TIDMCIFU TIDMCIFR
RNS Number : 6397M
Carador Income Fund PLC
30 April 2018
RNS Announcement
Carador Income Fund plc
30 April 2018
FOR IMMEDIATE RELEASE
ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE FINANCIAL
YEARED 31 DECEMBER 2017
NOT FOR RELEASE, DISTRIBUTION OR PUBLICATION DIRECTLY, OR
INDIRECTLY, TO U.S. PERSONS OR INTO OR IN THE UNITED STATES,
AUSTRALIA, CANADA OR JAPAN.
A copy of the Company's Annual Report and Audited Financial
Statements for the year ended 31 December 2017 as set out below,
will be posted to the shareholders of the Company and will shortly
be available on the Company's website http://www.carador.co.uk
CHAIRMAN'S REPORT
Dear Shareholders
I am pleased to present the Annual Report and Accounts for the
Company for the financial year ended 31 December 2017.
2017 ended on a strong economic note, with U.S. real GDP
increasing 2.3% compared to 1.5% in 2016. Macroeconomic data in
December was broadly positive and labour trends continued to
suggest full employment - nonfarm payrolls rose, the labour force
participation rate remained stable, and jobless claims were at
their lowest level in almost 45 years(1) . Despite increased trade
and geopolitical tensions, and significant policy uncertainty with
respect to U.S. tax reform and the federal budget, markets
continued their streak of low volatility through the end of
2017.
Our outlook across most sectors remains positive and is
supported by both top- and bottom-line growth among our portfolio
companies amid an environment of synchronized global expansion and
elevated consumer optimism(2) .
Loans, as represented by the S&P/LSTA Leveraged Loan Index,
returned 4.12% in 2017, a relatively muted performance primarily
driven by spread compression despite the benefit of rising LIBOR.
Strong demand for loans continued to support heavy refinancing and
repricing activity, which pressured loan spreads, capped price
performance, and subdued returns throughout the year. Meanwhile,
high yield bonds, as represented by the Barclays US High Yield
Index, returned 7.50% in 2017, a relatively strong performance
amongst fixed income assets that benefited from solid fundamentals,
limited macro stresses, and a less-than-anticipated increase in
rates. This performance compares to full-year returns for
investment grade assets, as represented by the Bloomberg Barclays
Corporate Index, of 6.42% and full-year returns for the S&P 500
of 21.83%. While 2017 was predominantly a "coupon-clipping" year
for loan investors, we believe that spread compression should
stabilize in 2018. Additionally, new issue supply from increased
M&A and LBO activity, along with potential market volatility,
could provide periodic attractive buying opportunities.
Performance
During 2017, the U.S. Dollar Class generated a total Net Asset
Value ("NAV") return of 9.53%(3) including distributions. The U.S.
Dollar Class started the year with a NAV per share of US$0.7763 and
ended December at US$0.7504, a 3.34% decline in the NAV per share,
although as noted below, the U.S. Dollar Class also paid a total of
$0.0900 per share in dividends over the period(3) .
The U.S. Dollar Class Shares closed 2017 at US$0.6988, a 6.88%
discount to the NAV at 31 December 2017. The annualised historic
dividend yield based on the last declared dividends was 12.88%(4)
.
The Repurchase Pool Class Shares generated a total NAV return of
1.12%(3) from 31 October 2017 to 31 December 2017. It is not the
intention of the Directors to declare a dividend in respect of the
Repurchase Pool Class Shares. The Repurchase Pool Class Shares
ended the year with a NAV per share of US$0.74690 and a share price
of US$0.7250.
The return on the Repurchase Pool Class is for 2 months from 1
November 2017 to 31 December 2017. The return on the U.S. Dollar
Class is for 12 months to 31 December 2017. However, the Repurchase
Pool Class Shareholders have also profited from the return of the
U.S. Dollar Share Class for the first 10 months of the year from 1
January 2017 to 31 October 2017.
Dividends
The Company declared total dividends of $0.0900 per U.S. Dollar
Share for 2017, in line with the target annual dividend previously
announced in the Dividend Strategy and Outlook for the year.
In February 2018, the Directors declared that it was the Board's
objective to provide shareholders with regular dividends at levels
that were sustainable and, to that date, the Company had paid a
fixed dividend. Over recent months, asset spread compression had
resulted in a negative impact on CLO equity distributions across
the market and within Carador's portfolio. As a result, expected
income in the short and medium term does not support the existing
annual dividend of 9c per share.
Dividends (continued)
In seeking to provide stable dividends to U.S. Dollar Share
investors at rates that reflect net income actually generated, the
Company intends to move to a floating dividend such that, in any
financial quarter, the dividends paid will be equal to the cash
income the Company has received net of reasonable expenses while
retaining an element of cashflow receipts on CLO Income Notes as
principal for reinvestment. Cash income will comprise cash received
by the Company attributable to the CLO investments in the Company's
portfolio and the income, if any, arising from cash held by the
Company pending investment or distribution.
The dividend in respect of Q1 2018 will be declared in late
April 2018 and is expected to be between 1.45-1.65c based on
current income expectations. This change in dividend policy was
made in order to better align the Company's dividend distributions
with its current level of cash flows. The Directors believe that
the revised pro forma dividend remains very competitive when viewed
against the market place in general.
The Board and the Investment Manager believe that, over the
longer term, the cash flows and IRRs of the Company's investments
can be improved through portfolio rotation and the use of
refinancing and resetting liabilities, both of which have helped to
offset asset spread tightening; however, historically this
improvement has lagged the underlying asset refinancing. In
addition, the Company's Investment Manager believes that spreads
may widen over the medium to longer term which should result in an
increase in the Company's income generation and future level of
dividend payable.
Since the Company also seeks to maintain its status as an
"excluded security" under the Non-Mainstream Pooled Investment
("NMPI") rules, the Board is committed to distributing at least 85%
of its net income each financial year. The Company also maintains
the right to distribute in excess of 85% of its net income at its
own discretion.
Annual declared dividends per US$ share and Net Cashflow
Coverage of Net Income
Year Dividend Declared Net Cashflow Cover
------- ------------------- --------------------
2009 7.0c 1.85x
2010 7.2c 1.46x
2011 11.3c 1.48x
2012 14.8c 1.48x
2013 13.1c 1.19x
2014 10.0c 1.10x
2015 10.0c 1.34x
2016 9.5c 1.41x
2017 9.0c 1.26x
------- ------------------- --------------------
Material Events
On 27 April 2017, the Company released its audited Annual Report
and Accounts for the full year 2016.
On 2 May 2017, the Company announced that the Directors intended
to use the discretion provided to them in the Articles to put
forward to shareholders proposals to approve a redemption
opportunity for up to 100 per cent. of the shares in issue (the
"Redemption Proposals") for any shareholders who may wish to exit
their holding in the Company (in whole or in part).
At the Annual General Meeting (the "AGM") of the Company held on
31 July 2017, the shareholders approved the following ordinary and
special resolutions:
Ordinary Resolutions
1. Receive and consider the reports of the Board and of the
auditor of the Company, KPMG, and the accounts for the year ended
31 December 2016.
2. To review the Company's affairs.
3. Re-appointment of KPMG as auditors of the Company.
4. Authorisation of the Directors to fix the remuneration of the auditors of the Company.
5. Re-election of Mr Edward D'Alelio as a director of the Company.
6. Re-election of Mr Werner Schwanberg as a director of the Company.
7. Re-election of Mr Fergus Sheridan as a director of the Company.
8. Re-election of Mr Adrian Waters as a director of the Company.
9. Approval of the repurchase opportunity, as summarised in the
circular accompanying the Notice of the Annual General Meeting.
10. Authorisation of the Directors to allot up to 300 million
shares of the Company.
11. Authorisation of the Directors to allot a 10% of shares in
addition or as an alternative to item 10 above.
Special Resolutions
12. Authorisation of the Directors to allot the shares referred
to in items 10 and 11 above, without having previously to offer
such shares to shareholders on a pre-emptive basis.
13. Adopt the constitution of the Company in the form presented
to the annual general meeting to the exclusion of the existing
constitution of the Company.
On 31 August 2017, the Company announced its Unaudited Interim
Results for the period ended 30 June 2017.
On 11 October 2017, the Company entered into an amended and
restated investment management agreement. The update was to include
details of the performance fees payable to the Investment Manager
in respect of the Repurchase Pool Class Shares.
On 12 October 2017, the Company announced the publication of a
Prospectus that contained details of an offer to each holder of
U.S. Dollar Shares in the Company to convert some or all of their
U.S. Dollar Shares into Repurchase Pool Class Shares (the
"Repurchase Opportunity") and of a 12 month Placement Programme of
U.S. Dollar Shares and/or C Shares. The Placement Programme closes
on 10 October 2018 and no C Shares have yet been issued.
On 31 October 2017, the Company announced the results of the
Repurchase Opportunity. The Company received valid elections from
and on behalf of shareholders for 144,451,569 U.S. Dollar Shares of
no par value, representing 26.6 per cent. of the issued U.S. Dollar
Shares of the Company, to re-designate such U.S. Dollar Shares into
Repurchase Pool Class Shares of no par value. The Repurchase Pool
was created by allocating a pro rata amount of the assets and
liabilities of the Company attributable to the U.S. Dollar Shares
being converted as at the Conversion Date.
On 22 November 2017, the Company announced that the 144,451,569
Repurchase Pool Class Shares arising on conversion of the
equivalent number of U.S. Dollar Shares were admitted to trading to
the Specialist Fund Segment of the Main Market of the London Stock
Exchange.
Outlook(5)
The Board believes that the Company's portfolio is well
positioned to take advantage of investment opportunities. As at the
end of December 2017, the Company's portfolio investments comprised
11.5% Mezzanine Notes, 88.0% Income Notes, and a cash and cash
equivalents balance of 0.6%(6) , all as a percentage of NAV. The
Board believes that the Company's current portfolio is well placed
to benefit from varying credit cycles and environments given the
active approach and the duration of reinvestment period of its
Income Notes.
U.S. credit strategists forecast stable returns for loans and
high yield bonds with most predicting in the range of 3-5% and
4-6%, respectively, for the coming year. Expectations for rising
interest rates, coupled with current relative yields, reinforce the
attractiveness of loans relative to other longer-duration fixed
income assets. Given there is currently greater predictability
around defaults than the path of inflation and interest rates, we
continue to favour high yield over investment grade as the latter
will likely continue to be constrained by low spreads/yields and
duration risk in 2018.
Werner Schwanberg
Chairman
27 April 2018
(1) Source: Reuters, as of 18 January 2018.
(2) Sources: U.S. Tax Reform and Implications for the High Yield
Market, J.P. Morgan; S&P Capital IQ, as of 20 December
2017.
(3) Past performance is not necessarily indicative of future
results, and there can be no assurance that Carador will achieve
comparable results, will meet its target returns, achieve its
investment objectives, or be able to implement its investment
strategy. All returns are net of an accrued performance fee because
the NAV and distributions to the end of the year for the U.S. $
Shares were in excess of their respective thresholds. Dividends are
assumed to be reinvested in security of NAV.
(4) The 12 month Dividend Yield is based on last four quarterly
dividends declared. Share price data is as at 31 December 2017.
(5) The information here relates to the portfolio of the U.S.
Dollar Class Shares.
(6) Reflects trade date cash balance not settled cash
balance.
INVESTMENT MANAGER'S REVIEW
For the twelve month period ended 31 December 2017
We are pleased to present our review of 2017 and our outlook for
2018 related to the U.S. Dollar Shares.
Some highlights include:
-- aggregate declared dividend of US$0.0900 per share, in line
with the target set by the Board in January 2017;
-- NAV total return of 9.53% over the year, including dividends
paid, outperforming the Credit Suisse Leveraged Loan Index and the
Credit Suisse High Yield Bond Index by 5.28% and 2.50%
respectively;
-- historic dividend yield of 12.88% (share price as at 31 December 2017)(7) ;
-- the Company traded over $180 million notional in 2017,
rotating out of Mezzanine positions and trading Income Notes and
Mezzanine positions with credit risk given the strength in the
market;
-- continued actively adding value through refinancing and
pursuing resets where economical, extending duration on Income
Notes; and
-- majority of the Income Notes coming out of reinvestment in
2017 have been optionally redeemed or are likely to be reset in the
near term.
We are pleased to present our review of 2017 and our outlook for
2018 related to the Repurchase Pool Shares. Some highlights
include:
-- the Company liquidated four positions from the Repurchase
Pool, which were sold, on average, at a premium to the prior month
end valuations.
-- continue to realise the assets comprising the Repurchase Pool
within six to twelve months of the Conversion Date. It's possible
this may take significantly longer in the case of certain assets or
in less favourable market conditions. Accordingly, investors should
be prepared for a scenario in which a proportion of the assets
attributable to the Repurchase Pool may not be capable of
realisation for an indefinite period that may be significantly
longer than twelve months. Any change to the anticipated timing for
realisation will be notified by the Company through a Regulatory
Information Service.
Bank Loan Market Overview
In 2017, larger loans with tranche sizes greater than $1 billion
underperformed smaller loans. The largest loans in the market
generally saw the greatest amount of refinancing and repricing
activity due to the liquidity in those issues. Lower-quality loans
(rated CCC/split CCC and default) outperformed the higher-quality
segment of the market (rated split BBB/BB) during 2017. The
lower-quality loan segment is mainly composed of second-lien loans
and less liquid or middle market loans, which benefited from an
increasing risk appetite and less repricing and refinancing
activity. This translated into outperformance in the strong market
environment. However, the relative performance of different quality
segments for high yield bonds differed from that of loans. The
lowest-quality segment of the high yield bond market performed more
weakly than the higher-quality segments in 2017, as
distressed/defaulted assets within the energy and retail sectors
meaningfully detracted from performance.
Despite gross institutional loan issuance of $974 billion, net
new loan supply in 2017 totalled only $189 billion, with
refinancings and repricings accounting for 73% of 2017 gross
issuance. Similarly, refinancing accounted for 63% of the $328
billion of high yield bond new deal volume in 2017, with net new
high yield bond issuance totalling only $55 billion for the year.
High yield M&A deal volume lagged in 2017 by 36%
year-over-year, as equity valuations remained elevated and
companies were cautious to engage in significant deals amid U.S.
policy uncertainty. This further contributed to the year's
supply-demand imbalance and to the underperformance of the loan
asset class. Loan mutual fund flows remained high in 2017, with
$13.5 billion in total net inflows. Total 2017 CLO new issuance was
$118.1 billion, excluding refinancings and resets, and CLOs
continue to represent over half of the institutional investor base
for the loan primary market. Conversely, retail demand for high
yield bonds was stymied in 2017 due to rate pressures, volatility
in stocks and oil, and certain sector-specific issues. High yield
mutual funds experienced an outflow of $17.5 billion during the
year.
Default activity in the credit markets registered the lowest
annual total since 2013, with $34.1 billion in combined default
volume across loans and high yield bonds ($17.5 billion in loans
and $16.7 billion in high yield bonds, respectively). The
par-weighted U.S. loan default rate for 2017 was 1.84%, a 35bp
increase above the default rate at the end of 2016 but notably
below the 10-year historical average default rate of 2.96%. The
par-weighted U.S. high yield bonds default rate for 2017 was 1.27%,
excluding distressed exchanges, a decrease of 230bp since the end
of 2016 and well below the 20-year historical average of 3.07%. In
2017, the energy sector accounted for the largest number of
defaults, including distressed exchanges, as well as the largest
total default volume, while the retail sector accounted for the
second-largest number of defaults and the third-largest total
default volume.
(7) The 12 month Dividend Yield is based on last four quarterly
dividends declared
Bank Loan Market Overview (continued)
Despite a modest uptick in defaults in 4Q, we expect loan and
high yield default rates to remain low throughout 2018 with analyst
estimates ranging between 1.2-2.5% for loans and 2.0-3.0% for high
yield.
CLO Market Overview
CLO issuance in 2017 was very strong globally. In the U.S., CLO
new issuance recorded the second highest level in 2017 at $118.1
billion through 212 CLOs, well ahead of the 2016 issuance of $72.3
billion through 156 CLOs. European CLO new issuance, which totalled
EUR20.9 billion through 51 CLOs, reached a post-crisis high in 2017
and significantly surpassed 2016's issuance of EUR16.8 billion
through 41 CLOs.
In addition to new issuance, 2017 saw record volume of CLO
refinancing and reset activity. EUR24.8 billion of European CLOs
and $167.0 billion of U.S. CLOs were refinanced or reset throughout
2017, allowing CLO managers to offset the asset spread compression
by lowering the CLO's liability cost. For comparison, total
refinancing and reset volume in 2016 was EUR1.1 billion in Europe
and $39.5 billion in the U.S.
Demand for CLO issuance was fuelled by the improved CLO
arbitrage despite loan spread compression, and broader
institutional demand for both U.S. and European CLOs was further
bolstered by strong returns across all tranches driven by healthy
underlying portfolios. CLOs continue to represent over half of the
loan primary market institutional investor base. Projections for
2018 CLO issuance consensus is $100 billion in the U.S and EUR15-20
billion in Europe, further projecting heightened demand for
loans.
Credit fundamentals of the CLO portfolios remain strong with
asset spread tightening the main focus. As of year-end 2017,
Weighted Average Spread ("WAS") tests in both European and U.S.
CLOs fell by 50bp and 30bp, respectively, since the end of 2016.
Exposure to CCC-rated and distressed assets remain low due to the
continued low default environment in the loan market. Weighted
Average Rating Factor ("WARF") test results remain generally flat,
providing CLO investors additional comfort on collateral
quality.
Portfolio Update
(The information below relates to the portfolio of the U.S.
Dollar Shares).
During the year, the Company has continued to benefit from
active trading and management. The Company traded over $180 million
notional in 2017, rotating out of well-bid Mezzanine positions and
trading Income Notes and Mezzanine positions with credit risk given
the strength in the market. This active approach has produced a
portfolio where 67% of Income Notes have a reinvestment period end
date of 2020 or later. The table below highlights the transition of
the reinvestment periods of the portfolio's Income Note transition
over the period as a percentage of NAV:
Year Reinvestment
Ends As of 31/12/2017 As of 31/12/2016
------------------- ----------------- -----------------
2013 0.00% 0.35%
2014 0.17% 0.33%
2017 5.29% 21.34%
2018 16.24% 23.04%
2019 10.99% 14.86%
2020 19.61% 22.72%
2021 21.05% 12.95%
2022 26.66% 4.42%
------------------- ----------------- -----------------
Portfolio Update (continued)
The Investment Manager has continued to focus on top performing
managers. The below table lists the top ten managers by exposure of
the Income Notes*:
% of Income Notes Manager
------------------ ---------------------------------------
GSO / Blackstone Debt Funds Management
38.05% LLC
11.01% Neuberger Berman Fixed Income LLC
9.07% BlackRock Financial Management Inc
8.89% HPS Investment Partners, LLC
Prudential Investment Management
7.42% Inc
AEGON USA Investment Management
5.20% LLC
4.61% Ares Management LLC
4.06% Carlyle GMS CLO Management L.L.C.
Voya Alternative Asset Management
3.89% LLC
3.78% CVC Credit Partners LLC
------------------ ---------------------------------------
*This forms an integral part of the financial statements.
The Company has taken advantage of the strong liability CLO
market on deals approaching or passed the end of non-call period,
which can be either refinanced or reset. The Investment Manager has
completed seven resets during 2017, as it believes that resets are
supportive of long-term, sustainable income generation for Income
Note holders. Actively trying to reset the CLOs of Income Note
positions at attractive levels and extending their duration, where
possible, has typically lead to increases in valuation and yields
for Income Notes, benefitting the overall Company NAV. The
Investment Manager expects to continue actively effecting reset
transactions on the Company's Income Note positions as those CLOs
exit their non-call periods.
Please see summary of reset activity below:
Deals CLO Manager Original New AAA Extension Pricing
AAA Spread Spread of Reinvestment Date
Period
------------- -------------- ------------ -------- ----------------- --------
STWRT 2015-1 GSO L+143 L+107bp 3.00 years Nov-17
------------- -------------- ------------ -------- ----------------- --------
Neuberger
NEUB 2013-15 Berman L+140bp L+118bp 5.00 years Sep-17
------------- -------------- ------------ -------- ----------------- --------
WINDR 2013-2 THL Credit L+145bp L+123bp 4.75 years Sep-17
------------- -------------- ------------ -------- ----------------- --------
HLM 3-2014 HPS L+148bp L+118bp 4.50 years Jun-17
------------- -------------- ------------ -------- ----------------- --------
PLMRS 2015-1 Palmer Square L+150bp L+130bp 2.00 years May-17
------------- -------------- ------------ -------- ----------------- --------
Neuberger
NEUB 2014-17 Berman L+147bp L+118bp 3.75 years Apr-17
------------- -------------- ------------ -------- ----------------- --------
Neuberger
NEUB 2013-14 Berman L+113bp L+125bp 4.75 years Apr-17
------------- -------------- ------------ -------- ----------------- --------
In a tightening market, refinancing CLO liabilities has been a
good way to offset collateral spread tightening. Refinancing a deal
is, in general, slightly easier to implement than reset and
generally controlled by the majority equity holder. The Investment
Manager has benefited from the lower CLO liability costs via eight
refinancings as detailed below:
Deals CLO Manager Original New AAA Refinancing Reinvestment
AAA Spread Spread Pricing Period Remaining
at Pricing
-------------- ------------ ------------ --------- ------------ ------------------
1.8 yrs
CGMS 2015-1 Carlyle L +153bp L +100bp Jul-17 (Apr-19)
-------------- ------------ ------------ --------- ------------ ------------------
1.2 yrs
MAGNE 2014-9 BlackRock L +142bp L+100bp May-17 (Jul-18)
-------------- ------------ ------------ --------- ------------ ------------------
1.8 yrs
MAGNE 2014-11 BlackRock L +145bp L+112bp Apr-17 (Jan-19)
-------------- ------------ ------------ --------- ------------ ------------------
1.3 yrs
SPARK 2014-1 GSO L +148bp L+112bp Mar-17 (Jul-18)
-------------- ------------ ------------ --------- ------------ ------------------
0.6 yrs
ARES 2013-3 Ares L +135bp L+101bp Mar-17 (Oct-17)
-------------- ------------ ------------ --------- ------------ ------------------
1.7 yrs
THRPK 2014-1 GSO L +147bp L+116bp Feb-17 (Oct-18)
-------------- ------------ ------------ --------- ------------ ------------------
1.7 yrs
BRCHW 2014-1 GSO L +144bp L+118bp Feb-17 (Oct-18)
-------------- ------------ ------------ --------- ------------ ------------------
1.7 yrs
BOWPK 2014-1 GSO L +148bp L+118bp Feb-17 (Nov-18)
-------------- ------------ ------------ --------- ------------ ------------------
Portfolio Update (continued)
As of 31 December 2017, the Company had 3.40% exposure to CCC
assets and 0.41% of defaulted assets on a look through basis
through investments across its 51 CLOs managed by 13 Investment
Managers.
As at 31 December 2017, the Company's top five investment
exposures were*:
Investment Manager Original % of Portfolio
Rating
--------------- ------------------------ --------- --------------
CATSK 2017-1A GSO / Blackstone Debt
SUB Funds Management LLC NR/NR 8.35%
TPARK 2016-1A GSO / Blackstone Debt
SUB Funds Management LLC NR/NR 6.00%
NEUB 2014-17X
SUB Neuberger Berman NR/NR 4.65%
MAGNE 2014-11A
SUB BlackRock NR/NR 4.32%
HLM 10A-16 SUB HPS Investment Partners NR/NR 4.10%
--------------- ------------------------ --------- --------------
*This forms an integral part of the financial statements.
The Investment Manager believes that the combination of strong
CLO managers, lower liability costs and longer duration provide
economical and robust financing for loans in varying credit
cycles.
For the Repurchase Pool Share Class, the Investment Manager was
able to realise four positions in December 2017 at a premium to the
November month end valuations.
Outlook
In 2018, we believe that a great deal of value will be
predicated on inflation trends, term premiums and the continuation
of a low default environment. We remain encouraged by the benefits
of recent U.S. tax reform as it is expected that for 75% of high
yield issuers the lower corporate tax rate and the ability to
depreciate additional capex will outweigh companies' inability to
fully deduct interest expense. Accordingly, analysts expect that
the fundamentals of the majority of double-B and single-B rated
U.S. issuers could improve, while highly levered CCC-rated issuers
may face headwinds given the reduction in interest deductibility.
The confluence of these events is likely to create greater
performance and pricing dispersion resulting in opportunities to
outperform through careful credit selection.
The Board and the Investment Manager believe that, over the
longer term, the cash flows and IRRs of the Company's investments
can be improved through portfolio rotation and the use of
refinancing and resetting liabilities, both of which have helped to
offset asset spread tightening. In addition, we believe that
spreads may widen over the medium to longer term which should
result in an increase in the Company's income generation and
overall portfolio performance.
Risk Management
The Company's portfolio of CLO investments is managed to
minimise default risk and potential loss through credit analysis
performed by the Investment Manager's experienced credit research
team. Achieving diversification is part of the Company's investment
objective. Each investment is assessed with a view to providing
diversification in terms of underlying assets, issuer, sector, and
maturity profile.
The Company invests in a minimum of 20 separate transactions
with a maximum exposure per investment, at the time of investment,
of 20% of the Net Asset Value. The Company also limits its exposure
to transactions managed by the same portfolio manager to 15% of the
Net Asset Value, at the time of investment. If the portfolio
manager is the Investment Manager or an affiliate, this limit is
increased to 60% of the Net Asset Value at the time of
investment.
The Company may invest in assets which are denominated in Euro
and Sterling, as well as U.S. Dollars. However, the Base Currency
of the Company is the U.S. Dollar. The Company therefore may have
an exposure to changes in the exchange rate between the U.S. Dollar
and the Euro/Sterling which, if unhedged, has the potential to have
a significant effect on returns. The Directors believe that it is
in the best interests of shareholders for the Company to engage in
currency hedging solely to reduce the risk of currency fluctuations
and the volatility of returns which may result from such currency
exposure. This may involve hedging, at the level of the Company,
the Euro/Sterling assets to U.S. Dollars. As at 31 December 2017,
the Company had no non-U.S. Dollar portfolio exposure.
The Company only uses currency and other hedging techniques for
the purposes of efficient portfolio management in accordance with
the requirements of the Central Bank of Ireland (the "Central
Bank"). The Company has no intention of using the currency hedging
facility for the purposes of currency speculation for its own
account.
Please also refer to note 11 for a fuller description of the
risk involved in an investment in the Company.
Leverage
The leverage of the Company on a gross exposure basis (the
"gross method") is calculated as set out in Article 7 of Commission
Delegated Regulation (EU) No. 231/2013 (the "Level 2 Regulation")
by taking the sum of the absolute values of all positions of the
Company, including borrowings and derivatives, without taking
account of netting or hedging arrangements, and is expressed as a
percentage of the net asset value ("NAV") of the Company. The
leverage of the Company on a commitment basis (the "commitment
method") is calculated as set out in Article 8 of the Level 2
Regulation by taking the sum of the absolute values of all
positions of the Company, including borrowings and derivatives, but
taking account of certain types of hedging and netting arrangements
and expressing it as a percentage of the NAV of the Company.
The Company may not employ a level of leverage in excess of 40%
of its NAV using the commitment method, and 80% of its NAV using
the gross method. In this regard, leverage has a particular meaning
and is defined as any method by which the Investment Manager
increases the exposure of a company, whether through borrowing of
cash or securities, or leverage embedded in derivative positions or
by any other means. Derivatives positions entered into for currency
hedging purposes that are closed, but yet unsettled, at the
financial reporting date are not considered to increase the
exposure of the Company or to be positions of the Company as of
that date. Accordingly, the calculation under the gross method has
been interpreted to include open derivative positions only. There
has been no change during the year in the maximum amount of
leverage which the Company may employ or to any right of reuse of
collateral or any guarantee granted under leveraging arrangements.
As at year end, the leverage used by the Company was 31.77% of the
NAV under the gross method and 31.77% of the NAV under the
commitment method.
Remuneration - Procedures and Practices
The Investment Manager is not subject to the requirements in the
AIFMD that would require it, among other things, to implement and
apply a remuneration policy that is compliant with Article 13 of
the AIFMD (including Annex II) or the ESMA Guidelines on sound
remuneration policies under the AIFMD (the "Guidelines") (but is
required in those jurisdictions where the Company has been notified
under Article 42 of the AIFMD to comply with Section XIII of the
Guidelines for these purposes).
The Investment Manager is subject to the remuneration policies
and practices (the "Policies") of The Blackstone Group L.P.
("Blackstone"). The staff included in the aggregate figures
disclosed below are rewarded in line with the Policies.
