23 Jul 2018 10:25
23 July 2018
SQN Asset Finance Income Fund Ltd
Investment Update Following the 30 June Financial Year-end
SQN Asset Finance Income Fund Limited (the "Company"), the leading diversified equipment leasing fund listed in the UK, is pleased to provide this update following the conclusion of the financial year-end 30 June 2018 and in advance of releasing the Annual Report and Accounts in October 2018.
Responding to requests for a higher level of disclosure for an asset class still relatively new to the London-listed market, the Company and the Manager have endeavoured to increase the frequency and level of detail of market communications. In continuation of this effort, the Company provides this update.
In the half-year report for 31 December 2017 released in March 2018, the Company identified six investments that were "Past Due not Impaired". In conjunction with the release of the half-year report, the Manager communicated to the market that, in the normal course of generating yields at the levels necessary to sustain a 7.25% dividend, there would always be transactions requiring attention. Further, it was reported that, based on the collateralised nature of the Company's investment strategy, workouts do not necessarily result in impairments and, on occasion, have the potential for additional returns to be realised.
The Company is pleased to report that four out of the six accounts have been restructured into an improved position and confidence remains high on a positive outcome for the remaining two investments which includes the Suniva investment and the relatively small investment in the portfolio of telecommunication towers.
The Company is further pleased to report that no new material issues have arisen in the portfolio. While the outlook remains positive, it is expected that new issues will inevitably present themselves at which time, the Company hopes that the market will see these as being in the normal course and recognise that, given time, they will likely be resolved.
The Company is also pleased to announce that more than 77% of the C Share capital has been deployed and expects to increase the dividend to an annualised rate of 7.25 in August 2018.
Individual Transaction Updates (In order as disclosed in the half-year report and referenced above):
Solar (Suniva)
The Company has continued discussions with multiple counterparties seeking to lease or purchase the Suniva equipment. The recent developments in the United States have provided additional support for domestic manufacturers which should strengthen Suniva's market position. Furthermore, efforts have intensified in pursuing the guarantee with subpoenas being issued to officers of the guarantor. The Board, as advised by the Manager, continues to believe that a full recovery of the Suniva investment will be achieved. This is expected to be through the lease or sale of the Suniva equipment and, to the extent required, by pursuing the guarantee. The Company has examined the minimum expected recovery under the lease or sale of the Suniva equipment and, considering the potential time required to realise the guarantee, the Company has reflected an impairment of £2.4m to the Suniva investment to account for the risk adjusted time value of money on such proportion of the investment should a full recovery not be achieved through a sale or re-lease.
Medical Equipment
At 31 December 2017, it was reported that a hospital for which the Company provided financing had filed for reorganization under Chapter 11 of the US Bankruptcy Code. The hospital emerged from bankruptcy in July having been purchased by a financial investor with the ultimate intention of reselling the hospital at a multiple of its acquisition price. Simultaneously with this transaction, the Company has entered into a new secured $5m note, with enhanced collateral, with the hospital and has also been granted a 15% equity interest in the hospital. The interest rate on the note is 5%.
Transportation
The Company had previously reported that it provided financing for four multi-purpose vessels at a relatively low loan to value. The Company made the decision to force a sale of those vessels which resulted in a series of competitive bids and a price sufficient to pay the Company all outstanding principal and interest. The Company is in the documentation phase of closing.
IT & Telecom
The Company provided financing for a portfolio of telecommunication towers. The CEO of the borrower unexpectedly passed away which resulted in a delay in selling or refinancing the assets which caused the loan to go into default. The new management of the operator is in the process of arranging to refinance the Company's assets and has received terms sheets from four lenders. A resolution to this matter is expected by September 2018. Until then, the investment remains insured by an investment grade reinsurance syndicate.
Hospitality (Snoozebox)
The Company has provided previous updates on the Snoozebox restructuring. Since the date of the last update, the investment has continued to generate regular income and is a now fully performing under the terms of the new lease.
Agriculture (Anaerobic Digestion Plant)
At 31 December 2017, it was reported that an anaerobic digestion plant representing approximately 7.5% of NAV and subject to a finance lease was past due. The lease is now current and the plant is operating in accordance with the planned ramp-up.
Enquiries:
SQN Capital Management, LLC
01932 575 888
Neil Roberts
Jeremiah Silkowski
Winterflood Securities Limited
020 3100 0000
Neil Langford
Chris Mills
Buchanan
020 7466 5000
Charles Ryland
Henry Wilson