TIDMSEQI
RNS Number : 6530J
Sequoia Economic Infra Inc Fd Ld
15 April 2020
15 April 2020
Sequoia Economic Infrastructure Income Fund Limited (the
"Company" or "SEQI")
Net Asset Value ("NAV") as at 31 March 2020
NAV, Portfolio update and re-affirmation of dividend target
The NAV report for SEQI, the specialist investor in economic
infrastructure debt, for the month to 31 March 2020 follows a
period of exceptional market volatility and widening of spreads. In
response the Board, our Investment Adviser, our Consultants and
other advisers have thoroughly considered how best to protect and
enhance the Company's interests. Accordingly, as well as presenting
our NAV and Portfolio Update, we also take this opportunity to
report on some of the key conclusions from the portfolio and
balance sheet review recently undertaken as well as re-affirming
the Company's dividend target for the current financial year.
NAV Update
The NAV decreased from 106.36 pence per share at the end of
February 2020 to 96.69 pence per share at the end of March 2020,
representing a decrease of 9.67 pence per share or 9.1%.
Approximately 86% of the declines to asset valuations are
attributable to spread widening and the assumption of a higher
discount rate when applying mark to market adjustments to the
valuation process. A full attribution of the changes in the NAV per
share is as follows:
pence per share
February NAV 106.36
------------------------------------------------------ ---------------
Interest income, net of expenses +0.69
FX movements, net of hedges -0.03
Gain from issuing shares at a premium to NAV +0.67
Decline in mark to market asset valuations (including
spread widening) -11.00
------------------------------------------------------ ---------------
March NAV 96.69
------------------------------------------------------ ---------------
In reviewing the discount rate, PwC as the independent Valuation
Agent took account of the credit quality and sector of each private
investment and benchmarked each one to appropriate public
investments or indices. The decline in asset valuations reflects
the Company's policy to assess the fair value of its assets on a
monthly basis. SEQI does not apply the IFRS9 expected credit losses
model to its portfolio as, under IFRS9, this requirement only
applies to financial assets measured at amortised cost and not to
assets valued at fair value.
Although the general widening of spreads negatively impacts the
Company's monthly NAV estimate, it does not in itself affect the
Company's expectations at this time for the receipt of interest and
principal payments. Any subsequent reduction of the discount rate
will serve to increase the mark to market NAV and will over time
result in a greater pull to par effect.
In addition, the underlying performance of three of the
Company's investments have been adversely affected by COVID-19 and
the steep decline in the price of oil to varying degrees which
accounts for a 1.54 pence per share reduction in the NAV per share
when marked to market.
When compared to other debt indices, the fall in the company's
NAV compares relatively favourably to non-infrastructure asset
classes. For example, the Credit Suisse Leveraged Loan Index fell
approximatel y 21% on a price basis in March 2020 yet has since
rebounded by nearly one-third of that amount as global volatility
waned since the end of March 2020.
Key conclusion of the portfolio and balance sheet review
a. Dividend
For the financial year ending 31 March 2021 SEQI will continue
to target an annual dividend of 6.25 pence per share. Given current
performance of our investment portfolio, we anticipate that this
level of dividend pay-out should be fully cash covered over the
current financial year. Our Investment Adviser has considered a
range of scenarios which have led us, to conclude that, based on
the information currently available to us the dividend is likely to
be secure.
The Company's next quarterly dividend payment is expected to be
declared on 16 April 2020 for the period from 31 December 2019 to
31 March 2020.
b. Balance sheet
Having completed our most recent GBP300 million capital raise on
3 March, the Company entered the current downturn with a strong
balance sheet. As at 31 March 2020 the balance drawn on our RCF had
fallen to GBP35.0 million, including GBP24.6 million of margin held
by FX counterparties as a consequence of Sterling's sharp decline
over the month. At month end our cash balances amounted to GBP135.7
million.
