Blackstone Loan Fin

Annual Financial Report

RNS Number : 9377J
Blackstone Loan Financing Limited
29 April 2022
 

29 APRIL 2022

FOR IMMEDIATE RELEASE

 

RELEASED BY BNP PARIBAS SECURITIES SERVICES S.C.A., JERSEY BRANCH FINAL RESULTS ANNOUNCEMENT

 

THE BOARD OF DIRECTORS OF BLACKSTONE LOAN FINANCING LIMITED ANNOUNCE FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2021

 

Blackstone Loan Financing Limited

 

Annual Report and Audited Financial Statements for the Year Ended 31 December 2021

 

A Note From Our Chair

During 2021, the Company's strong performance was supported, through its investment in BCF, by the ability to take advantage of the technical strength in the CLO liability market to launch new CLOs and refinance or reset existing CLO investments. Returns were also supported by positive loan market conditions and a benign default environment.

 

The Company delivered a total return per Ordinary Share of 21.82% on a published NAV basis, ending the period with a NAV of €0.9407, and 16.87% on an IFRS NAV basis, ending the period with a NAV of €0.9154.

 

The Board maintains a cautiously optimistic outlook for 2022 given the overall health of the economy and corporate fundamental landscape, whilst being alive to potential downside risks posed by inflation, tightening monetary conditions, the conflict in Ukraine and the impact of the pandemic.  The Board continues to gain comfort from Blackstone's deep expertise as an active manager, which will be key in navigating this environment.

 

Charlotte Valeur
Chair
29 April 2022

 

Key Performance Indicators

 

IFRS NAV

 

Published NAV

 

 

 

 

NAV (1)

€0.9154

(31 Dec 2020: €0.8557)

 

€0.9407

(31 Dec 2020: €0.8435)

 

 

 

 

NAV total return (1)

16.87%

(31 Dec 2020: 8.85%)

 

21.82%

 (31 Dec 2020: (0.22)%)

 

 

 

 

Discount (1)

(13.43)%

(31 Dec 2020: (21.70)%)

 

(15.75)%

(31 Dec 2020: (20.57)%)

 

 

 

 

Dividend

€0.08

(31 Dec 2020: €0.07)

 

€0.08

 (31 Dec 2020: €0.07)

Further information on the reconciliation between the IFRS NAV and the Published NAV can be found below. Refer to Discount Management in the Chair's Statement below for the latest share price discount to the Published NAV.

Performance

Ticker

IFRS NAV

per Share

Published NAV

per Share

Share Price ( 2 )

Discount

IFRS

NAV

Discount

Published

NAV

Dividend Yield

BGLF

 

 

 

 

 

 

31 Dec 2021

€0.9154

€0.9407

€0.7925

         ( 13.43)%                  

(15.75)%

 10.09%*

31 Dec 2020

€0.8557

€0.8435

€0.6700

(21.70)%

(20.57)%

10.45%

BGLP

 

 

 

 

 

 

31 Dec 2021

£0.7697

£0.7608

£0.6750

  (12.30)%

(11.28)%

10.07% *

31 Dec 2020

£0.7647

£0.7538

£0.6000

(21.54)%

(20.40)%

10.47%

* Dividend Yield presented as €0.08 per annum, given the first three quarterly dividends of €0.0175 per share and fourth quarter dividend of €0.0275, and the share price as at 31 December 2021.

 

 

LTM

Return (1)

3-Year

Annualised

Annualised Since Inception

Cumulative Since

Inception

BGLF IFRS NAV

16.87%

10.73%

8.06%

78.14%

BGLF Published NAV

21.82%

11.62%

8.45%

82.99%

BGLF Ordinary Share Price

31.15 %

13.21%

6.72%

62.31%

European Loans

4.63%

4.00%

3.39%

28.18%

US Loans

5.40%

5.42%

4.04%

34.35%

 

STRATEGIC REPORT

Reconciliation of IFRS NAV to Published NAV

At 31 December 2021, there was a difference between the NAV per Ordinary Share as disclosed in the Statement of Financial Position, 0.9154 per Ordinary Share, ("IFRS NAV") and the published NAV, 0.9407 per Ordinary Share, which was released to the LSE on 24 January 2022 ("Published NAV").  A reconciliation is provided in Note 16 in the Notes to the Financial Statements. The difference between the two valuations is entirely due to the different valuation bases used.

 

Valuation Policy for the Published NAV

The Company publishes a NAV per Ordinary Share on a monthly basis in accordance with its Prospectus. The valuation process in respect of the Published NAV incorporates the valuation of the Company's CSWs and underlying PPNs (held by the Lux Subsidiary). These valuations are, in turn, based on the valuation of the Blackstone Corporate Funding Designated Activity Company ("BCF") (formerly Blackstone / GSO Corporate Funding Designated Activity Company) portfolio using a CLO intrinsic calculation methodology per the Company's Prospectus, which we refer to as a "mark to model" approach. As documented in the Prospectus, certain "Market Colour" (market clearing levels, market fundamentals, bids wanted in competition ("BWIC"), broker quotes or other indications) is not incorporated into this methodology. The Directors believe that this valuation process is the appropriate way of valuing the Company's holdings, and of tracking the long-term performance of the Company as the underlying portfolio of CLOs held by BCF are comparable to held to maturity instruments and the Company expects to receive the benefit of the underlying cash-flows over the CLOs' entire life cycle.

 

Valuation Policy for the IFRS NAV

For financial reporting purposes on an annual and semi-annual basis, to comply with IFRS as adopted by the EU, the valuation of BCF's portfolio is at fair value using models that incorporate Market Colour at the period end date, which we refer to as a "mark to market" approach. IFRS fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as at the measurement date, and is an "exit price" e.g. the price to sell an asset. An exit price embodies expectations about the future cash inflows and cash outflows associated with an asset or liability from the perspective of a market participant. IFRS fair value is a market-based measurement, rather than an entity-specific measurement, and so incorporates general assumptions that market participants are applying in pricing the asset or liability, including assumptions about risk.

 

Both the mark to model Published NAV and mark to market IFRS NAV valuation bases use modelling techniques and input from third-party valuation specialists.

The Directors, as set out in the Prospectus, will continue to assess the performance of the Company using the Published NAV. Additional information and commentary on Market Colour, credit risk exposure and any material divergence from the different valuation bases referred to above will be communicated by the Directors and Portfolio Adviser if and when appropriate.

 

Dividends and Other Key Data

Whilst not forming part of the Company's investment objective or investment policy, it is currently intended that dividends are payable in respect of each calendar quarter, two months after the end of that quarter.

 

On 22 January 2021, the Board announced that the Company had adopted a dividend policy targeting a total 2021 annual dividend of between €0.07 and €0.08 per Ordinary Share, to consist of quarterly payments of €0.0175 per Ordinary Share for the first three quarters and a final quarter payment of a variable amount to be determined at that time. In accordance with the Company's dividend policy, the Board declared dividends of €0.0175 per Ordinary Share for the first three quarters of 2021 and a dividend of €0.0275 per Ordinary Share for the fourth quarter.

 

Refer to Note  21  for an update to the dividend policy after the year end.

Ordinary Share Dividends for the Year Ended 31 December 2021

Period in respect of

Date Declared

Ex-dividend Date

Payment Date

Amount per  Ordinary Share

 

 

 

 

1 Jan 2021 to 31 Mar 2021

23 Apr 2021

6 May 2021

4 June  2021

0.0175

1 Apr 2021 to 30 Jun 2021

26 Jul 2021

5 August  2021

3 September 2021

0.0175

1 Jul 2021 to 30 Sept 2021

21 Oct 2021

28 Oct 2021

26 Nov 2021

0.0175

1 Oct 2021 to 31 Dec 2021

24 Jan 2022

3 Feb 2022

4 Mar 2022

0.0275

Ordinary Share Dividends For the year ended 31 December 2020

Period in respect of

Date Declared

Ex-dividend Date

Payment Date

Amount per Ordinary Share

 

 

 

 

1 Jan 2020 to 31 Mar 2020

23 Apr 2020

30 April  2020

29 May 2020

0.0150

1 Apr 2020 to 30 Jun 2020

21 Jul 2020

30 Jul 2020

28 Aug 2020

0.0150

1 Jul 2020 to 30 Sept 2020

21 Oct 2020

29 Oct 2020

27 Nov 2020

0.0150

1 Oct 2020 to 31 Dec 2020

22 Jan 2021

4 Feb 2021

5 March 2021

0.0250

 

Year Highs and Lows

 

2021
High

2021
Low

2020
High

2020
Low

Published NAV per Ordinary Share

€0.9407

€0.8534

€0.8992

€0.7663

BGLF Share Price (last price)

€0.8250

€0.6400

€0.8400

€0.4500

BGLP Share Price (last price)

£0.7300

£0.5700

£0.7200

£0.4200

 

Schedule of Investments

As at 31 December 2021

 

Nominal
Holdings

Market
Value

% of Net Asset
Value

 

 

 

Investment held in the Lux Subsidiary:

 

 

 

CSWs

267,088,098

411,170,727

97.43

Shares (2,000,000 Class A and 1 Class B)

2,000,001

6,798,832

1.61

 

 

 

 

Other Net Assets

 

4,030,018

0.95

Net Assets Attributable to Shareholders

 

421,999,577

100.00

Schedule of Significant Transactions

Date of Transaction

Transaction Type

Quantity

Amount

Reason

 

 

 

 

CSWs held by the Company - Ordinary Share Class

 

 

23 Feb 2021

Redemption

10,287,510

13,976,360

To fund dividend

6 Apr 2021

Subscription

6,170,000

6,170,000

Investments in PPNs

5 May 2021

Subscription

3,742,949

3,742,949

Investments in PPNs

14 May 2021

Redemption

9,067,077

12,522,939

To fund dividend

5 Aug 2021

Subscription

3,466,233

3,466,233

Investments in PPNs

18 Aug 2021

Redemption

8,163,737

12,017,813

To fund dividend

5 Nov 2021

Subscription

5,229,553

5,229,553

Investments in PPNs

9 Nov 2021

Redemption

8,882,168

13,762,794

To fund dividend

C Share

 

Chair's Statement

Dear Shareholders ,

Company Returns and Net Asset Value  ( 3 )  

The Company delivered an IFRS NAV total return per Ordinary Share of 16.87% during 2021, ending the year with a NAV of €0.9154. The return was composed of 9.05% of dividend income and 7.82% of net portfolio movement.

 

On a Published NAV basis, the Company delivered a total return per Ordinary Share of 21.82% during 2021, ending the year with a NAV of €0.9407. The return was composed of dividend income 9.14% and of net portfolio movement of 12.68%.

 

During 2021, the Company's strong performance was supported, through its investment in BCF, by the ability to take advantage of favourable conditions for CLO creation and management. This included strong demand for CLO liabilities, low CLO funding costs, and a relatively attractive arbitrage. This supported the origination of new CLOs, but also provided the opportunity to refinance or reset existing transactions. Returns were also supported by positive loan market conditions and the absence of defaults.

 

The Company paid four dividends to Ordinary Shareholders during 2021, totalling €0.08 per share, delivering at the upper end of the 2021 dividend policy target of €0.07 - €0.08 per share. Details of all dividend payments can be found within the Dividend History section at the front of this Annual Report.

 

The Company's dividends are funded from the cash flows generated by the Company's underlying CLO portfolio. The Board considers three strategic priorities when allocating these cash flows:

 

·   Paying a sustainable dividend sufficiently covered by cash generated, that does not erode the capital of the Company over time;

· Providing funds to implement the Board's share buyback policy; and

· Reinvesting surplus cash proceeds in order to grow the Company's Net Asset Value over time.

 

The Board has adopted a framework with Blackstone Credit that first of all considers both realised and forward-looking expectations of underlying cash flows to derive a target range for the dividend for the coming year, then considers the level of the Company's share price discount to Net Asset Value per share in order to allocate a budget for share buybacks. Surplus cash generated in excess of these requirements is reinvested.

 

In light of this revised framework, the Board have once again targeted a total annual dividend of €0.07 - €0.08 per share, which will consist of quarterly payments of €0.0175 per ordinary share for the first three quarters and a final quarter payment of a variable amount to be determined at that time. Please see the announcement dated 24 January 2022 for more details.

 

Historical BGLF NAV and Share Price

The graph shows cumulative Published NAV and Ordinary Share price total returns and cumulative returns on European and US loans.

 

[Graphs and charts are included in the published Annual Report and Audited Financial Statements which is available on the Company's website at  http://blackstone.com/bglf ]

 

Market Conditions

Financial markets generally performed strongly during 2021, continuing the tone set from the end of 2020. Equity markets reached record levels and credit spreads continued to grind tighter in tandem with the general recovery from the COVID-19 pandemic, which affected many of our borrowers. Ongoing monetary and fiscal support, accommodative capital markets, the rollout of mass vaccination programmes, and the reopening of major economies all supported a move towards healthy economic activity throughout the bulk of the year.

 

While the demand side of the economy has been remarkably stable, supply side disruptions have been partially responsible for some of the macroeconomic cross currents experienced later in 2021. Global supply chain constraints and other pandemic-related dislocations, such as soaring energy prices, have caused a spike in inflation and moderating GDP growth expectations. This is clearly a balancing act for central banks; however, the uncertainty over the velocity and quantum of monetary tightening led to fixed rate assets such as investment grade and high yield bonds, to underperform. Leveraged loans outpaced this performance due to their floating rate nature and therefore natural interest rate and inflation hedge. Going forward, we expect floating rate credit to outperform and see an attractive environment for investors within leveraged loans and CLOs.

 

Discount Management

The share price discount to Published NAV narrowed from 20.57% on 31 December 2020 to 15.75% on 31 December 2021. During 2021, the Company repurchased 16,038,629 shares for €12,396,228 at an average discount of 12.57% using available cash with the goal of reducing the discount. As of 27 April 2022, the share price discount to March published NAV was 19.40%. As a Board, we regularly weigh the balance between maintaining liquidity of the shares, the stability of any discount, and the desire of Shareholders to see the Ordinary Shares trade as closely as possible to their intrinsic value4. Please see the announcement dated 24 January 2022 for more details.

 

Transition away from LIBOR

The transition away from LIBOR to SOFR mainly impacts BCF's US CLO portfolio, which accounts for 37.8% of BCF's NAV as of year-end. A portion of BCF's US CLO equity holdings include ARRC-suggested fallback language, triggering a LIBOR to SOFR liability switch when 50% of the underlying loan portfolio transitions to SOFR. Under normal market conditions, we expect the impact to BCF's US CLO equity to be relatively muted due to the ability to refinance and the expectation of higher forward rates.

 

Environmental, Employee, Social, Community and Human Rights Matters

The Company is a closed ended investment company with no employees, and therefore the Company is currently exempt from the requirement to report against the recommendations of the Task Force for Climate Related Disclosures ("TCFD"). The Board notes that the Company's direct environmental impact is minimal; however, certain companies to which BCF provides finance to (either directly or indirectly) may have  environmental and/or social impact, and that the governance of each borrower is critical in ensuring that they behave ethically and attach appropriate importance to environmental and social issues. The Board believes that good governance is critical to ensuring that ESG risks are managed appropriately. 

 

The Board notes that BX Credit has been committed to being a responsible investor for over 35 years and that BX Credit understands that material ESG issues can present both risks and opportunities to long-term investment performance and therefore, the security of BCF's loan portfolio. This commitment to responsible investing is affirmed across the organisation and guides its approach to financing and investing in companies. 

 

Governance

The Board has appointed Mr Clark as the Director responsible for ESG matters, and he helps promote close monitoring and further development in this area for the Company.

The Company further developed the integration of ESG and climate-related risks into its governance structure. During 2021, the Board:

-   discussed ESG, including climate-specific matters, with the Portfolio Adviser at various meetings with a view to understanding how meaningful ESG analysis is being embedded in the Portfolio Adviser's credit investment process. These discussions included, but were not limited to, analysis of the rapidly evolving area of measurement and disclosure, the exchange of views on climate-related issues and topics, which led to increased awareness of climate-related issues and disclosures;

-         received climate-related policy and regulation updates from the Company's external advisers to ensure the Company is compliant with changes in regulations and remains cognisant of best practice guidance;

-   received an overview of the Company's service providers diversity and ESG policies and incorporated consideration of this overview as part of its annual service provider evaluation; and

-   considered its relations with shareholders regarding ESG-related matters. The Board has noted the governance and environmental benefits of offering virtual participation for shareholder meetings.

Furthermore, the Board actively discusses ESG matters with Blackstone with the view of obtaining more meaningful information for our Shareholders.

 

Strategy and Risk Management

The Company's climate-related risks and opportunities are closely linked to those companies which BCF provides finance to. Therefore, the extent to which climate-related disclosures can be reported by the Company is limited to some extent. However, as part of BX Credit's investment process, BX Credit may engage with the companies to whom BCF provides financing on ESG related matters. Refer to the Portfolio Adviser's Review below for further details.

 

As part of the Company's engagement with BX Credit, the Board have obtained and reviewed BX Credit's Responsible Investing Policy and considered their perspective on climate change. The Board noted that BX Credit is of the belief that a key component of being a responsible investor is an active evaluation of ESG components of its investments. Hence, a review of sector specific ESG risks is integrated into BX Credit's investment analysis and decision-making processes from pre-investment diligence to post-investment monitoring. BX Credit recognizes the value that incorporating ESG factors in investment research creates both in terms of mitigating risk and enhancing long-term performance across investments. BX Credit integrates review and consideration of applicable ESG factors into its decision-making processes. Refer to the Portfolio Adviser's Review  below  for further details on the Portfolio Adviser's ESG policy.

 

During the period, the Directors added ESG as a Category A Risk, given it is a continued key focus of the Board and the Portfolio Adviser. As part of the Company's Risk Management Framework, the Risk Committee reviews the Company's Key Risks bi-annually based on probability and potential impact on performance, strategy, reputation, or operations.

 

Metrics & Targets

As of the end of 2021, BX Credit's CLO business did not explicitly track exposure to climate risk or monitor the carbon footprint of an investment due to limitations of available data, as explained below. In practice, they took the ESG factors that may impact investment performance into consideration and incorporated such factors into their initial evaluation of an investment and the ongoing investment monitoring process. Evaluation criteria were based on the materiality of the ESG risk considering:

-   whether it had a current impact or a potential future impact; and

-   any mitigating actions the issuer undertook to address the risk.

 

Looking Forward

The Company is currently exempt from the requirement to report against the TCFD recommendations but the Board will keep this under review as requirements and best practice evolves.

 

The Board fully acknowledges the importance of the TCFD recommendations and expects the companies to which BCF provides finance to, to be compliant in their reporting against TCFD recommendations, as appropriate.

 

The Board recognises that its ability to report on BCF's underlying portfolio of borrowers is currently very limited; however, the Board is committed to enhancing its reporting to investors over time, to the extent permissible, as BX Credit's ability to provide meaningful data on BCF's portfolio evolves as further outlined below.

 

The Board

Good governance remains at the heart of our work as a Board and is taken very seriously. We believe that the Company maintains high standards of corporate governance. The Board was very active during the year, convening a total of 18 Board meetings and 28 Committee meetings. The Board used these meetings to discuss various aspects of operational risk and controls, the loan and CLO markets, and current market conditions.

 

In addition, as can be seen from the corporate activity during the year, the Board and its advisers have worked hard to ensure the continued success and growth of the Company to put it in the best position to take advantage of all appropriate opportunities.

 

The work of the Board is assisted by the Audit Committee, NAV Review Committee, Management Engagement Committee, the Remuneration and Nomination Committee, the Risk Committee and the Inside Information Committee. The joint work of the Risk and Audit committees has given valuable support to the longer-term viability considerations of the Board as described under the Viability Statement in Risk Overview.

 

The Company is a member of the AIC and adheres to the AIC Code, which is endorsed by the FRC, and meets the Company's obligations in relation to the UK Code.

 

Shareholder Communications

 

During 2021, using our Portfolio Adviser and Brokers, we continued our programme of engagement with current and prospective Shareholders. We sincerely hope that you found the monthly factsheets, quarterly letters, quarterly update webcasts and market commentary valuable. We are always pleased to have contact with Shareholders, and we welcome any opportunity to meet with you and obtain your feedback.

 

Prospects and Opportunities in 2022

 

The Board maintains a cautiously optimistic outlook for 2022 given the overall health of the economy and the corporate fundamental landscape. That said, there are a few headwinds that warrant attention. Whilst the uncertainty stemming from the COVID-19 pandemic appears to have faded, this has been replaced by concerns over rising inflation, a tightening in monetary conditions and the conflict in Ukraine. The conflict and humanitarian situation in Ukraine has perpetuated volatility in the economy and financial markets, leading to increased focus on the issuers the Company lends to, specifically identifying those most leveraged to rising input costs and with the least ability to manage such pressures. The Board continues to gain comfort in Blackstone's expertise as an active manager with skill in research and credit selection, which we believe will be key in navigating this environment. Subject to market conditions, the Board also notes Blackstone's ability to execute on future securitisations, given their previous experience accessing capital markets in a variety of environments.

 

The Board wishes to express its thanks for the support of the Company's Shareholders.

 

 

Charlotte Valeur
Chair
29 April 2022

 

Portfolio Adviser's Review

Bank Loan Market Overview

Leveraged loan markets demonstrated remarkable strength and resilience during 2021. With capital markets functioning well and capitalising on the strength exhibited at the turn of the year, borrowers took advantage of historically low borrowing rates to refinance existing debt and issue new debt to fund corporate growth.  The vaccination rollout helped drive consumer spending and an unravelling of pent-up demand, supporting economic growth and a normalisation of economic activity. This was despite periodic disruption from the emergence of new variants, with the lower severity of the more recent Omicron strain providing optimism that the impacts of COVID-19 were diminishing. With a broad-based recovery reflected across credit and lower-rated assets driving outperformance, European and US leveraged loans returned 4.63% and 5.40%, respectively, with only one negative month across both benchmarks throughout the year5.

 

Underpinning the positive performance was a supportive fundamental backdrop. Borrowers were able to bolster liquidity and we saw improving leverage and debt service ratios due to robust revenue and EBITDA performance. This resulted in a higher pace of rating agency upgrades and lower realised defaults, reflected in sell side default forecasts that were revised downwards throughout the year. At the end of 2021, the US loan last-twelve-month ("LTM") par-weighted default rate was 0.5%, down from 4.4% at the end of 20206. Defaults for Europe Loans were lower at 0.2%, compared to 1.2% at the end of 2020, with both markets tracking well below longer term averages6. At the year-end point, the 2022 default rate forecast for US and European leveraged loans were 0.75% and 0.80%, respectively7.

 

Complementing improving corporate fundamentals was a well-balanced technical backdrop. Healthy M&A and LBO activity alongside ongoing refinancing efforts led to record breaking issuance of European and US loans. Gross loan supply totalled €130 billion and $801 billion compared to €65 billion and $395 billion for 2020, respectively8. This strong demand was easily absorbed. Firstly, the prospect of rising interest rates and inflation drove a significant rotation of investors into loan funds on account of their floating rate characteristics. There were also meaningful flows from retail investors into US loan funds, which experienced their first inflows since 2017, expanding the retail ownership of the US loan market to 8.7% from 5.7% at the start of the year9. Most importantly, the CLO market, which accounts for the vast majority of global loan demand, also set issuance records, which supported the bid for leveraged loans throughout the year.

 

At the end of 2021, the average price for the European and US leveraged loan indices increased to €98.71 and $98.39 from €97.35 and $95.73 at the end of 2020, respectively10. Similarly, European and US loan spreads (represented by 3-year discount margin) tightened by 46 bps and 47 bps over the same period to 413 bps and 439 bps, respectively10. Both trends are consistent with the fundamental and technical themes previously described, supporting the performance of CLO equity investors.

 

 

CLO Market Overview 

By many measures, the CLO market had a record year in 2021. Issuance soared, CLO liability spreads generally tightened, fundamentals improved, and equity returns were very strong across the market. In fact, CLO equity was highlighted by many sell-side research desks as one of the top picks amongst fixed income assets11.

 

CLO liability spreads trended towards multi-year lows in the first half of 2021 and increased confidence in both underlying collateral quality and CLO structures themselves led to a sharp increase in CLO activity, which is a theme that persisted throughout the year. Whilst the weighted average cost of CLO funding increased marginally in the second half of 2021 under the pressure of heavy supply, the arbitrage available to equity investors was still attractive. Combined with broad based demand for CLO debt due to compelling relative value and its natural interest rate and inflation hedge, there was a sharp increase in global new issuance, but also refinancing and reset activity from those managers aiming to reduce the cost of capital in existing transactions or lock in longer reinvestment periods, both of which are potentially accretive to IRR. This optionality is a key benefit for CLO equity investors who as a result might expect higher expected future cashflows in aggregate and an increase in equity net asset value ("NAV") as a result.

 

Taking all of this into account, total CLO new issuance was a record €39 billion and $187 billion for Europe and the US respectively, with a further €61 billion and $245 billion accounted for by refinancing and reset volume12. The CLO market also grew beyond $1 trillion of outstanding volume globally, and with many new entrants into the asset class, it can be argued that CLOs are becoming accepted as a more mainstream fixed income asset broadly owned by institutional investors.

 

In Europe, AAA-rated CLO spreads finished at 97 bps at the end of 2021 after hitting lows in the high 70 bps region in March (compared to 105 bps at the end of 2020)13. Similarly, US CLO AAA-rated spreads were 113 bps as of the end of 2021 after reaching 100 bps in March (compared to 132 bps at the end of 2020)14.

 

Consistent with the healthy loan fundamentals, CLO fundamentals also improved in 2021. In Europe, Caa-rated buckets finished 2021 at 3.6% on average, down from 6.2% at the end of 2020, and defaulted assets remained at 0% on average. There was also an improvement in Weighted Average Rating Factor ("WARF") by 338 to 2,910 and an increase in junior overcollateralisation ("OC") cushions by 166bps to 414 bps. Weighted Average Asset Price ("WAP") also increased by 1.2 to 99.1. Notably, CLO equity market value NAVs increased by 15.5 to 66.214.

 

In the US, Caa-rated buckets were 3.9% versus 6.8% at the end of 2021, defaulted assets fell to 0% from 0.5% and WARF metrics declined by 331. Likewise, junior OC cushions increased by 166bps to 448bps over the same period, and WAP also increased by 1.4 to 98.7. CLO equity NAV also posted an impressive gain of 21.3 to 65.814. 

 

As we look forward, CLO supply is expected to stay elevated, albeit issuance will be at a slightly slower pace than experienced in 2021. CLO liability spreads have recently widened in sympathy with broader market volatility, partly caused by the conflict in Ukraine, but we believe this pause in issuance activity will be temporary as the market adjusts to higher loan and CLO liability spreads.  We believe that CLOs remain an attractive asset class based on relative value, its floating rate and match funded nature, and the current relatively benign default environment.

 

Portfolio Update

BCF

At the start of 2021, focus within BCF's loan portfolio was on exiting tail risk names to avoid par loss and rotating out of lower coupon names, with CLOs subsequently repositioning into market strength as confidence around the expected recovery grew. As the year progressed, trading activity became increasingly focussed on relative value leveraging both healthy primary market activity and secondary market opportunities, to rotate into higher spread assets where valuations were attractive and in names that we had longer term conviction. This would become an ongoing theme throughout the year to maintain or increase portfolio weighted average spread and ultimately support distributions to investors.

 

In the context of a broadly supportive market, we experienced pockets of volatility on two fronts. Firstly, the emergence of new COVID-19 variants led to periods of softness; however, we took this as an opportunity to purchase names in which we had longer term conviction and viewed as oversold. We deployed similar tactics when navigating the market uncertainty from increased interest rate and inflation expectations, acquiring assets at attractive valuations that ultimately traded up as the market firmed into year end.

 

Reflecting 2021's trading activity, BX Credit's CLOs finished the year in the top quartile with respect to junior OC cushion in both Europe and the US15, which is consistent with our philosophy of ensuring that investor capital is protected. BCF's CLOs also outperformed the market with respect to defaults, with a default loss rate of 0.00% versus 0.03% for European loans and 0.19% for US loans16 respectively.

At the end of the year, the BCF loan portfolio remains a well-diversified, defensively positioned portfolio of 727 issuers across 29 sectors and 31 countries. It holds 4.4% rated CCC at the facility level (down from 5.5% at the end of 2020), has 0.5% of assets priced less than 80% (10 bps higher compared to the end of 2020), and has a maturity profile wrapped around 2026, reflecting approximately one year's extension from the same time last year.17

Consistent with the supportive environment for CLOs, BCF had a record year of activity in both new issuance and optimisation of its liability portfolio. In 2021, BCF participated in the capital markets on 25 occasions, which includes 8 new issues, 12 resets, and 5 refinancings. In total, the CLO portfolio spans eight vintage years, providing ample opportunity to manage costs and reinvestment periods.

