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 2014 to 31 March 2015

Contents

Highlights

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 Statement of Comprehensive Income

Condensed Statement of Financial Position

Condensed Statement of Changes in Equity

Condensed Statement of Cash Flows

Condensed Schedule of Investments, at Fair Value

Notes to the Financial Statements for the period 1 October 2014 to 31 March 2015.

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 and cost of capital for future investments; 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.

Highlights

For the period from 1 October 2014 to 31 March 2015 (the "Period")

· During the Period, the Company's net asset value ("NAV") increased by 2.45%, dividends reinvested.

· Dividends of 1.35 pence per share were paid in respect of the Period. On 28 November 2014 a dividend of 1.25 pence per share was paid for the period to 30 September 2014. On 21 April 2015 the Company announced a further dividend payment of 1.20 pence per share for the period to 31 March 2015.

· The Company's mid-market share price at 31 March 2015 was 102.25 pence, representing a premium to NAV of 4.67%.

· The profit of the Company for the Period was £3.1 million, or 2.39 pence per share, taking into account recognition of the following significant items:

o total net income of £4.1 million.

o total operating expenses of £1.0 million.

· During the Period, the Company invested in four primary transactions. One primary transaction open at 30 September 2014 matured during the Period. At the end of the Period, the Company was 82.5% invested.

Corporate Summary

For the period from 1 October 2014 to 31 March 2015

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 Company is managed by the Investment Manager, a member of the Chenavari Financial Group. The Investment Manager has appointed the Investment Adviser, also a member of the Chenavari Financial Group, to provide investment advisory services to the Investment Manager.

The Company's Shares are admitted to trading on the Specialist Fund Market of the London Stock Exchange ("SFM"). The Initial Public Offering ("IPO") of the Company raised gross proceeds of £130,300,000.

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.

Target returns and dividend policy

On the basis of current market conditions, and whilst not forming part of its investment objective or investment policy, the Company will target a NAV total return to investors of 8-10% per annum and to minimise cash drag to less than 10% of NAV. This is discussed in more detail in the Chairman's Statement on page 7.

Subject to compliance with the Law and the satisfaction of the solvency test, the Company intends to distribute all its income from investments, net of expenses, by way of dividends on a quarterly basis with dividends declared in October, January, April and July and paid in November, February, May and August in each year. The Company may retain income for distribution in a subsequent quarter to that in which it arises in order to smooth dividend amounts or for the purpose of efficient cash management.

The Investment Manager and Investment Adviser

The Company is considered to be an Alternative Investment Fund ("AIF") under the Alternative Investment Fund Managers Directive ("AIFMD") and on 22 July 2014, the Company appointed Toro S.a.r.l. as its Investment Manager, replacing Chenavari Investment Managers (Guernsey) Ltd. The Investment Manager is a non-cellular company incorporated in Luxembourg under registered number B 143992, and is licenced and regulated by the Commission de Surveillance du Secteur Financier ("CSSF") in Luxembourg to undertake the activities of investment management.. The Investment Manager is a wholly owned entity within the Chenavari Group and is currently awaiting final approval from the CSSF for its Alternative Investment Fund Manager Licence.

The Investment Manager has appointed Chenavari Credit Partners LLP as the Investment Adviser of the Company (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 by the SEC under registration number 801/72662.

Asset Values

At 31 March 2015, the Company's NAV was £127.3 million (30 September 2014: £127.6 million), with the NAV per share amounting to 97.69 pence (30 September 2014: 97.90 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.

Foreign Account Tax Compliance Act ("FATCA")

The Company has registered under the U.S. Foreign Account Tax Compliance Act ("FATCA").

Non Mainstream Pooled Investments

On 1 January 2014, FCA rules concerning the promotion of non-mainstream pooled investments came into effect. The Board conducts and intends to continue to conduct its affairs so that the Company's shares will be "excluded securities" under the FCA's new rules. This is on the basis that the Company, which is resident outside the EEA, would qualify for approval as an investment trust by the Commissioners for HM Revenue and Customs if resident and listed in the United Kingdom. Promotion of the Company's shares will not be subject to the FCA's restriction on promotion of non-mainstream pooled investments.

