Chenavari Toro Regulatory News (TORO)

Chenavari Toro Income Fund Limited

(a closed-ended investment company limited by shares incorporated under the laws of

Guernsey with registered number 59940)

Unaudited Interim Financial Statements

For the period from 1 October 2017 to 31 March 2018

Potential investors are "qualified eligible persons" and "Non-United States Persons" within the meaning of the US Commodity Futures Trading Commission Regulation 4.7.

Chenavari Credit Partners LLP (the "Portfolio Manager") is registered as a commodity pool operator ("CPO") with the Commodity Futures Trading Commission (the "CFTC") and is a member of the National Futures Association ("NFA") in such capacity under the U.S. Commodity Exchange Act, as amended ("CEA"). With respect to the Company, the Investment Manager has claimed an exemption pursuant to CFTC Rule 4.7 for relief from certain disclosure, reporting and recordkeeping requirements applicable to a registered CPO. Such exemption provides that certain disclosures specified in section 4.22 (c) and (d) of the regulation are not in its interim report.

Contents

Commodity Exchange Affirmation Statement

Highlights for the period from 1 October 2017 to 31 March 2018

Corporate Summary

General Information

Chairman's Statement

Portfolio Manager's Report

Statement of Principal Risks and Uncertainties.

Statement of Directors' Responsibilities

Independent Review Report to the Members of Chenavari Toro Income Fund Limited

Condensed Unaudited Statement of Comprehensive Income

Condensed Unaudited Statement of Financial Position

Condensed Unaudited Statement of Changes in Equity

Condensed Unaudited Statement of Cash Flows.

Condensed Unaudited Schedule of Investments, at Fair Value

Notes to the Condensed Unaudited Financial Statements

FORWARD-LOOKING STATEMENTS

This interim report includes statements that are, or may be considered, "forward-looking statements". These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "anticipates", "plans", "expects", "targets", "aims", "intends", "may", "will", "can", "can achieve", "would" or "should" or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this annual report, including in the Chairman's Statement. They include statements regarding the intentions, beliefs or expectations of the Company or the Portfolio Manager concerning, among other things, the investment objectives and investment policies, financing strategies, investment performance, results of operation, financial condition, liquidity prospects, dividend policy and targeted dividend levels of the Company, the development of its financing strategies and the development of the markets in which it, directly and through special purpose vehicles, will invest in and issue securities and other instruments. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are not guarantees of future performance. The Company's actual investment performance, results of operations, financial condition, liquidity, dividend policy and dividend payments and the development of its financing strategies may differ materially from the impression created by the forward-looking statements contained in this document. In addition, even if the investment performance, results of operations, financial condition, liquidity, dividend policy and dividend payments of the Company and the development of its financing strategies are consistent with the forward-looking statements contained in this document, those results or developments may not be indicative of results or developments in subsequent periods. Important factors that may cause differences include, but are not limited to: changes in economic conditions generally and in the structured finance and credit markets particularly; fluctuations in interest and currency exchange rates, as well as the degree of success of the Company's hedging strategies in relation to such changes and fluctuations; changes in the liquidity or volatility of the markets for the Company's investments; declines in the value or quality of the collateral supporting many of the Company's investments; legislative and regulatory changes and judicial interpretations; changes in taxation; the Company's continued ability to invest its cash in suitable investments on a timely basis; the availability and cost of capital for future investments; the availability of suitable financing; the continued provision of services by the Portfolio Manager and the Portfolio Manager's ability to attract and retain suitably qualified personnel; and competition within the markets relevant to the Company. These forward-looking statements speak only as at the date of this annual report. Subject to its legal and regulatory obligations, the Company expressly disclaims any obligations to update or revise any forward-looking statement (whether attributed to it or any other person) contained herein to reflect any change in expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based. The Company qualifies all such forward-looking statements by these cautionary statements.

Commodity Exchange Statement Affirmation Required by the Commodity Exchange Act, Regulation §4.22(h)

I, Loic Fery, hereby affirm that, to the best of my knowledge and belief, the information contained in this Interim Report and Unaudited Interim Financial Statements is accurate and complete.

Chief Executive Officer and representative of the Managing Member of Chenavari Credit Partners LLP, Commodity Pool Operator of the Company.

29 May 2018

Highlights for the period from 1 October 2017 to 31 March 2018

· During the period from 1 October 2017 to 31 March 2018 (the "Period"), the Company's net asset value ("NAV") per Ordinary Share ("Share") decreased by (0.34%) net of dividends (30 September 2017: 2.54%) to close at 99.51 cents (30 September 2017: 99.85 cents).

