Gcp Asset Bckd Regulatory News (GABI)

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THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

GCP Asset Backed Income Fund Limited

LEI: 213800FBBZCQMP73A815

11 August 2023

Proposed combination with GCP Infrastructure Investments Limited

Proposed Scheme

The Board of Directors (the "Board") of GCP Asset Backed Income Fund Limited ("GABI" or the "Company") is pleased to announce that it has agreed with the board of directors of GCP Infrastructure Investments Limited ("GCP Infra") heads of terms ("HoTs") in respect of a proposed combination of the Company with GCP Infra (the "Scheme"). The Board notes the contemporaneous announcement made this morning by GCP Infra (the "GCP Infra Announcement").

The combination will be effected by way of a contractual scheme of reconstruction resulting in the solvent winding-up of the Company and the transfer of its assets to GCP Infra in exchange for the issue of new ordinary shares in GCP Infra to GABI shareholders. The Scheme is subject to GABI shareholder approval and is expected to be completed before the end of 2023.

The Board believes that the Scheme will bring a number of benefits to GABI shareholders, both on implementation of the Scheme and on an ongoing basis as shareholders in GCP Infra. The Board has agreed with GCP Infra a commitment to utilise £200 million of cash available to the enlarged portfolio for a return of capital and a reduction in leverage in the two-year period following the completion of the Scheme.  In addition, the Board has agreed with GCP Infra a commitment to providing shareholders with a continuation vote at GCP Infra's AGM in 2028 and every 4 years thereafter. These mechanisms further support the benefits of the Scheme to GABI's shareholders and are detailed further below.

Liquidity Commitments

Pursuant to the HoTs, the Company and GCP Infra have agreed that, following the implementation of the Scheme, GCP Infra will commit to utilise £200 million of cash available to the enlarged portfolio in the two-year period following completion of the Scheme as follows:

- £100 million to reduce GCP Infra's leverage to a target drawn balance (after a drawdown in respect of the Scheme as detailed below) of approximately £50 million; and

- £100 million to distribute to shareholders by way of share buy backs, special dividends or otherwise. This commitment is in addition to the current remaining commitment under the £15 million buy-back programme announced by GCP Infra on 14 March 2023,

(together, the "Liquidity Commitments").

On approval of the Scheme, GCP Infra intends to draw on its revolving credit arrangements to fund the repayment in full of the outstanding balance under the Company's revolving credit facility, which currently has £40 million outstanding (the "GABI Debt Amount") in connection with the transfer of assets from GABI to GCP Infra under the Scheme. The Company has agreed not to draw further on its revolving credit arrangements prior to completion of the Scheme. As part of the Liquidity Commitments, GCP Infra has agreed to prioritise the use of its cash resources to repay the additional debt drawn by GCP Infra in respect of the GABI Debt Amount.

Across the Company and GCP Infra, approximately £140 million of loan repayments are forecast to be received in the first six months of 2024 which will support the ability of GCP Infra to fund the Liquidity Commitments.

GCP Infra Strategy and Investment Advisory Fee

The board of GCP Infra intends to procure approvals for an amendment to GCP Infra's investment policy in connection with the Scheme and market opportunities more generally, to ensure that the enlarged GCP Infra has access to the most attractive investment opportunities in the future (subject to the Liquidity Commitments). Further, the proposed changes to GCP Infra's investment policy include an explicit sustainability objective, which is aligned to the Board's view that the most attractive investments have high levels of environmental and social sustainability. The proposed changes to the GCP Infra investment policy are further detailed in the GCP Infra Announcement.

The Board notes the high degree of alignment between the current, and proposed, investment objectives of the Company and GCP Infra. It is the view of the Board that GABI shareholders will continue to receive exposure to attractive risk adjusted returns and regular, sustained distributions from a portfolio of infrastructure and real asset-backed investments as shareholders in GCP Infra. The Scheme will further provide GABI shareholders with increased diversification as part of GCP Infra's sizeable investment portfolio of materially operational assets in the energy and social infrastructure sectors.

