CCSL.L Regulatory News (CCSL)

Chenavari Capital Solutions Limited

(a closed-ended investment company limited by shares incorporated under the laws of

Guernsey with registered number 56977)

Unaudited Interim Financial Statements

For the period from 1 October 2016 to 31 March 2017

Potential investors are "qualified eligible persons" and "Non-United States Persons" within the meaning of the US Commodity Futures Trading Commission Regulation 4.7.

Chenavari Credit Partners LLP (the "Investment Manager") is registered as a commodity pool operator ("CPO") with the Commodity Futures Trading Commission (the "CFTC") and is a member of the National Futures Association ("NFA") in such capacity under the U.S. Commodity Exchange Act, as amended ("CEA"). With respect to Chenavari Capital Solutions Limited, the Investment Manager has claimed an exemption pursuant to CFTC Rule 4.7 for relief from certain disclosure, reporting and recordkeeping requirements applicable to a registered CPO. Such exemption provides that certain disclosures specified in section 4.22 (c) and (d) of the regulation are not in its interim report.

Contents

Commodity Exchange Affirmation Statement

Highlights for the period from 1 October 2016 to 31 March 2017

Corporate Summary

General Information

Chairman's Statement

Investment Manager's Report

Statement of Principal Risks and Uncertainties

Statement of Directors' Responsibilities

Independent Review Report to Chenavari Capital Solutions Limited

Condensed Unaudited Statement of Comprehensive Income

Condensed Unaudited Statement of Financial Position

Condensed Unaudited Statement of Changes in Equity

Condensed Unaudited Statement of Cash Flows

Condensed Schedule of Investments, at Fair Value

Notes to the Condensed Unaudited Financial Statements

FORWARD-LOOKING STATEMENTS

This interim report includes statements that are, or may be considered, "forward-looking statements". These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "anticipates", "plans", "expects", "targets", "aims", "intends", "may", "will", "can", "can achieve", "would" or "should" or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this interim report, including in the Chairman's Statement. They include statements regarding the intentions, beliefs or expectations of the Company or the Investment Manager concerning, among other things, the investment objectives and investment policies, financing strategies, investment performance, results of operation, financial condition, liquidity prospects, dividend policy and targeted dividend levels of the Company, the development of its financing strategies and the development of the markets in which it, directly and through special purpose vehicles, will invest in and issue securities and other instruments. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are not guarantees of future performance. The Company's actual investment performance, results of operations, financial condition, liquidity, dividend policy and dividend payments and the development of its financing strategies may differ materially from the impression created by the forward-looking statements contained in this document. In addition, even if the investment performance, results of operations, financial condition, liquidity, dividend policy and dividend payments of the Company and the development of its financing strategies are consistent with the forward-looking statements contained in this document, those results or developments may not be indicative of results or developments in subsequent periods. Important factors that may cause differences include, but are not limited to: changes in economic conditions generally and in the structured finance and credit markets particularly; fluctuations in interest and currency exchange rates, as well as the degree of success of the Company's hedging strategies in relation to such changes and fluctuations; changes in the liquidity or volatility of the markets for the Company's investments; declines in the value or quality of the collateral supporting many of the Company's investments; legislative and regulatory changes and judicial interpretations; changes in taxation; the Company's continued ability to invest its cash in suitable investments on a timely basis; the availability of suitable financing; the continued provision of services by the Investment Manager and the Investment Manager's ability to attract and retain suitably qualified personnel; and competition within the markets relevant to the Company. These forward-looking statements speak only as at the date of this interim report. Subject to its legal and regulatory obligations, the Company expressly disclaims any obligations to update or revise any forward-looking statement (whether attributed to it or any other person) contained herein to reflect any change in expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based. The Company qualifies all such forward-looking statements by these cautionary statements.

Commodity Exchange Affirmation Statement

Commodity Exchange Affirmation Statement Required by the Commodity Exchange Act, Regulation §4.7(b)(3)(i)

I, Loic Fery, hereby affirm that, to the best of my knowledge and belief, the information contained in this interim report and unaudited interim financial statements is accurate and complete.

Loic Fery

Chief Executive Officer and representative of the Chenavari Credit Partners LLP, Commodity Pool Operator of Chenavari Capital Solutions Limited

24 May 2017

Highlights for the period from 1 October 2016 to 31 March 2017

· During the period from 1 October 2016 to 31 March 2017 (the "Period"), the Company produced a net asset value ("NAV") total return of 2.33% (dividends reinvested).

· The NAV per Ordinary Share ("Share") declined from 94.26 pence at 30 September 2016 to 92.97 pence* at 31 March 2017 net of distributions.

· The Company declared two dividends in respect of the period: 2.00 pence per Share on 24 February 2017 for the period ending 31 December 2016 and 1.25 pence per Share to be paid on 26 May 2017 for the period ending 31 March 2017. On 12 December 2016 a dividend of 1.50 pence per Share was paid for the period ending 30 September 2016.

