Financial Express (Holdings) Limited (“we”, “our”, “us” and derivatives) are committed to protecting and respecting your privacy. This Privacy Policy, together with our Terms of Use, sets out the basis on which any personal data that we collect from you, or that you provide to us, will be processed by us relating to your use of any of the below websites (“sites”).

  • FEAnalytics.com
  • FEInvest.net
  • FETransmission.com
  • Investegate.co.uk
  • Trustnet.hk
  • Trustnetoffshore.com
  • Trustnetmiddleeast.com

For the purposes of the Data Protection Act 1998, the data controller is Trustnet Limited of 2nd Floor, Golden House, 30 Great Pulteney Street, London, W1F 9NN. Our nominated representative for the purpose of this Act is Kirsty Witter.

WHAT INFORMATION DO WE COLLECT ABOUT YOU?

We collect information about you when you register with us or use any of our websites / services. Part of the registration process may include entering personal details & details of your investments.

We may collect information about your computer, including where available your operating system, browser version, domain name and IP address and details of the website that you came from, in order to improve this site.

You confirm that all information you supply is accurate.

COOKIES

In order to provide personalised services to and analyse site traffic, we may use a cookie file which is stored on your browser or the hard drive of your computer. Some of the cookies we use are essential for the sites to operate and may be used to deliver you different content, depending on the type of investor you are.

You can block cookies by activating the setting on your browser which allows you to refuse the setting of all or some cookies. However, if you use your browser settings to block all cookies (including essential cookies) you may not be able to access all or part of our sites. Unless you have adjusted your browser setting so that it will refuse cookies, our system will issue cookies as soon as you visit our sites.

HOW WE USE INFORMATION

We store and use information you provide as follows:

  • to present content effectively;
  • to provide you with information, products or services that you request from us or which may interest you, tailored to your specific interests, where you have consented to be contacted for such purposes;
  • to carry out our obligations arising from any contracts between you and us;
  • to enable you to participate in interactive features of our service, when you choose to do so;
  • to notify you about changes to our service;
  • to improve our content by tracking group information that describes the habits, usage, patterns and demographics of our customers.

We may also send you emails to provide information and keep you up to date with developments on our sites. It is our policy to have instructions on how to unsubscribe so that you will not receive any future e-mails. You can change your e-mail address at any time.

In order to provide support on the usage of our tools, our support team need access to all information provided in relation to the tool.

We will not disclose your name, email address or postal address or any data that could identify you to any third party without first receiving your permission.

However, you agree that we may disclose to any regulatory authority to which we are subject and to any investment exchange on which we may deal or to its related clearing house (or to investigators, inspectors or agents appointed by them), or to any person empowered to require such information by or under any legal enactment, any information they may request or require relating to you, or if relevant, any of your clients.

You agree that we may pass on information obtained under Money Laundering legislation as we consider necessary to comply with reporting requirements under such legislation.

ACCESS TO YOUR INFORMATION AND CORRECTION

We want to ensure that the personal information we hold about you is accurate and up to date. You may ask us to correct or remove information that is inaccurate.

You have the right under data protection legislation to access information held about you. If you wish to receive a copy of any personal information we hold, please write to us at 3rd Floor, Hollywood House, Church Street East, Woking, GU21 6HJ. Any access request may be subject to a fee of £10 to meet our costs in providing you with details of the information we hold about you.

WHERE WE STORE YOUR PERSONAL DATA

The data that we collect from you may be transferred to, and stored at, a destination outside the European Economic Area (“EEA”). It may be processed by staff operating outside the EEA who work for us or for one of our suppliers. Such staff may be engaged in, amongst other things, the provision of support services. By submitting your personal data, you agree to this transfer, storing and processing. We will take all steps reasonably necessary, including the use of encryption, to ensure that your data is treated securely and in accordance with this privacy policy.

Unfortunately, the transmission of information via the internet is not completely secure. Although we will do our best to protect your personal data, we cannot guarantee the security of your data transmitted to our sites; any transmission is at your own risk. You will not hold us responsible for any breach of security unless we have been negligent or in wilful default.

CHANGES TO OUR PRIVACY POLICY

Any changes we make to our privacy policy in the future will be posted on this page and, where appropriate, notified to you by e-mail.

OTHER WEBSITES

Our sites contain links to other websites. If you follow a link to any of these websites, please note that these websites have their own privacy policies and that we do not accept any responsibility or liability for these policies. Please check these policies before you submit any personal data to these websites.

CONTACT

If you want more information or have any questions or comments relating to our privacy policy please email publishing@financialexpress.net in the first instance.

 Information  X 
Enter a valid email address

Queens Walk Inv Ltd (RECI)

  Print      Mail a friend

Thursday 11 March, 2010

Queens Walk Inv Ltd

3rd Quarter Results

RNS Number : 4096I
Queen's Walk Investment Limited
11 March 2010
 



                                                                                                                                                         

Queen's Walk Investment Limited

Financial Results Announcement and Accounts for the

Third Quarter Ended 31 December 2009

 

Queen's Walk Investment Limited reports €0.6 million profit for quarter ended 31 December 2009

 

Queen's Walk Investment Limited (the "Company"), a Guernsey-incorporated investment company, has reported a net profit of €0.6 million, or €0.02 per ordinary share (1), for the quarter ended 31 December 2009, compared to a net profit of €3.6 million, or €0.14 per ordinary share (2), for the quarter ended 30 September 2009.

 

Fair value write-downs for the quarter were €2.4 million, compared to €0.6 million of write-ups for the quarter ended 30 September 2009. The Company's net asset value ("NAV") at quarter end was €3.69 per share (2) compared to €3.75 per share (3) at the previous quarter end.

 

The investment portfolio generated more cash than forecast. Total cash proceeds of €8.3 million received in the quarter exceeded the forecast of €5 million. The Company's overall cash position at the end of the quarter was €13.7 million, compared with a forecast of €10.0 million. The cash position was €14.8 million on 30 September 2009.

 

The Board of Directors of the Company has declared an interim dividend of €0.08 per share for the quarter ended 31 December 2009, unchanged from the previous quarter.

 

(1). These calculations per share are based on the weighted average number of Ordinary Shares as shown in Note 8 of the financial statements for the quarter ended 31 December 2009.

(2). These calculations per share are based on the weighted average number of Ordinary Shares as shown in Note 8 of the financial statements for the quarter ended 31 December 2009.

(3). These calculations per share are based on the number of Ordinary Shares outstanding at the end of each respective period.

 

 

Strategy of buying undervalued ABS bonds delivering profit

 

Since the end of the third quarter, Queen's Walk has realised gains on the Investment Grade bonds it began acquiring in 2008. On 22 January 2010, the Company sold €3.4 million (face value) of AAA RMBS bonds, recording an annualised return on these investments of 28.2%.  The average sale price was 92.4 cents versus an average purchase price of 74.2 cents.  This return highlights the Company's success in implementing its strategy of investing in undervalued ABS bonds. 

 

Tom Chandos, Chairman of Queen's Walk Investment Limited, said: "We are very pleased that our strategy of investing in undervalued investment grade bonds is proving successful and believe that market conditions will allow us to take further advantage of these opportunities for the foreseeable future.  The portfolio as a whole continues to generate cash, enabling us to reduce our debt and make regular dividend payments".

 

 

Sale of Portuguese mortgage portfolio supports NAV

 

On 26 February 2010, the Company sold its Magellan 2 mortgage portfolio to the bank that originated these mortgages.  The sale price was in-line with the Company's 31 December 2009 valuation and underscores the NAV at the end of the quarter.  The Magellan 2 portfolio accounted for 8.5% of the investment portfolio as at quarter end.

 

 

Third Quarter Highlights

 

·    Quarterly dividend of €0.08 per share; total paid or declared dividends of €2.37 per share since the IPO.

·    Next quarter cash flow estimated at €4.5 million.

·    Investment Grade portfolio made up 9.8% of assets under management as of 31 December 2009, up from 7.3%.

·    Debt reduced to €8.6 million as at 1 March 2010, down from €22.0 million as at 30 September 2009.

·    Loss adjusted gross cash flow forecast of €161 million.

 

 

Conference Call & Further Information

 

A conference call to review the Company's financial results for the third quarter ended 31 December 2009 will take place at 10:30 AM London time on 11 March 2010. The conference call can be accessed by dialing +44 (0) 20 7138 0817, ten minutes prior to the scheduled start of the call.  Please reference Queen's Walk Investment Limited Third Quarter Results.  A results presentation will be available on the Queen's Walk website (www.queenswalkinv.com).

