TIDMVSL
RNS Number : 9838W
VPC Specialty Lending Invest. PLC
29 April 2021
29 April 2021
VPC SPECIALTY LING INVESTMENTS PLC
(the "Company" or " Parent Company ") with its subsidiaries
(together) the "Group" )
ANNUAL FINANCIAL REPORT FOR THE YEARED 31 DECEMBER 2020
The Board of Directors (the "Board") of VPC Specialty Lending
Investments PLC (ticker: VSL) present the Company's Annual
Financial Report for the year ended 31 December 2020.
ABOUT
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 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 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 "Balance Sheet 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 annual report for the year to 31 December 2020 (the "Annual
Report") 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.
Further information on VPC Specialty Lending Investments PLC is
available at https://vpcspecialtylending.com.
The 2021 Annual General Meeting will be held on Thursday, 24
June 2021.
Printed copies of the Annual Report and Notice of the Company's
2021 Annual General Meeting will be posted or made available to the
Company's shareholders.
A copy of the Annual Report will be submitted shortly to the
National Storage Mechanism and will be available for inspection at
www.morningstar.co.uk/uk/nsm and will also available on the
Company's website at https://vpcspecialtylending.com/
A copy of the Notice of the Company's 2021 Annual General
Meeting will be published and made available in due course.
The following text is extracted from the Annual Report and
Financial Statements of the Company for the year ended 31 December
2020. All page numbers below refer to the Annual Report on the
Company's website.
SUMMARY AND HIGHLIGHTS FOR THE YEAR
The financial and business highlights for the year ended 31
December 2020 are as follows:
v February 2020 : SVS Opportunity Fund, L.P., an investment
vehicle managed by the Investment Manager, acquired 16.61% of the
outstanding shares in the Company from a major shareholder and
announced that it owned 18.12% of the Company.
v February 2020 : The Company declared a dividend of 2.00 pence
per share for the three-month period to 31 December 2019.
v March 2020 : The Investment Manager released updates regarding
the potential impact of COVID-19 and the initial impact of the
pandemic on the Company's investment portfolio.
v April 2020 : The Company announced it received USD$22.2
million of partial paydowns from its Portfolio Companies during the
month and used those proceeds, along with other cash, to repay
USD$25 million of the Pacific Western Bank leverage facility, which
could be redrawn in the future.
v May 2020 : The Company declared a dividend of 2.00p for the
three-month period to 31 March 2020.
v June 2020 : The Company announced that the continuation vote
passed with 86.6% of the shares voting in favour of the
resolution.
v August 2020: The Company declared a dividend of 2.00p for the
three-month period to 30 June 2020.
v October 2020: The Company announced that one of its
investments, Bread Financial, Inc., signed a definitive agreement
to be acquired by Alliance Data Systems Corporation. The
transaction was completed by December and the Company fully exited
its investment to realise a USD$1.3 million gain on the
investment.
v November 2020: The Company declared a dividend of 2.00p for
the three-month period to 30 September 2020.
v November 2020: The Company was named "Best Performing Debt
Fund" in Citywire's Fourth Annual Investment Trust Awards.
v December 2020 : The Company announced that Katapult Holdings,
Inc. ("Katapult"), announced that it had entered into a Definitive
Merger Agreement with FinServ Acquisition Corp (Nasdaq: FSRV) a
publicly traded SPAC focused on Fintech investments.
SUBSEQUENT EVENTS
Since the year ended 31 December 2020:
v January 2021: VPC Impact Acquisition Holdings (NASDAQ: "VIH")
announced on 11 January 2021 that it had entered into a definitive
agreement to combine with Bakkt Holdings, LLC. The Company owns
2,220,530 Class B Shares and 2,697,467 private placement warrants
in VIH, held at an aggregate cost basis of USD$2.7 million. The
Company expects that the transaction will close during Q2 2021.
v February 2021: The Company declared a dividend of 2.00p for
the three-month period to 31 December 2020.
v March 2021 : The Company fully exited its equity investment in
Elevate Credit, Inc. (NYSE: ELVT) and the Company funded equity
investments in VPC Impact Acquisition Holdings II (NASDAQ: VPCB)
and VPC Impact Acquisition Holdings III (NYSE: VPCC) for USD$1.3
million each. Additionally, the Company closed on a USD$130 million
gearing facility with Massachusetts Mutual Life Insurance Company,
which was used to repay the Company's previous gearing facility
with Pacific Western Bank and the first-out participation facility
on Avant, held with Axos Bank.
v April 2021: From 1 January 2021 through the date of this
report, the Company has repurchased 2,720,972
shares at an average price of 85.83p.
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
Neil Winward
Gaudi le Roux
Winterflood Securities Limited Tel: +44 20 3100 0000
Neil Morgan
Chris Mills
Link Company Matters Limited (Company Tel: +44 20 7954 9567
Secretary) Email: VPC@linkgroup.co.uk
STRATEGIC REPORT
CHAIRMAN'S STATEMENT
The past year has proven to be the most challenging time with
extreme uncertainty, disruption to our daily lives, hardship and
sadly, for many, personal tragedy. Hopefully, with the worldwide
vaccination programme, we may be able to return to some semblance
of normality and start on a path to recovery from the COVID-19
pandemic. Against this challenging background, the Company
delivered a strong performance overall in 2020.
HIGHLIGHTS IN 2020
v Total NAV return of 11.12% for the year, only marginally down
from the record-breaking performance in 2019 of 11.34%;
v Total Shareholder Return of 10.87% for the year;
v The Company was named as "Best Performing Debt Fund" in
Citywire's Fourth Annual Investment Trust Awards;
v Continuation vote resolution passed at the 2020 AGM;
v Resilient performance of the balance sheet loan investments
with the Company receiving all interest payments on time during the
year; and
v Refreshed and strengthened the Board with the appointment of
two new independent non-executive directors.
PERFORMANCE
Despite the significant challenges that the year has brought, I
am happy to report a very respectable performance. In 2020, the NAV
per share of the Company increased by 11.12% on a total return
basis, comprising NAV per share increase to 95.72p from 93.33p,
plus the 8.00p of dividends paid in 2020. During the year, the
share price increased to 78.70p from 78.20p. Despite stable NAV and
dividends, there was significant volatility in the share price,
which recovered from the historic trading low of 43.00p on 23 April
2020. The dividends paid are in line with the target dividend of
8.00p per year set out in the IPO Prospectus, were fully covered by
revenue returns during the year, and continue to be the long-term
dividend target of the Company.
The Group generated revenue returns of GBP23,898,852 (2019:
GBP27,054,994) and paid fully covered dividends of GBP23,674,744
(2019: GBP26,627,820) for the year. Additionally, the Company
repurchased 29,654,941 Ordinary Shares (2019: 47,808,578) through
the share buyback programme.
The Company remains focused on risk and takes nothing for
granted in the future. It is however more optimistic that
performance this year should continue to reinforce the investment
case for the Company. We have long spoken of the resilient nature
of the balance sheet investments held by the Company, reflecting
the investment positioning of VPC as the Investment Manager for the
Company, as evidenced by the strong performance during the
year.
INVESTMENTS
As at 31 December 2020, the Group was fully invested in a
diversified portfolio of balance sheet and equity investments that
continue to deliver strong risk-adjusted returns. Most of the
Company's balance sheet investments are delayed draw, floating rate
senior secured loans that have equity subordination. The balance
sheet investments are also backed by underlying collateral
consisting of consumer loans, small business loans and other types
of collateral. While the macro backdrop for non-traditional credit
has been volatile, VPC's risk mitigation measures, the resilience
of the portfolio and its performance have been encouraging.
The balance sheet loan portfolio comprised 22 Portfolio
Companies with a weighted average coupon rate (excluding gearing)
of 10.79% and a weighted average remaining life of 29 months. The
total expected credit loss as at 31 December was GBP8,489,159,
(2019: GBP9,631,612) as the Company continued to model a 100%
likelihood of a stress scenario in the reserve analysis. Early in
the pandemic, the Company took a conservative approach to expected
credit loss provisions and assumed a severe downside scenario
across the portfolio when provisioning for losses. Over the course
of the remainder of the year the portfolio continued to perform in
line with our expectations at the time of underwriting (and in some
cases exceeded them) so we were able to release some of these
reserves as the portfolio seasoned and pre-pandemic vintages
continued to pay down. The reserve as at 31 December 2020
represented 2.8% of the cost before the expected credit losses
(2019: 2.6%).
The equity portfolio comprised 34 investments in Portfolio
Companies that ranged in size from 0.01% to 2.79% of the Company's
NAV as at 31 December 2020. Many of the investments within the
investment portfolio are warrants and common stock that are often
received in conjunction with funding the Group's balance sheet loan
investments. During the fourth quarter, the Company announced that
it had invested in a special purpose acquisition company ("SPAC")
launched by the Investment Manager. VPC has an extensive deal
sourcing network in the fintech universe through its existing
business and the SPAC was a natural way to capitalise on the
network for the benefit of our shareholders.
GEARING
The Company closed the year with a look-through gearing ratio of
0.32x (2019: 0.38x), which is well below the limit of 1.50x
outlined in the IPO Prospectus. Through the COVID-19 pandemic, the
Company has taken a more conservative approach to liquidity and
risk management with the gearing facilities. The gearing is in the
form of US Dollar borrowings, which also assist in hedging the
portfolio's US Dollar exposure in a flexible and cost-effective
manner. It should be noted that slightly more than half the
borrowings (0.18x) are non-recourse to the Company and are linked
to specific investments.
After year end, the Company closed on a USD$130 million gearing
facility with Massachusetts Mutual Life Insurance Company
("MassMutual"). At the closing, the Company drew USD$80 million
which was used to repay the Company's previous gearing facility
with Pacific Western Bank and the first-out participation facility
on Avant loans, held with Axos Bank. After the closing of the new
facility, the pro-forma look-through gearing ratio increased
slightly to 0.33x from 0.32x. The negotiated terms of the
MassMutual facility include a three-year revolving period, an
interest rate lower than that of the previous facility, and an
option to upsize the facility from $72 million to $200 million and
a six-year maturity.
RESPONSIBLE INVESTING
While the pure financial returns of the year have been
resilient, I would like to draw your attention to the effort which
the Board and the Investment Manager apply to how we do business.
The Board of the Company and the Manager share a firmly held
perspective that not only should the financial returns to you, our
shareholders, be attractive, but these must be delivered in a
manner which is consistent with our responsibility to society. This
year has been a year when this focus on responsibility and
sustainability, and the overall commitment was more important than
ever and we plan to implement this within the investment
policy.
During the year, the Investment Manager worked closely with our
portfolio companies regarding collection and borrower contact
strategies. This included: (a) ensuring companies have adequate
resources to manage collections and servicing of the portfolio,
including geographically redundant call centres and remote employee
access; (b) developing fair and transparent hardship relief options
which allow the portfolio companies to provide relief to borrowers
facing difficulty, but also positioning the portfolio companies to
maximise the collectability of those loans once borrowers regain
the ability to make payments; and (c) generally making sure that
portfolio companies are employing best practices in servicing the
portfolio. In certain instances, the Investment Manager had brought
in external collections experts via a third-party consulting firm
with deep expertise in consumer credit and collections to ensure
portfolio companies further enhance collections capabilities.
SHARE PRICE DISCOUNT MANAGEMENT POLICY
During the year, the share price discount to NAV ranged from
11.07% to 54.37%. This continues to be a major area of focus for
both the Board and to shareholders and was much discussed prior to
last year's AGM and during the shareholder consultation process
that took place following last year's AGM. The uncertain impact of
the COVID-19 pandemic on our investment performance and the outcome
of the 2020 continuation vote were the key factors putting pressure
on the share price during the year.
During the year, the Company continued to implement an active
share buyback programme. The Company bought back a total of
29,654,941 shares (2019: 47,808,578) at an average price of 67.99p
(2019: 73.31p), representing 9.50% of the Company's issued shares
as at 31 December 2020.
The Board believes that the best form of discount management
over time is to have strong and consistent investment performance,
backed by active risk management, to demonstrate that to existing
and potential shareholders and to market the shares actively. The
Board continually monitors the share buyback programme, as well as
the Company's premium or discount, and has the ability to issue or
buy back shares to limit the volatility of the share price discount
or premium. The targets put in place at the time of the 2020
continuation vote should also play a role in reducing the discount.
The Board and Investment Manager are aware of these targets and the
need to meet them.
BOARD COMPOSITION
During 2020 the Board agreed a process that would lead to the
refreshment and strengthening of the Board. I indicated my
intention to stand down as Chair at the 2021 AGM and Richard Levy
retired from the Board at the end of December 2020. The Board
agreed to recruit two new independent non-executive Directors and
we used an independent search consultancy to source candidates for
both of these roles. The Board's Nomination Committee, led by its
Chair Mark Katzenellenbogen, took responsibility for the selection
of these new Directors and the selection of a new Chair. The
Company Secretary's report on this process appears on pages 120 and
121.
I am delighted to report that Graeme Proudfoot and Oliver Grundy
have been appointed to the Board and that Graeme will be appointed
as my successor.
Graeme is also chairman of BlackRock Income and Growth
Investment Trust plc and brings a wealth of asset management
expertise and investment trust experience, having spent his
executive career at Invesco. Graeme joined Invesco in 1992 as a
legal advisor and held various roles within the Invesco Group,
including General Counsel of Invesco Global, before moving to take
responsibility for a number of businesses in the UK including
Invesco's investment trust business, which he led from 1999 until
his retirement from Invesco in 2019.
Oliver was appointed with effect from 12 March 2021. Following
publication of this annual report, he will succeed Clive Peggram as
Chair of the Audit and Valuation Committee. Clive Peggram will
remain on the Board as an independent non-executive director.
Oliver was an audit partner of Deloitte, LLP for 28 years until his
retirement in November 2019. He worked both in London and New York
in various roles, including leading Deloitte's Banking Group.
During his Deloitte career he also had a number of roles at the
Institute of Chartered Accountants of England & Wales
(ICAEW).
I wish to express my gratitude to Richard Levy for the
significant contribution he has made during his tenure as a
Director. He has brought relevant sector insight and expertise and
his market knowledge and commercial judgement have been of
particular value during the recent market turbulence.
OUTLOOK
As I noted at the opening of my statement, current expectations
are that, while 2021 will see its share of challenges, we will also
see some form of recovery from the COVID-19 pandemic and a gradual
return to a more normal way of life. As of the date of this report,
the existing balance sheet debt investment portfolio has remained
resilient to the macroeconomic stress resulting from the COVID-19
pandemic and has continued to perform. In this context, the
prospects for the Company's outlook remain attractive. As this year
has proven, not only have the balance sheet investments within the
portfolio withstood significant shocks, but the Investment Manager
has shown that it can continue its normal course of business,
invest responsibly, and find attractive risk-adjusted returns for
the Company.
As I prepare to step down at the forthcoming AGM, I remain
confident that the outstanding NAV performance the Company has
delivered throughout my period as Chair will continue. I take this
opportunity to thank all the partners and staff of VPC who have
made such an impressive contribution to the success of the Company,
and my fellow directors for their wise counsel. My successor,
Graeme Proudfoot, is well qualified to lead the Board in the next
stage of its journey and I wish him and the Board and VPC continued
success.
Finally, the Board wants to express the hope that you, your
family, friends and colleagues are and remain healthy.
Kevin Ingram
Chair
28 April 2021
TOP TEN POSITIONS
The table below provides a summary of the top ten positions of
the Group, net of gearing and excluding equity exposure, as at 31
December 2020. The summary includes a look-through of the Group's
investment in 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 pages
134 and 135) to consider the application of the restrictions in
this policy on a look-through basis.
All balance sheet investments are disclosed as loans at
amortised cost in accordance with the International Financial
Reporting Standards within the Statement of Financial Position.
INVESTMENT COUNTRY INVESTMENT PERCENTAGE OF
TYPE NAV
=============================================== ===================== =============== ===============
Balance Sheet
Applied Data Finance, LLC United States Lending 15.27%
================================================ =================== ================= ==============
Applied Data Finance, LLC. ("ADF") provides credit to consumers in select
states across the U.S. The company is headquartered in San Diego, with
offices in New York, in addition to an IT and call centre support in
Chennai, India. Financings are in the form of installment loans and range
up to $10,000.
========================================================================================================
Caribbean Financial Group Holdings, Balance Sheet
L.P. Latin America Lending 13.59%
================================================ =================== ================= ==============
Caribbean Financial Group Holdings, L.P ("CFG") is the largest non-bank
provider of unsecured consumer installment loans to the Caribbean market,
operating primarily in the western and southern Caribbean. CFG was founded
in 1979, operates over 70 store branches across seven Caribbean countries
and has its largest operations in Panama and Trinidad & Tobago. CFG's
product offering includes loan sizes ranging from $200 to $10,000, loan
terms up to 79 months with no prepayment penalties and fully amortizing
simple interest loans with equal monthly payments and rates based on
underwriting customers' ability to pay.
========================================================================================================
Balance Sheet
Elevate Credit, Inc. United States Lending 11.56%
================================================ =================== ================= ==============
Elevate Credit, Inc. ("Elevate") is a lender of unsecured short-term
cash advances and installment loans to individuals primarily through
the internet. The company provides consumers with access to responsible
and transparent credit options within the non-prime lending industry.
Elevate currently offers and / or supports the following products: U.S.
installment loans (Rise), lines of credit (Elastic) and credit card (Today
Card).
========================================================================================================
Balance Sheet
ATA KS Holdings, LLC United States Lending 11.00%
================================================ =================== ================= ==============
ATA KS Holdings, LLC ("ATA") is a national law firm that represents a
broad array of clients as plaintiffs in complex litigation at the trial
and appellate levels. The company will (i) co-counsel in high profile
mass tort litigations, (ii) purchase minority equity interests in small-
to mid-sized law firms across the United States and (iii) provide entrepreneurial
lawyers a platform to monetize an existing book of business.
========================================================================================================
Balance Sheet
Deinde Group, LLC United States Lending 3.76%
================================================ =================== ================= ==============
Deinde Group, LLC ("Integra") is an early stage, online provider of unsecured
consumer loans to borrowers. Integra was founded in March 2014 by Arthur
Tretyak (CEO) and is led by a team of seasoned consumer finance and risk
analytics executives, with prior experience including TitleMax, a $400.0
million nonprime consumer lender, and Enova, a $800.0 million nonprime
consumer lender.
========================================================================================================
Balance Sheet
Perch HQ, LLC United States Lending 3.34%
================================================ =================== ================= ==============
Perch HQ, LLC ("Perch") is a technology-enabled platform that seeks to
acquire and operate a diverse portfolio of e-commerce assets on retail
marketplaces. Perch utilizes its technology and operational expertise
to drive growth through pricing strategy, advertising strategy, inventory
management, supply chain efficiencies and general brand/account management
optimization.
========================================================================================================
Balance Sheet
West Creek Financial, Inc. United States Lending 3.24%
================================================ =================== ================= ==============
West Creek Financial, Inc. ("West Creek") provides a point-of-sale, lease-to-own
solution for underserved customers enabling purchases of durable goods
such as furniture, mattresses, appliances and tires. West Creek's proprietary
underwriting model verifies FICO scores, a measure of consumer credit
risk, and collects additional data from third-party providers such as
Clarity, DataXRisk, and FactorTrust to analyse numerous variables to
evaluate and approve users.
========================================================================================================
Balance Sheet
Avant, Inc. United States Lending 2.72%
================================================ =================== ================= ==============
Avant, Inc. ("Avant") is an online lending platform that is changing
the way consumers obtain credit by lowering the costs and barriers of
borrowing. Utilizing big data and machine-learning algorithms, the company
offers a unique and highly customized approach to streamlined credit
options. Avant has been featured in publications such as Wall Street
Journal, The New York Times, TechCrunch, Fortune, Bloomberg and Crain's
Chicago Business and was named to Forbes America's Most Promising Companies
list for 2015. Avant provides credit to near-prime and prime consumers
in 49 states.
========================================================================================================
Balance Sheet
Counsel Financial Holdings LLC United States Lending 2.63%
================================================ =================== ================= ==============
Counsel Financial Holdings LLC ("Counsel") is a specialty non-bank commercial
lender that originates and services senior secured loans to law firms
that maintain primarily contingent fee practices. Counsel's borrowers
represent plaintiffs in (i) class action, (ii) mass tort and (iii) personal
injury litigation throughout the United States. Since inception, Counsel
has extended approximately 200 individual credit lines to law firms collectively
totalling over $700 million.
========================================================================================================
Balance Sheet
Sunbit, Inc. United States Lending 2.21%
================================================ =================== ================= ==============
Sunbit, Inc. ("Sunbit") is a differentiated point-of-sale financing provider
focused on near-prime customers within the brick-and-mortar retail space.
Sunbit offers customers instant and customizable unsecured installment
loans to finance on the spot purchases made in person at brick-and-mortar
retail locations across 45 states. In 2020, the company launched Sunbit
Card which provides approved customers the flexibility of a credit card
with a payment mechanism comparable to Sunbit's core point-of-sale amortizing
installment loan product.
--------------------------------------------------------------------------------------------------------
BUSINESS MODEL
COMPANY STATUS
The Company is registered as a public limited company under the
Companies Act 2006 and is an investment company under Section 833
of the Companies Act 2006. It is a member of the Association of
Investment Companies ("AIC").
The Company was incorporated on 12 January 2015 and commenced
its operations on 17 March 2015.
The Company has been approved as an investment trust under
Sections 1158/1159 of the Corporation Tax Act 2010. The Directors
are of the opinion, under advice, that the Company continues to
conduct its affairs as an Approved Investment Trust under the
Investment Trust (Approved Company) (Tax) Regulations 2011.
Under the IMA dated 26 February 2015 between the Company and the
Investment Manager, the Investment Manager is appointed to act as
investment manager and Alternative Investment Fund Manager ("AIFM")
of the Company with responsibility for portfolio management and
risk management of the Company's investments.
PURPOSE
The Company's defined purpose is to deliver our Investment
Objective. Board culture promotes strong governance and long-term
investment, mindful of the interests of all stakeholders. The Board
believes that, as an investment company with no employees, this is
best achieved by working in partnership with our appointed
Investment Manager.
INVESTMENT OBJECTIVE
The Company provides asset-backed lending solutions to emerging
and established businesses with the goal of building long-term,
sustainable income generation. The Company 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. The Company offers 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. Through rigorous diligence and
credit monitoring, the Company generates stable income with
significant downside protection.
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.
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, 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 mitigates concentration risks.
Borrowing policy
Borrowings may be employed at the level of the Company and at
the level of any investee entity (including any other investment
fund in which the Company invests or any special purpose vehicle
("SPV") that may be established by the Company in connection with
obtaining gearing against any of its assets).
The Company may, in connection with seeking such gearing or
securitising its loans, seek to assign existing assets to one or
more SPVs and/or seek to acquire loans using an SPV.
The Company may establish SPVs in connection with obtaining
gearing against any of its assets or in connection with the
securitisation of its loans (as set out further below). It intends
to use SPVs for these purposes to seek to protect the geared
portfolio from group level bankruptcy or financing risks.
The aggregate gearing of the Company and any investee entity (on
a look-through basis, including borrowing through securitisation
using SPVs) shall not exceed 1.5 times its NAV (1.5x).
As is customary in financing transactions of this nature, the
particular SPV will be the borrower and the Company may from time
to time be required to guarantee or indemnify a third-party lender
for losses incurred as a result of certain "bad boy" acts of the
SPV or the Company, typically including fraud or wilful
misrepresentation or causing the SPV voluntarily to file for
bankruptcy protection. Any such arrangement will be treated as
'non-recourse' with respect to the Company provided that any such
obligation of the Company shall not extend to guaranteeing or
indemnifying ordinary portfolio losses or the value of the
collateral provided by the SPV.
Management Arrangements
The Company has an independent Board of Directors which has
appointed Victory Park Capital Advisors, LLC ("VPC"), the Company's
Investment Manager, as Alternative Investment Fund Manager ("AIFM")
under the terms of an Investment Management Agreement ("IMA") dated
26 February 2015. The IMA is reviewed annually by Board and may be
terminated by six-months' notice from either party subject to the
provisions for earlier termination as stipulated therein.
The Company's investing activities have been delegated by the
Directors to VPC. VPC has significant expertise in the sector and
enables the Company to identify unique investment opportunities to
add to the Portfolio. It has made investments and commitments
across several financial services Portfolio Companies, spanning
multiple geographies, products and structures, and is continuing to
deploy capital into existing and new Portfolio Companies.
Details of the Investment Management fee and performance fees
payable to VPC during the period are set out in note 10 on pages 90
and 91.
Merrill Lynch, Pierce, Fenner & Smith Incorporated and
Millennium Trust Company have been appointed as the Company's
Custodians and are entitled to be paid a fee of between US$180 and
US$500 per annum per holding of securities in an entity under the
terms of the Custodian Agreement. In addition, the Custodians are
entitled to be paid fees up to US$300 per account per annum and
other incidental fees. All Custodian fees are included in other
expenses on the Consolidated Statement of Comprehensive Income.
Under the terms of the Company Secretarial Agreement, Link
Company Matters Limited is entitled to an annual fee of GBP76,800
(exclusive of VAT and disbursements). All Secretary fees are
included in other expenses on the Consolidated Statement of
comprehensive Income.
The Group has entered into an administration agreement with
Northern Trust Hedge Fund Services LLC. The Group pays to the
Administrator an annual administration fee based on the Company's
net assets subject to a monthly minimum charge.
The Administrator shall also be entitled to be repaid all its
reasonable out-of-pocket expenses incurred on behalf of the Group.
All Administrator fees are included in other expenses on the
Consolidated Statement of Comprehensive Income.
PERFORMANCE MANAGEMENT
The Board uses the following KPIs to help assess progress
against the Company's objectives. Further comments on these KPIs
are contained in the Chairman's Statement and Investment Manager's
Report sections, respectively.
NAV AND TOTAL RETURN
The Directors regard the Company's NAV return as a key component
to delivering value to shareholders over the long term.
Furthermore, the Board believes that in accordance with the
Company's objective, total return (which includes dividends) is the
best measure for long term shareholder value.
At each meeting, the Board receives reports detailing the
Company's NAV and total return performance, portfolio composition
and related analyses. A full description of performance and the
investments is contained in the Investment Manager's Report,
commencing on page 24.
DIVID YIELD
The Company intends to distribute at least 85% of its
distributable income earned in each financial year by way of
dividends. Including the distribution made in April 2021, which
related to the three-month period ended 31 December 2020, the
Company has distributed 97% of its distributable income earned
during the year ended 31 December 2020.
GEARING RATIO
As at 31 December 2020, the look-through gearing ratio was 0.32x
for the Company. As disclosed in the investment policy, the
aggregate gearing of the Company and any investee entity (on a
look-through basis, including borrowing through securitisation
using SPVs) shall not exceed 1.5 times its NAV (1.5x). The Board
and Investment Manager monitor the look-through gearing ratio to
ensure it is in line with the investment policy.
SHARE PRICE PREMIUM/DISCOUNT
As a closed-ended listed investment trust, the Company's share
price can and does deviate from its NAV. This results in either a
premium or a discount to NAV. This is another component of the
long-term shareholder return. The Board continually monitors the
Company's premium or discount to NAV and has the ability to issue
or buy back shares to limit the volatility of the share price
discount or premium. For more information on the Company's
authorities in relation to its share capital, see page 108.
During the trading period, the Ordinary Shares moved in a
discount range of 11.07% to 54.37%. The Company closed the year at
a discount of 17.77% to NAV. During the year, the Company
repurchased a total of 29,654,941 shares at an average price of
67.99 pence per share.
EXPENSES
The Board is conscious of the impact of expenses on returns and
seeks to minimise expenses while ensuring that the Company receives
good service from its suppliers. The industry-wide measure for
investment trusts is the ongoing charges ratio. This seeks to
quantify the on-going costs of running the Company. The ongoing
charges ratio for 2020 was 1.86%. After factoring in the change in
the average NAV over 2020 as compared to 2019, the on-going charges
ratio would be 1.70% for 2020, which would be consistent with the
1.70% disclosed in 2019. This measures the annual normal on-going
costs of an investment trust, excluding performance fees, one-off
expenses and dealing costs, as a percentage of the average
shareholders' funds.
PRINCIPAL RISKS
Because the Company operates globally, it is exposed to risks
that are monitored and actively managed to meet its investment
objectives. These include market risks related to interest rates,
currencies and general availability of financing as well as credit
and liquidity risks given the nature of the instruments in which
the Company invests. In addition, the underlying Portfolio
Companies are exposed to operational and regulatory risks as this
part of the financial services sector remains relatively
nascent.
The Directors are ultimately responsible for identifying and
controlling risks. Day-to-day management of the risks arising from
the financial instruments held by the Group has been delegated to
the Investment Manager of the Company.
The Investment Manager regularly reviews the investment
portfolio and industry developments to make sure that any events
impacting the Group are identified and considered. This also
ensures that any risks affecting the investment portfolio are
identified and mitigated to the fullest extent possible.
The Board is responsible for the Company's system of risk
management and internal control and for reviewing its
effectiveness. The Board has adopted a detailed matrix of principal
risks affecting the Company's business as an investment trust and
has established associated policies and processes designed to
manage and, where possible, mitigate those risks. The matrix is
monitored by the Audit and Valuation Committee quarterly.
This system assists the Board in determining the nature and
extent of the risks it is willing to take in achieving its
strategic objectives. Both the principal and emerging risks and the
monitoring system are subject to a robust assessment at least
annually. The last review by the Board took place in February
2021.
Although the Board believes that it has a robust framework of
internal controls in place, it can provide only reasonable, and not
absolute, assurance against material financial misstatement or loss
and is designed to manage, not eliminate, risk.
A summary of the principal and emerging risks and uncertainties
faced by the Company and the Group, which have remained unchanged
throughout the year, and actions taken by the Board and, where
appropriate, its Committees, to manage and mitigate these risks and
uncertainties. The non-financial risks comprise of regulatory risk,
business continuity risk and pandemic risk and the financial risks
comprise of liquidity risk, credit risk, financing risk, market
risk and portfolio company risk. These are set out below:
RISK MITIGATION
============================================== ===============================================
LIQUIDITY RISK
Liquidity risk is defined as the The Investment Manager manages the
risk that the Group may not be able Group's liquidity risk by investing
to settle or meet its obligations primarily in a diverse portfolio of
on time or at a reasonable price. assets. As at 31 December 2020, 15%
The Group may invest in the listed of the loans had a stated maturity
or unlisted equity of any Portfolio date of less than a year.
Company. Investments in unlisted In general, the weighted average maturity
equity, by their nature, involve profile of the Group's assets was
a higher degree of valuation and lower than or equal to the term of
performance uncertainties and liquidity the Group's corresponding debt facilities
risks than investments in listed which thereby reduced liquidity risk.
securities and therefore may be Refer to Note 6 of the financial statements
more difficult to realise. for the maturity profile of the Group's
In the event of adverse economic assets and liabilities.
conditions in which it would be The Board and the Investment Manager
preferable for the Group to sell review the investment portfolio to
certain of its assets, the Group ensure it is in line with the investment
may not be able to sell a sufficient policy, including restrictions, as
proportion of its portfolio as a outlined on pages 134 and 135. The
result of liquidity constraints. Board reviews cash flow forecasts
In such circumstances, the overall to ensure the group can meet its liabilities
returns to the Group from its investments as they fall due.
may be adversely affected. The Group continuously monitors fluctuations
The Group is also exposed to liquidity in currency rates. The Group performs
risk with respect to the requirement stress tests and liquidity projections
to pay margin cash to collateralise to determine how much cash should
forward foreign exchange contracts be held back to meet potential future
used for currency hedging purposes. obligations to settle margin calls
arising from foreign exchange hedging.
The gearing facility has helped the
Group reduce cash drag associated
with the currency hedging portfolio,
while also allowing the Group to meet
its liabilities as they fall due.
The Investment Manager monitors the
cash balances of the Group daily to
ensure that all ongoing expenses can
be paid as they come due. As of the
writing of this report, the Group
has received all contractual interest
payments and continues to monitor
cash flow closely during the COVID-19
pandemic.
============================================== ===============================================
CREDIT RISK
Credit risk is the risk that one There is inherent credit risk in the
party to a financial instrument Group's investments in credit assets.
will cause a financial loss for However, this is typically mitigated
the other party by failing to discharge by the significant first loss protection
an obligation. provided by the Portfolio Company
The Group's credit risks arise principally under the Balance Sheet Model and
through exposures to loans acquired the excess spread generated by the
by the Group, which are subject underlying assets under both models.
to risk of borrower default. The The Investment Manager performs a
ability of the Group to earn revenue robust analysis during the underwriting
is completely dependent upon payments process for all new investments of
being made by the borrower, such the Group and monitors the eligibility
as adverse movements in financial of the collateral at least monthly
markets. of the current assets in the Group's
portfolio. This process also includes
due diligence performed by a third-party
reviewer during the underwriting process
and subsequent reviews at least once
per year for the Group's Portfolio
Companies.
