TIDMVSL
RNS Number : 0793O
VPC Specialty Lending Invest. PLC
29 September 2023
29 September 2023
VPC SPECIALTY LING INVESTMENTS PLC
(the "Company" or "Parent Company" with its subsidiaries
(together) the "Group")
Half-Year Report and Unaudited Financial Statements
For the Six-Month Period Ended 30 June 2023
The Board of Directors (the "Board") of VPC Specialty Lending
Investments PLC (ticker: VSL) present the Company's Half-Year
Report and Unaudited Financial Statements for the period ended 30
June 2023.
A copy of the Company's Half Year Report is available to view
and download from the Company's website,
https://vpcspecialtylending.com/documents/ . Neither the contents
of the Company's website nor the contents of any website accessible
from hyperlinks on the Company's website (or any other website) is
incorporated into or forms part of this announcement.
A copy of the Half-Year Financial Report will be submitted
shortly to the National Storage Mechanism ("NSM") and will be
available for inspection at the NSM, which is situated at:
https://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.
All page numbers below refer to the Half-Year Report on the
Company's website.
Further information on VPC Specialty Lending Investments PLC is
available at https://vpcspecialtylending.com .
Enquiries
For further information, please contact:
Victory Park Capital via Jefferies or Winterflood
Brendan Carroll (Senior Partner (below) info@vpcspecialtylending.com
and Co-Founder)
Gordon Watson (Partner)
Jefferies International Limited Tel: +44 20 7029 8000
Stuart Klein
Gaudi le Roux
Winterflood Securities Limited Tel: +44 20 3100 0000
Joe Winkley
Neil Morgan
Montfort Communications Tel: +44 (0)7717 857736 / +44
Matthew Jervois (0)7798 626282
Gay Collins vpc@montfort.london
Link Company Matters Limited (Company Tel: +44 20 7954 9567
Secretary)
LEI: 549300UPEXC5DQB81P34
INTRODUCTION TO THE COMPANY AND THE GROUP
VPC Specialty Lending Investments PLC (the "Company" or "VSL")
provides asset-backed lending solutions to emerging and established
businesses ("Portfolio Companies") with the goal of building
long-term, sustainable income generation. VSL focuses on providing
capital to vital segments of the economy, which for regulatory and
structural reasons are underserved by the traditional banking
industry. Among others, these segments include small business
lending, working capital products, consumer finance and real
estate. VSL offers owners of shares of the Company ("Shareholders")
access to a diversified portfolio of opportunistic credit
investments originated by non-bank lenders with a focus on the
rapidly developing technology-enabled lending sector.
The Company's investing activities are undertaken by Victory
Park Capital Advisors, LLC (the "Investment Manager" or "VPC"). VPC
is an established private capital manager headquartered in the
United States ("U.S.") with a global presence. VPC identifies and
finances emerging and established businesses globally and seeks to
provide the Company with attractive yields on its portfolio of
credit investments. VPC offers a differentiated private lending
approach by financing Portfolio Companies through asset-backed
delayed draw term loans, which is referred to as "Asset Backed
Lending," designed to limit downside risk while providing
Shareholders with strong income returns. Through rigorous due
diligence and credit monitoring by the Investment Manager, the
Company generates stable income with significant downside
protection.
This half year report for the period to 30 June 2023 includes
the results of the Company (also referred to as the "Parent
Company") and its consolidated subsidiaries (together the "Group").
The Company (No. 9385218) was admitted to the premium listing
segment of the Official List of the Financial Conduct Authority
("FCA") (the "Official List") and to trading on the London Stock
Exchange's main market for listed securities (the "Main Market") on
17 March 2015, raising GBP200 million by completing a placing and
offer for subscription (the "Issue"). The Company raised a further
GBP183 million via a C Share issue on 2 October 2015. The C Shares
were converted into Ordinary Shares and were admitted to the
Official List and to trading on the Main Market on 4 March 2016.