Blackstone uses financial measures as a basis for compensation
decisions across its businesses. Relevant senior management of
Blackstone ("Senior Management") make operating decisions and
assess the performance of each of Blackstone's business segments
based on financial and operating metrics. Such Senior Management
would include the global heads of the businesses as well as the CEO
and the COO of Blackstone. The Senior Management ensure that
compensation decisions are consistently taken across Blackstone,
with consideration for the overall risk profile and appetite of
Blackstone.
The Policies reflect Blackstone's ethos of good governance and
encapsulates the following principal objectives:
-- Remuneration is comprised of fixed and variable elements, as
described below, with a level of total reward that is competitive
with Blackstone's peers; and
-- Variable performance-driven compensation must be closely
aligned with the principles of Blackstone, supportive of
Blackstone's strategy and must not incentivise inappropriate risk
taking.
Blackstone's remuneration policy applies to staff globally.
While Senior Management is involved in determining and implementing
the Policies, no individual is involved in setting his or her own
remuneration. Blackstone assesses various risk factors which it is
exposed to when considering and implementing remuneration for staff
and considers whether any potential award would give rise to a
conflict of interest.
Mechanisms are in place to ensure that remuneration does not
reward failure, whether on the early termination of a contract or
otherwise. Where awards of carried interest and incentive payments
are made, these are inherently risk-adjusted given that they are
directly tied to the performance of investments or portfolios.
Remuneration - Procedures and Practices (continued)
Blackstone operates an annual total compensation process
dependant on individual and business performance, taking into
account financial and non-financial criteria. This includes the
performance of Blackstone as a whole, performance of each business
unit within Blackstone - which would include regional businesses -
as well as the individual's performance. The individual's
performance is evaluated through an annual comprehensive
performance management process known as the "360". The "360"
performance process provides an evaluation of an individual's
performance based on feedback from peers, managers and subordinates
and assesses individuals quantitatively and qualitatively on a wide
range of criteria including skills, values, collaboration and
leadership. An individual's performance is also compared to agreed
objectives and contribution to business strategy. The results of
the performance evaluation process are used to produce total
compensation recommendations for each individual which are subject
to the review and approval by the Senior Management. An
individual's compensation is designed to align employee incentives
with the interests of Blackstone's clients, shareholders and
business strategy. Total compensation payable to an individual,
including determination of awards, is based on an assessment of a
sustainable and risk adjusted performance of the business and
applicable business risks from time to time. Bonus deferral awards
are a deferred component of year-end discretionary bonus awards, if
awarded. These awards are intended to encourage retention, align
the recipient to the performance of Blackstone globally and
incentivise long-term financial performance. Special equity awards
are a retention tool/long term incentive plan for select
individuals who demonstrate exceptional performance, and are
subject to a vesting schedule weighted to encourage retention.
Carried interest and incentive payment participation is generally
reserved for investment professionals who may significantly
influence the performance of investments made by the funds managed
by Blackstone.
The Investment Manager classifies members of the Investment
Manager's Investment Committee, Senior Managing Directors, Heads of
Control Functions and Portfolio Managers (in each case, only those
with responsibility for the oversight and / or investment activity
of the Company) whose professional activities have a material
impact on the risk profile of the Company.
The Investment Manager has adopted a methodology for the
purposes of determining, or allocating, the remuneration paid that
can be reasonably attributed to the services provided by the
Investment Manager to the Company.
The disclosure below reflects the proportion of the total
remuneration of the staff of the Investment Manager attributable to
the Company only. For these purposes, the total remuneration
attributable to the activities of the Investment Manager has been
allocated to each fund under management in proportion to the time
spent on each applicable fund, hence the figures included below are
an approximation only. While the Investment Manager believes that
the information and the sources used are reliable for the purposes
of this Annual Report, it should be specifically noted that the
remuneration information presented herein attributable to the
Company during the reporting period is not representative of
information compiled by the Investment Manager for its own internal
management purposes, has not been audited, and has not been
prepared on the basis of a set of compensation policies and
procedures that would be required were the Investment Manager
otherwise subject to Article 13 of the AIFMD.
Remuneration - Amount of Remuneration Paid
The remuneration paid by the Investment Manager to its staff in
respect of the financial year ending on 31 December 2017 (as
attributable to the Company in accordance with the methodology
described above) is as follows:
Quantitative Remuneration Disclosure
Amount
US$
--------------------------------------------------------------- ---------------------
Total remuneration paid to certain
staff of the Investment Manager during
the financial year to 31 December 2017
(as apportioned to the Company) 395,534
Fixed remuneration 73,820
Variable remuneration 321,714
Number of beneficiaries(1) 11
Aggregate remuneration of senior management(2)
of the Investment Manager whose professional
activities have a material impact on
the risk profile of the Company 71,904
Aggregate remuneration of other staff(3)
of the Investment Manager whose actions
have a material impact on the risk
profile of the Company 323,630
Carried interest(4) paid by the Company
(please refer to note 5) 541,748
--------------------------------------------------------------- ---------------------
GSO / Blackstone Debt Funds Management LLC
27 April 2018
1 The beneficiary numbers in this table comprise Investment
Committee members, Senior Managing Directors, Heads of Control
Functions and Portfolio Managers with responsibility for the
oversight and/or investment activity of the Company.
2 "Senior management" includes certain Senior Managing Directors
as well as persons discharging the following functions within the
Investment Manager: the Head of Finance, the Head of Legal &
Compliance, the Head of Operations and the Head of Portfolio Risk
& Compliance.
3 This category of staff does not include the senior management
referred to in footnote 2 above. It includes such staff that are
deemed to perform investment functions that have a material impact
on the risk profile of the Company.
4 The term 'carried interest' refers to performance fees
DIRECTORS' REPORT
PRINCIPAL ACTIVITIES
The Company was incorporated on 20 February 2006 as a
closed-ended limited liability investment company under the laws of
Ireland and is authorised by the Central Bank. The Company
continues to be registered and domiciled in Ireland and the
Company's shares are premium listed on the Official List of the UK
Listing Authority and admitted to trading on the Main Market of the
London Stock Exchange. During the year, the Company converted
144,451,569 U.S. Dollar Shares into Repurchase Pool Class Shares.
On 22 November 2017, the Repurchase Pool Class Shares were admitted
to trading on the Specialist Fund Segment of the Main Market of the
London Stock Exchange. In the prospectus dated 11 October 2017, the
Company set out details of a 12 month Placement Programme under
which new shares may be issued, as either U.S. Dollar Class Shares
or C Class Shares, with aggregate gross placing proceeds of up to
US$300 million.
INVESTMENT OBJECTIVE
The Company's investment objective is to produce attractive and
stable returns with low volatility compared to equity markets, by
investing in a diversified portfolio of Senior Notes ("Senior
Notes") of collateralised loan obligations ("CLOs"), collateralised
by senior secured bank loans and equity ("Equity") and mezzanine
tranches ("Mezzanine") of CLOs. CLOs are debt securities backed by
a diversified pool of underlying assets. The CLO uses the cash
flows from this portfolio of assets to back the issuance of
multiple classes of rated debt securities which, together with the
Income Notes, are used to fund the purchase of the underlying
assets.
INVESTMENT POLICY
The Company invests in cash flow CLO transactions, managed by
portfolio managers with proven track records. It seeks to achieve
diversification across asset class, geography, manager, and
maturity profile. Each CLO investment is collateralised by a
diverse pool of fixed income assets, which may include:
-- senior secured bank loans;
-- investment grade loans;
-- project finance debt;
-- asset-backed securities or other asset-backed
obligations;
-- mortgage-backed securities; and/or
-- debt securities issued by other CLOs.
The Company may also invest in other collective investment
schemes for the purposes of gaining exposure to the types of CLO
transactions described above, or otherwise to pursue the investment
objective and policy of the Company. The Company seeks to have
minimal exposure to CLOs where the underlying assets comprise of
unsecured corporate bonds (investment grade or otherwise). The
Company will limit investment in synthetic CLO transactions, at the
time of investment, to 25% of the NAV. It is intended that the
Company's investments comprise of Equity and Mezzanine tranches in
actively managed portfolios, with a variety of portfolio managers.
The Company may also invest in senior tranches of leveraged loan
CLOs where attractive opportunities can be identified. Such
opportunities may include investments in senior tranches of CLOs in
respect of which the collateral consists of fee streams due to
portfolio managers from underlying leverage loan CLOs. The Company
may invest in new issue CLO transactions in the primary market, and
transactions in the secondary market where attractive opportunities
can be identified.
The Company's portfolio of CLO investments is actively managed
to minimise default risk and potential loss through comprehensive
credit analysis performed by the experienced credit research team
in the Investment Manager, and use of the Investment Manager's
proprietary risk management systems. Achieving efficient diversity
is central to the Company's investment objective. Each investment
is assessed with a view to providing diversification in terms of
underlying assets, issuer, sector, geography and maturity
profile.
The Company invests in a minimum of 20 separate transactions,
with a maximum exposure per investment, at the time of investment,
of 20% of the NAV. The Company also limits its exposure to
transactions managed by the same portfolio manager to 15% of the
NAV, at the time of investment. However, if the portfolio manager
is the Investment Manager or an affiliate of the Investment
Manager, this limit is increased to 60% of the NAV, at the time of
investment. The Investment Manager analyses all transactions at the
underlying portfolio level, identifying any concentration in terms
of issuer, sector, geography and maturity profile.
INVESTMENT POLICY (continued)
The Investment Manager's analysis also takes into consideration
the correlation among different underlying securities to avoid
concentrations of risk.
There is no restriction as to the geographical composition of
the underlying portfolios, but it is currently significantly
weighted towards the United States.
The functional currency of the Company is US Dollar as the
Directors have determined that this reflects the Company's primary
economic environment. The presentational currency of the Company is
also US Dollar. Investments acquired for the Company's portfolio
are currently all denominated in US Dollar.
The investment objective of the Company may not be altered
without the prior written approval of all shareholders or a special
resolution of shareholders in a general meeting.
Any material change to the investment policy of the Company may
only be made with the prior approval, by special resolution, of
shareholders.
Investment restrictions
In accordance with the requirements of the UK Listing Authority
and the Central Bank, the Company has adopted the following
additional investment restrictions:
-- distributable income will be principally derived from
investment activity;
-- the Company will not conduct a trading activity;
-- a maximum of 20% of the value of the NAV of the Company may
be invested in the securities of any one issuer (related companies
within a group of companies shall be deemed to be one issuer);
-- a maximum of 15% of the NAV of the Company may be invested in
other listed investment companies;
-- the Company will not take legal or management control of the
issuers of the underlying investments, nor shall the Company
acquire any shares carrying voting rights which would enable it to
exercise significant influence over the management of an issuing
body;
-- no more than 20% of the NAV of the Company may be kept on
cash deposit with any one institution;
-- the Company may not invest more than 20% of its NAV in other
collective investment schemes, of which no more than 20% of its NAV
may be invested in other open-ended collective investment schemes;
no more than 10% of its NAV may be invested in closed-ended
collective investment schemes; no more than 10% of its NAV may be
invested in fund of funds; and no more than 10% of its NAV may be
invested in unregulated collective investment schemes. No issue or
purchase commission may be charged to the Company where investments
are made in collective investment schemes managed by the Investment
Manager or by an associated or related company of the Investment
Manager, and where the Investment Manager receives a commission by
virtue of an investment in a collective investment scheme, this
commission must be paid into the Company;
-- for the purposes of the above limits, related entities (where
50% or more of the voting rights or paid up capital of one entity
are held or owned directly or indirectly by another entity) are
regarded as a single issuer;
-- the Company shall not invest in real estate or directly in
physical commodities;
-- dividends will not be paid unless they are covered by net
income received from, and/or net realised and unrealised capital
gains deriving from, the Company's investments;
-- the Company may borrow up to 25% of its NAV from time to time
for short term or temporary liquidity purposes, and may grant
collateral to secure borrowings. The Company may not have any
long-term or structural borrowings;
-- the Company may hedge corporate credit risk through the use
of short sales, credit default swaps, options and other methods
where the underlying assets relate to single issuers for the
broader indices and may thereby be leveraged up to a total limit of
10% of its NAV; and
-- the Company may not acquire more than 20% of any class of
security issued by any single issuer. This restriction does not
apply to debt securities.
Any change in the above investment restrictions shall be subject
to the prior approval of the Central Bank.
INVESTMENT POLICY (continued)
The above limits apply at the time of the purchase of the
investment. If these limits are exceeded for reasons beyond the
control of the Company, the Company shall adopt as a priority for
its sales transactions the remedying of the position taking account
of the interests of the shareholders. In the event of any breach of
these investment restrictions, the Board of Directors (the "Board")
will as soon as practicable make an announcement on a Regulatory
Information Service provider and subsequently write to
shareholders, if appropriate.
REVIEW OF DEVELOPMENT OF THE BUSINESS AND FUTURE
DEVELOPMENTS
A detailed review of the business and future developments of the
Company is included in the Investment Manager's report.
RESULTS FOR THE FINANCIAL YEAR AND STATE OF AFFAIRS
The financial position and results for the financial year are
set out in the statement of financial position and in the statement
of comprehensive income. The profit for the financial year
attributable to participating equity shareholders amounted to
US$36,411,229 (31 December 2016: US$79,153,810).
The Company made the following announcements on dividends to the
U.S Dollar Class relating to the year ended 31 December 2017:
-- On 19 January 2017, the Board declared a dividend of
US$0.0275 per US Dollar share, of the U.S. Dollar Share Class, in
respect of the financial period from 1 October 2016 to 31 December
2016. The dividend was paid on 1 February 2017 to shareholders on
the share register as at the close of business on 27 January 2017.
The amount paid in respect of this dividend was US$14,939,467.
-- On 20 April 2017, the Board declared a dividend of US$0.0225
per U.S. Dollar Class Share in respect of the financial period from
1 January 2017 to 31 March 2017. The dividend was paid on 3 May
2017 to shareholders on the share register as at the close of
business on 28 April 2017. The amount paid in respect of this
dividend was US$12,223,200.
-- On 20 July 2017, the Board declared a dividend of US$0.0225
per U.S. Dollar Class Share in respect of the financial period from
1 April 2017 to 30 June 2017. The dividend was paid on 2 August
2017 to shareholders on the share register as at the close of
business on 27 July 2017. The amount paid in respect of this
dividend was US$12,223,200.
-- On 19 October 2017, the Board declared a dividend of
US$0.0225 per U.S. Dollar Class Share in respect of the financial
period from 1 July 2017 to 30 September 2017. The dividend was paid
on 1 November 2017 to shareholders on the share register as at the
close of business on 27 October 2017. The amount paid in respect of
this dividend was US$12,223,201.
No dividends were declared in respect of the Repurchase Pool
Class Share Class. Details of the Repurchase Pool Class Shares are
set out in note 7.
On 12 October 2017, the Company announced the publication of a
Prospectus, which contains details of an offer to each holder of
U.S. Dollar Shares ("U.S. Dollar Shares") in the Company to convert
some or all of their U.S. Dollar Shares into Repurchase Pool Class
Shares, as defined below, (the "Repurchase Opportunity") and of a
12-month Placement Programme of U.S. Dollar Shares and/or C Shares.
Under the Placement Programme, new Shares may be issued, as either
U.S. Dollar Shares or C Shares, with aggregate gross placing
proceeds of up to U.S.$300 million. Whilst there was no immediate
intention to issue New Shares, Shareholders' approval for the issue
of New Shares was sought at the AGM in order to enable the
Directors to respond promptly to investor demand and conduct future
fund raises in a cost efficient manner without needing to convene
an additional extraordinary general meeting.
On 31 October 2017, the Company announced the results of the
Repurchase Opportunity: 144,451,569 U.S. Dollar Shares of no par
value, representing 26.6 per cent. of the issued U.S. Dollar Shares
of the Company as of 30 October 2017, were re-designated into U.S.
Dollar denominated shares of no par value on a one-to-one basis
("Repurchase Pool Class Shares"). Further detail is set out in the
note 7 of these financial statements.
The Company's U.S. Dollar Shares have a listing on the Premium
Segment of the Official List of the UK Listing Authority and are
admitted to trading on the main market of the London Stock Exchange
("LSE"). The Company's Repurchase Pool Class Shares are admitted to
trading on the Specialist Fund Segment of the main market of the
LSE.
Please see note 17 for other important events during the
financial year.
TRANSACTIONS INVOLVING DIRECTORS
Please refer to note 5 and note 10 for details of transactions
involving Directors.
MATERIAL CHANGES DURING THE YEAR
Please refer to note 17 "Other Events During the Financial Year"
for details of the important events occurring during the financial
year.
EVENTS SINCE FINANCIAL YEAR
Please refer to note 18 "Subsequent Events" for details of the
important events occurring after the reporting date.
DIRECTORS
The names of the persons who were Directors at any time during
the financial year are set out in the section entitled "Management
and Administration". As at 31 December 2017, all five Directors are
non-executive, each of whom, apart from Ed D'Alelio, are
independent of the Investment Manager. 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, copies of which are available for review by the
shareholders.
DIRECTORS' AND COMPANY SECRETARY'S INTERESTS
Neither the Directors (including family interests) nor the
company secretary, State Street Fund Services (Ireland) Limited
(the "Company Secretary"), have any shareholdings in the Company as
at 31 December 2017.
MANAGEMENT ARRANGEMENTS
The Investment Manager acts as Investment Manager of the Company
pursuant to the terms of the amended and restated investment
management agreement dated 11 October 2017 between GSO/Blackstone
Debt Funds Management LLC and the Company. The update was to
include details of the performance fees payable to the Investment
Manager in respect of the Repurchase Pool Class Shares.
The management fees and other fees payable to the Investment
Manager are disclosed in note 5. After due consideration of the
investment experience, resources and reputation of the Investment
Manager as a whole, it is the opinion of the Directors that the
continuing appointment of the Investment Manager on the terms
agreed is in the interest of shareholders as a whole. The
Investment Management Agreement may be terminated on six-months'
notice by either party and may also be terminated by either party
with immediate effect on the occurrence of certain events,
including: (i) if an order has been made or an effective resolution
passed for liquidation of the other party; (ii) if a receiver or
similar officer has been appointed in respect of the other party or
its assets or the other party becomes subject to an administration
order; (iii) if the other party enters into an arrangement with its
creditors, or any of them or the other party is or is deemed to be
unable to pay its debts; (iv) if the other party ceases or
threatens to cease to carry on its business or threatens to make
any material alteration to the nature of its business
as carried out on the date of the investment management
agreement; or (v) if the other party commits a material breach of
its obligations under the investment management agreement and such
breach (if capable of being remedied) is not remedied within 28
days of receiving notice of the breach. The duration of the
Investment Manager's appointment has not been fixed.
ACCOUNTING RECORDS
The Directors are responsible for ensuring that adequate
accounting records, as outlined in Sections 281 to 285 of the
Companies Act 2014, are kept by the Company. To achieve this, the
Directors have employed a service organisation, State Street Fund
Services (Ireland) Limited (the "Administrator"). The accounting
records are maintained at the Company's registered office at 78 Sir
John Rogerson's Quay, Dublin 2, Ireland.
PRINCIPAL RISKS, UNCERTAINTIES, RISK MANAGEMENT OBJECTIVES AND
POLICIES
The Company's investment objective is to produce attractive and
stable returns with a low volatility compared to equity markets, by
investing in a diversified portfolio of Senior Notes of CLOs,
collateralised by senior secured bank loans and Equity and
Mezzanine tranches of CLOs. Investment in the Company carries with
it a degree of risk including, but not limited to, business risks
and the risks associated with financial instruments, referred to in
note 11 of these financial statements and the Investment Manager's
review. The primary business risk is the risk that the Company may
not achieve its investment objective. Meeting that objective is a
target but the existence of such an objective should not be
considered as an assurance or guarantee that it can or will be
met.
PRINCIPAL RISKS, UNCERTAINTIES, RISK MANAGEMENT OBJECTIVES AND
POLICIES (continued)
A summary of the primary risks relating to the Company are:
-- In calculating its NAV, the Company may be required to rely
on estimates of the value of securities in which the Company
invests which are unaudited or subject to little verification or
other due diligence.
-- There are risks related to CLO securities, including
leveraged credit risk, the potential for interruption and deferral
of cash flow, asset/liability mismatch risk, currency risk,
volatility risk, liquidity risk, reinvestment risk and risks
associated with collateral.
-- The success of the Company is significantly dependent on the
expertise of the Investment Manager and the Investment Manager's
ability to source CLOs which are suitable to be held in the
Company's portfolio.
-- There can be no assurance that the Investment Manager will be
able to accurately predict the future course of price movements and
performance of securities.
-- Restrictions on withdrawal of capital means that shareholders
must be prepared to bear the risks of owning an interest in the
shares for an extended period of time.
-- The market price of the shares can fluctuate and there is no
guarantee that the market prices of shares will reflect fully their
underlying NAV.
The past performance of the Company is not necessarily
indicative of, and cannot be relied upon as a guide to, the future
performance of the Company.
COMPANY CORPORATE GOVERNANCE
Introduction
The Company is subject to and complies with Irish statute
including the Companies Act 2014, with the Listing Rules of the UK
Listing Authority, and with the voluntary Corporate Governance Code
for Collective Investments Schemes and Management Companies issued
by the Irish Funds Industry Association in December 2011 (the
"Irish Code").
The Listing Rules of the UK Listing Authority requires the
Company to apply the main principles of the UK Corporate Governance
Code (the "UK Code") published by the Financial Reporting Council
(the "FRC") in September 2014, and the Board is required to report
to shareholders on how it has done so.*
The Irish Code is a voluntary code that was issued by the Irish
Funds Industry Association in December 2011 and was adopted by the
Company in 2012. The Irish Code provides a framework for the
organisation and operation of funds to ensure that funds operate
efficiently and in the interests of shareholders.**
The Board considers that the Company has complied with the main
provisions contained in the Irish Code and the UK Code, (except as
outlined in the sections entitled "Compliance with the UK Code" and
"Compliance with the Irish Code") and throughout this accounting
period, and that it complies with corporate governance requirements
in Ireland. The paragraphs below describe how the relevant
principles of corporate governance are applied by Carador.
In the opinion of the Directors, the Annual Report and the
Audited Financial Statements are fair, balanced and understandable
and provide the information necessary for the shareholders to
assess the Company's performance, business model and strategy.
The Board
The Board currently consists of five non-executive Directors,
each of whom, apart from Ed D'Alelio, is independent of the
Investment Manager. Werner Schwanberg is the Chairman of the Board
(the "Chairman"). The Board accepts collective responsibility for
the decisions of the Board. The Board had four scheduled board
meetings during the financial year ended 31 December 2017 (see the
table below) and between these formal meetings, there was regular
contact between the Board, the Investment Manager, the Company
Secretary and the Company's brokers. The Directors are kept fully
informed of investment and financial controls and other matters
that are relevant to the business of the Company and should be
brought to the attention of the Directors.
The Directors, where necessary in the furtherance of their
duties, have access to independent professional advice at the
expense of the Company.
The attendance record of Directors at the meetings for the
financial year ended 31 December 2017 is set out below:
Meetings Formal Ad Hoc Audit Remuneration Nomination
and attendances Board Board Meetings Committee Committee Committee
by Director Meetings
------------------- ---------- ---------------- ----------- ------------- -----------
Number of
Meetings
Held 4 3 3 1 1
Werner Schwanberg 4 3 N/A N/A N/A
Fergus Sheridan 4 3 3 1 1
Adrian Waters 4 2 3 N/A 1
Edward D'Alelio 3 1 N/A 1 N/A
Nicholas
Moss 4 3 3 1 N/A
------------------- ---------- ---------------- ----------- ------------- -----------
The Board has a breadth of experience relevant to the Company
and the Directors believe that any changes to the Board's
composition can be managed without undue disruption. With any new
Director appointment to the Board, consideration will be given as
to whether an induction process is appropriate and upon any such
appointment the new Director would be available to meet
shareholders upon request. There is a robust process in place for
ensuring the Board has the right information at the right time and
in the right format to enable the Directors to make informed
decisions. The Chairman sets the Board agenda, assisted by the
Company Secretary. An annual board timetable is prepared by the
Company Secretary to map out the flow of key report/items submitted
to the Board and to ensure that sufficient time is allocated for
discussions and material issues.
* The UK Code can be found at:
https://www.frc.org.uk/Our-Work/Codes-Standards/Corporate-governance/UK-Corporate-Governance-Code.aspx.
**A copy of the Irish Code can be found at:
http://www.irishfunds.ie/media-centre/news-archive/67-corporate-
governance-code-and-faqs/faqs.
The Board (continued)
Directors may request any agenda items to be added that they
consider appropriate for Board discussion. Additionally, each
Director is required to inform the Board of any potential or actual
conflicts of interest prior to Board discussion.
Questions arising at any meeting shall be determined by a
majority of votes. In case of an equality of votes, the Chairman
shall have a second or casting vote. A Director may, and the
Company Secretary on the requisition of a Director shall, at any
time summon a meeting of the Directors. The quorum necessary for
the transaction of business of the Directors may be fixed by the
Directors, and unless so fixed at any other number shall be
two.
The primary focus at Board meetings is a review of the overall
business of the Company including investment policy, investment
performance, risks affecting the Company (investment and other) and
other matters (including, but not limited to, administration,
corporate governance and compliance, marketing/investor relations,
peer group information and industry issues). The Board evaluates
Board composition and considers the tenure of each Director on an
annual basis and believes that the mix of skills (including
investment and accounting skills), experience, ages and length of
service are appropriate to the requirements of the Company. The
Board conducts an annual performance evaluation of the Board, its
committees and individual Directors. The evaluation of the Board
considers, among other things, the balance of experience, skills,
independence, knowledge and time commitments of the Board and how
it works together as a unit. The Chairman leads a discussion among
the Board through the use of a questionnaire, and the feedback from
each Board member to the questions posed by the questionnaire are
recorded in meeting minutes. In addition to this annual performance
review of the Board, a formal review of the performance of the
Board, the individual Directors and the Chairman is carried out
every three financial years.
Directors' duties and responsibilities
The duties and responsibilities of the Directors cover the
following areas:
-- statutory obligations and public disclosure;
-- strategic matters and financial reporting;
-- oversight of management and personnel matters;
-- risk assessment and management, including reporting, monitoring, governance and control; and
-- other matters having a material effect on the Company.
Nomination/remuneration committees
The nominations committee was established during 2017 and is
requested and authorised by the Board to lead the process for
considering and selecting suitable candidates for appointment as
Directors of the Company and make recommendations thereon to the
Board, and also to review any matters relating to nominations for
appointment as directors as may otherwise be requested by the Board
from time to time. There was one nomination committee meeting held
in the financial year ended 31 December 2017.
A remuneration committee was established on 6 April 2011. The
Board has adopted a documented terms of reference in respect of the
remuneration committee evidencing all delegated authorities given
to its members. The Chairman of the remuneration committee is
Edward D'Alelio. Nicholas Moss and Fergus Sheridan are the other
members of the committee.
The functions of the remuneration committee are as follows:
1. responsibility for the preparation of recommendations to the
Board regarding the remuneration of the members of the Board;
2. provide support and advice to the Board on determining an
overall remuneration policy of the Company that is consistent with
the objectives, values and interests of the Company and reflects
comparable compensation levels of the peer universe for the
Company;
3. oversee and review the implementation of the remuneration policy of the Company; and
4. perform any other activities as the Board deems necessary or appropriate.
Pricing committee
The Company's pricing policy was approved at the board meeting
on 27 August 2013. This policy and its associated process replaced
the previously defined process, which was undertaken by the pricing
committee. The current process is implemented by the Investment
Manager, which reports to the Pricing Liaison Director and the
Administrator on a monthly basis. Edward D'Alelio was appointed as
Pricing Liaison Director at a board meeting on 24 April 2013.
Audit committee
The Audit committee comprised of Adrian Waters, Fergus Sheridan
and Nicholas Moss for the financial year ended 31 December 2017.
The Audit committee examines, amongst other things, the
effectiveness of the internal systems, the annual report and
financial statements and interim report of the Company, and aims to
identify significant risks facing the Company. It also oversees the
remuneration and engagement of KPMG (the "Auditor"), as well as the
Auditor's independence and any non-audit services provided by them.
Please see the Audit Committee's report for further details in
relation to its role and responsibilities.
Internal controls
The Board is ultimately responsible for the system of internal
controls for the Company, identifying significant risks facing the
Company and oversight of the system of controls to mitigate them.
The Board confirms that there is an ongoing process for
identifying, evaluating and managing the significant risks faced by
the Company. The Audit committee assists the Board in discharging
these responsibilities.
This process has been in place for the financial year under
review and up to the date of approval of this annual report and
financial statements and is reviewed by the Board and accords with
the Irish Code and the UK Code. The Board has reviewed the
effectiveness of the system of internal controls. In particular, it
has reviewed and updated the process for identifying and evaluating
the significant risks affecting the Company and the policies by
which these risks are managed. The principal financial instrument
risks are described on pages 63 to 67. The Board has also
identified the following additional risks and uncertainties:
Principal risks How is the risk managed?
