SQN.L Regulatory News (SQN)

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION AS STIPULATED UNDER THE MARKET

ABUSE REGULATION (EU NO. 596/2014).

30 April 2020

SQN Asset Finance Income Fund Limited

LEI: 2138007S3YRY3IUU4W39

Conclusion of Strategic Review and Change of Investment Manager

The Board of SQN Asset Finance Income Fund Limited (the "Company") is pleased to announce that it has concluded its strategic review, including a review of the provision of investment management services to the Company. 

Highlights

· The Board, seeking to maintain continuity of the specialist skillset and retain the knowledge of the Company's portfolio embedded in the operations team at SQN Capital Management (UK) Limited ("SQN UK") while at the same time enhancing the corporate infrastructure and governance interfacing with the Board and investors, has entered into heads of terms to appoint KKV Investment Management Ltd ("KKV") as portfolio manager of the Company.

· KKV is a newly formed investment management company under the UK asset management arm of Kvika Banki hf. ("Kvika Banki"), an Icelandic publicly traded specialist bank focusing on asset management and investment services. KKV will be led by Dawn Kendall and Ariel Vegoda, both currently senior personnel within the SQN Group and, under an agreement to be entered into with SQN Capital Management, LLC ("SQN US"), it is intended that the operational personnel of SQN UK will join KKV;

· The Board intends to appoint International Fund Management Limited ("IFM") as the Company's Alternative Investment Fund Manager ("AIFM");

· The Board intends to bring forward the Company's triennial continuation vote from November 2020 and propose separate continuation resolutions for the ordinary shares ("Ordinary Shares") and the C shares ("C Shares" and together with the Ordinary Shares, "Shares") in the capital of the Company (each a "Share Class") on or around 30 June 2020 (the "2020 Continuation Vote");

· If the 2020 Continuation Vote passes for any Share Class, the Board intends to propose a further continuation vote during 2021 for that Share Class ("2021 Continuation Vote") with any excess cash flow from the amortisation, repayment or realisation of assets prior to the 2021 Continuation Vote being returned to shareholders of that Share Class either through the repurchase of Shares or, if the quantum is material, via a return of capital;

· The immediate focus for KKV will be to manage the existing portfolio and to work with borrowers that may require assistance as a result of the challenges caused by Covid-19;

· Subject to approval of the 2020 Continuation Vote and 2021 Continuation Vote in respect of at least one Share Class, KKV will continue to manage the portfolio attributable to the relevant Share Class(es) under the existing investment policy with a focus on secured lending to the low- to mid-market SME sector; and

· SQN Capital will provide consultancy services to KKV in all respects required by the Company or KKV for a term of at least twelve months.

The Board has consulted with a range of major shareholders to gain their feedback on the strategic review. While it was not possible to speak with all shareholders, and there was a range of views received, these proposals reflect the majority of the shareholder feedback.

Appointment of KKV

The Board has agreed heads of terms to appoint KKV as portfolio manager of the Company following an extensive review process, including responses to a request for proposal from 15 interested parties and detailed presentations from a wide range of international investment management groups. The appointment of KKV is conditional on the execution of a new investment management agreement and other contractual documentation. The intention is for KKV to be appointed in early June 2020 (the "Commencement Date").

KKV, a newly formed investment management company, is a joint venture between Dawn Kendall and Ariel Vegoda, both currently senior personnel within the SQN Group, and Kvika Securities Limited ("KSL"), a Financial Conduct Authority ("FCA") regulated entity and a wholly owned subsidiary of Kvika Banki.

Dawn Kendall and Ariel Vegoda are to be the joint managing directors of KKV and the intention is for the employees of SQN UK to transfer to KKV with effect from the Commencement Date under the TUPE regulations.

The proposal to appoint KKV has been made with the support of the existing investment managers, SQN UK and SQN US (together "SQN Capital"), and reflects both the progression of SQN Capital's business in the UK following the retirement of Neil Roberts earlier this year, and the transition of SQN Capital to focus on insurance based investments and managed accounts in the United States and its advisory business for equipment leasing funds in the Cayman Islands.

Dawn Kendall, Managing Director and Co-Founder, KKV

Dawn has 34 years' experience in financial services, including 25 years' experience managing fixed income portfolios at distinguished financial institutions, including her role as Partner and Portfolio Manager at TwentyFour Asset Management, as CIO for IAM, a fund of hedge funds, and Portfolio Manager for The Codelouf Trust, a family office. Additionally, Dawn has held senior investment and management positions at Newton, Axa (Architas) and Investec Wealth. Her areas of specialism are fixed income portfolio management for private and public debt, structured finance, product development and derivatives. Since 2017, in her capacity as investment manager, she has led the successful turnaround of the SME Loan Fund which became the SQN Secured Income Fund plc. Dawn has a degree in European & English Law and earned her MBA in 2004.

