NOT FOR RELEASE, PUBLICATION
OR DISTRIBUTION IN WHOLE OR IN PART IN OR INTO THE UNITED
STATES
15
August 2024
Sequoia Economic Infrastructure Income Fund
Limited
("SEQI" or the "Company")
Monthly NAV and portfolio update
The NAV per share for SEQI, the
specialist investor in economic infrastructure debt, increased to
93.93 pence per share from the prior month's NAV per share of 93.57
pence, (being the 30 June 2024 cum-income NAV of 95.29 less the
dividend of 1.71875 pence per share declared in respect of the
quarter ended 30 June 2024 and payable on 23 August 2024),
representing an increase of 0.36 pence per share.
A full attribution of the changes in
the NAV per share is as follows:
|
pence per
share
|
30
June NAV
|
95.29
|
Interest income, net of
expenses
|
0.75
|
Asset valuations, net of FX
movements
|
-0.48
|
Subscriptions / share
buybacks
|
0.09
|
Dividends
|
-1.72
|
31
July NAV
|
93.93
|
As the Company is approximately 100%
currency-hedged, it does not expect to realise any material FX
gains or losses over the life of its investments. However, the
Company's NAV may include unrealised short-term FX gains or losses,
driven by differences in the valuation methodologies of its FX
hedges and the underlying investments - such movements will
typically reverse over time.
California License
As announced on 16 July, the
Investment Adviser is pleased to announce that Sequoia IDF Holdings
S.A. the wholly owned subsidiary of SEQI, has received a finance
lender license under the Californian Financing Law which should
enable the Company to increase its pipeline in California and
provide an origination advantage over other non-bank
lenders.
Refinancing of Revolving Credit Facility
On 18 July, the Investment Adviser
announced that SEQI has successfully refinanced the Company's
existing, multi-currency Revolving Credit Facility ("RCF") which
was due to mature in November 2024. The new £300 million
multi-currency RCF is provided by JPMorgan Chase Bank, N.A., London
Branch. The RCF has a lower borrowing cost of 190 basis points over
SONIA (or equivalent), compared to 200 basis points over SONIA (or
equivalent) on the prior facility. An arrangement fee will be
payable upfront in addition to a commitment fee on the undrawn
portion of the new RCF.
Market Summary
Earlier this month, the US reported
a weaker-than-expected July 2024 jobs report (employers added just
114,000 jobs in July - 35% fewer than expected - and unemployment,
now at 4.3%, is the highest since October 2021) which sparked a
sharp sell-off in global equities during the start of August 2024
and stoked recession fears. Whilst noting that global stocks have
recovered recently and fears of a recession in the US have slightly
eased, the Investment Adviser remains confident in the quality of
the portfolio in the event of a recession, as it has prioritised
defensive sectors (such as Digitalisation, Accommodation, Utilities
and Renewables) and has not chased yield at the expense of credit
quality. As of July 2024, 53.2% of the portfolio is in defensive
sectors with just under 60% of the Company's loans being senior
secured loans.
On 1 August 2024, the Bank of
England reduced its base rate by 0.25% to 5.0%, marking the first
rate cut since March 2020, driven by easing inflation which met the
Bank of England's 2.0% target in June 2024. The European Central
Bank has maintained rates at 3.75%, after reducing them by 0.25%
during June 2024. Base rates have also remained unchanged in the US
at 5.50%, however, there is consensus amongst market participants
that a potential rate cut may occur in September 2024. This has
also been priced into Futures on the Secured Overnight Financing
Rate (SOFR) and the Federal funds rates, which measure expectations
of Federal Reserve monetary policy moves.
In the UK, CPI inflation has risen
from 2.0% in June 2024 to 2.2% in July 2024 and is expected to rise
slightly further by the end of the year, mainly due to stubbornly
high services inflation (rising hotel and restaurant costs) which
is currently 5.7% year on year. The Office for Budget
Responsibility (OBR) expects inflation to average out at 2.2% for
2024 as a whole, before dropping to 1.5% for the duration of 2025.
In the Eurozone, CPI inflation rose to 2.6% in July 2024, up 0.1%
from the previous month. In the US, CPI inflation was 2.9% in July
2024, easing slightly from 3.0% in June 2024.
