TIDMCIFU TIDMCIFR
RNS Number : 5668K
Carador Income Fund PLC
22 April 2020
RNS Announcement
Carador Income Fund plc
22 April 2020
FOR IMMEDIATE RELEASE
ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE FINANCIAL
YEARED 31 DECEMBER 2019
NOT FOR RELEASE, DISTRIBUTION OR PUBLICATION DIRECTLY, OR
INDIRECTLY, TO U.S. PERSONS OR INTO OR IN THE UNITED STATES,
AUSTRALIA, CANADA OR JAPAN.
A copy of the Company's Annual Report and Audited Financial
Statements for the year ended 31 December 2019 as set out below,
will be posted to the shareholders of the Company and will shortly
be available on the Company's website http://www.carador.co.uk
ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE FINANCIAL
YEARED 31 DECEMBER 2019
CHAIRMAN'S REPORT
I am pleased to present the Annual Report including Audited
Financial Statements for Carador Income Fund plc (the "Company")
for the financial year ended 31 December 2019.
2019 global growth was at the weakest pace since the global
financial crisis a decade ago, as increasing trade barriers and
geopolitical tensions weighed on business sentiment. Global trade
slowed to a standstill, encouraging central banks, including the US
Federal Reserve ("Fed") and the European Central Bank ("ECB"), to
cut interest rates. Strong labour markets, in combination with
rising wages, low consumer price inflation, and low unemployment,
supported consumer spending and lifted consumer confidence to near
historic highs and continued to drive the US economy during 2019.
The accommodative monetary policy and strong consumer sentiment
together compensated for the slowdown in industrial production in
2019 that allowed the economy to continue to grow, albeit at a
slower pace. This was positive news for risk assets with stock
markets, such as the S&P 500, maintaining its bull run through
year end, and fixed income assets recording strong positive returns
in 2019.
Performance(1,2)
During 2019, the US dollar class shares ("US Dollar Shares")
generated a total Net Asset Value ("NAV") return of -7.81% (-10.52%
in 2018) including distributions. The negative NAV performance was
largely driven by the portfolio becoming more concentrated in fewer
holdings, as expected during the managed wind-down of the portfolio
attributable to the US Dollar Shares, as detailed in the Circular
issued by the Board on 23 November 2018 (the "Managed Wind-Down"),
making the return more susceptible to price movements from
individual holdings. It is not the intention of the Directors to
declare a dividend in respect of the US Dollar Shares; however, one
dividend, which was attributable to Q4 2018, was paid during 2019
totalling $0.0166 per share. The US Dollar Shares ended the year
with a NAV per share of $0.5486 and a share price of US$0.4350
(US$0.6105 and US$ 0.5700 at 31 December 2018, respectively).
The repurchase pool class shares of the Company ("Repurchase
Pool Shares") generated a total NAV return of -29.16% during 2019
(-14.41% in 2018). It is not the intention of the Directors to
declare a dividend in respect of the Repurchase Pool Shares. The
Repurchase Pool Shares ended the year with a NAV per share of
US$0.0.4528 and a share price of US$0.5500 (US$0.6392 and US$0.7250
at 31 December 2018, respectively).
The financial position and results for the financial year are
set out in the statement of financial position and in the statement
of comprehensive income on page 29 and 30, respectively.
[1] Past performance is not necessarily indicative of future
results, and there can be no assurance that the Company will
achieve comparable results, will meet its target returns, achieve
its investment objectives, or be able to implement its investment
strategy. Certain countries have been susceptible to epidemics or
pandemics, most recently COVID 19. The outbreak of such epidemics
or pandemics, together with any resulting restrictions on travel or
quarantines imposed, could have a negative impact on the economy
and business activity globally (including in the countries in which
the Company invests), and thereby could adversely affect the
performance of the Company's investments. Furthermore, the rapid
development of epidemics or pandemics could preclude prediction as
to their ultimate adverse impact on economic and market conditions,
and, as a result, present material uncertainty and risk with
respect to the Company and the performance of its investments or
operations.
(2) The total NAV return is calculated by compounding the net
monthly NAV returns (pre-dividend) for the year.
Dividends
On 22 January 2019, the Board declared a dividend of $0.0166 per
US Dollar share in respect of the period from 1 October 2018 to 31
December 2018. The dividend of $4,404,830 was paid on 6 February
2019. Following the Extraordinary General Meeting ("EGM") on 17
December 2018, the Directors do not intend to declare any dividends
in respect of the US Dollar Shares during the Managed Wind-Down
period.
Material Events
In January 2019, 133,450,591 US Dollar Shares and 488 Repurchase
Pool Shares were converted into 133,451,107 Rollover Shares.
Following this, Blackstone / GSO Loan Financing Limited ("BGLF")
allotted and admitted to trading on the Specialist Fund Segment of
the Main Market of the London Stock Exchange (the "LSE") one new C
share for each Rollover Share in consideration of the transfer of
Rollover assets from the Company to BGLF. The value of the Rollover
assets was US$89,457,779. Please see note 1 of the financial
statements for further information.
Material Events (continued)
During the financial year ended 31 December 2019, the following
partial redemptions have occurred in relation to the US Dollar
Shares:
% of outstanding % of issued
No. of Redemption US Dollar US Dollar
Announcement Shares Redemption Amount Price per Shares Shares
Date redeemed Date US$ Share redeemed outstanding
---------------- ------------ ------------- ------------- ------------ ----------------- ---------------
21/02/2019 51,068,428 28/02/2019 32,499,947 US$0.6364 19.246% 80.754%
23/04/2019 31,655,342 30/04/2019 20,499,999 US$0.6476 14.773% 68.825%
22/05/2019 85,399,031 31/05/2019 56,499,998 US$0.6616 46.761 % 36.641%
24/06/2019 21,152,986 30/06/2019 14,199,999 US$0.6713 21.756 % 28.670%
19/07/2019 23,474,177 31/07/2019 15,499,999 US$0.6603 30.857% 19.823%
21/10/2019 11,994,516 31/10/2019 6,999,999 US$0.5836 22.803% 15.303%
Total 224,744,480 146,199,941
---------------- ------------ ------------- ------------- ------------ ----------------- -------------
During the financial year ended 31 December 2019, the following
partial redemptions have occurred in relation to the Repurchase
Pool Shares:
% of % of issued
No. of Redemption outstanding Repurchase
Announcement Shares Redemption Amount Price per Repurchase Pool Shares
Date redeemed Date US$ Share Pool Shares outstanding
redeemed
---------------- ----------- ------------- ------------- ------------ ---------------- ---------------
21/02/2019 4,681,645 28/02/2019 3,249,998 US$0.6942 19.003% 13,814%
23/04/2019 2,103,491 30/04/2019 1,499,999 US$0.7131 10.541% 12.358%
22/05/2019 9,531,590 31/05/2019 7,000,000 US$0.7344 53.393% 5.759%
24/06/2019 1,702,908 30/06/2019 1,300,000 US$0.7634 20.467 % 4.581%
Total 18,019,634 13,049,997
---------------- ----------- ------------- ------------- ------------ ---------------- -------------
On 29 April 2019, the Company released its annual report and
accounts for the financial year ended 31 December 2018.
At the annual general meeting (the "AGM") of the Company held on
3 July 2019, Shareholders approved the following ordinary
resolutions:
Ordinary Resolutions
1. That the reports of the Board of Directors of the Company and
of the auditor of the Company, KPMG, and the accounts for the
financial year ended 31 December 2018 be and are hereby received
and that the Company's affairs were reviewed.
2. That KPMG be re-appointed as auditors of the Company.
3. That the Directors be and are hereby authorised to fix the
remuneration of the auditors of the Company.
4. That Mr Edward D'Alelio be re-elected as a Director of the
Company.
5. That Mr Werner Schwanberg be re-elected as a Director of the
Company.
6. That Mr Fergus Sheridan be re-elected as a Director of the
Company.
7. That Mr Adrian Waters be re-elected as a Director of the
Company.
8. That Mr Nicholas Moss be re-elected as a Director of the
Company.
Effective 30 June 2019, Fidante Partners Europe Limited (trading
as Fidante Capital) resigned as Financial Advisor and Corporate
Broker due to strategic commercial reasons.
Effective 23 July 2019, the Company has appointed Bradwell
Limited, a nominee company of Arthur Cox (Irish legal advisers to
the Company) as company secretary (the "Company Secretary"),
replacing State Street Fund Services (Ireland) Limited.
On 21 August 2019, the Company released its interim report and
accounts for the half year 2019.
The Chairman continues to carefully monitor the ongoing
developments regarding COVID-19. Please refer to page 72 of the
Annual Report and Audited Financial Statements for further
details.
Werner Schwanberg
Chairman
21 April 2020
INVESTMENT MANAGER'S REVIEW
For the twelve month period ended 31 December 2019
We are pleased to present our review of 2019.
Market Overview
The U.S. credit markets posted strong performance in 2019
despite lingering tensions over trade and concerns about a
weakening global economy. Strong Collateralized Loan Obligation
("CLO") creation and institutional demand supported loan
performance of 8.2%, offsetting persistent loan retail fund
outflows and negative media coverage. High yield and investment
grade bonds, which returned 14.0% and 14.5%, respectively, for the
year, outperformed most other credit asset classes as investors
sought fixed-coupon, longer-duration assets due to the downward
shift in the U.S. Treasury yield curve. [1]
Investor flight to quality drove dispersion in performance by
credit quality throughout much of the second half of 2019, before
the year culminated in a strong rally in risk assets. Within the
Credit Suisse Leveraged Loan Index, higher rated loans returned
9.0% (upper tier) and 8.4% (middle tier), respectively, in 2019
versus 1.4% (lower tier) for lower rated loans. Similarly, in high
yield, higher quality paper generally outperformed lower quality in
2019 with the upper and middle tiers within the Credit Suisse High
Yield Index returning 15.0% and 14.3%, respectively, versus 9.4%
for the lower tier.
A topical theme throughout fixed income during 2019 was the
expectation for falling interest rates, with retail loan funds
facing redemptions for much of the year while high yield and
investment grade bond funds experienced strong inflows. Loan mutual
funds and Exchange Traded Funds ("ETFs") reported $38 billion in
net outflows in 2019 and more than $58 billion in net outflows
since October 2018 when expectations for near-term rate hikes
peaked. In our opinion, January's modest net inflows ($780 million)
may be an early indication of this stabilisation, particularly when
considered against average monthly outflows of $3.2 billion during
2019. Conversely, retail investor demand for high yield bonds was
resilient throughout 2019. Net inflows totaled $19 billion as
investors rotated into fixed-rate, longer-duration assets amid the
declining rate environment. [2]
Primary loan issuance slowed in 2019 due to a decline in both
M&A related financing and refinancing activity, coupled with an
increase in bond-for-loan refinancings and secured high yield
issuance. Gross issuance totaled $392 billion in 2019, a 44%
decrease year-over-year, and net issuance totaled $192 billion, a
36% decrease year-over-year. High yield bond issuance, on the other
hand, increased year-over-year with gross issuance totaling $287
billion, a 53% increase over 2018. Net issuance of $93 billion
represented a 27% increase year-over-year. We believe the investor
preference for fixed-rate, longer-duration assets led to a
relatively high volume of senior secured notes issued in 2019,
which otherwise may have taken the form of senior secured loans.
Senior secured note issuance increased by over 140% in 2019
compared to 2018, and it represented a greater proportion of total
high yield bond issuance than it did in the prior year. [3]
U.S. CLO gross issuance of $118 billion was healthy in 2019,
down just 8% compared to record-breaking issuance in 2018. [4]
Gross primary CLO issuance forecasts for 2020 were initially robust
due to expectations of liability tightening. However, as a result
of COVID-19 and the resulting volatility within the loan and CLO
markets, these forecasts are being re-evaluated in light of a halt
in primary issuance in the month of March and we have begun to see
the gross annual issuance forecasts be reduced by approximately 40%
in the US from $90-100 billion to $50-70 billion.
In 2019, 43 companies in the loan and high yield bond markets
defaulted with debt totaling $51.5 billion, compared to 32
companies with debt totaling $43.1 billion in 2018, according to JP
Morgan. Although total debt involved in defaults picked up almost
20% year-over-year, energy and metals/mining defaults accounted for
over half of 2019's defaults/distressed activity by volume. The
par-weighted loan last twelve months ("LTM") default rate at the
end of 2019 was 1.64% versus the 20-year average of 3.0%, and the
par-weighted high yield bond LTM default rate was 2.63% versus the
20-year average of 3.1%. We expect that default rates will increase
in 2020 given the disruption caused by COVID-19.
Portfolio Update
The Company has been focused on returning capital to
Shareholders through the realisation of all remaining assets,
consistent with the Managed Wind-Down. During 2019, the Company
liquidated $258.6 million notional and distributed $159.2 million
to Shareholders through share repurchases. [5]
Portfolio Update (continued)
As at 31 December 2019, the top five investment exposures were
[6] :
Investment Manager Original % of NAV
Rating
BNPIP 2014-1X D BNP Paribas Asset Management NR/NR 13.43%
BNPIP 2014-1X E BNP Paribas Asset Management NR/NR 12.25%
GSO / Blackstone Debt Funds Management
DORPK 2015-1X SUB LLC NR/NR 10.47%
APID 2013-14A INC Apidos Capital Management NR/NR 0.72%
APID 2014-18A SUB Apidos Capital Management NR/NR 0.04%
--------------------------------------- --------- --------
Risk Management
The Company's portfolio of CLO investments has been managed to
minimise default risk and potential loss through credit analysis
performed by the Investment Manager's experienced credit research
team. Achieving diversification has been part of the Company's
investment objective, and each investment has been assessed with a
view to provide diversification in terms of underlying assets,
issuer, sector, and maturity profile.
At the EGM of the Shareholders of the US Dollar Shares convened
on 17 December 2018, the investment objective of the Company was
changed such that the Company will be managed with the intention of
realising all remaining assets of the Company with a view to
returning capital to the Shareholders in an orderly manner as part
of the Managed Wind-Down.
The Managed Wind-Down is effected with a view to the Company
realising all of its investments in a manner that achieves a
balance between maximising the value from the Company's investments
and making timely returns of capital to Shareholders.
The Company ceased to make any new investments except where
necessary in the reasonable opinion of the Investment Manager in
order to protect or enhance the value of any existing investments
or to facilitate orderly disposals.
Any cash received by the Company as part of the realisation
process prior to its distribution to Shareholders is held by the
Company as cash on deposit and/or as cash equivalents. The Company
does not undertake new borrowings other than for short-term
purposes. The investment restrictions set out in the 2017
prospectus of the Company do not apply during the Managed
Wind-Down, subject to the requirements of the Central Bank of
Ireland (the "Central Bank"), the Companies Act, and the UK Listing
Authority.
Please also refer to note 11 for a more fulsome description of
the risk involved in an investment in the Company.
Events Post Balance Sheet Date
On 8 January 2020, along with five smaller holdings, the Company
sold its holding in Dorchester Park CLO DAC 2015-1X SUB at a
premium to its 31 December 2019 valuation, significantly reducing
the number of CLO assets held by the Company.
In 2020, up to the date of signing of these financial
statements, the following partial redemptions have occurred in
relation to the US Dollar Shares:
% of outstanding % of issued
No. of Redemption US Dollar US Dollar
Announcement Shares Redemption Amount Price per Shares Shares
Date redeemed Date US$ Share redeemed outstanding
23/01/2020 25,519,504 31/01/2020 14,000,000 US$0.5486 62.846% 5.686%
----------- ------------- ------------- ------------ ----------------- -------------
Total 25,519,504 14,000,000
----------- ------------- ------------- ------------ ----------------- -------------
In 2020, up to the date of signing of these financial
statements, the following partial redemptions have occurred in
relation to the Repurchase Pool Shares:
% of outstanding % of issued
No. of Redemption Repurchase Repurchase
Announcement Shares Redemption Amount Price per Pool Shares Pool Shares
Date redeemed Date US$ Share redeemed outstanding
23/01/2020 2,981,448 31/01/2020 1,350,000 US$0.4528 45.056% 2.517%
----------- ------------- ------------- ------------ ----------------- -------------
Total 2,981,448 1,350,000
----------- ------------- ------------- ------------ ----------------- -------------
On 3 February 2020, the Company provided an update on the
divestment of the portfolio, a directorate change, and a change in
the portfolio advisor.
Events Post Balance Sheet Date (continued)
Since the Managed Wind-Down began until 21 April 2020, the
Company had sold 46 positions in total, raising $160.2 million
attributable to the US Dollar Shares, which was returned to US
Dollar Shareholders through a series of seven compulsory
redemptions. These assets have been sold, on average, at a premium
to their latest month end valuation. Inclusive of the December 2018
dividend, these realisations have resulted in an effective realised
gain to shareholders of approximately +1.6% above the December 2018
net asset value.
To reduce the Company's ongoing costs and bring the size of the
Board in line with the nature, scale and complexity of the Company
at this stage of the Managed Wind-Down, the Company announces that
Adrian Waters and Edward D'Alelio have stepped down from the Board
with effect from 31 January 2020. It is also anticipated that
Nicholas Moss will step down from the Board on 30 April 2020 after
the 2019 annual report and audited financial statements have been
approved. Fergus Sheridan was appointed to Chair of the Audit
Committee on 24 March 2020.
The Company's Investment Manager has also informed the Board
that J. Richard Blewitt, the portfolio adviser for the Company, has
resigned from GSO. All other members of the GSO Structured Credit
Investment Committee and investment team remain unchanged.
The Investment Manager continues to carefully monitor the
ongoing developments regarding COVID-19. Please refer to page 72 of
the Annual Report and Audited Financial Statements for further
details.
GSO / Blackstone Debt Funds Management LLC
21 April 2020
DIRECTORS' REPORT
PRINCIPAL ACTIVITIES
The Company is a closed-ended limited liability investment
company domiciled and incorporated under the laws of the Republic
of Ireland with variable capital pursuant to the Irish Companies
Act 2014. The Company was incorporated on 20 February 2006 under
registration number 415764. The Company is authorised by the
Central Bank of Ireland (the "Central Bank"), pursuant to Part 24
of the Companies Act 2014. The Company's US Dollar Shares have a
listing on the Premium Segment of the Official List of the
Financial Conduct Authority ("FCA") and are admitted to trading on
the Main Market of the London Stock Exchange (the "LSE"). The
Company's Repurchase Pool Shares are admitted to trading on the
Specialist Fund Segment of the Main Market of the LSE.
At an EGM on 26 June 2013, a resolution was passed which
provided that at the AGM to be held in the financial year 2022, the
Board would propose a special resolution to the effect that the
Company continue for a further ten years. However, on 17 December
2018, two EGMs of the Company were convened at which: (a)
Shareholders holding US Dollar Shares approved changes to the
investment objective and policy of the Company to facilitate and
authorise the Board to instruct the Investment Manager to effect a
Managed Wind-Down of the portfolio attributable to the US Dollar
Shares; and (b) Shareholders of the Company approved amendments to
the constitution of the Company to provide for the termination of
the Company before 2022.
On 21 December 2018, it was announced that 33.463% of US Dollar
Shareholders and 0.002% of Repurchase Pool Shareholders elected to
roll their investment in the Company into an investment in BGLF C
Shares. Please refer to note 1 for further details on the Managed
Wind-Down of the Company.
INVESTMENT OBJECTIVE
From 17 December 2018
Further to the Shareholder resolution of the Company that was
passed by Shareholders of US Dollar Shares on 17 December 2018, the
investment objective of the Company is to realise all remaining
assets of the Company with a view to returning capital to the
Shareholders in an orderly manner. The assets that were subject to
the Managed Wind-Down do not include the assets of the Company that
are transferred as part of the BGLF Rollover Opportunity.
Prior to 17 December 2018
Prior to 17 December 2018, the investment objective of the
Company was to produce attractive and stable returns with low
volatility compared to equity markets by investing in a diversified
portfolio of senior notes of CLOs collateralised by senior secured
bank loans and equity and mezzanine tranches of CLOs. CLOs are debt
securities backed by a diversified pool of underlying assets. The
CLO uses the cash flows from this portfolio of assets to back the
issuance of multiple classes of rated debt securities which,
together with the Income Notes, are used to fund the purchase of
the underlying assets.
INVESTMENT POLICY
From 17 December 2018
Further to the Shareholder resolution of the Company that was
passed by Shareholders of US Dollar Shares on 17 December 2018, the
investment policy of the Company is to effect the Managed Wind-Down
with a view to the Company realising all of its investments in a
manner that achieves a balance between maximising the value from
the Company's investments and making timely returns of capital to
the Shareholders. Any assets to which rollover elections relate
were transferred in accordance with the provisions of the BGLF
Rollover Opportunity, following which the Company may sell its
remaining investments either to co-investors in the relevant asset
or to third parties, but in all cases with the objective of
achieving the best available price in a reasonable time scale.
The Company ceased to make any new investments except where
necessary in the reasonable opinion of the Investment Manager in
order to protect or enhance the value of any existing investments
or to facilitate orderly disposals.
Any cash received by the Company as part of the realisation
process prior to its distribution to Shareholders is held by the
Company as cash on deposit and/or as cash equivalents. The Company
does not undertake new borrowings other than for short-term
purposes. The investment restrictions set out in the 2017
Prospectus of the Company do not apply during the Managed
Wind-Down, subject to the requirements of the Central Bank, the
Companies Act and the FCA.
The modification to the Company's investment policy is
considered a material change to the investment policy, which has
been approved by the FCA and required the consent of Shareholders
in accordance with the Listing Rules and the requirements of the
Central Bank.
INVESTMENT POLICY (continued)
Prior to 17 December 2018
Prior to 17 December 2018, the Company's investment policy was
to achieve its investment objective through investment in cashflow
CLO transactions, managed by portfolio managers with proven track
records. It sought to achieve diversification across asset class,
geography, manager, and maturity profile. Each CLO was
collateralised by a diverse pool of fixed income assets, which may
have included:
-- senior secured bank loans;
-- investment grade loans;
-- project finance debt;
-- asset-backed securities or other asset-backed
obligations;
-- mortgage-backed securities; and/or
-- debt securities issued by other CLOs.
The Company may have also invested in other collective
investment schemes for the purposes of gaining exposure to the
types of CLO transactions described above, or otherwise to pursue
the investment objective and policy of the Company. The Company
sought to have minimal exposure to portfolios where the underlying
assets comprised unsecured corporate bonds (investment grade or
otherwise). The Company limited its investment in synthetic CLO
transactions, at the time of investment, to 25% of the net asset
value ("NAV"). It was intended that the Company's investments
comprise equity and mezzanine tranches in actively managed
portfolios, with a variety of portfolio managers. The Company may
also have invested in senior tranches of leveraged loan CLOs where
attractive opportunities could be identified. Such opportunities
may have included investments in senior tranches of CLOs in respect
of which the Collateral consisted of fee streams due to portfolio
managers from underlying leveraged loan CLOs. The Company may have
invested in new issue CLO transactions in the Primary Market and
transactions in the Secondary Market where attractive opportunities
could be identified.
REVIEW OF DEVELOPMENT OF THE BUSINESS AND FUTURE
DEVELOPMENTS
A detailed review of the business and future developments of the
Company is included in the Investment Manager's report.
RESULTS FOR THE FINANCIAL YEAR AND STATE OF AFFAIRS
The financial position and results for the financial year are
set out in the statement of financial position and in the statement
of comprehensive income.
Please refer to note 14 for details of distributions declared on
the US Dollar Shares during the financial year ended 31 December
2019.
No dividends were declared in respect of the Repurchase Pool
Shares. See note 7 for further details on the Repurchase Pool
Shares.
TRANSACTIONS INVOLVING DIRECTORS
See note 5 and note 10 for details of transactions involving
Directors .
MATERIAL CHANGES DURING THE YEAR
See note 15 for details of other material events occurring
during the financial year.
EVENTS SINCE FINANCIAL YEAR
See note 16 for details of material events occurring after the
reporting date.
DIRECTORS
The names of the persons who were Directors at any time during
the financial year are set out in the section entitled "Management
and Administration". As at 31 December 2019, all five Directors are
non-executive, each of whom, apart from Ed D'Alelio, are
independent of the Investment Manager. 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, copies of which are available for review by the
Shareholders.
DIRECTORS' AND COMPANY SECRETARY'S INTERESTS
Neither the Directors (including family interests) nor the
Company Secretary have any shareholdings in the Company as at 31
December 2019.
MANAGEMENT ARRANGEMENTS
The management fees and other fees payable to the Investment
Manager are disclosed in note 5. After due consideration of the
investment experience, resources and reputation of the Investment
Manager as a whole, it is the opinion of the Directors that the
continuing appointment of the Investment Manager on the terms
agreed is in the interest of Shareholders as a whole. The
Investment Management Agreement may be terminated on six-months'
notice by either party and may also be terminated by either party
with immediate effect on the occurrence of certain events,
including: (i) if an order has been made or an effective resolution
passed for liquidation of the other party; (ii) if a receiver or
similar officer has been appointed in respect of the other party or
its assets or the other party becomes subject to an administration
order; (iii) if the other party enters into an arrangement with its
creditors, or any of them or the other party is or is deemed to be
unable to pay its debts; (iv) if the other party ceases or
threatens to cease to carry on its business or threatens to make
any material alteration to the nature of its business as carried
out on the date of the investment management agreement; or (v) if
the other party commits a material breach of its obligations under
the investment management agreement and such breach (if capable of
being remedied) is not remedied within 28 days of receiving notice
of the breach. The duration of the Investment Manager's appointment
has not been fixed.
ACCOUNTING RECORDS
The Directors are responsible for ensuring that adequate
accounting records, as outlined in Sections 281 to 285 of the
Companies Act 2014, are kept by the Company. To achieve this, the
Directors have employed a service organisation, State Street Fund
Services (Ireland) Limited (the "Administrator"). The accounting
records are maintained at the Company's registered office at 78 Sir
John Rogerson's Quay, Dublin 2, Ireland.
PRINCIPAL RISKS, UNCERTAINTIES, RISK MANAGEMENT OBJECTIVES AND
POLICIES
At the EGM of the Shareholders of the US Dollar Shares convened
on 17 December 2018, the investment objective of the Company was
changed such that the Company will be managed with the intention of
realising all remaining assets of the Company with a view to
returning capital to the Shareholders in an orderly manner as part
of the Managed Wind-Down.
Investment in the Company carries with it a degree of risk
including, but not limited to, business risks and the risks
associated with financial instruments. As at the financial year
end, the primary business risk is the risk that the Company may not
achieve the desired return on sale of the assets.
A summary of the primary risks relating to the Company are:
-- In calculating its NAV, the Company may be required to rely
on estimates of the value of securities in which the Company
invests which are unaudited or subject to little verification or
other due diligence.
-- There are risks related to CLO securities, including
leveraged credit risk, the potential for interruption and deferral
of cash flow, asset/liability mismatch risk, currency risk,
volatility risk, liquidity risk, reinvestment risk and risks
associated with collateral.
-- The success of the Company is significantly dependent on the
expertise of the Investment Manager and the Investment Manager's
ability to realise all of the Company's investments in a manner
that achieves a balance between maximising the value from the
Company's investments and making timely returns of capital to the
Shareholders.
-- Restrictions on withdrawal of capital means that Shareholders
must be prepared to bear the risks of owning an interest in the
shares for an extended period of time.
-- The market price of the shares can fluctuate and there is no
guarantee that the market prices of shares
will reflect fully their underlying NAV .
-- During the Managed Wind-Down, the concentration of the value
of the portfolio in fewer holdings reduced diversification and the
spread of risk (including Market Price Risk). Also as shares are
repurchased, the fixed expenses of the Company are spread over a
decreasing pool of assets. These factors may adversely affect the
Company's performance.
The past performance of the Company is not necessarily
indicative of, and cannot be relied upon as a guide to, the future
performance of the Company.
See note 11 for further details on the risks associated with
financial instruments.
COMPANY CORPORATE GOVERNANCE
Introduction
The Company is subject to and complies with Irish statute
including the Companies Act 2014, with the Listing Rules of the
FCA, and with the voluntary Corporate Governance Code for
Collective Investments Schemes and Management Companies issued by
the Irish Funds Industry Association in December 2011 (the "Irish
Code").