-------------------------------------- ------------------------------------
Investment and portfolio
-------------------------------------- ------------------------------------
The Investment Manager
conducts a rigorous investment
Sufficiency of the Investment process for each potential
Manager's investment process investment. The individual
The Investment Manager's underlying loans for each
due diligence of potential CLO are mapped against
investments may not appropriately the Investment Manager's
highlight issues in underlying internal ratings of each
loans, the CLO manager or loan that the Investment
the structure of the deal. Manager otherwise covers
Further, the Investment Manager's to allow for a deep dive
models may not have appropriate into the construction of
assumptions. This may result the CLO. The Investment
in underperformance by a Manager reviews the track
deal and negatively impact record and style of the
cashflows for the portfolio. CLO manager and assesses
Credit Risk can arise from the structure of the deal
an insufficient investment quantitatively and qualitatively.
process. Only investments that have
Market liquidity been approved by the Investment
There is no guarantee that Committee may be invested
the Investment Manager will in.
be able to make suitable The Investment Manager
investments with risk and regularly reviews its model
return characteristics that assumptions to reflect
fit within the investment changes to the market and
strategy of the Company, outlook. The assumptions
or that the Investment Manager reflect positive, base,
will be able to dispose of negative and stress scenarios.
investments in a timely manner, The Investment Manager
if required. In rotating is constantly in touch
the portfolio or seeking with the market to identify
new investments, the only potential buying and selling
available investments with opportunities in the primary
an appropriate risk profile and secondary market. Because
may yield lower rates of of the Investment Manager's
return than have historically position in the market,
been achievable and may thus the Investment Manager
adversely affect the Company's has good visibility into
overall returns. potential opportunities.
Principal risks How is the risk managed?
-------------------------------------- ------------------------------------
Investment and portfolio
-------------------------------------- ------------------------------------
Change in laws or regulation Changes in laws or regulation
with impact on the portfolio are monitored by the Board
Changes in the laws or regulations on an ongoing basis, with
that govern CLOs, may have the assistance of external
an adverse effect on the counsel.
performance of the Company's The Company continues to
investment portfolio and await clarification from
the returns achieved by the ESMA and the Central Bank
Company. on impacts to non-EU AIFMs,
In particular, the impact such as the Investment
of revisions to the retention Manager, which may cause
requirements under Directive the retention requirement
2011/61/EU of the European under AIFMD to become applicable
Parliament and of the Council to the Company. The Board
of 8 June 2011 ("AIFMD") is closely monitoring any
is currently unknown but developments and will take
may have a material impact action, if necessary, once
on the Company's investment clarification is provided.
portfolio. See further details on
page 26.
The Investment Manager
continues to monitor primary
issuance and secondary
availability of potential
investments. The Investment
Manager will evaluate potential
investments utilising its
robust investment management
process.
Counterparty default risk The Investment Manager
The Company's main counterparty for the most part trades
risk arises from trades, via DTC or Euroclear, which,
including physical securities, on the whole, limits counterparty
made by the Investment Manager. risk. A small part of the
If a counterparty were to portfolio includes physical
default there may be adverse securities. Physical securities
impacts to the Company's are delivered against payment
performance. thus mitigating counterparty
risk.
Interest rate Assets and liabilities
Changes to interest rates in CLOs are floating rate
may affect the CLOs. notes, thus interest rate
changes are inherently
accounted for.
-------------------------------------- ------------------------------------
Other
-------------------------------------- ------------------------------------
Regulatory, legal and compliance The Board monitors compliance
risk information provided by
The Company may not achieve its service providers and
full compliance with all monitors ongoing legal
applicable legislation leading and regulatory developments
to regulatory, reputational in Ireland and the UK,
or financial consequences. as well as developments
Further a service provider coming from the UK Listing
may experience a regulatory, Authority. The Company
legal or compliance breach has a comprehensive compliance
that could impact the Company. monitoring programme to
seek to ensure full compliance
with applicable legislation
and regulation relevant
to the Company.
Operational risk The Board regularly monitors
Inadequate or failed internal the performance of service
processes of the Company providers' compliance and
or the Company's service the Company's compliance
providers, people, and systems, with applicable legal and
or from external causes (deliberate, regulatory requirements
accidental or natural). This from the Central Bank and
may result in direct financial UK Listing Authority. As
losses or reputational damages discussed in the section
leading to longer-term financial "Regulatory, legal and
consequences. compliance risk", the Company
has a comprehensive compliance
monitoring programme to
seek to ensure full compliance
with applicable legislation
and regulation relevant
to the Company.
Principal risks How is the risk managed?
-------------------------------------- ------------------------------------
Other
-------------------------------------- ------------------------------------
Reputational risk The Board regularly monitors
There is a risk that as a the performance of service
result of inadequate or failed providers' compliance and
internal processes of the the Company's compliance
Company or the Company's with applicable legal and
service providers, and systems, regulatory requirements
or from external causes (deliberate, from the Central Bank and
accidental or natural), the UK Listing Authority. As
Company's regulators may discussed in the section
issue financial or non-financial "Regulatory, legal and
penalties or fines that could compliance risk", the Company
irrevocably harm the Company's has a comprehensive compliance
reputation. monitoring programme to
Additionally, negative press seek to ensure full compliance
on the Company, its Directors with applicable legislation
or service providers may and regulation relevant
negatively impact the Company. to the Company.
The Company and its service
providers regularly monitor
press mentions and will
take appropriate action
as required to respond
to or otherwise address
negative press.
Conflicts of interest
The Company and its service The Board has implemented
providers may have conflicts a Connected Party Transaction
of interest that arise from Policy that is annually
time to time. In particular, reviewed and approved.
connected party transactions Under the policy, the Board
by the service providers must satisfy itself semi-annually
may create a potential conflict that the arrangements concerning
of interest that is adverse connected party transactions
to interests of the Company are appropriate and complied
or its investors. with, and that any connected
party transactions entered
into during the period
comply with the Connected
Party Transaction Policy.
Connected party transactions
must be reviewed by the
pricing liaison Director
and Administrator.
Cybersecurity risk
The Company and its service The Board has a cybersecurity
providers may have inadequate policy that is reviewed
systems, policies and procedures and approved at least annually.
in place to detect and prevent On a quarterly basis, the
or respond adequately to Board receives confirmation
cybersecurity threats and from the service providers
breaches that may result that there have been no
in financial and reputational cybersecurity breaches
implications for the Company. as part of the service
provider reports to the
Board. Annually, the Board
conducts due diligence
on each service provider
to ascertain the adequacy
of the service provider's
cybersecurity programme.
The Board also monitors
ongoing cybersecurity developments
in Europe and the US.
Delegated activities
As there is delegation of daily operational activity, described
below, the Company has no direct internal audit function. The Board
receives regular reporting from the service providers to the
Company and conducts an annual review of the service providers. The
internal control systems seek to keep the Company within its risk
appetite.
The Board has delegated the responsibility for (i) management of
the Company's investment portfolio, (ii) provision of custody
services and (iii) administration, registrar and corporate
secretarial functions of the Company including independent
calculation of the NAV and production of the independently audited
annual report and financial statements. Whilst the Board delegates
responsibility, it retains accountability for the functions it
delegates and is responsible for the systems of internal control.
Formal contractual agreements have been put in place between the
Company and providers of these services. Compliance reports are
provided on a quarterly basis by the Administrator.
Corporate responsibility
The Company's business is concerned with investment. It
considers the ongoing concerns of its shareholders by open and
regular dialogue with and through the appointed Investment Manager
and the Company's brokers.
The Company does not have any employees.
Going concern statement
In accordance with provision C.1.3 of the UK Code, after making
enquiries and given the nature of the Company and its investments,
the Directors are satisfied that it is appropriate to continue to
adopt the going concern basis in preparing the financial statements
and, after due consideration, the Directors are satisfied that the
Company has the resources to continue in business for a period of
12 months from the date of approval of the financial statements (27
April 2018). The going concern statement should be read in
conjunction with the Company's viability statement.
Viability statement
In accordance with provision C.2.2 of the UK Code, at least
annually, the Board conducts 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 have considered each of the Company's principal risks and
uncertainties detailed on page 15, in particular the risk arising
from the possible application of the retention requirements under
AIFMD and the impact of such changes that could materially affect
the ability of the Company to pursue its investment objective and
policy. The Directors also considered the Company's policy for
monitoring, managing and mitigating its exposure to these risks.
This assessment involved an evaluation of the potential impact on
the Company of these risks occurring. Where appropriate, the
Company's financials were subject to a scenario analysis in order
to analyse the effect on the Company's cash flows and other key
financial metrics.
While provision C.2.2 of the UK Code requires Directors to
assess the prospects of the Company over a period significantly
longer than twelve months, exceptions are permitted in rare
circumstances. The Board conducted this review for a period
covering the next twelve months taking into account the uncertainty
surrounding the revisions to the retention requirements under
AIFMD.
The Directors have a reasonable expectation that the Company
will be able to continue in operation and meet its liabilities as
they fall due over the next 12 months. This is based on the
assessment of the principal risks facing the Company and the
scenario analysis based assessment of the Company's prospects.
Further, the Company's only liabilities are expenses paid to
service providers and the Repurchase Pool Class Shares. The key
liabilities are linked to NAV and thus fluctuate as the NAV of the
Company increases and decreases, subject to a minimum in certain
cases. This results in the Company being able to comfortably cover
the liabilities as they fall due.
Relations with shareholders
The Investment Manager and the Company's brokers maintain a
regular dialogue with shareholders, the feedback from which is
reported to the Board. In addition, Board members are available to
respond to shareholders' questions at the Annual General Meeting
and on an ad hoc basis if necessary.
In each financial year, the Company shall hold a general meeting
of the Company as its Annual General Meeting in Ireland. At least
twenty-one days' notice (excluding the day of mailing and the day
of the meeting) shall be given in respect of each general meeting
of the Company. The notice shall specify the venue and time of the
meeting, the business to be transacted at the meeting and that a
proxy may attend and vote on behalf of any shareholder. The
requirements for quorum and majorities at all general meetings are
set out in the articles of association of the Company (the
"Articles of Association"). An ordinary resolution is a resolution
passed by a simple majority of the votes cast and a special
resolution is a resolution passed by a majority of 75% or more of
the votes cast.
The Articles of Association provide that matters may be
determined at a meeting of shareholders on a show of hands unless a
poll is requested by five shareholders or shareholders holding 10%
or more of the shares or unless the Chairman of the meeting
requests a poll. Subject to disenfranchisement by law in the event
of noncompliance with any notice requiring disclosure of the
beneficial ownership of shares, the Articles of Association provide
that each share gives the holder one vote in relation to any
matters relating to the Company which are submitted to shareholders
for a vote by poll, and each shareholder present at a meeting has
one vote in relation to any matters relating to the Company which
are submitted to shareholders for a vote by show of hands. If there
are multiple share classes in existence, all shares of each class
have equal voting rights, except that in matters affecting only a
particular class, only shares of that class shall be entitled to
vote.
The Board monitors the trading activity and shareholder profile
on a regular basis. Shareholder sentiment is also ascertained by
the careful monitoring of the discount/premium at which the shares
trade in the market against the Net Asset Value per share when
compared to the discounts/premiums experienced by the Company's
peer group.
The Company reports formally to shareholders twice each
financial year and a proxy voting card is sent to shareholders with
the annual report and financial statements. Additionally, the
Investment Manager's monthly reports are available to shareholders
through the Company's website. The Regulatory News Service of the
London Stock Exchange assist in keeping shareholders informed.
Relations with shareholders (continued)
Computershare Investor Services (Ireland) Limited (the
"Registrar") monitors the voting of shareholders, and proxy voting
is taken into consideration when votes are cast at the annual
general meeting. Shareholders may contact the Directors via the
Company Secretary.
Compliance with the UK Code
Throughout the financial year ended 31 December 2017, the
Company has complied with the UK Code, with the following
exceptions:
A4.1 - The Board has considered whether a Senior Independent
Director should be appointed. In light of the fact that all
Directors are non-executive and given the size and complexity of
the Company, the Board has determined that this appointment is not
necessary.
As outlined above, the Board considers that the appointment of a
Senior Independent Director is not necessary given the size and
complexity of the Company. However, in accordance with the Irish
Code, the Board carries out an appraisal of the performance of the
overall Board and of each Director (including the Chairman) on an
annual basis, with a formal documented evaluation of the overall
Board and of each Director (including the Chairman) taking place
every three financial years. The Board considers that this
appraisal process is appropriate for the Company.
B.1 - This provision is not fully complied with as it calls for
a balance of executive and non-executive Directors and the Company
only has non-executive Directors. However, the Directors have a
broad range of experience and given the nature of the Company's
activity and outsourcing of executive functions and that the
majority of Directors are deemed to be independent under the UK
Code, it is not considered necessary to appoint executive
Directors.
B1.1 - While several Directors have served on the Board for more
than nine years from the date of their first election, the Board
considers these Directors to be independent because none of such
Directors:
-- Have been an employee of the Company or Group within the last five years;
-- Have had within the last three years, a material business
relationship with the Company either directly, or as a partner,
shareholder, Director or senior employee of a body that has such a
relationship with the Company;
-- Received or receives additional remuneration from the Company
apart from a Director's fee, participates in the Company's share
option or a performance related pay scheme, or is a member of the
Company's pension scheme;
-- Have close family ties with any of the Company's advisers, Directors or senior employees;
-- Hold cross-directorships or have significant links with other
Directors through involvement in other companies or bodies; or
-- Represent a significant shareholder.
Further, the Board considers such Directors to discharge their
director duties in an independent manner.
B2.3 - This provision is complied with save that, all of the
Directors are appointed pursuant to letters of appointment for a
term which expires when the Director is (i) removed or vacates
office; (ii) resigns, or (iii) terminates his appointment. A
Director's appointment may be terminated in accordance with the
Company's Articles of Association without compensation.
B2.4 - Whilst the Company does not have a formal diversity
policy in place, diversity, including gender diversity, is
considered by the Company in the evaluation of the Board and its
performance, and will be taken into account in making any future
Board appointments.
C3.6 - Since the Company does not have any employees, the
Company does not have an internal audit function. The Audit
Committee annually considers whether an internal audit function is
needed and makes a recommendation to the Board. The Board considers
that an internal audit function is not necessary, given the size
and complexity of the Company, and the use of an external
auditor.
E.1 - Since the Company does not have any employees, it is the
management team of the Investment Manager who has most regular
contact with shareholders on behalf of the Board. Comments received
from such shareholders are fed back to the Board both from the
Investment Manager and the Company's brokers. All Directors are
available to attend the Annual General Meeting, and are available
to communicate with shareholders.
Compliance with the Irish Code
The Company adopted the Irish Code with effect from 31 December
2012, and has complied with the Irish Code with the following
exception:
Paragraph 4.2 - This provision is not fully complied with as it
recommends that at least one Director be an employee, partner or
director of the promoter or Investment Manager. However, the
Directors have a broad range of experience and it is considered
that there is a good balance of skills and expertise on the Board.
In addition, the Directors are satisfied with the support and
reporting provided by the Investment Manager on an ongoing basis
such that it is not considered necessary to have a representative
of the Investment Manager on the Board.
Additional corporate governance disclosures under Irish Company
Law
The Board is ultimately responsible for overseeing the
establishment and maintenance of adequate internal control and risk
management systems of the Company in relation to the financial
reporting process. As the Company has no employees and all
Directors serve in a non-executive capacity, all functions
including the preparation of the financial statements have been
outsourced. The Company has appointed State Street Fund Services
(Ireland) Limited as its administrator consistent with the
regulatory framework applicable to investment fund companies. The
Administrator has functional responsibility for the preparation of
the interim and annual financial statements and the maintenance of
the accounting records. On appointing the Administrator, the Board
noted that it was regulated by the Central Bank and, in the Board's
opinion, had significant experience as an administrator. The Board
also noted the independence of the Administrator from the Company's
Investment Manager.
Subject to the supervision of the Board, the appointment of the
Administrator is intended to manage rather than eliminate the risk
of failure to achieve the Company's financial reporting objectives
and can only provide reasonable and not absolute assurance against
material misstatement or loss.
The Board and Audit Committee evaluates and discusses
significant accounting and reporting issues as the need arises. The
Board and Audit Committee review the financial statements prior to
their approval, though it should be noted that such review does not
include verification of information in the financial statements to
source documents. The annual financial statements are subject to an
independent audit.
Internal control and risk management systems in relation to
financial reporting
The Administrator prepares the Company's financial statements
and uses various internal controls and checklists to ensure the
financial statements include complete and appropriate disclosures
required under IFRS as adopted by the European Union and relevant
legislation.
During the financial period of these financial statements, the
Board was responsible for the review and approval of the annual
financial statements as set out in the Statement of Directors'
Responsibilities. The Board and the Audit Committee evaluate and
discuss significant accounting and reporting issues as the need
arises.
Capital structure
As at 23 April 2018, so far as the Directors are aware, no
person other than those listed below was interested, directly or
indirectly, in 5% or more of the issued share capital of the
Company.
U.S. Dollar Share Class:
Number of % of Issued
U.S. Dollar Share Capital
Shares U.S. Dollar
Name Class
---------------------------------- -------------- ---------------
Nortrust Nominees Limited 81,261,463 20.37
BNY Custodial Nominees (Ireland)
Limited 64,091,201 16.07
Merrill Lynch Pierce Fenner
& Smith Incorporated 31,564,020 7.91
Lynchwood Nominees Limited 23,457,276 5.88
CGWL Nominees Limited 20,239,754 5.07
---------------------------------- -------------- ---------------
Repurchase Pool Share Class:
Number of % of Issued
Repurchase Share Capital
Pool Shares Repurchase
Name Pool
Share Class
------------------------------- -------------- ---------------
The Bank of New York Nominees
Limited 20,593,330 29.80
HSBC Global Custody Nominee
(UK) Limited 13,021,414 18.84
Vidacos Nominees Limited 10,014,425 14.49
State Street Nominees Limited 9,942,798 14.39
Citibank Nominees Limited 9,314,222 13.48
Euroclear Nominees Limited 3,586,833 5.19
------------------------------- -------------- ---------------
Only holders of U.S. Dollar Class Shares participate in
dividends.
With regard to the appointment and replacement of Directors, the
Company is governed by its Articles of Association, the Companies
Act 2014, and the Listing Rules of the UK Listing Authority as
applicable to investment funds. The Articles of Association
themselves may be amended by special resolution of the
shareholders.
Powers of the Directors
The Directors are responsible for managing the business affairs
of the Company in accordance with the Articles of Association. The
Directors may delegate certain functions to the Administrator and
other parties, subject to the supervision and direction by the
Directors. The Directors have delegated the day-to-day
administration of the Company to the Administrator and the
investment management function to the Investment Manager.
The Articles of Association provide that the Directors may
exercise all the powers of the Company to borrow money, to mortgage
or charge its undertaking, property or any part thereof and may
delegate these powers to the Investment Manager. However, the
amount and circumstances in which the Company may borrow are
limited by the limitations set out in the Prospectus.
The Directors may at any time, and from time to time,
temporarily suspend the calculation of the NAV and the issue and
conversion of shares during:
-- any period when any of the principal markets or stock
exchanges on which a substantial part of the investments are quoted
is closed, otherwise than for ordinary holidays, or during which
dealings thereon are restricted or suspended;
-- any period when, as a result of political, economic, military
or monetary events or any circumstances outside the control,
responsibility and power of the Directors, disposal or valuation of
a substantial part of the investments is not reasonably practicable
without this being seriously detrimental to the interests of the
shareholders or if, in the opinion of the Directors, the Net Asset
Value cannot be fairly calculated; and
-- any breakdown in the means of communication normally employed
in determining the value of the investments or when for any reason
the current prices on any market of a substantial part of the
investments cannot be promptly and accurately ascertained.
Powers of the Directors (continued)
Any suspension of the calculation of the NAV of the U.S. Dollar
Share Class or of the Repurchase Pool Class Shares shall be
notified immediately to the Central Bank. All reasonable steps will
be taken to bring the period of suspension to an end as soon as
possible. Where such a suspension of the NAV is likely to continue
for a period exceeding ten business days, it will be notified by
the Company by announcement through a Regulatory Information
Service. The Directors may decline to accept any application for
the issue of shares and may cease to offer shares in the Company
for allotment or subscription for a definite period or
otherwise.
RESPONSIBILITY STATEMENT
The Directors are responsible for preparing the Directors'
Report and the Company's 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
International Financial Reporting Standards as adopted by the
European Union ("IFRS") and these have been applied in accordance
with the provisions of the Companies Act 2014.
Section 289 of the Companies Act 2014 provides that the
Directors shall not approve the financial statements unless they
are satisfied that they give a true and fair view of the Company's
assets, liabilities and financial position as at the end of the
financial year and of the profit or loss of the Company for that
financial year.
In preparing the financial statements, the Directors are
required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable and prudent;
-- state whether the financial statements comply with IFRS as
adopted by the European Union and as applied in accordance with the
Companies Act 2014;
-- assess the Company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern;
and
-- use the going concern basis of accounting unless they either
intend to liquidate the Company or cease operations, or have no
realistic alternative but to do so.
Under applicable law and the requirements of the Irish Code and
the Listing Rules issued by the UK Listing Authority, the Directors
are also responsible for preparing a Directors' report and reports
relating to Directors' remuneration and corporate governance that
comply with that law and those rules. In particular, in accordance
with the Transparency (Directive 2004/109/EC) Regulations 2007, as
amended (the "Transparency Regulations"), the Directors are
required to include in their report a fair review of the business
and a description of the principal risks and uncertainties facing
the Company and a responsibility statement relating to these and
other matters, included below.
The Directors are responsible for keeping adequate accounting
records which correctly record and explain the transactions of the
Company, and which disclose with reasonable accuracy at any time
the assets, liabilities, financial position and profit or loss of
the Company, and which enable them to ensure that the financial
statements of the Company are prepared in accordance with IFRS as
adopted by the EU, and comply with the Companies Act 2014, and
enable the financial statements to be audited. They are responsible
for such internal controls as they determine are necessary to
enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error, and have
general responsibility for safeguarding the assets of the Company,
and hense for taking reasonable steps for the prevention and
detection of fraud and other irregularities. The Directors are also
responsible for preparing a Directors' report that complies with
the requirements of the Companies Act 2014.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website www.carador.co.uk. Legislation in the Republic of
Ireland concerning the preparation and dissemination of financial
statement may differ from legislation in other jurisdictions.
RESPONSIBILITY STATEMENT (continued)
Responsibility Statement, as required by the Transparency
Regulations and UK Corporate Governance Code
Each of the Directors, whose names and functions are listed on
page 16 of this Annual Report, confirm that, to the best of that
Director's knowledge and belief:
-- the financial statements, prepared in accordance with IFRS as
adopted by the EU, and applied in accordance with the provisions of
the Companies Act 2014, give a true and fair view of the assets,
liabilities, financial position of the Company as at 31 December
2017, and its profit or loss for the financial year then ended;
-- the Directors' report contained in the Annual Report includes
a fair review of the development and performance of the business
and the position of the Company, together with a description of the
principal risks and uncertainties it faces; and
-- the Annual Report and financial statements, taken as a whole,
provides the information necessary to assess the Company's
performance, business model and strategy and is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the Company's position and performance,
business model and strategy.
CONNECTED PARTY TRANSACTIONS
The Central Bank of Ireland Non-UCITS Notices, NU 2.10 -
'Dealings by promoter, manager, partner, trustee, investment
adviser and group companies' states in paragraph one that any
transaction carried out with a collective investment scheme by a
promoter, manager, partner, trustee, investment adviser and/or
associated or group companies of these ("connected parties") must
be carried out as if negotiated at arm's length. Transactions must
be in the best interests of the shareholders.
The Directors are satisfied that there are arrangements in
place, to ensure that the obligations set out in paragraph one of
NU 2.10 are applied to all transactions with connected parties; and
the Directors are satisfied that transactions with connected
parties entered into during the period complied with the
obligations set out in paragraph one of NU 2.10.
RETENTION REQUIREMENTS UNDER AIFMD AND EU SECURITISATION
REGULATION
Under Article 17 of AIFMD, alternative investment fund managers
("AIFM") may only assume exposure to securitisations as defined
therein on behalf of one or more alternative investment funds
("AlFs") if the originator, sponsor or original lender of the
securitisation has explicitly disclosed to the AIFM that it
retains, on an ongoing basis, a material net economic interest in
the securitisation, which shall not be less than 5% (the "retention
requirement"). The Company is an AIF for the purposes of AIFMD and
the Investment Manager is designated as the AIFM of the Company.
The Central Bank has noted that, in accordance with Article
67(1)(b) of AIFMD, ESMA was required to issue advice to the
European Commission on the application of the AIFMD passport, and
related obligations such as the retention requirements, to non-EU
AIFMs. If that advice is positive, the European Commission must
adopt a delegated act specifying the date when the non-EU AIFM
passport will be "turned on". The latest advice issued by ESMA was
published on 19 July 2016, although it is not clear if or when the
European Commission will adopt the delegated act envisaged under
AIFMD. The Central Bank has noted that, as of the date of these
financial statements, this process is underway and the outcome is
not yet known and, accordingly, professional investor funds such as
the Company can continue to be managed by non-EU AIFMs under the
existing transitional arrangements until the European Commission
has reached a decision. The Central Bank has stated that, at that
time, this position will be revisited and, if necessary, revised to
align it with the European Commission's decision and any
transitional arrangements provided. Separately, on 17 January 2018,
the EU Securitisation Regulation (EU) 2017/2402 (the
"Securitisation Regulation") entered into force, and will apply
from 1 January 2019. The Securitisation Regulation amends Article
17 of AIFMD and also contains provisions potentially bringing into
scope non-EU AIFMs marketing and/or managing AIFs in the EU.
Accordingly, it may be the case that the transitional arrangements
applicable to non-EU AIFMs (whereby they were not subject to the
retention requirements) will expire as early as January 2019. If
and when applicable, the retention requirement could operate as a
material restriction on the investment activities of the Company.
In particular, if CLOs then held by the Company do not meet with
the retention requirement, corrective action may need to be taken
to ensure compliance with AIFMD and the Securitisation Regulation
including disposal of the CLOs, thereby incurring additional costs
and selling at a price less than would otherwise have been the case
if the CLOs had been held for the desired length of time. In
addition, the universe of CLOs which adhere to the retention
requirement may be limited and restrict the ability of the Company
to pursue its investment objective and policy.
These and other restrictions and/or conditions imposed by AIFMD
and the Securitisation Regulation may result in (i) the
restructuring of the Company and/or its relationships with service
providers, and (ii) restrictions on the investment activities the
Investment Manager or the Company may engage in.
AUDITORS
So far as the Directors are aware, there is no relevant audit
information of which the Company's auditors are unaware and the
Directors have taken all the steps that should have been taken as
Directors in order to make themselves aware of any relevant audit
information and to establish that the Company's auditors are aware
of that information.
The auditors, KPMG, have confirmed their willingness to continue
in office in accordance with Section 383(2) of the Companies Act
2014.
On behalf of the Board of Directors:
Fergus Sheridan Adrian Waters
27 April 2018
AUDIT COMMITTEE REPORT
Dear Shareholders,
I am pleased to report to you on the activities of the Audit
Committee for the financial year ended 31 December 2017.
ROLE OF THE AUDIT COMMITTEE
The Board has established a terms of reference in respect of the
composition of the Audit Committee, its role, responsibilities,
authority and evidence of the delegated authorities given to its
members (the "Terms of Reference"). The Company applies the revised
UK Code as introduced by the FRC in September 2014 which relate to
financial years commencing on or after 1 October 2014.
The Audit Committee's main roles and responsibilities include,
but are not limited to, the following:
-- monitoring the financial reporting process of the Company,
the integrity of the financial statements and any formal
announcements relating to the Company's financial performance;
-- assessing any significant financial reporting judgements;
-- reviewing and monitoring the effectiveness of the Company's
risk management and internal control arrangements;
-- monitoring the statutory audit of the annual accounts 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, re-appointment 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);
-- contributing to a climate of discipline and control which is
aimed at reducing the opportunity for fraud;
-- reporting to the Board on how it has discharged its responsibilities; and
-- developing the long term viability statement.
In regard to the above responsibilities, I confirm, on behalf of
the Audit Committee (the "Committee"), that, to the best of our
knowledge and belief, the Committee fulfilled its responsibilities
in line with our Terms of Reference and in accordance with the UK
Code.
DELEGATION OF DUTIES
The Company has no employees as all functions, including
preparation of the financial statements, have been outsourced to
various service providers. The daily operational activities have
been outsourced to GSO / Blackstone Debt Funds Management LLC (the
"Investment Manager"), the Administrator, State Street Custodial
Services (Ireland) Limited (the "Depositary"), the Registrar and
Company Secretary (together, the "outsourced service
providers").
