TIDMBGLF
RNS Number : 1778N
Blackstone / GSO Loan Financing Ltd
20 September 2019
20 SEPTEMBER 2019
FOR IMMEDIATE RELEASE
RELEASED BY BNP PARIBAS SECURITIES SERVICES S.C.A., JERSEY
BRANCH
HALF-YEARLY RESULTS ANNOUNCEMENT
THE BOARD OF DIRECTORS OF BLACKSTONE / GSO LOAN FINANCING
LIMITED ANNOUNCE HALF- YEARLY RESULTS FOR THE SIX MONTHSED 30 JUNE
2019
Strategic report
Reconciliation of IFRS NAV to Published NAV
At 30 June 2019, there was a difference between the NAV per
Ordinary Share and NAV per C Share as disclosed in the Condensed
Statement of Financial Position, of EUR0.8798 per Ordinary Share
and EUR0.5591, ("IFRS NAVs") compared to the published NAVs, of
EUR0.9169 per Ordinary Share and EUR0.5738 per C Share, which was
released to the LSE on 19 July 2019 ("Published NAVs"). A
reconciliation is provided in Note 14. The entire difference
between the two numbers is due to the different valuation bases
used to determine the value of the investments.
Valuation Policy for the Published NAV
The Company publishes a NAV per Ordinary Share and C Share on a
monthly basis in accordance with its Prospectus. The Published NAVs
are based on a monthly valuation process for each class that
incorporates the valuation of its CSWs and PPNs, which in turn are
based on the valuation of the BGCF portfolio using a CLO intrinsic
calculation methodology per the Company's Prospectus, which we
refer to as a "mark to model" approach. As documented in the
Prospectus, certain "Market Colour" (market clearing levels, market
fundamentals, bids wanted in competition ("BWIC"), broker quotes or
other indications) is not incorporated into this methodology. The
Directors believe that valuations on this basis are the appropriate
way of tracking the long-term performance of the Company as the
underlying portfolio of CLOs held by BGCF are comparable to held to
maturity instruments and the Company expects to receive the benefit
of the underlying cash-flows over the CLOs' entire life cycle.
Valuation Policy for the IFRS NAV
For financial reporting purposes annually and semi-annually, to
comply with IFRS as adopted by the EU, the valuation of BGCF's
portfolio of assets is at fair value using models that incorporate
Market Colour at the period end date, which we refer to as a "mark
to market" approach. IFRS fair value is the price that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants as at the
measurement date, and is an "exit price" e.g. the price to sell an
asset. An exit price embodies expectations about the future cash
inflows and cash outflows associated with an asset or liability
from the perspective of a market participant. IFRS fair value is a
market-based measurement, rather than an entity-specific
measurement, and is measured using assumptions that market
participants would use in pricing the asset or liability, including
assumptions about risk. Both the mark to model Published NAV and
mark to market IFRS NAV valuation bases use modelling techniques
and input from third-party valuation specialists.
In respect of the C Share class, the CLOs held directly are
valued using a mark to market approach for both the Published NAV
and the IFRS NAV. The underlying CLO investments held by BGCF are
valued using modelling methodologies, described in the Company's
Prospectus, that are based upon many assumptions.
The Directors, as set out in the Prospectus, will continue to
assess the performance of the Company using the Published NAV. As
noted in the Annual Report and Audited Financial Statements for the
year ended 31 December 2018, going forward, the Directors, in
conjunction with the Portfolio Adviser, are also considering
presenting additional information and commentary on Market Colour,
credit risk exposure and any material divergence from the different
valuation bases referred to above.
Key Performance Indicators (1)
Ordinary Share C Share
NAV per the Published NAV per the Published
financial NAV financial NAV
statements statements
("IFRS NAV") ("IFRS NAV")
NAV (1) EUR0.8798 EUR0.9169 EUR0.5591 EUR0.5738
(31 Dec 2018: (31 Dec 2018: (31 Dec 2018: (31 Dec 2018:
EUR0.8065) EUR0.8963) N/A) N/A)
NAV total 15.30% 8.13% 2.66% 5.37%
return (1)
(31 Dec 2018: (31 Dec 2018: (31 Dec 2018: (31 Dec 2018:
(3.99)%) 6.70%) N/A) N/A)
Discount (5.66)% (9.48)% (14.15)% (16.35)%
(1)
(31 Dec 2018: (31 Dec 2018: (31 Dec 2018: (31 Dec 2018:
(5.77)%) (15.21)%) N/A) N/A)
Dividend- EUR0.050 EUR0.050 EUR0.05642 EUR0.05642
(30 Jun 2018: (30 Jun 2018: (31 Jun 2018: (31 Jun 2018:
EUR0.050) EUR0.050) N/A) N/A)
Further information on the reconciliation between the IFRS NAVs
and the Published NAVs can be found above.
Performance
Ticker IFRS Published Share Price(2) Discount Discount Dividend
NAV NAV IFRS NAV Published Yield
per Share per Share NAV
-------- ----------- ----------- --------------- ---------- ----------- ---------
BGLF
30 Jun
2019 EUR0.8798 EUR0.9169 EUR0.8300 (5.66)% (9.48)% 12.05%
31 Dec
2018 EUR0.8065 EUR0.8963 EUR0.7600 (5.77)% (15.21)% 13.16%
-------- ----------- ----------- --------------- ---------- ----------- ---------
BGLP
30 Jun
2019 GBP0.7881 GBP0.8213 GBP0.7300 (7.37)% (11.12)% 12.27%
31 Dec
2018 GBP0.7251 GBP0.8058 GBP0.7175 (1.05)% (10.95)% 12.53%
-------- ----------- ----------- --------------- ---------- ----------- ---------
BGLC
30 Jun
2019 EUR0.5591 EUR0.5738 EUR 0.4800 (14.15)% (16.35)% 15.67%
31 Dec N/A N/A N/A N/A N/A N/A
2018
-------- ----------- ----------- --------------- ---------- ----------- ---------
LTM 3-Year Annualised Cumulative
Return(1) Annualised Since Inception Since Inception
--------------------- ----------- ------------ ----------------- -----------------
BGLF IFRS NAV 9.56% 5.67% 6.50% 36.47%
BGLF Published NAV 14.18% 7.14% 7.39% 42.22%
BGLF Ordinary Share
Price 5.11% 6.78% 5.55% 30.59%
BGLC IFRS NAV N/A N/A N/A 2.66%
BGLC Published NAV N/A N/A N/A 5.37%
BGLF C Share Price N/A N/A N/A 1.90%
European Loans 2.75% 3.70% 3.31% 17.47%
US Loans 4.15% 5.43% 3.91% 20.86%
--------------------- ----------- ------------ ----------------- -----------------
(1) Refer to Glossary for an explanation of the terms used above
and elsewhere within this report
(2) Bloomberg closing price at period end
Dividend History
Whilst not forming part of the investment objective or policy of
the Company, dividends will be payable in respect of each calendar
quarter, two months after the end of such quarter. The Company
declared dividends of EUR0.050 per Ordinary Share and dividends of
EUR0.05642 per C Share for the first half of 2019.
Ordinary Share Dividends for the Period Ended 30 June 2019
Period in respect of Date Declared Ex-dividend Date Payment Date Amount per Ordinary Share
-------------------------- -------------- ----------------- ------------- -------------------------
EUR
-------------------------- -------------- ----------------- ------------- -------------------------
1 Jan 2019 to 31 Mar 2019 18 Apr 2019 2 May 2019 31 May 2019 0.0250
1 Apr 2019 to 30 Jun 2019 18 Jul 2019 25 Jul 2019 23 Aug 2019 0.0250
-------------------------- -------------- ----------------- ------------- -------------------------
Dividends paid on Ordinary Shares during the period ended 30
June 2019 amounted to EUR20,235,022.
C Share Dividends for the Period Ended 30 June 2019
Period in respect of Date Declared Ex-dividend Date Payment Date Amount per
C Share
-------------------------- -------------- ----------------- ------------- ----------
EUR
-------------------------- -------------- ----------------- ------------- ----------
1 Oct 2018 to 31 Dec 2018 22 Jan 2019 31 Jan 2019 1 Mar 2019 0.01452
1 Jan 2019 to 31 Mar 2019 18 Apr 2019 2 May 2019 31 May 2019 0.0205
1 Apr 2019 to 30 Jun 2019 18 Jul 2019 25 Jul 2019 23 Aug 2019 0.0214
-------------------------- -------------- ----------------- ------------- ----------
Dividends paid on C Shares during the period ended 30 June 2019
amounted to EUR4,673,458.
Ordinary Share Dividends for the Year Ended 31 December 2018
Period in respect of Date Declared Ex-dividend Date Payment Date Amount per Ordinary Share
--------------------------- -------------- ----------------- ------------- -------------------------
EUR
--------------------------- -------------- ----------------- ------------- -------------------------
1 Jan 2018 to 31 Mar 2018 20 Apr 2018 3 May 2018 1 Jun 2018 0.0250
1 Apr 2018 to 30 Jun 2018 19 Jul 2018 26 Jul 2018 24 Aug 2018 0.0250
1 Jul 2018 to 30 Sept 2018 18 Oct 2018 25 Oct 2018 23 Nov 2018 0.0250
1 Oct 2018 to 31 Dec 2018 22 Jan 2019 31 Jan 2019 1 Mar 2019 0.0250
--------------------------- -------------- ----------------- ------------- -------------------------
Dividends paid on Ordinary Shares during the year ended 31
December 2018 amounted to EUR40,470,044.
Period Highs and Lows
2019 2019 2018 2018
High Low High Low
Published NAV per Ordinary Share EUR0.9215 EUR0.8824 EUR0.9183 EUR0.8837
Ordinary Share Price (last price) EUR0.8500 EUR0.7500 EUR0.9875 EUR0.7600
GBP Ordinary Share Price (last price) GBP0.7300 GBP0.7000 GBP0.8750 GBP0.7150
Published NAV per C Share EUR0.5944 EUR0.5474 N/A N/A
C Share Price (last price) EUR0.5050 EUR0.4610 N/A N/A
-------------------------------------- --------- --------- --------- ---------
Schedule of Investments
As at 30 June 2019 - Ordinary Share
Nominal Market % of Net Asset
Holdings Value Value
EUR
-------------------------------------------- ----------- ----------- --------------
Investment held in the Lux Subsidiary:
CSWs 274,400,106 340,335,933 96.15
Shares (2,000,000 Class A and 1 Class B) 2,000,001 5,202,903 1.47
Other Net Assets - 8,406,402 2.38
-------------------------------------------- ----------- ----------- --------------
Net Assets Attributable to Ordinary Class Shareholders 353,945,238 100.00
--------------------------------------------------------- ----------- --------------
As at 30 June 2019 - C Share
Nominal Market % of Net Asset
Holdings Value Value
EUR
--------------------------------------- ---------- ---------- --------------
Investment held in the Lux Subsidiary:
CSWs 45,285,816 44,894,539 60.17
Investments held directly (CLOs):
2 Mezzanine Notes 6,141,000 4,706,395 6.31
12 Income Notes 35,267,000 14,078,223 18.87
Other Net Assets 10,933,890 14.65
--------------------------------------- ---------- ---------- --------------
Net Assets Attributable to C Class Shareholders 74,613,047 100.00
--------------------------------------------------- ---------- --------------
Schedule of Significant Transactions
Date of Transaction Transaction Type Amount Reason
EUR
------------------- ---------------- ---------- --------------------------------
CSWs held by the Ordinary Class
14 Feb 2019 Redemption 10,396,087 To fund dividend
14 May 2019 Redemption 10,533,046 To fund dividend
CSWs held by the C Class
1 February 2019 Subscription 8,000,000 Investments in PPNs
1 March 2019 Subscription 4,300,000 Investments in PPNs
1 April 2019 Subscription 8,500,000 Investments in PPNs
1 May 2019 Subscription 8,200,000 Investments in PPNs
14 May 2019 Redemption 220,490 To fund dividend
4 June 2019 Subscription 16,500,000 Investments in PPNs
CLOs directly held by the C Class
January 2019 Disposal 5,651,234 Liquidation to re-invest in CSWs
February 2019 Disposal 2,046,492 Liquidation to re-invest in CSWs
March 2019 Disposal 8,845,776 Liquidation to re-invest in CSWs
April 2019 Disposal 7,943,124 Liquidation to re-invest in CSWs
May 2019 Disposal 19,847,233 Liquidation to re-invest in CSWs
June 2019 Disposal 2,457,288 Liquidation to re-invest in CSWs
Chair's Statement
Dear Shareholders,
Company Returns and Net Asset Value(3)
The Company delivered an IFRS NAV total return per Ordinary
Share of 15.30% over the first six months of 2019 (1.04% in 2018),
ending the period with a NAV of EUR0.8798 (EUR0.8970 at 30 June
2018). LTM dividend yield was 12.05% for the Ordinary Shares. The
return was comprised 5.58% of dividend income and 9.72% of net
portfolio movement.
On a Published NAV basis, the Company delivered a total return
per Ordinary Share of 8.13% over the first six months of 2019
(1.04% in 2018), ending the period with a NAV of EUR0.9169
(EUR0.8970 at 30 June 2018). The return was composed of dividend
income 5.58% and of net portfolio movement of 2.55%.
The Company delivered an IFRS NAV total return per C Share of
2.66% over the first six months of 2019 (N/A in 2018), ending the
period at EUR0.5591 (N/A at 30 June 2018). The return was comprised
6.04% of dividend income and (3.38)% of net portfolio movement.
On a Published NAV basis, the Company delivered a total return
per C Share of 5.37% over the first six months of 2019 (N/A in
2018), ending the period at EUR0.5738 (N/A at 30 June 2018). The
return was composed of dividend income 6.04% and of net portfolio
movement of (0.67)%.
During the first half of 2019, the Company took advantage of the
continued market strength in order to further diversify and de-risk
the BGCF portfolio. Returns were positively impacted by spread
widening driving higher distributions from underlying CLOs and
improvements in the mark-to-model valuations. The directly held
loan component of the portfolio also benefitted from a recovery in
loan prices.
The Company paid two dividends to Ordinary Shareholders in
respect of the six month period ended 30 June 2019, totalling
EUR0.50 per share. The Company paid two dividends to C Shareholders
in respect of the six month period ended 30 June 2019, totalling
EUR0.035 per share. Details of all dividend payments can be found
within the Dividend History section at the front of this Half
Yearly Financial Report.
Market Conditions
As markets cross the midpoint for the year, it is hard to argue
that the first half of the year has been anything but positive for
global assets. The subsequent rebound in early 2019 after a
disappointing 4th quarter of 2018 resulted in strong returns across
the fixed income space. Global equity markets shrugged off
weakening economic data as well as increasing trade tensions
between the US and China to produce strong performance: the S&P
500 returned 17.4% for the first six months of 2019, while the
Euronext 100 returned 16.8%. Returns were fuelled mainly by an
increasingly dovish tilt in Federal Reserve commentary as well as
the European Central Bank hinting at further monetary policy
easing, the prospects of which propelled risk assets to new highs
by the end of June.
US credit outperformed European credit over the first half of
2019, with high yield the general outperformer. Loans in the US and
Europe returned 5.42% and 3.11%, respectively, compared to high
yield bonds, which returned 9.95% in the US and 7.65% in Europe
over the same period.
Clouds on the global economy have been forming in 2019, however.
Subdued economic growth was recorded in the Eurozone, with gross
domestic product ("GDP") quarter-on-quarter growth falling from
0.4% in Q1 to 0.2% in Q2. Eurozone Manufacturing PMI, a leading
indicator of growth in the economy, contracted over the first six
months of 2019 to below 50 (the demarcation line between growth and
contraction), where it has remained to date. Business confidence
was slightly more optimistic in the US, with GDP annualised
quarter-on-quarter growth of 3.1% and 2.0% in Q1 and Q2,
respectively. Employment data remained broadly encouraging in both
markets. Volatility has been elevated in recent weeks in both the
US and European markets, and we expect that may continue throughout
the rest of 2019.
Discount Management
The share price discount to IFRS NAV narrowed from 5.77% at 31
December 2018 to 5.66% at 30 June 2019 and the share price discount
to Published NAV narrowed from 15.21% at 31 December 2018 to 9.48%
at 30 June 2019. The discount is 11.88% based on the Published NAV
(31 July 2019) and the closing share price as at 18 September 2019.
As a Board, we regularly weigh the balance between maintaining
liquidity of the Euro shares, the stability of any discount or
premium, and the desire of Shareholders to see the Euro shares
trade as closely as possible to their intrinsic value.
On 23 January 2019, the Board announced that, under the general
authority conferred by the Company's Shareholders at its Annual
General Meeting on 22 June 2018; it would buy back shares in the
market using available cash with the goal of reducing the discount.
This was undertaken in the first half of 2019, and the purchased
shares were held in treasury. Further details on the share
repurchase programme can be found below.
Blackstone / GSO Loan Financing C Share Update
In January 2019, in connection with the Rollover Opportunity
whereby shareholders in Carador Income Fund plc were provided the
opportunity to rollover their existing investment into an
investment in newly issued C Shares of BGLF ("BGLC"), BGLF issued
133.5 million of such C shares. The intention was that, over time,
the assets attributed to the rollover pool would be sold. We
actively traded the BGLC portfolio of Rollover Assets liquidating
98.4 million of par (approximately 75% of the initial par rolled
over) given the recovery in loan and CLO prices. We plan to
continue the liquidation of the remaining portfolio as quickly as
possible, albeit selectively considering the softer tone of the
current CLO equity market.
Brexit Update
Geopolitical volatility has been a key driver of uncertainty,
and will remain one over the next few years. The board continues to
monitor the ongoing negotiations regarding the UK's exit from the
European Union ("Brexit") and the working group within Blackstone
and the Portfolio Adviser continue to consider the potential
implications, risks and preparations required. The potential
implications to BGLF continue to be evaluated across its service
providers as the Brexit situation evolves, including areas such as
counterparty relationships, supply chains, macroeconomic, and
regulatory policy, as well as with regards to its marketing
registrations. At this point in time, the implications are
considered to have a limited impact on the long-term sustainability
of the Company. Further information can be found on in the Risk
Overview section of this report. The longer-term impact of Brexit
will continue to be monitored as the situation evolves.