The Group will invest across several
Portfolio Companies, asset classes,
geographies (primarily US, UK, Europe,
Australia, Asia and Latin America)
and credit bands to ensure diversification
and to seek to mitigate concentration
risks.
The Board and the Investment Manager
review the investment portfolio to
ensure it is in line with the investment
policy, including restrictions, as
outlined on pages 134 and 135. The
Investment Manager monitors performance
and underwriting on an on-going basis.
============================================== ===============================================
FINANCING RISK
Financing risk is the risk that, This risk is mitigated by limiting
whilst the use of borrowings by borrowings to ring-fenced SPVs without
the Group should enhance the net recourse to the Group and employing
asset value of an investment when gearing in a disciplined manner.
the value of an investment's underlying The Group has maintained a level of
assets is rising, it will, however, gearing throughout the year significantly
have the opposite effect when the below the limit as the Group is primarily
underlying asset value is falling. invested in the Balance Sheet Model.
In addition, if an investment's After year end, the Group replaced
income falls for whatever reason, the current gearing provider with
the use of borrowings will increase a new provider, as detailed in the
the impact of such a fall on the Chairman's Statement. The new facility
net revenue of the Group's investment was negotiated at attractive terms
and accordingly will have an adverse including a three-year revolving period,
effect on the ability of the investment an interest rate lower than that of
to make distributions to the Group. the previous facility, and an option
The Group uses gearing to enhance to upsize the facility from $130 million
returns generated by the underlying to $200 million and a six-year maturity.
credit assets and is exposed to The Board and the Investment Manager
the availability of financing at review the investment portfolio to
acceptable terms as well as interest ensure it is in line with the investment
rate expenses and other related policy, including restrictions, as
costs. outlined on pages 134 and 135.
============================================== ===============================================
MARKET RISK
Market risk is the risk of loss The Group has a diversified investment
arising from movements in observable portfolio which significantly reduces
market variables such as foreign the exposure to individual asset price
exchange rates, equity prices and risk. Detailed portfolio valuations
interest rates. The Group is exposed and exposure analysis are prepared
to market risk primarily through monthly and form the basis for the
its Financial Instruments. on-going risk management and investment
The Group is exposed to price risk decisions. In addition, regular scenario
arising from the investments held analysis is undertaken to assess likely
by the Group for which prices in downside risks and sensitivity to
the future are uncertain. The investments broad market changes, as well as assessing
in funds are exposed to market price the underlying correlations amongst
risk. Refer to Note 3 in the Financial the separate asset classes.
Statements for further details on Exposure to interest rate risk is
the sensitivity of the Group's Level limited as the underlying credit assets
3 investments to price risk. are typically fully amortising with
Interest rate risk arises from the a maximum maturity of five years.
possibility that changes in interest Furthermore, generally the Group's
rates will affect future cash flows Credit Facilities include a floating
or the fair values of financial interest rate component to the Portfolio
instruments. Companies to account for an increase
Currency risk is the risk that the in interest rate risk and they also
value of net assets will fluctuate have a set floor in the instance that
due to changes in foreign exchange interest rates were to drop.
rates. Relevant risk variables are The Group mitigates its exposure to
generally movements in the exchange currency risk by hedging exposure
rates of non-functional currencies between Pound Sterling and any other
in which the Group holds financial currencies in which a significant
assets and liabilities. portion of the Group's assets may
be denominated.
The Board reviews the price, interest
rate and currency risk with the Investment
Manager to ensure that exposure to
these risks are appropriately mitigated.
============================================== ===============================================
PORTFOLIO COMPANY RISK
The current market in which the VPC has negotiated a significant number
Group participates is competitive of proprietary capital deployment
and rapidly changing. There is a agreements with its existing balance
risk that the Group will not be sheet partners each of which typically
able to deploy its capital, re-invest ensures the ability to deploy capital
capital and interest of the proceeds on attractive terms for several years.
of any future capital raisings, In addition, VPC is one of the largest
in a timely or efficient manner investors in the specialty lending
given the increased demand for suitable sector and therefore enjoys timely
investments. information and good access to emerging
The Group may face increasing competition Portfolio Company opportunities. VPC
for access to investments as the has a team of investment and operational
alternative finance industry continues professionals which ensures that deployment
to evolve. The Group may face competition opportunities with new and existing
from other institutional lenders Portfolio Companies can be executed
such as fund vehicles and commercial rapidly while minimising operational
banks that are substantially larger risk.
and have considerably greater financial, VPC's pipeline of deployment opportunities
technical and marketing resources remains strong with both existing
than the Group. Other institutional and new balance sheet lending Portfolio
sources of capital may enter the Companies.
market in the UK, US and other geographies.
============================================== ===============================================
REGULATORY RISK
As an investment trust, the Company's The Company provides debt capital
operations are subject to wide ranging to Portfolio Companies, which typically
regulations. The financial services must comply with various state and
sector continues to experience significant national level regulations. This includes
regulatory change at national and some operating under interim permission
international levels. Failure to and some now regulated from the FCA
act in accordance with these regulations in the UK as well as consumer lending
could cause fines, censure or other and collections licenses in some US
losses including taxation or reputational states. This risk is limited via detailed
loss. upfront due diligence of Portfolio
In order to continue to qualify Companies' regulatory environments
as an investment trust, the Company performed by the Investment Manager
must comply with the requirements on behalf of the Board.
of Section 1158 of the Corporation The Company has procedures to monitor
Tax Act 2010. the status of its compliance with
the relevant requirements to maintain
its Investment Trust status, including
receiving and reviewing information
and reporting from the Company Secretary
and other service providers as appropriate.
============================================== ===============================================
BUSINESS CONTINUITY RISK
As a result of the COVID-19 pandemic, The Investment Manager reviews its
there has been increased focus from business continuity plans and operational
financial services regulators around resilience strategies on an ongoing
the world on the contingency plans basis and will take all reasonable
of regulated financial firms. steps to continue meeting its regulatory
obligations and to assess operational
risks, the ability to continue operating
and the steps it needs to take to
serve and support its clients, including
the Board. For example, to enhance
its resilience during the year, the
Investment Manager has mandated work
from home arrangements for all employees.
The Company's other third-party service
providers have also confirmed the
implementation of similar measures
to ensure no business disruption to
the Investment Manager.
The Investment Manager has not seen
any disruptions to business during
2020 and into the beginning of 2021.
============================================== ===============================================
PANDEMIC RISK
The impact on the global economy The Investment Manager has a dedicated
from the COVID-19 pandemic created risk committee comprised of senior
additional credit risk. leadership and key principals. This
committee works with each individual
portfolio investment team to develop
a coordinated risk response across
the entire portfolio. The Investment
Manager also increased the frequency
of portfolio company data collection
and reporting. Additional information
on the Investment Manager's Pandemic
Response plan can be found on pages
27 and 28.
The Investment Manager did not see
new payment defaults during the year
and the Group has received all contractual
payments through the date of this
report.
The majority of the underlying exposure
in the Group is to the U.S. consumer.
As such, the impact on the US economy
from the COVID-19 pandemic creates
potential additional credit risk.
While we have seen modest deterioration
in loan performance, it is not as
drastic as might have been expected
when the pandemic began. Further,
all portfolio companies have revised
underwriting criteria, and originations
were significantly reduced or completely
stopped during the peak of the pandemic.
Given the short duration of the overall
portfolio and reduction of originations,
the Group's portfolio companies generated
a significant amount of cash during
the first half of the year, which
was either repaid to the Group as
a prepayment on the credit facility
or remained at the portfolio company
and directly collateralised the Group's
investment. As the situation stabilised
in the second half of the year, the
Group began to redeploy capital back
to new and existing portfolio companies.
Lenders had experienced some immediate
increases in requests for payment
deferrals from their customers when
the pandemic began. However, during
the second half of the year, two important
signals have been observed consistently
across the portfolio; first, rates
of payment deferral have reverted
to pre-COVID levels, and second, the
performance of borrowers who had taken
deferrals has continued to exceed
best case expectations. A significant
majority of borrowers who had taken
payment deferrals successfully returned
to a normal payment schedule after
the deferral elapsed, which, along
with the continued seasoning of the
portfolio, provides a strong indication
that the environment has stabilised.
There is potential for a new wave
of unemployment as the virus continues
to take a toll on populations and
economies, but the Investment Manager
considers the portfolio to be significantly
de-risked and any new originations
have been underwritten to tighter
credit standards which specifically
factor in macro COVID-19 risk factors.
Accordingly, the portfolio should
be well positioned should further
stress materialise.
============================================== ===============================================
Discussion on the Group's risk management and internal controls
is on page 125.
CULTURE
The Directors agree that establishing and maintaining a healthy
corporate culture among the Board and in its interaction with the
Investment Manager, shareholders and other stakeholders will
support the delivery on its purpose, values, and strategy. The
Board seeks to promote a culture of openness, debate and integrity
through on-going dialogue and engagement with its service
providers, principally the Investment Manager.
The Board strives to ensure that its culture is in line with the
Company's purpose, values, and strategy. The Company has several
policies and procedures in place to assist with maintaining a
culture of good governance including those relating to Diversity,
Directors' conflicts of interest and Directors' dealings in the
Company's shares. The Board assesses and monitors compliance with
these policies as well as the general culture of the Board through
Board meetings and during the annual evaluation process which is
undertaken by each Director (for more information see the
performance evaluation section on page 116).
The Board seeks to appoint the best possible service providers
and evaluates their remit, performance, and cost effectiveness on a
regular basis as described on page 115. The Board considers the
culture of the Investment Manager and other service providers,
including their policies, practices, and behaviour, through regular
reporting from these stakeholders and during the annual review of
the performance and continuing appointment of all service
providers.
EMPLOYEES, HUMAN RIGHTS, SOCIAL AND COMMUNITY ISSUES
The Board recognises the requirement under the Companies Act
2006 to detail information about human rights, employees, and
community issues, including information about any policies it has
in relation to these matters and the effectiveness of these
policies. These requirements do not apply to the Company as it has
no employees, all the Directors are non-executive, and it has
outsourced all its functions to third party service providers. The
Company has therefore not reported further in respect of these
provisions but does expect its service providers and portfolio
companies to respect these requirements.
BOARD DIVERSITY
As at 31 December 2021, following the retirement of Richard
Levy, the Board of Directors of the Company comprised four male
Directors and one female Director. As at the date of this report
the Board comprises five male Directors and one female Director.
The Board acknowledges the benefits of diversity, including gender
diversity, and remains committed to ensuring that the Company's
Directors bring a wide range of skills, knowledge, experience,
backgrounds and perspectives. Further details of the Company's
diversity policy are set out on page 120.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) ISSUES
The Company has no employees, property or activities other than
investments, so its direct environmental impact is minimal. In
carrying out its activities, and in its relationships, the Company
aims to conduct itself responsibly, ethically and fairly. Directors
are mindful of their own carbon footprints if they are required to
travel on Company business.
The Board is comprised entirely of non-executive Directors and
the day-to-day management of the Company's business is delegated to
the Investment Manager. The Investment Manager aims to be a
responsible investor and believes it is important to invest in
companies that act responsibly in respect of environmental, ethical
and social issues.
The Company has no internal operations and therefore no
greenhouse gas emissions to report nor does it have responsibility
for any other emissions producing sources under the Companies Act
2006 (Strategic Report and Directors' Reports) Regulations 2013,
including those within its underlying investment portfolio.
However, the Company believes that high standards of corporate
social responsibility such as the recycling of paper waste will
support its strategy and make good business sense.
STREAMLINED ENERGY AND CARBON REPORTING (SECR)
The Company has no employees or property, and it does not
combust any fuel or operate any facility thus is taking the
exemption. It does not, therefore, have any greenhouse gas
emissions to report from its operations, nor does it have
responsibility for any other emissions producing sources under the
Companies Act 2006 (Strategic Report and Directors' Report)
Regulations 2013, including those within its underlying investment
portfolio. Additionally, there are no annual emissions from the
purchase of electricity, heat, steam or cooling by the Company for
its own use.
APPROVAL
This Strategic Report has been approved by the Board of
Directors and signed on its behalf by:
Kevin Ingram
Chair
28 April 2021
INVESTMENT MANAGER'S REPORT
The Company's investment manager is Victory Park Capital
Advisors, LLC ("VPC" or the "Investment Manager"), an established
private capital manager headquartered in the United States 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 "Balance Sheet Lending, " designed to limit
downside risk while providing shareholders with strong income
returns.
VPC's senior secured credit strategy provides opportunistic
financing across select investment verticals. Target investments
are typically shorter in duration and aim to offer higher yields
and greater structural protections than traditional lenders with an
emphasis on capital preservation and income generation across
market cycles. VPC generates value through its core competency as a
credit investor with direct origination and primarily acts as a
sole lender. VPC believes its dedicated, seasoned and experienced
investment team provides an advantage in sourcing, deal structuring
and risk management. Together, this allows VPC to provide reliable
capital solutions throughout the ecosystem. We offer an
institutional-calibre partnership with a hands-on approach and as a
result, companies and global partners continue to seek out VPC as a
leading capital provider.
VPC believes it is uniquely positioned to unlock potential value
given its background investing across multiple, complex and
non-traditional assets as a financial services investor, together
with its special situations and event-driven investing
expertise.
ESTABLISHED CREDIT MANAGER
v Founded prior to the global financial crisis in 2007 by Richard Levy
and Brendan Carroll
v VPC has long-standing experience investing opportunistically amidst
volatility and market complexities
v Headquartered in Chicago with resources in New York, Los Angeles and
San Francisco
v Investment Manager of the Company since its IPO in 2015
v Company named "Best Performing Debt Fund" in Citywire's Fourth Annual
Investment Trust Awards
PRIVATE CREDIT SOLUTIONS
v Private credit specialist with a focus on capital preservation across
multiple market environments
v Lender to both established and emerging businesses across various industries
in the U.S. and abroad
v Extensive experience lending to companies across the credit spectrum
DEVELOPED RISK MANAGEMENT CULTURE & PROCESS
v Deeply embedded risk culture permeates the Company
v VPC leverages proprietary risk tools and analytics to drive underwriting
and portfolio management decisions
v Customized monitoring and reporting process allows for granular analysis
across multiple dimensions
SEASONED INVESTMENT TEAM
v Senior investment team averages over 20 years of relevant experience
v Since inception, VPC has invested approximately USD$6.0 billion across
more than 120 investments
v History of generating strong returns throughout various market cycles
v Differentiated restructuring expertise complements strong risk management
STRATEGY AND BUSINESS MODEL
STRUCTURING APPROACH
During 2020, the Company's strong returns continued to be driven
by the success of its assets invested in the "Balance Sheet Lending
Model" for providing debt capital to Portfolio Companies. Under the
Balance Sheet Lending Model, the Company provides a floating rate
Credit Facility with an interest rate floor to the Portfolio
Company via a Special-Purpose Vehicle ("SPV"), which retains assets
that are originated by the Portfolio Company. The debt financing is
typically arranged in the form of a senior secured facility and the
Portfolio Company injects junior capital into the SPV, along with
the excess spread from the underlying assets providing significant
first loss protection to the Company.
The Company's investments are typically structured with
significant overcollateralisation and credit enhancement to
minimise any loss given default in a scenario where VSL must
foreclose on collateral to repay its investment. The
overcollateralisation is sized to withstand significant stress to
liquidation values without impacting the Company's investment
outcome. VPC as the Investment Manager of the Company targets
collateral assets with stable and predictable liquidation value and
a clear path to exit in the event of a default. Investments are
secured via liens and equity pledges on the corporate entity or
collateral which provide multiple avenues of structural
protection.
One of the pioneers of financial services lending, VPC has
structuring expertise and relationships, enabling it to secure
preferential capacity to lock up attractive, long-term economics
through structured facility upsizes and rights of first refusal.
The hunt for yield is extremely competitive in a low interest rate
environment. This means that VPC competes with some of the largest
and most recognised firms in the world when sourcing new
investments. However, we believe that we have created a sustainable
competitive advantage in our investment strategy. Having invested
approximately USD$6.0 billion across more than 120 investments, VPC
benefits from sourcing relationships, pattern recognition and an
intense focus on process. The Company's performance in 2020,
following the performance in 2019 and 2018, reflects the
accumulated results of VPC's decade-plus track record of investing
in asset-backed, balance sheet investments. VPC's investment
approach has consistently paid off, as we have been successful in
backing earlier-stage companies with excellent management and
marquee venture capital backing, allowing for locked-up terms that
would otherwise be difficult to negotiate at a later stage. Not
only does this provide better economics, but VPC can also structure
its investments more conservatively than we might be able to
negotiate in a more competitive process. VPC benefits from working
with companies as they scale under a conservative structure. As
investments approach maturity several years later, VPC has an
informed opinion to approach an extension and/or upsize
negotiations. We believe that the Company's investment performance
over the past three years reflects the successful execution of its
investment approach over the past decade. Notably, the Company was
recognized as "Best Performing Debt Fund" in Citywire's Fourth
Annual Investment Trust Awards.
Since the Company invests alongside VPC's private funds into the
underlying balance sheet investments, many of the portfolio's
investments precede the listing of the Company in 2015 and have
grown significantly over time. The Company, alongside VPC's private
funds, also receives the benefit of scale from the arrangement. We
are in a position to negotiate better terms and grow with the
Portfolio Companies, ultimately resulting in the ability to provide
larger facilities. All investors benefit, as we continue to have
significant undrawn investment opportunities from longstanding
investments, some of which were initiated a decade ago. The scale
of the relationships also serves to minimise the cash drag within
the Company. Investments are funded based on draw requests received
on a weekly basis. As the Company receives a repayment on an
investment, capital can be redeployed quickly, and in some cases
even the same day.
PROPRIETARY SOURCING ADVANTAGE
The Company has exposure to several proprietary investments in
Portfolio Companies with attractive risk/reward characteristics
that other investors in the sector are typically unable to access.
We believe this is due to VPC's long experience and reliable
reputation in the sector as an early participant with an extensive
sourcing network, having executed transactions partnering with
several leading financial and venture capital sponsors in the
financial services sector.
VPC also leverages its relationships with Portfolio Companies
and financial sponsors to secure significant lending capacity and
negotiate attractive equity kickers as well as mitigate prepayment
and interest rate risks. The rapid growth of capital deployed in
this sector since 2010 has also generated positive network effects
and helps ensure that the Investment Manager has a first look at
opportunities developing in the sector.
RISK MANAGEMENT
With a strong focus on capital preservation, VPC structures its
investments to minimise risk for the Company and augments this with
a comprehensive risk management framework. This involves a
rigorous, hands-on approach to post-investment monitoring of
portfolio risk and performance. Assessing the balance of expected
returns with inherent risks is an integral part of the Investment
Manager's investment strategy and drives all aspects of portfolio
construction. We believe that this approach and focus are a key
driver in meeting the Company's investment objectives, particularly
in a potentially more challenging future credit environment.
Stress Scenario Performance and Wind-down Analysis
Our risk management team performs regular analysis to stress
test each Portfolio Company's lending performance to determine a
portfolio level downside scenario. The largest risk mitigant in the
downside scenarios is the first-loss protections that are
structured into the Company's balance sheet investments. This
ensures that the Portfolio Companies and their equity investors'
capital would have to be fully impaired before a balance sheet
facility loses any interest income or principal invested. In the
Company's recourse investments, this means the portfolio companies
would also lose the cash and other assets that are outside of the
borrowing base to cover the first-loss protections. We pride
ourselves on our structural protections, risk management and
portfolio monitoring as this is an important area of focus that is
constantly evaluated.
As we continue to navigate the COVID-19 pandemic, the focus is
squarely around risk management and risk controls with a particular
emphasis on managing liquidity across the portfolio. Our dedicated
VPC risk management team continues to work collaboratively with the
VPC investment teams to closely monitor the Company's investment
portfolio and have continued to proactively work with the Portfolio
Companies to ensure that they are taking prudent steps to mitigate
risk and manage through the pandemic.
REVIEW OF 2020 PERFORMANCE
Despite the challenging societal, economic and market activity
during the year, we believe the portfolio is in a strong position
due to the protections structured into the balance sheet
investments. Since the onset of the pandemic, VPC has been
proactive and decisive in its portfolio management. In addition to
relying on the structured portfolio protections in place, VPC's
senior management team has been in constant communication with each
Portfolio Company to ensure that they are taking prudent steps to
mitigate risk on a real time basis.
The COVID-19 pandemic continues to significantly impact global
health, economies and social behaviour. As the world continues to
navigate towards a road to recovery, VPC has adapted to the new
environment while closely following the everchanging health rules
and regulations, governmental policies and safety guidelines. VPC
employees continue to work remotely, following the implementation
of VPC's Business Continuity Plan on 12 March 2020. VPC's robust
technology systems and resources have enabled us to operate during
this period without disruption. We are proud of the work we have
done as a team during these unprecedented times, with a specific
emphasis on telecommuting since the health and safety of our
employees and their families remain most important.
We continue to closely monitor the latest health developments to
determine when it will be appropriate to return to our offices. To
that point, in July, VPC instated a Pandemic Response Plan which
includes defined safety policies and procedures surrounding the
action plan if a COVID-19 case is confirmed in our office once we
reopen. In addition, VPC formed an internal team dedicated to
monitoring health metrics and guidance, implementing relevant
changes to our policies and procedures as applicable to ensure the
safest work environment and diligently communicating the updates to
the firm as they are developed.
The Company completed the year with a total NAV return of 11.12%
and a gross revenue return of 13.93%. The strong revenue returns
were the result of the Company's investments continuing to perform
in line with underwriting expectations despite the effects of the
COVID-19 pandemic across the globe. Capital returns were more
volatile over the course of the year because of the effect of the
pandemic on equity valuations and the provision for expected credit
losses, both of which had negative returns in first half of the
year and then recovered by the end of the year.
Overall, we are pleased with the Company's performance and
believe it demonstrates the resilience of VPC's approach to lending
through structured balance sheet loans. Despite facing the worst
economic shock in a generation, the Company experienced no realised
credit losses and received all interest payments on time throughout
the year.
With regard to expected credit loss provisions, and in
conjunction with VPC's independent risk review, we took a very
conservative approach early in the pandemic and assumed a severe
downside scenario across the portfolio when provisioning for
losses. Over the course of the remainder of the year, the portfolio
continued to perform in line with our expectations at the time of
underwriting (and in some cases better) so we were able to release
some of these reserves as the portfolio seasoned and pre-pandemic
vintages continued to pay down.
There was a similar pattern in the equity returns which turned
negative as markets sold off in the first quarter, but then
recovered in the back half of the year as we experienced some
catalysts in our portfolio including a realised exit in Bread
Financial, Inc. and Katapult Holdings, Inc. (formerly known as
Cognical Holdings, Inc.) agreeing to merge with a special purpose
acquisition company (SPAC), both at substantial premiums to the
carrying value of investments prior to the announcement.
Given the significant increase in SPAC issuances during 2020,
this could potentially benefit our portfolio of equity investments
as more portfolio companies might choose to enter the public
markets via the SPAC route in the coming years.
COMPANY PERFORMANCE
During the year, the Company generated a total NAV return of
11.12% for the Ordinary Shares and declared dividends relating to
the period totalled 8.00p. The NAV per share at year end 2020 was
95.72p. The Company generated gross revenue returns of 13.93% as a
percentage of NAV in 2020 from the Company's balance sheet
investments, continuing the strong performance trend of the past
few years. Capital returns comprised of -0.27% from the balance
sheet expected credit loss reserves, 0.71% from equity investments
and 0.29% from the marketplace loan and securitisation investments.
The expenses comprised of finance costs relating to the Company's
gearing facility of -1.67%, operating expenses and management fees
of -1.94% and performance fees of -1.49. The F/X and other returns
relates to the cost of the Company's hedging program, offset with
the impact of the share buyback program during the year.
The Company generated revenue returns of GBP23,898,852 (31
December 2019: GBP27,054,994) and paid dividends of GBP23,674,744
(31 December 2019: GBP26,627,820) for the year, fully covering the
dividends for the year with the revenue returns generated by the
Company. Additionally, the Company repurchased GBP20,161,216 of
Ordinary Shares (31 December 2019: GBP35,049,382) through the
buyback programme during the year.
The total expected credit losses as at 31 December 2020, which
also includes reserves on the residual marketplace loans, was
GBP8,489,159, (31 December 2019: GBP9,631,612) as throughout 2020
the Company continues to model a 100% likelihood of a stress
scenario in the reserve analysis (2019: 27% to 33%). The impairment
charge for the year was GBP112,550 (31 December 2019:
GBP2,402,296). The modelling of the stress scenario was the result
of a stringent analysis performed by the Investment Manager with a
conservative set of assumptions. The reserve as at 31 December 2020
represented 2.8% of the cost before the expected credit losses (31
December 2019: 2.6%).
INVESTMENTS
In order to meet the Company's investment objectives within the
pre-defined portfolio limits, we allocate capital across several
Portfolio Companies with a focus on portfolio level
diversification. As at 31 December 2020, the Company's investments
were diversified across 43 different Portfolio Companies across the
U.S., UK, Europe, Australia, Asia and Latin America. As at 31
December 2020, the Company had exposure to 22 Portfolio Companies
through balance sheet loans and 34 portfolio companies through
equity securities or convertible notes.
During the year, the Company's portfolio of balance sheet
investments continued to generate strong risk-adjusted returns.
These investments benefit from first-loss protection and excess
spread, which provides downside protection in the case of increased
credit losses. The credit metrics on the portfolio's underlying
loans have continued to show strong performance with no signs of
immediate macro weakness. Furthermore, the pipeline of available
balance sheet investment opportunities remains strong.
New Investments in 2020
Since the onset of the COVID-19 pandemic VPC has closed on
nearly USD$600 million of new deal capacity that will provide
significant investment opportunities for the Company as these
portfolio companies scale in the coming years:
v Exzu Inc. (d/b/a "Cap Hill Brands"): VPC closed on a USD$110
million senior secured credit facility with Cap Hill Brands, a de
novo technology driven consumer-packaged goods platform that will
acquire and operate a diverse portfolio of branded Amazon
third-party seller ("TPS") assets. Cap Hill Brands then leverages
its platform and industry expertise to drive growth through
improved marketing strategy, pricing strategy, cost savings,
channel expansion and general TPS optimisation.
v FinAccel Pte. Ltd. ("FinAccel"): FinAccel is a Singapore-based
financial technology ("Fintech") company that provides Indonesian
consumers with a digital credit platform (d/b/a "Kredivo") to
finance e-commerce purchases, pay bills, and secure personal loans.
In July, VPC provided a USD$100 million senior secured credit
facility and received penny-warrants exercisable into 1.0% of the
fully diluted common equity of the company. FinAccel is one of the
fastest growing Fintechs in Indonesia with two million active users
and USD$50 million in monthly originations. In 2019, the company
raised USD$90 million in Series C equity funding in round that was
jointly led by Mirae Asset-Naver's Asia Growth Fund and Square Peg
Capital, joining existing investors Jungle Ventures, Openspace
Ventures and MDI Ventures.
v Heyday Technologies, Inc. ("Heyday"): Heyday is a tech-enabled
company that seeks to acquire and aggregate a diverse portfolio of
retail assets which are sold primarily via e-commerce marketplaces.
In August, VPC closed on its investment in Heyday, consisting of a
USD$150 million senior secured credit facility and investment into
the Series A preferred stock. The credit facility will help to
expand and grow Heyday's portfolio of third-party marketplace
sellers backed by a diverse spectrum of cash flowing brands. The
credit facility is secured by first priority lean on all of the
brands and assets of the business.
v Laybuy Holdings Limited ("Laybuy"): Launched in 2017, Laybuy
is New Zealand's leading buy now, pay later service partnering with
over 4,500 retail merchants across the country, and is also
available in the UK and Australia. Laybuy allows the customer to
purchase and receive the item immediately and pay for the item in
six equal weekly instalments with zero interest. As previously
disclosed in the third quarter letter, VPC closed on a new GBP80
million facility with Laybuy to help grow their product in the UK.
The investment comes with a warrant package that can be converted
into common shares of Laybuy which, as of as of the writing of this
letter, traded in Australia under the ticker LBY.
v PerchHQ LLC ("Perch"): Perch acquires winning consumer brands
and uses its technology and operational expertise to drive growth
through pricing strategy, advertising strategy, cost savings,
supply chain efficiencies, and general Amazon account management
optimisation. Perch was founded by CEO Chris Bell in October 2019
and is led by a team of former colleagues from Wayfair and Bain
& Company. In July 2020, VPC closed on a USD$100 million senior
secured credit facility with Perch. Perch is a technology-enabled
platform that acquires and operates a diverse portfolio of Amazon
third-party seller assets. As part of the transaction the Company
received warrants in exchange for providing the credit
facility.
v VPC Impact Acquisition Corp. ("VIH"): The Company was one of
the sponsors of VIH, the first special purpose acquisition company
("SPAC") launched by VPC, which closed in September and trades on
the Nasdaq under the tickers VIH and VIHAW. The SPAC entered into a
definitive merger agreement with a high growth Fintech firm with a
target valuation of USD$1-2 billion. VPC has an extensive deal
sourcing network in the Fintech universe through its existing
business and the SPAC was a natural way to capitalise on the
network for the benefit of our shareholders. Through the sponsor
entity of the SPAC, the Company owns 2,220,530 Class B Shares and
2,697,467 private placement warrants in VIH, held at an aggregate
cost basis of USD$2,713,994. While the investment is relatively
small for the Company, the economics of SPAC sponsorship are highly
asymmetrical and if the SPAC was able to execute on a high-quality
deal, this could potentially add meaningfully to the Company's
returns over the next one to two years.
v Zip Co Limited ("Zip Money"): A leading provider of
buy-now-pay-later ("BNPL") point-of-sale credit and digital payment
services to consumers in Australia, New Zealand, U.S., UK and South
Africa. VPC recently announced a second credit facility with listed
Australian point of sale lender Zip Money, after having been
previously refinanced from our first facility in 2017. This
facility is for A$100 million and will help finance the growth of
their small business working capital product, which was recently
expanded through a joint venture with eBay.
GEARING AND CAPITAL MARKETS
The Company selectively employs gearing to enhance returns
generated by the underlying credit assets. This is structured to
limit the borrowings to individual SPVs that hold the assets and to
ensure the gearing providers have no recourse to the Company. As
the financial services industry continues to grow and become more
established, VPC has been approached by multiple large global banks
to offer the Company attractive gearing facilities. Given the
breadth of VPC's portfolio, we believe the Company has a distinct
competitive advantage in securing these gearing facilities at
attractive rates.
At the beginning of 2020, the Company had a Look-Through Gearing
Ratio of 0.38x and the Company finished the year with a
Look-Through Gearing Ratio of 0.32x. During the year, we slightly
reduced the overall gearing exposure of the Company as trough the
COVID-19 pandemic, VPC took a more conservative approach to
liquidity and risk management with the gearing facilities.
After year end, the Company closed on a USD$130 million gearing
facility with Massachusetts Mutual Life Insurance Company
("MassMutual"). At the closing, the Company drew USD$80 million
which was used to repay the Company's previous gearing facility
with Pacific Western Bank and the first-out participation facility
on Avant, held with Axos Bank. After the closing of the facility,
the pro-forma look-through gearing ratio increased slightly to
0.33x from 0.32x as at 31 December 2020. The MassMutual facility
was negotiated with terms including a three-year revolving period,
an interest rate lower than that of the previous facility, and an
option to upsize the facility from USD$130 million to USD$200
million and a six-year maturity.
OUTLOOK
We are proud of the investment portfolio returns and risk
profile, especially in the current economic environment. While we
often discuss the underlying credit performance of our
balance-sheet investments, it is also important to emphasise that
we have additional layers of protection beyond our direct asset
security. Due to the structured nature of our balance-sheet
investments, including (in most cases) corporate guarantees and
significant first-loss protection, our investments are generally
not affected by changes in credit performance until a platform
defaults and all corporate resources (separate from our borrowing
base of loan collateral) are exhausted. In addition to monitoring
the credit performance, we monitor the overall corporate
performance of our Portfolio Companies, including attending board
meetings as an observer and having weekly update calls with
management.
As we navigate through uncertainty caused by COVID-19 pandemic,
we continue to exercise caution on the macro front by structuring
our portfolios with the goal to perform in any economic
environment. We structure and underwrite our investments with a
focus on downside protection in addition to stress-testing our
collateral across various scenarios. From a purely macroeconomic
standpoint, we continue to believe that our current portfolio's
main advantages include the floating rate, shorter duration and
fully amortising underlying collateral. Specifically, the weighted
average duration of VPC's underlying collateral as of year-end was
less than one year. We believe that duration is a misunderstood
risk, which has been added to fixed income portfolios in recent
years as interest rates have come down and borrowers have looked to
lock in long duration fixed rate credit.
Recently, we have seen demand divergence between the e-commerce
purchase finance subset (sometimes referred to as "Buy Now, Pay
Later") of our portfolio from other types of receivables that we
finance. To capitalise on this, we focused our recent pipeline
efforts on executing additional transactions in this sector as it
meets all our desired credit expectations and there is a clear need
for credit from prospective portfolio companies. This is
highlighted by a few of the new investments made in 2020 that were
summarised within this report.