· The NAV performance, dividends reinvested, was 3.72% during the period. Dividends of 4 cents per Share were paid in respect of each period, with 2 cents per Share related to the quarter to 30 September 2017 and 2 cents per Share related to the quarter to 31 December 2017. On 20 April 2018 the Company announced a further dividend payment of 2 cents per Share for the quarter to 31 March 2018.

· The Company's mid-market share price at 31 March 2018 was 81.75 cents (30 September 2017: 86.25 cents), representing a discount to NAV of 17.85% (30 September 2017: 13.62%).

· The profit for the Period was €11.9 million (31 March 2017: €13.2 million), or 3.66 cents per Share (31 March 2017: 3.88 cents per Share), taking into account recognition of the following significant items:

o total net income of €16.45 million (31 March 2017: €18.4 million).

o total operating expenses of €4.39 million (31 March 2017: €5.08 million).

· At 31 March 2018 the Company was 96.6% invested and its free cash holdings were €9.1 million.

Corporate Summary

For the Period from 1 October 2017 to 31 March 2018

The Company

Chenavari Toro Income Fund Limited (the "Company") is a Closed-ended Collective Investment Scheme registered pursuant to The Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended (the "Law") and the Registered Collective Investment Scheme Rules 2008 issued by the Guernsey Financial Services Commission (the "Commission"). The Company's Ordinary Shares (the "Shares") were admitted to trading on the Specialist Fund Segment ("SFS") of the London Stock Exchange and The International Stock Exchange ("TISE") on 8 May 2015.

Investment objective and policy

The investment objective of the Company is to deliver an absolute return from investing and trading in Asset Backed Securities ("ABS") and other structured credit investments in liquid markets, and investing directly or indirectly in asset backed transactions including, without limitation, through the origination of credit portfolios.

Target returns and dividend policy

On the basis of market conditions as at the date of the prospectus (28 April 2015), and whilst not forming part of its investment objective or investment policy, the Company will target a NAV total return (including dividend payments) of 12 to 15 per cent per annum over three to five years once the Company is fully invested. From May 2017, the Company's dividend target was increased from 5 cents to 8 cents per annum payable quarterly in March, June, September and December of each year. Relative to this target return, dividends of 4 cents per Share were declared with respect to the Period.

Asset values

At 31 March 2018, the Company's NAV was €323,350,162, with the NAV per Share amounting to 99.51 cents. The Company publishes its NAV on a monthly basis. The NAV is calculated as the Company's assets at fair value less liabilities, measured in accordance with International Financial Reporting Standards ("IFRS").

Duration

The Company has an indefinite life.

Website

The Company's website address is http://www.chenavaritoroincomefund.com/

Listing information

The Company's Shares are admitted to trading on the SFS and TISE.

The ISIN number of the Euro Shares is GG00BWBSDM98 and the SEDOL is BWBSDM9.

The closing price of the Shares quoted on the SFS at 31 March 2018 was 81.75 cents per Share.

The average closing price of the Shares over the Period was 84 cents per Share. 

General Information

*Appointed Q1 2018, replacing Fidante Partners Europe Limited. 

Chairman's Statement

Introduction

On behalf of the Board, I am pleased to present my report on the Company's progress for the Period.

Financial performance

The Company's share price was 81.75 cents as of 31 March 2018, trading then at a discount to NAV of 17.85%.

During the period from 1 October 2017 to 31 March 2018, the Company's NAV total return was 3.71%.

Over the Period the Company generated a profit of €11.9 million or a profit of 3.66 cents per share.

The NAV per share was 99.51 cents at 31 March 2018.

The Company's NAV increased during the period by 3.72% (dividends reinvested).

Dividends

Since inception, the Company has declared eleven dividends. The total dividend for the six months period is 4 cents, to be compared with an annual target of 8 per cent of the Issue Price per Share as set out in the IPO prospectus.

Investment portfolio and outlook

Please refer to the Investment Outlook section of the Portfolio Manager's Report on pages 10 and 11.

A review of the Corporate Broker took place during the period and the Board selected J.P. Morgan Cazenove to act on the Company's behalf. The key focus will be for J.P. Morgan to work with the Board and the Investment Manager to review Marketing of the Company and the efforts to increase liquidity in order to reduce the discount.

