TIDMAEFS
RNS Number : 2941F
Alcentra European Fltng Rate Inc Fd
06 March 2020
Alcentra European Floating Rate Income Fund Limited
Market Commentary
The Fund was up +0.83% (gross) in January, ahead of both the
Credit Suisse Western European Leveraged Loan Index ("CS WELLI")
(hedged to GBP) which returned 0.61%(2) , and the Credit Suisse
Western European Leveraged Loan Index excluding USD which returned
0.71%(3) for the month.
The European Loan market saw a solid start to the year with
prices moving +0.125-0.25pts higher on the back of strong investor
demand. While this demand has resulted in a tightening in new issue
loan spreads and some repricings, it has also meant that investor
support for secondary assets has remained robust and driven prices
higher(4) .
Issuance conditions remained strong in the month, with
EUR17.2bn(5) of European Loans pricing in January. While this is a
large headline number, this figure does include refinancings, which
saw an uptick in activity for the month. Adjusting for these
refinancings results in net issuance of c.EUR4bn(6) , which while
lower in absolute terms, remains robust overall and includes larger
deals from Froneri and Cobham. For the month, average new issue
spreads fell to 345bps at a price of 99.75 (c.354bps 3 year
Discount Margin)(7) , on the back of strong demand. We expect the
market to remain busy in the coming months, with the S&P
forward pipeline remaining strong at EUR8bn(8) .
The CLO new issue market saw a solid start to the year with 3
deals pricing for EUR1.3bn(9) . While the tighter spreads on
European Leveraged Loans means the arbitrage remains difficult, we
have also seen CLO liabilities' costs coming down, particularly for
mezzanine tranches. This should continue to support CLO issuance
going forward, and, along with demand from unlevered funds, means
we expect the strong market conditions to continue.
The S&P default rate for the 12 months ending January
remained flat at 0.44%(10) . While this is up from the 0.00%
recorded at the same time last year, it remains well below the long
term average. The S&P distress ratio (share of performing
issuers trading below 80) stood at 2.58%, tightening further from
2.93%10 seen at the end of last year as the strong market
conditions in the month led to a rise in loan prices, including
lower priced assets.
Global news headlines were dominated by the Coronavirus outbreak
during the month. Equity markets were weaker with the news, whereas
European Loans were relatively stable given less direct exposure to
the Chinese economy. We have been active in looking beyond the
simple Chinese economic risk to which borrowers have manufacturing
and production footprints in China, as well the potential impact on
travel and leisure demand if there are disruptions. For now we
believe the impact on European Loan issuers remains manageable
given limited direct exposure to Chinese demand or production,
however we will continue to monitor the situation as it
evolves.
In summary, we have had a decent start to the year with robust
issuance along with strong investor demand. This has resulted in
some spread tightening and has also helped drive the secondary
market tighter. While the CLO arbitrage remains difficult, the
tightening in liability spread should help support demand from CLOs
as the year progresses, and unlevered fund demand remains
strong.
(1) Portfolio information is based upon Alcentra's calculations,
31 January 2020. Portfolio holdings and statistics are subject to
change without notice
(2,4) Credit Suisse Western European Leveraged Loan Index, All
Denom, hedged to GBP, 31 January 2020
(3) Credit Suisse Western European Leveraged Loan Index, Non
USD, hedged to GBP, 31 January 2020
(5,6) S&P Global Market Intelligence, LCD Global Interactive
Loan Volume Report, 31 January2020 2019
(8) S&P Global Market Intelligence, December Pipeline,
January 2020
(9) S&P Global Market Intelligence, CLO Historical Stats, 3
February 2020
(10) S&P Default Ratio, 31 January 2020
(11) S&P Distress Ratio, 31 January 2020
Portfolio Manager's Commentary
The largest positive mover in the Fund was a dental services
business that was up +4.20%, the second best performing credit was
a physical server business that was up +3.80%. Both credits were
recovering from year end weakness.
The worst performing credit was a large operator of petrol and
service stations down -2.09% as sentiment softened around news of a
potential acquisition for the firm's global expansion plans. The
second worst performer was a hygienic paper products producer down
- 1.64% on the back of negative concerns around 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.
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END
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