TIDMTORO
RNS Number : 2332N
Toro Limited
28 January 2016
Toro Limited
(a closed-ended investment company limited by shares
incorporated under the laws of
Guernsey with registered number 59940)
Audited Annual Financial Statements
For the period from 2 March 2015 (date of incorporation) to 30
September 2015
Contents
Highlights for the period from 8 May 2015 (the date of admission
to listing) to 30 September 2015 (the "Period")
Corporate Summary
General Information
Chairman's Statement
Portfolio Manager's Report
Board of Directors
Disclosure of Directorships in Public Companies Listed on
Recognised Stock Exchanges
Report of the Directors
Corporate Governance Report
Statement of Principal Risks and Uncertainties
Audit Committee Report
Directors' Remuneration Report
Commodity Exchange Affirmation Statement
Statement of Directors' Responsibilities
Independent Auditor's Report to the Members of Toro Limited
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Condensed Schedule of Investments, at Fair Value
Notes to the Financial Statements
Appendix 1
AIFMD Disclosures (Unaudited)
FORWARD-LOOKING STATEMENTS
This annual report includes statements that are, or may be
considered, "forward-looking statements". These forward-looking
statements can be identified by the use of forward-looking
terminology, including the terms "believes", "estimates",
"anticipates", "plans", "expects", "targets", "aims", "intends",
"may", "will", "can", "can achieve", "would" or "should" or, in
each case, their negative or other variations or comparable
terminology. These forward-looking statements include all matters
that are not historical facts. They appear in a number of places
throughout this annual report, including in the Chairman's
Statement. They include statements regarding the intentions,
beliefs or expectations of the Company or the Portfolio Manager
concerning, among other things, the investment objectives and
investment policies, financing strategies, investment performance,
results of operation, financial condition, liquidity prospects,
dividend policy and targeted dividend levels of the Company, the
development of its financing strategies and the development of the
markets in which it, directly and through special purpose vehicles,
will invest in and issue securities and other instruments. By their
nature, forward-looking statements involve risks and uncertainties
because they relate to events and depend on circumstances that may
or may not occur in the future. Forward-looking statements are not
guarantees of future performance. The Company's actual investment
performance, results of operations, financial condition, liquidity,
dividend policy and dividend payments and the development of its
financing strategies may differ materially from the impression
created by the forward-looking statements contained in this
document. In addition, even if the investment performance, results
of operations, financial condition, liquidity, dividend policy and
dividend payments of the Company and the development of its
financing strategies are consistent with the forward-looking
statements contained in this document, those results or
developments may not be indicative of results or developments in
subsequent periods. Important factors that may cause differences
include, but are not limited to: changes in economic conditions
generally and in the structured finance and credit markets
particularly; fluctuations in interest and currency exchange rates,
as well as the degree of success of the Company's hedging
strategies in relation to such changes and fluctuations; changes in
the liquidity or volatility of the markets for the Company's
investments; declines in the value or quality of the collateral
supporting many of the Company's investments; legislative and
regulatory changes and judicial interpretations; changes in
taxation; the Company's continued ability to invest its cash in
suitable investments on a timely basis; the availability and cost
of capital for future investments; the availability of suitable
financing; the continued provision of services by the Portfolio
Manager and the Portfolio Manager's ability to attract and retain
suitably qualified personnel; and competition within the markets
relevant to the Company. These forward-looking statements speak
only as at the date of this annual report. Subject to its legal and
regulatory obligations, the Company expressly disclaims any
obligations to update or revise any forward-looking statement
(whether attributed to it or any other person) contained herein to
reflect any change in expectations with regard thereto or any
change in events, conditions or circumstances on which any
statement is based. The Company qualifies all such forward-looking
statements by these cautionary statements.
Highlights for the period from 8 May 2015 (the date of admission
to listing) to 30 September 2015 (the "Period")
-- Successful Initial Public Offering ("IPO") of Toro Limited
(the "Company") which raised EUR331.8 million (gross of issue
costs) with 336.8 million Euro Shares issued. There were two
additional placings made during the Period, EUR16.4 million (gross
of issue costs) on 17 July 2015 with 16.1 million Euro Shares
issued and EUR8.8 million (gross of issue costs) on 29 July 2015
with 8.6 million Euro Shares issued. On IPO the Company was 49%
invested through its in specie acquisition of the portfolio of Toro
Capital I.
-- During the Period, the Company's net asset value ("NAV")
increased by 3.61% (net of issue costs) to 101.54 cent.
-- On 29 October 2015 the Company announced the payment of a
dividend of 2.0 cent per ordinary share for the Period, exceeding
the Company's target first dividend of at least 1.2 per cent. of
the Issue Price per Share as set out in the IPO prospectus. The
Company will target (i) a NAV total return (including dividend
payments) of 12 to 15 per cent per annum over three to five years
once the Company is fully invested and (ii) a dividend of 5 per
cent per annum payable quarterly in March, June, September and
December of each year.
-- The Company's mid-market share price at 30 September 2015 was
98.5 cent, representing a discount to NAV of 2.99%.
-- The profit of the Company from 2 March 2015 (date of
incorporation) to 30 September 2015 was EUR12.3 million, or 3.52
cent per share, taking into account recognition of the following
significant items:
o total net income of EUR16.4 million
o total operating expenses of EUR4.1 million.
-- At 30 September 2015 the Company was 82% invested and its
free cash holdings were EUR57.8 million.
Corporate Summary
For the period from 2 March 2015 (date of incorporation) to 30
September 2015
The Company
Toro Limited (the "Company") is a Closed-ended Collective
Investment Scheme registered pursuant to The Protection of
Investors (Bailiwick of Guernsey) Law, 1987, as amended (the "Law")
and the Registered Collective Investment Scheme Rules 2008 issued
by the Guernsey Financial Services Commission (the
"Commission").
Liquidation of Toro Capital I and roll-over into Toro
Limited
Toro Capital I was a "Société En Commandite Par Actions" formed
as an open-ended investment company qualifying under Luxembourg law
as a Société d'Investissement à Capital Variable with two
sub-funds: Toro Capital I-A and Toro Capital I-B.
Toro Capital I was placed into liquidation on 30 April 2015 and
assenting Toro Capital I-A and I-B Shareholders were issued
roll-over Shares in the Company as an in specie distribution of the
liquidation proceeds to which they were entitled (the "Roll-Over
Shares"). In consideration for the issuance of Roll-Over Shares,
the liquidator and the Company entered into a transfer agreement
under which the liquidator transferred to the Company the
beneficial interest in the seed assets with a value approximately
equal to the aggregate net asset value of the Toro Capital I shares
held by the Assenting Toro Capital Shareholders as at the valuation
date.
Initial Public Offering
The IPO of the Company raised gross proceeds of EUR331.8 million
(of which the Roll-Over Shares contributed EUR184.8 million of the
overall gross proceeds) on the issue of 336.8 million Euro
denominated shares. The Company's Ordinary Shares (the "Shares")
were admitted to trading on the Specialist Fund Market of the
London Stock Exchange ("SFM") and the Channel Islands Security
Exchange Authority Limited ("CISEAL") on 8 May 2015.
Additional placings
There were two additional placings made during the Period,
EUR16.4 million gross of issue costs on 17 July 2015 with 16.1
million Shares issued and EUR8.8 million gross of issue costs on 29
July 2015 with 8.6 million Shares issued.
Investment objective and policy
The investment objective of the Company is to deliver an
absolute return from investing and trading in Asset Backed
Securities and other structured credit investments in liquid
markets, and investing directly or indirectly in asset backed
transactions including, without limitation, through the origination
of credit portfolios.
Target returns and dividend policy
On the basis of market conditions as at the date of the
prospectus 28 April 2015, and whilst not forming part of its
investment objective or investment policy, the Company will target
(i) a NAV total return (including dividend payments) of 12 to 15
per cent per annum over three to five years once the Company is
fully invested and (ii) a dividend of 5 per cent per annum payable
quarterly in March, June, September and December of each year.
The Alternative Investment Fund Manager (the "AIFM") and
Portfolio Manager
On 28 April 2015, the Company appointed Carne Global AIFM
Solutions (C.I.) Limited as the Company's external AIFM.
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On 28 April 2015, Chenavari Credit Partners LLP were appointed
by the AIFM and the Company as its Portfolio Manager to undertake
the activities of investment management. Pursuant to the Portfolio
Management Agreement, the AIFM has, with the consent of the
Company, delegated the AIFM's portfolio management functions to the
Portfolio Manager. The Portfolio Manager is a limited liability
partnership incorporated in England and Wales under registered
number OC337434 and is regulated and authorised in the UK by the
FCA under registration number 484392 and by the SEC under
registration number 801/72662.
Asset Values
At 30 September 2015, the Company's NAV was EUR367 million, with
the NAV per share amounting to 101.54 cent. The Company publishes
its NAV on a monthly basis. The NAV is calculated as the Company's
assets at fair value less liabilities, measured in accordance with
International Financial Reporting Standards.
Duration
The Company has an indefinite life.
Website
The Company's website address is www.torolimited.gg
Corporate Summary (continued)
Listing Information
The Company's Shares are admitted to trading on the SFM and
CISEAL.
The ISIN number of the Euro Shares is GG00BWBSDM98 and the SEDOL
is BWBSDM9.
The closing price of the Shares quoted on the SFM at 30
September 2015 was 98.50 cent per share.
The average closing price of the Shares over the Period was
100.72 cent per share.
General Information
Directors Registered Office
Frederic Hervouet (Non-executive
Chairman) * Old Bank Chambers
John Whittle (Non-executive
director) * La Grande Rue
Roberto Silvotti (Non-executive
director) * St Martin's
Melanie Torode (Non-executive
director) ** Guernsey
Serena Tremlett (Non-executive
director) ** GY4 6RT
* appointed 20 April 2015
** appointed 2 March 2015;
resigned 20 April 2015
Portfolio Manager AIFM
Chenavari Credit Partners Carne Global AIFM Solutions
LLP (C.I.) Limited
1 Grosvenor Place 8th Floor
London Union House
SW1X 7JH Union Street
St Helier
Jersey
JE2 3RF
Corporate Broker Registrar
Capita Registrars (Guernsey)
Dexion Capital plc Limited
1 Tudor Street Mont Crevelt House
London Bulwer Avenue
EC4Y 0AH St Sampson
Guernsey
GY2 4LH
Solicitors to the Company Advocates to the Company
(as to English law) (as to Guernsey law)
Wragge Lawrence Graham &
Co LLP Mourant Ozannes
4 More London Riverside 1 Le Marchant Street
London St Peter Port
SE1 2AU Guernsey
GY1 4HP
Administrator and Company Custodian and Principal
Secretary Bankers
Morgan Sharpe Administration J.P. Morgan Chase Bank
Limited N.A
Old Bank Chambers Jersey Branch
La Grande Rue J.P. Morgan House
St Martin's Grenville Street
Guernsey St Helier
GY4 6RT Jersey
JE4 8QH
Sub-Administrator Auditor
Quintillion Limited Deloitte LLP
24-26 City Quay P.O. Box 137
Dublin 2 Regency Court
Ireland Glategny Esplanade
D02 NY19 St. Peter Port
Guernsey
GY1 3HW
Chairman's Statement
Introduction
On behalf of the Board, I am pleased to present my report on the
Company's progress for the period from 2 March 2015 (the date of
incorporation) to 30 September 2015.
The IPO of the Company raised gross proceeds of EUR331.8
million. There were two additional placings made during the Period,
raising EUR16.4 million (gross of issue costs) on 17 July 2015 and
EUR8.8 million (gross of issue costs) on 29 July 2015.
Financial Performance
The Company's shares were admitted for trading on the 8 May
2015. The Company's share price was 98.50 cent as of 30 September
2015, trading then at a discount to NAV of 3%.
Over the reporting period from 2 March 2015 to 30 September 2015
the Company generated a profit of EUR12.3 million or earnings of
3.52 cent per share.
The Net Asset Value per share was 101.54 cent at 30 September
2015.
The Company's NAV increased by 3.61% (net of issue costs) the
period from 8 May 2015 (the date of admission to listing) to 30
September 2015.
Dividends
On 29 October 2015 the Company announced the payment of a
dividend of 2.0 cent per ordinary share for the Period, exceeding
the Company's target first dividend of at least 1.2 per cent. of
the Issue Price per Share as set out in the IPO prospectus.
Investment Portfolio
Since Admission, the Portfolio Manager has been actively trading
the ABS portfolio of the Company with some re-balancing realised
during the period. The Portfolio Manager monetised the NAV discount
within some CDO of ABS exposure, realised cash flows on
high-yielding CLO positions and benefited from early redemptions of
seasoned transactions. Capital was reallocated to transactions that
presented attractive risk/reward. The Portfolio Manager has entered
into a certain number of new Private Asset Backed Finance
opportunities, especially private CLO warehouses in a leveraged
loans market characterised by limited supply. In Q4 2015, the
Portfolio Manager re-entered the UK non-conforming and Spanish RMBS
sectors that have experienced significant spread widening on the
back of particularly weak and overdone technicals. For further
information on the portfolio composition as of 30 September 2015,
please see page 8 and 9.
Investment Outlook
The Portfolio Manager expects to deploy available cash in the
Company into liquid ABS sectors that have widened significantly
over the past quarter while underlying performance remains strong.
The Portfolio Manager also expects to execute the first investment
related to the "Originator strategy" subject to market
conditions.
Further information on the Originator strategy is detailed on
page 10 and 11 of the Portfolio Managers' Report
For further information on the investment outlook please see
page 11.
Frederic Hervouet
Non-executive Chairman
27 January 2016
Portfolio Manager's Report
Performance
The Company successfully launched with EUR331.8 million gross
proceeds on 8 May 2015.
During July 2015, the Company realised two additional capital
increases for a total gross amount of EUR25.2 million.
During the Period, the Company's NAV increased by 3.61% (net of
issue costs).
The month-on-month performance since inception was the
following:
Year YTD May Jun Jul Aug Sep
------ ------ ------ ------ ------ ------ ------
2015 3.61% 2.06% 0.15% 0.45% 0.64% 0.28%
Dividend
On 29 October 2015 the Company announced the payment of a
dividend of 2.0 cent per ordinary share for the Period, exceeding
the Company's target first dividend of at least 1.2 per cent. of
the Issue Price per Share as set out in the IPO prospectus.
Portfolio breakdown
As of 30 September 2015, the Company was 82% invested, gross of
repurchase agreements with a total negative value of 5.07% of the
NAV.
The Net Asset Value allocation as of 30 September 2015 was as
follows:
Asset class breakdown % NAV
----------------------------- --------
Equity Securities 0.07%
----------------------------- --------
Bond 0.09%
----------------------------- --------
Arbitrage CDO 22.22%
----------------------------- --------
Commercial mortgage-backed
security 2.72%
----------------------------- --------
Arbitrage CLO 27.65%
----------------------------- --------
Residential mortgage-backed
security 19.41%
----------------------------- --------
Balance Sheet CLO 2.53%
----------------------------- --------
Consumer ABS 3.36%
----------------------------- --------
Senior Loan 2.16%
----------------------------- --------
Whole Loan 1.63%
----------------------------- --------
Repo (5.07%)
----------------------------- --------
Cash, Hedges and
Accruals 23.23%
----------------------------- --------
Total 100.00%
----------------------------- --------
Portfolio Manager's Report (continued)
Portfolio breakdown (continued)
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The geographical breakdown of the underlying assets as of 30
September 2015 is as follows:
Country breakdown % NAV
------------------ -------
United Kingdom 25.18%
------------------ -------
Spain 15.43%
------------------ -------
Netherlands 7.59%
------------------ -------
Germany 4.76%
------------------ -------
Italy 3.65%
------------------ -------
Ireland 2.86%
------------------ -------
USA 2.78%
------------------ -------
France 2.72%
------------------ -------
Other Europe 7.11%
------------------ -------
Other 4.69%
------------------ -------
Cash & Collateral 23.23%
------------------ -------
Total 100.00%
------------------ -------
Monthly Activity of the Period
May: The NAV of Toro Limited was up 2% in May from the launch
NAV on the back of active trading. We reduced the ABS exposure in
the Fund, as we believed the seasonal technical weakness at the end
of the second calendar quarter to provide better entry points,
while prices on periphery ABS prices had yet to stabilise.
Additionally, we expected to allocate capital to new Private Asset
Backed Finance opportunities, especially CLO warehouses that
presented an attractive risk/reward in a leveraged loans market
characterised by limited supply.
June: Throughout the month, the combination of quarter-end and
the escalation of the Greek credit crisis translated into
dissipating liquidity and spread widening across the board.
Peripheral sectors suffered the most as some long duration senior
Portuguese and Spanish senior RMBS dropped by 4 to 6pts over the
month. The NAV of Toro Limited was flat in June (+0.15%
month-on-month) as trading gains offset portfolio markdowns. We
actively re-balanced Toro Limited's portfolio across the whole
spectrum, trading EUR130 million through 25 different securities.
We sold senior tranches of CDO of ABS and CBOs, core RMBS and CMBS
and opportunistically added on mezzanine tranches of CLO 1.0, Irish
RMBS, UK student loans ABS as well as selected tranches of CDO of
ABS sold from dealers' inventories at significant discounts to May
peak levels. The Fund also entered into a new CLO warehouse as we
believed leveraged loans should weather better a more volatile and
illiquid market environment. Leveraged loan secondary market
performance continued to be strong during most of June despite
Greece-induced volatility. New CLO/warehouse bid continued to
outweigh political concerns. The last day of the month, following
the announcement of a referendum in Greece, saw moderate falls
across the leveraged loans market of 50cts. Overall market
liquidity was reduced, although good trade execution was still
possible in smaller size. The wave of re-pricings was stopped in
its tracks, since the announcement of the Greek referendum, and
several large deals such as Douglas EUR1.2 billion TL had to flex
significantly wider to get done. Several other high-profile
repricing requests such as Constantia and Kinove were withdrawn in
the face of lender pushback.
July: While liquidity started to improve after the agreement on
Greek bailout deal, the second half of July is usually a period of
overall slowdown, so the baseline was very low. Due to this
combination of seasonal and political factors, there was very
limited trading activity. At EUR66 million, the July trading volume
was 37% of June level. The Company took part in two primary deals,
which together accounted for around 80% of value of purchases in
July. The first deal was a European CLO by an established US
manager, which came out at very attractive levels versus the
secondary. The second deal was a short-term warehouse for a
European CLO manager. The other purchases consisted of good quality
peripheral RMBS. To build up the cash position, the Fund also sold
some assets where the price did not soften. In addition, when
volatility dropped in second half of July, we added some
macroeconomic tail hedges to the portfolio.
Portfolio Manager's Report (continued)
Monthly Activity of the Period (continued)
August: In spite of this extraordinary price action, the
European ABS market remained muted as most participants had yet to
come back from holidays. Weakness was mainly visible on Iberic
senior periphery RMBS and lower mezzanine tranches of CLO where
prices were down 1 to 2pts in very little volume. The ECB had now
purchased EUR11bn through its ABS purchase programme and was said
to become more aggressive, sending OWICs in order to source paper
directly from end investors. Trading activity on our side was
primarily focused on the hedging positions that we initiated at the
end of July. While reducing our long ABS exposure we took profit on
Eurostoxx 50 and S&P 500 put options as volatility overshot.
Gains on hedges offset month-end mark-to-market adjustments,
translating into a positive performance for August NAV of
0.64%.
September: Fundamentals continued to improve across the board as
the European recovery maintained its pace in Q3 (September Markit
Eurozone PMI came out at 52) while inflation remained extremely
subdued (September EU HICP came out at 0.1%). Such improving macro
data carried on feeding through the European securitisation market
where September remittance reports painted a positive picture
across sectors and jurisdictions. Irish RMBS, Spanish RMBS and SME
CLOs as well as Italian Lease ABS continued to witness a sharp
reduction in arrears and default rates in Q3. We traded EUR33m of
ABS within Toro Ltd in September (9% turnover), rebalancing
actively the portfolio and taking advantage of current market
dislocation. We reduced our exposure to less liquid and high beta
sectors such as CDOs and CLO 2.0 that remained well bid in spite a
liquidity premium and/or of a heavy pipeline. We partially
redeployed capital into more liquid sectors that have been
negatively impacted by latest market developments while remaining
fundamentally strong e.g. UK non-conforming and Dutch RMBS as well
periphery RMBS. Gains on trading, hedging and carry offset
month-end markdowns (WA price of the portfolio was down 0.66% mom),
translating into a positive net performance for September of
0.28%.
In their proposal for a common Simple, Transparent and
Standardised ("STS") securitisation framework released on 30
September, the European Commission clarified the definition of an
"Originator" satisfying European risk retention rules. The official
statement was welcome by market participants as it confirms that
vehicles whose 'sole' purpose was securitisation would be excluded
thus, implicitly, approving ongoing, diversified and substantive
entities like Toro Limited (the "Company") that have a much broader
investment mandate than securitising assets.
Investment Objective and Policy
Under the investment objective and policy set out on page 4, the
Company will seek to invest in a diversified portfolio of exposures
to predominantly European based obligors. The Company's investment
strategies will be:
The Opportunistic Credit Strategy - the Company will
opportunistically invest or trade in primary and secondary market
Asset Backed Securities and other structured credit investments
including private asset backed finance investments.
