TIDMBGLF
RNS Number : 3619N
Blackstone / GSO Loan Financing Ltd
19 May 2020
19 MAY 2020
FOR IMMEDIATE RELEASE
RELEASED BY BNP PARIBAS SECURITIES SERVICES S.C.A., JERSEY
BRANCH FINAL RESULTS ANNOUNCEMENT
THE BOARD OF DIRECTORS OF BLACKSTONE / GSO LOAN FINANCING
LIMITED ANNOUNCE FINAL RESULTS FOR THE YEARED 31 DECEMBER 2019
Graphs and charts are included in the published Annual Report
and Audited Financial Statements which is available on the
Company's website at
https://www.blackstone.com/our-businesses/registered-products#c=blackstone-gso-loan-financing-limited
STRATEGIC REPORT
Reconciliation of IFRS NAV to Published NAV
At 31 December 2019, there was a difference between the NAV per
Ordinary Share as disclosed in the Statement of Financial Position,
EUR0.8543 per Ordinary share, ("IFRS NAV") and the published NAV,
EUR0.9187 per Ordinary share, which was released to the LSE on 22
January 2020 ("Published NAV"). A reconciliation is provided in
Note 16. The difference between the two valuations is entirely due
to the different valuation bases used.
Valuation Policy for the Published NAV
The Company publishes a NAV per Ordinary Share on a monthly
basis in accordance with its Prospectus. The valuation process in
respect of the Published NAV incorporates the valuation of the
Company's CSWs and underlying PPNs (held by the Lux Subsidiary).
These valuations are, in turn, 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 this
valuation process is the appropriate way of valuing the Company's
holdings, and 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 on an annual and semi-annual
basis, to comply with IFRS as adopted by the EU, the valuation of
BGCF's portfolio 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 so incorporates general assumptions that market
participants are applying 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.
The smaller number of CLOs held directly by the Company, as a
result of the Rollover Opportunity, are valued using a mark to
market approach for both the Published NAV and IFRS NAV, consistent
with the valuation methodology per the Company's Prospectus.
The Directors, as set out in the Prospectus, will continue to
assess the performance of the Company using the Published NAV.
Additional information and commentary on Market Colour, credit risk
exposure and any material divergence from the different valuation
bases referred to above will be communicated by the Directors and
Portfolio Adviser if and when appropriate.
Key Performance Indicators
IFRS NAV Published NAV
NAV(1) EUR0.8543 EUR0.9187
(31 Dec 2018: EUR0.8065) (31 Dec 2018: EUR0.8963)
NAV total return(1) 18.31% 14.46%
(31 Dec 2018: (3.99)%) (31 Dec 2018: 6.70%)
Discount(1) (3.43)% (10.20)%
(31 Dec 2018: (5.77)%) (31 Dec 2018: (15.21)%)
Dividend EUR0.10 EUR0.10
(31 Dec 2018: EUR0.10) (31 Dec 2018: EUR0.10)
Further information on the reconciliation between the IFRS NAV
and the Published NAV can be found above.
Performance
Ticker IFRS NAV Published Share Price(2) Discount Discount Dividend
per Share NAV IFRS NAV Published Yield
per Share NAV
-------- ----------- ----------- --------------- ---------- ----------- ---------
BGLF
31 Dec
2019 EUR0.8543 EUR0.9187 EUR0.8250 (3.43)% (10.20)% 12.12%
31 Dec
2018 EUR0.8065 EUR0.8963 EUR0.7600 (5.77)% (15.21)% 13.16%
BGLP
31 Dec
2019 GBP0.7226 GBP0.7771 GBP0.7050 (2.44)% (9.28)% 12.00%
31 Dec
2018 GBP0.7251 GBP0.8058 GBP0.7175 (1.05)% (10.95)% 12.53%
-------- ----------- ----------- --------------- ---------- ----------- ---------
LTM 3-Year Annualised Cumulative
Return(1) Annualised Since Inception Since
Inception
--------------------- ----------- ------------ ----------------- -----------
BGLF IFRS NAV 18.31% 4.81% 6.38% 40.03%
BGLF Published NAV 14.46% 7.37% 7.80% 50.55%
BGLF Ordinary Share
Price 18.97% 3.20% 5.48% 33.72%
European Loans 5.03% 2.94% 3.35% 19.66%
US Loans 8.17% 4.48% 4.03% 24.02%
--------------------- ----------- ------------ ----------------- -----------
(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 Company's investment objective or
investment policy, it is currently intended that dividends are
payable in respect of each calendar quarter, two months after the
end of that quarter. The Company continued to target a dividend of
EUR0.025 per quarter throughout the year ended 31 December 2019.
However, refer to the Chair's Statement regarding a change of
dividend policy after year end.
Ordinary Share Dividends for the Year Ended 31 December 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
1 Jul 2019 to 30 Sept 2019 18 Oct 2019 31 Oct 2019 29 Nov 2019 0.0250
1 Oct 2019 to 31 Dec 2019 21 Jan 2020 30 Jan 2020 28 Feb 2020 0.0250
--------------------------- -------------- ----------------- ------------- -------------------------
Dividends paid on Ordinary Shares during the year ended 31
December 2019 amounted to EUR40,350,997.
Ordinary Share Dividends for the Year Ended 31 December 2018
Period in respect of Date Declared Ex-dividend Date Payment Date Amount per Euro 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 EUR40,470,047.
Year Highs and Lows
2019 2019 2018 2018
High Low High Low
Published NAV per Ordinary Share EUR 0.9215 EUR 0.8824 EUR 0.9183 EUR 0.8837
Ordinary Share Price (last price) EUR 0.8550 EUR 0.7500 EUR 0.9875 EUR 0.7600
GBP Ordinary Share Price (last price) GBP0.7600 GBP0.6600 GBP0.8750 GBP0.7150
-------------------------------------- ---------- ---------- ---------- ----------
Schedule of Investments
As at 31 December 2019
Nominal Market % of Net Asset
Holdings Value Value
EUR
----------------------------------------- ----------- ----------- --------------
Investment held in the Lux Subsidiary:
CSWs 319,758,584 390,685,286 95.17
Shares (2,000,000 Class A and 1 Class B) 2,000,001 5,706,985 1.39
CLOs held directly 20,193,160 3,192,772 0.78
Other Net Assets 10,920,948 2.66
----------------------------------------- ----------- ----------- --------------
Net Assets Attributable to Shareholders 410,505,991 100.00
----------------------------------------- ----------- ----------- --------------
Schedule of Significant Transactions
Date of Transaction Transaction Type Amount Reason
EUR
-------------------------- --------------------- ---------- ----------------------
CSWs held by the Company - Ordinary Share Class
14 Feb 2019 Redemption 10,396,087 To fund dividend
14 May 2019 Redemption 10,533,046 To fund dividend
1 Aug 2019 Subscription 3,474,232 Investments in PPNs
7 Aug 2019 Redemption 10,277,920 To fund dividend
11 Nov 2019 Redemption 10,371,210 To fund dividend
18 Dec 2019 Subscription 50,000 To fund Lux Subsidiary
-------------------------- --------------------- ---------- ----------------------
C Shares
On 7 January 2019, the Company issued 133,451,107 C Shares in
specie, in accordance with the Prospectus dated 23 November 2018,
to the shareholders of CIFU who had elected to rollover their CIFU
shareholdings and received shares in the Company on a pro-rata
basis. The Rollover Offer included transfer of assets amounting to
EUR70,604,469, cash proceeds amounting to EUR7,446,204, and
incurred EUR780,506 in costs. The C Shares were admitted to trading
on the SFS of the main market of the LSE.
The intention of the Board was that, over time, the assets
attributed to the rollover pool would be disposed of and the
disposal proceeds re-invested in CSWs in the Lux Subsidiary and, in
turn, PPNs in BGCF. BGCF would therefore have additional capital
available for investment, and both the Company's Ordinary
Shareholders and C Shareholders would potentially benefit from the
enlargement of the portfolio, in particular through an increase in
portfolio diversification and decrease in the Company's total
expense ratio. On 24 October 2019, the Company announced that as at
1 October 2019, it had reinvested EUR62.6 million into BGCF as part
of its realisation strategy. The graph below depicts this
realization strategy, whereby 35 CLO assets had been disposed of by
30 November 2019.
[Graphs and charts are included in the published Annual Report
and Audited Financial Statements which is available on the
Company's website at
https://www.blackstone.com/our-businesses/registered-products#c=blackstone-gso-loan-financing-limited
]
On 24 October 2019, the Board also announced that the Company
intended to convert the C Shares into Ordinary Shares and expected
the Calculation Date to fall on 31 October 2019, with the
Conversion Ratio and Conversion Date to be covered by a further
announcement.
On 20 November 2019, the Company announced that the Calculation
Date would fall on 29 November 2019 to accommodate dividend payment
schedules in accordance with the Company's Articles of Association.
The calculation of the Conversion Ratio was based on the net assets
attributable to the Ordinary Shares and C Shares as at close of
business on 29 November 2019.
On 20 December 2019, the Company announced the Conversion Ratio
of 0.5860 Ordinary Shares per C Share. The last trading day for the
C Shares was 6 January 2020, and on the basis of the Conversion
Ratio, 133,451,107 C Shares were converted into 78,202,348 Ordinary
Shares on the same day, which were admitted to the premium listing
segment of the Official List of the UK Listing Authority and to
trading on the London Stock Exchange's Main Market for listed
securities on 7 January 2020. The Ordinary Shares arising from the
C Share Conversion rank pari passu with, and have the same rights
as, the Ordinary Shares of the Company already in issue, including
the right to receive dividends declared in respect of the Ordinary
Share class following the C Share Conversion.
A summary of the performance of the C Share class over the
period from 7 January 2019 to 29 November 2019 is presented
below.
Performance of the C Share Class
Ticker Published NAV Share Price Discount Dividend
per Share Published NAV Yield
-------- -------------- ------------ --------------- ---------
BGLC
29 Nov
2019 EUR0.5287 EUR0.4850 (8.26)% 16.20%
-------- -------------- ------------ --------------- ---------
Returns 7 January 2019 - 29 November 2019
-------------------- ----------------------------------
BGLC Published NAV 5.03%
BGLC C Share Price 12.21%
European Loans 4.08%
US Loans 6.22%
-------------------- ----------------------------------
Dividend History
C Share Dividends for the Period Ended 31 December 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
1 Jul 2019 to 30 Sept 2019 18 Oct 2019 31 Oct 2019 29 Nov 2019 0.0221
--------------------------- -------------- ----------------- ------------- ----------
Dividends paid on C Shares during the period ended 31 December
2019 amounted to EUR10,478,581.
Schedule of Significant Transactions
Date of Transaction Transaction Type Amount Reason
EUR
---------------------- ------------------ --------- ----------------
CSWs held by the Company - C Share Class
14 May 2019 Redemption 220,490 To fund dividend
7 Aug 2019 Redemption 1,148,191 To fund dividend
11 Nov 2019 Redemption 2,354,734 To fund dividend
---------------------- ------------------ --------- ----------------
NAV Considerations
The Board considered the requirements around the recognition and
accounting of the conversion of the C Shares into Ordinary Shares
using a Published NAV for NAV basis as outlined in the Company's
prospectus dated 23 November 2018. The Board considered this to
have occurred at the point the C Share Calculation Ratio was
approved i.e. using the Published NAVs for both the Ordinary Share
class and the C Share class as at 29 November 2019. The Board also
considered that any performance on the remaining directly held CLO
assets post 29 November 2019 was captured through the combined pool
of assets in one operating segment, given the conversion ratio had
been fixed.
Refer to Note 13 for further details on operating segments and
an explanation for the presentation of the C Share Class in the
primary financial statements.
Chair's Statement
Company Returns and Net Asset Value (3)
The Company delivered an IFRS NAV total return per Ordinary
Share of 18.31% in 2019 ((3.99)% in 2018), ending the year at
EUR0.8543 (EUR0.8065 at 31 December 2018). The return was composed
of dividend income of 11.76% and net portfolio movement of 6.55%.
The Company's performance was supported by stable to increasing net
interest margin levels, combined with outperformance relative to
modelled assumptions on default rates.
On a Published NAV basis, the Company delivered a total return
per Ordinary Share of 14.46% in 2019 (6.70% in 2018), ending the
year at EUR0.9187 (EUR0.8963 at 31 December 2018). The return was
composed of dividend income 11.76% and of net portfolio movement of
2.70%.
The Company paid four dividends in respect of the year ended 31
December 2019, totalling EUR0.10 per Ordinary Share and EUR0.0640
per C Share. Details of all dividend payments can be found within
the Dividend History section for both the Ordinary Share and C
Share at the front of this Annual Report.
Historical BGLF NAV and Share Price per Ordinary Share
The graph shows cumulative Published NAV and Share Price total
returns and cumulative returns on European
and US loans.
[Graphs and charts are included in the published Annual Report
and Audited Financial Statements which is available on the
Company's website at
https://www.blackstone.com/our-businesses/registered-products#c=blackstone-gso-loan-financing-limited
]
Market Conditions
2019 global growth was at the weakest pace since the global
financial crisis a decade ago, reflecting common influences across
countries. Increasing trade barriers and geopolitical tensions and
the associated uncertainty of these weighed on business sentiment
and activity globally. As reported by the IMF, in some cases (for
example, advanced economies and China), these developments
magnified cyclical and structural slowdowns already under way. With
the economic environment becoming more uncertain, firms turned
cautious on future capital outlays and global purchases of
machinery and equipment decelerated, evident by the persistent
weakening in Eurozone manufacturing PMIs during 2019. Household
demand for durable goods also weakened, although there was a pickup
in the second quarter of 2019. This was particularly noticeable
with automobiles, where regulatory changes, new emission standards,
and the possibility of a shift to ride-share programmes weighed on
sales in several countries. Faced with sluggish demand for durable
goods, firms scaled back industrial production. This slowdown in
industrial production resulted in a contraction in global trade,
impacting GDP which fell from 3.61% in 2018 to 3.01% in 2019(4)
.
Central banks reacted aggressively to the weaker activity. Over
the course of the year, several Central banks including the US
Federal Reserve ("Fed") and the European Central Bank ("ECB") cut
interest rates, while the ECB also restarted asset purchases. These
policies averted a deeper slowdown. Lower interest rates and
supportive financial conditions reinforced still-resilient
purchases of nondurable goods and services, encouraging job
creation. A bright spot was that strong labour markets, in
combination with rising wages and low consumer price inflation,
supported consumer spending in 2019. With the global industrial
downturn driving a softening in Europe's economic outlook in
particular, the onus fell on consumer spending to continue to drive
growth. Low inflation and ultra-low interest rates across many
European markets cushioned the European consumer somewhat.
Similarly, a strong labour market and low unemployment in the US
has lifted consumer confidence to near historic highs and continued
to drive the US economy during 2019.
Accommodative global monetary policy and strong consumer
sentiment compensated for the slowdown in industrial production in
2019 that allowed the global economy to continue to grow, albeit at
a slower pace. This was positive news for risk assets with stock
markets, such as the S&P 500 maintaining its bull run, which
stretched back all the way to 2009, and fixed income assets
recording strong positive returns in 2019.
Discount Management
The share price discount to the IFRS NAV narrowed from 5.77% at
31 December 2018 to 3.43% at 31 December 2019 and the share price
discount to the Published NAV averaged 10.20% throughout 2019, and
ended the year trading at a discount of 10.20% to the Published NAV
(versus discount to the Published NAV of 15.21% at 31 December
2018). As a Board, we regularly weigh the balance between
maintaining liquidity of the Ordinary Shares, the stability of any
discount or premium, and the desire of Shareholders to see the
Ordinary 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 intended to buy back
shares in the market using available cash with the goal of reducing
the discount. In June 2019, the Board successfully bought back
2,380,956 Ordinary Shares at a cost of EUR1,928,574. At the AGM on
11 July 2019, the Board was granted authority to repurchase up to
14.99% of the issued share capital as at that date. No Ordinary
Shares have been repurchased under this authority as of the date of
this Annual Report. Refer to the Prospects and Opportunities in
2020 section for further details on the use of available cash.
BGLF Rollover Opportunity
On 21 December 2018, BGLF announced the results of the Rollover
Opportunity, whereby shareholders in CIFU were provided with the
opportunity to elect to rollover their investment in CIFU into an
investment in newly issued C Shares of BGLF. Approximately 34% of
the CIFU US Dollar Share register elected to rollover into
Euro-denominated BGLF C Shares. In consideration for a transfer of
assets equating to approximately $90 million, BGLF issued
133,451,107 BGLF C shares. These began trading on the SFS of the
Main Market of the LSE on 7 January 2019.
On 7 January 2020, the conversion of the BGLF C Shares into
Ordinary Shares was completed. The intention to undertake this
conversion was announced by BGLF on 24 October 2019, following the
investment of EUR62.6 million into BGCF with proceeds from the sale
of relevant assets acquired under the C Share rollover process,
which represented 85.8% (87.3% including cash) of the value of
assets in the C share pool. The Conversion Ratio was based on the
net assets attributable to the Ordinary Shares and C Shares as at
close of business on 29 November 2019.
Brexit Update
The Board closely monitored the Brexit negotiations during 2019.
The potential implications of a "hard Brexit" to BGLF was evaluated
across its service providers, including areas such as human
resources, counterparty relationships, supply chains,
macroeconomic, and regulatory policy, as well as with regards to
its marketing registrations, and was deemed to have a negligible
impact on the long-term sustainability of the Company. With
legislation to implement the withdrawal agreement passed in January
2020, the UK is currently in a transition period until December
2020 and attempting to formalise a trade agreement with the
European Union. It is unclear at this time if this will be impacted
by COVID-19. The Board will continue to monitor these trade
arrangement discussions as they unfold.
COVID-19
The Directors continue to carefully monitor the ongoing
developments regarding COVID-19, which continues to adversely
impact global commercial activity and has contributed to
significant volatility in financial markets. The global impact of
the outbreak has been rapidly evolving, and as cases of the virus
have continued to be identified in additional countries, many
countries have reacted by instituting quarantines and restrictions
on travel. Such actions are creating disruption in global supply
chains and adversely impacting a number of industries, such as
transportation, hospitality and entertainment. The outbreak could
have a continued adverse impact on economic and market conditions
and trigger a period of global economic slowdown. The rapid
development and fluidity of this situation precludes any prediction
as to the ultimate adverse impact of COVID-19. Nevertheless,
COVID-19 presents material uncertainty and risk with respect to
portfolio asset performance and financial results of the Company.
In addition to the factors described above, other factors that may
affect market, economic and geopolitical conditions, and thereby
adversely affect the Company include, without limitation, an
economic slowdown in Europe and internationally, changes in
interest rates and/or a lack of availability of credit in Europe
and internationally, commodity price volatility and changes in law
and/or regulation, and uncertainty regarding government and
regulatory policy. Refer to Note 20 for further details on the
performance of the Company due to the onset of COVID-19 as well as
the Portfolio Adviser's Review.
ESG
The practice of responsible investing has increasingly become a
focus broadly for investors and boards and, the Board is pleased to
report that the Company's Portfolio Adviser has formally adopted an
ESG policy. While the Portfolio Adviser has long considered ESG
factors into its investment approach, the Board views the
formalisation of the ESG policy as positive. The policy is an
extension of Blackstone's firmwide policy and covers the credit
business specifically. Refer to the Portfolio Adviser's Review for
further details on the Portfolio Adviser's ESG policy.
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 year, convening a total of 14 Board meetings and 24 Committee
meetings, as well as undertaking two onsite due diligence reviews
in March and July 2019 of our Portfolio Adviser. The Board used
these visits to discuss various aspects of operational risk and
controls, the loan and CLO markets, and the current market
conditions. The July onsite was undertaken in the US office of our
Portfolio Adviser which the Board felt was important given the
increasing geographical importance of the Company's investment in
the region.
In addition, as can be seen from the corporate activity during
the year, 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 joint work of the Risk and
Audit committees has given valuable support to the longer-term
viability considerations of the Board as described in the Strategic
Report - Risk Overview. The Company is a member of the AIC and
adheres to the AIC Code which is endorsed by the FRC, and meets the
Company's obligations in relation to the UK Code.
Shareholder Communications
During 2019, using our Portfolio 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 2020
At the time of writing this, the impact and global reach of the
COVID-19 virus is still to be determined. With so many unknowns
surrounding the trajectory of the epidemic and the responses from
governments and businesses, forecasters cannot aspire to precision.
Softening global production will be impacted, and the infectious
nature of the virus will impact consumer spending, especially in
relation to leisure goods, activity and travel.
In an effort to head off further shock to the financial markets
and support the flow of credit to businesses and households, the
Federal Reserve Bank effected two emergency rate cuts during March
2020. Within BGCF, though the position of loans at the top of the
capital structure are secured by the borrowing company's assets,
the Board recognises that the current market environment is
challenging and that there will be broad stress on the BGCF
portfolio. It is our belief that the conservative investment
process embedded in the BGCF portfolio construction is key to
navigating the likely economic impact of a global downturn in 2020.
While we believe there will be more market pressures during the
remainder of 2020 and into 2021, the Board gains comfort from the
robust investment approach of the Company's Portfolio Adviser to
the selection of the underlying portfolios.
We will continue to consider how best to utilise
available/excess cash, whether this will be to make additional
investment in CSWs and in turn in PPNs in order to take advantage
of market opportunities; repurchase shares in the market giving due
consideration to the Company's share price; or to amend the
Company's current dividend policy. We acknowledge that the best
course of action at any point may be a combination of any or all of
these options.
Dividends
On 23 April 2020, the Board announced that the Company has
adopted a revised dividend policy targeting a total 2020 annual
dividend of between EUR0.06 and EUR0.07 per Ordinary Share, which
will consist of quarterly payments of EUR0.015 per Ordinary Share
for the first three quarters and a final quarter payment of a
variable amount to be determined at that time. This follows from
the comprehensive discussions between the Board and the Portfolio
Adviser regarding the portfolio review conducted due to the onset
of COVID-19, as explained in the Portfolio Advisers' Review.
The Board will keep the dividend policy under close review and
may adjust the target dividend up or down as the impact of the
pandemic unfolds.
The Board wishes to express its thanks for the support of the
Company's Shareholders.
Charlotte Valeur
Chair
19 May 2020
(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. Certain countries have been susceptible to epidemics or
pandemics, most recently COVID 19. The outbreak of such epidemics
or pandemics, together with any resulting restrictions on travel or
quarantines imposed, could have a negative impact on the economy
and business activity globally (including in the countries in which
the Company invests), and thereby could adversely affect the
performance of the Company's investments. Furthermore, the rapid
development of epidemics or pandemics could preclude prediction as
to their ultimate adverse impact on economic and market conditions,
and, as a result, present additional uncertainty with respect to
the performance of the Company's investments or operations.
(4) Source: IMF, as at 18 December 2019
Portfolio Adviser's Review
We are pleased to present our review of 2019 and outlook for
2020.
Bank Loan Market Overview (5, 6)
Global loan markets performed well in 2019 with all fixed income
asset classes posting positive returns despite concerns about a
weakening global economy, Brexit uncertainty and US trade tensions.
For 2019, European bank loans returned 5.0% (vs. 0.6% in 2018) and
US bank loans returned 8.2% (vs. 1.1% in 2018). Robust CLO creation
and institutional demand supported loan performance throughout the
year. The strong investor appetite for high quality assets was a
primary theme for 2019, resulting in a bifurcation of loan returns
by quality. In both Europe and the US loan markets higher quality
assets outperformed lower quality.
In contrast to the general spread tightening recorded during
2017/2018, global loan spreads widened in 2019 as the spread in the
European loan market widened by 4bp in 2019 (compared to 1bp
narrowing in 2018) to end the year at 349bp. In the US, the loan
market spread widened by 11bp (compared to 9bp narrowing in 2018)
over the year to end 2019 at 359bp.
Gross total loan issuance fell in 2019 to $582 billion from $739
billion in 2018. Regionally, European loan issuance of EUR81
billion was recorded in 2019, down from EUR97 billion in 2018 while
US loan issuance also fell to $492 billion in 2019 from $624
billion in 2018. Although lower when compared to the previous two
years, European 2019's issuance volume is still ahead of any full
year issuance from 2007-2016. In this context, 2019 issuance should
be interpreted as a continuation of the market bull run in European
loans, including a favourable environment for pricing and strong
buyout activity (EUR44 billion of M&A related proceeds), as
well as sizeable new-money add-ons. US loan issuance slowed in 2019
due to a decline in both M&A related financing and refinancing
activity coupled with an increase in bond-for-loan refinancings and
secured high yield issuance.
Throughout 2019, default rates for loans remained below
historical averages and ended the year at 1.2% in the US and 0.0%
in Europe, per Credit Suisse data. However, the disruption caused
by COVID-19 has already resulted in increases to global default
rates; as of 31 March 2020, the trailing twelve month default rate
was 1.6% in the US and 0.5% in Europe (per Credit Suisse). We
expect that these will continue to increase throughout 2020.
CLO Market Overview (7)
Global issuance of Collateralised Loan Obligation vehicles
recorded another strong year in 2019 at $118 billion (although down
from the $129 billion record year in 2018). 2019 was a record
breaking year for European CLO gross issuance with volumes
totalling EUR30 billion, 9% ahead of the previous year's high of
EUR27 billion. US CLO gross issuance was down 8% in 2019 at $118
billion compared to $129 billion in 2018. Global CLO arbitrage was
constrained throughout the year with both the weighted average cost
of capital on CLO liabilities and the weighted average spread and
price of assets remaining within a relatively tight band.
US CLO managers completed $43 billion in CLO refinancings and
resets in 2019. While primary issuance remained close to last
year's record, refinancing and reset volume dropped significantly
versus last year ($156 billion in 2018). US managers were busiest
in the second quarter of 2019, with $14 billion in
refinancing/reset volume. European CLO issuers completed EUR11
billion of refinancings and resets, in addition to the post-crisis
record primary volume of EUR30 billion, for a total of EUR41
billion in total capital markets activity for European CLOs in 2019
(EUR46 billion in 2018). Reset activity was minimal in 1H 2019
before picking up to EUR2 billion or more per quarter in the third
and fourth quarter of 2019.
US CLO fundamentals mostly deteriorated in 2019. Year-over-year,
minimum OC cushions fell (from 434bp to 404bp), WARF levels
deteriorated (from 2814 to 2860 in 2019) , and exposure to loans
below 80 rose (from 1.4% to 3.8% in 2019). Bright spots were
recorded, however, as exposure to CCC assets reduced by 10bp in
2019 to 3.8% (from 3.9%) and WAS increased by 7bp to 349bp.
European CLO fundamentals experienced some weakening as CCC
buckets increased from 1.2% in 2018 to 2.3%, and WARFs deteriorated
from 2855 to 2945. However, WAS levels increased marginally (2bp to
367bp in 2019), equity net asset values increased to 53.7% in 2019
(from 46.9% in 2018) and diversity scores improved from 50 to 54 in
2019.
Gross primary CLO issuance forecasts for 2020 were initially
robust due to expectations of liability tightening. However, as a
result of COVID-19 and the resulting volatility within the loan and
CLO markets, these forecasts are being re-evaluated in light of a
halt in primary issuance in the month of March and we have begun to
see the gross annual issuance forecasts be reduced by approximately
40% in the US from $90-100 billion to $50-70 billion. While primary
issuance has not resumed in Europe, there has not yet been an
update to the initial gross issuance of EUR26 billion projected for
2020.
