TIDMTORO
RNS Number : 2789G
Toro Limited
26 May 2017
Toro Limited
(a closed-ended investment company limited by shares
incorporated under the laws of
Guernsey with registered number 59940)
Unaudited Interim Financial Statements
For the period from 1 October 2016 to 31 March 2017
Potential investors are "qualified eligible persons" and
"Non-United States Persons" within the meaning of the US Commodity
Futures Trading Commission Regulation 4.7.
Chenavari Credit Partners LLP (the "Portfolio Manager") is
registered as a commodity pool operator ("CPO") with the Commodity
Futures Trading Commission (the "CFTC") and is a member of the
National Futures Association ("NFA") in such capacity under the
U.S. Commodity Exchange Act, as amended ("CEA"). With respect to
the Toro Limited, the Investment Manager has claimed an exemption
pursuant to CFTC Rule 4.7 for relief from certain disclosure,
reporting and recordkeeping requirements applicable to a registered
CPO. Such exemption provides that certain disclosures specified in
section 4.22 (c) and (d) of the regulation are not in its interim
report.
Contents
Commodity Exchange Affirmation Statement
Highlights for the period from 1 October 2016 to 31 March
2017
Corporate Summary
General Information
Chairman's Statement
Portfolio Manager's Report
Statement of Principal Risks and Uncertainties
Statement of Directors' Responsibilities
Independent Review Report to the Members of Toro Limited.
Condensed Unaudited Statement of Comprehensive Income
Condensed Unaudited Statement of Financial Position
Condensed Unaudited Statement of Changes in Equity
Condensed Unaudited Statement of Cash Flows
Condensed Unaudited Schedule of Investments, at Fair Value.
Notes to the Condensed Unaudited Financial Statements
FORWARD-LOOKING STATEMENTS
This interim 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.
Commodity Exchange Affirmation Statement
Commodity Exchange Statement Affirmation Required by the
Commodity Exchange Act, Regulation --4.7(b)(3)(i)
I, Loic Fery, hereby affirm that, to the best of my knowledge
and belief, the information contained in this interim report and
unaudited interim financial statements is accurate and
complete.
Loic Fery
Chief Executive Officer and representative of Chenavari Credit
Partners LLP, Commodity Pool Operator of Toro Limited.
25 May 2017
Highlights for the period from 1 October 2016 to 31 March
2017
-- During the period from 1 October 2016 to 31 March 2017 (the
"Period"), the Company's net asset value ("NAV") per Ordinary Share
("Share) increased by 2.42% to close at 99.73 cents, net of
dividends.
-- The NAV performance, dividends reinvested, was 5.05% during
the period. Dividends of 2.50 cents per Share were paid in respect
of each period, with 1.25 cents per Share related to the quarter to
30 September 2016 and 1.25 cents per Share related to the quarter
to 31 December 2016. On 24 April 2017 the Company announced a
further dividend payment of 1.50 cents per Share for the quarter to
31 March 2017.
-- The Company's mid-market share price at 31 March 2017 was
86.75 cents, representing a discount to NAV of 13.02%.
-- The profit for the Period was EUR13.2 million, or 3.88 cents
per Share, taking into account recognition of the following
significant items:
o total net income of EUR18.4 million.
o total operating expenses of EUR5.08 million.
-- At 31 March 2017 the Company was 96.2% invested and its free
cash holdings were EUR2.3 million.
Corporate Summary
For the Period
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").
The Company's Ordinary Shares (the "Shares") were admitted to
trading on the Specialist Fund Segment ("SFS") of the London Stock
Exchange and the International Stock Exchange (formerly the Channel
Islands Security Exchange Authority Limited) ("TISE") on 8 May
2015.
Investment objective and policy
The investment objective of the Company is to deliver an
absolute return from investing and trading in Asset Backed
Securities ("ABS") 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 annum over three to five years once the Company is fully
invested and (ii) a dividend of 5% per annum payable quarterly in
March, June, September and December of each year.
Subsequent to period end the Company announced on 12 May 2017
its target dividend would be increased to 8 cents per ordinary
share per annum, compared to the initial target of 5 cents
(annualised) stated in the prospectus published in connection with
the Company's May 2015 IPO.
Asset values
At 31 March 2017, the Company's NAV was EUR332,660,947, with the
NAV per Share amounting to 99.73 cents. 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 ("IFRS").
Duration
The Company has an indefinite life.
Website
The Company's website address is www.torolimited.gg
Listing information
The Company's Shares are admitted to trading on the SFS and
TISE.
The ISIN number of the Euro Shares is GG00BWBSDM98 and the SEDOL
is BWBSDM9.
The closing price of the Shares quoted on the SFS at 31 March
2017 was 86.75 cents per Share.
The average closing price of the Shares over the Period was
86.01 cents 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
Guernsey
GY4 6RT
Portfolio Manager AIFM
Chenavari Credit Partners Carne Global AIFM Solutions
LLP (C.I.) Limited
80 Victoria Street 8th Floor
London Union House
SW1E 5JL Union Street
St Helier
Jersey
JE2 3RF
Corporate Broker Registrar
Fidante Partners Europe Limited, Capita Registrars (Guernsey)
trading as Fidante Capital 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)
Gowling WLG (UK) 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
Estera Administration Limited J.P. Morgan Chase Bank
(formerly Morgan Sharpe) 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.
Financial performance
The Company's share price was 86.75 cents as of 31 March 2017,
trading then at a discount to NAV of 13.02%.
During the period from 1 October 2016 to 31 March 2017, the
Company's NAV total return was 5.05%.
Over the Period the Company generated a profit of EUR13.2
million or a profit of 3.88 cents per share.
The NAV per share was 99.73 cents at 31 March 2017.
The Company's NAV increased during the period by 2.42% (net of
dividend).
The Board initiated the buy-back policy published in the
Prospectus in October 2016 as per the shareholder circular dated 22
July 2016 and further renewed in the shareholder circular dated 17
February 2017.
Dividends
Since inception, the Company has declared seven dividends. The
total dividend for the six months period is 2.5 cents, to be
compared with an annual target of 5 per cent of the Issue Price per
Share as set out in the IPO prospectus.
Subsequent to period end the Company announced on 12 May 2017
its target dividend would be increased to at least 8 cents per
ordinary share per annum, compared to the initial target of 5 cents
(annualised) stated in the prospectus published in connection with
the Company's May 2015 IPO.
Investment portfolio and outlook
Please refer to the Investment Outlook section of the Portfolio
Manager's Report on page 11.
Frederic Hervouet
Non-executive Chairman
25 May 2017
Portfolio Manager's Report
Performance
During the Period, the Company NAV performance was 5.05%
(dividend reinvested).
The month-on-month performance (dividend reinvested) since
inception was the following:
Year YTD Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
------ ------ ------- ------- ------ ------ ------ ------- ------ ------ ------ ------ ------ ------
2015 4.53% 2.06% 0.15% 0.45% 0.64% 0.28% 0.02% 0.52% 0.34%
2016 3.85% -0.34% -2.44% 0.69% 0.92% 0.95% -0.04% 0.29% 1.13% 1.23% 0.54% 0.67% 0.24%
2017 3.55% 1.41% 0.88% 1.21%
Since inception, the Company has paid the following
dividends:
Period ending Dividend (cents
per Share)
September 2015 2.00
December 2015 2.00
March 2016 2.00
June 2016 1.25
September 2016 1.25
December 2016 1.25
In relation to the Period, the Company has declared dividends
totalling 2.5 cents.
Portfolio breakdown
As at 31 March 2017, the Company was 96.2% invested.
The NAV allocation per asset class was as follows:
31 March 30 September
2017 2016
Asset class breakdown % NAV % NAV
Equity securities 0.08% 0.05%
Bond 1.82% 0.69%
Arbitrage CDO 15.64% 18.97%
Commercial mortgage-backed security 2.62% 3.30%
Arbitrage CLO 19.20% 22.08%
Residential mortgage-backed
security 11.19% 9.98%
Balance sheet CLO 5.34% 5.31%
Consumer ABS 5.25% 4.74%
Senior loan 0.70% 0.72%
Whole loan 1.71% 1.53%
Non-performing loan 7.47% 7.97%
Preferred equity 9.64% 5.58%
Equity 16.51% 10.18%
Repo - 0.28%
Cash, hedges and accruals 2.74% 8.62%
Total 100.00% 100.00%
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Portfolio Manager's Report (continued)
Portfolio breakdown (continued)
The geographical breakdown of the underlying assets was as
follows:
31 March 30 September
2017 2016
Geographic breakdown % NAV % NAV
Other European Union 5.13% 9.66%
France 2.60% 3.09%
Germany 7.14% 7.68%
Great Britain 14.66% 15.14%
Ireland 21.12% 13.57%
Italy 3.29% 3.77%
Netherlands 7.51% 7.48%
Portugal 4.40% 2.62%
Spain 18.83% 20.15%
U.S.A 8.63% 4.46%
Other 2.93% 3.64%
Cash, collateral and accruals 3.77% 8.74%
Total 100.00% 100.00%
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Investment Strategy
Public ABS Strategy: The Company will opportunistically invest
or trade in primary and secondary ABS markets to seek out
opportunities that aim to unlock significant value from ABS
investments that the Portfolio Manager considers to be mispriced by
the market relative to their intrinsic value.
Private Asset Backed Finance Strategy: Through the Portfolio
Manager, the Company will leverage on the extensive relationships
it has with European Banks and retail credit firms in order to gain
access and invest in private asset backed finance transactions that
are otherwise unlisted and difficult to source.
