TIDMAEFS
RNS Number : 7694G
Alcentra European Fltng Rate Inc Fd
19 March 2020
Alcentra European Floating Rate Income Fund Limited
Market Commentary
The Fund was down -0.47% (gross) in February, ahead of both the
Credit Suisse Western European Leveraged Loan Index ("CS WELLI")
(hedged to GBP) which was down -0.95%(2) , and the Credit Suisse
Western European Leveraged Loan Index excluding USD which was down
-0.65%(3) for the month.
While performance in the month started on a strong footing with
solid new loan issuance and demand, the market ended the month
c.-1pt lower(4) . This was driven by broader financial market
concerns around the potential impact of the COVID-19 coronavirus.
As we have seen in other periods of volatility, European Loans
outperformed other assets classes (US Loans -1.8pts(5) , EU HY
-2.1pts(6) and US HY -2.1 pts(7) ) with the market benefitting from
its lower global trade exposure and longer term investor base.
Headline issuance from the month was strong at EUR10.6bn(8) ,
however it was really a month of two halves. While the first two
weeks saw strong issuance driven by M&A (60% of volumes) and
refinancings/repricings (40%)(9) , we did see volumes slow towards
the end of the month, due to both a lighter pipeline as well as
concerns around the global impact of the coronavirus. For the
month, average new issue spreads rose to 364bps at a price of 99.66
(c.378bps 3 year DM)(10) , mainly driven by the market conditions
later in the month and aided by a reduction in repricings after a
number of requests got pulled. Looking forward we expect a decline
in opportunistic issuance to lead to lower new issue volumes
overall, however underwritten deals are likely to continue to come,
potentially offering attractive investment opportunities. The
S&P forward pipeline currently stands at EUR6bn(11) , mainly
comprising underwritten deals.
CLO formation was also strong in the month with 8 deals pricing
for EUR3.3bn(12) , with the market benefitting from improving
arbitrage conditions due to tighter liability spreads earlier in
the month. Looking forward there is potential for new CLO issuance
to slow down as the broader market trade-off is also likely to lead
to higher CLO liability cost, although there is still a sizeable
pipeline of warehouse looking to come to market.
The S&P default rate for the 12 months ending February
remained stable at 0.44%(13) and still well below the long term
average. The S&P distress ratio (share of performing issuers
trading below 80) stood at 2.52%, tightening further from 2.58%(14)
seen at the end of January.
Looking forward, global markets remain focussed on the potential
impact from the coronavirus outbreak. We continue to engage with
management teams on the potential impact of the virus to understand
both the supply side and demand side risks for issuers, but for now
it remains too early to definitively evaluate the direct impact on
results. However we will continue to manage sector and credit
specific risk and exposures within the Fund in light of the
evolving situation. While there is scope for support from both
monetary and fiscal policy actions, we do expect volatility to
remain. Despite this we expect the European Loan Market to remain
relatively better insulated than other asset classes given its more
defensive nature, lower global trade exposure and longer term
investor base.
(1) Portfolio information is based upon Alcentra's calculations,
29 February 2020. Portfolio holdings and statistics are subject to
change without notice
(2,4,10) Credit Suisse Western European Leveraged Loan Index,
All Denom, hedged to GBP, 28 February 2020
(3) Credit Suisse Western European Leveraged Loan Index, Non
USD, hedged to GBP, 28 February 2020
(5) Credit Suisse Leveraged Loan Index, 28 February 2020
(6) BofA ICE European High Yield Index (HP00), 28 February
2020
(7) BofA ICE US High Yield Index (H0A0), 28 February 2020
(8,9) S&P Global Market Intelligence, LCD Global Interactive
Loan Volume Report, 28 February 2020
(11) S&P Global Market Intelligence, December Pipeline,
February 2020
(12) S&P Global Market Intelligence, CLO Historical Stats, 3
February 2020
(13) S&P Default Ratio, 28 February 2020
(14) S&P Distress Ratio, 28 February 2020
Portfolio Manager's Commentary
The top performing credits for the Fund in February were names
that had been weaker in prior periods but saw improved outlook and
traded higher in the period. The top credit, a pharmaceutical
company, traded +4.6% higher after the company was refinanced and
the debt was repaid at par. The second best credit, a funeral
service provider, was +3.6% higher on better results and investor
sentiment around the name.
The weaker names were generally those with some risk from the
COVID-19 coronavirus outbreak as well as credits with name specific
news. The weakest credit was a financial services provider, which
was -6.1% lower on the news of new potential M&A and marginally
weaker results. The second weakest credit was a manufacturing
supplier which was -4.0% lower on the back of COVID-19
Headlines.
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
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owners.
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END
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