MEMBERSHIP OF THE COMMITTEE
The Committee was established on 17 April 2007 and consists of
Nicholas Moss, Fergus Sheridan and myself, Adrian Waters, as
chairman.
All the members of the Committee are independent non-executive
directors and the Committee has concluded that its membership meets
the requirements of C.3.1 of the UK Code. Each Committee member is
expected to be financially literate and to have knowledge of the
following key areas:
1. financial reporting principles and accounting standards;
2. the regulatory framework within which the Company
operates;
3. the Company's internal control and risk management
environment; and
4. factors impacting the Company's Financial Statements.
As a Committee, we meet at least three times a financial year.
Personnel from the Company's outsourced service providers along
with representatives of the Company's external auditor, KPMG,
attend the Committee meetings when appropriate.
In his role as a member of the Committee, each member is
available to discuss any particular matter with his fellow Board
members and, in addition, the Committee has the opportunity to meet
with KPMG without the presence of outsourced service providers. In
order to ensure that all Directors are kept up to date and informed
of the Committee's work, I provide a verbal report to the Board at
Board meetings on key matters discussed at the Committee meetings.
In addition, the minutes of all Committee meetings are available to
the Board.
AUDIT COMMITTEE REPORT (continued)
HOW THE AUDIT COMMITTEE HAS DISCHARGED ITS RESPONSIBILITIES
In the financial year under review, the Audit Committee has met
three times, attendance at which is set out in the Directors
report. The Committee meetings focused on the following key
areas:
Monitoring the integrity of the financial statements including
significant judgements
-- The Committee reviewed the appropriateness of the Company's
accounting principles and policies, and monitored changes to, and
compliance with, accounting standards on an ongoing basis;
-- Prior to recommending their publication to the Board, the
Committee reviewed the Unaudited Condensed Interim Consolidated
Financial Statements ("Unaudited Interim Report") for the six month
period ended 30 June 2017, having previously discussed the
Unaudited Interim Report with the outsourced service providers and
KPMG. The Committee compared the results with management accounts
and budgets, focusing on key areas of judgements; and
-- The Committee reviewed, prior to making any recommendations
to the Board, the Annual Report and Audited Financial Statements
("Annual Report") for the financial year ended 31 December 2017. In
undertaking this review, the Committee discussed with outsourced
service providers and KPMG the critical accounting policies and
judgements that have been applied.
KPMG reported to the Committee on any misstatements that they
had found during the course of their work and confirmed that under
ISAs (Ireland), no material misstatements were identified.
The Committee considered the requirements of the UK Code, in
line with best practice reporting. The Committee specifically
reviewed the annual report and financial statements to conclude
whether the financial reporting is fair, balanced, understandable,
comprehensive and consistent with (i) prior year reporting; and
(ii) how the Board assesses the performance of the Company's
business during the financial year, as required for companies with
a Premium Listing under the UK Corporate Governance Code. As part
of this review, the Committee considered if the annual report and
financial statements provided the information necessary to
shareholders to assess the Company's performance, strategy and
business model and reviewed the description of the Company's key
performance indicators.
The Committee presented its conclusions to the Board and the
Board concluded that it considered the annual report and financial
statements, taken as a whole, to be fair, balanced and
understandable and provides the information necessary for the
shareholders to assess the Company's performance, business model
and strategy.
SIGNIFICANT ACCOUNTING MATTERS
During the financial year, the Committee considered key
accounting issues, matters and judgements regarding the Company's
financial statements and disclosures including those relating
to:
Valuation of Financial Assets at Fair Value through Profit or
Loss
Valuation of financial assets is considered a significant matter
and is monitored by the Investment Manager, the Administrator, the
Depositary, the Committee and the Board of Directors. The Committee
receives and reviews reports on the processes for the valuation of
assets on a regular basis. The Committee may propose or recommend
changes based on their review of the reports for their
consideration, including the adequacy of the relevant disclosures
in the financial statements. The Committee discussed the valuation
process and methodology with the Investment Manager in August 2017
as part of the review of the Interim Report. The Investment Manager
carries out a monthly valuation and provides a detailed valuation
report to the Company. The Committee met with the external auditor
at the time at which the Committee reviewed and agreed the external
auditor's audit plan in January 2018 and, in particular, discussed
the audit approach on the valuation. Following discussion, the
Committee were satisfied that the judgements made and methodologies
applied were objective and appropriate and that the appropriate
accounting treatment has been adopted. KPMG report to the Committee
on their assessment of the Company's valuation methodologies and
procedures applied financial year on financial year, as well as the
consideration if the valuation of assets is fairly stated. Please
see further details outlined in notes 2, 4 and 11 to the financial
statements.
AUDIT COMMITTEE REPORT (continued)
Assessment of Consolidation Requirements
For the Unaudited Interim Report and the Annual Report, relevant
discussions and analysis was undertaken on behalf of the Committee
by the Investment Manager in relation to the Company's holdings in
subordinated tranches of CLOs and the definition of control under
IFRS 10. The Committee discussed the assessment of the
consolidation requirements with the Investment Manager in August
2017 as part of the review of the Interim Report. The Investment
Manager carries out this assessment semi-annually and reports to
the Company. The Committee met with the external auditor at the
time at which the Committee reviewed and agreed the external
auditor's audit plan in January 2018 and, in particular, discussed
the audit approach on the assessment of the consolidation
requirements.
The Committee critically reviewed, evaluated and agreed, having
consulted with the Investment Manager, that the Company meets the
definition of an Investment Entity and availed of the Investment
Entity Amendment under IFRS 10. Furthermore, analysis was performed
on behalf of the Committee by the Investment Manager to establish
the existence of any subsidiaries at financial year end under IFRS
10. Following discussion with KPMG, and the deliberations of the
Committee, we were satisfied that the financial statements deal
appropriately with each of the areas of judgement and applicable
IFRS 10 and IFRS 12 requirements. Based on this assessment, the
Board has concluded that at financial year end, the Company has
three subsidiaries for financial reporting purposes, Keuka Park CLO
Ltd 2013-1A, Pinnacle Park CLO Ltd 2014-1A and Sheridan Square CLO
Ltd in accordance with IFRS 10. Please see further details outlined
in notes 2 and 9 to the financial statements.
Assessment of Risks and Uncertainties
The risks associated with the Company's financial instruments,
as disclosed in the financial statements, particularly in note 11,
represent a key accounting disclosure. The Committee critically
reviews, on the basis of input from the outsourced service
providers, the process of ongoing identification and measurement of
these risks disclosures.
Other Matters
Prior to preparation of the 2017 Annual Report and the financial
year end audit, the Committee considered the effect of any key new
reporting requirements impacting the Company. During the financial
year, the Committee received communications from the outsourced
service providers and from KPMG on other accounting matters
including tax, audit fees, anti-money laundering procedures, as
well as a representation letter and Unaudited Interim Report.
RISK MANAGEMENT AND INTERNAL CONTROLS
The Board as a whole is responsible for the Company's system of
internal control; however, the Committee assists the Board in
meeting its obligations in this regard. The daily operational
activities of the Company were delegated to the outsourced 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 outsourced service
providers as regulated entities. However, the Committee receives
confirmations from the outsourced service providers that no
material issues have arisen in respect of the system of internal
controls and risk management operated within the Company's
outsourced service providers. The Committee confirms that this is
an ongoing process in order to manage the significant 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 Committee to monitor the
performance, independence, objectivity and re-appointment of KPMG.
In January 2018, the Committee met with KPMG who presented their
Audit Strategy and Plan for the financial year; the Committee
agreed the audit plan for the financial year, highlighting the key
financial statement and audit risks, to seek to ensure that the
audit was appropriately focused.
KPMG attends our Committee meetings throughout the financial
year, as appropriate, which allows the opportunity to discuss any
matters the auditor may wish to raise without the Investment
Manager or other outsourced service providers being present. KPMG
provides feedback at each Committee meeting on topics such as the
key accounting matters, mandatory communications and the control
environment.
KPMG was formally appointed as the Company's auditor for the
2010 financial year end audit following a competitive tender
process during 2010. The lead audit partner is rotated every five
financial years to ensure continued independence and
objectivity.
The Committee continues to be satisfied with the performance of
KPMG. We have therefore recommended to the Board that KPMG, in
accordance with agreed terms of engagement and remuneration, should
continue as the Company's auditor at the forthcoming Annual General
Meeting.
AUDIT COMMITTEE REPORT (continued)
EXTERNAL AUDIT (continued)
In advance of the commencement of the annual audit, the
Committee reviewed a statement provided by KPMG confirming their
independence within the meaning of the regulations and professional
standards. In addition, in order to satisfy itself as to KPMG's
independence, the Committee undertook a review of the auditor
compensation and the balance between audit and non-audit fees.
It is also the responsibility of the Committee to approve the
guidelines for using the external auditors for non-audit work, and
to annually assess the work done to ensure that the independence of
the external auditors is maintained and to ensure appropriate
disclosures of these services are included in the annual report.
The Committee is the first point of call for discussion with the
auditor when required. Annually, the Committee reviews the schedule
of audit and non-audit fees of the auditor with particular regard
to the auditors' independence and objectivity. The Committee has
agreed the types of permitted and non-permitted non-audit services
and those which require explicit pre-approval. During the financial
year, the value of non-audit services provided by KPMG amounted to
US$121,955 plus VAT (2016: US$33,170 plus VAT). Whilst non-audit
services as a proportion of audit services amount to approximately
72.84% (2016: 20.45%), the overall quantum of non-audit services is
not considered to be material. Please refer to note 5 for more
details.
On 17 June 2016, new EU rules, Statutory Instrument No.312 of
2016, on statutory audit became applicable. The new rules establish
a list of non-audit services that cannot be provided by the
statutory auditor and imposes limitations on the fees charged for
non-audit services. In addition to the review for ensuring
compliance with the new EU rules, the Audit Committee performs an
assessment of any threats to independence and the safeguards in
place to mitigate such threats before providing approval for the
provision of any non-audit services. The audit committee is
satisfied with the charge for non audit services during the
financial year in proportion to audit fees.
COMMITTEE EFFECTIVENESS
The effectiveness of the Committee is reviewed on an annual
basis by both the Board and the Committee itself. Following such
reviews, I am pleased to advise that the Committee is considered to
continue to operate effectively and efficiently.
A member of the Committee will be available to shareholders at
the forthcoming Annual General Meeting of the Company to answer any
questions relating to the role of the Committee.
Yours sincerely
Adrian Waters
On behalf of the Audit Committee
27 April 2018
STATEMENT OF DEPOSITARY'S RESPONSIBILITIES AND DEPOSITARY'S
REPORT TO THE SHAREHOLDERS
We have enquired into the conduct of the Company as the
authorised Alternative Investment Manager (the "AIFM") in respect
of the Company, the authorised Alternative Investment Fund ("AIF"),
and into the conduct of the AIF itself as an investment company,
for the financial year ended 31 December 2017 in our capacity as
depositary to the AIF.
This report including the opinion has been prepared for and
solely for the shareholders in the AIF, in accordance with the
Central Bank's AIF Rulebook and for no other purpose. We do not, in
giving this opinion, accept or assume responsibility for any other
purpose or to any other person to whom this report is shown.
RESPONSIBILITIES OF THE DEPOSITARY
Our duties and responsibilities are outlined in Regulation
22(7)(8)&(9) of European Union (Alternative Investment Fund
Managers Directive) Regulations 2013 as amended (the "Regulations")
and the AIF Rulebook. One of those duties is to enquire into the
conduct of the AIFM and the investment company in each annual
accounting period and report thereon to the shareholders.
Our report shall state whether, in our opinion, the AIF has been
managed in that period in accordance with the provisions of the
AIF's constitutional documentation and the AIF Rulebook. It is the
overall responsibility of the AIFM and the investment company to
comply with these provisions. If the AIFM or the investment company
has not so complied, we as Depositary must state why this is the
case and outline the steps which we have taken to rectify the
situation.
BASIS OF DEPOSITARY OPINION
The Depositary conducts such reviews as it, in its reasonable
opinion, considers necessary in order to comply with its duties as
outlined in Regulation 22(7)(8)&(9) of the Regulations, and to
ensure that, in all material respects, the AIF has been
managed:
(i) in accordance with the limitations imposed on its investment
and borrowing powers by the provisions of its constitutional
documentation and the appropriate regulations; and
(ii) otherwise in accordance with the AIF's constitutional
documentation and the appropriate regulations.
OPINION
In our opinion, the AIF has been managed during the financial
year, in all material respects:
(i) in accordance with the limitations imposed on the investment
and borrowing powers of the authorised AIF by the constitutional
document and by the Central Bank under the powers granted to the
Central Bank by the investment fund legislation; and
(ii) otherwise in accordance with the provisions of the
constitutional document and the investment fund legislation.
State Street Custodial Services (Ireland) Limited
78 Sir John Rogerson's Quay
Dublin 2
Ireland
27 April 2018
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF CARADOR INCOME FUND
PLC
Opinions and conclusions arising from our audit
1 Our opinion on the financial statements is unmodified
We have audited the financial statements of Carador Income Fund
PLC ("the Company") for the year ended 31 December 2017 which
comprise the statement of financial position, the statement of
comprehensive income, the statement of changes in equity, the
statement of cash flows and the related notes, including the
accounting policies in note 2. The financial reporting framework
that has been applied in their preparation is Irish Law and
International Financial Reporting Standards (IFRS) as adopted by
the European Union.
In our opinion, the financial statements:
-- give a true and fair view of the assets, liabilities and
financial position of the Company as at 31 December
2017 and of its profit for the year then ended;
-- have been properly prepared in accordance with IFRS as
adopted by the EU; and
-- have been properly prepared in accordance with the
requirements of the Companies Act 2014.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (Ireland) ("ISAs (Ireland)") and applicable
law. Our responsibilities under those standards are further
described in the Auditor's Responsibilities section of our report.
We believe that the audit evidence we have obtained is a sufficient
and appropriate basis for our opinion. Our audit opinion is
consistent with our report to the Audit Committee.
We were formally appointed as the Company's auditor for the 2010
financial year end audit following a competitive tender process
during 2010. The period of total uninterrupted engagement is the 8
years ended 31 December 2017. We have fulfilled our ethical
responsibilities under, and we remained independent of the Company
in accordance with, ethical requirements applicable in Ireland,
including the Ethical Standard issued by the Irish Auditing and
Accounting Supervisory Authority (IAASA) as applied to listed
public interest entities. No non-audit services prohibited by that
standard were provided.
2 Key audit matters: our assessment of risks of material
misstatement
Key audit matters are those matters that, in our professional
judgment, were of most significance in the audit of the financial
statements and include the most significant assessed risks of
material misstatement (whether or not due to fraud) identified by
us, including 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.
In arriving at our audit opinion above, we determine that there
was one key audit matter as follows (unchanged from 2016):
Valuation of financial assets at fair value through profit or
loss of US$394m (2016: US$406m)
Refer to page 28 (Audit Committee Report), page 42 (accounting
policy) and notes 4, 9 and 11 to the financial statements.
The key audit matter
The Company had 96.2% (2016: 95.7%) of its total assets as at 31
December 2017 invested into Collateralised Loan Obligations
('CLOs"). As described in the Report of the Audit Committee on page
28, the valuation of the Company's investments in these CLOs, given
that they represent the majority of the Company's total assets, is
a significant area of our audit. The valuation of this asset class
is based on prevailing market information (broker price approach)
at the valuation date. There is a risk that the prices in respect
of these investments held by the Company may not be reflective of
fair value.
How the matter was addressed in our audit
Our audit procedures in respect of the valuation of the
Company's investments in the CLOs included, but were not limited
to:
-- updating our understanding of the valuation methodologies and
valuation processes established by the Directors; and testing the
design and implementation of the relevant controls therein,
obtaining the broker quotations as used by the Investment Manager
and recalculating the valuation of the investments using the broker
price approach; and with the assistance of a KPMG valuation
specialist, assessing whether the valuation of the Company's
investments was within an acceptable range of fair values and
consideration of the Company's purchases and sales of investments
pre and post financial year end for evidence of bias in the
valuation of investments held at year end.
-- with the involvement of a KPMG valuation specialist, our
substantive testing included the determination of an independent
fair value for 100% of the mezzanine note investments. For the
income note investments, we performed individual securities
valuation testing through cash flow analysis on a sample of income
note investments held as at year end, along with the performance of
a market review analysis.
-- we also considered the adequacy of the Company's disclosures
(see note 2O) in relation to: the use of judgments and estimates in
determining the fair value of investments; the Company's investment
valuation policies adopted; and fair value disclosures in note 4
and note 11 to the financial statements for compliance with IFRS as
adopted by the EU.
We found the valuation of all the Company's investments to be
within an acceptable range.
3 Our application of materiality and an overview of the scope of
our audit
The materiality for the financial statements as a whole was set
at US$2.99 million (2016: US$4.2 million). This has been determined
using a benchmark of the Company's net assets (of which it
represents 1% (2016: 1%) as at 31 December 2017 which we
determined, in our professional judgment, to be one of the
principal benchmarks within the financial statements relevant to
the shareholders of the Company in assessing financial performance,
and this is also a generally accepted auditing benchmark used for
companies in this industry.
We report to the Audit Committee all corrected and uncorrected
misstatements we identified through our audit with a value in
excess of US$0.15 million (2016: US$0.2 million), in addition to
other audit misstatements below that threshold that we believe
warranted reporting on qualitative grounds.
Our assessment of materiality has informed our identification of
significant risks of material misstatement and the associated audit
procedures performed in the area detailed above. Those procedures
have been designed to provide reasonable assurance that the
financial statements, taken as a whole, are free from material
misstatements.
Other than certain valuation work noted above, the audit
procedures have been undertaken and performed by the audit team
based in Dublin.
4 We have nothing to report on going concern
We are required to report to you if:
-- we have anything material to add or draw attention to in
relation to the Directors' statement in note 2 to the financial
statements on the use of the going concern basis of accounting with
no material uncertainties that may cast significant doubt over the
Company's use of that basis for a period of at least twelve months
from the date of approval of the financial statements; or
-- the related statement under the Listing Rules set out on page
21 is materially inconsistent with our audit knowledge.
We have nothing to report in these respects.
5 We have nothing to report on the other information in the
annual report
The Directors are responsible for the other information
presented in the annual report together with the financial
statements. The other information comprises the information
included in the Chairman's Report, Investment Manager's Review, the
Directors' Report, the Audit Committee Report and the Statement of
Depositary's Responsibilities and Depositary's Report to the
Shareholders. Our opinion on the financial statements does not
cover the other information and, accordingly, we do not express an
audit opinion or, except as explicitly stated below, any form of
assurance conclusion thereon.
Our responsibility is to read the other information and, in
doing so, consider whether, based on our financial statements audit
work, the information therein is materially misstated or
inconsistent with the financial statements or our audit knowledge.
Based solely on that work, we have not identified material
misstatements in the other information.
Based solely on our work on the other information:
-- we have not identified material misstatements in the
Directors' Report;
-- in our opinion, the information given in the Directors'
Report is consistent with the financial statements; and
-- in our opinion, the Directors' report has been prepared in
accordance with the Companies Act 2014.
Disclosures of principal risks and longer-term viability
Based on the knowledge we acquired during our financial
statements audit, we have nothing material to add or draw attention
to in relation to:
-- the Principal Risks disclosures describing these risks and
explaining how they are being managed and mitigated;
-- the Directors' confirmation within the Viability Statement on
page 21 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 and
liquidity; and
-- the Directors' explanation in the Viability Statement of how
they have assessed the prospects of the Company, over what period
they have done so and why they considered 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.
Other corporate governance disclosures
We are required to address the following items and report to you
in the following circumstances:
-- Fair, balanced and understandable: if we have identified
material inconsistencies between the knowledge we acquired during
our financial statements audit and the Directors' statement that
they consider that 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;
-- Report of the Audit Committee: if the section of the annual
report describing the work of the Audit Committee does not
appropriately address matters communicated by us to the Audit
Committee; and
-- Statement of compliance with UK Corporate Governance Code: if
the Directors' statement does not properly disclose a departure
from provisions of the UK Corporate Governance Code specified by
the Listing Rules for our review.
We have nothing to report in these respects.
Other corporate governance disclosures (continued)
In addition, as required by the Companies Act 2014, we report,
in relation to information given in the Corporate Governance
Statement on pages 16 to 23, that:
-- based on the work undertaken for our audit, in our opinion,
the description of the main features of internal control and risk
management systems in relation to the financial reporting process,
and information relating to voting rights and other matters
required by the European Communities (Takeover Bids (Directive
2004/EC) Regulations 2016 and specified for our consideration, is
consistent with the financial statements and has been prepared in
accordance with the Act; and
-- based on our knowledge and understanding of the Company and
its environment obtained in the course of our audit, we have not
identified any material misstatements in that information.
We also report that, based on work undertaken for our audit, the
other information required by the Act is contained in the Corporate
Governance Statement.
6 Our opinions on other matters prescribed the Companies Act
2014 are unmodified
We have obtained all the information and explanations which we
consider necessary for the purpose of our audit.
In our opinion, the accounting records of the Company were
sufficient to permit the financial statements to be readily and
properly audited and the Company's statement of financial position
and the profit and loss account is in agreement with the accounting
records.
7 We have nothing to report on other matters on which we are
required to report by exception
The Companies Act 2014 requires us to report to you if, in our
opinion, the disclosures of Directors' remuneration and
transactions required by Sections 305 to 312 of the Act are not
made.
The Listing Rules of the UK Listing Authority require us to
review:
-- the Directors' statement, set out on page 21, in relation to
going concern and longer-term viability;
-- the part of the Corporate Governance Statement on pages 16-23
relating to the Company's compliance with the provisions of the UK
Corporate Governance Code and the Irish Corporate Governance Annex
specified for our review; and
-- certain elements of disclosures in the report to shareholders
by the Board of Directors' Remuneration Committee.
8 Respective responsibilities
Directors' responsibilities
As explained more fully in their statement set out on page 25,
the Directors are responsible for: the preparation of the financial
statements including being satisfied that they give a true and fair
view; such internal control as they determine is necessary to
enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error; 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 they either intend to liquidate
the Company or to cease operations, or have no realistic
alternative but to do so.
Auditor's responsibilities
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 our
opinion in an auditor's report. Reasonable assurance is a high
level of assurance, but does not guarantee that an audit conducted
in accordance with ISAs (Ireland) will always detect a material
misstatement when it exists. Misstatements can arise from fraud,
other irregularities or error and are considered material if,
individually or in aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of the
financial statements. The risk of not detecting a material
misstatement resulting from fraud or other irregularities is higher
than for one resulting from error, as they may involve collusion,
forgery, intentional omissions, misrepresentations, or the override
of internal control and may involve any area of law and regulation
not just those directly affecting the financial statements.
8 Respective responsibilities (continued)
Auditor's responsibilities (continued)
A fuller description of our responsibilities is provided on
IAASA's website at
https://www.iaasa.ie/getmedia/b2389013-1cf6-458b-9b8f-a98202dc9c3a/Description_of_auditors_responsiblities_for_audit.pdf
9 The purpose of our audit work and to whom we owe our
responsibilities
Our report is made solely to the Company's members, as a body,
in accordance with Section 391 of the Companies Act 2014. 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 our report, or for the opinions we have
formed.
Vincent Reilly
for and on behalf of
KPMG
Chartered Accountants, Statutory Audit Firm
1 Harbourmaster Place
IFSC
Dublin1 Ireland
27 April 2018
STATEMENT OF FINANCIAL POSITION
As at 31 December 2017
31 December 31 December
2017 2016
Notes US$ US$
--------------------------------- --------- ------------ ------------
ASSETS
Cash and cash equivalents 6, 11 11,235,987 16,682,060
Other receivables 11 1,556,771 1,357,374
Receivable for investments
sold 2,956,996 -
Financial assets at fair
value through profit or loss* 4, 9, 11 393,983,227 405,793,835
--------------------------------- --------- ------------ ------------
TOTAL ASSETS 409,732,981 423,833,269
--------------------------------- --------- ------------ ------------
LIABILITIES
Expenses payable 5 2,578,305 2,092,950
Amounts payable to Repurchase
Pool Class Shareholders 7 107,889,914 -
TOTAL LIABILITIES 110,468,219 2,092,950
--------------------------------- --------- ------------ ------------
NET ASSETS ATTRIBUTABLE TO PARTICIPATING
EQUITY SHAREHOLDERS OF THE U.S. DOLLAR
CLASS SHARES 299,264,762 421,740,319
-------------------------------------------- ------------ ------------
* Balances include investment in unconsolidated subsidiaries.
Please refer to note 9 for further detail.
These financial statements were authorised and approved for
issue by the Directors on 27 April 2018 and signed on their behalf
by:
Fergus Sheridan Adrian Waters
The accompanying notes form an integral part of the financial
statements.
STATEMENT OF COMPREHENSIVE INCOME
For the financial year ended 31 December 2017
31 December 31 December
2017 2016
Notes US$ US$
--------------------------------- ------ ------------ ------------
Interest income on cash
and cash equivalents 2 8,598 2,854
Miscellaneous income 40,239 44,237
Net gain/(loss) on foreign
exchange 2 32,678 (34,446)
Net gain on financial assets
at fair value through profit
or loss 2,4 44,793,898 86,289,722
--------------------------------- ------ ------------ ------------
TOTAL REVENUE 44,875,413 86,302,367
--------------------------------- ------ ------------ ------------
Performance fees 5 (541,748) -
Investment management fees 5 (4,936,356) (5,107,521)
Depositary fees 5 (62,802) (63,136)
Administration fees 5 (313,221) (291,977)
Directors' fees 5, 10 (367,655) (344,249)
Auditor's fees 5 (323,794) (199,529)
Other operating expenses 5 (1,129,145) (955,823)
--------------------------------- ------ ------------ ------------
TOTAL OPERATING EXPENSES (7,674,721) (6,962,235)
--------------------------------- ------ ------------ ------------
OPERATING PROFIT BEFORE
FINANCE COSTS 37,200,692 79,340,132
--------------------------------- ------ ------------ ------------
Facility costs 12 (171,060) (151,994)
Fair value movement on
Repurchase Pool Class Shares 3 (612,196) -
Interest expense (6,207) (34,328)
----------------------------------------- ------------ ------------
TOTAL FINANCE COSTS (789,463) (186,322)
----------------------------------------- ------------ ------------
PROFIT FOR THE FINANCIAL YEAR
ALL ATTRIBUTABLE TO PARTICIPATING
EQUITY SHAREHOLDERS 36,411,229 79,153,810
----------------------------------------- ------------ ------------
TOTAL COMPREHENSIVE INCOME FOR
THE FINANCIAL YEAR ALL ATTRIBUTABLE
TO PARTICIPATING EQUITY SHAREHOLDERS 36,411,229 79,153,810
BASIC AND DILUTED EARNINGS
PER SHARE
Earnings per U.S. Dollar 14 US$0.07 US$0.15
Share
Earnings per Repurchase 14 US$0.03 -
Pool Share
--------------------------------- ------ ------------ ------------
The accompanying notes form an integral part of the financial
statements.
STATEMENT OF CHANGES IN EQUITY
For the financial year ended 31 December 2017
Notes US$
------------------------------------------------ ---------- ----------------------
AT 31 DECEMBER 2015 392,837,444
------------------------------------------------ ---------- ----------------------
TRANSACTIONS WITH PARTICIPATING EQUITY
SHAREHOLDERS
Distributions to participating equity
shareholders 16 (50,250,935)
TOTAL TRANSACTIONS WITH PARTICIPATING
EQUITY SHAREHOLDERS (50,250,935)
Profit for the financial year all
attributable to participating equity
shareholders 79,153,810
------------------------------------------------ ---------- ----------------------
TOTAL COMPREHENSIVE INCOME FOR THE
FINANCIAL YEAR ALL ATTRIBUTABLE TO
PARTICIPATING EQUITY SHAREHOLDERS 79,153,810
AT 31 DECEMBER 2016 421,740,319
------------------------------------------------ ---------- ----------------------
TRANSACTIONS WITH PARTICIPATING EQUITY
SHAREHOLDERS
Transfer to liabilities for amounts
payable to Repurchase Pool Class Shareholders 7 (107,277,718)
Distributions to participating equity
shareholders 16 (51,609,068)
TOTAL TRANSACTIONS WITH PARTICIPATING
EQUITY SHAREHOLDERS (158,886,786)
Profit for the financial year all
attributable to participating equity
shareholders 36,411,229
------------------------------------------------ ---------- ----------------------
TOTAL COMPREHENSIVE INCOME FOR THE
FINANCIAL YEAR ALL ATTRIBUTABLE TO
PARTICIPATING EQUITY SHAREHOLDERS 36,411,229
AT 31 DECEMBER 2017 299,264,762
------------------------------------------------ ---------- ----------------------
The accompanying notes form an integral part of the financial
statements.
