Source - RNS
RNS Number : 4969K
VPC Specialty Lending Invest. PLC
22 September 2016
 

VPC SPECIALTY LENDING INVESTMENTS PLC

 

half-yearly report and unaudited financial statements

For the SIx Month period to 30 june 2016

 

22 September 2016 - VPC Specialty Lending Investments PLC (the "Company') today announces its unaudited half-yearly financial results for the period ended 30 June 2016.

 

Copies of the Half-Yearly Financial Report can be obtained from the following website:

 

 

FINANCIAL AND OPERATIONAL HIGHLIGHTS

 

 

(Unaudited)

Ordinary Shares

As at

30 June 2016

(Unaudited)

Ordinary Shares

As at

30 June 2015

(Audited)

Ordinary Shares

As at

31 December 2015

Total Net Assets attributable to equity shareholders of the Parent Company (on a consolidated basis)

£ 378,271,740

£ 199,249,045

£ 201,796,653

Net Asset Value per share

98.86p

99.62p

100.90p

Share price

84.00p

102.00p

94.50p

Premium (Discount) to Net Asset Value

-15.03%

2.38%

-6.34%

 

 

 

 

Total Shareholder return (based on share price)1

-11.11%

2.00%

-5.50%

Total Net Asset Value Return2

1.51%

1.66%

5.80%


 

 

 

Dividends per Ordinary Share (in the period)

1.50p

-

                   4.79p  


 

 

 

New shares issued (in the period)

182,615,665

200,000,000

200,000,000

 

 

 

(Unaudited)

C Shares

As at

30 June 2016

(Unaudited)

C Shares

As at

30 June 2015

(Audited)

Ordinary Shares

As at

31 December 2015

Total Net Assets attributable to equity shareholders of the Parent Company (on a consolidated basis)

-

-

£ 182,523,227

Net Asset Value per share

-

-

99.74p

Share price

-

-

92.13p

Premium (Discount) to Net Asset Value

-

-

-7.63%

 

 

 

 

Total Shareholder return (based on share price)1

-

-

-7.88%

Total Net Asset Value Return2

-

-

1.78%


 

 

 

Dividends per C Share (in the period)

-

-

                   1.07p 


 

 

 

New shares issued / (cancelled) (in the period)

(183,000,000)

-

183,000,000

 

1Based on a share price of 100p

2Net of issue costs

 

 

CHAIRMAN'S STATEMENT

 

I am pleased to present the interim statement of VPC Specialty Lending Investments PLC ("VSL" or the "Company") for the six month period to 30 June 2016.  The period was marked by increased volatility and investor uncertainty across markets.  While performing well, the specialty lending markets were not immune to these developments. In response to tightening capital markets and heightened risk premiums, a number of leading specialty lending platforms announced layoffs and scaled back ambitious growth plans. Amid the resulting investor apprehension, the Company's holdings of residual interests in recent securitisations suffered market-to-market writedowns. The majority of the Company's underlying loan portfolios continue to perform in line with our expectations, but certain positions did exhibit higher than expected losses.  In addition, the decision by U.K. voters to leave the European Union ("EU") and the subsequent depreciation of the GBP had a negative impact on the Company's performance as outsized cash balances were required as margin in relation to the Company's currency hedges.

 

While market conditions were challenging during the period, the Investment Manager took advantage of industry illiquidity by closing several new deals under preferential terms and amending existing deals in ways that we believe will be accretive to the existing portfolio.  These developments served to highlight the strength of the Company's business model; that by having a broadly diversified portfolio, the Company is not reliant on any one Platform, and can allocate capital dynamically across Platforms and geographies in pursuit of the best risk-adjusted returns in the sector. I continue to have strong confidence in the Investment Manager and believe that the Company will deliver high quality risk-adjusted returns in line with expectations over the coming years. In a step to further bolster that confidence, the Investment Manager has agreed to modify the management agreement such that 20% of monthly management fees will be used to purchase VSL shares at the prevailing market price, provided the shares are trading at a discount to net asset value ("NAV").

 

INVESTMENTS

During the period under review, the Company delivered a total NAV return of 1.51% and paid quarterly dividends amounting to 3.5p per share. As highlighted in the Investment Manager's report, the vast majority of investments have exhibited credit losses in line with expectations.  However, returns in the period were negatively affected by isolated spots of credit underperformance in the marketplace loan portfolio and the effect of cash drag related to currency hedges. The Company has taken steps to mitigate the credit underperformance by exiting and winding down certain positions and redeploying capital to other, better performing opportunities. In particular, I am excited about the strong pipeline of investments in proprietary balance sheet facilities, which offer significant credit enhancements, and feature attractive interest rates ranging from 12% to 16%. Several new balance sheet investments were closed during the period, and are highlighted in the Investment Manager's Report below.

 

Early in the year, the Company completed the deployment of the 2015 C share proceeds and effected the merger of the share classes. During March and April, the Company participated in two public securitisations of consumer loans, which despite being accretive transactions, created some initial cash drag as proceeds were returned to the Company upon the close of the transaction. During the period, the Company operated with an average cash balance of 18.8% of NAV, which created a slight performance drag, but also mitigated risk and allowed the company to continue to execute on new investments.

 

MARKET OUTLOOK

I, along with the Board, continue to believe the specialty lending market has an important role in connecting borrowers and lenders in a way that will help consumers and small businesses flourish.   The underlying trends driving the sector's growth remain firmly in place and we believe the company is well positioned as a leader in the field to advance the maturation of the sector and deliver high quality risk-adjusted returns to investors.

 

 

Andrew Adcock

Chairman

21 September 2016

 

 

INVESTMENT MANAGER'S REPORT

 

MARKET OVERVIEW

 

The Company and the Investment Manager continue to believe that a significant opportunity exists for credit investors in the specialty lending market, primarily through tech-enabled consumer and small business lending Platforms. The global banking industry has been under enormous pressure since the 2007-2009 global financial crisis.  The strain has been particularly acute in the U.S. and Europe where banks have been subjected to a flurry of new regulations and heightened scrutiny of their risk profile and capitalizations. 

These constraints have given rise to a new opportunity for specialty lending Platforms to fill the void. In 2010, Platforms in the U.S. accounted for approximately US$200 million of loans to consumers and small businesses.  By 2015 this grew to nearly US$23 billion.1 Despite this rapid development, research indicated that specialty lending Platforms today represent a tiny portion of the U.S. consumer and small business loan market, estimated at US$3.4 trillion and US$305 billion respectively, leaving ample room for sustained growth.  

However, during the Period, the specialty lending market experienced some negative headwinds, highlighted by widening spreads in the ABS markets and issues surrounding Lending Club including the resignation of CEO Renaud Laplanche. The Investment Manager believes these events were temporary in nature and will not affect the long term growth trajectory of the specialty lending market. The Investment Manager further believes that these events highlight the strength of its investment model, with a focus on a broadly diversified portfolio of Platform exposures and intensive upfront and ongoing due diligence. The Investment Manager capitalised on the market turbulence during the period by closing several new deals under preferential terms and amending existing deals in ways that it believes will be accretive to the existing portfolio.

 

1.   Liberum Report.

 

CAPITAL MARKETS UPDATE

The first half of the year showed positive momentum in marketplace lending capital markets activity with $3.4 billion of new issuance.  This represented a 94% increase over the first half of 2015 but a 17% decline from the $4.1 billion issued in the second half of 2015. In February 2016, Avant brought to market its initial rated transaction, Avant 2016-1, followed by their second rated transaction, Avant 2016-2 in April.  In May 2016, the U.K. closed its first ever SME marketplace lending transaction with SBOLT 2016-1 backed by Funding Circle UK receivables.  Many investors seem to be attracted to marketplace ABS investments for short duration spread opportunities, in an increasingly low return investment environment. The Investment Manager expects to see a strong rate of issuance for the second half of 2016, and it will selectively participate, when appropriate.

 

COMPANY HIGHLIGHTS

On 29 January 2016, the Company announced that it had substantially fully invested the initial C Share proceeds and set the timing of the C Share conversion. The calculation date of the conversion of shares was 31 January 2016. On 3 March 2016, the Company completed the conversion of the C Shares to Ordinary Shares.

As at 30 June 2016 the Company had investments in 28 Platforms across the U.S., U.K., Europe, Latin America and Australia originating consumer and small business loans, up from investments in 21 Platforms as at 31 December 2015. For the six month period to 30 June 2016, the Company's total NAV return was 1.51% and total dividends of 3.50p per share were paid to Ordinary Shareholders during the period under review. Since the date the Company was listed (on 17 March 2015), the Company has returned a total 7.30% of NAV growth and paid dividends totalling 6.29p per share.  

 

PORTFOLIO COMPOSITION

As at 30 June 2016, Consumer exposure accounted for 66% of the invested portfolio, while small business exposure accounted for 34%. Investments in U.S. Platforms accounted for 72% of the invested portfolio, U.K.-based loans accounted for 24% with the remainder being European, Latin American and Australian exposure. Investments in the balance sheet portfolio accounted for 38% of NAV, compared to 29% of the NAV of the Ordinary Share portfolio at 31 December 2015. As part of these investments, the Company has equity exposure to 18 Platforms through equity securities or convertible notes.

 

NAV (Cum Income) Allocation2

Marketplace Loans

46%

Balance Sheet

38%

Cash

11%

Equity

4%

Restricted Cash

1%

 

Investment Exposure, Borrower Type3

Consumer

66%

SME

34%

 

Investment Exposure, Geography3

United States

72%

United Kingdom

24%

Other

4%

 

2.   Restricted Cash reflects cash held in underlying private fund investments that is not available for direct investment by VSL.

3.   Calculations using gross asset exposure and not reduced for gearing. Excludes cash.

 

NEW INVESTMENTS

During the period, the Company made investments in proprietary balance sheet facilities, which offer significant credit enhancements, and featured attractive interest rates ranging from 12% to 16%. These new investments are highlighted below:

·      In January, the Company invested in Cognical, Inc., a lender that offers a straightforward point of sale, lease-to-own payment option for consumer goods in the U.S. The lender fully integrates with retailers' storefront and online checkout processes to provide a unique lease-to-own financing alternative to underbanked, non-prime U.S. consumers, allowing them to purchase electronics, appliances, furniture, musical instruments and other large ticket items.

·      In February, the Company closed on an investment in FinanceFox, a digital insurance manager that provides a unique, hybrid product that is a cross between a software application and an in-person alternative to the modern insurance broker. The business operates in Germany and Switzerland, acting as an intermediary between major insurance providers and individual consumers. The investment is a manifestation of the Investment Manager's thesis that significant disintermediation opportunities exist across the various traditional operators in the financial services sector.

·      In March, the Company made an initial investment pursuant to the Investment Manager's $100 million credit facility commitment to Wheels Financial Group, LLC, a leading provider of auto title loans in the U.S. The lender provides consumers with quick and convenient access to liquid funds through instalment loans secured by an interest in the borrower's vehicle. The products provide consumers with an affordable alternative to traditional higher cost lenders, which allow them to establish or rebuild positive credit.

·      In May, the Company made an initial investment in West Creek Financial, Inc., a provider of point of sale lease-to-own financing to underserved customers enabling purchases of durable goods such as furniture, mattresses, and appliances.

·      In June, the Company made an initial investment in Fundbox Ltd., a provider of short-term working capital advances to small and medium-sized businesses in the U.S. The Company also funded a new tranche of senior secured debt to Elevate Credit, Inc. Elevate is a provider of cash advances and installment loans to U.S. consumers.  

