a consequent move up the rate curve in the 3
or 4 subsequently higher bands can also be noted. As might be expected of the
loans from the higher risk category they generate a higher interest rate and
are concentrated in the bands with an interest rate of 5% or more.
Around 61% of the loans have an initial two-year fixed rate period, 18% have a
five-year initial fixed rate period and the balance (around 21%) are floating
rate loans, tracking 3 month Libor. The two-year loans have a current average
interest rate of 3.41%, with the five-year loans at 4.25% and the floating rate
loans at 3.59%.
Oat Hill No.1 Portfolio (Capital Home Loans - CHL)
This investment remains very much in line with expectations, and therefore set
to deliver the strongest returns of all the Company's current investments.
It comprises a pool of vintage loans (mostly originated between 2004 and 2008).
Therefore any initial short term fixed-rate periods have long since expired and
all the loans now pay a floating rate of interest, with almost all of them
linked to the Bank of England base rate, and thereby also set to benefit from
any further interest rate rises in the UK, as are now widely expected.
However, this characteristic also means that most loans are paying a relatively
low rate of interest, with the current weighted average interest rate at 1.79%,
although this has risen from 1.54% when the pool was purchased due to the
recent increase in the UK base rate. As a result of the low rate, the pool was
purchased at discount, and much of the return from this portfolio will be
derived from that. The realisation of this discount will be in steps, as
firstly the current securitisation and then subsequent ones are refinanced,
typically every three years, with the leverage essentially locked-in during the
interim periods and then re-levered, and therefore revalued, at each
refinancing. The age of the pool means the weighted average life of the loans
is currently only 12 years.
Key Performance Indicators
Given the age of this pool, it's not surprising that the portfolio contains
some loans in arrears, especially given that the financial crisis reached its
peak shortly after many of the loans were originated. Encouragingly, data from
the December loan-by-loan report shows just 63 loans are one month or more in
arrears, from a current pool of 4,697 loans and with an average arrears amount
of only GBP882.
It's also not surprising that many of these arrears are actually historic,
dating from the time of the financial crisis. As with many lenders, borrowers
who fall into arrears, perhaps due to a period of unemployment, but who are
subsequently able to resume making payments, are encouraged by the lender to
put a plan in place to help reduce the balance of arrears whilst maintaining
their current scheduled payment (i.e. making an overpayment each month, which
will reduce the arrears balance back to zero over time). In this pool, almost
60% of the loans in arrears already have such an arrangement plan in place,
half of which have been in place for more than 5 years. Of the remainder, the
average arrears balance is just GBP673.
The table below shows the major contributors to the performance of the NAV
since that time. The longer time taken for the portfolio to become fully
invested and the ongoing payment of the dividend of 6p per annum have been the
major drivers of NAV performance, although the drag has reduced following the
securitisation of the Oat Hill No.1 transaction. The 0.7p fair value movement
in the swap valuation, is unchanged from June 2017 given the expiry last summer
of the swaps hedging the original two-year loans in the Coventry portfolio
(approximately 80% of the pool). With the change to hedge accounting from July
2017, this will naturally unwind over the subsequent three years as the
remaining 20% of the loans in the pool had an initial five year term.
NAV inception to end December 2017
Start NAV (pence per share) 98.0
Net Interest 6.8
Dividends Paid -10.5
Costs (Servicing, Operating, Warehouse) -6.4
Swap Mark-to-Market -0.5
End NAV 87.4
Market and Investment Outlook
With the US buoyed by the new tax reforms and the first round of Brexit talks
ending on a positive note, credit markets began 2018 in relatively good shape,
and whilst valuations are at tight levels, the supportive backdrop and positive
technicals should point to a continuation of 2017's performance. However, the
inflation worries and volatility that began to dog equity markets in the early
part of the new year developed pushed yields in rates markets higher and
present uncertainties that may warrant a prudent approach.
UK housing market uncertainty and subdued mortgage lending, at least to home
movers other than first time buyers, is set to continue whilst the Brexit
uncertainty remains. In ABS markets, whilst there is no expectation of a tidal
wave of issuance, there is a belief that new issuance levels will grow further
again in 2018. The impending end of the TFS in the UK brings hope of renewed
issuance from the UK bank and building society sector, and tapering in Europe
along with the new 'simple, transparent and standardised' ("STS")
securitisation regulations should also help more widely.
TwentyFour Asset Management LLP
20 March 2018
PORTFOLIO OF INVESTMENTS
As at 31 December 2017
Portfolio Summary Malt Hill No. 1 Plc Cornhill No. 2 Oat Hill No. 1 Plc
as at 31 December 2017 Limited
Originator Coventry Building The Mortgage Lender Capital Home Loans
Society
Outstanding Notional GBP226m GBP147m* GBP561m
Balance
Number of Loans 1,301 785* 4,697
Average Mortgage Size GBP180k GBP187k GBP129k
WA Current Indexed LTV 63.45% 66.93% 66.83%
WA Interest Rate 2.92% 3.59% 1.79%
WA Remaining Term 219 295 143
(mth)
WA Seasoning (mth) 29 6 131
3mth + Arrears (% 0.00% 0.00% 0.42%
balance)
* includes completions and pipeline
BOARD MEMBERS
Biographical details of the Directors are as follows:
Christopher Waldron (Chairman) - Independent Non-Executive Director - Guernsey
resident
Mr Waldron is the Chairman of Ranger Direct Lending Fund Plc and a director of
a number of listed companies, including Crystal Amber Fund Limited and JZ
Capital Partners Limited. He has over 30 years' experience as an investment
manager, specialising in fixed income, hedging strategies and alternative
investment mandates and until 2013 was Chief Executive of the Edmond de
Rothschild Group in the Channel Islands. Prior to joining the Edmond de
Rothschild Group in 1999, Mr Waldron held investment management positions with
Bank of Bermuda, the Jardine Matheson Group and Fortis. Mr Waldron is also a
member of the States of Guernsey's Policy and Resources Investment and Bond
Sub-Committee and a Fellow of the Chartered Institute of Securities and
Investment. Mr Waldron was appointed to the Board on 10 June 2015.
Richard Burrows - Senior Independent Non-Executive Director - UK resident
Mr Burrows works as Head of Treasury for Bank of China, London Branch following
a role as Senior Regulatory Policy Adviser to Bank of China UK Ltd. He
previously worked as a Capital and Liquidity Risk Consultant at Grant Thornton
and before that at the Co-operative Bank plc, taking the role of Chief of Staff
to the CEO appointed to lead the process of recapitalisation. Before
Co-operative Bank plc Mr Burrows worked in the Technical Specialist Prudential
Risk Division - Liquidity and ALM of the Financial Services Authority and led
the on-site review of BIPRU firms' Supervisory Liquidity Review Process and
subsequent panel submission to agree Individual Liquidity Guidance. In 2009 -
2010, before joining the Financial Services Authority Mr Burrows worked at
Northern Rock plc as Assistant Director, Marketing and Liquidity Risk as the
firm prepared for and completed its formal split of the balance sheet into core
banking and non-core assets. From 1994 to 2008, Mr Burrows was Director, Head
of Funding at Citi Alternative Investments and was responsible for efficient
funding via debt issuance from Euro and US domestic programmes and hedging of
all market risk via derivatives. Mr Burrows was appointed to the Board on 12
June 2015.
Paul Le Page (Audit Committee Chairman) - Independent Non-Executive Director -
Guernsey resident
Mr Le Page is a director of Man Fund Management Guernsey Limited, Man Group
Japan Limited and FRM Investment Management Limited which are subsidiaries of
Man Group Plc. He is responsible for managing hedge fund portfolios, and is a
director of a number of FRM and GLG funds. Mr Le Page is currently the Audit
Committee Chairman for Bluefield Solar Income Fund Limited and was formerly the
Audit Committee Chairman for Cazenove Absolute Equity Limited and Thames River
Multi Hedge PCC Limited. He has extensive knowledge of, and experience in, the
fund management and the hedge fund industry. Prior to joining FRM, he was an
Associate Director at Collins Stewart Asset Management from January 1999 to
July 2005, where he was responsible for managing the firm's hedge fund
portfolios and reviewing fund managers. He joined Collins Stewart in January
1999 where he completed his MBA in July 1999. He originally qualified as a
Chartered Electrical Engineer after a 12-year career in industrial research and
development, latterly as the Research and Development Director for Dynex
Technologies (Guernsey) Limited, having graduated from University College
London in Electrical and Electronic Engineering in 1987. Mr Le Page was
appointed to the Board on 10 June 2015.
Helen Green - Independent Non-Executive Director - Guernsey resident
Mrs Green is a chartered accountant and has been employed by Saffery Champness,
a top 20 firm of chartered accountants, since 1984. She qualified as a
chartered accountant in 1987 and became a partner in the London office in 1997.
Since 2000 she has been based in the Guernsey office where she is client
liaison director responsible for trust and company administration. Mrs Green
serves as a Non-Executive Director on the boards of a number of companies in
various jurisdictions, including Aberdeen Emerging Markets Investment Company
Limited, Landore Resources Limited, John Laing Infrastructure Fund Limited,
City Natural Resources High Yield Trust plc and Acorn Income Fund Limited, of
which she is Chairman. Mrs Green was appointed to the Board on 16 June 2016.
STATEMENT OF PRINCIPAL RISKS AND UNCERTAINTIES
Principal Risks and Uncertainties
In respect to the Company's system of Internal Controls and reviewing its
effectiveness, the Directors:
· are satisfied that they have carried out a robust assessment of the
principal risks facing the Company, including those that would threaten its
business model, future performance, solvency or liquidity; and
· have reviewed the effectiveness of the risk management and Internal
Control systems including material financial, operational and compliance
controls (including those relating to the financial reporting process) and no
significant failings or weaknesses were identified.
