AEFS.L Regulatory News (AEFS)

Alcentra European Floating Rate Income Fund Limited

Market Commentary

February saw a continuation of the strong technical theme we have seen since the beginning of the year, with a well bid secondary market as a result of more demand for loans and a limited primary supply. The Credit Suisse Western European Leveraged Loan Index ("CSWELLI") (hedged to EUR) returned +0.46% in the month and +1.51% year to date, versus the US Leveraged Loan Index which returned +0.59% and 1.12% year to date1.

The headline figures for new issue supply look decent, with €16 billion in Europe and $135 billion in the US. But just 37% of the European volume and 46% of the US was from M&A, with much of the remainder coming from re-pricing activity as borrowers looked to take advantage of the strong bid by reducing the margins they are paying on their existing loans2. With demand for loans globally looking strong, it really needs an improvement in M&A activity before we will see evidence of margins starting to increase again.

Average spreads in Europe were 377bps over the past quarter, with the added benefit of an average interest rate floor of 38bps. In the US they are 391bps over an average floor of 93bps2. Given the much higher trend in US rates, the interest rate floors are actually more beneficial to returns in Europe than the US, despite the US floors being higher. So for GBP funds, which do not benefit from higher US rates because of hedging, we believe the returns continue to look more attractive in Europe.

For now we have not seen this dynamic affect leverage multiples in the same way as margins, with average debt to EBITDA coming down from 5.5x to 5.2x over the past 3 months in Europe and remaining flat at 5.8x in the US2.

Default rates fell slightly in both markets, down to 2.0% in Europe and 1.4% in the US2.

Portfolio Update

Within the Fund, the best performers (up between 4% and 8%) were split across three borrowers in different sectors (retail, environmental services, healthcare) with no real sector or geographic trends in evidence. The worst performers were two retail businesses which had reported weaker December numbers.

ENDS.

For further information please contact:

Alcentra Limited

Simon Perry +44 20 7367 5272

Factsheet

An accompanying factsheet which includes the information above as well as wider commentary on the investments made by the Fund can be found on the Fund's website www.aefrif.com.

Background Information

Alcentra European Floating Rate Income Fund Limited, a Guernsey Authorised Closed-Ended Collective Investment Scheme, regulated by the Guernsey Financial Services Commission and listed on the Main Market of the London Stock Exchange invests predominantly in senior secured loans and senior secured bonds issued by European corporates and targets returns (net of fees and expenses) of 7% to 10% per annum. The Fund targets a dividend yield of 5.5 pence per £1.00 issue price of the initial offering of shares in the Fund for the first full year of investment, paid quarterly.

Important Notices

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

This report is aimed at existing investors in the fund and has not been approved by any competent regulatory authority.

The information contained in this document is given as at the date of its publication (unless otherwise marked) and is based on past performance. Past performance is not a guide to future performance and the value of investments and investment value can go down as well as up. The future performance of the Fund will depend on numerous factors which are subject to uncertainty. Including changes in market conditions and interest rates and exchange rates and in response to other economic, political or financial developments, investment return and principal value of your investment will fluctuate, so that when your investment is sold, the amount you receive could be less than what you originally invested. Past or current yields are not indicative of future yields.

This document does not contain any representations, does not constitute or form part of any solicitation of any offer to sell or invitation to purchase any securities of the Fund, nor shall it or any part of it or the fact of its distribution form the basis of or be relied upon in connection with any contract therefor, and does not constitute a recommendation regarding the securities of the Fund. Nothing in this document should be construed as a profit or dividend forecast.

This document includes statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements include, without limitation, statements typically containing words such as "believes", "considers", "intends", "expects", "anticipates", "targets", "estimates", "will", "may", or "should" and words of similar import. The forward-looking statements are based on the beliefs, assumptions and expectations of future performance and market development of Alcentra Limited ("Alcentra"), taking into account information currently available and made as at the date of this document. These can change as a result of many possible events or factors, not all of which are known or within Alcentra's control. If a change occurs, the Fund's business, financial condition, liquidity and results of operations may vary materially from those expressed in the forward-looking statements. By their nature, forward-looking statements involve known and unknown risks and uncertainties. Forward-looking statements are not guarantees of future performance. Alcentra qualifies any and all of the forward-looking statements by these cautionary factors. Please keep this cautionary note in mind while reading this document.

An investment in the Fund is suitable only for investors who are capable of evaluating the merits and risks of such an investment and who have sufficient resources to be able to bear losses (which may equal the whole amount invested) that may result from such an investment. An investment in the Fund should constitute part of a diversified investment portfolio. Accordingly, typical investors in the Fund are expected to be sophisticated and/or professional investors who understand the risks involved in investing in the Fund.

Alcentra gives no undertaking to provide recipients of this document with access to any additional information, or to update this document or any additional information, or to correct any inaccuracies in it which may become apparent including in relation to any forward-looking statements. The distribution of this document shall not be deemed to be any form of commitment on the part of Alcentra to proceed with any transaction.

This document is issued by Alcentra Limited, which is authorised and regulated in the United Kingdom by the Financial Conduct Authority and whose registered address is at 160 Queen Victoria Street, London, United Kingdom, EC4V 4LA.

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