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26 Nov 2015 07:20
TWENTYFOUR INCOME FUND - Notice of MeetingTWENTYFOUR INCOME FUND - Notice of Meeting
PR Newswire
London, November 26
26 November 2015
TWENTYFOUR INCOME FUND LIMITED
(a non-cellular company limited by shares incorporated in the Island of Guernsey under the Companies (Guernsey) Law 2008, as amended, with registered number 56128 and registered as a Registered Closed-ended Collective Investment Scheme with the Guernsey Financial Services Commission)
NOTICE OF GENERAL MEETING
In the Company’s interim report published on 19 November 2015, the Board stated its intention to put forward proposals which would include certain changes to the Company's investment policy to provide greater flexibility for the portfolio to reflect the evolving investment opportunity in European ABS and therefore to enhance the Company's ability to continue to deliver attractive, risk-adjusted returns.
The Company has published a circular to Shareholders (the “Circular”) and notice of General Meeting to be held on 16 December 2015.
Introduction
TwentyFour Income Fund Limited was launched on 6 March 2013 with an investment objective of generating attractive, risk-adjusted returns, principally through income distributions, by investing in a diversified portfolio of UK and European Asset Backed Securities.
The Articles established at launch provide for a Realisation Opportunity under which Shareholders may elect to realise some or all of their holdings of Ordinary Shares with effect on the Company’s third anniversary.
The Directors have been considering the Company’s policies and structure ahead of the scheduled implementation of the Realisation Opportunity and have decided to put forward for Shareholder approval proposals with the following key components:
Changes to the Investment Policy: to reflect the evolving investment opportunity in UK and European Asset Backed Securities; Disapplication of Pre-emption Rights on Share Issues: to facilitate the Realisation Opportunity and a fund raising to be implemented in the first quarter of 2016; and Changes to the Articles: to amend the form of the Realisation Opportunity, to amend the dividend target which applies in relation to the Continuation Provisions and to make certain other changes to reflect recent changes in Guernsey companies law.The Circular sets out the background to and details of the Proposals, explains the reasons why the Board considers that the Proposals are in the best interests of Shareholders as a whole, and convenes the General Meeting at which the resolutions required by Guernsey company law and the Listing Rules to implement the Proposals will be proposed.
Background to the Proposals
Since launch the Company has delivered strong performance for Shareholders. The NAV (calculated on a total return basis) on the Shares from launch to 24 November 2015 was 35.2 per cent, or 11.7 per cent. per annum which compares favourably with the Company’s target annual total return of 7 to 10 per cent. per annum.
The NAV has benefited from strong performance of the assets underlying the Portfolio and a tightening of credit spreads over the period as a whole. More recently there has been some widening of spreads, reflecting strong supply in certain ABS segments and a general decline in financial market sentiment. The Portfolio Manager believes that UK and European ABS continue to offer attractive, risk-adjusted returns.
The income return to Shareholders has been ahead of the Fund’s targets at launch. The Company’s prospectus stated a target dividend of at least 5p in respect of the year to 31 March 2014 and at least 6p per Ordinary Share thereafter. The Company met these targets by paying dividends of 6.38p and 6.65p per Ordinary Share in respect of the years ended 31 March 2014 and 2015 respectively, and the Board currently estimates a total dividend in respect of the year ending 31 March 2016 of in excess of 6p per Ordinary Share (see Note 1).
The Ordinary Shares have traded at a premium to NAV since launch, reflecting net demand in the market from a broad range of existing and new investors. The premium to NAV was 1.3 per cent. as of 24 November 2015. The Board considers that the premium rating of the Ordinary Shares has also been supported by the decision, with effect from October 2014, not to issue further Ordinary Shares under the Company’s premium management programme because to do so would have resulted in dilution of the earnings per Ordinary Share as any issue proceeds would have been invested at purchase yields which were compressed relative to those available in 2013/14.
Source: Thomson Reuters Datastream
Details of the Proposals
Changes to the Investment Policy
The Portfolio Manager has advised the Board that in order to enhance the Company’s ability to continue to achieve its investment objective, it would be optimal to make certain changes to the investment policy to provide the Company with greater flexibility to invest in a broader range of UK and European ABS.
