TIDMBGLF
RNS Number : 1352X
Blackstone Loan Financing Limited
29 April 2021
29 APRIL 2021
FOR IMMEDIATE RELEASE
RELEASED BY BNP PARIBAS SECURITIES SERVICES S.C.A., JERSEY
BRANCH FINAL RESULTS ANNOUNCEMENT
THE BOARD OF DIRECTORS OF BLACKSTONE LOAN FINANCING LIMITED
ANNOUNCE FINAL RESULTS FOR THE YEARED 31 DECEMBER 2020
Blackstone Loan Financing Limited (formerly Blackstone / GSO
Loan Financing Limited)
Annual Report and Audited Financial Statements for the Year
Ended 31 December 2020
A Note From Our Chair
The Company's performance was impacted by actual and expected
downgrade stresses arising from the onset of COVID-19 on the global
economy in the first quarter, before largely recovering in the
second half of the year.
Despite this backdrop, the Company delivered an IFRS NAV total
return per Ordinary Share of 8.85% in 2020, ending the year at
EUR0.8557 per share.
The Board's outlook for 2021 is optimistic but remains uncertain
as it is predicated on the successful rollout of COVID-19
inoculations and a reduction in the virus infection rate. However,
we believe a strong rebound will likely occur during the second
half of 2021 due to additional stimulus, pent-up consumer demand,
and the continued roll-out of vaccinations.
Charlotte Valeur
Chair
29 April 2021
Strategic Report
Key Performance Indicators
IFRS NAV Published NAV
NAV(1) EUR0.8557 EUR0.8435
(31 Dec 2019: EUR0.8543) (31 Dec 2019: EUR0.9187)
NAV total return(1) 8.85% (0.22)%
(31 Dec 2019: (18.31)%) (31 Dec 2019: 14.46%)
Discount(1) (21.70)% (20.57)%
(31 Dec 2019: (3.43)%) (31 Dec 2019: (10.20)%)
Dividend EUR0.07 EUR0.07
(31 Dec 2019: EUR0.10) (31 Dec 2019: EUR0.10)
Further information on the reconciliation between the IFRS NAV
and the Published NAV can be found below. Refer to Discount
Management in the Chair's Statement below for the latest share
price discount to the Published NAV.
Performance
Ticker IFRS NAV Published Share Price(2) Discount Discount Dividend
per Share NAV IFRS NAV Published Yield
per Share NAV
-------- ----------- ----------- --------------- ---------- ----------- ----------
BGLF
31 Dec 10.45%
2020 EUR0.8557 EUR0.8435 EUR0.6700 (21.70)% (20.57)% (3)
31 Dec
2019 EUR0.8543 EUR0.9187 EUR0.8250 (3.43)% (10.20)% 12.12%
BGLP
31 Dec
2020 GBP0.7647 GBP0.7538 GBP0.6000 (21.54)% (20.40)% 10.47%(3)
31 Dec
2019 GBP0.7226 GBP0.7771 GBP0.7050 (2.44)% (9.28)% 12.00%
-------- ----------- ----------- --------------- ---------- ----------- ----------
LTM 3-Year Annualised Cumulative
Return(1) Annualised Since Inception Since
Inception
--------------------- ----------- ------------ ----------------- -----------
BGLF IFRS NAV 8.85% 7.31% 6.76% 52.42%
BGLF Published NAV (0.22)% 6.79% 6.51% 50.21%
BGLF Ordinary Share
Price (9.92)% (1.56)% 3.45% 24.41%
European Loans 2.38% 2.63% 3.20% 22.50%
US Loans 2.78% 3.98% 3.84% 27.47%
--------------------- ----------- ------------ ----------------- -----------
([1]) Refer to Glossary for an explanation of the terms used
above and elsewhere within this report
(2) Bloomberg closing price at period end
(3) Dividend Yield presented as EUR0.07 per annum, given the
first three quarterly dividends of EUR0.015 per share and fourth
quarter dividend of EUR0.025, and the share price as at 31 December
2020
Reconciliation of IFRS NAV to Published NAV
At 31 December 2020, there was a difference between the NAV per
Ordinary Share as disclosed in the Statement of Financial Position,
EUR0.8557 per Ordinary Share, ("IFRS NAV") and the published NAV,
EUR0.8435 per Ordinary Share, which was released to the LSE on 22
January 2021 ("Published NAV"). A reconciliation is provided in
Note 16 in the Notes to the Financial Statements. The difference
between the two valuations is entirely due to the different
valuation bases used.
Valuation Policy for the Published NAV
The Company publishes a NAV per Ordinary Share on a monthly
basis in accordance with its Prospectus. The valuation process in
respect of the Published NAV incorporates the valuation of the
Company's CSWs and underlying PPNs (held by the Lux Subsidiary).
These valuations are, in turn, based on the valuation of the
Blackstone Corporate Funding Designated Activity Company ("BCF")
(formerly Blackstone / GSO Corporate Funding Designated Activity
Company) portfolio using a CLO intrinsic calculation methodology
per the Company's Prospectus, which we refer to as a "mark to
model" approach. As documented in the Prospectus, certain "Market
Colour" (market clearing levels, market fundamentals, bids wanted
in competition ("BWIC"), broker quotes or other indications) is not
incorporated into this methodology. The Directors believe that this
valuation process is the appropriate way of valuing the Company's
holdings, and of tracking the long-term performance of the Company
as the underlying portfolio of CLOs held by BCF are comparable to
held to maturity instruments and the Company expects to receive the
benefit of the underlying cash-flows over the CLOs' entire life
cycle.
Valuation Policy for the IFRS NAV
For financial reporting purposes on an annual and semi-annual
basis, to comply with IFRS as adopted by the EU, the valuation of
BCF's portfolio is at fair value using models that incorporate
Market Colour at the period end date, which we refer to as a "mark
to market" approach. IFRS fair value is the price that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants as at the
measurement date, and is an "exit price" e.g. the price to sell an
asset. An exit price embodies expectations about the future cash
inflows and cash outflows associated with an asset or liability
from the perspective of a market participant. IFRS fair value is a
market-based measurement, rather than an entity-specific
measurement, and so incorporates general assumptions that market
participants are applying in pricing the asset or liability,
including assumptions about risk.
Both the mark to model Published NAV and mark to market IFRS NAV
valuation bases use modelling techniques and input from third-party
valuation specialists. The smaller number of CLOs held directly by
the Company, as a result of the Rollover Offer, are valued using a
mark to market approach for both the Published NAV and IFRS NAV,
consistent with the valuation methodology per the Company's
Prospectus.
The Directors, as set out in the Prospectus, will continue to
assess the performance of the Company using the Published NAV.
Additional information and commentary on Market Colour, credit risk
exposure and any material divergence from the different valuation
bases referred to above will be communicated by the Directors and
Portfolio Adviser if and when appropriate.
Dividend History
Whilst not forming part of the Company's investment objective or
investment policy, it is currently intended that dividends are
payable in respect of each calendar quarter, two months after the
end of that quarter.
On 23 April 2020, pursuant to a review of BCF's portfolio in
light of COVID-19, the Board announced that the Company had adopted
a revised dividend policy targeting a total 2020 annual dividend of
between EUR0.06 and EUR0.07 per Ordinary Share, to consist of
quarterly payments of EUR0.015 per Ordinary Share for the first
three quarters and a final quarter payment of a variable amount to
be determined at that time. In accordance with the Company's
revised dividend policy, the Board declared dividends of EUR0.015
per Ordinary Share for the first three quarters of 2020 and a
dividend of EUR0.025 per Ordinary Share for the fourth quarter.
The Board also announced that it would keep the dividend policy
under close review as the impact of the COVID-19
pandemic unfolds. Refer to Note 21 for an update to the dividend policy after the year end.
Ordinary Share Dividends for the Year Ended 31 December 2020
Period in respect of Date Declared Ex-dividend Date Payment Date Amount per Ordinary Share
--------------------------- -------------- ----------------- ------------- -------------------------
EUR
--------------------------- -------------- ----------------- ------------- -------------------------
1 Jan 2020 to 31 Mar 2020 23 Apr 2020 30 Apr 2020 29 May 2020 0.0150
1 Apr 2020 to 30 Jun 2020 21 Jul 2020 30 Jul 2020 28 Aug 2020 0.0150
1 Jul 2020 to 30 Sept 2020 21 Oct 2020 29 Oct 2020 27 Nov 2020 0.0150
1 Oct 2020 to 31 Dec 2020 22 Jan 2021 4 Feb 2021 5 Mar 2021 0.0250
--------------------------- -------------- ----------------- ------------- -------------------------
Ordinary Share Dividends for the Year Ended 31 December 2019
Period in respect of Date Declared Ex-dividend Date Payment Date Amount per Ordinary Share
--------------------------- -------------- ----------------- ------------- -------------------------
EUR
--------------------------- -------------- ----------------- ------------- -------------------------
1 Jan 2019 to 31 Mar 2019 18 Apr 2019 2 May 2019 31 May 2019 0.0250
1 Apr 2019 to 30 Jun 2019 18 Jul 2019 25 Jul 2019 23 Aug 2019 0.0250
1 Jul 2019 to 30 Sept 2019 18 Oct 2019 31 Oct 2019 29 Nov 2019 0.0250
1 Oct 2019 to 31 Dec 2019 21 Jan 2020 30 Jan 2020 28 Feb 2020 0.0250
--------------------------- -------------- ----------------- ------------- -------------------------
C Share Dividends for the Period Ended 31 December 2019
Period in respect of Date Declared Ex-dividend Date Payment Date Amount per
C Share
--------------------------- -------------- ----------------- ------------- ----------
EUR
--------------------------- -------------- ----------------- ------------- ----------
1 Oct 2018 to 31 Dec 2018 22 Jan 2019 31 Jan 2019 1 Mar 2019 0.01452
1 Jan 2019 to 31 Mar 2019 18 Apr 2019 2 May 2019 31 May 2019 0.0205
1 Apr 2019 to 30 Jun 2019 18 Jul 2019 25 Jul 2019 23 Aug 2019 0.0214
1 Jul 2019 to 30 Sept 2019 18 Oct 2019 31 Oct 2019 29 Nov 2019 0.0221
--------------------------- -------------- ----------------- ------------- ----------
Refer to Corporate Activity and Note 9 for details on the
conversion of the Company's C Shares into Ordinary Shares.
Consequently, no dividends were declared on the C Shares between 1
January 2020 and their conversion on 6 January 2020.
Year Highs and Lows
2020 2020 2019 2019
High Low High Low
Published NAV per Ordinary Share EUR0.8992 EUR0.7663 EUR0.9215 EUR0.8824
BGLF Share Price (last price) EUR0.8400 EUR0.4500 EUR0.8550 EUR0.7500
BGLP Share Price (last price) GBP0.7200 GBP0.4200 GBP0.7600 GBP0.6600
--------------------------------- --------- --------- --------- ---------
Schedule of Investments
As at 31 December 2020
Nominal Market % of Net Asset
Holdings Value Value
EUR
----------------------------------------- ----------- ----------- --------------
Investment held in the Lux Subsidiary:
CSWs 284,879,854 381,605,063 93.48
Shares (2,000,000 Class A and 1 Class B) 2,000,001 6,395,083 1.57
CLOs held directly 6,522,171 549,437 0.13
Other Net Assets 19,655,592 4.82
----------------------------------------- ----------- ----------- --------------
Net Assets Attributable to Shareholders 408,205,175 100.00
----------------------------------------- ----------- ----------- --------------
Schedule of Significant Transactions
Date of Transaction Transaction Type Quantity Amount Reason
EUR
--------------------- ------------------ ---------- ---------- -------------------
CSWs held by the Company - Ordinary Share Class
3 Feb 2020 Subscription 6,800,000 6,800,000 Investments in PPNs
14 Feb 2020 Redemption 9,282,079 12,304,242 To fund dividend
15 May 2020 Redemption 12,896,006 15,096,970 To fund dividend
12 Aug 2020 Redemption 11,256,352 14,063,391 To fund dividend
16 Nov 2020 Redemption 8,244,293 10,375,908 To fund dividend
--------------------- ------------------ ---------- ---------- -------------------
Refer to Corporate Activity and Note 9 for details on the
conversion of the Company's C Shares into Ordinary Shares.
CHAIR'S STATEMENT
Company Returns and Net Asset Value (4)
The Company delivered an IFRS NAV total return per Ordinary
Share of 8.85% in 2020 ((18.31)% in 2019), ending the year at
EUR0.8557 per share (EUR0.8543 at 31 December 2019). This return
was composed of 9.11% from dividends and (0.26)% from net portfolio
movement.
On a Published NAV basis, the Company delivered a total return
per Ordinary Share of (0.22)% in 2020 (14.46% in 2019), ending the
year at EUR0.8435 per share (EUR0.9187 at 31 December 2019). This
return was composed of 8.63% from dividends and (8.85)% from net
portfolio movement.
The Company's performance was impacted by actual and expected
downgrade stresses arising from the onset of COVID-19 on the global
economy in the first quarter, before largely recovering in the
second half of the year.
An explanation of the difference between the IFRS NAV and the
Published NAV is included above.
On 23 April 2020, the Board announced that the Company had
adopted a revised 2020 dividend policy targeting a total annual
dividend of between EUR0.06 and EUR0.07 per Ordinary Share,
ultimately achieving the top end of this target range. The policy
was revised downwards to prepare for potential losses and reduction
in expected cash flows from the underlying CLOs as a result of the
impact of COVID-19. The Company declared four dividends in respect
of the year ended 31 December 2020, totalling EUR0.07 per share.
Details of all dividend payments can be found within the Dividend
History section at the front of this Annual Report.
Historical BGLF NAV and Share Price
The graph shows cumulative Published NAV and Ordinary Share
price total returns and cumulative returns on European and US
loans.
[Graphs and charts are included in the published Annual Report
and Audited Financial Statements which is available on the
Company's website at http://blackstone.com/bglf ]
Market Conditions
In 2020, the world witnessed a global pandemic not matched in
over a century. To quell the skyrocketing levels of infection,
countries across the globe effectively shuttered their economies to
protect their citizen's lives. The economic impact of these efforts
was severe and resulted in significant financial and social
repercussions. The contraction of global growth for 2020 is
estimated at (3.5)%.(5) In the face of such unprecedented events,
central banks and federal governments rolled out support packages
to insulate economies as best they could. Advanced economies, less
constrained by elevated debt levels, generally were better able to
deliver large direct spending and liquidity supports relative to
GDP.
In what undoubtedly would otherwise have been centre stage if
not for the novel coronavirus (" COVID-19"), the Brexit trade deal
discussions dragged on throughout 2020. It was not until 30
December 2020 that after much negotiating, a deal was agreed. This
was greeted with welcome relief on both sides and provided
certainty to businesses around trade and tariffs. In the US, Joe
Biden won the presidential election and was sworn in as the 46th
President of the United States. As part of President Biden's
COVID-19 rescue plan, he has proposed a $1.9 trillion support
package which should spur the economy forward in 2021.
Financial markets ended the year strongly, as equity bull
markets recorded new highs and US and European credit assets
finished the year in positive territory. This is even more
impressive given the dramatic selloff in risk assets during Q1,
with volatility reaching levels not recorded since the global
financial crisis. The Company, through its investment in BCF was
not immune to this volatility, however, with its diversified and
defensively positioned portfolio, invested across multiple sectors,
geographies and vintages, it was able to navigate the worst of this
volatility. Global central banks' intervention and individual
government support packages helped to allay market concerns around
liquidity and corporate fundamentals, which provided a tailwind to
risk assets as the year progressed.
Looking ahead, with growing vaccine availability and improved
test and tracing capabilities, local transmission of the virus is
expected to fall. As economies reopen and fiscal support packages
remain in place, economic activity should increase and fiscal
deficits in most countries should decline as revenues rise and
expenditures decline in line with the recovery. The IMF projects
global economic growth of 5.5% in 2021. This is predicated on a
successful suppression of the virus, a consistent recovery in
global trade activity (8% growth in 2021) and inflation to remain
subdued below the 1.5% target rate of central banks. All three of
these assumptions are less than certain and the inflation
assumption now looking particularly suspect. Until recently
investors dismissed the idea of a rapid recovery, believing that
the recession led to significant scarring and a return to normality
would take time. The pace of the recovery has therefore taken
market participants by surprise. As demand surges, inflationary
pressures will rise and leave policy makers in the unenviable
position of balancing inflation and the economic recovery.
Discount Management
The share price discount to Published NAV was in the range
8.81%(6) to 36.71%(6) and averaged 21.91%(6) throughout 2020 and
ended the year trading at a discount of 20.57%(5) (versus discount
of 10.20% at 2019 year-end). This was mainly due to the market
uncertainty brought about by the COVID-19 pandemic. As a Board, we
regularly weigh the balance between maintaining liquidity of the
shares, the stability of any discount, and the desire of
Shareholders to see the Ordinary Shares trade as closely as
possible to their intrinsic value.(7) During 2020, the Company
repurchased 3,498,507 shares for EUR2,118,749 at an average
discount of 25.18% using available cash with the goal of reducing
the discount. From 1 January 2021 to 28 April 2021, the Company
further repurchased 125,000 shares for EUR81,250 at an average
discount of 23.02%. As of 28 April 2021, the share price discount
to Published NAV was 8.17%.
Blackstone Loan Financing C Share Update
On 7 January 2020, the conversion of the BGLF C shares into
Ordinary shares was completed. The intention to undertake this
conversion was announced by BGLF on 24 October 2019, following the
investment of EUR62.6 million into BCF with proceeds from the sale
of relevant assets acquired under the C Share rollover process,
which represented 85.8% (87.3% including cash) of the value of
assets in the C share pool. The Conversion Ratio was based on the
net assets attributable to the Ordinary Shares and C Shares as at
close of business on 29 November 2019.
Brexit Update
The Board closely monitored the Brexit trade deal negotiations
during 2020, which culminated with a deal being finalised on 30
December 2020. The potential implications of a "hard Brexit" as a
result of no trade deal being agreed before the year end deadline
to BGLF was evaluated across its service providers, including areas
such as human resources, counterparty relationships, supply chains,
macroeconomic, and regulatory policy, as well as with regards to
its marketing registrations, and was deemed to have a negligible
impact on the long-term sustainability of the Company.
COVID-19
The Directors continue to carefully monitor the ongoing
developments regarding COVID-19, which continues to adversely
impact global commercial activity and has contributed to
significant volatility in financial markets. The global impact of
the outbreak continues to evolve, however, the successful
development of multiple vaccines and the rollout of vaccination
programmes across the globe is encouraging. Nevertheless, COVID-19
continues to present material uncertainty and risk with respect to
portfolio asset performance and financial results of the Company.
In addition to the factors described above, other factors that may
affect market, economic and geopolitical conditions, and thereby
adversely affect the Company include, without limitation, a
slowdown in economic recovery in Europe and internationally,
changes in interest rates and/or a lack of availability of credit
in Europe and internationally, commodity price volatility and
changes in law and/or regulation, and uncertainty regarding
government and regulatory policy.
ESG
The practice of responsible investing remains a key focus for
investors. The Board regularly engages with the Company's Portfolio
Adviser regarding their ESG policy. Blackstone has committed to
being a responsible investor for over 35 years. This commitment is
affirmed across the organisation and guides its approach to
investing. A summary of Blackstone's responsible investing approach
can be found below.
The Board
Good governance remains at the heart of our work as a Board and
is taken very seriously. We believe that the Company maintains high
standards of corporate governance. The Board was very active during
the year, convening a total of 13 Board meetings and 30 Committee
meetings, as well as undertaking a virtual due diligence review in
September 2020 of our Portfolio Adviser. The Board used these
meetings to discuss various aspects of operational risk and
controls, the loan and CLO markets, and the current market
conditions.
In addition, as can be seen from the corporate activity during
the year, the Board and its advisers have worked hard to ensure the
continued success and growth of the Company to put it in the best
position to take advantage of all appropriate opportunities.
The work of the Board is assisted by the Audit Committee, NAV
Review Committee, Management Engagement Committee, the Remuneration
and Nomination Committee, the Risk Committee and the Inside
Information Committee. The joint work of the Risk and Audit
committees has given valuable support to the longer-term viability
considerations of the Board as described under the Viability
Statement in Risk Overview.
The Company is a member of the AIC and adheres to the AIC Code
which is endorsed by the FRC, and meets the Company's obligations
in relation to the UK Code.
Shareholder Communications
During 2020, using our Portfolio Adviser and Brokers, we
continued our programme of engagement with current and prospective
Shareholders. We sincerely hope that you found the monthly
factsheets, quarterly letters, quarterly update webcasts and market
commentary valuable. We are always pleased to have contact with
Shareholders, and we welcome any opportunity to meet with you and
obtain your feedback.
Prospects and Opportunities in 2021
Sales of CLO positions
The Company sold part of their equity position in one CLO in
February 2021 and completely sold their equity positions in two
CLOs in March 2021. All three sales were at levels accretive to the
Published NAV and favourable to mark-to-market valuations.
As of 28 April 2021, the latest Published NAV was EUR0.8494 per
share.
The Board's outlook for 2021 is optimistic but remains uncertain
as it is predicated on the successful rollout of COVID-19
inoculations and a reduction in the virus infection rate. However,
we believe a strong rebound will likely occur during the second
half of 2021 due to additional stimulus, pent-up consumer demand,
and the continued roll-out of vaccinations. With this uncertain
trajectory of the markets and global economy in 2021, the Board
gains comfort from the robust investment approach of the Company's
Portfolio Adviser that selects an underlying portfolio of
high-quality companies supported by robust underlying
protections.
The Board wishes to express its thanks for the support of the
Company's Shareholders.
Charlotte Valeur
Chair
29 April 2021
(4) Past performance is not necessarily indicative of future
results, and there can be no assurance that the Company will
achieve comparable results, will meet its target returns, achieve
its investment objectives, or be able to implement its investment
strategy.
(5) Source: IMF, as of January 2021.
(6) The discount has been calculated with reference to the
Published NAV pertaining to the reporting periods ending each month
end date.
(7) Represents the BGLF Euro share price.
Portfolio Adviser's Review
We are pleased to present our review of 2020 and outlook for
2021.
- Following the extreme market volatility induced by the
COVID-19 pandemic and subsequent recovery in global credit markets,
investors experienced a full market cycle throughout 2020.
- US loans and European loans returned 2.78% and 2.38% in 2020
and experienced a default rate of 4.4% and 1.2%, respectively.( 8
() By the end of the year, US and European CLO liability spreads
normalised to pre-COVID-19 levels in tandem with a loan market
recovery.
- Blackstone Credit CLOs outperformed peers with respect to
ratings actions. Following the COVID-19 shock to credit markets,
only 1.4% of Blackstone Credit US CLO bonds were downgraded,
compared to 9.6% for the market. For European CLOs, 1.4% of BXC CLO
bonds were downgraded, compared to 2.5% for the market.( 9 ()
- CLO securitisations in BCF generated positive cashflow over
2020. The weighted average annualised cash on cash distribution
rates for European and US CLO income notes was 15.6% and 17.1%,
respectively, with strong contributions across vintages.(10)
- BCF used the robust market technical in the fourth quarter to
reduce a number of CLO excess positions at levels above both the
mark-to-model and mark-to-market bid prices for those positions. By
freeing up capital, BCF was able to extend reinvestment periods,
invest in higher return propositions, increase vintage diversity,
and be better prepared for potential volatility.
Bank Loan Market Overview (11,12)
In 2020, global loan markets experienced the worst bout of
volatility and market disruption since the 2008 financial crisis.
This disruption was caused by the rapid spread of COVID-19 across
the globe in the first quarter and the dramatic slowdown in
economic activity resulting from related business shutdowns and
travel restrictions. Central banks began to intervene on an
unprecedented scale in March to ensure sufficient liquidity and
orderly market functioning. At the same time, US and European
governments enacted aggressive fiscal stimulus measures to help
ease investors' and business owners' fundamental concerns. Both the
US and European credit markets rebounded at an impressive rate in
the months following March and ended the year with positive
returns. US loans and European loans returned 2.78% and 2.38% in
2020, respectively.
Despite economic uncertainty and a pause on new issue loan
supply in March 2020, the global credit markets quickly reopened to
issuers in need of capital. Many corporations first bolstered their
liquidity by drawing down revolving lines of credit and then
refinanced existing debt at favourable rates given the downward
shift in treasuries and the strong investor demand for corporate
credit. Issuance in the US and European loan markets decreased
year-over-year; gross US loan issuance totalled $96.6 billion, a
20% decrease, while European loan issuance also decreased by 20% in
2020 to EUR65 billion.(13) We expect issuance to increase in both
regions in 2021.
Global loan spreads diverged in 2020. The US loan spread
narrowed by 1bp to end the year at 358bp (compared to 11bp widening
in 2019), while the European loan market spread widened by 14bp in
2020 (compared to 4bp widening in 2019) to end the year at 363bp.
(14)
Global loan default rates were manageable throughout 2020. After
peaking at 4.5%, the US loan LTM par-weighted default rate ended
the year at 4.4%.(15) Defaults in Europe were more muted with the
LTM default rate peaking at just 1.3% for European loans and ending
the year at 1.2%. In 2021, default rate forecasts are predicted to
decrease by more than half in the US to 2.0% and fall to 1.1% in
Europe.(16)
CLO Market Overview (17)
Demand for both US and European CLOs was slower to materialise
following the market downturn resulting in higher CLO liability
spreads. Global issuance of CLOs fell in 2020 to $118 billion (down
from the $151 billion in 2019). Regionally, US CLOs recorded 2020
gross issuance of $93 billion, down 21% on 2019's issuance of $118
billion. European CLO issuance fell in tandem with the US,
recording gross issuance of EUR22 billion which was a 26% decrease
on the EUR30 billion recorded in 2019.(18) When demand resurfaced
it was for CLOs with shorter reinvestment and non-call periods.
This allowed equity investors the optionality to reset liability
spreads in a tighter spread environment if one materialised, and in
doing so potentially boosting future CLO equity returns. By year
end, US and European CLO liability spreads normalised to
pre-COVID-19 levels, as the global loan market recovered and
defaults slowed. CLO refinancings and resets were limited primarily
to early Q1 and late Q4 when the environment was more favourable.
US CLO managers completed $32 billion in CLO refinancings and
resets in 2020, while European CLO issuers recorded just EUR1
billion of refinancings and resets.
US CLO fundamentals mostly deteriorated in 2020 due to
difficulties experienced by the underlying companies. Year on year,
minimum OC cushions fell (from 410bp to 277bp), WARF levels
deteriorated (from 2862 in 2019 to 3116 in 2020), and exposure to
CCC assets rose (from 3.7% in 2019 to 7.7% in 2020). Although a
deterioration when compared to 2019 year end, these fundamentals
improved significantly from their June 2020 levels. Weighted
Average Asset Price ("WAP") ended 2020 at 97.3%, broadly in-line
with December 2019 levels and Weighted Average Spreads ("WAS")
increased by 27bp to 377bp.
European CLO fundamentals also deteriorated in 2020. OC cushions
decreased from 430bp to 348bp, WARF increased from 2964 to 3261 and
CCC buckets increased from 1.9% in 2019 to 6.4%. WAP recovered well
to 97.9%, although remained below the 2019 level of 98.8%, while
WAS decreased by 2bp to 377bp. Fundamental CLO deterioration in
both the US and Europe during 2020 resulted in some CLOs in the
market breaching their OC or interest diversion tests and impacting
cash flows to investors.
Gross primary CLO issuance forecasts are up in both the US and
Europe for 2021 as a result of favourable equity arbitrage,
anchored in a tightening of the AAA spread and continued
improvement in loan fundamentals. US CLO issuance is forecast to
grow by 9-19% to $100-$110 billion. In Europe, the 2021 CLO gross
issuance is forecast to return to the 2019 levels of between
EUR25-EUR30 billion. Including forecasts for refinancing/reset
volumes for 2021, European CLO issuance could reach a new record of
between EUR54-EUR64 billion.
Portfolio Update
BCF
In recognition of a credit cycle that extended well beyond the
average cycle, we had been proactively reducing risk within the
loan portfolios in the years leading up to 2020. As such, the BCF
CLOs were well positioned for the unexpected dislocation related to
the economic shutdowns due to COVID-19 and demonstrated greater
resilience relative to the broader universe of CLOs both in the US
and in Europe.(19) BCF CLOs experienced lower CCC exposures and
fewer CLO tranche downgrades versus peers in 2020. All 45 BCF CLO
equity positions continued to receive uninterrupted cash flows,
with none of the BCF CLOs experiencing a breach in either their
minimum OC or interest diversion tests during the year.
Performance of Blackstone managed CLOs was broadly recognised by
the market in 2020.(20) Blackstone was able to access the capital
markets and reopen the CLO market with the first new CLO issuance
after the market had been shut for several weeks in the first
quarter. Additionally, in 2020, as CLO debt investors re-engaged in
the CLO market, they recognised and compensated BX Credit for
superior portfolio quality and performance with lower cost of CLO
liabilities to the benefit of BX Credit subordinated note
investors, including BCF and BGLF.
Throughout 2020, BCF purchased EUR5.6 billion of assets (EUR2.2
billion net of sales). Additionally, BCF grew its CLO portfolio,
through investments in four European CLOs, and four US CLOs,
together representing EUR2.9 billion of loan assets. BCF also
invested $32.1 million in a US CLO warehouse, a portion of which
was termed out into a CLO during the year. These new CLOs further
diversified the portfolio across vintages and while their
reinvestment periods were zero to three years and shorter than the
four-to-five-year reinvestment periods of prior years, the addition
of new CLOs to the portfolio helped to offset the effect of the
passage of time within the existing CLO portfolio. Overall, the
pro-forma year end portfolio reinvestment period was 1.9 years
versus 2.6 years in January 2020.
CLOs continued to generate positive cashflow in BCF during 2020
albeit net income declined year-over-year due in part to a second
quarter LIBOR mismatch experienced in the US CLOs which was
subsequently corrected by the third quarter. The weighted average
annualised cash-on-cash distribution rates for European and US CLO
income notes was 15.6% and 17.1%, respectively, with strong
contributions across vintages.
As of 31 December 2020, 41% of BCF's portfolio was composed of
US CLO Income Notes (the most subordinated tranche of debt issued
by a CLO) and CLO warehouses (first loss positions), compared to
45% in December 2019. European CLO Income Notes increased to 41%
from 36% at the end of 2019. Exposure to directly held loans, net
of leverage, reduced from 19% to 13%.(21)
Through its investment in BCF, BGLF took advantage of improved
liquidity and equity valuations in the market and sold down certain
positions in which the holding quantities were in excess of
required retention or majority level. These market transactions
demonstrated a depth of demand for the positions sold, with
executed prices that exceeded modelled marks, as well as
mark-to-market bid prices. We believe this strong execution was in
part due to scarcity of Blackstone CLO equity, as well as in
recognition of expected future performance. We view the successful
sale of the excess CLO positions as a validation of the
mark-to-model valuation used by BCF.
As the impact of COVID-19 on the global economy became apparent
in early 2020, our analyst team engaged with management of our
borrowers and sponsors in an effort to re-underwrite the risk
across our loan portfolio and better understand the economic impact
of the pandemic on our borrowers, as well as the risk of potential
downgrade and default. These views were then utilised to help
forecast for each CLO, the potential failures of interest diversion
or OC tests in order to determine the potential for CLO equity cash
flow disruptions, if any. This analysis has continued to be updated
each quarter and provides guidance on projected net income
available to BGLF.
Importantly, because every CLO owned within this strategy is
also managed by Blackstone Credit, we have underwritten in detail
every loan to which each CLO is exposed. This, in conjunction with
our team and proprietary tools, allows us to conduct the type of
bottom up analysis which differentiates BGLF relative to peer
funds. This analysis is a critical component of our investment
process, and as a result, is one of our core competencies. While
individual company analysis is clearly central to what we do,
aggregating this into a portfolio view and then a CLO view is
central to our day-to-day CLO management process.
The NAV is influenced by both the actual performance of loans
and CLOs as well as by forward views and assumptions for credit
performance. Loans performed throughout the year and the default
loss rate for the portfolio was 0.08%, compared to 0.48% for
European Loans and 2.46% for US loans.(22) Following the initial
dislocation in the broader markets in March, swift response by
governments with fiscal stimulus provided an ample injection of
liquidity to financial markets, which in turn had the effect of
positively shifting the market sentiment and outlook for credit
with each subsequent quarter. These factors supported a continued
improvement in the NAV and by year end, while the NAV had not fully
recovered to pre-COVID levels, the outlook remains positive for
further recovery.
We continue to focus on liability management and while 2020 did
not afford many opportunities to refinance liabilities or extend
maturities, as we look ahead, we find the portfolio well positioned
to take advantage of the current technical strength in the CLO
liability market. So far in 2021, there has been a steady volume of
CLO refinancings and resets of all vintages. Within our portfolio,
we continue to actively evaluate each CLO that is callable in this
calendar year and anticipate a busy year of CLO activity including
new issues and refinancings and resets where accretive to do so. As
it relates to liability management, we are focused on improving the
portfolio net interest margins in the near term and ensure that the
structures provide for sufficient flexibility in portfolio and risk
management over the longer term.
CLO Portfolio Positions (23)
Distributions
Through
Last Payment
Date
------------- -------- ------ -------- ------- ---- --------- ------- --------- -------- ----- ---------------
Reinvest. Current
Deal Position % of Period Current Current Net NIM
Closing Size Owned % of BCF Left Asset Liability Interest 3M
Date (M) (M) Tranche NAV (Yrs) Coupon Cost Margin Prior Ann. Cum.
