Riverstone Credit
Opportunities Income Plc
Full Year Results for the
Twelve Months Ended 31 December 2023
Track Record of Strong NAV
Total Returns Since May 2019 IPO Continues to
Grow
31.57 cents per share Paid
in Dividends
40.1% NAV Total
Return
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 2023.
Highlights
·
NAV total
return of 6.4% for the twelve
months to 31 December 2023 and NAV total return of 40.1% since
inception in May 2019
·
Strong income
generation across the portfolio with a profit of $5.7 million registered and
distributions over the year of 8.5 cents per share to investors
achieving our stated distributions target
·
High income
distributions equating to
31.57 cents paid since inception in May 2019
·
Valuation
remained stable with a NAV per
share at period end of $1.06 (31 December 2022: $1.08)
·
Realised
investments show quality of structuring with the total of 18 realisations having delivered an average
gross IRR of 17.2% and a net IRR of 12.5%
·
An attractive
realisation was achieved in the
second half of the year from the Company's loan to Clean Energy
Fuels which was fully realised in December. This achieved a 14.9%
gross IRR and 10.8% net IRR
·
The Company also
successfully refinanced its
investment in Streamline Innovations achieving $2.0 million in
profits at closing of the amendment and extension resulting in a
24% gross IRR and 19% net IRR
·
Focus on
sustainable investments and delivering measurable
impact with a portfolio almost
exclusively comprising independently accredited green and
sustainability linked loans
·
Origination
strengths demonstrated by scale of capital
deployed, $251 million since May
2019
·
Strong
outlook: the Investment
Manager continues to focus on providing strong returns and
dividends to investors in order to deliver the targeted annual
dividend returns of 8-10% on subscribed capital
Reuben Jeffery III, Chairman of RCOI,
commented:
"We are delighted to further
extend the Company's strong track record of consistent value
creation for shareholders since IPO with total dividends paid
equating to 31.57 cents per share and a NAV total return of 40.1%.
The realisation and refinancing in the second half of the year
provide further evidence of the compelling returns that can be
generated by the Company's loan portfolio, and we are pleased to
note that the 18 realisations life to date made by the Company have
delivered an average gross IRR of 17.2% and net IRR of
12.5%.
We note the Company's forthcoming
vote and the Board and investment adviser remain vigilantly focused
on optimising the portfolio to ensure long-term value creation for
our shareholders."
Christopher Abbate and Jamie Brodsky, Co-Founders of
Breakwall Capital, the sub-managers of the portfolio,
added:
"We are proud of the Company's
track record of value creation demonstrated once again in this
earnings period. The investment adviser has now generated $251
million of new investments and our pipeline remains strong at
Breakwall driven by the clear international priorities to invest in
energy infrastructure that benefits the global energy
transition.
We are proud to deliver a
portfolio that has such notable positive environmental impact
through our strategy of lending through bespoke and independently
accredited green and sustainability linked loans. In the ongoing
elevated interest rate environment, we remain confident that the
current market conditions are extremely supportive of the Company's
investment strategy, and we look forward to providing shareholders
with further updates in due course."
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
|
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James Bouverat, Liam
MacDonald-Raggett (Sales)
|
|
For Media Enquiries:
Buchanan
Helen Tarbet
Henry Wilson
Jon Krinks
Verity Parker
|
Tel: +44 (0) 20 7466
5109
Tel: +44 (0) 20 7466
5111
Tel: +44 (0) 20 7466
5199
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.
Riverstone Credit Opportunities Income Plc
Annual Report and Financial Statements
For the year ended 31 December 2023
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
Riverstone Credit Opportunities Income
PLC
Riverstone Credit Opportunities Income Plc is an externally
managed closed-ended investment company listed 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.
INVESTMENT MANAGER
The Company's Investment Manager
is Riverstone Investment Group LLC, which is controlled by
affiliates of Riverstone Holdings LLC ("Riverstone").
On 31 December 2023,
Riverstone entered
into a sub-management agreement with Breakwall Capital LP
("Breakwall" or "Sub-Manager") for all the
credit vehicles managed by 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 $45 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 76
professionals worldwide.
The registered office of the
Company is 5th
Floor, 20 Fenchurch Street, London, England, EC3M 3BY.
Key Financials
|
|
|
2023
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2022
|
NAV as at 31 December
|
|
|
$96.02m
|
$98.48m
|
NAV per Share as at 31
December
|
|
|
$1.06
|
$1.08
|
|
|
|
|
|
Market capitalisation as at 31
December
|
|
|
$78.77m
|
$83.54m
|
Share price at 31
December
|
|
|
$0.87
|
$0.92
|
|
|
|
|
|
Total comprehensive income for
year ended 31 December
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$5.72m
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$12.85m
|
|
|
|
|
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Distribution per share with
respect to the year ended 31 December
|
8.5 cents
|
9.00 cents
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Highlights
· The
NAV as at 31 December 2023 was $1.06 per share (2022: $1.08 per
share).
· Distribution of 8.5 cents per
share (2022: 9.00 cents per share)
approved with respect to the year ended 31 December
2023.
· There was one new investment, and two full realisations
executed in the year ended 31 December 2023. The new investment and
one of the realisations during the year related to the refinancing
of Streamline Innovations, with the other realisation being of
Clean Energy Fuels Corp ("Clean Energy
Fuels" or "CLNE").
Chairman's Statement
Overview
On behalf of the Board, I would
like to thank our shareholders for their ongoing support as we
continue to pursue our strategy of generating income and optimising
shareholder value through investing in a high quality portfolio of
loans that help to support the global energy transition.
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
in global infrastructure. During the second half of 2023, the
Company continued its strong performance from the first half of the
year, posting consistently robust earnings for the period, and
remains well positioned in the current environment. The Company has
delivered a NAV total return of 40.1% to investors since inception
in May 2019 and 31.57 cents of income.
The Company has a unique focus on
short duration lending, which benefits from the current interest
rate environment, and the re-balancing of the portfolio to
energy-transition focused investments is now complete. As of 31
December 2023, all of the loans in the portfolio and over 95% of
the Company's SPVs' underlying investments were either Green Loans
or Sustainability-Linked Loans. Therefore, all loans in the
Company's portfolio are supporting the advancement of
decarbonisation or enhancing sustainability across the broader
energy complex. A good example of this is the Company's loan
to Clean Energy Fuels in December 2022 which was realised in
December 2023. Clean Energy Fuels growth strategy includes the
development of negative carbon intensity renewable natural gas
("RNG") projects and construction of new RNG fueling stations for
the North American transportation sector. Clean is involved in the
rapid expansion of RNG projects at dairies, which capture fugitive
methane and turn it into a fuel made entirely from organic waste
and reduces carbon emissions exponentially versus
diesel.
The Investment Manager's strategy
of making senior-secured asset-based loans has certainly paid off
in terms of generating attractive results for shareholders - but it
has also left the Company underinvested at times, just as interest
rates began to rise. A concerted effort was made to alleviate this
issue, while remaining faithful to the Company's strategy, as well
as preserving portfolio diversification and counterparty quality.
As an example, secondary purchases of the Hoover Circular Solutions
loan and Seawolf Water Resources ("Seawolf") loan (which included
preferred and common equity) helped deploy capital into compelling
investments very well known to the Investment Manager and
consistent with the Company's overall strategy. Furthermore, in
December 2022, the Company's SPVs entered into a $15 million
Revolving Credit Facility ("RCF") which enables the Company to
remain over 100% invested while still retaining the necessary
liquidity to meet ongoing expenses and future obligations under
delay-draw loan commitments. These investments serve to support
earnings capacity for the overall portfolio, while maintaining the
potential to grow distributions over time.
Key
Developments
RCOI's NAV has remained stable
during 2023, despite considerable market volatility, with a current
NAV per share of $1.06 (31 December 2022: $1.08).
There was one realisation that
occurred during the second half of 2023, Clean Energy Fuels. Clean
Energy Fuels was fully realised in December 2023 with a 14.9 per
cent gross IRR and a 10.8 per cent net IRR and 1.14x gross MOIC and
1.10x net MOIC respectively. This realisation further strengthens
our compelling track record of attractive realisations with this
investment generating another strong IRR result for our
shareholders.
The Company also refinanced its
investment in Streamline Innovations. The Company realised c. $2.0
million of profits at closing of the amendment and extension
resulting in a 24 percent gross IRR (19 percent net IRR) and a 1.3x
gross MOIC (1.2x net MOIC) of the initial investment in Streamline
Innovations.
As part of this amendment and
extension closing, the facility was upsized to $55.0 million, the
maturity was extended to December 2026, and economic terms were
adjusted for an estimated all-in yield to maturity of 13 percent to
the Company. Additionally, as part of the amendment, the Company's
allocation to the loan was reduced from $13.8 million to $9.9
million as the result of the investment manager's allocation policy
which aims to allocate each deal based on the available capital in
each fund being invested.
Performance
The Company reported a profit of
$5.7 million for the year ending 31 December 2023 (2022: $12.8
million), resulting from income received from the investment
portfolio and changes in the portfolio's valuations. The decrease
in profit for 2023 was driven primarily from the decrease in the
unrealised value of multiple equity positions. Additionally, the
Company and its SPVs had fewer realisations in 2023 than in 2022,
which contributed to the decrease in profit. The Company is paying
distributions of 8.5 cents per share to investors with respect to
2023 (2022: 9.0 cents per share), achieving our stated
distributions target. The Company has now delivered NAV total
returns of 40.1% to investors since inception in May 2019 (6.4%
year to date return) and 31.57 cents of income.
The current unrealised portfolio
has an average 1.22x Gross MOIC and 1.15x Net MOIC. RCOI's
investment strategy contains characteristics that enable our
portfolio of current loans to be attractive and structured to be
resilient in challenging and fluctuating market
conditions.
RCOI has executed 25 direct
investments and participated in two secondary investments since
inception and cumulatively invested $251 million of capital since
the IPO in May 2019. The Company has now realised a total of 18
investments, delivering an average gross IRR of 17.2 per cent and
net IRR of 12.5 per cent.
Outlook
The Board is pleased with our
diversified and dynamic portfolio of investments and the current
pipeline of new opportunities, which we believe have the potential
to continue to deliver attractive value to shareholders. We are
pleased to retain our focus on decarbonising energy infrastructure
and infrastructure services that contribute a considerable positive
environmental impact. We are finding that businesses at the
forefront of energy transition view our first lien, short-duration,
floating rate product as being highly attractive and a good fit for
their development plans.
On 31 December 2023, Riverstone
Holdings LLC and their affiliate Riverstone Investment Group
(collectively, "Riverstone") entered into an agreement with
Breakwall Capital LP to provide sub-management services (the
"Sub-Management Agreement") for all credit vehicles managed by
Riverstone, including RCOI (the "Existing Credit Vehicles").
Breakwall is a newly formed independent asset-management firm
regulated by the SEC as a Registered Investment Advisor, owned and
operated by the existing Riverstone Credit Partners
team.
We are keenly aware of the
persistent discount at which the shares trade, and the Board does
not believe this reflects the value of the portfolio. As ever
we continue to work assiduously with the manager on a number of
initiatives to reduce the discount including active asset
management and proactive and frequent engagement with equity market
participants. We are also focused on the forthcoming
realisation election in May 2024. As this election will not
conclude until after the approval of these financial statements the
Board concluded that there is material uncertainty over the
Company's ability to continue as a going concern. The Company looks
forward to engaging with shareholders to understand both their
intentions to participate and their views regarding the future of
the Company.