Ariel Vegoda, Managing Director and Co-Founder, KKV

Ariel is a qualified lawyer and an operational expert with over a decade's experience of transaction negotiation, deal execution and complex work outs of transactions. Alongside that, he is also a highly skilled litigator having specialised in commercial litigation, asset recovery and dispute resolution whilst at Mischon de Reya, prior to assuming the role of General Counsel of SQN UK in 2015 and the additional role of Chief Operating Officer of SQN UK in 2019. In this role, Ariel Vegoda has been heavily involved in assisting with work out situations in the Company's portfolio.

Kvika Securities Ltd.

KSL is the UK subsidiary of Kvika Banki, a Nordic commercial bank with a focus on asset management and investment services (including corporate finance, corporate banking and capital markets). Kvika Banki is a market leader in consolidation and rationalisation in the Icelandic financial market with the strategic focus of growing the asset management operations and is now the second largest asset manager in the domestic market with £2.6bn in assets under management. Kvika Banki has been awarded as the best bank in Iceland for the past two years by the industry magazine The Banker. Kvika Banki is headquartered in Iceland with its shares (short name: KVIKA) listed on the Nasdaq Iceland main market.

KSL is regulated and authorised by the FCA to manage alternative investment funds and provide asset management and corporate finance services

KKV offers a strong proposal which combines the expertise of key individuals currently within the SQN Group, retaining the skills and knowledge of the team at SQN Capital, and the infrastructure and governance of KSL.

International Fund Management Limited

The Board intends to appoint IFM, part of the PraxisIFM Group listed on The International Stock Exchange, as the Company's AIFM with effect from the Commencement Date. IFM is a full service AIFM with over US$5 billion assets under management with experience across all major asset classes, including credit, and provides services to multiple investment trust and investment company clients listed on the main market of the London Stock Exchange. IFM, as AIFM, will be responsible to the Company for risk management and portfolio management and will delegate the provision of portfolio management services to KKV.

The fees associated with the ongoing appointment of IFM will be met by KKV.

SQN Capital - Termination and Consultancy Services

The Company, KKV, SQN Capital and IFM have agreed heads of terms in connection with transfer of management arrangements to KKV.

SQN Capital will cease to act as AIFM and investment manager to the Company at the close of business on the day prior to the Commencement Date having reached agreement with the Board to terminate the existing investment management agreement. The Company will not incur duplication of investment and portfolio management fees as a result of the transition to KKV.

In addition, SQN Capital has agreed to provide consultancy services to KKV in all respects required by the Company or KKV for a term of at least twelve months. The Company will not incur any additional costs in relation to the consultancy arrangements.

The Board would like to thank SQN Capital for its service to the Company since launch in 2014. During this time, SQN Capital has built a high-yielding portfolio and delivered strong IRRs on exited investments and, while there have been certain challenges in the portfolio, SQN Capital has generated strong returns from the 'work-out' situations that have been concluded. SQN Capital has built a strong team within the UK which makes this transition possible and the Board also recognises the benefit to the Company and its shareholders from the ongoing assistance that SQN Capital will provide.

Continuation Votes

The Board intends to publish a circular in due course to convene an extraordinary general meeting ("EGM") of the Company, a class meeting of the Ordinary Shares and a class meeting of the C Shares, on or around 30 June 2020, to put forward the 2020 Continuation Vote. This brings forward the Company's triennial continuation vote from the annual general meeting in November 2020.

The Company intends to hold a separate vote of each of the Ordinary Shares and the C Shares.

If the 2020 Continuation Vote passes for either Share Class, the Board intends to put forward the 2021 Continuation Vote for that Share Class next year, approximately 12 months following the 2020 Continuation Vote. In the period prior to the 2021 Continuation Vote, no new investments will be made (save for further investment in existing assets that require additional capital or existing undrawn commitments), with any excess cash flow from the amortisation, repayment or realisation of assets prior to the 2021 Continuation Vote being returned to shareholders of that Share Class either through the repurchase of shares or, if the quantum is material, via a return of capital, as determined by the Board at that time. This will provide KKV with time to focus on managing the portfolio and fully assess the impact of Covid-19. Given that no reinvestment will occur prior to the 2021 Continuation Vote, should shareholders not support continuation in 2021, the timeframe for any future managed wind-down will not have been notably impacted. 

If the 2020 Continuation Vote does not pass for either Share Class, that Share Class is expected to be placed into managed wind-down and the Directors will put forward proposals to give effect to that wind-down. Any managed wind-down will be on an orderly-basis.

