TIDMCDO
RNS Number : 5554R
Carador PLC
30 April 2009
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Carador plc
30 April 2009
Annual Report for the
Nine Months Ended 31 December 2009
Carador plc ("Carador" or the Company) has today released its Annual Report and
Consolidated Audited Financial Statements for the period from 1 April 2008 to 31
December 2008. The Annual Report and Consolidated Audited Financial Statements
will shortly be available from the Company's website www.carador.co.uk and for
inspection at the UK Listing Authority's Document Viewing Facility, which is
located at:
Financial Services Authority
25 The North Colonnade
Canary Wharf
London E14 5HS
The financial information set out in this announcement is an extract from the
Annual Report and Consolidated Audited Financial Statements of the Company for
the period from 1 April 2008 to 31 December 2008 and does not constitute the
Company's statutory accounts.
Enquiries:
Paul Noonan
Northern Trust Investor Services (Ireland) Limited +353 1 542
2000
CHAIRMAN'S REPORT
It is a pleasure to present the consolidated annual report and financial
statements for Carador plc ("Carador" or the "Company") for the nine month
period from 1 April 2008 to 31 December 2008.
2008 was a difficult year. The first quarter saw the initial multibillion dollar
losses (including Citibank - $18bn, UBS - $18bn, HSBC - $17bn), fraud (Société
Générale) and the collapse of Bear Stearns. This was followed by monoline
insurers losing their AAA ratings, bank downgrades and large capital raising by
banks and other financial institutions (Fannie Mae). The negative events
continued for the rest of the year, most notably with the bankruptcy of Lehman
Brothers, the collapse of the Icelandic banking system, the acquisition of
Merrill Lynch by Bank of America, the crisis at Washington Mutual, the takeover
of Fannie Mae and Freddie Mac and State support for banks. Cuts in interest
rates, recapitalizations, government packages and regulatory and accounting
support were not enough to turn the tide.
The impact of the credit crisis on the Collateralised Loan Obligations ("CLO")
market in the period was evident. AAA CLO spreads widened from +150 bps at the
beginning of the period, to +500 bps on 31 December 2008(1). CLO volumes fell
85% to $14 billion with no new transactions launched since mid-September
2008(2).Despite this turmoil, CLOs, as a result of their term financing, were
not sellers of bank debt; however, a quarter of the loan market was owned by
hedge funds, many of whom sold a large portion of these loans to reduce their
leverage. The effect on the underlying leveraged loan market was immediate with
the S&P/LSTA Leveraged Loan Index generating an unprecedented -29.10% total
return in 2008, underperforming unsecured high yield bonds (the ML US High Yield
Master II Index generated a -26.39% return in the same period).
Defaults increased markedly in 2008, highlighting that the liquidity and
confidence crisis was filtering through to the real economy. The issuer weighted
loan default rate increased from 0.26% at the end of 2007 to a six-year high of
4.35% as at 31 December 2008, while the dollar-weighted default rate increased
from 0.24% to 3.75%(3). S&P LCD carried out a survey of portfolio managers at
the end of 2008 who predicted an average default rate of 10% in 2009, with a
worst case scenario of 15% and a positive scenario of 7%.
To put these rates in context, and based on year end prices, investors are
anticipating that 24% of leveraged loans, as represented by the S&P/LSTA US
Leveraged Loan 100 Index, will default annually, assuming a 70% recovery (15%
annual default rate assuming 50% recovery)(4).
(1) Source: JP Morgan 05/01/09 "Global CDO Weekly - Market Snapshot"
(2) Source: Standard and Poor's Leveraged Commentary and Data ("S&P LCD")
(3) Source: S&P LCD News, 5 January 2009
(4)Estimated long term average spread based on S&P LCD estimate of average price
for the S&P/LSTA US Leveraged Loan 100 Index (63.71%) and nominal
spread (+2.44%) as of 31 December 2008. Assumes 5 year maturity for the loans.
Long term default rate based on S&P LCD "Leveraged
Carador's fundamental performance has been positive, with an estimated 1.6%
cumulative default rate in the underlying loan portfolios since inception versus
6.77% for the market(5).
During the period, the Company appointed GSO Capital Partners International LLP,
a subsidiary of The Blackstone Group LP ("GSO/Blackstone") as Investment Manager
of the Company following the transfer of the key executives of Washington Square
with responsibility for the portfolio of the Company to GSO/Blackstone and, as a
result, increased the depth of resources available to the investment management
team.
In addition, the Company completed the amalgamation of Carador Guernsey Limited
(a wholly-owned subsidiary of the Company) and Abingdon Investment Limited
("Abingdon") which became effective on 9 December 2008. In accordance with the
terms of the amalgamation, 6,159,881 new euro shares and 83,779,318 new US
dollar shares were issued to Abingdon shareholders. Following the amalgamation,
the Directors resolved to change the accounting reference date of the
Company from 31 March to 31 December.
Lending Quarterly Review 3Q08", Lagging 12-months Default Rate by Number of
Issuers and loss given default based on Moody's "Default Study 1920-2007";
Average Corporate Debt Recovery Rates (measured by ultimate recoveries),
1987-2007 measured by issuer-weighted ultimate recoveries. From 1987-2007, the
average recovery of Loans was 82.04%. Assumes 30% future loss severity
(5) Source: Standard and Poor's LCD. Cumulative default rate for Carador
estimated as the arithmetic average of default rates for Carador investments as
of
7 January 2009
CHAIRMAN'S REPORT (continued)
In order to take advantage of the fundamental dislocation in the market and
reduce the risk in the Company's portfolio, the Board announced on 13 February
2009 the proposals to amend the Company's investment objective and investment
policy to permit investment in the Senior Notes of CDOs which are collateralised
by senior secured bank loans. Shareholders approved this change at the
Extraordinary General Meeting on 9 March 2009. The Investment Manager believes
that in the current market environment, Senior Notes, as more senior tranches in
the CDO structure, may provide an attractive return with a lower risk profile.
The returns currently available from many Senior Notes approach that originally
envisaged for the equity and mezzanine tranches at the launch of the Company. In
addition, as Senior Notes rank ahead of the equity and mezzanine tranches, in
the event of an increase in the default rate of the underlying bank loans, the
Senior Notes will benefit from the diversion of cashflows from the junior
tranches, thereby providing additional downside protection. The Investment
Manager believes that because of their lower risk profile, they are an
attractive addition to a diversified portfolio. The Company made its first AAA
investment in April 2009.
The Company has generated a net loss of EUR15,355,195 for the period ended 31
December 2008. The Board declared interim distributions of EUR0.055 per euro
share on 27 October 2008 relating to the 6 month period ended 30 September 2008
and EUR0.0015 per euro share (US$0.0019 per US dollar share) on 15 January 2009
relating to the quarter ended 31 December 2008. The interim distribution
declared in January was the first quarterly distribution payable by the Company
and the first distributions following the amalgamation of the Company.
The net asset value per euro share decreased by EUR0.21 in the period, which
equates to a decrease of 31% since 31 March 2008. The net asset value per USD
share was US$0.65 at 31 December 2008. As at 31 December 2008, the Company's
portfolio had exposure to investments managed by 24 CLO managers. The investment
portfolio is broadly diversified across managers, asset classes and geographies
in order to minimise risk.
In December, the Board was pleased to announce the appointment of Edward H.
D'Alelio and Nicholas Moss as non-executive directors, both of whom were
directors of Abingdon Investment Limited.
The date of the third Annual General Meeting of the Company will be announced at
a later date.
Werner Schwanberg
Chairman
30 April 2009
RESPONSIBILITY STATEMENT
Responsibility Statement
The Directors are responsible for preparing the consolidated financial
statements in accordance with applicable Irish law and those International
Financial Reporting Standards ("IFRSs") as adopted by the European Union.
Irish company law requires the Directors to prepare consolidated financial
statements for each financial period, which give a true and fair view of the
state of affairs of the Group and Company and the profit or loss of the Group
and Company for that period. In preparing those consolidated financial
statements, the Directors are required to:
* select suitable accounting policies and then apply them consistently;
* prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Group and Company will continue in business;
* present information, including accounting policies, in a manner that provides
relevant, reliable, comparable and understandable information;
* provide additional disclosures when compliance with the specific requirements in
IFRSs is insufficient to enable users to understand the impact on particular
transactions, other events and conditions on the entity's financial position and
financial performance; and
* state that the Group and Company has complied with IFRSs as adopted by the
European Union, subject to any material departures disclosed and explained in
the financial statements.
The Directors confirm that they have complied with the above requirements in
preparing the consolidated financial statements. The Directors confirm that the
consolidated financial statements contain a fair review of the events during the
period and a description of the principle risks and uncertainties for the next
twelve months.
The Directors are responsible for keeping proper books of account which disclose
with reasonable accuracy at any time the financial position of the Group and
Company and to enable them to ensure that the consolidated financial statements
are prepared in accordance with Companies Acts 1963 to 2006 and the Listing
Rules of the UK Listing Authority. They are also responsible for safeguarding
the assets of the Group and Company and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
In preparing these consolidated financial statements for the nine months to 31
December 2008 the Directors confirm that, to the best of our knowledge:
(a)the consolidated financial statements, prepared in accordance with
International Financial Reporting Standards, give a true and fair view of
the assets, liabilities, financial position and profit or loss of the Group and
Company and the undertakings included in the consolidation taken as a whole;
(b)the directors' report, chairman's report and investment manager's review
include a fair review of the development and performance of the business and the
position of the Group and Company and the undertakings included in the
consolidation taken as a whole, together with a description of the principal
risks and uncertainties that they face.
INVESTMENT MANAGER'S REVIEW
For the period ended 31 December 2008
Market Overview:
The Chairman's report provides a clear overview of the major events which
affected financial markets in 2008. The impact of the fundamental and technical
turmoil in the leveraged loan and securitization markets has been extreme.
We estimate that over 80% of the primary market demand for leveraged loans in
2007 was due to collateralized loan obligations ("CLO") and hedge funds. A large
number of hedge funds used funding subject to mark to market triggers, resulting
in forced liquidations as the market fell in 2008, and created a downward spiral
in prices. Additional redemptions, estimated by Citibank to have reached between
$300 billion and $900 billion, created additional pressure. Sales triggered by
the collapse of several banks and the significant backlog of new issues present
at the beginning of the year met, as a result, with no demand, creating
additional pressure on prices. As a result, the average bid for the S&P/LSTA US
Leveraged Loan 100 index fell to 66.63%(6) as at 31 December 2008, implying a
14.6% annual default rate, assuming 50% recovery (based on Moody's Default Study
1920-2007; the average loan recovery rate, measured by ultimate recoveries,
between 1987 and 2007 was 82.04%). As a comparison, the average high-yield
flow-name bond bid was 60.97% on 23 December 2008. The dislocation between the
implied default and recovery rates in the secured and unsecured markets
highlights the technical pressure suffered in 2008 by the loan market and the
increasing importance of liquidity premia in the market.
Term funded cash flow CLOs showed their structural strengths. Lower prices in
their portfolio did not trigger any forced selling of the underlying loans
although the secondary market for the different tranches of CLOs reflected the
stress and technical problems in the CLO market. Spreads for CLO AAA bonds
widened to +500 bps at the period end, from +145 at the beginning of April 2008.
The traditional buyers (banks and SIVs represented 92% of demand(7)) became
forced sellers in a bid-less market. Similar dynamics were experienced by lower
rated CLO tranches.
In addition to the seismic changes in the price of liquidity, actual and
expected fundamental risks are being priced in. The rate of loan defaults
increased markedly in 2008 (4.35% issuer weighted, 3.75% by principal amount). A
combination of extremely poor economic environment, lack of financing available
and aggressive financings are likely to result in one of the largest speculative
grade default rates ever recorded in 2009. According to S&P LCD, the leveraged
loan market suffered its highest default rate (8.2%) in 2000, and the high yield
bond market experienced a record 12.5% default rate in 1991. Moody's "Corporate
Default and Recovery Rates, 1920-2007" study identifies the all time high annual
issuer-weighted corporate default rate for speculative grade issuers at 15.39%
in 1933. The second highest year was 1932 with 10.81%. At the end of 2008, S&P
LCD surveyed portfolio managers in the US to ascertain their expectations for
default and recovery rates in 2009. The average prediction for defaults in 2009
was 10% with an average rate for a worst and best case scenario of 15% and 7%
respectively.
Despite the increasing defaults, CLO equity generated attractive cash flows in
2008. The key risk for the junior tranches of CLOs in 2009 is the possibility of
cash flow diversion to either purchase additional collateral or to repay senior
tranches. This will be driven by their over-collateralization test ("OC test",
non-defaulted assets divided by rated liabilities). The numerator of the OC test
is based on the notional value of the portfolio (hence its independence from
mark to market volatility). If the OC test is breached, the CLO will divert cash
flows in order to potentially cure it. The cash flows may be used to purchase
additional loans (increasing the OC numerator) or to repay senior debt
(decreasing the OC denominator).
The risk of breaching OC tests in 2009 will be driven by credit losses in the
portfolio and their exposure to CCC rated assets.
(6) Source: S&P LCD News. As of 23 December 2008, last reading for the year
(7) Source: Bank of America, November 2008, "Opportunities in Structured Credit
Trading"
INVESTMENT MANAGER'S REVIEW (Continued)
For the period ended 31 December 2008
Credit losses will not only be a result of the higher expected defaults but also
a result of the recovery rates for defaulted assets. CLO default rates have
often been below the market's given the involvement of a manager not seeking the
highest total return plays in the design and monitoring of the portfolio and the
CLO's concentration limits and diversification requirements. We expect
significant dispersion in terms of default rates for specific CLOs, particularly
in the US where the broader loan universe allows managers to implement their
credit views more selectively. Similarly, we expect a wide range of recovery
values for loans, as a result of more aggressive capital structures, lack of
debtor in possession financing ("DIP") and acquisition finance, and the
historically large number of issuers funded exclusively through loans. Moodys,
for example, expects that the average expected ultimate recovery rate on US
first lien senior secured bank loans will be 68% (versus an actual historical
average of 87%)(8). An additional factor to take into account, from an OC test
perspective, is that the recovery rate for calculation purposes is generally
estimated as the post-default trading price for the asset. As we mentioned
before, current market prices have been affected by a dramatic increase in
liquidity premia, which is likely to result in lower estimated recoveries.
Historically, 30 day post-default recoveries have been 75% of ultimate
recoveries (Moody's 30 day post-default recoveries for loans 1982-1997 was
65.52%(9)). Current market prices for CCC rated assets also highlight the
potential for recoveries below historical averages. We believe that the
expectation of lower recoveries is justified by fundamental factors (lack of DIP
funding, scarcity of funding for potential private equity or industry buyers and
adjusted valuations reflecting lower earnings and multiples). As in the case of
defaults, we expect a very high dispersion between specific issuers.
In addition, CLOs normally define a maximum "CCC basket" in the 5-10% range. If
the percentage of CCC rated loans in the portfolio increases above that limit,
the excess has to be marked to market (the actual price calculation can differ
from deal to deal). This implies that the numerator used to calculate
overcollateralization tests ("OC") is reduced (CCC names would be treated as par
assets otherwise). Concerns about the downgrade of loans to CCC were partly
based on a report published by S&P reviewing the liquidity and covenant
situation of US companies which highlighted how the disruption in the capital
markets is likely to result in a large increase in defaults through 2010. The
report highlighted the dangers of covenant breaches. Although these can be
waived and negotiated by lenders, avoiding default, the key risk is that rating
agencies take an aggressive approach to downgrading companies which find
themselves in this position or who undertake exchange offers (through the
concept of "selective default"). We saw a significant increase in the "CCC
buckets" in the second half of 2008. According to JP Morgan(10), the range of
CCC exposure for a sample of over 500 CLOs was 7.1% in the first week of January
2009, up from 4.1% at the end of July 2008. We expect significant
differentiation between managers and transactions. The JP Morgan study showed a
0% to 19% range.
Unfortunately managers usual ability to manage around deteriorating credits has
been constrained by lack of liquidity and by structural issues. CLO portfolios
have strict diversification requirements which limit the exposure to single
names and sectors. This limits the exposure to problematic industries but, at
the same time, makes it difficult for a manager to completely avoid sectors.
These risks make the choice of CLO managers key. In addition to their ability to
design fundamentally strong portfolios in the context of CLO constraints and
access appropriate collateral, the ability to trade or work out problematic
assets has the potential to avoid triggering or facilitate the curing of OC
breaches. Trading assets requires a strong understanding of the CLO structure
and market dynamics. CLOs will normally be subject to "discount obligation"
provisions, stating that assets purchased at a deep discount to par (normally
80-85%) cannot be considered "par" assets for OC test calculations. These
discount obligations are priced at purchase price. The rationale for this clause
was to prevent a manager from improving the OC test by purchasing
credit-impaired assets at discounts. According to S&P(11) "At that time, the
market consensus was that the 80% threshold was a reasonable proxy for
distinguishing credit-impaired loans from performing loans". Unfortunately, at
the end of December 2008, even the liquid Markit LCDX index was trading below
80%.
(8)Moody's, "Strong Loan Issuance in Recent Years Signals Low Recovery Prospects
for Loans and Bonds of Defaulted U.S. Corporate Issuers", June 2008
(9)Moody's, "Corporate Default and Recovery Rates, 1920-2007", February 2008
(10)Global CDO Weekly Market Snapshot, 12 January 2009
(11) S&P, "A Guide To Overcollateralization Tests And 'CCC' Rating Haircuts In
U.S. CLOs", December 2008
INVESTMENT MANAGER'S REVIEW (Continued)
For the period ended 31 December 2008
This severely constrains the manager's ability to trade the portfolio. In the
past, a loan trading below 80% could safely be considered problematic, and this
constraint prevented managers from taking down the quality of the portfolio
while building OC test par. Given current average market prices, the unintended
consequence of the constraint is that a CLO manager is not incentivized to sell
loans trading below 80% (the OC test would suffer the realized loss), to
purchase discount obligations (which will be marked at purchase price, not par,
for OC test purposes). Although S&P has issued some constructive comments in
this respect, changes are likely to require approval from all CLO tranches and
this is likely to highlight the different priorities among noteholders, with
AAAs potentially benefiting from a breach of the test which may bring forward
principal repayment.