Finally, I would like to thank all our shareholders for their continued support.

Frederic Hervouet

Non-executive Chairman

29 May 2018 

Portfolio Manager's Report

Performance

During the Period, the Company NAV performance was 3.72% (dividend reinvested).

The month-on-month performance (dividend reinvested) since inception was the following:

Since inception, the Company has declared the following dividends:

Portfolio breakdown

As at 31 March 2018, the Company was 96.6% invested.

The NAV allocation per asset class was as follows:

Portfolio Manager's Report (continued)

Portfolio breakdown (continued)

The geographical breakdown of the underlying assets was as follows:

* Difference relates to derivative financial assets and liabilities included Asset class breakdown

Investment Strategy

Public ABS Strategy 23.4%: The Company will opportunistically invest or trade in primary and secondary ABS markets to seek out opportunities that aim to unlock significant value from ABS investments that the Portfolio Manager considers to be mispriced by the market relative to their intrinsic value.

Private Asset Backed Finance Strategy 23.3%: Through the Portfolio Manager, the Company will leverage on the extensive relationships it has with European Banks and retail credit firms in order to gain access and invest in private asset backed finance transactions that are otherwise unlisted and difficult to source.

Direct Origination Strategy 47.8%: The Company will primarily invest, on a buy-to-hold basis, in Originators of securitisation vehicles by retaining the requisite Retention Securities in such vehicles, pursuant to the relevant risk retention requirements in the EU or the US. This strategy benefits from a liquidity premium and 'alpha' by participating in the origination, as well as enhanced economics on the retained interests, with further added value derived from the team's sourcing and structuring capabilities. Additional investment opportunities may also include providing warehouse credit facilities.

Gearing

The Company may use borrowings from time to time for the purpose of short term bridging, financing Share buy backs, repurchase agreements with market counterparties or managing working capital requirements, including hedging facilities. Cash borrowings can contribute alongside other forms of leverage to increase the level of gearing of the Company. The Company may also use gearing to increase potential returns to Shareholders. In the past, the Portfolio Manager has employed leverage against senior tranches of ABS to enhance their returns, and expects it will continue to do so, where the economic terms offered by counterparties can increase potential returns to Shareholders.

Portfolio Manager's Report (continued)

Investment Activity

The performance was largely driven by the Direct Origination Strategy in the six months, especially Toro's Originator entity Taurus Corporate Financing ("Taurus"), which represented 35% of Toro's NAV at the end of Q1 2018. An additional investment was made in Project Shamrock, the Irish buy-to-let mortgages investment, as around €95m of new loans had been originated at the end of March (up 270% since Q3 2017) on the back of supportive macroeconomic factors and limited competition. As of 31 March 2018, all three CLOs were fully invested with collateral credit quality remaining high across the board. Furthermore, Toro European CLO 5 successfully priced on 14 February 2018. The €414m placement was achieved at the tightest execution in the history of the Toro CLO platform with a weighted average coupon of 142bps (including the fixed rate tranche). At pricing, Toro European CLO 5 benefits from a portfolio ramped up in excess of 70% and an attractive portfolio featuring a weighted average price and spread of 99.9% and 382bps, respectively. Toro has retained through Taurus a controlling stake in the equity of Toro European CLO 5, equivalent to €20.5m, which will entitle it to a 58% rebate on CLO management fees. The pipeline on Taurus remains good with two other European CLOs managed by third party CLO managers anticipated to price in 2018. The first one, Bosphorus 4 (CLO managed by Commerzbank Debt Fund Management), where Toro retained a controlling stake in the equity (€20m) through Taurus, priced in April 2018. Although the weighted average cost of debt has marginally increased recently, the equity arbitrage remains attractive especially as the portfolio is roughly 70% ramped up. The leveraged loan market remained liquid and relatively strong during the various bouts of volatility experienced by the High Yield and Equity markets. Lower coupon loans (margin

Whilst it was an uneventful six months for the Private Asset Backed Finance Strategy, trading activity within the Public ABS Strategy proved notable in both quarters. We continued to actively rebalance the exposure to BB and B-rated CLO tranches and also reduced exposure to periphery European ABS where prices are currently at their highest levels since 2015 with limited upside. Therefore, the spread widening on European CLO 2.0 mezzanine tranches witnessed in the second half of the first quarter in 2018 (circa +100bps on both BB and B - rated tranches) had limited impact on the NAV as Toro's exposure primarily consists of shorter-dated CLO tranches with deliberately low or negative convexity.