The Originated Transactions Strategy - the Company will invest
in transactions on a buy-to-hold basis, via a variety of means,
including, without limitation, Warehouse Credit Facilities, which
can originate credits that may be refinanced in structured credit
markets as well as other financing opportunities.
Gearing
The Company may use borrowings from time to time for the purpose
of short term bridging, financing Share buy backs, repurchase
agreements with market counterparties or managing working capital
requirements, including hedging facilities. Cash borrowings can
contribute alongside other forms of leverage to increase the level
of gearing of the Company. The Company may also use gearing to
increase potential returns to Shareholders. In the past, the
Portfolio Manager has employed leverage against senior tranches of
ABS to enhance their returns, and expects it will continue to do
so, where the economic terms offered by counterparties can increase
potential returns to Shareholders.
Portfolio Manager's Report (continued)
Investment Outlook
At the end of September, Toro Limited held 65% in ABS (vs 72.8%
at the end of the second calendar quarter) and 16% (vs 11.7% at the
end of the second quarter) in the Private Asset Backed Finance
strategy. The cash position also increased during the period to
24%, enabling the Portfolio Manager to take advantage of wider
re-entry levels expected before the calendar year end. Indeed the
Portfolio Manager expects to re-deploy capital into liquid ABS
sectors that have widened significantly over the past quarter while
underlying performance remains strong (see recent activity). The
Portfolio Manager also expects to execute the first investment
related to the "Originator strategy" subject to market
conditions.
On 8 December 2015 the European Union ECOFIN meeting finalised
their proposed legislative drafts of STS Securitisation.
Negotiations with the European Parliament on the text will start
during Quarter 1 2016 and we can expect uncertainty to continue in
relation to the regulatory aspects of securitised deals until the
legislative position is finalised and the investor market has
consolidated their understanding of the changes.
Post Balance Sheet Events
Following the year end, the Company announced a dividend of 2.0
cent per Ordinary share for the Period from First Admission (8 May
2015) to 30 September 2015; exceeding the target minimum dividend.
The dividend was paid on 4 December 2015.
Additionally, on 22 January 2016 the Company announced a
dividend of 2.0 cent per Ordinary share for the Period from 1
October 2015 to 31 December 2015 which is due to be paid on 4 March
2016.
Chenavari Credit Partners LLP
Portfolio Manager
27 January 2016
Board of Directors
Directors
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The Directors are responsible for the determination of the
Company's investment objective and investment policy and have
overall responsibility for the Company's activities including the
review of investment activity and performance and the control and
supervision of the Portfolio Manager. All of the Directors are
non-executive and, except for Roberto Silvotti (as described
below), are independent of the Portfolio Manager.
The Directors meet at least quarterly.
The Directors are as follows:
Frederic Hervouet, non-executive Chairman (aged 42)
Frederic Hervouet has over 18 years experience in the financial
markets and asset management industry with a focus on multi-asset
class investment management, risk management, structured products
and structured finance. Mr. Hervouet holds a Master Degree (DESS
203) in Financial Markets, Commodity Markets and Risk Management
and an MSc in Applied Mathematics and International Finance from
University Paris Dauphine. Previously Mr. Hervouet worked for two
multibillion multi-strategy hedge funds specialising in
quantitative strategies, convertible arbitrage, derivatives and
emerging markets debt. Mr. Hervouet is an independent director of
Tetragon Financial Group Limited and Tetragon Financial Group
Master Fund Limited. Prior to this role, Mr. Hervouet was managing
director and head of commodity derivatives in Asia for BNP Paribas.
Mr. Hervouet, has been appointed as a director of Funding Circle
SME Income Fund Limited which was admitted to trading on the Main
Market of the London Stock Exchange on 30 November 2015.
John Whittle, non-executive director (aged 60)
John Whittle has significant experience of the loan market and
is a non-executive director of International Public Partnerships
Ltd (as audit committee chair), Starwood European Real Estate
Finance LTD (as audit committee chair), India Capital Growth Fund
Ltd, Globalworth Real Estate Investments Ltd (as audit committee
chair) and Advance Frontier Markets Fund Ltd and previously at
Aurora Russia Ltd. Mr. Whittle worked as a chartered accountant at
PriceWaterhouseCoopers and holds an IoD Diploma in Company
Direction. Prior to acting as a non-executive director, Mr. Whittle
was finance director at Close Fund Services, a large independent
fund administrator. He has also held positions at John Lewis and as
CFO of Windsmoor (London LSE).
Roberto Silvotti, non-independent non-executive director (aged
57)
Roberto Silvotti has over 20 years' experience in both academic
and senior credit market positions, and was formerly the Chief Risk
Officer of the Chenavari Financial Group. He started his career as
Professor of Mathematics in institutions such as Columbia
University (New York), The Institute for Advanced Study (Princeton,
New Jersey) and Scuola Normale Superiore (Pisa, Italy). Mr.
Silvotti then moved to the capital markets industry. Over the past
ten years, he has held senior positions in various investment
banks, including risk manager at Goldman Sachs, head of credit
derivatives risk management for Banca Intesa, global head of
structured credit trading at Calyon, global head of derivatives
structuring and new product development at Dresdner Kleinwort.
Prior to his role as Chief Risk Officer of the Chenavari Financial
Group he was co-head of structured credit and head of index
strategy at Royal Bank of Scotland. Mr Silvotti is a director of
Chenavari Multi-Strategy Credit Fund Limited, Chenavari Investment
Managers (Guernsey) Limited and Chenavari Investment Managers
(Luxembourg) Sàrl and, as such, is not considered independent of
the Portfolio Manager.
Disclosure of Directorships in Public Companies Listed on
Recognised Stock Exchanges
The following summarises the Directors' directorships in other
public companies:
Company Name Stock Exchange
Frederic Hervouet
Tetragon Financial Group
Limited Euronext
Funding Circle SME Income
Fund Limited LSE
John Whittle
International Public Partnerships
Ltd LSE
India Capital Growth Fund
Ltd AIM
Advance Frontier Markets
Fund Ltd AIM
Starwood European Real
Estate Finance Limited LSE
Global worth Real Estate
Investments Limited AIM
GLI Finance Ltd (as Alternate
Director) AIM
Robert Silvotti
None held N/A
Report of the Directors
The Directors are pleased to present their Annual Report and
Audited Financial Statements for the period from 2 March 2015 (date
of incorporation) to 30 September 2015. In the opinion of the
Directors, the Annual Report and Audited Financial Statements are
fair, balanced and understandable and provide the information
necessary for Shareholders to assess the Company's performance,
business model and strategy.
Incorporation
The Company is a closed-ended limited liability company
registered in Guernsey under the Companies (Guernsey) Law, 2008 (as
amended) with registered number 59940.
Results
The results for the period to 30 September 2015 are set out in
the Statement of Comprehensive Income on page 37. The profit for
the Period and total comprehensive income was EUR12.3 million.
Dividends
On 29 October 2015 the Company announced the payment of a
dividend of 2.0 cent per ordinary share for the Period, exceeding
the Company's target first dividend of at least 1.2 per cent. of
the Issue Price per Share as set out in the IPO prospectus.
The payment of any dividend by the Company is subject to the
satisfaction of a solvency test as required by the Companies
(Guernsey) Law, 2008 (as amended).
Share Capital
The Initial Public Offering of the Company raised gross issue
proceeds of EUR331.8 million (of which EUR184.8 million was
contributed by way of the in specie transfer from Toro Capital I)
resulting in 336.8 million shares being admitted to trading on the
Specialist Fund Market of the London Stock Exchange on 8 May 2015.
There were two additional placings made during the Period. A total
of 16,028,183 shares were issued on 17 July 2015 at a price of
102.2 cent per share resulting in consideration received of EUR16.4
million. The closing price per share on 17 July 2015 was 1.015
cent. A total of 8,600,000 shares were issued on 29 July 2015 at a
price of 102.2 cent per share resulting in consideration received
of EUR8.8 million. The closing price per share on 29 July 2015 was
1.015 cent. The shares were issued to new and existing investors.
Details of share movements during the Period are set out in Note 16
of the Financial Statements on page 64. At 30 September 2015, the
Company's issued share capital amounted to 361.45 million shares,
none of which were held in treasury. No shares were bought back
during the Period. The current authority to purchase shares for
cancellation expires on the date of the next Annual General Meeting
which will be held in Guernsey on 18 March 2016.
Discount control
The Company may, subject to compliance with the Companies Law
(Guernsey) 2008 (the "Law"), purchase its own Shares in the market
on an ad hoc basis with a view to addressing any imbalance between
the supply of, and demand for, the Shares, to increase the Net
Asset Value per Share and to assist in minimising any discount to
the Net Asset Value per Share in relation to the price at which
Shares may be trading. Once the Company is fully invested (taking
into consideration cash amounts required for working capital
purposes (including in particular a cash reserve for meeting any
required margin calls on derivative positions), or for the payment
of dividends in accordance with the Company's dividend policy and
for settling transactions contractually agreed), the Directors will
give consideration to using surplus cash to purchase Shares under
this authority, but are not bound to do so, where the market price
of a Share trades at more than 7.5% below the latest published Net
Asset Value per Share for more than 180 days. Surplus cash for
these purposes will comprise undistributed coupons and the proceeds
of normal portfolio realisations.
An ordinary resolution, expressed to take effect on Admission,
has been passed granting the Company authority to make market
purchases of up to 14.99% of the Shares in issue following
Admission. This authority is due to expire on the earlier of the
conclusion of the first annual general meeting of the Company and
eighteen months from the date of the passing of the resolution. The
Directors intend to seek annual renewal of this buyback authority
from Shareholders each year at the Company's annual general
meeting. If the Company purchases any of its Shares, the maximum
price (exclusive of expenses) which may be paid for a Share must
not be more than the higher of (i) 5 % above the average of the
mid-market values of a Share for the five Business Days before the
purchase is made, or (ii) the higher of the price of the last
independent trade and the highest current independent bid for the
Shares. In addition, Shares will be purchased through the market
only at prices below the last published Net Asset Value per Share,
which should have the effect of increasing the Net Asset Value per
Share for the remaining Shareholders. Any such purchase will be
carried out in accordance with the Companies Law, which provides
inter alia, that any buy-back is subject to the Company passing the
solvency test contained in the Companies Law at the relevant time.
The minimum price payable per Share is GBP0.01.
Report of the Directors (continued)
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Investors should note that the purchase of Shares by the Company
is entirely discretionary and no expectation or reliance should be
placed on the Directors exercising such discretion on any one or
more occasions. Investors should also note that any purchase or
redemption of Shares will be subject to the ability of the Company
to fund the purchase price or redemption amount. Purchases of
Shares may be made only in accordance with the Law, the Disclosure
and Transparency Rules. The Company is not required to comply with
the provisions of Chapter 12 of the Listing Rules regarding market
repurchases by the Company of its shares. Nonetheless, by adopting
the policy above, the Company will voluntarily be complying with
the provisions of Listing Rule 12.4.1 and 12.4.2.
The Law allows companies to hold shares acquired by way of
market purchase as treasury shares, rather than having to cancel
them. This would give the Company the ability to re-issue Shares
quickly and cost effectively, thereby improving liquidity and
providing the Company with additional flexibility in the management
of its capital base. No Shares will be sold from treasury for cash
at a price less than the Net Asset Value per Share at the time of
their sale without Shareholder approval. During the period when the
Company holds Shares as treasury shares, the rights and obligations
in respect of those Shares may not be exercised or enforced by or
against the Company. Pursuant to the Companies Law, the maximum
number of shares of any class that can be held as treasury shares
is 10 % of the total number of issued shares of that class at the
time.
Shareholder Information
The NAV will be calculated as of the last Business Day of each
month (or at any other times at the Board's discretion) by the
Sub-Administrator, based on third party valuations or information
supplied by bank counterparties (as applicable) or derived from
valuation models prepared by the Portfolio manager. The NAV and the
NAV per Share will be published in Euro by a RIS announcement and
on the website of the Company at www.torolimited.gg.
Portfolio Manager
The Board keeps the performance of the Portfolio Manager under
regular review, and the management engagement committee, comprising
all Directors, conduct an annual appraisal of the Portfolio
Manager's performance, and makes a recommendation to the Board
about the continuing appointment of the Portfolio Manager. The
Portfolio Manager has executed the investment strategy according to
the Board's expectations and it is the opinion of the Directors
that the continuing appointment of Chenavari Credit Partners LLP is
in the interests of shareholders as a whole.
The portfolio management fee payable to the Portfolio Manager is
paid monthly in arrears at a rate of 1% per annum of NAV, which is
based upon the month end NAV and calculated as of the last business
day of each month.
The Portfolio Manager shall be entitled to receive from the
Company a performance fee in respect of each Class of Shares as
detailed in note 4 of the Financial Statements.
Non-mainstream pooled investments
On 1 January 2014, FCA rules concerning the promotion of
non-mainstream pooled investments came into effect. The Board
conducts and intends to continue to conduct its affairs so that the
Company's shares will be "excluded securities" under the FCA's new
rules. This is on the basis that the Company which is resident
outside the EEA, would qualify for approval as an investment trust
by the Commissioners for HM Revenue and Customs if resident and
listed in the United Kingdom. Promotion of the Company's shares
will not be subject to the FCA's restriction on promotion of non-
mainstream pooled investments.
Report on Viability
The Directors have assessed the viability of the Company over
the three years to 30 September 2018. The Board have chosen this
timeframe as it reflects a reasonable investment horizon with
regards risks and uncertainty and the Board have reviewed a cash
flow forecast prepared by the Portfolio Manager consistent with
this time horizon. In making this assessment, the directors have
considered detailed information provided at Board meetings taking
account of the Company's balance sheet, gearing level, share price
discount, asset allocation, operating expenses, investment
strategy, the potential impact of the relevant principal risks
detailed in the Statement of Principal Risks and Uncertainties on
pages 23 and 24 and the expected future cash flows based on the
current portfolio. The assumptions herein are based on there being
no significant change in the global financial and or credit markets
over the three year period.
In making this assessment, the Directors had regard for the
expected yield from the portfolio and the significant margin over
the low cost base of the Company and it is the Board's opinion that
the Company would continue to hold sufficient cash to meet its
expenses given the low cost base of the company.
Based on the above, the Board confirms it has a reasonable
expectation that the company will be able to continue in operation
and meet its liabilities as they fall due over the three year
period of this assessment.
Report of the Directors (continued)
The aforementioned principal risks, set out on pages 23 and 24,
will continue to be monitored closely.
Going Concern
Going concern refers to the assumption that the Company has the
resources to continue in operation for the foreseeable future.
After analysing the following, the Directors believe that it is
appropriate to adopt the going concern basis in preparing the
financial statements:
1. Working capital - As at 30 September 2015, there was working
capital of approximately EUR77 million. The Directors noted that as
at 30 September 2015 (i) the gross investment income for the year
ended 30 September 2015 was approximately EUR16.4 million and (ii)
the Company had borrowings of EUR18.5 million on a repurchase
agreement. As such the board believes the Company has sufficient
capital to cover all expenses (which mainly consist of Management
fees, Performance fees, Administration fees and Professional fees)
and to meet all of its obligations as they fall due.
2. Closed-ended Company - The Company has been registered with
the Guernsey Financial Services Commission as a Registered
Closed-ended Collective Investment Scheme, as such there cannot be
any shareholder requested redemptions, and therefore no cash flows
out of the Company in this respect. There does exist the
possibility of share buybacks.
3. Investments - The Company has a tradeable portfolio,
therefore the investments can be sold for cash in most market
conditions. At 30 September 2015 the market value of level 1 and 2
securities was EUR159.5 million and the Company has cash balances
of EUR39.3 million adjusting for repurchase agreements. Part of the
portfolio is less liquid, consisting of level 3 assets, under
certain market circumstances already seen in the past, most of the
portfolio which consists of Asset Backed Securities can become less
liquid and the cost of unwinding may become significant. This risk
is mitigated by the closed-ended nature of the Company.
Based on the above assessments, the Directors are of the opinion
that the Company is able to meet its liabilities as they fall due
for payment because it has and is expected to maintain, adequate
cash resources. Given the nature of the Company's business, the
Directors have a reasonable expectation that the Company has
adequate financial resources to continue in operational existence
for the foreseeable future. Accordingly, the financial statements
have been prepared on a going concern basis.
AIFMD
Under European Law the Company is considered to be an
Alternative Investment Fund ("AIF") under the Alternative
Investment Fund Managers Directive ("AIFMD") and has appointed
Carne Global AIFM Solutions (C.I.) Limited as the Company's
external AIFM.
The Company currently intends to operate as an externally
managed non-EEA domiciled AIF with a non-EEA AIFM for the purposes
of the AIFM Directive and as such neither it nor the AIFM will be
required to seek authorisation under the AIFM Directive. However,
following national transposition of the AIFM Directive in a given
EU member state, the marketing of shares in non-EEA AIFs with a
non-EEA AIFM (such as the AIFM) to investors in that EU member
state is prohibited unless certain conditions are met. The AIFM
filed a notification on 9 April 2015 with the FCA pursuant to
Article 42 of the AIFM Directive to market the Shares in the UK
under the UK national private placement regime.
FATCA
The Foreign Account Tax Compliance Act (FATCA) was introduced by
the US in 2010 to identify and report on US citizens, corporates
and trusts who held financial assets - whether US source or not -
with financial institutions in other jurisdictions. The intention
being to reduce tax evasion by ensuring such assets and the related
income were being declared on US tax returns.
The Model I Intergovernmental Agreement (IGA) was developed to
overcome the legal issues and practical barriers to implementing
'US FATCA' in many jurisdictions and to reduce some of the burden
on financial institutions. The first reporting deadline for
financial institutions to file their report with the local tax
authorities detailing US 'Specified Persons' was during the second
quarter of 2015, which was to be in turn reported to the IRS by 30
September 2015. On 13 December 2013 Guernsey entered into a Model 1
IGA with the US.
The UK adopted a similar approach and developed "UK FATCA" IGAs
for reporting equivalent information on UK Specified Persons'
accounts held by financial institutions in its Crown Dependencies
and Overseas Territories (CDOTs). The first reporting date for UK
'Specified Persons' to be reported to the tax authorities is June
2016, which will then in turn be reported to the HMRC.
The Company has registered under the U.S. Foreign Account Tax
Compliance Act ("FATCA") and has received a GIIN which is
SHB2T2.99999.SL.831.
Report of the Directors (continued)
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Common Reporting Standard 'CRS'
The Common Reporting Standard (CRS) is a global tax information
sharing initiative promoted by the O.E.C.D., similar to FATCA, came
into force on 1 January 2016. Approximately 60 'Early Adopter' (EA)
countries have signed up to comply with CRS from 1 January 2016
with a further 40 countries in agreement to comply from 1 January
2017. The requirements of CRS are fairly closely aligned to
requirements under a FATCA Model 1 Intergovernmental agreement.
Specialist Fund Market 'SFM'
Whilst there are exemptions to reporting interests (holdings)
that are 'regularly traded on an established securities market' the
UK FATCA and US FATCA rules and supporting guidance interpret this
phrase differently and have tests to help establish adherence. The
end result is that if the definition cannot be met - and the US IGA
specifically suspends it for Investment Entities - some holdings
will instead require the application of FATCA due diligence and
subsequent reporting of holders. Helpfully some holding types can
be treated as excluded accounts for reporting purposes (e.g. the
UK's HMRC now excludes CREST holdings), and there is more to be
announced. CRS similarly adds further differences and thus
complications.
Significant Shareholdings
The Company has received the following notifications of major
interests in Ordinary Shares:
Notification received from Number Percentage
of shares of share capital
----------------------------------- ------------ ------------------
Chenavari European Opportunistic
Credit Master Fund LP, Loic Fery 114,840,871 31.8%
----------------------------------- ------------ ------------------
The Concert Party
Capitalised terms used in the following paragraphs have the
meaning ascribed to them in the Prospectus.
Pursuant to the Liquidation Scheme and the terms of the Transfer
Agreement, details of which were set out in the Prospectus, upon
First Admission, the Company acquired the Seed Assets in exchange
for the issue of Roll-over Shares by the Company to the Assenting
Toro Capital Shareholders (as instructed by the liquidator of Toro
Capital I). Each of Loic Fery, Frederic Couderc, Benoit Pellegrini
and Mick Vasilache (or nominees on their behalf) were Assenting
Toro Capital Shareholders and received Roll-over Shares. Each of
Loic Fery, Frederic Couderc, Benoit Pellegrini and Mick Vasilache
(the "Relevant Chenavari Partners") are members of Chenavari Credit
Partners LLP and for the purposes of the Takeover Code are treated
as acting in concert with Chenavari Credit Partners LLP.
In addition, Chenavari Credit Partners LLP, acts as
discretionary portfolio manager for the managed account, Chenavari
European Opportunistic Credit Fund Ltd (the "Managed Account"). The
Managed Account acquired Ordinary Shares in the Company.
For the purposes of the Takeover Code, Chenavari Credit Partners
LLP are treated as being interested in the Shares held by the
Managed Account. Together the Relevant Chenavari Partners,
Chenavari Credit Partners LLP, the Managed Account and certain
other individuals (including Roberto Silvotti) connected with, and
group companies of, the Chenavari Financial Group who are together
deemed to be acting in concert for the purposes of the Takeover
Code shall be referred to as the "Concert Party".