------------- -------- ------ -------- ------- ---- --------- ------- --------- -------- ----- ------ -------
EUR CLO Income Note Investments
-------------------------------------------------------------------------------------------------------------------------
Phoenix
Park Jul-14 EUR417 EUR23.3 51.4% 1.3% 2.32 3.65% 1.78% 1.87% 1.91% 14.2% 89.2%
Sorrento
Park Oct-14 EUR310 EUR29.5 51.8% 0.9% 0.00 3.63% 1.92% 1.71% 1.76% 15.3% 93.1%
Castle Park Dec-14 EUR261 EUR24.0 52.2% 1.2% 0.00 3.59% 1.95% 1.64% 1.68% 15.2% 88.8%
Dartry Park Mar-15 EUR338 EUR22.8 51.1% 1.1% 0.00 3.58% 1.82% 1.76% 1.85% 14.2% 79.7%
Orwell Park Jun-15 EUR357 EUR24.2 51.0% 1.4% 0.00 3.57% 1.56% 2.01% 2.08% 15.5% 83.5%
Tymon Park Dec-15 EUR375 EUR22.7 51.0% 1.5% 0.00 3.61% 1.40% 2.22% 2.27% 16.1% 77.8%
Elm Park May-16 EUR544 EUR31.9 56.1% 2.4% 0.00 3.60% 1.39% 2.21% 2.27% 13.8% 60.8%
Griffith
Park Sep-16 EUR456 EUR26.0 53.4% 1.6% 2.38 3.68% 1.82% 1.86% 1.86% 10.1% 42.6%
Clarinda
Park Nov-16 EUR415 EUR23.1 51.2% 1.3% 0.00 3.67% 1.81% 1.86% 1.86% 11.6% 46.3%
Palmerston
Park Apr-17 EUR415 EUR24.0 53.3% 1.5% 0.30 3.65% 1.55% 2.10% 2.12% 13.7% 48.4%
Clontarf
Park Jul-17 EUR414 EUR29.0 66.9% 1.7% 0.59 3.56% 1.59% 1.97% 1.99% 15.4% 51.0%
Willow Park Nov-17 EUR412 EUR23.4 60.9% 1.7% 1.54 3.59% 1.58% 2.01% 2.03% 17.8% 51.1%
Marlay Park Mar-18 EUR413 EUR24.6 60.0% 1.8% 1.29 3.56% 1.40% 2.16% 2.21% 19.4% 49.5%
Milltown
Park Jun-18 EUR409 EUR24.1 65.0% 1.9% 1.54 3.64% 1.50% 2.15% 2.16% 17.5% 41.0%
Richmond
Park Jul-18 EUR548 EUR46.2 68.3% 2.1% 0.53 3.60% 1.53% 2.06% 2.08% 18.0% 40.6%
Sutton Park Oct-18 EUR408 EUR24.0 66.7% 1.9% 2.37 3.61% 1.72% 1.89% 1.90% 15.9% 33.1%
Crosthwaite
Park Feb-19 EUR513 EUR33.0 64.7% 2.2% 2.70 3.67% 2.00% 1.66% 1.65% 13.3% 23.9%
Dunedin
Park Sep-19 EUR409 EUR25.3 52.9% 1.8% 3.31 3.66% 1.78% 1.89% 1.90% 10.7% 11.8%
Seapoint
Park Nov-19 EUR406 EUR21.6 70.5% 1.8% 3.39 3.66% 1.84% 1.82% 1.84% 13.1% 13.0%
Holland
Park Nov-19 EUR428 EUR39.1 72.1% 1.8% 3.37 3.67% 1.91% 1.76% 1.73% 11.4% 11.4%
Vesey Park Apr-20 EUR405 EUR24.5 80.3% 2.1% 3.88 3.70% 1.96% 1.73% 1.70% 37.0% 20.3%
Avondale
Park Jun-20 EUR284 EUR18.7 63.0% 1.8% 2.55 3.60% 2.52% 1.08% 1.07% n/a n/a
Deer Park Sep-20 EUR344 EUR28.5 100.0% 2.3% 2.79 3.58% 2.27% 1.32% 1.16% n/a n/a
Marino Park Dec-20 EUR324 EUR17.0 71.4% 1.6% 3.04 3.85% 1.84% 2.01% n/a n/a n/a
------------- -------- ------ -------- ------- ---- --------- ------- --------- -------- ----- ------ -------
USD CLO Income Note Investments
-------------------------------------------------------------------------------------------------------------------------
Dorchester
Park Feb-15 $503 $44.5 67.0% 1.2% 0.00 3.83% 1.67% 2.16% 2.23% 16.8% 94.8%
Grippen
Park Mar-17 $611 $29.8 50.1% 1.6% 1.30 3.86% 1.95% 1.91% 1.97% 14.5% 52.1%
Thayer Park May-17 $515 $27.4 50.1% 1.1% 1.30 3.67% 1.98% 1.69% 1.77% 16.2% 55.7%
Catskill
Park May-17 $1029 $56.0 51.6% 2.3% 1.30 3.66% 1.94% 1.72% 1.81% 15.6% 53.3%
Dewolf Park Aug-17 $614 $31.7 51.6% 1.7% 1.79 3.92% 1.96% 1.96% 1.98% 16.1% 50.4%
Gilbert
Park Oct-17 $1022 $51.8 50.8% 2.7% 1.79 3.86% 1.92% 1.95% 2.01% 16.2% 48.3%
Long Point
Park Dec-17 $611 $29.5 50.1% 1.6% 2.05 3.73% 1.64% 2.09% 2.15% 21.3% 59.7%
Stewart
Park Jan-18 $874 $92.2 50.1% 1.9% 2.00 3.75% 1.70% 2.05% 2.11% 14.0% 38.3%
Greenwood
Park Mar-18 $1075 $53.9 50.1% 3.2% 2.29 3.85% 1.61% 2.24% 2.30% 19.7% 51.4%
Cook Park Apr-18 $1025 $53.6 50.1% 2.9% 2.29 3.69% 1.56% 2.13% 2.20% 18.4% 46.5%
Fillmore
Park Jul-18 $561 $30.2 54.3% 1.7% 2.54 3.70% 1.82% 1.88% 1.94% 15.6% 34.6%
Myers Park Sep-18 $510 $26.4 50.1% 1.5% 2.80 3.74% 1.87% 1.87% 1.92% 16.4% 34.2%
Harbor Park Dec-18 $716 $39.7 50.1% 2.1% 3.05 3.83% 1.92% 1.90% 1.91% 16.6% 30.5%
Buckhorn
Park Mar-19 $502 $24.2 50.1% 1.4% 3.30 3.73% 2.18% 1.55% 1.62% 17.1% 27.1%
Niagara
Park Jun-19 $453 $22.1 50.1% 1.4% 3.54 3.90% 1.98% 1.92% 1.90% 15.6% 20.3%
Southwick
Park Aug-19 $503 $26.1 59.9% 1.5% 3.55 3.94% 2.16% 1.78% 1.80% 16.8% 19.5%
Beechwood
Park Dec-19 $810 $48.9 61.1% 2.8% 4.05 3.99% 2.20% 1.79% 1.78% 15.8% 13.1%
Allegany
Park Jan-20 $505 $30.2 66.2% 1.8% 4.04 3.91% 2.16% 1.76% 1.81% 9.8% 7.5%
Harriman
Park Apr-20 $502 $29.2 70.0% 2.0% 2.30 3.78% 1.99% 1.79% 1.34% 38.1% 19.1%
Cayuga Park Aug-20 $393 $22.8 71.7% 1.8% 2.54 3.83% 2.34% 1.48% 1.44% n/a n/a
Stratus
2020-2 Sep-20 $299 $24.2 100.0% 1.7% n/a 3.55% 2.04% 1.51% 1.54% n/a n/a
As at 31 December 2020, the portfolio was invested in accordance
with BCF's investment policy and was diversified across 682 issuers
(684 issuers in 2019) through the directly held loans and CLO
portfolio, and across 30 countries (27 countries in 2019) and 29
different industries (31 industries in 2019). No individual
borrower represented more than 2% of the overall portfolio at the
end of 2020.
Key Portfolio Statistics (24)
Current WA
% of Current WA Liability WA Remaining
NAV Asset Coupon Cost RPs (CLOs)
EUR CLOs 40.56% 3.63% 1.76% 1.5 Years
US CLOs 39.82% 3.80% 1.89% 2.2 Years
Directly Held Loans
(less leverage) 12.66% 3.85% 1.85% n/a
US CLO Warehouses 0.86% 3.99% 1.34% n/a
Net Cash & Expenses 6.10% - - n/a
==================== ====== ============= ========== ============
Top 10 Industries
Industry % of Portfolio
31 December 2020
==================================== ================
Healthcare and Pharmaceuticals 15.21%
==================================== ================
Services Business 10.44%
==================================== ================
High Tech Industries 9.32%
==================================== ================
Banking, Finance, Insurance , Real
Estate 8.71%
==================================== ================
Media Broadcasting and Subscription 6.81%
==================================== ================
Hotels, Gaming and Leisure 6.22%
==================================== ================
Chemicals, Plastics and Rubber 6.03%
==================================== ================
Construction and Building 5.21%
==================================== ================
Telecommunications 4.55%
==================================== ================
Services Consumer 3.72%
==================================== ================
Industry % of Portfolio
31 December 2019
==================================== ================
Healthcare and Pharmaceuticals 15.03%
==================================== ================
Services Business 10.84%
==================================== ================
High Tech Industries 9.71%
==================================== ================
Banking, Finance, Insurance , Real
Estate 8.84%
==================================== ================
Hotels, Gaming and Leisure 7.80%
==================================== ================
Chemicals, Plastics and Rubber 5.40%
==================================== ================
Construction and Building 4.96%
==================================== ================
Telecommunications 4.95%
==================================== ================
Media Broadcasting and Subscription 4.67%
==================================== ================
Services Consumer 3.92%
==================================== ================
Top 5 Countries
Country % of Portfolio
31 December 2020 31 December 2019
United States 52.73% 54.39%
United Kingdom 9.81% 10.35%
France 7.36% 7.63%
Luxembourg 6.26% 5.79%
Netherlands 4.52% **
=============== ================ ================
** Netherlands was not part of the Top 5 as at 31 December 2019.
Germany made up 3. 86% of the Portfolio as at 31 December 2019.
Top 20 Issuers
Total WA
Portfolio Par Coupon WA
# Par Outstanding WA WA (All-In Maturity
Facilities (EURM) (EURM) Moody's Industry Country Price Spread Rate) (Years)
-------------- ---------- --------- ----------- ------------------ ----------- ------ ------ ------- --------
Banking, Finance,
Insurance and
Real Estate
Paysafe 4 216 2,685 (FIRE) Luxembourg 99.8 4.28% 4.74% 4.3
Paysafe is a payment service provider offering services to businesses
and consumers. Operating across three segments i) payment processing,
ii) prepaid solutions and iii) digital wallets. It has been growing
significantly both organically and by M&A (strong track record
in M&A in identifying, acquiring, and extrapolating synergies).
----------------------------------------------------------------------------------------------------------------------
United
Refinitiv 2 176 7,620 Services Business States 100.0 3.25% 3.30% 4.8
Refinitiv is a leading player in the financial data and technology
markets with strong positions in data feeds, desktop, compliance
and risk services, and trading volumes. It provides critical news,
information, and analytics, enabling transactions and connecting
communities of trading, investment, financial and corporate professionals.
It also provides leading regulatory and operational risk management
solutions.
----------------------------------------------------------------------------------------------------------------------
Retail (Global United
Euro Garages 5 170 4,829 Petrol Stations) Kingdom 98.6 4.04% 4.15% 4.1
Euro Garages is the leading global independent convenience retail
and fuel station operator with a fuel, convenience retail and Food-to-Go
offering with partnerships with leading brands such as Esso, BP,
Shell, Dunkin Donuts and Pizza Hut among others.
----------------------------------------------------------------------------------------------------------------------
Healthcare
Siemens and
Audio 2 169 2,911 Pharmaceuticals Denmark 97.4 3.96% 3.98% 5.2
WS Audiology / Siemens Audio was created following the completion
of the merger between Sivantos and Widex. The combined company
operates in 125 markets and holds the third position in the hearing
aid market globally.
----------------------------------------------------------------------------------------------------------------------
Media Broadcasting
Numericable 4 162 4,887 and Subscription France 98.7 3.10% 3.15% 4.9
Numericable is one of the largest telecommunications operators
in France by revenues and number of subscribers, with major positions
in residential fixed, residential mobile, B2B, wholesale and media.
----------------------------------------------------------------------------------------------------------------------
AkzoNobel Chemicals,
Specialty Plastics and
Chemicals 2 160 5,237 Rubber Netherlands 99.5 3.14% 3.21% 4.8
AkzoNobel Specialty Chemicals represents a collection of specialty
and commodity chemical and polymer businesses split across five
divisions: Surface Chemistry (surfactants and polymers), ethylene
and sulphur derivatives, polymer chemistry (includes catalysts
and polymer additives), industrial chemicals (includes chlor-alkali
and other industrial chemicals), and pulp and performance chemicals
(includes hydrogen peroxide and other bleaching chemicals, and
variety of other chemicals).
----------------------------------------------------------------------------------------------------------------------
Media Broadcasting
Ziggo 2 154 4,314 and Subscription Netherlands 99.8 2.85% 2.90% 7.9
Ziggo is one of the largest cable operators in the Netherlands.
The company provides radio, television, internet, and telephone
services. The company was created as a result of the merger between
Multikabel, @Home and Casema.
----------------------------------------------------------------------------------------------------------------------
McAfee, High Tech United
LLC 2 152 3,306 Industries States 100.3 3.61% 3.67% 3.8
McAfee, LLC is the second largest security software vendor globally,
after Symantec. McAfee serves both the consumer and enterprise
security markets, with a focus on consumer endpoint protection.
----------------------------------------------------------------------------------------------------------------------
Virgin Media Broadcasting United
Media 4 147 5,260 and Subscription Kingdom 99.9 2.66% 2.71% 7.8
Virgin Media is a British telecommunications company which provides
telephone, television, and internet services in the United Kingdom.
Virgin Media is a subsidiary of Liberty Global, an international
television and telecommunications company.
----------------------------------------------------------------------------------------------------------------------
Banking, Finance,
Insurance and
Real Estate
Ion Trading 2 145 2,944 (FIRE) Ireland 100.1 3.45% 4.45% 3.9
Ion Trading is a global financial software and services company
that offers mission critical trading infrastructure solutions to
banks and other financial institutions. In particular, the company
provides high performance trading solutions for electronic fixed
income markets, including support for cash, futures, repos, money
markets, interest rate swaps and credit default swaps. The group
serves 800+ customers worldwide.
----------------------------------------------------------------------------------------------------------------------
Beverage, Food United
Froneri 4 133 4,797 and Tobacco Kingdom 99.1 2.59% 2.66% 6.1
Froneri is a global ice cream manufacturer with its headquarters
in North Yorkshire, England. It is the second largest ice cream
producer by volume in the world, after Unilever. Froneri was created
in 2016 as a joint venture between Nestle and PAI Partners to combine
their ice cream activities.
----------------------------------------------------------------------------------------------------------------------
Quintiles Healthcare
IMS and United
Incorporated 5 130 3,528 Pharmaceuticals States 99.8 1.91% 1.99% 3.7
Quintiles IMS Incorporated provides information and technology
services to the pharmaceutical and healthcare industries. The company
offers services such as product and portfolio management capabilities,
commercial effectiveness solutions, managed care, and consumer
health. Quintiles IMS operates in the United States.
----------------------------------------------------------------------------------------------------------------------
TDC A/S 2 117 2,950 Telecommunications Denmark 99.8 3.12% 3.12% 4.4
TDC Group is the Danish telecom incumbent offering mobile services,
broadband as well as TV and entertainment services. The company
is active in B2B and Wholesale segments and has a presence in Norway.
----------------------------------------------------------------------------------------------------------------------
Media Broadcasting
UPS 6 114 3,897 and Subscription Netherlands 100.0 2.83% 2.91% 8.1
UPC is a cable operator in Switzerland, Poland & Slovakia. It offers
broadband, TV and mobile services.
----------------------------------------------------------------------------------------------------------------------
Micro
Focus
International High Tech United
plc 5 112 3,920 Industries States 99.8 3.51% 3.65% 3.9
Micro Focus International is a software business that specialises
in managing a portfolio of infrastructure software assets and provides
customers with application management solutions to improve the
effectiveness and efficiency of their core IT systems. It provides
enterprise application solutions, specifically software solutions
for assessing, developing, testing, managing and modernizing existing
applications. Micro Focus' solutions offer cost effective ways
for organisations to avoid replacing their mission critical applications
with expensive, risky and lengthy package software implementations
or rewriting custom upgrades.
----------------------------------------------------------------------------------------------------------------------
TKE 3 110 3,859 Capital Equipment Germany 101.0 4.34% 4.46% 6.6
Thyssenkrupp is the number four player in the global market for
elevator and escalator technology. The company designs, manufacturers,
installs, services, and modernises elevators, escalators, and platform
lifts.
----------------------------------------------------------------------------------------------------------------------
Ineos Chemicals,
Finance Plastics and
plc 4 108 4,280 Rubber Luxembourg 99.2 2.15% 2.55% 3.8
Ineos, through its subsidiaries, manufactures specialty and intermediate
chemicals such as ethylene oxide, acetate esters, glycol, and specialty
polymers. Ineos serves customers worldwide.
----------------------------------------------------------------------------------------------------------------------
Banking, Finance,
Insurance and
Nets - Real Estate
Evergood 3 106 2,502 (FIRE) Denmark 100.0 3.38% 3.42% 4.1
Based in Denmark, Nets is the number one operator in the Nordic
region and number two in the European payments space (behind Worldpay).
The business is vertically integrated across the card and account-based
payments value chain, operating across 3 segments; Merchant Acquiring;
Financial and Network Services and Corporate Services.
----------------------------------------------------------------------------------------------------------------------
Hotels, Gaming
Tipico 2 103 1,437 and Leisure Luxembourg 99.7 3.54% 3.54% 1.9
Tipico is the market leader in German retail and online sportsbetting.
It operates its retail channel through its 1250 outlets. The company
is primarily active in sportsbetting.
----------------------------------------------------------------------------------------------------------------------
Xella
International Construction
S.A 2 101 1,673 and Building Luxembourg 99.6 3.95% 3.95% 5.3
Xella International is a leading European producer of wall building
materials and insulation products. The company operates 95 plants
across 17 countries and key countries of operation include Germany,
France, Poland and the Netherlands.
----------------------------------------------------------------------------------------------------------------------
Directly Held CLOs
The majority of the outstanding positions of Rollover Assets
were sold within the first quarter of 2020. As of 31 December 2020,
the market value of Rollover Assets totalled EUR549,437 or 0.13% of
NAV.
Regulatory Update
In Europe, the European Regulation on sustainability-related
disclosures in the financial services sector ("SFDR") was published
on 27 November 2019. With an effective date of 10 March 2021, SFDR
requires certain firms, including private banks, wealth managers
and advisers to comply with new rules on disclosure as regards
sustainable investments and sustainability risks. Asset managers,
including Blackstone Credit ("BX Credit") (formerly GSO Capital
Partners LP), have been working to implement procedures which will
allow us to comply with the SFDR when the regulatory reporting
requirements come into effect in January 2022. BX Credit continues
to monitor regulatory developments with regards to SFDR, including
the publication of additional Regulatory Technical Standards.
In connection with the Securitisation Regulation, widely
anticipated secondary legislation setting out the prescribed form
of reporting templates was published on 3 September 2020 and use of
these reporting templates became mandatory to investors from 23
September 2020. BX Credit was well positioned to transition to the
use of these formal reporting templates, and these reporting
templates are used in respect of all in-scope CLOs.
Risk Management
Given the natural asymmetry of fixed income, our experienced
credit team focuses on truncating downside risk and avoiding
principal impairment and believes that the best way to control and
mitigate risk is by remaining disciplined in all market cycles and
by making careful credit decisions while maintaining adequate
diversification.
BCF's portfolio is managed to minimise default risk and credit
related losses, which is achieved through in-depth fundamental
credit analysis and diversified portfolios in order to avoid the
risk of any one issuer or industry adversely impacting overall
performance. As outlined in the Portfolio Update section, BCF is
broadly diversified across issuers, industries, and countries.
BCF's base currency is denominated in Euro, though investments
are also made and realised in other currencies. Changes in rates of
exchange may have an adverse effect on the value, price, or income
of the investments of BCF. BCF may utilise different financial
instruments to seek to hedge against declines in the value of its
positions as a result of changes in currency exchange rates.
Through the construction of solid credit portfolios and our
emphasis on risk management, capital preservation, and fundamental
credit research, we believe the Company's investment strategy will
continue to be successful.
Blackstone Responsible Investing Approach
The Importance of Responsible Investing
For over 35 years, Blackstone has been committed to being a
responsible investor. This commitment is affirmed across the
organisation and guides our approach to investing. We believe that
adequate consideration of environmental, social, and governance
("ESG") factors for each potential investment enhances our
assessment of risk and also helps us identify opportunities for
transformation at each company where we invest. Consequently, we
believe that a comprehensive ESG program drives value and enhances
returns. We also believe that understanding ESG factors helps us
understand trends and how they will shape demand and markets in
years to come. Our framework applies to all investment
opportunities, though the exact application of that framework
varies by asset class, investment objective and the unique
characteristics of each investment.
Objectives
Blackstone's responsible investing objectives are outlined
below:
-- Integration
Consider environmental, social, and governance issues when
evaluating investment opportunities and when managing / monitoring
portfolios and assets. Pursue high-quality sources of ESG data and
intelligence; where appropriate, integrate that data into our
research process and also use that data to enhance our
understanding of markets and consumer trends. Actively use ESG
considerations to transform our portfolio companies in ways that
both manage risk and are value accretive for our investment
portfolios. In addition, integrate ESG considerations into our
business practices outside of the investment process.
-- Engagement
Work together with our portfolio entities, managers, transaction
partners, peers, and other partners to advance principles of
responsible investment and corporate social responsibility. Share
our ESG philosophy broadly and use our leadership position to
influence others and advance the dialogue of the importance of ESG
integration in finance and for corporate actors generally.
-- Reporting
Be transparent with our investors and other stakeholders about
Blackstone's responsible investing initiatives, successes, and
goals.
Approach and Responsibilities
Across all of Blackstone's businesses, ESG is core to what we
do. Our approach includes an evaluation of ESG considerations (pre-
and post-investment decision making) as a standard part of the
investment and the asset / portfolio management processes. Primary
responsibility lies with our investment teams because these
considerations support investment decisions. Together with
Portfolio Operations and our asset management teams, the investment
teams are also expected to continue to keep these issues front of
mind through the life of the investment.
BX Credit's Chief Sustainability Officer supports the investment
and asset management teams by driving initiatives that are aimed at
improving operational and environmental performance across the
portfolio. Other functional experts within Portfolio Operations
(including Talent Management, Procurement and Healthcare Cost
Containment) are expected to consider ESG insights in delivering
operating intervention capabilities across the portfolio.
The ESG team coordinates ESG initiatives across the firm to
ensure consistency in approach and, with the assistance of the
Legal & Compliance department, compliance with this policy. The
ESG team is also responsible for establishing and/or revising this
Policy in consultation with BX Credit's ESG Steering Committee
which is comprised of professionals from across the firm's business
units and functional groups, investor reporting, and also for
reporting on ESG integration across BX Credit to Blackstone's
President and Chief Operating Officer.
[Graphs and charts are included in the published Annual Report
and Audited Financial Statements which is available on the
Company's website at https://blackstone.com/ bglf ]
Blackstone Credit's Commitment to ESG
BX Credit believes that a key component of being a prudent
investor is an active evaluation of the ESG components of its
investments to assess the potential economic effects thereof.
Review of ESG risks to investment performance is integrated into BX
Credit's investment analysis and decision-making processes from
pre-investment diligence to post-investment monitoring. BX Credit
recognises the value that incorporating ESG factors in our
investment research creates both in terms of mitigating risk and
enhancing long-term performance across our various investments. To
that end, BX Credit integrates review and consideration of
applicable ESG factors into its decision-making processes, as
summarised below:
Due Diligence Process
Investment teams within BX Credit consider ESG factors that may
impact investment performance during the due diligence phase of an
investment. ESG due diligence will vary based on (i) the nature of
BX Credit's investment, (ii) the transaction process and timeline,
(iii) the level of access to information, specifically as it
pertains to ESG factors, and (iv) the target portfolio company's
(the "Target") sector or business model. For all investments, BX
Credit endeavours to review all syndication materials and other
public sources of information to develop insights into the Target's
business and operations and to facilitate the identification of
environmental, social or governance matters that have affected or
may be affecting the Target.
Reporting to Investment Committee
Material ESG issues arising from diligence are described in the
appropriate investment committee materials and discussed in the
relevant investment committee forum.
Post-Investment Monitoring
On an ongoing basis, investment teams monitor the performance of
BX Credit's investments, which includes, but is not limited to,
assessing financial, operational, industry-specific and ESG-related
factors, as applicable. Periodically, BX Credit investment teams
will update the investment committee on the performance of issuers
and highlight any material ESG considerations that warrant
investment committee discussion, both in the context of the
company's industry and on a stand-alone basis.
As a credit investor, BX Credit will have less control over
portfolio companies than equity investors; however, we may seek to
reinforce certain aspects of value-enhancing ESG compliance through
contractual obligations and covenants in governing agreements with
portfolio companies. Underwriting due diligence includes among
other things, material environmental, public health, safety, social
and governance issues associated with lending to a company.
At this time the BX Credit does not explicitly track exposure to
climate risk or monitor the carbon footprint of an investment. In
practice, we take the ESG factors that may impact investment
performance into consideration and incorporate such factors into
our initial evaluation of an investment and our ongoing investment
monitoring process. Our evaluation criteria are based on the
materiality of the ESG risk considering (a) whether it has a
current impact or a potential future impact and (b) any mitigating
actions the issuer undertakes to address the risk. In general,
industries with a high carbon footprint face significant transition
risk with regard to climate change, and that risk would need to be
evaluated before making an investment decision.
Furthermore, in 2020, BX Credit worked with a third party ESG
consulting firm to draft a set of ESG sector-specific guidelines.
These sector guidelines are intended to help analysts conduct
focused due diligence on the issuers in which we invest through
active engagement with the company and, if applicable, the sponsor.
BX Credit is working to directly integrate the sector guidelines
into our investment procedures during 2021.
Blackstone Ireland Limited
29 April 2021
(8) Source: Credit Suisse Leveraged Loan Index, Credit Suisse
Western European Leveraged Loan Index (Hedged to Euro), Credit
Suisse Default Report, 31 December 2020.
(9) Source: Blackstone Credit analysis as at 31 December 2020.
Certain tranches of CLOs may have been placed on negative watch,
affirmed, or downgraded by more than one rating agency. Analysis
includes non-BCF CLOs.
(10) Blackstone Credit, Intex. As at 7 January 2021.
(11) Source: S&P LCD, data as of 31 December 2020.
(12) Source: Credit Suisse, as of 31 December 2020. US loans and
European loans are represented by the Credit Suisse Leveraged Loan
Index and Credit Suisse Western European Leveraged Loan Index
(Hedged to Euro), respectively.
(13) Source: S&P LCD, data as of 31 December 2020.
(14) Source: Blackstone Credit analysis as at 31 December 2020.
Certain tranches of CLOs may have been placed on negative watch,
affirmed, or downgraded by more than one rating agency. Analysis
includes non-BCF CLOs
(15) Source: Credit Suisse, as of 31 December 2020.
(16) Source: Credit Suisse, as of 31 December 2020, J.P.Morgan,
as of 1 March 2021.
(17) Sources: S&P/LCD, Barclays, data as of 31 December
2020.
(18) Source: LCD, data as of 31 December 2020.
(19) Demonstrated by the BCF portfolio recorded a loss rate
below that of both US and European loans as measured by Credit
Suisse.
(20) Demonstrated by demand for BX Credit CLO Equity positions
sold during the year and pricing achieved on new issue CLOs.
(21) Portfolio percentages are based on BCF NAV as of 31
December 2020.
(22) Source: Credit Suisse, as of 31 December 2020.
(23) As of 31 December 2020.
(24) As of 31 December 2020.
Strategic Overview
Purpose
The Company's purpose is to provide permanent capital to BCF, a
company established by Blackstone Ireland Limited ("BIL") (formerly
Blackstone / GSO Debt Funds Management Europe Limited) as part of
its loan financing programme, with a view to generating stable and
growing total returns for Shareholders through dividends and value
growth.
The Board delivers the Company's purpose by working in line with
our values, which form the backbone of what the Company does and
are an important part of our culture.
Values
Integrity and Trust - The Company seeks to act with integrity in
everything it does and to be trustworthy. We seek to uphold the
highest standards of professionalism driven by our corporate
governance processes.
Transparency - The Company aims to ensure all of its activities
are undertaken with the utmost transparency and openness to sustain
trust.
Opportunity - The ability to see and to seize opportunities
which are in the best interests of our shareholders.
Sustainability - As an investment company we aim to maintain and
deliver attractive and sustainable returns for our
shareholders.
Principal Activities
The Company was incorporated on 30 April 2014 as a closed-ended
investment company limited by shares under the laws of Jersey and
is authorised as a listed fund under the Collective Investment
Funds (Jersey) Law 1988. The Company continues to be registered and
domiciled in Jersey. The Company's Ordinary Shares are quoted on
the Premium Segment of the Main Market of the LSE. Up until their
conversion into Ordinary Shares on 7 January 2020, the Company's C
Shares were quoted on the SFS of the Main Market of the LSE. Refer
to Corporate Activity for further details on the C Share
conversion.
The Company's authorised share capital consists of an unlimited
number of shares of any class. As at 31 December 2020, the
Company's issued share capital was 477,023,331 Ordinary Shares. The
Company also held 5,879,463 Ordinary Shares in treasury.
The Company has a wholly-owned Luxembourg subsidiary, Blackstone
/ GSO Loan Financing (Luxembourg) S.à r.l. which has an issued
share capital of 2,000,000 Class A shares and 1 Class B share. As
at 31 December 2020 all of the Class A and Class B shares were held
by the Company together with 284,879,854 Class B CSWs issued by the
Lux Subsidiary. The Lux Subsidiary invests in PPNs issued by BCF,
which in turn invests in CLOs and loans. The Company also holds
directly held CLO Mezzanine Notes which formed part of the Rollover
Assets and are yet to be realised and reinvested in CSWs.
The Company is a self-managed company. BIL acts as Portfolio
Adviser to the Company and, pursuant to the Advisory Agreement,
provides advice and assistance to the Company in connection with
its investment in the CSWs. Blackstone Liquid Credit Strategies LLC
("BLCS") (formerly GSO / Blackstone Debt Funds Management LLC) acts
as Portfolio Manager in relation to the Rollover Assets (as defined
in the Company's Prospectus published on 23 November 2018).
BNP Paribas Securities Services S.C.A., Jersey Branch acts as
Administrator, Company Secretary, Custodian and Depositary to the
Company.
Investment Objective
As outlined in the Company's Prospectus, the Company's
investment objective is to provide Shareholders with stable and
growing income returns, and to grow the capital value of the
investment portfolio by exposure to floating rate senior secured
loans and bonds directly and indirectly through CLO Securities and
investments in Loan Warehouses. The Company seeks to achieve its
investment objective through exposure (directly or indirectly) to
one or more companies or entities established from time to time
("Underlying Companies"), such as BCF.
Investment Policy
Overview
As outlined in the Company's Prospectus, the Company's
investment policy is to invest (directly, or indirectly through one
or more Underlying Companies) in a diverse portfolio of senior
secured loans (including broadly syndicated, middle market or other
loans) (such investments being made by the Underlying Companies
directly or through investments in Loan Warehouses), bonds and CLO
Securities, and generate attractive risk-adjusted returns from such
portfolios. The Company intends to pursue its investment policy by
investing (through one or more subsidiaries) in profit
participating instruments (or similar securities) issued by one or
more Underlying Companies.
Each Underlying Company will use the proceeds from the issue of
the profit participating instruments (or similar securities),
together with the proceeds from other funding or financing
arrangements it has in place currently or may have in the future,
to invest in: (i) senior secured loans, bonds, CLO Securities and
Loan Warehouses; or (ii) other Underlying Companies which,
themselves, invest in senior secured loans, bonds, CLO Securities
and Loan Warehouses. The Underlying Companies may invest in
European or US senior secured loans, bonds, CLO Securities, Loan
Warehouses and other assets in accordance with the investment
policy of the Underlying Companies. Investments in Loan Warehouses,
which are generally expected to be subordinated to senior finance
provided by third-party banks, will typically be in the form of an
obligation to purchase preference shares or a subordinated loan.
There is no limit on the maximum US or European exposure. The
Underlying Companies do not invest substantially directly in senior
secured loans or bonds domiciled outside North America or Western
Europe.
Investment Limits and Risk Diversification
The Company's investment strategy is to implement its investment
policy by investing directly or indirectly through the Underlying
Companies, in a portfolio of senior secured loans and bonds or in
Loan Warehouses containing senior secured loans and bonds and, in
connection with such strategy, to own debt and equity tranches of
CLOs and, in the case of European CLOs and certain US CLOs, to be
the risk retention provider in each.
The Underlying Companies may periodically securitise a portion
of the loans, or a Loan Warehouse in which they invest, into CLOs
which may be managed either by such Underlying Company itself, by
BIL or BLCS (or one of their affiliates), in their capacity as the
CLO Manager.
Where compliance with the European Risk Retention Requirements
is sought (which may include both EUR and US CLOs) the Underlying
Companies will retain exposures of each CLO, which may be held
as:
-- CLO Income Notes equal to: (i) between 51% and 100% of the
CLO Income Notes issued by each such CLO in the case of European
CLOs; or (ii) CLO Income Notes representing at least 5% of the
credit risk relating to the assets collateralising the CLO in the
case of US CLOs (each of (i) and (ii), (the "horizontal strip");
or
-- Not less than 5% of the principal amount of each of the
tranches of CLO Securities in each such CLO (the "vertical
strip").
In the case of deals structured to be compliant with the
European Risk Retention Requirements, the applicable Underlying
Company may determine that, due to its role as an "originator" with
respect to such transaction, such Underlying Company should also
comply with the US Risk Retention Regulations. In addition, an
Underlying Company may invest in CLOs, such as middle market CLOs,
which are not exempt from the US Risk Retention Regulations and, as
a result, may be required to retain exposure to such CLOs in
accordance with such rules. In such a scenario, the Underlying
Company will retain exposures to such transactions for the purpose
of complying with the US Risk Retention Regulations, which may be
held as:
-- CLO Income Notes representing at least 5% of the fair market
value of the CLO Securities (including CLO Income Notes) issued by
such CLO (the "US horizontal strip");
-- A vertical strip; or
-- A combination of a vertical strip and US horizontal strip.
To the extent attributable to the Company, the value of the CLO
Income Notes retained by Underlying Companies in any CLO will not
exceed 25% of the Published NAV of the Company at the time of
investment.
Investments in CLO Income Notes and loan warehouses are highly
leveraged. Gains and losses relating to underlying senior secured
loans will generally be magnified. Further, to the extent
attributable to the Company, the aggregate value of investments
made by Underlying Companies in vertical strips of CLOs (net of any
directly attributable financing) will not exceed 15% of the
Published NAV of the Company at the time of investment. This
limitation shall apply to Underlying Companies in aggregate and not
to Underlying Companies individually.
Loan Warehouses may eventually be securitised into CLOs managed
either by an Underlying Company itself or by BIL or BLCS (or one of
their affiliates), in their capacity as the CLO Manager. To the
extent attributable to the Company, the aggregate value of
investments made by Underlying Companies in any single externally
financed warehouse (net of any directly attributable financing)
shall not exceed 20% of the NAV of the Company at the time of
investment, and in all externally financed warehouses taken
together (net of any directly attributable financing) shall not
exceed 30% of the NAV of the Company at the time of investment.
These limitations shall apply to Underlying Companies in aggregate
and not to Underlying Companies individually.
The following limits (the "Eligibility Criteria") apply to
senior secured loans and bonds (and, to the extent applicable,
other corporate debt instruments) directly held by any Underlying
Company (and not through CLO Securities or Loan Warehouses):
% of an Underlying Company's
Maximum Exposure Gross Asset Value
Per obligor 5
Per industry sector 15
(With the exception of one industry, which may be up to
20%)
To obligors with a rating lower than B-/B3/B- 7.5
To second lien loans, unsecured loans, mezzanine loans and
high yield bonds 10
---------------------------------------------------------- ----------------------------------------------------------
For the purposes of these Eligibility Criteria, "gross asset
value" shall mean gross assets, including any investments in CLO
Securities and any undrawn commitment amount of any gearing under
any debt facility. Further, for the avoidance of doubt, the
"maximum exposures" set out in the Eligibility Criteria shall apply
on a trade date basis.
Each of these Eligibility Criteria will be measured at the close
of each Business Day on which a new investment is made, and there
will be no requirement to sell down in the event the limits are
breached at any subsequent point (for instance, as a result of
movement in the gross asset value, or the sale or downgrading of
any assets held by an Underlying Company).
In addition, each CLO in which an Underlying Company holds CLO
Securities and each Loan Warehouse in which an Underlying Company
invests will have its own eligibility criteria and portfolio
limits. These limits are designed to ensure that: (i) the portfolio
of assets within the CLO meets a prescribed level of diversity and
quality as set by the relevant rating agencies that rate securities
issued by such CLO, or (ii) in the case of a Loan Warehouse, that
the warehoused assets will eventually be eligible for a rated CLO.
The CLO Manager will seek to identify and actively manage assets
which meet those criteria and limits within each CLO or Loan
Warehouse. The eligibility criteria and portfolio limits within a
CLO or Loan Warehouse may include the following:
-- A limit on the weighted average life of the portfolio;
-- A limit on the weighted average rating of the portfolio;
-- A limit on the maximum amount of portfolio assets with a rating lower than B-/B3/B-; and
-- A limit on the minimum diversity of the portfolio.
CLOs in which an Underlying Company may hold CLO Securities or
Loan Warehouses in which an Underlying Company may invest also have
certain other criteria and limits, which may include:
-- A limit on the minimum weighted average of the prescribed rating agency recovery rate;
-- A limit on the minimum amount of senior secured assets;
-- A limit on the maximum aggregate exposure to second lien
loans, high yield bonds, mezzanine loans and unsecured loans;
-- A limit on the maximum portfolio exposure to covenant-lite loans;
-- An exclusion of project finance loans;
-- An exclusion of structured finance securities;
-- An exclusion on investing in the debt of companies domiciled
in countries with a local currency sub-investment grade rating;
and
-- An exclusion of leases.
This is not an exhaustive list of the eligibility criteria and
portfolio limits within a typical CLO or Loan Warehouse and the
inclusion or exclusion of such limits and their absolute levels are
subject to change depending on market conditions. Any such limits
applied shall be measured at the time of investment in each CLO or
Loan Warehouse.
Changes to Investment Policy
Any material change to the investment policy of the Company
would be made only with the approval of Ordinary Shareholders.
It is intended that the investment policy of each substantial
Underlying Company will mirror the Company's investment policy,
subject to such additional restrictions as may be adopted by a
substantial Underlying Company from time to time. The Company will
receive periodic reports from each substantial Underlying Company
in relation to the implementation of such substantial Underlying
Company's investment policy to enable the Company to have oversight
of its activities.
If a substantial Underlying Company proposes to make any changes
(material or otherwise) to its investment policy, the Directors
will seek Ordinary Shareholder approval of any changes which are
either material in their own right or, when viewed as a whole
together with previous non-material changes, constitute a material
change from the published investment policy of the Company. If
Ordinary Shareholders do not approve the change in investment
policy of the Company such that it is once again materially
consistent with that of such substantial Underlying Company, the
Directors will redeem the Company's investment in such substantial
Underlying Company (either directly or, if the Company's investment
in a subsidiary is invested by such subsidiary in such substantial
Underlying Company (either directly or through one or more other
Underlying Companies), by redeeming the securities held by the
Company in such subsidiary and procuring that the subsidiary
redeems its investment in such substantial Underlying Companies
(either directly or through one or more other Underlying
Companies)), as soon as reasonably practicable but at all times
subject to the relevant legal, regulatory and contractual
obligations.
The Board considers BCF to be a substantial Underlying
Company.
Company Borrowing Limit
The Company will not utilise borrowings for investment purposes.
However, the Directors are permitted to borrow up to 10% of the
Company's Published NAV for day-to-day administration and cash
management purposes. For the avoidance of doubt, this limit only
applies to the Company and not the Underlying Companies.
In accordance with the Company's Prospectus, the Company may use
hedging or derivatives (both long and short) for the purposes of
efficient portfolio management. It is intended that up to 100% (as
appropriate) of the Company's exposure to any non-Euro assets will
be hedged, subject to suitable hedging contracts being available at
appropriate times and on acceptable terms.