 

OUTLOOK

While cash drag as a result of the currency hedge and the performance of certain whole loan investments were disappointing, the Investment Manager is encouraged by the performance of the existing balance sheet investments as well as the attractive terms associated with newer deals.  Over the past six months the Investment Manager has been able take advantage of industry illiquidity to close several new balance sheet investments under preferential terms and favourably amend existing deals, resulting in a portfolio of proprietary credit facilities accretive to the Company's long-term performance objectives.  We believe that the proprietary nature of these relationships will continue to benefit the Company's shareholders going forward.  Given the current opportunity set, the Investment Manager plans to redeploy the majority of principal amortisation from our whole loan portfolio into balance sheet investments. Over time, we expect our balance sheet loans to make up a significant portion of the portfolio. In order to further demonstrate our commitment to the Company and our confidence in achieving targeted returns, we have agreed with the Company's Board to modify our management agreement such that we will apply 20% of our monthly management fee to the purchase of shares of the Company at the prevailing market price on an ongoing basis, provided the shares are trading at a discount to NAV.

 

 

Victory Park Capital Advisors, LLC

Investment Manager

21 September 2016

 

 

RESPONSIBILITY STATEMENT OF THE DIRECTORS

 

The Directors acknowledge responsibility for the Half-Year Financial Report and confirm that to the best of their knowledge:

 

(a) the consolidated set of financial statements have been prepared in accordance with IAS 34 as adopted by the European Union and give a true and fair view of the assets, liabilities, financial position and profit for the period of the Group as required by the Disclosure and Transparency Rules ("DTR") 4.2.4 R;

 

(b) the Interim Management Report (including the Chairman's Statement and the Investment Manager's Report) includes a fair review of the information required by DTR 4.2.7 R (indication of important events that have occurred during the six month period to 30 June 2016 and their impact on the set of consolidated financial statements and a description of the principal risks and uncertainties for the remaining six months of the financial year); and

 

(c) the Half-Year Financial Report includes a fair review of the information concerning related parties transactions as required by DTR 4.2.8 R.

 

Signed on behalf of the Board by:

 

 

Andrew Adcock

Chairman

21 September 2016

 

 

INTERIM MANAGEMENT REPORT

 

CAUTIONARY STATEMENT

This Interim Management Report has been prepared solely to provide additional information to Shareholders to assess the strategies of VPC Specialty Lending Investments PLC (the "Company") with its subsidiaries (together "the Group"). The Interim Management Report should not be relied on by any other party or for any other purpose.

 

The Interim Management Report contains certain forward looking statements. These statements are made by the Directors in good faith based on the information available to them up to the time of their approval of the Half-Year Financial Report but such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.

 

ACTIVITIES

The activities of the Group are described in the Chairman's Statement and in the Investment Manager's Report. Refer to the Chairman's Statement above and the Investment Manager's Report above. Further refer to Note 1 to the consolidated financial statements.

 

STRATEGY AND INVESTMENT OBJECTIVES

The important events that have occurred during the period under review and the key factors influencing the consolidated financial statements are described in the Chairman's Statement and in the Investment Manager's Report.

 

Refer to the Chairman's Statement above and the Investment Manager's Report above.

 

GOING CONCERN

As stated in Note 2 to the consolidated financial statements, the Directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period not less than 12 months from the date of the Half-Year Financial Report. Accordingly, they continue to adopt the going concern basis in preparing the consolidated financial statements.

 

RISKS AND UNCERTAINTIES

There are a number of potential risks and uncertainties which could have a material impact on the Group's performance over the remaining six months of the financial period and could cause actual results to differ materially from expected and historical results. Refer to the Chairman's Statement above and the Investment Manager's Report above as well as Note 5 to the consolidated financial statements for the potential risks and uncertainties. The principal risks and uncertainties are consistent with those disclosed in the annual report for the period ended 31 December 2015 which can be found on the Company's website.

 

FINANCIAL PERFORMANCE

The financial and operational highlights of the Group can be found above.

 

RELATED PARTY TRANSACTIONS

Related party transactions are disclosed in Note 12 to the consolidated financial statements.

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2016

 



(Unaudited)

(Unaudited)

(Audited)



30 June 2016

30 June 2015

31 December 2015


Notes

£

£

£






Non-current assets 





Loans at amortised cost

3

562,051,893

169,876,860

491,232,004

Investment assets designated as held at fair value through profit or loss

3

60,421,858

30,879,540

41,259,617

Total non-current assets


622,473,751

200,756,400

532,491,621






Current assets





Cash and cash equivalents


57,498,553

45,684,557

95,901,742

Cash posted as collateral


25,210,000

-

8,480,000

Interest receivable


5,636,573

-

4,256,382

Derivative financial assets


-

2,389,934

-

Dividend and distribution receivable


762,843

825,241

556,612

Other assets and prepaid expenses


2,904,830

1,040,646

1,606,467

Total current assets


92,012,799

49,940,378

110,801,203






Total assets


714,486,550

250,696,778

643,292,824






Non-current liabilities





Notes payable

6

251,698,194

4,533,109

166,700,308

Total non-current liabilities


251,698,194

4,533,109

166,700,308






Current liabilities





Management fee payable

8

998,893

136,718

836,541

Performance fee payable

8

912,780

-

1,301,904

Derivative financial liabilities


23,853,675

-

9,880,887

Amounts payable under agreements to repurchase


                 8,730,045

-

-

Dividend withholding tax payable


1,026,211

-

-

Accrued deferred income


638,415

-

-

Other liabilities and accrued expenses

8

7,919,953

1,183,746

6,059,542

Total current liabilities


44,079,972

1,320,464

18,078,874






Total liabilities


295,778,166

5,853,573

184,779,182

Total assets less total liabilities


418,708,384

244,843,205

458,513,642

 

Capital and reserves





Called-up share capital

10

20,300,000

2,000,000

20,300,000

Share premium account


161,040,000

194,000,000

161,040,000

Other reserve


191,474,230

-

194,000,000

Capital reserve


1,123,645

5,025,068

4,601,406

Revenue reserve


3,845,958

1,811,188

4,175,470

Currency translation reserve


487,907

(3,587,211)

203,004

Total equity attributable to equity shareholders of the Parent Company


378,271,740

199,249,045

384,319,880






Non-controlling interests

14

40,436,644

45,594,160

              74,193,762

Total equity


418,708,384

244,843,205

           458,513,642






Net Asset Value per Ordinary Share

9

98.86p

99.62p

100.90p

 

 

These consolidated financial statements of VPC Specialty Lending Investments PLC registered number 9385218 were approved and authorised for issue by the Board of Directors on 21 September 2016.

Signed on behalf of the Board by:

 

Andrew Adcock

Chairman of the Board

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2016

 



(Unaudited)

Revenue

(Unaudited)

Capital 

(Unaudited)

Total


Notes

£

£

£






Revenue





Net gain / (loss) on investments 

4

-

 (2,933,726)

 (2,933,726)

Foreign exchange gain / (loss) 


                  -  

72,970

72,970 

Income

4

     41,140,925

433,851

41,574,776

Total return


     41,140,925

 (2,426,905)

38,714,020






Expenses





Management fee

8

       3,035,832

-

3,035,832

Performance fee

8

         912,781

                     -  

912,781

Impairment charges

7

     16,247,732

1,066,730

17,314,462

Other expenses

 8

       5,698,986

213,931

5,912,917

Total operating expenses


     25,895,331

1,280,661

27,175,992






Financing costs


4,635,062

22,879

4,657,941

Total financing costs


4,635,062

22,879

4,657,941






Net return on ordinary activities before taxation


     10,610,532

 (3,730,445)

6,880,087




                 


Taxation on ordinary activities


                  -  

                     -  

                      -  






Net return on ordinary activities after taxation


     10,610,532

 (3,730,445)

6,880,087






Attributable to:





Equity shareholders of the Parent Company

       8,842,053

 (3,477,761)

5,364,292

Non-controlling interests 

14

       1,768,479

 (252,684)

1,515,795






Return per Ordinary Share (basic and diluted)

2.31p

-0.91p

1.40p





Other comprehensive income that may subsequently be reclassified to profit or loss




Currency translation differences

-

8,676,277

8,676,277





Total comprehensive income

10,610,532

4,945,832

15,556,364





Attributable to:




Equity shareholders of the Parent Company

8,842,053

(3,192,858)

5,649,195

Non-controlling interests

14

1,768,479

8,138,690

9,907,169





 

The total column of this statement represents the Group's statement of comprehensive income, prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union. The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies ("AIC"). All items in the above Statement derive from continuing operations.

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE PERIOD FROM 12 JANUARY 2015 (DATE OF INCORPORATION) TO 30 JUNE 2015

 



(Unaudited)

Revenue

(Unaudited)

Capital 

(Unaudited)

Total


Notes

£

£

£






Revenue





Net gain / (loss) on investments 

4

                  -  

153,156

153,156

Foreign exchange gain / (loss) 


                  -  

    4,871,912

 4,871,912

Income

4

    5,206,932

                 -  

   5,206,932

Total return


    5,206,932

    5,025,068

  10,232,000






Expenses





Management fee

8

       363,385

                 -  

      363,385

Performance fee

8

-

-

-

Impairment charges

7

309,818

-

309,818

Other expenses

 8

       2,025,835

                 -  

      2,025,835

Total operating expenses


    2,699,038

                 -  

2,699,038






Financing costs


-

-

-

Total financing costs


-

-

-






Net return on ordinary activities before taxation


     2,507,894

    5,025,068

  7,532,962






Taxation on ordinary activities


                  -  

                 -  

                 -  






Net return on ordinary activities after taxation


     2,507,894

    5,025,068

  7,532,962






Attributable to:





Equity shareholders of the Parent Company

   1,811,188

    5,025,068

   6,836,256

Non-controlling interests

 14

696,706

                 -  

      696,706






Return per Ordinary Share (basic and diluted)

0.91p

2.51p

3.42p





Other comprehensive income / (expense) that may subsequently be reclassified to profit or loss




Currency translation differences

-

(4,347,226)

(4,347,226)





Total comprehensive income / (expense)

2,507,894

677,842

3,185,736





Attributable to:




Equity shareholders of the Parent Company

1,811,188

1,437,857

3,249,045

Non-controlling interests

14

696,706

(760,015)

(63,309)





 

The total column of this statement represents the Group's statement of comprehensive income, prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union. The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies ("AIC"). All items in the above Statement derive from continuing operations.

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME continued

FOR THE PERIOD FROM 12 JANUARY 2015 (DATE OF INCORPORATION) TO 31 DECEMBER 2015

 



(Audited)

Revenue

(Audited)

Capital 

(Audited)

Total


Notes

£

£

£






Revenue





Net gain / (loss) on investments 

4

                  -  

    7,054,078

7,054,078

Foreign exchange gain / (loss) 


                  -  

 (329,498)

 (329,498)

Income

4

     38,812,487

522,458

39,334,945

Total return


     38,812,487

7,247,038

46,059,525






Expenses





Management fee

8

    2,129,317

     29,072

   2,158,389

Performance fee

8

    1,301,904

         - 

   1,301,904

Impairment charges

7

    11,689,269

   1,317,834

   13,007,103

Other expenses

 8

  6,145,093

     178,791

  6,323,884

Total operating expenses


   21,265,583

  1,525,697

  22,791,280






Financing costs


2,636,965

81,794

2,718,759

Total financing costs


2,636,965

81,794

2,718,759






Net return on ordinary activities before taxation


     14,909,939

5,639,547

20,549,486






Taxation on ordinary activities


                  -  

         - 

         - 






Net return on ordinary activities after taxation


14,909,939

5,639,547

20,549,486






Attributable to:





Equity shareholders of the Parent Company

       9,755,470

4,601,406

14,356,876

Non-controlling interests 

14

       5,154,469

1,038,141

6,192,610






Return per Ordinary Share (basic and diluted)

4.23p

1.46p

5.69p





Other comprehensive income that may subsequently be reclassified to profit or loss




Currency translation differences

                  -  

542,986

542,986





Total comprehensive income

     14,909,939

6,182,533

21,092,472





Attributable to:




Equity shareholders of the Parent Company

    9,755,470

4,804,410

14,559,880

Non-controlling interests

14

       5,154,469

1,378,123

6,532,592





 

The total column of this statement represents the Group's statement of comprehensive income, prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union. The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies ("AIC"). All items in the above Statement derive from continuing operations.