STATEMENT OF CASH FLOWS
For the financial year ended 31 December 2017
31 December 31 December
2017 2016
Notes US$ US$
-------------------------------------------- -------------- --------------
CASH FLOWS FROM OPERATING
ACTIVITIES
Profit for the financial
year all attributable to
participating equity shareholders 36,411,229 79,153,810
Adjustments for non-cash
items and working capital:
Amounts attributable to
Repurchase Pool Class Shareholders 3 612,196 -
Increase in payables 4 485,355 224,559
Increase in receivables 3 (199,397) (1,339,393)
Net loss/(gain) on financial
assets at fair value 3,11 8,083,174 (25,581,028)
-------------------------------------- ----- -------------- --------------
NET CASH INFLOW FROM OPERATING
ACTIVITIES 45,392,557 52,457,948
-------------------------------------- ----- -------------- --------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of investments* (123,367,010) (193,510,157)
Disposal and paydowns of
investments* 124,137,448 163,916,116
NET CASH INFLOW/(OUTFLOW)
FROM INVESTING ACTIVITIES 770,438 (13,569,664)
-------------------------------------- ----- -------------- --------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Distributions to participating
equity shareholders 16 (51,609,068) (50,250,935)
Drawdowns from credit facility 22,500,000 -
Repayments of credit facility (22,500,000) -
NET CASH OUTFLOW FROM FINANCING
ACTIVITIES (51,609,068) (50,250,935)
-------------------------------------- ----- -------------- --------------
Net decrease in cash and
cash equivalents (5,446,073) (11,362,651)
CASH AND CASH EQUIVALENTS
AT THE BEGINNING OF THE
FINANCIAL YEAR 16,682,060 28,044,711
-------------------------------------- ----- -------------- --------------
CASH AND CASH EQUIVALENTS
AT THE OF THE FINANCIAL
YEAR 11,235,987 16,682,060
-------------------------------------- ----- -------------- --------------
* Balances include investment in unconsolidated subsidiaries.
Please see note 9 for further detail.
The accompanying notes form an integral part of the financial
statements.
NOTES TO THE FINANCIAL STATEMENTS
For the financial year ended 31 December 2017
1 GENERAL
Carador Income Fund PLC is a closed-ended limited liability
investment company domiciled and incorporated under the laws of the
Republic of Ireland with variable capital pursuant to the Irish
Companies Act 2014. It was incorporated on 20 February 2006 under
registration number 415764. The Company is authorised by the
Central Bank of Ireland ("Central Bank"), pursuant to Part 24 of
the Companies Act 2014. The main equity-classified U.S. Dollar
Shares are admitted to the Official List of the UK Listing
Authority with a premium listing and are admitted to trading on the
Main Market of the London Stock Exchange.
During the year, the Company converted 144,451,569 U.S. Dollar
Shares into Repurchase Pool Class Shares. Repurchase Pool Shares
are classified as a liability in accordance with the requirements
of IAS 32. On 22 November 2017, the Repurchase Pool Class Shares
were admitted to trading on the Specialist Fund Segment of the Main
Market of the London Stock Exchange. The assets attributable to the
Repurchase Pool Class Shares will be realised over time and the
proceeds (net of fees, expenses and other liabilities) will be paid
out to the Repurchase Pool Class Shareholders by way of the
compulsory repurchase, in tranches, of the Repurchase Pool Class
Shares.
At 31 December 2017, shares in issue were U.S. Dollar Class
Shares and Repurchase Pool Class Shares. The Company may issue one
or more additional classes of shares on prior notice to, and
clearance by, the Central Bank.
The Company's investment objective is to produce attractive and
stable returns, with low volatility compared to equity markets, by
investing in a diversified portfolio of senior notes of
collateralised loan obligations ("CLOs") collateralised by senior
secured bank loans and equity and mezzanine tranches of CLOs.
2 SIGNIFICANT ACCOUNTING POLICIES
2A STATEMENT OF COMPLIANCE
The Company's financial statements are prepared in accordance
with International Financial Reporting Standards ("IFRS") as issued
by the International Accounting Standards Board ("IASB") as adopted
by the European Union and also in accordance with Irish Company
Law.
2B ADOPTION OF NEW ACCOUNTING STANDARDS AND AMMENTS, INCLUDING
ACCOUNTING POLICY CHANGES
The Company has consistently applied the accounting requirements
to all periods presented in these financial statements.
The amendments for IAS 7 Statement of Cash Flows as issued by
the IASB in 2016 are effective for annual periods beginning on or
after 1 January 2017 and relate to the additional disclosure of
changes in liabilities arising from financing activities as
presented on the cash flow statement. These amendments have been
incorporated in these financial statements where applicable.
2C 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 functional currency of the Company is US Dollar (US$), as
the Directors have determined that this reflects the Company's
primary economic environment. The presentation currency of the
financial statements is also US Dollar.
The financial statements comprise the Company's statement of
financial position, statement of comprehensive income, statement of
changes in equity and statement of cash flows together with the
related notes. These notes also incorporate financial instrument
related disclosures which are required by IFRS 7 that are contained
in the Annual Report in the section entitled "Investment Manager's
review".
The Company qualifies as an investment entity and, therefore,
the Company does not consolidate subsidiaries but accounts for them
at fair value through profit or loss.
The Company's management has made an assessment of the Company's
ability to continue as a going concern and is satisfied that the
Company has the resources to continue for the foreseeable
future.
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
2C BASIS OF PREPARATION (continued)
Further, the Company's liabilities are expenses paid to service
providers and the NAV of the Repurchase Pool Class Shares which is
classified as a liability, as opposed to equity, in accordance with
IAS32. The liabilities are linked to the NAV of each Share Class
and thus fluctuate as the NAV of each Share Class increases and
decreases, subject to a minimum in certain cases. This results in
the Company being able to comfortably cover the liabilities as they
fall due.
The Directors are not aware of any material uncertainties which
may cast significant doubt upon the Company's ability to continue
as a going concern, and that the Directors have a reasonable
expectation that the Company will continue in operational existence
for the foreseeable future. For these reasons, they continue to
adopt the going concern basis in preparing the annual financial
statements.
2D INTEREST INCOME AND INTEREST EXPENSE ON CASH AND CASH
EQUIVALENTS
Income receivable on cash and cash equivalents is recognised
separately through profit or loss in the statement of comprehensive
income, on an effective interest rate basis.
2E PARTICIPATING SHARES
The participating share capital of the Company comprises of U.S.
Dollar Class Shares and Repurchase Pool Class Shares. The U.S.
Dollar Class 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. The
proceeds from the issue of U.S. Dollar Class Shares are recognised
in the statement of changes in equity, net of the incremental
issuance costs. Repurchase Pool Class Shares are classified as a
financial liability based on the substance of the contractual
arrangement in accordance with IAS 32, and are stated at fair value
which approximates carrying value on the reporting date.
2F FEES AND CHARGES
Expenses are charged through profit or loss in the statement of
comprehensive income on an accruals basis.
2G CASH AND CASH EQUIVALENTS
Cash comprises current deposits with banks. Cash equivalents are
short-term, highly liquid investments that are readily convertible
to known amounts of cash, are subject to an insignificant risk of
changes in value, and are held for the purpose of meeting
short-term cash commitments rather than for investments or other
purposes.
2H NET GAIN ON FINANCIAL ASSETS/LIABILITIES AT FAIR VALUE
THROUGH PROFIT OR LOSS
Net gain on financial assets/liabilities at fair value through
profit or loss consists of coupons received and realised and
unrealised gains and losses on financial assets at fair value
through profit or loss, calculated as described in note 2I(iii).
For the purposes of the statement of cash flows, the coupon income
is considered an operating activity.
Amounts attributable to Repurchase Pool Class Shares are
reflected at their fair value which approximates carrying
value.
2I FINANCIAL INSTRUMENTS
(i) Classification
The Company classifies its financial assets and financial
liabilities into categories in accordance with IAS 39 Financial
Instruments: Recognition and Measurement.
The category of financial assets and financial liabilities at
fair value through profit or loss comprises:
Financial assets at fair value through profit or loss other than
those held for trading
Financial assets classified in this category are designated by
management on initial recognition as part of a group of financial
assets which are managed and their performance evaluated on a fair
value basis, in accordance with a documented investment strategy.
The term "financial assets designated at fair value through profit
or loss" includes investments in collateralised loan obligations.
IFRS 10's Investment Entity Amendment also requires subsidiaries to
be accounted for at fair value through profit or loss in accordance
with IAS 39.
Financial liabilities at fair value through profit or loss other
than those held for trading
Financial liabilities classified in this category are designated
by the management on initial recognition as part of a group of
financial liabilities which are managed and their performance
evaluated on a fair value basis, in accordance with a documented
investment strategy. This category includes amounts payable to
Repurchase Pool Class shareholders which are classified as
liabilities in accordance with IAS 32. The movement in the fair
value of the amounts attributable to the Repurchase Pool Class
Shares are reflected within the Statement of Comprehensive Income
as 'Fair value movement on Repurchase Pool Class Shares' within the
Finance Costs section.
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
2I FINANCIAL INSTRUMENTS (continued)
(i) Classification (continued)
Financial liabilities at fair value through profit or loss other
than those held for trading (continued)
Further details on the Repurchase Pool Class are provided in
notes 7 and 18.
Financial assets at amortised cost
Loans and receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active
market, and they are carried at amortised cost. The Company
includes in this category cash and cash equivalents and other
receivables. The amortised cost of a financial asset is the amount
at which the instrument is measured at initial recognition (its
fair value) adjusted for initial direct costs, minus principal
repayments, plus or minus the cumulative amortisation, using an
effective interest rate method, of any difference between the
initial amount recognised and the maturity amount, minus any
reduction for impairment. The Company includes in this category
expenses payable and amounts payable for investments purchased.
(ii) Recognition and initial measurement
Financial assets and financial liabilities are measured
initially at fair value, being the transaction price, including
transaction costs for items that will subsequently be measured at
amortised cost, on the trade date, which is the date on which the
Company becomes a party to the contractual provisions of the
instrument. Transaction costs on financial assets at fair value
through profit or loss are expensed immediately.
(iii) Subsequent measurement
After initial measurement, the Company measures financial
instruments classified at fair value through profit or loss at
their fair values. Changes in fair value are recorded within "Net
gain on financial assets at fair value through profit or loss" in
the statement of comprehensive income.
The following sources have been used to obtain the fair value
for the financial assets and liabilities of the Company:
Level 1. Where quoted prices in an active market are available
for the financial assets and liabilities, these are used to
determine fair value of the respective financial instrument.
Level 2. Where the market for a financial instrument is not an
active market, the fair value on subsequent measurement is obtained
through broker price quotations or through the use of pricing
services. Regarding the broker price quotation valuation technique,
the fair value is derived through an average of at least two or
more broker quotes with outliers (if any) removed prior to
calculation, and also including in this average calculation binding
offer and actual trade prices (if any). This valuation technique
uses observable inputs that require no significant adjustment based
on unobservable inputs, therefore resulting in Level 2
classification; and
Level 3. This category includes all instruments for which the
broker price quotation valuation technique (as described above)
includes inputs not based on observable data and the unobservable
inputs have a significant effect on the instrument's valuation.
All other financial instruments not at fair value are measured
on an amortised cost basis.
(iv) Offsetting financial instruments
Financial assets and liabilities are offset and the net amount
reported in the statement of financial position where there is a
legally enforceable right to offset the recognised amounts and
there is an intention to settle on a net basis, or realise the
assets and settle the liability simultaneously. For the financial
year ended 31 December 2017, there were no financial assets or
liabilities subject to enforceable, master netting arrangements or
similar agreements which would require disclosure.
(v) Derecognition
The Company derecognises a financial asset when the contractual
rights to the cash flows from the financial asset expire or it
transfers the financial asset and the transfer qualifies for
derecognition in accordance with IAS 39. The Company derecognises a
financial liability when the obligation specified in the contract
is discharged, cancelled or expires.
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
2J FOREIGN CURRENCY
Transactions in foreign currencies are translated at the foreign
currency exchange rate to the functional currency at the rate
ruling at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are translated to US
Dollar at the foreign currency closing exchange rate ruling at the
reporting date. Foreign currency exchange differences relating to
investments at fair value through profit or loss are included in
"Net gain on financial assets at fair value through profit or loss"
in the statement of comprehensive income. All other foreign
currency exchange differences relating to monetary items, including
cash, are presented in "Net gain/(loss) on foreign exchange" in the
statement of comprehensive income.
2K TAXATION
Income tax expense is recognised through profit or loss in the
statement of comprehensive income except to the extent that it
relates to items recognised directly in equity or in other
comprehensive income.
Current tax is the expected tax payable or receivable on the
taxable income or loss for the financial year, using tax rates
enacted or substantially enacted at the reporting date, and any
adjustment to tax payable in respect of previous periods.
Under current law and Irish practice, the Company qualifies as
an investment undertaking under Section 739B of the Taxes
Consolidation Act 1997 and is not therefore chargeable to Irish tax
on its relevant income or relevant gains. See note 15 for further
details.
2L DISTRIBUTIONS
Distributions to the shareholders of U.S. Dollar Class are
recorded through the statement of changes in equity when they are
declared to shareholders. Shareholders of the Repurchase Pool Class
are not entitled to any dividend distributions.
2M OPERATING SEGMENTS
An operating segment is a component of the Company that engages
in business activities from which it may earn revenues and incur
expenses, whose operating results are regularly reviewed by the
Company's chief operating decision makers and for which discrete
financial information is available. The chief operating
decision-makers for the Company are the Investment Manager and the
Directors. In considering the segments of the Company, the Company
has considered the information reviewed by the Company's Chief
Operating Decision-
Makers and determined that there are two operating segments in
existence as at 31 December 2017 (31 December 2016: one), the U.S.
Dollar Class Shares and the Repurchase Pool Class Shares. Further
details are set out under Segmental Reporting in note 3.
2N REPURCHASE POOL CLASS SHARES
On 31 October 2017, the Company converted 144,451,569 U.S.
Dollar Class Shares on a one to one basis to Repurchase Pool Class
Shares of no par value. The value of the Repurchase Pool Class
Shares at the date of conversion is accounted for in the statement
of changes in equity within Transfer to liabilities for amounts
payable to Repurchase Pool Class Shareholders. The return on the
Repurchase Pool Class Shares for the period from conversion to 31
December 2017 is accounted for in the statement of comprehensive
income within Fair value movement on Repurchase Pool Class Shares.
The liability relating to the Repurchase Pool Class Shares at 31
December 2017 is included in Amounts payable to Repurchase Pool
Class Shareholders within the statement of financial position.
2O SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES
The preparation of the financial statements requires management
to make judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts of
assets, liabilities, income and expenses. Actual results may differ
from these estimates.
Estimates
Estimates and underlying assumptions are required on an ongoing
basis. Revisions to estimates are recognised prospectively.
In accordance with IFRS 13, the Company applies the definition
of fair value, being 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 in the
principal or, in its absence, the most advantageous market to which
the Company has access at that date. The fair value of a liability
reflects its non-performance risk.
When the fair value of financial assets and financial
liabilities recorded in the statement of financial position cannot
be derived from active market quotations, they are determined using
valuation techniques including the use of broker prices. See note 4
for further details of the fair value hierarchy levels at 31
December 2017 and 31 December 2016. See note 3 for detail of the
NAV attributable to Repurchase Pool Class Shares and U.S. Dollar
Class Shares.
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
2O SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES
(continued)
Judgements
Application of IFRS 10, its related IE Amendment and IFRS 12
The Directors are satisfied that the Company meets the
definition of an investment entity, and has also concluded that its
investments in Keuka Park CLO Ltd 2013-1A, Pinnacle Park CLO Ltd
2014-1A and Sheridan Square CLO Ltd meet the definition of
subsidiary structured entities in accordance with IFRS 10, with the
remaining CLOs in which the Company invests meeting the definition
of non-controlled structured entities in accordance with IFRS 12.
These conclusions are further detailed in note 9 Interest in Other
Entities.
2P NEW STANDARDS AND INTERPRETATIONS APPLICABLE TO FUTURE
REPORTING PERIODS
New standards, amendments and interpretations issued but not
effective in 2017 and not early adopted.
The Company has considered all the upcoming International
Accounting Standards Board's ("IASB's") standards including those
not yet endorsed by the EU. The below standards are those deemed to
have relevance to the Company and will be adopted from their EU
effective dates.
IFRS 9 "Financial instruments", effective for annual periods
beginning on or after 1 January 2018 will be applied next year. It
specifies how an entity should classify and measure financial
assets and liabilities, including some hybrid contracts. The
standard improves and simplifies the approach for classification
and measurement of financial assets compared with the requirements
of IAS 39. Most of the requirements in IAS 39 for classification
and measurement of financial liabilities were carried forward
unchanged. The standard applies a consistent approach to
classifying financial assets and replaces the numerous categories
of financial assets in IAS 39, each of which had its own
classification criteria. The standard is not expected to have a
significant impact on the Company's financial position or
performance, as it is expected that the Company will continue to
classify all of its financial assets as being at fair value through
profit or loss.
3 SEGMENTAL REPORTING
As required by IFRS 8, Operating Segments, the information
provided to the Board of Directors and Investment Manager, who are
the Chief Operating Decision Makers, can be classified into two
segments as at 31 December 2017 and one segment as at 31 December
2016. The Directors elected to propose a repurchase opportunity
whereby eligible shareholders may elect to have their shares
converted into Repurchase Pool Class Shares. Repurchase Pool Class
Shares are shares in the Company which participate in a separate
pool of assets and liabilities within the Company created for the
purposes of the repurchase opportunity.
On 31 October 2017, it was announced that shareholders had voted
for 144,451,569 U.S. Dollar Class Shares (26.6% of issued U.S.
Dollar Class Shares) to be redesignated into Repurchase Pool Class
Shares. On 22 November 2017, 144,451,569 Repurchase Pool Class
Shares were admitted to trading on the Specialist Fund Segment of
the Main Market of the London Stock Exchange (see note 7 for
further details).
As a result of the shareholder's movement as at 31 October 2017,
the Company has a new business model which started on that day and
did not exist before.
Repurchase U.S. Dollar Total
Pool Class
Class
Shares
(2 months (12 months (12 months
to to to 31
31 Dec 2017) 31 Dec 2017) Dec 2017)
US$ US$ US$
-------------------------------------------- -------------- ------------
Net gain on financial assets
designated at fair value
through profit or loss 1,359,221 43,434,677 44,793,898
Operating expenses (749,249) (6,925,472) (7,674,721)
-------------------------------- ----------- -------------- ------------
Total revenue for reportable
segments 609,972 36,509,205 37,119,177
-------------------------------- ----------- -------------- ------------
Interest income on cash and
cash equivalents - 8,598 8,598
Miscellaneous income - 40,239 40,239
Net gain on foreign exchange 2,224 30,454 32,678
Finance costs - (171,060) (171,060)
Interest expense - (6,207) (6,207)
-------------------------------- ----------- -------------- ------------
Total profit for reportable
segments 612,196 36,411,229 37,023,425
-------------------------------- ----------- -------------- ------------
3 SEGMENTAL REPORTING (continued)
Repurchase U.S. Dollar Total
Pool Class
Class
Shares
(2 months (12 months (12 months
to to to 31
31 Dec 2017) 31 Dec 2017) Dec 2017)
US$ US$ US$
------------------------------------------------------ -------------- --------------
Financial assets designated
at fair value through profit
or loss 96,670,553 297,312,674 393,983,227
Receivables related to investments
and other receivables 3,578,548 935,219 4,513,767
Cash and cash equivalents 8,677,594 2,558,392 11,235,987
Expenses payable (1,036,781) (1,541,524) (2,578,305)
----------------------------------------- ------------ -------------- --------------
Net assets for reportable
segments 107,889,914 299,264,761 407,154,676
----------------------------------------- ------------ -------------- --------------
31 December 31 December
2017 2016
US$ US$
--- ------------------------------------ ------------ --------------------------------
Net Asset Value - US Dollar Share
Class 299,264,762 421,740,319
Net Asset Value Per U.S. Dollar
Class Share 0.7504 0.7763
Net Asset Value - Repurchase
Pool Class Share 107,889,914 -
Net Asset Value Per Repurchase
Pool Class Share 0.7469 -
The return on the Repurchase Pool Class is for 2 months from 1
November 2017 to 31 December 2017. The return on the U.S. Dollar
Class is for 12 months to 31 December 2017. However, the Repurchase
Pool Class Shareholders have also profited from the return of the
U.S. Dollar Share Class for the first 10 months of the year from 1
January 2017 to 31 October 2017.
Major Customers
The Company regards the holders of both classes of shares as
customers, because it relies on their funding for continuing
operations and meeting its objectives. The Company's shareholding
structure is not exposed to a significant shareholder
concentration. A breakdown of shares held by employees of the
Investment Manager can be found in note 10. The Company's largest
shareholder as at 23 April 2018 is outlined on page 24.
4 FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
As described in the accounting policies note, the Company has
financial assets designated at fair value through profit or loss.
The financial instruments recognised at fair value are analysed
between those whose fair value is based on:
-- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
-- Level 2: inputs other than quoted prices included in Level 1
that are observable for the asset or liability, either directly (as
prices) or indirectly (derived from prices). This category includes
instruments valued using: quoted market prices in active markets
for similar instruments; quoted market prices for identical or
similar instruments in markets that are considered less than
active; or other valuation techniques in which all significant
inputs are directly or indirectly observable from market data.
-- Level 3: inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
The table below analyses financial instruments measured at fair
value at the reporting date by the level in the fair value
hierarchy into which the fair value measurement is categorised. The
amounts are based on the values recognised in the statement of
financial position. All fair value measurements below are
recurring.
U.S. Dollar Repurchase Total as at As at
Share Class Pool 31 December 31 December
US$ Share Class 2017 2016
US$ US$ US$
--------- ------------- ------------- ------------- -------------
Level 1 - - - -
Level 2 230,452,116 72,442,139 302,894,255 341,359,581
Level 3 66,859,304 24,229,668 91,088,972 64,434,254
--------- ------------- ------------- ------------- -------------
297,311,420 96,671,807 393,983,227 405,793,835
--------- ------------- ------------- ------------- -------------
4 FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS (continued)
The Company determines the fair value for the CLOs using
independent, unadjusted indicative broker quotes. A broker quote is
not generally a binding offer. The categorisation of the CLOs is
dependent on whether or not the broker quotes reflect actual
current market transactions, or if they are indicative prices based
on the broker's valuation models, depending on the significance and
observability of the inputs to the model.
The Investment Manager can challenge the marks that come from
the independent brokers if they appear off-market or
unrepresentative but has no discretion to disregard a mark if a
broker dealer does not adjust it after a challenge.
For CLOs that have been categorised as Level 2, fair value has
been determined using independent broker quotes based on observable
inputs. If valuation cannot be verified as being based
significantly on observable inputs, then the investments would fall
into Level 3.
The Company considers observable data to be that market data
that is readily available, regularly distributed or updated,
reliable, not proprietary, and provided by independent sources that
are actively involved in the relevant market.
For each class of assets and liabilities not measured at fair
value in the statement of financial position but for which fair
value is disclosed, the Company is required to disclose the level
within the fair value hierarchy which the fair value measurement
would be categorised and a description of the valuation technique
and inputs used in the technique.
For the financial years ended 31 December 2017 and 31 December
2016, cash and cash equivalents, receivable for investments sold,
other receivables and expenses payable, whose carrying amounts
approximate fair value, were classified as Level 2 within the fair
value hierarchy.
Amounts payable to shareholders of the Repurchase Pool Class
Shares are classified as a liability and are disclosed as Level 3
within the fair value hierarchy.
Transfers between Level 1, 2 and 3
There were no transfers between Level 1 and Level 2 during the
financial year (2016: no transfers). Where transfers between levels
arise, they are deemed to occur at the end of the reporting
period.
At 31 December 2017, collateralised loan obligations with a fair
value of US$91,088,972 were classified as Level 3. The
classification of the Level 3 assets reflects the dispersion in the
indicative broker quotes for some Income Note positions during the
financial year. At 31 December 2017, certain CLOs with a fair value
of US$74,355,559 were transferred from Level 2 to Level 3 (31
December 2016: US$10,224,358). The change in the classification
level was a result of decreased liquidity for some Income Note
positions in the market and wider spreads reflected by a higher
spectrum of indicative broker quotes, which were factors that
indicated that the broker quotes were not based on observable
prices.
For Level 3 collateralised loan obligations, the factors taken
into consideration include the spread differential within the
different broker quotes received as well as other market
information, such as trades, portfolio composition and other market
considerations.
The following table shows a reconciliation from the opening
balances to the closing balances for fair value measurements in
Level 3 of the fair value hierarchy as at 31 December 2017:
Collateralised
Loan Obligations
US$
-------------------------------------------- ------------------
Balance at 1 January 2017 64,434,254
Net loss on financial assets at fair value
through profit or loss (15,581,751)
Purchases 55,975,759
Disposal and paydowns of investments (41,493,228)
Transfers into Level 3 74,355,559
Transfers out of Level 3 (46,601,621)
Balance at 31 December 2017 91,088,972
-------------------------------------------- ------------------
4 FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS (continued)
Transfers between Level 1, 2 and 3 (continued)
Change in unrealised gains or losses (net gain) for the
financial year included in profit or loss for the collateralised
loan obligations within Level 3 of the fair value hierarchy
amounted to US$1,353,435 (31 December 2016: US$5,509,157). These
gains and losses are included in the net gain/(loss) on financial
assets at fair value through profit or loss of the Statement of
Comprehensive Income.
The following table shows a reconciliation from the opening
balances to the closing balances for fair value measurements in
Level 3 of the fair value hierarchy as at 31 December 2016:
Collateralised
Loan
Obligations
US$
-------------------------------------- ---------------
Balance at 1 January 2016 244,336,199
Net gain on financial assets at fair
value through profit or loss 2,640,450
Purchases 5,444,864
Disposal and paydowns of investments (73,964,227)
Transfers into Level 3 10,224,358
Transfers out of Level 3 (124,247,390)
Balance at 31 December 2016 64,434,254
----------------------------- -----------
The table below sets out information about significant
unobservable inputs used at 31 December 2017 in measuring financial
instruments categorised as Level 3 in the fair value hierarchy:
Sensitivity
to changes in
significant
Fair Value Unobservable Weighted unobservable
Asset Class US$ Inputs Ranges Averages inputs
--------------- ------------ ------------ ----------- --------- ----------------------
Income Notes:
1% increase/decrease
U.S.Dollar will have a
Class Broker 53.50% fair value impact
Shares US$ 66,859,304 Quotes - 100.00% 75.22% of +/- US$668,593
Repurchase 1% increase/decrease
Pool will have a
Class Shares Broker 53.50% fair value impact
US$ 24,229,668 Quotes - 100.00% 75.22% of +/- US$242,296
--------------- ------------ ------------ ----------- --------- ----------------------
91,088,972
--------------- ------------ ------------ ----------- --------- ----------------------
The table below sets out information about significant
unobservable inputs used at 31 December 2016 in measuring financial
instruments categorised as Level 3 in fair value hierarchy.
Sensitivity
to changes in
Fair significant
Value Unobservable Weighted unobservable
Asset Class US$ Inputs Ranges Average inputs
----------------- ----------- ------------- --------- --------- ---------------------
Income
Notes
1% increase/decrease
will have
U.S. Dollar a fair value
Class Shares Broker 6.70% - impact of
US$ 64,434,254 Quotes 92.00%* 64.98% +/- US$644,343
64,434,254
----------------- ----------- ------------- --------- --------- ---------------------
* The lower range is due to Income Notes which include sub-fee
notes.
For the Amounts payable to Repurchase Pool Shareholders which is
classified as level 3, the significant unobservable input used is
the unadjusted NAV of the Company's Repurchase Pool Class.
4 FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS (continued)
Transfers between Level 1, 2 and 3 (continued)
The following table shows a reconciliation from the opening
balances to the closing balances as at 31 December 2017.
Amounts payable
to
Repurchase Pool
Shareholders
US$
----------------------------- -----------------
Balance at 1 January 2017 -
Transfers into level 3 107,277,718
Fair value movement 612,196
----------------------------- -----------------
Balance at 31 December 2017 107,889,914
----------------------------- -----------------
The table below sets out information about significant
unobservable inputs used at 31 December 2017 in measuring the
liability categorised as Level 3 in the fair value hierarchy:
Liability Fair Value Unobservable Sensitivity to changes in
Class US$ Inputs unobservable inputs
------------ ----------- ------------ ----------------------------
Unadjusted
Repurchase NAV of 1% increase/decrease will
Pool Class the Share have a fair value impact of
Shares US$ 107,889,914 Class +/- US$1,078,889
------------ ----------- ------------ ----------------------------
107,889,914
------------ ----------- ------------ ----------------------------
The above analysis also gives an approximation of the
sensitivity of the different asset classes to market risk as at 31
December 2017 and 31 December 2016 that seems reasonable
considering the current market environment and the nature of the
Company's assets' main underlying risks. This sensitivity analysis
presents an approximation of the potential effects of events that
could have been reasonably expected to occur as at the reporting
date.