We remind investors that if the
Company's Net Asset Value attributable to the remaining Ordinary
Shares falls below $50m as a result of the election, the Company
will amend its investment objectives and policy to adopt a
realisation strategy. As always, the Board and the manager remain
vigilantly focused on optimising the portfolio to ensure long-term
value creation for our shareholders. Further announcements on the
upcoming realisation election will be made in due
course.
We look forward to a promising
2024 and thank you again for your support.
Reuben Jeffery, III
Chairman
20 February 2024
Strategic Report
The Directors present their Strategic Report for the year
ended 31 December 2023. 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 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.
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 and Breakwall platforms to enhance
its investment strategy through the opportunities and 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 contractual 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 20 February 2024 the Board approved
a distribution of 2.5 cents per share
bringing the total distribution declared with respect to the year
to 31 December 2023 to 8.5
cents per share. The
record date for the distribution is 1 March 2024 and the payment
date is 22 March 2024.
Structure
The Company makes its investments
through its SPVs. Riverstone International Credit Corp. ('US Corp')
is a corporation established in the State of Delaware and is a
wholly-owned subsidiary of the Company. US Corp, in turn, invests
through Riverstone International Credit - Direct L.P., a limited
partnership established in the State of Delaware in which US Corp
is the sole limited partner. Investments may also be made through
Riverstone International Credit L.P, a wholly-owned subsidiary and
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 and Sub-Manager draw on the resources and
expertise of the wider Riverstone and Breakwall groups.
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. The Company and the Board are
aware that the Company's shares are trading at a discount to NAV
and has discussed resuming the buyback programme in
2024.
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 above, 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
2.27 percent, calculated as total expenses divided by the weighted
average NAV for the year to 31 December 2023. The weighted average
NAV used in this calculation is the mean of the published quarterly
NAVs for the year, at 31 December 2023 this was $96.9m (2022:
$96.5m). Ongoing charges are made up as follows and have been
calculated using the AIC recommended methodology.
|
31 December
2023
|
31 December
2022
|
|
$'000
|
%
|
$'000
|
%
|
Profit Share
|
873
|
0.90
|
1,679
|
1.74
|
Directors' fees and
expenses
|
160
|
0.16
|
180
|
0.19
|
Ongoing expenses
|
1,172
|
1.21
|
1,269
|
1.31
|
Total
|
2,205
|
2.27
|
3,128
|
3.24
|
The Investment Manager is entitled
to a Profit Share when it meets relevant performance targets as
disclosed in note 12 to the financial statements.
Environmental, Social and
Governance REPORT
The Company utilises the services
of Riverstone as the Investment Manager and Breakwall as
Sub-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. As Sub-Manager,
Breakwall is required to adhere to Riverstone ESG policies and
principles.
Riverstone will publish its annual
ESG report in February 2024. The following sections summarise the
key elements of this report including those which could impact
RCOI's 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
In an increasingly complex,
challenging, and fast-moving world, Riverstone's mission as a
steward of our investors' capital has remained constant: to deploy
capital in a sustainable manner, focusing on delivering the
strongest possible risk-adjusted returns.
The recent politicisation of ESG
issues has created challenges for firms like ours as we navigate an
often-polarised topic. Despite this, we remain committed to our
belief that a consistent, transparent, and authentic approach to
ESG, and its integration across our strategies, funds, and
investments, is a key component to our investment
approach.
Since Riverstone was founded
nearly 24 years ago, we have always believed that the success of
our business goes beyond financial returns. In almost all of the
companies we have invested in since 2000, a core theme has been
those businesses that implement and institutionalise sound ESG
policies and practices frequently result in core non-financial
drivers combining with key financial drivers to generate better
outcomes. Outcomes that are positive in a financial sense, but also
in terms of personnel and communities, partner and regulatory
relationships, and the general health of the planet for future
generations.
We are proud to share our fifth
annual ESG report which we believe underscores our dedication to
managing ESG risks and capitalising on climate-related
opportunities presented by the energy transition.
In our 2022 ESG report, we
described the important work we undertook measuring greenhouse gas
(GHG) emissions across our portfolio and the physical and
transition climate risks we identified. In our most recent report,
having listened to our investors and with an eye on incoming ESG
regulation, such as the SEC's proposed Climate Disclosure Rule we
have focused on the following:
· Revising our ESG policy and in so doing recalibrating and
redefining how we integrate ESG into our day-to-day
processes
· Revising our annual ESG questionnaire and stewardship
approach to align with emerging policies, legal frameworks, and
industry-recognised best practices
· Deeper engagement with our portfolio companies on ESG,
including the use of a technology platform to enable the improved
collection of accurate ESG data faster, and updating our portfolio
scorecards
· Ongoing training and accountability of our investment
professionals to ensure they not only understand the correlation
between ESG and value creation but also that they are better
equipped in a practical sense to advise and support portfolio
companies on their ESG journeys
· Reducing limited partner costs on ESG portfolio monitoring
and reporting through a top-down review of our third-party
consultants
As a manager of businesses and
assets in the energy sector, our focus on environmental impact is a
key factor, however, we recognise the importance of a just
transition and the critical social and governance factors needed to
achieve this. Transparency, integrity, and trust are the
cornerstones of our governance framework. We hold ourselves and our
portfolio companies accountable to ethical and responsible
practices.
Our firm's success to date is
intertwined with the wellbeing of the communities and people with
whom we engage every day. We aim to prioritise fair labour
practices, diversity, equity, and inclusion in all our portfolio
companies.
We seek to support causes that
align with our values and look to invest in workforce development
by actively engaging with our employees to ensure their safety and
welfare. By fostering strong relationships with our stakeholders
and focusing on the areas in which we know we can make a material
impact, we aim to create shared value for our investors and society
at large.
Our commitment to robust ESG
principles is not just a business strategy - it is a fundamental
part of our identity. While we realise there is still much work to
be done, we understand that long-term success depends on our
ability to adapt and address the ever-evolving needs of society,
the environment, and our stakeholders. We thank our investors,
employees, and partners for sharing this vision with us, and we
look forward to the collective journey ahead, guided by these
principles of responsible and sustainable investing.
Credit Portfolio: ESG Review
Riverstone Credit Partners was
launched in 2014 as a specialty energy infrastructure lender
focused on facilitating the growth of conventional, renewable and
what we deem "next generation" energy companies. Having executed
over 60 transactions, equating to approximately $5.3 billion in
deal activity, we consider ourselves seasoned thought leaders in
both energy credit and the energy transition.
Our Approach to Sustainable Credit
Investment
Our primary objective is to be
exceptional stewards of our investors' capital, generating returns
for our clients, focusing on capital preservation while also
providing creative and credible private debt solutions to help
address the complexities of climate change.
Meeting global net zero goals will
require unprecedented levels of investment in the infrastructure
required to generate, transport, store, and distribute energy. The
ongoing global shift away from traditional, largely
hydrocarbon-based energy systems to more sustainable, low-carbon
alternatives will require the construction of new, greener
infrastructure. It will also require significant investment in the
decarbonisation of existing energy infrastructure.
At Riverstone, we believe the most
significant and immediate environmental impact is achieved through
capital deployment that accelerates the decarbonisation of one of
the largest emitting sectors - the conventional, hydrocarbon-based
energy economy - in a way that does not sacrifice the reliability,
affordability, and accessibility of energy sources.
Green Loans and Sustainability-Linked Loans
By structuring our investments as
either a Green Loan or a Sustainability-Linked Loan ("SLL") to
conventional, renewable and next generation energy companies, we
endeavour to ensure that every investment we make goes towards
enhancing and creating a more sustainable, resilient, and equitable
energy system that addresses the challenges of climate change and
promotes a cleaner and more secure energy future.
Furthermore, with Green Loans or
SLLs we have a pre-existing market-recognised criteria through
which investments have to pass and for which borrowers have to be
accountable.
We initially assess if each new
opportunity meets the Green Loan Principles ("GLP") - the central
tenet of which is the loan must be applied towards a 'green
project' which by definition has clear environmental benefits,
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, we will seek to evaluate the
sustainability goals of the borrower and structure the loan in
accordance with the Sustainability-Linked Loan Principles (SLLPs)
predicated on certain material and quantifiable predetermined
Sustainability Performance Targets (SPTs). The SLLPs set out a
framework, enabling all market participants to clearly understand
the characteristics of a SLL, based around five core components,
namely the selection of KPIs, the calibration of KPIs, loan
characteristics, reporting and verification. The following are
critical aspects of the SLLP:
•
The SPTs are set by the borrower and not the
lender
•
The sustainability goals are measurable and
auditable
•
Negative economic consequences are embedded in
the loan documentation for failing to meet the goals by a specified
timeline
Each Green Loan or SLL made by us
receives independent verification from a credible third party
provider such as a Sustainable Fitch, prior to finalisation of the
loan. In both scenarios, we endeavour to increase transparency and
alignment through the requirement for independent boards, board
observer seats, annual questionnaires and scorecards, affirmative
covenants and loan economics tied to sustainability
metrics.
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 invested more than $875
million in Green1 and Sustainability-Linked
Loans.
The below highlights recent fully
or partially realised transactions.
Aspen
IM3NY
Circulus
EPIC Seawolf
HOOVER CS
Overview
|
Community Solar
Developer
|
Lithium-Ion Battery
Manufacturer
|
Plastics
Recycling
|
Propane
Pipeline
|
Water Solutions
Provider
|
Sustainable Packaging &
Bulk Container Solutions
|
57 MW
Solar
capacity in development at closing
|
10x
Lithium-ion battery forecasted growth between 2020 and
2030
|
#1
Riverstone's first Loan Syndications and Trading Association
(LSTA) documented
"Green Loan"
|
25%
Expected decrease in reportable releases
from
pipeline
|
50%
Electrification target metric based on water pump
usage
|
3 SPTs
Tied to
non-fossil fuel energy, waste reduction, and sustainable
packaging
|
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;
Secondary
Purchase in
Sep. 2022
|
Dec.
2022
|
Yield to Maturity
|
13%
|
23%
(+warrants)
|
14%
|
12%
|
Restructured as 1L loan,
preferred, and equity
|
In line
with initial
term loan
|
Status
|
Realised
|
Realised
|
Realised
|
Epic I:
Realised
Epic
II: Unrealised
|
Partially Realised
|
Hoover
I: Realised
Hoover
II: Unrealised
|
Note: Green Loan Principles
(GLPs) 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 GLPs comprise voluntary recommended guidelines, to be applied
by market participants on a deal-by-deal basis depending on the
underlying characteristics of the transaction, that seek to promote
integrity in the development of the green loan market by clarifying
the instances in which a loan may be categorized as "green". For
more information on the GLPs, please visit:
https://www.lsta.org/content/green-loan-principles
The below represents recent realised
and unrealised Green1 and
Sustainability-Linked2 transactions.
Streamline Harland & Wolff
Blackbuck Resources Clean Energy MAX
Overview
|
H2S Treating
Equipment
|
Offshore Wind
Fabrication
|
Produced Water
Infrastructure
|
Renewable Natural
Gas ("RNG")
|
Crude Pipeline & Export
Infrastructure
|
>33 million
pounds
Sulphur
dioxide
avoided
in 2022
|
50+
Company-wide apprenticeships required
|
750 trucks per
day
Eliminated
by the
TR UE Blue Saltwater Disposal
|
100%
RNG
delivered to on-road vehicle customers by 2025
|
1st
Carbon-neutral crude oil export terminal on the Gulf Coast of
Texas
|
Facility Size
|
$55
million
|
$100
million
|
$57
million
|
$150
million
|
$28
million
|
Closing
|
Strike
I: Nov 2021 Strike III: Jun 2023
|
Mar.
