TIDMAEFS
RNS Number : 4323Z
Alcentra European Fltng Rate Inc Fd
10 January 2020
Alcentra European Floating Rate Income Fund Limited
Market Commentary
The Fund was up +0.71% (gross) in December, slightly behind both
the Credit Suisse Western European Leveraged Loan Index ("CS
WELLI") (hedged to GBP) which returned 0.85%[1], and the Credit
Suisse Western European Leveraged Loan Index excluding USD which
returned 0.74%[2] for the month.
The European Loan market saw a strong return for the month with
average prices increasing by c.0.5pt[3]. This was driven by better
macro and geopolitical headlines leading to improved sentiment
generally and better appetite for loans, particularly for lower
priced and more cyclical credits. The market also benefitted from
the low level of loan issuance coupled with strong demand,
predominantly from ramping and recently priced CLOs.
The market for loan issuance quietened in December as we
approached the traditional holiday break. Volumes for the month
stood at EUR0.8bn[4], -51% year on year, with only a small number
of add-on deals from existing issuers pricing. This leaves full
year volumes at EUR80.9bn[5]. While this is -16% on the prior year,
mainly due to lower M&A driven issuance (-35%), it still
remains robust overall. The main driver of issuance for the year
was M&A which accounted for 54% of the volume, with
refinancings accounting for 34% and recapitalisations at 12%[6].
For the month, average new issue spreads stood at 383bps[7] at a
price of 99.63 (c.395bps 3 year Discount Margin)[8], although with
relatively low volumes overall this is not a reflection of overall
market spreads. We expect a busy start to 2020, with capital market
desks indicating a decent volume of deals to come in Q1. This is
supported by the S&P forward pipeline which has now increased
to EUR9.6bn, an increase of almost EUR4bn in the month and
c.EUR3.8bn higher than the same period last year[9].
The CLO new issue market also saw a slower month in December
with only two deals pricing for a total of EUR0.8bn[10]. While this
is low in absolute terms, it is ahead of the prior year, which saw
no issuance in the month. This leaves full year issuance volumes at
EUR29.8bn[11], a new annual record and +9% ahead of last year.
While the CLO arbitrage remains difficult, the market has remained
resilient throughout the year with steady quarterly issuance, a
testament to the market's robustness. We expect this trend to
continue in 2020, providing solid support for European Leveraged
Loans.
The S&P default rate for the 12 months ending December
remained flat at 0.44%. While this is up from the 0.00% recorded
earlier in the year it remains well below the long term
average[12]. The S&P distress ratio (share of performing
issuers trading below 80) ended the year at 2.93%, a solid
tightening from the wide of 4.26% seen in October, as the strong
market conditions in the month lead to a rise in loan prices,
particularly lower priced assets[13].
After a strong end to the year, driven by lower issuance and
strong demand, we expect a more balanced start to 2020. Demand
should remain strong, supported by a solid pipeline of CLOs looking
to price, as well as demand from unlevered funds. At the same time
we do expect a pick-up in issuance, with a relatively full pipeline
of deals expected. As such we expect the market to remain broadly
balanced and are forecasting a coupon return for the year. While
there remains a risk of volatility from broader financial markets
we would expect the European Loan market to continue to remain more
resilient than that of comparable asset classes.
Portfolio Manager's Commentary
As with the prior month the top performing credits in December
were generally assets that recovered after seeing weakness in
previous periods. The largest positive mover was a chemicals
company that was up +4.61% on the back of better investor sentiment
around the name and on no new credit news. The second best
performing credit was a telecommunications service provider that
was up +4.40% after positive headlines emerged indicating support
from a large shareholder.
The worst performing credit was a funeral service provider that
was down -8.62% after weaker results led to selling pressure. While
this issuer's results were weaker, we believe management have a
plan in place to improve performance and that the selling pressure
is overdone. The second weakest credit was an agricultural products
company that was -6.69% lower after a ratings downgrade led to
selling pressure in the name.
S
For further information please contact:
Alcentra Limited
Simon Perry +44 20 7367 5272
Factsheet
An accompanying factsheet which includes the information above
as well as wider commentary on the investments made by the Fund can
be found on the Fund's website www.aefrif.com.
Background Information
Alcentra European Floating Rate Income Fund Limited, a Guernsey
Authorised Closed-Ended Collective Investment Scheme, regulated by
the Guernsey Financial Services Commission and listed on the Main
Market of the London Stock Exchange invests predominantly in senior
secured loans and senior secured bonds issued by European
corporates and targets returns (net of fees and expenses) of 7% to
10% per annum. The Fund targets a dividend yield of 5.5 pence per
GBP1.00 issue price of the initial offering of shares in the Fund
for the first full year of investment, paid quarterly.
Important Notices
Neither the contents of the Company's website nor the contents
of any website accessible from hyperlinks on the Company's website
(or any other website) is incorporated into, or forms part of, this
announcement.
This report is aimed at existing investors in the fund and has
not been approved by any competent regulatory authority.
