TIDMRCOI
RNS Number : 0798Q
Riverstone Credit Opps. Inc PLC
16 February 2023
Riverstone Credit Opportunities Income Plc
Full Year Results for the Twelve Months Ended 31 December
2022
Capital Growth and High Income Leads to NAV Total Return of
14.5% in 2022
Strong Cash Generation Fuels Q4 Special Dividend; 9.0 cents
Declared for 2022 Distributions
Riverstone Credit Opportunities Income ("RCOI" or the
"Company"), the LSE-listed energy infrastructure and
energy-transition credit investor, is pleased to announce strong
full year results for the twelve months ended 31 December 2022.
Highlights
-- Strong cash generation across the portfolio delivers an
annual dividend in excess of the Company's target for the 2022
financial year. The Company declares a dividend of 2.0 cents per
share for Q4
-- High income yield supports an additional payment in the form
of a special dividend. The Company declares an additional
distribution to shareholders of 1.0 cent per share, fully covered
by earnings
-- Total of 9.0 cents per share declared in total for 2022,
generating a full year dividend yield of 9.8% based on the closing
share price on 31 December 2022
-- Valuation increase through the period is reflected in the
year end NAV $1.08 per share ($1.02: 31 December 2021) and
highlights the potential for growth alongside income generation
-- Diversified portfolio now fully invested post-period end with
a revolving credit facility in place to optimize returns and cash
management, as a result of which $68.8m was invested in H2 2022
alone. All of the investments detailed below are structured as
Sustainability-Linked Loans:
o $9.0m committed to Seawolf Water Resources, a water
infrastructure services company with operations primarily in Loving
County, Texas, and Southern New Mexico;
o $13.9m committed to Epic Propane which provides propane purity
offtake transportation to the Gulf Coast export market;
o $13.7m committed to Hoover Circular Solutions, a refinancing
and upsizing of the Company's investment in a leading provider of
sustainable packaging and fleet management solutions;
o $13.9m committed post-period end to Clean Energy a NASDAQ
listed public company engaged in the development of negative carbon
intensity RNG projects and construction of new RNG fuelling
stations for the North American transportation sector;
o $5m committed post-period end to Max Midstream, backing their
carbon-neutral crude oil export terminal on the Gulf Coast of
Texas.
-- Four attractive realizations delivered in H2 totaling $44.5m.
Net IRR ranged between 7.8% to 12.3% for these investments
-- Focus on sustainable investments and delivering measurable
impact with a portfolio almost exclusively comprising independently
accredited green and sustainability linked loans
-- NAV total return of 14.5% for the twelve months to 31
December 2022 and NAV total return of 33.7% since inception in May
2019
-- Compelling opportunity pipeline : the Investment Manager
continues to see attractive near-term opportunities within the
infrastructure, infrastructure services and energy transition
sectors with strong, measurable sustainability credentials
Quarterly Distribution
-- RCOI is pleased to announce that the Directors have declared
that the distribution for the quarter ending 31 December 2022 will
comprise 2.0 cents per share (ordinary dividend) and a 1.0 cent per
share (special distribution). These will both be payable on 24
March 2023 to holders of ordinary shares on the register at the
close of business on 24 February 2023 (ex-distribution date is 23
February 2023)
-- The special dividend of 1.0 cent per share has been declared
as a result of strong portfolio performance and cash
generation.
-- The Company's Annual Report and Financial Statements and
quarterly factsheet will be located on the Company's website,
https://www.riverstonecoi.com/
Reuben Jeffery III, Chairman of RCOI, commented:
"We are pleased to report a very strong period of financial
results for the Company delivering a NAV total return of 14.5% in
2022 through a combination of NAV growth and fully covered dividend
distributions. This has been driven by high levels of income from
our diverse and fully invested portfolio, now comprised almost
entirely of independently accredited sustainability linked and
green loans supporting energy infrastructure.
The Company's NAV total return since launch of 33.7% is a record
of which the Company is justifiably proud. We do not believe the
strength of this risk return profile and the attractiveness of the
earnings generation of the portfolio is reflected in RCOI's current
share price valuation, currently trading at a 15% discount to
NAV."
Christopher Abbate and Jamie Brodsky, Co-Founders of Riverstone
Credit, the investment adviser, added:
"This was a landmark year for our portfolio with our strongest
NAV returns to date from a mature and fully invested portfolio that
also generated a fully covered special dividend. Rewardingly, the
year also witnessed the substantial completion of our rotation to a
portfolio of fully accredited Green and Sustainability-Linked
Loans. We were also pleased with the establishment of a revolving
credit facility to further optimize returns for shareholders.
We look forward to the future with confidence given the pressing
need to finance energy infrastructure to enhance energy security
and sustainability both in the US and internationally where we are
exceptionally well placed to offer financing solutions to
corporates and value to our shareholders."
For Riverstone Credit Opportunities Income Plc:
Adam Weiss
+1 212 271 2953
J.P. Morgan Cazenove (Corporate
Broker) +44 (0)20 7742 4000
William Simmonds
Jérémie Birnbaum
James Bouverat, Liam MacDonald-Raggett
(Sales)
For Media Enquiries:
Buchanan
Helen Tarbet Tel: +44 (0) 20 7466 5109
Henry Wilson Tel: +44 (0) 20 7466 5111
Jon Krinks Tel: +44 (0) 20 7466 5199
Verity Parker Tel: +44 (0) 20 7466 5197
Email: rcoi@buchanan.uk.com
About Riverstone Credit Opportunities Income Plc :
RCOI lends to companies that build and operate the
infrastructure used to generate, transport, store and distribute
both renewable and conventional sources of energy, and companies
that provide services to that infrastructure. RCOI also lends to
companies seeking to facilitate the energy transition by
decarbonizing the energy, industrial and agricultural sectors,
building sustainable infrastructure and reducing or sequestering
carbon emissions. The Company seeks to ensure that its investments
are having a positive impact on climate change by structuring each
deal as either a green loan or a sustainability-linked loan,
documented using industry best practices.
For further details, see https://www.riverstonecoi.com/ .
Neither the contents of RCOI's website nor the contents of any
website accessible from hyperlinks on the website (or any other
website) is incorporate into, or forms part of, this
announcement.
We lend to companies that build and operate the infrastructure
used to generate, transport, store and distribute both renewable
and conventional sources of energy, and companies that provide
services to that infrastructure.
We also lend to companies seeking to facilitate energy
transition by decarbonising the energy, industrial and agricultural
sectors, building sustainable infrastructure and reducing or
sequestering carbon emissions.
We seek to ensure that our investments are having a positive
impact on climate change by structuring each deal as either a Green
Loan or a Sustainability-Linked Loan, documented using industry
best practices.
Company number: 11874946
All capitalised terms are defined in the list of defined terms
below unless separately defined.
Riverstone Credit Opportunities Income PLC
Riverstone Credit Opportunities Income Plc is an externally
managed closed-ended investment company trading on the Main Market
of the London Stock Exchange.
The Company's Ordinary Shares were admitted to the Specialist
Fund Segment of the London Stock Exchange plc's Main Market and
incorporated and registered on 11 March 2019 in England and Wales
with an unlimited life.
INVESMENT MANAGER
The Company's Investment Manager is Riverstone Investment Group
LLC, which is controlled by affiliates of Riverstone Holdings LLC
("Riverstone").
Riverstone was founded in 2000 and is currently one of the
world's largest and most experienced investment firms focused on
energy, power, infrastructure and decarbonisation. The Firm has
raised approximately $43 billion of capital and committed
approximately $45 billion to 200+ investments in North America,
South America, Europe, Africa, Asia and Australia. Headquartered in
New York, Riverstone has built a global platform with additional
offices located in Menlo Park, Houston, London, Amsterdam and
Mexico City. Since its founding, the Firm has grown its presence
significantly and currently employs over 90 professionals
worldwide.
The registered office of the Company is 5 th Floor, 20 Fenchurch
Street, London, England, EC3M 3BY.
Key Financials
2022 2021
------------------------------------------------------------------------------ ------- -----------
NAV as at 31 December $98.48m $93.30m
NAV per Share as at 31 December $1.08 $1.02
Market capitalisation as at 31 December $83.54m $79.64m
Share price at 31 December $0.92 $0.87
Total comprehensive income for year ended 31 December $12.85m $4.45m
EPS for the year ended 31 December 14.08 cents 4.86 cents
Distribution per share with respect to the year ended 31 December 9.00 cents 7.00 cents
------------------------------------------------------------------------- -------------- -----------
Highlights
-- The NAV as at 31 December 2022 was $ 1.08 per share (2021: $1.02 per share).
-- Distribution of 9.00 cents per share (2021: 7.00 cents per
share) approved with respect to the year ended 31 December
2022.
-- Earnings per Share for the year ended 31 December 2022 was
14.08 cents per share (2021: 4.86 cents per share).
-- 740,146 Ordinary Shares repurchased during the year, as part
of the Company's share buy-back programme.
-- 6 investments and 6 full realisations executed in the year ended 31 December 2022.
Chairman's Statement
Overview
On behalf of the Board, I would like to thank our shareholders
for their continued support.
We are pleased with the financial performance of the Company and
the beneficial impact its loans are having on the journey towards
greater environmental sustainability for the global infrastructure
industry. During the second half of 2022, the Company continued its
momentum from the first half of the year, making targeted
investments and posting strong earnings for the period. The Company
has delivered NAV total returns of 33.7% to investors since
inception in May 2019 and 22.57 cents of income. For 2022, our NAV
total return was 14.5%, vs the AIC Debt - Direct Lending peer group
average of 8.2%.
With the strong backdrop of the energy markets, and the
Company's unique focus on short duration lending, the re-balancing
of the portfolio to energy-transition focused investments is now
complete. As of December 31, 2022, all of the loans in the
portfolio and over 95% of the NAV were either Green Loans or
Sustainability-Linked Loans, with the only outliers being small
equity positions or take-back instruments received from previous
loans. What this means in practicality, is that all loans in the
Company's portfolio should advance some form of decarbonisation or
enhance sustainability across the broader energy complex. A great
example of this is the Company's loan to Streamline Innovations in
November 2021, subsequently upsized in May 2022. Streamline has
over 40 treating plants in service or fabrication with the capacity
to eliminate the flaring of over 100 million pounds of toxic
sulphur dioxide per year and eliminate the need for over 50 million
gallons of hazardous waste per year.
A key focus of the Company over the past year has been to put
more of its capital to work to optimise investor returns. The
Investment Manager's strategy of making senior-secured asset-based
loans has certainly paid off in terms of generating strong results
for shareholders - but it has also left the Company underinvested
at times, just as interest rates began to rise. A sincere effort
was made to alleviate this issue, while remaining faithful to the
Company's strategy, as well as preserving the diversity and quality
of the portfolio. As an example, secondary purchases of the Hoover
Circular Solutions loan and Seawolf Water Resources loan (which
included preferred and common equity) helped deploy capital into
attractive investments very well known to the Investment Manager
and consistent with the Company's overall strategy. Furthermore, in
December the Company's SPVs entered into a $15 million Revolving
Credit Facility ("RCF") which will allow the Company and its SPVs
the potential to be over 100% invested while still retaining the
necessary liquidity to meet ongoing expenses and future obligations
like delay-draw loan commitments. These investments, combined with
rising underlying rates, should serve to increase earnings capacity
for the overall portfolio and lead to higher distribution.
Going forward, the Company will remain focused on continuing to
execute its strategy, taking advantage of the wide range of
investment opportunities it sees, buoyed by a very strong energy
market back-drop and attractive interest rate environment. We will
continue to seek to improve investor awareness of the Company's
strategy and track record, with the hope of attracting new
investors. We are keenly aware of the persistent discount to NAV
that the Company's shares trade at and are committed to doing
everything in its power to close that gap. In June 2022 the Company
announced that it was initiating the share buyback programme for
the purpose of allowing the Company to return some of its
uncommitted capital to shareholders and in recognition of the
Company's current discounted NAV.
Key Developments
RCOI's NAV has remained robust during the period under review,
with a current NAV per share of $1.08 (31 December 2021:
$1.02).
In the second half of 2022, there were three new sustainable
investments: Seawolf Water Resources, Clean Energy Fuels Corp., and
Max Midstream, totalling $27.9m and two refinancing of existing
investments made by RCOI: Epic Propane and Hoover Circular
Solutions, totalling $27.6m.
1. RCOI committed $9.0m to Seawolf Water Resources, an existing
investment in the Riverstone Credit Portfolio that has been amended
as a Sustainability-Linked Loan. Seawolf is a water infrastructure
services company with operations primarily in Loving County, Texas,
and southern New Mexico;
2. RCOI committed $13.9m to Epic Propane, an investment that was
restructured as a Sustainability-Linked Loan, provides propane
purity offtake transportation to the Gulf Coast export market;
3. RCOI committed $13.7m to Hoover Circular Solutions to
refinance and upsize the Company's investment in a leading provider
of sustainable packaging and fleet management solutions, structured
as a Sustainability-Linked Loan;
4. RCOI committed $13.9m to Clean Energy, structured as a
Sustainability-Linked Loan, a NASDAQ listed public company engaged
in the development of negative carbon intensity RNG projects and
construction of new RNG fuelling stations for the North American
transportation sector; and
5. RCOI committed $5.0m to Max Midstream, who are developing a
carbon-neutral crude oil export terminal on the Gulf Coast of
Texas, structured as a Sustainability-Linked Loan.
In addition, the loan to Harland & Wolff, a London-listed
infrastructure operator engaged in the development and operation of
strategic maritime assets across the United Kingdom, was
successfully upsized bringing the total amount committed by RCOI to
$14.8m.
There were also four full realisations in the second half of
2022, totalling $44.5m, that delivered consistently strong returns
for the Company ranging from 14.3 per cent to 16.6 per cent gross
IRR and 7.8 per cent to 11.3 per cent net IRR.
6. FS Crude was fully realised in September 2022 with a 14.8 per
cent gross IRR and a 12.0 per cent net IRR and 1.23x gross MOIC and
1.18x net MOIC respectively;
7. Epic Propane was fully realised as part of refinancing in
September 2022 with a 14.3 per cent gross IRR and a 12.3 per cent
net IRR and 1.32x gross MOIC and 1.27x net MOIC respectively;
8. Circulus Holdings was fully realised in October 2022
resulting in a 16.6 per cent gross IRR and a 10.8 per cent net IRR
and a 1.14x gross MOIC and a 1.09x net MOIC respectively;
9. Hoover Circular Solutions was fully realised as part of a
refinancing in November 2022 resulting in a 15.0 per cent gross IRR
and a 7.8 per cent net IRR and a 1.10x gross MOIC and a 1.05x net
MOIC respectively.
We continue to actively evaluate a highly attractive pipeline of
investment opportunities, focused on energy infrastructure,
infrastructure services and energy transition opportunities.
Performance
The Company reported a profit of $12.8 million for the year
ending 31 December 2022, resulting from income received from the
investment portfolio and changes in the portfolio's valuations. The
Net Asset Value ("NAV") of the Company remained solid and ended the
period at $1.08 per share. The Company is paying distributions of
9.0 cents in respect of 2022, comfortably achieving our stated
distributions target. The Company has now delivered NAV total
returns of 33.7% to investors since inception in May 2019 (14.5%
annual return) and 22.57 cents of income.
The current unrealised portfolio remains profitable at an
average 1.12x Gross MOIC and 1.07x Net MOIC. Characteristics of
RCOI's investment strategy, particularly the focus on a
conservative LTV, diversified sub-sectors and end-user base, as
well as structured incentives for early repayment, have helped
mitigate negative portfolio impact from the broader market
fluctuations.
RCOI has executed 24 direct investments and participated in two
secondary investments since inception and cumulatively invested
$247 million of capital since the IPO in May 2019. Total realised
investments, now comprising 16, have delivered for the trust an
average gross IRR of 17.1 per cent and net IRR of 13.0 per cent. To
date, our capital has facilitated corporate transitions, leading to
earlier than expected refinancings on a number of transactions.
This has left the trust modestly underinvested, despite a
continually strong pipeline and favourable macro environment for
our strategy. However, the combination of a strengthening ongoing
pipeline of new transactions and the new RCF held by the Company's
SPVs should both help to moderate the impact of this going
forward.
The Board is pleased with our diversified and dynamic portfolio
of investments and the pipeline of new opportunities. Our focus on
decarbonising energy infrastructure and infrastructure services
will continue into the future, with the current portfolio already
making a positive impact. We are finding that businesses at the
forefront of energy transition find our first lien, short-duration,
floating rate product highly attractive and a good fit for their
development plans.
As always, the Board and the manager remain vigilantly focused
on optimising the portfolio to ensure long-term value creation for
our shareholders.
We look forward to a promising 2023 and thank you again for your
support.
Reuben Jeffery, III
Chairman
15 February 2023
Strategic Report
The Directors present their Strategic Report for the year ended
31 December 2022. Details of the Directors who held office during
the year and as at the date of this report are given below.
Investment Objective
The Company seeks to generate consistent Shareholder returns
predominantly in the form of income distributions, principally by
making senior secured loans to energy companies.
The Company l ends to companies working to drive change and
deliver solutions across the energy sector, spanning renewable as
well as conventional sources, with a primary focus on
infrastructure assets. The Company's aim is to build a portfolio
that generates an attractive and consistent risk-adjusted return
for investors, as well as drive positive action with regard to
climate change by structuring loans as Green Loans or
Sustainability-Linked Loans .
Investment Policy
The Company seeks to achieve its investment objective through
investing primarily in a diversified portfolio of direct loans to
companies that build and operate the infrastructure used to
generate, transport, store and distribute both renewable and
conventional sources of energy, and companies that provide services
to that infrastructure. We also lend to companies seeking to
facilitate the energy transition by decarbonising the energy,
industrial and agricultural sectors, building sustainable
infrastructure and reducing or sequestering carbon emissions. We
seek to ensure that our investments are having a positive impact on
climate change by structuring each deal as either a Green Loan or a
Sustainability-Linked Loan, documented using industry best
practices.
Investment Strategy
The Investment Manager seeks to leverage the wider Riverstone
platform to enhance its investment strategy through the synergies
gained from being part of one of the largest dedicated energy
focused private equity firms.
The key elements of the Investment Manager's investment strategy
in relation to the Company and its SPVs are summarised below.
Core Strategy - Direct Lending
The Investment Manager will be primarily focused on originating
opportunities from small to middle-sized energy companies in what
the Riverstone team call the 'Wedge'; companies too small for the
capital markets and without the conforming credit metrics that
allow access to the commercial bank market.
All investments directly originated by the Company's SPVs are
expected to involve providing primary capital to the Borrower,
after having completed a thorough and comprehensive due diligence
process. In each case the Riverstone team will be able to influence
terms and conditions. In many cases, direct investments are
expected to be held solely by the Company's SPVs, in some cases
alongside Other Riverstone Funds. In others, the Company's SPVs
(and Other Riverstone Funds) may be a member of a syndicate
arranged by a third party.
The Investment Manager expects that lending investments made
directly by the Company's SPVs will have a contractual duration of
three to five years from inception and an expected duration of one
to two years. The maximum term of any investment made by the
Investment Manager will be seven years.
Complementary Strategies - Capital Relief and Market-Based
Opportunities
The Investment Manager may be presented with opportunities to
acquire from banks' so-called 'non-conforming' loans which can no
longer be held on bank balance sheets. The Investment Manager
expects that such 'capital relief' and market-based transactions
will be secondary in nature, will usually be based on public due
diligence information and will typically not allow the Company to
influence the underlying terms of the relevant investment. The
Investment Manager expects that, in capital relief and market-based
transactions, the Company may participate as part of a broader
syndicate of third-party lenders. The Investment Manager expects
these transactions made by the Company's SPVs to have a duration of
one to three years from inception and an expected duration of less
than 12 months.
Investment Restrictions
The Company observes the following investment restrictions:
-- no more than 15 percent of the Company's gross assets will be
exposed to any single Borrower, its parents, subsidiaries and/or
sister subsidiary entities
-- at least 85 percent of the Company's gross assets will be
invested directly or indirectly in aggregate, in cash and loans
which are secured as to repayment of principal and payment of
interest by a first or second priority charge over some or all of
such entity's assets and cash
-- the Company will only invest in an underlying Borrower group,
when that Borrower group has a total indebtedness (including the
Company's investment) of less than 60 percent of the Borrower
group's asset base
-- the Company will not invest in any undertaking in which
Riverstone Holdings LLC (or any of its subsidiary undertakings) has
an equity interest, other than an undertaking in which the Company
and one or more Other Riverstone Funds hold, or will as a result of
the relevant investment hold, related equity interests acquired at
substantially the same time as part of the same transaction or a
series of linked transactions; and
-- the maximum term of any investment made by the Company will be seven years
Each of these investment restrictions will be calculated and
applied as at the time of investment.
DISTRIBUTION policy
Subject to market conditions, applicable law and the Company's
performance, financial position and financial outlook, it is the
Directors' intention to declare distributions to Shareholders on a
quarterly basis following publication of the NAV per Ordinary Share
calculated as of the final day of the relevant quarter.
The Company intends to declare distributions with respect to 100
percent of its net income (as calculated for UK tax purposes). The
Board determines the percentage of net income to distribute,
ensuring that it would be in the longer-term interests of the
Company to do so (for instance, in the event of any permanent loss
of capital by the Company). In any calendar year the Company may
retain an amount equal to up to 15 percent of its net income (as
calculated for UK tax purposes), in accordance with Section 1158 of
the Corporation Tax Act 2010.
The declaration of any distribution will be subject to payment
of the Company's expenses and any legal or regulatory restrictions
at the relevant time. The Company may elect to designate as an
'interest distribution' all or part of any amount it distributes to
Shareholders as distributions.
As disclosed in note 14 to the financial statements, on 15
February 2023 the Board approved a distribution of 2.00 cents per
share with a 1.00 cent per share special distribution in respect to
the quarter ended 31 December 2022, bringing the total distribution
declared with respect to the year to 31 December 2022 to 9.00 cents
per share . The record date for the distribution is 24 February
2023 and the payment date is 24 March 2023.
Structure
The Company makes its investments through its SPVs. Riverstone
International Credit Corp. ('USCo') is a corporation established in
the State of Delaware and is a wholly-owned subsidiary of the
Company. USCo, in turn, invests through Riverstone International
Credit - Direct L.P., a limited partnership established in the
State of Delaware in which USCo is the sole limited partner.
Investments may also be made through Riverstone International
Credit L.P., a limited partnership established in the State of
Delaware in which the Company is the sole limited partner. The
general partner of each of the limited partnerships is a member of
Riverstone's group.
The Company has contributed or lent substantially all of its Net
Issue Proceeds (net of short-term working capital requirements) to
its SPVs which, in turn, make investments in accordance with the
Company's investment policy. The Investment Manager draws on the
resources and expertise of the wider Riverstone group.
Discount Control
It is the intention of the Board for the Company to buy back its
own shares if the share price is trading at a material discount to
NAV, providing that it is in the interests of Shareholders to do
so. Shares which are bought back may be cancelled or held in
treasury.
During the year, the Company repurchased and cancelled 740,146
of its own shares as part of the discount management measures
outlined above. Further details of these repurchases are given
below.
Review of Business and Future Outlook
Details of the underlying portfolio and a review of the business
in the year, together with future outlook are covered in the
Investment Manager's Report below.
Key Performance Indicators
The Board believes that the key metrics detailed below. will
provide Shareholders with sufficient information to assess how
effectively the Company is meeting its objectives.
Ongoing Charges
Ongoing charges are an alternative performance measure and the
ongoing charges ratio of the Company is 3.24 percent, calculated as
total expenses divided by the weighted average NAV for the year to
31 December 2022. The weighted average NAV used in this calculation
is the mean of the published quarterly NAVs for the year, at 31
December 2022 this was $96.5m (2021: $94.2m). Ongoing charges are
made up as follows and have been calculated using the AIC
recommended methodology.
31 December 2022 31 December 2021
$'000 % $'000 %
----------------------------- ----------------------- ----- ---------------- -----
Profit Share 1,679 1.74 668 0.71
Directors' fees and expenses 180 0.19 179 0.19
Ongoing expenses 1,269 1.31 991 1.05
---------------------------------
Total 3,128 3.24 1,838 1.95
--------------------------------- ------------------- ----- ---------------- -----
The Investment Manager is entitled to a Profit Share when it
meets relevant performance targets as disclosed in note 12 to the
financial statements.
Corporate and Social Responsibility
Environmental, Social and Governance REPORT
The Company utilises the services of Riverstone as the
Investment Manager to take appropriate Environmental, Social and
Governance ('ESG') principles into account in its investment
decisions and in the ongoing management of the portfolio. In order
to ensure the robustness of these policies, the Board engages with
the Investment Manager on ESG matters and monitors compliance of
the Company's Borrowers with this policy. The Board takes its
fiduciary responsibility to Shareholders seriously and engages with
Riverstone on corporate governance matters.