· On 17 March 2017, the Company announced a compulsory partial redemption payment to be paid to Shareholders on the record date of 31 March 2017. The amount of the redemption payment was £4,999,956, which was payable to Shareholders in respect of the redemption of approximately 423 Shares for every 10,000 Shares held, at a rate of 90.72 pence per Share redeemed.

· The Company's mid-market share price at 31 March 2017 was 90.375 pence, representing a discount to NAV of 2.79%.

· The profit of the Company for the Period was £2.7 million, or a gain of 2.11 pence per Share, taking into account recognition of the following significant items:

o total net income of £3.6 million.

o total operating expenses of £0.9 million.

· At 31 March 2017, the Company was 88.7% invested in twelve positions including nine primary transactions valued at £81.0 million and three secondary transactions valued at £21.9 million. The Company had other assets and liabilities equating to 11.3% of NAV, of which cash equated to 8.2% of NAV at 31 March 2017.

· On 13 December 2016, the Company announced its intention to cease making any further investments with immediate effect and that, from 1 January 2017, it commenced a realisation period which involves the return of unencumbered cash balances to Shareholders. It is expected that the current portfolio will be substantially realised (assuming no assets are sold or otherwise disposed of) and over 90% of the projected cash proceeds returned to investors before the end of 2020.

* Please refer to Note 19 (Significant events during the period).

Corporate Summary

For the Period

The Company

Chenavari Capital Solutions Limited (the "Company") is a closed-ended Collective Investment Scheme registered pursuant to The Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended (the "Law") and the Registered Collective Investment Scheme Rules 2008 issued by the Guernsey Financial Services Commission (the "Commission").

The IPO of the Company raised gross proceeds of £130.3 million and the Company's Shares were admitted to trading on the Specialist Fund Segment of the London Stock Exchange ("SFS") on 7 October 2013.

Investment objective and policy

The investment objective of the Company is to provide Shareholders with an attractive return, while limiting downside risk, through investment in bank capital solutions transactions primarily with UK and European banks.

Investment period and realisation period

Following the extension of the investment period to 31 December 2016 approved by Shareholders at an EGM on 18 December 2015 (the "Investment Period"), the Company continued its ability to invest its cash balances in accordance with its investment policy, to the extent that such cash was not required for working capital purposes or the payment of dividends in accordance with the Company's dividend policy up to and including 31 December 2016, subject to the restrictions applicable to the extension period.

On 13 December 2016 the Company announced its intention to cease making any further investments with immediate effect and that, from 1 January 2017, it would commence a realisation period which will involve the return of unencumbered cash balances to Shareholders. It is expected that the current portfolio will be substantially realised (assuming no assets are sold or otherwise disposed of) and over 90% of the projected cash proceeds returned to investors before the end of 2020.

Target returns and dividend policy

The Company's target NAV total net return to investors is 8-10 % per annum over the life of the Company. From 1 January 2017, returns to Shareholders will be predominantly from the return of unencumbered cash balances arising as a result of investments maturing in accordance with their terms or otherwise and as dividend income.

The Investment Manager and Investment Adviser

The Company's Investment Manager is Chenavari Investment Managers (Luxembourg) SARL, a non-cellular company incorporated in Luxembourg under registered number B 0143992, and is licenced and regulated by the Commission de Surveillance du Secteur Financier ("CSSF") in Luxembourg to undertake the activities of an Alternative Investment Fund Manager ("AIFM"). The Investment Manager is a wholly owned entity within the Chenavari Group.

The Investment Manager has appointed Chenavari Credit Partners LLP (the "Investment Adviser"), which is also a member of the Chenavari Group, to provide investment advisory services to the Investment Manager. The Investment Adviser is a limited liability partnership incorporated in England and Wales under registered number OC337434 and is regulated and authorised in the UK by the FCA under registration number 484392 and in the United States by the SEC under Investment Adviser registration number 801/72662.

Asset Values

At 31 March 2017, the Company's NAV was £115.9 million, with the NAV per Share amounting to 92.97 pence. The Company publishes its NAV on a monthly basis. The NAV is calculated as the Company's assets at fair value less liabilities, measured in accordance with International Financial Reporting Standards ("IFRS").

Duration

The Company has an indefinite life.

Website

The Company's website address is www.chenavaricapitalsolutions.com 

Corporate Summary (continued)

Listing Information

The Company's Shares are admitted to trading on the SFS.

The ISIN number of the Shares is GG00BDH6YY34 and the SEDOL is BDH6YY3

The closing price of the Shares quoted on the SFS at 31 March 2017 was 90.375 pence per Share.

The average closing price of the Shares over the period to 31 March 2017 was 86.31 pence per Share.

General Information

Chairman's Statement

Introduction

On behalf of the Board, I am pleased to present the Company's interim report and unaudited financial statements for the period ending 31 March 2017.