The Board
Good governance remains at the heart of our work as a Board and
is taken very seriously. We believe that the Company maintains high
standards of corporate governance. The Board was very active during
the period, convening a total of 6 Board meetings and 12 Committee
meetings, as well as undertaking an onsite due diligence review in
July 2019 of Blackstone / Debt Funds Management Europe Limited and
GSO / Blackstone Debt Funds Management LLC (together, the
"Adviser"). The Board used this visit to discuss various aspects of
operational risk and controls, the loan and CLO markets, and the
current market conditions.
In addition, as evident from the corporate activity during the
period, the Board and its advisers have worked hard to ensure the
continued success and growth of the Company to put it in the best
position to take advantage of all appropriate opportunities.
The work of the Board is assisted by the Audit Committee,
Management Engagement Committee, the Remuneration and Nomination
Committee and the Risk Committee.
The Company is a member of the Association of Investment
Companies (the "AIC") and adheres to the AIC Code of Corporate
Governance (the "AIC Code") which is endorsed by the Financial
Reporting Council (the "FRC"), and meets the Company's obligations
in relation to the UK Corporate Governance Code 2018 (the "UK
Code").
Effective 8 January 2019, the Board appointed Mark Moffat as a
non-executive director. Mark has been involved in the structuring,
managing and investing in CLOs for over 20 years. As Mark was
employed by GSO Capital Partners LP ("GSO") until early 2015, the
Board does not consider him to be an independent director; however,
we believe that his knowledge and experience will be a valuable
addition to the Board.
Shareholder Communications
During 1H19, using our Adviser and Brokers, we continued our
programme of engagement with current and prospective Shareholders.
We sincerely hope that you found the monthly factsheets and other
information valuable. We are always pleased to have contact with
Shareholders and we welcome any opportunity to meet with you and
obtain your feedback.
Prospects and Opportunities in 2019
Looking ahead to the remainder of 2019, there continues to be a
myriad of factors including weakening global macro data, escalating
trade war tensions and the impact of Brexit that may affect
investor sentiment within the global credit markets. Central banks
in the US, Europe, Japan, China and elsewhere are preparing to
flood the markets with liquidity again. With a potential new round
of quantitative easing (QE) on the horizon, investors can again
expect asset buy-backs to create liquidity allowing portfolios in
receipt of new cash to rebalance. This should ultimately lead to an
increase in demand over a broad range of assets, supporting prices
in the near term and compressing yields. From a relative value
basis, given recent price increases and potential impact of QE we
currently favour loans over high yield.
The Board remains constructive on credit in 2019 and continue to
believe that floating rate senior loans offer a compelling
risk--reward opportunity. This is further supported by our view
that the seniority of loans in the corporate structure offers
defensive positioning unique to the asset class and that loans
remain a well suited component of portfolios in a late cycle
environment.
As we move into the second half of 2019, the Board continues to
believe that the Company is well positioned to access favourable
investment opportunities in loans and CLOs through its investment
in BGCF.
The Board wishes to express its thanks for the support of the
Company's Shareholders.
Charlotte Valeur
Chair
20 September 2019
(3) Past performance is not necessarily indicative of future
results, and there can be no assurance that the Company will
achieve comparable results, will meet its target returns, achieve
its investment objectives, or be able to implement its investment
strategy.
Portfolio Adviser's Review
We are pleased to present our review of the first six months of
2019 and outlook for the remainder of the year.
Bank Loan Market Overview(4)(5)
During the first half of 2019, monetary policy transitioned
globally from coordinated tightening to coordinated easing, and
central banks in the US, Europe, Japan, China and elsewhere are
preparing to flood the markets with liquidity again. In Europe,
after nearly a year of trying to convince markets that it would end
quantitative easing, the European Central Bank ("ECB") has now
acknowledged the extent of Europe's economic problems and will
likely begin to pursue rate cuts and balance sheet expansion in the
second half of 2019 in order to stave off recession. In the US,
hawkish monetary policy was also reversed as the Federal Reserve
("Fed") bowed to pressure from investors who saw slowing growth in
Europe and China and weak inflation in the US as threats to the
global economy. The prospect of coordinated easing propelled risk
assets to new highs in the first half of 2019, turning the
relationship between markets and central banks on its head. Risk
assets are meant to rally after the Fed cuts, not before, but over
the first six months of 2019 the S&P 500, for example, was up
over 20%.
European Loans, as represented by the Credit Suisse Western
European Leveraged Loan Index, returned 3.11% for the first half of
2019 with gains largely driven by the strong rebound of prices in
January and February following weakness in the final quarter of
2018. Low levels of new loan issuance year-to-date, coupled with
strong CLO formation, resulted in increased demand for secondary
loans, which further supported prices. The average price of
European Loans increased from EUR96.54 in December 2018 to EUR98.01
in June 2019. US Loans also exhibited a meaningful performance
comeback in the first half of 2019 following a volatile 4Q18
returning 5.42% in the six months ending 30 June. This represents
the best first half-year performance in 10 years as lower levels of
new issue loan supply offset the headwind of continued outflows
from mutual funds and ETFs. Higher quality loans outperformed lower
quality loans over the first six months of the year with gains of
319bp and 246bp, respectively, for BB and B-rated loans as compared
to their CCC-rated counterparts. BB and B-rated loans have now more
than recuperated any losses suffered during the 4Q18 sell-off.
CCC-rated loans, however, have returned -1.2% for the same period
(01/10/18 through 30/6/19).(5)
Gross total loan issuance was EUR39.3 billion in Europe and
$243.4 billion in the US for the first half of 2019, representing a
decline of 36% and 37%, respectively, over last year. The largest
use of this capital in both markets was related to M&A activity
(59.2% in Europe and 47.6% in the US). Dovish rhetoric from both
the Fed and the ECB in 2Q19 fuelled investor demand for fixed rate,
longer duration assets. As a result, the shift in issuance away
from loans and towards high yield bonds has continued to
proliferate in the credit markets and resulted in lower loan
issuance year-to-date than previously expected globally. Despite
the lower volumes of issuance, both the European loan market and
the US loan market experienced growth in the first half of 2019.
The Credit Suisse Western European Leveraged Loan Index par
outstanding rose from EUR283 billion in December 2018 to EUR294
billion in June 2019 (+4%), while the Credit Suisse Leveraged Loan
Index par outstanding rose from $1,232 billion to $1,250 billion
(+1%). We expect global gross new issue loan supply to decline
year-over-year for 2019, due in part to the slow start to issuance
in 2019 year-to-date ($287 billion compared to $455 billion for the
same period in 2018).
Default rates for loans remained below historical averages
throughout the first half of 2019 with the trailing 12-month par
default rate registering 0.9% in the US and 0.0% in Europe.(5) We
expect that loan default rates will remain below 1.5% throughout
the remainder of 2019 as loan issuer fundamentals remain strong but
remain cognisant of the impact that Brexit and heightened trade
tensions could have on the global economy.
1Q19 financial results for the European issuers in GSO's Liquid
Credit Strategies portfolios show that, on average, quarterly
revenue growth slowed year-over-year while quarterly EBITDA growth
accelerated. 1Q19 year-over-year revenue grew by 3.7%, down from
4.9% in 4Q18 and despite the slowing of top line revenue growth,
year-over-year EBITDA growth increased in 1Q19 to 6.4% from 5.8% in
4Q18. Quarterly year-over-year net total leverage increased to 5.2x
from 5.0x through 1Q19 and interest coverage decreased from 5.3x to
4.9x over the same time period.(6) For the US issuers in GSO's
Liquid Credit Strategies portfolios, quarterly revenue growth
slowed year-over-year and continuing pricing pressure decelerated
quarterly EBITDA growth, however, both metrics remain positive.
1Q19 year-over-year revenue grew by 3.3%, down from 4.4% in 4Q18,
and quarterly EBITDA grew at a rate of 2.8% year-over-year as of
1Q19, down from 4.8% in 4Q18. Net Leverage remained stable
quarter-over-quarter at 5.1x (Gross Total Leverage 5.5x), the
lowest level since 4Q17. Interest coverage, however, has decreased
this quarter from 5.3x to 5.1x but remains higher than the market
average of 4.7x.(6)
CLO Market Overview
European CLO new issuance in the first six months of 2019
totalled EUR14.3 billion, the highest issuance of the first six
months of any year in the post-crisis era. In fact, this represents
the largest volume for any half-year period since 2007, surpassing
the EUR13.3 billion of issuance in 1H18 despite the current
challenging conditions for CLO arbitrage. Meanwhile, US CLO new
issuance totalled $65.1 billion in 1H19, roughly in-line with last
year's record pace of $69.1 billion, despite experiencing some
recent regulatory headwinds from Japan. Global refinancing and
resetting activities year-to-date globally total $26.7 billion
composed of $23.1 billion US CLOs and EUR2.6 billion ($3.6 billion)
of European CLOs.(4)
In the first half of 2019, the Japanese FSA increased their
regulatory scrutiny of both US and European CLO assets due to the
increased scale of these holdings among a concentrated group of
large Japanese banks. As a result, Japanese AAA CLO buyers have
slowed their pace of purchase in 2019, even after a favourable
ruling on CLOs from the Japanese FSA. Existing and new AAA buyers
have emerged to fill the void and have pushed the market toward a
more syndicated AAA distribution which has also resulted in
increased levels of risk tiering based on a manager's track record,
portfolio, and strength of document. AAA-rated US CLO tranches with
five year reinvestment periods issued by top-tier managers
contracted to as low as L+128bp in May and June, compared to the
broad market average of L+137 at the end of March. Amidst record
levels of CLO issuance, primary AAA spreads of European CLOs
averaged E+111bp in the second quarter of 2019 compared to E+99bp
recorded in the final quarter of 2018.
Collateral quality tests in global CLO portfolios remain stable,
per data from Wells Fargo. As of June 2019, Weighted Average Spread
("WAS") test results in both European and US CLOs were 367bp and
345bp, respectively, compared to 363bp and 339bp in December 2018.
Average exposure to CCC-rated assets within CLO portfolios remains
low at 1.2% for European CLOs and 3.3% for US CLOs. Exposure to
distressed assets also remained subdued, as evidenced by average
global Weighted Average Rating Factor ("WARF") test results of 2856
in European CLOs and 2818 in US CLOs, which are in-line with 2018's
results of 2858 and 2807, respectively.
Portfolio Update
BGCF
As at 30 June 2019, the Ordinary Share class and the C Share
class held 35.4% and 4.7% in BGCF respectively through their
holding in CSWs in the Lux Subsidiary which in turns holds PPNs in
BGCF. BGLF, through its investment in BGCF, increased its exposure
to US assets during the first half of 2019. As at 30 June, based on
NAV, 47% of BGCF's portfolio was composed of US CLO Income Notes
and CLO warehouses, compared to 46% in December 2018 (42% June
2018). Exposure to directly held loans, net of leverage, increased
from 18% to 21% from December 2018 to June 2019 (27% June 2018),
and European CLO Income Notes dipped slightly to 35% in June 2019
from 37% at the end of 2018 (33% June 2018).
BGCF continues to generate positive cash flows from its CLO
Income Note investments ("CLO Income Notes") and from its portfolio
of directly held and warehoused loans, generally in-line with the
BGCF's target cash on cash returns.
Directly Held Loan European CLOs US CLOs US CLO Warehouse First
Portfolio Loss
----------------------- ------------------------ -------------------- -------------------- -----------------------
Target Cash on Cash Gross: 9-10% Approximately 15-20% Approximately 15-20% Approximately 15-20%
Return(7)
Actual Cash on Cash
Return(8() Gross: 8.5% / Net: 6.6% 15.8% 17.7% 14.0%
----------------------- ------------------------ -------------------- -------------------- -----------------------
As of 30th of June, CLO Income Notes produced a weighted average
annualised distribution rate of 15.6%, representing distributions
from 28 of BGCF's CLO Income Notes.(9) This compares to a
distribution rate of 15.7% at the end of 2018. Four CLOs in the
portfolio have recently priced and, as of the end of June 2019,
have not yet paid their first distribution.
CLO European CLO Income Notes(1(0) () US CLO Income Notes(10) Global CLO Income
Vintage Notes(10)
---------- ------------------------------------------- ----------------------------------------- --------------------------
Par # of 2Q 2019 Average Par # of 2Q 2019 Average 2Q 2019 1Q 2019
(EURmm) CLOs Annualised Annualised ($mm) CLOs Annualised Annualised Annualised Annualised
Distribution Distribution Distribution Distribution Distribution Distribution
---------- --------- ---- ------------ ------------ ------- ---- ------------ ------------ ------------ ------------
2014 89.8 3 14.2% 16.7% - - - - 14.2% 13.4%
2015 69.7 3 17.1% 15.8% 48.5 1 13.9% 16.6% 15.9% 15.4%
2016 84.0 3 11.4% 11.3% - - - - 11.4% 10.9%
2017 80.4 3 18.3% 15.8% 261.0 6 15.1% 17.4% 15.9% 15.5%
2018 119.9 4 18.5% 18.1% 351.1 6 15.4% 18.1% 16.4% 18.2%
2019 34.0 1 n/a n/a 55.5 2 n/a n/a n/a n/a
Total/Wtd
Avg EUR 477.7 17 16.0% 15.8% $ 716.1 15 15.2% 17.7% 15.6% 15.9%
---------- --------- ---- ------------ ------------ ------- ---- ------------ ------------ ------------ ------------
Throughout the first half of 2019, BGCF originated EUR1.2
billion of loans, and invested EUR27.7 million (EUR34.0 million
par) in one European CLO and $49.1 million ($55.5 million par) in
two US CLOs. BGCF also invested a total of EUR42.2 million ($47.5
million) in two US CLO warehouses.
BGCF's loan portfolios, held both directly on its balance sheet
and indirectly through CLO warehouses, continue to ramp at a more
measured pace due to our current view on the CLO creation equity
arbitrage. Within each warehouse, we remain focused on balancing a
favourable return to BGCF as the warehouse first loss provider
together with any potential credit risk introduced as the
warehoused assets become more seasoned.
Portfolio vintage diversification remains an important part of
the Fund's strategy which provides for greater investment
flexibility to participate in the primary loan market and the
ability to take advantage of secondary loan market dislocations.
BGCF's concentration in newer vintage CLOs with longer reinvestment
periods has increased, albeit at a more measured pace, due to a
less consistently favourable arbitrage between CLO liability cost
and the underlying CLO portfolio asset spreads in 2019 versus 2018.
In addition to new investment activity, BGCF refinanced the
liabilities of Clarinda Park CLO, which resulted in the reduction
of the weighted average liability cost by 22 basis points and an
extension of the reinvestment period by an additional one year.
While achieving a lower cost of liabilities is not the sole reason
to refinance a CLO, the other benefits are outweighed by a higher
cost of refinanced liabilities and therefore we continue to
evaluate the cost/benefit trade-offs of refinancing or resetting
opportunities on a case by case basis.
With the pace of loan refinancings and loan spread compression
finally subsided, we are now beginning to see a turnaround and an
improvement in the net interest margins across much of the CLO
portfolio. As of 30 June 2019, the weighted average asset coupon of
the portfolio was 4.73%, compared to 4.67% as at 31 December 2018.
The average cost of liabilities across BGCF's CLO positions have
widened to a lesser degree from 2.66% to 2.70%, resulting in a
marginal improvement to the net interest margin on the overall
portfolio.
CLO Income Closing EUR Deal Position % % of RP Current Current Net NIM Distributions
Note / / Size Owned of BGCF Remain- Asset Liability Interest 3M Through Last Payment
Investments [Expected USD (mm) (mm) Tranche NAV ing Coupon Cost Margin Prior Date
Close]
Date
------------ ---------- ---- ------- -------- ------- ---- ------- ------- --------- -------- ----- --------------------
Ann. Cum.
