TIDMBGLF
RNS Number : 6244X
Blackstone / GSO Loan Financing Ltd
30 April 2019
30 APRIL 2019
FOR IMMEDIATE RELEASE
RELEASED BY BNP PARIBAS SECURITIES SERVICES S.C.A., JERSEY
BRANCH FINAL RESULTS
ANNOUNCEMENT
THE BOARD OF DIRECTORS OF BLACKSTONE / GSO LOAN FINANCING
LIMITED ANNOUNCE FINAL RESULTS FOR THE YEARED 31 DECEMBER 2018
Strategic report
Reconciliation of IFRS NAV to Published NAV
At 31 December 2018, there was a difference between the NAV per
Euro Ordinary Share as disclosed in the Statement of Financial
Position, of EUR0.8065 per Euro Ordinary share, ("IFRS NAV")
compared to the published NAV, of EUR0.8963 per Euro Ordinary
share, which was released to the LSE on 22 January 2019 ("Published
NAV"). A reconciliation is provided in Note 16. Almost the entire
difference between the two numbers is due to the different
valuation bases used to determine the value of the investments.
Valuation Policy for the Published NAV
The Company publishes a NAV per Euro Ordinary Share on a monthly
basis in accordance with its Prospectus. The Published NAV is based
on a monthly valuation process that incorporates the valuation of
its CSWs and PPNs, which in turn are based on the valuation of the
BGCF portfolio using a CLO intrinsic calculation methodology per
the Company's Prospectus, which we refer to as a "mark to model"
approach. As documented in the Prospectus, certain "Market Colour"
(market clearing levels, market fundamentals, bids wanted in
competition ("BWIC"), broker quotes or other indications) is not
incorporated into this methodology. The Directors believe that
valuations on this basis are the appropriate way of tracking the
long-term performance of the Company as the underlying portfolio of
CLOs held by BGCF are comparable to held to maturity instruments
and the Company expects to receive the benefit of the underlying
cash-flows over the CLOs' entire life cycle.
Valuation Policy for the IFRS NAV
For financial reporting purposes annually and semi-annually, to
comply with IFRS as adopted by the EU, the valuation of BGCF's
portfolio of assets is at fair value using models that incorporate
Market Colour at the period end date, which we refer to as a "mark
to market" approach. IFRS fair value is the price that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants as at the
measurement date, and is an "exit price" e.g. the price to sell an
asset. An exit price embodies expectations about the future cash
inflows and cash outflows associated with an asset or liability
from the perspective of a market participant. IFRS fair value is a
market-based measurement, rather than an entity-specific
measurement, and is measured using assumptions that market
participants would use in pricing the asset or liability, including
assumptions about risk. Both the mark to model Published NAV and
mark to market IFRS NAV valuation bases use modelling techniques
and input from third-party valuation specialists.
Previous Financial Year Ends
At previous year-ends, there has been no material difference in
the two valuation approaches and, consequently the financial
statements prior to 31 December 2018 have not required a
reconciliation.
Market Conditions at 31 December 2018
At the end of Q4 2018, there was a large market selloff in the
broadly syndicated loan market, being the underlying collateral for
the CLO Income Notes, and as a result, the CLO Income Notes' NAVs
dropped. This drove down the fair value of CLO positions despite a
lack of observed CLO Income Note trades in the market. Due to these
market technicals driving the loan market decline, the higher
estimated discount rate on the year-end date is a large
contributing factor to the lower IFRS NAV. Projected cash flows
from the CLO Income Notes have generally not materially changed
from DFME's expectations. The average price of the Credit Suisse US
Leveraged Loan Index fell -4.50% to 94.09 at the end of Q4 2018
from 98.52 at the end of Q3 2018. The lower IFRS NAV is generally
consistent with the overall market decline, higher perceived risk
sentiment and bids wanted in competition, and underpins the lower
IFRS fair value of the Company's investments at the point in time
of the year-end date. Consequently, at 31 December 2018, there was
a material divergence between valuations calculated on the
different bases. Further information is given below that explains
the key differences in the assumptions used for each
methodology.
Market Conditions Update Q1 2019
Observed market colour and technical factors have begun to
recover in 2019, as demonstrated by the Credit Suisse Leveraged
Loan Index, which returned +3.78% from 31 December 2018 to 29 March
2019.
The Directors, as set out in the Prospectus, will continue to
assess the performance of the Company using the Published NAV.
Going forward, the Directors, in conjunction with the Portfolio
Adviser, are also considering presenting additional information and
commentary on Market Colour, credit risk exposure and any material
divergence from the different valuation bases referred to
above.
Key Performance Indicators
NAV per the financial Published NAV
statements ("IFRS NAV")
BGLF NAV per Euro Ordinary EUR0.8065 EUR0.8963
Share (1)
(31 December 2017: (31 December 2017:
EUR0.9378) EUR0.9378)
BGLF NAV total return (3.99)% 6.70%
per Euro Ordinary Share (31 December 2017: (31 December 2017:
(1) 1.38%) 1.38%)
(Discount)/premium (5.77%) (15.21%)
per
Euro Ordinary Share(1) (31 December 2017: (31 December 2017:
5.03%) 5.03%)
Dividend per Euro Ordinary 10c
Share (31 December 2017: 10c)
Further information on the reconciliation between the IFRS NAV
and the Published NAV can be found above.
Performance
Ticker IFRS Published Share Premium / Premium / Dividend
NAV NAV Price(2) (Discount) (Discount) Yield
per Share per Share IFRS NAV Published
NAV
-------- ----------- ----------- ---------- ------------ ------------ ---------
BGLF
31 Dec
2018 EUR0.8065 EUR0.8963 EUR0.7600 (5.77)% (15.21)% 13.16%
31 Dec
2017 EUR0.9378 EUR0.9378 EUR0.9850 5.03% 5.03% 10.00%
-------- ----------- ----------- ---------- ------------ ------------ ---------
BGLP
31 Dec
2018 GBP0.7251 GBP0.8058 GBP0.7175 (1.05)% (10.95)% 12.53%
31 Dec
2017 GBP0.8329 GBP0.8329 GBP0.8750 5.05% 5.05% N/A
-------- ----------- ----------- ---------- ------------ ------------ ---------
LTM 3-Year Annualised Cumulative
Return(1) Annualised Since Inception Since
Inception
--------------------- ----------- ------------ ----------------- -----------
BGLF Euro IFRS NAV (3.99)% 3.31% 3.87% 18.36%
BGLF Euro Published
NAV 6.70% 7.01% 6.36% 31.53%
BGLF Euro Ordinary
Share
Price (13.82)% 1.70% 2.67% 12.40%
European Loans 0.55% 3.42% 2.98% 13.93%
US Loans 1.14% 5.02% 3.12% 14.65%
--------------------- ----------- ------------ ----------------- -----------
(1) Refer to Glossary for an explanation of the terms used above
and elsewhere within this report
(2) Bloomberg closing price at period end
Dividend History
Whilst not forming part of the investment objective or policy of
the Company, dividends will be payable in respect of each calendar
quarter, two months after the end of such quarter. The Company
continued to target a dividend of EUR0.025 a quarter throughout the
year ended 31 December 2018.
Dividends for the Year Ended 31 December 2018
Period in respect of Date Declared Ex-dividend Date Payment Date Amount per Euro Ordinary Share
---------------------------- --------------- ------------------ -------------- -------------------------------
EUR
---------------------------- --------------- ------------------ -------------- -------------------------------
1 Jan 2018 to 31 Mar 2018 20 Apr 2018 3 May 2018 1 Jun 2018 0.0250
1 Apr 2018 to 30 Jun 2018 19 Jul 2018 26 Jul 2018 24 Aug 2018 0.0250
1 Jul 2018 to 30 Sept 2018 18 Oct 2018 25 Oct 2018 23 Nov 2018 0.0250
1 Oct 2018 to 31 Dec 2018 22 Jan 2019 31 Jan 2019 1 Mar 2019 0.0250
---------------------------- --------------- ------------------ -------------- -------------------------------
Dividends for the Year Ended 31 December 2017
Period in respect of Date Declared Ex-dividend Date Payment Date Amount per Euro Ordinary Share
---------------------------- --------------- ------------------ -------------- -------------------------------
EUR
---------------------------- --------------- ------------------ -------------- -------------------------------
1 Jan 2017 to 31 Mar 2017 24 Apr 2017 4 May 2017 26 May 2017 0.0250
1 Apr 2017 to 30 Jun 2017 20 Jul 2017 27 Jul 2017 18 Aug 2017 0.0250
1 Jul 2017 to 30 Sept 2017 19 Oct 2017 26 Oct 2017 24 Nov 2017 0.0250
1 Oct 2017 to 31 Dec 2017 18 Jan 2018 25 Jan 2018 23 Feb 2018 0.0250
---------------------------- --------------- ------------------ -------------- -------------------------------
Year Highs and Lows
2018 2018 2017 2017
High Low High Low
IFRS NAV per Euro Ordinary share EUR0.9183 EUR0.8065 EUR1.0252 EUR0.9378
Published NAV per Euro Ordinary share EUR0.9183 EUR0.8837 EUR1.0252 EUR0.9378
Euro Ordinary Share Price (last price) EUR0.9875 EUR0.7600 EUR1.0550 EUR0.9800
GBP Ordinary Share Price (last price) GBP0.8750 GBP0.7150 GBP0.9450 GBP0.8650
--------------------------------------- --------- --------- --------- ---------
Schedule of Investments
As at 31 December 2018
Nominal Market % of Net Asset
Holdings Value Value
EUR
----------------------------------------- ----------- ----------- --------------
Investment held in the Lux Subsidiary:
CSWs 291,343,213 310,753,454 95.21
Shares (2,000,000 Class A and 1 Class B) 2,000,001 5,137,028 1.57
Other Net Assets 10,496,662 3.22
----------------------------------------- ----------- ----------- --------------
Net Assets Attributable to Shareholders 326,387,144 100.00
----------------------------------------- ----------- ----------- --------------
Schedule of Significant Transactions
Date of Transaction Transaction Type Amount Reason
EUR
------------------- ---------------- ---------- ----------------
CSWs held by the Company
8 Feb 2018 Redemption 13,296,821 To fund dividend
18 May 2018 Redemption 10,972,198 To fund dividend
8 Aug 2018 Redemption 14,223,045 To fund dividend
16 Nov 2018 Redemption 11,834,108 To fund dividend
------------------- ---------------- ---------- ----------------
Chair's Statement
Dear Shareholders,
After two years of stable growth in asset prices, 2018 proved to
be more challenging for investors, particularly in the final
quarter. Heading into 2018, tax cuts in the US provided an added
boost for investors and indeed the US economy did advance an
annualised 2.9% in 2018, ahead of the 2.2% rate of growth in 2017.
US inflation emerged as a topical risk in 2018 given increased
pressure on commodity prices, signs of wage growth, and an increase
of Consumer Price Index above 3%. Inflation is typically coupled
with rising rates, and, in 2018, the Federal Open Market Committee
("FOMC") increased short-term rates four times. As a result, the
10-year US Treasury yield reached a peak of over 3.2% in 2018.
Toward the end of 2018, heightened tensions surrounding US-China
trade relations, uncertainty surrounding an array of geopolitical
situations, and the US government shutdown began to feed concerns
that economic growth may be slowing. This ultimately resulted in a
rise in risk premium and a spike in volatility in the equity and
credit markets during the fourth quarter. Against this backdrop, in
January, the FOMC made it clear that they would hold off on further
rate increases until the impact of the prior rate increases was
realised.
Economic growth in Europe also started strongly in 2018, but
decelerated in the second half of the year as many economic
indicators dipped and global growth became less synchronised.
Despite the decline in reported numbers in Europe, the major
constituents of the Eurozone Composite PMI (manufacturing,
services, and construction) all reported above 50 each month, the
demarcation line between growth and contraction. In January of
2019, however, the European Central Bank ("ECB") downgraded GDP
growth projections for the year, with expectations for a 1.6%
expansion in 2019 after 1.9% growth in 2018. This is in line with
messaging from the International Monetary Fund, which cut its
forecast for the world economy and now predicts it will grow at a
rate of 3.5% in 2019, its weakest pace in three years, due to
softening consumer demand across Europe, palpitations in financial
markets and fresh trade tensions.
Total Return(3)
The Company delivered an IFRS NAV total return per Euro Ordinary
share of -3.99% in 2018 (+1.38% in 2017), ending the year at
EUR0.8065 (EUR0.9378 at 31 December 2017). The return was composed
of dividend income +11.38% and of net portfolio movement of
-15.37%.
On a Published NAV basis, the Company delivered a total return
per Euro Ordinary share of 6.70% in 2018 (+1.38% in 2017), ending
the year at EUR0.8963 (EUR0.9378 at 31 December 2017). The return
was composed of dividend income +11.38% and of net portfolio
movement of -4.68%.
The Company's performance was impacted by a compression of the
net interest margin of underlying CLO investments due to spread
narrowing within the loan portfolios held within the CLOs. While
loan spread tightening persisted throughout much of the early part
of the year, many of BGCF's CLO positions had undergone liability
refinancing at lower costs, which helped to offset the impact.
Performance in 2018 was further supported by stronger than modelled
fundamental performance in the underlying CLO portfolios, namely
lower defaults. Volatility in both the loan and CLO markets had a
significant impact on the IFRS NAV compared to the Company's
Published NAV, which remains relatively stable due to its hold to
maturity strategy and its valuation of long-term CLO Income Note
investments based on expected cash flows.
An explanation of the difference between the IFRS NAV and the
Published NAV is included above.
The Company paid four dividends in respect of the year ended 31
December 2018, totaling EUR0.10 per share. Details of all dividend
payments can be found within the "Dividend History" section
above.
Discount Management
While the share price discount to IFRS NAV averaged 1.4%
(average of 2.1% based on Published NAV) throughout 2018, the
shares ended the year trading at a discount of 5.77% to the IFRS
NAV and 15.21% discount to the Published NAV (versus premium to NAV
of 5.03% at 2017 year-end). The discount is -7.4% based on the
Published NAV as at the time of this publication. As a Board, we
regularly weigh the balance between maintaining liquidity of the
Euro shares, the stability of any discount or premium relative to
Published NAV, and the desire of Shareholders to see the Euro
shares trade as closely as possible to their intrinsic value. On 23
January 2019, the Board announced that, under the general authority
conferred by the Company's Shareholders at its Annual General
Meeting on 22 June 2018, it retains the right to buy back shares in
the market with the goal of reducing the discount.
BGLF Rollover Opportunity
On 21 December 2018, BGLF announced the results of the Rollover
Opportunity, whereby shareholders in Carador Income Fund plc
("Carador") were provided with the opportunity to elect to rollover
their investment in Carador into an investment in newly issued BGLF
shares (" C Shares"). Approximately 34% of the Carador US Dollar
Share register elected to rollover into Euro-denominated BGLF C
Shares. In consideration for the transfer of Rollover Assets,
equating to approximately $90 million, BGLF issued 133,451,107 BGLF
C shares. These began trading on the Specialist Fund Segment of the
Main Market of the LSE on 7 January 2019.
As outlined in the Prospectus, BGLF intends that the C Shares
will convert into BGLF Ordinary Shares after a transitional period,
expected to be between six to twelve months in length, during which
the Rollover Assets will be realised and the proceeds reinvested in
accordance with BGLF's investment policy. Rollover Assets, which
primarily consist of CLO Income Notes, carry no risk retention
requirements, and the investment strategy of the Company is to sell
such positions as opportunities arise. As at the date of this
publication, 31% of the Rollover Assets have been realised.
Brexit Update
Geopolitical volatility has become a key driver of uncertainty,
and will remain one over the next few years. The board continues to
monitor the ongoing negotiations regarding the UK's exit from the
European Union ("Brexit"). The potential implications to BGLF have
been evaluated in terms of any likely impact on credit quality in
respect of BGCF's portfolio of investments and across its service
providers, including areas such as human resources, counterparty
relationships, supply chains, macroeconomic, and regulatory policy,
as well as with regards to its marketing registrations, all of
which have been deemed to have a negligible impact on the long-term
sustainability of the Company. The longer-term impact of Brexit
will continue to be monitored as the uncertainty resolves.
The Board
Good governance remains at the heart of our work as a Board and
is taken very seriously. We believe that the Company maintains high
standards of corporate governance. The Board was very active during
the year convening a total of 21 Board meetings and 31 Committee
meetings, as well as undertaking an offsite due diligence review in
January 2018 of DFME. The Board used this visit to discuss various
aspects of operational risk and controls, the loan and CLO markets,
and current market conditions. A follow up visit was undertaken in
March 2019 and the Board is holding its next quarterly board
meeting in July 2019 in New York in order to meet with several
personnel in the wider Blackstone Group. In addition, as can be
seen from the corporate activity during the year, the Board and its
advisers have worked hard to ensure the continued success and
growth of the Company to put it in the best position to take
advantage of all appropriate opportunities. The work of the Board
is assisted by the Audit Committee, Management Engagement
Committee, the Remuneration and Nomination Committee and the Risk
Committee. The joint work of the Risk and Audit committees has
given valuable support to the longer-term viability considerations
of the Board as described in the Strategic Report - Risk Overview
section.
The Company is a member of the AIC and adheres to the AIC Code
which is endorsed by the FRC, and meets the Company's obligations
in relation to the UK Corporate Governance Code 2016 (the "UK
Code").
Shortly after year end, with effect from 8 January 2019, the
Board appointed Mark Moffat as a non-executive director. Mark has
been involved in structuring, managing and investing in CLOs for
over 20 years. As Mark was employed by GSO Capital Partners LP
("GSO") until early 2015, the Board does not currently consider him
to be an independent director; however, we believe that with his
knowledge and experience he will be a valuable addition to the
Board.
Shareholder Communications
During 2018, using our Adviser and Brokers, we have continued
our programme of engagement with current and prospective
Shareholders. We sincerely hope that you found the monthly
factsheets and other information valuable. We are always pleased to
have contact with Shareholders and we welcome any opportunity to
meet with you and obtain your feedback. The Board along with its
Portfolio Adviser is currently reviewing the format of shareholder
communications with a view to providing more detail on underlying
BGCF investments including market colour and credit risk
exposure.
Prospects and Opportunities in 2019
Looking ahead to 2019, there are many compelling market
scenarios to consider. While we do not expect that the US economy
will move into a recession this year, we do acknowledge that
markets began the year pricing in about a 50% chance of a
recession. There are two core drivers of recession: excess capacity
and Fed overtightening. In our view, the present state of these
drivers indicates that the current credit cycle is likely to extend
beyond 2019.
In Europe, the ECB ended its quantitative easing ("QE")
programme in December, and the market priced in the ECB's first
rate increase since 2011 to occur toward the end of 2019. With
recessionary conditions evident in Italy, and France and Germany
seeming likely to fall into recession as well, we expected that the
ECB would soon need to restart QE. Indeed, as European global
growth expectations weakened amid rising geopolitical uncertainty,
in March of 2019, the ECB announced a third injection of stimulus
in the form of a new series of quarterly targeted longer-term
refinancing operations ("TLTRO-III"), which will be launched in
September 2019 and continue through to March 2021. By providing
cheap loans to banks, TLTRO-III should lower funding costs for
businesses and households and help offset the effect of negative
interest rates on banks.
With weakening economic data, the global economy appears to be
in the later stages of this current economic cycle. The position of
senior loans at the top of the credit structure, secured by the
vast majority of the borrowing company's assets, provides us, the
Board, with comfort in the event of a global downturn. Amid
headlines of increasing leverage, weakening documentation, and
increasing focus on "covenant lite" loans, we strongly believe the
conservative investment process embedded in BGCF's portfolio
construction is key to selecting an underlying portfolio of high
quality companies supported by robust underlying protections. As we
move into 2019, we continue to believe that the Company is well
positioned to access favourable investment opportunities in loans,
CLOs and warehouses through its investment in BGCF.
Dividends
Whilst not forming part of the investment objective or policy,
and as outlined in the Prospectus, the Company has targeted an
annualised mid teen total return over the medium term with a view
to delivering this return through a combination of dividend
payments and capital appreciation. The actual dividend generated by
the Company in pursuing its investment objective depends on a wide
range of factors, including, but not limited to: general economic
and market conditions; fluctuating currency exchange rates;
prevailing interest rates; and credit spreads and the terms of the
investments made by the company. The aim is that excess cash or
interest from the portfolio is reinvested by BGCF with the
objective of growing the NAV of the Company.
The Board regularly considers the balance between the
sustainability of dividends to investors and capital growth. When
considering sustainability of dividends the Board has regard to
past and forecast operational performance and the prevailing
macro-economic outlook. The Company is well positioned to continue
to fund its dividend, which continues to be covered by cash
generated from its underlying investments. Details of the Company's
continuing viability and going concern can be found in the
"Strategic Report - Risk Overview" section. The ability of the
Board to maintain future dividend policy will be influenced by the
principal risks, and in particular the risk regarding investment
performance and the income distribution model. Accordingly, the
Company anticipates maintaining a dividend of 10c per annum
distributed as a quarterly dividend of 2.5c per Euro Ordinary
share. However, the Board will continue to undertake further
analysis in the short term and monitor whether this provides the
right balance between sustainability of dividends and the
reinvestment of investment returns to grow the capital value of the
Company.
The Board wishes to express its thanks to the Company's
Shareholders for their support.
Charlotte Valeur
Chair
30 April 2019
(3) Past performance is not necessarily indicative of future
results, and there can be no assurance that the Company will
achieve comparable results, will meet its target returns, achieve
its investment objectives, or be able to implement its investment
strategy.
Portfolio Adviser's Review
We are pleased to present our review of 2018 and outlook for
2019.
Bank Loan Market Overview (4,5)
In 2018, European bank loans returned 0.55% (vs. 3.30% in 2017)
and US bank loans returned 1.14% (vs. 4.25% in 2017). The somewhat
muted full year performance of loans for 2018 was a result of a
change in risk sentiment that triggered high velocity loan retail
fund outflows in the US and an eventual technical sell off in the
final quarter. While this affected both the US and European
markets, loans proved their resilience and outperformed most asset
categories in 2018.
Loan spread compression stabilised in 2018 and overall spreads
in the European loan market tightened by only 1bp in 2018 (compared
to 55bp in 2017) to end the year at 345bp. In the US, spread
tightening moderated from narrowing 34bp in 2017 to 9bp over the
year to end 2018 at 348bp. US loan coupons were further supported
by a 111bp increase in 3M LIBOR over 2018 to 281bp.
Gross total loan issuance was EUR96.7 billion in Europe and
$621.8 billion in the US for 2018. The largest use of this capital
in both markets was related to M&A activity (69.5% in Europe
and 55.8% in the US) - a shift from 2017, where recap and
refinancing was the largest use of issuance globally. Both the
European loan market and the US loan market experienced growth in
2018. The Credit Suisse Western European Leveraged Loan Index par
outstanding rose from EUR217 billion in December 2017 to EUR283
billion in December 2018 (+30%), while the Credit Suisse Leveraged
Loan Index par outstanding rose from $1,075 billion to $1,225
billion (+14%). We expect net new issue loan supply to decline
year-on-year for 2019, due in large part to the volatility
experienced in the fourth quarter 2018.
Default rates for loans remained below historical averages
throughout 2018 and ended the year at 1.6% in the US and 0.1% in
Europe.(5) We expect that they will remain below 2% throughout 2019
as loan issuer fundamentals remain strong. For US loan issuers,
EBITDA grew by 10% on average in Q4 and revenue growth was 9%.
Total leverage for US loan issuers decreased to 5.2x in Q4 and
average interest coverage ratios improved to 4.6x.(4) While less
broad based data is publicly available for European loan issuers,
in Q3 we saw year-on-year revenue growth of 7% and interest
coverage increased by 0.5x to 5.08x in the portfolio companies that
we monitor.(6)
These strong corporate fundamentals, combined with low projected
default rates, lead us to remain constructive on credit in 2019 and
continue to believe that floating rate senior loans offer a
compelling risk--reward opportunity. This is further supported by
our view that the seniority of loans in the corporate structure
offers defensive positioning unique to the asset class and one that
is well suited for portfolio construction in a late cycle
environment.
CLO Market Overview (7)
CLO issuance in 2018 was strong globally with record post-crisis
CLO issuance in both Europe and the US. European CLO new issuance
totalled EUR27.3 billion from 66 CLOs, (2017 issuance of EUR20.9
billion from 51 CLOs) and US CLO new issuance totalled $128.9
billion from 241 CLOs (2017 issuance of $118.1 billion from 212
CLOs).
In the early part of 2018, US CLOs' liability cost reached
post-crisis tights, but these were soon overwhelmed by the volumes
spurred on by the roll-back of US risk retention requirements,
which caused spreads to widen. Loan price volatility during the
fourth quarter caused further widening of CLO liability costs,
which led to a slow-down of CLO issuance. CLO liabilities continue
to remain wide into 2019, posing a challenge to the CLO Income Note
arbitrage.
In contrast to new issuance, CLO refinancing and reset activity
moderated in 2018 as CLO spreads widened globally. In 2018, EUR18.2
billion of European CLOs and $155.9 billion of US CLOs were
refinanced or reset, the majority of which occurred in the first
nine months of the year. In comparison, total refinancing and reset
volume in 2017 was EUR24.8 billion in Europe and $167.0 billion in
the US.
From a CLO fundamentals perspective, there was a divergence in
some tests between Europe and the US. In Europe, CLO minimum
overcollateralization ("OC") cushions declined slightly from 4.56%
to 4.37% over the year and Weighted Average Rating Factor ("WARF")
deteriorated from 2760 to 2858 on average. CCC buckets in the
market improved and were broadly down by 0.90%. In the US, Caa
holdings dropped by 0.40% and minimum OC cushions improved 0.20% to
4.35%, while WARF improved from 2811 to 2807 on average.(8)
Looking ahead, we expect that 2019 CLO gross issuance could
reach EUR25 billion in Europe and $90 billion in the US. However,
it should be noted that late 2018 and early 2019 market conditions
have resulted in a downward trend for CLO issuance forecasts.
Portfolio Update
BGLF, through its investment in BGCF, increased its exposure to
US assets during 2018. As at 31 December, based on NAV, 46% of
BGCF's portfolio was composed of US CLO Income Notes and CLO
warehouses, compared to 33% in December 2017. Exposure to directly
held loans, net of leverage, decreased from 27% to 18%, and
European CLO Income Notes remained relatively stable at 37% from
39% at the end of 2017.
Within the CLO portfolio, newer vintage CLOs have made first
distributions that exceeded modelled cash flows, which helped to
support the current distribution rate and to offset the diminishing
cash flows from older vintage CLOs in the portfolio.
Portfolio vintage diversification remains an important part of
the BGCF investment strategy. The continued pace of CLO issuance in
2018 increased the portfolio's concentration in newer vintage CLOs
with longer reinvestment periods, which benefit from additional
time to invest in loans, including the ability to take advantage of
secondary market dislocations should they occur. As of 31 December,
the weighted average remaining CLO reinvestment periods for
European and US CLOs in the portfolio were 2.2 years and 3.8 years,
respectively, compared to 2.2 years and 4.2 years at the end of
2017.
Throughout 2018, BGCF originated EUR2.8 billion of senior
secured loans and floating rate notes (EUR2.3 billion in 2017), and
invested EUR90.6 million (EUR72.3 million in 2017) in four European
CLOs and $238.7 million ($232.7 million in 2017) in six US CLOs.
BGCF also invested a total of $242.9 million ($255.6 million in
2017) in seven US CLO warehouses during the year.
We believe that resetting and extending CLO liability terms is
supportive of both credit quality within a CLO portfolio, as well
as sustainability of equity cash flows. Accordingly, BGCF continued
to refinance/reset existing CLO investments soon after expiration
of their respective non-call periods throughout 2018. In total,
five CLOs (vs. five in 2017) were refinanced or reset, reducing
average cost of debt by approximately 0.6%. While the cost of
capital for additional CLO refinancings and resets had risen by the
end of December, our process remains to evaluate the long-term
value of extending the term of the CLOs in the BGCF portfolio at
the expiration of their non-call periods.
All investments made to-date have been consistent with the
strategy of principal preservation and minimising credit-related
losses, while generating stable returns through income and capital
appreciation.
CLO Income Closing EUR Deal Position % of Reinvestment Current Current Net NIM Distributions
Note Date / Size Owned Tranche Period Asset Liability Interest 3-Months Through
Investments USD (mm) (mm) Remaining Coupon Cost Margin Prior Last Payment
Date
------------- -------- ---- ------- -------- ------- ------------ ------- --------- -------- --------
Ann. Cum.
