RNS Number:1283K
Caliber Global Investment Ltd
18 December 2007
PART 2
Notes to the Financial Statements
For the year ended September 30, 2007
1. General information
Caliber Global Investment Limited (the "Company") was registered on May 4, 2005
with registered number 43124 and is domiciled in Guernsey, Channel Islands, and
commenced its operations on June 13, 2005. The Company is a closed-ended
investment company with limited liability formed under the Companies Law of
Guernsey and its shares are listed on the London Stock Exchange. The registered
office of the Company is Dorey Court, Admiral Park, St Peter Port, Guernsey, GY1
3BG, Channel Islands. "Group" is defined as the Company and its subsidiaries,
see Note 3 (c) below.
Prior to August 30, 2007 the principal activities of the Group included the
investing in and managing a globally diversified portfolio of mortgage backed
and other asset backed securities and loans. The Group's investment objective
was to preserve capital and provide stable returns to shareholders, both in the
form of dividends and capital growth. It intended to achieve this through
investing primarily in mortgage-backed and other asset-backed securities and
loans. Income would be generated from the difference between income received and
interest expense plus any gains arising from the sale of assets.
On August 30, 2007 the shareholders approved the following two ordinary
resolutions and one special resolution:
Ordinary resolutions:
* To approve a change in the investment objective of the Company to
"manage the sale of the Company's investment portfolio and to maximize the return
of invested capital to shareholders during the 12 months ending on August 30,
2008."
* To approve a change to the Investment Management Agreement pursuant to
the Deed of Amendment dated August 3, 2007.
Special resolution:
* To approve the reduction of the share premium account of the Company
to $250,000 and its conversion into a capital realisation reserve
The Group utilises funding facilities in order to enhance returns to
shareholders. The Group mitigates its exposure to interest rate and currency
fluctuations through the use of hedging arrangements. The Group's revised
investment objective, the means by which it will able to achieve this and its
use of funding facilities is affected by the matters described elsewhere in this
report.
The Group's investment management activities are managed by its Investment
Manager, Cambridge Place Investment Management LLP (the "Investment Manager").
The Group has entered into an Investment Management Agreement (the "Investment
Management Agreement") under which the Investment Manager manages its day-to-day
investment operations, subject to the supervision of the Group's Board of
Directors. The Group has no direct employees. For its services, the Investment
Manager receives an annual management fee (which includes a reimbursement of
expenses) and a quarterly performance related fee. The Group has no ownership
interest in the Investment Manager. The Group is administered by Kleinwort
Benson (Channel Islands) Fund Services Limited, ("the Administrator").
Investors Fund Services (Ireland) Limited ("IFS") provides certain
administration services to the Group under a sub-administration agreement
between IFS, the Administrator and the Group.
On June 13, 2005 the Group issued 15,000,000 ordinary shares in its Initial
Public Offering at a price of $10 per share, for net proceeds of $140.5 million.
On May 11, 2006 the Group issued 9,523,810 ordinary shares in a Follow On at a
price of $10.50 per share, for net proceeds of $94.7 million.
2. Financial instruments valuations
The portfolio of asset backed securities at September 30, 2007 was $392.6
million ("the Debt securities") and has been fair valued using independent
broker quotes received.
In preparing the Debt securities fair value estimates the Directors have taken
account of the recent market turmoil in financial markets. Current market
conditions have introduced uncertainty into the debt security market with
restricted trading and greater price volatility which has given rise to
difficulties in pricing the portfolio of Debt securities.
As a consequence of these conditions, the Directors consider that markets as at
September 30, 2007, and subsequently, were less active than normal for the type
of securities held by the Group. Reduced levels of market data raise significant
uncertainties over the broker quotes used as fair value estimates for such
positions. In such circumstances, IFRS can require appropriate valuation models
to be used in order to estimate fair values. However, it is unlikely that the
use of market models would provide more appropriate valuations, given the
scarcity of observable data in the marketplace upon which to prepare fair value
estimates.
In these circumstances, the Directors are of the view that the most appropriate
estimate of the fair value of the Debt securities remains the independent broker
quotes sourced for these positions. Consequently the Directors have opted to use
the broker quotes provided. Due to the inherent uncertainty of valuation and a
low level of trading activity in such Debt securities, if any, these broker
values may differ from the values that would have been used had a more active
market for the securities existed and the differences could be material. Note
22 on subsequent events confirms that reduced liquidity and increased volatility
have continued to be features of the market since the year end and show no
imminent signs of easing.
3. Significant accounting policies
a) Statement of compliance
The consolidated and company only financial statements have been prepared in
accordance with International Financial Reporting Standards (IFRS) and
interpretations adopted by the International Accounting Standards Board (IASB).
IFRS 7 (Financial Instruments: Disclosures) was issued by the International
Accounting Standards Board on August 18, 2005 but has not been applied to the
consolidated or company only financial statements.
b) Basis of preparation
The financial statements have been prepared on the assumption that the Group and
Company will terminate within the next one to two years and because the going
concern assumption is not applicable, appropriate provision has been made for
termination costs. Investments, as in previous periods, continue to be included
at their fair value in the financial statements.
The financial statements are presented in US dollars and rounded to the nearest
thousand. These financial statements are for the year ended September 30, 2007.
The comparative figures are for the year ended September 30, 2006. They are
prepared on a fair value basis for available for sale investments, with fair
value changes being taken directly to reserves. Derivatives are also recognised
on a fair value basis, with fair value changes being recognised in the Income
Statement. Any other financial assets and financial liabilities are stated at
amortised cost.
Company-only financial statements have been prepared and are included in these
financial statements as the results and reserves of the Company are materially
different from those of the consolidated Group, due to the non-recourse nature
of the funding facilities.
The preparation of financial statements in accordance with IFRS requires the
Board to make judgements, estimates and assumptions that affect the application
of policies and the reported amounts of assets and liabilities, income and
expense. The estimates and associated assumptions are based on historical
experience and various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis of making the judgments
about carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period, or in the period
of the revision and future periods if the revision affects both current and
future periods. The accounting policies have been applied consistently by the
Group and the Company.
c) Basis of consolidation
The consolidated financial statements comprise the financial statements of
Caliber Global Investment Limited and its subsidiaries for the year ended
September 30, 2007. Subsidiaries are consolidated from the date on which control
is transferred to the Company and cease to be consolidated from the date on
which control is transferred from the Company. Control exists when the Company
has the power, directly or indirectly, to govern the financial and operating
policies of an entity so as to obtain benefits from its activities. Minority
interests represent interests held by outside parties in the consolidated
subsidiaries.
At September 30, 2007, the Company's subsidiaries consisted of its interests in
Assabet Funding Limited, Crown Woods Limited, O.F.L. Limited, Tormes Asset
Funding Limited and Serval Asset Funding Limited. The ordinary share capital of
these companies is held by outside parties and the Company has no associated
voting rights. The Company retains control over these companies through its
retention of the residual risks and rewards of the assets transferred to these
companies. In accordance with Standing Interpretations Committee Interpretation
12 (Special Purpose Entities), the Company consolidates these entities as it
retains control of them and retains the residual risks and rewards of ownership
of them.
At September 30, 2007 the Company has consolidated the results of Serval Asset
Funding Limited, a special purpose entity which purchases securities from and
provides loans to structured finance entities. To fund the purchases and loans
the company is able to borrow under a multi user �200 million revolving credit
facility provided by a US bank and issue notes to the Company. The borrowings
under the facility rank senior to the notes issued to the Company. During the
year the borrowings were repaid and the remaining cash balance has been
consolidated.
At September 30, 2007 the Company has consolidated the results of Amber Funding
Limited up to September 13, 2007, the date on which the Company transferred the
residual risks and rewards associated with the assets and liabilities of Amber
Funding Limited to the senior lender.
On August 24, 2007 the terms of Assabet Funding Limited were renegotiated. The
significant terms of the restructuring are documented in the Investment
Manager's report. The results of Assabet for the year ended September 30, 2007
and the assets and liabilities as at September 30, 2007 are shown in the
consolidated income statement and balance sheet of the Company as under the
terms of the restructuring the Company still retains the significant risks and
rewards associated with the assets.
On August 17, 2007 the terms of Tormes Asset Funding Limited ("Tormes") were
renegotiated. The significant terms of the restructuring are documented in the
Investment Manager's report. The results of Tormes for the year ended September
30, 2007 and the assets and liabilities as at September 30, 2007 are shown in
the consolidated income statement and balance sheet of the Company as under the
terms of the restructuring the Company still retains the significant risks and
rewards associated with the assets.
Intragroup balances, and any unrealized gains and losses or income and expenses
arising from intragroup transactions, are eliminated in preparing the
consolidated financial statements. Unrealized gains arising from transactions
with jointly controlled entities are eliminated to the extent of the Group's
interest in the entity. Unrealized losses are eliminated in the same way as
unrealized gains, but only to the extent that there is no evidence of
impairment.
d) Foreign currency translation
Transactions in foreign currencies, other than US$, are translated 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
dollars at the foreign currency closing exchange rate ruling at the balance
sheet date. Foreign currency exchange differences arising on translation and
realized gains and losses on disposals or settlements of monetary assets and
liabilities are recognised in the income statement. Non-monetary assets and
liabilities denominated in foreign currencies that are measured at fair value
are translated to US dollars at the foreign currency exchange rates ruling at
the dates that the values were determined. Foreign currency exchange differences
relating to investments at fair value through the income statement and
derivative financial instruments are included in gains and losses on investments
and gains and losses on derivatives, respectively.