The Concert Party is interested in approximately 43% of the
aggregate number of voting Shares in the Company. Any acquisitions
of additional interests in Shares by or on behalf of a member of
the Concert Party would trigger a mandatory offer under Rule 9 of
the Takeover Code.
The Panel confirmed that for the period from First Admission to
the first annual general meeting of the Company, no member of the
Concert Party will be required to make an offer for the Company's
remaining issued Shares pursuant to Rule 9 as a consequence of an
increase in the percentage of total voting rights attributable to
Shares in which the Concert Party is interested as a result of the
Company repurchasing Shares in accordance with its discount
management policy as described in this Part I of this
prospectus.
The Directors intend to propose a resolution at the first and
subsequent annual general meetings of the Company for approval by
independent Shareholders to enable the Company to continue
following the relevant annual general meeting to purchase its own
Shares in the market in accordance with its discount management
policy, and to issue Shares to the Portfolio Manager under the
terms of the performance fee arrangements, without any member of
the Concert Party incurring a Rule 9 mandatory bid obligation (the
"Whitewash Resolution"). Further details of the Whitewash
Resolution will be set out in a circular sent to Shareholders
convening the Company's annual general meeting.
Report of the Directors (continued)
Shareholders' and potential investors' attention is drawn to the
possibility that the Concert Party could, by the operation of the
discount management policy, come to hold Shares carrying more than
50 per cent. of the voting rights of the Company. In this event,
members of the Concert Party will be able to acquire interests in
further Shares without incurring any further obligation under Rule
9 to make a general offer, although individual members of the
Concert Party will not be able to increase their percentage
interests in Shares through or between a Rule 9 threshold without
Panel consent.
Directors
The Directors of the Company during the Period and at the date
of this Report are set out on page 6.
Directors' and Other Interests
The Directors' holdings and interests in the Company are listed
in note 4 on page 51.
Mr Silvotti, by virtue of his directorships of entities within
the Portfolio Manager's group, previous roles with the Portfolio
Manager and other funds managed within the Chenavari Group is not
considered independent of the Portfolio Manager.
Retirement by Rotation
Under the terms of their appointment, each Director is required
to retire by rotation and be subject to re-election at least every
three years. The Directors are required to seek re-election if they
have already served for more than nine years. The Company may
terminate the appointment of a Director immediately on serving
written notice and no compensation is payable upon termination of
office as a director of the Company becoming effective.
Disclosure of Information to the Auditor
The Directors who held office at the date of approval of these
Financial Statements confirm that, so far as they are each aware,
there is no relevant audit information of which the Company's
auditor is unaware; and each Director has taken all the steps that
they ought to have taken as a Director to make themselves aware of
any relevant audit information and to establish that the Company's
auditor is aware of that information.
Independent Auditor
Deloitte LLP ("Deloitte") was appointed as the Company's Auditor
for the 2015 audit following a competitive tender process during
2015.
A resolution for the reappointment of Deloitte will be proposed
at the next Annual General Meeting.
Signed on behalf of the Board of Directors by:
Frederic Hervouet, Chairman
John Whittle, Director
27 January 2016
Corporate Governance Report
The Company is admitted to trading on the Specialist Fund Market
of the London Stock Exchange ("SFM") and as such, the Listing Rules
applicable to closed-ended investment companies which are listed on
the premium listing segment of the Official List of the UKLA do not
apply to the Company.
Whilst the Company is subject to the Disclosure and Transparency
Rules of the Financial Conduct Authority ("DTRs") while traded on
the SFM, the Directors have resolved that, as a matter of good
corporate governance, the Company will also voluntarily comply with
certain provisions of the Listing Rules, including the relevant
provisions of Chapter 9 regarding corporate governance and
continuing obligations.
The Directors recognise the value of the UK Corporate Governance
Code (the "UK Code") and have taken appropriate measures to ensure
that the Company complies with the UK Code. The UK Code is
publically available at
www.frc.org.uk/Our-Work/Codes-Standards/Corporate-governance.aspx.
Compliance with the UK Code
Pursuant to the listing rules of the UKLA, the Company is
required to provide shareholders with a statement on how the main
and supporting principles set out in the UK Code have been applied
and whether the Company has complied with the provisions of the UK
Code. The Board recognises the importance of a strong corporate
governance culture and has established a framework for corporate
governance which it considers to be appropriate to the business of
the Company. The Board has reviewed the principles and
recommendations of the UK Code and considers that the Company has
complied throughout the Period, except as disclosed below:
Section A-C: The Company does not have a Deputy Chairman,
Executive Directors or a Chief Executive Officer. Accordingly,
provisions of the UK Code relating to the Deputy Chairman,
Executive Directors and Chief Executive Officer do not apply to the
Company.
Explanation: As the UK Code itself states, investment companies
typically have a Board structure that differs from those of other
companies and this affects the relevance of particular provisions
of the UK Code. Due to the nature of the Company's business and the
structure of its relationships with its Administrator,
Sub-Administrator, AIFM, Custodian and Portfolio Manager, the
Directors do not believe it would be at present cost-effective or
advisable to have full-time Executive Directors.
Section A4.1: The Company has not appointed one of the
independent non-executive directors to be the senior independent
director.
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Explanation: An independent senior director has not been
identified and such a role is not considered necessary because the
Company has adopted a policy that the composition of the Board of
Directors, which is required by the Company's Articles to comprise
of at least two persons, is at all times such that a majority of
the Directors are independent of the Portfolio Manager and any
company in the same group as the Portfolio Manager; the Chairman of
the Board of Directors is free from any conflicts of interest and
is independent of the Portfolio Manager and of any company in the
same group as the Portfolio Manager; and that no partner, employee
or professional adviser to the Portfolio Manager or any company in
the same group as the Portfolio Manager may be a Director of the
Company at any time.
Section B2.1: The Company has not established a nomination
committee to lead the process for board appointments and make
recommendations to the Board.
Explanation: The appointment of new directors forms part of the
schedule of matters reserved for the Board and the Board considers
that the process for board appointments to be the Board's
responsibility in accordance with the principles set out in the UK
Code.
Section B2.3: Non-executive directors should be appointed for
specified terms subject to re-election and to statutory provisions
relating to the removal of a director.
Explanation: All newly appointed Directors shall stand for
election by the shareholders at the next Annual General Meeting
following their appointment. The Directors shall retire by rotation
every three years and, if appropriate, offer themselves for
re-election in accordance with UKLA Listing Rules LR 15.4.7 and
15.2.13A, with which the Company voluntarily complies. Mr Silvotti
is subject to annual re-election as he is not considered to be
independent due to his current appointment to the Boards of other
Company's in the Group of the Investment Manager and previous
appointment as CRO of the Investment Manager. Directors who have
served on the Board for more than nine years are subject to annual
re-election. The names of Directors submitted for appointment or
reappointment shall be accompanied by sufficient biographical
details to enable shareholders to make an informed decision.
Corporate Governance Report (continued)
Section C3.1: The Board should establish an Audit Committee of
at least three, or in the case of smaller companies two,
independent non-executive directors.
Explanation: The Company's Audit Committee comprises all members
of Board, however Mr Silvotti, by virtue of his directorship and
previous roles with the Portfolio Manager and other funds managed
within the Chenavari Group, is not considered independent of the
Advisers. Given Mr Silvotti's extensive investment experience, the
independent members of the Audit Committee are of the opinion that
shareholder interests are best served through Mr Silvotti's
membership of the Audit Committee. Per the Code, for small
companies the Company Chairman may be a member but not the Chair of
the Audit Committee.
Section C3.5: The audit committee should review arrangements by
which staff of the Company may, in confidence, raise concerns about
possible improprieties in matters of financial reporting or other
matters. The audit committee's objective should be to ensure that
arrangements are in place for the proportionate and independent
investigation of such matters and for appropriate follow-up
action.
Explanation: Given the Directors are non-executive and the
Company does not have employees, there is no whistle-blowing policy
and the Company relies on the Company Secretary and other
third-party service providers to address any concerns raised.
Section C3.6: The Company does not have an internal audit
function.
Explanation: The Directors believe that this requirement of the
UK Code was intended for companies with internal accounting
departments. The Company has no employees and relies on its
Administrator and Sub-Administrator for assistance in drawing up
its accounts and reports to Shareholders.
Section D.1: The Board has not established a remuneration
committee to consider executive directors remuneration to promote
the long-term success of the Company.
Explanation: In view of its non-executive nature, the Board
considers that it is not appropriate for there to be a separate
remuneration and nominee committee. The Board of Directors make all
representations regarding Directors' remuneration. The Board as a
whole fulfils the functions of the remuneration committee, and a
separate Directors' Remuneration Report is set out on page 29 of
these Financial Statements.
Further details of compliance with the UK Code are noted in the
succeeding pages. There have been no instances of non-compliance,
other than those noted above and the Company has therefore not
reported further in respect of these provisions.
The Guernsey Financial Services Commission issued a Finance
Sector Code of Corporate Governance (the "GFSC Code") which came
into effect on 1 January 2012. As the Company voluntarily reports
by reference to the UK Code, it is deemed also to meet the
requirements of the GFSC Code.
Composition and Independence of the Board
The Board currently consists of three non-executive Directors.
Biographies for all the Directors can be found on page 12. Mr
Hervouet and Mr Whittle are considered independent of the Advisers
for the purposes of the Company's compliance with the UK Code.
However Mr Silvotti, by virtue of his directorship and previous
roles with the Portfolio Manager and other funds managed within the
Chenavari Group is not considered independent of the Advisers and
therefore will be re-elected annually at the AGM.
The Chairman of the Board is Frederic Hervouet and, in this
function, is responsible for the leadership of the Board and
ensuring its effectiveness on all aspects of its role. In
considering the independence of the Chairman, the Board has taken
note of the criteria set out in B.1.1 of the UK Code relating to
independence, and has determined that Mr Hervouet is an Independent
Director.
The Company has no employees and therefore there is no
requirement for a chief executive. The Board is responsible for the
appointment and monitoring of all service providers to the Company.
Between formal meetings there is regular contact with the Portfolio
Manager and the Corporate Broker. 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 also have
access to the Company Secretary and, where necessary in the
furtherance of their duties, to independent professional advice at
the expense of the Company.
Corporate Governance Report (continued)
The Board holds quarterly Board meetings, the Audit Committee
meets at least three times a year and the Management Engagement
Committee meets at least annually. In addition, ad hoc meetings of
the Board to review specific items between the regular scheduled
quarterly meetings can be arranged.
Attendance at the Board, Audit Committee and Management
Engagement Committee meetings from 2 March 2015 (date of
incorporation) to 30 September 2015 was as follows:
Director Board meetings Audit Committee Management Engagement
* meetings Committee meetings
------------------- ----------------- ------------------ ------------------------
Held Attended Held Attended Held Attended
------------------- ------ --------- ------ ---------- -------- --------------
Frederic Hervouet 12 12 1 1 1 1
------------------- ------ --------- ------ ---------- -------- --------------
John Whittle 12 10 1 1 1 1
------------------- ------ --------- ------ ---------- -------- --------------
Roberto Silvotti 12 11 1 1 1 1
------------------- ------ --------- ------ ---------- -------- --------------
*Prior to the appointment of the Board, Melanie Torode and
Serena Tremlett attended two Board meetings in their interim
capacity as Non-executive Directors.
At the Board meetings the Directors review the management of the
Company's assets and all other significant matters so as to ensure
that the Directors maintain overall control and supervision of the
Company's affairs. Agendas and Board papers are circulated in
advance of meetings to assist members to discharge their duties
appropriately. The Company maintains a formal schedule of matters
reserved for the Board.
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.
The Board has reviewed its composition and believes that the
current appointments provide an appropriate range of skills,
experience and diversity. In order to maintain its diversity, the
Board is committed to continuing to review its current
composition.
Audit Committee
An Audit Committee has been established and is chaired by John
Whittle and also has Frederic Hervouet as a member. Roberto
Silvotti is a regular attendee at Audit Committee meetings. The
Audit Committee's primary function is to assist the Board in
fulfilling its oversight responsibilities and under the Terms of
Reference its main duties include financial reporting, risk
management systems, compliance, whistle blowing and fraud. It will
review the scope, results, cost effectiveness, independence and
objectivity of the external auditor. Further details on the Audit
Committee can be found in the Audit Committee Report on page
25.
Management Engagement Committee
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The Board has established a Management Engagement Committee with
formal duties and responsibilities. The Management Engagement
Committee commits to meeting at least once a year and comprises the
entire Board with John Whittle appointed as Chairman. Its principal
duty is to consider the terms of appointment of the Portfolio
Manager and it will annually review that appointment and the terms
of the Portfolio Management Agreement. Its duties and
responsibilities also extend to the regular review of the
performance of and contractual arrangements with other service
providers.
The Management Engagement Committee carried out its first review
of the performance and capabilities of the Portfolio Manager at its
meeting on 21 October 2015 to confirm that the continued
appointment of Chenavari Credit Partners LLP as Portfolio Manager
is deemed to be in the interest of shareholders. At the same
meeting, the Management Engagement Committee concluded that the
Company's other service providers were performing in accordance
with the Company's expectations and contractual arrangements in
place.
Board Performance
The Management Engagement Committee formally evaluated the
Board's effectiveness on 21 October 2015 by considering the balance
of skills, experience, independence and knowledge of the Company on
the Board, its diversity, how the Board works together as a unit,
the allocation of sufficient time to the Company as well as other
factors relevant to its effectiveness. The Management Engagement
Committee found the performance of the Chairman, individual
directors and the Board as a whole over the review period to be as
expected.
Corporate Governance Report (continued)
Investor Relations
Shareholders are able to contact the Company through Chenavari
investor relations (e-mail address TLIR@chenavari.com) or by
correspondence sent to the Company Secretary or Corporate Broker.
As a consequence, the Board receives appropriate updates from the
Company Secretary, Portfolio Manager or Corporate Broker relative
to such correspondence to keep it informed of Shareholders'
sentiment or analyst views.
The Company also publishes a monthly factsheet on its website
www.torolimited.gg, which include updates on markets and the
Company's performance.
Statement of Principal Risks and Uncertainties
Summary
An investment in the Shares is only suitable for institutional
investors and professionally advised private investors who
understand and are capable of evaluating the merits and risks of
such an investment and who have sufficient resources to be able to
bear any losses (which may equal the whole amount invested) that
may result from such an investment. Furthermore, an investment in
the Shares should constitute part of a diversified investment
portfolio. It should be remembered that the price of securities and
the income from them can go down as well as up.
The risks set out below are those which are considered to be the
material risks relating to an investment in the Shares but are not
the only risks relating to the Shares or the Company. Additional
risks and uncertainties of which the Company is presently unaware
or that the Company currently believes are immaterial may also
adversely affect its business, financial condition, results of
operations or the value of the Shares. The Directors have
undertaken a robust assessment of the principal risks facing the
Company and have undertaken a detailed review of the effectiveness
of the risk management and internal control systems. Given the
Company's short first financial period to 30 September 2015, the
Directors are comfortable that the risks are being appropriately
monitored however the documentation to support these processes is
still undergoing formalisation.
Risk Explanation/Mitigant
----------------------- --------------------------------------------------
Collateral Investment Instruments purchased by the
risk (default, Company are linked to the credit performance
recovery, prepayment) of the underlying Collateral. This means
that defaults or credit losses in the
Collateral may adversely impact the performance
of the company, the NAV and the value
of the Shares.
The Portfolio Manager conducts detailed
fundamental, statistical and scenario
analyses. Where it is considered desirable,
the Company may enter into hedging transactions
designed to protect against or mitigate
the consequences of single reference
obligations defaulting and/or more generalised
credit events. Alongside the fundamental
credit analysis, the structural features
of the transaction are also assessed.
This includes a review of the payment
waterfall, the subordination of the proposed
Investment Instrument, the extent of
the reserve fund, the amortisation profile
and extension risk.
Where it is considered desirable, the
Company may enter into hedging transactions
designed to protect against or mitigate
the consequences of single reference
obligations defaulting and/or more generalised
credit events.
----------------------- --------------------------------------------------
Replenishment The terms of an investment may permit
risk (quality the relevant counterparty to alter the
of new reference composition of
assets) the collateral. The Portfolio Manager
will seek to ensure that the investment
documents clearly define eligible replacement
assets to mitigate the risk of inferior
quality assets being added. In certain
cases, and to the extent possible in
respect of primary investments, the Portfolio
Manager may negotiate veto rights for
investors on new names being added to
the collateral pool.
----------------------- --------------------------------------------------
Bank counterparty Investments may expose the Company to
risk a bank counterparty's credit risk. The
terms of such investments will generally
include credit rating triggers such that
the investment is terminated or accelerated,
or other credit support features are
activated, if a bank counterparty's credit
ratings decline by more than a predetermined
threshold. The Company may also enter
credit default swaps referenced to a
bank counterparty to protect against
a bank counterparty's default.
----------------------- --------------------------------------------------
Currency risk Where investments are undertaken in currencies
other than Euro, the Company may also
enter into currency hedging transactions.
----------------------- --------------------------------------------------
Call risk Investments may have call features which,
if activated, would result in re-investment
risks for the Company. This is mitigated
by restricting the situations where an
investment can be terminated and/or by
requiring that premiums be payable to
investors when an investment is called
----------------------- --------------------------------------------------
Interest rate Investments are generally floating rate
risk investments. In situations where this
is not the case, the Company may also
(but is not obliged to) enter into interest
hedging transactions.
----------------------- --------------------------------------------------
Valuation and Investments are valued in accordance
classification with the Company's Valuation Policy which
of financial is compiled with reference to key principles
assets at fair comprising; independence, documentation,
value through transparency, consistency and relevance
profit or loss and documents the pricing process and
risk timeline, with particular reference to
difficult to value securities, and sets
out escalation procedures.
The Board has established a committee
to review the valuation of illiquid Investment
Instruments, particularly where a valuation
is provided by a single counterparty
or where the Portfolio Manager's risk
officer recommends a more conservative
valuation than that provided by a counterparty.
The Board requested the Audit Committee
to further consider this risk with work
undertaken by the Audit Committee discussed
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on page 25. As a result of the work undertaken
by the Audit Committee, the Board is
satisfied that the valuation of financial
assets at fair value through profit or
loss was correctly stated in the Financial
Statements.
----------------------- --------------------------------------------------
Portfolio Manager The Company is dependent on the expertise
risks of the Portfolio Manager and their respective
key personnel to evaluate investment
opportunities and to implement the Company's
investment objective and investment policy.
The Board has instructed the Portfolio
Manager to conduct the Company's investment
related activities in compliance with
the applicable law, the Company's investment
objectives and guidelines and the Company's
contractual obligations.
The Management Engagement Committee carried
out its first review of the performance
and capabilities of the Portfolio Manager
at its meeting on 21 October 2015 and
confirmed that the continued appointment
of the Portfolio Manager is deemed to
be in the interest of shareholders.
There can be no assurance that the Portfolio
Manager's past performance will be any
guide to future performance or results.
----------------------- --------------------------------------------------
Tax, legal Changes in the Company's tax status or
and regulatory tax treatment may adversely affect the
risks Company, and if the Company becomes subject
to the UK offshore fund rules there may
be adverse tax consequences for certain
UK resident Shareholders.
The Company expects that US taxpayers
generally would be subject to adverse
US tax consequences in respect of their
investment in the Shares under US tax
rules applicable to passive foreign investment
companies ("PFIC"). Accordingly, the
acquisition of Shares may not be a suitable
investment for U.S. Holders (other than
U.S. Holders that are tax-exempt organisations).
U.S. Holders should consult their tax
advisers regarding the application of
the PFIC rules to an investment in Shares.
On 13 December 2013, the States of Guernsey
entered into an IGA with the US Treasury
in order to facilitate the requirements
under US FATCA and has also entered into
an IGA with the UK in order to comply
with the UK's requirements for enhanced
reporting of tax information in accordance
with FATCA principles. Non-compliance
with FATCA could potentially expose the
Company to a US withholding tax on all
proceeds from its US investments at the
rate of 30%. The Company has registered
for its Global Intermediary Identification
Number ("GIIN") with the Inland Revenue
Service ("IRS") and the Board is monitoring
developments with the assistance of its
professional advisers.
The Administrator, Sub-Administrator,
Broker and Portfolio Manager provide
regular updates to the Board on compliance
with the Admission document and changes
in regulation.
----------------------- --------------------------------------------------
Operational The Company is exposed to the risk arising
risks from any failures of systems and controls
in the operations of the Portfolio Manager,
Administrator, the Sub-Administrator
and the Custodian. The Board and its
Audit Committee regularly review reports
from the Portfolio Manager and the Administrator
on their internal controls.
----------------------- --------------------------------------------------
Audit Committee Report
I am pleased to report to you on the activities of the Audit
Committee for the period from 2 March (date of incorporation) to 30
September 2015.
The Board has established terms of reference in respect of the
membership of the Audit Committee, its duties, reporting
responsibilities, and authority given to its members (the "Terms of
Reference").
The Audit Committee is supportive of the latest UK Code
recommendations and is of the opinion that the revised UK Code
allows it to act as a key independent oversight committee
contributing to a climate of discipline and control.
Terms of Reference
The Audit Committee's primary function is to assist the Board in
fulfilling its oversight responsibilities and, under the Terms of
Reference, its main duties include:
Financial Reporting
-- monitoring the integrity of the financial statements of the
Company, including its annual and half-yearly reports and any other
formal announcement relating to its financial performance,
reviewing significant financial reporting issues and judgments
which they contain.