Direct Origination Strategy: The Company will primarily invest,
on a buy-to-hold basis, in Originators of securitisation vehicles
by retaining the requisite Retention Securities in such vehicles,
pursuant to the relevant risk retention requirements in the EU or
the US. This strategy benefits from a liquidity premium and 'alpha'
by participating in the origination, as well as enhanced economics
on the retained interests, with further added value derived from
the team's sourcing and structuring capabilities. Additional
investment opportunities may also include providing warehouse
credit facilities.
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.
Activity of the Period
Market Overview
European ABS entered Q4 2016 continuing their streak of healthy
performance overall as spreads remained firm, despite tapering
fears and heightened volatility in the lead up to the US
presidential election and Italian constitutional referendum.
Nonetheless, performance became increasingly uneven and diverged
across sectors. Spreads on UK Buy-to-Let and non-conforming RMBS
initially softened on the back of heavy supply and fears over
Brexit, while spreads on CLO 2.0 IG-rated tranches broke new record
lows with AAA tranche pricing at EURIBOR 3M+96bps (vs. +150bps in
January).
Portfolio Manager's Report (continued)
Market Overview (continued)
European ABS trading volumes were relatively muted towards the
end of the year and European securitised products underperformed
the broader credit markets, lagging the overall year-end rally.
Spreads across the board were practically unchanged in December,
while the iTraxx XOVER (S26) 5Y index rallied over 50bps (15%) in
December. European Structured Finance new issuance was also
virtually non-existent in December, with the only exception being
three new CLOs, bringing year-to-date European CLO issuance to
EUR16.8bn, up 24% year-on-year.
During Q1 2017, total gross European ABS issuance reached
EUR11bn, while net issuance remained negative at EUR14bn due to
sizeable redemption activity. Not only has the significant targeted
longer-term refinancing operations takeout in March indicated a
continuous contraction of ABS issuance from Eurozone banks, but the
supply from private equity houses, finance companies and CLO
managers has also remained limited as underlying assets such as
secured leveraged loans are becoming scarcer and more expensive.
Concurrently, a large number of transactions have been redeemed, or
are scheduled to be called imminently, accounting for circa
EUR2.5bn across the ABS spectrum. Such positive technical dynamics
supported the market and spreads continued to rally across the
board, eliminating the lag initiated at the end of last year
compared to other liquid credit instruments.
High beta sectors including low mezzanine tranches were the
clear outperformers, with generic CLO 2.0 BB and B spreads
respectively tightening over the quarter by 120bps and 200bps,
outperforming IG-rated tranches. There was a significant spread
compression across the capital structure with an unsatisfied demand
on non-IG bonds as secondary inventory was light. New CLO issuance
started the year off slow, although finished the quarter slightly
ahead of the same point last year, with c. EUR2.8bn issued from
seven CLOs, five of which priced in March.
Trading Activity and drivers of performance
Trading activity declined from EUR100m in Q3 2016 to just over
EUR22m in Q4 2016, as liquidity progressively waned going into the
year-end while political headlines took a front seat. We
selectively reduced Toro's exposure to Spanish and Greek ABS
following a significant tightening of Greek Government Bonds
("GGB") (GGB 10yr tightened by over 100bps in the quarter). We also
rebalanced the CLO exposure, switching out of some CLO BB and B
rated tranches into primary CLO 2.0 with similar risks but higher
returns. We also added three vintage Iberian mezzanine RMBS
positions, offering an attractive risk/reward through a high
cash-on-cash yield and potential upside in case of early
redemption. We continued to rotate the portfolio into the Private
Asset Backed Finance and Direct Origination strategies, completing
the execution of two deals in November: a UK auto loan receivables
transaction (Project Sacramento) and an Irish buy-to-let mortgage
loans origination (Project Shamrock). Anticipated gross returns at
closing stood at 13% and 15%, respectively, which should allow for
an increase of the overall portfolio yield.
Q1 2017 was reasonably active as we traded 15 positions within
the Public ABS sub-book and we continued to rebalance the portfolio
out of Public ABS and into the Private Asset Backed Finance and
Direct Origination Strategies, respectively increasing to 17.4% and
24.3% of Toro Limited's NAV, from 17.1% and 21.7% at the end of
December. The substantial increase in the Direct Origination
Strategy from the end of last quarter was the result of the pricing
of Toro CLO 3 in early March where Toro Limited acquired in April,
through its Originator subsidiary, a controlling stake in the
equity (equivalent to the EU risk retention requirement), entitling
it to a 100% rebate of the pro-rata CLO management fees. The
transaction closed in mid-April at which time the ramp-up level was
70%. Under the base case, the forecasted gross return on the
bundled investment stands at c. 20% p.a. This new CLO follows the
pricing of TORO CLO 2 last summer that established Toro Limited's
Originator credentials.
During the period from 1 October 2016 to 31 March 2017, the
Company's NAV total return was 5.05%.
During Q4, Toro's net NAV was up 1.46%, dividend reinvested. The
Public ABS Strategy contributed to over 2% of NAV appreciation and
notably benefited from the sale of an illiquid mezzanine tranche of
a CDO of ABS in November, realising a significant gain over the
mark. Positive contributions also came from the early redemption of
an Irish RMBS mezzanine position, the appreciation of the Punch
Tavern positions following Heineken's takeover of the pubs
operator, and a significant,
Portfolio Manager's Report (continued)
Trading Activity and drivers of performance (continued)
but expected principal payment on the Company's largest
position, HOEF III A. The contribution from the Direct Origination
Strategy was positive at +0.34%, while hedging costs contributed
negatively by 0.28% and the Private Asset Back Finance Strategy was
down 0.7% during the quarter. All positions within the Private
Asset Back Finance Strategy posted positive numbers apart from
WIND, the Spanish non-performing loans transaction, which was
marked down by EUR3.2m (equivalent to -0.9% NAV) during the period.
Following the updated business plans provided by the servicers in
December, the price on WIND was revised lower on the back of more
conservative recovery assumptions and longer time to liquidation.
Although the position has been successively marked down since
inception, we would expect to recover these mark-to-model losses
ultimately and now see a 15% projected gross return based on a more
certain resolution strategy.
The performance of the second quarter 2017 was 3.55% dividend
reinvested. This strong performance was largely driven by trading
gains, carry and price appreciation within the Public ABS Strategy,
contributing to over 88% of the overall performance. Following a
decent rally during the period, we took profit on CLO and UK RMBS
and benefited from large payments on subordinated tranches of a CLO
2.0, two Portuguese SME CLOs, a UK non-conforming RMBS as well as a
partial principal payment of a senior tranche of a CDO of ABS (HOEF
III A, the largest position in Toro Limited).
Investment Outlook
As political risk in Europe recedes and economic data
accelerates, we believe the European ABS market should continue to
perform well, benefiting from negative net issuance and increasing
demand for floating rate credit instruments. Such a positive
backdrop should allow us to rebalance the portfolio further into
the Direct Origination and Private Asset Backed Finance strategies
which are anticipated to reach 50% of Toro Limited's NAV by the end
of the year.
In addition to the anticipated closing of Project TCLO 1 Reset
(refinancing of an existing CLO with partial retention of the
equity tranche by Toro's originator subsidiary) and Project Clove 2
(purchase of a performing Irish residential mortgage portfolio) in
June/ July, the expansion of the existing Irish mortgage loans
origination strategy (project Shamrock) and Spanish real estate
development financing platform (Project SpRED) should further
increase the exposure to the Direct Origination strategy. Indeed,
the pipeline on Project Shamrock has grown in excess of EUR50m
since the official launch in January 2017 and loans completions are
beginning to pick up pace. As these strategies further mature, we
would anticipate their contribution to the overall performance of
Toro to increase substantially in the months to come.
Post Balance Sheet Events
Following the period end, the Company announced a dividend of
1.5 cents per Ordinary share for the quarter ending 31 March 2017
which is due to be paid on 2 June 2017.
Chenavari Credit Partners LLP
Portfolio Manager
25 May 2017
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. The Directors
are comfortable that the risks are being appropriately
monitored.
Risk Explanation/Mitigant
--------------------- -------------------------------------------------
Collateral risk Investment Instruments purchased by
(default, recovery, the Company are linked to the credit
prepayment) performance 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.
--------------------- -------------------------------------------------
Market risk The fund is exposed to several market
factors. In particular, this fund is
primarily driven by underlying asset
appreciation/depreciation, captured
in the "Collateral Risk" section above.
The market price of the instruments
can also be affected by the changes
in expectations on the underlying collateral
and the ability to pay. In the short
term, the unrealised performance can
be affected by the sentiment of the
market, supply/demand of asset types,
expectations on unemployment, GDP growth,
credit cycle and stability of the Eurozone.
Because the liquidity of the instruments
is relatively low, prices will tend
to be sticky, but can be at risk to
sudden jumps in price when momentum
of sentiment is strong enough and certain
pools of investors are forced to liquidate.
The timing of these technical factors
can be quite out of sync with fundamentals.
The Company is closed ended, and has
tight limits on leverage. It is well
setup to ride out any short-term dislocations
in pricing without being forced to liquidate
investments at technically distressed
prices. Internal risk guidelines impose
a maximum loss of -10% for a +50% widening
combined -15% equity scenario. This
is achieved by employing hedging strategies
using liquid instruments. This reduces
the beta of the portfolio compared to
some of its peers.
--------------------- -------------------------------------------------
Valuation and Investments are valued in accordance
classification with the Company's Valuation Policy
of financial which is compiled with reference to
assets at fair key principles comprising; independence,
value through documentation, transparency, consistency
profit or loss and relevance and documents the pricing
risk process and 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.
