JZ CAPITAL PARTNERS LIMITED (the
"Company" or "JZCP")
(a closed-end investment company incorporated with limited
liability under the laws of Guernsey with registered number 48761)
INTERIM RESULTS
FOR THE SIX-MONTH PERIOD ENDED
31 AUGUST 2020
LEI: 549300TZCK08Q16HHU44
(Classified Regulated Information, under DTR 6 Annex 1 section
1.2)
05 November
2020
JZ Capital Partners, the London
listed fund that invests in US and European microcap companies and
US real estate, announces its interim results for the six-month
period ended 31 August 2020.
Key Highlights
· NAV per share of $4.60 (FYE 29/2/2020: $6.14)
· NAV of $356.3
million (FYE 29/2/2020: $475.7
million)
· US and European Microcap portfolios
continued to perform solidly through COVID-19 delivering a net
increase of 6 cents per share and
2 cents per share respectively
· The pandemic’s devastating impact on
commercial retail real estate negatively impacted the real estate
portfolio during the period, leading to a write down of
c.$110 million
· Significant progress made towards the
stated goal of stabilising the Company by realizing investments at
maximum value to generate cash to pay debt and return capital to
shareholders
o Total liquidity of $175.7
million realized, including the recently announced, post
period end secondary sale (the “Secondary Sale”) of certain US
microcap assets
o Total liquidity comprised $141.8
million in cash and the relief of $33.9 million in unfunded and potential
commitments
o Liquidity is being used to pay down a material portion
of the Company’s senior debt with approximately $20 million having been repaid recently and a
further approximately $62.7 million
to be repaid upon closing of the Secondary Sale
o Agreement reached with its senior lenders post period
end to amend the terms of JZCP’s existing senior facility
agreement. The Company has now secured more advantageous covenant
terms for itself, including the asset coverage covenant being reset
at a lower threshold and is now in full compliance with covenant
terms
Portfolio
· The Board commissioned updated
appraisals of the Real Estate portfolio as of 31 August 2020, which have taken into account the
effect of COVID-19. This led to a further c.$110 million write down given the leveraged
position of the assets and retail tenants being unable to pay rent
during the crisis.
o The remaining properties with equity value are carried
on the Company’s balance sheet at approximately $47.4 million as of 31
August 2020
o Given the significant decline in valuation, JZCP agreed
an amendment to its senior loan with Guggenheim following a breach
of the asset coverage covenant, which has been reset at a lower
threshold.
· Resilience and underlying quality of
the US and European microcap portfolios underpinned by solid
performance with several assets delivering record monthly sales and
EBITDA
o Decisive measures taken quickly early in the pandemic to
stabilize the businesses’ liquidity positions and set them on a
course to weather the pandemic
Secondary Sale (post-period end)
· The Secondary Sale of six US microcap
assets (Flex Pack, Flow Controls, Testing Services, Felix Storch,
Peaceable and TierPoint) to a Secondary Fund which includes
investors of certain funds and accounts managed by Hamilton Lane
Advisors, L.L.C.
· JZCP will receive aggregate
consideration of $90 million in cash,
less fees and expenses, and a special limited partner interest in
the Secondary Fund entitling JZCP to certain distributions from the
Secondary Fund
· The full potential commitment to the
Secondary Fund by its investors is up to $110 million in aggregate, with its investors
committing up to $20 million to
develop the underlying investments.
· JZCP will continue to benefit from its
interest in the new Secondary Fund, which entitles the Company to
participate in the future growth of the assets
· Following the Secondary Sale and
repayment of approximately $82.7
million of senior debt, the Company’s approximate senior
obligations include: (i) senior debt of $65.8 million (due 12 June
2021), (ii) Convertible Unsecured Loan Stock (“CULS”) of
£38.9m (due 30 July 2021), and (iii)
Zero Dividend Preference Shares (“ZDPs”) of £57.6m (due
1 October 2022).
Outlook
· The outlook for JZCP is improved -
JZCP remains committed to further progressing the Stabilisation
Plan and generating sufficient liquidity to repay its obligations
and return capital to shareholders
· Having obtained updated real estate
appraisals and having continued to watch the Company’s US and
European portfolios navigate well through the current market, the
Board feels confident in the stated values of the Company’s
investments. Accordingly, monthly NAV announcements, which had been
previously suspended, will resume this month
· The conservatively leveraged microcap
portfolios are well positioned to navigate an economic downturn
with limited exposure to cyclical businesses and below market entry
multiples offering significant room for capital gains
David Macfarlane, Chairman of
JZCP, said: “The Company has come a long way and stands today
with a significantly reduced debt position with improved terms, a
resilient microcap portfolio and a plan to further reduce our debt
obligations and return capital to shareholders.
The period has been characterised by further significant and
disappointing losses in the value of the Company’s real estate
portfolio, with the full effects of the pandemic and leverage
taking a heavy toll on the portfolio and the Company’s NAV. In
contrast, the Board has been pleased with the solidly performing
microcap portfolios which continue to demonstrate the underlying
quality and resilience of the core part of the business.
While COVID-19 market conditions mean that realisations may be
delayed or become more difficult, the successful sale of certain US
microcap assets to the Secondary Fund marks a turning point for the
Company. Clearly, the achievement of the objective of the
stabilisation plan and the new investment policy depends on
realisations, both as to their amount and timing. However, the
Board and the Investment Adviser are optimistic that all the
Company’s obligations will be repaid in full and that capital will
be returned to shareholders.”
__________________________________________________________________________________
The information contained within this
announcement is considered by the Company to constitute inside
information as stipulated under the Market Abuse Regulations (EU)
No. 596/2014. Upon the publication of this announcement, this
inside information is now considered to be in the public domain.
The person responsible for arranging the release of this
announcement on behalf of the Company is David Macfarlane, Chairman.
Important Notice
This announcement includes statements that are, or may be deemed
to be, "forward-looking statements". These forward-looking
statements can be identified by the use of forward-looking
terminology, including the terms "believes", "estimates",
"anticipates", "expects", "intends", "may", "will" or "should" or,
in each case, their negative or other variations or comparable
terminology. These forward-looking statements relate to matters
that are not historical facts. By their nature, forward-looking
statements involve risks and uncertainties because they relate to
events and depend on circumstances that may or may not occur in the
future. Forward-looking statements are not guarantees of future
performance. The Company's actual investment performance, results
of operations, financial condition, liquidity, policies and the
development of its strategies may differ materially from the
impression created by the forward-looking statements contained in
this announcement. In addition, even if the investment performance,
result of operations, financial condition, liquidity and policies
of the Company and development of its strategies, are consistent
with the forward-looking statements contained in this announcement,
those results or developments may not be indicative of results or
developments in subsequent periods. These forward-looking
statements speak only as at the date of this announcement. Subject
to their legal and regulatory obligations, each of the Company, the
Investment Adviser and their respective affiliates expressly
disclaims any obligations to update, review or revise any
forward-looking statement contained herein whether to reflect any
change in expectations with regard thereto or any change in events,
conditions or circumstances on which any statement is based or as a
result of new information, future developments or otherwise.
For further information:
Ed Berry / Colette La Pointe
+44 (0)7703 330 199 / +44
(0)7976 713 690
FTI Consulting
David Zalaznick
+1 212 485 9410
Jordan/Zalaznick Advisers, Inc.
Sam Walden
+44 (0) 1481 745385
Northern Trust International Fund
Administration Services (Guernsey)
Limited
About JZ Capital Partners
JZ Capital Partners (“JZCP”) is one of the oldest closed-end
investment companies listed on the London Stock Exchange. It seeks
to provide shareholders with a return by investing selectively in
US and European microcap companies and US real estate. JZCP
receives investment advice from Jordan/Zalaznick Advisers, Inc.
(“JZAI”) which is led by David
Zalaznick and Jay Jordan.
They have worked together for more than 35 years and are supported
by teams of investment professionals in New York, Chicago, London and Madrid. JZAI’s experts work with the existing
management of micro-cap companies to help build better businesses,
create value and deliver strong returns for investors. For more
information please visit www.jzcp.com
Chairman’s Statement
We present the results of the Company for the six-month period
ended 31 August 2020. As expected,
the last six months have been very challenging for our real estate
portfolio and as foreshadowed in my statement accompanying the
results for the year ended 29 February
2020, the effect of leverage and the COVID-19 crisis have
further reduced the value of that portfolio. As announced in
September 2020 and revised in
October 2020, this write down has
been quantified at approximately $110
million. As a consequence, I regret to report that the
Company’s NAV fell to $4.60 per share
at 31 August 2020 from $6.14 per share at 29
February 2020. The continued difficulties with the real
estate portfolio have offset a robust performance in our
traditional private equity portfolios in the US and Europe. The two portfolios have navigated the
COVID-19 environment well and have, broadly speaking, held their
values with several individual investments outperforming in each
portfolio
The recently announced Secondary Sale of certain assets within
the US Microcap portfolio marks steady progress towards the
Company’s goal of realising the maximum value of its current
investments and, in accordance with the Company’s stabilisation
plan, generating sufficient liquidity to repay its obligations and
return capital to shareholders. However, we do note that the
enduring effect of COVID-19 market conditions means that
realisations may be delayed or become more difficult
Liquidity
The further write down of the real estate portfolio caused the
Company to breach the asset coverage covenant of its senior loan
with Guggenheim Partners. However, the Investment Manager and the
Board have moved quickly and proactively to agree an amendment to
its senior loan, whereby this breach has been waived by Guggenheim
and the Company’s asset coverage covenant has been reset at a lower
threshold. In return, the Company has repaid Guggenheim
$20 million (post period-end) and
will be obliged to repay a further $62.7
million on completion of the Secondary Sale, which is
anticipated to close following shareholder approval in December 2020.
Nevertheless, the Board notes that, at this time, the remaining
balance of Guggenheim’s loan will still mature on 12 June 2021 and the Convertible Unsecured Loan
Stock (CULS), which is a subordinate security, will mature shortly
thereafter on 30 July 2021.
Real Estate Portfolio
As previously disclosed, the write down in the Company’s real
estate portfolio as of 29 February
2020 reflected valuations undertaken by a new independent
third-party appraiser, albeit prior to the impact of the COVID-19
crisis. As indicated in the Chairman’s Statement accompanying the
year end results, the Board commissioned updated appraisals as of
31 August 2020, which have taken into
account the effect of COVID-19; this analysis underpins the further
write down of approximately $110
million in the period. Unfortunately, this comes as no
surprise, given the leveraged position of the assets and how few
retail tenants have paid rent during the continuing crisis. In
aggregate, the remaining properties with equity value are carried
on the Company’s balance sheet at $47.4
million as of 31 August 2020.
Included in this amount are the approximate cash proceeds received
from the recently announced sale of the Company’s Greenpoint
investment, which had been written down to its approximate sale
value as of 31 August 2020
US and European Microcap
Portfolios
At the 2019 full year results, I reported that the Company’s US
and European microcap investments had performed solidly, though the
Board expressed concern regarding the unknown consequences of the
lingering COVID-19 crisis. While no company has escaped fully
unscathed, our Investment Adviser and the management teams of our
portfolio companies have worked unremittingly to stabilise our
private equity assets. We believe that the majority of our
businesses have sustained no lasting or fundamental damage, other
than that progress towards maximising and realising value has
naturally been delayed. In fact, several of our assets in both
portfolios have outperformed during the six-month period, in spite
of COVID-19, and, in certain instances, are net beneficiaries of
the current environment.
It almost goes without saying how difficult the current market
environment can be to execute transactions. In one form or another,
the Secondary Sale with Hamilton Lane Advisors, L.L.C. ("Hamilton
Lane") was under negotiation for more than a year. Having now
agreed this transaction, the Company has unlocked significant
liquidity to repay a material portion of its senior loan and reset
the terms of the loan through maturity. In the coming years, JZCP
will continue to benefit from its special limited partnership
interest in the new Secondary Fund, which entitles the Company to
participate in the future growth of the assets comprising the
Secondary portfolio. This growth will be generated by $20 million in fresh capital contributed by the
Secondary Fund to execute the respective acquisition strategies of
the Secondary portfolio assets.
New Investment Policy and
Stabilisation Plan
The Company’s continued intention is to realise the maximum
value of its current investments and, in accordance with the
Company’s stabilisation plan, to generate sufficient liquidity to
repay its obligations and return capital to shareholders. Following
the Secondary Sale and ensuing pay down of senior debt, the
Company’s approximate senior obligations will be as follows: (i)
senior debt of $68.5 million (due
12 June 2021), (ii) Convertible
Unsecured Loan Stock (“CULS”) of £38.9m (due 30 July 2021), and (iii) Zero Dividend Preference
Shares (“ZDPs”) of £57.6m (due 1 October
2022).
The achievement of the stabilisation plan depends upon the
Company’s ability to realise assets. As noted above, an enduring
effect of COVID-19 market conditions is that realisations may be
delayed or become more difficult. In addition, a number of the
Company’s investments are “co-investments”, where the Company does
not control exit timing. Given this situation, the Directors’
report accompanying the interim results disclose material
uncertainties as to the Company’s ability to continue as a going
concern, as a result of a potential lack of liquidity to repay the
senior debt facility and redeem its CULS.
Prospects
Having obtained updated real estate appraisals and having
continued to watch the Company’s US and European portfolios
navigate well through the current market, the Board feels confident
in the stated values of the Company’s investments. Accordingly,
monthly NAV announcements, which had been previously suspended,
will resume this month. Clearly, the achievement of the objectives
of the stabilisation plan and the new investment policy depends on
realisations, both as to their amount and timing. However, the
Board and the Investment Adviser are optimistic that all the
Company’s obligations will be repaid in full and that a significant
amount of capital will be returned to shareholders.
David Macfarlane
Chairman
4 November
2020
Investment Adviser’s Report
Dear Fellow Shareholders,
During the period, we have made substantial progress towards our
stated goal of realizing investments to generate cash to pay debt,
relieve JZCP of unfunded commitments, selectively support our
existing portfolio and return capital to shareholders; this is all
in line with the Company’s new investment policy approved by
shareholders last year.
Our team has executed several significant realizations, as
detailed in the table below, including the recently announced
Secondary Sale agreed with Hamilton Lane. In aggregate, these
transactions will generate approximately $175.7 million in liquidity for JZCP in 2020,
comprised of approximately $141.8
million in cash proceeds to JZCP and the relief of a further
approximately $33.9 million in
unfunded and potential commitments. JZCP is using this liquidity to
pay down a material portion of its senior debt (approximately
$82.7 million) and selectively
support the Company’s existing assets to maximize their realizable
value in the near term.
As we approach the maturity of the remaining balance of our
senior debt and the CULS in June 2021
and July 2021, respectively, our
efforts will continue to be totally dedicated towards raising cash
in order to execute the aforementioned plan to pay debt in the
first instance and ultimately return capital to shareholders.
Realizations and Further Commitments
Relieved Since 1 March 2020
Asset |
Portfolio |
Proceeds
($ millions) |
Further Commitment
($ millions) |
Secondary
Sale1 |
US |
90.0 |
20.0 |
K2 II & ABTB (Taco
Bell)1 |
US |
18.6 |
- |
Greenpoint –
Sale1 |
Real Estate |
13.6 |
- |
Eliantus –
Refinancing |
Europe |
2.9 |
- |
Eliantus –
Sale1 |
Europe |
6.5 |
- |
Salter –
Refinance1 |
US |
4.4 |
- |
Orangewood Fund –
Sale1 |
US |
3.7 |
6.6 |
CERPI –
Sale1 |
US |
1.3 |
7.3 |
Other & Receipt of
Escrows |
US |
0.8 |
- |
Total |
|
141.8 |
33.9 |
1 Proceeds received or to be received
post period-end
Since our last report, our US and European micro-cap portfolios
have continued to perform solidly through COVID-19. Our portfolio
companies’ respective senior management teams moved quickly to take
decisive measures early in the pandemic to stabilize the
businesses’ liquidity positions and set them on a course to weather
the pandemic. We are particularly pleased that several of our
assets in the US and Europe have
outperformed in the current climate, hitting record monthly sales
and EBITDA figures, demonstrating the quality of the underlying
companies and the resilience of the portfolio.
In addition, while we are hopeful that the economic downturn
will be relatively short-term in nature, we believe that our assets
are prepared to sustain a longer duration impact for the following
reasons: (i) they are not heavily invested in cyclical businesses;
(ii) they are conservatively leveraged; and, (iii) our entry
multiples are below market and offer significant room for capital
gains. Furthermore, having generated significant liquidity through
realizations in 2020, we will be able to selectively support our
existing portfolio, should the unanticipated need arise over the
coming months.
With regards to our real estate portfolio, COVID-19 has been
devastating to commercial retail real estate and has resulted in
further write downs in the value of our real estate assets. Many of
our retail tenants have not paid rent throughout the pandemic. We
believe what material equity value remains in the real estate
portfolio is largely concentrated in our properties at 247 Bedford
Avenue in Williamsburg, Brooklyn
(where Apple is a tenant), and Esperante, our office tower in
West Palm Beach, Florida.
As of 31 August 2020, our US
micro-cap portfolio consisted of 22 businesses, which includes four
‘verticals’ and 14 co-investments, across seven industries; this
portfolio was valued at 8.5x EBITDA, after applying an average 18%
marketability discount to public comparables. The average
underlying leverage senior to JZCP’s position in our US micro-cap
portfolio is 4.2x EBITDA. Consistent with our value-oriented
investment strategy, we have acquired our current US micro-cap
portfolio at an average 5.9x EBITDA.
Our European micro-cap portfolio consisted of 16 companies
across six industries and seven countries. The European micro-cap
portfolio has low leverage senior to JZCP’s position, of under 2.0x
EBITDA.
