TRIO FINANCE LIMITED
REPORT FOR THE SIX MONTHS ENDED 31 MARCH 2008
TRIO Finance Limited ("TRIO" or the "Company") is a closed-ended real estate
investment company that invests primarily in a diversified portfolio of real
estate debt, including commercial and residential mortgage backed securities
and commercial real estate loans. The Company also invests in the residual
income pieces of securitisation transactions. TRIO is managed by Wharton Asset
Management Bermuda Limited.
Highlights
* A satisfactory half year of operating performance, with underlying
operating earnings from investments of US$4.2m compared to US$6.9m last
year. At 31 March 2008 over 99.9% of assets owned are European B loans,
which continue to perform well compared to 99.7% (excluding Lions Hill) as
at 30 September 2007.
* Cash resources changed from US$15.1m at 30 September 2007 to US$18.5m at 31
March 2008. TRIO has a forward Euro hedge of Euro30m against US Dollars and in
the prevailing volatile markets, the Company will be prudent in assessing
cash needs to fund its US Dollar cash and margin call requirements.
* Accordingly, the Board proposes no dividend for this half year.
* The worldwide credit crunch continues to have an impact on the Group's
business growth. Financial institutions have virtually stopped making new
credit available and have been conservative in providing broker marks at
which the assets are valued.
* Consolidated reported NAV per share as at 31 March 2008 of US$3.86 compared
to US$(1.79) at 30 September 2007 and US$9.00 at 31 March 2007. This
reflects on the one hand additional impairment charges over the six months
of US$11.9m and on the other the deconsolidation of Lions Hill Limited
("Lions Hill"), an SPV formerly controlled by TRIO. As previously reported
in August 2007 Lions Hill breached its funding covenants and on 21 January
2008 its lenders appointed administrators and receivers. The continued
deterioration in the US asset backed securities market and likelihood of
future defaults on some of the assets held by Lions Hill will not enable it
to repay its obligations in the foreseeable future. Consequently TRIO is
unlikely to be able to regain control of Lions Hill and the assets and
liabilities in Lions Hill have been deconsolidated. As at 21 January 2008,
TRIO had recognised the full losses of Lions Hill in the consolidated
accounts although the extent of the loss was limited to US$21m in the
parent company. On deconsolidation, the losses exceeding US$21m have been
written back as realised gains of US$13.2m.
* The net carrying value of the 3 residual income positions is US$0.4m, after
impairment charges to date of US$19.6m. These are the only US assets
remaining in the portfolio.
* The TREAL facility has termed out to 10 years, with a remaining term of 8.4
years at 31 March 2008.
* The aggregate market value of TRIO's portfolio as at 31 March 2008 was
US$309m compared to US$569m at 30 September 2007 primarily due to
deconsolidation of Lions Hill and early repayment of some B Loans.
Key Performance Indicators
* Net profit after tax of US$4.2m for the 6 months to 31 March 2008,
resulting in earnings per share of US$0.52 compared to US$(2.87) for the
year ended 30 September 2007 and US$0.69 in the 6 months to 31 March 2007.
The profit in the 6 months to 31 March 2008 includes impairment charges of
US$11.9m, and a realised gain on deconsolidation of Lions Hill of US$13.2m.
* Excluding gain on deconsolidation and impairments, the profit before tax
for the six months to 31 March 2008 was US$2.9m.
* Operating expenses have declined from US$2.2m for the six months to 31
March 2007 to US$1.5m for the six months to 31 March 2008.
* Investable funds fully committed.
* The portfolio had a weighted average life of 3.6 (30 September 2007: 4.9)
years and there were funding facilities in place with a weighted average
life of 8.4 (30 September 2007: 9.2) years.
Outlook
* Asset portfolio expected to generate good cash returns from the European
Commercial real estate loans.
* Availability of new financing and ability to reinvest expected to remain
difficult in current credit market.
* Continue to focus on maximising shareholder returns.
Chairman's Statement
For the six months ending 31 March 2008, TRIO generated profit after tax of
US$4.2m (31 March 2007: US$6.9m). The Group reported earnings per share of
US$0.52 (31 March 2007: US$0.69). This included a realised gain on Lions Hill
deconsolidation of US$13.2m and impairment charges of $11.95m (of which
US$11.06m related to Lions Hill).
TRIO Finance Limited, the holding company, has hedged its Euro30m investment in
its subsidiary, TREAL plc ("TREAL"), back to US Dollars. Due to the recent
strong appreciation of the Euro and continued volatility and uncertainty in
foreign exchange markets, the Company believes it prudent to retain additional
cash for hedging and margin calls and the Board proposes no dividend this
half-year.
The worldwide credit crisis and the turbulence in the financial sector has
impacted TRIO. The Group's portfolio now principally consists of quality cash
generating European Commercial real estate assets.
In January 2008 a subsidiary of TRIO, Lions Hill, was put into receivership by
its lenders following the breach of its funding covenants but this had no
significant impact on TRIO's (the holding company) NAV as a full provision for
the amount invested in Lions Hill had already been made in the financial
statements for the year ended 30 September 2007. The continued deterioration in
the US asset backed securities market and likelihood of further defaults on
some of the assets held by Lions Hill will not enable it to repay its
obligations in the foreseeable future. Consequently TRIO is unlikely to be able
to regain control of Lions Hill. The assets and liabilities of Lions Hill have
been deconsolidated from TRIO and hence the aggregate market value of the
portfolio has reduced from US$569m as at 30 September 2007 to US$309m as at 31
March 2008 and the loans have also been reduced from US$598m as at 30 September
2007 to US$299m as at 31 March 2008.
Principally due to this, 99.9% of TRIO's portfolio (by market value) comprises
European B loans. These continue to perform well, generating good yields and
have sound underlying assets. The credit crisis has made financial institutions
more risk averse and the current lender, whilst supportive within the existing
term out facility, has not permitted re-investment of the proceeds from two
large repayments of assets in the six-month period. In the current market
position, the Group does not expect the situation to change in the foreseeable
future. The Group's current termed out facility has a remaining life of 8.4
years, providing secure long-term finance.
The remaining 0.1% of the portfolio consists of 3 residual income positions,
which have been written down to US$0.4m. This is the only US exposure.
The weighted average yield of the portfolio was 7.50% and the weighted average
life was 3.6 years. The European portfolio is 38% in the UK and 62% spread
across Sweden, Denmark, Lithuania, Germany and France.
Further detail in relation to the Company's performance, investment portfolio,
financing and outlook is contained in the Investment Manager's Report.