 

A webcast of the conference call will also be available on a listen-only basis at www.queenswalkinv.com. Please allow extra time prior to the call to visit the site and download the necessary software required to listen to the internet broadcast. A replay of the webcast will be available for three months following the call.

 

For further information please contact:

Investor Relations: Caroline Villiers +44 (0)20 7920 2321

 

About the Company

 

Queen's Walk Investment Limited is a Guernsey-incorporated investment company listed on the London Stock Exchange. The Company invests primarily in a diversified portfolio of subordinated tranches of asset-backed securities, including the unrated "equity" or "first loss" residual income positions typically retained by the banks or other financial institutions which have originated the loan assets that collateralise a securitisation transaction. The Company makes such investments where its investment manager, Cheyne Capital Management (UK) LLP ("Cheyne Capital" or the "Investment Manager"), considers the coupon or cash flows from the investment to be attractive relative to the credit exposure of the underlying asset collateral.

 

This announcement includes statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "forecasts", "estimates", "anticipates", "expects", "intends", "considers", "may", "will" or "should". By their nature, forward-looking statements involve risks and uncertainties and readers are cautioned that any such forward-looking statements are not guarantees of future performance. The Company's actual results and performance may differ materially from the impression created by the forward-looking statements and should not be relied upon. The Company undertakes no obligation to publicly update or revise forward-looking statements, except as may be required by applicable law and regulation (including the Listing Rules).

 

 

 Financial Highlights

 

 
Revenue
Fair value gains and losses
Total
Quarter ended 30 September 2009
Revenue
Fair value gains and losses
Total
Quarter ended 
31 December 2009
Operating Income
4,143,683
 
4,143,683
4,106,756
 
4,106,756
Gains and losses on fair value through profit or loss financial instruments
 
627,299
627,299
 
(2,375,133)
(2,375,133)
 
4,143,683
627,299
4,770,982
4,106,756
(2,375,133)
1,731,623
 
 
 
 
 
 
 
Operating Expenses
(978,049)
 
(978,049)
(979,731)
 
(979,731)
Finance Costs
(158,278)
 
(158,278)
(119,116)
 
(119,116)
Net profit / (loss)
3,007,356
627,299
3,634,655
3,007,909
(2,375,133)
632,776
 
 
 
 
 
 
 
Total Assets
 
 
125,752,331
 
 
120,000,313
Total Liabilities
 
 
25,818,613
 
 
21,565,392
Equity Capital
 
 
99,933,718
 
 
98,434,921
NAV per share
 
 
3.75
 
 
3.69
Shares Outstanding
 
 
26,644,657
 
 
26,644,657

  

Investment Portfolio

 

A breakdown of the Company's investment portfolio by jurisdiction (by reference to underlying asset originator) is set out below. The investment grade bonds are included in the charts and are also detailed in the next section.  Percentages for each asset class are in relation to the value of the Company's investment portfolio excluding cash and hedges. 

 

Queen's Walk Portfolio Breakdown by Jurisdiction as at 30 September 2009

 

Portugal

42.1%

Germany

25.2%

Italy

13.1%

UK

10.3%

Holland

8.6%

France

0.6%

Total (€mm)

104.5

 

 

Queen's Walk Portfolio Breakdown by Jurisdiction as at 31 December 2009

 

Portugal

40.3%

Germany

24.7%

Italy

12.0%

Holland

10.1%

UK

12.0%

France

0.6%

Spain

0.3%

Ireland

0.1%

Total (€mm)

102.8

 

 

A breakdown of the Company's investment portfolio by asset type (by reference to underlying asset collateral) is set out below. Percentages for each asset class are in relation to the value of the Company's investment portfolio, excluding cash and hedges.

 

 

 

Queen's Walk Portfolio Breakdown by Asset Type as at 30 September 2009

 

Prime

55.4%

SME

30.7%

Investment Grade Bonds

8.8%

SubPrime

3.4%

NearPrime

1.1%

Total (€mm)

104.5

 

 

Queen's Walk Portfolio Breakdown by Asset Type as at 31 December 2009

 

Prime

52.8%

SME

30.3%

Investment Grade Bonds

11.4%

SubPrime

3.8%

NearPrime

1.3%

Total (€mm)

102.8

 

N.B. 'Prime' indicates that the underlying pool of loans comprises mortgages made to borrowers with good credit records and whose incomes were verified at the time of the origination.

 

 

European Mortgage Portfolio (44.1% of GAV)

 

The Company's European mortgage residuals continue to perform satisfactorily, generating cash flow for the quarter ended 31 December 2009 of €2.6 million. This was in line with average cash flows of previous quarters.

 

The lower Euribor rate has had a positive effect on the Portuguese mortgage portfolio, with fewer mortgage borrowers falling into arrears.  The percentage of loans in the portfolio which are 90 to 180 days in arrears has decreased since its peak in 2008.

 

90 - 180 days Arrears (Normalised)












Dec-06

Mar-07

Jun-07

Sep-07

Dec-07

Mar-08

Jun-08

Sep-08

Dec-08

Mar-09

Jun-09

Sep-09

Dec-09

Magellan 1

100.0%

109.4%

98.9%

113.5%

120.4%

139.6%

175.2%

137.3%

165.7%

144.6%

138.5%

98.3%

75.8%

Magellan 2

100.0%

123.5%

115.5%

148.9%

160.2%

164.9%

206.9%

224.2%

165.9%

166.4%

181.0%

178.2%

170.0%

Lusitano 1

100.0%

125.5%

112.7%

90.2%

98.7%

110.5%

140.1%

163.7%

118.5%

126.9%

152.6%

153.1%

117.9%

Lusitano 2

100.0%

101.5%

118.9%

149.9%

146.6%

134.6%

149.5%

155.0%

179.0%

161.3%

174.8%

156.9%

137.7%

Lusitano 3

100.0%

130.8%

160.3%

170.2%

167.6%

196.6%

237.6%

234.8%

258.8%

217.2%

263.1%

236.9%

180.3%

 

In the longer term, we expect lower arrears to translate to a lower default rate, if Euribor rates remain low. For the short term, however, the Company is still anticipating higher default rates.  In the quarter ended 31 December 2009, the average default rate of the Portuguese mortgage portfolio rose to 1.49% from 1.41% in the previous quarter.  We have increased the default rate expectation of the Lusitano 1 and Magellan 2 portfolio this quarter to reflect the possibility of a further increase in defaults in the short term. 

 

Write-downs of the Sestante Italian mortgage portfolio were €1.7 million as a result of higher mortgage defaults.  The originator of the mortgages, Meliorbanca was recently purchased by Banca Popolare di Emilia Romagna which has led to complications with respect to mortgage loan servicing.  Cheyne is working with Meliorbanca to improve the quality of servicing in the portfolio. 

 

On 26 February 2010, the Company sold its Magellan 2 mortgage portfolio to the bank that originated these mortgages.  The sale price was in-line with the Company's 31 December 2010 valuation.  Through this sale, the Company's exposure to the Portuguese market has fallen to 35.8% from 40.3% of the overall investment portfolio.

 

Market concerns about Portuguese sovereign risk have led to materially wider credit spreads in Portuguese government bonds and related credits.   In the short term, this should have no impact on the performance of the Portuguese mortgage portfolios because a substantial majority of loans are indexed to Euribor.  The key risk to the portfolio remains an increase in unemployment and resulting mortgage defaults as a result of possible austerity measures introduced by the government. 

 

 

SME Portfolio Investments (26.0% of GAV)

 

The Company's SME portfolio continues to perform in line with expectations.  Cash flows in the quarter ended 31 December 2009 totalled €1.8 million, compared to €1.9 million in the previous quarter.

 

The portfolio has experienced volatility in default rates in line with expectations set out by the Company in prior announcements.  The average default rate for the SME portfolio increased in the quarter ended 31 December 2009 to 1.84%, up from 0.63% in the previous quarter.  Gate 05-2 produced the highest rise in default rates, and was the main driver behind the increase in the average across the portfolio. Gate 05-2's default rate increased to 5.71% from 0.55% in the prior quarter as a small number of loans, previously identified as being in arrears, defaulted. Subsequent to these defaults, the balance of loans in arrears has dropped from €6.0 million to €0.5 million.

 

Against a backdrop of continued economic uncertainty, we continue to use a higher model default rate to forecast cash flows relative to actual default rates in the December quarter.  The Company intends not to lower its model default rates until a more sustained trend towards improved credit quality is evident.  The table below summarises the actual default rates for the SME portfolio in the past three quarters and the model default rates that the Company has used to determine its cash flow estimates for the fourth quarter.  

