NOT FOR RELEASE, PUBLICATION
OR DISTRIBUTION IN WHOLE OR IN PART IN OR INTO THE UNITED
STATES
17
June 2024
Sequoia Economic Infrastructure Income Fund
Limited
("SEQI" or the "Company")
Monthly NAV and portfolio update
The NAV per share for SEQI, the
specialist investor in economic infrastructure debt, increased to
94.30 pence per share from the prior month's NAV per share of 92.46
pence, representing an increase of 1.84 pence per share.
A full attribution of the changes in
the NAV per share is as follows:
|
pence per
share
|
30
April NAV
|
92.46
|
Interest income, net of
expenses
|
0.82
|
Asset valuations, net of FX
movements
|
0.98
|
Subscriptions / share
buybacks
|
0.04
|
31
May NAV
|
94.30
|
The valuation of most fixed rate
instruments (which represents 58.6% of the portfolio) has increased
during May 2024 due to the marginal reduction in risk free rates
and a sustained reduction in benchmark spreads for certain
instruments, predominantly in the utility and power/energy sectors.
This has also resulted in a reduction in the pull to par from 4.2
pence per share in April 2024 to 3.8 pence per share in May 2024.
The Investment Adviser also expects abating inflation to provide a
foundation for steadier credit markets, highlighting that the
long-term outlook on inflation and base rates points towards a
beneficial tailwind to the Company's NAV, as falling rates would
typically increase asset valuations.
As the Company is approximately 100%
currency-hedged, it does not expect to realise any material FX
gains or losses over the life of its investments. However, the
Company's NAV may include unrealised short-term FX gains or losses,
driven by differences in the valuation methodologies of its FX
hedges and the underlying investments - such movements will
typically reverse over time.
Market Summary
During May 2024, central banks
across the UK, US and Eurozone maintained policy rates at 5.25%,
5.50% and 4.00%, respectively. On 06 June 2024, the Eurozone
announced the first rate cut of 0.25% to 3.75%, as CPI inflation
has declined in the region to 2.4% as at April 2024. On 12 June
2024, the Federal Reserve held rates steady in the US and signalled
that just one rate cut is to be expected by the end of the year. In
the UK, the next policy rates announcement will be held on 20 June
2024 and the markets have priced in at least one rate cut by the
end of the year.
Five-year sovereign debt yields were
down marginally in the UK and US by 0.5% and 0.2% respectively, and
up marginally by 0.1% to 2.7% in the Eurozone during May 2024. In
the UK, the most recent data on annual CPI inflation shows that it
has fallen to its lowest level in almost three years, as prices
rose by 2.3% in April 2024, down from 3.2% in March 2024. Inflation
is also trending in the right direction in the US, down from 3.8%
in March 2024 to 3.6% in April 2024. CPI inflation is expected to
return closer to the 2% target by the end of the year across all
three regions, mainly due to the unwinding of energy-related base
effects.
Share buybacks
The Company bought back 4,250,968 of
its ordinary shares at an average purchase price of 79.48 pence per
share in May 2024. The Company first started buying shares back in
July 2022 and has bought back 159,797,411 ordinary shares as of 31
May 2024, with the buyback continuing into June 2024. This share
repurchase activity by the Company continues to contribute
positively to NAV accretion. The rate at which SEQI buys back
shares will vary depending on various factors, including the level
of our share price discount to NAV.
Portfolio update
The Company has drawn £15.0 million
on its revolving credit facility (RCF) of £325.0 million during May
2024 and currently has cash of £41.2 million (inclusive of RCF
drawings), and undrawn investment commitments of £46.2 million. The
RCF was utilised during May 2024 to manage cashflows through the
timing of new investments against the repayment of existing
investments.
As at 31 May 2024, 57.1% of the
portfolio comprised of senior secured loans and 51.6% remained in
defensive sectors (Renewables, Digitalisation, Utility and
Accommodation). The Company's invested portfolio consisted of
54 private debt investments and 2 infrastructure bonds,
diversified across 8 sectors and 30 sub-sectors. It had
an annualised yield-to-maturity (or yield-to-worst in the case
of callable bonds) of 10.37% and a cash yield of 8.20% (excluding
deposit accounts). The weighted average portfolio life remains
short and is approximately 3.7 years. This short duration means
that as loans mature, the Company can take advantage of higher
yields in the current interest rate environment.