Net Asset Value
(“NAV”) |
|
JZCP’s NAV per share
decreased $1.54 or 25.1%, during the six-month period. |
|
NAV per Ordinary
share as of 29 February 2020 |
$6.14 |
Change in NAV due
to capital gains and accrued income |
|
+ US Micro-cap |
0.06 |
+ European
Micro-cap |
0.02 |
- Real estate |
(1.46) |
Other
increases/(decreases) in NAV |
|
+ Change in fair value
of CULS |
0.03 |
+ Net foreign exchange
effect |
0.03 |
- Finance costs |
(0.12) |
- Expenses and
taxation |
(0.10) |
NAV per Ordinary
share as of 31 August 2020 |
$4.60 |
The US micro-cap portfolio navigated the COVID-19 environment
well during the six-month period, delivering a net increase of
6 cents per share. This was primarily
due to net accrued income of 5 cents,
increased earnings at Felix Storch (10
cents) and co-investments New Vitality (2 cents) and Salter (3
cents) and the write-up at sale of K2 Towers II / ABTB
(2 cents). We also received
1 cent of escrow payments during the
period. Offsetting these increases were decreases at co-investments
Igloo (2 cents) and
Suzo Happ (15
cents).
Our JZI Fund III, L.P. (“Fund III”) portfolio also performed
well through COVID-19 during the period, posting a net increase of
2 cents, primarily due to net accrued
income of 1 cent and net write-ups at
Fund III portfolio companies of 1
cent.
The real estate portfolio experienced a net decrease of
$1.46, largely due to the write-off
of large portions of our Brooklyn
portfolio and a significant portion of our Wynwood portfolio.
Returns
The chart below summarises cumulative total shareholder returns
and total NAV returns for the most recent six-month, one-year,
three-year and five-year periods.
|
31.8.2020 |
29.2.2020 |
31.8.2019 |
31.8.2017 |
31.8.2015 |
Share price (in
GBP) |
£0.89 |
£2.58 |
£4.82 |
£5.16 |
£4.34 |
NAV per share (in
USD) |
$4.60 |
$6.14 |
$9.66 |
$9.88 |
$10.67 |
NAV to market price
discount |
74.1% |
46.3% |
39.2% |
32.8% |
37.4% |
|
|
6
month return |
1
year return |
3
year return |
5
year return |
Dividends paid (in
USD) |
|
- |
- |
- |
$0.465 |
Total Shareholders'
return (GBP)1 |
|
-65.5% |
-81.5% |
-82.7% |
-77.8% |
Total NAV return per
share (USD)1 |
|
-25.1% |
-52.4% |
-53.4% |
-54.9% |
Total Adjusted NAV
return per share (USD)1,2 |
|
-25.1% |
-52.4% |
-54.3% |
-51.2% |
1 Total returns are cumulative and
assume that dividends were reinvested.
2 Adjusted NAV returns reflect the return
per share before (i) the dilution resulting from the issue of
18,888,909 ordinary shares at a discount to NAV on 30 September 2015 and (ii) subsequent
appreciation from the buyback of ordinary shares at a
discount.
Portfolio Summary
Our portfolio is well-diversified by asset type and geography,
with 39 US and European micro-cap investments across eleven
industries. The European portfolio itself is well-diversified
geographically across Spain,
Italy, Portugal, Luxembourg, Scandinavia and the UK.
Below is a summary of JZCP’s assets and liabilities at
31 August 2020 as compared to
29 February 2020. An explanation of
the changes in the portfolio follows:
US microcap
portfolio |
31.8.2020
US$'000
409,502 |
|
29.2.2020
US$'000
404,880 |
European microcap
portfolio |
111,800 |
|
102,591 |
Real estate
portfolio |
47,362 |
|
158,712 |
Other investments |
23,443 |
|
22,603 |
Total
investments |
592,107 |
|
688,786 |
Treasury bills |
3,395 |
|
3,386 |
Cash |
35,656 |
|
52,912 |
Total cash
equivalents |
39,051 |
|
56,298 |
Other assets |
125 |
|
119 |
Total
assets |
631,283 |
|
745,203 |
Zero Dividend
Preference shares |
69,354 |
|
64,510 |
Convertible Unsecured
Loan Stock |
49,432 |
|
49,886 |
Loans payable |
150,355 |
|
150,362 |
Other liabilities |
5,866 |
|
4,711 |
Total
liabilities |
275,007 |
|
269,469 |
Net Asset
Value |
356,276 |
|
475,734 |
US microcap portfolio
As you know from previous reports, our US portfolio is grouped
into industry ‘verticals’ and co-investments. Our ‘verticals’
strategy focuses on consolidating businesses under industry
executives who can add value via organic growth and cross company
synergies. Our co-investments' strategy allows for greater
diversification of our portfolio by investing in larger companies
alongside well-known private equity groups.
The US micro-cap portfolio navigated the COVID-19 environment
well during the six-month period, delivering a net increase of
6 cents per share. This was primarily
due to net accrued income of 5 cents,
increased earnings at Felix Storch (10
cents) and co-investments New Vitality (2 cents) and Salter (3
cents) and the write-up at sale of K2 Towers II / ABTB
(2 cents). We also received
1 cent of escrow payments during the
period. Offsetting these increases were decreases at co-investments
Igloo (2 cents) and Suzo Happ (15
cents).
European microcap portfolio
Our JZI Fund III, L.P. (“Fund III”) portfolio also performed
well through COVID-19 during the period, posting a net increase of
2 cents, primarily due to net accrued income of 1 cent and net write-ups at Fund III portfolio
companies of 1 cent.
JZCP invests in the European micro-cap sector through its
approximately 18.8% ownership of Fund III. As of 31 August 2020, Fund III held 12 investments:
four in Spain, two in Scandinavia,
two in Italy, two in the UK and
one each in Portugal and
Luxembourg. JZCP held direct loans
to a further three companies in Spain: Docout, Xacom and Toro Finance.
JZAI has offices in London and
Madrid and an outstanding team
with over fifteen years of experience investing together in
European micro-cap deals.
During the period and post-period, JZCP received distributions
totalling approximately €8.0 million (approximately $9.4 million) from the refinancing and sale of
Fund III portfolio company Eliantus (see below).
In April 2020, JZCP received €2.7
million in proceeds from the refinancing of Fund III portfolio
company, Eliantus, which issued its second project bond backed by
solar power plants in Spain. In
September 2020 (post period), JZCP
received a further €5.3 million in proceeds from the sale of
Eliantus to Sonnedix, an independent solar power producer which
develops, builds, owns and operates solar power plants globally,
including in Italy, France, Spain, USA/Puerto
Rico, Chile, South Africa and Japan. Including previously distributed
proceeds and future escrows/earn- outs, Fund III has realized a
gross multiple of invested capital (“MOIC”) of approximately
2.0x.
Real estate portfolio
As discussed in the Chairman’s Statement and several recent
announcements, our real estate portfolio has suffered a further
large reduction in value during the period. COVID-19 has
irreparably damaged large portions of the portfolio, many of which
were in a precarious position pre-COVID-19, resulting in
significant write-downs and write- offs of assets in Brooklyn and South
Florida. We expect any material remaining value in the real
estate portfolio to come from our properties at 247 Bedford Avenue,
Williamsburg, Brooklyn (where
Apple is a tenant) and Esperante our office tower in West Palm Beach, Florida.
In October 2020 (post period),
JZCP sold its investment in the Greenpoint property, receiving
approximately $13.6 million in sale
proceeds.
Other investments
Our asset management business in the US, Spruceview Capital
Partners, has continued to make encouraging progress since our last
report to you. Spruceview addresses the growing demand from
corporate pensions, endowments, family offices and foundations for
fiduciary management services through an Outsourced Chief
Investment Officer (“OCIO”) model as well as customized
products/solutions per asset class.
During the period, Spruceview received a commitment of
$124 million, the first tranche of an
anticipated total additional commitment of $800 million, for a portfolio of alternative
private equity investments for a Mexican trust (or “CERPI”). In
addition, the firm launched a third private markets fund, focused
on co-investment opportunities in the US, with initial commitments
of $24 million.
During the period, Spruceview also maintained a pipeline of
potential client opportunities and continued to provide investment
management oversight to the pension funds of the Mexican and
Canadian subsidiaries of an international packaged foods company,
as well as portfolios for family office clients, a European private
credit fund-of-funds, and a US middle market private equity
fund-of-funds.
As previously reported, Richard
Sabo, former Chief Investment Officer of Global Pension and
Retirement Plans at JPMorgan and a member of that firm’s executive
committee, is leading a team of 17 investment, business and product
development, legal and operations professional.
Realisations
Secondary Sale
As announced on October 19, 2020,
JZCP signed an agreement to sell its interests in certain US
microcap portfolio companies (the "Secondary Sale") to a secondary
fund which includes investors of certain funds and accounts managed
by Hamilton Lane Advisors, L.L.C, one of the world's largest asset
management firms.
The Secondary Sale marks a significant milestone towards the
delivery of the Company's previously announced strategy of
realizing value from its investment portfolio and paying down debt.
Upon completion, the Secondary Sale will provide the Company with
the needed liquidity to repay a substantial portion of its senior
debt.
The US microcap assets to be sold as part of the Secondary Sale
include JZCP’s interests in each of ACW Flex Pack, Flow Control,
Testing Services, Felix Storch, Peaceable Street Capital and
TierPoint (together, the "US Microcap Portfolio Companies"). In
return, JZCP will receive aggregate consideration of: (i)
$90 million in cash (less any fees
and expenses) and (ii) a special limited partner interest in the
Secondary Fund entitling JZCP to certain distributions from the
Secondary Fund (the "Special LP Interest").
The full potential commitment by the Secondary Investors to the
Secondary Fund is up to US$110
million in aggregate, with a total initial investment of
$90 million to be funded at the time
of closing of the Secondary Sale to facilitate the Secondary Fund’s
acquisition of the US Microcap Portfolio Companies from JZCP. In
addition to this initial investment amount, up to $20 million of unfunded capital commitments is
expected to be contributed to the Secondary Fund by the Secondary
Investors to complete the acquisition strategies of the US Microcap
Portfolio Companies.
JZCP expects that the value of the its Special LP Interest
should increase in the near to medium term as the Secondary
Investors fund this additional new capital required to grow the US
Microcap Companies and complete their respective acquisition
strategies.
K2 II and ABTB (Taco Bell)
In June 2020, JZCP sold its
interests in K2 II and ABTB at approximately NAV, receiving
approximately $18.6 in net
proceeds.
Orangewood Fund
During the period and post-period, JZCP received approximately
$3.6 million in proceeds from selling
down $10 million of its $24 million total commitment to the Orangewood
Fund. In addition to having received back its funded cost plus 8.0%
interest (i.e., $3.6 million), JZCP
was relieved of up to approximately $6.6
million in unfunded commitments to the Orangewood Fund. JZCP
intends to sell down its remaining commitment to the Orangewood
Fund over the coming months.
CERPI
In August 2020, JZCP received
approximately $1.3 million in
proceeds from selling its interest in the CERPI, a fund managed by
Spruceview. In addition to having received back its approximate
cost in the CERPI, JZCP was relieved of up to approximately
$7.3 million in unfunded commitments
and potential future commitments to the CERPI.
Eliantus
In April 2020, JZCP received €2.7
million in proceeds from the refinancing of Fund III portfolio
company, Eliantus, which issued its second project bond backed by
solar power plants in Spain. In
September 2020 (post period), JZCP
received a further €5.3 million in proceeds from the sale of
Eliantus to Sonnedix, an independent solar power producer which
develops, builds, owns and operates solar power plants globally,
including in Italy, France, Spain, USA/Puerto
Rico, Chile, South Africa and Japan. Including previously distributed
proceeds and future escrows/earn- outs, Fund III has realized a
gross multiple of invested capital (“MOIC”) of approximately
2.0x.
Greenpoint
In October 2020 (post period),
JZCP sold its investment in the Greenpoint property, receiving
approximately $13.6 million in sale
proceeds.
Outlook
While it has clearly been a challenging period for the real
estate portfolio in particular, the outlook for JZCP has
significantly improved since we reported to you at 29 February 2020. In terms of cash generation, as
well as cash conservation, we are well down the road to stabilizing
our portfolio.
We see more value to be realized from our US and European
microcap portfolio and will continue to selectively invest in these
portfolios to maximize their values. We believe this is the most
effective way for us to be able to return capital to our common
shareholders. Until then, we will continue to pursue realizations
and repay debt.
While the uncertain COVID-19 world in which we are living
continues, our focus remains on the health and wellbeing of our
people and partners. We will do everything we can to manage this
portfolio defensively and we remain committed to maximizing value
along the way.
Thank you again for your support of the Company’s revised
investment strategy.
Yours faithfully,
Jordan/Zalaznick Advisers, Inc.
4 November
2020
Board of Directors
David Macfarlane
(Chairman)1
Mr Macfarlane was appointed to the Board of JZCP in 2008 as
Chairman and a non-executive Director. Until 2002 he was a Senior
Corporate Partner at Ashurst. He was a non-executive director of
the Platinum Investment Trust Plc from 2002 until January 2007.
James
Jordan
Mr Jordan is a private investor who was appointed to the Board
of JZCP in 2008. He is a director of the First Eagle family of
mutual funds, and of Alpha Andromeda Investment Trust Company, S.A.
Until 30 June 2005, he was the
managing director of Arnhold and S. Bleichroeder Advisers, LLC, a
privately owned investment bank and asset management firm; and
until 25 July 2013, he was a
non-executive director of Leucadia National Corporation. He is an
Overseer of the Gennadius Library of the American School of
Classical Studies in Athens, and
as Director of Pro Natura de Yucatan.
Sharon
Parr2
Mrs Parr was appointed to the Board of JZCP in June 2018. In 2003 she completed a private equity
backed MBO of the trust and fund administration division of
Deloitte and Touche, called Walbrook, selling it to Barclays Wealth
in 2007. As a Managing Director of Barclays, she ultimately became
global head of their trust and fund administration businesses,
comprising over 450 staff in 10 countries. She stepped down from
her executive roles in 2011 to focus on other areas and interests
but has maintained directorships in several companies. She is a
Fellow of the Institute of Chartered Accountants in England and Wales and a member of the Society of Trust and
Estate Practitioners, and is a resident of Guernsey.
Ashley
Paxton
Mr Paxton was appointed to the board in August 2020. Ashley has more than 25 years of
funds and financial services industry experience, with a
demonstrable track record in advising closed-ended London listed boards and their audit
committees on IPOs, capital market transactions, audit and other
corporate governance matters. Ashley was previously C.I. Head of
Advisory for KPMG in the Channel
Islands, a position he held from 2008 through to his
retirement from the firm in 2019. Ashley is a Fellow of the
Institute of Chartered Accountants in England and Wales and a resident of Guernsey. Amongst other appointments he is
Chairman of the Youth Commission for Guernsey & Alderney, a
locally based charity whose vision is that all children and young
people in the Guernsey Bailiwick are ambitious to reach their full
potential.
Tanja
Tibaldi
Ms Tibaldi resigned from the Board on 12
August 2020.
1Chairman of the nominations committee of
which all Directors are members.
2Chairman of the audit committee of which
all Directors are members.
Report of the Directors
Statement of Directors'
Responsibilities
The Directors are responsible for preparing the Interim Report
and Financial Statements comprising the Half-yearly Interim Report
(the "Interim Report") and the Unaudited Condensed Interim
Financial Statements (the "Interim Financial Statements") in
accordance with applicable law and regulations.
· the Interim Financial Statements have
been prepared in accordance with IAS 34, "Interim Financial
Reporting" and give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company;
and
· the Chairman’s Statement and
Investment Adviser’s Report include a fair review of the
information required by:
i. DTR 4.2.7R of the Disclosure Guidance
and Transparency Rules, being an indication of important events
that have occurred during the first six months of the financial
year and their impact on the Interim Financial Statements; and a
description of the principal risks and uncertainties for the
remaining six months of the year; and
ii. DTR 4.2.8R of the Disclosure
Guidance and Transparency Rules, being related party transactions
that have taken place in the first six months of the financial year
and that have materially affected the financial position or the
performance of the entity during that period; and any changes in
the related party transactions described in the 2020 Annual Report
and Financial Statements that could do so.
Principal Risks and Uncertainties
The Company's Board believes the principal risks and
uncertainties that relate to an investment in JZCP are as
follows:
Portfolio Liquidity
The Company invests predominantly in unquoted companies and real
estate. Therefore, this potential illiquidity means there can be no
assurance investments will be realised at their latest valuation.
The Board considers this illiquidity when planning to meet its
future obligations, whether committed investments or the repayment
of the debt facility or the future repayment of CULS and ZDP
shares. On a quarterly basis, the Board reviews a working capital
model produced by the Investment Adviser which highlights the
Company's projected liquidity and financial commitments.
COVID-19
Whilst reporting its annual results for the year ended
29 February 2020 the Board disclosed
in its Going Concern Assessment on Note 3 of the Annual Report,
that the market conditions generated by COVID-19 had resulted in
uncertainties that, at that juncture cast significant doubt on the
Company’s ability to continue as a going concern and that they were
unable to estimate the full extent and duration of the impact on
the Company.
The Board are now in a better position to assess how COVID-19
has impacted the Company’s investment portfolio and to assess the
risks and uncertainties that the pandemic still pose. The Board are
pleased that the Company’s micro-cap portfolios have generally
continued to perform well throughout the interim period and to
date. This encouraging performance in the face of unprecedented
circumstances gives the Board confidence in the valuation of the
portfolios and the potential for growth and future valuation
uplifts. The Real Estate portfolio has seen further significant
write downs in value in the interim period which can be contributed
in the main to the challenges retail real estate has faced
resulting from the pandemic.
The Board has confidence that the micro-cap portfolios will
continue to perform robustly but are mindful that market conditions
means that realisations may be delayed or become more
difficult.
NAV Factors
(i) Macroeconomic Risks
The Company's performance, and underlying NAV, is influenced by
economic factors that affect the demand for products or services
supplied by investee companies and the valuation of Real Estate
interests held. Economic factors will also influence the Company's
ability to invest and realise investments and the level of realised
returns. Approximately 19% of the Company's investments are
denominated in non-US dollar currencies, primarily the Euro. Also
the Company has issued debt denominated in non-US dollar
currencies, primarily Sterling. Fluctuations to these exchange
rates will affect the NAV of the Company.
(ii) Underlying Investment Performance
The Company is reliant on the Investment Adviser to support the
Company's investment portfolio by executing suitable investment
opportunities. The Investment Adviser provides to the Board an
explanation of all investment decisions and also quarterly
investment reports and valuation proposals of investee companies.
The Board reviews investment performance quarterly and investment
decisions are checked to ensure they are consistent with the agreed
investment strategy.
