QWIL Queen's Wk

RNS Number:0481U
Queen's Walk Investment Limited
30 March 2007




30 March 2007

Queen's Walk Investment Limited ("Queen's Walk")
Trading Update - Withdrawal of Dividend Target Guidance

Queen's Walk intends to publish its accounts for the fiscal year ended 31 March 
2007 in mid-June.

In the 6 March 2007 announcement of its results for the quarter ended 31 
December 2006, the Company noted the impact on its investment portfolio of the 
market discount rates and implied cumulative loss rates that were being observed 
in the US sub-prime market and changes to borrower prepayment patterns in the UK 
market.  Market volatility has been sustained and the Company's investment 
manager, Cheyne Capital Management (UK) LLP ("Cheyne Capital") continues to 
observe changing loss and prepayment behaviour in these markets.

Current market conditions have made it considerably more difficult for the 
Company to ascribe a fair value to its investments, as  market movements have 
been driven not only by changes to loss or prepayment assumptions but also by 
the market simply attributing a higher discount rate to mortgage-backed 
investments. The Company has observed that several markets are pricing implied 
losses at levels substantially higher than historical averages, with little or 
no consistency between the cash and synthetic markets and market indices. The 
distinction between pricing assumptions and changes in discount factors is a 
particularly important one in the case of Queen's Walk, as a change to loss or 
prepayment assumptions on the Company's investments (as opposed to market 
discount factors that have no impact on projected cash flows) will affect the 
effective yield recognised for a particular asset.  Changes to the effective 
yield of an asset will have an impact on the distributable profits of the 
Company This impact is exacerbated by the fact that the Company's accounting 
policy requires any changes to effective yield to be corrected (or "caught up") 
in the current period for all prior periods.

Consequently, even in circumstances where the value of an asset remains 
relatively stable over its life, changes to the effective yield for that asset 
recorded in any given quarter can have a disproportionate impact on the 
distributable profit of the Company for that quarter (particularly where 
effective yields are changed on assets that have been held for some time).   
The Company is thus subject to potentially significant swings in distributable 
profits, and the dividends it can pay out of those profits, where it makes 
changes to loss and prepayment assumptions.  In the 6 March announcement, the 
Company noted that increased discount rates and implied future cumulative loss 
rates had been observed in the US sub-prime market and that these increased 
rates might have a material adverse effect on the valuation of the Company's US 
assets for the quarter ended 31 March 2007.  The Company also stated, however, 
that it did not expect that any significant adjustments would need to be made to 
distributable profits or the amount of future dividends as a result of valuation 
adjustments to its US investments (which account for approximately 12% of the 
investment portfolio).

Since the time of that announcement, there has been a significant further
increase in market projected cumulative loss rates for US sub-prime mortgage
loans. Although these market implied loss rates are higher than loss rates
currently being observed on the Company's US assets or which have been observed
historically, the Company has decided to increase its cumulative loss
assumptions on US assets in order to reflect these higher market expectations.
While Cheyne Capital continues to evaluate developments in the US sub-prime
market, it has determined that the adjustment of assumptions to current market
projections and the impact of these adjustments on income recognised in respect
of the Company's US investments in prior periods may have a material adverse
impact on the Company's distributable profits for the quarter ended 31 March
2007.


The Company also noted in the 6 March announcement that performance data
received in respect of UK investments had reflected an upturn in prepayment
rates by borrowers whose mortgages had reverted from discounted rates to
fully-indexed mortgage interest rates. It was noted that Cheyne Capital was
continuing to assess the impact of this prepayment activity and its impact on
the effective yield and valuation of particular assets. For this reason, the
Company provided a range for its dividend target for the quarter ended 31 March
2007. Given the continued uncertainty with respect to borrower prepayment
behaviour in the UK, Cheyne Capital believes that further adjustments will be
required to its prepayment assumptions and the effective yields that have been
booked for the Company's UK investments. These adjustments are likely to further
reduce the Company's distributable profits for the quarter ended 31 March 2007.


For these reasons, the Company is withdrawing its dividend target of Euro0.22 to
Euro0.25 per share for the quarter ended 31 March 2007 and its dividend target of
not less than Euro1.00 for the financial year ended 31 March 2008. The Company will
revisit dividend guidance and whether it is in a position to provide further
guidance on target dividends going forward in the course of finalising its
results for the financial year ended 31 March 2007.