Private debt investments represented
94.2% of the total portfolio, allowing the Company to capture
illiquidity yield premiums. The Company's invested portfolio
currently consists of 41.4%[1] floating rate
investments and remains geographically diversified with
51.9% located across the USA, 26.8% in the UK, 21.2% in
Europe, and 0.1% in Australia/New Zealand.
The portfolio remains highly
diversified by sector and size, with the average loan representing
about 1.6% of the total portfolio and the largest loan is 4.2% of
NAV as at 31 May 2024.
At month end, approximately 100% of
the Company's NAV consisted of either Sterling assets or was hedged
into Sterling. The Company has adequate liquidity to cover margin
calls, if any, on its hedging book. During May 2024, the Company
also entered into an additional interest rate swap for £30 million
with a maturity of 2.5 years to lock in a portion of the current
high interest rates being paid by borrowers and to allow tactical
management of the portfolio's fixed rate exposure.
Settled investments in May 2024
SEQI continues to carefully
scrutinise new investment opportunities in a disciplined manner
alongside other uses of proceeds such as share buybacks and
ensuring it has significant liquidity on its RCF. Aside from these
uses of capital, the following investments settled in May 2024
(excluding small loan drawings of less than £0.5
million):
• The Investment Adviser proactively
restructured the balance sheet of the Active Care Group, a UK
healthcare business. As part of this restructuring, SEQI has
provided additional funding of £34.8 million as a senior secured
loan named ACG BidCo Limited and restructured and replaced the
existing loan Montreux HoldCo Facility with an equivalent loan on
extended terms to a newly established entity, Gadwall Holdings
Limited. Following the restructuring, SEQI is the majority equity
owner of the new holding company. SEQI's total exposure now,
through the two loans, is valued at £74.8 million, or 5.2% of NAV
as at 31 May 2024. These are not classified as non-performing
loans;
• A purchase of Brightline East LLC
HoldCo bonds for $50 million, a privately owned passenger rail
project in Florida. The borrower refinanced the entire capital
structure, which included Brightline Trains Florida LLC bonds
(which SEQI previously held) with new OpCo debt of $2.2 billion and
HoldCo debt of $1.3 billion; and
• An additional senior loan for $5.0
million to Westinghouse, a leading provider of infrastructure
services to operating nuclear power generating facilities across
the US.
Investments (exceeding £0.5 million) sold or repaid in May
2024
• A full repayment of Brightline
Trains Florida LLC bonds for $20 million at a redemption price of
104 cents due to the refinancing of the bond, as stated
above.
Non-performing loans
The Investment Adviser continues to
actively manage its non-performing loans with the loans being
independently marked to market by PwC as part of the monthly review
process. Further updates will be provided to shareholders in the
future when material developments occur.