When considering the total return of the Company, the Board takes account of
the risk which has been taken in order to achieve that return. The Board
considers the following principal risks, which are consistent with those
disclosed in the Annual Report and Audited Financial Statements for the year
ended 30 June 2017, to be relevant for the next six month period ending 30 June
2018:
· The risk of the Company being unable to pay target dividends to investors
due to a shortfall in income received on the portfolio. The risk is controlled
by the Board receiving quarterly reports from the Portfolio Manager, in
conjunction with the Company's Administrator, which monitor the Company's cash
flow and income position, as well as the macro economic environment, paying
particular attention to movements in the house price index, unemployment levels
and interest rates as well as loan level and portfolio attributes such as
prepayment rates and the possibility and timing of defaults, all of which could
reduce cash flow to the Company. The Company can also pay dividends from
capital with Board agreement.
· The risk of the Company being unable to invest or reinvest capital repaid
from mortgage loans to purchase additional mortgage portfolios in a timely
manner. The risk is mitigated by the Board monitoring the portfolio pipeline in
regular communication with the Portfolio Manager, and in quarterly and ad hoc
Board meetings.
· The risk of investor dissatisfaction leading to a weaker share price,
causing the Company to trade at a discount to its underlying asset value and a
potential lack of market liquidity. The risk is mitigated by regular updates to
Shareholders from the Portfolio Manager, and regular shareholder engagement
both directly and via the Company's brokers.
· The risk of failing to securitise purchased mortgage portfolios. If there
is any significant delay in the ability to securitise a portfolio, the interest
rates payable by the Warehouse SPV to third party providers of loan finance are
likely to increase over time leading to falls in the value and/or yield of the
instruments held by the Acquiring Entity, the value of which will impact the
yield of the Company. In addition, the underlying portfolios will need to be
re-financed periodically in order to maintain optimal levels of leverage.
Failure to re-securitise at a suitable rate and/or reinvest the proceeds of
subsequent securitisations may also adversely impact the yield of the Company.
The risk has been mitigated by the Portfolio Manager hiring additional team
members with extensive securitisation experience and by being engaged with the
UK RMBS market and service providers. This enables the Company to optimise the
timing of its securitisation transactions.
· The risk of the Company's hedges being deemed ineffective following the
adoption of hedge accounting which has been applied since 1 July 2017. With the
adoption of hedge accounting, the Company is required to assess the historic
and future effectiveness of the Company's hedges in accordance with IAS 39.
Should prospective testing show the hedges to be ineffective, the Company may
continue to hedge account up till the point that the Board can prove the hedges
to be effective. Thereafter the Company would need to cease hedge accounting,
meaning that the fair value movements on the derivative instruments are taken
through the Statement of Comprehensive Income in full.
Going Concern
Under the 2016 UK Corporate Governance Code (the "Code") and applicable
regulations, the Directors are required to satisfy themselves that it is
reasonable to assume that the Company is a going concern and to identify any
material uncertainties to the Company's ability to continue as a going concern
for at least 12 months from the date of approving the financial statements. The
Company has voluntarily elected to comply with the Code.
Having reviewed the Company's current portfolio and pipeline of investment
transactions the Board of Directors believe that it is appropriate to adopt a
going concern basis in preparing the Unaudited Condensed Consolidated Interim
Financial Statements given the Company's holdings of cash and cash equivalents
and the income deriving from those investments, meaning the Company has
adequate financial resources to meet its liabilities as they fall due for at
least 12 months from the date of approval of these Unaudited Condensed
Consolidated Financial Statements.
Related Parties
Other than fees payable in the ordinary course of business, there have been no
material transactions with related parties which have affected the financial
position or performance of the Company in the financial period. Please refer to
note 12 for further details.
RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
· these Unaudited Condensed Consolidated Interim Financial Statements have
been prepared in accordance with International Accounting Standard 34, "Interim
Financial Reporting" and give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company as required by the UK
Listing Authority's Disclosure and Transparency Rule ("DTR") 4.2.4R.
· the interim management report 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 July 2017 to 31
December 2017 and their impact on the Unaudited Condensed Consolidated 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 July 2017 to 31
December 2017 and that have materially affected the financial position or
performance of the Company during that period as included in note 12.
By order of the Board
Christopher Waldron
Chairman
Paul Le Page
Director
20 March 2018
Independent review report to UK Mortgages Limited
Our conclusion
We have reviewed the accompanying condensed consolidated interim financial
information of UK Mortgages Limited and its subsidiaries (together the
"Company") as of 31 December 2017. Based on our review, nothing has come to our
attention that causes us to believe that the accompanying condensed
consolidated interim financial information is not prepared, in all material
respects, in accordance with International Accounting Standard 34, 'Interim
Financial Reporting', and the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority.
What we have reviewed
The accompanying condensed consolidated interim financial information comprise:
· the condensed consolidated interim statement of financial position as of
31 December 2017;
· the condensed consolidated statement of comprehensive income for the
six-month period then ended;
· the condensed consolidated statement of changes in equity for the
six-month period then ended;
· the condensed consolidated statement of cash flows for the six-month
period then ended; and
· the notes, comprising a summary of significant accounting policies and
other explanatory information.
The condensed consolidated interim financial information has been prepared in
accordance with International Accounting Standard 34, 'Interim Financial
Reporting', and the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority.
Our responsibilities and those of the directors
The Directors are responsible for the preparation and presentation of this
condensed consolidated interim financial information in accordance with the
Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority.
Our responsibility is to express a conclusion on this condensed consolidated
interim financial information based on our review. This report, including the
conclusion, has been prepared for and only for the Company for the purpose of
complying with the Disclosure Guidance and Transparency Rules sourcebook of the
United Kingdom's Financial Conduct Authority and for no other purpose. We do
not, in giving this conclusion, accept or assume responsibility for any other
purpose or to any other person to whom this report is shown or into whose hands
it may come save where expressly agreed by our prior consent in writing.
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements 2410, 'Review of interim financial information performed by the
independent auditor of the entity' issued by the International Auditing and
Assurance Standards Board. 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 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.
We have read the other information contained in the Interim Management Report
and considered whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed consolidated interim
financial statements.
PricewaterhouseCoopers CI LLP
Chartered Accountants
Guernsey, Channel Islands
20 March 2018
(a) The maintenance and integrity of the Company's website is the
responsibility of the directors; the work carried out by the auditors does not
involve consideration of these matters and, accordingly, the auditors accept no
responsibility for any changes that may have occurred to the Interim Management
Report and Unaudited Condensed Consolidated Interim Financial Statements since
they were initially presented on the website.
(b) Legislation in Guernsey governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the period from 1 July 2017 to 31 December 2017
For the For the
period from period from
01.07.2017 01.07.2016
to to
31.12.2017 31.12.2016
(Unaudited) (Unaudited)
Note GBP GBP
Income
Interest income on mortgage 12,498,485 4,602,222
loans
Interest income on cash and cash 2,433 10,009
equivalents
Net interest expense on financial liabilities (1,281,012) (1,149,012)
at fair value through profit and loss
Unrealised gain on financial liabilities at - 1,249,700
fair value through profit and loss
Net gain from derivative 7 123,814 -
financial instruments
Total income 11,343,720 4,712,919
Interest expense on loan 11 4,185,782 2,384,147
notes
Mortgage loans servicing fees 1,019,194 385,253
Loan note issue fees 831,735 487,117
Portfolio management fees 12 663,464 881,648
Mortgage loan write offs 5 333,121 -
Legal and professional fees 466,610 72,603
General expenses 243,352 97,918
Interest expense on 10 313,546 -
borrowings
Borrowings facility fees 10 230,770 654,658
Audit fees 13 177,267 78,126
Administration and 13 87,111 89,241
secretarial fees
Directors' fees 12 67,500 53,750
Custody fees 13 12,006 31,058
AIFM fees 13 48,243 48,582
Depositary fees 13 38,841 40,858
Corporate broker fees 24,053 25,147
Total expenses 8,742,595 5,330,106
Total comprehensive gain/(loss) for the 2,601,125 (617,187)
period
Earnings/(loss) per ordinary 0.010 (0.002)
share -
basic & diluted 3
All items in the above statement derive from continuing operations.