Whilst the investment adviser is
currently locking in higher interest rates (60.6% of portfolio is
in fixed rate investments as of July 2024), inflation is past its
peak levels in all of the Fund's investment jurisdictions and is
expected to remain below the 2.0% target across all three regions
by 2026. As inflation abates, the likelihood of future interest
rate cuts increases, which makes alternative investments such as
infrastructure more attractive when compared to liquid credit. Once
a downwards trend toward a lower interest rate environment unfolds,
this will be supportive of fixed rate loans and bonds, as it will
accelerate their pull-to-par. Further, as short-term rates begin to
fall, yield curves will become less inverted or turn positive
again, supporting a bid for risk in the market.
Portfolio update
The Company has drawn £35.8 million
on its revolving credit facility (RCF) of £325.0 million during
July 2024 and currently has cash of £111.9 million (inclusive of
interest income and RCF drawings), and undrawn investment
commitments of £58.9 million. The RCF is utilised to manage
cashflows through the timing of new investments against the
repayment of existing investments.
As at 31 July 2024,
the Company's invested portfolio consisted of 54 private debt
investments and 2 infrastructure bonds, diversified across
8 sectors and 30 sub-sectors. 59.1% of the portfolio
comprised of senior secured loans. It had an annualised
yield-to-maturity (or yield-to-worst in the case of callable
bonds) of 10.20% and a cash yield of 8.10% (excluding deposit
accounts). The weighted average portfolio life remains short
and is approximately 3.7 years. This short duration means that as
loans mature, the Company can take advantage of higher yields in
the current interest rate environment. The portfolio pull to par
has also declined from 3.7 pence per share in June 2024 to 3.4
pence per share in July 2024.
Private debt investments represented
94.3% of the total portfolio, allowing the Company to capture
illiquidity yield premiums. The Company's invested portfolio
currently consists of 39.4%[1] floating rate
investments and remains geographically diversified with
49.6% located across the USA, 27.7% in the UK, 22.6% in
Europe, and 0.1% in Australia/New Zealand.
The portfolio remains highly
diversified by sector and size, with the average loan representing
about 1.6% of the total portfolio.
At month end, approximately 100% of
the Company's NAV consisted of either Sterling assets or was hedged
into Sterling. The Company has adequate liquidity to cover margin
calls, if any, on its hedging book.
Settled investments in July 2024
SEQI continues to carefully
scrutinise new investment opportunities arising from the repayment
of loans in a disciplined manner alongside other uses of proceeds
such as share buybacks and ensuring it has significant liquidity on
its RCF. The following investments settled in July 2024:
The following investments
(exceeding £0.5 million) repaid in July 2024:
A full repayment of $48.5 million on
Senior loan Perc HoldCo, who specialise in energy efficiency assets
linked to steel production at two steel mills in the
USA.
The following investments
(exceeding £0.5m) were made in July 2024:
The Company has closed a Senior
Holdco loan facility for €29.5 million to Project Crystal, a market
leader in providing diagnostic imaging and radiotherapy services
delivered via numerous operating clinics across Germany. The
business is underpinned by a stable regulatory environment, the
essentiality of such services in delivering high quality medical
care and strong barriers to entry.
Share buybacks
The Company bought back 10,371,404
of its ordinary shares at an average purchase price of 80.28 pence
per share in July 2024. The Company first started buying back
shares in July 2022 and has bought back 178,190,799 ordinary shares
as of 31 July 2024, with the buyback continuing into July 2024.
This share repurchase activity by the Company continues to
contribute positively to NAV accretion. The rate at which SEQI buys
back shares will vary depending on various factors, including the
level of our share price discount to NAV.
Non-performing loans
The Investment Advisor continues to
actively manage its existing non-performing loans with the loans
being independently marked to market by PwC as part of the monthly
review process. We will continue to provide updates to shareholders
on a monthly basis.