Risk Management Systems
-- review the adequacy and effectiveness of the Company's risk
management systems and review and approve the statements to be
included in the annual report concerning risk management.
Compliance, Whistle blowing and Fraud
-- review the adequacy and security of the Company's
arrangements to raise concerns, if any, about possible wrongdoing
in financial reporting or other matters;
-- reviewing the Company's procedures for detecting fraud;
-- reviewing the Company's systems and controls for the
prevention of bribery and receive reports on non-compliance;
-- reviewing the adequacy and effectiveness of the Company's
anti-money laundering systems and controls; and
-- reviewing the adequacy and effectiveness of the Company's compliance function.
External audit
-- overseeing the relationship with the external auditor
including making recommendations of remuneration, terms of
engagement, assessing independence and objectivity, compliance with
relevant ethical and professional guidance on the rotation of audit
partners, the level of fees paid by the Company, assessing
qualifications, expertise and resources and the effectiveness of
the audit process.
In regard to the above duties, I confirm, on behalf of the Audit
Committee, that, to the best of our knowledge and belief, we have
fulfilled our 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 the
preparation of the financial statements, have been outsourced to
various service providers. Morgan Sharpe Administration Limited
have been appointed as Administrator and Company Secretary,
Quintillion Limited as Sub-Administrator, Chenavari Credit Partners
LLP as Portfolio Manager, Carne Global AIFM Solutions (C.I.)
Limited as AIFM, JPMorgan Chase Bank National Association as
Custodian and Principal Bankers and Capita Registrars (Guernsey)
Limited as Registrar (together the "Outsourced Service Providers").
Please see note 5 for further details in relation to these service
providers.
Membership of the Committee
The Audit Committee was established on incorporation and
consists of Frederic Hervouet, Roberto Silvotti and myself, John
Whittle, as its Chairman. All the members of the Audit Committee
are non-executive directors. Mr Hervouet and I are considered
independent of the Advisers for the purposes of the Company's
compliance with the UK Code however Mr Silvotti, by virtue of his
directorship and previous roles with the Portfolio Manager and
other funds managed within the Chenavari Group is not considered
independent of the Advisers. The Audit Committee has concluded that
its membership meets the requirements of C.3.1 of the UK Code. Each
Audit Committee member is expected to be financially literate and
to have knowledge of the following key areas:
-- financial reporting principles and accounting standards;
-- the regulatory framework within which the Company operates;
-- the Company's internal control and risk management environment; and
-- factors impacting the Company's Financial Statements.
Audit Committee Report (continued)
As an Audit Committee we will meet at least three times a year.
In this first, five month period, the Audit Committee has met once.
Personnel from the Company's Outsourced Service Providers along
with representatives of the Company's external auditor, Deloitte
LLP ("Deloitte"), attend Audit Committee meetings when
appropriate.
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In his role as a member of the Audit Committee, each member is
available to discuss any particular matter with his fellow Board
members and in addition the Audit Committee has the opportunity to
meet with Deloitte without the presence of Outsourced Service
Providers. In order to ensure that all Directors are kept up to
date and informed of the Audit Committee's work, I provide a verbal
report to the Board at Board meetings on key matters discussed at
the Audit Committee meetings. In addition, the minutes of all Audit
Committee meetings are available to the Board.
How the Audit Committee has Discharged its Responsibilities
In the period under review, the Audit Committee has met one
time, attendance at which is set out on page 21. The Audit
Committee meetings focused on the following key areas:
Monitoring the integrity of the financial statements including
significant judgments
-- We reviewed the appropriateness of the Company's significant
accounting policies, critical accounting judgments and key sources
of uncertainty and monitored changes to, and compliance with,
accounting standards on an ongoing basis.
-- Prior to making any recommendations to the Board, we reviewed
the Annual Report and Audited Financial Statements for the period
from 2 March 2015 (date of incorporation) to 30 September 2015 (the
"Annual Report"). We compared the results with management accounts,
budgets and monthly net asset values, focusing on the significant
accounting matters set out below.
-- In undertaking this review, we discussed with the
Administrator, Sub-Administrator and Deloitte the critical
accounting policies and judgments that have been applied and at the
request of the Audit Committee, the Administrator and
Sub-Administrator confirmed that they were not aware of any
material misstatements including matters relating to the Annual
Report presentation. Deloitte also reported to the Audit Committee
on any misstatements that they had found during the course of their
work and confirmed no material amounts remained unadjusted.
-- At its meeting to review the Annual Report, the Audit
Committee received and reviewed a report on the audit from
Deloitte. On the basis of its review of the report, the Audit
Committee is satisfied Deloitte has fulfilled its responsibilities
with diligence and professional scepticism.
-- The Audit Committee is satisfied that the Annual Report
appropriately addresses the critical judgments and key estimates
(both in respect to the amounts reported and the disclosures) and
that the significant assumptions used for determining the value of
assets and liabilities determined were in compliance with
International Financial Reporting Standards ("IFRS") and were
reasonable.
-- The Audit Committee is therefore satisfied that the Annual
Report, taken as a whole, is fair, balanced and understandable and
provides the information necessary for Shareholders to assess the
Company's performance, business model and strategy.
Significant Accounting Matters
During the Period the Audit Committee considered key accounting
issues, matters and judgments regarding the Company's financial
statements and disclosures including those relating to:
Valuation and Classification of Financial Assets at Fair Value
through Profit or Loss
At 30 September 2015, the Company's investments had a fair value
of EUR301.5 million and represented a substantial portion of net
assets of the Company. As such this is the largest factor in
relation to the accuracy of the financial statements and is
monitored by the Portfolio Manager, the Administrator, the
Sub-Administrator, the Custodian, the Audit Committee, the AIFM and
the Board.
Investments are valued in accordance the Company's Valuation
Policy and with the Accounting Policies set out in note 2.2 to the
Financial Statements. The Valuation Policy is compiled with
reference to key principles comprising; independence,
documentation, transparency, consistency and relevance and
documents the pricing process and timeline, with particular
reference to difficult to value securities, and sets out escalation
procedures.
Audit Committee Report (continued)
The Audit Committee required the Portfolio Manager to provide
detailed analysis of the broker quotes obtained for investments,
including the liquidity, the number of quotes received, and the
range of quotes. For primary transactions, the Portfolio Manager's
own analysis of the fair value of the deal was compared to the
quotes obtained and where pricing was obtained from the manager of
the transaction, the Portfolio Manager provided an assessment of
the manager's independence and reliability. Additionally, the Audit
Committee required the Portfolio Manager to provide a reasoned
assessment of fair value for each investment held and its
classification in the fair value hierarchy.
Following discussion, we were satisfied that the judgments made
and methodologies applied were prudent and appropriate and that the
correct accounting treatment has been adopted. Please see further
details outlined in notes 2 and 8 to the financial statements.
Income Recognition
For primary and secondary transactions, the Audit Committee
considered whether the separate presentation of interest income in
the Statement of Comprehensive Income is required or if a net fair
value movement is more appropriate.
Due to the nature of the Company's investment strategy resulting
in the possibility of investments being sold before maturity and
given the consequent inherent uncertainty of using maturity dates
to calculate income using the Effective Interest Rate method, for
both primary and secondary investments, the Company's accounting
policy recognises only a net fair value movement rather than
reporting a split between fair value movement and interest income
in the income statement. This is explained further in note 2.4 to
the financial statements.
Portfolio Manager's Fee
The Audit Committee identified the calculation of the Portfolio
Manager's Fee (including Performance Fee) to represent a
significant risk of misstatement in the Company's financial
reporting given the complexity of the calculation and the related
party relationship. The Committee requested the Administrator,
Sub-Administrator, Auditor and Portfolio Manager to work together
to ensure that the Management Fee calculation agreed to the terms
of the Management Fee calculation methodology as set out in the
Portfolio Management Agreement. The Audit Committee reviewed a
detailed calculation methodology prepared by the Sub-Administrator
and agreed the calculation with the Auditor and Portfolio
Manager.
Assessment of Principal Risks and Uncertainties
The risks associated with the Company's financial assets, as
disclosed in the financial statements, particularly in note 6,
represent a key accounting disclosure. The Audit Committee
critically reviews, on the basis of input from relevant Outsourced
Service Providers, the process of ongoing identification and
measurement of these risks disclosures.
Risk Management and Internal Controls
The Board as a whole is responsible for the Company's system of
internal control; however, the Audit 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 Audit 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 Audit Committee confirms that
this is an ongoing process in order to manage the significant risks
faced by the Company. We deem that, to date, there are no
significant issues in this area that need to be brought to your
attention.
External Audit
It is the responsibility of the Audit Committee to monitor the
performance, independence, objectivity and re-appointment of
Deloitte. On 21 July 2015, we met with Deloitte who presented their
Audit Strategy and Plan for the Period; we agreed the audit plan
for the Period, highlighting the key financial statement and audit
risks, to seek to ensure that the audit was appropriately focused.
Deloitte attended our Audit Committee meetings throughout the
Period, as appropriate, which allows the opportunity to discuss any
matters the auditor may wish to raise without the Portfolio Manager
or other Outsourced Service Providers being present. Deloitte
provides feedback at each Audit Committee meeting on topics such as
the key accounting matters, mandatory communications and the
control environment.
Audit Committee Report (continued)
The Committee is required to assess and report to the Board on
the effectiveness of the audit process. During the year it
accomplished this as follows:
-- Met with Deloitte and reviewed the audit plan as above
-- Met with Deloitte and reviewed the audit report at the conclusion of the audit
-- In addition the Chairman discussed the effectiveness of the
audit with staff of the Administrator and Sub-Administrator
-- Completed a comprehensive check list covering all aspects of the audit process
From its work the Committee concluded that audit process had
been effective.
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Deloitte was appointed as the Company's auditor for the 2015
period end audit following a competitive tender process during
2015. The lead audit partner will be rotated every five years to
ensure continued independence and objectivity. The Audit Committee
continues to be satisfied with the performance of Deloitte. We have
therefore recommended to the Board that Deloitte, in accordance
with agreed terms of engagement and remuneration, should continue
as the Company's auditor at the forthcoming Annual General Meeting.
In advance of the commencement of the annual audit, the Audit
Committee reviewed a statement provided by Deloitte confirming
their independence within the meaning of the regulations and
professional standards. In addition, in order to satisfy itself as
to Deloitte's independence, the Audit Committee undertook a review
of the auditor compensation and the balance between audit and
non-audit fees.
During the Period the value of non-audit services provided by
Deloitte amounted to GBP133,500 consisting of reporting account
services of GBP128,000 and tax services of GBP5,500. Non-audit
services were primarily in relation to reporting accountant
services provided to the Company prior to its initial public
offering and the Audit Committee is satisfied that the overall
quantum of ongoing non-audit services is not anticipated to be
material.
Committee Effectiveness
The effectiveness of the Audit Committee will be reviewed on an
annual basis by both the Board and the Audit Committee and will be
reported in subsequent financial statements. A member of the Audit
Committee will be available to shareholders at the forthcoming
Annual General Meeting of the Company to answer any questions
relating to the role of the Audit Committee.
Signed on behalf of the Audit Committee by:
John Whittle
Chairman, Audit Committee
27 January 2016
Directors' Remuneration Report
The Directors' remuneration report has been prepared on behalf
of the Directors in accordance with the UK Code.
The Directors do not consider it necessary for the Company to
establish a separate Remuneration Committee since the Boards
remuneration forms part of the schedule of matters reserved for the
Board and the matters recommended by the UK Code that would be
delegated to such a committee, is considered by the Board as a
whole.
The Company's policy is to ensure that the fees payable to the
Directors reflect the time spent by the Directors on the Company's
affairs, the responsibilities borne by the Directors and be
sufficient to attract, retain and motivate directors of a quality
required to run the Company successfully. The Chairman of the Board
is paid a higher fee in recognition of his additional
responsibilities, as are the Chairmen of the Audit Committee and
the Management Engagement Committee. The policy is to review fee
rates periodically, although such a review will not necessarily
result in any changes to the rates, account will be taken of fees
paid to directors of comparable companies.
No element of the Directors' remuneration is performance
related, nor does any Director have any entitlement to pensions,
share options or any long term incentive plans from the
Company.
Following a recommendation from the Chairman, having regard to
the level of fees payable to non-executive Directors that reflects
comparable compensation levels of the peer universe for the
Company, the role that individual Directors fulfil in respect of
Board and Committee responsibilities, it is the responsibility of
the Board as a whole to determine and approve the Directors'
fees.
The Chairman's remuneration is decided separately and is
approved by the Board as a whole.
The Directors are currently subject to the following annual
remuneration in the form of Directors' fees
Frederic Hervouet (Chairman
of the Board) GBP50,000
John Whittle GBP40,000
Roberto Silvotti GBP30,000
------------
Total GBP120,000
In consideration of fees of GBP8,791 and GBP7,032 Mr Hervouet
and Mr Whittle received 12,121 and 9,696 shares respectively based
on the prevailing market NAV at the time of payment.
The Company's Articles limit the fees payable to Directors in
aggregate to GBP300,000 per annum.
The remuneration policy set out above is the one applied for the
period from 2 March 2015 (date of incorporation) to 30 September
2015 and is not expected to change in the foreseeable future.
Directors' and Officers' liability insurance cover is maintained
by the Company on behalf of the Directors.
The Directors were appointed as non-executive Directors by
letters issued in 20 April 2015. Each Director's appointment letter
provides that all records received by them during the course of
their directorship remain the property of the Company. The
Directors' appointments can be terminated in accordance with the
Articles and without compensation. There is no notice period
specified in the Articles for the removal of Directors. The
Articles provide that the office of director shall be terminated
by, among other things: (a) written resignation; (b) unauthorised
absences from board meetings for a consecutive period of twelve
months and the Board resolve that the Director in question's office
be vacated; (c) unanimous written request of the other directors;
and (d) the Director in question becomes ineligible to be a
Director in accordance with Section 137 of the Law.
Under the terms of their appointment, each Director is required
to retire by rotation and be subject to re-election at least every
three years. The Directors are required to annually seek
re-election if they have already served for more than nine years.
The Company may terminate the appointment of a Director immediately
on serving written notice and no compensation is payable upon
termination of office as a director of the Company becoming
effective.
The amounts payable to Directors shown in note 4 were for
services as non-executive Directors. No Director has a service
contract with the Company, nor are any such contracts proposed.
None of the Directors has any personal financial interest in any
of the Company's investments.
Directors' Remuneration Report (continued)
Quantitative Remuneration Disclosure
Appropriate disclosures will be made in due course in accordance
with Article 22(2)(e) and 22(2)(f) of the AIFMD.
Signed on behalf of the Board of Directors by:
Frederic Hervouet, Chairman
27 January 2016
Commodity Exchange Affirmation Statement
Affirmation Required by the Commodity Exchange Act, Regulation
--4.7(b)(3)(i)
I, Loic Fery, on behalf of the Managing Member of Chenavari
Credit Partners LLP (Commodity Pool Operator of Toro Limited)
hereby affirm that, to the best of my knowledge and belief, the
information contained in this annual report and audited financial
statements is accurate and complete.
Loic Fery
27 January 2016
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Directors'
Report and the Financial Statements in accordance with applicable
Guernsey law and regulations.
Guernsey Company law requires the Directors to prepare Financial
Statements for each financial year. Under that law they have
elected to prepare the Financial Statements in accordance with
International Financial Reporting Standards ("IFRS") as adopted by
the European Union and applicable law.
Under company law the directors must not approve the accounts
unless they are satisfied that they give a true and fair view of
the state of affairs of the company and of the profit or loss of
the company for that period.
In preparing these Financial Statements, the Directors are
required to:
-- properly select and apply accounting policies;
-- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
-- provide additional disclosures when compliance with the
specific requirements in IFRSs are insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the entity's financial position and financial
performance; and
-- make an assessment of the company's ability to continue as a going concern.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the company's
transactions and disclose with reasonable accuracy at any time the
financial position of the company and enable them to ensure that
the financial statements comply with The Companies (Guernsey) Law
2008. They are also responsible for safeguarding the assets of the
company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
company's website. Legislation in Guernsey and the United Kingdom
governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
Directors' Responsibility Statement
We confirm that to the best of our knowledge:
-- the financial statements, prepared in accordance with
International Financial Reporting Standards as adopted by the
European Union, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the
Company;
-- the directors' report includes a fair review of the
development and performance of the business and the position of the
Company, together with a description of the principal risks and
uncertainties that it faces; and
-- the annual report and financial statements, taken as a whole,
are fair, balanced and understandable and provide the information
necessary for Shareholders to assess the Company's performance,
business model and strategy.
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-- The annual report includes information required by the LSE
and for ensuring the Company complies with the relevant provisions
of the Disclosure and Transparency Rules and the UK Listing
Authority.
This responsibility statement was approved by the board of
directors on 27 January 2016 and is signed on its behalf by:
Frederic Hervouet
Non-executive Chairman
27 January 2016
Independent Auditor's Report to the Members of Toro Limited
Opinion on In our opinion the financial statements:
financial * give a true and fair view of the state of the
statements Company's affairs as at 30 September 2015 and of its
of Toro Limited profit for the period from 2 March 2015 to 30
September 2015;
* have been properly prepared in accordance with
International Financial Reporting Standards (IFRSs)
as adopted by the European Union; and
* have been prepared in accordance with the
requirements of the Companies (Guernsey) Law, 2008.
The financial statements comprise
the Statement of Comprehensive Income,
the Statement of Financial Position,
the Statement of Cash Flows, the
Statement of Changes in Equity and
the related notes 1 to 21. The financial
reporting framework that has been
applied in their preparation is applicable
law and IFRSs as adopted by the European
Union.
Going concern We have reviewed the Directors' statement
and the Directors' regarding the appropriateness of
assessment the going concern basis of accounting
of the principal and the Directors' statement on the
risks that longer-term viability of the Company
would threaten both contained within pages 15 and
the solvency 16 of the Report of the Directors.
or liquidity
of the Company We have nothing material to add or
draw attention to in relation to:
* the Directors' confirmation on page 23 that they have
carried out a robust assessment of the principal
risks facing the Company, including those that would
threaten its business model, future performance,
solvency or liquidity;
* the disclosures on pages 23 and 24 that describe
those risks and explain how they are being managed or
mitigated;
* the Directors' statement on page 16 to the financial
statements about whether they considered it
appropriate to adopt the going concern basis of
accounting in preparing them and their identification
of any material uncertainties to the Company's
ability to continue to do so over a period of at
least twelve months from the date of approval of the
financial statements;
* the Director's explanation on pages 15 and 16 as to
how they have assessed the prospects of the Company,
over what period they have done so and why they
consider 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.
We agreed with the Directors' adoption
of the going concern basis of accounting
and we did not identify any such
material uncertainties. However,
because not all future events or
conditions can be predicted, this
statement is not a guarantee as to
the Company's ability to continue
as a going concern.
====================== ==================================================================
Independence We are required to comply with the
Financial Reporting Council's Ethical
Standards for Auditors and we confirm
that we are independent of the Company
and we have fulfilled our other ethical
responsibilities in accordance with
those standards. We also confirm
we have not provided any of the prohibited
non-audit services referred to in
those standards.
Our assessment The assessed risks of material misstatement
of risks of described below are those that had
material misstatement the greatest effect on our audit
strategy, the allocation of resources
in the audit and directing the efforts
of the engagement team.
Risk How the scope of our audit
responded to the risk
------------------------------ -------------------------------------------------------------------
Valuation and classification
of financial assets
at fair value through
profit or loss To test the valuation of
investments as at 30 September
The investments balance 2015 we performed the following
at 30 September 2015 procedures:
had a fair value of
EUR302m representing * Assessed the design and implementation of controls
82% of the net asset around the valuation of investments to determine
value of the Company. whether appropriate oversight had been exercised
Details of investments within the valuation process;
are disclosed in notes
6 and 8. Investments
are the most quantitatively * Assessed the valuation policy and methodology adopted
significant balance by management in comparison to IFRS and industry
and are an area of practice;
focus because they
are the main driver
of the Company's performance * Where valuation models were used, we engaged our
and net asset value. internal fair valuation specialists to review the
models and methodology used and challenged the
The investments are appropriateness thereof. This included checking the
not actively traded consistency of model parameters and key assumptions
and their valuation to subscription documents and other inputs against
is reliant on broker actual loan performance data;
quotes and in some
cases is derived from
valuation models. * Where broker pricing was used, we obtained
The inputs to those independent price quotes from the brokers;
valuations are judgemental
and may include but
are not limited to * For a sample of investments, we obtained price
counterparty risk, information from independent sources such as Markit
pre-payment risk, to determine whether this information was consistent
replenishment risk with prices used; and
and underlying credit
risk.
* For a sample of investments realised during the
Inputs to the internal period, we challenged the accuracy of management's
valuations and those valuations by comparing the price at which
provided by brokers investments were realised to the price recorded by
may include unobservable the Company at the time of disposal.
inputs and there could
be a lack of depth
in the quotations
provided. Further
details of the accounting To test the classification
policy and methodology of the investments on the
on valuation of investments fair value hierarchy, we
are described in note reviewed and challenged management's
3.1 to the financial classification of investments
statements. within the fair value hierarchy
and the associated disclosures
based on the evidence obtained.