------------- -------- ---- ------- -------- ------- ------------ ------- --------- -------- -------- ------ -------
EUR
Phoenix Park Jul-14 EUR 419 EUR 23.3 51.4% 4.33 3.58% 1.79% 1.76% 2.03% 16.1% 68.5%
EUR
Sorrento Park Oct-14 EUR 517 EUR 29.5 51.8% 0.00 3.71% 1.44% 2.26% 2.27% 17.4% 71.2%
EUR
Castle Park Dec-14 EUR 415 EUR 37.0 80.4% 0.04 3.71% 1.52% 2.19% 2.20% 17.4% 66.5%
Dorchester
Park Feb-15 USD $ 533 $ 48.5 73.0% 1.30 5.77% 3.89% 1.89% 1.78% 16.5% 60.3%
EUR
Dartry Park Mar-15 EUR 411 EUR 22.8 51.1% 0.32 3.64% 1.63% 2.02% 1.99% 15.3% 55.2%
EUR
Orwell Park Jun-15 EUR 415 EUR 24.2 51.0% 0.54 3.72% 1.44% 2.29% 2.30% 16.4% 55.5%
EUR
Tymon Park Dec-15 EUR 414 EUR 22.7 51.0% 1.06 3.67% 1.31% 2.36% 2.39% 15.2% 43.3%
EUR
Elm Park May-16 EUR 558 EUR 31.9 56.1% 1.29 3.67% 1.37% 2.30% 2.28% 12.1% 28.8%
EUR
Griffith Park Sep-16 EUR 459 EUR 29.0 59.5% 4.39 3.66% 1.81% 1.85% 1.50% 10.9% 24.0%
EUR
Clarinda Park Nov-16 EUR 415 EUR 23.1 51.2% 1.88 3.71% 2.03% 1.68% 1.70% 11.3% 22.6%
Grippen Park Mar-17 USD $ 611 $ 35.6 60.0% 3.30 5.75% 4.20% 1.55% 1.52% 13.1% 20.9%
Palmerston EUR
Park Apr-17 EUR 415 EUR 28.0 62.2% 2.30 3.64% 1.73% 1.91% 1.85% 14.6% 22.2%
Thayer Park May-17 USD $ 515 $ 29.8 54.6% 3.30 5.79% 4.23% 1.56% 1.49% 18.5% 26.5%
Catskill Park May-17 USD $ 1,029 $ 65.1 60.0% 3.30 5.79% 4.20% 1.59% 1.51% 17.3% 24.6%
EUR
Clontarf Park Jul-17 EUR 414 EUR 29.0 66.9% 2.60 3.59% 1.58% 2.01% 2.02% 14.5% 19.1%
Dewolf Park Aug-17 USD $ 614 $ 36.9 60.0% 3.79 5.84% 4.16% 1.68% 1.61% 17.2% 19.4%
Gilbert Park Oct-17 USD $ 1022 $ 60.2 59.0% 3.79 5.84% 4.12% 1.72% 1.65% 18.0% 17.6%
EUR
Willow Park Nov-17 EUR 412 EUR 23.4 60.9% 3.54 3.65% 1.58% 2.07% 2.05% 18.1% 15.8%
Long Point
Park Dec-17 USD $ 611 $ 33.4 56.9% 4.05 5.89% 3.87% 2.02% 1.98% 27.2% 21.8%
Stewart Park Jan-18 USD $ 879 $ 126.9 69.0% 4.00 5.79% 3.90% 1.89% 1.80% 18.2% 13.5%
EUR
Marlay Park Mar-18 EUR 413 EUR 24.6 60.0% 3.29 3.64% 1.40% 2.24% 2.23% 18.1% 9.9%
Greenwood
Park Mar-18 USD $ 1,075 $ 63.6 59.1% 4.29 5.84% 3.81% 2.02% 2.10% 21.1% 12.9%
Cook Park Apr-18 USD $ 1,025 $ 60.0 56.1% 4.29 5.84% 3.79% 2.04% 1.93% 22.4% 11.6%
EUR
Milltown Park Jun-18 EUR 411 EUR 24.1 65.0% 3.54 3.65% 1.49% 2.16% 2.16% n/a n/a
Fillmore Park Jul-18 USD $ 561 $ 30.2 54.3% 4.54 5.68% 3.86% 1.82% 1.59% n/a n/a
EUR
Richmond Park Jul-18 EUR 550 EUR 46.2 68.3% 2.54 3.66% 1.53% 2.12% 2.15% 17.7% 4.4%
Myers Park Sep-18 USD $ 510 $ 26.8 51.0% 4.80 5.77% 3.95% 1.82% 1.78% n/a n/a
EUR
Sutton Park Oct-18 EUR 409 EUR 25.0 69.4% 4.37 3.63% 1.72% 1.91% n/a n/a n/a
Harbor Park Dec-18 USD $ 716 $ 43.6 55.0% 5.05 6.23% 4.39% 1.84% n/a n/a n/a
------------- -------- ---- ------- -------- ------- ------------ ------- --------- -------- -------- ------ -------
Current Asset Coupon, Current Liability Cost and Net Interest
Margin in the above table have been rounded to 2 decimal
places.
As at 31 December 2018, the portfolio was invested in accordance
with BGCF's investment policy and was diversified across 682
issuers (623 issuers in 2017) through the directly held loans and
CLO portfolio, and across 19 countries (21 countries in 2017) and
30 different industries (29 in 2017). No individual borrower
represented more than 2% of the overall portfolio at the end of
2018.
Key Portfolio Statistics (9)
Current WA Current WA WA Leverage WA Remaining CLO Reinvestment Periods
Asset Coupon Liability Cost
Euro CLOs 3.66% 1.58% 8.5x 2.2 Yrs
US CLOs 5.83% 4.01% 8.8x 3.8 Yrs
US CLO Warehouses 5.80% 3.92% 4.0x n/a
Directly Held Loans 3.77% 1.45% 2.5x n/a
Total Portfolio 4.67% 2.66% 7.4x 3.1 Yrs
-------------------- ------------- --------------- ----------- -------------------------------------
Top 10 Holdings
Asset Country Industry % of Portfolio
Refinitiv USA Services Business 1.1
Euro Garages UK Retail 1.0
Paysafe UK Banking, Finance, Insurance and Real Estate 1.0
Amaya Gaming USA Hotels, Gaming and Leisure 1.0
BMC Software USA High Tech Industries 0.9
Numericable France Media Broadcasting and Subscription 0.9
Ineos Finance plc UK Chemicals, Plastics and Rubber 0.8
Vail Holdco USA Healthcare and Pharmaceuticals 0.8
Ziggo Netherlands Media Broadcasting and Subscription 0.8
Ion Trading Luxembourg Banking, Finance, Insurance and Real Estate 0.7
------------------ ------------- ------------------------------------------- --------------
Top 5 Industries
Industries % of Portfolio
Healthcare and Pharma 16.0
High Tech Industries 10.3
Banking, Finance, Insurance and Real Estate 9.5
Services Business 9.2
Hotel, Gaming and Leisure 7.0
-------------------------------------------- --------------
Top 5 Countries
Countries % of Portfolio
United States 57.2
France 8.4
Luxembourg 7.5
Netherlands 5.6
United Kingdom 5.2
--------------- --------------
Regulatory Update
2018 was an eventful year on the US regulatory front. In
February 2018, the US Court of Appeals for the D.C. Circuit
published its decision to repeal US risk retention requirements for
managers of open-market CLOs, which then became effective on 10 May
2018. This ruling has not materially impacted the Company's
long-term investment strategy, investment performance, or capital
deployment, as the Company continued, and continues, to invest in
US CLOs, albeit directly through BGCF instead of through Blackstone
/ GSO Corporate Funding Limited (the "US Majority Owned Affiliate"
or "US MOA").
In Japan, the Japanese Financial Services Agency ("JFSA"),
concerned by the growing exposure of many large domestic banks to
the CLO market, published draft regulations in late 2018 that were
finalised on 15 March 2019. The final regulation imposes additional
regulatory capital requirements applicable to Japanese banks and
certain other financial institutions that invest in securitisation.
While the regulation does not categorically exempt CLOs, it does
provide a path forward that does not require a Japanese risk
retention obligation based on a determination by the affected
Japanese investors that the underlying loans were not "inadequately
formed." We believe that the regulation will result in increased
diligence by Japanese investors but that it will not result in a
significant wholesale change in the demand for CLOs from Japanese
investors. We see this result as positive, given that the Japanese
investor base remains among the largest buyers of the senior-most
AAA tranches in CLOs.
In Europe, the European Union (the "EU") issued a new regulation
effective 1 January 2019 that seeks to harmonise the previous rules
for securitisations that were issued by sector (the "Securitisation
Regulation"). The rules in the Securitisation Regulation apply to
securitisation positions issued on or after 1 January 2019 and to a
large degree they adopt the same concepts of the prior regulation
on risk retention. The Securitisation Regulation does not change,
in substance, the definition of "securitisation", acceptable
methods of risk retention, or the level of risk retention required.
There have been some extensions of the new regulation, which now
includes, among other things, that risk retention obligations now
apply directly to originators, sponsors, and original lenders
established in the EU / EEA and/or regulated by a European
competent authority (rather than only to their investors).
Additionally, risk retention obligations now consequently apply
indirectly to non-EU originators, sponsors, and original lenders
for securitisations that have EU institutional investors, who have
direct due diligence obligations to ensure compliance with risk
retention.
DFME does not believe that any of the EU securitisation
regulation changes should have a significant effect on BGCF or BGLF
and that certain of the obligations are consistent with GSO's
existing obligations as investment adviser to these funds.
Risk Management
Given the natural asymmetry of fixed income, our experienced
credit team focuses on truncating downside risk and avoiding
principal impairment and believes that the best way to control and
mitigate risk is by remaining disciplined in all market cycles and
by making careful credit decisions while maintaining adequate
diversification.
BGCF's portfolio of Loans and CLO Income Notes is managed so as
to minimise default risk and credit related losses, which is
achieved through in-depth fundamental credit analysis and
diversifying the portfolio so as to avoid the risk of any one
issuer or industry adversely impacting overall returns. As outlined
in the portfolio update section, BGCF is broadly diversified across
issuers, industries, and countries.
BGCF's base currency is denominated in Euro, though investments
are also made and realised in other currencies. Changes in rates of
exchange may have an adverse effect on the value, price, or income
of the investments of BGCF. BGCF may utilise different financial
instruments to seek to hedge against declines in the value of its
positions as a result of changes in currency exchange rates.
Through the construction of solid credit portfolios and our
emphasis on risk management, capital preservation, and fundamental
credit research, we believe the Company's investment strategy will
continue to be successful.
Blackstone / GSO Debt Funds Management Europe Limited
30 April 2019
(4) Source: S&P LCD, data as of 31 December 2018
(5) Source: Credit Suisse, data as of 31 December 2018
(6) 3Q18 quarterly financials are used to provide the most
complete dataset given European company reporting calendars.
(7) Sources: S&P/LCD, Wells Fargo, data as of 31 December
2018
(8) Sources: S&P/LCD, Wells Fargo, data as of 31 December
2018
(9) As at 31 December 2018
Strategic Overview
Purpose
As an investment company, our purpose is to provide permanent
capital to BGCF, a company established by DFME as part of its loan
financing programme, with a view to generating stable and growing
total returns for Shareholders through dividends and value
growth.
We deliver our purpose through working in line with our values,
which form the backbone of what the Company does and are an
important part of our culture.
Values
Integrity and Trust - The Company seeks to act with integrity in
everything it does and to be trustworthy. We seek to uphold the
highest standards of professionalism driven by our corporate
governance processes.
Transparency - The Company aims to ensure all of its activities
are undertaken with the utmost transparency and openness to sustain
trust.
Opportunity - The ability to see and seize opportunity in the
best interests of shareholders.
Sustainability - As an investment company we aim to maintain and
deliver attractive and sustainable returns for our
shareholders.
Principal Activities
The Company was incorporated on 30 April 2014 as a closed-ended
investment company limited by shares under the laws of Jersey and
is authorised as a listed fund under the Collective Investment
Funds (Jersey) Law 1988. The Company continues to be registered and
domiciled in Jersey and the Company's Euro shares are quoted on the
Premium Segment of the Main Market of the LSE.
The Company's share capital consists of an unlimited number of
shares. As at 31 December 2018, the Company's issued share capital
was 404,700,446 Euro shares.
The Company has a wholly-owned Luxemburg subsidiary, Blackstone
/ GSO Loan Financing (Luxembourg) S.à r.l. , which has an issued
share capital of 2,000,000 Class A shares and 1 Class B share. All
of the Class A and Class B shares were held by the Company as at 31
December 2018 together with 291,343,213 Class B CSWs issued by the
Lux Subsidiary. The Lux Subsidiary invests in PPNs issued by BGCF,
an Underlying Company.
The Company is a self-managed company. DFME acts as Portfolio
Adviser to the Company and, pursuant to the Advisory Agreement,
provides advice and assistance to the Company in connection with
its investment in the CSWs. BNP Paribas Securities Services S.C.A.
acts as Administrator, Company Secretary, Custodian and Depositary
to the Company.
Investment Objective
As outlined in the Company's Prospectus, the Company's
investment objective is to provide Shareholders with stable and
growing income returns, and to grow the capital value of the
investment portfolio by exposure to floating rate senior secured
loans and bonds directly and indirectly through CLO Securities and
investments in Loan Warehouses. The Company seeks to achieve its
investment objective through exposure (directly or indirectly) to
one or more companies or entities established from time to time
("Underlying Companies").
Investment Policy
Overview
As outlined in the Company's Prospectus, the Company's
investment policy is to invest (directly, or indirectly through one
or more Underlying Companies) in a diverse portfolio of senior
secured loans (including broadly syndicated, middle market or other
loans) (such investments being made by the Underlying Companies
directly or through investments in Loan Warehouses), bonds and CLO
Securities, and generate attractive risk-adjusted returns from such
portfolios. The Company intends to pursue its investment policy by
investing (through one or more subsidiaries) in profit
participating instruments (or similar securities) issued by one or
more Underlying Companies.
Each Underlying Company will use the proceeds from the issue of
the profit participating instruments (or similar securities),
together with the proceeds from other funding or financing
arrangements it has in place currently or may have in the future,
to invest in: (i) senior secured loans, bonds, CLO Securities and
Loan Warehouses; or (ii) other Underlying Companies which,
themselves, invest in senior secured loans, bonds, CLO Securities
and Loan Warehouses. The Underlying Companies may invest in
European or US senior secured loans, bonds, CLO Securities, Loan
Warehouses and other assets in accordance with the investment
policy of the Underlying Companies. Investments in Loan Warehouses,
which are generally expected to be subordinated to senior finance
provided by third-party banks, will typically be in the form of an
obligation to purchase preference shares or a subordinated loan.
There is no limit on the maximum US or European exposure. The
Underlying Companies do not invest substantially directly in senior
secured loans or bonds domiciled outside North America or Western
Europe.
Investment Limits and Risk Diversification
The Company's investment strategy is to implement its investment
policy by investing directly or indirectly through the Underlying
Companies, in a portfolio of senior secured loans and bonds or in
Loan Warehouses containing senior secured loans and bonds and, in
connection with such strategy, to own debt and equity tranches of
CLOs and, in the case of European CLOs and certain US CLOs, to be
the risk retention provider in each.
The Underlying Companies may periodically securitise a portion
of the loans, or a Loan Warehouse in which they invest, into CLOs
which may be managed either by such Underlying Company itself, by
DFME or DFM (or one of their affiliates), in their capacity as the
CLO Manager.
Where compliance with the European Risk Retention Requirements
is sought (which, with certain exceptions, will not be the case for
the US CLOs) the Underlying Companies will retain exposures of each
CLO, which may be held as:
-- CLO Income Notes equal to: (i) between 51% and 100% of the
CLO Income Notes issued by each such CLO in the case of European
CLOs; or (ii) CLO Income Notes representing at least 5% of the
credit risk relating to the assets collateralising the CLO in the
case of US CLOs (each of (i) and (ii), (the "horizontal strip");
or
-- Not less than 5% of the principal amount of each of the
tranches of CLO Securities in each such CLO (the "vertical
strip").
In the case of deals structured to be compliant with the
European Risk Retention Requirements, the applicable Underlying
Company may determine that, due to its role as an "originator" with
respect to such transaction, such Underlying Company should also
comply with the US Risk Retention Regulations. In addition, an
Underlying Company may invest in CLOs, such as middle market CLOs,
which are not exempt from the US Risk Retention Regulations and, as
a result, may be required to retain exposure to such CLOs in
accordance with such rules. In such a scenario, the Underlying
Company will retain exposures to such transactions for the purpose
of complying with the US Risk Retention Regulations, which may be
held as:
-- CLO Income Notes representing at least 5% of the fair market
value of the CLO Securities (including CLO Income Notes) issued by
such CLO (the "US horizontal strip");
-- A vertical strip; or
-- A combination of a vertical strip and US horizontal strip.
To the extent attributable to the Company, the value of the CLO
Income Notes retained by Underlying Companies in any CLO will not
exceed 25% of the NAV of the Company at the time of investment.
Investments in CLO Income Notes and loan warehouses are highly
leveraged. Gains and losses relating to underlying senior secured
loans will generally be magnified.
Further, to the extent attributable to the Company, the
aggregate value of investments made by Underlying Companies in
vertical strips of CLOs (net of any directly attributable
financing) will not exceed 15% of the NAV of the Company at the
time of investment. This limitation shall apply to Underlying
Companies in aggregate and not to Underlying Companies
individually.
Loan Warehouses may eventually be securitised into CLOs managed
either by an Underlying Company itself or by DFME or DFM (or one of
their affiliates), in their capacity as the CLO Manager. To the
extent attributable to the Company, the aggregate value of
investments made by Underlying Companies in any single externally
financed warehouse (net of any directly attributable financing)
shall not exceed 20% of the NAV of the Company at the time of
investment, and in all externally financed warehouses taken
together (net of any directly attributable financing) shall not
exceed 30% of the NAV of the Company at the time of investment.
These limitations shall apply to Underlying Companies in aggregate
and not to Underlying Companies individually.
The following limits (the "Eligibility Criteria") apply to
senior secured loans and bonds (and, to the extent applicable,
other corporate debt instruments) directly held by any Underlying
Company (and not through CLO Securities or Loan Warehouses):
% of a Underlying Company's
Maximum Exposure Gross Asset Value
Per obligor 5
Per industry sector 15
(With the exception of one industry, which may be up to
20%)
To obligors with a rating lower than B-/B3/B- 7.5
To second lien loans, unsecured loans, mezzanine loans and
high yield bonds 10
---------------------------------------------------------- ----------------------------------------------------------
For the purposes of these Eligibility Criteria, "gross asset
value" shall mean gross assets, including any investments in CLO
Securities and any undrawn commitment amount of any gearing under
any debt facility. Further, for the avoidance of doubt, the
"maximum exposures" set out in the Eligibility Criteria shall apply
on a trade date basis.
Each of these Eligibility Criteria will be measured at the close
of each Business Day on which a new investment is made, and there
will be no requirement to sell down in the event the limits are
breached at any subsequent point (for instance, as a result of
movement in the gross asset value, or the sale or downgrading of
any assets held by an Underlying Company).
In addition, each CLO in which an Underlying Company holds CLO
Securities and each Loan Warehouse in which an Underlying Company
invests will have its own eligibility criteria and portfolio
limits. These limits are designed to ensure that: (i) the portfolio
of assets within the CLO meets a prescribed level of diversity and
quality as set by the relevant rating agencies rating securities
issued by such CLO, or (ii) in the case of a Loan Warehouse, that
the warehoused assets will eventually be eligible for a rated CLO.
The CLO Manager will seek to identify and actively manage assets
which meet those criteria and limits within each CLO or Loan
Warehouse. The eligibility criteria and portfolio limits within a
CLO or Loan Warehouse may include the following:
-- A limit on the weighted average life of the portfolio;
-- A limit on the weighted average rating of the portfolio;
-- A limit on the maximum amount of portfolio assets with a rating lower than B-/B3/B-; and
-- A limit on the minimum diversity of the portfolio.
CLOs in which an Underlying Company may hold CLO Securities or
Loan Warehouses in which an Underlying Company may invest also have
certain other criteria and limits, which may include:
-- A limit on the minimum weighted average of the prescribed rating agency recovery rate;
-- A limit on the minimum amount of senior secured assets;
-- A limit on the maximum aggregate exposure to second lien
loans, high yield bonds, mezzanine loans and unsecured loans;
-- A limit on the maximum portfolio exposure to covenant-lite loans;
-- An exclusion of project finance loans;
-- An exclusion of structured finance securities;
-- An exclusion on investing in the debt of companies domiciled
in countries with a local currency sub-investment grade rating;
and
-- An exclusion of leases.
This is not an exhaustive list of the eligibility criteria and
portfolio limits within a typical CLO or Loan Warehouse and the
inclusion or exclusion of such limits and their absolute levels are
subject to change depending on market conditions. Any such limits
applied shall be measured at the time of investment in each CLO or
Loan Warehouse.
Changes to Investment Policy
Any material change to the investment policy of the Company
would be made only with the approval of Ordinary Shareholders.
It is intended that the investment policy of each substantial
Underlying Company will mirror the Company's investment policy,
subject to such additional restrictions as may be adopted by a
substantial Underlying Company from time to time. The Company will
receive periodic reports from each substantial Underlying Company
in relation to the implementation of such substantial Underlying
Company's investment policy to enable the Company to have oversight
of its activities.
If a substantial Underlying Company proposes to make any changes
(material or otherwise) to its investment policy, the Directors
will seek Ordinary Shareholder approval of any changes which are
either material in their own right or, when viewed as a whole
together with previous non-material changes, constitute a material
change from the published investment policy of the Company. If
Ordinary Shareholders do not approve the change in investment
policy of the Company such that it is once again materially
consistent with that of such substantial Underlying Company, the
Directors will redeem the Company's investment in such substantial
Underlying Company (either directly or, if the Company's investment
in a subsidiary is invested by such subsidiary in such substantial
Underlying Company (either directly or through one or more other
Underlying Companies), by redeeming the securities held by the
Company in such subsidiary and procuring that the subsidiary
redeems its investment in such substantial Underlying Companies
(either directly or through one or more other Underlying
Companies)), as soon as reasonably practicable but at all times
subject to the relevant legal, regulatory and contractual
obligations.
The Board consider BGCF to be a substantial Underlying
Company.
Company Borrowing Limit
The Company will not utilise borrowings for investment purposes.
However, the Directors are permitted to borrow up to 10% of the
Company's NAV for day-to-day administration and cash management
purposes. For the avoidance of doubt, this limit only applies to
the Company and not the Underlying Companies.
In accordance with the Company's Prospectus, the Company may use
hedging or derivatives (both long and short) for the purposes of
efficient portfolio management. It is intended that up to 100% (as
appropriate) of the Company's exposure to any non-Euro assets will
be hedged, subject to suitable hedging contracts being available at
appropriate times and on acceptable terms.
Investment Strategy
Whether the senior secured loans, bonds or other assets are held
directly by an Underlying Company or via CLO Securities or Loan
Warehouses, it is intended that, in all cases, the portfolios will
be actively managed (by the Underlying Companies or the CLO
Manager, as the case may be) to minimise default risk and potential
loss through comprehensive credit analysis performed by the
Underlying Companies or the CLO Manager (as applicable).
Vertical strips in CLOs in which Underlying Companies may invest
are expected to be financed partly through term finance for
investment-grade CLO Securities, with the balance being provided by
the relevant Underlying Company investing in such CLO. This term
financing may be full-recourse, non-mark to market, long-term
financing which may, among other things, match the maturity of the
relevant CLO or match the reinvestment period or non-call period of
the relevant CLO. In particular, and although not forming part of
the Company's investment policy, the following levels of, or
limitations on, leverage are expected in relation to investments
made by Underlying Companies:
-- Senior secured loans and bonds may be levered up to 2.5x with term finance;
-- Investments in "first loss" positions or the "warehouse
equity" in Loan Warehouses will not be levered;
-- CLO Income Notes will not be levered;
-- Investments in CLO Securities rated B- and above at the time
of issue may be funded entirely with term finance; and
-- Investments in a vertical strip may be levered 6.0-7.0x, with
term finance as described above.
To the extent that they are financed, vertical strips are
anticipated to require less capital than horizontal strips, which
is expected to result in more efficient use of the Underlying
Companies' capital. In addition, since the return profile on
financed vertical strips is different to retained CLO Income Notes,
GSO believes that vertical strips may be more robust through a
market downturn, although projected IRRs may be slightly lower.
However, an investment in vertical strips is not expected to impact
the Company's stated target return.
From time to time, as part of its ongoing portfolio management,
the Underlying Companies may sell positions as and when suitable
opportunities arise. Where not bound by risk retention
requirements, it is the intention that the Underlying Companies
would seek to maintain control of the call option of any CLOs
securitised.
With respect to investments in CLO Securities, while the
Underlying Companies maintain a focus on investing in newly issued
CLOs, it will also evaluate the secondary market for sourcing
potential investment opportunities in CLO Securities.
Whilst the intention is to pursue an active, non-benchmark total
return strategy, the Company is cognisant of the positioning of the
loan portfolios against relevant indices. Accordingly, the
Underlying Companies will track the returns and volatility of such
indices, while seeking to outperform them on a consistent basis.
In-depth, fundamental credit research dictates name selection and
sector over-weights/under-weights relative to the benchmark,
backstopped by constant portfolio monitoring and risk oversight.
The Underlying Companies will typically look to diversify their
portfolios to avoid the risk that any one obligor or industry will
adversely impact overall returns. The Underlying Companies also
place an emphasis on loan portfolio liquidity to ensure that if
their credit outlook changes, they are free to respond quickly and
effectively to reduce or mitigate risk in their portfolio. The
Company believes this investment strategy will be successful in the
future as a result of its emphasis on risk management, capital
preservation and fundamental credit research. The Directors believe
the best way to control and mitigate risk is by remaining
disciplined in market cycles, by making careful credit decisions
and maintaining adequate diversification.
The portfolio of the Underlying Companies in which the Company
invests (through its wholly-owned subsidiary) remains broadly
divided between European CLOs and US CLOs.
The Company operates with Euro as its functional currency. The
Rollover Assets and a significant proportion of the portfolio of
assets held by Underlying Companies to which the Company has
exposure may, from time to time, be denominated in currencies other
than Euro. In accordance with the Company's investment policy, up
to 100 per cent. (as appropriate) of the Company's exposure to such
non-Euro assets is hedged, subject to suitable hedging contracts
being available at appropriate times and on acceptable terms.
Corporate Activity
Rollover Offer Proposal
On 28 August 2018, the Board announced a rollover proposal to
offer newly issued C Shares to electing shareholders of Carador, in
consideration for the transfer of a pool of CLO assets from Carador
to the Company (the "Rollover"). Carador is an Ireland-domiciled
investment company with a similar underlying portfolio to the
Company, managed by GSO / Blackstone Debt Funds Management LLC. The
proposed rollover was announced pursuant to a strategic review by
Carador, from which the Board recognised opportunities for the
Company in terms of asset diversification and the spread of fixed
costs over a larger pool of assets for its own Ordinary
Shareholders.
On 23 November 2018, the Company also announced a placing
programme of up to 400 million new Ordinary Shares (the "Placing
Programme"), and published a shareholder circular (the "Circular")
with further details of the Rollover and Placing Programme. An EGM
Notice was also published, and both documents were mailed to the
Company's Ordinary Shareholders.
At the EGM held on 12 December 2018, the Company sought Ordinary
Shareholder approval for the following special resolutions: (i) the
amendment of the existing articles to provide for the issue of
Rollover shares, by replacing the Existing Articles in their
entirety with the New Articles; and (ii) the disapplication of
pre-emption rights in respect of any C Shares to be issued pursuant
to the Rollover and the Placing Programme.
On 12 December 2018, the Company announced that the two special
resolutions proposed at the EGM were duly passed, and that the
results of the Rollover election would be announced on 21 December
2018.
On 21 December 2018 it was announced that Carador had received
valid rollover elections in respect of 133,451,107 ordinary shares,
representing approximately 34% of the Carador US Dollar share
register. These ordinary shares were replaced with Carador rollover
shares, before the Company issued one new C Share for each Carador
rollover share in consideration for the transfer of the rollover
assets from Carador.
On 3 January 2019, the Company announced that the 133,451,107 C
Shares arising from the transaction would be allotted and admitted
to trading on the Specialist Fund Segment of the Main Market of the
LSE with effect from Monday 7 January 2019.
Allotment and admission to trading on the SFS of the LSE was
completed on the 7 January 2019.
Risk Overview
Principal Risks and Uncertainties
Each Director is aware of the risks inherent in the Company's
business and understands the importance of identifying, evaluating
and monitoring these risks. The Board has adopted procedures and
controls to enable it to manage these risks within acceptable
limits and to meet all of its legal and regulatory obligations.