The notes form an integral part of these Unaudited Condensed Consolidated
Interim Financial Statements.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 31 December 2017
31.12.2017 30.06.2017
(Unaudited) (Audited)
Assets Note GBP GBP
Non-current assets
Mortgage loans 5 831,853,806 829,201,473
Reserve fund 6 13,157,350 13,157,350
Total non-current assets 845,011,156 842,358,823
Current assets
Mortgage loans 5 12,140,626 12,674,700
Trade and other receivables 8 2,848,110 3,522,323
Cash and cash equivalents 76,921,528 86,022,869
Total current assets 91,910,264 102,219,892
Total assets 936,921,420 944,578,715
Liabilities
Non-current liabilities
Borrowings 10 66,000,000 -
Loan notes 11 648,651,676 715,734,468
Total non-current liabilities 714,651,676 715,734,468
Current liabilities
Financial liabilities at fair value through 7 1,217,194 1,808,049
profit and loss
Trade and other payables 9 2,563,287 3,648,060
Total current liabilities 3,780,481 5,456,109
Total liabilities 718,432,157 721,190,577
Net assets 218,489,263 223,388,138
Equity
Share capital account 245,000,000 245,000,000
Other reserves (26,510,737) (21,611,862)
Total equity 218,489,263 223,388,138
Ordinary shares in issue 250,000,000 250,000,000
Net Asset Value per ordinary share 4 0.8739 0.8936
The Unaudited Condensed Consolidated Interim Financial Statements were approved
and authorised for issue by the Board of Directors on 20 March 2018 and signed
on its behalf by:
Christopher Waldron
Chairman
Paul Le Page
Director
The notes form an integral part of these Unaudited Condensed Consolidated
Interim Financial Statements.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the period from 1 July 2017 to 31 December 2017
Share Other Total
capital
account reserves equity
(Unaudited) (Unaudited) (Unaudited)
GBP GBP GBP
Balance at 1 July 2017 245,000,000 (21,611,862) 223,388,138
Dividends paid - (7,500,000) (7,500,000)
Total comprehensive gain for the period - 2,601,125 2,601,125
Balance at 31 December 2017 245,000,000 (26,510,737) 218,489,263
Share Other Total
capital
account reserves equity
(Unaudited) (Unaudited) (Unaudited)
GBP GBP GBP
Balance at 1 July 2016 245,000,000 (7,636,735) 237,363,265
Dividends paid - (7,500,000) (7,500,000)
Total comprehensive loss for the period - (617,187) (617,187)
Balance at 31 December 2016 245,000,000 (15,753,922) 229,246,078
The notes form an integral part of these Unaudited Condensed Consolidated
Interim Financial Statements.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
for the period from 1 July 2017 to 31 December 2017
For the For the
period from period from
01.07.2017 to 01.07.2016 to
31.12.2017 31.12.2016
(Unaudited) (Unaudited)
Note GBP GBP
Cash flows from operating activities
Total comprehensive gain/(loss) for the 2,601,125 (617,187)
period
Adjustments for:
Amortisation adjustment under effective 5 (3,000,425) 436,019
interest rate method
Decrease in trade and other receivables 674,213 2,305,919
Unrealised gain on financial liabilities - (1,249,700)
at fair value through profit and loss
Net gain from derivative financial 7 (123,814) -
instruments
Decrease in trade and other payables (1,084,773) (2,085,498)
Mortgage loans written off 5 333,121 -
Amortised borrowing charges released 5 98,420 19,825
Loan note issue fees amortised 11 573,999 326,825
Purchase of mortgage loans 5 (61,812,863) (11,563,225)
Mortgage loans repaid 5 61,796,447 6,981,435
Net cash inflow/(outflow) from operating 55,450 (5,445,587)
activities
Cash flows from financing activities
Proceeds from borrowings 10 66,000,000 -
Repayments of loan notes 11 (67,612,589) (9,409,310)
Loan note issue fees paid 11 (44,202) -
Dividends paid (7,500,000) (7,500,000)
Net cash outflow from financing (9,156,791) (16,909,310)
activities
Decrease in cash and cash equivalents (9,101,341) (22,354,897)
Cash and cash equivalents at beginning of 86,022,869 194,218,249
period
Cash and cash equivalents at end of 76,921,528 171,863,352
period
The notes form an integral part of these Unaudited Condensed Consolidated
Interim Financial Statements.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
for the period from 1 July 2017 to 31 December 2017
1. General Information
UKML was incorporated with limited liability in Guernsey, as a closed-ended
investment company on 10 June 2015. UKML's Shares were listed with the UK
Listing Authority and admitted to trading on the Specialist Fund Segment of the
London Stock Exchange on 7 July 2015.
The Unaudited Condensed Consolidated Interim Financial Statements comprise the
financial statements of UK Mortgages Limited, UK Mortgages Corporate Funding
Designated Activity Company, Malt Hill No.1 Plc (UK based company), Oat Hill
No.1 Plc (UK based company) and the Warehouse SPVs; Cornhill Mortgages No.1
Limited, until being placed into liquidation on 4 May 2017 (UK based company),
Cornhill Mortgages No.2 Limited (UK based company) and Cornhill Mortgages No.3
Limited, placed into liquidation on 9 February 2018 (UK based company) as at
31 December 2017, together referred to as the "Company". The Warehousing SPVs
are placed into liquidation on the transfer of the mortgage loans to the Issuer
SPVs.
The Company's investment objective is to provide Shareholders with access to
stable income returns through the application of relatively conservative levels
of leverage to portfolios of UK mortgages.
The Company expects that income will constitute the vast majority of the return
to Shareholders and that the return to Shareholders will have relatively low
volatility and demonstrate a low level of correlation with broader markets.
The Portfolio Manager to the Company and Portfolio Adviser to the UK Mortgages
Corporate Funding Designated Activity Company is TwentyFour Asset Management
LLP.
2. Accounting Policies
a) Statement of compliance
The Unaudited Condensed Consolidated Interim Financial Statements for the
period from 1 July 2017 to 31 December 2017 have been prepared on a going
concern basis in accordance with IAS 34 "Interim Financial Reporting", the
Listing Rules of the London Stock Exchange and applicable legal and regulatory
requirements.
The Unaudited Condensed Consolidated Interim Financial Statements should be
read in conjunction with the Annual Consolidated Financial Statements for the
year ended 30 June 2017 which were prepared in accordance with International
Financial Reporting Standards ("IFRS") and which received an unqualified audit
report.
The Company adopted hedge accounting from 1 July 2017 to reduce volatility in
the Consolidated Statement of Comprehensive Income. No prior period restatement
has been made as the Company only became eligible to hedge account from that
date.
b) Changes in accounting policy
In the current financial period, there have been no other changes to the
accounting policies from those applied in the most recent audited annual
financial statements and listed below.
Financial Assets
Loans and receivables are initially recognised at fair value and subsequently
carried at amortised
cost using the effective interest rate method, other than where an adjustment
is made as part of a fair value hedging arrangement.
Hedge accounting
The Company uses derivatives only for interest rate risk management purposes.
It does not use derivatives for trading purposes. All derivatives entered into
by the Company are to provide an economic hedge of the exposure to changes in
fair value of a recognised asset or liability (such as fixed rate mortgages) or
an unrecognised firm commitment that is attributable to a particular risk
(changes in benchmark interest rates impacting the fair value of fixed coupons)
and could affect profit or loss. All hedge relationships designated by the
Company are therefore classified as fair value hedges.
When transactions meet the criteria specified in IAS 39, the Company applies
fair value hedge accounting so that changes in the fair value of the underlying
mortgage loan cash flows ("the hedged item") that are attributable to the
hedged risk are recorded in the Consolidated Statement of Comprehensive Income
to offset the fair value movement of the related derivative ("the hedging
instrument").
To qualify for hedge accounting, the hedge relationship must be formally
designated and documented. Additionally, there must be an expectation that the
hedging instrument will be highly effective in offsetting the changes in the
fair value of the hedged item. Effectiveness must then be tested on an ongoing
basis over the life of the hedge relationship.
Derivatives are initially recognised at fair value on the date on which a
derivative contract is entered into, and are subsequently remeasured at their
fair value. Fair values of derivative financial instruments are calculated by
discounted cash flow models using yield curves and counterparty credit risk
assumptions that are based on observable market data. All derivatives are
carried as assets when their fair value is positive and as liabilities when
their fair value is negative. Changes in the fair value of derivatives are
recognised immediately in the Consolidated Statement of Comprehensive Income
together with changes in the fair value of the hedged item that are
attributable to the hedged risk within net gain from derivative financial
instruments.
All derivatives entered into by the Company are for the purposes of providing
an economic hedge. Hedge accounting is an optional treatment but the specific
rules and conditions in IAS39 have to be complied with before it can be
applied. The Company has classified all of its derivatives as fair value
hedges. To qualify for hedge accounting at inception the hedge relationship
must be clearly documented. At inception the derivative must be expected to be
highly effective in offsetting the hedged risk, and effectiveness must be
tested throughout the life of the hedge relationship.
If a hedging relationship is designated at a point where the fair value of the
hedged item is not nil, an additional adjustment (known as a "pull to par"
adjustment) is typically required to ensure that the fair value hedge
adjustment fully reverses over the remaining life of the hedged item.
If the hedging derivative expires or is sold, terminated, or exercised, or the
hedge no longer meets the criteria for fair value hedge accounting, or the
hedge designation is revoked, hedge accounting is discontinued prospectively.
If the underlying instrument is sold or repaid, the unamortised fair value
adjustment is immediately recognised in the Consolidated Statement of
Comprehensive Income. A summary of the effects of hedging and the associated
fair value adjustments can be found in note 7.
c) Critical judgements and estimates
In the current financial period, there have been no changes to the significant
critical accounting judgements, estimates and assumptions from those applied in
the most recent audited annual financial statements.
d) Standards, amendments and interpretations issued but not yet effective
IFRS 9 Financial Instruments
The Company is currently preparing to implement credit impairment calculations
based on the expected credit loss model as required under IFRS 9. IFRS 9 is
effective for all new financial years commencing on or after 1 January 2018. As
the Company's financial year starts on 1 July, all net asset values will be
calculated and reported in accordance with the standard from 1 July 2018.
The Portfolio Manager already incorporates loan loss provisions within their
portfolio pricing models and intends to use these models to calculate an
unaudited estimated impairment provision for the portfolio. The expected
changes to the impairment provision calculation methodology and the quantified
expected impact of adopting IFRS 9 will be disclosed in the annual report for
the year end 30 June 2018.
The Company has satisfactorily completed its assessments of solely payment of
principal and interest compliance that reviews the cash flow characteristics of
financial assets to ensure they can continue to be classified within an
amortised cost model under IFRS 9. These are still subject to external audit.
The Company has reviewed the financial reporting implications of IFRS 9
impairment accounting with its auditors and service providers and has concluded
that three separate methodologies will be required to cover (1) purchased
portfolios with existing impairments which are already incorporated in the
Effective Interest Rate valuation; (2) purchased portfolios with limited
impairment history and (3) loans that the group originates.