Proposals to amend the Company's investment policy to facilitate a
managed wind-down of the Company were approved by Shareholders at
the General Meeting on 12 June 2023.
INVESTMENT OBJECTIVE
Following the wind-down vote and accompanying amendments to the
investment policy, the Company's investments will be realised in an
orderly manner, that is, with a view to achieving a balance between
returning cash to Shareholders promptly and maximising value. On
pages 5 and 8 of this report more information is provided about the
intended schedule for liquidating VSL's portfolio.
INVESTMENT POLICY
The Company seeks to achieve its investment objectives by
investing in opportunities in the financial services market through
Portfolio Companies and other lending related opportunities. There
have been no new investments since 30 June 2023. The only
circumstances where the Company will fund existing portfolio
investments will be where there are contractual requirements to do
so or where it is considered vital to protect the value of that
investment.
The Company invests directly or indirectly into available
opportunities, including by making investments in, or acquiring
interests held by, third-party funds (including those managed by
the Investment Manager or its affiliates).
Direct investments include consumer loans, small- and
medium-sized enterprises ("SME") loans, advances against corporate
trade receivables and/or purchases of corporate trade receivables
originated by Portfolio Companies ("Debt Instruments"). Such Debt
Instruments may be subordinated in nature, or may be second lien,
mezzanine or unsecured loans.
Indirect investments include investments in Portfolio Companies
(or in structures set up by Portfolio Companies) through the
provision of senior secured floating rate credit facilities
("Credit Facilities"), equity or other instruments. Additionally,
the Company's investments in Debt Instruments and Credit Facilities
are made through subsidiaries of the Company or through
partnerships in order to achieve bankruptcy remoteness from the
platform itself, providing an extra layer of credit protection.
The Company may also invest in other financial services related
opportunities through a combination of debt facilities, equity or
other instruments.
The Company may also invest (in aggregate) up to 10% of its
Gross Assets (at the time of investment) in listed or unlisted
securities (including equity and convertible securities or any
warrants) issued by one or more of its Portfolio Companies or
financial services entities.
The Company invests across several Portfolio Companies, asset
classes, geographies (primarily US, UK, Europe, Australia, Asia and
Latin America) and credit bands in order to create a diversified
portfolio and thereby mitigate concentration risks.
FINANCIAL HIGHLIGHTS
SUMMARY HIGHLIGHTS FOR THE FIRST HALF OF 2023
v February 2023: The Company declared its 20th consecutive
dividend of 2.00p for the three-month period to 31 December
2022.
v April 2023: On 28 April 2023, the Company released its 2023
Annual Report, which was published on its website.
v May 2023: On 16 May 2023, the General Meeting Circular was
announced and published to the Company's website, inclusive of two
proposals for the Company's managed wind-down, with a vote on the
proposals taking place on 12 June 2023. On 31 May 2023, the
recurring AGM Circular was announced and published on the Company's
website.
v June 2023: At the General Meeting held on 12 June 2023, the
resolutions put to the meeting inclusive of two proposals for the
Company's managed wind-down were approved by Shareholders. The
Company announced that at its AGM held on 23 June 2023, all
resolutions set out in the Notice of AGM were passed by the
requisite majority. On 26 June 2023, the Company declared its 21st
consecutive dividend of 2.00 pence per share for the three-month
period to 31 March 2023.
SUBSEQUENT EVENTS
v July 2023: The Company sold 932,968 shares of Bakkt (NYSE:
BKKT) for US$1.6 million, including a gain of US$0.1 million.
v August 2023: In August 2023, the Company sold a portion of its
remaining equity in Kueski, Inc. for US$0.8 million, including a
gain of US$0.7 million. On 25 August 2023, the Company received a
paydown of US$5.3 million on CFG Partners Holdings, L.P. that the
Company used to reduce the outstanding gearing facility.
v September 2023: In September 2023, the Company received cash
inflows totalling US$14.0 million from the Company's Asset Backed
Lending and equity investments. The proceeds were used to partially
reduce the outstanding gearing facility.