Despite the heavy volumes of issuance in the market throughout the year, Blackstone Credit was able to price at levels tighter than peers on several occasions, which was recently supported with data published by JPMorgan research18. Across the 17 CLOs that were refinanced or reset during 2021, the average cost of capital was reduced by 16 basis points19 and reinvestment periods were extended by 3.2yrs in the case of resets, both of which are immediately accretive to the NAV of these CLOs.

Where a refinancing or resetting was less accretive versus other uses of capital, BCF either redeemed CLOs or exited through a sale where available; in total five CLOs were redeemed, and three CLO equity positions sold in full at levels that were accretive to both mark to model and mark to market prices20.  Taking the portfolio recycling all together, the average IRR on fully exited transactions is 16.9%21.

As a result of financing activity in 2021, BCF's net interest margin improved to 214 bps, up from 192 bps at the end of 2020. Firstly, due to loan trading activity, BCF's weighted average asset coupon increased to 378 bps from 374 bps at the end of 2020. There was a significant reduction in BCF's weighted average cost of capital to 164 bps from 183 bps due to CLO liability refinancing and the refinancing of the credit facility supporting balance sheet loan purchases. Finally, the CLO portfolio's weighted average reinvestment period increased to 2.3 years from 1.9 years at the end of 2020.

Whilst the impact of this activity is more immediately evident in the NAV and less so in current income, it importantly lays the groundwork for future distributions. As of the end of the year, the weighted average annualised cash on cash distribution for the current CLO portfolio was 18.3%22. Underpinning this are CLOs at various life stages with distributions for many CLOs both higher and lower than average, as one would expect with a portfolio of this size.

Looking forward, approximately two thirds of the CLO portfolio will have lapsed their non-call dates by the end of 2022, though the number that will be 'in the money' candidates for refinancing may be lower, subject to market conditions. That said, we will continue to evaluate the relative merits of a refinancing, reset, redemption or sale, for each CLO and also identify opportunities to execute on new CLO securitisations in the context of the broader market volatility experienced so far in 2022.

Within the loan portfolio, we are relatively confident around CCC risk and expect defaults to remain below longer-term averages. Although we expect more dynamic credit markets, corporate fundamentals should remain relatively healthy, and we expect individual credit selection to underpin performance in 2022.   Our attention will continue to be focused on navigating those issuers most exposed to inflation and supply chain related headwinds, including avoiding those issuers with deteriorating debt servicing ability as a result of higher financing costs and margin pressure. As always, we intend to lever our research and portfolio management platform   to forecast potential loan upgrades and downgrades, and forward-looking valuations to help refine trading strategies to protect invested capital.

 

CLO Portfolio Positions

'Current'
Portfolio

Closing  /

[Expected Close] Date

Deal

Size

(€M)

Position Owned

(€M)

 % of Tranche

% of BCF NAV

Reinvest. Period

Left (Yrs)

Current Asset  Coupon

Current Liability Cost

Current Net Interest Margin

NIM

3M Prior

Distributions Through Last Payment Date(23)

Ann.

Cum.

EUR CLO Income Note Investments

Phoenix Park

Jul-14

417

23.3

51.4%

1.1%

1.3

3.60%

1.78%

1.82%

1.79%

13.9%

100.7%

Dartry Park

Mar-15

427

26.6

51.1%

1.2%

3.3

3.59%

1.67%

1.92%

1.93%

13.9%

91.9%

Tymon Park

Dec-15

416

22.7

51.0%

1.3%

3.6

3.66%

1.80%

1.86%

1.77%

15.7%

87.9%

Elm Park

May-16

522

31.9

56.1%

1.7%

3.8

3.61%

1.70%

1.91%

1.87%

17.1%

92.1%

Griffith Park

Sep-16

456

26.0

53.4%

1.5%

1.4

3.63%

1.57%

2.06%

2.00%

10.5%

54.8%

Clarinda Park

Nov-16

417

23.1

51.2%

1.3%

3.1

3.67%

1.70%

1.97%

1.93%

11.4%

56.9%

Palmerston Park

Apr-17

399

24.0

53.3%

1.2%

0.0

3.50%

1.59%

1.91%

1.93%

13.9%

62.8%

Clontarf Park

Jul-17

385

29.0

66.9%

1.4%

0.0

3.48%

1.65%

1.82%

1.90%

14.5%

62.7%

Willow Park

Nov-17

412

23.4

60.9%

1.3%

0.5

3.47%

1.58%

1.90%

1.91%

17.4%

67.2%

Marlay Park

Mar-18

413

24.6

60.0%

1.4%

0.3

3.54%

1.40%

2.14%

2.10%

19.1%

67.8%

Milltown Park

Jun-18

409

24.1

65.0%

1.6%

0.5

3.62%

1.50%

2.12%

2.06%

17.9%

60.0%

Richmond Park

Jul-18

516

46.2

68.3%

1.7%

0.0

3.52%

1.59%

1.93%

1.97%

17.6%

57.1%

Sutton Park

Oct-18

408

24.0

66.7%

1.6%

1.4

3.67%

1.72%

1.95%

1.86%

17.1%

48.6%

Crosthwaite Park

Feb-19

516

33.0

64.7%

1.9%

3.7

3.65%

1.75%

1.90%

1.83%

15.4%

43.1%

Dunedin Park

Sep-19

423

25.3

52.9%

1.1%

4.4

3.59%

1.83%

1.75%

1.80%

26.4%

57.2%

Seapoint Park

Nov-19

404

21.6

70.5%

1.5%

2.4

3.65%

1.84%

1.81%

1.75%

14.7%

26.0%

Holland Park

Nov-19

427

39.1

72.1%

1.6%

2.4

3.74%

1.90%

1.84%

1.74%

10.1%

20.3%

Vesey Park

Apr-20

403

24.5

80.3%

1.9%

2.9

3.71%

1.97%

1.74%

1.67%

20.3%

31.4%

Avondale Park

Jun-20

409

22.7

63.0%

1.3%

4.2

3.68%

1.88%

1.81%

1.76%

56.5%

70.2%

Deer Park

Sep-20

355

20.5

71.9%

1.4%

4.3

3.68%

2.27%

1.41%

1.32%

46.1%

51.0%

Marino Park

Dec-20

323

17.0

71.4%

1.4%

2.0

3.80%

1.84%

1.95%

1.91%

21.4%

17.4%

Carysfort Park

Apr-21

406

25.1

80.7%

1.9%

3.6

3.66%

1.68%

1.98%

1.96%

17.0%

9.5%

Rockfield Park

Jul-21

404

24.0

80.0%

1.9%

3.5

3.68%

1.75%

1.93%

1.91%

n/a

n/a

Dillon's Park

Sep-21

406

26.2

84.0%

1.9%

4.3

3.80%

1.83%

1.97%

1.97%

n/a

n/a

Cabinteely Park

Dec-21

404

23.6

75.6%

1.7%

4.9

3.63%

1.90%

1.73%

n/a

n/a

n/a

'Current'
Portfolio

Closing  /

[Expected Close] Date

Deal

Size

($M)

Position Owned

($M)

 % of Tranche

% of BCF NAV

Reinvest. Period

Left (Yrs)

Current Asset  Coupon

Current Liability Cost

Current Net Interest Margin

NIM

3M Prior

Distributions Through Last Payment Date(24)

Ann.

Cum.

USD CLO Income Note Investments

Grippen Park(25)

Mar-17

611

29.8

50.1%

1.5%

0.3

3.90%

1.86%

2.04%

2.00%

14.8%

68.0%

Thayer Park(25)

May-17

524

27.4

50.1%

1.3%

4.3

3.84%

1.76%

2.08%

2.08%

15.7%

69.7%

Catskill Park(25)

May-17

1,029

56.0

51.6%

2.5%

0.3

3.92%

1.70%

2.22%

2.16%

15.2%

67.2%

Dewolf Park(25)

Aug-17

614

31.7

51.6%

1.7%

0.8

3.94%

1.58%

2.36%

2.05%

15.7%

64.9%

Gilbert Park(25)

Oct-17

1,022

51.8

50.8%

2.5%

0.8

3.88%

1.80%

2.07%

2.04%

16.0%

63.6%

Long Point Park(25)

Dec-17

611

29.5

50.1%

1.5%

1.0

3.87%

1.55%

2.33%

2.31%

20.6%

78.3%

Stewart Park(25)

Jan-18

874

92.2

50.1%

1.6%

1.0

3.88%

1.59%

2.29%

2.29%

14.4%

53.8%

Cook Park(25)

Apr-18

1,025

53.6

50.1%

2.8%

1.3

3.87%

1.47%

2.40%

2.35%

18.1%

63.6%

Fillmore Park

Jul-18

561

30.2

54.3%

1.7%

1.5

3.87%

1.65%

2.22%

2.21%

15.8%

50.8%

Harbor Park

Dec-18

715

39.7

50.1%

2.1%

2.1

3.85%

1.75%

2.10%

2.09%

15.8%

44.9%

Buckhorn Park

Mar-19

509

24.2

50.1%

1.4%

4.5

3.83%

1.72%

2.11%

2.05%

19.9%

51.5%

Southwick Park(25)

Aug-19

503

26.1

59.9%

1.7%

2.6

3.84%

1.73%

2.12%

1.72%

16.6%

36.0%

Beechwood Park(25)

Dec-19

810

48.9

61.1%

2.7%

3.0

3.91%

2.11%

1.80%

1.78%

15.6%

28.5%

Allegany Park(25)

Jan-20

505

30.2

66.2%

1.7%

3.0

3.88%

2.08%

1.80%

1.80%

13.4%

23.6%

Harriman Park(25)

Apr-20

503

29.2

70.0%

1.9%

4.3

3.88%

1.76%

2.12%

2.12%

33.7%

50.5%

Cayuga Park(25)

Aug-20

401

22.9

72.0%

1.5%

4.5

3.88%

1.74%

2.14%

2.11%

44.2%

52.3%

Point Au Roche Park(25)

Jun-21

457

26.5

61.2%

1.8%

4.6

3.97%

1.74%

2.24%

2.25%

n/a

n/a

Peace Park(25)

Sep-21

661

39.0

60.8%

2.4%

4.8

3.96%

1.74%

2.22%

2.22%

n/a

n/a

Whetstone Park(25) 

Dec-21

506

28.6

62.5%

1.8%

5.1

3.97%

1.83%

2.22%

n/a

n/a

n/a

Vertical Retention Investments

Tallman Park(26)

May-21

410

2.1

5.0%

0.1%

4.3

3.98%

1.66%

2.31%

2.30%

28.9%

11.5%

US Warehouse Investments (29)

Initial Investment Date

Closing  / [Expected Close] Date

Investment

(€M)(27)

Investment

($M)(28)

Current Loan Exposure(28) ($M)

Current Asset Coupon

Current Liability Coupon

Net Interest Margin

Boyce Park

Sep-21

[Q1-22]

11.0

12.6

189.3

4.08%

1.31%

2.77%

Wehle Park

Nov-21

[Q1-22]

2.5

2.8

74.7

4.09%

1.31%

2.78%

Saratoga Park

Nov-21

[Q1-22]

1.6

1.8

74.7

4.09%

1.31%

2.78%

Redeemed Or
Fully Sold CLOs

Region

Vintage

Exit
Method

Sale/
Redemption Date

BCF Position
Prior To Exit (M)

Current Valuation as
% of BCF NAV(30)

Realised IRR
To Date(31)

Ann. Distribution
Through Last Payment(32)

Myers Park

U.S.

2018

Sale

Mar-21

$26.4

N/A

11.1%*

16.4%

Greenwood Park

U.S.

2018

Sale

Mar-21

$53.9

N/A

19.0%*

19.7%

Orwell Park

Europe

2015

Redemption

May-21

€24.2

0.04%

13.4%*

26.2%

Stratus 2020-2

U.S.

2020

Redemption

Jun-21

$24.2

0.01%

37.1%

114.0%

Niagara Park

U.S.

2019

Sale

Aug-21

$22.1

N/A

16.6%*

14.9%

Sorrento Park

Europe

2014

Redemption

Oct-21

€29.5

0.22%

N/A

17.5%

Castle Park

Europe

2014

Redemption

Oct-21

€24.0

0.06%

10.3%*

20.9%

Dorchester Park

U.S.

2015

Redemption

Oct-21

$44.5

0.22%

10.9%*

21.5%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

*Realised IRRs for redemptions are reflective of distributions made to BCF to date, with data available in Intex as of 17 January 2022. IRRs may change as further distributions to income noteholders are made. For fully sold CLOs, realised IRR includes sale proceeds returned to BCF. IRRs denoted with an * are inclusive of fee rebates.

As of 31 December 2021, the Company was invested in accordance with its and BCF's investment policy and was diversified across 727 issuers through the directly held loans and CLO portfolio, and across 31 countries and 29 different industries. No individual borrower represented more than 2% of the overall portfolio at the end of December 2021.

Key Portfolio St atistics 33

 

% of
NAV
(34)

Current WA
Asset Coupon
(35)

Current WA Liability Cost (35)

WA Remaining

RPs (CLOs)

EUR CLOs

38.04%

3.63%

1.74%

2.4 Years

US CLOs

37.78%

3.89%

1.73%

2.3 Years

Directly Held Loans (less leverage)

25.33%

3.82%

1.35%

n/a

US CLO Warehouses

1.21%

4.08%

1.31%

n/a

Net Cash & Expenses

-2.36%

-

-

n/a

Subtotal

100.00%

3.78%

1.64%

2.3 years

 

Top 10 Industries **

Industry

% of Portfolio

 

31 December 2021

Healthcare and Pharmaceuticals

16.49%

High Tech Industries

10.42%

Services Business

10.02%

Banking, Finance, Insurance and Real Estate (FIRE)

7.32%

Media Broadcasting and Subscription

6.20%

Hotels, Gaming and Leisure

5.64%

Construction and Building

5.52%

Chemicals, Plastics and Rubber

5.07%

Services Consumer

4.36%

Telecommunications

4.13%

Subtotal

 75.17%

Industry

% of Portfolio

 

31 December 2020

Healthcare and Pharmaceuticals

15.21%

Services Business

10.44%

High Tech Industries

9.32%

Banking, Finance, Insurance, Real Estate (FIRE)

8.71%

Media Broadcasting and Subscription

6.81%

Hotels, Gaming and Leisure

6.22%

Chemicals, Plastics and Rubber

6.03%

Construction and Building

5.21%

Telecommunications

4.55%

Services Consumer

3.72%

Subtotal

76.22%

Top 5 Countries **

Country

% of Portfolio

 

 

31 December 2021

United States

 

48.23%

United Kingdom

 

10.16%

France

 

8.98%

Netherlands

 

6.86%

Germany

 

5.71%

Subtotal

 

79.94%

Country

% of Portfolio

 

 

31 December 2020

United States

 

52.73%

United Kingdom

 

9.81%

France

 

7.36%

Luxembourg

 

6.26%

Netherlands

 

4.52%

Subtotal

 

80.68%

 

Top 20 Issuers **

 

# Facilities

Portfolio Par(€)

Total Par Outstanding(€)

 Moody's Industry

Country

WA Price

WA Spread

WA Coupon (All-In Rate)

WA Maturity (Years)

Numericable

6

182M

6,854M

Media Broadcasting and Subscription

France

98.4

3.27%

3.30%

4.5

Numericable is one of the largest telecommunications operators in France by revenues and number of subscribers, with major positions in residential fixed, residential mobile, B2B, wholesale and media.

Euro Garages

6

174M

5,864M

Retail

United Kingdom

99.9

4.22%

4.28%

3.3

Euro Garages is the leading global independent convenience retail and fuel station operator with a fuel, convenience retail and Food-to-Go offering with partnerships with leading brands such as Esso, BP, Shell, Dunkin Donuts, Starbucks, Subway, and Pizza Hut, among others. 

Virgin Media

4

172M

5,545M

Media Broadcasting and Subscription

United Kingdom

99.3

2.74%

2.78%

6.8

Virgin Media is a British telecommunications company which provides telephone, television, and internet services in the United Kingdom. Virgin Media is a subsidiary of Liberty Global, an international television and telecommunications company.

Thyssenkrupp Elevators

3

164M

4,314M

Capital Equipment

Germany

100.1

3.71%

3.89%

5.6

Thyssenkrupp is the number four player in the global market for elevator and escalator technology. The company designs, manufacturers, installs, services, and modernises elevators, escalators, and platform lifts.

Ziggo

2

163M

4,470M

Media Broadcasting and Subscription

Netherlands

98.8

2.87%

2.90%

6.9

Ziggo is one of the largest cable operators in the Netherlands. The company provides radio, television, internet, and telephone services. The company was created as a result of the merger between Multikabel, @Home and Casema.

Sivantos / Siemens

2

156M

3,019M

Healthcare and Pharmaceuticals

Denmark

99.8

3.94%

3.97%

4.2

Sivantos/Siemens was created following the completion of the merger between Sivantos and Widex. The combined company operates in 125 markets and holds the third position in the hearing aid market globally.

Masmovil

4

154M

6,050M

Telecommunications

Spain

100.1

4.04%

4.04%

5.8

Masmovil provides telecommunications services. The Company offers fixed line, mobile, and Internet services.

UPC

4

149M

3,571M

Media Broadcasting and Subscription

Netherlands

99.2

2.75%

2.79%

7.1

UPC is a cable operator in Switzerland, Poland & Slovakia. It offers broadband, tv and mobile services.

Paysafe

3

149M

2,037M

Banking, Finance, Insurance and Real Estate (FIRE)

United States

96.6

2.92%

3.08%

6.6

Paysafe is a leading specialised payments platform, offering services in payment processing and digital wallets.

Froneri

2

144M

4,493M

Beverage, Food and Tobacco

United Kingdom

98.4

2.33%

2.37%

5.1

Froneri is a global ice cream manufacturer with its headquarters in North Yorkshire, England. It is the second largest ice cream producer by volume in the world, after Unilever.  Froneri was created in 2016 as a joint venture between Nestle and PAI Partners to combine their ice cream activities.

AkzoNobel

2

142M

4,542M

Chemicals, Plastics and Rubber

Netherlands

99.3

3.18%

3.21%

3.8

AkzoNobel Specialty Chemicals represents a collection of specialty and commodity chemical and polymer businesses split across five divisions: Surface Chemistry (surfactants and polymers), ethylene and sulfur derivatives, polymer chemistry (includes catalysts and polymer additives), industrial chemicals (includes chlor-alkali and other industrial chemicals), and pulp and performance chemicals (includes hydrogen peroxide and other bleaching chemicals, and variety of other chemicals).

Allied Universal

3

135M

5,160M

Services Business

United States

99.2

3.73%

3.96%

6.4

Allied Universal is a global security firm and the largest manned guarding provider in North America, with additional operations across Europe, the Middle East, Africa, Asia Pacific and Latin America.

ION Trading

2

130M

3,313M

Banking, Finance, Insurance and Real Estate (FIRE)

Ireland

100.4

4.49%

4.60%

6.3

Ion Trading is a global financial software and services company that offers mission critical trading infrastructure solutions to banks and other financial institutions. In particular, the company provides high performance trading solutions for electronic fixed income markets, including support for cash, futures, repos, money markets, interest rate swaps and credit default swaps. The group serves 800+ customers worldwide.

BMC Software

3

127M

4,711M

High Tech Industries

United States

100

3.97%

4.05%

3.8

BMC Software is a prominent provider of business management software used for a variety of functions and processes. The company's software and services are used in automation, optimisation, performance, security, and service management, and covers everything from mainframe to multi-cloud.

Veritas

2

121M

2,225M

High Tech Industries

United States

100.3

4.88%

5.88%

3.7

Veritas Technologies, LLC represents the legacy Information Management division of Symantec Corporation. For over two decades the Company has been a market leader in information management software and solutions that help organisations protect, manage and analyze their mission-critical enterprise data, such as emails, documents and spreadsheets, as well as their applications, such as financial, human resources, supply chain management and enterprise resource planning ("ERP") systems, collaboration tools and databases. The Company offers industry-leading backup and recovery solutions, as either independent software or integrated software-hardware appliances.

Ineos

4

117M

4,300M

Chemicals, Plastics and Rubber

United Kingdom

99

2.48%

2.71%

4.5

Ineos Quattro, through its subsidiaries, manufactures chemicals such as PVC, caustic soda, styrene plus derivatives, aromatics and acetyls. Ineos Quattro serves customers worldwide.   

Medline

2

110M

6,828M

Healthcare and Pharmaceuticals

United States

100.2

3.34%

3.66%

6.8

Medline is the largest US-based privately held manufacturer and distributor of healthcare supplies to hospitals, post-acute settings, physician offices and surgery centers. The company manufactures both Medline-branded products and distributes  additional externally sourced items from other healthcare manufacturers.

Financiere Chopin (Ceva Santé)

1

109M

2,050M

Healthcare and Pharmaceuticals

France

100.6

4.25%

4.25%

4.3

Ceva Santé Animale is a private global veterinary pharmaceutical company headquartered in France that focuses on the research, development, production and marketing of pharmaceutical products and vaccines for poultry, swine, cattle and pets. Ceva provides four major products (anti-infectives, vaccines, reproduction and animal behaviour / cardiology) for all major species.

Hotelbeds Group

3

109M

1,808M

Hotels, Gaming and Leisure

United Kingdom

89.6

4.40%

4.40%

4.1

Hotelbeds Group is the leading global B2B distributor of accommodation and ancillary products to the world's travel trade. Hotelbeds Group contracts directly with hotels and other service providers globally to provide Travel Operators (TOs), Travel agents (TAs) and Online Travels agents (OTAs) with an inventory of hotel rooms and ancillary travel services.

CRH Europe Distribution

2

108M

1,650M

Construction and Building

Netherlands

100.1

3.93%

3.93%

4.6

CRH European Distribution is a leading regional distributor of general building products in Germany, Netherlands, Belgium, France, Switzerland and Austria. The Company specializes in the sale and distribution of basic building materials and sanitary, heating and plumbing products. CRH European Distribution was formed as a subsidiary of CRH through a series of 53 acquisitions since 2004.

 

 

**As of 31 December 2021, calculated using internal data. Portfolio data by Issuer, Industry, and Country, are presented using the gross par amount of assets held directly and indirectly by BCF. Indirect asset holdings are held within CLOs BCF has invested in.  The total par amount of all assets held within each CLO are included on a fully consolidated basis and added to those assets held directly by BCF. Portfolio holdings, Country, and Industry distributions are subject to change and are not recommendations to buy or sell any security. CLO Note and CLO warehouse investments are excluded from all figures. Data calculated by Blackstone Credit.

 

Directly Held CLOs

All outstanding positions of Rollover Assets were sold during 2021.

 

Regulatory Update

 

In Europe, Regulation (EU) 2019/2088 on sustainability-related disclosures in the financial services sector ("SFDR") was published on 27 November 2019.  With an effective date of 10 March 2021, SFDR required certain firms, including private banks, wealth managers and advisers to comply with new rules on disclosure as regards sustainable investments and sustainability risks. Asset managers, including Blackstone Credit ("BX Credit"), have worked to implement procedures which will allow us, where required, to comply with the SFDR.  BX Credit continues to monitor regulatory developments with regards to SFDR, including the publication of additional Regulatory Technical Standards (which, with regards to the SFDR reporting requirements, are now expected to take effect on 1 January 2023, recently extended from July 2022).

 

In connection with Regulation (EU) 2017/2402 (the "EU Securitisation Regulation"), widely anticipated secondary legislation setting out the prescribed form of reporting templates was published on 3 September 2020 and use of these reporting templates became mandatory to investors from 23 September 2020. BX Credit was well positioned to transition to the use of these formal reporting templates, and these reporting templates are used in respect of all in-scope CLOs.  On 1 April 2022, UK Securitisation Regulation specific reporting templates, which diverge from the reporting templates published pursuant to the EU Securitisation Regulation, will be required for all CLO transactions seeking compliance with the UK Securitisation Regulation.  BX Credit, working together with 3rd party service providers, is well positioned to produce these UK Securitisation Regulation compliant reports.

 

Interest limitation rules, implemented as part of the Anti-Tax Avoidance Directive, apply to certain EU CLO issuers with respect to their accounting periods commencing on or after 1 January 2022.  It is not expected that interest limitation rules will adversely impact BX Credit's CLO business.

 

Risk Management

Given the natural asymmetry of fixed income, our experienced credit team focuses on truncating downside risk and avoiding principal impairment and believes that the best way to control and mitigate risk is by remaining disciplined in all market cycles and by making careful credit decisions while maintaining adequate diversification.

BCF's portfolio is managed to minimise default risk and credit related losses, which is achieved through in-depth fundamental credit analysis and diversified portfolios in order to avoid the risk of any one issuer or industry adversely impacting overall performance. As outlined in the Portfolio Update section, BCF is broadly diversified across issuers, industries, and countries.

 

BCF's base currency is denominated in Euro, though investments are also made and realised in other currencies. Changes in rates of exchange may have an adverse effect on the value, price, or income of the investments of BCF. BCF may utilise different financial instruments to seek to hedge against declines in the value of its positions as a result of changes in currency exchange rates.

 

Through the construction of solid credit portfolios and our emphasis on risk management, capital preservation, and fundamental credit research, we believe the Company's investment strategy will continue to be successful.

 

Blackstone Inc. Responsible Investing Approach

The Importance of Responsible Investing

For over 35 years, Blackstone Inc. has been committed to being a responsible investor. This commitment is affirmed across our organisation and guides our approach to investing. We believe that adequate consideration of ESG factors for prospective investments enhances our assessment of risk and helps us identify potential opportunities for transformation at companies where we invest. Consequently, we believe that a comprehensive ESG program, aside from being the right thing to do, can drive value and enhance returns for our investors. We also believe that considering ESG factors helps us understand trends and how they will shape demand and markets in years to come. Our framework can apply across various categories of investment opportunities, though the application varies by asset class, investment scope, and the characteristics of a particular investment opportunity.

 

Objectives

Blackstone's responsible investing objectives are outlined below:

 

§ Integration

Consider environmental, social, and governance issues when evaluating investment opportunities and when managing / monitoring portfolios and assets. Pursue high-quality sources of ESG data and intelligence; where appropriate, integrate that data into our research process and also use that data to enhance our understanding of markets and consumer trends. Actively use ESG considerations to transform our portfolio companies in ways that both manage risk and are value accretive for our investment portfolios. In addition, integrate ESG considerations into our business practices outside of the investment process.

 

§ Engagement

Work together with our portfolio entities, managers, transaction partners, peers, and other partners to advance principles of responsible investment and corporate social responsibility. Share our ESG philosophy broadly and use our leadership position to influence others and advance the dialogue of the importance of ESG integration in finance and for corporate actors generally.

 

§ Reporting

Be transparent with our investors and other stakeholders about Blackstone's responsible investing initiatives, successes, and goals. Blackstone reports its ESG initiatives on its website at https://www.blackstone.com/our-impact/an-integrated-approach-to-esg/. As of September 2021, Blackstone is a founding member of the ESG Data Convergence Project, a collaboration between limited partners and general partners, which aims to standardize an initial set of metrics for ESG reporting.

 

Approach and Responsibilities

Across all of Blackstone's businesses, ESG is core to what we do. Our approach includes an evaluation of ESG considerations (pre- and post-investment decision making) as a standard part of the investment and the asset / portfolio management processes. Primary responsibility lies with our investment teams because these considerations support investment decisions. Together with Portfolio Operations and our asset management teams, the investment teams are also expected to continue to keep these issues front of mind through the life of the investment.

 

Additionally, Dr. Jean Rogers, Founder and Former CEO of the Sustainability Accounting Standards Board (SASB), joined Blackstone in January 2022 as Global Head of ESG. Jean oversees Blackstone's corporate ESG team, leading strategy, integration, reporting and engagement. She partners closely with our business unit heads of ESG, operational and asset management teams and other functional groups across Blackstone.

 

Blackstone's Chief Sustainability Officer supports the investment and asset management teams by driving initiatives that are aimed at improving operational and environmental performance across the portfolio. Other functional experts within Portfolio Operations (including Talent Management, Procurement and Healthcare Cost Containment) may consider ESG insights in delivering operating intervention capabilities across the portfolio.