------------ ---------- ---- ------- -------- ------- ---- ------- ------- --------- -------- ----- ----- -------------
Phoenix EUR
Park Jul-14 EUR 418 EUR 23.3 51.4% 1.6% 3.83 3.72% 1.77% 1.94% 1.81% 15.4% 73.5%
Sorrento EUR
Park Oct-14 EUR 507 EUR 29.5 51.8% 1.6% 0.00 3.65% 1.46% 2.19% 2.21% 17.1% 78.5%
Castle EUR
Park Dec-14 EUR 415 EUR 37.0 80.4% 2.4% 0.00 3.64% 1.53% 2.11% 2.13% 17.2% 74.2%
Dorchester
Park Feb-15 USD $ 533 $ 48.5 73.0% 2.3% 0.81 5.86% 4.01% 1.85% 1.79% 16.6% 68.7%
Dartry EUR
Park Mar-15 EUR 411 EUR 22.8 51.1% 1.3% 0.00 3.69% 1.63% 2.06% 2.00% 15.2% 62.6%
Orwell EUR
Park Jun-15 EUR 415 EUR 24.2 51.0% 1.7% 0.05 3.78% 1.44% 2.35% 2.29% 16.5% 63.9%
Tymon EUR
Park Dec-15 EUR 414 EUR 22.7 51.0% 1.8% 0.56 3.71% 1.31% 2.40% 2.38% 15.7% 52.4%
EUR
Elm Park May-16 EUR 558 EUR 31.9 56.1% 2.9% 0.79 3.74% 1.37% 2.37% 2.29% 12.8% 37.0%
Griffith EUR
Park Sep-16 EUR 458 EUR 29.0 59.5% 2.1% 3.89 3.74% 1.82% 1.92% 1.86% 10.4% 28.1%
Clarinda EUR
Park Nov-16 EUR 415 EUR 23.1 51.2% 1.5% 1.38 3.77% 1.81% 1.96% 1.69% 10.5% 26.2%
Grippen
Park Mar-17 USD $ 611 $ 35.6 60.0% 2.1% 2.81 5.88% 4.32% 1.56% 1.46% 13.4% 28.1%
Palmerston EUR
Park Apr-17 EUR 415 EUR 28.0 62.2% 1.9% 1.80 3.78% 1.74% 2.03% 1.91% 14.5% 29.3%
Thayer
Park May-17 USD $ 515 $ 29.8 54.6% 1.7% 2.81 5.91% 4.35% 1.55% 1.46% 17.5% 33.8%
Catskill
Park May-17 USD $ 1,029 $ 65.1 60.0% 3.6% 2.81 5.88% 4.32% 1.57% 1.48% 16.5% 31.8%
Clontarf EUR
Park Jul-17 EUR 414 EUR 29.0 66.9% 2.1% 2.10 3.68% 1.58% 2.10% 2.03% 15.1% 27.4%
Dewolf
Park Aug-17 USD $ 614 $ 36.9 60.0% 2.3% 3.29 5.96% 4.32% 1.64% 1.52% 16.7% 27.2%
Gilbert
Park Oct-17 USD $ 1022 $ 60.2 59.0% 3.8% 3.30 5.95% 4.28% 1.67% 1.55% 17.0% 25.2%
Willow EUR
Park Nov-17 EUR 412 EUR 23.4 60.9% 1.9% 3.04 3.69% 1.58% 2.11% 2.03% 18.2% 25.1%
Long Point
Park Dec-17 USD $ 611 $ 33.4 56.9% 2.2% 3.55 5.95% 4.01% 1.94% 1.87% 24.4% 31.7%
Stewart
Park Jan-18 USD $ 878 $ 126.9 69.0% 3.2% 3.51 5.89% 4.06% 1.83% 1.74% 16.6% 20.6%
Marlay EUR
Park Mar-18 EUR 413 EUR 24.6 60.0% 2.0% 2.79 3.69% 1.40% 2.29% 2.22% 19.4% 20.3%
Greenwood
Park Mar-18 USD $ 1,075 $ 63.6 59.1% 4.2% 3.80 5.94% 3.97% 1.97% 1.85% 20.8% 23.1%
Cook Park Apr-18 USD $ 1,025 $ 60.0 56.1% 4.1% 3.80 5.87% 3.93% 1.94% 1.86% 20.9% 21.2%
Milltown EUR
Park Jun-18 EUR 410 EUR 24.1 65.0% 2.2% 3.04 3.73% 1.49% 2.24% 2.16% 18.8% 15.8%
Fillmore
Park Jul-18 USD $ 561 $ 30.2 54.3% 2.4% 4.04 5.89% 4.11% 1.77% 1.68% 14.5% 10.3%
Richmond EUR
Park Jul-18 EUR 549 EUR 46.2 68.3% 2.6% 2.04 3.72% 1.53% 2.19% 2.10% 17.6% 13.1%
Myers
Park Sep-18 USD $ 510 $ 26.8 51.0% 2.1% 4.31 5.93% 4.16% 1.76% 1.87% 17.1% 9.9%
Sutton EUR
Park Oct-18 EUR 409 EUR 25.0 69.4% 2.2% 3.87 3.69% 1.72% 1.97% 1.86% 17.1% 9.8%
Harbor
Park Dec-18 USD $ 716 $ 43.6 55.0% 3.6% 4.56 5.92% 4.34% 1.59% 1.64% n/a n/a
Crosthwaite EUR
Park Feb-19 EUR 513 EUR 34.0 66.7% 2.8% 4.21 3.69% 2.00% 1.69% 1.74% n/a n/a
Buckhorn
Park Mar-19 USD $ 502 $ 29.0 60.0% 2.3% 4.80 5.99% 4.51% 1.48% 1.44% n/a n/a
Niagara
Park Jun-19 USD $ 453 $ 26.5 60.0% 2.1% 5.05 n/a 3.91% n/a n/a n/a n/a
------------ ---------- ---- ------- -------- ------- ---- ------- ------- --------- -------- ----- ----- -------------
Note - Table above excludes CLOs directly held by the C Share
class.
As at 30 June 2019, the portfolio was invested in accordance
with BGCF's investment policy and was diversified across 697
issuers (683 issuers in June 2018) through the directly held loans
and CLO portfolio, and across 18 countries (19 countries in June
2018) and 31 different industries (30 in 2018). No individual
borrower represented more than 2% of the overall portfolio at the
end of June 2019.
Key Portfolio Statistics (11)
Current WA Asset Coupon Current WA Liability Cost WA Leverage WA Remaining CLO Reinvestment
Periods
-------------------- ----------------------- ------------------------- ----------- -------------------------------
Euro CLOs 3.71% 1.60% 8.5x 2.0 Yrs
US CLOs 5.91% 4.16% 8.9x 3.4 Yrs
US CLO Warehouses 5.93% 3.47% 4.0x n/a
Directly Held Loans 3.78% 1.45% 2.5x n/a
Total Portfolio 4.73% 2.70% 7.2x 2.8 Yrs
-------------------- ----------------------- ------------------------- ----------- -------------------------------
Top 10 Holdings
Asset Country Industry % of Portfolio
Euro Garages UK Retail 1.1
Banking, Finance, Insurance and
Paysafe UK Real Estate 1.1
Refinitiv USA Services Business 1.1
Amaya Gaming Group, Inc. USA Hotels, Gaming and Leisure 0.9
Ziggo Netherlands Media Broadcasting and Subscription 0.9
BMC Software USA High Tech Industries 0.9
Numericable France Media Broadcasting and Subscription 0.8
McAfee, LLC USA High Tech Industries 0.8
AkzoNobel Specialty Chem Netherlands Chemicals, Plastics and Rubber 0.8
Banking, Finance, Insurance and
Ion Trading Ireland Real Estate 0.7
------------------------- ------------ ------------------------------------ --------------
Top 5 Industries
Industries % of Portfolio
As at 30 June 2019 As at 31 December 2018
-------------------------------------------- ------------------ ----------------------
Healthcare and Pharma 15.2 16.0
High Tech Industries 9.8 10.3
Banking, Finance, Insurance and Real Estate 9.7 9.5
Services Business 9.3 9.2
Hotel, Gaming and Leisure 7.7 7.0
-------------------------------------------- ------------------ ----------------------
Top 5 Countries
Countries % of Portfolio
As at 30 June 2019 As at 31 December 2018
--------------- ------------------ ----------------------
United States 57.7 57.2
France 8.2 8.4
Luxembourg 7.9 7.5
Netherlands 5.1 5.6
United Kingdom 5.1 5.2
--------------- ------------------ ----------------------
Directly Held CLOs
BGLC's portfolio composition has rotated from 100% Rollover
Assets and cash at the issuance date of BGLC shares to 25% of
Rollover Assets and 61% BGCF PPNs (invested via the Lux Subsidiary)
as at 30 June 2019 (14% net cash and expenses). Sales of Rollover
Assets were more concentrated within the first quarter, following a
broader recovery in loan and CLO prices. Since then, a softer tone
in the CLO equity market has resulted in a slower pace of sales of
the remaining Rollover Assets. While the vast majority of the
remaining Rollover Assets are managed by top tier, more liquid CLO
managers, we continue to monitor and consider the risks within each
of the remaining positions as it relates to a sale decision. We
expect that these remaining positions will be sold as and when
greater liquidity returns to the market.
Risk Management
Heading into the second half of 2019, slowing corporate profits
and trade tensions are likely to be a source of volatility that may
cause credit spreads to widen. However, we do not see evidence of
an immediate economic downturn and we recognize that the Fed's
activities are geared toward extending a credit cycle that is
already in its tenth year. Thus, we have been taking advantage of
the market liquidity to selectively prune risk and position the
portfolio more defensively, ensuring ample cushions within each CLO
relative to their respective tests.
In addition to our general analysis and fundamental credit
review, we have developed a proprietary system to weight and score
key document attributes. We acknowledge that loan documents have
recently become more flexible to the borrower, partially due to
strong investor demand for the asset class, creating a
borrower-friendly market. In response to the increased flexibility,
we have standardised our document review process, tracking key
attributes, and incorporating them into our portfolio and risk
management approach with the goal of tracking individual document
quality on an ongoing basis as an input to our investment and
portfolio management decisions. In cases where we believe the
document creates uncertainty regarding recovery, our seniority in
the capital structure, or collateral protection, we may choose to
pass on the deal or actively reduce positions at the first sign of
underperformance.
BGCF's non-Euro denominated assets comprise roughly 35% of the
gross portfolio and while these assets are hedged back to the Euro,
should there be an increase in volatility in currency exchange
rates as a result of the trade war turned currency war, BGCF may
experience greater volatility in both the value of and income from
these assets.
We remain constructive on credit and continue to believe that
floating rate senior loans offer a compelling risk--reward
opportunity. This is further supported by our view that the
seniority of loans in the corporate structure offers defensive
positioning unique to the asset class and that loans remain a well
suited component of portfolios in a late cycle environment.
Based on our outlook, we currently view pullbacks in the loan
market to be potential opportunities for which the Fund is well
positioned to access through its investment in BGCF.
Blackstone / GSO Debt Funds Management Europe Limited
20 September 2019
(4) Source: S&P LCD, data as of 30 June 2019
(5) Source: Credit Suisse, as of 30 June 2019
(6) Source: Axiom (GSO). Q1 figures sourced from 126 out of 222
European issuers and 599 out of 798 US issuers. Data may be
restated for prior quarters as additional companies report
quarterly financials.
(7) As of 30 June 2019. Expected cashflows are provided as
indicators of how GSO intends to manage the portfolio and are not
intended to be viewed as indicators of likely performance returns.
Expected cashflows are not guarantees, projections or predictions
of future performance and are presented solely to provide you with
insight into the portfolio's anticipated risk and reward
characteristics. There can be no assurance that the expected
cashflows will be achieved or that GSO will be able to implement
its investment strategy, achieve its objectives or avoid
substantial losses. Actual realized net IRR will depend on numerous
factors, all of which may differ from the assumptions on which the
expected cashflows are based.
(8) As of 30 June 2019. Represented by: the average monthly
annualised distribution, gross and net of leverage costs, from 31
December 2017 for Directly Held Loan Portfolio; annualised
distributions of each CLO's respective inception date through its
last payment date for European and US CLOs; average annualised
distributions of each US CLO Warehouse position for US CLO
Warehouse First Loss.
(9) Source: Intex - Annualised quarterly cash distribution based
on cost for those CLOs that have paid a distribution.
(10) As of 30 June 2019. Distributions are based off local
currency.
(11) Source: GSO Internal data, as at 30 June 2019
Strategic Overview
Purpose
As an investment company, our purpose is to provide permanent
capital to BGCF, a company established by DFME as part of its loan
financing programme, with a view to generating stable and growing
total returns for Shareholders through dividends and value
growth.
We deliver our purpose through working in line with our values,
which form the backbone of what the Company does and are an
important part of our culture.
Values
Integrity and Trust - The Company seeks to act with integrity in
everything it does and to be trustworthy. We seek to uphold the
highest standards of professionalism driven by our corporate
governance processes.
Transparency - The Company aims to ensure all of its activities
are undertaken with the utmost transparency and openness to sustain
trust.
Opportunity - The ability to see and seize opportunity in the
best interests of shareholders.
Sustainability - As an investment company we aim to maintain and
deliver attractive and sustainable returns for our
shareholders.
Principal Activities
The Company was incorporated on 30 April 2014 as a closed-ended
investment company limited by shares under the laws of Jersey and
is authorised as a listed fund under the Collective Investment
Funds (Jersey) Law 1988. The Company continues to be registered and
domiciled in Jersey. The Company's Ordinary Shares are quoted on
the Premium Segment of the Main Market of the LSE. The Company's C
Shares are quoted on the SFS of the Main Market of the LSE.
The Company's share capital consists of an unlimited number of
shares of any class. As at 30 June 2019, the Company's issued share
capital was 402,319,490 Ordinary Shares and 133,451,107 C
Shares.
The Company has a wholly-owned Luxemburg subsidiary, Blackstone
/ GSO Loan Financing (Luxembourg) S.à r.l. , which has an issued
share capital of 2,000,000 Class A shares and 1 Class B share. All
of the Class A and Class B shares were held by the Company as at 30
June 2019 together with 319,685,922 Class B CSWs issued by the Lux
Subsidiary. The Lux Subsidiary invests in PPNs issued by BGCF, an
Underlying Company.
The Company is a self-managed company. DFME acts as Portfolio
Adviser to the Company and, pursuant to the Advisory Agreement,
provides advice and assistance to the Company in connection with
its investment in the CSWs. DFM acts as Portfolio Manager in
relation to the Rollover Assets (as defined in the Company's
Prospectus published on 23 November 2018).
BNP Paribas Securities Services S.C.A., Jersey Branch acts as
Administrator, Company Secretary, Custodian and Depositary to the
Company.
Investment Objective
As outlined in the Company's Prospectus, the Company's
investment objective is to provide Shareholders with stable and
growing income returns, and to grow the capital value of the
investment portfolio by exposure to floating rate senior secured
loans and bonds directly and indirectly through CLO Securities and
investments in Loan Warehouses. The Company seeks to achieve its
investment objective through exposure (directly or indirectly) to
one or more companies or entities established from time to time
("Underlying Companies").
Investment Policy
Overview
As outlined in the Company's Prospectus, the Company's
investment policy is to invest (directly, or indirectly through one
or more Underlying Companies) in a diverse portfolio of senior
secured loans (including broadly syndicated, middle market or other
loans) (such investments being made by the Underlying Companies
directly or through investments in Loan Warehouses), bonds and CLO
Securities, and generate attractive risk-adjusted returns from such
portfolios. The Company intends to pursue its investment policy by
investing (through one or more subsidiaries) in profit
participating instruments (or similar securities) issued by one or
more Underlying Companies.
Each Underlying Company will use the proceeds from the issue of
the profit participating instruments (or similar securities),
together with the proceeds from other funding or financing
arrangements it has in place currently or may have in the future,
to invest in: (i) senior secured loans, bonds, CLO Securities and
Loan Warehouses; or (ii) other Underlying Companies which,
themselves, invest in senior secured loans, bonds, CLO Securities
and Loan Warehouses. The Underlying Companies may invest in
European or US senior secured loans, bonds, CLO Securities, Loan
Warehouses and other assets in accordance with the investment
policy of the Underlying Companies. Investments in Loan Warehouses,
which are generally expected to be subordinated to senior finance
provided by third-party banks, will typically be in the form of an
obligation to purchase preference shares or a subordinated loan.
There is no limit on the maximum US or European exposure. The
Underlying Companies do not invest substantially directly in senior
secured loans or bonds domiciled outside North America or Western
Europe.
Investment Limits and Risk Diversification
The Company's investment strategy is to implement its investment
policy by investing directly or indirectly through the Underlying
Companies, in a portfolio of senior secured loans and bonds or in
Loan Warehouses containing senior secured loans and bonds and, in
connection with such strategy, to own debt and equity tranches of
CLOs and, in the case of European CLOs and certain US CLOs, to be
the risk retention provider in each.
The Underlying Companies may periodically securitise a portion
of the loans, or a Loan Warehouse in which they invest, into CLOs
which may be managed either by such Underlying Company itself, by
DFME or DFM (or one of their affiliates), in their capacity as the
CLO Manager.
Where compliance with the European Risk Retention Requirements
is sought (which, with certain exceptions, will not be the case for
the US CLOs) the Underlying Companies will retain exposures of each
CLO, which may be held as:
-- CLO Income Notes equal to: (i) between 51% and 100% of the
CLO Income Notes issued by each such CLO in the case of European
CLOs; or (ii) CLO Income Notes representing at least 5% of the
credit risk relating to the assets collateralising the CLO in the
case of US CLOs (each of (i) and (ii), (the "horizontal strip");
or
-- Not less than 5% of the principal amount of each of the
tranches of CLO Securities in each such CLO (the "vertical
strip").
In the case of deals structured to be compliant with the
European Risk Retention Requirements, the applicable Underlying
Company may determine that, due to its role as an "originator" with
respect to such transaction, such Underlying Company should also
comply with the US Risk Retention Regulations. In addition, an
Underlying Company may invest in CLOs, such as middle market CLOs,
which are not exempt from the US Risk Retention Regulations and, as
a result, may be required to retain exposure to such CLOs in
accordance with such rules. In such a scenario, the Underlying
Company will retain exposures to such transactions for the purpose
of complying with the US Risk Retention Regulations, which may be
held as:
-- CLO Income Notes representing at least 5% of the fair market
value of the CLO Securities (including CLO Income Notes) issued by
such CLO (the "US horizontal strip");
-- A vertical strip; or
-- A combination of a vertical strip and US horizontal strip.
To the extent attributable to the Company, the value of the CLO
Income Notes retained by Underlying Companies in any CLO will not
exceed 25% of the NAV of the Company at the time of investment.
Investments in CLO Income Notes and loan warehouses are highly
leveraged. Gains and losses relating to underlying senior secured
loans will generally be magnified. Further, to the extent
attributable to the Company, the aggregate value of investments
made by Underlying Companies in vertical strips of CLOs (net of any
directly attributable financing) will not exceed 15% of the NAV of
the Company at the time of investment. This limitation shall apply
to Underlying Companies in aggregate and not to Underlying
Companies individually.
Loan Warehouses may eventually be securitised into CLOs managed
either by an Underlying Company itself or by DFME or DFM (or one of
their affiliates), in their capacity as the CLO Manager. To the
extent attributable to the Company, the aggregate value of
investments made by Underlying Companies in any single externally
financed warehouse (net of any directly attributable financing)
shall not exceed 20% of the NAV of the Company at the time of
investment, and in all externally financed warehouses taken
together (net of any directly attributable financing) shall not
exceed 30% of the NAV of the Company at the time of investment.
These limitations shall apply to Underlying Companies in aggregate
and not to Underlying Companies individually.
The following limits (the "Eligibility Criteria") apply to
senior secured loans and bonds (and, to the extent applicable,
other corporate debt instruments) directly held by any Underlying
Company (and not through CLO Securities or Loan Warehouses):
% of a Underlying Company's
Maximum Exposure Gross Asset Value
Per obligor 5
Per industry sector 15
(With the exception of one industry, which may be up to
20%)
To obligors with a rating lower than B-/B3/B- 7.5
To second lien loans, unsecured loans, mezzanine loans and
high yield bonds 10
---------------------------------------------------------- ----------------------------------------------------------
For the purposes of these Eligibility Criteria, "gross asset
value" shall mean gross assets, including any investments in CLO
Securities and any undrawn commitment amount of any gearing under
any debt facility. Further, for the avoidance of doubt, the
"maximum exposures" set out in the Eligibility Criteria shall apply
on a trade date basis.
Each of these Eligibility Criteria will be measured at the close
of each Business Day on which a new investment is made, and there
will be no requirement to sell down in the event the limits are
breached at any subsequent point (for instance, as a result of
movement in the gross asset value, or the sale or downgrading of
any assets held by an Underlying Company).
In addition, each CLO in which an Underlying Company holds CLO
Securities and each Loan Warehouse in which an Underlying Company
invests will have its own eligibility criteria and portfolio
limits. These limits are designed to ensure that: (i) the portfolio
of assets within the CLO meets a prescribed level of diversity and
quality as set by the relevant rating agencies rating securities
issued by such CLO, or (ii) in the case of a Loan Warehouse, that
the warehoused assets will eventually be eligible for a rated CLO.