The Board considers the process for identifying, evaluating and
managing any significant risks faced by the Company on an ongoing
basis and these risks are reported and discussed at Board meetings.
It ensures that effective controls are in place to mitigate these
risks and that a satisfactory compliance regime exists to ensure
all applicable local and international laws and regulations are
upheld.
The Directors have carried out a robust assessment of the
principal risks facing the Company, an overview of which, along
with the applicable mitigants put in place, is set out below:
Principal risk Mitigant
Investment performance
A key risk to the Company is unsatisfactory investment Market conditions, events and political uncertainty pose
performance due to an economic downturn a risk to capital for any asset class
along with continued political uncertainty which could which by their nature (and outside efficient portfolio
negatively impact global credit markets management by the Portfolio Adviser)
and the risk reward characteristics for CLO structuring. may not have any mitigating factors.
This could directly impact the performance
of the underlying CLOs that the Company invests in and it The Board receives regular updates from the Portfolio
could also result in a reduced number Adviser on the developments and overall
of suitable investment opportunities and/or lower health of the loan and CLO market. The Board takes
shareholder demand. comfort in the Portfolio Adviser's track
record and that a sufficient number of CLOs have been
established by BGCF, the income from
which should enable the Company (through its investment
in the Lux Subsidiary) to cover its
running costs and dividend policy for the foreseeable
future.
Share price discount
The price of the Company's shares may trade at a discount The Board continually monitors the Company's share price
relative to the underlying net asset discount or premium to the Published
value of the shares. NAV and regularly consults with the Company's brokers
regarding share trading volumes, significant
buyers and sellers, and comparative data from the
Company's peer group.
In order to manage the discount existing at the time, on
23 January 2019 the Board announced
that under its general authority to buy back shares in
the market, it intended to do so using
available cash. Up until the date of approval of these
financial statements no shares have
been repurchased. The Board will keep this under review
and will buy back shares if it believes
it is appropriate and in the interests of investors.
Investment valuation
The investment in the Lux Subsidiary is accounted for at The Directors use their judgement, with the assistance
fair value through profit or loss of the Portfolio Adviser, in selecting
and the investment in PPNs issued by BGCF held by the Lux an appropriate valuation technique and refer to
Subsidiary are at fair value. Investments techniques commonly used by market practitioners.
in BGCF (the PPNs) are illiquid investments, not traded The board of directors of BGCF likewise use their
on an active market and are valued judgement in determining the valuation of
using valuation techniques determined by the Directors. investments and underlying CLOs and equity tranches
retained by BGCF.
The valuation of the Company's investments therefore
requires a great deal of judgement and As detailed further in Note 12, independent valuation
there is a risk that they are incorrectly valued due to service providers are involved in determining
calculation errors or incorrect assumptions. the fair value of underlying CLOs.
Income distribution model
The Company receives cash flows from its underlying The Directors use their judgement, with the assistance
exposure to debt and CLO investments held of the Portfolio Adviser, in setting
by BGCF. Each underlying CLO will pay out a mixture of the Company's distribution policy to ensure that it is
income and capital return over its appropriate given the performance of
life with a terminal capital value in the 70 to 80% the underlying CLOs.
range. BGCF aims to distribute most of
the proceeds that it receives from CLO investments to the
Company (via PPNs) whilst reinvesting
some of the proceeds back into CLOs to maintain capital
invested. In turn, the Company aims
to distribute income received to shareholders, in
accordance with its distribution policy,
without eroding capital.
There is a risk that the distribution policy at the
Company level may be too generous or re-investment
at the BGCF level may not be sufficient, resulting in the
erosion of underlying capital invested.
--------------------------------------------------------- ---------------------------------------------------------
Going Concern
The Directors have considered the Company's investment
objective, risk management and capital management policies, its
assets and the expected income from its investments. The Directors
are of the opinion that the Company is able to meet its liabilities
and ongoing expenses as they fall due and they have a reasonable
expectation that the Company has adequate resources to continue in
operational existence for the foreseeable future. Accordingly,
these financial statements have been prepared on a going concern
basis and the Directors believe it is appropriate to continue to
adopt this basis for a period of at least 12 months from the date
of approval of these financial statements.
Viability Statement
At least once a year the Directors carry out a robust assessment
of the principal risks facing the Company, including those that
would threaten its business model, future performance, solvency and
liquidity. The Directors also assess the Company's policies and
procedures for monitoring, managing and mitigating its exposure to
these risks. In assessing viability the Directors have considered
the principal risks of the Company as detailed above along with
market conditions, the Company's current position, investment
objective and strategy and the performance of the Portfolio
Adviser.
As explained above, the Company's underlying investment exposure
is to the investment portfolio of BGCF. BGCF's portfolio comprises
the following categories of investments: (i) CLO Debt and CLO
Income Notes securitised by BGCF, (ii) a portfolio of senior
secured loans and bonds; and (iii) preference shares. The CLO
investments in the portfolio have a non-call period of
approximately two years from their origination date and cannot be
redeemed until these expire. The Directors have considered each of
the principal risks of the Company that could materially affect the
cash flows derived from these investments and hence how these could
impact the cash flows received by BGLF from BGCF.
In conjunction with the Portfolio Adviser, the Directors have
considered the impact that extreme market scenarios could have on
BGCF and where appropriate has analysed the effect on the Company's
net cash flows. These market scenarios were modelled using inputs
based on actual conditions observed or experienced by the Portfolio
Adviser during the global financial crisis and included assumptions
on prepayment rates, default rates and reinvestment spreads and
prices that would be impacted by severe but plausible scenarios.
The Directors are satisfied that the outcomes under these modelled
extreme market scenarios would allow the Company to generate
sufficient cash flow and ensure that the Company would be able to
meet its liabilities.
The Directors have assessed the prospects of the Company over
the five-year period to 30 April 2024, which the Directors have
determined constitutes an appropriate period to provide its
viability statement. The Directors believe that financial forecasts
to support its investment strategy can be subject to changes
dependent upon investment performance, deployment of capital and
regulatory, legal and tax developments for which the impact beyond
a five year term is difficult to assess. In addition, the extent to
which macroeconomic, political, social, technological and
regulatory changes beyond a five-year term may have a plausible
impact on the Company are difficult to envisage.
The Directors also considered the other principal risks. Whilst
each of these risks is a principal risk and could have an impact on
the long-term sustainability of the Company, the Directors
concluded that each was sufficiently mitigated and would therefore
not impact the viability of the Company over a five-year
period.
On the basis of this assessment of the principal risks facing
the Company and the modelled extreme market scenarios used to
assess the Company's prospects, and in the absence of any
unforeseen circumstances, the Directors confirm that they have a
reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the
five-year period of their assessment. However, it is worth noting
that there is no intention for the life of the Company to be
limited to this five-year period.
Source of the Company's Dividend
The Company through its investments in the Lux Subsidiary
receives interest income, on a quarterly basis, on the PPNs held by
the latter in BGCF, which continues to generate positive cash flows
from its CLO Income Note investments and from its portfolio of
directly held and warehoused loans.
The Company redeems CSWs on a quarterly basis to transfer the
income from the Lux Subsidiary. As detailed above, the Company
redeemed 44,169,444 CSWs in the Lux Subsidiary during the year with
a fair value of EUR50,326,172 to fund the quarterly dividend.
Alternative Performance Measures
In accordance with ESMA Guidelines on Alternative Performance
Measures ("APMs") the Board has considered which APMs are included
in the Annual Report and Audited Financial Statements and require
further clarification. An APM is defined as a financial measure of
historical or future financial performance, financial position, or
cash flows, other than a financial measure defined or specified in
the applicable financial reporting framework. APMs included in the
financial statements, which are unaudited and outside the scope of
IFRS, are detailed in the table below.
BGLF NAV total return Published NAV per (Discount) / Premium
per Euro Ordinary share per Euro Ordinary
Share Share
Definition The increase in Gross assets less The NAV per share
the Published NAV liabilities (including as at the period
per Euro Ordinary accrued but unpaid end less BGLF's
Share plus the total fees) determined closing share price
dividends paid per in accordance with on the LSE, divided
Euro Ordinary Share the section entitled by the NAV per
during the period, "Net Asset Value" share as at that
with such dividends in Part I of the date
paid being re-invested Company's Prospectus,
at NAV, as a percentage divided by the number
of the NAV per Euro of Euro Shares at
share as at period the relevant time
end
Reason NAV total return The Published NAV The discount or
summarises the Company's per share is an premium per Euro
true growth over indicator of the Ordinary Share
time while taking intrinsic value is a key indicator
into account both of the Company. of the discrepancy
capital appreciation between the market
and dividend yield value and the intrinsic
value of the Company
Target 11%+ Not applicable Maximum discount
of 7.5%
Performance
2018 6.70% 0.8963 (15.21)%
2017 1.38% 0.9378 5.03%
2016 13.28% 1.0238 (1.10)%
------------ ------------------------- ----------------------- ------------------------
As noted above, the Published NAV and the IFRS NAV may diverge
because of different key assumptions used to determine the
valuation of the BGCF portfolio. Key assumptions which are
different between the two bases as at 31 December 2018 are detailed
below:
Asset Valuation Input IFRS NAV Published NAV
Methodology
Discounted Constant default
CLO Securities Cash Flows rate 1.98% 2.00%
Conditional
prepayment rate 25% 20%
Reinvestment
spread (bp over
LIBOR) 353.31 380.77
Recovery rate
Loans 70.00% 70.00%
Recovery lag
(Months) 0 12
Discount rate 18.96% 12.93%
-------------------------------------------------- --------- --------------
All of the assumptions above are based on weighted averages.
Certain assumptions, which underpin the year-end Published NAV,
such as a lower conditional prepayment rate and a 12-month recovery
lag on assumed defaulted assets, are generally more conservative.
The below table further explains the rationale regarding the
differences in the assumptions that significantly contributed to
the valuation divergence as at 31 December 2018.
Assumptions IFRS NAV Published NAV
------------- ------------------------------------- -----------------------------------
Reinvestment Largely weighted by a CLO's Represents a normalised,
Spread current portfolio weighted long-term view of loan
average spread, which assumes spreads to be achieved
that the CLO investment over the life of the CLO's
manager will continue to remaining reinvestment
reinvest in collateral period. Initially informed
with a similar spread and by the underwriting model
rating composition to the at issuance, the assumption
existing collateral pool. is periodically reviewed
In addition, weighting and updated to the extent
may be given to primary of secular changes in loan
loan spreads to the extent spreads.
current primary market
opportunities suggest different
spreads than the existing
portfolio.
Discount Intended to reflect the Based on the yield calibrated
Rate market required rate of at the time of initial
return for similar securities underwriting in order to
and is informed by market reflect the original transaction
research, BWICs, market price and the long-term
colour for comparable transactions, view of the investment.
and dealer runs. The discount The discount rate is periodically
rate may vary based on reviewed and updated to
underlying loan prices, the extent of secular changes
exposure to distressed in the market required
assets or industries, manager rate of return.
performance, and time remaining
in reinvestment period.
Discount rates tend to
widen in periods of illiquidity,
as experienced in Q4 2018.
While market colour on
CLO Income Notes was limited
during this period, the
volatility in underlying
loan prices and temporary
market illiquidity led
to an increase in discount
rates to reflect the perceived
portfolio risk.
------------- ------------------------------------- -----------------------------------
Alternative Investment Fund Managers' Directive
The Alternative Investment Fund Managers' Directive ("AIFMD")
requires certain information to be made available to investors in
alternative investment funds ("AIFs") before they invest and
requires that material changes to this information be disclosed in
the annual report of each AIF. There have been no material changes
(other than those reflected in these financial statements) to this
information requiring disclosure.
Future Developments
Significant Events after the Reporting Period
Following the announcements made on the 23 November 2018 and 21
December 2018, the Company announced on 3 January 2019 that new C
Shares would be allotted and admitted to trading on 7 January 2019.
Allotment and admission were completed on 7 January 2019.
On 8 January 2019, the Company announced that Mark Moffat had
been appointed as a non-executive director with effect from 8
January 2019.
On 22 January 2019, the Board declared a dividend of EUR0.025
per Euro Ordinary share in respect of the period from 1 October
2018 to 31 December 2018 with an ex-dividend date of 31 January
2019. A total payment of EUR10,117,511 was processed on 1 March
2019.
On 22 January 2019, the Board declared a dividend of EUR0.01452
per C share in respect of the period from
1 October 2018 to 31 December 2018 with an ex-dividend date of
31 January 2019. A total payment of EUR1,937,710 was processed on 1
March 2019.
On 23 January 2019, the Company announced that, under the
general authority to buy back shares conferred by the Company's
Ordinary Shareholders at its AGM on 22 June 2018, it intended to
buy back shares in the market using available cash.
On 18 April 2019, the Company declared a dividend of EUR0.025
per Euro Ordinary share in respect of the period from 1 January
2019 to 31 March 2019. This dividend is payable on 31 May 2019 to
Shareholders on the register as at the close of business on 3 May
2019, and the corresponding ex-dividend date will be 2 May
2019.
On 18 April 2019, the Company declared a dividend of EUR0.0205
per C share in respect of the period from
1 January 2019 to 31 March 2019. This dividend is payable on 31
May 2019 to Shareholders on the register as at the close of
business on 3 May 2019, and the corresponding ex-dividend date will
be 2 May 2019.
Outlook
It is the Board's intention that the Company will pursue its
investment objective and investment policy as detailed above.
Further comments on the outlook for the Company for the coming
financial year and the main trends and factors likely to affects
its future development, performance and position are contained
within the Chair's Statement and the Portfolio Adviser's
Review.
Directors' Biographies
The Directors appointed to the Board as at the date of approval
of this Annual Report and Audited Financial Statements are:
Charlotte Valeur
Position: Chair of the Board (non-executive and independent
director, resident in Jersey)
Date of appointment: 13 June 2014
Charlotte Valeur has more than 30 years of experience in
financial markets and is the managing director of GFG Ltd, a
governance consultancy company.
Effective 3 September 2018, Ms Valeur was appointed Chair of the
Institute of Directors.
She also currently serves as a non-executive director on the
boards of listed and unlisted companies including non-executive
director of JP Morgan Convertible Bond Income Fund, an LSE-listed
investment company; non-executive director of Phoenix Spree
Deutschland Ltd, an LSE-listed company; non-executive director of
Laing O'Rourke, a construction company; and a non-executive
director of NTR Plc, a renewable energy company. She previously
served as chair of the boards of Kennedy Wilson Europe Real Estate
Plc and DW Catalyst Ltd and as a non-executive director of 3i
Infrastructure plc.
Ms Valeur was the founding partner of Brook Street Partners in
2003 and the Global Governance Group in 2009. Prior to this, Ms
Valeur worked in London as a director in capital markets at
Warburg, BNP Paribas, Société Générale and Commerzbank, beginning
her career in Copenhagen with Nordea A/S.
She is regulated by the Jersey Financial Services
Commission.
With significant experience in international corporate finance,
Ms Valeur has a high level of technical knowledge of capital
markets, especially debt / fixed income. Her non-executive board
roles at a number of companies and her work as a governance
consultant have provided her with an excellent understanding and
experience of boardroom dynamics and corporate governance.
Gary Clark, ACA
Position: Chair of the Remuneration and Nomination Committee and
NAV Review Committee; Senior Independent Director (non-executive
and independent director, resident in Jersey)
Date of appointment: 13 June 2014
Gary Clark acts as an independent non-executive director for a
number of investment managers including Emirates NBD, Aberdeen
Standard Capital and ICG. Until 1 March 2011 he was a managing
director at State Street and their head of Hedge Fund Services in
the Channel Islands. Mr Clark, a Chartered Accountant, served as
chairman of the Jersey Funds Association from 2004 to 2007 and was
managing director at AIB Fund Administrators Limited when it was
acquired by Mourant in 2006. This business was sold to State Street
in 2010. Prior to this Mr Clark was managing director of the
futures broker, GNI (Channel Islands) Limited in Jersey.
A specialist in alternative investment funds, Mr Clark was one
of several practitioners involved in a number of significant
changes to the regulatory regime for funds in Jersey, including the
introduction of both Jersey's Expert Funds Guide and Jersey's
Unregulated Funds regime.
As a Chartered Accountant with over 30 years' experience in
financial services, including many years focused on running fund
administration businesses in alternative asset classes, Mr Clark
brings a wealth of highly relevant experience, at both board level
and as an executive, in fund / asset management operations,
including in particular valuation, accounting and administrative
controls and processes.
Heather MacCallum, CA
Position: Chair of the Audit Committee (non-executive and
independent director, resident in Jersey)
Date of appointment: 7 September 2017
Heather MacCallum was a partner of KPMG Channel Islands Limited
from 2001, retiring from the partnership on 30 September 2016. She
was with KPMG's financial services practice for 20 years,
predominantly providing audit and advisory services to the
investment management sector.
Ms MacCallum currently serves as a non-executive director on
boards of several companies, including Jersey Water, an unlisted
company; Kedge Capital Fund Management Limited, an asset management
business; and Aberdeen Latin American Income Fund Limited, an
LSE-listed investment company.
She is a member of the Institute of Directors and the Institute
of Chartered Accountants of Scotland (ICAS). She is also a past
president of the Jersey Society of Chartered and Certified
Accountants.
With 20 years' experience gained in a global professional
services firm, Ms MacCallum brings financial experience including
technical knowledge of accounting and auditing, especially in the
context of financial services, and in particular the investment
management sector.
Steven Wilderspin, FCA, IMC
Position: Chair of the Risk Committee (non-executive and
independent director, resident in Jersey)
Date of appointment: 11 August 2017
Steven Wilderspin, a qualified Chartered Accountant, has been
the Principal of Wilderspin Independent Governance, which provides
independent directorship services, since April 2007. He has served
on a number of private equity, property and hedge fund boards as
well as commercial companies.
In May 2018 Mr Wilderspin was appointed as a director of
HarbourVest Global Private Equity Limited.
In September 2018 Mr Wilderspin was appointed as a director of
Vannin Capital.
In December 2017 Mr Wilderspin stepped down from the board of 3i
Infrastructure plc where he was chairman of the audit and risk
committee after ten years' service.
From 2001 until 2007, Mr Wilderspin was a director of fund
administrator Maples Finance Jersey Limited where he was
responsible for fund and securitisation structures. Before that,
from 1997, Mr Wilderspin was Head of Accounting at Perpetual Fund
Management (Jersey) Limited.
Mr Wilderspin has significant listed corporate governance
experience, particularly in the area of risk management, so is well
placed to lead the board through the development of its risk
framework.
Mark Moffat
Position: Non-executive and non-independent director (resident
in UK)
Date of appointment: 8 January 2019
Mark Moffat has been involved in structuring, managing and
investing in CLOs for over 20 years. Mr Moffat left GSO Capital
Partners LP, part of the credit businesses of The Blackstone Group
L.P., in April 2015 to pursue other interests.
Whilst at GSO Mr Moffat was a senior managing director and the
portfolio manager responsible for investing in structured credit
and co-head of the European activities of the Customised Credit
Strategies division.
Mr Moffat joined GSO in January 2012 following the acquisition
by GSO of Harbourmaster Capital Management Limited where he was
co-head. Prior to joining Harbourmaster in 2007, Mr Moffat was head
of European debt and equity capital markets and the European CLO
business of Bear Stearns. At Bear Stearns, Mr Moffat was
responsible for the origination, structuring and execution of CLOs
in Europe over a seven-year period. Prior to Bear Stearns, Mr
Moffat was global head of CLOs at ABN AMRO and a Director in the
principal finance team of Greenwich NatWest.
With over 20 years of experience structuring, managing and
investing in CLOs Mr Moffat brings a deep knowledge of how CLO
structures and markets perform over the credit cycle.
Directors' Report
The Directors present the Annual Report and Audited Financial
Statements for the Company for the year ended 31 December 2018.
Directors
The Directors of the Company on the date the financial
statements were approved are detailed above. With the exception of
Mark Moffat, all directors were directors of the Company throughout
the year ended 31 December 2018.
Mark Moffat was appointed on 8 January 2019 following a lengthy
consideration process with input from DFME and legal counsel.
Having identified the need for an additional Board member with
specific technical and market expertise, the Board, together with
DFME, discussed possible candidates and identified Mr Moffat. A
recruitment agency was not consulted due to the very specific
nature of the knowledge and skills required, for which the Board
felt they would be better able to source candidates in conjunction
with DFME.
The Board met with Mr Moffat and considered his experience and
non-independent status at appointment. They concluded that his
technical expertise and his knowledge of the Portfolio Adviser
would add value to and complement the existing Board.
The Board and Employees
The Board currently comprises three male and two female
Directors. The Company has no employees and therefore there is
nothing further to report in respect of gender representation
within the Company.
Full details of the Company's policy on Board Diversity can be
found in the Corporate Governance Report.
Share Capital
The Company's share capital consists of an unlimited number of
shares. As at 31 December 2018, the Company's issued share capital
was 404,700,446 Euro shares (31 December 2017: 404,700,446 Euro
shares).
Share Repurchase Programme
At the 2018 AGM, held on 22 June 2018, the Directors were
granted authority to repurchase 60,664,597 Euro shares (being equal
to 14.99% of the aggregate number of Euro shares in issue at the
date of the AGM) for cancellation, or to be held as treasury
shares.
This authority, which has not been used, will expire at the
upcoming AGM. The Directors intend to seek annual renewal of this
authority from Shareholders.
Authority to Allot
At the 2018 AGM, the Directors were granted authority to allot,
grant options over, or otherwise dispose of up to 40,470,044 Euro
shares (being equal to 10.00% of the aggregate number of Euro
shares in issue at the date of the AGM). This authority will expire
at the 2019 AGM.
Shareholders' Interests
As at 31 December 2018, the Company had been notified, in
accordance with Chapter 5 of the Disclosure Guidance and
Transparency Rules (which covers the acquisition and disposal of
major shareholdings and voting rights), of the following
Shareholders with an interest of greater than 5% in the Company's
issued share capital:
Shareholder Percentage of Voting Rights
Quilter plc 21.83%
BlackRock Inc 16.58%
Blackstone Treasury Asia Pte Ltd 12.35%
FIL Limited 8.13%
--------------------------------- ---------------------------
Between 31 December 2018 and 30 April 2019, the following
notifications were received:
Date Shareholder Cumulative Percentage of Voting Rights
16 January 2019 Quilter plc 23.65%
21 January 2019 Quilter plc 24.69%
---------------- ------------ --------------------------------------
Statement of Disclosure of Information to the Auditor
The Directors who held office as at the date of approval of this
Directors' Report confirm that, so far as they are each aware,
there is no relevant audit information of which the Company's
auditor is unaware and that they have taken the steps that they
ought to have taken as Directors to make themselves aware of any
relevant audit information and to establish that the Company's
auditor is aware of that information.
Environmental, Employee, Social, Community and Human Rights
Matters
The Company is a closed ended investment company with no
employees, and therefore its environmental impact is minimal. The
Board notes that the companies in which BGCF invests (either
directly or indirectly) may have a social, employee, community and
human rights impact of which the Board has no visibility or
control.
Gary Clark
Director
30 April 2019
Corporate Governance Report
Statement of Compliance with Corporate Governance
The Company, having a Premium Listing on the Official List of
the FCA, is subject to Listing Rule 9.8.6 which requires companies
to report against the UK Code.
Having considered the principles and recommendations of the
Association of Investment Companies' ("AIC") Code of Corporate
Governance for Jersey-domiciled member companies, as published by
the Association of Investment Companies in July 2016 (the "AIC
Code") by reference to the AIC Corporate Governance Guide for
Investment Companies (the "AIC Guide"), the Board believes the AIC
Code addresses all of the principles set out in the UK Code as well
as additional principles and recommendations on issues that are of
specific relevance to the Company and will provide better
information to Shareholders.
The Board can therefore confirm that during the year ended 31
December 2018, the Company has complied with the recommendations of
the AIC Code and the relevant provisions of the UK Code as detailed
below.
For the reasons set out in the AIC Guide and given the size and
nature of operations of the Company, in that it is a self-managed
investment company with no executive employees and that the
providers of outsourced services have their own internal audit
functions, the Board considers the below provisions of the UK Code
not to be relevant and therefore has not reported further on
them:
-- the role of the Chief Executive;
-- executive directors' remuneration; and
-- the need for an internal audit function.
The Company will provide details in the future if it considers
these provisions to be relevant.
Copies of the AIC Code, the AIC Guide and the UK Code can be
found on the respective organisations' websites -
https://www.theaic.co.uk/ and frc.org.uk.
The Board
The Board consists of five non-executive directors. Their
biographies can be found above.
The Board meets at least four times a year and is in regular
contact with the Portfolio Adviser, the Administrator and the
Company Secretary. Furthermore, the Board is supplied with
information in a timely manner from the Portfolio Adviser, the
Company Secretary and other advisers in a form and of a quality
appropriate for it to be able to discharge its duties.
Board Apprentices
In 2018 the Board chose to participate in the Board Apprentice
scheme, which aims to give appropriate individuals first hand board
experience through observation of the workings and dynamics of
boards. The board selected two board apprentices from a pool of
candidates, who have both attended the Company's meetings and
received relevant documentation. Both board apprentice positions
are effective for a period of one year to October 2019.
The Board views this as a valuable exercise in mentoring already
accomplished individuals to be future directors, fostering equality
and developing board culture.
Duties and Responsibilities
The Board has overall responsibility for maximising the
Company's success by directing and supervising the affairs of the
business and meeting the appropriate interests of Shareholders and
relevant stakeholders, while enhancing the value of the Company and
also ensuring the protection of investors. A summary of the Board's
responsibilities is as follows:
-- statutory obligations and public disclosure;
-- strategic matters and financial reporting;
-- risk assessment and management including reporting,
compliance, governance, monitoring and control; and
-- other matters having a material effect on the Company.
The Board is responsible to Shareholders for the overall
management of the Company. The Board has delegated certain
operational activities of the Company to the Portfolio Adviser,
Administrator and Company Secretary. The Board reserves the power
of decisions relating to the determination of investment policy,
the approval of changes in strategy, capital structure, statutory
obligations and public disclosure, and the entering into of any
material contracts by the Company.
Board Attendance
The following table shows the number of meetings held by the
Board and each committee for the year ended 31 December 2018, as
well as the Directors' and Committee Members' attendance at each
type of meeting.
Charlotte Gary
Meeting Total Valeur Clark Steven Wilderspin Heather MacCallum
Quarterly Board 4 3 3 4 4
Ad-hoc Board 17 11* 16 17 16
Audit Committee 5 N/A 5 5 5
Management Engagement Committee 2 2 2 2 2
NAV Review Committee 12 5** 11 12 12
Remuneration and Nomination Committee 7 7 7 7 7
-------------------------------------- ----- --------- ------ ----------------- -----------------
Risk Committee 4 4 4 4 4
Inside Information Committee 1 1 - - 1
-------------------------------------- ----- --------- ------ ----------------- -----------------
*The majority of the Ad Hoc Board meetings not attended by Ms
Valeur were held following the NAV Review Committee Meetings for
convenience. These dealt with routine business items and Ms Valeur
received copies of all documents in advance of the meetings and fed
back any comments she had.
**On 22 October 2018, it was resolved that Ms Valeur would no
longer be a member of the NAV Review Committee.
Chair
The Chair is responsible for leadership of the Board, ensuring
its effectiveness on all aspects of its role and setting its
agenda. The Chair is also responsible for ensuring that the
Directors receive accurate, timely and clear information and for
effective communication with Shareholders.
Board Independence
For the purpose of assessing compliance with principles 1 and 2
of the AIC Code, the Board considers all of the current Directors,
with the exception of Mark Moffat, to be independent. Mr Moffat
left GSO Capital Partners LP in April 2015 and is not considered
independent for this reason.
The Directors consider that there are no factors, as set out in
principles 1 or 2 of the AIC Code, which compromise the other
Directors' independence and all Directors contribute to the affairs
of the Company in an adequate manner. The Board reviews the
independence of all Directors annually. The Company Secretary acts
as secretary to the Board and Committees and, in doing so, assists
the Chair in ensuring that all Directors have full and timely
access to all relevant documentation, organises induction of new
Directors, is responsible for ensuring that the correct Board
procedures are followed and advises the Board on corporate
governance matters.
Board Evaluation
During 2018, the Board conducted their own review using
BoardMetrix, a board evaluation tool. This evaluation assessed the
Board's performance in the following areas:
-- board composition/skills;
-- strategic review;
-- workings of the board; and
-- risk oversight.
The performance of each Director and the Committees of the Board
were also assessed as part of this evaluation.
The evaluation concluded that the Board was strong across all of
the above areas and that the Directors and the Board's Committees
were performing effectively. No significant recommendations were
made which are required to be brought to the attention of the
Shareholders.
A board evaluation was externally facilitated by Value Alpha
during 2016. The Board intends to arrange an externally-facilitated
board evaluation every three years, with the next external Board
evaluation due to be conducted in 2019.