RETURN SUMMARY AS AT 30 JUNE 2023
30 June 2023 30 June 2022 31 December
2022
Net Asset Value ("NAV" per Ordinary
Share 94.18p 105.51p 98.19p
------------------ ------------------ ------------------
Ordinary Share Price 69.20p 83.40p 83.10p
------------------ ------------------ ------------------
Discount to NAV 26.53% 20.95% 15.37%
------------------ ------------------ ------------------
NAV (Cum Income) Return -2.04% -4.06% -6.97%
------------------ ------------------ ------------------
Total Shareholder Return (based
on share price)(1) -14.32% -5.21% -1.19%
------------------ ------------------ ------------------
Dividends per Ordinary Share(2) 4.00p 4.00p 8.00p
------------------ ------------------ ------------------
Total Net Return -GBP5.55 million -GBP12.88 million -GBP22.11 million
------------------ ------------------ ------------------
Revenue Return +GBP21.79 million +GBP13.21 million +GBP28.02 million
------------------ ------------------ ------------------
(1) Net of issue costs.
(2) Dividends declared which relate to the period.
TOP TEN POSITIONS
The table below provides a summary of the top ten exposures of
the Group, net of gearing, as at 30 June 2023. The summary includes
a look-through of the Group's investments in VPC Synthesis, L.P.
and VPC Offshore Unleveraged Private Debt Fund Feeder, L.P. to
illustrate the exposure to underlying Portfolio Companies as it is
a requirement of the investment policy (set out on page 3 to
consider the application of the restrictions in this policy on a
look-through basis.
INVESTMENT COUNTRY INVESTMENT TYPE EXPOSURE
===================================== =============== ====================== =========
Deinde Group, LLC United States Asset Backed Lending 12.65%
===================================== =============== ====================== =========
Caribbean Financial Group Holdings,
L.P. Latin America Asset Backed Lending 6.90%
===================================== =============== ====================== =========
FinanceApp AG Switzerland Equity 6.58%
===================================== =============== ====================== =========
Applied Data Finance, LLC United States Asset Backed Lending 6.23%
===================================== =============== ====================== =========
FinAccel Pte Ltd Singapore Asset Backed Lending 5.90%
===================================== =============== ====================== =========
Perch HQ, LLC United States Asset Backed Lending 4.91%
===================================== =============== ====================== =========
Razor Group GMBH Germany Asset Backed Lending 4.46%
===================================== =============== ====================== =========
Heyday Technologies, Inc. United States Asset Backed Lending 3.95%
===================================== =============== ====================== =========
Heyday Technologies, Inc. United States Equity 3.25%
===================================== =============== ====================== =========
Elevate Credit, Inc. United States Asset Backed Lending 3.13%
===================================== =============== ====================== =========
CHAIRMAN'S STATEMENT
I present to you the half-year results for the Company for the
period to 30 June 2023. Over this period, the Company delivered a
total return of -2.04%, with strong revenue returns of 5.94% but
capital and other returns were down by 8.10% due to challenges in
the broader equity markets. Through this period, the Company's
investment portfolio remained stable, and its dividend has been
unaltered with quarterly dividends totalling 4.00 pence per share
declared with 2.00 pence per share paid as of 30 June 2023.
The first half of 2023 has been dominated by Western economies
attempting to dampen rising inflation with sustained monetary
policy tightening. These efforts have made daily life increasingly
difficult for consumers and borrowers, and investor sentiment has
suffered. That said, there were some positive developments this
year. For example, fears of banking sector contagion following the
fallout of Silicon Valley Bank in March have dissipated, and
lending conditions have tightened by less than initially feared.
Moreover, even as growth has been anaemic, larger economies have so
far this year managed to avoid recession. Consequently, we may be
closer to the end of the rate-hiking cycle in both Europe and the
U.S., even if the U.S. Federal Reserve ("Fed") appears unlikely to
ease monetary policy before early 2024.