 

 
June 2009 Default Rate (annualised)
September 2009 Default Rate (annualised)
December 2009 Default 
Rate (annualised)
December Model Default 
Rate
Amstel 06-1
0.38%
0.00%
0.25%
0.60%
Smart 06-1
0.71%
1.13%
1.33%
2.00%
Gate 06-1
1.28%
0.83%
0.06%
1.15%
Gate 05-2
2.52%
0.55%
5.71%
4.00%
Average
1.22%
0.63%
1.84%
1.94%

 

  

Investment Grade Bond Portfolio (9.8% of GAV)

 

The Investment Grade Bond portfolio recorded cash flows of €0.8 million in the quarter ended 31 December 2009, up from €0.3 million in the previous quarter.  The annualised cash-on-cash yield of the bond portfolio in the quarter ended 31 December 2009 was approximately 28% (4).  

 

Appetite for high quality AAA-rated ABS bonds increased substantially in the early weeks of 2010.  To take advantage of the resulting price rally, on 22 January 2010, the Company sold €3.4 million face value of AAA RMBS bonds.  The average sale price was 92.4 cents versus an average purchase price of 74.2 cents, giving an annualised return on the investments of 28.2%. 

 

The Company began investing in ABS bonds in August 2008. As at 1 March 2010, the Company held a portfolio of 18 bonds at a cost value of €10.6 million (5) and with a face value of €21.2 million.

 

The following tables detail the European ABS bonds that were purchased by the Company up to 10 March 2010 (6) and reflects the bonds sold in January 2010.  The weighted average rating of the portfolio (based on the invested amount) is approximately BBB (7).

 

(4) Total cash proceeds received in the quarter divided by amortised cost value of the bonds

(5) Net of sales completed in January 2010.

(6) The tables include the bonds purchased at their cost using FX rates at the time of purchase.

(7) Calculated using Moody's WARF (weighted average risk factor) methodology

 

 

Percentage of Portfolio by Cost Price (as at 1 March 2010)

 

Rating by Vintage¹                                                 

2004

2005

2006

2007

Total

AAA

0.0%

0.0%

11.66%

0.0%

11.66%

AA

2.15%

0.0%

19.57%

0.0%

21.72%

A

0.0%

5.92%

17.11%

9.22%

32.25%

BBB

0.0%

7.58%

15.78%

11.01%

34.37%

Total

2.15%

13.50%

64.12%

20.23%

100.00%

1.     Vintage reflects the issue date of the bond.  Rating at time of purchase.

 

Percentage of Portfolio by Cost Price (as at 1 March 2010)

 

Rating by Type1

UK  Prime RMBS2

UK Buy To Let RMBS2

UK Non-Conforming RMBS2

UK CMBS3

Euro CMBS3

SME

Total

AAA

0.0%

0.0%

0.0%

6.87%

4.79%

0.0%

11.66%

AA

2.15%

19.57%

0.0%

0.0%

0.0%

0.0%

21.72%

A

0.0%

0.0%

2.93%

6.61%

22.71%

0.0%

32.25%

BBB

7.58%

0.0%

9.53%

0.0%

10.44%

6.81%

34.37%

Total

9.73%

19.57%

12.46%

13.48%

37.95%

6.81%

100.00%

1.     Rating at time of purchase

2.     Residential Mortgage Backed Securities

3.     Commercial Mortgage Backed Securities

 

 

UK Mortgage Portfolio (5.8% of GAV)

 

The UK Mortgage portfolio recorded cash flows of £1.2 million in the quarter ended 31 December 2009 compared to £1.0 million in the previous quarter.

 

The Company has increased the valuation of its RMAC assets by €1.3 million, as a result of lower defaults in the current period and lower forecast defaults versus our previous assumptions.  The Company maintains conservative forecasts of defaults for the UK mortgage portfolio.

 

 

Portfolio Valuation

 

In accordance with the Company's valuation procedures, the fair value of the Company's investments is calculated on the basis of observable market data, market discount rates and the Investment Manager's expectations regarding future trends.  Given the re-structurings at many investment banks, there is a lack of reliable independent broker marks for the residual portfolio.  Therefore, from the year ended 31 March 2009 onwards, the Company has elected to use a model-based approach to value its residual investments.  An external valuation agent has reviewed the underlying pricing assumptions.  The Company has used a 15% discount rate for the European and UK mortgage portfolios and a 20% discount rate for the SME portfolios.  These discount rates are applied to the loss-adjusted cash flows.  The Company received broker marks for all of its investment grade bonds.

 

Changes in the balance sheet value of the residual portfolio between 30 September and 31 December 2009 totalled -€4.2 million. This was divided between -€2.1 million of principal amortisation and fair value losses of -€2.1 million.  In relation to the investment grade bond portfolio, the balance sheet value increased by €2.4 million. There were €1.9 million new purchases, fair value gains of €1.3 million and principal amortisations of -€0.8 million.  After giving effect to these balance sheet changes in the quarter ended 31 December 2009, the NAV of the Company was €3.69 per share as at 31 December 2009 (versus €3.75per share as at 30 September 2009). 

 

The Company recorded total cash flows of €8.3 million in the quarter, of which €6.5 million came from the investment portfolio, €1.2 million were received at the expiry of the UK house price put option and a further €0.6 million were received from the interest rate swaps the Company purchased to hedge against a fall in interest rates. 

 

The table below summarises the changes in balance sheet values of the Company's investment portfolio by asset class:

 

Asset Class

30 Sep 2009 B/S Value1,2 (€mm)

31 Dec 2009 
B/S Value2 (€mm)

Change to B/S Value Since 30 Sep 2009 (€mm)

Cash flows Received in the Quarter Ended
31 Dec 2009 (€mm)

Cash flows Received in the Quarter Ended
30 Sep 20093 (€mm)

UK Mortgages

6.6

7.0

0.4

                       1.3

                        1.0

Euro Mortgages

56.6

52.9

-3.7

                       2.6

                        2.5

SME

32.1

31.2

-0.9

                       1.8

                        1.9

Investment Grade Bonds

9.3

11.8

2.4

                       0.8

                        0.3

TOTAL4

104.6

102.8

-1.8

                       6.5

                        5.8

1.     Balance sheet values as at 30 September 2009 are expressed using 31 December 2009 FX rates.

2.     The balance sheet value figures for 30 September 2009 and 31 December 2009 include accrued interest.

3.     Cash flows for 30 September 2009 are expressed using 31 December 2009 FX rates.

4.     The values for each column may not sum to the total due to rounding differences.

 

 

Company Outlook

 

Over the coming months, the Company plans to continue its strategy of selectively purchasing mis-priced bonds in the ABS markets. Given the rally in AAA-rated ABS bonds, the Company will consider purchases in AA to BBB rated bonds, and in particular will focus on opportunities in commercial mortgage-backed bonds.   Should bond prices for a part of the portfolio increase, the Company may seek to sell certain assets and use the proceeds to repay debt or make new investments.

 

The Company expects to identify further buying opportunities in 2010 as rating downgrades of ABS bonds and capital pressures prompt selling by banks and other financial institutions. Given the continued ability of the investment portfolio to generate cash flow, the Company remains well-positioned to take advantage of these opportunities.

 

There are some early signs of stabilisation in the Portuguese mortgage portfolios; however, sustained stability depends on continued global economic growth and a low interest rate environment.  The Company expects default levels to rise in its SME portfolios and has maintained default rate forecasts at a higher level than actual performance.  We caution, however, that slowing growth or a return to recession remain possibilities. 

 

The Company estimates cash balances will be approximately €16.5 million at 31 March 2010 and expects to reduce its outstanding debt to approximately €5.0 million following the 31 March 2010 quarter end, versus a target loan balance of €25 million.  The Company projects cash flow of approximately €4.5 million per quarter for the coming quarters.

 

 

 

 

QUEEN'S WALK INVESTMENT LIMITED

 

Unaudited Condensed Consolidated Statement of Comprehensive Income

For the quarter ended 31 December 2009 and quarter ended 30 September 2009

 

 


Note

Quarter ended

31 December 2009

Quarter ended

30 September 2009



Euro

Euro





Interest income

5

4,106,756

4,143,683

(Losses)/gains  on fair value through profit or loss financial instruments

4

(2,375,133)

627,299



1,731,623

4,770,982





Operating expenses

6

(979,731)

(978,049)

Finance costs

5

(119,116)

(158,278)

Net profit


632,776

3,634,655





Profit per Ordinary Share




Basic

8

Euro 0.02

Euro 0.14

Diluted

8

Euro 0.02

Euro 0.14





Weighted average Ordinary Shares outstanding

 

 

 

Number

 

Number

Basic

8

26,644,657

26,644,657

Diluted

8

26,644,657

26,644,657

 

All items in the above statement are derived from continuing operations.