 


 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTH PERIOD TO 30 JUNE 2016

 


(Unaudited)





(Unaudited)

(Unaudited)

(Unaudited)



Called Up

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Currency

Total

Non-

(Unaudited)


Share

Share

Other

Capital

Revenue

Translation

Shareholders'

Controlling

Total


Capital

Premium

Reserve

Reserve

Reserve

Reserve

Equity

Interests

Equity


£

£

£

£

£

£

£

£

£

Opening balance at

1 January 2016

   20,300,000

  161,040,000

194,000,000

4,601,406

4,175,470

203,004

 384,319,880

      74,193,762

 458,513,642

Amounts received on issue of management shares

-

                   -  

                -  

                -  

                -  

                -  

-

                   -  

-

Management shares redeemed

-

                   -  

                -  

                -  

                -  

                -  

-

                   -  

-

Amounts received on issue of shares

-

-

                -  

                -  

                -  

                -  

-

                   -  

-

Share issue costs

                -  

-

                -  

-  

                -  

                -  

-

                   -  

-

Cancellation of share premium account

                -  

-

-

-

                -  

                -  

                -  

                   -  

                -  

Contributions by non-controlling interests

                -  

                   -  

                -  

                -  

                -  

                -  

                -  

        6,120,948

         6,120,948

Distributions to non-controlling interests

                -  

                   -  

                -  

                -  

                -  

                -  

                -  

     (49,785,235)

      (49,785,235)

Return on ordinary activities after taxation

                -  

                   -  

                -  

    (3,477,761)

     8,842,053

                -  

     5,364,292

        1,515,795

         6,880,087

Dividends declared and paid

                -  

                   -  

(2,525,770)

                -  

(9,171,565)

                -  

  (11,697,335)

                   -  

(11,697,335)











Other comprehensive income










Currency translation differences

                -  

                   -  

                -  

                -  

                -  

284,903

        284,903

   8,391,374

     8,676,277

Closing balance at

30 June 2016

   20,300,000

    161,040,000

 191,474,230

     1,123,645

     3,845,958

        487,907

 378,271,740

      40,436,644

      418,708,384

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE PERIOD FROM 12 JANUARY 2015 (DATE OF INCORPORATION) TO 30 JUNE 2015

 


(Unaudited)





(Unaudited)

(Unaudited)

(Unaudited)



Called Up

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Currency

Total

Non-

(Unaudited)


Share

Share

Other

Capital

Revenue

Translation

Shareholders'

Controlling

Total


Capital

Premium

Reserve

Reserve

Reserve

Reserve

Equity

Interests

Equity


£

£

£

£

£

£

£

£

£

Opening balance at

12 January 2015

                -  

                   -  

                -  

                -  

                -  

                -  

                -  

     -

    -

Amounts received on issue of management shares

         50,000

                   -  

                -  

                -  

                -  

                -  

         50,000

                   -  

         50,000

Management shares redeemed

        (50,000)

                   -  

                -  

                -  

                -  

                -  

        (50,000)

                   -  

        (50,000)

Amounts received on issue of shares

2,000,000

    198,000,000

                -  

                -  

                -  

                -  

200,000,000

                   -  


200,000,000

Share issue costs

                -  

 (4,000,000)

                -  

-  

                -  

                -  

    (4,000,000)

                   -  

(4,000,000)

Cancellation of share premium account

                -  

   -


-

                -  

                -  

                -  

                -  

                   -  

                -  

Contributions by non-controlling interests

                -  

                   -  

                -  

                -  

                -  

                -  

                -  

    45,657,469


45,657,469

Distributions to non-controlling interests

                -  

                   -  

                -  

                -  

                -  

                -  

                -  

     -

  -

Return on ordinary activities after taxation

                -  

                   -  

                -  

     5,025,068

1,811,188

                -  

6,836,256

        696,706

7,532,962

Dividends declared and paid

                -  

                   -  

                -  

-

                -  

-

                   -  


-











Other comprehensive income










Currency translation differences

                -  

                   -  

                -  

-  

-  

(3,587,211)

(3,587,211)

(760,015)


(4,347,226)

Closing balance at

30 June 2015

   2,000,000

 194,000,000

-

5,025,068

1,811,188

(3,587,211)

 199,249,045

    45,594,160


244,843,205

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE PERIOD FROM 12 JANUARY 2015 (DATE OF INCORPORATION) TO 31 DECEMBER 2015

 


(Audited)





(Audited)

(Audited)

(Audited)



Called Up

(Audited)

(Audited)

(Audited)

(Audited)

Currency

Total

Non-

(Audited)


Share

Share

Other

Capital

Revenue

Translation

Shareholders'

Controlling

Total


Capital

Premium

Reserve

Reserve

Reserve

Reserve

Equity

Interests

Equity


£

£

£

£

£

£

£

£

£

Opening balance at

12 January 2015

                -  

                   -  

                -  

                -  

                -  

                -  

                -  

       -

    -

Amounts received on issue of management shares

         50,000

                   -  

                -  

                -  

                -  

                -  

         50,000

                   -  

         50,000

Management shares redeemed

        (50,000)

                   -  

                -  

                -  

                -  

                -  

        (50,000)

                   -  

        (50,000)

Amounts received on issue of shares

   20,300,000

    362,700,000

                -  

                -  

                -  

                -  

 383,000,000

                   -  

 383,000,000

Share issue costs

                -  

 (7,660,000)

                -  

-  

                -  

                -  

    (7,660,000)

                   -  

 (7,660,000)

Cancellation of share premium account*

                -  

   (194,000,000)

 194,000,000

                -  

                -  

                -  

                -  

                   -  

                -  

Contributions by non-controlling interests

                -  

                   -  

                -  

                -  

                -  

                -  

                -  

120,023,050


120,023,050

Distributions to non-controlling interests

                -  

                   -  

                -  

                -  

                -  

                -  

                -  

     (52,361,880)

  (52,361,880)

Return on ordinary activities after taxation

                -  

                   -  

                -  

     4,601,406

     9,755,470

                -  

   14,356,876

        6,192,610

   20,549,486

Dividends declared and paid

                -  

                   -  

                -  

(5,580,000)

                -  

    (5,580,000)

                   -  

 (5,580,000)











Other comprehensive income










Currency translation differences

                -  

                   -  

                -  

-  

-  

203,004

        203,004

           339,982

        542,986

Closing balance at

31 December 2015

   20,300,000

  161,040,000

194,000,000

4,601,406

4,175,470

203,004

 384,319,880

      74,193,762

 458,513,642

 

*The High Court of Justice Chancery Division approved the cancellation of the amount standing to the credit of the "Share Premium" account of the Company on 17 September 2015 of £194,000,000. As a result, this amount was transferred to the "Other Reserve" account.

                


 

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTH PERIOD TO 30 JUNE 2016

 



(Unaudited)

(Unaudited)

(Audited)



30 June 2016

30 June 2015

31 December 2015


Note

£

£

£






Cash flows from operating activities:





Total comprehensive income


15,556,364

7,532,962

              21,092,472

Adjustments for:





-     Interest income


(40,374,737)

(4,367,289)

             (37,115,750)

-     Dividend and distribution income


(1,195,496)

(825,241)

              (2,081,139)

-     Finance cost


4,657,941

-

2,718,759

-     Exchange (gains)/losses on cash and

      cash equivalents


(8,676,277)

689,144

(1,176,545)

Total


(30,032,205)

3,029,576

             (16,562,203)






Unrealised depreciation (appreciation) on investment assets designated as held at fair value through profit or loss


2,933,726

(153,156)

              (7,054,078)

Unrealised depreciation (appreciation) on derivative financial instruments


13,972,788

(2,389,934)

               9,880,887

Increase in other assets and prepaid expenses


(1,298,363)

(417,338)

              (1,606,467)

Increase in management fee payable


162,352

136,718

                  836,541

Increase (decrease) in performance fee payable


(389,124)

 

               1,301,904

Increase in dividend withholding tax payable


1,026,211

-

-

Increase in accrued deferred income


638,415

-

-

Increase in accrued expenses and other liabilities


1,403,354

1,183,746

               5,736,945

Impairment of loans


17,314,462

309,818

               13,007,103

Net cash inflow/(outflow) from operating activities


5,731,616

(1,330,146)

              22,102,836






Cash flows from investing activities:





Interest received


38,994,547

3,743,981

              38,395,937

Dividends received


989,264

-

               1,524,527

Purchase of investment assets designated as held at fair value through profit or loss


(23,083,005)

(30,726,384)

             (34,205,539)

Sale of investment assets designated as held at fair value through profit or loss


987,038

-

-

Purchase of loans


(372,492,175)

(174,533,904)

           (665,025,789)

Sale of loans


284,357,824

 

            155,250,113

Cash posted as collateral


(16,730,000)

-

              (8,480,000)

Contributions by non-controlling interests


6,120,948

45,657,469

            120,023,050

Distributions to non-controlling interests


(49,785,235)

-

             (52,361,880)

Increase in amounts payable under agreements to repurchase


8,730,045

-

-

Increase in note payable


84,997,886

4,533,109

            166,700,308

Net cash inflow/(outflow) from investing activities


(36,912,863)

(151,325,729)

           (278,179,273)

 

Cash flows from financing activities:





Proceeds from subscription of shares


-

200,000,000

            383,000,000

Dividends distributed


(11,697,335)

-

              (5,580,000)

Proceeds from issue of management shares


-

50,000

                    50,000

Share issue costs


-

(4,000,000)

              (7,660,000)

Finance costs paid


(4,200,884)

-

(2,396,162)

Redemption of management shares


-

(50,000)

                   (50,000)

Net cash inflow/(outflow) from financing activities


(15,898,219)

196,000,000

            367,363,838






Net change in cash and cash equivalents


(47,079,466)

46,373,701

             95,725,197

Exchange gains/(losses) on cash and cash equivalents


8,676,277

(689,144)

                1,176,545

Cash and cash equivalents at the beginning of the period 


95,901,742

-

                           -  

Cash and cash equivalents


57,498,553

45,684,557

              95,901,742

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTH PERIOD TO 30 JUNE 2016

 

1.         GENERAL INFORMATION

 

The investment objective of VPC Specialty Lending Investments PLC (the "Parent Company") with its subsidiaries (together "the Group") is to generate an attractive total return for shareholders consisting of distributable income and capital growth through investments in specialty lending opportunities. The Parent Company was incorporated in England and Wales on 12 January 2015 with registered number 9385218. The Parent Company commenced its operations on 17 March 2015 and continues to carry on business as an investment trust within the meaning of Chapter 4 of Part 24 of the Corporation Tax Act 2010.

 

The Group's investment manager is Victory Park Capital Advisors, LLC (the "Investment Manager"), a US Securities and Exchange Commission registered investment adviser. The Investment Manager also acts as the Alternative Investment Fund Manager of the Group under the Alternative Investment Fund Managers Directive ("AIFMD"). The Parent Company is defined as an Alternative Investment Fund and is subject to the relevant articles of the AIFMD.

