TIDMRCOI
RNS Number : 5015P
Riverstone Credit Opps. Inc PLC
18 February 2021
Riverstone Credit Opportunities Income Plc
Annual Report and Financial Statements
For the year ended 31 December 2020
We lend to companies working to drive change and deliver
solutions across the energy sector, spanning renewable as well as
conventional sources, with a primary focus on infrastructure
assets. Our aim is to build a portfolio that generates an
attractive and consistent risk adjusted return for our
investors.
Riverstone Credit Opportunities Income Plc is an externally
managed closed-ended investment company trading on the Main Market
of the London Stock Exchange.
The Company's Ordinary Shares were admitted to the Specialist
Fund Segment of the London Stock Exchange plc's Main Market and
incorporated and registered on 11 March 2019 in England and Wales
with an unlimited life.
The Company's Investment Manager is Riverstone Investment Group
LLC, which is controlled by affiliates of Riverstone.
Riverstone is an energy and power-focused private investment
firm founded in 2000 by David M. Leuschen and Pierre F. Lapeyre
with approximately $40 billion of capital raised. Riverstone
conducts buyout, growth and credit investments in the E&P,
midstream, energy services, power and coal sectors of the global
energy industry. With offices in New York, London, Houston, Mexico
City and Amsterdam, the firm has committed approximately $41
billion to 195 investments in North America, South America, Europe,
Africa, Asia and Australia.
The registered office of the Company is 27-28 Eastcastle Street,
London, W1W 8DH.
All capitalised terms are defined in the list of defined terms
below unless separately defined.
Key Financials
2020 2019
---------------------------------------------- ----------- -----------
NAV as at 31 December $95.53m $101.35m
NAV per Share as at 31 December $1.04 $1.01
Market capitalisation as at 31 December $62.5m $95.5m
Share price at 31 December $0.683 $0.955
Total comprehensive income for year / period
ended 31 December $7.43m $3.35m
EPS for the year / period ended 31 December 7.59 cents 3.35 cents
Dividend per share with respect to the year
/ period ended 31 December 7.00 cents 2.57 cents
------------------------------------------------ ----------- -----------
Highlights
-- The NAV at 31 December 2020 was $1.04 per share.
-- Dividend of 7.0 cents per share approved with respect to the year ended 31 December 2020.
-- 8,454,617 Ordinary Shares repurchased during the year, as
part of the Company's share buy-back programme.
-- 6 investments and 4 full realisations executed in the year ended 31 December 2020.
Chairman's Statement
Differentiated investment strategy supports portfolio resilience
through market turmoil, while positioning for a post-COVID
investment landscape
On behalf of the Board, I would like to first thank our
shareholders for their support during a year that has been
tremendously difficult from both a public health and economic
perspective. In its first 20 months of operation, Riverstone Credit
Opportunities Income plc has navigated through a period of
significant turbulence created by a combination of geopolitical
uncertainty and the COVID-19 pandemic.
The energy industry has faced many challenges over the past six
years, and the events of 2020 added additional market volatility,
driven by supply shocks resulting from the March OPEC+ meeting and
the subsequent demand contraction due to COVID-19. As a result,
downward pressure on commodity prices drove oil futures into
negative territory for the first time in history. While the broader
financial markets began to recover on the back of extensive
government stimulus efforts, public energy companies continued to
trade well below pre-pandemic levels. During the second half of the
year, oil prices and energy equity markets improved but still
underperformed the broader equity market which saw a 16 per cent.
year-over-year gain in the broader S&P 500 Index.
Comparatively, WTI prices and the S&P Energy Index ended the
year down 21 per cent. and 36 per cent versus the end of 2019,
while the LCD Leveraged Loans Index, which was down 20 per cent in
March, recovered to close the year up 3 per cent.