Since my last Chairman's Statement, published in January 2017, the Company has commenced the realisation of its investment portfolio with the first capital payment of £4,999,956 being made on 12 April 2017. When taking into account the dividend of 1.25p per Share for the period to be paid on 26 May 2017 (£2,603,800), the Company has returned £7,603,756 for the first quarter of 2017 which was in line with initial expectations.

The Board continue to work with the Investment Manager to realise the underlying portfolio in an orderly and most beneficial fashion and further announcements will be made on realisation payments during 2017 and 2018. There has been no revision to our initial expectations that, based on the cash flows used to calculate the Base Case internal rate of return referred to in the Investment Manager's report, it is expected the current portfolio will be substantially realised (assuming no assets are sold or otherwise disposed of) and over 90% of the projected cash proceeds returned to investors before the end of 2020.

Performance

The Company's NAV at 31 March 2017, was 92.97 pence per Share and we are encouraged by the uplift in the NAV per Share during the first quarter of 2017. More details of the portfolio and performance are set out in the Investment Managers Report on page 10 of these interim financial statements.

During the period, the Company's NAV total return was 2.33% (dividends reinvested) and was 19.44% since inception (net of issue costs and with dividends reinvested). The NAV per Share declined from 94.26 pence at 30 September 2016 to 92.97 pence at 31 March 2017, net of distributions.

During the period the Share Price increased from 85.00 pence at the close of business on 30 September 2016 to 90.375 pence at the close of business 31 March 2017.  Accordingly, the discount to NAV fell from 9.83% on 30 September 2016 to 2.68% at the end of the Period.

The share price total return for the Period was 10.69%, dividends reinvested. Since launch, the share price total return to the end of the Period was 3.88% dividends reinvested.

Share Repurchases

During the Period the Company has bought back 121,000 Shares in two transactions. The buyback on 11 January 2017 of 106,000 Shares was at a price of 84.50 pence. This represented a discount of 8.13% to the NAV per share of 91.98 pence as at 31 December 2016. At the time of the buy back, the last published NAV was as at 30 November 2016 (93.01 pence) and the discount to that NAV was 9.15%. The buyback on 10 February of 15,000 Shares was at a price of 86.00 pence, representing a discount of 6.50% to the 31 December 2016 NAV and 7.54% to the 30 November 2016 NAV. The Company has obtained Shareholder approval to buy back up to 14.99% of the Share in issue as at the date of the last AGM being 28 March 2017. The Directors have the discretion to use share buy backs as part of the return of capital process where they feel it is appropriate and in the overall interest of Shareholders. Bought back shares have been cancelled and are not being held in treasury.

Further to the announcements made on 13 December 2016 and 16 February 2017 of the Company's intention to return capital to Shareholders, and in line with the approval received from the Company's Shareholders to adopt the revised Articles of Incorporation to vary the existing rights of the Shares (as described in the Circular dated 15 February 2017), the Company announced on 20 March 2017 that it would return £5 million to Shareholders by way of a compulsory partial redemption of 5,511,416 Shares (the "Redemption"). Since the date of record of the Redemption was 31 March 2017, the Redemption is reflected in these interim report and unaudited financial statements. The effect of incorporating the Redemption into the March 2017 NAV, was to decrease it by £5 million to £115.9 million, decrease the Shares in issue by 5,511,416 to 124,667,584 and to therefore increase the March NAV per Share from the originally published value of 92.87 pence per Share to 92.97 pence per Share. 

Dividends

Dividends declared during the Period came to 4.75 pence per Share, of which two dividends were declared and paid and the third was declared and paid after the period end (during the Period: 1.50 pence per Share was paid on 12 December 2016 for the period ending 30 September 2016 and 2.00 pence per Share was paid on 24 February 2017, and following the period end: 1.25 pence per Share was paid on 5 May 2017).

Chairman's Statement (continued)

Board Update

Following the AGM held on 28 March 2017 and listening to the views of Shareholders, the Directors announced on 30 March 2017 that Mr Mouchotte had stepped down as a member of the Audit and Management Engagement Committees but remained a member of the Board of Directors. The Audit Committee is chaired by Mr Stokes and the Management Engagement Committee is chaired by myself. Mr Mouchotte will continue to abstain from any decisions that impact the fees payable to and appointment of the Investment Manager and the AIFM.

Outlook

The key focus of the Board in the coming months will be to work with the Investment Manager in realising the underlying portfolio in an orderly and most beneficial fashion, and returning capital to Shareholders in line with the timelines previously announced.

Shareholder feedback has been positive in response to the introduction of quarterly investor calls, the first two of which were held on 24 January 2017 and 27 April 2017, and I would encourage Shareholders to participate in future calls.

If there is any other matter that you require clarification on, please contact me and/or the Company's broker, Fidante Capital.

Rob King

Non-executive Chairman

24 May 2017

Investment Manager's Report

Investment Review

The Company launched with £130.3 million gross proceeds in October 2013. As of 31 March 2017, the Company was 88.7% invested.