2022
Upsized
Aug. 2022, Oct. 2022, Dec. 2022, Jan. 2023, and Feb 2023
|
Jun.
2021
Upsized
Jun. 2022
|
Dec.
2022
|
Dec.
2022
|
Yield to Maturity
|
13%
|
19%
(+warrants)
|
12%
|
12%
|
Undisclosed
|
Status
|
Strike
I: Realised Strike III: Unrealised
|
Unrealised
|
Unrealised
|
Realised
|
Unrealised
|
Note:
1. Green Loan Principles
(GLPs) 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 GLPs comprise voluntary recommended guidelines, to be applied
by market participants on a deal-by-deal basis depending on the
underlying characteristics of the transaction, that seek to promote
integrity in the development of the green loan market by clarifying
the instances in which a loan may be categorized as "green". For
more information on the GLPs, please visit: https://www.lsta.org/content/green-loan-principles
2. Sustainability-Linked Loans
(SLLs) follow a set of Sustainability Linked Loan Principles
(SLLPs) which were originally published in 2019 and provide a
framework to SLL 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. For more information on the SLLP, please
visit:
https://www.lsta.org/content/sustainability-linked-loan-principles-sllp
Board Diversity
The RCOI Board strongly believes
that having diversity in skills, experience and gender has
significant benefits. The Board consists
of individuals from relevant and complementary backgrounds offering
experience in the investment management of listed funds, as well as
in the energy sector from both a public policy and a commercial
perspective. As at the date of this report, the Board comprised 2
men and 1 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. Currently, the Audit and
Risk Committee Chairman position is held by a woman who represents
33 per cent of Directors on the Board.
The Board is cognisant that the
percentage of women on the Board is below the 40% target in the FCA
diversity guidelines and it also does not currently have ethnic
minority representation. The size of the Board is relatively small
in comparison to the wider FTSE350 indices and therefore provides a
greater challenge in complying with diversity guidelines. This
will, however, continue to be a key focus during future succession
planning, whilst ensuring an appropriate balance of skills and
experience in the Board.
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.
In accordance with Listing Rule
9.8.6R(10), as at the date of this report, and as described above
the composition of the Board is as follows:
|
Number of Board members in scope
|
Percentage of the Board
|
Number of senior positions on the Board (CEO,
CFO,
SID and Chair) 1
|
Men
|
2
|
67%
|
1
|
Women
|
1
|
33%
|
1
|
Not specified/prefer not to
say
|
-
|
-
|
-
|
1 The positions of CEO and CFO are not applicable to the
Company as an externally managed investment fund. Senior Board
positions will continue to be reviewed.
|
Number of Board members in scope
|
Percentage of the Board
|
Number of senior positions on the Board (CEO,
CFO,
SID and Chair)1
|
White British or other White
(including minority-white groups)
|
3
|
100%
|
2
|
Mixed/Multiple Ethnic
Groups
|
-
|
-
|
-
|
Asian/Asian British
|
-
|
-
|
-
|
Black/African/Caribbean/
Black British
|
-
|
-
|
-
|
Other ethnic group, including
Arab
|
-
|
-
|
-
|
Not specified/prefer not to
say
|
-
|
-
|
-
|
1 The positions of CEO and CFO are not applicable to the
Company as an externally managed investment fund. Senior Board
positions will continue to be reviewed.
The above information is based on
voluntary self-declaration from the Directors.
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 below.
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. In its efforts 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. 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.
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 regularly discusses any new investment and the investment
pipeline for RCOI with the Board. 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 has usual and customary
inspection rights and affirmative covenants regarding environmental
matters contained in credit agreement documentation. 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.
Cyber security due diligence and ongoing monitoring is performed on
each potential and current 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. 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 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.
REALISATION ELECTION
We are keenly aware of the
persistent discount at which the shares trade, and the Board does
not believe this reflects the value of the portfolio. As ever
we continue to work assiduously with the manager on a number of
initiatives to reduce the discount including active asset
management and proactive and frequent engagement with equity market
participants. We are also focused on the forthcoming
realisation election in May 2024 and look forward to engaging with
shareholders to understand both their intentions to participate and
their views regarding the future of the Company. We remind
investors that if the Company's remaining Ordinary share net asset
value falls below $50m as a result of the election, the Company
will amend its investment objectives and policy to adopt a
realisation strategy. As always, the Board and the manager remain
vigilantly focused on optimising the portfolio to ensure long-term
value creation for our shareholders. Further announcements on the
upcoming realisation election will be made in due
course.
For the forthcoming realisation
election in May 2024, shareholders will vote whether or not to
redesignate their shares on a one for one basis to realisation
shares. The Realisation Share NAV (the NAV attributable to the
realisation shares) and the Ordinary Share NAV (the NAV
attributable to the remaining ordinary shares) will be calculated
after the Annual General Meeting.
If the Realisation Share NAV is
below $5.0m, these shares will be repurchased and the remaining
shares will continue as before, and if the Realisation Share NAV is
above $5.0m, the assets and liabilities of the Company will be
allocated pro rata in a Continuation Pool and a Realisation
Pool.
Alternatively, if the remaining
Ordinary Share NAV is below $50.0m, the investment objective and
investment policy will change to hold the Company's assets to
repayment at maturity without reinvesting any cash realised by the
Company with the aim of making progressive returns of cash to
Shareholders as soon as practicable and ultimately liquidating the
Company.
Going Concern
As at 31 December 2023, the cash
balance within the Company was $0.6 million and cash and cash
equivalent balances within the SPVs amounted to $8.5
million. The Company currently has existing liabilities of
$1.1 million, plus a distribution payable of $2.3 million with
respect to the quarter ended 31 December
2023.
During Q4 2022, Riverstone
International Credit - Direct, a wholly owned subsidiary of the
Company entered into a Revolving Credit facility ("RCF" or
"facility") Agreement for $15.0 million with BC Partners. The SPV
borrowings from the facility at 31 December 2023 were $5.0m,
leaving the remaining $10.0m million undrawn commitment for future
borrowings. 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 SPVs are
required to maintain an LTV Ratio below 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 of
the SPVs, Riverstone International Credit L.P. and Riverstone
International Credit-Direct L.P. At 31 December 2023, the SPVs were
compliant with the Covenant LTV, with an LTV of ~6% and $10.0m of
the undrawn commitment is available. The SPVs also entered into a
money market capital fund with JP Morgan, earning about 5% interest
annually. Cash held at the money market account is readily
transferrable within one business day, and the balance at 31
December 2023 was $15.1 million.
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
are no material liquidity or solvency risks for the Company's
financial resources and working capital.
Additionally, the operating
expenses of the trust and its SPVs are budgeted to be between $3.0
million and $3.5 million during the period
of assessment including taxes and interest
expense from the SPV facility. Based on the high end of this range,
using all the cash at the SPVs and in the Company, along with the
proceeds invested in the money market capital fund, it would take
the Company and its SPVs' approximately seven years to run out of
cash.
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 analysed in the scenarios outlined
below based on timing and covenant compliance.
The Company has assessed multiple
case scenarios, including scenarios impacted by the upcoming
realisation election, from base case to the ultimate downside
scenario. In the highly unlikely ultimate downside scenario, where
all unrealised investments are written down to zero and expenses
increase by 50%, the Company and its SPVs will still have
sufficient funds to cover their obligations and continue operating
for the going concern period.
The first continuation vote for
the Company will be proposed at the AGM of the Company to be held
in May 2027, which is after the going concern period has
ended.
The Directors have concluded the
Company's financial statements shall be prepared on a going concern
basis. However, as the realisation election will not conclude until
after the approval of these financial statements, there is a
material uncertainty related to this event that may cast
significant doubt on the Company's ability to continue as a going
concern. The financial statements do not contain the adjustments
that would result if the company were unable to continue as a going
concern.
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 3.4 years, therefore
the Board chose to conduct a review for a period of three years to
31 December 2026.
The Company and its SPVs currently
hold unrealised investments with stated maturity dates through the
end of 2026, which is the end of the longer term viability period
under assessment. As it currently stands, more than 60% of the
current portfolio tenor is set to mature in 2026. The Company will
still have unrealised investments and sufficient liquidity at the
end of the longer term viability period to operate.
At 31 December 2023, the Company
and its SPVs had unfunded commitments of $6.4 million and an unpaid
RCF of $5 million. The RCF will be paid down in January of 2024,
and the unfunded commitments are expected to be funded by mid-2024,
both of which would be funded using cash on hand at Riverstone
International Credit - Direct, L.P. ("RIC D") and the JP Morgan
money market capital fund. At 31 December 2023, the total cash held
by both of these sources was $23.0 million, which sufficiently
covers both obligations.
In addition to cash and cash
equivalents currently on hand, all investments are expected to be
realised by the end of the longer term viability period, providing
the Company with more than sufficient cash needs to pay ongoing
expenses over the longer term viability period and meeting
quarterly dividend payments to shareholders. The outcome of the
Realisation Election cannot be determined at this time, and
therefore our assessment is subject to shareholders voting to
retain their ordinary shareholding. The Company has adequate
liquidity to continue operations through the longer term viability
period, and it would take the Company and its SPVs approximately
seven years to run out of cash.
The first continuation vote for
the Company will be proposed at Annual General Meeting of the
Company to be held in May 2027, which is after the viability period
currently under assessment has ended.
The Directors and the Company note
that from the information presented above, the Company has
sufficient liquidity and will continue to hold unrealised
investments to meet its liabilities as they fall due for the longer
term viability. The Company will continue to assess the business in
the near term, as well as the upcoming realisation election, and
will have more clarity around the realisations of the unrealised
portfolio in the coming months.
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. The RCF
available to the Company's SPVs enables 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.
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 above.
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 one new
investment (2022: six), and two realisations (2022: six) during the
year. The new investment and one of the realisations during the
year related to the refinancing of Streamline and the other
realisation related to Clean Energy Fuels. 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 8.5 cents per share with respect to the
year (2022: 9.00 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 Company stopped its share
buyback programme in August 2022 where between the period of 30
June 2022 - 31 August 2022 the Company repurchased 740,146 shares.
The Company may reinitiate it's share buyback programme in late
2024, including a tender offer in order to reduce the share price
discount to NAV.
Annual General Meeting
The AGM of the Company will be
held at 14:00 BST on 22 May 2024 at the offices of Hogan Lovells
International LLP, Atlantic House, Holborn Viaduct, London EC1A
2FG. In accordance with the Articles of Association, a Realisation
Election will be proposed at the AGM. For the forthcoming
realisation election, shareholders will vote whether or not to
redesignate their shares on a one for one basis to realisation
shares. Details of the other resolutions to be proposed at the AGM,
together with explanations, will appear in the notices of meetings
to be distributed to Shareholders in April 2024. 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
20 February 2024
Investment Manager's Report
ABOUT THE INVESTMENT MANAGER
Appointed in May 2019, the
Investment Manager, an affiliate of Riverstone Holdings, seeks to
generate consistent shareholder returns predominantly in the form
of income distributions principally by making Green and
Sustainability-Linked, senior secured loans to energy transition
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 better
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 impact regarding
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.
On 31 December 2023, Riverstone
Holdings LLC and their affiliate Riverstone Investment Group
(collectively, "Riverstone") entered into an agreement with
Breakwall Capital LP to provide sub-management services (the
"Sub-Management Agreement") for all credit vehicles managed by
Riverstone, including RCOI (the "Existing Credit Vehicles").