Julian Waldron, Chairman
Investment Manager's Report
Investment Performance
The worldwide credit crunch and the lack of liquidity and financing has
continued to impact the Company's business. As reported in the last audited
report and financial statements as at 30 September 2007, Lions Hill was
prevented by the covenants of its banking facilities from making distributions
of income to TRIO or redemption of the TRIO Participation Notes. As at 30
September 2007, TRIO had fully written down its US$21m interest in Lions Hill
but had to consolidate its assets and liabilities under International Financial
Reporting Standards ("IFRS"). On 21 January 2008, the lenders to Lions Hill
appointed administrators and receivers, consequently TRIO has lost control of
Lions Hill and its assets and liabilities from that date have been
deconsolidated. The continued deterioration in the US asset backed securities
market and likelihood of further defaults on some of the assets held by Lions
Hill will not enable it to repay its obligations in the foreseeable future.
Consequently TRIO is unlikely to be able to regain control of Lions Hill. A
gain of US$13.2m was realised in the condensed consolidated income statement
principally comprising reversals of impairments of US$38.6m recognised in Lions
Hill to date less US$21m, which are not attributable to the Group following the
deconsolidation of Lions Hill.
The remaining portfolio by market value is almost entirely in European
Commercial Real Estate related assets and continues to perform in line with
expectations.
In line with its strategy of minimising currency exposure, all assets are
funded in the same underlying currency, including hedging the Euro30m Euro funding
provided by TRIO in TREAL.
Portfolio Composition and Diversification
The aggregate market value of the investments has declined from US$569m as at
30 September 2007 to US$309m as at 31 March 2008. There were no assets acquired
in the six months to 31 March 2008. The primary reasons for the reduction were:
* Deconsolidation of the Lions Hill Portfolio - US$210m
* Full repayment of the Aurora Euro B Loan - US$27m (Euro17.8m)
* Partial repayment of the Aurora SEK B Loan - US$21m (SEK133.3m)
Given the deconsolidation of Lions Hill all comparatives of the portfolio as at
30 September 2007 referred to within this Investment Manager's report below are
excluding the Lions Hill portfolio.
As at 31 March 2008 there were 14 securities and loans (30 September 2007: 15)
with a weighted average life of 3.6 years (30 September 2007: 4.4 years). The
portfolio was fully comprised of floating rate assets and the weighted average
yield of the portfolio was 7.50% (30 September 2007: 7.46%).
As at 31 March 2008 99.9% (30 September 2007: 99.7%) was invested in 11 B loans
(30 September 2007: 12), all unrated. The rest of the portfolio was composed of
3 residual income positions. The portfolio geographical exposure comprises 38%
(30 September 2007: 36%) in the UK and 62% (30 September 2007: 64%) in
Continental Europe.
The Aurora B Loan, which has been fully repaid, was funded with Euro10m cash from
TRIO and has not been re-invested.
A B Loan is a junior participation in a first lien mortgage on a commercial
real estate property.
Geographic location 31 March 2008 30 September 2007 excluding
Lions Hill
UK 38% 36%
USA 0% 0%
Finland and Sweden 16% 25%
Germany 18% 19%
Europe 28% 20%
Total 100% 100%
The mix of assets by currencies excluding assets owned by Lions Hill was as
follows:
Currency 31 March 2008 30 September 2007 excluding
Lions Hill
GBP 39% 36%
USD 0% 0%
Euro 56% 54%
SEK 5% 10%
Total 100% 100%
On 21 April 2008, another asset, the KAMPPI B Loan with a nominal value of
US$32m (Euro20.2m) was fully repaid. This loan was principally funded with Euro20m
cash from TRIO. The proceeds have not been reinvested.
Net Asset Value
The Group's Net Asset Value (all pre-dividend) was US$3.86 compared to US$
(1.79) at 30 September 2007 and US$9.00 at 31 March 2007.
The European portfolio has continued to perform well, in line with expectations
with some of the loans being repaid early due to the sale of the underlying
properties. This demonstrates that high quality commercial real estate is still
sought after in Europe albeit in an environment where valuations are under
pressure. There have been no defaults or credit impairments. However, due to
the curtailed liquidity in the market, the marks supplied by brokers at which
the portfolio has been valued has resulted in unrealised fair value losses. The
weighted average price of the portfolio was 93.7 as at 31 March 2008 (30
September 2007: 98.9).
The total European portfolio as at 31 March 2008 is generating a weighted
average yield of LIBOR / EURIBOR / STIBOR plus 2.49 (30 September 2007: 2.60)
Top Ten Investments
A summary of the Company's ten largest investments representing 96.7% (30
September 2007: 91.9% (excluding Lions Hill)) of the gross asset value of the
portfolio is set out below.
Security description Asset Country Currency Proportion of
type portfolio
1 CENTREPARCS Loan UK GBP 20.66%
2 VIOLET S PROPCO Loan UK GBP 12.61%
3 SUNRISE DECO SUB SPV Loan Germany EURO 11.86%
4 ROYAL MINT COURT Loan UK GBP 9.00%
5 MIROMESNIL Loan France EURO 8.59%
6 KAMPPI Loan Finland EURO 8.57%
7 PROJECT MAY Loan Germany EURO 8.47%
8 SIGNAC Loan France EURO 6.13%
9 WOOLWORTH Loan Germany EURO 5.86%
10 AURORA Loan Sweden and SEK 5.07%
Finland
Centreparcs
This is a B loan secured on a portfolio of 4 long-leasehold self-contained
holiday parks in England. The company has been in operation for over 20 years
and has considerable experience in management of such assets. In addition there
is very limited competition in this market.
Violet Propco
This is a B loan secured by a portfolio of over 50 Somerfield stores across the
UK, Apax, R20 and Barclays are strong equity sponsors and it also has a large
equity participation from the experienced management team in place.
Sunrise Deco
This is a B loan secured on a portfolio of commercial properties located in
Germany and is very granular (61 properties, 468 tenants) both in terms of the
number of tenants and geographically. The portfolio can broadly be broken into
4 sectors: High Street, Mixed Commercial, Shopping Centre and Retail Warehouse.
Dawnay, Day Treveria is a strong equity sponsor and a hands-on experienced
management team is behind the deal.
Royal Mint Court
A B loan, which is secured by 4 office properties in London. These are occupied
by high quality tenants.
Miromesnil
This is a B loan secured by 4 office properties in and around Paris. Lehman is
the sole equity sponsor.
Kamppi
This is a B loan secured on the Kamppi Shopping Centre, a newly developed
shopping centre in a prime location directly in the heart of Helsinki's retail
and business district with excellent connection to public transport and easy
accessibility. It has a great diversity of tenants, 151, and only 6.4% of the
rent is contributed by the largest tenant. The initial equity sponsors were
Boultbee and RBS.
Project May
This is a B loan secured by a wide variety of properties across Germany with an
equally diversified list of quality tenants. The properties are managed by a
focussed property manager with local knowledge.
Signac
A B loan, which is secured by a newly constructed office building just outside
Paris. The property is still under the contractor's guarantee and is fully let.
