THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION
11 December 2018
SQN SECURED INCOME FUND PLC
Relaunch and Growth Strategy for 2019
Appointment of Advisors
SQN Asset Management, the collateralised loan specialist and multinational alternative investment fund manager, is pleased to provide this strategic update on plans to increase the size of the SQN Secured Income Fund ("SSIF or the Company") significantly.
The SQN Secured Income Fund aims to provide shareholders with attractive risk-adjusted returns predominantly through investment in a range of SME loan assets and secured lending opportunities, diversified by way of borrower, sector, duration and geography. The SQN Secured Income Fund seeks investments collateralised by a broad range of assets including receivables, income streams, subsidies, grants, real property, tax credits and rebates, loan portfolios and other pools of financial assets. Investments are originated directly and through third-party relationships, including alternative finance platforms addressing underserved segments of the market. The SQN Secured Income Fund delivers one of the highest monthly dividends in the market and has been specifically constructed to provide downside protection by way of structured collateral packages for each individually underwritten investment.
Anticipating a period of political and market instability, SQN Asset Management (the "Investment Manager") sees this as an opportune time to increase the size of the fund and capitalise on an expanding opportunity set as cracks start to develop in the portfolios of non-traditional underwriters and volume driven platforms. This is expected to lead to either the sale of quality segments of seasoned portfolios or a reduction in competition around attractive risk adjusted high-yield transactions as other non-traditional investors shift their focus to portfolio maintenance.
The Investment Manager has spent the last 18 months restructuring and balancing the portfolio in preparation of a widely forecasted market dislocation among alternative lenders. During this period, the Investment Manager implemented a robust traditional underwriting regime, reduced exposure to platforms that did not maintain the same underwriting standards, increased the direct investment segment of the portfolio, established a healthy pipeline of new business, and increased the dividend to 7p per share which represents a yield of 7.69% annually based on the last published NAV.
Growing the SQN Secured Income Fund by way of a capital raise is now a key focus in order to take advantage of these attractive opportunities (with or without a market dislocation), further enhance the direct investment portion of the portfolio, increase liquidity for shareholders, and lower the overall cost ratio for the Company.
Proposed Equity Issue
The SQN Secured Income Fund proposes an equity issue in the first quarter of the 2019 with a tap or with a larger target capital raise of between £50 million to £100 million sized according to the number of opportunities at hand that can be closed within a short window. With the growth of the asset base, the SQN Secured Income Fund will seek to maintain its current dividend level of 7p per share per annum with the aim of moving towards delivering its target total return of 8% per annum over the medium term.
The details of the proposed equity issue are subject to final determination by the SSIF Board and also shareholder and regulatory approval. However, it is the Investment Manager's current expectation that the proposed equity offering will be an issue of Ordinary Shares and/or C Shares and, concurrently, SSIF will apply for a Premium Listing on the Official List of the London Stock Exchange.
Appointment of Advisors to support growth plans
To support the Company's transition and growth, the SSIF Board has made the following strategic appointments:
· finnCap Ltd. as broker and sponsor
· Kepler Partners LLP as retail broker
· Dickson Minto as legal advisors
Both the SSIF Board and the Investment Manager are excited about the enthusiasm with which finnCap and Kepler have agreed to jointly undertake the marketing of the SQN Secured Income Fund.
Somerston Sell Down
In further support of SSIF's relaunch and growth plan, Somerston (owner of c.28% of SSIF) has agreed to make up to 11,780,000 of its shares (the "Option Shares") available to new investors at a price of 95p per share, a 2.2% discount to the last published NAV in October. The Option Shares represent approximately 80% of Somerston's entire shareholding in SSIF. The Investment Manager and the SSIF Board see this as an important step in further broadening SSIF's investor base and it is expected that any increased free float of SSIF's shares will boost liquidity in the market. To the extent that Somerston retains any Option Shares at 31 March 2019, the Investment Manager has agreed to buy any such residual shares at 95p per share with a view to making such shares available to new investors as SSIF's growth strategy takes its course. The number of Option Shares has been agreed such that the Investment Manager can at most hold shares representing 29.9% of SSIF's voting rights and as such no obligation under Rule 9 of the Code will be triggered.
Dawn Kendall, Managing Director of SQN Asset Management commented;
"We are delighted to announce this relaunch and growth plan for SSIF. This fund has tremendous potential and in the face of significant economic and political uncertainty, offers a unique investment vehicle that is well positioned for changing market dynamics, in addition to providing a significant source of uncorrelated dividend income for investors."
"Although much work has already been successfully achieved, this relaunch will transform the size of the fund, improve liquidity, provide our shareholders with the benefits from being invested in a larger fund with a more significant critical mass and the opportunity to invest in our considerable pipeline of new transaction underwritten by our credit team."
SQN Asset Management Limited
Dawn Kendall / Nicola Bird
tel: +44 1932 575 888
William Marle / Giles Rolls
Kepler Partners LLP
Hugh van Cutsem
tel: +44 20 7220 0500
tel: +44 20 3384 8790
Charles Ryland / Henry Wilson
tel: +44 20 7466 5000
Notes to Editor
The Company aims to provide shareholders with attractive risk-adjusted returns, principally in the form of regular, sustainable dividends, through investment predominantly in a range of secured loans and other secured loan-based instruments originated through a variety of channels and diversified by way of asset class, geography and duration.
The Company's Investment Managers are SQN Capital Management, LLC, a Registered Investment Advisor with the United States Securities and Exchange Commission and its subsidiary, SQN Asset Management Limited. The principals responsible for managing the portfolio are Dawn Kendall, Neil Roberts, and Jeremiah Silkowski.
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