All other foreign currency exchange differences relating to monetary items,
including cash and cash equivalents are presented separately in the income
statement.
e) Financial instruments
Financial assets and liabilities are recognised on the Group's balance sheet
when the Group becomes a party to the contractual provisions of the instrument.
(i) Investments
IAS 39 establishes specific categories into which all financial assets and
liabilities must be classified. The classification of financial instruments
dictates how these assets and liabilities are subsequently measured in the
financial statements. There are four categories of financial assets: assets at
fair value through the income statement, available for sale, loans and
receivables and held to maturity.
A regular way purchase of financial assets is recognised using trade date
accounting. From this date any gains and losses arising from changes in fair
value of the financial assets or financial liabilities are recorded.
Financial instruments are measured initially at fair value (transaction price)
plus, in case of a financial asset or financial liability not at fair value
through the income statement, transaction costs that are directly attributable
to the acquisition or issue of the financial asset or financial liability.
Transaction costs on financial assets and financial liabilities at fair value
through the income statement are expensed immediately, while on other financial
instruments they are amortised. Subsequent to initial recognition, all
instruments classified at fair value through the income statement are measured
at fair value with changes in their fair value recognised in the income
statement. Financial investments held by the Group classified as available for
sale are stated at fair value, with any resultant gain or loss being recognised
directly in equity, except for impairment losses and, in the case of monetary
items such as debt securities, foreign exchange gains and losses. The fair value
of debt securities classified as available for sale is determined through
third-party broker quotes for each investment. See note 2.
Financial assets classified as loans and receivables are carried at amortised
cost using the effective interest rate method, less impairment losses, if any.
Financial liabilities, other than those at fair value through the income
statement, are measured at amortised cost using the effective interest rate
method.
The fair value of financial instruments is based on their quoted market prices
at the balance sheet date without any deduction for estimated future selling
costs. Financial assets are priced at current bid prices, while financial
liabilities are priced at current asking prices. If a quoted market price is not
available on a recognised stock exchange or from a broker/dealer for
non-exchange-traded financial instruments, the fair value of the instrument is
estimated using valuation techniques, including use of recent arm's length
market transactions, reference to the current fair value of another instrument
that is substantially the same, discounted cash flow techniques, option pricing
models or any other valuation technique that provides a reliable estimate of
prices obtained in actual market transactions.
The fair value of derivatives that are not exchange-traded is estimated at the
amount that the Group would receive or pay to terminate the contract at the
balance sheet date taking into account current market conditions (volatility,
appropriate yield curve) and the current creditworthiness of the counterparties.
Specifically, the fair value of a forward contract is determined as a net
present value of estimated future cash flows, discounted at appropriate market
rates on the valuation date. The fair value of an option contract may be
determined by applying a binomial option valuation model.
Unquoted equity securities
For unquoted equity securities independent valuations are received from an
independent investment bank who value the securities using appropriate private
equity valuation techniques. These include discounted cash flow models, together
with applicable price/earnings ratios for similar listed companies to estimate
the fair value of the securities.
(ii) Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the
substance of the contractual arrangements entered into. An equity instrument is
any contract that evidences a residual interest in the assets of the Group after
deducting all of its liabilities.
(iii) Bank borrowings
Interest bearing bank loans and overdrafts are recorded as the amount of the
proceeds received, net of direct issue costs. Finance charges, including
premiums payable on settlement or redemption and direct issue costs, are
accounted for on an accruals basis to the income statement using the effective
interest rate method and are added to the carrying amount of the instrument to
the extent that they are not settled in the period in which they arise.
(iv) Derivative financial instruments and hedge accounting
The Group may use derivative financial instruments to hedge its exposure to
foreign exchange and interest rate risks arising from operational, financing and
investment activities. However derivatives that do not qualify for hedge
accounting are accounted for as trading instruments. Derivative financial
instruments are recognised initially at cost. Subsequent to initial recognition,
derivative financial instruments are stated at fair value. The gain or loss on
re-measurement to fair value is recognised immediately in the income statement.
However, where derivatives qualify for hedge accounting, recognition of any
resultant gain or loss depends on the nature of the item being hedged.
The fair value of interest rate swaps is the estimated amount that the Group
would receive or pay to terminate the swap at the balance sheet date, taking
into account current interest rates and the current creditworthiness of the swap
counterparties. The fair value of forward exchange contracts is their quoted
market price at the balance sheet date, being the present value of the quoted
forward price. Financial assets and liabilities are offset and the net amount is
reported within assets and liabilities where there is a legally enforceable
right to set off the recognised amounts and there is an intention to settle on a
net basis, or realize the asset and settle the liability simultaneously.
Cashflow hedges
Where a derivative financial instrument is designated as a hedge of the
variability in cashflows of a recognised asset or liability, or a highly
probable forecasted transaction, the effective part of any gain or loss on the
derivative financial instrument is recognised directly in equity. When the
forecasted transaction subsequently results in the recognition of a
non-financial asset or non-financial liability, or the forecast transaction for
a non-financial asset or non-financial liability, the associated cumulative gain
or loss is removed from equity and included in the initial cost or other
carrying amount of the non-financial asset or liability. If a hedge of a
forecasted transaction subsequently results in the recognition of a financial
asset or a financial liability, the associated gains and losses that were
recognised directly in equity are reclassified into the income statement in the
same period or periods during which the asset acquired or liability assumed
affects the income statement (i.e. when interest income or expense is
recognised).
For cashflow hedges, other than those covered by the preceding two policy
statements, the associated cumulative gain or loss is removed from equity and
recognised in the income statement in the same period or periods during which
the hedged forecast transaction affects the income statement. The ineffective
part of any gain or loss is recognised immediately in the income statement.
When a hedging instrument expires or is sold, terminated or exercised, or the
Group revokes designation of the hedge relationship but the hedged forecast
transaction is still expected to occur, the cumulative gain or loss at that
point remains in equity and is recognised in accordance with the above policy
when the transaction occurs. If the hedged transaction is no longer expected to
take place, the cumulative unrealized gain or loss recognised in equity is
recognised immediately in the income statement.
Hedge of monetary assets and liabilities
Where a derivative financial instrument is used to hedge economically the
foreign exchange exposure of a recognised monetary asset or liability, no hedge
accounting is applied and any gain or loss on the hedging instrument is
recognised in the income statement.
Fair value hedges
Changes in fair value of derivatives that qualify and are designated as fair
value hedges are recorded in the income statement, together with changes in the
fair value of the hedged asset or liability that are attributable to the risk
being hedged.
If the hedge no longer meets the criteria for hedge accounting, the fair value
hedging adjustment cumulatively made to the carrying value of the hedged item
is, for items carried at amortised cost, amortised over the period to maturity
of the previously designated hedge relationship using the effective interest
rate method. For available-for-sale items this fair value hedging adjustment
remains in equity until the hedged item affects the income statement.
If the hedged item is sold or repaid, the unamortised fair value adjustment is
recognised immediately in the income statement.
Embedded derivatives
Derivatives embedded in other financial instruments or other host contracts are
treated as separate derivatives when their risks and characteristics are not
closely related to those of host contracts and the host contracts are not
carried at fair value with unrealized gains or losses reported in the income
statement.
Credit default swaps
Credit default swaps are contracts in which the Group pays or receives premium
flows in return for the counterparty accepting or selling all or part of the
risk of default or failure to pay of a reference entity on which the swap is
written. Where the Group has bought protection the maximum potential loss is the
value of the premium flows the Group is contracted to pay until maturity of the
contract. Where the Group has sold protection the maximum potential loss is the
nominal value of the protection sold.
Credit default swaps are stated at market value. The net income or expense on
the swap agreements entered into by the Group is reflected in the income
statement. Unrealized gains are reported as an asset and unrealized losses are
reported as a liability in the balance sheet. Changes in the market value are
reflected in the Income Statement in the period in which they occur.
(v) Specific instruments
Cash and cash equivalents
Cash comprises cash balances and call 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
investment or other purposes. Bank overdrafts that are repayable on demand and
form an integral part of the Group's cash management are included as a component
of cash and cash equivalents for the purpose of the statement of cash flows.
Repurchase and reverse repurchase agreements
Securities purchased under agreements to resell ("repurchase agreements") and
securities sold under agreements to repurchase ("reverse repurchase agreements")
are treated as collateralised financing transactions and are carried at the
amounts at which the securities were acquired or sold plus accrued interest,
which approximates fair value. It is the Group's policy to take possession of
securities purchased under agreements to resell. Interest earned on securities
owned on reverse repurchase agreements and interest expense on securities sold,
not yet purchased and repurchase agreements are included in the income
statement.