Notice of Annual Results
SEQI will publish its final results
for the year ended 31 March 2024 on Wednesday, 26 June
2024. The Investment Adviser will host a conference call for
investors and analysts on the results at 08:00am BST on
Wednesday, 26 June 2024. There will be the opportunity for
participants to ask questions at the end of the call. Those wishing
to attend should register via the following link:
https://stream.brrmedia.co.uk/broadcast/665ef724025b0d99d3b969ef
Portfolio Summary (15 largest settled
investments)
Investment name
|
Currency
|
Type
|
Ranking
|
Value
£m(2)
|
Sector
|
Sub-sector
|
Cash-on-cash yield
(%)
|
Yield to maturity/worst
(%)
|
Infinis Energy
|
GBP
|
Private
|
Senior
|
60.5
|
Renewables
|
Landfill
gas
|
5.37
|
6.14
|
AP Wireless Junior
|
EUR
|
Private
|
Mezz
|
60.0
|
Digitalisation
|
Telecom
towers
|
4.50
|
7.72
|
Project Sienna
|
GBP
|
Private
|
Senior
|
56.6
|
Other
|
Waste-to-Energy
|
9.95
|
10.68
|
Workdry
|
GBP
|
Private
|
Senior
|
56.0
|
Utility
|
Utility
Services
|
8.94
|
8.94
|
Hawkeye Solar
|
USD
|
Private
|
HoldCo
|
51.9
|
Renewables
|
Solar
& wind
|
8.89
|
9.88
|
Project Tyre
|
USD
|
Private
|
Senior
|
51.6
|
Transport
assets
|
Specialist shipping
|
11.11
|
10.75
|
Expedient Data
|
USD
|
Private
|
Senior
|
51.1
|
Digitalisation
|
Data
centers
|
10.95
|
10.95
|
Roseton
|
USD
|
Private
|
Senior
|
50.4
|
Power
|
Other
Electricity Generation
|
10.32
|
10.32
|
Kenai HoldCo
|
EUR
|
Private
|
HoldCo
|
50.0
|
Power
|
Base
load
|
0.00
|
11.27
|
Sacramento
|
USD
|
Private
|
Senior
|
43.9
|
Digitalisation
|
Data
centers
|
7.40
|
8.64
|
Project Nimble
|
EUR
|
Private
|
HoldCo
|
43.4
|
Digitalisation
|
Data
centers
|
8.57
|
11.41
|
Euroports 2030
|
EUR
|
Private
|
Mezz
|
42.6
|
Transport
|
Port
|
11.68
|
11.68
|
Scandlines
|
EUR
|
Private
|
HoldCo
|
41.3
|
Transport
|
Ferries
|
6.71
|
7.23
|
Tracy Hills 2025
|
USD
|
Private
|
Senior
|
40.4
|
Other
|
Residential infra
|
11.86
|
11.86
|
Gadwall Holdings
|
GBP
|
Private
|
HoldCo
|
40.0
|
Accommodation
|
Health
care
|
0.00
|
37.74
|
|
|
|
|
|
|
|
|
|
Note (2) - excluding accrued
interest
Note (3) - Montreux HoldCo Facility
was restructured and replaced with an equivalent loan on extended
terms to a newly established entity, Gadwall Holdings. As part of
the restructuring, an additional loan for £34.8 million was also
made to ACG BidCo Limited as a senior secured loan.
Disclaimer: the dividend increase is
a target and not a profit forecast
The Company's monthly investor
report and additional portfolio disclosure will be made available
at: https://www.seqi.fund
LEI: 2138006OW12FQHJ6PX91
This announcement is not for
publication or distribution, directly or indirectly, in or into the
United States of America. This announcement is not an offer of
securities for sale into the United States. The securities
referred to herein have not been and will not be registered under
the U.S. Securities Act of 1933, as amended, and may not be offered
or sold in the United States, except pursuant to an applicable
exemption from registration. No public offering of securities
is being made in the United States.
For further information please
contact:
Sequoia Investment Management Company
|
|
+44 (0)20 7079 0480
|
Steve Cook
|
|
|
Dolf Kohnhorst
|
|
|
Randall Sandstrom
|
|
|
Anurag Gupta
|
|
|
Matt Dimond
|
|
|
|
|
|
Jefferies International Limited
|
|
+44 (0)20 7029 8000
|
Gaudi Le Roux
|
|
|
Stuart Klein
Harry Randall
|
|
|
|
|
|
Teneo (Financial PR)
|
|
+44 (0)20 7260 2700
|
Martin Pengelley
|
|
|
Elizabeth Snow
Faye Calow
|
|
|
|
|
|
Sanne Fund Services (Guernsey) Limited
|
|
+44 (0) 20 3530 3107
|
(Company Secretary)
|
|
|
Matt Falla
|
|
|
Devon Jenkins
|
|
|
About Sequoia Economic Infrastructure Income Fund
Limited
The Company seeks to provide
investors with regular, sustained, long-term distributions and
capital appreciation from a diversified portfolio of senior and
subordinated economic infrastructure debt investments. The Company
is advised by Sequoia Investment Management Company
Limited.