TIDMBGLF
RNS Number : 6410Z
Blackstone / GSO Loan Financing Ltd
21 September 2020
21 SEPTEMBER 2020
HALF- YEARLY RESULTS FOR THE SIX MONTHSED 30 JUNE 2020
STRATEGIC REPORT
Reconciliation of IFRS NAV to Published NAV
At 30 June 2020, there was a difference between the NAV per
Ordinary Share as disclosed in the Condensed Statement of Financial
Position, EUR0.7204 per Ordinary Share, ("IFRS NAV") and the
published NAV, EUR0.8179 per Ordinary Share, which was released to
the LSE on 21 July 2020 ("Published NAV"). A reconciliation is
provided in Note 14. 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 small 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 (1)
IFRS NAV Published NAV
NAV (1) EUR0.7204 EUR0.8179
(31 Dec 2019: EUR0.8543) (31 Dec 2019: EUR0.9187)
NAV total return (11.67)% (6.73)%
(1)
(31 Dec 2019: 18.31%) (31 Dec 2019: 14.46%)
Discount (1) (7.00)% (18.08)%
(31 Dec 2019: (3.43)%) (31 Dec 2019: (10.20)%)
Dividend- EUR0.030 EUR0.030
(30 Jun 2019: EUR0.050) (30 Jun 2019: EUR0.050)
Further information on the reconciliation between the IFRS NAVs
and the Published NAVs can be found above.
Performance
Ticker IFRS NAV Published Share Discount Discount Dividend
per Share NAV per Price(2) IFRS NAV Published Yield
Share NAV
-------- ----------- ---------- ---------- ---------- ----------- ---------
BGLF
30 Jun
2020 EUR0.7204 EUR0.8179 EUR0.6700 (7.00)% (18.08)% 8.96%*
31 Dec
2019 EUR0.8543 EUR0.9187 EUR0.8250 (3.43)% (10.20)% 12.12%
-------- ----------- ---------- ---------- ---------- ----------- ---------
BGLP
30 Jun
2020 GBP0.6526 GBP0.7409 GBP0.6000 (8.06)% (19.02)% 9.06%*
31 Dec
2019 GBP0.7226 GBP0.7771 GBP0.7050 (2.44)% (9.28)% 12.00%
-------- ----------- ---------- ---------- ---------- ----------- ---------
* Dividend Yield presented as EUR0.06 per annum, given the first
quarter dividend of EUR0.015 per share, and the share price as of
30 June 2020.
LTM 3-Year Annualised Cumulative
Return(1) Annualised Since Inception Since Inception
--------------------- ----------- ------------ ----------------- -----------------
BGLF IFRS NAV (9.36)% (0.08)% 3.64% 23.70%
BGLF Published NAV (1.27)% 4.23% 5.88% 40.41%
BGLF Ordinary Share
Price (9.08)% (3.01)% 2.93% 18.73%
European Loans (2.01)% 0.93% 2.40% 15.10%
US Loans (2.27)% 2.13% 2.84% 18.12%
--------------------- ----------- ------------ ----------------- -----------------
([1]) Refer to the 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.
On 23 April 2020, pursuant to a review of BGCF's portfolio in
light of COVID-19, 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, to 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. In line with the Company's revised
dividend policy, the Board declared dividends of EUR0.030 per
Ordinary Share for the first half of 2020; the Company also
announced that it would keep the dividend policy under close review
as the impact of the COVID-19 pandemic unfolds.
Ordinary Share Dividends for the Period Ended 30 June 2020
Period in respect of Date Declared Ex-dividend Date Payment Date Amount per Ordinary Share
-------------------------- -------------- ----------------- ------------- -------------------------
EUR
-------------------------- -------------- ----------------- ------------- -------------------------
1 Jan 2020 to 31 Mar 2020 23 Apr 2020 30 Apr 2020 29 May 2020 0.0150
1 Apr 2020 to 30 Jun 2020 21 Jul 2020 30 Jul 2020 28 Aug 2020 0.0150
-------------------------- -------------- ----------------- ------------- -------------------------
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
--------------------------- -------------- ----------------- ------------- -------------------------
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
--------------------------- -------------- ----------------- ------------- ----------
Refer below for details on the conversion of the Company's C
Shares into Ordinary Shares. Consequently, no dividends were
declared on the C Shares between 1 January 2020 and their
conversion on 6 January 2020.
Period Highs and Lows
2020 2020 2019 2019
High Low High Low
Published NAV per Ordinary Share EUR0.8992 EUR0.7663 EUR0.9215 EUR0.8824
Ordinary Share Price (last price) EUR0.8400 EUR0.4500 EUR0.8500 EUR0.7500
GBP Ordinary Share Price (last price) GBP0.7200 GBP0.4200 GBP0.7300 GBP0.7000
-------------------------------------- --------- --------- --------- ---------
Schedule of Investments
As at 30 June 2020
Nominal Market % of Net Asset
Holdings Value Value
EUR
----------------------------------------- ----------- ----------- --------------
Investment held in the Lux Subsidiary:
CSWs 304,380,499 327,369,477 94.58
Shares (2,000,000 Class A and 1 Class B) 2,000,001 6,052,318 1.75
CLOs held directly 6,422,973 249,430 0.07
Other Net Assets 12,473,034 3.60
----------------------------------------- ----------- ----------- --------------
Net Assets Attributable to Shareholders 346,144,259 100.00
----------------------------------------- ----------- ----------- --------------
Schedule of Significant Transactions
Date of Transaction Transaction Type Amount Reason
EUR
-------------------------- --------------------- ---------- -------------------
CSWs held by the Company - Ordinary Share Class
3 Feb 2020 Subscription 6,800,000 Investments in PPNs
14 Feb 2020 Redemption 12,304,242 To fund dividend
15 May 2020 Redemption 15,096,970 To fund dividend
-------------------------- --------------------- ---------- -------------------
Refer below for details on the conversion of the Company's C
Shares into Ordinary Shares.
CHAIR'S STATEMENT
Dear Shareholders,
Company Returns and Net Asset Value(3)
The Company delivered an IFRS NAV total return per Ordinary
Share of (11.67)% over the first six months of 2020 (18.31% for the
year ended 31 December 2019), ending the period with a NAV of
EUR0.7204 (EUR0.8543 at 31 December 2019). LTM dividend yield was
12.05% for the Ordinary Shares . The return was composed of 4.94%
of dividend income and (16.61)% of net portfolio movement.
On a Published NAV basis, the Company delivered a total return
per Ordinary Share of (6.73)% over the first six months of 2020
(14.46% for the year ended 31 December 2019), ending the period
with a NAV of EUR0.8179 (EUR0.9187 at 31 December 2019). The return
was composed of dividend income 4.73% and of net portfolio movement
of (11.46)%.
During the first half of 2020, despite the market uncertainty,
BGCF, in whose portfolio the Company has exposure to, was able to
further diversify and de-risk its portfolio, which invested in the
CLO Income Notes of four new CLOs. Returns, like the majority of
risk assets, were negatively impacted by the market disruption from
the novel coronavirus and related respiratory disease ("COVID-19").
As the loan prices which the Company is exposed to rebounded from
the March lows, the Company's return retraced some of its losses
experienced in February and March.
The Company declared two dividends to Ordinary Shareholders in
respect of the six-month period ended 30 June 2020, totalling
EUR0.03 per share. Details of all dividend payments can be found
within the Dividend History section at the front of this Half
Yearly Financial Report.
Historical BGLF NAV and Share Price
The graph shows cumulative Published NAV and Ordinary 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/fund/bglfln-blackstone-gso-loan-financing-limited/]
Market Conditions
It is fair to say that no one predicted that the global economy
would be in the current environment we now face at the start of
2020. The global economy was almost crippled in the first half of
the year as the worst virus pandemic since the Spanish flu of 1918
spread across the world. As the number of cases grew exponentially,
governments locked down countries, restricted international travel,
and effectively put economies to sleep. Markets fell sharply in the
first quarter as investors tried to understand how significant of
an impact COVID-19 would have on the performance of companies
globally. The MSCI World Index, a global equities index, returned
(6.64)% for the first half of 2020, losing (21.44)% in Q1 before
recovering +18.84% in Q2 as countries initially began to reopen,
large stimuli packages were unveiled, and supportive central bank
policies enacted.
Credit markets were not immune to the sell-off and both loans
and high yield bonds registered negative returns for the first half
of 2020. Loans in the US and Europe returned (4.76)% and (3.80)%,
respectively, outperforming high yield bonds, which returned
(5.27)% in the US and (5.77)% in Europe over the same
period.(4)
Global economic growth came to a standstill in the first half of
2020 as a result of COVID-19. As the world begins to adjust to the
new normal that is living with the virus, potentially at least
until a vaccine can be found and mass produced, the future
trajectory of the global economy remains unclear. Many central
banks have forgone specific forecast figures in lieu of scenario
forecasts, which are dependent on infection levels and the
likelihood of second waves. As the number of unemployed remains at
levels not recorded in most countries in over a decade, the clouds
on the economic outlook look far from clearing any time soon.
Discount Management
The share price discount to IFRS NAV widened from 3.43% at 31
December 2019 to 7.00% at 30 June 2020 and the share price discount
to Published NAV widened from 10.20% at 31 December 2019 to 18.08%
at 30 June 2020. The share price discount is 31.88% based on the
Published NAV at 28 August 2020 and the closing share price as at
18 September 2020. 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. In light of the high level of market volatility and
uncertainty brought about by the COVID-19 pandemic, we were
conscious of taking a long-term view in considering discount
management. On 30 June 2020, the Company commenced a share
repurchase programme which saw the Company buyback a relatively
small amount of Ordinary Shares after the period end, refer to
'Share Repurchase Programme' in Corporate Activity and Note 18.
Blackstone / GSO Loan Financing C Share Update
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
previously 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 continues to evolve, and as cases decrease in certain
locations and increase in others, many countries have reopened
borders or implemented further lockdowns and travel restrictions.
Such actions continue to impact on global supply chains and are
adversely impacting a number of industries, such as transportation,
hospitality and entertainment.
The COVID-19 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 the novel coronavirus. Nevertheless, the novel
coronavirus 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.
During the period, GSO conducted 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
and considered the likely impact on cash flows, as detailed in the
Company's announcement on 23 April 2020 which also detailed the
Company's revision of its dividend policy. The Portfolio Adviser
has also taken numerous steps to seek to mitigate the impact of
COVID-19 on the performance of its portfolios and continues to
monitor the rapidly-evolving economic environment to identify risks
and opportunities.
ESG
The Board considers that Environmental, Social and Governance
("ESG") matters should be an important factor in investment
decisions, and will impact the long term success and sustainability
of the Company. The Board is aware that the practice of responsible
investing has increasingly become a focus for investors and
Blackstone's longstanding consideration of ESG factors in
Blackstone's investment approach was formalised last year with the
publication of their Responsible Investing Policy. This remains an
important part of Blackstone's investment approach and is available
at
https://www.blackstone.com/docs/default-source/black-papers/bx-responsible-investing-policy.pdf?sfvrsn=cef0a3ad_2
The Board looks forward to working with the Portfolio Adviser to
assess how the Company can continue to develop its awareness of ESG
issues and any associated practices.
The Board
Good governance remains at the heart of our work as a Board and
is taken very seriously. We believe that the Company maintains high
standards of corporate governance. The Board was very active during
the period, convening a total of 8 Board meetings and 14 Committee
meetings (including 6 NAV Review Committee meetings), as well as
undertaking an onsite due diligence review in February 2020 of
Blackstone / GSO Loan Financing (Luxembourg) S.à r.l. . The Board
used this visit to discuss various aspects of operational risk and
controls, the loan and CLO markets, and current market conditions
at the time.
In addition, as evident from the corporate activity during the
period, the Board and its advisers have worked hard to ensure the
continued success and growth of the Company to put it in the best
position to take advantage of all appropriate opportunities.
The work of the Board is assisted by the Audit Committee, NAV
Review Committee, Management Engagement Committee, the Remuneration
and Nomination Committee, the Risk Committee and the Inside
Information Committee.
The Company is a member of the Association of Investment
Companies (the "AIC") and adheres to the AIC Code of Corporate
Governance (the "AIC Code") which is endorsed by the Financial
Reporting Council (the "FRC"), and meets the Company's obligations
in relation to the UK Corporate Governance Code 2018 (the "UK
Code").
Shareholder Communications
During 1H 2020, 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, quarterly reports, quarterly investor calls, 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
Looking ahead to the remainder of 2020, the only certainty is
uncertainty. Countries across the globe continue in their
management of COVID-19 as many continue to implement stimuli plans
to re-energise their economies. Central banks in the US, Europe,
and Japan continue to offer support through rate cuts, quantitative
easing, and asset purchasing programs. Risk assets appear to have
held up relatively well given the exceptional circumstances
experienced in the first half of 2020, as many performed strongly
in the second quarter, rebounding from the March lows.
The Board is cognisant of the challenges faced in the current
environment; however, we take comfort from the benefit of the
defensive advantages attributed to senior loans, given their
position in corporate capital structures.
As we move into the second half of 2020, the Board continues to
believe that the Company is well positioned to access favourable
investment opportunities in loans and CLOs through its investment
in BGCF.
The Board wishes to express its thanks for the support of the
Company's Shareholders.
Charlotte Valeur
Chair
21 September 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.
(4) Source: US loans and high yield represented by the Credit
Suisse Leveraged Loan Index and Credit Suisse High Yield Index.