Share Price Trading at Discount to NAV
JZCP's share price is subject to market sentiment and will also
reflect any periods of illiquidity when it may be difficult for
shareholders to realise shares without having a negative impact on
share price. The Directors review the share price in relation to
Net Asset Value on a regular basis and determine whether to take
any action to manage the discount. The Directors with the support
of the Investment Adviser work with brokers to maintain interest in
the Company’s shares through market contact and research
reports.
Gearing and Financing Costs in the Real Estate Portfolio
The cost of servicing debt in the underlying real estate
structures may impact the net valuation of the real estate
portfolio and subsequently the Company's NAV. Gearing in the
underlying real estate structures will increase any losses arising
from a downturn in property valuations.
Operational and Personnel
Although the Company has no direct employees, the Company
considers what dependence there is on key individuals within the
Investment Adviser and service providers that are key to the
Company meeting its operational and control requirements.
The Board considers the principal risks and uncertainties above
are broadly consistent with those reported at the prior year end,
but wish to note the following:
· The Board recognises the Company will
have an increased exposure to liquidity risk as future debt
obligations near maturity.
· Gearing and the finance costs within
the real estate portfolio have become less of a future risk to the
Company as the current valuation of $47.4
million (29 February 2020:
$158.7 million) now reflects the
majority of write downs that could be attributed by the gearing
structure and costs incurred.
· The effect of COVID-19 on market
conditions means that there are challenges to completing corporate
transactions and planned realisations may be delayed. This
uncertainty is considered when the Board assess the Company’s
ability to generate sufficient realisation proceeds to meet its
financial obligations.
Going
Concern
A fundamental principle of the preparation of financial
statements in accordance with IFRS is the judgement that an entity
will continue in existence as a going concern for a period of at
least 12 months from signing of the Interim Financial Statements,
which contemplates continuity of operations and the realisation of
assets and settlement of liabilities occurring in the ordinary
course of business.
Due to the uncertainties that the Company will not have
sufficient liquidity to repay its senior debt facility (due
12 June 2021) and redeem its CULS
(due 30 July 2021) there are material
uncertainties which cast significant doubt on the ability of the
Company to continue as a going concern. However the Interim
Financial Statements for the period ended 31
August 2020 have been prepared on a going concern basis
given the Board's assessment of future realisations set out below
and as the Board, with recommendation from the Audit Committee,
have a reasonable expectation that the Company has adequate
resources to continue in operational existence for the foreseeable
future.
In reaching its conclusion, the Board have considered the risks
that could impact the Company’s liquidity over the period to
4 November 2021.
As part of their assessment the Audit Committee highlighted the
following key considerations:
1. Whether the Company can generate sufficient
cash through realisations of its underlying investments to
discharge its liabilities over the period to 4 November 2021, including the sale of interests
in certain US microcap portfolio companies (the "Secondary Sale")
which is contingent upon Shareholder Approval; and
2. Whether, in the event that sufficient
realisation proceeds referenced above are not generated by the
Company before the expiration of the current loan facilities,
whilst remaining within the agreed covenant terms, together with
the scheduled maturity date of the CULS, the Company is able to
implement an alternative plan within the required timeframe to
refinance and/or restructure the loan facility and/or the CULS.
1. Whether the
Company can generate sufficient cash through realisations of its
underlying investments to discharge its liabilities over the period
to 4 November 2021, including the
Secondary Sale which is contingent upon Shareholder
Approval.
As at 31 October 2020, the Company
had cash, cash equivalents and liquid investments of approximately
$55 million. Post period end, the
agreed Secondary Sale will result in proceeds of approximately
$90 million, less fees and expenses.
For the avoidance of doubt, the completion of the Secondary Sale is
subject to pending shareholder approval. The Company has repaid
Guggenheim $20 million (post
period-end) and will be obliged to repay a further $62.7 million on completion of the Secondary
Sale.
Once the Secondary Sale of U.S. micro-cap investments has
completed the Company will have two major debt obligations to
settle within the going concern period being;
i. Senior Loan facility totalling
approximately $68.5 million due for
settlement on or before 12 June 2021;
and
ii. CULS for settlement value of £38.9
million (approximately $51 million)
due for settlement on their scheduled maturity date of 30 July 2021.
Considering the Company’s projected cash position, ongoing
operating costs and the anticipated further investment required to
support the Company’s portfolio the Board anticipate further
proceeds of $70 million to
$80 million are required from the
realisation of investments to enable the Company to settle its
debts as they fall due.
The investment adviser is working on the realisation of various
investments including a Secondary Sale of its interest in its
European micro-cap investments. Forecast realisations for the
period to redemption of the senior debt are in the range of
$85 million to $115 million, in addition to the proceeds from
the completion of the Secondary Sale of U.S. micro-cap investments
mentioned above.
The Board continue to consider the levels of realisation
proceeds historically generated by the Company’s micro- cap
portfolios as well as the accuracy of previous forecasts whilst
concluding on the predicted accuracy of forecasts presented.
The Board have considered the effect of COVID-19 on market
conditions which means that realisations may be delayed or become
more difficult.
2. Whether, in the
event that sufficient realisation proceeds referenced above are not
generated by the Company before the expiration of the current loan
facilities, whilst remaining within the agreed covenant terms,
together with the scheduled maturity date of the CULS, the Company
is able to implement an alternative plan within the required
timeframe to refinance and/or restructure the loan facility and/or
the CULS.
JZAI personnel manage the relationship with the Company’s
lenders, monitor compliance with loan terms and covenants and
report to the Board on matters arising.
Post period end, the Company reached agreement with Guggenheim
to pay down a significant portion of the debt owed from proceeds
from the agreed Secondary Sale and also for a third party,
Cohanzick, to assume $40 million of
the outstanding debt. The terms of the new agreement require the
Company to allocate 90% of future realisation proceeds to the
repayment of the balance of the Guggenheim loan.
Prior to the new agreement, due to the fall in the valuation of
the Company's real estate portfolio, the Company had breached the
asset cover covenant terms of the Guggenheim loan. The Company is
now in full compliance with loan covenant terms having secured more
advantageous terms for itself. The current asset coverage has been
reset at 3.25x rising to 3.5x on the earliest of 7 December 2020 or the date of closure of the
Secondary Sale of U.S. micro-cap investments. On completion of the
Secondary Sale and further repayment of the senior loan facility,
the Company's asset coverage is expected to increase from
approximately 3.8x to approximately 5.7x. Stress testing performed
by the Company, show investment losses resulting in the reduction
of 10% of total collateral would reduce the current asset coverage
ratio from 3.8x to 3.5x (above the 3.25x threshold) and following
the anticipated closure of the Secondary Sale and further repayment
of debt in December 2020, a similar
fall in the Company’s investment value would see the asset coverage
ratio fall from 5.7x to 5.3x (above the 3.5x threshold).
Any changes to the terms of the CULS will require the sanction
of CULS holders by the approval of an extraordinary resolution of
CULS holders. Any such extraordinary resolution would require
the approval of not less than 75% of the votes cast by CULS holders
at a duly convened meeting.
Going Concern Conclusion
After careful consideration and based on our assessment of
future realisations, the Board are satisfied, as of today’s date,
that it is appropriate to adopt the going concern basis in
preparing the financial statements and they have a reasonable
expectation that the Company will continue in existence as a going
concern for the period to 4 November
2021.
The Board have determined that there are material uncertainties
surrounding the Company's ability to generate sufficient liquidity
to repay its senior debt facility (due 12
June 2021) and repay its CULS (due 30
July 2021) which casts significant doubt over the ability of
the Company to continue as a Going Concern, based on the following
key considerations:
1. Whether the
Company can generate sufficient cash through realisations of its
underlying investments to discharge its liabilities over the period
to 4 November 2021, including the
Secondary Sale which is contingent upon Shareholder Approval;
and
2. Whether, in the event that sufficient
realisation proceeds referenced above are not generated by the
Company before the expiration of the current loan facilities,
whilst remaining within the agreed covenant terms, together with
the scheduled maturity date of the CULS, the Company is able to
implement an alternative plan within the required timeframe to
refinance and/or restructure the loan facility and/or the
CULS.
The financial statements do not include any adjustments that
might result from the outcome of these uncertainties.
Approved by the Board of Directors and agreed on behalf of the
Board on 4 November 2020.
David Macfarlane
Chairman
Sharon Parr
Director
Investment Portfolio
|
|
|
|
|
Percentage of Portfolio |
|
|
31 August 2020 |
|
|
Cost1 |
|
Value |
|
|
US$'000 |
|
US$'000 |
|
% |
|
|
|
|
|
|
|
US Micro-cap
portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
US Micro-cap
(Verticals) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Services
Solutions2 |
|
|
|
|
|
|
INDUSTRIAL SERVICES
SOLUTIONS (“ISS”)
Provider of aftermarket maintenance, repair, and field services for
critical process equipment throughout the US |
|
|
|
|
|
|
Total Industrial
Services Solutions valuation |
|
48,250 |
|
95,889 |
|
16.1 |
|
|
|
|
|
|
|
Testing Services
Holdings2,3 |
|
|
|
|
|
|
TECHNICAL SOLUTIONS
AND SERVICES
Provider of safety focused solutions for the industrial,
environmental and life science related markets |
|
|
|
|
|
|
CONTAMINATION CONTROL
& CERTIFICATION
Provider of testing, certification and validation services for
cleanroom, critical environments and containment systems |
|
|
|
|
|
|
Total Technical
Solutions and Services Vertical valuation |
|
23,771 |
|
24,619 |
|
4.1 |
|
|
|
|
|
|
|
Flexible Packaging
Vertical3 |
|
|
|
|
|
|
ACW FLEX PACK, LLC
Provider of a variety of custom flexible packaging solutions to
converters and end-users |
|
|
|
|
|
|
Total Flexible
Packaging Vertical valuation |
|
10,032 |
|
11,955 |
|
2.0 |
|
|
|
|
|
|
|
Flow
Controls3 |
|
|
|
|
|
|
FLOW CONTROL, LLC
Manufacturer and distributor of high-performance, mission-critical
flow handling products and components utilized to connect
processing line equipment |
|
|
|
|
|
|
Total Flow Control
Vertical valuation |
|
14,040 |
|
16,126 |
|
2.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total US
Micro-cap (Verticals) |
|
96,093 |
|
148,589 |
|
24.9 |
|
|
|
|
|
|
|
DEFLECTO
Deflecto designs, manufactures and sells innovative plastic
products to multiple industry segments |
|
40,112 |
|
39,079 |
|
6.6 |
GEORGE INDUSTRIES
Manufacturer of highly engineered, complex and high tolerance
products for the aerospace, transportation, military and other
industrial markets |
|
12,179 |
|
12,177 |
|
2.0 |
IGLOO2
Designer, manufacturer and marketer of coolers and outdoor
products |
|
6,040 |
|
329 |
|
0.1 |
NEW
VITALITY2
Direct-to-consumer provider of nutritional supplements and personal
care products |
|
3,354 |
|
11,306 |
|
1.9 |
ORANGEWOOD PARTNERS
PLATFORM
Holds JZCP's proceeds from the sale of ABTB and K2 Towers II |
|
16,722 |
|
20,500 |
|
3.4 |
ORANGEWOOD PARTNERS
II-A LP
Private fund managed by Orangewood Partners currently invested in
K2 Towers II and Exer Urgent Care an urgent care operator. |
|
8,028 |
|
8,028 |
|
1.3 |
ORIZON
Manufacturer of high precision machine parts and tools for
aerospace and defence industries |
|
4,127 |
|
7,293 |
|
1.2 |
PEACEABLE STREET
CAPITAL3
Specialty finance platform focused on commercial real estate |
|
28,041 |
|
36,541 |
|
6.1 |
SALTER
LABS2
Developer and manufacturer of respiratory medical products and
equipment for the homecare, hospital, and sleep disorder
markets |
|
16,762 |
|
23,845 |
|
4.0 |
SLOAN
LED2
Designer and manufacturer of LED lights and lighting systems |
|
6,030 |
|
- |
|
- |
VITALYST2
Provider of outsourced IT support and training services |
|
9,020 |
|
8,192 |
|
1.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total US
Micro-cap (Co-investments) |
|
150,415 |
|
167,290 |
|
28.0 |
|
|
|
|
|
|
|
US Micro-cap
(Other) |
|
|
|
|
|
|
|
|
|
|
|
|
|
AVANTE HEALTH
SOLUTIONS
Provider of new and professionally refurbished healthcare
equipment |
|
7,185 |
|
9,810 |
|
1.6 |
FELIX
STORCH3
Supplier of specialty, professional, commercial, and medical
refrigerators and freezers, and cooking appliances |
|
50 |
|
32,000 |
|
5.4 |
HEALTHCARE PRODUCTS
HOLDINGS4
Designer and manufacturer of motorised vehicles |
|
17,636 |
|
- |
|
- |
NATIONWIDE STUDIOS
Processor of digital photos for pre-schoolers |
|
26,324 |
|
5,000 |
|
0.8 |
TIERPOINT2,3
Provider of cloud computing and colocation data centre
services |
|
44,313 |
|
46,813 |
|
7.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total US
Micro-cap (Other) |
|
95,508 |
|
93,623 |
|
15.7 |
|
|
|
|
|
|
|
Total US Micro-cap
portfolio |
|
342,016 |
|
409,502 |
|
68.6 |
|
|
|
|
|
|
|
European Micro-cap
portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
EUROMICROCAP FUND
2010, L.P.
Invested in European Micro-cap entities |
|
169 |
|
2,901 |
|
0.5 |
JZI FUND III, L.P.
At 31 August 2020, was invested in twelve companies in the European
micro-cap sector: Fincontinuo, S.A.C, Collingwood, My Lender,
Alianzas en Aceros, ERSI, Treee, Factor Energia, BlueSites, Luxida,
Karium and UFASA |
|
47,120 |
|
74,409 |
|
12.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total European
Micro-cap (measured at Fair Value) |
|
47,289 |
|
77,310 |
|
13.0 |
|
|
|
|
|
|
|
Direct
Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
DOCOUT6
Provider of digitalisation, document processing and storage
services |
|
2,777 |
|
4,166 |
|
0.7 |
OMBUDS6
Provider of personal security, asset protection and facilities
management services |
|
17,198 |
|
- |
|
- |
TORO
FINANCE6
Provides short term receivables finance to the suppliers of major
Spanish companies |
|
21,619 |
|
25,896 |
|
4.4 |
XACOM6
Supplier of telecom products and technologies |
|
2,055 |
|
4,428 |
|
0.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total European
Micro-cap (Direct Investments) |
|
43,649 |
|
34,490 |
|
5.9 |
|
|
|
|
|
|
|
Total European
Micro-cap portfolio |
|
90,938 |
|
111,800 |
|
18.9 |
|
|
|
|
|
|
|
Real Estate
portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
JZCP
REALTY5
Facilitates JZCP's investment in US real estate |
|
443,763 |
|
47,362 |
|
8.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Real Estate
portfolio |
|
443,763 |
|
47,362 |
|
8.0 |
|
|
|
|
|
|
|
Other
investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
BSM ENGENHARIA
Brazilian-based provider of supply chain logistics, infrastructure
services and equipment rental |
|
6,115 |
|
459 |
|
0.1 |
JZ CERPI Blocker
Ltd
Proceeds from the sale of CERPI the Spruceview managed investment
product |
|
1,296 |
|
1,296 |
|
0.2 |
JZ
INTERNATIONAL4
Fund of European LBO investments |
|
- |
|
750 |
|
0.1 |
SPRUCEVIEW CAPITAL
Asset management company focusing primarily on managing endowments
and pension funds |
|
31,855 |
|
20,938 |
|
3.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other
investments |
|
39,266 |
|
23,443 |
|
3.9 |
|
|
|
|
|
|
|
Listed
investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury Bill -
Maturity 15 October 2020 |
|
3,394 |
|
3,395 |
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Listed
investments |
|
3,394 |
|
3,395 |
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total -
portfolio |
|
919,377 |
|
595,502 |
|
100.0 |
|
|
|
|
|
|
|
1
Original book cost incurred by JZCP adjusted for subsequent
transactions. The book cost represents cash outflows and excludes
PIK investments. |
2
Co-investment with Fund A, a Related Party (Note 18). |
3
Included within the Secondary Sale due to complete in December
2020 (note 21) |
4
Legacy Investments. Legacy investments are excluded from the
calculation of capital and income incentive fees. |
5
JZCP invests in real estate indirectly through its investments
in JZCP Realty Ltd. JZCP owns 100% of the shares and voting rights
of JZCP Realty, Ltd. |
6 Classified
as Loans at Amortised Cost. |
|
Independent Review Report to JZ
Capital Partners Limited
Introduction
We have been engaged by the Company to review the Unaudited
Interim Condensed Financial Statements (“Interim Financial
Statements”) for the six months ended 31
August 2020 which comprise the Unaudited Statement of
Comprehensive Income, the Unaudited Statement of Financial
Position, the Unaudited Statement of Changes in Equity, the
Unaudited Statement of Cash Flows and the related notes 1 to 21. We
have read the other information contained in the Interim Report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the Interim
Financial Statements.
This report is made solely to the Company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board (“ISRE
2410”). To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Company, for our
work, for this report, or for the conclusions we have formed.
Directors' Responsibilities
The Interim Report and Interim Financial Statements are the
responsibility of, and have been approved by, the Directors. The
Directors are responsible for preparing the Interim Report and
Interim Financial Statements in accordance with the Disclosure
Guidance and Transparency Rules of the United Kingdom's Financial Conduct
Authority.
As disclosed in Note 2, the Annual Financial Statements of the
Company are prepared in accordance with IFRSs as adopted by the
European Union. The Interim Financial Statements have been prepared
in accordance with International Accounting Standard 34, "Interim
Financial Reporting", as adopted by the European Union (“IAS
34”).
Our Responsibility
Our responsibility is to express to the Company a conclusion on
the Interim Financial Statements based on our review.
Scope of Review
We conducted our review in accordance with ISRE 2410. A review
of interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the Interim Financial Statements for the
six months ended 31 August 2020 are
not prepared, in all material respects, in accordance with IAS 34
and the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct
Authority.