Carador - Performance Highlights
In light of the market conditions set out above, Carador's euro share NAV
decreased over the period to EUR0.4919 per share at the period end. As at 31
December 2008, the US dollar class NAV per share was US$0.6243. Carador's shares
closed at EUR0.4250 and US$0.6000, a 13.60% and 3.89% discount to the NAV
respectively as at 31 December 2008.
The successful amalgamation of Carador's wholly owned subsidiary, Carador
Guernsey Limited, with Abingdon Investment Limited in December 2008 resulted in
a larger portfolio, a significant cash balance and additional diversity as well
as a larger shareholder base. It also resulted in the creation of a US $ share
class.
Abingdon added one position following the publication of the prospectus at the
end of September. We believe that this transaction, rated BB, is backed by a
strong portfolio and, in addition, benefits from structural features which may
result in par prepayments of principal in the short to medium term.
Outlook for the Coming Year
Although we remain cautious in the near term about future volatility, we believe
that current market conditions offer a unique opportunity for a Company able to
invest with a medium term horizon. Carador took a conservative approach in the
second half of the year and ended the year with a 23% cash balance which can be
deployed in 2009 to generate extremely attractive risk adjusted and absolute
returns.
In addition, since shareholders approved the amendment to the investment
objective and investment policy at the EGM on 9 March 2009 Carador is now able
to take advantage of investment opportunities across the full rating CLO
spectrum. We believe that in the current market environment these more senior
tranches in the CDO structure represent an attractive risk return. The return
nears that originally envisaged for the more junior tranches but with lower risk
as the securities are more senior in the capital structure. In addition these
notes have additional upside in the event of an increase in the underlying bank
loan's default rate, due to their current discounted price and the potential
principal prepayment at par if defaults of CCC rated assets in the underlying
portfolio exceed certain limits. The Senior Notes usually rated AAA or AA show
resilient returns across all scenarios. Even in a depression scenario (50%
cumulative defaults over 3 years and 35% recovery on senior secured loans)
expected returns are positive. The Company made its first AAA investment in
April, in the A2 tranche of GECLT 06-2, backed by a portfolio of senior secured
loans serviced by GE Capital Loan Services. This transaction was purchased at a
discount to par and, given its structure, has started to repay principal in this
tranche at par. Since it was purchased, the tranche's principal factor has
decreased from 88.99% to 63.42%, generating a capital gain for the Company for
the value of the discounted purchase price.
We believe the Company is well positioned to take advantage of the ultimate
recovery in the financials markets.
GSO Capital Partners International LLP
30 April 2009
COMPANY BALANCE SHEET
As at 31 December 2008
+------------+---+------------------------------------------------+-------+--------------+
| 31 March | | | | 31 December |
| 2008 | | | | 2008 |
+------------+---+------------------------------------------------+-------+--------------+
| EUR | | |Notes | EUR |
+------------+---+------------------------------------------------+-------+--------------+
| | | | | |
+------------+---+------------------------------------------------+-------+--------------+
| | | Assets | | |
+------------+---+------------------------------------------------+-------+--------------+
| 3,278,746 | | Cash and cash equivalents | 2,5 | 162,243 |
+------------+---+------------------------------------------------+-------+--------------+
| 409,377 | | Amounts due from brokers | 2, 7 | 909,377 |
+------------+---+------------------------------------------------+-------+--------------+
| 908,811 | | Interest receivable | 2 | 1,079,064 |
+------------+---+------------------------------------------------+-------+--------------+
| 55,537 | | Derivative financial instruments |2, 11 | 680,057 |
+------------+---+------------------------------------------------+-------+--------------+
| 29,496,338 | | Financial assets at fair value through profit | 3 | 53,036,009 |
| | | or loss | | |
+------------+---+------------------------------------------------+-------+--------------+
| - | | Investment in subsidiary at fair value through |3, 14 | 12,311,214 |
| | | profit or loss | | |
+------------+---+------------------------------------------------+-------+--------------+
| 34,148,809 | | Total Assets | | 68,177,964 |
+------------+---+------------------------------------------------+-------+--------------+
| | | | | |
+------------+---+------------------------------------------------+-------+--------------+
| | | Liabilities | | |
+------------+---+------------------------------------------------+-------+--------------+
| 19,690 | | Operating expenses payable | 4 | 1,723,840 |
+------------+---+------------------------------------------------+-------+--------------+
| 122,012 | | Audit fee payable | 4 | 188,325 |
+------------+---+------------------------------------------------+-------+--------------+
| 28,384 | | Investment management fee payable | 4 | 94,059 |
+------------+---+------------------------------------------------+-------+--------------+
| 19,233 | | Administration fee payable | 4 | 19,660 |
+------------+---+------------------------------------------------+-------+--------------+
| 5,918 | | Custodian fee payable | 4 | 6,375 |
+------------+---+------------------------------------------------+-------+--------------+
| - | | Derivative financial instruments |2, 11 | 892,415 |
+------------+---+------------------------------------------------+-------+--------------+
| 195,237 | | Liabilities (excluding amounts attributable to | 2,924,674 |
| | | participating shareholders) | |
+------------+---+--------------------------------------------------------+--------------+
| | | | | |
+------------+---+------------------------------------------------+-------+--------------+
| 33,953,572 | | Net Assets attributable to participating | | 65,253,290 |
| | | shareholders | | |
+------------+---+------------------------------------------------+-------+--------------+
| | | | | |
+------------+---+------------------------------------------------+-------+--------------+
| 0.6787 | | Net Asset Value per participating EUR share | 18 | 0.4661 |
+------------+---+------------------------------------------------+-------+--------------+
| N/A | | Net Asset Value per participating $ share | 18 | 0.6480 |
+------------+---+------------------------------------------------+-------+--------------+
These financial statements were authorised and approved for issue by the
Directors on 30 April 2009 and signed on their behalf by:
Werner Schwanberg Adrian Waters
Director Director
The accompanying notes form an integral part of the financial statements.
CONSOLIDATED BALANCE SHEET
As at 31 December 2008
+-------------+------------------------------------------------+-------+---------------+
| 31 March | | | 31 December |
| 2008 | | | 2008 |
+-------------+------------------------------------------------+-------+---------------+
| EUR | |Notes | EUR |
+-------------+------------------------------------------------+-------+---------------+
| | | | |
+-------------+------------------------------------------------+-------+---------------+
| | Assets | | |
+-------------+------------------------------------------------+-------+---------------+
| 3,278,746 | Cash and cash equivalents | 2,5 | 8,146,587 |
+-------------+------------------------------------------------+-------+---------------+
| 409,377 | Amounts due from brokers | 2, 7 | 909,377 |
+-------------+------------------------------------------------+-------+---------------+
| 908,811 | Interest receivable | 2 | 2,223,882 |
+-------------+------------------------------------------------+-------+---------------+
| 55,537 | Derivative financial instruments |2, 11 | 680,057 |
+-------------+------------------------------------------------+-------+---------------+
| 29,496,338 | Financial assets at fair value through profit | 3 | 252,811,063 |
| | or loss | | |
+-------------+------------------------------------------------+-------+---------------+
| 34,148,809 | Total Assets | | 264,770,966 |
+-------------+------------------------------------------------+-------+---------------+
| | | | |
+-------------+------------------------------------------------+-------+---------------+
| | Liabilities | | |
+-------------+------------------------------------------------+-------+---------------+
| 19,690 | Operating expenses payable | 4 | 1,772,542 |
+-------------+------------------------------------------------+-------+---------------+
| 122,012 | Audit fee payable | 4 | 188,325 |
+-------------+------------------------------------------------+-------+---------------+
| 28,384 | Investment management fee payable | 4 | 361,920 |
+-------------+------------------------------------------------+-------+---------------+
| 19,233 | Administration fee payable | 4 | 19,660 |
+-------------+------------------------------------------------+-------+---------------+
| 5,918 | Custodian fee payable | 4 | 23,422 |
+-------------+------------------------------------------------+-------+---------------+
| - | Coupon note interest payable | 3 | 1,049,054 |
+-------------+------------------------------------------------+-------+---------------+
| - | Derivative financial instruments |2, 11 | 892,415 |
+-------------+------------------------------------------------+-------+---------------+
| - | Financial liabilities at fair value through | 3 | 190,107,679 |
| | profit or loss | | |
+-------------+------------------------------------------------+-------+---------------+
| 195,237 | Liabilities (excluding amounts attributable to | 194,415,017 |
| | participating shareholders) | |
+-------------+--------------------------------------------------------+---------------+
| | | | |
+-------------+------------------------------------------------+-------+---------------+
| 33,953,572 | Net Assets | | 70,355,949 |
+-------------+------------------------------------------------+-------+---------------+
| | | | |
+-------------+------------------------------------------------+-------+---------------+
| - | Minority Interest | 14 | 5,102,659 |
+-------------+------------------------------------------------+-------+---------------+
| | | | |
+-------------+------------------------------------------------+-------+---------------+
| 33,953,572 | Net Assets attributable to participating | | 65,253,290 |
| | shareholders | | |
+-------------+------------------------------------------------+-------+---------------+
| | | | |
+-------------+------------------------------------------------+-------+---------------+
| 0.6787 | Net Asset Value per participating EUR share | 18 | 0.4661 |
+-------------+------------------------------------------------+-------+---------------+
| N/A | Net Asset Value per participating $ share | 18 | 0.6480 |
+-------------+------------------------------------------------+-------+---------------+
| | | | |
+-------------+------------------------------------------------+-------+---------------+
These financial statements were authorised and approved for issue by the
Directors on 30 April 2009 and signed on their behalf by:
Werner Schwanberg Adrian Waters
Director Director
The accompanying notes form an integral part of the financial statements.
COMPANY INCOME STATEMENT
For the period ended 31 December 2008
+---------------+---+-------------------------------------------+-------+--+---------------+
| Year ended | | | | | Nine months |
| | | | | | ended |
+---------------+---+-------------------------------------------+-------+--+---------------+
| 31 March | | | | | 31 December |
| 2008 | | | | | 2008 |
+---------------+---+-------------------------------------------+-------+--+---------------+
| EUR | | |Notes | | EUR |
+---------------+---+-------------------------------------------+-------+--+---------------+
| | | | | | |
+---------------+---+-------------------------------------------+-------+--+---------------+
| | | Income | | | |
+---------------+---+-------------------------------------------+-------+--+---------------+
| 776,003 | | Dividend income | 2 | | 89,056 |
+---------------+---+-------------------------------------------+-------+--+---------------+
| 5,358,043 | | Interest income | 2 | | 4,936,805 |
+---------------+---+-------------------------------------------+-------+--+---------------+
| 56,462 | | Net unrealised (loss)/gain on derivative | 11 | | (267,895) |
| | | financial instruments | | | |
+---------------+---+-------------------------------------------+-------+--+---------------+
| 2,178,374 | | Net realised (loss)/gain on derivative | 11 | | (3,293,088) |
| | | financial instruments | | | |
+---------------+---+-------------------------------------------+-------+--+---------------+
| - | | Net unrealised loss on foreign currency | | | (990,322) |
+---------------+---+-------------------------------------------+-------+--+---------------+
| (16,444,373) | | Net unrealised loss on financial assets | 3 | | (11,523,370) |
| | | and financial liabilities designated at | | | |
| | | fair value through profit or loss | | | |
+---------------+---+-------------------------------------------+-------+--+---------------+
| (696,580) | | Net realised gain/(loss) on financial | 3 | | 119,580 |
| | | assets and financial liabilities | | | |
| | | designated at fair value through profit | | | |
| | | or loss | | | |
+---------------+---+-------------------------------------------+-------+--+---------------+
| (8,772,071) | | Total Operating Loss | | | (10,929,234) |
+---------------+---+-------------------------------------------+-------+--+---------------+
| | | | | | |
+---------------+---+-------------------------------------------+-------+--+---------------+
| | | Expenses | | | |
+---------------+---+-------------------------------------------+-------+--+---------------+
| (415,237) | | Investment management fee |4, 10 | | (291,425) |
+---------------+---+-------------------------------------------+-------+--+---------------+
| (175,817) | | Operating expenses | 4 | | (546,552) |
+---------------+---+-------------------------------------------+-------+--+---------------+
| (110,764) | | Directors' fees | 4 | | (164,949) |
+---------------+---+-------------------------------------------+-------+--+---------------+
| (78,000) | | Administration fee | 4 | | (58,767) |
+---------------+---+-------------------------------------------+-------+--+---------------+
| (157,762) | | Audit fee | 4 | | (188,325) |
+---------------+---+-------------------------------------------+-------+--+---------------+
| (24,000) | | Custodian fee | 4 | | (18,408) |
+---------------+---+-------------------------------------------+-------+--+---------------+
| (12,070) | | Bank interest expense | | | - |
+---------------+---+-------------------------------------------+-------+--+---------------+
| - | | Write-off of Goodwill | 13 | | (406,160) |
+---------------+---+-------------------------------------------+-------+--+---------------+
| (973,650) | | Total Expenses | | | (1,674,586) |
+---------------+---+-------------------------------------------+-------+--+---------------+
| | | | | | |
+---------------+---+-------------------------------------------+-------+--+---------------+
| (9,745,721) | | Loss Attributable to Participating | | | (12,603,820) |
| | | Shareholders | | | |
+---------------+---+-------------------------------------------+-------+--+---------------+
| | | | | | |
+---------------+---+-------------------------------------------+-------+--+---------------+
| | | Financing costs | | | |
+---------------+---+-------------------------------------------+-------+--+---------------+
| (7,053,525) | | Distributions paid to participating | 20 | | (2,751,375) |
| | | shareholders | | | |
+---------------+---+-------------------------------------------+-------+--+---------------+
| (16,799,246) | | Decrease in net assets attributable to | | | (15,355,195) |
| | | holders of redeemable participating | | | |
| | | shares | | | |
+---------------+---+-------------------------------------------+-------+--+---------------+
| | | | | | |
+---------------+---+-------------------------------------------+-------+--+---------------+
| | | Earnings/(losses) per share | | | |
+---------------+---+-------------------------------------------+-------+--+---------------+
| (EUR0.19) | | Basic and diluted earnings/(losses) per | 17 | | (EUR0.27) |
| | | share | | | |
+---------------+---+-------------------------------------------+-------+--+---------------+
| EUR0.14 | | Distribution per share | 20 | | EUR0.055 |
+---------------+---+-------------------------------------------+-------+--+---------------+
These financial statements were authorised and approved for issue by the
Directors on 30 April 2009 and signed on their behalf by:
Werner Schwanberg Adrian Waters
Director Director
The accompanying notes form an integral part of the financial statements.
CONSOLIDATED INCOME STATEMENT
For the period ended 31 December 2008
+---------------+---------------------------------------------+-------+----+----------------+
| Year ended | | | | Nine months |
| | | | | ended |
+---------------+---------------------------------------------+-------+----+----------------+
| 31 March | | | | 31 December |
| 2008 | | | | 2008 |
+---------------+---------------------------------------------+-------+----+----------------+
| EUR | |Notes | | EUR |
+---------------+---------------------------------------------+-------+----+----------------+
| | | | | |
+---------------+---------------------------------------------+-------+----+----------------+
| | Income | | | |
+---------------+---------------------------------------------+-------+----+----------------+
| 776,003 | Dividend income | 2 | | 89,056 |
+---------------+---------------------------------------------+-------+----+----------------+
| 5,358,043 | Interest income | 2 | | 5,837,155 |
+---------------+---------------------------------------------+-------+----+----------------+
| 56,462 | Net unrealised (loss)/gain on derivative | 11 | | (267,895) |
| | financial instruments | | | |
+---------------+---------------------------------------------+-------+----+----------------+
| 2,178,374 | Net realised (loss)/gain on derivative | 11 | | (3,293,088) |
| | financial instruments | | | |
+---------------+---------------------------------------------+-------+----+----------------+
| - | Net unrealised loss on foreign currency | | | (990,322) |
+---------------+---------------------------------------------+-------+----+----------------+
| (16,444,372) | Net unrealised loss on financial assets and | 3 | | (10,578,179) |
| | financial liabilities designated at fair | | | |
| | value through profit or loss | | | |
+---------------+---------------------------------------------+-------+----+----------------+
| (696,581) | Net realised (loss)/gain on financial | 3 | | 119,580 |
| | assets and financial liabilities designated | | | |
| | at fair value through profit or loss | | | |
+---------------+---------------------------------------------+-------+----+----------------+
| (8,772,071) | Total Operating Loss | | | (9,083,693) |
+---------------+---------------------------------------------+-------+----+----------------+
| | | | | |
+---------------+---------------------------------------------+-------+----+----------------+
| | Expenses | | | |
+---------------+---------------------------------------------+-------+----+----------------+
| (415,237) | Investment management fee |4, 10 | | (400,971) |
+---------------+---------------------------------------------+-------+----+----------------+
| (175,817) | Operating expenses | 4 | | (569,213) |
+---------------+---------------------------------------------+-------+----+----------------+
| (110,764) | Directors' fees | 4 | | (164,949) |
+---------------+---------------------------------------------+-------+----+----------------+
| (78,000) | Administration fee | 4 | | (60,701) |
+---------------+---------------------------------------------+-------+----+----------------+
| (157,762) | Audit fee | 4 | | (188,325) |
+---------------+---------------------------------------------+-------+----+----------------+
| (24,000) | Custodian fee | 4 | | (25,379) |
+---------------+---------------------------------------------+-------+----+----------------+
| (12,070) | Bank interest expense | | | - |
+---------------+---------------------------------------------+-------+----+----------------+
| - | Coupon note interest expense | 3 | | (576,681) |
+---------------+---------------------------------------------+-------+----+----------------+
| - | Write-off of Goodwill | 13 | | (406,160) |
+---------------+---------------------------------------------+-------+----+----------------+
| (973,650) | Total Expenses | | | (2,392,379) |
+---------------+---------------------------------------------+-------+----+----------------+
| | | | | |
+---------------+---------------------------------------------+-------+----+----------------+
| (9,745,721) | Net Loss for the period | | | (11,476,072) |
+---------------+---------------------------------------------+-------+----+----------------+
| | | | | |
+---------------+---------------------------------------------+-------+----+----------------+
| | Financing costs | | | |
+---------------+---------------------------------------------+-------+----+----------------+
| (7,053,525) | Distributions paid to participating | 20 | | (2,751,375) |
| | shareholders | | | |
+---------------+---------------------------------------------+-------+----+----------------+
| | | | | |
+---------------+---------------------------------------------+-------+----+----------------+
| (16,799,246) | Decrease in net assets | | | (14,358,518) |
+---------------+---------------------------------------------+-------+----+----------------+
| | Attributable to: | | | |
+---------------+---------------------------------------------+-------+----+----------------+
| - | Redeemable participating shareholders | | | (14,227,447) |
+---------------+---------------------------------------------+-------+----+----------------+
| - | Minority interest | | | (131,071) |
+---------------+---------------------------------------------+-------+----+----------------+
| | | | | |
+---------------+---------------------------------------------+-------+----+----------------+
| | Earnings/(losses) per share | | | |
+---------------+---------------------------------------------+-------+----+----------------+
| (EUR0.19) | Basic and diluted earnings/(losses) per | 17 | | (EUR0.25) |
| | share | | | |
+---------------+---------------------------------------------+-------+----+----------------+
| EUR0.14 | Dividend per share | | | EUR0.055 |
+---------------+---------------------------------------------+-------+----+----------------+
| | | | | |
+---------------+---------------------------------------------+-------+----+----------------+
These financial statements were authorised and approved for issue by the
Directors on 30 April 2009 and signed on their behalf by:
Werner Schwanberg Adrian Waters
Director Director
The accompanying notes form an integral part of the financial statements.
