Alcentra EurFltRt Fd

Portfolio Update

RNS Number : 0306M
Alcentra European Fltng Rate Inc Fd
11 September 2019
 

Alcentra European Floating Rate Income Fund Limited

 

Market Commentary

 

The Fund was up +0.32% (gross) in August, the Credit Suisse Western European Leveraged Loan Index ("CS WELLI") (hedged to GBP) returned +0.15%[1] and the Credit Suisse Western European Leveraged Loan Index excluding USD ("CS WELLI exc USD") (hedged to GBP) returned +0.30%[2] for the month.

 

The European Loan market remained broadly stable in August despite some volatility in broader markets, due to a lighter level of new loan issuance and solid demand. European Loans were further supported by the news of repayments on a number of larger credits (Wind, Refinitiv, M7). USD loans in the month however were weaker (-0.50pt)[3] on the back of negative US macro and trade headlines. As such, the CS WELLI exc USD saw a more positive return for the month than the broader CS WELLI, which includes a number of USD assets. 

 

Loan issuance quietened in August due to the traditional European summer break. As such, volumes for the month stood at only €0.3bn, versus €0.4bn in the prior year[4]. This leaves the YTD new issuance volume at €48.7bn, -31% on the same period last year[5], with the decline driven by the quieter start to the year. The market is now gearing up for what is expected to be a relatively busy September/October, with the S&P forward pipeline standing at €11.4bn and including larger deals from Merlin Entertainment, BCA Marketplace and Cobham[6].

 

CLO issuance also slowed down, with no new CLOs pricing in the month. This leaves YTD CLO formation +4.8% on the prior year at €20.1bn and above the full year volumes for 2013-2016[7]. The pipeline for September CLO issuance looks strong with the market expecting a busy month, aided by continued tightening in the cost of AAA liabilities. This should support CLO issuance in the back half of the year, and when coupled with supportive SMA/unleveraged fund demand, means we expect demand for European Leverage Loans to remain robust.

 

The S&P default rate for the 12 months ending August again remained at the record low level of 0.00%[8]seen since January. We continue to expect a return to a more normalised 1.5% - 2.0% rate in the medium term. This is backed up by the S&P distress ratio (share of performing issuers trading below 80) which stood at 3.33% for August[9].

 

Overall we expect the European market to remain well supported into the back half of the year with a robust pipeline of new issuance expected to be absorbed by investors due to continued strong CLO demand, as well as due to some sizeable loan repayments (Wind, Refinitiv and M7).

 

 

 

 

Portfolio Manager's Commentary

 

The top two performing credit were both credits that had been weaker in prior periods and saw a recovery in price in August on the back of better performance. The top performing name was a German Cable business that was up +3.70% after reporting a solid set of results, which were ahead of expectations. The second best performing credit was a Specialist Financial Services Business that was up +1.98% after the Company announced solid results, as well as confirming that they had bought back some of their own debt

 

The worst performing position was a European Retailer that was down -8.82% after weaker results led to lenders deciding that the best way to maximise returns was to take control of the business, in exchange for writing down the debt. The second weakest credit was a Telecommunications business that was -8.03% lower after reporting weaker than expected results.

ENDS

 

For further information please contact:

Alcentra Limited

Simon Perry                            +44 20 7367 5272

 

Factsheet

An accompanying factsheet which includes the information above as well as wider commentary on the investments made by the Fund can be found on the Fund's website www.aefrif.com.

 

Background Information

Alcentra European Floating Rate Income Fund Limited, a Guernsey Authorised Closed-Ended Collective Investment Scheme, regulated by the Guernsey Financial Services Commission and listed on the Main Market of the London Stock Exchange invests predominantly in senior secured loans and senior secured bonds issued by European corporates and targets returns (net of fees and expenses) of 7% to 10% per annum. The Fund targets a dividend yield of 5.5 pence per £1.00 issue price of the initial offering of shares in the Fund for the first full year of investment, paid quarterly.

 

Important Notices

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

 

This report is aimed at existing investors in the fund and has not been approved by any competent regulatory authority.

The information contained in this document is given as at the date of its publication (unless otherwise marked) and is based on past performance. Past performance is not a guide to future performance and the value of investments and investment value can go down as well as up. The future performance of the Fund will depend on numerous factors which are subject to uncertainty. Including changes in market conditions and interest rates and exchange rates and in response to other economic, political or financial developments, investment return and principal value of your investment will fluctuate, so that when your investment is sold, the amount you receive could be less than what you originally invested. Past or current yields are not indicative of future yields.

This document does not contain any representations, does not constitute or form part of any solicitation of any offer to sell or invitation to purchase any securities of the Fund, nor shall it or any part of it or the fact of its distribution form the basis of or be relied upon in connection with any contract therefor, and does not constitute a recommendation regarding the securities of the Fund. Nothing in this document should be construed as a profit or dividend forecast.

This document includes statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements include, without limitation, statements typically containing words such as "believes", "considers", "intends", "expects", "anticipates", "targets", "estimates", "will", "may", or "should" and words of similar import. The forward-looking statements are based on the beliefs, assumptions and expectations of future performance and market development of Alcentra Limited ("Alcentra"), taking into account information currently available and made as at the date of this document. These can change as a result of many possible events or factors, not all of which are known or within Alcentra's control. If a change occurs, the Fund's business, financial condition, liquidity and results of operations may vary materially from those expressed in the forward-looking statements. By their nature, forward-looking statements involve known and unknown risks and uncertainties. Forward-looking statements are not guarantees of future performance. Alcentra qualifies any and all of the forward-looking statements by these cautionary factors. Please keep this cautionary note in mind while reading this document.

An investment in the Fund is suitable only for investors who are capable of evaluating the merits and risks of such an investment and who have sufficient resources to be able to bear losses (which may equal the whole amount invested) that may result from such an investment. An investment in the Fund should constitute part of a diversified investment portfolio. Accordingly, typical investors in the Fund are expected to be sophisticated and/or professional investors who understand the risks involved in investing in the Fund.

Alcentra gives no undertaking to provide recipients of this document with access to any additional information, or to update this document or any additional information, or to correct any inaccuracies in it which may become apparent including in relation to any forward-looking statements. The distribution of this document shall not be deemed to be any form of commitment on the part of Alcentra to proceed with any transaction.

This document is issued by Alcentra Limited, which is authorised and regulated in the United Kingdom by the Financial Conduct Authority and whose registered address is at 160 Queen Victoria Street, London, United Kingdom, EC4V 4LA.

BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may also be used as a generic term to reference the Corporation as a whole or its various subsidiaries generally.

© 2019 The Bank of New York Mellon Corporation. All rights reserved. Trademarks and logos belong to their respective owners.

 

 

[1] Credit Suisse Western European Leveraged Loan Index, All Denom, hedged to GBP, 31 August 2019

[2] Credit Suisse Western European Leveraged Loan Index, Non USD, hedged to GBP, 31 August 2019

[3] Credit Suisse Western European Leveraged Loan Index, All Denom, hedged to GBP, 31 August 2019

[4] S&P Global Market Intelligence, LCD Global Interactive Loan Volume Report, 5 September 2019

[5] S&P Global Market Intelligence, LCD Global Interactive Loan Volume Report, 5 September 2019

[6] S&P Global Market Intelligence, Forward calendar: Autumn Pipeline, 2 September 2019

[7] S&P Global Market Intelligence, CLO Historical Stats, 1 September 2019

[8] S&P Default Ratio, 1 September 2019

[9] S&P Distress Ratio, 1 September 2019


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