Woolworth
This is a B loan secured by The Boenen Centre, modern high bay packing and
distribution facility centre in Boenan Germany. The property is let to Deutsche
Woolworth and is the company's core distribution centre for Germany and
Austria.
Aurora
This is a B loan secured by commercial properties across Sweden, Denmark and
Lithuania. The portfolio includes office, industrial, warehouses and hotel
properties. Northern European is the equity sponsor.
Financing
The Group has a Euro230m (US$364m) multicurrency loan term out facility through
TREAL plc providing term funding for commercial real estate and real estate
loans. This facility expires on 31 August 2016.
Related party transactions
Related party transactions are disclosed in note 15 to the condensed set of
financial statements. There have been no material changes in the related party
transactions described in the last annual report.
Potential risks and uncertainties
There are a number of potential risks and uncertainties, which could have a
material impact on the Group's performance over the remaining six months of the
financial year and could cause actual results to differ materially from
expected and historical results.
All the floating rate assets are financed by a term loan, which matures in
August 2016. As such the financing is secure for the life of each of the
assets. Changes in fair value of the assets, which are based on broker marks
will reduce the net asset value by an amount equivalent to the revaluation.
There are no impairments on these floating rate assets as at 31 March 2008.
As at 31 March 2008, the market value of residual income positions was
US$387,500. To the extent that no further distributions are made, this is the
maximum future loss to the Group in income and net asset value from further
impairments on these assets.
The Group has hedged its credit exposure to each of the loans drawn against the
individual investments within the floating rate asset portfolio by a credit
default swap and the cost of this is included in the financing cost. The hedge
is provided against loans to the value of US$299m. If the TRIO funding vehicle
defaults on interest or principal repayment of a loan, any cash including any
subordination amounts within the vehicle are first used to repay the loan and
the balance can be satisfied by the credit default swap. Accordingly the
maximum loss that is borne by the Group is its Euro30m subordination in TREAL.
As explained above, 99.9% of the portfolio is floating rate assets. These are
quarterly interest paying assets and the applicable LIBOR is re-set at each
such pay date. All these assets (excluding the KAMPPI asset which fully repaid
on 21 April 2008) are 100% financed by floating rate loans whose interest rates
are re-set at dates matching the asset it is financing. Therefore the portfolio
has no interest rate risk on net income.
The Euro30m Subordinated Note in TREAL is held in Euro denominated assets,
including cash. The Group has hedged its exposure to currency risk in respect
of this by forward foreign exchange. Whilst there is no net currency exposure,
it does reduce USD cash balances to finance the hedge and meet any collateral
margin requirements.
Within TREAL, following the early repayment of Aurora B Loan, Euro10m funded from
cash was released and was available at 31 March 2008. On 21 April 2008 a
further Euro20m also funded from cash was released from KAMPPI B Loan repayment.
These are currently uninvested and this is to be held in Euros to match the
original investment by TRIO. The cash is placed on overnight or term deposits
and the interest income is exposed to interest rate risk.
The Group's need to trade in the short term is mitigated by the long term
funding in place, with a remaining life of 8.4 years as at 31 March 2008,
whilst the average asset life is 3.6 years. Accordingly the Group would expect
to be able to finance its existing investments through their lives.
Outlook
TRIO's existing investments in Europe are expected to continue to perform in
line with expectations and generate good yields. The volatility experienced in
the financial markets and the credit crisis has curtailed the growth of TRIO
and likely to do so in the short term. However, should market conditions
improve, there will be opportunities and potential to make further investments.
Condensed Consolidated Income Statement
Period from Period from
1 October 1 October 2006
2007 to 31 March
to 31 March 2007
2008
Note US$ US$
Operating income
Interest income from cash and cash 173,733 268,575
equivalents
Interest income from investments 20,335,506 22,922,386
Net realised gains/(losses) on investments 634,149 (883,418)
Realised gain on deconsolidation of Lions 7,8 13,168,767 -
Hill
Impairment charges 5 (11,952,203) -
Net foreign exchange (losses)/gains (2,553,516) 843,177
Total operating income 19,806,436 23,150,720
Operating expenses
Other operating expenses (1,491,964) (2,197,369)
Finance costs (14,142,492) (14,073,233)
Total operating expenses (15,634,456) (16,270,602)
Net profit 4,171,980 6,880,118
Earnings per Ordinary Share
Basic US$0.52 US$0.69
Diluted US$0.52 US$0.69
Weighted average Ordinary Shares Number Number
outstanding
Basic 8,000,000 10,000,000
Diluted 8,000,000 10,000,000
All items in the above statement are derived from continuing operations.
The accompanying notes form an integral part of the half yearly accounts.
Condensed Consolidated Statement of Changes in Shareholders' Equity
For the period from I October 2007 to 31 March 2008
Share Share Other Capital Net Accumulated Total
premium reserve reserve unrealised
capital (loss)/gain profits
on available
for sale
investments
Note US$ US$ US$ US$ US$ US$ US$
Balance at 1 - - 37,622,539 350,872 (64,831,565) 12,521,379 (14,336,775)
October 2007
Net profit for the - - - - - 4,171,980 4,171,980
period
Net unrealised - - - - (15,034,002) - (15,034,002)
loss on
available-for-sale
securities
Reversal of 7,9 - - - - 59,639,975 - 59,639,975
unrealised losses
on available for
sale securities on
deconsolidation of
Lions Hill
Distribution to 4 - - - - - (3,520,000) (3,520,000)
the Ordinary
Shareholders of
the Company
Balance at 31 - - 37,622,539 350,872 (20,225,692) 13,173,359 30,921,078
March 2008
For the period from 1 October 2006 to 31 March 2007
Share Share Other Capital Net Accumulated Total
premium reserve reserve unrealised
capital (loss)/gain profits
on available
for sale
investments
Note US$ US$ US$ US$ US$ US$ US$
Balance at 1 - - 92,251,670 350,872 131,173 7,412,019 100,145,734
October 2006
Net profit for the - - - - - 6,880,118 6,880,118
period
Net unrealised - - - - (13,423,122) - (13,423,122)
loss on
available-for-sale
securities
Distribution to 4 - - - - - (3,600,000) (3,600,000)
the Ordinary
Shareholders of
the Company
Balance at 31 - - 92,251,670 350,872 (13,291,949) 10,692,137 90,002,730
March 2007
The accompanying notes form an integral part of the half yearly accounts.