Outlook

Following strong macro fundamentals in 2017, developed market-growth has moderated in Q1 2018 alongside the mounting risk of protectionism, tightening monetary policies and renewed concerns over the length of the global expansion cycle.

In Europe, even though March data was disappointing, growth is still tracking at a decent annualised 2.5%, still benefiting from an expansionary monetary policy. Not only is the Euro area much less advanced than the US in this business cycle, but there is also significantly more spare capacity resulting in muted inflationary pressures with core inflation stuck around 1%. Consequently, although QE is likely to end this year, monetary policy should remain accommodative with the ECB reluctant to normalise interest rates any time soon.

Moving on to markets, the sell-off in Q1 translated into a negative -0.64% performance for the ICE BofAML Euro High Yield index and could be the evidence of the paradigm shift expected for 2018. The lack of inflows in fixed income/credit products (even notable outflows in High Yield) and the perception that the central bank backstop is weakening are creating a vulnerable picture which could be exacerbated by any negative headlines. Hence, as market volatility is anticipated to return this year, especially within the weakest segments of the credit market such as High Yield, exposure to liquid investments has been reduced as well as the overall credit portfolio sensitivity through active hedging via the Crossover index.

Portfolio Manager's Report (continued)

Outlook (continued)

Simultaneously, further capital was allocated to Taurus with the launch of two CLOs in Q1 where the Originator invested into the subordinated tranches, benefiting from the origination and management fees rebate. The CLO arbitrage is attractive on the back of a lower weighted average funding cost and widening loans spreads. Furthermore, latest CLO transactions offer equity friendly documentation and unpriced long-term optionality. As volatility increases, selective, nimble and active CLO managers should outperform, improving the portfolio metrics as well as generating trading gains for subordinated noteholders.

Rebalancing from liquid instruments to the Direct Origination and Private Asset Backed Finance strategies has accelerated with both strategies accounting for 71% of Toro's NAV at the end of Q1. Indeed, we continue to focus on jurisdictions and sectors which we believe should benefit the most from the economic recovery and where lending by banks to households and firms remains incredibly subdued. Such strategies potentially offer attractive alternatives to crowded and historically tight liquid instruments while being uncorrelated from market volatility. Our private lending strategies in Ireland (Clove, Shamrock) have been growing on the back of limited competition on buy-to-let mortgages and house price appreciation (+1.1% in February 2018, +13% YoY according to the Central Statistics Office Ireland). In Spain, new mortgages and house prices increased by 20% and 7.2% respectively in 2017 (Eurostat). Spanish home sales jumped 23% YoY in January (INE), boosting off-plan sales to 30% on our largest real estate development project in Barcelona (project SpRED).

Chenavari Credit Partners LLP

Portfolio Manager

29 May 2018

Statement of Principal Risks and Uncertainties

Summary

An investment in the Shares is only suitable for institutional investors and professionally advised private investors who understand and are capable of evaluating the merits and risks of such an investment and who have sufficient resources to be able to bear any losses (which may equal the whole amount invested) that may result from such an investment. Furthermore, an investment in the Shares should constitute part of a diversified investment portfolio. It should be remembered that the price of securities and the income from them can go down as well as up.

The risks set out below are those which are considered to be the material risks relating to an investment in the Shares but are not the only risks relating to the Shares or the Company. Additional risks and uncertainties of which the Company is presently unaware or that the Company currently believes are immaterial may also adversely affect its business, financial condition, results of operations or the value of the Shares. The Directors have undertaken a robust assessment of the principal risks facing the Company and have undertaken a detailed review of the effectiveness of the risk management and internal control systems. The Directors are comfortable that the risks are being appropriately monitored.

Statement of Principal Risks and Uncertainties (continued)

Statement of Directors' Responsibilities

We confirm to the best of our knowledge that:

· these Condensed Unaudited Interim Financial Statements have been prepared in accordance with International Accounting Standard 34;

· the interim management report (comprising the Chairman's Statement and Portfolio Manager's Report) meets the requirements of an interim management report, and includes a fair review of the information required by:

(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the period from 1 October 2017 to 31 March 2018 and their impact on the Unaudited Interim Financial Statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place during the period from 1 October 2017 to 31 March 2018 and that have materially affected the financial position or performance of the entity during that period.