We performed the following
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procedures:
Classification of * Reviewed the broker quotes obtained by management;
investments within
the fair value hierarchy
is a significant judgement. * Reviewed evidence of third party transactions used to
In particular determining corroborate broker valuations; and
what constitutes observable
evidence of trading
in investments is * Reviewed the disclosures provided, including
subjective in the sensitivity analysis to movements in key inputs for
absence of public investments classified as level 3 in the fair value
sources of information. hierarchy.
For investments classified
as being at level
3 in the fair value
hierarchy, determining
the appropriate disclosure
of risks and sensitivities
also requires judgement.
------------------------------ -------------------------------------------------------------------
Calculation of management
and performance fees
The entity's investment We evaluated and challenged
manager is entitled the recognition of management
to management and and performance fees.
performance fees.
Management fee for We performed the following
the year was EUR1.4m procedures:
and performance fees * Assessed the design and implementation of controls in
for the period was relation to calculation of management and performance
EUR2.2m and details fees;
of management and
performance fees arrangement
are as described in * Reviewed the contractual arrangements with the
note 4 (c) to the investment manager; and
financial statements.
The calculation of * Performed a re-calculation of the management and
the performance fee performance fees utilising independently derived
can be complex and inputs. For performance fees we checked whether the
both fees can be sensitive criteria for accrual is achieved based on the level
due to their related of unrealised gains.
party nature. There
is a risk that these
are not correctly
calculated leading
to a
materially misstated
expense balance.
The risk exists that
these fees are not
calculated and paid
in accordance with
the terms of the relevant
agreements. This risk
is also connected
to the risk on valuation,
as described above,
as an incorrect net
asset value balance
would also lead to
an incorrect fee expense
balance. In the current
year performance did
not exceed the hurdle
return so the risk
around performance
fees was less significant
than it may be in
future years.
============================== ===================================================================
The description of risks above should be read
in conjunction with the significant issues considered
by the Audit Committee discussed on pages 26
and 27.
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.
Our application We define materiality as the magnitude
of materiality of misstatement in the financial
statements that makes it probable
that the economic decisions of a
reasonably knowledgeable person would
be changed or influenced. We use
materiality both in planning the
scope of our audit work and in evaluating
the results of our work.
We determined materiality for the
Company to be EUR6,737,000 which
is approximately 2% of net asset
value. We have derived our materiality
based on the net asset value of the
Company as we consider it to be the
most important balance on which the
shareholders would judge the performance
of the Company.
We agreed with the Audit Committee
that we would report to the Committee
all audit differences in excess of
EUR134,000, as well as differences
below that threshold that, in our
view, warranted reporting on qualitative
grounds. We also report to the Audit
Committee on disclosure matters that
we identified when assessing the
overall presentation of the financial
statements.
An overview Our audit was scoped by obtaining
of the scope an understanding of the Company and
of our audit its environment, including internal
control, and assessing the risks
of material misstatement. Audit work
to respond to the risks of material
misstatement was performed directly
by the audit engagement team. As
the entity's sub-administrator who
maintains the accounting records
is in Ireland, part of the audit
work was undertaken by Deloitte Ireland,
supervised and directed by Guernsey
based personnel.
The administrator and sub-administrator
maintain the books and records of
the entity. The investment manager
and investment adviser maintain detailed
documentation pertaining to the investment
activities of the entity. Our audit
therefore included obtaining an understanding
of these service organisations (including,
in respect of the sub-administrator,
obtaining their internal controls
report) and their relationship with
the Company.
Matters on
which we
are required
to report
by exception
Adequacy Under the Companies (Guernsey) Law,
of explanations 2008 we are required to report to
received you if, in our opinion:
and accounting * we have not received all the information and
records explanations we require for our audit; or
* proper accounting records have not been kept; or
* the financial statements are not in agreement with
the accounting records.
* We have nothing to report in respect of these
matters.
Our duty Under International Standards on
to read other Auditing (UK and Ireland), we are
information required to report to you if, in
in the Annual our opinion, information in the Annual
Report Report is:
* materially inconsistent with the information in the
audited financial statements; or
* apparently materially incorrect based on, or
materially inconsistent with, our knowledge of the
Company acquired in the course of performing our
audit; or
* otherwise misleading.
In particular, we are required to
consider whether we have identified
any inconsistencies between our knowledge
acquired during the audit and the
Directors' statement that they consider
the Annual Report is fair, balanced
and understandable and whether the
Annual Report appropriately discloses
those matters that we communicated
to the Audit Committee which we consider
should have been disclosed. We confirm
that we have not identified any such
inconsistencies or misleading statements.
Corporate Although not required to do so, the
Governance Directors have voluntarily chosen
Statement to make a corporate governance statement
detailing the extent of their compliance
with the UK Corporate Governance
Code. We reviewed the part of the
Corporate Governance Statement relating
to the Company's compliance with
certain provisions of the UK Corporate
Governance Code. We have nothing
to report arising from our review.
Respective As explained more fully in the Directors'
responsibilities Responsibilities Statement, the Directors
of Directors are responsible for the preparation
and Auditor of the financial statements and for
being satisfied that they give a
true and fair view. Our responsibility
is to audit and express an opinion
on the financial statements in accordance
with applicable law and International
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Standards on Auditing (UK and Ireland).
We also comply with International
Standard on Quality Control 1 (UK
and Ireland). Our audit methodology
and tools aim to ensure that our
quality control procedures are effective,
understood and applied. Our quality
controls and systems include our
dedicated professional standards
review team and independent partner
reviews.
This report is made solely to the
Company's members, as a body, in
accordance with Section 262 of the
Companies (Guernsey) Law, 2008. 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/or those further matters
we have expressly agreed to report
to them on in our engagement letter
and for no other purpose. To the
fullest extent permitted by law,
we do not accept or assume responsibility
to anyone other than the Company
and the Company's members as a body,
for our audit work, for this report,
or for the opinions we have formed.
Scope of An audit involves obtaining evidence
the audit about the amounts and disclosures
of the financial in the financial statements sufficient
statements to give reasonable assurance that
the financial statements are free
from material misstatement, whether
caused by fraud or error. This includes
an assessment of: whether the accounting
policies are appropriate to the Company's
circumstances and have been consistently
applied and adequately disclosed;
the reasonableness of significant
accounting estimates made by the
Directors; and the overall presentation
of the financial statements. In addition,
we read all the financial and non-financial
information in the Annual Report
to identify material inconsistencies
with the audited financial statements
and to identify any information that
is apparently materially incorrect
based on, or materially inconsistent
with, the knowledge acquired by us
in the course of performing the audit.
If we become aware of any apparent
material misstatements or inconsistencies
we consider the implications for
our report.
David Becker (Senior statutory auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Recognised Auditors
St Peter Port, Guernsey
27 January 2016
Statement of Comprehensive Income
For the period 2 March 2015 (date of incorporation) to 30
September 2015
For Period
Ended
30 September
2015
Note EUR
Income
Net gain on financial assets and
financial liabilities held at fair
value through profit or loss 12 16,428,263
Total net income 16,428,263
--------------
Expenses
Management fees 4 (c) 1,403,706
Performance fees 4 (c) 2,165,819
Administration fees 5 (b) 38,656
Sub-administration fees 5 (c) 101,333
Custodian and brokerage fees 5 (d) 20,494
Legal fees 42,227
Directors' fees 4(a) 70,711
Audit fees 80,687
AIFM fees 4 (c) 30,396
Other operating expenses 113,651
Total operating expenses 4,067,680
--------------
Financing costs
Interest expense 87,651
Profit for the period and total comprehensive
income 12,272,932
==============
Earnings per Share
Basic and diluted 9 3.52 cent
__________________________ __________________________
Director: Director:
Date: 27 January 2016 Date: 27 January 2016
All items in the above statement derive from continuing
operations.
There are no comparative figures as this is the Company's first
financial period of operation
The condensed schedule of investments and notes to the financial
statements are an integral part of the financial statements.
Statement of Financial Position
As at 30 September 2015
30 September
2015
Note EUR
Assets
Financial assets at fair value through
profit or loss 2.2,8,11 301,516,954
Due from broker 13 30,558,253
Other receivables and prepayments 14 10,514
Cash and cash equivalents 2.5 57,821,432
Total assets 389,907,153
-------------
Equity
Share capital and share premium 16 354,752,496
Retained earnings 12,272,932
Total equity 367,025,428
-------------
Current liabilities
Financial liabilities at fair value
through profit or loss 2.2,8,11,2.13 19,502,143
Due to broker 13 612,500
Accrued expenses 15 2,767,082
Total liabilities 22,881,725
-------------
Total equity and liabilities 389,907,153
-------------
Shares outstanding 16 361,450,000
Net asset value per share 10 101.54 cent
__________________________ __________________________
Director: Director:
Date: 27 January 2016 Date: 27 January 2016
There are no comparative figures as this is the Company's first
financial period of operation
The condensed schedule of investments and notes to the financial
statements are an integral part of the financial statements.
Statement of Changes in Equity
For the period 2 March 2015 (date of incorporation) to 30
September 2015
Note
Share
capital
Retained and share
earnings premium Total
EUR EUR EUR
On incorporation
at 2
March 2015 - - -
Total
comprehensive
income 12,272,932 - 12,272,932
Issue of shares
net of
issue costs 16 - 354,752,496 354,752,496
At 30 September
2015 12,272,932 354,752,496 367,025,428
================================== ============================ =========================
There are no comparative figures as this is the Company's first
financial period of operation
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The condensed schedule of investments and notes to the financial
statements are an integral part of the financial statements.
Statement of Cash Flows
For the period 2 March 2015 (date of incorporation) to 30
September 2015
For the Period
Ended
30 September
2015
EUR
Cash flows from operating activities
Profit for the period 12,272,932
Adjustments for non-cash items and working
capital:
Purchase of investments (449,191,270)
Disposal and paydowns of investments 157,090,455
Net gain on financial assets and derivatives
at fair value (8,436,490)
Increase in amounts due from brokers (30,558,253)
Increase in other receivables and prepayments (10,514)
Increase in amounts due to brokers 612,500
Increase in reverse purchase agreement 18,522,494
Increase in accrued expenses 2,767,082
Net cash outflow from operating activities (296,931,064)
---------------
Cash flows from financing activities
Issue of shares net of costs 354,752,496
Net cash inflow from financing activities 354,752,496
---------------
Net increase in cash and cash equivalents 57,821,432
Cash and cash equivalents at beginning
of the period -
Cash and cash equivalents at end of
the period 57,821,432
---------------
There are no comparative figures as this is the Company's first
financial period of operation
The condensed schedule of investments and notes to the financial
statements are an integral part of the financial statements.
Condensed Schedule of Investments, at Fair Value *
As at 30 September 2015
Belgium Cayman France Great Greece Ireland Italy Jersey Luxembourg Netherlands Spain Other Total Total
Island Britain
---------- -------- -------- ----------- -------- ------------ ---------- ---------- ----------- ------------ ----------- ---------- ------------ -------
EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR %
Financial
assets
at fair
value
through
profit
or loss
-----------------
Equity
Securities
Hotel,
Restaurant
& Leisure - - - 251,913 - - - - - - - - 251,913 0.07%
Equity
Securities
Total - - - 251,913 - - - - - - - - 251,913 0.07%
---------- -------- -------- ----------- -------- ------------ ---------- ---------- ----------- ------------ ----------- ---------- ------------ -------
Debt Securities
Bond - - - - 326,673 - - - - - - - 326,673 0.09%
Arbitrage
CDO - - - - - 60,649,597 - 3,778,516 2,960 16,184,848 929,506 - 81,545,427 22.22%
Commercial
mortgage-backed
security - - 255,888 8,503,792 - 1,239,191 - - - - - - 9,998,871 2.72%
Arbitrage
CLO - - - 635,665 - 26,497,626 - - 41,380,000 32,958,923 - - 101,472,214 27.65%
Residential
mortgage-backed
security 2,659,256 - - 37,002,104 - 20,426,470 - - - 7,249,959 3,886,990 - 71,224,779 19.41%
Balance
Sheet
CLO - 203,257 - - - 5,593,000 - - - - 3,505,742 - 9,301,999 2.53%
Consumer
ABS - - - 3,053,948 - - 5,184,780 - - - 4,084,779 - 12,323,507 3.36%
Senior
Loan - - - 7,943,300 - - - - - - - - 7,943,300 2.16%
Whole
Loan - - - - - - - - 6,003,365 - - - 6,003,365 1.63%
Debt Securities
Total 2,659,256 203,257 255,888 57,138,809 326,673 114,405,884 5,184,780 3,778,516 47,386,325 56,393,730 12,407,017 - 300,140,135 81.77%
---------- -------- -------- ----------- -------- ------------ ---------- ---------- ----------- ------------ ----------- ---------- ------------ -------
Derivative
Financial
asset
Credit
Default
Swap - - - - - - - - - - - 441,378 441,378 0.12%
Listed
Options - - - - - - - - - - - 462,606 462,606 0.13%
Forward
FX Contracts - - - - - - - - - - - 220,922 220,922 0.06%
Derivative
Financial
asset
Total - - - - - - - - - - - 1,124,906 1,124,906 0.31%
---------- -------- -------- ----------- -------- ------------ ---------- ---------- ----------- ------------ ----------- ---------- ------------ -------
Financial
assets
at fair
value
through
profit
or loss
Total 2,659,256 203,257 255,888 57,390,722 326,673 114,405,884 5,184,780 3,778,516 47,386,325 56,393,730 12,407,017 1,124,906 301,516,954 82.15%
---------- -------- -------- ----------- -------- ------------ ---------- ---------- ----------- ------------ ----------- ---------- ------------ -------
*Table based on country of issuance
Condensed Schedule of Investments, at Fair Value *
(continued)
As at 30 September 2015
Cayman Great
Belgium Island France Britain Greece Ireland Italy Jersey Luxembourg Netherlands Spain Other Total Total
EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR %
Financial
liabilities
at fair
value
through
profit
or loss
-------------
Derivative
Financial
Liabilities
Credit
Default
Swap - - - - - - - - - - - (882,755) (882,755) (0.24%)
Forward
FX
Contracts - - - - - - - - - - - (96,894) (96,894) (0.03%)
Repurchase
Agreement - - - (18,522,494) - - - - - - - - (18,522,494) (5.07%)
Derivative
Financial
liabilities
Total - - - - - - - - - - - (979,649) (19,502,143) (5.34%)
---------- -------- -------- ------------- -------- ------------ ---------- ---------- ----------- ------------ ----------- ---------- ------------- --------
Financial
liabilities
at fair
value
through
profit
or loss
Total - - - (18,522,494) - - - - - - - (979,649) (19,502,143) (5.34%)
---------- -------- -------- ------------- -------- ------------ ---------- ---------- ----------- ------------ ----------- ---------- ------------- --------
Total
Net
Investments 2,659,256 203,257 255,888 38,868,228 326,673 114,405,884 5,184,780 3,778,516 47,386,325 56,393,730 12,407,017 145,257 282,014,811 76.81%
---------- -------- -------- ------------- -------- ------------ ---------- ---------- ----------- ------------ ----------- ---------- ------------- --------
Other
Assets
and
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Liabilities 85,010,617 23.19%
------------- --------
Net Assets 367,025,428 100.00%
------------- --------
*Table based on country of issuance
Notes to the Financial Statements
1. General information
Toro Limited (the "Company") is a closed-ended investment
company limited by shares. The Company was incorporated with
limited liability in Guernsey under the Companies Law (Guernsey)
2008 (the "Law") on 2 March 2015 with registered number 59940, to
be a Registered Closed-ended Collective Investment Scheme. The
principal legislation under which the Company operates is the
Law.
The Company has appointed Carne Global AIFM Solutions (C.I.)
Limited as the Company's external AIFM. The AIFM has delegated
portfolio management to the Portfolio Manager, Chenavari Credit
Partners LLP, a wholly owned member of the Chenavari Financial
Group.
The Company's Shares are admitted to trading on the Specialist
Fund Market of the London Stock Exchange ("SFM"). Such Shares were
also listed on the Official List of the Channel Islands Security
Exchange Authority Limited ("CISEAL") on 8 May 2015. The Initial
Public Offering ("IPO") of the Company raised gross proceeds of
EUR331.8 million. With further issues raising EUR16.4 million
(gross of issue) costs on 21 July 2015 and EUR8.8 million (gross of
issue costs) on 3 August 2015.
Investment objective
The investment objective of the Company is to deliver an
absolute return from, investing and trading in Asset Backed
Securities and other structured credit investments in liquid
markets and investing directly or indirectly in asset backed
transactions including without limitation, through the origination
of credit portfolio.
Target returns and dividend policy
On the basis of market conditions as at the date of the
prospectus (28 April 2015), and whilst not forming part of its
investment objective or investment policy, the Company will target
a net total return on invested capital of 12 to 15 per cent. per
annum over three to five years. Returns to Shareholders will be
predominantly as dividend income.
Subject to compliance with the Law and the satisfaction of the
solvency test, the Company intends to distribute all its income
from investments, net of expenses, by way of dividends payable
quarterly in March, June, September and December of each year. On
Admission the Company targeted a first dividend payment in respect
of the Period from First Admission to 30 September 2015 of at least
1.2 per cent. of the Issue Price per Share. On 29 October 2015 the
Company announced the payment of a dividend of 2.0 cent per
ordinary share for the Period, exceeding the Company's target. The
Company may retain income for distribution in a subsequent quarter
to that in which it arises in order to smooth dividend amounts or
for the purpose of efficient cash management.
The target returns and dividend payments should not be taken as
a forecast of the Company's future performance, profits or results.
The target returns and dividend payments are targets only and there
is no guarantee that they can or will be achieved and they should
not be seen as an indication of the Company's actual return.
Accordingly, investors should not place any reliance on the target
returns and dividend payments in deciding whether to invest in the
Shares. Dividend payments may fall short of or exceed, the amounts
indicated above.
Investment policy
The Company will seek to invest in a diversified portfolio of
exposures to predominantly European based obligors. The Company's
investment strategies will be:
The Opportunistic Credit Strategy - the Company will
opportunistically invest or trade in primary and secondary market
Asset Backed Securities and other structured credit investments
including private asset backed finance investments.
The Originated Transactions Strategy - the Company will invest
in transactions on a buy-to-hold basis, via a variety of means,
including, without limitation, Warehouse Credit Facilities, which
can originate credits that may be refinanced in structured credit
markets as well as other financing opportunities.
Notes to the Financial Statements (continued)
1. General information (continued)
Originated transactions
The Company intends to invest in Originators (Originators or
sponsors of originated credit investments- CLO's or securitisations
of pools of consumer loans including residential mortgages, credit
card receivables or auto loans) which establish securitisation
vehicles and retain the requisite Retention Securities in such
vehicles pursuant to the EU Risk Retention Requirements and/or, in
future, the U.S. Risk Retention Regulations. In exchange for its
capital and participation facilitating retention compliant
origination transactions, the Company expects to receive enhanced
returns relative to direct investment in structured credit
investments (such as CLOs). Such returns may take the form of
additional returns from fees, fee rebates or other financial
accommodations agreed by parties who may benefit from the Company's
involvement depending upon the asset class of a securitisation
vehicle.
Eligible investments
Each investment shall, as of the date of acquisition by the
Company, be either a debt obligation (including, but not limited
to, a bond or loan), a share or equity security, a hybrid
instrument, derivative instrument or contract or an equitable or
other interest. In addition, the Company may from time to time have
surplus cash (for example, following the disposal of an acquired
investment). Cash held by the Company pending investment or
distribution will be held in either cash or cash equivalents,
including but not limited to money market instruments or funds,
bonds, commercial paper or other debt obligations with banks or
other counterparties provided such bank or counterparty has an
investment grade credit rating (as determined by any reputable
rating agency selected by the Company on the advice of the
Portfolio Manager).
Investment restrictions
Concentration Limits
The Company shall comply with the concentration limits set out
below, which shall, in relation to each new investment, be tested
at the point such new investment is made assessed in accordance
with the exposure limit policy.
Where investments are issued by entities with a
compartmentalised or cellular legal structure, each compartment or
cell shall be considered to be a separate issuer/counterparty
provided that the principle of segregation and insolvency
remoteness of commitments of the different compartments/cells of
such issuer is materially established by law, contract and/or
trust.
None of the restrictions set out below shall apply to
investments issued or guaranteed by the government of an OECD
Member State.
In relation to investments made:
-- no more than 20 per cent. of Net Asset Value shall be exposed
to the credit risk of any underlying single transaction or
issue;
-- the top five exposures to any transactions or issues shall
not, in aggregate, account for more than 50 per cent. of Net Asset
Value;
-- no more than 50 per cent. of Net Asset Value, in aggregate,
shall be invested in unlisted investments,
and in each case, the restrictions set out above shall not apply
to the Company's investment in Originators but shall be applied on
a look through basis to the investments of such Originators;
and
-- no more than 20 per cent. of Net Asset Value, in aggregate,
shall be exposed to transactions or issues where the underlying
collateral is non-European.
For the purposes of interpreting the above provision, Europe
shall include Switzerland, the member states of the EU and EEA and
the European Common Customs Territory (from time to time) and, for
the avoidance of doubt, shall continue to include any members, who
being or subsequently joining as members of such groupings,
subsequently cease to be members.