Duration

The Company has an indefinite life. Following 31 December 2015, the Company will return to Shareholders any unencumbered cash and such cash balances as arise from time to time as a result, predominantly, of investments maturing in accordance with their terms or otherwise. Amounts required for working capital purposes (including, in particular, a cash reserve for meeting any required margin calls on derivative positions), for the payment of dividends in accordance with the Company's dividend policy and for settling transactions contractually agreed before 31 December 2015, will be excluded from such returns of cash to Shareholders. The Company will not be under any obligation to sell investments before they mature in order to fund returns of cash to Shareholders, but may do so to optimise returns.

Website

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

Listing Information

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

The ISIN number of the Shares is GG00BCHWW517 and the SEDOL is BCHWW51.

The closing price of the Shares quoted on the SFM at 31 March 2015 was 102.25 pence per share.

The average closing price of the Shares over the period from 1 October 2014 to 31 March 2015 was 104.12 pence per share.

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General Information

* On 5 May 2015, the Company announced with great sadness the death of Trevor Hunt and noted that the Board had resolved that Iain Stokes will serve as acting chairman until a new appointment can be made.

Chairman's Statement

Acting Chairman

Earlier this month, it was with great sadness that the Board announced the death of the Company's chairman Trevor Hunt. Trevor was the Company's chairman from its launch in October 2013, and served with dedication and skill and the Directors' thoughts and all those associated with the Company are with Trevor's family.

The Board has resolved that I will serve as acting chairman (in addition to my role as chair of the Company's audit committee) until a new appointment can be made, and it is envisaged this shall be finalised over the coming weeks.

Introduction

On behalf of the Board, I am pleased to present my report on the Company's progress for the period from 1 October 2014 to 31 March 2015 (the "Period").

During the Period, the Company invested a further £44.1 million in Bank Capital Solutions Transactions and at 31 March 2015, the Company was 82.5% invested and its free cash holdings were £12.9 million

On 6 May 2015, the Company announced a further primary transaction, following which the Company was approximately 92% invested and its free cash holdings were £3.3 million.

Share Performance

The Company's shares have traded at a premium to Net Asset Value since launch.

The Net Asset Value per share was 97.69 pence and the share price was 102.25 pence at 31 March 2015, resulting in a premium to Net Asset Value of 4.67%.

During the Period, the Company's NAV total return and share price total return were 2.45% and -1.43% respectively, in both cases measured with dividends reinvested.

Target total returns

At IPO the Company stated it would target a net total return to investors on invested capital of 12 per cent per annum or more over the life of the Company and that returns to Shareholders would be delivered predominately as dividend income.

The Company's NAV performance (net of issue costs and dividends reinvested) was 6.55% from launch to 31 March 2015 (7.29% to 30 April 2015). This has been impacted by cash holdings pending investment of 33% on average from launch to 31 March 2015 (32% to 30 April 2015).

Now that the Company is substantially fully invested following the post year end acquisition, target returns have been reviewed and updated. As a result of a widespread reduction in the returns available from the credit asset class since it was launched, the Company now expects to target a NAV total return to investors of 8-10% per annum and to minimise cash drag to less than 10% of NAV. The Company is satisfied that current credit conditions in the portfolio and in the wider market remain benign and supportive of the returns without additional risks. More detail on prospective returns is set out in the Investment Manager's Report on page 10.

Dividends

The Company seeks to distribute all its income received from investments, net of expenses, by way of dividends on a quarterly basis. Dividends of 1.35 pence per share were paid in respect of the period 1 October 2014 to 31 December 2014 and on 21 April 2015 the Company announced a further dividend payment of 1.20 pence per share for the period 1 January 2015 to 31 March 2015.

In considering the most recent dividend, the Board noted that in addition to the average level of cash of approximately 20% during the quarter, several positions representing an aggregate of 14.2% of NAV (as 31 March 2015) were not treated as accruing, hence did not realise profits during the period.

To date, dividend payments have taken account of both realised and unrealised revenue and capital gains and losses in the portfolio. The Board has reviewed the Company's dividend policy to separate revenue and capital, such that future dividend payments will be based on realised and accrued revenue items only. This is expected to provide greater stability of dividend payments. Where the revenue from an investment is variable by nature, such revenue will continue to be recognised as received.

Where possible the Directors will seek to pay three quarterly payments at a similar level and a special dividend for the fourth quarter to 30 September each year, as necessary to ensure that the Company distributes all its realised revenue from investments, net of expenses, by way of dividends each financial year.

Based on the current portfolio and market conditions as at the date of this report, the Company expects to pay quarterly dividends of at least 2 pence per share, for at least the next two quarters. Further guidance of future payments will be given from time to time.

