Interim Management Statement
19 Mayo 2010 - 11:19AM
UK Regulatory
TIDMCDO
RNS Number : 2321M
Carador PLC
19 May 2010
19 May 2010
Carador plc
("Carador" or the "Company")
Interim Management Report[1]
The following interim management statement relates to the period commencing 1
January 2010 to 19 May 2010 and has been prepared solely to provide information
to meet the requirements of the Irish Transparency Regulations.
Investment objective
The Company's investment objective is to produce attractive and stable returns,
with low volatility compared to equity markets, by investing in a diversified
portfolio of senior notes of collateralised debt obligations or "CDOs"
collateralized by senior secured bank loans and equity and mezzanine tranches of
CDOs. CDOs are debt securities backed by a diversified pool of underlying
assets. The CDO uses the cash flows from this portfolio of assets to back the
issuance of multiple classes of rated debt securities which, together with the
Equity Notes, are used to fund the purchase of the underlying assets.
Carador performance summary
+--------------------+-----------+-----------+-------------+---------+
| |31-Mar-10 |31-Dec-09 | Dividends | Total |
| | | | in Quarter | Return |
+--------------------+-----------+-----------+-------------+---------+
| EUR Share | | | | |
| Class: | | | | |
+--------------------+-----------+-----------+-------------+---------+
| Share Price | 31.00c | 25.00c | 1.00c | +28.00% |
+--------------------+-----------+-----------+-------------+---------+
| NAV per Share | 46.98c | 44.18c | 1.00c | +8.60% |
+--------------------+-----------+-----------+-------------+---------+
| Premium/(Discount) | -34.01% | -43.41% | | |
+--------------------+-----------+-----------+-------------+---------+
| | | | | |
+--------------------+-----------+-----------+-------------+---------+
| |31-Mar-10 |31-Dec-09 | Dividends | Total |
| | | | in Quarter | Return |
+--------------------+-----------+-----------+-------------+---------+
| USD Share | | | | |
| Class: | | | | |
+--------------------+-----------+-----------+-------------+---------+
| Share Price | 41.00c | 35.00c | 1.45c | +21.29% |
+--------------------+-----------+-----------+-------------+---------+
| NAV per Share | 60.06c | 56.99c | 1.45c | +7.94% |
+--------------------+-----------+-----------+-------------+---------+
| Premium/(Discount) | -31.74% | -38.58% | | |
+--------------------+-----------+-----------+-------------+---------+
The Board declared an interim dividend of EUR0.01 per ordinary share in respect
of the quarterly period ended 31 December 2009 and EUR0.0091 per ordinary share
in respect of the quarterly period ended 31 March 2010. US Dollar Class
shareholders received US$0.0145 per share and US$0.0124 per share, respectively.
The year to date total NAV returns for the EUR Share Class and the USD Share
Class including the dividend paid in April 2010, were 10.66% and 10.12%
respectively. The closing prices for the EUR Share Class and the USD Share
Class, as at 17 May 2010, were EUR0.41 and US$0.53 respectively, implying a year
to date total share price return of 71.64% and 59.11% respectively and discounts
to the end March NAV of 12.71% and 11.75% respectively.
It is believed that the increase in NAV in the period reflects the improvements
in the leveraged loan and CLO market. As at 31 March 2010, approximately 84% of
investments (excluding cash) were priced using either firm market prices, traded
prices or counterparty valuations.
Investment manager's review
Leveraged Loans
The leveraged loan market performed strongly in the first quarter of 2010. The
CS Leveraged Loan Index generated a 4.35% return[2] with no negative months,
outperforming investment grade bonds (Credit Suisse Liquid US Corporate Index
+2.32%), and only marginally underperforming the high yield bond market (CS High
Yield Index +4.47%). The Credit Suisse West Euro Leveraged Loan Index generated
a 4.40% return in the period.
The top performing US leveraged loan industry sectors in 1Q10 were consumer
durables (+7.69%), housing (+7.44%) and aerospace (+6.63%). The worst performing
sectors, although still generating positive returns, were service (+2.39%),
healthcare (+3.39%) and food and drug (+3.53%) ([3]).