 

In 2021, Blackstone also appointed various ESG leads across the Firm and its key regions, who will help to integrate ESG risk-mitigation practices across our investment process and asset management. The resources include Elizabeth Lewis, Managing Director of ESG, James Mandel, Chief Sustainability Officer, Nina James, Head of Real Estate ESG (Asia), Caroline Hill, Head of Real Estate ESG (Europe), and Amisha Parekh, Global Head of ESG for Private Equity. Additionally, Devin Glenn serves as the Global Head of Diversity, Equity, and Inclusion.

 

Blackstone's ESG Steering Committee coordinates ESG initiatives across the firm to ensure consistency in approach and, with the assistance of the Legal & Compliance department, compliance with Blackstone's ESG policy. Additionally, BXC has an ESG Working Group that meets monthly and discusses a variety of ESG-related topics, including, as applicable: review of investments, investor requests, market trends and newly adopted or pending legislation, rules, and regulation, and revisions and/or amendments to BX Credit ESG Policy. Below is a visual of Blackstone's ESG leadership and integrated team approach. 

 

[Graphs and charts are included in the published Annual Report and Audited Financial Statements which is available on the Company's website at  http://blackstone.com/bglf ]

 

 

Blackstone plans to reduce Carbon Emissions:

Blackstone set a goal of reducing carbon emissions by 15% within the next three years (starting in 2021) across all new investments where the Firm owns the asset and has control over energy use. This initiative is expected to result in significant energy cost savings for our portfolio companies.

 

As discussed above, Blackstone has been implementing energy strategies at portfolio companies for years. Under the 15% initiative, Blackstone will ask a set of standardized questions around energy consumption when it is evaluating prospective deals. Companies will be categorized as high-,medium- or low-touch and inform the extent of hands-on support and opportunity for emissions reduction. Emissions reductions could come through replacing light fixtures, recalibrating heating and cooling systems, introducing low-flow faucets and shower heads, and/or replacing windows to trap hot or cool air.

 

Over the 11 years of Blackstone ownership, Hilton reduced carbon emissions by 30%, waste by 32%, and energy and water consumption by 22%, saving more than $1 billion. At NYC's Stuyvesant Town - Peter Cooper Village, Blackstone oversaw the installation of over 9,600 solar panels, the largest in the rooftop solar array in the U.S. Where certain energy strategies have been implemented at Blackstone's headquarters, the Firm has been able to achieve savings of over 50% in our lighting energy consumption.

 

Blackstone Credit's Commitment to ESG

BX Credit's focus on ESG stems from our commitment to prudent investing and our culture that prioritizes robust corporate governance. Our investment team understands Blackstone's focus on corporate governance, including ESG, and that appreciation is reflected in the investments we make and how we engage with our portfolio companies after an investment is made.  Review of ESG risks to investment performance is integrated into BX Credit's investment analysis and decision-making processes from pre-investment diligence to post-investment monitoring. 

 

BX Credit recognises the value that incorporating ESG factors in our investment research creates both in terms of mitigating risk and enhancing long-term performance across our various investments.  To that end, BX Credit integrates review and consideration of applicable ESG factors into its decision-making processes, as summarized below:

 

Due Diligence

Investment teams within BX Credit consider ESG factors that may impact investment performance during the due diligence phase of an investment.  ESG due diligence will vary based on (i) the nature of BX Credit's investment, (ii) the transaction process and timeline, (iii) the level of access to information, specifically as it pertains to ESG factors, and (iv) the target portfolio company's (the "Target") sector or business model. Investment teams will engage with target companies, sponsor partners, and review publicly available information to develop insights into the Target's business and operations. External ESG experts and legal counsel may also be engaged, as necessary. In 2020, BX Credit worked with a third party ESG consulting firm to create a sector-specific tool based on the Sustainability Accounting Standards Board ("SASB") that provides a framework to conduct ESG due diligence. The proprietary tool helps our teams identify the most material ESG risks that may impact a company's performance.

 

 

Material ESG considerations and risks arising from diligence are described in the appropriate investment committee materials and discussed in the relevant investment committee forum. If material ESG risks are identified, BXC may seek to remedy the situation via additional due diligence, further discussions with company management or decide not to move forward with the investment.

 

 

Investment teams monitor the performance of BX Credit's investments, which includes, but is not limited to, assessing financial, operational, industry-specific and ESG-related factors, as applicable. Periodically, BX Credit investment teams will update the investment committee on the performance of issuers and highlight material ESG considerations or risks that warrant investment committee discussion.

 

At this time, BX Credit does not explicitly track exposure to climate risk or monitor the carbon footprint of an investments, but we are in the process of doing diligence with third-party ESG vendors to understand the type of data available in the market. In practice, we take the ESG factors that may impact investment performance into consideration and incorporate such factors into our initial evaluation of an investment and our ongoing investment monitoring process. Our evaluation criteria are based on the materiality of the ESG risk considering (a) whether it has a current impact or a potential future impact and (b) any mitigating actions the issuer undertakes to address the risk. Blackstone did join TCFD to help build a more resilient financial system through better climate risk disclosures. Blackstone intends to report aligned with TCFD recommendations in 2022.

 

Blackstone Ireland Limited

29 April 2022

 

Strategic Overview

Purpose

The Company's purpose is to provide permanent capital to BCF, a company established by Blackstone Ireland Limited ("BIL") (formerly Blackstone / GSO Debt Funds Management Europe Limited)  as part of its loan financing programme, with a view to generating stable and growing total returns for Shareholders through dividends and value growth.

The Board delivers the Company's purpose by working in line with our values, which form the backbone of what the Company does and are an important part of our culture. 

Values

Integrity and Trust - The Company seeks to act with integrity in everything it does and to be trustworthy. We seek to uphold the highest standards of professionalism driven by our corporate governance processes.

Transparency - The Company aims to ensure all of its activities are undertaken with the utmost transparency and openness to sustain trust.

Opportunity - The ability to see and to seize opportunities which are in the best interests of our shareholders.

Sustainability - As an investment company, we aim to maintain and deliver attractive and sustainable returns for our shareholders.

Principal Activities

The Company was incorporated on 30 April 2014 as a closed-ended investment company limited by shares under the laws of Jersey and is authorised as a listed fund under the Collective Investment Funds (Jersey) Law 1988. The Company continues to be registered and domiciled in Jersey. The Company's Ordinary Shares are quoted on the Premium Segment of the Main Market of the LSE.

 The Company's authorised share capital consists of an unlimited number of shares of any class. As at 31 December 2021, the Company's issued share capital was 460,984,702 Ordinary Shares. The Company also held 21,918,092 Ordinary Shares in treasury.

The Company has a wholly-owned Luxemburg subsidiary, Blackstone / GSO Loan Financing (Luxembourg) S.àr.l. which has an issued share capital of 2,000,000 Class A shares and 1 Class B share. As at 31 December 2021, all of the Class A and Class B shares were held by the Company together with 267,088,098 Class B CSWs issued by the Lux Subsidiary. The Lux Subsidiary invests in PPNs issued by BCF, which in turn invests in CLOs and loans.

The Company is a self-managed company. BIL acts as Portfolio Adviser to the Company and, pursuant to the Advisory Agreement, provides advice and assistance to the Company in connection with its investment in the CSWs.  

BNP Paribas Securities Services S.C.A., Jersey Branch acts as Administrator, Company Secretary, Custodian and Depositary to the Company.

Investment Objective

As outlined in the Company's Prospectus, the Company's investment objective is to provide Shareholders with stable and growing income returns, and to grow the capital value of the investment portfolio by exposure to floating rate senior secured loans and bonds directly and indirectly through CLO Securities and investments in Loan Warehouses. The Company seeks to achieve its investment objective through exposure (directly or indirectly) to one or more companies or entities established from time to time ("Underlying Companies"), such as BCF.

Investment Policy

Overview

As outlined in the Company's Prospectus, the Company's investment policy is to invest (directly, or indirectly through one or more Underlying Companies) in a diverse portfolio of senior secured loans (including broadly syndicated, middle market or other loans) (such investments being made by the Underlying Companies directly or through investments in Loan Warehouses), bonds and CLO Securities, and generate attractive risk-adjusted returns from such portfolios. The Company intends to pursue its investment policy by investing (through one or more subsidiaries) in profit participating instruments (or similar securities) issued by one or more Underlying Companies.

Each Underlying Company will use the proceeds from the issue of the profit participating instruments (or similar securities), together with the proceeds from other funding or financing arrangements it has in place currently or may have in the future, to invest in: (i) senior secured loans, bonds, CLO Securities and Loan Warehouses; or (ii) other Underlying Companies which, themselves, invest in senior secured loans, bonds, CLO Securities and Loan Warehouses. The Underlying Companies may invest in European or US senior secured loans, bonds, CLO Securities, Loan Warehouses and other assets in accordance with the investment policy of the Underlying Companies. Investments in Loan Warehouses, which are generally expected to be subordinated to senior finance provided by third-party banks, will typically be in the form of an obligation to purchase preference shares or a subordinated loan. There is no limit on the maximum US or European exposure. The Underlying Companies do not invest substantially directly in senior secured loans or bonds domiciled outside North America or Western Europe.

Investment Limits and Risk Diversification

The Company's investment strategy is to implement its investment policy by investing directly or indirectly through the Underlying Companies, in a portfolio of senior secured loans and bonds or in Loan Warehouses containing senior secured loans and bonds and, in connection with such strategy, to own debt and equity tranches of CLOs and, in the case of European CLOs and certain US CLOs, to be the risk retention provider in each.

The Underlying Companies may periodically securitise a portion of the loans, or a Loan Warehouse in which they invest, into CLOs which may be managed either by such Underlying Company itself, by BIL or BLCS (or one of their affiliates), in their capacity as the CLO Manager.

Where compliance with the European Risk Retention Requirements is sought (which may include both EUR and US CLOs), the Underlying Companies will retain exposures of each CLO, which may be held as:

· CLO Income Notes equal to: (i) between 51% and 100% of the CLO Income Notes issued by each such CLO in the case of European CLOs; or (ii) CLO Income Notes representing at least 5% of the credit risk relating to the assets collateralising the CLO in the case of US CLOs (each of (i) and (ii), (the "horizontal strip"); or

· Not less than 5% of the principal amount of each of the tranches of CLO Securities in each such CLO (the "vertical strip").

In the case of deals structured to be compliant with the European Risk Retention Requirements, the applicable Underlying Company may determine that, due to its role as an "originator" with respect to such transaction, such Underlying Company should also comply with the US Risk Retention Regulations. In addition, an Underlying Company may invest in CLOs, such as middle market CLOs, which are not exempt from the US Risk Retention Regulations and, as a result, may be required to retain exposure to such CLOs in accordance with such rules. In such a scenario, the Underlying Company will retain exposures to such transactions for the purpose of complying with the US Risk Retention Regulations, which may be held as:

· CLO Income Notes representing at least 5% of the fair market value of the CLO Securities (including CLO Income Notes) issued by such CLO (the "US horizontal strip");

· A vertical strip; or

· A combination of a vertical strip and US horizontal strip.

 

To the extent attributable to the Company, the value of the CLO Income Notes retained by Underlying Companies in any CLO will not exceed 25% of the Published NAV of the Company at the time of investment.

Investments in CLO Income Notes and loan warehouses are highly leveraged. Gains and losses relating to underlying senior secured loans will generally be magnified. Further, to the extent attributable to the Company, the aggregate value of investments made by Underlying Companies in vertical strips of CLOs (net of any directly attributable financing) will not exceed 15% of the Published NAV of the Company at the time of investment. This limitation shall apply to Underlying Companies in aggregate and not to Underlying Companies individually.

Loan Warehouses may eventually be securitised into CLOs managed either by an Underlying Company itself or by BIL or BLCS (or one of their affiliates), in their capacity as the CLO Manager. To the extent attributable to the Company, the aggregate value of investments made by Underlying Companies in any single externally financed warehouse (net of any directly attributable financing) shall not exceed 20% of the NAV of the Company at the time of investment, and in all externally financed warehouses taken together (net of any directly attributable financing) shall not exceed 30% of the NAV of the Company at the time of investment. These limitations shall apply to Underlying Companies in aggregate and not to Underlying Companies individually.

 

The following limits (the "Eligibility Criteria") apply to senior secured loans and bonds (and, to the extent applicable, other corporate debt instruments) directly held by any Underlying Company (and not through CLO Securities or Loan Warehouses):

Maximum Exposure

% of an Underlying Company's
Gross Asset Value

Per obligor

5

Per industry sector

15

(With the exception of one industry, which may be up to 20%)

To obligors with a rating lower than B-/B3/B-

7.5

To second lien loans, unsecured loans, mezzanine loans and high yield bonds

10

For the purposes of these Eligibility Criteria, "gross asset value" shall mean gross assets, including any investments in CLO Securities and any undrawn commitment amount of any gearing under any debt facility. Further, for the avoidance of doubt, the "maximum exposures" set out in the Eligibility Criteria shall apply on a trade date basis.

Each of these Eligibility Criteria will be measured at the close of each Business Day on which a new investment is made, and there will be no requirement to sell down in the event the limits are breached at any subsequent point (for instance, as a result of movement in the gross asset value, or the sale or downgrading of any assets held by an Underlying Company).

In addition, each CLO in which an Underlying Company holds CLO Securities and each Loan Warehouse in which an Underlying Company invests will have its own eligibility criteria and portfolio limits. These limits are designed to ensure that: (i) the portfolio of assets within the CLO meets a prescribed level of diversity and quality as set by the relevant rating agencies that rate securities issued by such CLO, or (ii) in the case of a Loan Warehouse, that the warehoused assets will eventually be eligible for a rated CLO. The CLO Manager will seek to identify and actively manage assets which meet those criteria and limits within each CLO or Loan Warehouse. The eligibility criteria and portfolio limits within a CLO or Loan Warehouse may include the following:

· A limit on the weighted average life of the portfolio;

· A limit on the weighted average rating of the portfolio;

· A limit on the maximum amount of portfolio assets with a rating lower than B-/B3/B-; and

· A limit on the minimum diversity of the portfolio.

 

CLOs in which an Underlying Company may hold CLO Securities or Loan Warehouses in which an Underlying Company may invest also have certain other criteria and limits, which may include:

· A limit on the minimum weighted average of the prescribed rating agency recovery rate;

· A limit on the minimum amount of senior secured assets;

· A limit on the maximum aggregate exposure to second lien loans, high yield bonds, mezzanine loans and unsecured loans;

· A limit on the maximum portfolio exposure to covenant-lite loans;

· An exclusion of project finance loans;

· An exclusion of structured finance securities;

· An exclusion on investing in the debt of companies domiciled in countries with a local currency sub-investment grade rating; and

· An exclusion of leases.

 

This is not an exhaustive list of the eligibility criteria and portfolio limits within a typical CLO or Loan Warehouse and the inclusion or exclusion of such limits and their absolute levels are subject to change depending on market conditions. Any such limits applied shall be measured at the time of investment in each CLO or Loan Warehouse.

Changes to Investment Policy

Any material change to the investment policy of the Company would be made only with the approval of Ordinary Shareholders.

It is intended that the investment policy of each substantial Underlying Company will mirror the Company's investment policy, subject to such additional restrictions as may be adopted by a substantial Underlying Company from time to time. The Company will receive periodic reports from each substantial Underlying Company in relation to the implementation of such substantial Underlying Company's investment policy to enable the Company to have oversight of its activities.

If a substantial Underlying Company proposes to make any changes (material or otherwise) to its investment policy, the Directors will seek Ordinary Shareholder approval of any changes which are either material in their own right or, when viewed as a whole together with previous non-material changes, constitute a material change from the published investment policy of the Company. If Ordinary Shareholders do not approve the change in investment policy of the Company such that it is once again materially consistent with that of such substantial Underlying Company, the Directors will redeem the Company's investment in such substantial Underlying Company (either directly or, if the Company's investment in a subsidiary is invested by such subsidiary in such substantial Underlying Company (either directly or through one or more other Underlying Companies), by redeeming the securities held by the Company in such subsidiary and procuring that the subsidiary redeems its investment in such substantial Underlying Companies (either directly or through one or more other Underlying Companies)), as soon as reasonably practicable but at all times subject to the relevant legal, regulatory and contractual obligations.

The Board considers BCF to be a substantial Underlying Company.

Company Borrowing Limit

The Company will not utilise borrowings for investment purposes. However, the Directors are permitted to borrow up to 10% of the Company's Published NAV for day-to-day administration and cash management purposes. For the avoidance of doubt, this limit only applies to the Company and not the Underlying Companies.

In accordance with the Company's Prospectus, the Company may use hedging or derivatives (both long and short) for the purposes of efficient portfolio management. It is intended that up to 100% (as appropriate) of the Company's exposure to any non-Euro assets will be hedged, subject to suitable hedging contracts being available at appropriate times and on acceptable terms.

The Company has exposure to non-Euro assets through its investment in the Underlying Company which has hedging arrangements in place to protect against unfavourable currency fluctuation.

 

Investment Strategy

Whether the senior secured loans, bonds or other assets are held directly by an Underlying Company or via CLO Securities or Loan Warehouses, it is intended that, in all cases, the portfolios will be actively managed (by the Underlying Companies or the CLO Manager, as the case may be) to minimise default risk and potential loss through comprehensive credit analysis performed by the Underlying Companies or the CLO Manager (as applicable).

Vertical strips in CLOs in which Underlying Companies may invest are expected to be financed partly through term finance for investment-grade CLO Securities, with the balance being provided by the relevant Underlying Company investing in such CLO. This term financing may be full-recourse, non-mark to market, long-term financing which may, among other things, match the maturity of the relevant CLO or match the reinvestment period or non-call period of the relevant CLO. In particular, and although not forming part of the Company's investment policy, the following levels of, or limitations on, leverage are expected in relation to investments made by Underlying Companies:

· Senior secured loans and bonds may be levered up to 2.5x with term finance;

· Investments in "first loss" positions or the "warehouse equity" in Loan Warehouses will not be levered;

· CLO Income Notes will not be levered;

· Investments in CLO Securities rated B- and above at the time of issue may be funded entirely with term finance; and

· Investments in a vertical strip may be levered 6.0-7.0x, with term finance as described above.

To the extent that they are financed, vertical strips are anticipated to require less capital than horizontal strips, which is expected to result in more efficient use of the Underlying Companies' capital. In addition, since the return profile on financed vertical strips is different to retained CLO Income Notes, BX Credit believes that vertical strips may be more robust through a market downturn, although projected IRRs may be slightly lower. However, an investment in vertical strips is not expected to impact the Company's stated target return.

From time to time, as part of its ongoing portfolio management, the Underlying Companies may sell positions as and when suitable opportunities arise. Where not bound by risk retention requirements, it is the intention that the Underlying Companies would seek to maintain control of the call option of any CLOs securitised.

With respect to investments in CLO Securities, while the Underlying Companies maintain a focus on investing in newly issued CLOs, it will also evaluate the secondary market for sourcing potential investment opportunities in CLO Securities.

Whilst the intention is to pursue an active, non-benchmark total return strategy, the Company is cognisant of the positioning of the loan portfolios against relevant indices. Accordingly, the Underlying Companies will track the returns and volatility of such indices, while seeking to outperform them on a consistent basis. In-depth, fundamental credit research dictates name selection and sector over-weighting/under-weighting relative to the benchmark, backstopped by constant portfolio monitoring and risk oversight. The Underlying Companies will typically look to diversify their portfolios to avoid the risk that any one obligor or industry will adversely impact overall returns. The Underlying Companies also place an emphasis on loan portfolio liquidity to ensure that if their credit outlook changes, they are free to respond quickly and effectively to reduce or mitigate risk in their portfolio. The Company believes this investment strategy will be successful in the future as a result of its emphasis on risk management, capital preservation and fundamental credit research. The Directors believe the best way to control and mitigate risk is by remaining disciplined in market cycles, by making careful credit decisions and maintaining adequate diversification.

The portfolio of the Underlying Companies in which the Company invests (through its wholly-owned subsidiary) remains broadly divided between European CLOs and US CLOs.

 

The Company incorporates ESG factors as part of its investment strategy. Refer above for further details. The Company operates with Euro as its functional currency. A significant proportion of the portfolio of assets held by Underlying Companies to which the Company has exposure may, from time to time, be denominated in currencies other than Euro. The Underlying Companies utilise different financial instruments to seek to hedge against declines in the value of its portfolio as a result of changes in currency exchange rates.

 

Section 172(1) Statement

The Company, being a member of the AIC, complies with Provision 5 of the AIC Code and consequently voluntarily complies with section 172(1) of the UK Companies Act 2006 to act in a way that promotes the success of the Company for the benefit of its shareholders as a whole, having regard to (amongst other things):

a)  the likely consequences of any decision in the long-term;

b)  the need to foster the Company's business relationships with suppliers, customers and others;

c)  the impact of the Company's operations on the community and the environment;

d)  the desirability of the Company maintaining a reputation for high standards of business conduct; and

e)  the need to act fairly as between members of the Company.

The Board maintains a reputation for high standards of business conduct and endeavors to act fairly as between members of the Company by acting with integrity and establishing trust as referred to in the Company's Values. Additionally, the Company complies with the Principles and Provisions of the AIC Code as detailed in the Statement of Compliance with Corporate Governance below. Information on how the Board has engaged with its stakeholders and promoted the success of the Company, whilst having regard to the above, is outlined below.  This covers the key decisions the Board has taken during the year.

Stakeholder engagement

Shareholders

Why we engage

How we engage

Shareholders provide the necessary capital for the Company to pursue its purpose and strategy as outlined in the Company's Prospectus.

 

The Company also aims to ensure its long-term success and sustainability through its shareholder relationships, based on transparency and openness, and thereby fostering shareholder confidence.  This in-turn benefits the liquidity of the Company's shares and the Company's reputation as an esteemed market participant.

 

The Board engages with its shareholders by:

a)  publishing:

i.  announcements on the LSE, including:

· the Company's Published NAV performance, announced on a monthly basis;

· updated dividend guidance, as announced with regard to the Company's dividend policy on 24 January 2022;

ii.  monthly performance reports, on the Company's website, covering the performance of the Company and its underlying portfolio, and including information on the composition of the underlying portfolio;

iii.  monthly market commentary reports issued by BX Credit and published on the Company's website covering US and EU loan, high yield and CLO performance figures with commentary, as well as the market outlook;

iv.  quarterly investor reports, published on the Company's website, which provide an overview of the Company's and the Underlying Company's quarterly results, together with a market overview;

v.  the Company's Half-Yearly Financial Report and the Annual Report and Audited Financial Statements;

vi.  the Company's Key Information Document and a memorandum on costs;

vii.  ad-hoc reports, on the Company's website, as and when required to provide further insights into the relevant market situation;

 

Why we engage

How we engage

 

b)  the Board and representatives of the Portfolio Adviser holding investor calls to provide market updates;

c)  communications between Directors and individual shareholders during 2021, on which the matters discussed included:

i. dividend timetable - changes to the format of dividend RNS announcements to reflect the last possible date for dividend currency election forms to be received by the Company; and

ii.  foreign exchange - embedded foreign exchange rate and increasing divergence of the mid-market prices between the Company and BGLP;

d)  the Board engaging with its shareholders through its Portfolio Adviser and Brokers who communicate pertinent information from any discussions they have had with the Company's shareholders. Such discussions focussed for example on the Company's share price discount level and CLO performance; and

e)  written communication with shareholders in response to queries received, as applicable.

 

Additionally, the Board (including the different committee Chairs) is available at the AGM to answer questions in their areas of responsibility and the Chair encourages shareholders to contact her or any other Director with any queries or comments they may have.

 

 

Outcome

Shareholders receive relevant information allowing them to make informed decisions about their shareholding(s), and to engage with the Company and its advisers on any matters they consider relevant.

 

During the year, actions taken by the Board following on from shareholder discussions include:

 

-  the implementation and renewal of the share repurchase programme, please refer to the Chair's Statement above and the share repurchase programme coverage below;

-  The Board, Brokers and Portfolio Adviser discussing liquidity and discount management on both an ongoing and frequent basis; and

-  The announcement of the final currency election date, being the last possible date for shareholders to submit their dividend currency election forms to the Company's Registrar.

 

There was no impact on the Directors' remuneration as a result of the above discussions.

 

All Directors are kept informed of shareholder engagement, as necessary, so that they are aware of and understand the views communicated. Any pertinent matters are followed up on by the Board and shareholder views are considered as part of the Directors' decision-making processes.

 

Service Providers

Why we engage

How we engage

As an investment company with no employees, the Company is reliant on its service providers to conduct its business. The Board considers the Portfolio Adviser, the Administrator and the Registrar to be critical to the Company's day-to-day operations.

 

The Board views the Company's other service providers, such as brokers, auditors and lawyers as being highly important in enabling the Company to meet its regulatory and legal requirements as necessary. 

The Board engages with its Portfolio Adviser on an on-going basis through:

a)  Regular communication with representatives as required, such as telephone and email correspondence, discussing ad-hoc matters which may arise;

b)  monthly meetings to receive updates on the performance of the portfolio;

c)  quarterly board meetings to receive detailed updates on, but not limited to, the loan and CLO markets and activity updates for the Underlying Company. These include discussions about capital inflows, performance of current investments and return attribution;

d)  an annual due diligence meeting with senior representatives of the Portfolio Adviser held virtually in 2021; and

e)  ad-hoc meetings to discuss various day-to-day operational matters or strategic matters.

 

The Board engages with its Administrator on an on-going basis including:

a)  Regular communication with representatives, such as telephone and email correspondence, to discuss any ad-hoc matters;

b)  monthly meetings to discuss the Published NAV as computed by the Administrator;

c)  quarterly Board meetings at which the Board receives accounting, company secretarial and compliance updates and liaises with the Administrator on any pertinent matters;

d)  production of the Company's Half-Yearly Financial Report and Annual Report and Audited Financial Statements;

e)  ad-hoc meetings to discuss various day-to-day operational matters; and

f)  annual service review meetings.

The Company's Registrar is responsible for maintaining the Company's share register and for processing any corporate actions.  The Registrar's reports are available via an online platform.

The Board receives quarterly reports from the Company's Registrar on key matters. The Company otherwise engages as necessary with the Registrar via email and telephone.

 

Outcome

The Company is well managed, its operations and internal controls are effective, efficient and compliant, and the  Board receives appropriate and timely advice and guidance, together with responses to any queries the Board has. The Board's engagement with its service providers enables it to help facilitate the effective running of the Company.  This, in-turn, helps promote the Company's sustainability.

 

Underlying Company

Why we engage

How we engage

The Board's purpose and strategy is implemented through investment in the Underlying Company, BCF. Understanding the capital requirements, specifically the  timing and quantum, of the Underlying Company is important to the Board to ensure the Company can provide capital as required and so that redemptions of Cash Settlement Warrants are appropriately factored in so as to not adversely impact the operations of the Underlying Company.

 

Additionally, understanding the performance of the Underlying Company is vital to ensuring the Company can deliver on its investment objective of income and capital appreciation.

The Board engages with the Portfolio Adviser and the board of directors of the Underlying Company to understand their capital requirements and performance. It does so through the methods described above.

 

The Board also held a virtual meeting with the board of BCF during 2021.

 

Outcome

The Board keeps abreast of capital requirements and the performance of the Underlying Company.  In doing so, the Board aims to understand the Underlying Company's past performance and contributing factors to this, together with their prospective outlook.  From this process the Board looks to help ensure effectiveness of the Portfolio Adviser and so promote the long-term success of the Company.

Wider Society

Why we engage

How we engage

As a responsible corporate citizen the Company recognises that its operations have an environmental footprint and an impact on wider society.

The Board welcomes the views of stakeholders to remain current in their understanding of stakeholder views relating to environmental and social matters.

 

The Board seeks to uphold the highest standards of professionalism and corporate governance and embraces diversity, inclusion and ESG.  The Board expects the same from its service providers, and asks its service providers to provide an overview of their diversity and ESG policies on an annual basis, as part of the Company's service provider evaluation.

 

Mr Clark is responsible for ESG matters at Board-level.  During 2021, the Board liaised with BX Credit to advance their ESG initiatives and processes for upholding high standards of ESG, responsible investing and governance; such discussions remain ongoing as ESG procedures and requirements evolve.

In endeavouring to exemplify best corporate governance practice, the Board aims to positively influence BX Credit and the wider corporate and economic environment and inspire stakeholder trust.

 

 

 

Outcome

The Board is conscious of the importance of good governance, including diversity, inclusion and ESG specifically and seeks to positively influence the wider society and its service providers.

Regulators

Why we engage

How we engage

The Board engages with its main regulator to ensure business is conducted in line with their expectations and the evolving regulatory framework.

 

The Company primarily interacts with its regulator through formal submissions of information on a periodic basis (for example, periodic financial statements).