Riverstone published its annual ESG report in February 2023. The
following below summarise the key elements for investors which
impact RCOI current and future investments. More detail is included
in the full report, which is available on Riverstone's website:
https://www.riverstonellc.com/en/responsible-investing/.
Statement from the Investment Manager
Our primary obligation is to be exceptional stewards of our
investors' capital. In today's world, this translates not only into
delivering strong risk-adjusted returns but also doing so in a
manner which formally adopts and integrates a proportionate and
measured environmental, social and governance (ESG) value system
for the benefit of a diverse group of stakeholders.
This is all at a time of increasing economic uncertainty,
emerging regulatory complexity and political scrutiny that will
undoubtedly shape how ESG evolves over the coming years. As we
issue this, our fourth annual ESG report, we continue to recognise
the correlation between those businesses that make ESG a core
pillar of their strategies and day-to-day operations and those that
are successful in what they do. At Riverstone, we continue to be
committed to deploying capital in a sustainable, ethical and
socially responsible way.
As a firm, we will continue to invest in climate solutions and
data analytics to decrease the carbon intensity of our portfolio
companies. By reducing our emissions and being able to track such
reductions, we will be able to quantify and report to you on our
contribution to mitigating climate change.
As a firm, we are working to identify and assess physical and
transition climate risks across our portfolios.
PROGRAM ENHANCEMENTS
In addition to the work we are doing around emissions and
climate change, there are a number of other noteworthy developments
to our ESG program. While the following go into these in more
detail, highlights from the past year include:
-- Further enhancements to climate related disclosures with a
goal for future alignment with the recommendations of the Task
Force on Climate-Related Financial Disclosures (TCFD)
-- Our continued participation in, and submission of data to,
the ESG Data Convergence Initiative, led by the Institutional
Limited Partners Association (ILPA)
-- Our ongoing ESG training/capacity building program at Riverstone
-- Our partnership with Howard University
LOOKING FORWARD
We are encouraged by the improvements we have made to our ESG
program in 2022. However, against the backdrop of the heightened
focus on ESG and, in particular, on climate change issues, we
recognise there is much more work required, in partnership with
you, our investors, our management teams, regulators and other
important stakeholders. We will continue to prioritise our
commitment to being responsible investors and look forward to
providing further updates on our ESG activities in the year to
come.
ESG: 2022 in Review
In our 2021 ESG report, we established a number of overarching
ESG objectives for 2022 and 2023. Our progress through 2022 against
these objectives, and other ESG issues addressed during the year,
are summarised below and presented in more detail throughout this
report.
CLIMATE CHANGE
-- Completed actions to further develop Riverstone's ESG
reporting, resulting in partial alignment with the recommendations
of the TCFD
-- Engaged Persefoni to collaborate with our Borrowers in
developing high-quality GHG inventories to track their emissions,
yielding disclosure of our financed emissions for the first time,
including Scope 1 and 2 emissions generated by our portfolio
companies
-- Performed climate risk assessments to identify physical and
transition risks for the majority of the portfolio, which included
evaluation of the latest climate projections and current regulatory
trends to deepen our engagement with Borrowers.
-- The Company is not required to comply with the full TCFD
disclosure requirements as it is an investment trust and exempt
under LR9.8.6R(8)
ESG INTEGRATION
-- Modified our ESG toolkit and Investment Committee memo
template to reflect investment criteria associated with the EU
Sustainable Finance Disclosure Regulation
-- Enhanced scoring calibration and criteria across all ESG MEs
through our annual ESG questionnaire process
-- Developed an ESG onboarding pack for new Borrowers to share
information with them about our ESG program, portfolio engagement,
and best practices
-- Continued to establish additional Green and
Sustainability-Linked Loans through Riverstone Credit Partners
(RCP)
SUSTAINABILITY FOCUS
-- Strengthened our partnership with Howard University by
providing summer internships, participating in their career fair
and leading on-campus seminars
-- Built ESG capacity at all levels in Riverstone through our
ESG toolkit and training on unconscious bias
-- Participated in the ESG Data Convergence Initiative to
contribute comparable data that will enable private equity firms to
better assess their ESG progress and practices
Credit Portfolio: ESG Review
ESG standards remain critical for our credit business as we
provide support and resources to our Borrowers and management teams
in managing their ESG risks and mitigating their contributions to
climate change. To date, Riverstone Credit Partners ("RCP") has
committed approximately $880 million towards investments across
decarbonisation and the transition to a low carbon economy.
Although we have limited ability to influence our portfolio
companies as credit investors compared to our equity portfolio, we
endeavour to increase transparency and alignment through board
observer seats, ESG questionnaires and scorecards, affirmative
covenants and loan economics tied to sustainability metrics. In
addition, since RCP's loans are structured as Green Loans or
Sustainability-Linked Loans, we believe that every investment is
advancing decarbonising and energy transition infrastructure.
We have integrated ESG considerations across all of our credit
investments as we believe ESG is critical to assessing risk. Each
new borrower fills out an ESG questionnaire prior to closing to
evaluate ESG metrics. During the diligence process, we typically
conduct background checks for key members and take board observer
seats wherever applicable. We also structure our investments as
first lien Green or Sustainability-Linked Loans, which are
incorporated into our portfolio risk grid. These tools provide
structure around our diligence processes for strong risk-adjusted
returns while continuing to support a low carbon future.
Once invested, RCP actively monitors ESG metrics through annual
questionnaires and scorecards, similar to our equity investments.
We have also identified an ESG deal lead among the credit team for
each investment.
Going forward, we are working with third-party partners to
develop an ESG onboarding deck to help our Borrowers achieve the
ESG-MEs over time. These external partners also help with ESG
monitoring and assessment throughout the life of the loan as well
as progressing our diversity and inclusion initiatives.
Green Loans and Sustainability-Linked Loans
By structuring each new loan as either a Green Loan or a
Sustainability-Linked Loan, we strive to enhance the
decarbonisation impact of our credit portfolio. We initially assess
whether each new opportunity meets the Green Loan Principles (GLP),
including:
-- Use of proceeds
-- Process for project evaluation and selection
-- Management of proceeds
-- Reporting
To the extent the opportunity does not qualify as a Green Loan,
Riverstone will seek to evaluate the sustainability goals of the
company and structure the loan in accordance with the
Sustainability-Linked Loan Principles (SLLP). The following are
critical aspects of the SLLP:
-- The Sustainability Performance Targets (SPTs) are set by the
company and not the lender.
-- The sustainability goals are measurable and auditable.
-- Negative economic consequences are imbedded in the loan
documentation for failing to meet the goals by a specified
timeline.
Riverstone Credit Partners: Recent Green and
Sustainability-Linked Loan Transactions
We are committed to directing RCP dollars to facilitate
decarbonisation and net-zero initiatives across the global energy
industry. RCP has committed more than $825 million in Green(1) and
Sustainability-Linked Loans.
The below highlights recent fully or partially realised
transactions.
Aspen iM3NY Circulus EPIC SEAWOLF HOOVER CS
Overview Community Lithium-Ion Plastics Propane Water Solutions Provider Sustainable and
Solar Battery Recycling Pipeline Reusable Packaging
Developer Manufacturer Solutions
=====================
57 MW 10x #1 25% 50% 3 SLL Performance
Solar Lithium-ion Riverstone's Expected Electrification target Indicators
capacity in battery first Loan decrease in metric based on water % non-fossil fuel
development forecasted Syndications reportable pump usage energy; reduced
at closing growth and Trading releases waste & % shipped
between 2020 Association from sustainable
and 2030 (LSTA) pipeline packaging
documented
"Green Loan"
===================== ============= ============== ============== =========== ======================== ====================
Facility Size $20 million $63 million $100 million $77 million $126 million $160 million
===================== ============= ============== ============== =========== ======================== ====================
Closing Dec. 2020 Apr. 2021 Aug. 2021 Sep. 2022 Sept. 2018; Dec. 2022
Secondary
Purchase in
Sep. 2022
===================== ============= ============== ============== =========== ======================== ====================
Yield to Maturity 13% 23% 14% 12% Restructured as 1L loan, In line with initial
(+warrants) preferred, and equity term loan
===================== ============= ============== ============== =========== ======================== ====================
Status Realised Realised Realised Epic I: Partially Realised Hoover I: Realised
Realised Hoover II:
Epic II: Unrealised
Unrealised
--------------------- ------------- -------------- -------------- ----------- ------------------------ --------------------
Note:
1. Green Loan Principles (GLP) have been developed by an
experienced working party, consisting of representatives from
leading financial institutions active in the global syndicated loan
markets, with a view to promoting the development and integrity of
the Green Loan product. The GLP comprise voluntary recommended
guidelines, to be applied by market participants on a deal-by-deal
basis depending on the underlying characteristics of the
transaction, which seek to promote integrity in the development of
the Green Loan market by clarifying the instances in which a loan
may be categorised as "green".
The below represents recent realised and unrealised Green(1) and
Sustainability-Linked(2) transactions.
Streamline Harland & Wolff Blackbuck Resources Clean Energy MAX
Overview H(2) S Treating Offshore Wind Water Renewable Natural Energy
Equipment Fabrication Infrastructure Gas ("RNG") Infrastructure
Pipeline
=====================
>33 million pounds 50+ 750 trucks per day 100% 1(st)
Sulphur dioxide Company-wide Eliminated RNG delivered to Carbon-neutral
avoided in 2022 apprenticeships by the TR UE Blue on-road vehicle crude oil export
required Saltwater Disposal customers by 2025 terminal on the
Gulf Coast of
Texas
===================== ================== ================= ================== ================= =================
Facility Size $45 million $73 million $57 million $150 million $28 million
===================== ================== ================= ================== ================= =================
Closing Nov. 2021 Mar. 2022 Jun. 2021 Dec, 2022 Dec. 2022
Upsized May 2022 Upsized Aug. Upsized
2022 Jun. 2022
Upsized Oct.
2022
Upsized Dec.
2022
===================== ================== ================= ================== ================= =================
Yield to Maturity 11% 19% 12% 12% Undisclosed
(+warrants)
===================== ================== ================= ================== ================= =================
Status Unrealised Unrealised Unrealised Unrealised Unrealised
=====================
Note:
1. Green Loan Principles (GLP) have been developed by an
experienced working party, consisting of representatives from
leading financial institutions active in the global syndicated loan
markets, with a view to promoting the development and integrity of
the Green Loan product. The GLP comprise voluntary recommended
guidelines, to be applied by market participants on a deal-by-deal
basis depending on the underlying characteristics of the
transaction, which seek to promote integrity in the development of
the Green Loan market by clarifying the instances in which a loan
may be categorised as "green".
2. Sustainability-Linked Loans follow a set of
Sustainability-Linked Loan Principles (SLLP) which were originally
published in 2019 and provide a framework to Sustainability-Linked
Loan structures. In order to promote the development of this
product, and underpin its integrity, the APLMA, LMA and LSTA
considered it appropriate to produce Guidance on the SLLP, to
provide market practitioners with clarity on their application and
approach.
ESG in Action
ESG in Practice within Riverstone's Portfolio: Streamline Case
Study
Streamline Innovations (Streamline) offers environmentally
forward hydrogen sulphide (H2S) treating solutions to help heavy
industry around the world achieve environmental performance
objectives, improve sustainability and transition to a low carbon
economy.
A leader in green solutions for treating H2S and other toxic
emissions, Streamline's patented, biodegradable chemistry and
processes converts toxic H2S in mass into elemental sulphur, which
can be cleanly disposed of or used in agriculture. Many alternative
treatment solutions result in hazardous or toxic byproducts that
require special handling. In addition, Streamline's chemistry is
regenerative, so it can be reused hundreds of times versus toxic
alternatives, reducing its footprint and the consumption of raw
materials relative to other alternatives.
H2S is a key issue that is present in many industrial processes
throughout the world. H2S is a leading cause of human inhalation
accidents, corrosion and SO2 emissions, which are a primary cause
of acid rain. Streamline's process can be applied across
industries, including energy, biogas, landfill gas and renewable
fuels, municipal wastewater and industrial air and water. Within
energy, H2S is present in roughly 40% of natural gas volumes and
100% of biogas volumes. Within municipal wastewater, H2S treating
is required in 25% of the world's water treatment plants.
In November 2021, Riverstone funds provided a $20 million term
loan to Streamline. In May 2022, Riverstone funds increased the
commitment to a $45 million term loan. The term loan is structured
in compliance with the LSTA Green Loan Principles which aim to
facilitate and support environmentally sustainable economic
activity by financing eligible projects. Sustainable Fitch, a
division of Fitch Group focused on ESG, provided a second-party
opinion confirming the term loan as a Green Loan aligned with the
four pillars of the LSTA Green Loan Principles and the LSTA
category of pollution and prevention. The use of proceeds for the
term loan is to expand Streamline's H2S treating fleet across
multiple industries and geographies.
(Callouts)
25 granted patents with 19 in progress
40+ H(2) S treating plants in service or fabrication
Capacity to eliminate the flaring of over 100 million pounds
of toxic SO(2) per year
Eliminates the need for over 50 million gallons of hazardous
chemistry per year
Looking Forward
As Riverstone continues to focus on increasing investment
exposure to opportunities arising from energy transition and
decarbonisation, the Firm remains committed to continue growing our
ESG program and embedding it in our culture. In 2023 and beyond,
the Firm will look to build on the successes of the past year
across five overarching themes.
Board Diversity
The RCOI Board strongly believes that having diversity in
skills, experience and gender has significant benefits. The Board
currently comprises three Independent Directors based on
merit-based qualifications, while also having gender balance (two
male and one female Board members).
The Company's policy on diversity is further detailed in the
Corporate Governance Report below.
Employees and Officers of the Company
The Company does not have any employees and therefore employee
policies are not required. The Directors of the Company are
detailed in the annual report.
Principal, EMERGING Risks AND UNCERTAINTIES
Under the FCA's Disclosure Guidance and Transparency Rules, the
Directors are required to identify those material risks to which
the Company is exposed and take appropriate steps to mitigate those
risks. Risks relating to the Company are disclosed in the Company's
prospectus which is available on the Company's website https://
www.riverstonecoi.com .
The Company's assets consist of investments, through SPVs,
within the global energy industry, with a particular focus on
opportunities in the global E&P and midstream energy
sub-sectors. Its principal risks are therefore related to market
conditions in the energy sector in general, but also the particular
circumstances of the businesses in which it is invested. The
Investment Manager seeks to mitigate these risks through active
asset management initiatives and by carrying out due diligence work
on potential targets before entering into any investments.
The Board thoroughly considers the process for identifying,
evaluating and managing any significant and emerging risks faced by
the Company on an ongoing basis and has performed a robust
assessment of those risks, which are reported and discussed at
Board meetings. The Board ensures that effective controls are in
place to mitigate these risks and that a satisfactory compliance
regime exists to ensure all applicable local and international laws
and regulations are upheld. During the year the Audit and Risk
Committee has reviewed and made minor updates to the Company's
principal risks, which are outlined below.
For each material risk, the likelihood and consequences are
identified, management controls and frequency of monitoring are
confirmed and results reported and discussed at the quarterly Board
meetings.
The key areas of risk faced by the Company and mitigating
factors are summarised below:
1. The Ordinary Shares may trade at a discount to NAV per Share
for reasons including but not limited to market conditions,
liquidity concerns and actual or expected Company performance. As
such, there can be no guarantee that attempts to mitigate such
discount will be successful or that the use of discount control
mechanisms will be possible, advisable or adopted by the Company.
To mitigate this risk, the Investment Manager closely monitors and
identifies the reasons for significant fluctuations, and considers
the Company's share repurchase program when applicable and in the
interests of Shareholders.
2. The ability of the Company to meet the target distribution
will depend on the Investment Manager's ability to find investments
that generate sufficient and consistent yield to support the Target
Distribution. The Investment Manager will identify and manage
suitable investments in accordance with the Investment Policy,
market conditions and the economic environment. To mitigate this
risk, the Company's Investment Policy and investment
restrictions enable the Company to build a diversified energy
portfolio that should deliver returns that are in line with the
Target Distribution range.
3. The ability of the Company to achieve its investment
objectives is dependent on the Investment Manager sourcing and
making appropriate investments for the Company. Investment returns
will depend upon the Investment Manager's ability to source and
make successful investments on behalf of the Company. To mitigate
this risk, the Investment Manager believes sourcing investments is
one of its competitive advantages. The Investment Manager is well
resourced and has access to the wider skills and expertise at
Riverstone whose personnel have years of experience in the global
energy sector.
4. Environmental exposures and existing and proposed
environmental legislation and regulation may adversely affect the
operations of Borrowers. Delay or failure to satisfy any regulatory
conditions or other applicable requirements could prevent the
Company from acquiring certain investments or could hinder the
operations of certain Borrowers. To mitigate this risk, the
Investment Manager implements monitoring and quality control
procedures to mitigate the occurrence of any violation of
safety/health and environmental laws. The Investment Manager has a
clear ESG policy which is implemented and reviewed by the
Board.
5. The Company's investment objective requires it to invest in
loans that are likely to be both illiquid and scarce. If there is
an adverse change in the underlying credit, then the ability of
RCOI to recover value may be impaired. To mitigate this risk, the
Company primarily originates shorter duration senior secured loans
with protective provisions. In some instances the loans incentivise
early repayment.
6. The valuations used to calculate the NAV on a quarterly basis
will be based on the Investment Manager's unaudited estimated fair
market values of the Company's investments and may be based on
estimates which could be inaccurate. To mitigate this risk, the
Investment Manager has an extensive valuation policy and also has
engaged the independent valuation services of Houlihan Lokey on a
quarterly basis.
7. In today's global technological environment, the Company, its
investments and its engaged service providers are subject to risks
associated with cyber security. The effective operation of the
Investment Manager and the businesses of Borrowers are likely to be
highly dependent on the availability and operation of complex
information and technological systems. To mitigate this risk, the
Audit and Risk Committee Chairman monitors cyber security risk and
best practices and cyber security due diligence is performed on
each potential borrower.
8. The Company may be exposed to fluctuations and volatility in
commodity prices through investments it makes, and adverse changes
in global supply and demand and prices for such commodities may
adversely affect the business, results of operations, and financial
condition of the Company. To mitigate this risk, the Investment
Manager intends to create a diversified portfolio across various
energy subsectors, commodity exposures, technologies and
end-markets to provide natural synergies that aim to enhance the
overall stability of the portfolio.
9. The Company will only lend to Borrowers in the global energy
sector and such single industry concentration could affect the
Company's ability to generate returns. Adverse market conditions in
the energy sector may delay or prevent the Company from making
appropriate investments. The ongoing coronavirus pandemic has led
to a decline in global commerce and travel, thereby causing
reductions in the near-term demand for energy especially within oil
and gas, and long-term impacts remain unknown for the Company's
Borrowers. To mitigate this risk, the Investment Manager intends to
create a diversified portfolio across
various energy subsectors, commodity exposures, technologies and
end-markets to provide natural synergies that aim to enhance the
overall stability of the portfolio.
10. The performance of the Company may be affected by changes to
interest rates and credit spreads. To mitigate this risk, the
Investment Manager assesses credit risk and interest rate risk on
an ongoing basis and closely monitors each investment with the
assistance of each respective management team and the engaged
service providers.
11. The Company's relies on a third-party provider for the key
operational tasks of the Company. The failure of any service
provider to carry out their duty may have a detrimental effect on
the operation of the Company. To mitigate these risks the Board
will review the internal control reports, and consider business
continuity arrangements of the Company.
Going Concern
The Company's cash balance at 31 December 2022 was $1.0 million,
plus cash balances held at the SPVs of $6.7 million. The Company
currently has existing liabilities of $1.9 million, plus a
distribution payable of $2.7 million with respect to the quarter
ended 31 December 2022 and any foreseeable expenses in the period
from 15 February 2023 to 30 June 2024, being the period of
assessment covered by the Directors .
During the year, the SPVs entered into a Revolving Credit
Facility ("facility") Agreement for $15.0 million with BC Partners.
The SPV borrowings from the facility at 31 December 2022 were $5
million, leaving the remaining $10 million undrawn commitment for
future borrowings. Riverstone Credit Opportunities Income PLC is
the guarantor for the Revolving Credit Facility. The SPVs are
required to maintain a LTV Ratio above the Covenant LTV of 22% at
each borrowing request date. The LTV Ratio is calculated as the
total outstanding principal and accrued interest on the facility
divided by the Aggregate NAV. At 31 December 2022, the SPVs were
compliant with the Covenant LTV and the full amount of the undrawn
commitment is available. The SPVs also entered into a money market
capital fund with JP Morgan, earning about 5% interest annually.
The balance at 31 December 2022 was $0.3 million. Additionally, the
operating expenses of the trust are budgeted to be between $2.0
million and $2.5 million during the period of assessment including
taxes and interest expense from
the SPV facility. Based on the high end of this range, it would
take the Company approximately four years to run out of cash.
The cash balance of the Company and its SPVs are comprised of
cash and money market fixed deposits and the risk of default on the
counterparties cash and deposits is considered extremely low. Due
to this the Directors believe there is no material going concern
risk. The major cash outflows of the Company and its SPVs are
expected to be the payment of distributions and expenses, share
repurchases and the acquisition of new assets, all of which are
discretionary. The Company is closed-ended and there is no ability
for investors to withdraw from the Company. The first continuation
vote for the Company will be proposed at the AGM of the Company to
be held in 2027, on the eighth anniversary of admission.
The COVID-19 pandemic has caused severe disruptions in the
global economies and capital markets. The pandemic may also
continue to materially and adversely impact the performance of the
global economy, the Company's operations, and investments in the
future. The conflict between Ukraine and Russia has also had, and
is expected to continue for some time to have, substantial
additional impacts on the global economy, particularly in respect
to inflation rates. Given the ongoing nature of both the COVID-19
pandemic and the conflict between Ukraine and Russia, it is
currently not possible to determine the potential scale and scope
of the ultimate effects on the global economy,
capital markets, and the Company's operations and investments.
As the situation around both continues to evolve, this will remain
as an additional risk to the Company.
The Directors and Investment Manager are actively monitoring
these and the potential effect on the Company and its underlying
investments. In particular, they have considered the following
specific key potential impacts:
-- unavailability of key personnel at the Investment Manager,
the Administrator or key service providers of the SPVs;
-- increased volatility in the fair value of investments;
-- disruptions to business activities of the underlying investments; and
-- recoverability of income and principal and allowance for expected credit losses.
In considering the above key potential impacts of COVID-19 and
the conflict between Ukraine and Russia on the Company and its
underlying investments, the Investment Manager has assessed these
with reference to the mitigation measures in place. At the Company
level, the key personnel at the Investment Manager and
Administrator have successfully implemented business continuity
plans to ensure business disruption is minimised, including remote
working, and all staff are continuing to assume their day-to-day
responsibilities. At the underlying investment level, there are
various risk mitigation plans in place, including the use of social
distancing and personal protective equipment, to ensure business
activities are maintained as far as possible.
As further detailed in note 4 to the financial statements, the
Investment Manager uses a third-party valuation provider to perform
a full independent valuation of the underlying investments. The
Investment Manager has also assessed the recoverability of income
due from the underlying investee companies and has no material
concerns. Additionally, the Investment Manager and Directors have
considered the cash flow forecast and a reverse stress test to
determine the term over which the Company can remain viable given
its current resources.
Based on the assessment outlined above, including the various
risk mitigation measures in place, the Directors do not consider
that the effects of COVID-19 and the conflict between Ukraine and
Russia to have created a material uncertainty over the assessment
of the Company as a going concern.
On the basis of this review, and after making due enquiries, the
Directors have a reasonable expectation that the Company has
adequate resources to continue in operational existence for at
least 16 months to 30 June 2024, being the period of assessment
covered by the Directors. Accordingly, they continue to adopt the
going concern basis in preparing the financial statements.
Longer Term Viability
As required by the AIC Code, the Directors have assessed the
prospects of the Company over a longer period than required by the
going concern provision. The Company's investments have a maximum
term of seven years and are expected to have a contractual duration
of three to five years from inception. The current weighted average
tenor at entry is 3.1 years, therefore the Board chose to conduct a
review for a period of three years to 31 December 2024. On a
rolling basis, the Directors will evaluate the outcome of the
investments and the Company's financial position as a whole. While
an unprecedented and long-term decline in the global energy sector
could threaten the Company's performance, it would not necessarily
threaten its viability.