Emphasis of Matter
We draw your attention to note 3 in the Interim Financial
Statements, which states that there is material uncertainty
surrounding the Company's ability to generate sufficient liquidity
to repay its senior debt facility (due 12
June 2021) and repay its CULS (due 30
July 2021) based on the following key considerations i.)
Whether, the Company can generate sufficient cash through
realisations of its underlying investments to discharge its
liabilities over the period to 4 November
2021; and ii.) Whether, in the event that sufficient
realisation proceeds referenced above are not generated by the
Company before the expiration of the current loan facilities
and the scheduled maturity date of the CULS, the Company is
able to implement an alternative plan within the required timeframe
to refinance and/or restructure the loan facility and/or the
CULS.
Our conclusion on the Unaudited Interim Condensed Financial
Statements based on our review is not modified in respect of this
matter.
Ernst & Young LLP
Guernsey
Channel Islands
4 November
2020
Notes
1. The Interim Report and Financial Statements
are published on websites maintained by the Investment Adviser.
2. The maintenance and integrity of these
websites are the responsibility of the Investment Adviser; the work
carried out by the Auditors does not involve consideration of these
matters and, accordingly, the Auditor accepts no responsibility for
any changes that may have occurred to the Condensed Interim
Financial Statements since they were initially presented on the
website.
3. Legislation in Guernsey governing the preparation and
dissemination of Condensed Interim Financial Statements may differ
from legislation in other jurisdictions.
Statement of Comprehensive Income
(Unaudited)
For the Period from 1 March 2020
to 31 August 2020
|
|
|
Six
Month |
|
Six
Month |
|
|
|
Period Ended |
|
Period Ended |
|
|
|
31
August 2020 |
|
31
August 2019 |
|
Note |
|
US$'000 |
|
|
Income and
investment and other gains |
|
|
|
|
|
Realisations from
investments held in escrow accounts |
20 |
|
801 |
|
3,923 |
Investment Income |
8 |
|
12,697 |
|
19,984 |
Bank and deposit
interest |
|
|
124 |
|
225 |
Net foreign currency
exchange gains |
|
|
- |
|
3,765 |
Gain on financial
liabilities at fair value through profit or loss |
13 |
|
- |
|
4,107 |
|
|
|
13,622 |
|
32,004 |
Expenses and
losses |
|
|
|
|
|
Net loss on
investments at fair value through profit or loss |
6 |
|
(114,089) |
|
(31,575) |
Expected credit
losses |
7 |
|
(560) |
|
(14,727) |
Loss on financial
liabilities at fair value through profit or loss |
13 |
|
(2,836) |
|
- |
Net foreign currency
exchange losses |
|
|
(2,035) |
|
- |
Investment Adviser's
base fee |
10 |
|
(5,359) |
|
(8,301) |
Administrative
expenses |
|
|
(2,151) |
|
(1,660) |
Directors'
remuneration |
|
|
(150) |
|
(230) |
Investment Adviser's
incentive fee |
10 |
|
- |
|
2,895 |
|
|
|
(127,180) |
|
(53,598) |
|
|
|
|
|
|
Operating
loss |
|
|
(113,558) |
|
(21,594) |
|
|
|
|
|
|
Finance
costs |
9 |
|
(9,190) |
|
(10,463) |
Loss for the
period |
|
|
(122,748) |
|
(32,057) |
|
|
|
|
|
|
Other comprehensive
income |
|
|
|
|
|
Gain on financial
liabilities due to change in credit risk |
13 |
|
3,290 |
|
- |
Total comprehensive
loss for the period |
|
|
(119,458) |
|
(32,057) |
|
|
|
|
|
|
Weighted average
number of Ordinary shares in issue during the period |
|
|
77,474,175 |
|
80,614,784 |
Basic loss per
Ordinary share |
|
|
(158.44)c |
|
(39.77)c |
Diluted loss per
Ordinary share |
|
|
(158.44)c |
|
(39.84)c |
|
|
|
|
|
|
In accordance with IFRS, the Company has calculated the movement
in fair value due to the change in the credit risk of the CULS
which is allocated as Other Comprehensive Income. The loss/gain on
financial liabilities at fair value through profit or loss
comprises the movement in the fair value attributable to the change
in the benchmark interest rate and the movement attributable to
foreign exchange gain/loss on translation. The gain/loss on
financial liabilities due to change in credit risk for the
comparative period was deemed to be immaterial.
The accompanying notes form an integral part of the Interim
Financial Statements.
Statement of Financial Position
(Unaudited)
As at 31 August 2020
|
|
|
|
|
|
|
|
|
31
August 2020 |
|
29
February 2020 |
|
Note |
|
US$'000 |
|
US$'000 |
Assets |
|
|
|
|
|
Investments at fair
value through profit or loss |
11 |
|
561,012 |
|
661,200 |
Loans at amortised
cost |
11 |
|
34,490 |
|
30,972 |
Other receivables |
|
|
125 |
|
119 |
Cash at bank |
|
|
35,656 |
|
52,912 |
|
|
|
|
|
|
Total
assets |
|
|
631,283 |
|
745,203 |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
Zero Dividend
Preference shares |
12 |
|
69,354 |
|
64,510 |
Convertible Unsecured
Loan Stock |
13 |
|
49,432 |
|
49,886 |
Loan payable |
14 |
|
150,355 |
|
150,362 |
Investment Adviser's
base fee |
10 |
|
4,538 |
|
1,179 |
Other payables |
15 |
|
1,328 |
|
1,225 |
Investment Adviser's
incentive fee |
10 |
|
- |
|
2,307 |
Total
liabilities |
|
|
275,007 |
|
269,469 |
|
|
|
|
|
|
Equity |
|
|
|
|
|
Share capital |
|
|
216,625 |
|
216,625 |
Other reserve |
|
|
353,528 |
|
353,528 |
Retained deficit |
|
|
(213,877) |
|
(94,419) |
Total
equity |
|
|
356,276 |
|
475,734 |
|
|
|
|
|
|
Total liabilities
and equity |
|
|
631,283 |
|
745,203 |
|
|
|
|
|
|
|
|
|
|
|
|
Number of Ordinary
shares in issue at period/year end |
16 |
|
77,474,175 |
|
77,474,175 |
|
|
|
|
|
|
Net asset value per
Ordinary share |
|
|
$4.60 |
|
$6.14 |
These Interim Financial Statements were approved by the Board of
Directors and authorised for issuance on 4
November 2020. They were signed on its behalf by:
David Macfarlane
Chairman
Sharon Parr
Director
The accompanying notes form an integral part of the Interim
Financial Statements.
Statement of Changes in Equity
(Unaudited)
For the Period from 1 March 2020
to 31 August 2020
|
|
|
|
Share |
|
Other |
|
Retained |
|
|
|
|
|
|
Capital |
|
Reserve |
|
Deficit |
|
Total |
|
|
Note |
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
|
|
|
|
|
|
|
|
|
|
Balance as at 1
March 2020 |
|
|
|
216,625 |
|
353,528 |
|
(94,419) |
|
475,734 |
Loss for the
period |
|
|
|
- |
|
- |
|
(122,798) |
|
(122,798) |
Gain on financial
liabilities due to change in credit risk |
|
13 |
|
- |
|
- |
|
3,290 |
|
3,290 |
Balance at 31
August 2020 |
|
|
|
216,625 |
|
353,528 |
|
(213,877) |
|
356,276 |
Comparative for the Period from 1 March 2019 to 31 August
2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share |
|
Other |
|
Retained |
|
|
|
|
|
|
Capital |
|
Reserve |
|
Earnings |
|
Total |
|
|
|
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
|
|
|
|
|
|
|
|
|
|
Balance at 1 March
2019 |
|
|
|
246,604 |
|
353,528 |
|
210,130 |
|
810,262 |
Loss for the
period |
|
|
|
- |
|
- |
|
(32,057) |
|
(32,057) |
Buy back of Ordinary
shares |
|
16 |
|
(29,979) |
|
- |
|
- |
|
(29,979) |
Balance at 31
August 2019 |
|
|
|
216,625 |
|
353,528 |
|
178,073 |
|
748,226 |
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes form an integral part of the Interim
Financial Statements.
Statement of Cash Flows
(Unaudited)
For the Period from 1 March 2020
to 31 August 2020
|
|
Six
Month |
|
Six
Month |
|
|
Period Ended |
|
Period Ended |
|
|
31
August 2020 |
|
31
August 2019 |
|
Note |
US$'000 |
|
US$'000 |
Cash flows from
operating activities |
|
|
|
|
|
|
|
|
|
Cash
inflows |
|
|
|
|
Realisation of
investments1 |
11 |
3,016 |
|
117,341 |
Maturity of treasury
bills2 |
11 |
3,395 |
|
3,350 |
Escrow receipts
received |
20 |
801 |
|
3,923 |
Interest received from
unlisted investments |
|
249 |
|
677 |
Income distributions
received from investments |
|
- |
|
1,192 |
Bank interest
received |
|
124 |
|
225 |
|
|
|
|
|
Cash
outflows |
|
|
|
|
Direct investments and
capital calls |
11 |
(5,714) |
|
(51,228) |
Purchase of treasury
bills |
11 |
(3,394) |
|
(3,321) |
Investment Adviser's
base fee paid |
10 |
(2,000) |
|
(8,324) |
Investment Adviser's
incentive fee paid |
10 |
(2,307) |
|
(3,000) |
Other operating
expenses paid |
|
(2,204) |
|
(1,865) |
Foreign exchange
gain/(loss) realised |
|
19 |
|
(306) |
Net cash
(outflow)/inflow before financing activities |
|
(8,015) |
|
58,664 |
|
|
|
|
|
Financing
activities |
|
|
|
|
Finance costs
paid: |
|
|
|
|
• Convertible
Unsecured Loan Stock |
|
(1,445) |
|
(1,515) |
• Loan payable |
|
(7,863) |
|
(6,453) |
Payments to buy back
Company's Ordinary shares |
|
- |
|
(29,979) |
Net cash outflow from
financing activities |
|
(9,308) |
|
(37,947) |
(Decrease)/increase in
cash at bank |
|
(17,323) |
|
20,717 |
|
|
|
|
|
Reconciliation of net cash flow to movements in cash at
bank |
|
|
|
|
US$'000 |
|
US$'000 |
Cash and cash
equivalents at 1 March |
|
52,912 |
|
50,994 |
(Decrease)/increase in
cash at bank |
|
(17,323) |
|
20,717 |
Unrealised foreign
exchange movements on cash at bank |
|
67 |
|
(25) |
|
|
|
|
|
Cash and cash
equivalents at period end |
|
35,656 |
|
71,686 |
1Total realisations quoted in the Interim
Report of $141.8 million, include
realisations agreed post period end of $138.0 million, and escrow receipts of
$0.8 million.
2Includes $10,000 of treasury bill interest received on
maturity
The accompanying notes form an integral part of the Interim
Financial Statements.
Notes to the Financial Statements
(Unaudited)
1. General Information
JZ Capital Partners Limited ("JZCP" or the "Company") is a
Guernsey domiciled closed-ended
investment company which was incorporated in Guernsey on 14 April
2008 under the Companies (Guernsey) Law, 1994. The Company is now
subject to the Companies (Guernsey) Law, 2008. The Company is classified
as an authorised fund under the Protection of Investors (Bailiwick
of Guernsey) Law 1987. The
Company's Capital consists of Ordinary shares, Zero Dividend
Preference ("ZDP") shares and Convertible Unsecured Loan Stock
("CULS"). The Company's shares trade on the London Stock Exchange's
Specialist Fund Segment ("SFS").
The Company's new investment policy, adopted this year, is for
the Company to make no further investments outside of its existing
obligations or to the extent that investment may be made to support
selected existing portfolio investments. The intention is to
realise the maximum value of the Company’s investments and, after
repayment of all debt, to return capital to shareholders. The
Company’s previous Investment Policy was to target predominantly
private investments and back management teams to deliver on
attractive investment propositions. In executing this strategy, the
Company took a long term view. The Company looked to invest
directly in its target investments and was able to invest globally
but with a particular focus on opportunities in the United States and Europe.
The Company is currently mainly focused on supporting its
investments in the following areas:
a) small or micro-cap buyouts in the form of
debt and equity and preferred stock in both the US and Europe; and
b) real estate interests.
The Company has no direct employees. For its services the
Investment Adviser receives a management fee and is also entitled
to performance related fees (Note 10). The Company has no ownership
interest in the Investment Adviser. During the period under review
the Company was administered by Northern Trust International Fund
Administration Services (Guernsey)
Limited.
The Unaudited Condensed Interim Financial Statements (the
"Interim Financial Statements") are presented in US$'000 except
where otherwise indicated.
2. Significant Accounting Policies
The accounting policies adopted in the preparation of these
Interim Financial Statements have been consistently applied during
the period, unless otherwise stated.
Statement of
Compliance
The Interim Financial Statements of the Company for the period
1 March 2020 to 31 August 2020 have been prepared in accordance
with IAS 34, "Interim Financial Reporting" as adopted in the
European Union, together with applicable legal and regulatory
requirements of the Companies (Guernsey) Law, 2008 and the Disclosure
Guidance and Transparency Rules. The Interim Financial Statements
do not include all the information and disclosure required in the
Annual Audited Financial Statements and should be read in
conjunction with the Annual Report and Financial Statements for the
year ended 29 February 2020.
Basis of
Preparation
The Interim Financial Statements have been prepared under the
historical cost basis, modified by the revaluation of financial
instruments designated at fair value through profit or loss
("FVTPL") upon initial recognition. The principal accounting
policies adopted in the preparation of these Interim Financial
Statements are consistent with the accounting policies stated in
Note 2 of the Annual Financial Statements for the year ended
29 February 2020. The preparation of
these Interim Financial Statements are in conformity with IAS 34,
"Interim Financial Reporting" as adopted in the European Union, and
requires the Company to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the
Interim Financial Statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
materially differ from those estimates.
New standards,
interpretations and amendments adopted by the Company
The accounting policies adopted in the preparation of the
Interim Financial Statements are consistent with those followed in
the preparation of the Company’s annual financial statements for
the year ended 29 February 2020.
There has been no early adoption, by the Company, of any other
standard, interpretation or amendment that has been issued but is
not yet effective.
3. Estimates and Judgements
The estimates and judgements made by the Board of Directors are
consistent with those made in the Audited Financial Statements for
the year ended 29 February 2020.
Directors’ Assessment of Going
Concern
A fundamental principle of the preparation of financial
statements in accordance with IFRS is the judgement that an entity
will continue in existence as a going concern for a period of at
least 12 months from signing of the Interim Financial Statements,
which contemplates continuity of operations and the realisation of
assets and settlement of liabilities occurring in the ordinary
course of business.
Due to the uncertainties that the Company will not have
sufficient liquidity to repay its senior debt facility (due
12 June 2021) and redeem its CULS
(due 30 July 2021) there are material
uncertainties which cast significant doubt on the ability of the
Company to continue as a going concern. However the Interim
Financial Statements for the period ended 31
August 2020 have been prepared on a going concern basis
given the Board's assessment of future realisations set out below
and as the Board, with recommendation from the Audit Committee,
have a reasonable expectation that the Company has adequate
resources to continue in operational existence for the foreseeable
future.
In reaching its conclusion, the Board have considered the risks
that could impact the Company’s liquidity over the period to
4 November 2021.
As part of their assessment the Audit Committee highlighted the
following key considerations:
1. Whether, the Company can generate
sufficient cash through realisations of its underlying investments
to discharge its liabilities over the period to 4 November 2021, including the sale of interests
in certain US microcap portfolio companies (the "Secondary Sale")
which is contingent upon Shareholder Approval; and
2. Whether, in the event that sufficient
realisation proceeds referenced above are not generated by the
Company before the expiration of the current loan facilities,
whilst remaining within the agreed covenant terms, together with
the scheduled maturity date of the CULS, the Company is able to
implement an alternative plan within the required timeframe to
refinance and/or restructure the loan facility and/or the CULS.
1. Whether, the
Company can generate sufficient cash through realisations of its
underlying investments to discharge its liabilities over the period
to 4 November 2021, including the
Secondary Sale which is contingent upon Shareholder Approval.
As at 31 October 2020, the Company
had cash, cash equivalents and liquid investments of approximately
$55 million. Post period end, the
agreed Secondary Sale will result in proceeds of approximately
$90 million, less fees and expenses.
For the avoidance of doubt, the completion of the Secondary Sale is
subject to pending shareholder approval. The Company has repaid
Guggenheim $20 million (post
period-end) and will be obliged to repay a further $62.7 million on completion of the Secondary
Sale.
Once the Secondary Sale of U.S. micro-cap investments has
completed the Company will have two major debt obligations to
settle within the going concern period being;
i. Senior Loan facility totalling
approximately $68.5 million due for
settlement on or before 12 June 2021;
and
ii. CULS for settlement value of £38.9
million (approximately $51 million)
due for settlement on their scheduled maturity date of 30 July 2021.
Considering the Company’s projected cash position, ongoing
operating costs and the anticipated further investment required to
support the Company’s portfolio the Board anticipate further
proceeds of $70 million to
$80 million are required from the
realisation of investments to enable the Company to settle its
debts as they fall due.
The investment adviser is working on the realisation of various
investments including a Secondary Sale of its interest in its
European micro-cap investments. Forecast realisations for the
period to redemption of the senior debt are in the range of
$85 million to $115 million, in addition to the proceeds from
the completion of the Secondary Sale of U.S. micro-cap investments
mentioned above.
The Board continue to consider the levels of realisation
proceeds historically generated by the Company’s micro- cap
portfolios as well as the accuracy of previous forecasts whilst
concluding on the predicted accuracy of forecasts presented.
The Board have considered the effect of COVID-19 on market
conditions which means that realisations may be delayed or become
more difficult.
2. Whether, in the
event that sufficient realisation proceeds referenced above are not
generated by the Company before the expiration of the current loan
facilities, whilst remaining within the agreed covenant terms,
together with the scheduled maturity date of the CULS, the Company
is able to implement an alternative plan within the required
timeframe to refinance and/or restructure the loan facility and/or
the CULS.
JZAI personnel manage the relationship with the Company’s
lenders, monitor compliance with loan terms and covenants and
report to the Board on matters arising.