 

The Company engages more formally with its regulator on an ad-hoc basis, via its Compliance Officer.

 

The Board also receives detailed quarterly legal, regulatory and compliance updates.

 

 

Outcome

The Company complies with regulatory and statutory rules, maintains an open and transparent form of communication with its regulators, and the Board receives appropriate and timely advice and guidance, together with responses to any queries the Board has. This, in turn, promotes the long term success of the Company.

 

 

Corporate Activity

The principal decisions taken below are the ones that the Board considers have the greatest impact on the Company's long-term success. The Board considers the factors outlined under the Section 172(1) Statement and the wider interests of stakeholders as a whole in all decisions it takes on behalf of the Company.

Dividend Policy

Description

On 22 January 2021, the Board announced that the Company had adopted a dividend policy targeting a total 2021 annual dividend of between €0.07 and €0.08 per Ordinary Share, to consist of quarterly payments of €0.0175 per Ordinary Share for the first three quarters and a final quarter payment of a variable amount to be determined at that time. In accordance with the Company's dividend policy, the Board declared dividends of €0.0175 per Ordinary Share for the first three quarters of 2021 and a dividend of €0.0275 per Ordinary Share for the fourth quarter.

 

On 24 January 2022, the Board announced that the Company has adopted a dividend policy targeting a total 2022 annual dividend of between €0.07 and €0.08 per Ordinary Share, which will consist of quarterly payments of €0.0175 per Ordinary Share for the first three quarters and a final quarter payment of a variable amount to be determined at that time.

 

Impact on long-term success

Stakeholder considerations

 

Amending the dividend to ensure the long-term sustainability of the Company.  At the same time, the dividend policy provides sufficient flexibility to pay more or less for Q4 dependent on the year's results.

Stakeholders are provided with a degree of certainty as to the level of shareholder dividends and the sustainability of the Company is also enhanced.

 

Share Repurchase Programme

Description

From 1 January 2021, to 31 December 2021, the Company undertook 61 share repurchases and repurchased a total of 16,038,629 shares at a weighted average price of €0.774 per share.  The repurchased shares were held in treasury during 2021 and remain in treasury.

 

On 7 and 11 January 2021, and on 10 March 2021, the Company's Joint Brokers, on behalf of the Company, made three market share repurchases for a total of 125,000 shares at a weighted average price of €0.65 per share (including repurchase fees).

 

On 12 March 2021, the Company announced that it had appointed its Joint Brokers to manage a Share Repurchase Programme to repurchase Ordinary Shares within certain pre-set parameters, to begin on 12 March 2021 and run until 26 May 2021.

 

On 1 June 2021, the Company announced that the above-described Share Repurchase Programme had been renewed until 23 July 2021, being the date of the Company's Annual General Meeting, and that in order to commence the renewed Share Repurchase Programme the Company instructed its Joint Brokers to buy up to 5 million ordinary shares at a price of €0.75 per share. The Company invited any shareholders interested in selling their shares to contact their usual contact at Winterflood or N+1 Singer by no later than 2:00pm on 3 June 2021.

 

On 26 July 2021, the Company announced that the above described Share Repurchase Programme had been renewed until 30 September 2021.

 

On 27 September 2021, the Company announced that the Share Repurchase Programme would be renewed from 1 October 2021 until 21 January 2022.

During the period 1 January 2022 to 27 April 2022, the Company has repurchased 1,160,000 shares at a total cost of €1,281,400 (excluding fees and commissions).

 

Impact on long-term success

Stakeholder considerations

· Increasing the NAV per Ordinary Share;

· Reducing the discount to NAV which Ordinary Shares are trading; and

· Reducing Share Price Volatility.

The Board believes that undertaking repurchases of Ordinary Shares helps to address any imbalance between the supply of, and demand for, the Ordinary Shares.

 

Risk Overview

Each Director is aware of the risks inherent in the Company's business and understands the importance of identifying, evaluating and monitoring these risks. The Board has adopted procedures and controls to enable it to manage these risks within acceptable limits and to meet all of its legal and regulatory obligations.

 

The Board considers the process for identifying, evaluating and managing any significant risks faced by the Company on an ongoing basis, and these risks are reported and discussed at Board meetings. It ensures that effective controls are in place to mitigate these risks and that a satisfactory compliance regime exists to ensure all applicable local and international laws and regulations are upheld.

 

Risk Appetite

The Board's strategic risk appetite is to balance the amount of income distributed by the Company by way of dividend with the opportunity to reinvest the returns received from the underlying CLO investments in further CLO equity through the structure. The Board seeks to ensure that the dividend policy is sustainable without eroding capital. Where the Company's share price is at a material discount to the NAV per share, the Board may decide to repurchase shares in accordance with its share buyback policy instead of, or as well as, reinvestment into CLOs.

 

When considering other risks, the Board's risk appetite is effectively governed by a cost benefit analysis when assessing mitigation measures. However, at all times the Company will seek to follow best practice and remain compliant with all applicable laws, rules and regulations.

 

Principal Risks and Uncertainties

As recommended by the Risk Committee, the Board has adopted a risk management framework to govern how the Board: identifies existing and emerging risks; determines risk appetite; identifies mitigation and controls; assesses, monitors and measures risk; and reports on risks.

 

The Board reviews risks at least twice a year and receives deep-dive reports on specific risks as recommended by the Risk Committee. Throughout the period under review, the Board considered a set of main risks which have a higher probability and a significant potential impact on performance, strategy, reputation, or operations (Category A risks). Of these, the five risks identified below were considered the principal risks faced by the Company where the combination of probability and impact was assessed as being most significant. At the start of the year, there were 15 Category A risks. During the year, ESG risk has been added, as it is a key focus of the Board and the Portfolio Adviser. Two other Category A risks relating to the Originator were merged so there remained 15 Category A risks at the year-end. The Board also considered another 14 less significant existing or emerging risks (Category B risks) which are monitored on a watch list.

 

During the year, as the COVID-19 pandemic continued to take its course, the Board and the Risk Committee considered the impact that the situation was having on the Company's business and its service providers. Risks relating to Reliance on Service Providers and Business Continuity were initially heightened but then receded as service providers demonstrated adaptability and resilience.

 

Principal risk

 

Commentary

Investment performance
A key risk to the Company is unsatisfactory investment performance due to an economic downturn along with continued political uncertainty which could negatively impact global credit markets and the risk reward characteristics for CLO structuring. This could directly impact the performance of the underlying CLOs that the Company invests in, and it could also result in a reduced number of suitable investment opportunities and/or lower shareholder demand.

 

 

 

Credit markets, along with most other asset classes, were initially badly hit by the expected impact of COVID-19 on companies and markets. However, as the actual impact of the pandemic on specific companies and markets became clearer, markets adjusted and rebounded.

 

During 2021, the focus switched to post-COVID-19 repercussions with inflation and interest rates on the rise. The Portfolio Adviser continued to actively manage the CLO portfolios to orientate them for this environment.

 

The Board takes comfort from the pedigree of Blackstone Credit as Portfolio Advisers and their ability to trade and manage risk in the portfolios in difficult circumstances, as demonstrated in the GFC and in the height of the COVID-19 pandemic.

 

Share price discount

The price of the Company's shares may trade at a discount relative to the underlying net asset value of the shares.

 

 

 

Throughout 2021, the board continued its active share buyback programme to help address the discount. The discount did reduce to around (5.82)% but subsequently moved out to around (15.75)% at the year-end. There is evidence that the share buyback programme has reduced the volatility of the discount.

 

The Board continues to refine its approach to marketing the Company's shares in conjunction with the Portfolio Adviser and Brokers.

 

Investment valuation

The investment in the Lux Subsidiary is accounted for at fair value through profit or loss, and the investment in PPNs issued by BCF held by the Lux Subsidiary are at fair value. Investments in BCF (the PPNs) are illiquid investments, not traded on an active market and are valued using valuation techniques determined by the Directors. The underlying CLO investments held by BCF are valued using modelling methodologies, described in the Company's Prospectus, that are based upon many assumptions.

The valuation of the Company's investments, therefore, requires a significant judgement and there is a risk that they are incorrectly valued due to calculation errors or incorrect assumptions.

 

 

 

 

The Directors use their judgement, with the assistance of the Portfolio Adviser, in selecting an appropriate valuation technique and refer to techniques commonly used by market practitioners. The board of directors of BCF likewise uses its judgement in determining the valuation of investments and underlying CLOs and equity tranches retained by BCF. Independent valuation service providers are involved in determining the fair value of underlying CLOs.

The Board and Portfolio Adviser have paid close attention to developing market expectations and assumptions through the COVID-19 pandemic, to ensure that valuations reflect reasonable future scenarios.

Continuing sales of equity positions in the CLOs held by BCF, to third parties, during the year have validated that the Company's valuation policy is reasonable. 

 

 

Income distribution model

The Company receives cash flows from its underlying exposure to debt and CLO investments held by BCF. Each underlying CLO will pay out a mixture of income and capital return over its life with a terminal capital value in the 70 to 80% range. BCF aims to distribute most of the proceeds that it receives from CLO investments to the Company (via PPNs) whilst reinvesting some of the proceeds back into CLOs to maintain capital invested. In turn, the Company aims to distribute income received to shareholders, in accordance with its distribution policy, without eroding capital.

There is a risk that the distribution policy at the Company level may be too generous or re-investment at the BCF level may not be sufficient, resulting in the erosion of underlying capital invested.

 

 

 

The Directors use their judgement, with the assistance of the Portfolio Adviser, in setting the Company's distribution policy to ensure that it is appropriate given the performance of the underlying CLOs.

Based upon the modelling of cash flows provided by the Portfolio Adviser, the Board was able to pay a dividend of €0.08 per share for 2021 and has announced a target range for 2022 of €0.07 to €0.08 per share.

 

Operational

The Company has no employees, systems or premises and is reliant on its Portfolio Adviser and service providers for the delivery of its investment objective and strategy.

 

The COVID-19 pandemic meant that the Company's service providers operated under business continuity procedures, with staff of service providers mainly working from home, for long periods of time. This increased the risk of control breakdowns, errors and omissions and regulatory breaches. Service providers are now mostly operating a hybrid model with a mixture of office and home working.

 

 

 

 

 

The Risk Committee has reviewed the arrangements put in place by key service providers to ensure continuity of service to the Company and is currently satisfied that they are sufficient. This will be kept under regular review.

 

 

Ukraine/Russia Conflict

Subsequent to the year-end, Russia invaded Ukraine. The Portfolio Adviser has reviewed the underlying portfolio of companies that the Company is exposed to and identified a very small number with exposure to Russian revenue which might be impacted by the conflict. The Portfolio Adviser has closely monitored these positions and managed their risk accordingly.

Going Concern

The Directors have considered the Company's investment objective, risk management and capital management policies, its assets and the expected income from its investments while factoring in the continuing economic impact from COVID-19, the inflationary environment, increasing interest rates and the impact of Russia's invasion of Ukraine. The Directors are of the opinion that the Company is able to meet its liabilities and ongoing expenses as they fall due and they have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Accordingly, these financial statements have been prepared on a going concern basis and the Directors believe it is appropriate to continue to adopt this basis for a period of at least 12 months from the date of approval of these financial statements.

Viability Statement

At least once a year, the Directors carry out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency and liquidity. The Directors also assess the Company's policies and procedures for monitoring, managing and mitigating its exposure to these risks. In assessing viability, the Directors have considered the principal risks of the Company as detailed above along with the evolution of market, economic and political conditions, the Company's current position, investment objective and strategy and the performance of the Portfolio Adviser.

 

As explained above, the Company's underlying investment exposure is to the investment portfolio of BCF. BCF's portfolio comprises the following categories of investments: (i) CLO Debt and CLO Income Notes securitised by BCF, (ii) a portfolio of senior secured loans and bonds, and (iii) preference shares. The majority of CLO investments in the portfolio have a non-call period of approximately two years from their origination date and cannot be redeemed until these expire. The Directors have considered each of the principal risks of the Company that could materially affect the cash flows derived from these investments and hence how these could impact the cash flows received by BGLF from BCF.

 

The Directors continue to regularly review the Company's dividend policy, but at present are satisfied that the outcomes modelled by the Portfolio Adviser under extreme market scenarios will allow the Company to generate sufficient cash flow to meet the dividend policy and ensure that the Company is able to meet its liabilities, as they fall due.

The Directors have assessed the prospects of the Company over the five-year period to   30 April 2027, which the Directors have determined constitutes an appropriate period to provide its viability statement. The Directors regularly receive financial forecasts from the Portfolio Adviser presented on a quarterly basis for at least the next four to five years. The Directors believe that financial forecasts to support its investment strategy can be subject to changes dependent upon investment performance, deployment of capital and regulatory, legal and tax developments for which the impact beyond a five-year term is difficult to assess.  In addition, the extent to which macroeconomic, political, social, technological and regulatory changes beyond a five-year term may have a plausible impact on the Company are difficult to envisage.

 

The Directors also considered other key risks. Whilst each of these key risks could have an impact on the long-term sustainability of the Company, the Directors concluded that each was sufficiently mitigated and would, therefore, not impact the viability of the Company over a five-year period.

 

On the basis of this assessment of the principal risks facing the Company and the modelled extreme market scenarios by the Portfolio Adviser, used to assess the Company's prospects, and in the absence of any unforeseen circumstances, the Directors confirm that they have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the five-year period of their assessment. However, it is worth noting that there is no intention for the life of the Company to be limited to this five-year period.

 

 

 

 

Performance Analysis

IFRS NAV Performance Analysis for the Years Ended 31 December 2021 And 31 December 2020 - Contributors to Change

 

[Graphs and charts are included in the published Annual Report and Audited Financial Statements which is available on the Company's website at  https://blackstone.com/bglf ]

 

Further commentary on the Company's performance is contained in the Chair's Statement and the Portfolio Adviser's Review.

 

Published NAV Performance Analysis for the Years Ended 31 December 2021 And 31 December 2020 - Contributors to Change

 

[Graphs and charts are included in the published Annual Report and Audited Financial Statements which is available on the Company's website at  https://blackstone.com/bglf ]

 

Further commentary on the Company's performance is contained in the Chair's Statement and the Portfolio Adviser's Review.

 

 

Other Information

Valuation Methodology

As noted above, the Published NAV and the IFRS NAV may diverge because of different key assumptions used to determine the valuation of the BCF portfolio. Key assumptions which are different between the two bases as at 31 December 2021 and 31 December 2020 are detailed below:

 

Asset

Valuation Methodology

Input

IFRS

NAV

Published NAV

IFRS

NAV

Published NAV

 

 

 

31 December 2021

31 December 2020

CLO Securities

Discounted Cash Flows

Constant default rate*

2.0%

2.0%

1.75%

1.83%

 

 

Conditional prepayment rate

25%

25%

23%

24%

 

 

Reinvestment spread (bps over LIBOR)

350.04

360.32

370.00

359.23

 

 

Recovery rate loans

60.00%

60.00%

60.00%

60.00%

 

 

Recovery lag (Months)

0

0

0

12

 

 

Discount rate

12.75%

14.00%

14.55%

14.00%

All of the assumptions above are based on weighted averages.

* Deal level constant default rate

Certain assumptions which underpin the year-end Published NAV, such as reinvestment spread and the discount rate, are generally more conservative than those underlying in the IFRS NAV. The below table further explains the rationale regarding the differences in the assumptions that significantly contributed to the valuation divergence as at 31 December 2021.

Assumptions

IFRS NAV

Published NAV

Reinvestment Spread

Largely weighted by a CLO's current portfolio weighted average spread, which assumes that the CLO investment manager will continue to reinvest in collateral with a similar spread and rating composition to the existing collateral pool.  In addition, weighting may be given to primary loan spreads to the extent current primary market opportunities suggest different spreads than the existing portfolio.

Represents a normalised, long-term view of loan spreads to be achieved over the life of the CLO's remaining reinvestment period.  Initially informed by the underwriting model at issuance, the assumption is periodically reviewed and updated to the extent of secular changes in loan spreads. 

Discount Rate

Intended to reflect the market required rate of return for similar securities and is informed by market research, BWICs, market colour for comparable transactions, and dealer runs.  The discount rate may vary based on underlying loan prices, exposure to distressed assets or industries, manager performance, and time remaining in reinvestment period.  Discount rates have tightened materially since Q1 2021 given the recovery of the loan market and central bank stimulus. The Company completed several opportunistic trades of excess positions in Q4 2021. The discount rates implied by such trades helped inform the discount rates assumed for mark to market valuations.

Based on the expected rate of return for a newly originated CLO equity security on a hold to maturity basis.  The expected rate of return is based on a long-term market average and is periodically reviewed and updated to the extent of secular changes in the market.

 

Source of the Company's Dividend - Ordinary Class

The Company through its investments in the Lux Subsidiary receives income, on a quarterly basis, on the PPNs held by the latter in BCF, which continues to generate positive cash flows from its CLO Income Note investments and from its portfolio of directly held and warehoused loans.

The Company redeems CSWs on a quarterly basis to transfer the income from the Lux Subsidiary. As detailed above, the Company redeemed 36,400,492 CSWs in the Lux Subsidiary during the year with a fair value of €52,279,906 to fund the quarterly dividends.

Alternative Investment Fund Managers' Directive

The Alternative Investment Fund Managers' Directive ("AIFMD") requires certain information to be made available to investors in alternative investment funds ("AIFs") before they invest and requires that material changes to this information be disclosed in the annual report of each AIF. There have been no material changes (other than those reflected in these financial statements) to this information requiring disclosure.

Alternative Performance Measures

In accordance with ESMA Guidelines on APMs, the Board has considered which APMs are included in the Annual Report and Audited Financial Statements and require further clarification. An APM is defined as a financial measure of historical or future financial performance, financial position, or cash flows, other than a financial measure defined or specified in the applicable financial reporting framework. APMs included in the financial statements, which are unaudited and outside the scope of IFRS, are detailed in the table below.

 

Published NAV total return per Ordinary Share**

 

Published NAV per Ordinary Share**

 

(Discount) / Premium per Ordinary Share

Definition

The increase in the Published NAV per Ordinary Share plus the total dividends paid per Ordinary Share during the period, with such dividends paid being re-invested at NAV, as a percentage of the NAV per share as at period end

 

Gross assets less liabilities (including accrued but unpaid fees) determined in accordance with the section entitled "Net Asset Value" in Part I of the Company's Prospectus, divided by the number of  Ordinary Shares at the relevant time

 

BGLF's closing share price on the LSE less the Published NAV per share as at the period end, divided by the Published NAV per share as at that date

 

 

Reason

NAV total return summarises the Company's true growth over time while taking into account both

capital appreciation and dividend yield

 

The Published NAV per share is an indicator of the intrinsic value of the Company.

 

The discount or premium per Ordinary Share is a key indicator of the discrepancy between the market value and the intrinsic value of the Company 

Target

̴ 11%+

 

Not applicable

 

Maximum discount of 7.5%

Performance

 

 

 

 

 

 2021

21.82%

 

0.9407

 

(15.75)%

2020

(0.22)%

 

0.8435

 

(20.57)%*

2019

14.46%

 

0.9187

 

(10.20)%

2018

6.70%

 

0.8963

 

(15.21)%

2017

1.38%

 

0.9378

 

5.03%

* Refer to details on management of the discount in the Chair's Statement.

** Published NAV is an APM from which these metrics are derived.

 

A reconciliation of the above-mentioned APMs to the most directly reconcilable line items presented in the financial statements for the year ended 31 December 2021 is presented below:

 

Published NAV total return per Ordinary Share

 

31 December 2021

31 December 2020

Opening Published NAV per Ordinary Share (A)

€0.8435

€0.9187

Adjustments per Ordinary Share (B)

€0.0122

€(0.0644)

Opening IFRS NAV per Ordinary Share (C=A+B)

€0.8557

€0.8543

 

 

 

Closing Published NAV per Ordinary Share (D)

€0.9407

€0.8435

Adjustments per Ordinary Share (E)

€(0.0253)

€0.0122

Closing IFRS NAV per Ordinary Share (F=D+E)

€0.9154

€0.8557

 

 

 

Dividends paid during the year (G)

€0.0775

€0.0700

 

 

 

Published NAV total return per Ordinary Share

(H=(D-A+G)/A)

20.71%

(0.57)%

Impact of dividend re-investment (I)

1.11%

0.35%

Published NAV total return per Ordinary Share with dividends re-invested (J=H+I)

21.82%

(0.22)%

 

 

 

IFRS NAV total return per Ordinary Share

(K=(F-C+G)/C)

16.03%

8.36%

Impact of dividend re-investment (L)

0.84%

0.49%

IFRS NAV total return per Ordinary Share with

dividends re-invested (M=K+L)

16.87%

8.85%

Refer to Note 16 for further details on the adjustments per Ordinary Share.

Published NAV per Ordinary Share

 

31 December 2021

31 December 2020

Published NAV per Ordinary Share (A)

€0.9407

€0.8435

Adjustments per Ordinary Share (B)

€(0.0253)

€0.0122

IFRS NAV per Ordinary Share (C=A+B)

€0.9154

€0.8557

Refer to Note 16 for further details on the adjustments per Ordinary Share.

(Discount) / Premium per Ordinary Share

 

31 December 2021

31 December 2020

Published NAV per Ordinary Share (A)

€0.9407

€0.8435

Adjustments per Ordinary Share (B)

€(0.0253)

€0.0122

IFRS NAV per Ordinary Share (C=A+B)

€0.9154

€0.8557

 

 

 

Closing share price as at 31 December per the LSE (D)

€0.7925

€0.6700

 

 

 

Discount to Published NAV per Ordinary Share

(E=(D-A)/A)

(15.75)%

(20.57)%

Discount to IFRS NAV per Ordinary Share

(F=(D-C)/C)

(13.43)%

(21.70)%

Refer to Note 16 for further details on the adjustments per Ordinary Share.

 

Future Developments

Significant Events after the Reporting Period

Dividends

On 24 January 2022, the Board declared a dividend of €0.0275 per Ordinary Share in respect of the period from 1 October 2021 to 31 December 2021 with an ex-dividend date of 3 February 2022. A total payment of €12,658,929 was processed on 4 March 2022.

 

On 25 April 2022, the Board declared a dividend of €0.0175 per Ordinary Share in respect of the period from 1 January 2022 to 31 March 2022 with an ex-dividend date of 5 May 2022. The dividend will be paid on 9 June 2022.

 

Share Repurchase Programme

Repurchase of Ordinary Shares

During the period from 1 January 2022 to 27 April 2022, the Company repurchased 1,160,000 shares at a total cost of €1,281,400 (excluding fees and commissions).

 

Outlook

It is the Board's intention that the Company will pursue its investment objective and investment policy as detailed above. Further comments on the outlook for the Company for the 2022 financial year and the main trends and factors likely to affects its future development, performance and position, including the Ukraine conflict and ongoing COVID-19 pandemic are contained within the Chair's Statement and the Portfolio Adviser's Review.

 

Director Biographies

 

The Directors appointed to the Board as at the date of approval of this Annual Report and Audited Financial Statements are:

 

Charlotte Valeur

Position:   Chair of the Board (non-executive and independent director, resident in Jersey)  

 

Date of appointment:   13 June 2014

 

Charlotte has over 35 years of experience in finance, primarily as an investment banker in Capital Markets in Denmark and the U.K. She is an experienced FTSE Chair, Non-Executive Director and corporate governance expert. Charlotte's current appointments include her roles as NED of listed company Digital 9 Infrastructure Plc, NED of NTR Plc and NED of Laing O'Rourke Construction Ltd.

 

Charlotte previously held roles as Chair of FTSE 250 Kennedy Wilson Europe Real Estate Plc, Chair of DW Catalyst Fund Ltd, NED of Renewable Energy Generation Plc, NED of Phoenix Spree Deutschland Ltd, NED of

JPMorgan Convertibles Income Fund, and NED of FTSE 250 3i Infrastructure Plc.

 

Charlotte is also a Trustee of the Institute of Neurodiversity and Chair and founder of Board Apprentice. She is a member of the London Stock Exchange Primary Markets Group, serves on the Advisory Board of the Moller Institute, Churchill College, University of Cambridge and is a visiting Professor in Governance at University of Strathclyde. Charlotte was previously the Chair of the UK Institute of Directors.

 

Gary Clark, ACA

Position:   Chair of the Remuneration and Nomination Committee and NAV Review Committee; Senior Independent Director (non-executive and independent director, resident in Jersey)  

 

Date of appointment:   13 June 2014

 

Gary Clark acts as an independent non-executive director for a number of investment managers including Emirates NBD, Aberdeen Standard Capital and ICG. Until 1 March 2011, he was a managing director at State Street and their head of Hedge Fund Services in the Channel Islands. Gary Clark, a Chartered Accountant, served as chairman of the Jersey Funds Association from 2004 to 2007 and was managing director at AIB Fund Administrators Limited when it was acquired by Mourant in 2006. This business was sold to State Street in 2010. Prior to this, Gary Clark was managing director of the futures broker, GNI (Channel Islands) Limited in Jersey.


A specialist in alternative investment funds, Gary Clark was one of several practitioners involved in a number of significant changes to the regulatory regime for funds in Jersey, including the introduction of both Jersey's Expert Funds Guide and Jersey's Unregulated Funds regime.

As a Chartered Accountant with over 30 years' experience in financial services, including many years focused on running fund administration businesses in alternative asset classes, Gary Clark brings a wealth of highly relevant experience, at both board level and as an executive, in fund / asset management operations, including in particular valuation, accounting and administrative controls and processes.

 

Heather MacCallum, CA

Position:  Chair of the Audit Committee (non-executive and independent director, resident in Jersey)

 

Date of appointment:  7 September 2017

 

Heather MacCallum is a Chartered Accountant and was a partner of KPMG Channel Islands for 15 years before retiring from the partnership in 2016. 

 

Heather MacCallum now holds a portfolio of non-executive directorships including abrdn Latin American Income Fund Limited and Invesco Bond Income Plus Limited (formerly City Merchants High Yield Trust Limited), both of which are investment companies listed on the London Stock Exchange. She is the Chair of Jersey Water, an unlisted Jersey utility company.

 

She is a member of the Institute of Directors and the Institute of Chartered Accountants of Scotland (ICAS). She is also a past president of the Jersey Society of Chartered and Certified Accountants.

 

With 20 years' experience gained in a global professional services firm,  Heather MacCallum brings financial experience including technical knowledge of accounting and auditing, especially in the context of financial services, and in particular the investment management sector.

 

Steven Wilderspin, FCA, IMC

Position:  Chair of the Risk Committee (non-executive and independent director, resident in Jersey)

 

Date of appointment:  11 August 2017

 

Steven Wilderspin, a qualified Chartered Accountant, has been the Principal of Wilderspin Independent Governance, which provides independent directorship services, since 2007. He has served on a number of private equity, property and hedge fund boards as well as commercial companies.

 

In February 2021, Steven Wilderspin was appointed as a director of FTSE 250 GCP Infrastructure Investments Ltd, and he is also a director of FTSE 250 HarbourVest Global Private Equity Limited. Steven Wilderspin previously served as the Chairman of the Audit and Risk Committee of FTSE 250 3i Infrastructure plc.

 

From 2001 until 2007, Steven Wilderspin was a director of fund administrator Maples Finance Jersey Limited where he was responsible for fund and securitisation structures. Before that, from 1997, Steven Wilderspin was Head of Accounting at Perpetual Fund Management (Jersey) Limited.

 

Steven Wilderspin has significant listed corporate governance experience, particularly in the area of risk management, so is well placed to lead the board through the development of its risk framework.

 

Mark Moffat

Position:  Non-executive and independent director (resident in UK)

 

Date of appointment:  8 January 2019

 

Mark Moffat has been involved in structuring, managing and investing in CLOs for over 20 years. Mark Moffat left GSO Capital Partners LP, part of the credit businesses of The Blackstone Group L.P., in April 2015 to pursue other interests.

 

Whilst at GSO, Mark Moffat was a senior managing director and the portfolio manager responsible for investing in structured credit and co-head of the European activities of the Customised Credit Strategies division.

 

Mark Moffat joined GSO in January 2012 following the acquisition by GSO of Harbourmaster Capital Management Limited where he was co-head. Prior to joining Harbourmaster in 2007, Mark Moffat was head of European debt and equity capital markets and the European CLO business of Bear Stearns. At Bear Stearns, Mark Moffat was responsible for the origination, structuring and execution of CLOs in Europe over a seven-year period. Prior to Bear Stearns, Mark Moffat was global head of CLOs at ABN AMRO and a director in the principal finance team of Greenwich NatWest.

