M&G Credit Income Investment Trust plc (MGCI)
2023 Interim Results
21-Sep-2023 / 07:00 GMT/BST
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LEI: 549300E9W63X1E5A3N24
M&G Credit Income Investment Trust plc
Half Year Report and unaudited Condensed Financial Statements
for the six months ended 30 June 2023
The full version of the Half Year Report and unaudited Condensed Financial Statements can be obtained from the
following website: www.mandg.co.uk/creditincomeinvestmenttrust
Chairman's statement
Performance
Your Company delivered a positive NAV total return of 3.58% for the six months to 30 June 2023. This compared
favourably with the performance of investment grade fixed income indices such as the ICE BofA Sterling Corporate and
Collateralized Index (-0.97%) and the ICE BofA 1-3 Year BBB Sterling Corporate & Collateralized Index (+0.49%).
The first half of the year saw forward-looking policy rate expectations continue to drive pricing in risk assets.
Combined with a highly uncertain economic outlook this has resulted in persistent and elevated market volatility,
although lower than was the case in 2022. There have been some issuer specific instances of deterioration in credit
quality in the portfolio as the effects of higher interest rates and tightening financial conditions have started to
materialise. In particular, our investment in the bonds of the French supermarket group, Casino, has had to be written
down to a nominal amount (prior to the write down it represented 0.5% of the portfolio). This has been an outlier: our
Investment Manager has constructed a diversified portfolio which is designed to protect long-run performance against
idiosyncratic risk and credit incidents since inception have been limited.
The year began with speculation that central banks might be approaching the end of their rate hiking cycles, which
sparked a renewed appetite for risk and fuelled a strong market rally across bonds and equities. However, optimism over
a possible reprieve from interest rate hikes faded as the quarter progressed, with central banks remaining resolute in
their fight to curb inflation. This was evident as interest rates were raised again in March despite pronounced market
volatility arising from fears about the health of the global banking system.
By comparison, the second quarter was relatively calm as the feared contagion in the banking sector failed to
materialise: this led to diminished volatility in bonds and equities and a tightening in credit spreads even though
interest rates continued to rise. Volatility in sovereign bond markets and rate weakness persisted although the
Investment Manager continued to hedge interest rate risk and maintain low portfolio duration which mitigated the effect
on your Company's performance. The first half of the year closed on a positive note for financial markets as opinion
began to shift to the view that a future economic downturn would be less severe than previously feared.
Share buybacks and discount management
Your board remains committed to seeking to ensure that the Ordinary Shares trade close to NAV in normal market
conditions through buybacks and issuance of Ordinary Shares. During the half year, the Company bought back 100,000
shares pursuant to the 'zero discount' policy initially announced on 30 April 2021. The Company's Ordinary Shares
traded at an average discount to NAV of 0.83% during the period ended 30 June 2023. On 30 June 2023 the Ordinary Share
price was 89.5p, representing a 4.9% discount to NAV as at that date. As at 30 June 2023, 2,612,749 shares were held in
treasury with an additional 158,783 repurchased since the period end.
Amendment of Articles of Association
The success to date of our 'zero discount' policy gave our shareholders the confidence to defer the opportunity to
realise the value of some or all of their Ordinary Shares at NAV per Ordinary Share less costs (the 'Liquidity
Opportunity') in 2023 as set out in your Company's Articles of Association (the 'Articles'). The Articles were duly
amended at a general meeting on 15 June and the next Liquidity Opportunity will now occur at, or within the twelve
months prior to, the 2028 annual general meeting unless shareholders direct by way of a special resolution not to offer
such Liquidity Opportunity. Our Investment Manager thus now has an extended window in which to take account of the
attractive opportunities it expects to continue to occur in volatile markets.
Dividends
Your Company is currently paying four, quarterly interim dividends at an annual rate of SONIA plus 4%, calculated by
reference to the adjusted opening NAV as at 1 January 2023. The Company paid dividends of 1.77p and 1.93p per Ordinary
Share in respect of the quarters to 31 March 2023 and 30 June 2023 respectively. Together with the dividends of 1.14p
and 2.43p per Ordinary Share paid by the Company in respect of the quarters to 30 September 2022 and 31 December 2022
respectively, the Company's shares offer a yield (based on share price at the time of writing) of 8.1%. Your Company's
Investment Manager continues to believe that an annual total return, and thus ultimately a dividend yield, of SONIA
plus 4% will continue to be achievable although there can be no guarantee that this will occur in any individual year.