Hedge accounting will become more closely aligned with risk management
practices under IFRS 9. The Company's existing hedge relationships appear to
qualify as continuing hedges upon the adoption of IFRS 9. Thus, the Company
does not expect a significant impact on accounting for its hedging
relationships.
IFRS 15 Revenue from Contracts with Customers
The Directors anticipate that the adoption of IFRS 15 effective in a future
period will not have a material impact on the financial statements of the
Company.
3. Earnings/(loss) per Ordinary Share - basic & diluted
The gains per Ordinary Share of GBP0.010 (31 December 2016: loss GBP0.002) - basic
and diluted are equivalent and have been calculated based on the weighted
average number of Ordinary Shares of 250,000,000 (31 December 2016:
250,000,000) and a net gain of GBP2,601,125 (31 December 2016: a net loss of GBP
617,187).
4. Net Asset Value per Ordinary Share
The Net Asset Value of each share of GBP0.8739 (30 June 2017: GBP0.8936) is
determined by dividing the net assets of the Company GBP218,489,263 (30 June
2017: GBP223,388,138) by the number of shares in issue at 31 December 2017 of
250,000,000 (30 June 2017: 250,000,000).
5. Mortgage loans
For the For the year
period from from
01.07.2017 01.07.2016
to to
31.12.2017 30.06.2017
(Unaudited) (Audited)
GBP GBP
Mortgage loans at start of the period/year 841,876,173 303,585,700
Mortgage loans purchased 61,812,863 576,732,728
Amortisation adjustment under effective interest rate method* 3,000,425 1,626,884
Mortgage loans repaid (61,796,447) (40,035,931)
Borrowings charges amortised - 424,709
Amortised borrowing charges released (98,420) (52,218)
Fair value adjustment for hedged risk** (467,041) -
Mortgage loans written off (333,121) (405,699)
Mortgage loans at end of the period/year 843,994,432 841,876,173
Amounts falling due after more than one year 831,853,806 829,201,473
Amounts falling due within one year 12,140,626 12,674,700
843,994,432 841,876,173
*Net premium unwind on the Malt Hill No.1 portfolio and pull to par on the Oat
Hill No.1 portfolio.
** Please refer to note 7 which explains how the fair value adjustment is
calculated and note 14 sets out the liquidity and credit risk profile of the
mortgage loans.
Mortgage loans at 31 December 2017 comprise of two securitised mortgage
portfolios legally held in Malt Hill No.1 Plc and Oat Hill No.1 Plc and one
mortgage portfolio held with Cornhill Mortgages No.2 Limited. Please refer to
the Portfolio of Investments for breakdown of portfolios.
The Company does not experience any seasonality or cyclicality in its
investment activities.
6. Reserve fund
The reserve fund is held with Citibank N.A. London Branch within the
securitisation structure. The Company is required to maintain this reserve and
it is not readily available to the Company and may only be used in accordance
with the Issue and Programme Documentation.
7. Financial liabilities held at fair value through profit and loss
Derivative instruments - Malt Hill No.1 Plc
On 3 November 2015, the Company entered into an Interest Rate Swap (under an
ISDA agreement) at the point of the initial mortgage loan portfolio purchase to
convert the fixed rate loan exposure into 3 Month Libor. The notional value of
the swap is balance guaranteed in order to track the principal balance of the
mortgage loan portfolio and changes thereto quarterly in line with the movement
in the mortgage loan portfolio.
Derivative instruments - Cornhill Mortgages No.2 Limited
On 7 July 2016, the Company entered into an Interest Rate Swap (under an ISDA
agreement) to hedge the fixed rate loan exposure of the mortgages in the
portfolio into 1 Month Libor. The notional value of the swap is balance
guaranteed in order to track the new originations and the amortisation of the
mortgage loan portfolio and changes on a monthly basis to reflect the principal
balance of the portfolio.
Notional and fair value balances:
Cornhill
Malthill No. 2 31.12.2017
No. 1 Plc Limited Total
Notional amount of Interest Rate Swap 177.8m 82.6m 260.4m
Fair value of Interest Rate Swap (1,078,772) (138,422) (1,217,194)
Cornhill
Malthill No. 2 30.06.2017
No. 1 Plc Limited Total
GBP GBP GBP
Notional amount of Interest Rate Swap 288.5m 35.5m 324.0m
Fair value of Interest Rate Swap (1,734,294) (73,755) (1,808,049)
On 1 July 2017, the Directors designated both derivatives as fair value hedges
and began hedge accounting from that date.
Net gain from derivative financial instruments:
Cornhill
Malthill No. 2 31.12.2017
No. 1 Plc Limited Total
GBP GBP GBP
Movement on derivatives in designated fair value hedge 655,522 (64,667) 590,855
relationships
Adjustment to mortgage loans
in fair value hedge relationship (537,527) 70,486 (467,041)
Net ineffectiveness 117,995 5,819 123,814
The net gain from derivative financial instruments represents the net fair
value movement on derivative instruments that are matching risk exposure on an
economic basis. Some accounting volatility arises on these items due to
accounting ineffectiveness on designated hedges.
The movement is primarily due to timing differences in income recognition
between derivative instruments and the hedged assets. This gain or loss will
tend to zero over time and this is taken into account by the Board when
considering the Company's underlying performance.
8. Trade and other receivables
As at As at
31.12.2017 30.06.2017
(Unaudited) (Audited)
GBP GBP
Interest receivable on mortgage loans 1,113,884 1,343,479
Capitalised formation expenses 1,116,625 1,431,138
Other receivables and prepayments 617,601 747,706
2,848,110 3,522,323
Capitalised expenses are the set up costs of Cornhill Mortgages No. 2 Limited,
which are being amortised over 3 years.
9. Trade and other payables
As at As at
31.12.2017 30.06.2017
(Unaudited) (Audited)
GBP GBP
Interest due on loan notes 848,598 398,870
Loan note issue fees payable 596,425 1,707,580
Portfolio management fees payable 330,504 832,816
Mortgage loans servicing fees payable 283,214 104,054
Audit fees payable 200,424 199,316
Legal and professional fees payable 108,917 81,201
General expenses payable 81,034 63,376
Administration and secretarial fees 41,737 176,533
payable
Directors' fees payable 33,750 26,875
AIFM fees payable 24,091 48,148
Depositary fees payable 10,952 5,498
Custody fees payable 3,641 3,793
2,563,287 3,648,060
10. Borrowings
Cornhill Mortgages No.2 Limited was paying a commitment fee for GBP150m until 1
June 2017. The facility was restructured in June 2017, in order to improve the
cost efficiency of the structure, with changes involving reduction of
commitment fees and drawn margins on the facility. Any increase to the
commitment amount is subject to NatWest Markets approval and the total facility
size remains at GBP250m. The facility fees of GBP230,770 were expensed in the
period (31 December 2016: GBP654,658). At the period end the Company had utilised
GBP66,000,000 of the borrowing facility (30 June 2017: nil). The interest expense
charged on borrowings of GBP313,546 was expensed in the period (31 December 2016:
GBPnil).
11. Loan notes
The Malt Hill No.1 Plc and Oat Hill No.1 Plc mortgage portfolio acquisitions
are partially financed by the issue of notes. The notes are repaid as the
underlying mortgage loans repay. The terms and conditions of the notes provide
that the note holders will receive interest and principal only to the extent
that sufficient funds are generated from the underlying mortgage loans. The
priority and amount of claims on the portfolio proceeds are determined in
accordance with strict priority of payments. Note holders have no recourse to
the Company in any form.
Malt Hill No.1 Plc completed the public sale of GBP263.3m of AAA-rated bonds on
26 May 2016. The AAA notes were issued with a coupon of 3 month LIBOR plus
1.35% which is payable quarterly and are listed on the Irish Stock Exchange.
The issue fees on loan notes will be amortised over the expected life of the
loan notes, which is 3 years, being the call date.
Oat Hill No.1 Plc completed the public sale of GBP477.1m of AAA-rated bonds on 26
June 2017. The AAA notes were issued with a coupon of 3 month LIBOR plus 0.65%
and a step up margin of 1.30% which is payable quarterly and are listed on the
Irish Stock Exchange. The issue fees on loan notes will be amortised over the
expected life of the loan notes, which is 3 years, being the call date.
As at As at
31.12.2017 30.06.2017
(Unaudited) (Audited)
GBP GBP
Loan notes at start of the period/ 715,734,468 261,784,493
year
Loan notes issued - 474,695,416
Loan notes repaid (67,612,589) (19,433,084)
Loan note issue fees paid (44,202) (1,795,120)
Loan note issue fees amortised 573,999 482,763
Loan notes at end of the period/year 648,651,676 715,734,468
Interest expense on loan notes for the period amounted to GBP4,185,782 (31
December 2017: GBP2,384,147).
12. 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 aggregate fees of the Directors will not exceed
GBP200,000.
The annual Directors' fees comprise GBP40,000 (30 June 2017: GBP30,000) payable to
Mr Waldron, the Chairman, GBP35,000 (30 June 2017: GBP27,500) to Mr Le Page as
Chairman of the Audit Committee, and GBP30,000 (30 June 2017: GBP25,000) each to
Mrs Green and Mr Burrows. During the period ended 31 December 2017, Directors'
fees of GBP67,500 (31 December 2016: GBP53,750) were charged to the Company, of
which GBP33,750 remained payable at the end of the period (30 June 2017: GBP
26,875).
b) Shares held by related parties
As at 31 December 2017, Directors of the Company held the following shares in
the Company beneficially:-
Directors' and Other Interests
Number of
Shares
31.12.2017
Christopher Waldron 5,000
Richard Burrows 5,000
Paul Le Page 20,000
Helen Green -
As at 31 December 2017, the Portfolio Manager held Nil shares (30 June 2017:
Nil) and partners and employees of the Portfolio Manager held 7,326,004 shares
(30 June 2017: 7,040,076), which is 2.93% of the issued share capital (30 June
2017: 2.81%).
c) Portfolio Manager
With effect from 1 July 2017, the portfolio management fee is payable to the
Portfolio Manager quarterly on the last business day of the quarter at a rate
of 0.60% per annum of the lower of NAV, which is calculated monthly on each
valuation day, or market capitalisation of each class of shares. Prior to this
date the portfolio management fee per annum was 0.75%.