Closer to home, the Association of Investment Companies ("AIC")
reported that UK investment trusts as a whole are now trading at
the widest discount to net asset value ("NAV") since 2009 at the
height of the Global Financial Crisis. The discount then continued
to widen because of the still challenging economic environment
eroding investor confidence. Indeed, discounts appear particularly
steep for those investment trusts invested in relatively illiquid
assets, including private companies and real estate. Investment
trust discounts are unlikely to close significantly until investors
feel far more optimistic about the future direction of the global
economy.
THE COMPANY ' S INVESTMENTS
The Company continues to generate robust returns from its core
lending business in asset backed investments (which represent 76%
of the total portfolio as at 30 June 2023). The core lending
business benefits from a secure lending position, targeting minimal
capital losses and a high level of income generation that supports
regular dividend payments. Most of the Company's asset backed
investments are delayed draw, floating rate senior secured loans
that may have equity subordination. These asset backed investments
are secured primarily by underlying collateral consisting of
consumer loans, small business loans and alternative assets.
The Company's equity interests are often an affiliated
accompaniment to its core lending activity, as are its investments
in Special Purpose Acquisition Companies ("SPACs"). During the
half-year review period, the proportion of the overall portfolio
represented by equity investments, including investments in SPACs,
increased slightly from 22% to 23%. The Company's investment in
SPACs is valued at GBP4.9 million, approximately 2% of NAV.
More information about the performance of the Company's
investments can be found in the Investment Manager's Report.
INVESTMENT OBJECTIVE
Proposals to amend the Company's investment policy to facilitate
a managed wind-down of the Company were approved by Shareholders at
the General Meeting on 12 June 2023. There are two key aspects of
the wind-down process I am keen to address to Shareholders; the
first is the timing of realisations, and the second is the
expedient and measured return of capital. In terms of realisations,
the Investment Manager is committed to ensuring that the Company's
investments will be realised in an orderly manner, that is,
intending to achieve a balance between returning cash to
Shareholders promptly and maximising value. Given the illiquid
nature of the Company's investments, it is difficult to provide
certainty on the timeframe for realisation; however, I would direct
Shareholders to the Company's website to view the most recently
published Monthly Report, where we will continue to publish any
information relating to actual and potential realisations. The
profile of contractual maturities less projected borrowing paydowns
for Asset Backed Lending Investments as at 30 June 2023 is
available on the Company's website:
https://vpcspecialtylending.com/documents/ and updates will
continue to be provided monthly. For ease of reference the maturity
profile as at 30 June 2023 can be found on page 8 below.
In terms of returning capital to Shareholders, we are conscious
that our Shareholder register features both institutional and
retail investors. With that in mind, we will seek to ensure as far
as possible that no Shareholder group is disadvantaged in how
capital is returned over time.
Although Shareholders should place only limited reliance on this
information, it is the Board's current estimate that the first
distribution will occur at the end of 2023 or in early 2024 and
that distributions will continue thereafter with a substantial
proportion of the portfolio being realised within the next three
years. Based on existing market conditions, potential cash flows
and on the assumption of continued strong portfolio performance,
the Company currently expects to continue paying dividends at the
current rate for at least a year and potentially longer. The
Company will communicate the expected timing of distributions as
the portfolio is realised, through Monthly Reports and via direct
Shareholder communication as required.
INVESTOR ENGAGEMENT
Following the votes at the General Meeting and the AGM, the
Board has been engaging with Shareholders to understand the reasons
for over 20% of the votes being cast against Resolution 2 (To
revise the investment management agreement) at the General Meeting
and at the AGM: on Resolutions 5 (To re-elect the Chairman as a
Director), 10 (To authorise the Directors to allot Ordinary
Shares), and 11 (To dis-apply pre-emption rights ). We acknowledged
the outcome of these votes in our communications after both
meetings and have subsequently been in contact with a number of
Shareholders to listen to the reasons for their votes against those
Resolutions and to assure them that their concerns have been
acknowledged. I would like to thank those Shareholders who engaged
in these constructive discussions. We will continue to consult
Shareholders regularly.