Securities sold short and associated securities borrowing
Securities sold short are those positions where the Group has sold a security
that it does not own in anticipation of a decline in the market value of the
security and are classified as liabilities held for trading. To enter a short
sale, the Group may need to borrow the security for delivery to the buyer. On
each day obligations to deliver securities borrowed by the Group to fulfil its
short sale contracts are marked to market and an unrealized gain or loss is
recorded in gains and losses on investments in the income statement. While the
transaction is open the Group will also incur an expense for any dividends or
interest that will be paid to the lender of the securities.
(vi) Derecognition of financial assets and liabilities
The Company and Group derecognise a financial asset when the contractual rights
to the cash flows from the financial asset expire or it transfers the financial
asset and the transfer qualifies for derecognition in accordance with IAS 39.
The Company and Group use the first in first out ("FIFO") method to determine
realized gains and losses on derecognition. A financial liability is
derecognised when the obligation specified in the contract is discharged,
cancelled or expired.
f) Impairment
Financial assets that are stated at cost or amortised cost are reviewed at each
balance sheet date to determine whether there is objective evidence of
impairment. If any such indication exists, an impairment loss is recognised in
the income statement as the difference between the asset's carrying amount and
the present value of estimated future cash flows discounted at the financial
asset's original effective interest rate.
Objective evidence that a financial asset is impaired includes observable data
that comes to the attention of the Group about any of the following loss events:
1) Significant financial difficulty of the issuer or obligor;
2) A breach of contract, such as a default or delinquency in interest or
principal payments, granting to the borrower a concession that the lender would
not otherwise consider;
3) It becomes probable that the borrower will enter bankruptcy,
administration or other analogous financial reorganisation; or
4) The disappearance of an active market for that financial asset because
of financial difficulties.
At September 30, 2007 the entire portfolio has been classified as impaired as
Caliber is now unable to hold many of the securities (which have an expected
average life of 3 years) in its portfolio to maturity.
When a decline in the fair value of an available-for-sale financial asset has
been recognised directly in equity and there is objective evidence that the
asset is impaired, the cumulative loss that had been recognised directly in
equity is recognised in the income statement even though the financial assets
have not been derecognised. The amount of the cumulative loss that is recognised
in the income statement is the difference between the acquisition cost and the
current fair value, less any impairment loss on that financial asset previously
recognised in the income statement.
Calculation of recoverable amount
The recoverable amount of the Group's investments in loans and receivables
carried at amortised cost is calculated as the present value of estimated future
cash flows, discounted at the original effective interest rate (i.e. the
effective interest rate computed at initial recognition of these financial
assets). Receivables with a short duration are not discounted.
The recoverable amount of other assets is the greater of their net selling price
and value in use. In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to
the asset. For an asset that does not generate largely independent cash inflows,
the recoverable amount is determined for the cash-generating unit to which the
asset belongs.
Reversals of impairment
If in a subsequent period the amount of an impairment loss recognised on a
financial asset stated at amortised cost decreases and the decrease can be
linked objectively to an event occurring after the write-down, the write-down is
reversed through the income statement.
An impairment loss in respect of an investment in an equity instrument
classified as available for sale is not reversed through the income statement.
If the fair value of a debt instrument classified as available for sale
increased and the increase can be objectively related to an event occurring
after the impairment loss was recognised in the income statement, the impairment
loss shall be reversed, with the amount of the reversal recognised in the income
statement.
In respect of other assets, an impairment loss is reversed if there has been a
change in the estimates used to determine the recoverable amount.
An impairment loss is reversed only to the extent that the asset's carrying
amount does not exceed the carrying amount that would have been determined, net
of depreciation or amortisation, if no impairment loss had been recognised.
g) Trade and other payables
Trade and other payables are stated at cost.
h) Provisions
A provision is recognised in the balance sheet when the Group has a present
legal or constructive obligation as a result of a past event, and it is probable
that an outflow of economic benefits will be required to settle the obligation.
If the effect is material, provisions are determined by discounting the expected
future cash flows at a pre-tax rate that reflects current market assessments of
the time value of money and, where appropriate, the risks specific to the
liability.
The Group has provided for expected termination costs in relation to the company
and any agreements which it has entered into.
i) Share capital
The initial set up costs of the Group have been charged to the share premium
account and the expenses directly related to the Follow On.
j) Revenue and expenses
Revenue is recognised to the extent that it is possible that economic benefits
will flow to the Group and the revenue can be reliably measured. Deferred
financing costs represent costs associated with the issuance of certain
securities and are amortised over the term of such financing using effective
yield methodology. Expenses are accounted for on an accruals basis.
Dividend income is recognised in the income statement on the date the entity's
right to receive payments is established which, in the case of quoted
securities, is usually the ex-dividend date.
Interest income is recognised in the income statement as it accrues, using the
effective interest rate method. Interest income and expense is recognised in
the income statement as it accrues, using the original effective interest rate
of the instrument calculated at the acquisition or origination date. Interest
income includes the amortisation of any discount or premium, transaction costs
or other differences between the initial carrying amount of an interest-bearing
instrument and its amount at maturity calculated on an effective interest rate
basis.
Interest income on debt instruments at fair value through the income statement
is accrued using the original effective interest rate and classified to the
interest income line item within the income statement. Interest income is
recognised on a gross basis, including withholding tax, if any. In preparing the
original effective interest rate, the Board has made its best estimate of the
expected inflows on the investments held. Such estimates and associated
assumptions are based on historical experience and various other factors that
are believed to be reasonable under the circumstances. Actual timing and amounts
of future inflows on these investments may differ from these estimates.
Expenses are charged to the income statement except for expenses incurred on an
acquisition of an investment which are included within the cost of that
investment. Expenses arising on the disposal of investments are deducted from
the disposal proceeds.
k) Dividend income
Dividend income relating to exchange-traded equity investments is recognised in
the income statement on the ex-dividend date.
In some cases, the Group may receive or choose to receive dividends in the form
of additional shares rather than cash. In such cases the Group recognises the
divided income for the amount of the cash dividend alternative with the
corresponding debit treated as an additional investment.
Income distributions from private equity investments and other investment
companies are recognised in the income statement as dividend income when
declared.
l) Net financing costs
Net financing costs comprise interest payable on financing facilities calculated
using the effective interest rate method, dividends on redeemable preference
shares, interest receivable on funds invested, dividend income, foreign exchange
gains and losses, and gains and losses on hedging instruments that are
recognised in the income statement.
m) Taxation
The Group is classed as exempt for taxation purposes under the Income Tax
(Exempt Bodies) (Guernsey) Ordinance, 1989 and as such incurs a flat fee
(presently �600 per annum). No other taxes are incurred in Guernsey.
n) Dividends payable
Dividends payable on ordinary shares are recognised in the statement of changes
in equity.
o) Ancillary costs
Ancillary costs incurred in the arrangement of financing facilities are
capitalised and amortised from the date the facilities are available for use to
the termination date of the financing facility. Following the approval of the
resolutions at the Extraordinary General Meeting on August 30, 2007 the
ancillary costs will be amortised over a one year period to August 31, 2008.
However, the remaining lives of the facilities, based on current commitments,
are as follows:
* Assabet Funding Limited Two years (June 2010)
* Crown Woods Limited One year (September 2008)
* Tormes Asset Funding Limited Two years (August 2009)
4. (Deficit)/Profit from operations
Group
2007 2006
(Deficit)/Profit from operations is stated after
charging: $000 $000
Net realized foreign exchange gains/(losses) (2,575) (13,750)
Net unrealized foreign exchange gains/(losses) 3,030 14,746
Net unrealized foreign exchange gains/(losses) on (2,122) 791
derivatives
Net realized gains/(losses) on swaps (8,221) 92
Amortisation of ancillary financing costs (492) (523)
Auditors' remuneration for audit services (456) (453)
Amounts payable to KPMG and their associates by the Group and its subsidiaries
in respect of non-audit services were $nil (2006: $406,597, including costs
associated with the Follow On in May 2006).
Company
(Deficit)/Profit from operations is stated after 2007 2006
charging: $000 $000
Net realized foreign exchange gains/(losses) 3,312 (6,870)
Net unrealized foreign exchange gains/(losses) (2,468) 7,303
Net unrealized foreign exchange gains/(losses) on (2,122) 792
derivatives
Net realized gains/(losses) on swaps (8,221) 92
Auditors' remuneration for audit services (450) (387)
5. Staff costs
The Group and Company do not have any employees.
6. Interest income
Group
2007 2006
$000 $000
Interest income arises from:
Cash and cash equivalents 1,502 904
Investments in asset-backed securities 82,006 64,293
Investments in loans and receivables 2,048 1,163
Total interest income $85,556 $66,360
Interest income of $54,530,000 (2006: $638,017) has been recognised on the
securities which have been classified as impaired.
Company
2007 2006
$000 $000
Interest income arises from:
Cash and cash equivalents 741 737
Investments in asset-backed securities 19,416 20,548
Income from subsidiaries 1,434 11,424
Total interest income $21,591 $32,709
Interest income of $20,850,000 (2006: $638,017) has been recognised on the
securities which have been classified as impaired.