Portfolio Update
BGCF
The portfolio composition was broadly consistent year-on-year.
Through its investment in BGCF, BGLF maintained its relative
exposure to US assets during 2019. As at 31 December 2019, based on
NAV, 45% of BGCF's portfolio was composed of US CLO Income Notes
(the most subordinated tranche of debt issued by an issuer under a
CLO) and CLO warehouses (first loss positions) compared to 46% in
December 2018. Exposure to directly held loans, net of leverage,
maintained steady increasing from 18% to 19%, and European CLO
Income Notes remained relatively stable at 36% from 37% at the end
of 2018.
Within the portfolio, newer vintage CLOs have made first
distributions that exceeded modelled cash flows, which helped to
support the current distribution rate and helped to offset the
diminishing cash flows from several of the older vintage CLOs. The
spread tightening recorded for most of 2018 largely abated in 2019
and with a natural turning of the credit cycle, wider spreads,
while not yet evident, should soon follow.
Throughout 2019, we registered a pickup in rating downgrades and
watch-list activity and we had grown increasingly cognizant that
the credit cycle had surpassed a decade of growth and that there
may be limited opportunities of strength in the market in which to
trim risk. Given this view, during periods of strong loan prices,
we were aggressive in our approach to trim risk across the overall
portfolio and within each individual CLO. Though the net result of
the trading activity helped to offset impacts to CLO test cushions
resulting from downgrades experienced throughout the year, we
believe that the companies that we lend to will face a difficult
road ahead and we remain keenly focused on continuing to manage and
improve the overall risk profile of the portfolio.
It is in this part of the credit cycle where the benefits of
portfolio vintage diversification and extension of the average
reinvestment periods can provide for greater opportunities to
invest in wider spreads and potentially generate greater cash flows
to holders of CLO equity. Primary CLO issuance together with
refinancing activity contributed to extend the weighted average
reinvestment period, but were not sufficient to offset the aging of
the larger BGCF holdings in older vintages. As of 31 December 2019,
the weighted average remaining CLO reinvestment periods for
European and US CLOs in the portfolio were 2.0 years and 3.1 years,
respectively, compared to 2.2 years and 3.8 years at the end of
2018.
Throughout 2019, BGCF purchased EUR8.7 billion of assets (EUR5.4
billion net of sales). Additionally, BGCF invested EUR95.6 million
in four European CLOs, $113.4 million in four US CLOs and $169.3
million in six US CLO warehouses during the year.
While refinancing activity was slower in 2019, the benefit from
the prior years' refinancings and extensions of CLO liabilities
remains evident in the strong cash flows generated by older vintage
CLOs that have recently exited or are near exiting their
reinvestment periods. Since 2017, refinancings and resets of the
portfolio's CLO liabilities have resulted in cost savings of 0.46%,
the CLO equity valuations improved 12.0% on average in the month
immediately following the transaction, and annualised distributions
improved 26.8% on average on the next payment date.(8) As we
recognise that the cash flows in CLOs that exit their reinvestment
periods are expected to diminish, we would consider alternatives of
refinancing, resetting, or redeeming those transactions should we
see opportunities to do so.
All investments made to-date have been consistent with the
strategy of principal preservation and minimising credit-related
losses, while generating stable returns through income and capital
appreciation.
BGCF CLO Portfolio Positions (9)
CLO Income Closing EUR Deal Position % of % of Reinvest. Current Current NIM NIM Distributions
Note / / Size Owned Tranche BGCF Period Asset Liability 3M Through
Investments [Expected USD (mm) (mm) NAV Left Coupon Cost Prior Last Payment
Close] (Yrs) Date (9)
Date
------------ ---------- ---- ------- -------- ------- ---- --------- ------- --------- ----- -----
Ann. Cum.
------------ ---------- ---- ------- -------- ------- ---- --------- ------- --------- ----- ----- ------ -------
Phoenix EUR EUR
Park Jul-14 EUR 418 23.3 51.4% 1.4% 3.33 3.70% 1.77% 1.93% 1.94% 15.0% 78.8%
Sorrento EUR EUR
Park Oct-14 EUR 415 29.5 51.8% 1.3% 0.00 3.68% 1.60% 2.08% 2.20% 16.7% 85.0%
Castle EUR EUR
Park Dec-14 EUR 347 37.0 80.4% 2.0% 0.00 3.65% 1.62% 2.03% 2.07% 16.9% 81.3%
Dorchester
Park Feb-15 USD $ 533 $ 48.5 73.0% 2.0% 0.30 5.26% 3.38% 1.87% 2.00% 16.8% 78.1%
Dartry EUR EUR
Park Mar-15 EUR 403 22.8 51.1% 1.2% 0.00 3.64% 1.65% 2.00% 1.99% 15.0% 69.4%
Orwell EUR EUR
Park Jun-15 EUR 414 24.2 51.0% 1.5% 0.00 3.69% 1.44% 2.26% 2.27% 16.4% 71.7%
EUR EUR
Tymon Park Dec-15 EUR 414 22.7 51.0% 1.6% 0.06 3.67% 1.31% 2.36% 2.35% 16.0% 61.6%
EUR EUR
Elm Park May-16 EUR 558 31.9 56.1% 2.5% 0.29 3.67% 1.37% 2.30% 2.32% 13.5% 45.7%
Griffith EUR EUR
Park Sep-16 EUR 457 29.0 59.5% 1.8% 3.39 3.70% 1.82% 1.89% 1.90% 10.4% 33.4%
Clarinda EUR EUR
Park Nov-16 EUR 415 23.1 51.2% 1.4% 0.88 3.70% 1.81% 1.89% 1.91% 10.9% 32.8%
Grippen
Park Mar-17 USD $ 611 $ 35.6 60.0% 1.9% 2.30 5.27% 3.70% 1.57% 1.68% 14.2% 37.0%
Palmerston EUR EUR
Park Apr-17 EUR 415 28.0 62.2% 1.7% 1.30 3.70% 1.60% 2.10% 2.00% 14.4% 36.2%
Thayer
Park May-17 USD $ 515 $ 29.8 54.6% 1.5% 2.30 5.23% 3.73% 1.51% 1.67% 17.4% 42.2%
Catskill
Park May-17 USD $ 1,029 $ 65.1 60.0% 3.2% 2.30 5.24% 3.88% 1.36% 1.69% 16.6% 40.1%
Clontarf EUR EUR
Park Jul-17 EUR 414 29.0 66.9% 1.8% 1.60 3.62% 1.59% 2.03% 2.05% 15.3% 35.5%
Dewolf
Park Aug-17 USD $ 614 $ 36.9 60.0% 2.0% 2.79 5.34% 3.72% 1.62% 1.76% 16.8% 35.8%
Gilbert
Park Oct-17 USD $ 1022 $ 60.2 59.0% 3.3% 2.80 5.33% 3.68% 1.65% 1.78% 17.0% 33.5%
Willow EUR EUR
Park Nov-17 EUR 412 23.4 60.9% 1.7% 2.54 3.64% 1.58% 2.06% 2.06% 18.4% 34.5%
Long Point
Park Dec-17 USD $ 611 $ 33.4 56.9% 1.9% 3.05 5.26% 3.43% 1.84% 2.03% 23.6% 42.5%
Stewart
Park Jan-18 USD $ 876 $ 126.9 69.0% 2.8% 3.00 5.24% 3.46% 1.77% 1.93% 16.3% 28.4%
Marlay EUR EUR
Park Mar-18 EUR 413 24.6 60.0% 1.8% 2.29 3.64% 1.40% 2.24% 2.25% 19.9% 30.7%
Greenwood
Park Mar-18 USD $ 1,075 $ 63.6 59.1% 3.6% 3.29 5.33% 3.38% 1.95% 2.09% 20.6% 33.1%
Cook Park Apr-18 USD $ 1,025 $ 60.0 56.1% 3.5% 3.29 5.24% 3.35% 1.89% 2.06% 20.2% 30.7%
Milltown EUR EUR
Park Jun-18 EUR 410 24.1 65.0% 2.0% 2.54 3.67% 1.49% 2.17% 2.17% 17.4% 23.4%
Fillmore
Park Jul-18 USD $ 561 $ 30.2 54.3% 2.1% 3.54 5.27% 3.53% 1.73% 1.88% 16.1% 19.5%
Richmond EUR EUR
Park Jul-18 EUR 549 46.2 68.3% 2.3% 1.54 3.66% 1.52% 2.14% 2.17% 18.5% 23.0%
Myers Park Sep-18 USD $ 510 $ 26.8 51.0% 1.8% 3.80 5.28% 3.56% 1.72% 1.87% 17.9% 19.4%
Sutton EUR EUR
Park Oct-18 EUR 409 25.0 69.4% 2.0% 3.37 3.65% 1.72% 1.93% 1.96% 16.9% 18.1%
Harbor
Park Dec-18 USD $ 716 $ 43.6 55.0% 3.0% 4.05 5.31% 3.60% 1.71% 1.84% 20.5% 17.2%
Crosthwaite EUR EUR
Park Feb-19 EUR 513 34.0 66.7% 2.4% 3.71 3.66% 2.00% 1.66% 1.69% 13.1% 10.4%
Buckhorn
Park Mar-19 USD $ 502 $ 29.0 60.0% 2.0% 4.30 5.38% 3.87% 1.51% 1.29% 22.8% 13.3%
Niagara
Park Jun-19 USD $ 453 $ 26.5 60.0% 2.0% 4.54 5.39% 3.77% 1.62% 1.66% 18.4% 5.6%
Dunedin EUR EUR
Park Sep-19 EUR 410 25.3 52.9% 2.0% 4.31 3.83% 1.77% 2.05% n/a n/a n/a
Southwick
Park Aug-19 USD $ 503 $ 26.1 59.9% 1.9% 4.55 5.42% 3.90% 1.51% 1.71% n/a n/a
Seapoint EUR EUR
Park Nov-19 EUR 406 22.6 73.8% 2.0% 4.39 3.87% 1.84% 2.03% n/a n/a n/a
Holland EUR EUR
Park Nov-19 EUR 430 39.1 72.1% 1.9% 4.37 3.66% 1.90% 1.75% n/a n/a n/a
Beechwood
Park Dec-19 USD $ 810 $ 48.9 61.1% 3.3% 5.05 5.39% 3.76% n/a n/a n/a n/a
------------ ---------- ---- ------- -------- ------- ---- --------- ------- --------- ----- ----- ------ -------
As at 31 December 2019, the portfolio was invested in accordance
with BGCF's investment policy and was diversified across 684
issuers (682 issuers in 2018) through the directly held loans and
CLO portfolio, and across 27 countries (19 countries in 2018) and
31 different industries (30 in 2018). No individual borrower
represented more than 2% of the overall portfolio at the end of
2019.
Key Portfolio Statistics (9)
Current WA Asset Current WA Liability Cost WA Leverage WA Remaining CLO Reinvestment Periods
Coupon
Euro CLOs 3.68% 1.64% 8.3x 2.0 Yrs
US CLOs 5.29% 3.60% 8.9x 3.1 Yrs
US CLO Warehouses 5.06% 3.01% 4.0x n/a
Directly Held Loans 3.67% 1.45% 2.5x n/a
Total Portfolio 4.40% 2.47% 7.4x 2.6 Yrs
-------------------- ---------------- ------------------------- ----------- -------------------------------------
Top 10 Holdings (9)
Asset Country Industry % of Portfolio
Euro Garages UK Retail 1.1%
Paysafe UK Banking, Finance, Insurance and Real Estate 1.1%
Refinitiv USA Services Business 1.1%
Numericable France Media Broadcasting and Subscription 0.9%
BMC Software USA High Tech Industries 0.9%
Amaya Gaming USA Hotels, Gaming and Leisure 0.8%
AkzoNobel Specialty Chemicals Netherlands Chemicals, Plastics and Rubber 0.8%
McAfee, LLC USA High Tech Industries 0.8%
Ion Trading Luxembourg Banking, Finance, Insurance and Real Estate 0.7%
Siemens Audio Luxembourg Healthcare and Pharmaceuticals 0.7%
------------------------------ ------------ -------------------------------------------- --------------
Top 5 Industries (9)
Industries % of Portfolio
As at 31 December 2019 As at 31 December 2018
-------------------------------------------- ---------------------- ----------------------
Healthcare and Pharmaceuticals 15.0% 16.0%
Services Business 10.8% 9.2%
High Tech Industries 9.7% 10.3%
Banking, Finance, Insurance and Real Estate 8.8% 9.5%
Hotels, Gaming and Leisure 7.8% 7.0%
-------------------------------------------- ---------------------- ----------------------
Top 5 Countries (9)
Countries % of Portfolio
As at 31 December 2019 As at 31 December 2018
United States 54.4% 57.2%
United Kingdom 10.4% 5.2%
France 7.6% 8.4%
Luxembourg 5.8% 7.5%
Germany 3.9% **
----------------- ------------------------ ------------------------
** Germany was not part of the Top 5 as at 31 December 2018.
The Netherlands made up 5.6% of the Portfolio as at 31 December
2018.
Directly Held CLOs
Consistent with the expected timing of six to twelve months, per
the Company's prospectus, the directly held CLO portfolio was
significantly liquidated during the year, rotating from 100%
Rollover Assets and cash at the issuance date of BGLC shares to
4.6% of Rollover Assets and 87.0% BGCF PPNs (invested via the Lux
Subsidiary) as at 31 December 2019 (8.4% net cash and expenses).
The 4.6% remaining Rollover Assets represented less than 1% (0.8%)
of BGLF's NAV. As at 31 December 2019, only six positions remained,
the majority of which were sold within the first quarter of
2020.
Regulatory Update
In Europe, the Securitisation Regulation became effective on 1
January 2019 and, as previously reported, largely adopts the same
concepts as the prior regulatory regime. In particular, the
Securitisation Regulation sets out new reporting/transparency
standards for securitisations, including the provision on a
quarterly basis of substantial data at both the asset-level and the
investor-level. The industry, including GSO, has been working to
implement procedures to comply with these new standards before the
relevant effective date, expected to be in the second or third
quarter of 2020.
Risk Management
Given the natural asymmetry of fixed income, our experienced
credit team focuses on truncating downside risk and avoiding
principal impairment and believes that the best way to control and
mitigate risk is by remaining disciplined in all market cycles and
by making careful credit decisions while maintaining adequate
diversification.
BGCF's portfolio is managed so as to minimise default risk and
credit related losses, which is achieved through in-depth
fundamental credit analysis and diversified portfolios in order to
avoid the risk of any one issuer or industry adversely impacting
overall performance. As outlined in the Portfolio Update section,
BGCF is broadly diversified across issuers, industries, and
countries.
BGCF's base currency is denominated in Euro, though investments
are also made and realised in other currencies. Changes in rates of
exchange may have an adverse effect on the value, price, or income
of the investments of BGCF. BGCF may utilise different financial
instruments to seek to hedge against declines in the value of its
positions as a result of changes in currency exchange rates.
Through the construction of solid credit portfolios and our
emphasis on risk management, capital preservation, and fundamental
credit research, we believe the Company's investment strategy will
continue to be successful.
Integrating Environmental, Social and Governance ("ESG")
For over 35 years, Blackstone has been committed to being a
responsible investor. This commitment is affirmed across the
organization and guides our approach to investing. We believe that
adequate consideration of ESG factors for each potential investment
enhances our assessment of risk and helps us identify opportunities
for transformation at each company where we invest. Consequently,
we believe that a comprehensive ESG program, aside from being the
right thing, drives value and enhances returns. We also believe
that understanding ESG factors helps us understand trends and how
they will shape demand and markets in years to come. Our framework
applies to all investment opportunities, though the exact
application of that framework varies by asset class, investment
objective and the unique characteristics of each investment. More
detail on Blackstone's responsible investing objectives, which
include integration, engagement, and reporting, can be found on the
Blackstone website (
https://www.blackstone.com/docs/default-source/black-papers/bx-responsible-investing-policy.pdf?sfvrsn=cef0a3ad_2.
).
Additionally, GSO has long incorporated ESG considerations into
our investment approach for the leveraged loan asset class, and
recently implemented a formalized ESG policy for GSO. This is an
extension of the firmwide Blackstone policy and covers the credit
business specifically. This new policy memorializes the first phase
of our formal ESG policy and was accompanied by introductory
training across the global credit research teams. The next phase
will include GSO working with a third-party ESG consultant in the
planned development of sector specific guidelines for use in our
investment process. Our goal is to create a robust policy that
embeds ESG considerations into every stage of an investment hold
period (initial diligence, investment committee review, ongoing
monitoring, etc.). We believe that adequate consideration of ESG
factors for each potential investment enhances our assessment of
risk and also helps us identify opportunities.
As a credit investor, GSO will have less control over portfolio
companies than equity investors; however, we may seek to reinforce
certain aspects of ESG compliance through contractual obligations
and covenants in governing agreements with portfolio companies.
Underwriting due diligence includes among other things, material
environmental, public health, safety, social and governance issues
associated with lending to a company.
During the holding period of an investment, the investment team
actively monitors the investment and provides updates to the
investment committee as needed, including with respect to ESG
related matters. As part of this process, members of the investment
team maintain direct dialogue with company management, follow all
news developments, financial reporting, and industry events that
impact the company and track company performance in order to update
our views on credit quality, valuation and financial outlook. If
potential ESG issues are identified, the firm may seek to remedy
the situation via additional due diligence, the hiring of
specialist advisors, or by abandoning the prospective
investment.
While the GSO responsible investing policy does not explicitly
track exposure to climate risk or monitor the carbon footprint of
an investment, in practice, we take the ESG factors into
consideration and incorporate into our initial evaluation and
ongoing monitoring process. Our screening criteria are based on the
materiality of the ESG risk considering (a) whether it has a
current impact or a potential future impact and, (b) any mitigating
actions the issuer undertakes to address the risk. In general,
industries with a high carbon footprint face significant transition
risk with regard to climate change, and that risk would need to be
evaluated before making an investment decision. In addition, in
investments where we have a controlling equity position and an
ability to influence the company, we also would include material
issues (such as climate change and carbon intensity) in our ESG
engagement with the company during our ownership. We anticipate
engaging in a similar fashion with our non-equity investments on
ESG matters in the future, however, it is obviously at the company
and/or sponsor's discretion whether they welcome this dialogue and
our expertise. With regard to measuring of carbon footprint, for
portfolio companies that participate in our energy reduction
program, we monitor electricity spend as an indicator of carbon
intensity and emissions levels.
COVID-19 Analysis
GSO has conducted a detailed, bottom-up review of all c. 970
global companies within its portfolios to determine the potential
impact of COVID-19 on the performance of these businesses. GSO
focused not only on those sectors that have been directly impacted
by COVID-19, including hotels, gaming and leisure, transportation,
retail, automotive, and energy, but the entire universe of
industries within its portfolios. The objective of the analysis was
to determine the financial performance of the companies and loans
within BGCF's CLO portfolio and the resulting likelihood of
negative credit rating migration and/or default for each loan in
which we hold a position, as well as expected timing of these
events. The loan by loan analysis was then applied on a probability
weighted basis to each portfolio and run through the respective CLO
structures in an attempt to forecast the impact on BGCF's CLO
investments.
The results of this exercise have allowed GSO to consider the
likely impact on cash flows generated by the Company's investments
in directly held CLOs and those held indirectly through BGCF. This
impact assessment has enabled the Board and GSO to assess the
sustainability of the Company's dividend in the short-term. The
medium- and long-term impacts of the global pandemic remain
uncertain. However, in the short-term, rating agency downgrades and
corporate defaults of companies within GSO's portfolios may lead to
temporary cash flow diversions away from subordinate note
distributions as a result of breaches in interest diversion and/or
over-collateralisation ratios within a number of CLOs to which the
Company has exposure (through BGCF).
GSO has already taken numerous steps to seek to mitigate the
impact of COVID-19 on the performance of its portfolios and will
continue to monitor the rapidly evolving economic environment to
identify risks and opportunities. Despite the near-term economic
disruption and resulting dislocation in the global credit markets,
GSO believes that these events create good investment opportunities
and provide further prospects for BGLF to enhance shareholder
value.
Blackstone / GSO Debt Funds Management Europe Limited
19 May 2020
(5) Source: S&P LCD, data as of 31 December 2019.
(6) Source: Credit Suisse, as of 31 December 2019.
(7) Sources: S&P/LCD, Wells Fargo, data as of 31 December
2019.
(8) Data as of 31 December 2019. MoM Increase in Valuation
provides the month-over-month change as of the respective month
before and after the CLO's refinancing. Orwell Park's refinancing
priced on 31 July 2017, and as such, MoM % Valuation Increase
compares July 2017 and August 2017 month end valuations.
(9) As at 31 December 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 to seize opportunities
which are in the best interests of our 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. Up until their
conversion into Ordinary Shares on 7 January 2020, the Company's C
Shares were quoted on the SFS of the Main Market of the LSE.
The Company's authorised share capital consists of an unlimited
number of shares of any class. As at 31 December 2019, the
Company's issued share capital was 402,319,490 Ordinary Shares and
133,451,107 C Shares. The Company also held 2,380,956 Ordinary
Shares in treasury.
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. As
at 31 December 2019 all of the Class A and Class B shares were held
by the Company together with 319,758,584 Class B CSWs issued by the
Lux Subsidiary. The Lux Subsidiary invests in PPNs issued by BGCF,
which in turn invests in CLOs and loans. The Company also holds CLO
Income Notes and Mezzanine Notes which formed part of the Rollover
Assets and are yet to be realised and reinvested in CSWs.
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"), such as BGCF.
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 may include both EUR and 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 Published 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
Published 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 an 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 that rate 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 consider 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 Published 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-weighting/under-weighting 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.
Section 172(1) Statement
The Company, being a member of the AIC, complies with Provision
5 of the AIC Code and the Board acknowledges its duty to comply
with section 172(1) of the UK Companies Act 2006 to act in a way
that promotes the success of the Company for the benefit of its
shareholders as a whole, having regard to (amongst other
things):
a) the likely consequences of any decision in the long-term;
b) the interests of the Company's employees;
c) the need to foster the Company's business relationships with
suppliers, customers and others;
d) the impact of the Company's operations on the community and the environment;
e) the desirability of the Company maintaining a reputation for
high standards of business conduct; and
f) the need to act fairly as between members of the Company.
The Board maintains a reputation for high standards of business
conduct and endeavours to act fairly as between members of the
Company by acting with integrity and establishing trust as referred
to in the Company's values outlined above. Additionally, the
Company complies with the Principles and Provisions of the AIC Code
as detailed below.
Information on how the Board has engaged with its stakeholders
and promoted the success of the Company, whilst having regard to
the above, is outlined below. This covers the key decisions the
Board has taken during the year.
Stakeholder engagement
Shareholders
Why we engage How we engage
------------------------------------------ ---------------------------------------------------
Shareholders provide the necessary The Board engages with its shareholders
capital for the Company to pursue by:
its purpose and strategy as a) publishing:
outlined in the Company's Prospectus. i. announcements on the LSE,
including the Company's Published
The Company also aims to ensure NAV performance announced on
its long-term success and sustainability a monthly basis;
through its shareholder relationships, ii. monthly reports, on the
based on transparency and openness, Company's website, covering
and thereby fostering shareholder the performance of the Company
confidence. This in-turn benefits and its underlying portfolio,
the liquidity of the Company's and including information on
shares and the Company's reputation the composition of the underling
as an esteemed market participant. portfolio;
iii. quarterly investor reports,
on the Company's website, which
provides an overview of the
Company's and the Underlying
Company's quarterly results,
together with a market overview;
iv. the Company's Half-Yearly
Financial Report and the Annual
Report and Audited Financial
Statements;
v. the Company's Key Information
Document and a memorandum on
costs;
vi. ad-hoc reports, on the Company's
website, as and when required
to provide further insights
into the relevant market situation;
------------------------------------------ ---------------------------------------------------
Why we engage How we engage
------------------------------------------ ---------------------------------------------------
b) a shareholder lunch held
on 12 November 2019 with representatives
of the Portfolio Adviser, the
Board and the broker in attendance.
This was aimed primarily at
institutional investors and
included an overview of the
Company and its underlying portfolio,
together with the Q3 2019 results;
c) the Board and representatives
of the Portfolio Adviser holding
investor calls to provide market
updates. These have been held
since 2020 to provide all shareholders
with a corporate update in light
of the Coronavirus disease and
its expected impact on the global
economy. Going forward it is
anticipated that investor calls
will be scheduled as required;
d) telephone discussions between
Directors and individual shareholders.
During 2019 two of the Company's
Directors spoke to one of the
Company's shareholders in response
to queries they had raised regarding
the Company's performance; reporting;
discount management; marketing;
shareholder engagement; and
Directors' shareholdings.
e) the Board also engaging with
its shareholders through its
Portfolio Adviser and Brokers
who communicate pertinent information
from any discussions they have
had with the Company's shareholders;
and
f) Written communication with
shareholders in response to
queries received, as applicable.
Additionally, the Board (including
the different committee Chairs)
is available at the AGM to answer
questions in their areas of
responsibility and the Chair
encourages shareholders to contact
her or any other Director with
any queries or comments they
may have.
------------------------------------------ ---------------------------------------------------
Outcome
-----------------------------------------------------------------
Shareholders receive relevant information allowing them to
make informed decisions about their shareholding(s), and to
engage with the Company and its advisers on any matters they
consider relevant.
All Directors are kept informed of shareholder engagement,
as necessary, so that they are aware of and understand the
views communicated. Any pertinent matters are followed up
on by the Board and, as applicable, shareholder views are
considered as part of the Directors' decision-making processes.
-----------------------------------------------------------------
Service Providers
Why we engage How we engage
--------------------------------------- ------------------------------------------
As an investment company with The Board engages with its Portfolio
no employees, the Company is Adviser on an on-going basis
reliant on its service providers through:
to conduct its business. The a) Regular communication with
Board considers the Portfolio representatives as required,
Adviser, the Administrator and such as telephone and email
the Registrar to be critical correspondence discussing ad-hoc
to the Company's day-to-day matters which may arise;
operations. b) monthly meetings to receive
updates on the performance of
The Board views the Company's the portfolio;
other service providers, such c) quarterly board meetings
as brokers, auditors and lawyers to receive detailed updates
as being highly important in on, but not limited to, the
enabling the Company to meet loan and CLO markets and activity
its regulatory and legal requirements updates for the Underlying Company.
as necessary. This includes discussions about
capital inflows, performance
of current investments and return
attribution;
d) due diligence meetings with
senior representatives of the
Portfolio Adviser held in 2019
in New York and Dublin; and
e) ad-hoc meetings to discuss
various day-to-day operational
matters.
The Board engages with its Administrator
on an on-going basis including:
a) Regular communication with
representatives, such as telephone
and email correspondence, to
discussing any ad-hoc matters;
b) monthly meetings to discuss
the Published NAV as computed
by the Administrator;
c) quarterly Board meetings
to receive accounting, company
secretarial and compliance updates;
d) production of the Company's
Half-Yearly Financial Report
and Annual Report and Audited
Financial Statements;
e) ad-hoc meetings to discuss
various day-to-day operational
matters; and
f) annual service review meetings.
