9 Jun 2016 07:00
Alcentra European Floating Rate Income Fund Limited
Market Commentary
May continued the strong market tone, with the Credit Suisse Western European Leveraged Loan Index ("CS WELLI") returning +0.74% (hedged to Euro). Year to date performance is now at +2.90%, following a strong recovery from the weaker market conditions seen earlier in the year1.
New issue loan volumes of €5.6 billion during May took year to date issuance to €25.4 billion, 17% down on the same period last year. High yield issuance is 52% down over 2015, at €19.4 billion, despite a relatively strong €7.4 billion of issuance in May2. Some of the larger loans to come to market during the month were chemicals companies Allnex, Inovyn and Novacap, as well as German gaming business Tipico.
The market continues to see strong demand for assets from a broad range of investors including CLOs, specialist loan funds and more general credit funds. The European CLO market continued to see increased confidence during the month, with three new transactions pricing for a total of €1.13 billion3. While this is down on the €2.4 billion seen in May last year, liabilities have continued to tighten and more vehicles are expected to price ahead of the summer.
With supply relatively constrained and demand for the asset class strong we have seen some downward pressure on new issue spreads, with a number of new issues tightening terms from initial launch price following heavy oversubscriptions. The market has however remained disciplined on credit fundamentals with one transaction having to move pricing higher after not seeing adequate demand from the mainstream market.
The market is currently working through what may be the last deals before an expected slowdown, as first the British referendum on EU membership and then the traditional summer break are expected to see reduced activity. Transactions for healthcare business Ethypharm, academic publisher Springer, cable company Telecolumbus and IT businesses EVRY and Unit 4 are expected to wrap up over the first half of June. We expect new primary issuance to continue to provide attractive investment opportunities, as despite recent tightening, new issue yields remain attractive and we have seen new issue typically trade up strongly in secondary. Looking forward it will remain important we see some continued supply to prevent further pressure on new issue spreads, and the risk of increased refinancing of existing loans.
Portfolio Update
Within the Portfolio, the best performing assets were again the loan positions that had been under pressure over the early part of the year, in line with our thesis that the market had oversold these names. The strongest two performers were food and consulting businesses, both of which were up more than 5%, with the remainder of the top ten all up more than 1%.
The weakest performers were all GBP positions with the market showing some signs of nervousness as we head towards the referendum on EU membership. The weakest performer was a UK care home business, which declined 2% during the month, three other names declined around 1% and no other name declined more than 0.1%.
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
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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.
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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.
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1 Credit Suisse Western European Leveraged Loan Index, 31 May 2016
2 S&P LCD European Playbook, 1 June 20163 S&P LCD CLO Weekly Review, 6 June 2016