7. Gains and losses on debt and equity investments
Group
2007 2006
$000 $000
Net gains and losses on debt investments (39,196) (653)
Net gains and losses on equity investments - -
Net gains and losses on debt and equity investments $(39,196) $(653)
Realized gains on investments 4,976 694
Realized gains (foreign exchange) 26,083 944
Total gains $31,059 $1,638
Realized losses on investments (70,217) (1,944)
Realized losses (foreign exchange) (38) (347)
Total losses $(70,255) $(2,291)
Company
2007 2006
$000 $000
Net gains and losses on debt investments 8,128 (2,038)
Net gains and losses on equity investments - -
Net gains and losses on debt and equity investments $8,128 $(2,038)
Realized gains on investments 14,053 1,130
Realized gains (foreign exchange) 17,665 668
Total gains $31,718 $1,798
Realized losses on investments (23,261) (3,078)
Realized losses (foreign exchange) (329) (758)
Total losses $(23,590) $(3,836)
8. Interest expense
Group
2007 2006
$000 $000
Interest expense arises from:
Committed financing 21,310 21,392
Sale and repurchase agreements 6,740 8,209
Commercial paper borrowings 13,937 6,357
Total finance costs $41,987 $35,958
Company
2007 2006
$000 $000
Interest expense arises from:
Committed financing 552 42
Sale and repurchase agreements 6,536 8,209
Total finance costs $7,088 $8,251
9. Dividends
2007 2006
$000 $000
Interim amounts recognised as distributions to equity 6,131 13,755
holders in the year
Final amounts recognised as distributions to equity 7,602 3,750
holders in the year
Amounts paid during the year 13,733 17,505
Recommended final dividend for the year ended September - 7,602
30, 2007 of $nil per share (year ended September 30,
2006 of $0.31 per share)
$13,733 $25,107
10. Earnings per share
2007 2006
$000 $000
The calculation of the basic and diluted earnings per
share is based on the following data:
Earnings for the purposes of basic earnings per share (227,929) 22,179
being net profit attributable to equity holders
Number Number
Weighted average number of ordinary shares for the 24,523,810 18,731,246
purposes of basic earnings per share
Dilutive effect of ordinary shares subject to options:
Share options (exercisable at $10 per share) NA 1,500,000
Weighted average number of shares that would have been NA (1,492,537)
issued at average market price 1,500,000 x $10/$5.94
(2006: 1,500,000 x $10/$10.05)
NA 7,463
Share options (exercisable at $10.50 per share) NA 952,381
Weighted average number of shares that would have been NA (995,025)
issued at average market price 952,381 x $10.50/$5.94
(2006: 952,381 x $10.50/$10.05)
NA (42,644)
Weighted average number of ordinary shares for the 24,523,810 18,738,709
purposes of diluted earnings per share
All outstanding options had an anti-dilutive effect at the balance sheet date
and therefore do not alter the weighted average number of ordinary shares for
the purposes of basic earnings per share for the year ended September 30, 2007.
The average market price for one ordinary share during the year ended September
30, 2007 was $5.94 (September 30, 2006 $10.05).
11. Subsidiaries
The following entities are deemed to be subsidiaries of Caliber Global
Investment Limited at September 30, 2007 as it retains control over these
entities through its retention of the residual risks and rewards of the assets
transferred to, or purchased from, these entities. The ordinary share capital of
these entities is held by outside parties and the Group has no associated voting
rights. The subsidiaries each have minimal ordinary share capital and therefore
minority interests are immaterial. The subsidiaries provide the funding
referred to in Note 15.
Name of subsidiary Place of incorporation Proportion of Proportion Method used to account
(or registration) and ownership of voting for investment
operation power
Assabet Funding Limited Jersey - - Purchase method
Crown Woods Limited Republic of Ireland - - Purchase method
O.F.L. Limited Jersey - - Purchase method
Serval Asset Funding Limited Republic of Ireland - - Purchase method
Tormes Asset Funding Limited Republic of Ireland - - Purchase method
See Note 3 (c) above.
12. Current deposits with bank and brokers
Group
2007 2006
$000 $000
Cash and cash equivalents 11,204 22,090
Cash held with brokers as collateral 59,973 49,652
$71,177 $71,742
Cash and cash equivalents comprise cash at bank and other short-term highly
liquid investments with a maturity of three months or less. Included in the cash
held with brokers as collateral is a balance of $45,000,000 (2006: $45,000,000)
which is held on deposit as security under the terms of a loan arrangement. This
deposit is available to the Group upon the repayment of amounts due under this
specific loan arrangement. Also included is a balance of US$14,973,318 (2006:
$4,651,290) which represents amounts held with other brokers as collateral.
Company
2007 2006
$000 $000
Cash and cash equivalents 5,807 11,638
Cash held with brokers as collateral 1,829 4,564
$7,636 $16,202
The 2006 cash and cash equivalents figure comprised amounts held with brokers as
collateral which have been reclassified as cash held with brokers as collateral
under current deposits with bank and brokers.
13. Investments
Available-for-sale securities
The following is a summary of the Group's available-for-sale securities at
September 30, 2007:
Gross unrealized Weighted average
Current Amortised Gains Losses Carrying S&P Coupon Expected Years to
face amount cost basis value Rating Expected
% Yield % Maturity
$000 $000 $000 $000 $000
RMBS - Rated 439,152 247,848 - - 247,848 BBB- 7.30 8.90 1.99
RMBS - Unrated 683,244 1,902 - - 1,902 NR 5.20 26.90 4.55
CMBS Rated 132,930 79,311 - - 79,311 BBB- 6.90 7.20 4.69
CMBS Unrated 7,406 7,114 - - 7,114 NR 5.20 18.30 3.95
Other ABS - 59,354 55,138 - - 55,138 BBB- 7.70 7.80 4.17
Rated
Other ABS - 1,447 1,280 - - 1,280 NR 16.50 12.50 8.00
Unrated
$1,323,533 $392,593 - - $392,593
The following is a summary of the Group's available-for-sale securities at
September 30, 2006:
Gross unrealized Weighted average
Current Amortised Gains Losses Carrying S&P Coupon Expected Years to
face amount cost basis value Rating Expected
% Yield % Maturity
$000 $000 $000 $000 $000
RMBS - Rated 660,201 637,918 2,233 (8,161) 631,990 BBB- 7.42 8.66 2.99
RMBS - Unrated 697,496 13,788 1,490 (2,108) 13,170 NR - 22.09 2.92
CMBS Rated 325,795 272,528 217 (694) 272,051 BBB 6.50 6.60 5.10
CMBS Unrated 1,871 1,899 - (28) 1,871 NR - 9.24 2.18
Other ABS - 75,617 75,539 200 (8) 75,731 BBB 7.51 7.56 4.68
Rated
Other ABS - - - - - - - - - -
Unrated
$1,760,980 $1,001,672 $4,140 $(10,999) $994,813
The expected yield is based on the US 1 month LIBOR rate as at September 30,
2007 and September 30, 2006, respectively, and the expected yield over LIBOR of
the securities.
Equity securities
The following is a summary of the Group's equity securities at September 30,
2007 and September 30, 2006:
2007 2007 2006 2006
Cost Carrying value Cost Carrying value
$000 $000 $000 $000
Equity (See Note 21 (e)) - - 1,727 2,109
- - $1,727 $2,109
Carrying value Carrying value
Total Available-for-sale securities $392,593 $996,922
Available-for-sale securities
The following is a summary of the Company's available-for-sale securities at
September 30, 2007:
Gross unrealized Weighted average
Current Amortised Gains Losses Carrying S&P Coupon Expected Years to
face amount cost basis value Rating Expected
% Yield % Maturity
$000 $000 $000 $000 $000
RMBS - Rated 26,859 6,149 - - 6,149 BBB- 8.2% 79.7% 2.02
RMBS - Unrated 683,244 1,903 - - 1,903 NR 5.2% 26.9% 4.80
CMBS Rated 49,092 3,523 - - 3,523 BBB- 5.2% 12.2% 4.00
CMBS Unrated 10 10 - - 10 NR 5.2% 5.2% 2.00
Other ABS - - - - - - - - - -
Rated
Other ABS - 1,447 1,280 - - 1,280 NR 16.5% 12.5% 8.00
Unrated
$760,652 $12,865 - - $12,865
The following is a summary of the Company's available-for-sale securities at
September 30, 2006:
Gross unrealized Weighted average
Current Amortised Gains Losses Carrying S&P Coupon Expected Years to
face amount cost basis value Rating Expected
% Yield % Maturity
$000 $000 $000 $000 $000
RMBS - Rated 185,256 171,620 2,963 (3,521) 171,062 BBB- 10.75 13.21 3.59
RMBS - Unrated 682,496 13,784 1,494 (2,108) 13,170 NR - 22.09 2.92
CMBS Rated 228,330 170,112 4,868 (425) 174,555 BBB 6.44 6.61 5.50
CMBS Unrated - - - - - - - - -
Other ABS - 57,132 56,175 1,217 (234) 57,158 BBB 7.47 7.53 5.07
Rated
Other ABS - - - - - - - - - -
Unrated
1,153,214 411,691 10,542 (6,288) 415,945
The expected yield is based on the US 1 month LIBOR rate as at September 30,
2007 and September 30, 2006, respectively, and the expected yield over LIBOR of
the securities.