The performance has been led by the lower rating groups with B rated loans
returning +4.50% and BB rated loans returning +3.20%. Distressed loans (CC, C
and default) returned 7.92% in the quarter.[4]
The discount margin for the CS Leveraged Loan Index, assuming a 3-year average
life, tightened from +697 bps on 31 December 2009 to +595 bps on 30 March 2010.
The following table summarizes 1Q10 returns for leveraged loans, high yield
bonds and the S&P500 Index[5].
+------------------------------------+---------+
| | 1Q10 |
+------------------------------------+---------+
| CS Leveraged Loan Index | +4.35% |
+------------------------------------+---------+
| CS Euro Leveraged Loan Index | +4.40% |
+------------------------------------+---------+
| CS Distressed Loan Index |+11.93% |
+------------------------------------+---------+
| CS High Yield Index | +4.47% |
+------------------------------------+---------+
| Credit Suisse LUCI (Liquid US | +2.32% |
| Corporate Index) | |
+------------------------------------+---------+
| S&P 500 | +5.39% |
+------------------------------------+---------+
The trailing 12-month institutional leveraged US loan default rate decreased
from 9.46% in 2009 to 6.87%[6]. In Europe, the trailing 12-month institutional
leveraged loan default rate decreased from 6.68% in 2009 to 5.20%. Moody's
expects that the issuer weighted Speculative-Grade Corporate Default Rate in
2010 will be 3.3%, well below the 12.50% reached in 2009[7].
Recovery rates for defaulted loans increased during the period but are still
below their historical average. The average recovery in 1Q10 was 49% and the
trailing 12-month average recovery rate for loans increased to 43%. The
aggregate number, however, hides a significant difference between first lien and
second lien recovery rates. 1Q10 first lien recoveries were 69%. According to
Credit Suisse, the differential in recovery rates between first lien loans and
second lien loans has never been wider at 38.25%. The average market price for
US Stressed loans was 75.53% at the end of the quarter[8].
CLOs
CLO spreads continued to tighten in the first quarter with mezzanine and
subordinated tranches outperforming. AAA US CLO spreads fell to +165 bps from
+190 at the end of 2009. Junior AAA US CLO spreads fell to +200 bps from +250 at
the end of 2009. The prices for AA, A, BBB and BB tranches increased by 5 to 15
points in the period[9].
Despite the volatility experienced in the broader markets in 2Q10 (European
sovereign downgrades, Greece, EUR, etc), CLO tranches have been resilient. The
factors behind this performance have been both fundamental and technical.
The strong economic data flow has been supportive for corporate credit and, as a
consequence, the secured loans underlying the CLO portfolios have seen lower
default rates and higher recovery rates than expected. In addition, CLO
portfolios have the potential to outperform the broader loan market given
typical CLO investment guidelines which will include a maximum exposure per
issuer and sector. Over 60% of leveraged loan defaults (LTM to March 2010) have
been concentrated in the Media/Telecom and Transportation sectors[10]. A typical
CLO will have a 10-15% maximum exposure to any single sector, reducing the
impact of high defaults within specific industries. CLOs have the potential to
also benefit from higher recovery rates since they generally limit the exposure
to second lien and mezzanine loans. Second lien loans accounted for 26% of
defaults by issuer over the last 12 months. During this time period, first lien
recovery rates averaged 53.83%, while second lien recoveries averaged
15.58%[11]. The average recovery rate for defaulted loans in CLO portfolios has
benefited from the lower exposure to second lien and mezzanine loans vs the loan
market as a whole.
From a technical standpoint, CLOs are supported by the limited number of sellers
in the market, and the positive relative value to the underlying leveraged
loans. According to JP Morgan[12], the difference between the average price of
the leveraged loan index and the weighted average price of CLO tranches is still
6.8%, off the 15%+ highs experienced in 2009 but still well above the historical
average. Although there have been attempts to launch new transactions in the
first quarter, the level of supply is negligible. In addition, the current
pricing in senior CLO notes (L+170/190[13]) and the lower available leverage
makes new CLO subordinated notes less compelling when compared to secondary
market levels.
