Alcentra European Floating Rate Income Fund Limited
September saw a continuation of the same themes that have driven the loan market since the start of the summer rally, with secondary prices driven higher by strong demand for loans and a weak supply of new issue1.
The demand side is supported by a number of factors, but the tightening of returns in so many other assets classes and that fact that most European loans have a zero interest rate "floor" has meant that the relative value of the asset class is attracting more buyers. CLO formation is one illustration of this with AAA demand picking up strongly and taking AAA pricing down to Euribor +115bp, from Euribor +150bps as recently as Q22.This extra CLO demand comes at a time when repayments have been on the rise and resulting in a strong Q3, with S&P reporting that the average bid on the European Leverage Loan Index ("S&P ELLI") had reached 98.2, the highest reading since July 20071.
The default rate actually increased over the quarter, to 2.8% in August, but there is no suggestion of an increasing medium term trend in defaults as the percentage of facilities rated CCC+, or worse, fell to just 1.92%3.
Within the Fund, the best performers were a food business that was up +11.7% as a result of better earnings, and a chemicals business that was up +4.5%. The bottom two performers were a clothing retailer (-16.3%) and a pharma business (-5.3%) which both suffered from more negative earnings calls.
For further information please contact:
Simon Perry +44 20 7367 5272
An accompanying factsheet which includes the information above as well as wider commentary on the investments made by the Fund can be found on the Fund's website www.aefrif.com.
Alcentra European Floating Rate Income Fund Limited, a Guernsey Authorised Closed-Ended Collective Investment Scheme, regulated by the Guernsey Financial Services Commission and listed on the Main Market of the London Stock Exchange invests predominantly in senior secured loans and senior secured bonds issued by European corporates and targets returns (net of fees and expenses) of 7% to 10% per annum. The Fund targets a dividend yield of 5.5 pence per £1.00 issue price of the initial offering of shares in the Fund for the first full year of investment, paid quarterly.
Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.
This report is aimed at existing investors in the fund and has not been approved by any competent regulatory authority.
The information contained in this document is given as at the date of its publication (unless otherwise marked) and is based on past performance. Past performance is not a guide to future performance and the value of investments and investment value can go down as well as up. The future performance of the Fund will depend on numerous factors which are subject to uncertainty. Including changes in market conditions and interest rates and exchange rates and in response to other economic, political or financial developments, investment return and principal value of your investment will fluctuate, so that when your investment is sold, the amount you receive could be less than what you originally invested. Past or current yields are not indicative of future yields.
This document does not contain any representations, does not constitute or form part of any solicitation of any offer to sell or invitation to purchase any securities of the Fund, nor shall it or any part of it or the fact of its distribution form the basis of or be relied upon in connection with any contract therefor, and does not constitute a recommendation regarding the securities of the Fund. Nothing in this document should be construed as a profit or dividend forecast.
This document includes statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements include, without limitation, statements typically containing words such as "believes", "considers", "intends", "expects", "anticipates", "targets", "estimates", "will", "may", or "should" and words of similar import. The forward-looking statements are based on the beliefs, assumptions and expectations of future performance and market development of Alcentra Limited ("Alcentra"), taking into account information currently available and made as at the date of this document. These can change as a result of many possible events or factors, not all of which are known or within Alcentra's control. If a change occurs, the Fund's business, financial condition, liquidity and results of operations may vary materially from those expressed in the forward-looking statements. By their nature, forward-looking statements involve known and unknown risks and uncertainties. Forward-looking statements are not guarantees of future performance. Alcentra qualifies any and all of the forward-looking statements by these cautionary factors. Please keep this cautionary note in mind while reading this document.
An investment in the Fund is suitable only for investors who are capable of evaluating the merits and risks of such an investment and who have sufficient resources to be able to bear losses (which may equal the whole amount invested) that may result from such an investment. An investment in the Fund should constitute part of a diversified investment portfolio. Accordingly, typical investors in the Fund are expected to be sophisticated and/or professional investors who understand the risks involved in investing in the Fund.
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1 S&P LCD News, "ELLI returns 2.8% in 3Q, a three-year high", 5 October 2016
2 S&P Global, "CLO Weekly Review", 3 October 2016
3 S&P LCD News, "ELLI default rate hits 2.94% in September, an 18-month high", 6 October 2016
This information is provided by RNS