The Board notes the ongoing discussions between GCP Infra and RM Infrastructure Income plc ("RMII") relating to the potential merger of the assets of RMII with GCP Infra following the completion of the Scheme as referred to in the GCP Infra Announcement.

As part of the HoTs and subject to completion of the Scheme, the board of GCP Infra has agreed with Gravis Capital Management Limited ("Gravis"), the Company's investment manager and the investment adviser to GCP Infra, that the investment advisory fee payable to Gravis by GCP Infra shall be revised from 0.9% per annum on net assets (excluding cash) to : (i) in respect of net assets (excluding cash) up to £1.3 billion, a fee of 0.9% of such net assets; and (ii) in respect of net assets (excluding cash) above £1.3 billion, a fee of 0.8% of such net assets.

GCP Infra Continuation Vote

At present, neither the Company nor GCP Infra has a commitment to hold a continuation vote in the future. Pursuant to the HoTs, GCP Infra will commit to providing shareholders with a continuation vote at the GCP Infra AGM in 2028 and every four years thereafter.

Strategic Rationale for the Scheme

The Board is pleased to have been able to agree HoTs with GCP Infra, an investment company with a 13-year track record of delivering stable and attractive income to its shareholders. Since its IPO, GCP Infra has been a leader in debt finance, across various infrastructure sectors. The proposed Scheme, creating a sizeable infrastructure and real asset debt vehicle, will (subject to the Liquidity Commitments) give GABI shareholders the opportunity to benefit from current and future market opportunities, which are supported by the recent re-pricing in credit markets, and a material infrastructure and real asset debt investment need in the UK market associated with trends such as decarbonisation, population dynamics and renewal of existing infrastructure.

The Scheme will consolidate two listed infrastructure and real asset debt vehicles to form a sizeable investment company with approximately £1.4 billion of net assets and the Board believes that the Scheme will bring multiple benefits to GABI shareholders, including the following: 

· The Liquidity Commitments: as described above, GCP Infra has provided a commitment to utilise £200 million of cash resources to both: (i) reduce the leverage in the enlarged vehicle over the medium-term to approximately £50 million; and (ii) return £100 million of capital to all shareholders by way of share buy backs, special dividends or otherwise.

· Enhanced secondary market liquidity: the Board recognises the importance of scale from the perspective of liquidity for shareholders. Based on the market capitalisations of both GCP Infra and the Company as at close on 10 August 2023, the enlarged market capitalisation would be approximately £907 million. In the three months to 31 July 2023, the average daily value of shares traded in GCP Infra and the Company (excluding on market buybacks) was c. £1.29 million and c. £0.46 million, respectively.

· Realigned investment mandate: the proposed changes to GCP Infra's investment policy, including the introduction of an explicit sustainability objective, is expected to provide a wider universe of potential investment opportunities with attractive risk-adjusted returns.  

· Shareholder register: the Scheme will allow several shareholders to consolidate their holdings across the two companies while also creating a more diversified shareholder base through a combination of the two share registers.

· Lower costs: certain annual fixed costs are duplicated across the Company and GCP Infra and the Scheme will remove such duplications and GCP Infra's fixed costs will be spread over a larger asset base, resulting in a lower ongoing expense ratio. The fixed cost savings for GCP Infra are projected to be c. £0.8 million per annum following implementation of the Scheme.

· Investment advisor resource: GCP Infra will be supported by a large and experienced team at Gravis led by Philip Kent, Ed Simpson and Max Gilbert, and the Chief Investment Officer of Gravis' private market investment funds who is joining Gravis in October 2023. Given Gravis' common role across both companies, GABI shareholders will receive the benefits described above with minimal changes to the people, processes and systems associated with the management of the Company and the Company's investment portfolio as part of GCP Infra.

