TIDMAEFS
RNS Number : 9462B
Alcentra European Fltng Rate Inc Fd
12 June 2019
Alcentra European Floating Rate Income Fund Limited
Market Commentary
The Fund was up +0.38% (gross, estimated) in May, ahead of
Credit Suisse Western European Leveraged Loan Index ("CS WELLI")
(hedged to GBP) at +0.06%[1] for the same period. The Credit Suisse
Western European Leveraged Loan Index excluding USD returned
+0.27%[2] for the month.
The marginally negative return for the European Loan market in
May was a function of two different trends; weakness in the USD
loan market and a larger primary pipeline in Europe. USD loans
within the index were 0.8%[3] lower on the back a more risk-off
sentiment in the USD market generally (impacted US loans and HY).
This is illustrated by the more positive performance for the CS
WELLI excluding USD for the month which saw a positive return, as
it excludes these USD loans. The other main driver was the pick in
up European new loan issuance which meant investor focus was on new
deals, leading to less demand in secondary to drive prices higher.
Despite this, demand for European Loans overall continues to be
healthy, supported by CLO issuance and supportive unleveraged fund
flows. It is worth noting that the risk-off sentiment that impacted
US Loans also impacted the High Yield market, with US High Yield
returning -1.27%[4] and EU High Yield -1.38%[5] in the month,
further illustrating the relative outperformance of European Loans
in the period.
A steady stream of leveraged loan issuance in May meant that new
issuance volumes of EUR9.0bn showed a strong recovery from the low
level of EUR1.6bn seen in April[6]. This however remains 19% below
last year's EUR11.2bn of issuance[7]. For the month, M&A and
Recap volumes accounted for 81% of issuance while there was a
marginal increase in refinancing activity, which accounted for 17%
of volumes[8]. For now this refinancing/repricing activity remains
centred on the strongest credits with robust market support. The
average new issue spread in May was 402bps at a price of 99.61[9],
showing continued attractive investment opportunities in the
primary market. Year-to-date issuance now stands at EUR30.4bn, a
42% decline on the prior year, mainly driven by the quieter start
to the year[10]. Looking forward the pipeline remains solid, with
the S&P forward pipeline currently standing at
EUR8.5bn[11].
CLO issuance continues to provide solid support for the loan
market, with May issuance of EUR2.6bn. YTD issuance now stands at
EUR12.0bn, +15% on last year's record levels[12]. While arbitrage
conditions continue to be difficult, there have been signs of
tightening overall liability costs in recent weeks which should
help improve the conditions for new CLO issuance. While we do
expect that new CLO issuance will slow down into H2 due to a
thinner pipeline, issuance should still remain robust and, when
coupled with supportive unleveraged fund flows, means demand for
European Leverage Loans remains strong.
The S&P default rate for the 12 months ending May again
remained at the record low level of 0.00% seen since January[13].
We continue to expect a return to a more normalised 1.5% - 2.0%
rate in the medium term. This is backed up by the S&P distress
ratio (share of performing issuers trading below 80) which stood at
1.71% for May[14].
In summary, we believe that the market remains balanced overall
with the pick-up in leverage loan issuance being supported by
continued strong CLO formation and unleveraged fund demand.
Portfolio Manager's Commentary
The top two performing credits in the Fund were both Technology
Services businesses that were up +12.86% and +10.59% respectively.
Both names saw selling pressure in prior months on the back of
weaker results, but benefitted in May from a higher mark, albeit on
the back of very limited trading activity.
The worst performing credit was an Agricultural Products
business that was down -13.79% in May after it suffered from
secondary selling pressure on the back of reporting weaker than
expected results. The second weakest credit was a German Cable
business that also reported weaker results and saw its debt trade
-8.53% lower.
S
For further information please contact:
Alcentra Limited
Simon Perry +44 20 7367 5272
Factsheet
An accompanying factsheet which includes the information above
as well as wider commentary on the investments made by the Fund can
be found on the Fund's website www.aefrif.com.
Background Information
Alcentra European Floating Rate Income Fund Limited, a Guernsey
Authorised Closed-Ended Collective Investment Scheme, regulated by
the Guernsey Financial Services Commission and listed on the Main
Market of the London Stock Exchange invests predominantly in senior
secured loans and senior secured bonds issued by European
corporates and targets returns (net of fees and expenses) of 7% to
10% per annum. The Fund targets a dividend yield of 5.5 pence per
GBP1.00 issue price of the initial offering of shares in the Fund
for the first full year of investment, paid quarterly.