We continue to look for and identify other trends that can
create either risk in our existing portfolio or opportunities for
additional investments in the future. In our opinion, the dramatic
efforts taken by governments and central banks globally helped
economic opportunities around the world, especially in the U.S.
However, we believe that the government support and stimulus will
eventually taper off, and although the next steps remain unclear, a
volatile future over the medium-term seems likely. We will continue
to cautiously deploy capital and at this point we believe the
portfolio is well positioned to withstand future changes to come
this year and next.
We are pleased to have completed another year with a fully
covered dividend of 8.00p and double-digit total NAV returns,
despite the ongoing COVID-19 pandemic. In addition, the Company is
well positioned to continue to deliver consistent returns as VPC
executed on eight new balance sheet transactions with a total
capacity of USD$600 million during 2020 and has a strong pipeline
of potential new investments. The interest rates on these
facilities are in line with our current portfolio and we anticipate
stable revenue returns. In addition, we remain optimistic about
future capital gains through our equity portfolio and SPAC
sponsorship. The arrival of several vaccines and their rapid
deployment around the world has us optimistic that the world will
slowly open over the coming months. We also believe that the risks
of another severe employment shock are receding. We continue to
monitor risk very closely and do our best to make sure the
portfolio can perform regardless of the economic environment.
Victory Park Capital Advisors, LLC
Investment Manager
28 April 2021
NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the
Company's statutory accounts for the year ended 31 December 2020
but is derived from those accounts. Statutory accounts for the year
ended 31 December 2020 will be delivered to the Registrar of
Companies in due course. The Auditors have reported on those
accounts; their report was (i) unqualified, (ii) did not include a
reference to any matters to which the Auditors drew attention by
way of emphasis without qualifying their report and (ii) did not
contain a statement under Section 498 (2) or (3) of the Companies
Act 2006. The text of the Auditors' report can be found in the
Company's full Annual Report and Financial Statements on the
Company's website at https://vpcspecialtylending.com/.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2020
31 DECEMBER 31 DECEMBER
2020 2019
NOTES GBP GBP
======================================== ========== ========================= ===============================
Assets
======================================== ========== ========================= ===============================
Cash and cash equivalents 7 6,416,028 6,131,122
======================================== ========== ========================= ===============================
Cash posted as collateral 7 1,140,000 980,000
======================================== ========== ========================= ===============================
Derivative financial assets 3,4 5,758,880 3,985,365
======================================== ========== ========================= ===============================
Interest receivable 3,613,047 5,230,350
======================================== ========== ========================= ===============================
Dividend and distribution receivable 3,812 19,372
======================================== ========== ========================= ===============================
Other assets and prepaid expenses 889,148 894,157
======================================== ========== ========================= ===============================
Loans at amortised cost 3,9 293,123,379 352,910,880
======================================== ========== ========================= ===============================
Investment assets designated as held
at fair value through profit or loss 3 51,417,983 42,502,134
======================================== ========== ========================= ===============================
Total assets 362,362,277 412,653,380
---------------------------------------- ---------- ------------------------- -------------------------------
Liabilities
======================================== ========== ========================= ===============================
Management fee payable 10 92,241 143,415
======================================== ========== ========================= ===============================
Performance fee payable 10 4,040,085 7,410,614
======================================== ========== ========================= ===============================
Unsettled share buyback payable - 52,506
======================================== ========== ========================= ===============================
Deferred income 253,403 490,322
======================================== ========== ========================= ===============================
Other liabilities and accrued expenses 1,332,920 1,349,263
======================================== ========== ========================= ===============================
Notes payable 8 86,087,183 111,667,069
Total liabilities 91,805,832 121,113,189
---------------------------------------- ---------- ------------------------- -------------------------------
Total assets less total liabilities 270,556,445 291,540,191
---------------------------------------- ---------- ------------------------- -------------------------------
Capital and reserves
======================================== ========== ========================= ===============================
Called-up share capital 20,300,000 20,300,000
======================================== ========== ========================= ===============================
Share premium account 161,040,000 161,040,000
======================================== ========== ========================= ===============================
Other distributable reserve 14 116,520,960 136,682,176
======================================== ========== ========================= ===============================
Capital reserve (50,393,578) (49,374,355)
======================================== ========== ========================= ===============================
Revenue reserve 21,847,960 21,623,852
======================================== ========== ========================= ===============================
Currency translation reserve 1,221,766 1,207,578
======================================== ========== ========================= ===============================
Total equity attributable to shareholders of
the Parent Company 270,537,108 291,479,251
---------------------------------------------------- ------------------------- -------------------------------
Non-controlling interests 18 19,337 60,940
Total equity 270,556,445 291,540,191
---------------------------------------- ---------- ------------------------- -------------------------------
Net Asset Value per Ordinary Share 12 95.72p 93.33p
======================================== ========== ========================= ===============================
The financial statements on pages 44 to 50 were approved by the
Board of Directors on 28 April 2021 and signed on its behalf
by:
Kevin Ingram
Chair
28 April 2021
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER
2020
REVENUE CAPITAL TOTAL
NOTES GBP GBP GBP
=========================================================== ====== ============================= ================================================= ============================
Revenue
=========================================================== ====== ============================= ================================================= ============================
Net gain (loss) on investments 5 - 1,845,962 1,845,962
=========================================================== ====== ============================= ================================================= ============================
Foreign exchange gain (loss) - (2,970,304) (2,970,304)
=========================================================== ====== ============================= ================================================= ============================
Interest income 5 35,454,974 524,984 35,979,958
=========================================================== ====== ============================= ================================================= ============================
Other income 5 5,799,767 - 5,799,767
Total return 41,254,741 (599,358) 40,655,383
----------------------------------------------------------- ------ ----------------------------- ------------------------------------------------- ----------------------------
Expenses
=========================================================== ====== ============================= ================================================= ============================
Management fee 10 3,394,740 - 3,394,740
=========================================================== ====== ============================= ================================================= ============================
Performance fee 10 4,040,085 - 4,040,085
=========================================================== ====== ============================= ================================================= ============================
Credit impairment losses 9 - 112,550 112,550
=========================================================== ====== ============================= ================================================= ============================
Other expenses 10 2,313,540 232,265 2,545,805
Total operating expenses 9,748,365 344,815 10,093,180
----------------------------------------------------------- ------ ----------------------------- ------------------------------------------------- ----------------------------
Finance costs 7,607,524 - 7,607,524
----------------------------------------------------------- ------ ----------------------------- ------------------------------------------------- ----------------------------
Net return on ordinary activities
before taxation 23,898,852 (944,173) 22,954,679
=========================================================== ====== ============================= ================================================= ============================
Taxation on ordinary activities 11 - - -
----------------------------------------------------------- ------ ----------------------------- ------------------------------------------------- ----------------------------
Net return on ordinary activities
after taxation 23,898,852 (944,173) 22,954,679
----------------------------------------------------------- ------ ----------------------------- ------------------------------------------------- ----------------------------
Attributable to:
=========================================================== ====== ============================= ================================================= ============================
Equity shareholders 23,898,852 (1,019,223) 22,879,629
=========================================================== ====== ============================= ================================================= ============================
Non-controlling interests 18 - 75,050 75,050
=========================================================== ====== ============================= ================================================= ============================
Return per Ordinary Share (basic
and diluted) 13 8.08p -0.34p 7.74p
----------------------------------------------------------- ------ ----------------------------- ------------------------------------------------- ----------------------------
Other comprehensive income
=========================================================== ====== ============================= ================================================= ============================
Currency translation differences - 21,443 21,443
----------------------------------------------------------- ------ ----------------------------- ------------------------------------------------- ----------------------------
Total comprehensive income 23,898,852 (922,730) 22,976,122
----------------------------------------------------------- ------ ----------------------------- ------------------------------------------------- ----------------------------
Attributable to:
=========================================================== ====== ============================= ================================================= ============================
Equity shareholders 23,898,852 (1,005,035) 22,893,817
=========================================================== ====== ============================= ================================================= ============================
Non-controlling interests 18 - 82,305 82,305
=========================================================== ====== ============================= ================================================= ============================
The total column of this statement represents the Group's statement
of comprehensive income, prepared in accordance with
international accounting standards in conformity with the requirements
of the Companies Act 2006 and also international financial reporting
standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies
in the European Union. The supplementary revenue and capital
columns are both prepared under guidance published by the Association
of Investment Companies ("AIC"). All items in the
above Statement derive from continuing operations. Amounts in Other
comprehensive income may be reclassified to profit or loss in future
periods.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2019
REVENUE CAPITAL TOTAL
NOTES GBP GBP GBP
===================================== ==================== ===================================== ================================================= ============================
Revenue
===================================== ==================== ===================================== ================================================= ============================
Net gain (loss) on investments 5 - 5,736,103 5,736,103
===================================== ==================== ===================================== ================================================= ============================
Foreign exchange gain (loss) - (4,998,319) (4,998,319)
===================================== ==================== ===================================== ================================================= ============================
Interest income 5 43,342,988 504,443 43,847,431
===================================== ==================== ===================================== ================================================= ============================
Other income 5 3,315,944 - 3,315,944
Total return 46,658,932 1,242,227 47,901,159
------------------------------------- -------------------- ------------------------------------- ------------------------------------------------- ----------------------------
Expenses
===================================== ==================== ===================================== ================================================= ============================
Management fee 10 3,604,121 - 3,604,121
===================================== ==================== ===================================== ================================================= ============================
Performance fee 10 7,411,745 - 7,411,745
===================================== ==================== ===================================== ================================================= ============================
Credit impairment losses 9 - 2,402,296 2,402,296
===================================== ==================== ===================================== ================================================= ============================
Other expenses 10 2,094,282 251,749 2,346,031
Total operating expenses 13,110,148 2,654,045 15,764,193
------------------------------------- -------------------- ------------------------------------- ------------------------------------------------- ----------------------------
Finance costs 6,493,790 - 6,493,790
------------------------------------- -------------------- ------------------------------------- ------------------------------------------------- ----------------------------
Net return on ordinary activities
before taxation 27,054,994 (1,411,818) 25,643,176
===================================== ==================== ===================================== ================================================= ============================
Taxation on ordinary activities 11 - - -
------------------------------------- -------------------- ------------------------------------- ------------------------------------------------- ----------------------------
Net return on ordinary activities
after taxation 27,054,994 (1,411,818) 25,643,176
------------------------------------- -------------------- ------------------------------------- ------------------------------------------------- ----------------------------
Attributable to:
===================================== ==================== ===================================== ================================================= ============================
Equity shareholders 27,054,994 (1,591,019) 25,463,975
===================================== ==================== ===================================== ================================================= ============================
Non-controlling interests 18 - 179,201 179,201
===================================== ==================== ===================================== ================================================= ============================
Return per Ordinary Share (basic
and diluted) 13 8.11p -0.48p 7.63p
------------------------------------- -------------------- ------------------------------------- ------------------------------------------------- ----------------------------
Other comprehensive income
===================================== ==================== ===================================== ================================================= ============================
Currency translation differences - (56,156) (56,156)
------------------------------------- -------------------- ------------------------------------- ------------------------------------------------- ----------------------------
Total comprehensive income 27,054,994 (1,467,974) 25,587,020
------------------------------------- -------------------- ------------------------------------- ------------------------------------------------- ----------------------------
Attributable to:
===================================== ==================== ===================================== ================================================= ============================
Equity shareholders 27,054,994 (1,631,908) 25,423,086
===================================== ==================== ===================================== ================================================= ============================
Non-controlling interests 18 - 163,934 163,934
===================================== ==================== ===================================== ================================================= ============================
The total column of this statement represents the Group's statement
of comprehensive income, prepared in accordance with
international accounting standards in conformity with the requirements
of the Companies Act 2006 and also international financial reporting
standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies
in the European Union. The supplementary revenue and capital
columns are both prepared under guidance published by the Association
of Investment Companies ("AIC"). All items in the
above Statement derive from continuing operations. Amounts in Other
comprehensive income may be reclassified to profit or loss in future
periods.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 DECEMBER 2020
CALLED OTHER CURRENCY TOTAL NON-
UP SHARE
SHARE PREMIUM DISTRIBUTABLE CAPITAL REVENUE TRANSLATION SHAREHOLDERS' CONTROLLING TOTAL
CAPITAL ACCOUNT RESERVE RESERVE RESERVE RESERVE EQUITY INTERESTS EQUITY
GBP GBP GBP GBP GBP GBP GBP GBP GBP
----------------- ------------------ -------------------- ------------------------------------- ---------------------- ------------------------- ---------------------------- -------------------------- ----------------------- --------------------
Opening balance
at
1 January 2020 20,300,000 161,040,000 136,682,176 (49,374,355) 21,623,852 1,207,578 291,479,251 60,940 291,540,191
================= ================== ==================== ===================================== ====================== ========================= ============================ ========================== ======================= ====================
Amounts paid
on buyback of
Ordinary Shares - - (20,161,216) - - - (20,161,216) - (20,161,216)
================= ================== ==================== ===================================== ====================== ========================= ============================ ========================== ======================= ====================
Contributions
by
non-controlling
interests - - - - - - - - -
================= ================== ==================== ===================================== ====================== ========================= ============================ ========================== ======================= ====================
Distributions
to
non-controlling
interests - - - - - - - (123,908) (123,908)
================= ================== ==================== ===================================== ====================== ========================= ============================ ========================== ======================= ====================
Return on
ordinary
activities
after
taxation - - - (1,019,223) 23,898,852 - 22,879,629 75,050 22,954,679
================= ================== ==================== ===================================== ====================== ========================= ============================ ========================== ======================= ====================
Dividends
declared
and paid - - - - (23,674,744) - (23,674,744) - (23,674,744)
----------------- ------------------ -------------------- ------------------------------------- ---------------------- ------------------------- ---------------------------- -------------------------- ----------------------- --------------------
Other
comprehensive
income
================= ================== ==================== ===================================== ====================== ========================= ============================ ========================== ======================= ====================
Currency
translation
differences - - - - - 14,188 14,188 7,255 21,443
----------------- ------------------ -------------------- ------------------------------------- ---------------------- ------------------------- ---------------------------- -------------------------- ----------------------- --------------------
Closing balance
at
31 December
2020 20,300,000 161,040,000 116,520,960 (50,393,578) 21,847,960 1,221,766 270,537,108 19,337 270,556,445
----------------- ------------------ -------------------- ------------------------------------- ---------------------- ------------------------- ---------------------------- -------------------------- ----------------------- --------------------
The supplementary revenue and capital columns are both prepared
under guidance published by the Association of Investment Companies
("AIC").
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 DECEMBER 2019
CALLED OTHER CURRENCY TOTAL NON-
UP SHARE
SHARE PREMIUM DISTRIBUTABLE CAPITAL REVENUE TRANSLATION SHAREHOLDERS' CONTROLLING TOTAL
CAPITAL ACCOUNT RESERVE RESERVE RESERVE RESERVE EQUITY INTERESTS EQUITY
GBP GBP GBP GBP GBP GBP GBP GBP GBP
----------------- ------------------ -------------------- ------------------------- ------------------- ------------------- ---------------------- -------------------------- ----------------------- --------------------
Opening balance
at
1 January 2019 20,300,000 161,040,000 171,731,558 (47,783,336) 21,196,678 1,248,467 327,733,367 246,346 327,979,713
================= ================== ==================== ========================= =================== =================== ====================== ========================== ======================= ====================
Amounts paid
on buyback of
Ordinary Shares - - (35,049,382) - - - (35,049,382) - (35,049,382)
================= ================== ==================== ========================= =================== =================== ====================== ========================== ======================= ====================
Contributions
by
non-controlling
interests - - - - - - - - -
================= ================== ==================== ========================= =================== =================== ====================== ========================== ======================= ====================
Distributions
to
non-controlling
interests - - - - - - - (349,340) (349,340)
================= ================== ==================== ========================= =================== =================== ====================== ========================== ======================= ====================
Return on
ordinary
activities
after
taxation - - - (1,591,019) 27,054,994 - 25,463,975 179,201 25,643,176
================= ================== ==================== ========================= =================== =================== ====================== ========================== ======================= ====================
Dividends
declared
and paid - - - - (26,627,820) - (26,627,820) - (26,627,820)
----------------- ------------------ -------------------- ------------------------- ------------------- ------------------- ---------------------- -------------------------- ----------------------- --------------------
Other
comprehensive
income
================= ================== ==================== ========================= =================== =================== ====================== ========================== ======================= ====================
Currency
translation
differences - - - - - (40,889) (40,889) (15,267) (56,156)
----------------- ------------------ -------------------- ------------------------- ------------------- ------------------- ---------------------- -------------------------- ----------------------- --------------------
Closing balance
at
31 December
2019 20,300,000 161,040,000 136,682,176 (49,374,355) 21,623,852 1,207,578 291,479,251 60,940 291,540,191
----------------- ------------------ -------------------- ------------------------- ------------------- ------------------- ---------------------- -------------------------- ----------------------- --------------------
The supplementary revenue and capital columns are both prepared
under guidance published by the Association of Investment Companies
("AIC").
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARED 31 DECEMBER 2020
31 DECEMBER 31 DECEMBER
2020 2019
NOTES GBP GBP
============================================== ====== =============================== ===========================
Cash flows from operating activities:
============================================== ====== =============================== ===========================
Total comprehensive income 22,976,122 25,587,020
============================================== ====== =============================== ===========================
Adjustments for:
============================================== ====== =============================== ===========================
- Interest income (35,979,958) (43,847,431)
============================================== ====== =============================== ===========================
- Dividend and distribution income 5 (5,799,767) (3,315,944)
============================================== ====== =============================== ===========================
- Finance costs 7,607,524 6,493,790
============================================== ====== =============================== ===========================
- Exchange losses 2,970,304 4,998,319
---------------------------------------------- ------
Total (8,225,775) (10,084,246)
---------------------------------------------- ------ ------------------------------- ---------------------------
Gain on investment assets designated as
held at fair value through profit or loss (1,845,962) (5,736,103)
============================================== ====== =============================== ===========================
(Gain) loss on derivative financial
instruments (1,402,050) 1,538,401
============================================== ====== =============================== ===========================
Decrease (increase) in other assets and
prepaid expenses 5,009 (121,408)
============================================== ====== =============================== ===========================
Decrease in management fee payable (51,174) (9,886)
============================================== ====== =============================== ===========================
(Decrease) increase in performance fee
payable (3,370,529) 5,133,399
============================================== ====== =============================== ===========================
Decrease in deferred income (236,919) (54,263)
============================================== ====== =============================== ===========================
Decrease in accrued expenses and other
liabilities (458,591) (213,289)
============================================== ====== =============================== ===========================
Interest received 37,597,261 42,093,734
============================================== ====== =============================== ===========================
Purchase of loans (105,292,885) (200,508,718)
============================================== ====== =============================== ===========================
Redemption or sale of loans 160,405,704 139,390,856
============================================== ====== =============================== ===========================
Impairment of loans 112,550 2,402,296
---------------------------------------------- ------
Net cash inflow (outflow) from operating
activities 77,236,639 (26,169,227)
---------------------------------------------- ------ ------------------------------- ---------------------------
Cash flows from investing activities:
============================================== ====== =============================== ===========================
Investment income received 5,815,327 3,915,612
============================================== ====== =============================== ===========================
Purchase of investment assets designated
as held at fair value through profit
or loss (16,671,467) (12,961,327)
============================================== ====== =============================== ===========================
Sale of investment assets designated
as held at fair value through profit
or loss 8,538,783 41,016,344
============================================== ====== =============================== ===========================
(Decrease) increase of cash posted as
collateral (160,000) 1,302,428
---------------------------------------------- ------ ------------------------------- ---------------------------
Net cash (outflow) inflow from investing
activities (2,477,357) 33,273,057
---------------------------------------------- ------ ------------------------------- ---------------------------
Cash flows from financing activities:
============================================== ====== =============================== ===========================
Dividends distributed (23,674,744) (26,627,820)
============================================== ====== =============================== ===========================
Treasury shares repurchased (20,213,722) (34,996,876)
============================================== ====== =============================== ===========================
Distributions to non-controlling interests (123,908) (349,340)
============================================== ====== =============================== ===========================
Decrease in amounts payable under agreements
to repurchase - (1,335,644)
============================================== ====== =============================== ===========================
(Decrease) increase in note payable (23,502,528) 64,925,378
============================================== ====== =============================== ===========================
Finance costs paid (7,165,276) (5,920,853)
---------------------------------------------- ------ ------------------------------- ---------------------------
Net cash outflow from financing activities (74,680,178) (4,305,155)
---------------------------------------------- ------ ------------------------------- ---------------------------
Net change in cash and cash equivalents 79,104 2,798,675
============================================== ====== =============================== ===========================
Exchange gains on cash and cash equivalents 205,802 63,115
============================================== ====== =============================== ===========================
Cash and cash equivalents at the beginning
of the period 6,131,122 3,269,332
---------------------------------------------- ------
Cash and cash equivalents at the end
of the period 7 6,416,028 6,131,122
---------------------------------------------- ------ ------------------------------- ---------------------------
PARENT COMPANY STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2020
31 DECEMBER 31 DECEMBER
2020 2019
NOTES GBP GBP
Assets
============================================ ====== ============================== =============================
Cash and cash equivalents 7 4,738,217 3,970,690
============================================ ====== ============================== =============================
Cash posted as collateral 7 1,140,000 980,000
============================================ ====== ============================== =============================
Derivative financial assets 3,4 5,758,880 3,985,365
============================================ ====== ============================== =============================
Interest receivable 3,173,686 4,663,930
============================================ ====== ============================== =============================
Other current assets and prepaid expenses 889,148 667,554
============================================ ====== ============================== =============================
Investments in subsidiaries 17 250,042,768 270,730,548
============================================ ====== ============================== =============================
Investment assets designated as held
at fair value through profit or loss 3 2,522,366 4,461,946
-------------------------------------------- ------ ------------------------------ -----------------------------
Total assets 268,265,065 289,460,033
-------------------------------------------- ------ ------------------------------ -----------------------------
Liabilities
============================================ ====== ============================== =============================
Performance fee payable 10 4,040,085 7,410,614
============================================ ====== ============================== =============================
Management fee payable 10 92,241 143,415
============================================ ====== ============================== =============================
Unsettled share buyback payable - 52,506
============================================ ====== ============================== =============================
Deferred income 253,403 490,322
============================================ ====== ============================== =============================
Other liabilities and accrued expenses 790,994 618,605
======
Total liabilities 5,176,723 8,715,462
-------------------------------------------- ------ ------------------------------ -----------------------------
Total assets less total liabilities 263,088,342 280,744,571
-------------------------------------------- ------ ------------------------------ -----------------------------
Equity attributable to Shareholders
of the Company
============================================ ====== ============================== =============================
Called-up share capital 14 20,300,000 20,300,000
============================================ ====== ============================== =============================
Share premium account 14 161,040,000 161,040,000
============================================ ====== ============================== =============================
Other distributable reserve 14 116,520,960 136,682,176
============================================ ====== ============================== =============================
Capital reserve (56,620,579) (58,901,458)
============================================ ====== ============================== =============================
Revenue reserve 21,847,961 21,623,853
Total equity 263,088,342 280,744,571
-------------------------------------------- ------ ------------------------------ -----------------------------
Net return on ordinary activities
after taxation 26,179,731 28,475,350
-------------------------------------------- ------ ------------------------------ -----------------------------
The financial statements on pages 51 to 54 were approved by the Board
of Directors on 28 April 2021 and signed on its behalf by:
Kevin Ingram
Chair
28 April 2021
PARENT COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31
DECEMBER
2020
CALLED-UP SHARE OTHER
SHARE PREMIUM DISTRIBUTABLE CAPITAL REVENUE
CAPITAL ACCOUNT RESERVE RESERVE RESERVE TOTAL
GBP GBP GBP GBP GBP GBP
Opening
balance at
1 January
2020 20,300,000 161,040,000 136,682,176 (58,901,458) 21,623,853 280,744,571
============= ======================= ========================= ========================= ======================== ======================== =====================
Amounts paid
on
repurchase
of Ordinary
Shares - - (20,161,216) - - (20,161,216)
============= ======================= ========================= ========================= ======================== ======================== =====================
Return on
ordinary
activities
after
taxation - - - 2,280,879 23,898,852 26,179,731
============= ======================= ========================= ========================= ======================== ======================== =====================
Dividends
declared
and paid - - - - (23,674,744) (23,674,744)
------------- ----------------------- ------------------------- ------------------------- ------------------------ ------------------------ ---------------------
Closing
balance at
31 December
2020 20,300,000 161,040,000 116,520,960 (56,620,579) 21,847,961 263,088,342
------------- ----------------------- ------------------------- ------------------------- ------------------------ ------------------------ ---------------------
PARENT COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 DECEMBER 2019
CALLED-UP SHARE OTHER
SHARE PREMIUM DISTRIBUTABLE CAPITAL REVENUE
CAPITAL ACCOUNT RESERVE RESERVE RESERVE TOTAL
GBP GBP GBP GBP GBP GBP
Opening
balance at
1 January
2019 20,300,000 161,040,000 171,731,558 (60,321,814) 21,196,679 313,946,423
============= ======================= ========================= ========================= ======================== ======================== =====================
Amounts paid
on
repurchase
of Ordinary
Shares - - (35,049,382) - - (35,049,382)
============= ======================= ========================= ========================= ======================== ======================== =====================
Return on
ordinary
activities
after
taxation - - - 1,420,356 27,054,994 28,475,350
============= ======================= ========================= ========================= ======================== ======================== =====================
Dividends
declared
and paid - - - - (26,627,820) (26,627,820)
------------- ----------------------- ------------------------- ------------------------- ------------------------ ------------------------ ---------------------
Closing
balance at
31 December
2019 20,300,000 161,040,000 136,682,176 (58,901,458) 21,623,853 280,744,571
------------- ----------------------- ------------------------- ------------------------- ------------------------ ------------------------ ---------------------
PARENT COMPANY STATEMENT OF CASH FLOWS
FOR THE YEARED 31 DECEMBER 2020
31 DECEMBER 31 DECEMBER
2020 2019
NOTES GBP GBP
Cash flows from operating activities:
============================================= ====== ============================== =============================
Net return on ordinary activities after
taxation 26,179,731 28,475,350
============================================= ====== ============================== =============================
Adjustments for:
============================================= ====== ============================== =============================
-- Interest income (35,842,688) (42,779,734)
============================================= ====== ============================== =============================
-- Exchange (gains) losses (315,612) 1,946,055
--------------------------------------------- ------ ------------------------------ -----------------------------
Total (9,978,569) (12,358,329)
--------------------------------------------- ------ ------------------------------ -----------------------------
Unrealised loss on investment assets
designated as held at fair value through
profit or loss 563,327 459,940
============================================= ====== ============================== =============================
Unrealised (gain) loss on investments
in subsidiaries (2,267,912) 514,861
============================================= ====== ============================== =============================
Unrealised gain on derivative financial
assets (1,773,515) (2,743,429)
============================================= ====== ============================== =============================
Unrealised loss on derivative financial
liabilities - (471,607)
============================================= ====== ============================== =============================
Increase in other assets and prepaid
expenses (221,594) (221,048)
============================================= ====== ============================== =============================
Decrease in management fee payable (51,174) (9,886)
============================================= ====== ============================== =============================
(Decrease) increase in performance fee
payable (3,370,529) 5,133,399
============================================= ====== ============================== =============================
Decrease in deferred income (236,919) (54,263)
============================================= ====== ============================== =============================
Increase in accrued expenses and other
liabilities 172,389 128,262
--------------------------------------------- ------ ------------------------------ -----------------------------
Net cash outflow from operating activities (17,164,496) (9,622,100)
--------------------------------------------- ------ ------------------------------ -----------------------------
Cash flows from investing activities:
============================================= ====== ============================== =============================
Interest received 37,332,932 41,920,330
============================================= ====== ============================== =============================
Purchase of investment assets designated
as held at fair value through profit
or loss - (539,406)
============================================= ====== ============================== =============================
Sale of investment assets designated
as held at fair value through profit
or loss 1,376,253 23,540,339
============================================= ====== ============================== =============================
Purchase of investments in subsidiaries (80,568,889) (61,442,484)
============================================= ====== ============================== =============================
Sales of investment in subsidiaries 103,634,391 68,521,643
============================================= ====== ============================== =============================
Cash posted as collateral (160,000) 1,302,428
Net cash inflow from investing activities 61,614,687 73,302,850
--------------------------------------------- ------ ------------------------------ -----------------------------
Cash flows from financing activities
============================================= ====== ============================== =============================
Treasury Shares repurchased (20,213,722) (34,996,876)
============================================= ====== ============================== =============================
Dividends paid (23,674,744) (26,627,820)
============================================= ====== ============================== =============================
Net cash outflow from financing activities (43,888,466) (61,624,696)
--------------------------------------------- ------ ------------------------------ -----------------------------
Net change in cash and cash equivalents 561,725 2,056,054
============================================= ====== ============================== =============================
Exchange gains on cash and cash equivalents 205,802 110,573
============================================= ====== ============================== =============================
Cash and cash equivalents as the beginning
of the period 3,970,690 1,804,063
--------------------------------------------- ------ ------------------------------ -----------------------------
Cash and cash equivalents at the end
of the period 7 4,738,217 3,970,690
--------------------------------------------- ------ ------------------------------ -----------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARED 31 DECEMBER 2020
1. GENERAL INFORMATION
VPC Specialty Lending Investments PLC (the "Parent Company")
with its subsidiaries (together "the Group") is focused on
asset-backed lending to emerging and established businesses with
the goal of building long-term, sustainable income generation. The
Group focuses on providing capital to vital segments of the economy
that are underserved by the traditional banking industry, including
small businesses, working capital products, consumer finance and
real estate, among others. The Group executes this strategy by
identifying investment opportunities across various industries and
geographies to offer 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 Parent Company, which is limited by shares, was
incorporated and domiciled in England and Wales on 12 January 2015
with registered number 9385218. The Parent Company commenced its
operations on 17 March 2015 and intends to carry on business as an
investment trust within the meaning of Chapter 4 of Part 24 of the
Corporation Tax Act 2010.
The Group's investment manager is Victory Park Capital Advisors,
LLC (the "Investment Manager"), a US Securities and Exchange
Commission registered investment adviser. The Investment Manager
also acts as the Alternative Investment Fund Manager of the Group
under the Alternative Investment Fund Managers Directive ("AIFMD").
The Parent Company is defined as an Alternative Investment Fund and
is subject to the relevant articles of the AIFMD.
The Group will invest 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 may
include consumer loans, SME loans, advances against corporate trade
receivables and/or purchases of corporate trade receivables ("Debt
Instruments") originated by platforms which engage with and
directly lend to borrowers ("Portfolio Companies"). Such Debt
Instruments may be subordinated in nature, or may be second lien,
mezzanine or unsecured loans. Indirect investments may include
investments in Portfolio Companies (or in structures set up by
Portfolio Companies) through the provision of credit facilities
("Credit Facilities"), equity or other instruments. Additionally,
the Group's investments in Debt Instruments and Credit Facilities
may be made through subsidiaries of the Parent Company or through
partnerships or other structures. The Group may also invest in
other specialty lending related opportunities through any
combination of debt facilities, equity or other instruments.
As at 31 December 2020, the Parent Company had equity in the
form of 382,615,665 Ordinary Shares, 282,647,364 Ordinary Shares in
issue and 99,968,301 Ordinary Shares in Treasury (31 December 2019:
382,615,665 Ordinary Shares, 312,302,305 Ordinary Shares in issue
and 70,313,360 Ordinary Shares in Treasury). The Ordinary Shares
are listed on the premium segment of the Official List of the UK
Listing Authority and trade on the London Stock Exchange's main
market for listed securities.
Northern Trust Hedge Fund Services LLC (the "Administrator") has
been appointed as the administrator of the Group. The Administrator
is responsible for the Group's general administrative functions,
such as the calculation and publication of the Net Asset Value
("NAV") and maintenance of the Group's accounting records.
For any terms not herein defined, refer to Part X of the IPO
Prospectus. The Parent Company's IPO Prospectus dated 26 February
2015 is available on the Parent Company's website,
www.vpcspecialtylending.com.
2. SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies followed by the Group are set
out below and have been applied consistently in both the current
and prior year:
Basis of preparation
The consolidated financial statements present the financial
performance of the Group and Company for the year ended 31 December
2020. The consolidated financial statements are prepared in
accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006 and also
international financial reporting standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union.
The financial statements have been prepared on the historical cost
basis except for the modification to a fair value basis for certain
financial instruments as specified in the accounting policies
below. The financial statements are also in compliance with
relevant provisions of the Companies Act 2006.
The Directors have reviewed the financial projections of the
Group and Company from the date of this report, which shows that
the Group and Company will be able to generate sufficient cash
flows in order to meet its liabilities as they fall due. In
assessing the Group's and Company's ability to continue as a going
concern, the Directors have considered the Company's investment
objective, risk management policies, capital management, the nature
of its portfolio and expenditure projections.
