Cell ES - 1,858,825 - (1,858,825)
Cell Abs Pro 9,793,470 9,600,216 (9,793,470) (9,600,216)
Cell US HI A 3,570,266 4,791,795 (3,570,266) (4,791,795)
Cell US HI B 1,562,845 2,006,037 (1,562,845) (2,006,037)
Cell Agrinvest 5,453,316 5,757,262 (5,453,316) (5,757,262)
Cell EPR 1,941,195 1,960,505 (1,941,195) (1,960,505)
Cell EBM (3) 5,032,398 5,271,509 (5,032,398) (5,271,509)
Cell COMAC 1,751,595 1,680,530 (1,751,595) (1,680,530)
Cell US EI A 5,277,876 4,960,346 (5,277,876) (4,960,346)
Cell US EI B 3,031,153 2,863,093 (3,031,153) (2,863,093)
Cell UK EI 4,597,675 4,551,845 (4,597,675) (4,551,845)
Cell EI 3,598,981 3,723,499 (3,598,981) (3,723,499)
--------------- ------------ ------------- -------------
45,610,768 60,686,179 (45,610,768) (60,686,179)
=============== ============ ============= =============
Harewood Structured Investment PCC Limited (the "Company")
Notes to the Financial Statements (continued)
for the period ended 30 April 2012
6 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)
(c) Credit Risk
Credit risk is the risk that an issuer or counterparty will be
unable or unwilling to meet a commitment that it has entered into
with the Company. At the date of this report the Counterparty was
rated AA- by Standard & Poor's for credit purposes.
Investors should be aware that repayment by the Company at the
relevant redemption date of the redemption proceeds due to
shareholders will only be performed if the Counterparty satisfies
its obligations under the relevant contract to repay to the Company
any amount due. Under the terms of the Credit Support Deeds between
the Company and the Counterparty, the Counterparty is required to
deliver varying amounts of collateral to an escrow account held in
favour of the Company.
Under the terms of credit support deeds entered into between the
Counterparty and the Company acting for and on behalf of each cell,
the Counterparty is required to post collateral in the form of AAA
rated G7 government bonds in favour of the Company acting for and
on behalf of each cell, such collateral being valued on a weekly
basis and, if the value of the collateral is less than the value
calculated as specified below (the "Credit Support Amount"), the
Counterparty will provide additional collateral to increase the
aggregate value to at least the Credit Support Amount. Where there
is an event of default in respect of the Counterparty under the
swap confirmation, the Company will be entitled to enforce its
security over the collateral.
Due to the collateral being monitored on a weekly basis (as
detailed above), there is a risk due to timing, that the amount
posted to collateral will be less than the Credit Support
Amount.
The Credit Support Amount is the lesser of (a) 100% of the net
asset value of the relevant cell and (b) the total of the
Applicable Percentage of such net asset value plus 10% of such net
asset value (where the "Applicable Percentage" is calculated so as
to reflect the percentage of shares in the relevant cell held at
the relevant time by shareholders other than BNP Paribas Arbitrage
SNC).
The most significant concentration of credit risk for the
Company is that the Counterparty will be unable to satisfy its
obligations under the relevant contract to repay to the Company any
amount due. The maximum credit risk exposure at the reporting date
is therefore considered to be the valuation of the investments at
this date, being GBP456,107,679.
The Investment Manager and Administrator monitor collateral
posted on a weekly basis and report to the Board quarterly on the
Investment Counterparty's compliance with the relevant Credit
Support Deeds. The Investment Manager and Administrator have also
undertaken to report to the Board immediately if there is a breach
of compliance with the terms of the relevant Credit Support
Deeds.
The Board monitors, but cannot control, credit risk.
(d) Liquidity Risk
Liquidity risk is the risk that the Company will encounter
difficulty in realising assets or otherwise raising funds to meet
financial commitments and obligations to shareholders on redemption
of their shares of a cell. The only financial commitments of the
Company are to meet ongoing expenses and these are met out of
monies provided to the Company's Administrator by BNP Paribas
SA.
Harewood Structured Investment PCC Limited (the "Company")
Notes to the Financial Statements (continued)
for the period ended 30 April 2012
6 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)
(d) Liquidity Risk (continued)
There is a further liquidity risk in respect of the redemption
of shares, the dates of which are set out in note 6 (g) (ii).
As the investments are not traded in an active market, the
Company may not be able to liquidate quickly its investments in
these instruments at an amount close to their fair value to meet
its liquidity requirements or to respond to specific events such as
deterioration in the credit worthiness of the Counterparty.
The table below details the residual contractual maturities of
the financial liabilities:
Over 1
1 - 3 months 3 - 12 months year Total
GBP GBP GBP GBP
As at 30 April 2012
Net assets attributable
to holders of Management
shares 431,268 - - 431,268
Net assets attributable
to holders of Preference
Shares 97,934,696 51,331,113 306,841,870 456,107,679
------------- -------------- ------------- ------------
98,365,964 51,331,113 306,841,870 456,538,947
As at 31 October 2011
Net assets attributable
to holders of Management
shares 2,583 - - 2,583
Net assets attributable
to holders of Preference
Shares 64,759,876 166,437,701 375,664,203 606,861,780
------------- -------------- ------------- ------------
64,762,459 166,437,701 375,664,203 606,864,363
The table below details the expected liquidity of net assets
attributable to holders of Preference Shares held:
Over 1
1 - 3 months 3 - 12 months year Total
GBP GBP GBP GBP
As at 30 April 2012
Net assets 98,365,964 51,331,113 306,841,870 456,538,947
As at 31 October 2011
Net assets 64,762,459 166,437,701 375,664,203 606,864,363
The Board monitors, but cannot actively control, liquidity risk.
Harewood Structured Investment PCC Limited (the "Company")
Notes to the Financial Statements (continued)
for the period ended 30 April 2012
6 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)
(e) Capital Risk
The Company has an unlimited life but the Protected Cell Shares
for each cell have a fixed redemption date.
The Board of directors believes the current capital structure to
be sufficient in meeting the capital requirements of the
Company.
All expenses are borne by BNP Paribas SA and redemption proceeds
are limited to the amounts received, if any, on the maturity or
early termination of the relevant investment contract between the
Company and the Counterparty.
Potential losses to shareholders are mitigated by the returns
stipulated in the swap agreement with the Counterparty as described
in note 6(h) and the collateral arrangements which are set out in
note 6 (i).
(f) Foreign Exchange Risk
The carrying amounts of the Company's foreign currency
denominated financial assets at the reporting date are as
follows:
Period ended Year ended
30 April 2012 31 October
2011
GBP GBP
US Dollar 45,939,976 48,691,298
-------------- -----------
As subscription, redemption and dividend payments in respect of
all cells other than US High Income are made in the same functional
currency, none of the cells other than US High Income is exposed to
foreign exchange risk. Subscription and redemption payments in
respect of Class B US High Income are made in US Dollars, but
dividends are paid in the Sterling equivalent of a fixed US Dollar
amount, unless the relevant shareholder elects to receive their
dividends in US Dollars. As the currency in which these dividends
are paid is selected at the option of the shareholder and may be
paid in the functional currency, the directors do not consider that
the Company acting on behalf of US High Income is exposed to
material foreign exchange risk.
Harewood Structured Investment PCC Limited (the "Company")
Notes to the Financial Statements (continued)
for the period ended 30 April 2012
6 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)
(g) Valuation
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