In support of this statement, the Directors have taken into
account all of the principal and emerging risks and their
mitigation as identified in the Principal and Emerging Risk and
Uncertainties section above, the nature of the Company's business;
including the cash reserves and money market deposits at the SPVs,
the potential of its portfolio of investments to generate future
income and capital proceeds, and the ability of the Directors to
minimise the level of cash outflows, if necessary.
The most relevant potential impacts of the identified Principal,
Emerging Risks and Uncertainties on viability were determined to
be:
-- the ability of the Company to meet the target distribution
will depend on the Investment Manager's ability to identify and
manage suitable investments in accordance with the Investment
Policy
-- the Company will only lend to Borrowers in the global energy
sector, and such single industry concentration could affect the
Company's ability to generate returns, and adverse market
conditions in that sector may delay or prevent the Company from
making appropriate investments that generate attractive returns
-- the absence of a substantial secondary market and liquidity
for the Company's investments means that the Company may be unable
to realise value from its investments and investors could lose all
or part of their investment
Each quarter, the Board reviews threats to the Company's
viability utilising the risk matrix and updates as required due to
recent developments and/or changes in the global market. The
Board
relies on periodic reports provided by the Investment Manager
and Administrator regarding risks faced by the Company. When
required, experts are utilised to gather relevant and necessary
information, regarding tax, legal, and other factors.
The Investment Manager's investment strategy focuses primarily
on energy infrastructure, infrastructure services and energy
transition assets which will play a meaningful role in supporting
the traditional, transitioning, and new participants in the energy
sector. New investments will be structured as Green Loans or
Sustainability-Linked Loans as each borrower seeks to play their
part in moving to a world of lower carbon emissions. In support of
this statement, the Investment Manager conducts background checks
for key management and governance of a new borrower.
The Investment Manager considers the future cash requirements of
the Company before funding portfolio companies. Furthermore, the
Board receives regular updates from the Investment Manager on the
Company's cash position, which allows the Board to maintain its
fiduciary responsibility to the Shareholders and, if required,
limit funding for existing commitments.
The Board considered the Company's viability over the three-year
period, based on a working capital model prepared by the Investment
Manager. The working capital model forecasts key cash flow drivers
such as capital deployment rate, investment returns, and operating
expenses. In connection
with the preparation of the working capital model, capital
raises, realisations, and, distribution payments and/or share
repurchases were assumed to not occur during the three year period,
unless
already predetermined. In addition, the Board reviews credit
market availability and on 7 December 2022, the Company's SPVs
closed an RCF that will enable deployment of increased capital to
the Company's attractive pipeline of Sustainability-Linked and
Green Loan opportunities, thereby increasing the earnings power of
the portfolio.
Based on the aforementioned procedures and the existing internal
controls of the Company and Investment Manager, the Board has
concluded there is a reasonable expectation that the Company
will be able to continue in operation and meet its liabilities
as they fall due over the three-year period of the assessment.
In support of this statement, the Directors have taken into
account all of the principal risks and their mitigations as
identified in the Principal, Emerging Risks and Uncertainties
section above, the nature of the Company's business; including the
cash reserves and money market deposits of the Company and its
SPVs, the potential of its portfolio of investments to generate
future income
and capital proceeds, and the ability of the Directors to
minimise the level of cash outflows, if necessary.
Directors' Responsibilities Pursuant to Section 172 of the
Companies Act 2006
The Directors are responsible for acting in a way that they
consider, in good faith, is the most likely to promote the success
of the Company for the benefit of its members. In doing so, they
should have regard for the needs of stakeholders and the wider
society. Key decisions are those that are either material to the
Company or are significant to any of the Company's key
stakeholders. The Board consider the Company's key stakeholders to
be: its existing and potential new Shareholders, service providers
(Investment Manager, corporate broker, registrar and depositary),
investee companies and suppliers. It should be noted that the
Company has no employees, aside from the Directors.
Engagement with Stakeholders
As further disclosed in the Corporate Governance Report below,
the Company reports to Shareholders in a number of formal ways,
including its Annual Report, Interim Report and regulatory news
releases, all of which are approved by the Board. The AGM, detailed
below, is used as a forum for the Board and Investment manager to
communicate Company performance and future plans and prospects. It
is expected members of the Board will be in attendance and will be
available to answer any Shareholder questions. The Company's
website was updated during the year and contains comprehensive
information for Shareholders and provides regular market
commentary. In addition, the Chairman's, Company Administrator's
and Investment Manager's contact email addresses are also available
for Shareholders to contact, outside of the AGM. The Board invites
representatives from the Broker to provide regular analysis of
Shareholder movements, industry changes and contact with investors.
The Board seeks to engage with the Investment Manager and other
service providers in an open manner, encouraging constructive
discussion. This approach enhances service levels and strengthens
relationships to receive the highest standard of service at a
competitive cost, ensuring Shareholders interest are best
served.
The below key decisions were made or approved by the Directors
during the year, with the overall aim of promoting the success of
the Company while considering the impact on its members,
stakeholders and the wider society as outlined in the ESG section
in the annual report.
Investment policy
The Company invests in a diversified portfolio of direct and
indirect investments in loans, notes, bonds and other debt
instruments. The Investment Manager adopts a responsible investing
approach which takes into account the Company's ESG principles and
strategy, as outlined in detail in the ESG sections within the
Strategic Report and Investment Manager's Report. The Board has
reviewed and
approved the investment policy. The Board and the Investment
Manager monitor the concentration of the investment in the SPVs on
a quarterly basis to ensure compliance with the investment
policy.
The Company completed 6 investments (2021: 6) and 6 realisations
(2021: 5) during the year. The Company reports to the Shareholders
through regulatory news releases, using the London Stock Exchange's
Regulatory News Service and Interim and Annual Reports. Any new
investments are announced immediately, and portfolio updates,
realisations, valuation updates and distribution announcements are
all communicated in a timely fashion through this means.
The Directors held a dedicated strategy meeting and validated
the Company's policy and strategic approach to close the discount
in share price. This included ensuring alignment with ownership
interests, as well as potential interests in the future. The
Directors considered in detail the structure, costs and promotion
of the Company to the secondary market.
Distributions
The Board has reviewed and approved distributions of 9.00 cents
per share with respect to the year (2021: 7.00 cents per share with
respect to the year).
Board Committees
The Board's Audit and Risk Committee, Nomination Committee and
Management Engagement Committee continue to ensure a good corporate
governance framework for the Company. The Chairman of each
committee will attend the AGM to answer any questions on their
committee's activities.
Share buyback programme
The Board, in consultation with the Investment Manager,
regularly monitors the Company's trading discount percentage. On 30
June 2022 the Board announced that a share buy-back programme be
reinitiated. The repurchase of shares has allowed the Company to
return some of its uncommitted capital to shareholders and reduce
the discount to NAV. During the year, the Company repurchased
740,146 (2021: nil) Ordinary Shares as part of this buy-back
programme
Annual General Meeting
The AGM of the Company will be held at 14.00 BST on 18 May 2023
at the offices of Hogan Lovells International LLP, Atlantic House,
Holborn Viaduct, London EC1A 2FG. Details of the resolutions to be
proposed at the AGM, together with explanations, will appear in the
notices of meetings to be distributed to Shareholders in April
2023. As a matter of good practice, all resolutions will be
conducted on a poll and the results will be announced to the market
as soon as possible after the AGM.
It is expected that members of the Board will be in attendance
and will be available to answer Shareholder questions.
On behalf of the Board
Reuben Jeffery, III
Chairman
15 February 2023
Investment Manager's Report
ABOUT THE INVESTMENT MANAGER
Appointed in May 2019, the Investment Manager, an affiliate of
Riverstone, will seek to generate consistent shareholder returns
predominantly in the form of income distributions principally by
making green and Sustainability-Linked, senior secured loans to
energy businesses. Loans are classified as Green Loans when they
support environmentally sustainable economic activity and
Sustainability-Linked Loans when they contain sustainability
performance targets or other equivalent metrics to be monitored.
RCOI lends to companies working to drive change and deliver
solutions across the energy sector, spanning renewable as well as
conventional sources, with a primary focus on infrastructure
assets. The Company's aim is to build a portfolio that generates an
attractive and consistent risk-adjusted return for investors, as
well as drive positive action with regard to climate change by
structuring loans as Green Loans or Sustainability-Linked
Loans.
The Company will seek to achieve its investment objective
predominantly through investing in a diversified portfolio of
direct and indirect investments in loans, notes, bonds, and other
debt instruments, including convertible debt, issued by Borrowers
operating in the energy sector. Riverstone's investment
professionals have a unique combination of industry knowledge,
financial expertise, and operating capabilities. The Company also
benefits from the guidance and input provided by non- Riverstone
credit team members of Riverstone's credit investment committee who
are involved in the Company's investment process. The Company
believes that Riverstone's global network of deep relationships
with management teams, investment banks and other intermediaries in
the energy sector leads to enhanced sourcing and deal origination
opportunities for the Company.
INVESTMENT STRATEGY
The Investment Manager seeks to leverage the wider Riverstone
platform to enhance its investment strategy through the
opportunities presented and the synergies gained from being part of
one the largest dedicated energy focused private equity firms.
The key elements of the Investment Manager's investment strategy
in relation to the Company and its SPVs are summarised below.
INVESTMENT PORTFOLIO SUMMARY
The Investment Manager has reviewed numerous opportunities
within the Investment Guidelines since RCOI's admission. As of 31
December 2022, the Company holds ten direct investments across
energy infrastructure & infrastructure services and energy
transition assets as further discussed below. In addition, RCOI
holds the warrants of one investment where the loan was fully
realised. Six realisations occurred during the year ended 31
December 2022. The Investment Manager continues to maintain a
strong pipeline of investment opportunities and expects to make a
number of further commitments across the infrastructure,
infrastructure services and energy transition sectors. RCOI, when
making a new investment, will receive an allocation of the
investment in accordance with the limitations illustrated in the
Company's Investment Restrictions. The determination of what
percentage they will receive will be pro rata to the available
capital for all of the RCP funds that are eligible to participate
in the investment.
In the descriptions that follow, yield to maturity is inclusive
of all upfront fees, original issue discounts, drawn spreads and
prepayment penalties through the stated maturity of the loan. Most
loans have incentives to be called early. A portion of the loans
have a "payment-in-kind" feature for drawn coupons for a limited
time period. Similarly, some of the loans have a "delayed-draw"
feature that allows the borrower to call capital over time, but
always with a hard deadline. Loans that are committed are loans
with signed definitive documentation where a structuring fee and/or
original issue discount have been earned and the Company earns an
undrawn spread. Loans that are invested are signed with definitive
documentation and, where a structuring fee and/or original
issue
discount have been earned, the Company has funded the loan to
the Borrower and the Company is earning a drawn coupon.
Riverstone expects that every loan it makes will advance the
cause of energy transition one way or another . For new green
energy infrastructure, or conversion of older assets to a more
sustainable use, we will make "Green Loans." For existing
hydrocarbon related businesses, we will make "Sustainability-Linked
Loans" that tie loan economics to meeting specific sustainability
performance targets. Both structures will be based on LSTA
guidelines and be subject to second party opinions from Sustainable
Fitch.
Seawolf Water Resources - RCOI participated in a
Sustainability-Linked secondary investment in a stapled bundle of
private securities in Seawolf Water Resources ("Seawolf"), a
privately held water infrastructure services company with
operations primarily in Loving County, TX and southern New Mexico.
The investment includes a first lien term loan along with preferred
stock and common equity, collectively at a significant discount to
market value.
The investment by RCOI closed on 26 September 2022, and has a
maturity of March 31, 2026, and an estimated all-in yield to
maturity on the loan of 10.6 percent to RCOI. The preferred stock
and common equity are perpetual in nature but benefit from excess
cash returned to the shareholders from time to time. Across the
term loan, preferred stock, and common equity, RCOI has committed a
total of $9.0 million.
Use of proceeds was to assist in operations in water
infrastructure services across Loving County, Texas, and southern
New Mexico.
Epic Propane - RCOI amended and extended its investment in EPIC
Propane, a sponsor-backed infrastructure company that provides
propane purity offtake transportation to the Gulf Coast export
market. EPIC Propane is part of the broader EPIC Midstream system
that includes over 1,695 miles of crude oil and natural gas liquids
pipelines, collectively referred to as "EPIC".
The amendment closed in September 2022, and the loan's maturity
was extended to September 2026 and the optional prepayment feature
was amended to add a two-year make-whole provision. RCOI has
realised c. $1m profits from the extension. All other material
economic terms remain the same. As part of the amendment, the loan
was converted to a Sustainability-Linked Loan and all of the
economics associated with the original transaction were realised,
including the exit premium.
Additionally, as part of the amendment, RCOI's allocation to the
loan was reduced from $14.8m to $13.9m in order to comply with the
Company's diversification policies.
As of 31 December 2022, the full remaining commitment of $13.9
million is invested.
Hoover Circular Solutions - RCOI upsized and refinanced its
investment in a Sustainability-Linked first lien term loan (the
"Term Loan") for Hoover CS, a leading provider of sustainable
packaging and fleet management solutions, that is paving the way
for customers across the chemical, refining and general
industrial-end markets to move away from single-use containers.
Sustainable Fitch, a division of Fitch Group focused on ESG,
provided a Second Party Opinion ("SPO") on the loan.
At closing on 30 November 2022, all of the Borrower's
outstanding debt was refinanced by the new $160 million
Sustainability-Linked, first lien term loan due November 2026.
As part of the new deal allocations, RCOI's commitment was
further upsized to $13.7 million, and the expected returns are in
line with the initial investment.
As of 31 December 2022, the full remaining commitment of $13.7
million is invested.
Clean Energy Fuels Corp. - RCOI participated in, and obtained an
SPO from Sustainable Fitch on, a new four-year $150 million
Sustainability-Linked first lien term loan (the "Term Loan") to
Clean
Energy Fuels Corp. ("Clean Energy Fuels" or "CLNE"), the largest
provider of clean fuel for the transportation market.
At close on 22 December 2022, RCOI committed $13.9 million. The
first lien floating rate term loan has a maturity of 22 December
2026 with an all-in yield to maturity of c.12 percent for RCOI on a
fully drawn basis.
As of 31 December 2022, the full remaining commitment of $13.9
million is invested.
Max Midstream - RCOI participated in, and obtained an SPO from
Sustainable Fitch on, a new $28.6 million Sustainability-Linked,
first lien term loan (the "Term Loan") to a subsidiary of Max
Energy Industrial Holdings US LLC ("Max"), which is developing the
first carbon-neutral crude oil export terminal on the Gulf Coast of
Texas, which it believes will lead to increased market share as
crude consumers globally seek to reduce their overall carbon
footprint. At close on 30 December 2022, RCOI committed $5.0
million.
As of 31 December 2022, the full remaining commitment of $5.0
million is invested.
Harland & Wolff - RCOI participated in a $70.0 million first
lien Green Term Loan to this LSE listed infrastructure operator
engaged in the development and operation of strategic maritime
assets across the United Kingdom.
At closing on 9 March 2022, $11.8 million was committed by RCOI
and $7.9 million was drawn of the $35 million committed facility
tranche. The first lien term loan has a maturity of September 2023
and an estimated all-in yield to maturity of 13.2 percent for RCOI
on a fully-drawn basis. Proceeds from the term loan will be
utilised to fund working capital and capital expenditures
associated with the fabrication of wind turbine generator jackets
for the NnG Offshore Wind Project, to repay existing indebtedness,
to fund an interest reserve account, and to pay transaction fees
& expenses. The Company will also grant Riverstone detachable
warrants over new ordinary shares in the Company ("Warrants") as
part of this transaction. A total of 8,665,380 Warrants will be
issued, of which 2,970,987 Warrants are for RCOI.
The term loan has been structured as a Green Loan following the
Green Loan Principles published by the LMA, APLMA, and LSTA and a
Sustainability-Linked Loan with performance indicators focused on
social responsibility. Harland & Wolff is incentivised to
upscale its group-wide apprenticeship programme aimed at the local
communities in which it operates. Harland & Wolff plans to
build on its success to-date and seeks further contracts within the
renewables and "green maritime" sectors, such as fabrication
contracts for offshore wind and hydrogen projects, new vessel
builds, retrofits with sustainability credentials and other such
contracts that would promote the UK Government's agenda to
achieving Net Zero by 2050.
In October and December 2022, RCOI participated in $15 million
and $7.2 million upsizes of the investment, respectively, bringing
RCOI's total commitment to $14.8m.
As of 31 December 2022, the full remaining commitment of $14.8
million has been invested.
Streamline Innovations - RCOI participated in a $20.0 million
first lien delayed-draw Sustainability-Linked Term Loan to this
sponsor-backed leader in environmentally-advanced treatment
solutions and equipment for hydrogen sulphide (H(2) S) in energy,
renewable fuels, wastewater, landfill gas, biogas, and industrial
processes.
At closing on 23 November 2021, $6.9 million was committed by
RCOI and $1.7 million was drawn at closing. The first lien term
loan has a maturity of November 2024 and an estimated all-in yield
to maturity of 11.1 percent for RCOI on a fully-drawn basis. The
term loan is structured as a Sustainability-Linked Loan, whereby
the loan pricing steps up unless a sustainability target is met
that is tied to new construction of H(2) S treating plants, which
eliminate poisonous H(2) S gas and reduce toxic sulphur dioxide
(SO(2) ) emissions by eliminating routine flaring.
In May 2022, RCOI participated in a $25.0 million upsize of the
investment, which now qualifies as a Green Loan, bringing the total
loan size to $45.0 million. As part of the upsize, Sustainable
Fitch provided a Second Party Opinion ("SPO") on the Green Loan to
Streamline. The SPO verifies the Term Loan's alignment to the LSTA
Green Loan Principles with the transaction being compliant with the
four pillars of the LSTA Green Loan Principles and aligned with the
LSTA category of pollution and prevention.
As of 31 December 2022, $6.8 million of the $13.8 million
commitment has been invested.
Blackbuck Resources - RCOI participated in a $50.0 million first
lien delayed-draw Sustainability-Linked Term Loan to the
sponsor-backed water infrastructure company focused on providing
E&P operators with a one-stop shop for all things related to
water management, including treatment, gathering, recycling,
storage and disposal. At closing on 30 June 2021, $9.9 million was
committed by RCOI. The first lien term loan has a maturity of June
2024 and an estimated all-in yield to maturity of 11.9% for RCOI on
a fully-drawn basis.
The term loan was RCP and RCOI's first investment documented as
a "Sustainability-Linked Loan" per LSTA guidelines, with pricing
step-ups tied to meeting specific sustainability performance
targets ("SPTs") set by the Company's board. For Blackbuck, the
SPTs were related to the number of truckloads of water (and the
resulting emissions) that could be removed from the highways from
their activities. RCP and RCOI intend to use similar lending
structures for qualifying companies going forward. The use of
proceeds was primarily to refinance existing indebtedness and
growth capex.
In June 2022, the loan was upsized $7.0 bringing the total
facility to $57.0 million. The proceeds, along with incremental
equity, will be used to fund growth capex associated with new
contracts.
Sustainable Fitch, a division of Fitch Group focused on ESG,
provided a Second Party Opinion ("SPO") on the
Sustainability-Linked Loan to Blackbuck. The SPO considers the loan
to be aligned with the five pillars of the LSTA
Sustainability-Linked Loan Principles.
As of 31 December 2022, $11.1 million of the $11.6 million
commitment has been invested.
Imperium3 New York, Inc - RCOI participated in a $63.0 million
first lien delayed-draw term loan to this lithium-ion battery
company that will commercialise high performing lithium-ion
batteries by developing a large-scale manufacturing facility in
Endicott, NY. In addition to having a first lien on the
manufacturing assets, the credit facility is supported by two
parent guarantors: Charge CCCV ("C4V"), which is a research and
development company based in Binghamton, New York with patented
discoveries in battery composition, and Magnis Energy Technologies
Limited ("Magnis") [ASX: MNS]. Once producing at scale, the company
will be the first U.S. battery cell supplier not captive to an
original equipment manufacturer and supply various underserved
industrial end-markets.
At closing on 16 April 2021, $6.8 million was committed by RCOI
and $5.4 million was drawn at closing. Following the close 20% of
the funded investment was sold to a third party. The first lien
term loan has a maturity of April 2025 and an estimated all-in
yield to maturity of 22.1% for RCOI on a fully-drawn basis. The
yield is made up of upfront fees, a drawn coupon and exit fees that
are higher than the average in the rest of the portfolio.
The use of proceeds was primarily to construct the manufacturing
facility.
In April 2022, the Company fully refinanced this loan with a new
source of financing, resulting in a 32.5 percent realised IRR and
1.25x realised MOIC. Additionally, the Company will retain our
non-dilutable equity Warrants which provides meaningful upside to
this investment.
Caliber Midstream - RCOI participated in a $10.0 million upsize
of RCP's commitment to a $65.0 million first lien Holdco term loan
for a sponsor-backed Bakken focused midstream company that provides
crude oil and natural gas gathering and processing, produced water
transportation and disposal, and freshwater sourcing and
transportation. RCP closed the initial $65.0 million financing in
June 2018. The term loan upsize closed in August 2019.
At closing, $3.4 million was committed by RCOI. The first lien
HoldCo term loan had a maturity of June 2022 and an all-in expected
yield to maturity of 11.8% on a fully drawn basis.
Use of proceeds, combined with an Opco RCF draw, was to fund an
acquisition.
In March 2021, Caliber Midstream Partners' (the "Company" or
"OpCo") largest customer, Nine Point Energy, terminated their
midstream contract with Caliber and subsequently filed for Chapter
11 bankruptcy. In April 2021, RCOI and other RCP affiliates
purchased a small allocation of the OpCo RCF with a maturity in
June 2023. In May 2021, RCP and other HoldCo Lenders completed a
recapitalisation of Caliber resulting in HoldCo Term Loan Lenders
receiving substantially all of the equity in HoldCo. In March 2022,
the Company and OpCo lender closed the restructuring with the OpCo
lenders receiving 100% of the equity. Following the restructuring,
new management was hired, a new contract was executed and there
remains increased focus on cost cutting initiatives and new revenue
opportunities.
As of 31 December 2022, the full $4.0 million commitment has
been invested.
SUBSEQUENT EVENTS AND OUTLOOK
In aggregate, six direct investments were realised during 2022,
two of which were realised as part of refinancings. The Investment
Manager continues to believe that this is a market where patience
and a disciplined approach to investing are likely to be well
rewarded, and to create real value for shareholders.
The backdrop for the broader energy sector remains strong,
continuing the trend seen at the beginning of 2022. Given our focus
on energy infrastructure, infrastructure services and energy
transition assets, RCOI is well-diversified and poised to take
advantage of the investment opportunity brought about by the
convergence of two market phenomena, namely the consistent growing
demand for sources of energy and the concurrent need for the global
infrastructure industry to meet global "net-zero" targets.
The realisations made in the period have resulted in additional
liquidity to deploy into the energy infrastructure and
infrastructure pipeline of opportunities. As the commodity market
overall remains strong and given the strong returns of the
realisations, we are poised to continue to provide stable cashflows
and an attractive yield. We will therefore continue to target
similar investment opportunities through our Green Loans and
Sustainability-Linked Loans with sustainability performance
targets. Additionally, despite the recent increase in inflation and
rise in interest rates, our floating rate loans are all based in
LIBOR or SOFR with floors and don't decline in value as interest
rates are likely to rise.
Based on the current unfunded commitments, recent deal activity,
and potential new investment opportunities, we anticipate
continuing to provide attractive returns and consistent yield in
the portfolio.
Board of Directors
Reuben Jeffery, III
CHAIRMAN
Mr. Jeffery has a broad range of financial services experience
and in addition brings extensive insight into the US political and
regulatory environment. He is chairman of Sumitomo Mitsui Banking
Corporation Americas Holdings, Inc. and is a former non-executive
director of Barclays PLC. He was previously the President and CEO
of Rockefeller Financial Services, Inc. Mr. Jeffery has served in
the US government as Under Secretary of State for Economic, Energy
and Agricultural Affairs, as Chairman of the Commodity Futures
Trading Commission, and as a special assistant to the President on
the staff of the National Security Council.
Before his government service, Mr. Jeffery spent 18 years at
Goldman Sachs & Co where he was Managing Partner of Goldman
Sachs in Paris and led the firm's European Financial Institutions
Group in London. Prior to joining Goldman Sachs, Mr. Jeffery was a
corporate attorney with Davis Polk & Wardwell.
Mr. Jeffery is a graduate of Yale University and holds an M.B.A.
and J.D. from Stanford University.
Emma Davies
DIRECTOR, CHAIR OF AUDIT AND RISK COMMITTEE
Ms. Davies is co-Head of Octopus Ventures.