--------------------- -------------------------------------------------
Statement of Principal Risks and Uncertainties (continued)
Risk Explanation/Mitigant
------------------ --------------------------------------------------
Valuation and The Portfolio Manager also engaged Duff
classification & Phelps, Ltd ("Duff & Phelps"), on
of financial behalf of the Company, as a valuation
assets at fair advisor to provide certain limited procedures
value through on some Transactions' valuation which
profit or loss the Investment Adviser identified and
risk (continued) requested Duff & Phelps to perform.
For the avoidance of doubt, notwithstanding
the Company's engagement with Duff &
Phelps, the Valuation Committee of the
Company remains ultimately responsible
for the determination of the Fair Value
of each Transaction, but may consider
Duff & Phelps' input in making such
determinations. Specifically, as of
30 September 2016, Duff & Phelps estimated
ranges of Fair Value for the Company's
interests in 4 transactions. Duff &
Phelps have not performed specific valuation
procedures during the period.
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.
------------------ --------------------------------------------------
Replenishment The terms of an investment may permit
risk (quality the relevant counterparty to alter the
of new reference composition of the collateral. The Portfolio
assets) 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.
------------------ --------------------------------------------------
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.
------------------ --------------------------------------------------
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 review of the performance
and capabilities of the Portfolio Manager
at its meeting on 19 October 2016 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.
------------------ --------------------------------------------------
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.
------------------ --------------------------------------------------
Statement of Directors' Responsibilities
We confirm to the best of our knowledge that:
-- these Condensed Unaudited Interim Financial Statements have
been prepared in accordance with International Accounting Standard
34.
-- the interim management report (comprising the Chairman's
Statement and Portfolio Manager's Report) meets the requirements of
an interim management report, and includes a fair review of the
information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being
an indication of important events that have occurred during the
period from 1 October 2016 to 31 March 2017 and their impact on the
Unaudited Interim Financial Statements; and a description of the
principal risks and uncertainties for the remaining six months of
the year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place during the period
from 1 October 2016 to 31 March 2017 and that have materially
affected the financial position or performance of the entity during
that period.
This responsibility statement was approved by the Board of
Directors on 25 May 2017 and is signed on its behalf by:
Frederic Hervouet
Non-executive Chairman
Date: 25 May 2017
Independent Review Report to the Members of Toro Limited
We have been engaged by the Company to review the financial
statements in the interim financial report for the period from 1
October 2016 to 31 March 2017 which comprises the Condensed
Statement of Comprehensive Income, the Condensed Statement of
Financial Position, the Condensed Statement of Changes in Equity,
the Condensed Statement of Cash Flows and related notes 1 to 23. We
have read the other information contained in the interim financial
report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the Condensed set of Financial Statements.
This report is made solely to the Company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Auditing Practices
Board. Our work has been undertaken so that we might state to the
company those matters we are required to state to it in an
independent review report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the company, for our review work, for this
report, or for the conclusions we have formed.
Directors' responsibilities
The interim financial report is the responsibility of, and has
been approved by, the Directors. The Directors are responsible for
preparing the interim financial report in accordance with the
Disclosure and Transparency Rules of the United Kingdom's Financial
Conduct Authority.
As disclosed in note 2, the annual financial statements of the
Company are prepared in accordance with IFRS as adopted by the
European Union. The condensed set of financial statements included
in this interim financial report has been prepared in accordance
with International Accounting Standard 34, "Interim Financial
Reporting," as issued by the IASB.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the interim financial
report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK and Ireland) and consequently does not enable us to
obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the interim financial report for the period from 1 October 2016
to 31 March 2017 is not prepared, in all material respects, in
accordance with International Accounting Standard 34 as issued by
the IASB and the Disclosure and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Deloitte LLP
Chartered Accountants
Guernsey
25 May 2017
Condensed Unaudited Statement of Comprehensive Income
For the period ended 31 March 2017
1 October 1 October
2016 to 2015
31 March to 31 March
2017 2016
Notes EUR EUR
Income
Net gain/(loss) on financial
assets and financial liabilities
held at fair value through
profit or loss 12 18,420,215 (1,925,648)
Interest income 11,044 -
Total net income/(expense) 18,431,259 (1,925,648)
----------- -------------
Expenses
Management fees 4(c) 1,713,068 1,792,177
Performance fees 4(c) 2,847,909 -
Administration fees 5(b) 40,643 46,880
Sub-administration fees 5(c) 113,676 131,860
Custodian and brokerage fees 5(d) 18,290 81,349
Legal fees 23,660 101,086
Directors' fees 4(a) 69,674 80,350
Audit fees 47,611 49,549
AIFM fees 4(c) 38,321 44,192
Other operating expenses 171,831 126,134
Total operating expenses 5,084,683 2,453,577
----------- -------------
Finance costs
Interest expense 121,794 79,661
Profit/(loss) for the period 13,224,782 (4,458,886)
=========== =============
Earnings/(loss) per Share
Basic and diluted 9 3.88 cents (1.23) cents
All items in the above statement derive from continuing
operations.
The Condensed Unaudited Schedule of Investments and notes to the
financial statements are an integral part of the financial
statements.
Condensed Unaudited Statement of Financial Position
As at 31 March 2017
31 March 30 September
2017 2016
Notes EUR EUR
Assets
Financial assets at fair
value through profit or
loss 8,11 324,084,687 325,171,844
Due from broker 13 15,585,461 12,984,494
Other receivables and prepayments 14 198,926 66,971
Cash and cash equivalents 2,311,345 24,548,560
Total assets 342,180,419 362,771,869
------------ -------------
Equity
Share capital and share
premium 16 331,008,060 354,752,496
Retained earnings 1,652,887 (2,761,799)
Total equity 332,660,947 351,990,697
------------ -------------
Current liabilities
Financial liabilities at
fair value through profit
or loss 8,11 3,959,834 3,958,272
Due to broker 13 577,697 3,501,238
Accrued expenses 15 4,981,941 3,321,662
Total liabilities 9,519,472 10,781,172
------------ -------------
Total equity and liabilities 342,180,419 362,771,869
------------ -------------
Shares outstanding 16 333,562,047 361,450,000
NAV per Share 10 99.73 cents 97.38 cents
__________________________ __________________________
Director: Director:
Date: 25 May 2017 Date: 25 May 2017
The Condensed Unaudited Schedule of Investments and notes to the
financial statements are an integral part of the financial
statements.
Condensed Unaudited Statement of Changes in Equity
For the period ended 31 March 2017
Share capital
Retained and share Treasury
earnings premium Reserve Total
Note EUR EUR EUR EUR
At 30 September
2016 (2,761,799) 354,752,496 - 351,990,697
Gain for the
period 13,224,782 - - 13,224,782
Transfer from
treasury reserve
on settling of
performance fees 4(c) - - 1,654,826 1,654,826
Repurchase of
shares - - (25,399,262) (25,399,262)
Distributions
to equity shareholders 18 (8,810,096) - - (8,810,096)
At 31 March 2017 1,652,887 354,752,496 (23,744,436) 332,660,947
============ ============== ============= =============
For the period ended 31 March 2016
Share capital
Retained and share Treasury
earnings premium Reserve Total
Note EUR EUR EUR EUR
At 30 September
2015 12,272,932 354,752,496 - 367,025,428
Loss for the
period (4,458,886) - - (4,458,886)
Distributions
to equity shareholders 18 (14,458,000) - - (14,458,000)
At 31 March 2016 (6,643,954) 354,752,496 - 348,108,542
============= ============== =========== =============
The Condensed Unaudited Schedule of Investments and notes to the
financial statements are an integral part of the financial
statements.
Condensed Unaudited Statement of Cash Flows
For the period ended 31 March 2017
1 October 1 October
2016 to 2015 to
31 March 31 March
2017 2016
EUR EUR
Cash flows from operating
activities
Profit/(loss) for the period 13,224,782 (4,458,886)
Adjustments for non-cash items
and working capital:
Purchase of investments (52,017,202) (162,991,978)
Disposal and paydowns of investments 62,171,199 165,862,776
Net (gain)/loss on financial
assets and derivatives at
fair value (9,065,278) 12,118,199
(Increase)/decrease in amounts
due from brokers (2,600,967) 8,932,919
(Increase)/decrease in other
receivables and prepayments (131,955) 7,965
Decrease in amounts due to
brokers (2,923,541) (612,500)
Increase/(decrease) in accrued
expenses 1,660,279 (1,412,824)
Net cash inflow from operating
activities 10,317,317 17,445,671
------------- --------------
Cash flows from financing
activities
Issue of Shares during the
period 1,654,826 -
Redemption of Shares during
the period (25,399,262) -
Distributions to equity shareholders (8,810,096) (14,458,000)
Net cash outflow from financing
activities (32,554,532) (14,458,000)
------------- --------------
Net (decrease)/increase in
cash and cash equivalents (22,237,215) 2,987,671
Cash and cash equivalents
at beginning of the period 24,548,560 57,821,432
Cash and cash equivalents
at end of the period 2,311,345 60,809,103
============= ==============
The Condensed Unaudited Schedule of Investments and notes to the
financial statements are an integral part of the financial
statements.