The subordinated tranches of CLOs have experienced significant demand and price
appreciation. Besides the key fundamental and technical factors mentioned above,
they have benefited from strong cash flows. Investors have also reassessed the
probability of future cash flow diversion.
As we mentioned above, CCC rated loans performed strongly this quarter. The
overcollateralization and interest diversion tests of CLOs benefit from price
improvements in CCC assets since these reduce the haircut required when the
percentage of CCC rated assets in the CLO exceeds the maximum required.
Loan prepayment rates have increased to levels not seen since 2006-7[14] as
issuers take advantage of the opportunities to refinance shorter maturity loans
with either longer term loans or high yield bonds. Besides the benefit of
reducing the risks associated with the 2013-15 "maturity wall", the new loans
offer higher spreads and often amendment fees. CLOs receive par repayment for
assets in the portfolio which they can often reinvest at a discount or at a
higher spread over Libor, improving the coverage ratios and average portfolio
spread. The combination of better overcollateralization ("OC") ratios and higher
average spreads have resulted in high cash on cash payments on CLO subordinated
notes. The higher OC values could be seen as increasing the certainty of future
cash flows, improving the valuation of the subordinated notes, which is
generally based on a multiple over received and expected cash flows.
We expect a period of consolidation in the CLO market. Despite the attractive
relative value and the constructive technical background, the natural risk
aversion generated by the crisis in Europe is likely to cap future gains. We
believe that the lack of supply and the strong cash flow performance,
particularly in the subordinated and low mezzanine tranches offers a cushion
versus mark to market which is likely to prevent significant selling.
Portfolio Analysis as at 31 March 2010
+-----------------+-------------------+-------------+---------+
| By Seniority: | Par | % NAV |
+-------------------------------------+-------------+---------+
| Senior Securities (original rating: | 17,002,377 | 20.87% |
| AAA/AA) | | |
+-------------------------------------+-------------+---------+
| Mezzanine Securities (original | 27,993,761 | 25.42% |
| rating: A/BBB/BB) | | |
+-------------------------------------+-------------+---------+
| Equity | 62,341,236 | 40.00% |
+-------------------------------------+-------------+---------+
| Cash | | 13.71% |
+-------------------------------------+-------------+---------+
| Total | 107,337,374 | 100.00% |
+-------------------------------------+-------------+---------+
| | | | |
+-----------------+-------------------+-------------+---------+
| By Asset Class: | | % NAV |
+-------------------------------------+-------------+---------+
| Broadly Syndicated Sub-Investment Grade | 18.84% |
| Secured Loans-Europe | |
+---------------------------------------------------+---------+
| Broadly Syndicated Sub-Investment Grade | 66.96% |
| Secured Loans-US | |
+---------------------------------------------------+---------+
| Middle Markets Secured Loans-US | | 0.49% |
+-------------------------------------+-------------+---------+
| Cash | | 13.71% |
+-------------------------------------+-------------+---------+
| Total | | 100.00% |
+-------------------------------------+-------------+---------+
| | | | |
+-----------------+-------------------+-------------+---------+
+---------------------------------+----+--------------+
| By Currency (excluding cash): | | % NAV |
+---------------------------------+----+--------------+
| EUR | | 23.11% |
+---------------------------------+----+--------------+
| USD | | 76.89% |
+---------------------------------+----+--------------+
| Total | | 100.00% |
+---------------------------------+----+--------------+
| | | |