Committees of the Board
The Board has established six committees: an Audit Committee; a
Management Engagement Committee; a NAV Review Committee; a
Remuneration and Nomination Committee; a Risk Committee; and an
Inside Information Committee. Each committee has formally delegated
duties and responsibilities within written terms of reference,
which are available on the Company's website, blackstone.com/bglf,
under "Terms of Reference".
The current committee memberships are detailed below.
Audit Committee
The Audit Committee comprises all Directors, except Charlotte
Valeur and Mark Moffat, and is chaired by Heather MacCallum.
The terms of reference state that the Audit Committee will meet
not less than three times a year and will meet with the Auditor at
least once a year. The report on the role and activities of this
committee and its relationship with the Auditor is included in the
Audit Committee Report below.
Management Engagement Committee
The Management Engagement Committee comprises all Directors and
is chaired by Charlotte Valeur.
The terms of reference state that the Management Engagement
Committee shall meet at least once a year; will have responsibility
for monitoring and reviewing the Portfolio Adviser's performance;
and will recommend to the Board whether the continued appointment
of the Portfolio Adviser is in the best interests of the Company
and Shareholders.
NAV Review Committee
The NAV Review Committee comprises all Directors, except
Charlotte Valeur, and is chaired by Gary Clark.
The terms of reference state that the NAV Review Committee shall
meet at least once a month to review and consider the Company's NAV
calculation, fact sheet and related stock exchange
announcement(s).
Remuneration and Nomination Committee
The Remuneration and Nomination Committee comprises all
Directors and is chaired by Gary Clark.
The terms of reference state that the Remuneration and
Nomination Committee will meet not less than twice a year and shall
be responsible for all aspects of the appointment and remuneration
of Directors. The remuneration duties of the committee include
determining and agreeing with the Board the framework or broad
policy for the remuneration of the Directors and to review its
ongoing appropriateness and relevance.
The nomination duties of the committee include regularly
reviewing the structure, size and composition of the Board,
including the balance of skills, experience, independence and
knowledge, as well as identifying, nominating and recommending for
the approval of the Board, candidates to fill Board vacancies as
they arise.
Director Re-Election and Tenure
The Remuneration and Nomination Committee has considered the
question of a policy on Board tenure. It is strongly committed to
striking the correct balance between the benefits of continuity and
those that come from the introduction of new perspectives to the
Board.
As provided for in the AIC Code and in order to phase future
retirements and appointments, the Board has not at this stage
adopted any specific limits to tenure, but expects to continue to
rotate Board members over the coming years.
The Board has adopted a policy whereby all Directors will be put
up for re-election every year. Accordingly, all Directors will be
put forward for re-election at the forthcoming AGM. Each of the
Directors has demonstrated a strong commitment to the Company and
the Board believes each Director's re-election to be in the best
interests of the Company.
The Board also maintains a succession planning matrix covering
the Directors' skills, the Board's diversity, and the Directors'
expected year of retirement should they hold office for nine years.
The matrix is used by the Remuneration and Nomination Committee to
identify any additional skills that the Board would benefit from
and to help the Remuneration and Nomination Committee establish
when to begin recruiting for any new directors. The Board also
keeps its diversity under review.
Risk Committee
The Risk Committee comprises all Directors and is chaired by
Steven Wilderspin.
The terms of reference state that the Risk Committee shall meet
at least four times a year. The activities of this committee are
outlined in the Risk Committee Report below.
Inside Information Committee
The Inside Information Committee comprises any two members of
the Board.
The Inside Information Committee is responsible for identifying
inside information and monitoring the disclosure and control of
such information.
Board Diversity
The Board believes in and values the importance of a broad range
of skills, experience and diversity, including gender, for the
effective functioning of the Board, all of which are considered
when determining the optimum composition of the Board. The Board
has a policy that aims to have a minimum of 40% of either gender
represented on the Board, and also recognises the importance of
inclusivity in its diversity policy. The Board ensures compliance
with its policy in respect of any appointments to the Board. At 31
December 2018, there was 50% of each gender represented on the
Board, while at the date of approval of these financial statements,
60% of the Board were male and 40% were female.
Internal Controls
The Board has applied principle 15 of the AIC Code by
establishing a continuous process for identifying, evaluating and
managing the significant risks that the Company faces. The Board is
responsible for the Company's system of internal controls and for
reviewing its effectiveness. Such a system is designed to manage
rather than eliminate the risk of failure to achieve business
objectives, and can only provide reasonable and not absolute
assurance against material misstatement or loss.
The Board's monitoring covers all controls, including financial,
operational and compliance controls and risk management. It is
based principally on reviewing reports from the Portfolio Adviser
and BGCF to consider whether significant risks are identified,
evaluated, managed and controlled and whether any significant
weaknesses are promptly remedied and indicate a need for more
extensive monitoring.
The Audit Committee assists the Board in discharging its review
responsibilities.
During the course of its review of the system of internal
controls, the Board has not identified nor been advised of any
failings or weaknesses which it has determined to be significant.
Therefore, no confirmation in respect of necessary actions has been
made.
The Board is also responsible for setting the overall investment
policy and monitors the services provided by the Portfolio Adviser
at regular Board meetings. The Board receives regular compliance
reports from the Portfolio Adviser, the Administrator, the Company
Secretary and the Depositary.
The Directors clearly define the duties and responsibilities of
their agents and advisers, whose appointments are made after due
consideration, and monitor their ongoing performance. All of the
Company's agents and advisers maintain their own systems of
internal control on which they report to the Board. These systems
are designed to ensure effectiveness and efficient operation,
internal control and compliance with laws and regulations. In
establishing the systems of internal control, regard is paid to the
materiality of relevant risks, the likelihood of costs being
incurred and the costs of control. It follows, therefore, that the
systems of internal control can only provide reasonable but not
absolute assurance against the risk of material misstatement or
loss.
The Directors are satisfied that the continued appointment of
the relevant service providers is in the best interests of the
Shareholders.
The Board has reviewed the need for an internal audit function
and has decided that the systems and procedures employed by the
Administrator and Portfolio Adviser, including their own internal
controls and procedures, provide sufficient assurance that a sound
system of risk management and internal control, to safeguard the
Shareholders' investment and the Company's assets, is maintained.
An internal audit function specific to the Company is therefore
considered unnecessary. Full details are set out in the Audit
Committee Report.
The Company has appointed Fidante Partners Europe Limited
(trading as Fidante Capital) and Nplus 1 Singer Advisory LLP as its
Joint Brokers. Together with these parties, the Portfolio Adviser
assists the Board in communicating with and understanding the views
of the Company's major Shareholders.
Risk Committee Report
Membership
The Risk Committee comprises Steven Wilderspin (Chair),
Charlotte Valeur, Heather MacCallum, Gary Clark and Mark
Moffat.
Key Objectives
The Risk Committee has been established to assist the Board in
its oversight of risk through ensuring the Company maintains a high
standard of risk identification, monitoring and management so as to
minimise investment risks and any other risks not covered by the
Audit Committee.
Responsibilities
During 2018, the Risk Committee reviewed its mandate to ensure
effective operation in conjunction with the Audit Committee, and as
a result, its key responsibilities, amongst others, remain:
-- ensuring the Company's compliance with its investment
objectives, policies, restrictions and borrowing limits;
-- ensuring that appropriate policies and reporting exists for
the monitoring of the Company's key risks;
-- developing and maintaining a risk register documenting
identified risks, their mitigants, likelihood and impact, which is
reviewed regularly by the Board with action points and newly
identified risks being appropriately dealt with;
-- defining risk review activities regarding investment
decisions, transactions and exposures for approval by the Board;
and
-- ensuring due regard is given to all regulations, codes, and
laws that the Company is subject to.
Committee Meetings
In 2018, the Risk Committee met on four occasions. The Committee
considered: risk reporting and monitoring, including the risk
register; newly identified risks, their impact and required
mitigants; the Board's risk appetite; and Principal Risks and
Viability Statement.
Specific areas of focus for the Committee during the year
included:
-- Base erosion and profit shifting ("BEPS") - The Committee
considered this initiative by the OECD to prevent erosion of the
tax base by the use of international tax structures, and determined
that there was not a material risk to the Company.
-- General Data Protection Regulation ("GDPR") - The Committee
considered the impact of this EU directive and engaged with the
Company's service providers to ensure compliance.
-- The Committee reviewed the corporate governance arrangements for its Luxembourg subsidiary.
-- The Committee considered the risks arising from the proposed
rollover of investment from Carador Income Fund plc to the
Company.
Risk Monitoring
Being internally managed, the Company is responsible for both
portfolio and risk management. However, due to the nature of the
investment and the limited ability to look through, traditional
market and credit risk techniques do not apply at the Company
level.
Investment risk management and monitoring, to ensure the
successful pursuance of our investment objective, is therefore
mainly through the Company's monthly NAV reporting process and the
monitoring of investment restrictions and eligibility criteria as
carried out by our Depositary.
This year, members of the Risk Committee conducted a due
diligence visit to DFME in Dublin and reviewed key aspects of the
DFME compliance and risk management framework.
Risk Register and Risk Appetite Statement
At the end of the year under review the Risk Committee
recommended a new risk management framework to the Board to govern
how the Committee and/or Board identifies existing and emerging
risks; determines risk appetite; identifies mitigation and
controls; assesses, monitors and measures risk, and reports on
risks.
Principal Risks and Uncertainties
In conjunction with the new risk management framework, the Board
conducted a fresh exercise to identify the risks of the Company,
including those which the directors consider to be emerging risks.
The Board identified fifteen main risks which have a higher
probability of occurring and a significant potential impact on the
performance, strategy, reputation or operations of the Company. Of
these, four are identified above as the principal risks faced by
the Company where the combination of probability and impact is
assessed as being most significant.
Another thirteen less significant risks were identified to keep
under review on a watch list.
Conclusion
The development of the new risk management framework of the
Company will be continued through 2019.
Steven Wilderspin
Risk Committee Chair
30 April 2019
Directors' Remuneration Report
The Company's auditor has not audited any of the disclosures
provided in this Directors' Remuneration Report.
Directors' Remuneration
This report provides relevant information in respect of the
Directors' remuneration.
The tables below outline the remuneration the Directors were
entitled to during the year ended 31 December 2018 for their
services. They reflect the increase in Directors' fees which was
effective 1 July 2018.
Fee for the period from Fee for the period from
1 January 2018 to 30 June 2018 1 July 2018 to 31 December 2018
------------------- -------------------------------- ---------------------------------
GBP GBP
------------------- -------------------------------- ---------------------------------
Charlotte Valeur 25,000 30,500
Gary Clark 20,000 23,000
Heather MacCallum 20,000 22,250
Steven Wilderspin 20,000 22,500
------------------- -------------------------------- ---------------------------------
Total fee for the year ended Total fee for the year ended
31 December 2018 31 December 2017
GBP GBP
------------------------------------ ---------------------------- ----------------------------
Charlotte Valeur 55,500 50,000
Gary Clark 43,000 40,000
Heather MacCallum 42,250 12,137
Steven Wilderspin 42,250 14,726
Phil Austin - 26,178
Joanna Dentskevich - 33,315
------------------------------------ ---------------------------- ----------------------------
Total Directors' Remuneration 183,000 176,356
------------------------------------ ---------------------------- ----------------------------
Total Directors' Remuneration (EUR) 209,140 201,218
------------------------------------ ---------------------------- ----------------------------
The Chairs of the Management Engagement Committee, NAV Review
Committee, Remuneration and Nomination Committee, Audit Committee
and Risk Committee each received additional fees, which are
included in the amounts above, for the additional responsibilities
and time commitment required in undertaking these roles.
Additionally, the Senior Independent Director received additional
fees for the additional responsibilities and time commitment
required in undertaking this role.
Directors' remuneration is payable in Sterling quarterly in
arrears. No other remuneration or compensation was paid or is
payable by the Company during the year to any of the Directors.
There has been no change to the Company's remuneration policy as
detailed below.
The Company has no employees, accordingly, there is no
difference in policy on the remuneration of Directors and the
remuneration of employees. No Director is entitled to receive any
remuneration which is performance-related.
In reviewing the Directors' remuneration, the Remuneration
Committee consulted with Mercer, as an independent remuneration
consultant, and considered the following:
-- the time commitment and skills required of the Directors;
-- the additional responsibilities and the time commitment for additional roles;
-- the remuneration set by similar companies; and
-- the level of remuneration required to attract and retain Directors of suitable calibre.
Mercer has no connection with the Company.
Remuneration Policy
Directors' fees are determined by the Remuneration and
Nomination Committee under the terms of the remuneration policy
(the "Remuneration Policy") approved on 16 April 2015, as derived
from the Company's Articles of Association. The Remuneration and
Nomination Committee also considers the remuneration levels of
similar companies and consults external remuneration consultants
where it deems this appropriate
The Remuneration and Nomination Committee, consisting of all
five Directors, is involved in deciding Directors' remuneration and
ensuring that remuneration received reflects their duties,
responsibilities and the value of the Directors' time.
The Company does not provide pensions or other retirement or
superannuation benefits, death or disability benefits, or other
allowances or gratuities to the Directors or specified connected
parties. The Remuneration Policy also prohibits payments to a
Director for loss of office or as consideration for, or in
connection with, his or her retirement from office. Whilst the
Remuneration Policy permits part of their fee to be paid in the
form of fully-paid up shares in the capital of the Company, the
Directors' fees are not currently paid this way.
In addition, the Remuneration Policy allows for reasonable
travel, hotel and other expenses incurred by the Directors in the
course of performing their duties or from their performance of a
special service on behalf of the Company.
The limit for the aggregate fees payable to the Directors is
GBP300,000 per annum.
Directors' Interests
The Directors held the following number of Euro Ordinary shares
in the Company as at the year end and the date these financial
statements were approved:
Euro Ordinary Shares As at 31 December 2018 As at 31 December 2017
Charlotte Valeur 11,500 11,500
Gary Clark 73,700 73,700
Heather MacCallum - -
Steven Wilderspin 20,000 -
Mark Moffat (appointed 8 January 2019) 601,028 -
--------------------------------------- ---------------------- ----------------------
The Directors held the following number of C shares in the
Company upon issuance of the C Shares on
7 January 2019 and as at the date these financial statements
were approved:
C Shares As at 26 April 2019 As at 7 January 2019
Charlotte Valeur - -
Gary Clark - -
Heather MacCallum - -
Steven Wilderspin - -
Mark Moffat (appointed 8 January 2019) 291,068 291,068
--------------------------------------- ------------------- --------------------
Service Contracts and Policy on Payment of Loss of Office
No Director has a service contract with the Company. The
Directors have each entered into a letter of engagement with the
Company setting out the terms of their appointment. Directors'
appointments may be terminated at any time by giving three month's
written notice, with no compensation payable upon leaving office
for whatever reason.
Gary Clark
Remuneration and Nomination Committee Chair
30 April 2019
Audit Committee Report
Audit Committee
The Audit Committee comprises Heather MacCallum, Steven
Wilderspin and Gary Clark and is chaired by Heather MacCallum. Ms
MacCallum has recent and relevant financial experience in
accounting and auditing, and the Audit Committee as a whole has
competence relevant to the sector in which the Company
operates.
In addition to formal meetings, the Audit Committee has worked
with the Portfolio Adviser and Auditor to assess the operations and
controls of BGCF and to assess in particular what reliance the
Audit Committee can place on the control environment. The Chair has
also had a number of discussions with the Auditor, the Portfolio
Adviser and the Administrator around the annual audit process.
Role of the Audit Committee
The function of the Audit Committee is to ensure that the
Company maintains high standards of integrity, financial reporting
and internal controls.
The Audit Committee's main roles and responsibilities include,
but are not limited to, the following:
-- monitoring the integrity of the financial statements and any
formal announcements relating to the Company's financial
performance;
-- reviewing and reporting to the Board on any significant
financial reporting issues and judgements;
-- reviewing and monitoring the effectiveness of the Company's
risk management and internal control arrangements;
-- monitoring the statutory audit of the annual financial
statements of the Company and its effectiveness;
-- reviewing the external auditor's performance, independence and objectivity;
-- making recommendations to the Board in relation to the
appointment, reappointment and/or removal of the external auditor,
the approval of the external auditor's remuneration and the terms
of the engagement;
-- implementing policies surrounding the engagement of the
external auditor to supply non-audit services, where
appropriate;
-- reviewing and challenging where necessary significant
accounting policies and practices; and
-- reporting to the Board on how it has discharged its responsibilities.
How the Audit Committee Has Discharged Its Responsibilities
The Audit Committee met five times during the year.
Representatives of the Company's Auditor and the Administrator were
invited to the meetings as appropriate.
Monitoring the Integrity of the Financial Statements Including
Significant Judgements
We reviewed the Company's 2018 Half Yearly and Annual Reports
prior to discussion and approval by the Board, and the significant
financial reporting issues and judgements which they contain and
reviewed the external auditor's reports thereon. We reviewed the
appropriateness of the Company's accounting principles and
policies, and monitored changes to, and compliance with, accounting
standards on an ongoing basis.
After the year end we had further meetings and we reviewed,
prior to making any recommendations to the Board, the Annual Report
and Audited Financial Statements for the year ended 31 December
2018. In undertaking this review, we discussed with the Auditor,
the Portfolio Adviser and the Administrator the critical accounting
policies and judgements that have been applied.
The Auditor reported to the Committee on any misstatements that
they had found during the course of their work and confirmed that
under ISA (UK) no material amounts remained unadjusted.
As requested by the Board, we also reviewed the Annual Report
and are able to confirm to the Board that, in our view, the Annual
Report, taken as a whole, is fair, balanced and understandable and
provided the information necessary for Shareholders to assess the
Company's position, performance, business model and strategy.
Significant Accounting Matters
During the year the Committee considered key accounting issues,
matters and judgements regarding the Company's financial statements
and disclosures including those relating to:
Significant Area How Addressed
---------------------------------------------------------- ----------------------------------------------------------
Assessment of consolidation and related disclosure The Audit Committee has considered compliance with the
requirements accounting treatment for investments
relating to consolidation requirements for the Company and
its investee entities and the related
disclosures in accordance with the provisions of IFRS 10
and IFRS 12.
The Audit Committee critically reviewed reports from the
Portfolio Adviser and Administrator,
as well as evaluating and consulting with them and with
the Auditor, and has concluded that
the Company is not required to consolidate the Lux
Subsidiary given the Company meets the
definition of an investment entity as defined in IFRS 10.
Accordingly, investments are recognised
at fair value through profit or loss.
Please see Note 2 in the financial statements for further
details.
Consideration was also given to the disclosures provided
with respect to BGCF including details
of the underlying investments, leverage and financial
instruments disclosures, including classification
levels. Disclosures have been provided from the financial
statements of BGCF to provide details
of the activities and operations of BGCF as a
non-consolidated entity.
Please see Note 12 in the financial statements for further
details.
Valuation of investments The investment in the Lux Subsidiary is accounted for at
fair value through profit or loss
and the investment in PPNs issued by BGCF held by the Lux
Subsidiary are at fair value. Investments
in BGCF (the PPNs) are illiquid investments, not traded on
an active market and are valued
using valuation techniques determined by the Directors and
classified as Level 3 under IFRS
13 "Fair Value Measurement."
Valuation is therefore considered a significant area and
is monitored by the Board, the Audit
Committee, the Portfolio Adviser and the Administrator.
The Audit Committee receives and reviews
reports on the processes for the valuation of investments.
Following discussion, we were satisfied
that the judgements made and methodologies applied were
prudent and appropriate and that an
appropriate accounting treatment has been adopted in
accordance with IFRS 9.
Please see Notes 2, 6, 10 and 16 in the financial
statements for further details.
---------------------------------------------------------- ----------------------------------------------------------
Assessment of Risks and Uncertainties
The risks associated with the Company's financial instruments,
as disclosed in the financial statements, particularly in Note 10,
represent a key accounting disclosure. The Audit Committee and the
Risk Committee critically review, on the basis of input from the
service providers, the process of ongoing identification and
measurement of these risks disclosures.
Other Matters
During the year, the Committee considered compliance with
relevant legislation, performance metrics and related disclosures
in the Company's financial statements, and revisions to the UK
Code.
Risk Management and Internal Controls
The Board as a whole is responsible for the Company's system of
internal controls; however, the Audit Committee assists the Board
in meeting its obligations in this regard. The daily operational
activities of the Company were delegated to the service providers
and as a result the Company has no direct internal audit function
and instead places reliance on the external and internal audit
controls applicable to the service providers as regulated entities.
However, the Audit Committee reviews periodic reports from the
service providers to ensure that no material issues have arisen in
respect of the system of internal controls and risk management
operated within the Company's service providers. The Committee
confirms that this is an ongoing process in order to manage the
risks faced by the Company. We deem that, to date, there are no
significant issues in this area which need to be brought to your
attention.
External Audit
It is the responsibility of the Audit Committee to monitor the
performance, independence, objectivity and re-appointment of the
Auditor. The Audit Committee met with Deloitte LLP ("Deloitte") to
consider the audit strategy and plan for the audit. The audit plan
for the reporting period was reviewed, including consideration of
the key financial statement and audit risks, to seek to ensure that
the audit was appropriately focused.
The Auditor attends the Audit Committee meetings throughout the
year, which allows the opportunity to discuss any matters the
auditor may wish to raise without the Portfolio Adviser or other
service providers being present. Deloitte provides feedback at each
Audit Committee meeting on topics such as the key accounting
matters, mandatory communications and the control environment. The
Audit Committee also discusses the performance of the Auditor
independently of the Auditor.
Deloitte was formally appointed as the Company's auditor for the
2014 period end audit following a competitive tender process during
2014. The lead audit partner is rotated every five years to ensure
continued independence and objectivity and consequently a new lead
audit partner will be in place for the interim review to 30 June
2019 and subsequent year-end audit.
The Audit Committee continues to be satisfied with the
performance of the Auditor. We have therefore recommended to the
Board that the Auditor, in accordance with agreed terms of
engagement and remuneration, should continue as the Company's
auditor at the forthcoming Annual General Meeting. Accordingly a
resolution proposing the reappointment of Deloitte as the Company's
auditor will be put to the Shareholders at the 2019 AGM.
In advance of the commencement of the annual audit, the Audit
Committee reviewed a statement provided by the Auditor confirming
their independence within the meaning of the regulations and
professional standards. In addition, in order to satisfy itself as
to the Auditor's independence, the Audit Committee undertook a
review of the Auditor's compensation and the balance between audit
and non-audit fees.
During 2019, the Audit Committee reviewed its policy with
respect to non-audit services to ensure it continued to align with
best practice.
The Audit Committee has agreed the types of permitted and
non-permitted ongoing non-audit services and those which require
explicit prior approval. During the year, Deloitte were contracted
to provide services related to the interim financial statements, US
tax compliance and the Rollover Offer. The value of non-audit
services (US tax compliance) provided by Deloitte and charged in
the period amounted to approximately EUR38,158. In addition, the
Company incurred EUR83,561 in respect of audit related services
(Reporting Accountant services) in connection with the Rollover
Offer. The overall quantum of non-audit services and the one-off
fees incurred for Deloitte's work in 2018 in these roles is
material to the overall audit fee. This has been considered,
including the role of the respective engagement teams and the
independence of individuals from the audit engagement team, and the
Audit Committee is satisfied that the auditor has acted in an
independent and professional manner.
Heather MacCallum
Audit Committee Chair
30 April 2019
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report
and Audited Financial Statements in accordance with applicable law
and regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have elected to prepare the financial statements in accordance with
IFRS, as adopted by the EU. Under company law the Directors must
not approve the financial statements unless they are satisfied that
they give a true and fair view of the state of the affairs of the
Company and of the profit or loss of the Company for that period.
In preparing these financial statements, International Accounting
Standard 1 requires that Directors:
-- properly select and apply accounting policies;
-- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable;
-- provide additional disclosures when compliance with the
specific requirements in IFRS as adopted by the EU are insufficient
to enable users to understand the impact of particular
transactions, other events and conditions on the Company's
financial position and financial performance; and
-- make an assessment of the Company's ability to continue as a going concern.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with The Companies (Jersey) Law
1991. They are also responsible for safeguarding the assets of the
Company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in Jersey governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
Each of the Directors confirms that, to the best of that
Director's knowledge and belief:
-- the financial statements, prepared in accordance with IFRS as
adopted by the EU, give a true and fair view of the assets,
liabilities and financial position of the Company as at 31 December
2018, and its profit for the year then ended;
-- the Strategic Report and the Directors' Report include a fair
review of the information required by the Disclosure Guidance and
Transparency Rules ("DTR") 4.1.8 (indication of important events up
to
31 December 2018 and a description of principal risks and
uncertainties);
-- the Strategic Report and the Directors' Report include a fair
review of the information required by DTR 4.1.9 and 4.1.10
(analysis of the development and performance of the Company aided
by the use of key performance indicators; and, where appropriate,
information relating to environmental factors);
-- the Strategic Report and the Directors' Report include a fair
review of the information required by DTR 4.1.11 (disclosure of
important events that have occurred after 31 December 2018; future
developments; financial risk management objectives and policies and
Company exposure to price, credit, liquidly and cash flow risk);
and
-- the annual report and audited financial statements, taken as
a whole, provide the information necessary to assess the Company's
performance, position, business model and strategy and are fair,
balanced and understandable.
Gary Clark Heather MacCallum
Director Director
30 April 2019
Independent Auditor's Report to the Shareholders of Blackstone /
GSO Loan Financing Limited
Report on the audit of the financial statements
Opinion
In our opinion the financial statements of Blackstone GSO
/ Loan Financing Limited (the "Company"):
* give a true and fair view of the state of the
Company's affairs as at 31 December 2018 and of the
Company's loss for the year then ended;
* have been properly prepared in accordance with
International Financial Reporting Standards (IFRSs)
as adopted by the European Union; and
* have been properly prepared in accordance with
Companies (Jersey) Law, 1991.
We have audited the financial statements which comprise:
* the Company statement of comprehensive income;
* the Company statement of financial position;
* the Company statement of changes in equity;
* the Company cash flow statement;
* the statement of accounting policies; and
* the related notes 1 to 19.
The financial reporting framework that has been applied in
their preparation is applicable law and IFRSs as adopted by
the European Union.
Basis for opinion
We conducted our audit in accordance with International Standards
on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the auditor's
responsibilities for the audit of the financial statements
section of our report.
We are independent of the Company in accordance with the ethical
requirements that are relevant to our audit of the financial
statements in the UK, including the Financial Reporting Council's
(the "FRC's") Ethical Standard as applied to listed entities,
and we have fulfilled our other ethical responsibilities in
accordance with these requirements. We confirm that the non-audit
services prohibited by the FRC's Ethical Standard were not
provided to the Company.
We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our opinion.
Summary of our audit approach
Key audit matters The key audit matters that we identified in
the current year were:
* Assessment of consolidation requirements
* Valuation of investments
Materiality The materiality that we used for the Company
financial statements was EUR6,500,000 which
was determined on the basis of approximately
2% (2017: 2%) of the Net Asset Value of the
Company.
Scoping The audit scope included the Company and its
non consolidated subsidiary entity accounted
for as a financial asset at fair value through
profit and loss.
Significant There have been no significant changes in our
changes in our approach in respect of the current year's audit.
approach
Conclusions relating to going concern, principal risks and
viability statement
Going concern
We have reviewed the directors' statement We confirm that we
in note 2.2 to the financial statements have nothing material
about whether they considered it appropriate to report, add or
to adopt the going concern basis of accounting draw attention to
in preparing them and their identification in respect of these
of any material uncertainties to the Company's matters.
ability to continue to do so over a period
of at least twelve months from the date
of approval of the financial statements.
We considered as part of our risk assessment
the nature of the Company, its business
model and related risks including where
relevant the impact of Brexit, the requirements
of the applicable financial reporting framework
and the system of internal control. We
evaluated
the directors' assessment of the Company's
ability to continue as a going concern,
including challenging the underlying data
and key assumptions used to make the We confirm that we
assessment, have nothing material
and evaluated the directors' plans for future to report, add or
actions in relation to their going concern draw attention to
assessment. in respect of these
matters.
Principal risks and viability statement
Based solely on reading the directors'
statements
and considering whether they were consistent
with the knowledge we obtained in the course
of the audit, including the knowledge obtained
in the evaluation of the Directors' assessment
of the company's ability to continue as
a going concern, we are required to state
whether we have anything material to add
or draw attention to in relation to:
-- the disclosures that describe the principal
risks and explain how they are being managed
or mitigated;
-- the Directors' confirmation that they
have carried out a robust assessment of
the principal risks facing the Company,
including those that would threaten its
business model, future performance, solvency
or liquidity; or
-- the Directors' explanation as to how
they have assessed the prospects of the
Company, over what period they have done
so and why they consider that period to
be appropriate, and their statement as to
whether they have a reasonable expectation
that the company will be able to continue
in operation and meet its liabilities as
they fall due over the period of their
assessment,
including any related disclosures drawing
attention to any necessary qualifications
or assumptions.
Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due
to fraud) that we identified. These matters included those
which had the greatest effect on: the overall audit strategy,
the allocation of resources in the audit; and directing the
efforts of the engagement team.
These matters were addressed in the context of our audit of
the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these
matters.
Assessment of consolidation requirements
Key audit matter As disclosed in note 1 to the financial statements,
description investments at the year--end comprised of class
B Cash Settlement Warrants (the "CSWs") and class
A and B shares issued by the Company's wholly
owned subsidiary, Blackstone / GSO Loan Financing
(Luxembourg) S.a.r.l. (the "Lux Subsidiary").
The Lux Subsidiary holds Profit Participating
Notes ("PPNs") issued by Blackstone / GSO Corporate
Funding Designated Activity Company ("BGCF").
There is a key judgement around whether the Company
has the ability through legal agreements or through
its activities to control BGCF. Connected to
this, the level of disclosures, whilst prescribed
in accounting standards, does involve management
judgement in determining the appropriate level
and detail to be disclosed in the financial statements.
Assessment of the accounting treatment for investments
relating to consolidation requirements and related
disclosures in accordance with the provisions
of IFRS 10-Consolidated Financial statements
are essential for their impact on the financial
statements and the different presentation of
consolidated versus non-consolidated entities.
We have three separate matters to consider:
Non-Consolidation of BGCF
Management's assessment that the Company is not
required to consolidate BGCF as it is not deemed
to have control and accordingly recognises the
investment in BGCF at Fair Value Through Profit
or Loss.
Non-Consolidation of Lux Subsidiary and adoption
of Investment Entities approach
Management have made an assessment that the Company
meets the "Investment Entity" criteria and consequently
the investment in subsidiary is accounted for
as a Financial assets at fair value through profit
and loss and not consolidated in the financial
statements.
Disclosure of Interests in Other Entities
As the Company has determined not to consolidate
BGCF there is a requirement to assess the disclosure
of information that would enable users of the
financial statements to evaluate the interest
in that entity. This includes but is not limited
to the nature and risks of the entity and those
that impact on its financial position, performance
and cash flows.
Refer to the Audit Committee Report, the Significant
Accounting Policies and Note 11 to the Financial
statements.
How the scope Our procedures included:
of our audit
responded to * We inquired of management on regulatory matters and
the key audit reviewed the legal framework, contractual terms,
matter transactions and overall relationship between the
Company, either directly or indirectly through its
subsidiary and BGCF.
* We assessed the review performed by management to
consider whether to consolidate BGCF. We also
considered the issuance of PPNs by BGCF to new
investors, the flow of funds and its impact on the
Board's assessment of BGLF's ability to exercise
control over BGCF.
* We reviewed the approach adopted by management in
assessing the Company's ability to control BGCF and
also meet the definition of an Investment Entity.
This included considerations of any changes in the
Company's structure, activities or contractual terms
as well as any development in the relevant financial
reporting framework and regulatory requirements.
* We assessed the adequacy and quality of the IFRS 12
disclosures against best practice using our technical
compliance tools and experience in the other listed
entities.
Key observations Based on the work performed we concluded that
the Company is in compliance with consolidation
requirements.
Valuation of investments
Key audit matter The investment in subsidiary is accounted at
description Fair Value Through Profit and Loss.
Investments in the Lux Subsidiary which total
EUR315,890,482(2017: EUR377,137,378) as detailed
in Note 6 to the financial statements, are illiquid
investments, not traded on an active market and
are valued using valuation techniques determined
by the Directors and classified as level III
under IFRS 13 Fair Value Measurement. Valuation
is therefore a key area of judgement and has
a significant impact on the Net Asset Value ("NAV")
which is the most significant Key Performance
Indicator ("KPI") of the Company and has a direct
effect on the recognition of gains and losses
on investments.
The investments, commitments and obligations
contracted by BGCF are driving the performance
of its NAV, the valuation of the investments
in BGCF and ultimately the performance of the
Company and its listed shares. We consider BGCF
as the principal source of risks and rewards
for the Company with BGCF's financial situation
represented by its Net Asset Value as the main
component for the fair valuation of the investments.
Reviewing risk monitoring, performance and the
investments' valuation for the Company, requires
an assessment of the positions within BGCF. BGCF's
investment positions in debt instruments, related
credit risk and liquidity exposures should be
compliant with the quality, diversification and
overall limitations imposed by the Prospectus.
The Directors use their judgment, with the assistance
of the Adviser (DFME), in selecting an appropriate
valuation technique and refer to techniques commonly
used by market practitioners. For investments
in BGCF and the underlying collateralized loan
obligations (CLOs) and the equity tranches retained
by that company, assumptions are made based on
quoted market rates adjusted for specific features
of any instrument.
There is a risk that a third party valuer has
used an incorrect methodology, inaccurate data
is supplied by the CLO Manager of the Originator
or inappropriate assumptions are used concerning
market information. The key assumptions include
discount, prepayment, reinvestment and default
rates.
Refer to the Audit Committee Report, the Significant
Accounting Policies and Note 6 to the Financial
statements.
How the scope Our procedures included:
of our audit * We assessed the valuation methodology for the
responded to financial instruments issued by BGCF against industry
the key audit standards and IFRS 13.
matter
* As the financial information used to determine the
fair value of the investments is that of BGCF as at
the year end, we have reviewed the 2018 audited
financial statements of BGCF and supporting
workpapers.
* We involved a member of our specialist complex
financial instruments team to review the valuation of
the CLO income notes and assessment of the pricing of
other investments and related disclosures in the
financial statements.
* We reviewed the test of valuations comparing
information and assumptions used by management to
information available from external independent
reliable sources such as Bloomberg or Intex,
including any impact of discount / premium to NAV.
* We tested the calculation of the change in value of
investments for the year and its recognition in the
statement of comprehensive income.
Key observations Based on the work performed we concluded that
the valuation of investments is appropriate.
Our application of materiality
=================================================================
We define materiality as the magnitude of misstatement in the
financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed
or influenced. We use materiality both in planning the scope
of our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality
for the financial statements as a whole as follows: Materiality EUR6,500,000 (2017: EUR7,500,000)
Basis for determining We determined materiality for the Company,
materiality which is approximately 2% (2017: 2%) of the
Net Asset Value of the Company.
Rationale for Net Asset Value is the key performance indicator
the benchmark for investments in the Company and is therefore
applied selected as the appropriate benchmark.
We agreed with the Audit Committee that we would report to the
Committee all audit differences in excess of EUR325,000 (2017:
EUR150,000), as well as differences below that threshold that,
in our view, warranted reporting on qualitative grounds. We
also report to the Audit Committee on disclosure matters that
we identified when assessing the overall presentation of the
financial statements.
An overview of the scope of our audit
Our audit was scoped by obtaining an understanding of the entity
and its environment, including internal control, and assessing
the risks of material misstatement. Our audit scope included
the assessment of design and implementation of relevant accounting
processes and controls in place at the Company's third party
accounting service provider. There have been no changes to
scoping from prior year. Audit work to respond to the risks
of material misstatement was performed directly by the audit
engagement team.
Other information
The directors are responsible for the other We have nothing to
information. The other information comprises report in respect
the information included in the annual report of these matters.
other than the financial statements and
our auditor's report thereon.
Our opinion on the financial statements
does not cover the other information and
we do not express any form of assurance
conclusion thereon.
In connection with our audit of the financial
statements, our responsibility is to read
the other information and, in doing so,
consider whether the other information is
materially inconsistent with the financial
statements or our knowledge obtained in
the audit or otherwise appears to be materially
misstated.
If we identify such material inconsistencies
or apparent material misstatements, we are
required to determine whether there is a
material misstatement in the financial statements
or a material misstatement of the other
information. If, based on the work we have
performed, we conclude that there is a material
misstatement of this other information,
we are required to report that fact.
In this context, matters that we are specifically
required to report to you as uncorrected
material misstatements of the other information
include where we conclude that:
* Fair, balanced and understandable - the statement
given by the directors that they consider the annual
report and financial statements taken as a whole is
fair, balanced and understandable and provides the
information necessary for shareholders to assess the
company's position and performance, business model
and strategy, is materially inconsistent with our
knowledge obtained in the audit; or
* Audit committee reporting - the section describing
the work of the audit committee does not
appropriately address matters communicated by us to
the audit committee; or
* Directors' statement of compliance with the UK
Corporate Governance Code - the parts of the
directors' statement required under the Listing Rules
relating to the company's compliance with the UK
Corporate Governance Code containing provisions
specified for review by the auditor in accordance
with Listing Rule 9.8.10R(2) do not properly disclose
a departure from a relevant provision of the UK
Corporate Governance Code.
====================================================================================== ==========================
Responsibilities of directors
As explained more fully in the statement of directors' responsibilities,
the Directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and
fair view, and for such internal control as the Directors determine
is necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to fraud
or error.
In preparing the financial statements, the Directors are responsible
for assessing the Company's ability to continue as a going
concern, disclosing as applicable, matters related to going
concern and using the going concern basis of accounting unless
the Directors either intend to liquidate the company or to
cease operations, or have no realistic alternative but to do
so.
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with ISAs (UK) will always detect
a material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually
or in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these
financial statements.
A further description of our responsibilities for the audit
of the financial statements is located on the FRC's website
at: www.frc.org.uk/auditorsresponsibilities. This description
forms part of our auditor's report.
Report on other legal and regulatory requirements
Matters on which we are required to report by exception
Adequacy of explanations received and accounting
records We have nothing to
Under the Companies (Jersey) Law, 1991 we report in respect
are required to report to you if, in our of these matters.
opinion:
* we have not received all the information and
explanations we require for our audit; or
* proper accounting records have not been kept by the
Company, or proper returns adequate for our audit
have not been received from branches not visited by
us; or
* the Company financial statements are not in agreement
with the accounting records and returns.
Use of our report
This report is made solely to the Company's members, as a body,
in accordance with Article 113A of the Companies (Jersey) Law,
1991. Our audit work has been undertaken so that we might state
to the Company's members those matters we are required to state
to them in an auditor's report and for no other purpose. To
the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company's
members as a body, for our audit work, for this report, or
for the opinions we have formed.
Andrew Isham, FCA
For and on behalf of Deloitte LLP
Recognized Auditor
St Helier
Jersey, UK
30 April 2019
Statement of Financial Position
As at 31 December 2018
As at As at
31 December 2018 31 December 2017
Notes EUR EUR
------------------------------------------------------ ----- ----------------- -----------------
Current assets
Cash and cash equivalents 11,219,224 2,546,969
Other receivables 5 811,675 29,625
Financial assets at fair value through profit or loss 6 315,890,482 377,137,378
------------------------------------------------------ ----- ----------------- -----------------
Total current assets 327,921,381 379,713,972
------------------------------------------------------ ----- ----------------- -----------------
Non-current liabilities
Intercompany loan 7 (237,057) -
------------------------------------------------------ ----- ----------------- -----------------
Total non-current liabilities (237,057) -
------------------------------------------------------ ----- ----------------- -----------------
Current liabilities
Payables 8 (1,297,180) (173,651)
------------------------------------------------------ ----- ----------------- -----------------
Total current liabilities (1,297,180) (173,651)
------------------------------------------------------ ----- ----------------- -----------------
Total liabilities (1,534,237) (173,651)
------------------------------------------------------ ----- ----------------- -----------------
Net assets 15 326,387,144 379,540,321
------------------------------------------------------ ----- ----------------- -----------------
Capital and reserves
Stated capital 9 404,962,736 404,962,736
Retained earnings (78,575,592) (25,422,415)
Ordinary Shareholders' Equity 326,387,144 379,540,321
------------------------------------------------------ ----- ----------------- -----------------
Net Asset Value per Euro Ordinary share 15 0.8065 0.9378
------------------------------------------------------ ----- ----------------- -----------------
These financial statements were authorised and approved for
issue by the Directors on 30 April 2019 and signed on their behalf
by:
Gary Clark Heather MacCallum
Director Director
The accompanying notes form an integral part of the financial
statements.
Statement of Comprehensive Income
For the year ended 31 December 2018
Year ended Year ended
31 December 2018 31 December 2017
Notes EUR EUR
------------------------------------------------------------------------- ----- ----------------- -----------------
Income
Realised gain on foreign exchange 538 1,726
Net (loss) / gain on financial assets at fair value through profit or
loss 6 (11,201,791) 7,545,438
------------------------------------------------------------------------- ----- ----------------- -----------------
Total income (11,201,253) 7,547,164
------------------------------------------------------------------------- ----- ----------------- -----------------
Expenses
Operating expenses 3 (1,431,821) (1,805,932)
------------------------------------------------------------------------- ----- ----------------- -----------------
(Loss) / profit before taxation (12,633,074) 5,741,232
Taxation 2.11 - -
(Loss) / profit after taxation (12,633,074) 5,741,232
------------------------------------------------------------------------- ----- ----------------- -----------------
Loan interest expense 7 (1,402) -
Bank interest expense (48,654) (11,238)
------------------------------------------------------------------------- ----- ----------------- -----------------
Total interest expense (50,056) (11,238)
------------------------------------------------------------------------- ----- ----------------- -----------------
Total comprehensive (loss) / income for the year attributable to Ordinary
Shareholders (12,683,130) 5,729,994
------------------------------------------------------------------------- ----- ----------------- -----------------
Basic and diluted (loss) / earnings per Euro Ordinary share 14 (0.0313) 0.0147
------------------------------------------------------------------------- ----- ----------------- -----------------
The Company has no items of other comprehensive income, and
therefore the loss for the year is also the total comprehensive
loss.
All items in the above statement are derived from continuing
operations. No operations were acquired or discontinued during the
year.
The accompanying notes form an integral part of the financial
statements.
Statement of Changes in Equity
For the year ended 31 December 2018
Note Stated Retained Total
capital earnings
EUR EUR EUR
----------------------------------- ---- ----------- ------------ ------------
Ordinary Shareholders' Equity at
1 January 2018 9 404,962,736 (25,422,415) 379,540,321
Total comprehensive loss for the
year attributable
to Ordinary Shareholders - (12,683,130) (12,683,130)
Transactions with owners, recorded
directly to equity
Dividends to Ordinary Shareholders - (40,470,047) (40,470,047)
----------------------------------- ---- ----------- ------------ ------------
Ordinary Shareholders' Equity at
31 December 2018 9 404,962,736 (78,575,592) 326,387,144
----------------------------------- ---- ----------- ------------ ------------
Note Stated Retained Total
capital earnings
EUR EUR EUR
----------------------------------- ---- ----------- ------------ ------------
Ordinary Shareholders' Equity at
1 January 2017 9 325,023,176 7,315,144 332,338,320
Total comprehensive income for the
year attributable
to Ordinary Shareholders - 5,729,994 5,729,994
Transactions with owners, recorded
directly to equity
Issuance of Ordinary shares 9 79,939,560 - 79,939,560
Dividends to Ordinary Shareholders - (38,467,553) (38,467,553)
----------------------------------- ---- ----------- ------------ ------------
79,939,560 (38,467,553) 41,472,007
----------------------------------- ---- ----------- ------------ ------------
Ordinary Shareholders' Equity at
31 December 2017 9 404,962,736 (25,422,415) 379,540,321
----------------------------------- ---- ----------- ------------ ------------
The accompanying notes form an integral part of the financial
statements.
Statement of Cash Flows
For the year ended 31 December 2018
Year ended Year ended
31 December 2018 31 December 2017
EUR EUR
-------------------------------------------------------------------------------- ----------------- -----------------
Cash flow from operating activities
Total comprehensive (loss) / profit for the year attributable to Ordinary
Shareholders (12,683,130) 5,729,994
Adjustments to reconcile (loss) / profit after tax to net cash flows:
* Unrealised loss / (gain) on financial assets at fair
value through profit and loss 17,274,438 (3,632,554)
* Realised gain on financial assets at fair value
through profit and loss (6,072,647) (3,912,884)
Purchase of financial assets at fair value through profit or loss - (80,224,431)
Proceeds from sale of financial assets at fair value through profit or loss 50,045,105 41,846,197
Changes in working capital
(Increase) / decrease in other receivables (782,050) 3,673
Increase / (decrease) in payables 1,123,529 (224,197)
-------------------------------------------------------------------------------- ----------------- -----------------
Net cash generated from / (used in) operating activities 48,905,245 (40,414,202)
-------------------------------------------------------------------------------- ----------------- -----------------
Cash flow from financing activities
Proceeds from subscriptions - 73,706,194
Proceeds from re-issuance of treasury shares - 6,909,411
Increase in intercompany loan 237,057 -
Dividends paid (40,470,047) (38,467,553)
-------------------------------------------------------------------------------- ----------------- -----------------
Net cash (used in) / generated from financing activities (40,232,990) 42,148,052
-------------------------------------------------------------------------------- ----------------- -----------------
Net increase in cash and cash equivalents 8,672,255 1,733,850
-------------------------------------------------------------------------------- ----------------- -----------------
Cash and cash equivalents at the start of the year 2,546,969 813,119
-------------------------------------------------------------------------------- ----------------- -----------------
Cash and cash equivalents at the end of the year 11,219,224 2,546,969
-------------------------------------------------------------------------------- ----------------- -----------------
The accompanying notes form an integral part of the financial
statements.
Notes to the Financial Statements
For the year ended 31 December 2018
1 General information
The Company is a closed-ended limited liability investment
company domiciled and incorporated under the laws of Jersey with
variable capital pursuant to the Collective Investment Funds
(Jersey) Law 1988. It was incorporated on 30 April 2014 under
registration number 115628. The Company's Euro Ordinary shares are
quoted on the Premium Segment of the Main Market of the LSE and has
a premium listing on the Official List of the FCA.
The Company's investment objective is to provide Shareholders
with stable and growing income returns, and to grow the capital
value of the investment portfolio by exposure to floating rate
senior secured loans and bonds directly and indirectly through CLO
Securities and investments in Loan Warehouses. The Company seeks to
achieve its investment objective through exposure (directly or
indirectly) to one or more companies or entities established from
time to time.
At 31 December 2018, all shares in issue were Euro Ordinary
shares. The Company may issue one or more additional classes of
shares in accordance with the Articles of Association.
The Company has a wholly owned Luxemburg subsidiary, Blackstone
/ GSO Loan Financing (Luxembourg) S.à r.l., which has an issued
share capital of 2,000,000 Class A shares and 1 Class B share held
by the Company. The Company also holds 291,343,213 Class B CSWs
issued by the Lux Subsidiary.
The Company's registered address is IFC 1, The Esplanade, St
Helier, Jersey, JE1 4BP, Channel Islands.
2 Significant accounting policies
2.1 Statement of compliance
The Annual Report and Audited Financial Statements (the "Annual
Report") are prepared in accordance with the Disclosure Guidance
and Transparency Rules of the FCA and with IFRS as adopted by the
EU. The financial statements give a true and fair view of the
Company's affairs and comply with the requirements of the Companies
(Jersey) Law 1991.
The principal accounting policies applied in the preparation of
these financial statements are set out below. These policies have
been applied consistently to all years presented except for the
adoption of new and amended standards as set out below.
2.2 Basis of preparation
The Company's financial statements have been prepared on a
historical cost basis, except for financial instruments measured at
fair value through profit or loss.
The Company's functional currency is the Euro, which is the
currency of the primary economic environment in which it operates.
The Company's performance is evaluated and its liquidity is managed
in Euros. Therefore, the Euro is considered as the currency that
most faithfully represents the economic effects of the underlying
transactions, events and conditions. The financial statements are
presented in Euros, except where otherwise indicated.
The financial statements have been prepared on the going concern
basis. The disclosures with respect to the Directors' assessment on
the use of the going concern basis are provided in the "Strategic
Report - Risk Overview" section.
2.3 New standards, amendments and interpretations issued and
effective for the financial year beginning 1 January 2018
A number of new and amended standards became applicable for the
current reporting period and the Company changed its accounting
policies as a result of adopting the following standard:
-- IFRS 9 Financial Instruments
The impact of the adoption of this standard and the new
accounting policy is disclosed in note 2.5 below. Other standards,
amendments and interpretations issued and effective for the
financial year beginning 1 January 2018, including IFRS 15 Revenue
from Contracts with Customers, did not have any impact on the
Company's accounting policies.
2.4 New standards, amendments and interpretations issued but not
effective for the financial year beginning 1 January 2018 and not
early adopted
There are no standards, amendments and interpretations which
have been issued but are not yet effective and not early adopted,
that will affect the Company's financial statements.
2.5 Changes in accounting policies
This note explains the impact of the adoption of IFRS 9
Financial Instruments on the Company's financial statements and
also discloses the new accounting policy that has been applied from
1 January 2018.
(a) Impact on the financial statements
The adoption of IFRS 9 did not result in a change to the
recognition, classification or measurement of financial instruments
held by the Company in either the current or prior financial
reporting period.
(b) IFRS 9 Financial Instruments - Impact of adoption
IFRS 9 replaces the provisions of IAS 39 that relate to
recognition, classification and measurement of financial assets and
financial liabilities, derecognition of financial instruments,
impairment of financial assets and hedge accounting. The adoption
of IFRS 9 Financial Instruments from 1 January 2018 resulted in
changes in accounting policies. The new accounting policies are set
out below. In accordance with the transitional provisions in IFRS 9
(7.2.15), comparative figures have not been restated.
Classification and measurement
On 1 January 2018 (the date of initial application of IFRS 9),
the Board has assessed which business models apply to the financial
assets held by the Company and has classified its financial
instruments into the appropriate IFRS 9 categories.
Cash Settlement Warrants
Under IAS 39, CSWs were classified as financial assets
designated at fair value through profit or loss. This is due to the
fact that these debt instruments are managed, and their performance
is evaluated on a fair value basis in accordance with the Company's
documented investment strategy. Under IFRS 9 and the current
business model, these debt instruments are classified as financial
assets at fair value through profit or loss. There was no impact on
the amounts recognised in the Statement of Financial Position in
relation to these assets from the adoption of IFRS 9.
Shares (Class A and Class B shares held in the Lux
Subsidiary)
Under IAS 39, the shares were classified as financial assets at
fair value through profit or loss. Under IFRS 9, equity investments
are required to be held at fair value through profit or loss. There
was therefore no impact on the amounts recognised in relation to
these assets from the adoption of IFRS 9.
(c) IFRS 9 Financial Instruments - Accounting policies applied from 1 January 2018
Investments and other financial assets
(i) Initial recognition
The Company recognises a financial asset or a financial
liability in its Statement of Financial Position when, and only
when, the Company becomes party to the contractual provisions of
the instrument.
Purchases and sales of investments are recognised on the trade
date - the date on which the Company commits to purchase or sell
the investment.
(ii) Classification
From 1 January 2018, the Company classifies its financial assets
in the following measurement categories:
-- those to be measured subsequently at fair value (either
through OCI, or through profit or loss); and
-- those to be measured at amortised cost.
The classification depends on the entity's business model for
managing the financial assets and the contractual terms of the cash
flows.
For assets measured at fair value, gains and losses are either
to be recorded in profit or loss or OCI. For investments in equity
instruments that are not held for trading, this will depend on
whether the company has made an irrevocable election at the time of
initial recognition to account for the equity instrument at
FVOCI.
The Company reclassifies debt instruments when and only when its
business model for managing those assets changes.
(iii) Measurement
At initial recognition, the Company measures a financial asset
at its fair value plus, in the case of a financial asset not at
FVPL, transaction costs that are directly attributable to the
acquisition of the financial asset. Transaction costs of financial
assets carried at FVPL are expensed in profit or loss.
Debt instruments
Subsequent measurement of debt instruments depends on the
Company's business model for managing the asset and the cash flow
characteristics of the asset. The Company's business model is to
manage its debt instruments and to evaluate their performance on a
fair value basis. The Company's policy requires the Portfolio
Adviser and the Board to evaluate the information about these
financial assets on a fair value basis together with other related
financial information. Consequently, these debt instruments are
measured at fair value through profit or loss.
Equity instruments
The Company subsequently measures all equity investments at fair
value. Dividends from such investments are recognised in profit or
loss as other income when the Company's right to receive payments
is established, a requirement which remains unchanged from IAS
39.
Changes in fair value of financial assets at FVPL are recognised
in "net gain / (loss) on financial assets at fair value through
profit or loss" in the Statement of Comprehensive Income.
(iv) Derecognition
Financial assets are derecognised when the rights to receive
cash flows from the investments have expired or the Company has
transferred substantially all risks and rewards of ownership.
(v) Fair value estimation
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date.
As at 31 December 2018, the Company held 291,343,213 CSWs,
2,000,000 Class A shares and 1 Class B share issued by the Lux
Subsidiary (the "Investments") (31 December 2017: 337,374,822 CSWs,
2,000,000 Class A shares and 1 Class B share). These Investments
are not listed or quoted on any securities exchange, are not traded
regularly and, on this basis, no active market exists. The Company
is not entitled to any voting rights in respect of the Lux
Subsidiary by reason of their ownership of the CSWs, however, the
Company controls the Lux Subsidiary through its 100% holding of the
shares in the Lux Subsidiary.
The fair value of the CSWs and the Class A and Class B shares
are based on the net assets of the Lux Subsidiary which is based
substantially in turn on the fair value of the PPNs issued by
BGCF.
(vi) Valuation process
The Directors have held discussions with DFME in order to gain
comfort around the valuation of the underlying assets in the BGCF
portfolio and through this, the valuation of the PPNs and CSWs as
of the Statement of Financial Position date.
The Directors, through ongoing communication with the Portfolio
Adviser including quarterly meetings, discuss the performance of
the Portfolio Adviser and the underlying portfolio and in addition
review monthly investment performance reports. The Directors
analyse the mix in the portfolio. The Directors also consider the
impact of general credit conditions and more specifically credit
events in the US and European corporate environment on the
valuation of the CSWs, PPNs and the BGCF portfolio.
BGCF Portfolio
The Directors discuss BGCF's valuation process to understand the
methodology regarding the valuation of its underlying portfolio
comprising Level 3 assets. The majority of Level 3 assets in BGCF
are comprised of CLOs. In reviewing the fair value of these assets,
the Directors look at the assumptions used and any significant fair
value changes during the period under analysis.
The Investments
The Investments are valued by the Administrator based on
information from the Portfolio Adviser and are reviewed and
approved by the Directors, taking into consideration a range of
factors including the unaudited IFRS NAV of both the Lux Subsidiary
and BGCF, and other relevant available information. The other
relevant information includes the review of available financial and
trading information of BGCF and its underlying portfolio, advice
received from the Portfolio Adviser and such other factors as the
Directors, in their sole discretion, deem relevant in considering a
positive or negative adjustment to the valuation.
The estimated fair values may differ from the values that would
have been realised had a ready market existed and the difference
could be material.
The fair value of the CSWs and the Class A and Class B shares
are assessed on an ongoing basis by the Board.
Financial liabilities
(vii) Classification
Financial liabilities include payables which are held at
amortised cost using the effective interest rate method.
The effective interest method is a method of calculating the
amortised cost of a financial liability and of allocating interest
expense over the relevant period. The effective interest rate is
the rate that exactly discounts estimated future cash payments
(including all fees and points paid or received that form an
integral part of the effective interest rate, transaction costs and
other premiums or discounts) through the expected life of the
financial liability, or where appropriate a shorter period, to the
net carrying amount on initial recognition.
(viii) Recognition, measurement and derecognition
Financial liabilities are measured initially at their fair value
plus any directly attributable incremental costs of acquisition or
issue.
Gains and losses are recognised in the Statement of
Comprehensive Income when the liabilities are derecognised.
The Company derecognises a financial liability when the
obligation specified in the contract is discharged, cancelled or
expires.
2.6 Interest income and expense
Interest income and expense is recognised separately through
profit or loss in the Statement of Comprehensive Income, on an
effective interest rate yield basis.
2.7 Shares in issue
The shares of the Company are classified as equity, based on the
substance of the contractual arrangements and in accordance with
the definition of equity instruments under IAS 32 Financial
Instruments: Presentation ("IAS 32").
The proceeds from the issue of shares are recognised in the
Statement of Changes in Equity, net of the incremental issuance
costs.
2.8 Fees and charges
Expenses are charged through profit or loss in the Statement of
Comprehensive Income on an accruals basis.
2.9 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 and are subject to
an insignificant risk of changes in value. They are held for the
purpose of meeting short term cash commitments rather than for
investment or other purposes. Cash equivalents are revalued at the
end of the reporting period using market rates and any increases /
decreases are recognised in the Statement of Comprehensive Income.
There were no such holdings during the year ended 31 December 2018
(31 December 2017: EURNil).