 

With over 20 years of experience structuring, managing and investing in CLOs Mark Moffat brings a deep knowledge of how CLO structures and markets perform over the credit cycle.

Directors

 

Directors' Report

The Directors present the Annual Report and Audited Financial Statements for the Company for the year ended 31 December 2021.

 

Directors

The Directors of the Company on the date the financial statements were approved are listed on below. All directors were directors of the Company throughout the year ended 31 December 2021.

 

The Board and Employees

The Board currently comprises three male and two female Directors. The Company has no employees; therefore, there is nothing further to report in respect of gender representation within the Company.

 

Full details of the Company's policy on Board Diversity can be found in the Corporate Governance Report below.

 

Name Change

On 13 January 2021, the Company announced that its name had changed from 'Blackstone / GSO Loan Financing Limited' to 'Blackstone Loan Financing Limited' with effect from and including 11 January 2021.

 

Share Capital

The Company's share capital consists of an unlimited number of shares. As at 31 December 2021, the Company had 460,984,702 Ordinary Shares in issue and 21,918,092 Ordinary Shares in treasury (31 December 2020: 477,023,331 Ordinary Shares in issue and 5,879,463 Ordinary Shares in treasury).

 

Share Repurchase Programme

At the 2020 AGM, held on 16 July 2020, the Directors were granted authority to repurchase up to 14.99% of the issued share capital as at the date of the 2020 AGM for cancellation or to be held as treasury shares. Under this authority, during the year ended 31 December 2020, the Company purchased 3,393,507 of its Ordinary Shares of no par value at a total cost of €2,048,649. These Ordinary Shares are being held as treasury shares. 

 

At the 2020 AGM, the Directors were granted authority to allot, grant options over or otherwise dispose of up to 48,041,684 Shares (being equal to 10.00% of the Shares in issue at the date of the AGM).

 

At the 2021 AGM, held on 23 July 2021, the Directors were granted authority to repurchase up to 14.99% of the issued share capital as at the date of the 2021 AGM for cancellation or to be held as treasury shares.  Under this authority, during the year ended 31 December 2021, the Company purchased 7,722,373 of its Ordinary Shares of no par value at a total cost of €6,101,156. These Ordinary Share are being held as treasury shares.

 

At the Company's 2021 AGM, the Company received shareholder approval to resell up to 46,880,707 Shares held by the Company in treasury. Under this authority, these Shares are permitted to be sold or transferred out of treasury for cash at a price representing a discount to Net Asset Value per Share not greater than the discount at which such Shares were repurchased by the Company. To-date, no shares have been resold by the Company under this authority.

 

Authority to Allot

At the 2021 AGM, the Directors were granted authority to allot, grant options over, or otherwise dispose of up to 70,274,181 Ordinary Shares (being equal to 10.00% of the Shares in issue at the date of the AGM). This authority will expire at the 2022 AGM.

 

Shareholders' Interests

As at 31 December 2021, the Company had been notified, in accordance with Chapter 5 of the Disclosure Guidance and Transparency Rules (which covers the acquisition and disposal of major shareholdings and voting rights), of the following Shareholders with an interest of greater than 5% in the Company's issued share capital:

Shareholder

Percentage of Voting Rights

BlackRock Inc

22.79%

Quilter plc

19.21%

Blackstone Treasury Asia Pte Ltd

9.33%

FIL Limited

9.68%

Between 31 December 2021 and 27 April 2022, no notifications were received.

Statement of Disclosure of Information to the Auditor

The Directors who held office as at the date of approval of this Directors' Report confirm that, so far as they are each aware, there is no relevant audit information of which the Company's auditor is unaware and that they have taken the steps that they ought to have taken as Directors to make themselves aware of any relevant audit information and to establish that the Company's auditor is aware of that information.

Modern slavery

The Company would not fall into the scope of the UK Modern Slavery Act 2015 (as the Company does not have any turnover derived from goods and services) if it was incorporated in the UK. Furthermore, as a closed-ended investment company, the Company has no employees and its supply chain is considered to be low risk given that suppliers are typically professional advisers based in any of the Channel Islands, Ireland or the UK. Based on these factors, the Board have considered that it is not necessary for the Company to make a slavery and human trafficking statement.

 

Gary Clark

Director

29 April 2022

 

Corporate Governance Report

Statement of Compliance with Corporate Governance

The Board of the Company has considered the Principles and Provisions of the AIC Code. The AIC Code addresses the Principles and Provisions set out in the UK Code, as well as setting out additional Provisions on issues that are of specific relevance to the Company, as an investment company.

The Board considers that reporting against the Principles and Provisions of the AIC Code, which has been endorsed by the FRC and supported by the Jersey Financial Services Commission provides more relevant information to shareholders.

The Company has complied with the Principles and Provisions of the AIC Code as they apply to the Company.

The AIC Code is available on the AIC website ( www.theaic.co.uk ). It includes an explanation of how the AIC Code adapts the Principles and Provisions set out in the UK Code to make them relevant for investment companies.

The Board

The Board consists of five non-executive directors. Their biographies can be found below.

The Board meets at least four times a year and is in regular contact with the Portfolio Adviser, the Portfolio Manager, the Administrator and the Company Secretary. Furthermore, the Board is supplied with information in a timely manner from the Portfolio Adviser, Portfolio Manager, the Company Secretary and other advisers in a form and of a quality appropriate for it to be able to discharge its duties.

Board Apprentices

The Board participates in the Board Apprentice scheme and took on two Board Apprentices for one year from 1 April 2021, having previously taken on two Board Apprentices for one year in October 2018.  The Board consider this a valuable exercise in mentoring already accomplished individuals to be future directors, fostering equality and developing board culture.

Duties and Responsibilities

The Board has overall responsibility for maximising the Company's success by directing and supervising the affairs of the business and meeting the appropriate interests of Shareholders and relevant stakeholders, while enhancing the value of the Company and also ensuring the protection of investors. A summary of the Board's responsibilities is as follows:

· statutory obligations and public disclosure;

· strategic matters and financial reporting;

· risk assessment and management including reporting, compliance, governance, monitoring and control; and

· other matters having a material effect on the Company.

The Board is responsible to Shareholders for the overall management of the Company. The Board has delegated certain operational activities of the Company to the Portfolio Adviser, Administrator and Company Secretary. The Board reserves the power of decisions relating to the determination of investment policy, the approval of changes in strategy, capital structure, statutory obligations and public disclosure, and the entering into of any material contracts by the Company.

 

Board Attendance

The following table shows the number of meetings held by the Board and each committee for the year ended 31 December 2021, as well as the Directors' and Committee Members' attendance.

 

Meeting

Total

Charlotte
Valeur

Gary
Clark

Steven Wilderspin

Heather MacCallum

Mark

Moffat

Quarterly Board

4

4

4

4

4

4

Ad Hoc Board

10

8

10

10

9

8

Ad Hoc board (Dividend Declaration)

4

4

4

4

4

4

Audit Committee

5

N/A

5

5

5

5

Management Engagement Committee

2

2

2

2

2

2

NAV Review Committee

12

N/A

11

12

12

12

Remuneration and Nomination Committee

2

2

2

2

2

2

Risk Committee

4

4

4

4

4

4

Inside Information Committee*

3

N/A

3

3

1

N/A

*The Inside Information Committee is a committee of any two Directors.

 

Chair

The Chair is responsible for leadership of the Board, ensuring its effectiveness on all aspects of its role and setting its agenda. The Chair is also responsible for ensuring that the Directors receive accurate, timely and clear information and for effective communication with Shareholders.

Board Independence

For the purpose of assessing compliance with principle G, provisions 10 and 13 of the AIC Code, the Board considers all of the current Directors to be independent.

 

The Directors consider that there are no factors, as set out in provision 13 in the AIC Code, which compromise the other Directors' independence and that all Directors contribute comprehensively to the affairs of the Company. The Board reviews the independence of all Directors annually. The Company Secretary acts as secretary to the Board and Committees and, in doing so, assists the Chair in ensuring that all Directors have full and timely access to all relevant documentation, organises induction of new Directors, is responsible for ensuring that the correct Board procedures are followed and advises the Board on corporate governance matters.

Board Evaluation

During 2021, the Board conducted their own review using BoardMetrix, a board evaluation tool. This evaluation assessed the Board's performance in the following areas:

 

· board composition/skills;

· strategic review;

· workings of the board;

· risk oversight;

· performance oversight; and

· stakeholder management.

 

The performance of each Director and the Committees of the Board were also assessed as part of this evaluation.

 

The evaluation concluded that the Board was strong across all of the above areas and that the Directors and the Board's Committees were performing effectively. No significant recommendations were made which are required to be brought to the attention of the Shareholders.

Committees of the Board

The Board has established six committees: an Audit Committee, a Management Engagement Committee, a NAV Review Committee, a Remuneration and Nomination Committee, a Risk Committee, and an Inside Information Committee. Each committee has formally delegated duties and responsibilities within written terms of reference. These are available on the Company's website, blackstone.com/bglf, under "Terms of Reference".

 

The current committee memberships are detailed below.

 

Audit Committee

The Audit Committee comprises all Directors, except Charlotte Valeur, and is chaired by Heather MacCallum.

The terms of reference state that the Audit Committee will meet not less than three times a year and will meet with the Auditor at least once a year. The report on the role and activities of this committee and its relationship with the Auditor is included in the Audit Committee Report below.

 

Management Engagement Committee

The Management Engagement Committee comprises all Directors and is chaired by Charlotte Valeur.

The terms of reference state that the Management Engagement Committee shall meet at least once a year; will have responsibility for monitoring and reviewing the Portfolio Adviser's performance; and will recommend to the Board whether the continued appointment of the Portfolio Adviser is in the best interests of the Company and Shareholders.

 

NAV Review Committee

The NAV Review Committee comprises all Directors, except Charlotte Valeur, and is chaired by Gary Clark.

The terms of reference state that the NAV Review Committee shall meet at least once a month to review and consider the Company's NAV calculation, fact sheet and related stock exchange announcement(s).

 

Remuneration and Nomination Committee

The Remuneration and Nomination Committee comprises all Directors and is chaired by Gary Clark.

The terms of reference state that the Remuneration and Nomination Committee will meet not less than twice a year and shall be responsible for all aspects of the appointment and remuneration of Directors. The remuneration duties of the committee include determining and agreeing with the Board the framework or broad policy for the remuneration of the Directors and to review its ongoing appropriateness and relevance.

 

The nomination duties of the committee include regularly reviewing the structure, size and composition of the Board, including the balance of skills, experience, independence and knowledge, as well as identifying, nominating and recommending for the approval of the Board, candidates to fill Board vacancies as they arise.

 

Director Re-Election and Tenure

The Remuneration and Nomination Committee and the Board are strongly committed to striking the correct balance between the benefits of continuity and those that come from the introduction of new perspectives to the Board.

 

It is the intention of the Board that each Director will retire after no longer than nine years in their role and the Board has adopted a policy whereby all Directors will be put up for re-election every year. Accordingly, all Directors will be put forward for re-election at the forthcoming AGM. Each of the Directors has demonstrated a strong commitment to the Company and the Board believes each Director's re-election to be in the best interests of the Company.

 

The Board also maintains a succession planning matrix covering the Directors' skills, the Board's diversity, and the Directors' expected year of retirement should they hold office for nine years.  The matrix is used by the Remuneration and Nomination Committee to identify any additional skills that would benefit the Board and to help the Remuneration and Nomination Committee establish when to begin recruiting for any new directors.  The Board also keeps its diversity under review.

 

Risk Committee

The Risk Committee comprises all Directors and is chaired by Steven Wilderspin.

The terms of reference state that the Risk Committee shall meet at least two times a year. The activities of this committee are outlined in the Risk Committee Report below.

 

Inside Information Committee

The Inside Information Committee comprises any two members of the Board.

The Inside Information Committee is responsible for considering whether anything brought to its attention constitutes inside information and monitoring the disclosure and control of such information.

 

Board Diversity

The Board believes in and values the importance of a broad range of skills, experience and diversity, including gender, for the effective functioning of the Board, all of which are considered when determining the optimum composition of the Board. The Board has a policy that aims to have a minimum of 40% of either gender represented on the Board, and also recognises the importance of inclusivity in its diversity policy. The Board ensures compliance with its policy in respect of any appointments to the Board. At 31 December 2021 and at the date of approval of these financial statements, 60% of the Directors were male and 40% were female.

 

Internal Controls

The Board has applied principle O of the AIC Code by establishing a continuous process for identifying, evaluating and managing the principal risks that the Company faces. The Board is responsible for the Company's system of internal controls and for reviewing its effectiveness. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable and not absolute assurance against material misstatement or loss.

 

The Board's monitoring covers all controls, including financial, operational and compliance controls and risk management. It is based principally on reviewing reports from the Portfolio Adviser and BCF to consider whether significant risks are identified, evaluated, managed and controlled and whether any significant weaknesses are promptly remedied and indicate a need for more extensive monitoring.

 

The Audit Committee assists the Board in discharging its monitoring responsibilities.

 

During the course of the Board's review of the system of internal controls, it has not identified nor been advised of any failings or weaknesses which it has determined to be significant. Therefore, no confirmation in respect of necessary actions has been made.

 

The Board is also responsible for setting the overall investment policy and monitors the services provided by the Portfolio Adviser at regular Board meetings. The Board receives regular reports from the Portfolio Adviser, together with quarterly reports from the Administrator, the Company Secretary, the Depositary, Compliance (including the Money Laundering Compliance Officer and Money Laundering Reporting Officer) and from the Portfolio Adviser covering compliance matters.

 

The Directors clearly define the duties and responsibilities of their agents and advisers, whose appointments are made after due consideration, and monitor their ongoing performance, which is done with the assistance of the Management Engagement Committee. All of the Company's agents and advisers maintain their own systems of internal control on which they report to the Board. These systems are designed to ensure effectiveness and efficient operation, internal control and compliance with laws and regulations. In establishing the systems of internal control, regard is paid to the materiality of relevant risks, the likelihood of costs being incurred and the costs of control. It follows, therefore, that the systems of internal control can only provide reasonable but not absolute assurance against the risk of material misstatement or loss.

 

The Directors are satisfied that the continued appointment of the relevant service providers is in the best interests of the Shareholders.

 

The Board has reviewed the need for an internal audit function and has decided that the systems and procedures employed by the Administrator and Portfolio Adviser, including their own internal controls and procedures, provide sufficient assurance that a sound system of risk management and internal control, to safeguard the Shareholders' investment and the Company's assets, is maintained. An internal audit function specific to the Company is therefore considered unnecessary. Full details are set out in the Audit Committee Report below.

The Company has appointed N+1 Singer Advisory LLP and Winterflood Securities Limited as its joint brokers. Together with the brokers, the Portfolio Adviser assists the Board in communicating with and understanding the views of the Company's major Shareholders.

 

Risk Committee Report

Membership

The Risk Committee comprises Steven Wilderspin (Chair), Charlotte Valeur, Heather MacCallum, Gary Clark and Mark Moffat.

 

Key Objectives

The Risk Committee has been established to assist the Board in its oversight of risk through ensuring the Company maintains a high standard of risk identification, monitoring and management so as to minimise investment risks and any other risks not covered by the Audit Committee.

 

Responsibilities

The Risk Committee's key responsibilities are:

 

· ensuring the Company's compliance with its investment objectives, policies, restrictions and borrowing limits;

· ensuring that appropriate policies and reporting exists for the monitoring of the Company's key risks;

· developing and maintaining a risk register documenting identified risks, their mitigants, likelihood and impact, which is reviewed regularly by the Board with action points and newly identified risks being appropriately dealt with;

· defining risk review activities regarding investment decisions, transactions and exposures for approval by the Board; and

· ensuring due regard is given to all regulations, codes, and laws that the Company is subject to.

 

Committee Meetings

In 2021, the Risk Committee met on four occasions. The specific areas of focus for the Committee during the year included:

 

· The ongoing impact of the COVID-19 pandemic.  The Committee reviewed the operational resilience of the Company's key service providers to ensure that they could continue providing services throughout the year, particularly during periods of lockdown. The Committee reviewed all of the Company's risks through the lens of the pandemic to ensure that any new or heightened risk was identified and appropriately dealt with. Other than the heightened operational risk, the most material increase in risk related to the sustainability of the Company's dividend and level of the Company's share price discount to Published NAV. These areas were addressed by the Board as described above.

· ESG.  ESG was a major topic of discussion for the Committee and the wider Board during the year. See further information above.

· LIBOR transition.  The Committee reviewed the impact of the transition of the interest reference rate for its underlying CLO assets and liabilities from LIBOR to alternatives such as SONIA. BX Credit has a project team that is managing this transition across its wider business. The impact on the Company as assets and liabilities transition over time is not expected to be material.

· Virtual due diligence visit.  Due to the ongoing COVID-19 pandemic, the Committee carried out a virtual due diligence visit to the Portfolio Adviser's Dublin office, including a meeting with the BCF board. The Committee focused on governance, valuation, compliance and risk management topics. 

 

Risk Monitoring

Being internally managed, the Company is responsible for both portfolio and risk management. However, due to the nature of the investment and the limited ability to look through, traditional market and credit risk techniques do not apply at the Company level. That said, the Board regularly engages with the board of BCF and discusses with them key areas of risk.

 

Investment risk management and monitoring, to ensure the successful pursuance of our investment objective, is therefore mainly through the Company's monthly NAV reporting process and the monitoring of investment restrictions and eligibility criteria as carried out by the Depositary.

 

 

Steven Wilderspin

Risk Committee Chair

29 April 2022

 

Directors' Remuneration Report

D

Directors' Remuneration

This report provides relevant information in respect of the Directors' remuneration.

 

The tables below outlines the remuneration the Directors were entitled to during the year ended 31 December 2021 for their services.

 

 

Total fixed remuneration

for the year ended
31 December 2021

Total fixed remuneration

for the year ended
31 December 2020

 

£

£

Charlotte Valeur

61,000

61,000

Gary Clark

46,000

46,000

Heather MacCallum

49,500

46,590

Steven Wilderspin

44,500

44,500

Mark Moffat

38,000

38,000

Total Directors' Remuneration

239,000

236,090

Total Directors' Remuneration (€)

284,347

263,391

 

The Chairs of the Management Engagement Committee, NAV Review Committee, Remuneration and Nomination Committee, Audit Committee and Risk Committee each received additional fees, which are included in the amounts above, for the additional responsibilities and time commitment required in undertaking these roles. Additionally, the Senior Independent Director received additional fees for the additional responsibilities and time commitment required in undertaking this role.

 

The Remuneration and Nomination Committee increased Heather MacCallum's additional fee for services provided as Audit Committee Chair by £5,000 effective 1 August 2020 to reflect the increased time commitment required. The table above includes a pro-rated amount of £2,010.

 

The Remuneration and Nomination Committee increased each of the Directors fees for services provided by £750 with the exception of the Chair's fee which was increased by £1,000. These changes were effective from 1 January 2022.

 

Directors' remuneration is payable in Sterling quarterly in arrears.  No other remuneration (fixed or variable) or compensation was paid or is payable by the Company during the year to any of the Directors. There has been no change to the Company's remuneration policy.

 

The Company has no employees, accordingly, there is no difference in policy on the remuneration of Directors and the remuneration of employees. No Director is entitled to receive any remuneration which is performance-related.

The Remuneration and Nomination Committee reviews the Remuneration Policy and Directors' remuneration on an annual basis.

 

Remuneration Policy

Directors' fees are determined by the Remuneration and Nomination Committee under the terms of the remuneration policy (the "Remuneration Policy") approved on 3 November 2021, as derived from the Company's Articles of Association. The Remuneration and Nomination Committee also considers the remuneration levels of similar companies and consults external remuneration consultants where this is deemed appropriate.

 

The Remuneration and Nomination Committee consists of all Directors and is involved in deciding Directors' remuneration and ensuring that remuneration received reflects the Directors' duties, responsibilities and the value of their time.

 

The Company does not provide pensions or other retirement or superannuation benefits, death or disability benefits, or other allowances or gratuities to the Directors or specified connected parties.  The Remuneration Policy also prohibits payments to a Director for loss of office or as consideration for, or in connection with, his or her retirement from office. Whilst the Remuneration Policy permits part of their fee to be paid in the form of fully-paid up shares in the capital of the Company, the Directors' fees are not currently paid this way.

In addition, the Remuneration Policy allows for reasonable travel, hotel and other expenses incurred by the Directors in the course of performing their duties or from their performance of a special service on behalf of the Company.

 

The limit for the aggregate fees payable to the Directors is £300,000 per annum.

 

Directors' Interests

The Directors held the following number of Ordinary shares in the Company as at the year end:

 

Shares

Type

As at 31 December 2021

As at 31 December 2020

Charlotte Valeur

Ordinary

11,500

11,500

Gary Clark

Ordinary

168,200

168,200

Heather MacCallum

Ordinary

-

-

Steven Wilderspin

Ordinary

20,000

20,000

Mark Moffat

Ordinary

771,593

771,593

 

There have been no other changes to the Directors' Interests as at the date of the approval of these financial statements. 

 

Service Contracts and Policy on Payment of Loss of Office

No Director has a service contract with the Company. The Directors have each entered into a letter of engagement with the Company setting out the terms of their appointment. Directors' appointments may be terminated at any time by giving three month's written notice, with no compensation payable upon leaving office for whatever reason.

 

Gary Clark
Remuneration and Nomination Committee Chair
29 April 2022

 

Audit Committee Report

 

Audit Committee Report

Audit Committee

The Audit Committee comprises Heather MacCallum, Mark Moffat, Steven Wilderspin and Gary Clark and is chaired by Heather MacCallum. Heather MacCallum has recent and relevant financial experience in accounting and auditing, and the Audit Committee as a whole has competence relevant to the sector in which the Company operates.

In addition to formal meetings, the Audit Committee has worked with the Portfolio Adviser and Auditor to assess the operations and controls of BCF and to assess in particular what reliance the Audit Committee can place on the control environment. The Chair has also had a number of discussions with the Auditor, the Portfolio Adviser and the Administrator around the annual audit and half year financial reporting processes.

Role of the Audit Committee

The function of the Audit Committee is to ensure that the Company maintains high standards of integrity, financial reporting and internal controls.

The Audit Committee's main roles and responsibilities include, but are not limited to, the following:

· monitoring the integrity of the financial statements and any formal announcements relating to the Company's financial performance;

· reviewing and reporting to the Board on any significant financial reporting issues and judgements;

· reviewing and monitoring the effectiveness of the Company's risk management and internal control arrangements;

· monitoring the statutory audit of the annual financial statements of the Company and its effectiveness;

· reviewing the external auditor's performance, independence and objectivity;

· making recommendations to the Board in relation to the appointment, reappointment and/or removal of the external auditor, the approval of the external auditor's remuneration and the terms of the engagement;

· implementing policies surrounding the engagement of the external auditor to supply non-audit services, where appropriate;

· reviewing and challenging where necessary significant accounting policies and practices; and

· reporting to the Board on how it has discharged its responsibilities.

 

How the Audit Committee Has Discharged Its Responsibilities

The Audit Committee met five times during the year. Representatives of the Portfolio Adviser, Company's Auditor and the Administrator were invited to the meetings as appropriate.

Monitoring the Integrity of the Financial Statements Including Significant Judgements

The Audit Committee reviewed the Company's Annual Report and Audited Financial Statements for the year ended 31 December 2020 and the Half Yearly Financial Report for the six months ended 30 June 2021 prior to discussion and approval by the Board, and the significant financial reporting issues and judgements which they contain. The Audit Committee also reviewed the external auditor's reports thereon, which were discussed with the Auditor. The Audit Committee reviewed the appropriateness of the Company's accounting principles and policies, and monitored changes to, and compliance with, accounting standards on an ongoing basis.

After the year end, the Audit Committee had further meetings and reviewed, prior to making any recommendations to the Board, the Annual Report and Audited Financial Statements for the year ended 31 December 2021. In undertaking this review, the Audit Committee discussed with the Auditor, the Portfolio Adviser and the Administrator the critical accounting policies and judgements that have been applied.

The Auditor reported to the Committee on any non-trivial misstatements that they had found during the course of their work and confirmed that under ISA (UK) no material amounts remained unadjusted.

As requested by the Board, the Audit Committee also reviewed the Annual Report and are able to confirm to the Board that, in our view, the Annual Report, taken as a whole, is fair, balanced and understandable and provided the information necessary for Shareholders to assess the Company's position, performance, business model and strategy.

 

Significant Accounting Matters

The Committee considered the key accounting issues, matters and judgements regarding the Company's 2021 Annual Report and Financial Statements and disclosures including those relating to:

 

Significant Area

How Addressed

Valuation of investments

The investment in the Lux Subsidiary is accounted for at fair value through profit or loss, and the investment in PPNs issued by BCF held by the Lux Subsidiary are at fair value. Investments in BCF (the PPNs) are illiquid investments, not traded on an active market and are valued using valuation techniques determined by the Directors and classified as Level 3 under IFRS 13 "Fair Value Measurement."

 

Valuation is therefore considered a significant area and is monitored by the Board, the Audit Committee, the Portfolio Adviser and the Administrator. The Audit Committee receives and reviews reports on the processes for the valuation of investments. Following discussion, the Audit Committee was satisfied that the judgements made and methodologies applied were prudent and appropriate and that an appropriate accounting treatment has been adopted in accordance with IFRS 9.

 

Please see Notes 2, 6, 10 and 16 in the financial statements for further details

 

Assessment of Risks and Uncertainties

The risks associated with the Company's financial instruments, as disclosed in the financial statements, particularly in Note 10, represent a key accounting disclosure. The Audit Committee and the Risk Committee review critically, on the basis of input from the service providers, the process of ongoing identification and measurement of these risks disclosures.

 

Other Matters

During the year, the Committee considered compliance with relevant legislation, performance metrics and related disclosures in the Company's financial statements.

 

Risk Management and Internal Controls

The Board as a whole is responsible for the Company's system of internal controls; however, the Audit Committee assists the Board in meeting its obligations in this regard. The daily operational activities of the Company were delegated to its service providers and as a result, the Company has no direct internal audit function and instead places reliance on the external and internal audit controls of the service providers as regulated entities. However, the Audit Committee reviews periodic reports from the service providers to ensure that no material issues have arisen in respect of the system of internal controls and risk management operated by the Company's service providers. The Committee confirms that this is an ongoing process conducted in order to manage the risks faced by the Company. The Audit Committee deems that, to date, there are no significant issues in this area which need to be brought to your attention.

 

External Audit

It is the responsibility of the Audit Committee to monitor the performance, independence, objectivity and re-appointment of the Auditor. The Audit Committee met with Deloitte LLP ("Deloitte") to consider the audit strategy and plan for the audit. The audit plan for the reporting period was reviewed, including consideration of the key financial statement and audit risks, to seek to ensure that the audit was appropriately focused.

 

The Auditor attends the Audit Committee meetings throughout the year, as applicable, which allows the opportunity to discuss any matters the Auditor may wish to raise without the Portfolio Adviser or other service providers being present. The Auditor provides feedback at relevant Audit Committee meetings on topics such as the key accounting matters, mandatory communications and the control environment. The Audit Committee also discusses the performance of the Auditor independently of the Auditor.

 

Deloitte was formally appointed as Auditor for the Company's 2014 period-end audit following a competitive tender process during 2014. The lead audit partner is rotated every five years to ensure continued independence and objectivity; consequently a new lead audit partner has been in place since the interim review to 30 June 2019.

 

The Audit Committee continues to be satisfied with the performance of the Auditor. The Audit Committee has therefore recommended to the Board that the Auditor, in accordance with agreed terms of engagement and remuneration, should continue as the Company's auditor after the forthcoming Annual General Meeting. Accordingly, a resolution proposing the reappointment of Deloitte as the Company's auditor will be put to the Shareholders at the 2022 AGM.

 

In advance of the commencement of the annual audit, the Audit Committee reviewed a statement provided by the Auditor confirming their independence as defined under relevant regulation and professional standards. In addition, in order to satisfy itself regarding the Auditor's independence, the Audit Committee undertook a review of the Auditor's compensation and the balance between audit and non-audit fees.

 

During 2021, the Audit Committee reviewed its policy with respect to non-audit services and continually monitored the level of non-audit services provided by the Auditor to ensure alignment and compliance with best practice. The Company's policy sets out the permitted types of non-audit services that can be provided by Deloitte, which are consistent with the FRC's Revised Ethical Standard (2019). All proposed non-audit services required explicit approval from the Audit Committee. During the year, Deloitte were contracted to review the Company's interim financial statements. Audit fees for the year ended 31 December 2021 increased by 12.61% compared to 2020 (refer to Note 3 for further details). Audit-related services increased by 9.75% year on year. These items have been given due consideration by the Audit Committee, who reviewed inter-alia the role of the respective engagement teams and the independence of individuals from the audit engagement team and concluded it was satisfied the Auditor had acted in an independent and professional manner.