Post period end, the Company reached agreement with Guggenheim
to pay down a significant portion of the debt owed from proceeds
from the agreed Secondary Sale and also for a third party,
Cohanzick, to assume $40 million of
the outstanding debt. The terms of the new agreement require the
Company to allocate 90% of future realisation proceeds to the
repayment of the balance of the Guggenheim loan.
Prior to the new agreement, due to the fall in the valuation of
the Company's real estate portfolio, the Company had breached the
asset cover covenant terms of the Guggenheim loan. The Company is
now in full compliance with loan covenant terms having secured more
advantageous terms for itself. The current asset coverage has been
reset at 3.25x rising to 3.5x on the earliest of 7 December 2020 or the date of closure of the
Secondary Sale of U.S. micro-cap investments. On completion of the
Secondary Sale and further repayment of the senior loan facility,
the Company's asset coverage is expected to increase from
approximately 3.8x to approximately 5.7x. Stress testing performed
by the Company, show investment losses resulting in the reduction
of 10% of total collateral would reduce the current asset coverage
ratio from 3.8x to 3.5x (above the 3.25x threshold) and following
the anticipated closure of the Secondary Sale and further repayment
of debt in December 2020, a similar
fall in the Company’s investment value would see the asset coverage
ratio fall from 5.7x to 5.3x (above the 3.5x threshold).
Any changes to the terms of the CULS will require the sanction
of CULS holders by the approval of an extraordinary resolution of
CULS holders. Any such extraordinary resolution would require
the approval of not less than 75% of the votes cast by CULS holders
at a duly convened meeting.
Going Concern Conclusion
After careful consideration and based on our assessment of
future realisations, the Board are satisfied, as of today’s date,
that it is appropriate to adopt the going concern basis in
preparing the financial statements and they have a reasonable
expectation that the Company will continue in existence as a going
concern for the period to 4 November
2021.
The Board have determined that there are material uncertainties
surrounding the Company's ability to generate sufficient liquidity
to repay its senior debt facility (due 12
June 2021) and repay its CULS (due 30
July 2021) which casts significant doubt over the ability of
the Company to continue as a Going Concern, based on the following
key considerations:
1. Whether the Company can generate
sufficient cash through realisations of its underlying investments
to discharge its liabilities over the period to 4 November 2021, including the Secondary Sale
which is contingent upon Shareholder Approval; and
2. Whether, in the
event that sufficient realisation proceeds referenced above are not
generated by the Company before the expiration of the current loan
facilities, whilst remaining within the agreed covenant terms,
together with the scheduled maturity date of the CULS, the Company
is able to implement an alternative plan within the required
timeframe to refinance and/or restructure the loan facility and/or
the CULS.
4. Segment Information
The Investment Manager is responsible for allocating resources
available to the Company in accordance with the overall business
strategies as set out in the Investment Guidelines of the Company.
The Company is organised into the following segments:
· Portfolio of US micro-cap
investments
· Portfolio of European micro-cap
investments
· Portfolio of Real estate
investments
· Portfolio of Other investments - (not
falling into above categories)
Investments in treasury bills are not considered as part of the
investment strategy and are therefore excluded from this segmental
analysis.
The investment objective of each segment is to achieve
consistent medium-term returns from the investments in each segment
while safeguarding capital by investing in a diversified
portfolio.
Segmental operating profit/(loss)
For the period from 1 March 2020
to 31 August 2020
|
|
|
|
|
|
|
US |
|
European |
|
Real |
|
Other |
|
|
|
|
|
|
|
|
|
Micro-Cap |
|
Micro-Cap |
|
Estate |
|
Investments |
|
Total |
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
Interest
revenue |
|
|
|
|
|
11,443 |
|
1,245 |
|
- |
|
- |
|
12,688 |
Total
segmental revenue |
|
|
|
11,443 |
|
1,245 |
|
- |
|
- |
|
12,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss)/gain on investments at FVTPL |
(8,074) |
|
7,034 |
|
(113,049) |
|
- |
|
(114,089) |
Expected
credit losses |
|
- |
|
(560) |
|
- |
|
- |
|
(560) |
Realisations from investments held in Escrow |
801 |
|
- |
|
- |
|
- |
|
801 |
Investment
Adviser's base fee |
|
|
|
(3,087) |
|
(785) |
|
(968) |
|
(175) |
|
(5,015) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
segmental operating profit/(loss) |
|
1,083 |
|
6,934 |
|
(114,017) |
|
(175) |
|
(106,175) |
For the period from 1 March 2019
to 31 August 2019
|
|
|
|
|
|
|
US |
|
European |
|
Real |
|
Other |
|
|
|
|
|
|
|
|
|
Micro-Cap |
|
Micro-Cap |
|
Estate |
|
Investments |
|
Total |
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest revenue |
|
|
|
|
|
|
15,980 |
|
2,742 |
|
32 |
|
- |
|
18,754 |
Dividend
revenue |
|
|
|
|
|
- |
|
1,192 |
|
- |
|
- |
|
1,192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
segmental revenue |
|
|
|
15,980 |
|
3,934 |
|
32 |
|
- |
|
19,946 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
gain/(loss) on investments at FVTPL |
29,331 |
|
3,097 |
|
(64,003) |
|
- |
|
(31,575) |
Expected
credit losses |
|
- |
|
(14,727) |
|
- |
|
- |
|
(14,727) |
Realisations from investments held in Escrow |
3,923 |
|
- |
|
- |
|
- |
|
3,923 |
Investment
Adviser's base fee |
|
|
|
(3,420) |
|
(827) |
|
(3,379) |
|
(147) |
|
(7,773) |
Investment
Adviser's capital incentive fee1 |
(10,074) |
|
240 |
|
12,729 |
|
- |
|
2,895 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
segmental operating profit/(loss) |
|
35,740 |
|
(8,283) |
|
(54,621) |
|
(147) |
|
(27,311) |
1The capital incentive fee is allocated
across segments where a realised or unrealised gain or loss has
occurred. Segments with realised or unrealised losses are allocated
a credit pro rata to the size of the loss and segments with
realised or unrealised gains are allocated a charge pro rata to the
size of the gain. No capital incentive fee was payable for the
period ended 31 August 2020.
Certain income and expenditure is not considered part of the
performance of an individual segment. This includes net foreign
exchange gains, interest on cash, finance costs, management fees,
custodian and administration fees, directors’ fees and other
general expenses.
The following table provides a reconciliation between total
segmental operating loss and operating loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
ended |
|
Period
ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
31.8.2020 |
|
31.8.2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
Total
segmental operating loss |
|
|
|
|
|
(106,175) |
|
(27,311) |
Gain on
financial liabilities at fair value through profit or loss |
|
|
|
454 |
|
4,107 |
Net
foreign exchange (loss)/gain |
|
|
|
|
|
(2,035) |
|
3,765 |
Bank and
deposit interest |
|
|
|
124 |
|
225 |
Expenses
not attributable to segments |
|
|
|
(2,301) |
|
(1,890) |
Fees
payable to investment adviser based on non-segmental assets |
|
(344) |
|
(528) |
Interest
on US treasury bills |
|
|
|
|
|
9 |
|
38 |
Operating loss |
|
|
|
|
|
|
|
|
|
(110,268) |
|
(21,594) |
The following table provides a reconciliation between total
segmental revenue and Company revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Period ended |
|
Period
ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
31.8.2020 |
|
31.8.2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
US$ '000 |
|
US$
'000 |
Total
segmental revenue |
|
|
|
|
|
|
|
|
|
12,688 |
|
19,946 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-segmental revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Bank and
deposit interest |
|
|
|
|
|
|
|
|
|
124 |
|
225 |
Interest
on US treasury bills |
|
|
|
|
|
9 |
|
38 |
Total revenue |
|
|
|
|
|
|
|
|
|
|
|
|
12,821 |
|
20,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segmental Net Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31
August 2020 |
|
|
|
|
US |
|
European |
|
Real |
|
Other |
|
|
|
|
|
|
|
|
|
Micro-Cap |
|
Micro-Cap |
|
Estate |
|
Investments |
|
Total |
|
|
|
|
|
|
|
US$ '000 |
|
US$ '000 |
|
US$ '000 |
|
US$
'000 |
|
US$
'000 |
Segmental assets |
|
|
|
|
|
|
|
|
|
|
Investments at FVTPL |
|
409,502 |
|
77,310 |
|
47,362 |
|
23,443 |
|
557,617 |
Loans at
amortised cost |
|
|
|
- |
|
34,490 |
|
- |
|
- |
|
34,490 |
Other
receivables |
|
- |
|
- |
|
80 |
|
- |
|
80 |
Total
segmental assets |
|
409,502 |
|
111,800 |
|
47,442 |
|
23,443 |
|
592,187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segmental liabilities |
|
|
|
|
|
|
|
|
|
|
Payables
and accrued expenses |
|
(3,467) |
|
(804) |
|
(340) |
|
(169) |
|
(4,780) |
Total
segmental liabilities |
|
(3,467) |
|
(804) |
|
(340) |
|
(169) |
|
(4,780) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
segmental net assets |
|
|
|
406,035 |
|
110,996 |
|
47,102 |
|
23,274 |
|
587,407 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 29
February 2020 |
|
|
|
|
US |
|
European |
|
Real |
|
Other |
|
|
|
|
|
|
|
|
|
Micro-Cap |
|
Micro-Cap |
|
Estate |
|
Investments |
|
Total |
|
|
|
|
|
|
|
US$ '000 |
|
US$ '000 |
|
US$ '000 |
|
US$ '000 |
|
US$
'000 |
Segmental assets |
|
|
|
|
|
|
|
|
|
|
Investments at FVTPL |
|
404,880 |
|
71,619 |
|
158,712 |
|
22,603 |
|
657,814 |
Loans at
amortised cost |
|
|
|
- |
|
30,972 |
|
- |
|
- |
|
30,972 |
Other
receivables |
|
- |
|
- |
|
80 |
|
- |
|
80 |
Total
segmental assets |
|
404,880 |
|
102,591 |
|
158,792 |
|
22,603 |
|
688,866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segmental liabilities |
|
|
|
|
|
|
|
|
|
|
Payables
and accrued expenses |
|
(3,290) |
|
(113) |
|
(501) |
|
(23) |
|
(3,927) |
Total
segmental liabilities |
|
|
|
(3,290) |
|
(113) |
|
(501) |
|
(23) |
|
(3,927) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
segmental net assets |
|
|
|
401,590 |
|
102,478 |
|
158,291 |
|
22,580 |
|
684,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides a reconciliation between total
segmental assets and total assets and total segmental liabilities
and total liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
31.8.2020 |
|
29.2.2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
segmental assets |
|
|
|
|
|
|
|
592,187 |
|
688,866 |
Non
segmental assets |
|
|
|
|
|
|
|
|
|
|
Treasury Bills |
|
|
|
|
|
|
|
|
|
|
|
|
3,395 |
|
3,386 |
Cash at
bank |
|
|
|
35,656 |
|
52,912 |
Other
receivables |
|
|
|
|
|
|
|
|
45 |
|
39 |
Total
assets |
|
|
|
|
|
|
|
631,283 |
|
745,203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
segmental liabilities |
|
|
|
|
|
|
|
|
|
(4,780) |
|
(3,927) |
Non
segmental liabilities |
|
|
|
|
|
|
|
|
|
|
Zero
Dividend Preference shares |
|
|
|
(69,354) |
|
(64,510) |
Convertible Unsecured Loan Stock |
|
|
|
(49,432) |
|
(49,886) |
Loans
payable |
|
|
|
|
|
|
|
|
|
|
(150,355) |
|
(150,362) |
Other
payables |
|
|
|
- |
|
(784) |
Total
liabilities |
|
|
|
|
|
|
|
(273,921) |
|
(269,469) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
net assets |
|
|
|
|
|
|
|
357,362 |
|
475,734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5. Fair Value of Financial Instruments
The Company classifies fair value measurements of its financial
instruments at FVTPL using a fair value hierarchy that reflects the
significance of the inputs used in making the measurements. The
financial instruments valued at FVTPL are analysed in a fair value
hierarchy based on the following levels:
Level 1
Quoted prices (unadjusted) in active markets for identical
assets or liabilities.
Level 2
Those involving inputs other than quoted prices included within
Level 1 that are observable for the asset or liability, either
directly (that is, as prices) or indirectly (that is, derived from
prices). For example, investments which are valued based on quotes
from brokers (intermediary market participants) are generally
indicative of Level 2 when the quotes are executable and do not
contain any waiver notices indicating that they are not necessarily
tradeable. Another example would be when assets/liabilities with
quoted prices, that would normally meet the criteria of Level 1, do
not meet the definition of being traded on an active market. At the
period end, the Company had assessed that the liabilities valued at
FVTPL being the CULS and valued using the quoted ask price, would
be classified as level 2 within the valuation method as they are
not regularly traded.
Level 3
Those involving inputs for the asset or liability that are not
based on observable market data (that is, unobservable inputs).
Investments in JZCP's portfolio valued using unobservable inputs
such as multiples, capitalisation rates, discount rates (see Note
5) fall within Level 3.
Differentiating between Level 2 and Level 3 fair value
measurements i.e., assessing whether inputs are observable and
whether the unobservable inputs are significant, may require
judgement and a careful analysis of the inputs used to measure fair
value including consideration of factors specific to the asset or
liability.
The following table shows financial instruments recognised at
fair value, analysed between those whose fair value is based
on:
Financial assets at 31 August 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level
1 |
|
Level
2 |
|
Level
3 |
|
Total |
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US micro-cap |
|
|
|
|
|
|
|
|
- |
|
- |
|
409,502 |
|
409,502 |
European
micro-cap |
|
|
|
|
|
- |
|
- |
|
77,310 |
|
77,310 |
Real estate |
|
|
|
|
|
|
|
|
- |
|
- |
|
47,362 |
|
47,362 |
Other
investments |
|
|
|
|
|
- |
|
- |
|
23,443 |
|
23,443 |
Listed
investments |
|
|
|
|
|
3,395 |
|
- |
|
- |
|
3,395 |
|
|
|
|
|
|
|
|
|
3,395 |
|
- |
|
557,617 |
|
561,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets at 29 February 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level
1 |
|
Level
2 |
|
Level
3 |
|
Total |
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US micro-cap |
|
|
|
|
|
|
|
|
- |
|
- |
|
404,880 |
|
404,880 |
European
micro-cap |
|
|
|
|
|
- |
|
- |
|
71,619 |
|
71,619 |
Real estate |
|
|
|
|
|
|
|
|
- |
|
- |
|
158,712 |
|
158,712 |
Other
investments |
|
|
|
|
|
- |
|
- |
|
22,603 |
|
22,603 |
Listed
investments |
|
|
|
|
|
3,386 |
|
- |
|
- |
|
3,386 |
|
|
|
|
|
|
|
|
|
3,386 |
|
- |
|
657,814 |
|
661,200 |
Valuation techniques
The same valuation methodology and process was deployed as for
the year ended 29 February 2020.
Financial liabilities designated at
fair value through profit or loss at inception
Financial liabilities at 31 August 2020 |
|
Level
1 |
|
Level
2 |
|
Level
3 |
|
Total |
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
CULS |
|
|
|
|
|
|
|
|
- |
|
49,432 |
|
- |
|
49,432 |
|
|
|
|
|
|
|
|
|
- |
|
49,432 |
|
- |
|
49,432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities at 29 February 2020 |
|
Level
1 |
|
Level
2 |
|
Level
3 |
|
Total |
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
CULS |
|
|
|
|
|
|
|
|
|
|
49,886 |
|
- |
|
49,886 |
|
|
|
|
|
|
|
|
|
- |
|
49,886 |
|
- |
|
49,886 |
Market transactions for the CULS do not take place with
sufficient frequency and volume to provide adequate pricing
information on an ongoing basis and therefore it is considered the
CULS are not traded in an active market and are therefore
categorised at Level 2 as defined by IFRS.
Quantitative information of
significant unobservable inputs and sensitivity analysis to
significant changes in unobservable inputs within Level 3
hierarchy
The significant unobservable inputs used in fair value
measurement categorised within Level 3 of the fair value hierarchy
together with a quantitative sensitivity as at 31 August 2020 and 29
February 2020 are shown below:
|
|
Value
31.8.2020 |
|
Valuation |
|
Unobservable |
|
Range (weighted average) |
|
Sensitivity |
|
Approx. Impact on
Fair Value |
|
|
US$'000 |
|
Technique |
|
input |
|
|
used |
|
US$'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US
micro-cap investments |
|
409,502 |
|
EBITDA
Multiple |
Average EBITDA Multiple of Peers |
|
6.5x -
16.3x
(9.0x) |
|
-0.5x /+0.5x |
|
(34,447) |
|
34,295 |
|
|
|
|
Discount to Average Multiple |
|
10% -
30%
(18%) |
|
+5% / -5% |
|
(45,609) |
|
44,964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
European
micro-cap investments |
|
77,310 |
|
EBITDA
Multiple |
Average EBITDA Multiple of Peers |
|
6.6x-13.8x
(9.3x) |
|
-0.5x /+0.5x |
|
(4,457) |
|
4,430 |
|
|
|
|
Discount to Average Multiple |
|
7% -
56%
(25%) |
|
+5% / -5% |
|
(3,842) |
|
3,811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
1,2 |
|
24,271 |
|
Comparable Sales |
Market Value Per Square Foot |
|
$200 -
$826 per sq ft ($340) |
|
-10% / +10% |
|
(10,057) |
|
10,134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
610 |
|
DCF Model
/Income Approach |
|
Capitalisation Rate
Discount Rate |
|
5.5%
6.5% |
+50bps/
-50bps |
|
(610) |
|
842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,481 |
|
Cap Rate/
Income Approach |
|
Capitalisation Rate |
5.25% - 6.5% (5.9%) |
+50bps/
-50bps |
|
(7,925) |
|
14,146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other investments |
|
20,938 |
|
AUM
Approach |
|
AUM |
|
$3.0 Bn -
$4.0 Bn |
|
-10%/+10% |
|
(4,744) |
|
4,744 |
|
|
|
|
|
|
% Applied
to AUM |
|
2.4% |
|
-10%/+10% |
|
(2,090) |
|
2,090 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value
29.2.2020 |
|
Valuation |
|
Unobservable |
|
Range (weighted average) |
|
Sensitivity |
|
Approx. Impact on
Fair Value |
|
|
US$'000 |
|
Technique |
|
input |
|
|
used |
|
US$'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US
micro-cap investments |
|
404,880 |
|
EBITDA
Multiple |
Average EBITDA Multiple of Peers |
|
6.5% -
16.3% (8.7%) |
|
-0.5x/+0.5x |
|
(32,240) |
|
33,918 |
|
|
|
|
Discount to Average Multiple |
|
10% - 30%
(17%) |
|
+5%/-5% |
|
(39,497) |
|
40,898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
European
micro-cap investments |
|
71,619 |
|
EBITDA
Multiple |
Average EBITDA Multiple of Peers |
|
6.7x -
14.0x (10.0x) |
|
-0.5x /+0.5x |
|
(4,210) |
|
4,210 |
|
|
|
|
Discount to Average Multiple |
|
3% - 58%
(16%) |
|
+5% /-5% |
|
(4,380) |
|
4,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate2 |
|
73,126 |
|
Comparable Sales |
Market Value Per Square Foot |
$286 - $1,964 ($795) per sq ft |
|
-10%/+10% |
|
(21,188) |
|
22,717 |
|
45,283 |
|
DCF Model
/Income Approach |
|
Capitalisation Rate
Discount Rate |
|
5.25%-5.75% (5.5%)
6.25%-7.50% (6.5%) |
+50bps/
-50bps |
|
(19,797) |
|
27,497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,518 |
|
Cap Rate/
Income Approach |
|
Capitalisation Rate |
4.75%-6.0% (5.75%) |
+50bps/
-50bps |
|
(13,671) |
|
16,084 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other investments |
|
20,338 |
|
AUM
Approach |
|
AUM |
|
$3.2
Bn |
|
-10%/+10% |
|
(4,065) |
|
4,065 |
|
|
|
|
|
|
% Applied
to AUM |
|
2.6% |
|
-10%/+10% |
|
(2,034) |
|
2,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1The real estate portfolio recorded losses
during the period of $113.0 million.