Notes to the Financial Statements (continued)
1. General information (continued)
Hedging and derivatives
The Company may implement hedging and derivative strategies
designed to protect investment performance against material
movements in exchange rates and interest rates and to protect
against credit risk. Such strategies may include (but are not
limited to) options, forwards and futures and interest rate or
credit default swaps and will only be entered into when they are
available in a timely manner and on terms acceptable to the
Company. The Company may also bear risks that could otherwise be
hedged where it is considered appropriate to the investment
objective and investment policy.
The Company may also use hedging or derivatives (both long and
short) for investment purposes, for efficient portfolio management,
financing or protection of individual or aggregate positions.
In addition, as the Company's base operating currency is Euro,
the Company proposes to engage in currency hedging in an attempt to
reduce the impact on the Sterling Shares (if any) of currency
fluctuations.
Borrowing limits
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The Company may use borrowings from time to time for the purpose
of short term bridging, financing Share buy backs, repurchase
agreements with market counterparties or managing working capital
requirements, including hedging facilities. Cash borrowings can
contribute alongside other forms of leverage to increase the level
of gearing of the Company. The Company may also use gearing to
increase potential returns to Shareholders. In the past, the
Portfolio Manager has employed leverage against senior tranches of
ABS to enhance their returns, and expects it will continue to do
so, where the economic terms offered by counterparties can increase
potential returns to Shareholders.
The Company has set a borrowing limit such that the Company's
gearing shall not exceed 130 per cent. at the time of incurrence
and deployment of any borrowing. For the purposes of this
calculation, gearing will be calculated as the sum of the Company's
exposures to each position directly held, divided by the last
published Net Asset Value (and for the avoidance of doubt, will
include the full exposure held by the Company under any full
recourse total return swap, but will exclude any borrowing
arrangements that are limited-recourse to the Company, such as
borrowings by an Originator).
Borrowings employed by the Company may be secured on individual
assets or portfolios without recourse to the Company or by a charge
over some or all of the Company's assets to take advantage of
potentially preferential terms.
The Board will oversee the gearing levels in the Company, and
will review the position with the AIFM and the Portfolio Manager on
a regular basis.
It is anticipated that the gearing level of any Originators will
differ from the above restrictions. Any leverage of an Originator
shall be nonrecourse to the Company. In particular, such an
Originator may enter into Warehouse Credit Facilities to acquire
exposure to assets. Where a Warehouse Credit Facility takes the
form of a loan facility, an Originator will borrow funds to acquire
assets in anticipation of the creation of a securitisation vehicle
to securitise such assets, such facilities generally being
non-recourse to the assets of such Originator (other than assets
acquired with such funding) and repaid following the transfer of
such assets to a securitisation vehicle. Originators will be
required to give representations, warranties and indemnities to
financing providers including confirmations relating to compliance
with risk retention requirements.
Cash uses and cash management activities
In accordance with the Company's investment policy, the
Company's principal use of cash (including the Net Issue Proceeds)
has been to fund investments sourced by the Portfolio Manager,
ongoing operational expenses and payment of dividends and other
distributions to Shareholders in accordance with the Company's
dividend policy as set out in the section entitled "Dividend
Policy" in Part I of the prospectus.
Notes to the Financial Statements (continued)
2. Summary of significant accounting policies
The principal accounting policies applied in the preparation of
these financial statements are set out below.
2.1 Basis of preparation
The Annual Financial Statements for the period from 2 March
2015(date of incorporation) to 30 September 2015 have been prepared
in accordance with International Financial Reporting Standards
("IFRS") as issued by the International Accounting Standards Board,
the Disclosure and Transparency Rules of the Financial Conduct
Authority and applicable legal and regulatory requirements of the
Law.
The financial statements have been prepared under the historical
cost convention, as modified by the revaluation of financial assets
and financial liabilities held at fair value through profit or
loss.
The preparation of financial statements in conformity with IFRS
requires the use of certain critical accounting estimates. It also
requires the Board of Directors to exercise its judgement in the
process of applying the Company's accounting policies. The areas
involving a higher degree of judgement or complexity, or areas
where assumptions and estimates are significant to the financial
statements are disclosed in Note 3.
The Directors are of the opinion that the Company is able to
meet its liabilities as they fall due for payment because it has
and is expected to maintain, adequate cash resources. Given the
nature of the Company's business, the Directors have a reasonable
expectation that the Company has adequate financial resources to
continue in operational existence for the foreseeable future.
Accordingly, the financial statements have been prepared on a going
concern basis.
New standards and interpretations not yet adopted:
The Company has not applied the following new and revised IFRSs
that have been issued but are not yet effective in these financial
statements however these are not expected to have a material
impact:
-- IFRS 9 Financial Instruments ("IFRS 9")
The International Accounting Standards Board (IASB) has
published the final version of IFRS 9 bringing together the
classification and measurement, impairment (including the expected
loss model for financial assets) and hedge accounting phases of the
IASB's project to replace IAS 39 'Financial Instruments:
Recognition and Measurement'. IFRS 9 is effective for periods
beginning on or after 1 January 2018.
The Company will be required to apply the new classification and
measurement model for financial assets. This will include both
assessing the business model objective of the Company in holding
financial assets for the collection of contractual cash flows and
sales of such assets; and assessing whether the contractual terms
of the financial asset give rise on specified dates to cash flows
that are solely payments of principal and interest on the
contractual amount outstanding. Depending on the analysis, the
Company may be required to measure its investments in accordance
with the new provisions of IFRS 9 under Fair Value Through Other
Comprehensive Income. In such circumstances the Company would be
required to apply the impairment provisions of the new expected
loss model. Whilst the directors have not completed the analysis of
the impact, the presence of leverage in the financial assets held
by the Company is currently expected to result in the continued
classification of financial assets as Fair Value Through Profit and
Loss with no change to the measurement basis applied.
-- IFRS 15 Revenue from Contracts with Customers
In May 2014, IFRS 15 was issued which establishes a single
comprehensive model for entities to use in accounting for revenue
arising from contracts with customers. IFRS 15 will supersede the
current revenue recognition guidance including IAS 18 Revenue, IAS
11 Construction Contracts and the related interpretations when it
becomes effective (which will be for the first set of financial
statements prepared after 1 January 2018).
The core principle of IFRS 15 is that an entity should recognise
revenue to depict the transfer of promised goods or service to
customers in an amount that reflects the consideration to which the
entity expects to be entitled in exchange for those goods or
services.
Notes to the Financial Statements (continued)
2. Summary of significant accounting policies (continued)
2.1. Basis of preparation (continued)
Specifically, the standard introduces a 5-step approach to
revenue recognition.
Step 1: Identify the contract(s) with a customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance
obligations in the contract.
Step 5: Recognise revenue when (or as) the entity satisfies
performance obligations.
Under IFRS 15, an entity recognise revenue when (or as) a
performance obligation is satisfied, i.e. when 'control' of the
goods or services underlying the particular performance obligation
is transferred to the customer. Far more prescriptive guidance has
been added in the IFRS 15 to deal with specific scenarios.
Furthermore, extensive disclosures are required by IFRS 15.
The Board do not anticipate that the application of IFRS 15 in
the future may have a material impact on the amounts reported and
disclosure made in the Company's financial statements as the
Company does not earn revenue arising from contracts with
customers.
2.2 Financial assets and financial liabilities at fair value through profit or loss
(a) Classification
The Company classifies its investments and derivatives as
financial assets or financial liabilities at fair value through
profit or loss. These financial assets and financial liabilities
are classified as held for trading or designated by the Board of
Directors at fair value through profit or loss at inception.
Financial assets or financial liabilities held for trading are
those acquired or incurred principally for the purposes of selling
or repurchasing in the short term. Derivatives are also categorised
as financial assets or financial liabilities held for trading. The
Company does not classify any derivatives as hedges in a hedging
relationship.
Financial assets and financial liabilities designated at fair
value through profit or loss at inception are those that are
managed and their performance evaluated on a fair value basis in
accordance with the Company's documented investment strategy. The
Company's policy is for the Portfolio Manager and the Board of
Directors to evaluate the information about these financial assets
on a fair value basis together with other related financial
information.
(b) Recognition/derecognition
Regular-way purchases and sales of investments are recognised on
the trade date - the date on which the Company commits to purchase
or sell the investment. Investments are derecognised when the
rights to receive cash flows from the investments have expired or
the Company has transferred substantially all risks and rewards of
ownership.
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ABS transactions may be structured in a variety of ways and are
highly bespoke to the needs of the bank involved and the investors
in the transaction. In all situations, the amount of interest and
principal payable on the instrument will be linked to the credit
performance of the underlying collateral. The investment
characteristics of ABS transactions are such that principal
payments are made more frequently than traditional debt securities.
The principal may be repaid at any time because the underlying debt
or other assets generally may be repaid at any time.
(c) Measurement
Financial assets and financial liabilities at fair value through
profit or loss are initially recognised at fair value. Transaction
costs are expensed in the Statement of Comprehensive Income.
Subsequent to initial recognition, all financial assets and
financial liabilities at fair value through profit or loss are
measured at fair value.
Gains and losses arising from changes in the fair value of the
'financial assets or financial liabilities at fair value through
profit or loss' category are presented in the Statement of
Comprehensive Income in the period in which they arise. The net
gain on financial assets and financial liabilities held at fair
value through profit or loss consists of coupons and interest
received and both realised and unrealised gains and losses on
financial assets and financial liabilities at fair value through
profit or loss, calculated as described in note 8. For the purposes
of the statement of cash flows, the coupon income is considered an
operating activity.
Notes to the Financial Statements (continued)
2. Summary of significant accounting policies (continued)
2.2 Financial assets and financial liabilities at fair value through profit or loss (continued)
(d) Fair value estimation
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The fair value of
financial assets and liabilities traded in active markets (such as
publicly traded derivatives and trading securities) are based on
quoted market prices at the close of trading on the reporting date.
The Company adopted IFRS 13 and this standard requires the Company
to use an exit price (a traded market price or mid-price) for both
financial assets and financial liabilities where such price falls
within the bid-ask spread. In circumstances where the exit price is
not within the bid-ask spread, management will determine the point
within the bid-ask spread that is most representative of fair
value. If a significant movement in fair value occurs subsequent to
the close of trading up to midnight on the period end date,
valuation techniques will be applied to determine the fair value. A
significant event is any event that occurs after the last market
price for a security, close of market or close of the foreign
exchange, but before the Company's valuation time that materially
affects the integrity of the closing prices for any security,
instrument, currency or securities affected by that event so that
they cannot be considered 'readily available' market quotations.
Where broker quotes are not available, investment valuations are
based on the Portfolio Manager's internal models.
The fair value of financial assets and liabilities at fair value
through profit or loss is measured through a combination of
dedicated price feeds from recognised valuation vendors and the
application of relevant broker quotations where the broker is a
recognised market maker in the respective position.
The fair value of financial assets and liabilities that are not
traded in an active market (for example, over-the-counter
derivatives) is determined using counterparty valuations for ABS or
Markit for credit derivatives instruments. In the opinion of the
Directors Markit is the benchmark for CDS pricing data. Markit
receives data from the official books of market makers, and then
subjects it to a rigorous testing process.
Loan investments are classified as at fair value through profit
or loss, as these financial assets form part of the overall
investment portfolio, these assets are managed and their
performance is evaluated on a fair value basis. The loans are not
traded in an active market and their fair value is determined using
valuation techniques which reference the value of the underlying
collateral attaching to the loans. Adjustments to the fair value
are considered in light of changes in the credit quality of the
borrower, the value of the underlying collateral and any relevant
market changes.
Refer Note 3.1 and Note 8 for further disclosure and analysis of
valuation of assets and liabilities which contain unobservable
inputs.
(e) Offsetting financial instruments
Financial assets and liabilities are offset and the net amount
reported in the consolidated statement of financial position when
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 asset and settle the liability simultaneously.
2.3 Due from and to brokers
Amounts due from and to brokers represents receivables for
securities sold and payables for securities purchased that have
been contracted for but not yet settled or delivered on the
consolidated statement of financial position date, respectively as
well as collateral posted to derivatives counterparts.
These amounts are recognised initially at fair value and
subsequently measured at amortised cost using the effective
interest method, less provision for impairment for amounts due from
brokers.
2.4 Interest income
Interest income on transactions is recognised in the Statement
of Comprehensive Income in net gain on financial assets and
financial liabilities held at fair value through profit or loss.
Income receivable on cash and cash equivalents is recognised
separately through profit or loss in the Statement of Comprehensive
Income.
2.5 Cash and cash equivalents
Cash and cash equivalents represents cash in-hand, demand
deposits, other short-term highly liquid investments with original
maturities of three months or less and bank overdrafts.
Notes to the Financial Statements (continued)
2. Summary of significant accounting policies (continued)
2.6 Share Capital
Shares are classified as equity. Incremental costs directly
attributable to the issue of Shares are shown in equity as a
deduction, net of tax, from the proceeds. The costs are those which
were necessary for the initial issue of shares. Such costs and
expenses were fixed at 2 per cent of the gross issue proceeds.
Roll-over shares from Toro Capital I were issued based on a deemed
issue price of EUR0.9825. This deemed issue price was fixed to
ensure that Roll-over Shareholders bear a proportionate share of
the fixed launch costs of the Company but do not indirectly bear
the cost of any variable placing commissions payable in connection
with the Issue.
2.7 Foreign currency
(a) Functional and presentation currency
The functional and presentation currency of the Company is EUR
(EUR).The performance of the Company is measured and reported to
the investors in EUR.
(b) Foreign currency translation
Foreign currency transactions are translated into the functional
currency of the Company using the exchange rates prevailing at the
dates of the transactions. Foreign exchange gains and losses
resulting from the settlement of such transactions and from the
translation at period-end exchange rates of monetary assets and
liabilities denominated in foreign currencies are recognised in the
Statement of Comprehensive Income. Translation differences on
non-monetary financial assets and liabilities at fair value through
profit or loss are recognised in the Statement of Comprehensive
Income within the fair value net gain or loss.
(c) Exchange Rates
The foreign currency exchange rates at 30 September 2015 were as
follows: GBP 1.3570 USD 0.8959
2.8 Transaction costs
Transaction costs on financial assets at fair value through
profit or loss include fees and commissions paid to agents,
advisers, brokers and dealers. Transaction costs, when incurred,
are immediately recognised in the Statement of Comprehensive
Income.
2.9 Accrued expenses
Accrued expenses are recognised initially at fair value and
subsequently stated at amortised cost using the effective interest
method.
2.10 Other receivables and prepayments
Other receivables are amounts due in the ordinary course of
business. Other receivables are initially recognised at fair value
and subsequently measured at amortised cost using the effective
interest method, less provision for impairment.
2.11 Dividend distribution
Dividend distribution to the Company's shareholders is
recognised as a liability in the Company's financial statements and
disclosed in the Statement of Changes in Equity in the period in
which the dividends are approved by the Board.
2.12 Taxation
The Company is exempt from Guernsey taxation on income derived
outside of Guernsey and bank interest earned in Guernsey. No charge
to Guernsey taxation arises on capital gains.
2.13 Securities sold under agreements to repurchase and
securities purchased under agreements to resell
Securities sold under agreements to repurchase ("repurchase
agreements") and securities purchased under agreements to resell
("reverse repurchase agreements") are treated as collateralised
financing transactions. The financing is carried at the amount at
which the securities were sold or acquired plus accrued interest,
which approximates fair value. It is the Company's policy to
deliver securities sold under agreements to repurchase and to take
possession of securities purchased under agreements to resell.
As of 30 September 2015 there are repurchase agreements in
place. The key terms are as follows:
Main terms of the repurchase agreement in place as of 30
September 2015:
Maturity: 23 Nov 2015 (3 months)
Rate : 0.70%
Notional: 16,450,000
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Notes to the Financial Statements (continued)
3. Critical accounting judgements and key sources of estimation uncertainty
The preparation of the Company's Annual Financial Statements
requires management to make judgements, estimates and assumptions
that affect the reported amounts of revenues, expenses, assets and
liabilities and the accompanying disclosures. Uncertainty about
these assumptions and estimates could result in outcomes that
require a material adjustment to the carrying amount of assets or
liabilities affected in future periods.
3.1 Key sources of estimation uncertainty
Fair value of financial instruments
The assets held by the Company are mostly valued through a
combination of dedicated price feeds from recognised valuation
vendors, valuation techniques, the application of relevant broker
quotations where the broker is a recognised dealer in the
respective position or derived from valuation models prepared by
the Portfolio Manager.
The monthly Net Asset Value ("NAV") is derived from the
Company's valuation policy. A documented valuation policy
determines the hierarchy of prices to be applied to the fair value.
Prices are sourced from third party broker or dealer quotes for the
relevant security. Where no third party price is available, or
where the Portfolio Manager determines that the third party quote
is not an accurate representation of the fair value, the Portfolio
Manager will determine the valuation based on the valuation policy.
This may include the use of a comparable arm's length transaction,
reference to other securities that are substantially the same,
discounted cash flow analysis and other valuation techniques
commonly used by market participants making the maximum use of
market inputs and relying as little as possible on entity-specific
inputs.
Based on the hierarchy set out in IFRS 13, seventy-five
transactions are classified as Level 2 based on quoted market
prices, dealer quotations or alternative pricing sources supported
by observable inputs. The remaining transactions have been
classified as Level 3 where broker quotes are unavailable or
discounted, or cannot be substantiated by market transactions or
where the prices used are derived from internal models. The
Directors monitor the availability of observable inputs and if
necessary, reclassify to level 3 where observable trading is not
available.
Note 8 outlines the Level 3 classifications and the analysis of
the impacts of Level 3 investments on the performance of the
Company.
3.2 Critical judgements in applying accounting policies
Functional currency
The Board of Directors considers EUR (EUR) as the currency that
most fairly represents the economic effect of the underlying
transactions, events and conditions. The performance of the Company
is measured and reported to the investors in EUR.
Valuation and classification of investments
The Board of Directors consider the valuation of investments and
the classification of these investments in the fair value hierarchy
as the critical judgements. The fair value of investments is
described in 3.1 above and the judgements associated with the
disclosures in the fair value hierarchy are described in Note
8.
4. Related parties
(a) Directors' Remuneration & Expenses
The Directors of the Company are remunerated for their services
at such a rate as the Directors determine. The initial fee for Mr.
Hervouet as Non-executive Chairman will be GBP50,000 per annum. The
initial fee for Mr. Whittle as Chairman of the Audit Committee will
be GBP40,000 per annum. The initial fee for Mr. Silvotti will be
GBP30,000 per annum. During the Period ended 30 September 2015,
Directors fees of EUR70,711 were charged to the Company, of which
EUR30,343 remained payable at the end of the Period. The directors
elected to receive a portion of their director's remuneration in
the form of shares, Frederic Hervouet received 12,121 shares with a
value of GBP8,791 and John Whittle received 9,696 shares valued at
GBP7,032. The shares were valued based on the prevailing market NAV
at the time of payment.
Notes to the Financial Statements (continued)
4. Related parties (continued)
(b) Shares held by related parties
As at 30 September 2015, the Directors held the following Shares
in the Company.
Frederic Hervouet 12,121
John Whittle 9,696
Roberto Silvotti 954,692
Loic Fery is the managing partner of Chenavari Credit Partners
LLP. Chenavari Credit Partners LLP acts as discretionary portfolio
manager for Chenavari European Opportunistic Credit Master Fund LP
(the "Managed Account"). The Managed Account and Loic Fery hold
31.8% of the shares in Toro Limited as per disclosure page 17
above.
Roberto Silvotti is a Director of Chenavari Investment Managers
(Guernsey) Limited and Chenavari Investment Managers (Luxembourg)
S.a.r.l (both being members of the Chenavari Financial Group) and
Chenavari Multi Strategy Credit Fund Limited (a company under the
discretionary management of Chenavari Investment Managers
(Luxembourg) S.a.r.l). He forms part of the Concert Party described
on page 17 which includes Chenavari Credit Partners LLP and related
Chenavari Group companies, relevant Chenavari Partners and
employees and Chenavari European Opportunities Credit Fund Limited.
In total, this Concert Party holds approximately 43% of the shares
of the Company and is therefore deemed to have a significant
influence over Toro Limited through these shareholdings.
(c) AIFM and Portfolio Manager
The Company has appointed Carne Global AIFM Solutions (C.I.)
Limited as the Company's external AIFM. The AIFM has delegated
portfolio management to the Portfolio Manager. Under the terms of
the AIFM Agreement, the AIFM is entitled to receive from the
Company an annual fee, payable out of the assets of the Company, of
GBP66,000.
The AIFM and the Company have appointed the Portfolio Manager,
Chenavari Credit Partners LLP, a member of the Chenavari Financial
Group, as the external Portfolio Manager with delegated
responsibility for portfolio management functions in accordance
with the Company's investment objectives and policy, subject to the
overall supervision and control of the Directors and the AIFM.
Under the terms of the Portfolio Management Agreement the
Portfolio Manager is entitled to receive from the Company a
portfolio management fee calculated and accrued monthly at a rate
equivalent to one-twelfth of 1 per cent. of the Net Asset Value per
Share Class (before deducting the amount of that month's portfolio
management fee and any accrued liability with respect to any
performance fee).
Total portfolio management fees for the Period amounted to
EUR1,403,706 with EUR325,232 in outstanding accrued fees due at the
end of the Period.