Condensed Unaudited Schedule of Investments, at Fair Value
As at 31 March 2017
Great
Europe France Germany Britain Ireland Italy Netherlands Portugal Spain U.S.A Other* Total NAV
EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR %
Financial assets
at fair value
through profit
or loss
Equity
securities
Hotels,
restaurants
& leisure - - - - - - 270,500 - - - - 270,500 0.08%
Equities
securities
total - - - - - - 270,500 - - - - 270,500 0.08%
----------- ---------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- ----------- ----------- ------------ -------
Debt securities
Bond - - - - - - - 6,041,826 - - - 6,041,826 1.82%
Arbitrage CDO 13,542,975 198,198 3,392,036 12,758,364 1,421,880 2,882,126 9,976,090 1,499,025 2,713,946 2,267,815 1,365,838 52,018,293 15.64%
Commercial
mortgage-backed
security - - 1,757,750 6,650,404 - - 301,368 - - - - 8,709,522 2.62%
Arbitrage CLO 463,535 8,443,438 10,756,962 6,151,311 2,744,148 1,144,207 8,166,444 48,380 1,978,989 12,905,970 11,098,659 63,902,043 19.20%
Residential
mortgage-backed
security - - 19,430 20,507,035 11,128,779 - 73,631 878,654 3,838,403 - 767,915 37,213,847 11.19%
Balance sheet
CLO - - - - - 6,920,269 - 6,157,000 4,677,017 - - 17,754,286 5.34%
Consumer ABS - - 7,834,984 2,683,591 - - 6,187,559 - 774,000 - - 17,480,134 5.25%
Senior loan - - - - - - - - - 2,357,023 - 2,357,023 0.71%
Whole loan - - - - - - - - - 5,683,577 - 5,683,577 1.71%
Mezzanine loan 252,542 - - - - - - - - - - 252,542 0.08%
Non-performing
loan - - - - - - - - 24,857,987 - - 24,857,987 7.47%
Preferred equity 2,791,615 - - 7,073 - - - - 23,794,902 5,468,966 - 32,062,557 9.64%
Equity - - - - 54,966,630 - - - - - - 54,966,630 16.51%
Debt securities
total 17,050,667 8,641,636 23,761,162 48,757,778 70,261,437 10,946,602 24,705,092 14,624,885 62,635,244 28,683,351 13,232,412 323,300,267 97.42%
----------- ---------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- ----------- ----------- ------------ -------
Derivative
financial asset
CDS - - - - - - - - - - 464,548 464,548 0.14%
Listed options - - - - - - - - - 27,348 - 27,348 0.01%
Forward FX
contracts - - - - - - - - - - 22,024 22,024 0.01%
Derivative
financial asset
total - - - - - - - - - 27,348 486,572 513,920 0.16%
----------- ---------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- ----------- ----------- ------------ -------
Financial assets
at fair value
through profit
or loss total 17,050,667 8,641,636 23,761,162 48,757,778 70,261,437 10,946,602 24,975,592 14,624,885 62,635,244 28,710,699 13,718,984 324,084,687 97.42%
----------- ---------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- ----------- ----------- ------------ -------
*This consists of all issued bonds where the fair value is less
than 1% of the NAV of the Fund at 31 March 2017.
Condensed Unaudited Schedule of Investments, at Fair Value
(continued)
As at 31 March 2017
Great
Europe France Germany Britain Ireland Italy Netherlands Portugal Spain U.S.A Other Total NAV
----------- ---------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- ----------- ----------- ------------ --------
EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR %
Financial
liabilities
at fair
value
through
profit
or loss
Derivative
financial
liabilities
CDS - - - - - - - - - - 3,151,656 3,151,656 0.95%
Forward FX
contracts - - - - - - - - - - 808,178 808,178 0.24%
----------- ---------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- ----------- ----------- ------------ --------
Derivative
financial
liabilities
total - - - - - - - - - - 3,959,834 3,959,834 1.19%
----------- ---------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- ----------- ----------- ------------ --------
Financial
liabilities
at fair
value
through
profit
or loss
total - - - - - - - - - - 3,959,834 3,959,834 1.19%
----------- ---------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- ----------- ----------- ------------ --------
Total net
investments 17,050,667 8,641,636 23,761,162 48,757,778 70,261,437 10,946,602 24,975,592 14,624,885 62,635,244 28,710,699 9,759,150 320,124,853 96.23%
----------- ---------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- ----------- ----------- ------------ --------
Other assets
and
liabilities 12,536,094 12,536,094 3.77%
----------- ------------ --------
Net assets 22,295,244 332,660,947 100.00%
----------- ------------ --------
Condensed Unaudited Schedule of Investments, at Fair Value
As at 30 September 2016
Great
Europe France Germany Britain Ireland Italy Netherlands Portugal Spain U.S.A Other* Total NAV
EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR %
Financial assets
at fair value
through profit
or loss
Equity
securities
Hotels,
restaurants
& leisure - - - 190,689 - - - - - - - 190,689 0.05%
Equities
securities
total - - - 190,689 - - - - - - - 190,689 0.05%
----------- ----------- ----------- ----------- ----------- ----------- ------------ ---------- ----------- ----------- ----------- ------------ -------
Debt securities
Bond 331,590 - - 3,167,259 - - - - - - - 3,498,849 0.99%
Arbitrage CDO 13,982,295 279,101 4,301,298 14,046,398 2,920,716 5,764,743 12,004,162 1,489,247 6,490,292 1,516,569 3,968,510 66,763,331 18.97%
Commercial
mortgage-backed
security 280,605 43,839 1,549,163 9,425,324 - - 176,756 - 5,480 - 140,303 11,621,470 3.30%
Arbitrage CLO 8,484,579 11,627,888 13,357,575 8,666,126 1,531,089 990,891 7,930,652 63,771 3,014,521 14,061,355 8,008,245 77,736,692 22.08%
Residential
mortgage-backed
security 1,398,712 - 35,780 15,174,798 7,458,546 - 71,667 269,171 10,715,702 - - 35,124,376 9.98%
Balance sheet
CLO 760,593 - - - - 6,517,925 - 7,404,500 4,011,297 - - 18,694,315 5.31%
Consumer ABS - - 7,791,589 2,637,898 - - 6,128,478 - 120,000 - - 16,677,965 4.74%
Senior loan 3,377,807 - - - - - - - - - - 3,377,807 0.96%
Whole loan 5,389,701 - - - - - - - - - - 5,389,701 1.53%
Non-performing
loan - - - - - - - - 28,046,479 - - 28,046,479 7.97%
Preferred equity - - - - - - - - 19,377,804 136,535 118,102 19,632,441 5.59%
Equity - - - - 35,847,475 - - - - - - 35,847,475 10.18%
Debt securities
total 34,005,882 11,950,828 27,035,405 53,117,803 47,757,826 13,273,559 26,311,715 9,226,689 71,781,575 15,714,459 12,235,160 322,410,901 91.60%
----------- ----------- ----------- ----------- ----------- ----------- ------------ ---------- ----------- ----------- ----------- ------------ -------
Derivative
financial asset
CDS - - - - - - - - - - 831,870 831,870 0.24%
Listed options - - - - - - - - - - 70,742 70,742 0.02%
Forward FX
contracts - - - - - - - - - - 683,852 683,852 0.19%
Repurchase
agreement - - - - - - - - - - 983,790 983,790 0.28%
Derivative
financial asset
total - - - - - - - - - - 2,570,254 2,570,254 0.73%
----------- ----------- ----------- ----------- ----------- ----------- ------------ ---------- ----------- ----------- ----------- ------------ -------
Financial assets
at fair value
through profit
or loss total 34,005,882 11,950,828 27,035,405 53,308,492 11,910,351 13,273,559 26,311,715 9,226,689 71,781,575 15,714,459 50,652,889 325,171,844 92.38%
----------- ----------- ----------- ----------- ----------- ----------- ------------ ---------- ----------- ----------- ----------- ------------ -------
*This consists of all issued bonds where the fair value is less
than 1% of the NAV of the Fund at 30 September 2016.
Condensed Unaudited Schedule of Investments, at Fair Value
(continued)
As at 30 September 2016
Great
Europe France Germany Britain Ireland Italy Netherlands Portugal Spain U.S.A Other* Total NAV
----------- ----------- ----------- ----------- ----------- ----------- ------------ ---------- ----------- ----------- ----------- ------------ --------
EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR %
Financial
liabilities
at fair
value
through
profit
or loss
Debt
securities
Bond - 1,078,750 - - - - - - - - - 1,078,750 0.30%
Senior loan - - - - - - - - 871,125 - - 871,125 0.25%
Debt
securities
total - 1,078,750 - - - - - - 871,125 - - 1,949,875 0.55%
----------- ----------- ----------- ----------- ----------- ----------- ------------ ---------- ----------- ----------- ----------- ------------ --------
Derivative
financial
liabilities
CDS - - - - - - - - - - 2,008,397 2,008,397 0.57%
Derivative
financial
liabilities
total - - - - - - - - - - 2,008,397 2,008,397 0.57%
----------- ----------- ----------- ----------- ----------- ----------- ------------ ---------- ----------- ----------- ----------- ------------ --------
Financial
liabilities
at fair
value
through
profit
or loss
total - 1,078,750 - - - - - - 871,125 - 2,008,397 3,958,272 1.12%
----------- ----------- ----------- ----------- ----------- ----------- ------------ ---------- ----------- ----------- ----------- ------------ --------
Total net
investments 34,005,882 10,872,078 27,035,405 53,308,492 11,910,351 13,273,559 26,311,715 9,226,689 70,910,450 15,714,459 48,644,492 321,213,572 91.26%
----------- ----------- ----------- ----------- ----------- ----------- ------------ ---------- ----------- ----------- ----------- ------------ --------
Other assets
and
liabilities 30,777,125 30,777,125 8.74%
----------- ------------ --------
Net assets 79,421,617 351,990,697 100.00%
----------- ------------ --------
*This consists of all issued bonds where the fair value is less
than 1% of the NAV of the Fund at 30 September 2016.