Equity securities
The following is a summary of the Group's equity securities at September 30,
2007 and September 30, 2006:
2007 2007 2006 2006
Cost Carrying value Cost Carrying value
$000 $000 $000 $000
Equity (See Note 21 (e)) - - 1,727 2,109
- - $1,727 $2,109
Carrying value Carrying value
Total Available-for-sale securities $12,865 $418,054
Loans and receivables
The Group did not hold any loans and receivables in its portfolio as at
September 30, 2007.
The following is a summary of the Group's loans and receivables portfolio as at
September 30, 2006:
Gross unrealized Weighted average
Current Amortised Gains Losses Carrying S&P Coupon Expected Years to
face amount cost basis value Rating Expected
Yield Maturity
$000 $000 $000 $000 $000 % % Yrs
Real estate 40,289 39,580 - - 39,580 NR 7.96 11.49 4.10
loans
Corporate loans 21,450 21,263 - - 21,263 NR 11.11 11.29 3.33
$61,739 $60,843 - - $60,843
The Company did not hold any loans and receivables in its portfolio as at
September 30, 2007.
The following is a summary of the Company's loans and receivables portfolio as
at September 30, 2006:
Gross unrealized Weighted average
Current Amortised Gains Losses Carrying S&P Coupon Expected Years to
face amount cost basis value Rating Expected
Yield Maturity
$000 $000 $000 $000 $000 % % Yrs
Real estate 40,289 39,580 - - 39,580 NR 7.96 9.49 4.10
loans
Corporate loans 21,450 21,263 - - 21,263 NR 11.11 11.29 3.33
61,739 60,843 - - 60,843
Impairment of securities
As at September 30, 2007, unrealised losses of $170,651,092 have been recognised
following a review of the portfolio for impairment and transferred from equity
to the income statement. As at September 30, 2007 the total impairment charges
for the year ended September 30, 2007, based on the fair value of the
securities, was $208,102,186.
As at September 30, 2006, unrealised losses of $637,000 associated with one
unrated RMBS security, have been transferred from equity to the income
statement. As at September 30, 2006 unrealised losses of $187,500 associated
with one corporate loan have been transferred from equity to the income
statement.
A total of $105.2 million of income has been recognised on the impaired
securities since purchase, as at September 30, 2007. For the year ended
September 30, 2007 $54.5 million of income has been recognised.
Investment in subsidiaries
This balance relates to the recoverability of a subordinated note issued by
Crown Woods. At September 30, 2007 the total note issued by Crown Woods amounted
to $26 million with $13.9 million recorded as recoverable by the Company. The
actual amount to be recovered is dependent upon the realised value of Crown
Woods' portfolio of securities. See notes 2 and 22 for further information
relating to current valuation risks and subsequent events.
Valuations
The portfolio of asset backed securities at September 30, 2007 was $392.6
million ("the Debt securities") and has been fair valued using independent
broker quotes received.
In preparing the Debt securities fair value estimates the Directors have taken
account of the recent market turmoil in financial markets. Current market
conditions have introduced uncertainty into the debt security market with
restricted trading and greater price volatility which has given rise to
difficulties in pricing the portfolio of Debt securities.
As a consequence of these conditions, the Directors consider that markets as at
September 30, 2007, and subsequently, were less active than normal for the type
of securities held by the Group. Reduced levels of market data raise significant
uncertainties over the broker quotes used as fair value estimates for such
positions. In such circumstances, IFRS can require appropriate valuation models
to be used in order to estimate fair values. However, it is unlikely that the
use of market models would provide more appropriate valuations, given the
scarcity of observable data in the marketplace upon which to prepare fair value
estimates.
In these circumstances, the Directors are of the view that the most appropriate
estimate of the fair value of the Debt securities remains the independent broker
quotes sourced for these positions. Consequently the Directors have opted to use
the broker quotes provided. Due to the inherent uncertainty of valuation and a
low level of trading activity in such Debt securities, if any, these broker
values may differ from the values that would have been used had a more active
market for the securities existed and the differences could be material. Note
22 on subsequent events confirms that reduced liquidity and increased volatility
have continued to be features of the market since the year end and show no
imminent signs of easing.
As at September 30, 2007, independent valuations were received for 100% of the
portfolio.
14. Other financial assets
Group
2007 2006
$000 $000
Interest receivable 2,948 5,487
Derivative financial assets - unrealized gains on forward contracts 54 513
Derivative financial assets - unrealized gains on swaps 27 260
Gains on embedded derivatives (see Note 16) - 1,106
Capitalised ancillary costs 326 806
Amounts paid in advance 185 132
Other receivables 214 173
$3,754 $8,477
Company
2007 2006
$000 $000
Unsettled security sales - 4,003
- $4,003
2007 2006
$000 $000
Interest receivable 351 3,668
Derivative financial assets - unrealized gains on forward contracts 54 513
Derivative financial assets - unrealized gains on swaps 27 260
Gains on embedded derivatives (see Note 16) - 1,106
Capitalised ancillary costs - 220
Amounts paid in advance 185 132
Other receivables 77 102
$694 $6,001
15. Bank overdrafts and loans
Group
2007 2006
$000 $000
Committed financing 459,239 366,196
Sale and repurchase agreements 712 327,701
Commercial paper borrowings - 185,590
$459,951 $879,487
Company
2007 2006
$000 $000
Committed financing - 20,450
Sale and repurchase agreements 712 327,701
$712 $348,151
In the company-only balance sheet the bank borrowings would be presented as
intercompany loans with the subsidiaries referred to in Note 11. All borrowings
are secured on specific assets. Collateral pledged against securities sold under
agreements to repurchase amounts to US$1 million approximately at September 30,
2007 (US$371 million approximately at September 30, 2006).
16. Financial instruments
Market risk
The Group's exposure to market risk is comprised mainly of movements in the
value of its investments and may also be affected by trends in new issuance
credit spreads compared to its existing portfolio. The Group's investments are
predominantly floating rate and, as such, are valued based on a market credit
spread over a benchmark (such as LIBOR or EURIBOR). Increases in the credit
spreads above such benchmarks may affect the Group's net assets, net income or
cash flow directly through their impact on unrealized gains or losses on
securities within the portfolio, and therefore the Group's ability to make gains
on such securities, or indirectly through their impact on the Group's ability to
borrow and access capital.
Interest rate risk
Changes in interest rates can affect the Group's net interest income, which is
the difference between the interest income earned on interest-earning
investments and the interest expense incurred on interest-bearing liabilities.
Changes in the level of interest rates also can affect, among other things, the
Group's ability to acquire loans and securities, the value of its securities and
the Group's ability to realize gains from the settlement of such assets.
The Group mitigates its exposure to interest rate risk by aligning the income
received on its investments with the interest the Group pays on its debt (i.e.
floating-rate assets will be financed with floating-rate debt and fixed-rate
assets will be financed with fixed-rate debt). Where this is not possible or
practicable, the Group may enter into other hedging transactions such as dealing
in gilts or treasury bonds or entering into derivative transactions such as
swaps or caps. The Investment Manager may choose, however, to have the Group
bear a level of interest rate risk that could otherwise be hedged where it
considers that bearing such risks is acceptable.
Interest rate profile
Group
2007 2007 2007 2006 2006 2006
$000 $000 $000 $000 $000 $000
Fixed Floating Non-Interest Fixed Floating Non-Interest
bearing bearing
Cash and cash - 71,177 - 11,625 60,117 -
equivalents
Asset-backed 7,114 385,479 - 14,528 980,285 -
securities
Real estate loans - - - 12,119 27,461 -
Corporate loans - - - - 21,263 -
Equities - - - - - 2,109
Borrowings - (459,951) - (879,487) -
$7,114 $(3,295) - $38,272 $209,639 $2,109
Company
2007 2007 2007 2006 2006 2006
$000 $000 $000 $000 $000 $000
Fixed Floating Non-Interest Fixed Floating Non-Interest
bearing bearing
Cash and cash - 7,636 - - 16,202 -
equivalents
Asset-backed 1,289 11,576 - 15,196 400,749 -
securities
Real estate loans - - - 12,119 27,461 -
Corporate loans - - - - 21,263 -
Equities - - - 327 - 1,782
Borrowings - (712) - - (348,151) -
$1,289 $18,500 - $27,642 $117,524 $1,782
Maturity profile
The tables below show the maturity of the current borrowings under the
facilities, rather than the maturity over the whole life of the facilities and
the expected maturity of the securities, rather than the legal maturity date.
