LONDON (Alliance News) - Funding Circle SME Income Fund Ltd said Friday look-through leverage will continue to fall in the coming months due to the "significant widening" of pound and dollar yields, as the US steadily raises interest rates.
The closed-ended collective investment scheme said its look-through leverage currently stands at about 45% of net asset value. The company expects this to continue to fall as the "European Investment Bank facility begins to amortise".
Funding Circle is "taking steps" to restore gearing to 50% of net asset value. The company now expects to pay a dividend of between 5.0 pence and 6.0p, the same as last year but below the target of 6.0p to 7.0p.
The company said it is "exposed to divergent macroeconomic and monetary effects". Funding Circle said it "hedges substantially all of its currency exposure to sterling".
The company "has noted a material increase" in the cost of its hedging policy, driven by the "divergent monetary policy and economic prospects in the US and UK".
"This phenomenon", say Funding Circle, is now assessed as "being structural as opposed to transient", which could lead to "a not insignificant risk of further material divergence".
Chairman Richard Boleat said: "Our geographical diversification means that we, in common with many other cross-border businesses, are and will continue to be exposed to divergent macroeconomic and monetary policy effects and this is the decisive factor that has led to today's revised guidance.
"I would like to emphasise that the credit performance of the company's portfolio remains in line with expectations. The board is considering a number of responses to changing macroeconomic conditions, including potential leverage transactions expected to enhance returns, and we will report to investors further in the near future."
Shares in Funding Circle were down 2.1% Friday at 102.85 pence each.