The Company's Registrar is responsible
for maintaining the Company's
share register and for processing
any corporate actions. The registrar's
reports are available via an
online platform, and the Company
otherwise engages as necessary
with the Registrar via email
and telephone, such as with
regard to the Company's C share
conversion.
--------------------------------------- ------------------------------------------
Outcome
------------------------------------------------------------------
The Company is well managed and the Board receives appropriate
and timely advice and guidance, together with responses to
any queries the Board has. The Board's engagement with its
service providers enables it to help facilitate the effective
running of the Company. This in-turn helps promote the Company's
sustainability.
------------------------------------------------------------------
Underlying Company
Why we engage How we engage
---------------------------------------- ---------------------------------------
The Board's purpose and strategy The Board engages with the Portfolio
is implemented through investment Adviser and the board of directors
in the Underlying Company, BGCF. of the Underlying Company to
Understanding the capital requirements understand their capital requirements
- timing and quantum - of the and performance. It does so
Underlying Company is important through the methods described
to the Board to ensure the Company above.
can provide capital, sourced
from current or new shareholders, The Board also met with the
as required. board of BGCF in Dublin during
2019.
Additionally, understanding
the performance of the Underlying
Company is vital to ensuring
the Company can deliver on its
investment objective of income
and capital appreciation.
---------------------------------------- ---------------------------------------
Outcome
---------------------------------------------------------------------
The Board keeps abreast of capital requirements and the performance
of the Underlying Company. In doing so the Board aims to understand
the Underlying Company's past performance and contributing
factors to this, together with their prospective outlook.
From this process the Board looks to help ensure effectiveness
of the Portfolio Adviser and so promote the long-term success
of the Company.
---------------------------------------------------------------------
Wider Society
Why we engage How we engage
-------------------------------------- ------------------------------------------
As a responsible corporate citizen The Board meets with stakeholders
the Company recognises that to remain current in their understanding
its operations have an environmental of stakeholder views relating
footprint and an impact on wider to environmental and social
society. matters.
The Board also seeks to uphold
the highest standards of professionalism
and corporate governance, while
embracing diversity and inclusion.
The Board expects the same from
its service providers, and asks
its service providers to provide
an overview of their diversity
policies on an annual basis.
In endeavouring to exemplify
best corporate governance practice,
the Board aims to positively
influence the wider corporate
and economic environment and
inspire stakeholder trust.
-------------------------------------- ------------------------------------------
Outcome
--------------------------------------------------------------------
The Board remains mindful of the need to offset the impact
of the Company's operations on the community in which it operates,
and actively seeks to positively influence its wider society.
--------------------------------------------------------------------
Corporate Activity
The principal decisions taken below are the ones that the Board
considers have the greatest impact on the Company's long-term
success. The Board considers the factors outlined under the section
172(1) statement and the wider interests of stakeholders as a whole
in all decisions it takes on behalf of the Company.
Rollover Offer Proposal and Conversion of C Share
Description
-------------------------------------------------------------------
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 7 January 2019. Allotment and admission
to trading on the SFS of the LSE was completed on 7 January
2019.
On 20 December 2019, the Company announced that the Conversion
Ratio was 0.5860 Ordinary Shares per C Share and the C Share
Conversion date would be 6 January 2020. On 6 January 2020,
133,451,107 C Shares were converted into 78,202,348 Ordinary
Shares and on 7 January 2020, these Ordinary Shares were admitted
to the premium segment of the Official List of the UK Listing
Authority and to trading on the LSE's main market for listed
securities.
-------------------------------------------------------------------
Impact on long-term success Stakeholder considerations
---------------------------------- --------------------------------------
Increasing the Company's size The issue of C Shares has the
has the benefit of improving effect of spreading the Company's
diversification of the Company's fixed costs over a wider shareholder
enlarged portfolio and improving base thereby reducing the total
liquidity. expense ratio.
---------------------------------- --------------------------------------
Directorate Change
Description
--------------------------------------------------------------
On 8 January 2019, the Company announced that Mark Moffat
had been appointed as a non-executive director effective the
same day.
--------------------------------------------------------------
Impact on long-term success Stakeholder considerations
--------------------------------- --------------------------------------
Enhancing the experience and The Board believes that the
skills in relation to the Board appointment of Mark Moffat,
of Directors. who brings over 20 years of
experience in structuring, managing
and investing in CLOs, is in
the interest of all of the Company's
stakeholders as it further enhances
the skills at the Board's disposal
and the Company's governance
arrangements.
--------------------------------- --------------------------------------
Share Repurchase Programme
Description
---------------------------------------------------------------
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.
---------------------------------------------------------------
Impact on long-term success Stakeholder considerations
--------------------------------- ------------------------------------
Increasing the NAV per Ordinary The Board believes that undertaking
Share and assisting to minimise repurchases of Ordinary Shares
the discount to the NAV per addresses any imbalance between
Ordinary Share at which the the supply of, and demand for,
Ordinary Shares are trading. the Ordinary Shares.
--------------------------------- ------------------------------------
Risk Overview
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.
Risk Appetite
The Board's strategic risk appetite is to balance the amount of
income distributed by the Company by way of dividend with the
opportunity to reinvest the returns received from the underlying
CLO investments in further CLO equity through the structure. The
Board seeks to ensure that the dividend policy is sustainable
without eroding capital.
When considering other risks, the Board's risk appetite is
effectively governed by a cost benefit analysis when assessing
mitigation measures. However, at all times the Company will seek to
follow best practice and remain compliant with all applicable laws,
rules and regulations.
Principal Risks, Uncertainties and Emerging Risks
As recommended by the Risk Committee, the Board has adopted a
risk management framework to govern how the Board: identifies
existing and emerging risks; determines risk appetite; identifies
mitigation and controls; assesses, monitors and measures risk; and
reports on risks.
The Board reviews risks at least twice a year and receives
deep-dive reports on specific risks as recommended by the Risk
Committee (see the report of the activities of that committee
below). Throughout the year under review the Board considered 15
main risks which have a higher probability and a significant
potential impact on performance, strategy, reputation, or
operations (Category A risks). Of these, the first four risks
identified below were considered the principal risks faced by the
Company where the combination of probability and impact was
assessed as being most significant. The Board also considered
another 14 less significant existing or emerging risks (Category B
risks) which are monitored on a watch list.
After the year end, as the COVID-19 pandemic grew, the Board and
the Risk Committee considered the impact that the situation would
have on the Company's business and its service providers. As a
result, the Board has elevated risks relating to Reliance on
Service Providers and Business Continuity from Category B to
Category A and downgraded risk relating to Third Party Investors in
the Originator from Category A to Category B. Category A risks
relating to Reporting and Filing Deadlines, and Tax, Legal and
Regulatory Requirements were merged. Due to the material impact
that the epidemic will have on the Company, society and the
economy, the existing four principal risks below are considered
through the lens of COVID-19 and a fifth entry has been added
regarding Operational risk, that aggregates a number of Category A
risks that are operational in nature.
Principal risk COVID-19 commentary
Investment performance
A key risk to the Company is unsatisfactory investment Credit markets, along with most other asset classes,
performance due to an economic downturn have been badly hit by the impact of
along with continued political uncertainty which could COVID-19 on companies and markets. However, it is still
negatively impact global credit markets difficult to assess the impact of
and the risk reward characteristics for CLO structuring. the virus on individual companies and therefore on
This could directly impact the performance investment pools such as CLOs. As outlined
of the underlying CLOs that the Company invests in and it in the Portfolio Adviser Review, the Portfolio Adviser
could also result in a reduced number has undertaken a detailed analysis
of suitable investment opportunities and/or lower of the underlying companies in order to be able to
shareholder demand. revise models for each CLO and draw conclusions
for the Company. This has allowed the Board to manage
risk by amending the dividend policy
as described in the Chair' Statement. This will help
ensure that the Company does not over-distribute
and erode the capital of the Company. This will be an
ongoing process as the pandemic takes
its course. Refer to Note 20 for further details on
COVID-19.
The Board takes comfort from the proven track record of
Blackstone/GSO as Portfolio Advisers
and their ability to trade and manage risk in the
portfolios in difficult circumstances.
--------------------------------------------------------- ---------------------------------------------------------
Share price discount
The price of the Company's shares may trade at a discount Due to the inherent uncertainty of the current
relative to the underlying net asset environment as the impact of the virus on valuations
value of the shares. is not fully known, the Company's discount has widened
although there has not been sustained
share selling pressure.
The Board will endeavor to ensure that investors are
kept up to date with the Portfolio Adviser's
assessment of the impact of the virus on underlying
valuations (see next item), and the outlook
for the dividend.
The Board also retains its general authority to buy back
shares of the Company in the market
where they believe that it will be in the best interests
of shareholders.
--------------------------------------------------------- ---------------------------------------------------------
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. As detailed further
by BGCF are valued using modelling methodologies, in Note 12 independent valuation service providers are
described in the Company's Prospectus, that involved in determining the fair value
are based upon many assumptions. The valuation of the of underlying CLOs.
Company's investments therefore requires
a significant judgement and there is a risk that they are
incorrectly valued due to calculation
errors or incorrect assumptions.
The CLOs held directly by the Company are valued using The Company determines the fair value of the directly
the mark-to-market approach. held CLOs using third party valuations.
As stated above, the Board will endeavor to ensure that
investors are kept up to date with
the Portfolio Adviser's assessment of the impact of the
virus on underlying CLO valuations,
including assumptions and Market Colour where
appropriate.
--------------------------------------------------------- ---------------------------------------------------------
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 year under review the Directors 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. Prior to the onset of the COVID-19 pandemic,
invested. In turn, the Company aims the Directors were comfortable that
to distribute income received to shareholders, in the distribution policy was sustainable. As a result of
accordance with its distribution policy, the COVID-19 impact assessment conducted
without eroding capital. by the Portfolio Adviser outlined above, the Company has
decided to amend its dividend policy
There is a risk that the distribution policy at the as described above
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.
--------------------------------------------------------- ---------------------------------------------------------
Operational
The Company has no employees, systems or premises and is The Risk Committee has reviewed the arrangements put in
reliant on its Portfolio Adviser place by key service providers to
and service providers for the delivery of its investment ensure continuity of service to the Company and is
objective and strategy. currently satisfied that they are sufficient.
This will be kept under regular review.
The COVID-19 pandemic means that all of the Company's
service providers are operating under
business continuity procedures with staff working from
home. This increases the risk of control
breakdowns, errors and omissions and regulatory breaches.
As the pandemic takes its course there is also an
increased risk that key individuals at the
Portfolio Adviser and other service providers will be ill
or otherwise unable to work. This
will reduce the capacity for the Company to operate.
--------------------------------------------------------- ---------------------------------------------------------
Brexit
The Directors do not believe that the ongoing Brexit process is
a significant risk to the Company other than any impact reflected
generally in international markets and the global economy. During
the year, 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 31 investment professionals
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 31 December 2019, the
Company's indirect exposure to BGCF directly held assets classified
as UK companies was 8.2%.
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 while factoring
in the current economic conditions caused by the outbreak of
COVID-19 as discussed further in the Chair's Statement, the
Portfolio Adviser's Review and in Note 20. 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.
Viability Statement
At least once a year the Directors carry out a robust assessment
of the principal risks facing the Company, including those that
would threaten its business model, future performance, solvency and
liquidity. The Directors also assess the Company's policies and
procedures for monitoring, managing and mitigating its exposure to
these risks. In assessing viability the Directors have considered
the principal risks of the Company as detailed above along with
market conditions including the potential impact of COVID-19, the
Company's current position, investment objective and strategy and
the performance of the Portfolio Adviser.
As explained above, the Company's underlying investment exposure
is to the investment portfolio of BGCF. BGCF's portfolio comprises
the following categories of investments: (i) CLO Debt and CLO
Income Notes securitised by BGCF, (ii) a portfolio of senior
secured loans and bonds; and (iii) preference shares. The CLO
investments in the portfolio have a non-call period of
approximately two years from their origination date and cannot be
redeemed until these expire. The Directors have considered each of
the principal risks of the Company that could materially affect the
cash flows derived from these investments and hence how these could
impact the cash flows received by BGLF from BGCF.
In conjunction with the Portfolio Adviser, the Directors have
considered the impact that extreme market scenarios, including the
potential impact of COVID-19, could have on BGCF and where
appropriate has analysed the effect on the Company's net cash flows
over a five year horizon. These market scenarios were modelled
using inputs based on actual conditions observed or experienced by
the Portfolio Adviser during the global financial crisis and
included assumptions on prepayment rates, default rates and
reinvestment spreads and prices that would be impacted by severe
but plausible scenarios. Owing to COVID-19, the Portfolio Adviser
has conducted a further detailed, bottom-up review of all c. 970
companies within its portfolios to determine the potential impact
of COVID-19 on the performance of these businesses. The Portfolio
Adviser focused not only on those sectors that have been directly
impacted by COVID-19, including hotels, gaming and leisure,
transportation, retail, automotive, and energy, but the entire
universe of industries within its portfolios.
The above impact assessment has also allowed the Directors and
the Portfolio Adviser to assess the sustainability of the Company's
dividend in the short-term. The medium and long-term impacts of the
global pandemic remain uncertain. However, in the short-term,
rating agency downgrades and corporate defaults of companies within
BGCF's portfolios may lead to temporary cash flow diversions away
from subordinate note distributions as a result of breaches in
interest diversion and/or OC ratios within a number of CLOs to
which the Company has exposure.
The Directors have adjusted its dividend policy for the calendar
year 2020 pursuant to the comprehensive discussions between the
Directors and the Portfolio Adviser regarding the portfolio review
and uncertain near-term outlook.
The Directors have adopted a revised dividend policy targeting a
total 2020 annual dividend of between EUR0.06 and EUR0.07 per
Ordinary Share, which will consist of quarterly payments of
EUR0.015 per Ordinary Share for the first three quarters and a
final quarter payment of a variable amount to be determined at that
time. The Directors will keep the dividend policy under close
review and may adjust the target dividend up or down as the impact
of the pandemic unfolds.
The Directors are satisfied that the outcomes under these
modelled extreme market scenarios and adoption of a revised
dividend policy would allow the Company to generate sufficient cash
flow and ensure that the Company would be able to meet its
liabilities, as they fall due.
The Directors have assessed the prospects of the Company over
the five-year period to 30 April 2025, which the Directors have
determined constitutes an appropriate period to provide its
viability statement. The Directors believe that financial forecasts
to support its investment strategy can be subject to changes
dependent upon investment performance, deployment of capital and
regulatory, legal and tax developments for which the impact beyond
a five year term is difficult to assess. In addition, the extent to
which macroeconomic, political, social, technological and
regulatory changes beyond a five-year term may have a plausible
impact on the Company are difficult to envisage.
The Directors also considered the other principal risks. Whilst
each of these risks is a principal risk and could have an impact on
the long-term sustainability of the Company, the Directors
concluded that each was sufficiently mitigated and would therefore
not impact the viability of the Company over a five-year
period.
On the basis of this assessment of the principal risks facing
the Company and the modelled extreme market scenarios, including
the potential impact of COVID-19, used to assess the Company's
prospects, and in the absence of any unforeseen circumstances, the
Directors confirm that they have a reasonable expectation that the
Company will be able to continue in operation and meet its
liabilities as they fall due over the five-year period of their
assessment. However, it is worth noting that there is no intention
for the life of the Company to be limited to this five-year
period.
Performance Analysis
IFRS NAV Performance Analysis for the Years Ended 31 December
2019 And 31 December 2018 - Contributors to Change
[Graphs and charts are included in the published Annual Report
and Audited Financial Statements which is available on the
Company's website at
https://www.blackstone.com/our-businesses/registered-products#c=blackstone-gso-loan-financing-limited
]
Further commentary on the Company's performance is contained in
the Chair's Statement and the Portfolio Adviser's Review.
Published NAV Performance Analysis for the Years Ended 31
December 2019 And 31 December 2018 - Contributors to Change
[Graphs and charts are included in the published Annual Report
and Audited Financial Statements which is available on the
Company's website at
https://www.blackstone.com/our-businesses/registered-products#c=blackstone-gso-loan-financing-limited
]
Further commentary on the Company's performance is contained in
the Chair's Statement and the Portfolio Adviser's Review.
Other Information
Valuation Methodology
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 31 December 2019 and 31
December 2018 are detailed below:
Asset Valuation Input IFRS Published IFRS Published
Methodology NAV NAV NAV NAV
31 December 2019 31 December 2018
Discounted Constant
CLO Securities Cash Flows default rate 1.98% 2.00% 1.98 2.00
Conditional
prepayment
rate 25% 20% 25% 20%
Reinvestment
spread (bp
over LIBOR) 354.77 380.82 353.31 380.77
Recovery
rate Loans 70.00% 70.00% 70.00% 70.00%
Recovery
lag (Months) 0 12 0 12
Discount
rate 15.67% 12.04% 18.96% 12.93%
----------------------------------------------- ------- ---------- ------- ----------
All of the assumptions above are based on weighted averages.
Certain assumptions, which underpin the year-end Published NAV,
such as a lower conditional prepayment rate, discount 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 31 December 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 Q4 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 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 32,566,912 CSWs in the Lux Subsidiary during the year with
a fair value of EUR41,578,263 to fund the quarterly dividend.
Source of the Company's Dividend - C Class
During the period from 7 January 2019 to 29 November 2019, the
Company's C Class received income, on a quarterly basis, from the
CLOs held within the C Class portfolio in addition to income from
PPNs held by the Lux Subsidiary into which realised rollover assets
had been reinvested into via CSWs. As mentioned above, the Company
redeems CSWs on a quarterly basis to augment the income from the
CLOs. As detailed above, the Company redeemed 3,541,948 CSWs in the
Lux Subsidiary with a fair value of EUR3,723,415 during the period
from 7 January 2019 to 29 November 2019 to fund the C Class
quarterly dividend.
Alternative Investment Fund Managers' Directive
The Alternative Investment Fund Managers' Directive ("AIFMD")
requires certain information to be made available to investors in
alternative investment funds ("AIFs") before they invest and
requires that material changes to this information be disclosed in
the annual report of each AIF. There have been no material changes
(other than those reflected in these financial statements) to this
information requiring disclosure.
Alternative Performance Measures
In accordance with ESMA Guidelines on APMs, the Board has
considered which APMs are included in the Annual Report and Audited
Financial Statements and require further clarification. An APM is
defined as a financial measure of historical or future financial
performance, financial position, or cash flows, other than a
financial measure defined or specified in the applicable financial
reporting framework. APMs included in the financial statements,
which are unaudited and outside the scope of IFRS, are detailed in
the table below.
Published NAV total Published NAV per (Discount) / Premium
return per Ordinary Ordinary Share** per Ordinary Share
Share**
Definition The increase in Gross assets less BGLF's closing
the Published NAV liabilities (including share price on
per Ordinary Share accrued but unpaid the LSE less the
plus the total dividends fees) determined Published NAV per
paid per Ordinary in accordance with share as at the
Share during the the section entitled period end, divided
period, with such "Net Asset Value" by the Published
dividends paid being in Part I of the NAV per share as
re-invested at NAV, Company's Prospectus, at that date
as a percentage divided by the number
of the NAV per share of Ordinary Shares
as at period end at the relevant
time
Reason NAV total return The Published NAV The discount or
summarises the Company's per share is an premium per Ordinary
true growth over indicator of the Share is a key
time while taking intrinsic value indicator of the
into account both of the Company. discrepancy between
capital appreciation the market value
and dividend yield and the intrinsic
value of the Company
Target 11%+ Not applicable Maximum discount
of 7.5%
Performance
2019 14.46% 0.9187 (10.20)%*
2018 6.70% 0.8963 (15.21)%
2017 1.38% 0.9378 5.03%
2016 13.28% 1.0238 (1.10)%
----------- ------------------------- ----------------------- ---------------------
* Refer to details on management of the discount in the Chair's
Statement.
** Published NAV is an APM from which these metrics are
derived.
A reconciliation of the above-mentioned APMs to the most
directly reconcilable line items presented in the financial
statements for the year ended 31 December 2019 is presented
below:
Published NAV total return per Ordinary Share
31 December 2019 31 December 2018
Opening Published NAV per Ordinary
Share (A) EUR0.8963 EUR0.9378
Adjustments per Ordinary Share (B) EUR(0.0898) -
Opening IFRS NAV per Ordinary Share
(C=A+B) EUR0.8065 EUR0.9378
Closing Published NAV per Ordinary
Share (D) EUR0.9187 EUR0.8963
Adjustments per Ordinary Share (E) EUR(0.0644) EUR(0.0898)
Closing IFRS NAV per Ordinary Share
(F=D+E) EUR0.8543 EUR0.8065
Dividends paid during the year (G) EUR0.1000 EUR0.1000
Published NAV total return per Ordinary
Share
(H=(D-A+G)/A) 13.66% 6.24%
Impact of dividend re-investment
(I) 0.80% 0.46%
Published NAV total return per Ordinary
Share with dividends re-invested
(J=H+I) 14.46% 6.70%
IFRS NAV total return per Ordinary
Share
(K=(F-C+G)/C) 18.33% (3.34)%
Impact of dividend re-investment
(L) (0.02)% (0.65)%
IFRS NAV total return per Ordinary
Share with
dividends re-invested (M=K+L) 18.31% (3.99)%
---------------------------------------- ---------------- ----------------
Refer to Note 16 for further details on the adjustments per
Ordinary Share.
Published NAV per Ordinary Share
31 December 2019 31 December 2018
Published NAV per Ordinary Share
(A) EUR0.9187 EUR0.8963
Adjustments per Ordinary Share (B) EUR0.0644 EUR0.0898
IFRS NAV per Ordinary Share (C=A-B) EUR0.8543 EUR0.8065
------------------------------------ ---------------- ----------------
Refer to Note 16 for further details on the adjustments per
Ordinary Share.
(Discount) / Premium per Ordinary Share
31 December 2019 31 December 2018
Published NAV per Ordinary Share
(A) EUR0.9187 EUR0.8963
Adjustments per Ordinary Share (B) EUR0.0644 EUR0.0898
IFRS NAV per Ordinary Share (C=A-B) EUR0.8543 EUR0.8065
Closing share price as at 31 December
per the LSE (D) EUR0.8250 EUR0.7600
Discount to Published NAV per Ordinary
Share
(E=(D-A)/A) (10.20)% (15.21)%
Discount to IFRS NAV per Ordinary
Share
(F=(D-C)/C) (3.43)% (5.77)%
--------------------------------------- ---------------- ----------------
Refer to Note 16 for further details on the adjustments per
Ordinary Share.
Future Developments
Significant Events after the Reporting Period
On 7 January 2020, the Company announced the completion of the C
Share Conversion on the same day, and that the Company's issued
share capital consists of 480,521,838 Ordinary Shares of no par
value and the total number of voting rights is 480,521,838. The
Company also holds 2,380,956 Ordinary Shares in treasury.
On 21 January 2020, the Board declared a dividend of EUR0.025
per Ordinary Share in respect of the period from 1 October 2019 to
31 December 2019 with an ex-dividend date of 30 January 2020. A
total payment of EUR12,013,045 was processed on 28 February
2020.
On 4 March 2020, the Board announced that Winterflood Securities
Limited had been appointed as joint corporate broker and joint
financial adviser with immediate effect. Winterflood Securities
Limited would act alongside Nplus1 Singer Advisory LLP.
COVID-19
As explained in the Chair's Statement, COVID-19 continues to
adversely impact global commercial activity and has contributed to
significant volatility in financial markets . Refer to the
Portfolio Adviser's Review and Note 20 for further details on
COVID-19.
Outlook
It is the Board's intention that the Company will pursue its
investment objective and investment policy as detailed above.
Further comments on the outlook for the Company for the 2020
financial year and the main trends and factors likely to affects
its future development, performance and position are contained
within the Chair's Statement and the Portfolio Adviser's
Review.
DIRECTORS' BIOGRAPHIES
The Directors appointed to the Board as at the date of approval
of this Annual Report and Audited Financial Statements 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 over 35 years of experience in finance,
primarily as an investment banker in Denmark and UK. She has an
extensive portfolio career with a number of Non-Executive
Directorships ("NED") and Chair roles - as well as delivering
training and advising boards in corporate governance through her
company Global Governance Group.
Charlotte's board roles in listed organisations have taken in
Chair of FTSE250 Kennedy Wilson Europe Real Estate Plc, NED of
FTSE250 3i Infrastructure Plc, NED of JPMorgan Convertible Bond
Fund, a NED of Phoenix Spree Deutschland Plc, NED of Renewable
Energy Generation Ltd and Chair of DW Catalyst Ltd. Charlotte's
unlisted experience includes being a Non-Executive Director of the
international engineering firm Laing O'Rourke and Chair of The
Institute of Directors (UK).
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 is a Chartered Accountant and was a partner of
KPMG Channel Islands for 15 years before retiring from the
partnership in 2016.
Ms MacCallum now holds a portfolio of non-executive
directorships including Aberdeen Latin American Income Fund Limited
and City Merchants High Yield Trust Limited, both of which are
investment companies listed on the London Stock Exchange. She is
the Chair of Jersey Water, an unlisted company.
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 FTSE
250 HarbourVest Global Private Equity Limited.
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 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.
DIRECTORS' REPORT
The Directors present the Annual Report and Audited Financial
Statements for the Company for the year ended 31 December 2019.
Directors
The Directors of the Company on the date the financial
statements were approved are detailed above. All directors were
directors of the Company throughout the year ended 31 December
2019.
Mark Moffat was appointed on 8 January 2019 following a lengthy
consideration process with input from DFME and legal counsel.
Having identified the need for an additional Board member with
specific technical and market expertise, the Board, together with
DFME, discussed possible candidates and identified Mr Moffat. A
recruitment agency was not consulted due to the very specific
nature of the knowledge and skills required, for which the Board
felt they would be better able to source candidates in conjunction
with DFME.
The Board met with Mr Moffat and considered his experience and
non-independent status at appointment. They concluded that his
technical expertise and his knowledge of the Portfolio Adviser
would add value to and complement the existing Board.
The Board and Employees
The Board currently comprises three male and two female
Directors. The Company has no employees and therefore there is
nothing further to report in respect of gender representation
within the Company.
Full details of the Company's policy on Board Diversity can be
found in the Corporate Governance Report.
Share Capital
The Company's share capital consists of an unlimited number of
shares. As at 31 December 2019, the Company's issued share capital
consisted of 402,319,490 Ordinary Shares and 133,451,107 C Shares,
excluding 2,380,956 treasury shares (31 December 2018: 404,700,446
Ordinary Shares).
Share Repurchase Programme
At the 2018 AGM, held on 22 June 2018, the Directors were
granted authority to repurchase 60,664,597 Ordinary Shares (being
equal to 14.99% of the aggregate number of Ordinary Shares in issue
at the date of the AGM) for cancellation, or to be held as treasury
shares.
Under this authority, on 5 and 6 June 2019, the Company has
repurchased 2,380,956 Ordinary Shares for a total cost of
EUR1,928,574.