As noted above, to the extent the market value of an asset is driven by changes
to loss or prepayment assumptions, this will give rise to an adjustment that
affects distributable profits. To the extent the market value is driven by
market discount rates that have no impact on projected cash flows, the valuation
adjustment will have no impact to distributable profits but will reduce the net
asset value of the Company. Anticipated changes to the valuation of the
Company's US assets and certain assets in its UK investment portfolio may have a
material adverse impact on the Company's net asset value, which was Euro9.90 per
share as 31 December 2006. However, the shares of Queen's Walk are already
trading at a significant discount to the net asset value of the Company as at
that date.

The Company is continuing its efforts to seek the approval of shareholders, in
accordance with the "whitewash" procedures of the City Code on Takeovers and
Mergers (the "Code"), to effect repurchases of shares in circumstances where, as
a result of such repurchases, the holdings of Cheyne ABS Opportunities Funds LP
(which holds 44.1% of the Company's shares) and parties deemed by the Code to be
acting in concert with it may increase. While Company is seeking to obtain this
approval as soon as possible, there may be a delay in the Company's ability to
deliver the requisite information circular to shareholders if the Company's
accounts for the fiscal year ended 31 March 2007 are required to be included in
that circular. Until the Company obtains this approval, Cheyne Capital will seek
to manage the Company's investment portfolio with this objective in mind.


There will be a conference call for investors at 2pm London time today. It can
be accessed by dialling +44 (0)20 7138 0819 or +1 718 354 1361 from the US ten
minutes prior to the scheduled call; please reference Queen's Walk Investment
Limited Trading Update. A replay of the call will be available for two weeks
from today by accessing +44 (0)20 7806 1970 or +1 718 354 1112 from the US using
passcode 9674937#.


For further information please contact:

Investor Relations:
Caroline Villiers +44 20 7153 1521

Cheyne Capital:
Andrea Bonafe +44 20 7031 7480


About the Company:

Queen's Walk Investment Limited is a Guernsey-incorporated investment company
listed on the London Stock Exchange. The Company's investment objective is to
preserve capital and to provide stable returns to shareholders in the form of
quarterly dividends. To achieve this, Queen's Walk invests primarily in a
diversified portfolio of subordinated tranches of asset backed securities,
including the unrated "equity" or "first loss" residual income position
typically retained by the banks or other financial institutions which have
originated the loan assets that collateralise a securitisation transaction. The
Company makes such investments where its investment manager, Cheyne Capital
Management (UK) LLP, considers the coupon or cashflows from the investment to be
attractive relative to the credit exposure of the underlying asset collateral.
The Company believes that its investment focus provides equity investors with
exposure to a relatively new investment opportunity in this asset class.


The content of 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". They include the statement regarding the target aggregate dividend. By
their nature, forward-looking statements involve risks and uncertainties and
readers are cautioned that any such forward-looking statements are not
guarantees of future performance. The Company's actual results and performance
may differ materially from the impression created by the forward-looking
statements. The Company undertakes no obligation to publicly update or revise
forward-looking statements, except as may be required by applicable law and
regulation (including the Listing Rules).


Any target dividends are based on certain assumptions as to future events, which
may not prove to be realised. Due to the uncertainty surrounding these future
events, the targets are not intended to be and should not be regarded as profits
or earnings forecasts. There can be no assurance that these targets will be
achieved or that the Company will be able to pay dividends at the target levels
or at all. The payment of any target dividends is subject to the Company
generating sufficient profits or having sufficient retained earnings and there
can be no assurance that this will be the case. Any target dividends that the
Company may announce from time to time should not be regarded as providing any
guidance regarding the level of the Company's distributable net income for any
period.   The Company may revise its dividend policy from time to time.




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

END
TSTSEMEDUSWSELD

Queen's Walk Investment (LSE:QWIL)
Historical Stock Chart
From Jun 2024 to Jul 2024

Queen's Walk Investment (LSE:QWIL)
Historical Stock Chart
From Jul 2023 to Jul 2024