COMPANY STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO PARTICIPATING
SHAREHOLDERS
For the period ended 31 December 2008
+-------------------------------------+-------+----------------+---------------+---------------+
| | | | Retained | |
| | | | | |
+-------------------------------------+-------+----------------+---------------+---------------+
| | Notes | Participating | Earnings | Total |
| | | Shares | | |
+-------------------------------------+-------+----------------+---------------+---------------+
| | | EUR | EUR | EUR |
+-------------------------------------+-------+----------------+---------------+---------------+
| Balance at 20 February 2006 | | - | - | - |
+-------------------------------------+-------+----------------+---------------+---------------+
| Profit attributable to holders of | | - | 1,995,830 | 1,995,830 |
| participating shares | | | | |
+-------------------------------------+-------+----------------+---------------+---------------+
| Issue of participating shares | | 50,025,000 | - | 50,025,000 |
+-------------------------------------+-------+----------------+---------------+---------------+
| Initial expenses | 9 | - | (1,268,012) | (1,268,012) |
+-------------------------------------+-------+----------------+---------------+---------------+
| | | | | |
+-------------------------------------+-------+----------------+---------------+---------------+
| Balance at 31 March 2007 | | 50,025,000 | 727,818 | 50,752,818 |
+-------------------------------------+-------+----------------+---------------+---------------+
| | | | | |
+-------------------------------------+-------+----------------+---------------+---------------+
| Loss attributable to holders of | | - | (16,799,246) | (16,799,246) |
| participating shares | | | | |
+-------------------------------------+-------+----------------+---------------+---------------+
| | | | | |
+-------------------------------------+-------+----------------+---------------+---------------+
| Balance at 31 March 2008 | | 50,025,000 | (16,071,428) | 33,953,572 |
+-------------------------------------+-------+----------------+---------------+---------------+
| | | | | |
+-------------------------------------+-------+----------------+---------------+---------------+
| Loss attributable to holders of | | - | (15,355,195) | (15,355,195) |
| participating shares | | | | |
+-------------------------------------+-------+----------------+---------------+---------------+
| Issue of participating shares | | 46,654,913 | - | 46,654,913 |
+-------------------------------------+-------+----------------+---------------+---------------+
| | | | | |
+-------------------------------------+-------+----------------+---------------+---------------+
| Balance at 31 December 2008 | | 96,679,913 | (31,426,623) | 65,253,290 |
+-------------------------------------+-------+----------------+---------------+---------------+
The accompanying notes form an integral part of the financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO PARTICIPATING
SHAREHOLDERS
For the period ended 31 December 2008
+--------------------------+-------+---------------+---------------+------------+------------+--------------+
| | | Participating | Retained | Other | Minority | |
| | | | | | | |
+--------------------------+-------+---------------+---------------+------------+------------+--------------+
| | Notes | Shares | Earnings | Reserves | Interest | Total |
| | | | | | | |
+--------------------------+-------+---------------+---------------+------------+------------+--------------+
| | | EUR | EUR | EUR | EUR | EUR |
+--------------------------+-------+---------------+---------------+------------+------------+--------------+
| Balance at 20 February | | - | - | - | - | - |
| 2006 | | | | | | |
+--------------------------+-------+---------------+---------------+------------+------------+--------------+
| Profit attributable to | | - | 1,995,830 | - | - | 1,995,830 |
| holders of participating | | | | | | |
| shares | | | | | | |
+--------------------------+-------+---------------+---------------+------------+------------+--------------+
| Issue of participating | | 50,025,000 | - | - | - | 50,025,000 |
| shares | | | | | | |
+--------------------------+-------+---------------+---------------+------------+------------+--------------+
| Initial expenses | 9 | - | (1,268,012) | - | - | (1,268,012) |
+--------------------------+-------+---------------+---------------+------------+------------+--------------+
| | | | | | | - |
+--------------------------+-------+---------------+---------------+------------+------------+--------------+
| Balance at 31 March 2007 | | 50,025,000 | 727,818 | - | - | 50,752,818 |
+--------------------------+-------+---------------+---------------+------------+------------+--------------+
| | | | | | | - |
+--------------------------+-------+---------------+---------------+------------+------------+--------------+
| Loss attributable to | | - | (16,799,246) | - | - | (16,799,246) |
| holders of participating | | | | | | |
| shares | | | | | | |
+--------------------------+-------+---------------+---------------+------------+------------+--------------+
| | | | | | | - |
+--------------------------+-------+---------------+---------------+------------+------------+--------------+
| Balance at 31 March 2008 | | 50,025,000 | (16,071,428) | - | - | 33,953,572 |
+--------------------------+-------+---------------+---------------+------------+------------+--------------+
| | | | | | | |
+--------------------------+-------+---------------+---------------+------------+------------+--------------+
| Minority interest on | | - | - | - | - | - |
| investment acquired | | | | | | |
+--------------------------+-------+---------------+---------------+------------+------------+--------------+
| Loss attributable to | | - | (14,227,447) | - | - | (14,227,447) |
| holders of participating | | | | | | |
| shares | | | | | | |
+--------------------------+-------+---------------+---------------+------------+------------+--------------+
| Loss attributable to | | - | - | - | (131,071) | (131,071) |
| minority interest | | | | | | |
+--------------------------+-------+---------------+---------------+------------+------------+--------------+
| Unrealised Exchange Loss | 14 | - | - | (996,677) | - | (996,677) |
| on Foreign Subsidiary | | | | | | |
+--------------------------+-------+---------------+---------------+------------+------------+--------------+
| Issue of participating | | 46,654,913 | - | - | - | 46,654,913 |
| shares | | | | | | |
+--------------------------+-------+---------------+---------------+------------+------------+--------------+
| | | | | | | - |
+--------------------------+-------+---------------+---------------+------------+------------+--------------+
| Balance at 31 December | | 96,679,913 | (30,298,875) | (996,677) | (131,071) | 65,253,290 |
| 2008 | | | | | | |
+--------------------------+-------+---------------+---------------+------------+------------+--------------+
| | | | | | | |
+--------------------------+-------+---------------+---------------+------------+------------+--------------+
The accompanying notes form an integral part of the financial statements.
COMPANY CASH FLOW STATEMENT
For the period ended to 31 December 2008
+---------------+--+------------------------------------------+-------+---------------+
| Year ended | | | | Nine months |
| | | | | ended |
+---------------+--+------------------------------------------+-------+---------------+
| 31 March | | | Notes | 31 December |
| 2008 | | | | 2008 |
+---------------+--+------------------------------------------+-------+---------------+
| EUR | | | | EUR |
+---------------+--+------------------------------------------+-------+---------------+
| | | | | |
+---------------+--+------------------------------------------+-------+---------------+
| | | Cash flows from operating activities | | |
+---------------+--+------------------------------------------+-------+---------------+
| (9,745,721) | | Loss for the financial period | | (12,603,820) |
+---------------+--+------------------------------------------+-------+---------------+
| | | | | |
+---------------+--+------------------------------------------+-------+---------------+
| | | Adjustments to reconcile profit for the | | |
| | | financial period to net cash from | | |
| | | operating activities | | |
+---------------+--+------------------------------------------+-------+---------------+
| 8,763 | | Increase/(decrease) in creditors | | 1,837,022 |
+---------------+--+------------------------------------------+-------+---------------+
| 272,880 | | Decrease/(increase) in debtors | | (670,253) |
+---------------+--+------------------------------------------+-------+---------------+
| - | | Write-off of goodwill | 13 | 406,160 |
+---------------+--+------------------------------------------+-------+---------------+
| 16,387,910 | | Unrealised capital loss on investments | | 11,791,265 |
+---------------+--+------------------------------------------+-------+---------------+
| 6,923,832 | | Net cash (outflow)/inflow from operating | | 760,374 |
| | | activities | | |
+---------------+--+------------------------------------------+-------+---------------+
| | | | | |
+---------------+--+------------------------------------------+-------+---------------+
| (1,611,884) | | Purchase of investments | | (24,381,464) |
+---------------+--+------------------------------------------+-------+---------------+
| 2,158,292 | | Repayment of principle on investments | | 1,760,931 |
+---------------+--+------------------------------------------+-------+---------------+
| 444,626 | | Disposal of investments | | 6,700,000 |
+---------------+--+------------------------------------------+-------+---------------+
| - | | Acquisition net cash acquired | 13 | 15,785,353 |
+---------------+--+------------------------------------------+-------+---------------+
| - | | Exchange rate movement on cash acquired | | (990,322) |
+---------------+--+------------------------------------------+-------+---------------+
| 991,034 | | Net cash (outflow)/inflow from investing | | (1,125,502) |
| | | activities | | |
+---------------+--+------------------------------------------+-------+---------------+
| | | | | |
+---------------+--+------------------------------------------+-------+---------------+
| | | Cash flows from financing activities | | |
+---------------+--+------------------------------------------+-------+---------------+
| (7,053,525) | | Distribution paid | | (2,751,375) |
+---------------+--+------------------------------------------+-------+---------------+
| (7,053,525) | | Net cash outflow from financing | | (2,751,375) |
| | | activities | | |
+---------------+--+------------------------------------------+-------+---------------+
| | | | | |
+---------------+--+------------------------------------------+-------+---------------+
| 861,341 | | Net (decrease)/increase in cash and cash | | (3,116,503) |
| | | equivalents | | |
+---------------+--+------------------------------------------+-------+---------------+
| 2,417,405 | | Cash and cash equivalents at the | | 3,278,746 |
| | | beginning of the period | | |
+---------------+--+------------------------------------------+-------+---------------+
| 3,278,746 | | Cash and cash equivalents at the end of | | 162,243 |
| | | the period | | |
+---------------+--+------------------------------------------+-------+---------------+
| | | | | |
+---------------+--+------------------------------------------+-------+---------------+
| | | Supplementary Information | | |
+---------------+--+------------------------------------------+-------+---------------+
| 5,630,923 | | Cash inflow from interest | | 4,766,552 |
+---------------+--+------------------------------------------+-------+---------------+
| 776,003 | | Cash inflow from dividends | | 89,056 |
+---------------+--+------------------------------------------+-------+---------------+
During the current period there were investing and financing activities of a
non-cash nature which are disclosed separately in Note 13.
The accompanying notes form an integral part of the financial statements.
CONSOLIDATED CASH FLOW STATEMENT
For the period ended to 31 December 2008
+--------------+--+--------------------------------------------+-------+----------------+
| Year ended | | | | Nine months |
| | | | | ended |
+--------------+--+--------------------------------------------+-------+----------------+
| 31 March | | |Notes | 31 December |
| 2008 | | | | 2008 |
+--------------+--+--------------------------------------------+-------+----------------+
| EUR | | | | EUR |
+--------------+--+--------------------------------------------+-------+----------------+
| | | | | |
+--------------+--+--------------------------------------------+-------+----------------+
| | | Cash flows from operating activities | | |
+--------------+--+--------------------------------------------+-------+----------------+
| (9,745,721) | | Loss for the financial period | | (11,476,072) |
+--------------+--+--------------------------------------------+-------+----------------+
| | | | | |
+--------------+--+--------------------------------------------+-------+----------------+
| | | Adjustments to reconcile profit for the | | |
| | | financial period to net cash from | | |
| | | operating activities | | |
+--------------+--+--------------------------------------------+-------+----------------+
| 8,763 | | Increase in creditors | | 3,219,686 |
+--------------+--+--------------------------------------------+-------+----------------+
| 272,880 | | (Increase)/decrease in debtors | | (1,815,072) |
+--------------+--+--------------------------------------------+-------+----------------+
| - | | Write off of goodwill | | 406,160 |
+--------------+--+--------------------------------------------+-------+----------------+
| 16,387,910 | | Unrealised capital loss on investments | | 11,664,017 |
+--------------+--+--------------------------------------------+-------+----------------+
| - | | Unrealised exchange loss on foreign | | 788,905 |
| | | subsidiary | | |
+--------------+--+--------------------------------------------+-------+----------------+
| 6,923,832 | | Net cash (outflow)/inflow from operating | | 2,787,624 |
| | | activities | | |
+--------------+--+--------------------------------------------+-------+----------------+
| | | | | |
+--------------+--+--------------------------------------------+-------+----------------+
| (1,611,884) | | Purchase of investments | | (25,932,452) |
+--------------+--+--------------------------------------------+-------+----------------+
| 2,158,292 | | Repayment of principle on investments | | 4,522,992 |
+--------------+--+--------------------------------------------+-------+----------------+
| 444,626 | | Disposal of investments | | 6,700,000 |
+--------------+--+--------------------------------------------+-------+----------------+
| - | | Acquisition of subsidiary, net cash | 13 | 20,531,374 |
| | | acquired | | |
+--------------+--+--------------------------------------------+-------+----------------+
| - | | Exchange rate movement on net cash | | (990,322) |
| | | acquired | | |
+--------------+--+--------------------------------------------+-------+----------------+
| 991,034 | | Net cash inflow from investing activities | | 4,831,592 |
+--------------+--+--------------------------------------------+-------+----------------+
| | | | | |
+--------------+--+--------------------------------------------+-------+----------------+
| | | Cash flows from financing activities | | |
+--------------+--+--------------------------------------------+-------+----------------+
| (7,053,525) | | Distribution paid | | (2,751,375) |
+--------------+--+--------------------------------------------+-------+----------------+
| (7,053,525) | | Net cash inflow/(outflow) from financing | | (2,751,375) |
| | | activities | | |
+--------------+--+--------------------------------------------+-------+----------------+
| | | | | |
+--------------+--+--------------------------------------------+-------+----------------+
| 861,341 | | Net increase in cash and cash equivalents | | 4,867,841 |
+--------------+--+--------------------------------------------+-------+----------------+
| | | Net Foreign Exchange Difference | | |
+--------------+--+--------------------------------------------+-------+----------------+
| 2,417,405 | | Cash and cash equivalents at the beginning | | 3,278,746 |
| | | of the period | | |
+--------------+--+--------------------------------------------+-------+----------------+
| 3,278,746 | | Cash and cash equivalents at the end of | | 8,146,587 |
| | | the period | | |
+--------------+--+--------------------------------------------+-------+----------------+
| | | | | |
+--------------+--+--------------------------------------------+-------+----------------+
| | | Supplementary Information | | |
+--------------+--+--------------------------------------------+-------+----------------+
| 5,630,923 | | Cash inflow from interest | | 4,522,084 |
+--------------+--+--------------------------------------------+-------+----------------+
| 776,003 | | Cash inflow from dividends | | 89,056 |
+--------------+--+--------------------------------------------+-------+----------------+
During the current period there were investing and financing activities of a
non-cash nature which are disclosed separately in Note 13.
The accompanying notes form an integral part of the financial statements.
NOTES TO THE FINANCIAL STATEMENTS
For the period ended 31 December 2008
1. GENERAL
Carador plc (the "Company") is a closed-ended limited liability investment
company domiciled and incorporated under the laws of Ireland with variable
capital pursuant to the Companies Acts, 1963 to 2006 of Ireland. It was
incorporated on 20 February 2006 under registration number 415764. The
Company was authorised by the Financial Regulator pursuant to Part XIII of the
Companies Act, 1990.