 

The Group will invest directly or indirectly into available opportunities, including by making investments in, or acquiring interests held by, third party funds (including those managed by the Investment Manager or its affiliates). Direct investments may include consumer loans, SME loans, advances against corporate trade receivables and/or purchases of corporate trade receivables ("Debt Instruments") originated by platforms which engage with and directly lend to borrowers ("Platforms"). Such Debt Instruments may be subordinated in nature, or may be second lien, mezzanine or unsecured loans. Indirect investments may include investments in Platforms (or in structures set up by Platforms) through the provision of credit facilities ("Credit Facilities"), equity or other instruments. Additionally, the Group's investments in Debt Instruments and Credit Facilities may be made through subsidiaries of the Company or through partnerships or other structures. The Group may also invest in other specialty lending related opportunities through any combination of debt facilities, equity or other instruments.

 

During the period, the Company cancelled 183,000,000 C Shares on 3 March 2016 and issued 182,615,665 new Ordinary Shares on 4 March 2016. As at 30 June 2016, the Company held equity in the form of 382,615,665 Ordinary Shares (31 December 2015: 200,000,000 Ordinary Shares and 183,000,000 C Shares; 30 June 2015: 200,000,000 Ordinary Shares). The Ordinary Shares are listed on the premium segment of the Official List of the UK Listing Authority and trade on the London Stock Exchange's main market for listed securities.

 

Northern Trust Hedge Fund Services LLC (the "Administrator") has been appointed as the administrator of the Group. The Administrator is responsible for the Group's general administrative functions, such as the calculation and publication of the Net Asset Value ("NAV") and maintenance of the Group's accounting records.

 

For any terms not herein defined, refer to Part X of the IPO Prospectus. The Parent Company's IPO Prospectus dated 26 February 2015, available on the Parent Company's website, www.vpcspecialtylending.com. The audited financial statement information contained within the consolidated financial statements are also available on the Parent Company's website.

 

2.         SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies followed by the Group are set out below:

 

Basis of preparation

 

The consolidated financial statements present the financial performance of the Group for the six month period to 30 June 2016. These statements have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and International Accounting Standard ("IAS") 34, Interim Financial Reporting, as adopted by the European Union.

The consolidated financial statements for the period ended 30 June 2016 have not been audited or reviewed by the Group's auditors and do not constitute statutory financial statements as defined in Section 434 of the Companies Act 2006. They do not include all financial information required for full annual financial statements. The consolidated financial statements and the comparative financial statements have been prepared using the accounting policies adopted in the audited financial statements for the period ended 31 December 2015.

The consolidated financial statements have been prepared on a going concern basis under the historical cost convention, as modified by the valuation of investments and derivative financial instruments at fair value. Having assessed the principal risks, the directors considered it appropriate to adopt the going concern basis of accounting in preparing the consolidated financial statements. The principal accounting policies adopted are set out below.

Where presentational guidance set out in the Statement of Recommended Practice ("SORP") for investment trusts issued by the Association of Investment Companies ("AIC") in November 2014 is consistent with the requirements of IFRS, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP.

The Group's presentational currency is Pound Sterling (£). Pound Sterling is also the functional currency because it is the currency of the Parent Company's share capital and the currency which is most relevant to the majority of the Parent Company's Shareholders. The Group enters into forward currency Pound Sterling hedges where operating activity is transacted in a currency other than the functional currency.

 

Basis of consolidation

 

The consolidated financial statements incorporate the financial statements of the Parent Company and its subsidiaries. Control is achieved where the Parent Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. The Parent Company controls an entity when the Parent Company is exposed to, or has rights to, variable returns from its investment and has the ability to affect those returns through its power over the entity. All intra-group transactions, balances, income and expenses are eliminated in consolidation. The accounting policies of the subsidiaries have been applied on a consistent basis to ensure consistency with the policies adopted by the Parent Company.

 

Subsidiaries of the Parent Company, where applicable, have been consolidated on a line by line basis as the Parent Company does not meet the definition of an investment entity under IFRS 10 because it does not measure and evaluate the performance of all of its investments on the fair value basis of accounting. The period ends for the subsidiaries are consistent with the Company.

 

Presentation of Consolidated Statement of Comprehensive Income

 

In order to better reflect the activities of an investment trust company and in accordance with the guidance set out by the AIC, supplementary information which analyses the Consolidated Statement of Comprehensive Income between items of revenue and capital nature has been presented alongside the Consolidated Statement of Comprehensive Income.

 

Income

 

For financial instruments measured at amortised cost, the effective interest rate method is used to measure the carrying value of a financial asset or liability and to allocate associated interest income or expense over the relevant period. The effective interest rate is the rate that discounts estimated future cash payments or receipts over the expected life of the financial instrument or, when appropriate, a shorter period, to the net carrying amount of the financial asset or financial liability.

 

In calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial instrument but does not consider expected credit losses. The calculation includes all fees received and paid, costs borne that are an integral part of the effective interest rate and all other premiums or discounts above or below market rates.

 

Dividend income from investments is taken to the revenue account on an ex-dividend basis.

 

Bank interest and other income receivable is accounted for on an effective interest basis.

 

Distributions from investments in funds are accounted for on an accrual basis as of the date the Group is entitled to the distribution. The income is treated as revenue return provided that the underlying assets of the investments comprise solely income generating loans, or investments in lending platforms which themselves generate net interest income.

 

Expenses and finance costs

 

Expenses and finance costs not directly attributable to generating a financial instrument are recognised as services are received, or on the performance of a significant act which means the Group has become contractually obligated to settle those amounts.

 

The Group currently charges investment management fees and performance fees to either revenue or capital return based on the classification of the investment that generates the fees. The current expectation is that the majority of the Group's return will be generated through revenue rather than capital gains on investments. Refer to Note 8 for further details of the management and performance fees.

 

All expenses are accounted for on an accruals basis.

 

Dividends payable to Shareholders

 

Dividends payable to Shareholders are recognised in the Consolidated Statement of Changes in Equity when they are paid, or have been approved by Shareholders in the case of a final dividend and become a liability to the Parent Company.

 

Taxation

 

The tax currently payable is based on the taxable profit for the year. Taxable profit differs from net profit as reported in the Consolidated Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted at the Consolidated Statement of Financial Position date.

 

In line with the recommendations of SORP for investment trusts issued by the AIC, the allocation method used to calculate tax relief on expenses presented against capital returns in the supplementary information in the Consolidated Statement of Comprehensive Income is the "marginal basis".

 

Under this basis, if taxable income is capable of being offset entirely by expenses presented in the revenue return column of the Consolidated Statement of Comprehensive Income, then no tax relief is transferred to the capital return column.

 

Investment trusts which have approval as such under section 1158 of the Corporation Taxes Act 2010 are not liable for taxation on capital gains.

 

Financial assets and financial liabilities

 

The Group classifies its financial assets and financial liabilities in one of the following categories below. The classification depends on the purpose for which the financial assets and liabilities were acquired. The classification of financial assets and liabilities are determined at initial recognition:

 

Financial assets and financial liabilities designated as held at fair value through profit or loss

 

This category consists of forward foreign exchange contracts and investments in funds.

 

Assets and liabilities in this category are carried at fair value. The fair values of derivative instruments are estimated using discounted cash flow models using yield curves that are based on observable market data or are based on valuations obtained from counterparties.

 

Investments in funds are carried at fair value through profit or loss and designated as such at inception. This is determined using the NAV for the units at the balance sheet date.

 

Gains and losses arising from the changes in the fair values are recognised in the Consolidated Statement of Comprehensive Income.

 

Loans and receivables

 

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. The Group's loan assets are classified as loans and receivables.

 

Loans are recognised when the funds are advanced to borrowers. Loans and receivables are carried at amortised cost using the effective interest rate method less provisions for impairment.

 

Purchases and sales of financial assets

 

Purchases and sales of financial assets are accounted for at trade date. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership.

 

Fair value estimation

 

The determination of fair value of investments requires the use of accounting estimates and assumptions that could cause material adjustment to the carrying value of those investments.

 

Impairment of financial assets

 

Financial Assets carried at amortised cost

The Group assesses at each balance sheet date whether, as a result of one or more events that occurred after initial recognition, there is objective evidence that a financial asset or group of financial assets is impaired. Evidence of impairment may include:

v indications that the borrower or group of borrowers is experiencing significant financial difficulty;

v default or delinquency in interest or principal payments; or

v debt being restructured to reduce the burden on the borrower.

 

The Group assesses whether objective evidence of impairment exists either individually for assets that are separately significant or individually or collectively for assets that are not separately significant.

 

If there is no objective evidence of impairment for an individually assessed asset it is included in a group of assets with similar credit risk characteristics and collectively assessed for impairment.

 

If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows discounted at the asset's original effective interest rate. The resultant provisions are deducted from the appropriate asset values in the Consolidated Statement of Financial Position.

 

The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Group to reduce any differences between loss estimates and actual loss experience.

 

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the provision is adjusted and the amount of the reversal is recognised in the Consolidated Statement of Comprehensive Income.

 

Where a loan is not recoverable, it is written off against the related provision for loan impairment once all the necessary procedures have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off are reflected against the impairment losses recorded in the Consolidated Statement of Comprehensive Income.

 

Key estimates and assumptions in impairment of financial assets

The assessment of impairment of the financial assets held at amortised cost requires the use of accounting estimates and assumptions that could cause material adjustment to the carrying value of those investments. The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Group.

 

Financial liabilities

 

Borrowings, deposits, debt securities in issue and subordinated liabilities, if any, are recognised initially at fair value, being the issue proceeds net of premiums, discounts and transaction costs incurred.

 

All borrowings are subsequently measured at amortised cost using the effective interest rate method. Amortised cost is adjusted for the amortisation of any premiums, discounts and transaction costs. The amortisation is recognised in interest expense and similar charges using the effective interest rate method.

 

Financial liabilities are derecognised when the obligation is discharged, cancelled or has expired.

 

Derivatives

 

Derivatives are entered into to reduce exposures to fluctuations in interest rates, exchange rates, market indices and credit risks and are not used for speculative purposes.

 

Derivatives are carried at fair value with movements in fair values recorded in the Consolidated Statement of Comprehensive Income. Derivative financial instruments are valued using discounted cash flow models using yield curves that are based on observable market data or are based on valuations obtained from counterparties.

 

Gains and losses arising from derivative instruments are credited or charged to the Consolidated Statement of Comprehensive Income. Gains and losses of a revenue nature are reflected in the revenue column and gains and losses of a capital nature are reflected in the capital column. Gains and losses on forward foreign exchange contracts are reflected in Foreign exchange gain / (loss) in the Consolidated Statement of Comprehensive Income.

 

All derivatives are classified as assets where the fair value is positive and liabilities where the fair value is negative. Where there is the legal ability and intention to settle net, then the derivative is classified as a net asset or liability, as appropriate.

 

Offsetting financial instruments

 

Financial assets and liabilities are offset and the net amount reported in the Consolidated Statement of Financial Position if, and only if, there is currently enforceable legal right to set off the recognised amounts and there is an intention to settle on a net basis, or to realise an asset and settle the liability simultaneously.

 

Investments in funds

 

Investments in funds are measured at fair value through profit or loss.

 

Equity securities

 

Equity securities are measured at fair value through recent transaction prices. These securities are not traded in an active market and thus are considered Level 3 investments.

 

Other receivables

 

Other receivables do not carry interest and are short-term in nature and are accordingly recognised at fair value as reduced by appropriate allowances for estimated irrecoverable amounts.

 

Cash and cash equivalents

 

Cash comprises of cash on hand and demand deposits. Cash equivalents are short-term, highly liquid investments with a maturity of 90 days or less that readily convertible to known amounts of cash.

 

Current Liabilities

 

Current liabilities, other than derivatives, are not interest-bearing and are stated at their nominal values. Due to their short term nature this is determined to be equivalent to their fair value.