Investment Strategy
Whether the senior secured loans, bonds or other assets are held
directly by an Underlying Company or via CLO Securities or Loan
Warehouses, it is intended that, in all cases, the portfolios will
be actively managed (by the Underlying Companies or the CLO
Manager, as the case may be) to minimise default risk and potential
loss through comprehensive credit analysis performed by the
Underlying Companies or the CLO Manager (as applicable).
Vertical strips in CLOs in which Underlying Companies may invest
are expected to be financed partly through term finance for
investment-grade CLO Securities, with the balance being provided by
the relevant Underlying Company investing in such CLO. This term
financing may be full-recourse, non-mark to market, long-term
financing which may, among other things, match the maturity of the
relevant CLO or match the reinvestment period or non-call period of
the relevant CLO. In particular, and although not forming part of
the Company's investment policy, the following levels of, or
limitations on, leverage are expected in relation to investments
made by Underlying Companies:
-- Senior secured loans and bonds may be levered up to 2.5x with term finance;
-- Investments in "first loss" positions or the "warehouse
equity" in Loan Warehouses will not be levered;
-- CLO Income Notes will not be levered;
-- Investments in CLO Securities rated B- and above at the time
of issue may be funded entirely with term finance; and
-- Investments in a vertical strip may be levered 6.0-7.0x, with
term finance as described above.
To the extent that they are financed, vertical strips are
anticipated to require less capital than horizontal strips, which
is expected to result in more efficient use of the Underlying
Companies' capital. In addition, since the return profile on
financed vertical strips is different to retained CLO Income Notes,
BX Credit believes that vertical strips may be more robust through
a market downturn, although projected IRRs may be slightly lower.
However, an investment in vertical strips is not expected to impact
the Company's stated target return.
From time to time, as part of its ongoing portfolio management,
the Underlying Companies may sell positions as and when suitable
opportunities arise. Where not bound by risk retention
requirements, it is the intention that the Underlying Companies
would seek to maintain control of the call option of any CLOs
securitised.
With respect to investments in CLO Securities, while the
Underlying Companies maintain a focus on investing in newly issued
CLOs, it will also evaluate the secondary market for sourcing
potential investment opportunities in CLO Securities.
Whilst the intention is to pursue an active, non-benchmark total
return strategy, the Company is cognisant of the positioning of the
loan portfolios against relevant indices. Accordingly, the
Underlying Companies will track the returns and volatility of such
indices, while seeking to outperform them on a consistent basis.
In-depth, fundamental credit research dictates name selection and
sector over-weighting/under-weighting relative to the benchmark,
backstopped by constant portfolio monitoring and risk oversight.
The Underlying Companies will typically look to diversify their
portfolios to avoid the risk that any one obligor or industry will
adversely impact overall returns. The Underlying Companies also
place an emphasis on loan portfolio liquidity to ensure that if
their credit outlook changes, they are free to respond quickly and
effectively to reduce or mitigate risk in their portfolio. The
Company believes this investment strategy will be successful in the
future as a result of its emphasis on risk management, capital
preservation and fundamental credit research. The Directors believe
the best way to control and mitigate risk is by remaining
disciplined in market cycles, by making careful credit decisions
and maintaining adequate diversification.
The portfolio of the Underlying Companies in which the Company
invests (through its wholly-owned subsidiary) remains broadly
divided between European CLOs and US CLOs.
The Company incorporates ESG factors as part of its investment
strategy. Refer below for further details.
The Company operates with Euro as its functional currency. The
Rollover Assets and a significant proportion of the portfolio of
assets held by Underlying Companies to which the Company has
exposure may, from time to time, be denominated in currencies other
than Euro. In accordance with the Company's investment policy, up
to 100 per cent. (as appropriate) of the Company's exposure to such
non-Euro assets is hedged, subject to suitable hedging contracts
being available at appropriate times and on acceptable terms.
Section 172(1) Statement
The Company, being a member of the AIC, complies with Provision
5 of the AIC Code and consequently voluntarily complies with
section 172(1) of the UK Companies Act 2006 to act in a way that
promotes the success of the Company for the benefit of its
shareholders as a whole, having regard to (amongst other
things):
a) the likely consequences of any decision in the long-term;
b) the interests of the Company's employees;
c) the need to foster the Company's business relationships with
suppliers, customers and others;
d) the impact of the Company's operations on the community and the environment;
e) the desirability of the Company maintaining a reputation for
high standards of business conduct; and
f) the need to act fairly as between members of the Company.
The Board maintains a reputation for high standards of business
conduct and endeavours to act fairly as between members of the
Company by acting with integrity and establishing trust as referred
to in the Company's Values. Additionally, the Company complies with
the Principles and Provisions of the AIC Code as detailed in the
Statement of Compliance with Corporate Governance below.
Information on how the Board has engaged with its stakeholders and
promoted the success of the Company, whilst having regard to the
above, is outlined below. This covers the key decisions the Board
has taken during the year.
Stakeholder engagement
Shareholders
Why we engage How we engage
------------------------------------------ ------------------------------------------------------------------
Shareholders provide the necessary The Board engages with its shareholders
capital for the Company to pursue by:
its purpose and strategy as a) publishing:
outlined in the Company's Prospectus. i. announcements on the LSE,
including:
The Company also aims to ensure * the Company's Published NAV performance, announced on
its long-term success and sustainability a monthly basis;
through its shareholder relationships,
based on transparency and openness,
and thereby fostering shareholder * updated dividend guidance, as announced with regard
confidence. This in-turn benefits to the Company's updated dividend policy on 23 April
the liquidity of the Company's 2020;
shares and the Company's reputation
as an esteemed market participant.
ii. monthly performance reports,
on the Company's website, covering
the performance of the Company
and its underlying portfolio,
and including information on
the composition of the underlying
portfolio;
iii. monthly market commentary
reports issued by BX Credit
and published on the Company's
website (since July 2020) covering
US and EU loan, high yield and
CLO performance figures with
commentary, as well as the market
outlook;
iv. quarterly investor reports,
published on the Company's website,
which provide an overview of
the Company's and the Underlying
Company's quarterly results,
together with a market overview;
v. the Company's Half-Yearly
Financial Report and the Annual
Report and Audited Financial
Statements;
vi. the Company's Key Information
Document and a memorandum on
costs;
vii. ad-hoc reports, on the
Company's website, as and when
required to provide further
insights into the relevant market
situation;
b) the Board and representatives
of the Portfolio Adviser holding
investor calls to provide market
updates. In addition to quarterly
updates the Company scheduled
an ad hoc call on 27 March 2020
to provide all shareholders
with a corporate update in light
of the Coronavirus pandemic
and its expected impact on the
global economy. Going forward
it is anticipated that investor
calls will be scheduled as required;
c) telephone discussions between
Directors and individual shareholders.
Four such calls were held at
shareholders' request during
2020, on which the matters discussed
included:
i. total return - Shareholders'
return since inception;
ii. ESG - Shareholders' desire
and expectations for ESG-compliant
investments and greater transparency;
iii. marketing - the level of
marketing being done and the
need to ensure this is sufficient;
iv. discount management - actions
being undertaken by the Company
to remedy the share price discount
and the timeliness of any such
actions;
v. liquidity - how liquidity
in the Company's shares could
be improved, including the possibility
of liquidity events and restructuring;
and
vi. Directors' shareholdings
- with a view to promoting the
alignment of Directors' and
shareholders' interests;
vii. transparency in the Company's
reporting - disclosure of underlying
loans and ability to disclose
expected IRR under different
scenarios; and
viii. confirmation of the foreign
exchange rate applied where
shareholders have elected to
receive their dividend in Sterling.
d) the Board engaging with its
shareholders through its Portfolio
Adviser and Brokers who communicate
pertinent information from any
discussions they have had with
the Company's shareholders;
and
e) written communication with
shareholders in response to
queries received, as applicable.
Additionally, the Board (including
the different committee Chairs)
is available at the AGM to answer
questions in their areas of
responsibility and the Chair
encourages shareholders to contact
her or any other Director with
any queries or comments they
may have.
------------------------------------------ ------------------------------------------------------------------
Outcome
---------------------------------------------------------------------
Shareholders receive relevant information allowing them to
make informed decisions about their shareholding(s), and to
engage with the Company and its advisers on any matters they
consider relevant.
During the year, actions taken by the Board following on from
shareholder discussions include:
* enhanced ESG and responsible investment disclosure in
this Annual Report;
* the inception of quarterly investor calls;
* buybacks and the share repurchase programme
undertaken, please refer to the Chair's Statement
above and the share repurchase programme coverage
below;
* The Board, Brokers and Portfolio Adviser discuss
liquidity and discount management on both an ongoing
and frequent basis; and
* Enhancement of portfolio information covered on the
quarterly investor call; and
* The announcement of the foreign exchange rate applied
for shareholders who have elected to receive their
dividend in Sterling.
There was no impact on the Directors' remuneration as a result
of the above discussions.
All Directors are kept informed of shareholder engagement,
as necessary, so that they are aware of and understand the
views communicated. Any pertinent matters are followed up
on by the Board and shareholder views are considered as part
of the Directors' decision-making processes.
---------------------------------------------------------------------
Service Providers
Why we engage How we engage
--------------------------------------- ------------------------------------------
As an investment company with The Board engages with its Portfolio
no employees, the Company is Adviser on an on-going basis
reliant on its service providers through:
to conduct its business. The a) Regular communication with
Board considers the Portfolio representatives as required,
Adviser, the Administrator and such as telephone and email
the Registrar to be critical correspondence, discussing ad-hoc
to the Company's day-to-day matters which may arise;
operations. b) monthly meetings to receive
updates on the performance of
The Board views the Company's the portfolio;
other service providers, such c) quarterly board meetings
as brokers, auditors and lawyers to receive detailed updates
as being highly important in on, but not limited to, the
enabling the Company to meet loan and CLO markets and activity
its regulatory and legal requirements updates for the Underlying Company.
as necessary. This includes discussions about
capital inflows, performance
of current investments and return
attribution;
d) due diligence meetings with
senior representatives of the
Portfolio Adviser held virtually
in 2020; and
e) ad-hoc meetings to discuss
various day-to-day operational
matters or strategic matters.
The Board engages with its Administrator
on an on-going basis including:
a) Regular communication with
representatives, such as telephone
and email correspondence, to
discuss any ad-hoc matters;
b) monthly meetings to discuss
the Published NAV as computed
by the Administrator;
c) quarterly Board meetings
at which the Board receives
accounting, company secretarial
and compliance updates and liaises
with the Administrator on any
pertinent matters;
d) production of the Company's
Half-Yearly Financial Report
and Annual Report and Audited
Financial Statements;
e) ad-hoc meetings to discuss
various day-to-day operational
matters; and
f) annual service review meetings.
The Company's Registrar is responsible
for maintaining the Company's
share register and for processing
any corporate actions. The Registrar's
reports are available via an
online platform, and the Company
otherwise engages as necessary
with the Registrar via email
and telephone.
--------------------------------------- ------------------------------------------
Outcome
------------------------------------------------------------------
The Company is well managed and the Board receives appropriate
and timely advice and guidance, together with responses to
any queries the Board has. The Board's engagement with its
service providers enables it to help facilitate the effective
running of the Company. This in-turn helps promote the Company's
sustainability.
------------------------------------------------------------------
Underlying Company
Why we engage How we engage
----------------------------------------- ---------------------------------------
The Board's purpose and strategy The Board engages with the Portfolio
is implemented through investment Adviser and the board of directors
in the Underlying Company, BCF. of the Underlying Company to
Understanding the capital requirements, understand their capital requirements
specifically the timing and and performance. It does so
quantum, of the Underlying Company through the methods described
is important to the Board to above.
ensure the Company can provide
capital as required and so that The Board also had a virtual
redemptions of Cash Settlement meeting with the board of BCF
Warrants are appropriately factored during 2020.
in so as to not adversely impact
the operations of the Underlying
Company.
Additionally, understanding
the performance of the Underlying
Company is vital to ensuring
the Company can deliver on its
investment objective of income
and capital appreciation.
----------------------------------------- ---------------------------------------
Outcome
---------------------------------------------------------------------
The Board keeps abreast of capital requirements and the performance
of the Underlying Company. In doing so the Board aims to understand
the Underlying Company's past performance and contributing
factors to this, together with their prospective outlook.
From this process the Board looks to help ensure effectiveness
of the Portfolio Adviser and so promote the long-term success
of the Company.
---------------------------------------------------------------------
Wider Society
Why we engage How we engage
-------------------------------------- ---------------------------------------
As a responsible corporate citizen The Board welcomes the views
the Company recognises that of stakeholders to remain current
its operations have an environmental in their understanding of stakeholder
footprint and an impact on wider views relating to environmental
society. and social matters.
The Board seeks to uphold the
highest standards of professionalism
and corporate governance and
embraces diversity, inclusion
and ESG. The Board expects the
same from its service providers,
and asks its service providers
to provide an overview of their
diversity and ESG policies on
an annual basis. Mr Clark has
taken responsibility for ESG
items at Board-level. During
2020 Mr Clark liaised with BX
Credit to better understand
their processes for upholding
high standards of ESG and responsible
investing; such discussions
remain ongoing as ESG procedures
and requirements evolve.
In endeavouring to exemplify
best corporate governance practice,
the Board aims to positively
influence the wider corporate
and economic environment and
inspire stakeholder trust.
In light of the COVID-19 pandemic
in 2020 the majority of the
Company's meetings were held
virtually, meaning a reduced
amount of travel and corresponding
emissions.
-------------------------------------- ---------------------------------------
Outcome
---------------------------------------------------------------
The Board is conscious of the importance of good governance,
including diversity, inclusion and ESG specifically and seeks
to positively influence the wider society and its service
providers.
---------------------------------------------------------------
Corporate Activity
The principal decisions taken below are the ones that the Board
considers have the greatest impact on the Company's long-term
success. The Board considers the factors outlined under the Section
172(1) Statement and the wider interests of stakeholders as a whole
in all decisions it takes on behalf of the Company.
C Share Conversion
Description
------------------------------------------------------------------
On 7 January 2020, the Company announced the completion of
the conversion of its C Shares into Ordinary Shares. 133,451,107
C Shares were converted into 78,202,348 Ordinary Shares based
on a Conversion Ratio of 0.5860 Ordinary Shares per C Share.
------------------------------------------------------------------
Impact on long-term success Stakeholder considerations
------------------------------------ -----------------------------------
The issue and subsequent conversion An increase in the number of
of the C shares were undertaken Ordinary Shares in issue spreads
with a view to increasing the the Company's fixed costs over
Company's size thereby improving a wider shareholder base thereby
diversification of the Company's reducing the total expense ratio.
portfolio and improving liquidity.
------------------------------------ -----------------------------------
Broker Update
Description
-----------------------------------------------------------------
On 4 March 2020, the Board announced that Winterflood Securities
Limited had been appointed as joint corporate broker and joint
financial adviser with immediate effect. Winterflood Securities
Limited acts alongside Nplus1 Singer Advisory LLP.
-----------------------------------------------------------------
Impact on long-term success Stakeholder considerations
------------------------------------- --------------------------------------
To increase the strength and The Board views the appointment
depth of the broker advice received of Winterflood as complimentary
by the Company and the scope to the Company's existing engagement
of the with N+1 Singer, and deems this
Joint Brokers' market coverage, to be in the best interests
with the intention of improving of stakeholders for the increase
the liquidity of the Company's in knowledge and contacts available
shares. to the Company.
------------------------------------- --------------------------------------
COVID-19
Description
---------------------------------------------------------------------
As explained in the Chair's Statement, during 2020, COVID-19
adversely impacted global commercial activity and presented
significant volatility in financial markets. Refer also to
the Portfolio Adviser's Review.
In light of the COVID-19 pandemic the Directors spoke regularly
with BX Credit regarding market conditions and the performance
of the portfolio, and published the following updates to investors,
together with hosting an ad hoc investor call on 27 March
2020. The Company also amended its dividend policy, as detailed
below. The latter half of the year saw more certainty in the
markets and any updates were covered as part of the routine
quarterly investor calls.
On 23 March 2020, the Company announced a detailed review
of the companies within the BCF portfolio to determine the
potential impact of COVID-19 on these businesses and an investor
call on 27 March 2020 to provide a market update.
On 23 April 2020, the Company announced an update on the status
of the Portfolio Adviser's portfolio review, together with
an amended dividend policy and subsequent dividend declaration
in light of COVID-19. The Company announced that BX Credit
had conducted a detailed, bottom up review of all c. 970 companies
within the BCF portfolio and the likely impact of COVID-19
on cashflows. While the medium and long-term impacts of the
global pandemic remained uncertain, in the short-term BX Credit
expected that rating agency downgrades and corporate defaults
may lead to temporary cashflow diversions away from subordinate
note distributions as a result of breaches in interest diversion
and/or over-collateralisation ratios within a number of CLOs
to which the Company has exposure (through BCF). Pursuant
to this, BX Credit took numerous steps to seek to mitigate
the impact of COVID-19 on the performance of the BCF portfolio
and monitored the economic environment to identify risks and
opportunities.
---------------------------------------------------------------------
Impact on long-term success Stakeholder considerations
---------------------------------------- ------------------------------------
A review, together with relevant The Board kept stakeholders
actions, were taken to help informed of the review; the
mitigate the impact of COVID-19 likely impact of COVID-19 on
and with a view to avoiding the BCF portfolio; and any actions
a significant reduction or significant taken by the Board and BX Credit
volatility in the Company's to mitigate such impacts to
performance during a period enable stakeholders to make
of high uncertainty. informed decisions during a
difficult period.
---------------------------------------- ------------------------------------
Revised Dividend Policy
Description
------------------------------------------------------------------
On 23 April 2020, the Company announced that pursuant to the
review of BCF's portfolio in light of COVID-19, the Board
had adopted a revised Dividend Policy targeting a total 2020
annual dividend of between EUR0.06 and EUR0.07 per ordinary
share, to consist of quarterly payments of EUR0.015 per ordinary
share for the first three quarters and a final quarter payment
of a variable amount to be determined at that time, later
declared as EUR0.025 for Q4 2020. The Company further announced
that it would keep the dividend policy under close review
as the impact of the COVID-19 pandemic unfolded.
On 21 January 2021, the Board announced that the Company has
adopted a revised dividend policy targeting a total 2021 annual
dividend of between EUR0.07 and EUR0.08 per Ordinary Share,
which will consist of quarterly payments of EUR0.0175 per
Ordinary Share for the first three quarters and a final quarter
payment of a variable amount to be determined at that time.
------------------------------------------------------------------
Impact on long-term success Stakeholder considerations
------------------------------------- ------------------------------------
Amending the dividend to ensure Stakeholders are provided with
the long-term sustainability a degree of certainty as to
of the Company, particularly the level of shareholder dividends
in light of any uncertainty and the sustainability of the
presented by the COVID-19 pandemic. Company is also enhanced.
At the same time the revised
dividend policy provides sufficient
flexibility to pay more or less
for Q4 dependent on the year's
results.
------------------------------------- ------------------------------------
Share Repurchase Programme
Description
------------------------------------------------------------------
From 30 June 2020 to 27 November 2020 the Company undertook
30 share repurchases and repurchased a total of 3,498,507
shares at a weighted average price of EUR0.66 per share. The
repurchased shares were held in treasury during 2020 and remain
in treasury.
On 21 October 2020 the Company announced that it intended
to continue repurchasing shares in the market using available
cash with a view to reducing the discount to NAV at which
the Company's Ordinary Shares were currently trading, noting
the Directors' ability to do this using available cash, subject
to having been granted authority to do so, should the Ordinary
Shares trade at an average discount to NAV per Share of more
than 7.5 per cent. as measured each month over the preceding
six month trading period, as covered by the Company's prospectus
issued on 23 November 2018.
It was noted that the Directors were conscious of the discount
at which the Company's Ordinary Shares were trading and they
would continue to monitor the Company's share price and relevant
factors such as the Company's available cash resources, in
connection with any decision to repurchase shares, together
with the Company's approach to share repurchases.
Since 31 December 2020 the Company has repurchased 125,000
shares at a price of EUR81,250.
------------------------------------------------------------------
Impact on long-term success Stakeholder considerations
--------------------------------- ------------------------------------
Increasing the NAV per Ordinary The Board believes that undertaking
Share and assisting to minimise repurchases of Ordinary Shares
the discount to the NAV per addresses any imbalance between
Ordinary Share at which the the supply of, and demand for,
Ordinary Shares are trading. the Ordinary Shares.
--------------------------------- ------------------------------------
RISK OVERVIEW
Each Director is aware of the risks inherent in the Company's
business and understands the importance of identifying, evaluating
and monitoring these risks. The Board has adopted procedures and
controls to enable it to manage these risks within acceptable
limits and to meet all of its legal and regulatory obligations.
The Board considers the process for identifying, evaluating and
managing any significant risks faced by the Company on an ongoing
basis and these risks are reported and discussed at Board meetings.
It ensures that effective controls are in place to mitigate these
risks and that a satisfactory compliance regime exists to ensure
all applicable local and international laws and regulations are
upheld.
Risk Appetite
The Board's strategic risk appetite is to balance the amount of
income distributed by the Company by way of dividend with the
opportunity to reinvest the returns received from the underlying
CLO investments in further CLO equity through the structure. The
Board seeks to ensure that the dividend policy is sustainable
without eroding capital. Where the Company's share price is at a
material discount to the NAV per share the Board may decide to
repurchase shares in accordance with its share buyback policy
instead of, or as well as, reinvestment into CLOs.
When considering other risks, the Board's risk appetite is
effectively governed by a cost benefit analysis when assessing
mitigation measures. However, at all times the Company will seek to
follow best practice and remain compliant with all applicable laws,
rules and regulations.
Principal Risks and Uncertainties
As recommended by the Risk Committee, the Board has adopted a
risk management framework to govern how the Board: identifies
existing and emerging risks; determines risk appetite; identifies
mitigation and controls; assesses, monitors and measures risk; and
reports on risks.
The Board reviews risks at least twice a year and receives
deep-dive reports on specific risks as recommended by the Risk
Committee (refer to the Risk Committee Report). Throughout the year
under review the Board considered 15 main risks which have a higher
probability and a significant potential impact on performance,
strategy, reputation, or operations (Category A risks). Of these,
the first four risks identified below were considered the principal
risks faced by the Company where the combination of probability and
impact was assessed as being most significant. The Board also
considered another 14 less significant existing or emerging risks
(Category B risks) which are monitored on a watch list.
During the year, as the COVID-19 pandemic grew, the Board and
the Risk Committee considered the impact that the situation would
have on the Company's business and its service providers. As a
result, the Board elevated risks relating to Reliance on Service
Providers and Business Continuity from Category B to Category A and
downgraded risk relating to Third Party Investors in the Originator
from Category A to Category B. Category A risks relating to
Reporting and Filing Deadlines and Tax, Legal and Regulatory
Requirements were merged. Due to the material impact that the
epidemic was expected to have on the Company, society and the
economy, the existing four principal risks below were considered
through the lens of COVID-19 and a fifth principal risk was added
regarding operational risk, that aggregates a number of Category A
risks that are operational in nature.
Principal risk COVID-19 commentary
--------------------------------------------------------- ---------------------------------------------------------
Investment performance
A key risk to the Company is unsatisfactory investment Credit markets, along with most other asset classes,
performance due to an economic downturn were initially badly hit by the expected
along with continued political uncertainty which could impact of COVID-19 on companies and markets. However, as
negatively impact global credit markets the actual impact of the pandemic
and the risk reward characteristics for CLO structuring. on specific companies and markets has become clearer,
This could directly impact the performance markets have adjusted and rebounded
of the underlying CLOs that the Company invests in and it somewhat.
could also result in a reduced number
of suitable investment opportunities and/or lower The Portfolio Adviser conducted detailed reviews of the
shareholder demand. companies behind the Company's underlying
portfolio and, within the parameters of the CLOs, traded
in and out of different names to
re-orientate the portfolios for the COVID-19
environment.
The Board takes comfort from the pedigree of Blackstone
Credit as Portfolio Advisers and their
ability to trade and manage risk in the portfolios in
difficult circumstances, as demonstrated
in the GFC and as seen in 2020.
--------------------------------------------------------- ---------------------------------------------------------
Share price discount
The price of the Company's shares may trade at a discount Due to the inherent uncertainty created by the onset of
relative to the underlying net asset the COVID-19 pandemic, the Company's
value of the shares. discount initially widened as far as 36.71%, although
there had been no sustained selling
pressure.
The discount subsequently narrowed somewhat but remained
in the range 16% - 30% for the rest
of the year.
As the likely impact of the pandemic became clearer in
mid-2020, the Board commenced buying
back some of the Company's shares. The Board also began
consulting with advisers to formulate
a clearer policy regarding the application of cash
generated by the underlying portfolio between
distributions to shareholders, amounts re-invested into
the portfolio and amounts available
to buy back the Company's shares where there is a
discount. Refer to the sections Discount
Management in the Chair's Statement and Share Repurchase
Programme in Corporate Activity.
--------------------------------------------------------- ---------------------------------------------------------
Investment valuation The Directors use their judgement, with the assistance of
The investment in the Lux Subsidiary is accounted for at the Portfolio Adviser, in selecting
fair value through profit or loss an appropriate valuation technique and refer to
and the investment in PPNs issued by BCF held by the Lux techniques commonly used by market practitioners.
Subsidiary are at fair value. Investments The board of directors of BCF likewise use their
in BCF (the PPNs) are illiquid investments, not traded on judgement in determining the valuation of
an active market and are valued investments and underlying CLOs and equity tranches
using valuation techniques determined by the Directors. retained by BCF. Independent valuation
The underlying CLO investments held service providers are involved in determining the fair
by BCF are valued using modelling methodologies, value of underlying CLOs.
described in the Company's Prospectus, that The Board and Portfolio Adviser have paid close attention
are based upon many assumptions. to developing market expectations
The valuation of the Company's investments therefore and assumptions through the pandemic, to ensure that
requires a significant judgement and valuations reflect reasonable future
there is a risk that they are incorrectly valued due to scenarios.
calculation errors or incorrect assumptions. Sales of equity positions, announced to the stock market
on 11 December 2020, in the CLOs
held by BCF, to third parties, during the year have
validated that the Company's valuation
policy is reasonable.
The Risk Committee Report mentions a valuation assumption
error that was announced in September
2020. This was fully investigated by the Portfolio
Adviser and the Risk Committee was satisfied
with the action taken to prevent such an error recurring.
--------------------------------------------------------- ---------------------------------------------------------
Income distribution model The Directors use their judgement, with the assistance of
The Company receives cash flows from its underlying the Portfolio Adviser, in setting
exposure to debt and CLO investments held the Company's distribution policy to ensure that it is
by BCF. Each underlying CLO will pay out a mixture of appropriate given the performance of
income and capital return over its life the underlying CLOs.
with a terminal capital value in the 70 to 80% range. BCF As a result of the initial COVID-19 impact assessment
aims to distribute most of the proceeds conducted by the Portfolio Adviser in
that it receives from CLO investments to the Company (via March/April 2020, the Company decided to amend its
PPNs) whilst reinvesting some of dividend policy. The target for 2020 dividends
the proceeds back into CLOs to maintain capital invested. was announced as a range from EUR0.06 to EUR0.07 per
In turn, the Company aims to distribute share. This was to ensure that there
income received to shareholders, in accordance with its was sufficient cover for distributions in the reasonable
distribution policy, without eroding downside scenarios identified by
capital. the Portfolio Adviser.
There is a risk that the distribution policy at the Due to the robust performance of the underlying portfolio
Company level may be too generous or re-investment relative to the modelled downside
at the BCF level may not be sufficient, resulting in the scenarios, the Company was able to pay dividends for 2020
erosion of underlying capital invested. of EUR0.07 per share and announced
a target range for 2021 of EUR0.07 to EUR0.08 per share.
--------------------------------------------------------- ---------------------------------------------------------
Operational
The Company has no employees, systems or premises and is The Risk Committee has reviewed the arrangements put in
reliant on its Portfolio Adviser place by key service providers to
and service providers for the delivery of its investment ensure continuity of service to the Company and is
objective and strategy. currently satisfied that they are sufficient.
This will be kept under regular review.
The COVID-19 pandemic means that all of the Company's
service providers are operating under
business continuity procedures with staff mainly working
from home. This increases the risk
of control breakdowns, errors and omissions and
regulatory breaches.
As the pandemic takes its course there is also an
increased risk that key individuals at the
Portfolio Adviser and other service providers will be ill
or otherwise unable to work. This
will reduce the capacity for the Company to operate.
--------------------------------------------------------- ---------------------------------------------------------
Brexit
The Directors do not believe that the UK's departure from the
European Union poses a significant ongoing risk to the Company
other than any impact reflected generally in international markets
and the global economy. Last year, the Directors held discussions
with the Portfolio Adviser's Brexit planning team to gain comfort
that any other Brexit associated risk was mitigated. In addition,
the Portfolio Adviser's fundamental credit research team of 35
investment professionals reviewed BCF's portfolio of UK-exposed
issuers, based on potential impact as a result of Brexit. When
considering Brexit's impact on the portfolio, it is important to
look at not just where the credit is domiciled, but what the
exposure is to the UK and the impact of Brexit specifically related
to that business. The team identified and analysed what they
believed to be the main risks for UK businesses that could
potentially have an impact on margins, availability of goods, and
employees, which include but are not limited to: foreign exchange
risk, tariffs, supply chain impacts, availability of workers,
consumer confidence, and regulatory changes.
Going Concern
The Directors have considered the Company's investment
objective, risk management and capital management policies, its
assets and the expected income from its investments while factoring
in the economic impact the outbreak of COVID-19 had during 2020 and
continues to have into 2021, as discussed further in the Chair's
Statement and the Portfolio Adviser's Review. The Directors are of
the opinion that the Company is able to meet its liabilities and
ongoing expenses as they fall due and they have a reasonable
expectation that the Company has adequate resources to continue in
operational existence for the foreseeable future. Accordingly,
these financial statements have been prepared on a going concern
basis and the Directors believe it is appropriate to continue to
adopt this basis for a period of at least 12 months from the date
of approval of these financial statements.
Viability Statement
At least once a year the Directors carry out a robust assessment
of the principal risks facing the Company, including those that
would threaten its business model, future performance, solvency and
liquidity. The Directors also assess the Company's policies and
procedures for monitoring, managing and mitigating its exposure to
these risks. In assessing viability the Directors have considered
the principal risks of the Company as detailed below along with the
evolution of market conditions pursuant to the outbreak of the
COVID-19 pandemic, the Company's current position, investment
objective and strategy and the performance of the Portfolio
Adviser.
As explained above, the Company's underlying investment exposure
is to the investment portfolio of BCF. BCF's portfolio comprises
the following categories of investments: (i) CLO Debt and CLO
Income Notes securitised by BCF, (ii) a portfolio of senior secured
loans and bonds; and (iii) preference shares. The majority of CLO
investments in the portfolio have a non-call period of
approximately two years from their origination date and cannot be
redeemed until these expire. The Directors have considered each of
the principal risks of the Company that could materially affect the
cash flows derived from these investments and hence how these could
impact the cash flows received by BGLF from BCF.
The Directors adjusted the Company's dividend policy for the
calendar year 2020, pursuant to the comprehensive discussions
between the Directors and the Portfolio Adviser regarding the
portfolio review and uncertain near-term outlook. On 23 April 2020,
the Directors announced they had adopted a revised dividend policy
targeting a total 2020 annual dividend of between EUR0.06 and
EUR0.07 per Ordinary Share, to consist of quarterly payments of
EUR0.015 per Ordinary Share for the first three quarters and a
final quarter payment of a variable amount to be determined at that
time. The adjustment to the Company's dividend policy had a
positive effect on the Company's cash and cash equivalents while
allowing the Directors to assess the impact of the COVID-19
pandemic and provide for any unforeseen consequences. As the year
progressed and more information became available on the impact of
COVID-19 on BCF's portfolio, in line with the revised dividend
policy, the Board declared dividends of EUR0.015 per Ordinary Share
for the three quarters of 2020, and a dividend of EUR0.025 per
Ordinary Share for the fourth quarter.
The Directors continue to regularly review the revised dividend
policy, but at present are satisfied that the outcomes modelled by
the Portfolio Adviser under extreme market scenarios, in light of
COVID-19 and the adoption of a revised dividend policy will allow
the Company to generate sufficient cash flow and ensure that the
Company would be able to meet its liabilities, as they fall
due.
The Directors have assessed the prospects of the Company over
the five-year period to 30 April 2026, which the Directors have
determined constitutes an appropriate period to provide its
viability statement. The Directors regularly receive financial
forecasts from the Portfolio Adviser presented on a quarterly basis
for at least the next four to five years. The Directors believe
that financial forecasts to support its investment strategy can be
subject to changes dependent upon investment performance,
deployment of capital and regulatory, legal and tax developments
for which the impact beyond a five year term is difficult to
assess. In addition, the extent to which macroeconomic, political,
social, technological and regulatory changes beyond a five-year
term may have a plausible impact on the Company are difficult to
envisage.
The Directors also considered other key risks. Whilst each of
these key risks could have an impact on the long-term
sustainability of the Company, the Directors concluded that each
was sufficiently mitigated and would therefore not impact the
viability of the Company over a five-year period.
On the basis of this assessment of the principal risks facing
the Company and the modelled extreme market scenarios by the
Portfolio Adviser, including the potential impact of COVID-19, used
to assess the Company's prospects, and in the absence of any
unforeseen circumstances, the Directors confirm that they have a
reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the
five-year period of their assessment. However, it is worth noting
that there is no intention for the life of the Company to be
limited to this five-year period.
Performance Analysis
IFRS NAV Performance Analysis for the Years Ended 31 December
2020 And 31 December 2019 - Contributors to Change
[Graphs and charts are included in the published Annual Report
and Audited Financial Statements which is available on the
Company's website at https://blackstone.com/bglf ]
Further commentary on the Company's performance is contained in
the Chair's Statement and the Portfolio Adviser's Review.
Published NAV Performance Analysis for the Years Ended 31
December 2020 And 31 December 2019 - Contributors to Change
[Graphs and charts are included in the published Annual Report
and Audited Financial Statements which is available on the
Company's website at https://blackstone.com/ bglf ]
Further commentary on the Company's performance is contained in
the Chair's Statement and the Portfolio Adviser's Review.
Other Information
Valuation Methodology
As noted above, the Published NAV and the IFRS NAV may diverge
because of different key assumptions used to determine the
valuation of the BCF portfolio. Key assumptions which are different
between the two bases as at 31 December 2020 and 31 December 2019
are detailed below:
Asset Valuation Input IFRS Published IFRS Published
Methodology NAV NAV NAV NAV
31 December 2020 31 December 2019
Discounted Constant
CLO Securities Cash Flows default rate 1.75% 1.83% 1.98% 2.00%
Conditional
prepayment
rate 23% 24% 25% 20%
Reinvestment
spread (bp
over LIBOR) 370.00 359.23 354.77 380.82
Recovery
rate loans 60.00% 60.00% 70.00% 70.00%
Recovery
lag (Months) 0 12 0 12
Discount
rate 14.55% 14.00% 15.67% 12.04%
----------------------------------------------- ------- ---------- ------- ----------
All of the assumptions above are based on weighted averages.
Certain assumptions, which underpin the year-end Published NAV,
such as a lower conditional prepayment rate, discount rate and a
12-month recovery lag on assumed defaulted assets, are generally
more conservative. The below table further explains the rationale
regarding the differences in the assumptions that significantly
contributed to the valuation divergence as at 31 December 2020.
Assumptions IFRS NAV Published NAV
------------- ------------------------------------- ------------------------------------
Reinvestment Largely weighted by a CLO's Represents a normalised,
Spread current portfolio weighted long-term view of loan
average spread, which assumes spreads to be achieved
that the CLO investment over the life of the CLO's
manager will continue to remaining reinvestment
reinvest in collateral period. Initially informed
with a similar spread and by the underwriting model
rating composition to the at issuance, the assumption
existing collateral pool. is periodically reviewed
In addition, weighting and updated to the extent
may be given to primary of secular changes in loan
loan spreads to the extent spreads.
current primary market
opportunities suggest different
spreads than the existing
portfolio.
Discount Intended to reflect the Based on the expected rate
Rate market required rate of of return for a newly originated
return for similar securities CLO equity security on
and is informed by market a hold to maturity basis.
research, BWICs, market The expected rate of return
colour for comparable transactions, is based on a long-term
and dealer runs. The discount market average and is periodically
rate may vary based on reviewed and updated to
underlying loan prices, the extent of secular changes
exposure to distressed in the market.
assets or industries, manager
performance, and time remaining
in reinvestment period.
Discount rates have tightened
materially since Q1 2020
given the recovery of the
loan market and central
bank stimulus. The Company
completed several opportunistic
trades of excess positions
in Q4 2020. The discount
rates implied by such trades
helped inform the discount
rates assumed for mark
to market valuations.
------------- ------------------------------------- ------------------------------------
Source of the Company's Dividend - Ordinary Class
The Company through its investments in the Lux Subsidiary
receives income, on a quarterly basis, on the PPNs held by the
latter in BCF, which continues to generate positive cash flows from
its CLO Income Note investments and from its portfolio of directly
held and warehoused loans.
The Company redeems CSWs on a quarterly basis to transfer the
income from the Lux Subsidiary. As detailed above, the Company
redeemed 41,678,730 CSWs in the Lux Subsidiary during the year with
a fair value of EUR51,840,511 to fund the quarterly dividend.