Outlook
So far in 2023, financial markets have been far less volatile than they were over the course of last year, which has
been supportive for credit spreads. The Company's positive performance has been driven by the portfolio's low interest
rate sensitivity as well as the additional income generated by higher yielding private assets. The pipeline of private
asset opportunities looks healthy and our Investment Manager has been able to use its ability to invest across both
public and private markets to improve the yield of the portfolio.
Your Company's portfolio (including irrevocable commitments) is now 57% invested in private assets, with additional
investments of approximately 9% in illiquid publicly listed assets which are intended to be held to maturity. The
Investment Manager will continue to deploy capital into both public and private areas of the fixed income market,
depending on where it sees the most attractive relative value. The Company's revolving credit facility was fully repaid
over the period and as at 30 June 2023 remained undrawn and ready to be utilised to take advantage of any future
episodes of market volatility.
Your board believes that the Company remains well positioned to achieve its return and dividend objectives, as set out
above in the section entitled 'Dividends'.
David Simpson
Chairman
20 September 2023
Financial highlights
Key data
As at As at
30 June 2023 31 December 2022
(unaudited) (audited)
Net assets (GBP'000) 133,828 135,109
Net asset value (NAV) per Ordinary Share 94.16p 94.99p
Ordinary Share price (mid-market) 89.5p 92.1p
Discount to NAVa 4.9% 3.0%
Ongoing charges figurea 1.23% 1.22%
Return and dividends per Ordinary Share
Six months ended Year ended
30 June 2023 31 December 2022
(unaudited) (audited)
Capital return 0.7p (6.0)p
Revenue return 2.6p 4.2p
NAV total returna 3.6% (1.7)%
Share price total returna 1.6% (2.8)%
Total dividends declaredb 3.70p 5.35p
a Alternative performance measure. Please see pages 31 to 32 in
the full Half Year Report for further information.
b The total dividends declared in respect of each period equated
to a dividend yield of SONIA plus 4% on the adjusted opening NAV of
the relevant period.
Investment manager's report
We are pleased to provide commentary on the factors that have
had an impact on our investment approach since the start of the
year. In particular we discuss the performance and composition of
the portfolio.
In the first half of 2023 investors were forced to navigate
volatile market conditions as central banks pressed ahead with the
sharpest and most aggressive interest rate hiking cycles seen since
the 1980s. The year started positively, with optimism about China's
reopening and hopes that inflation might be slowing fuelling a
market rally. Into this strength, we sold investment grade bonds
which had been purchased at significantly wider spreads, many in
the wake of the mini-budget crisis. We redeployed proceeds into
financial credits which priced with an attractive new issue premium
and also paid down the outstanding loan balance on the Company's
credit facility as we looked to reduce portfolio risk. Share prices
retreated and bond yields increased in February amid concerns that
central banks would keep raising interest rates to tackle
persistently high inflation. In March, volatility spiked as the
collapse of Silicon Valley Bank in the US and the emergency rescue
of Credit Suisse in Switzerland sparked turmoil in the global
banking sector. The diversified nature of the portfolio and
relatively low allocation to debt issued by banks mitigated the
effects of this stress episode on the Company's performance. We
remained active in the private part of the fixed income market,
reducing exposure to the M&G European Loan Fund and using
redemption proceeds to fund a GBP2 million subscription in M&G
Lion Credit Opportunity Fund IV ('Lion IV'). This was a strategic
decision to take advantage of wider spreads and attractive yields
available in the mezzanine ABS space in
which Lion IV invests. Additional private activity in the early
part of the year saw us add to an existing senior secured loan
holding on a luxury, business-to-business retail asset, whilst we
also purchased the mezzanine loan in a commercial real estate
transaction secured over a freehold office building. An additional
GBP1.2 million of commitments to existing private loans was also
funded over the first quarter.
The impact of inflation and higher interest rates on economic
activity remained in focus in the second quarter of the year. Core
inflation (excluding food and energy) continued to prove stubbornly
persistent whilst labour markets remained at undesirably tight
levels. The European banking sector showed no signs of contagion
following events in March which meant market volatility reduced and
paved the way for investor sentiment to improve. At this time we
took the opportunity to exit positions in troubled issuers Intu SGS
and Boporan, both of which had materially underperformed. In May,
CPI data in the US and Europe provided a downside surprise as
disinflationary trends began to materialise, however the UK
remained an outlier as its headline CPI reading came in notably
higher than expected at 8.7%. This sparked a fresh sell-off in UK
government bonds which continued to underperform peers, although
the portfolio's duration hedge did its job and mitigated the drag
on performance from the climb higher in risk-free rates. Portfolio
activity increased as we rotated out of tighter yielding bonds,
redeploying proceeds into comparable or higher rated asset backed
securities (ABS) and collateralised loan obligations (CLOs) at new
issue. This provided a significant spread pick-up and improved both
the overall yield and credit quality of the portfolio. We continued
to add attractively priced private assets into the portfolio as the
pipeline of opportunities improved. Pleasingly, these included two
secondary market loans in the infrastructure space, a sector where
we are less active due to the lower returns typically on offer in
primary market transactions. The first is an investment grade
quality waste-to-energy (utility) asset, the second, a senior
secured loan issued by a prominent player in the UK's fibre
broadband space which we purchased at a notable discount to par,
meaning the loan will return significantly in excess of our target
return over its term.