The key elements of the proposed changes to the investment policy are as follows:
the Portfolio will be required to comprise at least 50 Asset Backed Securities. This compares to the current policy range of 30 to 50 securities and the current actual number of 110 securities; the Portfolio will no longer be required to be invested in any fixed percentage of investment grade ABS. The Portfolio is currently required (at the time any new investment is made) to be at least 50 per cent. invested in aggregate in ABS which have at least one investment grade credit rating from an internationally recognised rating agency. The Portfolio is currently 53.6 per cent. invested in such investment grade ABS; the Portfolio will additionally be required (at the time any new investment is made) to be no more than 20 per cent. backed in aggregate by collateral in any single country (save that this restriction will not apply to the Northern European Countries). The Portfolio currently has 13.1 per cent. of its value backed by collateral in its largest single country exposure excluding the Northern European Countries; and the Portfolio will additionally be required (at the time any new investment is made) to be no more than 10 per cent. invested in aggregate in instruments not deemed securities for the purposes of FSMA. This potential new allocation is intended to provide flexibility to invest in instruments that are structured in a similar manner as ABS, i.e. collateralised against a pool of assets, but may not be legally defined as “securities” because of their particular structures.The full text of the proposed new investment policy is set out in Part II of the Circular. If the changes to the Company’s investment policy are approved by Shareholders:
The Portfolio Manager intends to use only gradually the greater flexibility provided. It is expected that at least 40 per cent. of the Portfolio value will continue to be backed by collateral in the UK and Northern Europe and the Board notes also that ABS are currently only issued backed by collateral in three countries outside of the UK and Northern Europe (being Italy, Spain and Portugal) and therefore that the requirement that the Portfolio is no more than 20 per cent. backed by collateral in a single country (other than Northern European Countries) also acts in practice as a limit on the extent to which the Portfolio can be exposed to collateral in countries which are not Northern European Countries. The Company has continued not to include in its investment policy any restrictions with respect to investing in particular sectors, but it is expected that the Portfolio will retain a significant exposure to residential and commercial mortgage-backed securities; and The Board intends, based on market conditions at the date of this document: to amend the Company’s target NAV total return to between 6 and 9 per cent. per annum; and to retain the Company’s target dividend of at least 6 pence per Ordinary Share in respect of the financial year ending on 31 March 2017, which is equivalent to a yield of approximately 5.3 per cent. based on the NAV as at the date of this document. In respect of subsequent years, the Board intends to distribute as dividend an amount at least equal to the value of the Company’s net income (see Note 1).
The Board also intends to review the level of the target NAV total return and the Dividend Target at their absolute discretion from time to time and, in particular, in the event that Sterling LIBOR rates increase significantly.
Share Issue
The Articles require that Shareholders are given the opportunity to elect to convert their Ordinary Shares into Realisation Shares with effect from 6 March 2016, following which the Portfolio would be split into two segregated and distinct pools and the assets attributable to any Realisation Shares Pool would be managed in accordance with an orderly realisation programme with the aim of making progressive returns of cash.
The Board has given consideration to the most appropriate structure for the implementation of the Realisation Opportunity and has decided, subject to Shareholder approval of the necessary authorities, to implement a transaction in the first quarter of 2016 with the following options for Shareholders:
those wishing to retain their current investment in the Company will need to take no action; there will be an opportunity for Shareholders to increase investments in the Company through an open offer of new Ordinary Shares, which will be supplemented by a placing and offer for subscription for new investors; and those Shareholders wishing to realise their investment in the Company will be able to elect to do so via an election form that will be posted to them. Such elections will initially be satisfied by their Ordinary Shares being redeemed by the Company at a 1 per cent. discount to NAV, funded by the net proceeds of the proposed fund raising. Any Ordinary Shares elected for realisation and not redeemed by the Company out of the net proceeds of the proposed fund raising would be converted to Realisation Shares and the underlying assets realised as discussed above.In order to facilitate the above transaction, the Board is seeking Shareholder approval for the allotment on a non- pre-emptive basis of up to an aggregate of 300 million new Ordinary Shares in connection with the Issue and a placing programme to operate over the 12 months subsequent to the Issue. It is intended that the new Ordinary Shares available under the Issue will first be issued to existing Shareholders through an open offer. New Ordinary Shares will be issued only at prices at least equal to the then prevailing NAV.
The intended pricing of the Issue is set out in Part II of the Circular. In summary, the basis of the calculation of the Issue Price payable for new Ordinary Shares in the Issue will be calculated as a blended average of the NAV per Ordinary Share multiplied by the aggregate number of Shares in respect of which Realisation Elections are validly made and a 2 per cent. premium to NAV per Ordinary Share to the extent that the number of Ordinary Shares issued under the Issue exceeds the number of Ordinary Shares in respect of which Realisation Elections are validly made.
Amendments to the Articles
At launch the Company established a discount management policy, which included the Realisation Opportunity (which is currently required to be implemented only in March 2016) and the Continuation Provisions (including Shareholders having an opportunity to vote on the continuation of the Company if its current dividend target is not met in any reporting period).