Alternative Investment Fund Managers' Directive
The Alternative Investment Fund Managers' Directive ("AIFMD")
requires certain information to be made available to investors in
alternative investment funds ("AIFs") before they invest and
requires that material changes to this information be disclosed in
the annual report of each AIF. There have been no material changes
(other than those reflected in these financial statements) to this
information requiring disclosure.
Alternative Performance Measures
In accordance with ESMA Guidelines on APMs, the Board has
considered which APMs are included in the Annual Report and Audited
Financial Statements and require further clarification. An APM is
defined as a financial measure of historical or future financial
performance, financial position, or cash flows, other than a
financial measure defined or specified in the applicable financial
reporting framework. APMs included in the financial statements,
which are unaudited and outside the scope of IFRS, are detailed in
the table below.
Published NAV total Published NAV per (Discount) / Premium
return per Ordinary Ordinary Share(25) per Ordinary Share
Share(25)
Definition The increase in the Gross assets less BGLF's closing
Published NAV per liabilities (including share price on
Ordinary Share plus accrued but unpaid the LSE less the
the total dividends fees) determined Published NAV per
paid per Ordinary in accordance with share as at the
Share during the the section entitled period end, divided
period, with such "Net Asset Value" by the Published
dividends paid being in Part I of the NAV per share as
re-invested at NAV, Company's Prospectus, at that date
as a percentage of divided by the number
the NAV per share of Ordinary Shares
as at period end at the relevant time
Reason NAV total return The Published NAV The discount or
summarises the Company's per share is an indicator premium per Ordinary
true growth over of the intrinsic Share is a key
time while taking value of the Company. indicator of the
into account both discrepancy between
capital appreciation the market value
and dividend yield and the intrinsic
value of the Company
Target 11%+ Not applicable Maximum discount
of 7.5%
Performance
2020 (0.22)% 0.8435 (20.57)% (26)
2019 14.46% 0.9187 (10.20)%
2018 6.70% 0.8963 (15.21)%
2017 1.38% 0.9378 5.03%
2016 13.28% 1.0238 (1.10)%
----------- ------------------------- -------------------------- ---------------------
A reconciliation of the above-mentioned APMs to the most
directly reconcilable line items presented in the financial
statements for the year ended 31 December 2020 is presented
below:
Published NAV total return per Ordinary Share
31 December 2020 31 December 2019
Opening Published NAV per Ordinary
Share (A) EUR0.9187 EUR0.8963
Adjustments per Ordinary Share (B) EUR(0.0644) EUR(0.0898)
Opening IFRS NAV per Ordinary Share
(C=A+B) EUR0.8543 EUR0.8065
Closing Published NAV per Ordinary
Share (D) EUR0.8435 EUR0.9187
Adjustments per Ordinary Share (E) EUR0.0122 EUR(0.0644)
Closing IFRS NAV per Ordinary Share
(F=D+E) EUR0.8557 EUR0.8543
Dividends paid during the year (G) EUR0.0700 EUR0.1000
Published NAV total return per Ordinary
Share
(H=(D-A+G)/A) (0.57)% 13.66%
Impact of dividend re-investment
(I) 0.35% 0.80%
Published NAV total return per Ordinary
Share with dividends re-invested
(J=H+I) (0.22)% 14.46%
IFRS NAV total return per Ordinary
Share
(K=(F-C+G)/C) 8.36% 18.33%
Impact of dividend re-investment
(L) 0.49% (0.02)%
IFRS NAV total return per Ordinary
Share with
dividends re-invested (M=K+L) 8.85% 18.31%
---------------------------------------- ---------------- ----------------
Refer to Note 16 for further details on the adjustments per
Ordinary Share.
Published NAV per Ordinary Share
31 December 2020 31 December 2019
Published NAV per Ordinary Share
(A) EUR0.8435 EUR0.9187
Adjustments per Ordinary Share (B) EUR0.0122 EUR(0.0644)
IFRS NAV per Ordinary Share (C=A+B) EUR0.8557 EUR0.8543
------------------------------------ ---------------- ----------------
Refer to Note 16 for further details on the adjustments per
Ordinary Share.
(Discount) / Premium per Ordinary Share
31 December 2020 31 December 2019
Published NAV per Ordinary Share
(A) EUR0.8435 EUR0.9187
Adjustments per Ordinary Share (B) EUR0.0122 EUR(0.0644)
IFRS NAV per Ordinary Share (C=A+B) EUR0.8557 EUR0.8543
Closing share price as at 31 December
per the LSE (D) EUR0.6700 EUR0.8250
Discount to Published NAV per Ordinary
Share
(E=(D-A)/A) (20.57)% (10.20)%
Discount to IFRS NAV per Ordinary
Share
(F=(D-C)/C) (21.70)% (3.43)%
--------------------------------------- ---------------- ----------------
Refer to Note 16 for further details on the adjustments per
Ordinary Share.
(25) Published NAV is an APM from which these metrics are
derived
(26) Refer to details on management of the discount in the
Chair's Statement
Future Developments
Significant Events after the Reporting Period
Name Change
On 6 January 2021, the Company announced that at the
Extraordinary General Meeting held earlier that day a special
resolution had been duly passed to change the name of the Company
from 'Blackstone / GSO Loan Financing Limited' to 'Blackstone Loan
Financing Limited'.
On 13 January 2021, the Company announced that the name change
had taken effect from and including 11 January 2021.
Dividends
On 22 January 2021, the Board declared a dividend of EUR0.025
per Ordinary Share in respect of the period from 1 October 2020 to
31 December 2020 with an ex-dividend date of 4 February 2021. A
total payment of EUR11,923,083 was processed on 5 March 2021.
On 23 April 2021, the Board declared a dividend of EUR0.0175 per
Ordinary Share in respect of the period from 1 January 2021 to 31
March 2021 with an ex-dividend date of 6 May 2021. The dividend
will be paid on 4 June 2021.
Updated Conflict Disclosures
On 2 March 2021 the Company announced that it was seeking
acknowledgment by Shareholders of certain updated disclosures with
respect to potential con icts of interest which may arise within
The Blackstone Group, Inc., available online at www.bglf.co.uk
under Terms of Reference & Key Roles. A formal request was sent
to Shareholders asking for their acknowledgement.
Share Repurchase Programme
On 12 March 2021 the Company announced that the Company's Joint
Brokers had been appointed to manage a share repurchase programme
to repurchase Ordinary shares within certain pre-set parameters,
which would run until 26 May 2021.
Repurchase of Ordinary Shares
During the period from 1 January 2021 to 28 April 2021, the
Company repurchased 125,000 shares at a cost of EUR81,250.
Outlook
It is the Board's intention that the Company will pursue its
investment objective and investment policy as detailed above.
Further comments on the outlook for the Company for the 2021
financial year and the main trends and factors likely to affects
its future development, performance and position are contained
within the Chair's Statement and the Portfolio Adviser's
Review.
Directors' Biographies
The Directors appointed to the Board as at the date of approval
of this Annual Report and Audited Financial Statements are:
Charlotte Valeur
Position: Chair of the Board (non-executive and independent director, resident in Jersey)
Date of appointment: 13 June 2014
Charlotte Valeur has extensive experience in financial markets
as an investment banker and is an experienced FTSE Non-Executive
Director and Chair.
She is a regular public speaker and delivers training in
corporate governance globally. In addition, she conducts board
reviews and advises boards on corporate governance through her
company Global Governance Group and is a visiting Professor in
governance at University of Strathclyde.
Charlotte has substantial board experience as Chair of FTSE250
Kennedy Wilson Europe Real Estate Plc, Chair of DW Catalyst Fund
Ltd, NED of Renewable Energy Generation Ltd, NED of Phoenix Spree
Deutschland Ltd, NED of JPMorgan Convertibles Income Fund, NED of
FTSE250 3i Infrastructure Plc and NED of DGI9 Plc. Her unlisted
company board experience includes NED of NTR Plc, NED of Laing
O'Rourke and Chair of the U.K. Institute of Directors. She is also
Chair and founder of Board Apprentice.
She is a member of the London Stock Exchange Primary Markets
Group and serves on the Advisory Board of the Moller Institute,
Churchill College, and University of Cambridge.
Gary Clark, ACA
Position: Chair of the Remuneration and Nomination Committee and
NAV Review Committee; Senior Independent Director (non-executive
and independent director, resident in Jersey)
Date of appointment: 13 June 2014
Gary Clark acts as an independent non-executive director for a
number of investment managers including Emirates NBD, Aberdeen
Standard Capital and ICG. Until 1 March 2011 he was a managing
director at State Street and their head of Hedge Fund Services in
the Channel Islands. Gary Clark, a Chartered Accountant, served as
chairman of the Jersey Funds Association from 2004 to 2007 and was
managing director at AIB Fund Administrators Limited when it was
acquired by Mourant in 2006. This business was sold to State Street
in 2010. Prior to this Gary Clark was managing director of the
futures broker, GNI (Channel Islands) Limited in Jersey.
A specialist in alternative investment funds, Gary Clark was one
of several practitioners involved in a number of significant
changes to the regulatory regime for funds in Jersey, including the
introduction of both Jersey's Expert Funds Guide and Jersey's
Unregulated Funds regime.
As a Chartered Accountant with over 30 years' experience in
financial services, including many years focused on running fund
administration businesses in alternative asset classes, Gary Clark
brings a wealth of highly relevant experience, at both board level
and as an executive, in fund / asset management operations,
including in particular valuation, accounting and administrative
controls and processes.
Heather MacCallum, CA
Position: Chair of the Audit Committee (non-executive and independent
director, resident in Jersey)
Date of appointment: 7 September 2017
Heather MacCallum is a Chartered Accountant and was a partner
of KPMG Channel Islands for 15 years before retiring from the
partnership in 2016.
Heather MacCallum now holds a portfolio of non-executive directorships
including Aberdeen Latin American Income Fund Limited and City
Merchants High Yield Trust Limited, both of which are investment
companies listed on the London Stock Exchange. She is the Chair
of Jersey Water, an unlisted Jersey utility company.
She is a member of the Institute of Directors and the Institute
of Chartered Accountants of Scotland (ICAS). She is also a
past president of the Jersey Society of Chartered and Certified
Accountants.
With 20 years' experience gained in a global professional services
firm, Heather MacCallum brings financial experience including
technical knowledge of accounting and auditing, especially
in the context of financial services, and in particular the
investment management sector.
Steven Wilderspin, FCA, IMC
Position: Chair of the Risk Committee (non-executive and independent
director, resident in Jersey)
Date of appointment: 11 August 2017
Steven Wilderspin, a qualified Chartered Accountant, has been
the Principal of Wilderspin Independent Governance, which provides
independent directorship services, since 2007. He has served
on a number of private equity, property and hedge fund boards
as well as commercial companies.
In February 2021 Steven Wilderspin was appointed as a director
of FTSE 250 GCP Infrastructure Investments Ltd and in May 2018
Steven Wilderspin was appointed as a director of FTSE 250 HarbourVest
Global Private Equity Limited.
In December 2017 Steven Wilderspin stepped down from the board
of FTSE 250 3i Infrastructure plc, where he was chairman of
the audit and risk committee, after ten years' service.
From 2001 until 2007, Steven Wilderspin was a director of fund
administrator Maples Finance Jersey Limited where he was responsible
for fund and securitisation structures. Before that, from 1997,
Steven Wilderspin was Head of Accounting at Perpetual Fund
Management (Jersey) Limited.
Steven Wilderspin has significant listed corporate governance
experience, particularly in the area of risk management, so
is well placed to lead the board through the development of
its risk framework.
Mark Moffat
Position: Non-executive and independent director (resident
in UK)
Date of appointment: 8 January 2019
Mark Moffat has been involved in structuring, managing and
investing in CLOs for over 20 years. Mark Moffat left GSO Capital
Partners LP (now Blackstone Credit), part of the credit businesses
of The Blackstone Group L.P., in April 2015 to pursue other
interests.
Whilst at GSO Capital Partners LP Mr Moffat was a senior managing
director and the portfolio manager responsible for investing
in structured credit and co-head of the European activities
of the Customised Credit Strategies division.
Mark Moffat joined GSO Capital Partners LP in January 2012
following the acquisition by GSO Capital Partners LP of Harbourmaster
Capital Management Limited where he was co-head. Prior to joining
Harbourmaster in 2007, Mark Moffat was head of European debt
and equity capital markets and the European CLO business of
Bear Stearns. At Bear Stearns, Mr Moffat was responsible for
the origination, structuring and execution of CLOs in Europe
over a seven-year period. Prior to Bear Stearns, Mark Moffat
was global head of CLOs at ABN AMRO and a Director in the principal
finance team of Greenwich NatWest.
With over 20 years of experience structuring, managing and
investing in CLOs Mark Moffat brings a deep knowledge of how
CLO structures and markets perform over the credit cycle.
DIRECTORS' REPORT
The Directors present the Annual Report and Audited Financial
Statements for the Company for the year ended 31 December 2020.
Directors
The Directors of the Company on the date the financial
statements were approved are detailed above. All directors were
directors of the Company throughout the year ended 31 December
2020.
The Board and Employees
The Board currently comprises three male and two female
Directors. The Company has no employees and therefore there is
nothing further to report in respect of gender representation
within the Company.
Full details of the Company's policy on Board Diversity can be
found in the Corporate Governance Report.
Share Capital
The Company's share capital consists of an unlimited number of
shares. As at 31 December 2020, the Company's issued share capital
consisted of 477,023,331 Ordinary Shares, excluding 5,879,463
treasury shares (31 December 2019: 402,319,490 Ordinary Shares and
133,451,107 C Shares, excluding 2,380,956 treasury shares).
Share Repurchase Programme
At the 2019 AGM, held on 11 July 2019, the Directors were
granted authority to repurchase up to 60,307,691 Ordinary Shares
(being equal to 14.99% of the aggregate number of Ordinary Shares
in issue at the date of the AGM) for cancellation, or to be held as
treasury shares.
Under this authority, the Company has repurchased a total of
105,000 Ordinary Shares at a total cost of EUR70,100 (excluding
fees and commissions).
At the 2020 AGM, held on 16 July 2020, the Directors were
granted authority to repurchase up to 72,014,484 Ordinary Shares
(being equal to 14.99% of the aggregate number of Ordinary Shares
in issue at the date of the AGM) for cancellation, or to be held as
treasury shares.
Under this authority, the Company has repurchased a total of
3,393,507 Ordinary Shares at a total cost of EUR2,048,649
(excluding fees and commissions) during the year ended 31 December
2020.
Under this authority, the Company has repurchased a total of
125,000 Ordinary Shares at a total cost of EUR81,250 (excluding
fees and commissions) during the period from 1 January 2021 to 28
April 2021.
The Directors intend to seek annual renewal of this authority
from Shareholders.
Authority to Allot
At the 2020 AGM, the Directors were granted authority to allot,
grant options over, or otherwise dispose of up to 48,041,683
Ordinary Shares (being equal to 10.00% of the aggregate number of
Ordinary Shares in issue at the date of the AGM). This authority
will expire at the 2021 AGM.
Shareholders' Interests
As at 31 December 2020, the Company had been notified, in
accordance with Chapter 5 of the Disclosure Guidance and
Transparency Rules (which covers the acquisition and disposal of
major shareholdings and voting rights), of the following
Shareholders with an interest of greater than 5% in the Company's
issued share capital:
Shareholder Percentage of Voting Rights
BlackRock Inc 22.95%
Quilter plc 21.26%
Blackstone Treasury Asia Pte Ltd 9.01%
FIL Limited 6.89%
--------------------------------- ---------------------------
Between 31 December 2020 and 28 April 2021, no notifications
were received.
Statement of Disclosure of Information to the Auditor
The Directors who held office as at the date of approval of this
Directors' Report confirm that, so far as they are each aware,
there is no relevant audit information of which the Company's
auditor is unaware and that they have taken the steps that they
ought to have taken as Directors to make themselves aware of any
relevant audit information and to establish that the Company's
auditor is aware of that information.
Environmental, Employee, Social, Community and Human Rights
Matters
The Company is a closed ended investment company with no
employees, and therefore its environmental and climatic impact is
minimal. The Board notes that the companies in which BCF invests
(either directly or indirectly) may have an environmental, social
and governance impact. The Board have obtained and reviewed BX
Credit's Responsible Investing Policy and considered their
perspective on climate change. The Board noted that BX Credit is of
the belief that a key component of being a responsible investor is
an active evaluation of ESG components of its investments. Hence, a
review of ESG risks is integrated into BX Credit's investment
analysis and decision-making processes from pre-investment
diligence to post-investment monitoring. BX Credit recognises the
value that incorporating ESG factors in investment research creates
both in terms of mitigating risk and enhancing long-term
performance across investments. BX Credit integrates review and
consideration of applicable ESG factors into its decision-making
processes. Refer to the Portfolio Adviser's Review for further
details on the Portfolio Adviser's ESG policy.
Modern slavery
The Company would not fall into the scope of the UK Modern
Slavery Act 2015 (as the Company does not have any turnover derived
from goods and services) if it was incorporated in the UK.
Furthermore, as a closed-ended investment company, the Company has
no employees and its supply chain is considered to be low risk
given that suppliers are typically professional advisers based in
either the Channel Islands or the UK. Based on these factors, the
Board have considered that it is not necessary for the Company to
make a slavery and human trafficking statement.
Gary Clark
Director
29 April 2021
CORPORATE GOVERNANCE REPORT
Statement of Compliance with Corporate Governance
The Board of the Company has considered the Principles and
Provisions of the AIC Code. The AIC Code addresses the Principles
and Provisions set out in the UK Code, as well as setting out
additional Provisions on issues that are of specific relevance to
the Company, as an investment company.
The Board considers that reporting against the Principles and
Provisions of the AIC Code, which has been endorsed by the FRC and
supported by the Jersey Financial Services Commission provides more
relevant information to shareholders.
The Company has complied with the Principles and Provisions of
the AIC Code as they apply to the Company.
The AIC Code is available on the AIC website ( www.theaic.co.uk
). It includes an explanation of how the AIC Code adapts the
Principles and Provisions set out in the UK Code to make them
relevant for investment companies.
The Board
The Board consists of five non-executive directors. Their
biographies can be found above.
The Board meets at least four times a year and is in regular
contact with the Portfolio Adviser, the Portfolio Manager, the
Administrator and the Company Secretary. Furthermore, the Board is
supplied with information in a timely manner from the Portfolio
Adviser, Portfolio Manager, the Company Secretary and other
advisers in a form and of a quality appropriate for it to be able
to discharge its duties.
Board Apprentices
The Board participates in the Board Apprentice scheme and took
on 2 Board Apprentices from 1 April 2021, having previously taken
on two Board Apprentices for one year in October 2018. The Board
consider this a valuable exercise in mentoring already accomplished
individuals to be future directors, fostering equality and
developing board culture.
Duties and Responsibilities
The Board has overall responsibility for maximising the
Company's success by directing and supervising the affairs of the
business and meeting the appropriate interests of Shareholders and
relevant stakeholders, while enhancing the value of the Company and
also ensuring the protection of investors. A summary of the Board's
responsibilities is as follows:
-- statutory obligations and public disclosure;
-- strategic matters and financial reporting;
-- risk assessment and management including reporting,
compliance, governance, monitoring and control; and
-- other matters having a material effect on the Company.
The Board is responsible to Shareholders for the overall
management of the Company. The Board has delegated certain
operational activities of the Company to the Portfolio Adviser,
Administrator and Company Secretary. The Board reserves the power
of decisions relating to the determination of investment policy,
the approval of changes in strategy, capital structure, statutory
obligations and public disclosure, and the entering into of any
material contracts by the Company.
Board Attendance
The following table shows the number of meetings held by the
Board and each committee for the year ended 31 December 2020, as
well as the Directors' and Committee Members' attendance.
Charlotte Gary Mark
Meeting Total Valeur Clark Steven Wilderspin Heather MacCallum Moffat
Quarterly Board 4 4 4 4 4 4
Ad Hoc Board 5 4 5 5 5 5
Ad Hoc board (Dividend Declaration) 4 4 4 4 4 4
Audit Committee 6 N/A 6 6 6 6
Management Engagement Committee 1 1 1 1 1 1
NAV Review Committee 12 N/A 11 12 12 12
Remuneration and Nomination Committee 4 4 4 4 4 4
Risk Committee 4 4 4 4 4 4
Inside Information Committee (27) 3 1 2 3 2 2
-------------------------------------- ----- --------- ------ ----------------- ----------------- -------
Chair
The Chair is responsible for leadership of the Board, ensuring
its effectiveness on all aspects of its role and setting its
agenda. The Chair is also responsible for ensuring that the
Directors receive accurate, timely and clear information and for
effective communication with Shareholders.
Board Independence
For the purpose of assessing compliance with principle G,
provisions 10 and 13 of the AIC Code, the Board considers all of
the current Directors to be independent.
The Directors consider that there are no factors, as set out in
provision 13 in the AIC Code, which compromise the other Directors'
independence and that all Directors contribute comprehensively to
the affairs of the Company. The Board reviews the independence of
all Directors annually. The Company Secretary acts as secretary to
the Board and Committees and, in doing so, assists the Chair in
ensuring that all Directors have full and timely access to all
relevant documentation, organises induction of new Directors, is
responsible for ensuring that the correct Board procedures are
followed and advises the Board on corporate governance matters.
Board Evaluation
During 2020, the Board conducted their own review using
BoardMetrix, a board evaluation tool. This evaluation assessed the
Board's performance in the following areas:
-- board composition/skills;
-- strategic review;
-- workings of the board;
-- risk oversight;
-- performance oversight; and
-- stakeholder management.
The performance of each Director and the Committees of the Board
were also assessed as part of this evaluation.
The evaluation concluded that the Board was strong across all of
the above areas and that the Directors and the Board's Committees
were performing effectively. No significant recommendations were
made which are required to be brought to the attention of the
Shareholders.
Committees of the Board
The Board has established six committees: an Audit Committee; a
Management Engagement Committee; a NAV Review Committee; a
Remuneration and Nomination Committee; a Risk Committee; and an
Inside Information Committee. Each committee has formally delegated
duties and responsibilities within written terms of reference.
These are available on the Company's website, blackstone.com/bglf,
under "Terms of Reference".
The current committee memberships are detailed below.
(27) The Inside Information Committee is a committee of any two
Directors.
Audit Committee
The Audit Committee comprises all Directors, except Charlotte
Valeur, and is chaired by Heather MacCallum.
The terms of reference state that the Audit Committee will meet
not less than three times a year and will meet with the Auditor at
least once a year. The report on the role and activities of this
committee and its relationship with the Auditor is included in the
Audit Committee Report.
Management Engagement Committee
The Management Engagement Committee comprises all Directors and
is chaired by Charlotte Valeur.
The terms of reference state that the Management Engagement
Committee shall meet at least once a year; will have responsibility
for monitoring and reviewing the Portfolio Adviser's performance;
and will recommend to the Board whether the continued appointment
of the Portfolio Adviser is in the best interests of the Company
and Shareholders.
NAV Review Committee
The NAV Review Committee comprises all Directors, except
Charlotte Valeur, and is chaired by Gary Clark.
The terms of reference state that the NAV Review Committee shall
meet at least once a month to review and consider the Company's NAV
calculation, fact sheet and related stock exchange
announcement(s).
Remuneration and Nomination Committee
The Remuneration and Nomination Committee comprises all
Directors and is chaired by Gary Clark.
The terms of reference state that the Remuneration and
Nomination Committee will meet not less than twice a year and shall
be responsible for all aspects of the appointment and remuneration
of Directors. The remuneration duties of the committee include
determining and agreeing with the Board the framework or broad
policy for the remuneration of the Directors and to review its
ongoing appropriateness and relevance.
The nomination duties of the committee include regularly
reviewing the structure, size and composition of the Board,
including the balance of skills, experience, independence and
knowledge, as well as identifying, nominating and recommending for
the approval of the Board, candidates to fill Board vacancies as
they arise.
Director Re-Election and Tenure
The Remuneration and Nomination Committee and the Board are
strongly committed to striking the correct balance between the
benefits of continuity and those that come from the introduction of
new perspectives to the Board.
It is the intention of the Board that each Director will retire
after no longer than nine years in their role and the Board has
adopted a policy whereby all Directors will be put up for
re-election every year. Accordingly, all Directors will be put
forward for re-election at the forthcoming AGM. Each of the
Directors has demonstrated a strong commitment to the Company and
the Board believes each Director's re-election to be in the best
interests of the Company.
The Board also maintains a succession planning matrix covering
the Directors' skills, the Board's diversity, and the Directors'
expected year of retirement should they hold office for nine years.
The matrix is used by the Remuneration and Nomination Committee to
identify any additional skills that would benefit the Board and to
help the Remuneration and Nomination Committee establish when to
begin recruiting for any new directors. The Board also keeps its
diversity under review.
Risk Committee
The Risk Committee comprises all Directors and is chaired by
Steven Wilderspin.
The terms of reference state that the Risk Committee shall meet
at least two times a year. The activities of this committee are
outlined in the Risk Committee Report.
Inside Information Committee
The Inside Information Committee comprises any two members of
the Board.
The Inside Information Committee is responsible for considering
whether anything brought to its attention constitutes inside
information and monitoring the disclosure and control of such
information.
Board Diversity
The Board believes in and values the importance of a broad range
of skills, experience and diversity, including gender, for the
effective functioning of the Board, all of which are considered
when determining the optimum composition of the Board. The Board
has a policy that aims to have a minimum of 40% of either gender
represented on the Board, and also recognises the importance of
inclusivity in its diversity policy. The Board ensures compliance
with its policy in respect of any appointments to the Board. At 31
December 2020 and at the date of approval of these financial
statements, 60% of the Directors were male and 40% were female.
Internal Controls
The Board has applied principle O of the AIC Code by
establishing a continuous process for identifying, evaluating and
managing the principal risks that the Company faces. The Board is
responsible for the Company's system of internal controls and for
reviewing its effectiveness. Such a system is designed to manage
rather than eliminate the risk of failure to achieve business
objectives, and can only provide reasonable and not absolute
assurance against material misstatement or loss.
The Board's monitoring covers all controls, including financial,
operational and compliance controls and risk management. It is
based principally on reviewing reports from the Portfolio Adviser
and BCF to consider whether significant risks are identified,
evaluated, managed and controlled and whether any significant
weaknesses are promptly remedied and indicate a need for more
extensive monitoring.
The Audit Committee assists the Board in discharging its
monitoring responsibilities.
During the course of the Board's review of the system of
internal controls, it has not identified nor been advised of any
failings or weaknesses which it has determined to be significant.
Therefore, no confirmation in respect of necessary actions has been
made.
The Board is also responsible for setting the overall investment
policy and monitors the services provided by the Portfolio Adviser
at regular Board meetings. The Board receives regular reports from
the Portfolio Adviser, together with quarterly reports from the
Administrator, the Company Secretary, the Depositary, Compliance
(including the Money Laundering Compliance Officer and Money
Laundering Reporting Officer) and from the Portfolio Adviser
covering compliance matters.
The Directors clearly define the duties and responsibilities of
their agents and advisers, whose appointments are made after due
consideration, and monitor their ongoing performance, which is done
with the assistance of the Management Engagement Committee. All of
the Company's agents and advisers maintain their own systems of
internal control on which they report to the Board. These systems
are designed to ensure effectiveness and efficient operation,
internal control and compliance with laws and regulations. In
establishing the systems of internal control, regard is paid to the
materiality of relevant risks, the likelihood of costs being
incurred and the costs of control. It follows, therefore, that the
systems of internal control can only provide reasonable but not
absolute assurance against the risk of material misstatement or
loss.
The Directors are satisfied that the continued appointment of
the relevant service providers is in the best interests of the
Shareholders.
The Board has reviewed the need for an internal audit function
and has decided that the systems and procedures employed by the
Administrator and Portfolio Adviser, including their own internal
controls and procedures, provide sufficient assurance that a sound
system of risk management and internal control, to safeguard the
Shareholders' investment and the Company's assets, is maintained.
An internal audit function specific to the Company is therefore
considered unnecessary. Full details are set out in the Audit
Committee Report.
The Company has appointed Nplus 1 Singer Advisory LLP and
Winterflood Investment Trusts as its joint brokers. Together with
the brokers, the Portfolio Adviser assists the Board in
communicating with and understanding the views of the Company's
major Shareholders.
RISK COMMITTEE REPORT
Membership
The Risk Committee comprises Steven Wilderspin (Chair),
Charlotte Valeur, Heather MacCallum, Gary Clark and Mark
Moffat.
Key Objectives
The Risk Committee has been established to assist the Board in
its oversight of risk through ensuring the Company maintains a high
standard of risk identification, monitoring and management so as to
minimise investment risks and any other risks not covered by the
Audit Committee.
Responsibilities
The Risk Committee's key responsibilities are:
-- ensuring the Company's compliance with its investment
objectives, policies, restrictions and borrowing limits;
-- ensuring that appropriate policies and reporting exists for
the monitoring of the Company's key risks;
-- developing and maintaining a risk register documenting
identified risks, their mitigants, likelihood and impact, which is
reviewed regularly by the Board with action points and newly
identified risks being appropriately dealt with;
-- defining risk review activities regarding investment
decisions, transactions and exposures for approval by the Board;
and
-- ensuring due regard is given to all regulations, codes, and
laws that the Company is subject to.
Committee Meetings
In 2020, the Risk Committee met on four occasions. The specific
areas of focus for the Committee during the year included:
-- The impact of the COVID-19 pandemic. The Committee reviewed
the operational resilience of the Company's key service providers
to ensure that they could continue providing services throughout
the year, particularly during periods of lockdown. The Committee
reviewed all of the Company's risks through the lens of the
pandemic to ensure that any new or heightened risk was identified
and appropriately dealt with - see the Risk Overview. Other than
the heightened operational risk, the most material increase in risk
related to the sustainability of the Company's dividend and level
of the Company's share price discount to Published NAV. These areas
were addressed by the Board as described above.
-- The structuring of the Company's investments through
Luxembourg and governance of the Company's Luxembourg subsidiary.
Just before the COVID-19 pandemic hit, early in 2020, the Chairs of
the Risk and Audit Committees conducted a due diligence visit to
the subsidiary in Luxembourg and met the board and members of the
Portfolio Adviser's Luxembourg team. The visiting Chairs were very
satisfied with the engagement of the subsidiary board and the
strength of the operational team in Luxembourg.
-- Cyber Risk . The Committee considered a report, commissioned
from KPMG, that focused on the cyber threat resilience of the
Company's main service providers - Blackstone Credit (Portfolio
Adviser), BNP Paribas (Administrator) and Link (Registrar). Minor
action points from this report were followed up by the Committee.
KPMG also made some general recommendations regarding the risk
around the activities of the Board and consequently the board has
engaged a dedicated IT service provider in Jersey to manage an
email service for the directors as well as providing back-up and
access to more secure document management capabilities.
-- Registration Services . The Committee considered a reasonably
straight forward data issue that arose at the Registrar who
confirmed there was no loss of data or data sent externally. Taking
account of their length of service since IPO, the Committee
recommended to the Board that the registration service be
re-tendered. This process will be completed in 2021.
-- Guidance for Risk Committees issued by the Risk Coalition.
During the year the Chair of the Committee considered the guidance
for risk committees published by the Risk Coalition and engaged
with the authors and the AIC regarding its application to
Investment Companies. As a result, after the year-end, in February
2021 the Committee approved new terms of reference for the Risk
Committee incorporating its key principles, but not its detailed
provisions which will instead be used for reference purposes.
-- The potential Brexit impact on the Company and its
investments, and on the operations of the Portfolio Adviser.
Although this was kept under review, Brexit was not considered
likely to have a major impact on the Company, and the Portfolio
Adviser was well-placed to arrange its affairs between Dublin,
London and Luxembourg to mitigate any operational risk to its
business. No issues for the Company actually arose when the UK left
the EU or at the end of the transition period.
-- Valuation Assumption Error. The Committee investigated the
circumstances giving rise to the valuation assumption error
announced to the stock market on 1 September 2020. Following the
identification of this valuation assumption error, no adjustment
was made to the Published NAV. The Committee satisfied itself that
the Portfolio Adviser had established robust new procedures with
the third-party valuation agent to prevent such errors recurring.
After the year-end a new third-party valuation agent was
engaged.
Risk Monitoring
Being internally managed, the Company is responsible for both
portfolio and risk management. However, due to the nature of the
investment and the limited ability to look through, traditional
market and credit risk techniques do not apply at the Company
level. That said, the Board regularly engages with the board of BCF
and discusses with them key areas of risk.
Investment risk management and monitoring, to ensure the
successful pursuance of our investment objective, is therefore
mainly through the Company's monthly NAV reporting process and the
monitoring of investment restrictions and eligibility criteria as
carried out by the Depositary.
Steven Wilderspin
Risk Committee Chair
29 April 2021
DIRECTORS' REMUNERATION REPORT
Directors' Remuneration
This report provides relevant information in respect of the
Directors' remuneration.
The tables below outlines the remuneration the Directors were
entitled to during the year ended 31 December 2020 for their
services.
Total fixed remuneration Total fixed remuneration
for the year ended for the year ended
31 December 2020 31 December 2019
GBP GBP
Charlotte Valeur 61,000 61,000
Gary Clark 46,000 46,000
Heather MacCallum 46,590 44,500
Steven Wilderspin 44,500 44,500
Mark Moffat 38,000 38,000
Total Directors' Remuneration 236,090 234,000
------------------------------------ ------------------------ ------------------------
Total Directors' Remuneration (EUR) 263,391 264,988
------------------------------------ ------------------------ ------------------------
The Chairs of the Management Engagement Committee, NAV Review
Committee, Remuneration and Nomination Committee, Audit Committee
and Risk Committee each received additional fees, which are
included in the amounts above, for the additional responsibilities
and time commitment required in undertaking these roles.
Additionally, the Senior Independent Director received additional
fees for the additional responsibilities and time commitment
required in undertaking this role.
The Remuneration and Nomination Committee increased Heather
MacCallum's additional fee for services provided as Audit Committee
Chair by GBP5,000 effective 1 August 2020 to reflect the increased
time commitment required. The table above includes a pro-rated
amount of GBP2,090.
Directors' remuneration is payable in Sterling quarterly in
arrears. No other remuneration (fixed or variable) or compensation
was paid or is payable by the Company during the year to any of the
Directors. There has been no change to the Company's remuneration
policy.
The Company has no employees, accordingly, there is no
difference in policy on the remuneration of Directors and the
remuneration of employees. No Director is entitled to receive any
remuneration which is performance-related.
The Remuneration and Nomination Committee reviews the
Remuneration Policy and Directors' remuneration on an annual
basis.
Remuneration Policy
Directors' fees are determined by the Remuneration and
Nomination Committee under the terms of the remuneration policy
(the "Remuneration Policy") approved on 11 July 2019, as derived
from the Company's Articles of Association. The Remuneration and
Nomination Committee also considers the remuneration levels of
similar companies and consults external remuneration consultants
where this is deemed appropriate.
The Remuneration and Nomination Committee consists of all
Directors and is involved in deciding Directors' remuneration and
ensuring that remuneration received reflects the Directors' duties,
responsibilities and the value of their time.
The Company does not provide pensions or other retirement or
superannuation benefits, death or disability benefits, or other
allowances or gratuities to the Directors or specified connected
parties. The Remuneration Policy also prohibits payments to a
Director for loss of office or as consideration for, or in
connection with, his or her retirement from office. Whilst the
Remuneration Policy permits part of their fee to be paid in the
form of fully-paid up shares in the capital of the Company, the
Directors' fees are not currently paid this way.
In addition, the Remuneration Policy allows for reasonable
travel, hotel and other expenses incurred by the Directors in the
course of performing their duties or from their performance of a
special service on behalf of the Company.
The limit for the aggregate fees payable to the Directors is
GBP300,000 per annum.
Directors' Interests
The Directors held the following number of Ordinary shares in
the Company as at the year end:
Shares Type As at 31 December 2020 As at 31 December 2019
Charlotte Valeur Ordinary 11,500 11,500
Gary Clark Ordinary 168,200 108,200
Heather MacCallum Ordinary - -
Steven Wilderspin Ordinary 20,000 20,000
Mark Moffat Ordinary 771,593 601,028
Mark Moffat C - 291,068
------------------ --------- ---------------------- ----------------------
Prior to 8 January 2020, Mark Moffat held 601,028 Ordinary
Shares and 291,068 C Shares. The Company's C Shares were converted
to Ordinary Shares with effect from 8 January 2020 and Mr Moffat's
resulting Ordinary Shareholding is included above (this is
unchanged from 8 January 2020 to 31 December 2020).
There have been no other changes to the Directors' Interests as
at the date of the approval of these financial statements.
Service Contracts and Policy on Payment of Loss of Office
No Director has a service contract with the Company. The
Directors have each entered into a letter of engagement with the
Company setting out the terms of their appointment. Directors'
appointments may be terminated at any time by giving three month's
written notice, with no compensation payable upon leaving office
for whatever reason.
Gary Clark
Remuneration and Nomination Committee Chair
29 April 2021
AUDIT COMMITTEE REPORT
Audit Committee
The Audit Committee comprises Heather MacCallum, Mark Moffat,
Steven Wilderspin and Gary Clark and is chaired by Heather
MacCallum. Heather MacCallum has recent and relevant financial
experience in accounting and auditing, and the Audit Committee as a
whole has competence relevant to the sector in which the Company
operates.