Over the period to 6 December 2021, when our existing RCF
expires, principal obligations amounting to GBP234.8 million in
aggregate from our portfolio of loans and bonds will reach their
contractual maturities.
c. New investment
Recognising the severity of the COVID-19 pandemic, on 16 March
SEQI announced a two-week moratorium on new primary lending to
allow for a window of time in which to reassess our strategy for
the utilisation of our funds available to invest. We concluded that
on prudential grounds, it made sense to restrict the pace of our
investment activity with the result that our Investment Adviser
decided not to proceed with certain of the loans that were in their
pipeline but to which we were not contractually committed. As a
consequence allowing for new loans which were drawn in March
(details of which are given below) and for two further attractive
primary loans amounting to GBP86.0 million in total which are still
to be drawn, we now anticipate that at the end of April we will
have GBP80.9 million of cash, net of GBP35.0 million of outstanding
leverage.
The disciplined approach we have adopted will afford us the
opportunity to use our balance sheet capacity over the coming
months if appropriate opportunities arise, as we believe they
might, to take advantage of difficult market conditions and acquire
bonds or extend new loans on attractive and accretive terms.
d. Credit monitoring
In response to the ongoing COVID-19 crisis, the Investment
Adviser has redirected some of its origination resources to
enhanced credit and portfolio monitoring.
Across the range of sectors in which we invest, the outlook for
some is largely unaffected though the situation remains fluid and
dependent on the length and severity of impact on the economy of
continued COVID-19 lockdowns. These include renewables, data
centres, mobile phone cell towers, smart metering, specialised
health care, US power, specialist shipping and residential
infrastructure. Some investments in other sectors, such as
transportation, transportation assets and midstream oil & gas,
however, have greater exposure to COVID-19 and low oil prices and
will require close monitoring and communication with the
borrowers.
As noted previously, there are three investments which have been
adversely affected and are being very closely monitored. These
are:
1. An investment in the senior and holdco loans of a US
midstream business, based in the Permian basin. These loans are
equal to 2.8% of the Company's gross asset value and approximately
81% of the Company's exposure to this borrower is through senior
secured loans. This business is still in its ramp-up phase and
capex overruns and the fall in the oil price has left it with
short-term liquidity concerns. The Investment Adviser, together
with the other lenders to the business, have appointed third-party
consultants to advise on a range of scenarios which could include a
restructuring of the business. As a result, this loan has been
marked down significantly to reflect the current situation.
2. A loan backed by a Swedish business that owns two oil
refineries, as well as some downstream assets. This loan is equal
to 2.3% of the Company's gross asset value. The business suffered a
liquidity shock when the decline in the price of oil reduced the
amount of inventory financing it could draw, coupled with margin
calls on its commodity hedging book. However, post-month-end events
have materially improved its situation and the Investment Adviser
expects that the loan will continue to be serviced.
3. A loan backed by a German Combined Heat and Power plant that
provides heat (in the form of steam) to industrial companies in the
automotive sector, as well as selling electricity to the grid. This
loan is approximately 1.5% of the Company's gross asset value.
Following the COVID-19 pandemic the German automotive industry has
almost completely shut down and the key off-takers to the plant are
operating at minimum utilisation rates. The Investment Adviser is
closely following the situation and maintains continuous contact
with management and shareholders. It is likely that the key
off-takers will be eligible for different forms of government
support, but the specific details remain unclear.
e. SEQI's rating relative to its Net Asset Value
Your Board noted the volatility in SEQI's share price during the
peak of the recent equity market sell off. While in recent days,
greater market confidence has returned, it is possible that we will
face further periods of significant volatility. In light of the
current and possible further market dislocation associated with
COVID-19, the Board continues to monitor the rating of the
Company's shares closely.
Further Portfolio Update
At 31 March 2020 the Company's invested portfolio comprised of
59 private debt investments and 13 infrastructure bonds across 8
sectors and 29 sub-sectors. It had an annualised yield-to-maturity
(or yield-to-worst in the case of callable bonds) of 12.0% and a
weighted average life of approximately 5.3 years. Private debt
investments represented 93% of the total portfolio and 69% of the
portfolio comprised floating rate assets. The weighted average
purchase price of the Company's investments was 96.4% of par.
Investments which are pre-operational represented 11.7% of total
assets.
The Company's invested portfolio remains geographically diverse
with 50% located across the US, 16% in the UK, 28% in Europe, and
6% in Australia/New Zealand. Currently the Company is not investing
in Portugal or Italy but has selectively invested in opportunities
in Spain. The Company's pipeline of infrastructure debt investments
remains strong and is diversified by sector, sub-sector, and
jurisdiction.