This responsibility statement was approved by the Board of Directors on 29 May 2018 and is signed on its behalf by:

Frederic Hervouet

Non-executive Chairman

Date: 29 May 2018

Independent Review Report to the Members of Chenavari Toro Income Fund Limited

We have been engaged by the company to review the condensed set of financial statements in the interim financial report for the six months ended 31 March 2018 which comprises the Condensed Statement of Comprehensive Income, the Condensed Statement of Financial Position, the Condensed Statement of Changes in Equity, the Condensed Statement of Cash Flows and related notes 1 to 23. We have read the other information contained in the interim financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The interim financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 2, the annual financial statements of the Company are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this interim financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the interim financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the interim financial report for the six months ended 31 March 2018 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Deloitte LLP

Statutory Auditor

St Peter Port, Guernsey

29 May 2018 

Condensed Unaudited Statement of Comprehensive Income

For the period ended 31 March 2018

All items in the above statement derive from continuing operations.

The Condensed Unaudited Schedule of Investments and notes to the financial statements on pages 20 to 45 are an integral part of the financial statements.

Condensed Unaudited Statement of Financial Position

As at 31 March 2018

__________________________ __________________________

Director: Director:

Date: 29 May 2018 Date: 29 May 2018

The Condensed Unaudited Schedule of Investments and notes to the financial statements on pages 20 to 45 are an integral part of the financial statements.

Condensed Unaudited Statement of Changes in Equity

For the period ended 31 March 2018

For the period ended 31 March 2017

The Condensed Unaudited Schedule of Investments and notes to the financial statements on pages 20 to 45 are an integral part of the financial statements.

Condensed Unaudited Statement of Cash Flows

For the period ended 31 March 2018

The Condensed Unaudited Schedule of Investments and notes to the financial statements on pages 20 to 45 are an integral part of the financial statements.

Condensed Unaudited Schedule of Investments, at Fair Value

As at 31 March 2018

* Investment in the originator (Taurus) is presented in "Equity" and "Other" in the Condensed Unaudited Schedule of Investments.

Condensed Unaudited Schedule of Investments, at Fair Value (continued)

As at 31 March 2018

* Investment in the originator (Taurus) is presented in "Equity" and "Other" in the Condensed Unaudited Schedule of Investments.

Condensed Unaudited Schedule of Investments, at Fair Value

As at 30 September 2017

* Investment in the originator (Taurus) is presented in "Equity" and "Other" in the Condensed Unaudited Schedule of Investments.

Condensed Unaudited Schedule of Investments, at Fair Value (continued)

As at 30 September 2017

* Investment in the originator (Taurus) is presented in "Equity" and "Other" in the Condensed Unaudited Schedule of Investments.

Notes to the Condensed Unaudited Financial Statements

1. General information

Background information on the Company's activities can be found in the Company's prospectus dated 23 April 2015 and the Company's latest Audited Annual Financial Statements, both of which are available on our website address at http://www.chenavaritoroincomefund.com/

2. Summary of significant accounting policies

The principal accounting policies applied in the preparation of these financial statements are set out below.

2.1 Basis of preparation

The Annual Financial Statements of the Company are prepared in accordance with IFRS as adopted by the European Union, the Disclosure and Transparency Rules of the Financial Conduct Authority and applicable legal and regulatory requirements of the Law. The condensed set of financial statements have been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting as adopted by the European Union".

The accounting policies adopted are consistent with those adopted in the 30 September 2017 financial statements.

2.2 Going concern

The Directors believe that it is appropriate to adopt the going concern basis in preparing the Financial Statements in view of its holding in cash and cash equivalents and investments as well as the income deriving from those investments, meaning the Company has adequate financial resources to meet its liabilities as they fall due.

3. Critical accounting judgements and key sources of estimation uncertainty

The preparation of the Company's Financial Statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and the accompanying disclosures. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.

3.1 Key sources of estimation uncertainty

Fair value of financial instruments

The assets held by the Company are mostly valued through a combination of dedicated price feeds from recognised valuation vendors, valuation techniques, and the application of relevant broker quotations where the broker is a recognised dealer in the respective position or derived from valuation models prepared by the Portfolio Manager.

The monthly NAV is derived from the Company's valuation policy. A documented valuation policy determines the hierarchy of prices to be applied to the fair value. Prices are sourced from third party broker or dealer quotes for the relevant security. Where no third party price is available, or where the Portfolio Manager determines that the third parties quote is not an accurate representation of the fair value, the Portfolio Manager will determine the valuation based on the valuation policy. This may include the use of a comparable arm's length transaction, reference to other securities that are substantially the same, discounted cash flow analysis and other valuation techniques commonly used by market participants making the maximum use of market inputs and relying as little as possible on entity-specific inputs.