Portfolio Summary (15 largest settled
investments)
Investment name
|
Currency
|
Type
|
Ranking
|
Value
£m(2)
|
Sector
|
Sub-sector
|
Cash-on-cash yield
(%)
|
Yield to maturity/worst
(%)
|
Infinis Energy
|
GBP
|
Private
|
Senior
|
62.8
|
Renewables
|
Landfill
gas
|
5.18
|
5.56
|
AP Wireless Junior
|
EUR
|
Private
|
Mezz
|
60.5
|
Digitalisation
|
Telecom
towers
|
4.43
|
7.35
|
Workdry
|
GBP
|
Private
|
Senior
|
56.0
|
Utility
|
Utility
Services
|
8.94
|
8.93
|
Project Sienna
|
USD
|
Private
|
Senior
|
55.7
|
Other
|
Waste-to-Energy
|
9.86
|
10.22
|
Hawkeye Solar
|
USD
|
Private
|
HoldCo
|
52.7
|
Renewables
|
Solar
& wind
|
8.68
|
9.38
|
Kenai HoldCo 2024
|
EUR
|
Private
|
HoldCo
|
52.4
|
Power
|
Base
load
|
0.00
|
10.08
|
Project Tyre
|
USD
|
Private
|
Senior
|
51.8
|
Transport
assets
|
Specialist shipping
|
11.03
|
10.67
|
Expedient Data
|
USD
|
Private
|
Senior
|
50.6
|
Digitalisation
|
Data
centers
|
10.95
|
10.95
|
Roseton
|
USD
|
Private
|
Senior
|
49.4
|
Power
|
Other
Electricity Generation
|
10.32
|
10.32
|
Sacramento
|
USD
|
Private
|
Senior
|
44.1
|
Digitalisation
|
Data
centers
|
7.27
|
8.17
|
Project Nimble
|
EUR
|
Private
|
HoldCo
|
43.4
|
Digitalisation
|
Data
centers
|
8.46
|
10.72
|
Euroports
|
EUR
|
Private
|
Mezz
|
42.7
|
Transport
|
Port
|
10.72
|
10.54
|
Scandlines
|
EUR
|
Private
|
HoldCo
|
41.5
|
Transport
|
Ferries
|
6.59
|
6.80
|
Gadwall Holdings (3)
|
GBP
|
Private
|
HoldCo
|
41.4
|
Accommodation
|
Health
care
|
0.00
|
36.22
|
Tracy Hills
|
USD
|
Private
|
Senior
|
40.1
|
Other
|
Residential Infra
|
11.86
|
11.86
|
|
|
|
|
|
|
|
|
|
Note (2) - excluding accrued
interest.
Note (3) - Montreux HoldCo Facility
was restructured and replaced with an equivalent loan on extended
terms to a newly established entity, Gadwall Holdings. As part of
the restructuring, an additional loan for £34.8 million was also
made to ACG BidCo Limited as a senior secured loan. The combined
value of both loans to the Group equates to 5.2% of the
NAV.
The Company's monthly investor
report and additional portfolio disclosure will be made available
at: https://www.seqi.fund
LEI: 2138006OW12FQHJ6PX91
This announcement is not for
publication or distribution, directly or indirectly, in or into the
United States of America. This announcement is not an offer of
securities for sale into the United States. The securities
referred to herein have not been and will not be registered under
the U.S. Securities Act of 1933, as amended, and may not be offered
or sold in the United States, except pursuant to an applicable
exemption from registration. No public offering of securities
is being made in the United States.
For further information please
contact:
Sequoia Investment Management Company
|
|
+44 (0)20 7079 0480
|
Steve Cook
|
|
|
Dolf Kohnhorst
|
|
|
Randall Sandstrom
|
|
|
Anurag Gupta
|
|
|
Matt Dimond
|
|
|
|
|
|
Jefferies International Limited
|
|
+44 (0)20 7029 8000
|
Gaudi Le Roux
|
|
|
Stuart Klein
Harry Randall
|
|
|
|
|
|
Teneo (Financial PR)
|
|
+44 (0)20 7260 2700
|
Martin Pengelley
|
|
|
Elizabeth Snow
Faye Calow
|
|
|
|
|
|
Sanne Fund Services (Guernsey) Limited
|
|
+44 (0) 20 3530 3107
|
(Company Secretary)
|
|
|
Matt Falla
|
|
|
Devon Jenkins
|
|
|
About Sequoia Economic Infrastructure Income Fund
Limited
The Company seeks to provide
investors with regular, sustained, long-term distributions and
capital appreciation from a diversified portfolio of senior and
subordinated economic infrastructure debt investments. The Company
is advised by Sequoia Investment Management Company
Limited.