At month end, approximately 105.3% of the Company's NAV
consisted of either Sterling assets or was hedged into Sterling.
The Company has adequate resources to cover margin calls on its
hedging book.
The Company's settled investment activities during March
include:
-- A $55.0m primary loan to JetPeaks, an operator of two natural
gas-fired plants located on the East Coast of the US;
-- A $30.0m primary loan to CSG Holdings backed by 7
interconnecting natural gas pipelines throughout the US;
-- An additional $15.2m secondary acquisition of American Tanker
Inc's 9.25% 2022 bonds, which are backed by a ship finance company
focused on the intercoastal U.S. Jones Act shipping market;
-- An additional $10.0m secondary acquisition of Terra-Gen
Finance TL B, a renewable energy company;
-- An additional $5.1m secondary purchase of Heathrow's 3.875% 2027 bonds;
-- An additional $2.8m secondary acquisition of EIF Van Hook
Midstream's TL B, a midstream oil & gas company that operates
primarily in North Dakota, USA; and
-- An additional $1.4m disbursement to Bourzou Equity, a company
created for the construction of a data centre in Virginia.
The following investments were sold or prepaid in March:
-- $45.0m loan to Aquaventure, a US-based water desalination and wastewater company; and
-- EUR24.9m Naviera Armas' 2023 and 2024 floating rate bonds.
Ordinary Portfolio Summary (15 largest settled investments)
Investment name Currency Type Ranking Value Sector Sub-sector Yield
GBPm(1) to maturity
/ worst
(%)
AP Wireless Junior EUR Private Mezz 56.5 TMT Telecom towers 7.2
Hawaiki Mezzanine Undersea
Loan USD Private Mezz 54.0 TMT cable 15.2
Expedient Data
Centers USD Private Senior 48.6 TMT Data centers 7.9
Tracy Hills TL Residential
2025 USD Private Senior 44.2 Other infra 10.5
Jetpeaks HoldCo
2027 USD Private HoldCo 42.2 Power Elec. generation 8.1
Bannister Senior
Secured GBP Private Senior 39.5 Accomm. Health care 9.4
Euroports 2nd Lien
2026 EUR Private Mezz 39.2 Transport Port 10.2
Bizkaia TL 2021 EUR Private HoldCo 38.7 Power Elec. generation 9.3
Scandlines Mezzanine
2032 EUR Private HoldCo 38.1 Transport Ferries 9.1
Whittle Schools
B USD Private Senior 37.0 Other Private schools 15.3
Salt Creek Midstream USD Private Senior 36.8 Utility Midstream 27.9
Corral HoldCo 2024 USD Private HoldCo 36.4 Other Refinery 14.3
Adani Abbot HoldCo
2021 AUD Private HoldCo 35.6 Transport Port 13.3
Terra-Gen Power
TL B USD Private Senior 34.3 Renewables Solar & wind 11.0
Bulb Senior TL Electricity
2021 GBP Private Senior 34.2 Utility supply 13.4
The Company's monthly investor report and additional portfolio
disclosure will be made available at http://www.seqifund.com/ . The
Company's NAV for the end of April 2020 will be published on or
around the tenth business day of May 2020.
For further information:
Sequoia Investment Management Company +44 (0) 20 7079 0493
Steve Cook
Dolf Kohnhorst
Randall Sandstrom
Greg Taylor
Jefferies International Limited +44 (0) 20 7029 8000
Gary Gould
Stuart Klein
Tulchan Communications (Financial PR) +44 (0) 20 7353 4200
Martin Pengelley
Elizabeth Snow
Deborah Roney
Praxis Fund Services Limited (Company
Secretary) +44 (0) 1481 755530
Matt Falla
Katrina Rowe
About Sequoia Economic Infrastructure Income Fund Limited
The Company is a Guernsey registered closed-ended investment
company that seeks to provide investors with regular, sustained,
long-term distributions and capital appreciation from a diversified
portfolio of senior and subordinated economic infrastructure debt
investments. The Company is advised by Sequoia Investment
Management Company Limited.
LEI: 2138006OW12FQHJ6PX91
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
NAVSFMESLESSELL
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April 15, 2020 02:00 ET (06:00 GMT)
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