Based on the hierarchy set out in IFRS 13, transactions are classified as Level 1 or 2 based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs.

The remaining transactions have been classified as Level 3 where broker quotes are unavailable or discounted, or cannot be substantiated by market transactions or where the prices used are derived from internal models. The Directors monitor the availability of observable inputs and if necessary, reclassify to level 3 where observable trading is not available.

Note 8 outlines the Level 3 classifications and the analysis of the impacts of Level 3 investments on the performance of the Company.

Notes to the Condensed Unaudited Financial Statements (continued)

3. Critical accounting judgements and key sources of estimation uncertainty (continued)

3.2 Critical judgements in applying accounting policies

Functional currency

The Board of Directors considers EUR (€) as the currency that most fairly represents the economic effect of the underlying transactions, events and conditions. The performance of the Company is measured and reported to the investors in EUR.

Valuation and classification of investments

The Board of Directors consider the valuation of investments and the classification of these investments in the fair value hierarchy as the critical judgements. The fair value of investments is described in 3.1 above and the judgements associated with the disclosures in the fair value hierarchy are described in Note 8.

Investment entity definition

Having considered the criteria set out in IFRS 10, the Directors have determined that both the Company and the Originator meet the definition of an investment entity.

Under the definition of an investment entity, as set out in paragraph 27 in the standard, the entity must satisfy all three of the following tests:

· Obtains funds from one or more investors for the purpose of providing those investors with investment management services;

· Commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both (including having an exit strategy for investments); and

· Measure and evaluate the performance of substantially all of its investments on a fair value basis.

4. Related parties

(a) Directors' remuneration & expenses

The Directors of the Company are remunerated for their services at such a rate as the Directors determine. The fee for Mr. Hervouet as Non-executive Chairman is £50,000 per annum. The fee for Mr. Whittle as Chairman of the Audit Committee is £40,000 per annum. The fee for Mr. Silvotti is £30,000 per annum.

During the Period ended 31 March 2018, Directors fees of €68,136 (31 March 2017: €69,674) were charged to the Company, of which €2,417 (31 March 2017: €5,723 payable) was prepaid at the end of the Period.

(b) Shares held by related parties

As at 31 March 2018, the Directors held the following Shares in the Company.

Frederic Hervouet 114,000

John Whittle 37,091

Roberto Silvotti 954,692

Loic Fery is the representative of the managing partner of Chenavari Credit Partners LLP. Chenavari Credit Partners LLP acts as discretionary portfolio manager for Chenavari European Opportunistic Credit Master Fund LP (the "Managed Account").

Roberto Silvotti is a Director of Chenavari Investment Managers (Luxembourg) S.a.r.l (being a member of the Chenavari Financial Group) and Chenavari Multi Strategy Credit Fund SPC (a company under the management of Chenavari Investment Managers (Luxembourg) S.a.r.l). He forms part of the Concert Party, which includes Chenavari Credit Partners LLP and related Chenavari Group companies, relevant Chenavari Partners and employees and Chenavari European Opportunities Credit Master Fund LP. In total, this Concert Party holds approximately 48.79% of the shares of the Company and is therefore deemed to have a significant influence over the Company through these shareholdings.

Notes to the Condensed Unaudited Financial Statements (continued)

4. Related parties (continued)

(c) AIFM and Portfolio Manager

The Company has appointed Carne Global AIFM Solutions (C.I.) Limited as the Company's external AIFM. The AIFM has delegated portfolio management to the Portfolio Manager. Under the terms of the AIFM Agreement, the AIFM is entitled to receive from the Company an annual fee, payable out of the assets of the Company, of £66,000. €37,475 (31 March 2017: €38,321) has been charged during the Period.

The AIFM and the Company have appointed the Portfolio Manager, Chenavari Credit Partners LLP, a member of the Chenavari Financial Group, as the external Portfolio Manager with delegated responsibility for portfolio management functions in accordance with the Company's investment objectives and policy, subject to the overall supervision and control of the Directors and the AIFM.

Under the terms of the Portfolio Management Agreement the Portfolio Manager is entitled to receive from the Company a portfolio management fee calculated and accrued monthly at a rate equivalent to one-twelfth of 1 per cent of the NAV per Share Class (before deducting the amount of that month's portfolio management fee and any accrued liability with respect to any performance fee).