Additional AIFMD disclosure for financial statements going
forward
The net gain on financial assets at fair value through profit or
loss includes both the realised and unrealised gains/losses on
financial assets. Whilst a breakdown of the realised and unrealised
gains/losses on financial assets at fair value through profit or
loss is not currently available for the financial year ending 31
December 2017, such breakdown will be disclosed in the annual
financial statements for the financial year ending 31 December 2018
in accordance with AIFMD and all financial statements thereafter.
The breakdown for the financial year ending 31 December 2017 will
be made available after the date of publication of these financial
statements on request from the Company Secretary.
5 OPERATING EXPENSES
INVESTMENT MANAGER
The Investment Manager is entitled to receive a base management
fee from the Company of 1.5% per annum of the NAV of the Company,
calculated and payable monthly in arrears. The base management fee
will be reduced to take into account any fees received by the
Investment Manager or any of its associates or affiliates, as a
result of managing any CLO or collective investment scheme that the
Company invests in, if such investment is or has been made in the
primary market (i.e. the market in which investors have the first
opportunity to buy a newly issued security). Please see note 10 for
details of deals managed by the Investment Manager or its
affiliates and whether they were sourced in the primary or
secondary market. The Investment Manager fees for the year ended 31
December 2017 for the U.S. Dollar Class Shares amounted to
US$4,727,324 (31 December 2016: US$5,107,521) and US$209,032 for
the Repurchase Pool Class Shares (31 December 2017: US$Nil).
5 OPERATING EXPENSES (continued)
U.S. Dollar Class Shares
The Investment Manager is entitled to a performance fee in
respect of the U.S. Dollar Class Shares equivalent to 13% of the
amount by which the value of the financial year end NAV per U.S.
Dollar Class Share plus dividends per U.S. Dollar Class Share paid
in the period exceeds the value of the NAV per U.S. Dollar Class
Share, as increased by the performance fee hurdle rate (as defined
below) plus 2%, as at the end of the previous completed accounting
reference period in respect of which a performance fee was
paid.
The performance fee hurdle rate is the greater of the 12 month
US Dollar LIBOR or 4%.
If a U.S. Dollar Class Share performance fee was not paid in
respect of the previous accounting reference period, U.S. Dollar
Libor shall be the annualised annually compounded US Dollar London
Inter-Bank Offered Rate for 12-month deposits in respect of all
previous relevant accounting periods since such U.S. Dollar Share
performance fee was last paid.
Repurchase Pool Class Shares
The Investment Manager is entitled to a performance fee in
respect of the Repurchase Pool Class Shares equivalent to 13% of
the amount by which the Net Asset Value per Repurchase Pool Class
Share as at (i) the end of the relevant accounting period; or (ii)
the relevant Repurchase Date, as applicable, plus dividends per
Share (if any) paid in the period exceeds the value of the Net
Asset Value per Repurchase Pool Class Share (or per U.S. Dollar
Class Share, as applicable) as at the end of the most recent
previous completed accounting period in respect of which a
performance fee was paid (including, for the avoidance of doubt,
all previous periods since the U.S. Dollar Class Share performance
fee was last paid in respect of the U.S. Dollar Class Shares which
have converted into Repurchase Pool Class Shares), as increased by
the Repurchase Pool Hurdle Rate (as defined below), plus 2%.
A separate account will be established to track the performance
fee payable to the Investment Manager in respect of the Repurchase
Pool Class Shares.
1. As at each Repurchase Date, this account will be credited or debited to reflect the amount of over-or-under-performance of the Repurchase Pool Class Shares repurchased as of that date, multiplied by the performance fee rate referred to above.
2. At the end of the relevant accounting period, an amount
reflecting the over-or-underperformance of the Repurchase Pool
Class Shares in issue as at that date, multiplied by the
performance fee rate referred to above, will be credited to or
debited from this account.
3. If the aggregate amount resulting from 1 and 2 above is a
credit balance, this amount will be payable to the Investment
Manager.
4. If the aggregate amount resulting from 1 and 2 above is a
debit balance, no performance fee will be payable to the Investment
Manager and the balance of this account shall be reset to zero for
the next accounting period.
Where all remaining Repurchase Pool Class Shares are repurchased
on a date prior to the end of an accounting period, such Repurchase
Date shall be deemed to be the end of the accounting period for
purposes of the above calculations.
The performance fee is accrued on a monthly basis and is paid
annually within 14 days of receipt of the calculation by the
Company from State Street Fund Services (Ireland) Limited (the
"Administrator").
The calculation of the performance fee is verified by State
Street Custodial Services (Ireland) Limited (the "Depositary"). The
performance fees charged for the year ended 31 December 2017
amounted to US$660,768 for the U.S. Dollar Class Shares (31
December 2016: US$Nil) and (US$119,020) for the Repurchase Pool
Class Shares.
The Company also reimburses the Investment Manager for all
out-of-pocket expenses reasonably incurred in the performance of
its duties.
ADMINISTRATOR AND DEPOSITARY
The Administrator and Depositary shall be entitled to receive
aggregate fees of up to 0.10% per annum of the NAV of the Company
for the provision, respectively, of administration, accounting,
trustee and custodial services to the Company, subject to a minimum
monthly fee of US$10,000. The overall charge for the
above-mentioned fees for the Company for the financial years ended
31 December 2017 and 31 December 2016 are reflected in the
Statement of Comprehensive Income and the amounts due at 31
December 2017 and 31 December 2016 are disclosed below for
information purposes.
DIRECTORS' FEES AND OTHER EXPENSES
The Company's Directors are entitled to a fee in remuneration
for their services as Directors at a rate to be determined from
time to time by the remuneration committee of the Company and
disclosed in the financial statements.
5 OPERATING EXPENSES (continued)
Operating expenses are disclosed separately in the Statement of
Comprehensive Income.
Accruals excluding audit, Directors and other professional fee
accruals as at 31 December 2017 and 31 December 2016 are detailed
in the table below:
As at As at
31 December 31 December
2017 2016
ACCRUAL US$ US$
---------------------------- ------------- -------------
Performance fees 541,426 -
Investment management fees 789,628 1,354,568
Depositary fees 20,954 5,165
Administration fees 102,393 24,535
Commitment fees 22,750 22,750
Interest payable 32,306 3,278
Other operating expenses 685,130 347,966
---------------------------- ------------- -------------
2,194,587 1,758,262
---------------------------- ------------- -------------
The remaining balance of the expense accrual consists of
auditors' fees of US$250,206 (31 December 2016: US$188,336)
inclusive of VAT and other professional fees of US$133,512 (31
December 2016: US$146,352).
During the financial year ended 31 December 2017, Directors'
fees amounted to US$334,459 (31 December 2016: US$324,040) plus out
of pocket expenses of US$33,196 (31 December 2016: US$20,209), of
which US$Nil (31 December 2016: US$Nil) remained payable at the
financial year end.
AUDITORS FEES
The Company incurred the following audit, assurance and tax fees
(including expenses) during the financial year of which US$143,515
(31 December 2016: US$139,045) was outstanding at the financial
year end.
Financial Financial
year ended year ended
31 December 31 December
2017** 2016**
US$ US$
------------------------------- ------------- -------------
Audit of financial statements 143,515 139,045
Other assurance services* 92,259 23,174
Tax advisory services*** 53,615 33,170
289,389 195,389
------------------------------- ------------- -------------
* The above amounts were paid to the statutory auditor for work
undertaken by them in relation to the review of the interim
financial statements and the Financial Position and Prospects
Procedures (FPPP) review.
** The above amounts incurred for the financial years ended 31
December 2017 and 31 December 2016 are before the inclusion of
VAT.
*** Tax advisory fees are included in other operating expenses
in the Statement of Comprehensive Income.
6 CASH AND CASH EQUIVALENTS
Cash and cash equivalents balances are held with State Street
Custodial Services Ireland Limited and also consist of an
investment in Blackrock Money Market Fund which is a short-term,
highly liquid investment amounting to US$Nil (31 December 2016:
US$16,024,377).
7 PARTICIPATING SHARES
At 31 December 2017, the issued share capital of the Company
comprises of the U.S. Dollar Class Shares and Repurchase Pool Class
Shares. A Placement Programme is currently in place allowing for
the issuance of U.S. Dollar Class Shares and/or C Shares. Further
details on the Company share capital is set out below.
U.S. DOLLAR CLASS SHARES
The authorised share capital of the Company shall not be less
than the currency equivalent of EUR2 represented by two subscriber
shares and the maximum issued share capital shall not be more than
the currency equivalent of EUR500 billion divided into an
unspecified number of non-redeemable shares.
On 31 October 2017, the Company converted 144,451,569 U.S.
Dollar Class Shares on a one to one basis to Repurchase Pool Class
Shares of no par value, the details of which are set out below. As
at 31 December 2017, there were 398,801,780 U.S. Dollar Class
Shares (31 December 2016: 543,253,349) in issue.
7 PARTICIPATING SHARES (continued)
REPURCHASE POOL CLASS SHARES
The Company's Articles of Association contain certain provisions
regarding share Repurchase arrangements which may be offered to
shareholders. Repurchase Pool Class Shares are shares in the
Company which participate in a separate pool of assets and
liabilities within the Company created for the purposes of a
repurchase opportunity.
The Directors elected to propose a repurchase opportunity for
approval by ordinary resolution by the shareholders and further to
the vote taken at the AGM held on 31 July 2017 and approval of the
repurchase opportunity, shareholders representing 26.6% of the
issued U.S. Dollar Class Shares elected to avail of the repurchase
opportunity.
Consequently, on 31 October 2017, the Company converted
144,451,569 U.S. Dollar Class Shares on a one to one basis to
Repurchase Pool Class Shares of no par value. On 22 November 2017,
the Repurchase Pool Class Shares were admitted to trading on the
Specialist Fund Segment of the Main Market of the London Stock
Exchange. As at 31 December 2017, there were 144,451,569 Repurchase
Pool Class Shares (31 December 2016: Nil) in issue. Cash payments
will be made on a pro rata basis in US Dollars to the exiting
shareholders holding the Repurchase Pool Class Shares, at the
discretion of the Directors, as assets within the Repurchase Pool
are realised. As cash becomes available to distribute upon the
realisation of assets, capital will be returned to the exiting
shareholders on a pro rata basis, by the Company making a
compulsory repurchase of Repurchase Pool Class Shares.
C SHARES
At the AGM held on 31 July 2017, the shareholders also approved
a 12 month Placement Programme to allow for the raising of
additional capital to be issued as either U.S. Dollar or C Shares.
Under the Placement Programme C Shares will be made available for
subscription at US$1 per C shares. The gross placing proceeds of
the Placement Programme may be up to US$300 million. Further
details of the Placement Programme are set out in the
Prospectus.
The C Shares will convert to U.S. Dollar Class Shares (ranking
pari passu) on the basis of the conversion ratios which will be
calculated once 90 percent of the assets attributable to the
relevant C share class (or such lower percentage as the Directors
may determine in their absolute discretion) have been invested or
committed to be invested, which the Directors anticipate will occur
within three months of the issuance of the relevant C Shares. The
Placement Programme closes on 10 October 2018 and no C Shares have
yet been issued.
VOTING RIGHTS
The Company has issued two subscriber shares of EUR1 each. These
shares do not participate in the profits of the Company. Holders of
U.S. Dollar Class Shares and Repurchase Pool Class Shares
participate in the profits of their respective share class and hold
voting rights, with shareholders having one vote in respect of each
whole share held.
ISSUED PARTICIPATING SHARES
The total share capital consisted of 543,253,349 shares as at 31
December 2017 and 31 December 2016. At 31 December 2017, the total
share capital comprises of 144,451,569 Repurchase Pool Class Shares
and 398,801,780 U.S. Dollar Class Shares (2016: 543,253,349 U.S.
Dollar Class Shares) in addition to the two subscriber shares. The
total share capital did not increase during the financial year
ended 31 December 2017 or 31 December 2016.
CAPITAL MANAGEMENT
The Company is closed-ended. At the EGM on 26 June 2013, a
resolution was passed which provides that at the annual general
meeting to be held in the financial year 2022 and in every tenth
financial year thereafter, the Directors will propose a special
resolution to the effect that the Company continue for a further
ten financial years. If the continuation vote is not passed, the
Directors are required to formulate proposals to be put to
shareholders to wind-up, reorganize or reconstruct the Company.
7 PARTICIPATING SHARES (continued)
CAPITAL MANAGEMENT (continued)
The Company's objectives for managing capital are:
-- to invest the capital in investments meeting the description,
risk exposure and expected return indicated in its Prospectus;
-- to achieve consistent returns while safeguarding capital by
investing in CLOs backed by corporate loans or holding cash;
-- to maintain sufficient liquidity to meet the expenses of the
Company and to meet distribution commitments; and
-- to maintain sufficient size to make the operation of the
Company cost-efficient.
Further details on Repurchase Pool Class Shares are set out
above and in notes 3 and 5.
The Directors will distribute all or part of the net income of
the U.S. Dollar Class Share Class (after reasonable expenses and
retaining an element of cash flow receipts on Income Notes of CLOs)
from the underlying investments as quarterly dividends in January,
April, July and October of each financial year. No distributions
are made in relation to the Repurchase Pool Class Shares. In
seeking to provide stable dividends at rates that reflect net
income actually generated, the Directors announced on 21 February
2018 that the Company intends to move to a floating dividend such
that, in any financial quarter, the dividends paid will be equal to
the cash income the Company has received, net of reasonable
expenses, while retaining an element of cashflow receipts on CLO
Income Notes as principal for reinvestment.
The Articles of Association of the Company contain certain
provisions regarding share repurchase arrangements which may, in
certain circumstances (including a discount trigger) be offered to
shareholders. On 2 May 2017, the Company announced that the
discount trigger mechanism as set out in the Articles of
Association was unlikely to be met at the end of April 2017.
Notwithstanding this, the Directors used their discretion as
provided in the Articles of Association to propose that the
shareholders approve by ordinary resolution a repurchase
opportunity. As noted above, this proposal was accepted by 26.6% of
shareholders. The Articles provide that, after 2017, the Directors
will, every five years, consider at their discretion whether or not
to offer redemption opportunities to shareholders on the same
basis.
The Directors have determined that they would like to consider
whether or not to offer shareholders potential redemption
opportunities on a more frequent basis. Accordingly, whilst the
discount trigger realisation mechanism described above will occur
every five years, the Directors intend to consider every two and a
half years whether to put an ordinary resolution to shareholders to
approve a redemption opportunity for up to 100 per cent of the
shares in issue, subject to any necessary changes to the Articles
being approved. Any such redemption opportunities would be made
available at the Directors' discretion and would be implemented
through the creation of a Repurchase Pool.
7 PARTICIPATING SHARES (continued)
CAPITAL MANAGEMENT (continued)
Repurchase Pool U.S. Dollar Class
Class Shares Shares Total
No. of No. of
shares $ shares $ $
--------------------- ----------------- --------------------- --------------------- -----------------------
Opening balance
at 1/1/2017 - - 543,253,349 421,740,319 421,740,319
Profit to
31/10/2017 - - - 33,318,709 33,318,709
Dividends - - - (51,609,068) (51,609,068)
--------------------- ----------------- --------------------- --------------------- -----------------------
Balance at 31/10/2017 - - 543,253,349 403,449,960 403,449,960
Issue of Repurchase
Pool Class Shares
in
exchange for U.S.
Dollar Class Shares 144,451,569 107,277,718 (144,451,569) (107,277,718) -
Profit 31/10/2017
- 31/12/2017 - 612,196 - 3,092,520 3,704,716
Dividends - - - - -
--------------------- ----------------- --------------------- --------------------- -----------------------
Closing balance
at 31/12/2017 144,451,569 107,889,914 398,801,780 299,264,762 407,154,676
===================== ================= ===================== ===================== =======================
At 31 October 2017, the NAV of the Company was allocated on a
pro rata basis to the U.S. Dollar Class Shares and the Repurchase
Pool Class Shares upon the conversion of U.S. Dollar Class Shares
to Repurchase Pool Class Shares. Repurchase Pool Class Shares have
no entitlement to dividends.
8 SOFT COMMISSIONS
There are no agreements for the provision of any services by
means of soft commission.
9 INTERESTS IN OTHER ENTITIES
INTERESTS IN UNCONSOLIDATED STRUCTURED ENTITIES
IFRS 12 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:
(a) restricted activities;
(b) a narrow and well defined objective;
(c) insufficient equity to permit the structured entity to
finance its activities without subordinated financial support;
and
(d) financing in the form of multiple contractually linked
instruments that create concentrations of credit or other
risks.
Involvement with unconsolidated structured entities
The Company has concluded that CLOs in which it invests, that
are not subsidiaries for financial reporting purposes, meet the
definition of structured entities because:
-- the voting rights in the CLOs are not the dominant rights in
deciding who controls them, as they relate to administrative tasks
only;
-- each CLO's activities are restricted by its Prospectus;
and
-- the CLOs have narrow and well-defined objectives to provide
investment opportunities to investors.
9 INTERESTS IN OTHER ENTITIES (continued)
INTERESTS IN UNCONSOLIDATED STRUCTURED ENTITIES (continued)
Subsidiary undertakings
At 31 December 2017, the Company had three (31 December 2016:
four) subsidiary undertakings for financial reporting purposes that
are also structured entities. They are Keuka Park CLO Ltd 2013-1A,
Pinnacle Park CLO Ltd 2014-1A and Sheridan Square CLO Ltd (31
December 2016: Keuka Park CLO Ltd 2013-1A, Neuberger Berman CLO
XVII Ltd 2014-17X, Pinnacle Park CLO Ltd 2014-1A and Sheridan
Square CLO Ltd). Neuberger Berman CLO Ltd 2014-17X was reset during
the period and the non call period has been extended to April 2019.
To meet the definition of a subsidiary under the single control
model of IFRS 10, the investor has to control the investee within
the meaning of IFRS10.
Control involves power, exposure to variability of returns and a
linkage between the two:
(i) The investor has existing rights that give it the ability to
direct the relevant activities that significantly affect the
investee's returns;
(ii) The investor has exposure or rights to variable returns
from its involvement with the investee; and
(iii) 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 the subsidiary undertakings listed above (the
"entities"), the relevant activities of each are the investment
decisions which are made by their asset managers acting as their
agents. Power over the entities' relevant activities is attributed
to the Company through a call option it has, as the holder of the
majority of the preference shares of each of these entities. The
impact of these call options is that it gives the Company the
ability to direct or stop the early termination of each of the
subsidiary deals, and hence, decision making power on the life of
the deals, and therefore the ability to control the variability of
returns.
The Company is also considered to have contingent power over the
three entities, due to the fact that it may remove any of the
subsidiaries' asset managers in certain contingent circumstances as
the Company is the majority holder of the preference shares. It can
therefore be considered that the Company has contingent power which
may impact the variability of returns in the future.
To determine control, there has to be a linkage between power
and the exposure to the variable returns. The main linkage arises
from the call options which allow the Company to control the
continual payments of returns, and it is therefore an indication of
linkage between power and variability in returns.
The other investments of the Company are not considered to be
subsidiaries due to the lack of control held by the Company. For
the avoidance of doubt, the Company is subject to an investment
restriction as set out in the Directors' report in the section
entitled "Investment Restrictions" which states that the Company
will not take legal or management control of the issuers of the
underlying investments, nor shall the Company acquire any shares
carrying voting rights which would enable it to exercise
significant influence over the management of an issuing body. The
"control" referred to above for financial reporting purposes does
not equate to "legal or management control" or the acquisition of
shares which would enable the Company to exercise "significant
influence over the management of an issuing body" within the
meaning of the investment restriction.
Investment entity status
To continue to avail of the exemption in IFRS 10 from the
requirement to prepare consolidated financial statements, the
Company must meet the definition of an investment entity. The
Company is satisfied that it meets both the required criteria and
typical characteristics of an investment entity.
9 INTERESTS IN OTHER ENTITIES (continued)
INTERESTS IN UNCONSOLIDATED STRUCTURED ENTITIES (continued)
Below is a summary of the Company's holdings in non-subsidiary
unconsolidated structured entities as at 31 December 2017:
% of
Total
Financial
Range Average Carador's Assets Maximum
of the at
size Notional Holding Fair exposure
of SEs Of Value
Line item in statement No of Notional SEs Fair through to
of Value losses
Structured financial Nature Investments in US$m in US$m in Profit in Other
Entity position US$m or Loss US$m
("SE")
------------ ----------- ----------------------- ------------ --------- --------- ---------- ---------- --------- --------------
Mezzanine
Note CLOs
------------ ----------- ----------------------- ------------ --------- --------- ---------- ---------- --------- --------------
North
America
------------ ----------- ----------------------- ------------ --------- --------- ---------- ---------- --------- --------------
Broadly Syndicated
sub-
Financial Investment
assets at Grade Secured
fair value Loans
through
profit
or loss - USD 6 399-568 449 44 11.17% 44 Non-recourse*
----------- ------------------------------------ ------------ --------- --------- ---------- ---------- --------- --------------
Financial assets at fair
value
Total
Mezzanine through profit
Note CLOs or loss 6 399-568 449 44 11.17% 44 Non-recourse*
------------ ------------------------------------ ------------ --------- --------- ---------- ---------- --------- --------------
Income Note
CLOs
------------ ----------- ----------------------- ------------ --------- --------- ---------- ---------- --------- --------------
North
America
------------ ----------- ----------------------- ------------ --------- --------- ---------- ---------- --------- --------------
Broadly Syndicated
sub-
Financial Investment
assets at Grade Secured
fair value Loans
through
profit
or loss - USD 45 40-1,029 525 336 85.28% 336 Non-recourse*
----------- ------------------------------------ ------------ --------- --------- ---------- ---------- --------- --------------
Financial assets at fair
value
Total
Income through profit
Note CLOs or loss 45 40-1,029 525 336 85.28% 336 Non-recourse*
------------ ------------------------------------ ------------ --------- --------- ---------- ---------- --------- --------------
Total 51 380**
-------------------------------------------------- ------------ --------- --------- ---------- ---------- --------- --------------
The Company has a percentage range of 0.03% - 27.40% notional
holding out of the entire outstanding notional balances of the
structured entities as at 31 December 2017.
During the financial year ended 31 December 2017, the Company
did not provide financial support to the unconsolidated structured
entities and has no intention of providing financial or other
support. The assessment was done for the Company as a whole.
* The investments are non-recourse securities with no contingent
liabilities, where the Company's maximum loss is capped at the
current carrying value.
** The Company's total fair value holding of its unconsolidated
structured entity subsidiaries set out on the next page, plus the
total fair value holding in non-subsidiary unconsolidated
structured entities, as above, agrees to the financial assets at
fair value through profit or loss in the statement of financial
position.
9 INTERESTS IN OTHER ENTITIES (continued)
INTERESTS IN UNCONSOLIDATED STRUCTURED ENTITIES (continued)
Interests in unconsolidated structured entity subsidiaries as at
31 December 2017:
% of
Total
Financial
Range Average Carador's Assets Maximum
of the at
size Notional Holding Fair exposure
of SEs of Value
Line item No of Notional SEs Fair through to
in Value losses
statement
of
Structured financial Nature Investments in US$m in US$m in Profit in Other
Entity position US$m or Loss US$m
("SE")
------------ ----------- ------------ ------------ --------- --------- ---------- ---------- --------- --------------
Income Note
CLOs
------------ ----------- ------------ ------------ --------- --------- ---------- ---------- --------- --------------
North
America
------------ ----------- ------------ ------------ --------- --------- ---------- ---------- --------- --------------
Broadly
Syndicated
sub-
Financial Investment
assets at Grade
fair value Secured
Loans
through
profit
or loss - USD 3 37-510 204 14 3.55% 14 Non-recourse*
----------- ------------------------- ------------ --------- --------- ---------- ---------- --------- --------------
Financial
assets at
fair value
Total
Income through profit
Note CLOs or loss 3 37-510 204 14 3.55% 14 Non-recourse*
------------ ------------------------- ------------ --------- --------- ---------- ---------- --------- --------------
Total 3*** 14**
--------------------------------------- ------------ --------- --------- ---------- ---------- --------- --------------
The Company has a percentage range of 4.90% - 63.37% notional
holding out of the entire outstanding notional balance of its
subsidiaries as at 31 December 2017.
During the financial year ended 31 December 2017, Keuka Park CLO
Ltd 2013-1A and Sheridan Square CLO Ltd were called and Neuberger
Berman CLO Ltd 2014-17X was reset. Details of the subsidiaries held
at 31 December 2017 and 31 December 2016 are set out above.
For the financial year ended 31 December 2017, the Company did
not provide financial support to its unconsolidated structured
entity subsidiaries and has no intention of providing financial or
other support. The assessment was done for the Company as a
whole.
* The investments are non-recourse securities with no contingent
liabilities, where the Company's maximum loss is capped at the
current carrying value.
** The Company's total fair value holding of its unconsolidated
structured entity subsidiaries (above), plus the total fair value
holding in non-subsidiary unconsolidated structured entities, as
set out on page 57, agrees to the financial assets at fair value
through profit or loss in the statement of financial position.
*** This refers to the number of investments that the Company
has in its 3 unconsolidated structured entity subsidiaries across 5
tranches.
9 INTERESTS IN OTHER ENTITIES (continued)
INTERESTS IN UNCONSOLIDATED STRUCTURED ENTITIES (continued)
Below is a summary of the Company's holdings in non-subsidiary
unconsolidated structured entities as at 31 December 2016:
% of
Total
Financial
Range Average Carador's Assets Maximum
of the at
size Notional Holding Fair exposure
of SEs Of Value
Line item in statement No of Notional SEs Fair through to
of Value losses
Structured financial Nature Investments in US$m in US$m in Profit in Other
Entity position US$m or Loss US$m
("SE")
------------ ----------- ----------------------- ------------ --------- --------- ---------- ---------- --------- --------------
Mezzanine
Note CLOs
------------ ----------- ----------------------- ------------ --------- --------- ---------- ---------- --------- --------------
North
America
------------ ----------- ----------------------- ------------ --------- --------- ---------- ---------- --------- --------------
Broadly Syndicated
sub-
Financial Investment
assets at Grade Secured
fair value Loans
through
profit
or loss - USD 15 400-620 497 86 21.18% 86 Non-recourse*
----------- ------------------------------------ ------------ --------- --------- ---------- ---------- --------- --------------
Financial assets at fair
value
Total
Mezzanine through profit
Note CLOs or loss 15 400-620 497 86 21.18% 86 Non-recourse*
------------ ------------------------------------ ------------ --------- --------- ---------- ---------- --------- --------------
Income Note
CLOs
------------ ----------- ----------------------- ------------ --------- --------- ---------- ---------- --------- --------------
North
America
------------ ----------- ----------------------- ------------ --------- --------- ---------- ---------- --------- --------------
Broadly Syndicated
sub-
Financial Investment
assets at Grade Secured
fair value Loans
through
profit
or loss - USD 41 33-734 468 235 57.88% 235 Non-recourse*
----------- ------------------------------------ ------------ --------- --------- ---------- ---------- --------- --------------
Financial assets at fair
value
Total
Income through profit
Note CLOs or loss 41 33-734 468 235 57.88% 235 Non-recourse*
------------ ------------------------------------ ------------ --------- --------- ---------- ---------- --------- --------------
Total 56 321**
-------------------------------------------------- ------------ --------- --------- ---------- ---------- --------- --------------
The Company has a percentage range of 0.03% - 45.46% notional
holding out of the entire outstanding notional balances of the
structured entities as at 31 December 2016.
During the financial year ended 31 December 2016, the Company
did not provide financial support to the unconsolidated structured
entities and has no intention of providing financial or other
support.
* The investments are non-recourse securities with no contingent
liabilities, where the Company's maximum loss is capped at the
current carrying value.
** The Company's total fair value holding of its unconsolidated
structured entity subsidiaries set out on the next page, plus the
total fair value holding in non-subsidiary unconsolidated
structured entities, as above, agrees to the financial assets at
fair value through profit or loss in the statement of financial
position.