One key piece of feedback was concern from some Shareholders
regarding Resolution 2 of the General Meeting to restructure the
Investment Manager's management and performance fee arrangements in
light of the wind-down process. In response, it is important to
note that the revised management and performance fee arrangements
require a full NAV return (i.e., the High Water Mark NAV Amount) in
cash to Shareholders before any performance fees are paid to the
Investment Manager, which was not previously the case. Further, the
Company will not pay performance fees on unrealised gains in the
future, with performance fees only being paid out of realised
returns. The arrangement should mitigate against disposals at an
excessive discount which would expedite the voluntary liquidation
of the Company but may disadvantage Shareholders.
We continue to believe that the revised management and
performance fee arrangements better align the interests of the
Company, its Shareholders and the Investment Manager, as it
incentivises the Investment Manager to undertake the wind-down
process efficiently and in a way that optimises value and decreases
risk for Shareholders. A fixed management fee alone could not
achieve the same degree of alignment, and I hope this helps to
further allay any Shareholder concerns on this matter.
THE COMPANY ' S ESG IMPACT
As an investment trust, the Company does not have employees,
property, or factories. Therefore, its ability to make a positive
environmental, social, and governance ("ESG") impact is directed by
the Investment Manager and through the Portfolio Companies the
Company invests in. The Investment Manager aims to operate and
invest responsibly, ethically, and fairly and continues to be a
signatory of the United Nations Principles for Responsible
Investment ("PRI"), the leading global network for investors
committed to integrating ESG considerations into long-term
investment decision-making.
As a consequence of the new investment policy, we recognise we
have an even greater responsibility to ensure we treat all
underlying Portfolio Companies fairly in respect of timings of
exits and in our efforts to achieve a fair value for all concerned
parties. Decisions will continue to be taken after considering the
impact on all relevant stakeholders.
The Board and the Investment Manager remain committed to
ensuring the Company's culture is aligned with its stated purpose,
values, and strategy, throughout the wind-down process. Moreover,
the Company continues to have policies and procedures in place to
maintain a culture of good governance, including policies and
procedures relating to all aspects of diversity, equity, and
inclusion.
OUTLOOK
We have been encouraged by the Company's resilience during
continued market uncertainty and in an era of significant interest
rate hikes. This resilience stems from the nature of the core asset
backed securities held by the Company, the deal structuring applied
to portfolio investments, the risk management measures implemented,
as well as the Investment Manager's long-standing credit
expertise.
Now that the wind-down process has begun in earnest, the Board
will meet regularly to review the following: (i) progress in
implementing the Company's revised investment objective and policy,
and (ii) the liquidity of unrealised holdings. We recognise that
the strategy for realising individual investments must be flexible
and may need to be altered to reflect changes in the circumstances
of a particular investment or to account for prevailing market
conditions. While some investments may be considered appropriate
for sale in the shorter term, other investments may be held for a
longer period with a view to enabling their inherent value to be
achieved.
The Company's goal in the wind-down is to keep Shareholders
updated on progress and to achieve realisations in a timely and
efficient manner. We recognise that to be overly prescriptive on
the timeframe could prove detrimental to the overall aims of the
orderly wind-down, which is to achieve the best value for
Shareholders. However, our conversations with Shareholders
confirmed that timing is paramount for some. We will therefore
endeavour to keep all Shareholders informed and updated throughout
the realisation process while being mindful of our responsibilities
to all Stakeholders and Portfolio Companies.
Finally, your Board and I would like to thank all Shareholders
for their continued support.
Graeme Proudfoot
Chairman
28 September 2023
INVESTMENT MANAGER'S REPORT
PERFORMANCE REVIEW
Amid ongoing economic uncertainty during the first half of the
year, the Company generated negative performance primarily driven
by unrealised losses on equity investments within the eCommerce
aggregation portfolio. Even so, we believe the portfolio remains
well-positioned due to the protections structured into the
Company's balance sheet investments, and the Company continues to
make quarterly dividend payments to its investors in line with
expectations.