Fair value losses are also attributable to the cost of servicing
debt and the foreclosure or likely foreclosure of properties as
well as the changes in appraisal metrics (shown above).
2Sensitivity is applied to the property
value and then the debt associated to the property is deducted
before the impact to JZCP's equity value is calculated. Due to
gearing levels in the property structures an increase in the
sensitivity of measurement metrics at property level will result in
a significantly greater impact at JZCP's equity level.
The following table shows a reconciliation of all movements in
the fair value of financial instruments categorised within Level 3
between the beginning and the end of the reporting period.
Period ended 31 August 2020
|
|
|
|
|
|
|
US |
|
European |
|
Real |
|
Other |
|
|
|
|
|
|
|
|
|
Micro-Cap |
|
Micro-Cap |
|
Estate |
|
Investments |
|
Total |
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 March
2020 |
|
|
|
404,880 |
|
71,619 |
|
158,712 |
|
22,603 |
|
657,814 |
Investments in year including capital calls |
1,574 |
|
1,601 |
|
1,699 |
|
840 |
|
5,714 |
Payment in
kind ("PIK") |
|
|
|
1,755 |
|
- |
|
- |
|
- |
|
1,755 |
Proceeds
from investments realised |
|
(72) |
|
(2,944) |
|
- |
|
- |
|
(3,016) |
Net
(loss)/gain on investments |
|
(8,074) |
|
7,034 |
|
(113,049) |
|
- |
|
(114,089) |
Movement
in accrued interest |
|
9,439 |
|
- |
|
- |
|
- |
|
9,439 |
At 31
August 2020 |
|
|
|
409,502 |
|
77,310 |
|
47,362 |
|
23,443 |
|
557,617 |
Year ended 29 February 2020
|
|
|
|
|
|
|
US |
|
European |
|
Real |
|
Other |
|
|
|
|
|
|
|
|
|
Micro-Cap |
|
Micro-Cap |
|
Estate |
|
Investments |
|
Total |
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 March
2019 |
|
|
|
|
|
478,970 |
|
70,686 |
|
443,044 |
|
18,302 |
|
1,011,002 |
Investments in year including capital calls |
9,678 |
|
12,635 |
|
51,196 |
|
4,301 |
|
77,810 |
Payment in
kind ("PIK") |
|
|
|
26,205 |
|
- |
|
- |
|
- |
|
26,205 |
Proceeds
from investments realised |
|
(122,031) |
|
(13,643) |
|
(4,622) |
|
- |
|
(140,296) |
Net
gain/(loss) on investments |
|
12,459 |
|
1,941 |
|
(330,906) |
|
- |
|
(316,506) |
Movement
in accrued interest |
|
(401) |
|
- |
|
- |
|
- |
|
(401) |
At 29
February 2020 |
|
|
|
404,880 |
|
71,619 |
|
158,712 |
|
22,603 |
|
657,814 |
Fair value of Zero Dividend Preference
("ZDP") shares
The fair value of the ZDP shares is deemed to be their quoted
market price. As at 31 August 2020
the ask price for the ZDP (2022) shares was £3.00 (29 February 2020: £4.34 per share) the total fair
value of the ZDP shares was $47,832,000
(29 February 2020: $66,010,000) which is $21,522,000 lower (29
February 2020: $1,500,000
higher) lower than the liability recorded in the Statement of
Financial Position
ZDP shares are recorded at amortised cost and would fall in to
the Level 2 hierarchy if valued at FVTPL.
6. Net Loss on Investments at Fair Value Through
Profit or Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
ended |
|
Period
ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
31.8.2020 |
|
31.8.2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
Loss
on investments held in investment portfolio at period end |
|
|
|
|
|
|
Net
movement in period end unrealised gain position |
|
|
|
|
|
(111,517) |
|
(55,727) |
Unrealised
gains in prior periods now realised |
|
|
|
|
|
9,128 |
|
13,259 |
Net
unrealised losses in the period |
|
|
|
|
|
|
|
(102,389) |
|
(42,468) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
gains/(losses)on investments realised in the period |
|
|
|
|
|
|
|
|
Proceeds
from investments realised |
|
|
|
|
|
|
|
6,411 |
|
120,691 |
Cost of
investments realised |
|
|
|
|
|
|
|
(8,983) |
|
(96,539) |
Unrealised
gains in prior periods now realised |
|
|
|
|
|
(9,128) |
|
(13,259) |
Total net
(loss)/gain in the period on investments realised in the
period |
|
|
|
(11,700) |
|
10,893 |
|
|
|
|
|
|
|
Net loss
on investments in the period |
|
|
|
|
|
|
|
(114,089) |
|
(31,575) |
7. Expected Credit Losses
|
|
|
|
|
|
|
|
|
|
|
|
Period
ended |
|
Period
ended |
|
|
|
|
|
|
|
|
|
|
|
|
31.8.2020 |
|
31.8.2019 |
|
|
|
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment
on loans during period |
|
|
|
|
|
|
560 |
|
14,727 |
|
|
|
|
|
|
|
|
|
|
Expected Credit Losses ("ECLs") are recognised in three stages.
Stage one being for credit exposures for which there has not been a
significant increase in credit risk since initial recognition, ECLs
are provided for credit losses that result from default events that
are possible within the next 12-months (a 12-month ECL). Stage two
being for those credit exposures for which there has been a
significant increase in credit risk since initial recognition, a
loss allowance is required for credit losses expected over the
remaining life of the exposure, irrespective of the timing of the
default (a lifetime ECL). Stage three being credit exposures which
are considered credit-impaired, interest revenue is calculated
based on the amortised cost (i.e. the gross carrying amount less
the loss allowance). Financial assets in this stage will generally
be assessed individually. Lifetime expected credit losses are
recognised on these financial assets.
As from 1 December 2019, the
Company provided for ECLs to write down the value of the Ombuds
loans to nil as no recovery is expected. Following the default
event, the loan is now classified as Level 3 stage, consequently no
further interest is being recognised on the loan. ECLs recognised
on other direct loan investments are done per the stage one
methodology being the recognition of expected losses over a 12
month period (or to maturity date if earlier).
8. Investment Income
|
|
|
|
|
|
|
|
|
|
|
|
31.8.2020 |
|
31.8.2019 |
|
|
|
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
Interest
calculated using the effective interest rate method |
|
|
1,245 |
|
2,742 |
Other
interest and similar income |
|
|
|
|
|
|
11,452 |
|
17,242 |
|
|
|
|
|
|
|
|
|
|
|
|
12,697 |
|
19,984 |
Income for the period ended 31 August
2020
|
|
Preferred |
|
Loan note Interest |
|
|
|
Other |
|
|
|
|
Interest |
|
PIK |
|
Cash |
|
Dividend |
|
Interest |
|
Total |
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
US micro-cap |
|
11,035 |
|
154 |
|
254 |
|
- |
|
- |
|
11,443 |
European
micro-cap |
|
- |
|
1,245 |
|
- |
|
- |
|
- |
|
1,245 |
Listed
investments |
|
- |
|
- |
|
- |
|
- |
|
9 |
|
9 |
|
|
11,035 |
|
1,399 |
|
254 |
|
- |
|
9 |
|
12,697 |
Income for the period ended 31 August
2019
|
|
Preferred |
|
Loan note Interest |
|
|
|
Other |
|
|
Portfolio |
|
Interest |
|
PIK |
|
Cash |
|
Dividend |
|
Interest |
|
Total |
|
|
US$
'000 |
|
US$
'000 |
|
US$ '000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
- |
|
|
|
|
US micro-cap |
|
15,231 |
|
104 |
|
645 |
|
- |
|
- |
|
15,980 |
European
micro-cap |
|
- |
|
2,742 |
|
- |
|
1,192 |
|
- |
|
3,934 |
Real estate |
|
- |
|
- |
|
- |
|
- |
|
32 |
|
32 |
Listed
investments |
|
- |
|
- |
|
- |
|
- |
|
38 |
|
38 |
|
|
15,231 |
|
2,846 |
|
645 |
|
1,192 |
|
70 |
|
19,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9. Finance Costs
|
|
|
|
|
|
|
Period
ended |
|
Period
ended |
|
|
|
|
|
|
|
31.8.2020 |
|
31.8.2019 |
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
Interest expense calculated using the effective interest
method |
|
|
|
|
|
|
ZDP shares
(Note 12) |
1,636 |
|
1,563 |
Loan
payable - (Note 14) |
6,109 |
|
7,385 |
|
|
|
|
|
|
|
7,745 |
|
8,948 |
Other
interest and similar expense |
|
|
|
|
CULS
interest paid (Note 13) |
1,445 |
|
1,515 |
|
|
|
|
|
|
|
9,190 |
|
10,463 |
10. Fees Payable to the Investment
Adviser
Investment Advisory and Performance
fees
The Company entered into the amended and restated investment
advisory and management agreement with Jordan/Zalaznick Advisers,
Inc. (the "Investment Adviser") on 23
December 2010 (the ”Advisory Agreement”).
Pursuant to the Advisory Agreement, the Investment Adviser is
entitled to a base management fee and to an incentive fee. The base
management fee is an amount equal to 1.5 per cent per annum of the
average total assets under management of the Company less those
assets identified by the Company as being excluded from the base
management fee, under the terms of the agreement. The base
management fee is payable quarterly in arrears; the agreement
provides that payments in advance on account of the base management
fee will be made.
For the six-month period ended 31 August
2020, total investment advisory and management expenses,
based on the average total assets of the Company, were included in
the Statement of Comprehensive Income of $5,359,000 (period ended 31 August 2019: $8,301,000). Of this amount $4,538,000 (29 February 2020:$1,179,000) was due and payable at the period
end.
The incentive fee has two parts. The first part is calculated by
reference to the net investment income of the Company ("Income
Incentive fee") and is payable quarterly in arrears provided that
the net investment income for the quarter exceeds 2 per cent of the
average of the net asset value of the Company for that quarter (the
"hurdle") (8 per cent. annualised). The fee is an amount equal to
(a) 100 per cent of that proportion of the net investment income
for the quarter as exceeds the hurdle, up to an amount equal to a
hurdle of 2.5%, and (b) 20 per cent of the net investment income of
the Company above a hurdle of 2.5% in any quarter. Investments
categorised as legacy investments and other assets identified by
the Company as being excluded are excluded from the calculation of
the fee. A true-up calculation is also prepared at the end of each
financial year to determine if further fees are payable to the
Investment Adviser or if any amounts are recoverable from future
income incentive fees
For the periods ended 31 August
2020 and 31 August 2019 there
was no income incentive fee payable.
The second part of the incentive fee is calculated by reference
to the net realised capital gains ("Capital Gains Incentive fee")
of the Company and is equal to: (a) 20 per cent. of the realised
capital gains of the Company for each financial year less all
realised capital losses of the Company for the year less (b) the
aggregate of all previous capital gains incentive fees paid by the
Company to the Investment Adviser. The capital gains incentive is
payable in arrears within 90 days of the fiscal year end.
Investments categorised as legacy investments are excluded from the
calculation of the fee. Assets of JZI Fund III and EuroMicrocap
Fund 2010, L.P. are also excluded from the Capital Gains Incentive
fee ("CGIF"). Carried interest, of an amount equivalent to the CGIF
payable under the Advisory Agreement, is payable by the funds to an
affiliate of JZAI.
For the purpose of calculating incentive fees cumulative
preferred dividends received on the disposal of an investment are
treated as a capital return rather than a receipt of income
During the year ended 29 February
2020, the Investment Adviser agreed to waive fees payable by
the Company relating to realised gains in the years ended
February 2019 and 2020. No further
incentive fees will be paid to the Investment Adviser until the
Company and Investment Adviser have mutually agreed to reinstate
such payments.
The Company also provides for a CGIF based on unrealised gains,
calculated on the same basis as that of the fee on realised
gains/losses. As the Company's investments are in a net loss
position, no provision is included for the period ended
31 August 2020 and no provision was
included at the prior year end of 29
February 2020.
|
|
|
Provision At |
|
Provision At |
|
Paid
during period |
Expense for the period ended |
|
|
|
31.8.2020 |
|
29.2.2020 |
|
31.8.2020 |
|
31.8.2020 |
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
CGIF on realised
investments |
|
|
- |
|
2,307 |
|
(2,307) |
|
- |
Provision
for CGIF on unrealised investments |
- |
|
- |
|
n/a |
|
- |
|
|
|
- |
|
2,307 |
|
(2,307) |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision At |
|
Provision At |
|
Paid
during period |
Expense for the period ended |
|
|
|
31.8.2019 |
|
28.2.2019 |
|
31.8.2019 |
|
31.8.2019 |
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
CGIF on realised
investments |
|
|
27,444 |
|
21,429 |
|
(3,000) |
|
9,015 |
Provision
for CGIF on unrealised investments |
9,432 |
|
21,342 |
|
n/a |
|
(11,910) |
|
|
|
36,876 |
|
42,771 |
|
(3,000) |
|
(2,895) |
11. Investments
|
|
|
Listed |
|
Unlisted |
|
Unlisted |
|
Carrying Value |
|
|
|
FVTPL |
|
FVTPL |
|
Loans |
|
Total |
|
|
|
31.8.2020 |
|
31.8.2020 |
|
31.8.2020 |
|
31.8.2020 |
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
Book cost at 1 March
2020 |
|
|
3,385 |
|
970,184 |
|
71,939 |
|
1,045,508 |
Investments in period including capital calls |
|
3,394 |
|
5,714 |
|
- |
|
9,108 |
Payment in kind
("PIK") |
|
|
- |
|
1,755 |
|
531 |
|
2,286 |
Proceeds
from investments matured/realised |
(3,395) |
|
(3,016) |
|
- |
|
(6,411) |
Income received on
maturity |
|
|
10 |
|
- |
|
- |
|
10 |
Net realised loss |
|
|
- |
|
(2,572) |
|
- |
|
(2,572) |
Book cost at 31 August
2020 |
|
|
3,394 |
|
972,065 |
|
72,470 |
|
1,047,929 |
Unrealised
investment and foreign exchange loss |
- |
|
(427,666) |
|
(8,348) |
|
(436,014) |
Impairment on loans at
amortised cost |
|
|
- |
|
- |
|
(30,821) |
|
(30,821) |
Accrued interest |
|
|
1 |
|
13,218 |
|
1,189 |
|
14,408 |
Carrying value at 31
August 2020 |
|
|
3,395 |
|
557,617 |
|
34,490 |
|
595,502 |
|
|
|
Listed |
|
Unlisted |
|
Unlisted |
|
Carrying Value |
|
|
|
FVTPL |
|
FVTPL |
|
Loans |
|
Total |
|
|
|
29.2.2020 |
|
29.2.2020 |
|
29.2.2020 |
|
29.2.2020 |
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
Book cost at 1 March
2019 |
|
|
3,312 |
|
980,120 |
|
66,849 |
|
1,050,281 |
Investments in year including capital calls |
|
6,706 |
|
77,810 |
|
- |
|
84,516 |
Payment in kind
("PIK") |
|
|
- |
|
26,205 |
|
5,090 |
|
31,295 |
Proceeds
from investments matured/realised |
(6,700) |
|
(140,296) |
|
- |
|
(146,996) |
Interest received on
maturity |
|
|
67 |
|
- |
|
- |
|
67 |
Net
realised investment and foreign exchange gain |
- |
|
26,345 |
|
- |
|
26,345 |
Book cost at 29
February 2020 |
|
|
3,385 |
|
970,184 |
|
71,939 |
|
1,045,508 |
Unrealised
investment and foreign exchange loss |
- |
|
(316,149) |
|
(11,077) |
|
(327,226) |
Impairment on loans at
amortised cost |
|
|
- |
|
- |
|
(30,261) |
|
(30,261) |
Accrued interest |
|
|
1 |
|
3,779 |
|
371 |
|
4,151 |
Carrying value at 29
February 2020 |
|
|
3,386 |
|
657,814 |
|
30,972 |
|
692,172 |
The cost of PIK investments is deemed to be interest not
received in cash but settled by the issue of further securities
when that interest has been recognised in the Statement of
Comprehensive Income.