In addition to formal meetings, the Audit Committee has worked
with the Portfolio Adviser and Auditor to assess the operations and
controls of BCF and to assess in particular what reliance the Audit
Committee can place on the control environment. The Chair has also
had a number of discussions with the Auditor, the Portfolio Adviser
and the Administrator around the annual audit and half year
financial reporting processes.
Role of the Audit Committee
The function of the Audit Committee is to ensure that the
Company maintains high standards of integrity, financial reporting
and internal controls.
The Audit Committee's main roles and responsibilities include,
but are not limited to, the following:
-- monitoring the integrity of the financial statements and any
formal announcements relating to the Company's financial
performance;
-- reviewing and reporting to the Board on any significant
financial reporting issues and judgements;
-- reviewing and monitoring the effectiveness of the Company's
risk management and internal control arrangements;
-- monitoring the statutory audit of the annual financial
statements of the Company and its effectiveness;
-- reviewing the external auditor's performance, independence and objectivity;
-- making recommendations to the Board in relation to the
appointment, reappointment and/or removal of the external auditor,
the approval of the external auditor's remuneration and the terms
of the engagement;
-- implementing policies surrounding the engagement of the
external auditor to supply non-audit services, where
appropriate;
-- reviewing and challenging where necessary significant
accounting policies and practices; and
-- reporting to the Board on how it has discharged its responsibilities.
How the Audit Committee Has Discharged Its Responsibilities
The Audit Committee met six times during the year.
Representatives of the Portfolio Adviser, Company's Auditor and the
Administrator were invited to the meetings as appropriate.
Monitoring the Integrity of the Financial Statements Including
Significant Judgements
We reviewed the Company's Annual Report and Audited Financial
Statements for the year ended 31 December 2019 and the Half Yearly
Financial Report for the six months ended 30 June 2020 prior to
discussion and approval by the Board, and the significant financial
reporting issues and judgements which they contain. We also
reviewed the external auditor's reports thereon, which were
discussed with the Auditor. We reviewed the appropriateness of the
Company's accounting principles and policies, and monitored changes
to, and compliance with, accounting standards on an ongoing
basis.
After the year end, we had further meetings and we reviewed,
prior to making any recommendations to the Board, the Annual Report
and Audited Financial Statements for the year ended 31 December
2020. In undertaking this review, we discussed with the Auditor,
the Portfolio Adviser and the Administrator the critical accounting
policies and judgements that have been applied.
The Auditor reported to the Committee on any non-trivial
misstatements that they had found during the course of their work
and confirmed that under ISA (UK) no material amounts remained
unadjusted.
As requested by the Board, we also reviewed the Annual Report
and are able to confirm to the Board that, in our view, the Annual
Report, taken as a whole, is fair, balanced and understandable and
provided the information necessary for Shareholders to assess the
Company's position, performance, business model and strategy.
Significant Accounting Matters
The Committee considered the key accounting issues, matters and
judgements regarding the Company's 2020 Annual Report and Financial
Statements and disclosures including those relating to:
Significant Area How Addressed
Valuation of investments The investment in the Lux Subsidiary is accounted for at fair value through profit or loss
and the investment in PPNs issued by BCF held by the Lux Subsidiary are at fair value.
Investments
in BCF (the PPNs) are illiquid investments, not traded on an active market and are valued
using valuation techniques determined by the Directors and classified as Level 3 under IFRS
13 "Fair Value Measurement."
Valuation is therefore considered a significant area and is monitored by the Board, the
Audit
Committee, the Portfolio Adviser and the Administrator. The Audit Committee receives and
reviews
reports on the processes for the valuation of investments. Following discussion, we were
satisfied
that the judgements made and methodologies applied were prudent and appropriate and that an
appropriate accounting treatment has been adopted in accordance with IFRS 9.
Please see Notes 2, 6, 10 and 16 in the financial statements for further details
------------------------ --------------------------------------------------------------------------------------------
Assessment of Risks and Uncertainties
The risks associated with the Company's financial instruments,
as disclosed in the financial statements, particularly in Note 10,
represent a key accounting disclosure. The Audit Committee and the
Risk Committee review critically, on the basis of input from the
service providers, the process of ongoing identification and
measurement of these risks disclosures.
Other Matters
During the year, the Committee considered compliance with
relevant legislation, performance metrics and related disclosures
in the Company's financial statements.
Risk Management and Internal Controls
The Board as a whole is responsible for the Company's system of
internal controls; however, the Audit Committee assists the Board
in meeting its obligations in this regard. The daily operational
activities of the Company were delegated to its service providers
and as a result the Company has no direct internal audit function
and instead places reliance on the external and internal audit
controls of the service providers as regulated entities. However,
the Audit Committee reviews periodic reports from the service
providers to ensure that no material issues have arisen in respect
of the system of internal controls and risk management operated by
the Company's service providers. The Committee confirms that this
is an ongoing process conducted in order to manage the risks faced
by the Company. We deem that, to date, there are no significant
issues in this area which need to be brought to your attention.
External Audit
It is the responsibility of the Audit Committee to monitor the
performance, independence, objectivity and re-appointment of the
Auditor. The Audit Committee met with Deloitte LLP ("Deloitte") to
consider the audit strategy and plan for the audit. The audit plan
for the reporting period was reviewed, including consideration of
the key financial statement and audit risks, to seek to ensure that
the audit was appropriately focused.
The Auditor attends the Audit Committee meetings throughout the
year, as applicable, which allows the opportunity to discuss any
matters the Auditor may wish to raise without the Portfolio Adviser
or other service providers being present. The Auditor provides
feedback at relevant Audit Committee meetings on topics such as the
key accounting matters, mandatory communications and the control
environment. The Audit Committee also discusses the performance of
the Auditor independently of the Auditor.
Deloitte was formally appointed as Auditor for the Company's
2014 period-end audit following a competitive tender process during
2014. The lead audit partner is rotated every five years to ensure
continued independence and objectivity; consequently a new lead
audit partner has been in place since the interim review to 30 June
2019.
The Audit Committee continues to be satisfied with the
performance of the Auditor. We have therefore recommended to the
Board that the Auditor, in accordance with agreed terms of
engagement and remuneration, should continue as the Company's
auditor after the forthcoming Annual General Meeting. Accordingly,
a resolution proposing the reappointment of Deloitte as the
Company's auditor will be put to the Shareholders at the 2020
AGM.
In advance of the commencement of the annual audit, the Audit
Committee reviewed a statement provided by the Auditor confirming
their independence as defined under relevant regulation and
professional standards. In addition, in order to satisfy itself
regarding the Auditor's independence, the Audit Committee undertook
a review of the Auditor's compensation and the balance between
audit and non-audit fees.
During 2019, the Audit Committee reviewed its policy with
respect to non-audit services and continually monitored the level
of non-audit services provided by the Auditor to ensure alignment
and compliance with best practice. The Company's policy sets out
the permitted types of non-audit services that can be provided by
Deloitte, which are consistent with the FRC's Revised Ethical
Standard (2019). All proposed non-audit services required explicit
approval from the Audit Committee. During the year, Deloitte were
contracted to review the Company's interim financial statements.
Audit fees for the year ended 31 December 2020 have increased by 5%
compared to 2019 (refer to Note 3 for further details). This is
mainly due to the additional work undertaken by the Auditor with
respect to going concern and valuations due to the uncertainty
created by the COVID-19 pandemic. Audit-related services decreased
17% year on year. In the prior year the Auditor had undertaken
additional work as Reporting Accountant and reviewing the C Share
Conversion Ratio as required by the Articles. An amount of
EUR12,095 was also incurred during the year and this related to
additional fees for the audit for the year ended 31 December 2019.
These items has been given due consideration by the Audit
Committee, who reviewed inter-alia the role of the respective
engagement teams and the independence of individuals from the audit
engagement team and concluded it was satisfied the Auditor had
acted in an independent and professional manner.
Heather MacCallum
Audit Committee Chair
29 April 2021
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report
and Audited Financial Statements in accordance with applicable law
and regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have elected to prepare the financial statements in accordance with
IFRS, as adopted by the EU. Under company law the Directors must
not approve the financial statements unless they are satisfied that
they give a true and fair view of the state of the affairs of the
Company and of the profit or loss of the Company for that period.
In preparing these financial statements, International Accounting
Standard 1 requires that Directors:
-- properly select and apply accounting policies;
-- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
-- provide additional disclosures when compliance with the
specific requirements in IFRS as adopted by the EU are insufficient
to enable users to understand the impact of particular
transactions, other events and conditions on the Company's
financial position and financial performance; and
-- make an assessment of the Company's ability to continue as a going concern.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with The Companies (Jersey) Law
1991. They are also responsible for safeguarding the assets of the
Company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in Jersey governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
Each of the Directors, whose names are listed below, confirms
that, to the best of that Director's knowledge and belief:
-- the financial statements, prepared in accordance with
International Financial Reporting Standards as adopted by the
European Union, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the
Company;
-- the Strategic report includes a fair review of the
development and performance of the business and the position of the
Company, together with a description of the principal risks and
uncertainties that they face; and
-- the annual report and audited financial statements, taken as
a whole, are fair, balanced and understandable and provide the
information necessary for Shareholders to assess the Company's
position and performance, business model and strategy.
Charlotte Valeur Heather MacCallum
Director Director
29 April 2021
INDEPENT AUDITOR'S REPORT TO THE SHAREHOLDERS OF BLACKSTONE LOAN
FINANCING LIMITED
Report on the audit of the financial statements
1. Opinion
In our opinion the financial statements of Blackstone Loan
Financing Limited (the 'company'):
-- give a true and fair view of the state of the company's
affairs as at 31 December 2020 and of its profit for the year then
ended;
-- have been properly prepared in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the European
Union; and
-- have been prepared in accordance with Companies (Jersey) Law, 1991.
We have audited the financial statements which comprise:
-- the statement of comprehensive income;
-- the statement of financial position;
-- the statement of changes in equity;
-- the cash flow statement; and
-- the related notes 1 to 21.
The financial reporting framework that has been applied in their
preparation is applicable law and IFRSs as adopted by the European
Union.
2. Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
auditor's responsibilities for the audit of the financial
statements section of our report.
We are independent of the company in accordance with the ethical
requirements that are relevant to our audit of the financial
statements in the UK, including the Financial Reporting Council's
(the 'FRC's') Ethical Standard as applied to listed entities, and
we have fulfilled our other ethical responsibilities in accordance
with these requirements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
3. Summary of our audit approach
Key audit matters The key audit matter that we identified in the current
year was the valuation of investments in the Luxembourg
subsidiary.
Within this report, key audit matters are identified
as follows: Newly identified
Increased level of risk
Similar level of risk
Decreased level of risk
------------------- ---------------------------------------------------------
Materiality The materiality that we used for the financial statements
in the current year was EUR 8,200,000, which was
determined on the basis of Net Assets Value of the
company.
------------------- ---------------------------------------------------------
Scoping All of the audit work to respond to the risks of
material misstatement was performed directly by the
audit engagement team.
------------------- ---------------------------------------------------------
Significant changes There are no significant changes in our approach
in our approach in the current year.
------------------- ---------------------------------------------------------
4. Conclusions relating to going concern
In auditing the financial statements, we have concluded that the
directors' use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
Our evaluation of the directors' assessment of the company's
ability to continue to adopt the going concern basis of accounting
included:
-- Carrying out the following on the forecasts provided by the directors':
o Testing the arithmetic accuracy and integrity of the model
used for preparation of the forecasts;
o Assessing whether the cash flows included in the forecast were
in line with relevant agreements and market expectations; and
o Assessing the other key inputs used in the forecasts for
reasonableness and consistency with prior years and industry
norms.
-- Evaluating the forecasts prepared by the directors' in prior
years to assess whether they are in line with actual results in
current year;
-- Evaluating the directors' assessment of the impact of Brexit
and Covid-19 on the operations of the company and its regulatory
and liquidity requirements.
-- Assessing the appropriateness of the going concern
disclosures in the financial statements.
Based on the work we have performed, we have not identified any
material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
company's ability to continue as a going concern for a period of at
least twelve months from when the financial statements are
authorised for issue.
In relation to the reporting on how the company has applied the
UK Corporate Governance Code, we have nothing material to add or
draw attention to in relation to the directors' statement in the
financial statements about whether the directors considered it
appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors
with respect to going concern are described in the relevant
sections of this report.
5. Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had
the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the
engagement team.
These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these
matters.
5.1. Valuation of investments in the Luxembourg subsidiary
Key audit matter The investments in subsidiary are accounted at Fair
description Value Through Profit and Loss.
Investments in Blackstone / GSO Loan Financing (Luxembourg)
S.a.r.l. which total EUR 388,000,146 (2019: EUR 396,392,271)
as detailed on page 75 in note 6 to the financial
statements, are illiquid investments, not traded
on an active market and are valued using valuation
techniques determined by the Directors and classified
as level III under IFRS : Fair Value Measurement
("IFRS 13"). Valuation is therefore a key area of
judgement and has a significant impact on the Net
Assets Value ("NAV") which is the most significant
Key Performance Indicator ("KPI") of the Company
and has a direct effect on the recognition of gains
and losses on investments.
The investments, commitments and obligations contracted
by Blackstone Corporate Funding Designated Activity
Company ("BCF") are driving the performance of its
NAV, the valuation of the investments in BCF and
ultimately the performance of the Company and its
listed shares. We consider BCF as the principal source
of risks and rewards for the Company with BCF's financial
situation represented by its Net Asset Value as the
main component for the fair valuation of the investments.
The Covid-19 pandemic led initially to a dearth of
transaction activity for Collateralised Loan Obligations
("CLO") equity notes. In comparison to the half year,
by year end activity levels had recovered which helped
provide market evidence more akin to that seen in
prior years.
Reviewing risk monitoring, performance and the investments'
valuation for the Company, requires an assessment
of the positions within BCF. BCF's investment positions
in debt instruments, related credit risk and liquidity
exposures should be compliant with the quality, diversification
and overall limitations imposed by the Prospectus.
The Directors use their judgment, with the assistance
of the Adviser, Blackstone Ireland Limited ('BIL'),
in selecting an appropriate valuation technique and
refer to techniques commonly used by market practitioners.
For investments in BCF and the underlying collateralised
loan obligations (CLOs) and the equity tranches retained
by that company, assumptions are made based on quoted
market rates adjusted for specific features of any
instrument. BCF uses Markit to price loan asset portfolio.
There is a risk that a third party valuer has used
an incorrect methodology, inaccurate data is supplied
by the CLO Manager of the Originator or inappropriate
assumptions are used concerning market information.
The key assumptions include discount, prepayment,
reinvestment and default rates.
Refer to page 55 to 57 (audit committee report),
pages 70 to 73 (Significant Accounting Policies)
and pages 75 to 79 (Note 6 to the Financial statements).
----------------------- -----------------------------------------------------------------
How the scope In response to this key audit matter:
of our audit responded * We obtained understanding of the relevant controls
to the key audit over the valuation process.
matter
* We assessed the valuation methodology for the
financial instruments issued by BCF against industry
standards and IFRS 13.
* We involved our financial instruments specialists to
assess the valuation of investments and related
disclosures in the financial statements.
* We involved our own CLO valuation specialists to
review the test of valuations performed by the
auditors of BCF, comparing information and
assumptions used by management to information
available from external independent reliable sources
such as Bloomberg or Intex, including any impact of
discount / premium to NAV.
* We tested the calculation of the change in value of
investments for the year and its recognition in the
statement of comprehensive income.
* We assessed the appropriateness of disclosures
(including disclosures related to sensitivity) made
by the Company in accordance with requirements of
IFRS 13.
----------------------- -----------------------------------------------------------------
Key observations Based on the work performed we concluded that the
valuation of investments in the Luxembourg subsidiary
is appropriate.
----------------------- -----------------------------------------------------------------
6. Our application of materiality
6.1. Materiality
We define materiality as the magnitude of misstatement in the
financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or
influenced. We use materiality both in planning the scope of our
audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality
for the financial statements as a whole as follows:
Materiality EUR 8,200,000 (2019: EUR 8,200,000)
------------------------------------ --------------------------------------------------------------------------------
Basis for determining materiality We determined materiality for the Company, which is approximately 2% (2019: 2%)
of the Net
Asset Value of the Company.
------------------------------------ --------------------------------------------------------------------------------
Rationale for the benchmark applied Net Asset Value is the key performance indicator for investments in the Company
and is therefore
selected as the appropriate benchmark.
------------------------------------ --------------------------------------------------------------------------------
[Graphs and charts are included in the published Annual Report
and Audited Financial Statements which is available on the
Company's website at https://blackstone.com/bglf ]
6.2. Performance materiality
We set performance materiality at a level lower than materiality
to reduce the probability that, in aggregate, uncorrected and
undetected misstatements exceed the materiality for the financial
statements as a whole. Performance materiality was set at 70% of
materiality for the 2020 audit (2019: 70%). In determining
performance materiality, we considered our risk assessment,
including our assessment of the Company's overall control
environment including impact of Covid-19 and our past experience of
the audit, which has indicated a low number of corrected and
uncorrected misstatements identified in prior periods.
6.3. Error reporting threshold
We agreed with the Audit Committee that we would report to the
Committee all audit differences in excess of EUR410,000 (2019:
EUR410,000), as well as differences below that threshold that, in
our view, warranted reporting on qualitative grounds. We also
report to the Audit Committee on disclosure matters that we
identified when assessing the overall presentation of the financial
statements.
7. An overview of the scope of our audit
7.1. Scoping
Our audit was scoped by obtaining an understanding of the entity
and its environment, including internal control, and assessing the
risks of material misstatement. Audit work to respond to the risks
of material misstatement was performed directly by the audit
engagement team.
7.2. Our consideration of the control environment
A third party administrator maintains the books and records of
the Company. Our audit therefore included obtaining an
understanding of the controls at this service organisation, to the
extent that they are relevant to the Company.
8. Other information
The other information comprises the information included in the
annual report, other than the financial statements and our
auditor's report thereon. The directors are responsible for the
other information contained within the annual report.
Our opinion on the financial statements does not cover the other
information and we do not express any form of assurance conclusion
thereon.
Our responsibility is to read the other information and, in
doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge
obtained in the course of the audit, or otherwise appears to be
materially misstated.
If we identify such material inconsistencies or apparent
material misstatements, we are required to determine whether this
gives rise to a material misstatement in the financial statements
themselves. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we
are required to report that fact.
We have nothing to report in this regard.
9. Responsibilities of directors
As explained more fully in the directors' responsibilities
statement, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true
and fair view, and for such internal control as the directors
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the company's ability to continue as a
going concern, disclosing as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the company or to cease
operations, or have no realistic alternative but to do so.
10. Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of
the financial statements is located on the FRC's website at:
www.frc.org.uk/auditorsresponsibilities . This description forms
part of our auditor's report.
11. Extent to which the audit was considered capable of
detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including
fraud is detailed below.
11.1. Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in
respect of irregularities, including fraud and non-compliance with
laws and regulations, we considered the following:
-- the nature of the industry and sector, control environment
and business performance including the design of the company's
remuneration policies, key drivers for directors' remuneration,
bonus levels and performance targets;
-- results of our enquiries of management, the board of
directors, the audit committee and risk committee about their own
identification and assessment of the risks of irregularities;
-- any matters we identified having obtained and reviewed the
company's documentation of their policies and procedures relating
to:
o identifying, evaluating and complying with laws and
regulations and whether they were aware of any instances of
non-compliance;
o detecting and responding to the risks of fraud and whether
they have knowledge of any actual, suspected or alleged fraud;
o the internal controls established to mitigate risks of fraud
or non-compliance with laws and regulations;
-- the matters discussed among the audit engagement team and
including significant component audit teams and relevant internal
specialists, including; tax and valuations specialists regarding
how and where fraud might occur in the financial statements and any
potential indicators of fraud.
As a result of these procedures, we considered the opportunities
and incentives that may exist within the organisation for fraud and
identified the greatest potential for fraud exists in the valuation
of investments in the Luxembourg subsidiary. In common with all
audits under ISAs (UK), we are also required to perform specific
procedures to respond to the risk of management override.
We also obtained an understanding of the legal and regulatory
framework that the company operates in, focusing on provisions of
those laws and regulations that had a direct effect on the
determination of material amounts and disclosures in the financial
statements. The key laws and regulations we considered in this
context included the Companies (Jersey) Law, 1991, Listing Rules
and tax legislation.
In addition, we considered provisions of other laws and
regulations that do not have a direct effect on the financial
statements but compliance with which may be fundamental to the
company's ability to operate or to avoid a material penalty. These
included the company's compliance with the Jersey Financial
Services Commission (JFSC) regulatory requirements.
11.2. Audit response to risks identified
As a result of performing the above, we identified valuation of
investments in the Luxembourg subsidiary as a key audit matter
related to the potential risk of fraud. The key audit matters
section of our report explains the matter in more detail and also
describes the specific procedures we performed in response to that
key audit matter.
In addition to the above, our procedures to respond to risks
identified included the following:
-- reviewing the financial statement disclosures and testing to
supporting documentation to assess compliance with provisions of
relevant laws and regulations described as having a direct effect
on the financial statements;
-- enquiring of management and the audit committee concerning
actual and potential litigation and claims;
-- performing analytical procedures to identify any unusual or
unexpected relationships that may indicate risks of material
misstatement due to fraud;
-- reading minutes of meetings of those charged with governance,
reviewing internal audit reports and reviewing correspondence with
the JFSC;
-- in addressing the risk of fraud through management override
of controls, testing the appropriateness of journal entries and
other adjustments; assessing whether the judgements made in making
accounting estimates are indicative of a potential bias; and
evaluating the business rationale of any significant transactions
that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations
and potential fraud risks to all engagement team members including
internal specialists and significant component audit teams, and
remained alert to any indications of fraud or non-compliance with
laws and regulations throughout the audit.
Report on other legal and regulatory requirements
12. Corporate Governance Statement
The Listing Rules require us to review the directors' statement
in relation to going concern, longer-term viability and that part
of the Corporate Governance Statement relating to the company's
compliance with the provisions of the UK Corporate Governance Code
specified for our review.
Based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial
statements and our knowledge obtained during the audit:
-- the directors' statement with regards to the appropriateness
of adopting the going concern basis of accounting and any material
uncertainties identified set out on page 34;
-- the directors' explanation as to its assessment of the
company's prospects, the period this assessment covers and why the
period is appropriate set out on page 35;
-- the directors' statement on fair, balanced and understandable set out on page 59;
-- the board's confirmation that it has carried out a robust
assessment of the emerging and principal risks set out on page
35;
-- the section of the annual report that describes the review of
effectiveness of risk management and internal control systems set
out on page 56; and
-- the section describing the work of the audit committee set out on pages 55 to 57.
13. Matters on which we are required to report by exception
13.1. Adequacy of explanations received and accounting records
Under the Companies (Jersey) Law, 1991 we are required to report
to you if, in our opinion:
-- we have not received all the information and explanations we require for our audit; or
-- proper accounting records have not been kept, or proper
returns for our audit have not been received from branches not
visited by us; or
-- the financial statements are not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
14. Use of our report
This report is made solely to the company's members, as a body,
in accordance with Article 113A of the Companies (Jersey) Law,
1991. Our audit work has been undertaken so that we might state to
the company's members those matters we are required to state to
them in an auditor's 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 and the company's
members as a body, for our audit work, for this report, or for the
opinions we have formed.
Marc Cleeve, BA, FCA
For and on behalf of Deloitte LLP
Recognised Auditor
Jersey
29 April 2021
Statement of Financial Position
As at 31 December 2020
As at As at
31 December 2020 31 December 2019(28)
Notes EUR EUR
--------------------------------------------------------------- ----- ----------------- ---------------------
Current assets
Cash and cash equivalents 20,725,819 11,464,088
Other receivables 5 151,038 232,474
Financial assets at fair value through profit or loss - Lux Co 6 388,000,146 396,392,271
Financial assets at fair value through profit or loss - CLOs 6 549,437 3,192,772
Total current assets 409,426,440 411,281,605
--------------------------------------------------------------- ----- ----------------- ---------------------
Non-current liabilities
Intercompany loan 7 (869,988) (534,660)
--------------------------------------------------------------- ----- ----------------- ---------------------
Total non-current liabilities (869,988) (534,660)
--------------------------------------------------------------- ----- ----------------- ---------------------
Current liabilities
Payables 8 (351,277) (240,954)
--------------------------------------------------------------- ----- ----------------- ---------------------
Total current liabilities (351,277) (240,954)
--------------------------------------------------------------- ----- ----------------- ---------------------
Total liabilities (1,221,265) (775,614)
--------------------------------------------------------------- ----- ----------------- ---------------------
Net assets 15,16 408,205,175 410,505,991
--------------------------------------------------------------- ----- ----------------- ---------------------
Capital and reserves
Stated capital 9 471,465,875 480,304,329
Retained earnings (63,260,700) (69,798,338)
Shareholders' Equity 408,205,175 410,505,991
--------------------------------------------------------------- ----- ----------------- ---------------------
Net Asset Value per Share 15 0.8557 0.8543
--------------------------------------------------------------- ----- ----------------- ---------------------
These financial statements were authorised and approved for
issue by the Directors on 29 April 2021 and signed on their behalf
by:
Charlotte Valeur Heather MacCallum
Director Director
The accompanying notes form an integral part of the financial
statements.
(28) Refer to Note 13 Segmental reporting for further
details.
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2020
Year ended Year ended
31 December 2020 31 December 2019(29)
Notes EUR EUR
--------------------------------------------------------------------- ----- ----------------- ---------------------
Income
Realised gain/(loss) on foreign exchange 29,321 (20,526)
Net gain on financial assets at fair value through profit or loss -
Lux Co 6 36,356,525 60,950,562
Net loss on financial assets at fair value through profit or loss -
CLOs 6 (1,953,328) (9,910,600)
Income distributions from CLOs 407,376 9,928,261
--------------------------------------------------------------------- ----- ----------------- ---------------------
Total income 34,839,894 60,947,697
--------------------------------------------------------------------- ----- ----------------- ---------------------
Expenses
Operating expenses 3 (1,312,505) (1,285,114)
--------------------------------------------------------------------- ----- ----------------- ---------------------
Profit before taxation 33,527,389 59,662,583
Taxation 2.11 - -
--------------------------------------------------------------------- ----- ----------------- ---------------------
Profit after taxation 33,527,389 59,662,583
--------------------------------------------------------------------- ----- ----------------- ---------------------
Loan interest expense 7 (11,335) (6,196)
Bank interest expense (95,397) (49,555)
--------------------------------------------------------------------- ----- ----------------- ---------------------
Total interest expense (106,732) (55,751)
--------------------------------------------------------------------- ----- ----------------- ---------------------
Total comprehensive income for the year attributable to Shareholders 33,420,657 59,606,832
--------------------------------------------------------------------- ----- ----------------- ---------------------
Basic and diluted earnings per Share 14 0.0699 0.1348
--------------------------------------------------------------------- ----- ----------------- ---------------------
The Company has no items of other comprehensive income, and
therefore the profit for the year is also the total comprehensive
income.
All items in the above statement are derived from continuing
operations. No operations were discontinued during the year.
The accompanying notes form an integral part of the financial
statements.
(29) Refer to Note 13 Segmental reporting for further
details.
Statement of Changes in Equity
For the year ended 31 December 2020
Notes Stated Capital Retained Earnings Total
EUR EUR EUR
------------------------------ ----- -------------- ----------------- ------------
Shareholders' Equity
at 1 January 2020 9 480,304,329 (69,798,338) 410,505,991
Total comprehensive
income for the year
attributable to Shareholders - 33,420,657 33,420,657
Transactions with owners
Conversion of C shares 9 (6,719,705) 6,719,705 -
Dividends 18 - (33,602,724) (33,602,724)
Ordinary Shares repurchased 9 (2,118,749) - (2,118,749)
------------------------------ ----- -------------- ----------------- ------------
(8,838,454) (26,883,019) (35,721,473)
------------------------------ ----- -------------- ----------------- ------------
Shareholders' Equity
at 31 December 2020 9 471,465,875 (63,260,700) 408,205,175
------------------------------ ----- -------------- ----------------- ------------
Refer to Corporate Activity and Note 9 for details on the
conversion of the Company's C Shares into Ordinary Shares.
For the year ended 31 December 2019
Notes Stated Capital(30) Retained Earnings(29) Total
EUR EUR EUR
------------------------------ ----- ------------------ --------------------- ------------
Shareholders' Equity
at 1 January 2019 9 404,962,736 (78,575,592) 326,387,144
Total comprehensive
income for the year
attributable to Shareholders - 59,606,832 59,606,832
Transactions with owners
Issuance of Shares 9 77,270,167 - 77,270,167
Dividends 18 - (50,829,578) (50,829,578)
Ordinary Shares repurchased 9 (1,928,574) - (1,928,574)
75,341,593 (50,829,578) 24,512,015
------------------------------ ----- ------------------ --------------------- ------------
Shareholders' Equity
at 31 December 2019 9 480,304,329 (69,798,338) 410,505,991
------------------------------ ----- ------------------ --------------------- ------------
The accompanying notes form an integral part of the financial
statements.
(30) Refer to Note 13 Segmental reporting for further
details.
Statement of Cash Flows
For the year ended 31 December 2020
Year ended Year ended
31 December 2020 31 December 2019(31)
Notes EUR EUR
--------------------------------------------------------------------- ----- ----------------- ---------------------
Cash flow from operating activities
Total comprehensive income for the year attributable to Shareholders 33,420,657 59,606,832
Adjustments to reconcile profit after tax to net cash flows:
* Unrealised gain on financial assets at fair value
through profit and loss 6 (25,011,152) (46,266,826)
* Realised gain on financial assets at fair value
through profit and loss 6 (9,288,389) (4,639,594)
Purchase of financial assets at fair value through profit or loss 6 (7,078,010) (64,585,325)
Proceeds from sale of financial assets at fair value through profit
or loss 6 52,413,011 102,401,653
Changes in working capital
Decrease in other receivables 81,436 579,201
Increase/(decrease) in payables 110,323 (1,056,226)
Net cash generated from operating activities 44,647,876 46,039,715
--------------------------------------------------------------------- ----- ----------------- ---------------------
Cash flow from financing activities
Proceeds from issuance of shares - 7,446,204
Issue cost - (780,506)
Ordinary Shares repurchased 9 (2,118,749) (1,928,574)
Increase in intercompany loan 17 335,328 297,603
Dividends paid 18 (33,602,724) (50,829,578)
--------------------------------------------------------------------- ----- ----------------- ---------------------
Net cash used in financing activities (35,386,145) (45,794,851)
--------------------------------------------------------------------- ----- ----------------- ---------------------
Net increase in cash and cash equivalents 9,261,731 244,864
--------------------------------------------------------------------- ----- ----------------- ---------------------
Cash and cash equivalents at the start of the year 11,464,088 11,219,224
--------------------------------------------------------------------- ----- ----------------- ---------------------
Cash and cash equivalents at the end of the year 20,725,819 11,464,088
--------------------------------------------------------------------- ----- ----------------- ---------------------
Supplemental disclosure of non-cash 31 December 2019
flow information EUR
------------------------------------- -----------------
Transfer of assets from Rollover
Offer (70,604,469)
Rollover Offer costs 780,506
Issue of C Shares in specie 77,270,167
------------------------------------- -----------------
Cash proceeds from Rollover Offer 7,446,204
------------------------------------- -----------------
The accompanying notes form an integral part of the financial
statements.
(31) Refer to Note 13 Segmental reporting for further
details.
Notes to the Financial Statements
For the year ended 31 December 2020
1 General information
The Company is a closed-ended limited liability investment
company domiciled and incorporated under the laws of Jersey with
variable capital. It was incorporated on 30 April 2014 under
registration number 115628. The Company's Ordinary Shares are
quoted on the Premium Segment of the Main Market of the LSE and the
Company has a premium listing on the Official List of the FCA. The
Company's C Shares were quoted on the SFS of the Main Market of the
LSE until 6 January 2020.
The Company's investment objective is to provide Shareholders
with stable and growing income returns, and to grow the capital
value of the investment portfolio by exposure to floating rate
senior secured loans and bonds directly and indirectly through CLO
Securities and investments in Loan Warehouses. The Company seeks to
achieve its investment objective through exposure (directly or
indirectly) to one or more companies or entities established from
time to time.
As at 31 December 2020, the Company's stated capital comprised
477,023,331 Ordinary Shares of no par value (31 December 2019:
402,319,490), each carrying the right to 1 vote; 5,879,463 Ordinary
Shares held in treasury (31 December 2019: 2,380,956); and no C
Shares (31 December 2019: 133,451,107 C Shares of no par value,
carrying no voting rights). The Company may issue one or more
additional classes of shares in accordance with the Articles of
Association.
The Company has a wholly owned Luxembourg subsidiary, Blackstone
/ GSO Loan Financing (Luxembourg) S.à r.l., which has an issued
share capital of 2,000,000 Class A shares and 1 Class B share held
by the Company as at 31 December 2020 and 31 December 2019. The
Company also holds 284,879,854 Class B CSWs (31 December 2019:
319,758,584) issued by the Lux Subsidiary. The Company also holds
two directly held CLO Mezzanine Notes (31 December 2019: 6 directly
held CLO Income Notes and 2 directly held Mezzanine Notes) which
formed part of the Rollover Assets and are yet to be realised and
reinvested in CSWs.
The Company's registered address is IFC 1, The Esplanade, St
Helier, Jersey, JE1 4BP, Channel Islands.
2 Significant accounting policies
2.1 Statement of compliance
The Annual Report and Audited Financial Statements (the "Annual
Report") are prepared in accordance with the Disclosure Guidance
and Transparency Rules of the FCA and with IFRS as adopted by the
EU. The financial statements give a true and fair view of the
Company's affairs and comply with the requirements of the Companies
(Jersey) Law 1991, as amended.
The principal accounting policies applied in the preparation of
these financial statements are set out below. These policies have
been applied consistently to the Company's financial statements for
all years presented except for the adoption of new and amended
standards as set out below.
2.2 Basis of preparation
The Company's financial statements have been prepared on a
historical cost basis, except for financial instruments measured at
fair value through profit or loss.
The Company's functional currency is the Euro, which is the
currency of the primary economic environment in which it operates.
The Company's performance is evaluated and its liquidity is managed
in Euro. Therefore, Euro is considered as the currency that most
faithfully represents the economic effects of the underlying
transactions, events and conditions. The financial statements are
presented in Euro, except where otherwise indicated.
The financial statements have been prepared on a going concern
basis. The disclosures with respect to the Directors' assessment on
the use of the going concern basis are provided above in the
"Strategic Report - Risk Overview" section.
Non-consolidation of BCF
To determine control, there has to be a linkage between power
and the exposure to risks and rewards. The main link from ownership
would allow a company to control the payments of returns and
operating policies and decisions of a subsidiary.
Non-consolidation of BCF
To meet the definition of a subsidiary under the single control
model of IFRS 10, the investor has to control the investee.
Control involves power, exposure to variability of returns and a
linkage between the two:
-- the investor has existing rights that give it the ability to
direct the relevant activities that significantly affect the
investee's returns;
-- the investor has exposure or rights to variable returns from
its involvement with the investee; and
-- the investor has the ability to use its power over the
investee to affect the amount of the investor's returns.
In the case of BCF, the relevant activities are the investment
decisions made by it. However, in the Lux Subsidiary's case, the
power to influence or direct the relevant activities of BCF is not
attributable to the Lux Subsidiary. The Lux Subsidiary does not
have the ability to direct or stop investments by BCF; therefore,
it does not have the ability to control the variability of returns.
Accordingly, BCF has been determined not to be a subsidiary
undertaking as defined under IFRS 10 and the Lux Subsidiary's
investment in the PPNs issued by BCF are accounted for at fair
value through profit or loss.
Non-consolidation of CLOs
The Company has concluded that CLOs in which it invests, that
are not subsidiaries for financial reporting purposes, meet the
definition of structured entities because:
-- the voting rights in the CLOs are not dominant rights in
deciding who controls them, as they relate to administrative tasks
only;
-- each CLO's activities are restricted by its Prospectus; and
-- the CLOs have narrow and well-defined objectives to provide
investment opportunities to investors.
2.3 New standards, amendments and interpretations issued and
effective for the financial year beginning 1 January 2020
Definition of material (amendments to IAS 1 and IAS 8)
The International Accounting Standards Board has redefined its
definition of material, issued practical guidance on applying the
concept of materiality and issued proposals focused on the
application of materiality to disclosure of other accounting
policies. The amendments do not have a material impact on the
Company's financial statements.
There are no standards, amendments to standards and
interpretations that are effective for the financial year beginning
1 January 2020 that have a material effect on the financial
statements of the Company.
2.4 New standards, amendments and interpretations issued but not
effective for the financial year beginning 1 January 2020 and not
early adopted
There are no standards, amendments and interpretations which
have been issued but are not yet effective and not early adopted,
that will affect the Company's financial statements.
2.5 Income
2.5a Interest income and expense
Interest income and expense is recognised under IFRS 9
separately through profit or loss in the Statement of Comprehensive
Income, on an effective interest rate yield basis.
2.5b Income distributions from CLOs
Income from the financial assets at fair value through profit or
loss - CLOs is recognised under IFRS 9 in the Statement of
Comprehensive Income as Income distributions from CLOs. Income from
the CLOs is recognised on an accruals basis.