 

Shares

 

Both the Ordinary Shares and C Shares, for the time to their conversion date, (together the "Shares") are classified as equity. The costs of issuing or acquiring equity are recognised in equity (net of any related income tax benefit), as a reduction of equity on the condition that these are incremental costs directly attributable to the equity transaction that otherwise would have been avoided.

 

The costs of an equity transaction that is abandoned are recognised as an expense. Those costs might include registration and other regulatory fees, amounts paid to legal, accounting and other professional advisers, printing costs and stamp duties.

 

The Group's equity NAV per unit is calculated by dividing the equity - net assets attributable to the holder of Shares by the total number of outstanding shares.

 

Foreign exchange

 

Transactions in foreign currencies are translated into Pound Sterling at the rate of exchange ruling on the date of each transaction. Monetary assets, liabilities and equity investments in foreign currencies at the Consolidated Statement of Financial Position date are translated into Pound Sterling at the rates of exchange ruling on that date. Profits or losses on exchange, together with differences arising on the translation of foreign currency assets or liabilities, are taken to the capital return column of the Consolidated Statement of Comprehensive Income. Foreign exchange gains and losses arising on investment assets including loans are included within Net gain / (loss) on investments within the capital return column of the Consolidated Statement of Comprehensive Income.

 

The assets and liabilities of the Group's foreign operations are translated using the exchange rates prevailing at the reporting date. Income and expense items are translated using the average exchange rates during the period. Exchange differences arising from the translation of foreign operations are taken directly as currency translation differences through the Consolidated Statement of Comprehensive Income.

 

Capital reserves

 

Capital reserve - arising on investments sold includes:

v gains/losses on disposal of investments and the related foreign exchange differences;

v exchange differences on currency balances;

v cost of own shares bought back; and

v other capital charges and credits charged to this account in accordance with the accounting policies above.

 

Capital reserve - arising on investments held includes:

v increases and decreases in the valuation of investments held at the period end; and

v subsidiaries where the investment by the Group is in a capital loss position.

 

All of the above are accounted for in the Consolidated Statement of Comprehensive Income except the cost of own shares bought back, if applicable, which would be accounted for in the Consolidated Statement of Changes in Equity.

 

Segmental reporting

 

The decision maker is the Board of Directors. The Directors are of the opinion that the Group is engaged in a single segment of business, being the investment of the Group's capital in financial assets comprising consumer loans, SME loans, corporate trade receivables and/or advances thereon.

 

Critical accounting estimates and assumptions

 

Estimates and assumptions used in preparing the consolidated financial statements are reviewed on an ongoing basis and are based on historical experience and various other factors that are believed to be reasonable under the circumstances.

 

The results of these estimates and assumptions form the basis of making judgments about carrying values of assets and liabilities that are not readily apparent from other sources.

 

Estimates and assumptions made in the valuation of unquoted investments and investments for which there is no active market may cause material adjustment to the carrying value of those assets and liabilities. These are valued in accordance with the techniques set out above.

 

Information about significant areas of estimation uncertainty and critical judgments in relation to the impairment of investments are described in Note 5.

 

Judgement is required to determine whether the Parent Company exercises control over its investee entities and whether they should be consolidated. Control is achieved where the Parent Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. The Parent Company controls an investee entity when the Parent Company is exposed to, or has rights to, variable returns from its investment and has the ability to affect those returns through its power over the entity. At each reporting date an assessment is undertaken of investee entities to determine control. In the intervening period assessments are undertaken where circumstances change that may give rise to a change in the control assessment. These include when an investment is made into a new entity, or an amendment to existing entity documentation or processes. When assessing whether the Parent Company has the power to affect its variable returns, and therefore control investee entities, an assessment is undertaken of the Parent Company's ability to influence the relevant activities of the investee entity. These activities include considering the ability to appoint or remove key management or the manager, which party has decision making powers over the entity and whether the manager of an entity is acting as principal or agent. The assessment undertaken for entities considers the Parent Company's level of investment into the entity and its intended long-term holding in the entity. Further details of the Parent Company's subsidiaries are included in Note 13.

 

Accounting standards issued but not yet effective

 

The following new standards are not applicable to this financial information but may have an impact when they become effective:

IFRS 9, 'Financial Instruments', introduces new requirements for classification and measurement, impairment and hedge accounting. This standard is effective from 1 January 2018.  The adoption of IFRS 9 results in an impairment model that is more forward looking than that which is currently in place under IAS 39.  In the longer term it is expected that the adoption of the standard will increase the total level of impairment allowance as financial assets will be assessed for impairment at least to the extent that an impairment is expected to arise within the following 12-month period and this impairment amount recognised within the financial statements.

 

IFRS 15, 'Revenue from Contracts with Customers', requires revenue to be recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring services to a customer. This standard is effective from 1 January 2018.  The adoption of this standard is not expected to have a significant impact on the Group's financial statements.

 

Both IFRS 9 and IFRS 15 are subject to endorsement from the European Union. The Directors are assessing the impact of the above standards on the Group's future consolidated financial information.

 

3.         FAIR VALUE MEASUREMENT

 

Financial instruments measured and reported at fair value are classified and disclosed in one of the following fair value hierarchy levels based on the significance of the inputs used in measuring its fair value:

 

Level 1 - Quoted prices (unadjusted) in active markets for identical assets and liabilities;

Level 2 - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices); and

Level 3 - Pricing inputs for the asset or liability that are not based on observable market data (unobservable inputs).

 

An investment is always categorised as Level 1, 2 or 3 in its entirety. In certain cases, the fair value measurement for an investment may use a number of different inputs that fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The assessment of the significance of a particular input to the fair value measurement requires judgment and is specific to the investment.

 

Valuation of investments in funds

 

The Group's investments in funds are subject to the terms and conditions of the respective fund's offering documentation. The investments in funds are primarily valued based on the latest available financial information. The Investment Manager reviews the details of the reported information obtained from the funds and considers: (i) the valuation of the fund's underlying investments; (ii) the value date of the NAV provided; (iii) cash flows (calls/distributions) since the latest value date; and (iv) the basis of accounting and, in instances where the basis of accounting is other than fair value, fair valuation information provided by the funds. If necessary, adjustments to the NAV are made to the funds to obtain the best estimate of fair value. The funds in which the Group invests are close-ended and unquoted. The NAV is provided to investors only and is not made publically available.

 

Valuation of equity securities

 

The Group's equity securities investments are valued at recent transaction prices. As these equity securities are not traded in an active market, they are categorised as Level 3 investment assets.

 

The following table analyses the fair value hierarchy of the Group's assets and liabilities measured at fair value at 30 June 2016:

 


(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Investment assets designated as held at fair value through profit or loss

Total

Level 1

Level 2

Level 3

£

£

£

£






Investments in funds

32,463,431

-

-

32,463,431

Equity securities

27,958,427

1,593,229

-

26,365,198

Total

60,421,858

1,593,229

-

58,828,629

 


(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Derivative financial liabilities

Total

Level 1

Level 2

Level 3

£

£

£

£






Amounts payable under agreements to repurchase

8,730,045

-

8,730,045

-

Forward foreign exchange contracts

23,853,675

-

23,853,675

-

Total

32,583,720

-

32,583,720

-

 

There were no movements between Level 1 and Level 2 fair value measurements during the period ended 30 June 2016 and no transfers into and out of Level 3 fair value measurements for the Group.

The following table analyses the fair value hierarchy of the Group's assets and liabilities measured at fair value at 30 June 2015:

 


(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Investment assets designated as held at fair value through profit or loss

Total

Level 1

Level 2

Level 3

£

£

£

£






Investments in funds

30,879,540

                    -  

                    -  

30,879,540

Equity securities

-

-

                    -  

-

Total

30,879,540 

-

                    -  

30,879,540 

 


(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Derivative financial assets

Total

Level 1

Level 2

Level 3

£

£

£

£






Forward foreign exchange contracts

2,389,934

-

 2,389,934

-

Total

2,389,934

-

 2,389,934

-

 

The following table analyses the fair value hierarchy of the Group's assets and liabilities measured at fair value at 31 December 2015:

 


(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Investment assets designated as held at fair value through profit or loss

Total

Level 1

Level 2

Level 3

£

£

£

£






Investments in funds

31,596,504

                    -  

                    -  

31,596,504

Equity securities

9,663,113

859,929

                    -  

8,803,184

Total

41,259,617

859,929

                    -  

40,399,688

 


(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Derivative financial liabilities

Total

Level 1

Level 2

Level 3

£

£

£

£






Forward foreign exchange contracts

9,880,887

-

 9,880,887

-

Total

9,880,887

-

 9,880,887

-

 

The following table presents the movement in Level 3 positions for the period for the Group at 30 June 2016:

 



(Unaudited)




Investments in funds

(Unaudited)

Equity securities



£

£

Beginning balance, 1 January 2016


       31,596,504

         8,803,184

Purchases


           156,456

       18,172,286

Sales


                    -  

          (987,038)

Transfers in / (out)


                    -  

                    -  

Net change in unrealised foreign exchange gains / (losses)


        3,451,393

         1,138,059

Net change in unrealised gains / (losses)


       (2,740,922)

          (761,293)

Ending balance, 30 June 2016


       32,463,431

       26,365,198

 

The net change in unrealised gains is recognised within gains on investments in the Consolidated Statement of Comprehensive Income.

 

Quantitative information regarding the unobservable inputs for Level 3 positions is given below:

 


(Unaudited)





Fair Value at





30 June 2016




Description

£

Valuation technique

Unobservable input

Range

Investments in funds

32,463,431

Net asset value

N/A

N/A






Equity securities

15,828,560

Discounted Cash Flows

Discount Rate

18.00%




Assumed Default Rate

17.22% - 18.68%






Equity securities

9,317,247

Transaction price

N/A

N/A






Equity securities

1,219,391

Black Scholes Model

Risk Free Rate

1.39% - 1.64%




Volatility

25% - 35%




Strike Price

$0.20 - £2.16




Current Price

$0.62 -  £ 2.98

 

The investments in funds consist of investments in Larkdale III, L.P. and VPC Offshore Unleveraged Private Debt Fund, L.P. are valued based on the NAV as calculated at the balance sheet date. No adjustments have been deemed necessary to the NAV as it reflects the fair value of the underlying investments, as such no specific unobservable inputs have been identified. The NAVs are sensitive to movements in interest rates due to the funds' underlying investment in loans.

If the price of the investment assets held at period end had increased / decreased by 5 per cent. it would have resulted in an increase / decrease in the total value the funds and equity securities of £2,939,239 which would affect the Net gain / (loss) on investments within the capital return column of the Consolidated Statement of Comprehensive Income.