Additionally, the Directors have considered the risks arising of
reduced asset values and economic disruption caused by the COVID-19
pandemic. The Investment Manager has also performed a range of
stress tests and demonstrated to the Directors that even in an
adverse scenario of depressed markets that the Group could still
generate sufficient funds to meet its liabilities over the next
twelve months. The Directors believe that the Group has adequate
resources, an appropriate financial structure and suitable
management arrangements in place to continue in operational
existence for the foreseeable future being a period of at least
twelve months from the date of this report.
As a part of the continuation vote held at the 2020 AGM, the
Directors resolved to apply the following condition ahead of the
2021 AGM:
The Directors will propose an ordinary resolution to approve the
continuation of the Parent Company as an investment company at the
Parent Company's AGM in 2021 if the Parent Company's NAV (Cum
Income) Return (calculated as set out in the Parent Company's
annual report and financial statements) for the period from 1 April
2020 to 31 March 2021 is less than 4%. If the resolution is not
passed the Directors will, within three months of the date of the
resolution, put forward proposals to shareholders to the effect
that the Parent Company be wound up, liquidated or unitised.
The Directors do not believe this resolution should
automatically trigger the adoption of a basis other than going
concern in line with the Association of Investment Companies
("AIC") Statement of Recommended Practice ("SORP") which states
that it is more appropriate to prepare financial statements on a
going concern basis unless a continuation vote has already been
triggered and shareholders have voted against continuation.
Based on their assessment and considerations above, the
Directors have concluded that the financial statements of the Group
and Company should continue to be prepared on a going concern basis
and the financial statements have been prepared accordingly.
Where presentational guidance set out in the Statement of
Recommended Practice ("SORP") for investment trusts issued by the
Association of Investment Companies ("AIC") in November 2014 and
updated in October 2019 with consequential amendments is consistent
with the requirements of IFRS, the Directors have sought to prepare
the consolidated financial statements on a basis compliant with the
recommendations of the SORP.
The Parent Company and Group's presentational currency is Pound
Sterling (GBP). Pound Sterling is also the functional currency
because it is the currency of the Parent Company's share capital
and the currency which is most relevant to the majority of the
Parent Company's shareholders. The Group enters into forward
currency Pound Sterling hedges where operating activity is
transacted in a currency other than the functional currency.
Basis of consolidation
The consolidated financial statements incorporate the financial
statements of the Parent Company and its subsidiaries. Control is
achieved where the Parent Company has the power to govern the
financial and operating policies of an investee entity so as to
obtain benefits from its activities. The Parent Company controls an
entity when the Parent Company is exposed to, or has rights to,
variable returns from its investment and has the ability to affect
those returns through its power over the entity. All intra-group
transactions, balances, income and expenses are eliminated on
consolidation. The accounting policies of the subsidiaries have
been applied on a consistent basis to ensure consistency with the
policies adopted by the Parent Company. The period ends for the
subsidiaries are consistent with the Parent Company.
Subsidiaries of the Parent Company, where applicable, have been
consolidated on a line-by-line basis as the Parent Company does not
meet the definition of an investment entity under IFRS 10 because
it does not measure and evaluate the performance of all its
investments on the fair value basis of accounting.
Investments in subsidiaries
Investments in subsidiaries are carried at cost less impairment.
The Parent Company assesses at each balance sheet date whether, as
a result of one or more events that occurred after initial
recognition, there is objective evidence that investments in
subsidiaries are impaired. Investments in subsidiaries are
non-monetary items and therefore the costs of investment in
currencies other than Pound Sterling are translated to at the rate
of exchange ruling on the date the investment is made. The total
net asset value shown on the Parent Company Statement of Financial
Position is therefore lower than the consolidated net asset value
shown for the Group by GBP4,886,897 as at 31 December 2020 (31
December 2019: lower than by GBP10,734,680) as a result of the
exchange rate translation.
Presentation of Consolidated Statement of Comprehensive
Income
In order to better reflect the activities of an investment trust
company and in accordance with the guidance set out by the AIC,
supplementary information which analyses the Consolidated Statement
of Comprehensive Income between items of revenue and capital nature
has been presented alongside the Consolidated Statement of
Comprehensive Income.
The Directors have taken advantage of the exemption under
Section 408 of the Companies Act 2006 and accordingly have not
presented a separate Parent Company statement of comprehensive
income. The net return on ordinary activities after taxation of the
Parent Company was GBP26,179,731 (31 December 2019:
GBP28,475,350).
Income
For financial instruments measured at amortised cost, the
effective interest rate method is used to measure the carrying
value of a financial asset or liability and to allocate associated
interest income or expense in the revenue account over the relevant
period. The effective interest rate is the rate that discounts
estimated future cash payments or receipts over the expected life
of the financial instrument or, when appropriate, a shorter period,
to the net carrying amount of the financial asset or financial
liability.
In calculating the effective interest rate, the Group estimates
cash flows considering all contractual terms of the financial
instrument but does not consider expected credit losses. The
calculation includes all fees received and paid, costs borne that
are an integral part of the effective interest rate and all other
premiums or discounts above or below market rates.
Dividend income from investments is taken to the revenue account
on an ex-dividend basis. Bank interest and other income receivable
is accounted for on an effective interest basis. Dividend income
from investments is reflected in Other income on the Statement of
Comprehensive Income. Further disclosure can be found in Note
5.
Distributions from investments in funds are accounted for on an
accrual basis as of the date the Group is entitled to the
distribution. The income is treated as revenue return provided that
the underlying assets of the investments comprise solely income
generating loans, or investments in lending platforms which
themselves generate net interest income. Distributions from
investments in funds is reflected in Other income on the Statement
of Comprehensive Income. Further disclosure can be found in Note
5.
Interest income from Investment assets designated as held at
fair value through profit or loss are reflected in Other income on
the Statement of Comprehensive Income. Further disclosure can be
found in Note 5.
In the instance where the retained earnings of the Parent
Company's investment in a subsidiary are negative, all income from
that investment is allocated to the capital reserve for both the
Group and the Parent Company.
Finance costs
Finance costs are recognised using the effective interest rate
method. The Group currently charges all finance costs to either
revenue or capital based on retained earnings of the investment
that generates the fees from the perspective of the Parent
Company.
Expenses
Expenses not directly attributable to generating a financial
instrument are recognised as services are received, or on the
performance of a significant act which means the Group has become
contractually obligated to settle those amounts.
The Group currently charges all expenses, including investment
management fees and performance fees, to either revenue or capital
based on the retained earnings of the investment that generates the
fees from the perspective of the Parent Company. All operating
expenses of the Parent Company are charged to revenue as the
current expectation is that the majority of the Group and Parent
Company's return will be generated through revenue rather than
capital gains on investments.
At 31 December 2020, no management fees (31 December 2019:
GBPnil) have been charged to the capital return of the Group. No
management or performance fees were charged to capital at the
Parent Company. Refer to Note 10 for further details of the
management and performance fees.
All expenses are accounted for on an accruals basis.
Dividends payable to Shareholders
Dividends payable to Shareholders are recognised in the
Consolidated Statement of Changes in Equity when they are paid or
have been approved by Shareholders in the case of a final dividend
and become a liability to the Parent Company.
Taxation
The tax currently payable is based on the taxable profit for the
year. Taxable profit differs from net profit as reported in the
Consolidated Statement of Comprehensive Income because it excludes
items of income or expense that are taxable or deductible in other
years and it further excludes items that are never taxable or
deductible. The Group's liability for current tax is calculated
using tax rates that have been enacted or substantively enacted at
the Consolidated Statement of Financial Position date.
In line with the recommendations of SORP for investment trusts
issued by the AIC, the allocation method used to calculate tax
relief on expenses presented against capital returns in the
supplementary information in the Consolidated Statement of
Comprehensive Income is the "marginal basis".
Under this basis, if taxable income is capable of being offset
entirely by expenses presented in the revenue return column of the
Consolidated Statement of Comprehensive Income, then no tax relief
is transferred to the capital return column.
Investment trusts which have approval as such under section 1158
of the Corporation Tax Act 2010 are not liable for taxation on
capital gains.
Financial assets and financial liabilities
The Group classifies its financial assets and financial
liabilities in one of the following categories below. The
classification depends on the purpose for which the financial
assets and liabilities were acquired. The classification of
financial assets and liabilities are determined at initial
recognition.
IFRS 9 contains a classification and measurement approach for
financial assets that reflects the business model in which assets
are managed and their cash flow characteristics. IFRS 9 contains a
principal-based approach and applies one classification approach
for all types of financial assets. For Debt Instruments, two
criteria are used to determine how financial assets should be
classified and measured:
v The entity's business model (i.e., how an entity manages its
financial assets in order to generate cash flows by collecting
contractual cash flows, selling financial assets or both); and
v The contractual cash flow characteristics of the financial
asset (i.e., whether the contractual cash flows are solely payments
of principal and interest).
A financial asset is measured at amortised cost if it meets both
of the following conditions and is not designated as at fair value
through profit or loss ("FVTPL"):
v It is held within a business model whose objective is to hold
assets to collect contractual cash flows; and
v Its contractual terms give rise on specified dates to cash
flows that are solely payments of principal and interest on the
principal amount outstanding. The carrying amount of these assets
is adjusted by any expected credit loss allowance recognised and
measured as described further in this note.
A financial asset is measured at fair value through other
comprehensive income ("FVOCI") if it meets both of the following
conditions and is not designated as at FVTPL:
v It is held within a business model whose objective is achieved
by both collecting contractual cash flows and selling financial
assets; and
v Its contractual terms give rise on specified dates to cash
flows that are solely payments of principal and interest on the
principal amount outstanding. Movements in the carrying amount are
taken through the Other Comprehensive Income ("OCI"), except for
the recognition of impairment gains or losses, interest revenue and
foreign exchange gains and losses on the investments amortised cost
which is recognised in the Consolidated Statement of Comprehensive
Income. When the financial asset is derecognised, the cumulative
gain or loss previously recognised in OCI is reclassified from
equity to the Consolidated Statement of Comprehensive Income and
recognised in Income. Interest income from these financial assets
in included in Income using the effective interest rate method
("ERIM").
Equity instruments are measured at FVTPL, unless they are not
held for trading purposes, in which case an irrevocable election
can be made on initial recognition to measure them at FVOCI with no
subsequent reclassification to the Consolidated Statement of
Comprehensive Income. This election is made on an
investment-by-investment basis.
All financial assets not classified as measured at amortised
cost or FVOCI as described above are measured at FVTPL. Financial
assets measured at FVTPL are recognised in the Consolidated
Statement of Financial Position at their fair value. Fair value
gains and losses, together with interest coupons and dividend
income, are recognised in the Consolidated Statement of
Comprehensive Income within net trading income in the period in
which they occur. The fair values of assets and liabilities traded
in active markets are based on current bid and offer prices
respectively. If the market is not active, the Group establishes a
fair value by using valuation techniques. In addition, on initial
recognition, the Company may irrevocably designate a financial
asset that otherwise meets the requirements to be measured at
amortised cost or at FVOCI as FVTPL if doing so eliminates or
significantly reduces an accounting mismatch that would otherwise
arise.
There are no positions measured at FVOCI in the current or prior
year.
Business model assessment
The Group will assess the objective of the business model in
which a financial asset is held at a portfolio level in order to
generate cash flows because this best reflects the way the business
is managed, and information is provided to the Investment Manager.
That is, whether the Group's objective is solely to collect the
contractual cash flows from the assets or is to collect both the
contractual cash flows and cash flows arising from the sale of
assets. If neither of these are applicable, then the financial
assets are classified as part of the other business model and
measured at FVTPL.
The information that will be considered by the Group in
determining the business model includes:
v The stated policies and objectives for the portfolio and the
operation of those policies in practice, including whether the
strategy focuses on earning contractual interest revenue,
maintaining a particular interest rate profile, matching duration
of the financial assets to the duration of the liabilities that are
funding those assets or realising cash flows through the sale of
assets;
v Past experience on how the cash flows for these assets were
collected;
v How the performance of the portfolio is evaluated and reported
to the Investment Manager;
v The risks that affect the performance of the business model
(and the financial assets held within that business model) and how
those risks are managed; and
v The frequency, volume and timing of sales in prior periods,
the reasons for such sales and expectations about future sales
activity. However, information about sales activity is not
considered in isolation, but as part of an overall assessment of
how the Investment Manager's stated objective for managing the
financial assets is achieved and how cash flows are realised.
Assessment whether contractual cash flows are solely payments of
principal and interest
For the purposes of this assessment, "principal" is defined as
the fair value of the financial asset on initial recognition.
"Interest" is defined as consideration for the time value of money,
for the credit risk associated with the principal amount
outstanding during a particular period of time and for other basic
lending risks and costs (e.g. liquidity risk and administrative
costs), as well as a reasonable profit margin.
In assessing whether the contractual cash flows are solely
payments of principal and interest, the contractual terms of the
instrument will be considered to see if the contractual cash flows
are consistent with a basic lending arrangement. In making the
assessment, the following features will be considered:
v Contingent events that would change the amount and timing of
cash flows;
v Prepayment and extension terms;
v Terms that limit the Company's claim to cash flows from
specified assets, e.g., non-recourse asset arrangements; and
v Features that modify consideration for the time value of
money, e.g., periodic reset of interest rates.
The Group reclassifies debt investments when and only when its
business model for managing those assets changes. The
reclassification that has taken place forms the start of the first
reporting period following the change. Such changes are expected to
be very infrequent.
Expected credit loss allowance for financial assets measured at
amortised cost
The Credit impairment losses in the Consolidated Statement of
Comprehensive Income includes the change in expected credit losses
which are recognised for loans and advances to customers, other
financial assets held at amortised cost and certain loan
commitments.
At initial recognition, allowance is made for expected credit
losses resulting from default events that are possible within the
next 12 months (12-month expected credit losses). In the event of a
significant increase in credit risk, allowance (or provision) is
made for expected credit losses resulting from all possible default
events over the expected life of the financial instrument (lifetime
expected credit losses). Financial assets where 12-month expected
credit losses are recognised are considered to be Stage 1;
financial assets which are considered to have experienced a
significant increase in credit risk are in Stage 2; and financial
assets which have defaulted or are otherwise considered to be
credit impaired are allocated to Stage 3.
The measurement of expected credit losses will primarily be
based on the product of the instrument's probability of default
("PD"), loss given default ("LGD"), and exposure at default
("EAD"), taking into account the value of any collateral held or
other mitigants of loss and including the impact of discounting
using the effective interest rate ("EIR").
v The PD represents the likelihood of a borrower defaulting on
its financial obligation, either over the next 12 months ("12M
PD"), or over the remaining lifetime ("Lifetime PD") of the
obligation.
v EAD is based on the amounts the Group expects to be owed at
the time of default, over the next 12 months ("12M EAD") or over
the remaining lifetime ("Lifetime EAD"). For example, for a
revolving commitment, the Group includes the current drawn balance
plus any further amount that is expected to be drawn up to the
current contractual limit by the time of default, should it
occur.
v LGD represents the Group's expectation of the extent of loss
on a defaulted exposure. LGD varies by type of counterparty, type
and seniority of claim and availability of collateral or other
credit support. LGD is expressed as a percentage loss per unit of
exposure at the time of default. LGD is calculated on a 12-month or
lifetime basis, where 12-month LGD is the percentage of loss
expected to be made if the default occurs in the next 12 months and
Lifetime LGD is the percentage of loss expected to be made if the
default occurs over the remaining expected lifetime of the
loan.
The estimated credit loss ("ECL") is determined by projecting
the PD, LGD, and EAD for each future month and for each individual
exposure. Movements between Stage 1 and Stage 2 are based on
whether an instrument's credit risk as at the reporting date has
increased significantly relative to the date it was initially
recognised. Where the credit risk subsequently improves such that
it no longer represents a significant increase in credit risk since
origination, the asset is transferred back to Stage 1.
General expectations with regards to expected losses on loans at
a given level of delinquency are assessed based on (a) an analysis
of loan collateral and credit enhancement (for collateralised
balance sheet investments), and (b) historical roll rates on the
marketplace loans (marketplace loans). Impairments are recognised
once a loan is deemed to have a non-trivial likelihood of facing a
material loss. The expected credit loss allowance reflects the
increasing likelihood of loss as (a) collateral and credit
enhancement become diminished or impaired (for collateralised
balance sheet investments), or (b) loans progress to more advanced
stages of delinquency (marketplace loans) as more payments are
missed and are calculated based on historical performance of
similar loans within the Group's investment portfolio. As loans
progress through the levels of delinquency, the Group applies a
greater amount of expected credit loss allowance on the loan
balance.
Unless identified at an earlier stage, the credit risk of
financial assets is deemed to have increased significantly when
more than 30 days past due. The Group does not rebut the
presumption in IFRS 9 that all financial assets that are more than
30 days past due have experienced a significant increase in credit
risk. The assessment as to when a financial asset has experienced a
significant increase in the probability of default requires the
application of management judgement.
In addition, the Group considers a financial instrument to have
experienced a significant increase in credit risk when one of the
following have occurred:
v Significant increase in credit spread;
v Significant adverse changes in business, financial and/or
economic conditions in which the borrower operates;
v Actual or expected forbearance or restructuring;
v Actual or expected significant adverse change in operating
results of the borrower;
v Significant change in collateral value which is expected to
increase the risk of default; or
v Early signs of cashflow or liquidity problems.
Movements between Stage 2 and Stage 3 are based on whether
financial assets are credit impaired as at the reporting date.
Assets can move in both directions through the stages of the
impairment model.
The criteria for determining whether credit risk has increased
significantly will vary by portfolio and will include a backstop
based on delinquency. IFRS 9 contains a rebuttable presumption that
default occurs no later than when a payment is 90 days past due
which the Group does not rebut. For both collateralised balance
sheet loans and marketplace loans, if a loan is delinquent for more
than 90 days, has four missed payments or considered by management
as unlikely to pay their obligations in full without realisation of
collateral, the Group reserves at least 85% of the balance of the
delinquent loan. A loan is normally written off, either partially
or in full, when there is no realistic prospect of recovery (as a
result of the customer's insolvency, ceasing to trade or other
reason) and the amount of the loss has been determined. Subsequent
recoveries of amounts previously written off decrease the amount of
impairment losses recorded. The Company assesses at each reporting
date whether there is objective evidence that a loan or group of
loans is impaired. In performing such analysis, the Company
assesses the probability of default based on the level of
collateral and credit enhancement (collateralised balance sheet
loans) and on the number of days past due, using recent historical
rates of default on loan portfolios with credit risk
characteristics similar to those of the Company or past history if
sufficient data is available to demonstrate a reliable loss profile
(marketplace loans).
Inputs into the assessment of whether a financial instrument is
in default and their significance may vary over time to reflect
changes in circumstances.
Under IFRS 9, when determining whether the credit risk (i.e. the
risk of default) on a financial instrument has increased
significantly since initial recognition, reasonable and supportable
information that is relevant and available without undue cost or
effort, including both quantitative and qualitative information and
analysis based on historical experience, credit assessment and
forward-looking information is used.
The measurement of expected credit losses for each stage and the
assessment of significant increases in credit risk must consider
information about past events and current conditions as well as
reasonable and supportable forward-looking information. A "base
case" view of the future direction of relevant economic variables
and a representative range of other possible forecasts scenarios.
The process will involve developing two or more additional economic
scenarios and considering the relative probabilities of each
outcome. The base case will represent a most likely outcome and be
aligned with information used for other purposes, such as strategic
planning and budgeting. The number of scenarios used and their
attributes are reassessed at each reporting date by investment. The
scenario weightings are determined by a combination of statistical
analysis and expert credit judgement, taking account of the range
of possible outcomes each chosen scenario is representative of.
The estimation and application of forward-looking information
requires significant judgement. PD, LGD and EAD inputs used to
estimate Stage 1 and Stage 2 credit loss allowances, are modelled
based on the macroeconomic variables (or changes in macroeconomic
variables) that are most closely correlated with credit losses in
the relevant portfolio. As with any economic forecasts, the
projections and likelihoods of occurrence are subject to a high
degree of inherent uncertainty and therefore the actual outcomes
may be significantly different to those projected. The Group
considers these forecasts to represent its best estimate of the
possible outcomes and has analysed the non-linearities and
asymmetries within the Group's different portfolios to establish
that the chosen scenarios are appropriately representative of the
range of possible scenarios.
Other forward-looking considerations not otherwise incorporated
within the above scenarios, such as the impact of any regulatory,
legislative or political changes, have also been considered, but
are not deemed to have a material impact and therefore no
adjustment has been made to the ECL for such factors. This is
reviewed and monitored for appropriateness on a quarterly
basis.
Collateral and other credit enhancements
The Group employs a range of policies to mitigate credit risk.
The most common of these is accepting collateral for funds
advanced. The Group has internal policies of the acceptability of
specific classes of collateral or credit risk mitigation.
Modification of financial assets
The Group sometimes modifies the terms or loans provided to
customers due to commercial renegotiations, or for distressed
loans, with a view to maximising recovery.
Such restructuring activities include extended payment term
arrangements, payment holidays and payment forgiveness.
Restructuring policies and practice are based on indicators or
criteria which, in the judgement of management, indicate that
payment will most likely continue. These policies are kept under
continuous review.
The risk of default of such assets after modification is
assessed at the reporting date and compared with the risk under the
original terms at initial recognition, when the modification is not
substantial and so does not result in derecognition of the original
assets. The Group monitors the subsequent performance of modified
assets. The Group may determine that the credit risk has
significantly improved after restructuring, so that the assets are
moved from Stage 3 or Stage 2.
Modification of terms is not an indicator of a change in
risk.
Modification of loans
The Group sometimes renegotiates or otherwise modifies the
contractual cash flows of loans to customers. When this happens,
the Group assesses whether or not the new terms are substantially
different to the original terms. The Group does this by
considering, among others, the following factors:
v If the borrower is in financial difficulty, whether the
modification merely reduces the contractual cash flows to amounts
the borrower is expected to be able to pay;
v Whether any substantial new terms are introduced, such as a
profit share/equity-based return that substantially affect the risk
profile of the loan;
v Significant extension of the loan term when the borrower is
not in financial difficulty;
v Significant change in the interest rate;
v Change in the currency the loan is denominated in; and
v Insertion of collateral, other security or credit enhancements
that significantly affect the credit risk associated with the
loan.
If the terms are substantially different, the Group derecognises
the original financial asset and recognises a new asset at fair
value and recalculates a new effective interest rate for the asset.
The date of renegotiation is consequently considered to be the date
of initial recognition for impairment calculation purposes,
including for the purpose of determining if a significant increase
in credit risk has occurred. However, the Group also assesses
whether the new financial asset recognised is deemed to be
credit-impaired at initial recognition, especially in circumstances
where the renegotiation was driven by the debtor being unable to
make the originally agreed payments. Differences in the carrying
amounts are also recognised in the Consolidated Statement of
Comprehensive Income as a gain or loss on derecognition.
If the terms are not substantially different, the renegotiation
or modification does not result in derecognition, and the Group
recalculates the gross carrying amount based on the revised cash
flows of the financial asset and recognises a modification gain or
loss in the Consolidated Statement of Comprehensive Income. The new
gross carrying amount is recalculated by discounting the modified
cash flows at the original effective interest rate (or
credit-adjusted effective interest rate for purchased or originated
credit-impaired financial assets).
During the year, two investments were modified per the Group's
policy (2019: one investment). The modification of the loans in
both the current year and prior year did not result in any gains or
losses recognised as a result of the modification of the loans as
the carrying value of the loans was the same before and after the
modification. The changes to the interest rates in the loans are
reflected in the income earned by the Group.
Derecognition other than a modification
Financial assets, or a portion thereof, are derecognised when
the contractual rights to receive the cash flows from the assets
have expired, or when they have been transferred and either (i) the
Group transfers substantially all the risks and rewards of
ownership, or (ii) the Group neither transfers nor retains
substantially all the risks and rewards of ownership and the Group
has not retained control.
The Group enters into transactions where it retains the
contractual rights to receive cash flows from assets but assumes a
contractual obligation to pay those cash flows to other entities
and transfers substantially all of the risks and rewards. These
transactions are accounted for as 'pass through' transfers that
result in derecognition if the Group:
v Has no obligation to make payments unless it collects
equivalent amounts from the assets;
v Is prohibited from selling or pledging the assets; and
v Has an obligation to remit any cash it collects from the
assets without material delay.
Collateral furnished by the Group under standard repurchase
agreements and securities lending and borrowing transactions are
not derecognised because the Group retains substantially all the
risks and rewards on the basis of the predetermined repurchase
price, and the criteria for derecognition are therefore not
met.
Financial assets and financial liabilities designated as held at
fair value through profit or loss
This category consists of forward foreign exchange contracts,
common equity, preferred stock, warrants and investments in
funds.
Assets and liabilities in this category are carried at fair
value. The fair values of derivative instruments are estimated
using discounted cash flow models using yield curves that are based
on observable market data or are based on valuations obtained from
counterparties.
Investments in funds are carried at fair value through profit or
loss and designated as such at inception. This is valued for the
units at the balance sheet date based on the NAV where it is
assessed that NAV equates to fair value.
Common equity, preferred stock and warrants are valued using a
variety of techniques. These techniques include market comparables,
discounted cash flows, yield analysis, and transaction prices.
Refer to Note 3.
Gains and losses arising from the changes in the fair values are
recognised in the Consolidated Statement of Comprehensive
Income.
Loans at amortised cost
Loans at amortised cost are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active
market. Loans are recognised when the funds are advanced to
borrowers and are carried at amortised cost using the effective
interest rate method less provisions for impairment.
Purchases and sales of financial assets
Purchases and sales of financial assets are accounted for at
trade date. Financial assets are derecognised when the rights to
receive cash flows from the investments have expired or have been
transferred and the Group has transferred substantially all risks
and rewards of ownership.
Fair value estimation
The determination of fair value of investments requires the use
of accounting estimates and assumptions that could cause material
adjustment to the carrying value of those investments.
Financial liabilities
Borrowings, deposits, debt securities in issue and subordinated
liabilities, if any, are recognised initially at fair value, being
the issue proceeds net of premiums, discounts and transaction costs
incurred.
All borrowings are subsequently measured at amortised cost using
the effective interest rate method. Amortised cost is adjusted for
the amortisation of any premiums, discounts and transaction costs.
The amortisation is recognised in interest expense and similar
charges using the effective interest rate method.
Financial liabilities are derecognised when the obligation is
discharged, cancelled or has expired.
Derivatives
Derivatives are entered into to reduce exposures to fluctuations
in interest rates, exchange rates, market indices and credit risks
and are not used for speculative purposes. The Parent Company
entered into forward foreign currency exchange contracts as a hedge
against exchange rate fluctuations for investments in Portfolio
Companies denominated in foreign currencies. A forward foreign
currency exchange contract is an agreement between two parties to
purchase or sell a specified quantity of a currency at or before a
specified date in the future. Forward contracts are typically
traded in the OTC markets and all details of the contract are
negotiated between the counterparties to the agreement.
Accordingly, the forward contracts are valued at the forward rate
by reference to the contracts traded in the OTC markets and are
classified as Level 2 in the fair value hierarchy.
Derivatives are carried at fair value with movements in fair
values recorded in the Consolidated Statement of Comprehensive
Income. Derivative financial instruments are valued using
discounted cash flow models using yield curves that are based on
observable market data or are based on valuations obtained from
counterparties.
Gains and losses arising from derivative instruments are
credited or charged to the Consolidated Statement of Comprehensive
Income. Gains and losses of a revenue nature are reflected in the
revenue column and gains and losses of a capital nature are
reflected in the capital column. Gains and losses on forward
foreign exchange contracts are reflected in Foreign exchange
gain/(loss) in the Consolidated Statement of Comprehensive
Income.
All derivatives are classified as assets where the fair value is
positive and liabilities where the fair value is negative. Where
there is the legal ability and intention to settle net, then
offsetting is applied and the derivative is classified as a net
asset or liability, as appropriate.
Offsetting financial instruments
Financial assets and liabilities are offset and the net amount
reported in the Consolidated Statement of Financial Position if,
and only if, there is currently enforceable legal right to set off
the recognised amounts and there is an intention to settle on a net
basis, or to realise an asset and settle the liability
simultaneously.
Investments in funds
Investments in funds are measured at fair value through profit
or loss. Fair value through profit or loss is determined using the
NAV of the fund. The NAV is the value of all the assets of the fund
less its liabilities to creditors (including provisions for such
liabilities) determined in accordance with applicable accounting
standards. Refer to Note 3 and Note 19 for further information.
Equity securities
Equity securities are measured at fair value. These securities
are considered either Level 1 or Level 3 investments. Further
details of the valuation of equity securities are included in Note
3. Equity securities consist of common and preferred stock,
warrants and convertible note investments.
Other receivables
Other receivables do not carry interest and are short-term in
nature and are accordingly recognised at fair value as reduced by
appropriate allowances for estimated irrecoverable amounts.
Cash and cash equivalents
Cash comprises of cash on hand and demand deposits. Cash
equivalents are short-term, highly liquid investments with a
maturity of 90 days or less that are readily convertible to known
amounts of cash.
Deferred income
The Group and Parent Company defer draw fees received from
investments and the deferred fees amortise into income on a
straight-line basis over the life of the loan, which approximates
the effective interest rate method.
Other liabilities
Other liabilities and accrued expenses are not interest-bearing
and are stated at their nominal values. Due to their short-term
nature this is determined to be equivalent to their fair value.
Share Capital
The Ordinary Shares are classified as equity. The costs of
issuing or acquiring equity are recognised in equity (net of any
related income tax benefit), as a reduction of equity on the
condition that these are incremental costs directly attributable to
the equity transaction that otherwise would have been avoided.
The costs of an equity transaction that is abandoned are
recognised as an expense. Those costs might include registration
and other regulatory fees, amounts paid to legal, accounting and
other professional advisers, printing costs and stamp duties.
The Group's equity NAV per share is calculated by dividing the
equity - net assets attributable to the holder of Ordinary Shares
by the total number of outstanding Ordinary Shares.
Treasury Shares have no entitlements to vote and are held by the
Company.
Foreign exchange
Transactions in foreign currencies are translated into Pound
Sterling at the rate of exchange ruling on the date of each
transaction. Monetary assets, liabilities and equity investments in
foreign currencies at the Consolidated Statement of Financial
Position date are translated into Pound Sterling at the rates of
exchange ruling on that date. Profits or losses on exchange,
together with differences arising on the translation of foreign
currency assets or liabilities, are taken to the capital return
column of the Consolidated Statement of Comprehensive Income.
Foreign exchange gains and losses arising on investment assets
including loans are included within Net gain/(loss) on investments
within the capital return column of the Consolidated Statement of
Comprehensive Income.
The assets and liabilities of the Group's foreign operations are
translated using the exchange rates prevailing at the reporting
date. Income and expense items are translated using the average
exchange rates during the period. Exchange differences arising from
the translation of foreign operations are taken directly as
currency translation differences through the Consolidated Statement
of Comprehensive Income.
Capital reserves
Capital reserve - arising on investments sold includes:
gains/losses on disposal of investments and the related foreign
exchange differences;
exchange differences on currency balances;
cost of own shares bought back; and
other capital charges and credits charged to this account in
accordance with the accounting policies above.
Capital reserve - arising on investments held includes:
increases and decreases in the valuation of investments held at
the year-end;
increases and decreases in the IFRS 9 reserve of investments
held at the year-end; and
investments in subsidiaries by the Parent Company where retained
earnings is negative.
In the instance where the retained earnings of the Parent
Company's investment in a subsidiary are negative, all income and
expenses from that investment are allocated to the capital reserve
for both the Group and the Parent Company.
All the above are accounted for in the Consolidated Statement of
Comprehensive Income except the cost of own shares bought back, if
applicable, which would be accounted for in the Consolidated
Statement of Changes in Equity.
Revenue reserves
The revenue reserve represents the accumulated revenue profits
retained by the Group. The Group makes interest distributions from
the revenue reserve to Shareholders.
Segmental reporting
The chief operating decision maker is the Board of Directors.
The Directors are of the opinion that the Group is engaged in a
single segment of business, being the investment of the Group's
capital in financial assets comprising consumer loans, SME loans,
corporate trade receivables and/or advances thereon. The Board
focuses on the overall return from these assets irrespective of the
structure through which the investment is made.
Critical accounting estimates
The preparation of financial statements in conformity with
international accounting standards requires the Group to make
judgements, estimates and assumptions that affect the application
of accounting policies and the reported amounts of assets and
liabilities at the date of the financial statements and the
reported amounts of income and expenses during the reporting
period. Although these estimates are based on the Directors' best
knowledge of the amount, actual results may differ ultimately from
those estimates.
The areas requiring a higher degree of judgement or complexity
and areas where assumptions and estimates are significant to the
financial statements, are in relation to expected credit losses and
investments at fair value through profit or loss. These are
detailed below.
Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the
period in which the estimates are revised and in any future periods
affected.
Measurement of the expected credit loss allowance
The calculation of the Group's ECL allowances and provisions
against loan commitments and guarantees under IFRS 9 is highly
complex and involves the use of significant judgement and
estimation. This includes the formulation and incorporation of
multiple forward-looking economic conditions into ECL to meet the
measurement objective of IFRS 9. The most significant estimates
that are discussed below are considered to be the expected life of
the financial instrument, what is considered to be a significant
increase in credit risk to affect a movement between stages, and
the effect of potential future economic scenarios.