The CLO Manager will seek to identify and actively manage assets
which meet those criteria and limits within each CLO or Loan
Warehouse. The eligibility criteria and portfolio limits within a
CLO or Loan Warehouse may include the following:
-- A limit on the weighted average life of the portfolio;
-- A limit on the weighted average rating of the portfolio;
-- A limit on the maximum amount of portfolio assets with a rating lower than B-/B3/B-; and
-- A limit on the minimum diversity of the portfolio.
CLOs in which an Underlying Company may hold CLO Securities or
Loan Warehouses in which an Underlying Company may invest also have
certain other criteria and limits, which may include:
-- A limit on the minimum weighted average of the prescribed rating agency recovery rate;
-- A limit on the minimum amount of senior secured assets;
-- A limit on the maximum aggregate exposure to second lien
loans, high yield bonds, mezzanine loans and unsecured loans;
-- A limit on the maximum portfolio exposure to covenant-lite loans;
-- An exclusion of project finance loans;
-- An exclusion of structured finance securities;
-- An exclusion on investing in the debt of companies domiciled
in countries with a local currency sub-investment grade rating;
and
-- An exclusion of leases.
This is not an exhaustive list of the eligibility criteria and
portfolio limits within a typical CLO or Loan Warehouse and the
inclusion or exclusion of such limits and their absolute levels are
subject to change depending on market conditions. Any such limits
applied shall be measured at the time of investment in each CLO or
Loan Warehouse.
Changes to Investment Policy
Any material change to the investment policy of the Company
would be made only with the approval of Ordinary Shareholders.
It is intended that the investment policy of each substantial
Underlying Company will mirror the Company's investment policy,
subject to such additional restrictions as may be adopted by a
substantial Underlying Company from time to time. The Company will
receive periodic reports from each substantial Underlying Company
in relation to the implementation of such substantial Underlying
Company's investment policy to enable the Company to have oversight
of its activities.
If a substantial Underlying Company proposes to make any changes
(material or otherwise) to its investment policy, the Directors
will seek Ordinary Shareholder approval of any changes which are
either material in their own right or, when viewed as a whole
together with previous non-material changes, constitute a material
change from the published investment policy of the Company. If
Ordinary Shareholders do not approve the change in investment
policy of the Company such that it is once again materially
consistent with that of such substantial Underlying Company, the
Directors will redeem the Company's investment in such substantial
Underlying Company (either directly or, if the Company's investment
in a subsidiary is invested by such subsidiary in such substantial
Underlying Company (either directly or through one or more other
Underlying Companies), by redeeming the securities held by the
Company in such subsidiary and procuring that the subsidiary
redeems its investment in such substantial Underlying Companies
(either directly or through one or more other Underlying
Companies)), as soon as reasonably practicable but at all times
subject to the relevant legal, regulatory and contractual
obligations.
The Board considers BGCF to be a substantial Underlying
Company.
Company Borrowing Limit
The Company will not utilise borrowings for investment purposes.
However, the Directors are permitted to borrow up to 10% of the
Company's NAV for day-to-day administration and cash management
purposes. For the avoidance of doubt, this limit only applies to
the Company and not the Underlying Companies.
In accordance with the Company's Prospectus, the Company may use
hedging or derivatives (both long and short) for the purposes of
efficient portfolio management. It is intended that up to 100% (as
appropriate) of the Company's exposure to any non-Euro assets will
be hedged, subject to suitable hedging contracts being available at
appropriate times and on acceptable terms.
Investment Strategy
Whether the senior secured loans, bonds or other assets are held
directly by an Underlying Company or via CLO Securities or Loan
Warehouses, it is intended that, in all cases, the portfolios will
be actively managed (by the Underlying Companies or the CLO
Manager, as the case may be) to minimise default risk and potential
loss through comprehensive credit analysis performed by the
Underlying Companies or the CLO Manager (as applicable).
Vertical strips in CLOs in which Underlying Companies may invest
are expected to be financed partly through term finance for
investment-grade CLO Securities, with the balance being provided by
the relevant Underlying Company investing in such CLO. This term
financing may be full-recourse, non-mark to market, long-term
financing which may, among other things, match the maturity of the
relevant CLO or match the reinvestment period or non-call period of
the relevant CLO. In particular, and although not forming part of
the Company's investment policy, the following levels of, or
limitations on, leverage are expected in relation to investments
made by Underlying Companies:
-- Senior secured loans and bonds may be levered up to 2.5x with term finance;
-- Investments in "first loss" positions or the "warehouse
equity" in Loan Warehouses will not be levered;
-- CLO Income Notes will not be levered;
-- Investments in CLO Securities rated B- and above at the time
of issue may be funded entirely with term finance; and
-- Investments in a vertical strip may be levered 6.0-7.0x, with
term finance as described above.
To the extent that they are financed, vertical strips are
anticipated to require less capital than horizontal strips, which
is expected to result in more efficient use of the Underlying
Companies' capital. In addition, since the return profile on
financed vertical strips is different to retained CLO Income Notes,
GSO believes that vertical strips may be more robust through a
market downturn, although projected IRRs may be slightly lower.
However, an investment in vertical strips is not expected to impact
the Company's stated target return.
From time to time, as part of its ongoing portfolio management,
the Underlying Companies may sell positions as and when suitable
opportunities arise. Where not bound by risk retention
requirements, it is the intention that the Underlying Companies
would seek to maintain control of the call option of any CLOs
securitised.
With respect to investments in CLO Securities, while the
Underlying Companies maintain a focus on investing in newly issued
CLOs, it will also evaluate the secondary market for sourcing
potential investment opportunities in CLO Securities.
Whilst the intention is to pursue an active, non-benchmark total
return strategy, the Company is cognisant of the positioning of the
loan portfolios against relevant indices. Accordingly, the
Underlying Companies will track the returns and volatility of such
indices, while seeking to outperform them on a consistent basis.
In-depth, fundamental credit research dictates name selection and
sector over-weights/under-weights relative to the benchmark,
backstopped by constant portfolio monitoring and risk oversight.
The Underlying Companies will typically look to diversify their
portfolios to avoid the risk that any one obligor or industry will
adversely impact overall returns. The Underlying Companies also
place an emphasis on loan portfolio liquidity to ensure that if
their credit outlook changes, they are free to respond quickly and
effectively to reduce or mitigate risk in their portfolio. The
Company believes this investment strategy will be successful in the
future as a result of its emphasis on risk management, capital
preservation and fundamental credit research. The Directors believe
the best way to control and mitigate risk is by remaining
disciplined in market cycles, by making careful credit decisions
and maintaining adequate diversification.
The portfolio of the Underlying Companies in which the Company
invests (through its wholly-owned subsidiary) remains broadly
divided between European CLOs and US CLOs.
The Company operates with Euro as its functional currency. The
Rollover Assets and a significant proportion of the portfolio of
assets held by Underlying Companies to which the Company has
exposure may, from time to time, be denominated in currencies other
than Euro. In accordance with the Company's investment policy, up
to 100 per cent. (as appropriate) of the Company's exposure to such
non-Euro assets is hedged, subject to suitable hedging contracts
being available at appropriate times and on acceptable terms.
Corporate Activity
Rollover Offer Proposal
On 3 January 2019, the Company announced that the 133,451,107 C
Shares arising from the Rollover transaction would be allotted and
admitted to trading on the SFS of the Main Market of the LSE with
effect from Monday 7 January 2019.
Allotment and admission to trading on the SFS of the LSE was
completed on the 7 January 2019.
Voting Rights
Holders of C Shares have the right to receive income and capital
from the C Share assets attributable to such class. C Shareholders
do not have the right to receive notice of or to attend or vote at
any general meeting of the Company.
Dividends
The Company may by a C Share ordinary resolution declare
dividends in accordance with the rights of the C Shareholders, but
no such dividend shall exceed the amount recommended by the
Directors. The Directors may pay fixed rate and interim dividends
on C Shares.
The Company has delegated portfolio management of the Rollover
Assets to DFM (the "Rollover Portfolio Manager") by way of a
Rollover Portfolio Management Agreement but has retained risk
management and overall supervision and control of the Rollover
Assets' CLO Managers.
Directorate Change
On 8 January 2019, the Company announced that Mark Moffat had
been appointed as a non-executive director effective the same
day.
Share Repurchase Programme
On 23 January 2019, the Company announced that, under the
general authority to buy back shares conferred by the Company's
Ordinary Shareholders at its AGM on 22 June 2018, it intended to
buy back shares in the market using available cash.
On 5 June 2019 and 7 June 2019, the Company announced that it
had purchased 2,056,202 and 324,754 of its Ordinary Shares of no
par value respectively at a weighted average price per share of
EUR0.81. The purchased Ordinary Shares are held in treasury.
Following completion of these two buy backs, the Company has
402,319,490 Ordinary Shares in issue.
Broker Update
On 24 June 2019, Fidante Partners Europe Limited gave the
Company notice of the termination of the agreements for asset
management services between the Company and themselves due to a
winding down of the Fidante Capital business. This termination
became effective as from 30 June 2019.
Risk Overview
Principal Risks and Uncertainties
Each Director is aware of the risks inherent in the Company's
business and understands the importance of identifying, evaluating
and monitoring these risks. The Board has adopted procedures and
controls to enable it to manage these risks within acceptable
limits and to meet all of its legal and regulatory obligations.
The Board considers the process for identifying, evaluating and
managing any significant risks faced by the Company on an ongoing
basis and these risks are reported and discussed at Board meetings.
It ensures that effective controls are in place to mitigate these
risks and that a satisfactory compliance regime exists to ensure
all applicable local and international laws and regulations are
upheld.
The Directors have carried out a robust assessment of the
principal risks facing the Company, an overview of which, along
with the applicable mitigants put in place, is set out below:
Principal risk Mitigant
Investment performance
A key risk to the Company is unsatisfactory investment Market conditions, events and political uncertainty pose
performance due to an economic downturn a risk to capital for any asset class
along with continued political uncertainty which could which by their nature (and outside efficient portfolio
negatively impact global credit markets management by the Portfolio Adviser)
and the risk reward characteristics for CLO structuring. may not have any mitigating factors.
This could directly impact the performance
of the underlying CLOs that the Company invests in and it The Board receives regular updates from the Portfolio
could also result in a reduced number Adviser on the developments and overall
of suitable investment opportunities and/or lower health of the loan and CLO market. The Board takes
shareholder demand. comfort in the Portfolio Adviser's track
record and that a sufficient number of CLOs have been
established by BGCF, the income from
which should enable the Company (through its investment
in the Lux Subsidiary) to cover its
running costs and dividend policy for the foreseeable
future.
--------------------------------------------------------- ---------------------------------------------------------
Share price discount
The price of the Company's shares may trade at a discount The Board continually monitors the Company's share price
relative to the underlying net asset discount or premium to the Published
value of the shares. NAVs and regularly consults with the Company's brokers
regarding share trading volumes, significant
buyers and sellers, and comparative data from the
Company's peer group.
In order to manage the discount existing at the time, on
23 January 2019 the Board announced
that under its general authority to buy back shares in
the market, it intended to do so using
available cash. In June 2019, the Company bought back
2,380,956 Ordinary Shares at a weighted
average price of EUR0.81.
--------------------------------------------------------- ---------------------------------------------------------
Investment valuation
The investment in the Lux Subsidiary is accounted for at The Directors use their judgement, with the assistance
fair value through profit or loss of the Portfolio Adviser, in selecting
and the investment in PPNs issued by BGCF held by the Lux an appropriate valuation technique and refer to
Subsidiary are at fair value. Investments techniques commonly used by market practitioners.
in BGCF (the PPNs) are illiquid investments, not traded The board of directors of BGCF likewise use their
on an active market and are valued judgement in determining the valuation of
using valuation techniques determined by the Directors. investments and underlying CLOs and equity tranches
The underlying CLO investments held retained by BGCF.
by BGCF are valued using modelling methodologies,
described in the Company's Prospectus, that As detailed further in Note 12 of the Annual Report and
are based upon many assumptions. Audited Financial Statements as at
31 December 2018, independent valuation service
The valuation of the Company's investments therefore providers are involved in determining the
requires a significant judgement and fair value of underlying CLOs.
there is a risk that they are incorrectly valued due to The Company determines the fair value of the directly
calculation errors or incorrect assumptions. held CLOs by the C Share class using
third party valuations.
The CLOs held directly by the C Share class are valued
using the mark-to-market approach.
--------------------------------------------------------- ---------------------------------------------------------
Income distribution model
The Company receives cash flows from its underlying The Directors use their judgement, with the assistance
exposure to debt and CLO investments held of the Portfolio Adviser, in setting
by BGCF. Each underlying CLO will pay out a mixture of the Company's distribution policy to ensure that it is
income and capital return over its appropriate given the performance of
life with a terminal capital value in the 70 to 80% the underlying CLOs.
range. BGCF aims to distribute most of
the proceeds that it receives from CLO investments to the In the last six months the Directors have carried out a
Company (via PPNs) whilst reinvesting review of this risk with the Portfolio
some of the proceeds back into CLOs to maintain capital Adviser. The Directors are comfortable that the
invested. In turn, the Company aims distribution policy is currently sustainable
to distribute income received to shareholders, in and will consider any early warning signs that the
accordance with its distribution policy, policy may be too generous.
without eroding capital.
There is a risk that the distribution policy at the
Company level may be too generous or re-investment
at the BGCF level may not be sufficient, resulting in the
erosion of underlying capital invested.
--------------------------------------------------------- ---------------------------------------------------------
Brexit
The Directors do not believe that any outcome from the Brexit
process is a significant risk to the Company other than any impact
reflected generally in international markets and the global
economy. The Directors held discussions with the Portfolio
Adviser's Brexit planning team to gain comfort that any other
Brexit associated risk is mitigated. In addition, the Portfolio
Adviser's credit research team of 29 investment professionals has
reviewed BGCF's portfolio of UK-exposed issuers, based on potential
impact as a result of Brexit. When considering Brexit's impact on
the portfolio, it is important to look at not just where the credit
is domiciled, but what the exposure is to the UK and the impact of
Brexit specifically related to that business. The team identified
and analysed what they believe to be the main risks for UK
businesses that could potentially have an impact on margins,
availability of goods, and employees, which include but are not
limited to: foreign exchange risk, tariffs, supply chain impacts,
availability of workers, consumer confidence, and regulatory
changes.
Given the global focus of the strategy, the exposure to any one
individual European country is low. As at 30 June, 6.6% of BGCF
directly held assets were classified as UK companies.
Going Concern
The Directors have considered the Company's investment
objective, risk management and capital management policies, its
assets and the expected income from its investments. The Directors
are of the opinion that the Company is able to meet its liabilities
and ongoing expenses as they fall due and they have a reasonable
expectation that the Company has adequate resources to continue in
operational existence for the foreseeable future. Accordingly,
these financial statements have been prepared on a going concern
basis and the Directors believe it is appropriate to continue to
adopt this basis for a period of at least 12 months from the date
of approval of these financial statements.
As noted above, the Published NAV and the IFRS NAV may diverge
because of different key assumptions used to determine the
valuation of the BGCF portfolio. Key assumptions which are
different between the two bases as at 30 June 2019 are detailed
below:
Asset Valuation Input IFRS NAV Published
Methodology NAV
Discounted
CLO Securities Cash Flows Constant default rate 1.89% 2.00%
Conditional prepayment
rate 25% 20%
Reinvestment spread
(bp over LIBOR) 349.45 379.83
Recovery rate Loans 70% 70%
Recovery lag (Months) - 12
Discount rate 14.16% 12.69%
-------------------------------------------------------- --------- ----------
All of the assumptions above are based on weighted averages.
Certain assumptions, which underpin the period-end Published
NAV, such as a lower conditional prepayment rate and a 12-month
recovery lag on assumed defaulted assets, are generally more
conservative. The below table further explains the rationale
regarding the differences in the assumptions that significantly
contributed to the valuation divergence as at 30 June 2019.
Assumptions IFRS NAV Published NAV
------------- ------------------------------------- -----------------------------------
Reinvestment Largely weighted by a CLO's Represents a normalised,
Spread current portfolio weighted long-term view of loan
average spread, which assumes spreads to be achieved
that the CLO investment over the life of the CLO's
manager will continue to remaining reinvestment
reinvest in collateral period. Initially informed
with a similar spread and by the underwriting model
rating composition to the at issuance, the assumption
existing collateral pool. is periodically reviewed
In addition, weighting and updated to the extent
may be given to primary of secular changes in loan
loan spreads to the extent spreads.
current primary market
opportunities suggest different
spreads than the existing
portfolio.
Discount Intended to reflect the Based on the yield calibrated
Rate market required rate of at the time of initial
return for similar securities underwriting in order to
and is informed by market reflect the original transaction
research, BWICs, market price and the long-term
colour for comparable transactions, view of the investment.
and dealer runs. The discount The discount rate is periodically
rate may vary based on reviewed and updated to
underlying loan prices, the extent of secular changes
exposure to distressed in the market required
assets or industries, manager rate of return.
performance, and time remaining
in reinvestment period.
Discount rates tend to
widen in periods of illiquidity,
as experienced in Q2 2019.
While market colour on
CLO Income Notes was limited
during this period, the
volatility in underlying
loan prices and temporary
market illiquidity led
to an increase in discount
rates to reflect the perceived
portfolio risk.
------------- ------------------------------------- -----------------------------------
Source of the Company's Dividend - Ordinary Class
The Company through its investments in the Lux Subsidiary
receives interest income, on a quarterly basis, on the PPNs held by
the latter in BGCF, which continues to generate positive cash flows
from its CLO Income Note investments and from its portfolio of
directly held and warehoused loans.
The Company redeems CSWs on a quarterly basis to transfer the
income from the Lux Subsidiary. As detailed above, the Company
redeemed 16,943,106 CSWs in the Lux Subsidiary during the period
with a fair value of EUR20,929,133 to fund the quarterly
dividend.
Source of the Company's Dividend - C Class
The Company receives interest income, on a quarterly basis, from
the CLOs held within the C Class portfolio. Additionally, the
Company, as mentioned above, redeems CSWs on a quarterly basis to
augment the interest income from the CLOs. As detailed above, the
Company redeemed 214,185 CSWs in the Lux Subsidiary during the
period with a fair value of EUR220,490 to fund the quarterly
dividend.