Assets and liabilities not carried at fair value but for which fair value is disclosed

 

The following table presents the fair value of the Group's assets and liabilities not measured at fair value through profit and loss at 30 June 2016 but for which fair value is disclosed. The carrying value has been used where it is a reasonable approximation of fair value:


(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)


Total

Level 1

Level 2

Level 3


Assets





Loans

566,379,067

-  

-  

566,379,067

Cash and cash equivalents

57,498,553

57,498,553

-  

-  

Cash posted as collateral

25,210,000

25,210,000

-  

-  

Interest receivable

5,636,573

-  

5,636,573

                      -  

Dividend and distribution receivable

762,843

-  

762,843

-  

Other assets and prepaid expenses

2,904,830

-  

2,904,830

-  

Total

658,391,866

82,708,553

9,304,246

566,379,067

 


(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)


Total

Level 1

Level 2

Level 3


£

£

£

£

Liabilities





Notes payable

251,698,194

         -  

          -  

251,698,194

Management fee payable

998,893

998,893

          -  

          -  

Performance fee payable

912,780

912,780

          -  

          -  

Dividend withholding tax payable

1,026,211

1,026,211

          -  

          -  

Accrued deferred income

638,415

638,415

          -  

          -  

Other liabilities and accrued expenses

7,919,953

7,919,953

          -  

          -  

Total

263,194,446

11,496,252

-  

251,698,194

 

The following table presents the fair value of the Group's assets and liabilities not measured at fair value through profit and loss at 30 June 2015 but for which fair value is disclosed. The carrying value has been used where it is a reasonable approximation of fair value:


(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)


Total

Level 1

Level 2

Level 3


£

£

£

£

Assets





Loans

168,972,902

-  

-  

168,972,902

Cash and cash equivalents

45,684,557

45,684,557

-  

-  

Dividend and distribution receivable

825,241

825,241

-  

-  

Other assets and prepaid expenses

1,040,646

1,040,646

-  

-  

Total

216,523,346

47,550,444

-  

168,972,902

 


(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)


Total

Level 1

Level 2

Level 3


£

£

£

£

Liabilities





Notes payable

4,533,109

         -  

          -  

4,533,109

Management fee payable

136,718

136,718

          -  

          -  

Performance fee payable

-

-

          -  

          -  

Other liabilities and accrued expenses

1,183,746

1,183,746

          -  

          -  

Total

5,853,573

1,320,464

-  

4,533,109  

 

The following table presents the fair value of the Group's assets and liabilities not measured at fair value through profit and loss at 31 December 2015 but for which fair value is disclosed. The carrying value has been used where it is a reasonable approximation of fair value:


(Audited)

(Audited)

(Audited)

(Audited)


Total

Level 1

Level 2

Level 3


£

£

£

£

Assets





Loans

487,873,797

-  

-  

487,873,797

Cash and cash equivalents

95,901,742

95,901,742

-  

-  

Cash posted as collateral

8,480,000

8,480,000

-  

-  

Interest receivable

4,256,382

4,256,382

-  

-  

Dividend and distribution receivable

556,612

556,612

-  

-  

Other assets and prepaid expenses

1,606,467

1,606,467

-  

-  

Total

598,675,000

110,801,203

-  

487,873,797

 

 

(Audited)

(Audited)

(Audited)

(Audited)


Total

Level 1

Level 2

Level 3


£

£

£

£

Liabilities





Notes payable

166,700,308

         -  

          -  

166,700,308

Management fee payable

836,541

836,541

          -  

          -  

Performance fee payable

1,301,904

1,301,904

          -  

          -  

Other liabilities and accrued expenses

6,059,542

6,059,542

          -  

          -  

Total

184,779,182

18,078,874

-  

166,700,308

 

The table below provides details of the investments at amortised cost held by the Group for the period ended 30 June 2016:


(Unaudited)




Amortised


(Unaudited)


cost before

(Unaudited)

Carrying


impairment

Impairment

Value


£

£

£





Loans at amortised cost

578,067,990

16,016,097

562,051,893

Total

578,067,990

16,016,097

562,051,893

 

The table below provides details of the investments at amortised cost held by the Group for the period ended 30 June 2015:


(Unaudited)




Amortised


(Unaudited)


cost before

(Unaudited)

Carrying


impairment

Impairment

Value


£

£

£





Loans at amortised cost

170,186,678

309,818

169,876,860

Total

170,186,678

309,818

169,876,860

 

The table below provides details of the investments at amortised cost held by the Group for the period ended 31 December 2015:


(Audited)




Amortised


(Audited)


cost before

(Audited)

Carrying


impairment

Impairment

Value


£

£

£





Loans at amortised cost

504,239,107

13,007,103

491,232,004

Total

504,239,107

13,007,103

491,232,004

 

4.         INCOME AND GAINS ON INVESTMENTS AND LOANS


(Unaudited)

(Unaudited)

(Audited)


30 June 2016

30 June 2015

31 December 2015


£

£

£





Income




Interest income

            40,374,738

4,367,289

            37,115,570

Distributable income from investments in funds

              1,174,704

825,240

              1,442,753

Dividend income

                   20,791

-

                 638,386

Other income

                    4,543

14,403

                 138,056

Total

            41,574,776

  5,206,932

            39,334,945

 


(Unaudited)

(Unaudited)

(Audited)


30 June 2016

30 June 2015

31 December 2015


£

£

£





Net gains (losses) on investments




Unrealised gain (loss) on investment in funds

             (2,740,922)

153,156

2,465,817

Unrealised gain (loss) on equity securities

                (192,804)

-

4,588,261

Total

             (2,933,726)

153,156

7,054,078

 

 

5.         FINANCIAL INSTRUMENTS AND ASSOCIATED RISKS

 

Introduction

 

Risk is inherent in the Group's activities but it is managed through a process of ongoing identification, measurement and monitoring, subject to risk limits and other controls. The Group is exposed to market risk (which includes currency risk, interest rate risk and other price risk), credit risk and liquidity risk arising from the financial instruments held by the Group.

 

Risk management structure

 

The Directors are ultimately responsible for identifying and controlling risks. Day to day management of the risk arising from the financial instruments held by the Group has been delegated to Victory Park Capital Advisors, LLC as Investment Manager to the Parent Company and the Group.

 

The Investment Manager regularly reviews the investment portfolio and industry developments to ensure that any events which impact the Group are identified and considered. This also ensures that any risks affecting the investment portfolio are identified and mitigated to the fullest extent possible.

 

The Group has no employees and the Directors have all been appointed on a non-executive basis. Whilst the Group has taken all reasonable steps to establish and maintain adequate procedures, systems and controls to enable it to comply with its obligations, the Group is reliant upon the performance of third party service providers for its executive function. In particular, the Investment Manager, the Custodian, the Administrator and the Registrar will be performing services which are integral to the operation of the Group. Failure by any service provider to carry out its obligations to the Group in accordance with the terms of its appointment could have a materially detrimental impact on the operation of the Group.

 

The principal risks and uncertainties that could have a material impact on the Group's performance have not changed from those set out in detail on pages 14-24 of the Parent Company's IPO Prospectus.

 

In seeking to implement the investment objectives of the Parent Company while limiting risk, the Parent Company and the Group are subject to the investment limits restrictions set out in the Credit Risk section of this note.

 

Market risk (incorporating price, interest rate risk and currency)

 

Market risk is the risk of loss arising from movements in observable market variables such as foreign exchange rates, equity prices and interest rates. The Group is exposed to market risk primarily through its Financial Instruments.

 

Market price risk

 

The Group is exposed to price risk arising from the investments held by the Group for which prices in the future are uncertain. The investment in funds are exposed to market price risk. Refer to Note 3 for further details on the sensitivity of the Group's Level 3 investments to price risk.

 

Interest rate risk

 

Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the fair values of financial instruments.

 

The Group is exposed to risks associated with the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows. Due to the nature of the investments at 30 June 2016, the Group has limited exposure to variations in interest rates as all current interest rates are fixed and determinable or variable based on the size of the loan.

 

While the Group is exposed to risks associated with the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows, the downside exposure is limited at 30 June 2016 due to the fixed rate nature of the investments or interest rate floors that are in place on any variable interest rate loans.

 

The Group does not intend to hedge interest rate risk on a regular basis. However, where it enters floating rate liabilities against fixed-rate loans, it may at its sole discretion seek to hedge out the interest rate exposure, taking into consideration amongst other things the cost of hedging and the general interest rate environment.

 

Currency risk

 

Currency risk is the risk that the value of net assets will fluctuate due to changes in foreign exchange rates. Relevant risk variables are generally movements in the exchange rates of non-functional currencies in which the Group holds financial assets and liabilities.

 

The assets of the Group as of 30 June 2016 are invested in assets which are denominated in US Dollars, Euros, Pound Sterling and other currencies. Accordingly, the value of such assets may be affected favourably or unfavourably by fluctuations in currency rates. The Group hedges currency exposure between Pound Sterling and any other currency in which the Group's assets may be denominated, in particular US Dollars and Euros.

 

Micro and Small Cap Company Investing Risk

 

The Group will generally invest in companies that are small, not widely known and not widely held. Small companies tend to be more vulnerable to adverse developments than larger companies and may have little or no track records. Small companies may have limited product lines, markets, or financial resources, and may depend on less seasoned management. Their securities may trade infrequently and in limited volumes. It may take a relatively long period of time to accumulate an investment in a particular issue in order to minimise the effect of purchases on market price. Similarly, it could be difficult to dispose of such investments on a timely basis without adversely affecting market prices. As a result, the prices of these securities may fluctuate more than the prices of larger, more widely traded companies. Also, there may be less publicly available information about small companies or less market interest in their securities compared to larger companies, and it may take longer for the prices of these securities to reflect the full value of their issuers' earnings potential or assets.

 

Leverage and Borrowing Risk

 

Whilst the use of borrowings by the Group should enhance the net asset value of an investment when the value of an investment's underlying assets is rising, it will, however, have the opposite effect where the underlying asset value is falling. In addition, in the event that an investment's income falls for whatever reason, the use of borrowings will increase the impact of such a fall on the net revenue of the Group's investment and accordingly will have an adverse effect on the ability of the investment to make distributions to the Group.

 

Concentration of foreign currency exposure

 

The Investment Manager monitors the fluctuations in foreign currency exchange rates and may use forward foreign exchange contracts to hedge the currency exposure of the Parent Company and Group's non GBP denominated investments. The Investment Manager re-examines the currency exposure on a regular basis in each currency and manages the Parent Company's currency exposure in accordance with market expectations.

 

Liquidity risk

 

Liquidity risk is defined as the risk that the Group may not be able to settle or meet its obligations on time or at a reasonable price. Ordinary Shares are not redeemable at the holder's option.

 

Current financial liabilities consisting of fees payable, accrued expenses and other liabilities are all due within 3 months.

 

Credit risk

 

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation.

 

The Group's credit risks arise principally through exposures to loans acquired by the Group, which are subject to risk of borrower default. The ability of the Group to earn revenue is completely dependent upon payments being made by the borrower of the loan acquired by the Group through a Platform. The Group (as a lender member) will receive payments under any loans it acquires through a Platform only if the corresponding borrower through that Platform (borrower member) makes payments on the loan.

 

Consumer loans are unsecured obligations of borrower members. They are not secured by any collateral, not guaranteed or insured by any third party and not backed by any governmental authority in any way. The Platforms and their designated third party collection agencies may be limited in their ability to collect on loans.

 

The Group will invest across various Platforms, asset classes, geographies (primarily United States and Europe) and credit bands in order to ensure diversification and to seek to mitigate concentration risks.

 

The following investment limits and restrictions shall apply to the Group, to ensure that the diversification of the Group's portfolio is maintained and that concentration risk is limited:

 

Platform restrictions

 

Once the proceeds of the Issue are fully invested, and subject to the following restrictions, the Group does not intend to invest more than 20 per cent. of its Gross Assets in Debt Instruments (net of any gearing ring-fenced within any special purpose vehicle which would be without recourse to the Group), originated by, and/or Credit Facilities and equity instruments in, any single Platform, calculated at the time of investment. All such aggregate exposure to any single Platform (including investments via a special purpose vehicle) will always be subject to an absolute maximum, calculated at the time of investment, of 25 per cent. of the Group's Gross Assets.

 

Asset class restrictions

 

The Group does not intend to acquire Debt Instruments for a term longer than 5 years. The Group will not invest more than 20 per cent. of its Gross Assets, at the time of investment, via any single investment fund investing in Debt Instruments and Credit Facilities. In any event, the Group will not invest, in aggregate, more than 60 per cent. of its Gross Assets, at the time of investment, in investment funds that invest in Debt Instruments and Credit Facilities.

 

The Group will not invest more than 10 per cent. of its Gross Assets, at the time of investment, in other listed closed-ended investment funds, whether managed by the Investment Manager or not, except that this restriction shall not apply to investments in listed closed-ended investment funds which themselves have stated investment policies to invest no more than 15 per cent. of their gross assets in other listed closed-ended investment funds.