Ms. Davies has over 20 years' experience as an investor and
portfolio manager. Her most recent role was Head of Direct
Investments at Marylebone Partners; before this she was the Head of
Property and Infrastructure at The Wellcome Trust, where she also
helped to manage their public markets portfolio. She was formerly
CIO of Big Society Capital and ran the European investments team
for Perry Capital.
Ms. Davies is a non-executive director of Baillie Gifford
European Growth Trust, EdtechX Holdings Acquisition Corp. and
Octopus Future Generations VCT. Ms. Davies is a graduate of Oxford
University and holds an MSc from the London School of
Economics.
Edward Cumming-Bruce
DIRECTOR, CHAIR OF NOMINATION COMMITTEE
Mr. Cumming-Bruce is the Vice Chairman of Gleacher Shacklock
LLP, which he joined in August 2003. Prior to this, he worked for
12 years at Dresdner Kleinwort Wasserstein where he held a number
of senior positions including a Co-Head of Global Telecoms
Investment Banking, Co-Head of UK Investment Banking and Global
Head of Equity Capital Markets.
Mr. Cumming-Bruce has extensive experience advising a range of
major European companies on capital markets and restructuring
transactions as well as mergers and acquisitions. Prior to Dresdner
Kleinwort Wasserstein, he worked at Schroders.
Mr. Cumming-Bruce is a graduate of Oxford University.
Report of the Directors
The Directors present their Annual Report and audited financial
statements for the Company for the year ended 31 December 2022. The
Corporate Governance Report forms part of this report.
Details of the Directors who held office during the year and as
at the date of this report are given below.
Capital Structure
To enable the Company to obtain a certificate to commence
business and to exercise its borrowing powers under section 761 CA
2006, on 11 March 2019, 1 E Share of GBP1 and 50,000 shares of GBP1
each were allotted to Riverstone Investment Group LLC and paid up
in full, as Management Shares. The E Share and Management Shares
grant the registered holders the right to receive notice of and to
attend but, except where there are no other shares of the Company
in issue, not to speak or vote at any general meeting of the
Company. The Management Shares were redeemed in full on 28 May
2019. The E Shares are not redeemable.
As at 31 December 2022, the Company's issued share capital
comprised 90,805,237 Ordinary Shares (2021: 91,545,383) and 1 E
Share (2021: 1). Ordinary Shareholders are entitled to all
distributions paid by the Company and, on a winding up, provided
the Company has satisfied all of its liabilities, the Shareholders
are entitled to all of the surplus assets of the Company.
Ordinary Shareholders are entitled to attend and vote at all
general meetings of the Company and, on a poll, to one vote for
each Ordinary Share held.
Authority to Purchase Own Shares
The current authority of the Company to make market purchases of
its issued share capital expires at the conclusion of the Company's
AGM on 18 May 2023. The Company's authority to generally and
unconditionally make market purchases (within the meaning of
section 693(4) of the Companies Act 2006) of its Ordinary Shares of
US$0.01 each in the capital of the Company, is subject to the
following conditions:
i. the maximum number of Ordinary Shares authorised to be
purchased is 13,722,652 representing 14.99 per cent of the
Company's issued ordinary share capital as at 29 March 2022;
ii. the minimum price (excluding expenses) which may be paid for
an Ordinary Share is US$0.01;
iii. the maximum price (excluding expenses) which may be paid
for each Ordinary Share is the higher of: (i) an amount equal to
105 per cent of the average of the middle-market quotations of an
Ordinary Share as derived from the London Stock Exchange Daily
Official List for the five business days immediately preceding the
day on which the Ordinary Share is contracted to be purchased; and
(ii) an amount equal to the higher of the price of the last
independent trade of an Ordinary Share and the highest current
independent bid for an Ordinary Share on the trading venue where
the purchase is carried out;
iv. the authority shall expire at the close of the AGM of the
Company held in 2023 or on the date which falls 15 months after 18
May 2022, being the date the resolution was passed, (whichever is
earlier); and
v. a contract to purchase Ordinary Shares under the authority
may be made before the expiry of the authority (as per paragraph iv
above), and concluded in whole or in part after the expiry of the
authority (as per paragraph iv above).
Since IPO, 9,194,763 shares were repurchased for a total cash
consideration of US$6,471,738. The buyback programme was paused on
24 August 2022.
A special resolution will be proposed at the forthcoming AGM
seeking renewal of such authority until the next AGM (or 18 August
2024, whichever is earlier). The price paid for the shares will not
be less than the nominal value or more than the maximum amount
permitted to be paid in accordance with the rules of the UK Listing
Authority in force at the date of purchase. This power will be
exercised only if, in the opinion of the Directors, a repurchase
would be in the best interests of Shareholders as a whole. Any
shares repurchased under this authority will either be cancelled or
held in treasury at the discretion of the Board for future resale
in appropriate market conditions.
The Directors believe that the renewal of the Company's
authority to purchase shares, as detailed above, is in the best
interests of Shareholders as a whole and therefore recommend
Shareholders to vote in favour of this special resolution.
Major Interests in Shares
Significant shareholdings as at 31 December 2022 are detailed
below.
Ordinary Shares held %
31 December 2022
-------------------------------------- ---------------------------
ND Capital Investments Ltd (Tortola) 11.01
Newton Investment Mgt (London) 10.43
Staude Capital (London) 8.57
AXA Investment Mgrs (London) 8.42
Alder Investment Mgt (London) 8.26
Almitas Capital (Santa Monica) 6.24
Brooks Macdonald Asset Mgt (London) 5.76
Polar Capital (London) 5.66
Metage Capital Mgt (London) 4.63
Jupiter Asset Mgt (London) 4.41
-------------------------------------- ---------------------------
In addition, the Company also provides the same information as
at 31 January 2023, being the most current information
available.
Ordinary Shares held %
31 January 2023
-------------------------------------- -----------------------------
ND Capital Investments Ltd (Tortola) 11.01
Newton Investment Mgt (London) 10.43
Staude Capital (London) 8.57
AXA Investment Mgrs (London) 8.42
Alder Investment Mgt (London) 8.26
Almitas Capital (Santa Monica) 6.20
Brooks Macdonald Asset Mgt (London) 5.76
Polar Capital (London) 5.66
Metage Capital Mgt (London) 4.63
Jupiter Asset Mgt (London) 4.41
-------------------------------------- -----------------------------
Companies Act 2006 Disclosures
In accordance with Schedule 7 of the Large and Medium Sized
Companies and Groups (Accounts and Reports) Regulations 2008, the
Directors disclose the following information:
-- the Company's capital structure is detailed in note 8 to the
financial statements and all Shareholders have the same voting
rights in respect of the share capital of the Company, except that
the holders of E Shares have no right to speak or vote at any
general meeting of the Company, unless there are no other shares of
the Company in issue. There are no
restrictions on voting rights that the Company is aware of, nor
any agreement between holders of securities that result in
restrictions on the transfer of securities or on voting rights;
-- there exist no securities carrying special rights with regard
to the control of the Company;
-- the Company does not have an employees' share scheme;
-- the rules concerning the appointment and replacement of
Directors are contained in the Company's Articles of Association
and the Companies Act 2006;
-- Ordinary Shareholders are entitled to all dividends paid by the Company;
-- there exist no agreements to which the Company is party that
may affect its control following a takeover bid; and
-- there exist no agreements between the Company and its
Directors providing for compensation for loss of office that may
occur because of a takeover bid; and
(--) the Directors' responsibilities pursuant to Section 172 of
the Companies Act 2006, are as detailed in the Strategic
Report.
Investment Trust Status
The Directors intend at all times to conduct the affairs of the
Company so as to enable it to qualify as an investment trust for
the purposes of section 1158 of the Corporation Tax Act 2010, as
amended and the Investment Trust (Approved Company) (Tax)
Regulations 2011. In particular, the Company must not retain in
respect of any accounting year or period an amount which is greater
than 15 percent of its eligible investment income.
Diversity and Business Review
A business review is detailed in the Investment Manager's Report
above and the Company's policy on diversity is detailed in the
Corporate Governance Report below.
Directors' Indemnity
Directors' and Officers' liability insurance cover is in place
in respect of the Directors. The Company's Articles of Association
provide, subject to the provisions of UK legislation, an indemnity
for Directors in respect of costs which they may incur relating to
the defence of any proceedings brought against them arising out of
their positions as Directors, in which they are acquitted or
judgement is given in their favour by the Court.
Except for such indemnity provisions in the Company's Articles
of Association and in the Directors' letters of appointment, there
are no qualifying third-party indemnity provisions in force.
Global Greenhouse Gas Emissions
As an investment trust, the Company's own direct environmental
impact is minimal. The Company has no greenhouse gas emissions to
report from its operations, nor does it have responsibility for any
other emissions producing sources under the Companies Act 2006
(Strategic Report and Directors' Reports) Regulations 2013. For the
same reasons as set out above, the Company has performed an
assessment and considers itself to be a low energy user under the
SECR regulations and therefore is not required to disclose energy
and carbon information.
Risks and Risk Management
The Company is exposed to financial risks such as price risk,
interest rate risk, credit risk and liquidity risk and the
management and monitoring of these risks is detailed in note 15 to
the Financial Statements.
Independent Auditor
The Directors will propose the re-appointment of Ernst &
Young LLP as the Company's Auditor and resolutions concerning this
and the remuneration of the Company's Auditor will be proposed at
the AGM.
At the time that this report was approved, so far as each of the
Directors is aware:
-- there is no relevant audit information of which the Auditor is unaware; and
-- they have taken all the steps they ought to have taken to
make themselves aware of any audit information and to establish
that the Auditor is aware of that information.
Annual Report
As disclosed in the Audit and Risk Committee Report below, the
Audit and Risk Committee has given due consideration that the
Annual Report, taken as a whole, is fair, balanced and
understandable. Therefore the Board is of the opinion that the
Annual Report provides the information necessary for Shareholders
to assess the performance, strategy and business model of the
Company.
The Board recommends that the Annual Report, the Report of the
Directors and the Independent Auditor's Report for the year ended
31 December 2022 are received and adopted by the Shareholders and a
resolution concerning this will be proposed at the AGM.
DiSTRIBUTION
With respect to the quarter ended 31 December 2022 the Board has
recommended a distribution of $ 2.7 million, equivalent to 3.0
cents per share, as disclosed in note 13 to the financial
statements. This brings the total distribution declared with
respect to the year ended 31 December 2022 to 9.00 cents per
share.
Subsequent Events
There have been no significant subsequent events, other than
those disclosed in note 18 to the financial statements.
Strategic Report
A review of the business and future outlook, going concern
statement and the principal and emerging risks and uncertainties of
the Company have not been included in this report as they are
disclosed in the Strategic Report above.
On behalf of the Board
Reuben Jeffery, III
Chairman
15 February 2023
Directors' Remuneration Report
This report has been prepared by the Directors in accordance
with the requirements of the Companies Act 2006 and the Large and
Medium-sized Companies and Groups (Accounts and Reports)
Regulations 2008. A resolution to approve the Directors'
Remuneration Report will be proposed at the Company's AGM on 18 May
2023. At the AGM on 18 May 2022, Shareholders voted 99.99 percent
in favour to approve the Directors' Remuneration Report for the
year ended 31 December 2021.
The Company's Auditor is required to give its opinion on the
information provided on Directors' remuneration and and this is
explained further in its report to Shareholders below. The
remainder of this report is outside the scope of the external
audit.
Annual Statement from the Chairman of the Board
The Board, which is profiled above, consists solely of
non-executive Directors and is considered to be entirely
independent. The Board considers at least annually the level of the
Board's fees, in accordance with the AIC Code.
Remuneration Policy
As at the date of this report, the Board comprised three
Directors, all of whom are non-executive. Due to the size of the
Company and the Board, there is not a separate Remuneration
Committee. Being wholly comprised of non-executive Directors, the
whole Board considers these matters.
Each Director receives a fixed fee per annum based on their
roles and responsibilities within the Company and the time
commitment required. It is not considered appropriate that
Directors' remuneration should be performance related and none of
the Directors are eligible for pension benefits, share options,
long term incentive schemes or other benefits in respect of their
services as non-executive Directors of the Company.
The maximum annual limit of aggregate fees payable to the
Directors was set at the time of the Company's incorporation on 11
March 2019 at GBP500,000 per annum. The Chairman is entitled to an
additional fee of GBP10,000 per annum and the Audit and Risk
Committee Chair is entitled to an additional fee of GBP5,000 per
annum. The Board may grant special remuneration to any Director who
performs any special or extra services to, or at, the request of
the Company.
The Articles of Association provide that all Directors at the
date of the notice covering each AGM shall retire from office and
each Director may offer themselves for re-election, in accordance
with corporate governance best practice.
All of the Directors have been provided with letters of
appointment, subject to re-election by Shareholders.
A Director's appointment may at any time be terminated by and at
the discretion of either party upon written notice. A Director's
appointment will automatically end without any right to
compensation whatsoever if they are not re-elected by the
Shareholders. A Director's appointment may also be terminated with
immediate effect and without compensation in certain other
circumstances. Being non-executive Directors, none of the Directors
has a service contract with the Company.
The Company's Remuneration Policy was approved at its second AGM
on 18 May 2022, with Shareholders voting 90.25 percent in favour
and 9.75 percent of votes against. The terms and conditions of
appointment of non-executive Directors are available for inspection
from the Company's registered office.
Annual Report on Remuneration (Audited Information)
The table below shows all remuneration earned by each individual
Director during the year:
Paid in the year to 31 December 2022 Change Paid in the year to 31 December 2021
from
prior
year
$ % $
Reuben Jeffery, III
(Chairman) - GBP45k
p.a. 55,400 -10% 61,390
Emma Davies (Audit &
Risk Committee Chair)
- GBP40k p.a. 49,245 -10% 54,569
Edward Cumming-Bruce
(Nomination Committee
Chair) - GBP35k p.a. 43,089 -10% 47,748
Total 147,734 163,707
----------------------- ------------------------------------------------------------------ ------- -------------------------------------
The Directors total annual remuneration has not changed from
prior year. The percent change detailed above is directly related
to foreign exchange rate movements, as the Directors are paid in
GBP.
Amounts paid to Directors as reimbursement of travel and other
incidental expenses during the year were:
Paid in the year to 31 December Change from prior year Paid in the year to 31
2022 December 2021
$ % $
Reuben Jeffery, III 31,524 103% 15,551
Emma Davies - - -
Edward Cumming-Bruce - - -
Total 31,524 15,551
---------------------- ---------------------------------- -------------------------------- ------------------------
None of the Directors received any other remuneration or
additional discretionary payments during the year from the Company
(2021: $Nil).
Directors' Interests (audited information)
Directors who held office during the year and had interests in
the Ordinary Shares of the Company as at 31 December 2022 are given
in the table below. There were no changes to the interests of each
Director as at the date of this report.
Ordinary Shares of Ordinary Shares
$0.01 each held at of $0.01 each
31 December 2022 held at 31 December
2021
Reuben Jeffery, III 100,000 100,000
Emma Davies 45,000 45,000
Edward Cumming-Bruce 50,000 50,000
---------------------- -------------------- ------------------------------
Relative Importance of Spend on Pay
The remuneration of the Directors with respect to the year
totalled $147,734 (2021: $163,707) in comparison to distributions
paid or declared to Shareholders with respect to the year of $8.9
million (2021: $6.4 million).
Company Performance
The performance of the AIC Investment Trust Direct Lending
sector index is shown as a market reference for investors. The
Company is primarily involved in making senior secured loans to
energy-related companies through its SPVs. Comparable peers making
debt investments also use direct lending indexes for benchmarking
purposes and so the AIC Investment Trust Direct Lending sector
index is chosen for benchmarking purposes.
On behalf of the Board
Reuben Jeffery, III
Chairman
15 February 2023
Directors' Responsibilities Statement
The Directors are responsible for preparing the Annual Report
and the 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 Company financial statements in
accordance with UK-adopted IAS. Under company law the Directors
must not approve the financial statements unless they are satisfied
that they give a true and fair view of the state of affairs of the
Company and of the profit or loss for the Company for that
year.
In preparing these financial statements, the Directors are
required to:
-- select suitable accounting policies in accordance with IAS 8
Accounting Policies, Changes in Accounting Estimates and Errors and
then apply them consistently;
-- make judgements and accounting estimates that are reasonable and prudent;
-- state whether they have been prepared in accordance with
UK-adopted IAS, subject to any material departures disclosed and
explained in the financial statements;
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business; and
-- prepare a Report of the Directors, a Strategic Report and
Directors' Remuneration Report which comply with the requirements
of the Companies Act 2006.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with the Companies Act 2006. They
are also responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities. The Directors are responsible
for ensuring that the Annual Report, taken as a whole, is fair,
balanced and understandable and provides the information necessary
for Shareholders to assess the Company's performance, business
model and strategy.
Website Publication
The Directors are responsible for ensuring the Annual Report and
the financial statements are made available on a website. Financial
statements are published on the Company's website in accordance
with legislation in the UK governing the preparation and
dissemination of financial statements, which may vary from
legislation in other jurisdictions. The maintenance and integrity
of the Company's website is the responsibility of the Directors.
The Directors' responsibilities also extend to the ongoing
integrity of the financial statements contained therein.
Directors' Responsibilities Pursuant to DTR4.1
The Directors confirm that to the best of their knowledge:
-- the Company's financial statements have been prepared in
accordance with UK-adopted IAS and give a true and fair view of the
assets, liabilities, financial position and profit and loss of the
Company; and
-- the Annual Report includes a fair review of the development
and performance of the business and the financial position of the
Company, together with a description of the principal and emerging
risks and uncertainties that they face.
On behalf of the Board
Reuben Jeffery, III
Chairman
15 February 2023
Corporate Governance Report
This Corporate Governance Report forms part of the Report of the
Directors as further disclosed above. The Board operates under a
framework for corporate governance which is appropriate for an
investment company. The Company is not required to comply with the
UK Listing Rules, however as a matter of good corporate governance,
the Company voluntarily complies with the provisions of the Listing
Rules applicable to closed-ended investment companies.
The Company became a member of the AIC with effect from 28 May
2019 and has therefore put in place arrangements to comply with the
AIC Code and, in accordance with the AIC Code, complies with the UK
Code.
The AIC Code and the AIC Guide are available on the AIC's
website, https://www.theaic.co.uk .
The AIC Code, as explained by the AIC Guide, addresses all the
principles set out in the UK Code, as well as setting out
additional principles and recommendations on issues that are of
specific relevance to investment companies such as the Company. The
Board considers that reporting against the principles and
recommendations of the AIC Code, by reference to the AIC Guide,
provides better information to Shareholders. The UK Code is
available on the Financial Reporting Council's website,
https://www.frc.org.uk .
The Company has complied with the recommendations of the AIC
Code and the relevant provisions of the UK Code, except as set out
below.
The UK Code includes provisions relating to:
-- the role of the chief executive;
-- executive directors' remuneration; and
-- the need for an internal audit function.
For the reasons set out in the AIC Guide, and as explained in
the UK Code, the Board considers that the above provisions are not
currently relevant to the position of the Company, being an
externally managed investment company, which delegates most
day-to-day functions to third parties.
The Company does not have a chief executive or any executive
directors. The Company has not established a separate remuneration
committee as the Company has no executive officers, nor has it
established a Senior Independent Director due to the size of the
Board and the Company. The Board is satisfied that any relevant
issues that arise can be properly considered by the Board.
The Company has no employees or internal operations and has
therefore not reported further in respect of these provisions. The
need for an internal audit function is discussed in the Audit and
Risk Committee Report.
The Board
The Company is led and controlled by a Board of Directors, which
is collectively responsible for the long-term success of the
Company. It does so by creating and preserving value, and has as
its foremost principle, acting in the interests of Shareholders,
whilst having regard to the interests of wider society.
The Company believes that the composition of the Board is a
fundamental driver of its success, as the Board must provide strong
and effective leadership of the Company. The current Board was
selected, as their biographies illustrate, to bring a breadth of
knowledge, skills and business experience to the Company. The
non-executive Directors provide independent challenge and review,
bringing wide experience, specific expertise and a fresh objective
perspective.
As at the date of this report, the Board consists of three
non-executive Directors, all of whom are independent of the
Company's Investment Manager. All Directors were appointed on 2
April 2019 and served throughout the year. The AIC Code requires
that Directors be subject to an annual election by Shareholders,
and the Directors comply with this requirement. All of the
Directors, including the Chairman, shall offer themselves for
re-election at the forthcoming AGM. The strong and diverse mix of
experienced individuals on the current Board enables high calibre
debate and constructive challenge. Having considered their
effectiveness, demonstration of commitment to the role, length of
service, attendance at meetings and contribution to the Board's
deliberations, the Board approves the nomination for re-election of
all of the Directors.
At each subsequent AGM of the Company, each of the Directors at
the date of the notice convening the AGM shall retire from office
and may offer themselves for election or re-election by the
Shareholders, in accordance with corporate governance best
practice.
The Chairman of the Board is independent and is appointed in
accordance with the Company's Articles of Incorporation. Mr.
Jeffery is considered to be independent because he:
-- has no current or historical employment with the Investment Manager;
-- has no current directorships or partnerships in any other
investment funds managed by the Investment Manager; and
-- is not an executive of a self-managed company or an
ex-employee who has left the executive team of a self-managed
company within the last five years.
The Board meets at least four times a year for regular,
scheduled meetings and should the nature of the activity of the
Company require it, additional meetings may be held, some at short
notice. At each meeting, the Board follows a formal agenda that
covers the business to be discussed. The Company Secretary assists
the Board and Committee Chairs in agreeing the agenda in sufficient
time before the meeting to enable input from key stakeholders. Care
is taken to ensure that presentation of papers are clear with the
appropriate level of detail to assist the Board and Committees in
discharging their duties. The Board utilises a web-based system
which provides ready access to Board and Committee papers and
materials. The primary focus at Board meetings is a review of
investment performance and associated matters such as asset
allocation, share price discount/premium management, investor
relations, peer group information, gearing, industry issues and
principal and emerging risks and uncertainties in particular those
identified in the Strategic Report above.
The Board may request to be supplied in a timely manner with
information by the Investment Manager, Administrator, Company
Secretary and other advisers in a form and of a quality to enable
it to discharge its duties.
The Company has adopted a share dealing code based on the
requirements of the UK Market Abuse Regulation for the Board and
will seek to ensure compliance by the Board and relevant personnel
of the Investment Manager and other third party service providers
with the terms of the share dealing code.
The Board also considers whether the Company has inside
information and if an announcement obligation has arisen. The Board
reviews the scope and content of disclosures in order to ensure
that information released to the market by the Company is
appropriate. It is responsible for reviewing the systems,
procedures and controls in place to enable the Company to comply
with its legal and regulatory obligations in relation to inside
information.
The Board is also responsible for reviewing and considering any
actual or potential conflicts of interest referred to it in
accordance with the Company's conflicts of interest policy and
approving any such conflicts. At least annually, the Board reviews
the adequacy of disclosure to Shareholders regarding potential
conflicts of interest and the effectiveness of the Company's
conflicts of interest policy. In addition, the Board is responsible
for reviewing and approving any related party transactions. Other
key matters requiring Board approval include capital structure, the
Company's distribution policy and changes to the Investment
Policy.
In the performance of its duties, the Board is committed to
maintaining a good understanding of the views of Shareholders and
considerable importance is attached to communicating with
Shareholders.
The Culture
The Board discussed the Company's culture over the course of the
year. It was agreed that the Company's culture is built around that
of the Investment Manager, with a focus on long lasting
relationships with a diverse investor base; sustainable investment
excellence; and a world class team demonstrating extensive industry
knowledge.
The Board continues to operate in a respectful, transparent and
inclusive manner, where constructive challenge of opinions is
welcomed and differences of perspectives are encouraged. The Board
also undertakes continued engagement with the Investment Manager
and other advisors to ensure that practices and behaviour
throughout the business are aligned with the Company's purpose and
strategy .
The Board will continue to monitor the Company's culture on an
annual basis through continued engagement with Shareholders and
management.
Diversity Policy
The Board monitors developments in corporate governance to
ensure the Board remains aligned with best practice especially with
respect to the increased focus on diversity. The Board acknowledges
the importance of diversity, (including gender, social and ethnic
backgrounds and cognitive and personal strengths) for the effective
functioning of the Board and commits to supporting diversity in the
boardroom. It is the Board's ongoing aspiration to have a
well-diversified representation. The Board also values diversity of
business skills and experience because Directors with diverse
skills sets, capabilities and experience gained from different
geographical backgrounds enhance the Board by bringing a wide range
of perspectives to the Company.
The Board recognises the importance of an inclusive and diverse
Board in facilitating a collaborative culture and enhancing the
delivery of the Company's strategic objectives. The Board will
continue to monitor and actively work on ensuring that it maintains
and nurtures a Board that is as diverse as possible. This baseline
representation and understanding will help inform the development
of future initiatives on diversity and inclusion.