Notes to the Condensed Unaudited Financial Statements
1. General information
Background information on the Company's activities can be found
in the Company's prospectus dated 23 April 2015 and the Company's
latest Audited Annual Financial Statements, both of which are
available on our website address at www.torolimited.gg.
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 Interim Financial Statements for the period from 1 October
2016 to 31 March 2017 have been prepared in accordance with
International Financial Reporting Standards ("IFRS") as adopted by
the European Union, the Disclosure and Transparency Rules of the
Financial Conduct Authority and applicable legal and regulatory
requirements of the Law. The condensed set of financial statements
have been prepared in accordance with International Accounting
Standard 34 "Interim Financial Reporting". The accounting policies
adopted are consistent with those adopted in the 30 September 2016
financial statements.
2.2 Going Concern
The Directors believe that it is appropriate to adopt the going
concern basis in preparing the Financial Statements in view of its
holding in cash and cash equivalents and investments as well as the
income deriving from those investments, meaning the Company has
adequate financial resources to meet its liabilities as they fall
due.
2.3 Repurchase of own shares
Treasury shares purchased from the market are held under the
Company name in the share register and classified as treasury
reserve on the statement of changes in equity.
3. Critical accounting judgements and key sources of estimation uncertainty
The preparation of the Company's 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, and 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 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 parties 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, eighty-four
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.
Notes to the Condensed Unaudited Financial Statements
(continued
3. Critical accounting judgements and key sources of estimation uncertainty (continued)
3.1 Key sources of estimation uncertainty (continued)
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.
Investment entity definition
Having considered the criteria set out in IFRS 10, the Directors
have determined that both the Company and the Originator meet the
definition of an investment entity.
Under the definition of an investment entity, as set out in
paragraph 27 in the standard, the entity must satisfy all three of
the following tests:
-- Obtains funds from one or more investors for the purpose of
providing those investors with investment
management services;
-- Commits to its investors that its business purpose is to
invest funds solely for returns from capital
appreciation, investment income, or both (including having an exit strategy for investments); and
-- Measure and evaluate the performance of substantially all of
its investments on a fair value basis.
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 fee for Mr. Hervouet
as Non-executive Chairman will be GBP50,000 per annum. The fee for
Mr. Whittle as Chairman of the Audit Committee will be GBP40,000
per annum. The fee for Mr. Silvotti as Non-executive Direction will
be GBP30,000 per annum.
During the Period ended 31 March 2017, Directors fees of
EUR69,674 (31 March 2016: EUR80,350) were charged to the Company,
of which EUR5,273 (31 March 2016: EUR13,377) remained payable at
the end of the Period. The Directors received their remuneration
and made the decision to purchase shares through a broker, Frederic
Hervouet received 32,629 (31 March 2016: 32,500) and John Whittle
received 0 shares (31 March 2016: 27,395). The shares were valued
based on the prevailing market NAV at the time of payment.
(b) Shares held by related parties
As at 31 March 2017, the Directors held the following Shares in
the Company.
Frederic Hervouet 114,000
John Whittle 37,091
Roberto Silvotti 954,692
Loic Fery is the representative of Chenavari Financial Group
Limited, 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"). As at 31 March 2017, the Managed Account
and Loic Fery held 34.72% of the shares in Toro Limited.
Notes to the Condensed Unaudited Financial Statements
(continued
4. Related parties (continued)
(b) Shares held by related parties (continued)
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, 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, as at 31
March 2017, this Concert Party held approximately 47% 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 Manage
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. EUR38,321 has been charged in the Period.
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% of the NAV 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
EUR1,713,068 (31 March 2016: EUR1,792,177) with EUR279,166 (2016:
EUR295,219) 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% of
the total increase in the NAV 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 NAV 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 NAV 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 NAV 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.
The issuance of further Shares to the Portfolio Manager will not
take place without a Whitewash Resolution from Shareholders. Cash
of EUR1,971,246 and 800,181 shares with a value of EUR788,498 were
paid to the Portfolio Manager in the period in relation to the
Performance Fee for the period ended 30 September 2016.
Additionally 896,262 shares with a value of EUR866,328 were paid to
the Portfolio Manager in the period in relation to the Performance
Fee for the period ended 30 September 2015. Performance fees of
EUR2,847,909 (31 March 2016: EUR2,837,574) were accrued in relation
to the Period with EUR2,847,909 payable at 31 March 2017 (31 March
2016 EUR2,837,574).
Notes to the Condensed Unaudited Financial Statements
(continued
4. Related parties (continued)
(c) AIFM and Portfolio Manage (continued)
Performance Period (continued)
The Company has funded investments with a value of EUR66,956,036
(2015: 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 11.
5. Material agreements
(a) Corporate broker
Fidante Capital, a division of Fidante Partners Europe Limited,
receives a retainer for their corporate broking services of
GBP75,000 per annum, payable in arrears.
(b) Administration fee
Estera 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 annum of NAV 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 EUR40,643 (31 March
2016: EUR46,880) of which EUR6,740 (2016: EUR6,665) 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 EUR113,676 (31 March 2016: EUR131,860) of which EUR18,416 (2016:
EUR19,176) 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 on-going 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.
Notes to the Condensed Unaudited Financial Statements
(continued)
6. Financial risk management (continued)
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.
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% of NAV shall be exposed to the credit risk
of any underlying single transaction or issue;
o As of 31 March 2017, the largest investment represents 16% of
the NAV.
-- the top five exposures to any transactions or issues shall
not, in aggregate, account for more than 50% of NAV;
o As of 31 March 2017, the top 5 investments represent 42% of
the NAV.
-- no more than 50% of NAV, in aggregate, shall be invested in unlisted investments;
o As of 31 March 2017, 30% of the NAV is invested in unlisted
investments.
Additionally, 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% of NAV, in aggregate, shall be exposed to
transactions or issues where the underlying collateral is
non-European.
o As of 31 March 2017, less than 20% of the NAV is exposed to
non-European underlying collateral as detailed in the geographical
breakdown table below.
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% at the time of incurrence and
deployment of any borrowing.
o As of 31 March 2017, the gearing of the Company was less than
100%.
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 Condensed Unaudited 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 31 March 2017 and 30 September 2016, the breakdown of the NAV
per asset class and geography was as follows:
31 March 30 September
2017 2016
Asset class breakdown % NAV % NAV
Equity securities 0.08% 0.05%
Bond 1.82% 0.69%
Arbitrage CDO 15.64% 18.97%
Commercial mortgage-backed
securities 2.62% 3.30%
Arbitrage CLO 19.20% 22.08%
Residential mortgage-backed
securities 11.19% 9.98%
Balance sheet CLO 5.34% 5.31%
Consumer ABS 5.25% 4.74%
Senior loans 0.71% 0.72%
Whole loan 1.71% 1.53%
Mezzanine loan 0.08% -
Non-performing loan 7.47% 7.97%
Preferred equity 9.64% 5.58%
Equity 16.51% 10.18%
Repo - 0.28%
Cash, hedges and accruals 2.74% 8.62%
--------- -------------
Total 100.00% 100.00%
--------- -------------
31 March 30 September
2017 2016
Geographic breakdown % NAV % NAV
European Union 5.13% 9.66%
France 2.60% 3.09%
Germany 7.14% 7.68%
Great Britain 14.66% 15.14%
Ireland 21.11% 13.57%
Italy 3.29% 3.77%
Netherlands 7.51% 7.48%
Portugal 4.40% 2.62%
Spain 18.83% 20.15%
U.S.A 8.63% 4.46%
Other 2.93% 3.64%
Cash, collateral and accruals 3.77% 8.74%
--------- -------------
Total 100.00% 100.00%
--------- -------------
Notes to the Condensed Unaudited Financial Statements
(continued)
6. Financial risk management (continued)
6.1 Credit risk (continued)
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 of Deutsche
31 March 2017 Scotland Bank JP Morgan* Barclays Total
S&P rating BBB- A- A- BBB
EUR EUR EUR EUR EUR
Cash and cash
equivalents 505,556 - 2,311,345 - 2,311,345
Due from broker - 5,037,322 9,997,675 44,908 15,585,461
CDS - - 464,548 - 464,548
Listed options - - 27,348 - 27,348
Forward FX
contracts - 22,024 - - 22,024
Total counterparty
exposure 505,556 5,059,346 12,800,916 44,908 18,410,726
---------- ---------- ----------- --------- -----------
Net asset exposure
% 0.15% 1.52% 3.85% 0.01% 5.53%
Royal
30 September Bank of Deutsche Credit
2016 Scotland Bank JP Morgan* Suisse Total
S&P rating BBB- A- A- BBB+
EUR EUR EUR EUR EUR
Cash and cash
equivalents - - 24,548,560 - 24,548,560
Due from
broker 1,253,954 2,975,342 6,907,698 1,847,500 12,984,494
CDS - - 831,870 - 831,870
Listed
options - - 70,742 - 70,742
Forward FX
contracts - 683,852 - - 683,852
Total
counterparty
exposure 1,253,954 3,659,194 32,358,870 1,847,500 39,119,518
-------------------------- -------------------------- -------------------------- -------------------------- --------------------
Net asset
exposure
% 0.36% 1.04% 9.19% 0.52% 11.11%
* 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 Condensed Unaudited Financial Statements
(continued)
6. Financial risk management (continued)
6.1 Credit risk (continued)
Offsetting financial assets and financial liabilities
(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 31 March 2017 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
CDS
JP Morgan 464,548 - 464,548 464,548 - -
Listed option
JP Morgan 27,248 - 27,248 - - 27,348
Forward FX
Contracts
Deutsche Bank 22,024 - 22,024 22,024 - -
--------------- --------------- --------------- ---------------- ----------------- -----------
513,920 - 513,920 486,572 - 27,348
--------------- --------------- --------------- ---------------- ----------------- -----------
The below table present the Company's financial asset and
liabilities subject to offsetting, enforceable master netting
agreements.