 

The following restrictions apply, in each case at the time of investment by the Group, to both Debt Instruments acquired by the Group via wholly-owned special purpose vehicles or partially-owned special purpose vehicles on a proportionate basis under the Marketplace Model, as well as on a look-through basis under the Balance Sheet Model and to any Debt Instruments held by another investment fund in which the Group invests:

·      No single consumer loan acquired by the Group shall exceed 0.25 per cent. of its Gross Assets.

·      No single SME loan acquired by the Group shall exceed 5.0 per cent. of its Gross Assets. For the avoidance of doubt, Credit Facilities entered into directly with Platforms are not considered SME loans.

·      No single trade receivable asset acquired by the Group shall exceed 5.0 per cent. of its Gross Assets.

 

Other restrictions

 

The Group's un-invested or surplus capital or assets may be invested in Cash Instruments for cash management purposes and with a view to enhancing returns to Shareholders or mitigating credit exposure.

 

6.         NOTE PAYABLE

 

The Group entered into contractual obligations with third parties to structurally subordinate a portion of principal directly attributable to existing investments. The Group is obligated to pay a commitment fee and interest to the third parties on the obligations. The outstanding debt of the Group at 30 June 2016 is £223,371,575 (31 December 2015: £160,956,979; 30 June 2015: Nil).

 

The Group entered into contractual obligations with a third party to structurally subordinate a portion of principal directly attributable to existing loan facilities. The Group is obligated to pay a commitment fee and interest to the third party on the obligation as interest is paid on the underlying loan facilities. In the event of a default on the loan facilities, the third party has first-out participation rights on the accrued and unpaid interest as well as the principal balance of the notes. The outstanding principal at 30 June 2016 is £28,326,619 (31 December 2015: £5,743,329; 30 June 2015: £4,533,109).

 

7.         IMPAIRMENT OF FINANCIAL ASSETS AT AMORTISED COST

 

Impairment of loans written off

 

A financial asset is past due when the counterparty has failed to make a payment when contractually due. The Group assesses at each reporting date whether there is objective evidence that a loan or group of loans, classified as loans at amortised cost, is impaired. In performing such analysis, the Group assesses the probability of default based on the number of days past due, using recent historical rates of default on loan portfolios with credit risk characteristics similar to those of the Group.

 

Impairment charges of loans written off £16,016,097 (31 December 2015: £5,886,986; 30 June 2015: £Nil) have been recorded in the Group's Consolidated Statement of Financial Position and are included in impairment charges on the Consolidated Statement of Comprehensive Income.

 

Impairment of loans reserved against

 

Loans are judged for impairment primarily based on payment delinquency. General expectations with regards to expected losses on loans at a given level of delinquency were assessed based on historical roll rates on the loans purchased by the Group. Impairments are recognised once a loan was deemed to have a non-trivial likelihood of facing a material loss. The Group has created a loan loss reserve to reflect the increasing likelihood of loss as loans progress to more advanced stages of delinquency as well as the increasing expected loss as loans become more delinquent.

 

As at 30 June 2016, the Group has created a reserve provision on the outstanding principal of the Group's loans of £9,071,544 (31 December 2015: £7,120,117; 30 June 2015: £309,818), which is included in impairment charges on the Consolidated Statement of Comprehensive Income.

 

8.         FEES AND EXPENSES

 

Investment management and performance fees

 

Under the terms of the Management Agreement, the Investment Manager is entitled to a management fee and a performance fee together with reimbursement of reasonable expenses incurred by it in the performance of its duties.

 

The management fee is payable in Pound Sterling monthly in arrears and is at the rate of 1/12 of 1.0 per cent. per month of NAV (the "Management Fee"). For the period from Admission until the date on which 90 per cent. of the net proceeds of the Issue have been invested or committed for investment (other than in Cash Instruments), the value attributable to any Cash Instruments of the Group held for investment purposes will be excluded from the calculation of NAV for the purposes of determining the Management Fee.

 

The Investment Manager shall not charge a management fee twice. Accordingly, if at any time the Group invests in or through any other investment fund or special purpose vehicle and a management fee or advisory fee is charged to such investment fund or special purpose vehicle by the Investment Manager or any of its affiliates, the Investment Manger agrees to either (at the option of the Investment Manager): (i) waive such management fee or advisory fee due to the Investment Manager or any of its affiliates in respect of such investment fund or special purpose vehicle, other than the fees charged by the Investment Manager under the Management Agreement; or (ii) charge the relevant fee to the relevant investment fund or special purpose vehicle, subject to the cap set out in the paragraph below, and ensure that the value of such investment shall be excluded from the calculation of the NAV for the purposes of determining the Management Fee payable pursuant to the above. The management fee expense of the Group for the period is £3,035,832 (31 December 2015: £2,158,389; 30 June 2015: £363,385).

 

Notwithstanding the above, where such investment fund or special purpose vehicle employs leverage from third parties and the Investment Manager or any of its affiliates is entitled to charge it a fee based on gross assets in respect of such investment, the Investment Manager may not charge a fee greater than 1.0 per cent. per annum of gross assets in respect of any investment made by the Parent Company or any member of the Group.

 

The performance fee is calculated by reference to the movements in the Adjusted NAV (as defined below) since the end of the Calculation Period in respect of which a performance fee was last earned or Admission if no performance fee has yet been earned (the "High Water Mark").

 

The performance fee will be calculated in respect of each twelve month period starting on 1 January and ending on 31 December in each calendar year (a "Calculation Period"), save that the first Calculation Period shall be the period commencing on Admission and ending on 31 December 2015 and provided further that if at the end of what would otherwise be a Calculation Period no performance fee has been earned in respect of that period, the Calculation Period shall carry on for the next 12 month period and shall be deemed to be the same Calculation Period and this process shall continue until a performance fee is next earned at the end of the relevant period.

 

The performance fee will be a sum equal to 15 per cent. of such amount (if positive) and will only be payable if the Adjusted NAV at the end of a Calculation Period exceeds the High Water Mark. The performance fee shall be payable to the Investment Manager in arrears within 30 calendar days of the end of the relevant Calculation Period. "Adjusted Net Value" means the NAV adjusted for: (i) any increases or decreases in NAV arising from issues or repurchases of Ordinary Shares during the relevant Calculation Period; (ii) adding back the aggregate amount of any dividends or distributions (for which no adjustment has already been made under (i)) made by the Parent Company at any time during the relevant Calculation Period; and (iii) before deduction for any accrued performance fees.

 

The Investment Manager shall not charge a performance fee twice. Accordingly, if at any time the Group invests in or through any other investment fund, special purpose vehicle or managed account arrangement and a performance fee or carried interest is charged to such investment fund, special purpose vehicle or managed account arrangement by the Investment Manager or any of its affiliates, the Investment Manager agrees to (and shall procure that all of its relevant affiliates shall) either (at the option of the Investment Manager): (i) waive such performance fee or carried interest suffered by the Group by virtue of the Investment Manager's (or such relevant affiliate's/affiliates') management of (or advisory role in respect of) such investment fund, special purpose vehicle or managed account, other than the fees charged by the Investment Manager under the Management Agreement; or (ii) calculate the performance fee as above, except that in making such calculation the NAV (as of the date of the High Water Mark) and the Adjusted NAV (as of the NAV calculation date) shall not include the value of any assets invested in any other investment fund, special purpose vehicle or managed account arrangement that is charged a performance fee or carried interest by the Investment Manager or any of its affiliates (and such performance fee or carried interest is not waived with respect to the Group). The performance fee expense of the Group for the period is £912,781 (31 December 2015: £1,301,904; 30 June 2015: Nil).

 

Earn-out fee

 

Certain loans purchased by the Group through a Platform are subject to a performance fee that the seller may be entitled to receive from the Group with respect to the performance of the loans. This fee may be due to the Platform 12 months after the purchase of the loans from the Platform. At 30 June 2016, the amount the Group has recognised is £5,117,807 (31 December 2015: £2,909,078; 30 June 2015: Nil) and it is included in Other liabilities and accrued expenses on the Consolidated Statement of Financial Position and in Other expenses on the Consolidated Statement of Comprehensive Income.

 

9.         NET ASSET VALUE PER SHARE

 



(Unaudited)

(Unaudited)

(Audited)



As at

As at

As at



30 June 2016

30 June 2015

31 December 2015



£ 

 £

£






Ordinary Shares





Net assets


378,271,740

199,249,045

201,796,653

Shares in issue


382,615,665

200,000,000

  200,000,000

Net asset value per Ordinary Share


98.86p

99.62p

100.90p






C Shares





Net assets


-

-

182,523,227

Shares in issue


-

-

  183,000,000

Net asset value per Ordinary Share


-

-

99.74p

 

10.        SHAREHOLDERS' CAPITAL

 

Set out below is the issued share capital of the Company as at 30 June 2016:




Nominal





value

Number




£

of Shares

Ordinary Shares



        0.01

  382,615,665

 

Set out below is the issued share capital of the Company as at 30 June 2015:




Nominal





value

Number




£

of Shares

Ordinary Shares



        0.01

  200,000,000

 

Set out below is the issued share capital of the Company as at 31 December 2015:




Nominal





value

Number




£

of Shares

Ordinary Shares



        0.01

  200,000,000

C Shares



        0.10

183,000,000

 

Rights attaching to the Ordinary Shares and C Shares

 

The holders of the Ordinary Shares and C Shares are entitled to receive, and to participate in, any dividends declared in relation to the Ordinary Shares and C Shares respectively. The holders of Ordinary Shares and C Shares shall be entitled to all of the Parent Company's remaining net assets after taking into account any net assets attributable to other share classes in issue. The Ordinary Shares and C Shares shall carry the right to receive notice of, attend and vote at general meetings of the Parent Company. The consent of the holders of Ordinary Shares and C Shares will be required for the variation of any rights attached to the Ordinary Shares and C Shares. The net return per Ordinary Share and the return per C Share are calculated by dividing the net return on ordinary activities after taxation by the number of shares in issue related to each share class.

 

Voting rights

 

Subject to any rights or restrictions attached to any shares, on a show of hands every shareholder present in person has one vote and every proxy present who has been duly appointed by a shareholder entitled to vote has one vote, and on a poll every shareholder (whether present in person or by proxy) has one vote for every share of which he is the holder. A shareholder entitled to more than one vote need not, if he votes, use all his votes or cast all the votes he uses the same way. In the case of joint holders, the vote of the senior who tenders a vote shall be accepted to the exclusion of the vote of the other joint holders, and seniority shall be determined by the order in which the names of the holders stand in the Register.

 

No shareholder shall have any right to vote at any general meeting or at any separate meeting of the holders of any class of shares, either in person or by proxy, in respect of any share held by him unless all amounts presently payable by him in respect of that share have been paid.

 

Variation of Rights & Distribution on Winding Up

 

Subject to the provisions of the Act as amended and every other statute for the time being in force concerning companies and affecting the Parent Company (the "Statutes"), if at any time the share capital of the Parent Company is divided into different classes of shares, the rights attached to any class may be varied either with the consent in writing of the holders of three-quarters in nominal value of the issued shares of that class or with the sanction of an extraordinary resolution passed at a separate meeting of the holders of the shares of that class (but not otherwise) and may be so varied either whilst the Parent Company is a going concern or during or in contemplation of a winding-up.

 

At every such separate general meeting the necessary quorum shall be at least two persons holding or representing by proxy at least one-third in nominal value of the issued shares of the class in question (but at any adjourned meeting any holder of shares of the class present in person or by proxy shall be a quorum), any holder of shares of the class present in person or by proxy may demand a poll and every such holder shall on a poll have one vote for every share of the class held by him. Where the rights of some only of the shares of any class are to be varied, the foregoing provisions apply as if each group of shares of the class differently treated formed a separate class whose rights are to be varied.