Total portfolio management fees for the Period amounted to €1,608,542 (31 March 2017: €1,713,068) with €542,490 (30 September 2017: €547,465) in outstanding accrued fees due at the end of the Period.

The Portfolio Manager shall also be entitled to receive a performance fee in respect of each Class of Shares equal to 15 per cent of the total increase in the NAV per Share of the relevant Class at the end of the relevant Performance Period (as adjusted to, (i) add back the aggregate value of any dividends per Share paid to Shareholders since the end of the Performance Period in respect of which a performance fee was last paid in respect of that Class (or the date of First Admission, if no performance fee has been paid in respect of that Class) and, (ii) exclude any accrual for unpaid performance fees) over the highest previously recorded NAV per Share of the relevant Class as at the end of the relevant Performance Period in respect of which a performance fee was last paid (or the NAV per Share of the relevant class as at First Admission (after deduction of launch costs), if no performance fee has been paid in respect of that Class of Shares) multiplied by the number of issued and outstanding Shares of that Class at the end of the relevant Performance Period, having made adjustments for numbers of Shares of that Class issued or repurchased during the relevant Performance Period.

An amount of €116,406 was recharged (at cost) by the Portfolio Manager for the period from 1 October 2017 to 31 March 2018 to compensate for the marketing initiatives and time spent to increase the fund's profile and enhance the shares liquidity.

Performance Period

Subject to any regulatory limitations, the Portfolio Manager has agreed that for a given Performance Period (i.e., each twelve month period ending 30 September each year) any performance fee shall be satisfied as to a maximum of 60 per cent in cash and as to a minimum (save as set out below) of 40 per cent by the issuance of new Euro Shares (including the reissue of treasury shares) issued at the latest published NAV per Share. At no time shall the Portfolio Manager (and/or any persons deemed to be acting in concert with it for the purposes of the Takeover Code) be obliged, in the absence of a relevant Whitewash Resolution having been passed, to receive further Shares where to do so would trigger a requirement to make a mandatory offer pursuant to Rule 9 of the Takeover Code.

The issuance of further Shares to the Portfolio Manager will not take place without a Whitewash Resolution from Shareholders. Cash of €1,971,246 and 800,181 shares with a value of €788,498 were paid to the Portfolio Manager in the period in relation to the Performance Fee for the period ended 30 September 2016. Additionally 896,262 shares with a value of €866,328 were paid to the Portfolio Manager in the period in relation to the Performance Fee for the period ended 30 September 2015. Performance fees of €2,097,873 (31 March 2017: €2,847,909) were accrued in relation to the Period with €4,039,218 payable at 31 March 2018 (30 September 2017 €4,853,361).

Notes to the Condensed Unaudited Financial Statements (continued)

5. Material agreements

The Company has funded investments with a value of €99,944,394 (2017: €98,169,195) via hybrid instruments or equity issued by legally segregated compartments of AREO S.à.r.l. ("Areo"), a company incorporated in Luxembourg under the Securitization Law of 2004. Areo is majority owned by funds managed by the Chenavari group and is managed by a Board of Directors composed of a majority of independent directors that consider investment opportunities sourced by the Portfolio Manager. The Company is currently invested in eight compartments of Areo, and which it fair values in accordance with IFRS 13 as set out in the Company's accounting policies. The Portfolio Manager receives no fees from Areo. Areo is a conduit special purpose vehicle sponsored by a member of the Chenavari Financial Group, for the purposes of the Company's application of Listing Rule 11.

(a) Corporate broker

J.P. Morgan Cazenove, replaced Fidante Partners Europe Limited as Corporate Broker 12 March 2018. Their services are not based upon a retainer and will be charged accordingly for incremental costs.

(b) Administration fee

Estera Administration Limited (Guernsey) (the "Administrator") serves as the Company's administrator and secretary. The Administrator is entitled to an annual asset-based fee calculated at a rate of 0.017 per cent per annum of NAV and subject to a minimum fee of £70,000 per annum. All fees are payable quarterly in advance. Administration fees for the period amounted to €39,746 (31 March 2017: €40,643) of which €1,924 was prepaid (30 September 2017: €6,619 remained payable) at the end of the period.