The Portfolio Manager shall also be entitled to receive a
performance fee in respect of each Class of Shares equal to 15 per
cent. of the total increase in the Net Asset Value per Share of the
relevant Class at the end of the relevant Performance Period (as
adjusted to, (i) add back the aggregate value of any dividends per
Share paid to Shareholders since the end of the Performance Period
in respect of which a performance fee was last paid in respect of
that Class (or the date of First Admission, if no performance fee
has been paid in respect of that Class) and, (ii) exclude any
accrual for unpaid performance fees) over the highest previously
recorded Net Asset Value per Share of the relevant Class as at the
end of the relevant Performance Period in respect of which a
performance fee was last paid (or the Net Asset Value per Share of
the relevant class as at First Admission (after deduction of launch
costs), if no performance fee has been paid in respect of that
Class of Shares) multiplied by the number of issued and outstanding
Shares of that Class at the end of the relevant Performance Period,
having made adjustments for numbers of Shares of that Class issued
or repurchased during the relevant Performance Period.
Performance Period.
Subject to any regulatory limitations, the Portfolio Manager has
agreed that for a given Performance Period any performance fee
shall be satisfied as to a maximum of 60 per cent. in cash and as
to a minimum (save as set out below) of 40 per cent. by the
issuance of new Euro Shares (including the reissue of treasury
shares) issued at the latest published Net Asset Value per Share.
At no time shall the Portfolio Manager (and/or any persons deemed
to be acting in concert with it for the purposes of the Takeover
Code) be obliged, in the absence of a relevant Whitewash Resolution
having been passed, to receive further Shares where to do so would
trigger a requirement to make a mandatory offer pursuant to Rule 9
of the Takeover Code. As set out under "Concert Party" on page 17,
the issuance of further Shares to the Portfolio Manager will not
take place without a Whitewash Resolution from Shareholders. As
such, only the cash component of the Performance Fee has been paid
to date.
Performance fees of EUR2,165,819 were charged in the period to
30 September 2015. As at 30 September 2015, this full amount was
payable.
Notes to the Financial Statements (continued)
4. Related parties (continued)
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The Company has funded investments with a value of EUR60,328,685
via hybrid instruments or equity issued by legally segregated
compartments of AREO S.à.r.l. ("Areo"), a company incorporated in
Luxembourg under the Securitization Law of 2004. Areo is majority
owned by funds managed by the Chenavari group and is managed by a
Board of Directors composed of a majority of independent directors
that consider investment opportunities sourced by the Portfolio
Manager. The Company is currently invested in two compartments of
Areo, and which it fair values in accordance with IFRS 13 as set
out in the Company's accounting policies. The Portfolio Manager
receives no fees from Areo. Areo is a conduit special purpose
vehicle sponsored by a member of the Chenavari Financial Group, for
the purposes of the Company's application of Listing Rule II.
5. Material agreements
(a) Financial Adviser and Bookrunner to the Placing
For its services as the Company's placing agent pursuant to a
placing agreement dated 28 April 2015 in connection with the IPO of
shares in May 2015 and subsequent share issues in July 2015, Dexion
Capital Limited (the "Placing Agent") was entitled to receive a
corporate finance fee and a commission calculated by reference to
the Gross Issue Proceeds of the Placing of the IPO. The Placing
Agent received a fee of EUR504,359 under this agreement. These fees
are shown in equity as a deduction from the proceeds of the issue
of Shares. The Placing Agent is also entitled to receive a retainer
for their corporate broking services of GBP75,000 per annum,
payable quarterly in advance.
(b) Administration fee
Morgan Sharpe Administration Limited (the "Administrator")
serves as the Company's administrator and secretary. The
Administrator is entitled to an annual asset-based fee calculated
at a rate of 0.017 per cent. per annum of Net Asset Value and
subject to a minimum fee of GBP70,000 per annum. All fees are
payable quarterly in advance. Administration fees for the period
amounted to EUR38,656 of which EUR7,907 remained payable at the end
of the period.
(c) Sub-Administration fee
The Administrator has appointed Quintillion Limited (the
"Sub-Administrator") as the Company's sub-administrator. The
Sub-Administrator is entitled to receive an annual asset-based fee
from the Company of up to 0.073% per annum of NAV, excluding
certain expenses. Sub-Administration fees for the period amounted
to EUR101,333 of which EUR22,582 remained payable at the end of the
period.
(d) Custodian fee
J.P. Morgan Chase Bank N.A has been appointed to act as
custodian to the Company and to provide custodial, settlement and
other associated services to the Company. Under the provisions of
the custodian agreement dated 27 April 2015 the Custodian is
entitled to a safekeeping and administration fee on each
transaction calculated using a basis point fee charge based on the
country of settlement and the value of the assets together with
various other payment/wire charges on outgoing payments, subject to
an aggregate minimum fee of EUR31,500 per annum.
(e) AIFM and Portfolio Manager
Contractual arrangements relating to the AIFM and Portfolio
Manager are detailed in note 4.
6. Financial risk management
Throughout the investment process and following acquisition of
an investment, the Portfolio Manager is proactive in identifying
and seeking to mitigate transaction and portfolio risk.
The Portfolio Manager will be responsible for sourcing potential
investments. The Portfolio Manager will not be required to, and
generally will not, submit decisions concerning the discretionary
or ongoing management of the Company's assets for the approval of
the Board, except where such approval relates to an application of
the investment guidelines or a conflict of interest.
6.1 Credit risk
The Company takes on exposure to credit risk, which is the risk
that a counterparty will be unable to pay amounts in full when due.
To the extent that the Portfolio is exposed to underlying
concentrations in any one geographical region, borrower sector or
credit or asset type, an economic downturn relating generally to
such geographical region, borrower type or credit or asset type may
result in an increase in underlying defaults or prepayments within
a short time period.
The Portfolio is expected to carry leveraged exposure and an
increase in credit losses with respect to any or all Collateral
could reduce the Company's income (and thus the ability to pay
dividends to Shareholders), the NAV and the value of the
Shares.
Notes to the Financial Statements (continued)
6. Financial risk management (continued)
6.1 Credit risk (continued)
None of the restrictions set out below shall apply to
investments issued or guaranteed by the government of an OECD
Member State.
In relation to investments made:
-- no more than 20 per cent. of Net Asset Value shall be exposed
to the credit risk of any underlying single transaction or
issue;
o As of 30 September 2015, the largest investment represents
10.66% of the NAV.
-- the top five exposures to any transactions or issues shall
not, in aggregate, account for more than 50 per cent. of Net Asset
Value;
o As of 30 September 2015, the top 5 investments represent
27.16% of the NAV.
-- no more than 50 per cent. of Net Asset Value, in aggregate,
shall be invested in unlisted investments,
o As of 30 September 2015, 12.57% of the NAV is invested in
unlisted investments.
and in each case, the restrictions set out above shall not apply
to the Company's investment in Originators (the originator or
sponsor of a CLO or a securitisation of a pools of consumer loan
assets) but shall be applied on a look-through basis to the
investments of such Originators; and
-- no more than 20 per cent. of Net Asset Value, in aggregate,
shall be exposed to transactions or issues where the underlying
collateral is non-European.
o As of 30 September 2015, less than 7.5% of the NAV is exposed
to non-European underlying collateral
The Company may use borrowings from time to time for the purpose
of short term bridging, financing Share buy backs, repurchase
agreements with market counterparties or managing working capital
requirements, including hedging facilities.
-- The Company has set a borrowing limit such that the Company's
gearing shall not exceed 130 per cent. at the time of incurrence
and deployment of any borrowing.
o As of 30 September 2015, the gearing of the Company was
82%
In addition, the Company may from time to time have surplus cash
(for example, following the disposal of an acquired investment).
Cash held by the Company pending investment or distribution will be
held in either cash or cash equivalents, including but not limited
to money market instruments or funds, bonds, commercial paper or
other debt obligations with banks or other counterparties provided
such bank or counterparty has an investment grade credit rating (as
determined by any reputable rating agency selected by the Company
on the advice of the Portfolio Manager).
Notes to the Financial Statements (continued)
6. Financial risk management (continued)
6.1 Credit risk (continued)
The Company manages the portfolio with appropriate
diversification in terms of sectors and geographical breakdowns. As
of 30 September 2015, the breakdown of the NAV per asset class and
geography was as follows:
Asset class breakdown % NAV
----------------------------- --------
Equity Securities 0.07%
----------------------------- --------
Bond 0.09%
----------------------------- --------
Arbitrage CDO 22.22%
----------------------------- --------
Commercial mortgage-backed
security 2.72%
----------------------------- --------
Arbitrage CLO 27.65%
----------------------------- --------
Residential mortgage-backed
security 19.41%
----------------------------- --------
Balance Sheet CLO 2.53%
----------------------------- --------
Consumer ABS 3.36%
----------------------------- --------
Senior Loan 2.16%
----------------------------- --------
Whole Loan 1.63%
----------------------------- --------
Repo (5.07%)
----------------------------- --------
Cash, Hedges and
Accruals 23.23%
----------------------------- --------
Total 100.00%
----------------------------- --------
Geographic breakdown % NAV
---------------------- --------
United Kingdom 25.18%
---------------------- --------
Spain 15.43%
---------------------- --------
Netherlands 7.59%
---------------------- --------
Germany 4.76%
---------------------- --------
Italy 3.65%
---------------------- --------
Ireland 2.86%
---------------------- --------
USA 2.78%
---------------------- --------
France 2.72%
---------------------- --------
Other Europe 7.11%
---------------------- --------
Other 4.69%
---------------------- --------
Cash & Collateral 23.23%
---------------------- --------
Total 100.00%
---------------------- --------
(MORE TO FOLLOW) Dow Jones Newswires
January 28, 2016 02:00 ET (07:00 GMT)
The Company is also exposed to counterparty credit risk on
forwards, cash and cash equivalents, amounts due from brokers and
other receivable balances, as shown in the following table:
Royal Bank Deutsche
of Scotland Bank JP Morgan Total
S&P rating BBB- BBB+ A-
EUR EUR EUR EUR
Cash and cash
equivalents 158,983 - *57,662,449 57,821,432
Due from Broker 7,018,843 6,167,097 17,372,313 30,558,253
Credit default
swaps - - 441,378 441,378
Listed Options - - 462,606 462,606
Forward FX contracts - 124,028 - 124,028
Total counterparty
exposure 7,177,826 6,291,125 75,938,746 89,407,697
------------- ---------- ------------ -----------
Net asset exposure
% 1.96% 1.71% 20.69% 24.36%
* JP Morgan cash and cash equivalents represents cash held in a
custodian account.
Offsetting Financial Assets and Financial Liabilities
The Company enters into transactions with a number of
counterparties whereby the resulting financial instrument is
subject to an enforceable master netting arrangement or similar
agreement, such as an ISDA Master Agreement (a "Master Netting
Agreement"). Such Master Netting Agreements may allow for net
settlement of certain open contracts where the Company and the
respective counterparty both elect to settle on a net basis. In the
absence of such an election, contracts will be settled on a gross
basis. All Master Netting Agreements allow for net settlement at
the option of the non-defaulting party in an event of default, such
as failure to make payment when due or bankruptcy.
Notes to the Financial Statements (continued)
6. Financial risk management (continued)
6.1 Credit risk (continued)
The below table present the Company's financial asset and
liabilities subject to offsetting, enforceable master netting
agreements.
Assets
Related amount not offset in the Statement
As at 30 September 2015 of Financial Position
------------------------------------------------
Net Amounts of
Gross Amounts Assets
Offset in the Presented in
Gross Amounts Statement of the Statement
of Recognised Financial of Financial Financial Cash collateral
Counterparty Assets Position Position instruments received/pledged Net amount
----------------- --------------- --------------- --------------- ---------------- ----------------- -----------
EUR EUR EUR EUR EUR EUR
Derivative
Credit Default
JP Morgan 441,378 - 441,378 (441,378) - -
Forward FX
Contracts
Deutsche Bank 220,922 - 220,922 (96,894) - 124,028
--------------- --------------- --------------- ---------------- ----------------- -----------
662,300 - 662,300 (538,272) - 124,028
=============== =============== =============== ================ ================= ===========
Liabilities
Related amount not offset in the Statement
As at 30 September 2015 of Financial Position
------------------------------------------------
Net Amounts of
Gross Amounts Liabilities
Offset in the Presented in
Gross Amounts Statement of the Statement
of Recognised Financial of Financial Financial Cash collateral
Counterparty Liabilities Position Position instruments received/pledged Net amount
----------------- --------------- --------------- --------------- ---------------- ----------------- -----------
EUR EUR EUR EUR EUR EUR
Derivative
Contracts
Credit Default
Swaps
JP Morgan
ChasBank (882,755) - (882,755) 441,378 - (441,377)
Forward FX
Deutsche Bank (96,894) - (96,894) 96,894 - -
(979,649) - (979,649) 538,272 - (441,377)
=============== =============== =============== ================ ================= ===========
None of the financial assets and financial liabilities are
offset in the statement of financial position, as the Master
Netting Agreements create a right of set-off of recognised amounts
that is enforceable only following an event of default, insolvency
or bankruptcy of the Company or counterparties. In addition, the
Company and its counterparties do not intend to settle on a net
basis or to realise the assets and settle the liabilities
simultaneously.
6.2 Foreign currency risk
Foreign currency risk is the risk of gain or loss resulting from
exposure to movements on exchange rates on investments priced in
currencies other than the base currency of the Company. The Company
does not actively take risk in foreign currency, but incurs it as a
normal course of business and employs a series of economic hedges
to minimise these risks.
Notes to the Financial Statements (continued)
6. Financial risk management (continued)
6.2 Foreign currency risk (continued)
NAV
impact
for
30 September 30 September a +/-10%
2015 2015 FX
Other net Total Total rate
Currency Investments FX Hedges Cash liabilities exposure exposure move
EUR EUR EUR EUR EUR % %
GBP 50,563,733 (56,900,951) 7,264,772 (195,268) 732,285 0.20% 0.02%
USD 6,123,971 (6,262,666) 8,248,474 - 8,109,779 2.21% 0.22%
------------- ----------
56,687,704 (63,163,617) 15,513,246 (195,268) 8,842,064 2.41% 0.24%
------------ ------------- ----------- ------------- ------------- ------------- ----------
6.3 Interest rate risk
Interest rate risk is the risk of gain or loss resulting from
exposure to movements on interest rates. The Company does not
actively take interest rate risk, but incurs it as a normal course
of business and employs a series of hedges to minimise these risks.
The Company only holds floating rate financial instruments which
have little exposure to fair value interest rate risk as, when the
short term interest rates increase, the interest on a floating rate
note will increase. The value of assed backed securities may be
affected by interest rate movements. Interest receivable on bank
deposits or payable on bank overdraft positions will be affected by
fluctuations on interest rates, however the underlying cash
positions will not be affected.
The Company's continuing position in relation to interest rate
risk is monitored by the Portfolio Manager.
30 September 2015
Fixed rate Floating rate Non-interest
interest interest bearing
EUR EUR EUR
Financial assets at fair value through profit or loss 29,869,845 271,140,273 506,836
Cash and cash equivalents - 57,821,432 -
Due from broker - 30,558,253 -
Other receivables and prepayments - - 10,514
Financial liabilities at fair value through profit or loss (19,405,249) - (96,894)
Due to broker - - (612,500)
Accrued expenses - - (2,767,082)
(MORE TO FOLLOW) Dow Jones Newswires
January 28, 2016 02:00 ET (07:00 GMT)
10,464,596 359,519,958 (2,959,126)
------------- -------------- -------------
6.4 Liquidity risk
A proportion of the Company's balance sheet is made up of assets
and liabilities which may not be realisable as cash on demand.
Under certain market circumstances already seen in the past, most
of the portfolio which consists of Asset Backed Securities can
become less liquid and the cost of unwinding may become
significant. As a result an exposure to liquidity risk exists. This
risk is mitigated by the closed-ended nature of the Company.
The table below analyses the Company's liabilities into relevant
maturity groups based on the remaining period at the balance sheet
date to the contractual maturity date.
30 September 2015
Greater
Less than than 3
3 months months Total
EUR EUR EUR
Financial liabilities
at fair value through
profit or loss (18,619,388) (882,755) (19,502,143)
Due to broker (612,500) - (612,500)
Accrued expenses (2,694,482) (72,600) (2,767,082)
--------------
(21,926,370) (955,355) (22,881,725)
-------------- ----------- --------------
Notes to the Financial Statements (continued)
6. Financial risk management (continued)
6.4 Liquidity risk (continued)
The Company is all equity funded and has been established as a
Registered Closed-ended Collective Investment Scheme. Other than in
the circumstances and subject to the conditions set out in Part I
of the prospectus, Shareholders will have no right to have their
Shares redeemed or repurchased by the Company at any time.
Shareholders wishing to
realise their investment in the Company will normally therefore
be required to dispose of their Shares through the secondary
market.
6.5 Price risk
Market price risk arises mainly from uncertainty about future
prices of financial instruments and credit ratings of debt issuers
in which the Company invests. Market price risk represents the
potential loss the Company may suffer through price movements on
its investments.
The Company is exposed to market price risk arising from the
investments in equity securities, debt and derivatives.
The Portfolio Manager manages the Company's price risk and
monitors its overall market positions on a daily basis in
accordance with the Company's investment objective and policies.
The Company's overall market positions are monitored on a quarterly
basis by the board of directors.
As at 30 September 2015, a 5% movement in prices (with all other
variables held constant) would have resulted in a change to the
total net assets of EUR15,026,865.
7. The current risk profile of the AIF and the risk management
systems employed by the AIFM to manage those risks
The risk management systems employed by the AIFM are designed
into and are an integral part of the continuous investment process.
Every position is constantly monitored in order to protect downside
risk. Exposure limits are applicable to all positions and asset
classes at all times. The risk management systems incorporate a
Risk Officer who is functionally and hierarchically separate from
portfolio management, and who has full access to risk management
information. The risk management systems also include risk
reporting, the monitoring of risk limits, and breach alert and
actions. The Risk Officer reports to the Risk Committee of the
AIFM. The Risk Committee has ultimate responsibility for risk
management and controls of the AIF and for reviewing their
effectiveness on a regular basis, including taking appropriate
remedial action to correct any deficiencies. The Risk Committee has
determined the current risk profile of the AIF to be low. The AIFM
has also implemented a risk management policy to identify generic
risk types and to continuously review the limits and parameters
used within the risk management system.
8. Fair value of financial instruments
The fair values of financial assets and liabilities traded in
active markets (such as publicly traded derivatives and trading
securities) are based on quoted market prices at the close of
trading on the period end date. The Company has adopted IFRS 13,
'Fair value measurement' and this standard requires the Company to
price its financial assets and liabilities using the price in the
bid-ask spread that is most representative of fair value for both
financial assets and financial liabilities. If a significant
movement in fair value occurs subsequent to the close of trading up
to midnight on the period end date, valuation techniques will be
applied to determine the fair value. No such event occurred. An
active market is a market in which transactions for the asset or
liability take place with sufficient frequency and volume to
provide pricing information on an ongoing basis.
For financial assets and liabilities not traded in active
markets the fair value is determined by using broker quotations
where the broker is a recognised dealer in the respective position,
valuation techniques and various methods include the use of
comparable recent arm's length transactions, reference to other
instruments that are substantially same, discounted cash flow
analysis, option pricing models, alternative price sources
including a combination of dedicated price feeds from recognised
valuation vendors and the application of relevant.
For instruments for which there is no active market, the Company
may also use internally developed models, which are usually based
on valuation methods and techniques generally recognised as a
standard within the industry. Some of the inputs to these models
may not be market observable and are therefore based on
assumptions.
Notes to the Financial Statements (continued)
8. Fair value of financial instruments (continued)
The level of the fair value hierarchy of an instrument is
determined considering the inputs that are significant to the
entire measurement of such instrument and the level of the fair
value hierarchy within those inputs are categorised.
The hierarchy is broken down into three levels based on the
observability of inputs as follows:
Level 1: Quoted price (unadjusted) in an active market for an
identical instrument.
Level 2: Valuation techniques based on observable inputs, either
directly (i.e. as prices) or indirectly (i.e. derived from prices).
This category includes instruments valued using: quoted prices in
active markets for similar instruments; quoted prices for identical
or similar instruments in markets that are considered less than
active; or other valuation techniques for which all significant
inputs are directly or indirectly observable from market data.
Level 3: Valuation techniques using significant unobservable
inputs. This category includes all instruments for which the
valuation technique includes inputs not based on observable data
and the unobservable inputs have a significant effect on the
instrument's valuation. This category includes instruments that are
valued based on quoted prices for similar instruments for which
significant unobservable adjustments or assumptions are required to
reflect differences between the instruments.
The level in the fair value hierarchy within which the fair
value measurement is categorised in its entirety is determined on
the basis of the lowest level input that is significant to the fair
value measurement in its entirety. For this purpose, the
significance of an input is assessed against the fair value
measurement in its entirety. If a fair value measurement uses
observable inputs that require significant adjustment based on
unobservable inputs, that measurement is a Level 3 measurement.
Assessing the significance of a particular input to the fair value
measurement in its entirety requires judgement, considering factors
specific to the asset or liability.