Breakwall is a newly formed independent asset-management firm
regulated by the SEC as a Registered Investment Advisor, owned and
operated by the existing Riverstone Credit Partners team. Services
provided by Breakwall commenced on 31 December 2023.
Under the arrangement, Riverstone
will remain the manager of RCOI on the terms of RCOI's existing
management agreement and all aspects of the ongoing management of
the Company, including the day-to-day investment team, will remain
consistent. Breakwall, as Sub-Manager, will be leading any new
investments. In its capacity as Sub-Manager to the Manager, the
Sub-Manager shall recommend to the Manager each and every action to
be taken by the Manager pursuant to the governing agreements of the
Existing Credit Vehicles. There will be no increase in fees payable
by RCOI as a result of the modified arrangements. The Board of RCOI
has been involved in discussions and are confident that the
structure of Riverstone as manager and Breakwall as the future
sub-manager will continue to deliver strong returns for
shareholders.
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 will
continue to leverage the wider Riverstone and Breakwall platforms
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's SPVs are
summarised below.
INVESTMENT PORTFOLIO SUMMARY
As of 31 December 2023, the
Company holds a diverse portfolio of nine 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. The Company completed one new investment and two
realisations during the year. The new
investment and one of the realisations during the year related to
the refinancing of Streamline and the other realisation related to
Clean Energy Fuels. The Investment Manager
continues to maintain a strong pipeline of investment opportunities
and expects to make further commitments across the infrastructure,
infrastructure services and energy transition sectors. RCOI will
receive an allocation of new investments in accordance with the
limitations illustrated in the Company's Investment Restrictions.
The determination of what percentage received 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.
The Investment Manager 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 third party independent opinion 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, a privately held water infrastructure services
company with operations primarily in Loving County, Texas 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, reflecting 11.8 per
cent of RCOI's overall commitments. The original total loan size
was $84.2 million.
Use of proceeds was to assist in
operations in water infrastructure services across Loving County,
Texas, and southern New Mexico.
EPIC Propane ("EPIC") - 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.
In conjunction with 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 2023, the full
remaining commitment of $13.9 million has been invested, reflecting
18.1 percent of RCOI's overall commitments. The original total loan
size from the refinance was $77.0 million.
Hoover Circular Solutions ("Hoover CS") -
RCOI upsized and refinanced its investment in a
Sustainability-Linked first lien 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 30 June 2023, the full
remaining commitment of $13.7 million has been invested, reflecting
18.0 per cent of RCOI's overall commitments. The original total
loan size from the refinance was $160.0 million.
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, 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 per cent for RCOI on a fully drawn basis.
The Company's SPV, Riverstone
International Credit - Direct L.P., fully realised the investment
on 12 December 2023 at a gross IRR of 14.9% and a net IRR of 10.8%
and a gross MOIC of 1.14x and a net MOIC of 1.10x.
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 2023, the full
remaining commitment of $5.0 million has been invested, reflecting
6.5 per cent of RCOI's overall commitments. The original total loan
size was $28.3 million.
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
funded for RCOI's portion of the $23.1 million drawn at close for
the $35.0 million committed facility tranche. The first lien term
loan has a maturity of December 2024 and an estimated all-in yield
to maturity of 13.2 per cent 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 NG 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 17.2 million warrants will be
issued to Riverstone, of which 5.1 million warrants are for RCOI,
representing 27.0 per cent of the Company's outstanding
warrants.
The term loan has been structured
as a Green Loan following the Green Loan Principles published by
the Loan Market Association (''LMA''), the Asia Pacific Loan Market
Association (''APLMA''), and the Loan Syndications & Trading
Association (''LSTA'') and a Sustainability-Linked Loan with
performance indicators focused on social responsibility. Harland
& Wolff is incentivised to upscale its group-wide
apprenticeship programme to benefit 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 $15.0 million and $7.2 million upsizes of the
investment, respectively, bringing RCOI's total commitment to
$14.6m.
As of 31 December 2023, the full
remaining commitment of $14.6 million has been invested, reflecting
19.0 per cent of RCOI's overall commitments. The original total
loan size was $100.0 million including the recent
upsizes.
Streamline Innovations - RCOI
amended and extended its investment in Streamline Innovations, a
leader in environmentally-advanced treatment solutions for the
removal of hydrogen sulphide (H2S) from natural gas, renewable
fuels, wastewater, and industrial processes. The facility was
structured as a Green Loan with Sustainable Fitch providing a SPO.
The SPO verifies the facility'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.
During Q2 2023, the Company
amended and extended its investment in Streamline Innovations and
realised c. $2.0 million of profits at closing of the amendment and
extension resulting in a 24 per cent gross IRR (19 per cent net
IRR) and a 1.3x gross MOIC (1.2x net MOIC) of the initial
investment in Streamline Innovations. As part of this amendment and
extension closing, the facility was upsized to $55.0 million, the
maturity was extended to December 2026, and economic terms were
adjusted for an estimated all-in yield to maturity of 13 percent to
RCOI. RCOI's allocation to the loan was $9.9 million.
As of 31 December 2023, $3.5
million of the $9.9 million commitment has been invested,
reflecting 13.0 per cent of RCOI's overall commitments. The
original total loan size from the refinance was $55.0
million.
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 million 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.
On 31 March 2023, the remaining
available commitment was terminated as per the availability period
termination on the credit agreement.
In December 2023, as part of the
amendment and extension, Blackbuck's maturity was extended to 31
December 2024, and economic terms were adjusted for an estimated
all-in yield to maturity of 17 per cent to RCOI. As part of the
amendment, the current exit premium of 106 was paid, reducing the
go forward exit premium to zero, resulting in c. $0.6 million in
profits to be distributed. In addition, c. $0.1 million of the loan
was repaid to RCOI, resulting in $9.9 million of principal balance
outstanding.
As of 31 December 2023, the
remaining commitment of $9.7 million has been invested, reflecting
12.7 per cent of RCOI's overall commitments. The original total
loan size was $55.0 million inclusive of recent termination of the
$2.0 million unfunded portion of the upsize.
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 "C4"), which is a
research and development company based in Binghamton, New York with
patented discoveries in battery composition, and Magnis Energy
Technologies Limited "Magni") (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 per cent 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 per
cent 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 per cent 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 per
cent on a fully drawn basis.
Use of proceeds, combined with
Caliber Midstream Partners' (''OpCo'') RCF draw, was to fund an
acquisition.
In March 2021, OpCo's 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 approximately 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. In June 2023, the
Priority Liquidity Facility was moved to a new entity, Caliber
MidCo LLC.
In November 2023, the Escrowed
proceeds from the restructure in March 2022 were distributed to the
lenders.
As of 31 December 2023, the full
$4.0 million commitment has been invested, reflecting 0.9% of
RCOI's overall commitments post restructuring. The original total
loan size for the Opco RCF and HoldCo were $129.4 million and $35.1
million, respectively.
SUBSEQUENT EVENTS AND OUTLOOK
In aggregate, two investments were
realised during 2023, one of which as part of a successful
refinancing. 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 create real value for
shareholders.
The backdrop for the broader
energy sector remains strong, continuing the trend seen in 2023.
Given our focus on energy infrastructure, infrastructure services
and energy transition assets, RCOI is ideally poised to continue 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 two realisations and one
amendment and extension made during the year have resulted in
additional proceeds to distribute to investors. As the commodity
market overall remains strong, we are well positioned to continue
to provide stable cashflows and an attractive yield. Additionally,
despite the recent increase in inflation and rise in interest
rates, our floating rate loans are all based on 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 in order to optimise
shareholder value.
We are cognisant of the
forthcoming realisation election in May 2024 and look forward to
engaging with shareholders to understand both their intentions to
participate and their views regarding the future of the Company. We
remind investors that if the Company's remaining Ordinary net asset
value falls below $50m as a result of the election, the Company
will amend its investment objectives and policy to adopt a
realisation strategy. As always, we remain vigilantly focused on
optimising the portfolio to ensure long-term value creation for our
shareholders.
All capitalised terms are defined in the list of defined
terms below unless separately defined.
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
Emma is the Chief Investment
Officer at the Guy's & St Thomas' Foundation leading the
management of their £1bn charitable endowment.
Her previous role was
at Octopus Ventures as co-CEO, before which she spent 5 years
as a partner at Marylebone Partners, building and leading their
direct investing capability. Emma has a wealth of experience,
expertise and networks from a range of world class investment
houses including J.P. Morgan, Perry Capital, Big Society Capital
(where she was the Chief Investment Officer) and The Wellcome
Trust. She has a particular interest and focus on ESG, Impact
and Responsible Investment considerations.
Emma has an MA from Oxford
University and an MSc from LSE.
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 2023. The Corporate Governance Report below
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
above.
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 £1
and 50,000 shares of £1 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 2023, the
Company's issued share capital comprised 90,805,237 Ordinary Shares
(2022: 90,805,237) and 1 E Share (2022: 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 22 May 2024. 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
13,611,705 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 2024 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 was passed at
the AGM in May 2023 AGM renewing the authority to purchase shares.
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 2023 are detailed below.
|
Ordinary Shares held %
31 December 2023
|
ND Capital Investments Ltd
(Tortola)
|
11.01
|
Newton Investment Mgt
(London)
|
10.26
|
Mirabella Financial Services
(London)
|
9.74
|
AXA Investment Mgrs
(London)
|
8.34
|
Alder Investment Mgt
(London)
|
8.26
|
Almitas Capital (Santa
Monica)
|
7.70
|
Metage Capital Mgt
(London)
|
4.63
|
Polar Capital (London)
|
4.50
|
Jupiter Asset Mgt
(London)
|
4.41
|
Brooks Macdonald Asset Mgt
(London)
|
4.08
|
In addition, the Company also
provides the same information as at 31 January 2024, being the most
current information available.
|
Ordinary Shares held %
31 January 2024
|
ND Capital Investments Ltd
(Tortola)
|
11.01
|
Newton Investment Mgt
(London)
|
10.26
|
Mirabella Financial Services
(London)
|
9.74
|
Alder Investment Mgt
(London)
|
8.26
|
AXA Investment Mgrs
(London)
|
7.60
|
Almitas Capital (Santa
Monica)
|
7.42
|
Metage Capital Mgt
(London)
|
4.63
|
Polar Capital (London)
|
4.50
|
Jupiter Asset Mgt
(London)
|
4.41
|
Brooks Macdonald Asset Mgt
(London)
|
4.08
|
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;
· 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 below 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. The
Company, as described in the ESG Report, did undertake a
measurement of GHG emissions across the Company's portfolio
companies in 2022.
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 2023 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 2023 the Board has recommended a distribution of
$2.3 million, equivalent to 2.5 cents per
share, as disclosed in note 14 to the financial statements. This
brings the total distribution declared with respect to the year
ended 31 December 2023 to 8.5 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.
On behalf of the Board
Reuben Jeffery, III
Chairman
20 February 2024
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 22 May 2024. At the AGM on 18 May 2023,
Shareholders voted 98.99 percent in favour to approve the
Directors' Remuneration Report for the year ended 31 December
2022.
The Company's Auditor is required
to give its opinion on the information provided on Directors'
remuneration that is specifically marked as audited of this report
and this is explained further in its report to Shareholders. The
remainder of this report is outside the scope of the external
audit.