The sector allocation as of 31 March 2017 reflected the anticipated target portfolio with a significant representation of corporate and SME loans.

Geographically the portfolio diversification lightly evolved as the consequence of amortizing positions.

As at 31 March 2017, the top five holdings were the following:

Investment Manager's Report (continued)

Performance

During the period from 1 October 2016 to 31 March 2017, the Company's NAV performance (dividends reinvested) was 2.33%.

The month-on-month performances since inception, dividends reinvested, were the following:

Since inception, the Company recorded the following dividends:

Investment Outlook

The Company has commenced the Realisation Period with effect from 1 January 2017. This is explained in the Chairman's Statement on page 8.

The largest position in the portfolio remains the Company's Portuguese SME loans risk-sharing transaction, although the significant capital returned on the position has materially reduced this exposure. As quarterly cash flows continue to be received on this investment, its relative size in the portfolio will continue to decrease. The second largest position is the Spanish NPL portfolio secured on developer loans the valuation of which has reduced by 25% since inception due to amortisation.

Whilst the two largest positions are in periphery European countries (Spain and Portugal) the sum of the Company's exposure to periphery jurisdictions (Portugal, Spain and Italy) was circa 34% of the NAV as of 31 March 2017. The remainder is made up of core European geographies and global loan transactions.

The Investment Adviser maintains a Base Case, an Upside Case and a Stress Case for each investment in the portfolio, depending on its characteristics and underlying collateral. The cases are derived from a combination of: initial cases derived at the time of investment from analysis of the transaction's structure and the underlying portfolio data, regular tracking of the performance of the transaction's underlying collateral pool and market implied factors such as credit spreads or the performance of other similar deals.

The Investment Adviser continued to manage the forex exposure as a significant part of the Company's assets are denominated in Euros or US Dollars. Finally, we continue to assess the opportunistic early sale of the more liquid assets to maximise the return of capital to shareholders.

Chenavari Investment Managers (Luxembourg) S.Arl

Investment Manager

24 May 2017

Statement of Principal Risks and Uncertainties

Summary

An investment in the Shares is only suitable for institutional investors and professionally advised private investors who understand and are capable of evaluating the merits and risks of such an investment and who have sufficient resources to be able to bear any losses (which may equal the whole amount invested) that may result from such an investment. Furthermore, an investment in the Shares should constitute part of a diversified investment portfolio. It should be remembered that the price of securities and the income from them can go down as well as up.

The risks set out below are those which are considered to be the material risks relating to an investment in the Shares but are not the only risks relating to the Shares or the Company. Additional risks and uncertainties of which the Company is presently unaware or that the Company currently believes are immaterial may also adversely affect its business, financial condition, results of operations or the value of the Shares.

The Board have carried out a robust assesssment to identify the principal risks that could affect the Company, including those that would threaten its business model, future performance, solvency or liquidity. The Board has adopted a controls based approach to its risk monitoring requiring each of the relevant service providers including the Investment Manager to establish the necessary controls to ensure that all known risks are monitored and controlled in accordance with agreed procedures. The Directors receive periodic updates at their Board meetings on key risks and have adopted their own control review to ensure where, possible, risks are monitored appropriately.

Statement of Principal Risks and Uncertainties (continued)

Statement of Principal Risks and Uncertainties (continued)

Statement of Directors' Responsibilities

We confirm to the best of our knowledge that:

· these Condensed Unaudited Interim Financial Statements have been prepared in accordance with International Accounting Standard 34.

· the interim management report (comprising the Chairman's Statement and Investment Manager's Report) meets the requirements of an interim management report, and includes a fair review of the information required by:

(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the period from 1 October 2016 to 31 March 2017 and their impact on the Unaudited Interim Financial Statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place during the period from 1 October 2016 to 31 March 2017 and that have materially affected the financial position or performance of the entity during that period.

This responsibility statement was approved by the Board of Directors on 24 May 2017 and is signed on its behalf by:

Non-Executive Director : Rob King Non-Executive Director: Iain Stokes

Date: 24 May 2017 Date: 24 May 2017

Independent Review Report to Chenavari Capital Solutions Limited

We have been engaged by the Company to review the financial statements in the interim financial report for the period from 1 October 2016 to 31 March 2017 which comprises the Condensed Statement of Comprehensive Income, the Condensed Statement of Financial Position, the Condensed Statement of Changes in Equity, the Condensed Statement of Cash Flows and related notes 1 to 21. We have read the other information contained in the interim financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The interim financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the interim financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 2, the annual financial statements of the Company are prepared in accordance with IFRS as adopted by the European Union. The condensed set of financial statements included in this interim financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting," as issued by the IASB.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the interim financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the interim financial report for the period from 1 October 2016 to 31 March 2017 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as issued by the IASB and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Deloitte LLP

Chartered Accountants

Guernsey

24 May 2017

Condensed Unaudited Statement of Comprehensive Income

For the period ended 31 March 2017

Non-Executive Director: Non-Executive Director:

Date: 24 May 2017 Date: 24 May 2017

All items in the above statement derive from continuing operations.

