AEFS.L Regulatory News (AEFS)

Alcentra European Floating Rate Income Fund Limited

Market Commentary

The Fund was up +0.67% (gross, estimated) in September, ahead of both the Credit Suisse Western European Leveraged Loan Index ("CS WELLI") (hedged to GBP) which returned +0.65%[1] for the month, and the Credit Suisse Western European Leveraged Loan Index excluding USD (hedged to GBP) which returned +0.64%[2]for the same period.

The European Loan market saw strong performance in September on the back of continued demand from ramping CLOs, as well as increased demand as a result of some larger than expected loan repayments (Wind, Refinitiv, M7). While loan issuance was solid at €9.1bn[3], it took longer than expected for the primary market to reopen after the August break, leading to investors purchasing more assets in the secondary market and prices increasing c.0.25pts in the month[4].

The September new issue volume of €9.1bn is -25%[5] down on the strong September of last year, but overall volumes since the weak Q1 have been decent. This leaves the YTD new issuance volume at €58.0bn, -30%[6] on the same period last year. For the month, average new issue spreads stood at 407bps, at a price of 99.55. While this is attractive, there were signs of tightening as the month progressed, with a number of stronger credits seeing their deals flex tighter on the back of strong investor demand. October is expected to remain busy as a number of larger deals are now in the market, including Merlin Entertainment, and the S&P forward pipeline is at a healthy €8.3bn[7].

The market for new CLO formation also reopened after a quieter August, with issuance in the month of €2.0bn, +25.0% YoY[8]. This leaves YTD CLO formation at €22.2bn, +6.3% on the prior year[9]. The pipeline for further issuance remains robust, aided by the continued tightening in the cost of AAA liabilities. This should mean that demand for European Leverage Loans remains strong into year end.

The S&P default rate for the 12 months ending September again remained at the record low level of 0.00% seen since January[10]. 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 rose marginally to 3.65%[11].

After a strong September, the market feels broadly balanced with robust issuance expected to be supported by continued strong demand from new and ramping CLOs. We expect this to continue into year end, although there does remain some risk of financial market volatility on the back of concerns around Brexit, global growth etc. We would expect the European loan market to continue to remain resilient in the face of these risks, relative to other asset classes.

Portfolio Manager's Commentary

The top performing name was a Specialist Financial Services Business that was up +6.93%, after positive headlines around the company's valuation. The second best performing credit was an Agricultural Products Company that was up +6.19%, on the back of an improved outlook and a better buying sentiment.

The worst performing position was a Healthcare Business that was down -9.55%, after weaker than expected results. The second weakest credit was a European Retailer that was -5.16% lower on continued selling pressure after lenders agreed to take control of the business.

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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