2.6 Shares in issue
The shares of the Company are classified as equity, based on the
substance of the contractual arrangements and in accordance with
the definition of equity instruments under IAS 32 Financial
Instruments: Presentation ("IAS 32").
The proceeds from the issue of shares are recognised in the
Statement of Changes in Equity, net of the incremental issuance
costs.
Share repurchased by the Company are deducted from equity. No
gain or loss is recognised in the Statement of Comprehensive Income
on the purchase, sale or cancellation of the Company's own equity
instruments. The consideration paid or received is recognised
directly in the Statement of Changes in Equity. Shares repurchased
are recognised on the trade date.
2.7 Fees and charges
Expenses are charged through profit or loss in the Statement of
Comprehensive Income on an accruals basis.
2.8 Cash and cash equivalents
Cash comprises current deposits with banks.
Cash equivalents are short-term, highly liquid investments that
are readily convertible to known amounts of cash and are subject to
an insignificant risk of changes in value. Cash equivalents are
revalued at the end of the reporting period using market rates and
any increases / decreases are recognised in the Statement of
Comprehensive Income. There were no such holdings during the year
ended 31 December 2020 (31 December 2019: EURNil).
2.9 Financial instruments
Investments and other financial assets
(i) Initial recognition
The Company recognises a financial asset or a financial
liability in its Statement of Financial Position when, and only
when, the Company becomes party to the contractual provisions of
the instrument. Purchases and sales of investments are recognised
on the trade date - the date on which the Company commits to
purchase or sell the investment.
(ii) Classification
The Company classifies its financial assets in the following
measurement categories:
-- those to be measured subsequently at fair value (either
through OCI, or through profit or loss); and
-- those to be measured at amortised cost.
The classification depends on the entity's business model for
managing the financial assets and the contractual terms of the cash
flows.
For assets measured at fair value, gains and losses are either
to be recorded in profit or loss or OCI. For investments in equity
instruments that are not held for trading, this will depend on
whether the company has made an irrevocable election at the time of
initial recognition to account for the equity instrument at
FVOCI.
The Company reclassifies debt instruments when and only when its
business model for managing those assets changes.
(iii) Measurement
At initial recognition, the Company measures a financial asset
at its fair value plus, in the case of a financial asset not at
FVPL, transaction costs that are directly attributable to the
acquisition of the financial asset. Transaction costs of financial
assets carried at FVPL are expensed in profit or loss.
For the year ended 31 December 2020
Debt instruments
Subsequent measurement of debt instruments depends on the
Company's business model for managing the asset and the cash flow
characteristics of the asset. The Company's business model is to
manage its debt instruments and to evaluate their performance on a
fair value basis. The Company's policy requires the Portfolio
Adviser and the Board to evaluate the information about these
financial assets on a fair value basis together with other related
financial information. Consequently, these debt instruments are
measured at fair value through profit or loss.
Equity instruments
The Company subsequently measures all equity investments at fair
value. Dividends from such investments are recognised in profit or
loss as other income when the Company's right to receive payments
is established.
Changes in fair value of financial assets at FVPL are recognised
in "net gain/(loss) on financial assets at fair value through
profit or loss" in the Statement of Comprehensive Income.
(iv) Derecognition
Financial assets are derecognised when the rights to receive
cash flows from the investments have expired or the Company has
transferred substantially all risks and rewards of ownership.
(v) Fair value estimation
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date.
As at 31 December 2020, the Company held 284,879,854 CSWs,
2,000,000 Class A shares and 1 Class B share issued by the Lux
Subsidiary (the "Investments") (31 December 2019: 319,758,584 CSWs,
2,000,000 Class A shares and 1 Class B share). These Investments
are not listed or quoted on any securities exchange, are not traded
regularly and, on this basis, no active market exists. The Company
is not entitled to any voting rights in respect of the Lux
Subsidiary by reason of their ownership of the CSWs, however, the
Company controls the Lux Subsidiary through its 100% holding of the
shares in the Lux Subsidiary.
The fair value of the CSWs and the Class A and Class B shares
are based on the net assets of the Lux Subsidiary which is based
substantially in turn on the fair value of the PPNs issued by
BCF.
The Company determines the fair value of the CLOs held directly
using third party valuations.
(vi) Valuation process
The Directors have held discussions with BIL in order to gain
comfort around the valuation of the CLOs, the underlying assets in
the BCF portfolio and through this, the valuation of the PPNs and
CSWs a s of the Statement of Financial Position date.
The Directors, through ongoing communication with the Portfolio
Adviser including quarterly meetings, discuss the performance of
the Portfolio Adviser and the underlying portfolio and in addition
review monthly investment performance reports. The Directors
analyse the BCF portfolio in terms of the investment mix in the
portfolio. The Directors also consider the impact of general credit
conditions and more specifically credit events in the US and
European corporate environment on the valuation of the CSWs, PPNs
and the BCF portfolio.
Portfolio
The Directors discuss the valuation process to understand the
methodology regarding the valuation of its underlying portfolio and
direct CLO holding, both comprising Level 3 assets. The majority of
Level 3 assets in BCF are comprised of CLOs. In reviewing the fair
value of these assets, the Directors look at the assumptions used
and any significant fair value changes during the period under
analysis.
Net Asset Value
The IFRS NAV of the Company is calculated by the Administrator
based on information from the Portfolio Adviser and is reviewed and
approved by the Directors, taking into consideration a range of
factors including the unaudited IFRS NAV of both the Lux Subsidiary
and BCF, and other relevant available information. The other
relevant information includes the review of available financial and
trading information of BCF and its underlying portfolio, advice
received from the Portfolio Adviser and such other factors as the
Directors, in their sole discretion, deem relevant in considering a
positive or negative adjustment to the valuation.
The estimated fair values may differ from the values that would
have been realised had a ready market existed and the difference
could be material.
The fair value of the CLOs held directly, CSWs and the Class A
and Class B shares are assessed on an ongoing basis by the
Board.
Financial liabilities
(vii) Classification
Financial liabilities include payables which are held at
amortised cost using the effective interest rate method.
The effective interest method is a method of calculating the
amortised cost of a financial liability and of allocating interest
expense over the relevant period. The effective interest rate is
the rate that exactly discounts estimated future cash payments
(including all fees and points paid or received that form an
integral part of the effective interest rate, transaction costs and
other premiums or discounts) through the expected life of the
financial liability, or where appropriate a shorter period, to the
net carrying amount on initial recognition.
(viii) Recognition, measurement and derecognition
Financial liabilities are measured initially at their fair value
plus any directly attributable incremental costs of acquisition or
issue.
Gains and losses are recognised in the Statement of
Comprehensive Income when the liabilities are derecognised.
The Company derecognises a financial liability when the
obligation specified in the contract is discharged, cancelled or
expires.
2.10 Foreign currency translations
Transactions in foreign currencies are translated at the foreign
exchange rate ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies at the
Statement of Financial Position date are translated to Euro at the
foreign exchange rate ruling at that date. Foreign exchange
differences arising on translation are recognised in the Statement
of Comprehensive Income.
Foreign currency gains and losses are included in profit or loss
on the Statement of Comprehensive Income as part of "Realised
gain/(loss) on foreign exchange". Foreign currency gains and losses
on financial assets classified at fair value through profit or loss
- CLOs are included in profit or loss on the Statement of
Comprehensive Income as part of "Net loss on financial assets at
fair value through profit or loss - CLOs" for the year ended 31
December 2020.
2.11 Taxation
Profit arising in the Company for the year of assessment will be
subject to Jersey tax at the standard corporate income tax rate of
0% (31 December 2019: 0%).
2.12 Dividends
Dividends to Shareholders are recorded through the Statement of
Changes in Equity when they are declared to Shareholders.
2.13 Critical accounting judgements and estimates
The preparation of the financial statements in conformity with
IFRS requires management to make judgements, estimates and
assumptions that affect items reported in the Statement of
Financial Position and Statement of Comprehensive Income. It also
requires management to exercise its judgement in the process of
applying the Company's accounting policies. Uncertainty about these
assumptions and estimates could result in outcomes that require a
material adjustment to the carrying amount of assets and
liabilities affected in future periods.
Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to estimates are recognised prospectively.
Estimates
(a) Fair value
For the fair value of all financial instruments held, the
Company determines fair values using appropriate techniques.
Refer to Note 2.9 and Note 12 for further details on the
significant estimates applied in the valuation of the companies'
financial instruments and the underlying financial instruments in
BCF.
Judgements
(b) Non-consolidation of the Lux Subsidiary
The Company meets the definition of an Investment Entity as
defined by IFRS 10 and is required to account for its investments
at fair value through profit or loss.
The Company has multiple unrelated investors and holds multiple
investments in the Lux Subsidiary. The Company has been deemed to
meet the definition of an Investment Entity per IFRS 10 as the
following conditions exist:
-- the Company has obtained funds for the purpose of providing
investors with investment management services;
-- the Company's business purpose, which has been communicated
directly to investors, is investing solely for returns from capital
appreciation, investment income, or both; and
-- the performance of investments made through the Lux
Subsidiary are measured and evaluated on a fair value basis.
The Company has also considered the typical characteristics of
an investment entity per IFRS 10 in assessing whether it meets the
definition of an Investment Entity.
The Company controls the Lux Subsidiary through its 100% holding
of the voting rights and ownership. The Lux Subsidiary is
incorporated in Luxembourg.
Refer to Note 11 for further disclosures relating to the
Company's interest in the Lux Subsidiary.
3 Operating expenses
Year ended Year ended
31 December 2020 31 December 2019
EUR EUR
------------------------------------------------ ----------------- -----------------
Professional fees 269,601 263,427
Administration fees 329,706 365,607
Brokerage fees 105,197 57,487
Regulatory fees 44,914 30,661
Directors' fees and other expenses (see Note 4) 264,829 282,075
Audit fees and audit related fees 196,788 214,304
Non-audit fees - 13,955
Registrar fees 53,964 30,662
Sundry expenses 47,506 26,936
------------------------------------------------ ----------------- -----------------
1,312,505 1,285,114
------------------------------------------------ ----------------- -----------------
Administration fees
Under the administration agreement, the Administrator is
entitled to receive variable fees based on the Published NAV of the
Company for the provision of administrative and compliance
oversight services and a fixed fee for the provision of company
secretarial services. The overall charge for the above-mentioned
fees for the Company for the year ended 31 December 2020 was
EUR329,706 (31 December 2019: EUR365,607) and the amount due at 31
December 2020 was EUR52,470 (31 December 2019: EUR46,267).
Advisory fees
Under the Advisory Agreement, the Portfolio Adviser is entitled
to receive out of pocket expenses, all reasonable third-party
costs, and other expenses incurred in the performance of its
obligations. On this basis, the Portfolio Adviser recharged
EUR82,612 to the Company (31 December 2019: EURNil) comprising
primarily legal fees of EUR80,359 for the year ended 31 December
2020. This amount has been included under Professional fees.
Audit and non-audit fees
The Company incurred EUR196,788 (31 December 2019: EUR214,304)
in audit and audit-related fees during the year of which EUR116,188
(31 December 2019: EUR65,497) was outstanding at the year end.
The Company did not incur any non-audit fees during the year (31
December 2019: EUR13,955 incurred and outstanding at the year end).
The table below outlines the audit, audit related and non-audit
services received during the year.
Year ended Year ended
31 December 2020 31 December 2019
EUR EUR
----------------------------------------------------------------------------- ----------------- -----------------
Audit of the Company 118,753 113,307
Additional fee for the prior year audit 12,095 20,740
Audit-related services - review of interim financial report 65,940 62,277
Other audit-related services - C Share Conversion Ratio - 8,699
Other audit-related services - Reporting Accountant - for the year ended 31
December 2018 - 9,281
------------------------------------------------------------------------------ ----------------- -----------------
Total audit and audit-related services 196,788 214,304
------------------------------------------------------------------------------ ----------------- -----------------
Tax compliance services - 13,955
Total non-audit services - 13,955
------------------------------------------------------------------------------ ----------------- -----------------
Total fees to Deloitte LLP and member firms 196,788 228,259
------------------------------------------------------------------------------ ----------------- -----------------
Professional fees
Professional fees comprise EUR101,994 in legal fees and
EUR167,607 in other professional fees. In 2019, professional fees
comprised EUR104,657 in legal fees and EUR158,770 in other
professional fees.
4 Directors' fees
The Company has no employees. The Company incurred EUR263,391
(31 December 2019: EUR264,988) in Directors' fees (consisting
exclusively of short-term benefits) during the year of which
EUR66,752 (31 December 2019: EUR55,467) was outstanding at the year
end. No pension contributions were payable in respect of any of the
Directors.
Refer to the Directors' Remuneration Report for further details
on the Directors' remuneration and their interests.
5 Other receivables
As at As at
31 December 2020 31 December 2019
EUR EUR
-------------------- ----------------- -----------------
Prepayments 23,190 28,453
Interest receivable 127,848 204,021
151,038 232,474
-------------------- ----------------- -----------------
6 Financial assets at fair value through profit or loss
As at As at As at As at
31 December 2020 31 December 2019 31 December 2019 31 December 2019
Total Ordinary Share class C Share Total
class
--------------------------------------- ----------------- -------------------- ----------------- -----------------
EUR EUR EUR EUR
--------------------------------------- ----------------- -------------------- ----------------- -----------------
Financial assets at fair value through
profit or loss - Lux Co 388,000,146 338,476,744 57,915,527 396,392,271
--------------------------------------- ----------------- -------------------- ----------------- -----------------
Financial assets at fair value through
profit or loss - CLOs 549,437 - 3,192,772 3,192,772
--------------------------------------- ----------------- -------------------- ----------------- -----------------
Financial assets at fair value through profit or loss - Lux Co
consists of 284,879,854 CSWs, 2,000,000 Class A shares and 1 Class
B share issued by the Lux Subsidiary (31 December 2019: 319,758,584
CSWs, 2,000,000 Class A shares and 1 Class B share issued by the
Lux Subsidiary). Financial assets at fair value through profit or
loss - CLOs consists of 2 directly held CLO Mezzanine Notes (31
December 2019: 6 directly held CLO Income Notes and 2 directly held
Mezzanine Notes), which formed part of the Rollover Assets. These
have yet to be realised and re-invested in CSWs and then used by
the Lux Subsidiary to invest in PPNs issued by BCF.
CSWs
The Company has the right, at any time during the exercise
period (being the period from the date of issuance and ending on
earlier of the 3 February 2046 or the date on which the liquidation
of the Lux Subsidiary is closed), to request that the Lux
Subsidiary redeems all or part of the CSWs at the redemption price
(see below), by delivering a redemption notice, provided that the
redemption price will be due and payable only if and to the extent
that (a) the Lux Subsidiary will have sufficient funds available to
settle its liabilities to all other ordinary or subordinated
creditors, whether privileged, secured or unsecured, prior in
ranking to the CSWs, after any such payment, and (b) the Lux
Subsidiary will not be insolvent after payment of the redemption
price.
The redemption price is the amount payable by the Lux Subsidiary
on the redemption of CSWs outstanding, which shall be at any time
equal to the fair market value of the ordinary shares (that would
have been issued in case of exercise of all CSWs), as determined by
the Board on a fully diluted basis on the date of redemption, less
a margin (determined by the Board on the basis of a transfer
pricing report prepared by an independent advisor), and the
redemption price for each CSW shall be obtained by dividing the
amount determined in accordance with the preceding sentence by the
actual number of CSWs outstanding.
If at the end of any financial year there is excess cash, as
determined in good faith by the Lux Subsidiary board (but for this
purpose only), the Lux Subsidiary will automatically redeem, to the
extent of such excess cash, all or part of the CSWs at the
redemption price provided the requirements in the previous
paragraph are met, unless the Company notifies the Lux Subsidiary
otherwise. For the avoidance of doubt, to the extent the
subscription price for the CSWs to be redeemed has not been paid at
the time the CSWs were issued, the subscription price for such CSWs
to be redeemed shall be deducted from the Redemption Price.
CSWs listed in an exercise notice may not be redeemed.
Class A and Class B shares held in the Lux Subsidiary
Class A and Class B shares are redeemable and have a par value
of one Euro per share. Class A and Class B Shareholders have equal
voting rights commensurate with their shareholding.
Class A and Class B Shareholders are entitled to dividend
distributions from the net profits of the Lux Subsidiary (net of an
amount equal to five per cent of the net profits of the Lux
Subsidiary which is allocated to the general reserve, until this
reserve amounts to ten per cent of the Lux Subsidiary's nominal
share capital).
Dividend distributions are paid in the following order of
priority:
-- Each Class A share is entitled to the Class A dividend, being
a cumulative dividend in an amount of not less than 0.10% per annum
of the face value of the Class A shares.
-- Each Class B share is entitled to the Class B dividend (if
any), being any income such as but not limited to interest or
revenue deriving from the receivable from the PPN's held by the Lux
Subsidiary, less any non-recurring costs attributable to the Class
B shares.
Any remaining dividend amount for allocation of the Class A
dividend and Class B dividend shall be allocated pro rata among the
Class A shares.
The Board does not expect income in the Lux Subsidiary to
significantly exceed the anticipated annual running costs of the
Lux Subsidiary and therefore does not expect that the Lux
Subsidiary will pay significant, or any, dividends although it
reserves the right to do so.
Fair value hierarchy
IFRS 13 requires an analysis of investments valued at fair value
based on the reliability and significance of information used to
measure their fair value.
The Company categorises its financial assets according to the
following fair value hierarchy detailed in IFRS 13 that reflects
the significance of the inputs used in determining their fair
values:
-- Level 1: Quoted market price (unadjusted) in an active market for an identical instrument.
-- Level 2: Valuation techniques based on observable inputs,
either directly (i.e., as prices) or indirectly (i.e., derived from
prices). This category includes instruments valued using: quoted
market prices in active markets for similar instruments; quoted
prices for identical or similar instruments in markets that are
considered less than active; or other valuation techniques where
all significant inputs are directly or indirectly observable from
market data.
-- Level 3: Valuation techniques using significant unobservable
inputs. This category includes all instruments where the valuation
technique includes inputs not based on observable data and the
unobservable variable inputs have a significant effect on the
instrument's valuation. This category includes instruments that are
valued based on quoted prices for similar instruments where
significant unobservable adjustments or assumptions are required to
reflect differences between the instruments.
31 December 2020 Level 1 Level 2 Level 3 Total
EUR EUR EUR EUR
Financial assets at fair value through profit or loss - Lux Co - - 388,000,146 388,000,146
Financial assets at fair value through profit or loss - CLOs - - 549,437 549,437
--------------------------------------------------------------- ------- ------- ----------- -----------
31 December 2019 Level 1 Level 2 Level 3 Total
EUR EUR EUR EUR
Financial assets at fair value through profit or loss - Lux Co - - 396,392,271 396,392,271
--------------------------------------------------------------- ------- ------- ----------- -----------
Financial assets at fair value through profit or loss - CLOs - - 3,192,772 3,192,772
--------------------------------------------------------------- ------- ------- ----------- -----------
The Company determines the fair value of the financial assets at
fair value through profit or loss - Lux Co using the unaudited IFRS
NAV of the Lux Subsidiary and the audited IFRS NAV of BCF.
The Company determines the fair value of the CLOs held directly
using third party valuations. The Portfolio Adviser can challenge
the marks if they appear off-market or unrepresentative of fair
value.
During the years ended 31 December 2020 and 31 December 2019,
there were no reclassifications between levels of the fair value
hierarchy.
The Company's maximum exposure to loss from its interests in the
Lux Subsidiary and indirectly in BCF is equal to the fair value of
its investments in the Lux Subsidiary.
Financial assets at fair value through profit or loss
reconciliation
The following table shows a reconciliation of all movements in
the fair value of financial assets - Lux Co categorised within
Level 3 between the start and the end of the reporting period:
31 December 2020 Total
EUR
--------------------------------------------------------------------------- -------------
Balance as at 1 January 2020 396,392,271
Purchases - CSWs 6,800,000
Sale proceeds - CSWs (51,548,650)
Realised gain on financial assets at fair value through profit or loss 9,233,413
Unrealised gain on financial assets at fair value through profit or loss 27,123,112
--------------------------------------------------------------------------- -------------
Balance as at 31 December 2020 388,000,146
--------------------------------------------------------------------------- -------------
Realised gain on financial assets at fair value through profit or loss 9,233,413
Total change in unrealised gain on financial assets for the year 27,123,112
Net gain on financial assets at fair value through profit or loss - Lux Co 36,356,525
--------------------------------------------------------------------------- -------------
31 December 2019 Total
EUR
--------------------------------------------------------------------------- ------------
Balance as at 1 January 2019 315,890,482
Purchases - CSWs 64,524,232
Sale proceeds - CSWs (44,973,005)
Realised gain on financial assets at fair value through profit or loss 8,864,144
Unrealised gain on financial assets at fair value through profit or loss 52,086,418
--------------------------------------------------------------------------- ------------
Balance as at 31 December 2019 396,392,271
--------------------------------------------------------------------------- ------------
Realised gain on financial assets at fair value through profit or loss 8,864,144
Total change in unrealised gain on financial assets for the year 52,086,418
--------------------------------------------------------------------------- ------------
Net gain on financial assets at fair value through profit or loss - Lux Co 60,950,562
--------------------------------------------------------------------------- ------------
The following table shows a reconciliation of all movements in
the fair value of financial assets - CLOs categorised within Level
3 between the start and the end of the reporting period:
31 December 2020 Total
EUR
-------------------------------------------------------------------------------- ----------------
Balance as at 1 January 2020 3,192,772
PIK capitalised 278,010
Sale proceeds - CLOs (864,361)
Realised gain on financial assets at fair value through profit or loss - CLOs 54,976(32)
Unrealised loss on financial assets at fair value through profit or loss - CLOs (2,111,960)
-------------------------------------------------------------------------------- ----------------
Balance as at 31 December 2020 549,437
-------------------------------------------------------------------------------- ----------------
Realised gain on financial assets at fair value through profit or loss - CLOs 158,632(32)
Total change in unrealised loss on financial assets for the year - CLOs (2,111,960)
-------------------------------------------------------------------------------- ----------------
Net loss on financial assets at fair value through profit or loss - CLOs (1,953,328)
-------------------------------------------------------------------------------- ----------------
31 December 2019 Total
EUR
-------------------------------------------------------------------------------- ----------------
Balance as at 1 January 2019 -
Purchases - CLOs 70,665,562
Sale proceeds - CLOs (57,428,648)
Realised loss on financial assets at fair value through profit or loss - CLOs (4,224,550)
Unrealised loss on financial assets at fair value through profit or loss - CLOs (5,819,592)(33)
-------------------------------------------------------------------------------- ----------------
Balance as at 31 December 2019 3,192,772
-------------------------------------------------------------------------------- ----------------
Realised loss on financial assets at fair value through profit or loss - CLOs (4,224,550)
Total change in unrealised loss on financial assets for the year - CLOs (5,686,050) (33)
-------------------------------------------------------------------------------- ----------------
Net loss on financial assets at fair value through profit or loss - CLOs (9,910,600)
-------------------------------------------------------------------------------- ----------------
Refer to Other Information above , Note 2.9 and Note 12 for
valuation methodology of financial assets at fair value through
profit and loss.
The Company's investments, through the Lux Subsidiary, in BCF
are untraded and illiquid. The Board has considered these factors
and concluded that there is no further need to apply a discount for
illiquidity as at the end of the reporting period.
Quantitative information of significant unobservable inputs and
sensitivity analysis to significant changes in unobservable inputs
- Level 3
The significant unobservable inputs used in the fair value
measurement of the financial assets at fair value through profit or
loss - Lux Co within Level 3 of the fair value hierarchy together
with a quantitative sensitivity analysis as at 31 December 2020 and
31 December 2019 are as shown below:
Asset Class Fair Value Unobservable Ranges Weighted Sensitivity to changes
Inputs average in significant unobservable
inputs
------------------ ------------ ---------------- ------- --------- -----------------------------
EUR
------------------ ------------ ---------------- ------- --------- -----------------------------
CSWs 381,605,063 Undiscounted N/A N/A 20% increase/decrease
NAV of will have a fair
BCF value impact of
+/-
EUR76,321,012
------------------ ------------ ---------------- ------- --------- -----------------------------
Class A and 6,395,083 Undiscounted N/A N/A 20% increase/decrease
Class B shares NAV of will have a fair
the value impact of
Lux Subsidiary +/-
EUR1,279,016
------------------ ------------ ---------------- ------- --------- -----------------------------
Total as
at
31 December
2020 388,000,146
------------------ ------------ ---------------- ------- --------- -----------------------------
Asset Class Fair Value Unobservable Ranges Weighted Sensitivity to changes
Inputs average in significant unobservable
inputs
------------------ ------------ ---------------- ------- --------- -----------------------------
CSWs 390,685,286 Undiscounted N/A N/A 20% increase/decrease
NAV of will have a fair
BGCF value impact of
+/-
EUR78,137,057
----------------- ------------- ---------------- ------- --------- -----------------------------
Class A and 5,706,985 Undiscounted N/A N/A 20% increase/decrease
Class B shares NAV of will have a fair
the value impact of
Lux Subsidiary +/-
EUR1,141,397
------------------ ------------ ---------------- ------- --------- -----------------------------
Total as
at
31 December
2019 396,392,271
------------------ ------------ ---------------- ------- --------- -----------------------------
The significant unobservable inputs used in the fair value
measurement of the financial assets at fair value through profit or
loss - CLOs, comprising directly held CLO Mezzanine Notes, within
Level 3 of the fair value hierarchy together with a quantitative
sensitivity analysis as at 31 December 2020 and 31 December 2019
are as shown below:
Asset Class Fair Value Unobservable Ranges Weighted Sensitivity
Inputs (34) average to changes in
significant
unobservable
inputs
-------------- ----------- ------------- ------- --------- ----------------------
EUR
-------------- ----------- ------------- ------- --------- ----------------------
Mezzanine Notes
--------------------------- ------------- ------- --------- ----------------------
Directly 20% increase/decrease
Held CLO will have a
Mezzanine Third party 0.1% - fair value impact
Notes 549,437 valuations 23.6% 10.3% of +/- EUR109,887
-------------- ----------- ------------- ------- --------- ----------------------
Total as
at
31 December
2020 549,437
-------------- ----------- ------------- ------- --------- ----------------------
Asset Class Fair Value Unobservable Ranges(33) Weighted Sensitivity to
Inputs average changes in significant
unobservable
inputs
----------------- ----------- ------------- ----------- --------- --------------------------
EUR
----------------- ----------- ------------- ----------- --------- --------------------------
Income Notes
----------------- ----------- ------------- ----------- --------- --------------------------
20% increase/decrease
Directly will have a fair
Held CLO Third party value impact
Income Notes 809,385 valuations 0% - 35.5% 6.7% of +/- EUR161,877
----------------- ----------- ------------- ----------- --------- --------------------------
Mezzanine Notes
------------------------------ ------------- ----------- --------- --------------------------
Directly 20% increase/decrease
Held CLO will have a fair
Mezzanine Third party 20.1% value impact of
Notes 2,383,387 valuations - 73.0% 43.1% +/- EUR476,677
----------------- ----------- ------------- ----------- --------- ------------------------
Total as
at
31 December
2019 3,192,772
----------------- ----------- ------------- ----------- --------- --------------------------
7 Intercompany loan
As at As at As at As at
31 December 2020 31 December 2019 31 December 2019 31 December 2019
C Share
Total Ordinary Share Class Class Total
--------------------------------------- ----------------- -------------------- ----------------- -----------------
EUR EUR EUR EUR
--------------------------------------- ----------------- -------------------- ----------------- -----------------
Intercompany loan - payable to the Lux
Subsidiary 869,988 534,660 - 534,660
--------------------------------------- ----------------- -------------------- ----------------- -----------------
Interclass balance receivable/(payable) - 114,549 (114,549) -
--------------------------------------- ----------------- -------------------- ----------------- -----------------
The intercompany loan - payable to the Lux Subsidiary is a
revolving unsecured loan between the Company and the Lux
Subsidiary. The intercompany loan has a maturity date of 13
September 2033 and is repayable at the option of the Company up to
the maturity date. Interest is accrued at a rate of 1.6% per annum
and is payable annually only when a written request has been
provided to the Company by the Lux Subsidiary.
The interclass balance represents amounts receivable by the
Ordinary Share Class from the C Share Class and payable by the C
Share Class to the Ordinary Share Class for expenses incurred by
the Company, which are split between the Ordinary Share Class and
the C Share Class in proportion to their respective monthly
NAVs.
8 Payables
As at As at
31 December 2020 31 December 2019
EUR EUR
----------------------------------- ----------------- -----------------
Professional fees 91,844 39,391
Administration fees 52,470 46,267
Directors' fees 66,752 55,467
Audit fees 116,188 65,497
Intercompany loan interest payable 18,933 7,598
Other payables 5,090 26,734
Total payables 351,277 240,954
----------------------------------- ----------------- -----------------
All payables are due within the next twelve months.
9 Stated capital
Authorised
The authorised share capital of the Company is represented by an
unlimited number of shares of any class at no par value.
Allotted, called up and fully-paid
Ordinary Shares Number of shares Stated capital
EUR
---------------------------------------------------------- ---------------- --------------
As at 1 January 2020 402,319,490 403,034,162
Issue of Ordinary Shares upon conversion of C Shares 78,202,348 70,550,462
Shares repurchased during the period and held in treasury (3,498,507) (2,118,749)
---------------------------------------------------------- ---------------- --------------
Total Ordinary Shares as at 31 December 2020 477,023,331 471,465,875
---------------------------------------------------------- ---------------- --------------
C Shares Number of shares Stated capital
EUR
-------------------------------------- ---------------- --------------
As at 1 January 2020 133,451,107 77,270,167
C Share conversion and cancellation (133,451,107) (77,270,167)
-------------------------------------- ---------------- --------------
Total C Shares as at 31 December 2020 - -
-------------------------------------- ---------------- --------------
Allotted, called up and fully-paid
Ordinary Shares Number of shares Stated capital
EUR
---------------------------------------------------------- ---------------- --------------
As at 1 January 2019 404,700,446 404,962,736
Shares repurchased during the period and held in treasury (2,380,956) (1,928,574)
---------------------------------------------------------- ---------------- --------------
Total Ordinary Shares as at 31 December 2019 402,319,490 403,034,162
---------------------------------------------------------- ---------------- --------------
C Shares Number of shares Stated capital
EUR
-------------------------------------------------- ---------------- --------------
As at 1 January 2019 - -
Shares issued during the period 133,451,107 77,270,167
-------------------------------------------------- ---------------- --------------
Total C Shares as at 31 December 2019 133,451,107 77,270,167
-------------------------------------------------- ---------------- --------------
Total issued share capital as at 31 December 2019 535,770,597 480,304,329
-------------------------------------------------- ---------------- --------------
Ordinary Shares
At the 2019 AGM, held on 11 July 2019, the Directors were
granted authority to repurchase up to 14.99% of the issued share
capital as at the date of the 2019 AGM for cancellation or to be
held as treasury shares. Under this authority, during the year
ended 31 December 2020, the Company purchased 105,000 of its
Ordinary Shares of no par value at a total cost of EUR70,100. These
Ordinary Shares are being held as treasury shares.
At the 2020 AGM, held on 16 July 2020, the Directors were
granted authority to repurchase up to 14.99% of the issued share
capital as at the date of the 2020 AGM for cancellation or to be
held as treasury shares. Under this authority, during the year
ended 31 December 2020, the Company purchased 3,393,507 of its
Ordinary Shares of no par value at a total cost of EUR2,048,649.
These Ordinary Shares are being held as treasury shares.
At the 2020 AGM, the Directors were granted authority to allot,
grant options over or otherwise dispose of up to 48,041,684 Shares
(being equal to 10.00% of the Shares in issue at the date of the
AGM). This authority will expire at the 2021 AGM.
As at 31 December 2020, the Company had 477,023,331 Ordinary
Shares in issue and 5,879,463 Ordinary Shares in treasury (31
December 2019: 402,319,490 Ordinary Shares in issue and 2,380,956
Ordinary Shares in treasury).
Refer to Note 21 for further details on repurchases of Ordinary
Shares under the 2020 AGM authority subsequent to the reporting
period. This authority will expire at the 2021 AGM. The Directors
intend to seek annual renewal of this authority from
Shareholders.
Voting rights - Ordinary Shares
Holders of Ordinary Shares have the right to receive income and
capital from assets attributable to such class. Ordinary
Shareholders have the right to receive notice of general meetings
of the Company and have the right to attend and vote at all general
meetings.
Dividends
The Company may, by resolution, declare dividends in accordance
with the respective rights of the Shareholders, but no such
dividend shall exceed the amount recommended by the Directors. The
Directors may pay fixed rate and interim dividends.
A general meeting declaring a dividend may, upon the
recommendation of the Directors, direct that payment of a dividend
shall be satisfied wholly or partly by the issue of Ordinary shares
or the distribution of assets and the Directors shall give effect
to such resolution.
Except as otherwise provided by the rights attaching to or terms
of issue of any Shares, all dividends shall be apportioned and paid
pro rata according to the amounts paid on the Shares during any
portion or portions of the period in respect of which the dividend
is paid. No dividend or other monies payable in respect of any
Share shall bear interest against the Company.
The Directors may deduct from any dividend or other monies
payable to a Shareholder all sums of money (if any) presently
payable by the holder to the Company on account of calls or
otherwise in relation to such Shares.
Any dividend unclaimed after a period of 10 years from the date
on which it became payable shall, if the Directors so resolve, be
forfeited and cease to remain owing by the Company.
The dividends declared by the Board during the year are detailed
above.
Refer to Note 21 for dividends declared after the year end.
Repurchase of Ordinary Shares
The Board intends to seek annual renewal of this authority from
the Ordinary Shareholders at the Company's AGM, to make one or more
on-market purchases of Shares in the Company for cancellation or to
be held as Treasury shares.
The Board may, at its absolute discretion, use available cash to
purchase Shares in issue in the secondary market at any time.
Rights as to Capital
On a winding up, the Company may, with the sanction of a special
resolution and any other sanction required by the Companies Law,
divide the whole or any part of the assets of the Company among the
Shareholders in specie provided that no holder shall be compelled
to accept any assets upon which there is a liability. On return of
assets on liquidation or capital reduction or otherwise, the assets
of the Company remaining after payments of its liabilities shall
subject to the rights of the holders of other classes of shares, to
be applied to the Shareholders equally pro rata to their holdings
of Shares.
Capital management
The Company is closed-ended and has no externally imposed
capital requirements. The Company's capital as at 31 December 2020
comprises shareholders' equity at a total of EUR408,205,175 (31
December 2019: EUR410,505,991).
The Company's objectives for managing capital are:
-- to invest the capital in investments meeting the description,
risk exposure and expected return indicated in its prospectus;
-- to achieve consistent returns while safeguarding capital by
investing via the Lux Subsidiary in BCF and other Underlying
Companies;
-- to maintain sufficient liquidity to meet the expenses of the
Company and to meet dividend commitments; and
-- to maintain sufficient size to make the operation of the Company cost efficient.
The Board monitors the capital adequacy of the Company on an
on-going basis and the Company's objectives regarding capital
management have been met.
Refer to Note 10C Liquidity Risk for further discussion on
capital management, particularly on how the distribution policy is
managed.
C Shares
On 7 January 2019, the Company issued 133,451,107 C Shares in
specie as a result of the Rollover Offer. The Rollover Offer
included a transfer of assets amounting to EUR70,604,469, cash
proceeds amounting to EUR7,446,204 and incurred EUR780,506 in
costs. The C Shares were admitted to trading on the SFS of the main
market of the LSE. As at 31 December 2020, the Company had no C
Shares in issue (31 December 2019: 133,451,107) following the
conversion and cancellation as described below.
Voting rights - C Class
Holders of C Shares have the right to receive income and capital
from the C Share assets attributable to such class. C Shareholders
do not have the right to receive notice of or to attend or vote at
any general meeting of the Company.
Dividends
Holders of C Shares are entitled to dividends as described in
the section "Dividends" above.
Conversion
On 24 October 2019, the Company announced that it had reinvested
EUR62.6 million into BCF as part of its realisation strategy and
that the Company intended to convert the C Shares into Ordinary
Shares. On 20 November 2019, the Company announced that the
Calculation Date would fall on 29 November 2019 to accommodate
dividend payment schedules in accordance with the Company's
Articles of Association.
The calculation of the Conversion Ratio was based on the net
assets attributable to the Ordinary Shares -
EUR362,950,897 (NAV per Share of EUR 0.9021) and C Shares - EUR
70,550,461 (NAV per Share of EUR 0.5287) as at close of business on
29 November 2019. On 20 December 2019, the Company announced the
Conversion Ratio of 0.5860 Ordinary Shares per C Share.
On this basis, 133,451,107 C Shares would convert into
78,202,348 Ordinary Shares. The 78,202,348 Ordinary Shares were
admitted to the premium listing segment of the Official List of the
FCA and to trading on the LSE's Main Market for listed securities
on 7 January 2020.
10 Financial risk management
The Company is exposed to market risk (including interest rate
risk, currency risk and price risk), credit risk and liquidity risk
arising from the financial instruments it holds and the markets in
which it invests.
10A Market risk
Market risk is the current or prospective risk to earnings or
capital of the Company arising from changes in interest rates,
foreign exchange rates, commodity prices or equity prices.