We are currently seeing a healthy and diverse pipeline of
private investment opportunities across a range of sectors. The
funded private asset portion of the portfolio increased marginally
over the period to 57.72% (versus 57.02% at 31 December 2022) as
new private asset purchases were offset by repayments approximating
5% since the start of the year. We actively monitor the portfolio
for signs of distress and currently have two assets, amounting to
0.2% of the latest NAV, which are either in technical default or at
some stage of a restructuring process. This is after a notable
deterioration in bonds issued by French supermarket retailer Casino
(written down by approximately 0.5% of NAV since purchase), for
which recovery prospects at this stage look bleak. The position is
already marked to market within your Company's latest NAV.
Outlook
Risk sentiment in markets remains fragile, driven by a number of
economic indicators which are closely watched by central banks to
inform decision making on the path of interest rates. Two competing
market narratives have been established. A 'hard landing' - in
tightening rates to curb inflation a recession is triggered, and a
'soft landing' - economic growth slows enough to control inflation
but remains high enough to avoid a recession. At present, the
pricing of risk assets is being driven by perceived changes in the
probability of each outcome.
Early summer optimism from a swifter than expected deceleration
in inflation has now given way to concerns over the length of time
it will take to return to the two percent average targeted by
central banks. This has led to a growing acceptance by the market
that interest rates will remain higher for longer and pushed out
investor expectations for rate cuts. Recent key data points to
divergent economic performance between Europe and the US. The
former showing signs of a worse than expected contraction in both
goods and services, whilst the latter proves more resilient and
better positioned to engineer the much fabled 'soft landing'. The
combination of deteriorating economic growth and expectations for a
prolonged period of elevated interest rates has led to weakening
macro sentiment as the third quarter has progressed.
Fundamentals in credit are generally supportive for now but look
set to come under further pressure in the latter part of year as
the effects of aggressive rate hiking cycles become more evident in
the real economy and the capital structures of issuers are tested
by the higher interest rate environment. Recent supply in
investment grade has pushed credit spreads wider although they
remain close to the tights of the year and the overall technical
remains strong given the relative attractiveness of all-in bond
yields.
Looking ahead, we anticipate interest rate volatility to
continue as central banks struggle to return inflation to their
desired two percent target in the face of a fundamental shift in
price dynamics. We expect this to be driven by longer term
structural trends including deglobalisation, a reduced labour
supply, and decarbonisation which should support policy rates
staying higher for longer. Ultimately, that would also see the
Company's dividend (which has risen in line with SONIA) remain
higher, with the dividend yield (based on share price at the time
of writing) currently 8.1%. Uncertainty over monetary policy looks
set to persist with central bank decisions remaining data dependent
and markets seeking clearer signalling on the economic outlook.
Against this backdrop the portfolio is cautiously positioned as we
approach the latter part of the year, however we remain poised to
add risk selectively when either issuer specific or wider market
volatility presents itself.
We believe that the Company's investment strategy is well suited
to the wider regime shift in financial conditions that we are
witnessing. Sharp increases in interest rates retain the ability to
hinder performance, hence we mitigate this risk by maintaining low
portfolio duration. Furthermore, the additional yield that private
assets have provided to our portfolio has boosted income returns.
Prior to the onset of Covid-19, strong risk asset performance was
driven by ultra- accommodative monetary policy, benefitting greatly
from 'a rising tide lifts all boats' economic backdrop.
Waters are now far more choppy. Constructing bottom- up
portfolios based on fundamental credit analysis is at the core of
our investment philosophy. We see clear strategic advantages in
this approach for navigating financial markets in the changing
times ahead where there will be a far clearer demarcation between
winners and losers within asset classes, sectors and regions.
Maintaining flexibility to invest across both public and private
markets whilst remaining sector agnostic will, in our opinion, be
essential to pursuing the most attractive relative value
opportunities.