(c) Sub-administration fee

The Administrator has appointed Quintillion Limited (the "Sub-Administrator") as the Company's Sub-Administrator. The Sub-Administrator is entitled to receive an annual asset-based fee from the Company of up to 0.073% per annum of NAV, excluding certain expenses. Sub-administration fees for the period amounted to €91,081 (31 March 2017: €113,676) of which €28,661 (30 September 2017: €16,277) remained payable at the end of the period.

(d) Custodian fee

J.P. Morgan Chase Bank N.A (the "Custodian") has been appointed to act as Custodian to the Company and to provide custodial, settlement and other associated services to the Company. Under the provisions of the custodian agreement dated 27 April 2015 the Custodian is entitled to a safekeeping and administration fee on each transaction calculated using a basis point fee charge based on the country of settlement and the value of the assets together with various other payment/wire charges on outgoing payments, subject to an aggregate minimum fee of €31,500 per annum.

(e) AIFM and Portfolio Manager

Contractual arrangements relating to the AIFM and Portfolio Manager are detailed in note 4.

6. Financial risk management

Throughout the investment process and following acquisition of an investment, the Portfolio Manager is proactive in identifying and seeking to mitigate transaction and portfolio risk.

The Portfolio Manager will be responsible for sourcing potential investments. The Portfolio Manager will not be required to, and generally will not, submit decisions concerning the discretionary or on-going management of the Company's assets for the approval of the Board, except where such approval relates to an application of the investment guidelines or a conflict of interest.

6.1 Credit risk

The Company takes on exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due. To the extent that the Portfolio is exposed to underlying concentrations in any one geographical region, borrower sector or credit or asset type, an economic downturn relating generally to such geographical region, borrower type or credit or asset type may result in an increase in underlying defaults or prepayments within a short time period.

Notes to the Condensed Unaudited Financial Statements (continued)

6. Financial risk management (continued)

6.1 Credit risk (continued)

The Portfolio is expected to carry leveraged exposure and an increase in credit losses with respect to any or all Collateral could reduce the Company's income (and thus the ability to pay dividends to Shareholders), the NAV and the value of the Shares.

None of the restrictions set out below shall apply to investments issued or guaranteed by the government of an OECD Member State.

In relation to investments made:

· no more than 20% of NAV shall be exposed to the credit risk of any underlying single transaction or issue;

o As of 31 March 2018, the largest investment represents 7.47% of the NAV.

· the top five exposures to any transactions or issues shall not, in aggregate, account for more than 50% of NAV;

o As of 31 March 2018, the top 5 investments represent 29.99% of the NAV.

· no more than 50% of NAV, in aggregate, shall be invested in unlisted investments;

o As of 31 March 2018, 35.67% of the NAV is invested in unlisted investments.

Additionally, in each case, the restrictions set out above shall not apply to the Company's investment in Originators (the originator or sponsor of a CLO or a securitisation of a pools of consumer loan assets) but shall be applied on a look-through basis to the investments of such Originators; and

· no more than 20% of NAV, in aggregate, shall be exposed to transactions or issues where the underlying collateral is non-European.

o As of 31 March 2018, less than 20% of the NAV is exposed to non-European underlying collateral as detailed in the geographical breakdown table overleaf.

The Company may use borrowings from time to time for the purpose of short term bridging, financing Share buy backs, repurchase agreements with market counterparties or managing working capital requirements, including hedging facilities.

· The Company has set a borrowing limit such that the Company's gearing shall not exceed 130% at the time of incurrence and deployment of any borrowing.

o As of 31 March 2018, the gearing of the Company as at 31 March 2018 was 90%.

In addition, the Company may from time to time have surplus cash (for example, following the disposal of an acquired investment). Cash held by the Company pending investment or distribution will be held in either cash or cash equivalents, including but not limited to money market instruments or funds, bonds, commercial paper or other debt obligations with banks or other counterparties provided such bank or counterparty has an investment grade credit rating (as determined by any reputable rating agency selected by the Company on the advice of the Portfolio Manager).

Notes to the Condensed Unaudited Financial Statements (continued)

6. Financial risk management (continued)

6.1 Credit risk (continued)

The Company manages the portfolio with appropriate diversification in terms of sectors and geographical breakdowns. As of 31 March 2018 and 30 September 2017, the breakdown of the NAV per asset class and geography was as follows:

The Company is also exposed to counterparty credit risk on forwards, cash and cash equivalents, amounts due from brokers and other receivable balances, as shown in the following table:

Notes to the Condensed Unaudited Financial Statements (continued)

6. Financial risk management (continued)

6.1 Credit risk (continued)