European loans and high yield represented by the Credit Suisse
Western European Leveraged Loan Index and Credit Suisse Western
European High Yield Index. All data as at 30 June 2020.
PORTFOLIO ADVISER'S REVIEW
We are pleased to present our review of the first six months of
2020 and outlook for the remainder of the year.
Bank Loan Market Overview
The first half quarter of 2020 made economic and financial
market history with the negative consequences of the novel
coronavirus and related respiratory disease, COVID-19. The run of
unprecedented daily declines in global credit markets in March
ended when the European Central Bank and the Federal Reserve Bank
intervened in capital markets in April and significantly relieved
technical selling pressure that had built up in March. Though
decisive policy responses prevented a deeper rout during the
quarter, the downdraft still resulted in the global credit markets'
worst-performing quarter since 2008. The market quickly rebounded
during the second quarter of 2020 marking the best quarterly
performance for the S&P 500(R) since 1998, and the current
recession may end up being the shortest in history, beating the
six-month recession in 1980. The market recovery remains
stimulus-led, driven by the speed and magnitude of global policy
responses rather than consumer and industrial fundamentals.
Credit Suisse Western European Leveraged Loan Index ("European
Loans") returned -3.80% for the first half of 2020, in a period
with included a significant monthly decline in performance in March
of -13.57% in tandem with all other risk assets.(5) Promisingly,
European Loans rebounded strongly in the second quarter with a
return of +11.89%, recovering some of the selloff experienced in
the first quarter and closing the first half with a return of
-3.80% year-to-date. With the new issue primary market remaining
closed in Europe for March and most of April, the lack of new issue
loans resulted in secondary loan prices rebounding quicker than in
the US, where the primary market reopened in early April. The
average price of European Loans fell from EUR98.32 at the end of
December 2019 to EUR83.64 at the end of March 2020, before
rebounding to EUR92.74 to end the first half of 2020 in June.
Similar to European Loans, the Credit Suisse Leveraged Loan
Index ("US Loans" ) struggled in the first half of 2020 declining
to a -13.19% return in the first quarter of 2020, before returning
+9.71% in the second quarter of 2020 and ending the first half of
the year with a year-to-date return of -4.76%. Limited new issue
loan supply against the backdrop of swift US government policy
drove recoveries in the second quarter. The average price of US
Loans fell from $95.40 in December 2019 to $82.70 in March 2020,
before retracing to $89.47 at the end of June.
Given the impact of COVID-19 on the global economy, it is no
surprise that secondary loan spreads widened significantly in the
first half of 2020 with overall spread (represented by 3-year
discount margin) for European Loans widening by 211bp between
January and June, to end the second quarter of 2020 at 737bp. This
is compared to 53bp of tightening for the first half of 2019. US
Loan spreads also widened 239bp during 2020 year-to-date, to end
the second quarter at 700bp, compared to a 90bp tightening for the
same period in 2019.
The primary loan market was effectively closed between March and
April due to COVID-19. Year-to-date global new issuance was
EUR228.5 billion (EUR37.8 billion in Europe and $211.1 billion in
the US) for the first half of 2020, compared to EUR265.4 billion
(EUR39.5 billion in Europe and $245.4 billion in the US) during the
same period in 2019. Despite this disruption, there was an increase
in deal activity as the second quarter of 2020 drew to a close;
however, with a light pipeline expected for the third quarter of
2020, new issue full year forecasts are likely to be revised
downwards.
Many companies experienced a decline in revenue to near zero as
much of the global economy went into lockdown to combat the highly
infectious virus. As a result, defaults increased, and credit
rating agencies issued a large number of downgrades. The US Loans
default rate for the last twelve months was 3.9% as of 30 June
2020, up from 1.2% in December 2019. European loans were somewhat
more insulated from defaults (at least for now) given support from
revolving facilities and government support. The European Loans
default rate for the last twelve months was 0.6% in June, up from
0.0% in December 2019.
CLO Market Overview (6)
Similarly to the loan market, the Collateralised Loan Obligation
("CLO") market was not immune to the impact of COVID-19. Global
issuance of CLO vehicles decreased by 43% in the first half of 2020
to EUR41.9 billion versus the EUR73.1 billion recorded in the first
half of 2019.
European CLO new issuance in the first six months of 2020
totalled EUR10.1 billion, down 31% from the record setting EUR14.7
billion achieved for the same period last year, and US CLO new
issuance totalled $35.1 billion down 46% versus the $65.1 billion
issued over the same period in 2019. Refinancing and resetting
activity was constrained due to widening liability spreads.
Refinance and reset activity totalled EUR0.9 billion in Europe and
$24.9 billion in the US, where all of the transactions were priced
within the first quarter pre-COVID-19.(7)
The new issue market for CLOs, which paused for a few weeks due
to COVID-19, pivoted to shorter dated and static offerings, often
"print and sprint" transactions where portfolios were acquired
simultaneously with the pricing of the CLO. As the second quarter
progressed, the overall confidence in broader syndication improved
(specifically in Europe) as signs of demand transitioned to more
broadly syndicated CLO transactions compared to the narrower
distribution witnessed earlier in the COVID-19 period. Global CLO
spreads in both primary and secondary markets widened significantly
in the early months of the year before narrowing in the second
quarter in-line with the overall market reduction in risk
premia.
The first half of 2020 was a challenging time for CLOs globally.
In the wake of deteriorating fundamentals, driven primarily by
significant decreases in revenue growth, rating actions among loan
and high yield issuers accelerated in early March, primarily within
COVID-19-affected sectors such as travel, automotive, and
transportation. These rating actions resulted in an increase of
assets rated CCC and below within European and US CLOs and a large
number of ratings for CLO tranches being placed on negative watch
or outlook. Many CLOs breached CCC tests, which put additional
pressure on CLO interest diversion and overcollateralisation ("OC")
tests. As the market began to rebound from March lows, the rally in
CCC assets relieved some of the pressure on these tests in the
second quarter and the pace of downgrades and negative watch
actions slowed. Despite this, rating agency watch actions still
turned into downgrades for 149 US and European CLO tranches for
1H20 as the rating agencies finalised their reviews.(8) As of 30
June 2020, ratings on 16 CLOs of 41 within BGCF's CLO portfolio,
primarily BBB-B tranches, have been placed on negative watch. Since
30 June, three of BGCF's CLOs experienced tranche rating
downgrades, three of the CLOs that had tranche ratings on watch
previously have been confirmed unchanged and removed from negative
watch, and two of the CLOs that had tranche ratings on watch
previously have been confirmed unchanged yet remain on negative
watch. As of 31 August 2020, ratings on 12 CLOs of 43 within BGCF's
CLO portfolio, primarily BBB-B tranches, remain on negative watch.
However, none of the CLOs within the portfolio have experienced any
failures of interest diversion or OC tests, or diversion of equity
cashflows.
Portfolio Update
BGCF
BGCF continues to generate positive cash flows from its CLO
Income Note investments (the most subordinated tranche issued by an
issuer under a CLO (which may be represented by a debt or equity
security)) ("CLO Income Notes") and from its portfolio of directly
held and warehoused loans. As of 30 June 2020, BGCF's portfolio of
CLO Income Notes produced a weighted average annualised
distribution rate of 14.3%, representing distributions from 34 of
BGCF's CLO Income Notes.(9) This compares to an annualised
distribution rate of 17.0% as of 31 December 2019. In Europe, the
decline was driven by the CLOs' underlying borrowers switching from
monthly or quarterly interest payments to semi-annual. In the US,
distributions were affected by the mismatch between the base rates
on the underlying loans and the CLO liabilities, and the tightening
of LIBOR, which contracted 23% year to date. Seven CLOs in the
portfolio have recently priced and, as of the end of June 2020,
have not yet paid their first distribution.
CLO European CLO Income Notes US CLO Income Notes Global
Vintage
---------- ------------------------------------------ ---------------------------------------- --------------------------
Par # of 2Q 2020 Average Par # of 2Q 2020 Average 2Q 2020 4Q 2019
(EURmm) CLOs Annualised Annualised ($mm) CLOs Annualised Annualised Annualised Annualised
Distribution Distribution Distribution Distribution Distribution Distribution
---------- -------- ---- ------------ ------------ ------ ---- ------------ ------------ ------------ ------------
2014 89.8 3 8.5% 15.7% 0.0 - - - 8.5% 11.7%
2015 69.7 3 11.6% 15.6% 48.5 1 17.0% 16.9% 13.6% 17.6%
2016 84.0 3 10.7% 11.8% 0.0 - - - 10.7% 13.0%
2017 80.4 3 13.7% 15.6% 261.0 6 15.4% 17.1% 15.0% 17.5%
2018 119.9 4 15.8% 17.9% 351.1 6 16.4% 17.8% 16.2% 18.0%
2019 121.0 4 10.5% 14.8% 130.4 4 16.1% 18.1% 12.9% 18.8%
2020 44.2 2 n/a n/a 59.4 1 n/a n/a n/a n/a
---------- -------- ---- ------------ ------------ ------ ---- ------------ ------------ ------------ ------------
Total/Wtd
Avg EUR608.9 22 12.1% 15.4% $850.4 18 16.1% 17.5% 14.3% 17.0%
---------- -------- ---- ------------ ------------ ------ ---- ------------ ------------ ------------ ------------
Please note: Past performance is not necessarily indicative of
future results, and there can be no assurance that the Company will
continue to achieve comparable results or that the Company will be
able to implement its investment strategy, or achieve its
investment objectives or target portfolio construction.
Portfolio trading activity during the first half of 2020 focused
on risk migration and rotation, with an emphasis on the collateral
coverage ratios of the CLOs. The Adviser focused on improving the
rating profile and defensively positioning the portfolio by
trimming risk overweights in existing positions. Up until late
February 2020, the loan market continued to exhibit relative
strength and limited volatility relative to prior periods.
Immediately following the emergence of COVID-19, volatility in the
loan market presented both opportunities and challenges, and the
Adviser used the opportunity to reduce the tail risk in each of the
CLOs and to further diversify and de-risk the portfolios. As the
global loan market rebounded strongly over the course of the
quarter and index prices recovered 75% of the March decline, the
Adviser continued to be opportunistic around reducing risk into
market strength with a goal of maintaining sufficient CLO OC
cushions and protecting trading flexibility.
As of 30 June 2020, the weighted average asset coupon of the
portfolio was 3.80%, compared to 4.40% as of 31 December 2019 and
the cost of liabilities narrowed from 2.47% to 2.17% over the same
time period, where the combined effect resulted in a reduction to
the net interest margin on the overall portfolio of 30bp, from
1.93% in December to 1.63% at the end of June.