The condensed schedule of investments and the notes to the financial statements are an integral part of the financial statements.

Condensed Unaudited Statement of Financial Position

As at 31 March 2017

Non-Executive Director: Non-Executive Director:

Date: 24 May 2017 Date: 24 May 2017

The condensed schedule of investments and the notes to the financial statements are an integral part of the financial statements.

Condensed Unaudited Statement of Changes in Equity

For the period ended 31 March 2017

For the period ended 31 March 2016

The condensed schedule of investments and the notes to the financial statements are an integral part of the financial statements.

Condensed Unaudited Statement of Cash Flows

For the period ended 31 March 2017

The condensed schedule of investments and the notes to the financial statements are an integral part of the financial statements.

Condensed Schedule of Investments, at Fair Value as At 31 March 2017 and As at 30 September 2016.

Please view the link below:-

http://www.rns-pdf.londonstockexchange.com/rns/1679G_1-2017-5-24.pdf 

Notes to the Condensed Unaudited Financial Statements

1. General information

Background information on the Company's activities can be found in the Company's prospectus dated 23 September 2013 and please also refer to the year end 2016 Financial Statements, both of which are available on our website address www.chenavaricapitalsolutions.com.

2. Summary of significant accounting policies

The principal accounting policies applied in the preparation of these financial statements are set out below.

2.1. Basis of preparation

The Interim Financial Statements for the period from 1 October 2016 to 31 March 2017 have been prepared in accordance with IFRS as adopted by the European Union, the Disclosure and Transparency Rules of the Financial Conduct Authority and applicable legal and regulatory requirements of the Law. The condensed set of financial statements have been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting".

The same accounting policies, presentation and methods of computation are followed in the condensed set of financial statements as applied in the Company's latest set of audited financial statements, a copy of which can be found on our website at www.chenavaricapitalsolutions.com.

2.2 Going concern

The Directors believe that it is appropriate to adopt the going concern basis in preparing the Financial Statements. In reaching their view, the Directors have considered that from 1 January 2017 the Realisation Period will commence as explained in the Chairman's Statement on page 8. The Directors have further considered the Company's holding in cash and cash equivalents and the distribution features of the Company's income generating investments, meaning the Company has adequate financial resources to meet its liabilities as they fall due over a period of at least twelve months from the date of approval of the financial statements.

3. Critical accounting judgements and key sources of estimation uncertainty

The preparation of the Company's Financial Statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and the accompanying disclosures. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.

3.1 Key sources of estimation uncertainty

Fair value of financial instruments

The assets held by the Company are mostly valued through a combination of dedicated price feeds from recognised valuation vendors and the application of relevant broker quotations where the broker is a recognised market maker in the respective position and where these are not readily available internal valuations.

A documented valuation policy determines the hierarchy of prices to be applied to the fair value. Prices are sourced from third party broker or dealer quotes for the relevant security. Where no third party price is available, or where the Investment Manager determines that the third party quote is not an accurate representation of the fair value, the Investment Manager will determine the valuation based on the valuation policy. This may include the use of a comparable arm's length transaction, reference to other securities that are substantially the same, discounted cash flow analysis and other valuation techniques commonly used by market participants making the maximum use of market inputs and relying as little as possible on entity-specific inputs.

The monthly NAV is derived from the Company's valuation policy. In particular, fair values of credit default swaps ("CDS") are determined with the independent pricing by Markit, which is the benchmark of the industry for CDS pricing data. Markit receives data from the official books of market-makers and then subjects it to a rigorous testing and consistency process to provide closing prices, from which are derived the reported fair values of the financial instruments held by the Company.

Notes to the Condensed Unaudited Financial Statements (continued)

3. Critical accounting judgements and key sources of estimation uncertainty (continued)

3.1 Key sources of estimation uncertainty (continued)

Fair value of financial instruments (continued)

Note 7 outlines the Level 3 classifications and the analysis of the impacts of Level 3 investments on the performance of the Company.

3.2 Critical judgements in applying accounting policies

Functional currency

The Board of Directors considers GBP (£) as the currency that most fairly represents the economic effect of the underlying transactions, events and conditions. The performance of the Company is measured and reported to the investors in GBP.

Valuation and classification of investments

The Board of Directors consider the valuation of investments and the classification of these investments in the fair value hierarchy as the critical judgements. The fair value of investments is described in 3.1 above and the judgements associated with the disclosures in the fair value hierarchy are described in note 7.

4. Related parties

(a) Directors' remuneration & expenses

The Directors of the Company are remunerated for their services at such a rate as the Directors determine. The fee for Mr. Mouchotte is £37,500 per annum. The fee for Mr. Stokes as Chairman of the Audit Committee is £40,000 per annum. The fee for Mr. King as Chairman is £40,000 per annum.