In spite of these dynamics, RCOI's portfolio has been resilient,
continuing to create value for its shareholders through a
combination of current income and capital appreciation generated by
making senior secured loans to small and middle-market energy
companies, which span conventional energy as well as low carbon and
renewable sources. RCOI's differentiated investment strategy
focused on short duration investments protected by structural
protective provisions combined with diversification across basins,
commodities and end-markets, was proved to be robust in the face of
strong market headwinds. This is evidenced by a year-over-year
improvement in the Company's current NAV per share of $1.04.
RCOI was able to declare dividends of 7.0 cents per share with
respect to 2020(1) . This is in addition to the dividend of 2.57
cents per share paid in March 2020 in relation to the period ended
31 December 2019.
The Board, with consultation of the Investment Manager,
regularly monitors the Company's trading discount percentage and,
when possible, executes on the share buyback programme that was
announced on 30 April 2020. With the impact of the COVID-19
pandemic on public markets and RCOI's share price during late 2Q,
the Company executed share buybacks, purchasing an aggregate 8.5
million shares in the year, allowing RCOI to return some of its
uncommitted capital to shareholders and reduce the share price's
discount to NAV.
Despite the relentless impact of 2020 on the energy markets,
RCOI's discipline in structuring its loans with senior security and
protective provisions has proven to be beneficial, evidenced by a
year-over-year improvement in the Company's current NAV. As
COVID-19 vaccine administration accelerates, RCOI expects its
portfolio to benefit from higher demand for energy once economic
activity and travel can resume more broadly.
The investment landscape for energy lending continues to provide
a robust pipeline of attractive opportunities across the energy
value chain. RCOI is also actively adapting to a post-COVID world,
with the continued need for capital for energy infrastructure and a
focus on energy transition being particularly relevant trends. In
late 2020, RCOI committed to Aspen Power Partners ("Aspen"), a
first lien delayed-draw term loan to a community solar development
company, representing its first energy transition investment. Going
forward, the Company expects to primarily focus on infrastructure /
infrastructure services businesses, as well as those with
decarbonisation strategies similar to Aspen.
Finally, the Company began enhancing its website in November
2020, providing detailed market commentary, an overview on each
investment, key market performance indicators and a link to our ESG
policy. The Company will continue to update the commentary on a
recurring basis and provide further enhancements in the near
future. In addition, the Investment Manager continues to enhance
its ESG programme across the entire lifecycle of its investments,
which are described in more detail further in this report.
(1) Note that 7 cents per Ordinary Share reflects the summation
of each of the quarterly dividends per share in 2020. It does not
reflect the total dividends in 2020 over the number of shares
outstanding, as this number has changed throughout 2020.
Performance
The Company reported a profit of $7.4 million for the year
ending 31 December 2020 as a result of income received from the
investment portfolio and changes in the portfolio's valuations. The
Net Asset Value ("NAV") of the Company ended the period at $1.04
per share, representing an increase of 3.0 per cent from the ending
NAV on 31 December 2019 of $1.01 per share.
The current unrealised portfolio remains profitable and is
marked at a 1.15x Gross MOIC. Characteristics of RCOI's
conservative investment strategy, particularly the focus on
conservative LTV, a diversified sector and end-user base, as well
as structured incentives for early repayment, have assisted the
portfolio in its ability to limit the impact of broad market
fluctuations on performance.
RCOI has executed twelve direct investments since inception and
ended the year with nine direct investments, after its 4Q 2020
commitment of $6.9 million to Aspen, of which $3.4 million is
currently invested. 4Q 2020 also saw the full realisations of two
market-based deals that were opportunistically executed in the
dislocated public energy credit markets of 3Q 2020.
As of 31 December 2020, RCOI had committed over 78 per cent of
the fund to investments and had $69.3 million net invested,
equating to 74 per cent of net capital available, and a cash
balance of $19.2 million. Capital that has been committed but not
yet invested continues to generate income through undrawn fees.
While 2020 was a challenging year, I appreciate the support of
our shareholders during this period and look forward to a more
favourable market environment in 2021. As always, the Board and
RCOI remain vigilantly focussed on managing the portfolio through
this historic period of uncertainty to ensure long-term value
creation for our shareholders.