9 INTERESTS IN OTHER ENTITIES (continued)
INTERESTS IN UNCONSOLIDATED STRUCTURED ENTITIES (continued)
Interests in unconsolidated structured entity subsidiaries as at
31 December 2016:
% of
Total
Financial
Range Average Carador's Assets Maximum
of the at
size Notional Holding Fair exposure
of SEs of Value
Line item No of Notional SEs Fair through to
in Value losses
statement
of
Structured financial Nature Investments in US$m in US$m in Profit in Other
Entity position US$m or Loss US$m
("SE")
------------ ----------- ------------ ------------ --------- --------- ---------- ---------- --------- --------------
Mezzanine
Note CLOs
------------ ----------- ------------ ------------ --------- --------- ---------- ---------- --------- --------------
North
America
------------ ----------- ------------ ------------ --------- --------- ---------- ---------- --------- --------------
Broadly
Syndicated
sub-
Financial Investment
assets at Grade
fair value Secured
Loans
through
profit
or loss - USD 2 413-725 569 17 4.19% 17 Non-recourse*
----------- ------------------------- ------------ --------- --------- ---------- ---------- --------- --------------
Financial
assets at
fair value
Total
Mezzanine through profit
Note CLOs or loss 2 413-725 569 17 4.19% 17 Non-recourse*
------------ ------------------------- ------------ --------- --------- ---------- ---------- --------- --------------
Income Note
CLOs
------------ ----------- ------------ ------------ --------- --------- ---------- ---------- --------- --------------
North
America
------------ ----------- ------------ ------------ --------- --------- ---------- ---------- --------- --------------
Broadly
Syndicated
sub-
Financial Investment
assets at Grade
fair value Secured
Loans
through
profit
or loss - USD 5 413-725 556 68 16.75% 68 Non-recourse*
----------- ------------------------- ------------ --------- --------- ---------- ---------- --------- --------------
Financial
assets at
fair value
Total
Income through profit
Note CLOs or loss 5 413-725 556 68 16.75% 68 Non-recourse*
------------ ------------------------- ------------ --------- --------- ---------- ---------- --------- --------------
Total 7*** 85**
--------------------------------------- ------------ --------- --------- ---------- ---------- --------- --------------
The Company has a percentage range of 0.30% - 5.65% notional
holding out of the entire outstanding notional balance of its
subsidiaries as at 31 December 2016.
During the financial year ended 31 December 2016, the Company
made 1 sale of investments in the subsidiary holdings: Babson CLO
Ltd 2013-IX amounting to US$11,760,000 (31 December 2015: US$Nil).
Voya Investment Management CLO II was also redeemed during the year
receiving proceeds of US$15,124,149. Details of the subsidiaries
held at 31 December 2017 and 31 December 2016 are set out
above.
For the financial year ended 31 December 2016, the Company did
not provide financial support to its unconsolidated structured
entity subsidiaries and has no intention of providing financial or
other support.
* The investments are non-recourse securities with no contingent
liabilities, where the Company's maximum loss is capped at the
current carrying value.
** The Company's total fair value holding of its unconsolidated
structured entity subsidiaries (above), plus the total fair value
holding in non-subsidiary unconsolidated structured entities, as
set out on page 59, agrees to the financial assets at fair value
through profit or loss in the statement of financial position.
*** This refers to the number of investments on a tranche level
that the Company has on its 4 unconsolidated structured entity
subsidiaries.
10 RELATED PARTY TRANSACTIONS AND KEY MANAGEMENT PERSONNEL
TRANSACTIONS WITH ENTITIES WITH SIGNIFICANT INFLUENCE
The following note summarises related parties and related party
transactions during the financial year. GSO / Blackstone Debt Funds
Management LLC acts as Investment Manager to the Company (the
"Investment Manager"). Investment management fees earned by the
Investment Manager amounted to US$4,936,356 (31 December 2016:
US$5,107,521), of which US$789,628 (31 December 2016: US$1,354,568)
was outstanding at the financial year end. Performance fees earned
by the Investment Manager amounted to US$541,748 (31 December 2016:
US$Nil), of which US$541,426 (31 December 2016: US$Nil) was
outstanding at the financial year end.
TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL
The Directors of the Company and the Investment Manager 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 for the financial year
ended 31 December 2017.
During the financial year ended 31 December 2017, the Company
incurred Directors' fees for services as Directors and
out-of-pocket expenses of US$367,655 (31 December 2016:
US$344,249), of which US$Nil (31 December 2016: US$Nil) was
outstanding at the financial year end.
No Director, nor the Company Secretary, had any beneficial
interest in the shares of the Company during the financial year
ended 31 December 2017 or 31 December 2016. The Company is
domiciled in Ireland where shareholdings held by the non-executive
Directors would not be considered the industry norm.
The following Directors' fees were incurred during the financial
year and the amounts for each financial year are shown in both EUR
and US Dollar equivalent:
Financial Financial Financial Financial
year ended year ended year ended year ended
31 December 31 December 31 December 31 December
2017 2017 2016 2016
EUR US$ Equivalent EUR US$ Equivalent
Werner Schwanberg 64,200 73,124 64,200 70,847
Adrian Waters 57,060 64,992 57,060 62,967
Fergus Sheridan 57,060 64,992 57,060 62,967
Edward D'Alelio 58,260 66,359 58,260 64,292
Nicholas
Moss 57,060 64,992 57,060 62,967
------------------- ------------ --------------- ------------ ---------------
293,640 334,459* 293,640 324,040*
------------------- ------------ --------------- ------------ ---------------
* The above amount excludes out-of-pocket expenses for the
Directors of US$33,196 (31 December 2016: US$20,209).
TRANSACTIONS WITH OTHER RELATED PARTIES
At 31 December 2017, current employees and accounts managed or
advised by the Investment Manager and its affiliates within the
credit-focused business unit of The Blackstone Group L.P. hold
200,000 U.S. Dollar Class Shares (31 December 2016: 200,000 U.S.
Dollar Class Shares) which represents approximately 0.04% (31
December 2016: 0.04%) of the issued shares of the Company.
The Company may invest in other entities and transactions that
are managed directly or indirectly by the Investment Manager or any
of its affiliates and as at 31 December 2017, 33.80.% (31 December
2016: 35.89%) of the Company's underlying investments are managed
in this way and these are listed below:
10 RELATED PARTY TRANSACTIONS AND KEY MANAGEMENT PERSONNEL (continued)
CLO INVESTMENTS MANAGED BY GSO / BLACKSTONE AND AFFILIATES
2017
Investment Investment Manager Market
--------------------------- ---------------------- ----------
Birchwood Park CLO Ltd GSO / Blackstone Debt
2014-1X INC Funds Management LLC Primary*
Bowman Park CLO Ltd GSO / Blackstone Debt
2014-1X Funds Management LLC Secondary
Burnham Park CLO Ltd GSO / Blackstone Debt
2014-1A Funds Management LLC Primary
Catskill Park CLO Ltd GSO / Blackstone Debt
2017-1A SUB Funds Management LLC Primary
Cumberland Park CLO GSO / Blackstone Debt
Ltd 2015-2A SUB Funds Management LLC Secondary
Dorchester Park CLO GSO / Blackstone Debt
Ltd 2015-1X SUB Funds Management LLC Primary
Jay Park CLO Ltd 2016-1A GSO / Blackstone Debt
SUB Funds Management LLC Secondary
Keuka Park CLO Ltd 2013-1A GSO / Blackstone Debt
SUB Funds Management LLC Secondary
Pinnacle Park CLO Ltd GSO / Blackstone Debt
2014-1A SUB Funds Management LLC Secondary
Sheridan Square CLO GSO / Blackstone Debt
Ltd 2013-1A INC Funds Management LLC Secondary
Seneca Park CLO Ltd GSO / Blackstone Debt
2014-1X SUB Funds Management LLC Primary
Stewart Park CLO Ltd GSO / Blackstone Debt
2015-1X SUB Funds Management LLC Primary
Thacher Park CLO Ltd GSO / Blackstone Debt
2014-1X SUB Funds Management LLC Secondary
Taconic Park CLO Ltd GSO / Blackstone Debt
2016-1A SUB Funds Management LLC Primary
Tryon Park CLO Ltd 2013-1X GSO / Blackstone Debt
E Funds Management LLC Secondary
Tryon Park CLO Ltd 2013-1X GSO / Blackstone Debt
SUB Funds Management LLC Secondary
Treman Park CLO Ltd GSO / Blackstone Debt
2015-1A Funds Management LLC Secondary
Webster Park CLO Ltd GSO / Blackstone Debt
2015-1X SUB Funds Management LLC Primary
CLO INVESTMENTS MANAGED BY GSO / BLACKSTONE AND AFFILIATES
2016
Investment Investment Manager Market
--------------------------- ---------------------- ----------
Adirondack Park CLO GSO / Blackstone Debt Secondary
Ltd 2013-1A E Funds Management LLC
Birchwood Park CLO Ltd GSO / Blackstone Debt Primary*
2014-1X INC Funds Management LLC
Bowman Park CLO Ltd GSO / Blackstone Debt Secondary
2014-1X Funds Management LLC
Burnham Park CLO Ltd GSO / Blackstone Debt Primary
2014-1A Funds Management LLC
Callidus Debt Partners GSO / Blackstone Debt Secondary
CLO Fund Ltd 5X INC Funds Management LLC
Callidus Debt Partners GSO / Blackstone Debt Secondary
CLO Fund Ltd 7A SUB Funds Management LLC
Dorchester Park CLO GSO / Blackstone Debt Primary
Ltd 2015-1X SUB Funds Management LLC
Keuka Park CLO Ltd 2013-1A GSO / Blackstone Debt Secondary
E Funds Management LLC
Keuka Park CLO Ltd 2013-1A GSO / Blackstone Debt Secondary
SUB Funds Management LLC
Pinnacle Park CLO Ltd GSO / Blackstone Debt Secondary
2014-1A SUB Funds Management LLC
Sheridan Square CLO GSO / Blackstone Debt Primary
Ltd 2013-1A F Funds Management LLC
Sheridan Square CLO GSO / Blackstone Debt Secondary
Ltd 2013-1A INC Funds Management LLC
Seneca Park CLO Ltd GSO / Blackstone Debt Primary
2014-1X SUB Funds Management LLC
Stewart Park CLO Ltd GSO / Blackstone Debt Primary
2015-1X SUB Funds Management LLC
Thacher Park CLO Ltd GSO / Blackstone Debt Secondary
2014-1X SUB Funds Management LLC
Taconic Park CLO Ltd GSO / Blackstone Debt Primary
2016-1A SUB Funds Management LLC
Tryon Park CLO Ltd 2013-1X GSO / Blackstone Debt Secondary
E Funds Management LLC
Tryon Park CLO Ltd 2013-1X GSO / Blackstone Debt Secondary
SUB Funds Management LLC
Treman Park CLO Ltd GSO / Blackstone Debt Secondary
2015-1A Funds Management LLC
Webster Park CLO Ltd GSO / Blackstone Debt Primary
2015-1X SUB Funds Management LLC
* Partial in primary.
10 RELATED PARTY TRANSACTIONS AND KEY MANAGEMENT PERSONNEL
(continued)
TRANSACTION WITH SUBSIDIARIES
As at 31 December 2017, the Company had three subsidiaries for
financial reporting purposes: Pinnacle Park CLO Ltd 2014-1A,
Sheridan Square CLO Ltd and Keuka Park CLO Ltd 2013-1A, all of
which are structured entities special purpose vehicles incorporated
in the Cayman Islands and are therefore related parties. The
investment in Sheridan Square CLO Ltd comprises of three separate
tranches. The subsidiaries are unconsolidated subsidiaries and the
Company's investment in these vehicles is detailed in note 2c and
note 9, which include the five different equity tranches held in
across the three subsidiaries.
The Company received US$28,258,238 in coupon payments from the
subsidiaries for the financial year ended 31 December 2017. There
were realised gains arising during the financial year amounting to
US$1,031,536. The movement in unrealised losses on subsidiary
holdings amounted to US$9,897,136 during the financial year .
During the financial year ended 31 December 2017, Keuka Park CLO
Ltd 2013-1A and Sheridan Square CLO Ltd were called and Neuberger
Berman CLO Ltd 2014-17X was reset.
The value of the subsidiary holdings at 31 December 2017 was
US$13,863,989 (31 December 2016: US$84,724,423).
11 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS
INTRODUCTION
Risk is inherent in the Company's activities but it is managed
through a process of ongoing identification, measurement and
monitoring, subject to risk limits and other controls. The process
of risk management is critical to the Company's continuing
profitability. The Company is exposed to market risk (which
includes interest rate risk, currency risk and other price risk),
liquidity and credit risk arising from the financial instruments it
holds. Given the Company's permanent capital structure as a
closed-ended fund, it is not exposed to redemption risk relating to
its own shares in issue. However, see note 7 on capital management
for additional information on potential redemption
opportunities.
As disclosed in note 7, such a redemption opportunity was put to
shareholders during the financial year ended 2017. It was accepted
by 26.6% of the shareholders, consequently Repurchase Pool Class
Shares were established and 26.6% of the Company's portfolio was
transferred to the Repurchase Pool. The portfolio assigned to the
Repurchase Pool is subject to many of the same risks as the rest of
the portfolio held by the Company but the impact of some of these
risks is significantly reduced since the portfolio is being
actively sold to facilitate the return of the proceeds of the
realisation of the Repurchase Pool Class Shares to the
shareholders. The Repurchase Pool Share Class is anticipated to be
fully redeemed within 12 months under normal market conditions.
The Company's financial assets include investments in CLOs which
are not traded in an organised public market and which may be
illiquid, and thus impact the repurchase opportunity.
The Investment Manager considers the risk and concentrations on
a look-through basis level for the CLOs.
RISK MANAGEMENT STRUCTURE
The Board of Directors is ultimately responsible for identifying
and controlling risks but relies on its delegated service
providers, (the Investment Manager, Depositary, Administrator and
Registrar), to carry out ongoing management and monitoring of
risks.
RISK MEASUREMENT AND REPORTING SYSTEM
The Company's risks are measured using a method which reflects
both the expected loss likely to arise in normal circumstances and
unexpected losses, which are an estimate of the ultimate actual
loss based on models. The models make use of the probabilities
derived from historical experience, adjusted to reflect the
economic environment.
Monitoring and controlling risks is primarily performed based on
limits established by the Board. These limits reflect the business
strategy and market environment of the Company as well as the level
of risk that the Company is willing to accept. In addition, the
Company monitors and measures the overall risk-bearing capacity in
relation to the aggregate risk exposure across risk types and
activities.
11 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
RISK MITIGATION
The Company has investment guidelines that set out its overall
business strategies, its tolerance for risk and its general risk
management philosophy and has established processes to monitor and
control economic hedging transactions in a timely and accurate
manner. The Company may use derivatives and other instruments only
in connection with its risk management activities, but not for
trading purposes.
EXCESSIVE RISK CONCENTRATION
Concentration arises when a number of counterparties are engaged
in similar business activities, or activities in the same
geographic region, or have similar economic features that would
cause their ability to meet contractual obligations to be similarly
affected by changes in economic, political or other conditions.
Concentration indicates the relative sensitivity of the Company's
performance to developments affecting a particular issuer, manager,
asset class or geographical location.
In order to avoid excessive concentration of risk, the Company's
policies and procedures include specific guidelines to focus on
maintaining a diversified portfolio. Identified concentration of
credit risks are controlled and managed accordingly.
The Company's investment guidelines specify, among others, that
the Company must invest in a minimum of 20 separate investments
with a maximum exposure per investment, at the time of investment,
of 20% of the NAV of the Company. The Company also limits its
exposure to transactions managed by the same portfolio manager to
15% of the NAV, at the time of investment. However, if the
portfolio manager is the Investment Manager or an affiliate of the
Investment Manager, this limit is increased to 60% of the NAV at
the time of investment.
The concentration risk at 31 December 2017 and 31 December 2016
is disclosed below in note 11 (A)(iii) and 11 (B).
(A) MARKET RISK
Market risk is the risk that the fair value or future cash flows
of a financial instrument will fluctuate because of changes in
market prices and includes interest rate risk, currency risk and
other price risks. The Company may use derivative instruments to
hedge the investment portfolio against currency risk.
The Company's investments are in CLO vehicles. The CLO vehicles
typically have no significant assets other than the loans as
collateral. Accordingly, payments on the CLO securities are payable
solely from the cash flows from the collateral, net of all
management fees and other expenses. Payments to the Company as a
holder of Income Notes and/or Mezzanine Notes of CLO vehicles are
met only after payments due on the Senior Notes (and, where
appropriate, the Mezzanine Notes) have been made in full.
The risks associated with the Repurchase Pool Class Shares are
not materially different from the U.S. Dollar Shares and are not
separately disclosed.
The following table shows the securities held by the Company
which are most susceptible to market risk arising from
uncertainties about interest rates, foreign currency fluctuation
and future prices of the instruments.
As at As at
31 December 31 December
2017 2016
US$ US$
--------------------------------- ------------ ------------
Collateralised loan obligations 380,119,238 321,069,412
Investment in subsidiaries 13,863,989 84,724,423
--------------------------------- ------------ ------------
TOTAL INVESTMENTS AT FAIR
VALUE 393,983,227 405,793,835
--------------------------------- ------------ ------------
(i) Interest rate risk
The Company is exposed to interest rate risk on collateralised
loan obligations held by the Company and on a look-through basis to
the underlying assets in the CLOs.
11 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
(A) MARKET RISK (continued)
(i) Interest rate risk (continued)
The majority of the Company's financial assets are Income Notes
and Mezzanine tranches of cash flow CLOs. The Company's investments
have exposure to interest rate risk but this is limited to floating
LIBOR-based exposure on the underlying assets in the CLOs.
The following table shows the portfolio profile at 31 December
2017 and 31 December 2016:
31 December 31 December
2017 2016
----------------------------- ------------ ------------
Investments with a floating
interest rate 100% 100%
------------ ------------
FINANCIAL ASSETS AT FAIR VALUE THROUGH
PROFIT OR LOSS 100% 100%
------------------------------------------- ------------
The following table shows the Directors' best estimate of the
sensitivity of the portfolio to stressed changes in interest rates,
with all other variables held constant. The table assumes parallel
shifts in the respective forward yield curves. This risk is
proportionally shared between the two share classes.
31 December 2017 31 December
2016
effect on net assets effect on
net assets
Possible reasonable and profit or loss and profit
or loss
change in rate US$ US$
-------------------- --------------------- ------------
1% 12,029,163 12,068,226
-1% 9,749,722 11,477,884
-------------------- --------------------- ------------
(ii) Currency risk
Investments acquired for the Company's portfolio are denominated
in US Dollars. However, the Company may also invest in underlying
assets which are denominated in currencies other than US Dollar
(e.g., Euro). Accordingly, the value of such investments may be
affected, favourably or unfavourably predominately, by fluctuations
in currency rates and which, if unhedged, could have the potential
to have a significant effect on returns. To reduce the impact on
the Company of currency fluctuations and the volatility of returns
which may result from currency exposure, the Investment Manager may
hedge the currency exposure of the assets of the Company with the
use of derivative financial instruments.
The Company is exposed to limited currency risk, as the vast
majority of the Company's assets and liabilities are currently
denominated in US Dollars. As a result, the Company did not have
any foreign exchange forward contracts at the financial year ended
31 December 2017 (December 2016: US$Nil).
The total net exposure to foreign currencies at the reporting
date was as follows:
31 December 31 December
2017 2016
EXPOSURE TO FOREIGN EXCHANGE US$ US$
RATES
------------------------------ ------------ ------------
EUR Exposure
Cash and cash equivalents 174,021 117,413
------------------------------ ------------ ------------
EUR Exposure 174,021 117,413
------------------------------ ------------ ------------
GBP Exposure
Cash and cash equivalents 170,856 156,066
------------------------------ ------------ ------------
GBP Exposure 170,856 156,066
------------------------------ ------------ ------------
TOTAL EXPOSURE 344,877 273,479
------------------------------ ------------ ------------
31 December 2017 31 December 2016
Possible Effect on Effect on
change net assets net assets
in
exchange Net exposure and profit Net exposure and profit
rate or loss or loss
US$ US$ US$ US$
---------- ------ ------------- ------------ ------------- ------------
Euro/US
Dollar +/-5% 174,021 (+/-) 2,194 117,413 (+/-) 1,298
GBP/US
Dollar +/-5% 170,856 (+/-) 2,427 156,066 (+/-) 2,025
---------- ------ ------------- ------------ ------------- ------------
11 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
(A) MARKET RISK (continued)
(iii) Other price risks
The risk that the fair value or future cash flows of a financial
instrument will fluctuate because of changes in market prices
(other than those arising from interest rate risk or currency
risk), whether those changes are caused by factors specific to the
individual financial instrument or its issuer, or factors affecting
all similar financial instruments traded in the market. The
Directors do not believe that the returns on investments are
correlated to any specific index or other price variable.
The table below analyses the Company's concentration of other
price risk by subsector in the secured loan asset class and by
geographical area.
31 December 31 December
2017 2016
By asset class US$ US$
Broadly syndicated sub-investment
grade secured loans - North America 386,593,227 397,438,835
Broadly syndicated sub-investment
grade secured loans - Ireland 7,390,000 8,355,000
-------------------------------------- ------------ ------------
393,983,227 405,793,835
-------------------------------------- ------------ ------------
If the value of investments was to increase or decrease by 1%,
the impact on the NAV of the Company would be +/-US$3,939,832
(2016: +/- US$4,057,938).
(B) CREDIT RISK
Credit risk is the risk that one party to a financial instrument
will cause a financial loss for the other party by failing to
discharge an obligation. It is the Company's policy to enter into
financial instruments with a range of reputable counterparties.
Therefore, the Company has a diversified portfolio to reduce credit
risk.
The table below analyses the Company's maximum credit exposure
to credit risk for the components of the statement of financial
position. The split between the two share classes is disclosed in
note 3.
31 December 31 December
2017 2016
US$ US$
---------------------------- -------------------------- ------------
Cash and cash equivalents 11,235,987 16,682,060
Other receivables 1,556,771 1,357,374
Receivable for investments -
sold 2,956,996
Financial assets at fair
value through profit or
loss 393,983,227 405,793,835
---------------------------- -------------------------- ------------
409,732,981 423,833,269
---------------------------- -------------------------- ------------
The cash and substantially all of the assets of the Company are
held by the Depositary or one or more of its sub-depositaries.
Bankruptcy or insolvency of the Depositary or its sub-depositaries
may cause the Company's rights with respect to securities held by
the Depositary or its sub-depositaries to be delayed or limited.
The Company or its sub-depositaries monitor its risk by monitoring
the credit quality and financial positions of the Depositary. State
Street Corporation is the parent company of the Depositary, State
Street Custodial Services (Ireland) Limited. The long-term rating
of State Street Corporation as at 31 December 2017 was A1 (Source:
Moody's) (31 December 2016: A1).
Breakdown by country of incorporation at 31 December 2017 and 31
December 2016:
31 December 31 December
2017 2016
US$ US$
---------------- ------------ ------------
Cayman Islands 386,593,227 397,438,835
Ireland 7,390,000 8,355,000
---------------- ------------ ------------
393,983,227 405,793,835
---------------- ------------ ------------
The table below summarises the Company's portfolio
concentrations as of 31 December 2017 and 31 December 2016:
Maximum Average
portfolio holdings portfolio holdings
of a single of a single
asset asset
% of total % of total
portfolio portfolio
------------------ ------------------- -------------------
31 December 2017 8.08% 1.78%
31 December 2016 4.53% 1.59%
------------------ ------------------- -------------------
11 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
(B) CREDIT RISK (continued)
The below table summarises the portfolio by asset class and
ratings of the portfolio as of 31 December 2017 and 31 December
2016:
31 December 2017 31 December
2016
By asset class US$ US$
----------------- ----------------- ------------
Mezzanine Notes 44,412,021 103,270,576
Income Notes 349,571,206 302,523,259
----------------- ----------------- ------------
393,983,227 405,793,835
----------------- ----------------- ------------
The risks associated with the Repurchase Pool Class Shares are
not materially different from the U.S. Dollar Shares and therefore
are not separately disclosed.
For the purpose of the asset class breakdown above, the
Mezzanine CLO investments were originally rated A/BBB/BB/B and
Income Notes were non-rated ("NR").
The Company's portfolio is partly invested in the Income Notes
tranches of CLOs which are subject to potential non-payment and are
by definition, non-rated securities. The Company assesses the
quality of non-rated assets based on a fundamental analysis of the
underlying loans in the respective portfolios. The terms and
conditions of the underlying CLOs and the implications of other
rights on the CLOs are reviewed to determine any impact on the
expected cash flow from the underlying CLO.
With the exception of investments in Mezzanine CLO Notes, the
Company will typically be in a first loss or subordinated position
with respect to realised losses on the collateral of each CLO
investment. The leveraged nature of the Income Notes and the
Mezzanine Notes, in particular, magnifies the adverse impact of
collateral defaults.
The Company may be adversely impacted by an increase in its
credit exposure related to investing and other activities. The
Company is exposed to the potential for credit-related losses that
can occur as a result of an individual, counterparty or issuer
being unable or unwilling to honour its contractual obligations.
These credit exposures exist within financing relationships,
commitments and other transactions. These exposures may arise, for
example, from a decline in the financial condition of a
counterparty, from entering into swap or other derivative contracts
under which counterparties have obligations to make payments to us,
from a decrease in the value of securities of third parties that
the Company holds as collateral, or from extending credit through
guarantees or other arrangements. As the Company's credit exposure
increases, it could have an adverse effect on the Company's
business and profitability if material unexpected credit losses
occur.
The Investment Manager assesses the credit risk of the CLOs on a
look-through basis to the underlying loans in each CLO. The
Investment Manager seeks to provide diversification in terms of
underlying assets, issuer section, geography and maturity
profile.
The Company's top ten look-through exposure to corporate
borrowers is detailed in the table below:
31 December 2017
Issuer Rating Sector %
------------------------- --------- ------------------------- -----
First Data Corp Ba3/BB Financial intermediaries 0.93%
Centurylink Inc Ba3/BBB- Cable television 0.80%
Univision Communications B2/BB- Cable television 0.77%
Albertson Ba2/BB Food and drug 0.70%
Transdigm Ba2/B+ Aerospace 0.68%
Dell Inc B2/B Information technology 0.64%
Avolon Ltd Ba1/BBB- Aerospace 0.57%
Scientific Games B1/B+ Leisure goods/activities 0.55%
American Airlines Inc Ba1/BB+ Aerospace 0.54%
Calpine Corp Ba2/B+ Utilities 0.53%
11 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
(B) CREDIT RISK (continued)
31 December 2016
Issuer Rating Sector %
------------------------ --------- ------------------------- -----
First Data Corp Ba3/BB Financial intermediaries 1.07%
Valeant Pharmaceuticals Ba3/BB- Healthcare 1.01%
Calpine Corp Ba2/BB Utilities 0.85%
Community Health Ba3/BB- Healthcare 0.82%
Albertson Ba2/BB Food and drug 0.75%
Avago Technologies Ba1/BBB- Information technology 0.71%
Dell Inc Baa3/BBB Information technology 0.70%
Scientific Games Ba3/B+ Leisure goods/activities 0.67%
Transdigm Ba2/B Aerospace 0.67%
Asurion Corp B1/B+ Insurance 0.66%
Concentration of the Company's financial assets by industry, in
excess of 0.5%, were as follows:
31 December 2017
% of % of
Industry portfolio Industry portfolio
--------------------------------- ---------- ----------------------------- ----------
Business equipment & services 5.69% Drugs and pharmaceuticals 1.31%
Healthcare 5.69% Industrial equipment 1.26%
Electrical equipment 5.68% Oil and gas 1.24%
Telecommunications 3.80% Automotive 1.24%
Diversified telecommunication
Broadcast radio & television 3.34% services 1.11%
Chemicals / Plastics 2.67% Air transport 0.99%
Utilities 2.46% Machinery 0.99%
Containers and glass products 2.26% Speciality retail 0.96%
Building and development 2.25% Equipment leasing 0.90%
Aerospace and defence 2.21% Home furnishing 0.84%
Independent power and
Financial intermediaries 2.14% renewable electricity 0.79%
Lodging and casinos 1.96% Insurance 0.76%
Diversified financial
Retailers (except food and drug) 1.95% services 0.74%
Ecological services
Cable television 1.82% & equipment 0.64%
Software 1.72% Conglomerates 0.63%
Property and casualty
Hotels, restaurants & leisure 1.63% insurance 0.57%
Health care providers & service 1.63% Electric utilities 0.54%
Leisure goods/activities/movies 1.61% Publishing 0.54%
Food / Drug retailers 1.61% Diversified insurance 0.54%
Oil, gas & consumable
Food products 1.49% fuels 0.53%
Commercial services & supplies 1.35% Cosmetics/toiletries 0.50%
IT services 1.33%
11 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
(C) CREDIT RISK (continued)
Concentration of the Company's financial assets by industry was
as follows:
31 December 2016
% of % of
Industry portfolio Industry portfolio
-------------------------------- ---------- ---------------------------- ----------
Business equipment
& services 7.37% Drugs 2.34%
Electronics / Electric 6.95% Broadcast radio & television 2.06%
Healthcare 6.85% Industrial equipment 1.88%
Telecommunications 4.00% Aerospace and defence 1.70%
Retailers (except food
and drug) 3.70% Food products 1.52%
Utilities 3.69% Oil and gas 1.49%
Financial intermediaries 2.92% Automotive 1.43%
Chemicals / Plastics 2.91% Food / drug retailers 1.19%
Cable television 2.85% Air transport 0.96%
Lodging and casinos 2.62% Food service 0.92%
Containers and glass
products 2.62% Publishing 0.90%
Business equipment
Leisure goods/activities/movies 2.49% & services 0.80%
Building and development 2.38%
(C) LIQUIDITY RISK
Liquidity risk is defined as the risk that the Company may not
be able to settle or meet its obligations on time or at a
reasonable price. The Company does not have any long-term or
structural borrowings. The Company's unleveraged capital structure
reflects the long-term investment strategy and matches the
illiquidity of the underlying investments for the U.S. Dollar Share
Class.
