8 June 2021                                         

Secured Income Fund plc

Review of Film Production Financing 

Secured Income Fund plc (LSE: SSIF) (the "Company"), a specialist secured lending income investment trust, listed in the UK, announces the result of the review of its Film Production Financing portfolio, which had a book value of £9,586,462 as of April 30, 2021.

A review of the portfolio, comprising six film financings, was considered necessary by the Board and the Fund Manager KKV following the marked deterioration of the expected cash flows, exacerbated by the restrictions and changed operating practices resulting from the COVID pandemic.  

Of the expected cash flow presented by the Borrower, the larger proportion is considered "contracted cash flow" (comprising Tax Credit, Receipts and Presold Income) and there is a smaller element of "non-contractual Future Sales" which are effectively mezzanine in nature and carry a higher risk profile. Future sales anticipated large upfront payments but these are now considered highly unlikely for the films in the portfolio and would, at best, be replaced by longer tail earn outs. Following the review and analysis, and recognizing the limitations on security, recovery and the mezzanine nature of a large part of the expected cash flows, the Manager recommended a substantial impairment on the positions.

The portfolio is held in two Special Purpose Vehicles and the structure does allow for cross-subsidization of performing films to non-performing films which has occurred in the past. However, this is only relevant when all principal and interest on an individual film loan has been repaid, and given it is unlikely that any of the films will now repay in full, this mechanism is considered redundant.

In undertaking the analysis, the Manager took the 30 April 2021 NAV of £9,586,462, applied May 2021 cash receipts but did not accrue interest for the month, to establish a pro-forma 31 May 2021 NAV for the six loans of £8,973,093.  This was then compared with contracted cash flows, and expected future sales, adjusted for the current uncertainty of likely future sale amounts, timing of the payment (as noted above) and foreign exchange, to come to a combined provision for all six financings of £5,878,837.  This is equivalent to an impairment of 11.16p per share.

To ensure maximum returns to shareholders and to reflect the specialist nature of the sector, the Board has instructed the Manager to seek the assistance of an external specialist to assist in identifying the potential range of outcomes by way of income.  In addition, it is intended that these loans will be independently valued in support of the audit for the financial year ending 30 June 2021.

Using the methodology above, the position value for 31 May 2021 will be £3,094,256.  All the loans have been moved to stage 3 categorisation.

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