As at the date of this report, the Board comprised two men and
one woman, all non-executive Directors who are considered to be
independent of the Investment Manager and free from any business or
other relationship that could materially interfere with the
exercise of their independent judgement.
The Investment Manager has a diverse employee base and continues
to dedicate recruitment resources to increasing diversity across
all positions and levels.
Board Tenure and Re-election
As the Company was incorporated on 11 March 2019, there are no
issues to be considered by the Board with respect to long tenure.
In accordance with the AIC Code, in the event that any Director,
including the Chairman, shall have been in office (or on
re-election would have been at the end of that term of office) for
more than nine years, the Company will consider further whether
there is a risk that such a Director might reasonably be deemed to
have lost independence through such long service. The Board will
consider its composition and succession planning on an ongoing
basis. All Directors will stand for annual re-election at each AGM.
In accordance with the AIC Code, the Board recognises that
Directors serving nine years or more may appear to have their
independence impaired. However, the Board may nonetheless consider
Directors to remain independent and will provide a clear
explanation within future Annual Reports and financial statements
as to its reasoning. A Director who retires at an AGM may, if
willing to continue to act, be elected or re-elected at that
meeting. If, at a general meeting at which a Director retires, the
Company neither re-elects that Director nor appoints another person
to the Board in the place of that Director, the retiring Director
shall, if willing to act, be deemed to have been re-elected unless
at the general meeting it is resolved
not to fill the vacancy or unless a resolution for the
re-election of the Director is put to the meeting and not passed.
Directors are appointed under letters of appointment.
The Board will consider its composition and succession planning
on an ongoing basis.
The Board recommends that Shareholders vote in favour of the
re-election of all Directors at the upcoming AGM of the
Company.
Duties and Responsibilities
The Board has overall responsibility for the Company's
activities, including reviewing its investment
activity, performance, business conduct and policy. The
Directors also review and supervise the Company's delegates and
service providers, including the Investment Manager.
The Directors may delegate certain functions to other parties.
In particular, the Directors have delegated responsibility for
management of the Company's portfolio of investments to the
Investment Manager.
The Board retains direct responsibility for certain matters,
including (but not limited to):
-- approving the Company's long-term objective and any decisions
of a strategic nature including any change in investment objective,
policy and restrictions, including those which may need to be
submitted to Shareholders for approval;
-- reviewing the performance of the Company in light of the
Company's strategic objectives and budgets ensuring that any
necessary corrective action is taken;
-- ensuring appropriate internal controls and risk management
frameworks are in place to manage and continually assess risk;
-- appointing, overall supervision and removal of key service
providers and any material amendments to the agreements or
contractual arrangements with any key delegates or service
providers;
-- approving quarterly distributions and the Company's distribution policy;
-- approving any transactions with 'related parties' for the
purposes of the Company's voluntary compliance with the applicable
sections of the UK Listing Rules;
-- reviewing the Company's valuation policy and proposed valuations of its investments;
-- reviewing the Company's corporate governance arrangements;
-- providing constructive challenge and strategic guidance and offering specialist advice; and
-- approving any actual or potential conflicts of interest.
The Directors have access to the advice and services of the
Administrator, who is responsible to the Board for ensuring that
Board procedures are followed and that it complies with applicable
law and regulations of the LSE. Where necessary, in carrying out
their duties, the Directors may seek independent professional
advice and services at the expense of the Company. The Company
maintains Directors' and Officers' liability insurance in respect
of legal action against its Directors on an ongoing basis.
The Board's responsibilities for the Annual Report are set out
in the Directors' Responsibilities Statement. The Board has
responsibility for ensuring that the Company keeps proper
accounting records which disclose with reasonable accuracy at any
time the financial position of the Company and which enable it to
ensure that the financial statements comply with applicable
regulations. It is the Board's responsibility to present a fair,
balanced and understandable Annual Report, which provides the
information necessary for Shareholders to assess the performance,
strategy and business model of the Company. This responsibility
extends to the half-yearly financial reports, quarterly portfolio
valuations and other price-sensitive public reports.
Directors' attendance at Board and Committee Meetings
One of the key criteria the Company uses when selecting
non-executive Directors is their confirmation prior to their
appointment that they will be able to allocate sufficient time to
the Company to discharge their responsibilities in a timely and
effective manner.
The Board formally met 9 times during the year.
Directors are encouraged when they are unable to attend a
meeting to give the Chairman their views and comments on matters to
be discussed, in advance. In addition to their meeting commitments,
the non-executive Directors also liaise with the Investment Manager
whenever required and there is regular contact outside the Board
meeting schedule.
The number of meetings of the full Board and Committees in the
period year to 31 December 2022 and attendance by each Director is
set out below:
Audit and Management
Risk Nomination Engagement Tenure
Board Committee Committee Committee as at 31
Meetings Meetings Meetings Meetings December
(max 10) (max 4) (max 1) (max 1) 2022
Director A B A B A B A B
------------------------ ----- ----- ------ ----- ------ ----- ------ ------ -----------
Reuben Jeffery, 3 years
III 9 9 4 4 1 1 1 1 9 months
3 years
Emma Davies 9 9 4 4 1 1 1 1 9 months
3 years
Edward Cumming-Bruce 9 9 4 4 1 1 1 1 9 months
Column A: indicated the number of meetings held during the
year.
Column B: indicates the number of meetings attended by the
Director during the year.
A quorum is comprised of any two or more members of the Board
from time to time, to perform administrative and other routine
functions on behalf of the Board, subject to such limitations as
the Board may expressly impose on this committee from time to
time.
Committees of the Board
The Board believes that it and its committees have an
appropriate composition and blend of skills, experience,
independence and diversity of backgrounds to discharge their duties
and responsibilities effectively. The Board is of the view that no
one individual or small group dominates decision-making. The Board
keeps its membership, and that of its committees, under review to
ensure that an acceptable balance is maintained, and that the
collective skills and experience of its members continue to be
refreshed. It is satisfied that all Directors have sufficient time
to devote to their roles and that undue reliance is not placed on
any individual.
The Board has three standing Committees, being the Audit and
Risk Committee, the Nomination Committee and the Management
Engagement Committee. The roles and responsibilities of each
Committee are included in their respective paragraphs below. Each
committee of the Board has written terms of reference, approved by
the Board, summarising its objectives, remit and powers, which are
available on the Company's website and reviewed on an annual basis.
All committee members are provided with appropriate induction on
joining their respective committees, as well as on-going access to
training. Minutes of all meetings of the committees are made
available to all Directors and feedback from each of the committees
is provided to the Board by the respective committee Chairman at
the next Board meeting. The Chairman of each committee attends the
AGM to answer any questions on their committee's activities.
The Board and its committees are supplied with regular,
comprehensive and timely information in a form and of a quality
that enables them to discharge their duties effectively. All
Directors are able to make further enquiries of management whenever
necessary, and have access to the services of the Company
Secretary.
Audit and Risk Committee
The Audit and Risk Committee is chaired by Ms. Davies and
comprises all the non-executive Directors. The Audit and Risk
Committee, the Investment Manager, the Administrator and the
external auditor, Ernst & Young LLP, have held discussions
regarding the audit approach and identified risks. The external
auditor attends Audit and Risk Committee meetings and a separate
private meeting is also held routinely to afford them the
opportunity of discussions without the presence of management. The
Audit and Risk Committee activities are contained in the Report of
the Audit and Risk Committee below.
The Company's Audit and Risk Committee, among other things,
considers the appointment, independence and remuneration of the
independent auditors and reviews the financial statements and
accounting policies. The principal duties of the Audit and Risk
Committee are to consider the appointment of the independent
auditors, to discuss and agree with the independent auditors the
nature and scope of the audit, to keep under review the scope,
results, quality and effectiveness of the audit and the
independence and objectivity of the independent auditors, and to
review the independent auditors' letter of engagement, Audit
Planning Report and Audit Results Report. The Audit and Risk
Committee also monitors and reviews the adequacy and effectiveness
of internal control and risk management systems and advises the
Board on the Company's overall risk appetite. The Audit and Risk
Committee meets at least three times a year.
Nomination Committee
The Nomination Committee meets at least once a year pursuant to
its terms of reference. The Nomination Committee is chaired by Mr.
Cumming-Bruce and comprises all of the non-executive Directors.
The Nomination Committee is convened for the purpose of
considering the appointment of additional Directors as and when
considered appropriate. The Nomination Committee recognises the
continuing importance of planning for the future and ensuring that
succession plans are in place. With regard to Board appointments,
the Nomination Committee prepares specifications of the roles and
responsibilities, including expected time commitments, and
consideration is given to the existing experience, knowledge and
background of current Board members, as well as the strategic and
business objectives of the Company. The Committee would then use
open advertising and/or an external search consultancy to
facilitate recruitment. In considering appointments to the Board,
the Nomination Committee will take into account the ongoing
requirements of the Company and evaluate the balance of skills,
experience, independence, and knowledge of each candidate while
promoting diversity of gender, and of social and ethnic background.
Therefore, appointments will be made on personal merit and against
objective criteria with the aim of bringing new skills and
different perspectives to the Board whilst taking into account the
existing balance of knowledge, experience and diversity.
In the case of candidates for non-executive directorships, care
will be taken to ascertain that they have sufficient time to fulfil
their Board and, where relevant, committee responsibilities. The
Board believes that the terms of reference of the Nomination
Committee ensure that it operates in a rigorous and transparent
manner. The Board believes that, as a whole, it comprises an
appropriate balance of skills, experience and knowledge. The Board
also believes that diversity of experience and approach, including
gender diversity, amongst Board members is of great importance and
it is the Company's policy to give careful consideration to issues
of Board balance and diversity when making new appointments.
The Nomination Committee has reviewed the composition, structure
and diversity of the Board, succession planning, the independence
of the Directors and whether each of the Directors has sufficient
time available to discharge their duties effectively. The Committee
and the Board confirm that they believe that the Board has an
appropriate mix of skills and backgrounds and was selected with
that in mind, that a majority of Directors should be considered as
independent in accordance with the provisions of the AIC Code and
that all Directors have the time available to discharge their
duties effectively.
Accordingly, the Board recommends that Shareholders vote in
favour of the election of all Directors at the upcoming AGM of the
Company.
Management Engagement Committee
The Management Engagement Committee is chaired by Mr. Jeffery
and comprises all of the non--executive Directors. The Management
Engagement Committee meets at least once a year pursuant to its
terms of reference.
The Management Engagement Committee provides a formal mechanism
for the review of the performance of the Investment Manager and the
Company's other advisers and service providers. It carries out this
review through consideration of a number of objective and
subjective criteria and through a review of the terms and
conditions of the advisers' appointments with the aim of evaluating
performance, identifying any weaknesses and ensuring value for
money for the Shareholders. On 1 November 2022, the Management
Engagement Committee formally reviewed the performance of the
Investment Manager and other service providers and confirmed that
performance had been satisfactory to date.
Remuneration Committee
The AIC Code recommends that companies appoint a Remuneration
Committee, however the Board has not deemed this necessary, as
being wholly comprised of non-executive Directors, the whole Board
considers these matters.
Board Performance and Evaluation
In accordance with Provision 26 of the AIC Code, the Board is
required to undertake a formal and rigorous evaluation of its
performance on an annual basis. Such an evaluation of the
performance of the Board as whole, the Audit and Risk Committee,
the Nomination Committee, the Management Engagement Committee,
individual Directors and the Chairman is carried out under the
mandate of the Nomination Committee. The Board believes that the
current mix of skills, experience, knowledge and age of the
Directors is appropriate to the requirements of the Company.
On 16 February 2022, the Management Engagement Committee
conducted an internal evaluation of the Board, the Audit and Risk
Committee and individual Directors. This was in the form of
performance appraisal, questionnaires and discussion to determine
effectiveness and performance in various areas, as well as the
Directors' continued independence and tenure. This process was
facilitated by the Company Secretary. The review concluded that the
overall performance of the Board and Audit and Risk Committee was
satisfactory and the Board was confident in its ability to continue
to govern the Company effectively.
New Directors receive an induction on joining the Board and
regularly meet with the senior management employed by the
Investment Manager both formally and informally to ensure that the
Board remains regularly updated on all issues. All members of the
Board are members of professional bodies and serve on other Boards,
which ensures they are kept abreast of the latest technical
developments in their areas of expertise.
The Board arranges for presentations from the Investment
Manager, the Company's brokers and other advisers on matters
relevant to the Company's business. The Board will assess the
training needs of Directors on an annual basis.
Internal Control and Financial Reporting
The Directors acknowledge that they are responsible for
establishing and maintaining the Company's system of internal
control and reviewing its effectiveness. Internal control systems
are designed to manage rather than eliminate the failure to achieve
business objectives and can only provide reasonable but not
absolute assurance against material misstatements or loss. However,
the Board's objective is to ensure that the Company has appropriate
systems in place for the identification and management of risks.
The Directors carry out a robust assessment of the principal and
emerging risks facing the Company, including those that would
threaten its business model, future performance, solvency or
liquidity. As further explained in the Audit and Risk Committee
Report, the risks of the Company are outlined in a risk matrix
which was reviewed and updated during the year. The Board
continually reviews its policy setting and updates the risk matrix
at least quarterly to ensure that procedures are in place with the
intention of identifying, mitigating and minimising the impact of
risks should they crystallise.
The key procedures which have been established to provide
internal control are that:
-- the Board has delegated the day-to-day operations of the
Company to the Administrator and Investment Manager; however, it
retains accountability for all functions it delegates;
-- the Board clearly defines the duties and responsibilities of
the Company's agents and advisers and appointments are made by the
Board after due and careful consideration. The Board monitors the
ongoing performance of such agents and advisers and will continue
to do so through the Management Engagement Committee;
-- the Board monitors the actions of the Investment Manager at
regular Board meetings and is given frequent updates on
developments arising from the operations and strategic direction of
the underlying investee companies;
-- the Administrator provides administration and company secretarial services to the Company;
-- The Administrator maintains a system of internal control on which they report to the Board;
-- the Audit and Risk Committee monitors risks, including those
of the Administrator and Investment Manager; and
-- the Board has reviewed the need for an internal audit
function and has decided that the systems and procedures employed
by the Administrator and Investment Manager, including their own
internal controls and procedures, provide sufficient assurance that
an appropriate level of risk management and internal control, which
safeguards Shareholders' investments and the Company's assets, is
maintained. An internal audit function specific to the Company is
therefore considered unnecessary.
Internal controls over financial reporting are designed to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
reporting purposes. The Administrator and Investment Manager both
operate risk controlled frameworks on an ongoing basis within a
regulated environment. The Administrator formally reports to the
Board quarterly through a compliance report and holds the
International Standard on Assurance Engagements (ISAE) 3402 Type 2
certification. This entails an independent rigorous examination and
testing of their controls and processes. The Investment Manager
formally reports to the Board quarterly including updates within
Riverstone and also engages with the Board on an ad-hoc basis as
required. No weaknesses or failings within the Administrator or
Investment Manager have been identified.
The systems of control referred to above are designed to ensure
effectiveness and efficient operation, internal control and
compliance with laws and regulations. In establishing the systems
of internal control, regard is paid to the materiality of relevant
risks, the likelihood of costs being incurred and costs of control.
It follows therefore that the systems of internal control can only
provide reasonable but not absolute assurance against the risk of
material misstatement or loss. This process has been in place for
the year under review and up to the date of approval of this Annual
Report and financial statements. It is reviewed by the Board and is
in accordance with the FRC's internal control publication: Guidance
on Risk Management, Internal Control and Related Financial and
Business Reporting.
Investment Management Agreement
The Investment Manager has been appointed as the sole investment
manager of the Company and the SPVs. Pursuant to the Investment
Management Agreement, the Investment Manager has responsibility for
and discretion over investing and managing the Company's and the
SPVs' direct and indirect assets, subject to, and in accordance
with, the Company's investment policy. The Investment Manager is
entitled to delegate all or part of its functions under the
Investment Management Agreement to one or more of its affiliates. A
summary of fees paid to the Investment Manager is given in note 12
to the financial statements.
The Investment Manager's appointment is terminable by the
Investment Manager or the Company on not less than 12 months'
notice, such notice not to expire prior to the third anniversary of
Admission. The Investment Management Agreement may be terminated
with immediate effect and without compensation, by either the
Investment Manager or the Company if the other party has gone into
liquidation, administration or receivership or has committed a
material breach of the Investment Management Agreement.
The Company has delegated the provision of all services to
external service providers whose work is overseen by the Management
Engagement Committee at its regular scheduled meetings. Each year,
a detailed review of performance pursuant to their terms of
engagement is undertaken by the Management Engagement
Committee.
The Board as a whole reviewed the Company's compliance with the
UK Code, the Listing Rules, the Disclosure Guidance and
Transparency Rules and the AIC Code. In accordance with Listing
Rule 15.6.2(2)R and having formally appraised the performance and
resources of the Investment Manager, in the opinion of the
Directors, the continuing appointment of the Investment Manager on
the terms agreed is in the interests of the Shareholders as a
whole. The Board is pleased with the performance of the Investment
Manager, based on the selection of high-quality E&P, midstream,
energy services, solar, lithium-ion, power and coal sectors.
Relations with Shareholders
The Board welcomes Shareholders' views and places great
importance on communication with its Shareholders. The Company's
AGM provides a forum for Shareholders to meet and discuss issues
with the Directors of the Company. The Chairman and other Directors
are also available to meet with Shareholders at the AGM to hear
their views and discuss any issues or concerns, including in
relation to Board composition, governance and strategy, or at other
times, if required.
The Company reports formally to Shareholders in a number of
ways; regulatory news releases through the London Stock Exchange's
Regulatory News Service, announcements are issued in response to
events or routine reporting obligations. Also, an Interim Report is
published each year outlining performance to 30 June and the Annual
Report is published each 31 December year-end, both of which are
available on the Company's website. In addition, the Company's
website contains comprehensive information, including Company
notifications, share information, financial reports, investment
objectives and policy, investor contacts and information on the
Board and corporate governance. Shareholders and other interested
parties can subscribe to email news updates by registering online
on the website.
The Directors and Investment Manager receive informal feedback
from analysts and investors, which is presented to the Board by the
Company's Broker. The Company Secretary also receives informal
feedback via queries submitted through the Company's website and
these are addressed by the Board, the Investment Manager or the
Company Secretary, where applicable.
Other Stakeholders
The wider stakeholders of the Company comprise its service
providers, investee companies and suppliers and the Board
recognises and values these stakeholders.
As an investment trust with no employees, the Company's
relationship with its service providers, including the Investment
Manager, is of particular importance. Service providers have been
selected and engaged based on due diligence and references
including consideration of their internal controls and expertise.
The Company has established a Management Engagement Committee, who
review the performance of each service provider annually and
provide feedback as appropriate, to maintain good working
relationships.
The Company's investment helps to ensure that the investee
companies have the resources to perform well, which helps to drive
the local economies in which these companies are located.
Responsible investing principles have been applied to each of the
investments made, which ensures that appropriate due diligence has
been conducted and that the terms of the investments are clearly
set out and agreed with investee companies in advance.
The Board recognises that relationships with suppliers are
enhanced by prompt payment and the Company's Administrator, in
conjunction with the Investment Manager, ensures all payments are
processed within the contractual terms agreed with the individual
suppliers.
Whistleblowing
The Board has considered arrangements by which staff of the
Investment Manager or Administrator may, in confidence, raise
concerns within their respective organisations about possible
improprieties in matters of financial reporting or other matters.
It has concluded that adequate arrangements are in place for the
proportionate and independent investigation of such matters and,
where necessary, for appropriate follow-up action to be taken
within their organisation.
By order of the Board
Reuben Jeffery, III
Chairman
15 February 2023
Audit and Risk Committee Report
The Audit and Risk Committee, chaired by Ms. Emma Davies,
operates within clearly defined terms of reference, which are
available from the Company's website, and include all matters
indicated by Disclosure Guidance and Transparency Rule 7.1, the AIC
Code and the UK Code. Its other members are Mr. Reuben Jeffery, III
and Mr. Edward Cumming-Bruce. Members of the Audit and Risk
Committee must be independent of the Company's external auditor and
Investment Manager. Although Mr. Reuben Jeffery, III is Chairman of
the Company, the Board believes that it is appropriate for him to
be a member of the Audit and Risk Committee, given the size of the
Company's Board. The Audit and Risk Committee meets no less than
three times in a year, and at such other times as the Audit and
Risk Committee Chair requires, and meets the external auditor at
least once a year.
The Committee members have considerable financial and business
experience and the Board has determined that the membership as a
whole has sufficient recent and relevant sector and financial
experience to discharge its responsibilities and that at least one
member has competence in accounting or auditing.
Responsibilities
The main duties of the Audit and Risk Committee are to:
-- monitor the integrity of the Company's financial statements
and regulatory announcements relating to its financial performance
and review significant financial reporting judgements;
-- report to the Board on the appropriateness of the Company's
accounting policies and practices;
-- consider the ongoing assessment of the Company as a going
concern and assessment of longer-term viability;
-- review the valuations of the Company's investments prepared
by the Investment Manager, and provide a recommendation to the
Board on the valuation of the Company's investments;
-- oversee the relationship with the external auditor, including
agreeing its remuneration and terms of engagement, review its
reporting, monitoring its independence, objectivity and
effectiveness, ensuring that any non-audit services are
appropriately considered, and making recommendations to the Board
on its appointment, re-appointment or removal, for it to put to the
Shareholders in general meeting;
-- monitor and consider annually whether there is a need for the
Company to have its own internal audit function;
-- keep under review the effectiveness of the Company's internal
controls, including financial controls and risk management
systems;
-- review and consider the UK Code, the AIC Code, and the AIC
Guidance on Audit Committees; and
-- report to the Board on how it has discharged its responsibilities.
The Audit and Risk Committee is aware that certain sections of
the Annual Report are not subject to formal statutory audit,
including the Chairman's Statement, the Investment Manager's Report
and certain sections of the Directors' Remuneration Report.
Financial information in these sections is reviewed by the Audit
and Risk Committee.
The Audit and Risk Committee is required to report its findings
to the Board, identifying any matters on which it considers that
action or improvement is needed, and make recommendations on the
steps to be taken.
The external auditor was invited to attend the Audit and Risk
Committee meetings at which the Annual Report and Interim Financial
Report were considered. They have the opportunity to meet with the
Committee without representatives of the Investment Manager or
Administrator being present at least once per year.
Financial Reporting
The primary role of the Audit and Risk Committee in relation to
financial reporting is to review with the Administrator, the
Investment Manager and the external auditor and report to the Board
on the appropriateness of the Annual Report and financial
statements and Interim Financial Report, concentrating on, amongst
other matters:
-- the quality and acceptability of accounting policies and practices;
-- the clarity of the disclosures and compliance with financial
reporting standards and relevant financial and governance reporting
requirements;
-- material areas in which significant judgements have been
applied or where there has been discussion with the external
auditor including going concern and viability statement;
-- whether 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 performance, business model and strategy; and
-- any correspondence from regulators in relation to financial reporting.
To aid its review, the Audit and Risk Committee considers
reports from the Administrator and the Investment Manager and also
reports from the external auditor on the outcomes of its half-year
review and annual audit .
Meetings
During the year ended 31 December 2022, the Audit and Risk
Committee met four times formally and there was ongoing liaison and
discussion between the external auditor and the Audit and Risk
Committee Chair with regards to the audit approach and the
identified risks.
The matters discussed at those meetings include:
-- review of the terms of reference of the Audit and Risk Committee for approval by the Board;
-- review of the accounting policies and format of the financial statements;
-- review and approval of the audit plan of the external auditor;
-- discussion and approval of the fee for the external audit;
-- detailed review of the valuations of the Company's investment
portfolio and recommendation for approval by the Board;
-- detailed review of the Interim Report and quarterly portfolio
valuations, and recommendation for approval by the Board;
-- assessment of the independence of the external auditor;
-- assessment of the effectiveness of the external audit process as described below to; and
-- review of the Company's key risks and internal controls.
The Audit and Risk Committee met on 15 February 2023 to review
the results of the audit and to consider and approve the Annual
Report for the year ended 31 December 2022.
Significant Areas of Judgement Considered by the Audit and Risk
Committee
The Audit and Risk Committee has determined that a key risk of
misstatement of the Company's financial statements relates to the
valuation of its investments at fair value through profit or loss,
in the context of the judgements necessary to evaluate market
values of the underlying investments. There is also an inherent
risk of management override as the Investment Manager's Profit
Share is calculated based on revenue recognition and the NAV, as
disclosed in note 12 to the financial statements. The Investment
Manager is responsible for calculating the NAV with the assistance
of the Administrator, prior to approval by the Board.