Liabilities
Related amount not offset in the Statement
As at 31 March 2017 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
CDS
Barclays (49,128) - (49,128) - - (49,128)
JP Morgan
ChasBank (3,102,528) - (3,102,528) (464,548) (2,637,980) -
Forward FX
Contracts
Deutsche Bank (808,178) - (808,178) (22,024) (786,154) -
(3,959,834) - (3,959,834) 486,572 3,424,134 (49,128)
--------------- --------------- --------------- ---------------- ----------------- -----------
Assets
Related amount not offset in the Statement
As at 30 September 2016 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
CDS
JP Morgan 831,870 - 831,870 (831,870) - -
Forward FX
Contracts
Deutsche Bank 683,852 - 683,852 - - 683,852
--------------- --------------- --------------- ---------------- ----------------- -----------
1,515,722 - 1,515,722 (831,870) - 683,852
--------------- --------------- --------------- ---------------- ----------------- -----------
Notes to the Condensed Unaudited Financial Statements
(continued)
6. Financial risk management (continued)
6.1 Credit risk (continued)
Liabilities
Related amount not offset in the Statement
As at 30 September 2016 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
CDS
JP Morgan
ChasBank (2,008,397) - (2,008,397) 831,870 - (831,870)
(2,008,397) - (2,008,397) 831,870 - (831,870)
--------------- --------------- --------------- ---------------- ----------------- -----------
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.
The currency exposure as at 31 March 2017 is as follows:
NAV
impact
for
31 March 31 March a +/-10%
2017 2017 FX
Other Total Total rate
Currency Investments FX hedges Cash net assets/(liabilities) exposure exposure move
EUR EUR EUR EUR EUR % %
CHF - - 740 - 740 0.00% 0.00%
GBP 37,951,521 (37,345,366) 1,675,189 (133,926) 2,147,418 0.65% 0.07%
USD 13,536,915 (13,042,186) 73,877 722,090 1,290,696 0.39% 0.04%
------------ ------------- ---------- -------------------------- ---------- ---------- ----------
51,488,436 (50,387,552) 1,749,807 588,164 3,438,854 1.04% 0.11%
------------ ------------- ---------- -------------------------- ---------- ---------- ----------
The currency exposure as at 30 September 2016 is as follows:
NAV
impact
for
30 September 30 September a +/-10%
2016 2016 FX
Other Total Total rate
Currency Investments FX hedges Cash net liabilities exposure exposure move
EUR EUR EUR EUR EUR % %
CHF - - 731 - 731 0.00% 0.00%
GBP 36,844,315 (36,912,938) 35,814 (128,453) (161,262) (0.05%) (0.00%)
USD 8,974,785 (12,412,122) 4,448,590 1,592,521 2,603,774 0.74% 0.07%
------------ ------------- ---------- ----------------- ------------- ------------- ----------
45,819,100 (49,325,060) 4,485,135 1,464,068 2,443,243 0.69% 0.07%
------------ ------------- ---------- ----------------- ------------- ------------- ----------
Notes to the Condensed Unaudited Financial Statements
(continued)
6. Financial risk management (continued)
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 asset 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.
Fixed rate Floating rate Non-interest
interest interest bearing
31 March 2017 EUR EUR EUR
Financial assets at fair value through profit or loss 83,715,595 240,369,092 -
Due from broker - 11,553,037 4,032,424
Other receivables and prepayments - - 198,926
Cash and cash equivalents - 2,311,345 -
Financial liabilities at fair value through profit or loss - - (3,959,834)
Due to broker - - (577,697)
Accrued expenses - - (4,981,941)
83,715,595 254,233,474 (5,288,122)
----------- -------------- -------------
30 September 2016
Financial assets at fair value through profit or loss 46,933,306 276,546,360 1,692,178
Due from broker - - 12,984,494
Other receivables and prepayments - - 66,971
Cash and cash equivalents - 24,548,560 -
Financial liabilities at fair value through profit or loss (1,078,750) - (2,879,522)
Due to broker - - (3,501,238)
Accrued expenses - - (3,321,662)
45,854,556 301,094,920 5,041,221
--------------- --------------- ---------------
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.
Less than Greater
3 than 3
months months Total
31 March 2017 EUR EUR EUR
Financial liabilities
at fair value through
profit or loss (808,178) (3,151,656) (3,959,834)
Due to broker (577,697) - (577,697)
Accrued expenses (4,961,945) (19,996) (4,981,941)
-------------
(9,612,561) (3,171,652) (9,519,472)
------------ ------------ -------------
30 September 2016
Financial liabilities
at fair value through
profit or loss - (3,958,272) (3,958,272)
Due to broker (3,501,238) - (3,501,238)
Accrued expenses (3,274,322) (47,340) (3,321,662)
-------------
(6,775,560) (4,005,612) (10,781,172)
------------ ------------ -------------
Notes to the Condensed Unaudited 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 31 March 2017, a 5% movement in prices (with all other
variables held constant) would have resulted in a change to the
total net assets of EUR16,633,047 (2016: EUR16,060,679).
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 to
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 on-going 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 including 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 application of relevant broker quotations
where the broker is a recognised market maker in the respective
position.
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 Condensed Unaudited 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.
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 and liabilities
at 31 March 2017 based on the hierarchy set out in IFRS 13:
Quoted
prices
in active Significant
markets other Significant
for identical observable unobservable
assets inputs inputs
(Level (Level (Level
1) 2) 3) Total
2017 2017 2017 2017
Assets EUR EUR EUR EUR
Financial assets
held for trading
Equity
securities
Europe: Equity 270,500 - - 270,500
Debt securities
Europe: Corporate
& financials - 10,621,067 2,912,000 13,533,067
UK: Corporate
& financials - 1,097,141 - 1,097,141
Europe: Private
bond - 54,966,630 - 54,966,630
Europe: ABS - 113,646,417 36,404,041 150,050,458
UK: ABS - 42,979,533 4,674,033 47,653,566
USA: ABS - 14,394,228 1,202,389 15,596,617
Asia: ABS - 47,088 - 47,088
Europe: Money
market - 26,839,060 - 26,839,060
UK: Money
market - - 7,073 7,073
USA: Money
market - 2,357,023 11,152,544 13,509,567
OTC derivatives
CDS - 464,548 - 464,548
Listed options 27,348 - - 27,348
Forward FX
contracts - 22,024 - 22,024
Total
assets 297,848 267,434,759 56,352,080 324,084,687
--------------- ------------ -------------- ------------
Notes to the Condensed Unaudited Financial Statements
(continued)
8. Fair value of financial instruments (continued)
Quoted
prices
in active Significant
markets other Significant
for identical observable unobservable
assets inputs inputs
(Level (Level (Level
1) 2) 3) Total
2017 2017 2017 2017
Liabilities EUR EUR EUR EUR
Financial liabilities
held for trading
OTC derivatives
CDS - (3,151,656) - (3,151,656)
Forward FX
contracts - (808,178) - (808,178)
Total liabilities - (3,959,834) - (3,959,834)
--------------- ------------ -------------- ------------
The following tables show the Company's assets and liabilities
at 30 September 2016 based on the hierarchy set out in IFRS 13:
Quoted
prices
in active Significant
markets other Significant
for identical observable unobservable
assets inputs inputs
(Level (Level (Level
1) 2) 3) Total
2016 2016 2016 2016
Assets EUR EUR EUR EUR
Financial assets held
for trading
Equity
securities
UK: Equity 190,689 - - 190,689
Debt securities
Europe: Corporate
& financials - - 7,841,266 7,841,266
UK: Corporate
& financials - 6,423,142 - 6,423,142
Europe: Sovereign - 331,590 - 331,590
Europe: Private
bond - 35,847,475 - 35,847,475
Europe: ABS - 137,687,949 43,749,634 181,437,583
UK: ABS - 41,854,436 4,697,533 46,551,969
USA: ABS - 14,368,103 1,209,821 15,577,924
Money market
loan - 23,010,251 5,389,701 28,399,952
OTC derivatives
CDS - 831,870 - 831,870
Listed options 70,742 - - 70,742
Forward FX
contracts - 683,852 - 683,852
Repurchase
agreement - 983,790 - 983,790
Total assets 261,431 262,022,458 62,887,955 325,171,844
--------------- ------------ -------------- ------------
Liabilities
Financial liabilities
held for trading
Debt securities (by
instrument currency)
Europe: Corporate
& financials - 1,078,750 - 1,078,750
Europe: Money
market loan - 871,125 - 871,125
OTC derivatives
CDS - 2,008,397 - 2,008,397
Total liabilities - 3,958,272 - 3,958,272
--------------- ------------ -------------- ------------
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-one Level 3 investments were held at the end of the
Period.