Base case and stress case cash flow methodology under IFRS 9
Each loan in the Group's investment portfolio is analysed to
assess the likelihood of the Group incurring any loss either (i) in
the normal course of events, or (ii) in a stress scenario. Given
that these positions are typically secured by specific collateral,
most commonly in the form of loan or lease receivables, and often
further secured by guarantees from the operating business, the
analysis looks at the impacts on both the specific collateral, as
well as any obligations of the operating business to understand how
the Group's investment would fair in each scenario. The loss rate
assumptions for each transaction is established using all available
historical loss performance data on the specific asset pool being
assessed, supplemented by additional sources as needed.
The significant estimates used on a majority of the Group's
investments within these scenarios are:
v Impact on loss rates in a stress scenario - 1.1x to 2.1x
(2019: 1.1x to 2.1x);
v Probability of a stress scenario occurring - 100% (2019: 27%
to 33%); and
v Range of net losses - 0.0% to 42.3% (2019: 0.0% to 38.9%).
Further detail on these estimates and the methodology applied
are set out below.
Base case
To establish the base case model, a representative portfolio is
established based on the average portfolio parameters from the
actual collateral pool (based on the most recent available
reporting date). The expected cash flows are assessed based on
these parameters, such as interest rate, term to maturity,
amortisation schedule, etc., as well as estimates of prepayments,
losses and any other activity which would impact the expected cash
flows. Cash flow assumptions, such as prepayment and loss curves
are established using a combination of (1) historical performance,
(2) management forecasts, (3) proxy data from comparable assets or
businesses, and (4) judgement from the Investment Manager's
investment professionals based on general research and knowledge.
Emphasis is given to the loss curves because, for most asset
classes, they have a significantly larger impact on the liquidation
outcomes compared to other assumptions such as prepayment
rates.
The model is then burdened with the following costs: (1)
servicing costs which broadly reflect the expected costs of either
(i) engaging a backup servicer to wind down the portfolio, or (ii)
of operating the business through a liquidation, (2) upfront
liquidation costs to reflect potential expenses associated with
moving into liquidation, and (3) ongoing liquidation costs to
reflect incremental costs born to oversee the liquidation.
The last input component is the terms of the Group's investment,
which includes the applicable advance rate and interest rate which
are based on the prevailing terms and circumstances of the
facility.
The representative portfolio is deemed to reflect the most
reliable and relevant information available about the portfolio
attributes and expected performance. As part of the ongoing
investment monitoring and risk management process, the Investment
Manager is monitoring performance on the underlying collateral on a
monthly basis to identify whether performance indicators are
trending positively or negatively, and how much cushion exists
compared to contractual covenant trigger levels. Any such changes
would be reviewed to determine whether an adjustment is required to
the model assumptions.
For the Group's legal finance balance sheet investments, we
perform a similar analysis as with our financial services balance
sheet investments, though in those cases we are assessing the
likely return on legal sector investments based on historical data
and expert judgement and stressing the return and/or loss
expectation on those platforms. In general, those assets by their
nature tend to be uncorrelated across both the macro economy as
well as across the portfolio(s), which has an impact on the range
of outcomes factored into the model.
Stress case
For most of the investments being reviewed, the primary driver
of collateral value is the loss rates on the underlying loans or
leases, measured by cumulative net loss, which considers the total
principal losses between a given point in time and the final
repayment on the portfolio. While many of the companies and asset
classes being reviewed do not have historical performance data
going back to pre-2007, macro-economic data is available which can
be used as a proxy for the specific asset classes being analysed.
VPC commissioned a study of historical loss rates on various asset
classes and segments in the US from 2006-2014 in order to
understand the changes in loss rates by segment from the benign
credit environment of 2006 through the worst parts of the
recession. The following table summarizes the loss stress observed
by segment where 0% indicates no change and 100% indicates a
doubling of the relevant loss rate.
2008 Recession Loss Scalars
by Asset and Population
Subprime & Deep Near Prime Prime
Subprime Vintage Score 601-660 Vintage Score above
Vintage Score below 660
601
--------------------- ----------------------- ---------------------
Student Loan 0% 10% 8%
--------------------- ----------------------- ---------------------
Retail 17% 10% 3%
--------------------- ----------------------- ---------------------
Personal Loan 16% 41% 108%
--------------------- ----------------------- ---------------------
Auto 24% 54% 88%
--------------------- ----------------------- ---------------------
Credit Card 43% 71% 132%
--------------------- ----------------------- ---------------------
Source: Assessing Performance of Consumer Lending Assets through
Macroeconomic Shocks, Second Order Solutions (June 2019)
The most heavily represented populations in the Group's borrower
portfolios are personal loans (or amortising installment loans). As
seen in the above table, default rates on these loans increased by
1.16x-2.08x. Each portfolio was assessed based on the applicable
stress factor range based on the product and borrower
population.
IFRS 9 calls for an assessment of the probability of default
over the upcoming 12 months, and thus the Investment Manager
provides a view of the probability of such a severe scenario
occurring in the next 12 months for each of the investments which
are at risk of incurring a loss (as some of the variables will vary
between investments). Typically the Investment Manager reviews
macroeconomic data to assess the probability of a recession or
stress scenario over a 12 month horizon. Given the rapid
progression of COVID-19 around the globe and the ensuing
macroeconomic impacts of the crisis, relevant models have assumed a
100% probability of a stress scenario, which is a very conservative
approach. This represents a change from the prior year where the
probability of a stress scenario occurring was between 27% to 33%.
The severity of stress is based on data from the recession in
2008-2009, and continues to be refined with additional information
based on the current economic circumstances.
Once the model has been run at the stressed scenario, if the
cash flows continue to support the payment of an investment's
principal and interest, the portfolio is deemed to have adequate
coverage. If there is a shortfall in principal payments, a further
assessment is done to note whether there are any excluded variables
that need to be considered in determining the need for reserves on
the position, including taking into account other additional credit
enhancements provided in each deal (i.e., corporate guarantees,
etc.). Such assessment would consider the likelihood of a scenario
that could pose a loss and the expected magnitude of such loss in
order to determine the appropriate reserve level.
For balance sheet investments, two of the primary drivers of the
impairment analysis are the underlying collateral loss rates and
the likelihood of an economic recession in the upcoming 12-month
period. Regarding the underlying collateral loss rates, these
variables are stressed to 110%-210% as part of the impairment
analysis and the impacts of those stresses are reflected in the
impairment amounts. Regarding the likelihood of an economic
recession in the upcoming 12-month period, as at 31 December 2020
an increase in the likelihood of an economic recession would have
no impact on the expected credit losses since the analysis already
assumes a 100% likelihood of an economic recession.
For marketplace loan investments, the IFRS 9 reserve provision
is estimated using historical performance data about the Group's
loans which is regularly updated and reviewed. A 5% increase in
relation to the assumed delinquency and loss rates would increase
the provision and the impairment charge shown in the Consolidated
Statement of Comprehensive Income by less than GBP10,000. A
decrease in these assumptions would have an opposite effect. The
marketplace loan investments represent 1% of the Group's net asset
value. All stress scenarios on the marketplace loan investments
were run at a balance sheet date of 31 December 2020.
Valuation of unquoted investments
The valuation of unquoted investments and investments for which
there is an inactive market is a key area of judgement and may
cause material adjustment to the carrying value of those assets and
liabilities. The unquoted equity assets are valued on periodic
basis using techniques including a market approach, costs approach
and/or income approach. The valuation process is collaborative,
involving the finance and investment functions within the
Investment Manager with the final valuations being reviewed by the
Board's Audit and Valuation Committee. The specific techniques used
typically include earnings multiples, discounted cash flow
analysis, the value of recent transactions, and, where appropriate,
industry rules of thumb. The valuations often reflect a synthesis
of a number of different approaches in determining the final fair
value estimate. The individual approach for each investment will
vary depending on relevant factors that a market participant would
take into account in pricing the asset. Changes in fair value of
all investments held at fair value are recognised in the
Consolidated Statement of Comprehensive Income as a capital item.
On disposal, realised gains and losses are also recognised in the
Consolidated Statement of Comprehensive Income as a capital item.
Transaction costs are included within gains or losses on
investments held at fair value, although any related interest
income, dividend income and finance costs are disclosed separately
in the Consolidated Financial Statements. The ultimate sale price
of investments may not be the same as fair value. Refer to Note
3.
Critical accounting judgments
Judgement is required to determine whether the Parent Company
exercises control over its investee entities and whether they
should be consolidated. Control is achieved where the Parent
Company has the power to govern the financial and operating
policies of an investee entity so as to obtain benefits from its
activities. The Parent Company controls an investee entity when the
Parent Company is exposed to, or has rights to, variable returns
from its investment and has the ability to affect those returns
through its power over the entity. At each reporting date, an
assessment is undertaken of investee entities to determine control.
In the intervening period, assessments are undertaken where
circumstances change that may give rise to a change in the control
assessment. These include when an investment is made into a new
entity, or an amendment to existing entity documentation or
processes. When assessing whether the Parent Company has the power
to affect its variable returns, and therefore control investee
entities, an assessment is undertaken of the Parent Company's
ability to influence the relevant activities of the investee
entity. These activities include considering the ability to appoint
or remove key management or the manager, which party has decision
making powers over the entity and whether the manager of an entity
is acting as principal or agent. The assessment undertaken for
entities considers the Parent Company's level of investment into
the entity and its intended long-term holding in the entity and
there may be instances where the Parent Company owns less than 51%
of an investee entity but that entity is consolidated. Further
details of the Parent Company's subsidiaries are included in Note
17.
The Group's investments in associates all consist of limited
partner interest in funds. There are no significant restrictions
between investors with joint control or significant influence over
the associates listed above on the ability of the associates to
transfer funds to any party in the form of cash dividends or to
repay loans or advances made by the Group. The Group holds 52%
interest in Larkdale III, L.P. while the Group's ultimate ownership
of the investment held by Larkdale III, L.P. is 34%. The Group has
determined it does not have accounting control as the general
partner, which is not controlled by the Group, has operating
control over the vehicle and acts as an agent for several the
Investment Manager's funds. Further details of the Parent Company's
associates are included in Note 19.
Accounting standards issued but not yet effective or not
material to the Group
At the date of authorisation of these financial statements, the
following standards and interpretations, which have not been
applied in these financial statements, were in issue.
Accounting standards issued but not yet effective
IFRS 17 'Insurance Contract' establishes the principles for the
recognition, measurement, presentation and disclosure of insurance
contracts. This information gives a basis for users of financial
statements to assess the effect that insurance contracts have on
the entity's financial position, financial performance and cash
flows. IFRS 17 was issued in May 2017 and applies to annual
reporting periods beginning on or after 1 January 2023.The
Directors do not anticipate that the adoption of this standard and
interpretations will have a material impact on the financial
statements, given the nature of the Group's business being that it
has no insurance contracts.
The IASB's Phase 2 amendments in response to issues arising from
the replacement of interest rate benchmarks in a number of
jurisdictions are effective for annual periods beginning on or
after 1 January 2021. Under these amendments, an immediate gain or
loss is not recognised in the income statement where the
contractual cash flows of a financial asset or financial liability
are amended as a direct consequence of the rate reform and the
revised contractual terms are economically equivalent to the
previous terms. In addition, hedge accounting is continued for
relationships that are directly affected by the reform. These
amendments are not expected to have a significant impact on the
Group.
The narrow-scope amendments to IAS 1 Presentation of Financial
Statements clarify that liabilities are classified as either
current or non-current, depending on the rights that exist at the
end of the reporting period. Classification is unaffected by the
expectations of the entity or events after the reporting date
(e.g., the receipt of a waver or a breach of covenant). The
amendments also clarify what IAS 1 means when it refers to the
'settlement' of a liability. The amendments could affect the
classification of liabilities, particularly for entities that
previously considered management's intentions to determine
classification and for some liabilities that can be converted into
equity. They must be applied retrospectively in accordance with the
normal requirements in IAS 8 Accounting Policies, Changes in
Accounting Estimates and Errors. In May 2020, the IASB issued an
Exposure Draft proposing to defer the effective date of the
amendments to 1 January 2023.
Accounting standards effective and not material to the Group
The IASB has issued 'Definition of a Business (Amendments to
IFRS 3)' aimed at resolving the difficulties that arise when an
entity determines whether it has acquired a business or a group of
assets. The amendments are effective for business combinations for
which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after 1 January 2020
and does not have a material impact on the Group's financial
statements.
Other future developments include the IASB undertaking a
comprehensive review of existing IFRSs. The Group will consider the
financial impact of these new standards as they are finalised.
3. FAIR VALUE MEASUREMENT
Financial instruments measured and reported at fair value are
classified and disclosed in one of the following fair value
hierarchy levels based on the significance of the inputs used in
measuring its fair value:
Level 1 - Quoted prices (unadjusted) in active markets for
identical assets and liabilities;
Level 2 - Inputs other than quoted prices included in Level 1
that are observable for the asset or liability, either directly (as
prices) or indirectly (derived from prices); and
Level 3 - Pricing inputs for the asset or liability that are not
based on observable market data (unobservable inputs).
An investment is always categorised as Level 1, 2 or 3 in its
entirety. In certain cases, the fair value measurement for an
investment may use a number of different inputs that fall into
different levels of the fair value hierarchy. In such cases, an
investment's level within the fair value hierarchy is based on the
lowest level of input that is significant to the fair value
measurement. The assessment of the significance of a particular
input to the fair value measurement requires judgment and is
specific to the investment.
Valuation of investments in funds
The Group's investments in funds are subject to the terms and
conditions of the respective fund's offering documentation. The
investments in funds are primarily valued based on the latest
available financial information. The Investment Manager reviews the
details of the reported information obtained from the funds and
considers: (i) the valuation of the fund's underlying investments;
(ii) the value date of the NAV provided; (iii) cash flows
(calls/distributions) since the latest value date; and (iv) the
basis of accounting and, in instances where the basis of accounting
is other than fair value, fair valuation information provided by
the funds. If necessary, adjustments to the NAV are made to the
funds to obtain the best estimate of fair value. The funds in which
the Group invests are close-ended and unquoted. No adjustments have
been determined to be necessary to the NAV as provided as at 31
December 2020 as this reflects fair value under the relevant
valuation methodology. The NAV is provided to investors only and is
not made publicly available.
Valuation of equity securities
Fair value is determined based on the Group's valuation
methodology, which is either determined using market comparables,
discounted cash flow models or recent transactions.
Under the Enterprise Valuation Waterfall Analysis, the Group
estimates the fair value of a portfolio company using traditional
valuation methodologies including market, income, and cost
approaches, as well as other applicable industry-specific
approaches and then waterfall the enterprise value over the
portfolio company's securities in order of their preference
relative to one another. Some or all the traditional valuation
methodologies are weighted based on the individual circumstances of
the portfolio company to determine an estimate of the enterprise
value. The traditional valuation methodologies consist of valuation
estimates based on: valuations of comparable public companies,
recent sales of private and public comparable companies,
discounting the forecasted cash flows of the portfolio company,
estimating the liquidation or collateral value of the portfolio
company's assets, third-party valuations of the portfolio company
or its assets, considering offers from third-parties to buy the
portfolio company, estimating the value to potential strategic
buyers and considering the value of recent investments in the
equity securities of the portfolio company. To determine the
enterprise value of a portfolio company, its historical and
projected financial results, as well as other factors that may
impact value, such as exposure to litigation, loss of significant
customers or other contingencies are considered. This financial and
other information is generally obtained from the Group's portfolio
companies, and in most cases represents unaudited, projected, or
pro-forma financial information.
In using a valuation methodology based on the discounting of
forecasted cash flows of the portfolio company, significant
judgment is required in the development of an appropriate discount
rate to be applied to the forecasted cash flows. When applicable, a
weighted average cost of capital approach is used to derive a
discount rate that takes into account i) the risk-free rate ii) the
cost of debt for creditworthiness and iii) the cost of equity for
performance risk. The three inputs to the discount rate are based
on third-party market studies, portfolio company interest rates,
and an overall understanding of the inherent risk in the cash
flows. The remaining assumptions incorporated in the valuation
methodologies used to estimate the enterprise value consist
primarily of unobservable Level 3 inputs, including management
assumptions based on judgment. For example, from time to time, a
portfolio company has exposure to potential or actual litigation.
In evaluating the impact on the valuation for such items, the
amount that a market participant would consider in estimating fair
value is considered. These estimates are highly subjective, based
on the Group's assessment of the potential outcome(s) and the
related impact on the fair value of such potential outcome(s). A
change in these assumptions could have a material impact on the
determination of fair value.
In using a valuation methodology based on comparable public
companies or sales of private or public comparable companies,
significant judgment is required in the application of discounts or
premiums to the prices of comparable companies for factors such as
size, marketability and relative performance. Related to the use of
private company transactions, when a portfolio company closes on
new equity, the new round's implied valuation is used in valuing
the equity investment. The use of an equity round includes gaining
an understanding of the resulting rights between equity classes,
and when applicable, a discount related to rights and preference
differences is applied to the implied valuation. In addition, when
a portfolio company has significant reason to believe an equity
round is closing in the near future, a weighted-probability
approach with the applicable discounts may be used. Under the yield
analysis approach, expected future cash flows are discounted back
using a discount rate. The discount rate used incorporates
market-based yields for similar credits to the public market and
the underlying risk of the individual credit.
Due to the inherent uncertainty of determining the fair value of
Level 3 assets that do not have a readily available market value,
the fair value of the assets may differ significantly from the
values that would have been used had a ready market existed for
such assets and may differ materially from the values that may
ultimately be received or settled. Further, such assets are
generally subject to legal and other restrictions or otherwise are
less liquid than publicly traded instruments. If the Partnership
were required to liquidate a portfolio investment in a forced or
liquidation sale, the Group may realise significantly less than the
value at which such investment had previously been recorded.
The selection of appropriate valuation techniques may be
affected by the availability of relevant inputs as well as the
relative reliability of the inputs. In some cases, one valuation
technique may provide the best indication of fair value while in
other circumstances, multiple valuation techniques may be
appropriate. The results of the application of the various
techniques may not be equally representative of fair value, due to
factors such as assumptions made in the valuation.
In some situations, the Group may determine it appropriate to
evaluate and weigh the results to develop a range of possible
values, with the fair value based on the Group's assessment of the
most representative point within the range.
Investments may be classified as Level 2 when market information
becomes available, yet the investment is not traded in an active
market and/or the investment is subject to transfer restrictions,
or the valuation is adjusted to reflect illiquidity and/or
non-transferability.
The Group, at times, may hold Level 1 investments and will use
the available market quotes to value the investments. As noted
above, these investments may include an illiquid period in which
the investment does not have the ability to trade and will be
classified as Level 2.
Fair value disclosures
The following table analyses the fair value hierarchy of the
Group's assets and liabilities measured at fair value at 31
December 2020:
Total Level 1 Level 2 Level 3
--------------------------------------
Investment assets designated as held
at fair value GBP GBP GBP GBP
-------------------------------------- ------------ ----------- -------- ------------
Investments in funds 2,522,367 - - 2,522,367
====================================== ============ =========== ======== ============
Equity securities 48,895,616 2,954,366 - 45,941,250
Total 51,417,983 2,954,366 - 48,463,617
-------------------------------------- ------------ ----------- -------- ------------
Total Level 1 Level 2 Level 3
------------------------------------
Derivative financial assets GBP GBP GBP GBP
------------------------------------ ----------- -------- ----------- --------
Forward foreign exchange contracts 5,758,880 - 5,758,880 -
Total 5,758,880 - 5,758,880 -
------------------------------------ ----------- -------- ----------- --------
The following table analyses the fair value hierarchy of the
Group's assets and liabilities measured at fair value at 31
December 2019:
Total Level 1 Level 2 Level 3
--------------------------------------
Investment assets designated as held
at fair value GBP GBP GBP GBP
-------------------------------------- ---------------- ----------- -------- -----------
Investments in funds 4,461,946 - - 4,461,946
====================================== ================ =========== ======== ===========
Equity securities 38,040,188 3,401,613 - 34,638,575
Total 42,502,134 3,401,613 - 39,100,521
-------------------------------------- ---------------- ----------- -------- -----------
Total Level 1 Level 2 Level 3
------------------------------------
Derivative financial assets GBP GBP GBP GBP
------------------------------------ ----------- -------- ----------- ------------------------
Forward foreign exchange contracts 3,985,365 - 3,985,365 -
Total 3,985,365 - 3,985,365 -
------------------------------------ ----------- -------- ----------- ------------------------
The following table analyses the fair value hierarchy of the
Parent Company's assets and liabilities measured at fair value at
31 December 2020:
Total Level 1 Level 2 Level 3
--------------------------------------
Investment assets designated as held
at fair value GBP GBP GBP GBP
-------------------------------------- ---------- -------- -------- ----------
Investments in funds 2,522,366 - - 2,522,366
====================================== ========== ======== ======== ==========
Total 2,522,366 - - 2,522,366
-------------------------------------- ---------- -------- -------- ----------
Total Level 1 Level 2 Level 3
------------------------------------
Derivative financial assets GBP GBP GBP GBP
------------------------------------ ---------- -------- ---------- ------------------------
Forward foreign exchange contracts 5,758,880 - 5,758,880 -
Total 5,758,880 - 5,758,880 -
------------------------------------ ---------- -------- ---------- ------------------------
The following table analyses the fair value hierarchy of the
Parent Company's assets and liabilities measured at fair value at
31 December 2019:
Total Level 1 Level 2 Level 3
--------------------------------------
Investment assets designated as held
at fair value GBP GBP GBP GBP
-------------------------------------- ----------- -------- -------- -----------
Investments in funds 4,461,946 - - 4,461,946
====================================== =========== ======== ======== ===========
Total 4,461,946 - - 4,461,946
-------------------------------------- ----------- -------- -------- -----------
Total Level 1 Level 2 Level 3
------------------------------------
Derivative financial assets GBP GBP GBP GBP
------------------------------------ ----------- -------- ----------- ------------------------
Forward foreign exchange contracts 3,985,365 - 3,985,365 -
Total 3,985,365 - 3,985,365 -
------------------------------------ ----------- -------- ----------- ------------------------
There were no transfers into and out of Level 3 fair value
measurements for either the Parent Company or the Group during the
years ended 31 December 2020 and 31 December 2019.
The following table presents the movement in Level 3 positions
for the year ended 31 December 2020 for the Group:
INVESTMENTS EQUITY
IN FUNDS SECURITIES
GBP GBP
================================================= =================================== =============================
Beginning balance, 1 January 2020 4,461,946 34,638,575
================================================= =================================== =============================
Purchases - 16,671,467
================================================= =================================== =============================
Sales (1,376,253) (7,162,530)
================================================= =================================== =============================
Net change in unrealised foreign exchange gains
(losses) (624,808) (1,010,734)
================================================= =================================== =============================
Net realised gains (losses) - (8,676,617)
================================================= =================================== =============================
Net change in unrealised gains (losses) 61,482 11,481,089
Ending balance, 31 December 2020 2,522,367 45,941,250
================================================= =================================== =============================
The net change in unrealised gains (losses) is recognised within
gains (losses) on investments in the Consolidated Statement of
Comprehensive Income.
The following table presents the movement in Level 3 positions
for the year ended 31 December 2019 for the Group:
INVESTMENTS EQUITY
IN FUNDS SECURITIES
GBP GBP
================================================= ============== ==============
Beginning balance, 1 January 2019 27,922,819 35,167,242
================================================= ============== ==============
Purchases 539,406 12,410,417
================================================= ============== ==============
Sales (23,540,339) (17,476,005)
================================================= ============== ==============
Net change in unrealised foreign exchange gains
(losses) (1,325,925) (479,573)
================================================= ============== ==============
Net change in unrealised gains (losses) 865,985 5,016,494
Ending balance, 31 December 2019 4,461,946 34,638,575
================================================= ============== ==============
The following table presents the movement in Level 3 positions
for the period ended 31 December 2020 for the Parent Company:
INVESTMENTS
IN FUNDS
GBP
========================================================== ===================================
Beginning balance, 1 January 2020 4,461,946
========================================================== ===================================
Purchases -
========================================================== ===================================
Sales (1,376,253)
========================================================== ===================================
Net change in unrealised foreign exchange gains (losses) (624,808)
========================================================== ===================================
Net change in unrealised gains (losses) 61,482
Ending balance, 31 December 2020 2,522,366
========================================================== ===================================
The following table presents the movement in Level 3 positions
for the period ended 31 December 2019 for the Parent Company:
INVESTMENTS
IN FUNDS
GBP
========================================================== ==============
Beginning balance, 1 January 2019 27,922,819
========================================================== ==============
Purchases 539,406
========================================================== ==============
Sales (23,540,339)
========================================================== ==============
Net change in unrealised foreign exchange gains (losses) (1,325,925)
========================================================== ==============
Net change in unrealised gains (losses) 865,985
Ending balance, 31 December 2019 4,461,946
========================================================== ==============
Quantitative information regarding the unobservable inputs for
Level 3 positions as at 31 December 2020 is given below:
FAIR VALUE
AT
31 DECEMBER
2020
DESCRIPTION GBP VALUATION TECHNIQUE UNOBSERVABLE INPUT RANGE
=================== ============ ==================== =============================== ======================
Investments 2,522,367 Net asset value N/A N/A
in funds
=================== ============ ==================== =============================== ======================
Equity securities 21,246,252 Market Comparables Price Per Share from US$0.11 - EUR2,069.55
Recent Transactions
Rights and Preferences 20.0% - 40.0%
Discount 35.0%
Series B Round Discount 7.8x
Price to Earnings (Comparable 1.6x
Median) 10.0%
Price to Book (Comparable 20.0% - 40.0%
Median) 2.0 - 2.6 years
Private Company Discount
Black Scholes Analysis
- Volatility
Black Scholes Analysis
- Term
=================== ============ ==================== =============================== ======================
Equity securities 9,548,397 Discounted Cash Discount Rate
Flows 8.0% - 25.0%
Annual FCF Growth Rate 3.0%
Deal Risk Premium 34.0%
=================== ============ ==================== =============================== ======================
Equity securities 763,307 Yield Analysis Market Yield 12.2%
=================== ============ ==================== =============================== ======================
Equity securities 369,746 Recoverability Expected Proceeds Upon
Analysis Liquidation N/A
=================== ============ ==================== =============================== ======================
Equity securities 14,013,548 Transaction Price Per Share US$0.003 - US$1.60
Price SPAC Deal Price Per Share US$10.00
N/A N/A
=================== ============ ==================== =============================== ======================
Quantitative information regarding the unobservable inputs for
Level 3 positions as at 31 December 2019 is given below:
FAIR VALUE
AT
31 DECEMBER
2019
DESCRIPTION GBP VALUATION TECHNIQUE UNOBSERVABLE INPUT RANGE
=================== ============ ==================== =============================== ======================
Investments 4,461,946 Net asset value N/A N/A
in funds
=================== ============ ==================== =============================== ======================
Equity securities 21,552,454 Market Comparables Price Per Share from Recent US$0.11 - EUR1,156.15
Transactions
Rights and Preferences 0.0% - 25.0%
Discount
Price to Earnings (Comparable 6.5x
Median)
Price to Book (Comparable 1.3x
Median)
Equity Value to Revenue 1.7x
(Comparable Median)
Private Company Discount 10.0%
=================== ============ ==================== =============================== ======================
Discounted Cash
Equity securities 530,409 Flows Discount Rate 12.0%
=================== ============ ==================== =============================== ======================
Equity securities 7,745,449 Yield Analysis Market Yield 12.9% - 13.9%
=================== ============ ==================== =============================== ======================
Equity securities 2,575,449 Recoverability Recovery percentage of
Analysis underlying loans 0.0% - 100.0%
=================== ============ ==================== =============================== ======================
Equity securities 2,235,164 Transaction Price Price Per Share US$0.05 - US$0.36
N/A N/A
=================== ============ ==================== =============================== ======================
The investments in funds consist of investments in Larkdale III,
L.P. and VPC Offshore Unleveraged Private Debt Fund Feeder, L.P.
These are valued based on the NAV as calculated at the balance
sheet date. No adjustments have been deemed necessary to the NAV as
it reflects the fair value of the underlying investments, as such
no specific unobservable inputs have been identified. The NAVs are
sensitive to movements in interest rates due to the funds'
underlying investment in loans.
If the price per share from recent transactions of the equity
securities valued based on market comparables increased / decreased
by 5% it would have resulted in an increase / decrease to the total
value of those equity securities of GBP1,129,892 (31 December 2019:
GBP719,955) which would affect the Net gain / (loss) on investments
within the capital return column of the Consolidated Statement of
Comprehensive Income.
If the rights and preferences discount of the equity securities
valued based on market comparables increased / decreased by 5% it
would have resulted in an increase / decrease to the total value of
those equity securities of GBP354,127 (31 December 2019:
GBP658,595) which would affect the Net gain / (loss) on investments
within the capital return column of the Consolidated Statement of
Comprehensive Income.
If the price of all the investment assets held at period end,
including individually those mentioned above, had increased /
decreased by 10% it would have resulted in an increase / decrease
in the total value the investments in funds and equity securities
of GBP4,846,362 (31 December 2019: GBP3,831,250) which would affect
the Net gain / (loss) on investments within the capital return
column of the Consolidated Statement of Comprehensive Income.
Assets and liabilities not carried at fair value but for which
fair value is disclosed
The following table presents the fair value of the Group's
assets and liabilities not measured at fair value through profit
and loss at 31 December 2020 but for which fair value is
disclosed:
CARRYING FAIR MARKET
VALUE VALUE
GBP GBP
======== ====================== ======================
Assets
======== ====================== ======================
Loans 293,123,379 293,123,379
======== ====================== ======================
Total 293,123,379 293,123,379
======== ====================== ======================
For all other assets and liabilities not carried at fair value,
the carrying value is a reasonable approximation of fair value.
The following table presents the fair value of the Group's
assets and liabilities not measured at fair value through profit
and loss at 31 December 2019 but for which fair value is
disclosed:
CARRYING FAIR MARKET
VALUE VALUE
GBP GBP
======== ====================== ======================
Assets
======== ====================== ======================
Loans 352,910,880 352,921,109
======== ====================== ======================
Total 352,910,880 352,921,109
======== ====================== ======================
For all other assets and liabilities not carried at fair value,
the carrying value is a reasonable approximation of fair value.
4. DERIVATIVES
Typically, derivative contracts serve as components of the
Group's investment strategy and are utilised primarily to structure
and hedge investments to enhance performance and reduce risk to the
Group. In 2020 and 2019, the Group did not designate any
derivatives as hedges for hedge accounting purposes as described
under IFRS 9. Derivative instruments are also used for trading
purposes where the Investment Manager believes this would be more
effective than investing directly in the underlying financial
instruments. The only derivative contracts that the Group currently
holds or issues are forward foreign exchange contracts.
The Group measures its derivative instruments on a fair value
basis. See Note 2 for the valuation policy for financial
instruments.
Forward contracts
Forward contracts entered into represent a firm commitment to
buy or sell an underlying asset, or currency at a specified value
and point in time based upon an agreed or contracted quantity. The
realised/unrealised gain or loss is equal to the difference between
the value of the contract at the onset and the value of the
contract at settlement date/year end date and is included in the
Consolidated Statement of Comprehensive Income.
