TIDMGABI TIDMGABC
RNS Number : 2693K
GCP Asset Backed Income Fund Ltd
21 April 2020
21 April 2020
GCP Asset Backed Income Fund Limited
(the "Company" or "GCP Asset Backed")
LEI: 213800FBBZCQMP73A815
Net Asset Value and Investment Update
GCP Asset Backed, which invests in asset backed loans, announces
that as at 31 March 2020, the unaudited net asset value ("NAV") per
ordinary share of the Company (including current period revenue)
was 99.93 pence.
NAV
The NAV performance for the period is a negative movement of
2.40 pence and a fall of 2.35 per cent.
The Board, after due consideration to advice from the
independent Valuation Agent and recommendations from the Investment
Manager, has determined that some changes to the discount rates to
reflect the movements in pricing of risk across the market as a
whole, caused by the uncertainties associated with the COVID-19
pandemic, is prudent. Despite the strong profitability and cash
flow for GCP Asset Backed and its subsidiary (the "Group") for the
period to 31 March 2020, these adjustments to the discount rates
described below contributed to an overall discount rate increase of
106 basis points across the portfolio.
The Board and the Investment Manager remain confident that the
Group's diverse portfolio of assets continues to perform well and
offers strong downside protection even in current markets.
Independent Valuation Agent (Mazars) comment
The spread of COVID-19 and the associated impacts on economic
activity have led to significant volatility in both the equity and
debt capital markets, as well as to other market indicators such as
interest rates, forecast inflation and forecast power prices.
In general, our valuation policy is to revalue infrastructure
assets only on the basis of material and sustained shifts in
underlying market data and/or of significant project level events.
Our current conclusion is that, at this early stage of the COVID-19
virus outbreak, although the market shifts are significant, they
are volatile and not yet sustained. In addition, we are aware of
transactions that have closed in recent weeks or are proceeding in
the sector without any apparent changes to expected pricing.
Accordingly, we do not currently have any direct current market
evidence that the pricing of assets by market participants has
changed.
However, in light of recent market developments - in particular
a notable widening of spreads in the credit markets; an increased,
albeit as yet unrealised, risk of interruption to debt service or
default; and the potential for prolonged economic disruption as a
result of COVID-19 - we have agreed with the Investment Manager
that it would be prudent to recognise these increased risks by way
of raising the discount rate on selected parts of the Fund's
portfolio where it is believed the risks are greater. We would
expect that as the impact of the pandemic becomes clearer, the
valuation will be revisited on a specific asset basis where this is
relevant.
Portfolio Update
The period to 31 March 2020 was strong for the Company, with
principal and interest payments received as expected(1) ,
generating an increase in NAV of 0.30 pence per share after the
payment of dividends in the period.
At the present time, the Company has not received any requests
from borrowers to defer payments for the upcoming quarter, although
one borrower is expected to rely on its debt service reserve
account to service its quarterly payment (see further details under
Community Facility below).
The Investment Manager has been working closely with the Group's
borrowers to ensure it fully understands the impact of COVID-19 on
their businesses. The Investment Manager is confident that the
Group's portfolio remains highly defensive, by diversity of sector,
borrower and through the customary protections that are afforded to
debt providers.
Although there has been clear disruption across parts of the
portfolio, uninterrupted debt service is continuing and the
expectations of the long term returns to the Company have not
changed. Nonetheless, there is inherent uncertainty as to what the
medium and long-term effects of the pandemic will be (as well as
the duration of these effects).
The Investment Manager believes that it is prudent to make the
adjustments to discount rates that have been applied to the
portfolio at this time. High-level commentary on the sectors in
which discount rates have been adjusted is included below. However,
the Investment Manager remains confident of the inherent
protections in the portfolio. The remaining portfolio of assets
that have not been revalued have not seen their operations affected
by the crisis.
The Investment Manager will be holding a webinar on 29 April at
10am to provide more detail on the portfolio. For any investor
interested in joining, please e-mail zoe.french@graviscapital.com
.