The Company's share capital consists entirely of shares of no par value. The
Company's initial share capital is denominated in euro. The Company issued a US
dollar denominated share class at the time of the Amalgamation of its
wholly-owned subsidiary, Carador Guernsey Limited, with Abingdon Investment
Limited on 9 December 2008. The Company may issue one or more additional
classes of shares on prior notice to, and clearance by, the Financial Regulator.
The euro denominated shares were admitted to the Official List and began
trading on the London Stock Exchange on 12 April 2006. The US dollar
denominated shares were admitted to the Official List on 9 December 2008, and
began trading on the London Stock Exchange on 9 December 2008.
The Company's investment objective is to produce attractive and stable returns,
with low volatility compared to equity markets, by investing in a diversified
portfolio of senior notes of collateralised debt obligations collateralised by
senior secured bank loans and equity and mezzanine tranches of collateralised
debt obligations.
The Company has been established with a 15 year life.
2. SIGNIFICANT ACCOUNTING POLICIES
2a. Statement of Compliance
The consolidation financial statements are prepared in accordance with
International Financial Reporting Standards ("IFRS") issued by the International
Accounting Standards Board ("IASB") and interpretations issued by the
International Financial Reporting Interpretations Committee of the IASB as
adopted by the European Union.
2b. Basis of Preparation
The consolidated financial statements have been prepared on a historical cost
basis, except for financial instruments classified at fair value through profit
or loss that have been measured at fair value. The consolidated financial
statements are presented in euros.
2c. Basis of Consolidation
The consolidated financial statements of the Group comprise the financial
statements of the Company and its subsidiaries (including special purpose
entities ("SPEs") that the Company consolidates) for the nine months ended 31
December 2008. The financial statements of the Company's subsidiaries are
prepared for the same reporting period as for the Company, using consistent
accounting policies.
All intra-group balances, transactions, income and expenses are eliminated in
full.
Subsidiaries are fully consolidated from the date on which control is
transferred to the Company. Control is achieved where the Company has the power
to govern the financial and operating policies of an entity so as to obtain
benefits from its activities. The results of subsidiaries acquired during the
year are included in the consolidated income statement from the date of
acquisition The Company also consolidates SPEs where the substance of its
relationship with them indicates that it has control over them. The results of
SPEs are included in the consolidated income statement from the date the Company
is deemed to have assumed the majority of the residual risk in the subsidiary.
Investments in subsidiaries are accounted for at fair value, with fair value
being determined as described under note 2l (iii) below. Changes in fair value
are recorded within "Net unrealised loss on financial assets and financial
liabilities designated at fair value through profit or loss".
Minority interests represent the portion of profit and loss and net assets not
owned, directly or indirectly, by the Company and are presented separately in
the Consolidated Income Statement and in the Consolidated Balance Sheet. Any
losses applicable to the minority interest in excess of the minority interest
are allocated against the interests of the parent. Acquisitions of minority
interests are accounted for using the parent equity extension method, whereby,
the difference between the consideration and the fair value of the share of the
net assets acquired is recognised as goodwill.
NOTES TO THE FINANCIAL STATEMENTS
For the period ended 31 December 2008
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
2d. Business Combinations and goodwill
Business combinations are accounted for using the purchase method. Where the
Company obtains the power to govern the financial and operating policies of
another entity, the Company is deemed to be the acquirer in a business
combination. The cost of an acquisition is measured as the fair value of the
assets given, shares issued and liabilities incurred or assumed at the date of
exchange, plus costs directly attributable to the acquisition. Identifiable
assets acquired and liabilities and contingent liabilities assumed in a business
combination are measured initially at fair values at the date of acquisition,
irrespective of the extent of any minority interest.
Goodwill is initially measured at cost being the excess of the cost of the
business combination over the Group's share in the net fair value of the
acquiree's identifiable assets, liabilities and contingent liabilities. If the
cost of the acquisition is less than the fair value of the net assets of the
subsidiary acquired, the difference is recognised directly in the income
statement.
After initial recognition, goodwill is measured at cost less any accumulated
impairment losses. Goodwill is tested for impairment at the balance sheet date
and when circumstances indicate that the carrying value may be impaired.
Impairment is determined for goodwill by assessing the recoverable amount of
each cash-generating unit to which goodwill relates. Where the recoverable
amount of the cash-generating unit is less than their carrying amount an
impairment loss is recognised.
2e. Changes in accounting policies, classifications and disclosures
The classification of certain items in the cash flow statement has been amended
from their classification in the financial statements for the year ended 31
March 2008. Purchase of investments, repayment of principal on investments and
disposal of investments have been reclassified from cash flows from operating
activities to cash flows from investing activities as the Directors believe this
to be a more appropriate classification of these items. The comparative data has
also been reclassified in line with IAS 1 'Presentation of financial
statements'. The effect of this change is a reclassification in the Consolidated
and Company Cash Flow Statements of EUR493,990 (31 March 2008: EUR991,034) and
EUR746,430 (31 March 2008: EUR991,034) from operating activities to investing
activities.
In addition to this there was an amount of EUR409,377 relating to amounts due from
brokers which had been included as a cash flow from operating activities in the
repayment of principal on investments at 31 March 2008. This amount has been
removed from this line as the Directors believe that it is no longer appropriate
to reflect this balance in the cash flow statement as it did not reflect a cash
transaction in that period.
The Company has adopted the following amendments: Amendments to IAS 32 Financial
Instruments: Presentation and IAS 1 - Presentation of Financial Statements -
Puttable Financial Instruments and Obligations Arising on Liquidation.
Amendments to IAS 32 and IAS 1 were issued by the IASB in February 2008 and
become effective for annual periods beginning on or after 1 January 2009 with
early application permitted. The amendment to IAS 32 requires certain puttable
financial instruments and obligations arising on liquidation to be classified as
equity if certain criteria are met. The amendments to IAS 1 require disclosure
of certain information relating to puttable instruments classified as equity.
The Company's shares do not meet the definition of puttable instruments
classified as equity instruments under the amendments, as the distributions to
shareholders are non discretionary. Hence, the amendments to IAS 32 and IAS 1 do
not have a material impact on the financial performance or position of the
Company or Group.
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the period ended 31 December 2008
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
2e. Changes in accounting policies and disclosures (Continued)
Standards and amendments to existing standards that are relevant to the Company
but are not yet effective and have not been early adopted by the Company:
* IAS 39 (Amendment), 'Financial instruments: Recognition and
measurement' (effective from 1 January 2009). The Company will apply the IAS 39
(Amendment) from 1 January 2009. However, it is not expected to have an impact
on the Company's Income Statement.
* IAS 1 (Revised), 'Presentation of financial statements' (effective from 1
January 2009). The Company will apply IAS 1 (Revised) from 1 January 2009. This
change is not expected to significantly change the presentation of the Company's
performance statement other than to change its title to "Statement of
Comprehensive Income".
* IAS 1 (Amendment), 'Presentation of financial statements' (effective from 1
January 2009). The Company will apply the amendments from 1 January 2009.
However, it is not expected to have an impact on the Company's financial
statements.
* There are a number of minor amendments to IAS 8, 'Accounting policies, changes
in accounting estimates and errors'; IAS 10, 'Events after the reporting period'
and IAS 18, 'Revenue' (all effective from 1 January 2009), which are part of the
IASB's annual improvement project published in May 2008. These amendments
are unlikely to have an impact on the Company's accounts.
* IAS 27 (Revised), 'Consolidated and separate financial statements' (effective
from 1 July 2009). This will result in a minor amendments to the financial
statements.
* IFRS7, 'Financial instruments: Disclosures'. This will result in increased
disclosure in the area of liquidity risk and increased disclosure surrounding
fair value measurements within the Company's financial statements.
* IAS 34, 'Interim financial reporting'. This is not expected to have an impact
on the Company's financial statements.
* IFRS 3 (Revised), 'Business combinations' (effective from 1 July 2009). This is
not expected to have an impact on the Company's financial statements.
2f. Interest and Dividend Income and Interest Expense
Income receivable and payable from interest bearing financial instruments is
recognised in the Income Statement on an accruals basis to the extent that it
represents income and not a return of principal to the Company. Dividend income
is credited to the Income Statement on an ex-dividend basis. Dividend income is
shown gross of any non-recoverable withholding taxes, which is disclosed
separately in the Income Statement, and net of any tax credits.
2g. Redeemable participating shares
Redeemable participating shares are redeemable on the winding up of the Company,
due to take place on or around 20 February 2021, and are classified as financial
liabilities in accordance with IAS 32. The liabilities arising from the
redeemable shares are carried at the redemption amount being the net asset value
calculated in accordance with IFRS.
2h. Fees and Charges
The Investment Manager's fee, Custodian's fee, Administrator's fee, Directors'
fees and other operating expenses are charged to the Income Statement on an
accruals basis. Costs associated with the amalgamation with Abingdon Investment
Limited are accounted for in line with IFRS 3 Business Combinations and are
included within the cost of the business combination for the purposes of
calculating goodwill on acquisition. Costs associated with the issue of shares
relating to the amalgamation are expensed in the period in which they were
incurred.
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the period ended 31 December 2008
2.SIGNIFICANT ACCOUNTING POLICIES (continued)
2i. Cash and Cash Equivalents
Cash comprises current deposits with banks. Cash equivalents are short-term
highly liquid investments that are readily convertible to known amounts of cash,
are subject to an insignificant risk of changes in value, and are held for the
purpose of meeting short-term cash commitments rather than for investments or
other purposes.
2j. Net Realised Gains or Losses on Investments
Realised gains or losses on investments pertain to gains or losses on disposal
of investments at fair value through profit or loss calculated on a weighted
average cost basis and gains or losses on settlement of derivative financial
instruments.
2k. Net Unrealised Gains or Losses on Investments
Net unrealised gains or losses on investments at fair value through the profit
or loss pertain to the fair value movement, which is calculated as described in
Note 2l (iii) and adjusted for any principal repayments. The returns received on
the Company's investments in CLOs carried at fair value through profit or loss
are allocated between income and principal based on the expected return on an
individual investment. Also included within this caption are the unrealised
gains or losses on derivative financial instruments, which are calculated as
described in Note 2l (i).
2l. Financial Instruments
(i) Classification
The Company classifies its financial assets and financial liabilities as listed
below as financial assets and financial liabilities at fair value through profit
or loss in accordance with IAS 39 Financial Instruments: Recognition and
Measurement.
The category of financial assets and financial liabilities at fair value through
profit or loss comprises:
Financial assets and financial liabilities designated at fair value through
profit and loss
Financial assets and financial liabilities classified in this category are
designated by management on initial recognition as part of a group of financial
assets and liabilities which are managed and their performance evaluated on a
fair value basis, in accordance with a documented investment strategy. The term
"financial assets designated at fair value through profit or loss" includes
investments in collateralised loan obligations, equities, collective investment
schemes and term deposits. The term "financial liabilities designated at fair
value through profit or loss" includes term notes issued by Gale Force 4.
Financial instruments held for trading
Derivatives are categorised as held for trading, as the Company does not
designate any derivatives as hedges for hedge accounting purposes as described
under IAS 39. Derivatives include forward currency contracts. Derivatives are
recorded at fair value. Changes in the fair value of derivatives are recorded in
'Net unrealised losses on derivative financial instruments'.
(ii) Initial Measurement
Financial assets and financial liabilities are measured initially at fair value,
being the transaction price, on the trade date. Transaction costs on
financial assets are expensed immediately.
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the period ended 31 December 2008
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
2l. Financial Instruments (Continued)
(iii) Subsequent Measurement
After initial measurement, the Company measures financial instruments which are
classified at fair value through profit or loss at their fair values. Changes in
fair value are recorded within 'Net unrealised loss on financial assets and
financial liabilities designated at fair value through profit or loss'. Fair
value is the amount for which an asset could be exchanged, or a liability
settled, between knowledgeable, willing parties in an arm's length transaction.
The following sources have been used to obtain fair value for the financial
assets and liabilities of the Company:
1. Where quoted market prices are available for the financial assets and
liabilities these are used to determine fair value of the respective financial
instrument;
2. Where the market for a financial instrument is not an active market the fair
value on subsequent measurement is obtained through broker quotes or through the
use of pricing services;
3. Where the fair value cannot be determined by reference to observable market
quotes or broker quotes the entity estimates fair value through the use of a
discounted cashflow model. There are a number of assumptions applied in
determining the fair values of the financial assets and liabilities whose fair
value is estimated through the use of the discounted cashflow model.
(iv) Offsetting Financial Instruments
Financial assets and liabilities are offset and the net amount reported in the
Balance Sheet where there is a legally enforceable right to offset the
recognised amounts and there is an intention to settle on a net basis, or
realise the assets and settle the liability simultaneously.
(v) Derecognition
The Company derecognises a financial asset when the contractual rights to the
cash flows from the financial asset expire or it transfers the financial asset
and the transfer qualifies for derecognition in accordance with IAS 39. The
Company derecognises a financial liability when the obligation specified in the
contract is discharged, cancelled or expires.
2m. Foreign Currency
The functional currency of the Company is euro as the Directors have determined
that this reflects the Company's primary economic environment. The presentation
currency of the Company is also euro. Transactions in foreign currencies are
translated at the foreign currency exchange rate ruling at the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies
are translated to euro at the foreign currency closing exchange rate ruling at
the Balance Sheet date.Foreign currency exchange differences relating to
investments at fair value through profit or loss are included in the realised
net gain/loss on investments at fair value through profit or loss and the
movement in unrealised net gain/loss on investments at fair value through profit
or loss. All other foreign currency exchange differences relating to monetary
items, including cash are presented in the Income Statement.
Foreign exchange gains and losses on financial assets and financial liabilities
at fair value through profit or loss are recognised together with other changes
in the fair value.
The results and financial position of any subsidiary whose functional currency
is not the same functional currency of the Company shall be translated into the
Company's presentation currency using the following procedures:
(i) assets and liabilities are translated at the closing rate at the date of the
Balance Sheet;
(ii) income and expenses are translated at average exchange rates during the
period; and
(iii) all resulting exchange differences are taken directly to a separate
component of Net Assets Attributable to Participating Shareholders. On disposal
of the foreign subsidiary, the deferred cumulative amount is recognised in the
Income Statement.
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the period ended 31 December 2008
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
2n. Taxation
Under current law and Irish practice the Company qualifies as an investment
undertaking under Section 739B of the Taxes Consolidation Act 1997 and is not
therefore chargeable to Irish tax on its relevant income or relevant gains. No
stamp, transfer or registration tax is payable in Ireland on the issue,
redemption or transfer of shares in the Company. Distributions and interest on
securities issued in countries other than Ireland may be subject to taxes
including withholding taxes imposed by such countries. The Company may not be
able to benefit from a reduction in the rate of withholding tax by virtue of the
double taxation agreement in operation between Ireland and the other countries.
The Company may not, therefore be able to reclaim withholding tax suffered by it
in particular countries.
To the extent that a chargeable event arises in respect of a Shareholder, the
Company may be required to deduct tax in connection with that chargeable event
and pay the tax to the Irish Revenue Commissioners. A chargeable event can
include payments to Shareholders, appropriation, cancellation, redemption,
repurchase or transfer of shares, or a deemed disposal of Shares every 8 years
beginning from the date of acquisition of those Shares. Certain exemptions can
apply. To the extent that Shareholders have appropriate tax declarations in
place with the Company there may be no requirement to deduct tax.
2o. Distributions
Distributions to holders of redeemable participating shares are recorded in the
Income Statement when they are declared to the members. Distributions are based
on net income received in the period, less expenses, and does not include
realised and unrealised capital gains and losses on investments. Distributions
to shareholders are recognised in the Income Statement as finance costs.
2p. Loans and Receivables
Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. The Company
includes in this category amounts relating to cash collateral on securities
borrowed and other short-term receivables.
2q. Significant Accounting Judgements and Estimates
(i) Fair value of financial instruments
Given the illiquidity and widening spreads in current market conditions,
available quoted market prices may not necessarily represent the realisation
value of the Company's CDO assets at the balance sheet date. There is no active
secondary market for such assets and there is no industry standard agreed
methodology to value the positions.
When the fair value of financial assets and financial liabilities recorded in
the balance sheet cannot be derived from active markets, they are determined
using valuation techniques including the use of discounted cash flow models. The
inputs into these models are taken from observable markets where possible, but
where this is not feasible, a degree of judgement is required in establishing
fair values. The judgements include considerations of liquidity and model inputs
such as credit risk, correlation and volatility. Changes in assumptions relating
to these factors could affect the reported fair value of financial instruments.
The models are calibrated regularly and tested for validity using prices from
any observable current market transactions in the same instrument or based on
available observable market data. The key assumptions applied are base discount
rate (36.69%) (31 March 2008: 6.01% - 26.23%), default rate (long term annual
rate of 2%) (31 March 2008: 2%), severity loss (30%) (31 March 2008: 30%). The
most significant of these is the base discount rate which is adjusted to reflect
the credit risk of the respective financial instruments. Adjustments are made,
among others, in respect of the overcollateralisation cushion, the weighted
average rating factor and weighted average spread.
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the period ended 31 December 2008
3. FINANCIAL INSTRUMENTS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS
As described in the accounting policies note, the Group and Company have
financial assets and liabilities designated at fair value through profit or
loss. The following table indicates firstly, the types of financial assets and
liabilities designated at fair value through profit or loss and secondly, the
unrealised and realised gains or losses on those financial instruments. Included
in the figure below for total financial assets of the Company is EUR12,311,214
relating to the investment in Gale Force 4.