+---------------------------------+----+--------------+
| By Performance: | | % NAV |
+---------------------------------+----+--------------+
| Distribution Paid as of Latest | | 84.95% |
| Payment Date: | | |
+---------------------------------+----+--------------+
| Distribution Diverted as of | | 1.34% |
| Latest Payment Date: | | |
+---------------------------------+----+--------------+
| Cash: | | 13.71% |
+---------------------------------+----+--------------+
| Total | | 100.00% |
+---------------------------------+----+--------------+
+----+---------------------+----------+-----------------+------+----------+----------+
| | Investment | Manager |Original | % NAV |
| | | | Rating | |
+----+--------------------------------+------------------------+----------+----------+
| 1 | ACA CLO 2006-2 PREF | | Apidos Capital | NR/NR | 1.43% |
| | | | Management | | |
+----+---------------------+----------+------------------------+----------+----------+
| 2 | Apidos Quattro CDO | | Apidos Capital | Aa2/AA | 2.73% |
| | B | | Management | | |
+----+---------------------+----------+------------------------+----------+----------+
| 3 | BASE 2008-1X E | | Prudential M&G | Ba2/BB | 2.14% |
+----+---------------------+----------+------------------------+----------+----------+
| 4 | Beach Street 4 | | Static | Aa2/AA | 5.56% |
| | Synthetic CLO | | | | |
| | 2006-16B | | | | |
+----+---------------------+----------+------------------------+----------+----------+
| 5 | Denali Capital CLO | | DC Funding Partners | NR/NR | 1.18% |
| | VI PREF | | LLC | | |
+----+---------------------+----------+------------------------+----------+----------+
| 6 | Eaton Vance CDO | | Eaton Vance | NR/NR | 1.14% |
| | VIII SUBORD | | | | |
+----+---------------------+----------+------------------------+----------+----------+
| 7 | Egret Funding CLO I | | Egret/SocGen | NR/NR | 0.82% |
| | M | | | | |
+----+---------------------+----------+------------------------+----------+----------+
| 8 | Eurocredit CDO II B | | ICG | NR/NR | 0.20% |
+----+---------------------+----------+------------------------+----------+----------+
| 9 | FM Leveraged | | GSO/Blackstone Debt | NR/NR | 0.12% |
| | Capital Fund II | | Funds Management LLC | | |
| | PREF | | | | |
+----+---------------------+----------+------------------------+----------+----------+
| 10 | Foxe Basin CLO 2003 | | GSO/Blackstone Debt | A2/A | 4.14% |
| | B | | Funds Management LLC | | |
+----+---------------------+----------+------------------------+----------+----------+
| 11 | Foxe Basin CLO 2003 | | GSO/Blackstone Debt | NR/NR | 0.20% |
| | PREF | | Funds Management LLC | | |
+----+---------------------+----------+------------------------+----------+----------+
| 12 | Gale Force 2 CLO | | GSO/Blackstone Debt | NR/NR | 10.98% |
| | EQUITY | | Funds Management LLC | | |
+----+---------------------+----------+------------------------+----------+----------+
| 13 | Gale Force 3 CLO D | | GSO/Blackstone Debt |Baa2/BBB | 2.93% |
| | | | Funds Management LLC | | |
+----+---------------------+----------+------------------------+----------+----------+
| 14 | Gale Force 3 CLO | | GSO/Blackstone Debt | NR/NR | 3.57% |
| | PREF | | Funds Management LLC | | |
+----+---------------------+----------+------------------------+----------+----------+
| 15 | Gale Force 4 CLO E | | GSO/Blackstone Debt | Ba2/BB | 5.29% |
| | | | Funds Management LLC | | |
+----+---------------------+----------+------------------------+----------+----------+
| 16 | Gale Force 4 CLO | | GSO/Blackstone Debt | NR/NR | 9.76% |
| | INCOME | | Funds Management LLC | | |
+----+---------------------+----------+------------------------+----------+----------+
| 17 | Green Park CDO E | | Blackstone Debt | Ba2/BB | 0.90% |
| | | | Advisors | | |
+----+---------------------+----------+------------------------+----------+----------+
| 18 | Harbourmaster CLO 7 | | Harbourmaster | NR/NR | 0.41% |
| | C | | | | |