Condensed Consolidated Balance Sheet
As at 31 March 2008
31 March 30 September
2008 2007
Note US$ US$
Non-current assets
Available for sale investments 9 309,459,404 568,629,899
Current assets
Cash and cash equivalents 20,166,276 15,107,862
Other assets 5,770,558 8,354,726
25,936,834 23,462,588
Total assets 335,396,238 592,092,487
Equity and liabilities
Equity
Share capital 12 - -
Share premium account 13 - -
Other reserve 13 37,622,539 37,622,539
Capital reserve 350,872 350,872
Net unrealised loss on available for sale 9 (20,225,692) (64,831,565)
investments
Accumulated profits 13,173,359 12,521,379
Total equity attributable to equity 30,921,078 (14,336,775)
holders of the parent
Current liabilities
Interest on loans 3,330,287 7,321,454
Interest on subordinated notes - 157,684
Other liabilities 11 2,258,818 965,418
5,589,105 8,444,556
Non-current liabilities
Loans 10 298,886,055 597,984,706
Total Liabilities 304,475,160 606,429,262
Total equity and liabilities 335,396,238 592,092,487
The accompanying notes form an integral part of the half yearly accounts.
Condensed Consolidated Cash Flow Statement
For the period from 1 October 2007 to 31 March 2008
Period from Period from
1 October 1 October 2006
2007
to 31 March
to 31 March 2007
2008
Note US$ US$
Net cash inflow/(outflow) from operating 14 50,034,254 (142,068,606)
activities
Financing activities
Dividends paid to Shareholders 4 (3,520,000) (3,600,000)
Proceeds from Subordinated note issue - 12,942,000
Net borrowings under loan facilities 7 (39,582,095) 103,643,061
Deconsolidation of Lions Hill (3,555,237) -
Cash flows from financing activities (46,657,332) 112,985,061
Net increase/(decrease) in cash and cash 3,376,922 (29,083,545)
equivalents
Reconciliation of net cash flow to
movement in net cash
Net increase/(decrease) in cash and cash 3,376,922 (29,083,545)
equivalents
Cash and cash equivalents at start of the 15,107,862 37,696,939
period
Cash and cash equivalents at end of the 14 18,484,784 8,613,394
period
The accompanying notes form an integral part of the half yearly accounts.
1. General information
TRIO Finance Limited (the "Company") was registered on 11 May 2006 with
registered number 44776 and is domiciled in Guernsey, Channel Islands, and
commenced its operations on 5 June 2006. The Company is a closed-ended
investment company incorporated in Guernsey with limited liability under The
Companies (Guernsey) Law 1994 and its Ordinary Shares are listed on the London
Stock Exchange. The registered office of the Company is Dorey Court, Admiral
Park, St. Peter Port, Guernsey, GY1 3BG, Channel Islands. "Group" is defined as
the Company and its subsidiaries: Lions Hill Limited ("Lions Hill"), TREAL
Public Limited Company ("TREAL") and Longlands Finance No. 2 Limited
("Longlands"). Another subsidiary, Pheasantry Limited, is dormant at the period
end. On 21 January 2008, Lions Hill was served a notice of default on the
US$400m facility by its Lender. Following such notice, the Lender has appointed
Margaret Mills and Alan Hudson of Ernst & Young, London and David Hughes of
Ernst & Young, Dublin as joint administrators and receivers of Lions Hill. As a
result of this, TRIO has lost control of Lions Hill and from this date, Lions
Hill was deconsolidated from the Group. The continued deterioration in the US
asset backed securities market and likelihood of further defaults on some of
the assets held by Lions Hill will not enable it to repay its obligations in
the foreseeable future. Consequently TRIO is unlikely to be able to regain
control of Lions Hill. The amounts of deconsolidating Lions Hill are disclosed
in Note 7 to these half yearly consolidated accounts.
On 27 February 2007, the Company reclassified its listing from its previous
listing under Chapter 15 of the Listing Rules to that of an overseas company
listed under Chapter 14 of the Listing Rules.
The Group's investment objective is to provide stable income returns to
shareholders in the form of semi-annual dividends and the potential for capital
growth. The Group invests predominantly in asset-backed securities (with a
primary focus on real estate mortgage-backed securities) and real estate
related financial assets. It seeks to achieve this by investing both in
residual income positions of CDOs or fund structures (in particular targeting
CDOs or funds managed by the Investment Manager or its affiliates) and
investing in one or more special purpose vehicles or CDOs established by the
Group. The Group may also make direct acquisitions of such securities. Target
assets may be in cash or synthetic form. The Group may also invest directly in
synthetic instruments, subject to the restrictions on exposure set out in the
Prospectus at the IPO.
The Group's investment management activities are managed by its Investment
Manager, Wharton Asset Management Bermuda Limited (the "Investment Manager"), a
private limited company incorporated in Bermuda. The Group has entered into an
Investment Management Agreement (the "Investment Management Agreement") under
which the Investment Manager manages its day-to-day investment operations,
subject to the supervision of the Company's Board of Directors. The Investment
Manager has appointed Wharton Asset Management GB Limited until 29 February
2008 and Wharton Asset Management UK LLP, thereafter both investment management
companies incorporated in the United Kingdom and authorised and regulated by
the Financial Services Authority, to perform certain sub-management functions.
The Group has no direct employees. For its services, the Investment Manager
receives a monthly management fee (which includes a reimbursement of expenses)
and a quarterly performance-related fee. The Group has no ownership interest in
the Investment Manager. The Group is administered by Kleinwort Benson (Channel
Islands) Fund Services Limited (the "Administrator"). Investors Fund Services
(Ireland) Limited are the sub-administrator.
At the date of authorisation of these accounts, the following Standard, which
has not been applied in these financial statements, was in issue but not yet
effective:
IFRS 8 Operating Segments
The Directors anticipate that the adoption of the above Standard in future
years will not have a material impact on the financial statements of the
Company when the Standard comes into force for the period commencing 1 January
2009.
The information for the year ended 30 September 2007 does not constitute
statutory accounts as defined in the Companies (Guernsey) Law, 1994. A copy of
the statutory accounts for that year has been delivered to the London Stock
Exchange. The auditors' report on those accounts was not qualified but
attention was drawn to the uncertainty in fair value estimates of the
investments and did not contain statements under section 65(3) of The Companies
(Guernsey) Law, 1994.
2. Significant accounting policies
Statement of compliance
The financial statements of the TRIO Finance Limited are prepared in accordance
with International Financial Reporting Standards ("IFRS"). The condensed set of
financial statements included in this half-yearly financial report has been
prepared in accordance with International Accounting Standard 34 `Interim
Financial Reporting'.
The same accounting policies, presentation and methods of computation are
followed in the condensed set of financial statements as applied in the Group's
latest annual audited financial statements.
Standards effective in the current period
In the current financial year, the Group has adopted International Financial
Reporting Standard 7 `Financial Instruments: Disclosures' for the first time.
As IFRS 7 is a disclosure standard, there is no impact on the half yearly
report. Full details of the change will be disclosed in the annual report for
the year ended 30 September 2008.