In view of the Company's investments and the nature of the
assets, no adjustment to the NAV of the investments has been made,
as this is deemed equivalent to fair value.
The Audit and Risk Committee reviews, considers and, if thought
appropriate, recommends for the purposes of the Company's financial
statements, valuations prepared by the Investment Manager in
respect of the investments.
As outlined in note 4 to the financial statements, the total
carrying value of the investments at fair value through profit or
loss at 31 December 2022 was $94.6 million (2021: $87.2
million).
On a quarterly basis, the Investment Manager provides a detailed
analysis of the NAV. This analysis is considered and challenged by
the Audit and Risk Committee and subsequently approved by the
Board. The Audit and Risk Committee has satisfied itself that the
key estimates and assumptions used in the valuation model are
appropriate and that the investments have been measured at fair
value.
The valuation for each individual investment held by the SPVs is
determined by reference to common industry valuation techniques,
including comparable public market valuation, comparable merger and
acquisition transaction valuation, and discounted cash flow
valuation, as detailed in notes 2 and 4 to the financial
statements.
The valuation process and methodology was discussed with the
Investment Manager and with the external auditor at the Audit and
Risk Committee meetings held on 16 February 2022, 10 August 2022
and 15 February 2023. Due to the illiquid and subjective nature of
the Company's SPV investments, the Investment Manager uses an
independent third-party valuation provider to prepare quarterly
valuations and has provided a detailed valuation report to the
Company at each quarter.
Profit Share payable to the Investment Manager is based in part
on NAV and calculated in accordance with the Investment Management
Agreement, as summarised in note 12 to the financial statements.
The Investment Manager sets out a schedule of revenue and capital
profits on a quarterly and year-to-date basis, from which the
Profit Share payable by the Company may be derived. This schedule
is reviewed by the Administrator quarterly and by the Auditor
semi-annually. As the Audit and Risk Committee comprises all Board
members, the allocation of revenue profits between potential
distribution payments to Shareholders and Profit Share payable to
the Investment Manager is reviewed by the full Board at regular
Board meetings
The external auditor has explained the results of their audit
work on valuations in the Independent Auditor's Report. There were
no adjustments proposed that were material in the context of the
Annual Report and financial statements as a whole.
Risk Management
The Board is accountable for carrying out a robust assessment of
the principal and emerging risks facing the Company, including
those threatening its business model, future performance, solvency
and liquidity. On behalf of the Board, the Audit and Risk Committee
reviews the effectiveness of the Company's risk management
processes. The Company's risk assessment process and the way in
which significant business risks are managed is a key area of focus
for the Audit and Risk Committee. The work of the Audit and Risk
Committee was driven primarily by the Company's assessment of its
principal risks and uncertainties as set out in the Strategic
Report. The Audit and Risk Committee receives reports from the
Investment Manager and Administrator on the Company's risk
evaluation process and reviews changes to significant risks
identified.
Internal Audit
The Audit and Risk Committee considers at least once a year
whether or not there is a need for an internal audit function.
Currently, the Audit and Risk Committee does not consider there to
be a need for an internal audit function, given that there are no
employees in the Company and all outsourced functions are with
parties who have their own internal controls and procedures.
External Audit
Ernst & Young LLP has been the Company's external auditor
since the Company's incorporation. This is the fourth year of
audit.
The external auditor is required to rotate the audit partner
every five years. There are no contractual obligations restricting
the choice of external auditor and the Company will put the audit
services contract out to tender at least every ten years. Under
Companies Law, the re-appointment of the external auditor is
subject to Shareholder approval at the AGM. The Audit and Risk
Committee continues to monitor the performance of the external
auditor on an annual basis and considers its independence and
objectivity, taking account of appropriate guidelines. In addition,
the Committee Chair continues to maintain regular contact with the
lead audit partner outside the formal Committee meeting schedule,
not only to discuss formal agenda items for upcoming meetings, but
also to review any other significant matters.
The Audit and Risk Committee reviews the scope and results of
the audit, its cost effectiveness and the independence and
objectivity of the external auditor, with particular regard to the
level of any non-audit fees. Notwithstanding such services, the
Audit and Risk Committee considers Ernst & Young LLP to be
independent of the Company and that the provision of such non-audit
services is not a threat to the objectivity and independence of the
conduct of the audit.
To further safeguard the objectivity and independence of the
external auditor from becoming compromised, the Audit and Risk
Committee are aware of the Ethical Standard 2019 that imposes a cap
on fees to be charged by a company's external auditor for certain
non-audit services at 70 percent of the average statutory audit
fees for the previous three years. This precludes Ernst & Young
LLP from providing any non-audit services not permissible under the
Ethical Standard 2019 which also sets a presumption that Ernst
& Young LLP should only be engaged for non-audit services where
they are best placed to provide those services, for example the
interim review and reporting accountant services. Note 10 details
services provided by Ernst & Young LLP during the year.
To fulfil its responsibility regarding the independence of the
external auditor, the Audit and Risk Committee considers:
-- discussions with or reports from the external auditor
describing its arrangements to identify, report and manage any
conflicts of interest; and
-- the extent of non-audit services provided by the external auditor.
To assess the effectiveness of the external auditor, the
committee reviews:
-- the external auditor's fulfilment of the agreed audit plan and variations from it;
-- discussions or reports highlighting the major issues that
arose during the course of the audit; and
-- feedback from other service providers evaluating the performance of the audit team.
Fees paid to the Company's Auditor during the year are as
follows:
For the year ended For the year ended
31 December 2022 31 December 2021
$'000 $'000
--------------------------------------------------- ------------------- -------------------
Fees to the Company's Auditor
for audit of the statutory financial statements 206 227
for other audit related services 24 27
230 254
Other fees paid to the Company's Auditor for other audit related
services of $24k (2021: $27k) were in relation to a review of the
Interim Report and fees paid for other non-audit services of $nil
(2021: $nil) were in relation to regulatory advisory services.
The Audit and Risk Committee is satisfied with Ernst & Young
LLP's effectiveness and independence as external auditor having
considered the degree of diligence and professional scepticism
demonstrated. Having carried out the review described above, and
having satisfied itself that the external auditor remains
independent and effective.
The Audit and Risk Committee has provided the Board with its
recommendation to the Shareholders on the re-appointment of Ernst
& Young LLP as external auditor for the year ending 31 December
2023. Accordingly, a resolution proposing the re-appointment of
Ernst & Young LLP as the Company's external auditor will be put
to Shareholders at the AGM.
On behalf of the Audit and Risk Committee
Emma Davies
Audit and Risk Committee Chair
15 February 2023
Statement of Financial Position
As at 31 December 2022
31 December 2022 31 December 2021
Note $'000 $'000
-----
Non-current assets
Investments at fair value through profit or loss 4 94,570 87,125
-------------------------------------------------- ----- ----------------- -----------------
94,570 87,125
Current assets
Loan interest receivable 4 1,263 1,418
Dividends receivable 4 3,451 674
Trade and other receivables 6 124 97
Cash and cash equivalents 957 4,884
-------------------------------------------------- ----- ----------------- -----------------
5,795 7,073
Current liabilities
Trade and other payables 7 (1,889) (898)
Net current assets 3,906 6,175
Net assets 98,476 93,300
-------------------------------------------------- ----- ----------------- -----------------
Equity
Share capital 8 908 915
Capital redemption reserve 8 92 85
Other distributable reserves 8 90,528 91,179
Retained earnings 9 6,948 1,121
Total Shareholders' funds 98,476 93,300
-------------------------------------------------- ----- ----------------- -----------------
Number of Shares in issue at year end 90,805,237 91,545,383
Net assets per share (cents) 13 108.45 101.92
-------------------------------------------------- ----- ----------------- -----------------
The financial statements of the Company were approved and
authorised for issue by the Board of Directors on 15 February 2023
and signed on its behalf by:
Reuben Jeffery, III Emma Davies
Chairman Director
Company number: 11874946
The accompanying notes below form an integral part of these
financial statements.
Statement of Comprehensive Income
For the year ended 31 December 2022
For the year ended For the year ended
31 December 2022 31 December 2021
Note Revenue Capital Total Revenue Capital Total
$'000 $'000 $'000 $'000 $'000 $'000
--------------- ----- ---------------------------------------------------------- ---------------------------------- -------- -------------------------------------------------- ----------------------------------- --------
Investment
(loss)/gain
Change in fair
value of
investments
at fair value
through
profit or
loss 4 - 3,944 3,944 - (1,986) (1,986)
--------------- ----- ---------------------------------------------------------- ---------------------------------- -------- -------------------------------------------------- ----------------------------------- --------
- 3,944 3,944 - (1,986) (1,986)
Income
Investment
income 4 11,967 - 11,967 8,274 - 8,274
--------------- ----- ---------------------------------------------------------- ---------------------------------- -------- -------------------------------------------------- ----------------------------------- --------
11,967 - 11,967 8,274 - 8,274
Expenses
Directors'
fees and
expenses 16 (180) - (180) (179) - (179)
Other
operating
expenses (1,269) - (1,269) (991) - (991)
Profit share 12 (1,679) - (1,679) (668) - (668)
Total expenses (3,128) - (3,128) (1,838) - (1,838)
Operating
profit /
(loss) for
the year 8,839 3,944 12,783 6,436 (1,986) 4,450
Finance income
Interest
income 65 - 65 1 - 1
--------------- ----- ---------------------------------------------------------- ---------------------------------- -------- -------------------------------------------------- ----------------------------------- --------
Total finance
income 65 - 65 1 - 1
Profit /
(loss) for
the year
before tax 8,904 3,944 12,848 6,437 (1,986) 4,451
Tax 11 - - - - - -
--------------- ----- ---------------------------------------------------------- ---------------------------------- -------- -------------------------------------------------- ----------------------------------- --------
Profit /
(loss) for
the year
after tax 8,904 3,944 12,848 6,437 (1,986) 4,451
Profit /
(loss) and
total
comprehensive
income for
the year 8,904 3,944 12,848 6,437 (1,986) 4,451
Profit /
(loss) and
total
comprehensive
income
attributable
to:
Equity holders
of the
Company 8,904 3,944 12,848 6,437 (1,986) 4,451
Earnings per
share
--------------- ----- ---------------------------------------------------------- ---------------------------------- -------- -------------------------------------------------- ----------------------------------- --------
Basic and
diluted
earnings and
loss per
Share (cents) 13 9.76 4.32 14.08 7.03 (2.17) 4.86
--------------- ----- ---------------------------------------------------------- ---------------------------------- -------- -------------------------------------------------- ----------------------------------- --------
All 'Revenue' and 'Capital' items in the above statement derive
from continuing operations. No operations were acquired or
discontinued in the year.
The 'Total' column of this statement is the profit and loss
account of the Company and the 'Revenue' and 'Capital' columns
represent supplementary information prepared under guidance issued
by the Association of Investment Companies. Profit for the year
after tax also represents Total Comprehensive Income.
The accompanying notes below form an integral part of these
financial statements.
Statement of Changes in Equity
For the year ended 31 December 2022
For the year ended Capital redemption Other distributable
31 December 2022 Share capital reserve reserve Retained earnings Total
Note $'000 $'000 $'000 $'000 $'000
--------------------- ----- -------------- -------------------- -------------------- ------------------ --------
Opening net assets
attributable to
Shareholders 915 85 91,179 1,121 93,300
Repurchase and
cancellation of
share capital (7) 7 (651) - (651)
Total comprehensive
income for the year - - - 12,848 12,848
Distributions paid
in the year 14 - - - (7,021) (7,021)
Closing net assets
attributable to
Shareholders 908 92 90,528 6,948 98,476
--------------------- ----- -------------- -------------------- -------------------- ------------------ --------
Following the IPO of the Company, the share premium account was
cancelled by a court order dated 16 July 2019. The amount standing
to the credit of the share premium account of the Company, less any
issue expenses set off against the share premium account, was
cancelled and credited to create the other distributable reserve
account. This may be applied in any manner in which the Company's
profits available for distribution are able to be applied, as
determined in accordance with the Companies Act 2006.
The company's total distributable reserves comprise its other
distributable reserve and retained earnings, excluding unrealised
movement on its investments. After taking account of cumulative
unrealised gains of $3.5m and distributions made, the total amount
of reserves that were distributable as at 31 December 2022 were
$94.0m.
Details of the Company's retained earnings are shown in note
9.
Capital Other
For the year ended Share redemption distributable Retained
31 December 2021 capital reserve reserve earnings Total
Note $'000 $'000 $'000 $'000 $'000
--------------------------------- ----- --------- ------------ --------------- ---------- --------
Opening net assets attributable
to Shareholders 915 85 91,179 3,351 95,530
Total comprehensive
income for the year - - - 4,451 4,451
Distributions paid in
the year 14 - - - (6,681) (6,681)
Closing net assets
attributable to Shareholders 915 85 91,179 1,121 93,300
--------------------------------- ----- --------- ------------ --------------- ---------- --------
After taking account of cumulative unrealised losses of $0.5m
and distributions made, the total amount of reserves that were
distributable as at 31 December 2021 were $92.8m.
The accompanying notes below form an integral part of these
financial statements.
Statement of Cash Flows
For the year ended 31 December 2022
For the year ended For the year ended
Note 31 December 2022 31 December 2021
$'000 $'000
----------------------------------------------------------- ----- ------------------- -------------------
Cash flows from operating activities
Operating profit for the financial year 12,783 4,450
Adjustments for:
Bank interest received in cash 50 1
Movement in fair value of investments 4 (3,944) 1,986
Investment income per Statement of Comprehensive Income 4 (11,967) (8,274)
Loan interest received 4 5,520 5,464
Dividends received 3,825 3,168
Adjustments for statement of financial position movement:
Movement in payables 991 (28)
Movement in receivables (12) (13)
Net cash generated from operating activities 7,246 6,754
Cash flows from investing activities
Investment additions (16,193) (563)
Investment proceeds 12,692 -
----------------------------------------------------------- ----- ------------------- -------------------
Net cash (used in) / generated from investing activities (3,501) (563)
Cash flows from financing activities
Distributions paid 14 (7,021) (6,681)
Repurchase and cancellation of share capital 8 (651) -
-------------------
Net cash used in financing activities (7,672) (6,681)
Net movement in cash and cash equivalents during the year (3,927) (490)
Cash and cash equivalents at the beginning of the year 4,884 5,374
----------------------------------------------------------- ----- ------------------- -------------------
Cash and cash equivalents at the end of the year 957 4,884
----------------------------------------------------------- ----- ------------------- -------------------
The accompanying notes below form an integral part of these
financial statements.
Notes to the Financial Statements
For the year ended 31 December 2022
1. General Information
The Company was incorporated and registered in England and Wales
on 11 March 2019 with registered number 11874946 as a public
company limited by shares under the Companies Act 2006
(the "Act"). The principal legislation under which the Company
operates is the Act. The Directors intend, at all times, to conduct
the affairs of the Company so as to enable it to qualify as an
investment trust for the purposes of section 1158 of the
Corporation Tax Act 2010, as amended.
2. Significant accounting policies
Basis of preparation
The financial statements have been prepared in accordance with
the UK-adopted IAS. Where presentational guidance set out in the
AIC SORP, 2022 edition, is consistent with the requirements of
UK-adopted IAS, the Directors have sought to prepare the financial
statements on a basis compliant with the recommendations of the AIC
SORP. In particular, supplementary information which analyses the
Statement of Comprehensive Income between items of a revenue and
capital nature has been presented alongside the total Statement of
Comprehensive Income.
The annual financial statements have been prepared on the
historical cost basis, as modified for the measurement of certain
financial instruments at fair value through profit or loss. The
principal accounting policies are set out below.
Foreign currencies
The functional currency of the Company is US Dollar reflecting
the primary economic environment in which the Company operates,
where most transactions are expected to take place in US Dollar.
Additionally, the Ordinary Shares of the Company are listed in US
Dollar.
The Company has chosen US Dollar as its presentation currency
for financial reporting purposes.
Transactions during the year, including income and expenses, are
translated into US Dollar at the rate of exchange prevailing on the
date of the transaction. Monetary assets and liabilities
denominated in currencies other than US Dollar are retranslated at
the functional currency rate of exchange ruling at the reporting
date. Non-monetary items that are measured in terms of historical
cost in a currency other than US Dollar are translated using the
exchange rates as at the dates of the initial transactions.
Non-monetary items measured at fair value in a currency other
than US Dollar are translated using the exchange rates at the date
when the fair value was determined. Foreign currency transaction
gains and losses on financial instruments classified as at fair
value through profit or loss are included in profit or loss in the
Statement of Comprehensive Income as part of the 'Change in fair
value of investments at fair value through profit or loss'.
Exchange differences on other financial instruments were immaterial
and have been included as other operating expenses in the Statement
of Comprehensive Income.
Financial instruments
In accordance with IFRS 9, financial assets and financial
liabilities are recognised in the Company's Statement of Financial
Position when the Company becomes a party to the contractual
provisions of the instrument.
Financial assets
When financial assets are recognised initially, they are
measured at fair value. Fair value is defined as 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.
a) Investments at fair value through profit or loss
i. Classification and measurement
The Company's investments are classified as held at fair value
through profit or loss as they are managed in a portfolio of assets
on a fair value basis. Financial assets held at fair value through
profit or loss are initially recognised at fair value, which is
taken to be their cost, and are subsequently valued at fair
value.
ii. Fair value estimation
The SPVs hold and manage the Company's underlying investments,
which are valued at fair value, based on IPEV Valuation Guidelines
and the UK-adopted IAS. The fair value of the SPVs is considered to
be their net asset value incorporating a valuation of the
underlying investments. The Directors believe that this is
appropriate, as:
-- the underlying investments within the SPVs are held on a fair
value basis as described below and have taken into account risks to
fair value, inclusive of liquidity discounts, through appropriate
discount rates;
-- the Company wholly owns the SPVs and thus is entitled to all of their economic rights; and
-- the Directors take all these items into consideration and
would make adjustments to net asset value, if deemed necessary.
Valuation process
The Investment Manager is responsible for proposing the
valuation of the assets held by the Company through the SPVs and
the Directors are responsible for reviewing the Company's valuation
policy and approving the valuations.
Valuation specialist
Due to the illiquid and subjective nature of the Company's
underlying investments, the Investment Manager uses a third party
valuation provider to perform a full independent valuation of the
underlying investments. This includes the third party valuation
provider selecting the valuation methodology and/or comparable
companies; identifying the cash flows and appropriate discount rate
utilised in a yield analysis; and providing a final value range to
the Investment Manager. The valuation adviser independently values
the assets and provides analyses to support the methodology in
addition to presenting calculations used to generate output.
b) Cash and cash equivalents
Cash includes cash on hand and demand deposits. Cash equivalents
comprise other short-term highly liquid investments with an
original maturity of three months or less that are readily
convertible to a known amount of cash and are subject to an
insignificant risk of changes in value.
Cash and cash equivalents are used for cash management purposes,
primarily for the payment of expenses and distributions.
c) Trade receivables
Trade receivables are classified as financial assets at
amortised cost. They are measured at amortised cost less impairment
assessed using the simplified approach of the expected credit loss
model based on current circumstances and expectations of future
losses.
A financial asset is derecognised (in whole or in part)
either:
-- when the Company has transferred substantially all the risks and rewards of ownership; or
-- when it has neither transferred nor retained substantially
all the risks and rewards and when it no longer has control over
the assets or a portion of the asset; or
-- when the contractual right to receive cash flow has expired.
Financial liabilities
a) Trade payables
Trade payables are classified as financial liabilities at
amortised cost.
Equity
The Company's Ordinary Shares are classified as equity and upon
issuance, the fair value of the consideration received is included
in equity. All other share issue costs of the Company, which were
otherwise chargeable to equity, were borne by the Investment
Manager.
Repurchase of Ordinary Shares for cancellation
The cost of repurchasing Ordinary Shares including the related
stamp duty and transactions costs is charged to the 'Other
distributable reserves' and dealt with in the Statement of Changes
in Equity. Share repurchase transactions are accounted for on a
trade date basis. The nominal value of ordinary share capital
repurchased and cancelled is transferred out of 'Share capital' and
into the 'Capital redemption reserve'.
Distributions
Distributions payable are recognised as distributions in the
financial statements when the Company's obligation to make payment
has been established.
Income recognition
Dividend income is recognised when the Company's entitlement to
receive payment is established. Interest income is recognised on an
accruals basis. Interest income due, but not received, is
capitalised with the principal amount of the loan and may
subsequently be reclassed as loan interest receivable, when the
distribution is imminent. Distribution and interest income is
allocated to Revenue within the Statement of Comprehensive
Income.
Expenses
Expenses include legal, accounting, auditing and other operating
expenses. They are recognised on an accruals basis in the Statement
of Comprehensive Income in the year in which they are incurred.
Expenses are charged through the Revenue account except those
which are capital in nature, including those which are incidental
to the acquisition, disposal or enhancement of an investment, which
are accounted for through the Capital account.
Profit Share
Profit share is recognised on an accrual basis in the statement
of Comprehensive Income for the year and is based on the Company's
income. The Profit Share is payable quarterly, at the same time as
the Company pays its distributions. It is subject to an annual
reconciliation in the last quarter of each year.
The amount payable in respect of the annual Profit Share is as
detailed in note 12.
Taxation
It is the intention of the Directors to conduct the affairs of
the Company so that it satisfies the conditions in section 1158
Corporation Tax Act 2010 and the Investment Trust (Approved
Company) (Tax) Regulations 2011 for it to be approved by HMRC as an
investment trust.
In respect of each accounting period for which the Company is
and continues to be approved by HMRC as an investment trust, the
Company will be exempt from UK corporation tax on its chargeable
gains and its capital profits from creditor loan relationships. The
Company will, however, be subject to UK corporation tax on its
income (currently at a rate of 19 percent).
In principle, the Company will be liable to UK corporation tax
on its dividend income. However, there are broad-ranging exemptions
from this charge which would be expected to be applicable in
respect of most of the distributions the Company may receive.
A company that is an approved investment trust in respect of an
accounting period is able to take advantage of modified UK tax
treatment in respect of its "qualifying interest income" for an
accounting period. It is expected that the Company will have
material amounts of qualifying interest income and that it may,
therefore, decide to designate some or all of the distribution paid
in respect of a given accounting period as interest
distributions.
To the extent that the Company receives income from, or realises
amounts on the disposal of, investments in foreign countries it may
be subject to foreign withholding or other taxation in those
jurisdictions. To the extent it relates to income, this foreign tax
may, to the extent not relievable under a double tax treaty, be
able to be treated as an expense for UK corporation tax purposes,
or it may be treated as a credit against UK corporation tax up to
certain limits and subject to certain conditions.
Deferred tax is provided on all temporary differences at the
balance sheet date between the tax basis of assets and liabilities
and their carrying amount for financial reporting purposes.
Deferred tax is calculated at the tax rates that are expected to
apply to the year when a liability is settled or an asset is
realised, based on tax rates (and tax laws) that have been enacted
or substantively enacted at the balance sheet date.
Going Concern
The Company's cash balance at 31 December 2022 was $1.0 million,
plus cash balances held at the SPVs of $6.7 million. The Company
currently has existing liabilities of $1.9 million, plus a
distribution payable of $2.7 million with respect to the quarter
ended 31 December 2022 and any foreseeable expenses in the period
from 15 February 2023 to 30 June 2024, being the period of
assessment covered by the Directors .
During the year, the SPVs entered into a Revolving Credit
Facility ("facility") Agreement for $15.0 million with BC Partners.
The SPV borrowings from the facility at 31 December 2022 were $5
million, leaving the remaining $10 million undrawn commitment for
future borrowings. Riverstone Credit Opportunities Income PLC is
the guarantor for the Revolving Credit Facility. The SPVs are
required to maintain a LTV Ratio above the Covenant LTV of 22% at
each borrowing request date. The LTV Ratio is calculated as the
total outstanding principal and accrued interest on the facility
divided by the Aggregate NAV. At 31 December 2022, the SPVs were
compliant with the Covenant LTV and the full amount of the undrawn
commitment is available. The SPVs also entered into a money market
capital fund with JP Morgan, earning about 5% interest annually.
The balance at 31 December 2022 was $0.3 million. Additionally, the
operating expenses of the trust are budgeted to be between $2.0
million and $2.5 million during the period of assessment including
taxes and interest expense from the SPV facility. Based on the high
end of this range, it would take the Company approximately four
years to run out of cash.
As further detailed in note 4 to the financial statements, the
Investment Manager uses a third-party valuation provider to perform
a full independent valuation of the underlying investments. The
Investment Manager has also assessed the recoverability of income
due from the underlying investee companies and has no material
concerns. Additionally, the Investment Manager and Directors have
considered the cash flow forecast and a reverse stress test to
determine the term over which the Company can remain viable given
its current resources.