The Listing Rules of the FCA requires the Company to apply the
main principles of the UK Corporate Governance Code (the "UK Code")
published by the Financial Reporting Council (the "FRC") in July
2018, and the Board is required to report to Shareholders on how it
has done so.*
The Irish Code is a voluntary code that was issued by the Irish
Funds Industry Association in December 2011 and was adopted by the
Company in 2012. The Irish Code provides a framework for the
organisation and operation of funds to ensure that funds operate
efficiently and in the interests of Shareholders.**
The Board considers that the Company has complied with the main
provisions contained in the Irish Code and the UK Code, (except as
outlined in the sections entitled "Compliance with the UK Code" and
"Compliance with the Irish Code") throughout this accounting
period, and that it complies with corporate governance requirements
in Ireland. The paragraphs below describe how the relevant
principles of corporate governance are applied by the Company .
In the opinion of the Directors, the annual report and audited
financial statements are fair, balanced and understandable and
provide the information necessary for the Shareholders to assess
the Company's performance, business model and strategy.
The Board
The Board currently consists of three non-executive Directors,
each of whom, is independent of the Investment Manager. Werner
Schwanberg is the Chairman of the Board (the "Chairman"). Adrian
Waters and Edward D'Alelio resigned as Directors of the Company on
31 January 2020. The Board accepts collective responsibility for
the decisions of the Board. The Board had four scheduled board
meetings during the financial year ended 31 December 2019 (see the
table below) and between these formal meetings, there was regular
contact between the Board, the Investment Manager, the Company
Secretary and the Company's brokers. The Directors are kept fully
informed of investment and financial controls and other matters
that are relevant to the business of the Company and should be
brought to the attention of the Directors.
The Directors, where necessary in the furtherance of their
duties, have access to independent professional advice at the
expense of the Company.
The attendance record of Directors at the meetings for the
financial year ended 31 December 2019 is set out below:
Meetings and attendances Formal Board Ad Hoc Committee Audit Committee Remuneration Nomination
by Director Meetings Meetings Committee Committee
Number of Meetings
Held 4 12 3 - -
Werner Schwanberg 4 7 N/A N/A N/A
Fergus Sheridan 4 11 3 - -
Adrian Waters 4 6 3 N/A -
Edward D'Alelio 4 1 N/A - -
Nicholas Moss 4 6 3 - N/A
------------- ----------------- ---------------- ------------- -----------
The Board has a breadth of experience relevant to the Company
and the Directors believe that any changes to the Board's
composition can be managed without undue disruption. With any new
Director appointment to the Board, consideration will be given as
to whether an induction process is appropriate and upon any such
appointment the new Director would be available to meet
Shareholders upon request. There is a robust process in place for
ensuring the Board has the right information at the right time and
in the right format to enable the Directors to make informed
decisions. The Chairman sets the Board agenda, assisted by the
Company Secretary. An annual board timetable is prepared by the
Company Secretary to map out the flow of key report/items submitted
to the Board and to ensure that sufficient time is allocated for
discussions and material issues.
*The UK Code can be found at:
https://www.frc.org.uk/getattachment/88bd8c45-50ea-4841-95b0-d2f4f48069a2/2018-UK-Corporate-Governance-Code-FINAL.pdf
**A copy of the Irish Code can be found at:
http://www.irishfunds.ie/media- centre/news-archive/67-corporate- g
overnance-code-and-faqs/faqs.
The Board (continued)
Directors may request any agenda items to be added that they
consider appropriate for Board discussion. Additionally, each
Director is required to inform the Board of any potential or actual
conflicts of interest prior to Board discussion.
Questions arising at any meeting shall be determined by a
majority of votes. In case of an equality of votes, the Chairman
shall have a second or casting vote. A Director may, and the
Company Secretary on the requisition of a Director shall, at any
time summon a meeting of the Directors. The quorum necessary for
the transaction of business of the Directors may be fixed by the
Directors, and unless so fixed at any other number shall be
two.
The primary focus at Board meetings is a review of the overall
business of the Company including investment policy, investment
performance, risks affecting the Company (investment and other) and
other matters (including, but not limited to, administration,
corporate governance and compliance, marketing/investor relations,
peer group information and industry issues). The Board evaluates
Board composition and considers the tenure of each Director on an
annual basis and believes that the mix of skills (including
investment and accounting skills), experience, ages and length of
service are appropriate to the requirements of the Company. The
Board conducts an annual performance evaluation of the Board, its
committees and individual Directors.
The evaluation of the Board considers, among other things, the
balance of experience, skills, independence, knowledge and time
commitments of the Board and how it works together as a unit. The
Chairman leads a discussion among the Board through the use of a
questionnaire, and the feedback from each Board member to the
questions posed by the questionnaire are recorded in meeting
minutes. In addition to this annual performance review of the
Board, a formal review of the performance of the Board, the
individual Directors and the Chairman is carried out every three
financial years.
Directors' duties and responsibilities
The duties and responsibilities of the Directors cover the
following areas:
-- statutory obligations and public disclosure;
-- strategic matters and financial reporting;
-- oversight of management and personnel matters;
-- risk assessment and management, including reporting, monitoring, governance and control; and
-- other matters having a material effect on the Company.
Nomination/remuneration committees
The nomination committee was established during 2017 and is
requested and authorised by the Board to lead the process for
considering and selecting suitable candidates for appointment as
Directors of the Company and make recommendations thereon to the
Board, and also to review any matters relating to nominations for
appointment as directors as may otherwise be requested by the Board
from time to time. The Chairman of the nomination committee is
Fergus Sheridan. Adrian Waters and Edward D'Alelio were the other
members of the committee, until their resignation from the Board.
There were no nomination committee meetings held in the financial
year ended 31 December 2019 and 2018.
A remuneration committee was established on 6 April 2011. The
Board has adopted a documented terms of reference in respect of the
remuneration committee evidencing all delegated authorities given
to its members. The Chairman of the remuneration committee was
Edward D'Alelio, until his resignation from the Board. Nicholas
Moss and Fergus Sheridan are the other members of the
committee.
The functions of the remuneration committee are as follows:
1. responsibility for the preparation of recommendations to the
Board regarding the remuneration of the members of the Board;
2. provide support and advice to the Board on determining an
overall remuneration policy of the Company that is consistent with
the objectives, values and interests of the Company and reflects
comparable compensation levels of the peer universe for the
Company;
3. oversee and review the implementation of the remuneration policy of the Company; and
4. perform any other activities as the Board deems necessary or appropriate.
Pricing committee
The Company's pricing policy was approved at the board meeting
on 27 August 2013. This policy and its associated process replaced
the previously defined process, which was undertaken by the pricing
committee. The process is implemented by the Investment Manager,
which reports to the Pricing Liaison Director and the Administrator
on a monthly basis. Edward D'Alelio was appointed as Pricing
Liaison Director at a board meeting on 24 April 2013. Following the
resignation of Edward D'Alelio from the Board on 31 January 2020 as
part of the managed wind down of the Company, the Investment
Manager now provides the monthly pricing information to Fergus
Sheridan and Werner Schwanberg.
Audit committee
The Audit committee comprised Adrian Waters, Fergus Sheridan and
Nicholas Moss for the financial year ended 31 December 2019. Adrian
Waters was no longer a member, following his resignation as
Director of the Company on 31 January 2020. The Audit committee
examines, amongst other things, the effectiveness of the internal
systems, the annual report and audited financial statements and
interim report of the Company, and aims to identify significant
risks facing the Company. It also oversees the remuneration and
engagement of KPMG (the "Auditor"), as well as the Auditor's
independence and any non-audit services provided by them. See the
Audit Committee's report for further details in relation to its
role and responsibilities.
Internal controls
The Board is ultimately responsible for the system of internal
controls for the Company, identifying significant risks facing the
Company and oversight of the system of controls to mitigate them.
The Board confirms that there is an ongoing process for
identifying, evaluating and managing the significant risks faced by
the Company. The Audit committee assists the Board in discharging
these responsibilities.
This process has been in place for the financial year under
review and up to the date of approval of the annual report and
audited financial statements and is reviewed by the Board and
accords with the Irish Code and the UK Code. The Board has reviewed
the effectiveness of the system of internal controls. In
particular, it has reviewed and updated the process for identifying
and evaluating the significant risks affecting the Company and the
policies by which these risks are managed. The principal financial
instrument risks are described in note 11.
The Board has also identified the following additional risks and
uncertainties:
Principal risks How is the risk managed?
------------------------------------------ -------------------------------------------
Investment and portfolio
------------------------------------------ -------------------------------------------
Uncertainty of timing of repurchases
and completion of the Managed Wind-Down
Shareholders voted on 17 December US Dollar Shareholders expect that,
2018 for a Managed Wind-Down of the under the terms of the Managed Wind-Down,
Company. The liquidity profile of the Board and the Investment Manager
the assets is such that Shareholder are committed to distributing as
s may have to wait a considerable much of the available cash as soon
period of time before receiving all as reasonably practicable having
of their distributions pursuant to regard to cost efficiency and working
the M anaged Wind-Down . During that capital requirements.
time, the concentration of the value
of the portfolio in fewer holdings
will reduce diversification and the
spread of risk. Also as shares are
repurchased the fixed expenses of
the Company will be spread over a
decreasing pool of assets. These
factors may adversely affect the
Company's performance.
Market liquidity
There is no guarantee that the Investment The Investment Manager is constantly
Manager will be able to realise all in touch with the market to identify
of the Company's investments in a potential selling opportunities.
manner that achieves a balance between Because of the Investment Manager's
maximising the value from the Company's position in the market, the Investment
investments and making timely returns Manager has good visibility into
of capital to the Shareholders. potential opportunities.
Change in laws or regulation with
impact on the portfolio
Changes in the laws or regulations Changes in laws or regulation are
that govern CLOs, may have an adverse monitored by the Board on an ongoing
effect on the performance of the basis, with the assistance of external
Company's investment portfolio and counsel.
the returns achieved by the Company.
Principal risks How is the risk managed?
-------------------------------------------- -------------------------------------------
Investment and portfolio (continued)
Counterparty default risk
The Company's main counterparty risk The Investment Manager for the most
arises from trades, including physical part trades via DTC or Euroclear,
securities, made by the Investment which, on the whole, limits counterparty
Manager. If a counterparty were to risk. A small part of the portfolio
default there may be adverse impacts includes physical securities. Physical
to the Company's performance. securities are delivered against
payment thus mitigating counterparty
risk.
Other
-------------------------------------------- -------------------------------------------
Regulatory, legal and compliance
risk
The Company may not achieve full The Board monitors compliance information
compliance with all applicable legislation provided by its service providers
leading to regulatory, reputational and monitors ongoing legal and regulatory
or financial consequences. Further developments in Ireland and the
a service provider may experience UK, as well as developments coming
a regulatory, legal or compliance from the FCA. The Company has a
breach that could impact the Company. comprehensive compliance monitoring
programme to seek to ensure full
compliance with applicable legislation
and regulation relevant to the Company.
Operational risk
Inadequate or failed internal processes The Board regularly monitors the
of the Company or the Company's service performance of service providers'
providers, people, and systems, or compliance and the Company's compliance
from external causes (deliberate, with applicable legal and regulatory
accidental or natural). This may requirements from the Central Bank
result in direct financial losses and the FCA. As discussed in the
or reputational damages leading to section "Regulatory, legal and compliance
longer-term financial consequences. risk", the Company has a comprehensive
compliance monitoring programme
to seek to ensure full compliance
with applicable legislation and
regulation relevant to the Company.
Reputational risk
There is a risk that as a result As discussed in the section "Regulatory,
of inadequate or failed internal legal and compliance risk", the
processes of the Company or the Company's Company has a comprehensive compliance
service providers, and systems, or monitoring programme to seek to
from external causes (deliberate, ensure full compliance with applicable
accidental or natural), the Company's legislation and regulation relevant
regulators may issue financial or to the Company.
non-financial penalties or fines The Company and its service providers
that could irrevocably harm the Company's regularly monitor press mentions
reputation. and will take appropriate action
Additionally, negative press on the as required to respond to or otherwise
Company, its Directors or service address negative press.
providers may negatively impact the
Company.
Conflicts of interest
The Company and its service providers The Board has implemented a Connected
may have conflicts of interest that Party Transaction Policy that is
arise from time to time. In particular, annually reviewed and approved.
connected party transactions by the Under the policy, the Board must
service providers may create a potential satisfy itself semi-annually that
conflict of interest that is adverse the arrangements concerning connected
to interests of the Company or its party transactions are appropriate
investors. and complied with, and that any
connected party transactions entered
into during the period comply with
the Connected Party Transaction
Policy.
Cybersecurity risk
The Company and its service providers The Board has a cybersecurity policy
may have inadequate systems, policies that is reviewed and approved at
and procedures in place to detect least annually. On a quarterly basis,
and prevent or respond adequately the Board receives confirmation
to cybersecurity threats and breaches from the service providers that
that may result in financial and there have been no cybersecurity
reputational implications for the breaches as part of the service
Company. provider reports to the Board.
Annually, the Board conducts due
diligence on each service provider
to ascertain the adequacy of the
service provider's cybersecurity
programme. The Board also monitors
ongoing cybersecurity developments
in Europe and the US.
Delegated activities
As there is delegation of daily operational activity, described
below, the Company has no direct internal audit function. The Board
receives regular reporting from the service providers to the
Company and conducts an annual review of the service providers. The
internal control systems seek to keep the Company within its risk
appetite.
The Board has delegated the responsibility for (i) management of
the Company's investment portfolio, (ii) provision of custody
services and (iii) administration, registrar and corporate
secretarial functions of the Company including independent
calculation of the NAV and production of the annual report and
financial statements, which are independently audited. Whilst the
Board delegates responsibility, it retains accountability for the
functions it delegates and is responsible for the systems of
internal control. Formal contractual agreements have been put in
place between the Company and providers of these services.
Compliance reports are provided on a quarterly basis by the
Administrator, the Custodian and the Investment Manager.
Corporate responsibility
The Company's business is concerned with investment. It
considers the ongoing concerns of its Shareholders by open and
regular dialogue with and through the appointed Investment Manager
and the Company's brokers.
The Company does not have any employees.
Going concern statement
Resolutions passed by Shareholders of the Company at the EGMs on
17 December 2018 approved the division of the Company's assets and
liabilities attributable to each class of Shareholder into a new
asset pool, the rollover class pool, reflecting elections by
holders to receive shares to be issued by BGLF pursuant to the BGLF
Rollover Opportunity as described in the Chairman's report.
Following the transfer of the relevant assets to BGLF, the
Company's remaining assets, which are held in pools attributable to
the remaining US Dollar Shares and Repurchase Pool Shares are to be
sold as realisation opportunities arise. Any cash generated will be
returned to the relevant Shareholders by means of a redemption of
Shares, from time to time. In the context of the realisation
strategy, which is expected to lead to the termination of the
Company, the Directors do not consider it appropriate to apply the
going concern basis to the statement of financial position as at 31
December 2019 and 2018, which have therefore been prepared on a
non-going concern basis.
Viability statement
The Directors have conducted an assessment of the principal
risks and uncertainties facing the Company in the context of the
proposed realisation and distribution of the Company's assets and
its subsequent termination as detailed in note 1. The Directors
have also considered the Company's policy for monitoring and
managing the Company's exposure to such risks and uncertainties.
The Directors have a reasonable expectation that the Company will
be able to meet its liabilities as they fall due, based on the
Company's policy of retaining sufficient cash when determining the
amounts to be distributed to Shareholders as the Company's
investments are realised. However, in view of the intention to
terminate the Company when the assets have been substantially
realised, which is likely to occur within the next 12 months, it is
not appropriate for the Directors to make a statement about the
prospects of the Company in respect of the next 12 months (or for
any other period) as envisaged by Provision 31 of the UK Code and
paragraph 9.8.6 (3) of the FCA's Listing Rules.
Relations with Shareholders
The Investment Manager and the Company's brokers maintain a
regular dialogue with Shareholders, the feedback from which is
reported to the Board. In addition, Board members are available to
respond to Shareholders' questions at the AGM and on an ad hoc
basis if necessary.
In each financial year, the Company shall hold a general meeting
of the Company as its AGM in Ireland. At least twenty-one days'
notice (excluding the day of mailing and the day of the meeting)
shall be given in respect of each general meeting of the Company.
The notice shall specify the venue and time of the meeting, the
business to be transacted at the meeting and that a proxy may
attend and vote on behalf of any Shareholder.
The requirements for quorum and majorities at all general
meetings are set out in the articles of association of the Company
(the "Articles of Association"). An ordinary resolution is a
resolution passed by a simple majority of the votes cast and a
special resolution is a resolution passed by a majority of 75% or
more of the votes cast.
Relations with Shareholders (continued)
The Articles of Association provide that matters may be
determined at a meeting of Shareholders on a show of hands unless a
poll is requested by five Shareholders or Shareholders holding 10%
or more of the shares or unless the Chairman of the meeting
requests a poll. Subject to disenfranchisement by law in the event
of noncompliance with any notice requiring disclosure of the
beneficial ownership of shares, the Articles of Association provide
that each share gives the holder one vote in relation to any
matters relating to the Company which are submitted to Shareholders
for a vote by poll, and each Shareholder present at a meeting has
one vote in relation to any matters relating to the Company which
are submitted to Shareholders for a vote by show of hands. If there
are multiple share classes in existence, all shares of each class
have equal voting rights, except that in matters affecting only a
particular class, only shares of that class shall be entitled to
vote.
The Board monitors the trading activity and Shareholder profile
on a regular basis. Shareholder sentiment is also ascertained by
the careful monitoring of the discount/premium at which the shares
trade in the market against the NAV per share when compared to the
discounts/premiums experienced by the Company's peer group.
The Company reports formally to Shareholders twice each
financial year and a proxy voting card is sent to Shareholders with
the annual report and audited financial statements. Additionally,
the Investment Manager's monthly reports are available to
Shareholders through the Company's website. The Regulatory News
Service of the LSE assist in keeping Shareholders informed.
Computershare Investor Services (Ireland) Limited (the
"Registrar") monitors the voting of Shareholders, and proxy voting
is taken into consideration when votes are cast at the AGM.
Shareholders may contact the Directors via the Company
Secretary.
Compliance with the UK Code
Throughout the financial year ended 31 December 2019, the
Company has complied with the UK Code, with the following
exceptions:
Provision 12 - The Board has considered whether a Senior
Independent Director should be appointed. In light of the fact that
all Directors are non-executive and given the size and complexity
of the Company, the Board has determined that this appointment is
not necessary.
As outlined above, the Board considers that the appointment of a
Senior Independent Director is not necessary given the size and
complexity of the Company. However, in accordance with the Irish
Code, the Board carries out an appraisal of the performance of the
overall Board and of each Director (including the Chairman) on an
annual basis, with a formal documented evaluation of the overall
Board and of each Director (including the Chairman) taking place
every three financial years. The Board considers that this
appraisal process is appropriate for the Company.
Principle G - This Principle is not fully complied with as it
calls for a balance of executive and non-executive Directors and
the Company only has non-executive Directors. However, the
Directors have a broad range of experience and given the nature of
the Company's activity and outsourcing of executive functions and
that the majority of Directors are deemed to be independent under
the UK Code, it is not considered necessary to appoint executive
Directors.
Provision 10 - While some Directors have served on the Board for
more than nine years from the date of their first election, the
Board considers these Directors to be independent because none of
such Directors:
-- Have been an employee of the Company or Group within the last five years;
-- Have had within the last three years, a material business
relationship with the Company either directly, or as a partner,
Shareholder, Director or senior employee of a body that has such a
relationship with the Company;
-- Received or receives additional remuneration from the Company
apart from a Director's fee, participates in the Company's share
option or a performance related pay scheme, or is a member of the
Company's pension scheme;
-- Have close family ties with any of the Company's advisers or Directors;
-- Hold cross-directorships or have significant links with other
Directors through involvement in other companies or bodies; or
-- Represent a significant Shareholder.
Further, the Board considers such Directors discharge their
director duties in an independent manner.
Provision 39 - This provision is complied with save that, all of
the Directors are appointed pursuant to letters of appointment for
a term which expires when the Director is (i) removed or vacates
office; (ii) resigns, or (iii) terminates his appointment. A
Director's appointment may be terminated in accordance with the
Company's Articles of Association without compensation.
Compliance with the UK Code (continued)
Provision 23 - Whilst the Company does not have a formal
diversity policy in place, diversity, including gender diversity,
is considered by the Company in the evaluation of the Board and its
performance, and will be taken into account in making any future
Board appointments. As the Company is in wind-down, the Board has
determined that a formal diversity policy is not required at this
time.
Provision 26 - Since the Company does not have any employees,
the Company does not have an internal audit function. The Audit
Committee annually considers whether an internal audit function is
needed and makes a recommendation to the Board. The Board considers
that an internal audit function is not necessary, given the size
and complexity of the Company, and the use of an external
auditor.
Principle D - Since the Company does not have any employees, it
is the management team of the Investment Manager who has most
regular contact with Shareholders on behalf of the Board. Comments
received from such Shareholders are fed back to the Board both from
the Investment Manager and the Company's brokers. All Directors are
available to attend the AGM, and are available to communicate with
Shareholders.
Compliance with the Irish Code
The Company adopted the Irish Code with effect from 31 December
2012, and has complied with the Irish Code with the following
exception:
Paragraph 4.2 - This provision is not fully complied with as it
recommends that at least one Director be an employee, partner or
director of the promoter or Investment Manager. However, the
Directors have a broad range of experience and it is considered
that there is a good balance of skills and expertise on the Board.
In addition, the Directors are satisfied with the support and
reporting provided by the Investment Manager on an ongoing basis
such that it is not considered necessary to have a representative
of the Investment Manager on the Board.
Additional corporate governance disclosures under Irish Company
Law
The Board is ultimately responsible for overseeing the
establishment and maintenance of adequate internal control and risk
management systems of the Company in relation to the financial
reporting process. As the Company has no employees and all
Directors serve in a non-executive capacity, all functions
including the preparation of the financial statements have been
outsourced. The Company has appointed State Street Fund Services
(Ireland) Limited as its administrator consistent with the
regulatory framework applicable to investment fund companies. The
Administrator has functional responsibility for the preparation of
the interim and annual financial statements and the maintenance of
the accounting records. On appointing the Administrator, the Board
noted that it was regulated by the Central Bank and, in the Board's
opinion, had significant experience as an administrator. The Board
also noted the independence of the Administrator from the Company's
Investment Manager.
Subject to the supervision of the Board, the appointment of the
Administrator is intended to manage rather than eliminate the risk
of failure to achieve the Company's financial reporting objectives
and can only provide reasonable and not absolute assurance against
material misstatement or loss.
The Board and Audit Committee evaluates and discusses
significant accounting and reporting issues as the need arises. The
Board and Audit Committee review the financial statements prior to
their approval, though it should be noted that such review does not
include verification of information in the financial statements to
source documents. The annual financial statements are subject to an
independent audit.
Internal control and risk management systems in relation to
financial reporting
The Administrator prepares the Company's financial statements
and uses various internal controls and checklists to ensure the
financial statements include complete and appropriate disclosures
required under IFRS as adopted by the European Union and relevant
legislation.
During the financial period of the financial statements, the
Board is responsible for the review and approval of the annual
financial statements as set out in the Statement of Directors'
Responsibilities. The Board and the Audit Committee evaluate and
discuss significant accounting and reporting issues as the need
arises.
Capital structure
As at 21 April 2020, so far as the Directors are aware, no
person other than those listed below, had an interest, directly or
indirectly, in 5% or more of the issued share capital of the
Company.
Capital structure (continued)
US Dollar Shares: Number of
US Dollar Shares % of Issued
Share Capital
Name US Dollar Shares
-------------------------------------- ------------------- ------------------------
CGWL Nominees Limited 973,127 6.45
Credit Suisse Nominees (Ireland)
Limited 1,028,873 6.82
HSBC Global Custody Nominee (UK)
Limited 901,649 5.98
Merrill Lynch Pierce Fenner & Smith
Incorporated 1,776,156 11.77
Nortrust Nominees Limited 1,293,062 8.57
Securities Services Nominees Limited 1,403,384 9.30
The Bank of New York (Nominees)
Limited 938,626 6.22
Vidacos Nominees Limited 1,308,508 8.67
-------------------------------------- ------------------- ------------------------
Number of
Repurchase Pool Shares: Repurchase Pool % of Issued
Shares Share Capital
Name Repurchase Pool Shares
-------------------------------------- ------------------- ------------------------
BBHISL Nominees Limited 451,522 12.42
Euroclear Nominees Limited 188,774 5.19
Securities Services Nominees
Limited 885,140 24.35
The Bank of New York (Nominees)
Limited 386,471 10.63
The Bank of New York (Nominees)
Limited 1,345,538 37.01
-------------------------------------- ------------------- ------------------------
Only holders of US Dollar Shares participate in dividends. As
disclosed in the 2018 Circular, the Board do not intend to declare
any dividends during the wind-down period, therefore no further
dividends have been paid in respect of any shares after the payment
of the dividend in respect of the quarter ended 31 December
2018.
Appointment and replacement of Directors
With regard to the appointment and replacement of Directors, the
Company is governed by its Articles of Association, the Companies
Act 2014, and the Listing Rules of the FCA as applicable to
investment funds. The Articles of Association themselves may be
amended by special resolution of the Shareholders.
Powers of the Directors
The Directors are responsible for managing the business affairs
of the Company in accordance with the Articles of Association. The
Directors may delegate certain functions to the Administrator and
other parties, subject to the supervision and direction by the
Directors. The Directors have delegated the day-to-day
administration of the Company to the Administrator and the
investment management function to the Investment Manager.
The Articles of Association provide that the Directors may
exercise all the powers of the Company to borrow money, to mortgage
or charge its undertaking, property or any part thereof and may
delegate these powers to the Investment Manager. However, the
amount and circumstances in which the Company may borrow are
limited by the limitations set out in the Prospectus.
The Directors may at any time, and from time to time,
temporarily suspend the calculation of the NAV and the issue and
conversion of shares during:
-- any period when any of the principal markets or stock
exchanges on which a substantial part of the investments are quoted
is closed, otherwise than for ordinary holidays, or during which
dealings thereon are restricted or suspended;
-- any period when, as a result of political, economic, military
or monetary events or any circumstances outside the control,
responsibility and power of the Directors, disposal or valuation of
a substantial part of the investments is not reasonably practicable
without this being seriously detrimental to the interests of the
Shareholders or if, in the opinion of the Directors, the NAV cannot
be fairly calculated; and
-- any breakdown in the means of communication normally employed
in determining the value of the investments or when for any reason
the current prices on any market of a substantial part of the
investments cannot be promptly and accurately ascertained.
Any suspension of the calculation of the NAV of the US Dollar
Shares or of the Repurchase Pool Shares shall be notified
immediately to the Central Bank. All reasonable steps will be taken
to bring the period of suspension to an end as soon as possible.
Where such a suspension of the NAV is likely to continue for a
period exceeding ten business days, it will be notified by the
Company by announcement through a Regulatory Information Service.
The Directors may decline to accept any application for the issue
of shares and may cease to offer shares in the Company for
allotment or subscription for a definite period or otherwise.
RESPONSIBILITY STATEMENT
The Directors are responsible for preparing the Directors'
Report and the Company's 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
International Financial Reporting Standards as adopted by the
European Union ("IFRS") and in accordance with the provisions of
the Companies Act 2014.
Section 289 of the Companies Act 2014 provides that the
Directors shall not approve the financial statements unless they
are satisfied that they give a true and fair view of the Company's
assets, liabilities and financial position as at the end of the
financial year and of the profit or loss of the Company for that
financial year.
In preparing the financial statements, the Directors are
required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable and prudent;
-- state whether the financial statements comply with IFRS as
adopted by the European Union and in accordance with the Companies
Act 2014;
-- assess the Company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern;
and
-- use the going concern basis of accounting unless they either
intend to liquidate the Company or cease operations or have no
realistic alternative but to do so. As explained in note 2, the
Directors do not believe that it is appropriate to prepare these
financial statements on a going concern basis.
Under applicable law and the requirements of the Irish Code and
the Listing Rules issued by the FCA, the Directors are also
responsible for preparing a Directors' report and reports relating
to Directors' remuneration and corporate governance that comply
with that law and those rules. In particular, in accordance with
the Transparency (Directive 2004/109/EC) Regulations 2007, as
amended (the "Transparency Regulations"), the Directors are
required to include in their report a fair review of the business
and a description of the principal risks and uncertainties facing
the Company and a responsibility statement relating to these and
other matters, included below.