At the 2019 AGM, held on 11 July 2019, the Directors were
granted authority to repurchase 60,307,691 Ordinary Shares (being
equal to 14.99% of the aggregate number of Ordinary Shares in issue
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
upcoming AGM. The Directors intend to seek annual renewal of this
authority from Shareholders.
Authority to Allot
At the 2019 AGM, the Directors were granted authority to allot,
grant options over, or otherwise dispose of up to 40,231,949
Ordinary Shares (being equal to 10.00% of the aggregate number of
Ordinary Shares in issue at the date of the AGM). This authority
will expire at the 2020 AGM.
Shareholders' Interests
As at 31 December 2019, the Company had been notified, in
accordance with Chapter 5 of the Disclosure Guidance and
Transparency Rules (which covers the acquisition and disposal of
major shareholdings and voting rights), of the following
Shareholders with an interest of greater than 5% in the Company's
issued share capital:
Shareholder Percentage of Voting Rights
Quilter plc 25.29%
BlackRock Inc 16.94%
Blackstone Treasury Asia Pte Ltd 12.63%
FIL Limited 8.12%
--------------------------------- ---------------------------
Between 31 December 2019 and 19 May 2020, the following
notifications were received:
Date Shareholder Cumulative Percentage of Voting Rights
9 January 2020 BlackRock Inc 22.78%
9 January 2020 Blackstone Treasury Asia Pte Ltd 8.95%
10 January 2020 Quilter plc 21.10%
---------------- --------------------------------- --------------------------------------
Statement of Disclosure of Information to the Auditor
The Directors who held office as at the date of approval of this
Directors' Report confirm that, so far as they are each aware,
there is no relevant audit information of which the Company's
auditor is unaware and that they have taken the steps that they
ought to have taken as Directors to make themselves aware of any
relevant audit information and to establish that the Company's
auditor is aware of that information.
Environmental, Employee, Social, Community and Human Rights
Matters
The Company is a closed ended investment company with no
employees, and therefore its environmental and climatic impact is
minimal. The Board notes that the companies in which BGCF invests
(either directly or indirectly) may have an environmental, social
and governance impact. The Board have obtained and reviewed GSO's
Responsible Investing Policy and considered their perspective on
climate change. The Board noted that GSO is of the belief that a
key component of being a responsible investor is an active
evaluation of ESG components of its investments. Hence, a review of
ESG risks is integrated into GSO's investment analysis and
decision-making processes from pre-investment diligence to
post-investment monitoring. GSO recognizes the value that
incorporating ESG factors in investment research creates both in
terms of mitigating risk and enhancing long-term performance across
investments. GSO integrates review and consideration of applicable
ESG factors into its decision-making processes. Refer to the
Portfolio Adviser's Review for further details on the Portfolio
Adviser's ESG policy.
Modern slavery
The Company would not fall into the scope of the UK Modern
Slavery Act 2015 (as the Company does not have any turnover derived
from goods and services) if it was incorporated in the UK.
Furthermore, as a closed-ended investment company, the Company has
a non-complex structure, no employees and its supply chain is
considered to be low risk given that suppliers are typically
professional advisers based in either the Channel Islands or the
UK. Based on these factors, the Board have considered that it is
not necessary for the Company to make a slavery and human
trafficking statement.
Gary Clark
Director
19 May 2020
CORPORATE GOVERNANCE REPORT
Statement of Compliance with Corporate Governance
The Board of the Company has considered the Principles and
Provisions of the AIC Code. The AIC Code addresses the Principles
and Provisions set out in the UK Code, as well as setting out
additional Provisions on issues that are of specific relevance to
the Company, as an investment company.
The Board considers that reporting against the Principles and
Provisions of the AIC Code, which has been endorsed by the FRC and
supported by the Jersey Financial Services Commission provides more
relevant information to shareholders.
The Company has complied with the Principles and Provisions of
the AIC Code, with the exception of the following:
-- Relationship with the manager (provisions 16 and 17); and
-- New companies (provision 21).
Relationship with the manager (provisions 16 and 17)
As a self-managed fund, the Company does not have a manager,
therefore, provisions 16 and 17 are not applicable to the
Company.
New companies (provision 21)
This provision relates to the appointment of the chair and of
the board of a new company. As the Company was incorporated during
2014, this provision is not applicable to the Company.
The AIC Code is available on the AIC website ( www.theaic.co.uk
). It includes an explanation of how the AIC Code adapts the
Principles and Provisions set out in the UK Code to make them
relevant for investment companies.
The Board
The Board consists of five non-executive directors. Their
biographies can be found below.
The Board meets at least four times a year and is in regular
contact with the Portfolio Adviser, the Portfolio Manager, the
Administrator and the Company Secretary. Furthermore, the Board is
supplied with information in a timely manner from the Portfolio
Adviser, Portfolio Manager, the Company Secretary and other
advisers in a form and of a quality appropriate for it to be able
to discharge its duties.
Board Apprentices
The Board participated in the Board Apprentice scheme during
2019, having taken on two Board Apprentices in October 2018. The
Board consider this a valuable exercise in mentoring already
accomplished individuals to be future directors, fostering equality
and developing board culture. Both apprentices completed their term
with the Board in October 2019. The Board wishes them both success
in future board positions.
Duties and Responsibilities
The Board has overall responsibility for maximising the
Company's success by directing and supervising the affairs of the
business and meeting the appropriate interests of Shareholders and
relevant stakeholders, while enhancing the value of the Company and
also ensuring the protection of investors. A summary of the Board's
responsibilities is as follows:
-- statutory obligations and public disclosure;
-- strategic matters and financial reporting;
-- risk assessment and management including reporting,
compliance, governance, monitoring and control; and
-- other matters having a material effect on the Company.
The Board is responsible to Shareholders for the overall
management of the Company. The Board has delegated certain
operational activities of the Company to the Portfolio Adviser,
Administrator and Company Secretary. The Board reserves the power
of decisions relating to the determination of investment policy,
the approval of changes in strategy, capital structure, statutory
obligations and public disclosure, and the entering into of any
material contracts by the Company.
Board Attendance
The following table shows the number of meetings held by the
Board and each committee for the year ended 31 December 2019, as
well as the Directors' and Committee Members' attendance.
Charlotte Gary Mark
Meeting Total Valeur Clark Steven Wilderspin Heather MacCallum Moffat
Quarterly Board 5 5 5 5 5 5
Ad-hoc Board 9 6 7 9 9 8
Audit Committee 5 N/A 5 5 5 N/A
Management Engagement Committee 1 1 1 1 1 N/A
NAV Review Committee 12 N/A 11 10 12 12
Remuneration and Nomination Committee 2 2 2 2 2 N/A
Risk Committee 4 4 4 4 4 4
Inside Information Committee - - - - - -
-------------------------------------- ----- --------- ------ ----------------- ----------------- -------
Chair
The Chair is responsible for leadership of the Board, ensuring
its effectiveness on all aspects of its role and setting its
agenda. The Chair is also responsible for ensuring that the
Directors receive accurate, timely and clear information and for
effective communication with Shareholders.
Board Independence
For the purpose of assessing compliance with principle G,
provisions 10 and 13 of the AIC Code, the Board considers all of
the current Directors to be independent.
The Directors consider that there are no factors, as set out in
provision 13 in the AIC Code, which compromise the other Directors'
independence and that all Directors contribute comprehensively to
the affairs of the Company. The Board reviews the independence of
all Directors annually. The Company Secretary acts as secretary to
the Board and Committees and, in doing so, assists the Chair in
ensuring that all Directors have full and timely access to all
relevant documentation, organises induction of new Directors, is
responsible for ensuring that the correct Board procedures are
followed and advises the Board on corporate governance matters.
Board Evaluation
An external independent Board and Committee evaluation was
undertaken by Value Alpha during the course
of the year.
The evaluation consisted of:
-- Observation of Board and Committee meetings;
-- Extensive interviews with each of the Directors and the
Administrator and a meeting with the Portfolio Adviser; and
-- A feedback session with the Directors.
The interviews collected both quantitative and qualitative data
and covered the views of Directors on a number of issues associated
with Director and Board effectiveness. The evaluation considered
the Board's balance of skills, experience, independence and
knowledge, as well as its diversity, including gender, how the
Board works together as a unit, and other factors relevant to its
effectiveness.
The evaluation concluded that areas of strong performance
included: the Board's oversight of strategy; its ability to deliver
accountability to stakeholders, particularly its Shareholders; and
exercise of effective risk oversight; review of its governance
arrangements; and understanding of the legal and regulatory context
within which it operates.The evaluation also found that the Board
exercised independent oversight, challenged constructively,
displayed sound judgement and was versatile in being able to deal
with the range of issues which came before it.
No significant recommendations were made which are required to
be brought to the attention of Shareholders.
Committees of the Board
The Board has established six committees: an Audit Committee; a
Management Engagement Committee; a NAV Review Committee; a
Remuneration and Nomination Committee; a Risk Committee; and an
Inside Information Committee. Each committee has formally delegated
duties and responsibilities within written terms of reference.
These are available on the Company's website, blackstone.com/bglf,
under "Terms of Reference".
The current committee memberships are detailed below.
Audit Committee
The Audit Committee comprises all Directors, except Charlotte
Valeur and Mark Moffat, and is chaired by Heather MacCallum.
The terms of reference state that the Audit Committee will meet
not less than three times a year and will meet with the Auditor at
least once a year. The report on the role and activities of this
committee and its relationship with the Auditor is included in the
Audit Committee Report.
Management Engagement Committee
The Management Engagement Committee comprises all Directors
except Mark Moffat and is chaired by Charlotte Valeur.
The terms of reference state that the Management Engagement
Committee shall meet at least once a year; will have responsibility
for monitoring and reviewing the Portfolio Adviser's performance;
and will recommend to the Board whether the continued appointment
of the Portfolio Adviser is in the best interests of the Company
and Shareholders.
NAV Review Committee
The NAV Review Committee comprises all Directors, except
Charlotte Valeur, and is chaired by Gary Clark.
The terms of reference state that the NAV Review Committee shall
meet at least once a month to review and consider the Company's NAV
calculation, fact sheet and related stock exchange
announcement(s).
Remuneration and Nomination Committee
The Remuneration and Nomination Committee comprises all
Directors except Mark Moffat and is chaired by Gary Clark.
The terms of reference state that the Remuneration and
Nomination Committee will meet not less than twice a year and shall
be responsible for all aspects of the appointment and remuneration
of Directors. The remuneration duties of the committee include
determining and agreeing with the Board the framework or broad
policy for the remuneration of the Directors and to review its
ongoing appropriateness and relevance.
The nomination duties of the committee include regularly
reviewing the structure, size and composition of the Board,
including the balance of skills, experience, independence and
knowledge, as well as identifying, nominating and recommending for
the approval of the Board, candidates to fill Board vacancies as
they arise.
Director Re-Election and Tenure
The Remuneration and Nomination Committee and the Board are
strongly committed to striking the correct balance between the
benefits of continuity and those that come from the introduction of
new perspectives to the Board.
It is the intention of the Board that each Director will retire
after no longer than nine years in their role and the Board has
adopted a policy whereby all Directors will be put up for
re-election every year. Accordingly, all Directors will be put
forward for re-election at the forthcoming AGM. Each of the
Directors has demonstrated a strong commitment to the Company and
the Board believes each Director's re-election to be in the best
interests of the Company.
The Board also maintains a succession planning matrix covering
the Directors' skills, the Board's diversity, and the Directors'
expected year of retirement should they hold office for nine years.
The matrix is used by the Remuneration and Nomination Committee to
identify any additional skills that would benefit the Board and to
help the Remuneration and Nomination Committee establish when to
begin recruiting for any new directors. The Board also keeps its
diversity under review.
Risk Committee
The Risk Committee comprises all Directors and is chaired by
Steven Wilderspin.
The terms of reference state that the Risk Committee shall meet
at least two times a year. The activities of this committee are
outlined in the Risk Committee Report.
Inside Information Committee
The Inside Information Committee comprises any two members of
the Board.
The Inside Information Committee is responsible for identifying
inside information and monitoring the disclosure and control of
such information.
Board Diversity
The Board believes in and values the importance of a broad range
of skills, experience and diversity, including gender, for the
effective functioning of the Board, all of which are considered
when determining the optimum composition of the Board. The Board
has a policy that aims to have a minimum of 40% of either gender
represented on the Board, and also recognises the importance of
inclusivity in its diversity policy. The Board ensures compliance
with its policy in respect of any appointments to the Board. At 31
December 2019 and at the date of approval of these financial
statements, 60% of the Directors were male and 40% were female.
Internal Controls
The Board has applied principle O of the AIC Code by
establishing a continuous process for identifying, evaluating and
managing the principal risks that the Company faces. The Board is
responsible for the Company's system of internal controls and for
reviewing its effectiveness. Such a system is designed to manage
rather than eliminate the risk of failure to achieve business
objectives, and can only provide reasonable and not absolute
assurance against material misstatement or loss.
The Board's monitoring covers all controls, including financial,
operational and compliance controls and risk management. It is
based principally on reviewing reports from the Portfolio Adviser
and BGCF to consider whether significant risks are identified,
evaluated, managed and controlled and whether any significant
weaknesses are promptly remedied and indicate a need for more
extensive monitoring.
The Audit Committee assists the Board in discharging its
monitoring responsibilities.
During the course of the Board's review of the system of
internal controls, it has not identified nor been advised of any
failings or weaknesses which it has determined to be significant.
Therefore, no confirmation in respect of necessary actions has been
made.
The Board is also responsible for setting the overall investment
policy and monitors the services provided by the Portfolio Adviser
at regular Board meetings. The Board receives regular reports from
the Portfolio Adviser, together with quarterly reports from the
Administrator, the Company Secretary, the Depositary, its
Compliance, Money Laundering Compliance Officer and Money
Laundering Regulatory Officer and from the Portfolio Adviser
covering compliance matters.
The Directors clearly define the duties and responsibilities of
their agents and advisers, whose appointments are made after due
consideration, and monitor their ongoing performance, which is done
with the assistance of the Management Engagement Committee. All of
the Company's agents and advisers maintain their own systems of
internal control on which they report to the Board. These systems
are designed to ensure effectiveness and efficient operation,
internal control and compliance with laws and regulations. In
establishing the systems of internal control, regard is paid to the
materiality of relevant risks, the likelihood of costs being
incurred and the costs of control. It follows, therefore, that the
systems of internal control can only provide reasonable but not
absolute assurance against the risk of material misstatement or
loss.
The Directors are satisfied that the continued appointment of
the relevant service providers is in the best interests of the
Shareholders.
The Board has reviewed the need for an internal audit function
and has decided that the systems and procedures employed by the
Administrator and Portfolio Adviser, including their own internal
controls and procedures, provide sufficient assurance that a sound
system of risk management and internal control, to safeguard the
Shareholders' investment and the Company's assets, is maintained.
An internal audit function specific to the Company is therefore
considered unnecessary. Full details are set out in the Audit
Committee Report.
The Company has appointed Nplus 1 Singer Advisory LLP and
Winterflood Investment Trusts as its joint brokers. Together with
the brokers, the Portfolio Adviser assists the Board in
communicating with and understanding the views of the Company's
major Shareholders.
RISK COMMITTEE REPORT
Membership
The Risk Committee comprises Steven Wilderspin (Chair),
Charlotte Valeur, Heather MacCallum, Gary Clark and Mark
Moffat.
Key Objectives
The Risk Committee has been established to assist the Board in
its oversight of risk through ensuring the Company maintains a high
standard of risk identification, monitoring and management so as to
minimise investment risks and any other risks not covered by the
Audit Committee.
Responsibilities
During 2019, the Risk Committee reviewed its mandate to ensure
effective operation in conjunction with the Audit Committee, and as
a result, its key responsibilities, amongst others, remain:
-- ensuring the Company's compliance with its investment
objectives, policies, restrictions and borrowing limits;
-- ensuring that appropriate policies and reporting exists for
the monitoring of the Company's key risks;
-- developing and maintaining a risk register documenting
identified risks, their mitigants, likelihood and impact, which is
reviewed regularly by the Board with action points and newly
identified risks being appropriately dealt with;
-- defining risk review activities regarding investment
decisions, transactions and exposures for approval by the Board;
and
-- ensuring due regard is given to all regulations, codes, and
laws that the Company is subject to.
Committee Meetings
In 2019, the Risk Committee met on four occasions. At the start
of the year, the Committee recommended a new risk management
framework to the Board, to govern how the Committee and/or Board
identifies existing and emerging risks; determines risk appetite;
identifies mitigation and controls; assesses, monitors and measures
risk, and reports on risks. The Board adopted the Committee's
proposals.
Subsequently, the specific areas of focus for the Committee
during the year included:
-- The potential Brexit impact on the Company and its
investments, and on the operations of the Portfolio Adviser. There
was not considered to be a major impact on the Company and the
Portfolio Adviser was well-placed to arrange its affairs between
Dublin, London and Luxembourg to mitigate any operational risk to
its business.
-- The structuring of the Company's investments through
Luxembourg and governance of the Company's Luxembourg subsidiary.
This was considered during the year and, after the year end, the
Chairs of Risk and Audit Committees conducted a due diligence visit
to the subsidiary in Luxembourg and met the board and members of
the Portfolio Adviser's Luxembourg team. The visiting Chairs were
very satisfied with the engagement of the subsidiary board and the
strength of the operational team.
-- Cyber Risk . This was initially considered during the Board's
due diligence visit to the Blackstone/GSO operations in New York in
July. A report focused on the Company's main service providers was
subsequently commissioned from KPMG who reported to the Committee
after the year end. Minor action points from this report will be
followed up by the Committee.
-- The sustainability of the Company's dividend . This was a
risk area mainly addressed at Board level during the year and was
one of the main focuses of the New York due diligence visit. The
Board were satisfied that the modelling provided by the Portfolio
Adviser supported the sustainability of the dividend (however, see
paragraph on COVID-19 below).
-- The risk management environment of Blackstone/GSO . On the
New York visit, the Committee were briefed on Blackstone/GSO's
wider compliance and risk management framework including Internal
Audit and met key executives with responsibility in these areas.
This supplemented an earlier due diligence visit to Dublin.
Risk Monitoring
Being self-managed, the Board is responsible for both portfolio
and risk management. However, due to the nature of the investment
and the limited ability to look through the structure, traditional
market and credit risk techniques do not apply at the Company
level. That said, the Board regularly engages with the board of
BGCF and discusses with them key areas of risk.
Investment risk management and monitoring, to ensure the
successful pursuance of our investment objective, is therefore
mainly through the Company's monthly NAV reporting process and the
monitoring of investment restrictions and eligibility criteria as
carried out by our Depositary.
COVID-19
The Company's principal risks and uncertainties are as
identified as above. Given the present COVID-19 pandemic, which
emerged after the year end, that section considers the impact of
the virus on these principal risks and the action that the Risk
Committee and/or Board is taking to mitigate the risks where
possible.
Steven Wilderspin
Risk Committee Chair
19 May 2020
DIRECTORS' REMUNERATION REPORT
Directors' Remuneration
This report provides relevant information in respect of the
Directors' remuneration.
The tables below outline the remuneration the Directors were
entitled to during the year ended 31 December 2019 for their
services.
Total fixed remuneration Total fixed remuneration
for the year ended for the year ended
31 December 2019 31 December 2018
GBP GBP
------------------------------------ ------------------------ ------------------------
Charlotte Valeur 61,000 55,500
Gary Clark 46,000 43,000
Heather MacCallum 44,500 42,250
Steven Wilderspin 44,500 42,250
Mark Moffat 38,000 -
Total Directors' Remuneration 234,000 183,000
------------------------------------ ------------------------ ------------------------
Total Directors' Remuneration (EUR) 264,988 209,140
------------------------------------ ------------------------ ------------------------
The Chairs of the Management Engagement Committee, NAV Review
Committee, Remuneration and Nomination Committee, Audit Committee
and Risk Committee each received additional fees, which are
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.
Directors' remuneration is payable in Sterling quarterly in
arrears. No other remuneration (fixed or variable) or compensation
was paid or is payable by the Company during the year to any of the
Directors. There has been no change to the Company's remuneration
policy as detailed below.
The Company has no employees, accordingly, there is no
difference in policy on the remuneration of Directors and the
remuneration of employees. No Director is entitled to receive any
remuneration which is performance-related.
In 2019 the Remuneration and Nomination Committee oversaw the
appointment of Mr Moffat and the engagement of Value Alpha as a
service provider to provide board evaluation.
The Remuneration and Nomination Committee reviews the
Remuneration Policy and Directors' remuneration on an annual
basis.
Remuneration Policy
Directors' fees are determined by the Remuneration and
Nomination Committee under the terms of the remuneration policy
(the "Remuneration Policy") approved on 16 April 2015, as derived
from the Company's Articles of Association. The Remuneration and
Nomination Committee also considers the remuneration levels of
similar companies and consults external remuneration consultants
where this is deemed appropriate.
The Remuneration and Nomination Committee consists of all
Directors except Mark Moffat and is involved in deciding Directors'
remuneration and ensuring that remuneration received reflects the
Directors' duties, responsibilities and the value of their
time.
The Company does not provide pensions or other retirement or
superannuation benefits, death or disability benefits, or other
allowances or gratuities to the Directors or specified connected
parties. The Remuneration Policy also prohibits payments to a
Director for loss of office or as consideration for, or in
connection with, his or her retirement from office. Whilst the
Remuneration Policy permits part of their fee to be paid in the
form of fully-paid up shares in the capital of the Company, the
Directors' fees are not currently paid this way.
In addition, the Remuneration Policy allows for reasonable
travel, hotel and other expenses incurred by the Directors in the
course of performing their duties or from their performance of a
special service on behalf of the Company.
The limit for the aggregate fees payable to the Directors is
GBP300,000 per annum.
Directors' Interests
The Directors held the following number of Ordinary shares in
the Company as at the year end:
Shares Type As at 31 December 2019 As at 31 December 2018
Charlotte Valeur Ordinary 11,500 11,500
Gary Clark Ordinary 108,200 73,700
Heather MacCallum Ordinary - -
Steven Wilderspin Ordinary 20,000 20,000
Mark Moffat (appointed 8 January 2019) Ordinary 601,028 601,028
Mark Moffat (appointed 8 January 2019) C 291,068 -
--------------------------------------- --------- ---------------------- ----------------------
On 8 January 2020, as a result of the C Share Conversion, Mark
Moffat held 771,593 Ordinary Shares and no C Shares.
There have been no other changes to the Directors' Interests as
at the date of the approval of these financial statements.
Service Contracts and Policy on Payment of Loss of Office
No Director has a service contract with the Company. The
Directors have each entered into a letter of engagement with the
Company setting out the terms of their appointment. Directors'
appointments may be terminated at any time by giving three month's
written notice, with no compensation payable upon leaving office
for whatever reason.
Gary Clark
Remuneration and Nomination Committee Chair
19 May 2020
AUDIT COMMITTEE REPORT
Audit Committee
The Audit Committee comprises Heather MacCallum, Steven
Wilderspin and Gary Clark and is chaired by Heather MacCallum. Ms
MacCallum has recent and relevant financial experience in
accounting and auditing, and the Audit Committee as a whole has
competence relevant to the sector in which the Company
operates.
In addition to formal meetings, the Audit Committee has worked
with the Portfolio Adviser and Auditor to assess the operations and
controls of BGCF and to assess in particular what reliance the
Audit Committee can place on the control environment. The Chair has
also had a number of discussions with the Auditor, the Portfolio
Adviser and the Administrator around the annual audit and half year
financial reporting processes.
Role of the Audit Committee
The function of the Audit Committee is to ensure that the
Company maintains high standards of integrity, financial reporting
and internal controls.
The Audit Committee's main roles and responsibilities include,
but are not limited to, the following:
-- monitoring the integrity of the financial statements and any
formal announcements relating to the Company's financial
performance;
-- reviewing and reporting to the Board on any significant
financial reporting issues and judgements;
-- reviewing and monitoring the effectiveness of the Company's
risk management and internal control arrangements;
-- monitoring the statutory audit of the annual financial
statements of the Company and its effectiveness;
-- reviewing the external auditor's performance, independence and objectivity;
-- making recommendations to the Board in relation to the
appointment, reappointment and/or removal of the external auditor,
the approval of the external auditor's remuneration and the terms
of the engagement;
-- implementing policies surrounding the engagement of the
external auditor to supply non-audit services, where
appropriate;
-- reviewing and challenging where necessary significant
accounting policies and practices; and
-- reporting to the Board on how it has discharged its responsibilities.
How the Audit Committee Has Discharged Its Responsibilities
The Audit Committee met five times during the year.
Representatives of the Portfolio Adviser, Company's Auditor and the
Administrator were invited to the meetings as appropriate.
Monitoring the Integrity of the Financial Statements Including
Significant Judgements
We reviewed the Company's Annual Report and Audited Financial
Statements for the year ended 31 December 2018 and the Half Yearly
Financial Report for the six months ended 30 June 2019 prior to
discussion and approval by the Board, and the significant financial
reporting issues and judgements which they contain. We also
reviewed the external auditor's reports thereon, which were
discussed with the Auditor. We reviewed the appropriateness of the
Company's accounting principles and policies, and monitored changes
to, and compliance with, accounting standards on an ongoing
basis.
After the year end, we had further meetings and we reviewed,
prior to making any recommendations to the Board, the Annual Report
and Audited Financial Statements for the year ended 31 December
2019. In undertaking this review, we discussed with the Auditor,
the Portfolio Adviser and the Administrator the critical accounting
policies and judgements that have been applied.
The Auditor reported to the Committee on any non -trivial
misstatements that they had found during the course of their work
and confirmed that under ISA (UK) no material amounts remained
unadjusted.
As requested by the Board, we also reviewed the Annual Report
and are able to confirm to the Board that, in our view, the Annual
Report, taken as a whole, is fair, balanced and understandable and
provided the information necessary for Shareholders to assess the
Company's position, performance, business model and strategy.
Significant Accounting Matters
The Committee considered the key accounting issues, matters and
judgements regarding the Company's 2019 annual report and financial
statements and disclosures including those relating to:
Significant Area How Addressed
Valuation of investments The investment in the Lux Subsidiary is accounted for at fair value through profit or loss
and the investment in PPNs issued by BGCF held by the Lux Subsidiary are at fair value.
Investments
in BGCF (the PPNs) are illiquid investments, not traded on an active market and are valued
using valuation techniques determined by the Directors and classified as Level 3 under IFRS
13 "Fair Value Measurement."
Valuation is therefore considered a significant area and is monitored by the Board, the
Audit
Committee, the Portfolio Adviser and the Administrator. The Audit Committee receives and
reviews
reports on the processes for the valuation of investments. Following discussion, we were
satisfied
that the judgements made and methodologies applied were prudent and appropriate and that an
appropriate accounting treatment has been adopted in accordance with IFRS 9.
Please see Notes 2, 6, 10 and 16 in the financial statements for further details
------------------------ --------------------------------------------------------------------------------------------
Assessment of Risks and Uncertainties
The risks associated with the Company's financial instruments,
as disclosed in the financial statements, particularly in Note 10,
represent a key accounting disclosure. The Audit Committee and the
Risk Committee review critically, on the basis of input from the
service providers, the process of ongoing identification and
measurement of these risks disclosures.