Closing Deal Position % of % of Reinvest. Current Current Current NIM Distributions
/ Size Owned Tranche BGCF Period Asset Liability Net 3M Through
[Expected (mm) (mm) NAV Left Coupon Cost Interest Prior Last Payment
Close] (Yrs) Margin Date
Date
------------ ---------- ------- -------- ------- ---- --------- ------- --------- -------- ----- ---------------
Ann.* Cum.**
------------ ---------- ------- -------- ------- ---- --------- ------- --------- -------- ----- ------ -------
EUR CLO Income Note Investments
---------------------------------------------------------------------------------------------------------------------------
Phoenix EUR
Park Jul-14 417 EUR 23.3 51.4% 1.4% 2.83 3.67% 1.78% 1.89% 1.88% 14.6% 84.4%
Sorrento EUR
Park Oct-14 359 EUR 29.5 51.8% 0.8% 0.00 3.67% 1.91% 1.76% 2.02% 16.1% 89.9%
Castle EUR
Park Dec-14 273 EUR 37.0 80.4% 1.4% 0.00 3.63% 2.03% 1.61% 1.91% 16.1% 85.7%
Dartry EUR
Park Mar-15 376 EUR 22.8 51.1% 0.9% 0.00 3.64% 1.71% 1.93% 1.98% 14.6% 74.7%
Orwell EUR
Park Jun-15 388 EUR 24.2 51.0% 1.2% 0.00 3.62% 1.49% 2.13% 2.20% 16.1% 78.3%
EUR
Tymon Park Dec-15 406 EUR 22.7 51.0% 1.2% 0.00 3.65% 1.33% 2.32% 2.39% 16.1% 70.0%
EUR
Elm Park May-16 558 EUR 31.9 56.1% 2.0% 0.00 3.66% 1.37% 2.29% 2.27% 13.7% 53.4%
Griffith EUR
Park Sep-16 457 EUR 29.0 59.5% 1.8% 2.89 3.67% 1.83% 1.84% 1.85% 10.3% 38.2%
Clarinda EUR
Park Nov-16 415 EUR 23.1 51.2% 1.3% 0.38 3.66% 1.81% 1.84% 1.85% 11.1% 38.7%
Palmerston EUR
Park Apr-17 415 EUR 28.0 62.2% 1.6% 0.80 3.67% 1.55% 2.12% 2.12% 13.7% 41.3%
Clontarf EUR
Park Jul-17 414 EUR 29.0 66.9% 2.0% 1.10 3.59% 1.59% 2.00% 2.01% 15.3% 43.2%
Willow EUR
Park Nov-17 412 EUR 23.4 60.9% 1.7% 2.04 3.60% 1.58% 2.02% 2.04% 18.2% 43.2%
Marlay EUR
Park Mar-18 413 EUR 24.6 60.0% 1.8% 1.79 3.63% 1.40% 2.23% 2.21% 19.8% 40.5%
Milltown EUR
Park Jun-18 409 EUR 24.1 65.0% 2.0% 2.04 3.65% 1.50% 2.15% 2.13% 17.4% 32.0%
Richmond EUR
Park Jul-18 548 EUR 46.2 68.3% 2.2% 1.04 3.63% 1.54% 2.09% 2.10% 18.1% 31.6%
Sutton EUR
Park Oct-18 409 EUR 25.0 69.4% 2.0% 2.87 3.61% 1.72% 1.89% 1.90% 16.3% 25.7%
Crosthwaite EUR
Park Feb-19 513 EUR 34.0 66.7% 2.3% 3.21 3.64% 2.00% 1.63% 1.60% 12.6% 16.3%
Dunedin EUR
Park Sep-19 409 EUR 25.3 52.9% 1.8% 3.81 3.69% 1.77% 1.91% 1.91% 10.2% 6.1%
Seapoint EUR
Park Nov-19 406 EUR 22.6 73.8% 2.0% 3.89 3.67% 1.84% 1.83% 1.85% n/a n/a
Holland EUR
Park Nov-19 429 EUR 39.1 72.1% 1.9% 3.87 3.60% 1.91% 1.69% 1.74% 12.3% 6.1%
EUR
Vesey Park Apr-20 405 EUR 24.5 80.3% 2.3% 4.38 3.54% 1.96% 1.78% n/a n/a n/a
Avondale EUR
Park Jun-20 284 EUR 19.7 66.3% 1.7% 3.05 3.52% 2.52% 1.00% n/a n/a n/a
------------ ---------- ------- -------- ------- ---- --------- ------- --------- -------- ----- ------ -------
USD CLO Income Note Investments
---------------------------------------------------------------------------------------------------------------------------
Dorchester
Park Feb-15 $ 533 $ 48.5 73.0% 1.5% 0.00 4.11% 2.55% 1.55% 1.86% 16.9% 87.0%
Grippen
Park Mar-17 $ 611 $ 35.6 60.0% 1.9% 1.80 4.09% 2.87% 1.23% 1.52% 14.5% 44.9%
Thayer
Park May-17 $ 515 $ 29.8 54.6% 1.3% 1.80 4.03% 2.90% 1.14% 1.47% 17.0% 49.7%
Catskill
Park May-17 $ 1,029 $ 65.1 60.0% 2.6% 1.80 4.03% 2.86% 1.17% 1.51% 16.3% 47.7%
Dewolf
Park Aug-17 $ 614 $ 36.9 60.0% 1.9% 2.29 4.10% 2.94% 1.16% 1.58% 16.6% 43.6%
Gilbert
Park Oct-17 $ 1,022 $ 60.2 59.0% 3.2% 2.30 4.09% 2.90% 1.19% 1.62% 16.7% 41.4%
Long Point
Park Dec-17 $ 611 $ 33.4 56.9% 1.8% 2.55 4.07% 2.56% 1.51% 1.82% 22.6% 52.0%
Stewart
Park Jan-18 $ 874 $ 126.9 69.0% 2.7% 2.51 4.02% 2.69% 1.34% 1.76% 16.0% 35.9%
Greenwood
Park Mar-18 $ 1,075 $ 63.6 59.1% 3.7% 2.80 4.10% 2.59% 1.50% 1.91% 20.4% 43.0%
Cook Park Apr-18 $ 1,025 $ 60.0 56.1% 3.3% 2.80 3.97% 2.48% 1.50% 1.87% 19.4% 39.1%
Fillmore
Park Jul-18 $ 561 $ 30.2 54.3% 2.0% 3.04 3.99% 2.77% 1.21% 1.67% 16.4% 28.0%
Myers Park Sep-18 $ 510 $ 26.8 51.0% 1.7% 3.30 4.02% 2.76% 1.26% 1.63% 17.9% 28.3%
Harbor
Park Dec-18 $ 716 $ 43.6 55.0% 2.7% 3.56 4.02% 2.80% 1.22% 1.61% 18.3% 24.4%
Buckhorn
Park Mar-19 $ 502 $ 29.0 60.0% 1.8% 3.80 4.06% 3.05% 1.01% 1.42% 19.2% 20.8%
Niagara
Park Jun-19 $ 453 $ 26.5 60.0% 1.9% 4.05 4.09% 2.90% 1.19% 1.51% 16.9% 13.6%
Southwick
Park Aug-19 $ 503 $ 26.1 59.9% 1.8% 4.05 4.16% 3.03% 1.13% 1.46% 18.1% 12.0%
Beechwood
Park Dec-19 $ 810 $ 48.9 61.1% 3.4% 4.55 4.17% 3.76% 0.41% 1.42% n/a n/a
Allegany
Park Jan-20 $ 505 $ 30.2 66.2% 2.0% 4.54 4.19% 3.68% 0.51% 1.72% n/a n/a
Harriman
Park Apr-20 $ 502 $ 29.2 70.0% 2.2% 2.80 3.93% 2.89% 1.04% n/a n/a n/a
------------ ---------- ------- -------- ------- ---- --------- ------- --------- -------- ----- ------ -------
*Ann. - Annualised; **Cum. - Cumulative
As at 30 June 2020, the Company was invested in accordance with
its and BGCF's investment policy and was diversified across 674
issuers through the directly held loans and CLO portfolio, and
across 27 countries and 29 different industries. No individual
borrower represented more than 2% of the overall portfolio at the
end of June 2020.
Key Portfolio Statistics (10)
Current WA Asset Coupon Current WA Liability Cost WA Leverage WA Remaining CLO Reinvestment
Periods
-------------------- ----------------------- ------------------------- ----------- -------------------------------
Euro CLOs 3.63% 1.73% 8.3x 1.8 Years
US CLOs 4.06% 2.85% 9.1x 2.7 Years
US CLO Warehouses 3.58% 1.40% 4.0x n/a
Directly Held Loans 3.50% 1.45% 2.5x n/a
Total Portfolio 3.80% 2.17% 7.6x 2.3 Years
-------------------- ----------------------- ------------------------- ----------- -------------------------------
Top 5 Industries
Industries % of Portfolio
30 June 2020 31 December 2019
Healthcare and Pharma 14.9% 15.0%
Services Business 10.3% 10.8%
High Tech Industries 9.9% 9.7%
Banking, Finance, Insurance and Real Estate 8.9% 8.8%
Hotel, Gaming and Leisure 6.4% 7.8%
-------------------------------------------- ------------ ----------------
Top 5 Countries
Countries % of Portfolio
30 June 2020 31 December 2019
United States 54.3% 54.4%
United Kingdom 9.9% 10.4%
France 6.9% 7.6%
Luxembourg 6.1% 5.8%
Netherlands 4.1% **
--------------- ------------ ----------------
**Netherlands was not part of the Top 5 as at 31 December 2019.
Germany made up 3.9% of the Portfolio as at 31 December 2019.
Top 20 Issuers
# Portfolio Total Moody's Industry Country Moody's Moody's WA WA WA WA
Facilities Par Par Corp. Facility Price Spread Coupon Maturity
(EURM) Outstanding Rating Rating (All-In (Years)
(EURM) Rate)
---------- --------- ----------- ------------------ ----------- ------- -------- ----- ------ ------- --------
Banking, Finance,
Insurance and United
1 4 221 2,104 Real Estate Kingdom B2 B2 94.3 4.24% 4.73% 4.8
United
2 2 198 8,119 Services Business States B2 B1 98.1 3.25% 3.31% 5.3
United
3 5 185 4,977 Retail Kingdom B2 B2 94.1 4.03% 4.19% 4.6
Chemicals,
Plastics and
4 2 166 5,654 Rubber Netherlands B2 Ba3 95.7 3.14% 3.22% 5.3
Healthcare
and
5 2 165 2,733 Pharmaceuticals Denmark B2 B2 91.5 3.96% 4.01% 5.7
High Tech United
6 2 164 3,235 Industries States B1 B1 97.9 3.62% 3.70% 4.3
Media Broadcasting
7 4 159 5,324 and Subscription France B2 B2 95.7 3.10% 3.16% 5.4
Media Broadcasting
8 2 150 4,498 and Subscription Netherlands B1 B1 96.3 2.87% 2.92% 8.4
Banking, Finance,
Insurance and
9 2 145 3,114 Real Estate Ireland B2 B2 96.7 3.44% 4.46% 4.4
Healthcare
and United
10 4 121 3,297 Pharmaceuticals States Ba1 Ba1 98.2 1.91% 2.01% 4.3
Beverage, Food United
11 4 120 5,020 and Tobacco Kingdom B1 B1 95.8 2.58% 2.65% 6.6
High Tech United
12 2 120 2,634 Industries States B2 B2 94.2 4.50% 5.50% 2.6
High Tech United
13 2 119 3,868 Industries States B2 B2 97.0 4.64% 4.70% 5.3
14 2 116 3,750 Telecommunications Denmark B2 B1 97.4 3.37% 3.37% 4.8
Media Broadcasting United
15 2 111 3,688 and Subscription Kingdom Ba2 Ba2 96.6 2.50% 2.58% 8.2
Banking, Finance,
Insurance and
16 3 109 2,593 Real Estate Luxembourg B2 Ba3 96.6 3.36% 3.39% 4.6
High Tech United
17 5 107 4,306 Industries States B1 B1 96.7 3.39% 3.54% 4.4
18 2 104 2,402 Services Business Sweden B2 B1 97.7 3.06% 3.06% 2.3
Construction United
19 2 100 2,962 and Building States B2 B2 94.0 3.95% 3.95% 5.8
Hotels, Gaming
20 2 97 1,285 and Leisure Luxembourg B2 B2 97.0 3.54% 3.54% 2.4
---------- --------- ----------- ------------------ ----------- ------- -------- ----- ------ ------- --------
Market Outlook
Global economies continue to deal with the effects of COVID-19,
social unrest, and rising geopolitical tension. We are closely
monitoring the re-acceleration of COVID-19 in the US and Europe, as
a reversal of recent reopening measures in many cities, states and
countries could deepen the economic damage from the pandemic and
elongate the path to a complete recovery. Although some stimulus
and central bank support may extend beyond the pandemic, we believe
that emergency government support will wane and thus do not expect
a "V-shaped" recovery where the pre-COVID-19 levels of economic
activity, employment, and profitability are reached in the near
term.
In the US, we expect defaults to continue to increase, and JP
Morgan forecasts 2020 US loan and high yield bond default rates of
5% and 8%. Unlike in the US, few European companies have filed for
bankruptcy this year, braced by significant fiscal support in the
form of revolving facilities and government-guaranteed loan
schemes. Fitch is currently forecasting a 2020 full year default
rate of 4% and 4.5% for European loans and high yield bonds,
respectively.
The new issue pipeline for loans globally continues to look
light and as companies report second quarter earnings in July and
August, we will closely monitor the effects of COVID-19 and
expectations for future earnings, which will drive potential
idiosyncratic volatility. Despite the uncertain outlook, we derive
some comfort from the seniority of loans in the corporate
structure, which we believe offers defensive positioning unique to
the asset class.
As we move into the second half of 2020, we continue to believe
that the Fund is well positioned to access favourable investment
opportunities in loans and CLOs through its investment in BGCF and
to weather the current environment.
COVID-19
GSO refreshed its detailed, bottom-up review of all 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 results of this exercise have allowed
GSO to consider the likely impact on cashflows generated by the
Company's investments held indirectly through BGCF. 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 GSO's portfolios may lead to temporary
cashflow diversions away from CLO Income 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).
Risk Management
Heading into the second half of 2020, the impact of COVID-19
will continue to weigh on corporate profits. We have been actively
pruning risk selectively and positioning the portfolio more
defensively, to support cushions within each CLO relative to their
respective tests.
In addition to our general analysis and fundamental credit
review, we have developed a proprietary system to weight and score
key document attributes. We acknowledge that loan documents have
recently become more flexible to the borrower, partially due to
strong investor demand for the asset class, creating a
borrower-friendly market. In response to the increased flexibility,
we have standardised our document review process, tracking key
attributes, and incorporating them into our portfolio and risk
management approach with the goal of tracking individual document
quality on an ongoing basis as an input to our investment and
portfolio management decisions. In cases where we believe the
document creates uncertainty regarding recovery, our seniority in
the capital structure, or collateral protection, we may choose to
pass on the deal or actively reduce positions at the first sign of
underperformance.
BGCF's US denominated assets comprise roughly 38% of the gross
portfolio and while these assets are hedged back to the Euro,
should there be an increase in volatility in currency exchange
rates as a result of the trade war turned currency war, BGCF may
experience greater volatility in both the value of and income from
these assets.
We remain constructive on credit and continue to believe that
floating rate senior loans offer a compelling risk--reward
opportunity. This is further supported by our view that the
seniority of loans in the corporate structure offers defensive
positioning unique to the asset class and that loans remain a
well-suited component of portfolios in a late cycle
environment.
Blackstone / GSO Debt Funds Management Europe Limited
21 September 2020
(5) Source: Credit Suisse, as of 30 June 2020. References to
benchmark indices are for illustrative purposes only. There is no
guarantee that the Company will outperform these indices. The
Company's performance and portfolio data used in this report is
based on the Company's published NAV prepared in line with the
prospectus. An adjustment was made to the Company's published NAV
to comply with IFRS requirements for the purposes of the financial
statements. Please see Note 14 of the financial statements for
further details of this adjustment.
(6) Sources: S&P Leveraged Commentary & Data ("LCD"),
data as of June 2020.
(7) Source: S&P/LCD data, as of 4 July 2020.