The Directors are responsible for keeping adequate accounting
records which correctly record and explain the transactions of the
Company, and which disclose with reasonable accuracy at any time
the assets, liabilities, financial position and profit or loss of
the Company, and which enable them to ensure that the financial
statements of the Company are prepared in accordance with IFRS as
adopted by the EU, and comply with the Companies Act 2014, and
enable the financial statements to be audited. They are responsible
for such internal controls as they determine are necessary to
enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error, and have
general responsibility 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 also
responsible for preparing a Directors' report that complies with
the requirements of the Companies Act 2014.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website www.carador.co.uk. Legislation in the Republic of
Ireland concerning the preparation and dissemination of financial
statement may differ from legislation in other jurisdictions.
Responsibility Statement, as required by the Transparency
Regulations and UK Corporate Governance Code
Each of the Directors, whose names and functions are listed
under "The Board" under "Company Corporate Governance" above,
confirm that, to the best of that Director's knowledge and belief
that:
-- the financial statements, prepared in accordance with IFRS as
adopted by the EU, and applied in accordance with the provisions of
the Companies Act 2014, give a true and fair view of the assets,
liabilities, financial position of the Company as at 31 December
2019, and its profit or loss for the financial year then ended;
-- the Directors' report contained in the annual 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 it faces; and
-- the annual report and audited financial statements, taken as
a whole, provides the information necessary to assess the Company's
performance, business model and strategy and is fair, balanced and
understandable and provides the information necessary for
Shareholders to assess the Company's position and performance,
business model and strategy.
CONNECTED PARTY TRANSACTIONS
The Central Bank Non-UCITS Notices, NU 2.10 - 'Dealings by
promoter, manager, partner, trustee, investment adviser and group
companies' states in paragraph one that any transaction carried out
with a collective investment scheme by a promoter, manager,
partner, trustee, investment adviser and/or associated or group
companies of these ("connected parties") must be carried out as if
negotiated at arm's length. Transactions must be in the best
interests of the Shareholders.
The Directors are satisfied that there are arrangements in
place, to ensure that the obligations set out in paragraph one of
NU 2.10 are applied to all transactions with connected parties; and
the Directors are satisfied that transactions with connected
parties entered into during the period complied with the
obligations set out in paragraph one of NU 2.10.
COMPLIANCE WITH ALTERNATIVE INVESTMENT FUND MANAGERS
REGULATIONS
Under AIFMD, the Company is required to make certain disclosures
on an annual basis. An analysis of realised gains/(losses) and the
movement on unrealised gains/(losses) is provided in note 4. All
other AIFMD disclosures, including on leverage and remuneration,
are disclosed by way of annual Article 22 and Article 23 reports.
As with the financial year ending 31 December 2018, these reports
will be posted to the Company's website by 30 June 2020.
AUDITORS
The Directors believe that they have taken all steps necessary
to make themselves aware of any relevant audit information and have
established that the Company's statutory auditor is aware of that
information. In so far as they are aware, there is no relevant
audit information of which the Company's statutory auditor is
unaware.
KPMG, Chartered Accountants, were appointed statutory auditor on
10 December 2010 and have been re-appointed annually since that
date, and pursuant to Section 383(2) of the Companies Act 2014,
will continue in office.
On behalf of the Board of Directors:
Fergus Sheridan Werner Schwanberg
21 April 2020
AUDIT COMMITTEE REPORT
Dear Shareholders,
I am pleased to report to you on the activities of the Audit
Committee for the financial year ended 31 December 2019.
ROLE OF THE AUDIT COMMITTEE
The Board has established a terms of reference in respect of the
composition of the Audit Committee, its role, responsibilities,
authority and evidence of the delegated authorities given to its
members (the "Terms of Reference"). The Company applies the revised
UK Code as introduced by the FRC in July 2018 which relate to
financial years commencing on or after 1 January 2019.
The Audit Committee's main roles and responsibilities include,
but are not limited to, the following:
-- monitoring the financial reporting process of the Company,
the integrity of the financial statements and any formal
announcements relating to the Company's financial performance;
-- assessing any significant financial reporting judgements;
-- reviewing and monitoring the effectiveness of the Company's
risk management and internal control arrangements;
-- monitoring the statutory audit of the annual accounts 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, re-appointment 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);
-- contributing to a climate of discipline and control which is
aimed at reducing the opportunity for fraud;
-- reporting to the Board on how it has discharged its responsibilities; and
-- considering the long term viability statement.
In regard to the above responsibilities, I confirm, on behalf of
the Audit Committee (the "Committee"), that, to the best of our
knowledge and belief, the Committee fulfilled its responsibilities
in line with our Terms of Reference and in accordance with the UK
Code.
DELEGATION OF DUTIES
The Company has no employees as all functions, including
preparation of the financial statements, have been outsourced to
various service providers. The daily operational activities have
been outsourced to GSO/Blackstone Debt Funds Management LLC (the
"Investment Manager"), the Administrator, State Street Custodial
Services (Ireland) Limited (the "Custodian"), the Registrar and
Company Secretary (together, the "outsourced service
providers").
MEMBERSHIP OF THE COMMITTEE
The Committee was established on 17 April 2007 and now consists
of Nicholas Moss, and myself, Fergus Sheridan, as chairman.
All the members of the Committee are considered to be
independent non-executive directors and the Committee has concluded
that its membership meets the requirements of Provision 24 of the
UK Code. Each Committee member is expected to be financially
literate and to have knowledge of the following key areas:
1. financial reporting principles and accounting standards;
2. the regulatory framework within which the Company
operates;
3. the Company's internal control and risk management
environment; and
4. factors impacting the Company's Financial Statements.
As a Committee, we meet at least three times a financial year.
Personnel from the Company's outsourced service providers along
with representatives of the Company's external auditor, KPMG,
attend the Committee meetings when appropriate.
In his role as a member of the Committee, each member is
available to discuss any particular matter with his fellow Board
members and, in addition, the Committee has the opportunity to meet
with KPMG without the presence of outsourced service providers. In
order to ensure that all Directors are kept up to date and informed
of the Committee's work, I provide a verbal report to the Board at
Board meetings on key matters discussed at the Committee meetings.
In addition, the minutes of all Committee meetings are available to
the Board.
HOW THE AUDIT COMMITTEE HAS DISCHARGED ITS RESPONSIBILITIES
In the financial year under review, the Audit Committee has met
three times, attendance at which is set out in the Directors'
report. The Committee meetings focused on the following key
areas:
Monitoring the integrity of the financial statements including
significant judgements
-- The Committee reviewed the appropriateness of the Company's
accounting principles and policies, and monitors changes to, and
compliance with, accounting standards on an ongoing basis;
-- Prior to recommending their publication to the Board, the
Committee reviewed the Unaudited Condensed Interim Financial
Statements ("Unaudited Interim Report") for the six month period
ended 30 June 2019, having previously discussed the Unaudited
Interim Report with the outsourced service providers and KPMG. The
Committee compared the results with management accounts and
budgets, focusing on key areas of judgements; and
-- The Committee reviewed, prior to making any recommendations
to the Board, the annual report and audited financial statements
("Annual Report") for the financial year ended 31 December 2019. In
undertaking this review, the Committee discussed with outsourced
service providers and KPMG the critical accounting policies and
judgements that have been applied.
KPMG reported to the Committee on any misstatements that they
had found during the course of their work and confirmed that under
ISAs (Ireland), no material misstatements were identified.
The Committee considered the requirements of the UK Code, in
line with best practice reporting. The Committee specifically
reviewed the annual report and audited financial statements to
conclude whether the financial reporting is fair, balanced,
understandable, comprehensive and consistent with (i) prior year
reporting; and (ii) how the Board assesses the performance of the
Company's business during the financial year, as required for
companies with a Premium Listing under the UK Code. As part of this
review, the Committee considered if the annual report and audited
financial statements provided the information necessary to
Shareholders to assess the Company's performance, strategy and
business model and reviewed the description of the Company's key
performance indicators.
The Committee presented its conclusions to the Board and the
Board concluded that it considered the annual report and audited
financial statements, taken as a whole, to be fair, balanced and
understandable and provides the information necessary for the
Shareholders to assess the Company's performance, business model
and strategy.
SIGNIFICANT ACCOUNTING MATTERS
During the financial year, the Committee considered key
accounting issues, matters and judgements regarding the Company's
financial statements and disclosures including those relating
to:
Assessment of going concern and IAS 1 Presentation of Financial
Statements ("IAS 1")
The Company assessed IAS 1.25 in respect of the decision to
complete a Managed Wind-Down of the Company. IAS 1.25 requires
management to make an assessment of the Company's ability to
continue as a going concern. The Directors do not consider it
appropriate to apply the going concern basis to the financial
statements and the financial statements are therefore prepared on a
non-going concern basis, in line with prior year. The Directors
believe there is no substantial difference between the going
concern basis and the non-going concern basis as the main assets
and liabilities are financial assets and liabilities and are shown
at fair value.
Please refer to the Going concern statement included in the
Directors' Report and Note 2C for further details.
Valuation of Financial Assets at Fair Value through Profit or
Loss
Valuation of financial assets is considered a significant matter
and is monitored by the Investment Manager, the Administrator, the
Custodian, the Committee and the Board. The Committee receives and
reviews reports on the processes for the valuation of assets on a
regular basis. The Committee may propose or recommend changes based
on their review of the reports for their consideration, including
the adequacy of the relevant disclosures in the financial
statements. The Committee discussed the valuation process and
methodology with the Investment Manager in August 2019 as part of
the review of the Interim Report. The Investment Manager carries
out a monthly valuation and provides a detailed valuation report to
the Company. The Committee met with the external auditor at the
time at which the Committee reviewed and agreed the external
auditor's audit plan in January 2020 and, in particular, discussed
the audit approach on the valuation. Following discussion, the
Committee were satisfied that the judgements made and methodologies
applied were objective and appropriate and that the appropriate
accounting treatment has been adopted. KPMG report to the Committee
on their assessment of the Company's valuation methodologies and
procedures applied and being fairly stated consistently each
financial year. See further details outlined in notes 2, 4 and 11
of the financial statements.
SIGNIFICANT ACCOUNTING MATTERS (continued)
Fair Value Hierarchy Levelling Assessment
The Directors, in conjunction with the Investment Manager,
determine the fair value of CLO investments using independent,
unadjusted indicative broker quotes. The categorisation of the CLO
investments in the fair value hierarchy is dependent on whether or
not the broker quotes reflect actual current market transactions,
or if they are indicative prices based on the brokers' valuation
models, depending on the significance and observability of the
inputs to the model. For CLOs to be categorised as Level 2, fair
value must be determined using observable inputs. If the valuation
cannot be verified as being based significantly on observable
inputs, then the investments would fall into Level 3. The
Directors, in conjunction with the Investment Manager, assessed
what was "observable" in the market for the measurement of CLO
Mezzanine Note and CLO Income Note valuations as at 31 December
2019. Given the generally low volume of trading of CLO Mezzanine
and Income Notes, it was concluded that there was limited market
colour available at or around the measurement date. Therefore, all
investments were categorised as Level 3 as at 31 December 2019.
Assessment of Risks and Uncertainties
The risks associated with the Company's financial instruments,
as disclosed in the financial statements, particularly in note 11,
represent a key accounting disclosure. The Committee critically
reviews, on the basis of input from the outsourced service
providers, the process of ongoing identification and measurement of
these risk disclosures.
Other Matters
Prior to preparation of the 2019 Annual Report and the financial
year end audit, the Committee considered the effect of any key new
reporting requirements impacting the Company. During the financial
year, the Committee received communications from the outsourced
service providers and from KPMG on other accounting matters
including tax, audit fees, anti-money laundering procedures, as
well as a representation letter and Unaudited Interim Report.
The Directors continue to carefully monitor the ongoing
developments regarding COVID-19. Please refer to page 72 of the
Annual Report and Audited Financial Statements for further
details.
TERMINATION OF THE COMPANY
On 28 August 2018, following a strategic review, the Board
determined to offer Shareholders the opportunity to vote on an
orderly wind up of the Company alongside the BGLF Rollover
Opportunity for those who wished to retain an investment in the
CLOs asset class. BGLF is an investment fund that invests in
floating rate senior secured loans directly and indirectly through
CLO securities. BGLF's portfolio advisor is an affiliate of the
Investment Manager.
On 17 December 2018, two EGMs of the Company were convened at
which: (a) Shareholders holding US Dollar Shares approved changes
to the investment objective and policy of the Company to facilitate
and authorise the Board to instruct the Investment Manager to
effect a Managed Wind-Down of the portfolio attributable to the US
Dollar Shares; and (b) Shareholders of the Company approved
amendments to the constitution of the Company to provide for the
termination of the Company before 2022.
On 21 December 2018, it was announced that 33.463% of US Dollar
Shareholders and 0.002% of Repurchase Pool Shareholders elected to
roll their investment in the Company into an investment in BGLF C
Shares.
On 7 January 2019, 133,450,591 US Dollar Shares and 488
Repurchase Pool Shares were converted into 133,451,107 Rollover
Shares. Following this, BGLF allotted and admitted to trading on
the Specialist Fund Segment of the Main Market of the LSE one new C
share for each Rollover Share in consideration of the transfer of
Rollover assets from the Company to BGLF. The listing of the BGLF C
Shares was effective as and from 7 January 2019.
Throughout 2019, the Investment Manager has focused on realising
the remaining assets in the portfolio resulting in the Company
returning capital to shareholders through multiple share
repurchases throughout 2019. The termination of the Company is
expected to occur when the remaining assets have being
substantially realised. Please refer to note 1 for further details
on the Managed Wind-Down of the Company.
RISK MANAGEMENT AND INTERNAL CONTROLS
The Board as a whole is responsible for the Company's system of
internal control; however, the Committee assists the Board in
meeting its obligations in this regard. The daily operational
activities of the Company were delegated to the outsourced 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 applicable to the outsourced service
providers as regulated entities. However, the Committee receives
confirmations from the outsourced service providers that no
material issues have arisen in respect of the system of internal
controls and risk management operated within the Company's
outsourced service providers. The Committee confirms that this is
an ongoing process in order to manage the significant risks faced
by the Company. The Committee deem that, to date, there are no
significant issues in this area which need to be brought to
Shareholders' attention.
EXTERNAL AUDIT
It is the responsibility of the Committee to monitor the
performance, independence, objectivity and re-appointment of KPMG.
In January 2020, the Committee met with KPMG who presented their
Audit Strategy and Plan for the financial year; the Committee
agreed the audit plan for the financial year, highlighting the key
financial statement and audit risks, to seek to ensure that the
audit was appropriately focused.
KPMG attends Committee meetings throughout the financial year,
as appropriate, which allows the opportunity to discuss any matters
the auditor may wish to raise without the Investment Manager or
other outsourced service providers being present. KPMG provides
feedback at each Committee meeting on topics such as the key
accounting matters, mandatory communications and the control
environment.
KPMG was formally appointed as the Company's auditor for the
2010 financial year end audit following a competitive tender
process during 2010. The lead audit partner is rotated every five
financial years to ensure continued independence and
objectivity.
The Committee continues to be satisfied with the performance of
KPMG. It has therefore recommended to the Board that KPMG, in
accordance with agreed terms of engagement and remuneration, should
continue as the Company's auditor at the forthcoming AGM.
In advance of the commencement of the annual audit, the
Committee reviewed a statement provided by KPMG confirming their
independence within the meaning of the regulations and professional
standards. In addition, in order to satisfy itself as to KPMG's
independence, the Committee undertook a review of the auditor
compensation and the balance between audit and non-audit fees.
It is also the responsibility of the Committee to approve the
guidelines for using the external auditors for non-audit work, and
to annually assess the work done to ensure that the independence of
the external auditors is maintained and to ensure appropriate
disclosures of these services are included in the annual report.
The Committee is the first point of call for discussion with the
auditor when required. Annually, the Committee reviews the schedule
of audit and non-audit fees of the auditor with particular regard
to the auditors' independence and objectivity. The Committee has
agreed the types of permitted and non-permitted non-audit services
and those which require explicit pre-approval. During the financial
year, the value of non-audit services provided by KPMG amounted to
US$84,343 plus VAT (2018: US$135,767 plus VAT). Whilst non-audit
services as a proportion of audit services amount to approximately
47.00% (2018: 43.30%), the overall quantum of non-audit services is
not considered to be material. See note 5 for further details.
On 17 June 2016, new EU rules, Statutory Instrument No.312 of
2016, on statutory audit became applicable. The new rules
established a list of non-audit services that could not be provided
by the statutory auditor and imposed limitations on the fees
charged for non-audit services. In addition to the review for
ensuring compliance with the new EU rules, the Audit Committee
performed an assessment of any threats to independence and the
safeguards in place to mitigate such threats before providing
approval for the provision of any non-audit services. The audit
committee is satisfied with the charge for non audit services
during the financial year in proportion to audit fees.
COMMITTEE EFFECTIVENESS
The effectiveness of the Committee is reviewed on an annual
basis by both the Board and the Committee itself. Following such
reviews, I am pleased to advise that the Committee is considered to
continue to operate effectively and efficiently. A member of the
Committee will be available to Shareholders at the forthcoming AGM
of the Company to answer any questions relating to the role of the
Committee.
Yours sincerely
Fergus Sheridan
On behalf of the Audit Committee
21 April 2020
STATEMENT OF CUSTODIAN'S RESPONSIBILITIES AND CUSTODIAN'S REPORT
TO THE SHAREHOLDERS
We have enquired into the conduct of Carador Income Fund plc
(the "Company") for the financial year ended 31 December 2019, in
our capacity as Custodian to the Company.
This report including the opinion has been prepared for and
solely for the Shareholders in the Company as a body, in accordance
with the Central Bank's Non - UCITS Notice 7, and for no other
purpose. We do not, in giving this opinion, accept or assume
responsibility for any other purpose or to any other person to whom
this report is shown.
RESPONSIBILITIES OF THE CUSTODIAN
Our duties and responsibilities are outlined in the Central
Bank's Non - UCITS Notice 7. One of those duties is to enquire into
the conduct of the Company in each annual accounting period and
report thereon to the Shareholders.
Our report shall state whether, in our opinion, the Company has
been managed in that period in accordance with the provisions of
the Company's Memorandum and Articles of Association and the Non -
UCITS Notices. It is the overall responsibility of the Company to
comply with these provisions. If the Company has not so complied,
we as Custodian must state why this is the case and outline the
steps which we have taken to rectify the situation.
BASIS OF CUSTODIAN OPINION
The Custodian conducts such reviews as it, in its reasonable
opinion, considers necessary in order to comply with its duties as
outlined in Non - UCITS Notice 7 and to ensure that, in all
material respects, the Company has been managed (i) in accordance
with the limitations imposed on its investment and borrowing powers
by the provisions of the Company's Memorandum and Articles of
Association and the appropriate regulations and (ii) otherwise in
accordance with the Company's constitutional documentation and the
appropriate regulations.
OPINION
In our opinion, the Company has been managed during the year, in
all material respects:
(i) in accordance with the limitations imposed on the investment
and borrowing powers of the Company by the Memorandum and Articles
of Association and by the Central Bank under the powers granted to
it by Part 24 of the Companies Act, 2014; and
(ii) otherwise in accordance with the provisions of the
Memorandum and Articles of Association, Part 24 of the Companies
Act, 2014.
State Street Custodial Services (Ireland) Limited
78 Sir John Rogerson's Quay
Dublin 2
Ireland
21 April 2020
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF Carador Income Fund
PLC
Report on the audit of the financial statements
Opinion
We have audited the financial statements of Carador Income Fund
plc ('the Company') for the year ended 31 December 2019, which
comprise the statement of financial position, the statement of
comprehensive income, the statement of changes in net assets
attributable to participating holders of shares, the statement of
cash flows and the related notes, including the accounting policies
in note 2. These financial statements have not been prepared on the
going concern basis for the reason set out in note 2. The financial
reporting framework that has been applied in their preparation is
Irish Law and International Financial Reporting Standards (IFRS) as
adopted by the European Union ("EU").
In our opinion, the accompanying financial statements:
- give a true and fair view of the assets, liabilities and
financial position of the Company as at 31 December 2019 and of its
decrease in net assets attributable to participating holders of
shares for the year then ended;
- have been properly prepared in accordance with IFRS as adopted
by the EU; and
- have been properly prepared in accordance with the
requirements of the Companies Act 2014.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (Ireland) (ISAs (Ireland)) and applicable
law. Our responsibilities under those standards are further
described in the Auditor's Responsibilities section of our report.
We believe that the audit evidence we have obtained is a sufficient
and appropriate basis for our opinion. Our audit opinion is
consistent with our report to the audit committee.
We were appointed as auditor by the shareholders on 10 December
2010. The period of total uninterrupted engagement is for the 10
financial years ended 31 December 2019. We have fulfilled our
ethical responsibilities under, and we remained independent of the
Company in accordance with, ethical requirements applicable in
Ireland, including the Ethical Standard issued by the Irish
Auditing and Accounting Supervisory Authority (IAASA) as applied to
listed public interest entities. No non-audit services prohibited
by that standard were provided.
Key audit matters: our assessment of risks of material
misstatement
Key audit matters are those matters that, in our professional
judgment, were of most significance in the audit of the financial
statements and include the most significant assessed risks of
material misstatement (whether or not due to fraud) identified by
us, including 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.
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF CARADOR INCOME FUND
PLC (continued)
Report on the audit of the financial statements (continued)
Key audit matters: our assessment of risks of material
misstatement (continued)
In arriving at our audit opinion above, the key audit matter was
as follows (unchanged from 2018):
Valuation of financial assets at fair value through profit or
loss of US$9m (2018: US$ 232m )
Refer to page 34 (accounting policy) and notes 4, 9 and 11 to
the financial statements (financial disclosures).
In arriving at our audit opinion above, we determine that there
was one key audit matter as follows (unchanged from 2018):
The key audit matter How the matter was addressed in our audit
The Company had Our audit procedures included but
36.0% (2018: 88.6%) were not limited to:
of its total assets * Obtaining and documenting an understanding of the
as at 31 December valuation methodologies and valuation processes
2019 invested into established by the Directors and testing the design
Collateralised Loan and implementation of the relevant controls therein;
Obligations ("CLO's").
The valuation of
the Company's investments * Obtaining the broker quotations as used by the
in these CLO's, Investment Manager and recalculating the valuation of
due to their materiality the investments using the broker price approach;
in the context of
the financial statements
as a whole, is a * Consideration of the Company's sales of investments
significant area pre and post financial year end for evidence of bias
of our audit. The in the valuation of investments held at year end;
valuation of this
asset class is based
on prevailing market * With the assistance of a KPMG valuation specialist,
information (broker assessing whether the valuation of the Company's
price approach) investments was within an acceptable range of fair
at the valuation values by performing substantive testing, which
date. There is a included the determination of an independent fair
risk that the prices value through cash flow analysis for 100% of the
in respect of these mezzanine note investments and a sample of income
investments held note investments held as at year end; and
by the Company may
not be reflective
of fair value. * We also considered the adequacy of the Company's
disclosures (see note 2N) in relation to: the use of
judgements and estimates in determining the fair
value of investments: the Company's investment
valuation policies adopted; and fair value
disclosures in note 4 and note 11 to the financial
statements for compliance with the relevant
accounting standard.
Based on evidence obtained, we concluded
that the valuation of the Company's investment
portfolio is within an acceptable range.
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF CARADOR INCOME FUND
PLC (continued)
Report on the audit of the financial statements (continued)
Our application of materiality and an overview of the scope of
our audit
The materiality for the Company as a whole was set at US$217k
(2018: US$2,614k). This has been determined using a benchmark of
the Company's total revenue (of which it represents 1%) as at 31
December 2019 (2018: 1% of total assets).
Materiality benchmark changed from the prior year from total
assets to total revenue since the Company is in liquidation stage
and thus, we consider total revenue to be the most appropriate
benchmark, as the new benchmark would ordinarily have the most
influence on the economic decisions of the shareholders.
We report to the Audit Committee all corrected and uncorrected
misstatements we identified through our audit with a value of
US$11k (2018: US$131k), in addition to other identified
misstatements that warranted reporting on qualitative grounds.
Our audit of the Company was undertaken to the materiality level
specified above and was performed by a single engagement team in
Dublin.
We have nothing to report on the other information in the annual
report
The Directors are responsible for the preparation of the other
information presented in the Annual Report together with the
financial statements. The other information comprises the
information included in the Directors' report, Chairman's Report,
the Investment Manager's Review, the Audit Committee Report and the
Statement of Depositary's Responsibilities and Depository's Report
to the Shareholders. The financial statements and our auditor's
report thereon do not comprise part of the other information. Our
opinion on the financial statements does not cover the other
information and, accordingly, we do not express an audit opinion
or, except as explicitly stated below, any form of assurance
conclusion thereon.
Our responsibility is to read the other information and, in
doing so, consider whether, based on our financial statements audit
work, the information therein is materially misstated or
inconsistent with the financial statements or our audit knowledge.
Based solely on that work we have not identified material
misstatements in the other information.
Based solely on our work on the other information we report
that:
- We have not identified material misstatements in the
Directors' report;
- In our opinion, the information given in the Director's report
is consistent with the financial statements; and
- In our opinion, the Director's report has been prepared in
accordance with the Companies Act 2014.
Disclosures of principal risks and longer-term viability
Based on the knowledge we acquired during our financial
statements audit, we have nothing material to add or draw attention
to in relation to:
- the Principal Risks disclosures on page 11 describing these
risks and explaining how they are being managed and mitigated;
- the Directors' confirmation within the Viability statement on
page 13 that they have carried out an assessment of the principal
risks facing the Company, including those that would threaten its
business model, future performance, solvency and liquidity; and
- the Directors' explanation in the Going Concern Statement on
page 13 of how they have assessed the prospects of the Company,
over what period they have done so and why they considered that
period to be appropriate, and their statement as to whether 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 period of their assessment, including any related
disclosures drawing attention to any necessary qualifications or
assumptions.
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF CARADOR INCOME FUND
PLC (continued)
Report on the audit of the financial statements (continued)
Other corporate governance disclosures
We are required to address the following items and report to you
in the following circumstances:
- Fair, balanced and understandable: if we have identified
material inconsistencies between the knowledge we acquired during
our financial statements audit and the directors' statement that
they consider that the Annual Report and financial statements taken
as a whole is fair, balanced and understandable and provides the
information necessary for Shareholders to assess the Company's
position and performance, business model and strategy;
- Report of the Audit Committee: if the section of the Annual
Report describing the work of the Audit Committee does not
appropriately address matters communicated by us to the Audit
Committee; and
- Statement of compliance with UK Corporate Governance Code: if
the directors' statement does not properly disclose a departure
from provisions of the UK Corporate Governance Code specified by
the Listing Rules for our review.
We have nothing to report in these respects.
In addition as required by the Companies Act 2014, we report, in
relation to information given in the Corporate Governance Statement
on pages 9 to 16, that:
- based on the work undertaken for our audit, in our opinion,
the description of the main features of internal control and risk
management systems in relation to the financial reporting process,
and information relating to voting rights and other matters
required by the European Communities (Takeover Bids (Directive
2004/25/EC) Regulations 2006 and specified for our consideration,
is consistent with the financial statements and has been prepared
in accordance with the Act;
- based on our knowledge and understanding of the Company and
its environment obtained in the course of our audit, we have not
identified any material misstatements in that information; and
- the Corporate Governance Statement contains the information
required by the European Union (Disclosure of Non-Financial and
Diversity Information by certain large undertakings and groups)
Regulations 2017.
We also report that, based on work undertaken for our audit,
other information required by the Act is contained in the Corporate
Governance Statement.
Our opinions on other matters prescribed by the Companies Act
2014 are unmodified
We have obtained all the information and explanations which we
consider necessary for the purpose of our audit.
In our opinion, the accounting records of the Company were
sufficient to permit the financial statements to be readily and
properly audited and the financial statements are in agreement with
the accounting records.
We have nothing to report on other matters on which we are
required to report by exception
The Companies Act 2014 requires us to report to you if, in our
opinion, the disclosures of directors' remuneration and
transactions required by Sections 305 to 312 of the Act are not
made.