During the year, none of the assets of the Company were subject
to special liquidity arrangements arising from their illiquid
nature, and no new arrangements have been adopted to manage the
liquidity of the Company other than the creation and operation of
the Repurchase Pool.
As set out in notes 3 and 7, the Company converted 144,451,569
U.S. Dollar Class Shares on a one to one basis to Repurchase Pool
Class Shares of no par value on 31 October 2017. On 22 November
2017, the Repurchase Pool Class Shares were admitted to trading on
the Specialist Fund Segment of the Main Market of the London Stock
Exchange. As at 31 December 2017, there were 144,451,569 Repurchase
Pool Class Shares (31 December 2016: Nil) in issue.
Cash payments will be made on a pro rata basis in US Dollars to
the exiting shareholders holding the Repurchase Pool Class Shares,
at the discretion of the Directors, as assets within the Repurchase
Pool are realised. As cash becomes available to distribute upon the
realisation of assets, capital will be returned to the exiting
shareholders on a pro rata basis, by the Company making a
compulsory repurchase of Repurchase Pool Class Shares.
The Company anticipates redeeming the Repurchase Pool Class
Shares within one year if normal market conditions prevail. Other
than the amounts payable to Repurchase Pool Class Shareholders,
which do not have a stated maturity but are anticipated to be
redeemed within one year, all other liabilities of the Company are
due within one financial year.
The shareholders also approved the introduction of a 2-yearly
repurchase opportunity as follows: if shares have traded at an
average discount to the Net Asset Value per share of the relevant
class in excess of 5% over the preceding twelve month period, or
such other date as may be set out in the Prospectus, an investor
may be offered, subject to certain conditions that are set out in
the Prospectus and the requirements of the Central Bank, to realise
their shares through a repurchase pool. The Articles of Association
of the Company contain certain provisions regarding share
repurchase arrangements which may, in certain circumstances
(including a discount trigger) be offered to Shareholders. On 2 May
2017, the Company announced that the discount trigger mechanism as
set out in the Articles of Association was unlikely to be met at
the end of April 2017. Notwithstanding this, the Directors used
their discretion as provided in the Articles of Association to
propose that the Shareholders approve by ordinary resolution a
repurchase opportunity.
11 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
(C) LIQUIDITY RISK (continued)
See note 7 for further details. The introduction to note 11 also
details the potential liquidity risk arising from the nature of the
Company's financial statements.
The Company's financial instruments include investments in
collateralised debt obligations and derivative contracts (if any)
traded over-the-counter which are not traded in an organised public
market and which may be illiquid.
12 CREDIT FACILITY
On 19 December 2013, the Company agreed a bilateral senior
secured committed 364 day short term revolving credit facility (the
"Initial Facility") with State Street Bank and Trust which expired
on 18 December 2014. On 19 November 2014, 17 December 2015 and 19
December 2016, the Company renewed this facility again resulting in
a new expiry date of 14 December 2017 (the "Renewed Facility", and
each together with the Initial Facility, the "Facility"). The
Facility limit is determined as the lowest of: (a) US$30 million
for the Renewed Facility, (b) 10% of the NAV, (c) 20% of the
adjusted NAV, and (d) the maximum amount of financial indebtedness
that the Borrower was permitted to incur as determined in
accordance with: (i) its constitutional documents, (ii) any
resolution of the members, (iii) its investment policy, and (iv)
any law, rule or regulation applicable to the Borrower. This
Facility was not renewed and was terminated during the financial
year to 31 December 2017.
Adjusted NAV means, the NAV of the Borrower excluding (without
double counting); (a) the amount by which the aggregate current
market value of investments relating to a single issuer exceeded
10% of the NAV of the Borrower, (b) the aggregate market value of
any investments in relation to which there was not at least two
independent valuations (other than any primary investments which
were acquired within the preceding twelve months, and (c) the
aggregate value of any Income Notes, each as determined by the
Administrator following the publication of the NAV on a regulatory
information service.
The Facility was available for general corporate purposes and
could be used to make new purchases, but was intended to leverage
the investment portfolio. Borrowings under the Facility were
restricted to a maximum period of 364 days. The Facility were
governed by a conservative structure whereby the maximum
Loan-to-Value ("LTV") was 10% of total NAV and maximum 20% of the
adjusted NAV (unrated notes to be excluded). The NAV of the Company
must at all times be at least US$250m. The Facility was secured by
a first priority security interest in all of the Carador portfolio
investments (including cash agreements).
The following fees applied to the Facility: An upfront fee of
10bps, a commitment fee of 30bps on the unused portion of the
Facility and an interest rate of LIBOR plus 180bps.
The Facility was terminated by 31 December 2017 and the balance
on the Facility at 31 December 2017 was US$Nil (31 December 2016:
US$Nil).
The Company made the following draw downs and repayments on the
Facility during the financial year ended 31 December 2017:
Cumulative
Start Date End Date Drawdown Repayment Credit Drawn
----------- ----------- --------- ---------- -------------
23/03/2017 26/03/2017 US$3M - US$3M
27/03/2017 27/03/2017 US$2.3M - US$5.3M
28/03/2017 03/04/2017 US$4M - US$9.3M
04/04/2017 09/04/2017 US$8.2M - US$17.5M
10/04/2017 24/04/2017 - US$6M US$11.5M
18/05/2017 24/05/2017 - US$2M US$9.5M
25/05/2017 01/06/2017 - US$0.5M US$8M
02/06/2017 22/06/2017 - US$1.5M US$6.5M
23/06/2017 29/06/2017 - US$2.5M US$4M
30/06/2017 17/07/2017 - US$2M US$2M
18/07/2017 20/07/2017 US$5M - US$7M
21/07/2017 24/07/2017 - US$2M US$5M
25/07/2017 25/07/2017 - US$5M US$0
There were no draw downs on the Facility during the financial
year ended 31 December 2016.
The only amounts to be paid in relation to the credit facility
at 31 December 2017 were the commitment fee and the interest charge
as disclosed below.
12 CREDIT FACILITY (continued)
During the financial year, the Company was charged a commitment
fee of US$85,151 (31 December 2016: US$106,887) of which US$22,750
(31 December 2016: US$22,750) remained unpaid at 31 December 2017,
and an interest charge of US$85,909 (31 December 2016: US$45,107)
of which US$32,306 (31 December 2016: US$3,278) remained unpaid at
31 December 2017. These fees are included in facility costs in the
statement of comprehensive income and expenses payable in the
statement of financial position.
13 STOCK LING
The Company did not enter into any stock lending transactions
during the financial year (31 December 2016: US$Nil).
14 EARNINGS PER SHARE
The Earnings Per Share ("EPS") is calculated by dividing the
profit for the financial year attributable to the relevant
shareholders by the weighted average number of shares outstanding
in the financial year.
Financial year Financial
ended year ended
31 December 31 December
2017 2016
------------------------------- ------------------------- ------------
Repurchase U.S. U.S. Dollar
Pool Dollar Class
Share Class
US$ US$ US$
Profit for the financial
year all attributable to
relevant shareholders 612,196 36,411,229 79,153,810
Number of relevant shares
for basic earnings per share 24,141,221 519,112,133 543,253,359
------------------------------- ----------- ------------ ------------
Basic and diluted earnings
per share 0.03 0.07 0.15
------------------------------- ----------- ------------ ------------
For the financial year ended 31 December 2017 and 31 December
2016, there are no potential shares in existence, hence no diluted
EPS adjustments arise .
15 TAXATION
Under current law and Irish practice, the Company qualifies as
an investment undertaking under Section 739B of the Taxes
Consolidation Act 1997 and is not therefore chargeable to Irish tax
on its relevant income or relevant gains. No stamp duty, transfer
or registration tax is payable in the Republic of Ireland on the
issue, redemption or transfer of shares in the Company.
Distributions and interest on securities issued in countries other
than the Republic of Ireland may be subject to taxes including
withholding taxes imposed by such countries. The Company may not be
able to benefit from a reduction in the rate of withholding tax by
virtue of the double taxation agreement in operation between the
Republic of Ireland and other countries. The Company may not
therefore be able to reclaim withholding tax suffered by it in
particular countries.
To the extent that a chargeable event arises in respect of a
shareholder, the Company may be required to deduct tax in
connection with that chargeable event and pay the tax to the Irish
Revenue Commissioners. A chargeable event can include payments to
shareholders, appropriation, cancellation, redemption, repurchase
or transfer of shares, or a deemed disposal of shares every eight
years beginning from the date of acquisition of those shares.
Certain exemptions can apply. In the absence of an appropriate
declaration or written confirmation from the Revenue Commissioners
which confirms that no such declaration is required, the Company
will be liable for Irish tax on the occurrence of a chargeable
event.
16 DISTRIBUTIONS
The Board declared the following distributions during the
financial year on the U.S. Dollar Class Share:
-- On 19 January 2017, the Board declared a dividend of
US$0.0275 per U.S. Dollar Class Share in respect of the financial
period from 1 October 2016 to 31 December 2016. The dividend was
paid on 1 February 2017 to shareholders on the share register as at
the close of business on 27 January 2017. The amount paid in
respect of this dividend was US$14,939,467.
-- On 20 April 2017, the Board declared a dividend of US$0.0225
per U.S. Dollar Class Share in respect of the financial period from
1 January 2017 to 31 March 2017. The dividend was paid on 3 May
2017 to shareholders on the share register as at the close of
business on 28 April 2017. The amount paid in respect of this
dividend was US$12,223,200.
16 DISTRIBUTIONS (continued)
-- On 20 July 2017, the Board declared a dividend of US$0.0225
per U.S. Dollar Class Share in respect of the financial period from
1 April 2017 to 30 June 2017. The dividend was paid on 2 August
2017 to shareholders on the share register as at the close of
business on 27 July 2017. The amount paid in respect of this
dividend was US$12,223,200.
-- On 19 October 2017, the Board declared a dividend of
US$0.0225 per U.S. Dollar Class Share in respect of the financial
period from 1 July 2017 to 30 September 2017. The dividend was paid
on 1 November 2017 to shareholders on the share register as at the
close of business on 27 October 2017. The amount paid in respect of
this dividend was US$12,223,201.
17 OTHER EVENTS DURING THE FINANCIAL YEAR
On 26 April 2017, the Company released its audited Annual Report
and Accounts for the full financial year 2016.
On 31 July 2017, the Company announced the results of the
resolutions proposed at its AGM.
At the AGM, shareholders approved the repurchase opportunity
summarised in the circular accompanying the Notice of the AGM and
facilities to allow the raising of additional capital. The
repurchase opportunity documents were published and sent to
eligible shareholders in October 2017.
The 144,451,569 Repurchase Pool Class Shares arising on
conversion of the equivalent number of U.S. Dollar Class Shares
were admitted to trading on the Specialist Fund Segment of the Main
Market of the London Stock Exchange on 22 November 2017.
At the annual general meeting the ("AGM") of the Company held on
31 July 2017, shareholders approved the following ordinary and
special resolutions:
Ordinary Resolutions
1. Receive and consider the reports of the Board and of the
auditor of the Company, KPMG, and the accounts for the year ended
31 December 2016.
2. To review the Company's affairs.
3. Re-appointment of KPMG as auditors of the Company.
4. Authorisation of the Directors to fix the remuneration of the auditors of the Company.
5. Re-election of Mr Edward D'Alelio as a director of the Company.
6. Re-election of Mr Werner Schwanberg as a director of the Company.
7. Re-election of Mr Fergus Sheridan as a director of the Company.
8. Re-election of Mr Adrian Waters as a director of the Company.
9. Approval of the repurchase opportunity, as summarised in the
circular accompanying the Notice of the Annual General Meeting.
10. Authorisation of the Directors to allot up to 300 million
shares of the Company.
11. Authorisation of the Directors to allot 10% of shares in
addition or as an alternative to item 10 above.
Special Resolutions
12. Authorisation of the Directors to allot the shares referred
to in items 10 and 11 above, without having previously to offer
such shares to shareholders on a pre-emptive basis.
13. Adopt the constitution of the Company in the form presented
to the annual general meeting to the exclusion of the existing
constitution of the Company.
On 31 August 2017, the Company announced its Unaudited Interim
Results for the period ended 30 June 2017.
On 11 October 2017, the Company entered into an amended and
restated investment management agreement. The update was to include
details of the performance fees payable to the Investment Manager
in respect of the Repurchase Pool Class Shares.
On 12 October 2017, the Company announced the publication of a
Prospectus that contained details of an offer to each holder of
U.S. Dollar Shares in the Company to convert some or all of their
U.S. Dollar Shares into Repurchase Pool Class Shares (the
"Repurchase Opportunity") and of a 12 month Placement Programme of
U.S. Dollar Shares and/or C Shares. The Placement Programme closes
on 10 October 2018 and no C Shares have yet been issued.
17 OTHER EVENTS DURING THE FINANCIAL YEAR (continued)
On 31 October 2017, the Company announced the results of the
Repurchase Opportunity. The Company received valid elections from
and on behalf of shareholders for 144,451,569 U.S. Dollar Shares of
no par value, representing 26.6 per cent. of the issued U.S. Dollar
Shares of the Company, to re-designate such U.S. Dollar Shares into
Repurchase Pool Class Shares of no par value. The Repurchase Pool
was created by allocating a pro rata amount of the assets and
liabilities of the Company attributable to the U.S. Dollar Shares
being converted as at the Conversion Date.
On 22 November 2017, the Company announced that the 144,451,569
Repurchase Pool Class Shares arising on conversion of the
equivalent number of U.S. Dollar Shares were admitted to trading to
the Specialist Fund Segment of the Main Market of the London Stock
Exchange.
There were no other significant events during the financial year
which are not disclosed elsewhere which would require revision of
the figures or disclosures in the financial statements.
18 SUBSEQUENT EVENTS
On 22 January 2018, the Board declared a dividend of US$0.0225
per U.S. Dollar Class Share in respect of the financial period from
1 October 2017 to 31 December 2017. The dividend was paid on 7
February 2018 to shareholders on the register as at the close of
business of 2 February 2018. The amount paid in respect of this
dividend was US$ 8,973,040.
On 23 April 2018, the Board declared a dividend of US$0.0225 per
U.S. Dollar Class Share in respect of the financial period from 1
January 2018 to 31 March 2018. The dividend is payable on 9 May
2018 to shareholders on the register as at the close of business on
4 May 2018.
As indicated in note 7, there were 144,451,569 Repurchased Pool
Shares outstanding as at 31 December 2017 with a carrying value of
US$107,889,914. Since the year end, the following partial
redemptions have occurred:
No. of % of the Repurchase
Shares Redemption Price per Pool Share
Date Redeemed Amount US$ Share Class
----------------- ----------- ------------ ---------- --------------------
22 January 2018 9,372,003 7,000,000 0.7469 6.49%
21 February
2018 52,847,139 40,000,000 0.7569 39.10%
21 March 2018 13,149,243 10,000,000 0.7605 15.99%
75,368,385
-----------
There were no other significant events since the financial year
end which would require revision of the figures or disclosures in
the financial statements.
19 APPROVAL OF THE FINANCIAL STATEMENTS
The financial statements were approved and authorised for issue
by the Directors on 27 April 2018.
SCHEDULE OF INVESTMENTS (unaudited)
As at 31 December 2017
Market
Nominal value % of
holdings of US$ NAV
----------------------------------- ------------ ------------ -------
COLLATERALISED LOAN OBLIGATIONS
REGION OF TRADE
North America
COUNTRY OF INCORPORATION
Cayman Islands (December 2016:
74.15%)
Apidos CLO 2013-14X INC 6,060,000 909,000 0.30
Apidos CLO 2014-17X E 9,500,000 9,267,513 3.10
Apidos CLO 2014-18A 3,000,000 1,793,250 0.60
Apidos CLO 2015-20A 10,400,000 7,787,000 2.60
Apidos CLO 2016-24 SUB 3,500,000 2,725,625 0.91
ARES CLO Ltd 2013-3X SUB 21,750,000 8,544,125 2.86
ARES CLO Ltd 2016-39A SUB 10,000,000 7,575,500 2.53
Birchwood Park CLO Ltd 2014 9,000,000 4,218,750 1.41
BNPP IP CLO Ltd 2014-1X D 8,074,000 7,923,101 2.65
BNPP IP CLO Ltd 2014-1X E 14,000,000 12,516,810 4.18
Bowman Park CLO Ltd 2014-1X 2,500,000 1,444,750 0.48
Burnham Park CLO Ltd 2014-1A 3,000,000 2,552,250 0.85
Carlyle Global Market Strategies
CLO Ltd 2015-1A SUB 10,000,000 7,594,900 2.54
Carlyle Global Market Strategies
CLO Ltd 2016-14X INC 5,182,407 4,076,827 1.36
Carlyle Global Market Strategies
CLO Ltd 2016-1A SUB 3,000,000 2,526,300 0.84
Catskill Park CLO Ltd 2017-1A
SUB 37,100,000 32,885,440 10.99
Cedar Funding CLO Ltd 2014-4A
SUB 4,500,000 4,300,313 1.44
Cedar Funding CLO Ltd 2016-5A
SUB 14,517,500 13,864,212 4.63
Cumberland Park CLO Ltd 2015-2A
SUB 8,800,000 6,267,800 2.09
Dryden Senior Loan Fund 2015-38X
SUB 12,000,000 9,150,000 3.06
Dryden Senior Loan Fund 2015-41X
SUB 9,260,000 6,914,905 2.31
Dryden Senior Loan Fund 2016-43A
SUB 7,000,000 5,417,475 1.81
Dryden Senior Loan Fund 2016-45X 5,368,000 4,440,678 1.48
HPS Loan Management 10-2016 Ltd 20,550,000 16,157,438 5.40
Highbridge Loan Management 3-2014 21,563,570 14,927,381 4.99
Jay Park CLO Ltd 2016-1A SUB 10,202,600 8,159,529 2.73
Magnetite IX Ltd 4,882,743 2,959,186 0.99
Magnetite XI Ltd 21,980,270 17,034,709 5.69
Magnetite XIV Ltd 4,663,717 3,672,677 1.23
Magnetite XVIII Ltd 10,000,000 8,031,250 2.68
Neuberger Berman CLO Ltd 2013 23,400,152 13,183,061 4.40
Neuberger Berman CLO Ltd 2013-15X
SUB 3,500,000 1,868,825 0.62
Neuberger Berman CLO Ltd 2014-16X
F 7,500,000 7,595,937 2.54
Neuberger Berman CLO Ltd 2014-17X
SUB 29,100,000 18,308,750 6.12
Neuberger Berman CLO Ltd 2016-21A
SUB 2,200,000 2,024,000 0.68
Neuberger Berman CLO Ltd 2016-23A
SUB 4,000,000 3,003,000 1.00
Neuberger Berman CLO Ltd 2016-23A
SUBF 114,546 89,546 0.03
Palmer Square CLO 2015-1 Ltd
2015-1A SUB 12,340,000 10,396,450 3.47
Rampart CLO 2007 Ltd 2007-1A
SUB 11,000,000 669,167 0.22
Seneca Park CLO Ltd 2014-1X SUB 6,500,000 2,795,000 0.93
Stewart Park CLO Ltd 2015-1X
SUB 10,000,000 8,292,500 2.77
SCHEDULE OF INVESTMENTS (unaudited) (continued)
As at 31 December 2017
Market
Nominal value % of
holdings of US$ NAV
--------------------------------------- ------------ -------------- --------
COLLATERALISED LOAN OBLIGATIONS
(continued)
REGION OF TRADE
North America (continued)
COUNTRY OF INCORPORATION
Cayman Islands (December 2016:
74.15%) (continued)
Taconic Park CLO Ltd 2016-1A SUB 30,000,000 23,625,000 7.88
Thacher Park CLO Ltd 2014-1X SUB 4,000,000 2,095,333 0.70
Treman Park CLO Ltd 2015-1A 4,000,000 2,190,640 0.73
Tryon Park CLO Ltd 2013-1X E 4,700,000 4,607,892 1.54
Tryon Park CLO Ltd 2013-1X SUB 12,000,000 4,243,800 1.42
VOYA Investment Management CLO
Ltd 2015-2X SUB 18,000,000 13,581,000 4.54
Webster Park CLO Ltd 2015-1X SUB 14,900,000 13,000,250 4.34
THL Credit Wind River CLO Ltd
2013-2 5,000,000 3,019,625 1.01
THL Credit Wind River CLO Ltd
2014-3 2,500,000 2,500,768 0.84
372,729,238 124.51
--------------------------------------- ------------ -------------- --------
Ireland (December 2016: 1.98%)
Dorchester Park CLO Ltd 2015-1X
SUB 10,000,000 7,390,000 2.47
--------------------------------------- ------------ -------------- --------
7,390,000 2.47
--------------------------------------- ------------ -------------- --------
TOTAL COLLATERALISED LOAN OBLIGATIONS
(DECEMBER 2016: 76.13%) 380,119,238 126.98
--------------------------------------- ------------ -------------- --------
INVESTMENT IN SUBSIDIARIES
REGION OF TRADE
North America
COUNTRY OF INCORPORATION
Cayman Islands (December 2016:
20.09%)
Keuka Park CLO Ltd 2013-1A SUB 23,350,000 2,317,488 0.77
Pinnacle Park CLO Ltd 2014-1A
SUB 25,000,000 10,718,751 3.58
Sheridan Square CLO Ltd 2013 38,500,000 827,750 0.28
13,863,989 4.63
--------------------------------------- ------------ -------------- --------
TOTAL INVESTMENTS AT FAIR VALUE (DECEMBER
2016: 96.22%) 393,983,227 131.61
OTHER ASSETS (DECEMBER 2016: 4.28%) 15,749,754 5.25
OTHER LIABILITIES (DECEMBER 2016:
(0.50%) (110,468,219) (36.91)
--------------------------------------- ------------ -------------- --------
TOTAL NET ASSETS ATTRIBUTABLE
TO EQUITY PARTICIPATING SHAREHOLDERS 299,264,762 100.00
--------------------------------------- ------------ -------------- --------
Total investments at fair value
allocated to:
U.S.Dollar Class 297,312,674
Repurchase Pool Class 96,670,553
--------------------------------------- ------------ --------------
393,983,227
--------------------------------------- ------------ --------------
SUMMARY OF KEY FINANCIAL INFORMATION (unaudited)
NAV HISTORY
Financial year Financial Financial Financial Financial
ended year ended year ended year ended year ended
31 December 2017 31 December 31 December 31 December 31 December
2016 2015 2014 2013
Repurchase
Pool Class U.S. Dollar U.S. Dollar U.S. Dollar U.S. Dollar U.S. Dollar
Share Class Class Class Class Class
-------------- --------------- --------------- --------------- --------------- --------------- ---------------
NAV US$107,889,914 US$299,264,762 US$421,740,319 US$392,837,444 US$488,572,102 US$514,219,232
NAV per
share US$0.7469 US$0.7504 US$0.7763 US$0.7231 US$0.8993 US$0.9466
Shares
in issue
at the
financial
year end 144,451,569 398,801,780 543,253,359 543,253,359 543,253,359 543,253,359
Income
per
Prospectus
(inclusive
of interest
income
on cash
and cash
equivalents) US$11,292,984 US$40,764,814 US$60,475,305 US$67,435,088 US$66,536,306 US$82,421,817
Value of
investments US$96,670,553 US$297,312,674 US$405,793,835 US$379,662,763 US$486,340,728 US$536,612,325
Number
of
investments 50 54 68 64 70 91
-------------- --------------- --------------- --------------- --------------- --------------- ---------------
The financial year-end exchange rate was EUR: US$1.20080 (31
December 2016: US$1.05265). The average rate for the financial year
was EUR: US$1.139008 (31 December 2016: US$1.10353).
PORTOLIO CHANGES MATERIAL ACQUISITIONS AND DISPOSALS/PAYDOWNS
(unaudited)
for the financial year ended 31 December 2017
Quantity US$
Acquisitions* purchased costs
-------------------------------------- ----------------------- -------------------------
Catskill Park CLO Ltd 2017-1A
SUB 37,100,000 32,514,663
Taconic Park CLO Ltd 2016-1A
SUB 15,000,000 12,037,500
Jay Park CLO Ltd 2016-1A SUB 13,900,000 11,120,000
Highbridge Loan Management
3-2014 14,824,820 10,340,131
Palmer Square CLO 2015-1 Ltd
2015-1A SUB 10,000,000 8,557,500
ARES CLO Ltd 2016-39A SUB 10,000,000 8,410,000
Cumberland Park CLO Ltd 2015-2A
SUB 8,800,000 6,611,000
Dryden Senior Loan Fund 2015-41X
SUB 8,360,000 6,416,300
Dryden Senior Loan Fund 2016-43A
SUB 7,000,000 5,694,600
Carlyle Global Market Strategies
CLO Ltd 2016-14X INC 7,060,500 5,482,266
Cedar Funding CLO Ltd 2014-4A
SUB 4,500,000 4,303,125
Dryden Senior Loan Fund 2015-38X
SUB 4,500,000 3,633,750
Neuberger Berman CLO Ltd 2013-14A
SUB 4,846,152 2,810,768
Apidos CLO 2016-24 SUB 3,500,000 2,804,375
Dryden Senior Loan Fund 2016-45X 3,000,000 2,595,000
Institutional Cash Series Plc
- Institutional US Dollar Liquidity 36,033 36,033
Quantity US$
Disposals/Paydowns* sold proceeds
-------------------------------------- ---------------------- -------------------------
Institutional Cash Series Plc
- Institutional US Dollar Liquidity 16,060,410 16,060,410
BNPP IP CLO Ltd 2014-1X D 8,426,000 8,001,905
Highbridge Loan Management
4-2015 Ltd 4,900,000 4,827,088
ACAS CLO 2013-1X F 5,000,000 4,700,000
Eaton Vance CDO Ltd 2014-1X
INC 8,000,000 4,160,000
Magnetite XV Ltd 3,000,000 3,045,000
Jay Park CLO Ltd 2016-1A SUB 3,697,400 2,956,996
Palmer Square CLO 2015-1 Ltd
2015-1A SUB 2,660,000 2,233,070
Apidos CLO 2014-17X E 2,000,000 1,865,000
Apidos CLO 2015-20X D 1,538,462 1,528,462
Highbridge Loan Management
3-2014 2,292,250 1,512,885
Carlyle Global Market Strategies
CLO Ltd 2016-14X INC 1,878,093 1,464,913
* Represents total of the acquisitions and disposals for the
Company.
MANAGEMENT AND ADMINISTRATION
DIRECTORS* REGISTERED OFFICE
Werner Schwanberg (Chairman)** 78 Sir John Rogerson's Quay
Fergus Sheridan** Dublin 2
Adrian Waters** Ireland
Edward D'Alelio
Nicholas Moss** COMPANY REGISTRATION NUMBER:
415764
U.S. Dollar Class Shares
ISIN: IE00B3D60Z08
ADMINISTRATOR AND COMPANY
SECRETARY
State Street Fund Services INVESTMENT MANAGER
(Ireland) Limited
78 Sir John Rogerson's Quay GSO / Blackstone Debt Funds
Management LLC
Dublin 2 345 Park Avenue
Ireland Floor 31
New York
DEPOSITARY NY 10154
State Street Custodial Services United States of America
(Ireland) Limited
78 Sir John Rogerson's Quay
Dublin 2 JOINT FINANCIAL ADVISER
Ireland AND JOINT CORPORATE BROKER
Fidante Partners Europe
Limited (trading as Fidante
Capital)
SOLICITORS AS TO US AND 1 Tudor Street
ENGLISH LAW
Herbert Smith Freehills London EC4Y 0AH
LLP
Exchange House United Kingdom
Primrose Street
London EC2A 2EG JOINT FINANCIAL ADVISER
United Kingdom AND JOINT CORPORATE BROKER
Nplus1 Singer Advisory LLP
SOLICITORS AS TO IRISH LAW One Bartholomew Lane
Arthur Cox London EC2N 2AX
10 Earlsfort Terrace United Kingdom
Dublin 2
D02 T380 INDEPENDENT AUDITOR
Ireland KPMG
1 Harbourmaster Place
REGISTRAR IFSC
Computershare Investor Services Dublin1
(Ireland) Limited
Herron House Ireland
Corrig Road
Sandyford Industrial Estate
Dublin 18
Ireland
* All Directors of Carador Income Fund PLC are Non-Executive Directors.
** Independent Directors.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR FKKDKABKDKQN
(END) Dow Jones Newswires
April 30, 2018 12:06 ET (16:06 GMT)
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