 

 

Heather MacCallum
Audit Committee Chair
29 April 2022

 

 

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Annual Report and Audited Financial Statements in accordance with applicable law and regulations.

 

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with IFRS, as adopted by the EU. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of the affairs of the Company and of the profit or loss of the Company for that year. In preparing these financial statements, International Accounting Standard 1 requires that Directors: 

 

 

· properly select  and apply accounting policies;

· present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

· provide additional disclosures when compliance with the specific requirements in IFRS as adopted by the EU are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Company's financial position and financial performance; and 

· make an assessment of the Company's ability to continue as a going concern.

 

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with The Companies (Jersey) Law 1991. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

 

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in Jersey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

Each of the Directors, whose names are listed below, confirms that, to the best of that Director's knowledge and belief:

 

· the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company;

· the Strategic report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that they face; and

· the annual report and audited financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for Shareholders to assess the Company's position and performance, business model and strategy.

 

 

 

Charlotte Valeur

Heather MacCallum

Director

Director

29 April 2022

 

 

Independent Auditor's Report to the Shareholders of

Blackstone Loan Financing Limite ndependent Auditor's Report to the Shareholders of Blackstone Loan Financing Limited

Report on the audit of the financial statements

1.  Opinion

In our opinion the financial statements of Blackstone Loan Financing Limited (the 'company'):

· give a true and fair view of the state of the company's affairs as at 31 December 2021 and of its profit for the year then ended;

· have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union; and

· have been properly prepared in accordance with Companies (Jersey) Law, 1991.

We have audited the financial statements which comprise:

· the statement of financial position;

· the statement of comprehensive income;

· the statement of changes in equity;

· the statement of cash flows; and

· the related notes 1 to 21.

The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the European Union.

2.  Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the auditor's responsibilities for the audit of the financial statements section of our report.

We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the Financial Reporting Council's (the 'FRC's') Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. The non-audit services provided to the company for the year are disclosed in note 3 to the financial statements. We confirm that we have not provided any non-audit services prohibited by the FRC's Ethical Standard to the company.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

3.  Summary of our audit approach

Key audit matter

The key audit matter that we identified in the current year was the valuation of investments in the Luxembourg subsidiary.

Within this report, key audit matters are identified as follows:

 

Newly identified

 

Increased level of risk

 

Similar level of risk

 

Decreased level of risk

 

Materiality

The materiality that we used in the current year was €8,400,000 which was determined on the basis of Net Assets Value of the company.

Scoping

All of the audit work to respond to the risks of material misstatement was performed directly by the audit engagement team.

Significant changes in our approach

There are no significant changes in our approach in the current year.

 

4.  Conclusions relating to going concern

In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.

Our evaluation of the directors' assessment of the company's ability to continue to adopt the going concern basis of accounting included:

· Carrying out the following on the forecasts provided by the directors':

Testing the arithmetic accuracy and integrity of the model used for preparation of the forecasts;

Assessing whether the cash flows included in the forecast were in line with relevant agreements and market expectations; and

Assessing the other key inputs used in the forecasts for reasonableness and consistency with prior years and industry norms.

· Evaluating the forecasts prepared by the directors' in prior years to assess whether they are in line with actual results in current year;

· Evaluating the directors' assessment of the impact of Covid-19 on the operations of the company and its regulatory and liquidity requirements.

· Assessing the appropriateness of the going concern disclosures in the financial statements.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.

In relation to the reporting on how the company has applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to the directors' statement in the financial statements about whether the directors considered it appropriate to adopt the going concern basis of accounting.

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.

5.  Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current year and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team.

These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

 

5.1.  Valuation of investments in the Luxembourg subsidiary

Key audit matter description

The investments in subsidiary are accounted at Fair Value Through Profit and Loss.

Investments in Blackstone / GSO Loan Financing (Luxembourg) S.a.r.l. which total EUR 417,969,559 (2020: EUR 388,000,146), as detailed on page 88 in note 6 to the financial statements, are illiquid investments, not traded on an active market and are valued using valuation techniques determined by the directors and classified as level III under IFRS: Fair Value Measurement ("IFRS 13"). Valuation is therefore a key area of judgement and has a significant impact on the Net Assets Value ("NAV") which is the most significant Key Performance Indicator ("KPI") of the company and has a direct effect on the recognition of gains and losses on investments.

The investments, commitments and obligations contracted by Blackstone Corporate Funding Designated Activity Company ("BCF") are driving the performance of its NAV, the valuation of the investments in BCF and ultimately the performance of the company and its listed shares. We consider BCF as the principal source of risks and rewards for the company with BCF's financial situation represented by its Net Asset Value as the main component for the fair valuation of the investments.

Reviewing risk monitoring, performance and the investments' valuation for the company, requires an assessment of the positions within BCF. BCF's investment positions in debt instruments, related credit risk and liquidity exposures should be compliant with the quality, diversification and overall limitations imposed by the Prospectus.

The directors use their judgment, with the assistance of the Adviser, Blackstone Ireland Limited ('BIL'), in selecting an appropriate valuation technique and refer to techniques commonly used by market practitioners. For investments in BCF and the underlying collateralized loan obligations (CLOs) and the equity tranches retained by that company, assumptions are made based on quoted market rates adjusted for specific features of any instrument. BCF uses Markit to price the loan asset portfolio.

There is a risk that a third-party valuer has used an incorrect methodology, inaccurate data is supplied by the CLO Manager of the Originator or inappropriate assumptions are used concerning market information.  The key assumptions include discount, prepayment, reinvestment and default rates.

Refer to page 62 - 64 (Audit Committee Report), pages 79 - 84 (Significant Accounting Policies) and pages 86 - 91 (Note 6 to the Financial statements).

How the scope of our audit responded to the key audit matter

In response to this key audit matter:

We obtained understanding of the relevant controls over the valuation process.

We tested relevant controls at the company level.

We assessed the valuation methodology for the financial instruments issued by BCF against industry standards and IFRS 13.

We obtained confirmations from independent, third-party custodians.

We involved our financial instruments specialists to assess the valuation of investments and related disclosures in the financial statements.

We involved our own CLO valuation specialists to evaluate the test of valuations performed by the auditors of BCF, comparing information and assumptions used by management to information available from external independent reliable sources such as Bloomberg or Intex, including any impact of discount / premium to NAV.

We tested the calculation of the change in value of investments for the year and its recognition in the statement of comprehensive income.

We assessed the appropriateness of disclosures (including disclosures related to sensitivity) made by the company in accordance with requirements of IFRS 13.

 

Key observations

Based on the work performed we concluded that the valuation of investments in the Luxembourg subsidiary is appropriate.

 

6. Our application of materiality

6.1.  Materiality

We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in evaluating the results of our work.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

Materiality

€8,400,000 (2020: €8,200,000)

Basis for determining materiality

2% of the company's Net Asset Value (2020: 2% of the company's Net Asset Value).

Rationale for the benchmark applied

Net Asset Value is the key performance indicator for investments in the company and is therefore selected as the appropriate benchmark.

 

 

[Graphs and charts are included in the published Annual Report and Audited Financial Statements which is available on the Company's website at https://blackstone.com/bglf]

 

6.2.  Performance materiality

We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected misstatements exceed the materiality for the financial statements as a whole. Performance materiality was set at 70% of materiality for the 2021 audit (2020: 70%). In determining performance materiality, we considered our risk assessment, including our assessment of the company's overall control environment including impact of Covid-19 and our past experience of the audit, which has indicated a low number of corrected and uncorrected misstatements identified in prior periods.

 

6.3.  Error reporting threshold

We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of €420,000 (2020: €410,000), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.

7. An overview of the scope of our audit

7.1.  Scoping

 

Our audit was scoped by obtaining an understanding of the entity and its environment, including internal control, and assessing the risks of material misstatement. Audit work to respond to the risks of material misstatement was performed directly by the audit engagement team.

 

7.2.  Our consideration of the control environment

 

A third-party administrator maintains the books and records of the company. Our audit therefore included obtaining an understanding of the controls at this service organisation, to the extent that they are relevant to the company.

 

7.3.  Our consideration of climate-related risks

In planning our audit, we considered the potential financial impacts on the company and its financial statements of climate change and the transition to a low carbon economy. We considered management's own assessment of the related risks and opportunities as described on page 11, together with our cumulative knowledge and experience of the company and the environment in which it operates. We assessed management's disclosures about critical accounting judgements and estimates as outlined in note 2.13, including the potential impact of climate change on those judgements and estimates. We have considered whether information included in the climate-related disclosures in the annual report is materially consistent with our knowledge obtained in the audit and the financial statements.

8. Other information

The other information comprises the information included in the annual report, other than the financial statements and our auditor's report thereon. The directors are responsible for the other information contained within the annual report.

Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated.

If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

We have nothing to report in this regard.

9. Responsibilities of directors

As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the company's ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.

10.  Auditor's responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the FRC's website at:  www.frc.org.uk/auditorsresponsibilities . This description forms part of our auditor's report.

11.  Extent to which the audit was considered capable of detecting irregularities, including fraud

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below.

11.1.  Identifying and assessing potential risks related to irregularities

In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, we considered the following:

· the nature of the industry and sector, control environment and business performance including the design of the company's remuneration policies, key drivers for directors' remuneration, bonus levels and performance targets;

· results of our enquiries of management and the audit committee about their own identification and assessment of the risks of irregularities;

· any matters we identified having obtained and reviewed the company's documentation of their policies and procedures relating to:

identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance;

detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud;

the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations;

· the matters discussed among the audit engagement and relevant internal specialists, including tax, financial instruments and valuations specialists regarding how and where fraud might occur in the financial statements and any potential indicators of fraud.

As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and identified the greatest potential for fraud in the valuation of investments in the Luxembourg subsidiary. In common with all audits under ISAs (UK), we are also required to perform specific procedures to respond to the risk of management override.

We also obtained an understanding of the legal and regulatory framework that the company operates in, focusing on provisions of those laws and regulations that had a direct effect on the determination of material amounts and disclosures in the financial statements. The key laws and regulations we considered in this context included the Companies (Jersey) Law, 1991, Listing Rules and tax legislation.

In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial statements but compliance with which may be fundamental to the company's ability to operate or to avoid a material penalty. These included the Jersey Financial Services Commission (JFSC) regulatory requirements. 

11.2.  Audit response to risks identified

As a result of performing the above, we identified valuation of investments in the Luxembourg subsidiary as a key audit matter related to the potential risk of fraud. The key audit matter section of our report explains the matter in more detail and also describes the specific procedures we performed in response to that key audit matter.

In addition to the above, our procedures to respond to risks identified included the following:

· reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with provisions of relevant laws and regulations described as having a direct effect on the financial statements;

· enquiring of management, the audit committee concerning actual and potential litigation and claims;

· performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement due to fraud;

· reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing correspondence with the JFSC; and

· in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business.

We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including internal specialists, and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.

 

Report on other legal and regulatory requirements

12.  Corporate Governance Statement

The Listing Rules require us to review the directors' statement in relation to going concern, longer-term viability and that part of the Corporate Governance Statement relating to the company's compliance with the provisions of the UK Corporate Governance Code specified for our review.

Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Statement is materially consistent with the financial statements and our knowledge obtained during the audit:

· the directors' statement with regards to the appropriateness of adopting the going concern basis of accounting and any material uncertainties identified set out on page 41;

· the directors' explanation as to its assessment of the company's prospects, the period this assessment covers and why the period is appropriate set out on page 41;

· the directors' statement on fair, balanced and understandable set out on page 65;

· the board's confirmation that it has carried out a robust assessment of the emerging and principal risks set out on pages 39 to 40;

· the section of the annual report that describes the review of effectiveness of risk management and internal control systems set out on page 63; and

· the section describing the work of the audit committee set out on page 62.

13.  Matters on which we are required to report by exception

13.1.  Adequacy of explanations received and accounting records

Under the Companies (Jersey) Law, 1991 we are required to report to you if, in our opinion:

· we have not received all the information and explanations we require for our audit; or

· proper accounting records have not been kept, or proper returns adequate for our audit have not been received from branches not visited by us; or

· the financial statements are not in agreement with the accounting records and returns.

We have nothing to report in respect of these matters.

14.  Other matters which we are required to address

14.1.  Auditor tenure

Following the recommendation of the audit committee, we were appointed by the Board on 4 July 2014 to audit the financial statements for the period ended 31 December 2014 and subsequent financial periods. The period of total uninterrupted engagement including previous renewals and reappointments of the firm is seven years, covering the years ended 31 December 2014 to 31 December 2021.

14.2.  Consistency of the audit report with the additional report to the audit committee

Our audit opinion is consistent with the additional report to the audit committee we are required to provide in accordance with ISAs (UK).

15.  Use of our report

This report is made solely to the company's members, as a body, in accordance with Article 113A of the Companies (Jersey) Law, 1991. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.

 

Marc Cleeve, BA, FCA (Senior statutory auditor)

For and on behalf of Deloitte LLP

Recognised Auditor

Jersey, Channel Islands

29 April 2022

 

Statement of Financial Position

As at 31 December 2021

 

 

As at
31 December 2021

As at
31 December 2020

 

Notes

Current assets

 

 

 

Cash and cash equivalents

 

5,671,436

20,725,819

Other receivables

5

47,415

151,038

Financial assets at fair value through profit or loss - Lux Co

6

417,969,559

388,000,146

Financial assets at fair value through profit or loss - CLOs

6

-

549,437

Total current assets

 

423,688,410

409,426,440

 

 

 

 

Non-current liabilities

 

 

 

Intercompany loan

7

(1,246,249)

(869,988)

Total non-current liabilities

 

(1,246,249)

(869,988)

 

 

 

 

Current liabilities

 

 

 

Payables

8

(442,584)

(351,277)

Total current liabilities

 

(442,584)

(351,277)

 

 

 

 

Total liabilities

 

(1,688,833)

(1,221,265)

 

 

 

 

Net assets

15,16

421,999,577

408,205,175

 

 

 

 

Capital and reserves

 

 

 

Stated capital

9

459,044,783

471,465,875

Retained loss

 

(37,045,206)

(63,260,700)

Shareholders' Equity

 

421,999,577

408,205,175

 

 

 

 

Net Asset Value per Share

15

0.9154

0.8557

 

These financial statements were authorised and approved for issue by the Directors on 29 April 2022 and signed on their behalf by:

 

 

 

Charlotte Valeur

 

 

 

Heather MacCallum

Director

Director

 

The accompanying notes form an integral part of the financial statements.

 

Statement of Comprehensive Income

St For the year ended 31 December 2021

 

 

Year ended

31 December 2021

Year ended
31 December 2020

 

Notes

Income

 

 

 

Realised gain on foreign exchange

 

72,560

29,321

Net gain on financial assets at fair value through profit or loss - Lux Co

6

63,418,195

36,356,525

Net gain/ (loss) on financial assets at fair value through profit or loss - CLOs

6

586,087

(1,953,328)

Income distributions from CLOs

 

207,431

407,376

Total income

 

64,284,273

34,839,894

 

 

 

 

Expenses

 

 

 

Operating expenses

3

(1,356,960)

(1,312,505)

Loan interest expense

7

(16,909)

(11,335)

Bank interest expense

 

(99,656)

(95,397)

Total expense

 

(1,473,525)

(1,419,237)

Profit before taxation

 

62,810,748

33,420,657

Taxation

2.11

-

-

Profit after taxation

 

62,810,748

33,420,657

Total comprehensive income for the year attributable to Shareholders

 

62,810,748

33,420,657

 

 

 

 

Basic and diluted earnings per Share

14

0.1334

0.0699

 

The Company has no items of other comprehensive income, and therefore the profit for the year is also the total comprehensive income.

 

All items in the above statement are derived from continuing operations. No operations were discontinued during the year.

 

The accompanying notes form an integral part of the financial statements.

 

Statement of Changes in Equity

For the year ended 31 December 2021

 

Notes

Stated Capital

Retained Earnings

Total

 

 

Shareholders' Equity

at 1 January 2021

9

471,465,875

(63,260,700)

408,205,175

Total comprehensive income for the year attributable to Shareholders

 

-

62,810,748

62,810,748

 

 

 

 

 

Transactions with owners

 

 

 

 

Dividends

18

-

(36,595,254)

(36,595,254)

Ordinary Shares repurchased

9

(12,421,092)

-

(12,421,092)

 

 

(12,421,092)

(36,595,254)

(49,016,346)

 

 

 

 

 

Shareholders' Equity

at 31 December 2021

9

459,044,783

(37,045,206)

421,999,577

 

For the year ended 31 December 2020

 

Notes

Stated Capital

Retained Earnings

Total

 

 

Shareholders' Equity

at 1 January 2020

 

480,304,329

(69,798,338)

410,505,991

Total comprehensive income for the year attributable to Shareholders

 

-

33,420,657

33,420,657

 

 

 

 

 

Transactions with owners

 

 

 

 

Conversion of C Shares

 

(6,719,705)

6,719,705

-

Dividends

18

-

(33,602,724)

(33,602,724)

Ordinary Shares repurchased

9

(2,118,749)

-

(2,118,749)

 

 

(8,838,454)

(26,883,019)

(35,721,473)

 

 

 

 

 

Shareholders' Equity

at 31 December 2020

9

471,465,875

(63,260,700)

408,205,175

 

The accompanying notes form an integral part of the financial statements.

Statement of Cash Flows

For the year ended 31 December 2021

 

 

Year ended

31 December 2021

Year ended

31 December 2020

 

Notes

Cash flow from operating activities

 

 

 

Total comprehensive income for the year attributable to Shareholders

 

62,810,748

33,420,657

 

 

 

 

Adjustments to reconcile profit after tax to net cash flows:

 

 

 

Unrealised gain on financial assets at fair value through profit and loss

 

(50,415,131)

(25,011,152)

Realised gain on financial assets at fair value through profit and loss

 

(13,738,221)

(9,288,389)

Purchase of financial assets at fair value through profit or loss

 

(18,884,567)

(7,078,010)

Proceeds from sale of financial assets at fair value through profit or loss

 

53,617,941

52,413,011

Changes in working capital

 

 

 

Decrease in other receivables

 

103,625

81,436

Increase in payables

 

91,307

110,323

Net cash generated from operating activities

 

33,585,702

44,647,876

 

 

 

 

Cash flow from financing activities

 

 

 

Ordinary Shares repurchased (including costs)

9

(12,421,092)

(2,118,749)

Increase in intercompany loan

17

376,261

335,328

Dividends paid

18

(36,595,254)

(33,602,724)

Net cash used in financing activities

 

(48,640,085)

(35,386,145)

 

 

 

 

Net (decrease)/increase in cash and cash equivalents

 

(15,054,383)

9,261,731

 

 

 

 

Cash and cash equivalents at the start of the year

 

20,725,819

11,464,088

Cash and cash equivalents at the end of the year

 

5,671,436

20,725,819

 

The accompanying notes form an integral part of the financial statements.

 

Notes to the Financial Statements

For the year ended 31 December 2021

1  General information

The Company is a closed-ended limited liability investment company domiciled and incorporated under the laws of Jersey with variable capital. It was incorporated on 30 April 2014 under registration number 115628. The Company's Ordinary Shares are quoted on the Premium Segment of the Main Market of the LSE and the Company has a premium listing on the Official List of the FCA. The Company's C Shares were quoted on the SFS of the Main Market of the LSE until 6 January 2020. On 6 January 2021, the Company announced that at the Extraordinary General Meeting held earlier that day a special resolution had been duly passed to change the name of the Company from 'Blackstone/GSO Loan Financing Limited' to 'Blackstone Loan Financing Limited'. On 13 January 2021, the Company announced that the name change had taken effect from and including 11 January 2021.

The Company's investment objective is to provide Shareholders with stable and growing income returns, and to grow the capital value of the investment portfolio by exposure to floating rate senior secured loans and bonds directly and indirectly through CLO Securities and investments in Loan Warehouses. The Company seeks to achieve its investment objective through exposure (directly or indirectly) to one or more companies or entities established from time to time.

As at 31 December 2021, the Company's stated capital comprised 460,984,702 Ordinary Shares of no par value (31 December 2020: 477,023,331), each carrying the right to 1 vote; 21,918,092 Ordinary Shares held in treasury (31 December 2020: 5,879,463). The Company may issue one or more additional classes of shares in accordance with the Articles of Association.

The Company has a wholly owned Luxemburg subsidiary, Blackstone/GSO Loan Financing (Luxembourg) S.àr.l., which has an issued share capital of 2,000,000 Class A shares and 1 Class B share held by the Company as at 31 December 2021 and 31 December 2020. The Company also holds 267,088,098 Class B CSWs as at 31 December 2021 (31 December 2020: 284,879,854) issued by the Lux Subsidiary. The Company has no directly held CLO Mezzanine Notes as at 31 December 2021 (31 December 2020: 2 directly held CLO Mezzanine Notes).

The Company's registered address is IFC 1, The Esplanade, St Helier, Jersey, JE1 4BP, Channel Islands.

 

2  Significant accounting policies

2.1  Statement of compliance

The Annual Report and Audited Financial Statements (the "Annual Report") are prepared in accordance with the Disclosure Guidance and Transparency Rules of the FCA and with IFRS as adopted by the EU. The financial statements give a true and fair view of the Company's affairs and comply with the requirements of the Companies (Jersey) Law 1991, as amended.

 

The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been applied consistently to the Company's financial statements for all years presented except for the adoption of new and amended standards as set out below.

 

2.2  Basis of preparation

The Company's financial statements have been prepared on a historical cost basis, except for financial instruments measured at fair value through profit or loss at the end of each reporting period.

The Company's functional currency is the Euro, which is the currency of the primary economic environment in which it operates. The Company's performance is evaluated and its liquidity is managed in Euro. Therefore, Euro is considered as the currency that most faithfully represents the economic effects of the underlying transactions, events and conditions. The financial statements are presented in Euro, except where otherwise indicated.

The financial statements have been prepared on a going concern basis. The disclosures with respect to the Directors' assessment on the use of the going concern basis are provided above in the "Strategic Report - Risk Overview" section.

Non-consolidation of BCF

To determine control, there has to be a linkage between power and the exposure to risks and rewards. The main link from ownership would allow a company to control the payments of returns and operating policies and decisions of a subsidiary.

 

To meet the definition of a subsidiary under the single control model of IFRS 10, the investor has to control the investee.

 

Control involves power, exposure to variability of returns and a linkage between the two:

· the investor has existing rights that give it the ability to direct the relevant activities that significantly affect the investee's returns;

· the investor has exposure or rights to variable returns from its involvement with the investee; and

· the investor has the ability to use its power over the investee to affect the amount of the investor's returns.

In the case of BCF, the relevant activities are the investment decisions made by it. However, in the Lux Subsidiary's case, the power to influence or direct the relevant activities of BCF is not attributable to the Lux Subsidiary. The Lux Subsidiary does not have the ability to direct or stop investments by BCF; therefore, it does not have the ability to control the variability of returns. Accordingly, BCF has been determined not to be a subsidiary undertaking as defined under IFRS 10 and the Lux Subsidiary's investment in the PPNs issued by BCF are accounted for at fair value through profit or loss.

Non-consolidation of CLOs

The Company has concluded that CLOs, that are not subsidiaries for financial reporting purposes, meet the definition of structured entities because:

· the voting rights in the CLOs are not dominant rights in deciding who controls them, as they relate to administrative tasks only;

· each CLO's activities are restricted by its Prospectus; and

· the CLOs have narrow and well-defined objectives to provide investment opportunities to investors.

 

2.3  New standards, amendments and interpretations issued and effective for the financial year beginning 1 January 2021

Amendments to existing standards effective for annual periods beginning on or after 1 January 2021

The Company applies for the first time amendments regarding replacement issues in the context of the LIBOR reform (Amendments to IFRS 9, IAS 39 and IFRS 7) which all became effective on 1 January 2021.

The adoption of the amendments to standards listed do not have a material impact on the financial statements of the Company in future periods. Several other amendments and interpretations apply for the first time in 2021, but these do not have an impact on the financial statements.

 

2.4  New standards, amendments and interpretations issued but not effective for the financial year beginning 1 January 2021 and not early adopted

 

There are no standards, amendments and interpretations which have been issued but are not yet effective and not early adopted, that will affect the Company's financial statements.

2.5  Income

2.5a Interest income and expense

Interest income and expense is recognised under IFRS 9 separately through profit or loss in the Statement of Comprehensive Income, on an effective interest rate yield basis.

2.5b Income distributions from CLOs

Income from the financial assets at fair value through profit or loss - CLOs is recognised under IFRS 9 in the Statement of Comprehensive Income as Income distributions from CLOs. Income from the CLOs is recognised on an accruals basis.

 

2.6  Shares in issue

The shares of the Company are classified as equity, based on the substance of the contractual arrangements and in accordance with the definition of equity instruments under IAS 32 Financial Instruments: Presentation ("IAS 32").

The proceeds from the issue of shares are recognised in the Statement of Changes in Equity, net of the incremental issuance costs.

Share repurchased by the Company are deducted from equity. No gain or loss is recognised in the Statement of Comprehensive Income on the purchase, sale or cancellation of the Company's own equity instruments. The consideration paid or received is recognised directly in the Statement of Changes in Equity. Shares repurchased are recognised on the trade date.

2.7  Fees and charges

Expenses are charged through profit or loss in the Statement of Comprehensive Income on an accruals basis.

2.8  Cash and cash equivalents

Cash comprises current deposits with banks.

Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value. Cash equivalents are revalued at the end of the reporting period using market rates and any increases / decreases are recognised in the Statement of Comprehensive Income. There were no such holdings during the year ended 31 December 2021 (31 December 2020: Nil).

2.9  Financial instruments

Investments and other financial assets

(i)  Initial recognition

The Company recognises a financial asset or a financial liability in its Statement of Financial Position when, and only when, the Company becomes party to the contractual provisions of the instrument. Purchases and sales of investments are recognised on the trade date - the date on which the Company commits to purchase or sell the investment.

(ii)  Classification

The Company classifies its financial assets in the following measurement categories:

· those to be measured subsequently at fair value (either through OCI, or through profit or loss); and

· those to be measured at amortised cost.

The classification depends on the entity's business model for managing the financial assets and the contractual terms of the cash flows.

For assets measured at fair value, gains and losses are either to be recorded in profit or loss or OCI. For investments in equity instruments that are not held for trading, this will depend on whether the company has made an irrevocable election at the time of initial recognition to account for the equity instrument at FVTOCI.

For the year ended 31 December 2021

2  Significant accounting policies (continued)

2.9  Financial instruments (continued)

(ii)  Classification(continued)

The Company reclassifies debt instruments when and only when its business model for managing those assets changes.

(iii)  Measurement

At initial recognition, the Company measures a financial asset at its fair value plus, in the case of a financial asset not at FVTPL, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVTPL are expensed in profit or loss.

 

Debt instruments

Subsequent measurement of debt instruments depends on the Company's business model for managing the asset and the cash flow characteristics of the asset. The Company's business model is to manage its debt instruments and to evaluate their performance on a fair value basis. The Company's policy requires the Portfolio Adviser and the Board to evaluate the information about these financial assets on a fair value basis together with other related financial information. Consequently, these debt instruments are measured at fair value through profit or loss.

Equity instruments

The Company subsequently measures all equity investments at fair value. Dividends from such investments are recognised in profit or loss as other income when the Company's right to receive payments is established.

Changes in fair value of financial assets at FVTPL are recognised in "net gain/(loss) on financial assets at fair value through profit or loss" in the Statement of Comprehensive Income.

 

(iv)  Derecognition

Financial assets are derecognised when the rights to receive cash flows from the investments have expired or the Company has transferred substantially all risks and rewards of ownership.

(v)  Fair value estimation

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

As at 31 December 2021, the Company held 267,088,098 CSWs, 2,000,000 Class A shares and 1 Class B share issued by the Lux Subsidiary (the "Investments") (31 December 2020: 284,879,854 CSWs, 2,000,000 Class A shares and 1 Class B share). These Investments are not listed or quoted on any securities exchange, are not traded regularly and, on this basis, no active market exists. The Company is not entitled to any voting rights in respect of the Lux Subsidiary by reason of their ownership of the CSWs, however, the Company controls the Lux Subsidiary through its 100% holding of the shares in the Lux Subsidiary.