Loans at amortised cost
Interest on the loans accrues at the
following rates:
As At
31 August 2020 |
|
|
|
|
|
|
As At 29
February 2020 |
|
|
|
|
|
8% |
|
10% |
|
14% |
|
Total |
|
8% |
|
10% |
14% |
Total |
Loans at
amortised cost |
25,896 |
|
2,038 |
|
6,556 |
|
34,490 |
|
5,289 |
|
1,616 |
4,067 |
30,972 |
Maturity dates are as follows:
As At
31 August 2020 |
|
|
|
|
|
|
As At 29
February 2020 |
|
|
|
|
|
0-6
months |
|
7-12
months |
|
1-2
years |
|
Total |
|
0-6
months |
|
7-12
months |
1-2
years |
Total |
|
|
|
$'000 |
|
$'000 |
|
$'000 |
|
$'000 |
|
$'000 |
|
$'000 |
$'000 |
$'000 |
Loans at
amortised cost |
30,324 |
|
4,166 |
|
- |
|
34,490 |
|
3,827 |
|
27,145 |
- |
30,972 |
12. Zero Dividend Preference ("ZDP")
shares
On 1 October 2015, the Company
rolled over 11,907,720 existing ZDP (2016) shares into new ZDP
shares with a 2022 maturity date. The new ZDP shares (ZDP 2022)
have a gross redemption yield of 4.75% and a total redemption value
of £57,598,000 (approximately $77,121,000 using the period end exchange
rate).
ZDP shares are designed to provide a pre-determined final
capital entitlement which ranks behind the Company's creditors but
in priority to the capital entitlements of the Ordinary shares. The
ZDP shares carry no entitlement to income and the whole of their
return will therefore take the form of capital. In certain
circumstances, ZDP shares carry the right to vote at general
meetings of the Company as detailed in the Company's Memorandum and
Articles of Incorporation. Issue costs are deducted from the cost
of the liability and allocated to the Statement of Comprehensive
Income over the life of the ZDP shares.
ZDP (2022)
shares |
|
|
|
31.8.2020 |
29.2.2020 |
|
US$
'000 |
US$
'000 |
Amortised cost at 1
March |
64,510 |
63,838 |
Finance costs
allocated to Statement of Comprehensive Income |
1,636 |
3,211 |
Unrealised currency
loss/(gain) on translation |
3,208 |
(2,539) |
Amortised cost at
period/year end |
69,354 |
64,510 |
Total number of ZDP
shares in issue |
11,907,720 |
11,907,720 |
13. Convertible Subordinated Unsecured
Loan Stock ("CULS")
On 30 July 2014, JZCP issued
£38,861,140 6% CULS. Holders of CULS may convert the whole or part
(being an integral multiple of £10 in nominal amount) of their CULS
into Ordinary Shares. The initial conversion price was £6.0373 per
Ordinary Share, which shall be subject to adjustment to deal with
certain events which would otherwise dilute the conversion of the
CULS.
CULS bear interest on their nominal amount at the rate of 6.00
per cent. per annum, payable semi-annually in arrears. During the
six-month period ended 31 August
2020: $1,445,000 (31 August 2019: $1,515,000) of interest was paid to holders of
CULS and is shown as a finance cost in the Statement of
Comprehensive Income.
In accordance with IFRS, the Company has calculated the movement
in fair value due to the change in the credit risk of the CULS
which is allocated as Other Comprehensive Income in the Statement
of Comprehensive Income.
|
|
|
|
|
|
|
31.8.2020 |
|
29.2.2020 |
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
Fair Value of CULS at
1 March |
|
|
|
|
|
|
49,886 |
|
54,274 |
Unrealised
movement in value of CULS due to change in Company's Credit
Risk |
(3,290) |
|
- |
Unrealised
movement in the fair value of CULS allocated to change in observed
(benchmark) interest rate |
560 |
|
(2,326) |
Unrealised
currency loss/(gain) on translation during the period/year |
|
2,276 |
|
(2,062) |
Loss/(gain) to the Company on movement in the fair value of
CULS |
|
2,836 |
|
(4,388) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
of CULS based on offer price |
|
|
|
|
|
49,432 |
|
49,886 |
14. Loan Payable
Guggenheim Partners Limited
On 12 June 2015, JZCP entered into
a loan agreement with Guggenheim Partners Limited ("Guggenheim").
The agreement was structured so that part of the proceeds €18
million were received and will be repaid in Euros and the remainder
of the facility $80 million was
received in US dollars. During April
2017, JZCP increased its credit facility with Guggenheim by
a further $50 million.
The loan matures on 12 June 2021
(6 year term) and interest is payable at 5.75% +
LIBOR(1). There is an interest rate floor that
stipulates LIBOR will not be lower than 1%. In this agreement, the
presence of the floor does not significantly alter the amortised
cost of the instrument, therefore separation is not required and
the loan is valued at amortised cost using the effective interest
rate method.
Post period end, the Company announced that it has reached
agreement to amend the terms of its existing loan agreement with
Guggenheim. Under the terms of the Amended Senior Loan Facility,
approximately $40 million of the
outstanding principal amount has been assigned to clients and funds
advised by Cohanzick Management, LLC and CrossingBridge Advisors,
LLC ("Cohanzick"). The Company has subsequently repaid $20.0 million to Guggenheim and has agreed to
repay a further $62.7 million on the
completion of the Secondary Sale of certain U.S micro-cap
investments. Cohanzick have agreed, pursuant to an agreement among
lenders, to be subordinated to Guggenheim and it has been agreed
under the Amended Senior Facility that the interest rate payable by
the Company for the loans funded by the new lender willl accrue
interest at a rate of LIBOR + 11.00%. Prior to the new agreement,
due to the fall in the valuation of the Company's real estate
portfolio, the Company had breached the asset cover covenant terms
of the Guggenheim loan. The Company has now secured more
advantageous covenant terms for itself including the asset coverage
covenant being reset at a lower threshold and is now in full
compliance with covenant terms. The terms of the new agreement
require the Company allocate 90% of future realisation proceeds to
the repayment of the Guggenheim balance.
|
|
|
|
|
|
|
31.8.2020 |
|
29.2.2020 |
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
Amortised
cost (US$ drawdown) - 1 March |
|
130,523 |
|
128,838 |
Amortised
cost (Euro drawdown) - 1 March |
|
19,839 |
|
20,389 |
Finance
costs charged to Statement of Comprehensive Income |
|
6,109 |
|
14,293 |
Interest and finance
costs paid |
|
|
|
|
|
|
(7,863) |
|
(12,436) |
Unrealised
currency (loss)/gain on translation of Euro drawdown |
|
1,747 |
|
(722) |
Amortised
cost at period/year end |
|
150,355 |
|
150,362 |
Amortised
cost (US$ drawdown) |
|
128,999 |
|
130,523 |
Amortised
cost (Euro drawdown) |
|
21,356 |
|
19,839 |
|
|
|
|
|
|
|
150,355 |
|
150,362 |
The carrying value of the loans approximates to fair value.
(1) LIBOR rates applied are the
US dollar 3 month rate ($130 million) and the Euro
3-month rate (€18 million).
15. Other Payables
|
|
|
|
|
|
|
31.8.2020 |
|
29.2.2020 |
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
Provision
for tax on dividends received not withheld at source |
|
|
|
523 |
|
523 |
Audit fees |
|
|
|
|
|
|
268 |
|
190 |
Legal fees
provision |
|
|
|
|
|
|
250 |
|
250 |
Directors'
remuneration |
|
|
|
|
|
|
50 |
|
58 |
Other expenses |
|
|
|
|
|
|
237 |
|
204 |
|
|
|
|
|
|
|
1,328 |
|
1,225 |
16. Ordinary shares - Issued
Capital
|
|
|
|
|
|
|
31.8.2020 |
|
29.2.2020 |
|
|
|
|
|
|
|
Number of shares |
|
Number of shares |
Total Ordinary
shares in issue |
|
|
|
|
|
|
77,474,175 |
|
77,474,175 |
The Company's shares trade on the London Stock Exchange's
Specialist Fund Segment.
During the comparative period ended 31
August 2019, the Company bought back 3,192,663 of its own
Ordinary shares as part of a tender offer. The total cost of the
repurchase of the shares was $29.979
million.
17. Commitments
At 31 August 2020 and 29 February 2020, JZCP had the following
financial commitments outstanding in relation to fund
investments:
|
Expected date |
31.8.2020 |
29.2.2020 |
|
of
Call |
US$
'000 |
US$
'000 |
JZI Fund III GP, L.P.
€26,580,957 (29.2.2020: €23,617,789) |
< 2
years |
31,789 |
25,943 |
Orangewood Partners
II-A LP1 |
Over 3
years |
15,404 |
17,247 |
Spruceview Capital
Partners, LLC2 |
< 1
year |
1,900 |
220 |
Igloo Products
Corp |
Over 3
years |
240 |
240 |
CERPI |
|
- |
3,080 |
Suzo Happ Group |
|
- |
2,039 |
|
|
49,333 |
48,769 |
1Post period end, the Company was relieved
of $9.25 million of its total
commitment to the Orangewood Fund. Of the commitments relieved
$6.128 million were outstanding at
the period end. As at the date of this report, JZCP’s outstanding
commitment to the Orangewood Fund was $9.275
million.
2As approved by a shareholder vote on
12 August 2020, JZCP has the ability
to make up to approximately $4.1
million in further commitments to Spruceview, above the
$1.9 million unfunded commitments as
at 31 August 2020.
18. Related Party Transactions
JZAI is a US based company founded by David Zalaznick and John ("Jay") Jordan II, that
provides advisory services to the Company in exchange for
management fees, paid quarterly. Fees paid by the Company to the
Investment Adviser are detailed in Note 10. JZAI and various
affiliates provide services to certain JZCP portfolio companies and
may receive fees for providing these services pursuant to the
Advisory Agreement.
JZCP invests in European micro-cap companies through JZI Fund
III, L.P. (“Fund III”). Previously investments were made via the
EuroMicrocap Fund 2010, L.P. ("EMC 2010"). Fund III and EMC 2010
are managed by an affiliate of JZAI. At 31
August 2020, JZCP's investment in Fund III was valued at
$74.4 million (29 February 2020: $68.9
million). JZCP's investment in EMC 2010 was valued at
$2.9 million (29 February 2020: $2.7
million).
JZCP has invested in Spruceview Capital Partners, LLC on a 50:50
basis with Jay Jordan and
David Zalaznick (or their respective
affiliates). The total amount committed by JZCP to this investment
at 31 August 2020, was $33.5 million with $1.9
million of this amount remaining unfunded and outstanding.
As approved by a shareholder vote on 12
August 2020, JZCP has the ability to make up to
approximately $4.1 million in further
commitments to Spruceview, above the $33.5
million committed as of 31 August
2020. Should this approved capital be committed to
Spruceview, it would be committed on the same 50:50 basis with
Jay Jordan and David Zalaznick (or their respective
affiliates).
JZCP has co-invested with Fund A, Fund A Parallel I, II and III
Limited Partnerships in a number of US micro-cap buyouts. These
Limited Partnerships are managed by an affiliate of JZAI. JZCP
invested in a ratio of 82%/18% with the Fund A entities. At
31 August 2020, the total value of
JZCP's investment in these co-investments was $211.0 million (29
February 2020: $218.7
million). Fund A, Fund A Parallel I, II and III Limited
Partnerships are no longer making platform investments alongside
JZCP and, in the case of Testing Services Holdings, LLC, these
entities have failed to make certain preferred ownership
investments alongside JZCP. As a consequence, the common ownership
interest of the Fund A Partnerships in Testing Services has been
diluted.
Total Directors' remuneration for the six-month period ended
31 August 2020 was $150,000 (31 August
2019: $230,000).
Post period end, following shareholder approval, JZAI Founders
Jay Jordan and David Zalaznick
relieved the Company of $4.25 million
of its commitments to the Orangewood Fund and also a further
$8.64 million being the Company’s
maximum potential commitment to CERPI (the investment fund managed
by Spruceview Capital Partners).
Post period end, the Company announced that it has agreed
pending shareholder approval to sell its interests in certain US
microcap portfolio companies (the "Secondary Sale") to a secondary
fund led by Hamilton Lane Advisors, L.L.C. The Secondary Sale will
be structured as a sale and contribution to a newly formed fund,
JZHL Secondary Fund LP, managed by an affiliate of JZAI.
19. Basic and Diluted Earnings Loss
per Share
Basic loss per share are calculated by dividing the loss for the
period by the weighted average number of Ordinary shares
outstanding during the period.
For the period ended 31 August
2020 the weighted average number of Ordinary shares
outstanding during the period was 77,474,175 (31 August 2019: 80,614,784).
The diluted earnings per share are calculated by considering
adjustments required to the earnings and weighted average number of
shares for the effects of potential dilutive Ordinary shares. The
weighted average of the number of Ordinary shares is adjusted
assuming the conversion of the CULS ("If-converted method").
Conversion is assumed even though at 31
August 2020 and 31 August 2019
the exercise price of the CULS is higher than the market price of
the Company's Ordinary shares and are therefore deemed 'out of the
money'. Earnings are adjusted to remove the fair value loss
recorded of $2,836,000 (31 August 2019: gain of $4,107,000) and finance cost attributable to CULS
$1,445,000 (31
August 2019: $1,515,000).
For the period ended 31 August
2020, the potential conversion of the CULS would have been
anti-dilutive to the total loss per share, therefore the diluted
loss per share is presented as per the basic loss per share
calculation.
20. Contingent Assets
Amounts held in escrow accounts
When investments have been disposed of by the Company, proceeds
may reflect contractual terms requiring that a percentage is held
in an escrow account pending resolution of any indemnifiable claims
that may arise.
At 31 August 2020 and 29 February 2020, the Company has assessed that
the likelihood of the recovery of these escrow accounts cannot be
determined and has therefore disclosed the escrow accounts as a
contingent asset.
As at 31 August 2020 and
29 February 2020, the Company had the
following contingent assets held in escrow accounts which had not
been recognised as assets of the Company:
|
|
|
|
|
|
|
Amount in Escrow |
|
|
|
|
|
|
|
31.8.2020 |
|
29.2.2020 |
|
|
|
|
|
|
|
US$'000 |
|
US$'000 |
Bolder Healthcare
Solutions |
|
|
|
|
|
|
50 |
|
343 |
Triwater Holdings |
|
|
|
|
|
|
309 |
|
644 |
Xpress Logistics (AKA
Priority Express) |
|
|
|
|
|
|
19 |
|
153 |
|
|
|
|
|
|
|
378 |
|
1,140 |
During the period ended 31 August
2020, proceeds of $801,000
(31 August 2019: $3,923,000) were realised and recorded in the
Statement of Comprehensive Income. The prior year end position has
been adjusted for additional potential escrow proceeds of
$39,000 that are now recognised.
21. Subsequent Events
These interim financial statements were approved by the Board on
4 November 2020. Events subsequent to
the period end 31 August 2020 have
been evaluated until this date.
Post period end, the Company announced that it has agreed
pending shareholder approval to sell its interests in certain US
micro-cap portfolio companies (the "Secondary Sale") to a secondary
fund led by Hamilton Lane Advisors, L.L.C. The Secondary Sale will
be structured as a sale and contribution to a newly formed fund,
JZHL Secondary Fund LP, managed by an affiliate of JZAI.
The Company will receive consideration for the Secondary Sale
comprised of: (i) Cash Consideration, being $90 million (less any fees and expenses), subject
to certain adjustments; and (ii) a special limited partner interest
in JZHL Secondary Fund LP.
The value of the Special LP Interest to the Company, following
the execution of the Sale Agreement, should be approximately
$40.0 million. Adding this figure to
the cash consideration of $90 million
(less any fees and expenses) would indicate a write down to the
Company’s net asset value of approximately $38.0 million, when compared against the
aggregate net asset value of the US micro-cap companies at
31 August 2020 of $168.0 million.
Post period end, the Company announced that it has reached
agreement to amend the terms of its existing loan agreement with
Guggenheim. Under the terms of the Amended Senior Loan Facility,
approximately $40 million of the
outstanding principal amount has been assigned to clients and funds
advised by Cohanzick Management, LLC and CrossingBridge Advisors,
LLC. The Company has subsequently repaid $20.1 million to Guggenheim and agreed to repay a
further $67.2 million on the
completion of the Secondary Sale of certain U.S micro-cap
investments.
The new lenders have agreed, pursuant to an agreement among
lenders, to be subordinated to Guggenheim and it has been agreed
under the Amended Senior Facility that the interest rate payable by
the Company for the loans funded by the new lender will accrue
interest at a rate of Libor + 11.00%.The Company has secured more
advantageous covenant terms for itself including the asset coverage
covenant being reset at a lower threshold of 3.5x and is now fully
compliant with all covenants. The terms of the new agreement
require the Company allocate 90% of future realisation proceeds to
the repayment of the Guggenheim balance.
Post period end, the Company completed on the sale of its
Greenpoint property located in Brooklyn,
New York. The Company received approximately $13.6 million for its interest in the site which
approximately corresponds to the carrying value at
31 August 2020.
Company Advisers
Investment Adviser
The Investment Adviser to JZ Capital Partners Limited (“JZCP”)
is Jordan/Zalaznick Advisers, Inc., (“JZAI”) a company beneficially
owned by John (Jay) W Jordan II and David W Zalaznick. The company
offers investment advice to the Board of JZCP. JZAI has offices in
New York and Chicago.
Jordan/Zalaznick Advisers, Inc.