Annual Statement from the Chairman of the
Board
The Board 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 £500,000 per annum. The
Chairman is entitled to an additional fee of £10,000 per annum and
the Audit and Risk Committee Chair is entitled to an additional fee
of £5,000 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 third AGM on 18 May 2023, with Shareholders
voting 99.89 percent in favour and 0.11 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 2023
|
Change from prior
year
|
Paid in the year to 31
December 2022
|
|
$
|
%
|
$
|
Reuben Jeffery, III (Chairman) -
£45k p.a.
|
56,097
|
1%
|
55,400
|
Emma Davies (Audit & Risk
Committee Chair) - £40k p.a.
|
49,864
|
1%
|
49,245
|
Edward Cumming-Bruce (Nomination
Committee Chair) - £35k p.a.
|
43,630
|
1%
|
43,089
|
Total
|
149,591
|
|
147,734
|
The Directors total annual
remuneration has not changed from prior year. The percent change
detailed above is directly related to foreign exchange rate
movements in USD, as the Directors are paid in GBP.
The table below (audited
information) shows the change in total remuneration earned by each
individual Director over prior years:
|
2023
% change from prior year
|
2022
% change from prior year
|
2021
% change from prior year
|
2020
% change from prior year
|
Reuben Jeffery, III (Chairman) -
£45k p.a.
|
1%
|
-10%
|
8%
|
32%
|
Emma Davies (Audit & Risk
Committee Chair) - £40k p.a.
|
1%
|
-10%
|
8%
|
32%
|
Edward Cumming-Bruce (Nomination
Committee Chair) - £35k p.a.
|
1%
|
-10%
|
8%
|
32%
|
Amounts paid to Directors as
reimbursement of travel and other incidental expenses during the
year were:
|
Paid in the year to 31
December 2023
|
Change from prior
year
|
Paid in the year to 31
December 2022
|
|
$
|
%
|
$
|
Reuben Jeffery, III
|
10,541
|
-67%
|
31,524
|
Emma Davies
|
-
|
-
|
-
|
Edward Cumming-Bruce
|
-
|
-
|
-
|
Total
|
10,541
|
|
31,524
|
None of the Directors received any
other remuneration or additional discretionary payments during the
year from the Company (2022: $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 2023 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 $0.01
each held at 31 December 2023
|
Ordinary Shares of $0.01
each held at 31 December 2022
|
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 $149,591 (2022: $147,734) in
comparison to distributions paid or declared to Shareholders with
respect to the year of $7.7 million (2022: $8.2
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
20 February 2024
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
20 February 2024
Corporate Governance Report
This Corporate Governance Report
forms part of the Report of the Directors. 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/
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 8 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 2023 and
attendance by each Director is set out below:
|
Board
Meetings
(max 10)
|
Audit and Risk
Committee
Meetings
(max 4)
|
Nomination
Committee
Meetings
(max 1)
|
Management
Engagement
Committee
Meetings
(max 1)
|
Tenure as at 31 December 2023
|
Director
|
A
|
B
|
A
|
B
|
A
|
B
|
A
|
B
|
|
Reuben Jeffery, III
|
8
|
8
|
4
|
4
|
1
|
1
|
1
|
1
|
4 years 9 months
|
Emma Davies
|
8
|
8
|
4
|
4
|
1
|
1
|
1
|
1
|
4 years 9 months
|
Edward Cumming-Bruce
|
8
|
7
|
4
|
3
|
1
|
1
|
1
|
0
|
4 years 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.
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, and such notice is 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.
SUB-MANAGEMENT AGREEMENT
On 31 December 2023, Riverstone
Holdings LLC and their affiliate Riverstone Investment Group
(collectively, "Riverstone") entered into an agreement with
Breakwall Capital LP to provide sub-management services for all
credit vehicles managed by Riverstone, including RCOI. Breakwall is
a newly formed independent asset-management firm regulated by the
SEC as a Registered Investment Advisor, owned and operated by the
existing Riverstone Credit Partners team. Services provided by
Breakwall commenced on 31 December 2023.
Under the arrangement, Riverstone
will remain the Investment Manager of RCOI on the terms of RCOI's
existing management agreement and all aspects of the ongoing
management of the Company, including the day-to-day investment
team, will remain consistent. Breakwall,
as Sub-Manager, will be leading any new investments. In its
capacity as Sub-Manager to the Manager, the Sub-Manager shall
recommend to the Manager each and every action to be taken by the
Manager pursuant to the governing agreements of the Existing Credit
Vehicles. There will be no increase in
fees payable by RCOI as a result of the modified arrangements. The
Board of RCOI has been involved and are confident that the
structure of Riverstone as manager and Breakwall as the future
sub-manager will continue to deliver strong returns for
shareholders.
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
20 February 2024
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.
Meetings
During the year ended 31 December
2023, 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; and
· review of the Company's key risks and internal
controls.
The Audit and Risk Committee met on
20 February 2024 to review the results of the audit and to consider
and approve the Annual Report for the year ended 31 December
2023.
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.
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 2023 was $94.6
million (2022: $94.6 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,
9 August 2023 and 20 February 2024. 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.
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.
The Company has no fixed life, but
in accordance with its Articles of Association, a Realisation
Election will be proposed at its AGM in May 2024 where Shareholders
will vote if they want to redesignate their shares on a one for one
basis to realisation shares. Having reviewed the Company's financial position, liabilities
principal risks and uncertainties, the Audit and Risk Committee
recommended to the Directors that it was appropriate for the
Directors to prepare the financial statements on the going concern
basis, however noting that the upcoming realisation election
creates material uncertainty relating to going concern.
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 fifth year of audit.
The external auditor is required
to rotate the audit partner every five years. The current Ernst
& Young LLP lead audit partner Mike Gaylor started his tenure
in 2019 and his current rotation will end with the audit of the
2023 Annual Report and Financial statements. 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. 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
31 December 2023
|
For the year ended
31 December 2022
|
|
|
$'000
|
$'000
|
Fees to the Company's
Auditor
|
|
|
|
for audit of the statutory
financial statements
|
|
255
|
206
|
for other audit related
services
|
|
29
|
24
|
|
|
284
|
230
|
Other fees paid to the Company's
Auditor for other audit related services of $29k (2022: $24k) were
in relation to a review of the Interim Report and fees paid for
other non-audit services of $nil (2022: $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
20 February 2024
Statement of Financial Position
As at 31 December 2023
|
|
31 December
2023
|
31 December
2022
|
|
Note
|
$'000
|
$'000
|
|
|
|
|
Non-current assets
|
|
|
|
Investments at fair value through
profit or loss
|
4/5
|
94,639
|
94,570
|
|
|
94,639
|
94,570
|
Current assets
|
|
|
|
Loan interest
receivable
|
4
|
-
|
1,263
|
Dividends receivable
|
4
|
1,728
|
3,451
|
Trade and other
receivables
|
6
|
97
|
124
|
Cash and cash
equivalents
|
|
627
|
957
|
|
|
2,452
|
5,795
|
Current liabilities
|
|
|
|
Trade and other
payables
|
7
|
(1,067)
|
(1,889)
|
|
|
|
|
Net current assets
|
|
1,385
|
3,906
|
|
|
|
|
Net assets
|
|
96,024
|
98,476
|
|
|
|
|
Equity
|
|
|
|
Share capital
|
8
|
908
|
908
|
Capital redemption
reserve
|
8
|
92
|
92
|
Other distributable
reserves
|
8
|
90,528
|
90,528
|
Retained earnings
|
9
|
4,496
|
6,948
|
Total Shareholders' funds
|
|
96,024
|
98,476
|
|
|
|
|
Number of Shares in issue at year
end
|
|
90,805,237
|
90,805,237
|
|
|
|
|
Net assets per share (cents)
|
13
|
105.75
|
108.45
|
The financial statements of the
Company were approved and authorised for issue by the Board of
Directors on 20 February 2024 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 2023
|
|
For the year ended
31 December 2023
|
For the year ended
31 December 2022
|
|
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
|
-
|
(1,334)
|
(1,334)
|
-
|
3,944
|
3,944
|
|
|
-
|
(1,334)
|
(1,334)
|
-
|
3,944
|
3,944
|
Income
|
|
|
|
|
|
|
|
Investment income
|
4
|
9,220
|
-
|
9,220
|
11,967
|
-
|
11,967
|
|
|
9,220
|
-
|
9,220
|
11,967
|
-
|
11,967
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
Directors' fees and
expenses
|
16
|
(160)
|
-
|
(160)
|
(180)
|
-
|
(180)
|
Other operating
expenses
|
|
(1,177)
|
-
|
(1,177)
|
(1,269)
|
-
|
(1,269)
|
Profit share
|
12
|
(873)
|
-
|
(873)
|
(1,679)
|
-
|
(1,679)
|
Total expenses
|
|
(2,210)
|
-
|
(2,210)
|
(3,128)
|
-
|
(3,128)
|
|
|
|
|
|
|
|
|
Operating profit / (loss) for the year
|
|
7,010
|
(1,334)
|
5,676
|
8,839
|
3,944
|
12,783
|
|
|
|
|
|
|
|
|
Finance income
|
|
|
|
|
|
|
|
Interest income
|
|
44
|
-
|
44
|
65
|
-
|
65
|
Total finance income
|
|
44
|
-
|
44
|
65
|
-
|
65
|
|
|
|
|
|
|
|
|
Profit / (loss) for the year before tax
|
|
7,054
|
(1,334)
|
5,720
|
8,904
|
3,944
|
12,848
|
|
|
|
|
|
|
|
|
Tax
|
11
|
-
|
-
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
Profit / (loss) for the year after tax
|
|
7,054
|
(1,334)
|
5,720
|
8,904
|
3,944
|
12,848
|
|
|
|
|
|
|
|
|
Profit / (loss) and total comprehensive income for the
year
|
|
7,054
|
(1,334)
|
5,720
|
8,904
|
3,944
|
12,848
|
|
|
|
|
|
|
|
|
Profit / (loss) and total comprehensive income attributable
to:
|
|
|
|
|
|
|
|
Equity holders of the
Company
|
|
7,054
|
(1,334)
|
5,720
|
8,904
|
3,944
|
12,848
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
Basic and diluted earnings and
loss per Share (cents)
|
13
|
7.77
|
(1.47)
|
6.30
|
9.76
|
4.32
|
14.08
|
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 2023
For the year ended
31 December 2023
|
|
Share
capital
|
Capital redemption
reserve
|
Other distributable
reserves
|
Retained
earnings
|
Total
|
|
Note
|
$'000
|
$'000
|
$'000
|
$'000
|
$'000
|
|
|
|
|
|
|
|
Opening net assets attributable to
Shareholders
|
|
908
|
92
|
90,528
|
6,948
|
98,476
|
Repurchase and cancellation of
share capital
|
|
-
|
-
|
-
|
-
|
-
|
Total comprehensive income for the
year
|
|
-
|
-
|
-
|
5,720
|
5,720
|
Distributions paid in the
year
|
14
|
-
|
-
|
-
|
(8,172)
|
(8,172)
|
|
|
|
|
|
|
|
Closing net assets attributable to
Shareholders
|
|
908
|
92
|
90,528
|
4,496
|
96,024
|
Following the IPO of the Company,
the share premium account was cancelled by a court order dated 16
July 2019. The amount of $97,000 remaining in the share premium
account of the Company at this date was subsequently cancelled and
transferred to other distributable reserves. 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 $2.1m and
distributions made, the total amount of reserves that were
distributable as at 31 December 2023 were $92.9m.
Details of the Company's retained
earnings are shown below in note 9.