The Company has also agreed to pay a marketing fee equal to 12.5% of the
Placing commission calculated and payable to Numis Securities Limited ("Numis")
in respect of the issue and each Placing whether under the Placing Programme or
otherwise, to the Portfolio Manager in respect of its marketing activities.
Total portfolio management fees for the period amounted to GBP663,464 (31
December 2016: GBP881,648) of which GBP330,504 (30 June 2017: GBP832,816) remained
payable at the period end.
The Portfolio Management Agreement dated 23 June 2015 remains in force until
determined by the Company or the Portfolio Manager giving the other party not
less than twelve months' notice in writing. Under certain circumstances, the
Company or the Portfolio Manager are entitled to immediately terminate the
agreement in writing. No placings occurred in the period and no fees were paid
under this agreement.
13. Material Agreements
a) Alternative Investment Fund Manager
The Company's Alternative Investment Fund Manager (the "AIFM") is Maitland
Institutional Services Limited. In consideration for the services provided by
the AIFM under the AIFM Agreement the AIFM is entitled to receive from the
Company a minimum fee of GBP20,000 per annum and fees payable quarterly in
arrears at a rate of 0.07% of the NAV of the Company below GBP50 million, 0.05%
on Net Assets between GBP50 million and GBP100 million and 0.03% on Net Assets in
excess of GBP100 million. During the period ended 31 December 2017, AIFM fees of
GBP48,243 (31 December 2016: GBP48,582) were charged to the Company, of which GBP
24,091 (30 June 2017: GBP48,148) remained payable at the end of the period.
b) Administrator and Secretary
Administration fees are payable to Northern Trust International Fund
Administration Services (Guernsey) Limited monthly in arrears at a rate of
0.06% of the NAV of the Company below GBP100 million, 0.05% on net assets between
GBP100 million and GBP200 million and 0.04% on net assets in excess of GBP200 million
as at the last business day of the month subject to a minimum GBP75,000 per
annum. These NAV based fees commenced from 19 November 2015 being the date the
Company acquired its initial investment.
In addition, an annual fee of GBP45,000 will be charged for corporate governance
and company secretarial services and accounting services. Total administration
and secretarial fees for the period amounted to GBP87,111 (31 December 2016: GBP
89,241) of which GBP41,737 (30 June 2017: GBP176,533) remained payable at the
period end.
c) Depositary and Custodian
Depositary fees are payable to Northern Trust (Guernsey) Limited, monthly in
arrears, at a rate of 0.03% of the NAV of the Company as at the last business
day of the month subject to a minimum GBP40,000 per annum. Total depositary fees
and charges for the period amounted to GBP38,841 (31 December 2016: GBP40,858) of
which GBP10,952 (30 June 2017: GBP5,498) remained payable at the period end.
The Depositary will charge an additional fee of GBP20,000 for performing due
diligence on each service provider/administrator employed.
The Depositary is also entitled to a custody fee at a rate of 0.03% of the NAV
of the Company as at the last business day of the month subject to a minimum of
GBP8,500 per annum. These NAV based fees commenced on 19 November 2015 being the
date Company acquired its initial investment. Total custody fees for the period
amounted to GBP12,006 (31 December 2016: GBP31,058) of which GBP3,641 (30 June 2017:
GBP3,793) remained payable at the period end.
d) Auditors
Audit fees paid to PwC CI LLP and other PwC member firms includes amounts
charged for the current period of GBP94,372 (31 December 2016: GBP78,126) and the
under accruals for previous periods of GBP82,895. Non audit fees of GBP60,000
pertaining to accounting advice is included under legal and professional fees.
14. Financial Risk Management
The Company's objective in managing risk is the creation and protection of
shareholder value. Risk is inherent in the Company's activities, but it is
managed through an ongoing process of identification, measurement and
monitoring.
The Company's financial instruments include financial assets or liabilities at
fair value through profit and loss, loans and receivables, and cash and cash
equivalents. The main risks arising from the Company's financial instruments
are market risk, liquidity risk, and credit risk. The techniques and
instruments utilised for the purposes of portfolio management are those which
are reasonably believed by the Board to be economically appropriate to the
efficient management of the Company.
Market risk
Market risk embodies the potential for both losses and gains and includes
interest rate risk, price risk and currency risk. The Company's strategy on the
management of market risk is driven by the Company's investment objective. The
Company's investment objective is to provide investors with access to stable
income returns through the application of relatively conservative levels of
leverage to portfolios of UK mortgage loans.
1.1 Interest rate risk: Interest rate risk is the risk that the value of
financial instruments will fluctuate due to changes in market interest rates.
The current underlying mortgage portfolios are payable on fixed rates, meaning
the current exposure to interest rate fluctuations on the portfolios are
limited. However, floating rate interest is payable on loan notes. In order to
hedge this differential, interest rate swaps were transacted by the Warehouse
SPVs with a market counterparty to pay the fixed rate and receive the floating
rate payments.
On 1 July 2017 the Directors designated both derivatives as fair value hedges
and began hedge accounting from that date therefore hedging the interest risk
exposure on the fixed rate mortgage loans shown in the table below.
The below tables show exposure to interest rate risk:
Non Total as at
interest
Floating rate Fixed rate bearing 31.12.2017
GBP GBP GBP GBP
Assets (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Mortgage loans 592,220,458 251,773,974 - 843,994,432
Reserve fund 13,157,350 - - 13,157,350
Trade and other 1,113,884 - 1,734,226 2,848,110
receivables
Cash and cash equivalents 76,921,528 - - 76,921,528
Total assets 683,413,220 251,773,974 1,734,226 936,921,420
Liabilities
Financial liabilities at (1,217,194) - - (1,217,194)
fair value through profit
and loss
Trade and other payables - - (2,563,287) (2,563,287)
Borrowings (66,000,000) - - (66,000,000)
Loan notes (note 11) (648,651,676) - - (648,651,676)
Total liabilities (715,868,870) - (2,563,287) (718,432,157)
Total interest (32,455,650) 251,773,974 (829,061) 218,489,263
sensitivity gap
Non Total as at
interest
Floating rate Fixed rate bearing 30.06.2017
GBP GBP GBP GBP
Assets (Audited) (Audited) (Audited) (Audited)
Mortgage loans 585,541,265 256,334,908 - 841,876,173
Reserve fund 13,157,350 - - 13,157,350
Trade and other receivables 1,343,479 - 2,178,844 3,522,323
Cash and cash equivalents 86,022,869 - - 86,022,869
Total assets 686,064,963 256,334,908 2,178,844 944,578,715
Liabilities
Financial liabilities at (1,808,049) - - (1,808,049)
fair value through profit
and loss
Trade and other payables - - (3,648,060) (3,648,060)
Loan notes (note 11) (715,734,468) - - (715,734,468)
Total liabilities (717,542,517) - (3,648,060) (721,190,577)
Total interest sensitivity (31,477,554) 256,334,908 (1,469,216) 223,388,138
gap
With the adoption of hedge accounting the Company has reduced its exposure to
interest rate risk as changes in the fair value of the interest rate swaps are
offset by adjustments to the fair value of the mortgage loans. Consequently
there is no material movement in net assets of the Company arising from
interest rate fluctuations.
1.2 Price risk: An active market does not exist in the underlying instruments
based on the illiquidity of the mortgage loans, and for this reason the
mortgage portfolios are accounted for on an amortised cost basis by an
independent third party valuation provider. Any such valuation may therefore
differ from the actual realisable market value of the relevant mortgage
portfolio.
The interest rate swap hedge trade is valued on a fair value mark-to-market
basis by the swap counterparty, using the observable information on swap rates.
The difference in fair value of the interest rate swap and amortised cost
valuation of the mortgage loans could lead to volatility in the Company's NAV,
had hedge accounting not been adopted.
1.3 Currency risk: As at 31 December 2017, the Company had no material exposure
to foreign exchange fluctuations or changes in foreign currency interest rates.
Consequently there is no material movement in assets and liabilities arising
from foreign exchange fluctuations.
Liquidity Risk
Liquidity risk is the risk that the Company will not have sufficient resources
available to meet its liabilities as and when they fall due. The Company makes
its investments by purchasing Profit Participating Notes issued by the
Acquiring Entity. The Acquiring Entity is bound by EU securities law and will
be unable to fully liquidate, sell, hedge or otherwise mitigate its credit risk
under or associated with the Retention Notes issued by the Warehouse SPV or
Issuer SPV until such time as the securities of the relevant Issuer SPV have
been redeemed in full (whether at final maturity or early redemption). This
places limitations on the Company's ability to redeem the Profit Participating
Notes issued by the Acquiring Entity. It is not expected that any party will
make a secondary market in relation to the Retention Notes, and that there will
usually be a limited market for the Retention Notes.
Any partial sales of Retention notes would need to be negotiated on a private
counterparty to counterparty basis and could result in a liquidity discount
being applied. There may be additional restrictions on divestment in the terms
and conditions of the underlying investments. The illiquidity of the Retention
Notes may therefore adversely affect the value of the Profit Participating
Notes in the event of a forced sale which would, in turn, adversely affect the
Company's business, business prospects, financial condition, returns to
Shareholders including dividends, NAV and/or the market price of the shares.
