Net Asset Value and Investment Update

RNS Number : 0400W

Sequoia Economic Infra Inc Fd Ld

14 August 2015

 

14 August 2015

Sequoia Economic Infrastructure Income Fund Limited

Net Asset Value as at 31 July 2015 and Investment Update

The Board of Directors of the Company is pleased to announce the unaudited net asset value per Ordinary Share ("NAV") as at 31st July 2015 of 95.58 pence ex-dividend. 

As of the 31st July 2015, the Company owned 12 infrastructure bonds and six loans, collectively valued at £86.9m including accrued interest, with an annualised yield-to-maturity (or yield-to-worst in the case of callable bonds) of 7.4% and a weighted average life across the acquired portfolio of approximately 7.2 years.

Acquisitions in July comprise a US senior secured shipping loan, as well as a senior loan for a large American ethanol producer.

In addition, the Company has purchased two loans and two unlisted bonds (private debt) with an aggregate purchase price of approximately £16.1m which are in the process of settling (and as such are not currently reflected in the NAV).

In aggregate, the purchase price of these 22 transactions will represent approximately 71.1% of the net proceeds of the IPO. The investments are across the UK, Western Europe, Australia and the US and include the road, rail, shipping, utility, elderly care and aircraft leasing sectors. The Company has not disposed of any investments since the IPO. The weighted average purchase price of the Company's investments is approximately 91.7% of par.

The decrease in the Company's NAV of c.0.4% arises primarily from the dividend payment of 1.0 pence per share, offset in part by interest income net of expenses of 0.2% of NAV and portfolio valuation gains of 0.5% of NAV. The effect of exchange rate movements over the month was negligible.

Portfolio Summary

Ten largest investments

Transaction name	Currency	Type	Value £mm	% of NAV	Sector	Sub-sector	Yield to maturity / worst (%)
Biffa TL A	GBP	Private	11.7	8.2%	Utility	Waste	6.59
Danaos Snr Secured 2018	USD	Private	8.4	5.8%	Transport assets	Shipping	7.25
Dulles Greenway 2029	USD	Public	7.6	5.3%	Transport	Road	6.70
North Las Vegas Water 6.572% 2040	USD	Public	7.5	5.3%	Utility	Water	6.76
Global Ship Lease 10% 2019	USD	Public	6.6	4.6%	Transport assets	Shipping	8.37
Green Plains TL B	USD	Private	5.2	3.6%	Other	Alternative fuel	6.32
Care UK L+500 2019	GBP	Public	4.9	3.4%	Accommodation	Elderly Care	6.34
Ascendos Rail 2nd lien	EUR	Private	4.8	3.4%	Transport assets	Rail	6.30
Castlelake 2014-1 B	USD	Private	4.8	3.4%	Transport assets	Aircraft	7.15
Bristow Group 6.25% 2022	USD	Public	4.3	3.0%	Transport assets	Aircraft	7.06
Sub- total / average			65.8	45.9%			6.90
Positions outside top ten			20.1	14.0%			9.08
Portfolio total / average			86.0	59.9%			7.41

NB. Value column above excludes accrued interest and unsettled trades of a further £16.1m.

Market Summary

July was an active month in the infrastructure debt sector with 16 transactions closing in the UK and Europe. Notable deals included the £2.5bn Intercity Express refinancing, a £450m Thames Water Holdco refinancing, a €780m facility for the German Rhine-Ruhr rolling stock, and the €504m private placement for the Calais Port expansion.

Larger European pension funds and insurance companies continue to look at infrastructure debt as an investment asset class. Although it is still early, most of the interest seems to be in the senior space leaving mezzanine an underinvested part of the capital structure.

Although core senior secured infrastructure debt has tightened to LIBOR +100-150 bps, there are opportunities for spread pick-up vs comparable corporates in select sectors such as transportation, utilities and power, particularly in the mezzanine market where yields in the 5-7%+ range are available.

GBP remained steady in July vs the USD at $1.56. Both currencies are facing similar upward pressure due to the Fed and BoE being seen as the two central banks closest to raising rates. GBP fluctuated slightly against EUR between £0.69-0.72, ending the month at £0.70.

Corporate spreads stabilised in July after widening steadily since March. Most of the widening has been in the US as opposed to Europe. Although US investment grade corporate leverage is now higher than its historical average, the macro picture remains supportive for credit. Volatility also dropped during July, with the VIX moving from 16.1% to 12.1% by month end.

Interest rates fell during July. 10-year US Treasury yields dropped 15 bps to 2.03% as the market priced in a more likely rate rise in December as opposed to September due to sustained low core inflation. Although rates softened, the US economy continues to grow at a steady above-trend pace, with July activity suggesting a +3% GDP rate and sustainable employment gains of 200-225k.

Euro rates also softened, with 10-year Bund yields decreasing 11 bps to 72 bps, as Euro area inflation settled in July and June after four months of increases between January and May.

The Company continues to find attractive investment opportunities and is currently slightly ahead of its deployment target set at the IPO.

Current Portfolio vs Target Portfolio

Anticipated portfolio composition changes (based on the Investment Advisor's pipeline of transactions) once the fund's remaining cash has been invested are described below.

The largest anticipated changes are an increase in private debt exposure versus bonds and an increase in European investments versus US investments. Private debt is expected to increase to 64%, from 43% of current invested assets, and bonds are expected to drop to 33% from 57% currently. European exposure is expected to rise to 28%, up from 13% of current invested assets, and US exposure is expected to drop to 41% from 62% currently. The floating rate component is currently 47% of invested assets and we expect this to increase to 52%.

The Investment Adviser also expects to further diversify the portfolio, moving from 10 subsectors as of the end of July 2015 to a target of 12 or more subsectors when fully invested.

Note: The potential changes as the Company deploys capital are subject to change and there can be no assurance that the investments in the pipeline will be acquired and therefore the final composition of the portfolio may differ materially to that described above.

The Company's monthly investor report and additional portfolio disclosure will be made available at http://www.seqifund.com/.

Sequoia Investment Management Company

Randall Sandstrom / Steve Cook                                     Telephone [phone]

Stifel Nicolaus Europe Limited

Neil Winward / Mark Bloomfield / Gaudi Le Roux              Telephone [phone]

International Fund Management Limited

Chris Hickling                                                                Telephone [phone]

About Sequoia Economic Infrastructure Income Fund Limited

The Company is a Guernsey registered closed-ended investment company that seeks to provide investors with regular, sustained, long-term distributions and capital appreciation from a diversified portfolio of senior and subordinated economic infrastructure debt investments. The Company is advised by Sequoia Investment Management Company Limited.

 

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