Other Matters
During the year, the Committee considered compliance with
relevant legislation, performance metrics and related disclosures
in the Company's financial statements, and revisions to the AIC
Code.
Risk Management and Internal Controls
The Board as a whole is responsible for the Company's system of
internal controls; however, the Audit Committee assists the Board
in meeting its obligations in this regard. The daily operational
activities of the Company were delegated to its service providers
and as a result the Company has no direct internal audit function
and instead places reliance on the external and internal audit
controls of the service providers as regulated entities. However,
the Audit Committee reviews periodic reports from the service
providers to ensure that no material issues have arisen in respect
of the system of internal controls and risk management operated by
the Company's service providers. The Committee confirms that this
is an ongoing process conducted in order to manage the risks faced
by the Company. We deem that, to date, there are no significant
issues in this area which need to be brought to your attention.
External Audit
It is the responsibility of the Audit Committee to monitor the
performance, independence, objectivity and re-appointment of the
Auditor. The Audit Committee met with Deloitte LLP ("Deloitte") to
consider the audit strategy and plan for the audit. The audit plan
for the reporting period was reviewed, including consideration of
the key financial statement and audit risks, to seek to ensure that
the audit was appropriately focused.
The Auditor attends the Audit Committee meetings throughout the
year, as applicable, which allows the opportunity to discuss any
matters the Auditor may wish to raise without the Portfolio Adviser
or other service providers being present. The Auditor provides
feedback at relevant Audit Committee meetings on topics such as the
key accounting matters, mandatory communications and the control
environment. The Audit Committee also discusses the performance of
the Auditor independently of the Auditor.
Deloitte was formally appointed as Auditor for the Company's
2014 period-end audit following a competitive tender process during
2014. The lead audit partner is rotated every five years to ensure
continued independence and objectivity; consequently a new lead
audit partner has been in place for the interim review to 30 June
2019 and audit for the year ended 31 December 2019.
The Audit Committee continues to be satisfied with the
performance of the Auditor. We have therefore recommended to the
Board that the Auditor, in accordance with agreed terms of
engagement and remuneration, should continue as the Company's
auditor after the forthcoming Annual General Meeting. Accordingly,
a resolution proposing the reappointment of Deloitte as the
Company's auditor will be put to the Shareholders at the 2020
AGM.
In advance of the commencement of the annual audit, the Audit
Committee reviewed a statement provided by the Auditor confirming
their independence as defined under relevant regulation and
professional standards. In addition, in order to satisfy itself
regarding the Auditor's independence, the Audit Committee undertook
a review of the Auditor's compensation and the balance between
audit and non-audit fees.
During 2019, the Audit Committee reviewed its policy with
respect to non-audit services and continually monitored the level
of non-audit services provided by the Auditor to ensure alignment
and compliance with best practice.
The Audit Committee has agreed the types of permitted and
non-permitted ongoing non-audit services and those which require
explicit prior approval. During the year, Deloitte were contracted
to review the Company's interim financial statements, provided
services related to the Rollover Offer, US tax compliance and
review of the C Share Conversion Ratio calculation. Audit fees have
increased 34% year on year while audit related services increased
37% year on year. This is mainly due to the additional work
undertaken by the Auditor around the valuation of directly held
CLOs and the C Share class during the audit and interim review as
well as the work undertaken by the Auditor for reviewing the C
Share Conversion Ratio as required by the Articles. An amount of
EUR20,740 was also incurred during the year and this related to
additional fees for the audit for the year ended 31 December 2018.
The value of non-audit services (US tax compliance) provided by
Deloitte and charged in the period amounted to EUR13,955. In
addition, the Company incurred EUR9,281 and EUR8,699 in respect of
audit related services in connection with the Rollover Offer and
the C Share Conversion Ratio calculation respectively. The overall
quantum of non-audit services (EUR13,955) and the one-off fees
(EUR17,980) incurred for Deloitte's work in 2019 is not material
relative to the overall audit and review fees for the annual and
interim financial reports (EUR175,584). This item has been given
due consideration by the Audit Committee, who reviewed inter-alia
the role of the respective engagement teams and the independence of
individuals from the audit engagement team and concluded it was
satisfied the Auditor had acted in an independent and professional
manner.
Heather MacCallum
Audit Committee Chair
19 May 2020
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report
and Audited Financial Statements in accordance with applicable law
and regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have elected to prepare the financial statements in accordance with
IFRS, as adopted by the EU. Under company law the Directors must
not approve the financial statements unless they are satisfied that
they give a true and fair view of the state of the affairs of the
Company and of the profit or loss of the Company for that period.
In preparing these financial statements, International Accounting
Standard 1 requires that Directors:
-- properly select and apply accounting policies;
-- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
-- provide additional disclosures when compliance with the
specific requirements in IFRS as adopted by the EU are insufficient
to enable users to understand the impact of particular
transactions, other events and conditions on the Company's
financial position and financial performance; and
-- make an assessment of the Company's ability to continue as a going concern.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with The Companies (Jersey) Law
1991. They are also responsible for safeguarding the assets of the
Company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in Jersey governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
Each of the Directors, whose names are listed below, confirms
that, to the best of that Director's knowledge and belief:
-- the financial statements, prepared in accordance with
International Financial Reporting Standards as adopted by the
European Union, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the
Company;
-- the Strategic report includes a fair review of the
development and performance of the business and the position of the
Company, together with a description of the principal risks and
uncertainties that they face; and
-- the annual report and audited financial statements, taken as
a whole, are fair, balanced and understandable and provide the
information necessary for Shareholders to assess the Company's
position and performance, business model and strategy.
Charlotte Valeur Heather MacCallum
Director Director
19 May 2020
INDEPENT AUDITOR'S REPORT TO THE SHAREHOLDERS OF BLACKSTONE /
GSO LOAN FINANCING LIMITED
Report on the audit of the financial statements
1. Opinion
In our opinion the financial statements of Blackstone / GSO Loan
Financing Limited (the 'company'):
-- give a true and fair view of the state of the company's
affairs as at 31 December 2019 and of the Company's profit for the
year then ended;
-- have been properly prepared in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the European
Union; and
-- have been properly prepared in accordance with Companies (Jersey) Law, 1991.
We have audited the financial statements which comprise:
-- the company statement of comprehensive income;
-- the company statement of financial position;
-- the company statement of changes in equity;
-- the company cash flow statement; and
-- the related notes 1 to 20.
The financial reporting framework that has been applied in their
preparation is applicable law and IFRSs as adopted by the European
Union.
2. Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
auditor's responsibilities for the audit of the financial
statements section of our report.
We are independent of the Company in accordance with the ethical
requirements that are relevant to our audit of the financial
statements in the UK, including the Financial Reporting Council's
(the 'FRC's') Ethical Standard as applied to listed entities, and
we have fulfilled our other ethical responsibilities in accordance
with these requirements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
3. Summary of our audit approach
Key audit matters The key audit matter that we identified
in the current year was valuation of investments
in the Luxembourg subsidiary.
Within this report, key audit matters are
identified as follows: Newly identified
Increased level of risk
Similar level of risk
Decreased level of risk
------------------- ---------------------------------------------------
Materiality The materiality that we used for the financial
statements in the current year was EUR 8.2
million which was determined on the basis
of Net Assets Value of the Company.
------------------- ---------------------------------------------------
Scoping Audit work to respond to the risks of material
misstatement was performed directly by the
engagement team.
------------------- ---------------------------------------------------
Significant changes We did not consider the assessment of consolidation
in our approach requirements as a key audit matter in the
current year as there has been no changes
to the existising investment structure and
the company is no longer holding majority
economic interest in BGCF.
Except for the above, there are no other
significant changes in our approach in the
current year.
------------------- ---------------------------------------------------
4. Conclusions relating to going concern, principal risks and viability statement
4.1. Going concern Going concern is the basis of preparation of the
We have reviewed the directors' statement in note financial statements that assumes an entity
2.2 to the financial statements about whether will remain in operation for a period of at least 12
they considered it appropriate to adopt the going months from the date of approval of the
concern basis of accounting in preparing financial statements.
them and their identification of any material We confirm that we have nothing material to report, add
uncertainties to the Company's ability to continue or draw attention to in respect of
to do so over a period of at least twelve months these matters.
from the date of approval of the financial
statements.
We considered as part of our risk assessment the
nature of the Company, its business model
and related risks including where relevant the
impact of the COVID-19 pandemic and Brexit,
the requirements of the applicable financial
reporting framework and the system of internal
control. We evaluated the directors' assessment of
the Company's ability to continue as a
going concern, including challenging the underlying
data and key assumptions used to make
the assessment, and evaluated the directors' plans
for future actions in relation to their
going concern assessment.
We are required to state whether we have anything
material to add or draw attention to in
relation to that statement required by Listing Rule
9.8.6R(3) and report if the statement
is materially inconsistent with our knowledge
obtained in the audit.
4.2. Principal risks and viability statement Viability means the ability of the Company to
Based solely on reading the directors' statements and continue over the time horizon considered
considering whether they were consistent appropriate
with the knowledge we obtained in the course of the audit, by the directors.
including the knowledge obtained We confirm that we have nothing material to
in the evaluation of the directors' assessment of the report, add or draw attention to in respect of
company's ability to continue as a going these matters.
concern, we are required to state whether we have anything
material to add or draw attention
to in relation to:
* the disclosures above that describe the principal
risks, procedures to identify emerging risks, and an
explanation of how these are being managed or
mitigated;
* the directors' confirmation above that they have
carried out a robust assessment of the principal and
emerging risks facing the Company, including those
that would threaten its business model, future
performance, solvency or liquidity; or
* the directors' explanation above as to how they have
assessed the prospects of the Company, over what
period they have done so and why they consider that
period to be appropriate, and their statement as to
whether they have a reasonable expectation that the
Company will be able to continue in operation and
meet its liabilities as they fall due over the period
of their assessment, including any related
disclosures drawing attention to any necessary
qualifications or assumptions.
We are also required to report whether the directors'
statement relating to the prospects
of the company required by Listing Rule 9.8.6R (3) is
materially inconsistent with our knowledge
obtained in the audit.
5. Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had
the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the
engagement team.
These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these
matters.
5.1. Valuation of investments in Luxembourg subsidiary
Key audit matter The investment in subsidiary is accounted at
description Fair Value Through Profit and Loss.
Investments in Blackstone / GSO Loan Financing
(Luxembourg) S.a.r.l. which total EUR396,392,271
(2018: EUR315,890,482) as detailed in note
6 to the financial statements, are illiquid
investments, not traded on an active market
and are valued using valuation techniques determined
by the Directors and classified as level III
under IFRS : Fair Value Measurement (IFRS 13).
Valuation is therefore a key area of judgement
and has a significant impact on the Net Assets
Value ("NAV") which is the most significant
Key Performance Indicator ("KPI") of the Company
and has a direct effect on the recognition
of gains and losses on investments.
The investments, commitments and obligations
contracted by Blackstone / GSO Corporate Funding
Designated Activity Company ("BGCF") are driving
the performance of its NAV, the valuation of
the investments in BGCF and ultimately the
performance of the Company and its listed shares.
We consider BGCF as the principal source of
risks and rewards for the Company with BGCF's
financial situation represented by its Net
Asset Value as the main component for the fair
valuation of the investments.
Reviewing risk monitoring, performance and
the investments' valuation for the Company,
requires an assessment of the positions within
BGCF. BGCF's investment positions in debt instruments,
related credit risk and liquidity exposures
should be compliant with the quality, diversification
and overall limitations imposed by BGLF's Prospectus.
The Directors use their judgment, with the
assistance of the Adviser, Blackstone / GSO
Debt Funds Management Europe Limited ('DFME'),
in selecting an appropriate valuation technique
and refer to techniques commonly used by market
practitioners. For investments in BGCF and
the underlying collateralized loan obligations
(CLOs) and the equity tranches retained by
that company, assumptions are made based on
quoted market rates adjusted for specific features
of any instrument.
There is a risk that a third party valuer has
used an incorrect methodology, inaccurate data
is supplied by the CLO Manager or the Originator
or inappropriate assumptions are used concerning
market information. The key assumptions include
discount, prepayment, reinvestment and default
rates.
Refer to the Audit Committee Report, Significant
Accounting Policies and the Note 6 to the Financial
statements.
----------------------- ------------------------------------------------------------
How the scope In response to this key audit matter:
of our audit responded * We obtained an understanding of the relevant controls
to the key audit over the valuation process.
matter
* We have assessed the valuation methodology for the
financial instruments issued by BGCF against industry
standards and IFRS 13.
* We involved our financial instruments specialists to
review the valuation of investments and related
disclosures in the financial statements.
* We reviewed the test of valuations performed by
auditors of BGCF comparing information and
assumptions used by management to information
available from external independent reliable sources
such as Bloomberg or Intex, including any impact of
discount / premium to NAV.
* We tested the calculation of the change in value of
investments for the year and its recognition in the
statement of comprehensive income.
* We also reviewed the adequacy of disclosures
(including disclosures related to sensitivity) made
by the Company in accordance with requirements of
IFRS 13.
----------------------- ------------------------------------------------------------
Key observations Based on the work performed we concluded that
the valuation of investments in the Luxembourg
subsidiary is appropriate.
----------------------- ------------------------------------------------------------
6. Our application of materiality
6.1. Materiality
We define materiality as the magnitude of misstatement in the
financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or
influenced. We use materiality both in planning the scope of our
audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality
for the financial statements as a whole as follows:
Materiality EUR 8,200,000 (2018: EUR 6,500,000)
------------------------------------ --------------------------------------------------------------------------------
Basis for determining materiality We determined materiality for the Company, which is approximately 2% (2018: 2%)
of the Net
Asset Value of the Company.
------------------------------------ --------------------------------------------------------------------------------
Rationale for the benchmark applied Net Asset Value is the key performance indicator for investments in the Company
and is therefore
selected as the appropriate benchmark.
------------------------------------ --------------------------------------------------------------------------------
6.2. Performance materiality
We set performance materiality at a level lower than materiality
to reduce the probability that, in aggregate, uncorrected and
undetected misstatements exceed the materiality for the financial
statements as a whole. Performance materiality was set at 70% of
materiality for the 2019 audit (2018: 70%). In determining
performance materiality, we considered our risk assessment,
including our assessment of the Company's overall control
environment and our past experience of the audit, which has
indicated a low number of corrected and uncorrected misstatements
identified in prior periods.
6.3. Error reporting threshold
We agreed with the Audit Committee that we would report to the
Committee all audit differences in excess of EUR410,000 (2018:
EUR325,000), as well as differences below that threshold that, in
our view, warranted reporting on qualitative grounds. We also
report to the Audit Committee on disclosure matters that we
identified when assessing the overall presentation of the financial
statements.
7. An overview of the scope of our audit
7.1. Scoping
Our audit was scoped by obtaining an understanding of the entity
and its environment, including internal control, and assessing the
risks of material misstatement. Audit work to respond to the risks
of material misstatement was performed directly by the audit
engagement team. As the financial information used to determine the
fair value of the investments is those of BGCF, we reviewed the
2019 audited financial statements of BGCF and the related audit
work performed by the auditors of BGCF.
7.2. Our consideration of the control environment
As mentioned above, the Company has outsourced its accounting
function to a third party service provider. Our audit scope
included understanding of the relevant accounting processes and
controls in place at the Company's third party accounting service
provider. We performed the audit using substantive approach without
placing reliance on controls. We reviewed the service auditor's
report for the third party administrator of the Company.
8. Other information
The directors are responsible for the other information. The
other information comprises the information included in the annual
report, other than the financial statements and our auditor's
report thereon.
Our opinion on the financial statements does not cover the other
information and we do not express any form of assurance conclusion
thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent
material misstatements, we are required to determine whether there
is a material misstatement in the financial statements or a
material misstatement of the other information. If, based on the
work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report
that fact.
In this context, matters that we are specifically required to
report to you as uncorrected material misstatements of the other
information include where we conclude that:
-- Fair, balanced and understandable - the statement given by
the directors that they consider the annual report and financial
statements taken as a whole is fair, balanced and understandable
and provides the information necessary for shareholders to assess
the control's position and performance, business model and
strategy, is materially inconsistent with our knowledge obtained in
the audit; or
-- Audit Committee reporting - the section describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee; or
-- Directors' statement of compliance with the UK Corporate
Governance Code - the parts of the directors' statement required
under the Listing Rules relating to the company's compliance with
the UK Corporate Governance Code containing provisions specified
for review by the auditor in accordance with Listing Rule 9.8.10R
(2) do not properly disclose a departure from a relevant provision
of the UK Corporate Governance Code.
We have nothing to report in respect of these matters.
9. Responsibilities of directors
As explained more fully in the statement of directors'
responsibilities, the directors are responsible for the preparation
of the financial statements and for being satisfied that they give
a true and fair view, and for such internal control as the
directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the Company's ability to continue as a
going concern, disclosing as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
10. Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of
the financial statements is located on the FRC's website at:
www.frc.org.uk/auditorsresponsibilities . This description forms
part of our auditor's report.
Report on other legal and regulatory requirements
11. Matters on which we are required to report by exception
11.1. Adequacy of explanations received and accounting records
Under the Companies (Jersey) Law, 1991 we are required to report
to you if, in our opinion:
-- we have not received all the information and explanations we require for our audit; or
-- proper accounting records have not been kept, or proper
returns adequate for our audit have not been received from branches
not visited by us; or
-- the financial statements are not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
12. Use of our report
This report is made solely to the company's members, as a body,
in accordance with Article 113A of the Companies (Jersey) Law,
1991. Our audit work has been undertaken so that we might state to
the company's members those matters we are required to state to
them in an auditor's 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 and the company's
members as a body, for our audit work, for this report, or for the
opinions we have formed.
Marc Cleeve, FCA
For and on behalf of Deloitte LLP
Recognized Auditor
Jersey
19 May 2020
STATEMENT OF FINANCIAL POSITION
As at 31 December 2019
As at As at As at As at
31 December 2019 31 December 2019 31 December 2019 31 December 2018
Ordinary Share Class C Share Total Ordinary Share class and
Class Total
------------------------- ----- -------------------- ----------------- ----------------- ------------------------
Notes EUR EUR EUR EUR
------------------------- ----- -------------------- ----------------- ----------------- ------------------------
Current assets
Cash and cash equivalents 5,355,821 6,108,267 11,464,088 11,219,224
Other receivables 5 23,900 208,574 232,474 811,675
Financial assets at fair
value through profit or
loss - Lux Co 6 338,476,744 57,915,527 396,392,271 315,890,482
Financial assets at fair
value through profit or
loss - CLOs 6 - 3,192,772 3,192,772 -
Intercompany 7 114,549 (114,549) -
------------------------- ----- -------------------- ----------------- ----------------- ------------------------
Total current assets 343,971,014 67,310,591 411,281,605 327,921,381
------------------------- ----- -------------------- ----------------- ----------------- ------------------------
Non-current liabilities
Intercompany 7 (534,660) - (534,660) (237,057)
------------------------- ----- -------------------- ----------------- ----------------- ------------------------
Total non-current
liabilities (534,660) - (534,660) (237,057)
------------------------- ----- -------------------- ----------------- ----------------- ------------------------
Current liabilities
Payables 8 (174,510) (66,444) (240,954) (1,297,180)
------------------------- ----- -------------------- ----------------- ----------------- ------------------------
Total current liabilities (174,510) (66,444) (240,954) (1,297,180)
------------------------- ----- -------------------- ----------------- ----------------- ------------------------
Total liabilities (709,170) (66,444) (775,614) (1,534,237)
------------------------- ----- -------------------- ----------------- ----------------- ------------------------
Net assets 15,16 343,261,844 67,244,147 410,505,991 326,387,144
------------------------- ----- -------------------- ----------------- ----------------- ------------------------
Capital and reserves
Stated capital 9 403,034,162 77,270,167 480,304,329 404,962,736
Retained earnings (59,772,318) (10,026,020) (69,798,338) (78,575,592)
Shareholders' Equity 343,261,844 67,244,147 410,505,991 326,387,144
------------------------- ----- -------------------- ----------------- ----------------- ------------------------
Net Asset Value per Share 15 - - 0.8543 0.8065
------------------------- ----- -------------------- ----------------- ----------------- ------------------------
C Shares were issued on 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 19 May 2020 and signed on their behalf
by:
Charlotte Valeur Heather MacCallum
Director Director
The accompanying notes form an integral part of the financial
statements.
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2019
Year ended Period ended Year ended Year ended
31 December 2019 31 December 2019 31 December 2019 31 December 2018
Ordinary Share class C Share Total Ordinary Share class and
class Total
------------------------- ----- -------------------- ----------------- ----------------- ------------------------
Notes EUR EUR EUR EUR
------------------------- ----- -------------------- ----------------- ----------------- ------------------------
Income
Realised (loss)/gain on
foreign exchange (8,650) (11,876) (20,526) 538
Net gain/(loss) on
financial assets at fair
value through profit or
loss - Lux Co 6 60,311,620 638,942 60,950,562 (11,201,791)
Net loss on financial
assets at fair value
through profit or loss -
CLOs - (9,910,600) (9,910,600) -
Income distributions from
CLOs - 9,928,261 9,928,261 -
------------------------- ----- -------------------- ----------------- ----------------- ------------------------
Total income 60,302,970 644,727 60,947,697 (11,201,253)
------------------------- ----- -------------------- ----------------- ----------------- ------------------------
Expenses
Operating expenses 3 (1,080,593) (204,521) (1,285,114) (1,431,821)
------------------------- ----- -------------------- ----------------- ----------------- ------------------------
Profit/(loss) before
taxation 59,222,377 440,206 59,662,583 (12,633,074)
Taxation 2.11 - - - -
------------------------- ----- -------------------- ----------------- ----------------- ------------------------
Profit/(loss) after
taxation 59,222,377 440,206 59,662,583 (12,633,074)
------------------------- ----- -------------------- ----------------- ----------------- ------------------------
Loan interest expense 7 (6,196) - (6,196) (1,402)
Bank interest
(expense)/income (61,910) 12,355 (49,555) (48,654)
------------------------- ----- -------------------- ----------------- ----------------- ------------------------
Total interest expense (68,106) 12,355 (55,751) (50,056)
------------------------- ----- -------------------- ----------------- ----------------- ------------------------
Total comprehensive
income /(loss) for the
year attributable to
Shareholders 59,154,271 452,561 59,606,832 (12,683,130)
------------------------- ----- -------------------- ----------------- ----------------- ------------------------
Basic earnings/(loss) per
Share 14 0.1467 0.0034 - (0.0313)
------------------------- ----- -------------------- ----------------- ----------------- ------------------------
Diluted earnings/(loss)
per Share 14 - - 0.1453 (0.0313)
------------------------- ----- -------------------- ----------------- ----------------- ------------------------
C shares were issued on 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 year is also the total comprehensive
income.
All items in the above statement are derived from continuing
operations. No operations were discontinued during the year.
The accompanying notes form an integral part of the financial
statements.
STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2019
Note Stated Retained
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 9 404,962,736 (78,575,592) - - 326,387,144
Total comprehensive
income for the year
attributable to Shareholders - 59,154,271 - 452,561 59,606,832
Transactions with owners
Issuance of Shares 9 - - 77,270,167 - 77,270,167
Dividends* - (40,350,997) - (10,478,581) (50,829,578)
Ordinary Shares repurchased 9 (1,928,574) - - - (1,928,574)
------------------------------ ---- ----------- ------------ ---------- ------------ ------------
(1,928,574) (40,350,997) 77,270,167 (10,478,581) 24,512,015
------------------------------ ---- ----------- ------------ ---------- ------------ ------------
Shareholders' Equity
at 31 December 2019 9 403,034,162 (59,772,318) 77,270,167 (10,026,020) 410,505,991
------------------------------ ---- ----------- ------------ ---------- ------------ ------------
*Refer to the Dividend History sections for further details on
Dividends.
Note Stated Retained
Capital Earnings
Ordinary Ordinary
Share Share Total
EUR EUR EUR
------------------------------------ ---- ----------- ------------ ------------
Shareholders' Equity at 1 January
2018 9 404,962,736 (25,422,415) 379,540,321
Total comprehensive loss for the
year attributable
to Shareholders - (12,683,130) (12,683,130)
Transactions with owners
Dividends* - (40,470,047) (40,470,047)
(40,470,047) (40,470,047)
------------------------------------ ---- ----------- ------------ ------------
Shareholders' Equity at 31 December
2018 9 404,962,736 (78,575,592) 326,387,144
------------------------------------ ---- ----------- ------------ ------------
*Refer to the Dividend History sections for further details on
Dividends.
C Shares were issued on 7 January 2019 and hence no comparative
is presented for the C Shares.
The accompanying notes form an integral part of the financial
statements.
STATEMENT OF CASH FLOWS
For the year ended 31 December 2019
Year ended Period ended Year ended Year ended
31 December 31 December 31 December 31 December
2019 2019 2019 2018
Ordinary
Ordinary C Share Share class
Share class class Total and Total
----------------------------------------------------------- ------------- ------------- ------------- ------------
EUR EUR EUR EUR
----------------------------------------------------------- ------------- ------------- ------------- ------------
Cash flow from operating activities
Total comprehensive income / (loss) for the year
attributable to Shareholders 59,154,271 452,561 59,606,832 (12,683,130)
Adjustments to reconcile profit after tax to net cash
flows:
* Unrealised (gain) / loss on financial assets at fair
value through profit and loss (51,628,943) 5,362,117 (46,266,826) 17,274,438
* Realised (gain) / loss on financial assets at fair
value through profit and loss (8,682,677) 4,043,083 (4,639,594) (6,072,647)
Purchase of financial assets at fair value through profit
or loss (3,524,232) (61,061,093) (64,585,325) -
Proceeds from sale of financial assets at fair value
through profit or loss 41,249,590 61,152,063 102,401,653 50,045,105
Changes in working capital
Decrease / (increase) in other receivables 787,775 (208,574) 579,201 (782,050)
(Decrease) / increase in payables (1,122,670) 66,444 (1,056,226) 1,123,529
(Decrease) / increase in intercompany (114,549) 114,549 - -
----------------------------------------------------------- ------------- ------------- ------------- ------------
Net cash generated from operating activities 36,118,565 9,921,150 46,039,715 48,905,245
----------------------------------------------------------- ------------- ------------- ------------- ------------
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 297,603 - 297,603 237,057
Dividends paid (40,350,997) (10,478,581) (50,829,578) (40,470,047)
----------------------------------------------------------- ------------- ------------- ------------- ------------
Net cash used in financing activities (41,981,968) (3,812,883) (45,794,851) (40,232,990)
----------------------------------------------------------- ------------- ------------- ------------- ------------
Net (decrease) / increase in cash and cash equivalents (5,863,403) 6,108,267 244,864 8,672,255
----------------------------------------------------------- ------------- ------------- ------------- ------------
Cash and cash equivalents at the start of the year 11,219,224 - 11,219,224 2,546,969
----------------------------------------------------------- ------------- ------------- ------------- ------------
Cash and cash equivalents at the end of the year 5,355,821 6,108,267 11,464,088 11,219,224
----------------------------------------------------------- ------------- ------------- ------------- ------------
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 7 January 2019 and hence no comparative
is presented for the C Shares.