+-------------------------------------+---------------+----------------+---------------+
| | Company | Consolidated | Company |
+-------------------------------------+---------------+----------------+---------------+
| | Nine months | Nine months | Year ended |
| | ended | ended | |
+-------------------------------------+---------------+----------------+---------------+
| | 31 December | 31 December | 31 March |
| | 2008 | 2008 | 2008 |
+-------------------------------------+---------------+----------------+---------------+
| | EUR | EUR | EUR |
+-------------------------------------+---------------+----------------+---------------+
| Financial assets at fair value | | | |
| through profit or loss | | | |
+-------------------------------------+---------------+----------------+---------------+
| - Collaterised debt obligations | 47,549,870 | 41,589,901 | 29,016,202 |
+-------------------------------------+---------------+----------------+---------------+
| - Equities | 394,624 | 394,624 | 480,136 |
+-------------------------------------+---------------+----------------+---------------+
| - Money market funds | 1,875,584 | 1,875,584 | - |
+-------------------------------------+---------------+----------------+---------------+
| - Term deposits | 15,527,145 | 15,527,145 | - |
+-------------------------------------+---------------+----------------+---------------+
| - Loans and receivables | - | 193,423,809 | - |
+-------------------------------------+---------------+----------------+---------------+
| Total Financial Assets at Fair | 65,347,223 | 252,811,063 | 29,496,338 |
| Value through Profit or Loss | | | |
+-------------------------------------+---------------+----------------+---------------+
| | | | |
+-------------------------------------+---------------+----------------+---------------+
| Financial liabilities at fair value | | | |
| through profit or loss | | | |
+-------------------------------------+---------------+----------------+---------------+
| - Term notes | - | 190,107,679 | - |
+-------------------------------------+---------------+----------------+---------------+
| Total Financial Liabilities at Fair | - | 190,107,679 | - |
| Value through Profit or Loss | | | |
+-------------------------------------+---------------+----------------+---------------+
| | | | |
+-------------------------------------+---------------+----------------+---------------+
| Gains/(losses) recognised on | | | |
| financial assets and | | | |
| | | | |
+-------------------------------------+---------------+----------------+---------------+
| financial liabilities at fair value | | | |
| through profit or loss | | | |
+-------------------------------------+---------------+----------------+---------------+
| - realised | 119,580 | 119,580 | (696,580) |
+-------------------------------------+---------------+----------------+---------------+
| - unrealised | (11,523,370) | (10,578,179) | (16,444,373) |
+-------------------------------------+---------------+----------------+---------------+
| Total Gains/(Losses) | (11,403,790) | (10,458,599) | (17,140,953) |
+-------------------------------------+---------------+----------------+---------------+
| | | | |
+-------------------------------------+---------------+----------------+---------------+
The below table discloses the fair value at the period end and the fair value
movement during the period of those financial instruments at fair value through
profit or loss (excluding term deposits) valued using the valuation methods
outlined in note 2(q).
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the period ended 31 December 2008
3. FINANCIAL INSTRUMENTS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS
(continued)
+---------------------------------+---------------+---------------+---------------+
| | Company | Consolidated | Company |
+---------------------------------+---------------+---------------+---------------+
| | Nine Months | Nine Months | Year Ended |
| | Ended | Ended | |
+---------------------------------+---------------+---------------+---------------+
| | 31 December | 31 December | 39538 |
| | 2008 | 2008 | |
+---------------------------------+---------------+---------------+---------------+
| | EUR | EUR | EUR |
+---------------------------------+---------------+---------------+---------------+
| Assets | | | |
+---------------------------------+---------------+---------------+---------------+
| Fair value through profit or | 49,820,078 | 237,283,918 | 29,496,338 |
| loss (excluding term deposits) | | | |
+---------------------------------+---------------+---------------+---------------+
| | | | |
+---------------------------------+---------------+---------------+---------------+
| Quoted prices in active market | | | |
+---------------------------------+---------------+---------------+---------------+
| Fair value at period end | 1,875,584 | 1,875,584 | - |
+---------------------------------+---------------+---------------+---------------+
| Fair value movement in period | - | - | - |
+---------------------------------+---------------+---------------+---------------+
| Valuation techniques based on | | | |
| observable market data | | | |
+---------------------------------+---------------+---------------+---------------+
| Fair value at period end | 40,000 | 187,503,840 | 13,776,868 |
+---------------------------------+---------------+---------------+---------------+
| Fair value movement in period | (60,000) | 2,209,311 | (3,354,025) |
+---------------------------------+---------------+---------------+---------------+
| Valuation techniques based on | | | |
| non-observable market data | | | |
+---------------------------------+---------------+---------------+---------------+
| Fair value at period end | 47,904,493 | 47,904,493 | 15,719,470 |
+---------------------------------+---------------+---------------+---------------+
| Fair value movement in period | (17,606,252) | (17,606,252) | (13,090,348) |
+---------------------------------+---------------+---------------+---------------+
| | | | |
+---------------------------------+---------------+---------------+---------------+
| Liabilities | | | |
+---------------------------------+---------------+---------------+---------------+
| Fair value through profit or | - | 190,107,679 | - |
| loss | | | |
+---------------------------------+---------------+---------------+---------------+
| | | | |
+---------------------------------+---------------+---------------+---------------+
| Valuation techniques based on | | | |
| observable market data | | | |
+---------------------------------+---------------+---------------+---------------+
| Fair value at period end | - | 9,959,376 | - |
+---------------------------------+---------------+---------------+---------------+
| Fair value movement in period | - | (643,862) | - |
+---------------------------------+---------------+---------------+---------------+
| Valuation techniques based on | | | |
| non-observable market data | | | |
+---------------------------------+---------------+---------------+---------------+
| Fair value at period end | - | 180,148,303 | - |
+---------------------------------+---------------+---------------+---------------+
| Fair value movement in period | - | (2,264,684) | - |
+---------------------------------+---------------+---------------+---------------+
At 31 December 2008 the Company through a consolidated subsidiary of the Group
("Gale Force 4") had in issue term notes with a fair value of EUR190,107,679. The
annual interest rate on the notes ranges from 3 month LIBOR plus 26.5 to 640
basis points and is paid quarterly. The reinvestment period is seven years and
final maturity is 20 August 2021. During the period ended 31 December 2008 the
Group incurred interest on the notes of EUR576,681(31 March 2008: nil) and at that
date owed EUR1,049,054 (31 March 2008: nil), including EUR472,373 (31 March 2008:
nil) relating to the pre-merger liability assumed on amalgamation.
The Directors have considered the effect on the fair values of those financial
instruments valued using valuation techniques based on non-observable market
data, of changing the Base IRR by 4%, which is a reasonably possible alternative
assumption. The effect on those financial instruments is outlined in the
following table:
+-------------------------------------+--------------+--------------+------------+
| | Consolidated | Company | Company |
+-------------------------------------+--------------+--------------+------------+
| | Nine Months | Nine Months | Year Ended |
| | Ended | Ended | |
+-------------------------------------+--------------+--------------+------------+
| Reasonably possible alternative | 31 December | 31 December | 31 March |
| assumption | 2008 | 2008 | 2008 |
+-------------------------------------+--------------+--------------+------------+
| | EUR | EUR | EUR |
+-------------------------------------+--------------+--------------+------------+
| Base IRR +4% | (3,658,028) | (2,685,350) | - |
+-------------------------------------+--------------+--------------+------------+
| Base IRR -4% | 4,485,964 | 3,336,167 | - |
+-------------------------------------+--------------+--------------+------------+
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the period ended 31 December 2008
4.FEES
The Investment Manager was entitled to receive a management fee from the Company
of 1.0 per cent per annum of the Net Asset Value of the Company, calculated and
payable monthly in arrears, up until 8 October 2008. Following shareholder
approval at the Annual General Meeting on 26 August 2008, with effect from 9
October 2008, the Investment Manager is entitled to receive a management fee
from the Company of 1.5 per cent per annum of the Net Asset Value of the
Company, calculated and payable monthly in arrears. The base management fee will
be reduced to take into account any fees received by the Investment Manager or
any of its associates or affiliates as a result of managing any CDO that the
Company invests in, if such investment is or has been made in the Primary
Market.
In addition, following shareholder approval at the Extraordinary General Meeting
on 27 October 2008, the Investment Manager is entitled to a performance fee in
respect of each share class equivalent to 13 per cent. of the amount by which
the value of the period end Net Asset Value per share of a class plus
distributions per share of that class paid in the period exceeds the value of
the Net Asset Value per share of that class, as increased by 12 month Euribor
plus 2 per cent., as at the following point in time:
(i)if a performance fee has previously been paid, the Net Asset Value per share
of that class as at the end of the most recent previous completed accounting
period or, if greater, the Net Asset Value per share of that class as at the end
of the previous completed accounting reference period in respect of which a
performance fee was paid; or
(ii)if no performance fee has been paid, the Post-Amalgamation Company Opening
Net Asset Value per share of that class ("Post-Amalgamation Company Opening Net
Asset Value" means the Net Asset Value of the Company as at the effective date
of the Amalgamation of Carador Guernsey Limited with Abingdon Investment
Limited).
The Company also reimburses the Investment Manager for all out-of pocket
expenses reasonably incurred in the performance of its duties.
The Custodian is entitled to receive an annual fee from the Company of 0.04 per
cent. of the Net Asset Value of the Company paid monthly in arrears, subject to
an aggregate minimum monthly fee payable by the Company to the Custodian (and
the Administrator) of EUR8,500.
The Administrator is entitled to receive an annual fee of 0.08 per cent. of the
Net Asset Value of the Company on the first EUR75 million of the Company's Net
Assets, 0.07 per cent. of the Net Asset Value on the next EUR75 million of the
Company's Net Assets and 0.06 per cent. thereafter, accrued and paid monthly in
arrears, subject to an aggregate minimum monthly fee payable by the Company to
the Administrator (and the Custodian) of EUR8,500.
Company
During the period ended 31 December 2008 the Company paid Investment Manager,
Custodian and Administration fees of EUR291,425 (31 March 2008: EUR415,237), EUR18,408
(31 March 2008: EUR24,000) and EUR58,767 (31 March 2008: EUR78,000) respectively. Of
these EUR94,059 (31 March 2008: EUR28,384), EUR6,375 (31 March 2008: EUR5,918) and
EUR19,660 (31 March 2008: EUR19,233) were outstanding at the period end. There were
no performance fees paid in the year (31 March 2008: Nil).
The Directors are entitled to a fee in remuneration for their services at a rate
to be determined from time to time by the Directors and disclosed in the
financial statements. During the period ended 31 December 2008 the Company paid
Directors fees of EUR164,949 (31 March 2008: EUR110,764), of which EURnil (31 March
2008: EURnil) was outstanding at the period end.
During the period ended 31 December 2008 the auditors received a fee of EUR188,325
(31 March 2008: EUR157,762), of which EUR188,325 (31 March 2008: EUR122,012) was
outstanding at the period end. The auditors also received a fee of EUR171,000 (31
March 2008: Nil) for their work relating to the amalgamation of Carador Guernsey
Limited with Abingdon Investment Limited, this fee occurred in the
pre-acquisition period and is included in calculating the cost of the business
combination as set out in Note 13. None of this fee was outstanding at period
end (31 March 2008: Nil).
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the period ended 31 December 2008
4.FEES (continued)
During the period ended 31 December 2008 the Company incurred other operating
expenses of EUR546,552 (31 March 2008: EUR175,817) including costs of EUR345,596 in
respect of the issue of shares on the amalgamation.
Consolidated
Investment Management, Custodian and Administration fees of EUR400,971 (31 March
2008: EUR415,237), EUR25,379 (31 March 2008: EUR24,000) and EUR60,701 (31 March 2008:
EUR78,000) respectively were paid by the Group during the period. Of these
EUR361,920 (31 March 2008: EUR28,384), EUR23,422 (31 March 2008: EUR5,918) and EUR19,660
(31 March 2008: EUR19,233) were payable at the period end.
Operating expenses of EUR569,312 were incurred by the Group. The Group incurred no
further directors' and audit fees other than those incurred by the Company.
5.CASH BALANCES
All cash balances of the Company are held with the Northern Trust Company. Cash
balances of Gale Force 4 are held with State Street Corporation.
6. REDEEMABLE PARTICIPATING SHARES
The authorised share capital of the Company shall not be less than the currency
equivalent of EUR2 and the maximum issued share capital shall not be more than the
currency equivalent of EUR500,000 billion divided into a specified number of
shares of no par value. The issued share capital consists of 56,184,881 euro
shares (31 March 2008: 50,025,000) and 83,799,318 US dollar shares (31 March
2008: nil).The Company has allotted two subscriber shares, of EUR1 each. These
shares do not participate in the profits of the Company.
+----------------------------------+---------------+---------------+-------------+
| Issued Share (No. of Shares) | EUR Shares | USD Shares | Total |
+----------------------------------+---------------+---------------+-------------+
| Balance at 1 April 2008 | 50,025,000 | - | 50,025,000 |
+----------------------------------+---------------+---------------+-------------+
| Issued during the period | 6,159,881 | 83,799,318 | 899,959,199 |
+----------------------------------+---------------+---------------+-------------+
| Balance at 31 December 2008 | 56,184,881 | 83,799,318 | 139,984,199 |
+----------------------------------+---------------+---------------+-------------+
| | | | |
+----------------------------------+---------------+---------------+-------------+
Capital Management
The Company is closed ended. It will redeem all shares on the expiry of its 15
year limited life.
The Company's objectives for managing capital are:
- to invest the capital in investments meeting the
description, risk exposure and expected return indicated in its
prospectus;
- to achieve consistent returns while safeguarding capital by
investing in CLOs backed by corporate loans or
holding
cash;
- to maintain sufficient liquidity to meet the expenses of the
Company and to meet distribution commitments; and
- to
maintain sufficient size to make the operation of the Company cost-efficient.
Quantitative disclosures are contained in Note 15.
7.AMOUNTS DUE FROM BROKERS
Amounts due from brokers consist of a collateral account held with JP Morgan.
8.SOFT COMMISSIONS
There are no agreements for the provision of any services by means of soft
commission.
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the period ended 31 December 2008
9. INITIAL EXPENSES
Initial expenses are fees and expenses relating to the establishment and initial
set-up of the Company, the issue of Shares pursuant to the Placing.
10.RELATED PARTY TRANSACTIONS
Until 15 June 2008, the Company was managed by Washington Square Investment
Management Limited. On 16 June 2008, GSO Capital Partners International LLP, a
subsidiary of The Blackstone Group LP was appointed in place of Washington
Square Investment Management Limited as Investment Manager of the Company. Of
the fees paid to the Investment Manager, EUR68,305 was paid to Washington Square
Investment Management Limited (31 March 2008: EUR415,237). Fees paid to GSO
Capital Partners International LLP amounted to EUR223,120 (31 March 2008: Nil) of
which EUR94,059 (31 March 2008: EURNil) was outstanding at the period end. No
Director, nor the Company Secretary, had any beneficial interest in the shares
of the Company during the period ended 31 December 2008 or during the year ended
31 March 2008.
During the period ended 31 December 2008 the Company paid, on behalf of its
wholly owned subsidiary Carador Guernsey Limited, expenses of EUR2,548 (31 March
2008: nil).
GSO Debt Funds Management LLC, an affiliate of the Investment Manager and a
subsidiary of The Blackstone Group LP was paid EUR109,546 in investment management
fees relating to Gale Force 4 during the period of which EUR267,861 was
outstanding at the period end, including EUR158,315 relating to the period prior
to the amalgamation date.
11. DERIVATIVE FINANCIAL INSTRUMENTS
The Company invests in underlying assets which are predominantly US dollar and
euro denominated. The Company therefore has an exposure to changes in the
exchange rate between euro and the US dollar which, if unhedged, has the
potential to have a significant effect on returns. The Directors believe that it
is in the best interests of shareholders for the Company to engage consistently
in currency hedging solely to reduce the risk of currency fluctuations and the
volatility of returns which may result from such currency exposure. This
involves hedging the US dollar assets to euro, through the use of rolling
forward foreign exchange transactions. The Company only uses hedging techniques
for the purposes of efficient portfolio management and has no intention of using
the currency hedging facility for the purposes of currency speculation for its
own account.
The Company utilised currency contracts for the purposes of efficient portfolio
management during the period ended 31 December 2008. Details of the contracts
open at period end are disclosed in Note 15. Unrealised gains/(losses) resulting
from these contracts are disclosed below. The fair value of forward foreign
exchange contracts is calculated using valuation techniques based on observable
market data.
+--------------------------------------+--------------+--------------+------------+
| | Company | Consolidated | Company |
+--------------------------------------+--------------+--------------+------------+
| | Nine months | Nine months | Year ended |
| | ended | ended | |
+--------------------------------------+--------------+--------------+------------+
| | 31 December | 31 December | 31 March |
| | 2008 | 2008 | 2008 |
+--------------------------------------+--------------+--------------+------------+
| Financial assets held for trading | EUR | EUR | EUR |
+--------------------------------------+--------------+--------------+------------+
| - derivative financial instruments | 680,057 | 680,057 | 55,537 |
+--------------------------------------+--------------+--------------+------------+
| Financial liabilities held for | | | |
| trading | | | |
+--------------------------------------+--------------+--------------+------------+
| - derivative financial instruments | (892,415) | (892,415) | - |
+--------------------------------------+--------------+--------------+------------+
| | (212,358) | (212,358) | 55,537 |
+--------------------------------------+--------------+--------------+------------+
| | | | |
+--------------------------------------+--------------+--------------+------------+
| Gains/(losses) recognised on | | | |
| derivative financial instruments | | | |
| | | | |
+--------------------------------------+--------------+--------------+------------+
| - realised | (3,293,088) | (3,293,088) | 2,718,374 |
+--------------------------------------+--------------+--------------+------------+
| - unrealised | (267,895) | (267,895) | 56,320 |
+--------------------------------------+--------------+--------------+------------+
| Total Gains/(Losses) | (3,560,983) | (3,560,983) | 2,774,694 |
+--------------------------------------+--------------+--------------+------------+
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the period ended 31 December 2008
12.STATEMENT OF PORTFOLIO MOVEMENTS
A statement of changes in the schedule of investments is disclosed on page 66.