2.10 Foreign currency translations
Transactions in foreign currencies are translated at the foreign
exchange rate ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies at the
Statement of Financial Position date are translated to Euro at the
foreign exchange rate ruling at that date. Foreign exchange
differences arising on translation are recognised in the Statement
of Comprehensive Income.
Foreign currency gains and losses are included in profit or loss
on the Statement of Comprehensive Income as part of the "Realised
gain on foreign exchange". There were no foreign currency gains or
losses on financial assets classified at fair value through profit
or loss for the years ended 31 December 2018 and 31 December
2017.
2.11 Taxation
Profit arising in the Company for the 2018 year of assessment
will be subject to Jersey tax at the standard corporate income tax
rate of 0% (31 December 2017: 0%).
2.12 Dividends
Dividends to Shareholders are recorded through the Statement of
Changes in Equity when they are declared to Shareholders.
2.13 Critical accounting judgements and estimates
The preparation of the financial statements in conformity with
IFRS requires management to make judgements, estimates and
assumptions that affect items reported in the Statement of
Financial Position and Statement of Comprehensive Income. It also
requires management to exercise its judgement in the process of
applying the Company's accounting policies. Uncertainty about these
assumptions and estimates could result in outcomes that require a
material adjustment to the carrying amount of assets and
liabilities affected in future periods.
Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to estimates are recognised prospectively.
Estimates
(a) Fair value
For the fair value of all financial instruments held, the
Company determines fair values using appropriate techniques.
Refer to Note 2.5 and Note 12 for further details on the
significant estimates applied in the valuation of the companies'
financial instruments and the underlying financial instruments in
BGCF.
Judgements
(b) Non-consolidation of the Lux Subsidiary
The Company meets the definition of an Investment Entity as
defined by IFRS 10 and is required to account for its investment at
fair value through profit or loss.
The Company has multiple unrelated investors and holds multiple
investments in the Lux Subsidiary. The Company has been deemed to
meet the definition of an Investment Entity per IFRS 10 as the
following conditions exist:
-- the Company has obtained funds for the purpose of providing
investors with investment management services;
-- the Company's business purpose, which has been communicated
directly to investors, is investing solely for returns from capital
appreciation, investment income, or both; and
-- the performance of investments made through the Lux
Subsidiary are measured and evaluated on a fair value basis.
The Company has also considered the typical characteristics of
an investment entity per IFRS 10 in assessing whether it meets the
definition of an Investment Entity.
The Company controls the Lux Subsidiary through its 100% holding
of the voting rights and ownership. The Lux Subsidiary is
incorporated in Luxembourg.
Refer to Note 11 for further disclosures relating to the
Company's interest in the Lux Subsidiary.
(c) Non-consolidation of BGCF
To determine control, there has to be a linkage between power
and the exposure to risks and rewards. The main link from ownership
would allow a company to control the payments of returns and
operating policies and decisions of a subsidiary. To meet the
definition of a subsidiary under the single control model of IFRS
10, the investor has to control the investee.
Control involves power, exposure to variability of returns and a
linkage between the two:
-- the investor has existing rights that give it the ability to
direct the relevant activities that significantly affect the
investee's returns;
-- the investor has exposure or rights to variable returns from
its involvement with the investee; and
-- the investor has the ability to use its power over the
investee to affect the amount of the investor's returns.
In the case of BGCF, the relevant activities are the investment
decisions made by it. However, in the Lux Subsidiary's case, the
power to influence or direct the relevant activities of BGCF is not
attributable to the Lux Subsidiary. The Lux Subsidiary does not
have the ability to direct or stop investments by BGCF; therefore,
it does not have the ability to control the variability of returns.
Accordingly, BGCF has been determined not to be a subsidiary
undertaking as defined under IFRS 10 and the Lux Subsidiary's
investment in the PPNs issued by BGCF are accounted for at fair
value through profit or loss.
(d) Presentation and functional currency
As outlined in Note 2.2, the Directors have used their judgement
to determine that the Company's presentation and functional
currency is Euro.
3 Operating expenses
Year ended Year ended
31 December 2018 31 December 2017
EUR EUR
------------------------------------------------ ----------------- -----------------
Professional fees 466,806 430,968
Administration fees 323,379 321,102
Brokerage fees 176,878 308,003
Regulatory fees 27,448 221,194
Directors' fees and other expenses (see Note 4) 214,116 204,585
Audit fees and audit related fees 129,582 195,771
Non-audit fees 38,158 85,375
Registrar fees 22,603 28,267
Sundry expenses 32,851 10,667
1,431,821 1,805,932
------------------------------------------------ ----------------- -----------------
Administration fees
Under the administration agreement, the Administrator is
entitled to receive variable fees based on the Published NAV of the
Company for the provision of administrative and compliance
oversight services and a fixed fee for the provision of company
secretarial services. The overall charge for the above-mentioned
fees for the Company for the year ended 31 December 2018 was
EUR323,379 (31 December 2017: EUR321,102) and the amount due at 31
December 2018 was EUR47,573 (31 December 2017: EUR49,273).
Advisory fees
Under the Advisory Agreement, the Portfolio Adviser is entitled
to receive out of pocket expenses, all reasonable third-party
costs, and other expenses incurred in the performance of its
obligations. The overall charge for the above-mentioned fees for
the Company for the year ended 31 December 2018 was EURNil (31
December 2017: EURNil).
Audit and non-audit fees
The Company incurred EUR129,582 (31 December 2017: EUR195,771)
in audit and audit-related fees during the year of which EUR81,333
(31 December 2017: EUR50,696) was outstanding at the year end.
The Company incurred EUR38,158 (31 December 2017: EUR85,375) in
non-audit fees during the year of which EURNil (31 December 2017:
EURNil) was outstanding at the year end. The table below outlines
the audit, audit related and non-audit services received during the
year.
Year ended Year ended
31 December 2018 31 December 2017
EUR EUR
------------------------------------------------------------ ----------------- -----------------
Audit of the Company 84,366 79,880
Audit related services - review of interim financial report 45,216 39,939
Other audit related services - Reporting Accountant - 75,952
------------------------------------------------------------- ----------------- -----------------
Total audit and audit related services 129,582 195,771
------------------------------------------------------------- ----------------- -----------------
Tax compliance services 38,158 32,809
Tax advisory services - 52,566
Other non-audit services - -
Total non-audit services 38,158 85,375
------------------------------------------------------------- ----------------- -----------------
Total fees to Deloitte LLP and member firms 167,740 281,146
------------------------------------------------------------- ----------------- -----------------
In addition, the Company incurred EUR 83,561 in respect of audit
related services (Reporting Accountant services) in connection with
the Rollover Offer. These costs are included in "other receivables"
in Note 5.
Professional fees
Professional fees comprise EUR338,033 in legal fees and
EUR128,773 in other professional fees. In 2017, professional fees
comprised EUR227,084 in legal fees and EUR203,884 in other
professional fees.
4 Directors' fees and interests
The Directors were remunerated for their services per the table
below:
Year ended Year ended
31 December 2018 31 December 2017
GBP GBP
------------------- ----------------- -----------------
Charlotte Valeur 55,500 50,000
Gary Clark 43,000 40,000
Heather MacCallum 42,250 12,137
Steven Wilderspin 42,250 14,726
Philip Austin - 26,178
Joanna Dentskevich - 33,315
------------------- ----------------- -----------------
Total (GBP) 183,000 176,356
Total (EUR) 209,140 201,218
------------------- ----------------- -----------------
The Chairs of the Management Engagement Committee, NAV Review
Committee, Remuneration and Nomination Committee, Audit Committee
and Risk Committee each received additional fees, which were
included in the amounts above, for the additional responsibilities
and time commitment required in undertaking these roles.
Additionally, the Senior Independent Director received additional
fees for the additional responsibilities and time commitment
required in undertaking this role.
The Company has no employees. The Company incurred EUR209,140
(31 December 2017: EUR201,218) in Directors' fees (consisting
exclusively of short-term benefits) during the year of which
EUR54,593 (31 December 2017: EUR47,316) was outstanding at the year
end. Charlotte Valeur, Steven Wilderspin and Gary Clark held
beneficial interests in the shares of the Company during the year
ended 31 December 2018. Charlotte Valeur held 11,500 Euro shares as
at 31 December 2018 (31 December 2017: 11,500). Steven Wilderspin
held 20,000 Euro shares as at 31 December 2018 (31 December 2017:
Nil). Gary Clark held 73,700 Euro shares as at 31 December 2018 (31
December 2017: 73,700).
No pension contributions were payable in respect of any of the
Directors.
5 Other receivables
As at As at
31 December 2018 31 December 2017
EUR EUR
------------- ----------------- -----------------
Prepayments 31,040 29,625
Other assets 780,635 -
------------- ----------------- -----------------
811,675 29,625
------------- ----------------- -----------------
Other assets relate to costs incurred in connection with the
Rollover Offer Proposal as detailed in the "Strategic Report -
Corporate Activity" and are expected to be recovered upon
completion of the Rollover Offer. These costs were allocated to the
C Share class on 7 January 2019 upon completion of the Rollover
Offer and subsequent issue of C Shares.
6 Financial assets at fair value through profit or loss
As at As at
31 December 2018 31 December 2017
EUR EUR
------------------------------------------------------ ----------------- -----------------
Financial assets at fair value through profit or loss 315,890,482 377,137,378
------------------------------------------------------ ----------------- -----------------
Financial assets at fair value through profit or loss consists
of 291,343,213 CSWs, 2,000,000 Class A shares and 1 Class B share
issued by the Lux Subsidiary (31 December 2017: 337,374,822 CSWs,
2,000,000 Class A shares and 1 Class B share issued by the Lux
Subsidiary).
CSWs
The Company has the right, at any time during the exercise
period (being the period from the date of issuance and ending on
earlier of the 3 February 2046 or the date on which the liquidation
of the Lux Subsidiary is closed), to request that the Lux
Subsidiary redeems all or part of the CSWs at the redemption price
(see below), by delivering a redemption notice, provided that the
redemption price will be due and payable only if and to the extent
that (a) the Lux Subsidiary will have sufficient funds available to
settle its liabilities to all other ordinary or subordinated
creditors, whether privileged, secured or unsecured, prior in
ranking to the CSWs, after any such payment, and (b) the Lux
Subsidiary will not be insolvent after payment of the redemption
price.
The redemption price is the amount payable by the Lux Subsidiary
on the redemption of CSWs outstanding, which shall be at any time
equal to the fair market value of the ordinary shares (that would
have been issued in case of exercise of all CSWs), as determined by
the Board on a fully diluted basis on the date of redemption, less
a margin (determined by the Board on the basis of a transfer
pricing report prepared by an independent advisor), and the
redemption price for each CSW shall be obtained by dividing the
amount determined in accordance with the preceding sentence by the
actual number of CSWs outstanding.
If at the end of any financial year there is excess cash, as
determined in good faith by the Lux Subsidiary board (but for this
purpose only), the Lux Subsidiary will automatically redeem, to the
extent of such excess cash, all or part of the CSWs at the
redemption price provided the requirements in the previous
paragraph are met, unless the Company notifies the Lux Subsidiary
otherwise. For the avoidance of doubt, to the extent the
subscription price for the CSWs to be redeemed has not been paid at
the time the CSWs were issued, the subscription price for such CSWs
to be redeemed shall be deducted from the Redemption Price.
CSWs listed in an exercise notice may not be redeemed.
Class A and Class B shares held in the Lux Subsidiary
Class A and Class B shares are redeemable and have a par value
of one Euro per share. Class A and Class B Shareholders have equal
voting rights commensurate with their shareholding.
Class A and Class B Shareholders are entitled to dividend
distributions from the net profits of the Lux Subsidiary (net of an
amount equal to five per cent of the net profits of the Lux
Subsidiary which is allocated to the general reserve, until this
reserve amounts to ten per cent of the Lux Subsidiary nominal share
capital).
Dividend distributions are paid in the following order of
priority:
-- Each Class A share is entitled to the Class A dividend, being
a cumulative dividend in an amount of not less than 0.10% per annum
of the face value of the Class A shares.
-- Each Class B share is entitled to the Class B dividend (if
any), being any income such as but not limited to interest or
revenue deriving from the receivable from the PPN's held by the Lux
Subsidiary, less any non-recurring costs attributable to the Class
B shares.
Any remaining dividend amount for allocation of the Class A
dividend and Class B dividend shall be allocated pro rata among the
Class A shares.
The Board does not expect income in the Lux Subsidiary to
significantly exceed the anticipated annual running costs of the
Lux Subsidiary and therefore does not expect that the Lux
Subsidiary will pay significant, or any, dividends although it
reserves the right to do so.
Fair value hierarchy
IFRS 13 Fair Value Measurement ("IFRS 13") requires an analysis
of investments valued at fair value based on the reliability and
significance of information used to measure their fair value.
The Company categorises its financial assets according to the
following fair value hierarchy detailed in IFRS 13 that reflects
the significance of the inputs used in determining their fair
values:
-- Level 1: Quoted market price (unadjusted) in an active market for an identical instrument.
-- Level 2: Valuation techniques based on observable inputs,
either directly (i.e., as prices) or indirectly (i.e., derived from
prices). This category includes instruments valued using: quoted
market prices in active markets for similar instruments; quoted
prices for identical or similar instruments in markets that are
considered less than active; or other valuation techniques where
all significant inputs are directly or indirectly observable from
market data.
-- Level 3: Valuation techniques using significant unobservable
inputs. This category includes all instruments where the valuation
technique includes inputs not based on observable data and the
unobservable variable inputs have a significant effect on the
instrument's valuation. This category includes instruments that are
valued based on quoted prices for similar instruments where
significant unobservable adjustments or assumptions are required to
reflect differences between the instruments.
31 December 2018 Level 1 Level 2 Level 3 Total
EUR EUR EUR EUR
------------------------------------------------------ ------- ------- ----------- -----------
Financial assets at fair value through profit or loss - - 315,890,482 315,890,482
------------------------------------------------------ ------- ------- ----------- -----------
31 December 2017 Level 1 Level 2 Level 3 Total
EUR EUR EUR EUR
------------------------------------------------------ ------- ------- ----------- -----------
Financial assets at fair value through profit or loss - - 377,137,378 377,137,378
------------------------------------------------------ ------- ------- ----------- -----------
During the years ended 31 December 2018 and 31 December 2017,
there were no reclassifications between levels of the fair value
hierarchy.
The Company's maximum exposure to loss from its interests in the
Lux Subsidiary and indirectly in BGCF is equal to the fair value of
its investments in the Lux Subsidiary.
Financial assets at fair value through profit or loss
reconciliation
The following table shows a reconciliation of all movements in
the fair value of financial assets categorised within Level 3
between the start and the end of the reporting period:
31 December 2018 Total
EUR
------------------------------------------------------------------------- ------------
Balance as at 1 January 2018 377,137,378
Movements:
Purchases - CSWs -
Sale proceeds - CSWs (50,045,105)
Realised gain on financial assets at fair value through profit or loss 6,072,647
Unrealised loss on financial assets at fair value through profit or loss (17,274,438)
------------------------------------------------------------------------- ------------
Balance as at 31 December 2018 315,890,482
------------------------------------------------------------------------- ------------
Realised gain on financial assets at fair value through profit or loss 6,072,647
Total change in unrealised loss on financial assets for the year (17,274,438)
------------------------------------------------------------------------- ------------
Net loss on financial assets at fair value through profit or loss (11,201,791)
------------------------------------------------------------------------- ------------
31 December 2017 Total
EUR
------------------------------------------------------------------------- ------------
Balance as at 1 January 2017 331,213,706
Movements:
Purchases - CSWs 80,224,431
Sale proceeds - CSWs (41,846,197)
Realised gain on financial assets at fair value through profit or loss 3,912,884
Unrealised gain on financial assets at fair value through profit or loss 3,632,554
------------------------------------------------------------------------- ------------
Balance as at 31 December 2017 377,137,378
------------------------------------------------------------------------- ------------
Realised gain on financial assets at fair value through profit or loss 3,912,884
Total change in unrealised gain on financial assets for the year 3,632,554
------------------------------------------------------------------------- ------------
Net gain on financial assets at fair value through profit or loss 7,545,438
------------------------------------------------------------------------- ------------
Please refer to Note 2.5 for valuation methodology of financial
assets at fair value through profit and loss.
The Company's investments, through the Lux Subsidiary, in BGCF
are untraded and illiquid. The Board has considered these factors
and concluded that there is no further need to apply a discount for
illiquidity as at the end of the reporting period.
Further financial information on BGCF has been presented in Note
12. This includes information regarding the sensitivity of the fair
value measurement of the Level 3 holdings in BGCF to unobservable
inputs and consequently the sensitivity of the fair value
measurement of the Level 3 holdings of the Company.
7 Intercompany loan
As at As at
31 December 2018 31 December 2017
EUR EUR
------------------------------ ----------------- -----------------
Payable to the Lux Subsidiary 237,057 -
------------------------------ ----------------- -----------------
The intercompany loan is a revolving loan between the Company
and the Lux Subsidiary. The intercompany loan has a maturity date
of 13 September 2033 and is repayable at the option of the Company
up to the maturity date. Interest is accrued at a rate of 1.6% per
annum and is payable annually only when a written request has been
provided to the Company by the Lux Subsidiary.
8 Payables
As at As at
31 December 2018 31 December 2017
EUR EUR
----------------------------------- ----------------- -----------------
Professional fees 1,090,305 -
Administration fees 47,573 49,273
Directors' fees 54,593 47,316
Audit fees 81,333 50,696
Intercompany loan interest payable 1,402 -
Other payables 21,974 26,366
----------------------------------- ----------------- -----------------
Total payables 1,297,180 173,651
----------------------------------- ----------------- -----------------
All payables are due within the next twelve months.
9 Stated capital
Authorised
The authorised share capital of the Company is represented by an
unlimited number of shares at no par value.
Allotted, called up and fully-paid
Euro Ordinary shares Number of shares Stated capital
EUR
-------------------------------------------------- ---------------- --------------
Total issued share capital as at 31 December 2018 404,700,446 404,962,736
--------------------------------------------------- ---------------- --------------
Euro Ordinary shares Number of shares Stated capital
EUR
--------------------------------------------------- ---------------- --------------
As at 1 January 2017 324,600,700 325,023,176
---------------------------------------------------- ---------------- --------------
Euro shares issued during the year 73,380,746 73,030,149
Euro shares issued during the year out of treasury 6,719,000 6,909,411
---------------------------------------------------- ---------------- --------------
Total issued share capital as at 31 December 2017 404,700,446 404,962,736
---------------------------------------------------- ---------------- --------------
Euro Ordinary shares
As at 31 December 2018, the Company had 404,700,446 Euro
Ordinary shares in issue (31 December 2017: 404,700,446 Euro
Ordinary shares).
At the 2018 AGM, held on 22 June 2018, the Directors were
granted authority to repurchase 60,664,597 Euro Ordinary shares
(being equal to 14.99% of the aggregate number of Euro Ordinary
shares in issue at the date of the AGM) for cancellation or to be
held as treasury shares. This authority, which has not been used,
will expire at the upcoming AGM. The Directors intend to seek
annual renewal of this authority from Ordinary Shareholders.
At the 2018 AGM, the Directors were granted authority to allot,
grant options over or otherwise dispose of up to 40,470,044 Euro
Ordinary shares (being equal to 10.00% of the aggregate number of
Euro Ordinary shares in issue at the date of the AGM). This
authority will expire at the 2019 AGM.
The Company did not make any market purchases of Euro Ordinary
shares during the years ended 31 December 2018 and 31 December
2017.
Voting rights
Holders of Euro Ordinary shares participate in the profits of
the Company. Ordinary Shareholders have the right to attend, speak
and vote at any general meetings of the Company in accordance with
the provisions of the Articles of Association and have one vote in
respect of each whole Euro Ordinary share held.
Dividends
The Company may, by ordinary resolution, declare dividends in
accordance with the respective rights of the Shareholders, but no
such dividend shall exceed the amount recommended by the Directors.
The Directors may pay fixed rate and interim dividends.
A general meeting declaring a dividend may, upon the
recommendation of the Directors, direct that payment of a dividend
shall be satisfied wholly or partly by the issue of Euro Ordinary
shares or the distribution of assets and the Directors shall give
effect to such resolution.
Except as otherwise provided by the rights attaching to or terms
of issue of any Euro Ordinary shares, all dividends shall be
apportioned and paid pro rata according to the amounts paid on the
Euro Ordinary shares during any portion or portions of the period
in respect of which the dividend is paid. No dividend or other
monies payable in respect of an Euro Ordinary share shall bear
interest against the Company.
The Directors may deduct from any dividend or other monies
payable to an Ordinary Shareholder all sums of money (if any)
presently payable by the holder to the Company on account of calls
or otherwise in relation to such Euro Ordinary shares.
Any dividend unclaimed after a period of 10 years from the date
on which it became payable shall, if the Directors so resolve, be
forfeited and cease to remain owing by the Company.
The dividends declared by the Board during the year are detailed
above.
Please refer to Note 19 for dividends declared after the year
end.
Share buybacks
The Board intends to seek annual renewal of this authority from
the Ordinary Shareholders at the Company's AGM, to make one or more
on-market purchases of Euro Ordinary shares in the Company for
cancellation or to be held as Treasury shares.
The Board may, at its absolute discretion, use available cash to
purchase Euro Ordinary shares in issue in the secondary market at
any time.
Rights as to Capital
On a winding up, the Company may, with the sanction of a special
resolution and any other sanction required by the Companies Law,
divide the whole or any part of the assets of the Company among the
Ordinary Shareholders in specie provided that no holder shall be
compelled to accept any assets upon which there is a liability. On
return of assets on liquidation or capital reduction or otherwise,
the assets of the Company remaining after payments of its
liabilities shall subject to the rights of the holders of other
classes of shares, to be applied to the Ordinary Shareholders
equally pro rata to their holdings of Euro Ordinary shares.
Capital management
The Company is closed-ended and has no externally imposed
capital requirements.
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 via the Lux Subsidiary in BGCF and other Underlying
Companies;
-- to maintain sufficient liquidity to meet the expenses of the
Company and to meet dividend commitments; and
-- to maintain sufficient size to make the operation of the Company cost efficient.
Please refer to Note 10 C Liquidity Risk for further discussion
on capital management, particularly on how the distribution policy
is managed.
10 Financial risk management
The Company is exposed to market risk (including interest rate
risk, currency risk and price risk), credit risk and liquidity risk
arising from the financial instruments it holds and the markets in
which it invests.
10A Market risk
Market risk is the current or prospective risk to earnings or
capital of the Company arising from changes in interest rates,
foreign exchange rates, commodity prices or equity prices. The
Company holds three investments in the Lux Subsidiary in the form
of CSWs, Class A and Class B shares. The CSWs are the main driver
of the Company's performance.
Financial market disruptions may have a negative effect on the
valuations of BGCF's investments and, by extension, on the NAV of
the Lux Subsidiary and the Company and/or the market price of the
Company's Euro shares, and on liquidity events involving BGCF's
investments. Any non-performing assets in BGCF's portfolio may
cause the value of BGCF's portfolio to decrease and, by extension,
the NAV of the Lux Subsidiary and the Company. Adverse economic
conditions may also decrease the value of any security obtained in
relation to any of BGCF's investments.
A sensitivity analysis is shown below disclosing the impact on
the IFRS NAV of the Company, if the fair value of the Company's
investment in the Lux Subsidiary at the year-end increased or
decreased by 5%. This level of change is considered to be
reasonably possible based on observations of past and possible
market conditions.
Current value Year ended Increase by Decrease by
31 December 2018 5% 5%
Total
EUR EUR EUR
-------------------------------------------- ----------------- ----------- -----------
Financial assets held at fair value through
profit or loss:
CSWs 310,753,454 326,291,127 295,215,781
Class A and Class B shares 5,137,028 5,393,879 4,880,177
-------------------------------------------- ----------------- ----------- -----------
315,890,482
-------------------------------------------- ----------------- ----------- -----------
Current value Year ended Increase by Decrease by
31 December 2017 5% 5%
Total
EUR EUR EUR
-------------------------------------------- ----------------- ----------- -----------
Financial assets held at fair value through
profit or loss:
CSWs 374,802,845 393,542,987 356,062,703
Class A and Class B shares 2,334,533 2,451,260 2,217,806
-------------------------------------------- ----------------- ----------- -----------
377,137,378
-------------------------------------------- ----------------- ----------- -----------
The calculations are based on the investment valuation at the
Statement of Financial Position date and are not representative of
the period as a whole, and may not be reflective of future market
conditions.
i. Interest rate risk
Interest rate movements affect the fair value of investments in
fixed interest rate securities and floating rate loans and on the
level of income receivable on cash deposits.
The interest income received by the Lux Subsidiary from
investments held at fair value through profit or loss is the
interest income on the PPNs received from BGCF. Its calculation is
dependent on the profit generated by BGCF as opposed to interest
rates set by the market. Interest rate sensitivity analysis is
presented for BGCF in Note 12 since any potential movement in
market interest rates will impact BGCF's holdings which in turn
will impact the interest income received by the Lux Subsidiary on
the PPNs.
The following tables detail the Company's interest rate risk as
at 31 December 2018 and 31 December 2017:
31 December 2018 Interest bearing Non-interest bearing Total
EUR EUR EUR
------------------------------------------------------ ---------------- -------------------- -----------
Assets
Cash and cash equivalents 11,219,224 - 11,219,224
Other receivables - 811,675 811,675
Financial assets at fair value through profit or loss - 315,890,482 315,890,482
------------------------------------------------------ ---------------- -------------------- -----------
Total assets 11,219,224 316,702,157 327,921,381
------------------------------------------------------ ---------------- -------------------- -----------
Liabilities
Intercompany loan (237,057) - (237,057)
Payables - (1,297,180) (1,297,180)
------------------------------------------------------ ---------------- -------------------- -----------
Total liabilities (237,057) (1,297,180) (1,534,237)
------------------------------------------------------ ---------------- -------------------- -----------
Total interest sensitivity gap 10,982,167
------------------------------------------------------ ---------------- -------------------- -----------
31 December 2017 Interest bearing Non-interest bearing Total
EUR EUR EUR
------------------------------------------------------ ---------------- -------------------- -----------
Assets
Cash and cash equivalents 2,546,969 - 2,546,969
Other receivables - 29,625 29,625
Financial assets at fair value through profit or loss - 377,137,378 377,137,378
------------------------------------------------------ ---------------- -------------------- -----------
Total assets 2,546,969 377,167,003 379,713,972
------------------------------------------------------ ---------------- -------------------- -----------
Liabilities
Payables - (173,651) (173,651)
------------------------------------------------------ ---------------- -------------------- -----------
Total liabilities - (173,651) (173,651)
------------------------------------------------------ ---------------- -------------------- -----------
Total interest sensitivity gap 2,546,969
------------------------------------------------------ ---------------- -------------------- -----------
As at 31 December 2018, the majority of the Company's interest
rate exposure arose in the fair value of the underlying BGCF
portfolio which is largely invested in senior secured loans of
companies predominantly in Western Europe or North America. Most of
the investments in senior secured loans carry variable interest
rates and various maturity dates.
Refer to Note 12 which details BGCF's exposure to interest rate
risk.
ii. Currency risk
Foreign currency risk is the risk that the values of the
Company's assets and liabilities are adversely affected by changes
in the values of foreign currencies by reference to the Company's
base currency. The functional currency of the Company and its Lux
Subsidiary is the Euro.
The Company and the Lux Subsidiary are not subject to
significant foreign currency risk since their investments are
denominated in Euro and their share capital are also denominated in
Euro.
Refer to Note 12 which details BGCF's exposure to currency
risk.
iii. Price risk
Price risk is the risk that the value of the Company's indirect
investments in BGCF through its holding in the Lux Subsidiary does
not reflect the true value of BGCF's underlying investment
portfolio.
BGCF's portfolio may at any given time include securities or
other financial instruments or obligations which are very thinly
traded, for which a limited market exists or which are restricted
as to their transferability under applicable securities laws. These
investments may be extremely difficult to value accurately.
Further, because of overall size or concentration in particular
markets of positions held by BGCF, the value of its investments
which can be liquidated may differ, sometimes significantly, from
their valuations. Third-party pricing information may not be
available for certain positions held by BGCF. Investments held by
BGCF may trade with significant bid-ask spreads. BGCF is entitled
to rely, without independent investigation, upon pricing
information and valuations furnished to BGCF by third parties,
including pricing services and valuation sources.
Absent bad faith or manifest error, valuation determinations in
accordance with BGCF's valuation policy are conclusive and binding.