(8) Source: Kanerai, Intex, Bloomberg, Moody's, S&P, Fitch,
Barclays Research, as of June 30, 2020. Represented by US and
European BSL CLOs.
(9) Source: Intex - Annualised quarterly cash distribution based
on cost for those CLOs that have paid a distribution.
(10) As at 30 June 2020.
STRATEGIC OVERVIEW
Purpose
As an investment company, our purpose is to provide permanent
capital to BGCF, a company established by DFME as part of its loan
financing programme, with a view to generating stable and growing
total returns for Shareholders through dividends and value
growth.
We deliver our purpose through working in line with our values,
which form the backbone of what the Company does and are an
important part of our culture.
Values
Integrity and Trust - The Company seeks to act with integrity in
everything it does and to be trustworthy. We seek to uphold the
highest standards of professionalism driven by our corporate
governance processes.
Transparency - The Company aims to ensure all of its activities
are undertaken with the utmost transparency and openness to sustain
trust.
Opportunity - The ability to see and seize opportunity in the
best interests of shareholders.
Sustainability - As an investment company we aim to maintain and
deliver attractive and sustainable returns for our
shareholders.
Principal Activities
The Company was incorporated on 30 April 2014 as a closed-ended
investment company limited by shares under the laws of Jersey and
is authorised as a listed fund under the Collective Investment
Funds (Jersey) Law 1988. The Company continues to be registered and
domiciled in Jersey. The Company's Ordinary Shares are quoted on
the Premium Segment of the Main Market of the LSE. 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. Refer
to Corporate Activity for further details on the C Share
conversion.
The Company's share capital consists of an unlimited number of
shares of any class. As at 30 June 2020, the Company's issued share
capital was 480,496,838 Ordinary Shares. The Company also held
2,405,956 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. All
of the Class A and Class B shares were held by the Company as at 30
June 2020 together with 304,380,499 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
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.
Directors' Interests
The Directors held the following number of Ordinary Shares in
the Company as at the period end and the date these condensed
financial statements were approved:
Shares Type As at 30 June 2020 As at 31 December 2019
Charlotte Valeur Ordinary 11,500 11,500
Gary Clark Ordinary 168,200 108,200
Heather MacCallum Ordinary - -
Mark Moffat Ordinary 771,593 601,028
C - 291,068
Steven Wilderspin Ordinary 20,000 20,000
------------------ --------- ------------------ ----------------------
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 a Underlying Company's
Maximum Exposure Gross Asset Value
Per obligor 5
Per industry sector 15
(With the exception of one industry, which may be up to
20%)
To obligors with a rating lower than B-/B3/B- 7.5
To second lien loans, unsecured loans, mezzanine loans and
high yield bonds 10
---------------------------------------------------------- ----------------------------------------------------------
For the purposes of these Eligibility Criteria, "gross asset
value" shall mean gross assets, including any investments in CLO
Securities and any undrawn commitment amount of any gearing under
any debt facility. Further, for the avoidance of doubt, the
"maximum exposures" set out in the Eligibility Criteria shall apply
on a trade date basis.
Each of these Eligibility Criteria will be measured at the close
of each Business Day on which a new investment is made, and there
will be no requirement to sell down in the event the limits are
breached at any subsequent point (for instance, as a result of
movement in the gross asset value, or the sale or downgrading of
any assets held by an Underlying Company).
In addition, each CLO in which an Underlying Company holds CLO
Securities and each Loan Warehouse in which an Underlying Company
invests will have its own eligibility criteria and portfolio
limits. These limits are designed to ensure that: (i) the portfolio
of assets within the CLO meets a prescribed level of diversity and
quality as set by the relevant rating agencies 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 considers BGCF to be a substantial Underlying
Company.
Company Borrowing Limit
The Company will not utilise borrowings for investment purposes.
However, the Directors are permitted to borrow up to 10% of the
Company's 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-weights/under-weights relative to the benchmark,
backstopped by constant portfolio monitoring and risk oversight.
The Underlying Companies will typically look to diversify their
portfolios to avoid the risk that any one obligor or industry will
adversely impact overall returns. The Underlying Companies also
place an emphasis on loan portfolio liquidity to ensure that if
their credit outlook changes, they are free to respond quickly and
effectively to reduce or mitigate risk in their portfolio. The
Company believes this investment strategy will be successful in the
future as a result of its emphasis on risk management, capital
preservation and fundamental credit research. The Directors believe
the best way to control and mitigate risk is by remaining
disciplined in market cycles, by making careful credit decisions
and maintaining adequate diversification.
The portfolio of the Underlying Companies in which the Company
invests (through its wholly-owned subsidiary) remains broadly
divided between European CLOs and US CLOs.
The Company operates with Euro as its functional currency. The
Rollover Assets and a significant proportion of the portfolio of
assets held by Underlying Companies to which the Company has
exposure may, from time to time, be denominated in currencies other
than Euro. In accordance with the Company's investment policy, up
to 100 per cent. (as appropriate) of the Company's exposure to such
non-Euro assets is hedged, subject to suitable hedging contracts
being available at appropriate times and on acceptable terms.
CORPORATE ACTIVITY
C Share Conversion
On 7 January 2020, the Company announced the completion of the
conversion of its C Shares into Ordinary Shares. 133,451,107 C
Shares were converted into 78,202,348 Ordinary Shares based on a
Conversion Ratio of 0.5860 Ordinary Shares per C Share.
Broker Update
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 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.
On 23 March 2020, the Company announced a detailed review of the
companies within its portfolio to determine the potential impact of
COVID-19 on these business and an investor call on 27 March 2020 to
provide a market update.
On 23 April 2020, the Company announced an update on the status
of the Portfolio Adviser's portfolio review, together with an
amended dividend policy and subsequent dividend declaration in
light of COVID-19. The Company announced that GSO had conducted a
detailed, bottom up review of all c. 970 companies within its
portfolio and the likely impact of COVID-19 on cashflows. While the
medium and long-term impacts of the global pandemic remained
uncertain, in the short-term GSO expected that rating agency
downgrades and corporate defaults 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 23 April 2020 announcement also detailed that GSO had
already taken numerous steps to seek to mitigate the impact of
COVID-19 on the performance of its portfolios and would continue to
monitor the rapidly-evolving economic environment to identify risks
and opportunities.
Revised Dividend Policy
On 23 April 2020 the Company announced that pursuant to the
review of BGCF's portfolio in light of COVID-19, the Board had
adopted a revised Dividend Policy targeting a total 2020 annual
dividend of between EUR0.06 and EUR0.07 per ordinary share, to
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 Company further announced
that it would keep the dividend policy under close review as the
impact of the COVID-19 pandemic unfolds.
Share Repurchase Programme
On 30 June 2020, the Company repurchased 25,000 of its Ordinary
Shares at a weighted average price per share of EUR0.66. The
repurchased Ordinary Shares are held in treasury.
From 1 July 2020 to 18 September 2020 the Company repurchased
417,500 Ordinary Shares at a weighted average price per share of
EUR 0.67 . The repurchased Ordinary Shares are held in
treasury.
As at 18 September 2020 the Company had 480,079,338 Ordinary
Shares in issue and 2,823,456 Ordinary Shares in treasury.
RISK OVERVIEW
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. At the most recent meeting of the Risk Committee in July
2020 the Committee reviewed the ongoing impact of the COVID-19
pandemic on the Company and BGCF, as detailed in the COVID-19
commentary below.
The Board considers that the five risks identified below are the
principal risks faced by the Company where the combination of
probability and impact was assessed as being most significant.
Principal risk Mitigants and 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 hit by the impact of COVID-19
along with continued political uncertainty which could on companies and markets. The detailed analysis of
negatively impact global credit markets underlying companies and CLO modelling
and the risk reward characteristics for CLO structuring. that the Portfolio Adviser previously provided to the
This could directly impact the performance Board has been updated for underlying
of the underlying CLOs that the Company invests in and it companies' Q1 2020 reporting and their latest
could also result in a reduced number assumptions are described further in Other Information.
of suitable investment opportunities and/or lower This supports the Board's revised dividend policy as
shareholder demand. previously announced which seeks to ensure
that the Company does not over-distribute and erode the
capital of the Company.
The Portfolio Adviser has continued to trade and manage
risk in the CLO portfolios to reflect
the latest company information and market outlook.
--------------------------------------------------------- ---------------------------------------------------------
Share price discount
The price of the Company's shares may trade at a discount Due to the inherent uncertainty of the investment
relative to the underlying net asset environment as the COVID-19 pandemic hit,
value of the shares. the Company's discount initially widened as far as
36.71%, although there had been no sustained
share selling pressure. As more information has become
available to investors as the pandemic
has progressed, the discount narrowed to 16.92% at 31
July 2020 and was 31.88% at 18 September
2020 (based on the Published NAV at 28 August 2020 and
the closing share price at 18 September
2020).
The Board has kept investors up to date with the
Portfolio Adviser's assessment of the impact
of the virus on underlying valuations, and the outlook
for the dividend.
As explained above, the Board has also undertaken a
modest share buy-back programme.
--------------------------------------------------------- ---------------------------------------------------------
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. Independent valuation
by BGCF are valued using modelling methodologies, service providers are involved in determining the fair
described in the Company's Prospectus, that value of underlying CLOs.
are based upon many assumptions. The valuation of the
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 as experienced during the
six months ended 30 June 2020 and The Company determines the fair value of the directly
as published in the RNS announcement on the LSE on 1 held CLOs using third party valuations.
September 2020.
As stated above, the Board will endeavor to ensure that
The CLOs held directly by the Company are valued using investors are kept up to date with
the mark-to-market approach. the Portfolio Adviser's assessment of the impact of
COVID-19 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 The distribution policy announced on 23 April 2020
Company (via PPNs) whilst reinvesting remains under constant review as the impact
some of the proceeds back into CLOs to maintain capital of the pandemic on the economy and underlying companies
invested. In turn, the Company aims becomes clearer.
to distribute income received to shareholders, in
accordance with its distribution policy,
without eroding capital.
There is a risk that the distribution policy at the
Company level may be too generous or re-investment
at the BGCF level may not be sufficient, resulting in the
erosion of underlying capital invested.
--------------------------------------------------------- ---------------------------------------------------------
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 In the period under review there have been no material
business continuity procedures with staff working from operational difficulties.
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 because of any impact
reflected generally in international markets and the global
economy.
The Portfolio Adviser's credit research team of 31 investment
professionals keeps BGCF's portfolio of UK-exposed issuers under
review, based on potential impact as a result of Brexit. When
reviewing Brexit's impact on portfolio credits, they consider where
the credit is domiciled as well as what the exposure is to the UK
and the impact of Brexit specifically related to that business. The
team identifies and analyses what they believe to be the main risks
for UK businesses that could potentially have an impact on margins,
availability of goods, and employees, which include but are not
limited to: foreign exchange risk, tariffs, supply chain impacts,
availability of workers, consumer confidence, and regulatory
changes.
Given the global focus of the strategy, the exposure to any one
individual European country is low. As at 30 June 2020, the
Company's indirect exposure to BGCF directly held assets classified
as UK companies was 9.85%.
Going Concern
The Directors have considered the Company's investment
objective, risk management and capital management policies, its
assets and the expected cash flows 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 and the
Portfolio Adviser's Review. While typically the Board keeps these
factors under close review, these factors and the Company's cash
management and expected expenses are monitored in more detail and
on a more frequent basis in light of COVID-19 should the Company
wish to amend its dividend policy or make other changes to its
operating model. After due consideration, the Directors are of the
opinion that the Company is able to meet its liabilities and
ongoing expected expenses as they fall due and they have a
reasonable expectation that the Company has adequate cash and cash
equivalents 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.
PERFORMANCE ANALYSIS
IFRS NAV Performance Analysis for the Periods Ended 30 June 2020
and 31 December 2019 - 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/fund/bglfln-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 Periods Ended 30 June
2020 and 31 December 2019 - 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/fund/bglfln-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 30 June 2020 are detailed
below:
Asset Valuation Input IFRS Published IFRS Published
Methodology NAV NAV NAV NAV
30 June 2020 31 December 2019
Discounted Constant default
CLO Securities Cash Flows rate 2.22% 1.82% 1.98% 2.00%
Conditional
prepayment
rate 25% 21% 25% 20%
Reinvestment
spread (bp
over LIBOR) 389.80 352.15 354.77 380.82
Recovery rate
Loans 70% 70% 70% 70%
Recovery lag
(Months) 0 12 0 12
Discount rate 20.73% 13.94% 15.67% 12.04%
-------------------------------------------------- ------- ---------- ------- ----------
All of the assumptions above are based on weighted averages.
Certain assumptions, which underpin the period-end Published
NAV, such as a lower conditional prepayment rate and a 12-month
recovery lag on assumed defaulted assets, are generally more
conservative. The below table further explains the rationale
regarding the differences in the assumptions that significantly
contributed to the valuation divergence as at 30 June 2020.
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 e.g. market
performance, and time remaining impact of emergence of
in reinvestment period. COVID-19.
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
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 22,178,085 CSWs in the Lux Subsidiary during the period
with a fair value of EUR27,401,212 to fund the quarterly
dividend.