Notes to the Financial Statements (continued)
8. Fair value of financial instruments (continued)
The determination of what constitutes 'observable' requires
significant judgement by the Company. The Company considers
observable data to be that market data that is readily available,
regularly distributed or updated, reliable and verifiable, not
proprietary, and provided by independent sources that are actively
involved in the relevant market.
The following tables show the Company's assets at 30 September
2015 based on the hierarchy set out in IFRS 13:
Quoted
Prices
in active
markets Significant Significant
for identical other observable unobservable
assets inputs inputs
(Level (Level (Level
1) 2) 3) Total
2015 2015 2015
Assets EUR EUR EUR EUR
Financial assets
held for trading
Equity
securities
Eurozone:
Equity 251,913 - - 251,913
Debt securities
(by instrument
currency)
Europe: Corporate
& financials - 2,960 - 2,960
(MORE TO FOLLOW) Dow Jones Newswires
January 28, 2016 02:00 ET (07:00 GMT)
UK: Corporate - 3,612,386 - 3,612,386
Europe: Sovereign - 326,673 - 326,673
Europe: Private
Bond - - 10,130,000 10,130,000
Europe: Asset
backed securities - 121,109,352 93,733,471 214,842,823
UK: Asset
backed securities - 52,532,146 4,746,482 57,278,628
Money market
loan - - 13,946,665 13,946,665
OTC Derivatives
Credit default
swaps - 441,378 - 441,378
Equity options 462,606 - - 462,606
Forward FX
contracts - 220,922 - 220,922
Total
assets 714,519 178,245,817 122,556,618 301,516,954
--------------- ------------------ -------------- -------------
Liabilities
Financial liabilities
held for trading
OTC Derivatives
Credit default
swaps (882,755) - - (882,755)
Forward FX
contracts - (96,894) - (96,894)
Repurchase
Agreements - (18,522,494) - (18,522,494)
Total liabilities (882,755) (18,619,388) - (19,502,143)
--------------- ------------------ -------------- -------------
Financial instruments that trade in markets that are not
considered to be active but are valued based on quoted market
prices, dealer quotations or alternative pricing sources supported
by observable inputs are classified within Level 2.
Investments classified within Level 3 have significant
unobservable inputs, as they trade infrequently.
Twenty-six Level 3 investments were held during the Period.
Notes to the Financial Statements (continued)
8. Fair value of financial instruments (continued)
Inception 30/09/2015
Product Transaction Trade Fair Unrealised Fair
Type number Date Value Realised & FX Purchases Sales Redemptions Value
ARB CDO 1 08/05/2015 - - (139,365) 1,740,000 - - 1,600,635
ARB CDO 2 08/05/2015 - 42,914 340,574 212,452 - (49,392) 546,548
ARB CDO 3 08/05/2015 - - 27,507 1,525,000 - - 1,552,507
ARB CDO 4 08/05/2015 - - 163,206 800,000 - - 963,206
ARB CDO 5 08/05/2015 - - - 320,000 - - 320,000
ARB CDO 6 08/05/2015 - - (134,480) 1,750,000 - - 1,615,520
ARB CDO 7 19/06/2015 - - 74,819 175,000 - 15,695 265,514
ARB CDO 8 08/05/2015 - 822,988 (1,017,275) 42,679,911 - (3,370,438) 39,115,186
ARB CLO 9 08/05/2015 - - (141,000) 893,000 - - 752,000
ARB CLO 10 08/05/2015 - - 46,068 1,040,000 - - 1,086,068
ARB CLO 11 08/05/2015 - 127,233 4,994 1,800,000 - (1,296,562) 635,665
ARB CLO 12 08/05/2015 - - 196,250 5,570,560 - - 5,766,810
ARB CLO 13 19/06/2015 - - (25,364) 1,653,000 - - 1,627,636
ARB CLO 14 30/06/2015 - - 800 201,250 - - 202,050
ARB CLO 15 16/07/2015 - - 130,000 10,000,000 - - 10,130,000
ARB CLO 16 24/09/2015 - - - 31,250,000 - - 31,250,000
BS CLO 17 08/05/2015 - 13,259 2,467 239,949 - (52,418) 203,257
BS CLO 18 08/05/2015 - - (75) 280,140 - - 280,065
BS CLO 19 08/05/2015 - - (899,500) 6,492,500 - - 5,593,000
CMBS 20 08/05/2015 - - (85,177) 340,715 - - 255,538
CMBS 21 08/05/2015 - - 3,399 44,743 - - 48,142
CMBS 22 08/05/2015 - - 7,064 13,060 - - 20,124
RMBS 23 08/05/2015 - 18,071 134,814 4,657,773 - (64,176) 4,746,482
RMBS 24 08/05/2015 - - (8,500) 42,500 - - 34,000
SENIOR
LOAN* 25 08/05/2015 - - 97,548 7,845,752 - - 7,943,300
WHOLE
LOAN** 26 14/07/2015 - - 50,592 5,952,773 - - 6,003,365
- 1,024,465 (1,170,634) 127,520,078 - (4,817,291) 122,556,618
---------- ---------- ------------ ------------ ------ ------------ ------------
*Senior Loan secured by borrower's assets
** Whole Loan secured by real estate asset
Product
Type Description
ARB CDO Arbitrage CDO
ARB CLO Arbitrage CLO
BS CLO Balance Sheet CLO
Commercial mortgage-backed
CMBS security
Residential mortgage-backed
RMBS security
As of 30 September 2015, twenty-six investments were categorised
within Level 3 of the fair value hierarchy, representing 33.39% of
the NAV.
With the exception of transactions 15, 16 and 23 those
investments were valued using third-party pricing information.
Those third-party prices were corroborated, when possible, with
transactions although those do not always happen frequently.
The below sensitivity analysis presents an approximation of the
potential effects of events that could have occurred as at the
reporting date, and mostly based on the Portfolio Manager's stress
case of 1.5 and 2XCDR ("Constant Default Rate") per product type
expressed as a percentage of the NAV, this analysis excludes
transactions 16, 19 and 23, on which an analysis follows the
table.
Notes to the Financial Statements (continued)
8. Fair value of financial instruments (continued)
However, since most valuations were based upon prices received
from banks or other market participants, the sensitivity analyses
produced are not necessarily based upon the assumptions used by
such banks/market participants as these are not made available to
the Company.
1.5xCDR 2xCDR
ARB CDO -0.10% -0.14%
ARB CLO -0.33% -0.61%
BS CLO -0.02% -0.03%
CMBS 0.01% 0.01%
CONS
ABS 0.00% 0.00%
RMBS -0.01% -0.01%
In addition to the CDR sensitivities above, some transactions
are sensitive to specific parameters:
Transaction 16: This transaction is mainly sensitive to the
collection on assets. The stress applied was 90% of expected
collections in the base case scenario. The overall effect on GAV is
EUR5,515,625 or 1.49%.
Transaction 19: The stress applied was to increase the
percentage of default bucket and the loss severity. The overall
effect on NAV is EUR510,420 or 0.14%.
Transaction 23: The transaction is mainly sensitive to the
expected exit price of the portfolio embedded in the model price.
The stress was a 5% reduction on the expected exit price. The
overall effect on NAV is EUR476,184 or 0.13%.
ARB CLO - generally vulnerable to increase in default rate and
loss severity of leveraged loans (primarily large cap corporates);
though due to structural features, some tranches may benefit from
moderate increase in defaults. The default rate and loss severity
themselves are affected by state of global and regional economies
and capital markets.
BS CLO - generally vulnerable to increase in default rate and
loss severity of bank loans to SMEs. The default rate and loss
severity themselves are affected by interest rates and state of
local economy in particular growth.
CMBS - most of the pre-2008 deals consist of defaulted assets
and have high asset concentration. This makes the deals sensitive
to recovery rates (market value of commercial real estate) and
ability of borrowers to refinance.
CONS ABS - generally sensitive to default rate and loss severity
of consumers. The default rate and loss severity themselves are
affected by state of local economy in particular unemployment.
RMBS - generally sensitive to default rate and loss severity of
owner occupied and buy-to-let real estate. The default rate and
loss severity themselves are affected by interest rates and state
of local economy in particular unemployment.
9. Earnings per Share - Basic & Diluted
(MORE TO FOLLOW) Dow Jones Newswires
January 28, 2016 02:00 ET (07:00 GMT)
The earnings per Share - Basic and Diluted of 3.52 cent has been
calculated based on the weighted average number of Shares of
348,190,411 and a net gain of EUR12,272,932 over the Period.
There were no dilutive elements to shares issued or repurchased
during the period.
10. Net Asset Value per Share
The NAV per share of 101.54 cent is determined by dividing the
net assets of the Company attributed to the Shares of
EUR367,025,428 by the number of Shares in issue at 30 September
2015 of 361,450,000.
Notes to the Financial Statements (continued)
11. Financial assets and financial liabilities at fair value through profit or loss
30 September
2015
EUR
Financial assets at fair value through
profit or loss :
Held for trading:
- Debt securities 13,745,346
- Asset backed securities 272,121,451
- Sovereign bonds 326,673
- Equity securities 251,913
- Listed options 462,606
- Money market loan 13,946,665
- Credit default swaps 441,378
- Forward FX contracts 220,922
-------------
Total financial assets at fair value
through profit or loss 301,516,954
-------------
Financial liabilities at fair value
through profit or loss :
Held for trading:
- Credit default swaps (882,755)
- Forward FX contracts (96,894)
- Repurchase Agreement (18,522,494)
-------------
Total financial liabilities at fair
value through profit or loss (19,502,143)
-------------
12. Net gain on financial assets and financial liabilities held
at fair value through profit or loss
30 September
2015
EUR
Net gain/(loss) on financial assets
and liabilities at fair value through
profit or loss held for trading
- Credit default swaps 503,968
- Debt securities 4,636,839
- Asset backed securities 8,178,651
- Equity securities 13,231
- Listed options 2,488,952
- Futures (64,970)
- Loans 550,951
Net gain on financial assets and liabilities
at fair value through profit or loss
held for trading 16,307,622
-------------
Net gain/(loss) on foreign exchange
and forward contracts
Realised gain on forward contracts 261,270
Unrealised gain on forward contracts 124,028
Realised gain on foreign exchange 948,008
Unrealised loss on foreign exchange (1,212,665)
Net gain on foreign exchange and forward
contracts 120,641
-------------
Net gain on financial assets and liabilities
at fair value through profit or loss,
foreign exchange and forward contracts 16,428,263
-------------
13. Due from and to brokers
30 September 2015
EUR
Collateral and funding cash 10,868,726
Receivables for securities sold 19,689,527
30,558,253
--------------------
30 September 2015
EUR
Payables for securities purchased 612,500
612,500
------------------
Notes to the Financial Statements (continued)
14. Other receivables and prepayments
30 September
2015
EUR
Prepaid directors insurance fee 5,661
Prepaid listing fee 4,853
10,514
-------------
15. Accrued expenses
30 September
2015
EUR
Management fee (325,232)
Performance fees (2,165,819)
Administration fee (7,907)
Audit fee (72,600)
Corporate brokering fee (42,406)
Sub-Administration fee (22,582)
Legal fee (989)
Director's fee (30,343)
Custodian fee (17,811)
Other fee (81,393)
(2,767,082)
-------------
16. Share capital
The authorised share capital of the Company consists of an
unlimited number of unclassified shares of no par value. The
unclassified shares may be issued as, (a) Shares in such currencies
as the Directors may determine; (b) C Shares in such currencies as
the Directors may determine; and (c) such other classes of shares
in such currencies as the Directors may determine in accordance
with the Articles and the Law. Shares will be redeemable at the
option of the Company and not Shareholders.
Assenting Toro Capital I-A and I-B Shareholders were issued
roll-over Shares in the Company as an in specie distribution of the
liquidation proceeds to which they were entitled (the "Roll-Over
Shares"). In consideration for the issuance of Roll-Over Shares,
the liquidator and the Company entered into a transfer agreement
under which the liquidator transferred to the Company the
beneficial interest in the seed assets with a value approximately
equal to the aggregate net asset value of the Toro Capital I shares
held by the Assenting Toro Capital Shareholders as at the valuation
date.
The rights attaching to the Shares are as follows:
(a) As to income - subject to the rights of any Shares which may
be issued with special rights or privileges, the Shares of each
class carry the right to receive all income of the Company
attributable to the Shares, and to participate in any distribution
of such income by the Company, pro rata to the relative NAVs of
each of the classes of Shares and, within each such class, income
shall be divided pari passu amongst the holders of Shares of that
class in proportion to the number of Shares of such class held by
them.
(b) As to capital - on a winding up of the Company or other
return of capital (other than by way of a repurchase or redemption
of Shares in accordance with the provision of the Articles and the
Law), the surplus assets of the Company attributable to the Shares
remaining after payment of all creditors shall, subject to the
rights of any Shares that may be issued with special rights or
privileges, be divided amongst the holders of Shares of each class
pro rata to the relative NAVs of each of the classes of Shares and,
within each such class, such assets shall be divided pari passu
amongst the holders of Shares of that class in proportion to the
number of Shares of that class held by them.
(c) As to voting - the holders of the Shares shall be entitled
to receive notice of and to attend, speak and vote at general
meetings of the Company.
The rights attaching to C Shares are as follows:
(a) subject to the rights of any C Shares which may be issued
with special rights or privileges, the C Shares of each class carry
the right to receive all income of the Company attributable to the
C Shares, and to participate in any distribution of such income by
the Company, pro rata to the relevant NAVs of any of the issued
class of Shares and within each such class income shall be divided
pari passu amongst the holders of that class in proportion to the
number of C Shares of such class held by them;
Notes to the Financial Statements (continued)
16. Share capital (continued)
(b) the Shares of the relevant class into which C Shares of the
relevant class shall convert shall rank pari passu with the
Existing Shares of the relevant class for dividends and other
distributions made or declared by reference to a record date
falling after the Calculation Date; and
(c) no dividend or other distribution shall be made or paid by
the Company on any of its shares between the Calculation Date and
the Conversion Date (both dates inclusive) and no such dividend
shall be declared with a record date falling between the
Calculation Date and the Conversion Date (both dates
inclusive).
The following share transactions took place during the
Period:
Shares in
Shares in issue
issue Shares 30 September
Class Inception subscribed Shares redeemed 2015
No Par
Value - 361,450,000 - 361,450,000
C Shares - - - -
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Costs associated with the issue are as follows:
30 September 2015
EUR
Gross issue proceeds 357,009,468
Issue costs (2,256,972)
354,752,496
------------------
Capital Management
The Company's objectives when managing capital are to safeguard
the Company's ability to continue as a going concern to provide
returns to shareholders and benefits for other stakeholders and to
maintain an optimal capital structure to reduce the cost of
capital.
To maintain or adjust the capital structure, the Company may
adjust the amount of dividends paid to shareholders, return capital
to shareholders, issue new shares or sell assets. There are
currently no external capital requirements.
17. Segmental reporting
The Board is responsible for reviewing the Company's entire
portfolio and considers the business to have a single operating
segment. The Board's asset allocation decisions are based on a
single, integrated investment strategy of investing in Asset Backed
Securities and other structured credit investments in liquid
markets and the Company's performance is evaluated on an overall
basis.
The Company invests in a diversified portfolio. The fair value
of the major financial instruments held by the Company and the
equivalent percentages of the total value of the Company, are
reported in the Schedule of Investments.
18. Dividend policy
Subject to compliance with the Companies (Guernsey) Law, 2008
(as amended) and the satisfaction of the solvency test, the Company
intends to distribute income by way of dividends in line with the
prospectus on a quarterly basis with dividends declared in October,
January, April and July each year and paid in March, June,
September and December. The Company declared a dividend of 2 euro
cent per share for the Period to 30 September 2015; exceeding the
target minimum dividend. The dividend was paid on 4 December
2015.
Under the Companies (Guernsey) Law, 2008 (as amended), companies
can pay dividends in excess of accounting profit provided they
satisfy the solvency test prescribed by the Companies Law. The
solvency test considers whether a company is able to pay its debts
when they fall due, and whether the value of a company's assets is
greater than its liabilities.
Notes to the Financial Statements (continued)
19. Derivative financial instruments
The Company holds the following derivative instruments:
Credit default swaps ("CDS")
These are derivative contracts referencing an underlying credit
exposure, which can either be a single credit issuer or a portfolio
of credit issuers. The Company pays or receives an interest flow 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 Fund has bought protection the
maximum potential payout is the value of the interest flows the
Company is contracted to pay until the maturity of the
contract.
For short CDS positions, where the Company has sold protection,
the maximum potential payout in the event of a default of the
underlying instrument is the nominal value of the protection
sold.
The market for CDS may from time to time be less liquid than
debt securities markets. Due to the lower amount of cash required
to hold a position in the CDS versus cash bond markets, the
opposite has shown to be true during times of market illiquidity.
In relation to CDS where the Company sells protection the Company
is subject to the risk of a credit event occurring in relation to
the reference issuer. Furthermore, in relation to CDS where the
Company buys protection, the Company is subject to the risk of the
counterparty of the credit default swaps defaulting.
Listed Options
A listed option is a derivative financial instrument that
establishes a contract between two parties concerning the buying or
selling of an asset at a reference price during a specified time
frame. During this time frame, the buyer of the option gains the
right, but not the obligation, to engage in some specific
transaction on the asset, while the seller incurs the obligation to
fulfil the transaction if so requested by the buyer.
Forward Foreign Currency contracts
Forward Foreign Currency contracts entered into by the Company
represent a firm commitment to buy or sell an underlying currency
at a specified value and point in time based upon an agreed or
contracted quantity. The realised/unrealised gain or loss is equal
to the difference between the value of the contract at trade date
and the value of the contract at settlement date/period-end date,
and is included in the Consolidated Statement of Comprehensive
Income.
The following table shows the Company's derivative position at
the end of the Period:
30 September 2015
Financial Financial
assets at liabilities
fair value at fair Notional
value amount Maturity
EUR EUR EUR
Credit Default
Swaps Buy 20 June
Protection - (882,755) 18,000,000 2020
Credit Default
Swaps Sell 20 June
Protection 441,378 - (9,000,000) 2020
16 October
2015 to
18 December
Listed Options 462,606 - 462,606 2015
FX Contracts
14 December
GBP sell 220,922 - 57,121,874 2015
14 December
USD sell - (96,894) 6,165,771 2015
1,124,906 (979,649) 72,750,251
------------ ------------- ------------
20. Significant events during the Period and post balance sheet events
Following the year end, the Company announced a dividend of 2.0
cent per Ordinary share for the Period from First Admission (8 May
2015) to 30 September 2015; exceeding the target minimum dividend.
The dividend was paid on 4 December 2015.
Additionally, on 22 January 2016 the Company announced a
dividend of 2.0 cent per Ordinary share for the Period from 1
October 2015 to 31 December 2015 which is due to be paid on 4 March
2016.
Notes to the Financial Statements (continued)
21. Approval of the financial statements
The financial statements were approved for issue to shareholders
by the Directors on 27 January 2016.
Appendix 1
AIFMD Disclosures - (Unaudited)
Quantitative Remuneration Disclosure for the AIFM
Appropriate disclosures will be made in due course in accordance
with Article 22(2)(e) and 22(2)(f) of the AIFMD.
Liquidity
Liquidity risk is monitored by the AIFM on an ongoing basis. The
Risk Committee for the AIFM monitors the liquidity risk of the
Company to ensure that the liquidity profile of the investments of
the Fund complies with its underlying obligations.
At the date of this annual report there are no assets held by
the Company which are subject to special arrangements arising from
their illiquid nature. There has been no change to the liquidity
management system and procedures during the period since
incorporation. Please refer to the notes in the financial
statements for an analysis of the Company's liabilities and their
maturity dates at 30 September 2015.
Risk
The AIFM has delegated the portfolio management of the Company
to the Portfolio Manager whilst retaining responsibility for the
risk management functions for the Company in accordance with the
AIFMD. The AIFM's overall risk management process monitors the
consistency between the risk profile of the Company and the
investment objective, policies and strategy of the Company.
Responsibility for day to day management of the Company's risk
has been delegated to the Risk Officer, who works together with the
transversal risk team at the Portfolio Manager. The Risk Officer
reports to the Risk Committee of the AIFM. The Risk Committee has
ultimate responsibility for risk management and controls of the
Company and for reviewing their effectiveness on a regular basis,
including taking appropriate remedial action to correct any
deficiencies. The Risk Committee manages the risks of the Company
through the Risk Management Policy and Procedure (the "RMPP"). The
Risk Committee monitors all risk limits to ensure compliance or
that corrective action is taken in the event of breaches. The Risk
Committee monitors to see if limit levels are being approached and
endeavours to take appropriate steps to avoid limit breaches. The
Risk Committee is responsible for the implementation of the RMPP.
Operational risk is monitored through periodic due diligence of
delegates and ongoing monitoring of reporting from delegates.
The Risk Committee has oversight of the risk management
framework of the Company and specifically the effectiveness of the
risk management function with respect to governance and risk
compliance. The Committee ensures that market risk, liquidity risk,
credit risk, counterparty risk and operational risk are identified,
measured, monitored and managed in line with the AIFM's RMPP and
consistent with the Prospectus of the Company. The Committee
addresses any risk related issues and escalates to the AIFM Board
if necessary. The Committee is appointed by and reports to the AIFM
Board.
The AIFM has assessed the current risk profile of the Company to
be low.
Leverage
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