In light of the foregoing, there is a risk that the Company, in
redeeming all or part of its investment while BGCF holds such
investments, could be paid an amount less than it would otherwise
be paid if the actual value of BGCF's investment was higher than
the value designated for that investment by BGCF. Similarly, there
is a risk that a redeeming BGCF interest holder might, in effect,
be over-paid at the time of the applicable redemption if the actual
value of BGCF's investment was lower than the value designated for
that investment by BGCF, in which case the value of BGCF interests
to the remaining BGCF interest holders would be reduced.
The Board monitors and reviews the Company's NAV production
process on an ongoing basis.
10B Credit risk
Credit risk is the risk that a counterparty to a financial
instrument will fail to discharge an obligation or commitment that
it has entered into with the Company. The Board has in place
monitoring procedures in respect of credit risk which is reviewed
on an ongoing basis.
The Company's credit risk is attributable to its cash and cash
equivalents, other receivables and financial assets at fair value
through profit or loss. An allowance for impairment is made where
there is an identified loss event which, based on previous
experience, is evidence of a reduction in the recoverability of the
cash flows.
DFME monitors for the Company, the Lux Subsidiary, BGCF and its
subsidiaries the creditworthiness of financial institutions with
whom cash is held, or with whom investment or derivative
transactions are entered into, on a regular basis.
The carrying amounts of financial assets best represent the
maximum credit risk exposure at the Statement of Financial Position
date. At the reporting date, the Company's financial assets exposed
to credit risk amounted to the following:
As at As at
31 December 2018 31 December 2017
EUR EUR
------------------------------------------------------ ----------------- -----------------
Cash and cash equivalents 11,219,224 2,546,969
Other receivables 811,675 29,625
Financial assets at fair value through profit or loss 315,890,482 377,137,378
------------------------------------------------------ ----------------- -----------------
Total assets 327,921,381 379,713,972
------------------------------------------------------ ----------------- -----------------
The Company is exposed to a potential material singular credit
risk in the event that it requests a repayment of the CSWs from the
Lux Subsidiary and receives an acceptance of that repayment
request. Under the CSW agreement between the Company and the Lux
Subsidiary, any payment obligation by the Lux Subsidiary to the
Company is conditional upon the receipt of an equivalent amount by
the Lux Subsidiary which is derived from the PPNs issued by BGCF.
The Board is aware of this risk and the concentration risk to the
Lux Subsidiary and indirectly to BGCF.
Additionally, under the Profit Participating Note Issuing and
Purchase Agreement ("PPNIPA") between the Lux Subsidiary and BGCF,
if the net proceeds from a liquidation of the collateral
obligations as defined in the PPNIPA available to unsecured
creditors of BGCF (the "Liquidation Funds") are less than the
aggregate amount payable by BGCF in respect of its obligations to
its unsecured creditors, including to the Lux Subsidiary and the
other parties to the PPNIPA (such negative amount being referred to
as a "shortfall"), the amount payable by BGCF to the Lux Subsidiary
and the other parties to the PPNIPA in respect of BGCF's
obligations under the PPNs will be reduced to such amount of the
Liquidation Funds which is available in accordance with the
regulatory requirements and the senior debt restrictive covenants
to satisfy such payment obligation upon the distribution of the
Liquidation Funds among all of BGCF's unsecured creditors on a pari
passu and pro rata basis, and shall be applied for the benefit of
the Lux Subsidiary and the other parties to the PPNIPA. In such
circumstances the other assets of BGCF will not be available for
the payment of such shortfall, and the rights of the Lux Subsidiary
and the other parties to the PPNIPA to receive any further amounts
in respect of such obligations shall be extinguished and the
Noteholders and the other parties to the PPNIPA may not take any
further action to recover such amounts.
During the years ended 31 December 2018 and 31 December 2017 all
cash was placed with BNP Paribas Securities S.C.A, as Custodian.
The ultimate parent of BNP Paribas Securities S.C.A is BNP Paribas
which is publicly traded with a credit rating of A (Standard &
Poor's).
The credit risk associated with debtors is limited to other
receivables. Credit risk is mitigated by the Company's policy to
only undertake significant transactions with leading commercial
counterparties. It is the opinion of the Board that the carrying
amounts of these financial assets represent the maximum credit risk
exposure as at the reporting date.
The Board continues to monitor the Company's exposure to credit
risk.
Refer to Note 12 which details BGCF's exposure to credit
risk.
10C Liquidity risk
Liquidity risk is the risk that the Company will encounter
difficulties in realising assets or otherwise raising funds to meet
financial commitments.
The Company has been established as a closed-ended vehicle.
Accordingly, there is no right or entitlement attaching to the
Company's shares that allows them to be redeemed or repurchased by
the Company at the option of the Shareholder. This significantly
reduces the liquidity risk of the Company.
Under the terms of the unsecured PPNs issued to its investors,
BGCF is contractually obliged to ensure that its portfolio is
managed in accordance with the Company's investment objective and
policy. In the event that BGCF fails to comply with these
contractual obligations, the Company, through the Lux Subsidiary,
could elect for the unsecured PPNs to become immediately due and
repayable to it from BGCF, subject to any applicable legal,
contractual and regulatory restrictions. Given the nature of the
investments held by BGCF there is no guarantee and indeed, it is
highly unlikely that the applicable legal, contractual and
regulatory restrictions would permit BGCF to immediately repay the
unsecured PPNs on the Company making such an election.
If the Company were to elect for the unsecured PPNs to be
repaid, BGCF's failure to fully comply with its contractual
obligations to do so or BGCF being restricted from doing so by law,
regulation or contract could have a significant adverse effect on
the Company's business, financial condition, results of operations
and/or the market price of the shares.
The PPNs are unsecured obligations of BGCF and amounts payable
on the PPNs will be made solely from amounts received in respect of
the assets of BGCF available for distribution to its unsecured
creditors. BGCF is permitted to incur leverage in the form of
secured debt by way of one or more revolving credit facilities.
Such secured debt will rank ahead of the PPNs in respect of any
distributions or payments by BGCF. In an enforcement scenario under
any revolving credit facility, the provider(s) of such facilities
will have the ability to enforce their security over the assets of
BGCF and to dispose of or liquidate, on their own behalf or through
a security trustee or receiver, the assets of BGCF in a manner
which is beyond the control of the Company. In such an enforcement
scenario, there is no guarantee that there will be sufficient
proceeds from the disposal or liquidation of BGCF's assets to repay
any amounts due and payable on the PPNs and this may adversely
affect the performance of the Company's business, financial
condition and results of operations.
Consequently, in the event of a materially adverse event
occurring in relation to BGCF or the market generally, the ability
of the Company to realise its investment and prevent the
possibility of further losses could, therefore, be limited by its
restricted ability to realise its investment via the Lux Subsidiary
in BGCF. This delay could materially affect the value of the PPNs
and the timing of when BGCF is able to realise its investments,
which may adversely affect the Company's business, financial
condition, results of operations and/or the market price of the
shares.
The liquidity profile of BGCF as at 31 December 2018 is in Note
12.
To meet the Company's target dividend, the Company will require
sufficient payments from the CSWs held and in the event these are
not received, the Board has the discretion to determine the amount
of dividends paid to Shareholders.
11 Interests in other entities
Interests in unconsolidated structured entities
IFRS 12 "Disclosure of Interests in Other Entities" defines a
structured entity as an entity that has been designed so that
voting or similar rights are not the dominant factor in deciding
who controls the entity, such as when any voting rights relate to
the administrative tasks only and the relevant activities are
directed by means of contractual agreements. A structured entity
often has some of the following features or attributes:
-- restricted activities;
-- a narrow and well-defined objective;
-- insufficient equity to permit the structured entity to
finance its activities without subordinated financial support;
and
-- financing in the form of multiple contractually linked
instruments that create concentrations of credit or other
risks.
Involvement with unconsolidated structured entities
The Directors have concluded that the CSWs and voting shares of
the Lux Subsidiary in which the Company invests, but that it does
not consolidate, meet the definition of a structured entity.
The Directors have also concluded that BGCF also meets the
definition of a structured entity.
Interests in subsidiary
As at 31 December 2018, the Company owns 100% of the Class A and
Class B shares in the Lux Subsidiary comprising 2,000,000 Class A
shares and one Class B share (31 December 2017: 2,000,000 Class A
shares and one Class B share).
The Lux Subsidiary's principal place of business is
Luxembourg.
Other than the investments noted above, the Company did not
provide any financial support for the years ended 31 December 2018
and 31 December 2017, nor had it any intention of providing
financial or other support.
The Company has an intercompany loan payable to the Lux
Subsidiary as at 31 December 2018. Refer to Note 7 for further
details.
12 Financial and other information on BGCF
The Board has provided the following information on BGCF, which
has been extracted from its audited financial statements for the
year ended 31 December 2018, as it believes this will provide
further insight to the Company's Shareholders into the operations
of BGCF, the asset mix in its portfolio and the risks to which BGCF
is exposed.
As at 31 December 2018, the Lux Subsidiary held a 40.1% (31
December 2017: 55.4%) interest in the PPNs issued by BGCF. The
disclosures have not been apportioned according to the Lux
Subsidiary's PPN holding, as the Board believes to do so would be
misleading and not an accurate representation of the Company's
investment in BGCF.
Principal activities
BGCF was established as an originator vehicle under European
risk retention rules for CLO securitisations. It may also invest in
senior secured loans, either directly or indirectly through CLO
warehouses, and underlying companies. BGCF is funded by proceeds
from the issuance of PPNs together with other financial resources
available to it, such as the BGCF Facility.
Investment policy
BGCF's investment policy is to invest (directly, or indirectly
through one or more Underlying Companies) in a diverse portfolio of
senior secured loans (including broadly syndicated, middle market
or other loans) (such investments being made by the Underlying
Companies directly or through investments in Loan Warehouses),
bonds and CLO Securities, and generate attractive risk-adjusted
returns from such portfolios. BGCF intends to pursue its investment
policy by using the proceeds from the issue of PPNs (together with
proceeds from other financial resources available to it) to invest
in such assets.
BGCF may invest (directly or through other underlying companies)
predominantly in European or US senior secured loans, CLO Income
Note securities, loan warehouses and other assets. Investments in
loan warehouses will typically be in the form of an obligation to
purchase preference shares or a subordinated loan. There is no
limit on the maximum European or US exposure. BGCF is not expected
to invest (directly or through other underlying companies) in
senior secured loans domiciled outside North America or Western
Europe.
A CLO is a pooled investment vehicle which may invest in a
diversified group of debt securities, in this case predominantly
senior secured loans. To finance its investments, the CLO vehicle
issues debt in the form of senior Notes and CLO Income Notes to
investors. The servicing and repayment of these notes is linked
directly to the performance of the underlying portfolio of
assets.
The portfolio of assets underlying the CLO Notes consist mainly
of senior secured loans, mezzanine loans, second lien loans and
high yield bonds. The portfolio of assets within the underlying
company consists mainly of CLO Income Notes. Distributions on the
CLO Notes, by way of interest payments, are payable on a quarterly
basis on dates established in the formation documents of the
CLOs.
As at 31 December 2018 and 31 December 2017, BGCF had no
exposure to CLOs held as a vertical strip (as defined in the
Company's Investment Strategy)
Subsidiaries
BGCF has acquired the majority, or all, of the CLO Income Notes
issued by a number of European CLO issuers. CLO Income Noteholders
are entitled to the residual cash flows arising from the underlying
assets of the CLOs. In accordance with IFRS 10 Consolidated
Financial Statements ("IFRS 10"), the CLOs are deemed to be
subsidiaries of BGCF. The seventeen CLO subsidiaries are presented
below:
Name of subsidiary Currency Deal Size % Subordinated
(million) Equity Notes Held
31 December 2018
------------------- --------- ---------- ------------------
Phoenix Park CLO
DAC EUR EUR419 51.38%
Sorrento Park
CLO DAC EUR EUR517 51.75%
Castle Park CLO
DAC EUR EUR415 80.43%
Dartry Park CLO
DAC EUR EUR411 51.12%
Dorchester Park
CLO DAC USD $533 73.00%
Orwell Park CLO
DAC EUR EUR415 51.00%
Tymon Park CLO
DAC EUR EUR414 51.01%
Elm Park CLO DAC EUR EUR558 56.09%
Griffith Park
CLO DAC EUR EUR459 59.55%
Palmerston Park
CLO DAC EUR EUR414 62.22%
Clarinda Park
CLO DAC EUR EUR415 51.22%
Clontarf Park
CLO DAC EUR EUR414 66.93%
Willow Park CLO
DAC EUR EUR412 60.92%
Marlay Park CLO
DAC EUR EUR413 60.00%
Milltown Park
CLO DAC EUR EUR411 64.96%
Richmond Park
CLO DAC EUR EUR550 68.32%
Sutton Park CLO
DAC EUR EUR409 69.44%
------------------- --------- ---------- ------------------
BGCF also holds CLO Income Notes in certain US CLOs and
preferences shares in US CLO warehouses, which BGCF was not
responsible for originating. At the year-end, BGCF had holdings in
Buckhorn Park CLO warehouse, Southwick Park CLO warehouse, Fillmore
Park CLO Limited, Myers Park CLO Limited and Harbor Park CLO
Limited.
In addition, BGCF holds Class A preference shares in the US MOA
to gain exposure to certain US CLO securitisations. The US MOA was
established for the sole purpose of managing DFM's compliance with
the Risk Retention Rules established by the 2010 Dodd-Frank Wall
Street Reform and Consumer Protection Act (the "US Risk Retention
Rules"). DFM is the sponsor to US CLO securitisations under the US
Risk Retention Rules. The US MOA invests in the CLO Income Notes of
US CLOs whose investments are focused predominantly in US senior
secured loans. As at 31 December 2018, the US MOA held the
following US CLOs: Gilbert Park CLO Limited, Dewolf Park CLO
Limited, Grippen Park CLO Limited, Stewart Park CLO Limited, Long
Point Park CLO Limited, Thayer Park CLO Limited, Catskill Park CLO
Limited, Greenwood Park CLO Limited and Cook Park CLO Limited.
Regulatory Update
On 9 February 2018, the US Court of Appeals for the D.C. Circuit
ruled in favour of the Loan Syndications and Trading Association
("LSTA") in its lawsuit against the US Securities and Exchange
Commission ("SEC") and the Federal Reserve, determining that US CLO
managers are not subject to the risk retention rules per the
Dodd-Frank Act as it applies to "open market CLOs" (CLOs of broadly
syndicated loans). There was a period of 45-days during which the
US government agencies were able to appeal the ruling. As there was
no appeal, the ruling became effective on 2 April 2018. This ruling
does not impact the risk retention rules for European CLO
managers.
There is no intended change to BGCF's investment activity in the
near-term as a result of the ruling.
Valuation of financial instruments
As at 31 December 2018 and 31 December 2017, all of the loan
assets were broker priced through Markit. Bond investments were
valued by prices provided by IDC as at 31 December 2018 and 31
December 2017. The majority of these assets were classified as
Level 2 since the input into the Markit price consisted of at least
two quotes. However, a small number of holdings as at 31 December
2018 and 31 December 2017 were priced through Markit where the
input into the Markit price was only one quote and therefore they
were classified as Level 3. Both loans and bonds are priced at
current mid prices.
The CLO Income Notes issued by BGCF's subsidiaries are listed on
Euronext and are valued by a third party. The approach to valuing
the CLO Income Notes incorporates CLO specific information and
modelling techniques. Factors include (i) granular loan level data,
such as the concentration and quality of various loan level
buckets, for example, second liens, covenant lites and other
structured product assets, as well as several other factors
including: discount rate, default rates, prepayment rates, recovery
rates, recovery lag and reinvestment spread (these factors are
highly sensitive and variations may materially affect the fair
value of the asset), and (ii) structural analysis on a deal by deal
basis. Pricing includes checks on all structural features of each
CLO, such as the credit enhancement of each bond and various
performance triggers (including over-collateralisation tests,
interest coverage and diversion tests). Furthermore, reinvestment
language specific to each CLO deal is assessed, as well as DFME's
performance and capabilities.
Investments in the CLO Income Notes held directly or those held
indirectly through the US MOA are valued using an equivalent
methodology. Similar to the above, the interest in such CLO Income
Notes, the valuation of which uses significant unobservable inputs
are classified as Level 3. Investments in the preference shares of
Buckhorn Park CLO warehouse and Southwick Park CLO warehouse and
the CLO Income Notes of Fillmore Park Limited, Myers Park Limited
and Harbor Park Limited are measured at fair value and classified
as Level 3.
The PPNs and debt issued by the subsidiaries are categorised as
Level 3, as they are valued using a model which is based on the
fair value of the underlying assets and liabilities of the relevant
entity.
The following tables analyse with the fair value hierarchy
BGCF's financial instruments carried at fair value as at 31
December 2018 and 31 December 2017:
31 December 2018 Level 1 Level 2 Level 3 Total
EUR EUR EUR EUR
-------------------------------------------------------------- ------- ------------- ------------- ---------------
Financial assets measured at fair value through profit or
loss:
- Investments in senior secured loans and bonds - 420,018,973 9,672,269 429,691,242
- Investments in CLO Income Notes - - 386,155,935 386,155,935
- Investment in US MOA - - 227,651,995 227,651,995
-------------------------------------------------------------- ------- ------------- ------------- ---------------
Total financial assets - 420,018,973 623,480,199 1,043,499,172
-------------------------------------------------------------- ------- ------------- ------------- ---------------
Financial liabilities measured at fair value through profit or
loss:
- PPNs - - (787,146,684) (787,146,684)
- BGCF Facility - (294,757,675) - (294,757,675)
- Derivative financial liabilities - (13,953,422) - (13,953,422)
-------------------------------------------------------------- ------- ------------- ------------- ---------------
Total financial liabilities - (308,711,097) (787,146,684) (1,095,857,781)
-------------------------------------------------------------- ------- ------------- ------------- ---------------
31 December 2017 Level 1 Level 2 Level 3 Total
EUR EUR EUR EUR
-------------------------------------------------------------- ------- ------------- ------------- ---------------
Financial assets measured at fair value through profit or
loss:
- Investments in senior secured loans and bonds - 440,673,037 17,134,402 457,807,439
- Investments in CLO Income Notes - - 331,685,575 331,685,575
- Investment in US MOA - - 145,272,658 145,272,658
* Derivative financial assets - 3,077,243 - 3,077,243
-------------------------------------------------------------- ------- ------------- ------------- ---------------
Total financial assets - 443,750,280 494,092,635 937,842,915
-------------------------------------------------------------- ------- ------------- ------------- ---------------
Financial liabilities measured at fair value through profit or
loss:
- PPNs - - (679,650,521) (679,650,521)
- BGCF Facility - (331,477,924) - (331,477,924)
Total financial liabilities - (331,477,924) (679,650,521) (1,011,128,445)
-------------------------------------------------------------- ------- ------------- ------------- ---------------
The following table shows the movement in Level 3 of BGCF's fair
value hierarchy for the years ended 31 December 2018 and 31
December 2017:
BGCF Financial assets measured at fair Financial liabilities measured at fair
value through profit or loss value through profit or loss
EUR EUR
-------------------------------------- -------------------------------------- --------------------------------------
Opening balance 494,092,635 (679,650,521)
Net (loss)/gain on financial assets
and liabilities measured at fair
value through profit
or loss (116,621,709) 136,795,409
Purchases/Issuances 614,869,040 (244,291,572)
Sales/Redemptions (364,958,693) -
Movement in to Level 3 7,287,142 -
Movement out of Level 3 (11,188,216) -
Closing Balance 623,480,199 (787,146,684)
-------------------------------------- -------------------------------------- --------------------------------------
BGCF Financial assets measured at fair Financial liabilities measured at fair
value through profit or loss value through profit or loss
EUR EUR
-------------------------------------- -------------------------------------- --------------------------------------
Opening balance 289,954,556 (451,337,094)
Net (loss)/gain on financial assets
and liabilities measured at fair
value through profit
or loss (62,429,791) 56,551,959
Purchases/Issuances 480,967,575 (284,865,386)
Sales/Redemptions (206,566,651) -
Movement out of Level 3 (7,833,054) -
Closing Balance 494,092,635 (679,650,521)
-------------------------------------- -------------------------------------- --------------------------------------
BGCF's policy is to recognise transfers into and transfers out
of fair value hierarchy levels as of the last day of the accounting
period. There were no transfers between Level 1 and Level 2 of the
fair value hierarchy during the years ended 31 December 2018 or 31
December 2017.
Sensitivity of BGCF Level 3 holdings to unobservable inputs
A number of holdings as at 31 December 2018 and 31 December 2017
were priced through Markit where the input into the Markit price
was only one price, so they were classified as Level 3. These loan
assets are not modelled on analysts' prices but are from dealers'
runs therefore there are no unobservable inputs into the prices.
The CLO Income Notes were classified as Level 3 because the
valuation technique incorporates significant unobservable inputs.
The CLO prices are determined independently by consideration of
several factors including the following: default rates, prepayment
rates, recovery rates, recovery lag and reinvestment spread. These
factors are highly sensitive, and variations may materially affect
the fair value of the asset. These metrics are accumulated from
various market sources independent of DFME. Additionally, valuation
incorporates a review of each CLO indenture and the latest
underlying CLO loan portfolio forming various projections based on
the quality of the collateral, DFME's capabilities and general
macroeconomic conditions.
The assets classified as Level 3 represented 59.75% (2017:
52.70%) of the total financial assets. If the price of the holdings
classified as Level 3 increased or decreased by 5% it would result
in an increase or decrease in the value of the financial assets of
EUR 31,174,010 (2.99% of the total financial assets) (2017: EUR
24,704,632 (2.63% of the total financial assets)). There also would
be an equal and opposite effect on the valuation of the PPNs
(3.59%) (2017: (3.63%)).
The CLO Income Notes and the US MOA are valued by a third party
using a CLO intrinsic calculation methodology. The key input
assumptions to the CLO Income Notes valuation model are the loan
prepayment rates, discount rates, loan default rates, loan recovery
given default rates and reinvestment rates. These metrics are
accumulated from various market sources independent of DFME.
Additionally, valuation incorporates a review of each CLO indenture
and the latest underlying CLO loan portfolio forming various
projections based on the quality of the collateral, the collateral
manager's capabilities and general macroeconomic conditions.
The financial liabilities at fair value through profit or loss
consist of the PPNs. The PPNs are valued using a model based on the
fair value of the underlying assets and liabilities. If the value
of the underlying assets or liabilities changes then there would be
an equal and opposite effect on the valuation of the PPNs.
If the valuation of the CLO Income Notes had increased or
decreased by 5%, the value of the CLO Income Notes would move by
EUR 19,307,797 (2017: EUR 16,584,279) and EUR 11,382,600 (2017: EUR
13,019,734) in the US MOA.
Financial instruments and associated risks
The Lux Subsidiary holds one investment in BGCF in the form of
PPNs. The PPNs are the main driver of the Lux Subsidiary's
performance and consequently that of the Company. The performance
of the PPNs is driven solely by the underlying portfolio of BGCF
and therefore consideration of the risks to which BGCF is exposed
to have also been made.
Market risk
Market risk is the current or prospective risk to earnings or
capital of BGCF arising from changes in interest rates, foreign
exchange rates, commodity prices or equity prices. Market risk
embodies the potential for both losses and gains.
Market price risk arises mainly from uncertainty about future
prices of financial instruments held. It represents the potential
loss BGCF might suffer through holding market positions in the face
of price movements caused by factors specific to the individual
investment or factors affecting all instruments traded in the
market.
As all of the financial instruments are carried at fair value
through profit or loss, all changes in market conditions will
directly impact the valuation of the PPNs.
(i) Currency risk
Foreign currency risk arises as the value of future
transactions, recognised monetary assets and monetary liabilities
denominated in other currencies may fluctuate due to changes in
foreign exchange rates. Foreign exchange exposure relating to
non-monetary assets and liabilities is considered to be a component
of market price risk, not foreign currency risk.
BGCF's financial statements are denominated in Euro, though
investments in the US MOA, US CLO warehouses, US CLOs are made and
realised in US Dollars, and senior secured loans and bonds are made
and realised in other currencies. Changes in rates of exchange may
have an adverse effect on the value, price or income of the
investments of BGCF.
DFME monitors foreign currency risk on a periodic basis.
Typically, derivative contracts serve as components of BGCF's asset
hedging program and are utilised primarily to reduce foreign
currency risk to BGCF's investments. Foreign currency risk on
non-base currency loans and bonds is minimised by the leveraged
structure of BGCF and by the use of the multi-currency BGCF
Facility to draw down funds. Non-base GBP and USD investments are
funded by use of the corresponding currency leverage of the BGCF
Facility which creates a matching of asset and liability currency
risk and minimising the impact of fluctuations in exchange rates.
Rolling currency forwards are used to manage the foreign currency
exposure of the preference shares of the US MOA and the US CLO
warehouses, and the CLO Income Notes of the US CLOs held directly
by BGCF and the CLO subsidiaries denominated in foreign currencies.
The market value of these USD positions is hedged by offsetting USD
forward notional amounts to ensure BGCF is fully hedged.
The following table sets out BGCF's total exposure to foreign
currency risk and the net exposure to foreign currencies of the
monetary assets and liabilities as at 31 December 2018 and 31
December 2017:
31 December 2018 British United States Euro Total
Pound Dollars
EUR EUR EUR EUR
----------------------------- ------------ ------------- ------------- -------------
Investments in senior
secured loans and
bonds 35,301,146 - 394,390,096 429,691,242
Investments in CLO
Income Notes - 114,595,191 271,560,744 386,155,935
Investment in US MOA - 227,651,995 - 227,651,995
BGCF Facility (43,583,090) (28,094,832) (223,079,753) (294,757,675)
Derivative financial
assets and liabilities - (13,953,422) - (13,953,422)
Cash and cash equivalents 1,646,363 15,242,023 53,666,468 70,554,854
PPNs - - (787,146,684) (787,146,684)
Other assets and liabilities 8,010,575 (302,592,381) 276,390,021 (18,191,785)
----------------------------- ------------ ------------- ------------- -------------
Net exposure 1,374,994 12,848,574 (14,219,108) 4,460
----------------------------- ------------ ------------- ------------- -------------
Sensitivity 10% 137,499 1,284,857
----------------------------- ------------ ------------- ------------- -------------
31 December 2017 British United States Euro Total
Pound Dollars
EUR EUR EUR EUR
----------------------------- ------------ ------------- ------------- -------------
Investments in senior
secured loans and
bonds 76,391,279 23,303,552 358,112,608 457,807,439
Investments in CLO
Income Notes - 77,599,295 254,086,280 331,685,575
Investment in US MOA - 145,272,658 - 145,272,658
BGCF Facility (80,613,947) (37,451,557) (213,412,420) (331,477,924)
Derivative financial
assets and liabilities - 3,077,243 - 3,077,243
Cash and cash equivalents 538,681 23,489,418 24,810,335 48,838,434
PPNs - - (679,650,521) (679,650,521)
Other assets and liabilities 5,308,963 (214,019,639) 233,161,332 24,450,656
----------------------------- ------------ ------------- ------------- -------------
Net exposure 1,624,976 21,270,970 (22,892,386) 3,560
----------------------------- ------------ ------------- ------------- -------------
Sensitivity 10% 162,498 2,127,097
----------------------------- ------------ ------------- ------------- -------------
Sensitivity analysis - BGCF
At 31 December 2018, had the Euro strengthened by 10% (2017:
10%) in relation to all currencies, with all other variables held
constant, the net asset / liability exposure would have increased
by the amounts shown above for BGCF. There would be no impact on
the total comprehensive income of BGCF because the finance expense
on financial liabilities would move in the opposite direction and
cancel the effect of the foreign exchange movement.
A 10% weakening of the base currency, against GBP and US Dollar,
would have resulted in an equal but opposite effect than that on
the tables above, on the basis that all other variables remain
constant. These calculations are based on historical data. Future
currency movements and correlations between holdings could vary
significantly from those experienced in the past.
(ii) Interest rate risk
Interest rate risk arises from the effects of fluctuations in
the prevailing levels of market interest rates on the fair value of
financial assets and liabilities and future cash flow.
The PPNs issued by BGCF are limited recourse obligations and are
valued based on the fair value of the underlying assets and
liabilities. As the interest attached to the PPNs is based on the
income earned by BGCF, any fluctuations in the prevailing level of
market interest rates that negatively affect the fair value of the
underlying financial assets will result in an offsetting decrease
in the fair value of the PPNs.
The interest rate risk associated with cash and cash equivalents
is deemed to be insignificant.