Notes to the Condensed Unaudited Financial Statements
(continued)
8. Fair value of financial instruments (continued)
30/09/2016 31/03/2017
Fair Value Transfer Fair Value
at 1 to/(from) at 30
Product Trade October Level Unrealised September
Type Transaction Date 2015 2 Realised & FX Purchases Sales Redemptions 2016
ARB CDO 2 08/05/2015 488,077 - (10,737) (322,214) - - 12,358 167,484
ARB CLO 9 08/05/2015 1,128,000 - - (94,000) - - - 1,034,000
ARB CLO 10 08/05/2015 1,092,000 - - 25,606 - - - 1,117,606
ARB CLO 13 19/06/2015 1,642,339 - - 57,973 - - - 1,700,312
ARB CLO 16 24/09/2015 28,046,479 - - (3,188,492) - - - 24,857,987
BS CLO 18 08/05/2015 490,024 - - 70,993 - - - 561,017
BS CLO 19 08/05/2015 3,712,500 - - (467,500) - - - 3,245,000
CMBS 20 08/05/2015 212,948 - - 42,590 - - - 255,538
RMBS 24 08/05/2015 17,000 - - (17,000) - - - -
WHOLE
LOAN** 26 14/07/2015 5,389,701 - - 64,624 229,252 - - 5,683,577
BS CLO 27 03/06/2016 3,692,000 - - (780,000) - - - 2,912,000
RMBS 28 12/05/2016 197,796 - 44,855 8,867 - (2,41,429) (10,089) -
RMBS 29 10/03/2016 1,951,883 (2,086,028) - 134,145 - - - -
RMBS 30 05/05/2015 1,656,212 - 416,787 (72,999) - - (2,000,000) -
CMBS 31 13/05/2015 1,053,472 - (50,623) 17,939 - (163,306) - 857,482
CMBS 32 05/05/2015 1,190,078 - 351,129 (56,611) - - (454,775) 1,029,821
RMBS 33 05/05/2015 18,780 - - 650 - - - 19,430
RMBS 34 24/09/2015 71,667 - - 1,964 - - - 73,631
ARB CLO 35 05/05/2015 1,578,821 - - 62,018 - - - 1,640,839
ARB CLO 36 26/07/2016 1,806,476 - - 91,817 - - - 1,898,293
CONS ABS 37 05/05/2015 120,000 - - 654,000 - - - 774,000
RMBS 38 22/06/2016 4,149,266 (4,579,241) - 429,975 - - - -
ARB CLO 39 05/05/2015 2,104,252 - 290,909 144,752 - (2,539,913) - -
ARB CLO 40 05/05/2015 1,078,184 - 165,415 96,201 - (1,339,800) - -
CMBS 41 05/05/2015 - 24.811 - (220) - - - 24,591
RBMS 42 17/11/2016 - - (83,775) 70,958 3,123,332 (87,084) - 3,023,431
PREFERRED
EQUITY 43 31/03/2016 - 118,104 116,013 (111,031) - (116,013) - 7,073
PREFERRED
EQUITY 44 07/09/2016 - 135,535 - 592,813 4,739,618 - - 5,468,966
----------- ------------ ---------- ------------ ---------- ------------ ------------ -----------
62,887,955 (6,386,819) 1,239,973 (2,542,182) 8,092,202 (4,487,545) (2,452,506) 56,352,080
----------- ------------ ---------- ------------ ---------- ------------ ------------ -----------
Notes to the Condensed Unaudited Financial Statements
(continued)
8. Fair value of financial instruments (continued)
Fair Value Transfer Fair Value
at 1 to/(from) at 30
Product Trade October Level Unrealised September
Type Transaction Date 2015 2 Realised & FX Purchases Sales Redemptions 2016
ARB CDO 1 08/05/2015 1,600,635 - 90,243 142,245 - (1,806,299) (26,824) -
ARB CDO 2 08/05/2015 546,548 - 50,051 (50,137) 12,822 - (71,207) 488,077
ARB CDO 3 08/05/2015 1,552,507 (1,550,889) - - - - (1,618) -
ARB CDO 4 08/05/2015 963,206 - (3,660) (156,340) - (800,000) (3,206) -
ARB CDO 5 08/05/2015 320,000 - 115,137 12,863 - (448,000) - -
ARB CDO 6 08/05/2015 1,615,520 - (75,015) 145,015 - (1,680,000) (5,520) -
ARB CDO 7 19/06/2015 39,115,186 (32,391,686) 1,863,587 (903,294) - - (7,683,793) -
ARB CDO 8 08/05/2015 265,514 (408,217) - (48,468) 191,171 - - -
ARB CLO 9 08/05/2015 752,000 - - 376,000 - - - 1,128,000
ARB CLO 10 08/05/2015 1,086,068 - - 26,400 - - (20,468) 1,092,000
ARB CLO 11 08/05/2015 635,665 - 65,749 4,806 - - (706,220) -
ARB CLO 12 08/05/2015 5,766,810 - 246,169 95,281 - (6,034,250) (74,010) -
ARB CLO 13 19/06/2015 1,627,636 - - 14,820 - - (117) 1,642,339
ARB CLO 14 30/06/2015 202,050 (161,361) 8,984 4,521 - - (54,194) -
ARB CLO 15 16/07/2015 10,130,000 (10,130,000) - - - - - -
ARB CLO 16 24/09/2015 31,250,000 - - (1,802,925) - (1,400,596) - 28,046,479
BS CLO 17 08/05/2015 203,257 - 38,939 48,171 - - (290,367) -
BS CLO 18 08/05/2015 280,065 - - 209,979 - - (20) 490,024
BS CLO 19 08/05/2015 5,593,000 - - (2,440,500) 560,000 - - 3,712,500
CMBS 20 08/05/2015 255,538 - - (42,590) - - - 212,948
CMBS 21 08/05/2015 48,142 (25,771) - (22,371) - - - -
CMBS 22 08/05/2015 20,124 (6,104) 15,721 604 - (29,385) (960) -
RMBS 23 08/05/2015 4,746,482 - (479,405) 937,110 18,636 (5,221,255) (1,568) -
RMBS 24 08/05/2015 34,000 - - (17,000) - - - 17,000
SENIOR
LOAN* 25 08/05/2015 7,943,300 - - - - (7,943,300) - -
WHOLE
LOAN** 26 14/07/2015 6,003,365 - - (476,413) - - (137,251) 5,389,701
BS CLO 27 03/06/2016 - - - (936,000) 4,628,000 - - 3,692,000
RMBS 28 12/05/2016 - - 6,410 (7,497) 218,335 - (19,452) 197,796
RMBS 29 10/03/2016 - - - 219,830 1,726,243 - 5,810 1,951,883
RMBS 30 05/05/2015 - 1,630,991 - 25,209 - - 12 1,656,212
CMBS 31 13/05/2015 - 1,238,261 - (219,625) - - 34,836 1,053,472
CMBS 32 05/05/2015 289,517 902,624 - - (2,063) 1,190,078
RMBS 33 05/05/2015 - 11,333 - 4,707 - - 2,740 18,780
RMBS 34 24/09/2015 - 71,427 - (599) - - 839 71,667
ARB CLO 35 05/05/2015 - 2,112,500 - (550,000) - - 16,321 1,578,821
ARB CLO 36 26/07/2016 - 2,718,645 74,308 (559,575) - - (426,902) 1,806,476
CONS ABS 37 05/05/2015 - 120,000 - - - - - 120,000
RMBS 38 22/06/2016 - - - (766,700) 4,915,966 - - 4,149,266
ARB CLO 39 05/05/2015 - 2,127,695 - (67,945) - - 44,502 2,104,252
ARB CLO 40 05/05/2015 - 1,029,952 - 48,048 - - 184 1,078,184
------------ ------------- ---------- ------------ ----------- ------------- ------------ -----------
122,556,618 (33,613,224) 2,017,218 (5,849,746) 12,560,690 (25,363,085) (9,420,516) 62,887,955
------------ ------------- ---------- ------------ ----------- ------------- ------------ -----------
Notes to the Condensed Unaudited Financial Statements
(continued)
8. Fair value of financial instruments (continued)
*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 31 March 2017, twenty-one (30 September 2016: twenty-four)
investments were categorised within Level 3 of the fair value
hierarchy, representing 16.98% (30 September 2016: 18.62%) of the
NAV.
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 1.5x and 2xCDR ("Constant Default Rate") per product type
expressed as a percentage of the NAV, this analysis excludes
transactions 26, 42 and 44. An analysis of which is stated
below.
1.5xCDR 2xCDR
ARB CDO -0.02% -0.03%
ARB CLO -0.10% -0.19%
BS CLO -0.26% -0.32%
CMBS 0.20% 0.20%
CONS
ABS -0.01% -0.02%
RMBS 0.00% 0.01%
In addition to the CDR sensitivities above, some transactions
are sensitive to specific parameters:
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.
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.
Transaction 26
The loan is collateralised by six boats utilised within the
energy sector. Stressing charter rates for these vessels by 10%
would lead to a NAV reduction of 0.87%.
Transaction 42
The loan is collateralised by a pool of leases on motor
vehicles. The trade is sensitive to both default and prepayment
rates. Stressing both the CDR and CPR by 1.5x and also 2x would
lead to a NAV reduction of 0.05% and 0.09% respectively.
Notes to the Condensed Unaudited Financial Statements
(continued)
8. Fair value of financial instruments (continued)
Transaction 44
The loan is collateralised by three boats utilised within the
Maritime freight business. Stressing the vessel valuations by 15%
would lead to a NAV reduction of 0.17%
9. Earnings per Share - Basic & Diluted
The earnings per Share - Basic and Diluted of 3.88 cents (31
March 2016: (1.23) cents) has been calculated based on the weighted
average number of Shares 340,853,557 (31 March 2016: weighted
average number of Shares 361,450,000) and a net profit of
EUR13,224,782 (31 March 2016: loss of EUR4,458,886) over the
Period. There were no dilutive elements to shares issued or
repurchased during the Period.