 

All income is attributable to the Ordinary Shareholders of the Company.

 

 

Unaudited Condensed Consolidated Statement of Changes in Equity

For the quarter ended 31 December 2009 and quarter ended 30 September 2009

 



 

Share Capital

 

Reserves

 

TOTAL


Note

Euro

Euro

Euro






Balance at 30 June 2009


-

98,430,636

98,430,636






Net profit for the quarter


-

3,634,655

3,634,655

Distribution to the Ordinary Shareholders of the Company

7

-

(2,131,573)

(2,131,573)






Balance at 30 September 2009

-

99,933,718

99,933,718






Net profit for the quarter


-

632,776

632,776

Distribution to the Ordinary Shareholders of the Company

7

-

(2,131,573)

(2,131,573)






Balance at 31 December 2009

-

98,434,921

98,434,921

 

 

 

Unaudited Condensed Consolidated Statement of Financial Position

As at 31 December 2009

 


Note

31 December 2009


30 September 2009



Euro


Euro

Non-current assets





Investments at fair value through profit or loss

10

101,639,329


103,272,053



101,639,329


103,272,053

Current assets





Cash and cash equivalents


13,741,922


14,817,812

Derivative financial assets - options held for trading

10

343,900


2,878,420

Derivative financial assets - unrealised gain on interest rate swap agreements

12

2,671,501


3,169,257

Other assets

11

1,603,661


1,614,789



18,360,984


22,480,278






Total assets


120,000,313


125,752,331






Equity and liabilities










Equity





Reserves

16

98,434,921


99,933,718



98,434,921


99,933,718

Current liabilities





Distribution payable

7

2,131,573


2,131,573

Other liabilities

14

1,133,254


1,659,718



3,264,827


3,791,291






Non-current liabilities





Loans

13

18,300,565


22,027,322






Total liabilities


21,565,392


25,818,613






Total equity and liabilities


120,000,313


125,752,331






 

 

 

Unaudited Condensed Consolidated Statement of Cash Flows

For the quarter ended 31 December 2009 and quarter ended 30 September 2009

 

 


Note

 


Quarter ended

31 December 2009


Quarter ended

30 September 2009




Euro


Euro







Net cash inflow from operating activities

17


4,743,622


5,312,183







Financing activities






Net repayment of borrowings from loans



(3,726,757)


(1,531,197)

Dividends paid to shareholders

7


(2,131,573)


(2,131,573)

Cash flows from financing activities



(5,858,330)


(3,662,770)







Net (decrease)/increase in cash



(1,114,708)


1,649,413







Reconciliation of net cash flow to movement in net cash





Net (decrease)/increase in cash and cash equivalents



(1,114,708)


1,649,413

Cash and cash equivalents at start of period



14,817,812


13,263,228

Effect of exchange rate fluctuations on cash and cash

equivalents



38,818


(94,829)

Cash and cash equivalents at end of period


         

13,741,922


14,817,812

 

 

 

Unaudited Condensed Consolidated Statement of Cash Flows

For the quarter ended 31 December 2009 and quarter ended 30 September 2009

 

1.    General information

 

Queen's Walk Investment Limited (the "Company") was registered on 6 September 2005 with registered number 43634 and is domiciled in Guernsey, Channel Islands. The Company commenced its operations on 8 December 2005. The Company is a closed-ended investment company with limited liability formed under The Companies (Guernsey) Law, 2008 and its Ordinary Shares are listed on the London Stock Exchange.  The registered office of the Company is Dorey Court, Admiral Park, St Peter Port, Guernsey, GY1 3BG, Channel Islands. "Group" is defined as the Company and its subsidiary. At 31 December 2009, the Company's only subsidiary was Trebuchet Finance Limited.

 

The Group's investment objective is to preserve capital and provide stable returns to Shareholders in the form of quarterly dividends. It seeks to achieve this by investing primarily in a diversified portfolio of tranches of asset-backed securities ("ABS") where the Investment Manager considers that the coupon or cash flows on the tranche are attractive relative to the underlying credit. These are and will be, in most cases, below investment grade or unrated and do or will, in many cases, represent the residual income positions typically retained by the originator of a securitisation transaction as the "equity" or "first loss" position.

 

The Group's investment management activities are managed by its Investment Manager, Cheyne Capital Management (UK) LLP (the "Investment Manager"), an investment management firm authorised and regulated by the Financial Services Authority. The Group has entered into an Investment Management Agreement (the "Investment Management Agreement") under which the Investment Manager manages its day-to-day investment operations, subject to the supervision of the Company's Board of Directors. The Group has no direct employees. For its services, the Investment Manager receives a monthly management fee (which includes a reimbursement of expenses) and a quarterly performance-related fee. The Group has no ownership interest in the Investment Manager. The Company is administered by Kleinwort Benson (Channel Islands) Fund Services Limited (the "Administrator"). Investors Fund Services (Ireland) Limited provide certain administration services to the Group in its capacity as sub-administrator.

 

2.    Significant accounting policies

 

Statement of compliance

The condensed consolidated quarterly report has been prepared using accounting policies consistent with International Financial Reporting Standards ("IFRS"). The same accounting policies, presentation and methods of computation are followed in this report as applied in the Company's latest annual audited financial statements dated 31 March 2009.

 

Basis of preparation

The quarterly report of the Group is prepared on the historical cost or amortised cost basis except that the following assets and liabilities are stated at their fair value: derivative financial instruments, financial instruments held for trading and financial instruments classified or designated as fair value through profit or loss.

 

The majority of the Group's investments are financial instruments that are classified as fair value through profit or loss.  Where bid prices are not available from a third party in a liquid market, the fair value of the financial instrument is estimated by reference to market information, which includes but is not limited to broker marks, prices on comparable assets and a pricing model that incorporates discounted cash flow techniques.

 

These pricing models apply assumptions regarding asset-specific factors and economic conditions generally, including delinquency rates, severity rates, prepayment rates, default rates, maturity profiles, interest rates and other factors that may be relevant to each financial asset.  Where such pricing models are used, assumptions are reviewed and updated on the basis of actual performance data as it is received and on the basis of market conditions as at the Statement of Financial Position date.  See note 2 - Fair value and Interest income and note 3 - Critical accounting judgements and key sources of estimation uncertainty for further information regarding assumptions and critical judgements.

 

The Directors believe it is appropriate to adopt the going concern basis in preparing the condensed consolidated quarterly report as, after due consideration, the Directors consider that the Group has adequate resources to continue in operational existence for the foreseeable future. Regarding the ongoing funding (per notes 13 and 19) the Directors have taken into account the current cash balance, the forecast cash inflows from the investments and liquidity of the bond portfolio, the required financing repayments and operating expenses, and consider the Company able to meet the required repayment of the loan in accordance with the agreed schedule of repayments. In addition, the Directors note the cash resources currently available (Euro 13.7m), of which some will be used to pay the proposed dividend, which are sufficient to cover normal operational costs and current liabilities.

 

These financial statements are presented in Euro because that is the currency of the primary economic environment in which the Group operates.  The functional currency of the Group is also considered to be Euro.

 

Basis of consolidation

Subsidiaries are entities controlled by the Company (note 9). The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. At 31 December 2009, the Group is made up of the Company and its only subsidiary, Trebuchet Finance Limited.

 

In accordance with the Standing Interpretations Committee Interpretation 12 "Consolidation-Special Purpose Entities" ("SIC 12"), the Company consolidates only entities over which control is indicated by activities, decision making, benefits and residual risks of ownership. In accordance with SIC 12 the Company does not consolidate an SPE in which it holds less than a substantial interest in the residual income position. Where it holds more than a substantial interest, it does not consolidate the SPE where the residual income position represents only a small part of the gross assets of the SPE and the Company was neither involved in the establishment of the SPE or the origination of the assets owned by the SPE, on the basis that the Company is not exposed to the majority of the risks and benefits of the assets owned by the SPE, provided control is not otherwise indicated by the Company's activities, decision making, benefits and residual risks or ownership.

 

Trebuchet Finance Limited, the Company's only subsidiary, is an SPE over which the Company exercises control and its financial statements are therefore included in the consolidated financial statements of the Company.  The Company does not consolidate any of the SPEs in which it holds a residual income position as it is not exposed to the majority of the risks and benefits of the assets owned by the relevant SPEs and does not control any of them.