Directors' Interests
The Directors held the following number of Ordinary Shares in
the Company as at the period end and the date these condensed
financial statements were approved:
Ordinary Shares As at 30 June 2019 As at 31 December 2018
Charlotte Valeur 11,500 11,500
Gary Clark 108,200 73,700
Heather MacCallum - -
Steven Wilderspin 20,000 20,000
Mark Moffat (appointed 8 January 2019) 601,028 601,028
--------------------------------------- ------------------ ----------------------
The Directors held the following number of C Shares in the
Company as at the period end and the date these condensed financial
statements were approved:
C Shares As at 30 June 2019 As at 7 January 2019
Charlotte Valeur - -
Gary Clark - -
Heather MacCallum - -
Steven Wilderspin - -
Mark Moffat 291,068 291,068
------------------ ------------------ --------------------
Future Developments
Significant Events after the Reporting Period
On 18 July 2019, the Company declared a dividend of EUR0.025 per
Ordinary Share in respect of the period from 1 April 2019 to 30
June 2019. A total payment of EUR10,057,987 was made on 23 August
2019.
On 18 July 2019, the Company declared a dividend of EUR0.0214
per C Share in respect of the period from 1 April 2019 to 30 June
2019. A total payment of EUR2,855,854 was made on 23 August
2019.
Outlook
The Directors continue to believe that the investment strategy
and policy adopted by the Company is appropriate and is capable of
meeting the Company's objectives.
The overall strategy remains unchanged and it is the Directors'
assessment that there are sufficient resources to properly manage
the Company's portfolio in the current and anticipated investment
environment.
The Portfolio Adviser's Report detail the performance to date of
the investment portfolio and the main trends and factors likely to
affect its future development, performance and position.
The Directors are confident that the realisation of the Rollover
Assets is on track and should complete within the timeframe
stipulated within the Prospectus subject to no market
dislocations.
Directors' Biographies
The Directors appointed to the Board as at the date of approval
of this Half Yearly Financial Report are:
Charlotte Valeur
Position: Chair of the Board (non-executive and independent
director, resident in Jersey)
Date of appointment: 13 June 2014
Charlotte Valeur has more than 35 years of experience in
financial markets and is the managing director of GFG Ltd, a
governance consultancy company.
Effective 3 September 2018, Ms Valeur was appointed Chair of the
Institute of Directors.
She also currently serves as a non-executive director on the
boards of listed and unlisted companies including non-executive
director of JP Morgan Convertible Bond Income Fund, an LSE-listed
investment company; non-executive director of Phoenix Spree
Deutschland Ltd, an LSE-listed company; non-executive director of
Laing O'Rourke, a construction company; and a non-executive
director of NTR Plc, a renewable energy company. She previously
served as chair of the boards of Kennedy Wilson Europe Real Estate
Plc and DW Catalyst Ltd and as a non-executive director of 3i
Infrastructure plc.
Ms Valeur was the founding partner of Brook Street Partners in
2003 and the Global Governance Group in 2009. Prior to this, Ms
Valeur worked in London as a director in capital markets at
Warburg, BNP Paribas, Société Générale and Commerzbank, beginning
her career in Copenhagen with Nordea A/S.
She is regulated by the Jersey Financial Services
Commission.
With significant experience in international corporate finance,
Ms Valeur has a high level of technical knowledge of capital
markets, especially debt / fixed income. Her non-executive board
roles at a number of companies and her work as a governance
consultant have provided her with an excellent understanding and
experience of boardroom dynamics and corporate governance.
Gary Clark, ACA
Position: Chair of the Remuneration and Nomination Committee and
NAV Review Committee; Senior Independent Director (non-executive
and independent director, resident in Jersey)
Date of appointment: 13 June 2014
Gary Clark acts as an independent non-executive director for a
number of investment managers including Emirates NBD, Aberdeen
Standard Capital and ICG. Until 1 March 2011 he was a managing
director at State Street and their head of Hedge Fund Services in
the Channel Islands. Mr Clark, a Chartered Accountant, served as
chairman of the Jersey Funds Association from 2004 to 2007 and was
managing director at AIB Fund Administrators Limited when it was
acquired by Mourant in 2006. This business was sold to State Street
in 2010. Prior to this Mr Clark was managing director of the
futures broker, GNI (Channel Islands) Limited in Jersey.
A specialist in alternative investment funds, Mr Clark was one
of several practitioners involved in a number of significant
changes to the regulatory regime for funds in Jersey, including the
introduction of both Jersey's Expert Funds Guide and Jersey's
Unregulated Funds regime.
As a Chartered Accountant with over 30 years' experience in
financial services, including many years focused on running fund
administration businesses in alternative asset classes, Mr Clark
brings a wealth of highly relevant experience, at both board level
and as an executive, in fund / asset management operations,
including in particular valuation, accounting and administrative
controls and processes.
Heather MacCallum, CA
Position: Chair of the Audit Committee (non-executive and
independent director, resident in Jersey)
Date of appointment: 7 September 2017
Heather MacCallum was a partner of KPMG Channel Islands Limited
from 2001, retiring from the partnership on 30 September 2016. She
was with KPMG's financial services practice for 20 years,
predominantly providing audit and advisory services to the
investment management sector.
Ms MacCallum currently serves as a non-executive director on
boards of several companies, including Jersey Water, an unlisted
company; Kedge Capital Fund Management Limited, an asset management
business; and Aberdeen Latin American Income Fund Limited and City
Merchants High Yield Trust Limited, LSE-listed investment
companies.
She is a member of the Institute of Directors and the Institute
of Chartered Accountants of Scotland (ICAS). She is also a past
president of the Jersey Society of Chartered and Certified
Accountants.
With 20 years' experience gained in a global professional
services firm, Ms MacCallum brings financial experience including
technical knowledge of accounting and auditing, especially in the
context of financial services, and in particular the investment
management sector.
Steven Wilderspin, FCA, IMC
Position: Chair of the Risk Committee (non-executive and
independent director, resident in Jersey)
Date of appointment: 11 August 2017
Steven Wilderspin, a qualified Chartered Accountant, has been
the Principal of Wilderspin Independent Governance, which provides
independent directorship services, since April 2007. He has served
on a number of private equity, property and hedge fund boards as
well as commercial companies.
In May 2018 Mr Wilderspin was appointed as a director of
HarbourVest Global Private Equity Limited.
In September 2018 Mr Wilderspin was appointed as a director of
Vannin Capital.
In December 2017 Mr Wilderspin stepped down from the board of 3i
Infrastructure plc where he was chairman of the audit and risk
committee after ten years' service.
From 2001 until 2007, Mr Wilderspin was a director of fund
administrator Maples Finance Jersey Limited where he was
responsible for fund and securitisation structures. Before that,
from 1997, Mr Wilderspin was Head of Accounting at Perpetual Fund
Management (Jersey) Limited.
Mr Wilderspin has significant listed corporate governance
experience, particularly in the area of risk management, so is well
placed to lead the board through the development of its risk
framework.
Mark Moffat
Position: Non-executive and non-independent director (resident
in UK)
Date of appointment: 8 January 2019
Mark Moffat has been involved in structuring, managing and
investing in CLOs for over 20 years. Mr Moffat left GSO Capital
Partners LP, part of the credit businesses of The Blackstone Group
L.P., in April 2015 to pursue other interests.
Whilst at GSO Mr Moffat was a senior managing director and the
portfolio manager responsible for investing in structured credit
and co-head of the European activities of the Customised Credit
Strategies division.
Mr Moffat joined GSO in January 2012 following the acquisition
by GSO of Harbourmaster Capital Management Limited where he was
co-head. Prior to joining Harbourmaster in 2007, Mr Moffat was head
of European debt and equity capital markets and the European CLO
business of Bear Stearns. At Bear Stearns, Mr Moffat was
responsible for the origination, structuring and execution of CLOs
in Europe over a seven-year period. Prior to Bear Stearns, Mr
Moffat was global head of CLOs at ABN AMRO and a Director in the
principal finance team of Greenwich NatWest.
With over 20 years of experience structuring, managing and
investing in CLOs Mr Moffat brings a deep knowledge of how CLO
structures and markets perform over the credit cycle.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Half Yearly
Financial Report and condensed interim financial statements in
accordance with applicable law and regulations.
The Directors confirm to the best of their knowledge that:
-- the condensed interim financial statements within the Half
Yearly Financial Report have been prepared in accordance with IAS
34 Interim Financial Reporting as adopted by the EU and give a true
and fair view of the assets, liabilities, financial position and
profit or loss of the Company as at 30 June 2019, as required by
the UK's FCA's DTR 4.2.4R;
-- the Chair's Statement, the Portfolio Adviser's Report, the
Strategic Report and the notes to the condensed interim financial
statements includes a fair review of the information required
by:
i. DTR 4.2.7R, being an indication of important events that have
occurred during the first six months, the financial period ended 30
June 2019 and their impact on the condensed interim financial
statements; and a description of the principal risks and
uncertainties for the remaining six months of the year; and
ii. DTR 4.2.8R, being related party transactions that have taken
place in the first six months, the financial period ended 30 June
2019 and that have materially affected the financial position or
performance of the Company during the period.
Charlotte Valeur Heather MacCallum
Director Director
20 September 2019
Independent Review Report to the Shareholders of Blackstone /
GSO Loan Financing Limited
We have been engaged by the Company to review the condensed set
of financial statements in the half yearly financial report for the
six months ended 30 June 2019 which comprises the condensed
statement of comprehensive income, condensed statement of financial
position, condensed statement of changes in equity, condensed
statement of cash flows and related notes 1 to 17. We have read the
other information contained in the half yearly financial report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of financial statements.
This report is made solely to the Company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. Our work has been undertaken so that we might
state to the Company those matters we are required to state to it
in an independent review report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company, for our review
work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The half yearly financial report is the responsibility of, and
has been approved by, the Directors. The Directors are responsible
for preparing the half yearly financial report in accordance with
the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
As disclosed in note 2, the annual financial statements of the
Company are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half yearly financial report has been prepared in
accordance with International Accounting Standard 34 "Interim
Financial Reporting" as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Financial Reporting Council for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2019 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure Guidance and Transparency Rules
of the United Kingdom's Financial Conduct Authority.
Deloitte LLP
St. Helier Jersey
20 September 2019
Condensed Statement of Financial Position
As at 30 June 2019
As at As at As at As at
30 June 2019 30 June 2019 30 June 2019 31 December 2018
(unaudited) (unaudited) (unaudited) (audited)
Ordinary Share class C Share Total Ordinary Share class
class
----------------------------------- ----- -------------------- -------------- -------------- --------------------
Notes EUR EUR EUR EUR
----------------------------------- ----- -------------------- -------------- -------------- --------------------
Current assets
Cash and cash equivalents 8,968,810 10,936,389 19,905,199 11,219,224
Other receivables 5 26,987 61,210 88,197 811,675
Financial assets at fair value
through profit or loss - Lux 6 345,538,836 44,894,539 390,433,375 315,890,482
Financial assets at fair value
through profit or loss - CLOs 6 - 18,784,618 18,784,618 -
----------------------------------- ----- -------------------- -------------- -------------- --------------------
Total current assets 354,534,633 74,676,756 429,211,389 327,921,381
----------------------------------- ----- -------------------- -------------- -------------- --------------------
Non-current liabilities
Intercompany loan 7 (382,933) - (382,933) (237,057)
----------------------------------- ----- -------------------- -------------- -------------- --------------------
Total non-current liabilities (382,933) - (382,933) (237,057)
----------------------------------- ----- -------------------- -------------- -------------- --------------------
Current liabilities
Payables 8 (206,462) (63,709) (270,171) (1,297,180)
----------------------------------- ----- -------------------- -------------- -------------- --------------------
Total current liabilities (206,462) (63,709) (270,171) (1,297,180)
----------------------------------- ----- -------------------- -------------- -------------- --------------------
Total liabilities (589,395) (63,709) (653,104) (1,534,237)
----------------------------------- ----- -------------------- -------------- -------------- --------------------
Net assets 13,14 353,945,238 74,613,047 428,558,285 326,387,144
----------------------------------- ----- -------------------- -------------- -------------- --------------------
Capital and reserves
Stated capital 9 403,034,162 77,270,167 480,304,329 404,962,736
Retained earnings (49,088,924) (2,657,120) (51,746,044) (78,575,592)
Shareholders' Equity 353,945,238 74,613,047 428,558,285 326,387,144
----------------------------------- ----- -------------------- -------------- -------------- --------------------
Net Asset Value per Share 13 0.8798 0.5591 N/A 0.8065
----------------------------------- ----- -------------------- -------------- -------------- --------------------
C shares were issued on the 7 January 2019 and hence no
comparative is presented for C shares.
These financial statements were authorised and approved for
issue by the Directors on 20 September 2019 and signed on their
behalf by:
Charlotte Valeur Heather MacCallum
Director Director
The accompanying notes form an integral part of the condensed
interim financial statements.
Condensed Statement of Comprehensive Income
For the six months ended 30 June 2019
Six months ended Six months ended Six months ended Six months ended
30 June 2019 30 June 2019 30 June 2019 30 June 2018
(unaudited) (unaudited) (unaudited) (unaudited)
C Share
Ordinary Share class class Total Ordinary Share class
------------------------------ ------ -------------------- ---------------- ---------------- --------------------
Notes EUR EUR EUR EUR
------------------------------ ------ -------------------- ---------------- ---------------- --------------------
Income
Realised loss on foreign
exchange (3,539) (10,125) (13,664) (1,044)
Net gain on financial assets
at fair value through profit
or loss - Lux 6 50,370,482 (384,971) 49,985,511 4,294,913
Net loss on financial assets
at fair value through profit
or loss - CLOs 6 - (5,249,194) (5,249,194) -
Income distribution from CLOs 2.5(b) - 7,746,872 7,746,872 -
Total income 50,366,943 2,102,582 52,469,525 4,293,869
------------------------------ ------ -------------------- ---------------- ---------------- --------------------
Expenses
Operating expenses 3 (605,610) (98,390) (704,000) (563,155)
------------------------------ ------ -------------------- ---------------- ---------------- --------------------
Profit before taxation 49,761,333 2,004,192 51,765,525 3,730,714
Taxation 2.4 - - - -
Profit after taxation 49,761,333 2,004,192 51,765,525 3,730,714
------------------------------ ------ -------------------- ---------------- ---------------- --------------------
Loan interest expense 7 (2,460) - (2,460) -
Bank interest income/(expense) (37,183) 12,146 (25,037) (16,822)
------------------------------ ------ -------------------- ---------------- ---------------- --------------------
Total interest
income/(expense) (39,643) 12,146 (27,497) (16,822)
------------------------------ ------ -------------------- ---------------- ---------------- --------------------
Total comprehensive income for
the period attributable to
Shareholders 49,721,690 2,016,338 51,738,028 3,713,892
------------------------------ ------ -------------------- ---------------- ---------------- --------------------
Basic and diluted earnings per
share 12 0.1230 0.0151 N/A 0.0092
------------------------------ ------ -------------------- ---------------- ---------------- --------------------
C shares were issued on the 7 January 2019 and hence no
comparative is presented for C shares.
The Company has no items of other comprehensive income, and
therefore the profit for the period is also the total comprehensive
income.
All items in the above statement are derived from continuing
operations. No operations were acquired or discontinued during the
period.
Condensed Statement of Changes in Equity
For the six months ended 30 June 2019 (Unaudited)
Note Retained
Stated Capital Earnings Stated Retained
Ordinary Ordinary Capital Earnings
Share Share C Share C Share Total
EUR EUR EUR EUR EUR
----------------------- ---- -------------- ------------ ---------- ----------- ------------
Shareholders' Equity
at
1 January 2019 404,962,736 (78,575,592) - - 326,387,144
Total comprehensive
income for the period
attributable
to Shareholders - 49,721,690 - 2,016,338 51,738,028
Transactions with
owners
Issuance of Shares 9 - - 77,270,167 - 77,270,167
Dividends - (20,235,022) - (4,673,458) (24,908,480)
Share buy backs 9 (1,928,574) - - - (1,928,574)
----------------------- ---- -------------- ------------ ---------- ----------- ------------
(1,928,574) (20,235,022) 77,270,167 (4,673,458) 50,433,113
----------------------- ---- -------------- ------------ ---------- ----------- ------------
Shareholders' Equity
at
30 June 2019 403,034,162 (49,088,924) 77,270,167 (2,657,120) 428,558,285
----------------------- ---- -------------- ------------ ---------- ----------- ------------
For the six months ended 30 June 2018 (Unaudited)
Stated Retained
Capital Earnings
Ordinary Ordinary
Share Share Total
EUR EUR EUR
---------------------------------- ----------- ------------ ------------
Shareholders' Equity at 1 January
2018 404,962,736 (25,422,415) 379,540,321
Total comprehensive profit for
the period attributable
to Shareholders - 3,713,892 3,713,892
Transactions with owners
Dividends - (20,235,024) (20,235,024)
---------------------------------- ----------- ------------ ------------
(20,235,024) (20,235,024)
---------------------------------- ----------- ------------ ------------
Shareholders' Equity at 30 June
2018 404,962,736 (41,943,547) 363,019,189
---------------------------------- ----------- ------------ ------------
C shares were issued on the 7 January 2019 and hence no
comparative is presented for C shares.
Refer to Dividend History above for more details on the dividend
during the period.