10. NAV per Share
The NAV per share of 99.73 cents (2016: 97.38 cents) is
determined by dividing the net assets of the Company attributed to
the Shares of EUR332,660,947 (2016: EUR351,990,697) by the number
of Shares in issue at 31 March 2017 of 333,562,047 (2016:
361,450,000).
11. Financial assets and financial liabilities at fair value
through profit or loss
31 March 30 September
2017 2016
EUR EUR
Financial assets at fair value
through profit or loss :
Held for trading:
- Debt securities 34,366,128 25,557,709
- ABS 193,611,809 232,274,177
- Sovereign bonds - 331,590
- Equity securities 270,500 190,689
- Investment in Taurus Corporate
Financing LLP 54,966,630 35,847,475
- Listed options 27,348 70,742
- Money market loan 40,355,700 28,399,950
- CDS 464,548 831,870
- Forward FX contracts 22,024 683,852
- Repurchase agreement - 983,790
------------ -------------
Total financial assets at fair
value through profit or loss 324,084,687 325,171,844
------------ -------------
Financial liabilities at fair
value through profit or loss:
Held for trading:
- Debt securities - (1,078,750)
- CDS (3,151,656) (2,008,397)
- Money market loan - (871,125)
- Forward FX contracts (808,178) -
Total financial liabilities
at fair value through profit
or loss (3,959,834) (3,958,272)
------------ -------------
Notes to the Condensed Unaudited Financial Statements
(continued)
12. Net gain/(loss) on financial assets and financial
liabilities held at fair value through profit or loss
31 March 31 March
2017 2016
EUR EUR
Net gain/(loss) on financial assets and liabilities
at fair value through profit or loss held for
trading
- Debt securities 2,714,854 3,678,961
- ABS 15,525,069 (2,775,589)
- Sovereign bonds 25,315 (2,763)
- Equity securities 145,172 (50,615)
- Investment in Taurus Corporate Financing LLP 1,119,155 -
- Listed options (73,605) (1,936,686)
- Money market loan 1,142,601 1,036,431
- CDS (2,044,976) (1,985,085)
- Futures - (12,345)
- Repurchase agreements (12,719) (108,557)
Net gain/(loss) on financial assets and liabilities
at fair value through profit or loss held for
trading 18,540,866 (2,156,248)
------------ ------------
Net gain/(loss) on foreign exchange and forward
contracts
Realised gain on forward contracts 146,682 4,167,836
Unrealised (loss)/gain on forward contracts (1,470,006) 1,362,517
Realised loss on foreign exchange (373,250) (259,511)
Unrealised gain/(loss) on foreign exchange 1,575,923 (5,040,242)
Net (loss)/gain on foreign exchange and forward
contracts (120,651) 230,600
------------ ------------
Net gain/(loss) on financial assets and liabilities
at fair value through profit or loss, foreign
exchange and forward contracts 18,420,215 (1,925,648)
------------ ------------
13. Due from and to brokers
31 March 30 September
2017 2016
Due from EUR EUR
Collateral and funding cash 10,716,707 7,634,973
Receivables for securities sold 4,868,754 5,349,521
15,585,461 12,984,494
----------- -------------
Due to
Payable for securities purchased 577,697 3,501,238
577,697 3,501,238
-------- ----------
14. Other receivables and prepayments
31 March 30 September
2017 2016
EUR EUR
Prepayments 26,423 24,924
Interest receivable 162,586 -
Other fees 9,917 42,047
198,926 66,971
--------- -------------
Notes to the Condensed Unaudited Financial Statements
(continued)
15. Accrued expenses
31 March 30 September
2017 2016
EUR EUR
Management fee (279,166) (295,214)
Performance fee (2,847,909) (2,837,574)
Administration fee (6,740) (6,665)
Audit fee (19,996) (47,340)
Corporate brokering fee - (35,823)
Sub-Administration fee (18,416) (19,176)
Legal fee - (1,875)
Custodian fee (1,589) -
Other fees (1,808,125) (77,995)
(4,981,941) (3,321,662)
------------ -------------
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 NAV 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 the same as those
presented in the Company's latest audited annual financial
statements, a copy of which can be found on our website at
www.torolimited.gg
Movements in share capital
Shares held
Shares outstanding in treasury Total
As at 30 September
2016 361,450,000 - 361,450,000
Share repurchases
in the Period (29,584,396) 29,584,396 -
Performance fee
shares issued 1,696,443 (1,696,443) -
As at 31 March
2017 333,562,047 27,887,953 361,450,000
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.
Notes to the Condensed Unaudited Financial Statements
(continued)
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 1.50
cents per share for the Period to 31 March 2017; exceeding the
target minimum dividend. The dividend is payable on 2 June
2017.
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.
19. Derivative financial instruments
The Company holds the following derivative instruments:
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 (equity 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.
Notes to the Condensed Unaudited Financial Statements
(continued)
19. Derivative financial instruments (continued)
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 as
at 31 March 2017:
Financial Financial
assets liabilities
at fair at fair Notional
value value amount Maturity
Credit Default EUR EUR EUR
Swaps
20 December
CDS buy protection - (793,799) 16,000,000 2020
20 June
CDS buy protection - (464,548) 4,500,000 2021
20 December
CDS buy protection - (1,792,106) 17,500,000 2021
20 June
CDS buy protection - (101,204) 10,300,000 2022
20 December
CDS buy protection 464,548 - (4,500,000) 2021
19 January
Listed options 27,348 - 27,348 2018
FX contracts
14 June
GBP sell - (808,178) (36,537,188) 2017
14 June
USD sell 22,024 - (13,064,211) 2017
14 June
EUR buy - - 49,601,399 2017
513,920 (3,959,834) 43,827,348
---------- ------------- -------------
The following table shows the Company's derivative position as
at 30 September 2016:
Financial Financial
assets liabilities
at fair at fair Notional
value value amount Maturity
Credit Default
Swaps EUR EUR EUR
20 December
CDS buy protection 831,870 - (35,500,000) 2020
20 December
CDS buy protection - (1,327,039) 41,500,000 2020
20 June
CDS buy protection - (360,828) 4,500,000 2021
20 December
CDS buy protection - (320,530) 4,000,000 2021
21 October
Listed options 58,729 - 58,729 2016
16 December
Listed options 12,013 - 12,013 2016
FX contracts
14 December
GBP sell 665,595 - (37,578,533) 2016
14 December
USD sell 18,257 - (12,430,379) 2016
14 December
EUR buy - - 50,008,912 2016
---------- ------------- -------------
1,586,464 (2,008,397) 14,570,742
---------- ------------- -------------
20. 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 31 March 2017, there are no repurchase agreements in place
(at 31 March 2016 one repurchase agreement was open for fair value
of (EUR15.02m)).
Notes to the Condensed Unaudited Financial Statements
(continued)
21. Interests in other entities
List of subsidiaries
Taurus Corporate Financing LLP ("the Subsidiary") meets the
definition of a subsidiary in accordance with IFRS 10. The
subsidiary is a fully owned subsidiary of the Company and is
measured at fair value through profit or loss. The subsidiary
carrying value per the financial statements is shown below:
Carrying
value
EUR
Taurus Corporate
Financing LLP 54,966,630
The Board determined that the Subsidiary meets the definition of
an investment entity as set out under IFRS 10 and that therefore
the Subsidiary should measure its investments in TCF Loan Warehouse
1 Designated Activity Company and TCF Loan Warehouse 3 Designated
Activity Company (the "Warehouses") at fair value rather than
consolidate their results. The Warehouses are fully owned
subsidiaries of the Subsidiary and were measured at fair value
through profit or loss.
In accordance with IFRS 12 paragraph 19, the Company is also
required to disclose the following information:
(i) Name; Taurus Corporate Financing LLP
(ii) Place of business;
Old Bank Chambers
La Grande Rue
St Martin's
Guernsey
GY4 6RT
(iii) Ownership interests held; 100%
The Company is also required to disclose the following
additional information for unconsolidated subsidiaries of a
subsidiary which is an investment entity:
TCF Loan Warehouse TCF Loan Warehouse
1 Designated Activity 3 Designated Activity
Name: Company Company
Place of
Business: 3rd Floor, 3rd Floor
Kilmore House, Kilmore House
Park Lane, Park Lane
Spencer Dock, Spencer Dock
Dublin 1, Dublin 1
Ireland Ireland
Ownership
interests
held: 100% 100%
Notes to the Condensed Unaudited Financial Statements
(continued)
22. Significant events during the Period and post Statement of Financial Position events
Over the course of the period the Subsidiary made investments of
EUR18m into a new Loan Warehouse, TCF Loan Warehouse 3 Designated
Activity Company.
During the period the company has bought back 29,584,396
shares
Following the period end, the Company announced a dividend of
1.5 cents per Ordinary Share for the quarter ending 31 March 2017
which is due to be paid on 2 June 2017. The Company also announced,
on 12 May 2017, that its target has been increased to at least 8
cents per ordinary share per annum, compared to the initial target
of 5 cents (annualised) stated in the prospectus published in
connection with the Company's May 2015 IPO.
23. Approval of the financial statements
The financial statements were approved for issue to shareholders
by the Directors on 25 May 2017.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR PGUWAAUPMGCA
(END) Dow Jones Newswires
May 26, 2017 02:00 ET (06:00 GMT)
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