As at 31 December 2020, the following forward foreign exchange
contracts were included in the Group's Consolidated Statement of
Financial Position at fair value through profit or loss and the
Parent Company's Statement of Financial Position at fair value
through profit or loss:
PURCHASE PURCHASE FAIR VALUE
SETTLEMENT DATE CURRENCY AMOUNT SALE CURRENCY SALE AMOUNT GBP
================== =========== ======================= ============== ============ ===============
22 January 2021 GBP 57,581,855 USD 78,700,000 1,832,031
================== =========== ======================= ============== ============ ===============
10 February 2021 GBP 2,194,988 USD 3,000,000 29,483
================== =========== ======================= ============== ============ ===============
10 February 2021 GBP 4,389,976 USD 6,000,000 11,655
================== =========== ======================= ============== ============ ===============
10 February 2021 GBP 363,026 AUD 643,900 (9,702)
================== =========== ======================= ============== ============ ===============
12 February 2021 GBP 54,874,703 USD 75,000,000 267,416
================== =========== ======================= ============== ============ ===============
12 February 2021 GBP 1,083,960 EUR 1,200,000 11,208
================== =========== ======================= ============== ============ ===============
12 February 2021 GBP 124,382,660 USD 170,000,000 3,616,789
================== =========== ======================= ============== ============ ===============
Unrealised gains on forward foreign exchange
contracts 5,758,880
======================================================== ============== ============ ===============
As at 31 December 2019, the following forward foreign exchange
contracts were included in the Group's Consolidated Statement of
Financial Position at fair value through profit or loss and the
Parent Company's Statement of Financial Position at fair value
through profit or loss:
PURCHASE FAIR VALUE
SETTLEMENT DATE PURCHASE CURRENCY AMOUNT SALE CURRENCY SALE AMOUNT GBP
=================== =================== ============= ============== ============ ===========
24 January 2020 GBP 100,385,225 USD 132,900,000 2,061,778
=================== =================== ============= ============== ============ ===========
24 January 2020 GBP 3,021,376 USD 4,000,000 74,697
=================== =================== ============= ============== ============ ===========
21 February 2020 GBP 86,713,498 USD 114,800,000 912,808
=================== =================== ============= ============== ============ ===========
21 February 2020 GBP 67,980,965 USD 90,000,000 925,714
=================== =================== ============= ============== ============ ===========
21 February 2020 GBP 4,084,320 EUR 4,800,000 10,368
=================== =================== ============= ============== ============ ===========
Unrealised gains on forward foreign
exchange contracts 3,985,365
======================================== ============= ============== ============ ===========
The following tables provide information on the financial impact
of netting for instruments subject to an enforceable master netting
arrangement or similar agreement at 31 December 2020 for both the
Parent Company and the Group:
RELATED AMOUNTS
NOT ELIGBIBLE TO
BE SET-OFF IN THE
STATEMENT OF FINANCIAL
POSITION
--------------------------
GROSS AMOUNTS
OF FINANCIAL NET AMOUNTS
LIABILITIES OF RECOGNISED
GROSS AMOUNTS TO BE SET-OFF ASSETS PRESENTED
OF RECOGNISED IN THE STATEMENT IN THE STATEMENT
FINANCIAL OF FINANCIAL OF FINANCIAL FINANCIAL COLLATERAL
ASSETS POSITION POSITION INSTRUMENTS RECEIVED NET AMOUNT
AS AT 31 DECEMBER
2020 GBP GBP GBP GBP GBP GBP
==================== =============== ================== ================== ============= =========== ===========
Bannockburn Global 3,657,926 (9,702) 3,648,224 - - 3,648,224
==================== =============== ================== ================== ============= =========== ===========
Goldman Sachs 278,624 - 278,624 - - 278,624
==================== =============== ================== ================== ============= =========== ===========
Morgan Stanley 1,832,032 - 1,832,032 - - 1,832,032
-------------------- --------------- ------------------ ------------------ ------------- ----------- -----------
Total 5,768,582 (9,702) 5,758,880 - - 5,758,880
-------------------- --------------- ------------------ ------------------ ------------- ----------- -----------
RELATED AMOUNTS
NOT ELIGBIBLE TO
BE SET-OFF IN THE
STATEMENT OF FINANCIAL
POSITION
--------------------------
GROSS AMOUNTS NET AMOUNTS
OF FINANCIAL OF RECOGNISED
ASSETS TO LIABILITIES
GROSS AMOUNTS BE SET-OFF PRESENTED
OF RECOGNISED IN THE STATEMENT IN THE STATEMENT
FINANCIAL OF FINANCIAL OF FINANCIAL FINANCIAL COLLATERAL
LIABILITIES POSITION POSITION INSTRUMENTS RECEIVED NET AMOUNT
AS AT 31 DECEMBER
2020 GBP GBP GBP GBP GBP GBP
==================== =============== ================== ================== ============= =========== ===========
Bannockburn Global 9,702 (9,702) - - - -
==================== =============== ================== ================== ============= =========== ===========
Goldman Sachs - - - - - -
==================== =============== ================== ================== ============= =========== ===========
Morgan Stanley - - - - - -
Total 9,702 (9,702) - - - -
-------------------- --------------- ------------------ ------------------ ------------- ----------- -----------
The following tables provide information on the financial impact
of netting for instruments subject to an enforceable master netting
arrangement or similar agreement at 31 December 2019 for both the
Parent Company and the Group:
RELATED AMOUNTS
NOT ELIGBIBLE TO
BE SET-OFF IN THE
STATEMENT OF FINANCIAL
POSITION
--------------------------
GROSS AMOUNTS
OF FINANCIAL NET AMOUNTS
LIABILITIES OF RECOGNISED
GROSS AMOUNTS TO BE SET-OFF ASSETS PRESENTED
OF RECOGNISED IN THE STATEMENT IN THE STATEMENT
FINANCIAL OF FINANCIAL OF FINANCIAL FINANCIAL COLLATERAL
ASSETS POSITION POSITION INSTRUMENTS RECEIVED NET AMOUNT
AS AT 31 DECEMBER
2019 GBP GBP GBP GBP GBP GBP
==================== =============== ================== ================== ============= =========== ===========
Bannockburn Global 925,715 - 925,715 - - 925,715
==================== =============== ================== ================== ============= =========== ===========
Goldman Sachs 923,176 - 923,176 - - 923,176
==================== =============== ================== ================== ============= =========== ===========
Morgan Stanley 2,136,474 - 2,136,474 - - 2,136,474
-------------------- --------------- ------------------ ------------------ ------------- ----------- -----------
Total 3,985,365 - 3,985,365 - - 3,985,365
-------------------- --------------- ------------------ ------------------ ------------- ----------- -----------
5. INCOME AND GAINS ON INVESTMENTS AND LOANS
Interest income in the amount of GBP35,454,974 (31 December
2019: GBP43,342,988) has been allocated to revenue and GBP524,984
(31 December 2019: GBP504,443) has been allocated to capital in
line with the Group's policy as set out in Note 2.
31 DECEMBER 31 DECEMBER
2020 2019
GBP GBP
=================================================== ============ ============
Other Income
=================================================== ============ ============
Distributable income from investments in funds 609,083 1,282,988
=================================================== ============ ============
Interest income from investment assets designated
as held at fair value through profit or loss 4,791,537 1,257,378
=================================================== ============ ============
Other income 399,147 775,578
--------------------------------------------------- ------------ ------------
Total 5,799,767 3,315,944
--------------------------------------------------- ------------ ------------
31 DECEMBER 31 DECEMBER
2020 2019
GBP GBP
============================================= ============ ============
Net gains (losses) on investments
============================================= ============ ============
Realised (loss) gain on sale of investments (9,159,855) 1,451,642
============================================= ============ ============
Unrealised gains on investment in funds 61,482 865,985
============================================= ============ ============
Unrealised gains on equity securities 10,944,335 3,418,476
--------------------------------------------- ------------ ------------
Total 1,845,962 5,736,103
--------------------------------------------- ------------ ------------
6. FINANCIAL INSTRUMENTS AND ASSOCIATED RISKS
Introduction
Risk is inherent in the Group's activities, but it is managed
through a process of ongoing identification, measurement and
monitoring, subject to risk limits and other controls. The Group is
exposed to market risk (which includes currency risk, interest rate
risk and other price risk), credit risk and liquidity risk arising
from the financial instruments held by the Group.
Risk management structure
The Directors are ultimately responsible for identifying and
controlling risks. Day to day management of the risks arising from
the financial instruments held by the Group has been delegated to
Victory Park Capital Advisors, LLC as Investment Manager to the
Parent Company and the Group.
The Investment Manager regularly reviews the investment
portfolio and industry developments to ensure that any events which
impact the Group are identified and considered. This also ensures
that any risks affecting the investment portfolio are identified
and mitigated to the fullest extent possible.
The Group has no employees, and the Directors have all been
appointed on a Non-Executive basis. Whilst the Group has taken all
reasonable steps to establish and maintain adequate procedures,
systems and controls to enable it to comply with its obligations,
the Group is reliant upon the performance of third-party service
providers for its executive function. In particular, the Investment
Manager, the Custodian, the Administrator, the Corporate Secretary
and the Registrar will be performing services which are integral to
the operation of the Group. Failure by any service provider to
carry out its obligations to the Group in accordance with the terms
of its appointment could have a materially detrimental impact on
the operation of the Group.
In seeking to implement the investment objectives of the Parent
Company while limiting risk, the Parent Company and the Group are
subject to the investment limits restrictions set out in the Credit
Risk section of this note.
Market risk (incorporating price, interest rate and currency
risks)
Market risk is the risk of loss arising from movements in
observable market variables such as foreign exchange rates, equity
prices and interest rates. The Group is exposed to market risk
primarily through its Financial Instruments.
Market price risk
The Group is exposed to price risk arising from the investments
held by the Group for which prices in the future are uncertain. The
investment in funds and equity investments are exposed to market
price risk. Refer to Note 3 for further details on the sensitivity
of the Group's Level 3 investments to price risk.
Interest rate risk
Interest rate risk arises from the possibility that changes in
interest rates will affect future cash flows or the fair values of
financial instruments.
The Group is exposed to risks associated with the effects of
fluctuations in the prevailing levels of market interest rates on
its financial position and cash flows. Due to the nature of the
investments at 31 December 2020, the Group has limited exposure to
variations in interest rates as the key components of interest
rates are fixed and determinable or variable based on the size of
the loan.
While the Group is exposed to risks associated with the effects
of fluctuations in the prevailing levels of market interest rates
on its financial position and cash flows, the downside exposure of
the Group is limited at 31 December 2020 due to the fixed rate
nature of the investments or interest rate floors that are in place
on most of the Group's variable interest rate loans. Interest rates
continue to be reduced as a direct result of the impact of COVID-19
over the last year. The interest rate floors that are in place on
most of the Group's variable interest rate loans reduces the
potential impact that a decrease in rates would have on the Group's
investments.
As at 31 December 2020, if interest rates had increased by 1%,
with all other variables held constant, the change in twelve months
of future cash flows on the current investment portfolio, including
both interest income and expense, would have been GBP461,430 (31
December 2019: GBP1,851,992). If interest rates had decreased by
1%, with all other variables held constant, the change in twelve
months of future cash flows on the current investment portfolio,
including both interest income and expense, would be GBP(224,586)
(31 December 2019: GBP(1,506,361).
The Group does not intend to hedge interest rate risk on a
regular basis. However, where it enters floating rate liabilities
against fixed-rate loans, it may at its sole discretion seek to
hedge out the interest rate exposure, taking into consideration
amongst other things the cost of hedging and the general interest
rate environment.
The use of the London Inter-Bank Offered Rate ("LIBOR") is
expected to be phased out by the end of 2021. There remains
uncertainty regarding the future use of LIBOR and the nature of any
replacement reference rate. Actions by regulators have resulted in
the establishment of alternative reference rates to LIBOR and
markets are slowly developing in response to these new rates.
The potential effect of a discontinuation of LIBOR on the
Company's investments will have little to no impact to the Company,
based on the expectation that reference rates will be evaluated and
replaced timely for investments with a variable rate component.
Further, a review of the Company's underlying investments indicates
little to no exposure to LIBOR at the portfolio company level.
Accordingly, it is difficult to predict the full impact of the
transition away from LIBOR until new reference rates and fallbacks
are commercially accepted.
Currency risk
Currency risk is the risk that the value of net assets will
fluctuate due to changes in foreign exchange rates. Relevant risk
variables are generally movements in the exchange rates of
non-functional currencies in which the Group holds financial assets
and liabilities.
The assets of the Group as at 31 December 2020 were invested in
assets which were denominated in US Dollar, Euro, Australian
Dollar, Pound Sterling and other currencies. Accordingly, the value
of such assets may be affected favourably or unfavourably by
fluctuations in currency rates. The Group hedges currency exposure
between Pound Sterling and any other currency in which the Group's
assets may be denominated, in particular US Dollars, Australian
Dollars, and Euros.
The Group continuously monitors for fluctuations in currency
rates. The Group performs stress tests and liquidity projections to
determine how much cash should be held back to meet potential
future obligations to settle margin calls arising from foreign
exchange hedging.
The coronavirus (COVID-19) pandemic could be a significant
driver for potential exchange rate volatility and the devaluation
of Sterling. The Group's policy is to hedge exchange rate risk
where appropriate, which could lead to the potential of large cash
margin calls. The Group's gearing facility with Pacific Western
Bank was put in place to mitigate this risk.
Micro and small cap company investing risk
The Group will generally invest with companies that are small,
not widely known and not widely held. Small companies tend to be
more vulnerable to adverse developments than larger companies and
may have little or no track records. Small companies may have
limited product lines, markets, or financial resources, and may
depend on less seasoned management. Their securities may trade
infrequently and in limited volumes. It may take a relatively long
period of time to accumulate an investment in a particular issue in
order to minimise the effect of purchases on market price.
Similarly, it could be difficult to dispose of such investments on
a timely basis without adversely affecting market prices. As a
result, the prices of these securities may fluctuate more than the
prices of larger, more widely traded companies. Also, there may be
less publicly available information about small companies or less
market interest in their securities compared to larger companies,
and it may take longer for the prices of these securities to
reflect the full value of their issuers' earnings potential or
assets.
Gearing and borrowing risk
Whilst the use of borrowings by the Group should enhance the net
asset value of an investment when the value of an investment's
underlying assets is rising, it will, however, have the opposite
effect where the underlying asset value is falling. In addition, in
the event that an investment's income falls for whatever reason,
the use of borrowings will increase the impact of such a fall on
the net revenue of the Group's investment and accordingly will have
an adverse effect on the ability of the investment to make
distributions to the Group. This risk is mitigated by limiting
borrowings to ring-fenced Special-Purpose Vehicles ("SPVs") without
recourse to the Group and employing gearing in a disciplined
manner.
Concentration of foreign currency exposure
The Investment Manager monitors the fluctuations in foreign
currency exchange rates and may use forward foreign exchange
contracts to hedge the currency exposure of the Parent Company and
Group's non-Pound Sterling denominated investments. The Investment
Manager re-examines the currency exposure on a regular basis in
each currency and manages the Parent Company's currency exposure in
accordance with market expectations.
The below table presents the net exposure to foreign currency at
31 December 2020. The table includes forward foreign exchange
contracts at their notional exposure value and excludes all GBP
assets and liabilities recorded on the Group's Consolidated
Statement of Financial Position.
FORWARD NET
ASSETS LIABILITIES CONTRACTS EXPOSURE
31 DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER
2020 2020 2020 2020
GBP GBP GBP GBP
==================== ============= ============== ============= ============
Euro 1,302,950 - 1,083,960 218,990
===================== ============= ============== ============= ============
US Dollar 331,021,454 (86,087,183) 243,424,181 1,510,090
===================== ============= ============== ============= ============
Swiss Francs 4,899,168 - - 4,899,168
===================== ============= ============== ============= ============
Australian Dollars 543,622 - 363,026 180,596
===================== ============= ============== ============= ============
If the GBP exchange rate simultaneously increased/decreased by
10% against the above currencies, the impact on profit would be an
increase/decrease of GBP680,884. 10% is considered to be a
reasonably possible movement in foreign exchange rates. The table
above includes the exposure of the non-consolidated interest
investment in the Group.
The below table presents the net exposure to foreign currency at
31 December 2019. The table includes forward foreign exchange
contracts at their notional exposure value and excludes all GBP
assets and liabilities recorded on the Group's Consolidated
Statement of Financial Position.
FORWARD NET
ASSETS LIABILITIES CONTRACTS EXPOSURE
31 DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER
2019 2019 2019 2019
GBP GBP GBP GBP
============== ============= =============== ============= ============
Euro 4,221,379 - 4,067,088 154,291
=============== ============= =============== ============= ============
US Dollar 369,616,416 (111,667,069) 258,101,065 (151,718)
=============== ============= =============== ============= ============
Swiss Francs 2,557,925 - - 2,557,925
=============== ============= =============== ============= ============
The table below presents the net exposure to foreign currency at
31 December 2020. The table includes forward foreign exchange
contracts at their notional exposure value and excludes all GBP
assets and liabilities recorded on the Parent Company's Statement
of Financial Position.
FORWARD NET
ASSETS LIABILITIES CONTRACTS EXPOSURE
31 DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER
2020 2020 2020 2020
GBP GBP GBP GBP
==================== ============= ============ ============= ============
Euro 1,302,950 - 1,083,960 218,990
===================== ============= ============ ============= ============
US Dollar 244,914,933 - 243,424,181 1,490,752
===================== ============= ============ ============= ============
Swiss Francs 4,899,168 - - 4,899,168
===================== ============= ============ ============= ============
Australian Dollars 543,622 - 363,026 180,596
===================== ============= ============ ============= ============
If the GBP exchange rate simultaneously increased/decreased by
10% against the above currencies, the impact on profit would be an
increase/decrease of GBP678,951. 10% is considered to be a
reasonably possible movement in foreign exchange rates.
The table below presents the net exposure to foreign currency at
31 December 2019. The table includes forward foreign exchange
contracts at their notional exposure value and excludes all GBP
assets and liabilities recorded on the Parent Company's Statement
of Financial Position.
FORWARD NET
ASSETS LIABILITIES CONTRACTS EXPOSURE
31 DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER
2019 2019 2019 2019
GBP GBP GBP GBP
============== ============= ============ ============= ============
Euro 4,221,379 - 4,067,088 154,291
=============== ============= ============ ============= ============
US Dollar 257,888,407 - 258,101,065 (212,658)
=============== ============= ============ ============= ============
Swiss Francs 2,557,925 - - 2,557,925
=============== ============= ============ ============= ============
Liquidity risk
Liquidity risk is defined as the risk that the Group may not be
able to settle or meet its obligations on time or at a reasonable
price. Ordinary Shares are not redeemable at the holder's
option.
The maturities of the non-current financial liabilities are
disclosed in Note 8. The following tables show the contractual
maturity of the financial assets and financial liabilities of the
Group as at 31 December 2020:
WITHIN ONE ONE TO FIVE OVER FIVE
YEAR YEARS YEARS TOTAL
GBP GBP GBP GBP
=================================== ============ ============ ========== =============
Assets
=================================== ============ ============ ========== =============
Loans 44,436,582 246,668,944 2,017,853 293,123,379
=================================== ============ ============ ========== =============
Cash and cash equivalents 6,416,028 - - 6,416,028
=================================== ============ ============ ========== =============
Cash posted as collateral 1,140,000 - - 1,140,000
=================================== ============ ============ ========== =============
Interest receivable 3,613,047 - - 3,613,047
=================================== ============ ============ ========== =============
Dividend receivable 3,812 - - 3,812
=================================== ============ ============ ========== =============
Other assets and prepaid expenses 889,148 - - 889,148
==========
Total 56,498,617 246,668,944 2,017,853 305,185,414
=================================== ============ ============ ========== =============
WITHIN ONE ONE TO FIVE OVER FIVE
YEAR YEARS YEARS TOTAL
GBP GBP GBP GBP
=============================== ============ ============ ========== ============
Liabilities
=============================== ============ ============ ========== ============
Notes payable 10,109,810 75,977,373 - 86,087,183
=============================== ============ ============ ========== ============
Management fee payable 92,241 - - 92,241
=============================== ============ ============ ========== ============
Performance fee payable 4,040,085 - - 4,040,085
=============================== ============ ============ ========== ============
Deferred income 253,403 - - 253,403
=============================== ============ ============ ========== ============
Other liabilities and accrued
expenses 1,332,920 - - 1,332,920
=============================== ============ ============ ========== ============
Total 15,828,459 75,977,373 - 91,805,832
=============================== ============ ============ ========== ============
The following tables show the contractual maturity of the
financial assets and financial liabilities of the Group as at 31
December 2019:
WITHIN ONE ONE TO FIVE OVER FIVE
YEAR YEARS YEARS TOTAL
GBP GBP GBP GBP
=================================== ============ ============ ========== ============
Assets
=================================== ============ ============ ========== ============
Loans 18,053,762 334,857,118 - 352,910,880
=================================== ============ ============ ========== ============
Cash and cash equivalents 6,131,122 - - 6,131,122
=================================== ============ ============ ========== ============
Cash posted as collateral 980,000 - - 980,000
=================================== ============ ============ ========== ============
Interest receivable 5,230,350 - - 5,230,350
=================================== ============ ============ ========== ============
Dividend receivable 19,372 - - 19,372
=================================== ============ ============ ========== ============
Other assets and prepaid expenses 894,157 - - 894,157
==========
Total 31,308,763 334,857,118 - 366,165,881
=================================== ============ ============ ========== ============
WITHIN ONE ONE TO FIVE OVER FIVE
YEAR YEARS YEARS TOTAL
GBP GBP GBP GBP
================================= =========== ============= ========== =============
Liabilities
================================= =========== ============= ========== =============
Notes payable - 111,667,069 - 111,667,069
================================= =========== ============= ========== =============
Management fee payable 143,415 - - 143,415
================================= =========== ============= ========== =============
Performance fee payable 7,410,614 - - 7,410,614
================================= =========== ============= ========== =============
Unsettled share buyback payable 52,506 - - 52,506
================================= =========== ============= ========== =============
Deferred income 490,322 - - 490,322
================================= =========== ============= ========== =============
Other liabilities and accrued
expenses 1,349,263 - - 1,349,263
================================= =========== ============= ========== =============
Total 9,446,120 111,667,069 - 121,113,189
================================= =========== ============= ========== =============
The Investment Manager manages the Group's liquidity risk by
investing primarily in a diverse portfolio of assets. At 31
December 2020, the Group had investments in 43 Portfolio Companies
(31 December 2019: 35 Portfolio Companies). At 31 December 2020,
15% of the loans had a stated maturity date of less than a year (31
December 2019: 5%).
The Group and Parent Company continuously monitor for
fluctuation in currency rates. The Parent Company performs stress
tests and liquidity projections to determine how much cash should
be held back to meet potential future to obligations to settle
margin calls arising from foreign exchange hedging.
As at 31 December 2020, GBP48.6 million (GBP53.7 million as at
31 December 2019) of the Group's liabilities relating to principal
and interest payments are tied directly to the performance of
investment assets that mature on or near the same date as the
investment liability. The amounts above represent the values as at
31 December 2020 and do not project cash flows until maturity of
the investment liabilities. The Group's Pacific Western Bank
gearing facility has a stated maturity date of 30 November 2022. In
accordance with IFRS 7 paragraph 39, the Group has projected cash
interest payments of GBP2,967,057 which is calculated using the
amount outstanding and interest rate as at 31 December 2020 and
does not factor in any future paydowns, draws or changes in
interest and foreign exchange rates before the maturity date on 30
November 2022. Subsequent to the reporting date, the Pacific
Western Bank gearing facility was replaced with a new facility with
Massachusetts Mutual Life Insurance Company ("MassMutual"). Refer
to Note 20.
Credit risk
Credit risk is the risk that one party to a financial instrument
will cause a financial loss for the other party by failing to
discharge an obligation.
The Group's credit risks arise principally through exposures to
loans acquired by the Group, which are subject to risk of borrower
default. The ability of the Group to earn revenue is completely
dependent upon payments being made by the borrower, such as adverse
movements in investment markets.
The Group will invest across various Portfolio Companies, asset
classes, geographies (primarily United States, United Kingdom,
Europe and Latin America) and credit bands in order to ensure
diversification and to seek to mitigate concentration risks.
Under the Balance Sheet Model, the Group provides a floating
rate credit facility to the portfolio company via an SPV, which
retains Debt Instruments that are originated by the portfolio
company. The debt financing is typically arranged in the form of a
senior secured facility and the portfolio company injects junior
capital in the SPV, which provides significant first loss
protection to the Group and excess spread, which provides downside
protection versus marketplace loans. The Group's balance sheet
investments are loans to SPVs that are capitalised and actively
managed by the portfolio companies in their capacity as both the
owner and managing partner of the SPVs and the SPVs are not
considered structured entities under IFRS 12. Refer to pages 25 and
26 for further details on the structuring of the lending
investments of the Group.
There are no loans past due which are not impaired. Refer to
Note 9.
Credit quality
The credit quality of loans is assessed through the evaluation
of various factors, including (but not limited to) credit scores,
payment data, collateral and other information. Set out below is
the analysis of the Group's loan investments by grade and
geography:
TOTAL
UNSECURED SECURED UNSECURED SECURED 31 DECEMBER
INTERNAL GRADE UNITED STATES UNITED STATES OTHER OTHER 2020
================ =============== =============== ============ ============ =============
Stage 1
================ =============== =============== ============ ============ =============
A - 1 74,236,825 - 11,314,738 - 85,551,563
================ =============== =============== ============ ============ =============
A - 2 87,553,399 54,231,359 51,911,693 39,332 193,735,783
================ =============== =============== ============ ============ =============
B 6,351,182 - - 117,371 6,468,553
================ =============== =============== ============ ============ =============
C - - 3,675,243 8,326 3,683,569
Total 168,141,406 54,231,359 66,901,674 165,029 289,439,468
================ =============== =============== ============ ============ =============
Stage 2
================ =============== =============== ============ ============ =============
A - 1 - - - - -
================ =============== =============== ============ ============ =============
A - 2 - - - 6,163 6,163
================ =============== =============== ============ ============ =============
B - - - 20,251 20,251
================ =============== =============== ============ ============ =============
C - - - - -
Total - - - 26,414 26,414
================ =============== =============== ============ ============ =============
Stage 3
================ =============== =============== ============ ============ =============
A - 1 - - - - -
================ =============== =============== ============ ============ =============
A - 2 - - - 11,537 11,537
================ =============== =============== ============ ============ =============
B - 83,773 - 86,622 170,395
================ =============== =============== ============ ============ =============
C - - - 11,964,724 11,964,724
Total - 83,773 - 12,062,883 12,146,656
================ =============== =============== ============ ============ =============
TOTAL
UNSECURED SECURED UNSECURED SECURED 31 DECEMBER
INTERNAL GRADE UNITED STATES UNITED STATES OTHER OTHER 2019
================ =============== =============== ============ ============ =============
Stage 1
================ =============== =============== ============ ============ =============
A - 1 95,688,465 - 8,415,297 - 104,103,762
================ =============== =============== ============ ============ =============
A - 2 121,182,632 28,765,877 73,104,331 306,490 223,359,330
================ =============== =============== ============ ============ =============
B 6,137,116 - - 1,050,761 7,187,877
================ =============== =============== ============ ============ =============
C 31,140 - - 134,880 166,020
Total 223,039,353 28,765,877 81,519,628 1,492,131 334,816,989
================ =============== =============== ============ ============ =============
Stage 2
================ =============== =============== ============ ============ =============
A - 1 - - - - -
================ =============== =============== ============ ============ =============
A - 2 700 - - - 700
================ =============== =============== ============ ============ =============
B 6,898 - 11,595,317 15,368,441 26,970,656
================ =============== =============== ============ ============ =============
C - - - 45,064 45,064
Total 7,598 - 11,595,317 15,413,505 27,016,420
================ =============== =============== ============ ============ =============
Stage 3
================ =============== =============== ============ ============ =============
A - 1 - - - - -
================ =============== =============== ============ ============ =============
A - 2 - - - 115,709 115,709
================ =============== =============== ============ ============ =============
B - 254,732 - 278,643 533,375
================ =============== =============== ============ ============ =============
C - - - 59,999 59,999
Total - 254,732 - 454,351 709,083
================ =============== =============== ============ ============ =============
INTERNAL GRADE DEFINITION
================ =============== =============== ============ ============ =============
Balance sheet loans structured with credit enhancement and
A - 1 strong operating liquidity positions
High credit quality borrowers or balance sheet loans structured
A - 2 with credit enhancement
B High credit quality borrowers with some indicators
of credit risk or balance sheet loans with limited
structural credit enhancement
Borrowers with elevated levels of
C credit risk
================ ============================================== ============ =============
The following investment limits and restrictions shall apply to
the Group, to ensure that the diversification of the Group's
portfolio is maintained, and that concentration risk is
limited:
Portfolio Company restrictions
The Group does not intend to invest more than 20% of its Gross
Assets in Debt Instruments (net of any gearing ring-fenced within
any special purpose vehicle which would be without recourse to the
Group), originated by, and/or Credit Facilities and equity
instruments in, any single Portfolio Company, calculated at the
time of investment. All such aggregate exposure to any single
Portfolio Company (including investments via a special purpose
vehicle) will always be subject to an absolute maximum, calculated
at the time of investment, of 25% of the Group's Gross Assets.
Asset class restrictions
The Group does not intend to acquire Debt Instruments for a term
longer than five years. The Group will not invest more than 20% of
its Gross Assets, at the time of investment, via any single
investment fund investing in Debt Instruments and Credit
Facilities. In any event, the Group will not invest, in aggregate,
more than 60% of its Gross Assets, at the time of investment, in
investment funds that invest in Debt Instruments and Credit
Facilities.
The Group will not invest more than 10% of its Gross Assets, at
the time of investment, in other listed closed-ended investment
funds, whether managed by the Investment Manager or not, except
that this restriction shall not apply to investments in listed
closed-ended investment funds which themselves have stated
investment policies to invest no more than 15% of their gross
assets in other listed closed-ended investment funds.
The following restrictions apply, in each case at the time of
investment by the Group, to both Debt Instruments acquired by the
Group via wholly owned special purpose vehicles or partially-owned
special purpose vehicles on a proportionate basis under the
Marketplace Model, as well as on a look-through basis under the
Balance Sheet Model and to any Debt Instruments held by another
investment fund in which the Group invests:
No single consumer loan acquired by the Group shall exceed 0.25%
of its Gross Assets.
No single SME loan acquired by the Group shall exceed 5.0% of
its Gross Assets. For the avoidance of doubt, Credit Facilities
entered into directly with Platforms are not considered SME
loans.
No single trade receivable asset acquired by the Group shall
exceed 5.0% of its Gross Assets.
Other restrictions
The Group's un-invested or surplus capital or assets may be
invested in Cash Instruments for cash management purposes and with
a view to enhancing returns to Shareholders or mitigating credit
exposure.
Maximum credit exposure
The carrying value of the Group's loan investments represents
the maximum credit exposure of the Group.
7. CASH AND CASH EQUIVALENTS
GROUP GROUP PARENT COMPANY PARENT COMPANY
31 DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER
2020 2019 2020 2019
GBP GBP GBP GBP
=================== ============ ============ ============================ ============================
Cash held at bank 6,416,028 6,131,122 4,738,217 3,970,690
Total 6,416,028 6,131,122 4,738,217 3,970,690
=================== ============ ============ ============================ ============================
The Parent Company has posted cash of GBP1,140,000 of collateral
as at 31 December 2019 (31 December 2019: GBP980,000) with Goldman
Sachs and cash of GBPnil (31 December 2019: GBPnil) with Morgan
Stanley in relation to the outstanding derivatives.
Below are the credit ratings of the banks where the Parent
Company and Group hold cash as at 31 December 2020 from
Moody's:
Bank Rating
===================== =======
Northern Trust A2
===================== =======
Goldman Sachs A2
===================== =======
Morgan Stanley A1
===================== =======
US Bank A1
===================== =======
Pacific Western Bank A2
===================== =======
Wells Fargo A2
--------------------- -------
8. NOTES PAYABLE
The Group entered into contractual obligations with third
parties to structurally subordinate a portion of the principal
directly attributable to existing investments. The cash flows
received by the Group from the underlying investments are used to
pay the lender principal, interest, and draw fees based upon the
stated terms of the Credit Facility. Unless due to a fraudulent
act, as defined by the Credit Facilities, none of the Group's other
investment assets can be used to satisfy the obligations of the
Credit Facilities in the event that those obligations cannot be met
by the subsidiaries. Each subsidiary with a Credit Facility is a
bankruptcy remote entity.
The table below provides details of the outstanding debt of the
Group at 31 December 2020:
OUTSTANDING
INTEREST PRINCIPAL
31 DECEMBER 2020 RATE GBP MATURITY
========================= ================== ============ ============
37,534,297 30 November
Credit Facility 11-2018 4.25% + 1M LIBOR 2022
========================= ================== ============ ============
Total 37,534,297
============================================= ============ ============
The table below provides details of the outstanding debt of the
Group at 31 December 2019:
OUTSTANDING
INTEREST PRINCIPAL
31 DECEMBER 2019 RATE GBP MATURITY
========================= ================== ============ ============
58,010,424 30 November
Credit Facility 11-2018 4.25% + 1M LIBOR 2022
========================= ================== ============ ============
Total 58,010,424
============================================= ============ ============
The Group entered into contractual obligations with a third
party to structurally subordinate a portion of principal directly
attributable to an existing loan facility. The Group is obligated
to pay a commitment fee and interest to the third party on the
obligation as interest is paid on the underlying loan facility. In
the event of a default on the loan facility, the third party has
first-out participation rights on the accrued and unpaid interest
as well as the principal balance of the note.