For the year ended
31 December 2022
|
|
Share
capital
|
Capital redemption
reserve
|
Other distributable
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
|
After taking account of cumulative
unrealised losses of $3.5m and distributions made, the total amount
of reserves that were distributable as at 31 December 2022 were
$94.0m.
The accompanying notes below form
an integral part of these financial statements.
Statement of Cash Flows
For the year ended 31 December 2023
|
Note
|
For the year ended
31 December 2023
|
For the year ended
31 December 2022(1)
|
|
|
$'000
|
$'000
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
Profit for the year before
tax
|
|
5,720
|
12,848
|
|
|
|
|
Adjustments for non-cash transaction in profit for the year
before tax:
|
|
|
|
Interest income
|
|
(44)
|
(65)
|
Movement in fair value of
investments
|
4
|
1,334
|
(3,944)
|
Investment income per Statement of
Comprehensive Income
|
4
|
(9,220)
|
(11,967)
|
Adjustments for statement of financial position
movement:
|
|
|
|
Movement in payables
|
|
(822)
|
991
|
Movement in receivables
|
|
15
|
(12)
|
|
|
|
|
Bank interest received
|
|
56
|
50
|
Loan interest received
|
4
|
5,366
|
5,520
|
Dividends received
|
|
5,437
|
3,825
|
Net cash generated from operating
activities
|
|
7,842
|
7,246
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
Investment additions
|
4
|
-
|
(16,193)
|
Investment proceeds
|
4
|
-
|
12,692
|
Net cash (used in) from investing
activities
|
|
-
|
(3,501)
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
Distributions paid
|
14
|
(8,172)
|
(7,021)
|
Repurchase and cancellation of
share capital
|
8
|
-
|
(651)
|
Net cash used in financing activities
|
|
(8,172)
|
(7,672)
|
|
|
|
|
Net movement in cash and cash
equivalents during the year
|
|
(330)
|
(3,927)
|
Cash and cash equivalents at the
beginning of the year
|
|
957
|
4,884
|
Cash and cash equivalents at the end of the
year
|
|
627
|
957
|
|
|
|
|
|
|
|
| |
(1) Cash
flows from operating activities for the year ended 31 December 2023
are presented by adjusting Profit for the year before tax as
opposed to Operating profit for the year. Cash flows from operating
activities for the year ended 31 December 2022 have been
re-presented in the format adopted for the year ended 31 December
2023.
The accompanying notes below form
an integral part of these financial statements.
Notes to the Financial Statements
For the year ended 31 December 2023
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 provisions of the Companies Act
2006, with the UK-adopted International Accounting Standards
("UK-adopted IAS"), the Disclosure Guidance and Transparency Rules
of the United Kingdom's Financial Conduct Authority. 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.
Going Concern
As at 31 December 2023, the cash
balance within the Company was $0.6 million, cash and cash
equivalent balances within the SPVs amounted to $8.5
million. The Company currently has existing liabilities of
$1.1 million, plus a distribution payable of $2.3 million with
respect to the quarter ended 31 December
2023.
During Q4 2022, Riverstone
International Credit - Direct entered into a Revolving Credit
facility ("RCF" or "facility") Agreement for $15.0 million with BC
Partners. The SPV borrowings from the facility at 31 December 2023
were $5.0m, leaving the remaining $10.0m million undrawn commitment
for future borrowings. 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
SPVs are required to maintain an LTV Ratio below 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 of the SPVs, Riverstone
International Credit L.P. and Riverstone International
Credit-Direct L.P. At 31 December 2023, the SPVs were compliant
with the Covenant LTV ratio, with an LTV of ~6% and $10.0 million
of the undrawn commitment is available. The SPVs also entered into
a money market capital fund with JP Morgan, earning about 5%
interest annually. Cash held at the money market account is readily
transferrable within one business day, and the balance at 31
December 2023 was $15.1 million.
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
are no material liquidity or solvency risks for the Company's
financial resources and working capital.
Additionally, the operating
expenses of the trust and its SPVs are budgeted to be between $3.0
million and $3.5 million during the period
of assessment including taxes and interest
expense from the SPV facility. Based on the high end of this range,
using all the cash at the SPVs and in the Company, along with the
proceeds invested in the money market capital fund, it would take
the Company and its SPVs' approximately seven years to run out of
cash.
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 analysed in the scenarios outlined
below based on timing and covenant compliance.
The Company has assessed multiple
case scenarios, including scenarios impacted by the upcoming
realisation election, from base case to the ultimate downside
scenario. In the highly unlikely ultimate downside scenario, where
all unrealised investments are written down to zero and expenses
increase by 50%, the Company and its SPVs will still have
sufficient funds to cover their obligations and continue operating
for the going concern period.
The first continuation vote for
the Company will be proposed at the AGM of the Company to be held
in May 2027, which is after the going concern period has
ended.
For the forthcoming realisation
election in May 2024, shareholders will vote whether or not to
redesignate their shares on a one for one basis to realisation
shares. The Realisation Share NAV (the NAV attributable to the
realisation shares) and the Ordinary Share NAV (the NAV
attributable to the remaining ordinary shares) will be calculated
after the Annual General Meeting.
If the Realisation Share NAV is
below $5.0m, these shares will be repurchased and the remaining
shares will continue as before, and if the Realisation Share NAV is
above $5.0m, the assets and liabilities of the Company will be
allocated pro rata in a Continuation Pool and a Realisation
Pool.
Alternatively, if the remaining
Ordinary Share NAV is below $50.0m (Realisation Share NAV is above
$50.0m), the investment objective and investment policy will change
to hold the Company's assets to repayment at maturity without
reinvesting any cash realised by the Company with the aim of making
progressive returns of cash to Shareholders as soon as practicable
and ultimately liquidating the Company. As a result, under this
scenario the Company would cease to be a going concern.
The Directors have concluded the
Company's financial statements shall be prepared on a going concern
basis. However, as the realisation election will not conclude until
after the approval of these financial statements, there is a
material uncertainty related to this event that may cast
significant doubt on the Company's ability to continue as a going
concern. The financial statements do not contain the adjustments
that would result if the company were unable to continue as a going
concern.
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 normally the transaction price,
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 fair 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.
Capital Redemption Reserve
This is a non-distributable
reserve, holding amounts that are transferred following the
purchase of the Company's own share capital out of distributable
reserves.
Distributable Reserves
Distributable reserves are those
profits available for the purpose of a distribution to Ordinary
Shareholders. This includes its other distributable reserve and
retained earnings, excluding unrealised movement on its
investments. The Company's retained earnings include the revenue
reserve and the capital reserve. The Revenue reserve is the
accumulation of distributable profit and losses through the
statement of comprehensive income and the capital reserve is an
accumulation of unrealised gains and losses in the fair value of
investments.
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. Dividend and interest income is allocated to the
Revenue column and are included within Investment income line
on 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
25 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.
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 are 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 and IFRS Practice Statement 2 -
Disclosure of Accounting policies (effective for annual periods
beginning on or after 1 January 2023);
· Amendments to IAS 8 - Definition of Accounting Estimates
(issued on 12 February 2021 and effective for annual periods
beginning on or after 1 January 2023); and
The impact of these amendments
were not material to the reported results and financial position of
the Company.
Certain new accounting standards
and amendments to accounting standards have been published that are
not mandatory for 31 December 2023 reporting periods and have not
been early adopted by the Company. These new or amended standards
are not expected to have a material impact on the entity in the
current or future reporting periods and on foreseeable future
transactions.
· IFRS
S1 - General Requirements for Disclosure of Sustainability-related
Financial Information (effective for annual periods beginning on or
after 1 January 2024);
· IFRS
S2 - Climate-related Disclosures (effective for annual periods
beginning on or after 1 January 2024); and
· IAS
1 - Classification of Liabilities as Current or Non-current and
Non-current Liabilities with Covenants (effective for annual
periods beginning on or after 1 January 2024).
3. 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
investments in 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.
As disclosed in the Strategic
Report, the Company's positioning and long-term investment strategy
is now focused towards energy-transition investments in either
Green Loans or Sustainability-Linked Loans, supporting the
advancement of decarbonisation and enhancing
sustainability.
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 the assessment of 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.
4. Investments at
fair value through profit or loss
The table below shows the reconciliation of the
movements of level 3 financial assets during the year.
|
For the year ended
31 December 2023
|
For the year
ended
31 December
2022
|
|
Loans
|
Equity
|
Total
|
Loans
|
Equity
|
Total
|
|
$'000
|
$'000
|
$'000
|
$'000
|
$'000
|
$'000
|
Opening balance
|
59,397
|
35,173
|
94,570
|
60,049
|
27,076
|
87,125
|
Restructuring
|
-
|
-
|
-
|
213
|
(213)
|
-
|
Investment additions
|
-
|
-
|
-
|
7,893
|
16,239
|
24,132
|
Investment proceeds
|
-
|
-
|
-
|
(8,758)
|
(11,873)
|
(20,631)
|
Loan interest
receivable
|
1,403
|
-
|
1,403
|
-
|
-
|
-
|
Unrealised movement in fair value
of investments
|
-
|
(1,334)
|
(1,334)
|
-
|
3,944
|
3,944
|
|
60,800
|
33,839
|
94,639
|
59,397
|
35,173
|
94,570
|
As set out above the Company's
investment in Riverstone International Credit Corp. comprises of a
loan investment and an equity investment and the investment in
Riverstone International Credit L.P. comprises of an equity
investment. 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 2023 was $1.4m (2022: $1.3m) and is
included in investments at fair value through profit and loss. The
unrealised movement in fair value of investments was shown in the
Change in fair value of investments at fair value through profit or
loss in the Condensed Statement of Comprehensive Income.
The dividend receivable on the
equity investment at 31 December 2023 was $1.7m (31 December 2022:
$3.5m). The total unfunded commitments of the Company's SPVs'
investments as at 31 December 2023 is $6.4m (31 December 2022:
$7.5m).
Reconciliation of investment income recognised in the
year
|
|
For the year ended
31 December 2023
|
For the year ended
31 December 2022
|
|
|
$'000
|
$'000
|
Movement in loan interest
receivable at year end
|
|
140
|
(155)
|
Loan interest received as
cash
|
|
5,366
|
5,520
|
Total loan interest recognised in the year
|
|
5,506
|
5,365
|
|
|
|
|
Dividend income
|
|
3,714
|
6,602
|
Total investment income recognised in the
year
|
|
9,220
|
11,967
|
Total cash received in relation to
interest income in the year was $5.4m (2022: $5.5m). This comprises
$5.4m (2022: $5.5m) of loan interest recognised in the year and
$nil (2022: $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 (2022: 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 fair value, which is normally the transaction price.