Condensed Statement of Cash Flows
For the six months ended 30 June 2019
Six months ended Six months ended Six months ended Six months ended
30 June 2019 30 June 2019 30 June 2019 30 June 2018
(unaudited) (unaudited) (unaudited) (unaudited)
Ordinary Share C Share Total Ordinary Share
class class class
----------------------------------------------------------- ---------------- ---------------- ---------------- ----------------
EUR EUR EUR EUR
----------------------------------------------------------- ---------------- ---------------- ---------------- ----------------
Cash flow from operating activities
Total comprehensive income for the period attributable to
Shareholders 49,721,690 2,016,338 51,738,028 3,713,892
Adjustments to reconcile profit after tax to net cash
flows:
* Unrealised (gain) / loss on financial assets at fair
value through profit and loss (46,591,461) 3,394,178 (43,197,283) (1,773,885)
* Realised (gain) / loss on financial assets at fair
value through profit and loss (3,779,021) 2,239,987 (1,539,034) (2,521,028)
Purchase of financial assets at fair value through profit
or loss - (45,500,000) (45,500,000) -
Proceeds from sale of financial assets at fair value
through profit or loss 20,722,128 46,791,147 67,513,275 24,150,997
Changes in working capital
Decrease / (increase) in other receivables 784,688 (61,210) 723,478 22,656
(Decrease) / increase in payables (1,090,718) 63,709 (1,027,009) 17,853
----------------------------------------------------------- ---------------- ---------------- ---------------- ----------------
Net cash generated from operating activities 19,767,306 8,944,149 28,711,455 23,610,485
----------------------------------------------------------- ---------------- ---------------- ---------------- ----------------
Cash flow from financing activities
Proceeds from issuance of shares - 7,446,204 7,446,204 -
Issue cost - (780,506) (780,506) -
Ordinary Shares repurchased (1,928,574) - (1,928,574) -
Increase in intercompany loan 145,876 - 145,876 67,811
Dividends paid (20,235,022) (4,673,458) (24,908,480) (20,235,024)
----------------------------------------------------------- ---------------- ---------------- ---------------- ----------------
Net cash (used in) / generated from financing activities (22,017,720) 1,992,240 (20,025,480) (20,167,213)
----------------------------------------------------------- ---------------- ---------------- ---------------- ----------------
Net (decrease) / increase in cash and cash equivalents (2,250,414) 10,936,389 8,685,975 3,443,272
----------------------------------------------------------- ---------------- ---------------- ---------------- ----------------
Cash and cash equivalents at the start of the period 11,219,224 - 11,219,224 2,546,969
----------------------------------------------------------- ---------------- ---------------- ---------------- ----------------
Cash and cash equivalents at the end of the period 8,968,810 10,936,389 19,905,199 5,990,241
----------------------------------------------------------- ---------------- ---------------- ---------------- ----------------
Supplemental disclosure of non-cash EUR
flow information
------------------------------------- -------------
Transfer of assets from Rollover
Offer (70,604,469)
Rollover Offer costs 780,506
Issue of C Shares in specie 77,270,167
------------------------------------- -------------
Cash proceeds from Rollover Offer 7,446,204
------------------------------------- -------------
C shares were issued on the 7 January 2019 and hence no
comparative is presented for C shares.
Notes to the Condensed Interim Financial Statements
For the six months ended 30 June 2019
1 General information
The Company is a closed-ended limited liability investment
company domiciled and incorporated under the laws of Jersey with
variable capital pursuant to the Collective Investment Funds
(Jersey) Law 1988. It was incorporated on 30 April 2014 under
registration number 115628. The Company's Ordinary shares are
quoted on the Premium Segment of the Main Market of the LSE and
have a premium listing on the Official List of the FCA. The
Company's C Shares are quoted on the SFS of the Main Market of the
LSE.
The Company's investment objective is to provide Shareholders
with stable and growing income returns, and to grow the capital
value of the investment portfolio by exposure to floating rate
senior secured loans and bonds directly and indirectly through CLO
Securities and investments in Loan Warehouses. The Company seeks to
achieve its investment objective through exposure (directly or
indirectly) to one or more companies or entities established from
time to time.
As at 30 June 2019, the Company's stated capital comprised
402,319,490 Ordinary Shares of no par value, each carrying the
right to 1 vote; 2,380,956 Ordinary Shares held in treasury; and
133,451,107 C Shares of no par value, carrying no voting rights.
The Company may issue one or more additional classes of shares in
accordance with the Articles of Association.
The Company has a wholly owned Luxemburg subsidiary, Blackstone
/ GSO Loan Financing (Luxembourg) S.à r.l., which has an issued
share capital of 2,000,000 Class A shares and 1 Class B share held
by the Company. The Company also holds 319,685,922 Class B CSWs
issued by the Lux Subsidiary.
The Company's registered address is IFC 1, The Esplanade, St
Helier, Jersey, JE1 4BP, Channel Islands.
2 Significant accounting policies
2.1 Statement of compliance
The Annual Report and Audited Financial Statements (the "Annual
Report") are prepared in accordance with the Disclosure Guidance
and Transparency Rules of the FCA and with IFRS as adopted by the
EU, which comprise standards and interpretations approved by the
International Accounting Standards Board, and interpretations
issued by the International Financial Reporting Standards and
Standing Interpretations Committee as approved by the International
Accounting Standards Committee which remain in effect. The Half
Yearly Financial Report has been prepared in accordance with IAS 34
Interim Financial Reporting. The accounting policies adopted are
consistent with those of the previous financial year and
corresponding interim period.
The Half Yearly Financial Report has been prepared on a going
concern basis. After reviewing the Company's budget and cash flow
forecast for the next financial period, the Directors are satisfied
that, at the time of approving the condensed interim financial
statements, it is appropriate to adopt the going concern basis in
preparing the condensed interim financial statements.
There have been no changes in accounting policies during the
period.
The accounting policies in respect of financial instruments are
set out below in Note 2.2 respectively due to the significance of
financial instruments to the Company.
2.2 Financial instruments
Investments and other financial assets
(i) Initial recognition
The Company recognises a financial asset or a financial
liability in its Condensed Statement of Financial Position when,
and only when, the Company becomes party to the contractual
provisions of the instrument.
Purchases and sales of investments are recognised on the trade
date - the date on which the Company commits to purchase or sell
the investment.
(ii) Classification
The Company classifies its financial assets in the following
measurement categories:
-- those to be measured subsequently at fair value (either
through OCI, or through profit or loss); and
-- those to be measured at amortised cost.
The classification depends on the entity's business model for
managing the financial assets and the contractual terms of the cash
flows.
For assets measured at fair value, gains and losses are either
to be recorded in profit or loss or OCI. For investments in equity
instruments that are not held for trading, this will depend on
whether the company has made an irrevocable election at the time of
initial recognition to account for the equity instrument at
FVOCI.
The Company reclassifies debt instruments when and only when its
business model for managing those assets changes.
(iii) Measurement
At initial recognition, the Company measures a financial asset
at its fair value plus, in the case of a financial asset not at
FVPL, transaction costs that are directly attributable to the
acquisition of the financial asset. Transaction costs of financial
assets carried at FVPL are expensed in profit or loss.
Debt instruments
Subsequent measurement of debt instruments depends on the
Company's business model for managing the asset and the cash flow
characteristics of the asset. The Company's business model is to
manage its debt instruments and to evaluate their performance on a
fair value basis. The Company's policy requires the Portfolio
Adviser and the Board to evaluate the information about these
financial assets on a fair value basis together with other related
financial information. Consequently, these debt instruments are
measured at fair value through profit or loss.
Equity instruments
The Company subsequently measures all equity investments at fair
value. Dividends from such investments are recognised in profit or
loss as other income when the Company's right to receive payments
is established.
Changes in fair value of financial assets at FVPL are recognised
in "net gain on financial assets at fair value through profit or
loss" in the Statement of Comprehensive Income.
(iv) Derecognition
Financial assets are derecognised when the rights to receive
cash flows from the investments have expired or the Company has
transferred substantially all risks and rewards of ownership.
(v) Fair value estimation
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date.
As at 30 June 2019, the Company held 319,685,922 CSWs, 2,000,000
Class A shares and 1 Class B share issued by the Lux Subsidiary
(the "Investments") (31 December 2018: 291,343,213 CSWs, 2,000,000
Class A shares and 1 Class B share). These Investments are not
listed or quoted on any securities exchange, are not traded
regularly and, on this basis, no active market exists. The Company
is not entitled to any voting rights in respect of the Lux
Subsidiary by reason of their ownership of the CSWs, however, the
Company controls the Lux Subsidiary through its 100% holding of the
shares in the Lux Subsidiary.
The fair value of the CSWs and the Class A and Class B shares
are based on the net assets of the Lux Subsidiary which is based
substantially in turn on the fair value of the PPNs issued by
BGCF.
The Company determines the fair value of the CLOs held directly
by the C Share class using third party valuations.
(vi) Valuation process
The Directors have held discussions with DFME in order to gain
comfort around the valuation of the CLOs, the underlying assets in
the BGCF portfolio and through this, the valuation of the PPNs and
CSWs as of the Condensed Statement of Financial Position date.
The Directors, through ongoing communication with the Portfolio
Adviser including quarterly meetings, discuss the performance
of the Portfolio Adviser and the underlying portfolio and in
addition review monthly investment performance reports. The
Directors analyse the BGCF portfolio in terms of the investment mix
in the portfolio. The Directors also consider the impact of general
credit conditions and more specifically credit events in the US and
European corporate environment on the valuation of the CSWs, PPNs
and the BGCF portfolio.
Ordinary Share Class and C Share Class Portfolios
The Directors discuss the Ordinary Share Class and the C Share
Class valuation process to understand the methodology regarding the
valuation of their underlying portfolio and direct CLO holding,
both comprising Level 3 assets. The majority of Level 3 assets in
BGCF are comprised of CLOs. In reviewing the fair value of these
assets, the Directors look at the assumptions used and any
significant fair value changes during the period under
analysis.
Net Asset Value
The NAV is valued by the Administrator based on information from
the Portfolio Adviser and are reviewed and approved by the
Directors, taking into consideration a range of factors including
the unaudited IFRS NAV of both the Lux Subsidiary and BGCF, and
other relevant available information. The other relevant
information includes the review of available financial and trading
information of BGCF and its underlying portfolio, advice received
from the Portfolio Adviser and such other factors as the Directors,
in their sole discretion, deem relevant in considering a positive
or negative adjustment to the valuation.
The estimated fair values may differ from the values that would
have been realised had a ready market existed and the difference
could be material.
The fair value of the CLOs held directly by the C Share class,
CSWs and the Class A and Class B shares are assessed on an ongoing
basis by the Board.
Financial liabilities
(vii) Classification
Financial liabilities include payables which are held at
amortised cost using the effective interest rate method.
The effective interest method is a method of calculating the
amortised cost of a financial liability and of allocating interest
expense over the relevant period. The effective interest rate is
the rate that exactly discounts estimated future cash payments
(including all fees and points paid or received that form an
integral part of the effective interest rate, transaction costs and
other premiums or discounts) through the expected life of the
financial liability, or where appropriate a shorter period, to the
net carrying amount on initial recognition.
(viii) Recognition, measurement and derecognition
Financial liabilities are measured initially at their fair value
plus any directly attributable incremental costs of acquisition or
issue.
Gains and losses are recognised in the Statement of
Comprehensive Income when the liabilities are derecognised.
The Company derecognises a financial liability when the
obligation specified in the contract is discharged, cancelled or
expires.
2.3 Shares in issue
The shares of the Company are classified as equity, based on the
substance of the contractual arrangements and in accordance with
the definition of equity instruments under IAS 32 Financial
Instruments: Presentation ("IAS 32").
The proceeds from the issue of shares are recognised in the
Condensed Statement of Changes in Equity, net of the incremental
issuance costs.
2.4 Taxation
Profit arising in the Company for the period of assessment will
be subject to Jersey tax at the standard corporate income tax rate
of 0% (30 June 2018: 0%).
2.5 Income
2.5a Interest income and expense
Interest income and expense is recognised separately through
profit or loss in the Statement of Comprehensive Income, on an
effective interest rate yield basis.
2.5b Income distributions from CLOs
Income from the financial assets at fair value through profit or
loss - CLOs is recognised in the Statement of Comprehensive Income
as Income distributions from CLOs. Income from the CLO Mezzanine
Notes is recognised on an accruals basis and income from the CLO
Income Notes is recognised when it is received.
2.6 Critical accounting judgements and estimates
The preparation of the financial statements in conformity with
IFRS requires management to make judgements, estimates and
assumptions that affect items reported in the Statement of
Financial Position and Statement of Comprehensive Income. It also
requires management to exercise its judgement in the process of
applying the Company's accounting policies. Uncertainty about these
assumptions and estimates could result in outcomes that require a
material adjustment to the carrying amount of assets and
liabilities affected in future periods.
Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to estimates are recognised prospectively.
(a) Fair value
For the fair value of all financial instruments held, the
Company determines fair values using appropriate techniques.
Refer to Note 2.2 for further details on the significant
estimates applied in the valuation of the company's financial
instruments.
Judgements
(b) Non-consolidation of the Lux Subsidiary
The Company meets the definition of an Investment Entity as
defined by IFRS 10 and is required to account for its investment at
fair value through profit or loss.
The Company has multiple unrelated investors and holds multiple
investments in the Lux Subsidiary. The Company has been deemed to
meet the definition of an Investment Entity per IFRS 10 as the
following conditions exist:
-- the Company has obtained funds for the purpose of providing
investors with investment management services;
-- the Company's business purpose, which has been communicated
directly to investors, is investing solely for returns from capital
appreciation, investment income, or both; and
-- the performance of investments made through the Lux
Subsidiary are measured and evaluated on a fair value basis.
The Company has also considered the typical characteristics of
an investment entity per IFRS 10 in assessing whether it meets the
definition of an Investment Entity.
The Company controls the Lux Subsidiary through its 100% holding
of the voting rights and ownership. The Lux Subsidiary is
incorporated in Luxembourg.
Refer to Note 10 for further disclosures relating to the
Company's interest in the Lux Subsidiary.
(c) Non-consolidation of BGCF
To determine control, there has to be a linkage between power
and the exposure to risks and rewards. The main link from ownership
would allow a company to control the payments of returns and
operating policies and decisions of a subsidiary. To meet the
definition of a subsidiary under the single control model of IFRS
10, the investor has to control the investee.
Control involves power, exposure to variability of returns and a
linkage between the two:
-- the investor has existing rights that give it the ability to
direct the relevant activities that significantly affect the
investee's returns;
-- the investor has exposure or rights to variable returns from
its involvement with the investee; and
-- the investor has the ability to use its power over the
investee to affect the amount of the investor's returns.
In the case of BGCF, the relevant activities are the investment
decisions made by it. However, in the Lux Subsidiary's case, the
power to influence or direct the relevant activities of BGCF is not
attributable to the Lux Subsidiary. The Lux Subsidiary does not
have the ability to direct or stop investments by BGCF; therefore,
it does not have the ability to control the variability of returns.
Accordingly, BGCF has been determined not to be a subsidiary
undertaking as defined under IFRS 10 and the Lux Subsidiary's
investment in the PPNs issued by BGCF are accounted for at fair
value through profit or loss.
(d) Non-consolidation of CLOs
The Company has concluded that CLOs in which it invests, that
are not subsidiaries for financial reporting purposes, meet the
definition of structured entities because:
-- the voting rights in the CLOs are not dominant rights in
deciding who controls them, as they relate to administrative tasks
only;
-- each CLO's activities are restricted by its Prospectus; and
-- the CLOs have narrow and well-defined objectives to provide
investment opportunities to investors.
(e) Presentation and functional currency
As outlined in Note 2.2 of the Annual Report and Audited
Financial Statements for the year ended 31 December 2018, the
Directors have used their judgement to determine that the Company's
presentation and functional currency is Euro.
3 Operating expenses
Six months ended
Six months ended 30 June 2018
30 June 2019 (unaudited) (unaudited)
EUR EUR
------------------------------------------------ ------------------------------------ ----------------
Professional fees 153,139 86,534
Administration fees 185,732 162,131
Brokerage fees 45,726 85,829
Regulatory fees 15,209 4,950
Directors' fees and other expenses (see Note 4) 140,239 98,200
Audit fees and audit related fees 126,723 81,260
Non-audit fees - 15,535
Registrar fees 12,336 11,219
Sundry expenses 24,896 17,497
704,000 563,155
------------------------------------------------ ------------------------------------ ----------------
Administration fees
Under the administration agreement, the Administrator is
entitled to receive variable fees based on the Published NAVs of
the Company for the provision of administrative and compliance
oversight services and a fixed fee for the provision of company
secretarial services. The overall charge for the above-mentioned
fees for the Company for the six months ended 30 June 2019 was
EUR185,732 (30 June 2018: EUR162,131) and the amount due at 30 June
2019 was EUR55,446 (31 December 2018: EUR47,573).
Advisory fees
Under the Advisory Agreement, the Portfolio Adviser is entitled
to receive out of pocket expenses, all reasonable third-party
costs, and other expenses incurred in the performance of its
obligations. The overall charge for the above-mentioned fees for
the Company for the period ended 30 June 2019 was EURNil (30 June
2018: EURNil).
Audit and non-audit fees
The Company incurred EUR105,799 (30 June 2018: EUR81,260) in
audit and audit-related fees during the period of which EUR94,208
(31 December 2018: EUR81,333) was outstanding at the period end. An
additional amount of EUR20,924 was incurred in relation to the
audit of the Annual Report and Financial Statements for the year
ended 31 December 2018.
The Company incurred EURNil (30 June 2018: EUR15,535) in
non-audit fees during the period of which EURNil (31 December 2018:
EURNil) was outstanding at the period end. The table below outlines
the audit, audit related and non-audit services received during the
period.
Six months ended Six months ended
30 June 2019 30 June 2018
EUR EUR
----------------------------------------------------------------- ---------------- ----------------
Audit of the Company for the year ending 31 December 2019 41,894 40,630
Additional fee for the audit for the year ended 31 December 2018 20,924
Audit related services - review of interim financial report 54,734 40,630
Other audit related services - Reporting Accountant 9,171 -
------------------------------------------------------------------ ---------------- ----------------
Total audit and audit related services 126,723 81,260
------------------------------------------------------------------ ---------------- ----------------
Tax advisory services - 15,535
Total non-audit services - 15,535
------------------------------------------------------------------ ---------------- ----------------
Total fees to Deloitte LLP and member firms 126,723 96,795
------------------------------------------------------------------ ---------------- ----------------
Professional fees
Professional fees comprise EUR96,380 in legal fees and EUR56,759
in other professional fees. In 2018, professional fees comprised
EUR11,127 in legal fees and EUR75,407 in other professional
fees.
4 Directors' fees and interests
The Directors were remunerated for their services per the table
below:
Six months ended Six months ended
30 June 2019 30 June 2018
(unaudited) (unaudited)
GBP GBP
------------------ ---------------- ----------------
Charlotte Valeur 30,500 25,000
Gary Clark 23,000 20,000
Heather MacCallum 22,250 20,000
Steven Wilderspin 22,250 20,000
Mark Moffat 19,000 -
Total (GBP) 117,000 85,000
------------------ ---------------- ----------------
Total (EUR) 131,156 98,116
------------------ ---------------- ----------------
The Chairs of the Management Engagement Committee, NAV Review
Committee, Remuneration and Nomination Committee, Audit Committee
and Risk Committee each received additional fees, which were
included in the amounts above, for the additional responsibilities
and time commitment required in undertaking these roles.