The monthly NAV per share will continue to capture all movements in the portfolio valuation, realised and unrealised, and the monthly factsheet will continue to comment on the major sources of profit and loss each month.

Financial Performance

Over the Period the Company generated a profit of £3.1 million or earnings of 2.39 pence per share.

Investment Portfolio

As referred to in the Investment Manager's Report on page 9, at 31 March 2015 the Company has deployed 82.5% by value of funds raised into eleven Bank Capital Solutions Transactionsthat reflect the anticipated target portfolio by achieving a spread of investment riskthrough diversified exposure to underlying assets by sector and geography.

SME loans at 45.63% of NAV and Corporate loans of 27.21% of NAV comprised the majority of sector allocation at the end of the Period with the largest position being an amortising exposure to a granular pool of Portuguese SME and Corporate loans.

The portfolio also has exposure to a range of other asset types.

On 6 May 2015, the Company invested approximately €16 million in its ninth primary transaction that comprises a thick first loss tranche providing exposure to a revolving €2.35 billion portfolio of mid-market corporate loans originated by a German corporate and investment bank. The exposure benefits from the bank's solid origination in its home market, and from robust downside protection due to the high detachment point of the tranche.

Following this transaction, the Company is now approximately 92% invested.

Investment Outlook

The Investment Manager began 2015 with an optimistic view on the market for regulatory capital transactions and other deleveraging opportunities. The flow of deals in Q1 2015 has not disappointed and an attractive pipeline has formed for the remainder of the year. Whilst we anticipate high demand from aggressive new players in the sector, we remain positive of our ability to source new investments that will deliver the target returns for the Company.

For further information on the investment outlook please see page 10.

Interim Management Statements

Following changes to the Disclosure and Transparency Rules, the Company is no longer required to publish interim management statements. The monthly factsheets will still be produced to keep shareholders and other interested observers informed of developments in the market, and in the Company's portfolio and performance.

Iain Stokes

Acting Chairman

28 May 2015

Investment Manager's Report

Investment Review

The Company launched with £130.3 million gross proceeds in October 2013. As of 31 March 2015, the Company was 82.5% invested.

The sector allocation as of 31 March 2015 reflected the anticipated target portfolio with a significant representation of corporate and SME loans.

Geographically the portfolio was diversified with the largest position being an amortising exposure to a granular pool of Portuguese SME and corporate loans.

As at 31 March 2015, the portfolio consisted of seven primary transactions and four secondary transactions and achieved a spread of investment risk. The top five holdings were the following:

Performance

During the period from launch to 31 March 2015, the Company's NAV performance (net of issue costs and dividends reinvested) was 6.55%.

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

Since inception, the Company recorded the following dividends:

On 21 April 2015 the Company announced a fourth dividend payment of 1.20 pence per share for the period to 31 March 2015.

In October 2014, the Company closed a €21.6m investment in a portfolio of Spanish real estate exposure (secured loans and residential properties) which was divested by a Spanish bank. The portfolio has been purchased at a significant discount to par and under our base cash flow scenario offers double digit unlevered returns.

In December 2014, the Company closed an €8.6m first loss regulatory capital investment in a static portfolio of Italian SME exposure, originated by a large Italian corporate and investment bank. This is the first investment for the Company in an exclusively Italian portfolio, and the bank's underwriting, monitoring and work-out processes were fully examined.

In February 2015, the Company invested £5.1 million in a bilateral transaction that provides exposure to a portfolio of prime UK residential mortgage loans. The portfolio comprises prime and buy-to-let mortgage loans backed by residential properties located primarily in central London. The portfolio is expected to generate a strong double digit return with robust downside protection and the transaction benefits from attractive limited recourse bank financing that allows the Company to monetize the purchase price discount over a short period of time as well as receive excess spread.

In March 2015 the Company completed its investment of £14.0 million in a thick first loss tranche providing exposure to a portfolio of large corporate loans originated by a UK corporate and investment bank. The majority of the corporate borrowers in the portfolio are large UK companies, and over 60% of borrowers in the initial pool are either FTSE 100 or FTSE 250 listed entities. The purchased exposure benefits from robust downside protection due to a high detachment point, and a stop-replenishment trigger if defaults reach a certain level.