Alternative Investment Fund Managers' Directive
The AIFMD requires certain information to be made available to
investors in 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 Half Yearly Financial
Report 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
2020 (6.73)% 0.8179 (18.08)% *
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 six months ended 30 June 2020 and the year ended
31 December 2019 is presented below:
Published NAV total return per Ordinary Share
Six months ended Year ended
30 June 2020 31 December 2019
Opening Published NAV per Ordinary
Share (A) EUR0.9187 EUR0.8963
Adjustments per Ordinary Share (B) EUR(0.0644) EUR(0.0898)
Opening IFRS NAV per Ordinary Share
(C=A+B) EUR0.8543 EUR0.8065
Closing Published NAV per Ordinary
Share (D) EUR0.8179 EUR0.9187
Adjustments per Ordinary Share (E) EUR(0.0975) EUR(0.0644)
Closing IFRS NAV per Ordinary Share
(F=D+E) EUR0.7204 EUR0.8543
Dividends paid during the period/year
(G) EUR0.0400 EUR0.1000
Published NAV total return per Ordinary
Share
(H=(D-A+G)/A) (6.62)% 13.66%
Impact of dividend re-investment
(I) (0.11)% 0.80%
Published NAV total return per Ordinary
Share with dividends re-invested
(J=H+I) (6.73)% 14.46%
IFRS NAV total return per Ordinary
Share
(K=(F-C+G)/C) (10.99)% 18.33%
Impact of dividend re-investment
(L) (0.68)% (0.02)%
IFRS NAV total return per Ordinary
Share with
dividends re-invested (M=K+L) (11.67)% 18.31%
---------------------------------------- ------------------ -----------------
Refer to Note 14 for further details on the adjustments per
Ordinary Share.
Published NAV per Ordinary Share
30 June 2020 31 December 2019
Published NAV per Ordinary Share
(A) EUR0.8179* EUR0.9187
Adjustments per Ordinary Share (B) EUR0.0975 EUR0.0644
IFRS NAV per Ordinary Share (C=A-B) EUR0.7204 EUR0.8543
------------------------------------ ------------ ----------------
* Refer to the RNS announcement on the LSE published on 1
September 2020 by the Company for further details.
Refer to Note 14 for further details on the adjustments per
Ordinary Share.
(Discount) / Premium per Ordinary Share
30 June 2020 31 December 2019
Published NAV per Ordinary Share
(A) EUR0.8179 EUR0.9187
Adjustments per Ordinary Share (B) EUR0.0975 EUR0.0644
IFRS NAV per Ordinary Share (C=A-B) EUR0.7204 EUR0.8543
Closing share price as at the period
end per the LSE (D) EUR0.6700 EUR0.8250
Discount to Published NAV per Ordinary
Share
(E=(D-A)/A) (18.08)% (10.20)%
Discount to IFRS NAV per Ordinary
Share
(F=(D-C)/C) (7.00)% (3.43)%
--------------------------------------- ------------ ----------------
Refer to Note 14 for further details on the adjustments per
Ordinary Share.
FUTURE DEVELOPMENTS
Significant Events after the Reporting Period
On 21 July 2020, the Company declared a dividend of EUR0.015 per
Ordinary Share in respect of the period from 1 April 2020 to 30
June 2020. A total payment of EUR7,205,128 was made on 28 August
2020.
During the period from 1 July 2020 to 18 September 2020, the
Company repurchased:
a) under the 2019 AGM authority, 80,000 of its Ordinary Shares
of no par value at a total cost of EUR53,600 (excluding fees and
commissions); and
b) under the 2020 AGM authority, 337,500 of its Ordinary Shares
of no par value at a total cost of EUR226,100 (excluding fees and
commissions).
Additionally, refer to Note 18 for further details.
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 Half Yearly Financial Report are:
Charlotte Valeur
Position: Chair of the Board (non-executive and independent director, resident in Jersey)
Date of appointment: 13 June 2014
Charlotte Valeur has 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 Valeur'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
Valeur'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,
Charlotte 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. Gary 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 Gary Clark was managing director of the
futures broker, GNI (Channel Islands) Limited in Jersey.
A specialist in alternative investment funds, Gary 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, Gary 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.
Heather 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 Jersey utility 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, Heather 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 Steven Wilderspin was appointed as a director of
FTSE 250 HarbourVest Global Private Equity Limited.
In December 2017 Steven 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, Steven Wilderspin was a director of fund
administrator Maples Finance Jersey Limited where he was
responsible for fund and securitisation structures. Before that,
from 1997, Steven Wilderspin was Head of Accounting at Perpetual
Fund Management (Jersey) Limited.
Steven 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. Mark 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 Mark 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.
Mark 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, Mark Moffat was
head of European debt and equity capital markets and the European
CLO business of Bear Stearns. At Bear Stearns, Mark Moffat was
responsible for the origination, structuring and execution of CLOs
in Europe over a seven-year period. Prior to Bear Stearns, Mark
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 Mark Moffat brings a deep knowledge of how CLO
structures and markets perform over the credit cycle.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Half Yearly
Financial Report and condensed interim financial statements in
accordance with applicable law and regulations.
The Directors confirm to the best of their knowledge that:
-- the condensed interim financial statements within the Half
Yearly Financial Report have been prepared in accordance with IAS
34 Interim Financial Reporting as adopted by the EU and give a true
and fair view of the assets, liabilities, financial position and
profit or loss of the Company as at 30 June 2020, as required by
the UK's FCA's DTR 4.2.4R;
-- the Chair's Statement, the Portfolio Adviser's Report, the
Strategic Report and the notes to the condensed interim financial
statements includes a fair review of the information required
by:
i. DTR 4.2.7R, being an indication of important events that have
occurred during the first six months, the financial period ended 30
June 2020 and their impact on the condensed interim financial
statements; and a description of the principal risks and
uncertainties for the remaining six months of the year; and
ii. DTR 4.2.8R, being related party transactions that have taken
place in the first six months, the financial period ended 30 June
2020 and that have materially affected the financial position or
performance of the Company during the period.
Charlotte Valeur Heather MacCallum
Director Director
21 September 2020
INDEPENT REVIEW REPORT TO BLACKSTONE / GSO LOAN FINANCING
LIMITED
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2020 which comprises the condensed
statement of comprehensive income, condensed statement of financial
position, condensed statement of changes in equity, condensed
statement of cash flows and related notes 1 to 18. We have read the
other information contained in the half-yearly financial report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of financial statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the Directors. The Directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
As disclosed in note 2, the annual financial statements of the
Company are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34 "Interim
Financial Reporting" as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Financial Reporting Council for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2020 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure Guidance and Transparency Rules
of the United Kingdom's Financial Conduct Authority.
Deloitte LLP
St. Helier Jersey
21 September 2020
CONDENSED STATEMENT OF FINANCIAL POSITION
As at 30 June 2020 (Unaudited)
As at As at
30 June 2020 31 December 2019
(unaudited) (audited)
Restated*
--------------------------------------------------------------- ----- -------------- ------------------
Notes EUR EUR
--------------------------------------------------------------- ----- -------------- ------------------
Current assets
Cash and cash equivalents 13,494,058 11,464,088
Other receivables 5 86,038 232,474
Financial assets at fair value through profit or loss - Lux Co 6 333,421,795 396,392,271
Financial assets at fair value through profit or loss - CLOs 6 249,430 3,192,772
Intercompany loan 7 - -
--------------------------------------------------------------- ----- -------------- ------------------
Total current assets 347,251,321 411,281,605
--------------------------------------------------------------- ----- -------------- ------------------
Non-current liabilities
Intercompany loan 7 (706,786) (534,660)
--------------------------------------------------------------- ----- -------------- ------------------
Total non-current liabilities (706,786) (534,660)
--------------------------------------------------------------- ----- -------------- ------------------
Current liabilities
Payables 8 (400,276) (240,954)
--------------------------------------------------------------- ----- -------------- ------------------
Total current liabilities (400,276) (240,954)
--------------------------------------------------------------- ----- -------------- ------------------
Total liabilities (1,107,062) (775,614)
--------------------------------------------------------------- ----- -------------- ------------------
Net assets 13,14 346,144,259 410,505,991
--------------------------------------------------------------- ----- -------------- ------------------
Capital and reserves
Stated capital 9 473,568,124 480,304,329
Retained earnings (127,423,865) (69,798,338)
Shareholders' Equity 346,144,259 410,505,991
--------------------------------------------------------------- ----- -------------- ------------------
Net Asset Value per Share 13 0.7204 0.8543
--------------------------------------------------------------- ----- -------------- ------------------
* Refer to Note 11 for details on the restatement.
These financial statements were authorised and approved for
issue by the Directors on 21 September 2020 and signed on their
behalf by:
Charlotte Valeur Heather MacCallum
Director Director
The accompanying notes form an integral part of the condensed
interim financial statements.
CONDENSED STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 30 June 2020 (Unaudited)
Six months ended Six months ended
30 June 2020 30 June 2019
(unaudited) (unaudited)
Restated*
-------------------------------------------------------------------------- ------ ---------------- ----------------
Notes EUR EUR
-------------------------------------------------------------------------- ------ ---------------- ----------------
Income
Realised gain/(loss) on foreign exchange 67,962 (13,664)
Net (loss)/gain on financial assets at fair value through profit or loss -
Lux Co 6 (42,499,534) 49,985,511
Net loss on financial assets at fair value through profit or loss - CLOs 6 (2,169,446) (5,249,194)
Income distribution from CLOs 2.5(b) 253,061 7,746,872
Total income (44,347,957) 52,469,525
-------------------------------------------------------------------------- ------ ---------------- ----------------
Expenses
Operating expenses 3 (743,146) (704,000)
-------------------------------------------------------------------------- ------ ---------------- ----------------
(Loss)/profit before taxation (45,091,103) 51,765,525
Taxation 2.4 - -
(Loss)/profit after taxation (45,091,103) 51,765,525
-------------------------------------------------------------------------- ------ ---------------- ----------------
Loan interest expense 7 (4,923) (2,460)
Bank interest expense (28,334) (25,037)
-------------------------------------------------------------------------- ------ ---------------- ----------------
Total interest expense (33,257) (27,497)
-------------------------------------------------------------------------- ------ ---------------- ----------------
Total comprehensive (loss)/income for the period attributable to
Shareholders (45,124,360) 51,738,028
-------------------------------------------------------------------------- ------ ---------------- ----------------
Basic and diluted (losses)/earnings per share 12 (0.0945) 0.1072
-------------------------------------------------------------------------- ------ ---------------- ----------------
* Refer to Note 11 for details on the restatement.
The Company has no items of other comprehensive loss/income, and
therefore the loss/profit for the period is also the total
comprehensive loss/income.
All items in the above statement are derived from continuing
operations. No operations were acquired or discontinued during the
period.
CONDENSED STATEMENT OF CHANGES IN EQUITY
For the six months ended 30 June 2020 (Unaudited)
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 2020 9 403,034,162 (59,772,318) 77,270,167 (10,026,020) 410,505,991
Total comprehensive
loss for the period
attributable
to Shareholders - (45,124,360) - - (45,124,360)
Transactions with
owners
Conversion of C
Shares 9 70,550,462 (3,306,315) (77,270,167) 10,026,020 -
Dividends 16 - (19,220,872) - - (19,220,872)
Ordinary Shares
repurchased 9 (16,500) - - - (16,500)
--------------------- ---- ----------- ------------- ------------ ------------ ------------
70,533,962 (22,527,187) (77,270,167) 10,026,020 (19,237,372)
--------------------- ---- ----------- ------------- ------------ ------------ ------------
Shareholders' Equity
at
30 June 2020 9 473,568,124 (127,423,865) - - 346,144,259
--------------------- ---- ----------- ------------- ------------ ------------ ------------
Refer to Corporate Activity and Note 9 for details on the
conversion of the Company's C Shares into Ordinary Shares.
For the six months ended 30 June 2019 (Unaudited)
Note Retained
Stated Capital Earnings Stated Retained
Ordinary Ordinary Capital Earnings
Share Share C Share C Share Total
EUR EUR EUR EUR EUR
----------------------- ---- -------------- ------------ ---------- ----------- ------------
Shareholders' Equity
at
1 January 2019 9 404,962,736 (78,575,592) - - 326,387,144
Total comprehensive
income for the period
attributable
to Shareholders - 49,721,690 - 2,016,338 51,738,028
Transactions with
owners
Issuance of Shares 9 - - 77,270,167 - 77,270,167
Dividends 16 - (20,235,022) - (4,673,458) (24,908,480)
Ordinary Shares
repurchased 9 (1,928,574) - - - (1,928,574)
----------------------- ---- -------------- ------------ ---------- ----------- ------------
(1,928,574) (20,235,022) 77,270,167 (4,673,458) 50,433,113
----------------------- ---- -------------- ------------ ---------- ----------- ------------
Shareholders' Equity
at
30 June 2019 9 403,034,162 (49,088,924) 77,270,167 (2,657,120) 428,558,285
----------------------- ---- -------------- ------------ ---------- ----------- ------------
CONDENSED STATEMENT OF CASH FLOWS
For the six months ended 30 June 2020 (Unaudited)
Six months ended Six months ended
30 June 2020 30 June 2019
(unaudited) (unaudited)
Restated*
------------------------------------------------------------------------------ ---------------- ----------------
EUR EUR
------------------------------------------------------------------------------ ---------------- ----------------
Cash flow from operating activities
Total comprehensive (loss)/income for the period attributable to Shareholders (45,124,360) 51,738,028
Adjustments to reconcile (loss)/profit after tax to net cash flows:
* Unrealised loss/(gain) on financial assets at fair
value through profit and loss 49,581,770 (43,197,283)
* Realised gain on financial assets at fair value
through profit and loss (4,809,134) (1,539,034)
Purchase of financial assets at fair value through profit or loss (6,994,122) (45,500,000)
Proceeds from sale of financial assets at fair value through profit or loss 28,135,304 67,513,275
Changes in working capital
Decrease in other receivables 146,436 723,478
Increase/(decrease) in payables 159,322 (1,027,009)
------------------------------------------------------------------------------ ---------------- ----------------
Net cash generated from operating activities 21,095,216 28,711,455
------------------------------------------------------------------------------ ---------------- ----------------
Cash flow from financing activities
Proceeds from issuance of shares - 7,446,204
Issue cost - (780,506)
Ordinary Shares repurchased (16,500) (1,928,574)
Increase in intercompany loan 172,126 145,876
Dividends paid (19,220,872) (24,908,480)
------------------------------------------------------------------------------ ---------------- ----------------
Net cash used in financing activities (19,065,246) (20,025,480)
------------------------------------------------------------------------------ ---------------- ----------------
Net increase in cash and cash equivalents 2,029,970 8,685,975
------------------------------------------------------------------------------ ---------------- ----------------
Cash and cash equivalents at the start of the period 11,464,088 11,219,224
------------------------------------------------------------------------------ ---------------- ----------------
Cash and cash equivalents at the end of the period 13,494,058 19,905,199
------------------------------------------------------------------------------ ---------------- ----------------
Supplemental disclosure of non-cash 30 June 2019
flow information
(unaudited)
---------------------------------------- --------------
EUR
---------------------------------------- --------------
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
---------------------------------------- --------------
* Refer to Note 11 for details on the restatement.