The Directors and Investment Manager expect that proceeds from
loan interest repayments and realisation of investments will enable
the Company to continue to pay quarterly distributions for the
foreseeable future. After making enquiries, the Directors have a
reasonable expectation that the Company has adequate resources to
continue in operational existence to at least 30 June 2024, being a
period of assessment covered by the Directors and at least 12
months from the approval of the financial statements. In making
this assessment, they have considered the effects of COVID-19 and
the conflict between Ukraine and Russia as outlined in the Business
Review above, including the various risk mitigation measures in
place and do not consider these to have had a material impact on
the assessment of the Company as a going concern. Accordingly, the
Company continues to adopt the going concern basis of accounting in
preparing the interim financial statements.
Segmental reporting
The chief operating decision-maker, who is responsible for
allocating resources and assessing performance of the operating
segments, has been identified as the Board of Directors, as a
whole. The key measure of performance used by the Board to assess
the Company's performance and to allocate resources is the
Company's Net Asset Value, as calculated under UK-adopted IAS, and
therefore no reconciliation is required between the measure of
profit or loss used by the Board and that contained in the Annual
Report.
For management purposes, the Company is organised into one main
operating segment, which invests through its SPVs in a diversified
portfolio of debt instruments, issued by Borrowers operating in the
energy sector.
All of the Company's current income is derived from within the
United States.
All of the Company's non-current assets are located in the
United States.
Due to the Company's nature, it has no customers.
New and amended standards and interpretations not applied
Accounting standards and interpretations have been published and
will be mandatory for the Company's accounting periods beginning on
or after 1 January 2023 or later periods. The following are the new
or amended accounting standards or interpretations applicable to
the Company:
-- amendments to IAS 1 'Presentation of financial statements' on
classification of liabilities, effective for annual periods
beginning on or after 1 January 2023
-- amendments to IAS 1 'Presentation of financial statements'
and IFRS Practice Statement 2 on disclosure of accounting policies,
effective for annual periods beginning on or after 1 January
2023
The impact of these amendments is not expected to be material to
the reported results and financial position of the Company.
2. Significant accounting judgements, estimates and assumptions
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.
Estimates and judgements are continually evaluated and are based
on management experience and other factors, including expectations
of future events that are believed to be reasonable under the
circumstances.
Judgements
In the process of applying the Company's accounting policies,
management has made the following judgements, which have the most
significant effect on the amounts recognised in the financial
statements:
Assessment as an Investment Entity
IFRS 10 'Consolidated Financial Statements' sets out the
following three essential criteria that must be met, if a company
is to be considered as an Investment Entity:
1. it must obtain funds from multiple investors for the purpose
of providing those investors with investment management
services;
2. it must commit to its investors that its business purpose is
to invest funds solely for returns from capital appreciation,
investment income, or both; and
3. it must measure and evaluate the performance of substantially
all of its investments on a fair value basis.
In satisfying the second essential criterion, the notion of an
investment time frame is critical and an Investment Entity should
have an exit strategy for the realisation of its investments. Also
as set out in IFRS 10, further consideration should be given to the
typical characteristics of an Investment Entity, which are
that:
-- it should have more than one investment, to diversify the
risk portfolio and maximise returns;
-- it should have multiple investors, who pool their funds to
maximise investment opportunities;
-- it should have investors that are not related parties of the entity; and
-- it should have ownership interests in the form of equity or similar interests.
The Directors are of the opinion that the Company meets the
essential criteria and typical characteristics of an Investment
Entity as noted above. Therefore the SPVs are measured at fair
value through profit or loss, in accordance with IFRS 9 'Financial
Instruments'. Fair value is measured in accordance with IFRS 13
'Fair Value Measurement'.
Judgement on Valuation of SPVs
The Board's determination of whether a discount or premium
should be applied to the net asset value of the SPV involves a
degree of judgement due to the nature of the underlying investments
and other assets and liabilities and the valuation techniques and
procedures adopted by the SPV.
The resulting accounting estimates will, by definition, seldom
equal the related actual results.
Assessment of the SPVs as structured entities
The Company considers the SPVs to be structured entities as
defined by IFRS 12 'Disclosure of Interests in Other Entities'.
Transfer of funds by the SPVs to the Company is determined by the
Investment Manager. The risks associated with the Company's
investment in the SPVs are disclosed in note 15. The summarised
financial information for the Company's investment in the SPVs is
disclosed in note 4.
Estimates and assumptions
The area involving a high degree of judgement or complexity and
where assumptions and estimates are significant to the financial
statements has been identified as the risk of misstatement of the
valuation of the investments (see note 4). Revisions to accounting
estimates are recognised in the year in which the estimate is
revised and in any future years affected.
Climate change
In preparing the financial statements, the Directors have
considered the impact of climate change, particularly in the
context of the climate change risks identified in the ESG Report
section of the Strategic Report.
In preparing the financial statements, the Directors have
considered the medium and longer term cash flow impacts of climate
change on a number of key estimates within the financial
statements, including:
-- the estimates of future cash flows used in impairment
assessments of the fair value of investments; and
-- the estimates of future profitability used in the assessment
of distributable income and profit share.
These considerations did not have a material impact on the
financial reporting judgements and estimates in the current year.
This reflects the conclusion that climate change is not expected to
have a significant impact on the Company's short-term cash flows
including those considered in the going concern and viability
assessments.
3. Investments at fair value through profit or loss
The table below shows the reconciliation of the movements of
level 3 assets during the year.
For the year ended For the year ended 31 December 2021
31 December 2022
Loans Equity Total Loans Equity Total
$'000 $'000 $'000 $'000 $'000 $'000
------------------- ------- ------- ------- ----------------------------- ------------------- ------------------
Opening balance 60,049 27,076 87,125 60,049 28,499 88,548
Restructuring 213 (213) - - - -
Investment
addition /
(proceeds) (865) 4,366 3,501 - 563 563
Unrealised
movement in fair
value of
investments - 3,944 3,944 - (1,986) (1,986)
59,397 35,173 94,570 60,049 27,076 87,125
------------------- ------- ------- ------- ----------------------------- ------------------- ------------------
The Company's investment in its SPVs comprises a loan investment
and an equity investment, as set out above. The SPVs invest in a
diversified portfolio of direct and indirect investments in loans,
notes, bonds and other debt instruments.
Interest receivable on the loan investment at 31 December 2022
was $1,263k (2021: $1,418k) and the distribution receivable on the
equity investment at 31 December 2022 was $3,451k (31 December
2021: $674k). As at 31 December 2022, the total unfunded
commitments of the Company by its SPV investments is $7.5m (2021:
$8.4m).
Reconciliation of investment income recognised in the year
For the year ended For the year ended
31 December 2022 31 December 2021
$'000 $'000
-------------------------------------------------- ------------------- -------------------
Movement in loan interest receivable at year end (155) 103
Loan interest received as cash 5,520 5,464
Total loan interest recognised in the year 5,365 5,567
Dividend income 6,602 2,707
Total investment income recognised in the year 11,967 8,274
--------------------------------------------------- ------------------- -------------------
Total cash received in relation to interest income in the year
was $5.5m (2021: $5.5m). This comprises $5.5m (2021: $5.5m) of loan
interest recognised in the year and $nil (2021: $nil) of amounts
capitalised in the prior period.
Fair value measurements
IFRS 13 requires disclosure of fair value measurement by level.
The level of fair value hierarchy within the financial assets or
financial liabilities is determined on the basis of the lowest
level input that is significant to the fair value measurement.
Financial assets and financial liabilities are classified in their
entirety into only one of the following 3 levels:
-- Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities;
-- Level 2 - inputs other than quoted prices included within
Level 1 that are observable for the assets or liabilities, either
directly (i.e. as prices) or indirectly (i.e. derived from prices);
and
-- Level 3 - inputs for assets or liabilities that are not based
on observable market data (unobservable inputs).
The Directors consider observable data to be market data that is
readily available, regularly distributed or updated, reliable and
verifiable, not proprietary, and provided by independent sources
that are actively involved in the relevant market.
The only financial instruments held at fair value are the
instruments held by the Company in the SPVs, which are fair valued
at each reporting date. The Company's investments have been
classified within level 3 as the investments are not traded and
contain unobservable inputs. The Company's investments are all
considered to be level 3 assets.
There have been no transfers between levels during the year
(2021: none). Any transfers between the levels would be accounted
for on the last day of each financial period.
Valuation methodology and process
The Directors base the fair value of investment in the SPVs on
the fair value of their assets and liabilities, adjusted if
necessary, to reflect liquidity, future commitments, and other
specific factors of the SPVs and Investment Manager. This is based
on the components within the SPVs, principally the value of the
SPVs' investments, in addition to cash and short-term money market
fixed deposits. Any fluctuation in the value of the SPVs'
investments held will directly impact on the value of the Company's
investment in the SPVs.
The SPVs' investments are valued using the techniques described
in the Company's valuation policy, as outlined in note 2. The
Investment Manager's assessment of fair value of investments held
by the SPVs is determined in accordance with IPEV Valuation
Guidelines. When valuing the SPVs' investments, the Investment
Manager reviews information provided by the underlying investee
companies and other business partners and applies IPEV
methodologies, to estimate a fair value as at the date of the
Statement of Financial Position.
Initially, acquisitions are valued at cost. Subsequently, and as
appropriate, the Investment Manager values the investments on a
quarterly basis using common industry valuation techniques,
including comparable public market valuation, comparable merger and
acquisition transaction valuation and discounted cash flow
valuation. The techniques used in determining the fair value of the
Company's investments through its SPVs are selected on an
investment by investment basis so as to maximise the use of market
based observable inputs. These techniques also reflect the impact
of primary and transition risks on the portfolio, although the
impact of the risks are minimal as the maximum investment period is
seven years. As disclosed in note 2, due to the illiquid and
subjective nature of the Company's underlying investments, the
Investment Manager uses a third party valuation provider to perform
a full independent valuation of the underlying investments.
Quantitative information of significant unobservable inputs -
Level 3 - SPV
31 December 2022 Valuation Unobservable Range / weighted
Description technique input average
$'000 $'000
------------- ----------------- ------------------------- ------------- -----------------
SPV 94,570 Adjusted net asset value NAV 94,570
------------- ----------------- ------------------------- ------------- -----------------
The Directors believe that it is appropriate to measure the SPVs
at their adjusted net asset value, incorporating a valuation of the
underlying investments which has taken into account risks to fair
value, inclusive of liquidity discounts, through appropriate
discount rates.
Sensitivity analysis to significant changes in unobservable
inputs within Level 3 hierarchy
The significant unobservable inputs used in the fair value
measurement categorised within Level 3 of the fair value hierarchy
together with a quantitative sensitivity analysis as at 31 December
2022 are as shown below:
Sensitivity Effect on
Description Input used fair value
$'000
------------- -------------------------------- ------------ -----------
SPV Discount for lack of liquidity +/- 3% -/+2,837
-------------- ------------------------------- ------------ -----------
The Company's valuation policy is compliant with both UK-adopted
IAS and IPEV Valuation Guidelines and is applied consistently. As
the Company's investments are generally not publicly quoted,
valuations require meaningful judgement to establish a range of
values, and the ultimate value at which an investment is realised
may differ from its most recent valuation and the difference may be
significant.
For the year ended 31 December 2022, the valuations of the
Company's investments, through its SPVs, are detailed in the
Investment Manager's Report.
The below table shows fair value sensitivities to a 100 BPS
increase in the discount rate and 0.5x multiple decrease used for
each industry as at 31 December 2022.
Fair Value Sensitivity
Investments at
Fair Value as of to a 100 bps Increase
December 31, 2022 Range In the Discount Rate
Valuation Unobservable
Industry (In Thousands) technique(s) input(s) Low High (In Thousands)
---------------- ----------------------------- ------------- ------------- ------------------------ ------ -------------------------------
Discounted Discount
Infrastructure 29,998 cash flow rate 6% 14% (457)
Recovery EBITDA
Approach multiple 6.5x 6.5x
Latest round NA NA
of financing NA
Infrastructure Discounted Discount
Services 36,101 cash flow rate 8% 12% (610)
Option
Pricing Risk Free
Model Rate 4% 4%
Public EBITDA
Energy 16,560 comparables multiple 4.0x 8.0x (783)
Public Revenue
Transition comparables multiple 1.3x 4.0x
Latest round NA NA
of financing NA
Discounted Discount
Services 13,022 cash flow Rate 6% 7% (666)
Public EBITDA
comparables multiple 6.5x 7.5x
Waterfall NA NA
Approach NA
$ 95,681 (a) $ (2,516)
(a) The difference between the fair value of the SPVs of $94.6m
and the fair value of the underlying investments at 31 December
2022 is due to cash balances of $6.7m and residual liabilities
including the RCF of $7.7m, held within the SPVs.
The below table shows fair value sensitivities to a 100 BPS
increase in the discount rate used for each industry as at 31
December 2021.
Fair Fair
value Value
sensitivity Sensitivity
Investments to a to a
at Fair 100 bps 0.5x
Value increase decrease
as at Weighted in the in the
Investment 31 December Valuation Unobservable Average discount EBITDA/Revenue
Type 2021 technique(s) input(s) Range (a) rate multiple
--------------
Industry $'000 Low High $'000 $'000
---------------- ------------ ------------ ------------- ------------- ------ ------ --------- ------------ ---------------
Senior
Secured Discounted Discount
Midstream Loans 26,462 Cash Flow rate 10% 12% 11% (358) NA
Recovery EBITDA
Equity Approach multiple 7.0x 7.0x 7.0x NA -
Senior
Secured Discounted Discount
Infrastructure Loans 31,916 Cash Flow rate 8% 18% 13% (390) NA
Services Equity Waterfall NA NA NA NA NA NA
Rights Approach
Senior
Secured Discounted Discount
Energy Loans 7,336 Cash Flow rate 8% 49% 23% (198) NA
Public EBITDA
Transition Equity Comparables multiple 33.0x 38.0x 35.5x NA (21)
Public Revenue
Comparables multiple 7.0x 7.5x 7.3x NA (21)
Waterfall NA NA NA NA NA NA
Approach
65,714
(b) (946) (42)
(a) Calculated based on fair values. Weighted average is not
applicable for industry categories with only one investment.
(b) The difference between the fair value of the SPVs of $87.1m
and the fair value of the underlying investments at 31 December
2021 is due to cash balances of $22.8m and residual liabilities of
$1.4m, held within the SPVs.
4. Unconsolidated subsidiaries
The following table shows subsidiaries of the Company. As the
Company is regarded as an Investment Entity as referred to in note
3, these subsidiaries have not been consolidated in the preparation
of the financial statements:
Ownership interest as at 31 Ownership interest as at 31
Investment Place of business December 2022 December 2021
------------------------------ ------------------- ------------------------------ ------------------------------
Held directly
Riverstone International
Credit Corp. USA 100% 100%
Riverstone International
Credit L.P. USA 100% 100%
Held indirectly
Riverstone International
Credit - Direct L.P. USA 100% 100%
------------------------------- ------------------ ------------------------------ ------------------------------
The registered office of the above subsidiaries is c/o The
Corporation Trust Company, Corporation Trust Center, 1209 Orange
Street, Wilmington, Delaware 19801.
The amounts invested in the Company's unconsolidated
subsidiaries during the year and their carrying value at 31
December 2022 are as outlined in note 4, comprising:
31 December 2022 31 December 2021
Riverstone Riverstone Riverstone Riverstone
International International International International
Credit Corp. Credit L.P. Total Credit Corp. Credit L.P. Total
$'000 $'000 $'000 $'000 $'000 $'000
------------------ ----------------- ----------------- --------- ----------------- ----------------- --------
Opening balance at
1 January 86,805 320 87,125 88,548 - 88,548
Restructure of
investments 309 (309) - - - -
Investment
additions 11,439 12,693 24,132 3 560 563
Investment
realisations (12,692) (7,939) (20,631) - - -
Movement in fair
value 3,523 421 3,944 (1,746) (240) (1,986)
Closing balance at
31 December 89,384 5,186 94,570 86,805 320 87,125
=================== ================= ================= ========= ================= ================= ========
The Company intends to fund further underlying investments
through its unconsolidated subsidiaries.
On December 7, 2022, the Company's SPVs entered a senior secured
RCF agreement for $15.0 million to enter into new commitments ahead
of anticipated realisations, enabling the Company to minimise the
drag on returns of uninvested capital. The borrowers as defined per
the RCF are Riverstone International Credit - Direct L.P. and
Riverstone International Credit L.P., and the guarantors are the
Company, Riverstone Credit Opportunities Income Partners - Direct
L.L.C., a
Delaware limited liability company and Riverstone Credit
Opportunities Income Partners L.L.C., a Delaware limited liability
company. The first $5.0 million of the senior secured RCF was
funded at close and the remaining $10.0 million undrawn commitment
is available for future borrowings. Pursuant to the RCF agreement,
the interest rate per annum on each borrowing under the RCF can be
referenced to SOFR + 6.50% with a 100bps SOFR floor.
During 2022, the SPVs borrowed $5 million, incurred $0.3 million
in fees and $0.1m in interest. Interest is recorded in the interest
expense at the SPV level and is also included in the SPVs' net
asset value. The interest rate on 2022 borrowings was SOFR plus
6.50%.
There are no restrictions on the ability of the Company's
unconsolidated subsidiaries to transfer funds in the form of cash
distributions or repayment of loans.
5. Trade and other receivables
31 December 2022 31 December 2021
$'000 $'000
-------------------------- ----------------- -----------------
Prepayments 76 76
VAT receivable 33 21
Bank interest receivable 15 -
-------------------------- ----------------- -----------------
124 97
6. Trade and other payables
31 December 2022 31 December 2021
$'000 $'000
---------------------- ----------------- -----------------
Profit share payable 1,685 668
Other payables 204 230
1,889 898
7. Share capital and reserves
Capital Other
Issued and fully Number of shares redemption distributable
Date paid issued Share capital reserve reserves Total
------------------ ----------------- ----------------- -------------- ---------------- ---------------- --------
GBP GBP'000 GBP'000 GBP'000 GBP'000
1 January 2022 1 - - - -
31 December 2022 1 - - - -
------------------------------------- ----------------- -------------- ---------------- ---------------- --------
USD $'000 $'000 $'000 $'000
1 January 2022 91,545,383 915 85 91,179 92,179
Repurchase and cancellation of
Ordinary Shares (740,146) (7) 7 (651) (651)
31 December 2022 90,805,237 908 92 90,528 91,528
------------------------------------- ----------------- -------------- ---------------- ---------------- --------
As at 31 December 2022 the Company's issued share capital
comprises 90,805,237 Ordinary Shares (2021: 91,545,383) and 1 E
Share (2021: 1). Ordinary Shareholders are entitled to all
distributions paid by the Company and, on a winding up, provided
the Company has satisfied all of its liabilities, the Shareholders
are entitled to all of the surplus assets of the Company. E shares
are non-redeemable shares and grant the registered holders the
right to receive notice of and to attend but, except where there
are no other shares of the Company in issue, not to speak or vote
(either in person or by proxy) at any general meeting of the
Company.
During the year, the Company repurchased and cancelled 740,146
Ordinary Shares (31 December 2021: none) as part of its buy-back
programme. Further details regarding the Company's purchase of its
own shares are in the Chairman's Statement above.
8. Retained earnings
For the year ended For the year ended
31 December 2022 31 December 2021
Revenue Capital Revenue
reserve reserve Total reserve Capital reserve Total
$'000 $'000 $'000 $'000 $'000 $'000
---------------- --- --------------- --------------- -------------- --------------- ---------------- --------
Opening balance 1,588 (467) 1,121 1,832 1,519 3,351
Profit and total
comprehensive
income in the year 8,904 3,944 12,848 6,437 (1,986) 4,451
Distributions paid
in the year (7,021) - (7,021) (6,681) - (6,681)
Closing balance 3,471 3,477 6,948 1,588 (467) 1,121
--------------------- --------------- --------------- -------------- --------------- ---------------- --------
9. Audit fees
Other operating expenses include fees payable to the Company's
Auditor, which can be analysed as follows:
For the year ended For the year ended
31 December 2022 31 December 2021
$'000 $'000
--------------------------------------------------- ------------------- -------------------
Fees to the Company's Auditor
for audit of the statutory financial statements 206 227
for other audit related services 24 27
for non-audit services - -
230 254
Other fees paid to the Company's Auditor for other audit related
services of $24k (2021: $27k) were in relation to a review of the
Interim Report. There were no fees paid for other non-audit
services in the year (2021: $nil).
11. Tax
As an investment trust, the Company is exempt from UK
corporation tax on capital gains arising on the disposal of shares.
Capital profits from its loan relationships are exempt from UK tax
where the profits are accounted for through the Capital column of
the Statement of Comprehensive Income, in accordance with the AIC
SORP.
The Company has made a streaming election to HMRC in respect of
distributions and is entitled to deduct interest distributions paid
out of income profits arising from its loan relationships in
computing its UK corporation tax liability. Therefore, no tax
liability has been recognised in the financial statements.
For the year ended For the year ended
31 December 2022 31 December 2021
Revenue Capital Total Revenue Capital Total
$'000 $'000 $'000 $'000 $'000 $'000
------------------------------------------------------------ -------- -------- -------- -------- -------- ------
UK Corporation tax charge on profits for the year at 19% - - - - - -
(2021: 19%)
------------------------------------------------------------ -------- -------- -------- -------- -------- ------
For the year ended For the year ended
31 December 2022 31 December 2021
Revenue Capital Total Revenue Capital Total
$'000 $'000 $'000 $'000 $'000 $'000
------------------------------------------------------------ -------- -------- -------- -------- -------- ------
Return on ordinary activities before taxation 8,904 3,944 12,848 6,437 (1,986) 4,451
Profit / (loss) on ordinary activities multiplied by
standard rate of corporation tax in the
UK of 19% (2021: 19%) 1,692 749 2,441 1,223 (377) 846
Effects of:
Non-taxable investment (losses) /
gains on investments - (749) (749) - 377 377
Non-taxable dividend income (1,254) - (1,254) (514) - (514)
Tax deductible interest distributions (438) - (438) (709) - (709)
------------------------------------------------------------
Total tax charge - - - - - -
As at 31 December 2022 the Company had no unprovided deferred
tax assets or liabilities. At that date, based on current estimates
and including the accumulation of net allowable losses, the Company
had no unrelieved losses.
Deferred tax is not provided on capital gains and losses arising
on the revaluation or disposal of investments because the Company
meets (and intends to continue to meet for the foreseeable future)
the conditions for approval as an Investment Trust company.
On 3 March 2021, as part of the Spring Budget and subsequent
announcements in September 2022, the UK Government corporation tax
rate will increase from 19% to 25% (for companies with profits over
GBP250,000), from 5 April 2023.
12. Profit Share
Under the Investment Management Agreement, the Investment
Manager will not charge any base or other ongoing management fees,
but will be entitled to reimbursement of reasonable expenses
incurred by it in the performance of its duties. The Investment
Manager will receive from the Company, a Profit Share based on the
Company's income, as calculated for UK tax purposes and the
Company's Capital Account. The Profit Share will be payable
quarterly at the same time as the Company pays its distributions,
subject to an annual reconciliation in the last quarter of each
year.
The amount payable in respect of the annual Profit Share will
be:
a) an amount equal to 20 percent of the amount by which the
Distributable Income exceeds an amount equal to 4 percent of the
Company's Capital Amount; plus
b) an additional amount equal to 10 percent of the amount by
which the Distributable Income exceeds an amount equal to 8 percent
of the Capital Amount.
The Capital Amount is equal to the gross proceeds of the issue
of Ordinary Shares at IPO, plus the net proceeds of any future
issues of Ordinary Shares, less any amounts expended by the Company
on share repurchases and redemptions or, following the option to be
given to Shareholders around the time of the Company's AGM in 2024
to elect to convert all or some of their shares into Realisation
Shares.
Annual reconciliation and cap
At the end of the Company's financial year, the Profit Share
will undergo an annual reconciliation. In the event that the annual
reconciliation results in a reduction of the aggregate Profit Share
payable to the Investment Manager, the Profit Share payable in the
fourth quarter will be reduced to no less than zero by the relevant
amount, with any remaining reduction carried forward to Profit
Shares otherwise payable in respect of future quarters. In
addition, the amount payable to the Investment Manager as a Profit
Share in any year will be limited to a maximum of 5 percent of the
prevailing NAV.