During the period, the Company generated a total return of
-2.04% (2.00p) for shareholders, declared dividends for the period
of 4.00p and produced a NAV per share as at 30 June 2023 of 94.18p.
The Company generated gross revenue returns of 7.98% (7.83p) as a
percentage of NAV in the first half of 2023 from the Company's
balance sheet investments, continuing the stable trend of the past
few years. As detailed in the returns table below, gross capital
returns of -6.95% (-6.82p) were primarily due to the unrealised
losses from the Company's privately held and publicly traded equity
investments. Finance costs were -1.28% (-1.25p) and operating
expenses and management fees were -1.09% (-1.07p) for the
period.
Revenue growth and contribution margins continue to be depressed
within the eCommerce aggregation portfolio, a dynamic felt across
the broader eCommerce and retail industries, driving the decision
to adjust the fair market value of some investments. In addition,
certain individual Portfolio Companies underperformed to budget,
exacerbating the valuation adjustments.
Overall, the continued weak performance of equities and
sustained pressure on consumer spending were notable themes during
the first six months of the year, a dynamic felt in particular
across the broader eCommerce and retail industries. After
experiencing rapid growth during the pandemic, eCommerce companies
have experienced a notable post-pandemic slowdown, and have been
forced to navigate a slower growth environment. For context, even
Amazon reported its first unprofitable year since 2014. Inflation,
while showing signs of abating, continues to be a primary driver of
pressure on consumers, particularly those in the lower income
brackets. While many of the supply chain challenges faced by
eCommerce since early 2022 have eased, higher prices have not fully
offset the pressure on margins and reductions in force have been
more commonplace.
In the second quarter of 2023, eCommerce Portfolio Companies
continued to right-size balance sheets by reducing inventory to
unlock working capital and manage corporate spending. This is not
unique to the Company's portfolio but has been a broader theme
consistent across the industry, from large multinationals to small
third-party sellers. On a positive note, there have been signs that
these right-size measures are paying off. Revenue and margin
performance are improving while liquidity remains generally robust,
albeit continued risk-management efforts to improve profitability
and underlying asset performance will remain a work in process
through the back half of the year.
The Company's fintech credit facilities have demonstrated
continued resilience. In the consumer space, consumer credit is
showing signs of normalisation, with credit card delinquencies
returning to pre-pandemic levels.
The demand in Venture Capital ("VC") markets has, in general,
been notably weaker during 2023, with VC investors scaling back
funding and taking longer to assess new investment opportunities.
Public equity volatility and a general reset in valuations have led
to a higher "bar" for new equity investments. According to
Crunchbase, seed funding in the first quarter of 2023 was down 44%
year over year, and early-stage funding was down 54% over the
previous year. The slowdown led to a decrease in valuations for the
private equity book.
By contrast, the demand for private debt as a practical
alternative to growth equity financing for emerging businesses has
continued. In 2007, the private debt market had approximately
US$190 billion in assets. It has subsequently increased to
approximately US$1.5 trillion in assets in 2022. The evidence
suggests that as traditional funding has dried up, growth-stage
companies are increasingly relying on debt financing and
non-traditional funding to support their expansion plans.
The Company's asset backed investment portfolio primarily
consists of senior secured floating rate credit facilities. The
senior secured floating rate credit facilities are further
structured to provide significant first-loss protection to
Company's investments. Recent higher interest rates have positively
affected revenue returns, as rates on the Company's facilities are
floating.
In keeping with the Company's expected credit loss allowance
policy, reserves are reviewed monthly. Given the continued
challenging economic environment and in running the scenarios
detailed in the footnotes to the financial statements, the Company
saw a nominal increase in the expected credit loss reserves by
9.63% or GBP1.6 million during the period.