The table below provides details of the outstanding first-out
participation liabilities of the Group at 31 December 2020:
OUTSTANDING
PRINCIPAL
31 DECEMBER 2020 GBP MATURITY
--------------------------------- ------------ -------------
First-Out Participation 06-2015 10,109,810 13 June 2021
================================= ============ =============
First-Out Participation 03-2017 20,446,931 1 January
2024
================================= ============ =============
17,996,145 1 January
First-Out Participation 04-2019 2024
================================= ============ =============
Total 48,552,886
================================== ============ =============
The table below provides details of the outstanding first-out
participation liabilities of the Group at 31 December 2019:
OUTSTANDING
PRINCIPAL
31 DECEMBER 2019 GBP MATURITY
--------------------------------- ------------ -------------
First-Out Participation 06-2015 10,437,029 13 June 2021
================================= ============ =============
First-Out Participation 03-2017 22,173,162 1 January
2024
================================= ============ =============
21,046,454 1 January
First-Out Participation 04-2019 2024
================================= ============ =============
Total 53,656,645
================================== ============ =============
The table below provides the movement of the notes payable and
securities sold under agreements to repurchase for the year ended
31 December 2020 for the Group.
NOTES
PAYABLE
GBP
=============================================== =============
Beginning balance, 1 January
2020 111,667,069
================================================ =============
Purchases 40,758,337
================================================== =============
Sales (64,260,865)
================================================== =============
Net change in unrealised foreign exchange
gains (losses) (2,077,358)
================================================= =============
Ending balance, 31 December
2020 86,087,183
================================================ =============
The table below provides the movement of the notes payable and
securities sold under agreements to repurchase for the year ended
31 December 2019 for the Group.
SECURITIES SOLD
UNDER AGREEMENTS NOTES
TO REPURCHASE PAYABLE
GBP GBP
============================================== ================================== ============================
Beginning balance, 1 January
2019 1,341,981 51,329,831
=============================================== ================================== ============================
Purchases - 152,218,925
================================================ ================================== ============================
Sales (1,335,644) (87,293,547)
================================================ ================================== ============================
Net change in unrealised foreign exchange
gains (losses) (6,337) (4,588,140)
================================================ ================================== ============================
Ending balance, 31 December
2019 - 111,667,069
=============================================== ================================== ============================
9. IMPAIRMENT OF FINANCIAL ASSETS AT AMORTISED COST
The table below provides details of the investments at amortised
cost held by the Group for the year ended 31 December 2020 under
IFRS 9:
COST BEFORE LOANS CARRYING
ECL ECL WRITTEN-OFF VALUE
GBP GBP GBP GBP
==================== ============= =========== ============ =============
Loans at amortised
cost 303,128,410 8,489,159 1,515,872 293,123,379
Total 303,128,410 8,489,159 1,515,872 293,123,379
==================== ============= =========== ============ =============
The table below provides details of the investments at amortised
cost held by the Group for the year ended 31 December 2019 under
IFRS 9:
COST BEFORE LOANS CARRYING
ECL ECL WRITTEN-OFF VALUE
GBP GBP GBP GBP
=================== ============ ================================= ================================== ============
Loans at amortised
cost 362,966,569 9,631,612 424,077 352,910,880
Total 362,966,569 9,631,612 424,077 352,910,880
=================== ============ ================================= ================================== ============
The Parent Company does not hold any loans.
Credit impairment losses
The credit impairment losses of the Group as at 31 December 2020
comprises of the following under IFRS 9:
CREDIT IMPAIRMENT
LOSSES
31 DECEMBER 2020
GBP
================================================ ==================
Loans written off 1,515,872
================================================ ==================
Change in expected credit losses (1,142,453)
================================================ ==================
Currency translation on expected credit losses (260,869)
================================================ ==================
Credit impairment losses 112,550
================================================ ==================
The impairment charge of the Group as at 31 December 2019
comprises of the following under IFRS 9:
CREDIT IMPAIRMENT
LOSSES
31 DECEMBER 2019
GBP
================================================ ============================================
Loans written off 424,077
================================================ ============================================
Change in expected credit losses 2,372,182
================================================ ============================================
Currency translation on expected credit losses (393,963)
================================================ ============================================
Credit impairment losses 2,402,296
================================================ ============================================
Impairment of loans written off
Impairment charges of loans written off of GBP1,515,872 (31
December 2019: GBP424,077) have been recorded in the Group's
Consolidated Statement of Financial Position and are included in
Credit impairment losses on the Consolidated Statement of
Comprehensive Income.
Provision for expected credit losses
As at 31 December 2020, the Group has created a reserve
provision on the outstanding principal of the Group's loans of
GBP8,489,159 (31 December 2019: GBP9,631,612), which have been
recorded in the Group's Consolidated Statement of Financial
Position and are included in Credit impairment losses on the
Consolidated Statement of Comprehensive Income.
The expected credit losses comprised the following during
2020:
31 DECEMBER 2020
GBP
================================================ =================
Beginning balance 1 January 2020 9,631,612
================================================ =================
Change in expected credit losses or equivalent (1,142,453)
================================================ =================
Ending balance 31 December 2020 8,489,159
================================================ =================
The expected credit losses comprised the following during
2019:
31 DECEMBER 2019
GBP
================================================ ============================================
Beginning balance 1 January 2019 7,259,430
================================================ ============================================
Change in expected credit losses or equivalent 2,372,182
================================================ ============================================
Ending balance 31 December 2019 9,631,612
================================================ ============================================
Below is a breakout of the provision for expected credit losses
by stage of the ECL model as at 31 December 2020:
31 DECEMBER
UNSECURED SECURED UNSECURED SECURED 2020
UNITED STATES UNITED STATES OTHER OTHER GBP
================ ================ ========== =========== ============
Stage 1 - - - 61,040 61,040
================= ================ ================ ========== =========== ============
Stage 2 - - 500,000 24,804 524,804
================= ================ ================ ========== =========== ============
Stage 3 - - - 7,903,315 7,903,315
Expected credit
losses - - 500,000 7,989,159 8,489,159
================= ================ ================ ========== =========== ============
Below is a breakout of the provision for expected credit losses
by stage of the ECL model as at 31 December 2019:
31 DECEMBER
UNSECURED SECURED UNSECURED SECURED 2019
UNITED STATES UNITED STATES OTHER OTHER GBP
=============== =============== ========== =========== ============
Stage 1 11,778 - - 209,334 221,112
================= =============== =============== ========== =========== ============
Stage 2 7,598 - 821,497 8,127,054 8,956,149
================= =============== =============== ========== =========== ============
Stage 3 - - - 454,351 454,351
Expected credit
losses 19,376 - 821,497 8,790,739 9,631,612
================= =============== =============== ========== =========== ============
Below is a breakout of the carrying value of loans by stage of
the ECL model as at 31 December 2020. There were no material
movements between stages or any changes to ECL due to originations
or modifications during 2020. All write-offs during the year were
on assets that were considered Stage 3:
31 DECEMBER
UNSECURED SECURED UNSECURED SECURED 2020
UNITED STATES UNITED STATES OTHER OTHER GBP
=============== =============== ============ =========== =============
Stage 1 168,141,406 54,231,359 63,226,430 103,989 285,703,184
==================== =============== =============== ============ =========== =============
Stage 2 - - 3,175,244 1,610 3,176,854
==================== =============== =============== ============ =========== =============
Stage 3 - 83,773 - 4,159,568 4,243,341
Loans at amortised
cost 168,141,406 54,315,132 66,401,674 4,265,167 293,123,379
==================== =============== =============== ============ =========== =============
Below is a breakout of the carrying value of loans by stage of
the ECL model as at 31 December 2019. There were no material
movements between stages during 2019:
31 DECEMBER
UNSECURED SECURED UNSECURED SECURED 2019
UNITED STATES UNITED STATES OTHER OTHER GBP
=============== =============== ============ ================================== =============
Stage 1 223,027,575 28,765,877 81,519,628 1,282,797 334,595,877
=================== =============== =============== ============ ================================== =============
Stage 2 - - 10,773,820 7,286,451 18,060,271
=================== =============== =============== ============ ================================== =============
Stage 3 - 254,732 - - 254,732
Loans at amortised
cost 223,027,575 29,020,609 92,293,448 8,569,248 352,910,880
=================== =============== =============== ============ ================================== =============
10. FEES AND EXPENSES
Investment management fees
Under the terms of the Management Agreement, the Investment
Manager is entitled to a management fee and a performance fee
together with reimbursement of reasonable expenses incurred by it
in the performance of its duties.
The management fee is payable in Pound Sterling monthly in
arrears and is at the rate of 1/12 of 1.0% per month of NAV (the
"Management Fee"). For the period from Admission until the date on
which 90% of the net proceeds of the Issue have been invested or
committed for investment (other than in Cash Instruments), the
value attributable to any Cash Instruments of the Group held for
investment purposes will be excluded from the calculation of NAV
for the purposes of determining the Management Fee.
The Investment Manager shall not charge a management fee twice.
Accordingly, if at any time the Group invests in or through any
other investment fund or special purpose vehicle and a management
fee or advisory fee is charged to such investment fund or special
purpose vehicle by the Investment Manager or any of its affiliates,
the Investment Manager agrees to either (at the option of the
Investment Manager): (i) waive such management fee or advisory fee
due to the Investment Manager or any of its affiliates in respect
of such investment fund or special purpose vehicle, other than the
fees charged by the Investment Manager under the Management
Agreement; or (ii) charge the relevant fee to the relevant
investment fund or special purpose vehicle, subject to the cap set
out in the paragraph below, and ensure that the value of such
investment shall be excluded from the calculation of the NAV for
the purposes of determining the Management Fee payable pursuant to
the above. The management fee expense for the year is GBP3,394,740
(31 December 2019: GBP3,604,121), of which GBP92,241 (31 December
2019: GBP143,415) was payable as at 31 December 2020.
Notwithstanding the above, where such investment fund or special
purpose vehicle employs gearing from third parties and the
Investment Manager or any of its affiliates is entitled to charge
it a fee based on gross assets in respect of such investment, the
Investment Manager may not charge a fee greater than 1.0% per annum
of gross assets in respect of any investment made by the Parent
Company or any member of the Group.
Performance fees
The performance fee is calculated by reference to the movements
in the Adjusted Net Asset Value since the end of the Calculation
Period in respect of which a performance fee was last earned or
Admission if no performance fee has yet been earned. The payment of
any performance fees to the Investment Manager will be conditional
on the Parent Company achieving at least a 5.0% per annum total
return for shareholders relative to a 30 April 2017 High Water
Mark.
The performance fee will be calculated in respect of each 12
month period starting on 1 January and ending on 31 December in
each calendar year (a "Calculation Period") and provided further
that if at the end of what would otherwise be a Calculation Period
no performance fee has been earned in respect of that period, the
Calculation Period shall carry on for the next 12 month period and
shall be deemed to be the same Calculation Period and this process
shall continue until a performance fee is next earned at the end of
the relevant period.
The performance fee will be equal to the lower of (i) in each
case as at the end of the Calculation Period, an amount equal to
(a) Adjusted Net Asset Value minus the Adjusted Hurdle Value, minus
(b) the aggregate of all Performance Fees paid to the Manager in
respect of all previous Calculation Periods; and (ii) the amount by
which (a) 15% of the total increase in the Adjusted Net Asset Value
since the Net Asset Value as at 30 April 2017 (being the aggregate
of the increase in the Adjusted Net Asset Value in the relevant
Calculation Period and in each previous Calculation Period) exceeds
(b) the aggregate of all Performance Fees paid to the Manager in
respect of all previous Calculation Periods. In the foregoing
calculation, the Adjusted Net Asset Value will be adjusted for any
increases or decreases in the Net Asset Value attributable to the
issue or repurchase of any Ordinary Shares in order to calculate
the total increase in the Net Asset Value attributable to the
performance of the Parent Company.
"Adjusted Net Asset Value" means the Net Asset Value plus (a)
the aggregate amount of any dividends paid or distributions made in
respect of any Ordinary Shares and (b) the aggregate amount of any
dividends or distributions accrued but unpaid in respect of any
Ordinary Shares, plus the amount of any Performance Fees both paid
and accrued but unpaid, in each case after the Effective Date and
without duplication. "Adjusted Hurdle Value" means the Net Asset
Value as at 30 April 2017 adjusted for any increases or decreases
in the Net Asset Value attributable to the issue or repurchase of
any Ordinary Shares increasing at an uncompounded rate equal to the
Hurdle. The "Hurdle" means a 5% per annum total return for
shareholders.
The Investment Manager shall not charge a performance fee twice.
Accordingly, if at any time the Group invests in or through any
other investment fund, special purpose vehicle or managed account
arrangement and a performance fee or carried interest is charged to
such investment fund, special purpose vehicle or managed account
arrangement by the Investment Manager or any of its affiliates, the
Investment Manager agrees to (and shall procure that all of its
relevant affiliates shall) either (at the option of the Investment
Manager): (i) waive such performance fee or carried interest
suffered by the Group by virtue of the Investment Manager's (or
such relevant affiliate's/affiliates') management of (or advisory
role in respect of) such investment fund, special purpose vehicle
or managed account, other than the fees charged by the Investment
Manager under the Management Agreement; or (ii) calculate the
performance fee as above, except that in making such calculation
the NAV (as of the date of the High Water Mark) and the Adjusted
NAV (as of the NAV calculation date) shall not include the value of
any assets invested in any other investment fund, special purpose
vehicle or managed account arrangement that is charged a
performance fee or carried interest by the Investment Manager or
any of its affiliates (and such performance fee or carried interest
is not waived with respect to the Group).The performance fee
expense for the year is GBP4,040,085 (31 December 2019:
GBP7,411,745), of which GBP4,040,085 was payable as at 31 December
2020 (31 December 2019: GBP7,410,614).
Administration
The Group has entered into an administration agreement with
Northern Trust Hedge Fund Services LLC. The Group pays to the
Administrator an annual administration fee based on the Parent
Company's net assets subject to a monthly minimum charge.
The Administrator shall also be entitled to be repaid all its
reasonable out-of-pocket expenses incurred on behalf of the Group.
All Administrator fees are included in other expenses on the
Consolidated Statement of Comprehensive Income.
Secretary
Under the terms of the Company Secretarial Agreement, Link Group
is entitled to an annual fee of GBP75,000 (exclusive of VAT and
disbursements). All Secretary fees are included in other expenses
on the Consolidated Statement of Comprehensive Income.
Registrar
Under the terms of the Registrar Agreement, the Registrar is
entitled to an annual maintenance fee of GBP1.25 per Shareholder
account per annum, subject to a minimum fee of GBP2,500 per annum
(exclusive of VAT). All Registrar fees are included in other
expenses on the Consolidated Statement of Comprehensive Income.
Custodian
Under the terms of the Custodian Agreement, Merrill Lynch,
Pierce, Fenner & Smith Incorporated is entitled to be paid a
fee of between US$180 and US$500 per annum per holding of
securities in an entity. In addition, the Custodian is entitled to
be paid fees up to US$300 per account per annum and other
incidental fees. All Custodian fees are included in other expenses
on the Consolidated Statement of Comprehensive Income.
Auditors' remuneration
For the year ended 31 December 2020, the remuneration for work
carried out by PricewaterhouseCoopers LLP, the statutory auditors,
was as follows:
31 DECEMBER 31 DECEMBER
2020 2019
GBP GBP
=========================================================== ============ ============
Fees charged by PricewaterhouseCoopers LLP:
=========================================================== ============ ============
the audit of the Parent Company and Consolidated
Financial Statements; and 245,000 175,000
=========================================================== ============ ============
the audit of the Company's subsidiaries. 13,000 20,000
----------------------------------------------------------- ------------ ------------
Amounts are included in other expenses on the Consolidated
Statement of Comprehensive Income and are exclusive of VAT. There
were no non-audit services provided by PricewaterhouseCoopers LLP
during the year.
11. TAXATION ON ORDINARY ACTIVITIES
Investment trust status
It is the intention of the Directors to conduct the affairs of
the Group so as to satisfy the conditions for approval as an
investment trust under section 1158 of the Corporation Taxes Act
2010. As an investment trust the Parent Company is exempt from
corporation tax on capital gains made on investments. Although
interest income received would ordinarily be subject to corporation
tax, the Parent Company will receive relief from corporation tax
relief to the extent that interest distributions are made to
shareholders. It is the intention of the Parent Company to make
sufficient interest distributions so that no corporation tax
liability will arise in the Parent Company.
Any change in the Group's tax status or in taxation legislation
generally could affect the value of the investments held by the
Group, affect the Group's ability to provide returns to
Shareholders, lead to the loss of investment trust status or alter
the post-tax returns to Shareholders.
The following table presents the tax chargeable on the Group for
the period ended 31 December 2020:
REVENUE CAPITAL TOTAL
=============================== =========================== =========================== ===========================
Net return on ordinary
activities before
taxation 23,898,852 (944,173) 22,954,679
=============================== =========================== =========================== ===========================
Tax at the standard UK
corporation tax
rate of 19.00% 4,540,782 (179,393) 4,361,389
=============================== =========================== =========================== ===========================
Effects of:
=============================== =========================== =========================== ===========================
Non-taxable income (4,540,782) - (4,540,782)
=============================== =========================== =========================== ===========================
Capital items exempt from
corporation
tax - 179,393 179,393
=============================== =========================== =========================== ===========================
Total tax charge - - -
=============================== =========================== =========================== ===========================
The following table presents the tax chargeable on the Group for
the period ended 31 December 2019:
REVENUE CAPITAL TOTAL
=============================== =========================== =========================== ===========================
Net return on ordinary
activities before
taxation 27,054,994 (1,411,818) 25,643,176
=============================== =========================== =========================== ===========================
Tax at the standard UK
corporation tax
rate of 19.00% 5,140,449 (268,245) 4,872,204
=============================== =========================== =========================== ===========================
Effects of:
=============================== =========================== =========================== ===========================
Non-taxable income (5,140,449) - (5,140,449)
=============================== =========================== =========================== ===========================
Capital items exempt from
corporation
tax - 268,245 268,245
=============================== =========================== =========================== ===========================
Total tax charge - - -
=============================== =========================== =========================== ===========================
Overseas taxation
The Parent Company and Group may be subject to taxation under
the tax rules of the jurisdictions in which they invest, including
by way of withholding of tax from interest and other income
receipts. Although the Parent Company and Group will endeavour to
minimise any such taxes this may affect the level of returns to
Shareholders of the Parent Company.
12. NET ASSET VALUE PER ORDINARY SHARE
AS AT AS AT
31 DECEMBER 2020 31 DECEMBER 2019
GBP GBP
----------------------------------------- ----------------- -----------------
Net assets attributable to Shareholders
of the Parent Company 270,537,108 291,479,251
========================================= ================= =================
Ordinary Shares in issue (excluding
Treasury Shares) 282,647,364 312,302,305
========================================= ================= =================
Net asset value per Ordinary Share 95.72 93.33p
========================================= ================= =================
13. RETURN PER ORDINARY SHARE
Basic earnings per share is calculated using the weighted
average number of shares in issue during the year, excluding the
average number of Ordinary Shares purchased by the Parent Company
and held as Treasury Shares.
31 DECEMBER 2020 31 DECEMBER 2019
GBP GBP
---------------------------------------- ----------------- -----------------
Profit for the year 22,879,629 25,463,975
======================================== ================= =================
Average number of Ordinary Shares in
issue during the year 295,430,078 333,677,105
======================================== ================= =================
Earnings per Share (basic and diluted) 7.74p 7.63p
======================================== ================= =================
The Parent Company has not issued any shares or other
instruments that are considered to have dilutive potential.
14. SHAREHOLDERS' CAPITAL
Set out below is the issued share capital of the Company as at
31 December 2020. All shares issued are fully paid with none not
fully paid:
NOMINAL
VALUE NUMBER
GBP OF SHARES
================= ======== ============
Ordinary Shares 0.01 282,647,364
Set out below is the issued share capital of the Company as at
31 December 2019. All shares issued are fully paid with none not
fully paid:
NOMINAL
VALUE NUMBER
GBP OF SHARES
================= ======== ============
Ordinary Shares 0.01 312,302,305
Rights attaching to the Ordinary Shares
The holders of the Ordinary Shares are entitled to receive, and
to participate in, any dividends declared in relation to the
Ordinary Shares. The holders of the Ordinary Shares shall be
entitled to all the Parent Company's remaining net assets after
taking into account any net assets attributable to other share
classes in issue. The Shares shall carry the right to receive
notice of, attend and vote at general meetings of the Parent
Company. The consent of the holders of Shares will be required for
the variation of any rights attached to the Ordinary Shares. The
net return per Ordinary Share is calculated by dividing the net
return on ordinary activities after taxation by the number of
shares in issue.
Voting rights
Subject to any rights or restrictions attached to any shares, on
a show of hands every shareholder present in person has one vote
and every proxy present who has been duly appointed by a
shareholder entitled to vote has one vote, and on a poll, every
shareholder (whether present in person or by proxy) has one vote
for every share of which he is the holder. A shareholder entitled
to more than one vote need not, if he votes, use all his votes or
cast all the votes he uses the same way. In the case of joint
holders, the vote of the senior who tenders a vote shall be
accepted to the exclusion of the vote of the other joint holders,
and seniority shall be determined by the order in which the names
of the holders stand in the Register.
No shareholder shall have any right to vote at any general
meeting or at any separate meeting of the holders of any class of
shares, either in person or by proxy, in respect of any share held
by him unless all amounts presently payable by him in respect of
that share have been paid.
Variation of Rights & Distribution on Winding Up
Subject to the provisions of the Act as amended and every other
statute for the time being in force concerning companies and
affecting the Parent Company (the "Statutes"), if at any time the
share capital of the Parent Company is divided into different
classes of shares, the rights attached to any class may be varied
either with the consent in writing of the holders of three-quarters
in nominal value of the issued shares of that class or with the
sanction of an extraordinary resolution passed at a separate
meeting of the holders of the shares of that class (but not
otherwise) and may be so varied either whilst the Parent Company is
a going concern or during or in contemplation of a winding-up.
At every such separate general meeting the necessary quorum
shall be at least two persons holding or representing by proxy at
least one-third in nominal value of the issued shares of the class
in question (but at any adjourned meeting any holder of shares of
the class present in person or by proxy shall be a quorum), any
holder of shares of the class present in person or by proxy may
demand a poll and every such holder shall on a poll have one vote
for every share of the class held by him. Where the rights of some
only of the shares of any class are to be varied, the foregoing
provisions apply as if each group of shares of the class
differently treated formed a separate class whose rights are to be
varied.
The Parent Company has no fixed life but, pursuant to the
Articles, an ordinary resolution for the continuation of the Parent
Company will be proposed at the annual general meeting of the
Parent Company to be held in 2025 and, if passed, every five years
thereafter. Upon any such resolution, not being passed, proposals
will be put forward within three months after the date of the
resolution to the effect that the Parent Company be wound up,
liquidated, reconstructed or unitised.
If the Parent Company is wound up, the liquidator may divide
among the shareholders in specie the whole or any part of the
assets of the Parent Company and for that purpose may value any
assets and determine how the division shall be carried out as
between the shareholders or different classes of shareholders.
The table below shows the movement in shares through 31 December
2020:
SHARES IN SHARES IN
ISSUE AT ISSUE AT
THE THE
FOR THE YEAR FROM 1 JANUARY 2020 BEGINNING SHARES OF
OF
TO 31 DECEMBER 2020 THE PERIOD REPURCHASED THE PERIOD
================================== ============ ============== =============
Ordinary Shares 312,302,305 (29,654,941) 282,647,364
================================== ============ ============== =============
The table below shows the movement in shares through 31 December
2019:
SHARES IN SHARES IN
ISSUE AT ISSUE AT
THE THE
FOR THE YEAR FROM 1 JANUARY 2019 BEGINNING SHARES OF
OF
TO 31 DECEMBER 2019 THE PERIOD REPURCHASED THE PERIOD
================================== ============ ============== =============
Ordinary Shares 360,110,883 (47,808,578) 312,302,305
================================== ============ ============== =============
Share buyback programme
All Ordinary Shares bought back through the share buyback
programme are held in treasury as at 31 December 2020. Details of
the programme are as follows:
ORDINARY AVERAGE LOWEST HIGHEST TOTAL
SHARES PRICE PER PRICE PER PRICE PER TREASURY
DATE OF PURCHASE PURCHASED SHARE SHARE SHARE SHARES
================== ============ ========== ========== ========== ============
January 2020 1,824,187 80.52p 78.64p 81.00p 72,137,547
================== ============ ========== ========== ========== ============
February 2020 1,153,000 81.30p 78.10p 82.29p 73,290,547
================== ============ ========== ========== ========== ============
March 2020 3,513,837 62.26p 54.97p 80.00p 76,804,384
================== ============ ========== ========== ========== ============
April 2020 - 0.00p 0.00p 0.00p 76,804,384
================== ============ ========== ========== ========== ============
May 2020 4,259,700 61.57p 58.44p 62.83p 81,064,084
================== ============ ========== ========== ========== ============
June 2020 11,515,569 69.18p 66.60p 71.50p 92,579,653
================== ============ ========== ========== ========== ============
July 2020 3,636,867 65.19p 63.03p 67.00p 96,216,520
================== ============ ========== ========== ========== ============
August 2020 1,000,000 64.60p 63.00p 65.00p 97,216,520
================== ============ ========== ========== ========== ============
September 2020 1,547,589 64.02p 62.80p 65.38p 98,764,109
================== ============ ========== ========== ========== ============
October 2020 - 0.00p 0.00p 0.00p 98,764,109
================== ============ ========== ========== ========== ============
November 2020 725,000 65.98p 65.92p 66.00p 99,489,109
================== ============ ========== ========== ========== ============
December 2020 479,192 73.26p 73.05p 73.55p 99,968,301
================== ============ ========== ========== ========== ============
Details of the share buyback program during the year ended 31
December 2019 as follows:
ORDINARY AVERAGE LOWEST HIGHEST TOTAL
SHARES PRICE PER PRICE PER PRICE PER TREASURY
DATE OF PURCHASE PURCHASED SHARE SHARE SHARE SHARES
================== ============ ========== ========== ========== ============
January 2019 3,122,218 76.96p 76.80p 77.00p 25,627,000
================== ============ ========== ========== ========== ============
February 2019 1,375,000 77.43p 77.25p 77.50p 27,002,000
================== ============ ========== ========== ========== ============
March 2019 5,825,000 74.39p 72.80p 77.00p 32,827,000
================== ============ ========== ========== ========== ============
April 2019 9,549,811 71.53p 71.50p 72.00p 42,376,811
================== ============ ========== ========== ========== ============
May 2019 - - - - 42,376,811
================== ============ ========== ========== ========== ============
June 2019 15,009,212 68.35p 66.80p 72.00p 57,386,023
================== ============ ========== ========== ========== ============
July 2019 825,583 74.66p 72.60p 76.80p 58,211,606
================== ============ ========== ========== ========== ============
August 2019 1,397,269 76.49p 74.90p 78.00p 59,608,875
================== ============ ========== ========== ========== ============
September 2019 1,823,404 79.15p 75.75p 80.39p 61,432,279
================== ============ ========== ========== ========== ============
October 2019 6,100,000 76.26p 75.20p 79.40p 67,532,279
================== ============ ========== ========== ========== ============
November 2019 1,470,169 77.14p 75.98p 78.08p 69,002,448
================== ============ ========== ========== ========== ============
December 2019 1,310,912 76.38p 75.88p 77.53p 70,313,360
================== ============ ========== ========== ========== ============
Other distributable reserve
During 2020, the Company declared and paid dividends of GBPNil
(2019: GBPNil) from the other distributable reserve. Further, the
cost of the buyback of Ordinary Shares as detailed above was funded
by the other distributable reserve of GBP20,161,216 (2019:
GBP35,049,382). The closing balance in the other distributable
reserve has been reduced to GBP116,520,960 (31 December 2019:
GBP136,682,176).
15. DIVIDS PER SHARE
The following table summarises the amounts recognised as
distributions to equity shareholders in the period:
31 DECEMBER 31 DECEMBER
2020 2019
GBP GBP
================================================== ============ ============
2018 interim dividend of 2.00 pence per Ordinary
Share paid on 4 April 2019 7,077,273
================================================== ============ ============
2019 interim dividend of 2.00 pence per Ordinary
Share paid on 27 June 2019 6,804,777
================================================== ============ ============
2019 interim dividend of 2.00 pence per Ordinary
Share paid on 19 September 2019 6,463,506
============
2019 interim dividend of 2.00 pence per Ordinary
Share paid on 19 December 2019 6,282,264
================================================== ============ ============
2019 interim dividend of 2.00 pence per Ordinary
Share paid on 2 April 2020 6,184,004
================================================== ============ ============
2020 interim dividend of 2.00 pence per Ordinary
Share paid on 11 June 2020 6,116,226
================================================== ============ ============
2020 interim dividend of 2.00 pence per Ordinary
Share paid on 17 September 2020 5,711,983
================================================== ============ ============
2020 interim dividend of 2.00 pence per Ordinary
Share paid on 17 December 2020 5,662,531
================================================== ============ ============
Total 23,674,744 26,627,820
================================================== ============ ============
An interim dividend of 2.00 pence per Ordinary Share, equaling
GBP5,638,178, was declared by the Board on 25 February 2021 in
respect of the period to 31 December 2020, was paid to shareholders
on 1 April 2021. The interim dividend has not been included as a
liability in these financial statements in accordance with
International Accounting Standard 10: Events After the Balance
Sheet Date. The Parent Company allocated GBP187,204 of the 2020
interim dividend paid on 11 June 2020 to a 2019 final dividend.
16. RELATED PARTY TRANSACTIONS
Each of the Directors is entitled to receive a fee from the
Parent Company at such rate as may be determined in accordance with
the Articles. Save for the Chair of the Board, the fees are
GBP33,000 for each Director per annum. The Chair's fee is GBP55,000
per annum. The chair of the Audit and Valuation Committee may also
receive additional fees for acting as the chairman of such a
committee. The current fee for serving as the chair of the Audit
and Valuation Committee is GBP5,500 per annum.
All the Directors are also entitled to be paid all reasonable
expenses properly incurred by them in attending general meetings,
board or committee meetings or otherwise in connection with the
performance of their duties. The Board may determine that
additional remuneration may be paid, from time to time, to any one
or more Directors in the event such Director or Directors are
requested by the Board to perform extra or special services on
behalf of the Parent Company.
At 31 December 2020, GBP179,563 (31 December 2019: GBP173,326)
was paid to the Directors and GBP0 (31 December 2019: GBP0) was
owed for services performed.
As at 31 December 2020 and 31 December 2019, the Directors'
interests in the Parent Company's Shares were as follows:
31 DECEMBER 31 DECEMBER
2020 2019
======================= ================= ============================= =============================
Kevin Ingram Ordinary Shares 64,968 64,968
======================= ================= ============================= =============================
Mark Katzenellenbogen Ordinary Shares 215,000 140,000
======================= ================= ============================= =============================
Richard Levy Ordinary Shares NA 1,300,000
======================= ================= ============================= =============================
Elizabeth Passey Ordinary Shares 10,000 10,000
======================= ================= ============================= =============================
Clive Peggram Ordinary Shares 333,240 258,240
======================= ================= ============================= =============================
Graeme Proudfoot Ordinary Shares 50,000 NA
======================= ================= ============================= =============================
Investment management fees for the year ended 31 December 2020
are payable by the Parent Company to the Investment Manager and
these are presented on the Consolidated Statement of Comprehensive
Income. Details of investment management fees and performance fees
payable during the year are disclosed in Note 10.
During 2020, as part of an amendment to its management
agreement, the Investment Manager continued to purchase Ordinary
Shares of the Parent Company with 20% of its monthly management
fee. The Ordinary Shares were purchased at the prevailing market
price. As at 31 December 2020, the Investment Manager has purchased
3,705,991 (31 December 2019: 2,886,335) Ordinary Shares.
As at 31 December 2020, Partners and Principals of the
Investment Manager held 510,000 (31 December 2019: 2,195,000)
Shares in the Parent Company.
The Group has invested in VPC Offshore Unleveraged Private Debt
Fund Feeder, L.P. The Investment Manager of the Parent Company also
acts as manager to VPC Offshore Unleveraged Private Debt Fund
Feeder, L.P. The principal activity of VPC Offshore Unleveraged
Private Debt Fund Feeder, L.P. is to invest in alternative finance
investments and related instruments with a view to achieving the
Parent Company's investment objective. As at 31 December 2020 the
Group owned 26% of VPC Offshore Unleveraged Private Debt Fund
Feeder, L.P. (31 December 2019: 26%) and the value of the Group's
investment in VPC Offshore Unleveraged Private Debt Fund Feeder,
L.P. was GBP2,454,004 (31 December 2019: GBP3,841,798). The Group
received income of GBP609,083 from VPC Offshore Unleveraged Private
Debt Fund Feeder, L.P., which is reflected in Income on the
Consolidated Statement of Comprehensive Income.
The Group has invested in Larkdale III, L.P. The Investment
Manager of the Parent Company also acts as manager to Larkdale III,
L.P. As at 31 December 2020, the Group owned 52% of Larkdale III,
L.P. (31 December 2019: 52%) and the value of the Group's
investment in Larkdale III, L.P. was GBP68,362 (31 December 2019:
GBP620,148). The Group did not receive any income from Larkdale
III, L.P. during the year.
The Investment Manager may pay directly various expenses that
are attributable to the Group. These expenses are allocated to and
reimbursed by the Group to the Investment Manager as outlined in
the Management Agreement. Any excess expense previously allocated
to and paid by the Group to the Investment Manager will be
reimbursed to the Group by the Investment Manager. At 31 December
2020, GBP44,240 was due to the Investment Manager (31 December
2019: GBP65,683) and is included in the Accrued expenses and other
liabilities balance on the Consolidated Statement of Financial
Position.