1 . As previously reported by the Company the CHP and ROC loan
referred to below remains in default and no payments are expected
on this loan until the anticipated sale completes.
Care Homes -Discount Rate 121bps increase
The Group has lent to four care homes. The homes remain well
staffed, having ramped up staffing of nurses in late February in
anticipation of potential staffing issues caused by the COVID-19
outbreak and all have adopted the Government guidelines. The
portfolio of homes was revalued in January and at that time the
loan to value ratio of the homes was 53 per cent.
The Investment Manager anticipates that as care homes are
prioritised for staff and resident testing for COVID-19 to more
effectively manage the risk of infection, the implied increase in
risk premium will narrow.
Co-living - Discount Rate 150bps increase
The Group has a facility in place with a security package
comprising of 9 operational assets, 2 assets in construction and 16
sites in pre-development. The borrower provides a mixture of long
stay and short stay accommodation to young professionals.
Since the COVID -19 outbreak, the short stay business has been
severely impacted with enforced closures, whilst the long stay
accommodation has proved resilient with many residents continuing
to reside in the assets. Due to the refinancing that occurred on
this asset in February, the borrower is currently in a strong cash
position with the ability to weather the impact of the drop in
occupancy. The borrower is looking at several strategies to
maximise revenue on their sites, including:
- advanced discussions with the relevant local health department
to fully let out one of its short stay buildings for key
workers;
- pausing early development work on several sites; and
- reallocating short stay rooms to long stay rooms.
These assets were revalued as part of the recent financing with
an LTV of less than 65 per cent.
Community Facility - Discount Rate 900bps increase
The Company has provided a loan to a facility which houses a
variety of small businesses, including bars, food outlets,
co-working space and studio space. This facility has been closed as
a result of COVID-19 in accordance with Government guidance.
The borrower has furloughed all non-essential staff and is
taking advantage of various government support packages. The
facility has been well capitalised and has a supportive equity
backer. Cash outflows are now at minimal levels, with enough
available cash to ensure the borrower can remain operational for at
least 12 months of closure, if so required.
The facility has a debt service reserve account which has enough
funding to make all payments of principal and interest due until
March 2021. The Group has a loan outstanding of GBP2.8m which is
44.30 basis points of NAV.
CHP and ROC Engines - Discount Rate unchanged
The Group has recently signed a sale and purchase agreement
("SPA") for this loan which defaulted in March 2019. Completion of
the SPA is subject to two conditions; firstly, OFGEM approval of
the stage two RHI application and secondly, lockdown restrictions
being lifted to enable construction to start.
The buyers are continuing to work on the transaction, incur
legal costs and have all funding in place.
Nurseries - Discount Rate 61bps increase
The Group has lent to five nurseries, four of which are
operational, with one in construction. The nurseries have 320
children registered to attend. In accordance with government
guidance the nurseries are closed, other than for the continued
provision of childcare to children of key workers.
The nurseries have asked for continued payments from parents at
a significant reduction during this period, but have given parents
the option of withdrawing children from the nursery. To date, this
has resulted in a net reduction of five cancelled places. The
current waiting list is in excess of the places available and the
borrower remains confident it will fill all places once re-opening
dates are announced.
The borrower benefits from business interruption insurance which
has been confirmed will pay out for the COVID-19 interruption and
has made significant cuts to operational costs during the lockdown
period.
Waste Facility - Discount Rate 100bps increase
The Group has lent to a waste facility which processes c.130,000
tonnes per annum of commercial, industrial and household waste. The
facility produces a refuse-derived fuel which is supplied to a
large building supply company under a long-term contract for
burning in its cement kilns.
As a result of COVID-19, usual waste flows have been disrupted,
with commercial and industrial waste significantly reducing and
household waste increasing. These changes are impacting the
collection and processing routes of waste, resulting in throughput
dropping to the facility. It is also likely in the coming weeks
that the cement kilns at the offtaker will be turned off. Each of
these factors is impacting the usual operations of the
facility.