Basis of preparation
The financial statements of the Group are prepared under IFRS on the historical
cost or amortised cost basis except that the following assets and liabilities
are stated at their fair value: derivative financial instruments, financial
instruments held for trading and financial instruments classified as available
for sale.
The preparation of financial statements in conformity with IFRS requires the
Group to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. The details of
these estimates and assumptions are described below and in Note 3. Actual
results could differ from those estimates.
These financial statements are presented in US Dollars and the functional
currency of the Group is also considered to be US Dollars.
Basis of consolidation
Subsidiaries are entities controlled by the Company. The financial statements
of subsidiaries are included in the consolidated financial statements from the
date that control commences until the date that control ceases. Control is the
power to govern financial and operating policies of an entity so as to obtain
benefits from its activities.
In accordance with the Standing Interpretations Committee Interpretation 12
"Consolidation-Special Purpose Entities" ("SIC 12"), the Company consolidates
only entities over which control is indicated by activities, decision-making,
benefits and residual risks of ownership. Where the Company does consolidate a
special purpose entity ("SPE"), the interest in the notes not held by the
Company will be shown as a liability in the balance sheet. Any income or
expenses attributable to these note holders will be shown as an expense in the
income statement. In accordance with SIC 12 the Company does not consolidate an
SPE in which it holds less than a substantial interest in the residual income
position. Where it holds more than a substantial interest, it does not
consolidate the SPE where the residual income position represents only a small
part of the gross assets of the SPE and the Company was neither involved in the
establishment of the SPE or the origination of the assets owned by the SPE, on
the basis that the Company is not exposed to the majority of the risks and
benefits of the assets owned by the SPE, provided control is not otherwise
indicated by the Company's activities, decision making, benefits and residual
risks or ownership.
Investments
Financial assets are classified as available for sale and are stated at fair
value, with any resultant gain or loss being recognised directly in equity,
except for impairment losses and, in the case of monetary items such as debt
securities, foreign exchange gains and losses which are taken to the condensed
consolidated income statement. Where these investments are interest-bearing,
interest calculated using the effective interest method is recognised in the
condensed consolidated income statement. Expenses incidental to the acquisition
of available for sale investments are included within the cost of that
investment.
Further details of the factors and assumptions surrounding the estimation
uncertainty in valuations is set out in Note 3.
Financial assets are recognised/derecognised by the Group on the date it
commits to purchase/sell the investments in regular way trades.
Investments in subsidiaries are stated at fair value, including any interest in
subordinated notes.
Fair value
All financial assets carried at fair value are initially recognised at fair
value and subsequently re-measured at fair value based on quoted bid prices
where such bids are available from a third party in a liquid market. Where
quoted bids are not available, broker marks are sought, and where multiple
marks are available the lowest such mark is taken. If quoted bid prices or
broker marks are unavailable, the fair value of the financial asset is
estimated using pricing models incorporating discounted cash flow techniques.
These pricing models apply assumptions regarding asset-specific factors and
economic conditions generally, including delinquency rates, prepayment rates,
default rates, maturity profiles, interest rates and other factors that may be
relevant to each financial asset. Where such pricing models are used, inputs
are based on market related measures at the balance sheet date.
Where actual performance data regarding defaults, delinquencies and prepayments
received in respect of a given asset is markedly different from the default,
delinquency and prepayment assumptions incorporated in the pricing model for
the asset, the assumptions are revised to reflect this data and the pricing
model is updated accordingly. In addition to the actual performance data
observed in respect of a particular asset, market factors are also taken into
account within the model. Broker marks (where available) and any other
available indicators are assessed to determine the fair value of the
investment.
Impairment
The carrying amounts of the Group's available-for-sale assets are reviewed at
each balance sheet date to determine whether there is any indication of
impairment.
When a decline in the fair value of an available-for-sale financial asset has
been recognised directly in equity and there is objective evidence that the
asset is impaired, the cumulative loss that had been recognised directly in
equity is recognised in the condensed consolidated income statement even though
the financial asset has not been derecognised. The amount of the cumulative
loss that is recognised in the condensed consolidated income statement is the
difference between the acquisition cost and the current fair value, less any
impairment loss on that financial asset previously recognised in the condensed
consolidated income statement.
Reversals of impairment
If the fair value of a debt instrument classified as available-for-sale
increased and the increase can be objectively related to an event occurring
after the impairment loss was recognised in profit or loss, the impairment loss
shall be reversed, with the amount of the reversal recognised in the condensed
consolidated income statement.
An impairment loss is reversed only to the extent that the asset's carrying
amount does not exceed the carrying amount that would have been determined, net
of amortisation, if no impairment loss had been recognised.
Segmental reporting
The Directors are of the opinion that the Group is engaged in a single segment
of business of investing in debt securities and operates solely from Guernsey
and therefore no segmental reporting is provided.
3. Critical accounting judgements and key sources of estimation uncertainty
In the process of applying the Group's accounting policies (described in Note 2
above), the Group has determined that the following judgements and estimates
have the most significant effect on the amounts recognised in the financial
statements:
Income recognition
The Group's available for sale investments are stated at fair value and all the
investments are floating rate assets except the residual income positions
(US$387,500). As stated in Note 2, interest income on investments held (except
residual interest positions) is accrued based on the outstanding principal
amount and their contractual terms. Income is recognised for the residual
interest positions on an effective interest rate ("EIR") method in accordance
with paragraph 30 of IAS18 "Revenue". In addition, the amortisation of any
premium or discount is based on the effective interest rate ("EIR"). The EIR is
taken as the effective interest rate on the acquisition of the asset and
remains unchanged throughout the holding period except where the LIBOR/EURIBOR
rate has changed significantly.
Valuation of investments
In accordance with the Group's accounting policies, fair value of financial
assets is primarily based on quoted bid prices where such bids are available
from a third party. Where quoted bids are not available, broker marks are
sought, and where multiple marks are available the lowest such mark is taken.
The majority of the investments are real estate backed loans and real estate
backed securities. The remainder are residual income positions. Given the
illiquidity and widening of spreads due to recent and current market
conditions, these marks from brokers may not necessarily represent the
realisation value of such assets as of the balance sheet date.
The market for subordinated asset-backed securities including B loans and the
Group's ability to deal in investments may be limited. There is no active
secondary market in B loans or residual income positions and, further, there is
no industry standard agreed methodology to value B loans or residual income
positions. Marks for the B loans and residual income positions are obtained
from the lead trustee bank.
As an additional indication of fair value, the Group performs discounted cash
flow models for each of the assets. The cash flow data for these models is
obtained from data providers such as Intex, trustee reports and in some cases
information provided by the loan originator. Where actual performance data
regarding defaults, delinquencies, recovery rates and prepayments received in
respect of a given asset is markedly different from the default, delinquency
and prepayment assumptions incorporated in the pricing model for the asset, the
assumptions are revised to reflect this data and the pricing model is updated
accordingly. The key assumptions within the model are voluntary and involuntary
prepayment speeds, severity on liquidations, changes in pipeline of
delinquencies, call option and changes in interest rates. In addition to the
actual performance data observed in respect of a particular asset, market
factors such as house price indices and refinancing opportunities are also
taken into account within the model.