Capital loss adjustment
If, in any financial year the Company suffers a capital loss
which (disregarding the impact of any distributions paid or payable
by the Company) causes the closing Net Asset Value per Ordinary
Share for the year to fall below the lower of: (a) US$1.00; or (b)
the closing Net Asset Value per Ordinary Share for the prior year,
then the amount of the Distributable Income for the year equal to
the amount by which the capital loss causes the Net Asset Value to
fall below that threshold amount will be ignored for the purposes
of calculating the Profit Share for that year. If the amount by
which the capital loss causes the Net Asset Value to fall below the
threshold amount is greater than the Distributable Income for the
year, then the amount of any excess will be carried forward to
following years until it is set off against Distributable Income in
full. The capital loss test will be applied as a part of the annual
reconciliation of the Profit Share.
Amounts paid or accrued as Profit Share during the year were
$1,679k (2021: $668k).
13. Earnings per share and Net assets per share
Earnings per share
For the year ended For the year ended
31 December 2022 31 December 2021
Revenue Capital Total Revenue Capital Total
--------------- ------------- ------------------------------- ------------------------------ ------------------------ -------- -----------
Profit/(loss)
attributable
to equity
holders of
the Company -
$'000 8,904 3,944 12,848 6,437 (1,986) 4,451
Weighted
average
number of
Ordinary
Shares in
issue 91,202,984 91,545,383
--------------- ------------- ------------------------------- ------------------------------ ------------------------ -------- -----------
Basic and
diluted
earnings and
loss per
Share from
continuing
operations in
the year
(cents) 9.76 4.32 14.08 7.03 (2.17) 4.86
--------------- ------------- ------------------------------- ------------------------------ ------------------------ -------- -----------
There are no dilutive shares in issue.
Net assets per share
31 December 2022 31 December 2021
---------------------------------- ----------------- -----------------
Net assets - $'000 98,476 93,300
Number of Ordinary Shares issued 90,805,237 91,545,383
----------------------------------- ----------------- -----------------
Net assets per Share (cents) 108.45 101.92
----------------------------------- ----------------- -----------------
14. Distributions declared with respect to the year
2022 2021
Distribution per share Total distribution Distribution per share Total distribution
Distributions paid cents $'000 cents $'000
during the year
------------------------ ----------------------- ------------------- ----------------------- -------------------
With respect to the
year ended 31 December
2021 (2020) 1.70 1,556 2.00 1,831
With respect to the
quarter ended 31 March 2.00 1,831 1.70 1,556
With respect to the
quarter ended 30 June 2.00 1,818 1.80 1,647
With respect to the
quarter ended 30
September 2.00 1,816 1.80 1,647
------------------------ ----------------------- ------------------- ----------------------- -------------------
7.70 7,021 7.30 6,681
----------------------- ----------------------- ------------------- ----------------------- -------------------
2022 2021
Distribution per share Total distribution Distribution per share Total distribution
Distributions declared cents $'000 cents $'000
after 31 December 2022
and not accrued in the
year
------------------------ ----------------------- ------------------- ----------------------- -------------------
With respect to the
quarter ended 31
December 3.00 2,746 1.70 1,556
------------------------ ----------------------- ------------------- ----------------------- -------------------
On 15 February 2023, the Board approved a distribution of 2.00
cents per share with a special 1.00 per share special distribution
in respect to the quarter ended 31 December 2022. The record date
for the distribution is 24 February 2023 and the payment date is 24
March 2023.
14. Financial risk management
Financial risk management objectives
The Company's investing activities, through its investment in
the SPVs, intentionally expose it to various types of risks that
are associated with the underlying investee companies of the SPVs.
The Company makes the investment in order to generate returns in
accordance with its investment policy and objectives.
The most important types of financial risks to which the Company
is exposed are market risk (including price, interest rate and
foreign currency risk), liquidity risk and credit risk. The Board
of Directors has overall responsibility for the determination of
the Company's risk management and sets policy to manage that risk
at an acceptable level to achieve those objectives. The policy and
process for measuring and mitigating each of the main risks are
described below.
The Investment Manager and the Administrator provide advice to
the Company which allows it to monitor and manage financial risks
relating to its operations through internal risk reports which
analyse exposures by degree and magnitude of risks. The Investment
Manager and the Administrator report to the Board on a quarterly
basis.
Categories of financial instruments
For financial assets and liabilities carried at amortised cost,
the Directors are of the opinion that their carrying value
approximates to their fair value
31 December 2022 31 December 2021
$'000 $'000
-------------------------------------------------- ----------------- -----------------
Financial assets
Investment at fair value through profit or loss:
Investment in the SPVs 94,570 87,125
Other financial assets:
Cash and cash equivalents 957 4,884
Loan interest receivable 1,263 1,418
Dividends receivable 3,451 674
Trade and other receivables 124 97
Financial liabilities
Financial liabilities:
Trade and other payables (1,889) (898)
------------------------------------------------------ ----------------- -----------------
Capital risk management
The Company manages its capital to ensure that it will be able
to continue as a going concern while maximising the capital return
to Shareholders. The capital structure of the Company consists of
issued share capital, retained earnings and other distributable
reserves, as stated in the Statement of Financial Position.
In order to maintain or adjust the capital structure, the
Company may buy back shares or issue new shares. There are no
external capital requirements imposed on the Company.
During the year ended 31 December 2022, the Company had no
borrowings (2021: $nil).
The Company's investment policy is set out in the Strategic
Report above.
Market risk
Market risk includes price risk, foreign currency risk and
interest rate risk.
a) Price risk
The underlying investments held by the SPVs present a potential
risk of loss of capital to the SPVs and hence to the Company. The
Company invests through the SPVs and as outlined in note 4,
investments in the SPVs are in the form of senior loans and equity
with protective provisions in place. Price risk arises from
uncertainty about future prices of underlying financial investments
held by the SPVs. As at 31 December 2022, the fair value of
investments, excluding cash and cash equivalents, was $87,879k
(2021: $64,345k) and a 3% percent increase / (decrease) (2021: 3
percent) in the
price of investments with all other variables held constant
would result in a change to the fair value of investments of + / -
$2,636k (2021: $1,930k). A change in interest rates could have an
impact on the price risk associated with the underlying investee
companies, which is factored into the fair value of investments.
Please refer to note 4 for quantitative information about the fair
value measurements of the Company's Level 3 investments.
The SPVs are exposed to a variety of risks which may have an
impact on the carrying value of the Company's investments. The
SPVs' risk factors are set out in (a)(i) to (a)(iii) below.
i. Not actively traded
The SPVs' investments are not generally traded in an active
market but are indirectly exposed to market price risk arising from
uncertainties about future values of the investments held. The
underlying investments of the SPVs vary as to industry sub-sector,
geographic distribution of operations and size, all of which may
impact the susceptibility of their valuation to uncertainty.
ii. Concentration
The Company, through the SPVs, invests in the energy sector,
with a particular focus on businesses that engage in oil and gas
E&P and midstream investments in that sector. This means that
the Company is exposed to the concentration risk of only making
investments in the energy sector, which concentration risk may
further relate to sub-sector, geography, and the relative size of
an investment or other factors. Whilst the Company is subject to
the investment and diversification restrictions in its investment
policy, within those limits, material concentrations of investments
may arise.
Although the investments are in the same industry, this risk is
managed through careful selection of investments within the
specified limits of the investment policy. The investments are
monitored on a regular basis by the Investment Manager.
The Board and the Investment Manager monitor the concentration
of the investment in the SPVs on a quarterly basis to ensure
compliance with the investment policy.
iii. Liquidity
The Company's liquidity risk lies with its SPVs as the amount of
cash invested through the SPVs in the underlying investments is
dynamic in nature. The SPVs will maintain flexibility in funding by
keeping sufficient liquidity in their borrowings, cash and cash
equivalents. Cash and cash equivalents may be invested on a
temporary basis in line with the cash management policy as agreed
by the Board from time to time.
As at 31 December 2022, $6.7 million or 7.0 percent (2021: $22.8
million or 20.0 percent) of the SPVs' financial assets, were money
market fixed deposits and cash balances held on deposit with
several A- or higher rated banks.
b) Foreign currency risk
The Company has exposure to foreign currency risk due to the
payment of some expenses in Pounds Sterling. Consequently, the
Company is exposed to risks that the exchange rate of its currency
relative to other foreign currencies may change in a manner that
has an adverse effect on the value of that portion of the Company's
assets or liabilities denominated in currencies other than the US
Dollar. Any exposure to foreign currency risk at the underlying
investment level is captured within price risk.
The following table sets out, in US Dollars, the Company's total
exposure to foreign currency risk and the net exposure to foreign
currencies of the monetary assets and liabilities:
As at 31 December 2022 $ GBP Total
$'000 $'000 $'000
-------------------------------------------------- -------- ------ --------
Non-current assets
Investments at fair value through profit or loss 94,570 - 94,570
-------------------------------------------------- -------- ------ --------
Total-non current assets 94,570 - 94,570
Current assets
Loan interest receivable 1,263 - 1,263
Trade and other receivables 91 33 124
Dividends receivable 3,451 - 3,451
Cash and cash equivalents 956 1 957
-------------------------------------------------- -------- ------ --------
Total current assets 5,761 34 5,795
Current liabilities
Trade and other payables (1,883) (6) (1,889)
-------------------------------------------------- -------- ------ --------
Total current liabilities (1,883) (6) (1,889)
Total net assets 98,448 28 98,476
-------------------------------------------------- -------- ------ --------
As at 31 December 2021 $ GBP Total
$'000 $'000 $'000
-------------------------------------------------- ------- ------ -------
Non-current assets
Investments at fair value through profit or loss 87,125 - 87,125
-------------------------------------------------- ------- ------ -------
Total non-current assets 87,125 - 87,125
Current assets
Loan interest receivable 1,418 - 1,418
Trade and other receivables 76 21 97
Dividends receivable 674 - 674
Cash and cash equivalents 4,883 1 4,884
-------------------------------------------------- ------- ------ -------
Total current assets 7,051 22 7,073
Current liabilities
Trade and other payables (896) (2) (898)
-------------------------------------------------- ------- ------ -------
Total current liabilities (896) (2) (898)
Total net assets 93,280 20 93,300
-------------------------------------------------- ------- ------ -------
The Directors do not consider that the foreign currency exchange
risk at the balance sheet date is material and therefore
sensitivity analysis for the foreign currency risk has not been
provided.
c) Interest rate risk
The Company's exposure to interest rate risk relates to the
Company's cash and cash equivalents held directly and through the
Company's SPVs as well as interest expense on the Revolving Credit
Facility held at the Company's SPV. The Company is subject to risk
due to fluctuations in the prevailing levels of market interest
rates. Any excess cash and cash equivalents are invested at
short-term market interest rates. As at the date of the Statement
of Financial Position, the majority of the SPVs' cash and cash
equivalents were held on interest bearing fixed deposit accounts.
Any exposure to interest rate risk at the underlying investment
level is captured within price risk.
The Company has no other interest-bearing assets or liabilities
as at the reporting date. As a consequence, the Company is only
exposed to variable market interest rate risk. As at 31 December
2022, cash balance held by the Company (including cash held at the
SPVs) was $7.7 million (2021: $27.7 million). A 1.0 percent (2021:
0.5 percent) increase / (decrease) in interest rates with all other
variables held constant would result in a change to interest
received of + / - $78,480 (2021: $138,319) per annum.
Liquidity risk
Ultimate responsibility for liquidity risk management rests with
the Board of Directors.
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's liabilities are made up of
estimated accruals and trade creditors which are due to be settled
within three months of the year end.
Riverstone Credit Opportunities Income PLC is the guarantor for
the Revolving Credit Facility. The SPVs are required to maintain a
LTV Ratio above the Covenant LTV of 22% at each borrowing request
date. The LTV Ratio is calculated as the total outstanding
principal and accrued interest on the facility divided by the
Aggregate NAV. At 31 December 2022, the SPVs were compliant with
the Covenant LTV and the full amount of the undrawn commitment is
available.
The Company adopts a prudent approach to liquidity management
and through the preparation of budgets and cash flow forecasts
maintains sufficient cash reserves to meet its obligations.
Credit risk
Credit risk refers to the risk that a counterparty will default
on its contractual obligations resulting in financial loss to the
Company. Any exposure to credit risk at the underlying investment
level is captured within price risk.
The carrying value of the underlying investments held by the
SPVs as at 31 December 2022 was $95.7 million (2021: $65.7
million).
Financial assets mainly consist of cash and cash equivalents and
investments at fair value through profit or loss. The Company's
risk on liquid funds is reduced because it can only deposit monies
with institutions with a minimum credit rating of 'A'. The Company
mitigates its credit risk exposure on its investments at fair value
through profit or loss by the exercise of due diligence on the
counterparties of the SPVs and the Investment Manager.
The table below shows the material cash balances and the credit
rating for the counterparties used by the Company at the year-end
date:
31 December 2022 31 December 2021
Location Rating $'000 Location Rating $'000
--------------------- ---------- -------- ----------------- --------- ------- -----------------
Counterparty
JPMorgan Chase Bank USA A- 957 USA A- 4,884
--------------------- ---------- -------- ----------------- --------- ------- -----------------
The Company's maximum exposure to loss of capital at the year
end is shown below:
Carrying value and maximum exposure
31 December 2022 31 December 2021
$'000 $'000
-------------------------------------------------------------------------------- ----------------- -----------------
31 December 2022
Investment at fair value through profit or loss
Investments in the SPVs 94,570 87,125
Other financial assets (including cash and equivalents but excluding
prepayments) 5,719 6,997
-------------------------------------------------------------------------------- ----------------- -----------------
Gearing
As at the date of these financial statements the Company has no
gearing (2021: none).
16. Transactions with Related Parties and the Investment
Manager
Directors
The Company has three non-executive Directors. Directors' fees
for the year ended 31 December 2022 amounted to $148k (2021:
$164k), of which $nil was outstanding at year end (2021: $nil).
Amounts paid to Directors as reimbursement of travel and other
incidental expenses during the year amounted to $32k (2021: $15k),
of which $nil was outstanding at year end (2021: $nil). The
Chairman increased his shareholding in the Company by 50k shares,
the total shareholding is now 100k, as disclosed in the Directors'
Remuneration Report.
SPVs
In 2019, the Company provided a loan to the US Corp. of $62.1m
which accrues interest at 9.27 percent. Any interest that is unable
to be repaid at each quarter end is capitalised and added to the
loan balance. Total interest in relation to the year was $5.4m
(2021: $5.6m) of which $5.5m was received in cash (2021: $5.5m),
$nil was capitalised (2021: $nil) and $1.3m remained outstanding at
31 December 2022 and will be received in March 2023 (31 December
2021: $1.4m outstanding, received on 11 January 2022). The balance
on the loan investment at 31 December 2022 was $59.4m (2021:
$60.1m).
During the year, the SPVs entered into a Revolving Credit
Facility ("facility") Agreement for $15.0 million with BC Partners.
The SPV borrowings from the facility at 31 December 2022 were $5
million, leaving the remaining $10 million undrawn commitment for
future borrowings. Riverstone Credit Opportunities Income PLC is
the guarantor for the Revolving Credit Facility. The SPVs are
required to maintain a LTV Ratio above the Covenant LTV of 22% at
each borrowing request date. The LTV Ratio is calculated as the
total outstanding principal and accrued interest on the facility
divided by the Aggregate NAV. At 31 December 2022, the SPVs were
compliant with the Covenant LTV and the full amount of the undrawn
commitment is available.
The Company's other investments in its SPVs are made via equity
shareholdings as disclosed in note 4.
Investment Manager
The Investment Manager is an affiliate of Riverstone and
provides advice to the Company on the origination and completion of
new investments, the management of the portfolio and on
realisations,
as well as on funding requirements, subject to Board approval.
For the provision of services under the Investment Management
Agreement, the Investment Manager earns a Profit Share, as detailed
in note 12. The Investment Manager is entitled to reimbursement of
any reasonable expenses incurred in relation to management of the
Company and amounts reimbursed during the year were
$190 k (2021: $31k). Christopher Abbate, a partner of the IM and
portfolio manager of RCOI, purchased 5k shares during the year
(2021: nil). Jamie Brodsky, also a partner of the IM and portfolio
manager of RCOI, purchased nil shares during the year (2021:
30k).
17 Ultimate controlling party
In the opinion of the Board, on the basis of the shareholdings
advised to them, the Company has no ultimate controlling party.
18 Subsequent events
With the exception of distributions declared and disclosed in
note 14, there are no other material subsequent events.
Glossary of Capitalised Defined Terms
Administrator means Ocorian Administration UK Limited
Admission means admission of the Ordinary Shares on 28 May 2019,
to the Official List and/or admission to trading on the Specialist
Fund Segment of the London Stock Exchange, as the context may
require
AGM means Annual General Meeting
AIC means the Association of Investment Companies
AIC Code means the AIC Code of Corporate Governance
AIC SORP means the Statement of Recommended Practice issued by
the AIC in November 2014 and updated in January 2017 for the
Financial Statements of Investment Trust Companies and Venture
Capital Trusts
Annual Report means the Company's yearly report and financial
statements for the year ended 31 December 2022
Auditor means Ernst & Young LLP or EY
Board means the Directors of the Company
Borrower means entities operating in the energy sector that
issue loans, notes, bonds, and other debt instruments including
convertible debt
CA means the Companies Act 2006 which forms the primary source
of UK company law
Capital Amount means the amount of gross proceeds of the IPO,
plus the net proceeds of any future issues of Ordinary Shares, less
any amounts expended by the Company on share repurchases and
redemptions or, following a Realisation Election, attributable to
Realisation Shares
Company or RCOI means Riverstone Credit Opportunities Income
Plc
D&C means drilling and completion
D&I means Diversity and Inclusion
Directors means the Directors of the Company
Distributable Income means the Company's income, as calculated
for UK tax purposes
DTR means the Disclosure Guidance and Transparency Rules
sourcebook issued by the Financial Conduct Authority
ESG means environmental, social and governance
ESG-ME means ESG Minimum Expectations
E&P means exploration and production
FCA means the UK Financial Conduct Authority (or its successor
bodies)
Firm or Investment Manager means Riverstone Investment Group
LLC
GHG mean greenhouse gases
IAS means the international accounting standards
IFRS means the International Financial Reporting Standards,
being the principles-based accounting standards, interpretations
and the framework by that name issued by the International
Accounting Standards Board.
ILPA means Institutional Limited Partners Association
Investment Management Agreement means the Investment Management
Agreement entered into between the Investment Manager and the
Company
IPCC means Intergovernmental Panel on Climate Change
IPEV Valuation Guidelines means the International Private Equity
and Venture Capital Valuation Guidelines
IPO means the initial public offering of shares by a private
company to the public
IRR means internal rate of return
ISSB means International Sustainability Standards Board
LCA means Life Cycle Analysis
LDPE means low-density polyethylene
Listing Rules means the listing rules made by the UK Listing
Authority under Section 73A of the Financial Services and Markets
Act 2000
London Stock Exchange or LSE means London Stock Exchange plc
LSTA means Loan Syndications & Trading Association
LTV means loan to value ratio
Main Market means the main market of the London Stock
Exchange
MOIC mean multiple on invested capital
NAV or Net Asset Value means the value of the assets of the
Company less its liabilities as calculated in accordance with the
Company's valuation policy and expressed in US dollars
NnG Offshore Wind Project means the Neart na Gaoithe offshore
wind farm project.
Ordinary Shares means ordinary shares of $0.01 in the capital of
the Company issued and designated as 'Ordinary Shares' and having
the rights, restrictions and entitlements set out in the Company's
articles of incorporation
Other Riverstone Funds means other Riverstone-sponsored,
controlled or managed entities, which are or may in the future be
managed or advised by the Investment Manager or one or more of its
affiliates, excluding the SPV
Profit Share means the payments to which the Investment Manager
is entitled in the circumstances and as described in the notes to
the financial statements
RBL means reserved base loan
RCP means Riverstone Credit Partners
RCOI mean Riverstone Credit Opportunities Income plc or the
Company.
Riverstone means Riverstone Investment Group LLC or the
Investment Manager
Realisation Shares means realisation shares of US$0.01 in the
capital of the Company, as defined in the prospectus
SPV means any intermediate holding or investing entities that
the Company may establish from time to time for the purposes of
efficient portfolio management and to assist with tax planning
generally and any subsidiary undertaking of the Company from time
to time
Specialist Fund Segment means the Specialist Fund Segment of the
London Stock Exchange's Main Market
TCFD means the Task Force on Climate-Related Financial
Disclosures
Toolkit means the Riverstone ESG Toolkit
UK or United Kingdom means the United Kingdom of Great Britain
and Northern Ireland
UK Code means the UK Corporate Governance Code issued by the
FRC
US or United States means the United States of America, its
territories and possessions, any state of the United States and the
District of Columbia
US Corp. means Riverstone International Credit Corp.
Directors and General Information
Directors
Reuben Jeffery, III (Chairman) (appointed 2 April 2019)
Emma Davies (Audit and Risk Committee Chair) (appointed 2
April 2019)
Edward Cumming-Bruce (Nomination Committee Chair) (appointed
2 April 2019)
all independent and of the registered office below
Registered Office Website: www.riverstonecoi.com
5(th) Floor ISIN GB00BJHPS390
20 Fenchurch Street
London Ticker RCOI
EC3M 3BY Sedol BJHPS39
Registered Company Number
11874946
Investment Manager Registrar
Riverstone Investment Group LLC Link Asset Services
c/o The Corporation Trust Company The Registry
Corporation Trust Center Central Square
1209 Orange Street 29 Wellington Street
Wilmington Leeds
Delaware 19801 LS1 4DL
Company Secretary and Administrator Sole Bookrunner
Ocorian Administration (UK) Limited J.P. Morgan Securities plc
5(th) Floor 25 Bank Street
20 Fenchurch Street
London Canary Wharf
EC3M 3BY London
E14 5JP
Independent Auditor Receiving Agent
Ernst & Young LLP Link Asset Services
25 Churchill Place Corporate Actions
London The Registry
E14 5EY Central Square
29 Wellington Street
Leeds
Legal Adviser to the Company LS1 4DL
Hogan Lovells LLP
Atlantic House
50 Holborn Viaduct
London
EC1A 2FG
Principal Banker and Custodian
J.P. Morgan Chase Bank, N.A.
270 Park Avenue
New York
NY 10017-2014
Swiss supplement
ADDITIONAL INFORMATION FOR INVESTORS IN SWITZERLAND
This Swiss Supplement is supplemental to, forms part of and
should be read in conjunction with the annual report for the half
year ended December 31, 2022 for Riverstone Credit Opportunities
Income Plc (the 'Fund').
The Fund has appointed Société Générale as Swiss Representative
and Paying Agent. The Confidential Memorandum, the Articles of
Association as well as the annual report of the Fund can be
obtained free of charge from the representative in Switzerland,
Société Générale, Paris, Zurich Branch, Talacker 50, P.O. Box 5070,
CH-8021 Zurich. The paying agent of the Fund in Switzerland is
Société Générale, Paris, Zurich Branch, Talacker 50, P.O. Box 5070,
CH-8021 Zurich. The Company may offer Shares only to qualified
investors in Switzerland. In respect of the Shares distributed in
and from Switzerland, the place of performance and jurisdiction is
the registered office of the Swiss Representative.
Cautionary Statement
The Chairman's Statement and Investment Manager's Report have
been prepared solely to provide additional information for
Shareholders to assess the Company's strategies and the potential
for those strategies to succeed. These should not be relied on by
any other party or for any other purpose.
The Chairman's Statement and Investment Manager's Report may
include statements that are, or may be deemed to be,
'forward-looking statements'. These forward-looking statements can
be identified by the use of forward-looking terminology, including
the terms 'believes', 'estimates', 'anticipates', 'expects',
'intends', 'may', 'will' or 'should' or, in each case, their
negative or other variations or comparable terminology.
These forward-looking statements include all matters that are
not historical facts. They appear in a number of places throughout
this document and include statements regarding the intentions,
beliefs or current expectations of the Directors and the Investment
Manager, concerning, amongst other things, the investment
objectives and investment policy, financing strategies, investment
performance, results of operations, financial condition, liquidity,
prospects, and distribution policy of the Company and the markets
in which it invests.
By their nature, forward-looking statements involve risks and
uncertainties because they relate to events and depend on
circumstances that may or may not occur in the future.
Forward-looking statements are not guarantees of future
performance.
The Company's actual investment performance, results of
operations, financial condition, liquidity, distribution policy and
the development of its financing strategies may differ materially
from the impression created by the forward-looking statements
contained in this document.
Subject to their legal and regulatory obligations, the Directors
and the Investment Manager expressly disclaim any obligations to
update or revise any forward-looking statement contained herein to
reflect any change in expectations with regard thereto or any
change in events, conditions or circumstances on which any
statement is based.
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END
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