The information contained in this document is given as at the
date of its publication (unless otherwise marked) and is based on
past performance. Past performance is not a guide to future
performance and the value of investments and investment value can
go down as well as up. The future performance of the Fund will
depend on numerous factors which are subject to uncertainty.
Including changes in market conditions and interest rates and
exchange rates and in response to other economic, political or
financial developments, investment return and principal value of
your investment will fluctuate, so that when your investment is
sold, the amount you receive could be less than what you originally
invested. Past or current yields are not indicative of future
yields.
This document does not contain any representations, does not
constitute or form part of any solicitation of any offer to sell or
invitation to purchase any securities of the Fund, nor shall it or
any part of it or the fact of its distribution form the basis of or
be relied upon in connection with any contract therefor, and does
not constitute a recommendation regarding the securities of the
Fund. Nothing in this document should be construed as a profit or
dividend forecast.
This document includes statements that are, or may be deemed to
be, "forward-looking statements". These forward-looking statements
include, without limitation, statements typically containing words
such as "believes", "considers", "intends", "expects",
"anticipates", "targets", "estimates", "will", "may", or "should"
and words of similar import. The forward-looking statements are
based on the beliefs, assumptions and expectations of future
performance and market development of Alcentra Limited
("Alcentra"), taking into account information currently available
and made as at the date of this document. These can change as a
result of many possible events or factors, not all of which are
known or within Alcentra's control. If a change occurs, the Fund's
business, financial condition, liquidity and results of operations
may vary materially from those expressed in the forward-looking
statements. By their nature, forward-looking statements involve
known and unknown risks and uncertainties. Forward-looking
statements are not guarantees of future performance. Alcentra
qualifies any and all of the forward-looking statements by these
cautionary factors. Please keep this cautionary note in mind while
reading this document.
An investment in the Fund is suitable only for investors who are
capable of evaluating the merits and risks of such an investment
and who have sufficient resources to be able to bear losses (which
may equal the whole amount invested) that may result from such an
investment. An investment in the Fund should constitute part of a
diversified investment portfolio. Accordingly, typical investors in
the Fund are expected to be sophisticated and/or professional
investors who understand the risks involved in investing in the
Fund.
Alcentra gives no undertaking to provide recipients of this
document with access to any additional information, or to update
this document or any additional information, or to correct any
inaccuracies in it which may become apparent including in relation
to any forward-looking statements. The distribution of this
document shall not be deemed to be any form of commitment on the
part of Alcentra to proceed with any transaction.
This document is issued by Alcentra Limited, which is authorised
and regulated in the United Kingdom by the Financial Conduct
Authority and whose registered address is at 160 Queen Victoria
Street, London, United Kingdom, EC4V 4LA.
BNY Mellon is the corporate brand of The Bank of New York Mellon
Corporation and may also be used as a generic term to reference the
Corporation as a whole or its various subsidiaries generally.
(c) 2019 The Bank of New York Mellon Corporation. All rights
reserved. Trademarks and logos belong to their respective
owners.
(1) Portfolio information is based upon Alcentra's calculations,
31 December 2019. Portfolio holdings and statistics are subject to
change without notice
(2) Credit Suisse Western European Leveraged Loan Index, All
Denom, hedged to GBP, 31 December 2019
(3) Credit Suisse Western European Leveraged Loan Index, Non
USD, hedged to GBP, 31 December 2019
(4,9) Credit Suisse Western European Leveraged Loan Index, All
Denom, hedged to EUR, 31 December 2019
(5,6,7) S&P Global Market Intelligence, LCD Global
Interactive Loan Volume Report, 31 December 2019
(8) S&P Global Market Intelligence, LCD European Weekly, 19
December 2019
(10) S&P Global Market Intelligence, December Pipeline, 31
December 2019
(11,12) S&P Global Market Intelligence, CLO Historical
Stats, 2 January 2020
(13) S&P Default Ratio, 31 December 2019
(14) S&P Distress Ratio, 31 December 2019
[1] Credit Suisse Western European Leveraged Loan Index, All
Denom, hedged to GBP, 31 December 2019
[2] Credit Suisse Western European Leveraged Loan Index, Non
USD, hedged to GBP, 31 December 2019
[3] Credit Suisse Western European Leveraged Loan Index, All
Denom, hedged to EUR, 31 December 2019
[4] S&P Global Market Intelligence, LCD Global Interactive
Loan Volume Report, 31 December 2019
[5] S&P Global Market Intelligence, LCD Global Interactive
Loan Volume Report, 31 December 2019
[6] S&P Global Market Intelligence, LCD Global Interactive
Loan Volume Report, 31 December 2019
[7] S&P Global Market Intelligence, LCD European Weekly, 19
December 2019
[8] Credit Suisse Western European Leveraged Loan Index, All
Denom, hedged to EUR, 31 December 2019
[9] S&P Global Market Intelligence, December Pipeline, 31
December 2019
[10] S&P Global Market Intelligence, CLO Historical Stats, 2
January 2020
[11] S&P Global Market Intelligence, CLO Historical Stats, 2
January 2020
[12] S&P Default Ratio, 31 December 2019
[13] S&P Distress Ratio, 31 December 2019
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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