TIDMAEFS
RNS Number : 5062P
Alcentra European Fltng Rate Inc Fd
10 June 2020
Alcentra European Floating Rate Income Fund Limited
Market Commentary
The Fund was up 2.83% (gross) in May, behind both the Credit
Suisse Western European Leveraged Loan Index ("CS WELLI") (hedged
to GBP) which was up 3.44%(1) , and the Credit Suisse Western
European Leveraged Loan Index excluding USD which was up 3.19%(2)
for the month.
The strong market conditions seen in April continued into May,
driven by the firm technicals of solid demand from unlevered
funds/SMAs and CLOs as well as limited new loan issuance. Sentiment
also continues to improve on the back of easing of lock-down
measures and generally better than expected company earnings. Loan
prices recovered another c.3pts in the month, leaving the average
index price at c.91.50, c.12 points above the lows seen in late
March(3) . This leaves year to date returns for the CS WELLI exc
USD at -5.17%(4) . After outperforming other asset classes in
April, European Loan returns were more in line in May.
Improving market conditions in the month led to a pick-up in
loan issuance activity with EUR2.3bn of new loans pricing, albeit
still below normal market levels. The deals that priced came at
attractive terms with an average spread of 428bps and price of
97.75(5) and were generally from higher rated/quality issuers
looking to extend maturities (e.g. Nielsen and Micro Focus). We
also saw companies access the market to improve liquidity (e.g.
APCOA). Looking forward we do think there is continued scope for
companies to access the primary loan market, for opportunistic
reasons (maturities and liquidity) but also banks looking to
syndicate some of the pre-virus underwritten deals at attractive
terms (e.g. CEP, Boels).
While CLO arbitrage conditions remain challenged, we do continue
to see new deals price with four new CLOs pricing for EUR1.0bn of
total volume in May(6) . As in April, these deals have generally
been of smaller size and shorter duration, and driven by the desire
to term out warehouse positions. While arbitrage conditions are
improving, a standard 4-year reinvestment period deal still does
not work in the current market and this will likely limit near term
new formation. Demand from unlevered funds and SMAs continues to be
robust, driven by more supportive fund flows.
The 12 month S&P default rate for April was restated from
0.42% to 1.39% and remained stable at 1.39% for the month of May(7)
. The increase in April was driven by two events, a technical
default from Holland and Barrett due to debt buybacks and a
restructuring in Swissport. The Fund does not own investments in
either issuer. We expect the default rate to rise from this level,
with S&P forecasting an 8% default rate for the European Loan
market, although the final figure will depend on the length and
severity of the outbreak and resulting economic weakness. The
S&P distress ratio, a measure of names in the market trading
below 80 continues to improve on better market sentiment and now
sits at 10.9%, down from 18.3% at the end of April and a peak of
over 50%(8) .
We continue to focus on managing the portfolio and reducing
positions in names with downside risk given the current market
environment. Looking forward we expect the current technicals of
strong demand and lower issuance as well as the high level of
monetary and fiscal support to underpin the market. While the
potential for heightened volatility remains, particularly
idiosyncratic volatility due to company specific news, the
reopening of economies is positive for sentiment and we are seeing
attractive opportunities to put money to work in the new-issue
primary market.
(1) Credit Suisse Western European Leveraged Loan Index, All
Denom, hedged to GBP, 31 May 2020
(2) Credit Suisse Western European Leveraged Loan Index, Non
USD, hedged to GBP, 31 May 2020
(3,4) Credit Suisse Western European Leveraged Loan Index, Non
USD, hedged to EUR, 31 May 2020
(5) S&P Global Market Intelligence, LCD Global Interactive
Loan Volume Report, 31 May 2020
(6) S&P Global Market Intelligence, CLO Historical Stats, 2
June 2020
(7) S&P Default Ratio, 31 May 2020
(8) S&P Distress Ratio, 31 May 2020
Portfolio Manager's Commentary
The top performing credits in the Fund during May were generally
names where outlook has improved on easing of lock-down measures.
The top performing credit was a European holiday park business,
which was up 35.50% on the back of better liquidity and improved
outlook for the summer season. The second best performing credit
was a Dutch-based Dental care provider which was up 15.89% on the
back of improved investor sentiment around the name.
The credit with the largest decline was a leading French
retailer, down -3.35% on the back of weaker outlook for the
business. The second weakest credit was a Spanish university
business which was down -1.11% on no new credit news and limited
trading volumes.
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) 2020 The Bank of New York Mellon Corporation. All rights
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END
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