If the discounted cash flows based on the assumed EIR is less than the book
amortised cost (reduced by any impairment charges to date) then the difference
results in an impairment charge to the condensed consolidated income statement
and the amortised cost is reduced.
A comparison is made of this reduced amortised cost with the broker marks and
the lower of the two is taken as fair value. All B loans are valued at broker
marks.
In addition, these cash flows may lead to a changing pattern of future
amortisation of premium/ discounts and therefore affect future interest income.
The fair value of the Group's investments is set out in Note 9. Given the
number of individual investments and the number of individual parameters that
make up each pricing model, the Directors believe that it would be impractical
to disclose the effects of changes to each assumption in respect of each
individual investment and this would not provide meaningful additional
disclosure.
Further disclosures of key assumptions and key sources of estimation
uncertainty are set out in Note 2 to the financial statements under the heading
"Fair Value".
4. Dividends
A dividend of US$0.44 per share on 8 million shares (US$3,520,000 in total) was
proposed by directors on 20 November 2007 and paid during the period. During
the six months ended 31 March 2007 a dividend of US$0.36 per share on 10
million shares (US$3,600,000 in total) was paid. No dividend is proposed in
respect of the period to 31 March 2008.
5. Impairment charges
Group impairment charges comprise US$11,060,173 in relation to investments held
by Lions Hill in the period prior to deconsolidation and US$892,030 in relation
to investments held by TRIO Finance Limited, the holding company. There were no
impairment charges in the six months ended 31 March 2007. Impairment charges
arise where there has been a permanent diminution in the value of the asset and
the charge is the extent to which this is not recoverable. They represent the
difference between amortised cost and expected cash flows of the financial
asset discounted at its effective interest rate.
6. Earnings per ordinary share
31 March 2008 31 March 2007
US$ US$
The calculation of the basic and diluted
earnings per share is based on the
following data:
Earnings for the purposes of basic and 4,171,980 6,880,118
diluted earnings per share being net
profit attributable to equity holders
Weighted average number of Ordinary 8,000,000 10,000,000
Shares for the purposes of basic and
diluted earnings per share
Effect of dilutive potential Ordinary - -
Share:
Warrants
Weighted average number of Ordinary 8,000,000 10,000,000
Shares for the purposes of diluted
earnings per share
There is no share dilution, as the market price of the share is below the
exercise price of the warrants.
7. Deconsolidation of Lions Hill
As explained in note 8, on 21 January 2008 the Group lost control of its
interest in Lions Hill. The continued deterioration in the US asset backed
securities market and likelihood of further defaults on some of the assets held
by Lions Hill will not enable it to repay its obligations in the foreseeable
future. Consequently TRIO is unlikely to be able to regain control of Lions
Hill and has been deconsolidated.
The net liabilities of Lions Hill at the date of deconsolidation and the prior
period balance sheet were as follows:
21 January 30 September 2007
2008
Assets US$ US$
Investments at fair value 184,240,206 210,142,288
Cash and cash equivalents 3,555,237 8,656,785
Interest receivable 2,335,559 1,843,568
Total assets 190,131,002 220,642,641
Non Current Liabilities
Loans (259,516,556) (278,872,821)
(259,516,556) (278,872,821)
Current Liabilities
Interest on loans (2,543,738) (3,841,383)
Other liabilities (166,653) (180,574)
(2,710,391) (4,021,957)
Total Liabilities (262,226,947) (282,894,778)
Total net liabilities pre deconsolidation (72,095,945)
Unrealised losses reversed 59,639,875
Foreign exchange losses on (712,697)
deconsolidation
(13,168,767)
Realised gain on deconsolidation of Lions 13,168,767
Hill
Total consideration -
Satisfied by: 21 January
2008
US$
Cash
Deferred consideration -
-
Net cash outflow arising on disposal:
Cash and cash equivalents (3,555,237)
The condensed consolidated income statement of the Group include the following
amounts relating to Lions Hill:
Period from Period from
1 October 2007 1 October 2006
to 21 January to 31 March
2008 2007
US$ US$
Operating income
Interest income from cash and cash 60,314 81,301
equivalents
Interest income from investments 5,214,847 11,466,597
Net realised gains/(losses) on 603,432 (883,417)
investments
Impairment charges (11,060,173) -
Net foreign exchange losses (8,550) (4,521,650)
Total operating income (5,190,130) 6,142,831
Operating expenses
Other operating expenses (224,239) (129,088)
Finance costs (5,142,130) (8,871,998)
Total operating expenses (5,366,369) (9,001,086)
Net loss (10,556,499) (2,858,255)
8. Subsidiaries
Lions Hill Limited ("Lions Hill") was incorporated in Ireland on 19 December
2005 and, pursuant to the Articles of Association of Lions Hill, the Company
has the right to appoint a majority of the Board of Directors of Lions Hill.
Two of the Directors of the Company have been appointed directors of Lions
Hill. To ensure that the Company will be able to maintain a majority of the
Board of Directors of Lions Hill in the future, the Company has been allocated
three "B" ordinary shares in Lions Hill carrying the right to appoint a
majority of the Board of Directors. Lions Hill was established for the sole
purpose of acquiring and holding interests in certain assets, including assets
comprised in the initial portfolio. However, Lions Hill was subject to a
standstill agreement with its lenders until 19 January 2008. Under this the
lender has imposed certain conditions. Following the expiry of the Standstill
Agreement, on 21 January 2008, Lions Hill was served notice of default on the
US$400m facility by its Lender. Following such notice, the Lender has appointed
Margaret Mills and Alan Hudson of Ernst & Young, London and David Hughes of
Ernst & Young, Dublin as joint administrators and receivers of Lions Hill. The
continued deterioration in the US asset backed securities market and likelihood
of further defaults on some of the assets held by Lions Hill will not enable it
to repay its obligations in the foreseeable future. Consequently TRIO is
unlikely to be able to regain control of Lions Hill but has no further
obligation to support Lions Hill whose funding is non recourse to the Group.
Under International Financial Reporting Standards ("IFRS"), TRIO is deemed to
have relinquished control of Lions Hill and its assets and liabilities have
been deconsolidated from this date giving rise to a reversal of unrealised
losses relating to impairments of US$13,168,767 which was recognised in the
condensed consolidated income statement.