 

The Parent Company has no fixed life but, pursuant to the Articles, an ordinary resolution for the continuation of the Parent Company will be proposed at the annual general meeting of the Parent Company to be held in 2020 and, if passed, every five years thereafter. Upon any such resolution not being passed, proposals will be put forward within 3 months after the date of the resolution to the effect that the Parent Company be wound up, liquidated, reconstructed or unitised.

 

If the Parent Company is wound up, the liquidator may divide among the shareholders in specie the whole or any part of the assets of the Parent Company and for that purpose may value any assets and determine how the division shall be carried out as between the shareholders or different classes of shareholders.

 

The table below shows the movement in shares during the period through 30 June 2016:

 


Shares in



Shares in


issue at the



issue at the

For the period from 1 January 2016

beginning of

Shares

Conversion

end of

to 30 June 2016

the period

subscribed

of C Shares

the period

Ordinary Shares

  200,000,000

-

182,615,665

382,615,665

C Shares

183,000,000

-

(183,000,000)

-

 

The table below shows the movement in shares during the period though 30 June 2015:

 


Shares in



Shares in


issue at the



issue at the

For the period from 12 January 2015

beginning of

Shares

Shares

end of

to 30 June 2015

the period

subscribed

redeemed

the period

Management Shares

-

50,000

(50,000)

-

Ordinary Shares

-

  200,000,000

-

 200,000,000

 

The table below shows the movement in shares during the period through 31 December 2015:

 


Shares in



Shares in


issue at the



issue at the

For the period from 12 January 2015

beginning of

Shares

Shares

end of

to 31 December 2015

the period

subscribed

redeemed

the period

Management Shares

-

50,000

(50,000)

-

Ordinary Shares

-

  200,000,000

-

 200,000,000

C Shares

-

183,000,000

-

183,000,000

 

11.        DIVIDENDS PER SHARE

The following table summarises the amounts recognised as distributions to equity shareholders in the period:

 


(Unaudited)

30 June 2016

(Unaudited)

30 June 2015

(Audited)

31 December 2015


£

£

£





2015 interim dividend of 0.90 pence per Ordinary Share paid on 3 September 2015

-

-

1,800,000

2015 interim dividend of 1.89 pence per Ordinary Share paid on 11 December 2015

-

-

3,780,000

2015 interim dividend of 2.00 pence per Ordinary Share paid on 7 March 2016

4,000,000

-

-

2015 interim dividend of 1.07 pence per C Share paid on 7 March 2016

1,958,100

-

-

2016 interim dividend of 1.50 pence per Ordinary Share paid on 30 June 2016

5,739,235

-

-

Total

11,697,335

-

5,580,000

 

An interim dividend of 1.50 pence per Ordinary Share was declared by the Board on 17 August 2016 in respect of the period to 30 June 2016, was paid to shareholders on 20 September 2016. The interim dividend has not been included as a liability in these accounts in accordance with International Accounting Standard 10: Events After the Balance Sheet Date.

 

12.        RELATED PARTY TRANSACTIONS

 

Each of the independent Directors is entitled to receive a fee from the Parent Company at such rate as may be determined in accordance with the Company's Articles of Association. Save for the Chairman of the Board, the fees are £30,000 for each Director per annum. The Chairman's fee is £50,000 per annum. The chairman of the Audit and Valuation Committee may also receive additional fees for acting as the chairmen of such a committee. The current fee for serving as the chairman of the Audit and Valuation Committee is £5,000 per annum.

 

All of the Directors are also entitled to be paid all reasonable expenses properly incurred by them in attending general meetings, Board or committee meetings or otherwise in connection with the performance of their duties. The Board may determine that additional remuneration shall be paid, from time to time, to any one or more Directors in the event such Director or Directors are requested by the Board to perform extra or special services on behalf of the Parent Company.

 

Investment management fees for the period ended 30 June 2016 are payable by the Parent Company to the Investment Manager and these are presented on the Consolidated Statement of Comprehensive Income. Details of investment management fees and performance fees payable during the period are disclosed in Note 8.

 

On 16 June 2016, Mr. Richard Levy was appointed as a non-executive Director of the Parent Company. The Board determined that Mr. Levy will not be considered to be independent and will not be a member of any of the existing Board committees.

 

As at 30 June 2016, the Directors' interests in the Parent Company's Shares were as follows:

 



(Unaudited)

(Unaudited)

(Audited)



30 June 2016

30 June 2015

31 December 2015

Andrew Adcock

Ordinary Shares

      50,000

50,000

50,000


C Shares

-

-

-

Kevin Ingram

Ordinary Shares

      34,968

20,000

20,000


C Shares

-

-

15,000

Richard Levy

Ordinary Shares

800,000

N/A

N/A


C Shares

-

N/A

N/A

Elizabeth Passey

Ordinary Shares

      10,000

10,000

10,000


C Shares

-

-

-

Clive Peggram

Ordinary Shares

      74,948

50,000

50,000


C Shares

-

-

25,000

 

As at 30 June 2016, Partners and Principals of the Investment Manager held 1,385,000 (31 December 2015: 1,000,000; 30 June 2015: 1,000,000) Ordinary Shares in the Parent Company.

 

The Group has invested in VPC Offshore Unleveraged Private Debt Fund Feeder, L.P. The Investment Manager of the Parent Company also acts as manager to VPC Offshore Unleveraged Private Debt Fund Feeder, L.P. The principal activity of VPC Offshore Unleveraged Private Debt Fund Feeder, L.P. is to invest in alternative finance investments and related instruments with a view to achieving the Parent Company's investment objective. As at 30 June 2016 the Group owned 26 per cent. of VPC Offshore Unleveraged Private Debt Fund Feeder, L.P. (31 December 2015: 26 per cent.; 30 June 2015: 27 per cent.) and the value of the Group's investment in VPC Offshore Unleveraged Private Debt Fund Feeder, L.P. was £23,606,218 (31 December 2015: £20,830,142; 30 June 2015: £19,540,816).

 

The Group has invested in Larkdale III, L.P. The Investment Manager of the Parent Company also acts as manager to Larkdale III, L.P. As at 30 June 2016, the Group owned 52 per cent. of Larkdale III, L.P. (31 December 2015: 52 per cent.; 30 June 2015: Nil) and the value of the Group's investment in Larkdale III, L.P. was £8,857,213 (31 December 2015: £10,766,362; 30 June 2015: £Nil).

 

The Investment Manager may pay directly various expenses that are attributable to the Group. These expenses are allocated to and reimbursed by the Group to the Investment Manager as outlined in the Management Agreement. Any excess expense previously allocated to and paid by the Group to the Investment Manager will be reimbursed to the Group by the Investment Manager. At 30 June 2016, £21,049 was due to the Investment Manager (31 December 2015: £836,541; 30 June 2015: £11,181), and is included in the Accrued expenses and other liabilities balance on the Consolidated Statement of Financial Position.

 

13.        SUBSIDIARIES

Name

Principal Activity

Country of Incorporation

Nature of Investment

(Unaudited)

30 June 2016

Percentage Ownership

(Unaudited)

30 June 2015

Percentage Ownership

(Audited)

31 December 2015

Percentage Ownership

VPC Specialty Lending Investments Intermediate, L.P.

Investment vehicle

USA

Limited partner interest

Sole limited partner

Sole limited partner

Sole limited partner

VPC Specialty Lending Investments Intermediate GP, LLC

General partner

USA

Membership interest

Sole member

Sole member

Sole member

ODVM II, L.P.

Investment vehicle

USA

Limited partner interest

Sole limited partner

Sole limited partner

Sole limited partner

ODVM II GP, LLC

General partner

USA

Membership interest

Sole member

Sole member

Sole member

LIAB, L.P.

Investment vehicle

UK

Limited partner interest

Sole limited partner

Sole limited partner

Sole limited partner

LIAB GP, LLC

General partner

UK

Membership interest

Sole member

Sole member

Sole member

Threadneedle Lending Ltd.

Investment vehicle

UK

Ordinary share capital

100%

100%

100%

SVTW, L.P.

Investment vehicle

USA

Limited partner interest

99%

99%

99%

SVTW GP, LLC

General partner

USA

Membership interest

99%

99%

99%

Duxbury Court I, L.P.

Investment vehicle

USA

Limited partner interest

97%

100%

96%

Duxbury Court I GP, LLC

General partner

USA

Membership interest

97%

100%

96%

Drexel I, L.P.

Investment vehicle

USA

Limited partner interest

51%

50%

67%

Drexel I GP, LLC

General partner

USA

Membership interest

51%

50%

67%

Larkdale II, L.P.

Investment vehicle

USA

Limited partner interest

50%

58%

59%

Larkdale II GP, LLC

General partner

USA

Membership interest

50%

58%

59%

Larkdale I, L.P.

Investment vehicle

USA

Limited partner interest

61%

42%

52%

Larkdale I GP, LLC

General partner

USA

Membership interest

61%

42%

52%

 

14.        NON-CONTROLLING INTERESTS

 

The non-controlling interests arises from investments in limited partnerships considered to be controlled subsidiaries into which there are other investors. The value of the non-controlling interests at 30 June 2016 represents the portion of the NAV of the controlled subsidiaries attributable to the other investors. As at 30 June 2016, the portion of the NAV attributable to non-controlling interests investments totalled £40,436,644 (31 December 2015: £74,193,762; 30 June 2015: £45,594,160). In the Consolidated Statement of Comprehensive Income, the amount attributable to non-controlling interests represents the increase in the fair value of the investment in the period.

 

15.        SUBSEQUENT EVENTS AFTER THE REPORTING PERIOD

 

The Company declared a dividend of 1.50 pence per Ordinary Share for the three-month period ending 30 June 2016 and paid the dividend on 20 September 2016.

 

SHAREHOLDER INFORMATION

 

CONTACT DETAILS OF THE ADVISORS

 

Directors

Andrew Adcock (Chairman)

Kevin Ingram

Richard Levy

Elizabeth Passey

Clive Peggram

all of the registered office below

 

Registered Office

40 Dukes Place

London EC3A 7NH

United Kingdom

 

Company Number

9385218

 

Website Address

vpcspecialtylending.com

 

Corporate Brokers

Jefferies International Limited

Vintners Place

68 Upper Thames Street

London EC4V 3BJ

United Kingdom

 

Stifel Nicolaus Europe Limited

150 Cheapside

London EC2V 6ET

United Kingdom

 

Investment Manager and AIFM

Victory Park Capital Advisors, LLC

227 West Monroe Street

Suite 3900

Chicago

IL 60606

United States

 

Company Secretary

Capita Company Secretarial Services Limited

The Registry

34 Beckenham Road

Beckenham

Kent BR3 4TU

United Kingdom

 

Administrator

Northern Trust Hedge Fund Services LLC

50 South LaSalle Street

Chicago

Illinois 60603

United States

 

Registrar

Capita Asset Services

The Registry

34 Beckenham Road

Beckenham

Kent BR3 4TU

United Kingdom

 

Custodians

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Merrill Lynch, Pierce, Fenner & Smith Incorporated

101 California Street

San Francisco

CA 94111

United States

 

Millennium Trust Company

2001 Spring Road

Oak Brook

IL 60723

United States

 

Deutsche Bank

1761 E Saint Andrew Place

Santa Ana

CA 92705

United States

 

English Legal Adviser to the Company

Stephenson Harwood LLP

1 Finsbury Circus

London EC2M 7SH

United Kingdom

 

Independent Auditors

PricewaterhouseCoopers LLP

7 More London Riverside

London SE1 2RT

United Kingdom

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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