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
For the six months ended 30 June 2020
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 30 June 2020, the Company's stated capital comprised
480,496,838 Ordinary Shares of no par value (31 December 2019:
402,319,490), each carrying the right to 1 vote; 2,405,956 Ordinary
Shares held in treasury (31 December 2019: 2,380,956); and no C
Shares (31 December 2019: 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 30 June 2020. The Company also holds
304,380,499 Class B CSWs (31 December 2019: 319,758,584) issued by
the Lux Subsidiary. The Company also holds two 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, which comprise standards and interpretations approved by the
International Accounting Standards Board, and interpretations
issued by the International Financial Reporting Standards and
Standing Interpretations Committee as approved by the International
Accounting Standards Committee which remain in effect. The Half
Yearly Financial Report has been prepared in accordance with IAS 34
Interim Financial Reporting. The accounting policies adopted are
consistent with those of the previous financial year and
corresponding interim period.
The Half Yearly Financial Report has been prepared on a going
concern basis. After reviewing the Company's budget and cash flow
forecast for the next financial period and taking into
consideration the ongoing effect of the COVID-19 outbreak, the
Directors are satisfied that, at the time of approving the
condensed interim financial statements, it is appropriate to adopt
the going concern basis in preparing the condensed interim
financial statements.
There have been no changes in accounting policies during the
period.
The accounting policies in respect of financial instruments are
set out in Note 2.2 due to the significance of financial
instruments to the Company.
2.2 Financial instruments
Investments and other financial assets
(i) Initial recognition
The Company recognises a financial asset or a financial
liability in its Condensed Statement of Financial Position when,
and only when, the Company becomes party to the contractual
provisions of the instrument.
Purchases and sales of investments are recognised on the trade
date - the date on which the Company commits to purchase or sell
the investment.
(ii) Classification
The Company classifies its financial assets in the following
measurement categories:
-- those to be measured subsequently at fair value (either
through OCI, or through profit or loss); and
-- those to be measured at amortised cost.
The classification depends on the entity's business model for
managing the financial assets and the contractual terms of the cash
flows.
For assets measured at fair value, gains and losses are either
to be recorded in profit or loss or OCI. For investments in equity
instruments that are not held for trading, this will depend on
whether the Company has made an irrevocable election at the time of
initial recognition to account for the equity instrument at
FVOCI.
The Company reclassifies debt instruments when and only when its
business model for managing those assets changes.
(iii) Measurement
At initial recognition, the Company measures a financial asset
at its fair value plus, in the case of a financial asset not at
FVPL, transaction costs that are directly attributable to the
acquisition of the financial asset. Transaction costs of financial
assets carried at FVPL are expensed in profit or loss.
Debt instruments
Subsequent measurement of debt instruments depends on the
Company's business model for managing the asset and the cash flow
characteristics of the asset. The Company's business model is to
manage its debt instruments and to evaluate their performance on a
fair value basis. The Company's policy requires the Portfolio
Adviser and the Board to evaluate the information about these
financial assets on a fair value basis together with other related
financial information. Consequently, these debt instruments are
measured at fair value through profit or loss.
Equity instruments
The Company subsequently measures all equity investments at fair
value. Dividends from such investments are recognised in profit or
loss as other income when the Company's right to receive payments
is established.
Changes in fair value of financial assets at FVPL are recognised
in "net (loss)/gain on financial assets at fair value through
profit or loss" in the Condensed Statement of Comprehensive
Income.
(iv) Derecognition
Financial assets are derecognised when the rights to receive
cash flows from the investments have expired or the Company has
transferred substantially all risks and rewards of ownership.
(v) Fair value estimation
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date.
As at 30 June 2020, the Company held 304,380,499 CSWs, 2,000,000
Class A shares and 1 Class B share issued by the Lux Subsidiary
(the "Investments") (31 December 2019: 319,758,584 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 as of the Condensed Statement of Financial Position date.
The Directors, through ongoing communication with the Portfolio
Adviser including quarterly meetings, discuss the performance of
the Portfolio Adviser and the underlying portfolio and in addition
review monthly investment performance reports. The Directors
analyse the BGCF portfolio in terms of the investment mix in the
portfolio. The Directors also consider the impact of general credit
conditions and more specifically credit events in the US and
European corporate environment on the valuation of the CSWs, PPNs
and the BGCF portfolio.
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 Condensed Statement of
Comprehensive Income when the liabilities are derecognised.
The Company derecognises a financial liability when the
obligation specified in the contract is discharged, cancelled or
expires.
2.3 Shares in issue
The shares of the Company are classified as equity, based on the
substance of the contractual arrangements and in accordance with
the definition of equity instruments under IAS 32 Financial
Instruments: Presentation ("IAS 32").
The proceeds from the issue of shares are recognised in the
Condensed Statement of Changes in Equity, net of the incremental
issuance costs.
Share repurchased by the Company are deducted from equity. No
gain or loss is recognised in the Condensed Statement of
Comprehensive Income on the purchase, sale or cancellation of the
Company's own equity instruments. The consideration paid or
received is recognised directly in the Condensed Statement of
Changes in Equity. Shares repurchased are recognised on the trade
date.
2.4 Taxation
Profit arising in the Company for the period of assessment will
be subject to Jersey tax at the standard corporate income tax rate
of 0% (30 June 2019: 0%).
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 Condensed 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 Condensed Statement
of Comprehensive Income as Income distributions from CLOs. Income
from the CLOs is recognised on an accruals basis.
2.6 Critical accounting judgements and estimates
The preparation of the financial statements in conformity with
IFRS requires management to make judgements, estimates and
assumptions that affect items reported in the Condensed Statement
of Financial Position and Condensed 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 2.2 for further details on the significant
estimates applied in the valuation of the company's financial
instruments.
Judgements
(b) Non-consolidation of the Lux Subsidiary
The Company meets the definition of an Investment Entity as
defined by IFRS 10 and is required to account for its investment at
fair value through profit or loss.
The Company has multiple unrelated investors and holds multiple
investments in the Lux Subsidiary. The Company has been deemed to
meet the definition of an Investment Entity per IFRS 10 as the
following conditions exist:
-- the Company has obtained funds for the purpose of providing
investors with investment management services;
-- the Company's business purpose, which has been communicated
directly to investors, is investing solely for returns from capital
appreciation, investment income, or both; and
-- the performance of investments made through the Lux
Subsidiary is measured and evaluated on a fair value basis.
The Company has also considered the typical characteristics of
an investment entity per IFRS 10 in assessing whether it meets the
definition of an Investment Entity.
The Company controls the Lux Subsidiary through its 100% holding
of the voting rights and ownership. The Lux Subsidiary is
incorporated in Luxembourg.
Refer to Note 10 for further disclosures relating to the
Company's interest in the Lux Subsidiary.
3 Operating expenses
Six months ended
Six months ended 30 June 2019
30 June 2020 (unaudited) (unaudited)
EUR EUR
------------------------------------------------ ------------------------------------ ----------------
Professional fees 214,194 153,139
Administration fees 162,427 185,732
Brokerage fees 42,760 45,726
Regulatory fees 17,059 15,209
Directors' fees and other expenses (see Note 4) 132,534 140,239
Audit fees and audit related fees 123,823 126,723
Registrar fees 37,263 12,336
Sundry expenses 13,086 24,896
743,146 704,000
------------------------------------------------ ------------------------------------ ----------------
Administration fees
Under the administration agreement, the Administrator is
entitled to receive variable fees based on the Published NAVs of
the Company for the provision of administrative and compliance
oversight services and a fixed fee for the provision of company
secretarial services. The overall charge for the above-mentioned
fees for the Company for the six months ended 30 June 2020 was
EUR162,427 (30 June 2019: EUR185,732) and the amount due at 30 June
2020 was EUR75,895 (31 December 2019: EUR56,600).
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. On this basis, the Portfolio Adviser recharged
EUR82,612 to the Company (30 June 2019: EURNil) comprising
primarily legal fees of EUR80,359 for the period ended 30 June
2020. This amount has been included under Professional fees for the
six months ended 30 June 2020.
Audit and non-audit fees
The Company incurred EUR123,823 (30 June 2019: EUR126,723) in
audit and audit-related fees during the period of which EUR119,612
(31 December 2019: EUR65,497) was outstanding at the period
end.
The Company did not incur any (30 June 2019: EURNil) non-audit
fees during the period and no amount was outstanding as at 30 June
2020 (31 December 2019: EUR13,955 outstanding). The table below
outlines the audit, audit related and non-audit services received
during the period.
Six months ended Six months ended
30 June 2020 30 June 2019
(unaudited) (unaudited)
EUR EUR
--------------------------------------------------------------------------- ----- ---------------- ----------------
Audit of the Company for the year ending 31 December 2020/2019 55,571 41,894
Additional fee for the audit for the year ended 31 December 2018 - 20,924
Audit related services - review of interim financial report 68,252 54,734
Other audit related services - Reporting Accountant - for the year ended 31
December 2018 - 9,171
---------------------------------------------------------------------------------- ---------------- ----------------
Total audit and audit related services 123,823 126,723
---------------------------------------------------------------------------------- ---------------- ----------------
Tax advisory services - -
Total non-audit services - -
--------------------------------------------------------------------------- ----- ---------------- ----------------
Total fees to Deloitte LLP and member firms 123,823 126,723
---------------------------------------------------------------------------------- ---------------- ----------------
Professional fees
Professional fees comprise EUR87,532 in legal fees and
EUR126,662 in other professional fees. In 2019, professional fees
comprised EUR96,380 in legal fees and EUR56,759 in other
professional fees.
4 Directors' fees
The Company has no employees. The Company incurred EUR131,096
(30 June 2019: EUR131,156) in Directors' fees (consisting
exclusively of short-term benefits) during the period of which
EUR63,641 (31 December 2019: EUR55,467) was outstanding at the
period end.
No pension contributions were payable in respect of any of the
Directors.
Refer above for details on the Directors' interests.
5 Other receivables
As at As at
30 June 2020 31 December 2019
(unaudited) (audited)
EUR EUR
-------------------- ------------- -----------------
Prepayments 13,898 28,453
Interest receivable 72,140 204,021
-------------------- ------------- -----------------
86,038 232,474
-------------------- ------------- -----------------
6 Financial assets at fair value through profit or loss
As at As at As at As at
30 June 2020 31 December 2019 31 December 2019 31 December 2019
(unaudited) (unaudited) (audited) (audited)
Total Ordinary Share class C Share Total
class
------------------------------------------- ------------- -------------------- ----------------- -----------------
EUR EUR EUR EUR
------------------------------------------- ------------- -------------------- ----------------- -----------------
Financial assets at fair value through
profit or loss - Lux Co 333,421,795 338,476,744 57,915,527 396,392,271
------------------------------------------- ------------- -------------------- ----------------- -----------------
Financial assets at fair value through
profit or loss - CLOs 249,430 - 3,192,772 3,192,772
------------------------------------------- ------------- -------------------- ----------------- -----------------
Financial assets at fair value through profit or loss - Lux Co
consists of 304,380,499 CSWs, 2,000,000 Class A shares and 1 Class
B share issued by the Lux Subsidiary (31 December 2019: 319,758,584
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 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 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.
Fair value hierarchy
30 June 2020 (unaudited) Level 1 Level 2 Level 3 Total
EUR EUR EUR EUR
Financial assets at fair value
through profit or loss - Lux
Co - - 333,421,795 333,421,795
------------------------------- ------- ------- ----------- -----------
Financial assets at fair value
through profit or loss - CLOs - - 249,430 249,430
------------------------------- ------- ------- ----------- -----------
31 December 2019 (audited) 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
------------------------------- ------- ------- ----------- -----------
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 both the Lux Subsidiary and BGCF.
The Company determines the fair value of the CLOs held directly
using third party valuations. The Portfolio Adviser can challenge
the marks if they appear off-market or unrepresentative of fair
value.