Important Notices
Neither the contents of the Company's website nor the contents
of any website accessible from hyperlinks on the Company's website
(or any other website) is incorporated into, or forms part of, this
announcement.
This report is aimed at existing investors in the fund and has
not been approved by any competent regulatory authority.
The information contained in this document is given as at the
date of its publication (unless otherwise marked) and is based on
past performance. Past performance is not a guide to future
performance and the value of investments and investment value can
go down as well as up. The future performance of the Fund will
depend on numerous factors which are subject to uncertainty.
Including changes in market conditions and interest rates and
exchange rates and in response to other economic, political or
financial developments, investment return and principal value of
your investment will fluctuate, so that when your investment is
sold, the amount you receive could be less than what you originally
invested. Past or current yields are not indicative of future
yields.
This document does not contain any representations, does not
constitute or form part of any solicitation of any offer to sell or
invitation to purchase any securities of the Fund, nor shall it or
any part of it or the fact of its distribution form the basis of or
be relied upon in connection with any contract therefor, and does
not constitute a recommendation regarding the securities of the
Fund. Nothing in this document should be construed as a profit or
dividend forecast.
This document includes statements that are, or may be deemed to
be, "forward-looking statements". These forward-looking statements
include, without limitation, statements typically containing words
such as "believes", "considers", "intends", "expects",
"anticipates", "targets", "estimates", "will", "may", or "should"
and words of similar import. The forward-looking statements are
based on the beliefs, assumptions and expectations of future
performance and market development of Alcentra Limited
("Alcentra"), taking into account information currently available
and made as at the date of this document. These can change as a
result of many possible events or factors, not all of which are
known or within Alcentra's control. If a change occurs, the Fund's
business, financial condition, liquidity and results of operations
may vary materially from those expressed in the forward-looking
statements. By their nature, forward-looking statements involve
known and unknown risks and uncertainties. Forward-looking
statements are not guarantees of future performance. Alcentra
qualifies any and all of the forward-looking statements by these
cautionary factors. Please keep this cautionary note in mind while
reading this document.
An investment in the Fund is suitable only for investors who are
capable of evaluating the merits and risks of such an investment
and who have sufficient resources to be able to bear losses (which
may equal the whole amount invested) that may result from such an
investment. An investment in the Fund should constitute part of a
diversified investment portfolio. Accordingly, typical investors in
the Fund are expected to be sophisticated and/or professional
investors who understand the risks involved in investing in the
Fund.
Alcentra gives no undertaking to provide recipients of this
document with access to any additional information, or to update
this document or any additional information, or to correct any
inaccuracies in it which may become apparent including in relation
to any forward-looking statements. The distribution of this
document shall not be deemed to be any form of commitment on the
part of Alcentra to proceed with any transaction.
This document is issued by Alcentra Limited, which is authorised
and regulated in the United Kingdom by the Financial Conduct
Authority and whose registered address is at 160 Queen Victoria
Street, London, United Kingdom, EC4V 4LA.
BNY Mellon is the corporate brand of The Bank of New York Mellon
Corporation and may also be used as a generic term to reference the
Corporation as a whole or its various subsidiaries generally.
(c) 2019 The Bank of New York Mellon Corporation. All rights
reserved. Trademarks and logos belong to their respective
owners.
[1] Credit Suisse Western European Leveraged Loan Index, All
Denom, hedged to GBP, 31 May 2019
[2] Credit Suisse Western European Leveraged Loan Index, Non
USD, hedged to GBP, 31 May 2019
[3] Credit Suisse Western European Leveraged Loan Index, All
Denom, hedged to GBP, 31 May 2019
[4] ICE BAML US High Yield Master, H0A0, 31 May 2019
[5] ICE BAML Euro High Yield Index, HP00, 31 May 2019
[6] S&P Global Market Intelligence, LCD Global Interactive
Loan Volume Report, 3 June 2019
[7] S&P Global Market Intelligence, LCD Global Interactive
Loan Volume Report, 3 June 2019
[8] S&P Global Market Intelligence, LCD Global Interactive
Loan Volume Report, 3 June 2019
[9] S&P Global Market Intelligence, LCD European Weekly, 31
May 2019
[10] S&P Global Market Intelligence, LCD Global Interactive
Loan Volume Report, 3 June 2019
[11] S&P Global Market Intelligence, Forward Pipeline, 3
June 2019
[12] S&P Global Market Intelligence, CLO Historical
Statistics, 4 June 2019
[13] S&P Default Ratio, 1 June 2019
[14] S&P Distress Ratio, 1 June 2019
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
PFUGIGDLLDBBGCD
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