Reuben Jeffery, III
Chairman
17 February 2021
Strategic Report
The Directors present their Strategic Report for the year ended
31 December 2020. Details of the Directors who held office during
the year and as at the date of this report are given below.
Investment Objective
The Company seeks to generate consistent shareholder returns
predominantly in the form of income distributions, principally by
making senior secured loans to energy-related companies.
Investment Policy
The Company seeks to achieve its investment objective through
investing in a diversified portfolio of direct and indirect
investments in loans, notes, bonds and other debt instruments,
including convertible debt, issued by Borrowers operating in the
energy sector. The Company may also invest in warrants or other
equity interests or instruments received in connection with, or as
a consequence of, an investment in the loans.
Investment Strategy
The Investment Manager seeks to leverage the wider Riverstone
platform to enhance its investment strategy through the synergies
gained from being part of one of the largest dedicated energy
focused private equity firms.
The key elements of the Investment Manager's investment strategy
in relation to the Company and its SPVs are summarised below.
Core Strategy - Direct Lending
The Investment Manager will be primarily focused on originating
opportunities from small to middle-sized energy-related companies
in what the Riverstone team call the "Wedge"; companies too small
for the capital markets and without the conforming credit metrics
that allow access to the commercial bank market.
All investments directly originated by the Company's SPVs are
expected to involve providing primary capital to the Borrower,
after having completed a thorough and comprehensive due diligence
process. In each case the Riverstone team will be able to influence
terms and conditions. In many cases, direct investments are
expected to be held solely by the Company's SPVs, in some cases
alongside Other Riverstone Funds. In others, the Company's SPVs
(and Other Riverstone Funds) may be a member of a syndicate
arranged by a third party.
The Investment Manager expects that lending investments made
directly by the Company's SPVs will have a contractual duration of
three to five years from inception and an expected duration of one
to two years. The maximum term of any investment made by the
Investment Manager will be 7 years.
Complimentary Strategies - Capital Relief and Market-Based
Opportunities
The Investment Manager may be presented with opportunities to
acquire from banks' so-called "non-conforming" loans which can no
longer be held on bank balance sheets. The Investment Manager
expects that such "capital relief" transactions will be secondary
in nature, will typically be based on public due diligence
information and will typically not allow the Company to influence
the underlying terms of the relevant investment. The Investment
Manager expects that, in capital relief transactions, the Company
may participate as part of a broader syndicate of third-party
lenders. The Investment Manager expects capital relief transactions
made by the Company's SPVs to have a duration of one to three years
from inception and an expected duration of less than 12 months.
Riverstone believes that the same trends which make it difficult
for smaller Borrowers to access capital markets may create
attractive opportunities for investors such as the Company to
acquire syndicated loans and bonds in the open market at
risk-adjusted returns that match or exceed the returns available
from direct lending opportunities. In such circumstances, the
Company's SPVs may make selected investments in the secondary
market for syndicated loans and bonds where the Investment Manager
believes that such instruments offer suitable risk adjusted
returns.
The Investment Manager expects market-based opportunities
generally to be secondary in nature, typically to be based on
public due diligence information and may, typically, not allow the
Company any influence on the underlying terms of the investment.
The Investment Manager expects market-based opportunities will
typically involve the Company's SPVs being part of a broader
syndicate of lenders.
Investment Restrictions
The Company observes the following investment restrictions:
-- no more than 15 percent of the Company's gross assets will be
exposed to any single Borrower, its parents, subsidiaries and/or
sister subsidiary entities;
-- at least 85 percent of the Company's gross assets will be
invested directly or indirectly in aggregate, in cash and loans
which are secured as to repayment of principal and payment of
interest by a first or second priority charge over some or all of
such entity's assets and cash;
-- the Company will only invest in an underlying Borrower group,
when that Borrower group has a total indebtedness (including the
Company's investment) of less than 60 percent of the Borrower
group's asset base;
-- the Company will not invest in any undertaking in which
Riverstone Holdings LLC (or any of its subsidiary undertakings) has
an equity interest, other than an undertaking in which the Company
and one or more Other Riverstone Funds hold, or will as a result of
the relevant investment hold, related equity interests acquired at
substantially the same time as part of the same transaction or a
series of linked transactions; and
-- the maximum term of any investment made by the Company will be 7 years.