TREAL Public Limited Company ("TREAL") was incorporated in Ireland on 19 July
2006 and, pursuant to the Articles of Association of TREAL, the Company has the
right to appoint a majority of the Board of Directors of TREAL. Two of the
Directors of the Company have been appointed directors of TREAL. To ensure that
the Company will be able to maintain a majority of the Board of Directors of
TREAL in the future, the Company has been allocated three "B" ordinary shares
in TREAL carrying the right to appoint a majority of the Board of Directors.
TREAL was established for the sole purpose of acquiring and holding interests
in certain assets, which to date have been all real estate loans.
Longlands Finance No. 2 Limited ("Longlands") was incorporated in Ireland on 12
December 2006 and, pursuant to the Articles of Association of Longlands, the
Company owns all of the voting shares in Longlands and has two Directors on the
Board of Directors of Longlands. Longlands was established for the sole purpose
of acquiring and holding interests in certain assets, which to date has been a
single real estate loan, which has been disposed of. As the Company is dormant
and is no longer required, the Board of Directors are arranging for it to be
struck off.
Pheasantry Limited ("Pheasantry") was incorporated in Cayman Islands on 28
April 2006 and, pursuant to the Articles of Association of Pheasantry, the
Company owns all of the voting shares in Pheasantry. Pheasantry was established
for the sole purpose of acquiring and holding interests in real estate related
funds for a temporary period while opportunities arose for acquiring real
estate related securities. Pheasantry has been dormant in the period.
9. Available for sale investments
Investments are classified as available for sale. The following is a summary of
the Group's investments at 31 March 2008 and 30 September 2007:
Six months Year ended 30
ended 31 March September 2007
2008
US$ US$
Cost as at start of period 600,202,519 511,157,493
Purchases - 369,698,251
Pay downs and sales proceeds (54,868,605) (243,913,675)
Deconsolidation of Lions Hill (249,171,743) -
Realised gains 11,933,094 7,316,315
Amortisation of premium/discount (183,578) (1,293,669)
Impairment charge (11,952,203) (42,762,196)
Cost as at end of period 295,959,484 600,202,519
Unrealised gains on foreign exchange 33,725,612 33,258,945
Unrealised (losses) on fair values (20,225,692) (64,831,565)
Fair value as at end of period 309,459,404 568,629,899
10. Loans
As at 31 March 2008, TREAL had drawn down US$298,886,055 of its floating rate
loan facility with a maturity date of 31 August 2016. As at 30 September 2007,
the Group had floating rate loan facilities in TREAL of US$319,111,885 with a
maturity date of 31 August 2016 and floating rate loan facilities in Lions Hill
of US$278,872,821 with maturity dates ranging from 23 March 2017 to 2 May 2017.
The interest rates on these facilities ranged from 4.51% to 5.8725% as at 31
March 2008 (30 September 2007: 4.48% to 6.745%).
11. Other liabilities
Included in other liabilities, as at 31 March 2008 is a bank overdraft of
US$1,681,492 (30 September 2007: US$Nil). The bank overdraft was one day
funding provided by the Group's custodian bank to facilitate a collateral
margin call on the forward hedge on 31 March 2008 in US dollars. This was
subsequently cleared on 1 April 2008 by the reduction in the collateral margin
call and repayment of the excess margin.
12. Share capital
Authorised share capital
31 March 2008 30 September 2007
Number of Ordinary Shares US$ Number of US$
Ordinary
Shares
Ordinary shares of no par Unlimited - Unlimited -
value each
Issued and fully paid
Number of US$ Number of US$
Ordinary Ordinary
Shares Shares
Balance at start of period 8,000,000 - 10,000,000 -
Share consolidation during - - (2,000,000) -
the period
Balance at end of period 8,000,000 - 8,000,000 -
On 16 August 2007, the directors proposed the payment of a special interim
dividend of US$11,000,000 (equivalent of US$1.10 per existing ordinary share)
out of the other reserve account. Following this, at an Extraordinary General
Meeting of the Company held on 10 September 2007, a share consolidation was
approved to reduce the number of existing Ordinary Shares by 20 per cent with
the result that shareholders receive four new Ordinary Shares for every five
existing Ordinary Shares held on 11 September 2007.
The Company has authority to buy back up to 14.99% of the issued share capital
until the next Annual General Meeting. The Company will propose a special
resolution at the next annual general meeting to renew this authority.
13. Share premium account and other reserve
Share premium account Period from 1 Year ended 30
October 2007 to September 2007
31 March 2008
US$ US$
Balance at start and end of period - -
Other reserve account Period from 1 Year ended 30
October 2007 to September 2007
31 March 2008
US$ US$
Balance at date of beginning of period 37,622,539 92,251,670
Special distribution to ordinary shareholders - (11,000,000)
Transfer to accumulated profits/(losses) - (43,629,131)
Balance at end of period 37,622,539 37,622,539
The Ordinary Shares of the Company have no par value. As such, the proceeds of
the Initial Public Offering represent the premium on the issue of the Ordinary
Shares. In accordance with the accounting policies of the Company and as
allowed by The Companies (Guernsey) Law, 1994, the costs of the Initial Public
Offering have been written off against the share premium account. The issue
costs associated with the Initial Public Offering amounted to US$7,397,458 and
warrants with a value of US$350,872 (Note 15).
The Company has passed a special resolution cancelling the amount standing to
the credit of its share premium account immediately following admission to the
London Stock Exchange. In accordance with The Companies (Guernsey) Law, 1994
(as amended) (the "Companies Law"), the Directors applied to the Royal Court in
Guernsey for an order confirming such cancellation of the share premium account
following admission. The other reserve created on cancellation is available as
distributable profits to be used for all purposes permitted by the Companies
Law, including the buy back of Ordinary Shares and the payment of dividends.
14. Notes to cash flow statement
Period from Period from
1 October 2007 1 October 2006
to 31 March 2008 to 31 March
2007
US$ US$
Net profit 4,171,980 6,880,118
Adjustments for:
Realised (gains)/losses on investments (634,149) 883,418
Realised (gains) on deconsolidation of Lions (13,168,767) -
Hill
Amortisation of premium discount account 183,578 -
Impairment charges 11,952,203 -
Unrealised foreign exchange gains/losses on (466,667) (14,105,940)
investments (note 9)
Realised foreign exchange gains on (5,294,586) -
deconsolidation of Lions Hill.
Unrealised (gains)/losses on derivatives (137,014) 546,174
(3,393,422) (5,796,230)
Purchases of investments - (266,571,945)
Paydowns and sales of investments 54,868,605 135,612,735
54,868,605 (130,959,210)
Decrease/(increase) in receivables 248,609 (5,351,541)
Increase in other payables (1,689,538) 38,375
(1,440,929) (5,313,166)
Net cash inflow/(outflow) from operating 50,034,254 (142,068,606)
activities
Purchases and sales of investments are considered to be operating activities of
the Group, given its purpose, rather than investing activities.