During the six months ended 30 June 2020 and the year ended 31
December 2019, 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:
30 June 2020 (unaudited) Total
EUR
--------------------------------------------- ------------
Balance as at 1 January 2020 396,392,271
Purchases - CSWs 6,800,000
Sale proceeds - CSWs (27,270,942)
Realised gain on financial assets at fair
value through profit or loss 4,754,158
Unrealised loss on financial assets at fair
value through profit or loss (47,253,692)
---------------------------------------------- ------------
Balance as at 30 June 2020 333,421,795
---------------------------------------------- ------------
Realised gain on financial assets at fair
value through profit or loss 4,754,158
Total change in unrealised loss on financial
assets for the period (47,253,692)
Net loss on financial assets at fair value
through profit or loss - Lux Co (42,499,534)
---------------------------------------------- ------------
Financial assets at fair value through profit or loss
reconciliation
31 December 2019 (audited) 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
---------------------------------------------- ------------
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:
30 June 2020 (unaudited) Total
EUR
--------------------------------------------- -----------
Balance as at 1 January 2020 3,192,772
PIK capitalised 194,122
Sale proceeds - CLOs (864,362)
Realised gain on financial assets at fair
value through profit or loss 54,976*
Unrealised loss on financial assets at
fair value through profit or loss (2,328,078)
---------------------------------------------- -----------
Balance as at 30 June 2020 249,430
---------------------------------------------- -----------
Realised gain on financial assets at fair
value through profit or loss 158,632*
Total change in unrealised loss on financial
assets for the period (2,328,078)
Net loss on financial assets at fair value
through profit or loss - CLOs (2,169,446)
---------------------------------------------- -----------
* The difference between these two figures of EUR103,656 relates
to a realised gain on the management fee rebate element arising
from two of the previously directly held CLOs whereby DFM was the
CLO manager.
31 December 2019 (audited) 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 gain on financial assets at fair value
through profit or loss (4,224,550)
Total change in unrealised loss on financial
assets for the period (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.
Please refer Other Information and Note 2.2 for the valuation
methodology of financial assets at fair value through profit and
loss.
The Company's investments, through the Lux Subsidiary, in BGCF
are untraded and illiquid. The Board has considered these factors
and concluded that there is no further need to apply a discount for
illiquidity as at the end of the reporting period.
Quantitative information of significant unobservable inputs and
sensitivity analysis to significant changes in unobservable inputs
- Level 3
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 30 June 2020 and 31
December 2019 are as shown below:
Asset Class Fair Unobservable Ranges* Weighted Sensitivity
Value Inputs average to changes
in significant
unobservable
inputs
-------------------- ------------ ---------------- -------- --------- -----------------------------
EUR
-------------------- ------------ ---------------- -------- --------- -----------------------------
CSWs 327,369,477 Undiscounted N/A N/A 20% increase/decrease
NAV of will have a
BGCF fair value
impact of +/-
EUR65,473,895
-------------------- ------------ ---------------- -------- --------- -----------------------------
Class A 6,052,318 Undiscounted N/A N/A 20% increase/decrease
and Class NAV of will have a
B shares the fair value
Lux Subsidiary impact of +/-
EUR1,210,464
-------------------- ------------ ---------------- -------- --------- -----------------------------
Total as
at
30 June
2020 (unaudited) 333,421,795
-------------------- ------------ ---------------- -------- --------- -----------------------------
Asset Class Fair Unobservable Ranges* Weighted Sensitivity
Value Inputs average to changes
in significant
unobservable
inputs
-------------------- ------------ ---------------- -------- --------- -----------------------------
CSWs 390,685,286 Undiscounted N/A N/A 20% increase/decrease
NAV of will have a fair value
BGCF impact of +/- EUR78,137,057
------------------- ------------- ---------------- -------- --------- -------------------------------
Class A 5,706,985 Undiscounted N/A N/A 20% increase/decrease
and Class NAV of will
B shares the have a fair
Lux Subsidiary value impact
of +/-
EUR1,141,397
-------------------- ------------ ---------------- -------- --------- -----------------------------
Total as
at
31 December
2019 (audited) 396,392,271
-------------------- ------------ ---------------- -------- --------- -----------------------------
The significant unobservable inputs used in the fair value
measurement of the financial assets at fair value through profit or
loss - CLOs, comprising directly held CLO Mezzanine Notes, within
Level 3 of the fair value hierarchy together with a quantitative
sensitivity analysis as at 30 June 2020 and 31 December 2019 are as
shown below:
Asset Class Fair Value Unobservable Ranges* Weighted Sensitivity
Inputs average to changes
in significant
unobservable
inputs
------------------- ----------- ------------- -------- --------- ----------------------
EUR
------------------- ----------- ------------- -------- --------- ----------------------
Mezzanine Notes
-------------------------------- ------------- -------- --------- ----------------------
20% increase/decrease
Directly will have
Held CLO Third a fair value
Mezzanine party 1.5% impact of
Notes 249,430 valuations - 8.1% 4.4% +/- EUR49,886
------------------- ----------- ------------- -------- --------- ----------------------
Total as
at
30 June
2020 (unaudited) 249,430
------------------- ----------- ------------- -------- --------- ----------------------
Asset Class Fair Unobservable Ranges* Weighted Sensitivity
Value Inputs average to changes
in significant
unobservable
inputs
----------------- ---------- ------------- --------- --------- ----------------------
EUR
----------------- ---------- ------------- --------- --------- ----------------------
Income
Notes
----------------- ---------- ------------- --------- --------- ----------------------
20% increase/decrease
Directly will have
Held CLO Third a fair value
Income party 0% - impact of
Notes 809,385 valuations 35.5% 6.7% +/- EUR161,877
----------------- ---------- ------------- --------- --------- ----------------------
Mezzanine Notes
----------------------------- ------------- --------- --------- ----------------------
20% increase/decrease
Directly will have
Held CLO Third a fair value
Mezzanine party 20.1% impact of
Notes 2,383,387 valuations - 73.0% 43.1% +/- EUR476,677
----------------- ---------- ------------- --------- --------- ----------------------
Total as
at
31 December
2019 (audited) 3,192,772
----------------- ---------- ------------- --------- --------- ----------------------
*The ranges provided in the table above refer to the highest and
lowest marks received across the range of CLOs held. The ranges
reflect the different stages of the lifecycle of each of the CLOs
on an individual basis. The low ranges in the table above are
prices from CLOs which have been called and are in wind-down.
7 Intercompany loan
As at As at As at As at
31 December 31 December 31 December
30 June 2020 2019 2019 2019
(unaudited) (audited) (audited) (audited)
Ordinary C Share
Total Share Class Class Total
---------------------------------------- ------------- ------------ ------------ ------------
EUR EUR EUR EUR
---------------------------------------- ------------- ------------ ------------ ------------
Intercompany loan - payable
to the Lux Subsidiary 706,786 534,660 - 534,660
---------------------------------------- ------------- ------------ ------------ ------------
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
30 June 2020 31 December 2019
(unaudited) (audited)
EUR EUR
----------------------------------- ------------- -----------------
Professional fees 70,500 24,660
Administration fees 75,895 56,600
Brokerage fees 19,040 -
Regulatory fees 3,528 -
Directors' fees 63,641 55,467
Audit fees 119,612 65,497
Registrar fees 5,409 4,398
Intercompany loan interest payable 12,521 7,598
Other payables 30,130 26,734
Total payables 400,276 240,954
----------------------------------- ------------- -----------------
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 Shares Number of shares Stated capital
EUR
----------------------------------------- ---------------- --------------
As at 1 January 2020 402,319,490 403,034,162
Issue of Ordinary Shares upon conversion
of C Shares 78,202,348 70,550,462
Shares repurchased during the period
and held in treasury (25,000) (16,500)
----------------------------------------- ---------------- --------------
Total Ordinary Shares as at 30 June
2020 (unaudited) 480,496,838 473,568,124
----------------------------------------- ---------------- --------------
C Shares Number of Stated capital
shares
EUR
------------------------------------ ------------- --------------
As at 1 January 2020 133,451,107 77,270,167
C Share conversion and cancellation (133,451,107) (77,270,167)
------------------------------------ ------------- --------------
Total C Shares as at 30 June - -
2020 (unaudited)
------------------------------------ ------------- --------------
Allotted, called up and fully-paid
Ordinary Shares Number of shares Stated capital
EUR
---------------------------------------- ---------------- --------------
As at 1 January 2019 404,700,446 404,962,736
Shares repurchased during the period
and held in treasury (2,380,956) (1,928,574)
---------------------------------------- ---------------- --------------
Total Ordinary Shares as at 31 December
2019 (audited) 402,319,490 403,034,162
---------------------------------------- ---------------- --------------
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 (audited) 133,451,107 77,270,167
--------------------------------- ---------------- --------------
Total issued share capital as at
31 December 2019 (audited) 535,770,597 480,304,329
--------------------------------- ---------------- --------------
Ordinary Shares
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 2019 AGM for cancellation or to be
held as treasury shares. Under this authority, on 30 June 2020, the
Company purchased 25,000 of its Ordinary Shares of no par value at
a total cost of EUR16,500. These Ordinary Shares are being held as
treasury shares.
As at 30 June 2020, the Company had 480,496,838 Ordinary Shares
in issue and 2,405,956 Ordinary Shares in treasury (31 December
2019: 402,319,490 Ordinary Shares in issue and 2,380,956 Ordinary
Shares in treasury).
Refer to Note 18 for further details on repurchases of Ordinary
Shares under the 2019 AGM authority subsequent to the reporting
period.
At the 2020 AGM, held on 16 July 2020, the Directors were
granted authority to repurchase up to 14.99% of the issued share
capital as at the date of the 2020 AGM for cancellation or to be
held as treasury shares. Refer to Note 18 for further details on
repurchases of Ordinary Shares under the 2020 AGM authority
subsequent to the reporting period. This authority will expire at
the 2021 AGM. The Directors intend to seek annual renewal of this
authority from Shareholders.
At the 2020 AGM, the Directors were granted authority to allot,
grant options over or otherwise dispose of up to 48,041,684 Shares
(being equal to 10.00% of the Shares in issue at the date of the
AGM). This authority will expire at the 2021 AGM.
Voting rights - Ordinary Class
Holders of Ordinary Shares have the right to receive income and
capital from assets attributable to such class. Ordinary
Shareholders have the right to receive notice of general meetings
of the Company and have the right to attend and vote at all general
meetings.
Dividends
The Company may, by resolution, declare dividends in accordance
with the respective rights of the Shareholders, but no such
dividend shall exceed the amount recommended by the Directors. The
Directors may pay fixed rate and interim dividends.
A general meeting declaring a dividend may, upon the
recommendation of the Directors, direct that payment of a dividend
shall be satisfied wholly or partly by the issue of Ordinary Shares
or the distribution of assets and the Directors shall give effect
to such resolution.
Except as otherwise provided by the rights attaching to or terms
of issue of any Shares, all dividends shall be apportioned and paid
pro rata according to the amounts paid on the Shares during any
portion or portions of the period in respect of which the dividend
is paid. No dividend or other monies payable in respect of a Share
shall bear interest against the Company.
The Directors may deduct from any dividend or other monies
payable to a Shareholder all sums of money (if any) presently
payable by the holder to the Company on account of calls or
otherwise in relation to such Shares.
Any dividend unclaimed after a period of 10 years from the date
on which it became payable shall, if the Directors so resolve, be
forfeited and cease to remain owing by the Company.
The dividends declared by the Board during the period are
detailed above.
Please refer to Note 18 for dividends declared after the period
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 30 June 2020
comprises shareholders' equity at a total of EUR346,144,259 (31
December 2019: EUR410,505,991).
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 in the Annual Report
and Audited Financial Statements for the year ended 31 December
2019 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 30 June 2020, the Company had no C Shares
in issue (30 June 2019: 133,451,107) following the conversion and
cancellation as described below.
Voting rights - C Class
Holders of C Shares had the right to receive income and capital
from the C Share assets attributable to such class. C Shareholders
did 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 were 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 - EUR70,550,462 (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 were converted 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 Interests in other entities
Interests in unconsolidated structured entities
IFRS 12 "Disclosure of Interests in Other Entities" defines a
structured entity as an entity that has been designed so that
voting or similar rights are not the dominant factor in deciding
who controls the entity, such as when any voting rights relate to
the administrative tasks only and the relevant activities are
directed by means of contractual agreements. A structured entity
often has some of the following features or attributes:
-- restricted activities;
-- a narrow and well-defined objective;
-- insufficient equity to permit the structured entity to
finance its activities without subordinated financial support;
and
-- financing in the form of multiple contractually linked
instruments that create concentrations of credit or other
risks.
Involvement with unconsolidated structured entities
The Directors have concluded that the CSWs and voting shares of
the Lux Subsidiary in which the Company invests, but that it does
not consolidate, meet the definition of a structured entity.
The Directors have also concluded that BGCF also meets the
definition of a structured entity.
The Directors have also concluded that CLOs in which the Company
invests, that are not subsidiaries for financial reporting
purposes, meet the definition of structured entities because:
-- the voting rights in the CLOs are not dominant rights in
deciding who controls them, as they relate to administrative tasks
only;
-- each CLO's activities are restricted by its Prospectus; and
-- the CLOs have narrow and well-defined objectives to provide
investment opportunities to investors.
Interests in subsidiary
As at 30 June 2020, 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 2019: 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 periods ended 30 June 2020
and 31 December 2019, nor had it any intention of providing
financial or other support.
The Company has an intercompany loan payable to the Lux
Subsidiary as at 30 June 2020 and 31 December 2019. Refer to Note 7
for further details.