13. BUSINESS COMBINATIONS AND GOODWILL
On 9 December 2008 the Company's wholly-owned subsidiary, Carador Guernsey
Limited, amalgamated with Abingdon Investment Limited ("Abingdon"), an unlisted
closed-ended investment company, following the approval of the shareholders of
Carador plc and Abingdon at separate EGMs held on 27 October 2008. As a result,
Carador is considered to have obtained the power to govern the financial and
operating policies of Abingdon, and is therefore the acquiring entity in this
transaction. At the date of the amalgamation Abingdon had a wholly owned
subsidiary, Abingdon Finance Limited. The amalgamation was effected by the
transfer of the business, assets and liabilities of Abingdon Investment Limited
into Carador Guernsey Limited and subsequently into the Company. The fair value
and corresponding carrying amount of the identifiable assets and liabilities of
Abingdon and its subsidiary at the date of acquisition and immediately before
acquisition were:
+-------------------------------------------+-------------+---------------+
| Balance Sheet | Fair | Carrying |
| | value | amount at |
| | | acquisition |
+-------------------------------------------+-------------+---------------+
| Assets | EUR | EUR |
+-------------------------------------------+-------------+---------------+
| Cash and cash equivalents | 15,862,109 | 16,666,084 |
+-------------------------------------------+-------------+---------------+
| Receivables | 208,120 | 414,798 |
+-------------------------------------------+-------------+---------------+
| Prepaid expenses | - | 75,160 |
+-------------------------------------------+-------------+---------------+
| Investments - available for sale | 17,525,168 | 23,157,484 |
| securities | | |
+-------------------------------------------+-------------+---------------+
| Investment in subsidiary | 14,017,031 | 21,624,195 |
+-------------------------------------------+-------------+---------------+
| | | |
+-------------------------------------------+-------------+---------------+
| Total Assets | 47,612,428 | 61,937,722 |
+-------------------------------------------+-------------+---------------+
| | | |
+-------------------------------------------+-------------+---------------+
| Liabilities | | |
+-------------------------------------------+-------------+---------------+
| Current Liabilities | 34,307 | 125,480 |
+-------------------------------------------+-------------+---------------+
| Other Liabilities | 591,498 | - |
+-------------------------------------------+-------------+---------------+
| Total Liabilities | 625,805 | 125,480 |
+-------------------------------------------+-------------+---------------+
| | | |
+-------------------------------------------+-------------+---------------+
| Net Assets | 46,986,623 | 61,812,243 |
+-------------------------------------------+-------------+---------------+
| Goodwill arising on acquisition | 406,160 | |
+-------------------------------------------+-------------+---------------+
| Total consideration | 47,392,783 | |
+-------------------------------------------+-------------+---------------+
| | | |
+-------------------------------------------+-------------+---------------+
| Cost | EUR | |
+-------------------------------------------+-------------+---------------+
| Shares issued, at fair value | 46,654,913 | |
+-------------------------------------------+-------------+---------------+
| Costs associated with the acquisition | 737,870 | |
+-------------------------------------------+-------------+---------------+
| Total | 47,392,783 | |
+-------------------------------------------+-------------+---------------+
The total cost of the combination was EUR47,392,783 and comprised of the value of
the issue of 6,159,881 euro shares and 83,799,318 US dollar shares in Carador
plc to the previous shareholders of Abingdon and costs directly attributable to
the combination. An amalgamation ratio, based on a formula asset value (as
defined in the prospectus) at 31 October 2008, was used to calculate the number
of Carador shares that Abingdon shareholders were entitled to. The amalgamation
ratio was 7.4966. The fair value of these shares at the date of issue was
determined by reference to the published NAV of the Company at 30 November 2008.
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the period ended 31 December 2008
13. BUSINESS COMBINATIONS AND GOODWILL (continued)
+-------------------------------------------+-------------+---------------+
| Cost | EUR | |
+-------------------------------------------+-------------+---------------+
| Shares issued, at fair value | 46,654,913 | |
+-------------------------------------------+-------------+---------------+
| Costs associated with the acquisition | 737,870 | |
+-------------------------------------------+-------------+---------------+
| Total | 47,392,783 | |
+-------------------------------------------+-------------+---------------+
+------------------------------------------+-------------+
| Cash outflow on acquisition | EUR |
+------------------------------------------+-------------+
| Net cash acquired with the subsidiary | 15,862,109 |
+------------------------------------------+-------------+
| Cash paid | (76,756) |
+------------------------------------------+-------------+
| Net cash inflow on acquisition | 15,785,353 |
+------------------------------------------+-------------+
| | |
+------------------------------------------+-------------+
| Cash inflow on consolidation of Gale | 4,746,021 |
| Force 4 | |
+------------------------------------------+-------------+
| Total cash inflow | 20,531,374 |
+------------------------------------------+-------------+
The goodwill acquired on amalgamation with Abingdon has been allocated to one
cash-generating unit, being the investment in debt securities business segment,
for impairment testing. The recoverable amount of this cash-generating unit has
been determined based on fair value calculations. Key assumptions are those as
set out in the accounting policies. The carrying amount of the unit exceeds the
recoverable amount by the value of the goodwill, and therefore the goodwill of
EUR406,160 has been written-off.
Assets previously owned by Abingdon but now owned by the Company have
contributed EUR50,353 in revenue since the date of acquisition. It would be
impracticable to disclose the revenue and profit or loss for the period as
though the acquisition had been at the beginning of the period for the following
reasons:
* the books and records of Abingdon and Abingdon Finance Limited for the period
prior to the amalgamation are held with another administrator;
* the accounting period differs from that of Carador plc; and
* the assets and liabilities on the books of the previous administrator were not
carried using accounting policies consistent with those applied by Carador plc.
14. INVESTMENT IN SUBSIDIARIES
The Company's results are consolidated with those of its subsidiaries, namely:
* Abingdon Finance Limited
* Gale Force 4
* Carador Guernsey Limited
Abingdon Finance Limited
The Company owns 100% of the issued share capital of 50,000 US$1 shares of
Abingdon Finance Limited, which has contributed EURNil to the profit and loss of
the Company since becoming a subsidiary of the Company on 9 December 2008.
Abingdon Finance Limited has no assets or liabilities. At the date of
amalgamation, Abingdon Finance Limited had a loan payable to Abingdon Investment
Limited of US$23.5 million. Subsequent to the amalgamation date the directors
of the Company determined the value of the loan and the related interest payable
to be nil. The consolidation of Abingdon Finance Limited has had no effect on
the primary statements of the Group as it held no assets or liabilities at the
Balance Sheet date. Abingdon Finance Limited has its registered office at PO Box
1093GT, Queensgate House, South Church Street, George Town, Grand Cayman, Cayman
Islands. A liquidator has been appointed to voluntarily liquidate Abingdon
Finance Limited.
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the period ended 31 December 2008
14. INVESTMENT IN SUBSIDIARIES (Continued)
Gale Force 4
The Company owns 70.98% of the Income Notes of Gale Force 4. By virtue of the
provisions of SIC Interpretation 12 - 'Consolidation - Special Purpose Entities'
("SIC 12") the Company is deemed to control Gale Force 4 as it holds the
majority of the residual risk in Gale Force 4. At 31 December 2008 the minority
interest in the net assets of Gale Force 4 on the Consolidated Balance Sheet of
Carador Plc is EUR5,102,659 (31 March 2008: nil). The minority interest in the
profit or loss of Gale Force 4 at 31 December 2008 is EUR131,071 (31 March 2008:
nil).
The Consolidated Income Statement includes income and expense relating to Gale
Force 4 for the period from 9 December 2008, the acquisition date, to 31
December 2008. Balance Sheet figures are as at 31 December 2008. The functional
currency of Gale Force 4 is US dollars; therefore the results of Gale Force 4
have been translated in accordance with IAS 21 'The effects of changes in
foreign exchange rates'. This has resulted in a unrealised exchange loss on
consolidation of EUR996,677, which is recorded within the Consolidated Statement
of Changes in Net Assets Attributable to Participating Shareholders.
Gale Force 4 has its offices at P.O. Box 1093GT, Boundary Hall, Cricket Square,
George Town, Grand Cayman, Cayman Islands.
Carador Guernsey Limited
On 25 September 2008 the Company incorporated a wholly-owned subsidiary, Carador
Guernsey Limited with the issue of one GBP1 ordinary share. Carador Guernsey
Limited was incorporated in order to effect the amalgamation of the Company with
Abingdon Investment Limited, the detail of which is disclosed in note 13.
Carador Guernsey Limited has its registered office at 1st and 2nd Floor,
Elizabeth House, Les Ruettes Brayes, St Peter Port, Guernsey GY1 1EW. On 11
December 2008 Carador Guernsey Limited was put into voluntary liquidation. The
consolidation of Carador Guernsey Limited has had no effect on the primary
statements of the Group, as it held no assets or liabilities at the balance
sheet date.
15. RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS
Introduction
Risk is inherent in the Company's activities but it is managed through a process
of ongoing identification, measurement and monitoring, subject to risks limits
and other controls. The process of risk management is critical to the Company's
continuing profitability. The Company is exposed to market risk (which includes
currency risk, interest rate risk and other price risk), and credit risk arising
from the financial instruments it holds. Given the Company's permanent capital
structure, it is not exposed to liquidity risk, such as redemption risk.
However the Company's financial instruments include investments in
collateralised debt obligations and derivative contracts traded over-the-counter
which are not traded in an organised public market and which may be illiquid. As
a result, the Company may not be able to promptly liquidate some of its
investments in these instruments at an amount close to its fair value in order
to meet its liquidity requirements or to respond to specific events such as
deterioration in the credit worthiness of any particular issuer. It may be
impossible to assess the exposure to risk in such circumstances.
Risk Management Structure
The Board of Directors is ultimately responsible for identifying and controlling
risks. The Investment Manager also carries out ongoing monitoring of the risk.
As a result, there are separate bodies for managing and monitoring risks at the
Company.
Risk Measurement and reporting system
The Company's risks are measured using a method which reflects both the expected
loss likely to arise in normal circumstances and unexpected losses, which are an
estimate of the ultimate actual loss based on models. The models makes use of
the probabilities derived from historical experience, adjusted to reflect the
economic environment.
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the period ended 31 December 2008
15. RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (Continued)
Monitoring and controlling risks is primarily performed based on limits
established by the Board. These limits reflect the business strategy and market
environment of the Company as well as the level of risk that the Company is
willing to accept. In addition, the Company monitors and measures the overall
risk bearing capacity in relation to the aggregate risk exposure across risks
type and activities.
Risk Mitigation
The Company has investment guidelines that set out its overall business
strategies, its tolerance for risk and its general risk management philosophy
and has established processes to monitor and control economic hedging
transactions in a timely and accurate manner. The Company uses derivatives and
other instruments only in connection with its risk management activities, but
not for trading purposes.
Excessive Risk concentration
Concentration arises when a number of counterparties are engaged in similar
business activities, or activities in the same geographic region, or have
similar economic features that would cause their ability to meet contractual
obligations to be similarly affected by changes in economic, political or other
conditions. Concentration indicates the relative sensitivity of the Company's
performance to developments affecting a particular issuer, manager, asset class
or geographical location.
Excessive Risk concentration (Continued)
In order to avoid excessive concentration of risk, the Company's policies and
procedures include specific guidelines to focus on maintaining a diversified
portfolio. Identified concentration of credit risks are controlled and managed
accordingly.
Carador's investment guidelines specify, among others, that the Company must
invest in a minimum of 20 separate CDO equity, mezzanine and/or senior tranche
transactions with a maximum exposure per CDO investment, at the time of
investment, of 20 per cent. of the Net Asset Value. The Company also limits its
exposure to CDOs managed by the same CDO portfolio manager to 15 per cent of the
Net Asset Value, at the time of investment. However, if the CDO portfolio
manager is an affiliate of the Investment Manager, this limit is increased to 60
per cent of the Net Asset Value, at the time of investment.The concentration
risk at 31 December 2008 and 31 March 2008 is disclosed within credit risk note
15.2.
15.1.Market Risk
Market risk is the risk that the fair value or future cash flows of a financial
instrument will fluctuate because of changes in market prices and includes
interest rate risk, foreign currency risk and "other price risks", such as index
price risk. The Company uses derivative instruments to hedge the investment
portfolio against currency risk.
The Company's investments in collateralised debt obligations typically have no
significant assets other than the collateral. Accordingly, payments on the CDO
securities are payable solely from the cash flows from the collateral, net of
all management fees and other expenses. Payments to the Company as a holder of
equity notes and/or mezzanine notes are met only after payments due on the
senior notes (and, where appropriate, the mezzanine notes) have been made in
full.
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the period ended 31 December 2008
15.RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
15.1.Market Risk (Continued)
The following table shows the securities held by the Company which are
susceptible to market risk arising from uncertainties about interest rates,
foreign currency fluctuation and future prices of the instruments.
+-------------------------------+----------------+----------------+--------------+
| | Company | Consolidated | Company |
+-------------------------------+----------------+----------------+--------------+
| | 31 December | 31 December | 31 March |
| | 2008 | 2008 | 2008 |
+-------------------------------+----------------+----------------+--------------+
| | EUR | EUR | EUR |
+-------------------------------+----------------+----------------+--------------+
| Financial assets at fair | 53,036,009 | 252,811,063 | 29,496,338 |
| value | | | |
+-------------------------------+----------------+----------------+--------------+
| Investment in subsidiaries at | 12,311,214 | - | - |
| fair value | | | |
+-------------------------------+----------------+----------------+--------------+
| Derivative financial | 680,057 | 680,057 | 55,537 |
| instruments | | | |
+-------------------------------+----------------+----------------+--------------+
| | | | |
+-------------------------------+----------------+----------------+--------------+
| Financial liabilities at fair | - | (190,107,679) | - |
| value | | | |
+-------------------------------+----------------+----------------+--------------+
| Derivative financial | (892,415) | (892,415) | - |
| instruments | | | |
+-------------------------------+----------------+----------------+--------------+
| | | | |
+-------------------------------+----------------+----------------+--------------+
Interest Rate Risk
The majority of the Company's financial assets are equity and mezzanine tranches
of cashflow Collateralised Debt Obligations. The Company's investments have some
exposure to interest rate risk but this is limited to floating Libor-based
exposure for both the CDO's assets and its liabilities.
The following table shows the Director's best estimate of the sensitivity of the
portfolio to stressed changes in interest rates, with all other variables held
constant. The table assumes parallel shifts in the respective forward yield
curves. The table also assumes 3 month USD Libor ("$ 3m Libor") and 6 month EUR
Libor ("EUR 6m Libor"), which are the standard indices for each type of CDO
transaction.
+--------------+-----------+-------------+-----------------+------------+--------------+
| Consolidated | Possible | Effect on | Effect on Net | Effect on | Effect on |
| | Absolute | Profit 31 | Assets 31 | Profit 31 | Net Assets |
| | Change in | December | December 2008 | March 2008 | 31 March |
| | Rate | 2008 | | | 2008 |
+--------------+-----------+-------------+-----------------+------------+--------------+
| $ 3m | -1% | 96,291 | 96,291 | 265,634 | 296,352 |
| Libor | | | | | |
+--------------+-----------+-------------+-----------------+------------+--------------+
| | 1% | (57,179) | (57,179) | (258,704) | (290,915) |
+--------------+-----------+-------------+-----------------+------------+--------------+
| EUR 6m | -1% | 478,129 | 478,129 | 225,783 | 581,829 |
| Libor | | | | | |
+--------------+-----------+-------------+-----------------+------------+--------------+
| | 1% | (480,943) | (480,943) | (220,356) | (565,516) |
+--------------+-----------+-------------+-----------------+------------+--------------+
| | | | | | |
+--------------+-----------+-------------+-----------------+------------+--------------+
| Company | Possible | Effect on | Effect on Net | Effect on | Effect on |
| | Absolute | Profit 31 | Assets 31 | Profit 31 | Net Assets |
| | Change in | December | December 2008 | March 2008 | 31 March |
| | Rate | 2008 | | | 2008 |
+--------------+-----------+-------------+-----------------+------------+--------------+
| $ 3m | -1% | 70,767 | 70,767 | 265,634 | 296,352 |
| Libor | | | | | |
+--------------+-----------+-------------+-----------------+------------+--------------+
| | 1% | (42,022) | (42,022) | (258,704) | (290,915) |
+--------------+-----------+-------------+-----------------+------------+--------------+
| EUR 6m | -1% | 526,034 | 526,034 | 225,783 | 581,829 |
| Libor | | | | | |
+--------------+-----------+-------------+-----------------+------------+--------------+
| | 1% | (529,130) | (529,130) | (220,356) | (565,516) |
+--------------+-----------+-------------+-----------------+------------+--------------+
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the period ended 31 December 2008
15.RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
15.1.Market Risk (continued)
Interest Rate Risk (continued)
Concentration of interest rate risk
+------------------------------+---------------+---------------+-----------------+
| | Company | Consolidated | Company |
+------------------------------+---------------+---------------+-----------------+
| | 31 December | 31 December | 31 March 2008 |
| | 2008 | 2008 | |
+------------------------------+---------------+---------------+-----------------+
| | % | % | % |
+------------------------------+---------------+---------------+-----------------+
| Investments related to | 100.00 | 100.00 | 100.00 |
| floating rate assets | | | |
+------------------------------+---------------+---------------+-----------------+
| | | | |
+------------------------------+---------------+---------------+-----------------+
| Investments related to fixed | - | - | - |
| rate assets | | | |
+------------------------------+---------------+---------------+-----------------+
| | | | |
+------------------------------+---------------+---------------+-----------------+
| | 100.00 | 100.00 | |
+------------------------------+---------------+---------------+-----------------+
Currency Risk
The Company's investments are denominated in dollar and euro (the functional
currency of the Company). It is therefore exposed to currency risk, as the value
of the securities denominated in other currencies than the euro will fluctuate
due to changes in exchange rates. This exposure is mitigated by the use of
monthly rolling forward currency contracts as hedges.