The fair value of the CSWs and the Class A and Class B shares are based on the net assets of the Lux Subsidiary which is based substantially in turn on the fair value of the PPNs issued by BCF.

The Company determines the fair value of the CLOs held directly using third party valuations.

(vi) Valuation process

The   Directors   have   held   discussions   with   BIL in order to gain comfort around the valuation of the CLOs, the underlying assets in the BCF portfolio and through this, the valuation of the PPNs and CSWs a s of the Statement of Financial Position date.

 

The   Directors, through ongoing communication with the Portfolio Adviser including quarterly meetings, discuss the performance of the Portfolio Adviser and the underlying portfolio and in addition review monthly investment performance reports. The Directors analyse the BCF portfolio in terms of the investment mix in the

 

(vi) Valuation process (continued)

portfolio. The Directors also consider the impact of general credit conditions and more specifically credit events in the US and European corporate environment on the valuation of the CSWs, PPNs and the BCF portfolio.

Portfolio

The Directors discuss the valuation process to understand the methodology regarding the valuation of its underlying portfolio and direct CLO holding, both comprising Level 3 assets. The majority of Level 3 assets in BCF are comprised of CLOs. In reviewing the fair value of these assets, the Directors look at the assumptions used and any significant fair value changes during the period under analysis.

 

Net Asset Value

The IFRS NAV of the Company is calculated by the Administrator based on information from the Portfolio Adviser and is reviewed and approved by the Directors, taking into consideration a range of factors including the unaudited IFRS NAV of both the Lux Subsidiary and BCF, and other relevant available information. The other relevant information includes the review of available financial and trading information of BCF and its underlying portfolio, advice received from the Portfolio Adviser and such other factors as the Directors, in their sole discretion, deem relevant in considering a positive or negative adjustment to the valuation.

The estimated fair values may differ from the values that would have been realised had a ready market existed and the difference could be material.

The fair value of the CLOs held directly, CSWs and the Class A and Class B shares are assessed on an ongoing basis by the Board.

Financial liabilities

(vii)  Classification

Financial liabilities include payables which are held at amortised cost using the effective interest rate method.

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or where appropriate a shorter period, to the net carrying amount on initial recognition.

(viii)  Recognition, measurement and derecognition

Financial liabilities are measured initially at their fair value plus any directly attributable incremental costs of acquisition or issue.

Gains and losses are recognised in the Statement of Comprehensive Income when the liabilities are derecognised.

The Company derecognises a financial liability when the obligation specified in the contract is discharged, cancelled or expires.

2.10  Foreign currency translations

Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the Statement of Financial Position date are translated to Euro at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the Statement of Comprehensive Income.

Foreign currency gains and losses are included in profit or loss on the Statement of Comprehensive Income as part of "Realised gain/(loss) on foreign exchange". Foreign currency gains and losses on financial assets classified at fair value through profit or loss - CLOs are included in profit or loss on the Statement of Comprehensive

Income as part of "Net gain / (loss) on financial assets at fair value through profit or loss - CLOs".

2.11  Taxation

Profit arising in the Company for the year of assessment will be subject to Jersey tax at the standard corporate income tax rate of 0% (31 December 2020: 0%).

2.12  Dividends

Dividends to Shareholders are recorded through the Statement of Changes in Equity when they are declared to Shareholders.

 

2.13  Critical accounting judgements and estimates

The preparation of the financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect items reported in the Statement of Financial Position and Statement of Comprehensive Income. It also requires management to exercise its judgement in the process of applying the Company's accounting policies. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets and liabilities affected in future periods.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised prospectively.

Estimates

(a)  Fair value

For the fair value of all financial instruments held, the Company determines fair values using appropriate techniques.

Refer to Note 2.9 and Note 12 for further details on the significant estimates applied in the valuation of the companies' financial instruments and the underlying financial instruments in BCF.

Judgements

(b)  Non-consolidation of the Lux Subsidiary

The Company meets the definition of an Investment Entity as defined by IFRS 10 and is required to account for its investments at fair value through profit or loss.

The Company has multiple unrelated investors and holds multiple investments in the Lux Subsidiary. The Company has been deemed to meet the definition of an Investment Entity per IFRS 10 as the following conditions exist:

· the Company has obtained funds for the purpose of providing investors with investment management services;

· the Company's business purpose, which has been communicated directly to investors, is investing solely for returns from capital appreciation, investment income, or both; and

· the performance of investments made through the Lux Subsidiary are measured and evaluated on a fair value basis.

The Company has also considered the typical characteristics of an investment entity per IFRS 10 in assessing whether it meets the definition of an Investment Entity.

The Company controls the Lux Subsidiary through its 100% holding of the voting rights and ownership. The Lux Subsidiary is incorporated in Luxembourg.

Refer to Note 11 for further disclosures relating to the Company's interest in the Lux Subsidiary.

 

3  Operating expenses

 

Year ended

31 December 2021

Year ended

31 December 2020

 

Professional fees

196,132

269,601

Administration fees

344,439

329,706

Brokerage fees

131,271

105,197

Regulatory fees

43,897

44,914

Directors' fees and other expenses (see Note 4)

284,347

264,829

Audit fees and audit related fees

206,098

196,788

Registrar fees

33,789

53,964

Sundry expenses

116,987

47,506

 

1,356,960

1,312,505

Administration fees

Under the administration agreement, the Administrator is entitled to receive variable fees based on the Published NAV of the Company for the provision of administrative and compliance oversight services and a fixed fee for the provision of company secretarial services. The overall charge for the above-mentioned fees for the Company for the year ended 31 December 2021 was €344,439 (31 December 2020: €329,706) and the amount due at 31 December 2021 was €83,690 (31 December 2020: €52,470).

Advisory fees

Under the Advisory Agreement, the Portfolio Adviser is entitled to receive out of pocket expenses, all reasonable third-party costs, and other expenses incurred in the performance of its obligations. On this basis, the Portfolio Adviser recharged nil to the Company (31 December 2020: €82,612). This amount has been included under Professional fees.

Audit and non-audit fees

The Company incurred €206,098 (31 December 2020: €196,788) in audit and audit-related fees during the year of which €106,003 (31 December 2020: €116,188) was outstanding at the year end.

The Company did not incur any non-audit fees during the year (31 December 2020: nil). The table below outlines the audit and audit related services received during the year.

 

 

 

Year ended

31 December 2021

Year ended

31 December 2020

 

 

Audit of the Company

 

133,732

118,753

Audit-related services - review of interim financial report

72,366

65,940

Additional audit fee for the year ended 31 December 2019

-

 12,095

Total audit and audit-related services

 

206,098

196,788

 

 

 

 

 

 

 

Professional fees

Professional fees comprise €63,503 in legal fees and €132,629 in other professional fees. In 2020, professional fees comprised €101,994 in legal fees and €167,607 in other professional fees.

4  Directors' fees

The Company has no employees. The Company incurred € 284,347 (31 December 2020: €263,391) in Directors' fees (consisting exclusively of short-term benefits) during the year of which €71,165 (31 December 2020: €66,752) was outstanding at the year end. No pension contributions were payable in respect of any of the Directors.

Refer to the Directors' Remuneration Report above for further details on the Directors' remuneration and their interests.

5  Other receivables

 

As at

31 December 2021

As at

31 December 2020

 

Prepayments

47,415

23,190

Interest receivable

-

127,848

 

47,415

151,038

6  Financial assets at fair value through profit or loss

 

As at

31 December 2021

As at

31 December 2020

 

Total

Total

 

Financial assets at fair value through profit or loss - Lux Co

417,969,559

388,000,146

Financial assets at fair value through profit or loss - CLOs

-

549,437

Financial assets at fair value through profit or loss - Lux Co consists of  267,088,098 CSWs, 2,000,000 Class A shares and 1 Class B share issued by the Lux Subsidiary (31 December 2020: 284,879,854 CSWs, 2,000,000 Class A shares and 1 Class B share issued by the Lux Subsidiary). Financial assets at fair value through profit or loss -CLOs consist of no CLOs as at 31 December 2021 (31 December 2020:2 directly held CLO Mezzanine Notes which formed part of the Rollover Assets).

CSWs

The Company has the right, at any time during the exercise period (being the period from the date of issuance and ending on earlier of the 3 February 2046 or the date on which the liquidation of the Lux Subsidiary is closed), to request that the Lux Subsidiary redeems all or part of the CSWs at the redemption price (see below), by delivering a redemption notice, provided that the redemption price will be due and payable only if and to the extent that (a) the Lux Subsidiary will have sufficient funds available to settle its liabilities to all other ordinary or subordinated creditors, whether privileged, secured or unsecured, prior in ranking to the CSWs, after any such payment, and (b) the Lux Subsidiary will not be insolvent after payment of the redemption price.

 

The redemption price is the amount payable by the Lux Subsidiary on the redemption of CSWs outstanding, which shall be at any time equal to the fair market value of the ordinary shares (that would have been issued in case of exercise of all CSWs), as determined by the Board on a fully diluted basis on the date of redemption, less a margin (determined by the Board on the basis of a transfer pricing report prepared by an independent advisor), and the redemption price for each CSW shall be obtained by dividing the amount determined in accordance with the preceding sentence by the actual number of CSWs outstanding.

If at the end of any financial year there is excess cash, as determined in good faith by the Lux Subsidiary board (but for this purpose only), the Lux Subsidiary will automatically redeem, to the extent of such excess cash, all or part of the CSWs at the redemption price provided the requirements in the previous paragraph are met, unless the Company notifies the Lux Subsidiary otherwise. For the avoidance of doubt, to the extent the subscription price for the CSWs to be redeemed has not been paid at the time the CSWs were issued, the subscription price for such CSWs to be redeemed shall be deducted from the Redemption Price.

CSWs listed in an exercise notice may not be redeemed.

Class A and Class B shares held in the Lux Subsidiary

Class A and Class B shares are redeemable and have a par value of one Euro per share. Class A and Class B Shareholders have equal voting rights commensurate with their shareholding.

Class A and Class B Shareholders are entitled to dividend distributions from the net profits of the Lux Subsidiary (net of an amount equal to five per cent of the net profits of the Lux Subsidiary which is allocated to the general reserve, until this reserve amounts to ten per cent of the Lux Subsidiary's nominal share capital).

 

Dividend distributions are paid in the following order of priority:

· Each Class A share is entitled to the Class A dividend, being a cumulative dividend in an amount of not less than 0.10% per annum of the face value of the Class A shares.

· Each Class B share is entitled to the Class B dividend (if any), being any income such as but not limited to interest or revenue deriving from the receivable from the PPN's held by the Lux Subsidiary, less any non-recurring costs attributable to the Class B shares.

Any remaining dividend amount for allocation of the Class A dividend and Class B dividend shall be allocated pro rata among the Class A shares.

The Board does not expect income in the Lux Subsidiary to significantly exceed the anticipated annual running costs of the Lux Subsidiary and therefore does not expect that the Lux Subsidiary will pay significant, or any, dividends although it reserves the right to do so.

Fair value hierarchy

IFRS 13 requires an analysis of investments valued at fair value based on the reliability and significance of information used to measure their fair value.

The Company categorises its financial assets according to the following fair value hierarchy detailed in IFRS 13 that reflects the significance of the inputs used in determining their fair values:

 

· Level 1:  Quoted market price (unadjusted) in an active market for an identical instrument.

 

· Level 2:  Valuation techniques based on observable inputs, either directly (i.e., as prices) or indirectly (i.e., derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data.

 

· Level 3:  Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable variable inputs have a significant effect on the instrument's valuation. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments.

31 December 2021

Level 1

Level 2

Level 3

Total

 

Financial assets at fair value through profit or loss - Lux Co

-

-

417,969,559

417,969,559

Financial assets at fair value through profit or loss - CLOs

-

-

-

-

 

31 December 2020

Level 1

Level 2

Level 3

Total

 

Financial assets at fair value through profit or loss - Lux Co

-

-

388,000,146

388,000,146

Financial assets at fair value through profit or loss - CLOs

-

-

549,437

549,437

The Company determines the fair value of the financial assets at fair value through profit or loss - Lux Co using the unaudited IFRS NAV of the Lux Subsidiary and the audited IFRS NAV of BCF.

The Company determines the fair value of any CLOs held directly using third party valuations. The Portfolio Adviser can challenge the marks if they appear off-market or unrepresentative of fair value.

During the years ended 31 December 2021 and 31 December 2020, there were no reclassifications between levels of the fair value hierarchy.

The Company's maximum exposure to loss from its interests in the Lux Subsidiary and indirectly in BCF is equal to the fair value of its investments in the Lux Subsidiary.

Financial assets at fair value through profit or loss reconciliation

The following table shows a reconciliation of all movements in the fair value of financial assets - Lux Co categorised within Level 3 between the start and the end of the reporting period:

31 December 2021

Total

 

Balance as at 1 January 2021

388,000,146

Purchases - CSWs

 18,608,735

Sale proceeds - CSWs

 (52,057,517)

Realised gain on financial assets at fair value through profit or loss

 15,115,024

Unrealised gain on financial assets at fair value through profit or loss

 48,303,171

Balance as at 31 December 2021

 417,969,559

 

 

Realised gain on financial assets at fair value through profit or loss

 15,115,024

Total change in unrealised gain on financial assets for the year

 48,303,171

Net gain on financial assets at fair value through profit or loss - Lux Co

 63,418,195

 

31 December 2020

Total

 

Balance as at 1 January 2020

396,392,271

Purchases - CSWs

6,800,000

Sale proceeds - CSWs

 (51,548,650)

Realised gain on financial assets at fair value through profit or loss

9,233,413

Unrealised gain on financial assets at fair value through profit or loss

27,123,112

Balance as at 31 December 2020

388,000,146

 

 

Realised gain on financial assets at fair value through profit or loss

9,233,413

Total change in unrealised gain on financial assets for the year

27,123,112

Net gain on financial assets at fair value through profit or loss - Lux Co

36,356,525

The following table shows a reconciliation of all movements in the fair value of financial assets - CLOs categorised within Level 3 between the start and the end of the reporting period:

31 December 2021

Total

 

Balance as at 1 January 2021

549,437

PIK capitalised

 275,832

Sale proceeds - CLOs

(1,411,356)

Realised loss on financial assets at fair value through profit or loss - CLOs

(1,525,873)

Unrealised gain on financial assets at fair value through profit or loss - CLOs

2,111,960

Balance as at 31 December 2021

-

 

 

Realised loss on financial assets at fair value through profit or loss - CLOs

(1,525,873)

Total change in unrealised loss on financial assets for the year - CLOs

2,111,960

Net gain on financial assets at fair value through profit or loss - CLOs

586,087

 

 

 

31 December 2020

Total

 

Balance as at 1 January 2020

3,192,772

PIK capitalised

278,010

Sale proceeds - CLOs

(864,361)

Realised gain on financial assets at fair value through profit or loss - CLOs

54,976*

Unrealised loss on financial assets at fair value through profit or loss - CLOs

(2,111,960)

Balance as at 31 December 2020

549,437

 

 

Realised gain on financial assets at fair value through profit or loss - CLOs

158,632*

Total change in unrealised loss on financial assets for the year - CLOs

(2,111,960)

Net loss on financial assets at fair value through profit or loss - CLOs

(1,953,328)

* The difference between these two figures of €103,656 relates to a realised gain on the management fee rebate element arising from two of the previously directly held CLOs whereby BLCS was the CLO manager.

Refer to 'Other Information' above, and Note 2.9 and Note 12 for valuation methodology of financial assets at fair value through profit and loss.

 

The Company's investments, through the Lux Subsidiary, in BCF are untraded and illiquid. The Board has considered these factors and concluded that there is no further need to apply a discount for illiquidity as at the end of the reporting period.

 

Quantitative information of significant unobservable inputs and sensitivity analysis to significant changes in unobservable inputs - Level 3

The significant unobservable inputs used in the fair value measurement of the financial assets at fair value through profit or loss - Lux Co within Level 3 of the fair value hierarchy together with a quantitative sensitivity analysis as at 31 December 2021 and 31 December 2020 are as shown below:

Asset Class

Fair Value

Unobservable Inputs

Ranges

Weighted average

Sensitivity to changes in significant unobservable inputs

 

 

 

 

 

CSWs

 411,170,727

Undiscounted NAV of

BCF

N/A

N/A

20% increase/decrease will have a fair value impact of +/- 

€ 82,234,145  

Class A and Class B shares

 6,798,832

Undiscounted NAV of the

Lux Subsidiary

N/A

N/A

20% increase/decrease will have a fair value impact of +/-

€ 1,359,767

Total as at

31 December 2021

417,969,559

 

 

 

 

 

 

 

 

 

 

Asset Class

Fair Value

Unobservable Inputs

Ranges

Weighted average

Sensitivity to changes in significant unobservable inputs

CSWs

381,605,063

Undiscounted NAV of

BCF

N/A

N/A

20% increase/decrease will have a fair value impact of +/- 

€76,321,012

Class A and Class B shares

6,395,083

Undiscounted NAV of the

Lux Subsidiary

N/A

N/A

20% increase/decrease will have a fair value impact of +/-

€1,279,016

Total as at

31 December 2020

388,000,146

 

 

 

 

The significant unobservable inputs used in the fair value measurement of the financial assets at fair value through profit or loss - CLOs, comprising directly held CLO Mezzanine Notes, within Level 3 of the fair value hierarchy together with a quantitative sensitivity analysis as at 31 December 2020 are as shown below. The Company did not hold any CLO positions as at year-end and therefore no sensitivity analysis has been presented as at 31 December 2021.

 

Asset Class

Fair Value

Unobservable Inputs

Ranges*

Weighted average

Sensitivity to changes in significant unobservable inputs

 

 

 

 

 

Mezzanine Notes

 

 

 

 

Directly Held CLO Mezzanine Notes

549,437

Third party valuations

0.1% - 23.6%

10.3%

20% increase/decrease will have a fair value impact of +/-  €109,887

Total as at

31 December 2020

549,437

 

 

 

 

*The ranges provided in the tables above refer to the highest and lowest marks received across the range of CLOs held. The ranges reflect the different stages of the lifecycle of each of the CLOs on an individual basis. The low ranges in the tables above are prices from CLOs which have been called and are in wind-down.

7  Intercompany loan

 

As at

31 December 2021

As at

31 December 2020

 

Total

Total

 

Intercompany loan - payable to the Lux Subsidiary

1,246,249

869,988

The intercompany loan - payable to the Lux Subsidiary is a revolving unsecured loan between the Company and the Lux Subsidiary. The intercompany loan has a maturity date of 13 September 2033 and is repayable at the option of the Company up to the maturity date. Interest is accrued at a rate of 1.6% per annum and is payable annually only when a written request has been provided to the Company by the Lux Subsidiary. During the year ended 31 December 2021, loan interest expense incurred by the Company was €16,909 (2020: €11,335).

 

8  Payables

 

As at

31 December 2021

As at

31 December 2020

 

Professional fees

111,869

91,844

Administration fees

83,690

52,470

Directors' fees

71,165

66,752

Audit fees

106,003

116,188

Intercompany loan interest payable

35,842

18,933

Other payables

34,015

5,090

Total payables

442,584

351,277

All payables are due within the next twelve months.

 

9  Stated capital

Authorised

The authorised share capital of the Company is represented by an unlimited number of shares of any class at no par value.

Allotted, called up and fully-paid

Ordinary Shares

Number of shares

Stated capital

 

 

As at 1 January 2021

477,023,331

471,465,875

Shares repurchased during the period and held in treasury

(16,038,629)

(12,421,092)

Total Ordinary Shares as at 31 December 2021

460,984,702

 459,044,783

 

Allotted, called up and fully-paid

Ordinary Shares

Number of shares

Stated capital

 

 

As at 1 January 2020

402,319,490

403,034,162

Issue of Ordinary Shares upon conversion of C Shares

78,202,348

70,550,462

Shares repurchased during the period and held in treasury

(3,498,507)

(2,118,749)

Total Ordinary Shares as at 31 December 2020

477,023,331

471,465,875

 

Ordinary Shares

At the 2020 AGM, held on 16 July 2020, the Directors were granted authority to repurchase up to 14.99% of the issued share capital as at the date of the 2020 AGM for cancellation or to be held as treasury shares. Under this authority, during the year ended 31 December 2020, the Company purchased 3,393,507 of its Ordinary Shares of no par value at a total cost of €2,048,649. These Ordinary Shares are being held as treasury shares. 

 

At the 2020 AGM, the Directors were granted authority to allot, grant options over or otherwise dispose of up to 48,041,684 Shares (being equal to 10.00% of the Shares in issue at the date of the AGM).

 

At the 2021 AGM, held on 23 July 2021, the Directors were granted authority to repurchase up to 14.99% of the issued share capital as at the date of the 2021 AGM for cancellation or to be held as treasury shares.  Under this authority, during the year ended 31 December 2021, the Company purchased 7,722,373 of its Ordinary Shares of no par value at a total cost of €6,101,156. These Ordinary Share are being held as treasury shares.

 

At the 2021 AGM, the Directors were granted authority to allot, grant options over or otherwise dispose of up to 70,274,181 Shares (being equal to 10.00% of the Shares in issue at the date of the AGM). This authority will expire at the 2022 AGM.

 

At the Company's 2021 AGM, the Company received shareholder approval to resell up to 46,880,707 Shares held by the Company in treasury. Under this authority, these Shares are permitted to be sold or transferred out of treasury for cash at a price representing a discount to Net Asset Value per Share not greater than the discount at which such Shares were repurchased by the Company. To-date, no shares have been resold by the Company under this authority.

 

As at 31 December 2021, the Company had 460,984,702 Ordinary Shares in issue and 21,918,092 Ordinary Shares in treasury (31 December 2020: 477,023,331 Ordinary Shares in issue and 5,879,463 Ordinary Shares in treasury).

 

Refer to Note 21 for further details on repurchases of Ordinary Shares under the 2021 AGM authority subsequent to the reporting period.  This authority will expire at the 2022 AGM. The Directors intend to seek annual renewal of this authority from Shareholders.

Voting rights - Ordinary Shares

Holders of Ordinary Shares have the right to receive income and capital from assets attributable to such class. Ordinary Shareholders have the right to receive notice of general meetings of the Company and have the right to attend and vote at all general meetings.

Dividends

The Company may, by resolution, declare dividends in accordance with the respective rights of the Shareholders, but no such dividend shall exceed the amount recommended by the Directors. The Directors may pay fixed rate and interim dividends.

A general meeting declaring a dividend may, upon the recommendation of the Directors, direct that payment of a dividend shall be satisfied wholly or partly by the issue of Ordinary shares or the distribution of assets and the Directors shall give effect to such resolution.

Except as otherwise provided by the rights attaching to or terms of issue of any shares, all dividends shall be apportioned and paid pro rata according to the amounts paid on the Shares during any portion or portions of the period in respect of which the dividend is paid. No dividend or other monies payable in respect of any Share shall bear interest against the Company.

The Directors may deduct from any dividend or other monies payable to a shareholder all sums of money (if any) presently payable by the holder to the Company on account of calls or otherwise in relation to such shares.

Any dividend unclaimed after a period of 10 years from the date on which it became payable shall, if the Directors so resolve, be forfeited and cease to remain owing by the Company.

The dividends declared by the Board during the year are detailed above.

Refer to Note 21 for dividends declared after the year end.

Repurchase of Ordinary Shares

The Board intends to seek annual renewal of this authority from the Ordinary shareholders at the Company's AGM, to make one or more on-market purchases of shares in the Company for cancellation or to be held as Treasury shares.

The Board may, at its absolute discretion, use available cash to purchase shares in issue in the secondary market at any time.

Rights as to Capital

On a winding up, the Company may, with the sanction of a special resolution and any other sanction required by the Companies Law, divide the whole or any part of the assets of the Company among the shareholders in specie provided that no holder shall be compelled to accept any assets upon which there is a liability. On return of assets on liquidation or capital reduction or otherwise, the assets of the Company remaining after payments of its liabilities shall subject to the rights of the holders of other classes of shares, to be applied to the shareholders equally pro rata to their holdings of shares.

Capital management

The Company is closed-ended and has no externally imposed capital requirements. The Company's capital as at 31 December 2021 comprises shareholders' equity at a total of €421,999,577 (31 December 2020: €408,205,175).

The Company's objectives for managing capital are:

 

· to invest the capital in investments meeting the description, risk exposure and expected return indicated in its prospectus;

· to achieve consistent returns while safeguarding capital by investing via the Lux Subsidiary in BCF and other Underlying Companies;

· to maintain sufficient liquidity to meet the expenses of the Company and to meet dividend commitments; and

· to maintain sufficient size to make the operation of the Company cost efficient.

 

The Board monitors the capital adequacy of the Company on an on-going basis and the Company's objectives regarding capital management have been met.

Refer to Note 10C Liquidity Risk for further discussion on capital management, particularly on how the distribution policy is managed.

 

10  Financial risk management

The Company is exposed to market risk (including interest rate risk, currency risk and price risk), credit risk and liquidity risk arising from the financial instruments it holds and the markets in which it invests.

10A  Market risk

Market risk is the current or prospective risk to earnings or capital of the Company arising from changes in interest rates, foreign exchange rates, commodity prices or equity prices.

The Company holds three investments, denominated in Euro, in the Lux Subsidiary in the form of CSWs, Class A and Class B shares. The CSWs are the main driver of the Company's performance.

Financial market disruptions may have a negative effect on the valuations of BCF's investments and, by extension, on the NAV of the Lux Subsidiary and the Company and/or the market price of the Company's Euro shares, and on liquidity events involving BCF's investments. Any non-performing assets in BCF's portfolio may cause the value of BCF's portfolio to decrease and, by extension, the NAV of the Lux Subsidiary and the Company. Adverse economic conditions may also decrease the value of any security obtained in relation to any of BCF's investments.

A sensitivity analysis is shown below disclosing the impact on the IFRS NAV of the Company, if the fair value of the Company's investments at the year end increased or decreased by 20%. This level of change is considered to be reasonably possible based on observations of past and possible market conditions.

 

 

Year ended

31 December 2021

Increase by
20%

Decrease by
20%

 

Financial assets held at fair value through
profit or loss:

 

 

 

CSWs

411,170,727

493,404,872

328,936,582

Class A and Class B shares

6,798,832

8,158,598

5,439,066

 

417,969,559

 

 

 

 

 

Year ended

31 December 2020

Increase by
20%

Decrease by
20%

 

Financial assets held at fair value through
profit or loss:

 

 

 

CSWs

381,605,063

457,926,076

305,284,050

Class A and Class B shares

6,395,083

7,674,100

5,116,066

CLOs

549,437

659,324

439,550

 

388,549,583

 

 

The calculations are based on the investment valuation at the Statement of Financial Position date and are not representative of the period as a whole, and may not be reflective of future market conditions.

i.  Interest rate risk

Interest rate movements affect the fair value of investments in fixed interest rate securities and floating rate loans and on the level of income receivable on cash deposits.

The interest income received by the Lux Subsidiary from investments held at fair value through profit or loss is the interest income on the PPNs received from BCF. Its calculation is dependent on the profit generated by BCF as opposed to interest rates set by the market. Interest rate sensitivity analysis is presented for BCF in Note 12 since any potential movement in market interest rates will impact BCF's holdings which in turn will impact the interest income received by the Lux Subsidiary on the PPNs.

 

The following tables detail the Company's interest rate risk as at 31 December 2021 and 31 December 2020:

31 December 2021

Interest bearing

Non-interest bearing

Total

 

Assets

 

 

 

Cash and cash equivalents

5,671,436

-

5,671,436

Financial assets at fair value through profit or loss

-

417,969,559

417,969,559

Total assets

5,671,436

417,969,559

423,640,995

Liabilities

 

 

 

Intercompany loan

(1,246,249)

-

(1,246,249)

Payables

-

(442,584)

(442,584)

Total liabilities

(1,246,249)

(442,584)

(1,688,833)

Total interest sensitivity gap

4,425,187

 

 

 

 

31 December 2020

Interest bearing

Non-interest bearing

Total

 

Assets

 

 

 

Cash and cash equivalents

20,725,819

-

20,725,819

Interest receivable

-

127,848

127,848

Financial assets at fair value through profit or loss

549,437

388,000,146

388,549,583

Total assets

21,275,256

388,127,994

409,403,250

Liabilities

 

 

 

Intercompany loan

(869,988)

-

(869,988)

Payables

-

(351,277)

(351,277)

Total liabilities

(869,988)

(351,277)

(1,221,265)

Total interest sensitivity gap

20,405,268

 

 

As at 31 December 2021 and 31 December 2020, the majority of the Company's interest rate exposure arose in the fair value of the underlying BCF portfolio which is largely invested in senior secured loans of companies predominantly in Western Europe or North America. Most of the investments in senior secured loans carry variable interest rates and various maturity dates. Refer to Note 12 which details BCF's exposure to interest rate risk.

ii.  Currency risk

Foreign currency risk is the risk that the values of the Company's assets and liabilities are adversely affected by changes in the values of foreign currencies by reference to the Company's base currency. The functional currency of the Company and its Lux Subsidiary is the Euro.