During the warehousing phase the Company's mortgage loans advanced are illiquid
and may be difficult or impossible to realise for cash at short notice. At the
period end, Cornhill Mortgages No. 2 Limited portfolio was in the warehousing
phase.
The Company manages its liquidity risk through short term and long term cash
flow forecasts to ensure it is able to meet its obligations. In addition, the
Company is permitted to borrow up to 10% of NAV for short term liquidity
purposes, including financing share repurchases or redemptions, making
investments or satisfying working capital requirements. This can be either
through a loan facility or other types of collateralised borrowing instruments
including stock lending or repurchase transactions.
Less than More than Total as at
one year one year 31.12.2017
GBP GBP GBP
Assets (Unaudited) (Unaudited) (Unaudited)
Mortgage loans 12,140,626 831,853,806 843,994,432
Reserve fund - 13,157,350 13,157,350
Trade and other 2,848,110 - 2,848,110
receivables
Cash and cash equivalents 76,921,528 - 76,921,528
Total assets 91,910,264 845,011,156 936,921,420
Liabilities
Financial liabilities at fair value through 1,217,194 - 1,217,194
profit and loss
Trade and other payables 2,563,287 - 2,563,287
Borrowings - 66,000,000 66,000,000
Loan notes - 648,651,676 648,651,676
Total liabilities 3,780,481 714,651,676 718,432,157
Less than More than Total as at
one year one year 30.06.2017
GBP GBP GBP
Assets (Audited) (Audited) (Audited)
Mortgage loans 12,674,700 829,201,473 841,876,173
Reserve fund - 13,157,350 13,157,350
Trade and other receivables 3,522,323 - 3,522,323
Cash and cash equivalents 86,022,869 - 86,022,869
Total assets 102,219,892 842,358,823 944,578,715
Liabilities
Financial liabilities at fair value through 1,808,049 - 1,808,049
profit and loss
Trade and other payables 3,648,060 - 3,648,060
Loan notes - 715,734,468 715,734,468
Total liabilities 5,456,109 715,734,468 721,190,577
Credit risk
Credit risk is the risk that a counterparty to a financial instrument will fail
to discharge an obligation or commitment that it has entered into with the
Company.
The Company's primary fundamental credit risk exposure is to borrowers of the
underlying mortgages, with the risk of borrowers defaulting on interest and
principal payments. The Portfolio Manager manages the reduction of borrower
credit risk with extensive due diligence on portfolios conducted by internal
and external analysts and stress testing.
The Company also has credit risk to the counterparty with which the Warehouse
or Issuer SPV transacts the derivative trades for hedging purposes, or to gain,
increase or decrease exposure to mortgages. Default by any hedging counterparty
in the performance of its obligations could subject the investments to unwanted
credit risks. The Portfolio Manager manages the reduction of credit risk
exposure to the derivative counterparty through ongoing credit analysis of the
counterparty in addition to implementing clauses into derivative transactions
whereby collateral is required to be posted upon a downgrade of the
counterparty's credit rating. The current credit rating of the counterparty is
A+.
The Company's exposure to the credit risk of cash and deposit holders
defaulting is managed through the use of investments into money market funds,
to diversify cash holdings away from single custodians. Money market fund
vehicles are chosen after extensive due diligence focusing on manager
performance, controls and track record. Currently the cash is held with
Northern Trust London (credit rating A+ per Standards and Poor). The money
market fund is held in a BlackRock-managed institutional money-market fund -
"Institutional Cash Series Plc - Institutional Sterling Liquidity Fund" and
their current rating is AAAm from Standards and Poor. The reserve fund is held
with Citibank N.A. London Branch (credit rating A+ per Standards and Poor).
Mortgage loans written off during the period amounted to GBP333,121 (30 June
2017: GBP405,699). The current indexed loan to value ratio in order to give an
indication of credit quality is as follows:
As at As at
31.12.2017 30.06.2017
(Unaudited) (Audited)
Loan to value GBP GBP
0-49% 112,177,052 101,602,362
50-75% 486,627,278 473,438,989
75-100%+ 245,190,102 266,834,822
843,994,432 841,876,173
The loans past due but not yet impaired at the period end are shown in the
table below.
As at As at
31.12.2017 30.06.2017
(Unaudited) (Audited)
GBP GBP
>1 month but <2 months 2,391,124 1,552,194
>2 months but <3 months 909,902 1,075,168
>3 months but <6 months 1,245,851 1,109,153
>6 months 772,188 1,186,031
5,319,066 4,922,546
15. Analysis of Financial Assets and Liabilities by Measurement Basis
Financial Assets
at Financial
fair value Assets
through at amortised
profit and loss cost Total
GBP GBP GBP
31 December 2017 (Unaudited) (Unaudited) (Unaudited)
Financial Assets as per Unaudited Condensed Consolidated Statement of
Financial Position
Mortgage loans - 843,994,432 843,994,432
Reserve fund - 13,157,350 13,157,350
Cash and cash equivalents - 76,921,528 76,921,528
Trade and other receivables - 2,848,110 2,848,110
- 936,921,420 936,921,420
Financial
Liabilities at Financial
fair value through Liabilities
profit and loss at
amortised Total
cost
GBP GBP GBP
Financial Liabilities as per Unaudited Condensed
Consolidated Statement of Financial Position (Unaudited) (Unaudited) (Unaudited)
Financial liabilities at fair value through 1,217,194 - 1,217,194
profit and loss
Trade and other payables - 2,563,287 2,563,287
Borrowings - 66,000,000 66,000,000
Loan notes - 648,651,676 648,651,676
1,217,194 717,214,963 718,432,157
Financial Assets
at Financial
fair value Assets
through at amortised
profit and loss cost Total
GBP GBP GBP
30 June 2017 (Audited) (Audited) (Audited)
Financial Assets as per Audited Consolidated Statement of Financial
Position
Mortgage loans - 841,876,173 841,876,173
Reserve fund - 13,157,350 13,157,350
Cash and cash equivalents - 86,022,869 86,022,869
Trade and other receivables - 3,522,323 3,522,323
- 944,578,715 944,578,715
Financial
Liabilities at Financial
fair value Liabilities
through at
profit and loss amortised Total
cost
Financial Liabilities as per Audited Consolidated GBP GBP GBP
Statement of Financial Position
(Audited) (Audited) (Audited)
Financial liabilities at fair value through profit 1,808,049 - 1,808,049
and loss
Trade and other payables - 3,648,060 3,648,060
Loan notes - 715,734,468 715,734,468
1,808,049 719,382,528 721,190,577
16. Fair Value Measurement
IFRS 13 requires the Company to classify fair value measurements using a fair
value hierarchy that reflects the significance of the inputs used in making the
measurements. The fair value hierarchy has the following levels:
(i) Quoted prices (unadjusted) in active markets for identical assets or
liabilities (level 1).
(ii) Inputs other than quoted prices included within level 1 that are
observable for the asset or liability, either directly (that is, as prices) or
indirectly (that is, derived from prices including interest rates, yield
curves, volatilities, prepayment speeds, credit risks and default rates) or
other market corroborated inputs (level 2).
(iii) Inputs for the asset or liability that are not based on observable market
data (that is, unobservable inputs) (level 3).
The following tables analyse within the fair value hierarchy the Company's
financial assets and liabilities (by class) measured at fair value for the
period ended 31 December 2017 and the year ended 30 June 2017.
Level 1 Level 2 Level 3 Total
GBP GBP GBP GBP
Liabilities (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Financial liabilities at - (1,217,194) - (1,217,194)
fair value through profit
and loss (note 7)
Total liabilities as at
31 December 2017 - (1,217,194) - (1,217,194)
Level 1 Level 2 Level 3 Total
GBP GBP GBP GBP
Liabilities (Audited) (Audited) (Audited) (Audited)
Financial liabilities at - (1,808,049) - (1,808,049)
fair value through profit
and loss (note 7)
Total liabilities as at
30 June 2017 - (1,808,049) - (1,808,049)
The following table analyses within the fair value hierarchy the Company's
assets and liabilities not measured at fair value at 31 December 2017 but for
which fair value is disclosed.
Level 1 Level 2 Level 3 Total
31.12.2017 31.12.2017 31.12.2017 31.12.2017
GBP GBP GBP GBP
Assets (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Mortgage loans - - 880,460,164 880,460,164
Reserve fund - 13,157,350 - 13,157,350
Cash and cash equivalents - 76,921,528 - 76,921,528
Trade and other receivables - 2,848,110 - 2,848,110
Total - 92,926,988 880,460,164 973,387,152
Liabilities
Trade and other payables - 2,563,287 - 2,563,287
Borrowings - 66,000,000 - 66,000,000
Loan notes - 648,651,676 - 648,651,676
Total - 717,214,963 - 717,214,963
Level 1 Level 2 Level 3 Total
30.06.2017 30.06.2017 30.06.2017 30.06.2017
GBP GBP GBP GBP
Assets (Audited) (Audited) (Audited) (Audited)
Mortgage loans - - 881,512,233 881,512,233
Reserve fund - 13,157,350 - 13,157,350
Cash and cash equivalents - 86,022,869 - 86,022,869
Trade and other receivables - 3,522,323 - 3,522,323
Total - 102,702,542 881,512,233 984,214,775
Liabilities
Trade and other payables - 3,648,060 - 3,648,060
Loan notes - 715,734,468 - 715,734,468
Total - 719,382,528 - 719,382,528
There were no changes between the levels during the period.