Further details on the 2020 Continuation Vote will be published in due course.

Investment Strategy

The immediate focus for KKV will be on the existing portfolio, both to restore shareholder value and work with borrowers that may require assistance as a result of the challenges presented by Covid-19.

Subject to the passing of the 2020 Continuation Vote and the 2021 Continuation Vote in respect of at least one Share Class, KKV will continue to manage the portfolio attributable to the relevant Share Class(es) in accordance with the existing investment policy. The investment focus would be on senior secured loans to the low- to mid-market SME sector.

KKV's investment thesis will be to focus on downside risk in credit selection, seeking to invest in non-cyclical businesses which are defensive in all market environments. KKV will leverage the lending expertise of Kvika Group to assist with credit analysis, infrastructure and governance.

The Board will work with KKV to determine the timing and quantum of any reinstatement of dividends and foreign exchange hedging once there is greater clarity over the impact of Covid-19 on the Company's borrowers.

Key Terms of the New Investment Management Agreement

Management Fees

The Company has agreed that, in the period from the Commencement Date to 30 June 2020, KKV will receive fees on the same basis as the fees payable to SQN Capital, being 1.0% on the first £300m of Net Asset Value ("NAV"), 0.9% on the next £200m of NAV and 0.8% for any NAV over £500m.

In the event that the 2020 Continuation Vote passes for either or both Share Classes, that fee basis would continue thereafter for the respective Share Class ("Continuation Fee"). If both Share Classes vote in favour of continuation, the Continuation Fee would continue to be apportioned pro-rata between the Ordinary Shares and the C Shares on the basis of NAV.

In the event that the 2020 Continuation Vote does not pass for either Share Class, an alternative fee basis would be adopted for any Share Class that is placed into managed wind-down ("Wind-Down Fee"), and the fees would be applied to each Share Class independently.

The Wind-Down Fee would be calculated on the following basis:

· The assets in the portfolio that are classified as Stage 1 under IFRS 9 as at 31 March 2020, would be subject to a management fee of 1.0% of NAV per annum; and

· The assets in the portfolio that are classified as Stage 2 or Stage 3 under IFRS 9 as at 31 March 2020, would be subject to a management fee of 0.75% of NAV per annum plus a performance fee of 10% of any net capital gains on realisations during each financial year.

The total fees payable by each class would be capped at 1.0% of the average NAV for the financial year of that class, with any excess performance fee being carried forward and which may be offset by the Company against any net negative realisations in the following financial year.

KKV has committed to use 5% of the management fees it receives in respect of each Share Class to buy the Shares of that class in the market.

The Company will not incur additional investment and portfolio management fees as a result of the transition to KKV.

Termination provisions

The new investment management agreement will be terminable by either party serving 12 months' notice, such notice not to be served prior to 24 months following the appointment of KKV, save for specific circumstances.

Company name and ticker

Subject to passing a special resolution at the EGM, the Board intends to apply for the Company to be renamed KKV Secured Loan Fund Limited. In addition, the Ordinary Share ticker will change to 'KKVL' and the C Share ticker will change to 'KKVX'.

Expected Timetable

For further information please contact:

This announcement is released by SQN Asset Finance Income Fund Limited and contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 (MAR), and is disclosed in accordance with the Company's obligations under Article 17 of MAR.

For the purposes of MAR and Article 2 of Commission Implementing Regulation (EU) 2016/1055, the

person responsible for releasing this announcement is Peter Niven, Chairman.

Cautionary statements

This announcement may contain and the Company may make verbal statements containing "forward-looking statements" with respect to certain of the Company's plans and its current goals and expectations relating to its future financial condition, performance, strategic initiatives, objectives and results. Forward-looking statements sometimes use words such as "aim", "anticipate", "target", "expect", "estimate", "intend", "plan", "goal", "believe", "seek", "may", "could", "outlook" or other words of similar meaning. By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances which are beyond the control of the Company.

As a result, the actual future financial condition, performance and results of the Company may differ

materially from the plans, goals and expectations set forth in any forward-looking statements. Any

forward-looking statements made in this announcement by or on behalf of the Company speak only as of the date they are made. The information contained in this announcement is subject to change

without notice and except as required by applicable law or regulation, the Company expressly disclaims any obligation or undertaking to publish any updates or revisions to any forward-looking statements contained in this announcement to reflect any changes in the Company's expectations with regard thereto or any changes in events, conditions or circumstances on which any such statements are based.

Neither the content of the Company's website (or any other website) nor the content of any website

accessible from hyperlinks on the Company's website (or any other website) is incorporated into or

forms part of this announcement.