AEFS.L Regulatory News (AEFS)

Alcentra European Floating Rate Income Fund Limited

Market Commentary

The Fund was up +0.05% (gross) in June, slightly behind the Credit Suisse Western European Leveraged Loan Index ("CS WELLI") (hedged to GBP) at +0.23%1 for the same period.

June saw a similar trend to May, in that the improved primary pipeline meant investor focus was on the new issue market. This led to less demand in secondary to drive prices higher, with prices remaining broadly flat for the month. Overall the market remains firm, supported by healthy investor demand and lower year-on-year issuance. As would be expected in a month where there was a material reduction in interest rate expectations, the HY markets in the US and Europe saw a strong rebound from the weakness in May and did outperform the loan market in the month, although with the usual higher volatility.

The European Loan market continued to see a steady flow of issuance in June, with €7.8bn of deals priced in the month2. While this was c.24% below last year's volume of €10.2bn3, absolute volumes remain solid and the market remains open and constructive. Volumes in June were driven by both M&A driven issuance (c.50% of volumes) as well as refinancings (c.38%)4. For the month average new issue spreads stood at 394bps at a price of 99.635, indicating continued capacity to invest at attractive terms. Year-to-date issuance now stands at €38.5bn6, a 38% decline on the prior year, still mainly impacted by the quieter start to the year. Looking forward, the pipeline continues to look firm with the S&P forward pipeline currently standing at €5.4bn7 along with larger deals currently in the market from Nestle, Areas and B&B Hotels. Another positive is that the market is increasingly selective in which new deals it supports, with certain riskier deals struggling to gain traction (e.g. Madrid8), while investors are also increasingly focussed on documentation and pushing pack on certain more aggressive terms.

CLO issuance continues to be strong, with H1 2019 issuance now standing at €14.7bn9, +10% on the prior year, and setting a new half-year volume record. CLO liability costs have seen some tightening in the month, which is positive for the market in that it improves the tight arbitrage conditions. This should support CLO issuance in H2, albeit volumes are likely to be down from the record YTD levels. On balance, this expectation for robust CLO issuance means we expect the strong demand for European leveraged loans to continue.

The S&P default rate for the 12 months ending June again remained at the record low level of 0.00%10seen since January. We continue to expect a return to a more normalised 1.5% - 2.0% rate in the medium term. This is backed up by the S&P distress ratio (share of performing issuers trading below 80) which stood at 2.03%11 for June.

Portfolio Manager's Commentary

The top performing credits in the Fund for June were mostly bonds, as these assets benefitted from the strong high yield market performance in the month. The top two performing credits were a German Cable business that was up 6.31% and Media Content business that was up 3.08%. Both of these bonds benefited from the above mentioned market conditions and were up on new credit news.

The two worst performing positions were both Technology Services businesses that were down -11.88% and -9.57% respectively. Both these credits were down in June after seeing an increase in May, mainly due to a lower mark and on the back of very limited trading activity and no new credit news.

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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