The value of the mortgage loans is calculated by the Valuation Agent through a
shadow securitisation structure based on existing deals with current and
transparent pricing.
The other assets and liabilities included in the above table are carried at
amortised cost; their carrying values are a reasonable approximation of fair
value. Cash and cash equivalents include cash in hand and short-term deposits
with original maturities of three months or less.
Trade and other receivables includes collateral due and interest receivable due
within 3 months.
Trade and other payables represent the contractual amounts and obligations due
by the Company for settlement of trades and expenses.
Reserve fund includes cash held as part of the securitisation structure and so
can only be used in accordance with the Issue and Programme Documentation.
17. Dividend Policy
The Company has declared the following interim dividends in relation to the
period to 31 December 2017:
Period to Dividend Net Record date Ex-dividend Pay date
rate per dividend date
Share payable
(pence) (GBP)
30 September 1.5 3,750,000 20 October 2017 19 October 2017 31 October 2017
2017
31 December 2017 1.5 3,750,000 19 January 2018 18 January 2018 31 January 2018
In each subsequent financial year, it is intended that dividends on the
Ordinary Shares will be payable quarterly, all in the form of interim dividends
(the Company does not intend to pay any final dividends). It is intended that
the first three interim dividends of each financial year will be paid at a
minimum of 1.5p per Ordinary Share with the fourth interim dividend of each
financial year including an additional amount such that a significant majority
of the Company's net income for that financial year is distributed to
Shareholders.
The Board reserves the right to retain within a revenue reserve a proportion of
the Company's net income in any financial year, such reserve then being
available at the Board's absolute discretion for subsequent distribution to
Shareholders. The Company may offer Shareholders the opportunity to elect to
receive dividends in the form of further Ordinary Shares.
Under Guernsey law, companies can pay dividends in excess of accounting profit
provided they satisfy the solvency test prescribed by The Companies (Guernsey)
Law, 2008. 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. The Board confirms that the Company passed the
solvency test for each dividend paid.
18. Segment reporting
Operating segments are reported in a manner consistent with the internal
reporting used by the chief operating decision-maker. The chief operating
decision-maker, who is responsible for allocating resources and assessing
performance of the operating segments, has been identified as the Portfolio
Manager. The Portfolio Manager makes the strategic resource allocations on
behalf of the Company. The Company has determined the operating segments based
on the reports reviewed by the Portfolio Manager that are used to make
strategic decisions.
There are no differences from the last annual financial statements in the basis
of segmentation or in the basis of measurement of segment profit or loss.
The Portfolio Manager considers the business as three portfolios, which are
managed by separate specialist teams at the Portfolio Manager. These portfolios
comprise of UK mortgages and consist of a loan portfolio bought at a premium
(Malt Hill No.1 Plc), a loan portfolio bought at a discount (Oat Hill No.1 Plc)
and commitment to originate loans up to a limit (Cornhill Mortgages No.2
Limited).
The reportable operating segments derive their income by seeking investments to
achieve targeted returns consummate with an acceptable level of risk within
each portfolio. These returns consist of interest and the release of the
discount/premium.
The segment information provided to the Portfolio Manager for the reportable
segments is as follows:
Cornhill
Mortgages Malt Hill Oat Hill Total as at
No.2 Limited No.1 Plc No.1 Plc 31.12.2017
GBP GBP GBP GBP
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Interest income on mortgage 1,510,953 3,069,720 7,917,812 12,498,485
loans
Net interest expense on financial (100,634) (1,180,378) - (1,281,012)
liabilities at fair value through
profit and loss
Net gain from derivative financial 5,819 117,995 - 123,814
instruments
Interest expense on borrowings (313,546) - - (313,546)
Interest expense on loan notes - (1,885,953) (2,299,829) (4,185,782)
Servicer fees (128,170) (285,094) (605,930) (1,019,194)
Other expenses (606,345) (329,196) (779,421) (1,714,962)
Total net segment income/ 368,077 (492,906) 4,232,632 4,107,803
(expense)
Cornhill
Mortgages Malt Hill Oat Hill Total as at
No.2 Limited No.1 Plc No.1 Plc 31.12.2016
GBP GBP GBP GBP
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Interest income on mortgage 61,852 4,540,370 - 4,602,222
loans
Net interest expense on (614) (1,148,398) - (1,149,012)
financial liabilities at fair
value through profit and loss
Unrealised gain on financial 5,761 1,243,939 - 1,249,700
liabilities at fair value
through profit and loss
Interest expense on loan notes - (2,384,147) - (2,384,147)
Servicer fees (60,809) (324,444) - (385,253)
Other expenses (953,378) (330,855) - (1,284,233)
Total net segment (expense)/ (947,188) 1,596,465 - 649,277
income
A reconciliation of total net segmental income to total comprehensive gain/
(loss) is provided as follows.
31.12.2017 31.12.2016
GBP GBP
(Unaudited) (Unaudited)
Total net segment 4,107,803 649,277
income
Other fees and (1,506,678) (1,266,464)
expenses
Total comprehensive gain/(loss) for the period 2,601,125 (617,187)
There are no transactions between the reportable segments.
Total segment assets:
Cornhill
Mortgages Malt Hill Oat Hill Total as at
No.2 Limited No.1 Plc No.1 Plc 31.12.2017
GBP GBP GBP GBP
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Mortgage loans 117,210,663 229,696,223 497,087,546 843,994,432
Reserve fund 1,500,000 4,739,400 6,917,950 13,157,350
Other 1,412,220 5,232,130 7,904,311 14,548,661
120,122,883 239,667,753 511,909,807 871,700,443
Cornhill
Mortgages Malt Hill Oat Hill Total as at
No.2 Limited No.1 Plc No.1 Plc 30.06.2017
GBP GBP GBP GBP
(Audited) (Audited) (Audited) (Audited)
Mortgage loans 57,494,863 274,567,106 509,814,204 841,876,173
Reserve fund 1,500,000 4,739,400 6,917,950 13,157,350
Other 23,476 448,454 1,273,417 1,745,347
59,018,339 279,754,960 518,005,571 856,778,870
31.12.2017 30.06.2017
GBP GBP
(Unaudited) (Audited)
Segment assets for reportable segments 871,700,443 856,778,870
Other 65,220,977 87,799,845
Total assets 936,921,420 944,578,715
Total segment liabilities:
Cornhill
Mortgages Malt Hill Oat Hill Total as at
No.2 Limited No.1 Plc No.1 Plc 31.12.2017
GBP GBP GBP GBP
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Borrowings 66,000,000 - - 66,000,000
Loan notes - 191,348,115 457,303,561 648,651,676
Financial liabilities at 138,421 1,078,772 - 1,217,193
fair value through profit
and loss
Other 63,259 756,566 1,116,622 1,936,447
66,201,680 193,183,453 458,420,183 717,805,316
Cornhill
Mortgages Malt Hill Oat Hill Total as at
No.2 Limited No.1 Plc No.1 Plc 30.06.2017
GBP GBP GBP GBP
(Audited) (Audited) (Audited) (Audited)
Loan notes - 242,914,405 472,820,063 715,734,468
Financial liabilities 73,755 1,734,294 - 1,808,049
at fair value through
profit and loss
Other 120,121 804,552 1,069,612 1,994,285
193,876 245,453,251 473,889,675 719,536,802
31.12.2017 30.06.2017
GBP GBP
(Unaudited) (Audited)
Segment liabilities for reportable 717,805,316 719,536,802
segments
Trade and other 626,841 1,653,775
payables
Total liabilities 718,432,157 721,190,577
19. Ultimate Controlling Party
In the opinion of the Directors on the basis of shareholdings advised to them,
the Company has
no ultimate controlling party.
20. Subsequent Events
The second interim dividend for period ending 30 June 2018 of 1.5p per Ordinary
Share was declared on 11 January 2018 and paid on 31 January 2018.
Cornhill Mortgage No.1 Limited (SPV utilised in the securitisation of Malt Hill
No.1 Plc) and Cornhill Mortgage No.3 Limited (SPV utilised in the
securitisation of Oat Hill No.1 Plc) are currently in liquidation as the
mortgage portfolios held have been securitised. At the date of approval of the
Unaudited Condensed Consolidated Interim Financial Statements, these entities
have not yet been fully liquidated.
These Unaudited Condensed Consolidated Interim Financial Statements were
approved for issuance by the Board on 20 March 2018. There were no subsequent
events, apart from those mentioned above until this date.
GLOSSARY OF TERMS
ABS asset-backed security whose income payments
and hence value are derived from and
collateralized (or "backed") by a specified
pool of underlying assets
Acquiring Entity means UK Mortgages Corporate Funding
Designated Activity Company, a designated
activity company incorporated in Ireland
qualifying within the meaning of section 110
of the Taxes Consolidation Act 1997 to acquire
mortgage portfolios for on-selling to
Warehouse SPVs and issuing PPNs
Administrator Northern Trust International Fund
Administration Services (Guernsey) Limited (a
non-cellular company limited by shares
incorporated in the Island of Guernsey with
registered number 15532)
AIC Association of Investment Companies
AIC Code the AIC Code of Corporate Governance for
companies incorporated in Guernsey
AIC Guide the AIC Guide to Corporate Governance
AIFM or Maitland Maitland Institutional Services Limited, the
Company's alternative investment fund manager
for the purposes of regulation 4 of the AIFM
Regulations
Amortised Cost Accounting The process by which mortgages in the
Company's portfolio are valued at cost less
capital repayments and any provisions required
for impairment.