The Board is now proposing that the Articles be amended to revise, inter alia, the Realisation Opportunity and the Continuation Provisions.
The key components of the amendments to the Articles are:
the Realisation Opportunity will be amended so that Shareholders may elect to realise all or part of their holdings of Ordinary Shares on the date which is 5 Business Days after (a) 6 March 2016 and (b) the annual general meeting of the Company in each third year thereafter; in respect of the Realisation Opportunity on any Reorganisation Date the Company may, but shall not be obliged to, offer Ordinary Shareholders who wish to realise Ordinary shares to have those shares redeemed or repurchased or purchase out of the proceeds of a new issue of Ordinary Shares or purchased under a tender offer instead of being converted into Realisation Shares as currently provided in the Articles. Any Ordinary Shares which are not so redeemed or repurchased or purchased out of the proceeds of an issue of Ordinary Shares or purchased under a tender offer shall be converted into Realisation Shares; if in respect of any Realisation Opportunity the Net Asset Value of the continuing Ordinary Shares at the close of business on the last Business Day before the Reorganisation Date and the gross proceeds of any issue of new Ordinary Shares made in conjunction with the Realisation Opportunity on that
Reorganisation Date is less than £100 million (compared to £50 million under the existing Articles), no Ordinary Shares will be redesignated as Realisation Shares and the Portfolio will not be split into the Continuation Pool and the Realisation Pool and with effect from the Reorganisation Date, unless the Directors have previously been released from this obligation by an extraordinary resolution, the investment objective and investment policy of the Company will be to realise the Company’s assets on a timely basis with the aim of making progressive returns of cash to Shareholders as soon as practicable; and
Shareholders will have an opportunity, in place of the current Continuation Provision, to vote on the continuation of the Company if the revised Dividend Target as described in the circular is not met in any Reporting Period.The Board is also taking the opportunity to update the Articles to take account of changes to Guernsey companies’ law and to make other minor amendments to reflect applicable regulation and legislation.
Further details of the proposed amendments to the Articles are set out in Part III of the Circular.
Benefits of the Proposal
The Board believes that the Proposals will establish appropriate policies and structures for the Company and in particular have the following benefits for Shareholders:
increased flexibility within the investment policy, with a view to enhancing the Company’s ability to continue to deliver generating attractive, risk-adjusted returns. Shareholders should note that the Portfolio Manager intends to use only gradually the greater flexibility provided; the introduction of a mechanism to facilitate a realisation for those Shareholders so electing, while also providing an opportunity for Shareholders to invest in new Ordinary Shares on the basis of the revised investment policy; and providing for the Realisation Opportunity to recur at three-yearly intervals and also for a continuation vote if the Dividend Target is not met in any Reporting Period.General Meeting
All Shareholders are entitled to attend and vote at the General Meeting. In accordance with the Articles, all Shareholders present in person or by proxy shall upon a show of hands have one vote and upon a poll shall have one vote in respect of each Share held. In order to ensure that a quorum is present at the General Meeting, it is necessary for two Shareholders entitled to attend and vote to be present, whether in person or by proxy (or, if a corporation, by a representative).
At the General Meeting the following resolutions will be proposed:
Resolution 1 - An extraordinary resolution to disapply pre-emption rights under the Articles; Resolution 2 - An extraordinary resolution, which will be conditional on the passing of the resolution above, to approve the changes to the investment policy; and Resolution 3 – A special resolution which will be conditional on the passing of the resolutions summarised above, to approve changes to the Articles as summarised in the Circular.Enquiries
For further information, please contact:
Numis Securities Limited: +44 (0)20 7260 1000
Nathan Brown / Hugh Jonathan
TwentyFour Income Fund Limited: +44 (0)20 7015 8900
John Magrath / Alistair Wilson
Important Information
Note 1: This is a target only and not a profit forecast. There can be no assurance that this target will be met or that the Company will make any distributions at all. This target return should not be taken as an indication of the Company’s expected or actual current or future results. The Company’s actual return will depend upon a number of factors, including but not limited to the size of the Issue, the number of Ordinary shares in respect of which Realisation Elections are made and the Company’s total expense ratio. Potential investors should decide for themselves whether or not the return is reasonable and achievable in deciding whether to retain or increase their investment in the Company.
Note 2: A copy of the Circular and notice of the General Meeting has been submitted to the National Storage Mechanism, will shortly be available for inspection at http://www.morningstar.co.uk/uk/NSMand can also be downloaded from http://www.twentyfouram.com/funds-and-services/twentyfour-income-fund
Note 3: Defined terms used in this announcement shall, unless the context otherwise requires, have the same meanings set out in the Circular.