The following is a summary of the maturity profile of the group's portfolio as
at September 30, 2007:
Consolidated Within one year One to five years Over five years
Total Fixed Floating Fixed Floating Fixed Floating
$000 $000 $000 $000 $000 $000 $000
Cash and cash equivalents 11,204 - 11,204 - - - -
Cash held with brokers as collateral 59,973 - 59,973 - - - -
Asset-backed securities 392,593 44,078 7,114 276,842 - 64,559
Real estate loans - - - - - - -
Corporate loans - - - - - - -
Equities - - - - - - -
Borrowings (459,951) - (459,951) - - - -
$3,819 $(344,696) $7,114 $276,842 - $64,559
The following is a summary of the maturity profile of the group's portfolio as
at September 30, 2006:
Consolidated Within one year One to five years Over five years
Total Fixed Floating Fixed Floating Fixed Floating Non-Interest
bearing
$000 $000 $000 $000 $000 $000 $000 $000
Cash and cash equivalents 71,829 11,625 60,204 - - - - -
Asset-backed securities 994,813 676 10,617 13,852 754,467 - 215,201 -
Real estate loans 39,580 - - 11,526 27,461 593 - -
Corporate loans 21,263 - 10,000 - 4,833 - 6,430 -
Equities 2,109 - - - - - - 2,109
Borrowings (879,487) - (879,487) - - - - -
$250,107 $12,301 $(798,666) $25,378 $786,761 $593 $221,631 $2,109
The following is a summary of the maturity profile of the company's portfolio as
at September 30, 2007:
Company Within one year One to five years Over five years
Total Fixed Floating Fixed Floating Fixed Floating Non-Interest
bearing
$000 $000 $000 $000 $000 $000 $000 $000
Cash and cash equivalents 7,636 - 7,636 - - - - -
Asset-backed securities 12,865 - - 210 10,296 1,079 1,280 -
Real estate loans - - - - - - - -
Corporate loans - - - - - - - -
Equities - - - - - - - -
Borrowings (712) - (712) - - - - -
$19,789 - $6,924 $210 $10,296 $1,079 $1,280 -
The following is a summary of the maturity profile of the company's portfolio as
at September 30, 2006:
Company Within one year One to five years Over five years
Total Fixed Floating Fixed Floating Fixed Floating Non-Interest
bearing
$000 $000 $000 $000 $000 $000 $000 $000
Cash and cash equivalents 16,202 - 16,202 - - - - -
Asset-backed securities 415,945 676 4,805 11,981 232,809 2,539 163,135 -
Real estate loans 39,580 - - 11,526 27,461 593 - -
Corporate loans 21,263 - 10,000 - 4,833 - 6,430 -
Equities 2,109 327 - - - - - 1,782
Borrowings (348,151) - (348,151) - - - - -
$146,948 $1,003 $(317,144) $23,507 $265,103 $3,132 $169,565 $1,782
Group and Company
An interest rate cap agreement has been entered into with a strike level of 6.5%
which has an amortising notional amount. The effective date for the start of
the cap is March 2008. The initial notional is $36,126,833 and the cap matures
in June 2011. The fair value of the cap is $(94,982) (2006: $(58,000))
The following are the details of the interest rate swaps as at September 30,
2007:
Weighted average
Total Notional Payment Rate Receiving Rate Maturity Fair value
$ 000
Interest rate 6,250,000 4.32% 5.42% October 2008 27
swaps
The following are the details of the interest rate swaps as at September 30,
2006:
Weighted average
Total Notional Payment Rate Receiving Rate Maturity Fair value
$ 000
Interest rate 16,450,000 4.19% 5.21% May 2009 260
swaps
There were no credit default swaps held as at September 30, 2007. The following
are the details of the credit default swaps as at September 30, 2006:
Weighted average
Total Notional Receiving Rate Maturity Fair value
$ 000
Credit default 20,000,000 1.575% September 2035 (183)
swaps
There were two credit default swaps, each with a notional of $10,000,000. The
two reference obligations were US RMBS securities with S&P ratings of BBB+. The
Company had a liability for the notional amounts if certain trigger events
occur, giving the same economic effects as holding the underlying security.
Currency risk
The Group's accounts are denominated in US dollars while investments are also
likely to be made and realized in other currencies. Changes in rates of exchange
may have an adverse effect on the value, price or income of the investments in
the Group. A change in foreign currency exchange rates may adversely impact
returns on the Group's non-US dollar denominated investments. The Group's
principal direct non-US dollar currency exposure is to the euro and pound
sterling, but this may change over time. The Group's policy is to hedge its
currency risk on a case-by-case basis and also, where the Investment Manager
considers appropriate, on an overall portfolio basis. The Group seeks to reduce
currency risk by financing investments in the same currency as the relevant
investment, where commercially practicable. The Investment Manager may elect,
however, to have the Group bear a level of currency risk that could otherwise be
hedged where it considers bearing such risks is acceptable.
Currency profile - Group
2007 2007 2006 2006
GBP000 EUR000 GBP000 EUR000
Investments 102,701 48,993 296,527 122,634
Borrowings (91,850) (44,173) (239,571) (96,452)
Nominal value of foreign exchange contracts (22,896) (12,647) (52,584) (28,259)
$(12,045) $(7,827) $4,372 $(2,077)
Currency profile - Company
2007 2007 2006 2006
GBP000 EUR000 GBP000 EUR000
Investments 10 1,280 219,564 93,231
Borrowings - (712) (174,698) (71,454)
Nominal value of foreign exchange contracts (22,896) (12,647) (52,584) (28,259)
(22,886) (12,079) $(7,718) $(6,482)
Group/Company
The following foreign exchange forward contracts were unsettled September 30,
2007:
Amount Bought Amount Sold Number of Unrealized Gain/
positions (Loss)
$000 $000
$000
USD 2,526 EUR 1,770 1 3
GBP 1,700 USD 3,420 1 42
USD 1,228 GBP 600 1 9
$54
EUR 1,900 USD 2,705 1 (3)
USD 12,588 EUR 9,015 5 (239)
USD 24,533 GBP 12,350 5 (607)
$(849)
The following foreign exchange forward contracts were unsettled September 30,
2006:
Amount Bought Amount Sold Number of Unrealized Gain/
$000 $000 positions (Loss)
$000
EUR 900 USD 1,140 7 2
USD 20,332 EUR 15,825 17 96
USD 34,160 GBP 18,025 16 415
$513
USD 9,214 EUR 7,278 8 (51)
USD 18,511 GBP 10,065 11 (327)
($378)
Liquidity risk
Caliber is almost entirely funded via its committed, non-recourse, non-cross
default, funding facilities or SPVs, totalling $467 million (with only $712,000
of financing via a repurchase agreement as at September 30, 2007). Each
committed facility was negotiated with the lending bank on a bi-lateral basis,
but broadly comprised pre-agreed eligibility criteria that the portfolio being
funded must meet. The advance rate for each line was typically a function of
either a rating agency model, the market value of the securities or both.
The key risks to Caliber arising from the above funding facilities, and which
were exacerbated during the year, included:
* Securities falling outside of the eligibility criteria due to downgrades
by the external rating agencies - resulting in such securities not being
eligible for funding and therefore requiring that Caliber fund these
securities - thus reducing free cash;
* As the portfolio winds down, portfolio composition or performance tests
being breached. Failure to correct these breaches would lead to an event of
default, allowing the lender to enforce against its collateral and
potentially sell assets into a distressed market in order to repay its loan
with the proceeds; and,
* Where the mark to market value of the portfolio falls considerably, margin
payments being required to be made on mark to market funding lines - thus
reducing cash available in Caliber.
During August and September 2007, although the funding facilities or SPVs
remained in compliance with their relevant covenants, the following funding
facilities were restructured in order to mitigate or negate the above risks and
provide Caliber with a stable funding platform for the wind up process.
On August 17, 2007 Tormes Asset Funding Limited ("Tormes") and the funding bank
agreed that the undrawn commitment would be cancelled and no new securities
could be sold into the facility. Additionally all portfolio limits and tests
would no longer apply. Most of the excess interest and all principal payments
will be used to repay interest and principal on the borrowings from the bank.
On August 23, 2007 Crown Woods Limited ("Crown Woods") and the funding bank
agreed that covenants regarding portfolio concentration would no longer apply,
the size of the facility would decrease to the level of borrowings outstanding
and no new securities could be sold into the facility without the prior approval
from the funding bank. However the level of borrowings against the portfolio
would still be based on the latest market value of the securities.
On August 24, 2007 Assabet Funding Limited ("Assabet") and the funding bank
agreed to the following restructuring:
* Caliber paid the bank $10 million as a final margin payment. There
will be no further margin calls.
* An increase in the cost of funds from cost of funds + 50 bps to cost
of funds + 70 bps.
* The underlying portfolio ceased to be actively managed and the
portfolio will amortise with certain disposals of assets being made from time to
time and with all principal and excess spread being used to repay the bank
funding and other amounts due to the bank.
* In lieu of an additional margin requirement of approximately $17
million of margin which was due in late August, the bank will be entitled to
approximately 22c in every dollar realized after all outstanding financing has
been repaid.