Summary of the Scheme

The combination will be effected by way of a contractual scheme of reconstruction resulting in the solvent winding-up of the Company and the transfer of its assets to GCP Infra in exchange for the issue of new ordinary shares in GCP Infra to GABI shareholders. The number of GCP Infra shares issued to GABI shareholders will be determined on a formula asset value ("FAV") for FAV basis. The FAVs shall be calculated based on the net asset value of each of the Company and GCP Infra on an agreed calculation date less each party's transaction costs. The Scheme is subject to GABI shareholder approval and is expected to be completed before the end of 2023.

As a contractual scheme of reconstruction, the City Code on Takeovers and Mergers is not expected to apply to the Scheme. However, the Scheme will be subject to other regulatory approvals and tax requirements.

Estimated costs of the Scheme and Gravis Contribution

Each company shall bear its own costs incurred in relation to the implementation of the Scheme. Gravis has agreed to pay, or otherwise make, a contribution towards the costs of the Scheme to the Company and GCP Infra of £1 million to be apportioned between the Company and GCP Infra by reference to each company's transaction costs (the "Gravis Contribution"). The estimated costs to GABI of the Scheme (post the Gravis Contribution) are £1.2 million (equivalent to 0.28 pence per ordinary share).

Expected Timetable

A circular to shareholders of GABI, providing further details of the Scheme and convening a general meeting to approve the Scheme, is expected to be published in due course. The Scheme is expected to complete before the end of 2023.

The Chairman of GABI, Alex Ohlsson, commented:

"The Board is pleased to announce the agreement of the heads of terms with GCP Infra. Recognising the challenges currently facing the UK credit and alternative asset sector, the Board considers that GABI shareholders will be well served as part of a larger, FTSE 250 company that offers a considerable liquidity commitment, reduced leverage in the short to medium-term, and a sizeable and diverse portfolio of infrastructure and real asset debt investments."

For further information please contact:

Notes to the Editor

About GABI

GCP Asset Backed Income Fund Limited is a closed ended investment company. Its shares are traded on the Premium Segment of the Main Market of the London Stock Exchange. Its investment objective is to generate attractive risk-adjusted returns primarily through regular, growing distributions and modest capital appreciation over the long term.

The Company seeks to meet its investment objective by making investments in a diversified portfolio of predominantly UK based asset backed loans which are secured against contracted, predictable medium to long term cash flows and/or physical assets.

Important Information

This announcement contains statements about the Company that are or may be deemed to be forward looking statements. Without limitation, any statements preceded or followed by or that includes the words "targets", "plans", "believes", "expects", "aims", "intends", "will", "may", "anticipates", "estimates", "projects" or words or terms of similar substance of the negative thereof, may be forward looking statements.

These forward looking statements are not guarantees of future performance. Such forward looking statements involve known and unknown risks and uncertainties that could significantly affect expected results and are based on certain key assumptions. Many factors could cause actual results to differ materially from those projected or implied in any forward looking statement. Due to such uncertainties and risks, readers should not rely on such forward looking statements, which speak only as of the date of this announcement, except as required by applicable law.

The distribution of this announcement in jurisdictions outside the United Kingdom may be restricted by law and therefore persons into whose possession this announcement comes should inform themselves about, and observe, such restrictions. Any failure to comply with the restrictions may constitute a violation of the securities laws of such jurisdictions.

Market Abuse Regulation

The information contained within this announcement would have, prior to its release, constituted inside information as stipulated under Article 7 of the Market Abuse Regulation (EU) No. 596/2014 as incorporated into UK domestic law by virtue of the European Union (Withdrawal) Act 2018 as amended by virtue of the Market Abuse (Amendment) (EU Exit) Regulations 2019 ("UK MAR"). Upon the publication of this announcement via a regulatory information service, this inside information will be considered to be in the public domain.

For the purposes of UK MAR, the person responsible for making this announcement is Sophie Botterill, Manager at Apex Financial Services (Alternative Funds) Limited.

Legal Entity Identifier ("LEI")

GCP Asset Backed Income Fund Limited's LEI is 213800FBBZCQMP73A815