Each of these investment restrictions will be calculated and
applied as at the time of investment.
Dividend policy
Subject to market conditions, applicable law and the Company's
performance, financial position and financial outlook, it is the
Directors' intention to declare dividends to Shareholders on a
quarterly basis following publication of the NAV per Ordinary Share
calculated as of the final day of the relevant quarter.
The Company intends to declare dividends with respect to 100
percent of its net income (as calculated for UK tax purposes).
However, in any calendar year the Company may retain an amount
equal to up to 15 percent of its net income (as calculated for UK
tax purposes) if the Board determines that it would be in the
longer-term interests of the Company to do so (for instance, in the
event of any permanent loss of capital by the Company).
The declaration of any dividend will be subject to payment of
the Company's expenses and any legal or regulatory restrictions at
the relevant time. The Company may elect to designate as an
"interest distribution" all or part of any amount it distributes to
Shareholders as dividends.
As disclosed in note 14 to the financial statements, on 17
February 2021 the Board approved a dividend of 2.0 cents per share
with respect to the quarter ended 31 December 2020, bringing the
total dividend declared with respect to the year to 31 December
2020 to 7.0 cents per share. The record date for the dividend is 26
February 2021 and the payment date is 26 March 2021.
Structure
The Company makes its investments through its SPVs. Riverstone
International Credit Corp. is a corporation established in the
State of Delaware and is a wholly-owned subsidiary of the Company
("USCo"). USCo, in turn, invests through Riverstone International
Credit - Direct L.P., a limited partnership established in the
State of Delaware in which USCo is the sole limited partner.
Investments may also be made through Riverstone International
Credit L.P., a limited partnership established in the State of
Delaware in which the Company is the sole limited partner. The
general partner of each of the limited partnerships is a member of
Riverstone's group.
The Company has contributed or lent substantially all of its Net
Issue Proceeds (net of short-term working capital requirements) to
its SPVs which, in turn, make investments in accordance with the
Company's investment policy. The Investment Manager draws on the
resources and expertise of the wider Riverstone group.
Discount Control
It is the intention of the Board for the Company to buy back its
own shares if the share price is trading at a material discount to
NAV, providing that it is in the interests of Shareholders to do
so. Shares which are bought back may be cancelled or held in
treasury.
During the year and in light of unique prevailing market
conditions, the Company repurchased and cancelled 8,454,617 of its
own shares as part of the discount management measures outlined
above. Further details of these repurchases are covered in the
Chairman's Statement.
Review of Business and Future Outlook
Details of the underlying portfolio and a review of the business
in the year, together with future outlook are covered in the
Investment Manager's Report below.
The Board does not expect any material change to the Company's
business as a result of the UK exiting the European Union as the
Company's investments are all based in the United States.
Key Performance Indicators
The Board believes that the key metrics detailed above, will
provide Shareholders with sufficient information to assess how
effectively the Company is meeting its objectives.
Ongoing Charges
Ongoing charges are an alternative performance measure and the
ongoing charges ratio of the Company is 1.88 percent, calculated as
total expenses divided by the weighted average NAV for the year to
31 December 2020. This is made up as follows and has been
calculated using the AIC recommended methodology.
31 December 2020 31 December 2019
$'000 % $'000 %
------------------ ---------------------- -------------- ------------------------- -------------
Profit Share 668 0.69 67 0.07
Directors' fees 152 0.16 115 0.12
Ongoing expenses 1,004 1.03 828 0.82
------------------
Total 1,824 1.88 1,010 1.01
------------------ ---------------------- -------------- ------------------------- -------------
The Investment Manager is entitled to a Profit Share when it
meets relevant performance targets as disclosed in note 12 to the
financial statements.