9 West, 57th Street
New York NY 10019
Registered Office
PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3QL
JZ Capital Partners Limited is registered in Guernsey Number
48761
Administrator, Registrar and Secretary
Northern Trust International Fund Administration
Services (Guernsey) Limited
PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3QL
UK Transfer and Paying Agent
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
US Bankers
HSBC Bank USA NA
452 Fifth Avenue
New York NY 10018
(Also provides custodian services to JZ Capital Partners
Limited under the terms of a Custody Agreement
Guernsey Bankers
Northern Trust (Guernsey)
Limited
PO Box 71
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3DA
Independent Auditor
Ernst & Young LLP
PO Box 9
Royal Chambers
St Julian's Avenue
St Peter Port
Guernsey GY1 4AF
UK Solicitors
Ashurst LLP
London Fruit & Wool Exchange
1 Duval Square
London E1 6PW
US Lawyers
Monge Law Firm, PLLC
333 West Trade Street
Charlotte, NC 28202
Mayer Brown LLP
214 North Tryon Street
Suite 3800
Charlotte NC 28202
Winston & Strawn LLP
35 West Wacker Drive
Chicago IL 60601-9703
Guernsey Lawyers
Mourant
Royal Chambers
St Julian's Avenue
St Peter Port
Guernsey GY1 4HP
Financial Adviser and Broker
JP Morgan Cazenove Limited
20 Moorgate
London EC2R 6DA
Useful Information for
Shareholders
Listing
JZCP Ordinary, Zero Dividend Preference ("ZDP") shares and
Convertible Unsecured Loan Stock ("CULS") are listed on the
Official List of the Financial Services Authority of the UK, and
are admitted to trading on the London Stock Exchange
Specialist Fund Segment for listed securities.
The price of the Ordinary shares are shown in the Financial
Times under "Conventional Private Equity" and can also be found at
https://markets.ft.com along with the prices of the ZDP shares and
CULS.
ISIN/SEDOL numbers
|
Ticker
Symbol |
ISIN
Code |
Sedol
Number |
Ordinary shares |
JZCP |
GG00B403HK58 |
B403HK5 |
ZDP (2022) shares |
JZCZ |
GG00BZ0RY036 |
BZ0RY03 |
CULS |
JZCC |
GG00BP46PR08 |
BP46PR0 |
Key Information Documents
JZCP produces Key Information Documents to assist investors'
understanding of the Company's securities and to enable comparison
with other investment products. These documents are found on the
Company's website -
www.jzcp.com/investor-relations/key-information-documents.
Alternative Performance Measures
In accordance with ESMA Guidelines on Alternative Performance
Measures ("APMs") the Board has considered what APMs are included
in the Interim Report and Financial Statements which require
further clarification. An APM is defined as a financial measure of
historical or future financial performance, financial position, or
cash flows, other than a financial measure defined or specified in
the applicable financial reporting framework. APMs included in the
Interim Report and Financial Statements, which are unaudited and
outside the scope of IFRS, are deemed to be as follows:
Total NAV Return
The Total NAV Return measures how the net asset value ("NAV")
per share has performed over a period of time, taking into account
both capital returns and dividends paid to shareholders. JZCP
quotes NAV total return as a percentage change from the start of
the period (one year) and also three-month, three-year, five-year
and seven year periods. It assumes that dividends paid to
shareholders are reinvested back into the Company therefore future
NAV gains are not diminished by the paying of dividends. JZCP also
produces an adjusted Total NAV Return which excludes the effect of
the appreciation/dilution per share caused by the buy back/issue of
shares at a discount to NAV, the result of the adjusted Total NAV
return is to provide a measurement of how the Company's Investment
portfolio contributed to NAV growth adjusted for the Company's
expenses and finance costs. The Total NAV Return for the period
ended 31 August 2020 was-25.1%, which
only reflects the change in NAV as no dividends were paid during
the year. The Total NAV Return for the year ended 29 February 2020 was -38.8%.
Total Shareholder Return (Ordinary
shares)
A measure showing how the share price has performed over a
period of time, taking into account both capital returns and
dividends paid to shareholders. JZCP quotes shareholder price total
return as a percentage change from the start of the period (one
year) and also three-month, three-year, five-year and seven-year
periods. It assumes that dividends paid to shareholders are
reinvested in the shares at the time the shares are quoted ex
dividend. The Shareholder Return for the period ended 31 August 2020 was -65.5%, which only reflects
the change in share price as no dividends were paid during the
year. The Shareholder Return for the year ended 29 February 2020 was -40.7%.
NAV to market price discount
The NAV per share is the value of all the company’s assets, less
any liabilities it has, divided by the number of shares. However,
because JZCP shares are traded on the London Stock Exchange's
Specialist Fund Segment, the share price may be higher or lower
than the NAV. The difference is known as a discount or premium.
JZCP's discount is calculated by expressing the difference between
the period end dollar equivalent share price and the period end NAV
per share as a percentage of the NAV per share.
At 31 August 2020, JZCP's Ordinary
shares traded at £0.89 (29 February
2020: £2.58) or $1.19
(29 February 2020: $3.30) being the dollar equivalent using the year
end exchange rate of £1: $1.34
(29 February 2020 £1: $1.28). The shares traded at a 74% (29 February 2020: 46%) discount to the NAV per
share of $4.60 (29 February 2020: $6.14).
Criminal Facilitation of Tax
Evasion
The Board has approved a policy of zero tolerance towards the
criminal facilitation of tax evasion, in compliance with the
Criminal Finances Act 2017
Non-Mainstream Pooled Investments
From 1 January 2014, the FCA rules
relating to the restrictions on the retail distribution of
unregulated collective investment schemes and close substitutes
came into effect. JZCP's Ordinary shares qualify as an ‘excluded
security’ under these rules and will therefore be excluded from the
FCA’s restrictions which apply to non-mainstream investment
products. Therefore Ordinary shares issued by JZ Capital Partners
can continue to be recommended by financial advisers as an
investment for UK retail investors
Internet Address
The Company: www.jzcp.com
Financial Diary
Results for the year
ended 28 February 2021 |
|
|
|
May 2021 (date to be
confirmed) |
Annual General
Meeting |
|
|
|
June/July 2021 (date
to be confirmed) |
Interim
report for the six months ended 31 August 2021 |
|
November 2021 (date to
be confirmed) |
Payment of Dividends
In the event of a cash dividend being paid, the dividend will be
sent by cheque to the first-named shareholder on the register of
members at their registered address, together with a tax voucher.
At shareholders' request, where they have elected to receive
dividend proceeds in Sterling, the dividend may instead be paid
direct into the shareholder's bank account through the Bankers'
Automated Clearing System. Payments will be paid in US dollars
unless the shareholder elects to receive the dividend in Sterling.
Existing elections can be changed by contacting the Company's
Transfer and Paying Agent, Equiniti Limited on +44 (0) 121 415
7047.
Share Dealing
Investors wishing to buy or sell shares in the Company may do so
through a stockbroker. Most banks also offer this service.
Foreign Account Tax Compliance Act
The Company is registered (with a Global Intermediary
Identification Number CAVBUD.999999.SL.831) under The Foreign
Account Tax Compliance Act ("FATCA").
Share Register Enquiries
The Company's UK Transfer and Paying Agent, Equiniti Limited,
maintains the share registers. In event of queries regarding your
holding, please contact the Registrar on 0871 384 2265, calls to
this number cost 8p per minute from a BT landline, other providers'
costs may vary. Lines are open 8.30 a.m. to
5.30 p.m., Monday to Friday, If calling from overseas+44 (0)
121 415 7047 or access their website at www.equiniti.com. Changes
of name or address must be notified in writing to the Transfer and
Paying Agent.
Nominee Share Code
Where notification has been provided in advance, the Company
will arrange for copies of shareholder communications to be
provided to the operators of nominee accounts. Nominee investors
may attend general meetings and speak at meetings when invited to
do so by the Chairman.
Documents Available for Inspection
The following documents will be available at the registered
office of the Company during usual business hours on any weekday
until the date of the Annual General Meeting and at the place of
the meeting for a period of fifteen minutes prior to and during the
meeting:
(a) the Register of Directors' Interests in the stated capital
of the Company;
(b) the Articles of Incorporation of the Company; and
(c) the terms of appointment of the Directors.
Warning to Shareholders – Boiler Room
Scams
In recent years, many companies have become aware that their
shareholders have been targeted by unauthorised overseas-based
brokers selling what turn out to be non-existent or high risk
shares, or expressing a wish to buy their shares. If you are
offered, for example, unsolicited investment advice, discounted
JZCP shares or a premium price for the JZCP shares you own, you
should take these steps before handing over any money.
· Make sure you get the correct name of
the person or organisation
· Check that they are properly
authorised by the FCA before getting involved by visiting
http://www.fca.org.uk/firms/systems-reporting/register
· Report the matter to the FCA by
calling 0800 111 6768
· If the calls persist, hang up
· More detailed information on this can
be found on the Money Advice Service website
www.moneyadviceservice.org.uk
US Investors
General
The Company's Articles contain provisions allowing the Directors
to decline to register a person as a holder of any class of
ordinary shares or other securities of the Company or to require
the transfer of those securities (including by way of a disposal
effected by the Company itself) if they believe that the person
(a) is a "US person" (as defined in Regulation S under the US
Securities Act of 1933, as amended) and not a "qualified purchaser"
(as defined in the US Investment Company Act of 1940, as amended,
and the related rules thereunder);
(b) is a "Benefit Plan Investor" (as described under
"Prohibition on Benefit Plan Investors and Restrictions on
Non-ERISA Plans" below); or
(c) is, or is related to, a citizen or resident of the United States, a US partnership, a US
corporation or a certain type of estate or trust and that ownership
of any class of ordinary shares or any other equity securities of
the Company by the person would materially increase the risk that
the Company could be or become a "controlled foreign corporation"
(as described under "US Tax Matters" below).
In addition, the Directors may require any holder of any class
of ordinary shares or other securities of the Company to show to
their satisfaction whether or not the holder is a person described
in paragraphs (A), (B) or (C) above.
US Securities
Laws
The Company (a) is not subject to the reporting requirements of
the US Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and does not intend to become subject to such reporting
requirements and (b) is not registered as an investment company
under the US Investment Company Act of 1940, as amended (the "1940
Act"), and investors in the
Company are not entitled to the protections provided by the 1940
Act
Prohibition on
Benefit Plan Investors and Restrictions on Non-ERISA Plans
Investment in the Company by "Benefit Plan Investors" is
prohibited so that the assets of the Company will not be deemed to
constitute "plan assets" of a "Benefit Plan Investor". The term
"Benefit Plan Investor" shall have the meaning contained in 29
C.F.R. Section 2510.3-101, as modified by Section 3(42) of the US
Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and includes (a) an "employee benefit plan" as defined
in Section 3(3) of ERISA that is subject to Part 4 of Title I of
ERISA; (b) a "plan" described in Section 4975(e)(1) of the US
Internal Revenue Code of 1986, as amended (the "Code"), that is
subject to Section 4975 of the Code; and (c) an entity whose
underlying assets include "plan assets" by reason of an employee
benefit plan's or a plan's investment in such entity. For purposes
of the foregoing, a "Benefit Plan Investor" does not include a
governmental plan (as defined in Section 3(32) of ERISA), a non-US
plan (as defined in Section 4(b)(4) of ERISA) or a church plan (as
defined in Section 3(33) of ERISA) that has not elected to be
subject to ERISA.
Each purchaser and subsequent transferee of any class of
ordinary shares (or any other class of equity interest in the
Company) will be required to represent, warrant and covenant, or
will be deemed to have represented, warranted and covenanted, that
it is not, and is not acting on behalf of or with the assets of, a
Benefit Plan Investor to acquire such ordinary shares (or any other
class of equity interest in the Company).
Under the Articles, the directors have the power to require the
sale or transfer of the Company's securities in order to avoid the
assets of the Company being treated as "plan assets" for the
purposes of ERISA.
The fiduciary provisions of laws applicable to governmental
plans, non-US plans or other employee benefit plans or retirement
arrangements that are not subject to ERISA (collectively,
"Non-ERISA Plans") may impose limitations on investment in the
Company. Fiduciaries of Non-ERISA Plans, in consultation with their
advisers, should consider, to the extent applicable, the impact of
such fiduciary rules and regulations on an investment in the
Company.
Among other considerations, the fiduciary of a Non-ERISA Plan
should take into account the composition of the Non- ERISA Plan's
portfolio with respect to diversification; the cash flow needs of
the Non-ERISA Plan and the effects thereon of the illiquidity of
the investment; the economic terms of the Non-ERISA Plan's
investment in the Company; the Non- ERISA Plan’s funding
objectives; the tax effects of the investment and the tax and other
risks associated with the investment; the fact that the investors
in the Company are expected to consist of a diverse group of
investors (including taxable, tax-exempt, domestic and foreign
entities) and the fact that the management of the Company will not
take the particular objectives of any investors or class of
investors into account.
Non-ERISA Plan fiduciaries should also take into account the
fact that, while the Company's board of directors and its
investment adviser will have certain general fiduciary duties to
the Company, the board and the investment adviser will not have any
direct fiduciary relationship with or duty to any investor, either
with respect to its investment in Shares or with respect to the
management and investment of the assets of the Company. Similarly,
it is intended that the assets of the Company will not be
considered plan assets of any Non-ERISA Plan or be subject to any
fiduciary or investment restrictions that may exist under laws
specifically applicable to such Non-ERISA Plans. Each Non-ERISA
Plan will be required to acknowledge and agree in connection with
its investment in any securities to the foregoing status of the
Company, the board and the investment adviser that there is no
rule, regulation or requirement applicable to such investor that is
inconsistent with the foregoing description of the Company, the
board and the investment adviser.
Each purchaser or transferee that is a Non-ERISA Plan will be
deemed to have represented, warranted and covenanted as
follows:
(a) The Non-ERISA Plan is not a Benefit Plan Investor;
(b) The decision to commit assets of the Non-ERISA Plan for
investment in the Company was made by fiduciaries independent of
the Company, the Board, the Investment adviser and any of their
respective agents, representatives or affiliates, which fiduciaries
(i) are duly authorized to make such investment decision and have
not relied on any advice or recommendations of the Company, the
Board, the Investment adviser or any of their respective agents,
representatives or affiliates and (ii) in consultation with their
advisers, have carefully considered the impact of any applicable
federal, state or local law on an investment in the Company;
(c) The Non-ERISA Plan’s investment in the Company will not
result in a non-exempt violation of any applicable federal, state
or local law;
(d) None of the Company, the Board, the Investment adviser or
any of their respective agents, representatives or affiliates has
exercised any discretionary authority or control with respect to
the Non-ERISA Plan’s investment in the Company, nor has the
Company, the Board, the Investment adviser or any of their
respective agents, representatives or affiliates rendered
individualized investment advice to the Non-ERISA Plan based upon
the Non-ERISA Plan’s investment policies or strategies, overall
portfolio composition or diversification with respect to its
commitment to invest in the Company and the investment program
thereunder; and
(e) It acknowledges and agrees that it is intended that the
Company will not hold plan assets of the Non-ERISA Plan and that
none of the Company, the Board, the Investment adviser or any of
their respective agents, representatives or affiliates will be
acting as a fiduciary to the Non-ERISA Plan under any applicable
federal, state or local law governing the Non- ERISA Plan, with
respect to either (i) the Non-ERISA Plan’s purchase or retention of
its investment in the Company or (ii) the management or operation
of the business or assets of the Company. It also confirms that
there is no rule, regulation, or requirement applicable to such
purchaser or transferee that is inconsistent with the foregoing
description of the Company, the Board and the Investment
adviser.
US Tax Matters
This discussion does not constitute
tax advice and is not intended to be a substitute for tax advice
and planning. Prospective holders of the Company's securities must
consult their own tax advisers concerning the US federal, state and
local income tax and estate tax consequences in their particular
situations of the acquisition, ownership and disposition of any of
the Company's securities, as well as any consequences under the
laws of any other taxing jurisdiction.
The Board may decline to register a person as, or to require
such person to cease to be, a holder of any class of ordinary
shares or other equity securities of the Company because of, among
other reasons, certain US ownership and transfer restrictions that
relate to “controlled foreign corporations” contained in the
Articles of the Company. A Shareholder of the Company may be
subject to forced sale provisions contained in the Articles in
which case such shareholder could be forced to dispose of its
securities if the Company’s directors believe that such shareholder
is, or is related to, a citizen or resident of the United States, a US partnership, a US
corporation or a certain type of estate or trust and that ownership
of any class of ordinary shares or any other equity securities of
the Company by such shareholder would materially increase the risk
that the Company could be or become a "controlled foreign
corporation" within the meaning of the Code (a "CFC"). Shareholders
of the Company may also be restricted by such provisions with
respect to the persons to whom they are permitted to transfer their
securities.
In general, a foreign corporation is treated as a CFC if, on any
date of its taxable year, its "10% US Shareholders" collectively
own (directly, indirectly or constructively within the meaning of
Section 958 of the Code) more than 50% of the total combined voting
power or total value of the corporation's stock. For this purpose,
a "10% US Shareholder" means any US person who owns (directly,
indirectly or constructively within the meaning of Section 958 of
the Code) 10% or more of the total combined voting power of all
classes of stock of a foreign corporation or 10% or more of the
total value of shares of all classes of stock of a foreign
corporation. The Tax Cuts and Jobs Act (the “Tax Act”) eliminated
the prohibition on “downward attribution” from non-US persons to US
persons under Section 958(b)(4) of the Code for purposes of
determining constructive stock ownership under the CFC rules. As a
result, the Company’s US subsidiary will be deemed to own all of
the stock of the Company’s non-US subsidiaries held by the Company
for purposes of determining such foreign subsidiaries’ CFC status.
The legislative history under the Tax Act indicates that this
change was not intended to cause the Company’s non-US subsidiaries
to be treated as CFCs with respect to a 10% US Shareholder that is
not related to the Company’s US subsidiary. However, the IRS has
not yet issued any guidance confirming this intent and it is not
clear whether the IRS or a court would interpret the change made by
the Tax Act in a manner consistent with such indicated intent. The
Company's treatment as a CFC as well as its foreign subsidiaries’
treatment as CFCs could have
adverse tax consequences for 10% US Shareholders.
The Company has been advised that it is NOT a passive foreign
investment company ("PFIC") for the fiscal years ended February 2019 and 2018. An analysis for the
financial year ended 29 February 2020
will be undertaken this year. A classification as a PFIC would
likely have adverse tax consequences for US taxpayers.
The taxation of a US taxpayer's
investment in the Company's securities is highly complex.
Prospective holders of the Company's securities must consult their
own tax advisers concerning the US federal, state and local income
tax and estate tax consequences in their particular situations of
the acquisition, ownership and disposition of any of the Company's
securities, as well as any consequences under the laws of any other
taxing jurisdiction.
Investment
Adviser's ADV Form
Shareholders and state securities authorities wishing to view
the Investment Adviser's ADV form can do so by following the link
below:
https://adviserinfo.sec.gov/firm/summary/160932