11 Segmental reporting
As per IFRS 8 Operating Segments, an operating segment is a
component of an entity
-- that engages in business activities from which it may earn revenues and incur expenses;
-- whose operating results are reviewed regularly by the
entity's chief operating decision maker to make decisions about
resources to be allocated to the segment and assess its
performance; and
-- for which discrete financial information is available.
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 as at 1
October 2019) reinvested into CSWs in the Lux Subsidiary and
subsequently into PPNs in BGCF, the Board classified the Company
into one operating segment as at 31 December 2019 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 ended 31 December 2019, the Board considered it to
be appropriate to disclose the performance of both the Ordinary
Share and C Share Classes in the Annual Report and Audited
Financial Statements for the year ended 31 December 2019.
During the six months ended 30 June 2020, the Board classified
the Company into one operating segment - the Ordinary Share Class.
The comparatives for 31 December 2019 and 30 June 2019 have been
restated to present the Company's financial position at 31 December
2019 and the performance for the six months ended 30 June 2019 in
aggregate as opposed to two operating segments.
During the period ended 30 June 2020 and year ended 31 December
2019, 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.
12 Basic and diluted (loss)/earnings per Share
As at
30 June 2020 As at
30 June 2019
(unaudited) (unaudited)
Restated
----------------------------------------------- ------------- -------------
EUR EUR
----------------------------------------------- ------------- -------------
Total comprehensive (loss)/income for the
period (45,124,360) 51,738,028
Weighted average number of shares during
the period 477,514,055 482,575,727
Basic and diluted (loss)/earnings per Ordinary
Share (0.0945) 0.1072
----------------------------------------------- ------------- -------------
13 Net asset value per Ordinary Share
As at
30 June 2020 As at
31 December 2019
(unaudited) (audited)
EUR EUR
------------------------------------ ------------- -----------------
IFRS Net asset value 346,144,259 410,505,991
Number of Ordinary Shares at period
end 480,496,838 480,521,838
------------------------------------ ------------- -----------------
IFRS Net asset value per Ordinary
Share 0.7204 0.8543
------------------------------------ ------------- -----------------
The number of Ordinary Shares at 30 June 2020 and 31 December
2019 has been calculated as follows:
As at As at
30 June 2020 31 December 2019
(unaudited) (audited)
C Shares - 133,451,107
Conversion ratio (as detailed
in Note 9) - 0.5860
New Ordinary Shares - 78,202,348
Add: Existing Ordinary Shares 480,496,838 402,319,490
Number of Ordinary Shares
at period end 480,496,838 480,521,838
------------------------------ ------------- -----------------
14 Reconciliation of Published NAV to IFRS NAV per the financial statements
Ordinary Shares As at As at
30 June 2020 31 December 2019
(unaudited) (audited)
NAV NAV per share NAV NAV per share
--------------------------- ------------- ------------- ------------- -------------
EUR EUR EUR EUR
--------------------------- ------------- ------------- ------------- -------------
Published NAV attributable
to Shareholders 393,016,334 0.8179 441,434,524 0.9187
Adjustment - valuation (46,872,075) (0.0975) (30,928,533) (0.0644)
NAV per the financial
statements 346,144,259 0.7204 410,505,991 0.8543
--------------------------- ------------- ------------- ------------- -------------
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.
Refer to Note 18 for further details on the Published NAV.
15 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 period
comprised:
Transactions with entities with significant influence
As at 30 June 2020, Blackstone Asia Treasury Pte held 43,000,000
Ordinary Shares in the Company (31 December 2019: 43,000,000).
Transactions with key management personnel
The Directors are the key management personnel as they are the
persons who have the authority and responsibility for planning,
directing and controlling the activities of the Company. The
Directors are entitled to remuneration for their services. Refer to
Note 4 for further detail.
Transactions with other related parties
At 30 June 2020, current employees of the Portfolio Adviser and
its affiliates, and accounts managed or advised by them, hold
24,875 Ordinary shares (31 December 2019: 24,875) which represents
0.005% (31 December 2019: 0.006%) of the issued shares of the
Company.
The Company has exposure to the CLOs originated by BGCF, through
its investment in the Lux Subsidiary. DFME is also appointed as a
service support provider to BGCF and as the collateral manager to
the European subsidiaries. GSO / Blackstone Debt Funds Management
LLC has been appointed as the collateral manager to Dorchester Park
CLO Designated Activity Company and US CLOs securitised through the
US MOA. In addition, it has entered into a management agreement
with the US MOA.
Transactions with Subsidiaries
The Company held 304,380,499 CSWs as at 30 June 2020 (31
December 2019: 319,758,584) following the issuance of 6,800,000 (31
December 2019: 64,524,232) and redemption of 22,178,085 (31
December 2019: 36,108,861) CSWs by the Lux Subsidiary. Refer to
Note 6 for further details.
As at 30 June 2020, 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 2019: 2,000,000 Class A shares and 1
Class B share in the Lux Subsidiary with a nominal value of
EUR2,000,001).
As at 30 June 2020, the Company held an intercompany loan
payable to the Lux Subsidiary amounting to EUR706,786 (31 December
2019: EUR534,660).
16 Dividends
The Company declared and paid the following dividends on
Ordinary Shares during the six months ended 30 June 2020:
Period in respect Date Declared Ex-dividend Payment Date Amount per Amount paid
of Date Ordinary
Share
------------------ -------------- ------------ ------------- ---------- -----------
EUR EUR
------------------ -------------- ------------ ------------- ---------- -----------
1 Oct 2019 to 31 21 Jan
Dec 2020 2020 30 Jan 2020 28 Feb 2020 0.0250 12,013,045
1 Jan 2020 to 31 23 Apr
Mar 2020 2020 30 Apr 2020 29 May 2020 0.0150 7,207,827
------------------ -------------- ------------ ------------- ---------- -----------
Total 19,220,872
--------------------------------------------------------------- ---------- -----------
The Company declared and paid the following dividends on
Ordinary Shares and C Shares during the six months ended 30 June
2019:
Period in respect Date Declared Ex-dividend Payment Date Amount per Amount paid
of Date Ordinary
Share
------------------ -------------- ------------ ------------- ---------- -----------
EUR EUR
------------------ -------------- ------------ ------------- ---------- -----------
1 Oct 2018 to 31 22 Jan
Dec 2018 2019 31 Jan 2019 1 Mar 2019 0.0250 10,117,511
1 Jan 2019 to 31 18 Apr
Mar 2019 2019 2 May 2019 31 May 2019 0.0250 10,117,511
------------------ -------------- ------------ ------------- ---------- -----------
Total 20,235,022
--------------------------------------------------------------- ---------- -----------
Period in respect Date Declared Ex-dividend Payment Date Amount per Amount paid
of Date C Share
------------------ -------------- ------------ ------------- ---------- -----------
EUR EUR
------------------ -------------- ------------ ------------- ---------- -----------
1 Oct 2018 to 31 22 Jan
Dec 2018 2019 31 Jan 2019 1 Mar 2019 0.01452 1,937,710
1 Jan 2019 to 31 18 Apr
Mar 2019 2019 2 May 2019 31 May 2019 0.0205 2,735,748
------------------ -------------- ------------ ------------- ---------- -----------
Total 4,673,458
--------------------------------------------------------------- ---------- -----------
17 Controlling party
In the Directors' opinion, the Company has no ultimate
controlling party.
18 Events after the reporting period
The Board has evaluated subsequent events for the Company
through to 18 September 2020, the date the condensed interim
financial statements are available to be issued, and, other than
those listed below, concluded that there are no material events
that require disclosure or adjustment to the financial
statements.
On 21 July 2020, the Company declared a dividend of EUR0.015 per
Ordinary Share in respect of the period from 1 April 2020 to 30
June 2020. A total payment of EUR7,205,128 was made on 28 August
2020.
During the period from 1 July 2020 to 18 September 2020, the
Company repurchased:
a) under the 2019 AGM authority, 80,000 of its Ordinary Shares
of no par value at a total cost of EUR53,600 (excluding fees and
commissions); and
b) under the 2020 AGM authority, 337,500 of its Ordinary Shares
of no par value at a total cost of EUR226,100 (excluding fees and
commissions).
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 Link Asset Services (Jersey)
Management Europe Limited Limited
30 Herbert Street 12 Castle Street
2(nd) Floor St Helier
Dublin 2, Ireland Jersey, JE2 3RT, Channel Islands
---------------------------------- ----------------------------------
Administrator / Company Secretary Auditor
/ Custodian / Depositary
---------------------------------- ----------------------------------
BNP Paribas Securities Services Deloitte LLP
S.C.A. Gaspé House
IFC 1 66-72 Esplanade
The Esplanade St Helier
St Helier JE2 3QT
Jersey Channel Islands
JE1 4BP, Channel Islands
Legal Adviser to the Company Legal Adviser to the Company
(as to Jersey Law) (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 Cannon Bridge House, 25 Dowgate
Kingdom Hill
London, EC4R 2GA, United Kingdom
GLOSSARY
TERM DEFINITION
"AGM" Annual General Meeting
"AIC" the Association of Investment
Companies, of which the Company
is a member
"AIC Code" the AIC Code of Corporate Governance
for Jersey companies
"AIFMD" Alternative Investment Fund
Managers' Directive
"AIFs" Alternative investment funds
"Articles" the Articles of Incorporation
of the Company
"BGCF" Blackstone / GSO Corporate Funding
Designated Activity Company
"BGCF Facility" BGCF entered into a facility
agreement dated 1 June 2017,
as amended, between (1) BGCF
(as borrower), (2) Citibank
Europe plc, UK Branch (as administration
agent), (3) Bank of America
N.A. London Branch (as an initial
lender), (4) BNP Paribas (as
an initial lender), (5) Deutsche
Bank AG, London Branch (as initial
lender), (6) Citibank N.A. London
Branch (as account bank, custodian
and trustee) and (7) Virtus
Group LP (as collateral administrator)
"BGLC" Ticker for the Company's C Share
Quote
"BGLF" or the Blackstone / GSO Loan Financing
"Company" Limited
"BGLP" Ticker for the Company's Sterling
Quote
"Board" the Board of Directors of the
Company
"CSWs" Cash Settlement Warrants
"CLOs" Collateralised Loan Obligations
"DFM or the "Portfolio GSO / Blackstone Debt Funds
Manager" or the Management LLC
"Rollover Portfolio
Manager"
"DFME" or the Blackstone / GSO Debt Funds
"Portfolio Adviser" Management Europe Limited
"DTR" Disclosure Guidance and Transparency
Rules
"Discount" / "Premium" calculated as the NAV per share
as at the period end less BGLF's
closing share price on the London
Stock Exchange, divided by the
NAV per share as at that date
"Dividend yield" calculated as the last four
quarterly dividends declared
divided by the share price as
at the period end
"ECB" European Central Bank
"EU" European Union
"FCA" Financial Conduct Authority
(United Kingdom)
"Fed" Federal Reserve
"FRC" Financial Reporting Council
(United Kingdom)
"FVPL" Fair value through profit or
loss
"FVOCI" Fair value through other comprehensive
income
"GSO" GSO Capital Partners LP
"IFRS" International Financial Reporting
Standards
"IFRS NAV" Gross assets less liabilities
(including accrued but unpaid
fees) determined in accordance
with IFRS as adopted by the
EU
"LCD" S&P Global Market Intelligence's
Leveraged Commentary & Data
provides in-depth coverage of
the leveraged loan market through
real-time news, analysis, commentary,
and proprietary loan data
"Loan Warehouse" A special purpose vehicle incorporated
for the purposes of warehousing
US and/or European floating
rate senior secured loans and
bonds
"LSE" London Stock Exchange
"LTM" Last twelve months
"Lux Subsidiary" Blackstone / GSO Loan Financing
(Luxembourg) S. à r.l
"NAV" Net asset value
"NAV total return Calculated as the increase /
per share" decrease in the NAV per share
plus the total dividends paid
per share during the period,
with such dividends paid being
re-invested at NAV, as a percentage
of the NAV per share
"NIM" Net interest margin
"OC" Over-Collateralisation
"OCI" Other Comprehensive Income
"PPNs" Profit Participating Notes
"Published NAV" Gross assets less liabilities
(including accrued but unpaid
fees) determined in accordance
with the section entitled "Net
Asset Value" in Part I of the
Company's Prospectus and published
on a monthly basis
"Return" Calculated as the increase /decrease
in the NAV per share plus the
total dividends paid per share,
with such dividends paid being
re-invested at NAV, as a percentage
of the NAV per share.
LTM return is calculated over
the period July 2019 to June
2020.
"RNS" Regulatory News Service
"Rollover Assets" The assets attributable to the
Carador Income Fund plc Rollover
Shares - a pool of CLO assets
from Carador Income Fund plc
"Rollover Offer" As announced by the Board on
28 August 2018, a rollover proposal
to offer newly issued C Shares
to electing shareholders of
Carador Income Fund plc, in
consideration for the transfer
of a pool of CLO assets from
Carador Income Fund plc to the
Company
"SFS" Specialist Fund Segment
"UK Code" UK Corporate Governance Code
2018
"US MOA" United States Majority Owned
Affiliate
"Underlying Company" A company or entity to which
the Company has a direct or
indirect exposure for the purpose
of achieving its investment
objective, which is established
to, among other things, directly
or indirectly, purchase, hold
and/or provide funding for the
purchase of CLO Securities
"WA" Weighted Average
"WARF" Weighted Average Rating Factor
"WAS" Weighted Average Spread
A copy of the Company's Half Yearly 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.
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END
IR BLGDCLSDDGGB
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September 21, 2020 12:50 ET (16:50 GMT)
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