The Listing Rules of the Financial Conduct Authority ("FCA")
require us to review:
- the Directors' Statement, set out on page 13, in relation to
going concern and longer-term viability;
- the part of the Corporate Governance Statement on pages 9 - 16
relating to the Company's compliance with the provisions of the UK
Corporate Governance Code and the Irish Corporate Governance Annex
specified for our review; and
- certain elements of disclosures in the report to Shareholders
by the Board of Directors' Remuneration Committee.
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF CARADOR INCOME FUND
PLC (continued)
Respective responsibilities and restrictions on use
Directors' responsibilities
As explained more fully in their statement set out on page 17,
the Directors are responsible for: the preparation of the financial
statements including being satisfied that they give a true and fair
view; such internal control as they determine is necessary to
enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error; 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 they either intend to liquidate
the Company or to cease operations, or have no realistic
alternative but to do so.
Auditor's responsibilities
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 our
opinion in an auditor's report. Reasonable assurance is a high
level of assurance, but does not guarantee that an audit conducted
in accordance with ISAs (Ireland) will always detect a material
misstatement when it exists. Misstatements can arise from fraud,
other irregularities or error and are considered material if,
individually or in aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of the
financial statements. The risk of not detecting a material
misstatement resulting from fraud or other irregularities is higher
than for one resulting from error, as they may involve collusion,
forgery, intentional omissions, misrepresentations, or the override
of internal control and may involve any area of law and regulation
and not just those directly affecting the financial statements.
A fuller description of our responsibilities is provided on
IAASA's website at
https://www.iaasa.ie/getmedia/b2389013-1cf6-458b-9b8f-a98202dc9c3a/Description_of_auditors_responsibilities_for_audit.pdf.
The purpose of our audit work and to whom we owe our
responsibilities
Our report is made solely to the Company's members, as a body,
in accordance with Section 391 of the Companies Act 2014. 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 our report, or for the opinions we have
formed.
Vincent Reilly Date: 21 April 2020
for and on behalf of
KPMG
Chartered Accountants, Statutory Audit Firm
1 Harbourmaster Place
International Financial Services Centre
Dublin 1
STATEMENT OF FINANCIAL POSITION
As at 31 December 2019
31 December 31 December
2019 2018
Notes US$ US$
---------------------------------------------- --------- ------------ ------------
ASSETS
Cash and cash equivalents 6, 11 16,046,805 28,811,103
Other receivables 11 549,339 939,963
Financial assets at fair value through
profit or loss 4, 9, 11 9,332,952 231,650,491
---------------------------------------------- --------- ------------ ------------
TOTAL ASSETS 25,929,096 261,401,557
---------------------------------------------- --------- ------------ ------------
LIABILITIES
Expenses payable 5 657,797 2,179,971
TOTAL LIABILITIES (excluding net assets
attributable to participating Shareholders) 657,797 2,179,971
---------------------------------------------- --------- ------------ ------------
NET ASSETS ATTRIBUTABLE TO PARTICIPATING
HOLDERS OF REPURCHASE POOL SHARES 3 2,996,247 15,748,150
NET ASSETS ATTRIBUTABLE TO PARTICIPATING
HOLDERS OF US DOLLAR SHARES 3 22,275,052 243,473,436
---------------------------------------------- --------- ------------ ------------
TOTAL NET ASSETS ATTRIBUTABLE TO PARTICIPATING
HOLDERS OF SHARES 25,271,299 259,221,586
TOTAL LIABILITIES
(including net assets attributable to participating
holders of shares) 25,929,096 261,401,557
--------------------------------------------------------- ------------ ------------
The accompanying notes form an integral part of the financial
statements.
The Company is in the process of a Managed Wind-Down, therefore
the financial statements are prepared on a non-going concern basis.
See note 1 for further details.
The financial statements were authorised and approved for issue
by the Directors on 21 April 2020 and signed on their behalf
by:
Werner Schwanberg Fergus Sheridan
STATEMENT OF COMPREHENSIVE INCOME
For the financial year ended 31 December 2019
2019 2018
Notes US$ US$
---------------------------------------------- ------- ------------- -------------
Interest income on cash and cash
equivalents 2 114,325 65,390
Miscellaneous income 88,378 166,884
Net gain/(loss) on foreign exchange 2 1,701 (23,832)
Net gain/(loss) on financial assets
at fair value through profit or
loss 2, 4 21,512,572 (23,308,606)
---------------------------------------------- ------- ------------- -------------
TOTAL REVENUE 21,716,976 (23,100,164)
---------------------------------------------- ------- ------------- -------------
Investment management fees 5 (815,857) (3,800,369)
Custodian fees 5 (38,383) (58,240)
Administration fees 5 (130,254) (259,746)
Directors' fees 5, 10 (374,700) (399,959)
Auditor's fees 5 (152,751) (299,770)
Other o perating expenses 5 (1,040,574) (1,256,921)
---------------------------------------------- ------- ------------- -------------
TOTAL OPERATING EXPENSES (2,552,519) (6,075,005)
---------------------------------------------- ------- ------------- -------------
OPERATING PROFIT/(LOSS) BEFORE
FINANCE COSTS 19,164,457 (29,175,169)
---------------------------------------------- ------- ------------- -------------
Fair value movement on Repurchase
Pool Shares 3 (298,443) 1,141,818
Fair value movement on US Dollar
Shares* 3 (18,863,817) -
Interest expense 3 (2,197) (1,371)
TOTAL FINANCE COSTS (19,164,457) 1,140,447
------------------------------------------------------- ------------- -------------
INCOME/(LOSS) FOR THE FINANCIAL YEAR ATTRIBUTABLE
TO PARTICIPATING EQUITY HOLDERS
OF US DOLLAR SHARES* - (28,034,722)
------------------------------------------------------- ------------- -------------
TOTAL COMPREHENSIVE INCOME/(LOSS) FOR
THE FINANCIAL YEAR ATTRIBUTABLE TO PARTICIPATING
EQUITY HOLDERS OF US DOLLAR SHARES * - (28,034,722)
------------------------------------------------------- ------------- -------------
The accompanying notes form an integral part of the financial
statements.
The Company is in the process of a Managed Wind-Down, therefore
the financial statements are prepared on a non-going concern basis.
See note 1 for further details. All amounts in the above statement
of comprehensive income arose from discontinued operations.
*From 17 December 2018, the US Dollar Shares were no longer
classified as equity, as the terms changed such that from that
date, the shares qualify as liabilities and are presented as such.
From 17 December 2018, income attributable to the US Dollar
Shareholders is shown as fair value movement on US Dollar Shares.
See note 2C for further details.
STATEMENT OF CHANGES IN EQUITY
For the financial year ended 31 December 2018
Notes US$
----------------------------------------------------------- ---------- ------------------------------
NET ASSETS ATTRIBUTABLE TO PARTICIPATING EQUITY
HOLDERS OF US DOLLAR SHARES AS AT 31 DECEMBER
2017 299,264,762
----------------------------------------------------------- ---------- ------------------------------
TRANSACTIONS WITH PARTICIPATING EQUITY HOLDERS
OF US DOLLAR SHARES
Loss for the financial year attributable to participating
equity holders of US Dollar Shares (28,034,722)
Distributions to Participating Equity Holders
of US Dollar Shares 14 (27,756,604)
Transfer to liabilities for net assets attributable
to participating holders of US Dollar Shares (243,473,436)
----------------------------------------------------------- ---------- ------------------------------
NET ASSETS ATTRIBUTABLE TO PARTICIPATING EQUITY
HOLDERS OF US DOLLAR SHARES AS AT 31 DECEMBER
2018* -
----------------------------------------------------------- ---------- ------------------------------
STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO PARTICIPATING
HOLDERS OF SHARES
For the financial year ended 31 December 2019
Notes US$
----------------------------------------------------- ---------- -----------------
NET ASSETS ATTRIBUTABLE TO PARTICIPATING HOLDERS
OF SHARES AS AT 1 JANUARY 2018 107,889,914**
----------------------------------------------------- ---------- -----------------
TRANSACTIONS WITH PARTICIPATING HOLDERS OF SHARES
Redemption of Repurchase Pool Shares 7 (90,999,946)
Fair value movement on Shares (1,141,818)
Transfer to liabilities for net assets attributable
to participating holders of US Dollar Shares 243,473,436
----------------------------------------------------- ---------- -----------------
NET ASSETS ATTRIBUTABLE TO PARTICIPATING HOLDERS
OF SHARES AS AT 31 DECEMBER 2018* 259,221,586
----------------------------------------------------- ---------- -----------------
TRANSACTIONS WITH PARTICIPATING HOLDERS OF SHARES
Transfer of cash to Rollover Shares 1 (8,534,468)
Non-cash transfer to Rollover Shares 1 (80,923,311)
Redemption of Repurchase Pool Shares 7 (13,049,997)
Redemption of US Dollar Shares 7 (146,199,941)
Fair value movement on Shares 19,162,260
Distributions to Participating Holders of US Dollar
Shares 14 (4,404,830)
NET ASSETS ATTRIBUTABLE TO PARTICIPATING HOLDERS
OF SHARES AS AT 31 DECEMBER 2019 25,271,299
----------------------------------------------------- ---------- -----------------
The accompanying notes form an integral part of the financial
statements.
The Company is in the process of a Managed Wind-Down, therefore
the financial statements are prepared on a non-going concern basis.
See note 1 for further details.
*From 17 December 2018, the US Dollar Shares were no longer
classified as equity, as the terms changed such that from that
date, the shares qualify as liabilities and are presented as such.
See note 2C for further details.
**US Dollar Shares were still classified as equity at 1 January
2018 and as such, this balance includes net assets attributable to
participating holders of Repurchase Pool Shares only.
STATEMENT OF CASH FLOWS
For the financial year ended 31 December 2019
2019 2018
Notes US$ US$
------------------------------------------------- --------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Loss for the financial year attributable
to participating equity holders
of US Dollar Shares - (28,034,722)
Adjustments for non-cash items
and working capital:
Amounts attributable to Repurchase
Pool
Shareholders 3 298,443 (1,141,818)
Amounts attributable to US Dollar
Shareholders 3 18,863,817 -
Decrease in payables (1,522,174) (398,334)
Decrease in receivables 390,624 616,808
Net loss on financial assets at
fair value through profit
or loss 1,932,969 54,283,815
--------------------------------------------- --- --------------- ---------------
NET CASH INFLOW FROM OPERATING
ACTIVITIES 19,963,679 25,325,749
--------------------------------------------- --- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments - (39,160,054)*
Disposal and paydowns of investments 139,461,259 150,165,971*
--------------------------------------------- --- --------------- ---------------
NET CASH INFLOW FROM INVESTING
ACTIVITIES 139,461,259 111,005,917
--------------------------------------------- --- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to US Dollar Shareholders 14 (4,404,830) (27,756,604)
Transfer to Rollover Shares 1 (8,534,468) -
Redemptions paid to Repurchase
Pool Shareholders 7 (13,049,997) (90,999,946)
Redemptions paid to US Dollar Shareholders 7 (146,199,941) -
NET CASH OUTFLOW FROM FINANCING
ACTIVITIES (172,189,236) (118,756,550)
--------------------------------------------- --- --------------- ---------------
Net (decrease)/increase in cash
and cash equivalents (12,764,298) 17,575,116
CASH AND CASH EQUIVALENTS AT THE
BEGINNING OF THE FINANCIAL YEAR 28,811,103 11,235,987
--------------------------------------------- --- --------------- ---------------
CASH AND CASH EQUIVALENTS AT THE OF THE FINANCIAL YEAR 16,046,805 28,811,103
--------------------------------------------- --- --------------- ---------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH
ACTIVITIES
Non-cash disposal and paydown of
investments 1 80,923,311 -
Non-cash transfer to Rollover Shares 1 (80,923,311) -
--------------------------------------------- --- --------------- ---------------
The accompanying notes form an integral part of the financial
statements.
The Company is in the process of a Managed Wind-Down, therefore
the financial statements are prepared on a non-going concern basis.
See note 1 for further details.
*Balances included investment in unconsolidated subsidiaries
which were held during the year ended 31 December 2018. As at 31
December 2018,the Company no longer invested in unconsolidated
subsidiaries.
NOTES TO THE FINANCIAL STATEMENTS
For the financial year ended 31 December 2019
1 GENERAL
Carador Income Fund PLC (the "Company") is a closed-ended
limited liability investment company domiciled and incorporated
under the laws of the Republic of Ireland with variable capital
pursuant to the Irish Companies Act 2014. The Company was
incorporated on 20 February 2006 under registration number 415764.
The Company is authorised by the Central Bank of Ireland (the
"Central Bank"), pursuant to Part 24 of the Companies Act 2014. The
US Dollar Shares are admitted to the Official List of the Financial
Conduct Authority ("FCA") with a premium listing and are admitted
to trading on the Main Market of the London Stock Exchange (the
"LSE").
On 31 October 2017, the Company converted 144,451,569 US Dollar
Shares on a one to one basis into US Dollar denominated Repurchase
Pool shares of no par value ("Repurchase Pool Shares"). Repurchase
Pool Shares are classified as a liability in accordance with the
requirements of IAS 32. On 22 November 2017, the Repurchase Pool
Shares were admitted to trading on the Specialist Fund Segment of
the Main Market of the LSE. The assets attributable to the
Repurchase Pool Shares will be realised over time and the proceeds
(net of fees, expenses and other liabilities) will be paid out to
the Repurchase Pool Shareholders by way of the compulsory
repurchase, in tranches, of the Repurchase Pool Shares.
On 15 June 2018, the Board of Directors of the Company (the
"Board") announced that, following the Repurchase Opportunity
provided to Shareholders in October 2017, the Company engaged its
financial advisers to commence a strategic review of the Company in
order to consider future prospects and opportunities. On 28 August
2018, the Board announced that, following the strategic review, the
Board determined to offer all Shareholders the opportunity to vote
on an orderly wind up of the Company alongside the Rollover for
those who wished to retain an investment in the CLOs asset class
(the "Rollover Opportunity"). The Rollover Opportunity enabled
Shareholders who wished to retain an investment in the CLO asset
class to elect to roll over their investment in the Company into an
investment in Blackstone / GSO Loan Financing Limited ("BGLF").
BGLF is an investment fund that invests in floating rate senior
secured loans directly and indirectly through CLO securities.
BGLF's portfolio advisor is an affiliate of GSO / Blackstone Debt
Funds Management LLC (the "Investment Manager").
On 23 November 2018, a circular detailing the proposal to amend
the investment objective and policy of the Company, to amend the
constitution of the Company and to propose a Managed Wind-Down with
the Rollover Opportunity was published (the "2018 Circular").
On 17 December 2018, two EGMs of the Company were convened at
which: (a) Shareholders holding US Dollar Shares approved changes
to the investment objective and policy of the Company to facilitate
and authorise the Board to instruct the Investment Manager to
effect a Managed Wind-Down of the portfolio attributable to the US
Dollar Shares; and (b) Shareholders of the Company approved
amendments to the constitution of the Company to provide for the
termination of the Company before 2022.
On 21 December 2018, it was announced that 33.463% of US Dollar
Shareholders and 0.002% of Repurchase Pool Shareholders elected to
roll their investment in the Company into an investment in BGLF C
Shares. In January 2019, 133,450,591 US Dollar Shares and 488
Repurchase Pool Shares were converted into 133,451,107 Rollover
Shares. Following this, BGLF allotted and admitted to trading on
the Specialist Fund Segment of the Main Market of the LSE one new C
share for each Rollover Share in consideration of the transfer of
Rollover assets from the Company to BGLF. The value of the Rollover
assets was US$89,457,779, of which US$8,534,468 was cash and
US$80,923,311 was investments. The listing of the BGLF C Shares was
effective as and from 7 January 2019.
The Rollover Shares were created by allocating to such class a
pro rata amount of the assets and liabilities of the Company
attributable to the Shares converted using the latest published NAV
available as at the Rollover Conversion Date. The Company
repurchased all of the Rollover Class Shares in-kind and
transferred the assets attributable to the Rollover Shares to BGLF
in exchange for shares in BGLF issued to Rollover Shareholders as
at the BGLF Rollover Date.
Further to the Shareholder resolution of the Company that was
passed by Shareholders of US Dollar Shares on 17 December 2018, the
investment objective of the Company now is to realise all remaining
assets of the Company with a view to returning capital to the
Shareholders in an orderly manner. The assets that were subject to
the Managed Wind-Down did not include the assets of the Company
that were transferred as part of the BGLF Rollover Opportunity.
Prior to 17 December 2018, the investment objective of the Company
was to produce attractive and stable returns with low volatility
compared to equity markets by investing in a diversified portfolio
of senior notes of CLOs collateralised by senior secured bank loans
and equity and mezzanine tranches of CLOs.
As at 31 December 2019, there were 40,606,709 US Dollar Shares
and 6,617,236 Repurchase Pool Shares in issue.
2 SIGNIFICANT ACCOUNTING POLICIES
2A STATEMENT OF COMPLIANCE
The Company's financial statements are prepared in accordance
with International Financial Reporting Standards ("IFRS") as issued
by the International Accounting Standards Board ("IASB") as adopted
by the European Union and also in accordance with Irish Company
Law.
2B ADOPTION OF NEW ACCOUNTING STANDARDS AND AMMENTS, INCLUDING
ACCOUNTING POLICY CHANGES
The Company has consistently applied the accounting requirements
to all periods presented in these financial statements.
New standards adopted during the financial year ended 31
December 2019 are detailed below.
Standard: Narrative: Effective Date*:
IFRS 16 Leases 1 January 2019
Annual Improvements to IFRSs 2015 - 2017
Various Cycle 1 January 2019
Financial Instruments - Prepayment Features
with Negative Compensation (Amendment
IFRS 9 to IFRS 9) 1 January 2019
Long Term Interests in Associates and
IAS 28 (amendments) Joint Ventures 1 January 2019
IAS 19 (amendments) Plan Amendments, Curtailment or Settlement 1 January 2019
IFRIC 23 Uncertainty over Income Tax Treatments 1 January 2019
*Annual periods beginning on or after
These standards did not have any material impact on the
Company's financial statements. In the case of IFRIC 23
'Uncertainty over Income Tax Treatments', the Directors have made
an assessment and are not aware of any uncertain tax positions for
the Company as at 31 December 2019.
2C BASIS OF PREPARATION
The Company is in the process of a Managed Wind-Down and
therefore it is no longer appropriate to prepare the financial
statements on a going concern basis. The financial statements are
prepared on a non-going concern basis, in line with prior year.
There is no substantial difference between the going concern basis
and the non-going concern basis as the main assets and liabilities
are financial assets and liabilities and are shown at fair
value.
The Company's financial statements have been prepared on a
historical cost basis, except for certain financial instruments
measured at fair value through profit or loss.
The functional currency of the Company is US Dollar (US$), as
the Board have determined that this reflects the Company's primary
economic environment. The presentation currency of the financial
statements is also US Dollar.
The financial statements comprise the Company's statement of
financial position, statement of comprehensive income, statement of
changes in net assets and statement of cash flows together with the
related notes. These notes also incorporate financial instrument
disclosures which are required by IFRS 7 that are contained in the
Annual Report in the section entitled "Investment Manager's
review".
The Company qualifies as an investment entity in accordance with
IFRS 10 Consolidated Financial Statements ("IFRS 10") Investment
Entity Amendment, and therefore, the Company does not consolidate
subsidiaries but accounts for them at fair value through profit or
loss. As at 31 December 2019 and 2018, the Company had no
subsidiary undertakings for financial reporting purposes.
For the financial year ended 31 December 2019 and 2018, net
assets attributable to participating holders of Repurchase Pool
Shares and net assets attributable to participating holders of US
Dollar Shares were classified as liabilities. The Company's other
liabilities include expenses payable to service providers.
The liabilities are linked to the NAV of each share class and
thus fluctuate as the NAV of each share class changes. This results
in the Company being able to comfortably cover the liabilities as
they fall due.
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
2D FINANCIAL INSTRUMENTS
(i) Recognition and initial measurement
The Company initially recognises financial assets and financial
liabilities at fair value through profit or loss on the trade date,
which is the date on which the Company becomes a party to the
contractual provisions of the instrument. Other financial assets
and financial liabilities are recognised on the date on which they
are originated.
A financial asset or financial liability is measured initially
at fair value plus, for an item not at fair value through profit or
loss, transaction costs that are directly attributable to its
acquisition or issue.
A financial asset is measured at amortised cost if it meets both
of the following conditions and is not at fair value through profit
or loss:
- it is held within a business model whose objective is to hold
assets to collect contractual cash flows; and
- its contractual terms give rise on specified dates to cash
flows that are solely payments of principal and interest
("SPPI").
All other financial assets of the Company are measured at fair
value through profit or loss.
Business model assessment
In making an assessment of the objective of the business model
in which a financial asset is held, the Company considers all of
the relevant information about how the business is managed,
including:
- the documented investment strategy and the execution of this
strategy in practice. This includes whether the investment strategy
focuses on earning contractual interest income, maintaining a
particular interest rate profile, matching the duration of the
financial assets to the duration of any related liabilities or
expected cash outflows or realising cash flows through the sale of
the assets;
- how the performance of the portfolio is evaluated and reported to the Company's management;
- the risks that affect the performance of the business model
(and the financial assets held within that business model) and how
those risks are managed;
- how the Investment Manager is compensated: e.g. whether
compensation is based on the fair value of the assets managed or
the contractual cash flows collected; and
- the frequency, volume and timing of sales of financial assets
in prior periods, the reasons for such sales and expectations about
future sales activity.
Transfers of financial assets to third parties in transactions
that do not qualify for derecognition are not considered sales for
this purpose, consistent with the Company's continuing recognition
of the assets.
The Company has determined that it has two business models.
- Held-to-collect business model: this includes cash and cash
equivalents and other receivables. These financial assets are held
to collect contractual cash flow.
- Other business model: this includes financial assets at fair
value through profit or loss, which consists of debt securities and
equity investments. These financial assets are managed and their
performance is evaluated, on a fair value basis, with frequent
sales taking place and are therefore measured at fair value through
profit or loss.
On 17 December 2018, two EGMs of the Company were convened at
which: (a) Shareholders holding US Dollar Shares approved changes
to the investment objective and policy of the Company to facilitate
and authorise the Board to instruct the Investment Manager to
effect a Managed Wind-Down of the portfolio attributable to the US
Dollar Shares; and (b) Shareholders of the Company approved
amendments to the constitution of the Company to provide for the
termination of the Company before 2022. Further to these
resolutions, the Company's business model is held-to-collect
business model discussed above.
Assessment whether contractual cash flows are SPPI
For the purposes of this assessment, 'principal' is defined as
the fair value of the financial asset on initial recognition.
'Interest' is defined as consideration for the time value of money
and for the credit risk associated with the principal amount
outstanding during a particular period of time and for other basic
lending risks and costs (e.g. liquidity risk and administrative
costs), as well as a profit margin.
In assessing whether the contractual cash flows are SPPI, the
Company considers the contractual terms of the instrument.
Reclassifications
Financial assets are not reclassified subsequent to their
initial recognition unless the Company were to change its business
model for managing financial assets, in which case all affected
financial assets would be reclassified on the first day of the
first reporting period following the change in the business
model.
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
2D FINANCIAL INSTRUMENTS (continued)
(ii) Subsequent Measurement
Financial assets at fair value through profit or loss
These assets are subsequently measured at fair value. Net gains
and losses, including any interest or dividend income and expense
and foreign exchange gains and losses, are recognised in profit or
loss in net gain/(loss) on financial assets at fair value through
profit or loss in the statement of comprehensive income.
Mezzanine and Income CLO tranches are included in this
category.
Financial assets at amortised cost
These assets are subsequently measured at amortised cost using
the effective interest method. The amortised cost is reduced by
impairment losses, if any. Interest income, foreign exchange gains
and losses, impairment and any gain or loss on derecognition is
recognised in the statement of comprehensive income.
Cash and cash equivalents and other receivables are included in
this category.
Financial liabilities
Financial liabilities are classified as measured at amortised
cost or at fair value through profit or loss.
A financial liability is classified as at fair value through
profit or loss if it is classified as held-for-trading, it is a
derivative or it is designated as such on initial recognition.
Financial liabilities at fair value through profit or loss are
measured at fair value and net gains and losses, including any
interest expense, are recognised in profit or loss. Other financial
liabilities are subsequently measured at amortised cost using the
effective interest method. Interest expense and foreign exchange
gains and losses are recognised in profit or loss. Any gain or loss
on derecognition is also recognised in profit or loss.
Financial liabilities at amortised cost include expenses
payable. Financial liabilities at fair value through profit or loss
include net assets attributable to participating holders of US
Dollar Shares and net assets attributable to participating holders
of Repurchase Pool Shares.
Fair value measurement
See note 4 for details of how the Company measures fair
value.
Amortised cost measurement
The amortised cost of a financial asset or financial liability
is the amount at which the financial asset or financial liability
is measured on initial recognition minus the principal repayments,
plus or minus the cumulative amortisation using the effective
interest method of any difference between that initial amount and
the maturity amount and, for financial assets, adjusted for any
loss allowance.
(iii) Impairment
The impairment model applies to financial assets measured at
amortised cost, contract assets and debt investments at fair value
through other comprehensive income, but not to financial assets
held at fair value through profit or loss.
The Company considers a financial asset to have low credit risk
when the credit rating of the counterparty is equivalent to the
globally understood definition of 'investment grade'. The Company
considers this to be BBB- or higher per Standards and Poor's Rating
Agency.
Lifetime ECLs are the ECLs that result from all possible default
events over the expected life of a financial instrument.
12-month ECLs are the portion of ECLs that result from default
events that are possible within the 12 months after the reporting
date (or a shorter period if the expected life of the instrument is
less than 12 months).
Measurement of ECLs
ECLs are a probability-weighted estimate of credit losses.
Credit losses are measured as the present value of all cash
shortfalls (i.e. the difference between the cash flows due to the
entity in accordance with the contract and the cash flows that the
Company expects to receive). ECLs are discounted at the effective
interest rate of the financial asset.
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
2D FINANCIAL INSTRUMENTS (continued)
(iii) Impairment (continued)
Credit-impaired financial assets
At each reporting date, the Company assesses whether financial
assets carried at amortised cost are credit-impaired. A financial
asset is credit-impaired when one or more events that have a
detrimental impact on the estimated future cash flows of the
financial asset have occurred.
Loss allowances for financial assets measured at amortised cost
are deducted from the gross carrying amounts of the assets in the
statement of financial position. There were no loss allowances
accounted for as at 31 December 2019.
The gross carrying amount is written off when the Company has no
reasonable expectations of recovering a financial asset in its
entirety or a portion thereof.
(iv) Derecognition
The Company derecognises a financial asset when the contractual
rights to the cash flows from the asset expire, or it transfers the
rights to receive the contractual cash flows in a transaction in
which substantially all of the risks and rewards of ownership of
the financial asset are transferred or in which the Company neither
transfers nor retains substantially all of the risks and rewards of
ownership and does not retain control of the financial asset.
On derecognition of a financial asset, the difference between
the carrying amount of the asset (or the carrying amount allocated
to the portion of the asset that is derecognised) and the
consideration received (including any new asset obtained less any
new liability assumed) is recognised in profit or loss. Any
interest in such transferred financial assets that is created or
retained by the Company is recognised as a separate asset or
liability.
The Company enters into transactions whereby it transfers assets
recognised on its statement of financial position, but retains
either all or substantially all of the risks and rewards of the
transferred assets or a portion of them. If all or substantially
all of the risks and rewards are retained, then the transferred
assets are not derecognised. Transfers of assets with retention of
all or substantially all of the risks and rewards include sale and
repurchase transactions.
The Company derecognises a financial liability when its
contractual obligations are discharged or cancelled, or expire.
On derecognition of a financial liability, the difference
between the carrying amount extinguished and the consideration paid
(including any non-cash assets transferred or liabilities assumed)
is recognised in profit or loss.
(v) Offsetting financial instruments
Financial assets and liabilities are offset and the net amount
reported in the statement of financial position where there is a
legally enforceable right to offset the recognised amounts and
there is an intention to settle on a net basis, or realise the
assets and settle the liability simultaneously. For the financial
year ended 31 December 2019, there were no financial assets or
liabilities subject to enforceable, master netting arrangements or
similar agreements which would require disclosure.
Income and expenses are presented on a net basis for gains and
losses from financial instruments at fair value through profit or
loss and foreign exchange gains and losses.