On September 13, 2007 Caliber terminated its interest in Amber Funding Limited
("Amber") through the cancellation of the subordinated note issued by Amber to
Caliber. As a consequence the results of Amber for the period from October 1,
2006 to September 13, 2007 are presented in the consolidated income statement of
the company but the assets and liabilities of Amber are not reflected in the
consolidated balance sheet of the company at September 30, 2007.
On December 5, 2007 Crown Woods and the funding bank agreed to reduce the
facility size from $80 million to $50 million.
All other material terms of each of the facilities remain unchanged.
Under the terms of the agreements the funding banks only have recourse against
the assets held by the individual SPV which they have provided funding to. Given
the fall in the market value of the securities there is a risk that the
borrowings from the funding banks will not be repaid in full. See note 22 below.
As at September 30, 2007 the amount of the loan facilities not utilised was as
follows:
2007 2006
$000 $000
Amber Funding Limited N/A 150,000
Assabet Funding Limited - 30,000
Crown Woods Limited* 12,000 64,000
Tormes Asset Funding Limited - 209,000
* The capacity within Crown Woods can only be utilised with the consent of the
funding bank.
2007 2006
$000 $000
Uncommitted financing 712 327,701
Committed financing 459,239 366,196
Commercial paper funding - 185,590
$459,951 $879,487
Credit risk
The Group is subject to credit risk with respect to its investments in
asset-backed securities. The Group seeks to mitigate credit risk by actively
monitoring its portfolio of investments and the underlying credit quality of its
holdings. The Group seeks to minimise credit risk further by ensuring its
investment portfolio is diversified by asset type, geography, industry and
issuer or borrower. The Group does not generally intend to undertake any credit
hedging activities other than from time to time entering into transactions to
hedge its credit exposure in relation to individual investments. See note 13 for
the credit profile of the portfolio.
Risks relating to derivatives
The Group's hedging transactions using derivative instruments also involve
certain additional risks such as counterparty credit risk, the enforceability of
hedging contracts and the risk that unanticipated and significant changes in
interest rates will cause a significant loss of basis in the contract. The
counterparties to the Group's derivative arrangements are major financial
institutions with investment-grade credit ratings with which the Group and its
affiliates may also have other financial relationships.
Embedded derivatives
As at September 30, 2006, a derivative embedded within a real estate loan had
been revalued. The value of the derivative was determined by the value of the
underlying property. The property was revalued as at September 30, 2006 by an
independent third party giving a recognised gain on the derivative of $1.1
million. The value of the embedded derivative was derived through its rights to
a profit participation in the gains in value of the underlying property. A 5%
rise or fall in the value of the underlying property would have resulted in a
change in the value of the embedded derivative of approximately $450,000. The
gain on the embedded derivative was realised when the sale of the property was
completed.
Residual interest risk
Some of the Group's investments consist of interests in and/or economic
exposures to limited recourse securities that are subordinated in right of
payment and ranked junior to other securities that are secured by or represent
ownership in the same pool of assets. In the event of default by an issuer in
relation to such investments, holders of the issuer's more senior securities are
entitled to payments in priority to the Group. Some of the Group's investments
also have structural features that divert payments of interest and/ or principal
to more senior classes of securities secured by or representing ownership in the
same pool of assets when the delinquency or loss experience of the pool exceeds
certain levels. This may lead to interruptions in the income stream that the
Group anticipates receiving from its investment portfolio, which may lead to the
Group having less income to distribute to Shareholders.
Although holders of asset-backed securities generally have the benefit of first
ranking security (or other priority rights) over any collateral, control of the
timing and manner of the disposal of such collateral upon a default typically
will devolve to the holders of the senior class of securities outstanding. There
can be no assurance that the proceeds of any such sale of collateral will be
adequate to repay in full the Group's investments.
17. Other financial liabilities
Group
2007 2006
$000 $000
Unsettled security purchases - 14,678
- $14,678
Interest payable 1,046 3,261
Derivative financial liabilities - unrealized loss on forward contracts 849 378
Derivative financial liabilities - unrealized loss on swaps 95 242
Due to related parties - Investment Manager 360 1,084
Accrued expenses and other payables 1,215 1,230
$3,565 $6,195
Company
2007 2006
$000 $000
Unsettled security purchases - 14,678
- $14,678
Interest payable 10 1,716
Derivative financial liabilities - unrealized loss on forward contracts 849 378
Derivative financial liabilities - unrealized loss on swaps 95 242
Due to related parties - Investment Manager 360 1,085
Provision for liquidation costs 575 -
Accrued expenses and other payables 769 916
$2,658 $4,337
18. Share capital
Authorised share capital
Number of shares 2007 2006
$000 $000
Ordinary shares of no par value each Unlimited N/A N/A
Issued and fully paid
Number of shares 2007 2007 2006 2006
$000 $000 $000 $000
Balance at September 30, 2006 24,523,810 N/A 15,000,000 N/A
Issue of new ordinary shares with no par value - N/A 9,523,810 N/A
during the year
Balance at September 30, 2007 24,523,810 N/A 24,523,810 N/A
The Initial Public Offering of ordinary shares on June 13, 2005 was at a price
of $10 per share. The Secondary Offering of ordinary shares on May 11, 2006 was
at a price of $10.50 per share.
The shares have no special rights and may receive dividends covered by income
(but not capital gains) received from the underlying investments. The Group
expects to pay all or substantially all of its earnings as dividends.
19. Share premium account
Group and Company
2007 2006
$000 $000
Balance at September 30, 2006 $233,916 $139,756
Premium arising from issue of ordinary shares - 100,000
Expenses of issue of ordinary shares - (5,840)
Balance at September 30, 2007 $233,916 $233,916
On August 30, 2007, the shareholders approved a special resolution to reduce the
share premium account of the Company to $250,000 and to convert it into a
capital realisation reserve. As at September 30, 2007 the application to the
Royal Court in Guernsey for an order confirming the reduction of the share
premium account had not yet been made.
20. Notes to cashflow statement
Group
2007 2006
$000 $000
(Deficit)/Profit from operations $(227,929) $22,179
Adjustments for:
Movement in unrealized gain on derivatives 2,122 (1,267)
Movement in unrealized loss on derivatives - 476
Unrealized FX (gain)/loss (3,030) (14,746)
Impairment losses 223,454 825
Operating cash flows before movements in working capital (5,383) 7,467
Decrease in receivables 3,038 3,665
(Decrease)/increase in payables (1,385) 1,485
Increase in amounts paid in advance (53) (132)
Increase in cash held with brokers as collateral (10,322) (4,652)
Cash provided by/(used by) operations (8,722) 366
Net cash from operating activities $(14,105) $7,833
Company
2007 2006
$000 $000
(Deficit)/Profit from operations (187,530) 15,689
Adjustments for:
Movement in unrealized gain on derivatives 2,122 (1,267)
Movement in unrealized loss on derivatives - 476
Unrealized FX (gain)/loss 2,468 (7,303)
Impairment losses 150,718 825
Operating cash flows before movements in working capital (32,222) 8,420
Decrease/(increase) in receivables 3,481 (1,788)
Increase in payables (2,003) 1,684
Increase in amounts paid in advance (53) 63
Increase in cash held with brokers as collateral 2,735 (1,879)
Cash provided by/(used by) operations 4,160 (1,920)
Net cash from operating activities $(28,062) $6,500
21. Investment Management Agreement and related party transactions
a) Investment Management Agreement
The Group entered into the Investment Management Agreement with the Manager,
which provides for an initial term of five years from June 13, 2005 subject to
certain termination rights. The Group may terminate the Investment Management
Agreement without cause at any time by giving not less than 24 months' prior
notice in writing. The Group may not give notice to terminate prior to the third
anniversary of the effective date of the Investment Management Agreement meaning
that the Investment Management Agreement has a minimum term of five years.
If following notice of termination by the Group to the Investment Manger the
Group and the Investment Manager agree that the Investment Manager will cease to
act as such during the 24 months to which such notice of termination applied
there shall be payable to the Investment Manager an early termination payment
calculated in the following manner:
The Early Termination Payment will be an amount equal to the Projected
Termination Payment less any management fees and performance fees paid or
accrued and payable to the Investment Manager during such notice period. The
Projected Termination Payment will, following the second anniversary of the date
of the agreement, be an amount equal to the aggregate, over the previous eight
completed quarters, of the Management Fees and Performance Fees paid to the
Investment Manager. As at September 30, 2007 the aggregate amount paid to the
Investment Manager over the previous eight completed quarters was $9,886,386.
The effective date of the Investment Management Agreement was the date of
admission to the London Stock Exchange, June 13, 2005. If the Investment Manager
commits any material breach of its obligations under the Investment Management
Agreement and fails (in the case of a breach capable of rectification) to make
good such breach within 30 days of receipt of written notice from the Group
requiring it to do so, the Group may terminate the Investment Management
Agreement with cause by giving the Investment Manager not less than 60 days'
prior notice in writing. Such termination shall not take effect until the Group
has appointed a replacement Investment Manager. The Group may terminate the
Investment Management Agreement by giving notice to the Investment Manager,
effective forthwith, if the Investment Manager is dissolved or unable to pay its
debts or commits any act of bankruptcy or if a receiver is appointed over all or
a substantial portion of its assets.