During the period ended 31 March 2017, Directors fees of £57,500 (for the period ended 31 March 2016: £57,500) were charged to the Company, of which £1,250 (2016: none) were prepaid at the end of the period.

(b) Shares held by related parties

As at 31 March 2017, the Directors held the following interests: Mr King 30,000 Shares, Mr Stokes 40,000 Shares and Mr Mouchotte 5,000 Shares in the Company.

As at 31 March 2017, neither the Investment Manager nor partners of the Investment Manager held any of the Issued Share Capital. An employee of the Investment Advisor owns 12,202 shares (equating to 0.01% of the shares of the Company). Chenavari Investment Managers Holdings, which is the holding Company of the Investment Manager and the Investment Adviser, held 1,254,538 shares of the Company (approximately 1.01% of the shares of the Company). An investment vehicle managed by the Investment Advisor, Chenavari European Opportunistic Credit Master Fund Ltd. owns 25,052,499 shares of the Company (approximately 20.10% of the shares of the Company).

(c) Investment Manager and AIFM

The Company receives investment management services from the Investment Manager, a limited company (Société à Responsabilité Limitée de Droit Luxembourgeois) incorporated in Luxembourg. Under the terms of the investment management agreement dated 23 September 2013 as novated on 22 July 2014 the Investment Manager receives in return a fee of one-twelfth of 1% on the NAV, payable monthly in arrears. The Investment Manager has appointed the Investment Adviser, to provide investment advisory services to the Investment Manager. The Investment Manager is responsible for paying the Investment Adviser. The Investment Management Agreement is terminable by either the Investment Manager or the Company giving to the other not less than 12 months' written notice, such notice not to be served before the fourth anniversary of Admission.

Notes to the Condensed Unaudited Financial Statements (continued)

4. Related parties (continued)

(c) Investment Manager and AIFM (continued)

Total management fees for the period amounted to £603,454 for Chenavari Investment Managers (Luxembourg) S.àRL (for the period ended 31 March 2016 the equivalent was £622,179 for Chenavari Investment Managers (Guernsey) Ltd) with £89,231 (30 September 2016: £100,494) in outstanding accrued fees at the period end.

The Investment Manager is also entitled to receive from the Company a performance fee equal to 20% of realised returns (i.e. dividends and capital repayments/returns) to Shareholders, subject to a hurdle of 7.5% per annum with a catch up. The catch-up operates such that a performance fee shall not become payable until the Company has distributed to Shareholders an amount equal to the Gross Issue Proceeds as increased by a hurdle rate of 7.5% per annum (the "Hurdle"). Thereafter, amounts available for distribution in excess of the Hurdle shall be distributed by the Company as to 50% to Shareholders and paid as to 50% to the Investment Manager until the Investment Manager has received 20% of all amounts in excess of the Gross Issue Proceeds. Thereafter, all further amounts available for distribution by the Company shall be distributed as to 80% to Shareholders and paid as to 20% by way of payment of the performance fee to the Investment Manager.

As of 31 March 2017, no performance fee was accrued according to those principles.

The Company has funded investments with a value of £41,721,167 via Convertible Preferred Equity Certificates and/or occasionally beneficiary shares issued by legally segregated compartments of AREO S.àRL ("Areo"), a company incorporated in Luxembourg under the Securitization Law of 2004. Areo is owned by the Chenavari group and Chenavari funds and is managed by a Board of Directors composed of a majority of independent directors that consider investment opportunities sourced by the Portfolio Manager. The Company is currently invested in seven compartments of Areo, the investment in which it fair values in accordance with IFRS 13 as set out in the Company's accounting policies. The Investment Manager and Investment Adviser receive no fees from Areo in relation to these transactions.

5. Material agreements

(a) Corporate broker

Fidante Partners Europe Limited, trading as Fidante Capital, receives a retainer for their corporate broking services of £75,000 per annum, payable semi-annually in arrears.

(b) Administration fee

Estera Administration Limited (the "Administrator") serves as the Company's administrator and secretary. The Administrator is entitled to a fee of £52,000 per annum. All fees are payable quarterly in advance. Administration fees for the period amounted to £26,000 (period ended 31 March 2016: £26,000).

(c) Sub-administration fee

The Administrator has appointed Quintillion Limited (the "Sub-Administrator") as the Company's sub-administrator.

The Sub-Administrator is entitled to receive an annual asset-based fee from the Company of up to 0.085% per annum of NAV, excluding certain expenses. Sub-administration fees for the period amounted to £40,761 (period ended 31 March 2016: £39,885) of which £5,828 (30 September 2016: £7,073) remained payable at the period.

(d) Custodian fee

JPMorgan Chase Bank N.A has been appointed to act as custodian to the Company and to provide custodial, settlement and other associated services to the Company. Under the provisions of the custodian agreement dated 5 September 2013 the Custodian is entitled to a safekeeping and administration fee on each transaction calculated using a basis point fee charge based on the country of settlement and the value of the assets together with various other payment/wire charges on outgoing payments, subject to an aggregate minimum fee of £31,500 per annum.