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
2023
|
Valuation
|
Unobservable
|
Range /
weighted
|
Description
|
|
technique
|
input
|
average
|
|
$'000
|
|
|
$'000
|
|
|
|
|
|
SPV
|
94,639
|
Adjusted net asset
value
|
NAV
|
94,639
|
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 2023 are as shown
below:
|
|
|
Sensitivity
|
Effect on
|
Description
|
|
Input
|
used
|
fair value
|
|
|
|
|
$'000
|
|
|
|
|
|
SPV
|
|
Discount
for lack of liquidity
|
+/-
3%
|
-/+2,839
|
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
2023, 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
2023.
|
|
|
|
|
|
|
Fair Value Sensitivity to a
100 bps Increase In the Discount Rate
(In Thousands)
|
|
|
|
|
|
|
|
|
Investments at Fair Value as
of 31 December 2023
(In Thousands)
|
|
|
Range
|
|
Industry
|
Valuation
technique(s)
|
Unobservable
input(s)
|
Low
|
High
|
Weighted average
(a)
|
|
|
|
|
|
|
|
|
Infrastructure
|
29,097
|
Discounted cash flow
|
Discount
rate
|
7%
|
13%
|
9%
|
349
|
|
|
Recovery Approach
|
EBITDA
multiple
|
2.75x
|
7.50x
|
|
|
|
|
|
|
|
|
|
|
Infrastructure
|
35,446
|
Discounted cash flow
|
Discount
rate
|
7%
|
51%
|
21%
|
(689)
|
Services
|
|
Option Pricing Model
|
Risk
Free Rate
|
4%
|
4%
|
NA
|
|
|
|
|
|
|
|
|
|
Energy
|
8
|
Implied Equity Value
|
NA
|
NA
|
NA
|
0%
|
-
|
Transition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
12,119
|
Discounted cash flow
|
Discount
Rate
|
6%
|
7%
|
3%
|
(1,100)
|
|
|
Public comparables
|
EBITDA
multiple
|
5.00x
|
6.00x
|
|
|
|
|
Waterfall Approach
|
NA
|
NA
|
NA
|
|
|
|
|
|
|
|
|
|
|
|
$76,669
|
|
|
|
|
|
$
(1,441)
|
|
|
|
|
|
|
|
| |
(a) The difference between the fair value of the SPVs of $94.6m
and the fair value of the underlying investments at 31 December
2023 is due to cash balances of $8.5m, an unsettled trade
receivable of $3.2m, a money market investment of $15.1m and
residual liabilities including the RCF of $8.9m, 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 2022.
|
|
|
|
|
|
Fair Value
Sensitivity
|
|
Investments
at
Fair Value as
of
|
|
|
|
|
to a 100 bps
Increase
|
|
31 December
2022
|
|
|
Range
|
In the Discount
Rate
|
Industry
|
(In
Thousands)
|
Valuation technique(s)
|
Unobservable input(s)
|
Low
|
High
|
(In
Thousands)
|
|
|
|
|
|
|
|
Infrastructure
|
29,998
|
Discounted cash flow
|
Discount rate
|
6%
|
14%
|
(457)
|
|
|
Recovery Approach
|
EBITDA multiple
|
6.5x
|
6.5x
|
|
|
|
Latest round of
financing
|
NA
|
NA
|
NA
|
|
|
|
|
|
|
|
|
Infrastructure
Services
|
36,101
|
Discounted cash flow
|
Discount rate
|
8%
|
12%
|
(610)
|
|
|
Option Pricing Model
|
Risk Free Rate
|
4%
|
4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy
|
16,560
|
Public comparables
|
EBITDA multiple
|
4.0x
|
8.0x
|
(783)
|
Transition
|
|
Public comparables
|
Revenue multiple
|
1.3x
|
4.0x
|
|
|
|
Latest round of
financing
|
NA
|
NA
|
NA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
13,022
|
Discounted cash flow
|
Discount Rate
|
6%
|
7%
|
(666)
|
|
|
Public comparables
|
EBITDA multiple
|
6.5x
|
7.5x
|
|
|
|
Waterfall Approach
|
NA
|
NA
|
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.
5. 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:
Investment
|
|
Place of
business
|
Ownership interest as at 31
December 2023
|
Ownership interest as at 31
December 2022
|
|
|
|
|
|
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.
Riverstone International Credit
Corp. had a net asset value of $28.6m at 31 December 2023 (2022:
$30.0m) with a profit of $1.7m (2022: $9.6m)
The amounts invested in the
Company's unconsolidated subsidiaries during the year and their
carrying value at 31 December 2023 are as outlined in note 4,
comprising:
|
|
31 December
2023
|
31
December 2022
|
|
|
Riverstone International
Credit Corp.
|
Riverstone International
Credit L.P.
|
Total
|
Riverstone International Credit Corp.
|
Riverstone International Credit L.P.
|
Total
|
|
|
$'000
|
$'000
|
$'000
|
$'000
|
$'000
|
$'000
|
|
|
|
|
|
|
|
|
Opening balance at 1
January
|
89,384
|
5,186
|
94,570
|
86,805
|
320
|
87,125
|
Restructure of
investments
|
-
|
-
|
-
|
309
|
(309)
|
-
|
Investment additions
|
-
|
-
|
-
|
11,439
|
12,693
|
24,132
|
Investment realisations
|
-
|
-
|
-
|
(12,692)
|
(7,939)
|
(20,631)
|
Loan Interest receivable
|
1,403
|
-
|
1,403
|
-
|
-
|
-
|
Movement in fair value
|
(1,381)
|
47
|
(1,334)
|
3,523
|
421
|
3,944
|
Closing balance at 31
December
|
89,406
|
5,233
|
94,639
|
89,384
|
5,186
|
94,570
|
On 7 December 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 drawn at 31 December
2023
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 2023, the SPVs borrowed
$nil million, incurred $nil million in fees and $0.9m 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
2023 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. All
of the Company's interest income and dividend income is receivable
directly from the Company's SPVs.
6. Trade and other
receivables
|
|
31 December
2023
|
31 December
2022
|
|
|
$'000
|
$'000
|
Prepayments
|
|
72
|
76
|
VAT receivable
|
|
22
|
33
|
Bank interest
receivable
|
|
3
|
15
|
|
|
97
|
124
|
7. Trade and other
payables
|
|
31 December
2023
|
31 December
2022
|
|
|
$'000
|
$'000
|
Profit share payable
|
|
879
|
1,685
|
Other payables
|
|
188
|
204
|
|
|
1,067
|
1,889
|
8. Share capital and
reserves
Date
|
Issued and fully paid
|
Number of shares
issued
|
Share
capital
|
Capital redemption
reserve
|
Other distributable
reserves
|
Total
|
|
|
|
|
|
|
|
GBP
|
|
|
£'000
|
£'000
|
£'000
|
£'000
|
1 January 2023
|
1
|
-
|
-
|
-
|
-
|
31 December 2023
|
1
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
USD
|
|
|
$'000
|
$'000
|
$'000
|
$'000
|
1 January 2023
|
|
90,805,237
|
908
|
92
|
90,528
|
91,528
|
31 December 2023
|
90,805,237
|
908
|
92
|
90,528
|
91,528
|
As at 31 December 2023 the
Company's authorised and issued share capital comprises 90,805,237
Ordinary Shares at $0.01 per share and 1 E Share at $1 per share.
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.
Date
|
Issued and fully paid
|
Number of shares
issued
|
Share
capital
|
Capital redemption
reserve
|
Other distributable
reserves
|
Total
|
|
|
|
|
|
|
|
GBP
|
|
|
£'000
|
£'000
|
£'000
|
£'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 authorised and issued share capital comprises 90,805,237
Ordinary Shares at $0.01 per share and 1 E Share at $1 per
share.
During 2022, the Company
repurchased and cancelled 740,146 Ordinary Shares as part of its
buy-back programme. Further details regarding the Company's
purchase of its own shares are in the Chairman's
Statement.
9. Retained
earnings
|
|
For the year ended
31 December 2023
|
For the year ended
31 December 2022
|
|
|
Revenue
reserve
|
Capital
reserve
|
Total
|
Revenue
reserve
|
Capital
reserve
|
Total
|
|
|
$'000
|
$'000
|
$'000
|
$'000
|
$'000
|
$'000
|
|
|
|
|
|
|
|
|
Opening balance
|
|
3,471
|
3,477
|
6,948
|
1,588
|
(467)
|
1,121
|
Profit / (loss) and total
comprehensive income in the year
|
|
7,054
|
(1,334)
|
5,720
|
8,904
|
3,944
|
12,848
|
Distributions paid in the
year
|
|
(8,172)
|
-
|
(8,172)
|
(7,021)
|
-
|
(7,021)
|
Closing balance
|
|
2,353
|
2,143
|
4,496
|
3,471
|
3,477
|
6,948
|
10. Audit fees
Other operating expenses include
fees payable to the Company's Auditor, which can be analysed as
follows:
|
|
For the year ended
31 December 2023
|
For the year ended
31 December 2022
|
|
|
$'000
|
$'000
|
Fees to the Company's
Auditor
|
|
|
|
for audit of the statutory
financial statements
|
|
255
|
206
|
for other audit related
services
|
|
29
|
24
|
|
|
284
|
230
|
Other fees paid to the Company's
Auditor for other audit related services of $29k (2022: $24k) were
in relation to a review of the Interim Report. There were nil fees
paid for other non-audit services in the year (2022:
$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
31 December 2023
|
For the year ended
31 December 2022
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
$'000
|
$'000
|
$'000
|
$'000
|
$'000
|
$'000
|
|
|
|
|
|
|
|
UK Corporation tax charge on
profits for the year at 19%/25% (2022: 19%)
|
-
|
-
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended
31 December 2023
|
For the year ended
31 December 2022
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
$'000
|
$'000
|
$'000
|
$'000
|
$'000
|
$'000
|
|
|
|
|
|
|
|
Return on ordinary activities before
taxation
|
7,054
|
(1,334)
|
5,720
|
8,904
|
3,944
|
12,848
|
|
|
|
|
|
|
|
Profit on ordinary activities
multiplied by standard rate of corporation tax in the UK of 19%/25%
(2022: 19%)
|
1,658
|
(313)
|
1,344
|
1,692
|
749
|
2,441
|
|
|
|
|
|
|
|
Effects of:
|
|
|
|
|
|
|
Non-taxable investment gains /
(losses) on investments
|
-
|
313
|
313
|
-
|
(749)
|
(749)
|
Non-taxable dividend
income
|
(873)
|
-
|
(873)
|
(1,254)
|
-
|
(1,254)
|
Tax deductible interest
distributions
|
(1,299)
|
-
|
(1,299)
|
(438)
|
-
|
(438)
|
Movement in deferred tax not
recognised
|
514
|
-
|
514
|
-
|
-
|
-
|
Total tax charge
|
-
|
-
|
-
|
-
|
-
|
-
|
As at 31 December 2023 the Company
has excess management expenses of $5,274,713 that are available to
offset future taxable revenue. A deferred tax asset of $1,318,678
measured at the standard corporation tax rate of 25% has not been
recognised in respect of these expenses since the Directors believe
that, due to the tax deductibility of interest distributions, there
will be no taxable profits in the future against which the deferred
tax asset can be offset.
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.
Taxes are based on the UK
Corporate tax rates which existed as of the balance sheet date
which was 25%. The main rate of corporation tax changed from 19% to
25% from 1 April 2023 for companies with profits over
£250,000.
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 $873k (2022: $1,679k).
13. Earnings per share and Net
assets per share
Earnings per share
|
For the year ended
31 December 2023
|
For the year ended
31 December 2022
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
Profit/(loss) attributable to
equity holders of the Company - $'000
|
7,054
|
(1,334)
|
5,720
|
8,904
|
3,944
|
12,848
|
Weighted average number of
Ordinary Shares in issue
|
|
|
90,805,237
|
|
|
91,202,984
|
Basic and diluted earnings and
loss per Share from continuing operations in the year
(cents)
|
7.77
|
(1.47)
|
6.30
|
9.76
|
4.32
|
14.08
|
|
|
|
|
|
|
| |
There are no dilutive shares in
issue.