RISKS AND UNCERTAINTIES
Although there are several risks and uncertainties, the
Investment Manager believes the most significant of these
include:
v Rising interest rates: While the Company's investment
portfolio primarily consists of floating rate credit facilities
with interest rate floors, changes in interest rates could affect
its investments, the profitability of the Portfolio Companies, and
that of the underlying borrowers, potentially leading to lower
returns or changes in repayments or default rates of the underlying
borrowers.
v Potential changes in credit risk: There is inherent risk in
the Company's underlying investments of a borrower default and a
majority of the underlying exposure is in the U.S. Given the short
duration of the collateral in the portfolio, the underly Portfolio
Companies continue to generate sufficient cash flow.
The Investment Manager's proactive approach to mitigating risk
includes tightening credit criteria on originations, bolstering
operations, rationalising operating expenses, tightening structural
protections, and leveraging third-party consultants as needed. It
is also committed to ongoing monitoring on a daily, weekly, and
monthly basis of cash reserve levels, collateral, and repayment
activity.
INVESTMENT MANAGER UPDATE
VPC had a robust first half of 2023. As at 1 August 2023, VPC's
team included 55 employees across its locations in Chicago, New
York, Los Angeles, San Francisco, and London. The Investment
Manager continues to operate in a hybrid workplace, with employees
working from the office three days a week and remotely two days per
week, respectively.
As it relates to portfolio management, the Investment Manager
remains focused on proactive risk management and controls across
its portfolio. Senior management holds multiple calls each week,
and the investment team is in regular contact with Portfolio
Companies. With the help of the Investment Manager's proprietary
Data Analytics and Risk Technology System (DARTS), VPC is able to
monitor risk and performance proactively .
OUTLOOK
The last 18 months have seen interest rates raised by central
bankers at an unprecedented pace. As recently as the first quarter
of 2022, the Fed held the federal funds rate at near zero. Since
then, the Fed has raised rates 11 times, taking the federal funds
rate to a range of 5.25% to 5.50% at the time of writing. It is,
therefore, not surprising that companies are struggling to
acclimatise to borrowing rates. While there are growing hopes that
U.S. monetary tightening has peaked, the Fed is not ruling out the
possibility of more rate hikes this year.
The Company's average portfolio interest rate has increased as
the Fed has raised rates, which has positively affected revenue
returns over the period. However, the Investment Manager recognises
that central bank policy is not an exact science, and just as
policymakers take time to respond to changes in the economic
outlook, the effects of their policy changes take time to filter
through to the broader economy, companies, and consumers. The
Investment Manager, therefore, is mindful that further increases in
short-term rates could potentially lead to credit risk as Portfolio
Companies will face greater than anticipated interest expenses. As
well as monitoring credit performance, the Investment Manager
continually assesses the overall corporate performance of the
Portfolio Companies, including observing board meetings and holding
weekly update calls with management.
From a macroeconomic standpoint, private debt as an asset class
remains the stable choice in volatile times and continues to
benefit from investors seeking income generation and resilient
returns across market cycles. From a structural perspective, as the
world adapts to the higher-for-longer interest rate environment,
the Company continues to benefit from its floating rate credit
facilities with interest rate floors, its short-duration collateral
in the underlying Portfolio Companies, and its additional layers of
corporate guarantees and structural protection. Overall, the
Investment Manager anticipates valuations will be flat or slightly
down next year as this environment encourages companies to be
measured on valuation expectations. The theme of mergers and
consolidation is expected to be a focus across the eCommerce space
throughout the remainder of 2023 and well into 2024.
As the Investment Manager, VPC is managing the wind-down
effectively with the near-term goal to maintain the Company's
dividend target. VPC will manage the portfolio in accordance with
the Firm's institutionalised policies and procedures with the goal
of maximising returns for Shareholders.
Victory Park Capital Advisors, LLC
Investment Manager
28 September 2023
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IR EANNPAEEDEFA
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