 

Investments

Investments in residual interests and investment grade bonds are recognised initially at their acquisition cost (being fair value at acquisition date) as debt securities. Thereafter they are re-measured at fair value and are designated as fair value through profit or loss investments in accordance with the Amendment to International Accounting Standard 39 ("IAS 39") Financial Instruments: Recognition and Measurement-The Fair Value

 

Option, as the Group is an investment Group whose business is investing in financial assets with a view to profiting from their total return in the form of interest and changes in fair value.

 

Financial assets classified as at fair value through profit or loss are recognised/derecognised by the Group on the date it commits to purchase/sell the investments in regular way trades.

 

Cash and cash equivalents

Cash and cash equivalents includes amounts held in interest bearing accounts and overdraft facilities.

 

Derivative financial instruments

Derivative financial instruments used by the Group to hedge its exposure to foreign exchange and interest rate risks arising from operational, financing and investment activities that do not qualify for hedge accounting are accounted for as trading instruments. The Group may also enter into credit default or total return swap arrangements where the underlying asset or assets would otherwise be within the Group's investment policy in order to obtain substantially the same economic exposure to the returns and risks associated with holding such underlying asset or assets.

 

Derivative financial instruments are recognised initially at fair value. Subsequent to initial recognition, derivative financial instruments are stated at fair value. The gain or loss on remeasurement to fair value is recognised immediately in the Consolidated Statement of Comprehensive Income.

 

The fair value of interest rate swaps is the estimated amount that the Group would receive or pay to terminate the swap at the Statement of Financial Position date, taking into account current interest rates and the current creditworthiness of the swap counterparties.

 

The fair value of options is their quoted market price at the date of the Statement of Financial Position. Broker marks are obtained for these positions. The change in value is recorded in net gains/(losses) in the Consolidated Statement of Comprehensive Income. Realised gains and losses are recognised on the maturity or sale of the option.

 

Fair value

All financial assets carried at fair value are initially recognised at fair value and subsequently re-measured at fair value based on bid prices where such bids are available from a third party in a liquid market. If bid prices are unavailable, the fair value of the financial asset is estimated by reference to market information which includes but is not limited to broker marks, prices on comparable assets and using pricing models incorporating discounted cash flow techniques. These pricing models apply assumptions regarding asset‑specific factors and economic conditions generally, including delinquency rates, severity rates, prepayment rates, default rates, maturity profiles, interest rates and other factors that may be relevant to each financial asset. The objective of a fair value measurement is the price at which an orderly transaction would take place between market participants on the measurement date; it is not a forced liquidation or distressed sale. Where the Group has considered all available information and there is evidence that the transaction was forced, it will not use a transaction price as being determinative of fair value.

 

Where a forced sale price is not used the Group will estimate the fair value with reference to other market data as described above. With regard to residual income positions, historical performance and observable market data is analysed to determine the average level of these factors and their volatility over time.  These assumptions are typically derived by reference to the historical delinquencies, defaults, recoveries and prepayments actually realised by the originator of the underlying assets and any empirical data available that may be available in respect of any of these factors for the particular asset class.

 

Offsetting financial instruments

Financial assets and liabilities are offset and the net amount reported within assets and liabilities when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.

 

Derecognition of a financial asset

A financial asset is derecognised only if substantially all of the asset's risks and rewards of ownership are transferred or control is transferred in the event that not substantially all of the asset's risks and rewards of ownership are transferred. However, if substantially all of the risks and rewards are retained, the asset is not derecognised. Control is transferred if the transferee has the practical ability to sell the asset unilaterally without needing to impose additional restrictions on the transfer.

 

Interest-bearing loans and borrowings

Interest‑bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest‑bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the Consolidated Statement of Comprehensive Income using the effective interest rate method. Financing costs associated with the issuance of financings are recognised in the Consolidated Statement of Comprehensive Income using the effective interest rate method.

 

Foreign currency transactions

Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the Statement of Financial Position date are translated to Euro at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the Consolidated Statement of Comprehensive Income. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to Euro at foreign exchange rates ruling at the dates the fair value was determined.

 

Transaction expenses

The preliminary expenses of the Group directly attributable to its initial public offering and any costs associated with the establishment of the Group are charged to the share premium or other reserve account.

 

Share options granted to the Investment Manager are treated as a transaction expense on the basis that they are granted by the Group as a fee for the Investment Manager's work in raising capital for the Group. The fair value of such options is charged to the share premium account. The share premium account is credited with the fair value of such options at the time that such options are vested.

 

Interest income

Interest income is accrued over the projected lives of the investments using the effective interest method as defined under International Accounting Standard 39. Where the Group adjusts its expected cash flow projections to take account of any change in underlying assumptions, such adjustments are recognised in the Consolidated Statement of Comprehensive Income by reflecting changes in a revised amortised cost value of the investment and applying the original effective interest rate to this revised amortised cost value for the purposes of calculating future income.

 

Taxation

The Company is a tax-exempt Guernsey limited Company. Accordingly, no provision for income taxes is made. Trebuchet Finance Limited is a "qualifying Company" within the meaning of section 110 of the Irish Taxes Consolidation Act 1997 and accordingly its taxable profits are subject to tax at a rate of 25 per cent. Payments under the Participation Note are paid gross to the Company and the income portion of such payments is deductible by Trebuchet Finance Limited. Consequently, Trebuchet Finance Limited has a minimal amount of taxable income. The activities of Trebuchet Finance Limited are exempt for Irish Value Added Tax (VAT) purposes under the Irish VAT Act of 1972.

 

Other receivables

Other receivables do not carry any interest and are short-term in nature and are accordingly stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts.

 

Financial liabilities and equity

Financial liabilities and equity are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.  Financial liabilities and equity are recorded at the proceeds received, net of issue costs.

 

Other accruals and payables

Other accruals and payables are not interest-bearing and are stated at their accrued value.

 

3. Critical accounting judgements and key sources of estimation uncertainty

 

In the process of applying the Group's accounting policies (described in note 2 above), the Group has determined that the following judgements and estimates have the most significant effect on the amounts recognised in the financial statements:

 

Income recognition

The Group invests primarily in a diversified portfolio of residual income positions, being the subordinated tranches of asset-backed securities ("ABS").  ABS are securities that are typically backed by consumer finance receivables (such as mortgage loans) and commercial loans and receivables (including commercial mortgage loans and loans to small-and-medium sized enterprises). 

 

Residual income positions are typically unrated or rated below investment grade and are often referred to as the "equity" or "first loss" position of a securitisation transaction. 

 

Unlike a more conventional debt instrument and the more senior tranches of ABS (which generally hold the rights to fixed levels of income), the cash flow profile of a residual income position does not generally include a contractually established schedule of fixed payments divided between interest and principal. Instead, the cash flows generally vary over time, and the periodic cash flows associated with a residual income position may include a significant element of principal repayment as well as income payments.

 

Where the cash payments generated by residual income positions do not typically follow the pattern of a standard cash-pay debt instrument (in that there is not a constant level of income in each period followed by a repayment of the principal amount at maturity), a given cash payment received in respect of a residual income position can generally be considered to represent a combination of the return on the investment and the repayment of some of the capital initially invested.

 

As a result, the stream of expected cash flows associated with a particular residual income position may have an uneven payout profile, in that the cash payment expected in one period (and the proportion of that payment that represents principal repayment versus interest income) may vary significantly from the cash payments expected in other periods.

 

The Group follows a policy of accounting for such investments at fair value through profit or loss and has elected to recognise income on an effective interest rate ("EIR") method in accordance with paragraph 30 of IAS 18 "Revenue".

 

The carrying value of a residual income position at any given measurement date after the Group's initial acquisition of the asset reflects repayments of principal in accordance with the effective interest method.  This revised carrying value (adjusted to account for the accrual of interest and principal paydowns) is subject to further adjustment on the basis of market conditions and other factors that are likely to affect the fair value of the asset.  Where actual performance data or expectations regarding defaults, delinquencies and prepayments received in respect of a given asset is notably different from the default, delinquency and prepayment assumptions incorporated in the pricing model for the asset, the assumptions are revised to reflect this data and the pricing model is updated accordingly. In addition to the actual performance data observed in respect of a particular asset, market factors are also taken into account within the model.  Broker marks (where available) and any other available indicators are assessed to determine whether or not the market is attributing higher or lower default, delinquency or prepayment expectations to similar assets in determining whether or not the assumptions incorporated in the pricing model remain reasonable.