The Company holds three investments, denominated in Euro, in the
Lux Subsidiary in the form of CSWs, Class A and Class B shares and
directly holds, as part of the Rollover Offer, two directly held
CLO Mezzanine Notes, denominated in USD. The CSWs are the main
driver of the Company's performance.
Financial market disruptions may have a negative effect on the
valuations of BCF's investments and, by extension, on the NAV of
the Lux Subsidiary and the Company and/or the market price of the
Company's Euro shares, and on liquidity events involving BCF's
investments. Any non-performing assets in BCF's portfolio may cause
the value of BCF's portfolio to decrease and, by extension, the NAV
of the Lux Subsidiary and the Company. Adverse economic conditions
may also decrease the value of any security obtained in relation to
any of BCF's investments.
A sensitivity analysis is shown below disclosing the impact on
the IFRS NAV of the Company, if the fair value of the Company's
investments at the year end increased or decreased by 20%. This
level of change is considered to be reasonably possible based on
observations of past and possible market conditions.
Year ended Increase by Decrease by
31 December 2020 20% 20%
EUR EUR EUR
-------------------------------------------- ----------------- ----------- -----------
Financial assets held at fair value through
profit or loss:
CSWs 381,605,063 457,926,076 305,284,050
Class A and Class B shares 6,395,083 7,674,100 5,116,066
CLOs 549,437 659,324 439,549
-------------------------------------------- ----------------- ----------- -----------
388,549,583
-------------------------------------------- ----------------- ----------- -----------
Year ended Increase by Decrease by
31 December 2019 20% 20%
EUR EUR EUR
-------------------------------------------- ----------------- ----------- -----------
Financial assets held at fair value through
profit or loss:
CSWs 390,685,286 468,822,343 312,548,228
Class A and Class B shares 5,706,985 6,848,382 4,565,588
CLOs 3,192,772 3,831,326 2,554,218
-------------------------------------------- ----------------- ----------- -----------
399,585,043
-------------------------------------------- ----------------- ----------- -----------
The calculations are based on the investment valuation at the
Statement of Financial Position date and are not representative of
the period as a whole, and may not be reflective of future market
conditions.
i. Interest rate risk
Interest rate movements affect the fair value of investments in
fixed interest rate securities and floating rate loans and on the
level of income receivable on cash deposits.
The interest income received by the Lux Subsidiary from
investments held at fair value through profit or loss is the
interest income on the PPNs received from BCF. Its calculation is
dependent on the profit generated by BCF as opposed to interest
rates set by the market. Interest rate sensitivity analysis is
presented for BCF in Note 12 since any potential movement in market
interest rates will impact BCF's holdings which in turn will impact
the interest income received by the Lux Subsidiary on the PPNs.
The Company is exposed to interest rate risk on CLOs directly
held by the Company.
Interest rate risk is monitored on an on-going basis, and is
managed and mitigated to the extent that is possible by the CLO
manager through active portfolio management, and the use of the
Underlying Companies offering documents and investment policies,
which permits portfolio management techniques to rotate between
asset classes and levels of risk as appropriate in accordance with
policies and procedures in place.
The following tables detail the Company's interest rate risk as
at 31 December 2020 and 31 December 2019:
31 December 2020 Interest bearing Non-interest bearing Total
EUR EUR EUR
------------------------------------------------------ ---------------- -------------------- -----------
Assets
Cash and cash equivalents 20,725,819 - 20,725,819
Other receivables - 151,038 151,038
Financial assets at fair value through profit or loss 549,437 388,000,146 388,549,583
------------------------------------------------------ ---------------- -------------------- -----------
Total assets 21,275,256 388,151,184 409,426,440
------------------------------------------------------ ---------------- -------------------- -----------
Liabilities
Intercompany loan (869,988) - (869,988)
Payables - (351,277) (351,277)
------------------------------------------------------ ---------------- -------------------- -----------
Total liabilities (869,988) (351,277) (1,221,265)
------------------------------------------------------ ---------------- -------------------- -----------
Total interest sensitivity gap 20,405,268
------------------------------------------------------ ---------------- -------------------- -----------
31 December 2019 Interest bearing Non-interest bearing Total
EUR EUR EUR
------------------------------------------------------ ---------------- -------------------- -----------
Assets
Cash and cash equivalents 11,464,088 - 11,464,088
Other receivables - 232,474 232,474
Financial assets at fair value through profit or loss 3,192,772 396,392,271 399,585,043
------------------------------------------------------ ---------------- -------------------- -----------
Total assets 14,656,860 396,624,745 411,281,605
------------------------------------------------------ ---------------- -------------------- -----------
Liabilities
Intercompany loan (534,660) - (534,660)
Payables - (240,954) (240,954)
------------------------------------------------------ ---------------- -------------------- -----------
Total liabilities (534,660) (240,954) (775,614)
------------------------------------------------------ ---------------- -------------------- -----------
Total interest sensitivity gap 14,122,200
------------------------------------------------------ ---------------- -------------------- -----------
As at 31 December 2020 and 31 December 2019, the majority of the
Company's interest rate exposure arose in the fair value of the
underlying BCF portfolio which is largely invested in senior
secured loans of companies predominantly in Western Europe or North
America. Most of the investments in senior secured loans carry
variable interest rates and various maturity dates. Refer to Note
12 which details BCF's exposure to interest rate risk.
The Company is exposed to interest rate risk on its cash
balances and directly held CLOs but this is not deemed to be
significant for the years ended 31 December 2020 and 31 December
2019.
ii. Currency risk
Foreign currency risk is the risk that the values of the
Company's assets and liabilities are adversely affected by changes
in the values of foreign currencies by reference to the Company's
base currency. The functional currency of the Company and its Lux
Subsidiary is the Euro.
The Company and the Lux Subsidiary are not subject to
significant foreign currency risk since the majority of their
investments are denominated in Euro and their share capital are
also denominated in Euro.
Refer to Note 12 which details BCF's exposure to currency risk.
BCF hedges US CLO equity exposure by reference to mark to model
valuations incorporated in the Published NAV as defined above.
The Company is exposed to currency risk on its investments in
the directly held CLOs which are denominated in USD. To reduce the
impact on the Company of currency fluctuations and the volatility
of returns which may result from currency exposure, the Company may
hedge the currency exposure of the directly held CLOs of the
Company with the use of derivatives. The Company did not have any
derivatives at the year end.
iii. Price risk
Price risk is the risk that the value of the Company's indirect
investments in BCF through its holding in the Lux Subsidiary does
not reflect the true value of BCF's underlying investment
portfolio.
BCF's portfolio may at any given time include securities or
other financial instruments or obligations which are very thinly
traded, for which a limited market exists or which are restricted
as to their transferability under applicable securities laws. These
investments may be extremely difficult to value accurately.
Further, because of overall size or concentration in particular
markets of positions held by BCF, the value of its investments
which can be liquidated may differ, sometimes significantly, from
their valuations. Third-party pricing information may not be
available for certain positions held by BCF. Investments held by
BCF may trade with significant bid-ask spreads. BCF is entitled to
rely, without independent investigation, upon pricing information
and valuations furnished to BCF by third parties, including pricing
services and valuation sources.
Absent bad faith or manifest error, valuation determinations in
accordance with BCF's valuation policy are conclusive and binding.
In light of the foregoing, there is a risk that the Company, in
redeeming all or part of its investment while BCF holds such
investments, could be paid an amount less than it would otherwise
be paid if the actual value of BCF's investment was higher than the
value designated for that investment by BCF. Similarly, there is a
risk that a redeeming BCF interest holder might, in effect, be
over-paid at the time of the applicable redemption if the actual
value of BCF's investment was lower than the value designated for
that investment by BCF, in which case the value of BCF interests to
the remaining BCF interest holders would be reduced. Refer to Note
12 for further details.
The Company is exposed to price risk on its investments in the
directly held CLOs. The price risk that applies to the directly
held CLOs is limited and is restricted to the concentration risk of
the investments between asset class and geographical exposure. The
directly held CLOs which formed part of the Rollover Assets have
been realised by the Portfolio Manager in a manner that maximises
the value from the Company's investments in those directly held
CLOs.
The Board monitors and reviews the Company's NAV production
process on an ongoing basis.
10B Credit risk
Credit risk is the risk that a counterparty to a financial
instrument will fail to discharge an obligation or commitment that
it has entered into with the Company. The Board has in place
monitoring procedures in respect of credit risk which is reviewed
on an ongoing basis.
The Company's credit risk is attributable to its cash and cash
equivalents, other receivables and financial assets at fair value
through profit or loss. An allowance for impairment is made where
there is an identified loss event which, based on previous
experience, is evidence of a reduction in the recoverability of the
cash flows.
BIL monitors for the Company, the Lux Subsidiary, BCF and its
subsidiaries the creditworthiness of financial institutions with
whom cash is held, or with whom investment or derivative
transactions are entered into, on a regular basis.
The carrying amounts of financial assets best represent the
maximum credit risk exposure at the Statement of Financial Position
date. At the reporting date, the Company's financial assets exposed
to credit risk amounted to the following:
As at As at
31 December 2020 31 December 2019
EUR EUR
------------------------------------------------------ ----------------- -----------------
Cash and cash equivalents 20,725,819 11,464,088
Other receivables 151,038 232,474
Financial assets at fair value through profit or loss 388,549,583 399,585,043
------------------------------------------------------ ----------------- -----------------
Total assets 409,426,440 411,281,605
------------------------------------------------------ ----------------- -----------------
The Company is exposed to a potential material singular credit
risk in the event that it requests a repayment of the CSWs from the
Lux Subsidiary and receives an acceptance of that repayment
request. Under the CSW agreement between the Company and the Lux
Subsidiary, any payment obligation by the Lux Subsidiary to the
Company is conditional upon the receipt of an equivalent amount by
the Lux Subsidiary which is derived from the PPNs issued by BCF.
The Board is aware of this risk and the concentration risk to the
Lux Subsidiary and indirectly to BCF.
Additionally, under the Profit Participating Note Issuing and
Purchase Agreement ("PPNIPA") between the Lux Subsidiary and BCF,
if the net proceeds from a liquidation of the collateral
obligations as defined in the PPNIPA available to unsecured
creditors of BCF (the "Liquidation Funds") are less than the
aggregate amount payable by BCF in respect of its obligations to
its unsecured creditors, including to the Lux Subsidiary and the
other parties to the PPNIPA (such negative amount being referred to
as a "shortfall"), the amount payable by BCF to the Lux Subsidiary
and the other parties to the PPNIPA in respect of BCF's obligations
under the PPNs will be reduced to such amount of the Liquidation
Funds which is available in accordance with the regulatory
requirements and the senior debt restrictive covenants to satisfy
such payment obligation upon the distribution of the Liquidation
Funds among all of BCF's unsecured creditors on a pari passu and
pro rata basis, and shall be applied for the benefit of the Lux
Subsidiary and the other parties to the PPNIPA. In such
circumstances the other assets of BCF will not be available for the
payment of such shortfall, and the rights of the Lux Subsidiary and
the other parties to the PPNIPA to receive any further amounts in
respect of such obligations shall be extinguished and the
Noteholders and the other parties to the PPNIPA may not take any
further action to recover such amounts.
The Company is exposed to credit risk on its investments in the
directly held CLOs. The directly held CLOs which formed part of the
Rollover Assets have been realised by the Portfolio Manager in a
manner that maximises the value from the Company's investments in
those directly held CLOs. Additionally, the Portfolio Manager
generally trades via the DTC or Euroclear, which on the whole,
limits counterparty risk.
During the years ended 31 December 2020 and 31 December 2019 all
cash was placed with BNP Paribas Securities S.C.A, as Custodian.
The ultimate parent of BNP Paribas Securities S.C.A is BNP Paribas
which is publicly traded with a credit rating of A+ (Standard &
Poor's).
The credit risk associated with debtors is limited to other
receivables. Credit risk is mitigated by the Company's policy to
only undertake significant transactions with leading commercial
counterparties. It is the opinion of the Board that the carrying
amounts of these financial assets represent the maximum credit risk
exposure as at the reporting date.
The Board continues to monitor the Company's exposure to credit
risk.
Refer to Note 12 which details BCF's exposure to credit
risk.
10C Liquidity risk
Liquidity risk is the risk that the Company will encounter
difficulties in realising assets or otherwise raising funds to meet
financial commitments.
The Company has been established as a closed-ended vehicle.
Accordingly, there is no right or entitlement attaching to the
Company's shares that allows them to be redeemed or repurchased by
the Company at the option of the Shareholder. This significantly
reduces the liquidity risk of the Company.
Under the terms of the unsecured PPNs issued to its investors,
BCF is contractually obliged to ensure that its portfolio is
managed in accordance with the Company's investment objective and
policy. In the event that BCF fails to comply with these
contractual obligations, the Company, through the Lux Subsidiary,
could elect for the unsecured PPNs to become immediately due and
repayable to it from BCF, subject to any applicable legal,
contractual and regulatory restrictions. Given the nature of the
investments held by BCF there is no guarantee and indeed, it is
highly unlikely that the applicable legal, contractual and
regulatory restrictions would permit BCF to immediately repay the
unsecured PPNs on the Company making such an election.
If the Company were to elect for the unsecured PPNs to be
repaid, BCF's failure to fully comply with its contractual
obligations to do so or BCF being restricted from doing so by law,
regulation or contract could have a significant adverse effect on
the Company's business, financial condition, results of operations
and/or the market price of the shares.
The PPNs are unsecured obligations of BCF and amounts payable on
the PPNs will be made solely from amounts received in respect of
the assets of BCF available for distribution to its unsecured
creditors. BCF is permitted to incur leverage in the form of
secured debt by way of one or more revolving credit facilities.
Such secured debt will rank ahead of the PPNs in respect of any
distributions or payments by BCF. In an enforcement scenario under
any revolving credit facility, the provider(s) of such facilities
will have the ability to enforce their security over the assets of
BCF and to dispose of or liquidate, on their own behalf or through
a security trustee or receiver, the assets of BCF in a manner which
is beyond the control of the Company. In such an enforcement
scenario, there is no guarantee that there will be sufficient
proceeds from the disposal or liquidation of BCF's assets to repay
any amounts due and payable on the PPNs and this may adversely
affect the performance of the Company's business, financial
condition and results of operations.
Consequently, in the event of a materially adverse event
occurring in relation to BCF or the market generally, the ability
of the Company to realise its investment and prevent the
possibility of further losses could, therefore, be limited by its
restricted ability to realise its investment via the Lux Subsidiary
in BCF. This delay could materially affect the value of the PPNs
and the timing of when BCF is able to realise its investments,
which may adversely affect the Company's business, financial
condition, results of operations and/or the market price of the
shares.
The directly held CLOs have been actively sold by the Portfolio
Manager to facilitate reinvestment into CSWs issued by the Lux
Subsidiary, which may in turn be reinvested into PPNs issued by
BCF.
The liquidity profile of BCF as at 31 December 2020 is in Note
12.
To meet the Company's target dividend, the Company will require
sufficient payments from the CSWs held and in the event these are
not received, the Board has the discretion to determine the amount
of dividends paid to Shareholders.
11 Interests in other entities
Interests in unconsolidated structured entities
IFRS 12 "Disclosure of Interests in Other Entities" defines a
structured entity as an entity that has been designed so that
voting or similar rights are not the dominant factor in deciding
who controls the entity, such as when any voting rights relate to
the administrative tasks only and the relevant activities are
directed by means of contractual agreements. A structured entity
often has some of the following features or attributes:
-- restricted activities;
-- a narrow and well-defined objective;
-- insufficient equity to permit the structured entity to
finance its activities without subordinated financial support;
and
-- financing in the form of multiple contractually linked
instruments that create concentrations of credit or other
risks.
Involvement with unconsolidated structured entities
The Directors have concluded that the CSWs and voting shares of
the Lux Subsidiary in which the Company invests, but that it does
not consolidate, meet the definition of a structured entity.
The Directors have also concluded that BCF also meets the
definition of a structured entity.
The Directors have concluded that CLOs in which the Company
invests, that are not subsidiaries for financial reporting
purposes, meet the definition of structured entities because:
-- the voting rights in the CLOs are not dominant rights in
deciding who controls them, as they relate to administrative tasks
only;
-- each CLO's activities are restricted by its Prospectus; and
-- the CLOs have narrow and well-defined objectives to provide
investment opportunities to investors.
Interests in subsidiary
As at 31 December 2020, the Company owns 100% of the Class A and
Class B shares in the Lux Subsidiary comprising 2,000,000 Class A
shares and one Class B share (31 December 2019: 2,000,000 Class A
shares and one Class B share).
The Lux Subsidiary's principal place of business is
Luxembourg.
Other than the investments noted above, the Company did not
provide any financial support for the years ended 31 December 2020
and 31 December 2019, nor had it any intention of providing
financial or other support.
The Company has an intercompany loan payable to the Lux
Subsidiary as at 31 December 2020. Refer to Note 7 for further
details.
12 Financial and other information on BCF
The Board has provided the following information on BCF, which
has been extracted from its audited financial statements for the
year ended 31 December 2020, as it believes this will provide
further insight to the Company's Shareholders into the operations
of BCF, the asset mix in its portfolio and the risks to which BCF
is exposed.
As at 31 December 2020, the Lux Subsidiary held a 35.4% (31
December 2019: 37.4%) interest in the PPNs issued by BCF. The
disclosures have not been apportioned according to the Lux
Subsidiary's PPN holding, as the Board believes to do so would be
misleading and not an accurate representation of the Company's
investment in BCF.
Principal activities
BCF was established as an originator vehicle under European risk
retention rules for CLO securitisations. It may also invest in
senior secured loans, either directly or indirectly through CLO
warehouses, and underlying companies. BCF is funded by proceeds
from the issuance of PPNs together with other financial resources
available to it, such as the BCF Facility.
Investment policy
BCF's investment policy is to invest (directly, or indirectly
through one or more Underlying Companies) in a diverse portfolio of
senior secured loans (including broadly syndicated, middle market
or other loans) (such investments being made by the Underlying
Companies directly or through investments in Loan Warehouses) bonds
and CLO Securities, and generate attractive risk--adjusted returns
from such portfolios. BCF intends to pursue its investment policy
by using the proceeds from the issue of PPNs (together with
proceeds from other financial resources available to it) to invest
in such assets.
BCF may invest (directly or through other Underlying Companies)
predominantly in European or US senior secured loans, CLO Income
Note securities (the most subordinated tranche of debt issued by a
CLO issuer), loan warehouses and other assets. Investments in loan
warehouses will typically be in the form of an obligation to
purchase preference shares or a subordinated loan. There is no
limit on the maximum European or US exposure. BCF is not expected
to invest (directly or through other Underlying Companies) in
senior secured loans domiciled outside North America or Western
Europe.
A CLO is a pooled investment vehicle which may invest in a
diversified group of debt securities, in this case predominantly
senior secured loans. To finance its investments, the CLO vehicle
issues debt in the form of Senior Notes and CLO Income Note
securities to investors. The servicing and repayment of these notes
is linked directly to the performance of the underlying portfolio
of assets.
The portfolio of assets underlying the CLO Income Note
securities consist mainly of senior secured loans, mezzanine loans,
second lien loans and high yield bonds. The portfolio of assets
within BCF consists mainly of CLO Income Note securities.
Distributions on the CLO Income Note securities, by way of interest
payments, are payable on a quarterly basis on dates established in
the formation documents of the CLOs.
As at 31 December 2020 and 31 December 2019, BCF had no exposure
to CLOs held as a vertical strip (as defined in the Company's
Investment Strategy).
Subsidiaries
BCF has acquired the majority, or all, of the CLO Income Note
securities issued by a number of European CLO issuers (the "Direct
CLO Subsidiaries"). The twenty-five Direct CLO Subsidiaries
(incorporated in Ireland) are presented below:
Name of subsidiary Currency Deal Size % Subordinated Equity
(million) Notes Held
31 December 2020
------------------- --------- ---------- ---------------------
Phoenix Park CLO
DAC EUR EUR417 51.4%
Sorrento Park
CLO DAC EUR EUR310 51.8%
Castle Park CLO
DAC EUR EUR261 52.1%
Dartry Park CLO
DAC EUR EUR338 51.1%
Dorchester Park
CLO DAC USD $503 67.0%
Orwell Park CLO
DAC EUR EUR357 51.0%
Tymon Park CLO
DAC EUR EUR375 51.0%
Elm Park CLO DAC EUR EUR543 56.1%
Griffith Park
CLO DAC EUR EUR456 53.4%
Palmerston Park
CLO DAC EUR EUR415 53.3%
Clarinda Park
CLO DAC EUR EUR415 51.2%
Clontarf Park
CLO DAC EUR EUR414 66.9%
Willow Park CLO
DAC EUR EUR412 60.9%
Marlay Park CLO
DAC EUR EUR413 60.0%
Milltown Park
CLO DAC EUR EUR409 65.0%
Richmond Park
CLO DAC EUR EUR548 68.3%
Sutton Park CLO
DAC EUR EUR408 66.7%
Crosthwaite Park
CLO DAC EUR EUR513 64.7%
Dunedin Park CLO
DAC EUR EUR408 52.9%
Seapoint Park
CLO DAC EUR EUR406 70.5%
Holland Park CLO
DAC EUR EUR428 72.1%
Vesey Park CLO
DAC EUR EUR405 80.3%
Avondale Park
CLO DAC EUR EUR284 63.0%
Deer Park CLO
DAC EUR EUR344 100.0%
Marino Park CLO
DAC EUR EUR324 70.8%
------------------- --------- ---------- ---------------------
BCF has also acquired 100% of the PPNs issued by BGCM DAC, which
was established on 1 August 2019. BGCM DAC holds 100% of the Series
2 and Series 3 interests of BCM LLC, a US manager-originator
vehicle established on 14 May 2019. The establishment of BCM LLC
created a structure capable of meeting potential demand for US CLOs
from European institutional investors requiring compliance with
European risk retention rules. BCM LLC holds CLO Income Note
securities in six US CLOs (the "Indirect CLO Subsidiaries") as
listed below and preference shares in one warehouse, Tallman Park
CLO warehouse.
Name of subsidiary Currency Deal Size % Subordinated Equity
(million) Notes Held
31 December 2020
------------------- --------- ---------- ---------------------
Southwich Park CLO
Limited USD $503 60.0%
Beechwood Park CLO
Limited USD $810 61.1%
Stratus CLO 2020-2
Limited USD $299 100.0%
Harriman Park CLO
Limited USD $502 70.0%
Cayuga Park CLO
Limited USD $393 72.0%
Allegany Park CLO
Limited USD $505 66.2%
------------------- --------- ---------- ---------------------
Prior to 1 July 2020, BCM LLC also held Class A preference
shares in the US MOA. On 1 July 2020, the US MOA was merged into
BCM LLC, at which time 86.02% (representing BCM LLC's ownership of
the US MOA) of each underlying US CLO of the US MOA was transferred
to BCM LLC. As this resulted in BCM LLC holding less than the
majority of certain CLO positions, BCM LLC purchased a small amount
of these US CLOs in order to maintain a majority economic position
in each CLO investment. As a result of this merger, from 1 July
2020, the underlying US CLOs that were previously held by BCF
through the US MOA are now held by BCF through BCM LLC.
In accordance with IFRS 10, the Direct CLO Subsidiaries, the
Indirect CLO Subsidiaries, BGCM DAC and BCM LLC, are all deemed to
be subsidiaries of BCF and are consolidated under its financial
reporting framework. During the year ended 31 December 2019, the
directors of BCF determined that BCM LLC did not control the US
MOA, as defined in IFRS 10, and therefore, the US MOA and its
underlying US CLO investments were not consolidated. As detailed
above, effective 1 July 2020, the US MOA was merged into BCM LLC
and the US MOA's investments in the US CLOs were transferred to BCM
LLC. For the year ended 31 December 2020, the directors of BCF
determined that BCM LLC did not control such US CLOs transferred
from the US MOA, and therefore, are not consolidated.
As at 31 December 2020, BCM LLC held investments in the
following non-consolidated US CLOs:
Name
---------------------------
Gilbert Park CLO Limited
Stewart Park CLO Limited
Catskill Park CLO Limited
Dewolf Park CLO Limited
Long Point Park CLO Limited
Greenwood Park CLO Limited
Grippen Park CLO Limited
Thayer Park CLO Limited
Cook Park CLO Limited
---------------------------
BCF also directly holds CLO Income Note securities in US CLOs
which it was not responsible for originating. As at 31 December
2020, BCF had direct holdings in the following US CLOs (together
with the non-consolidated US CLOs held through BCM LLC, the
"Non-Consolidated US CLOs"):
Name
-------------------------
Buckhorn Park CLO Limited
Filmore Park CLO Limited
Harbor Park CLO Limited
Niagara Park CLO Limited
Myers Park CLO Limited
-------------------------
The directors of BCF have determined that BCF did not control
the US MOA (through BGCM DAC and BCM LLC), nor does it control any
of the Non-Consolidated US CLOs or US CLO warehouses held directly
by BCF or through BCM LLC, as defined in IFRS 10. Therefore, these
entities have not been consolidated for the purposes of presenting
BCF's consolidated financial statements. These investments have
been classified as financial assets held at fair value through
profit or loss.
The directors of BCF do not anticipate any change in its
structure or investment objectives.
Valuation of financial instruments
As at 31 December 2020 and 2019, the loans held were broker
priced through Markit, and the bond investments were valued by
prices provided by IDC. The majority of these assets were
classified as Level 2 since the input into the Markit price
consisted of at least two quotes, however, a small number of
holdings priced through Markit consisted of only one quote. Such
assets were classified as Level 3. Both loans and bonds are priced
at current mid prices.
The CLO Income Note securities issued by the Direct CLO
Subsidiaries are listed on Euronext Dublin and are valued by a
third party. The approach to valuing these CLO Income Note
securities incorporates CLO specific information and modelling
techniques. Factors include (i) granular loan level data, such as
the concentration and quality of various loan level buckets, for
example, second liens, covenant lites and other structured product
assets, as well as several other factors including: discount rate,
default rates, prepayment rates, recovery rates, recovery lag and
reinvestment spread (these factors are highly sensitive and
variations may materially affect the fair value of the asset), and
(ii) structural analysis on a deal by deal basis. Pricing includes
checks on all structural features of each CLO, such as the credit
enhancement of each bond and various performance triggers
(including over-collateralisation tests, interest coverage and
diversion tests). Furthermore, reinvestment language specific to
each CLO deal is assessed, as well as the collateral manager's
performance and capabilities.
Investments in CLO Income Note securities of US CLO Issuers,
held directly or indirectly, are valued using an equivalent
methodology. Similar to the above, valuation of such CLO Income
Note securities uses significant unobservable inputs and
accordingly are classified as Level 3. Investments in the CLO
Income Note securities of the CLO Subsidiaries and the
Non-Consolidated US CLOs, and in the preference shares of the CLO
warehouses are valued on the above basis using significant
unobservable inputs, and accordingly, are classified as Level
3.
The PPNs and debt issued by the CLO Subsidiaries are categorised
as Level 3, as they are valued using a model which is based on the
fair value of the underlying assets and liabilities of the relevant
entity.
The following tables analyse within the fair value hierarchy
BCF's financial instruments carried at fair value as at 31 December
2020 and 31 December 2019:
31 December 2020 Level 1 Level 2 Level 3 Total
EUR EUR EUR EUR
-------------------------------------------------------------- ------- ----------- --------------- ---------------
Financial assets measured at fair value through profit or
loss:
- Investments in senior secured loans and bonds - 122,982,606 12,993,749 135,976,355
- Investments in CLO Income Notes - - 520,436,700 520,436,700
- Investment in BGCM DAC - - 339,404,431 339,404,431
- Derivative financial assets - 11,400,424 - 11,400,424
-------------------------------------------------------------- ------- ----------- --------------- ---------------
Total financial assets - 134,383,030 872,834,880 1,007,217,910
-------------------------------------------------------------- ------- ----------- --------------- ---------------
Financial liabilities measured at fair value through profit or
loss:
- PPNs - - (1,092,553,639) (1,092,553,639)
Total financial liabilities - - (1,092,553,639) (1,092,553,639)
-------------------------------------------------------------- ------- ----------- --------------- ---------------
31 December 2019 Level 1 Level 2 Level 3 Total
EUR EUR EUR EUR
-------------------------------------------------------------- ------- ----------- --------------- ---------------
Financial assets measured at fair value through profit or
loss:
- Investments in senior secured loans and bonds - 351,411,969 3,488,750 354,900,719
- Investments in CLO Income Notes - - 535,308,879 535,308,879
- Investment in BGCM DAC - - 282,791,684 282,791,684
- Derivative financial assets - 1,227,374 - 1,227,374
-------------------------------------------------------------- ------- ----------- --------------- ---------------
Total financial assets - 352,639,343 821,589,313 1,174,228,656
-------------------------------------------------------------- ------- ----------- --------------- ---------------
Financial liabilities measured at fair value through profit or
loss:
- PPNs - - (1,056,882,313) (1,056,882,313)
-------------------------------------------------------------- ------- ----------- --------------- ---------------
Total financial liabilities - - (1,056,882,313) (1,056,882,313)
-------------------------------------------------------------- ------- ----------- --------------- ---------------
The following table shows the movement in Level 3 of BCF's fair
value hierarchy for the years ended 31 December 2020 and 31
December 2019:
31 December 2020 Financial assets measured at FVPL Financial liabilities measured at FVPL
EUR EUR
------------------------------------------- --------------------------------- --------------------------------------
Opening balance 821,589,313 (1,056,882,313)
Net (loss)/gain on financial assets and
liabilities measured at fair value through
profit
or loss (73,533,922) 49,525,754
Purchases/Issuances 244,301,339 (85,197,080)
Sales/Redemptions (119,521,850) -
Closing Balance 872,834,880 (1,092,553,639)
------------------------------------------- --------------------------------- --------------------------------------
31 December 2019 Financial assets measured at FVPL Financial liabilities measured at FVPL
EUR EUR
------------------------------------------- --------------------------------- --------------------------------------
Opening balance 623,480,199 (787,146,684)
Net gain/(loss) on financial assets and
liabilities measured at fair value through
profit
or loss 3,531,929 (2,379,953)
Purchases/Issuances 710,364,958 (267,355,676)
Sales/Redemptions (506,115,504) -
Movement out of Level 3 (9,672,269) -
Closing Balance 821,589,313 (1,056,882,313)
------------------------------------------- --------------------------------- --------------------------------------
BCF's policy is to recognise transfers into and transfers out of
fair value hierarchy levels as of the last day of the accounting
period. There were no transfers between Level 1 and Level 2 of the
fair value hierarchy during the years ended 31 December 2020 or 31
December 2019.
Sensitivity of BCF Level 3 holdings to unobservable inputs
A number of holdings as at 31 December 2020 and 31 December 2019
were priced through Markit where the input into the Markit price
was only one price, so they were classified as Level 3. These loan
assets are not modelled on analysts' prices but are from dealers'
runs therefore there are no unobservable inputs into the
prices.
The CLO Income Notes were valued by a third party using a CLO
intrinsic calculation methodology and were classified as Level 3
because the valuation technique incorporates significant
unobservable inputs. The CLO prices are determined by consideration
of several factors including the following: default rates,
prepayment rates, recovery rates, recovery lag and reinvestment
spread. These factors are highly sensitive, and variations may
materially affect the fair value of the asset. These metrics are
accumulated from various market sources independent of BIL.
Additionally, valuation incorporates a review of each CLO indenture
and the latest underlying CLO loan portfolio forming various
projections based on the quality of the collateral, the collateral
manager capabilities and general macroeconomic conditions. The
sensitivity of the fair values of the CLO Notes, in particular CLO
Income Notes to the traditional risk variables measured separately
including market risk and interest rate risk may not be the most
appropriate analysis for this asset class. The sensitivity to
valuation assumptions including interest rates has an
interdependent impact with other significant market variables as
noted in the assumptions used for valuing CLO Income Notes. Given
the values are based on third party prices, the sensitivity to the
key assumptions is not required to be provided.
The assets classified as Level 3 represented 86.7% (2019: 70.0%)
of the total financial assets. If the price of the holdings
classified as Level 3 increased or decreased by 5% it would result
in an increase or decrease in the value of the financial assets of
EUR 43,641,744 (4.3% of the total financial assets) (2019: EUR
41,079,466 (3.5% of the total financial assets)). There also would
be an equal and opposite effect on the valuation of the PPNs (4.3%)
(2019: (3.5%)).
The financial liabilities at fair value through profit or loss
consist of the PPNs. The PPNs are valued using a model based on the
fair value of the underlying assets and liabilities. If the value
of the underlying assets or liabilities changes then there would be
an equal and opposite effect on the valuation of the PPNs.
Financial instruments and associated risks
The Lux Subsidiary holds one investment in BCF in the form of
PPNs. The PPNs are the main driver of the Lux Subsidiary's
performance and consequently that of the Company. The performance
of the PPNs is driven solely by the underlying portfolio of BCF and
therefore consideration of the risks to which BCF is exposed to
have also been made.
Market risk
Market risk is the current or prospective risk to earnings or
capital of BCF arising from changes in interest rates, foreign
exchange rates, commodity prices or equity prices. Market risk
embodies the potential for both losses and gains.
Market price risk arises mainly from uncertainty about future
prices of financial instruments held. It represents the potential
loss BCF might suffer through holding market positions in the face
of price movements caused by factors specific to the individual
investment or factors affecting all instruments traded in the
market. In addition, local, regional or global events may have a
significant impact on BCF and the price of its investments.
As all of the financial instruments are carried at fair value
through profit or loss, all changes in market conditions will
directly impact the valuation of the PPNs.
(i) Currency risk
Foreign currency risk arises as the value of future
transactions, recognised monetary assets and monetary liabilities
denominated in other currencies may fluctuate due to changes in
foreign exchange rates. Foreign exchange exposure relating to
non-monetary assets and liabilities is considered to be a component
of market price risk, not foreign currency risk.
BCF's financial statements are denominated in Euro, though
investments in the US CLO warehouses, US CLOs, and senior secured
loans and bonds are made and realised in other currencies. Changes
in rates of exchange may have an adverse effect on the value, price
or income of the investments of BCF.
BIL monitors foreign currency risk on a periodic basis.
Typically, derivative contracts serve as components of BCF's asset
hedging program and are utilised primarily to reduce foreign
currency risk to BCF's investments. Foreign currency risk on
non-base currency loans and bonds is minimised by the leveraged
structure of BCF and by the use of the multi-currency BCF Facility
to draw down funds. Non-base GBP and USD investments are funded by
use of the corresponding currency leverage of the BCF Facility
which creates a matching of asset and liability currency risk and
minimising the impact of fluctuations in exchange rates. Rolling
currency forwards are used to manage the foreign currency exposure
of the preference shares of the US CLO warehouses, the CLO Income
Notes of the Indirect CLO Subsidiaries, Dorchester Park CLO DAC and
the Non-Consolidated US CLOs denominated in foreign currencies. The
market value of these USD positions is hedged by offsetting USD
forward notional amounts to ensure BCF is fully hedged.
The following table sets out BCF's total exposure to foreign
currency risk and the net exposure to foreign currencies of the
monetary assets and liabilities as at 31 December 2020 and 31
December 2019:
31 December 2020 British Pound United States Dollars
EUR EUR
------------------------------ ------------- ---------------------
Investments in senior secured
loans and bonds 1,969,655 -
Investments in CLO Income
Notes - 101,013,068
Investment in BGCM DAC - 339,404,431
BCF Facility (4,291,104) (1,262,242)
Cash and cash equivalents 3,267,348 48,403
Other assets and liabilities (1,967,691) 15,423,445
------------------------------ ------------- ---------------------
Net position (1,021,792) 454,627,105
Notional amount of currency
forwards - (438,189,910)
------------------------------ ------------- ---------------------
Net exposure (1,021,792) 16,437,195
------------------------------ ------------- ---------------------
Sensitivity 10% (102,179) 1,643,720
------------------------------ ------------- ---------------------
31 December 2019 British Pound United States Dollars
EUR EUR
------------------------------ ------------- ---------------------
Investments in senior secured
loans and bonds 12,420,354 3,966,459
Investments in CLO Income
Notes - 158,782,181
Investment in BGCM DAC - 282,791,684
------------------------------ ------------- ---------------------
BCF Facility (18,444,833) (11,151,480)
Cash and cash equivalents 5,578,229 5,918,399
Other assets and liabilities 2,246,394 16,502,400
Net position 1,800,144 456,809,643
Notional amount of currency
forwards - (500,646,940)
----------------------------- ------------ -------------
Net exposure 1,800,144 (43,837,297)
----------------------------- ------------ -------------
Sensitivity 10% 180,014 (4,383,730)
----------------------------- ------------ -------------
Sensitivity analysis - BCF
At 31 December 2020 and 2019, had the Euro strengthened by 10%
(2019: 10%) in relation to all currencies, with all other variables
held constant, the net asset / liability exposure would have
increased by the amounts shown above for BCF. There would be no
impact on the total comprehensive income of BCF because the fair
value movement on financial liabilities would move in the opposite
direction and cancel the effect of the foreign exchange
movement.
A 10% weakening of the base currency, against GBP and US Dollar,
would have resulted in an equal but opposite effect than that on
the tables above, on the basis that all other variables remain
constant. These calculations are based on historical data. Future
currency movements and correlations between holdings could vary
significantly from those experienced in the past.