2E INTEREST INCOME AND INTEREST EXPENSE ON CASH AND CASH
EQUIVALENTS
Interest income on cash and cash equivalents is recognised
separately through profit or loss in the statement of comprehensive
income, on an effective interest rate basis.
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
2F PARTICIPATING SHARES
The participating share capital of the Company comprises US
Dollar Shares and Repurchase Pool Shares. The Repurchase Pool
Shares are classified as a financial liability based on the
substance of the contractual arrangement in accordance with IAS 32,
and are stated at fair value which approximates carrying value on
the reporting date. Further to the resolution on 17 December 2018,
resolving to transfer to BGLF or realise all remaining assets of
the Company with a view to returning capital to the Shareholders in
an orderly manner, the US Dollar Shares were classified as a
financial liability, which were stated at fair value which
approximated carrying value at the reporting date. The assets that
were subject to the Managed Wind-Down did not include the assets of
the Company that were transferred as part of the BGLF Rollover
Opportunity.
2G FEES AND CHARGES
Expenses are charged through profit or loss in the statement of
comprehensive income on an accruals basis.
2H 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, are subject to an insignificant risk of
changes in value, and are held for the purpose of meeting
short-term cash commitments rather than for investments or other
purposes.
2I NET GAIN/(LOSS) ON FINANCIAL ASSETS AT FAIR VALUE THROUGH
PROFIT OR LOSS
Net gain/(loss) on financial assets at fair value through profit
or loss consists of coupons received and realised and unrealised
gains and losses on financial assets at fair value through profit
or loss, calculated as described in note 2D. For the purposes of
the statement of cash flows, the coupon income is considered an
operating activity.
2J FOREIGN CURRENCY
Transactions in foreign currencies are translated to the
functional currency at the foreign currency exchange rate ruling at
the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are translated to US Dollar at
the foreign currency closing exchange rate ruling at the reporting
date. Foreign currency exchange differences relating to investments
at fair value through profit or loss are included in "Net
gain/(loss) on financial assets at fair value through profit or
loss" in the statement of comprehensive income. All other foreign
currency exchange differences relating to any other monetary items,
including cash, are presented in "Net gain/(loss) on foreign
exchange" in the statement of comprehensive income.
2K TAXATION
Income tax expense is recognised through profit or loss in the
statement of comprehensive income except to the extent that it
relates to items recognised directly in equity or in other
comprehensive income. The Company's existing accounting policy for
income tax is consistent with the requirement of IFRIC 23.
Current tax is the expected tax payable or receivable on the
taxable income or loss for the financial year, using tax rates
enacted or substantially enacted at the reporting date, and any
adjustment to tax payable in respect of previous periods.
Under current law and Irish practice, the Company qualifies as
an investment undertaking under Section 739B of the Taxes
Consolidation Act 1997 and is not therefore chargeable to Irish tax
on its relevant income or relevant gains. See note 13 for further
details.
2L DISTRIBUTIONS
Distributions to the holders of US Dollar Shares were recorded
through the statement of changes in net assets when they were
declared to Shareholders. Holders of the Repurchase Pool Shares are
not entitled to any dividend distributions. As disclosed in the
2018 Circular, the Board do not intend to declare any dividends
during the wind-down period, therefore no further dividends have
been paid in respect of any shares after the payment of the
dividend in respect of the quarter ended 31 December 2018.
2M OPERATING SEGMENTS
An operating segment is a component of the Company that engages
in business activities from which it may earn revenues and incur
expenses, whose operating results are regularly reviewed by the
Company's Chief Operating Decision Makers and for which discrete
financial information is available. The Chief Operating Decision
Makers for the Company are the Investment Manager and the Board. In
considering the segments of the Company, the Company has considered
the information reviewed by the Company's Chief Operating Decision
Makers and determined that there are two operating segments, the US
Dollar Shares and the Repurchase Pool Shares, in existence as at 31
December 2019 and 2018. Further details of this assessment are set
out under Segmental Reporting in note 3.
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
2N SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES
The preparation of the financial statements requires management
to make judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts of
assets, liabilities, income and expenses. Actual results may differ
from these estimates.
Estimates
Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to estimates are recognised prospectively.
In accordance with IFRS 13 Fair Value Measurement ("IFRS 13"),
the Company applies the definition of fair value, being 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 in the principal or, in its absence, the most
advantageous market to which the Company has access at that date.
The fair value of a liability reflects its non-performance
risk.
When the fair value of financial assets and financial
liabilities recorded in the statement of financial position cannot
be derived from active market quotations, they are determined using
valuation techniques including the use of broker prices. See note 4
for further details of the fair value hierarchy levels as at 31
December 2019 and 2018. See note 3 for details of the NAV
attributable to the Repurchase Pool Shares and US Dollar
Shares.
Judgements
The Board is satisfied that no significant judgements were
required during the year ended 31 December 2019.
During the year ended 31 December 2018, the following judgement
was required:.
Application of IFRS 10, its related IE Amendment and IFRS 12
Disclosure of Interests in Other Entities ("IFRS 12")
The Board is satisfied that the Company meets the definition of
an investment entity, and has concluded that as at 31 December
2018, none of its investments meet the definition of subsidiary
structured entities in accordance with IFRS 10. All CLOs in which
the Company invests meet the definition of non-controlled
structured entities in accordance with IFRS 12.
2O NEW STANDARDS AND INTERPRETATIONS APPLICABLE TO FUTURE
REPORTING PERIODS
New standards, amendments and interpretations issued but not
effective in 2019 and not early adopted
The Company has considered all the upcoming IASB's standards
including those not yet endorsed by the EU. Standards will be
adopted from their EU effective dates. The adoption of these new
standards, interpretations and amendments is not expected to have a
material impact on the Company's financial statements in the period
of initial application.
The following new standards, amendments to standards and
interpretations have been issued to date and are not yet effective
for the year ended 31 December 2019, and have not been applied nor
early adopted, where applicable, in preparing these financial
statements:
Standard: Narrative: Effective Date*:
IFRS 17 Insurance Contracts 1 January 2021
Business Combinations (Amendments to
IFRS 3 IFRS 3) 1 January 2020
Definition of Material (Amendments to
IAS 1 and IAS 8 IAS 1 and IAS 8) 1 January 2020
IFRS 9, IAS 39, Interest Rate Benchmark Reform (Amendments
IFRS 7 to IFRS 9, IAS 39 and IFRS 7) 1 January 2020
*Annual periods beginning on or after
3 SEGMENTAL REPORTING
As required by IFRS 8 Operating Segments ("IFRS 8"), the
information provided to the Board and the Investment Manager, who
are the Chief Operating Decision Makers, is classified into two
segments as at 31 December 2019 and 2018, the US Dollar Shares and
the Repurchase Pool Shares. Repurchase Pool Shares are shares in
the Company which participate in a separate pool of assets and
liabilities within the Company created for the purposes of the
repurchase opportunity announced in 2017.
3 SEGMENTAL REPORTING (continued)
The Board has assessed that the Rollover Shareholders did not
constitute a separate operating segment under IFRS 8, as they were
not separately assessed for the purposes of reviewing performance
or allocating resources. The Investment Manager and the Board
assessed the Company as a whole, including both the Rollover
Shareholders and those Shareholders who did not avail of the
Rollover Opportunity. Discrete financial information was not
available for the Rollover Shareholders as separate books and
records were not maintained for the Rollover Shareholders. Books
and records continue to be maintained for the Company as a whole,
which includes the relevant information pertaining to the Rollover
Shareholders. The Rollover Shares existed solely for the purpose of
the capital reorganisation to facilitate the Rollover Opportunity
in January 2019. No Rollover Shares were in issue at the end of the
financial year 31 December 2019 or 2018. Accordingly, there is no
requirement to change the existing operating segments within the
Company for the purposes of the financial statements for the
financial year ended 31 December 2019 and 2018.
The following tables detail the revenue, loss and net assets
split between the operating segments for the financial year ended
31 December 2019 and as at 31 December 2019.
Repurchase US Dollar Total
Pool Shares Shares
2019 2019 2019
US$ US$ US$
-------------------------------- ------------- ------------ ------------
Interest income on cash and
cash equivalents 9,123 105,202 114,325
Miscellaneous income 9,436 78,942 88,378
Net gain on foreign exchange 572 1,129 1,701
Net gain on financial assets
at fair value
through profit or loss 633,071 20,879,501 21,512,572
Total revenue for reportable
segments 652,202 21,064,774 21,716,976
-------------------------------- ------------- ------------ ------------
Operating expenses (353,310) (2,199,209) (2,552,519)
Interest expense (449) (1,748) (2,197)
Total profit for reportable
segments 298,443 18,863,817 19,162,260
-------------------------------- ------------- ------------ ------------
Repurchase US Dollar Total
Pool Shares Shares
31 December 31 December 31 December
2019 2019 2019
US$ US$ US$
-------------------------------- ------------- ------------ ------------
Financial assets at fair value
through profit or
loss 2,090,537 7,242,415 9,332,952
Other receivables 37,786 511,553 549,339
Cash and cash equivalents 968,293 15,078,512 16,046,805
Expenses payable (100,369) (557,428) (657,797)
-------------------------------- ------------- ------------ ------------
Net assets for reportable
segments 2,996,247 22,275,052 25,271,299
-------------------------------- ------------- ------------ ------------
The following table details the revenue and loss split between
the operating segments for the financial year ended 31 December
2018.
Repurchase US Dollar Total
Pool Shares Shares
2018 2018 2018
US$ US$ US$
-------------------------------- ------------- ------------- --------------
Interest income on cash and
cash equivalents 20,601 44,789 65,390
Miscellaneous income 27,525 139,359 166,884
Net loss on foreign exchange (6,399) (17,433) (23,832)
Net loss on financial assets
at fair value
through profit or loss (364,758) (22,943,848) (23,308,606)
Total revenue for reportable
segments (323,031) (22,777,133) (23,100,164)
-------------------------------- ------------- ------------- --------------
Operating expenses (818,472) (5,256,533) (6,075,005)
Interest expense (315) (1,056) (1,371)
-------------------------------- ------------- ------------- --------------
Total loss for reportable
segments (1,141,818) (28,034,722) (29,176,540)
-------------------------------- ------------- ------------- --------------
3 SEGMENTAL REPORTING (continued)
The following table details the net assets split between the
operating segments as at 31 December 2018.
Repurchase US Dollar Total
Pool Shares Shares 31 December
31 December 31 December 2018
2018 2018 US$
US$ US$
------------------------------------------------- ------------- --------------
Financial assets at fair value
through profit or loss 13,970,980 217,679,511 231,650,491
Other receivables 219,706 720,257 939,963
Cash and cash equivalents 1,685,148 27,125,955 28,811,103
Expenses payable (127,684) (2,052,287) (2,179,971)
------------------------------------- ----------- ------------- --------------
Net assets for reportable segments 15,748,150 243,473,436 259,221,586
------------------------------------- ----------- ------------- --------------
31 December 31 December
2019 2018
US$ US$
------------------------------------------------------- ------------
NAV - US Dollar Shares (40,606,709) 22,275,052 243,473,436
NAV Per US Dollar Share 0.5486 0.6105
NAV - Repurchase Pool Shares (6,617,236) 2,996,247 15,748,150
NAV Per Repurchase Pool Share 0.4528 0.6392
Major Customers
The Company regards the holders of both classes of shares as
customers, because it relies on their funding for continuing
operations and meeting its objectives. The Company's shareholding
structure is not exposed to a significant Shareholder
concentration. A breakdown of shares held by employees of the
Investment Manager is detailed in note 10.
4 FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
Net gain/(loss) on financial assets at fair value through profit
or loss is comprised of the following:
2019 2018
US$ US$
Net realised gains/(losses) on investments
Gross realised gains on investments 523,899 3,615,813
Gross realised losses on investments (68,233,290) (39,641,636)
----------------------------------------------------- ------------- ---------------
Total net realised losses on investments (67,709,391) (36,025,823)
Net movement in unrealised gains/(losses)
on investments
Gross movement in unrealised gains on investments (1,577,474) (7,782,971)
Gross movement in unrealised losses on investments 67,353,896 (10,475,021)
----------------------------------------------------- ------------- ---------------
Total net movement in unrealised gains/(losses)
on investments 65,776,422 (18,257,992)
Investment income 23,445,541 30,975,209
- -
Other income
---------------------------------------------------- ------------- ---------------
Net gain/(loss) on financial assets at fair
value through profit or loss 21,512,572 (23,308,606)
----------------------------------------------------- ------------- ---------------
As described in the accounting policies note, the Company has
financial assets measured at fair value through profit or loss. The
financial instruments recognised at fair value are analysed between
those whose fair value is based on:
-- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
-- Level 2: inputs other than quoted prices included in Level 1
that are observable for the asset or liability, either directly (as
prices) or indirectly (derived from prices). This category includes
instruments valued using: quoted market prices in active markets
for similar instruments; quoted market prices for identical or
similar instruments in markets that are considered less than
active; or other valuation techniques in which all significant
inputs are directly or indirectly observable from market data.
-- Level 3: inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
4 FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
(continued)
The following tables analyse financial instruments measured at
fair value as at 31 December 2019 and 2018 by the level in the fair
value hierarchy into which the fair value measurement is
categorised. The amounts are based on the values recognised in the
statement of financial position. All fair value measurements below
are recurring.
US Dollar Repurchase Pool Total as at
Shares Shares 31 December
US$ US$ 2019
US$
Level 1 - - -
Level 2 - - -
Level 3 7,242,415 2,090,537 9,332,952
----------- ---------- ---------------- -------------
Total 7,242,415 2,090,537 9,332,952
----------- ---------- ---------------- -------------
US Dollar Repurchase Pool Total as at
Shares Shares 31 December
US$ US$ 2018
US$
Level 1 - - -
Level 2 - - -
Level 3 217,679,511 13,970,980 231,650,491
----------- ------------ ---------------- -------------
Total 217,679,511 13,970,980 231,650,491
----------- ------------ ---------------- -------------
The Company determines the fair value for the CLOs using
independent, unadjusted indicative broker quotes. A broker quote is
not generally a binding offer. The categorisation of the CLOs is
dependent on whether or not the broker quotes reflect actual
current market transactions, or if they are indicative prices based
on the broker's valuation models, depending on the significance and
observability of the inputs to the model. Only one broker quote may
be available for a CLO at the fair value measurement date.
The Investment Manager can challenge the marks that come from
the independent brokers if they appear off-market or
unrepresentative but has no discretion to disregard a mark if a
broker dealer does not adjust it after a challenge.
For CLOs which might be categorised as Level 2, fair value has
been determined using independent broker quotes based on observable
inputs. If valuation cannot be verified as being based
significantly on observable inputs, then the investments would fall
into Level 3.
The Company considers observable data to be that market data
that is readily available, regularly distributed or updated,
reliable, not proprietary, and provided by independent sources that
are actively involved in the relevant market.
For each class of assets and liabilities not measured at fair
value in the statement of financial position but for which fair
value is disclosed, the Company is required to disclose the level
within the fair value hierarchy at which the fair value measurement
would be categorised and a description of the valuation technique
and inputs used in the technique.
For the financial year ended 31 December 2019 and 2018, cash and
cash equivalents, other receivables and expenses payable, whose
carrying amounts approximate fair value, are classified as Level 2
within the fair value hierarchy.
For the financial year ended 31 December 2019 and 2018, net
assets attributable to participating holders of US Dollar Shares
and net assets attributable to participating holders of Repurchase
Pool Shares are classified as Level 3 within the fair value
hierarchy, as the value of the shares is based on NAV per share
which does not have observable inputs readily available to
market.
Transfers between Level 1, 2 and 3
There were no transfers between Level 1 and Level 2 during the
financial year ended 31 December 2019 and 2018. Where transfers
between levels arise, they are deemed to occur at the end of the
reporting period.
As at 31 December 2019 and 2018, all CLOs were classified as
Level 3.
4 FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
(continued)
Transfers between Level 1, 2 and 3 (continued)
As at 31 December 2019, the Board made an assessment as to what
constituted an 'observable' input in the fair market valuation to
determine the level within the hierarchy in which a broker quote is
categorised. It was concluded that due to the illiquidity of the
product, the lack of trading activity and the unobservable inputs
used in the valuations, that the equity CLOs were Level 3
investments. This is consistent with the assessment made by the
Board as at 31 December 2018.
Level 3 financial instruments
The following table shows a reconciliation from the opening
balances to the closing balances for fair value measurements in
Level 3 of the fair value hierarchy as at 31 December 2019:
CLOs - US Dollar CLOs - Repurchase Total as at
Shares Pool Shares 31 December
US$ US$US$ 2019
US$
Balance as at 1 January
2019 217,679,511 13,970,980 231,650,491
Net gain/loss on financial
assets at fair value through
profit or loss (1,184,958) (748,011) (1,932,969)
Purchases - - -
Disposal and paydowns
of investments (209,252,138) (11,132,432) (220,384,570)
Transfers into Level 3 - - -
Transfers out of Level - -
3 -
------------------------------- ------------------ --------------
Balance as at 31 December
2019 7,242,415 2,090,537 9,332,952
------------------------------- ------------------ --------------
Change in unrealised gains or losses for the financial year
included in profit or loss for the CLOs within Level 3 of the fair
value hierarchy amounted to US$2,061,267 (US Dollar Shares
(US$1,607,788) and Repurchase Pool Shares (US$453,479)) (2018:
US$53,777,976 (US Dollar Shares (US$50,551,298) and Repurchase Pool
Shares (US$3,226,678)). These gains and losses are included in net
gain/(loss) on financial assets at fair value through profit or
loss in the statement of comprehensive income.
The following table shows a reconciliation from the opening
balances to the closing balances for fair value measurements in
Level 3 of the fair value hierarchy as at 31 December 2018:
CLOs - US Dollar CLOs - Repurchase Total as at
Shares Pool Shares 31 December
US$ US$US$ 2018
US$
Balance as at 1 January
2018 66,859,304 24,229,668 91,088,972
Net loss on financial
assets at fair value through
profit or loss (76,624,800) (6,997,701) (83,622,501)
Purchases 52,114,763 - 52,114,763
Disposal and paydowns
of investments (9,126,000) (14,086,901) (23,212,901)
Transfers into Level 3 184,456,244 10,825,914 195,282,158
Transfers out of Level - -
3 -
------------------------------- ------------------ -------------
Balance as at 31 December
2018 217,679,511 13,970,980 231,650,491
------------------------------- ------------------ -------------
4 FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
(continued)
Level 3 financial instruments (continued)
The following table sets out information about significant
unobservable inputs used as at 31 December 2019 in measuring
financial instruments categorised as Level 3 in the fair value
hierarchy:
Sensitivity to changes
Fair Value Unobservable Weighted in significant unobservable
Asset Class US$ Inputs Ranges* Averages inputs
---------------- ---------- --------------- ------------- --------- ----------------------------
Income Notes
---------------- ---------- --------------- ------------- --------- ----------------------------
1% increase/decrease
will have a fair
US Dollar value impact of +/-
Shares US$ 1,844,134 Broker Quotes 0.00%-35.58% 6.63% US$18,441
1% increase/decrease
will have a fair
Repurchase Pool value impact of +/-
Shares US$ 998,497 Broker Quotes 0.00%-35.58% 13.87% US$9,985
---------------- ---------- --------------- ------------- --------- ----------------------------
Total Income
Notes 2,842,631
---------------- ---------- --------------- ------------- --------- ----------------------------
Mezzanine Notes
---------------- ---------- --------------- ------------- --------- ----------------------------
1% increase/decrease
will have a fair
US Dollar value impact of +/-
Shares US$ 5,398,281 Broker Quotes 27.50%-61.99% 42.51% US$53,983
1% increase/decrease
will have a fair
Repurchase Pool value impact of +/-
Shares US$ 1,092,040 Broker Quotes 27.50% 27.50% US$10,920
---------------- ---------- --------------- ------------- --------- ----------------------------
Total Mezzanine
Notes 6,490,321
---------------- ---------- --------------- ------------- --------- ----------------------------
Total 9,332,952
---------------- ---------- --------------- ------------- --------- ----------------------------
*The ranges provided in the table above refer to the highest and
lowest broker quotes received across the range of CLOs held. The
ranges reflect the different stages of the lifecycle of each of the
CLOs on an individual basis. The low ranges in the table above are
prices from CLOs which have been called and are in wind-down.
The following table sets out information about significant
unobservable inputs used as at 31 December 2018 in measuring
financial instruments categorised as Level 3 in the fair value
hierarchy:
Sensitivity to changes
Fair Value Unobservable Weighted in significant unobservable
Asset Class US$ Inputs Ranges* Averages inputs
---------------- ----------- --------------- ------------- --------- ----------------------------
Income Notes
---------------- ----------- --------------- ------------- --------- ----------------------------
1% increase/decrease
will have a fair
US Dollar value impact of +/-
Shares US$ 202,884,046 Broker Quotes 0.01%-88.32% 54.33% US$2,028,840
1% increase/decrease
will have a fair
Repurchase Pool value impact of +/-
Shares US$ 11,197,434 Broker Quotes 3.40%-87.00% 34.94% US$111,974
---------------- ----------- --------------- ------------- --------- ----------------------------
Total Income
Notes 214,081,480
---------------- ----------- --------------- ------------- --------- ----------------------------
Mezzanine Notes
---------------- ----------- --------------- ------------- --------- ----------------------------
1% increase/decrease
will have a fair
US Dollar value impact of +/-
Shares US$ 14,795,465 Broker Quotes 73.15%-87.22% 79.34% US$147,955
1% increase/decrease
will have a fair
Repurchase Pool value impact of +/-
Shares US$ 2,773,546 Broker Quotes 73.15% 73.15% US$27,735
---------------- ----------- --------------- ------------- --------- ----------------------------
Total Mezzanine
Notes 17,569,011
---------------- ----------- --------------- ------------- --------- ----------------------------
Total 231,650,491
---------------- ----------- --------------- ------------- --------- ----------------------------
*The ranges provided in the table above refer to the highest and
lowest broker quotes received across the range of CLOs held. The
ranges reflect the different stages of the lifecycle of each of the
CLOs on an individual basis. The low ranges in the table above are
prices from CLOs which have been called and are in wind-down.
The above analysis also gives an approximation of the
sensitivity of the different asset classes to market risk as at 31
December 2019 and 2018 that seem reasonable considering the current
market environment and the nature of the Company's assets' main
underlying risks. This sensitivity analysis presents an
approximation of the potential effects of events that could have
been reasonably expected to occur as at the reporting date.
4 FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
(continued)
Level 3 financial instruments (continued)
The following table shows a reconciliation of the net assets
attributable to participating holders of Repurchase Pool Shares
from the opening balance to the closing balance as at 31 December
2019 and 2018:
31 December 2019 31 December 2018
----------------------------- -------------------------- --------------------------
Net assets attributable Net assets attributable
to participating holders to participating holders
of of
Repurchase Pool Shares Repurchase Pool Shares
US$ US$
----------------------------- -------------------------- --------------------------
Balance as at 1 January 15,748,150 107,889,914
Transfer to Rollover Shares
(see note 1) (349) -
Redemptions (13,049,997) (90,999,946)
Fair value movement 298,443 (1,141,818)
Balance as at 31 December 2,996,247 15,748,150
----------------------------- -------------------------- --------------------------
The following table shows a reconciliation of the net assets
attributable to participating holders of US Dollar Shares from the
opening balance to the closing balance as at 31 December 2019 and
2018:
31 December 2019 31 December 2018
----------------------------- -------------------------- --------------------------
Net assets attributable Net assets attributable
to participating holders to participating holders
of of
US Dollar Shares US Dollar Shares
US$ US$
----------------------------- -------------------------- --------------------------
Balance as at 1 January 243,473,436 -
Transfers into Level 3 - 243,473,436
Transfer to Rollover Shares
(see note 1) (89,457,430) -
Redemptions (146,199,941) -
Fair value movement 18,863,817 -
Distributions (4,404,830) -
Balance as at 31 December 22,275,052 243,473,436
----------------------------- -------------------------- --------------------------
The following table sets out information about significant
unobservable inputs used as at 31 December 2019 in measuring the
liabilities categorised as Level 3 in the fair value hierarchy:
Fair Value Unobservable Sensitivity to changes in significant
Liability Class US$ Inputs unobservable inputs
----------------- ---------- ------------ --------------------------------------
Unadjusted
Repurchase Pool NAV of the 1% increase/decrease will have a fair
Shares US$ 2,996,247 Shares value impact of +/- US$29,962
----------------- ---------- ------------ --------------------------------------
Unadjusted
US Dollar Shares NAV of the 1% increase/decrease will have a fair
US$ 22,275,052 Shares value impact of +/- US$222,751
----------------- ---------- ------------ --------------------------------------
Total 25,271,299
----------------- ---------- ------------ --------------------------------------
The following table sets out information about significant
unobservable inputs used as at 31 December 2018 in measuring the
liability categorised as Level 3 in the fair value hierarchy:
Fair Value Unobservable Sensitivity to changes in significant
Liability Class US$ Inputs unobservable inputs
----------------- ----------- ------------ --------------------------------------
Unadjusted
Repurchase Pool NAV of the 1% increase/decrease will have a fair
Shares US$ 15,748,150 Shares value impact of +/- US$157,482
----------------- ----------- ------------ --------------------------------------
Unadjusted
US Dollar Shares NAV of the 1% increase/decrease will have a fair
US$ 243,473,436 Shares value impact of +/- US$2,434,734
----------------- ----------- ------------ --------------------------------------
Total 259,221,586
----------------- ----------- ------------ --------------------------------------
5 OPERATING EXPENSES
INVESTMENT MANAGER
The Investment Manager is entitled to receive a base management
fee from the Company of 1.5% per annum of the NAV of the Company,
calculated and payable monthly in arrears.
The management fee is calculated on the net assets less the
market value of investments managed by the Investment Manager, if
such investments are or have been made in the primary market (i.e.
the market in which investors have the first opportunity to buy a
newly issued security). Note 10 details the deals managed by the
Investment Manager or its affiliates and whether they were sourced
in the primary or secondary market.
The investment management fees for the financial year ended 31
December 2019 for the US Dollar Shares amounted to US$720,939
(2018: US$3,283,221) and US$94,918 for the Repurchase Pool Shares
(2018: US$517,148).
US Dollar Shares
The Investment Manager is entitled to a performance fee in
respect of the US Dollar Shares equivalent to 13% of the amount by
which the value of the NAV per US Dollar Share as at the financial
year end or relevant repurchase date, as applicable, plus dividends
per US Dollar Share (if any) paid in the period exceeds the value
of the NAV per US Dollar Share, as increased by the performance fee
hurdle rate (as defined below) plus 2%, as at the end of the
previous completed accounting reference period in respect of which
a performance fee was paid (including for the avoidance of doubt,
all previous periods since the US Dollar Share performance period
was last paid in respect of the US Dollar Shares).
The performance fee hurdle rate is the greater of the 12 month
US Dollar LIBOR or 4%.
If a US Dollar Share performance fee was not paid in respect of
the previous accounting reference period, US Dollar Libor shall be
the annualised annually compounded US Dollar London Inter-Bank
Offered Rate for 12-month deposits in respect of all previous
relevant accounting periods since such US Dollar Share performance
fee was last paid.
Repurchase Pool Shares
The Investment Manager is entitled to a performance fee in
respect of the Repurchase Pool Shares equivalent to 13% of the
amount by which the NAV per Repurchase Pool Share as at the end of
the relevant accounting period or the relevant repurchase date, as
applicable, plus dividends per Share (if any) paid in the period
exceeds the value of the NAV per Repurchase Pool Share (or per US
Dollar Share, as applicable), as increased by the Repurchase Pool
Hurdle Rate (as defined below) plus 2%, as at the end of the most
recent previous completed accounting period in respect of which a
performance fee was paid (including, for the avoidance of doubt,
all previous periods since the US Dollar Share performance fee was
last paid in respect of the US Dollar Shares which have converted
into Repurchase Pool Shares).
A separate account will be established to track the performance
fee payable to the Investment Manager in respect of the Repurchase
Pool Shares.
1. As at each Repurchase Date, this account will be credited or debited to reflect the amount of over-or-under-performance of the Repurchase Pool Shares repurchased as at that date, multiplied by the performance fee rate referred to above.
2. At the end of the relevant accounting period, an amount
reflecting the over-or-underperformance of the Repurchase Pool
Shares in issue as at that date, multiplied by the performance fee
rate referred to above, will be credited to or debited from this
account.