Investment Outlook

The Investment Manager began 2015 with an optimistic view on the market for regulatory capital transactions and other deleveraging opportunities. The flow of deals in Q1 has not disappointed and an attractive pipeline has formed for the remainder of the year. We believe that this has been driven by a combination of factors:

· Banks have completed the AQR process, which required a considerable effort from their risk and capital management teams, and now have the bandwidth to work on transactions

· Many banks have "turned a corner" and are now focusing on rebuilding their origination in core business areas - RWA reduction transactions reduce the capital constraints on this activity

· Continuing pressure from regulators to increase capital and transfer risk off of bank balance sheets along with future regulatory changes (such as TLAC (total loss absorbing capacity) for example)

The Company has remained selective with respect to the transactions that it has invested in and deployed resources towards deals that meet the risk return demands of the Investment Manager. In addition these deals have been focused on core Europe which is attractive given the large amount of the portfolio currently invested in peripheral jurisdictions:

· A UK residential mortgage portfolio offered very attractive risk return due to its low LTV collateral, short weighted average life and double digit base case IRR

· A UK synthetic corporate loan tranche had a tight pricing but the tranche thickness insisted upon by the PRA makes the transaction return extremely robust

· A German SME exposure in a thick equity tranche with a relatively large coupon for the current market environment which provides a stable return

The pipeline that has built up over the quarter is deep and diverse. This should result in multiple investment opportunities over the coming months. The transactions that we are working on include:

· Two Italian SME equity tranches

· A Spanish SME mezzanine tranche

· An Austrian SME mezzanine tranche

· A Swiss SME equity tranche

· A global corporate loan equity tranche from a Swiss bank

· A trade finance mezzanine tranche from a UK bank

· A large portfolio of UK residential mortgage collateral

· Further portfolios of Spanish property loans (similar to an existing exposure)

Toro S.a.r.l.

Investment Manager

28 May 2015

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.

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 2014 to 31 March 2015 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 2014 to 31 March 2015 and that have materially affected the financial position or performance of the entity during that period.

By order of the Board, 28 May 2015.

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 2014 to 31 March 2015 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 19. 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 IFRSs 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 2014 to 31 March 2015 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

28 May 2015

Condensed Statement of Comprehensive Income

For the period 1 October 2014 to 31 March 2015

Director : Iain Stokes Director : Rene Mouchotte

Date : 28 May 2015 Date : 28 May 2015

All items in the above statement derive from continuing operations.

The notes to the financial statements are an integral part of the financial statements.

Condensed Statement of Financial Position

as at 31 March 2015

Director : Iain Stokes Director : Rene Mouchotte

Date : 28 May 2015 Date : 28 May 2015

The notes to the financial statements are an integral part of the financial statements.

Condensed Statement of Changes in Equity

For the period 1 October 2014 to 31 March 2015

The notes to the financial statements are an integral part of the financial statements.

Condensed Statement of Cash Flows

For the period 1 October 2014 to 31 March 2015

The notes to the financial statements are an integral part of the financial statements.

Condensed Schedule of Investments, at Fair Value

Chenavari Capital Solutions Limited

As at 31 March 2015

Condensed Schedule of Investments, at Fair Value

Chenavari Capital Solutions Limited

As at 30 September 2014

Notes to the Financial Statements for the period 1 October 2014 to 31 March 2015.

1. General information

Background information on the Company's activities can be found in the Company's prospectus dated 23 September 2013 and the Company's latest audited annual 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 2014 to 31 March 2015 have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board, 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. Immaterial changes have been made to comparative figures for the period to 31 March 2014 to correspond to current period presentation requirements.

2.2 Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board. The Directors are of the opinion that the Company is engaged in a single segment of business, being investments in Bank Capital Solutions Transactions. The Directors manage the business in this way.

2.3 Going Concern

The Directors believe that it is appropriate to adopt the going concern basis in preparing the Financial Statements in view of its holding in cash and cash equivalents and investments as well as the income deriving from those investments, meaning the Company has adequate financial resources to meet its liabilities as they fall due.

3. Critical accounting judgements and key sources of estimation uncertainty

The preparation of the Company's Condensed Unaudited Interim 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.

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 Net Asset Value ("NAV") is derived from the Company's valuation policy. In particular, fair values of credit default swaps 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 Financial Statements (continued)

3. Critical accounting judgements and key sources of estimation uncertainty

3.1 Key sources of estimation uncertainty

During the period, the Company made four primary transactions while one primary transaction matured during the period and holds eleven transactions at period end. Based on the hierarchy set out in IFRS 13, one transaction is classified as Level 2 based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs. The remaining transactions have been classified as Level 3 where broker quotes are unavailable or discounted, or cannot be substantiated by market transactions. The Directors monitor the availability of observable inputs and if necessary, reclassify to level 3 where observable trading is not available.