(ii) Interest rate risk
Interest rate risk arises from the effects of fluctuations in
the prevailing levels of market interest rates on the fair value of
financial assets and liabilities and future cash flow.
The PPNs issued by BCF are limited recourse obligations and are
valued based on the fair value of the underlying assets and
liabilities. As the interest attached to the PPNs is based on the
income earned by BCF, any fluctuations in the prevailing level of
market interest rates that negatively affect the fair value of the
underlying financial assets will result in an offsetting decrease
in the fair value of the PPNs.
The interest rate risk associated with cash and cash equivalents
is deemed to be insignificant due to negligible interest rates and
no expected movement.
The following table details BCF's exposure to interest rate risk
as at 31 December 2020. It includes the carrying value of BCF's
assets and liabilities at fair values, categorised by the type of
interest rate attached to the assets and liabilities, whether it be
floating rate, fixed or non-interest bearing:
31 December 2020 Floating rate Fixed rate Non-interest Total
bearing
EUR EUR EUR EUR
--------------------------------------------------------- --------------- ---------- ------------- ---------------
Financial assets measured at fair value through profit or
loss:
- Investments in senior secured loans and bonds 130,988,193 4,988,162 - 135,976,355
- Investments in CLO Income Notes 520,436,700 - - 520,436,700
- Investment in BGCM DAC 339,404,431 - - 339,404,431
- Derivative financial assets 11,400,424 - - 11,400,424
Receivable for investments sold - - 349,344,373 349,344,373
Other receivables - - 32,837,068 32,837,068
Cash and cash equivalents 102,502,515 - - 102,502,515
--------------------------------------------------------- --------------- ---------- ------------- ---------------
Total assets 1,104,732,263 4,988,162 382,181,441 1,491,901,866
--------------------------------------------------------- --------------- ---------- ------------- ---------------
Financial liabilities measured at fair value through
profit or loss:
- PPNs (1,092,553,639) - - (1,092,553,639)
BCF Facility (103,633,100) - - (103,633,100)
Payable for investments purchased - - (292,363,103) (292,363,103)
Other payables and accrued expenses - - (3,345,764) (3,345,764)
--------------------------------------------------------- --------------- ---------- ------------- ---------------
Total liabilities (1,196,186,739) - (295,708,867) (1,491,895,606)
--------------------------------------------------------- --------------- ---------- ------------- ---------------
Total interest sensitivity gap (91,454,476) 4,988,162
--------------------------------------------------------- --------------- ---------- ------------- ---------------
The following table details BGCF's exposure to interest rate
risk as at 31 December 2019. It includes the carrying value of
BGCF's assets and liabilities at fair values, categorised by the
type of interest rate attached to the assets and liabilities,
whether it be floating rate, fixed or non-interest bearing:
31 December 2019 Floating rate Fixed rate Non-interest Total
bearing
EUR EUR EUR EUR
--------------------------------------------------------- --------------- ---------- ------------- ---------------
Financial assets measured at fair value through profit or
loss:
- Investments in senior secured loans and bonds 337,939,901 16,960,818 - 354,900,719
- Investments in CLO Income Notes 535,308,879 - - 535,308,879
- Investment in BGCM DAC 282,791,684 - - 282,791,684
- Derivative financial assets 1,227,374 - - 1,227,374
Receivable for investments sold - - 253,971,470 253,971,470
Other receivables - - 29,965,349 29,965,349
Cash and cash equivalents 72,920,097 - - 72,920,097
--------------------------------------------------------- --------------- ---------- ------------- ---------------
Total assets 1,230,187,935 16,960,818 283,936,819 1,531,085,572
--------------------------------------------------------- --------------- ---------- ------------- ---------------
Financial liabilities measured at fair value through
profit or loss:
- PPNs (1,056,882,313) - - (1,056,882,313)
BCF Facility (244,676,065) - - (244,676,065)
Payable for investments purchased - - (226,523,038) (226,523,038)
Other payables and accrued expenses - - (2,998,796) (2,998,796)
--------------------------------------------------------- --------------- ---------- ------------- ---------------
Total liabilities (1,301,558,378) - (229,521,834) (1,531,080,212)
--------------------------------------------------------- --------------- ---------- ------------- ---------------
Total interest sensitivity gap (71,370,443) 16,960,818
--------------------------------------------------------- --------------- ---------- ------------- ---------------
Sensitivity analysis
At 31 December 2020, had the base interest rates
strengthened/weakened by 2% (2019: 2%) in relation to all holdings
subject to interest with all other variables held constant, the
finance income would increase/decrease by EUR 1,729,326 (2019: EUR
1,088,193) which would subsequently impact the amount available for
distribution as finance expense. There would be no impact on the
total comprehensive income of BCF. The interest rate sensitivity
information is a relative estimate of risk and is not intended to
be a precise and accurate number. The calculations are based on
historical data. Future price movements and correlations between
securities could vary significantly from those experienced in the
current financial year.
(iii) Price risk
Price risk is the risk that the value of investments will
fluctuate as a result of changes in market prices (other than those
arising from currency risk and interest rate risk) whether caused
by factors specific to an individual investment, its issuer or all
factors affecting all investments traded in the market.
BCF attempts to mitigate asset pricing risk by using external
pricing and valuation sources and by permitting the collateral
manager, subject to certain requirements, to sell collateral
obligations and reinvest the proceeds. The CLO manager monitors the
assets within each CLO to ensure that they do not breach the
collateral quality tests and portfolio profile tests. Where
possible, prices are received from brokers on a monthly basis.
Broker prices for loans are sourced from Markit, a composite price
provider, and broker prices for bonds are sourced from IDC.
Credit risk
Credit risk is the current or prospective risk to earnings and
capital arising from a counterparty's failure to meet the terms of
any contract with BCF, or otherwise fail to perform as agreed. The
receipt of monies owed will be subject to and dependent on the
counterparty's ability to pay such monies.
BCF is therefore open to risks relating to the creditworthiness
of the counterparty. If the counterparty fails to make any cash
payments required to settle an investment, BCF may lose principal
as well as any anticipated benefit from the transaction.
Credit risk in financial instruments arises from cash and cash
equivalents and investments in debt securities, as well as credit
exposures of transactions with brokers related to transactions
awaiting settlement (i.e. receivable for investment sold and other
receivables).
BIL, through its investment strategy, will endeavour to avoid
losses relating to defaults on the underlying assets. In-house
credit research is used to identify asset allocation opportunities
amongst potential borrowers and industry segments and to take
advantage of episodes of market mis-pricing. Segments and themes
that are likely to be profitable are subjected to rigorous analysis
and risk is allocated to these opportunities consistent with
investment objectives. All transactions involve credit research
analysts with relevant industry sector experience.
The credit analysis performed involves developing a full
understanding of the business and associated risk of the loan or
bond issuer and a full analysis of the financial risk, which leads
to an overall assessment of credit risk. BIL analyses credit
concentration risk based on the counterparty, country and industry
of the financial assets that BCF holds.
At the reporting date, BCF's financial assets exposed to credit
risk are as follows:
BCF 31 December 31 December
2020 2019
EUR EUR
---------------------------------------- ------------- -------------
Financial assets measured at fair value
through profit or loss 995,817,486 1,173,001,282
Derivative financial assets 11,400,424 1,227,374
Receivables for investments sold 349,344,373 253,971,470
Other receivables 32,837,068 29,965,349
Cash at bank 102,502,515 72,920,097
---------------------------------------- ------------- -------------
Total 1,491,901,866 1,531,085,572
---------------------------------------- ------------- -------------
Amounts in the above tables are based on the carrying value of
the financial assets as at the reporting date.
Financial assets measured at fair value through profit or
loss
BCF's investment policy is to invest predominantly in:
(i) a diverse portfolio of senior secured loans (including
broadly syndicated, middle market or other loans);
(ii) CLO Income Notes issued by the Issuer CLOs whose
investments will be focused predominantly in European and US senior
secured loans; and
(iii) US CLO Income Notes (held directly or indirectly) whose
investments are focused predominantly in US senior secured
loans.
Financial assets measured at fair value through profit or loss
(continued)
The investments in senior secured loans and bonds held directly
by BCF had the following credit quality as rated by Moody's:
[Graphs and charts are included in the published Annual Report
and Audited Financial Statements which is available on the
Company's website at https://blackstone.com/ bglf ]
The senior secured loans and bonds held directly by BCF are
concentrated in the following industries:
[Graphs and charts are included in the published Annual Report
and Audited Financial Statements which is available on the
Company's website at https://blackstone.com/ bglf ]
In addition to the senior secured loans and bonds held directly,
BCF invests in CLO Income Notes issued by European and US CLO
Issuers whose investments are focused predominantly in European and
US senior secured loans. Each CLO's investment activities are
restricted by its prospectus and the CLOs have narrow and
well-defined objectives to provide investment opportunities to
investors. In order to avoid excessive concentration of risk, the
policies and procedures of each CLO include specific guidelines to
focus on maintaining a diversified portfolio. As CLO Income
Noteholder in the CLOs, BCF is exposed to the credit risk on the
underlying senior secured loans and bonds held by the CLOs. In
addition, the CLO Income Notes are limited recourse obligations of
the CLOs which are payable solely out of amounts received by the
CLO in respect of the financial assets held.
The underlying investments in senior secured loans and bonds
recognised as financial assets of BCF's Direct CLO Subsidiaries had
the following credit quality as rated by Moody's:
[Graphs and charts are included in the published Annual Report
and Audited Financial Statements which is available on the
Company's website at https://blackstone.com/ bglf ]
Financial assets measured at fair value through profit or loss
(continued)
The senior secured loans and bonds held by the Direct CLO
Subsidiaries of BCF are concentrated in the following
industries:
[Graphs and charts are included in the published Annual Report
and Audited Financial Statements which is available on the
Company's website at https://blackstone.com/ bglf ]
The underlying investments in senior secured loans and bonds
recognised as financial assets of the Indirect CLO Subsidiaries of
BCF had the following credit quality as rated by Moody's:
[Graphs and charts are included in the published Annual Report
and Audited Financial Statements which is available on the
Company's website at https://blackstone.com/ bglf ]
The senior secured loans and bonds held by the Indirect CLO
Subsidiaries are concentrated in the following industries:
[Graphs and charts are included in the published Annual Report
and Audited Financial Statements which is available on the
Company's website at https://blackstone.com/ bglf ]
During the year, BCF held (directly and indirectly) CLO Income
Notes in US CLOs which are not consolidated as subsidiaries. Prior
to 1 July 2020, the US CLOs that are held indirectly by BCF were
held through the US MOA. From 1 July 2020, such US CLOs are held
indirectly through BCM LLC, following a decision to merge BCM
LLC
with the US MOA. Accordingly, BCF is exposed to the credit risk
on the underlying US senior secured loans and bonds held by such US
CLOs. In addition, the CLO Income Notes are limited recourse
obligations of the US CLOs which are payable solely out of amounts
received by the US CLO in respect of the financial assets held.
The underlying investments in senior secured loans and bonds
recognised as financial assets of the US CLOs (whose Income Notes
are held directly and indirectly by BCF) had the following credit
quality as rated by Moody's:
[Graphs and charts are included in the published Annual Report
and Audited Financial Statements which is available on the
Company's website at https://blackstone.com/ bglf ]
The underlying financial assets of the US CLOs (whose Income
Notes are held directly and indirectly by BCF)) exposed to credit
risk were concentrated in the following industries:
[Graphs and charts are included in the published Annual Report
and Audited Financial Statements which is available on the
Company's website at https://blackstone.com/ bglf ]
Liquidity risk
Liquidity is the risk that BCF may not be able to meet its
financial obligations as they fall due. The ability of BCF to meet
its obligations is dependent on the receipt of interest and
principal from the underlying collateral portfolios. Obligations
may arise from: financial liabilities at fair value, payable for
investments purchased, BCF Facility, interest payable on CLO Income
Notes, derivative financial liabilities, other payables and accrued
expenses.
At the reporting date, the financial obligations exposed to
liquidity risk are as follows:
Financial liabilities measured at fair value through profit or
loss
Financial liabilities at fair value comprise PPNs issued by
BCF.
All PPNs issued are limited recourse. The recourse of the
noteholders, which includes BGLF through the Lux Subsidiary, is
limited to the proceeds available to unsecured creditors at such
time from the debt obligations, CLO Income Notes and other
obligations which comply with the investment policy. Therefore,
from the perspective of BCF, the associated liquidity risk of the
PPNs is reduced.
13 Segmental reporting
As per IFRS 8 Operating Segments, an operating segment is a
component of an entity
-- that engages in business activities from which it may earn revenues and incur expenses;
-- whose operating results are reviewed regularly by the
entity's chief operating decision maker to make decisions about
resources to be allocated to the segment and assess its
performance; and
-- for which discrete financial information is available.
The Board, who is the chief operating decision maker, classified
the Company into two operating segments - the Ordinary Share Class
and the C Share Class - following completion of the Rollover Offer,
in the Half Yearly Financial Report for the six months ended 30
June 2019.
Following the substantial sale of relevant assets acquired under
the C Share rollover process and EUR62.6 million (representing
85.8% of the value of the assets in the C Share class as at 1
October 2019) reinvested into CSWs in the Lux Subsidiary and
subsequently into PPNs in BCF, the Board classified the Company
into one operating segment as at 31 December 2019 and resolved to
convert the C Shares into Ordinary Shares. The calculation of the
conversion ratio of the C Shares into Ordinary Shares was
undertaken using the NAVs as at 29 November 2019. The Board also
considered that any performance on the remaining directly held CLO
assets post 29 November 2019 was captured through the combined pool
of assets in one operating segment, given the ratio had been
fixed.
However, given the two operating segments operated throughout
most of the year ended 31 December 2019, the Board considered it to
be appropriate to disclose the performance of both the Ordinary
Share and C Share Classes in the Annual Report and Audited
Financial Statements for the year ended 31 December 2019.
During the year ended 31 December 2020, the Board classified the
Company into one operating segment - the Ordinary Share Class. The
presentation of the comparatives for 31 December 2019 has been
amended to present the Company's financial position as at 31
December 2019 and the performance for the year ended 31 December
2019 in aggregate as opposed to two operating segments.
During the years ended 31 December 2020 and 31 December 2019,
the Company's primary exposure was to the Lux Subsidiary in Europe.
The Lux Subsidiary's primary exposure is to BCF, an Irish entity.
BCF's primary exposure is to the US and Europe.
14 Basic and diluted earnings per Share
As at As at
31 December 2020 31 December 2019 (35)
EUR EUR
-------------------------------------------------- ----------------- ----------------------
Total comprehensive income for the year 33,420,657 59,606,832
Weighted average number of shares during the year 478,307,769 442,117,788
Basic and diluted earnings per Ordinary Share 0.0699 0.1348
-------------------------------------------------- ----------------- ----------------------
15 Net asset value per Ordinary Share
As at As at
31 December 2020 31 December 2019
EUR EUR
---------------------------------------- ----------------- -----------------
IFRS Net asset value 408,205,175 410,505,991
Number of Ordinary Shares at year end 477,023,331 480,521,838
---------------------------------------- ----------------- -----------------
IFRS Net asset value per Ordinary Share 0.8557 0.8543
---------------------------------------- ----------------- -----------------
The number of Ordinary Shares at 31 December 2020 and 31
December 2019 has been calculated as follows:
As at As at
31 December 2020 31 December 2019
C Shares - 133,451,107
Conversion ratio (as detailed in Note 9) - 0.5860
New Ordinary Shares - 78,202,348
Add: Existing Ordinary Shares 477,023,331 402,319,490
Number of Ordinary Shares at year end 477,023,331 480,521,838
----------------------------------------- ----------------- -----------------
16 Reconciliation of Published NAV to IFRS NAV per the financial statements
As at As at
31 December 2020 31 December 2019
NAV NAV per share NAV NAV per share
EUR EUR EUR EUR
------------------------------------------- ------------- ------------- ------------- -------------
Published NAV attributable to Shareholders 402,369,392 0.8435 441,434,524 0.9187
Adjustment - valuation 5,835,783 0.0122 (30,928,533) (0.0644)
IFRS NAV 408,205,175 0.8557 410,505,991 0.8543
------------------------------------------- ------------- ------------- ------------- -------------
As noted above, there can be a difference between the Published
NAV and the IFRS NAV per the financial statements, mainly because
of the different bases of valuation. The above table reconciles the
Published NAV to the IFRS NAV per the financial statements.
17 Reconciliation of liabilities arising from financing activities
As at As at
31 December 2020 31 December 2019
EUR EUR
------------------------------ ----------------- -----------------
Opening balance 534,660 237,057
Increase in intercompany loan 335,328 297,603
Closing balance 869,988 534,660
------------------------------ ----------------- -----------------
18 Dividends
The Company declared and paid the following dividends on
Ordinary Shares during the year ended 31 December 2020.
Period in respect of Date Declared Ex-dividend Date Payment Date Amount per Ordinary Share Amount paid
--------------------------- -------------- ----------------- ------------- ------------------------- -----------
EUR EUR
--------------------------- -------------- ----------------- ------------- ------------------------- -----------
1 Oct 2019 to 31 Dec 2020 21 Jan 2020 30 Jan 2020 28 Feb 2020 0.0250 12,013,045
1 Jan 2020 to 31 Mar 2020 23 Apr 2020 30 Apr 2020 29 May 2020 0.0150 7,207,827
1 Apr 2020 to 30 Jun 2020 21 Jul 2020 30 Jul 2020 28 Aug 2020 0.0150 7,205,127
1 Jul 2020 to 30 Sept 2020 21 Oct 2020 29 Oct 2020 27 Nov 2020 0.0150 7,176,725
--------------------------- -------------- ----------------- ------------- ------------------------- -----------
Total 33,602,724
----------------------------------------------------------------------------- ------------------------- -----------
The Company declared and paid the following dividends on
Ordinary Shares and C Shares during the year ended 31 December
2019:
Period in respect of Date Declared Ex-dividend Date Payment Date Amount per Ordinary Share Amount paid
---------------------------- -------------- ----------------- ------------- ------------------------- -----------
EUR EUR
---------------------------- -------------- ----------------- ------------- ------------------------- -----------
1 Oct 2018 to 31 Dec 2018 22 Jan 2019 31 Jan 2019 1 Mar 2019 0.0250 10,117,511
1 Jan 2019 to 31 Mar 2019 18 Apr 2019 2 May 2019 31 May 2019 0.0250 10,117,511
1 Apr 2019 to 30 Jun 2019 18 Jul 2019 25 Jul 2019 23 Aug 2019 0.0250 10,057,987
1 July 2019 to 30 Sept 2019 18 Oct 2019 31 Oct 2019 29 Nov 2019 0.0250 10,057,988
---------------------------- -------------- ----------------- ------------- ------------------------- -----------
Total 40,350,997
------------------------------------------------------------------------------ ------------------------- -----------
Period in respect of Date Declared Ex-dividend Date Payment Date Amount per Amount paid
C Share
---------------------------- -------------- ----------------- ------------- ---------- -----------
EUR EUR
---------------------------- -------------- ----------------- ------------- ---------- -----------
1 Oct 2018 to 31 Dec 2018 22 Jan 2019 31 Jan 2019 1 Mar 2019 0.01452 1,937,710
1 Jan 2019 to 31 Mar 2019 18 Apr 2019 2 May 2019 31 May 2019 0.02050 2,735,748
1 Apr 2019 to 30 Jun 2019 18 Jul 2019 25 Jul 2019 23 Aug 2019 0.02140 2,855,854
1 July 2019 to 30 Sept 2019 18 Oct 2019 31 Oct 2019 29 Nov 2019 0.02210 2,949,269
---------------------------- -------------- ----------------- ------------- ---------- -----------
Total 10,478,581
------------------------------------------------------------------------------ ---------- -----------
19 Related party transactions
All transactions between related parties were conducted on terms
equivalent to those prevailing in an arm's length transaction. In
accordance with IAS 24 "Related Party Disclosures", the related
parties and related party transactions during the year
comprised:
Transactions with entities with significant influence
As at 31 December 2020, Blackstone Asia Treasury Pte held
43,000,000 Ordinary Shares in the Company (31 December 2019:
43,000,000).
Transactions with key management personnel
The Directors are the key management personnel as they are the
persons who have the authority and responsibility for planning,
directing and controlling the activities of the Company. The
Directors are entitled to remuneration for their services. Refer to
Note 4 for further detail.
Transactions with other related parties
At 31 December 2020, current employees of the Portfolio Adviser
and its affiliates, and accounts managed or advised by them, hold
24,875 Ordinary Shares (31 December 2019: 24,875) which represents
0.005% (31 December 2019: 0.006%) of the issued shares of the
Company.
The Company has exposure to the CLOs originated by BCF, through
its investment in the Lux Subsidiary. BIL is also appointed as a
service support provider to BCF and as the collateral manager to
the Direct CLO Subsidiaries. BLCS has been appointed as the
collateral manager to BCM LLC, Dorchester Park CLO Designated
Activity Company and the Indirect CLO Subsidiaries.
Transactions with Subsidiaries
The Company held 284,879,854 CSWs as at 31 December 2020 (31
December 2019: 319,758,584) following the issuance of 6,800,000 and
redemption of 41,678,730 CSWs by the Lux Subsidiary. Refer to Note
6 for further details.
As at 31 December 2020, the Company held 2,000,000 Class A
shares and 1 Class B share in the Lux Subsidiary with a nominal
value of EUR2,000,001 (31 December 2019: 2,000,000 Class A shares
and 1 Class B share in the Lux Subsidiary with a nominal value of
EUR2,000,001).
As at 31 December 2020, the Company held an intercompany loan
payable to the Lux Subsidiary amounting to EUR869,988 (31 December
2019: EUR534,660).
20 Controlling party
In the Directors' opinion, the Company has no ultimate
controlling party.
21 Events after the reporting period
The Board has evaluated subsequent events for the Company
through to 29 April 2021, the date the financial statements are
available to be issued, and, other than those listed below,
concluded that there are no material events that require disclosure
or adjustment to the financial statements.
Dividends
On 21 January 2021, the Board declared a dividend of EUR0.025
per Ordinary Share in respect of the period from 1 October 2020 to
31 December 2020 with an ex-dividend date of 4 February 2021. A
total payment of EUR11,923,083 was processed on 5 March 2021.
On 21 January 2021, the Board announced that the Company has
adopted a revised dividend policy targeting a total 2021 annual
dividend of between EUR0.07 and EUR0.08 per Ordinary Share, which
will consist of quarterly payments of EUR0.0175 per Ordinary Share
for the first three quarters and a final quarter payment of a
variable amount to be determined at that time.
On 23 April 2021, the Board declared a dividend of EUR0.0175 per
Ordinary Share in respect of the period from 1 January 2021 to 31
March 2021 with an ex-dividend date of 6 May 2021. The dividend
will be paid on 4 June 2021.
Repurchase of Ordinary Shares
During the period from 1 January 2021 to 28 April 2021, the
Company repurchased, under the 2020 AGM authority, 125,000 of its
Ordinary Shares of no par value at a total cost of EUR81,250
(excluding fees and commissions).
(32) The difference between these two figures of EUR103,656
relates to a realised gain on the management fee rebate element
arising from two of the previously directly held CLOs whereby BLCS
was the CLO manager.
(33) The difference between these two figures of EUR133,542
relates to an unrealised gain on the management fee rebate element
arising from one of the previously directly held CLOs whereby BLCS
was the CLO manager.
(34) The ranges provided in the tables above refer to the
highest and lowest marks received across the range of CLOs held.
The ranges reflect the different stages of the lifecycle of each of
the CLOs on an individual basis. The low ranges in the tables above
are prices from CLOs which have been called and are in
wind-down.
(35) Refer to Note 13 Segmental reporting for further
details.
Company Information
Directors Registered Office
Ms Charlotte Valeur (Chair) IFC 1
Mr Gary Clark The Esplanade
Ms Heather MacCallum St Helier
Mr Steven Wilderspin Jersey
Mr Mark Moffat JE1 4BP, Channel Islands
All c/o the Company's registered office
---------------------------------------------------------------------------- --------------------------------------
Portfolio Adviser Registrar
Blackstone Ireland Limited (formerly known as Blackstone / GSO Debt Funds Link Asset Services (Jersey) Limited
Management Europe 12 Castle Street
Limited) St Helier
30 Herbert Street Jersey, JE2 3RT, Channel Islands
2(nd) Floor
Dublin 2, Ireland
---------------------------------------------------------------------------- --------------------------------------
Administrator / Company Secretary / Custodian / Depositary Auditor
---------------------------------------------------------------------------- --------------------------------------
BNP Paribas Securities Services S.C.A. Deloitte LLP
IFC 1 Gaspé House
The Esplanade 66-72 Esplanade
St Helier St Helier
Jersey JE2 3QT
JE1 4BP, Channel Islands Channel Islands
Legal Adviser to the Company (as to Jersey Law) Legal Adviser to the Company
(as to English Law)
---------------------------------------------------------------------------- --------------------------------------
Carey Olsen Herbert Smith Freehills LLP
47 Esplanade Exchange House
St Helier Primrose Street
Jersey London
JE1 0BD, Channel Islands EC2A 2EG
United Kingdom
Joint Broker Joint Broker (from 4 March 2020)
Nplus1 Singer Advisory LLP Winterflood Securities Limited
1 Bartholomew Lane The Atrium Building
London, EC2N 2AX , United Kingdom Cannon Bridge House, 25 Dowgate Hill
London, EC4R 2GA, United Kingdom
Glossary
AGMGlossary Annual General Meeting
AIC the Association of Investment Companies,
of which the Company is a member
AIC Code AIC Code of Corporate Governance 2019
APMs Alternative Performance Measures
Articles the Articles of Incorporation of the
Company
BCF Blackstone Corporate Funding Designated
Activity Company (formerly known as Blackstone
/ GSO Corporate Funding Designated Activity
Company)
BCF Facility BCF entered into a facility agreement
dated 1 June 2017, as amended, between
(1) BCF (as borrower), (2) Citibank Europe
plc, UK Branch (as administration agent),
(3) Bank of America N.A. London Branch
(as an initial lender), (4) BNP Paribas
(as an initial lender), (5) Deutsche
Bank AG, London Branch (as initial lender),
(6) Citibank N.A. London Branch (as account
bank, custodian and trustee) and (7)
Virtus Group LP (as collateral administrator)
BCM LLC Blackstone CLO Management LLC (formerly
known as Blackstone / GSO CLO Management
LLC)
BGCM DAC BGCM Designated Activity Company
BGLC Ticker for the Company's C Share Quote
BGLF or the Company Blackstone Loan Financing Limited (formerly
known as Blackstone / GSO Loan Financing
Limited)
BGLP Ticker for the Company's Sterling Quote
BIL or the Portfolio Blackstone Ireland Limited (formerly
Adviser known as Blackstone / GSO Debt Funds
Management Europe Limited)
BLCS or the Portfolio Blackstone Liquid Credit Strategies LLC
Manager or the Rollover (formerly known as GSO / Blackstone Debt
Portfolio Manager Funds Management LLC)
Board the Board of Directors of the Company
BWIC Bids Wanted In Competition
BX Credit Blackstone Alternative Credit Advisors
LP or Blackstone Credit (formerly known
as GSO Capital Partners LP)
CSWs Cash Settlement Warrants
CLO Collateralised Loan Obligation
DTC Depositary Trust Company
DTR Disclosure Guidance and Transparency
Rules
Discount / Premium calculated as the NAV per share as at
a particular date less BGLF's closing
share price on the London Stock Exchange,
divided by the NAV per share as at that
date
Dividend yield calculated as the last four quarterly
dividends declared divided by the share
price as at the relevant date
ECB European Central Bank
ESG Environmental, social and governance
EU European Union
FAFVPL Financial assets at fair value through
profit or loss
FCA Financial Conduct Authority (United Kingdom)
Fed Federal Reserve
FRC Financial Reporting Council (United Kingdom)
FVPL Fair value through profit or loss
FVOCI Fair value through other comprehensive
income
GFC Global Financial Crisis
IDC International Data Corporation
IFRS International Financial Reporting Standards
IFRS 10 IFRS 10 Consolidated Financial Statements
IFRS 13 IFRS 13 Fair Value Measurement
IFRS NAV Gross assets less liabilities (including
accrued but unpaid fees) determined in
accordance with IFRS as adopted by the
EU
IMF International Monetary Fund
LCD S&P Global Market Intelligence's Leveraged
Commentary & Data provides in-depth coverage
of the leveraged loan market through
real-time news, analysis, commentary,
and proprietary loan data
Loan Warehouse A special purpose vehicle incorporated
for the purposes of warehousing US and/or
European floating rate senior secured
loans and bonds
LSE London Stock Exchange
LTM Last twelve months
Lux Subsidiary Blackstone / GSO Loan Financing (Luxembourg)
S.à r.l.
MoM Month-over-month
NAV Net asset value
NAV total return per Calculated as the increase / decrease
Ordinary share in the NAV per Ordinary share plus the
total dividends paid per Ordinary share
during the period, with such dividends
paid being re-invested at NAV, as a percentage
of the NAV per Ordinary share
NIM Net interest margin
OC Overcollateralisation
OCI Other Comprehensive Income
PMIs Purchasing Managers' Indices
PPNs Profit Participating Notes
Published NAV Gross assets less liabilities (including
accrued but unpaid fees) determined in
accordance with the section entitled
"Net Asset Value" in Part I of the Company's
Prospectus and published on a monthly
basis
Return Calculated as the increase /decrease
in the NAV per Euro Ordinary share plus
the total dividends paid per Euro Ordinary
share, with such dividends paid being
re-invested at NAV, as a percentage of
the NAV per Euro Ordinary share.
LTM return is calculated over the period
January 2020 to December 2020.
Rollover Assets The assets attributable to the Carador
Income Fund plc Rollover Shares - a pool
of CLO assets from Carador Income Fund
plc
Rollover Offer As announced by the Board on 28 August
2018, a rollover proposal to offer newly
issued C Shares to electing shareholders
of Carador Income Fund plc, in consideration
for the transfer of a pool of CLO assets
from Carador Income Fund plc to the Company
RP Reinvestment period
SFS Specialist Fund Segment
UK Code UK Corporate Governance Code 2018
USD United States Dollar
US MOA United States Majority Owned Affiliate
- Blackstone / GSO US Corporate Funding
Limited
Underlying Company A company or entity to which the Company
has a direct or indirect exposure for
the purpose of achieving its investment
objective, which is established to, among
other things, directly or indirectly,
purchase, hold and/or provide funding
for the purchase of CLO Securities
WA Weighted average
WAP Weighted Average Asset Price
WARF Weighted Average Rating Factor
WAS Weighted average spread
A copy of the Company's Annual Financial Report will be
available shortly from the Company Secretary, (BNP Paribas
Securities Services S.C.A., Jersey Branch, IFC1, The Esplanade, St
Helier, Jersey, JE1 4BP), or will be circulated on the Company's
website.
IFC1 - The Esplanade - St Helier - Jersey - JE1 4BP
Company Secretary
Tel: +44 (0) 1534 813783 / 709178
Neither the contents of the Company's website nor the contents
of any website accessible from hyperlinks on the Company's website
(or any other website) is incorporated into, or forms part of, this
announcement.
NOTE: PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE
PERFORMANCE RESULTS AND THERE CAN BE NO ASSURANCE THAT BLF WILL
ACHIEVE COMPARABLE RESULTS.
IMPORTANT INFORMATION
Any reference herein to future returns or distributions is a
target and not a forecast and there can be no guarantee or
assurance that it will be achieved.
This document has been issued by Blackstone Loan Financing
Limited (the "Company"), and should not be taken as an offer,
invitation or inducement to engage in any investment activity and
is solely for the purpose of providing information about the
Company. This document does not constitute or form part of, and
should not be construed as, any offer for sale or subscription of,
or solicitation of any offer to buy or subscribe for, any share in
the Company or securities in any other entity, in any jurisdiction,
including the United States, Canada, Japan or South Africa nor
shall it, or any part of it, or the fact of its distribution, form
the basis of, or be relied on in connection with, any contract or
investment decision whatsoever, in any jurisdiction.
This document, and the information contained therein, is not for
viewing, release, distribution or publication in or into the United
States, Canada, Japan, South Africa or any other jurisdiction where
applicable laws prohibit its release, distribution or publication,
and will not be made available to any national, resident or citizen
of the United States, Canada, Japan or South Africa. The
distribution of this document in other jurisdictions may be
restricted by law and persons into whose possession this document
comes must inform themselves about, and observe, any such
restrictions. Any failure to comply with the restrictions may
constitute a violation of the federal securities law of the United
States and the laws of other jurisdictions.
The Company has not been and will not be registered under the US
Investment Company Act of 1940, as amended (the "Investment Company
Act") and, as such, holders of the Shares will not be entitled to
the benefits of the Investment Company Act. The shares issued by
the Company (the "Shares") have not been and will not be registered
under the US Securities Act of 1933, as amended (the "Securities
Act"), or with any securities regulatory authority of any state or
other jurisdiction of the United States. The Shares may not be
offered, sold, resold, pledged, taken up, exercised, renounced,
delivered, distributed or otherwise transferred, directly or
indirectly, into or within the United States, or to, or for the
account or benefit of, US persons (as defined in Regulation S under
the Securities Act) except pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the
Securities Act and in compliance with any applicable securities
laws of any state or other jurisdiction of the United States and in
a manner which would not require the Company to register under the
Investment Company Act.. No public offering of the Shares is being
made in the United States.
In addition, the Shares are subject to restrictions on
transferability and resale in certain jurisdictions and may not be
transferred or resold except as permitted under applicable
securities laws and regulations. Investors may be required to bear
the financial risks of their investment in the Shares for an
indefinite period of time. Any failure to comply with these
restrictions may constitute a violation of the securities laws of
any such jurisdictions.
This document may contain forward-looking statements that
represent the Company's opinions, expectations, beliefs,
intentions, estimates or projections. These forward-looking
statements can be identified by the use of forward-looking
terminology, including the terms "believes", "estimates",
"anticipates", "expects", "intends", "may", "will" or "should" or,
in each case, their negative or other variations or comparable
terminology. Any statement other than a statement of historical
fact is a forward-looking statement. By their nature,
forward-looking statements involve known and unknown risks,
uncertainties, assumptions and other factors because they relate to
events and depend on circumstances that will occur in the future
whether or not outside the control of the Company. Actual results
may differ materially from those expressed or implied by any
forward-looking statement and even if the results of the Company
are consistent with such forward-looking statement, those results
may not be indicative of results in subsequent periods. The Company
does not undertake any obligation to update or revise any
forward-looking statements, whether as a result of new information,
future events, or otherwise. Recipients of this document should not
place undue reliance on any forward-looking statement, which speaks
only as of the date of its issuance.
No liability whatsoever (whether in negligence or otherwise)
arising directly or indirectly from the use of this document is
accepted and no representation, warranty or undertaking, express or
implied, is or will be made by the Company, or any of its
directors, officers, employees, advisers, representatives or other
agents ("Agents") for any information or any of the opinions
contained herein or for any errors, omissions or misstatements.
None of the Agents makes or has been authorised to make any
representation or warranties (express or implied) in relation to
the Company or as to the truth, accuracy or completeness of this
document, or any other written or oral statement provided. In
particular, no representation or warranty is given as to the
achievement or reasonableness of, and no reliance should be placed
on any projections, targets, estimates or forecasts contained in
this document and nothing in this document is or should be relied
on as a promise or representation as to the future.
Unless otherwise indicated, the information provided herein is
based on matters as they exist as of the date of preparation and
not as of any future date. Recipients of this document are
encouraged to contact the Company's representatives to discuss the
procedures and methodologies used to make the projections and other
information provided herein.
All investments are subject to risk, including the loss of the
principal amount invested. Past performance is not necessarily
indicative of future results, and there can be no assurance that
BLF will achieve comparable results, will meet its target returns,
achieve its investment objectives or be able to implement its
investment strategy. Certain countries have been susceptible to
epidemics, most recently COVID-19, which may be designated as
pandemics by world health authorities. The outbreak of such
epidemics, together with any resulting restrictions on travel or
quarantines imposed, has had and will continue to have a negative
impact on the economy and business activity globally (including in
the countries in which the Company invests), and thereby is
expected to adversely affect the performance of the Company's
Investments. Furthermore, the rapid development of epidemics could
preclude prediction as to their ultimate adverse impact on economic
and market conditions, and, as a result, presents material
uncertainty and risk with respect to the Company and the
performance of its Investments. All investments to be held by the
Company involve a substantial degree of risk, including the risk of
total loss. The value of shares and the income from them is not
guaranteed and can fall as well as rise due to stock market and
currency movements. When you sell your investment you may get back
less than you originally invested. You should always seek expert
legal, financial, tax and other professional advice before making
any investment decision.
Blackstone Loan Financing Limited is a self-managed Jersey
registered alternative investment fund, and is regulated by the
Jersey Financial Services Commission as a 'listed fund' under the
Collective Investment Funds (Jersey) Law 1988 (the "Funds Law") and
the Jersey Listed Fund Guide published by the Jersey Financial
Services Commission. The Jersey Financial Services Commission is
protected by the Funds Law against liability arising from the
discharge of its functions thereunder. The Jersey Financial
Services Commission has neither reviewed nor approved of the issue
of this document.
This information is provided by RNS, the news service of the
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END
FR SESFAUEFSEDL
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