The tables below indicate the currencies to which the Company had significant
exposure at 31 December 2008 on its trading monetary assets and liabilities. The
analysis discloses the Directors' best estimates of the effect of a reasonably
possible movement of the currency rate against the euro with all other variables
held constant on the profit and loss account. A negative amount in the table
reflects a potential net reduction in profit and loss or net assets, while a
positive amount reflects a net potential increase.
+--------------+--------------+------------+------------+------------+--------------+
| Company | Possible | 31 | 31 | 31 March | 31 March |
| | Reasonable | December | December | 2008 Net | 2008 Effect |
| | Change in | 2008 Net | 2008 | Exposure | on Net |
| | Exchange | Exposure | Effect on | | Assets and |
| | Rate | |Net Assets | | Profit |
| | | |and Profit | | |
+--------------+--------------+------------+------------+------------+--------------+
| Currency | % | EUR | EUR | EUR | EUR |
+--------------+--------------+------------+------------+------------+--------------+
| | | | | | |
+--------------+--------------+------------+------------+------------+--------------+
| US dollar | (+/-) 5 | (466,686) | (+/-) | (+/-) | (+/-) 4,870 |
| | | | 26,300 | 102,267 | |
+--------------+--------------+------------+------------+------------+--------------+
| | | | | | |
+--------------+--------------+------------+------------+------------+--------------+
| Consolidated | | | | | |
+--------------+--------------+------------+------------+------------+--------------+
| | | | | | |
+--------------+--------------+------------+------------+------------+--------------+
| US dollar | (+/-) 5 |5,625,973 | (+/-) | (+/-) | (+/-) 4,870 |
| | | | 286,825 | 102,267 | |
+--------------+--------------+------------+------------+------------+--------------+
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the period ended 31 December 2008
15.RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
15.1.Market Risk (continued)
Currency Risk (continued)
Concentration of foreign currency exposure
The Company's total net exposure in foreign currency exchange rates at the
Balance Sheet date was as follows:
+------------------------------+----------------+------------------+--------------+
| | Company | Consolidated | Company |
+------------------------------+----------------+------------------+--------------+
| | Total | Total | Total |
+------------------------------+----------------+------------------+--------------+
| | 31 December | 31 December 2008 | 31 March |
| | 2008 | | 2008 |
+------------------------------+----------------+------------------+--------------+
| | EUR | EUR | EUR |
+------------------------------+----------------+------------------+--------------+
| Financial assets | | | |
+------------------------------+----------------+------------------+--------------+
| | | | |
+------------------------------+----------------+------------------+--------------+
| US dollar | 52,977,999 | 250,571,001 | 152,832 |
+------------------------------+----------------+------------------+--------------+
| | | | |
+------------------------------+----------------+------------------+--------------+
| Total financial assets | 52,977,999 | 250,571,001 | 152,832 |
+------------------------------+----------------+------------------+--------------+
| | | | |
+------------------------------+----------------+------------------+--------------+
| Financial liabilities | | | |
+------------------------------+----------------+------------------+--------------+
| | | | |
+------------------------------+----------------+------------------+--------------+
| US dollar | (53,444,685) | (244,945,028) | - |
+------------------------------+----------------+------------------+--------------+
| | | | |
+------------------------------+----------------+------------------+--------------+
| Total financial liabilities | (53,444,685) | (244,945,028) | - |
+------------------------------+----------------+------------------+--------------+
| | | | |
+------------------------------+----------------+------------------+--------------+
| Net exposure | (466,686) | 5,625,973 | 152,832 |
+------------------------------+----------------+------------------+--------------+
The Company's policy is to enter to monthly currency hedging transactions to
mitigate currency risk.
At 31 December 2008 and 31 March 2008 the Company had open forward positions in
the following contracts:
+--------------+--------+------------+-----+-------------+--------+-------------+-------------+
| Contract | Strike | Maturity | Ccy | | Ccy | | Unrealised |
| | | | | | | | |
+--------------+--------+------------+-----+-------------+--------+-------------+-------------+
| Date | price | date | Buy | Amount | Sell | Amount | Gain/(Loss) |
| | | | | | | | EUR |
+--------------+--------+------------+-----+-------------+--------+-------------+-------------+
| 31/12/2008 | 1.439 | 30/01/09 | USD | 74,203,805 | EUR | 52,552,270 | (892,415) |
+--------------+--------+------------+-----+-------------+--------+-------------+-------------+
| 31/12/2008 | 1.439 | 30/01/09 | EUR | 40,094,551 | USD | 56,613,506 | 680,057 |
+--------------+--------+------------+-----+-------------+--------+-------------+-------------+
| | | | | | | | |
+--------------+--------+------------+-----+-------------+--------+-------------+-------------+
| | | | | | | | |
+--------------+--------+------------+-----+-------------+--------+-------------+-------------+
| Contract | Strike | Maturity | Ccy | | Ccy | | Unrealised |
| | | | | | | | |
+--------------+--------+------------+-----+-------------+--------+-------------+-------------+
| Date | price | date | Buy | Amount | Sell | Amount | Gain EUR |
| | | | | | | | |
+--------------+--------+------------+-----+-------------+--------+-------------+-------------+
| 31/03/2008 | 1.575 | 30/04/2008 | EUR | 10,793,651 | USD | 17,000,000 | 55,537 |
+--------------+--------+------------+-----+-------------+--------+-------------+-------------+
The period end exchange rate was EUR:USD 1.39005 (31 March 2008: 1.58455).
The primary purpose of the Company's foreign currency economic hedging
activities is to protect against the volatility associated with investments
denominated in foreign currencies. The Company primarily utilises forward
exchange contracts to hedge foreign-currency denominated financial assets.
Increases or decreases in the Company's foreign-currency-denominated financial
assets are largely offset by gains and losses on the economic hedging
instruments. The Company does not use foreign currency forward exchange
contracts or purchased currency options for trading purposes.
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the period ended 31 December 2008
15. RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
15.1. Market risk (continued)
Index Price Risk
Index price risk is the risk that the fair value of the portfolio changes as the
result of changes in the levels of fixed income and credit indices.
Specifically, it is the Company's portfolio of CDOs that is effected by index
price risk.
The Directors' best estimate of the effect on the Company's net assets and
profit and loss due to a reasonably possible change in standard fixed income
credit indices, with all other variable held constant is as follows. In practice
the actual trading results may differ from the below sensitivity analysis and
the difference could be material.
+----------+-----------+-------------+-----------+-------------+-------------------+
| Market |Change in | Change in | Effect | Change in | Effect on net |
| Indices | Market | Price (%) | on net | Price (%) |assets and profit |
| |Index (%) | | assets | | |
| | | | and | | |
| | | | profit | | |
+----------+-----------+-------------+-----------+-------------+-------------------+
| | |31 December | 31 | 31 March | 31 March 2008 |
| | | 2008 | December | 2008 | |
| | | | 2008 | | |
+----------+-----------+-------------+-----------+-------------+-------------------+
| iTraxx | +10% | 4.32% | EUR | 9.69% | EUR 3,289,592 |
| LEVX | | |2,975,871 | | |
+----------+-----------+-------------+-----------+-------------+-------------------+
|CDX LCDX | +10% | 11.07% | EUR | 7.08% | EUR 2,404,592 |
| | | |7,619,469 | | |
+----------+-----------+-------------+-----------+-------------+-------------------+
| iTraxx | +10% | 2.50% | EUR | 1.61% | EUR 548,265 |
| Europe | | |1,721,472 | | |
+----------+-----------+-------------+-----------+-------------+-------------------+
| CDX NA | +10% | 5.00% | EUR | 1.77% | EUR 601,148 |
| IG | | |3,442,943 | | |
+----------+-----------+-------------+-----------+-------------+-------------------+
| | | | | | |
+----------+-----------+-------------+-----------+-------------+-------------------+
| iTraxx | Index consists of 35 equally weighted European reference entities, |
| LEVX | referencing 1st lien loans. Calculated by Markit |
+----------+-----------------------------------------------------------------------+
|CDX LCDX | Index consists of 100 reference entities, referencing 1st lien loans |
| | listed on the Markit Syndicated Secured List |
+----------+-----------------------------------------------------------------------+
| iTraxx | Index composed of one hundred twenty five (125) investment grade |
| Europe | entities domiciled in Europe. Calculated by Markit |
+----------+-----------------------------------------------------------------------+
| CDX NA | Index composed of one hundred twenty five (125) investment grade |
| IG | entities domiciled in North America. Calculated by Markit |
+----------+-----------+-------------+-----------+-------------+-------------------+
The table below contains the inputs that have been used for the Index price risk
analysis table.
The definition for each of the columns is the following:
- market Indices: relevant Market Indices to stress;
- change in Market Index: stress applied;
- estimated Sensitivity: manager's view on the "beta" between Carador
investments and the index;
- % of Portfolio to Apply: based on asset allocation of Carador and the Market
Indices.
In order to arrive at "Change in Price" in the above table, the "Change in
Market Index" was multiplied by "Estimated Sensitivity" and "Percentage of
Portfolio to Apply" in the below table.
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the period ended 31 December 2008
15.RISK ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
15.1.Market Risk (continued)
Index Price Risk (continued)
+-----------+-----------+--------------+-------------+--------------+-------------+
| Market | Change in | Estimated | % of | Estimated | % of |
| Indices | Market | Sensitivity | Portfolio | Sensitivity | Portfolio |
| | Index (%) | | to Apply | | to Apply |
+-----------+-----------+--------------+-------------+--------------+-------------+
| | | 31 December | 31 December | 31 March | 31 March |
| | | 2008 | 2008 | 2008 | 2008 |
+-----------+-----------+--------------+-------------+--------------+-------------+
| | | | | | |
+-----------+-----------+--------------+-------------+--------------+-------------+
| iTraxx | +10% | 1.50 | 29% | 1.50 | 64.59% |
| LEVX | | | | | |
+-----------+-----------+--------------+-------------+--------------+-------------+
| CDX LCDX | +10% | 2.00 | 55% | 2.00 | 35.41% |
+-----------+-----------+--------------+-------------+--------------+-------------+
| iTraxx | +10% | 0.25 | 100% | 0.25 | 64.59% |
| Europe | | | | | |
+-----------+-----------+--------------+-------------+--------------+-------------+
| CDX NA IG | +10% | 0.50 | 100% | 0.50 | 35.41% |
+-----------+-----------+--------------+-------------+--------------+-------------+
Concentration of index price risk
The table below analyses the Company's concentration of index price risk by
subsector in the secured loan asset class, including investment in subsidiary
(represented above by the iTraxx LEVX and CDX LCDX indices).
+---------------------------------------------+----------------+----------------+
| | Financial | Financial |
| | Assets | Assets |
+---------------------------------------------+----------------+----------------+
| | 31 December | 31 March 2008 |
| | 2008 | |
+---------------------------------------------+----------------+----------------+
| By Asset Class: | EUR | EUR |
+---------------------------------------------+----------------+----------------+
| Broadly Syndicated Sub-Investment Grade | 10,674,117 | 18,529,351 |
| Secured Loans - Europe | | |
+---------------------------------------------+----------------+----------------+
| Broadly Syndicated Sub-Investment Grade | 34,941,182 | 7,646,606 |
| Secured Loans - North America | | |
+---------------------------------------------+----------------+----------------+
| Middle Markets Secured Loans - North | 2,329,195 | 2,520,936 |
| America | | |
+---------------------------------------------+----------------+----------------+
| ABS Investment Grade - Europe | - | 521,764 |
+---------------------------------------------+----------------+----------------+
| Trust Preferred Securities - North America | - | 277,681 |
+---------------------------------------------+----------------+----------------+
| Other | 1,875,584 | - |
+---------------------------------------------+----------------+----------------+
| Term Deposits | 15,527,145 | - |
+---------------------------------------------+----------------+----------------+
| | 65,347,223 | 29,496,338 |
+---------------------------------------------+----------------+----------------+
| | | |
+---------------------------------------------+----------------+----------------+
| | 65,347,222 | 29,496,338 |
+---------------------------------------------+----------------+----------------+
| | | |
+---------------------------------------------+----------------+----------------+
The table below analyses the Company's concentration of index price risk by
geographical area.
+---------------------+-------------------+------------------+-------------------+
| | Company | Consolidated | Company |
+---------------------+-------------------+------------------+-------------------+
| | Financial Assets | Financial Assets | Financial Assets |
| | at Market Value | at Market Value | at Market Value |
+---------------------+-------------------+------------------+-------------------+
| | 31 December 2008 | 31 December 2008 | 31 March 2008 |
+---------------------+-------------------+------------------+-------------------+
| | EUR | EUR | EUR |
+---------------------+-------------------+------------------+-------------------+
| Europe | 12,549,701 | 18,529,351 | 19,051,115 |
+---------------------+-------------------+------------------+-------------------+
| North America | 52,797,522 | 7,646,606 | 10,445,223 |
+---------------------+-------------------+------------------+-------------------+
| | 65,347,223 | 26,175,957 | 29,496,338 |
+---------------------+-------------------+------------------+-------------------+
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the period ended 31 December 2008
15.RISK ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
15.2. Credit Risk
Credit Risk is the risk that one party to a financial instrument will cause a
financial loss for the other party by failing to discharge an obligation. It is
the Company's policy to enter into financial instruments with a range of
reputable counterparties. Therefore, the Company does not expect to incur
material credit losses on its financial instruments.
The table below analyses the Company's maximum credit exposure to credit risk
for the components of the Balance Sheet, including derivative financial
instruments.
+-------------------------+-----------------+------------------+--------------+
| | Company | Consolidated | Company |
+-------------------------+-----------------+------------------+--------------+
| | 31 December | 31 December 2008 | 31 March |
| | 2008 | | 2008 |
+-------------------------+-----------------+------------------+--------------+
| | EUR | EUR | EUR |
+-------------------------+-----------------+------------------+--------------+
| Cash and cash | 162,243 | 8,146,587 | 3,278,746 |
| equivalents | | | |
+-------------------------+-----------------+------------------+--------------+
| Amounts due from | 909,377 | 909,377 | 409,377 |
| brokers | | | |
+-------------------------+-----------------+------------------+--------------+
| Investments at fair | 52,641,385 | 252,416,439 | 29,496,338 |
| value | | | |
+-------------------------+-----------------+------------------+--------------+
| Investments in | 12,311,214 | - | - |
| subsidiaries | | | |
+-------------------------+-----------------+------------------+--------------+
| Derivative financial | 680,057 | 680,057 | 55,537 |
| instruments | | | |
+-------------------------+-----------------+------------------+--------------+
The change in fair value of the loans and receivables designated at fair value
through profit or loss, attributable to changes in credit risk amounts to a loss
to the Company and the Group of EUR2,057,477 (31 March 2008: EURnil). The estimate
is based on the change in the average bid of loans held in Gale Force 4 which
suffered credit rating changes by Moody's or S&P during the period 9 December
2008 to 31 December 2008, adjusted by the change in the S&P LCD All Loans Index.
There were 3 loans downgraded by S&P, 9 loans downgraded by Moody's and one loan
upgraded by Moody's. The average bid of the S&P LCD All Loans Index decreased by
1.01% during the period.
The change in fair value of the financial liabilities at fair value through
profit or loss, attributable to changes in credit risk amounts to a loss to the
Group of EUR2,417,549 (31 March 2008: EURnil).
There is no significant credit risk attached to cash and cash equivalents,
amounts due from brokers or derivative financial instruments.
The Company also quantifies the exposure to credit risk of all financial assets
(excluding equities) by geographic region:
+-----------------------------+---------------------+----------------+-------------+
| | Company | Consolidated | Company |
+-----------------------------+---------------------+----------------+-------------+
| | 31 December 2008 | 31 December | 31 March |
| | | 2008 | 2008 |
+-----------------------------+---------------------+----------------+-------------+
| | EUR | EUR | EUR |
+-----------------------------+---------------------+----------------+-------------+
| Cayman Islands | 35,742,592 | 24,310,051 | 6,997,027 |
+-----------------------------+---------------------+----------------+-------------+
| United States | 16,660,306 | 208,113,832 | 3,448,196 |
+-----------------------------+---------------------+----------------+-------------+
| Canada | - | 6,414,151 | - |
+-----------------------------+---------------------+----------------+-------------+
| Ireland | 6,653,959 | 6,653,958 | 7,110,540 |
+-----------------------------+---------------------+----------------+-------------+
| Luxembourg | 515,750 | 680,312 | 1,000,000 |
+-----------------------------+---------------------+----------------+-------------+
| Netherlands | 5,379,992 | 5,379,992 | 10,940,575 |
+-----------------------------+---------------------+----------------+-------------+
| Norway | - | 864,143 | - |
+-----------------------------+---------------------+----------------+-------------+
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the period ended 31 December 2008
15.RISK ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
15.2. Credit Risk (Continued)
The table below summarizes the Company's portfolio concentrations as of 31 March
2008 and 31 December 2008.