M&G Alternatives Investment Management Limited
20 September 2023
Portfolio analysis
Top 20 holdings
As at 30 June 2023 Percentage of portfolio of investmentsa
M&G European Loan Fund 11.25
Project Mercury Var. Rate 21 May 2024 1.86
Delamare Finance FRN 1.279% 19 Feb 2029 1.70
M&G Lion Credit Opportunity Fund IV 1.52
PE Fund Finance III Var. Rate 15 Dec 2023 1.51
RIN II FRN 1.778% 10 Sep 2030 1.44
Hammond Var. Rate 28 Oct 2025 1.41
Hall & Woodhouse Var. Rate 30 Dec 2023 1.39
Millshaw SAMS No. 1 Var. Rate 15 Jun 2054 1.39
Dragon Finance FRN 1.3665% 13 Jul 2023 1.34
Atlas 2020 1 Trust Var. Rate 30 Sep 2050 1.28
Regenter Myatt Field North Var. Rate 31 Mar 2036 1.27
Signet Excipients Var. Rate 20 Oct 2025 1.23
Grover Group Var. Rate 30 Aug 2027 1.20
Gongga 5.6849% 2 Aug 2025 1.16
Aria International Var. Rate 23 Jun 2025 1.15
Citibank FRN 0.01% 25 Dec 2029 1.15
Income Contingent Student Loans 1 2002-2006 FRN 2.76% 24 Jul 2056 1.14
STCHB 7 A Var. Rate 25 Apr 2031 1.13
Finance for Residential Social Housing 8.569% 04 Oct 2058 1.06
Total 36.58
a Including cash on deposit and derivatives.
Geographical exposure
Percentage of portfolio of investments
as at 30 June 2023a
United Kingdom 55.53%
Europe 32.37%
United States 7.11%
Australasia 2.65%
Global 2.34%
a Excluding cash on deposit and derivatives.
Source: M&G and State Street as at 30 June 2023
Portfolio overview
As at 30 June 2023 %
Cash on deposit 2.49
Public 39.50
Asset-backed securities 17.40
Bonds 22.10
Private 57.69
Asset-backed securities 5.16
Bonds 2.15
Investment funds 12.77
Loans 23.98
Private placements 2.19
Other 11.44
Derivatives 0.32
Debt derivatives (0.01)
Forwards 0.33
Total 100.00
Source: State Street.
Credit rating breakdown
As at 30 June 2023 %
Unrated 0.32
Derivatives 0.32
Cash and investment grade 77.46
Cash on deposit 2.49
AAA 2.83
AA+ 0.14
AA 4.94
AA- 0.28
A+ 1.37
A 1.47
A- 3.63
BBB+ 12.25
BBB 15.83
BBB- 23.46
M&G European Loan Fund (ELF) (see note) 8.77
Sub-investment grade 22.22
BB+ 5.31
BB 2.63
BB- 4.14
B+ 3.34
B 3.94
B- 0.12
CCC+ -
CCC -
CCC- -
CC 0.03
D 0.23
M&G European Loan Fund (ELF) (see note) 2.48
Total 100.00
Source: State Street.
Note: ELF is an open-ended fund managed by M&G that invests
in leveraged loans issued by, generally, substantial private
companies located in the UK and Continental Europe. ELF is not
rated and the Investment Manager has determined an implied rating
for this investment, utilising rating methodologies typically
attributable to collateralised loan obligations. On this basis, 78%
of the Company's investment in ELF has been ascribed as being
investment grade, and 22% has been ascribed as being sub-investment
grade. These percentages have been utilised on a consistent basis
for the purposes of determination of the Company's adherence to its
obligation to hold no more than 30% of its assets in below
investment grade securities.