 

Interest income is recorded based on the original EIR calculated on acquisition for each individual residual income position.  Where there is a carry value reduction driven by lower cashflow expectations, interest income will be reduced as it reflects the reduced cashflow expectations.

 

Valuation of investments

The market for subordinated asset-backed securities, including residual income positions is illiquid and regular traded prices are generally not available for such investments.  There is no active secondary market in residual income positions and, further, there is no industry standard agreed methodology to value residual income positions.

 

In accordance with the Group's accounting policies, fair value of financial assets is based on quoted bid prices where such bids are available from a third party in a liquid market. At 31 December 2009 bid prices were not available for any of the Group's investments. There is very limited information available in relation to transactions in comparable investments. As quoted bid prices are unavailable, the fair value of the investments is estimated by reference to market information, which includes but is not limited to broker marks, prices of comparable assets, estimated fair value from the previous period updated for current period cash flows and a pricing model, that incorporates discounted cash flow techniques as required by IAS 39. The Group may use all or a combination of the prices from these sources in estimating the fair value of the investments. Broker marks are estimates of values provided by market participants who are typically the originators of the investments. Broker marks are not binding prices and there is no guarantee that the Group could transact at these prices in the current market.  Due to the current market conditions, the Group has relied on pricing models to fair value its investments as broker marks become less reliable or unobtainable.

 

The assumptions upon which the pricing models are based are described in note 2 (Fair Value). Any change to assumptions surrounding the pricing models may result in changes to the fair values being attributed to the investments. Where the fair value of the investment is written down due to changes in assumptions and expected cash flows, the change in the fair value is taken to the Consolidated Statement of Comprehensive Income following the reassessment of the cash flows discounted at the current market rate estimated for the investment.

 

The fair value of the Group's investments is set out in note 10. Given the number of individual investments and the number of individual parameters that make up each pricing model, the Group believes that it would be impractical to disclose the effects of changes to each assumption in respect of each individual investment and this would not provide meaningful additional disclosure. However, general assumptions used in the pricing models are disclosed with sensitivities in the Group's annual report and financial statements.

 

 

4. (Losses)/gains on financial instruments

 

The following table details the gains and losses, excluding interest income and finance costs, earned by the Group from financial assets and liabilities during the period:

 



Quarter ended

31 December 2009


Quarter ended

30 September 2009



Euro


Euro

Net realised gains/(losses)





Net realised gains/(losses) on asset backed securities and bonds

202,200


(210,923)

Net realised gains/(losses) on options


349,119


(778,736)

Net realised losses on foreign exchange instruments


(418,075)

(73,309)

Net realised gains/(losses)


133,244


(1,062,968)






Net unrealised gains/(losses)





Net unrealised (losses)/gains on investments at fair value through profit or loss


(354,919)


878,307

Net unrealised losses on interest rate swap agreements


(497,756)


(68,476)

Net unrealised (losses)/gains on options


(1,694,520)


975,265

Net unrealised gains/(losses) on foreign bank balances


38,818


(94,829)

Net unrealised (losses)/gains


(2,508,377)


1,690,267






Net realised and unrealised (losses)/gains


(2,375,133)


627,299

  

 

5. Interest income and finance costs

 

The following table details interest income and finance costs from financial assets and liabilities during the period ended:

 



Quarter ended

31 December 2009


Quarter ended

30 September 2009



Euro


Euro

Interest income





Investments designated at fair value through profit or loss upon initial recognition


4,104,448


4,140,805

Loans and receivables (including cash and cash equivalents)


2,308


2,878

Total interest income


4,106,756


4,143,683

 

Finance Costs





Liabilities held at amortised cost:





Interest on loan


119,116


158,278

Total finance costs


119,116


158,278

 


Note

Quarter ended

31 December 2009

 

 

Quarter ended

30 September 2009



Euro


Euro






Investment management, custodian and administration fees





Investment management fee

18

442,339


441,031

Administration fee

18

48,784


49,442

Custodian fee

18

9,210


9,210



500,333


499,683

Other operating expenses





Audit fees


42,849


42,849

Directors' fees payable to Directors of Queen's Walk Investment Limited


60,939


60,493

Directors' fees payable to Directors of Trebuchet Finance Limited


6,348


6,301

Legal fees


176,436


176,438

Pricing expenses


56,785


56,785

Other expenses


136,041


135,500



479,398


478,366






Total operating expenses


979,731


978,049

 

 

The Group has no employees.

 

 

7. Dividends

 

The fourth interim dividend for the year ended 31 March 2009 of Euro 0.08 (2008: Euro 0.15) per share was declared on 16 June 2009 and an amount of Euro 2,131,573 was paid on 17 July 2009.

 

The first interim dividend for the year ended 31 March 2010 of Euro 0.08 per share was declared on 15 September 2009 and an amount of Euro 2,131,573 was paid to shareholders on 16 October 2009.

 

The second interim dividend for the year ended 31 March 2010 of Euro 0.08 per share was declared on 25 November 2009 and an amount of Euro 2,131,573 was paid to shareholders on 8 January 2010.

 

A dividend of Euro 0.08 per share has been declared by the Directors for the quarter ended 31 December 2009.  The liability in respect of the third interim dividend has not yet been recognised in the Consolidated Statement of Financial Position of the Group for the quarter ended 31 December 2009 since this dividend had neither been declared nor approved at the quarter end date.

 

The Group's objective is to provide shareholders with stable returns in the form of quarterly dividends.  The Group's dividend policy is to make dividend distributions from its distributable net income subject to retaining a portion of such income as a reserve for payment in subsequent periods.

 

Following the introduction of The Companies (Guernsey) Law, 2008, the Group is only able to pay a dividend if the Board of Directors is satisfied that the Company will, immediately after the payment, satisfy the solvency test and any other requirement in its Memorandum and Articles.  The Board is satisfied that, in respect of the proposed dividend and the dividend paid in respect of the quarter ended 31 December 2009, the solvency test was satisfied.

 

 

8. Profit per Ordinary Share

 



Quarter ended

31 December 2009


Quarter ended

30 September 2009



Euro


Euro

The calculation of the basic and diluted earnings per ordinary share is based on the following data:





Profit for the purposes of basic earnings per ordinary share being net loss attributable to equity holders


632,776


3,634,655






Weighted average number of Ordinary Shares for the purposes of basic earnings per share


26,644,657


26,644,657






Effect of dilutive potential Ordinary Shares:





Share options


-


-

Weighted average number of Ordinary Shares for the purposes of diluted earnings per share


26,644,657


26,644,657

 

There is no dilution as at 31 December 2009 or 30 September 2009, as the share price was below the option price for the period.

 

 

9. Subsidiary

 

Trebuchet Finance Limited was incorporated in Ireland on 19 May 2005 and, pursuant to the Articles of Association of Trebuchet Finance Limited, the Group has the right to appoint a majority of the Board of Directors of Trebuchet Finance Limited. Two of the Directors of the Group have been appointed Directors of Trebuchet Finance Limited. To ensure that the Group will be able to maintain a majority of the Board of Directors of Trebuchet Finance Limited in the future, the Group has been allotted a single share in Trebuchet Finance Limited carrying the right to appoint a majority of the Board of Directors. Trebuchet Finance Limited was established for the sole purpose of acquiring and holding interests in certain assets.

 

 

10. Investments

 

The following is a summary of the Group's investments:

 



31 December 2009


30 September 2009



Euro


Euro

Asset-backed securities and bonds at fair value through profit or loss

101,639,329


103,272,053

Options purchased held for trading


414,400


2,973,630

Options written held for trading


(70,500)


(95,210)



101,983,229


106,150,473

 

Asset-backed securities and bonds





Opening cost


249,055,698


250,441,322

Purchases


1,914,988


2,578,135

Realised gain/(loss)


202,200


(210,923)

Principal payups


1,513,743


1,388,468

Principal paydowns


(4,908,736)


(5,141,304)

Closing cost


247,777,893


249,055,698

Unrealised losses


(146,138,564)


(145,783,645)

Asset-backed securities and bonds at fair value


101,639,329


103,272,053

 

 

Concentration of credit risk

 

The Group is subject to concentration of credit risk in that the four largest structures within the asset backed securities portfolio comprise approximately 38% (30 September 2009: 37.62%) of the total assets. The concentration of credit risk is substantially unchanged compared to the prior quarter. Two of the structures, comprising approximately 20% (30 September 2009: 21%) of its asset-backed securities portfolio have had a temporary suspension in cash flows from these structures as a result of prepayment rate triggers being breached.