+----+---------------------+----------+------------------------+----------+----------+
| 19 | Hyde Park CDO B.V. | | Blackstone Debt | A3/A- | 2.09% |
| | C | | Advisors | | |
+----+---------------------+----------+------------------------+----------+----------+
| 20 | Hyde Park CDO B.V. | | Blackstone Debt | Ba3/BB- | 2.57% |
| | E | | Advisors | | |
+----+---------------------+----------+------------------------+----------+----------+
| 21 | Inwood Park CDO | | Blackstone Debt | NR/NR | 0.70% |
| | SUBORD | | Advisors | | |
+----+---------------------+----------+------------------------+----------+----------+
| 22 | Leopard CLO IV PREF | | Prudential M&G | NR/NR | 0.64% |
+----+---------------------+----------+------------------------+----------+----------+
| 23 | Leopard CLO V B | | Prudential M&G | Aa2/AA | 5.67% |
+----+---------------------+----------+------------------------+----------+----------+
| 24 | Mountain View CLO | | Seix Advisors | NR/NR | 0.57% |
| | II PREF | | | | |
+----+---------------------+----------+------------------------+----------+----------+
| 25 | Mountain View CLO | | Seix Advisors | Ba2/BB | 1.69% |
| | II E | | | | |
+----+---------------------+----------+------------------------+----------+----------+
| 26 | Mountain View CLO | | Seix Advisors | Aa1/AAA | 2.26% |
| | III A2 | | | | |
+----+---------------------+----------+------------------------+----------+----------+
| 27 | NYLIM Flatiron CDO | | New York Life | NR/NR | 1.23% |
| | 2006-1 SUBORD | | | | |
+----+---------------------+----------+------------------------+----------+----------+
| 28 | Panther CDO III | | Prudential M&G | NR/NR | 0.35% |
| | PREF | | | | |
+----+---------------------+----------+------------------------+----------+----------+
| 29 | Prospect Park CDO | | Blackstone Debt | NR/NR | 1.81% |
| | SUBORD | | Advisors | | |
+----+---------------------+----------+------------------------+----------+----------+
| 30 | Regents Park 1A F | | Blackstone Debt | NR/NR | 0.99% |
| | | | Advisors | | |
+----+---------------------+----------+------------------------+----------+----------+
| 31 | RMF Euro CDO III | | RMF Investment | NR/NR | 0.72% |
| | SUBORD | | Management | | |
+----+---------------------+----------+------------------------+----------+----------+
| 32 | RMF Euro CDO IV | | RMF Investment | NR/NR | 0.31% |
| | SUBORD | | Management | | |
+----+---------------------+----------+------------------------+----------+----------+
| 33 | Sargas CLO I (Prev | | Sargas Asset | NR/NR | 0.49% |
| | CS Advisors CLO I) | | Management | | |
| | SUBORD | | | | |
+----+---------------------+----------+------------------------+----------+----------+
| 34 | Venture VII CDO | | MJX Asset Management | NR/NR | 1.34% |
| | INCOME | | | | |
+----+---------------------+----------+------------------------+----------+----------+
| 35 | Versailles CLO ME I | | BNP | NR/NR | 1.04% |
| | SUBORD | | | | |
+----+---------------------+----------+------------------------+----------+----------+
| 36 | Westbrook CLO B | | Shenkman Capital | Aa2/AA | 4.66% |
| | | | Management | | |
+----+---------------------+----------+------------------------+----------+----------+
| 37 | Westbrook CLO D | | Shenkman Capital |Baa2/BBB | 3.67% |
| | | | Management | | |
+----+---------------------+----------+------------------------+----------+----------+
| | Cash | | | | | 13.71% |
+----+---------------------+----------+-----------------+------+----------+----------+
| | | | | | | |
+----+---------------------+----------+-----------------+------+----------+----------+
Material Events
On 12 February 2010, the Company issued a circular to shareholders in order to
provide an update on GSO Capital Partners International LLP's implementation of
the Company's investment strategy and to notify them of the implementation of a
share repurchase programme by the Company. As at 18 May 2010, no shares had been
repurchased by the Company.