Top 20 holdings %
Company description
as at 30 June 2023
Open-ended fund managed by M&G which invests in leveraged loans issued by, generally,
M&G European Loan Fund substantial private companies located in the UK and Continental Europe. The fund's objective
is to create attractive levels of current income for investors while maintaining relatively
11.25% low volatility of NAV. (Private)
Project Mercury Var. Rate Floating-rate, senior secured tranche of a real estate loan to fund the construction and
21 May 2024 development of a residential led luxury scheme in Bayswater, West London. (Private)
1.86%
Delamare Finance FRN Floating-rate, senior tranche of a CMBS secured by the sale and leaseback of 33 Tesco
1.279% 19 Feb 2029 superstores and 2 distribution centres. (Public)
1.70%
M&G Lion Credit Open-ended fund managed by M&G which invests primarily in high grade European ABS with on
Opportunity Fund IV average AA risk. The fund seeks to find value in credits which offer an attractive structure
or price for their risk profile. (Private)
1.52%
PE Fund Finance III Var. Senior secured commitment providing NAV facility financing to a private equity firm
Rate 15 Dec 2023 investing in debt and equity special situations across Europe. (Private)
1.51%
RIN II FRN 1.778% 10 Sep Mixed CLO (AAA). Consists primarily of senior secured infrastructure finance loans managed
2030 by RREEF America L.L.C. (Public)
1.44%
Hammond Var. Rate 28 Oct
2025 Secured, bilateral real estate development loan backed by a combined portfolio of 2 office
assets leased to an underlying roster of global corporate tenants. (Private)
1.41%
Hall & Woodhouse Var. Rate Bilateral loan to a regional UK brewer that manages a portfolio of 219 freehold and
30 Dec 2023 leasehold pubs. (Private)
1.39%
Millshaw SAMS No. 1 Var. Floating-rate, single tranche of an RMBS backed by shared-appreciation mortgages. (Public)
Rate 15 Jun 2054
1.39%
Dragon Finance FRN 1.3665% Floating-rate, subordinated tranche of a securitisation of the sale and leaseback of 10
13 Jul 2023 supermarket sites sponsored by J Sainsbury plc ('Sainsbury's'). (Public)
1.34%
Atlas 2020 1 Trust Var.
Rate 30 Sep 2050 Floating-rate, senior tranche of a bilateral RMBS transaction backed by a pool of Australian
equity release mortgages. (Private)
1.28%
Regenter Myatt Field North PFI (Private Finance Initiative) floating-rate, amortising term loan relating to the already
Var. Rate 31 Mar 2036 completed refurbishment and ongoing maintenance of residential dwellings and communal
infrastructure in the London borough of Lambeth. (Private)
1.27%
Signet Excipients Var.
Rate 20 Oct 2025 Fixed-rate loan secured against 2 large commercial premises in London, currently leased to 2
FTSE listed UK corporations. (Public)
1.23%
Grover Group Var. Rate 30 Floating-rate, senior tranche of a securitisation of receivables originated by a leading
Aug 2027 European technology subscription platform. (Private)
1.20%
Gongga 5.6849% 2 Aug 2025 Structured Credit trade by Standard Chartered referencing a USUSD2bn portfolio of loans to
companies domiciled in 36 countries. (Private)
1.16%
Aria International Var.
Rate 23 Jun 2025 Floating-rate, senior tranche of a securitisation of invoice receivables originated by a
specialist digital recruitment platform. (Private)
1.15%
Citibank FRN 0.01% 25 Dec
2029 Floating-rate, mezzanine tranche of a regulatory capital transaction backed by a portfolio
of loans to large global corporates, predominantly in North America. (Private)
1.15%
Income Contingent Student Floating-rate, mezzanine tranche of a portfolio comprised of income-contingent repayment
Loans 1 2002-2006 FRN student loans originally advanced by the UK Secretary of State for Education. (Public)
2.76% 24 Jul 2056
1.14%
STCHB 7 A Var. Rate 25 Apr Floating-rate, mezzanine tranche in a regulated capital securitisation where the portfolio
2031 consists of 36 loans, secured on the undrawn Limited Partner (LP) investor capital
commitments. (Private)
1.13%
Finance for Residential High grade (AA/Aa3), fixed-rate bond backed by cash flows from housing association loans.
Social Housing 8.569% 4 (Public)
Oct 2058
1.06%
Further Information
The full Half Year Report and unaudited Condensed Financial
Statements can be obtained from the Company's website at
www.mandg.co.uk/creditincomeinvestmenttrust or by contacting the
Company Secretary at mandgcredit@linkgroup.co.uk.
It has also been submitted in full unedited text to the
Financial Conduct Authority's National Storage Mechanism and is
available for inspection at
data.fca.org.uk/#/nsm/nationalstoragemechanism in accordance with
DTR 6.3.5(1A) of the Financial Conduct Authority's Disclosure
Guidance and Transparency Rules.
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Dissemination of a Regulatory Announcement, transmitted by EQS
Group. The issuer is solely responsible for the content of this
announcement.
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ISIN: GB00BFYYL325, GB00BFYYT831
Category Code: IR
TIDM: MGCI
LEI Code: 549300E9W63X1E5A3N24
OAM Categories: 1.2. Half yearly financial reports and audit reports/limited reviews
Sequence No.: 272829
EQS News ID: 1730855
End of Announcement EQS News Service
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