The Company and the Lux Subsidiary are not subject to significant foreign currency risk since the majority of their investments are denominated in Euro and their share capital are also denominated in Euro.

Refer to Note 12 which details BCF's exposure to currency risk. BCF hedges US CLO equity exposure by reference to mark to model valuations incorporated in the Published NAV as defined above.

The Company is exposed to currency risk on its investments in the directly held CLOs which are denominated in USD. To reduce the impact on the Company of currency fluctuations and the volatility of returns which may result from currency exposure, the Company may hedge the currency exposure of the directly held CLOs of the Company with the use of derivatives. The Company did not have any derivatives at the year end.

iii.  Price risk

Price risk is the risk that the value of the Company's indirect investments in BCF through its holding in the Lux Subsidiary does not reflect the true value of BCF's underlying investment portfolio.

BCF's portfolio may at any given time include securities or other financial instruments or obligations which are very thinly traded, for which a limited market exists or which are restricted as to their transferability under applicable securities laws. These investments may be extremely difficult to value accurately.

Further, because of overall size or concentration in particular markets of positions held by BCF, the value of its investments which can be liquidated may differ, sometimes significantly, from their valuations. Third-party pricing information may not be available for certain positions held by BCF. Investments held by BCF may trade with significant bid-ask spreads. BCF is entitled to rely, without independent investigation, upon pricing information and valuations furnished to BCF by third parties, including pricing services and valuation sources.

Absent bad faith or manifest error, valuation determinations in accordance with BCF's valuation policy are conclusive and binding. In light of the foregoing, there is a risk that the Company, in redeeming all or part of its investment while BCF holds such investments, could be paid an amount less than it would otherwise be paid if the actual value of BCF's investment was higher than the value designated for that investment by BCF. Similarly, there is a risk that a redeeming BCF interest holder might, in effect, be over-paid at the time of the applicable redemption if the actual value of BCF's investment was lower than the value designated for that investment by BCF, in which case the value of BCF interests to the remaining BCF interest holders would be reduced. Refer to Note 12 for further details.

The Board monitors and reviews the Company's NAV production process on an ongoing basis.

10B  Credit risk

Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. The Board has in place monitoring procedures in respect of credit risk which is reviewed on an ongoing basis.

The Company's credit risk is attributable to its cash and cash equivalents, other receivables and financial assets at fair value through profit or loss. An allowance for impairment is made where there is an identified loss event which, based on previous experience, is evidence of a reduction in the recoverability of the cash flows.

BIL monitors for the Company, the Lux Subsidiary, BCF and its subsidiaries the creditworthiness of financial institutions with whom cash is held, or with whom investment or derivative transactions are entered into, on a regular basis.

The carrying amounts of financial assets best represent the maximum credit risk exposure at the Statement of Financial Position date. At the reporting date, the Company's financial assets exposed to credit risk amounted to the following:

 

As at

31 December 2021

As at

31 December 2020

 

Cash and cash equivalents

5,671,436

20,725,819

Interest receivable

-

127,848

Financial assets at fair value through profit or loss

417,969,559

388,549,583

Total assets

423,640,995

409,403,250

The Company is exposed to a potential material singular credit risk in the event that it requests a repayment of the CSWs from the Lux Subsidiary and receives an acceptance of that repayment request. Under the CSW agreement between the Company and the Lux Subsidiary, any payment obligation by the Lux Subsidiary to the Company is conditional upon the receipt of an equivalent amount by the Lux Subsidiary which is derived from the PPNs issued by BCF. The Board is aware of this risk and the concentration risk to the Lux Subsidiary and indirectly to BCF.

 

Additionally, under the Profit Participating Note Issuing and Purchase Agreement ("PPNIPA") between the Lux Subsidiary and BCF, if the net proceeds from a liquidation of the collateral obligations as defined in the PPNIPA available to unsecured creditors of BCF (the "Liquidation Funds") are less than the aggregate amount payable by BCF in respect of its obligations to its unsecured creditors, including to the Lux Subsidiary and the other parties to the PPNIPA (such negative amount being referred to as a "shortfall"), the amount payable by BCF to the Lux Subsidiary and the other parties to the PPNIPA in respect of BCF's obligations under the PPNs will be reduced to such amount of the Liquidation Funds which is available in accordance with the regulatory requirements and the senior debt restrictive covenants to satisfy such payment obligation upon the distribution of the Liquidation Funds among all of BCF's unsecured creditors on a pari passu and pro rata basis, and shall be applied for the benefit of the Lux Subsidiary and the other parties to the PPNIPA. In such circumstances the other assets of BCF will not be available for the payment of such shortfall, and the rights of the Lux Subsidiary and the other parties to the PPNIPA to receive any further amounts in respect of such obligations shall be extinguished and the Noteholders and the other parties to the PPNIPA may not take any further action to recover such amounts.

During the years ended 31 December 2021 and 31 December 2020 all cash was placed with BNP Paribas Securities S.C.A, as Custodian. The ultimate parent of BNP Paribas Securities S.C.A is BNP Paribas which is publicly traded with a credit rating of A+ (Standard & Poor's).

The credit risk associated with debtors is limited to other receivables. Credit risk is mitigated by the Company's policy to only undertake significant transactions with leading commercial counterparties. It is the opinion of the Board that the carrying amounts of these financial assets represent the maximum credit risk exposure as at the reporting date.

The Board continues to monitor the Company's exposure to credit risk.

Refer to Note 12 which details BCF's exposure to credit risk.

 

10C  Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulties in realising assets or otherwise raising funds to meet financial commitments.

 

The Company has been established as a closed-ended vehicle. Accordingly, there is no right or entitlement attaching to the Company's shares that allows them to be redeemed or repurchased by the Company at the option of the Shareholder. This significantly reduces the liquidity risk of the Company.

Under the terms of the unsecured PPNs issued to its investors, BCF is contractually obliged to ensure that its portfolio is managed in accordance with the Company's investment objective and policy. In the event that BCF fails to comply with these contractual obligations, the Company, through the Lux Subsidiary, could elect for the unsecured PPNs to become immediately due and repayable to it from BCF, subject to any applicable legal, contractual and regulatory restrictions. Given the nature of the investments held by BCF there is no guarantee and indeed, it is highly unlikely that the applicable legal, contractual and regulatory restrictions would permit BCF to immediately repay the unsecured PPNs on the Company making such an election.

 

If the Company were to elect for the unsecured PPNs to be repaid, BCF's failure to fully comply with its contractual obligations to do so or BCF being restricted from doing so by law, regulation or contract could have a significant adverse effect on the Company's business, financial condition, results of operations and/or the market price of the shares.

 

The PPNs are unsecured obligations of BCF and amounts payable on the PPNs will be made solely from amounts received in respect of the assets of BCF available for distribution to its unsecured creditors. BCF is permitted to incur leverage in the form of secured debt by way of one or more revolving credit facilities. Such secured debt will rank ahead of the PPNs in respect of any distributions or payments by BCF. In an enforcement scenario under any revolving credit facility, the provider(s) of such facilities will have the ability to enforce their security over the assets of BCF and to dispose of or liquidate, on their own behalf or through a security trustee or receiver, the assets of BCF in a manner which is beyond the control of the Company. In such an enforcement scenario, there is no guarantee that there will be sufficient proceeds from the disposal or liquidation of BCF's assets to repay any amounts due and payable on the PPNs and this may adversely affect the performance of the Company's business, financial condition and results of operations.

Consequently, in the event of a materially adverse event occurring in relation to BCF or the market generally, the ability of the Company to realise its investment and prevent the possibility of further losses could, therefore, be limited by its restricted ability to realise its investment via the Lux Subsidiary in BCF. This delay could materially affect the value of the PPNs and the timing of when BCF is able to realise its investments, which may adversely affect the Company's business, financial condition, results of operations and/or the market price of the shares.

The liquidity profile of BCF as at 31 December 2021 is in Note 12.

To meet the Company's target dividend, the Company will require sufficient payments from the CSWs held and in the event these are not received, the Board has the discretion to determine the amount of dividends paid to shareholders.

11  Interests in other entities

Interests in unconsolidated structured entities

IFRS 12 "Disclosure of Interests in Other Entities" defines a structured entity as an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to the administrative tasks only and the relevant activities are directed by means of contractual agreements. A structured entity often has some of the following features or attributes:

 

· restricted activities;

· a narrow and well-defined objective;

· insufficient equity to permit the structured entity to finance its activities without subordinated financial support; and

· financing in the form of multiple contractually linked instruments that create concentrations of credit or other risks.

Involvement with unconsolidated structured entities

The Directors have concluded that the CSWs and voting shares of the Lux Subsidiary in which the Company invests, but that it does not consolidate, meet the definition of a structured entity.

The Directors have also concluded that BCF also meets the definition of a structured entity.

The Directors have concluded that CLOs, that are not subsidiaries for financial reporting purposes, meet the definition of structured entities because:

· the voting rights in the CLOs are not dominant rights in deciding who controls them, as they relate to administrative tasks only;

· each CLO's activities are restricted by its Prospectus; and

· the CLOs have narrow and well-defined objectives to provide investment opportunities to investors.

 

Interests in subsidiary

As at 31 December 2021, the Company owns 100% of the Class A and Class B shares in the Lux Subsidiary comprising 2,000,000 Class A shares and one Class B share (31 December 2020: 2,000,000 Class A shares and one Class B share).

The Lux Subsidiary's principal place of business is Luxembourg.

Other than the investments noted above, the Company did not provide any financial support for the years ended 31 December 2021 and 31 December 2020, nor had it any intention of providing financial or other support.

The Company has an intercompany loan payable to the Lux Subsidiary as at 31 December 2021. Refer to Note 7 for further details.

 

12  Financial and other information on BCF

The Board has provided the following information on BCF, which has been extracted from its audited financial statements for the year ended 31 December 2021, as it believes this will provide further insight to the Company's Shareholders into the operations of BCF, the asset mix in its portfolio and the risks to which BCF is exposed.

As at 31 December 2021, the Lux Subsidiary held a 33.8% (31 December 2020: 35.4%) interest in the PPNs issued by BCF. The disclosures have not been apportioned according to the Lux Subsidiary's PPN holding, as the Board believes to do so would be misleading and not an accurate representation of the Company's investment in BCF.

 

Principal activities

BCF was established as an originator vehicle under European risk retention rules for CLO securitisations. It may also invest in senior secured loans, either directly or indirectly through CLO warehouses, and underlying companies. BCF is funded by proceeds from the issuance of PPNs together with other financial resources available to it, such as the BCF Facility.

 

Investment policy

BCF's investment policy is to invest (directly, or indirectly through one or more Underlying Companies) in a diverse portfolio of senior secured loans (including broadly syndicated, middle market or other loans) (such investments being made by the Underlying Companies directly or through investments in Loan Warehouses) bonds and CLO Securities, and generate attractive risk‐adjusted returns from such portfolios. BCF intends to pursue its investment policy by using the proceeds from the issue of PPNs (together with proceeds from other financial resources available to it) to invest in such assets.

BCF may invest (directly or through other Underlying Companies) predominantly in European or US senior secured loans, CLO Income Note securities (the most subordinated tranche of debt issued by a CLO issuer), loan warehouses and other assets. Investments in loan warehouses will typically be in the form of an obligation to purchase preference shares or a subordinated loan. There is no limit on the maximum European or US exposure. BCF is not expected to invest (directly or through other Underlying Companies) in senior secured loans domiciled outside North America or Western Europe.

A CLO is a pooled investment vehicle which may invest in a diversified group of debt securities, in this case predominantly senior secured loans. To finance its investments, the CLO vehicle issues debt in the form of Senior Notes and CLO Income Note securities to investors. The servicing and repayment of these notes is linked directly to the performance of the underlying portfolio of assets.

The portfolio of assets underlying the CLO Income Note securities consist mainly of senior secured loans, mezzanine loans, second lien loans and high yield bonds. The portfolio of assets within BCF consists mainly of CLO Income Note securities. Distributions on the CLO Income Note securities, by way of interest payments, are payable on a quarterly basis on dates established in the formation documents of the CLOs.

As at 31 December 2021, BCF had exposure to one CLO held as a vertical strip (as defined in the Company's Investment Strategy), being 0.1% of BCF NAV. As at 31 December 2020, BCF had no exposure to CLOs held as a vertical strip (as defined in the Company's Investment Strategy).

 

Subsidiaries

 

BCF has acquired the majority, or all, of the CLO Income Note securities issued by a number of European CLO issuers (the "Direct CLO Subsidiaries").Name of subsidiary

Currency

Deal Size

(million)

% Subordinated Equity Notes Held

31 December 2021

 

 

Phoenix Park CLO DAC

EUR

€417

51.4%

 

Sorrento Park CLO DAC

EUR

€57

51.8%

 

Castle Park CLO DAC

EUR

€46

52.2%

 

Dartry Park CLO DAC

EUR

€426

51.1%

 

Dorchester Park CLO DAC

USD

$66

67.0%

 

Orwell Park CLO DAC

EUR

-

51.0%

 

Tymon Park CLO DAC

EUR

€415

51.0%

 

Elm Park CLO DAC

EUR

€522

56.1%

 

Griffith Park CLO DAC

EUR

€456

53.4%

 

Palmerston Park CLO DAC

EUR

€399

53.3%

 

Clarinda Park CLO DAC

EUR

€417

51.2%

 

Clontarf Park CLO DAC

EUR

€385

66.9%

 

Willow Park CLO DAC

EUR

€400

60.9%

 

Marlay Park CLO DAC

EUR

€413

60.0%

 

Milltown Park CLO DAC

EUR

€409

65.0%

 

Richmond Park CLO DAC

EUR

€516

68.3%

 

Sutton Park CLO DAC

EUR

€408

66.7%

 

Crosthwaite Park CLO DAC

EUR

€516

64.7%

 

Dunedin Park CLO DAC

EUR

€423

52.9%

 

Seapoint Park CLO DAC

EUR

€404

70.5%

 

Holland Park CLO DAC

EUR

€427

72.1%

 

Vesey Park CLO DAC

EUR

€403

80.3%

 

Avondale Park CLO DAC

EUR

€409

63.0%

 

Deer Park CLO DAC

EUR

€355

71.9%

 

Marino Park CLO DAC

EUR

€323

70.8%

 

Carysfort Park CLO DAC 1

EUR 

   406

80.7%

 

Rockfield Park CLO DAC 1

EUR

€404

80.0%

 

Dillon's Park CLO DAC 1

EUR

€406

84.0%

 

Cabinteely Park CLO DAC 1

EUR

€404

75.6%

 

 

New subsidiary for the year ended 31 December 2021.

 

BCF has also acquired 100% of the PPNs issued by BGCM DAC, which was established on 1 August 2019. BGCM DAC holds 100% of the Series 2 and Series 3 interests of BCM LLC, a US manager-originator vehicle established on 14 May 2019. The establishment of BCM LLC created a structure capable of meeting potential demand for US CLOs from European institutional investors requiring compliance with European risk retention rules. BCM LLC holds CLO Income Note securities in ten US CLOs (the "Indirect CLO Subsidiaries") as listed below and preference shares in three warehouses, Wehle Park warehouse, Boyce Park warehouse and Saratoga Park warehouse.

 

Name of subsidiary

Currency

Deal Size

(million)

% Subordinated Equity Notes Held

31 December 2021

 

 

Southwich Park CLO Limited

USD

$503

60.0%

 

Point Au Roche Park CLO Limited

USD

$457

61.2%

 

Whetstone Park CLO Limited

USD

$506

62.3%

 

Peace Park CLO Limited 1

USD

$661

71.5%

 

Tallman Park CLO Limited 1

USD

$410

5.0%

 

Beechwood Park CLO Limited

USD

$810

61.1%

 

Stratus CLO 2020-2 Limited 1

USD

$24

0.0% 2

 

Harriman Park CLO Limited

USD

$503

70.0%

 

Cayuga Park CLO Limited

USD

$401

72.0%

 

Allegany Park CLO Limited

USD

$505

66.2%

 

 

New subsidiary for the year ended 31 December 2021.

2 Called and redeemed during the year ended 31 December 2021.

In accordance with IFRS 10, the Direct CLO Subsidiaries, the Indirect CLO Subsidiaries, BGCM DAC and BCM LLC, are all deemed to be subsidiaries of BCF and are consolidated under its financial reporting framework. As at 31 December 2021, BCM LLC held investments in the following non-consolidated US CLOs:

Name

 

 

Gilbert Park CLO Limited

 

Stewart Park CLO Limited

 

Catskill Park CLO Limited

 

Dewolf Park CLO Limited

 

Long Point Park CLO Limited

 

Grippen Park CLO Limited

 

Thayer Park CLO Limited

 

Cook Park CLO Limited

 

 

BCF also directly holds CLO Income Note securities in US CLOs which it was not responsible for originating. As at 31 December 2021, BCF had direct holdings in the following US CLOs (together with the non-consolidated US CLOs held through BCM LLC, the "Non-Consolidated US CLOs"):

Name

 

 

Buckhorn Park CLO Limited

 

Filmore Park CLO Limited

 

Harbor Park CLO Limited

 

The directors of BCF have determined that BCF did not control the US MOA (through BGCM DAC and BCM LLC), nor does it control any of the Non-Consolidated US CLOs or US CLO warehouses held directly by BCF or through BCM LLC, as defined in IFRS 10. Therefore, these entities have not been consolidated for the purposes of presenting BCF's consolidated financial statements. These investments have been classified as financial assets held at fair value through profit or loss.

 

The directors of BCF do not anticipate any change in its structure or investment objectives.

 

 

Valuation of financial instruments

As at 31 December 2021 and 2020, the loans held were broker priced through Markit, and the bond investments were valued by prices provided by IDC. The majority of these assets were classified as Level 2 since the input into the Markit price consisted of at least two quotes, however, a small number of holdings priced through Markit consisted of only one quote. Such assets were classified as Level 3. Both loans and bonds are priced at current mid prices.

The CLO Income Notes issued by the Direct CLO Subsidiaries are listed on Euronext Dublin and are valued by a third party. The approach to valuing these CLO Income Notes incorporates CLO specific information and modelling techniques. Factors include (i) granular loan level data, such as the concentration and quality of various loan level buckets, for example, second liens, covenant lites and other structured product assets, as well as several other factors including: discount rate, default rates, prepayment rates, recovery rates, recovery lag and reinvestment spread (these factors are highly sensitive and variations may materially affect the fair value of the asset), and (ii) structural analysis on a deal by deal basis. Pricing includes checks on all structural features of each CLO, such as the credit enhancement of each bond and various performance triggers (including over-collateralisation tests, interest coverage and diversion tests). Furthermore, reinvestment language specific to each CLO deal is assessed, as well as the collateral manager's performance and capabilities.

 

Investments in CLO Income Notes of U.S. CLO Issuers, held directly or indirectly, are valued using an equivalent methodology. Similar to the above, valuation of such CLO Income Notes uses significant unobservable inputs and accordingly are classified as Level 3. Investments in the CLO Income Notes of the CLO Subsidiaries and the Non-Consolidated U.S. CLOs, and in the preference shares of the CLO warehouses are valued on the above basis using significant unobservable inputs, and accordingly, are classified as Level 3.

Forward purchase agreements are over-the-counter ("OTC") contracts for delayed delivery of investments in which the buyer agrees to buy and the seller agrees to deliver specified investments at specified prices on a specified future date. Because the terms are not standardised, they are not traded on organised exchanges and generally can be terminated or closed out only by agreement of both parties to the contract. They are valued in accordance with the terms of the forward purchase agreement and are categorised as Level 2.

A currency swap is an interest rate swap in which the cash flows are in different currencies. Upon initiation of a currency swap, the counterparties make an initial exchange of notional principals in the two currencies. During the life of the swap, each party pays interest (in the currency of the principal received) to the other. At the maturity of the swap, the parties make a final exchange of the initial principal amounts, reversing the initial exchange at the same spot rate. Contracts are marked-to-market daily based upon calculations using a valuation model and are categorised as Level 2.

The PPNs and debt issued by the CLO Subsidiaries are categorised as Level 3, as they are valued using a model which is based on the fair value of the underlying assets and liabilities of the relevant entity.

The amortised cost of the BCF Facility equates to its fair value due to the floating interest rates and the proximity of the maturity dates and has been categorised as Level 2.

Receivable for investments sold and other receivables include the contractual amounts for settlement of trades and other obligations due to BCF. Payable for investments sold and other payables represent the contractual amounts and obligations due by BCF for settlement of trades and expenses. All of the receivable and payable balances are categorised as Level 2.

 

The following tables analyse within the fair value hierarchy BCF's financial instruments carried at fair value as at 31 December 2021 and 31 December 2020:

 

31 December 2021

Level 1

Level 2

Level 3

Total

 

Financial assets measured at fair value through profit or loss:

 

 

 

 

- Investments in senior secured loans and bonds

-

521,321,556

7,924,650

529,246,206

- Investments in CLO Income Notes

-

-

508,931,719

508,931,719

- Investment in BGCM DAC

-

-

391,200,403

391,200,403

Total financial assets

-

521,321,556

908,056,772

1,429,378,328

 

 

 

 

 

Financial liabilities measured at fair value through profit or loss:

 

 

 

 

- PPNs

-

-

(1,233,581,335)

(1,233,581,335)

- Derivative financial liabilities

-

(33,536,518)

-

(33,536,518)

Total financial liabilities

-

(33,536,518)

(1,233,581,335)

(1,267,117,853)

 

 

31 December 2020

Level 1

Level 2

Level 3

Total

 

Financial assets measured at fair value through profit or loss:

 

 

 

 

- Investments in senior secured loans and bonds

-

122,982,606

12,993,749

135,976,355

- Investments in CLO Income Notes

-

-

520,436,700

520,436,700

- Investment in BGCM DAC

-

-

339,404,431

339,404,431

- Derivative financial assets

-

11,400,424

-

11,400,424

Total financial assets

-

134,383,030

872,834,880

1,007,217,910

 

 

 

 

 

Financial liabilities measured at fair value through profit or loss:

 

 

 

 

- PPNs

-

-

(1,092,553,639)

(1,092,553,639)

Total financial liabilities

-

-

(1,092,553,639)

(1,092,553,639)

 

The following table shows the movement in Level 3 of BCF's fair value hierarchy for the years ended 31 December 2021 and 31 December 2020:

 

31 December 2021

Financial assets measured at FVTPL

Financial liabilities measured at FVTPL

 

Opening balance

872,834,880

(1,092,553,639)

Net (loss)/gain on financial assets and liabilities measured at fair value through profit or loss

2,051,407

(32,418,962)

Purchases/Issuances

366,313,313

(108,608,734)

Sales/Redemptions

(326,134,078)

-

Movement out of Level 3

(7,008,750)

-

Closing Balance

908,056,772

(1,233,581,335)

 

 

31 December 2020

Financial assets measured at FVTPL

Financial liabilities measured at FVTPL

 

Opening balance

821,589,313

(1,056,882,313)

Net (loss)/gain on financial assets and liabilities measured at fair value through profit or loss

(73,533,922)

49,525,754

Purchases/Issuances

244,301,339

(85,197,080)

Sales/Redemptions

(119,521,850)

-

Closing Balance

872,834,880

(1,092,553,639)

BCF's policy is to recognise transfers into and transfers out of fair value hierarchy levels as of the last day of the accounting period. There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the years ended 31 December 2021 or 31 December 2020.

Sensitivity of BCF Level 3 holdings to unobservable inputs

A number of holdings as at 31 December 2021 and 31 December 2020 were priced through Markit where the input into the Markit price was only one price, so they were classified as Level 3. These loan assets are not modelled on analysts' prices but are from dealers' runs therefore there are no unobservable inputs into the prices.

 

The CLO Income Notes were valued by a third party using a CLO intrinsic calculation methodology and were classified as Level 3 because the valuation technique incorporates significant unobservable inputs. The CLO prices are determined by consideration of several factors including the following: default rates, prepayment rates, recovery rates, recovery lag and reinvestment spread. These factors are highly sensitive, and variations may materially affect the fair value of the asset. These metrics are accumulated from various market sources independent of BIL. Additionally, valuation incorporates a review of each CLO indenture and the latest underlying CLO loan portfolio forming various projections based on the quality of the collateral, the collateral manager capabilities and general macroeconomic conditions. The sensitivity of the fair values of the CLO Notes, in particular CLO Income Notes to the traditional risk variables measured separately including market risk and interest rate risk may not be the most appropriate analysis for this asset class. The sensitivity to valuation assumptions including interest rates has an interdependent impact with other significant market variables as noted in the assumptions used for valuing CLO Income Notes. Given the values are based on third party prices, the sensitivity to the key assumptions is not required to be provided.

 

The assets classified as Level 3 represented 63.5% (2020: 86.7%) of the total financial assets. If the price of the holdings classified as Level 3 increased or decreased by 5% it would result in an increase or decrease in the value of the financial assets of EUR  45,402,839  (3.18% of the total financial assets) (2020: EUR 43,641,744 (4.3% of the total financial assets)). There also would be an equal and opposite effect on the valuation of the PPNs (3.18%) (2020: (4.3%)).

 

The financial liabilities at fair value through profit or loss consist of the PPNs. The PPNs are valued using a model based on the fair value of the underlying assets and liabilities. The amortised cost of the BCF Facility, cash and cash equivalents, receivables and payables included in the underlying assets and liabilities equate to their fair value due to the floating interest rates and short-term nature of the balances. If the value of the underlying assets or liabilities changes then there would be an equal and opposite effect on the valuation of the PPNs. The BCM LLC repurchase agreement is also valued in the same manner as the BCF Facility.  

Financial instruments and associated risks

The Lux Subsidiary holds one investment in BCF in the form of PPNs. The PPNs are the main driver of the Lux Subsidiary's performance and consequently that of the Company. The performance of the PPNs is driven solely by the underlying portfolio of BCF and therefore consideration of the risks to which BCF is exposed to have also been made.

Market risk

Market risk is the current or prospective risk to earnings or capital of BCF arising from changes in interest rates, foreign exchange rates, commodity prices or equity prices. Market risk embodies the potential for both losses and gains.

Market price risk arises mainly from uncertainty about future prices of financial instruments held. It represents the potential loss BCF might suffer through holding market positions in the face of price movements caused by factors specific to the individual investment or factors affecting all instruments traded in the market. In addition, local, regional or global events may have a significant impact on BCF and the price of its investments.

As all of the financial instruments are carried at fair value through profit or loss, all changes in market conditions will directly impact the valuation of the PPNs.

(i) Currency risk

Foreign currency risk arises as the value of future transactions, recognised monetary assets and monetary liabilities denominated in other currencies may fluctuate due to changes in foreign exchange rates. Foreign exchange exposure relating to non-monetary assets and liabilities is considered to be a component of market price risk, not foreign currency risk.

 

BCF's financial statements are denominated in Euro, though investments in the US CLO warehouses, US CLOs, and senior secured loans and bonds are made and realised in other currencies. Changes in rates of exchange may have an adverse effect on the value, price or income of the investments of BCF.

 

BIL monitors foreign currency risk on a periodic basis. Typically, derivative contracts serve as components of BCF's asset hedging program and are utilised primarily to reduce foreign currency risk to BCF's investments. Foreign currency risk on non-base currency loans and bonds is minimised by the leveraged structure of BCF and by the use of the multi-currency BCF Facility to draw down funds. Non-base GBP and USD investments are funded by use of the corresponding currency leverage of the BCF Facility which creates a matching of asset and liability currency risk and minimising the impact of fluctuations in exchange rates. Rolling currency forwards are used to manage the foreign currency exposure of the preference shares of the US CLO warehouses, the CLO Income Notes of the Indirect CLO Subsidiaries, Dorchester Park CLO DAC and the Non-Consolidated US CLOs denominated in foreign currencies. The market value of these USD positions is hedged by offsetting USD forward notional amounts to ensure BCF is fully hedged.

 

The following table sets out BCF's total exposure to foreign currency risk and the net exposure to foreign currencies of the monetary assets and liabilities as at 31 December 2021 and 31 December 2020:

 

31 December 2021

British Pound

United States Dollars

 

Investments in senior secured loans and bonds

29,171,010

1,357,999

Investments in CLO Income Not