Net assets per share
|
|
31 December
2023
|
31 December
2022
|
Net assets - $'000
|
|
96,024
|
98,476
|
Number of Ordinary Shares
issued
|
|
90,805,237
|
90,805,237
|
Net assets per Share
(cents)
|
|
105.75
|
108.45
|
14. Distributions declared with
respect to the year
|
|
2023
|
2022
|
|
|
Distribution per
share
|
Total
distribution
|
Distribution per
share
|
Total
distribution
|
Distributions paid during the year
|
|
cents
|
$'000
|
cents
|
$'000
|
With respect to the period ended
31 December 2022
|
|
3.00
|
2,724
|
1.70
|
1,556
|
With respect to the quarter ended
31 March
|
|
2.00
|
1,816
|
2.00
|
1,831
|
With respect to the quarter ended
30 June
|
|
2.00
|
1,816
|
2.00
|
1,818
|
With respect to the quarter ended
30 September
|
|
2.00
|
1,816
|
2.00
|
1,816
|
|
|
9.00
|
8,172
|
7.70
|
7,021
|
|
|
|
|
|
|
|
|
2023
|
2022
|
|
|
Distribution per
share
|
Total
distribution
|
Distribution per
share
|
Total
distribution
|
Distributions declared after 31 December 2023 and not accrued
in the period
|
|
cents
|
$'000
|
cents
|
$'000
|
With respect to the quarter ended
31 December
|
|
2.5
|
2,291
|
3.00
|
2,746
|
|
|
2.5
|
2,291
|
3.00
|
2,746
|
On 20 February 2024, the Board
approved a distribution of 2.5 cents per share in respect to the
quarter ended 31 December 2023. The record date for the
distribution is 1 March 2024 and the payment date is 22 March
2024.
15. 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 their fair
value.
|
|
31 December
2023
|
31 December
2022
|
|
|
$'000
|
$'000
|
Financial assets
|
|
|
|
Investment at fair value through profit or
loss:
|
|
|
|
Investment in the SPVs
|
|
94,639
|
94,570
|
Other financial assets:
|
|
|
|
Cash and cash
equivalents
|
|
627
|
957
|
Loan interest
receivable
|
|
-
|
1,263
|
Dividends receivable
|
|
1,728
|
3,451
|
Trade and other
receivables
|
|
97
|
124
|
|
|
|
|
Financial liabilities
|
|
|
|
Financial liabilities:
|
|
|
|
Trade and other
payables
|
|
(1,067)
|
(1,889)
|
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
2023, the Company had $nil borrowings (2022: $nil). The Company's
SPVs had no new borrowings during the year, with borrowings
remaining $5m as at 31 December 2023 (2022: $5m).
The Company's investment policy is
set out in the Strategic Report.
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 2023, the
fair value of investments, excluding cash and cash equivalents of
SPVs, was $71,013k (2022: $87,879k) and a 3 percent increase /
(decrease) (2022: 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 + / - $2,130k
(2022: $2,636k). 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 2023, $23.6
million or 25 percent (2022: $6.7 million or 7.0 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 2023
|
$
|
£
|
Total
|
|
$'000
|
$'000
|
$'000
|
Non-current assets
|
|
|
|
Investments at fair value through
profit or loss
|
94,639
|
-
|
94,639
|
Total-non current assets
|
94,639
|
-
|
94,639
|
|
|
|
|
Current assets
|
|
|
|
Loan interest
receivable
|
-
|
-
|
-
|
Trade and other
receivables
|
75
|
22
|
97
|
Dividends receivable
|
1,728
|
-
|
1,728
|
Cash and cash
equivalents
|
626
|
1
|
627
|
Total current assets
|
2,429
|
23
|
2,452
|
|
|
|
|
Current liabilities
|
|
|
|
Trade and other
payables
|
(1,064)
|
(3)
|
(1,067)
|
Total current liabilities
|
(1,064)
|
(3)
|
(1,067)
|
|
|
|
|
Total net assets
|
96,004
|
20
|
96,024
|
As at 31 December 2022
|
$
|
£
|
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
|
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's loan to Riverstone International Credit Corp. does
not bear an interest rate risk due to it being a fixed rate loan.
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 2023, cash balance held by
the Company (including cash held at the SPVs) was $24.2 million
(2022: $7.7 million). A 1.0 percent (2022: 1.0 percent)
increase / (decrease) in interest rates with all other variables
held constant would result in a change to interest received of + /
- $242,532 (2022: $76,480) per annum. As at 31 December 2023, the
RCF held by the Company's SPVs was $5m (2022: $5m). A 1.0 percent
(2022: 1.0 percent) increase/ (decrease) in interest rate with all
other variables held would result in in a change to interest paid
+/- of $50,000 (2022: $50,000).
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 2023, 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. The Company's SPVs has a Revolving Credit
Facility of $15m, with an undrawn amount as at 31 December 2023 of
$10m (2022: $10m). Cash balances held by the Company (including
cash held at the SPVs) was $24.2 million (2022: $7.7 million). This
enables the Company to remain over 100% invested while still
retaining the necessary liquidity to meet ongoing expenses and
future obligations under delay-draw loan commitments.
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 2023 was
$76.7 million (2022: $95.7 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
2023
|
|
|
31 December
2022
|
|
Location
|
Rating
|
$'000
|
Location
|
Rating
|
$'000
|
Counterparty
|
|
|
|
|
|
|
JPMorgan Chase Bank
|
USA
|
A-
|
627
|
USA
|
A-
|
957
|
|
|
|
|
|
|
|
| |
The Company's maximum exposure to
loss of capital at the year end is shown below:
Carrying value and maximum exposure
|
31 December
2023
|
31 December
2022
|
|
$'000
|
$'000
|
31 December 2023
|
|
|
Investment at fair value through
profit or loss
|
|
|
Investments in the SPVs
|
94,639
|
94,570
|
Other financial assets (including
cash and equivalents but excluding prepayments)
|
2,380
|
5,719
|
Gearing
As at the date of these financial
statements the Company has no gearing (2022: none).
16. Related Party
Transactions
Directors
The Company has three
non-executive Directors. Directors' fees for the year ended 31
December 2023 amounted to $150k (2022: $148k), of which $nil was
outstanding at year end (2022: $nil). Amounts paid to Directors as
reimbursement of travel and other incidental expenses during the
year amounted to $10k (2022: $32k), of which $nil was outstanding
at year end (2022: $nil).
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 $5.5m (2022: $5.4m) of which $4.1m was
received in cash (2022: $5.5m), $nil was capitalised (2022: $nil)
and $1.4m remained outstanding at 31 December 2023 and will be
received on 22 March 2024 (31 December 2022: $1.3m outstanding,
received on 16 February 2023). The balance on the loan investment
at 31 December 2023 was $59.4m (2022: $59.4m). The Company's has
equity investments, the balance of these equity investments at 31
December 2023 was $33.8m (2022: $35.2m) During the year the equity
investments had a fair value movement of $1.3m (2022 :
$3.9m).
During 2022, 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 2023 were $5 million, leaving the remaining $10 million
undrawn commitment for future borrowings. 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 SPVs are required to maintain a LTV Ratio below 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 2023, the SPVs were
compliant with the Covenant LTV and the full amount of the undrawn
commitment is available.
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
$261k (2022: $190k). Christopher
Abbate, a partner of the IM and portfolio manager of RCOI,
purchased nil shares during the year (2022: 5k). Jamie
Brodsky, also a partner of the Investment Manager and portfolio
manager of RCOI, purchased nil shares during the period (2022:
nil).
15. 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.
16. Subsequent events
On 12 January 2024, the outstanding $5m
Revolving Credit Facility held through the Company's SPV Riverstone
International Credit- Direct L.P. was paid in full. The RCF remains
in place for any future drawdowns.
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 2023
APLMA means Asia Pacific Loan
Market Association
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
Breakwall means Breakwall
Capital LP
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
Clean Energy Fuels or CLNE means Clean Energy Fuels Corp.
Company or RCOI means
Riverstone Credit Opportunities Income Plc
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
EPIC means Epic
Propane
ESG means environmental,
social and governance
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
GREEN LOAN means to align
lending and environmental objectives. It refers to any type of loan
instrument made available exclusively to finance or re-finance, in
whole or in part, new and/or existing eligible Green Projects.
Green loans must align with the four components of the Green Loan
Principles. We strive to enhance the decarbonisation impact of our
credit portfolio and advance the energy transition
infrastructure
GREEN LOAN PRINCIPLES means a
clear framework of the characteristics of a Green Loan with four
core components 1. Use of Proceeds, 2. Process for the Project
Evaluation and Selection, 3. Management of Proceeds and 4.
Reporting. The Green Loan principles promote the development and
integrity of the Green Loan product through leading financial
institutions active in the global loan markets. 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"
Hoover CS means Hoover
Circular Solution
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.
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
Listing Rules means the
listing rules made by the UK Listing Authority under Section 73A of
the Financial Services and Markets Act 2000
LMA means Loan Market
Association
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
MAX means Max Energy Industrial Holdings US LLC
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
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
RCF or Facility means
Revolving Credit Facility
RCP means Riverstone Credit
Partners
RCOI mean Riverstone Credit
Opportunities Income plc or the Company.
RIC D means Riverstone
International Credit - Direct, L.P.
Riverstone means Riverstone
Investment Group LLC or the Investment Manager
RNG means Riverstone Natural
Gas
Realisation Shares means
realisation shares of US$0.01 in the capital of the Company, as
defined in the prospectus
Seawolf means
Seawolf Water Resources
Specialist Fund Segment means
the Specialist Fund Segment of the London Stock Exchange's Main
Market
SPT means Sustainable
performance targets
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
Sub-Manager means Breakwall
Capital LP
Sustainability-Linked Loans or SLL means a loan with the aim to
facilitate and support environmentally and socially sustainable
economic activity and growth. We seek to enhance the
decarbonisation impact of our credit portfolio and enhance the
energy transition infrastructure. 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
Sustainability-Linked Loan Principles (SLLP)
means principles originally published in 2019 and
provide a framework to Sustainability-Linked Loan
structures
TCFD means the Task Force on
Climate-Related Financial Disclosures
Term Loan means
Sustainability-Linked first lien term
loan
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.
Warrants means
detachable warrants over new ordinary shares in
the Company
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 to 15 February 2023
27-28 Eastcastle Street
London
W1W 8DH
Registered Office from 16 February 2023
5th Floor
20 Fenchurch Street
London
EC3M 3BY
Investment Manager
Riverstone Investment Group
LLC
c/o The Corporation Trust
Company
Corporation Trust
Center
1209 Orange Street
Wilmington
Delaware 19801
Company Secretary and Administrator
Ocorian Administration (UK)
Limited
5th Floor
20 Fenchurch Street
London
EC3M 3BY
Independent Auditor
Ernst & Young LLP
25 Churchill Place
London
E14 5EY
Legal Adviser to the Company
Hogan Lovells LLP
Atlantic House
50 Holborn Viaduct
Sub-investment Manager
Breakwall Capital LP
174 Bellevue Avenue, Suite
200-A
Newport, RI 02840
|
Website: www.riverstonecoi.com
ISIN GB00BJHPS390
Ticker RCOI
Sedol BJHPS39
Registered Company Number 11874946
Registrar
Link Asset Services
The Registry
Central Square
29 Wellington Street
Leeds
LS1 4DL
Sole Bookrunner
J.P. Morgan Securities
plc
25 Bank Street
Canary Wharf
London
E14 5JP
Receiving Agent
Link Asset Services
Corporate Actions
The Registry
Central Square
29 Wellington Street
Leeds
LS1 4DL
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 31 December 2023 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.