AEFS.L Regulatory News (AEFS)

Alcentra European Floating Rate Income Fund Limited

Market Commentary

October saw solid performance for the Index, with the European loan market remaining relatively well insulated from broader financial market volatility, supported by lower new issuance and continued strong demand for European loans.

The Fund was up +0.47% (gross) for the month, ahead of the Credit Suisse Western European Leveraged Loan Index (hedged to GBP) at +0.30%1.

October saw a relatively quiet month for European loan issuance with volumes of €4.9bn, -65% down on the prior year and -59% down on September2. The month on month decline was a result of lower M&A driven activity in October, as the pipeline of deals has thinned out after a very busy few months of issuance. The year on year decline is a function of the high level of refinancings/repricings seen in the prior year which has not been repeated (refinancings accounted for 89% of the issuance in Oct-17 compared to 28% in Oct-18). Excluding these, volumes would have been up, with the trend of M&A driven volume growth (+308%) continuing. YTD issuance now stands at €88bn, -11% on the prior year3.

CLO primary activity ramped up over the month with 6 new deals pricing and raising €2.4bn, +33% growth on the prior year. This leaves year to date issuance up +59% on last year, comfortably ahead of 2017's full year volumes and making 2018 a record year in post-crisis European CLO issuance4. This, coupled with a supportive technical for unleveraged loan funds, demonstrates continued robust demand for the asset class.

While other financial markets saw increased volatility in October (HY market returned -1.11%), the European loan market remained relatively insulated, with the CS WELLI only seeing an average price decline 0.04pts5. The European loan market has outperformed due to the supportive technical environment of lower issuance and continued strong demand, as well as the fact that Italy, the main drive of broader European market volatility, remains a very small part of the European Loan market at c.2%6. As such, new issue spreads remained flat (362bps for both September and October) while secondary prices were only marginally lower7.

While we believe that M&A driven new issuance volumes are likely to see continued growth, the near term pipeline for November remains light. As such, given continued strong demand for European Loans, we expect the primary and secondary market to remain robust into year end.

The default rate for the 12 months ending October remains at 0.1%, the same record low level seen since June, reflecting the continuing constructive corporate fundamental backdrop8. 

Portfolio Manager's Commentary

The top performing credit was a specialist financial services business that was up 2.65% on the back of improved sentiment generally for the sector, and a more supportive secondary market technical. The second best performing name was an agricultural products business that saw its loans increase 2.49% after a lender meeting led to improved sentiment around the credit.

The weakest name was a retailer which was -10.15% lower after the French retail sector saw weakness due to unseasonably warm weather and after lenders receiving a partial par paydown, which led to the residual debt trading lower. The second weakest credit was a healthcare business that saw a fall of -3.98% after a ratings downgrade led to selling pressure in secondary,

For the month as a whole, the fund returned 0.47%, ahead of the benchmark at 0.30% as the positive performers outweighed the above mentioned weaker names.

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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