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. The fee for Mr. Stokes as chairman of the Audit Committee is £40,000 per annum. The fee for Mr. Hunt as Chairman was £42,500 per annum.

During the period ended 31 March 2015, Directors fees of £60,000 (31 March 2014: £60,000) were charged to the Company, of which £Nil (30 September 2014: £Nil) remained payable at the end of the period.

(b) Shares held by related parties

As at 30 September 2014 and 31 March 2015, none of the Directors held Shares in the Company.

As at 30 September 2014 and 31 March 2015, neither the Investment Manager nor partners and employees of the Investment Manager or the Investment Adviser held any of the Issued Share Capital.

(c) Investment Manager

The Company receives investment management services from the Investment Manager, a limited company incorporated in Luxembourg. Under the terms of the investment management agreement dated 16 September 2013 as novated on 22 July 2014 the Investment Manager receives in return a fee of one-twelfth of 1 per cent on the net asset value, 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.

Total management fees for the period amounted to £640,149 (March 2014: £622,026) with £107,146 (31 March 2014: £108,543) in outstanding accrued fees due at the end of the period.

The Company has funded investments with a value of £40,229,126 via Convertible Preferred Equity Certificates and/or occasionally beneficiary shares issued by legally segregated compartments of AREO S.à.r.l. ("Areo"), a company incorporated in Luxembourg under the Securitization Law of 2004. Areo is a member of the Chenavari group and is managed by a Board of Directors composed of a majority of independent directors that consider investment opportunities sourced by the Investment Manager. The Company is currently invested in four compartments of Areo, and which it fair values in accordance with IFRS 13 as set out in the Company's accounting policies. The Investment Manager receives no investment management fees from Areo.

Notes to the Financial Statements (continued)

4. Related Parties (continued)

The Investment Manager is also entitled to receive from the Company a performance fee equal to 20 per cent. of realised returns (i.e. dividends and capital repayments/returns) to Shareholders, subject to a hurdle of 7.5 per cent 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 cent. per annum (the "Hurdle"). Thereafter, amounts available for distribution in excess of the Hurdle shall be distributed by the Company as to 50 per cent. to Shareholders and paid as to 50 per cent. to the Investment Manager until the Investment Manager has received 20 per cent. 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 per cent. to Shareholders and paid as to 20 per cent. by way of payment of the performance fee to the Investment Manager.

The Hurdle shall be adjusted to reflect any Share repurchases (or equivalent) by the Company and any further issues of Shares (including C Shares) by the Company on the relevant date of repurchase or issue.

Performance fees shall be accrued by the Company over time on the basis that the Net Asset Value at each NAV Calculation Date is treated as a Distributable Surplus.

As of 31 March 2015, no performance fee was accrued according to those principles (31 March 2014: £nil).

5. Material Agreements

(a) Corporate broker

Dexion Capital Limited is entitled to receive a retainer for their corporate broking services of £75,000 per annum, payable quarterly in advance.

 (b) Administration fee

Morgan Sharpe 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 (31 March 2014: £25,252).

 (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 0.09% per annum of NAV, excluding certain expenses. Sub-Administration fees for the period amounted to £46,431 (31 March 2014: £46,843) of which £12,876 (30 September 2014: £11,092) remained payable at the end of 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) 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.

Notes to the Financial Statements (continued)

6. Financial risk management (continued)

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 per cent. 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 per cent. 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 per cent. of NAV, calculated at the time of investment.

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 per cent. 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 A-1 (Standard & Poor's) or P-1 (Moody's).

The Company manages the portfolio with appropriate diversification in terms of sectors and geographical breakdowns. As of 31 March 2015 and 30 September 2014, the breakdown of the NAV per asset class and geography was as follows:

Notes to the Financial Statements (continued)

6. Financial risk management (continued)

6.1 Credit risk (continued)

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

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 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 recognized 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.

Notes to the Financial Statements (continued)

6. Financial risk management (continued)

6.2 Foreign currency risk (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 does not actively take interest rate risk, but incurs it as a normal course of business and employs a series of hedges to minimise these risks. 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.