31 March 2008 30 September
2007
US$ US$
Cash and cash equivalents comprise:
Cash at bank 20,166,276 15,107,862
Overdraft (note 11) (1,681,492) -
18,484,784 15,107,862
15. Material agreements and related party transactions
Investment Manager
The Group is party to an Investment Management Agreement with Wharton Asset
Management Bermuda Limited, dated 31 May 2006, pursuant to which the Group has
appointed the Investment Manager to manage the assets and liabilities and
obligations of the Group in accordance with, inter alia, the investment
objective and policy of the Group, subject to the overall supervision and
direction of the Board of Directors of the Group. On Trio relinquishing control
of Lions Hill on appointment of receivers on 21 January 2008, the Investment
Manager has not been requested to continue managing the assets and liabilities
of Lions Hill.
The Group pays the Investment Manager a Management Fee and Incentive Fee.
Management Fee
The Investment Manager will be entitled to receive from the Group an annual
management fee of 1.75 percent of the gross equity of the Group (the
"Management Fee") calculated and payable monthly in arrears. For these
purposes, gross equity means the aggregate gross proceeds to the Group of all
issues of shares in the capital of the Group (less any capital distribution
made by the Group). The Management Fee charge for the period was US$778,750 (6
months to 31 March 2007: US$872,744), of which US$131,592 (6 months to 31 March
2007: US$nil) was outstanding at the period end.
Investments in other entities managed by the Investment Manager
As at 31 March 2008, the Company held investments with a total value of
US$387,500 (30 September 2007: US$998,450) in the following entities, which are
managed by the Investment Manager: G Square Finance 2006-1 Limited and G Square
Finance Limited.
Incentive Fee
The Investment Manager is also entitled to receive an incentive compensation
fee (the "Incentive Fee") in respect of each incentive period that will be paid
quarterly in arrears. An incentive period will comprise each successive
quarter, except the first such period was the period from Admission to 30
September 2006.
The Incentive Fee for each incentive period will be an amount equivalent to 25
percent of the amount by which A exceeds (B � C) where:
A = the Group's consolidated net income excluding any realised and unrealised
gains or losses (but only to the extent they have not been deducted in a
prior incentive period) as shown in the Group's latest consolidated
management accounts for the relevant quarter, before payment of any
Incentive Fee;
B = the time-weighed gross equity of the Group; and
C = one percent plus one quarter of three month LIBOR (as at the beginning of
the relevant incentive period).
Where there is a difference between the Group's consolidated net income for the
relevant incentive period as shown in the Group's quarterly management accounts
compared to the Group's audited annual accounts, the consolidated net income
for the relevant incentive period as reflected in the audited accounts shall
prevail. Any excess Incentive Fee paid or any additional Incentive Fee due in
respect of any incentive period attributable to any such difference will be
repaid by or paid to the Investment Manager, as the case may be. The Incentive
Fee charge for the period was US$nil (6 months to 31 March 2007: US$745,932),
of which US$nil (6 months to 31 March 2007: US$nil) was outstanding at the
period end.
Administration Fee
The Group is party to an Administration Agreement with Kleinwort Benson
(Channel Islands) Fund Services Limited dated 31 May 2006, pursuant to which
the Administrator has agreed to provide for the day-to-day administration of
the Group, including maintenance of accounts and provision of a company
secretary. For the provision of services under the Administration Agreement,
the Administrator is entitled to receive fees, which will be agreed in writing
from time to time between the Group and the Administrator. The initial fee has
been agreed to be 0.125 per cent per annum of the Group's gross assets and
0.025 percent per annum of Lions Hill's gross assets (subject in each case to a
minimum monthly fee of US$10,000), plus certain additional charges for
ancillary services.
Custodian Fee
The Group is party to a Custody Agreement with Investors Trust & Custodial
Services (Ireland) Limited dated 31 May 2006, pursuant to which the Custodian
has agreed to be responsible for providing custodial services which include
being global custodian of all the investments and property of the Company and
its subsidiaries and SPVs, the safekeeping and registration of property for the
Group and the settlement of all transactions relating to the property. For the
provision of services under the Custody Agreement, the Custodian is entitled to
receive a fee, which will be agreed in writing from time to time between the
Group and the Custodian. The initial fee will be 0.005 percent per annum of
DTCC deliverable gross assets and 0.015 percent per annum of Euroclear
deliverable gross assets plus certain transaction fees.
On 2 July 2007, State Street Corporation completed the acquisition of Investors
Financial Services Corporation, the parent company of the Sub-Administrator and
Custodian.
Investment Manager Warrants
In recognition of the promoter role and indemnification of certain costs,
liabilities and losses incurred by the affiliate of the Investment Manager,
Trident Capital Limited, in raising capital for the Company, the Company
granted on 31 May 2006 warrants to that affiliate. The warrants represent the
right to acquire 1,000,000 Shares, being 10 per cent of the number of Offer
Shares, at an exercise price equal to the Offer Price. The warrants are fully
vested and immediately exercisable on the date of admission to the London Stock
Exchange and will remain exercisable until the 10th anniversary of that date.
The Company may grant further warrants in connection with any future offering
of Shares. Such warrants, if any will represent the right to acquire Shares
equal to no more than 10 per cent of the number of Shares being offered in
respect of that future offering and will have an exercise price equal to the
offer price for that offering. As at the date of admission, the aggregate fair
value of the warrants granted at the time of the Initial Public Offering using
a Black-Scholes valuation model was US$350, 872 (reflecting a valuation of
US$0.35 per warrant). This amount has been treated as a cost of the Initial
Public Offering.
Subordinated Note
Carmen General Partner Limited, a limited liability company incorporated under
the laws of England and Wales acting in its capacity as general partner of the
Carmen Limited Partnership (collectively, "Carmen"), entered into a note
purchase agreement dated 2 February 2007 with TREAL. Pursuant to the note
purchase agreement, Carmen acquired EUR10,000,000 in principal amount of
participating term notes issued by TREAL for a cash consideration of
EUR10,000,000. On 13 August 2007, EUR2,000,000 participation notes were
redeemed for a cash consideration of EUR2,000,000 and on 5 September 2007, the
remaining EUR8,000,000 participation notes were assigned to TRIO Finance
Limited for a cash consideration of EUR8,000,000. TRIO Finance Limited
subsequently redeemed these participation notes on 6 September 2007.
16. Exchange rates
The following exchange rates (against the US$) were used to convert the
investments and other assets and liabilities denominated in currencies other
than US$:
31 March 2008 30 September
2007
Euro 1.58455 1.42215
Pound sterling 1.98750 2.03735
Swedish krone 5.92997 6.46905
17 Post Balance Sheet events
On 21 April 2008 the KAMPII B loan was fully repaid at par, equivalent to
EUR20,017,812.
END
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