Additionally, the Senior Independent Director received additional
fees for the additional responsibilities and time commitment
required in undertaking this role.
The Company has no employees. The Company incurred EUR131,156
(30 June 2018: EUR98,116) in Directors' fees (consisting
exclusively of short-term benefits) during the period of which
EUR64,652 (31 December 2018: EUR54,593) was outstanding at the
period end. Charlotte Valeur, Steven Wilderspin, Gary Clark and
Mark Moffat held beneficial interests in the shares of the Company
during the period ended 30 June 2019. Charlotte Valeur held 11,500
Ordinary Shares as at 30 June 2019 (31 December 2018: 11,500).
Steven Wilderspin held 20,000 Ordinary Shares as at 30 June 2019
(31 December 2018: 20,000). Gary Clark held 108,200 Ordinary Shares
as at 30 June 2019 (31 December 2018: 73,700). Mark Moffat held
601,028 Ordinary Shares and 291,069 C Shares as at 30 June
2019.
No pension contributions were payable in respect of any of the
Directors.
5 Other receivables
As at As at
30 June 2019 31 December 2018
(unaudited) (audited)
EUR EUR
------------- ------------- -----------------
Prepayments 88,197 31,040
Other assets - 780,635
------------- ------------- -----------------
88,197 811,675
------------- ------------- -----------------
Other assets as at 31 December 2018 related to prepaid costs
incurred in connection with the Rollover Offer Proposal. These
costs were allocated to the C Share class on 7 January 2019 upon
completion of the Rollover Offer and subsequent issue of C
Shares.
6 Financial assets at fair value through profit or loss
As at As at As at As at
30 June 2019 30 June 2019 30 June 2019 31 December 2018
(unaudited) (unaudited) (unaudited) (audited)
Ordinary Share class C Share Total Ordinary Share
class class
----------------------------------------------- -------------------- ------------- ------------- -----------------
EUR EUR EUR EUR
----------------------------------------------- -------------------- ------------- ------------- -----------------
Financial assets at fair value through profit
or loss - Lux 345,538,836 44,894,539 390,433,375 315,890,482
----------------------------------------------- -------------------- ------------- ------------- -----------------
Financial assets at fair value through profit
or loss - CLOs - 18,784,618 18,784,618 -
----------------------------------------------- -------------------- ------------- ------------- -----------------
Financial assets at fair value through profit or loss - Lux
consists of 319,685,922 CSWs, 2,000,000 Class A shares and 1 Class
B share issued by the Lux Subsidiary (31 December 2018: 291,343,213
CSWs, 2,000,000 Class A shares and 1 Class B share issued by the
Lux Subsidiary). Financial assets at fair value through profit or
loss - CLOs consists of 12 CLO Income Notes and 2 Mezzanine Notes,
which formed part of the Rollover Assets, are yet to be realised
and re-invested in CSWs and then used by Lux Subsidiary to invest
in PPNs issued by BGCF.
CSWs
The Company has the right, at any time during the exercise
period (being the period from the date of issuance and ending on
earlier of the 3 February 2046 or the date on which the liquidation
of the Lux Subsidiary is closed), to request that the Lux
Subsidiary redeems all or part of the CSWs at the redemption price
(see below), by delivering a redemption notice, provided that the
redemption price will be due and payable only if and to the extent
that (a) the Lux Subsidiary will have sufficient funds available to
settle its liabilities to all other ordinary or subordinated
creditors, whether privileged, secured or unsecured, prior in
ranking to the CSWs, after any such payment, and (b) the Lux
Subsidiary will not be insolvent after payment of the redemption
price.
The redemption price is the amount payable by the Lux Subsidiary
on the redemption of CSWs outstanding, which shall be at any time
equal to the fair market value of the ordinary shares (that would
have been issued in case of exercise of all CSWs), as determined by
the Board on a fully diluted basis on the date of redemption, less
a margin (determined by the Board on the basis of a transfer
pricing report prepared by an independent advisor), and the
redemption price for each CSW shall be obtained by dividing the
amount determined in accordance with the preceding sentence by the
actual number of CSWs outstanding.
If at the end of any financial year there is excess cash, as
determined in good faith by the Lux Subsidiary board (but for this
purpose only), the Lux Subsidiary will automatically redeem, to the
extent of such excess cash, all or part of the CSWs at the
redemption price provided the requirements in the previous
paragraph are met, unless the Company notifies the Lux Subsidiary
otherwise. For the avoidance of doubt, to the extent the
subscription price for the CSWs to be redeemed has not been paid at
the time the CSWs were issued, the subscription price for such CSWs
to be redeemed shall be deducted from the Redemption Price.
CSWs listed in an exercise notice may not be redeemed.
Class A and Class B shares held in the Lux Subsidiary
Class A and Class B shares are redeemable and have a par value
of one Euro per share. Class A and Class B Shareholders have equal
voting rights commensurate with their shareholding.
Class A and Class B Shareholders are entitled to dividend
distributions from the net profits of the Lux Subsidiary (net of an
amount equal to five per cent of the net profits of the Lux
Subsidiary which is allocated to the general reserve, until this
reserve amounts to ten per cent of the Lux Subsidiary nominal share
capital).
Dividend distributions are paid in the following order of
priority:
-- Each Class A share is entitled to the Class A dividend, being
a cumulative dividend in an amount of not less than 0.10% per annum
of the face value of the Class A shares.
-- Each Class B share is entitled to the Class B dividend (if
any), being any income such as but not limited to interest or
revenue deriving from the receivable from the PPN's held by the Lux
Subsidiary, less any non-recurring costs attributable to the Class
B shares.
Any remaining dividend amount for allocation of the Class A
dividend and Class B dividend shall be allocated pro rata among the
Class A shares.
The Board does not expect income in the Lux Subsidiary to
significantly exceed the anticipated annual running costs of the
Lux Subsidiary and therefore does not expect that the Lux
Subsidiary will pay significant, or any, dividends although it
reserves the right to do so.
Fair value hierarchy
IFRS 13 Fair Value Measurement ("IFRS 13") requires an analysis
of investments valued at fair value based on the reliability and
significance of information used to measure their fair value.
The Company categorises its financial assets according to the
following fair value hierarchy detailed in IFRS 13 that reflects
the significance of the inputs used in determining their fair
values:
-- Level 1: Quoted market price (unadjusted) in an active market for an identical instrument.
-- Level 2: Valuation techniques based on observable inputs,
either directly (i.e., as prices) or indirectly (i.e., derived from
prices). This category includes instruments valued using: quoted
market prices in active markets for similar instruments; quoted
prices for identical or similar instruments in markets that are
considered less than active; or other valuation techniques where
all significant inputs are directly or indirectly observable from
market data.
-- Level 3: Valuation techniques using significant unobservable
inputs. This category includes all instruments where the valuation
technique includes inputs not based on observable data and the
unobservable variable inputs have a significant effect on the
instrument's valuation. This category includes instruments that are
valued based on quoted prices for similar instruments where
significant unobservable adjustments or assumptions are required to
reflect differences between the instruments.
30 June 2019 (unaudited) Level 1 Level 2 Level 3 Total
EUR EUR EUR EUR
Financial assets at fair value through profit or loss - Lux - - 390,433,375 390,433,375
------------------------------------------------------------- ------- ------- ----------- -----------
Financial assets at fair value through profit or loss - CLOs - - 18,784,618 18,784,618
------------------------------------------------------------- ------- ------- ----------- -----------
31 December 2018 (audited) Level 1 Level 2 Level 3 Total
EUR EUR EUR EUR
Financial assets at fair value through profit or loss - Lux - - 315,890,482 315,890,482
------------------------------------------------------------ ------- ------- ----------- -----------
The Company determines the fair value of the financial assets at
fair value through profit or loss - Lux using the unaudited IFRS
NAV of both the Lux Subsidiary and BGCF.
The Company determines the fair value of the CLOs held directly
by the C Share class using third party valuations. The Portfolio
Adviser can challenge the marks if they appear off-market or
unrepresentative of fair value.
During the six months ended 30 June 2019 and the year ended 31
December 2018, there were no reclassifications between levels of
the fair value hierarchy.
The Company's maximum exposure to loss from its interests in the
Lux Subsidiary and indirectly in BGCF is equal to the fair value of
its investments in the Lux Subsidiary.
Financial assets at fair value through profit or loss
reconciliation
The following table shows a reconciliation of all movements in
the fair value of financial assets - Lux categorised within Level 3
between the start and the end of the reporting period:
Financial assets at fair value through profit or loss - Lux
30 June 2019 (unaudited) Ordinary Share class C Share Total
class
EUR EUR EUR
------------------------------------------------------------------- -------------------- ---------- ------------
Balance as at 1 January 2019 315,890,482 - 315,890,482
Movements:
Purchases - Lux - 45,500,000 45,500,000
Sale proceeds - Lux (20,722,128) (220,490) (20,942,618)
Realised gain on financial assets at fair value through profit or
loss - Lux 3,779,021 6,306 3,785,327
Unrealised gain on financial assets at fair value through profit or
loss - Lux 46,591,461 (391,277) 46,200,184
-------------------------------------------------------------------- -------------------- ---------- ------------
Balance as at 30 June 2019 345,538,836 44,894,539 390,433,374
Realised gain on financial assets at fair value through profit or
loss - Lux 3,779,021 6,306 3,785,327
Total change in unrealised gain on financial assets for the period -
Lux 46,591,461 (391,277) 46,200,184
Net gain on financial assets at fair value through profit or loss -
Lux 50,370,482 (384,971) 49,985,510
-------------------------------------------------------------------- -------------------- ---------- ------------
The following table shows a reconciliation of all movements in
the fair value of financial assets - CLOs categorised within Level
3 between the start and the end of the reporting period:
Financial assets at fair value through profit or loss - CLOs
30 June 2019 (unaudited) Ordinary Share class C Share Total
class
EUR EUR EUR
----------------------------------------------------------------- -------------------- ------------ ------------
Balance as at 1 January 2019 - - -
Movements:
Purchases - CLOs - 70,604,469 70,604,469
Sale proceeds - CLOs - (46,570,657) (46,570,657)
Realised loss on financial assets at fair value through profit or
loss - CLOs - (2,246,293) (2,246,293)
Unrealised loss on financial assets at fair value through profit
or loss - CLOs - (3,002,901) (3,002,901)
------------------------------------------------------------------ -------------------- ------------ ------------
Balance as at 30 June 2019 - 18,784,618 18,784,618
------------------------------------------------------------------ -------------------- ------------ ------------
Realised loss on financial assets at fair value through profit or
loss - CLOs - (2,246,293) (2,246,293)
Total change in unrealised loss on financial assets for the year -
CLOs - (3,002,901) (3,002,901)
------------------------------------------------------------------ -------------------- ------------ ------------
Net loss on financial assets at fair value through profit or loss
- CLOs - (5,249,194) (5,249,194)
------------------------------------------------------------------ -------------------- ------------ ------------
Financial assets at fair value through profit or loss - Lux
31 December 2018 (unaudited) Total
EUR
------------------------------------------------------------------------------- ------------
Balance as at 1 January 2018 377,137,378
Movements:
Purchases - Lux -
Sale proceeds - Lux (50,045,105)
Realised gain on financial assets at fair value through profit or loss - Lux 6,072,647
Unrealised gain on financial assets at fair value through profit or loss - Lux (17,274,438)
------------------------------------------------------------------------------- ------------
Balance as at 31 December 2018 315,890,482
------------------------------------------------------------------------------- ------------
Realised gain on financial assets at fair value through profit or loss - Lux 6,072,647
Total change in unrealised gain on financial assets for the period - Lux (17,274,438)
------------------------------------------------------------------------------- ------------
Net gain on financial assets at fair value through profit or loss 11,201,791
------------------------------------------------------------------------------- ------------
Please refer to Note 2.2 for the valuation methodology of
financial assets at fair value through profit and loss.
The Company's investments, through the Lux Subsidiary, in BGCF
are untraded and illiquid. The Board has considered these factors
and concluded that there is no further need to apply a discount for
illiquidity as at the end of the reporting period.
Quantitative information of significant unobservable inputs -
Level 3 - CSWs
The significant unobservable inputs used in the fair value
measurement of the financial assets at fair value through profit or
loss - Lux within Level 3 of the fair value hierarchy together with
a quantitative sensitivity analysis as at 30 June 2019 and 31
December 2018 are as shown below:
Asset Class Fair Value Unobservable Ranges* Weighted Sensitivity to
Inputs average changes in significant
unobservable inputs
-------------- ------------ ---------------- -------- --------- ------------------------
EUR
-------------- ------------ ---------------- -------- --------- ------------------------
CSWs 385,230,472 NAV of N/A N/A 5% increase/decrease
BGCF will have a fair
value impact of
+/- EUR 19,261,524
-------------- ------------ ---------------- -------- --------- ------------------------
Class A 5,202,903 NAV of N/A N/A 5% increase/decrease
and Class the will have a fair
B shares Lux Subsidiary value impact of
+/- EUR 260,145
-------------- ------------ ---------------- -------- --------- ------------------------
Total 390,433,375
-------------- ------------ ---------------- -------- --------- ------------------------
Asset Class Fair Value Unobservable Ranges* Weighted Sensitivity to
Inputs average changes in significant
unobservable inputs
-------------- ------------ ---------------- -------- --------- ------------------------
CSWs 310,753,454 NAV N/A N/A 5% increase/decrease
will have a fair
value impact of
+/- EUR 15,537,672
------------- ------------- ---------------- -------- --------- ------------------------
Class A 5,137,028 NAV N/A N/A 5% increase/decrease
and Class will have a fair
B shares value impact of
+/- EUR 256,851
-------------- ------------ ---------------- -------- --------- ------------------------
Total 315,890,482
-------------- ------------ ---------------- -------- --------- ------------------------
Quantitative information of significant unobservable inputs and
sensitivity analysis to significant changes in unobservable inputs
- Level 3 - Financial assets at fair value through profit or loss -
CLOs
The significant unobservable inputs used in the fair value
measurement of the financial assets at fair value through profit or
loss - CLOs within Level 3 of the fair value hierarchy together
with a quantitative sensitivity analysis as at 30 June 2019 are as
shown below:
Asset Class Fair Value Unobservable Ranges* Weighted Sensitivity to
Inputs average changes in significant
unobservable inputs
--------------- ----------- ------------- ----------- --------- ------------------------
EUR
--------------- ----------- ------------- ----------- --------- ------------------------
Income Notes
--------------- ----------- ------------- ----------- --------- ------------------------
1% increase/decrease
Directly will have a fair
Held CLO Third party value impact of
Income Notes 14,078,223 valuations 0% - 70.6% 45.5% +/- EUR 140,782
--------------- ----------- ------------- ----------- --------- ------------------------
Mezzanine Notes
---------------------------- ------------- ----------- --------- ------------------------
Directly 1% increase/decrease
Held CLO will have a fair
Mezzanine Third party 82.3% - value impact of
Notes 4,706,396 valuations 93.6% 87.3% +/- EUR 47,064
--------------- ----------- ------------- ----------- --------- ------------------------
Total 18,784,618
--------------- ----------- ------------- ----------- --------- ------------------------
*The ranges provided in the table above refer to the highest and
lowest marks received across the range of CLOs held. The ranges
reflect the different stages of the lifecycle of each of the CLOs
on an individual basis. The low ranges in the table above are
prices from CLOs which have been called and are in wind-down.
7 Intercompany loan
As at As at
30 June 2019 31 December 2018
(unaudited) (audited)
EUR EUR
------------------------------ ------------- -----------------
Payable to the Lux Subsidiary 382,933 237,057
------------------------------ ------------- -----------------
The intercompany loan is an unsecured revolving loan between the
Company and the Lux Subsidiary. The intercompany loan has a
maturity date of 13 September 2033 and is repayable at the option
of the Company up to the maturity date. Interest is accrued at a
rate of 1.6% per annum and is payable annually only when a written
request has been provided to the Company by the Lux Subsidiary.
8 Payables
As at As at
30 June 2019 31 December 2018
(unaudited) (audited)
EUR EUR
----------------------------------- ------------- -----------------
Professional fees - 1,090,305
Administration fees 55,446 47,573
Directors' fees 64,652 54,593
Audit fees 94,208 81,333
Intercompany loan interest payable 3,862 1,402
Regulatory fees 3,717 -
Other payables 48,286 21,974
Total payables 270,171 1,297,180
----------------------------------- ------------- -----------------
All payables are due within the next twelve months.
9 Stated capital
Authorised
The authorised share capital of the Company is represented by an
unlimited number of shares of any class at no par value.
Allotted, called up and fully-paid - Ordinary Share
Ordinary Shares Number of shares Stated capital
EUR
---------------------------------------------------------- ---------------- --------------
As at 1 January 2019 404,700,446 404,962,736
Shares repurchased during the period and held in treasury (2,380,956) (1,928,574)
---------------------------------------------------------- ---------------- --------------
Total Ordinary Shares as at 30 June 2019 (unaudited) 402,319,490 403,034,162
---------------------------------------------------------- ---------------- --------------
Allotted, called up and fully-paid - C Share
C Shares Number of shares Stated capital
EUR
---------------------------------------------------------- ---------------- --------------
As at 1 January 2019 - -
Shares issued during the period 133,451,107 77,270,167
---------------------------------------------------------- ---------------- --------------
Total C Shares as at 30 June 2019 (unaudited) 133,451,107 77,270,167
---------------------------------------------------------- ---------------- --------------
Total issued share capital as at 30 June 2019 (unaudited) 535,770,597 480,304,329
---------------------------------------------------------- ---------------- --------------
Ordinary Shares Number of shares Stated capital
EUR
Total issued share capital as at 31 December 2018 (audited) 404,700,446 404,962,736
------------------------------------------------------------ ---------------- --------------
Ordinary Shares
On 5 June 2019, the Company purchased 2,056,202 of its Ordinary
Shares of no par value at a total cost of EUR1,665,524. On 7 June
2019, the Company purchased 324,754 of its Ordinary Shares of no
par value at a total cost of EUR263,050.
As at 30 June 2019, the Company had 402,319,490 Ordinary Shares
in issue and 2,380,956 Ordinary Shares in treasury (31 December
2018: 404,700,446 Ordinary Shares in issue and nil Ordinary Shares
in treasury).
At the 2019 AGM, held on 11 July 2019, the Directors were
granted authority to repurchase up to 14.99% of the issued share
capital as at the date of the AGM for cancellation or to be held as
treasury shares. This authority, which has not been used, will
expire at the 2020 AGM. The Directors intend to seek annual renewal
of this authority from Shareholders.