+------------------------------+--------------------+---+---------------------+
| | Maximum Portfolio | | Average Portfolio |
| | Holdings of a | | Holdings |
| | single asset | | |
+------------------------------+--------------------+---+---------------------+
| | % of Total | |% of Total Porfolio |
| | Porfolio | | |
+------------------------------+--------------------+---+---------------------+
| | | | |
+------------------------------+--------------------+---+---------------------+
| 31 December 2008 Company | 18.86% | | 1.73% |
+------------------------------+--------------------+---+---------------------+
| 31 December 2008 | 10.63% | | 1.39% |
| Consolidated | | | |
+------------------------------+--------------------+---+---------------------+
| 31 March 2008 | 5.43% | | 2.80% |
+------------------------------+--------------------+---+---------------------+
The Company's and Group's portfolio is mostly invested in the equity tranches of
cashflow Collateralised Debt Obligations that, by definition, are not rated
securities. The only security in which the Company has invested that is rated is
the Inwood Park CDO BB which had a rating of Ba2 with Moodys and BB with
Standard and Poors as at 31 December 2008.The consolidated portfolio also
contains Gale Force 4 loans.
The ratings of the consolidated portfolio of investments are as follows:
+--------------------------+-------------------+----------------+-----------------+
| | Company | Consolidated | |
+--------------------------+-------------------+----------------+-----------------+
| | 31 December 2008 | 31 December | 31 March 2008 |
| | | 2008 | |
+--------------------------+-------------------+----------------+-----------------+
| Moody's Rating | Market Value EUR | Market Value EUR | Market Value EUR |
| | | | |
+--------------------------+-------------------+----------------+-----------------+
| A3 | - | 2,025,826 | - |
+--------------------------+-------------------+----------------+-----------------+
| B1 | - | 24,457,566 | 16,660,259 |
+--------------------------+-------------------+----------------+-----------------+
| B2 | - | 55,123,054 | 1,431,005 |
+--------------------------+-------------------+----------------+-----------------+
| B3 | - | 12,047,179 | - |
+--------------------------+-------------------+----------------+-----------------+
| Ba1 | - | 5,440,082 | 1,534,601 |
+--------------------------+-------------------+----------------+-----------------+
| Ba2 | 1,513,587 | 6,024,730 | - |
+--------------------------+-------------------+----------------+-----------------+
| Ba3 | - | 8,086,910 | 7,782,792 |
+--------------------------+-------------------+----------------+-----------------+
| Baa2 | - | 611,489 | - |
+--------------------------+-------------------+----------------+-----------------+
| Caa1 | - | 9,328,793 | - |
+--------------------------+-------------------+----------------+-----------------+
| Caa2 | - | 4,561,731 | - |
+--------------------------+-------------------+----------------+-----------------+
| Caa3 | - | 2,395,549 | - |
+--------------------------+-------------------+----------------+-----------------+
| NR | 63,833,636 | 122,708,153 | 2,087,681 |
+--------------------------+-------------------+----------------+-----------------+
| Total | 65,347,223 | 252,811,063 | 29,496,338 |
+--------------------------+-------------------+----------------+-----------------+
The Company may be adversely impacted by an increase in its credit exposure
related to investing, financing, and other activities. The Company is exposed to
the potential for credit related losses that can occur as a result of an
individual, counterparty or issuer being unable or unwilling to honour its
contractual obligations. Theses credit exposures exist within financing
relationships, commitments, derivatives and other transactions. These exposures
may arise, for example, from a decline in the financial condition of a
counterparty, from entering into swap or other derivative contracts under which
counterparties have obligations to make payments to us, from a decrease in the
value of securities of third parties that the Company holds as collateral, or
from extending credit through guarantees or other arrangements. As the Company's
credit exposure increases, it could have an adverse effect on the Company's
business and profitability if material unexpected credit losses occur.
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the period ended 31 December 2008
15.RISK ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
15.2. Credit risk (continued)
The Company will typically be in a first loss or subordinated position with
respect to realised losses on the collateral of each investment. With the
exception of investments in senior CLO notes, the Company will typically be in a
first loss or subordinated position with respect to realised losses on the
collateral of each investment. The leveraged nature of the equity notes and the
mezzanine notes, in particular, magnifies the adverse impact of collateral
defaults. The leveraged nature of the equity notes and the mezzanine notes, in
particular, magnifies the adverse impact of collateral defaults.
The investments held by the Company are subject to ongoing review as part of the
Investment Manager's monitoring process. Data used in the credit monitoring
process includes trustee reports, internal research, security prices, rating
agency reports, press releases and ongoing due diligence, and aims to assess the
performance of the specific investments. The process also includes regular
contact with the investment vehicle's manager and advisers. GSO maintains a
"Credit Watch List" of corporate credits, which is used to monitor the
underlying portfolios of each investment, and a "CDO Review List" which is based
on a matrix which summarises the performance of the investment in terms of
over-collateralization tests ("OC test"), weighted average spread of the
underlying portfolio ("WAS"), weighted average rating factor of the underlying
portfolio ("WARF") and manager quality. One of the assets held by the company,
FM LCF II, representing an estimated 1.06% of the Company's net asset value, was
listed on the CDO Review List at year end, showing a 0.8% negative value in the
OC test.
15.3.Liquidity Risk
Liquidity risk is defined as the risk that the Company may not be able to settle
or meet its obligations on time or at a reasonable price.
The Company does not use leverage and as a result it has no financing subject to
margin calls which may force the Company to liquidate assets. The Company's
unleveraged capital structure reflects the long-term investment strategy and
matches the illiquidity of the underlying investments. As the Company is a
listed closed end investment company, it is not required to meet any fund
redemptions and hence liquidity risk is limited.
The Company has been established with a 15 year life. At the annual general
meeting in 2021, the Directors will be obliged to put a resolution for the
winding-up of the Company. The Directors may be relieved of this obligation by
special resolution of shareholders. The Directors expect that at the end of the
15 year life the Company's investments will have been realised or will be
capable of immediate realisation at their fair values. There is no certainty
that market events in the intervening period will not cause legal maturities in
the Company's underlying investments to have been extended beyond the
anticipated life of the Company thus causing the Directors to seek relief from
winding up the Company.
Given the Company's permanent capital structure, it is not exposed to liquidity
risk, such as redemption risk. However the Company's financial instruments
include investments in collateralised debt obligations and derivative contracts
traded over-the-counter which are not traded in an organised public market and
which may be illiquid. As a result, the Company may not be able to promptly
liquidate some of its investments in these instruments at an amount close to its
fair value in order to meet its liquidity requirements or to respond to specific
events such as deterioration in the credit worthiness of any particular issuer.
It may be impossible to assess the exposure to risk in such circumstances.
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the period ended 31 December 2008
15.RISK ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
15.3.Liquidity Risk (Continued)
The table below analyses the Company's financial liabilities into relevant
maturity grouping based on remaining period at the balance sheet date to the
contractual maturity date. There is a facility agreement in place with JP Morgan
to mitigate liquidity risk, which is undrawn at year end. The amounts in the
table are the contractual undiscounted cash flows. Balances due within 12 months
equal their Balance Sheet carrying balance, as the impact of discounting is not
significant.
+----------------------------+--------+-------------+---------+-----------+--------------+
| | Due on | Due | Due | Due after | Total |
| | demand | within 3 | between | 12 months | |
| | | months | 3 and | | |
| | | | 12 | | |
| | | | months | | |
+----------------------------+--------+-------------+---------+-----------+--------------+
| Company | EUR | EUR | EUR | EUR | EUR |
+----------------------------+--------+-------------+---------+-----------+--------------+
| | | | | | |
+----------------------------+--------+-------------+---------+-----------+--------------+
| Financial liabilities as at 31 | | | | |
| December 2008 | | | | |
+-------------------------------------+-------------+---------+-----------+--------------+
| Derivative financial | - | (892,415) | - | - | (892,415) |
| instruments | | | | | |
+----------------------------+--------+-------------+---------+-----------+--------------+
| Other payables | - | (2,032,259) | - | - | (2,032,259) |
+----------------------------+--------+-------------+---------+-----------+--------------+
| Total financial | - | (2,924,674) | - | - | (2,924,674) |
| liabilities | | | | | |
+----------------------------+--------+-------------+---------+-----------+--------------+
The table below analyses the Group's financial liabilities into relevant
maturity grouping based on remaining period at the balance sheet date to the
contractual maturity date. The amounts in the table are the contractual
undiscounted cash flows. Balances due within 12 months equal their Balance Sheet
carrying balance, as the impact of discounting is not significant. The carrying
value of the financial liabilities due after 12 months is EUR111,402,893 (31 March
2008: EURnil), a difference of EUR278,839,322 from the undiscounted contractual
cashflow.
+----------------------------+--------+--------------+---------+---------------+---------------+
| | Due on | Due | Due | Due after | Total |
| | demand | within 3 | between | 12 months | |
| | | months | 3 and | | |
| | | | 12 | | |
| | | | months | | |
+----------------------------+--------+--------------+---------+---------------+---------------+
| Consolidated | EUR | EUR | EUR | EUR | EUR |
+----------------------------+--------+--------------+---------+---------------+---------------+
| | | | | | |
+----------------------------+--------+--------------+---------+---------------+---------------+
| Financial liabilities as at 31 | | | | |
| December 2008 | | | | |
+-------------------------------------+--------------+---------+---------------+---------------+
| Derivative financial | - | (892,415) | - | - | (892,415) |
| instruments | | | | | |
+----------------------------+--------+--------------+---------+---------------+---------------+
| Other payables | - | (3,414,923) | - | - | (3,414,923) |
+----------------------------+--------+--------------+---------+---------------+---------------+
| Financial liabilities at | - | - | - | (390,242,215) | (390,242,215) |
| fair value through profit | | | | | |
| or loss | | | | | |
+----------------------------+--------+--------------+---------+---------------+---------------+
| Total financial | - | (4,307,338) | - | (390,242,215) | (394,549,553) |
| liabilities | | | | | |
+----------------------------+--------+--------------+---------+---------------+---------------+
| | | | | | |
+----------------------------+--------+--------------+---------+---------------+---------------+
| | Due on | Due | Due | Due after | Total |
| | demand | within 3 | between | 12 months | |
| | | months | 3 and | | |
| | | | 12 | | |
| | | | months | | |
+----------------------------+--------+--------------+---------+---------------+---------------+
| Company | EUR | EUR | EUR | EUR | EUR |
+----------------------------+--------+--------------+---------+---------------+---------------+
| | | | | | |
+----------------------------+--------+--------------+---------+---------------+---------------+
| Financial liabilities as at 31 | | | | |
| March 2008 | | | | |
+-------------------------------------+--------------+---------+---------------+---------------+
| Other payables | - | (195,237) | - | - | (195,237) |
+----------------------------+--------+--------------+---------+---------------+---------------+
| Total financial | - | (195,237) | - | - | (195,237) |
| liabilities | | | | | |
+----------------------------+--------+--------------+---------+---------------+---------------+
The amounts included in the above tables represent undiscounted cash flows.
However, amounts included in the Consolidated Balance Sheet represent discounted
cash flows.
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the period ended 31 December 2008
15.RISK ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
15.4.Collateral
The following table details the financial assets pledged as collateral for
liabilities or contingent liabilities:
+----------------------------------+--------------------------+---------------+
| | 31 December 2008 | 31 March |
| | | 2008 |
+----------------------------------+--------------------------+---------------+
| | EUR | EUR |
+----------------------------------+--------------------------+---------------+
| Cash Collateral for borrowed | 909,377 | 409,377 |
| securities | | |
+----------------------------------+--------------------------+---------------+
Cash collateral is held with JP Morgan. It is used to cover any mark to market
margin requirements. The interest on collateral is paid by JP Morgan
periodically. Cash collateral was requested by JP Morgan as of 11 January 2007.
16. STOCKLENDING
The Company did not enter into any stocklending transactions during the period
to which these financial statements relate or the prior year.
17. EARNINGS PER SHARE
Basic and diluted earnings per share is calculated by dividing net profit for
the period/(loss) attributable to redeemable participating shareholders of
Carador Plc by the weighted average number of ordinary shares outstanding during
the period. The weighted average number of shares for the nine months ended 31
December 2008 reflects the issue of shares in the period. The net loss used to
calculate the EPS for the year ended 31 March 2008 was the pre-dividend loss.
+-------------------------+------------------+------------------+----------------+
| | Company | Comsolidated | Company |
+-------------------------+------------------+------------------+----------------+
| | Nine months | Nine months | Year ended |
| | ended | ended | |
+-------------------------+------------------+------------------+----------------+
| | 31 December | 31 December | 31 March |
| | 2008 | 2008 | 2008 |
+-------------------------+------------------+------------------+----------------+
| Net loss for the period | (15,355,195) | (14,358,518) | (9,745,721) |
+-------------------------+------------------+------------------+----------------+
| | | | |
+-------------------------+------------------+------------------+----------------+
| Number of ordinary | 57,248,001 | 57,248,001 | 50,025,000 |
| shares for basic and | | | |
| diluted earnings per | | | |
| share | | | |
+-------------------------+------------------+------------------+----------------+
| | | | |
+-------------------------+------------------+------------------+----------------+
| Earnings per share | (0.27) | (0.25) | (0.19) |
+-------------------------+------------------+------------------+----------------+
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the period ended 31 December 2008
18. NET ASSET VALUE RECONCILIATION
The Net Asset Value per share which was published by the Company differs from
that presented in these financial statements for period ended 31 December 2008.
The difference is due to adjustment on value of investments and accruals.
The Net Asset Value reconciliation as at 31 December 2008 is as follows:
+----------------------------------------------------------+------------+----------+
| | EUR Class | US$ |
| | | Class |
+----------------------------------------------------------+------------+----------+
| Net Asset Value per share for shareholder dealing per | 0.49190 | 0.62430 |
| valuation | | |
+----------------------------------------------------------+------------+----------+
| Adjustment to accruals | (0.02575) | 0.02367 |
+----------------------------------------------------------+------------+----------+
| Net Asset Value per share per financial statements | 0.46615 | 0.64797 |
+----------------------------------------------------------+------------+----------+
The Net Asset Value reconciliation as at 31 March 2008 was:
+----------------------------------------------------------+------------+
| | EUR Class |
+----------------------------------------------------------+------------+
| Net Asset Value per share for shareholder dealing per | 0.67730 |
| valuation | |
+----------------------------------------------------------+------------+
| Adjustment to accruals | 0.01090 |
+----------------------------------------------------------+------------+
| Adjustment to value of investments | (0.00950) |
+----------------------------------------------------------+------------+
| Net Asset Value per share per financial statements | 0.67870 |
+----------------------------------------------------------+------------+
The Net Asset Value reconciliation as at 31 March 2007 was:
+----------------------------------------------------------+-----------+
| | EUR Class |
+----------------------------------------------------------+-----------+
| Net Asset Value per share for shareholder dealing per | 0.97926 |
| valuation | |
+----------------------------------------------------------+-----------+
| Adjustment to accruals | 0.03524 |
+----------------------------------------------------------+-----------+
| Net Asset Value per share per financial statements | 1.01450 |
+----------------------------------------------------------+-----------+
19. SEGMENTAL REPORTING
Under IAS 14, the primary segment has been identified as the business segment.
The Company has only one business segment, which is its investments in debt
securities.
20. INVESTMENT BREACH
At 31 December 2008 the Company was in breach of an investment restriction which
prevents it from holding more than 20% of its Net Asset Value on cash deposit
with any one institution. At 31 December 2008 the Company held 24% of its Net
Asset Value on cash deposit with the Northern Trust Company. The reason for this
breach was a delay in an account opening with JP Morgan into which the
Investment Manager intended to transfer any cash received from Abingdon as a
result of the amalgamation. On 16 January 2009 the account opening with JP
Morgan was completed. On 31 January 2009 the deposit with the Northern Trust
Company represented 20% of the Company's Net Asset Value.
21. DISTRIBUTIONS
The Board declared a distribution of 5.5 cents (EUR0.055) per each euro share in
respect of the 6 month interim period ending 30 September 2008. This
distribution was paid on 31 October 2008 to shareholders on the share register
as at the close of business on 31 October 2008. The total distribution amounted
to EUR2,751,375 (31 March 2008: EUR7,053,525).
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the period ended 31 December 2008
22.APPOINTMENT OF DIRECTORS
On 9 December 2008 Edward D'Alelio and Nicholas Moss were appointed to the Board
of Carador. Both Mr D'Alelio and Mr Moss were directors of Abingdon Investment
Limited prior to the amalgamation.
23.CHANGE IN ACCOUNTING YEAR END DATE
On 16 October 2008 it was resolved to change the Company's accounting year end
from 31 March to 31 December each year to coincide with the year end of its
subsidiary, Abingdon Finance Limited, on the sole condition that the
amalgamation be completed. As a result these financial statements present the
results of the company for the period from 1 April 2008 to 31 December 2008, a
period of nine months.
24.COMPARATIVE INFORMATION
The comparative information presented is the audited results of Carador plc for
the full year ended 31 March 2008 for both the Company primary statements, the
Consolidated primary statements and the notes to the financial Statements.The
comparative period of 31 March 2008 shows the position and results of the
Company for the year ended 31 March 2008.
25.SUBSEQUENT EVENTS
The Board declared an interim dividend on 15 January 2009 of EUR0.0015 per
ordinary share in respect of the quarterly period ended 31 December 2008. This
dividend was paid on 30 January 2009 to shareholders on the register as at the
close of business on 23 January 2009. US dollar class shareholders received
US$0.0019 per share, calculated at the prevailing exchange rate on 15 January
2008 of EUR1:US$1.3064. This equated to EUR84,277 and $159,219 and a total
distribution of EUR206,153.
At the extraordinary general meeting of the Company on 9 March 2009,
shareholders approved the amendment of the Company's investment objective and
investment policy to permit investment in the senior notes of CDOs which are
collaterised by senior secured bank loans.
On 14 April 2009 the Board declared a distribution of EUR0.0131 per share in
respect of the quarterly period ended 31 March 2009.
No other events have occurred in respect of the Company subsequent to the period
end that may be deemed relevant to the accuracy of these financial statements.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR ILFVTSSIIVIA
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