21 Dec 2011 07:00
Greenwich Loan Income Fund Limited
Pre-close Trading Update
21 December 2011
Greenwich Loan Income Fund Limited ("GLIF" or "the Company") today announces an update prior to its year end of 31 December 2011.
T2 CLO I Ltd
The majority of GLIF's loan exposure is currently through T2 CLO I Ltd ("the CLO"). It was announced on 27 April 2011 that the Company was to undertake a strategic review of its holding of the CLO, with a view to potentially selling part or all of its exposure. Whilst a number of proposals were received, none reflected the far lower risk profile of the CLO than the CLO market as a whole. Thus to have sold and reinvested would have increased the Company's risk profile without a commensurate increase in return. Given the Board's firm commitment to maintain the risk/reward profile of the business in any transaction, it was decided to maintain the current holding in the CLO.
The fact that the CLO is significantly lower risk than the CLO market in general is reflected in the fact that all of the tranches of loan notes within the CLO structure are now rated at either the same or above the rating when they were first issued by Moody's and S & P.
The assets within the CLO continue to perform well and strong coverage of the overcollateralization tests has been maintained, whilst the spread achieved on the portfolio has been increased. Given the decision to maintain the CLO holding, the two equity positions within the CLO, CBA Group and Provo Craft will be valued by an independent valuation firm and shown in the consolidated accounts. Previously no value had been attributed to these holdings.
Although there are many uncertainties surrounding the global economy in 2012, it should be noted that the CLO continued to pay interest to GLIF throughout the 2008/9 period, reflecting its lower leverage than most other CLOs, so the Company remains well positioned going forward.
Management fee reduction and review of dividend
The management fee reduction announced earlier in the year will affect the cash flow of GLIF for the first time at the end of the first quarter of 2012. This reduction will have a material positive impact on the net income and cash flow of GLIF and the Board will review the level of the dividend at that time. However, given that the dividend is payable in sterling, whilst the vast majority of the Company's returns are in dollars and the commitment of the Company to a progressive dividend policy, it is likely that any increase in the dividend will be less than the increase in the Company's net income. The Board of GLIF believes that the dependable sterling dividend stream is more valuable in the long run to sterling based investors than an uncertain level.
Acquisition of Asset Management Investment Company plc ("AMIC")
The Company acquired AMIC at the end of January 2011, for £9.1m in debt and £3.2m in equity. Since that date the debt has been repaid, and at the year-end the Company expects to have booked a profit of approximately £1.7m on the investments whilst the revenue stream from the remaining investments is expected to be approximately £0.8m annually.
The Company retains exposure to two businesses from the AMIC portfolio. Lombardia Capital Partners, where GLIF owns a warrant over 2.65% of the equity and a $2.5m loan, and IFDC where AMIC retains a 17.23% stake.
Lombardia has indicated to GLIF that it intends to prepay approximately 15% of the loan agreed in June, to replace the previous convertible held by AMIC, reflecting the strong results of Lombardia. The holding of IFDC will be valued at year-end with reference to the net asset value, resulting in an uplift of approximately £1.3m. Both the Lombardia loan and IFDC equity provide ongoing income.
Other CLO Equity
The Company's manager has extensive experience in managing portfolios of CLO equity through its two US-listed vehicles, TICC and Oxford Lane Capital. GLIF has taken advantage of both the managers' knowledge and experience in the CLO market to purchase two other positions in the CLO equity market. These positions increase the diversity and quantum of the GLIF revenue. The first interest payments are expected to exceed $500,000 in aggregate and are payable early in the first quarter of 2012.
Outlook
Uncertainty within the wider global economy will continue to shape the investment horizon in the CLO market over the next 12 months. However, the scale and variety of instruments in the CLO market (US-$250bn, Europe-$70bn) and the shifting pricing dynamics, continually provide opportunities for the Company to accrete value for its shareholders.
Additionally the Company continues to explore other opportunities in the loan market, outside of CLO structures. The Manager already has significant experience in both the syndicated and bilateral loan markets in the US, and the global shortage of capital suggests that there may be opportunities to enhance the Company's long-term prospects for dividend and capital growth from this area.
Furthermore, the success of the AMIC acquisition supports the Board's decision to consider further accretive acquisitions of other managers, if they are complementary to the existing business and long term investment strategy.
For further information, please contact:
Contacts:
Geoffrey Miller
Greenwich Loan Income Fund Limited
+353 1 4433 466
Patrick Conroy
Greenwich Loan Income Fund Limited
+1 203 983 5282
Philip Secrett
Nominated Adviser
Grant Thornton Corporate Finance
+44 207 383 5100
James Maxwell
Singer Capital Markets Limited
+44 20 3205 7623
Ed Berry
Financial Dynamics
+44 (0) 207 269 7297