The accompanying notes form an integral part of the financial
statements.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 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 the
Company has a premium listing on the Official List of the FCA. The
Company's C Shares were quoted on the SFS of the Main Market of the
LSE until 6 January 2020.
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 31 December 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 as at 31 December 2019. The Company also holds
319,758,584 Class B CSWs issued by the Lux Subsidiary. The Company
also holds CLO Income Notes and Mezzanine Notes which formed part
of the Rollover Assets and are yet to be realised and reinvested in
CSWs.
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. The financial statements give a true and fair view of the
Company's affairs and comply with the requirements of the Companies
(Jersey) Law 1991, as amended.
The principal accounting policies applied in the preparation of
these financial statements are set out below. These policies have
been applied consistently to the Company's financial statements for
all years presented except for the adoption of new and amended
standards as set out below.
2.2 Basis of preparation
The Company's financial statements have been prepared on a
historical cost basis, except for financial instruments measured at
fair value through profit or loss.
The Company's functional currency is the Euro, which is the
currency of the primary economic environment in which it operates.
The Company's performance is evaluated and its liquidity is managed
in Euro. Therefore, Euro is considered as the currency that most
faithfully represents the economic effects of the underlying
transactions, events and conditions. The financial statements are
presented in Euro, except where otherwise indicated.
The financial statements have been prepared on a going concern
basis. The disclosures with respect to the Directors' assessment on
the use of the going concern basis are provided in the "Strategic
Report - Risk Overview" section.
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.
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.
2.3 New standards, amendments and interpretations issued and
effective for the financial year beginning 1 January 2019
There are no standards, amendments to standards and
interpretations that are effective for the financial year beginning
1 January 2019 that have a material effect on the financial
statements of the Company.
The following standards became effective during the year:
-- IFRS 16: Leases (effective 1 January 2019). This requires
lessees to recognise new assets and liabilities under an on-balance
sheet accounting model that is similar to current finance lease
accounting.
-- IFRIC 23: Uncertainty over Income Tax Treatments (effective 1
January 2019). This applies where there is uncertainty over the
acceptable income tax treatment of an item under IAS 12.
2.4 New standards, amendments and interpretations issued but not
effective for the financial year beginning 1 January 2019 and not
early adopted
There are no standards, amendments and interpretations which
have been issued but are not yet effective and not early adopted,
that will affect the Company's financial statements.
2.5 Income
2.5a Interest income and expense
Interest income and expense is recognised under IFRS 9
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 under IFRS 9 in the Statement of
Comprehensive Income as Income distributions from CLOs. Income from
the CLOs is recognised on an accruals basis.
2.6 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
Statement of Changes in Equity, net of the incremental issuance
costs.
2.7 Fees and charges
Expenses are charged through profit or loss in the Statement of
Comprehensive Income on an accruals basis. For the period from 7
January 2019 to 29 November 2019, expenses incurred by the Company
were split between the Ordinary Share Class and the C Share Class
in proportion to their respective monthly NAVs.
2.8 Cash and cash equivalents
Cash comprises current deposits with banks.
Cash equivalents are short-term, highly liquid investments that
are readily convertible to known amounts of cash and are subject to
an insignificant risk of changes in value. Cash equivalents are
revalued at the end of the reporting period using market rates and
any increases / decreases are recognised in the Statement of
Comprehensive Income. There were no such holdings during the year
ended 31 December 2019 (31 December 2018: EURNil).
2.9 Financial instruments
Investments and other financial assets
(i) Initial recognition
The Company recognises a financial asset or a financial
liability in its 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/(loss) 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 31 December 2019, the Company held 319,758,584 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
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 a s of the 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.
Portfolio
The Directors discuss the valuation process to understand the
methodology regarding the valuation of its 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 IFRS NAV of the Company is calculated by the Administrator
based on information from the Portfolio Adviser and is 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, 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.
2.10 Foreign currency translations
Transactions in foreign currencies are translated at the foreign
exchange rate ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies at the
Statement of Financial Position date are translated to Euro at the
foreign exchange rate ruling at that date. Foreign exchange
differences arising on translation are recognised in the Statement
of Comprehensive Income.
Foreign currency gains and losses are included in profit or loss
on the Statement of Comprehensive Income as part of "Realised
(loss)/gain on foreign exchange". Foreign currency gains and losses
on financial assets classified at fair value through profit or loss
- CLOs are included in profit or loss on the Statement of
Comprehensive Income as part of "Net loss on financial assets at
fair value through profit or loss - CLOs" for the year ended 31
December 2019.
2.11 Taxation
Profit arising in the Company for the year of assessment will be
subject to Jersey tax at the standard corporate income tax rate of
0% (31 December 2018: 0%).
2.12 Dividends
Dividends to Shareholders are recorded through the Statement of
Changes in Equity when they are declared to Shareholders.
2.13 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.
Estimates
(a) Fair value
For the fair value of all financial instruments held, the
Company determines fair values using appropriate techniques.
Refer to Note 2.9 and Note 12 for further details on the
significant estimates applied in the valuation of the companies'
financial instruments and the underlying financial instruments in
BGCF.
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 investments
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 11 for further disclosures relating to the
Company's interest in the Lux Subsidiary.
3 Operating expenses
Year ended Year ended
31 December 2019 31 December 2018
EUR EUR
------------------------------------------------ ----------------- -----------------
Professional fees 263,427 466,806
Administration fees 365,607 323,379
Brokerage fees 57,487 176,878
Regulatory fees 30,661 27,448
Directors' fees and other expenses (see Note 4) 282,075 214,116
Audit fees and audit related fees 214,304 129,582
Non-audit fees 13,955 38,158
Registrar fees 30,662 22,603
Sundry expenses 26,936 32,851
------------------------------------------------ ----------------- -----------------
1,285,114 1,431,821
------------------------------------------------ ----------------- -----------------
Administration fees
Under the administration agreement, the Administrator is
entitled to receive variable fees based on the Published NAV 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 year ended 31 December 2019 was
EUR365,607 (31 December 2018: EUR323,379) and the amount due at 31
December 2019 was EUR46,267 (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 year ended 31 December 2019 was EURNil (31
December 2018: EURNil).
Audit and non-audit fees
The Company incurred EUR214,304 (31 December 2018: EUR129,582)
in audit and audit-related fees during the year of which EUR65,497
(31 December 2018: EUR81,333) was outstanding at the year end.
The Company incurred EUR13,955 (31 December 2018: EUR38,158) in
non-audit fees during the year of which EUR13,955 (31 December
2018: EURNil) was outstanding at the year end. The table below
outlines the audit, audit related and non-audit services received
during the year.
Year ended Year ended
31 December 2019 31 December 2018
EUR EUR
----------------------------------------------------------------------------- ----------------- -----------------
Audit of the Company 113,307 84,366
Audit related services - review of interim financial report 62,277 45,216
Additional fee for the audit for the year ended 31 December 2018 20,740 -
Other audit related services - C Share Conversion Ratio 8,699 -
Other audit related services - Reporting Accountant - for the year ended 31
December 2018 9,281 -
------------------------------------------------------------------------------ ----------------- -----------------
Total audit and audit related services 214,304 129,582
------------------------------------------------------------------------------ ----------------- -----------------
Tax compliance services 13,955 38,158
Total non-audit services 13,955 38,158
------------------------------------------------------------------------------ ----------------- -----------------
Total fees to Deloitte LLP and member firms 228,259 167,740
------------------------------------------------------------------------------ ----------------- -----------------
Professional fees
Professional fees comprise EUR104,657 in legal fees and
EUR158,770 in other professional fees. In 2018, professional fees
comprised EUR338,033 in legal fees and EUR128,773 in other
professional fees.
4 Directors' fees
The Company has no employees. The Company incurred EUR264,988
(31 December 2018: EUR209,140) in Directors' fees (consisting
exclusively of short-term benefits) during the year of which
EUR55,467 (31 December 2018: EUR54,593) was outstanding at the year
end. No pension contributions were payable in respect of any of the
Directors.
Refer to the Directors' Remuneration Report for further details
on the Directors' remuneration and their interests.
5 Other receivables
As at As at
31 December 2019 31 December 2018
EUR EUR
-------------------- ----------------- -----------------
Prepayments 28,453 31,040
Interest receivable 204,021 -
Other assets - 780,635
-------------------- ----------------- -----------------
232,474 811,675
-------------------- ----------------- -----------------
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
31 December 2019 31 December 2019 31 December 2019 31 December 2018
Ordinary Share class C Share Total Ordinary Share
class class
--------------------------------------- -------------------- ----------------- ----------------- -----------------
EUR EUR EUR EUR
--------------------------------------- -------------------- ----------------- ----------------- -----------------
Financial assets at fair value through
profit or loss - Lux Co 338,476,744 57,915,527 396,392,271 315,890,482
--------------------------------------- -------------------- ----------------- ----------------- -----------------
Financial assets at fair value through
profit or loss - CLOs - 3,192,772 3,192,772 -
--------------------------------------- -------------------- ----------------- ----------------- -----------------
Financial assets at fair value through profit or loss - Lux Co
consists of 319,758,584 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 6 CLO Income Notes and 2 Mezzanine Notes,
which formed part of the Rollover Assets. These have yet to be
realised and re-invested in CSWs and then used by the 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's 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.
31 December 2019 Level 1 Level 2 Level 3 Total
EUR EUR EUR EUR
Financial assets at fair value through profit or loss - Lux Co - - 396,392,271 396,392,271
Financial assets at fair value through profit or loss - CLOs - - 3,192,772 3,192,772
--------------------------------------------------------------- ------- ------- ----------- -----------
31 December 2018 Level 1 Level 2 Level 3 Total
EUR EUR EUR EUR
Financial assets at fair value through profit or loss - Lux Co - - 315,890,482 315,890,482
--------------------------------------------------------------- ------- ------- ----------- -----------
The Company determines the fair value of the financial assets at
fair value through profit or loss - Lux Co using the unaudited IFRS
NAV of the Lux Subsidiary and the audited IFRS NAV of 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 years ended 31 December 2019 and 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 Co categorised within
Level 3 between the start and the end of the reporting period:
31 December 2019 Total
EUR
--------------------------------------------------------------------------- ------------
Balance as at 1 January 2019 315,890,482
Purchases - CSWs 64,524,232
Sale proceeds - CSWs (44,973,005)
Realised gain on financial assets at fair value through profit or loss 8,864,144
Unrealised gain on financial assets at fair value through profit or loss 52,086,418
--------------------------------------------------------------------------- ------------
Balance as at 31 December 2019 396,392,271
--------------------------------------------------------------------------- ------------
Realised gain on financial assets at fair value through profit or loss 8,864,144
Total change in unrealised gain on financial assets for the year 52,086,418
Net gain on financial assets at fair value through profit or loss - Lux Co 60,950,562
--------------------------------------------------------------------------- ------------
31 December 2018 Total
EUR
--------------------------------------------------------------------------- ------------
Balance as at 1 January 2018 377,137,378
Purchases - CSWs -
Sale proceeds - CSWs (50,045,105)
Realised gain on financial assets at fair value through profit or loss 6,072,647
Unrealised loss on financial assets at fair value through profit or loss (17,274,438)
--------------------------------------------------------------------------- ------------
Balance as at 31 December 2018 315,890,482
--------------------------------------------------------------------------- ------------
Realised gain on financial assets at fair value through profit or loss 6,072,647
Total change in unrealised loss on financial assets for the year (17,274,438)
--------------------------------------------------------------------------- ------------
Net loss on financial assets at fair value through profit or loss - Lux Co (11,201,791)
--------------------------------------------------------------------------- ------------
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:
31 December 2019 Total
EUR
-------------------------------------------------------------------------------- ------------
Balance as at 1 January 2019 -
Purchases - CLOs 70,665,562
Sale proceeds - CLOs (57,428,648)
Realised loss on financial assets at fair value through profit or loss - CLOs (4,224,550)
Unrealised loss on financial assets at fair value through profit or loss - CLOs (5,819,592)*
-------------------------------------------------------------------------------- ------------
Balance as at 31 December 2019 3,192,772
-------------------------------------------------------------------------------- ------------
Realised loss on financial assets at fair value through profit or loss - CLOs (4,224,550)
Total change in unrealised loss on financial assets for the year - CLOs (5,686,050)*
-------------------------------------------------------------------------------- ------------
Net loss on financial assets at fair value through profit or loss - CLOs (9,910,600)
-------------------------------------------------------------------------------- ------------
*The difference between these two figures of EUR133,542 relates
to an unrealised gain on the management fee rebate element arising
from one of the previously directly held CLOs whereby DFM was the
CLO manager.
Refer to Other Information above, Note 2.9 and Note 12 for
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 and
sensitivity analysis to significant changes in unobservable inputs
- Level 3 Lux Co
The significant unobservable inputs used in the fair value
measurement of the financial assets at fair value through profit or
loss - Lux Co within Level 3 of the fair value hierarchy together
with a quantitative sensitivity analysis as at 31 December 2019 and
31 December 2018 are as shown below:
Asset Class Fair Value Unobservable Ranges Weighted Sensitivity to changes
Inputs average in significant unobservable
inputs
------------------ ------------ ---------------- ------- --------- -----------------------------
EUR
------------------ ------------ ---------------- ------- --------- -----------------------------
CSWs 390,685,286 Undiscounted N/A N/A 20% increase/decrease
NAV of will have a fair
BGCF value impact of
+/-
EUR78,137,057
------------------ ------------ ---------------- ------- --------- -----------------------------
Class A 5,706,985 Undiscounted N/A N/A 20% increase/decrease
and Class NAV of will have a fair
B shares the value impact of
Lux Subsidiary +/-
EUR1,141,397
------------------ ------------ ---------------- ------- --------- -----------------------------
Total as
at 31 December
2019 396,392,271
------------------ ------------ ---------------- ------- --------- -----------------------------
Asset Class Fair Value Unobservable Ranges Weighted Sensitivity to changes
Inputs average in significant unobservable
inputs
------------------ ------------ ---------------- ------- --------- -----------------------------
CSWs 310,753,454 Undiscounted N/A N/A 5% increase/decrease
NAV of will have a fair
BGCF value impact of
+/- EUR 15,537,673
----------------- ------------- ---------------- ------- --------- -----------------------------
Class A 5,137,028 Undiscounted N/A N/A 5% increase/decrease
and Class NAV of will have a fair
B shares the value impact of
Lux Subsidiary +/- EUR 256,851
------------------ ------------ ---------------- ------- --------- -----------------------------
Total as
at 31 December
2018 315,890,482
------------------ ------------ ---------------- ------- --------- -----------------------------
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 31 December 2019 are
as shown below:
Asset Class Fair Value Unobservable Ranges* Weighted Sensitivity to
Inputs average changes in significant
unobservable inputs
--------------- ----------- ------------- ----------- --------- ------------------------
EUR
--------------- ----------- ------------- ----------- --------- ------------------------
Income Notes
--------------- ----------- ------------- ----------- --------- ------------------------
20% increase/decrease
Directly will have a fair
Held CLO Third party value impact of
Income Notes 809,385 valuations 0% - 35.5% 6.7% +/- EUR161,877
--------------- ----------- ------------- ----------- --------- ------------------------
Mezzanine Notes
---------------------------- ------------- ----------- --------- ------------------------
Directly 20% increase/decrease
Held CLO will have a fair
Mezzanine Third party 20.1% - value impact of
Notes 2,383,387 valuations 73.0% 43.1% +/- EUR476,677
--------------- ----------- ------------- ----------- --------- ------------------------
Total 3,192,772
--------------- ----------- ------------- ----------- --------- ------------------------
*The ranges provided in the tables 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 tables above are
prices from CLOs which have been called and are in wind-down.
7 Intercompany
As at As at As at As at
31 December 2019 31 December 2019 31 December 2019 31 December 2018
Ordinary Share Class C Share Total Ordinary Share Class
Class
------------------------------------ -------------------- ----------------- ----------------- --------------------
EUR EUR EUR EUR
------------------------------------ -------------------- ----------------- ----------------- --------------------
Intercompany loan - payable to the
Lux Subsidiary 534,660 - 534,660 237,057
------------------------------------ -------------------- ----------------- ----------------- --------------------
Interclass balance - receivable/
(payable) 114,549 (114,549) - -
------------------------------------ -------------------- ----------------- ----------------- --------------------
The intercompany loan - payable to the Lux Subsidiary is a
revolving unsecured 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.
The interclass balance represents amounts receivable by the
Ordinary Share Class from the C Share Class and payable by the C
Share Class to the Ordinary Share Class for expenses incurred by
the Company, which are split between the Ordinary Share Class and
the C Share Class in proportion to their respective monthly
NAVs.
8 Payables
As at As at
31 December 2019 31 December 2018
EUR EUR
----------------------------------- ----------------- -----------------
Professional fees 39,391 1,090,305
Administration fees 46,267 47,573
Directors' fees 55,467 54,593
Audit fees 65,497 81,333
Intercompany loan interest payable 7,598 1,402
Other payables 26,734 21,974
Total payables 240,954 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 year and held in treasury (2,380,956) (1,928,574)
Total Ordinary Shares as at 31 December 2019 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 31 December 2019 133,451,107 77,270,167
-------------------------------------------------- ---------------- --------------
Total issued share capital as at 31 December 2019 535,770,597 480,304,329
-------------------------------------------------- ---------------- --------------
Allotted, called up and fully-paid - Ordinary Share
Ordinary shares Number of shares Stated capital
EUR
Total issued share capital as at 31 December 2018 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 31 December 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.
Voting rights - Ordinary Shares
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.
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 any
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.
Dividends
The dividends declared by the Board during the year are detailed
above.
Please refer to Note 20 for dividends declared after the year
end.
Repurchase of Ordinary Shares
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 capital as at 31 December 2019
comprises shareholders' equity at a total of EUR410,505,991 (31
December 2018: EUR326,387,144).
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.
The Board monitors the capital adequacy of the Company on an
on-going basis and the Company's objectives regarding capital
management have been met.
Please refer to Note 10 C Liquidity Risk for further discussion
on capital management, particularly on how the distribution policy
is managed.
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 EUR70,604,469, cash
proceeds amounting to EUR7,446,204 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 31 December 2019, the Company had 133,451,107 C Shares in
issue (31 December 2018: Nil).
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
Holders of C Shares are entitled to dividends as described in
the section "Dividends" above.
Conversion
On 24 October 2019, the Company announced that it had reinvested
EUR62.6 million into BCGF as part of its realization strategy and
that the Company intended to convert the C Shares into Ordinary
Shares. On 20 November 2019, the Company announced that the
Calculation Date would fall on 29 November 2019 to accommodate
dividend payment schedules in accordance with the Company's
Articles of Association.
The calculation of the Conversion Ratio was based on the net
assets attributable to the Ordinary Shares -
EUR362,950,897 (NAV per Share of EUR 0.9021) and C Shares - EUR
70,550,461 (NAV per Share of EUR 0.5287) as at close of business on
29 November 2019. On 20 December 2019, the Company announced the
Conversion Ratio of 0.5860 Ordinary Shares per C Share.
On this basis, 133,451,107 C Shares would convert into
78,202,348 Ordinary Shares. The 78,202,348 Ordinary Shares were
admitted to the premium listing segment of the Official List of the
FCA and to trading on the LSE's Main Market for listed securities
on 7 January 2020.
10 Financial risk management
The Company is exposed to market risk (including interest rate
risk, currency risk and price risk), credit risk and liquidity risk
arising from the financial instruments it holds and the markets in
which it invests.
10A Market risk
Market risk is the current or prospective risk to earnings or
capital of the Company arising from changes in interest rates,
foreign exchange rates, commodity prices or equity prices.
The Company holds three investments, denominated in Euro, in the
Lux Subsidiary in the form of CSWs, Class A and Class B shares and
directly holds, as part of the Rollover Offer, six CLO Income Notes
and two Mezzanine Notes, denominated in USD. The CSWs are the main
driver of the Company's performance.
Financial market disruptions may have a negative effect on the
valuations of BGCF's investments and, by extension, on the NAV of
the Lux Subsidiary and the Company and/or the market price of the
Company's Euro shares, and on liquidity events involving BGCF's
investments. Any non-performing assets in BGCF's portfolio may
cause the value of BGCF's portfolio to decrease and, by extension,
the NAV of the Lux Subsidiary and the Company. Adverse economic
conditions may also decrease the value of any security obtained in
relation to any of BGCF's investments.
A sensitivity analysis is shown below disclosing the impact on
the IFRS NAV of the Company, if the fair value of the Company's
investments at the year end increased or decreased by 20%. This
level of change is considered to be reasonably possible based on
observations of past and possible market conditions.
Year ended Increase by Decrease by
31 December 2019 20% 20%
Total
EUR EUR EUR
-------------------------------------------- ----------------- ----------- -----------
Financial assets held at fair value through
profit or loss:
CSWs 390,685,286 468,822,343 312,548,228
Class A and Class B shares 5,706,985 6,848,382 4,565,588
CLOs 3,192,772 3,831,326 2,554,218
-------------------------------------------- ----------------- ----------- -----------
399,585,043
-------------------------------------------- ----------------- ----------- -----------
Year ended Increase by Decrease by
31 December 2018 5% 5%
Total
EUR EUR EUR
-------------------------------------------- ----------------- ----------- -----------
Financial assets held at fair value through
profit or loss:
CSWs 310,753,454 326,291,127 295,215,781
Class A and Class B shares 5,137,028 5,393,879 4,880,177
-------------------------------------------- ----------------- ----------- -----------
315,890,482
-------------------------------------------- ----------------- ----------- -----------
The calculations are based on the investment valuation at the
Statement of Financial Position date and are not representative of
the period as a whole, and may not be reflective of future market
conditions.
i. Interest rate risk
Interest rate movements affect the fair value of investments in
fixed interest rate securities and floating rate loans and on the
level of income receivable on cash deposits.
The interest income received by the Lux Subsidiary from
investments held at fair value through profit or loss is the
interest income on the PPNs received from BGCF. Its calculation is
dependent on the profit generated by BGCF as opposed to interest
rates set by the market. Interest rate sensitivity analysis is
presented for BGCF in Note 12 since any potential movement in
market interest rates will impact BGCF's holdings which in turn
will impact the interest income received by the Lux Subsidiary on
the PPNs.
The Company is exposed to interest rate risk on CLOs directly
held by the Company.
Interest rate risk is monitored on an on-going basis, and is
managed and mitigated to the extent that is possible by the CLO
manager through active portfolio management, and the use of the
Underlying Companies offering documents and investment policies,
which permits portfolio management techniques to rotate between
asset classes and levels of risk as appropriate in accordance with
policies and procedures in place.
The following tables detail the Company's interest rate risk as
at 31 December 2019 and 31 December 2018:
31 December 2019 Interest bearing Non-interest bearing Total
EUR EUR EUR
------------------------------------------------------ ---------------- -------------------- -----------
Assets
Cash and cash equivalents 11,464,088 - 11,464,088
Other receivables - 232,474 232,474
Financial assets at fair value through profit or loss 3,192,772 396,392,271 399,585,043
------------------------------------------------------ ---------------- -------------------- -----------
Total assets 14,656,860 396,624,745 411,281,605
------------------------------------------------------ ---------------- -------------------- -----------
Liabilities
Intercompany loan (534,660) - (534,660)
Payables - (240,954) (240,954)
------------------------------------------------------ ---------------- -------------------- -----------
Total liabilities (534,660) (240,954) (775,614)
------------------------------------------------------ ---------------- -------------------- -----------
Total interest sensitivity gap 14,122,200
------------------------------------------------------ ---------------- -------------------- -----------
31 December 2018 Interest bearing Non-interest bearing Total
EUR EUR EUR
------------------------------------------------------ ---------------- -------------------- -----------
Assets
Cash and cash equivalents 11,219,224 - 11,219,224
Other receivables - 811,675 811,675
Financial assets at fair value through profit or loss - 315,890,482 315,890,482
------------------------------------------------------ ---------------- -------------------- -----------
Total assets 11,219,224 316,702,157 327,921,381
------------------------------------------------------ ---------------- -------------------- -----------
Liabilities
Intercompany loan (237,057) - (237,057)
Payables - (1,297,180) (1,297,180)
------------------------------------------------------ ---------------- -------------------- -----------
Total liabilities (237,057) (1,297,180) (1,534,237)
------------------------------------------------------ ---------------- -------------------- -----------
Total interest sensitivity gap 10,982,167
------------------------------------------------------ ---------------- -------------------- -----------
As at 31 December 2019 and 31 December 2018, the majority of the
Company's interest rate exposure arose in the fair value of the
underlying BGCF portfolio which is largely invested in senior
secured loans of companies predominantly in Western Europe or North
America. Most of the investments in senior secured loans carry
variable interest rates and various maturity dates. Refer to Note
12 which details BGCF's exposure to interest rate risk.
The Company is exposed to interest rate risk on its cash
balances and directly held CLOs but this is not deemed to be
significant for the years ended 31 December 2019 and 31 December
2018.
ii. Currency risk
Foreign currency risk is the risk that the values of the
Company's assets and liabilities are adversely affected by changes
in the values of foreign currencies by reference to the Company's
base currency. The functional currency of the Company and its Lux
Subsidiary is the Euro.
The Company and the Lux Subsidiary are not subject to
significant foreign currency risk since the majority of their
investments are denominated in Euro and their share capital are
also denominated in Euro.
Refer to Note 12 which details BGCF's exposure to currency risk.
BGCF hedges US CLO equity exposure by reference to mark to model
valuations incorporated in the Published NAV as defined above.
The Company is exposed to currency risk on its investments in
the directly held CLOs which are denominated in USD. To reduce the
impact on the Company of currency fluctuations and the volatility
of returns which may result from currency exposure, the Company may
hedge the currency exposure of the directly held CLOs of the
Company with the use of derivatives. The Company did not have any
derivatives at the year end.
iii. Price risk
Price risk is the risk that the value of the Company's indirect
investments in BGCF through its holding in the Lux Subsidiary does
not reflect the true value of BGCF's underlying investment
portfolio.
BGCF's portfolio may at any given time include securities or
other financial instruments or obligations which are very thinly
traded, for which a limited market exists or which are restricted
as to their transferability under applicable securities laws. These
investments may be extremely difficult to value accurately.
Further, because of overall size or concentration in particular
markets of positions held by BGCF, the value of its investments
which can be liquidated may differ, sometimes significantly, from
their valuations. Third-party pricing information may not be
available for certain positions held by BGCF. Investments held by
BGCF may trade with significant bid-ask spreads. BGCF is entitled
to rely, without independent investigation, upon pricing
information and valuations furnished to BGCF by third parties,
including pricing services and valuation sources.
Absent bad faith or manifest error, valuation determinations in
accordance with BGCF's valuation policy are conclusive and binding.
In light of the foregoing, there is a risk that the Company, in
redeeming all or part of its investment while BGCF holds such
investments, could be paid an amount less than it would otherwise
be paid if the actual value of BGCF's investment was higher than
the value designated for that investment by BGCF. Similarly, there
is a risk that a redeeming BGCF interest holder might, in effect,
be over-paid at the time of the applicable redemption if the actual
value of BGCF's investment was lower than the value designated for
that investment by BGCF, in which case the value of BGCF interests
to the remaining BGCF interest holders would be reduced. Refer to
Note 12 for further details.