3. If the aggregate amount resulting from 1 and 2 above is a
credit balance, this amount will be payable to the Investment
Manager.
4. If the aggregate amount resulting from 1 and 2 above is a
debit balance, no performance fee will be payable to the Investment
Manager and the balance of this account shall be reset to zero for
the next accounting period.
Where all remaining Repurchase Pool Shares are repurchased on a
date prior to the end of an accounting period, such Repurchase Date
shall be deemed to be the end of the accounting period for purposes
of the above calculations.
The performance fee is accrued on a monthly basis and is paid
annually within 14 days of receipt of the calculation by the
Company from State Street Fund Services (Ireland) Limited (the
"Administrator").
The calculation of the performance fee is verified by State
Street Custodial Services (Ireland) Limited (the "Custodian").
There were no performance fees accrued during the financial year
ended 31 December 2019 and 2018.
The Company also reimburses the Investment Manager for all
out-of-pocket expenses reasonably incurred in the performance of
its duties.
5 OPERATING EXPENSES (continued)
ADMINISTRATOR AND CUSTODIAN
The Administrator and Custodian shall be entitled to receive
aggregate fees of up to 0.10% per annum of the NAV of the Company
for the provision, respectively, of administration, accounting,
trustee and custodial services to the Company, subject to a minimum
monthly fee of US$10,000. The overall charge for the
above-mentioned fees for the Company for the financial year ended
31 December 2019 and 2018 are reflected in the statement of
comprehensive income and the amounts due as at 31 December 2019 and
2018 are disclosed below for information purposes.
DIRECTORS' FEES
The Company's Directors are entitled to a fee in remuneration
for their services as Directors at a rate to be determined from
time to time by the remuneration committee of the Company and
disclosed in the financial statements.
During the financial year ended 31 December 2019, Directors'
fees amounted to US$344,813 (2018: US$365,219) plus out of pocket
expenses of US$29,887 (2018: US$34,740), of which US$Nil (2018:
US$Nil) remained payable at the financial year end.
OTHER OPERATING EXPENSES
Other operating expenses incurred during the financial year
ended 31 December 2019 and 2018 are disclosed in the statement of
comprehensive income.
Accruals as at 31 December 2019 and 2018 are detailed in the
following table:
31 December 31 December
2019 2018
ACCRUAL US$ US$
---------------------------- ------------ ------------
Investment management fees 28,281 1,156,819
Custodian fees 12,000 10,765
Administration fees 48,000 69,332
Auditors' fees 152,751 299,770
Other professional fees 273,116 279,816
Other operating expenses 143,649 363,469
---------------------------- ------------ ------------
657,797 2,179,971
---------------------------- ------------ ------------
AUDITORS FEES
The Company incurred the following audit, assurance and tax fees
(including expenses) during the financial year of which US$124,188
(2018: US$243,715) was outstanding at the financial year end.
2019* 2018*
US$ US$
-------- --------
Audit of financial statements 95,099 177,782
Tax advisory services** 55,254 69,834
Other assurance services*** 29,089 65,933
179,442 313,549
*The above amounts incurred for the financial year ended 31
December 2019 and 2018 are before the inclusion of VAT.
**Tax advisory fees are included in other operating expenses in
the statement of comprehensive income.
***The above amounts were paid to the statutory auditor for work
undertaken by them in relation to the review of the interim
financial statements and the Financial Position and Prospects
Procedures ("FPPP") review.
6 CASH AND CASH EQUIVALENTS
Cash and cash equivalents balances are held with the
Custodian.
7 PARTICIPATING SHARES
As at 31 December 2019, the issued share capital of the Company
comprises US Dollar Shares and Repurchase Pool Shares. Two
subscriber shares were also in issue. Further details on the
Company share capital is set out below.
US DOLLAR SHARES
The authorised share capital of the Company shall not be less
than the currency equivalent of EUR2 represented by two subscriber
shares and the maximum issued share capital shall not be more than
the currency equivalent of EUR500 billion divided into an
unspecified number of non-redeemable shares.
As at 31 December 2019, there were 40,606,709 US Dollar Shares
(2018: 398,801,780) in issue. As at 31 December 2019, net assets
attributable to participating holders of US Dollar Shares were
US$22,275,052 (2018: US$243,473,436).
Following the decision by Shareholders to wind-up the Company,
capital will be returned on a pro rata basis in US Dollars to the
US Dollar Shareholders by the Company making a compulsory
repurchase of US Dollar Shares. Share repurchases will be at the
discretion of the Board and will occur as cash becomes available
upon the realisation of assets.
REPURCHASE POOL SHARES
The Company's Articles of Association contains certain
provisions regarding share repurchase arrangements which may be
offered to Shareholders. Repurchase Pool Shares are shares in the
Company which participate in a separate pool of assets and
liabilities within the Company created for the purposes of a
repurchase opportunity.
The Board elected to propose a repurchase opportunity for
approval by ordinary resolution by the Shareholders and further to
the vote taken at the Annual General Meeting ("AGM") held on 31
July 2017 and approval of the repurchase opportunity, Shareholders
representing 26.6% of the then issued US Dollar Shares elected to
avail of the repurchase opportunity.
On 31 October 2017, the Company converted 144,451,569 US Dollar
Shares on a one to one basis to Repurchase Pool Shares of no par
value. On 22 November 2017, the Repurchase Pool Shares were
admitted to trading on the Specialist Fund Segment of the Main
Market of the LSE. At the discretion of the Board, and as cash
becomes available upon the realisation of assets, capital will be
returned on a pro rata basis in US Dollars to the exiting
Repurchase Pool Shareholders, by the Company making a compulsory
repurchase of Repurchase Pool Shares.
As at 31 December 2019, there were 6,617,236 Repurchase Pool
Shares (2018: 24,637,358) in issue. As at 31 December 2019, net
assets attributable to participating holders of Repurchase Pool
Shares were US$2,996,247 (31 December 2018: US$15,748,150).
VOTING RIGHTS
The Company has issued two subscriber shares of EUR1 each. These
shares do not participate in the profits of the Company. Holders of
US Dollar Shares and Repurchase Pool Shares participate in the
profits of their respective share class and hold voting rights,
with Shareholders having one vote in respect of each whole share
held.
CAPITAL MANAGEMENT
At an EGM on 17 December 2018, a resolution was passed to
approve changes to the investment objective and policy of the
Company to facilitate and authorise the Board to instruct the
Investment Manager to effect either a Rollover into BGLF or a
Managed Wind-Down of the portfolio attributable to the US Dollar
Shares. A resolution was also passed amending the constitution to
provide for the termination of the Company before 2022.
7 PARTICIPATING SHARES (continued)
CAPITAL MANAGEMENT (continued)
Until 17 December 2018, the objectives for managing capital
were:
-- 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 in CLOs backed by corporate loans or holding cash;
-- to maintain sufficient liquidity to meet the expenses of the
Company and to meet distribution commitments; and
-- to maintain sufficient size to make the operation of the
Company cost-efficient.
As the Company is now in the process of a Managed Wind-Down, the
objective for managing capital is now to realise all remaining
assets and return capital to the Shareholders in an orderly
manner.
As disclosed in the 2018 Circular, the Board do not intend to
declare any dividends during the wind-down period, therefore no
further dividends have been paid in respect of any shares after the
payment of the dividend in respect of the quarter ended 31 December
2018.
Below is the movement in Repurchase Pool Shares and US Dollar
Shares during the financial year ended 31 December 2019.
Repurchase Pool Shares US Dollar Shares Total
No. of shares US$ No. of shares US$ US$
--------------------------- -------------- -------------- --------------
Opening balance
as at 1 January
2019 24,637,358 15,748,150 398,801,780 243,473,436 259,221,586
Profit for the
year - 298,443 - 18,863,817 19,162,260
Dividends - - - (4,404,830) (4,404,830)
Transfer to Rollover
Shares (488) (349) (133,450,591) (89,457,430) (89,457,779)
Redemption of Repurchase
Pool Shares (18,019,634) (13,049,997) - - (13,049,997)
Redemption of US
Dollar Shares - - (224,744,480) (146,199,941) (146,199,941)
----------------------------- ------------- -------------- -------------- --------------
Closing balance
as at 31 December
2019 6,617,236 2,996,247 40,606,709 22,275,052 25,271,299
----------------------------- ------------- -------------- -------------- --------------
Below is the movement in Repurchase Pool Shares and US Dollar
Shares during the financial year ended 31 December 2018.
Repurchase Pool Shares US Dollar Shares Total
No. of shares US$ No. of shares US$ US$
--------------------------- -------------- ------------- -------------
Opening balance as
at 1 January 2018 144,451,569 107,889,914 398,801,780 299,264,762 407,154,676
Loss for the
year - (1,141,818) - (28,034,722) (29,176,540)
Dividends - - - (27,756,604) (27,756,604)
Redemption of Repurchase
Pool Shares (119,814,211) (90,999,946) - - (90,999,946)
----------------------------- ------------- -------------- ------------- -------------
Closing balance as
at 31 December 2018 24,637,358 15,748,150 398,801,780 243,473,436 259,221,586
----------------------------- ------------- -------------- ------------- -------------
8 SOFT COMMISSIONS
There were no agreements for the provision of any services by
means of soft commission in 2019 and 2018.
9 INTERESTS IN OTHER ENTITIES
INTERESTS IN UNCONSOLIDATED STRUCTURED ENTITIES
IFRS 12 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:
(a) restricted activities;
(b) a narrow and well defined objective;
(c) insufficient equity to permit the structured entity to
finance its activities without subordinated financial support;
and
(d) financing in the form of multiple contractually linked
instruments that create concentrations of credit or other
risks.
Involvement with unconsolidated structured entities
The Company has concluded that CLOs in which it invests, that
are not subsidiaries for financial reporting purposes, meet the
definition of structured entities because:
-- the voting rights in the CLOs are not the 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.
Subsidiary undertakings
As at 31 December 2019 and 2018, the Company had no subsidiary
undertakings for financial reporting purposes that are also
structured entities. To meet the definition of a subsidiary under
the single control model of IFRS 10, the investor has to control
the investee within the meaning of IFRS 10.
Control involves power, exposure to variability of returns and a
linkage between the two:
(i) The investor has existing rights that give it the ability to
direct the relevant activities that significantly affect the
investee's returns;
(ii) The investor has exposure or rights to variable returns
from its involvement with the investee; and
(iii) The investor has the ability to use its power over the
investee to affect the amount of the investor's returns.
9 INTERESTS IN OTHER ENTITIES (continued)
INTERESTS IN UNCONSOLIDATED STRUCTURED ENTITIES (continued)
Below is a summary of the Company's holdings in non-subsidiary
unconsolidated structured entities as at 31 December 2019:
% of
Total
Financial
Range of Average Company's Assets at Maximum
the
size of Notional Holding Fair exposure
SEs Of Value
Line item in the statement of No of Notional SEs Fair through to
Value losses
Structured financial Nature Investments in US$m in US$m in US$m Profit or in US$m Other*
Entity position Loss
("SE")
---------------- ----------- ----------------------- ------------ --------- --------- ---------- ---------- --------- ---------
Mezzanine Note
CLOs
---------------- ----------- ----------------------- ------------ --------- --------- ---------- ---------- --------- ---------
North America
---------------- ----------- ----------------------- ------------ --------- --------- ---------- ---------- --------- ---------
Broadly Syndicated
Country of Financial sub-Investment
Incorporation: assets Grade Secured Loans Non
Cayman Islands at FVTPL - USD 2 252 252 6.5 69.54% 6.5 recourse
---------------- ----------- ----------------------- ------------ --------- --------- ---------- ---------- --------- ---------
Total Mezzanine Financial assets Non
Note CLOs at FVTPL 2 6.5 69.54% 6.5 recourse
---------------- ------------------------------------ ------------ --------- --------- ---------- ---------- --------- ---------
Income Note
CLOs
---------------- ----------- ----------------------- ------------ --------- --------- ---------- ---------- --------- ---------
North America
---------------- ----------- ----------------------- ------------ --------- --------- ---------- ---------- --------- ---------
Broadly Syndicated
Country of Financial sub-Investment
Incorporation: assets Grade Secured Loans Non
Cayman Islands at FVTPL - USD 5 36-68 50 0.2 2.11% 0.2 recourse
Broadly Syndicated
Country of Financial sub-Investment
Incorporation: assets Grade Secured Non
Ireland at FVTPL Loans - USD 1 533 533 2.6 28.35% 2.6 recourse
---------------- ----------- ----------------------- ------------ --------- --------- ---------- ---------- --------- ---------
Total Income Financial assets Non
Note CLOs at FVTPL 6 2.8 30.46% 2.8 recourse
---------------- ------------------------------------ ------------ --------- --------- ---------- ---------- --------- ---------
Total 8 9.3
------------------------------------------------------ ------------ --------- --------- ---------- ---------- --------- ---------
As at 31 December 2019, the Company did not hold any
subsidiaries.
The Company has a percentage range of 1.41% - 20.67% notional
holding out of the entire outstanding notional balances of the
structured entities as at 31 December 2019.
During the financial year ended 31 December 2019, the Company
did not provide financial support to the unconsolidated structured
entities and has no intention of providing financial or other
support. The assessment was done for the Company as a whole.
* The investments are non-recourse securities with no contingent
liabilities, where the Company's maximum loss is capped at the
current carrying value.
9 INTERESTS IN OTHER ENTITIES (continued)
INTERESTS IN UNCONSOLIDATED STRUCTURED ENTITIES (continued)
Below is a summary of the Company's holdings in non-subsidiary
unconsolidated structured entities as at 31 December 2018:
% of
Total
Financial
Range of Average Company's Assets at Maximum
the
size of Notional Holding Fair exposure
SEs Of Value
Line item in the statement of No of Notional SEs Fair through to
Value losses
Structured financial Nature Investments in US$m in US$m in US$m Profit or in US$m Other*
Entity position Loss
("SE")
---------------- ----------- ----------------------- ------------ --------- --------- ---------- ---------- --------- ---------
Mezzanine Note
CLOs
---------------- ----------- ----------------------- ------------ --------- --------- ---------- ---------- --------- ---------
North America
---------------- ----------- ----------------------- ------------ --------- --------- ---------- ---------- --------- ---------
Broadly Syndicated
Country of Financial sub-Investment
Incorporation: assets Grade Secured Loans Non
Cayman Islands at FVTPL - USD 2 395 395 17 7.47% 17 recourse
---------------- ----------- ----------------------- ------------ --------- --------- ---------- ---------- --------- ---------
Total Mezzanine Financial assets Non
Note CLOs at FVTPL 2 17 7.47% 17 recourse
---------------- ------------------------------------ ------------ --------- --------- ---------- ---------- --------- ---------
Income Note
CLOs
---------------- ----------- ----------------------- ------------ --------- --------- ---------- ---------- --------- ---------
North America
---------------- ----------- ----------------------- ------------ --------- --------- ---------- ---------- --------- ---------
Broadly Syndicated
Country of Financial sub-Investment
Incorporation: assets Grade Secured Loans Non
Cayman Islands at FVTPL - USD 40 40-1,075 520 210 90.65% 210 recourse
Broadly Syndicated
Country of Financial sub-Investment
Incorporation: assets Grade Secured Non
Ireland at FVTPL Loans - USD 1 533 533 5 1.88% 5 recourse
---------------- ----------- ----------------------- ------------ --------- --------- ---------- ---------- --------- ---------
Total Income Financial assets Non
Note CLOs at FVTPL 41 215 92.53% 215 recourse
---------------- ------------------------------------ ------------ --------- --------- ---------- ---------- --------- ---------
Total 43 232
------------------------------------------------------ ------------ --------- --------- ---------- ---------- --------- ---------
As at 31 December 2018, the Company did not hold any
subsidiaries.
The Company has a percentage range of 0.02% - 20.11% notional
holding out of the entire outstanding notional balances of the
structured entities as at 31 December 2018.
During the financial year ended 31 December 2018, the Company
did not provide financial support to the unconsolidated structured
entities and has no intention of providing financial or other
support. The assessment was done for the Company as a whole.
* The investments are non-recourse securities with no contingent
liabilities, where the Company's maximum loss is capped at the
current carrying value.
10 RELATED PARTY TRANSACTIONS AND KEY MANAGEMENT PERSONNEL
The following note summarises related parties and related party
transactions during the financial year.
TRANSACTIONS WITH ENTITIES WITH SIGNIFICANT INFLUENCE
GSO / Blackstone Debt Funds Management LLC acts as Investment
Manager to the Company. Investment management fees earned by the
Investment Manager amounted to US$815,857 (2018: US$3,800,369), of
which US$28,281 (2018: US$1,156,819) was outstanding at the
financial year end.
There were no performance fees earned by the Investment Manager
during the financial year ended 31 December 2019 or 2018.
TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL
The Board and the Investment Manager are the key management
personnel as they are the persons who have the authority and
responsibility for planning, directing and controlling the
activities of the Company for the financial year ended 31 December
2019.
During the financial year ended 31 December 2019, the Company
incurred Directors' fees for services as Directors and
out-of-pocket expenses of US$374,700 (31 December 2018:
US$399,959), of which US$Nil (31 December 2018: US$Nil) was
outstanding at the financial year end.
No Director, nor the Company Secretary, had any beneficial
interest in the shares of the Company during the financial year
ended 31 December 2019 and 2018. The Company is domiciled in
Ireland where shareholdings held by the non-executive Directors
would not be considered the industry norm.
The following Directors' fees were incurred during the financial
year ended 31 December 2019 and 2018 and the amounts for each
financial year are shown in both EUR and US Dollar equivalent:
2019 2019 2018 2018
EUR US$ Equivalent EUR US$ Equivalent
Werner Schwanberg 64,200 72,405 64,200 76,690
Adrian Waters 60,360 68,074 60,360 72,103
Fergus Sheridan 62,560 70,555 62,560 74,730
Edward D'Alelio 61,560 69,427 61,560 73,536
Nicholas Moss 57,060 64,352 57,060 68,160
------------------- -------- --------------- -------- ---------------
305,740 344,813 305,740 365,219*
------------------- -------- --------------- -------- ---------------
*The above amount excludes out-of-pocket expenses for the Board
of US$29,887 (31 December 2018: US$34,740).
TRANSACTIONS WITH OTHER RELATED PARTIES
On 28 August 2018, the Board announced the BGLF Rollover
Opportunity, as detailed in note 1. On 21 December 2018, it was
announced that 33.463% of US Dollar Shareholders and 0.002% of
Repurchase Pool Shareholders elected to roll their investment in
the Company into an investment in BGLF C Shares. In January 2019,
133,450,591 US Dollar Shares and 488 Repurchase Pool Shares were
converted into 133,451,107 Rollover Shares. Following this, BGLF
allotted and admitted to trading on the Specialist Fund Segment of
the Main Market of the LSE one new C share for each Rollover Share
in consideration of the transfer of Rollover assets from the
Company to BGLF. The listing of the BGLF C Shares was effective as
and from 7 January 2019.
As at 31 December 2019, current employees of and accounts
managed by or advised by the Investment Manager and its affiliates
within the credit-focused business unit of The Blackstone Group
L.P. hold 7,650 US Dollar Shares (2018: 375,000 US Dollar Shares)
which represents approximately 0.02% (2018: 0.09%) of the issued
shares of the Company. Distributions to current employees and
accounts managed or advised by the Investment Manager and its
affiliates were made on the same terms as those for other holders
of US Dollar Shares.
10 RELATED PARTY TRANSACTIONS AND KEY MANAGEMENT PERSONNEL
(continued)
TRANSACTIONS WITH OTHER RELATED PARTIES (continued)
The Company may invest in other entities and transactions that
are managed directly or indirectly by the Investment Manager or any
of its affiliates and as at 31 December 2019, 28.35% (2018: 27.87%)
of the Company's underlying investments are managed in this way and
these are listed below:
CLO INVESTMENTS MANAGED BY GSO / BLACKSTONE AND AFFILIATES
2019
Investment Investment Manager Market
-------------------------------- --------------------------------------- --------
Dorchester Park CLO DAC 2015-1X GSO / Blackstone Debt Funds Management Primary
SUB LLC
CLO INVESTMENTS MANAGED BY GSO / BLACKSTONE AND AFFILIATES
2018
Investment Investment Manager Market
-------------------------------- --------------------------------------- ----------
Bowman Park CLO Ltd 2014-1X GSO / Blackstone Debt Funds Management Secondary
LLC
Burnham Park CLO Ltd 2016-1A GSO / Blackstone Debt Funds Management Primary
SUB LLC
Catskill Park CLO Ltd 2017-1A GSO / Blackstone Debt Funds Management Primary
SUB LLC
Dorchester Park CLO DAC 2015-1X GSO / Blackstone Debt Funds Management Primary
SUB LLC
Greenwood Park CLO Ltd 2018-1X GSO / Blackstone Debt Funds Management Primary
SUB LLC
Jay Park CLO Ltd 2016-1A SUB GSO / Blackstone Debt Funds Management Secondary
LLC
Stewart Park CLO Ltd 2016-1A GSO / Blackstone Debt Funds Management Primary
SUB LLC
Taconic Park CLO Ltd 2016-1A GSO / Blackstone Debt Funds Management Primary
SUB LLC
Treman Park CLO Ltd 2015-1A GSO / Blackstone Debt Funds Management Secondary
LLC
Webster Park CLO Ltd 2015-1X GSO / Blackstone Debt Funds Management Primary
SUB LLC
TRANSACTION WITH SUBSIDIARIES
As at 31 December 2019 and 2018, the Company had no subsidiary
undertakings for financial reporting purposes.
The Company received US$Nil in distributions from the
subsidiaries for the financial year ended 31 December 2019 (2018:
US$3,362,895). There were total losses arising during the financial
year ended 31 December 2019 amounting to US$Nil (2018:
US$28,284,628).
There were no other related party transactions other than those
listed above.
11 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS
INTRODUCTION
Risk is inherent in the Company's activities but it is managed
through a process of ongoing identification, measurement and
monitoring, subject to risk limits and other controls. The process
of risk management is critical to the Company's profitability. The
Company is exposed to market risk (which includes interest rate
risk, currency risk and other price risk), liquidity and credit
risk arising from the financial instruments it holds.
The Company is a closed-ended fund and therefore has not been
exposed to redemption risk relating to its own shares in issue. The
portfolio assigned to the Repurchase Pool Shares is subject to many
of the same risks as the rest of the portfolio held for the US
Dollar Shares. As the Company is in the process of a Managed
Wind-Down, the portfolios of both share classes are being actively
sold to facilitate the return of the proceeds to the
Shareholders.
The Company's financial assets include investments in CLOs which
are not traded in an organised public market and which may be
illiquid, and thus impact the unwind of the Company's
portfolio.
The Investment Manager considers the risk and concentrations on
a look-through basis level for the CLOs.
RISK MANAGEMENT STRUCTURE
The Board is ultimately responsible for identifying and
controlling risks but relies on its delegated service providers
(the Investment Manager, Custodian, Administrator and Registrar),
to carry out ongoing management and monitoring of risks.
RISK MEASUREMENT AND REPORTING SYSTEM
The Company's risks are measured using a method which reflects
both the expected loss likely to arise in normal circumstances and
unexpected losses, which are an estimate of the ultimate actual
loss based on models. The models make use of the probabilities
derived from historical experience, adjusted to reflect the
economic environment.
Monitoring and controlling risks is primarily performed based on
limits established by the Board. These limits reflect the business
strategy and market environment of the Company as well as the level
of risk that the Company is willing to accept. In addition, the
Company monitors and measures the overall risk-bearing capacity in
relation to the aggregate risk exposure across risk types and
activities.
RISK MITIGATION
The Company has investment guidelines that set out its overall
business strategies, its tolerance for risk and its general risk
management philosophy and has established processes to monitor and
control economic hedging transactions in a timely and accurate
manner. The Company may use derivatives and other instruments only
in connection with its risk management activities, but not for
trading purposes.
EXCESSIVE RISK CONCENTRATION
Concentration arises when a number of counterparties are engaged
in similar business activities, or activities in the same
geographic region, or have similar economic features that would
cause their ability to meet contractual obligations to be similarly
affected by changes in economic, political or other conditions.
Concentration indicates the relative sensitivity of the Company's
performance to developments affecting a particular issuer, manager,
asset class or geographical location.
In order to avoid excessive concentration of risk, the Company's
policies and procedures included specific guidelines to focus on
maintaining a diversified portfolio. Identified concentration of
credit risks are controlled and managed accordingly. Following the
vote by Shareholders to wind-down the Company, the Company's
portfolio will become more concentrated as positions are sold off.
The concentration risk as at 31 December 2019 and 2018 is disclosed
in note 11(A)(iii) and 11(B).
11 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
(A) MARKET RISK
Market risk is the risk that the fair value or future cash flows
of a financial instrument will fluctuate because of changes in
market prices and includes interest rate risk, currency risk and
other price risk. The Company may use derivative instruments to
hedge the investment portfolio against currency risk. As at 31
December 2019 and 2018, the Company did not hold any derivative
instruments.
The Company's investments are in CLO vehicles. The CLO vehicles
typically have no significant assets other than the loans as
collateral. Accordingly, payments on the CLO securities are payable
solely from the cash flows from the collateral, net of all
management fees and other expenses. Payments to the Company as a
holder of Income Notes and/or Mezzanine Notes of CLO vehicles are
met only after payments due on the Senior Notes (and, where
appropriate, the Mezzanine Notes) have been made in full.
The following tables show the securities held by the Company as
at 31 December 2019 and 2018 which are most susceptible to market
risk arising from uncertainties about interest rates, foreign
currency fluctuation and future prices of the instruments.
Repurchase US Dollar Company
Pool Shares Shares Total
31 December 31 December 31 December
2019 2019 2019
US$ US$ US$
--------------------------------------- ------------- ------------ ------------
Collateralised loan obligations
Income Notes 998,497 1,844,134 2,842,631
Mezzanine Notes 1,092,040 5,398,281 6,490,321
--------------------------------------- ------------- ------------ ------------
Total Collateralised loan obligations 2,090,537 7,242,415 9,332,952
TOTAL INVESTMENTS AT FAIR VALUE 2,090,537 7,242,415 9,332,952
--------------------------------------- ------------- ------------ ------------
Repurchase US Dollar Company
Pool Shares Shares Total
31 December 31 December 31 December
2018 2018 2018
US$ US$ US$
--------------------------------------- ------------- ------------ ------------
Collateralised loan obligations
Income Notes 11,197,434 202,884,046 214,081,480
Mezzanine Notes 2,773,546 14,795,465 17,569,011
--------------------------------------- ------------- ------------ ------------
Total Collateralised loan obligations 13,970,980 217,679,511 231,650,491
TOTAL INVESTMENTS AT FAIR VALUE 13,970,980 217,679,511 231,650,491
--------------------------------------- ------------- ------------ ------------
(i) Interest rate risk
The Company is exposed to interest rate risk on CLOs held by the
Company and on a look-through basis to the underlying assets in the
CLOs. Risk management of the CLOs is the responsibility of the
respective CLO managers.
In certain transactions undertaken by CLO issuers, the fixed
rate nature of some of the Senior and Mezzanine Notes and the
floating rate nature of the assets may produce a fixed/floating
interest rate mismatch between the assets and the liabilities of
the CLO. CLOs may enter into one or more interest rate hedges with
a counterparty acceptable to the ratings agencies to reduce this
asset/liability mismatch, and therefore lower the return
sensitivity of the CLO investments to changes in the absolute level
of interest rates.
Management of interest rate risk
Objective and policy
The majority of the Company's financial assets are Income Notes
and Mezzanine tranches of cash flow CLOs. The Company's investments
have exposure to interest rate risk but this is limited to floating
LIBOR-based exposure on the underlying assets (i.e. the loans and
bonds) in the CLOs.
11 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
(A) MARKET RISK (continued)
(i) Interest rate risk (continued)
Management of interest rate risk (continued)
Objective and policy (continued)
The Company's investments in CLO securities are presented in the
statement of financial position as "financial assets at fair value
through profit or loss". The CLO Income Notes are measured at their
"dirty" prices as the Board deem this to better reflect the trading
conventions of the asset class. Income derived from the CLO Income
Notes is presented in the statement of comprehensive income within
net gains and losses (inclusive of accrued interest) on financial
assets at fair value through profit or loss.