At the 2019 AGM, the Directors were granted authority to allot,
grant options over or otherwise dispose of up to 40,231,949 Shares
(being equal to 10.00% of the Shares in issue at the date of the
AGM). This authority will expire at the 2020 AGM.
C Shares
On 7 January 2019, the Company issued 133,451,107 C Shares in
specie as a result of the Rollover Offer. The Rollover Offer
included a transfer of assets amounting to EUR70,604,468, cash
proceeds amounting to EUR7,446,206 and incurred EUR780,506 in
costs. The C Shares were admitted to trading on the SFS of the main
market of the LSE.
As at 30 June 2019, the Company had 133,451,107 C Shares in
issue (31 December 2018: Nil).
Voting rights - Ordinary Class
Holders of Ordinary Shares have the right to receive income and
capital from assets attributable to such class. Ordinary
Shareholders have the right to receive notice of general meetings
of the Company and have the right to attend and vote at all general
meetings.
Voting rights - C Class
Holders of C Shares have the right to receive income and capital
from the C Share assets attributable to such class. C Shareholders
do not have the right to receive notice of or to attend or vote at
any general meeting of the Company.
Dividends
The Company may, by resolution, declare dividends in accordance
with the respective rights of the Shareholders, but no such
dividend shall exceed the amount recommended by the Directors. The
Directors may pay fixed rate and interim dividends.
A general meeting declaring a dividend may, upon the
recommendation of the Directors, direct that payment of a dividend
shall be satisfied wholly or partly by the issue of Ordinary Shares
or the distribution of assets and the Directors shall give effect
to such resolution.
Except as otherwise provided by the rights attaching to or terms
of issue of any Shares, all dividends shall be apportioned and paid
pro rata according to the amounts paid on the Shares during any
portion or portions of the period in respect of which the dividend
is paid. No dividend or other monies payable in respect of a Share
shall bear interest against the Company.
The Directors may deduct from any dividend or other monies
payable to a Shareholder all sums of money (if any) presently
payable by the holder to the Company on account of calls or
otherwise in relation to such Shares.
Any dividend unclaimed after a period of 10 years from the date
on which it became payable shall, if the Directors so resolve, be
forfeited and cease to remain owing by the Company.
The dividends declared by the Board during the period are
detailed above.
Please refer to Note 17 for dividends declared after the period
end.
Share buybacks
The Board intends to seek annual renewal of this authority from
the Ordinary Shareholders at the Company's AGM, to make one or more
on-market purchases of Shares in the Company for cancellation or to
be held as Treasury shares.
The Board may, at its absolute discretion, use available cash to
purchase Shares in issue in the secondary market at any time.
Rights as to Capital
On a winding up, the Company may, with the sanction of a special
resolution and any other sanction required by the Companies Law,
divide the whole or any part of the assets of the Company among the
Shareholders in specie provided that no holder shall be compelled
to accept any assets upon which there is a liability. On return of
assets on liquidation or capital reduction or otherwise, the assets
of the Company remaining after payments of its liabilities shall
subject to the rights of the holders of other classes of shares, to
be applied to the Shareholders equally pro rata to their holdings
of shares.
Capital management
The Company is closed-ended and has no externally imposed
capital requirements.
The Company's objectives for managing capital are:
-- to invest the capital in investments meeting the description,
risk exposure and expected return indicated in its prospectus;
-- to achieve consistent returns while safeguarding capital by
investing via the Lux Subsidiary in BGCF and other Underlying
Companies;
-- to maintain sufficient liquidity to meet the expenses of the
Company and to meet dividend commitments; and
-- to maintain sufficient size to make the operation of the Company cost efficient.
Please refer to Note 10 C Liquidity Risk in the Annual Report
and Audited Financial Statements for the year ended 31 December
2018 for further discussion on capital management, particularly on
how the distribution policy is managed.
10 Interests in other entities
Interests in unconsolidated structured entities
IFRS 12 "Disclosure of Interests in Other Entities" defines a
structured entity as an entity that has been designed so that
voting or similar rights are not the dominant factor in deciding
who controls the entity, such as when any voting rights relate to
the administrative tasks only and the relevant activities are
directed by means of contractual agreements. A structured entity
often has some of the following features or attributes:
-- restricted activities;
-- a narrow and well-defined objective;
-- insufficient equity to permit the structured entity to
finance its activities without subordinated financial support;
and
-- financing in the form of multiple contractually linked
instruments that create concentrations of credit or other
risks.
Involvement with unconsolidated structured entities
The Directors have concluded that the CSWs and voting shares of
the Lux Subsidiary in which the Company invests, but that it does
not consolidate, meet the definition of a structured entity.
The Directors have also concluded that BGCF also meets the
definition of a structured entity.
The Directors have also concluded that CLOs in which the Company
invests, that are not subsidiaries for financial reporting
purposes, meet the definition of structured entities because:
-- the voting rights in the CLOs are not dominant rights in
deciding who controls them, as they relate to administrative tasks
only;
-- each CLO's activities are restricted by its Prospectus; and
-- the CLOs have narrow and well-defined objectives to provide
investment opportunities to investors.
Interests in subsidiary
As at 30 June 2019, the Company owns 100% of the Class A and
Class B shares in the Lux Subsidiary comprising 2,000,000 Class A
shares and one Class B share (31 December 2018: 2,000,000 Class A
shares and one Class B share).
The Lux Subsidiary's principal place of business is
Luxembourg.
Other than the investments noted above, the Company did not
provide any financial support for the years ended 30 June 2019 and
31 December 2018, nor had it any intention of providing financial
or other support.
The Company has an intercompany loan payable to the Lux
Subsidiary as at 31 December 2018 and 30 June 2019. Refer to Note 7
for further details.
11 Segmental reporting
As per IFRS 8 Operating Segments, an operating segment is a
component of an entity
-- that engages in business activities from which it may earn revenues and incur expenses;
-- whose operating results are reviewed regularly by the
entity's chief operating decision maker to make decisions about
resources to be allocated to the segment and assess its
performance; and
-- for which discrete financial information is available.
As required by IFRS 8 Operating Segments, the information
provided to the Board, who are the chief operating decision-makers,
can be classified into two segments for the period ended 30 June
2019 (31 December 2018: one segment). This change in the number of
segments is due to the completion of the Rollover Offer as detailed
above. The share classes in issue as at 30 June 2019 are the
Ordinary Share class and the C Share class (31 December 2018:
Ordinary Share class only). The Board has classified the entity
into two operating segments as the C Share assets are 10% or more
of the combined assets of all operating segments.
During the period ended 30 June 2019 and year ended 31 December
2018, the Company's primary exposure was to the Lux Subsidiary in
Europe. The Lux Subsidiary's primary exposure is to BGCF, an Irish
entity. BGCF's primary exposure is to the US and Europe.
During the period ended 30 June 2019, there were no transactions
between the two segments with the exception of a settlement of
intercompany balances amounting to EUR360,008.
12 Basic and diluted earnings per share
As at
30 June 2019 As at
(unaudited) 30 June 2018 (unaudited)
Ordinary Share EUR EUR
---------------------------------------------------- ------------- -------------------------
Total comprehensive income for the period 49,721,690 3,713,892
Weighted average number of shares during the period 404,373,379 404,700,446
Basic and diluted earnings per Ordinary share 0.1230 0.0092
---------------------------------------------------- ------------- -------------------------
C Share
---------------------------------------------------- ------------- -------------------------
Total comprehensive income for the period 2,016,338 -
Weighted average number of shares during the period 133,451,107 -
---------------------------------------------------- ------------- -------------------------
Basic and diluted earnings per C Share 0.0151 -
---------------------------------------------------- ------------- -------------------------
13 Net asset value per share
As at
30 June 2019 As at
(unaudited) 31 December 2018 (audited)
Ordinary Share EUR EUR
---------------------------------------- ------------- ---------------------------
IFRS Net asset value 353,945,238 326,387,144
Number of Ordinary Shares at period end 402,319,490 404,700,446
---------------------------------------- ------------- ---------------------------
IFRS Net asset value per Ordinary Share 0.8798 0.8065
C Share
---------------------------------------- ------------- ---------------------------
IFRS Net asset value 74,613,047 -
Number of C Shares at period end 133,451,107 -
IFRS Net asset value per C Share 0.5591 -
---------------------------------------- ------------- ---------------------------
14 Reconciliation of Published NAV to IFRS NAV per the financial statements
Ordinary Shares As at As at
30 June 2019 31 December 2018
(unaudited) (audited)
NAV NAV per share NAV NAV per share
------------------------------------------- ------------- ------------- ------------- -------------
EUR EUR EUR EUR
------------------------------------------- ------------- ------------- ------------- -------------
Published NAV attributable to Shareholders 368,873,156 0.9169 362,725,238 0.8963
Adjustment - valuation (14,927,918) (0.0371) (36,028,424) (0.0890)
Adjustment - accrued expenses - - (309,670) (0.0008)
NAV per the financial statements 353,945,238 0.8798 326,387,144 0.8065
------------------------------------------- ------------- ------------- ------------- -------------
C Shares As at As at
30 June 2019 31 December 2018
(unaudited) (audited)
NAV NAV per share NAV NAV per share
------------------------------------------- ------------ ------------- ---- -------------
EUR EUR EUR EUR
------------------------------------------- ------------ ------------- ---- -------------
Published NAV attributable to Shareholders 76,580,769 0.5738 - -
Adjustment - valuation (1,967,722) (0.0147)
NAV per the financial statements 74,613,047 0.5591 - -
------------------------------------------- ------------ ------------- ---- -------------
As noted above, there can be a difference between the Published
NAV and the IFRS NAV per the financial statements, mainly because
of the different bases of valuation. The above tables reconcile the
Published NAV to the IFRS NAV for each share class per the
financial statements.
15 Related party transactions
All transactions between related parties were conducted on terms
equivalent to those prevailing in an arm's length transaction.
Transactions with entities with significant influence
In accordance with IAS 24 "Related Party Disclosures", the
related parties and related party transactions during the year
comprised transactions with an affiliate of DFME. As at 30 June
2019, Blackstone Asia Treasury Pte held 43,000,000 Ordinary shares
in the Company (31 December 2018: 43,000,000).
Transactions with key management personnel
The Directors are the key management personnel as they are the
persons who have the authority and responsibility for planning,
directing and controlling the activities of the Company. The
Directors are entitled to remuneration for their services. Refer to
Note 4 for further detail.
Transactions with other related parties
At 30 June 2019, current employees of the Portfolio Adviser and
its affiliates, and accounts managed or advised by them, hold
24,875 Ordinary shares (31 December 2018: 24,875) which represents
0.006% (31 December 2018: 0.006%) of the issued shares of the
Company.
The Company has exposure to the CLOs originated by BGCF, through
its investment in the Lux Subsidiary. DFME is also appointed as a
service support provider to BGCF and as the collateral manager to
the European subsidiaries. GSO / Blackstone Debt Funds Management
LLC has been appointed as the collateral manager to Dorchester Park
CLO Designated Activity Company and US CLOs securitised through the
US MOA. In addition, it has entered into a management agreement
with the US MOA.
Transactions with Subsidiaries
The Company held 319,685,922 CSWs as at 30 June 2019 (31
December 2018: 291,343,213) following the redemption of 17,157,291
CSWs by the Lux Subsidiary. Refer to Note 6 for further
details.
As at 30 June 2019, the Company held 2,000,000 Class A shares
and 1 Class B share in the Lux Subsidiary with a nominal value of
EUR2,000,001 (31 December 2018: 2,000,000 Class A shares and 1
Class B share in the Lux Subsidiary with a nominal value of
EUR2,000,001).
As at 30 June 2019, the Company held an intercompany loan
payable to the Lux Subsidiary amounting to EUR382,933 (31 December
2018: EUR237,057).
16 Controlling party
In the Directors' opinion, the Company has no ultimate
controlling party.
17 Events after the reporting period
The Board has evaluated subsequent events for the Company
through to 19 September 2019, the date the condensed interim
financial statements are available to be issued, and, other than
those listed below, concluded that there are no material events
that require disclosure or adjustment to the financial
statements.
On 18 July 2019, the Company declared a dividend of EUR0.025 per
Ordinary Share in respect of the period from 1 April 2019 to 30
June 2019. A total payment of EUR10,057,987 was made on 23 August
2019.
On 18 July 2019, the Company declared a dividend of EUR0.0214
per C Share in respect of the period from 1 April 2019 to 30 June
2019. A total payment of EUR2,855,854 was made on 23 August
2019.
Company Information
Directors Registered Office
Ms Charlotte Valeur (Chair) IFC 1
Mr Gary Clark The Esplanade
Ms Heather MacCallum St Helier
Mr Steven Wilderspin Jersey
Mr Mark Moffat JE1 4BP, Channel Islands
All c/o the Company's registered office
Portfolio Adviser Registrar
Blackstone / GSO Debt Funds Management Europe Limited Link Asset Services (Jersey) Limited
30 Herbert Street 12 Castle Street
2(nd) Floor St Helier
Dublin 2, Ireland Jersey, JE2 3RT, Channel Islands
Joint Broker Joint Broker (to 30 June 2019)
Nplus1 Singer Advisory LLP Fidante Partners Europe Limited (trading as Fidante
1 Bartholomew Lane Capital)
London, EC2N 2AX , United Kingdom 1 Tudor Street
London, EC4Y 0AH, United Kingdom
Legal Adviser to the Company (as to Jersey Law) Legal Adviser to the Company
(as to English Law)
Carey Olsen Herbert Smith Freehills LLP
47 Esplanade Exchange House
St Helier Primrose Street
Jersey London
JE1 0BD, Channel Islands EC2A 2EG
United Kingdom
Auditor Administrator / Company Secretary / Custodian / Depositary
Deloitte LLP BNP Paribas Securities Services S.C.A.
Gaspé House IFC 1
66-72 Esplanade The Esplanade
St Helier St Helier
JE2 3QT Jersey
Channel Islands JE1 4BP, Channel Islands
Glossary
TERM DEFINITION
"AGM" Annual General Meeting
"AIC" the Association of Investment Companies,
of which the Company is a member
"AIC Code" the AIC Code of Corporate Governance for
Jersey companies
"Articles" the Articles of Incorporation of the Company
"BGCF" Blackstone / GSO Corporate Funding Designated
Activity Company
"BGCF Facility" BGCF entered into a facility agreement
dated 1 June 2017, as amended, between
(1) BGCF (as borrower), (2) Citibank Europe
plc, UK Branch (as administration agent),
(3) Bank of America N.A. London Branch
(as an initial lender), (4) BNP Paribas
(as an initial lender), (5) Deutsche Bank
AG, London Branch (as initial lender),
(6) Citibank N.A. London Branch (as account
bank, custodian and trustee) and (7) Virtus
Group LP (as collateral administrator)
"BGLC" Ticker for the Company's C Share Quote
"BGLF" or the "Company" Blackstone / GSO Loan Financing Limited
"BGLP" Ticker for the Company's Sterling Quote
"Board" the Board of Directors of the Company
"CSWs" Cash Settlement Warrants
"CLOs" Collateralised Loan Obligations
"DFM or the "Portfolio GSO / Blackstone Debt Funds Management
Manager" or the "Rollover LLC
Portfolio Manager"
"DFME" or the "Portfolio Blackstone / GSO Debt Funds Management
Adviser" Europe Limited
"DTR" Disclosure Guidance and Transparency Rules
"Discount" / "Premium" calculated as the NAV per share as at
the period end less BGLF's closing share
price on the London Stock Exchange, divided
by the NAV per share as at that date
"Dividend yield" calculated as the last four quarterly
dividends declared divided by the share
price as at the period end
"ECB" European Central Bank
"EU" European Union
"FCA" Financial Conduct Authority (United Kingdom)
"Fed" Federal Reserve
"FRC" Financial Reporting Council (United Kingdom)
"FVPL" Fair value through profit or loss
"FVOCI" Fair value through other comprehensive
income
"GSO" GSO Capital Partners LP
"IFRS" International Financial Reporting Standards
"IFRS NAV" Gross assets less liabilities (including
accrued but unpaid fees) determined in
accordance with IFRS as adopted by the
EU
"LCD" S&P Global Market Intelligence's Leveraged
Commentary & Data provides in-depth coverage
of the leveraged loan market through real-time
news, analysis, commentary, and proprietary
loan data
"Loan Warehouse" A special purpose vehicle incorporated
for the purposes of warehousing US and/or
European floating rate senior secured
loans and bonds
"LSE" London Stock Exchange
"LTM" Last twelve months
"Lux Subsidiary" Blackstone / GSO Loan Financing (Luxembourg)
S.à r.l
"NAV" Net asset value
"NAV total return per Calculated as the increase / decrease
share" in the NAV per share plus the total dividends
paid per share during the period, with
such dividends paid being re-invested
at NAV, as a percentage of the NAV per
share
"NIM" Net interest margin
"OCI" Other Comprehensive Income
"PPNs" Profit Participating Notes
"Published NAV" Gross assets less liabilities (including
accrued but unpaid fees) determined in
accordance with the section entitled "Net
Asset Value" in Part I of the Company's
Prospectus and published on a monthly
basis
"Return" Calculated as the increase /decrease in
the NAV per share plus the total dividends
paid per share, with such dividends paid
being re-invested at NAV, as a percentage
of the NAV per share.
LTM return is calculated over the period
July 2018 to June 2019.
"Rollover Assets" The assets attributable to the Carador
Income Fund plc Rollover Shares - a pool
of CLO assets from Carador Income Fund
plc
"Rollover Offer" As announced by the Board on 28 August
2018, a rollover proposal to offer newly
issued C Shares to electing shareholders
of Carador Income Fund plc, in consideration
for the transfer of a pool of CLO assets
from Carador Income Fund plc to the Company
"SFS" Specialist Fund Segment
"UK Code" UK Corporate Governance Code 2018
"US MOA" United States Majority Owned Affiliate
"Underlying Company" A company or entity to which the Company
has a direct or indirect exposure for
the purpose of achieving its investment
objective, which is established to, among
other things, directly or indirectly,
purchase, hold and/or provide funding
for the purchase of CLO Securities
"WA" Weighted Average
"WARF" Weighted Average Rating Factor
"WAS" Weighted Average Spread
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR BSGDCRSDBGCG
(END) Dow Jones Newswires
September 20, 2019 11:26 ET (15:26 GMT)
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