The Company is exposed to price risk on its investments in the
directly held CLOs. The price risk that applies to the directly
held CLOs is limited and is restricted to the concentration risk of
the investments between asset class and geographical exposure. The
directly held CLOs which formed part of the Rollover Assets have
been realised by the Portfolio Manager in a manner that maximises
the value from the Company's investments in those directly held
CLOs.
The Board monitors and reviews the Company's NAV production
process on an ongoing basis.
10B Credit risk
Credit risk is the risk that a counterparty to a financial
instrument will fail to discharge an obligation or commitment that
it has entered into with the Company. The Board has in place
monitoring procedures in respect of credit risk which is reviewed
on an ongoing basis.
The Company's credit risk is attributable to its cash and cash
equivalents, other receivables and financial assets at fair value
through profit or loss. An allowance for impairment is made where
there is an identified loss event which, based on previous
experience, is evidence of a reduction in the recoverability of the
cash flows.
DFME monitors for the Company, the Lux Subsidiary, BGCF and its
subsidiaries the creditworthiness of financial institutions with
whom cash is held, or with whom investment or derivative
transactions are entered into, on a regular basis.
The carrying amounts of financial assets best represent the
maximum credit risk exposure at the Statement of Financial Position
date. At the reporting date, the Company's financial assets exposed
to credit risk amounted to the following:
As at As at
31 December 2019 31 December 2018
EUR EUR
------------------------------------------------------ ----------------- -----------------
Cash and cash equivalents 11,464,088 11,219,224
Other receivables 232,474 811,675
Financial assets at fair value through profit or loss 399,585,043 315,890,482
------------------------------------------------------ ----------------- -----------------
Total assets 411,281,605 327,921,381
------------------------------------------------------ ----------------- -----------------
The Company is exposed to a potential material singular credit
risk in the event that it requests a repayment of the CSWs from the
Lux Subsidiary and receives an acceptance of that repayment
request. Under the CSW agreement between the Company and the Lux
Subsidiary, any payment obligation by the Lux Subsidiary to the
Company is conditional upon the receipt of an equivalent amount by
the Lux Subsidiary which is derived from the PPNs issued by BGCF.
The Board is aware of this risk and the concentration risk to the
Lux Subsidiary and indirectly to BGCF.
Additionally, under the Profit Participating Note Issuing and
Purchase Agreement ("PPNIPA") between the Lux Subsidiary and BGCF,
if the net proceeds from a liquidation of the collateral
obligations as defined in the PPNIPA available to unsecured
creditors of BGCF (the "Liquidation Funds") are less than the
aggregate amount payable by BGCF in respect of its obligations to
its unsecured creditors, including to the Lux Subsidiary and the
other parties to the PPNIPA (such negative amount being referred to
as a "shortfall"), the amount payable by BGCF to the Lux Subsidiary
and the other parties to the PPNIPA in respect of BGCF's
obligations under the PPNs will be reduced to such amount of the
Liquidation Funds which is available in accordance with the
regulatory requirements and the senior debt restrictive covenants
to satisfy such payment obligation upon the distribution of the
Liquidation Funds among all of BGCF's unsecured creditors on a pari
passu and pro rata basis, and shall be applied for the benefit of
the Lux Subsidiary and the other parties to the PPNIPA. In such
circumstances the other assets of BGCF will not be available for
the payment of such shortfall, and the rights of the Lux Subsidiary
and the other parties to the PPNIPA to receive any further amounts
in respect of such obligations shall be extinguished and the
Noteholders and the other parties to the PPNIPA may not take any
further action to recover such amounts.
The Company is exposed to credit risk on its investments in the
directly held CLOs. The directly held CLOs which formed part of the
Rollover Assets have been realised by the Portfolio Manager in a
manner that maximises the value from the Company's investments in
those directly held CLOs. Additionally, the Portfolio Manager
generally trades via the DTC or Euroclear, which on the whole,
limits counterparty risk.
During the years ended 31 December 2019 and 31 December 2018 all
cash was placed with BNP Paribas Securities S.C.A, as Custodian.
The ultimate parent of BNP Paribas Securities S.C.A is BNP Paribas
which is publicly traded with a credit rating of A (Standard &
Poor's).
The credit risk associated with debtors is limited to other
receivables. Credit risk is mitigated by the Company's policy to
only undertake significant transactions with leading commercial
counterparties. It is the opinion of the Board that the carrying
amounts of these financial assets represent the maximum credit risk
exposure as at the reporting date.
The Board continues to monitor the Company's exposure to credit
risk.
Refer to Note 12 which details BGCF's exposure to credit
risk.
10C Liquidity risk
Liquidity risk is the risk that the Company will encounter
difficulties in realising assets or otherwise raising funds to meet
financial commitments.
The Company has been established as a closed-ended vehicle.
Accordingly, there is no right or entitlement attaching to the
Company's shares that allows them to be redeemed or repurchased by
the Company at the option of the Shareholder. This significantly
reduces the liquidity risk of the Company.
Under the terms of the unsecured PPNs issued to its investors,
BGCF is contractually obliged to ensure that its portfolio is
managed in accordance with the Company's investment objective and
policy. In the event that BGCF fails to comply with these
contractual obligations, the Company, through the Lux Subsidiary,
could elect for the unsecured PPNs to become immediately due and
repayable to it from BGCF, subject to any applicable legal,
contractual and regulatory restrictions. Given the nature of the
investments held by BGCF there is no guarantee and indeed, it is
highly unlikely that the applicable legal, contractual and
regulatory restrictions would permit BGCF to immediately repay the
unsecured PPNs on the Company making such an election.
If the Company were to elect for the unsecured PPNs to be
repaid, BGCF's failure to fully comply with its contractual
obligations to do so or BGCF being restricted from doing so by law,
regulation or contract could have a significant adverse effect on
the Company's business, financial condition, results of operations
and/or the market price of the shares.
The PPNs are unsecured obligations of BGCF and amounts payable
on the PPNs will be made solely from amounts received in respect of
the assets of BGCF available for distribution to its unsecured
creditors. BGCF is permitted to incur leverage in the form of
secured debt by way of one or more revolving credit facilities.
Such secured debt will rank ahead of the PPNs in respect of any
distributions or payments by BGCF. In an enforcement scenario under
any revolving credit facility, the provider(s) of such facilities
will have the ability to enforce their security over the assets of
BGCF and to dispose of or liquidate, on their own behalf or through
a security trustee or receiver, the assets of BGCF in a manner
which is beyond the control of the Company. In such an enforcement
scenario, there is no guarantee that there will be sufficient
proceeds from the disposal or liquidation of BGCF's assets to repay
any amounts due and payable on the PPNs and this may adversely
affect the performance of the Company's business, financial
condition and results of operations.
Consequently, in the event of a materially adverse event
occurring in relation to BGCF or the market generally, the ability
of the Company to realise its investment and prevent the
possibility of further losses could, therefore, be limited by its
restricted ability to realise its investment via the Lux Subsidiary
in BGCF. This delay could materially affect the value of the PPNs
and the timing of when BGCF is able to realise its investments,
which may adversely affect the Company's business, financial
condition, results of operations and/or the market price of the
shares.
The directly held CLOs have been actively sold by the Portfolio
Manager to facilitate reinvestment into CSWs issued by the Lux
Subsidiary, which may in turn be reinvested into PPNs issued by
BGCF.
The liquidity profile of BGCF as at 31 December 2019 is in Note
12.
10C Liquidity risk
To meet the Company's target dividend, the Company will require
sufficient payments from the CSWs held and in the event these are
not received, the Board has the discretion to determine the amount
of dividends paid to Shareholders.
11 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 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 31 December 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 31 December 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 2019. Refer to Note 7 for further
details.
12 Financial and other information on BGCF
The Board has provided the following information on BGCF, which
has been extracted from its audited financial statements for the
year ended 31 December 2019, as it believes this will provide
further insight to the Company's Shareholders into the operations
of BGCF, the asset mix in its portfolio and the risks to which BGCF
is exposed.
As at 31 December 2019, the Lux Subsidiary held a 37.4% (31
December 2018: 40.1%) interest in the PPNs issued by BGCF. The
disclosures have not been apportioned according to the Lux
Subsidiary's PPN holding, as the Board believes to do so would be
misleading and not an accurate representation of the Company's
investment in BGCF.
Principal activities
BGCF was established as an originator vehicle under European
risk retention rules for CLO securitisations. It may also invest in
senior secured loans, either directly or indirectly through CLO
warehouses, and underlying companies. BGCF is funded by proceeds
from the issuance of PPNs together with other financial resources
available to it, such as the BGCF Facility.
Investment policy
BGCF'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. BGCF intends to pursue its investment policy
by using the proceeds from the issue of PPNs (together with
proceeds from other financial resources available to it) to invest
in such assets.
BGCF may invest (directly or through other Underlying Companies)
predominantly in European or US senior secured loans, CLO Income
Note securities, loan warehouses and other assets. Investments in
loan warehouses will typically be in the form of an obligation to
purchase preference shares or a subordinated loan. There is no
limit on the maximum European or US exposure. BGCF is not expected
to invest (directly or through other Underlying Companies) in
senior secured loans domiciled outside North America or Western
Europe.
A CLO is a pooled investment vehicle which may invest in a
diversified group of debt securities, in this case predominantly
senior secured loans. To finance its investments, the CLO vehicle
issues debt in the form of Senior Notes and CLO Income Note
securities to investors. The servicing and repayment of these notes
is linked directly to the performance of the underlying portfolio
of assets.
The portfolio of assets underlying the CLO Income Note
securities consist mainly of senior secured loans, mezzanine loans,
second lien loans and high yield bonds. The portfolio of assets
within the Underlying Company consists mainly of CLO Income Note
securities. Distributions on the CLO Income Note securities, by way
of interest payments, are payable on a quarterly basis on dates
established in the formation documents of the CLOs.
As at 31 December 2019 and 31 December 2018, BGCF had no
exposure to CLOs held as a vertical strip (as defined in the
Company's Investment Strategy).
Subsidiaries
BGCF has acquired the majority, or all, of the CLO Income Notes
issued by a number of European CLO issuers (the "Direct CLO
Subsidiaries"). CLO Income Noteholders are entitled to the residual
cash flows arising from the underlying assets of the CLOs. During
2019, the BGCF group corporate structure was updated with the
establishment of BGCM LLC and BGCM DAC. This change was in order
for US CLOs established in the BGCF structure to comply with the
European risk retention rules while improving operational
efficiency. BGCM LLC is a manager-originator to certain US CLOs for
European risk retention purposes.
As at 31 December 2019, the Parent Company holds 100% of the
profit participating notes issued by BGCM DAC, which in turn holds
100% of the Series 3 Interests of BGCM LLC. BGCM LLC holds
subordinated notes in two US Indirect CLO Subsidiaries, and Class A
preference shares in the US MOA.
The twenty-one European Direct CLO Subsidiaries are presented
below.
Name of subsidiary Currency Deal Size % Subordinated
(million) Equity Notes Held
31 December 2019
------------------- --------- ---------- ------------------
Phoenix Park CLO
DAC EUR EUR418 51.4%
Sorrento Park
CLO DAC EUR EUR415 51.8%
Castle Park CLO
DAC EUR EUR347 80.4%
Dartry Park CLO
DAC EUR EUR403 51.1%
Dorchester Park
CLO DAC USD $533 73.0%
Orwell Park CLO
DAC EUR EUR414 51.0%
Tymon Park CLO
DAC EUR EUR414 51.0%
Elm Park CLO DAC EUR EUR558 56.1%
Griffith Park
CLO DAC EUR EUR457 59.5%
Palmerston Park
CLO DAC EUR EUR415 62.2%
Clarinda Park
CLO DAC EUR EUR415 51.2%
Clontarf Park
CLO DAC EUR EUR414 66.9%
Willow Park CLO
DAC EUR EUR412 60.9%
Marlay Park CLO
DAC EUR EUR413 60.0%
Milltown Park
CLO DAC EUR EUR410 65.0%
Richmond Park
CLO DAC EUR EUR549 68.3%
Sutton Park CLO
DAC EUR EUR409 69.4%
Crosthwaite Park
CLO DAC EUR EUR513 66.7%
Dunedin Park CLO
DAC EUR EUR410 52.9%
Seapoint Park
CLO DAC EUR EUR406 73.8%
Holland Park CLO
DAC EUR EUR430 72.1%
------------------- --------- ---------- ------------------
The above subsidiaries are incorporated in Ireland.
BGCF has also acquired 100% of the PPNs issued by BGCM DAC,
which was established on 1 August 2019. BGCM DAC holds 100% of the
Series 3 interests of BGCM LLC, a US originator vehicle established
on 14 May 2019, which in turns holds Class A preference shares in
the US MOA, and subordinated notes in two US CLOs, Southwick Park
CLO Limited and Beechwood Park CLO Limited (the "Indirect CLO
Subsidiaries").
In accordance with IFRS 10, the Direct CLO Subsidiaries, the
Indirect CLO Subsidiaries, BGCM DAC and BGCM LLC, are all deemed to
be subsidiaries of BGCF and are consolidated under its financial
reporting framework. The directors of BGCF have determined that
BGCM LLC does not "control" the US MOA, as defined in IFRS 10, and
therefore, the US MOA has not been consolidated.
The Class A preference shares of the US MOA are held by BGCF
(through BGCM LLC) and another Blackstone entity to gain exposure
to US CLO securitisations. The establishment of BGCM LLC creates a
structure capable of meeting potential demand for US CLOs from
European institutional investors requiring compliance with European
risk retention rules. The US MOA invests in the CLO Income Notes of
US CLOs whose investments are focused predominantly in US senior
secured loans. As at 31 December 2019, the US MOA held the
following US CLOs: Gilbert Park CLO Limited , Dewolf Park CLO
Limited , Grippen Park CLO Limited , Stewart Park CLO Limited ,
Long Point Park CLO Limited , Thayer Park CLO Limited , Catskill
Park CLO Limited , Greenwood Park CLO Limited and Cook Park CLO
Limited .
BGCF also directly holds subordinated notes in US CLOs and
preference shares in the US CLO warehouses, which BGCF was not
responsible for originating. As at 31 December 2019, BGCF had
direct holdings in the following US CLOs and warehouses: Buckhorn
Park CLO Limited , Niagara Park CLO Limited , Fillmore Park CLO
Limited , Myers Park CLO Limited , Harbor Park CLO Limited and
Allegany Park CLO warehouse .
The directors of BGCF do not anticipate any change in the
structure or investment objectives of BGCF.
Valuation of financial instruments
As at 31 December 2019 and 2018, the loans held were broker
priced through Markit, and the bond investments were valued by
prices provided by IDC. The majority of these assets were
classified as Level 2 since the input into the Markit price
consisted of at least two quotes, however, a small number of
holdings priced through Markit consisted of only one quote. Such
assets were classified as Level 3. Both loans and bonds are priced
at current mid prices.
The CLO Income Notes issued by the Direct CLO Subsidiaries are
listed on Euronext and are valued by a third party. The approach to
valuing these CLO Income Notes incorporates CLO specific
information and modelling techniques. Factors include (i) granular
loan level data, such as the concentration and quality of various
loan level buckets, for example, second liens, covenant lites and
other structured product assets, as well as several other factors
including: discount rate, default rates, prepayment rates, recovery
rates, recovery lag and reinvestment spread (these factors are
highly sensitive and variations may materially affect the fair
value of the asset), and (ii) structural analysis on a deal by deal
basis. Pricing includes checks on all structural features of each
CLO, such as the credit enhancement of each bond and various
performance triggers (including over-collateralisation tests,
interest coverage and diversion tests). Furthermore, reinvestment
language specific to each CLO deal is assessed, as well as the
DFME's performance and capabilities.
Investments in CLO Income Notes of US CLO Issuers, held directly
or indirectly, are valued using an equivalent methodology. Similar
to the above, valuation of such CLO Income Notes uses significant
unobservable inputs and accordingly are classified as Level 3.
Investments in the CLO Income Notes of the Indirect CLO
Subsidiaries, Fillmore Park CLO Limited, Myers Park CLO Limited,
Harbor Park CLO Limited, Buckhorn Park CLO Limited and Niagara Park
CLO Limited, and in the preference shares of Allegany Park CLO
warehouse are measured at fair value and classified as Level 3.
The PPNs and debt issued by the CLO Subsidiaries are categorised
as Level 3, as they are valued using a model which is based on the
fair value of the underlying assets and liabilities of the relevant
entity.
The following tables analyse with the fair value hierarchy
BGCF's financial instruments carried at fair value as at 31
December 2019 and 31 December 2018:
31 December 2019 Level 1 Level 2 Level 3 Total
EUR EUR EUR EUR
-------------------------------------------------------------- ------- ----------- --------------- ---------------
Financial assets measured at fair value through profit or
loss:
- Investments in senior secured loans and bonds - 351,411,969 3,488,750 354,900,719
- Investments in CLO Income Notes - - 535,308,879 535,308,879
- Investment in BGCM DAC - - 282,791,684 282,791,684
- Derivative financial assets - 1,227,374 - 1,227,374
-------------------------------------------------------------- ------- ----------- --------------- ---------------
Total financial assets - 352,639,343 821,589,313 1,174,228,656
-------------------------------------------------------------- ------- ----------- --------------- ---------------
Financial liabilities measured at fair value through profit or
loss:
- PPNs - - (1,056,882,313) (1,056,882,313)
Total financial liabilities - - (1,056,882,313) (1,056,882,313)
-------------------------------------------------------------- ------- ----------- --------------- ---------------
31 December 2018 Level 1 Level 2 Level 3 Total
EUR EUR EUR EUR
----------------------------------------------------------------- ------- ------------ ------------- -------------
Financial assets measured at fair value through profit or loss:
- Investments in senior secured loans and bonds - 420,018,973 9,672,269 429,691,242
- Investments in CLO Income Notes - - 386,155,935 386,155,935
- Investment in US MOA - - 227,651,995 227,651,995
----------------------------------------------------------------- ------- ------------ ------------- -------------
Total financial assets - 420,018,973 623,480,199 1,043,499,172
----------------------------------------------------------------- ------- ------------ ------------- -------------
Financial liabilities measured at fair value through profit or
loss:
- PPNs - - (787,146,684) (787,146,684)
- Derivative financial liabilities - (13,953,422) - (13,953,422)
----------------------------------------------------------------- ------- ------------ ------------- -------------
Total financial liabilities - (13,953,422) (787,146,684) (801,100,106)
----------------------------------------------------------------- ------- ------------ ------------- -------------
The following table shows the movement in Level 3 of BGCF's fair
value hierarchy for the years ended 31 December 2019 and 31
December 2018:
31 December 2019 Financial assets measured at FVPL Financial liabilities measured at FVPL
EUR EUR
------------------------------------------- --------------------------------- --------------------------------------
Opening balance 623,480,199 (787,146,684)
Net gain /(loss) on financial assets and
liabilities measured at fair value through
profit
or loss 3,531,929 (2,379,953)
Purchases/Issuances 710,364,958 (267,355,676)
Sales/Redemptions (506,115,504) -
Movement out of Level 3 (9,672,269) -
Closing Balance 821,589,313 (1,056,882,313)
------------------------------------------- --------------------------------- --------------------------------------
31 December 2018 Financial assets measured at FVPL Financial liabilities measured at FVPL
EUR EUR
------------------------------------------- --------------------------------- --------------------------------------
Opening balance 494,092,635 (679,650,521)
Net (loss)/gain on financial assets and
liabilities measured at fair value through
profit
or loss (116,621,709) 136,795,409
Purchases/Issuances 614,869,040 (244,291,572)
Sales/Redemptions (364,958,693) -
Movement in to Level 3 7,287,142 -
Movement out of Level 3 (11,188,216) -
Closing Balance 623,480,199 (787,146,684)
------------------------------------------- --------------------------------- --------------------------------------
BGCF's policy is to recognise transfers into and transfers out
of fair value hierarchy levels as of the last day of the accounting
period. There were no transfers between Level 1 and Level 2 of the
fair value hierarchy during the years ended 31 December 2019 or 31
December 2018.
Sensitivity of BGCF Level 3 holdings to unobservable inputs
A number of holdings as at 31 December 2019 and 31 December 2018
were priced through Markit where the input into the Markit price
was only one price, so they were classified as Level 3. These loan
assets are not modelled on analysts' prices but are from dealers'
runs therefore there are no unobservable inputs into the
prices.
The CLO Income Notes and US MOA were valued by a third party
using a CLO intrinsic calculation methodology and were classified
as Level 3 because the valuation technique incorporates significant
unobservable inputs. The CLO prices are determined by consideration
of several factors including the following: default rates,
prepayment rates, recovery rates, recovery lag and reinvestment
spread. These factors are highly sensitive, and variations may
materially affect the fair value of the asset. These metrics are
accumulated from various market sources independent of DFME.
Additionally, valuation incorporates a review of each CLO indenture
and the latest underlying CLO loan portfolio forming various
projections based on the quality of the collateral, DFME's
capabilities and general macroeconomic conditions. The sensitivity
of the fair values of the CLO Notes, in particular CLO Income Notes
to the traditional risk variables measured separately including
market risk and interest rate risk may not be the most appropriate
analysis for this asset class. The sensitivity to valuation
assumptions including interest rates has an interdependent impact
with other significant market variables as noted in the assumptions
used for valuing CLO Income Notes.
The assets classified as Level 3 represented 70.00% (2018:
59.75%) of the total financial assets. If the price of the holdings
classified as Level 3 increased or decreased by 5% it would result
in an increase or decrease in the value of the financial assets of
EUR 41,079,466 (3.50% of the total financial assets) (2018: EUR
31,174,010 (2.99% of the total financial assets)). There also would
be an equal and opposite effect on the valuation of the PPNs
(3.50%) (2018: (3.59%)).
The financial liabilities at fair value through profit or loss
consist of the PPNs. The PPNs are valued using a model based on the
fair value of the underlying assets and liabilities. If the value
of the underlying assets or liabilities changes then there would be
an equal and opposite effect on the valuation of the PPNs.
Financial instruments and associated risks
The Lux Subsidiary holds one investment in BGCF in the form of
PPNs. The PPNs are the main driver of the Lux Subsidiary's
performance and consequently that of the Company. The performance
of the PPNs is driven solely by the underlying portfolio of BGCF
and therefore consideration of the risks to which BGCF is exposed
to have also been made.
Market risk
Market risk is the current or prospective risk to earnings or
capital of BGCF arising from changes in interest rates, foreign
exchange rates, commodity prices or equity prices. Market risk
embodies the potential for both losses and gains.
Market price risk arises mainly from uncertainty about future
prices of financial instruments held. It represents the potential
loss BGCF might suffer through holding market positions in the face
of price movements caused by factors specific to the individual
investment or factors affecting all instruments traded in the
market. In addition, local, regional or global events may have a
significant impact on BGCF and the price of its investments.
As all of the financial instruments are carried at fair value
through profit or loss, all changes in market conditions will
directly impact the valuation of the PPNs.
(i) Currency risk
Foreign currency risk arises as the value of future
transactions, recognised monetary assets and monetary liabilities
denominated in other currencies may fluctuate due to changes in
foreign exchange rates. Foreign exchange exposure relating to
non-monetary assets and liabilities is considered to be a component
of market price risk, not foreign currency risk.
BGCF's financial statements are denominated in Euro, though
investments in the US MOA, US CLO warehouses, US CLOs, and senior
secured loans and bonds are made and realised in other currencies.
Changes in rates of exchange may have an adverse effect on the
value, price or income of the investments of BGCF.
DFME monitors foreign currency risk on a periodic basis.
Typically, derivative contracts serve as components of BGCF's asset
hedging program and are utilised primarily to reduce foreign
currency risk to BGCF's investments. Foreign currency risk on
non-base currency loans and bonds is minimised by the leveraged
structure of BGCF and by the use of the multi-currency BGCF
Facility to draw down funds. Non-base GBP and USD investments are
funded by use of the corresponding currency leverage of the BGCF
Facility which creates a matching of asset and liability currency
risk and minimising the impact of fluctuations in exchange rates.
Rolling currency forwards are used to manage the foreign currency
exposure of the preference shares of the US MOA and the US CLO
warehouses, the CLO Income Notes of the US CLOs held directly and
indirectly by BGCF, Dorchester Park CLO DAC and the Indirect CLO
Subsidiaries denominated in foreign currencies. The market value of
these USD positions is hedged by offsetting USD forward notional
amounts to ensure BGCF is fully hedged.
The following table sets out BGCF's total exposure to foreign
currency risk and the net exposure to foreign currencies of the
monetary assets and liabilities as at 31 December 2019 and 31
December 2018:
31 December 2019 British United States Euro Total
Pound Dollars
EUR EUR EUR EUR
----------------------------- ------------ ------------- --------------- ---------------
Investments in senior
secured loans and
bonds 12,420,354 3,966,459 338,513,906 354,900,719
Investments in CLO
Income Notes - 158,782,181 376,526,698 535,308,879
Investment in BGCM
DAC - 282,791,684 - 282,791,684
BGCF Facility (18,444,833) (11,151,480) (215,079,752) (244,676,065)
Derivative financial
assets and liabilities - 1,227,374 - 1,227,374
Cash and cash equivalents 5,578,229 5,918,399 61,423,469 72,920,097
PPNs - - (1,056,882,313) (1,056,882,313)
Other assets and liabilities 2,246,394 16,502,400 35,666,191 54,414,985
----------------------------- ------------ ------------- --------------- ---------------
Net exposure 1,800,144 458,037,017 (459,831,801) 5,360
----------------------------- ------------ ------------- --------------- ---------------
Sensitivity 10% 180,014 45,803,702
----------------------------- ------------ ------------- --------------- ---------------
31 December 2018 British United States Euro Total
Pound Dollars
EUR EUR EUR EUR
----------------------------- ------------ ------------- ------------- -------------
Investments in senior
secured loans and
bonds 35,301,146 - 394,390,096 429,691,242
Investments in CLO
Income Notes - 114,595,191 271,560,744 386,155,935
Investment in US MOA - 227,651,995 - 227,651,995
BGCF Facility (43,583,090) (28,094,832) (223,079,753) (294,757,675)
Derivative financial
assets and liabilities - (13,953,422) - (13,953,422)
Cash and cash equivalents 1,646,363 15,242,023 53,666,468 70,554,854
PPNs - - (787,146,684) (787,146,684)
Other assets and liabilities 8,010,575 (302,592,381) 276,390,021 (18,191,785)
----------------------------- ------------ ------------- ------------- -------------
Net exposure 1,374,994 12,848,574 (14,219,108) 4,460
----------------------------- ------------ ------------- ------------- -------------
Sensitivity 10% 137,499 1,284,857
----------------------------- ------------ ------------- ------------- -------------
Sensitivity analysis - BGCF
At 31 December 2019 and 2018, had the Euro strengthened by 10%
(2018: 10%) in relation to all currencies, with all other variables
held constant, the net asset / liability exposure would have
increased by the amounts shown above for BGCF. There would be no
impact on the total comprehensive income of BGCF because the
finance expense on financial liabilities would move in the opposite
direction and cancel the effect of the foreign exchange
movement.
A 10% weakening of the base currency, against GBP and US Dollar,
would have resulted in an equal but opposite effect than that on
the tables above, on the basis that all other variables remain
constant. These calculations are based on historical data. Future
currency movements and correlations between holdings could vary
significantly from those experienced in the past.