The facility offers an attractive route to recycle waste and it
is expected that excess waste from household collections will start
to be diverted to the facility over the coming weeks. Due to the
high quality of the fuel produced, other offtake routes are
available including the supply of power stations, including
stations operated by the majority equity owner.
Boilers - Discount Rate 100bps increase
A discount rate movement has been recorded on the Group's loan
to a borrower providing boiler installation and maintenance
services due to the uncertainty of payments being received by the
borrower from consumers.
To date there has been no material uptick in late or deferred
payments and the borrower continues to operate a full boiler repair
and maintenance service, with plumbing and heating engineers
classed as key workers, in accordance with Government
guidelines.
Bridging Loans -Discount Rate 50bps increase
The Group has lent to several parties which provide bridging
loans secured against residential property. The loans are at a low
loan-to-value ratio (less than 65 per cent) and typically have
secondary protection in place, including personal guarantees. The
discount rate has widened on this loan as refinancings, sales and
lettings are all currently impacted by the Government imposed
lockdown.
The underlying bridging loans are not regulated mortgages so no
obligation exists to offer payment holidays to the underlying
bridging party.
Mezzanine Loans -Discount Rate 153bps increase
The discount rate for mezzanine loans across the portfolio has
been increased as a result of the increased general market
perception of risk these loans offer. This rate has been applied to
all mezzanine loans across the portfolio regardless of the LTV
ratio, which in all cases is sub 65 per cent.
Construction Assets -Discount Rate 237bps increase
All construction assets have had a discount rate movement due to
potential impacts on build timetables. The portfolio currently has
18 per cent of its assets in construction. Work is continuing on
all sites, though on a reduced scale in accordance with government
guidelines, except for one project in Dublin where all work has
been suspended. The Dublin site was two weeks away from completion
and running two months ahead of schedule.
The Investment Manager and the Board continue to monitor events
as they develop and further announcements will be made as and when
appropriate.
Share Buybacks
Over the quarter, the Company purchased 517,000 of its own
shares at an average price of 70.89p, to be held in treasury. The
buybacks were conducted at a significant discount to the December
2019 quarter end NAV announced on 17 January 2020, The Company's
shares are currently trading at a significant discount to the March
quarter end NAV of 16.94 per cent which the Board and Investment
Manager continue to monitor closely.
Outlook
Overall, the Investment Manager remains positive for the outlook
of the portfolio. The loan book remains highly defensive and
diverse. The loan book performed extremely strongly both prior to
the onset of COVID-19 and during the period. The Investment Manager
remains encouraged by the financial position of our borrowers, the
steps each borrower is taking in managing an unprecedented
situation and the support which they are receiving from their
equity investors.
The defensive nature of the portfolio means significant income
will continue to be generated and distributed as dividends. The
Company is in a robust position with significant levels of cash on
its balance sheet and it has access to a GBP50m credit facility. In
addition the Investment Manager continues to seek out attractive
lending opportunities that may present themselves during this
time.
For further information, please contact:
Gravis Capital Management Ltd +44 (0)20 3405 8500
David Conlon
Dion Di Miceli
Investec Bank plc +44 (0)20 7597 4000
Helen Goldsmith
Denis Flanagan
Neil Brierley
Buchanan/Quill +44 (0)20 7466 5000
Helen Tarbet
Sarah Gibbons-Cook
Henry Wilson
Notes to Editors
GCP Asset Backed is a closed ended investment company traded on
the Main Market of the London Stock Exchange. Its investment
objective is to generate attractive risk-adjusted returns primarily
through regular, growing distributions and modest capital
appreciation over the long term.
The Group seeks to meet its investment objective by making
investments in a diversified portfolio of predominantly UK based
asset back loans which have contracted, predictable medium to long
term cash flows and/or physical assets.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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