 

The following options contracts were open as at 31 December 2009:

 

Counterparty

Expiration

Description

 

 

Currency

 Notional Amount

Strike price

Unrealised

Gains/(Losses)

Euro

Goldman Sachs

29 Dec 2010

EUR Call GBP Put

Euro

10,000,000

0.9315

(727,600)

Goldman Sachs

29 Dec 2010

EUR Call GBP Put (Written Option)

Euro

10,000,000

1.300

99,500







(628,100)

 

The following options contracts were open as at 30 September 2009:

 

Counterparty

Expiration

Description

 

 

 

Currency

Notional Amount

Strike price

Unrealised

Gains/

(Losses)

Euro

Credit Suisse

05 Nov 2009

Halifax HPI Put option

Euro

14,000,000

583.02

1,574,020

Goldman Sachs

29 Dec 2010

EUR Call GBP Put

Euro

10,000,000

0.9315

(582,390)

Goldman Sachs

29 Dec 2010

EUR Call GBP Put (Written option)

Euro

10,000,000

1.300

74,790







1,066,420

 

 

11.  Other assets

 



31 December 2009


30 September 2009



Euro


Euro

Interest receivable on investment portfolio


1,184,232


1,216,167

Lehman claim


268,998


268,915

Interest receivable on cash and cash equivalents


150,431


129,707



1,603,661


1,614,789

 

The Directors consider that the carrying amount of other assets approximates their fair value.

 

 

12.  Derivative contracts

 

The following interest rate and balance guaranteed interest rate swaps were unsettled at 31 December 2009.

 

Termination Date

 

Counterparty

Initial Notional

Amount (GBP)

Unrealised Gain

Euro

25 January, 2013

Goldman Sachs

451,431

15,848

30 October 2010

Goldman Sachs

388,684

2,119

15 October, 2011

Goldman Sachs

5,500,000

138,038

15 November, 2011

Goldman Sachs

1,300,000

30,545

25 January, 2013

Goldman Sachs

1,226,713

39,612

15 October, 2011

Goldman Sachs

3,000,000

69,134

12 September, 2011

Goldman Sachs

1,700,000

34,182

15 November, 2011

Goldman Sachs

1,100,000

21,314

27 March, 2011

Goldman Sachs

17,348,100

722,488

15 February, 2011

Goldman Sachs

10,424,462

394,976

15 January, 2011

Goldman Sachs

28,266,450

1,203,245




2,671,501

 

The following interest rate and balanced guaranteed interest rate swaps were unsettled at 30 September 2009:

 

Termination Date

Counterparty

Initial Notional

Amount (GBP)

Unrealised Gain

Euro

25 January, 2013

Goldman Sachs

451,431

17,102

15 October, 2011

Goldman Sachs

5,500,000

153,611

15 November, 2011

Goldman Sachs

1,300,000

34,434

30 October, 2010

Goldman Sachs

416,768

2,454

25 January , 2013

Goldman Sachs

1,226,713

39,111

15 October, 2011

Goldman Sachs

3,000,000

69,046

12 September, 2011

Goldman Sachs

1,700,000

36,086

15 November, 2011

Goldman Sachs

1,100,000

22,292

27 March, 2011

Goldman Sachs

17,348,100

868,631

15 February, 2011

Goldman Sachs

11,150,877

487,899

15 January, 2011

Goldman Sachs

28,963,861

1,438,591




3,169,257

 

Since 30 June 2008, the Group entered into EUR interest rate swaps with Goldman Sachs as detailed in the tables above. These swap floating rate for fixed on the notional of reference assets (being the SME residuals and some of the investment grade bonds) held in the portfolio. The investment grade bonds the Company has purchased are typically indexed to three month LIBOR.  To hedge against falling LIBOR rates, the Company has entered into a series of fixed to floating interest rate swaps.  The notional for the swaps is determined at the time of purchase, and the Company could be under- or over-hedged in relation to the outstanding amount of the bonds.  The interest rate swaps are reviewed and hedges will be adjusted as required.

 

 

 

13.  Loans

 



31 December 2009


30 September 2009



Euro


Euro

Loans


18,300,565


22,027,322



18,300,565


22,027,322

 

On 27 November 2008 the Company negotiated amended terms on a reduced facility,  involving a flexible two year repayment schedule of the outstanding debt and  amendments to material change clauses to reduce refinancing risk .  The Company has committed to repay the outstanding balance of the facility by October 2011 (by March 2011 if Magellan 1 is refinanced), pursuant to an agreed loan amortisation schedule and will not make any further draw downs.

 

In addition, at the end of each quarter, the Company has pledged to keep the outstanding balance of the financing facility below the product of the then applicable advance rate ("Applicable Percentage") and the value of the investment portfolio plus cash (the "Borrowing Base"). As at 31 December 2009, the Company's Borrowing Base is approximately Euro 49.9 million versus a loan balance of Euro 18.3 million. At the end of each calendar quarter, the Company has agreed a target loan amount ("Target Loan Amount") with the lenders. The Company has also agreed to an Applicable Percentage for every quarter. The Target Loan Amount and Applicable Percentage Schedule are detailed below: 

 

Date


Target Loan Amount

Applicable Percentage for Residuals

30 September 2009


28,500,000

30%

31 December 2009


27,000,000

27.5%

31 March 2010


25,000,000

20%

30 June 2010


12,000,000

20%

30 September 2010


10,000,000

20%

31 December 2010


0

20%

31 March 2011


                         0

10%

 

The Applicable Percentage for the Company's investment grade bond portfolio will be 50%, 40%, 30% and 15% for AA and above, A and above, BBB and above and BB and above; rated bonds respectively.  The Target Loan Amount will reduce by Euro11 million in the event that the Magellan 1 transaction is re-financed by the originator, BCP Millennium, before June 2010. The Applicable Percentage for residuals will reduce to 25% if the Magellan 1 transaction is re-financed by BCP Millennium before 31 December 2009.  The Company has committed to use a percentage of its Free Cash (cash proceeds in a quarter less dividends and operating expenses) to amortise the facility.

 

Prior to the Magellan 1 transaction being refinanced, 75% of the Company's Free Cash will be used to repay the facility. After the Magellan 1 transaction is called, 66% of the Free Cash will be used to repay the debt, and in this case once the outstanding balance of the facility is below Euro 22 million, 50% of the Free Cash will be used to repay the facility.  If the outstanding balance of the loan facility is less than the Target Loan Amount on the relevant date, the dividend will be capped at Euro 2.25 million per quarter (or approximately a 19% dividend yield on the share price as at 26 November 2008). If the outstanding balance of the loan is greater than the Target Loan Amount, the dividend will be capped at 8% on the share price prevailing at the end of each quarter. A failure to meet the Target Loan Amount would not trigger an event of default. In the event that the balance of the facility is greater than the Borrowing Base, the Company will have 20 business days to remedy the breach. Failure to remedy the breach would constitute an event of default. No such breaches occurred during the period thereafter.

 

 

14. Other liabilities

 



31 December 2009


30 September 2009



Euro


Euro






Interest payable


89,691


117,469

Due to related parties - Investment Manager (note 18)


146,522


143,741

Payable for investments purchased


-


734,336

Accrued expenses


897,041


664,172



1,133,254


1,659,718

 

Other liabilities principally comprise amounts outstanding in respect of interest payable and ongoing costs. The Directors consider the carrying amount of other liabilities approximates their fair value.

 

 

15.  Share capital

 

Authorised shares


31 December 2009

31 December 2009


30 September 2009

30 September 2009


Number of Ordinary Shares

Euro


Number of Ordinary Shares

Euro

Ordinary shares of no par value each

Unlimited

-


Unlimited

-

 

Issued and fully paid






Balance at beginning of period

26,644,657

-


26,644,657

-

Ordinary shares bought back during the quarter

-

-


-

-

Balance at end of period

26,644,657

-


26,644,657

-

 

Between 30 September 2009 and 31 December 2009 the Company did not purchase and cancel any of its Ordinary Shares through its buyback programme.

 

 

16.  Reserves

 


Quarter ended 31 December 2009


Accumulated Reserves


Capital Reserves


Total Reserves


Euro


Euro


Euro







Balance at start of period

92,261,218


7,672,500


99,933,718

Net profit for the period

632,776

-

-


632,776

Distribution to the ordinary Shareholders of the Company

(2,131,573)

-

-


(2,131,573)

Balance at end of period

90,762,421


7,672,500


98,434,921

 

 


Quarter ended 30 September 2009


Accumulated Reserves


Capital Reserves


Total Reserves


 

Euro


Euro


Euro







Balance at start of period

90,758,136


7,672,500


98,430,636

Net gain for the period

3,634,655


-


3,634,655

Distribution to the ordinary Shareholders of the Company

(2,131,573)


-


(2,131,573)

Balance at end of period

92,261,218


7,672,500


99,933,718

 

The Ordinary Shares of the Group have no par value. As such, the proceeds of the Initial Public Offering represent the premium on the issue of the Ordinary Shares. In accordance with the accounting policies of the Group and as allowed by The Companies (Guernsey) Law, 1994, the costs of the Initial Public Offering have been expensed against the share premium account.