Payments of interest and principal to the various rated debt
tranches issued by the issuer are normally made sequentially, first
to the most senior class and then to the junior classes. These
payments are made solely from the cash flows received from the
underlying assets.
The Company is exposed to interest rate risk on its cash balance
but this is not deemed to be significant for the financial year
ended 31 December 2019 and 2018. The focus of the Company's risk
management is therefore on the CLO investments.
Process
Prior to the change in the investment objective and investment
policy of the Company on 17 December 2018, the Company invested
mainly into the Mezzanine tranches or Income Notes issued by CLO
vehicles, giving the Company the entitlement to any residual income
after the more senior tranche notes issued by the CLO have received
their contractual entitlements (in line with the priority of
payments established in each CLO's formation documents). As the
Company holds the Income Notes and Mezzanine tranches on the
liability side of the CLO, there is a natural hedge on its
investment for any change in interest rates on a look through basis
to the underlying CLO (with an equal and opposite effect between
the assets and liabilities of the CLO).
While the Investment Manager cannot manage the interest rate
risk of the underlying assets of the CLOs, it monitors the
performance of the deals and third-party CLO managers on an
on-going basis. In particular, the Investment Manager monitors the
relevant CLO managers for any significant decisions that may impact
the returns on the CLO deals. On a look-through basis, the
underlying assets in CLOs are subject to floating interest
rates.
The asset spread of the portfolio fluctuates with movements in
market fundamentals. This impacts the interest earned by the
underlying portfolio. On a look-through basis, the underlying CLO
manager will manage the portfolio such that, for example, new issue
loans are bought into the portfolio at the latest market spreads
and older loan assets are disposed of.
There were no changes in the risk exposures of the Company or in
the risk management processes related to interest rate risk
compared to the prior financial reporting period.
The portfolio profile of the Repurchase Pool Shares and the US
Dollar Shares as at 31 December 2019 and 2018 includes 100%
investments with a floating interest rate.
11 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
(A) MARKET RISK (continued)
(i) Interest rate risk (continued)
Management of interest rate risk (continued)
Process (continued)
The following table shows the Board's best estimate of the
sensitivity of the portfolio (effect on net assets and profit or
loss) to stressed changes in interest rates, with all other
variables held constant, including IRR. The table assumes parallel
shifts in the respective forward yield curves and illustrates the
estimated change in the market value of the portfolio accounting
for the variable interest movement. This risk is proportionally
shared between the two share classes.
As at 31 December 2019 and 2018, the Directors took the view
that, taking into consideration the economic environment and
estimated future forecasts, it was reasonable to assume that
interest rates would not change more than 1% in the following
twelve months. The +/- 1% sensitivity was used to illustrate
this.
Repurchase US Dollar Company
Pool Shares Shares Total
31 December 31 December 31 December
2019 2019 2019
Possible reasonable US$ US$ US$
change in rate
-------------------- ------------- ------------ ------------
+1% (8,203) 6,453 (1,750)
- 1 % 10,485 (7,031) 3,454
-------------------- ------------- ------------ ------------
Repurchase US Dollar Company
Pool Shares Shares Total
31 December 31 December 31 December
2018 2018 2018
Possible reasonable US$ US$ US$
change in rate
-------------------- ------------- ------------ ------------
+1% 368,939 5,141,155 5,510,094
- 1 % (377,469) (5,189,520) (5,566,989)
-------------------- ------------- ------------ ------------
(ii) Currency risk
Currency risk is the risk that the fair value or future cash
flows of the Company's financial instruments will decline due to
changes in exchange rates. The Company is exposed to currency risk
to the extent that its assets and liabilities are not denominated
in US Dollars, the functional currency.
Management of currency risk
Objective and policy
The Company is exposed to limited currency risk, as the vast
majority of the Company's assets and liabilities are currently
denominated in US Dollars.
Process
The Company held immaterial amounts of Euro and GBP cash at the
financial year ended 31 December 2019 and 2018 to cover expense
invoices. The effect of currency fluctuations on these small
foreign currency cash balances is deemed immaterial to the Company.
There is no exposure to currency risk aside from cash in foreign
currency.
11 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
(A) MARKET RISK (continued)
(ii) Currency risk (continued)
Management of currency risk (continued)
Process (continued)
The total net exposure to foreign currencies at the reporting
date was as follows:
Repurchase
Pool US Dollar Company
Shares Shares Total
31 December 31 December 31 December
2019 2019 2019
EXPOSURE TO FOREIGN US$ US$ US$
EXCHANGE RATES
--------------------------- ------------- ------------- -------------
EUR Exposure
Cash and cash equivalents 77,583 332,348 409,931
--------------------------- ------------- ------------- -------------
EUR Exposure 77,583 332,348 409,931
--------------------------- ------------- ------------- -------------
GBP Exposure
Cash and cash equivalents 44,490 122,829 167,319
--------------------------- ------------- ------------- -------------
GBP Exposure 44,490 122,829 167,319
--------------------------- ------------- ------------- -------------
TOTAL EXPOSURE 122,073 455,177 557,250
--------------------------- ------------- ------------- -------------
Repurchase
Pool US Dollar Company
Shares Shares Total
31 December 31 December 31 December
2018 2018 2018
EXPOSURE TO FOREIGN EXCHANGE US$ US$ US$
RATES
------------------------------ ------------- ------------- -------------
EUR Exposure
Cash and cash equivalents 69,741 257,017 326,758
------------------------------ ------------- ------------- -------------
EUR Exposure 69,741 257,017 326,758
------------------------------ ------------- ------------- -------------
GBP Exposure
Cash and cash equivalents 42,773 118,086 160,859
------------------------------ ------------- ------------- -------------
GBP Exposure 42,773 118,086 160,859
------------------------------ ------------- ------------- -------------
TOTAL EXPOSURE 112,514 375,103 487,617
------------------------------ ------------- ------------- -------------
The following tables are the Board's best estimate of the
sensitivity of the portfolio to changes in foreign currencies as at
31 December 2019 and 2018. As at 31 December 2019 and 2018, the
Directors took the view that, considering the economic environment,
the volatility of the US Dollar against the Euro and Sterling and
the limited exposure of the Company to non-base currencies, a shift
in rates of 5% and 10%, respectively, was a reasonable threshold to
use.
Repurchase Pool Company Total
Shares US Dollar Shares 31 December 2019
31 December 2019 31 December 2019
Possible Effect on Effect Effect
change Net exposure net assets Net exposure on net Net on net
in exchange and profit assets exposure assets
rate or loss and profit and profit
or loss or loss
US$ US$ US$ US$ US$ US$
---------------- ------- --------------- ------------ --------------- ------------- ----------- -------------
Euro/US Dollar +/-5% 77,583 (+/-) 3,879 332,348 (+/-) 16,617 409,931 (+/-) 20,496
GBP/US Dollar +/-10% 44,490 (+/-) 4,449 122,829 (+/-) 12,283 167,319 (+/-) 16,732
---------------- ------- --------------- ------------ --------------- ------------- ----------- -------------
Repurchase Pool Company Total
Shares US Dollar Shares 31 December 2018
31 December 2018 31 December 2018
Possible Effect on Effect Effect
change Net exposure net assets Net exposure on net Net on net
in exchange and profit assets exposure assets
rate or loss and profit and profit
or loss or loss
US$ US$ US$ US$ US$ US$
---------------- ------- --------------- ------------ --------------- ------------- ----------- -------------
Euro/US Dollar +/-5% 69,741 (+/-) 3,487 257,017 (+/-) 12,851 326,758 (+/-) 16,338
GBP/US Dollar +/-10% 42,773 (+/-) 4,277 118,086 (+/-) 11,809 160,859 (+/-) 16,086
---------------- ------- --------------- ------------ --------------- ------------- ----------- -------------
11 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
(A) MARKET RISK (continued)
(iii) Other price risk
Other price risk is the risk that the fair value or future cash
flows of a financial instrument will fluctuate because of changes
in market prices (other than those arising from interest rate risk
or currency risk), whether those changes are caused by factors
specific to the individual financial instrument or its issuer, or
factors affecting all similar financial instruments traded in the
market.
Management of other price risk
Objective and policy
The Board do not believe that the returns on investments are
correlated to any specific index or other price variable. The other
price risk that applies to investments in CLO securities is limited
and is restricted to the concentration risk of the investments
between asset class and geographical exposure. Prior to the change
in the investment objective and investment policy of the Company on
17 December 2018, each investment was assessed with a view to
providing diversification in terms of underlying assets, issuer,
sector, and maturity profile.
The Company's investments are susceptible to market price risk
arising from uncertainties about future prices of financial
instruments. All securities invested in present a risk of loss of
capital. Any increase or decrease in the market price of
investments would alter the Company's NAV to the extent that it is
invested at any point in time. The Investment Manager sought to
mitigate risk by diversification across geographical and industry
sectors on a look-through basis to the underlying assets of the
CLOs. The Investment Manager acknowledges that other price risk
will become more concentrated in the Company's portfolio as the
Managed Wind-Down progresses.
Process
At the EGM of the Shareholders of the US Dollar Shares convened
on 17 December 2018, the investment objective of the Company was
changed such that the Company will be managed with the intention of
realising all remaining assets of the Company with a view to
returning capital to the Shareholders in an orderly manner as part
of the Managed Wind-Down.
The Managed Wind-Down will be effected with a view to the
Company realising all of its investments in a manner that achieves
a balance between maximising the value from the Company's
investments and making timely returns of capital to
Shareholders.
The Company has ceased to make any new investments except where
necessary in the reasonable opinion of the Investment Manager in
order to protect or enhance the value of any existing investments
or to facilitate orderly disposals.
11 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
(A) MARKET RISK (continued)
(iii) Other price risk (continued)
Management of other price risk (continued)
Process (continued)
The following tables analyse the Company's concentration of
other price risk by subsector in the secured loan asset class and
by geographical area as at 31 December 2019 and 2018.
Repurchase US Dollar Company
Pool Shares Shares Total
31 December 31 December 31 December
2019 2019 2019
By Asset Class US$ US$ US$
----------------------------------- ------------- ------------ ------------
Broadly syndicated sub-investment
grade secured loans - North
America 1,157,542 5,529,703 6,687,245
Broadly syndicated sub-investment
grade secured loans - Ireland* 932,995 1,712,712 2,645,707
----------------------------------- ------------- ------------ ------------
2,090,537 7,242,415 9,332,952
----------------------------------- ------------- ------------ ------------
Repurchase US Dollar Company
Pool Shares Shares Total
31 December 31 December 31 December
2018 2018 2018
By Asset Class US$ US$ US$
----------------------------------- ------------- ------------- -------------
Broadly syndicated sub-investment
grade secured loans - North
America 12,816,097 214,492,728 227,308,825
Broadly syndicated sub-investment
grade secured loans - Ireland* 1,154,883 3,186,783 4,341,666
----------------------------------- ------------- ------------- -------------
13,970,980 217,679,511 231,650,491
----------------------------------- ------------- ------------- -------------
*Investment domiciled in Ireland is US Dollar denominated.
If the value of investments was to increase or decrease by 5%,
the impact on the NAV of the Company would be +/- US$466,648
(Repurchase Pool Share US$104,527 and US Dollar Share US$362,121)
(2018: +/- US$11,582,525 (Repurchase Pool Share US$698,549 and US
Dollar Share US$10,883,976)). As at 31 December 2019 and 2018, the
Directors took the view that, taking into consideration the
economic environment, it was reasonable to use 5% in the above
sensitivity analysis.
(B) CREDIT RISK
Credit risk is the risk that one party to a financial instrument
will cause a financial loss for the other party by failing to
discharge an obligation. It is the Company's policy to enter into
financial instruments with a range of reputable counterparties.
Management of credit risk
Objective and policy
The Managed Wind-Down has resulted in the Company commencing
realisation of all of its investments in a manner that achieves a
balance between maximising the value from the Company's investments
and making timely returns of capital to Shareholders. Any assets to
which rollover elections relate were transferred in accordance with
the provisions of the BGLF Rollover Opportunity, following which
the Company commenced selling its remaining investments either to
co-investors in the relevant asset or to third parties, but in all
cases with the objective of achieving the best available price in a
reasonable time scale.
The Company has ceased to make any new investments except where
necessary in the reasonable opinion of the Investment Manager in
order to protect or enhance the value of any existing investments
or to facilitate orderly disposals.
11 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
(B) CREDIT RISK (continued)
Management of credit risk (continued)
Process
The Company's portfolio of CLO investments has been actively
managed to minimise default risk and potential loss through
comprehensive credit analysis performed by the Investment Manager's
experienced credit research team and use of the Investment
Manager's proprietary risk management systems. The Investment
Manager's CLO investment process is both quantitative and
qualitative in nature, with an emphasis on bottom-up, fundamental
credit research. Any analysis of a CLO position, whether debt or
CLO Income Note, begins with an understanding of the underlying
credit risk. This is achieved by mapping the CLO portfolio against
the Investment Manager's own issuer credit universe (with over
1,200 corporate issuers) and then overlaying proprietary and market
stresses to the portfolio. Investing in CLO securities also
requires a disciplined assessment of the CLO arbitrage, CLO
structural protections, and manager style, performance history,
portfolio composition, and experience managing CLOs.
All assets in the portfolio receive default, recovery,
prepayment, and reinvestment assumptions. The portfolio is then
separated into performing and stressed assets. Stressed assets are
defined as assets trading below $90, spread (discount margin) above
700bp, and/or credit risk factor ("CRF") greater than 4. These
stressed assets receive customised assumptions based on industry,
watch list, market, and credit specific views. The Investment
Manager works with its credit research team and portfolio managers
to discuss any concentration of risk identified in the underlying
portfolio. The Investment Manager's views on credit risk drive the
various stress scenarios applied to each CLO portfolio. Each
investment is reviewed under a positive, base, negative, and
stressed case IRR scenario.
In addition to reviewing CLO offering materials and reporting
documentation, ongoing due diligence of the underlying CLO managers
is critical to the investment analysis. The Investment Manager is
constantly monitoring CLO manager's strategy and style and also
evaluates the CLO manager's franchise, behaviour, and track record
in order to fine tune any analysis assumptions. When evaluating CLO
managers, the Investment Manager looks across their outstanding
CLOs to assess comfort across all of the CLOs they manage, not just
the CLO in which the Investment Manager is investing. The
Investment Manager considers how portfolio quality has changed over
time to help identify style drift, and evaluates historical
performance, trading patterns, historical distributions, CLO test
results, asset concentration, and portfolio quality measures.
Certain managers may have greater liquidity than others, even if
quantitative measures of their performance are equivalent, or even
worse than other managers. In certain cases, an illiquidity premium
may be applied for less frequently traded managers.
The Investment Manager generally trades via The Depository Trust
Company ("DTC") or Euroclear, which, on the whole, limits
counterparty risk. A small part of the portfolio includes physical
securities. Physical securities are delivered against payment, thus
mitigating counterparty risk.
As the Company is now in the process of a Managed Wind-Down, the
Company has ceased to make any new investments except where
necessary in the reasonable opinion of the Investment Manager in
order to protect or enhance the value of any existing investments
or to facilitate orderly disposals.
The following table analyses the Company's maximum credit
exposure to credit risk for the components of the statement of
financial position. The split between the two share classes is
disclosed in note 3.
31 December 2019 31 December 2018
US$ US$
-------------------------------- ----------------- -----------------
Cash and cash equivalents 16,046,805 28,811,103
Other receivables 549,339 939,963
Financial assets at fair value
through profit or loss 9,332,952 231,650,491
-------------------------------- ----------------- -----------------
25,929,096 261,401,557
-------------------------------- ----------------- -----------------
11 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
(B) CREDIT RISK (continued)
Management of credit risk (continued)
Process (continued)
The cash and substantially all of the assets of the Company are
held by the Custodian or one or more of its sub-custodians.
Bankruptcy or insolvency of the Custodian or its sub-custodians may
cause the Company's rights with respect to securities held by the
Custodian or its sub-custodians to be delayed or limited. The
Company or its sub-custodians monitor its risk by monitoring the
credit quality and financial positions of the Custodian. State
Street Corporation is the parent company of the Custodian. The
long-term rating of State Street Corporation as at 31 December 2019
was A1 (Source: Moody's) (2018: A1).
The following tables show the breakdown of financial assets at
fair value through profit or loss by country of incorporation as at
31 December 2019 and 2018:
Repurchase US Dollar Company
Pool Shares Shares Total
31 December 2019 31 December 2019 31 December 2019
US$ US$ US$
---------------- ----------------- ----------------- ------------------
Cayman Islands 1,157,542 5,529,703 6,687,245
Ireland 932,995 1,712,712 2,645,707
---------------- ----------------- ----------------- ------------------
2,090,537 7,242,415 9,332,952
---------------- ----------------- ----------------- ------------------
Repurchase US Dollar Company
Pool Shares Shares Total
31 December 2018 31 December 2018 31 December 2018
US$ US$ US$
---------------- ----------------- ----------------- ------------------
Cayman Islands 12,816,097 214,492,728 227,308,825
Ireland 1,154,883 3,186,783 4,341,666
---------------- ----------------- ----------------- ------------------
13,970,980 217,679,511 231,650,491
---------------- ----------------- ----------------- ------------------
The following table summarises the Company's portfolio
concentrations as at 31 December 2019 and 2018:
Maximum Average
portfolio holdings portfolio holdings
of a single asset of a single asset
% of total portfolio % of total portfolio
-------------------------------- --------------------- ---------------------
Repurchase Pool 52.24% 25.00%
US Dollar 46.85% 12.50%
31 December 2019 Company Total 36.36% 12.50%
-------------------------------- --------------------- ---------------------
Repurchase Pool 23.64% 10.00%
US Dollar 8.99% 2.33%
31 December 2018 Company Total 8.45% 2.33%
-------------------------------- --------------------- ---------------------
The following table summarises the portfolio by asset class and
ratings of the portfolio as at 31 December 2019:
US Dollar
Repurchase Shares Company
Pool Shares Total
31 December 2019 31 December 2019 31 December 2019
By asset class US$ US$ US$
----------------- ----------------- ----------------- -----------------
Mezzanine Notes 1,092,040 5,398,281 6,490,321
Income Notes 998,497 1,844,134 2,842,631
----------------- ----------------- ----------------- -----------------
2,090,537 7,242,415 9,332,952
----------------- ----------------- ----------------- -----------------
11 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
(B) CREDIT RISK (continued)
Management of credit risk (continued)
Process (continued)
The following table summarises the portfolio by asset class and
ratings of the portfolio as at 31 December 2018:
US Dollar
Repurchase Shares Company
Pool Shares Total
31 December 2018 31 December 2018 31 December 2018
By asset class US$ US$ US$
----------------- ----------------- ----------------- -----------------
Mezzanine Notes 2,773,546 14,795,465 17,569,011
Income Notes 11,197,434 202,884,046 214,081,480
----------------- ----------------- ----------------- -----------------
13,970,980 217,679,511 231,650,491
----------------- ----------------- ----------------- -----------------
The CLO vehicles themselves do not have "default" rates. CLOs
invest in loans (and bonds) issued to various borrower companies.
The interest and principal received on the loans pay the interest
(and principal) of the CLO notes, starting at the most senior (AAA)
tranche notes and working the way down the waterfall to the least
senior tranches. If there are losses on the underlying loans from
defaults, those losses impact the CLO Income Notes first.
Senior and Mezzanine tranches of CLOs are rated, while the
lowest tranche - the subordinated note, also known as "CLO equity"
or "Income Note" is non-rated ("NR"). For the purpose of the asset
class breakdown above, the Mezzanine CLO investments were
originally rated A/BBB/BB/B. The Investment Manager monitors credit
risk for both rated and unrated investments in the same manner.
The Company's portfolio is partly invested in the Income Notes
tranches of CLOs which are subject to potential non-payment and are
by definition, non-rated securities. The Company assesses the
quality of non-rated assets based on a fundamental analysis of the
underlying loans in the respective portfolios. The terms and
conditions of the underlying CLOs and the implications of other
rights on the CLOs are reviewed to determine any impact on the
expected cash flow from the underlying CLO.
With the exception of investments in Mezzanine CLO Notes, the
Company will typically be in a first loss or subordinated position
with respect to realised losses on the collateral of each CLO
investment. The leveraged nature of the Income Notes and the
Mezzanine Notes, in particular, magnifies the adverse impact of
collateral defaults.
Income noteholders accept that they will bear the first loss, if
any, on the underlying pool of loan assets in return for a higher
expected return.
As at 31 December 2019, the Company held the following Mezzanine
CLO investments:
Credit Original Nominal Market
Tranche Seniority Manager Rating Rating Holding Value
CLO Issuer US$
-------------- --------------- ------------- ----------------- ---------- ---------- ------------- ------------
BNP Paribas
BNPIP 2014-1X Asset
BNPIP 2014-1 D M Management NR/B+ NR/BB 5,372,000 3,393,373
BNP Paribas
BNPIP 2014-1X Asset
BNPIP 2014-1 E M Management NR/CCC NR/B 10,770,315 3,096,948
-------------- --------------- ------------- ----------------- ---------- ---------- ------------- ------------
Total 6,490,321
----------------------------------------------------------------------------------------- ------------- ------------
As at 31 December 2018, the Company held the following Mezzanine
CLO investments:
Credit Original Nominal Market
Tranche Seniority Manager Rating Rating Holding Value
CLO Issuer US$
-------------- --------------- ------------- ---------------- ----------- ---------- ------------- ------------
BNP Paribas
BNPIP 2014-1X Asset
BNPIP 2014-1 D M Management NR/BB NR/BB 8,074,000 7,142,431
BNP Paribas
BNPIP 2014-1X Asset
BNPIP 2014-1 E M Management NR/CCC+ NR/B 14,000,000 10,426,580
-------------- --------------- ------------- ---------------- ----------- ---------- ------------- ------------
Total 17,569,011
----------------------------------------------------------------------------------------- ------------- ------------
11 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
(B) CREDIT RISK (continued)
Management of credit risk (continued)
Process (continued)
The Company may be adversely impacted by an increase in its
credit exposure related to investing and other activities. The
Company is exposed to the potential for credit-related losses that
can occur as a result of an individual, counterparty or issuer
being unable or unwilling to honour its contractual obligations.
These credit exposures exist within financing relationships,
commitments and other transactions. These exposures may arise, for
example, from a decline in the financial condition of a
counterparty, from entering into swap or other derivative contracts
under which counterparties have obligations to make payments to us,
from a decrease in the value of securities of third parties that
the Company holds as collateral, or from extending credit through
guarantees or other arrangements. As the Company's credit exposure
increases, it could have an adverse effect on the Company's
business and profitability if material unexpected credit losses
occur.
As stated above, the Investment Manager assesses the credit risk
of the CLOs on a look-through basis to the underlying loans in each
CLO. The Investment Manager seeks to provide diversification in
terms of underlying assets, issuer section, geography and maturity
profile.
The Company's top ten look-through exposure to corporate
borrowers is detailed in the following tables:
US Dollar
31 December 2019
Issuer Rating Sector %
----------------------------------- -------- ------------------------------ -----
American Airlines Ba1/BB- Transportation: Consumer 1.40%
PriSo Acquisition B2/B Construction & Building 1.24%
Riverbed Technology B2/CCC+ High Tech 1.10%
Bass Pro Group B1/B+ Retail 1.07%
Air Medical Group B1/B Healthcare & Pharmaceuticals 0.96%
Rovi Solutions Ba3/B+ High Tech 0.92%
Carestream Health (Onex Carestream
Finance LP) B1/B Healthcare & Pharmaceuticals 0.90%
Blue Ribbon B2/B- Beverage, Food & Tobacco 0.89%
Petsmart B2/B- Retail 0.88%
Banking, Finance, Insurance
Asurion LLC Ba3/B+ & Real Estate 0.88%
Petco B2/CCC+ Retail 0.88%
Zekelman Industries B1/B+ Metals & Mining 0.87%
Centurylink Inc Ba3/BB Telecommunications 0.87%
Repurchase Pool
31 December 2019
Issuer Rating Sector %
----------------------------------- -------- ----------------------------------- ------
American Airlines Ba1/BB- Transportation: Consumer 1.26%
PriSo Acquisition B2/B Construction & Building 1.04%
Riverbed Technology B2/CCC+ High Tech 0.95%
Banking, Finance, Insurance
Asurion LLC Ba3/B+ & Real Estate 0.93%
Altice SFRFP B2/B Media: Broadcasting & Subscription 0.90%
Air Medical Group B1/B Healthcare & Pharmaceuticals 0.84%
Carestream Health (Onex Carestream
Finance LP) B1/B Healthcare & Pharmaceuticals 0.76%
Petco B2/CCC+ Retail 0.73%
Banking, Finance, Insurance
First Eagle Holdings Ba1/BB+ & Real Estate 0.70%
Advantage Sales & Marketing B2/B- Services: Business 0.70%
11 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
(B) CREDIT RISK (continued)
Management of credit risk (continued)
Process (continued)
The Company's top ten look-through exposure to corporate
borrowers is detailed in the following tables:
US Dollar
31 December 2018
Issuer Rating Sector %
------------------------- -------- ------------------------- -----
Asurion LLC Ba3/B+ Insurance 0.76%
First Data Corp Ba2/BB- Financial Intermediaries 0.71%
Transdigm Ba2/B+ Aerospace 0.70%
Centurylink Inc Ba3/BB Cable Television 0.66%
Univision Communications B2/B Cable Television 0.66%
SS&C Technologies Inc Ba3/BB Information Technology 0.63%
Scientific Games Ba3/B+ Leisure Goods/Activities 0.63%
Calpine Corp Ba2/B+ Utilities 0.59%
Avolon Ltd Ba3/B+ Aerospace 0.57%
Air Medical Group B1/B Transportation 0.57%
Repurchase Pool
31 December 2018
Issuer Rating Sector %
--------------------------- ------- ----------------------------- -----
Altice SFRFP B3/B Telecommunications 0.86%
Univision Communications B2/B Cable Television 0.83%
Calpine Corp Ba2/B+ Utilities 0.83%
Centurylink Inc Ba3/BB Cable Television 0.75%
Texas Competitive Electric Ba2/BB Utilities 0.75%
Scientific Games Ba3/B+ Leisure Goods/Activities 0.72%
Endo Pharmaceuticals Ba2/B Healthcare & Pharmaceuticals 0.71%
Air Medical Group B1/B Transportation 0.69%
SS&C Technologies Inc Ba3/BB Information Technology 0.66%
Asurion LLC Ba3/B+ Insurance 0.61%
11 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
(B) CREDIT RISK (continued)
Management of credit risk (continued)
Process (continued)
Concentration of the Company's financial assets by industry, in
excess of 0.5%, was as follows:
US Dollar
31 December 2019
% of
Industry % of portfolio Industry portfolio
---------------------------------- -------------- ----------------------------- -----------------
Media: Advertising, Printing
Healthcare & Pharmaceuticals 11.64% & Publishing 2.47%
High Tech Industries 10.76% Consumer Goods: Durable 2.30%
Retail 7.62% Consumer Goods: Non-durable 2.30%
Services: Business 6.32% Utilities: Electric 2.27%
Hotel, Gaming & Leisure 5.31% Capital Equipment 2.24%
Beverage, Food & Tobacco 4.75% Transportation: Cargo 2.15%
Telecommunications 4.58% Metals & Mining 1.68%
Banking, Finance, Insurance
& Real Estate 4.25% Containers, Packaging & Glass 1.58%
Media: Broadcasting & Subscription 4.05% Environmental Industries 0.86%
Services: Consumer 3.91%
Construction & Building 3.83%
Automotive 3.40%
Chemicals, Plastics & Rubber 3.03%
Energy: Oil and Gas 2.75%
Aerospace & Defense 2.71%
Transportation: Consumer 2.65%
Repurchase Pool
31 December 2019
% of
Industry % of portfolio Industry portfolio
--------------------------------- --------------- ------------------------------ ----------- -----
Healthcare & Pharmaceuticals 12.39% Aerospace and Defense 2.45%
High Tech Industries 11.31% Utilities: Electric 2.29%
Services: Business 6.29% Consumer goods: Durable 2.02%
Retail 5.66% Consumer goods: Non-durable 2.00%
Hotel, Gaming & Leisure 5.45% Containers, Packaging & Glass 1.92%
Banking, Finance, Insurance Media: Advertising, Printing
& Real Estate 5.30% & Publishing 1.90%
Media: Broadcasting & Subscription 4.81% Transportation: Cargo 1.52%
Beverage, Food & Tobacco 4.56% Metals & Mining 1.16%
Telecommunications 4.44% Environmental Industries 1.12%
Construction & Building 4.42%
Services: Consumer 4.08%
Chemicals, Plastics & Rubber 3.10%
Transportation: Consumer 2.90%
Energy: Oil & Gas 2.83%
Automotive 2.79%
Capital Equipment 2.50%
11 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
(B) CREDIT RISK (continued)
Management of credit risk (continued)
Process (continued)
Concentration of the Company's financial assets by industry, in
excess of 0.5%, was as follows:
US Dollar
31 December 2018
% of
Industry % of portfolio Industry portfolio
----------------------------------- -------------- ------------------------------- ----------
Healthcare & Pharmaceuticals 12.09% Automotive 2.36%
High Tech Industries 11.77% Containers, Packaging & Glass 2.26%
Services: Business 8.79% Transportation: Consumer 1.69%
Banking, Finance, Insurance
& Real Estate 7.50% Consumer Goods: Durable 1.50%
Telecommunications 6.70% Consumer Goods: Non-durable 1.36%
Hotel, Gaming & Leisure 5.14% Metals & Mining 1.01%
Media: Advertising, Printing
Media: Broadcasting & Subscription 4.51% & Publishing 0.97%
Construction & Building 3.62% Environmental Industries 0.96%
Retail Stores 3.50% Energy: Electricity 0.77%
Beverage, Food & Tobacco 3.44% Media: Diversified & Production 0.69%
Chemicals, Plastics & Rubber 3.44%
Services: Consumer 3.37%
Utilities: Electric 3.14%
Aerospace & Defense 3.09%
Oil and Gas 2.82%
Capital Equipment 2.75%
Repurchase Pool
31 December 2018
% of
Industry % of portfolio Industry portfolio
------------------------------------------ -------------- ------------------------------- ----------
Healthcare & Pharmaceuticals 12.60% Capital Equipment 2.30%
High Tech Industries 9.95% Automotive 1.87%
Telecommunications 7.80% Consumer goods: Non-durable 1.77%
Services: Business 7.54% Consumer goods: Durable 1.63%
Banking, Finance, Insurance & Real Estate 6.84% Environmental Industries 1.48%
Hotel, Gaming & Leisure 5.53% Transportation: Consumer 1.48%
Media: Advertising, Printing
Media: Broadcasting & Subscription 4.53% & Publishing 1.23%
Chemicals, Plastics & Rubber 3.88% Metals & Mining 0.89%
Retail 3.88% Utilities: Oil and Gas 0.88%
Construction & Building 3.69% Media: Diversified & Production 0.84%
Utilities: Electric 3.64% Transportation: Cargo 0.68%
Beverage, Food & Tobacco 3.19% Energy: Electricity 0.56%
Energy: Oil & Gas 2.84%
Containers, Packaging & Glass 2.68%
Services: Consumer 2.61%
Aerospace and Defense 2.42%
11 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
(B) CREDIT RISK (continued)
Management of credit risk (continued)
Process (continued)
Impairment review
IFRS 9 requires an impairment assessment to be carried out on
its financial assets carried at amortised cost. Impairment does not
apply to financial assets classified as fair value through profit
or loss. As at 31 December 2019, cash and cash equivalents and
other receivables are held with counterparties with a credit rating
of A1 or are due to be settled within 3 months of the reporting
date. The Board considers the probability of default to be close to
zero, as these instruments have a low risk of default and the
counterparties have a strong capacity to meet their contractual
obligations in the near term. As a result, no loss allowance has
been recognised in the financial statements for the financial year
ended 31 December 2019, based on 12-month expected credit losses.