Audit Committee an operating committee of the Board of
Directors charged with oversight of financial
reporting and disclosure
Audited Consolidated Financial Audited Consolidated Financial Statements of
Statements the Company
BoAML the Bank of America Merrill Lynch
BTL Buy-to-let
Board of Directors or Board or the Directors of the Company
Directors
CHL Capital Home Loans
Class A Notes means the Class A Mortgage Backed Floating
Rate Notes issued by the Issuer and admitted
to trading on the Irish Stock Exchange
Company means UKML, Acquiring Entity, Issuer SPV and
Warehouse SPVs
Company's Articles or Articles the articles of incorporation of the Company
Continuation Vote An ordinary resolution that gives shareholders
the ability to instruct the board to prepare a
proposal to restructure or wind up a company
by means of a simple majority vote.
Corporate Broker Numis Securities Limited
CRS The Common Reporting Standard, a global
standard for the automatic exchange of
financial account information developed by
OECD
Custodian and Depositary Northern Trust (Guernsey) Limited (a
non-cellular company limited by shares
incorporated in the Island of Guernsey with
registered number 2651)
Derivative Instruments means instruments used to gain leveraged
exposure to mortgage portfolios, including but
not limited to Credit Linked Notes and Credit
Default Swaps
DAC UK Mortgages Corporate Funding Designated
Activity Company an independently managed,
Dublin based, section 110 designated activity
company that is responsible for the
warehousing and securitisation of mortgage
portfolios under the supervision of TFAM the
investment adviser. DAC is wholly financed by
the Company via Profit Participating Notes and
distributes substantially all of its profits
to the Company thereby qualifying for a
reduced rate of taxation, commonly known as a
Eurobond exemption. From a financial reporting
perspective DAC is consolidated with the
Company as it provides its services
exclusively to the Company
DSCR Debt Service Coverage Ratio
FFI Foreign Financial Institution
FRC the Financial Reporting Council
GFSC Code Code of Corporate Governance issued by the
Guernsey Financial Services Commission
Government and Public Securities means per the FCA definition, the investment,
specified in article 78 of the Regulated
Activities Order (Government and public
securities), which is in summary: a loan
stock, bond government and public security FCA
PRA or other instrument creating or
acknowledging indebtedness, issued by or on
behalf of:
(a) the government of the United Kingdom; or
(b) the Scottish Administration; or
(c) the Executive Committee of the Northern
Ireland Assembly; or
(d) the National Assembly of Wales; or
(e) the government of any country or territory
outside the United Kingdom; or
(f) a local authority in the United Kingdom or
elsewhere; or
(g) a body the members of which comprise: (i)
States including the United Kingdom or another
EEA State; or
(ii) bodies whose members comprise States
including the United Kingdom or another EEA
State; but excluding: (A) the instruments
specified in article 77(2)(a) to (d) of the
Regulated Activities Order; (B) any instrument
creating or acknowledging indebtedness in
respect of: (I) money received by the Director
of Savings as deposits or otherwise in
connection with the business of the National
Savings Bank; or (II) money raised under the
National Loans Act 1968 under the auspices of
the Director of Savings or treated as so
raised under section 11(3) o
Hedge Accounting This is the process by which the change in fair
value of a hedging instrument is offset by a
proportionate change in the fair value of the
company's portfolio to neutralise the
volatility of the company's net asset value.
It requires initial proof and ongoing
monitoring of the hedge effectiveness.
IFRS International Financial Reporting Standards
Investment Company a company whose main business is holding
securities for investment purposes
Internal Control a process for assuring achievement of an
organisation's objectives in operational
effectiveness and efficiency, reliable
financial reporting, and compliance with laws,
regulations and policies
IPO, Initial Public Offering means the initial public offering of shares in
the Company on the specialist fund segment of
the London Stock Exchange
IPD Interest Payment Date
IRR internal rate of return
IRS the US Internal Revenue Service
Issue means together the Placing and the Offer (or as
the context requires both of them
Issuer SPVs means special purpose vehicles established for
the specific purpose of securitisation and
issuing Retention Notes for purchase by the
Acquiring Entity
Junior Note These notes have the lowest priority claim on
capital and income from the securitisation SPV
and offer the highest potential returns in
exchange for bearing the first loss experienced
by the SPV.
Loan Financing Facility means a facility in terms of which ongoing
finance is provided by Bank of America Merrill
Lynch International Limited for a period of up
to two-years
LSE London Stock Exchange plc (a company registered
in England and Wales with registered number
2075721)
LTV means Loan to Value
Mortgage Pool/ Mortgage Portfolio The underlying mortgage loans that produce the
income for the securitised portfolios.
NAV means net asset value
OECD the Organisation for Economic Co-operation and
Development
Offer means the offer for subscription of Ordinary
Shares at 1 pence each to the public in the
United Kingdom on the terms and conditions set
out in Part 12 of the Prospectus and the
Application Form
Official List in reference to DAC and Issuer SPV refers to
the official list of the Irish Stock Exchange
p.l.c
In reference to the Company refers to the
official list of the London Stock Exchange
Ordinary Shares ordinary shares of 100p each in the capital of
the Company
Placing means the conditional placing by the Corporate
Broker, as agent for the Company, of up to 250
million ordinary shares at 1 pence each on the
terms and conditions set out or referred to in
the placing documents, being the Prospectus,
the Presentation, the P Proof, the flyer, the
press announcements, the contract note, any
other document prepared in connection with the
pre-marketing of the issue or the placing
programme
Portfolio Manager TwentyFour Asset Management LLP (a limited
liability partnership incorporated in England
and Wales with registered number OC335015)
Profit Participating Notes/PPN these are Eurobond notes issued by DAC to the
Company. The capital paid by the Company to DAC
to buy the notes is invested in mortgage pools
and DAC in turn pays income to the Company via
coupon payments on the notes
QE Quantitative easing (QE), also known as Large
Scale Assets Purchases, is an expansionary
monetary policy whereby a central bank buys
predetermined amounts of government bonds or
other financial assets in order to stimulate
the economy.
Rating Agency companies that assess the creditworthiness of
both debt securities and their issuers, for
these purposes Standard and Poor's, Moody's and
Fitch
Retention Notes means a Subordinated tranche of securities
which as part of the securitisation issuance
structure are issued for purchase by the
Acquiring Entity
RMBS Residential Mortgage-Backed Security
RNS Regulatory News Service
Section 110 Section 110 of the Irish Taxes Consolidation
Act 1997 (as amended). A Section 110 company is
an Irish resident special purpose vehicle
("SPV") which holds and/or manages "qualifying
assets" and usually distributes substantially
all of its income net of a fixed annual tax
payment.
Seasoning The weighted average age of a mortgage
portfolio.
Securitisation Vehicle special purpose vehicle incorporated in the UK
established for the purpose of issuing notes
collateralised by underlying mortgage pool
Senior Note Senior note holders receive first priority with
respect to income and capital distributions and
effectively provide long term leverage finance
to the Junior note holders.
Servicer Means the entity that maintains the
relationship with the underlying mortgage
borrower to answer questions, collect payments
and refinance existing loans if required.
Share Buyback the Company purchases shares in the market
Shareholders holders of Shares
Specialist Fund Segment the Specialist Fund Segment of the London Stock
Exchange
SPV means a special purpose vehicle
SVR Standard variable rate
TFS Term Funding Scheme
TML The Mortgage Lender
UK Code The UK Corporate Governance Code 2016
UKML UK Mortgages Limited
Valuation Agent Kinson Advisors LLP
WA LTV Weighted average loan-to-value
Warehousing the process by which mortgages are acquired in
a portfolio prior to securitisation. The
portfolio is typically leveraged by borrowing
from a warehouse credit facility. Three
warehouse SPVs; Cornhill Mortgages No. 1
Limited, Cornhill Mortgages No. 2 Limited and
Cornhill Mortgages No. 3 Limited, have been
established for the purpose of warehousing the
first and second transactions of the company
respectively
Warehouse SPV a special purpose vehicle, incorporated in the
UK, established for the purpose of warehousing
the mortgage portfolio
CORPORATE INFORMATION
Directors Custodian, Principal Banker and Depositary
Christopher Waldron - Chairman Northern Trust (Guernsey) Limited
Richard Burrows PO Box 71
Paul Le Page Trafalgar Court
Helen Green Les Banques
St Peter Port
Guernsey, GY1 3DA
Registered Office Secretary and Administrator
PO Box 255 Northern Trust International Fund
Trafalgar Court Administration
Les Banques Services (Guernsey) Limited
St Peter Port PO Box 255
Guernsey, GY1 3QL Trafalgar Court
Les Banques
St Peter Port
Guernsey, GY1 3QL
Alternative Investment Fund Manager Corporate Broker
Maitland Institutional Services Limited Numis Securities Limited
Springfield Lodge The London Stock Exchange Building
Colchester Road 10 Paternoster Square
Chelmsford, CM2 5PW London, EC4M 7LT
Portfolio Manager Independent Auditors
TwentyFour Asset Management LLP PricewaterhouseCoopers CI LLP
8th Floor PO Box 321
The Monument Building Royal Bank Place
11 Monument Street 1 Glategny Esplanade
London, EC3R 8AF St Peter Port
Guernsey, GY1 4ND
UK Legal Advisers to the Company Receiving Agent
Eversheds LLP Computershare Investor Services plc
One Wood Street The Pavilions
London, EC2V 7WS Bridgwater Road
Bristol, BS13 8AE
Guernsey Legal Advisers to the Company Registrar
Carey Olsen Computershare Investor Services
Carey House (Guernsey) Limited
Les Banques 1st Floor
St Peter Port Tudor House
Guernsey, GY1 4BZ Le Bordage
St Peter Port
Guernsey, GY1 1DB
END
(END) Dow Jones Newswires
March 20, 2018 11:34 ET (15:34 GMT)
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