(e) Depository fee

Elavon Financial Services Limited has been appointed to act as depository to the Company. The Depository is entitled to 0.05% per annum of NAV. Depository fees for the period amounted to £3,017 (period ended 31 March 2016: £3,111) of which £446 remained payable at the period.

Notes to the Condensed Unaudited Financial Statements (continued)

5. Material agreements (continued)

(f) Investment Manager

Contractual arrangements relating to the Investment Manager are detailed in note 4.

6. Financial risk management

The responsibility for financial risk management lies with the Board of the Company but it has delegated the day to day monitoring of this to the Investment Manager.

The Investment Adviser will be responsible for sourcing potential investments. Recommended investments will be presented to the Investment Manager for its approval. The Investment Manager will not be required to, and generally will not, submit decisions concerning the discretionary or ongoing management of the Company's assets for the approval of the Board, except where such approval relates to an application of the investment guidelines or a conflict of interest. Any investment recommended by the Investment Adviser which the Investment Manager rejects will however, be promptly notified to the Board.

6.1 Credit risk

The main concentration of credit risk to which the Company is exposed arises from the Company's investments in Regulatory Capital Transactions.

The Company mitigates its credit risk on Regulatory Capital transactions through extensive due diligence before investment.

To the extent that the Portfolio is exposed to underlying concentrations in any one geographical region, borrower sector or credit or asset type, an economic downturn relating generally to such geographical region, borrower type or credit or asset type may result in an increase in underlying defaults or prepayments within a short time period. This could reduce the Company's income (and thus the ability to pay dividends to Shareholders), the NAV and the value of the Shares. The Portfolio is expected to carry leveraged exposure and an increase in credit losses with respect to any or all Collateral could reduce the Company's income (and thus the ability to pay dividends to Shareholders), the NAV and the value of the Shares.

No more than 20% of the NAV, calculated at the time of investment, will be exposed to any one Bank Counterparty. Such exposure will be calculated on a net basis, taking into account effective credit hedging arrangements entered into by the Company in relation to the relevant Bank Counterparty. This limit shall increase to 25% net exposure to any one Bank Counterparty where, in the Board's opinion, the relevant Investment Instrument is expected to amortise such that, within one year of investment, the expected capital balance outstanding is less than 20% of NAV, calculated at the time of investment.

Notes to the Condensed Unaudited Financial Statements (continued)

6. Financial risk management (continued)

As of 31 March 2017 (and 30 September 2016), the Company had no exposure above the 20% limit.

Where credit hedging arrangements are used in order to comply with these limits, the hedges will be maintained such that the net exposure to the Bank Counterparty is no more than 20% of the NAV as at the date that any relevant credit hedging contract matures or is adjusted or rolled over.

For the avoidance of doubt, cash pending investment or held on deposit under the terms of an Investment Instrument may be held without limit with a financial institution with short term credit ratings of at least A-2 (Standard & Poor's) or P-2 (Moody's).

The Company manages the portfolio with appropriate diversification in terms of sectors and geographical breakdowns.

As of 31 March 2017 and 30 September 2016, the breakdown of the NAV per asset class was as follows:

Notes to the Condensed Unaudited Financial Statements (continued)

6. Financial risk management (continued)

6.1 Credit risk (continued)

As of 31 March 2017 and 30 September 2016, the geographic breakdown was as follows:

The Company is also exposed to counterparty credit risk on cash and cash equivalents, amounts due from brokers, other receivable balances and forward FX contracts as shown in the following table:

* JP Morgan cash and cash equivalents represents cash held in a custodian account.

Notes to the Condensed Unaudited Financial Statements (continued)

6. Financial risk management (continued)

6.1 Credit risk (continued)

Offsetting Financial Assets and Financial Liabilities

The Company enters into transactions with a number of counterparties whereby the resulting financial instrument is subject to an enforceable master netting arrangement or similar agreement, such as an International Swaps and Derivatives Association ("ISDA") Master Agreement (a "Master Netting Agreement"). Such Master Netting Agreements may allow for net settlement of certain open contracts where the Company and the respective counterparty both elect to settle on a net basis. In the absence of such an election, contracts will be settled on a gross basis. All Master Netting Agreements allow for net settlement at the option of the non-defaulting party in an event of default, such as failure to make payment when due or bankruptcy.

The Company receives and provides cash collateral in respect of derivative transactions subject to the standard industry terms of ISDA's Credit Support Annex.

None of the financial assets and financial liabilities are offset in the statement of financial position, as the Master Netting Agreements create a right of set-off of recognised amounts that is enforceable only following an event of default, insolvency or bankruptcy of the Company or counterparties. In addition, the Company and its counterparties do not intend to settle on a net basis or to realise the assets and settle the liabilities simultaneously.