As such, any impairment would be wholly insignificant to the
Company. There was no impairment recognised in the financial
statements for the financial year ended 31 December 2019 and
2018.
(C) LIQUIDITY RISK
Liquidity risk is defined as the risk that the Company may not
be able to settle or meet its obligations on time or at a
reasonable price.
Management of liquidity risk
Objective and policy
Due to the illiquid nature of the investments of the Company and
the length of time that may be required to liquidate such
investments, redemption by Shareholders is at the discretion of the
Company. The Company does not have any long-term or structural
borrowings. The introduction to note 11 details the potential
liquidity risk arising from the Company's structure and the nature
of its investments. The Company's financial instruments include
investments in collateralised debt obligations traded
over-the-counter which are not traded in an organised public market
and which may be illiquid.
Process
During the financial year, none of the assets of the Company
were subject to special liquidity arrangements arising from their
illiquid nature.
In 2017, a redemption opportunity was put to Shareholders. It
was accepted by 26.6% of the Shareholders, consequently Repurchase
Pool Shares were established and 26.6% of the Company's portfolio
was transferred to the Repurchase Pool. As at 31 December 2019,
there were 6,617,236 Repurchase Pool Shares (2018: 24,637,358) in
issue.
On 17 December 2018, two EGMs of the Company were convened at
which: (a) Shareholders holding US Dollar Shares approved changes
to the investment objective and policy of the Company to facilitate
and authorise the Board to instruct the Investment Manager to
effect a Managed Wind-Down of the portfolio attributable to the US
Dollar Shares; and (b) Shareholders of the Company approved
amendments to the constitution of the Company to provide for the
termination of the Company before 2022.
On 21 December 2018, it was announced that 33.463% of US Dollar
Shareholders and 0.002% of Repurchase Pool Shareholders elected to
roll their investment in the Company into an investment in BGLF C
Shares. Subsequent to the financial year end, 133,450,591 US Dollar
Shares and 488 Repurchase Pool Shares were converted into
133,451,107 Rollover Shares. Following this, BGLF allotted and
admitted to trading on the Specialist Fund Segment of the Main
Market of the LSE one new C share for each Rollover Share in
consideration of the transfer of Rollover assets from the Company
to BGLF. The listing of the BGLF C Shares was effective as and from
7 January 2019.
As the Company is in the process of a Managed Wind-Down, the
portfolios of both share classes are being actively sold to
facilitate the return of the proceeds to the Shareholders. Cash
distributions, by way of a redemption of shares, are made to US
Dollar Shareholders and Repurchase Pool Shareholders on the
realisation of their respective portfolios.
12 EARNINGS PER SHARE
The Earnings Per Share ("EPS") is calculated by dividing the
profit/(loss) for the financial year attributable to the relevant
Shareholders by the weighted average number of shares outstanding
in the financial year.
Financial year ended Financial year ended
31 December 2019 31 December 2018
------------------------------------ ---------------------------- ----------------------------
Repurchase US Dollar Repurchase US Dollar
Pool Shares Shares Pool Shares Shares
US$ US$ US$ US$
Profit/(loss) for the financial
year all attributable to relevant
Shareholders 298,443 18,863,817 (1,141,818) (28,034,722)
Number of relevant shares
for basic earnings per share 12,843,894 131,155,556 70,696,422 398,801,780
------------------------------------ ------------- ------------- ------------- -------------
Basic and diluted earnings
per share 0.02 0.14 (0.02) (0.07)
------------------------------------ ------------- ------------- ------------- -------------
For the financial year ended 31 December 2019 and 2018, there
are no potential shares in existence, hence no diluted EPS
adjustments arise .
13 TAXATION
Under current law and Irish practice, the Company qualifies as
an investment undertaking under Section 739B of the Taxes
Consolidation Act 1997 and is not therefore chargeable to Irish tax
on its relevant income or relevant gains. No stamp duty, transfer
or registration tax is payable in the Republic of Ireland on the
issue, redemption or transfer of shares in the Company.
Distributions and interest on securities issued in countries other
than the Republic of Ireland may be subject to taxes including
withholding taxes imposed by such countries. The Company may not be
able to benefit from a reduction in the rate of withholding tax by
virtue of the double taxation agreement in operation between the
Republic of Ireland and other countries. The Company may not
therefore be able to reclaim withholding tax suffered by it in
particular countries.
To the extent that a chargeable event arises in respect of a
Shareholder, the Company may be required to deduct tax in
connection with that chargeable event and pay the tax to the Irish
Revenue Commissioners. A chargeable event can include payments to
Shareholders, appropriation, cancellation, redemption, repurchase
or transfer of shares, or a deemed disposal of shares every eight
years beginning from the date of acquisition of those shares.
Certain exemptions can apply. In the absence of an appropriate
declaration or written confirmation from the Revenue Commissioners
which confirms that no such declaration is required, the Company
will be liable for Irish tax on the occurrence of a chargeable
event.
14 DISTRIBUTIONS
The Board declared the following distributions during the
financial year ended 31 December 2019 on the US Dollar Shares:
-- On 22 January 2019, the Board declared a dividend of
US$0.0166 per US Dollar Share in respect of the financial period
from 1 October 2018 to 31 December 2018. The dividend was paid on 6
February 2019 to Shareholders on the share register as at the close
of business on 1 February 2019. The amount paid in respect of this
dividend was US$4,404,830.
As disclosed in the 2018 Circular, the Board do not intend to
declare any dividends during the wind-down period, therefore no
dividends have been paid in respect of any shares after the payment
of the dividend in respect of the quarter ended 31 December
2018.
15 OTHER EVENTS DURING THE FINANCIAL YEAR
As discussed in note 1, in January 2019, 133,450,591 US Dollar
Shares and 488 Repurchase Pool Shares were converted into
133,451,107 Rollover Shares. Following this, Blackstone / GSO Loan
Financing Limited ("BGLF") allotted and admitted to trading on the
Specialist Fund Segment of the Main Market of the LSE one new C
share for each Rollover Share in consideration of the transfer of
Rollover assets from the Company to BGLF. The listing of the BGLF C
Shares was effective as and from 7 January 2019.
During the financial year ended 31 December 2019, the following
partial redemptions have occurred in relation to the US Dollar
Shares:
% of outstanding % of issued
No. of Redemption US Dollar US Dollar
Announcement Shares Redemption Amount Price per Shares Shares
Date redeemed Date US$ Share redeemed outstanding
---------------- ------------ ------------- ------------- ------------ ----------------- ---------------
21/02/2019 51,068,428 28/02/2019 32,499,947 US$0.6364 19.246% 80.754%
23/04/2019 31,655,342 30/04/2019 20,499,999 US$0.6476 14.773% 68.825%
22/05/2019 85,399,031 31/05/2019 56,499,998 US$0.6616 46.761 % 36.641%
24/06/2019 21,152,986 30/06/2019 14,199,999 US$0.6713 21.756 % 28.670%
19/07/2019 23,474,177 31/07/2019 15,499,999 US$0.6603 30.857% 19.823%
21/10/2019 11,994,516 31/10/2019 6,999,999 US$0.5836 22.803% 15.303%
Total 224,744,480 146,199,941
---------------- ------------ ------------- ------------- ------------ ----------------- -------------
During the financial year ended 31 December 2019, the following
partial redemptions have occurred in relation to the Repurchase
Pool Shares:
% of % of issued
No. of Redemption outstanding Repurchase
Announcement Shares Redemption Amount Price per Repurchase Pool Shares
Date redeemed Date US$ Share Pool Shares outstanding
redeemed
---------------- ----------- ------------- ------------- ------------ ---------------- ---------------
21/02/2019 4,681,645 28/02/2019 3,249,998 US$0.6942 19.003% 13,814%
23/04/2019 2,103,491 30/04/2019 1,499,999 US$0.7131 10.541% 12.358%
22/05/2019 9,531,590 31/05/2019 7,000,000 US$0.7344 53.393% 5.759%
24/06/2019 1,702,908 30/06/2019 1,300,000 US$0.7634 20.467 % 4.581%
Total 18,019,634 13,049,997
---------------- ----------- ------------- ------------- ------------ ---------------- -------------
On 29 April 2019, the Company released its annual report and
accounts for the financial year ended 31 December 2018.
At the AGM of the Company held on 3 July 2019, Shareholders
approved the following ordinary resolutions:
Ordinary Resolutions
1. That the reports of the Board of Directors of the Company and
of the auditor of the Company, KPMG, and the accounts for the
financial year ended 31 December 2018 be and are hereby received
and that the Company's affairs were reviewed.
2. That KPMG be re-appointed as auditors of the Company.
3. That the Directors be and are hereby authorised to fix the
remuneration of the auditors of the Company.
4. That Mr Edward D'Alelio be re-elected as a Director of the
Company.
5. That Mr Werner Schwanberg be re-elected as a Director of the
Company.
6. That Mr Fergus Sheridan be re-elected as a Director of the
Company.
7. That Mr Adrian Waters be re-elected as a Director of the
Company.
8. That Mr Nicholas Moss be re-elected as a Director of the
Company.
Effective 30 June 2019, Fidante Partners Europe Limited (trading
as Fidante Capital) resigned as Financial Advisor and Corporate
Broker due to strategic commercial reasons.
Effective 23 July 2019, the Company has appointed Bradwell
Limited, a nominee company of Arthur Cox (Irish legal advisers to
the Company) as Company Secretary, replacing State Street Fund
Services (Ireland) Limited.
On 21 August 2019, the Company released its interim report and
accounts for the half year 2019.
There were no other significant events during the financial year
which are not disclosed elsewhere which would require revision of
the figures or disclosures in the financial statements.
16 SUBSEQUENT EVENTS
On 8 January 2020, along with five smaller holdings, the Company
sold its holding in Dorchester Park CLO DAC 2015-1X SUB at a
premium to its 31 December 2019 valuation, significantly reducing
the number of CLO assets held by the Company.
In 2020, up to the date of signing of these financial
statements, the following partial redemptions have occurred in
relation to the US Dollar Shares:
% of outstanding % of issued
No. of Redemption US Dollar US Dollar
Announcement Shares Redemption Amount Price per Shares Shares
Date redeemed Date US$ Share redeemed outstanding
23/01/2020 25,519,504 31/01/2020 14,000,000 US$0.5486 62.846% 5.686%
----------- ------------- ------------- ------------ ----------------- -------------
Total 25,519,504 14,000,000
----------- ------------- ------------- ------------ ----------------- -------------
In 2020, up to the date of signing of these financial
statements, the following partial redemptions have occurred in
relation to the Repurchase Pool Shares:
% of outstanding % of issued
No. of Redemption Repurchase Repurchase
Announcement Shares Redemption Amount Price per Pool Shares Pool Shares
Date redeemed Date US$ Share redeemed outstanding
23/01/2020 2,981,448 31/01/2020 1,350,000 US$0.4528 45.056% 2.517%
----------- ------------- ------------- ------------ ----------------- -------------
Total 2,981,448 1,350,000
----------- ------------- ------------- ------------ ----------------- -------------
On 3 February 2020, the Company provided an update on the
divestment of the portfolio, a directorate change, and a change in
the portfolio advisor.
Since the Managed Wind-Down began until 21 April 2020, the
Company had sold 46 positions in total, raising $160.2 million
attributable to the US Dollar Shares, which was returned to US
Dollar Shareholders through a series of seven compulsory
redemptions. These assets have been sold, on average, at a premium
to their latest month end valuation. Inclusive of the December 2018
dividend, these realisations have resulted in an effective realised
gain to shareholders of approximately +1.6% above the December 2018
net asset value.
To reduce the Company's ongoing costs and bring the size of the
Board in line with the nature, scale and complexity of the Company
at this stage of the Managed Wind-Down, the Company announces that
Adrian Waters and Edward D'Alelio have stepped down from the Board
with effect from 31 January 2020. It is also anticipated that
Nicholas Moss will step down from the Board on 30 April 2020 after
the 2019 annual report and audited financial statements have been
approved. Fergus Sheridan was appointed to Chair of the Audit
Committee on 24 March 2020.
The Company's Investment Manager has also informed the Board
that J. Richard Blewitt, the portfolio adviser for the Company, has
resigned from GSO. All other members of the GSO Structured Credit
Investment Committee and investment team remain unchanged.
The Directors and the Investment Manager continue to carefully
monitor the ongoing developments regarding COVID-19, which is
adversely impacting global commercial activity and has contributed
to significant volatility in financial markets. The global impact
of the outbreak has been rapidly evolving, and as cases of the
virus have continued to be identified in additional countries, many
countries have reacted by instituting quarantines and restrictions
on travel. Such actions are creating disruption in global supply
chains and adversely impacting a number of industries, such as
transportation, hospitality and entertainment. The outbreak will
have a continued adverse impact on economic and market conditions
and trigger a period of global economic slowdown. The rapid
development and fluidity of this situation precludes any prediction
as to the ultimate adverse impact of the novel coronavirus on the
Company or the overall economy. Nevertheless, the novel coronavirus
presents material uncertainty and risk with respect to portfolio
asset performance and financial results of the Company. In addition
to the factors described above, other factors that may affect
market, economic and geopolitical conditions, and thereby adversely
affect the Company include, without limitation, a global economic
slowdown, changes in interest rates and/or a lack of availability
of credit across the globe, commodity price volatility and changes
in law and/or regulation, and uncertainty regarding government and
regulatory policy.
There were no other significant events since the financial year
end which would require revision of the figures or disclosures in
the financial statements.
17 COMPARATIVE INFORMATION
Comparative information has been regrouped or reclassified as
necessary to conform to the current year's presentation.
18 CONTINGENT LIABILITIES
The Board is not aware of any contingent liabilities as at 31
December 2019.
19 APPROVAL OF THE FINANCIAL STATEMENTS
The financial statements were approved and authorised for issue
by the Board on 21 April 2020.
SCHEDULE OF INVESTMENTS - REPURCHASE POOL SHARES (UNAUDITED)
As at 31 December 2019
Nominal Market value % of
holdings of US$ NAV
--------------------------------------- ---------- ------------- -----
COLLATERALISED LOAN OBLIGATIONS
REGION OF TRADE
North America
COUNTRY OF INCORPORATION
Cayman Islands (December 2018: 4.94%)
Apidos CLO 2013-14X INC 1,611,960 64,478 0.26
BNPP IP CLO Ltd 2014-1X E* 3,797,808 1,092,040 4.32
Rampart CLO 2007 Ltd 2007-1A SUB 2,926,000 1,024 0.00
1,157,542 4.58
--------------------------------------- ---------- ------------- -----
Ireland (December 2018: 0.45%)
Dorchester Park CLO DAC 2015-1X SUB 2,660,000 932,995 3.69
--------------------------------------- ---------- ------------- -----
932,995 3.69
--------------------------------------- ---------- ------------- -----
TOTAL COLLATERALISED LOAN OBLIGATIONS
(DECEMBER 2018: 5.39%) 2,090,537 8.27
--------------------------------------- ---------- ------------- -----
TOTAL INVESTMENTS AT FAIR VALUE -
REPURCHASE POOL (DECEMBER 2018: 5.39%) 2,090,537 8.27
------------- -----
*This investment is a Mezzanine CLO tranche. All other
investments are Income or Subordinated CLO tranches.
SCHEDULE OF INVESTMENTS - US DOLLAR SHARES (UNAUDITED)
As at 31 December 2019
Nominal Market value % of
holdings of US$ NAV
---------------------------------------- ----------- ------------- ------
COLLATERALISED LOAN OBLIGATIONS
REGION OF TRADE
North America
COUNTRY OF INCORPORATION
Cayman Islands (December 2018: 82.74%)
Apidos CLO 2013-14X INC 2,959,040 118,362 0.47
Apidos CLO 2014-18A 1,465,000 11,061 0.04
BNPP IP CLO Ltd 2014-1X D* 5,372,000 3,393,373 13.43
BNPP IP CLO Ltd 2014-1X E* 6,972,507 2,004,908 7.93
Magnetite IX Ltd 10,734,519 - 0.00
Magnetite XI Ltd 2,383,934 119 0.00
Rampart CLO 2007 Ltd 2007-1A SUB 5,372,000 1,880 0.01
5,529,703 21.88
------------- ------
COUNTRY OF INCORPORATION
Ireland (December 2018: 1.23%)
Dorchester Park CLO DAC 2015-1X SUB 4,883,000 1,712,712 6.78
-------
1,712,712 6.78
-------
TOTAL COLLATERALISED LOAN OBLIGATIONS
(DECEMBER 2018: 83.97%) 7,242,415 28.66
-------
TOTAL INVESTMENTS AT FAIR VALUE -
US DOLLAR (DECEMBER 2018: 83.97%) 7,242,415 28.66
-------
TOTAL INVESTMENTS AT FAIR VALUE
(DECEMBER 2018: 89.36%) 9,332,952 36.93
-------
OTHER ASSETS (DECEMBER 2018: 11.48%) 16,596,144 65.67
OTHER LIABILITIES (DECEMBER 2018: (0.84%)) (657,797) (2.60)
-------
TOTAL NET ASSETS ATTRIBUTABLE TO PARTICIPATING
SHAREHOLDERS 25,271,299 100.00
*This investment is a Mezzanine CLO tranche. All other
investments are Income or Subordinated CLO tranches.
SUMMARY OF KEY FINANCIAL INFORMATION (UNAUDITED)
NAV HISTORY
Financial year Financial year Financial year
ended ended ended
31 December 2019 31 December 2018 31 December 2017
Repurchase Repurchase Repurchase
Pool Shares US Dollar Pool Shares US Dollar Pool Shares US Dollar
NAV US$2,996,247 US$22,275,052 US$15,748,150 US$243,473,436 US$107,889,914 US$299,264,762
NAV per share US$0.4528 US$0.5486 US$0.6392 US$0.6105 US$0.7469 US$0.7504
Shares in
issue at the
financial
year end 6,617,236 40,606,709 24,637,358 398,801,780 144,451,569 398,801,780
Value of investments US$2,090,537 US$7,242,415 US$13,970,980 US$217,679,511 US$96,670,553 US$297,312,674
Number of
investments 4 8 10 43 50 54
The financial year-end exchange rate was EUR: US$1.11904 (31
December 2018: US$1.14315). The average rate for the financial year
was EUR: US$0.893809 (31 December 2018: US$1.27360).
PORTFOLIO CHANGES MATERIAL ACQUISITIONS AND DISPOSALS/PAYDOWNS
(UNAUDITED)
For the financial year ended 31 December 2019
Quantity US$
Disposals/Paydowns* sold proceeds
Neuberger Berman CLO Ltd 2014-17X SUB 21,952,000 10,976,000
ARES CLO Ltd 2013-3X SUB 29,928,000 10,774,080
Taconic Park CLO Ltd 2016-1A SUB 17,299,000 10,552,390
Catskill Park CLO Ltd 2017-1A SUB 18,118,400 10,055,712
Cedar Funding Ltd 2016-5A SUB 9,842,010 8,946,378
Highbridge Loan Management Ltd 10A-16
SUB 13,673,000 8,103,987
Webster Park CLO Ltd 2015-1X SUB 7,276,600 6,039,578
Highbridge Loan Management Ltd 3A-2014
SUB 10,530,661 5,761,325
Neuberger Berman CLO Ltd 2013-14X SUB 13,996,000 5,571,926
Voya CLO Ltd 2015-2X SUB 8,790,000 5,527,152
Palmer Square CLO Ltd 2015-1A SUB 8,210,000 5,267,536
Jay Park CLO Ltd 2016-1A SUB 6,787,600 4,192,701
Parallel Ltd 2018-1A SUB 4,657,000 4,054,267
Magnetite CLO Ltd 2016-18A SUB 6,653,000 3,878,699
Dryden Senior Loan Fund 2015-41X SUB 5,986,840 3,855,847
York CLO Ltd 2015-1A SUB 4,657,000 3,585,890
Carlyle Global Market Strategies 2015-1A
SUB 6,653,000 3,319,847
Greenwood Park CLO Ltd 2018-1A SUB 3,825,000 3,186,225
ARES CLO Ltd 2016-39A SUB 4,883,000 3,172,973
Carlyle Global Market Strategies 2012-4X 3,447,407 2,378,711
Stewart Park CLO Ltd 2015-1X SUB 7,543,000 2,195,767
Neuberger Berman CLO Ltd 2016-21A SUB 2,262,000 1,914,783
Dryden Senior Loan Fund 2016-43A SUB 3,418,000 1,896,990
Cedar Funding Ltd 2014-4A SUB 2,197,000 1,658,735
Palmer Square CLO Ltd 2018-1A SUB 1,996,000 1,651,690
Apidos CLO 2016-24A SUB 2,640,000 1,581,624
Neuberger Berman CLO Ltd 2013-14A SUB 3,655,152 1,462,060
Carlyle Global Market Strategies 2013-3A
SUB 2,725,476 1,294,601
Carlyle Global Market Strategies 2016-1A
SUB 1,465,000 1,271,620
Neuberger Berman CLO Ltd 2016-23A SUB 2,008,077 1,220,372
BURNHAM PARK CLO LTD. BURNH 2016 1A SUB 1,465,000 908,300
Neuberger Berman CLO Ltd 2013-15X SUB 1,709,000 744,270
Dryden Senior Loan Fund 2016-45X SUB 1,156,112 723,379
Treman Park CLO Ltd 2015-1A SUB 1,953,000 683,550
Dryden Senior Loan Fund 2015-41A SUB 910,000 591,500
Bowman Park CLO Ltd 2014-1X SUB 1,220,000 460,794
*This represents the total disposals/paydowns for the financial
year ended 31 December 2019.
There were no acquisitions during the financial year ended 31
December 2019.
MANAGEMENT AND ADMINISTRATION
DIRECTORS* REGISTERED OFFICE
Werner Schwanberg (Chairman)** 78 Sir John Rogerson's Quay
Fergus Sheridan** Dublin 2
Adrian Waters** (resigned 31 January Ireland
2020)
Edward D'Alelio (resigned 31 January
2020)
Nicholas Moss** COMPANY REGISTRATION NUMBER: 415764
US Dollar Shares ISIN: IE00B3D60Z08
ADMINISTRATOR
State Street Fund Services (Ireland) INVESTMENT MANAGER
Limited
78 Sir John Rogerson's Quay GSO / Blackstone Debt Funds Management
LLC
Dublin 2 345 Park Avenue
Ireland Floor 31
New York
COMPANY SECRETARY (from 23 July NY 10154
2019)
Bradwell Limited United States of America
10 Earlsfort Terrace
Dublin 2 JOINT FINANCIAL ADVISER AND JOINT
D02 T380 CORPORATE BROKER (until 30 June
2019)
Ireland Fidante Partners Europe Limited
(trading as Fidante Capital)
COMPANY SECRETARY (until 23 July 1 Tudor Street
2019)
State Street Fund Services (Ireland) London EC4Y 0AH
Limited
78 Sir John Rogerson's Quay United Kingdom
Dublin 2
Ireland JOINT FINANCIAL ADVISER AND JOINT
CORPORATE BROKER
CUSTODIAN Nplus1 Singer Advisory LLP
State Street Custodial Services One Bartholomew Lane
(Ireland) Limited
78 Sir John Rogerson's Quay London EC2N 2AX
Dublin 2 United Kingdom
Ireland
INDEPENDENT AUDITOR
SOLICITORS AS TO US AND ENGLISH KPMG
LAW
Herbert Smith Freehills LLP 1 Harbourmaster Place
Exchange House IFSC
Primrose Street Dublin1
London EC2A 2EG Ireland
United Kingdom
SOLICITORS AS TO IRISH LAW
Arthur Cox
10 Earlsfort Terrace
Dublin 2
D02 T380
Ireland
REGISTRAR
Computershare Investor Services
(Ireland) Limited
Herron House
Corrig Road
Sandyford Industrial Estate Dublin
18
Ireland
*All Directors of the Company are Non-Executive Directors.
**Independent Directors.
[1] Credit Suisse Leveraged Loan Index, Credit Suisse High Yield
Index, Bloomberg Barclays U.S. Aggregate Index, as at 31 December
2019. Upper tier: split BBB and BB; middle tier: Split BB, B and
Split B; lower tier: CCC/Split CCC and default
[2] Lipper FMI; JP Morgan, as of December 31, 2019; includes all
weekly and monthly reporting funds if reported by 6 January
2020.
[3] JP Morgan High Yield and Leveraged Loan Monitor, as of 31 December 2019.
[4] LCD for CLO issuance, as of 31 December 2019. JPM for CLO
issuance estimate (new issuance only) as of 12 February 2020.
[5] $258.6 million notional does not include rollover trades
which are discussed in note 1.
[6] The top five investment exposures table considers
investments classified as Financial assets at fair value through
profit or loss per the Statement of Financial Position and forms an
integral part of the financial statements.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR SEEFAEESSEEL
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April 23, 2020 02:00 ET (06:00 GMT)
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