The Investment Manager may resign its appointment at any time by giving the
Group not less than 60 days' prior notice in writing, provided that such
termination shall not take effect until the earlier of (i) the date on which the
Group has appointed a replacement Investment Manager; and (ii) six months after
the date on which the Investment Manager gave such notice. The Investment
Manager may resign its appointment by giving the Group not less than 60 days'
prior notice in writing if the Group commits any material breach with respect to
its obligations under the Investment Management Agreement and fails to make good
any breach within 30 days of receipt of written notice from the Investment
Manager requiring it to do so. The Investment Manager may resign its appointment
by giving notice in writing to the Group, effective forthwith, if the Group is
dissolved or is unable to pay its debts or commits any act of bankruptcy or if a
receiver is appointed over all or a substantial portion of its assets.
Under the terms of the Investment Management Agreement the Group also pays or
reimburses in respect of all out-of-pocket expenses reasonably incurred by it in
the performance of its duties under the Investment Management Agreement. These
expenses include (without limitation) all expenses connected to cash deposits
made by the Group, issuance and transaction costs incidental to the acquisition,
disposition and financing of investments, legal and auditing fees and expenses,
the compensation and expenses of the Directors, the costs associated with the
establishment and maintenance of any credit facilities and other indebtedness of
the Group (including commitment fees, legal fees, closing costs, etc.), all fees
and expenses incurred in relation to the incorporation and initial organisation
of the Company and the special purpose vehicles, expenses associated with other
securities offerings of the Group, the costs of printing and mailing proxies and
reports to its shareholders, costs incurred by employees of for travel on the
Group's behalf, costs associated with any computer software or hardware that is
used by the Group, costs to obtain liability insurance to indemnify the
Directors and officers and the compensation and expenses of its transfer agent,
custodian, prime broker, Registrar and Administrator.
Under the terms of the Investment Management Agreement the Investment Manager is
entitled to receive from the Group an annual management fee of 1.75 per cent of
the gross equity of the Group, payable monthly in arrears. For these purposes,
"gross equity" means the aggregate gross proceeds to the Group of all issues of
shares in the capital of the Group (less any capital dividends paid or capital
distributions made by the Group). The Investment Manager is entitled to receive
a performance-related fee in respect of each incentive period which will be paid
quarterly in arrears. An incentive period comprises each successive three-month
period, except the first period was the period from admission to the London
Stock Exchange to September 30, 2005.
The performance-related fee is equivalent to 25 per cent of the amount by which
A exceeds B x C where:
A = the Group's consolidated net income before tax as shown in the Group's consolidated management accounts
for the relevant period, and before payment of the performance-related fee;
B = gross equity; and
C = the greater of (i) 2 per cent or (ii) 1 percent plus one quarter of the interest rate on ten-year US
Treasury Bonds (as at the beginning of the relevant quarter).
During the period October 1, 2006 to September 30, 2007 a management fee of
$4,386,986 (2006: $3,298,629) and an incentive fee of $326,173 (2006:
$1,874,598) was earned by the Investment Manager. At September 30, 2007,
management fees and expense reimbursements of $359,589 (2006: $1,084,598) were
due to the Investment Manager.
The Investment Management Agreement was amended at the EGM held on August 30,
2007.
b) Rebilac Limited
At the Initial Public Offering 840,000 shares of no par value were issued to
Rebilac Limited, an affiliate of the Investment Manager, for $10 each. 1,500,000
options were granted to Cambridge Place Investment Management LLP as a fee for
its work in raising capital for the Group. Cambridge Place Investment Management
LLP subsequently transferred these options to Rebilac Limited. The options
represent the right to purchase 1,500,000 shares in the Group. The options are
fully vested and immediately exercisable from the date of the grant at an
exercise price per share equal to $10 and will remain exercisable until the
tenth anniversary of admission and listing. Included in the expenses of issue of
ordinary shares borne by the Group is $260,849 relating to legal and
professional fees incurred in setting up Rebilac Limited.
The fair value of the options granted using a binomial option valuation model
was $0.474 per share. This equates to $711,000 and is regarded as a cost of the
Initial Public Offering.
At the Follow On, 204,297 shares of no par value were issued to Rebilac Limited
for $10.50 each. In addition 952,381 options were granted to Cambridge Place
Investment Management LLP as a fee for its work in raising capital for the
Group. Cambridge Place Investment Management LLP transferred 408,594 of these
options to Rebilac Limited on November 30, 2006. The options represent the right
to purchase 952,381 shares in the Group. The options are fully vested and
immediately exercisable from the date of the grant at an exercise price per
share equal to $10.50 and will remain exercisable until the tenth anniversary of
the Follow On. Included in the expenses of the Follow On borne by the Group is
$75,000 relating to legal and professional fees incurred in relation to Rebilac.
The fair value of the options granted using a binomial option valuation model
was $0.5994 per share. This equates to $570,837 and is regarded as a cost of the
Follow On.
No. of options Exercise price
As at September 30, 2006 2,452,381 $10.19
Granted during the year ended September 30, 2007 - -
Exercised during the year ended September 30, 2007 - -
Outstanding as at September 30, 2007 2,452,381 $10.19
The options will be settled with the issuance of new shares when they are
exercised.
c) Old Court Funding plc
Cambridge Place Investment Management LLP is the Investment Manager of Old Court
Funding, a commercial paper conduit, which provides funding to the Group by way
of loans on arms length terms (see Note 16 above). Cambridge Place Investment
Management LLP does not receive any fees or remuneration from Old Court Funding.
As at September 30, 2007, the amount owed to Old Court Funding was $nil (2006:
$185.6 million) and interest payable to Old Court Funding from October 1, 2006
to September 30, 2007 was $8,704,863 (2006: $6,357,470). As at September 30,
2007, the amount owed to Old Court Funding in respect of interest was $nil
(2006: $387,904).
d) Directors' Interests
Mr Kramer has a direct interest in 18,415 shares of the Company through his
holding in Rebilac Limited and a direct interest in options in respect of 36,830
of the ordinary shares of the Company. Mr Kramer also has an indirect interest
in 30,000 shares of the Company through a holding in Rebilac Limited and an
indirect interest in options in respect of 60,000 of the ordinary shares of the
Company. These are amongst the options initially granted at the time of the
Initial Public Offer and Follow On.
e) Other investments of Investment Manager
During the year the private investments held at September 30, 2006 were sold to
other funds managed by CPIM at the latest available independent third party
valuations. Total proceeds received were $30.8 million.
f) Contingent Liabilities
Except for the Early Termination Payment, described in Note 21 (a), as of
September 30, 2007, under the terms of a share purchase agreement, following the
disposal of an interest in a UK property, the Group has guarantee obligations to
the purchaser of the asset for a maximum of �6.56 million, for a period of up to
two years, effective from March 2007.
22. Subsequent events
Since September 30, 2007 there has been further deterioration in the global
credit markets. The current estimate for the adjusted, or company only, NAV at
October 31, 2007, as indicated by the Administrator, is $1.03 and for the
consolidated NAV it is $(2.05). Given these further falls in the market value of
the securities there is a risk that the borrowings from the funding banks are
not repaid in full.
Shareholder information
Registrar Capita IRG (CI) Limited
2nd Floor
No. 1 Le Truchot
St. Peter Port
Guernsey
UK transfer agent Capita IRG Plc
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Tel: +44 (0) 870 162 3100
Fax: +44 (0) 20 8639 3197
e-mail: ssd@capitaregistrars.com
Cambridge Place Investment
Management LLP Lexicon House
17 Old Court Place
London W8 4PL
Tel:+44 (0)20 7938 5700
Public relations consultant Financial Dynamics
Business Communications
Holborn Gate
26 Southampton Buildings
London WC2A 1PB
Tel: +44 (0) 20 72697132
Attention: Ed Gascoigne-Pees
Glossary of Market Terms
ABS Asset-backed securities - debt securities which have
their interest and principal repayments sourced
principally from a generic group of income producing
assets.
CDS Credit default swap - contracts in which one market
participant pays or receives premium flows in return for
the counterparty accepting or selling all or part of the
risk of default or failure to pay of a reference
security on which the swap is written
CMBS Commercial mortgage-backed securities - a category of
ABS which have their interest and principal repayments
sourced principally from a pool of commercial real
estate assets.
EURIBOR The euro-area inter-bank offered rate for the Euro
IPO Initial Public Offer
LIBOR London Interbank Offer Rate for sterling, dollars or
euros as applicable.
Repurchase agreement A method of financing the acquisition of an asset
involving an agreement for the sale of securities for
spot or current delivery and the simultaneous repurchase
of those securities for forward or delayed delivery. The
difference between the sale price and the higher
purchase prices provides income to the counterparty.
RMBS Residential mortgage-backed securities - a category of
ABS which have their interest and principal repayments
sourced principally from a pool of residential real
estate assets.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR GDBDDIBBGGRI
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