The following table details BGCF's exposure to interest rate
risk. It includes BGCF's assets and liabilities at fair values,
categorised by whether the asset or liability has a floating rate
or is non-interest bearing, measured by the carrying value of the
assets and liabilities as at 31 December 2018:
31 December 2018 Floating rate Fixed rate Non-interest Total
bearing
EUR EUR EUR EUR
--------------------------------------------------------- --------------- ---------- ------------- ---------------
Financial assets measured at fair value through profit or
loss:
- Investments in senior secured loans and bonds 429,691,242 - - 429,691,242
- Investments in CLO Income Notes 386,155,935 - - 386,155,935
- Investment in US MOA - - 227,651,995 227,651,995
Receivable for investments sold - - 179,473,198 179,473,198
Other receivables - - 28,829,516 28,829,516
Cash and cash equivalents 70,554,854 - - 70,554,854
--------------------------------------------------------- --------------- ---------- ------------- ---------------
Total assets 886,402,031 - 435,954,709 1,322,356,740
--------------------------------------------------------- --------------- ---------- ------------- ---------------
Financial liabilities measured at fair value through
profit or loss:
- PPNs (787,146,684) - - (787,146,684)
- BGCF Facility (294,757,675) - - (294,757,675)
- Derivative financial liabilities - - (13,953,422) (13,953,422)
Payable for investments purchased - - (224,077,820) (224,077,820)
Other payables and accrued expenses - - (2,416,679) (2,416,679)
--------------------------------------------------------- --------------- ---------- ------------- ---------------
Total financial liabilities (1,081,904,359) - (240,447,921) (1,322,352,280)
--------------------------------------------------------- --------------- ---------- ------------- ---------------
Total interest sensitivity gap (195,502,328) -
--------------------------------------------------------- --------------- ---------- ------------- ---------------
The following table details BGCF's exposure to interest rate
risk. It includes BGCF's assets and liabilities at fair values,
categorised by whether the asset or liability has a floating rate
or is non-interest bearing, measured by the carrying value of the
assets and liabilities as at 31 December 2017:
31 December 2017 Floating rate Fixed rate Non-interest Total
bearing
EUR EUR EUR EUR
--------------------------------------------------------- --------------- ---------- ------------- ---------------
Financial assets measured at fair value through profit or
loss:
- Investments in senior secured loans and bonds 403,894,106 53,913,333 - 457,807,439
- Investments in CLO Income Notes 331,685,575 - - 331,685,575
- Investment in US MOA - - 145,272,658 145,272,658
- Derivative financial assets - - 3,077,243 3,077,243
Receivable for investments sold - - 348,346,724 348,346,724
Other receivables - - 18,818,998 18,818,998
Cash and cash equivalents 48,838,434 - - 48,838,434
--------------------------------------------------------- --------------- ---------- ------------- ---------------
Total assets 784,418,115 53,913,333 515,515,623 1,353,847,071
--------------------------------------------------------- --------------- ---------- ------------- ---------------
Financial liabilities measured at fair value through
profit or loss:
- PPNs (679,650,521) - - (679,650,521)
- BGCF Facility (331,477,924) - - (331,477,924)
Payable for investments purchased - - (340,574,806) (340,574,806)
Other payables and accrued expenses - - (2,140,260) (2,140,260)
--------------------------------------------------------- --------------- ---------- ------------- ---------------
Total financial liabilities (1,011,128,445) - (342,715,066) (1,353,843,511)
--------------------------------------------------------- --------------- ---------- ------------- ---------------
Total interest sensitivity gap (226,710,330) 53,913,333
--------------------------------------------------------- --------------- ---------- ------------- ---------------
Sensitivity analysis
At 31 December 2018, had the base interest rates
strengthened/weakened by 2% (2017: 2%) in relation to all holdings
subject to interest with all other variables held constant, the
finance income would increase/decrease by EUR 3,910,047 (2017: EUR
4,534,207) which would subsequently impact the amount available for
distribution as finance expense. There would be no impact on the
total comprehensive income of BGCF. The interest rate sensitivity
information is a relative estimate of risk and is not intended to
be a precise and accurate number. The calculations are based on
historical data. Future price movements and correlations between
securities could vary significantly from those experienced in the
current financial year.
(iii) Price risk
Price risk is the risk that the value of investments will
fluctuate as a result of changes in market prices (other than those
arising from currency risk and interest rate risk) whether caused
by factors specific to an individual investment, its issuer or all
factors affecting all investments traded in the market.
BGCF attempts to mitigate asset pricing risk by using external
pricing and valuation sources and by permitting DFME, subject to
certain requirements, to sell collateral obligations and reinvest
the proceeds. DFME actively monitors the assets within each CLO to
ensure that they do not breach the collateral quality tests and
portfolio profile tests. Where possible, prices are received from
brokers on a monthly basis. Broker prices are sourced from Markit,
a composite price provider.
Credit risk
Credit risk is the current or prospective risk to earnings and
capital arising from a counterparty's failure to meet the terms of
any contract with BGCF, or otherwise fail to perform as agreed. The
receipt of monies owed will be subject to and dependent on the
counterparty's ability to pay such monies.
BGCF is therefore open to risks relating to the creditworthiness
of the counterparty. If the counterparty fails to make any cash
payments required to settle an investment, BGCF may lose principal
as well as any anticipated benefit from the transaction.
Credit risk in financial instruments arises from cash and cash
equivalents and investments in debt securities, as well as credit
exposures of transactions with brokers related to transactions
awaiting settlement (i.e. receivable for investment sold and other
receivables).
DFME, through its investment strategy, will endeavor to avoid
losses relating to defaults on the underlying assets. In-house
credit research is used to identify asset allocation opportunities
amongst potential borrowers and industry segments and to take
advantage of episodes of market mis-pricing. Segments and themes
that are likely to be profitable are subjected to rigorous analysis
and risk is allocated to these opportunities consistent with
investment objectives. All transactions involve credit research
analysts with relevant industry sector experience.
The credit analysis performed involves developing a full
understanding of the business and associated risk of the loan or
bond issuer and a full analysis of the financial risk, which leads
to an overall assessment of credit risk. DFME analyses credit
concentration risk based on the counterparty, country and industry
of the financial assets that BGCF holds.
At the reporting date, BGCF's financial assets exposed to credit
risk are as follows:
BGCF 2018 2017
EUR EUR
------------------------------------------------ ------------- -------------
Financial assets measured at fair value through
profit or loss 1,043,499,172 934,765,672
Derivative financial assets - 3,077,243
Receivables for investments sold 179,473,198 348,346,724
Other receivables 28,829,516 18,818,998
Cash at bank 70,554,854 48,838,434
------------------------------------------------ ------------- -------------
Total 1,322,356,740 1,353,847,071
------------------------------------------------ ------------- -------------
Amounts in the above tables are based on the carrying value of
the financial assets as at the reporting date.
Financial assets measured at fair value through profit or
loss
BGCF's investment policy is to invest predominantly in:
(i) a diverse portfolio of senior secured loans (including
broadly syndicated, middle market or other loans);
(ii) CLO Income Notes issued by the Issuer CLOs whose
investments will be focused predominantly in European and US senior
secured loans; and
(iii) US CLO Income Notes (directly or through the US MOA which
invests in the CLO Income Notes of US CLOs) whose investments are
focused predominantly in US senior secured loans.
The investments in senior secured loans and bonds held directly
by BGCF had the following credit quality as rated by Moody's:
Rating 31 December 2018 31 December 2017
---------- ------------------- ----------------
B1 15.0% 23.1%
B2 48.1% 37.8%
B3 20.6% 16.1%
Ba1 0.9% 1.8%
Ba2 7.3% 5.4%
Ba3 7.5% 5.7%
Caa1 0.6% 0.3%
Not Rated - 9.8%
---------- ------------------- ----------------
Total 100.0% 100.0%
---------- ------------------- ----------------
The senior secured loans and bonds held directly by BGCF are
concentrated in the following industries:
Industry As at 31 December As at 31 December
2018 2017
------------------------------- -------------------- -----------------
Aerospace & Defence 0.8% 0.3%
Automotive 1.0% 0.4%
Banking, Finance, Insurance
& Real Estate 11.0% 11.1%
Beverage, Food & Tobacco 0.6% 1.8%
Capital Equipment 1.9% 2.5%
Chemicals, Plastics and Rubber 5.8% 11.2%
Construction & Building 2.3% 2.5%
Consumer Products 1.4% 0.7%
Containers, Packaging & Glass 2.2% 1.1%
Energy: Electricity 1.6% -
Forest Products and Paper 0.1% 0.9%
Healthcare & Pharmaceuticals 15.8% 7.4%
High Tech Industries 5.3% 5.0%
Hotel, Gaming & Leisure 12.9% 9.0%
Industrial 0.2% -
Media 7.8% 14.3%
Retail 3.7% 8.9%
Services - Business 15.7% 11.4%
Services - Consumer 0.4% 2.7%
Telecommunications 6.2% 7.6%
Utilities 2.6% 0.6%
Wholesale 0.7% 0.6%
------------------------------- -------------------- -----------------
Total 100.0% 100.0%
------------------------------- -------------------- -----------------
In addition to the senior secured loans and bonds held directly,
BGCF invests in CLO Income Notes issued by its subsidiaries which
are European CLO Issuers (CLOs originated by BGCF) whose
investments will be focused predominantly in European senior
secured loans. BGCF also invests directly in US CLOs whose
investments will be focused predominantly in US senior secured
loans. Each CLO's investment activities are restricted by its
prospectus and the CLOs have narrow and well-defined objectives to
provide investment opportunities to investors. In order to avoid
excessive concentration of risk, the policies and procedures of
each CLO include specific guidelines to focus on maintaining a
diversified portfolio. As CLO Income Noteholder in the CLO Issuers,
BGCF is exposed to the credit risk on the underlying senior secured
loans and bonds held by the CLOs. In addition, the CLO Notes are
limited recourse obligations of the CLO Issuers which are payable
solely out of amounts received by the CLO Issuer in respect of the
financial assets held.
The underlying investments in senior secured loans and bonds
recognised as financial assets of BGCF's European subsidiaries had
the following credit quality as rated by Moody's:
Rating 31 December 2018 31 December 2017
------- ------------------- ----------------
B1 21.1% 23.0%
B2 43.4% 45.9%
B3 20.2% 14.7%
Ba1 1.8% 1.6%
Ba2 5.5% 3.5%
Ba3 6.4% 6.4%
Baa2 0.1% -
Baa3 0.1% 0.2%
Ca - 0.7%
Caa1 1.2% 3.2%
Caa2 0.1% 0.5%
Caa3 0.1% 0.3%
Total 100.0% 100.0%
------- ------------------- ----------------
The senior secured loans and bonds held by the subsidiaries of
BGCF are concentrated in the following industries:
Industry As at 31 December As at 31 December
2018 2017
------------------------------- -------------------- -----------------
Aerospace & Defence 0.5% 1.0%
Automotive 1.4% 1.3%
Banking, Finance, Insurance
& Real Estate 8.6% 7.9%
Beverage, Food & Tobacco 2.2% 3.5%
Capital Equipment 2.9% 2.8%
Chemicals, Plastics and Rubber 8.8% 9.3%
Commercial Services 0.6% -
Construction & Building 5.6% 7.7%
Consumer Products 1.8% 2.4%
Containers, Packaging & Glass 3.1% 5.9%
Electric 0.2% -
Energy: Electricity 0.7% -
Energy: Oil & Gas 0.1% 0.1%
Entertainment 0.1% -
Environmental Services - 0.6%
Financial Services 0.3% -
Food 0.2% -
Forest Products and Paper 0.2% 0.5%
Healthcare & Pharmaceuticals 16.6% 14.7%
High Tech Industries 5.6% 5.6%
Hotel, Gaming & Leisure 10.2% 9.4%
Industrial 0.7% -
Insurance 0.1% -
Leisure 0.2% -
Life Sciences 0.3% -
Machinery 0.1% -
Media 6.0% 6.5%
Real Estate 0.1% -
Retail 3.0% 5.8%
Services - Business 9.0% 7.2%
Services - Consumer 1.5% 1.4%
Software 0.7% -
Technology 0.2% -
Telecommunications 6.5% 4.1%
Textile 0.1% -
Transportation 0.1% -
Utilities 1.1% -
Wholesale 0.6% -
Other - 2.3%
------------------------------- -------------------- -----------------
Total 100.0% 100.0%
------------------------------- -------------------- -----------------
Please note that the list of BGCF's subsidiaries included in the
tables can be found above.
During the financial year, BGCF held Class A preference shares
issued by the US MOA, and CLO Income Notes issued by the directly
held US CLOs.
BGCF increased its investment in the US MOA by USD 29,337,651 in
January 2018, USD 56,426,810 in March 2018 and USD 55,091,100 in
April 2018. As at 31 December 2018, the total investment value is
EUR 227,651,995 (2017: EUR 145,272,658) which is 17.22% (2017:
10.73%) of BGCF's total assets. The US MOA invests in the CLO
Income Notes of US CLOs.
The US CLOs, held directly by BGCF and indirectly through the US
MOA, hold investments focused predominantly in US senior secured
loans. Given BGCF's direct and indirect interest in the CLO Income
Notes of US CLOs, BGCF is exposed to the credit risk on the
underlying senior secured loans and bonds held by those US CLOs. In
addition, the CLO Income Notes are limited recourse obligations of
the US CLOs which are payable solely out of amounts received by the
US CLO in respect of the financial assets held.
The underlying investments in senior secured loans and bonds
recognised as financial assets of the US CLOs had the following
credit quality as rated by Moody's:
Rating 31 December 2018 31 December 2017
---------- ------------------- ----------------
B1 12.5% 16.3%
B2 30.5% 32.0%
B3 37.6% 31.0%
Ba1 2.7% 2.0%
Ba2 3.6% 4.0%
Ba3 9.0% 10.0%
Caa1 1.9% 1.0%
Caa2 - 0.1%
Caa3 0.4% -
Not Rated 1.8% 3.6%
Total 100.0% 100.0%
---------- ------------------- ----------------
Please note that the above table includes those US CLOs owned
directly by BGCF and those US CLOs owned directly through the US
MOA
The US MOA's underlying financial assets exposed to credit risk
were concentrated in the following industries:
Industry As at 31 December As at 31 December
2018 2017
------------------------------- -------------------- -----------------
Aerospace & Defence 2.6% 2.7%
Automotive 1.7% 2.4%
Banking, Finance, Insurance
& Real Estate 6.1% 9.9%
Beverage, Food & Tobacco 2.9% 3.1%
Capital Equipment 1.9% 1.5%
Chemicals, Plastics and Rubber 2.2% 1.9%
Construction & Building 4.5% 4.7%
Consumer Products 1.3% 4.1%
Containers, Packaging & Glass 2.5% 2.4%
Forest Products and Paper 0.4% 0.3%
Energy: Oil and Gas 2.6% 2.1%
Entertainment 1.7% -
Healthcare & Pharmaceuticals 15.3% 14.3%
High Tech Industries 16.8% 13.7%
Hotel, Gaming & Leisure 4.5% 4.4%
Media 4.9% 7.5%
Retail 1.3% 1.3%
Services - Business 11.9% 8.0%
Services - Consumer 3.0% 3.5%
Telecommunications 3.8% 6.2%
Transportation Consumer 4.0% 2.6%
Utilities 2.0% 2.9%
Wholesale 2.1% 0.5%
------------------------------- -------------------- -----------------
Total 100.0% 100.0%
------------------------------- -------------------- -----------------
Please note that the above table includes only those US CLOs
owned indirectly through the US MOA
Cash
All the cash held by BGCF is held with Citibank N.A., London
Branch which has a credit rating of A3 from Moody's as at 31
December 2018 (31 December 2017: Baa1).
Liquidity risk
Liquidity is the risk that BGCF may not be able to meet its
financial obligations as they fall due. The ability of BGCF to meet
its obligations is dependent on the receipt of interest and
principal from the underlying collateral portfolios. Obligations
may arise from: financial liabilities at fair value, payable for
investments purchased, variable funding notes, interest payable on
CLO Notes, derivative financial liabilities, other payables and
accrued expenses.
At reporting date, the financial obligations exposed to
liquidity risk are as follows:
Financial liabilities measured at fair value through profit or
loss
Financial liabilities at fair value comprise PPNs issued by
BGCF.
All PPNs issued are limited recourse. The recourse of the
noteholders, which includes BGLF, is limited to the proceeds
available to unsecured creditors at such time from the debt
obligations, CLO Income Notes and other obligations which comply
with the investment policy. Therefore, from the perspective of
BGCF, the associated liquidity risk of the PPNs is reduced.
13 Segmental reporting
As required by IFRS 8 Operating Segments, the information
provided to the Board, who are the chief operating decision-makers,
can be classified into one segment for the years ended 31 December
2018 and 31 December 2017. The only share class in issue during the
years ended 31 December 2018 and 31 December 2017 is the Euro
Ordinary share class.
For the years ended 31 December 2018 and 31 December 2017, the
Company's primary exposure was to the Lux Subsidiary in Europe. The
Lux Subsidiary's primary exposure is to BGCF, an Irish entity.
BGCF's primary exposure is to the US and Europe.
14 Basic and diluted (loss) / earnings per Euro Ordinary share
As at As at
31 December 2018 31 December 2017
EUR EUR
--------------------------------------------------- ----------------- -----------------
Total comprehensive (loss) / income for the year (12,683,130) 5,729,994
Weighted average number of shares during the year 404,700,446 390,896,434
--------------------------------------------------- ----------------- -----------------
Basic and diluted (loss) / earnings per Euro share (0.0313) 0.0147
--------------------------------------------------- ----------------- -----------------
15 Net asset value per Euro Ordinary share
As at As at
31 December 2018 31 December 2017
EUR EUR
--------------------------------------------- ----------------- -----------------
IFRS Net asset value 326,387,144 379,540,321
Number of Euro Ordinary shares at year end 404,700,446 404,700,446
--------------------------------------------- ----------------- -----------------
IFRS Net asset value per Euro Ordinary share 0.8065 0.9378
--------------------------------------------- ----------------- -----------------
16 Reconciliation of Published NAV to IFRS NAV per the financial statements
As at As at
31 December 2018 31 December 2017
NAV NAV per share NAV NAV per share
EUR EUR EUR EUR
------------------------------------------- ------------- ------------- ------------- -------------
Published NAV attributable to Shareholders 362,725,238 0.8963 379,540,321 0.9378
Adjustment - valuation (36,028,424) (0.0890) - -
Adjustment - accrued expenses (309,670) (0.0008) - -
------------------------------------------- ------------- ------------- ------------- -------------
NAV per the financial statements 326,387,144 0.8065 379,540,321 0.9378
------------------------------------------- ------------- ------------- ------------- -------------
As noted above, there can be a difference between the Published
NAV and the IFRS NAV per the financial statements, mainly because
of the different bases of valuation. The above table reconciles the
Published NAV to the IFRS NAV per the financial statements.
17 Related party transactions
All transactions between related parties were conducted on terms
equivalent to those prevailing in an arm's length transaction.
Transactions with entities with significant influence
In accordance with IAS 24 "Related Party Disclosures", the
related parties and related party transactions during the year
comprised transactions with an affiliate of DFME. As at 31 December
2018, Blackstone Asia Treasury Pte held 43,000,000 Euro shares in
the Company (31 December 2017: 43,000,000).
Transactions with key management personnel
The Directors are the key management personnel as they are the
persons who have the authority and responsibility for planning,
directing and controlling the activities of the Company. The
Directors are entitled to remuneration for their services. Refer to
Note 4 for further detail.
Transactions with other related parties
At 31 December 2018, current employees of the Portfolio Adviser
and its affiliates, and accounts managed or advised by them, hold
24,875 Euro shares (31 December 2017: 24,875) which represents
0.006% (31 December 2017: 0.006%) of the issued shares of the
Company.
The Company has exposure to the CLOs originated by BGCF, through
its investment in the Lux Subsidiary. DFME is also appointed as a
service support provider to BGCF and as the collateral manager to
the European subsidiaries. GSO / Blackstone Debt Funds Management
LLC has been appointed as the collateral manager to Dorchester Park
CLO Designated Activity Company and US CLOs securitised through the
US MOA. In addition, it has entered into a management agreement
with the US MOA.
Alan Kerr was an executive director of DFME up until 25 April
2017. Mr Kerr was subsequently appointed as director to BGCF in
October 2017 and was appointed to the role as a nominee of DFME. Up
to May 2017, Mr Kerr held the position of Senior Managing Director
of The Blackstone Group L.P., the ultimate parent company of DFME,
and for the remainder of 2017 held the position of Senior Adviser
to The Blackstone Group L.P.
Transactions with Subsidiaries
The Company held 291,343,213 CSWs as at 31 December 2018 (31
December 2017: 337,374,822) following the redemption of 44,169,444
and cancellation of 1,862,165 CSWs by the Lux Subsidiary. Refer to
Note 6 for further details.
As at 31 December 2018, the Company held 2,000,000 Class A
shares and 1 Class B share in the Lux Subsidiary with a nominal
value of EUR2,000,001 (31 December 2017: 2,000,000 Class A shares
and 1 Class B share in the Lux Subsidiary with a nominal value of
EUR2,000,001).
As at 31 December 2018, the Company held an intercompany loan
payable to the Lux Subsidiary amounting to EUR237,057 (31 December
2017: EURNil).
18 Controlling party
In the Directors' opinion, the Company has no ultimate
controlling party.
19 Events after the reporting period
The Board has evaluated subsequent events for the Company
through to 30 April 2019, the date the financial statements are
available to be issued, and, other than those listed below,
concluded that there are no material events that require disclosure
or adjustment to the financial statements.
Following the announcements made on the 23 November 2018 and 21
December 2018, the Company announced on 3 January 2019 that new C
Shares would be allotted and admitted to trading on 7 January 2019.
Allotment and admission were completed on 7 January 2019.
On 8 January 2019, the Company announced that Mark Moffat had
been appointed as a non-executive director with effect from 8
January 2019.
On 22 January 2019, the Board declared a dividend of EUR0.025
per Euro Ordinary share in respect of the period from 1 October
2018 to 31 December 2018 with an ex-dividend date of 31 January
2019. A total payment of EUR10,117,511 was processed on 1 March
2019.
On 22 January 2019, the Board declared a dividend of EUR0.01452
per C share in respect of the period from 1 October 2018 to 31
December 2018 with an ex-dividend date of 31 January 2019. A total
payment of EUR1,937,710 was processed on 1 March 2019.
On 23 January 2019, the Company announced that, under the
general authority to buy back shares conferred by the Company's
Ordinary Shareholders at its AGM on 22 June 2018, it intends to buy
back shares in the market using available cash.
On 18 April 2019, the Company declared a dividend of EUR0.025
per Euro Ordinary share in respect of the period from 1 January
2019 to 31 March 2019. This dividend is payable on 31 May 2019 to
Shareholders on the register as at the close of business on 3 May
2019, and the corresponding ex-dividend date will be 2 May
2019.
On 18 April 2019, the Company declared a dividend of EUR0.0205
per C share in respect of the period from 1 January 2019 to 31
March 2019. This dividend is payable on 31 May 2019 to Shareholders
on the register as at the close of business on 3 May 2019, and the
corresponding ex-dividend date will be 2 May 2019.
Company Information
Directors Registered Office
Ms Charlotte Valeur (Chair) IFC 1
Mr Gary Clark The Esplanade
Ms Heather MacCallum St Helier
Mr Steven Wilderspin Jersey
Mr Mark Moffat JE1 4BP, Channel Islands
All c/o the Company's registered office
Portfolio Adviser Registrar
Blackstone / GSO Debt Funds Management Europe Limited Link Asset Services (Jersey) Limited
30 Herbert Street 12 Castle Street
2(nd) Floor St Helier
Dublin 2, Ireland Jersey, JE2 3RT, Channel Islands
Joint Broker Joint Broker
Nplus1 Singer Advisory LLP Fidante Partners Europe Limited (trading as Fidante
1 Bartholomew Lane Capital)
London, EC2N 2AX , United Kingdom 1 Tudor Street
London, EC4Y 0AH, United Kingdom
Legal Adviser to the Company (as to Jersey Law) Legal Adviser to the Company
(as to English Law)
Carey Olsen Herbert Smith Freehills LLP
47 Esplanade Exchange House
St Helier Primrose Street
Jersey London
JE1 0BD, Channel Islands EC2A 2EG
United Kingdom
Reporting Accountant and Auditor Administrator / Company Secretary / Custodian / Depositary
Deloitte LLP BNP Paribas Securities Services S.C.A.
Gaspé House IFC 1
66-72 Esplanade The Esplanade
St Helier St Helier
JE2 3QT Jersey
Channel Islands JE1 4BP, Channel Islands
Glossary
"AGM"Glossary Annual General Meeting
"AIC" the Association of Investment Companies, of which the Company is a
member
"AIC Code" the AIC Code of Corporate Governance for Jersey companies
"Articles" the Articles of Incorporation of the Company
"BGCF" Blackstone / GSO Corporate Funding Designated Activity Company
"BGCF Facility" BGCF entered into a facility agreement dated 1 June 2017, as amended,
between (1) BGCF (as
borrower), (2) Citibank Europe plc, UK Branch (as administration agent),
(3) Bank of America
N.A. London Branch (as an initial lender), (4) BNP Paribas (as an
initial lender), (5) Deutsche
Bank AG, London Branch (as initial lender), (6) Citibank N.A. London
Branch (as account bank,
custodian and trustee) and (7) Virtus Group LP (as collateral
administrator)
"BGLF" or the "Company" Blackstone / GSO Loan Financing Limited
"BGLP" Ticker for the Company's Sterling Quote
"Board" the Board of Directors of the Company
"CSWs" Cash Settlement Warrants
"CLO" Collateralised Loan Obligation
"DFM" GSO / Blackstone Debt Funds Management LLC
"DFME" or the "Portfolio Adviser" Blackstone / GSO Debt Funds Management Europe Limited
"DTR" Disclosure Guidance and Transparency Rules
"Discount" / "Premium" calculated as the NAV per share as at the period end less BGLF's closing
share price on the
London Stock Exchange, divided by the NAV per share as at that date
"Dividend yield" calculated as the last four quarterly dividends declared divided by the
share price as at
the period end
"ECB" European Central Bank
"EU" European Union
"FCA" Financial Conduct Authority (United Kingdom)
"Fed" Federal Reserve
"FRC" Financial Reporting Council (United Kingdom)
"FVPL" Fair value through profit or loss
"FVOCI" Fair value through other comprehensive income
"GSO" GSO Capital Partners LP
"IDC" International Data Corporation
"IFRS" International Financial Reporting Standards
"IFRS NAV" Gross assets less liabilities (including accrued but unpaid fees)
determined in accordance
with IFRS as adopted by the EU
"LCD" S&P Global Market Intelligence's Leveraged Commentary & Data provides
in-depth coverage of
the leveraged loan market through real-time news, analysis, commentary,
and proprietary loan
data
"Loan Warehouse" A special purpose vehicle incorporated for the purposes of warehousing
US and/or European
floating rate senior secured loans and bonds
"LSE" London Stock Exchange
"LTM" Last twelve months
"Lux Subsidiary" Blackstone / GSO Loan Financing (Luxembourg) S.à r.l
"NAV" Net asset value
"NAV total return per Euro Ordinary share" Calculated as the increase / decrease in the NAV per Euro Ordinary share
plus the total dividends
paid per Euro Ordinary share during the period, with such dividends paid
being re-invested
at NAV, as a percentage of the NAV per Euro Ordinary share
"NIM" Net interest margin
"OCI" Other Comprehensive Income
"PPNs" Profit Participating Notes
"Published NAV" Gross assets less liabilities (including accrued but unpaid fees)
determined in accordance
with the section entitled "Net Asset Value" in Part I of the Company's
Prospectus and published
on a monthly basis
"Return" Calculated as the increase /decrease in the NAV per Euro Ordinary share
plus the total dividends
paid per Euro Ordinary share, with such dividends paid being re-invested
at NAV, as a percentage
of the NAV per Euro Ordinary share.
LTM return is calculated over the period January 2018 to December 2018.
"SFS" Specialist Fund Segment
"UK Code" UK Corporate Governance Code 2016
"US MOA" United States Majority Owned Affiliate
"Underlying Company" A company or entity to which the Company has a direct or indirect
exposure for the purpose
of achieving its investment objective, which is established to, among
other things, directly
or indirectly, purchase, hold and/or provide funding for the purchase of
CLO Securities
"WA" Weighted average
"WAS" Weighted average spread
The person responsible for arranging for the release of this
announcement on behalf of the Company is Melissa Le Cheminant of
BNP Paribas Securities Services S.C.A., Jersey Branch, Company
Secretary.
IFC1 - The Esplanade- St Helier - Jersey - JE1 4BP
Company Secretary
Tel: +44 (0) 1534 813873
A copy of the Company's Annual Financial Report will be
available shortly from the Company Secretary, (BNP Paribas
Securities Services S.C.A., Jersey Branch, IFC1, The Esplanade, St
Helier, Jersey, JE1 4BP), or will be circulated on the Company's
website.
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 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
FR LLFIESRIIVIA
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April 30, 2019 11:13 ET (15:13 GMT)
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