 

The Group passed a special resolution cancelling the amount standing to the credit of its share premium account immediately following admission to the London Stock Exchange. In accordance with The Companies  (Guernsey) Law, 1994 (as amended) (the "Companies Law"), the Directors applied to the Royal Court in Guernsey for an order confirming such cancellation of the share premium account following admission. The Other reserve created on cancellation is available as distributable profits to be used for all purposes permitted by the Companies Law, including the buy back of Ordinary Shares and the payment of dividends. Under Guernsey law a capital redemption reserve is created for the redemption of these Ordinary Shares. As the nominal value of these Ordinary Shares is Euro Nil, the amount transferred to this reserve is Euro Nil.

 

Following the introduction of the Companies (Guernsey) Law, 2008, the Group is no longer required to maintain separate classes of reserves.  As such, the previously reported classes of reserves have been amalgamated into a single class on the Consolidated Statement of Financial Position.

 

 

 

17. Notes to cash flow statement

 


Quarter ended

31 December 2009


Quarter ended

30 September 2009


Euro


Euro





Net profit

632,776


3,634,655

Adjustments for:




Net realised (gains)/losses on bonds

(202,200)


210,923

Net realised gains on matured options

(349,119)


778,736

Net unrealised losses/(gains) on investments at fair value through profit or loss

354,919


(878,307)

Unrealised losses on interest rate swap agreements

497,756


68,476

Unrealised losses/(gains) on options

1,694,520


(975,265)

Unrealised (gains)/losses on foreign exchange instruments

(38,818)


94,829


2,589,834


2,934,047





Purchases of bonds

(1,914,988)


(2,578,135)

Purchase of options

-


199,867

Options matured

1,189,119


-

Principal Payups

(1,513,743)


(1,388,468)

Principal Paydowns

4,908,736


5,141,304


2,669,124


1,374,568





Decrease in receivables

11,128


94,831

(Decrease)/Increase in payables

(526,464)


908,737


(515,336)


1,003,568

Net cash inflow from operating activities

4,743,622


5,312,183

 

Purchases and sales of investments are considered to be operating activities of the Group, given its purpose, rather than investing activities. Cash and cash equivalents includes amounts held in interest bearing accounts and overdraft facilities.

 

 

18.  Material agreements and related party transactions

 

Investment Manager

The Company and Trebuchet Finance Limited are parties to an Investment Management Agreement with the Investment Manager, dated 8 December 2005, pursuant to which each of the Company and Trebuchet Finance Limited has appointed the Investment Manager to manage their respective assets on a day-to-day basis in accordance with their respective investment objectives and policies, subject to the overall supervision and direction of their respective Boards of Directors. 

 

The Group pays the Investment Manager a Management Fee and Incentive Fee (see note 6). During the quarter ended 31 December 2009, the Management Fee totalled Euro 442,339 (30 September 2009: Euro 441,031), of which Euro 146,522 (30 September 2009: Euro 143,741) was outstanding at the period end, and the Incentive Fee totalled Euro Nil (30 September 2009: Euro Nil).

 

Management Fee

Under the terms of the Investment Management Agreement, the Investment Manager is entitled to receive from the Group an annual Management Fee of 1.75 per cent of the net asset value of the Group other than to the extent that such value is comprised of any investment where the underlying asset portfolio is managed by the Investment Manager (as is the case with Cheyne Finance plc, Cheyne High Grade ABS CDO Ltd. and Cheyne CLO Investments I Limited). The Management Fee is calculated and payable monthly in arrears.

 

Incentive Fee

Under the terms of the Investment Management Agreement, the Investment Manager is entitled to receive an incentive compensation fee in respect of each incentive period that is paid quarterly in arrears. An incentive period will comprise each successive quarter, except the first such period was the period from admission to the London Stock Exchange to 31 March 2006. The Incentive Fee for each incentive period is an amount equivalent to 25 per cent of the amount by which A exceeds (B ´ C) where:

 

A =

The Group's consolidated net income taking into account any realised or unrealised losses (but only to the extent they have not been deducted in a prior incentive period) and excluding any gains from the revaluation of investments, as shown in the Group's latest consolidated management accounts for the relevant quarter, before payment of any Incentive Fee;

B =

An amount equal to a simple interest rate equal to two per cent per quarter, subject to the reset mechanic described below (the "Hurdle Rate"); and

C =

The weighted average number of Shares outstanding during the relevant quarter multiplied by the weighted average offer price of such Shares.

 

For the purposes of calculating the Incentive Fee, the Hurdle Rate will be reset on 1 April 2010, and on each 1 April thereafter to equal the greater of (i) a simple interest rate equal two per cent per quarter, or (ii) one quarter of the sum of the then-prevailing yield per annum on ten-year German Bunds and 300 basis points. While the Group will not pay a Management Fee in respect of that portion of its portfolio that is comprised of investments where the Investment Manager receives fees for its management of the underlying asset portfolio, the income from such investments are included in the consolidated net income of the Group for the purpose of calculating the Incentive Fee.

 

The Incentive fee for the period was Euro Nil (30 September 2009: Euro Nil) of which Euro Nil (30 September 2009: Euro Nil) was outstanding at the quarter end.

 

Administration Fee

Under the terms of the Administration Agreement, the Administrator is entitled to receive from the Group an administration fee of 0.125 per cent of the gross asset value of the Group up to Euro 80,000,000 and 0.0325 per cent of the gross asset value of the Group greater than Euro 80,000,000. Investors Fund Services (Ireland) Limited, the sub-administrator, is paid by the Administrator.

 

Custodian Fee

Under the terms of the Custodian Agreement, the Custodian is entitled to receive from the Group a custodian fee of 0.03 per cent of the gross asset value of the Group up to Euro 80,000,000 and 0.02 per cent of the gross asset value of the Group greater than Euro 80,000,000, plus additional fees in relation to transaction fees, statutory reporting, corporate secretarial fees and other out of pocket expenses.

 

Investment Manager Options

In recognition of the work performed by the Investment Manager in raising capital for the Group, the Group granted to Cheyne Global Services Limited on 8 December 2005 options representing the right to acquire 2,250,000 Shares, being 10 per cent of the number of Offer Shares (that is, excluding the Shares issued to Cheyne ABS Opportunities Fund LP and the Shares issued to the Directors), at an exercise price per share equal to the Offer Price (Euro 10). The Investment Manager Options are fully vested and immediately exercisable on the date of admission to the London Stock Exchange and will remain exercisable until the 10th anniversary of that date. The Group may grant further Investment Manager Options in connection with any future offering of Shares. Such options, if any, will represent the right to acquire Shares equal to not more than 10 per cent of the number of Shares being offered in respect of that future offering and will have an exercise price equal to the offer price for that offering.

 

Investment Manager Options

The aggregate fair value of the options granted at the time of the Initial Public Offering using a Black-Scholes valuation model was Euro 7,672,500 (reflecting a valuation of Euro 3.41 per option). This amount has been treated as a cost of the Initial Public Offering. As at 31 December 2009, these options were out of the money as the share price was below the Offer Price of Euro 10.

 

Controlling Party

Cheyne ABS Opportunities Fund has a controlling interest in the Company.

 

 

19.  Significant Events during the period

 

On 2 October 2009 the Company paid back a further Euro 3,726,757 of the loan, leaving a loan amount outstanding at 31 December 2009 of Euro 18,300,565.

 

 

20.  Subsequent Events

 

Subsequent to 31 December 2009 the Company paid back a further Euro 9,657,598 of the loan, leaving a loan outstanding amount at 9 March 2010 of Euro 8,642,967.

 

On 3 March 2010, the Company sold the Magellan 2 ABS portfolio at a price in line with its 31 December 2009 valuation.

 

There have been no other events subsequent to 31 December 2009 which require adjustment of or disclosure in the quarterly report or the notes thereto.

 

 

21.  Comparative figures

 

The comparative figures are for the quarter ended 30 September 2009.

 

 

22.  Unaudited Financial Statements

 

The financial statements contained in this report are unaudited.

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
QRTGGUWUWUPUPUU