(ii) Interest rate risk
Interest rate risk arises from the effects of fluctuations in
the prevailing levels of market interest rates on the fair value of
financial assets and liabilities and future cash flow.
The PPNs issued by BGCF are limited recourse obligations and are
valued based on the fair value of the underlying assets and
liabilities. As the interest attached to the PPNs is based on the
income earned by BGCF, any fluctuations in the prevailing level of
market interest rates that negatively affect the fair value of the
underlying financial assets will result in an offsetting decrease
in the fair value of the PPNs.
The interest rate risk associated with cash and cash equivalents
is deemed to be insignificant.
The following table details BGCF's exposure to interest rate
risk as at 31 December 2019. It includes the carrying value of
BGCF's assets and liabilities at fair values, categorised by the
type of interest rate attached to the assets and liabilities,
whether it be floating rate, fixed or non-interest bearing:
31 December 2019 Floating rate Fixed rate Non-interest Total
bearing
EUR EUR EUR EUR
--------------------------------------------------------- --------------- ---------- ------------- ---------------
Financial assets measured at fair value through profit or
loss:
- Investments in senior secured loans and bonds 337,939,901 16,960,818 - 354,900,719
- Investments in CLO Income Notes 535,308,879 - - 535,308,879
- Investment in BGCM DAC 282,791,684 - - 282,791,684
- Derivative financial assets 1,227,374 - - 1,227,374
Receivable for investments sold - - 253,971,470 253,971,470
Other receivables - - 29,965,349 29,965,349
Cash and cash equivalents 72,920,097 - - 72,920,097
--------------------------------------------------------- --------------- ---------- ------------- ---------------
Total assets 1,230,187,935 16,960,818 283,936,819 1,531,085,572
--------------------------------------------------------- --------------- ---------- ------------- ---------------
Financial liabilities measured at fair value through
profit or loss:
- PPNs (1,056,882,313) - - (1,056,882,313)
BGCF Facility (244,676,065) - - (244,676,065)
Payable for investments purchased - - (226,523,038) (226,523,038)
Other payables and accrued expenses - - (2,998,796) (2,998,796)
--------------------------------------------------------- --------------- ---------- ------------- ---------------
Total financial liabilities (1,301,558,378) - (229,521,834) (1,531,080,212)
--------------------------------------------------------- --------------- ---------- ------------- ---------------
Total interest sensitivity gap (71,370,443) 16,960,818
--------------------------------------------------------- --------------- ---------- ------------- ---------------
The following table details BGCF's exposure to interest rate
risk as at 31 December 2018. It includes the carrying value of
BGCF's assets and liabilities at fair values, categorised by the
type of interest rate attached to the assets and liabilities,
whether it be floating rate, fixed or non-interest bearing:
31 December 2018 Floating rate Fixed rate Non-interest Total
bearing
EUR EUR EUR EUR
--------------------------------------------------------- --------------- ---------- ------------- ---------------
Financial assets measured at fair value through profit or
loss:
- Investments in senior secured loans and bonds 429,691,242 - - 429,691,242
- Investments in CLO Income Notes 386,155,935 - - 386,155,935
- Investment in US MOA - - 227,651,995 227,651,995
Receivable for investments sold - - 179,473,198 179,473,198
Other receivables - - 28,829,516 28,829,516
Cash and cash equivalents 70,554,854 - - 70,554,854
--------------------------------------------------------- --------------- ---------- ------------- ---------------
Total assets 886,402,031 - 435,954,709 1,322,356,740
--------------------------------------------------------- --------------- ---------- ------------- ---------------
Financial liabilities measured at fair value through
profit or loss:
- PPNs (787,146,684) - - (787,146,684)
- Derivative financial liabilities (13,953,422) - - (13,953,422)
BGCF Facility (294,757,675) - - (294,757,675)
Payable for investments purchased - - (224,077,820) (224,077,820)
Other payables and accrued expenses - - (2,416,679) (2,416,679)
--------------------------------------------------------- --------------- ---------- ------------- ---------------
Total financial liabilities (1,095,857,781) - (226,494,499) (1,322,352,280)
--------------------------------------------------------- --------------- ---------- ------------- ---------------
Total interest sensitivity gap (209,455,750) -
--------------------------------------------------------- --------------- ---------- ------------- ---------------
Sensitivity analysis
At 31 December 2019, had the base interest rates
strengthened/weakened by 2% (2018: 2%) in relation to all holdings
subject to interest with all other variables held constant, the
finance income would increase/decrease by EUR 1,088,193 (2018: EUR
4,534,207) which would subsequently impact the amount available for
distribution as finance expense. There would be no impact on the
total comprehensive income of BGCF. The interest rate sensitivity
information is a relative estimate of risk and is not intended to
be a precise and accurate number. The calculations are based on
historical data. Future price movements and correlations between
securities could vary significantly from those experienced in the
current financial year.
(iii) Price risk
Price risk is the risk that the value of investments will
fluctuate as a result of changes in market prices (other than those
arising from currency risk and interest rate risk) whether caused
by factors specific to an individual investment, its issuer or all
factors affecting all investments traded in the market.
BGCF attempts to mitigate asset pricing risk by using external
pricing and valuation sources and by permitting DFME, subject to
certain requirements, to sell collateral obligations and reinvest
the proceeds. DFME actively monitors the assets within each CLO to
ensure that they do not breach the collateral quality tests and
portfolio profile tests. Where possible, prices are received from
brokers on a monthly basis. Broker prices for loans are sourced
from Markit, a composite price provider, and broker prices for
bonds are sourced from IDC.
Credit risk
Credit risk is the current or prospective risk to earnings and
capital arising from a counterparty's failure to meet the terms of
any contract with BGCF, or otherwise fail to perform as agreed. The
receipt of monies owed will be subject to and dependent on the
counterparty's ability to pay such monies.
BGCF is therefore open to risks relating to the creditworthiness
of the counterparty. If the counterparty fails to make any cash
payments required to settle an investment, BGCF may lose principal
as well as any anticipated benefit from the transaction.
Credit risk in financial instruments arises from cash and cash
equivalents and investments in debt securities, as well as credit
exposures of transactions with brokers related to transactions
awaiting settlement (i.e. receivable for investment sold and other
receivables).
DFME, through its investment strategy, will endeavor to avoid
losses relating to defaults on the underlying assets. In-house
credit research is used to identify asset allocation opportunities
amongst potential borrowers and industry segments and to take
advantage of episodes of market mis-pricing. Segments and themes
that are likely to be profitable are subjected to rigorous analysis
and risk is allocated to these opportunities consistent with
investment objectives. All transactions involve credit research
analysts with relevant industry sector experience.
The credit analysis performed involves developing a full
understanding of the business and associated risk of the loan or
bond issuer and a full analysis of the financial risk, which leads
to an overall assessment of credit risk. DFME analyses credit
concentration risk based on the counterparty, country and industry
of the financial assets that BGCF holds.
At the reporting date, BGCF's financial assets exposed to credit
risk are as follows:
BGCF 31 December 31 December
2019 2018
EUR EUR
---------------------------------------- ------------- -------------
Financial assets measured at fair value
through profit or loss 1,173,001,282 1,043,499,172
Derivative financial assets 1,227,374 -
Receivables for investments sold 253,971,470 179,473,198
Other receivables 29,965,349 28,829,516
Cash at bank 72,920,097 70,554,854
---------------------------------------- ------------- -------------
Total 1,531,085,572 1,322,356,740
---------------------------------------- ------------- -------------
Amounts in the above tables are based on the carrying value of
the financial assets as at the reporting date.
Financial assets measured at fair value through profit or
loss
BGCF's investment policy is to invest predominantly in:
(i) a diverse portfolio of senior secured loans (including
broadly syndicated, middle market or other loans);
(ii) CLO Income Notes issued by the Issuer CLOs whose
investments will be focused predominantly in European and US senior
secured loans; and
(iii) US CLO Income Notes (held directly or indirectly) whose
investments are focused predominantly in US senior secured
loans.
The investments in senior secured loans and bonds held directly
by BGCF had the following credit quality as rated by Moody's:
[Graphs and charts are included in the published Annual Report
and Audited Financial Statements which is available on the
Company's website at
https://www.blackstone.com/our-businesses/registered-products#c=blackstone-gso-loan-financing-limited
]
The senior secured loans and bonds held directly by BGCF are
concentrated in the following industries:
[Graphs and charts are included in the published Annual Report
and Audited Financial Statements which is available on the
Company's website at
https://www.blackstone.com/our-businesses/registered-products#c=blackstone-gso-loan-financing-limited
]
In addition to the senior secured loans and bonds held directly,
BGCF invests in CLO Income Notes issued by European and US CLO
Issuers whose investments are focused predominantly in European and
US senior secured loans. Each CLO's investment activities are
restricted by its prospectus and the CLOs have narrow and
well-defined objectives to provide investment opportunities to
investors. In order to avoid excessive concentration of risk, the
policies and procedures of each CLO include specific guidelines to
focus on maintaining a diversified portfolio. As CLO Income
Noteholder in the CLO Issuers, BGCF is exposed to the credit risk
on the underlying senior secured loans and bonds held by the CLOs.
In addition, the CLO Notes are limited recourse obligations of the
CLO Issuers which are payable solely out of amounts received by the
CLO in respect of the financial assets held.
The underlying investments in senior secured loans and bonds
recognised as financial assets of BGCF's Direct CLO Subsidiaries
had the following credit quality as rated by Moody's:
[Graphs and charts are included in the published Annual Report
and Audited Financial Statements which is available on the
Company's website at
https://www.blackstone.com/our-businesses/registered-products#c=blackstone-gso-loan-financing-limited
]
The senior secured loans and bonds held by the Direct CLO
Subsidiaries of BGCF are concentrated in the following
industries:
[Graphs and charts are included in the published Annual Report
and Audited Financial Statements which is available on the
Company's website at
https://www.blackstone.com/our-businesses/registered-products#c=blackstone-gso-loan-financing-limited
]
The underlying investments in senior secured loans and bonds
recognised as financial assets of the Indirect CLO Subsidiaries of
BGCF had the following credit quality as rated by Moody's:
[Graphs and charts are included in the published Annual Report
and Audited Financial Statements which is available on the
Company's website at
https://www.blackstone.com/our-businesses/registered-products#c=blackstone-gso-loan-financing-limited
]
The senior secured loans and bonds held by the Indirect CLO
Subsidiaries are concentrated in the following industries:
[Graphs and charts are included in the published Annual Report
and Audited Financial Statements which is available on the
Company's website at
https://www.blackstone.com/our-businesses/registered-products#c=blackstone-gso-loan-financing-limited
]
D uring the year, BGCF held (directly and indirectly through the
US MOA) CLO Income Notes in US CLOs. Accordingly, BGCF is exposed
to the credit risk on the underlying US senior secured loans and
bonds held by such US CLOs. In addition, the CLO Income Notes are
limited recourse obligations of the US CLOs which are payable
solely out of amounts received by the US CLO in respect of the
financial assets held.
The underlying investments in senior secured loans and bonds
recognised as financial assets of the US CLOs (held directly by
BGCF and indirectly through the US MOA) had the following credit
quality as rated by Moody's:
[Graphs and charts are included in the published Annual Report
and Audited Financial Statements which is available on the
Company's website at
https://www.blackstone.com/our-businesses/registered-products#c=blackstone-gso-loan-financing-limited
]
The underlying financial assets of the US CLOs (held directly by
BGCF and indirectly through the US MOA) exposed to credit risk were
concentrated in the following industries:
[Graphs and charts are included in the published Annual Report
and Audited Financial Statements which is available on the
Company's website at
https://www.blackstone.com/our-businesses/registered-products#c=blackstone-gso-loan-financing-limited
]
Liquidity risk
Liquidity is the risk that BGCF may not be able to meet its
financial obligations as they fall due. The ability of BGCF to meet
its obligations is dependent on the receipt of interest and
principal from the underlying collateral portfolios. Obligations
may arise from: financial liabilities at fair value, payable for
investments purchased, BGCF Facility, interest payable on CLO
Income Notes, derivative financial liabilities, other payables and
accrued expenses.
At reporting date, the financial obligations exposed to
liquidity risk are as follows:
Financial liabilities measured at fair value through profit or
loss
Financial liabilities at fair value comprise PPNs issued by
BGCF.
All PPNs issued are limited recourse. The recourse of the
noteholders, which includes BGLF, is limited to the proceeds
available to unsecured creditors at such time from the debt
obligations, CLO Income Notes and other obligations which comply
with the investment policy. Therefore, from the perspective of
BGCF, the associated liquidity risk of the PPNs is reduced.
13 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.
The Board, who is the chief operating decision maker, classified
the Company into two operating segments - the Ordinary Share Class
and the C Share Class - following completion of the Rollover Offer,
in the Half Yearly Financial Report for the six months ended 30
June 2019.
Following the substantial sale of relevant assets acquired under
the C Share rollover process and EUR62.6 million (representing
85.8% of the value of the assets in the C Share class) reinvested
into CSWs in the Lux Subsidiary and subsequently into PPNs in BGCF,
the Board classified the Company into one operating segment and
resolved to convert the C Shares into Ordinary Shares. The
calculation of the conversion ratio of the C Shares into Ordinary
Shares was undertaken using the NAVs as at 29 November 2019. The
Board also considered that any performance on the remaining
directly held CLO assets post 29 November 2019 was captured through
the combined pool of assets in one operating segment, given the
ratio had been fixed.
However, given the two operating segments operated throughout
most of the year, the Board considered it to be appropriate to
disclose the performance of both the Ordinary Share and C Share
Classes in the financial statements.
During the years ended 31 December 2019 and 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.
14 Basic and diluted earnings / (loss) per Share
As at As at
31 December 2019 31 December 2018
EUR EUR
---------------------------------------------------------------------- ----------------- -----------------
Total comprehensive income/(loss) for the year - Ordinary Share class 59,154,271 (12,683,130)
Weighted average number of shares during the year 403,337,994 404,700,446
Basic earnings/(loss) per Ordinary Share 0.1467 (0.0313)
---------------------------------------------------------------------- ----------------- -----------------
As at As at
31 December 2019 31 December 2018
EUR EUR
-------------------------------------------------------- ----------------- -----------------
Total comprehensive income for the year - C Share class 452,561 -
Weighted average number of shares during the period 133,451,107 -
Basic earnings per C Share 0.0034 -
-------------------------------------------------------- ----------------- -----------------
As at As at
31 December 2019 31 December 2018
EUR EUR
-------------------------------------------------- ----------------- -----------------
Total comprehensive income/(loss) for the year 59,154,271 (12,683,130)
Weighted average number of shares during the year 410,194,090 404,700,446
Diluted earnings/(loss) per Ordinary Share 0.1453 (0.0313)
-------------------------------------------------- ----------------- -----------------
The weighted average number of shares, 410,194,090, has been
calculated by incorporating 78,202,348 Ordinary Shares on 29
November 2019 as a result of the Company announcing the Conversion
ratio of 0.5860 on the LSE on 20 December 2019 and as further
detailed in note 9.
15 Net asset value per Ordinary Share
As at As at
31 December 2019 31 December 2018
EUR EUR
---------------------------------------- ----------------- -----------------
IFRS Net asset value 410,505,991 326,387,144
Number of Ordinary Shares at year end 480,521,838 404,700,446
IFRS Net asset value per Ordinary Share 0.8543 0.8065
---------------------------------------- ----------------- -----------------
The 'Number of Ordinary Shares at year end' of 480,521,838 has
been calculated as follows:
As at
31 December 2019
C Shares 133,451,107
Conversion ratio (as detailed in note 9) 0.5860
New Ordinary Shares 78,202,348
Add: Existing Ordinary Shares 402,319,490
Number of Ordinary Shares at year end 480,521,838
----------------------------------------- -----------------
16 Reconciliation of Published NAV to IFRS NAV per the financial statements
As at As at
31 December 2019 31 December 2018
NAV NAV per share NAV NAV per share
EUR EUR EUR EUR
------------------------------------------- ------------- ------------- ------------- -------------
Published NAV attributable to Shareholders 441,434,524 0.9187 362,725,238 0.8963
Adjustment - valuation (30,928,533) (0.0644) (36,028,424) (0.0890)
Adjustment - accrued expenses - - (309,670) (0.0008)
IFRS NAV 410,505,991 0.8543 326,387,144 0.8065
------------------------------------------- ------------- ------------- ------------- -------------
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 table reconciles the
Published NAV to the IFRS NAV per the financial statements.
17 Reconciliation of liabilities arising from financing activities
As at As at
31 December 2019 31 December 2018
EUR EUR
------------------------------ ----------------- -----------------
Opening balance 237,057 -
Increase in intercompany loan 297,603 237,057
Closing balance 534,660 237,057
------------------------------ ----------------- -----------------
18 Related party transactions
All transactions between related parties were conducted on terms
equivalent to those prevailing in an arm's length transaction. In
accordance with IAS 24 "Related Party Disclosures", the related
parties and related party transactions during the year
comprised:
Transactions with entities with significant influence
As at 31 December 2019, Blackstone Asia Treasury Pte, an
affiliate of DFME, 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 31 December 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.
The Company entered into the Rollover Offer during the year with
CIF. Refer to the C Shares section for further details.
Transactions with Subsidiaries
The Company held 319,758,584 CSWs as at 31 December 2019 (31
December 2018: 291,343,213) following the issuance of 64,524,232
and redemption of 36,108,861 CSWs by the Lux Subsidiary. Refer to
Note 6 for further details.
As at 31 December 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 31 December 2019, the Company held an intercompany loan
payable to the Lux Subsidiary amounting to EUR534,660 (31 December
2018: EUR237,057).
19 Controlling party
In the Directors' opinion, the Company has no ultimate
controlling party.
20 Events after the reporting period
The Board has evaluated subsequent events for the Company
through to 19 May 2020, the date the 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.
Completion of C Share Conversion
On 7 January 2020, the Company announced the completion of the C
Share Conversion and on the same day, that the Company's issued
share capital consists of 480,521,838 Ordinary Shares of no par
value and the total number of voting rights is 480,521,838, and
additionally that the Company also holds 2,380,956 Ordinary Shares
in treasury.
COVID-19
As detailed in the Chair's Statement, COVID-19 has adversely
impacted global commercial activity and has contributed to
significant volatility in financial markets. The Company's share
price decreased from EUR0.8250 as at 31 December 2019 to a low of
EUR0.4500 as at 24 March 2020 before slowly recovering to EUR0.4850
as at 31 March 2020, which represented a share price YTD return of
(39.42)%. The share price at 15 May 2020 was EUR0.5500 (share price
YTD of (29.43)%). The Company's Published NAV (refer to the
Reconciliation of IFRS NAV to Published NAV section above for
detail on Published NAV policy) also fell from EUR0.9187 as at 31
December 2019 to EUR0.7663 as at 31 March 2020. This represented a
Published NAV YTD return of (14.27)%. The Company is exposed either
directly or indirectly (through CLO equity) to US and European Loan
Markets. The Q1 YTD return for the Credit Suisse Leveraged Loan
Index and the Western European Leveraged Loan Index (hedged to EUR)
was (13.19)% and (14.03)% respectively, while the YTD return to 14
May 2020 was (8.69)% and (7.44)%% respectively. The significant
decrease in the share price, Published NAV, Credit Suisse Leveraged
Loan Index and the Western European Leveraged Loan Index occurred
from the month of March 2020 as the COVID-19 disease spread
throughout the world.
Metric 31 December 2019 31 March 2020 15 May 2020
YTD YTD YTD
------------------------------------------------------ ---------------- ------------- -----------
Share Price +18.97% (39.42)% (29.43)%
Published NAV +14.46% (14.27)% (14.27)%*
Credit Suisse Leveraged Loan Index +8.17% (13.19)% (8.69)%**
------------------------------------------------------ ---------------- ------------- -----------
Western European Leveraged Loan Index (hedged to EUR) +5.03% (14.03)% (7.44)%**
------------------------------------------------------ ---------------- ------------- -----------
* As at 31 March 2020.
** As at 14 May 2020.
The Published NAV referred to above is prepared under a
different basis to that used for the IFRS NAV (refer to the
Reconciliation of IFRS NAV to Published NAV section above for
detail on IFRS NAV policy). IFRS NAVs are prepared on a semi-annual
basis for the interim and annual financial statements only.
Therefore, it is not possible to provide a like for like
comparative as at 31 March 2020.
As explained above, the Portfolio Adviser undertook a detailed,
bottom-up review of all c.970 companies within its portfolios to
determine the potential impact of COVID-19 on the performance of
these businesses. The Portfolio Adviser focused not only on those
sectors that have been directly impacted by COVID-19, including
hotels, gaming and leisure, transportation, retail, automotive, and
energy, but the entire universe of industries within its
portfolios. The results of this exercise have allowed the Portfolio
Adviser to consider the likely impact on cashflows generated by the
Company's investments in directly held CLOs and those held
indirectly through BGCF. This impact assessment has enabled the
Board and the Portfolio Adviser to assess the sustainability of the
Company's dividend in the short-term. The medium- and long-term
impacts of the global pandemic remain uncertain. However, in the
short-term, rating agency downgrades and corporate defaults of
companies within the Portfolio Adviser's portfolios may lead to
temporary cashflow diversions away from subordinate note
distributions as a result of breaches in interest diversion and/or
over-collateralisation ratios within a number of CLOs to which the
Company has exposure (through BGCF).
The Portfolio Adviser has already taken numerous steps to seek
to mitigate the impact of COVID-19 on the performance of its
portfolios and will continue to monitor the rapidly evolving
economic environment to identify risks and opportunities.
The Board considered the outbreak of COVID-19 in 2020 to be a
non-adjusting event and, therefore, no further adjustments were
necessary to these financial statements.
Dividend Policy and Dividends
On 21 January 2020, the Board declared a dividend of EUR0.025
per Ordinary Share in respect of the period from 1 October 2019 to
31 December 2019 with an ex-dividend date of 30 January 2020. A
total payment of EUR12,013,045 was processed on 28 February
2020.
On 23 April 2020, the Board announced that it decided to adjust
its dividend policy for the calendar year 2020 pursuant to the
comprehensive discussions between the Board and DFME regarding the
portfolio review and uncertain near-term outlook due to COVID-19.
In making this decision, the Board took into account the potential
impact of COVID-19 while also recognising the importance of
dividends to its Shareholders.
The Board announced that the Company has adopted a revised
dividend policy targeting a total 2020 annual dividend of between
EUR0.06 and EUR0.07 per Ordinary Share, which will consist of
quarterly payments of EUR0.015 per Ordinary Share for the first
three quarters and a final quarter payment of a variable amount to
be determined at that time.
The Board will keep the dividend policy under close review and
may adjust the target dividend up or down as the impact of the
pandemic unfolds.
On the same day, the Board declared a dividend of EUR0.015 per
Ordinary Share in respect of the period from 1 January 2020 to 31
March 2020 with an ex-dividend date of 30 April 2020. The dividend
is payable on 29 May 2020.
BREXIT
On 31 January 2020, the United Kingdom exited the European Union
and entered into a transition period up to 31 December 2020. Refer
to further details on Brexit in the Risk Overview section.
Appointment of Joint Broker
On 4 March 2020, the Board announced that Winterflood Securities
Limited had been appointed as joint corporate broker and joint
financial adviser with immediate effect. Winterflood Securities
Limited would act alongside Nplus1 Singer Advisory LLP.
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
------------------------------------------------------------- --------------------------------------
Administrator / Company Secretary / Custodian / Depositary Auditor
------------------------------------------------------------- --------------------------------------
BNP Paribas Securities Services S.C.A. Deloitte LLP
IFC 1 Gaspé House
The Esplanade 66-72 Esplanade
St Helier St Helier
Jersey JE2 3QT
JE1 4BP, Channel Islands Channel Islands
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
Joint Broker Joint Broker (from 4 March 2020)
Nplus1 Singer Advisory LLP Winterflood Securities Limited
1 Bartholomew Lane The Atrium Building
London, EC2N 2AX , United Kingdom Cannon Bridge House, 25 Dowgate Hill
London, EC4R 2GA, United Kingdom
Joint Broker (to 30 June 2019)
Fidante Partners Europe Limited (trading as Fidante Capital)
1 Tudor Street
London, EC4Y 0AH, United Kingdom
-------------------------------------------------------------
Glossary
"AGM"Glossary Annual General Meeting
"AIC" the Association of Investment Companies,
of which the Company is a member
"AIC Code" AIC Code of Corporate Governance 2019
"APMs" Alternative Performance Measures
"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)
"BGCM LLC" Blackstone / GSO CLO Management LLC
"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
"CIFU" Carador Income Fund plc
"CSWs" Cash Settlement Warrants
"CLO" Collateralised Loan Obligation
"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
"DTC" Depositary Trust Company
"DTR" Disclosure Guidance and Transparency Rules
"Discount" / "Premium" calculated as the NAV per share as at
a particular date 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 relevant date
"ECB" European Central Bank
"ESG" Environmental, social and governance
"EU" European Union
"FAFVPL" Financial assets at fair value through
profit or loss
"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
"IDC" International Data Corporation
"IFRS" International Financial Reporting Standards
"IFRS 10" IFRS 10 Consolidated Financial Statements
"IFRS NAV" Gross assets less liabilities (including
accrued but unpaid fees) determined in
accordance with IFRS as adopted by the
EU
"IMF" International Monetary Fund
"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.
"MoM" Month-over-month
"NAV" Net asset value
"NAV total return per Calculated as the increase / decrease
Ordinary share" in the NAV per Ordinary share plus the
total dividends paid per Ordinary share
during the period, with such dividends
paid being re-invested at NAV, as a percentage
of the NAV per Ordinary share
"NIM" Net interest margin
"OC" Overcollateralization
"OCI" Other Comprehensive Income
"PMIs" Purchasing Managers' Indices
"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 Euro Ordinary share plus the
total dividends paid per Euro Ordinary
share, with such dividends paid being
re-invested at NAV, as a percentage of
the NAV per Euro Ordinary share.
LTM return is calculated over the period
January 2019 to December 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
"RP" Reinvestment period
"SFS" Specialist Fund Segment
"UK Code" UK Corporate Governance Code 2018
"USD" United States Dollar
"US MOA" United States Majority Owned Affiliate
- Blackstone / GSO US Corporate Funding
Limited
"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
The person responsible for arranging for the release of this
announcement on behalf of the Company is Melissa Le Cheminant of
BNP Paribas Securities Services S.C.A., Jersey Branch, Company
Secretary.
IFC1 - The Esplanade - St Helier - Jersey - JE1 4BP
Company Secretary
Tel: +44 (0) 1534 813873
A copy of the Company's Annual Financial Report will be
available shortly from the Company Secretary, (BNP Paribas
Securities Services S.C.A., Jersey Branch, IFC1, The Esplanade, St
Helier, Jersey, JE1 4BP), or will be circulated on the Company's
website.
Neither the contents of the Company's website nor the contents
of any website accessible from hyperlinks on the Company's website
(or any other website) is incorporated into, or forms part of, this
announcement.
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
FR FLFILELIALII
(END) Dow Jones Newswires
May 19, 2020 08:28 ET (12:28 GMT)
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