6.2 Foreign currency risk

Foreign currency risk is the risk of gain or loss resulting from exposure to movements on exchange rates on investments priced in currencies other than the base currency of the Company. The Company does not actively take risk in foreign currency, but incurs it as a normal course of business and employs a series of economic hedges to minimise these risks.

The currency exposure as at 31 March 2017 is as follows:

The currency exposure as at 30 September 2016 is as follows:

Notes to the Condensed Unaudited Financial Statements (continued)

6. Financial risk management (continued)

6.3 Interest rate risk

Interest rate risk is the risk of gain or loss resulting from exposure to movements on interest rates. The Company only holds floating rate financial instruments which have little exposure to fair value interest rate risk as, when the short term interest rates increase, the interest on a floating rate note will increase. The value of assed backed securities may be affected by interest rate movements. Interest receivable on bank deposits or payable on bank overdraft positions will be affected by fluctuations on interest rates; however the underlying cash positions will not be affected.

The Company's continuing position in relation to interest rate risk is monitored by the Investment Manager.

6.4 Liquidity risk

A proportion of the Company's statement of financial position is made up of assets and liabilities which may not be realisable as cash on demand. As a result an exposure to liquidity risk exists. This risk is mitigated by the closed-ended nature of the Company and distribution features.

The table below analyses the Company's liabilities into relevant maturity groups based on the remaining period at the statement of financial position date to the contractual maturity date.

Notes to the Condensed Unaudited Financial Statements (continued)

6. Financial risk management (continued)

6.4 Liquidity risk (continued)

The Company is all equity funded and has been established as a Registered Closed-ended Collective Investment Scheme. Other than in the circumstances and subject to the conditions set out in Part I of the prospectus, Shareholders will have no right to have their Shares redeemed or repurchased by the Company at any time. Shareholders wishing to realise their investment in the Company will normally therefore be required to dispose of their Shares through the secondary market.

6.5 Price risk

Market price risk arises mainly from uncertainty about future prices of financial instruments and credit ratings of debt issuers in which the Company invests. Market price risk represents the potential loss the Company may suffer through price movements on its investments.

The Company is exposed to market price risk arising from the investments in equity securities, debt and derivatives.

The Portfolio Manager manages the Company's price risk and monitors its overall market positions on a daily basis in accordance with the Company's investment objective and policies. The Company's overall market positions are monitored on a quarterly basis by the Board of Directors.

As at 31 March 2017, a 5% movement in prices (with all other variables held constant) would have resulted in a change to the total net assets of £5,142,879 (30 September 2016: £5,296,667).

7. Fair value of financial instruments

The fair values of financial assets and liabilities traded in active markets (such as publicly traded derivatives and trading securities) are based on quoted market prices at the close of trading on the period end date. The Company has adopted IFRS 13, 'Fair value measurement' and this standard requires the Company to price its financial assets and liabilities using the price in the bid-ask spread that is most representative of fair value for both financial assets and financial liabilities. If a significant movement in fair value occurs subsequent to the close of trading up to midnight on the period end date, valuation techniques will be applied to determine the fair value. No such event occurred. An active market is a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.

For financial assets and liabilities not traded in active markets the fair value is determined by using various methods including internal models, alternative price sources including a combination of dedicated price feeds from recognised valuation vendors and the application of relevant broker quotations where the broker is a recognised dealer in the respective position. Where broker quotes are not available, investment valuations are based on the Investment Advisor's internal models.

The hierarchy is broken down into three levels based on the observability of inputs as follows:

Level 1: Quoted price (unadjusted) in an active market for an identical instrument.

Level 2: Valuation techniques based on observable inputs, either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes instruments valued using: quoted prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques for which all significant inputs are directly or indirectly observable from market data.

Level 3: Valuation techniques using significant unobservable inputs. This category includes all instruments for which the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument's valuation. This category includes instruments that are valued based on quoted prices for similar instruments for which significant unobservable adjustments or assumptions are required to reflect differences between the instruments.

The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety.

Notes to the Condensed Unaudited Financial Statements (continued)

7. Fair value of financial instruments (continued)

If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability.

The determination of what constitutes 'observable' requires significant judgement by the Company. The Company considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.

The following tables show the Company's assets and liabilities at 31 March 2017 based on the hierarchy set out in IFRS 13:

The following tables show the Company's assets and liabilities at 30 September 2016 based on the hierarchy set out in IFRS 13:

Notes to the Condensed Unaudited Financial Statements (continued)

7. Fair value of financial instruments (continued)

Financial instruments that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within Level 2. These include corporate bonds, asset backed bonds, certain non-sovereign obligations and over-the-counter derivatives. As Level 3 investments include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information.

Investments classified within Level 3 have significant unobservable inputs, as they trade infrequently.

There has been no transfers from Level 3 to Level 2 during the Period. The Company identified through its valuation process that market based observable inputs had become available which required this investment to be reclassified as Level 2 investments. Ten Level 3 investments were held during the Period. There has also been no transfers from Level 2 to Level 3.