17. SUBSIDIARIES
PERCENTAGE PERCENTAGE
OWNERSHIP OWNERSHIP
AS AT AS AT
PRINCIPAL COUNTRY OF NATURE 31 DECEMBER 31 DECEMBER
NAME ACTIVITY INCORPORATION OF INVESTMENT 2020 2019
============================ ================= ================ ================ ============= =============
VPC Specialty Lending Investment USA Limited Sole limited Sole limited
Investments Intermediate, vehicle partner partner partner
L.P. interest
============================ ================= ================ ================ ============= =============
VPC Specialty Lending General partner USA Membership Sole member Sole member
Investments Intermediate interest
GP, LLC
============================ ================= ================ ================ ============= =============
LIAB, L.P. Investment UK Limited N/A Sole limited
vehicle partner partner
interest
============================ ================= ================ ================ ============= =============
LIAB GP, LLC General partner UK Membership N/A Sole member
interest
============================ ================= ================ ================ ============= =============
Fore London, L.P. Investment UK Limited Sole limited Sole limited
vehicle partner partner partner
interest
============================ ================= ================ ================ ============= =============
Fore London GP, General partner UK Membership Sole member Sole member
LLC interest
============================ ================= ================ ================ ============= =============
Limited
Investment partner
SVTW, L.P. vehicle USA interest N/A 99%
============================ ================= ================ ================ ============= =============
Membership
SVTW GP, LLC General partner USA interest N/A 99%
============================ ================= ================ ================ ============= =============
Limited
Duxbury Court I, Investment partner
L.P. vehicle USA interest 95% 95%
============================ ================= ================ ================ ============= =============
Duxbury Court I Membership
GP, LLC General partner USA interest 95% 95%
============================ ================= ================ ================ ============= =============
Limited
Investment partner
Drexel I, L.P. vehicle USA interest 52% 52%
============================ ================= ================ ================ ============= =============
Membership
Drexel I GP, LLC General partner USA interest 52% 52%
============================ ================= ================ ================ ============= =============
Limited
Investment partner
Larkdale I, L.P. vehicle USA interest N/A 61%
============================ ================= ================ ================ ============= =============
Membership
Larkdale I GP, LLC General partner USA interest N/A 61%
============================ ================= ================ ================ ============= =============
The subsidiaries listed above as investment vehicles are
consolidated by the Group and there is no activity to consolidate
within the subsidiaries listed as general partners.
NAME REGISTERED ADDRESS
================================== =======================================
VPC Specialty Lending Investments 150 North Riverside Plaza, Suite 5200,
Intermediate, L.P. Chicago, IL 60606
==================================== ===========================================
VPC Specialty Lending Investments 150 North Riverside Plaza, Suite
Intermediate GP, LLC 5200, Chicago, IL 60606
==================================== =========================================
Fore London, L.P. 6th Floor, 65 Gresham Street, London,
EC2V 7NQ United Kingdom
================================== ===========================================
Fore London GP, LLC 150 North Riverside Plaza, Suite
5200, Chicago, IL 60606
================================== =========================================
Duxbury Court I, L.P. 150 North Riverside Plaza, Suite 5200,
Chicago, IL 60606
================================== ===========================================
Duxbury Court I GP, 150 North Riverside Plaza, Suite
LLC 5200, Chicago, IL 60606
================================== =========================================
Drexel I, L.P. 150 North Riverside Plaza, Suite 5200,
Chicago, IL 60606
================================== ===========================================
Drexel I GP, LLC 150 North Riverside Plaza, Suite
5200, Chicago, IL 60606
================================== =========================================
The table below illustrates the movement of the investment in
subsidiaries of the Parent Company in 2020:
INVESTMENTS
IN SUBSIDIARIES
GBP
============================================= ==============================
Beginning balance, 1 January 2020 270,730,548
============================================= ==============================
Purchases 80,568,889
============================================= ==============================
Sales (103,634,392)
============================================= ==============================
Appreciation of investments in subsidiaries 2,377,722
Ending balance, 31 December 2020 250,042,768
============================================= ==============================
The table below illustrates the movement of the investment in
subsidiaries of the Parent Company in 2019:
INVESTMENTS
IN SUBSIDIARIES
GBP
============================================= ===============================
Beginning balance, 1 January 2019 280,381,196
============================================= ===============================
Purchases 61,442,484
============================================= ===============================
Sales (68,521,643)
============================================= ===============================
Depreciation of investments in subsidiaries (2,571,489)
Ending balance, 31 December 2019 270,730,548
============================================= ===============================
18. NON-CONTROLLING INTERESTS
The non-controlling interests arises from investments in limited
partnerships considered to be controlled subsidiaries into which
there are other investors. The value of the non-controlling
interests at 31 December 2020 represents the portion of the NAV of
the controlled subsidiaries attributable to the other investors. As
at 31 December 2020, the portion of the NAV attributable to
non-controlling interests investments totaled GBP19,337 (31
December 2019: GBP60,940). In the Consolidated Statement of
Comprehensive Income, the amount attributable to non-controlling
interests represents the increase in the fair value of the
investment in the period.
The following entities have been consolidated which have
non-controlling interests during 2020:
PROFIT OR LOSS OF
SUBSIDIARY ALLOCATED ACCUMULATED
TO NON-CONTROLLING NON-CONTROLLING
INTERESTS DURING THE INTERESTS IN
PERIODED 31 SUBSIDIARY AS
DECEMBER AT 31 DECEMBER
2020 2020
====================
PROPORTION OF
OWNERSHIP
INTERSTS HELD BY
NON-CONTROLLING
PRINCIPAL INTERESTS
PLACE AS AT 31 DECEMBER
NAME OF SUBSIDIARY OF BUSINESS 2020 GBP GBP
==================== ================== ====================
Drexel I,
L.P. USA 47% 51,213 5,699
Duxbury Court
I, L.P. USA 5% 3,321 13,638
Larkdale I,
L.P. USA 39% 20,554 -
SVTW, L.P. USA 1% (38) -
Totals 75,050 19,337
SUMMARISED FINANCIAL INFORMATION FOR SUBSIDIARY
31 DECEMBER 2020
NAME OF SUBSIDIARY GBP
Distributions to
non-controlling
Drexel I, L.P. interests 49,333
Profit/(loss) of
subsidiary for
period ended 31
December 2020 103,596
Assets as at 31
December 2020 35,200
Liabilities as at 31
December 2020 22,965
Duxbury Court Distributions to -
I, L.P. non-controlling
interests
Profit/(loss) of
subsidiary for
period ended 31
December 2020 60,888
Assets as at 31
December 2020 471,560
Liabilities as at 31
December 2020 18,285
Distributions to
Larkdale I, non-controlling
L.P. interests 72,605
Profit/(loss) of
subsidiary for
period ended 31
December 2020 83,800
Assets as at 31 -
December 2020
Liabilities as at 31 -
December 2020
Distributions to
non-controlling
SVTW, L.P. interests 1,970
Profit/(loss) of
subsidiary for
period ended 31
December 2020 (11,191)
Assets as at 31 -
December 2020
Liabilities as at 31 -
December 2020
The following entities have been consolidated which have
material non-controlling interests during 2019:
PROFIT OR LOSS OF
SUBSIDIARY ALLOCATED ACCUMULATED
TO NON-CONTROLLING NON-CONTROLLING
INTERESTS DURING THE INTERESTS IN
PERIODED 31 SUBSIDIARY AS
DECEMBER AT 31 DECEMBER
2019 2019
====================
PROPORTION OF
OWNERSHIP
INTERSTS HELD BY
NON-CONTROLLING
PRINCIPAL INTERESTS
PLACE AS AT 31 DECEMBER
NAME OF SUBSIDIARY OF BUSINESS 2019 GBP GBP
==================== ================== ====================
Drexel I,
L.P. USA 47% 94,728 7,046
Duxbury Court
I, L.P. USA 5% (8,482) 10,819
Larkdale I,
L.P. USA 39% 92,841 41,005
SVTW, L.P. USA 1% 114 2,070
Totals 179,201 60,940
SUMMARISED FINANCIAL INFORMATION FOR SUBSIDIARY
31 DECEMBER 2019
NAME OF SUBSIDIARY GBP
Distributions to
non-controlling
Drexel I, L.P. interests 140,477
Profit/(loss) of
subsidiary for
period ended 31
December 2019 196,191
Assets as at 31
December 2019 55,933
Liabilities as at 31
December 2019 40,782
Distributions to
Duxbury Court non-controlling
I, L.P. interests 3,467
Profit/(loss) of
subsidiary for
period ended 31
December 2019 (162,884)
Assets as at 31
December 2019 419,715
Liabilities as at 31
December 2019 14,628
Distributions to
Larkdale I, non-controlling
L.P. interests 204,776
Profit/(loss) of
subsidiary for
period ended 31
December 2019 229,066
Assets as at 31
December 2019 137,852
Liabilities as at 31
December 2019 33,537
Distributions to
non-controlling
SVTW, L.P. interests 621
Profit/(loss) of
subsidiary for
period ended 31
December 2019 33,690
Assets as at 31
December 2019 236,729
Liabilities as at 31
December 2019 27,638
19. INVESTMENTS IN FUNDS
The Group has been determined to exercise significant influence
in relation to certain of its in funds and other entities, as such
these investments are considered to be associates for accounting
purposes and represent interests in unconsolidated structured
entities. The following additional information is therefore
provided as required by IFRS 12, Disclosure of Interests in Other
Entities:
MAXIMUM
FAIR VALUE EXPOSURE
OF INTEREST TO LOSS
PROPORTION AS AT AS AT
PRINCIPAL OF OWNERSHIP 31 DECEMBER 31 DECEMBER
NAME OF PLACE PRINCIPAL INTERESTS BASIS OF 2020 2020
ASSOCIATE OF BUSINESS ACTIVITY HELD VALUATION GBP GBP
Designated
VPC Offshore as held at
Unleveraged fair value
Private Debt through profit
Fund Cayman Investment or loss -
Feeder, L.P. Islands fund 26% using NAV 2,454,004 2,454,004
Designated
as held at
fair value
through profit
Larkdale III, Investment or loss -
L.P. USA vehicle 52%* using NAV 68,362 68,362
SUMMARISED FINANCIAL INFORMATION FOR ASSOCIATE
NAME OF 31 DECEMBER 2020
ASSOCIATE GBP
VPC Offshore Profit/(loss) of associate for period ended
Unleveraged 31 December 2020 345,196
Private Debt
Fund
Feeder, L.P. Assets as at 31 December 2020 7,049,729
Liabilities at 31 December 2020 1,356,552
Larkdale III, Profit/(loss) of associate for period ended
L.P. 31 December 2020 12,207
Assets as at 31 December 2020 190,860
Liabilities at 31 December 2020 58,441
*The Group holds 52% interest in Larkdale III, L.P. while the
Group's ultimate ownership of the investment held by Larkdale III,
L.P. is 34%. The Group has determined it does not have accounting
control as the general partner has operating control over the
vehicle and acts as an agent for a number of the Investment
Manager's funds.
MAXIMUM
FAIR VALUE EXPOSURE
OF INTEREST TO LOSS
PROPORTION AS AT AS AT
PRINCIPAL OF OWNERSHIP 31 DECEMBER 31 DECEMBER
NAME OF PLACE PRINCIPAL INTERESTS BASIS OF 2019 2019
ASSOCIATE OF BUSINESS ACTIVITY HELD VALUATION GBP GBP
Designated
VPC Offshore as held at
Unleveraged fair value
Private Debt through profit
Fund Cayman Investment or loss -
Feeder, L.P. Islands fund 26% using NAV 3,841,798 3,841,798
Designated
as held at
fair value
through profit
Larkdale III, Investment or loss -
L.P. USA vehicle 52%* using NAV 620,148 620,148
SUMMARISED FINANCIAL INFORMATION FOR ASSOCIATE
NAME OF 31 DECEMBER 2019
ASSOCIATE GBP
VPC Offshore Profit/(loss) of associate for period ended
Unleveraged 31 December 2019 3,866,479
Private Debt
Fund
Feeder, L.P. Assets as at 31 December 2019 10,927,772
Liabilities at 31 December 2019 1,351,385
Larkdale III, Profit/(loss) of associate for period ended
L.P. 31 December 2019 (420,886)
Assets as at 31 December 2019 1,265,619
Liabilities at 31 December 2019 64,386
The Group's investments in associates all consist of limited
partner interest in funds. There are no significant restrictions
between investors with joint control or significant influence over
the associates listed above on the ability of the associates to
transfer funds to any party in the form of cash dividends or to
repay loans or advances made by the Group.
*The Group holds 52% interest in Larkdale III, L.P. while the
Group's ultimate ownership of the investment held by Larkdale III,
L.P. is 34%. The Group has determined it does not have accounting
control as the general partner has operating control over the
vehicle and acts as an agent for a number of the Investment
Manager's funds.
20. SUBSEQUENT EVENTS AFTER THE REPORTING PERIOD
The Company declared a dividend of 2.00 pence per Ordinary
Share, equaling GBP5,638,178, for the three-month period ended 31
December 2020 and paid the dividend on 1 April 2021.
On 1 March 2021, the Company closed on a USD$130 million gearing
facility with MassMutual. At the closing, the Company drew USD$80
million which was used to repay the Company's previous gearing
facility with Pacific Western Bank and the first-out participation
facility on Avant, held with Axos Bank. The negotiated terms of the
MassMutual facility include a three-year revolving period, an
interest rate lower than that of the previous facility, and an
option to upsize the facility from $130 million to $200 million and
a six-year maturity.
There were no other significant events subsequent to the year
end.
APPROVAL OF CONSOLIDATED FINANCIAL STATEMENTS
The Annual report and Financial Statements were approved and
authorised for issue by the Directors on 28 April 2021.
GOVERNANCE
Responsibility for Financial Statements and Going Concern
Statement
The Directors have reviewed the financial projections of the
Group and Company from the date of this report, which shows that
the Group and Company will be able to generate sufficient cash
flows in order to meet its liabilities as they fall due. In
assessing the Group's and Company's ability to continue as a going
concern, the Directors have considered the Company's investment
objective, risk management policies capital management, the monthly
NAV and the nature of its portfolio and expenditure
projections.
Additionally, the Directors have considered the risks arising of
reduced asset values and economic disruption caused by the COVID-19
pandemic. The Investment Manager has also performed a range of
stress tests and demonstrated to the Directors that even in an
adverse scenario of depressed markets that the Group could still
generate sufficient funds to meet its liabilities over the next
twelve months. The Directors believe that the Group has adequate
resources, an appropriate financial structure and suitable
management arrangements in place to continue in operational
existence for the foreseeable future being a period of at least
twelve months from the date of this report.
As a part of the continuation vote held at the 2020 AGM, the
Directors resolved to apply the following condition ahead of the
2021 AGM:
v The Directors will propose an ordinary resolution to approve
the continuation of the Parent Company as an investment company at
the Parent Company's AGM in 2021 if the Parent Company's NAV (Cum
Income) Return (calculated as set out in the Parent Company's
annual report and financial statements) for the period from 1 April
2020 to 31 March 2021 is less than 4%. If the resolution is not
passed the Directors will, within three months of the date of the
resolution, put forward proposals to shareholders to the effect
that the Parent Company be wound up, liquidated or unitised.
The Directors do not believe this resolution should
automatically trigger the adoption of a basis other than going
concern in line with the Association of Investment Companies
("AIC") Statement of Recommended Practice ("SORP") which states
that it is more appropriate to prepare financial statements on a
going concern basis unless a continuation vote has already been
triggered and shareholders have voted against continuation.
The Directors considered a number of factors in reaching a
conclusion, including that the total NAV (Cum Income) Return from 1
April 2020 to 31 December 2020 was 14.43% and additionally the
estimated return from 1 April 2020 to 31 March 2021 was 24.08%.
Based on this assessment the Directors concluded that an ordinary
resolution to approve the continuation of the Company would not be
proposed at the 2021 AGM.
Based on their assessment and considerations above, the
Directors have concluded that the financial statements of the Group
and Company should continue to be prepared on a going concern
basis.
Viability Statement
In accordance with provision 31 of the UK Corporate Governance
Code, published by the Financial Reporting Council in July 2018,
and as part of an ongoing programme of risk assessment, the
Directors have assessed the prospects of the Company, to the extent
that they are able, over a three-year period. The Directors have
chosen a three-year period as this is viewed as sufficiently long
term to provide shareholders with a meaningful view, without
extending the period so far into the future as to undermine the
exercise. Additionally, the balance sheet loan investments held by
the Group have a weighted average maturity of approximately three
years which allows the investment cash flows, recycling of
investments and expenditures commitments of the Group to be
reasonably forecasted over this timeframe.
The three-year review considers the Group's cash flow, cash
distributions and other key financial ratios over the period. The
three-year review also makes certain assumptions about the normal
level of expenditure likely to occur and considers the impact on
the financing facilities of the Group.
Furthermore, the three-year review period to 31 December 2023
was modelled under scenarios addressing the three conditions
below.
v (i) The Board will propose an ordinary resolution to approve
the continuation of the Company as an investment company at the
Company's AGM in 2021 if the Company's NAV (Cum Income) Return
(calculated as set out in the Company's annual report and financial
statements) for the period from 1 April 2020 to 31 March 2021 is
less than 4%. If the resolution is not passed the Directors will,
within three months of the date of the resolution, put forward
proposals to shareholders to the effect that the Company be wound
up, liquidated or unitised;
v (ii) The Board will offer shareholders an exit opportunity for
up to 100% of the Ordinary Shares in issue immediately following
the Company's AGM in 2023 if the Company's NAV (Cum Income) Return
(calculated as set out in the Company's annual report and financial
statements) for the period from 1 April 2020 to 31 March 2023 is
less than 24%; and
v (iii) If the average discount to NAV at which the shares trade
over the three-month period ending on 31 March 2023 is greater than
5%, the Board will offer shareholders an exit opportunity for up to
25% of the Ordinary Shares in issue immediately following the
Company's AGM in 2023. For the avoidance of doubt, this exit
opportunity will not be offered in the event the 100% exit
opportunity in condition (ii) has been triggered.
As a part of this review, the Directors reviewed a series of
stress test scenarios carried out by the Investment Manager which
assumed a significant fall in income and asset levels, including
the impacts to the Group's financing facilities and were satisfied
with the result of this analysis.
In making this assessment on the viability of the Group, the
Directors have also taken into consideration each of the principal
risks and uncertainties on pages 15 to 18, their mitigants and the
impact these might have on the business model, future performance,
solvency and liquidity. Both the principal risks and the monitoring
system are subject to a robust assessment at least annually. In
addition, the Directors considered the Company's current financial
position and prospects, the composition of the investment
portfolio, the level of outstanding capital commitments, the term
structure and availability of borrowings and the ongoing costs of
the business. As part of the approach, due consideration has been
given to the uncertainty inherent in financial forecasts and, where
applicable, as described above reasonable sensitivities have been
applied to the investment portfolio in stress situations.
Based on the Group's processes for monitoring operating costs,
the Investment Manager's compliance with the investment objective,
asset allocation, the portfolio risk profile, liquidity risk and
financial controls, and assuming stressed market conditions the
Directors have concluded that there is a reasonable expectation
that the Company will be able to continue in operation and meet its
liabilities as they fall due over the three year period to 31
December 2023.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law and
regulation.
Company law requires the directors to prepare financial
statements for each financial year. Under that law the directors
have prepared the group financial statements in accordance with
international accounting standards in conformity with the
requirements of the Companies Act 2006 and international financial
reporting standards adopted pursuant to Regulation (EC) No
1606/2002 as it applies in the European Union and company financial
statements in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006.
Under company law, directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the group and company and of the
profit or loss of the group for that period. In preparing the
financial statements, the directors are required to:
v select suitable accounting policies and then apply them
consistently;
v state whether applicable international accounting standards in
conformity with the requirements of the Companies Act 2006 and
international financial reporting standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union
have been followed for the group financial statements and
international accounting standards in conformity with the
requirements of the Companies Act 2006 have been followed for the
company financial statements, subject to any material departures
disclosed and explained in the financial statements;
v make judgements and accounting estimates that are reasonable
and prudent; and
v prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the group and company
will continue in business.
The directors are also responsible for safeguarding the assets
of the group and company and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the group's and
company's transactions and disclose with reasonable accuracy at any
time the financial position of the group and company and enable
them to ensure that the financial statements and the Directors'
Remuneration Report comply with the Companies Act 2006.
The directors are responsible for the maintenance and integrity
of the company's website. Legislation in the United Kingdom
governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
DIRECTORS' CONFIRMATIONS
The directors consider that the annual report and financial
statements, taken as a whole, is fair, balanced and understandable
and provides the information necessary for shareholders to assess
the group's and company's position and performance, business model
and strategy.
Each of the directors, whose names and functions are listed in
the Directors' Report confirm that, to the best of their
knowledge:
v the group financial statements, which have been prepared in
accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006 and international
financial reporting standards adopted pursuant to Regulation (EC)
No 1606/2002 as it applies in the European Union, give a true and
fair view of the assets, liabilities, financial position and profit
of the group;
v the company financial statements, which have been prepared in
accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006, give a true and
fair view of the assets, liabilities, financial position and profit
of the company; and
v the Directors' Report includes a fair review of the
development and performance of the business and the position of the
group and company, together with a description of the principal
risks and uncertainties that it faces.
For and on behalf of the Board:
Kevin Ingram
Chair
28 April 2021
SHAREHOLDER INFORMATION
INVESTMENT OBJECTIVE
The Company's investment objective is to generate an attractive
total return for shareholders consisting of distributable income
and capital growth through investments in financial services
opportunities. The Company provides asset-backed lending solutions
to emerging and established businesses with the goal of building
long-term, sustainable income generation. The Company 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. The Company offers 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. Through rigorous
diligence and credit monitoring, the Company generates stable
income with significant downside protection.
INVESTMENT POLICY
The Company seeks to achieve its investment objective by
investing in opportunities in the financial services market through
portfolio companies and other lending related opportunities.
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, 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 and Latin America)
and credit bands in order to create a diversified portfolio and
thereby mitigates concentration risks.
INVESTMENT RESTRICTIONS
The following investment limits and restrictions apply to the
Company, to ensure that the diversification of the Company's
portfolio is maintained, and that concentration risk is
limited.
PLATFORM RESTRICTIONS
Subject to the following, the Company generally does not intend
to invest more than 20% of its Gross Assets in Debt Instruments
(net of any gearing ring-fenced within any SPV which would be
without recourse to the Company), originated by, and/or Credit
Facilities and equity instruments in, any single portfolio company,
calculated at the time of investment. All such aggregate exposure
to any single portfolio company (including investments via an SPV)
will always be subject to an absolute maximum, calculated at the
time of investment, of 25% of the Company's Gross Assets.
ASSET CLASS RESTRICTIONS
Single loans acquired by the Company will typically be for a
term no longer than five years.
The Company will not invest more than 20% of its Gross Assets,
at the time of investment, via any single investment fund investing
in Debt Instruments and Credit Facilities. In any event, the
Company will not invest, in aggregate, more than 60% of its Gross
Assets, at the time of investment, in investment funds that invest
in Debt Instruments and Credit Facilities.
The Company will not invest more than 10% of its Gross Assets,
at the time of investment, in other listed closed-ended investment
funds, whether managed by the Investment Manager or not, except
that this restriction shall not apply to investments in listed
closed-ended investment funds which themselves have stated
investment policies to invest no more than 15% of their gross
assets in other listed closed-ended investment funds.
The following restrictions apply, in each case at the time of
investment by the Company, to both Debt Instruments acquired by the
Company via wholly-owned SPVs or partially-owned SPVs on a
proportionate basis under the Marketplace Model, on a look-through
basis under the Balance Sheet Model and to any Debt Instruments
held by another investment fund in which the Company invests:
v No single consumer loan acquired by the Company shall exceed
0.25% of its Gross Assets.
v No single SME loan acquired by the Company shall exceed 5.0%
of its Gross Assets. For the avoidance of doubt, Credit Facilities
entered into directly with portfolio companies are not considered
SME loans.
v No single trade receivable asset acquired by the Company shall
exceed 5.0% of its Gross Assets.
OTHER RESTRICTIONS
The Company's un-invested or surplus capital or assets may be
invested in Cash Instruments for cash management purposes and with
a view to enhancing returns to shareholders or mitigating credit
exposure.
Where appropriate, the Company will ensure that any SPV used by
it to acquire or receive (by way of assignment or otherwise) any
loans to UK consumers shall first obtain the appropriate
authorisation from the FCA for consumer credit business.
BORROWING POLICY
Borrowings may be employed at the level of the Company and at
the level of any investee entity (including any other investment
fund in which the Company invests or any SPV that may be
established by the Company in connection with obtaining gearing
against any of its assets).
The Company may, in connection with seeking such gearing or
securitising its loans, seek to assign existing assets to one or
more SPVs and/or seek to acquire loans using an SPV.
The Company may establish SPVs in connection with obtaining
gearing against any of its assets or in connection with the
securitisation of its loans (as set out further below). It intends
to use SPVs for these purposes to seek to protect the geared
portfolio from group level bankruptcy or financing risks.
The aggregate leverage of the Company and any investee entity
(on a look-through basis, including borrowing through
securitisation using SPVs) shall not exceed 1.5 times its NAV
(1.5x).
As is customary in financing transactions of this nature, the
particular SPV will be the borrower and the Company may from time
to time be required to guarantee or indemnify a third-party lender
for losses incurred as a result of certain "bad boy" acts of the
SPV or the Company, typically including fraud or wilful
misrepresentation or causing the SPV voluntarily to file for
bankruptcy protection. Any such arrangement will be treated as
'non-recourse' with respect to the Company provided that any such
obligation of the Company shall not extend to guaranteeing or
indemnifying Ordinary portfolio losses or the value of the
collateral provided by the SPV.
SECURITISATION
The Company may use securitisation typically only for loans
purchased directly from portfolio companies through the Marketplace
Model in order to improve overall profitability by: (i) lowering
the cost of financing; (ii) further diversifying its portfolio
using the same amount of equity capital; and (iii) to lowering the
credit risk to the Company.
In order to securitise certain assets, a bankruptcy remote SPV
would be established, solely for the purpose of holding the
underlying assets and issuing asset-backed securities ("ABS")
secured only on these assets within the SPV. Each SPV would be
portfolio company specific and would be owned by the Company, in
whole or in part alongside Other VPC Funds or investors. Each SPV
used for securitisation will be ring-fenced from one another and
will not involve cross-collateralisation. The SPV will then aim to
raise debt financing in the capital markets by issuing ABS that are
secured only on assets within the SPV. The SPV will also enter into
service agreements with the relevant portfolio companies to ensure
continued collection of payments, pursuance of delinquent borrowers
(end consumers) and otherwise interaction with borrowers in much
the same manner as if the securitisation had not occurred.
SHARE REGISTER ENQUIRIES
For shareholder enquiries, please contact the Company's
registrar, Link Group on +44 (0) 371 664 0391.
Calls are charged at the standard geographic rate and will vary
by provider. Calls outside the United Kingdom will be charged at
the applicable international rate. Lines are open between 09:00 -
17:30, Monday to Friday (excluding public holidays in England and
Wales).
SHARE CAPITAL AND NET ASSET VALUE INFORMATION
Ordinary GBP0.01
Shares 312,302,305
SEDOL Number BVG6X43
ISIN Number GB00BVG6X439
SHARE PRICES
The Company's shares are listed on the London Stock
Exchange.
ANNUAL AND HALF-YEARLY REPORTS
Copies of the Annual and Half-Yearly Reports are available from
the Investment Manager on and are available on the Company's
website http://vpcspecialtylending.com.
PROVISIONAL FINANCIAL CALAR
June 2021 Annual General Meeting
June 2021 Payment of interim dividend to 31
March 2021
30 June 2021 Half-year End
September 2021 Announcement of half-yearly results
September 2021 Payment of interim dividend to 30
June 2021
December 2021 Payment of interim dividend to 30
September 2021
31 December Year End
2021
DIVIDS
The following table summarises the amounts recognised as
distributions to equity shareholders relating to 2020:
GBP
2020 interim dividend of 2.00 pence per Ordinary Share
paid on 11 June 2020 6,116,226
2020 interim dividend of 2.00 pence per Ordinary Share
paid on 17 September 2020 5,711,983
2020 interim dividend of 2.00 pence per Ordinary Share
paid on 17 December 2020 5,662,531
2020 interim dividend of 2.00 pence per Ordinary Share
paid on 1 April 2021 5,638,178
Total 23,128,918
DEFINITIONS OF TERMS AND PERFORMANCE MEASURES
The Group uses the terms and alternative performance measures
below to present a measure of profitability which is aligned with
the requirements of our investors and potential investors, to draw
out meaningful subtotals of revenues and earnings and to provide
additional information not required for disclosure under accounting
standards to assist users of the financial statements in gauging
the profit levels of the Group. Alternative performance measures
are used to improve the comparability of information between
reporting periods, either by adjusting for uncontrollable or
one-off factors which impact upon IFRS measures or, by aggregating
measures, to aid the user understand the activity taking place. The
Strategic Report includes both statutory and adjusted measures, the
latter of which, reflects the underlying performance of the
business and provides a more meaningful comparison of how the
business is managed. APMs are not considered to be a substitute for
IFRS measures but provide additional insight on the performance of
the business. All terms and performance measures relate to past
performance:
Discount to NAV - Calculated as the difference in the NAV (Cum
Income) per Ordinary Share and the Ordinary Share price divided by
the NAV Cum (Income) per Ordinary Share.
Dividend Yield on Average NAV (Cum Income) - Calculated as the
dividends declared during 2020 divided by the average Net Asset
Value (Cum Income) of the Company for the year.
Gross Returns - Represents the return on shareholder's funds per
share on investments of the Company before operating and other
expenses of the Company.
Look-Through Gearing Ratio - The aggregate gearing of the
Company and any investee entity (on a look through basis, including
borrowing through securitisations using SPVs) shall not exceed 1.50
times its NAV (1.5x).
Market Capitalisation - Month-end closing share price multiplied
by the number of shares outstanding at month end.
NAV (Cum Income) or NAV or Net Asset Value - T he value of
assets of the Company less liabilities determined in accordance
with the accounting principles adopted by the Company.
NAV (Cum Income) Return - The theoretical total return on
shareholders' funds per share reflecting the change in NAV assuming
that dividends paid to shareholders were reinvested at NAV at the
time dividend was announced.
2020 Calculation Inception to Date
Calculation
(A) Closing NAV (Cum Income)
per share 95.72p 95.72p
(B) Opening NAV (Cum Income)
per share 93.33p 98.00p
(C) Dividends declared
and paid 8.00p 39.59p
D = (A - B + C) / B 11.12% 38.07%
NAV per Share (Cum Income) - The NAV (Cum Income) divided by the
number of shares in issue.
Net Returns - Represents the return on shareholder's funds per
share on investments of the Company after operating and other
expenses of the Company.
Ongoing Charges Ratio - Ongoing charges represents the
management fee and all other operating expenses, excluding finance
costs, transaction costs and any performance fee payable, expressed
as a percentage of the average net asset values during the
year.
Premium/(Discount) to NAV (Cum Income) - The amount by which the
share price of the Company is either higher (at a premium) or lower
(at a discount) than the NAV per Share (Cum Income), expressed as a
percentage of the NAV per share.
Share Price - Closing share price at month end (excluding
dividends reinvested).
Total Shareholder Return - Calculated as the change in the
traded share price from 31 December 2020 to 31 December 2019 plus
the dividends declared in 2020 divided by the traded share price as
at 31 December 2019.
Trailing Twelve Month Dividend Yield - Calculated as the total
dividends declared over the last twelve months as at 31 December
2020 divided by the 31 December 2020 closing share price.
CONT A CT D E T A I LS O F TH E A D VISE RS
Directors Clive Peggram
Elizabeth Passey
Kevin Ingram
Mark Katzenellenbogen
Graeme Proudfoot
Oliver Grundy
all of the registered office below
Registered Office 6(th) Floor
65 Gresham Street
London EC2V 7NQ
United Kingdom
Company Number 9385218
Website Address https://vpcspecialtylending.com
Corporate Brokers Jefferies International Limited
100 Bishpsgate
London EC2N 4JL
United Kingdom
Winterflood Securities Limited
Cannon Bridge House
25 Dowgate Hill
London EC4R 2GA
Investment Manager and AIFM Victory Park Cap ital Advisors, LLC
150 North Riverside Plaza, Suite 5200
Chicago
IL 60606
United States
Company Secretary Link Company Matters Limited
Beaufort House
51 New North Road
Exeter EX4 4EP
United Kingdom
Administrator Northern Trust Hedge Fund Services LLC
50 South LaSalle Street
Chicago
IL 60603
United States
Registrar Link Asset Services
Central Square
29 Wellington Street
Leeds
LS1 4DL
United Kingdom
Custodians Merrill Lynch, Pierce, Fenner & Smith
Incorporated
101 California Street
San Francisco
CA 94111
United States
Millennium Trust Company
2001 Spring Road
Oak Brook
IL 60523
United States
English Legal Adviser to the Company Stephenson Harwood LLP
1 Finsbury Circus
London EC2M 7SH
United Kingdom
Independent Auditors PricewaterhouseCoopers LLP
7 More London Riverside
London SE1 2RT
United Kingdom
ENDS
LEI: 549300UPEXC5DQB81P34
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