On 21 April 2010, the Company announced that it had received notices to convert
41,110,425 Euro Class Shares into 43,502,785 USD Class Shares. Accordingly, the
Company's issued share capital as at 26 April 2010 is represented by 11,782,113
Euro Class Shares and 125,871,695 USD Class Shares
Further to the announcement on 26 April 2010 of a tender offer by GSO Capital
Partners Employee Side by Side Fund LLC and Miguel Ramos-Fuentenebro (the
"Offerors"), the Offerors announced on 13 May 2010 that they had accepted a
total of 1,179,932 US Dollar Shares and 550,000 Euro Shares validly tendered
under the tender offer at the US Dollar Tender Price of $0.50 and Euro Tender
Price of EUR0.37 respectively, representing approximately 1.2% of the issued
Shares of Carador.
Disclaimer
This document is for informational purposes only and does not constitute an
offer of, or the solicitation of an offer to buy or subscribe for, securities of
Carador. The information on this letter is provided solely for information and
does not constitute investment advice or personal investment recommendations.
Information on past performance, where given, is not necessarily a guide to
future performance.
Attention is drawn to risk factors which may be applicable to Carador and
certain of the information contained herein, set out in the Company's listing
particulars dated 12 April 2006, its prospectus dated 30 September 2008 and its
supplement dated 10 March 2009.
Information contained herein which relates to the net asset value performance of
Carador may not be indicative of how Carador's investments may perform in the
future. Moreover the values of such investments may fluctuate considerably and
the historic net asset values shown for Carador take no account of the costs or
practical difficulties of realising some or all of such investments. The value
of investments mentioned in this letter may go down as well as up and investors
may not get back the amount invested. No assurance can be given that the
investment objective will be achieved. Changes in rates of exchange between
currencies may cause the value of investments to decrease or increase.
The volatility of the indices reflected in this document may be materially
different from that of the performance of Carador. In particular, Carador does
not have direct exposure to leveraged loans, but rather its exposure comes
through is ownership of CLO securities. In addition, these indices employ
different investment guidelines and criteria than Carador; as a result,
Carador's exposure to leveraged loans may differ significantly from the
securities or other assets that comprise the indices. The performance of these
indices has not been selected to represent an appropriate benchmark to compare
to the performance of Carador, but rather is disclosed to allow for comparison
of the performance of Carador to that of well known, relevant indices. A
summary of the investment guidelines of these indices is available upon request.
[1] Information on past performance, where given, is not necessarily a guide to
future performance
[2] YTD to 31 March 2010
[3] Source: Credit Suisse, Leveraged Loan Index Performance, 1 April 2010
[4]Source: Credit Suisse, Leveraged Loan Index Performance, 1 April 2010
[5]The volatility of the indices reflected above and elsewhere in this report
may be materially different from that of the performance of Carador. In
particular, Carador does not have direct exposure to leveraged loans, but rather
its exposure comes through its ownership of CLO securities. In addition, these
indices employ different investment guidelines and criteria than Carador; as a
result, Carador's exposure to leveraged loans may differ significantly from the
securities or other assets that comprise the indices. The performance of these
indices has not been selected to represent an appropriate benchmark to compare
to the performance of Carador, but rather is disclosed to allow for comparison
of the performance of Carador to that of well known, relevant indices. A
summary of the investment guidelines of these indices is available upon request.
[6] Source: Credit Suisse, High Yield and Leveraged Loan Default Review, 15
April 2010
[7] Source: Credit Suisse, High Yield and Leveraged Loan Default Review, 15
April 2010
[8]Source: Credit Suisse, High Yield and Leveraged Loan Default Review, 15 April
2010
[9]Source: Citibank, Global Structured Credit Strategy, 21 April 2010
([10])Source: Credit Suisse, High Yield and Leveraged Loan Default Review, 15
April 2010
[11] Source: Credit Suisse, High Yield and Leveraged Loan Default Review, 15
April 2010
[12]JP Morgan, US Fixed Income Markers Weekly, 30 April 2010
[13]ALM LOAN FUNDING 2010-1, LTD.Priced AAA debt at L+170 on 18 May 2010
[14] Citibank estimates that the annualized rate of prepayments over the last
four months for US leveraged loans is approximately 30%, based on the S&P index
data
This information is provided by RNS
The company news service from the London Stock Exchange
END
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