Corporate and Social Responsibility
Environmental, Social and Governance REPORT
The Company utilises the services of Riverstone as the
Investment Manager to take appropriate Environmental, Social and
Governance ("ESG") principles into account in its investment
decisions and in the ongoing management of the portfolio. In order
to ensure the robustness of these policies, the Board engages with
the Investment Manager on ESG matters and monitors compliance of
RCOI's portfolio companies with this policy. The Board takes its
fiduciary responsibility to Shareholders seriously and engages with
Riverstone on corporate governance matters.
Further details on Riverstone's ESG policies are set out in the
sections below.
Statement from the Investment Manager
As we begin 2021, we hope that you and your families, friends
and colleagues have been staying well throughout the COVID-19
pandemic. 2020 was certainly a difficult year in so many respects,
with the devastating health and socio-economic impacts of the
pandemic spanning the entire globe.
As we reflect on the past twelve months and consider the future,
one thing has become very clear to us - the importance of
stakeholder demands and corporate responsibility has never been
greater. Encompassing a broad range of key topics such as climate
change, health & safety, community engagement, ethics &
compliance, and diversity & inclusion, ESG continues to be an
area where Riverstone believes that implementing best practices
will ensure we are a partner to all of our stakeholders as well as
enhance both risk management and value creation opportunities.
2020 IN REVIEW
Despite the turmoil through 2020, Riverstone and its portfolio
company operations remained highly resilient, working to manage
both public health and economic risks that arose but also
recognising racial and social unrest that was brought into sharper
focus during 2020.
Riverstone has worked hard to further our ESG initiatives,
building upon the program that we have put in place since our
firm's inception over twenty years ago. The firm's approach to ESG
in 2020 was multi-faceted, focusing on a few key areas which are
highlighted in this report:
-- Ensuring operations within the firm and at portfolio
companies complied with COVID-19 safety guidelines
-- Making climate change a core pillar to our investment thesis
-- Broadening our platform within a growing number of renewable
energy and decarbonisation investments
-- Enhancing our portfolio monitoring by creating formalised ESG
scorecards help us to measure performance and identify areas for
improvement, as well as evaluating climate change risk and
opportunities
-- Internal firm initiatives ranging from measuring and
identifying ways to reduce our internal carbon footprint to
formalising our diversity & inclusion policy
-- Continued implementation of a rigorous compliance program
through ongoing training and monitoring
In addition, Riverstone became a signatory to the United
Nations-backed Principles for Responsible Investment (PRI). As a
signatory, we are committed to following the PRI's six core
principles and blueprint which provide guidance for managing ESG
throughout the entire investment lifecycle, reporting on ESG, and
promoting the PRI within the investment industry.
FOCUS ON DECARBONISATION
As one of the most active energy transition investors,
Riverstone expanded upon the firm's 15+ years of experience in this
important sector and raised over $1.9 billion in commitments for
our renewable energy and decarbonisation platform over the past
twelve months. Going forward, we expect to continue to grow our
investment platform in areas that support broader decarbonisation
across the entire investment spectrum, from traditional power
generation to technology-enabled solutions that reduce the impacts
of climate change. As the world seeks to accelerate the low-carbon
energy transition, we believe that the longstanding depth of our
experience in renewable energy will be an important differentiator
for Riverstone going forward.
LOOKING FORWARD
While we are pleased to have made significant progress in our
ESG program in 2020, we recognise that there is always more that we
can do. We will continue to prioritise our commitment to being
socially responsible investors and look forward to providing
further updates on our ESG activities in the year to come.
Riverstone published its annual ESG report in February 2021. The
pages that follow summarise the key elements for investors in RCOI.
More detail is included in the full report, which is available on
Riverstone's website:
https://www.riverstonellc.com/en/about/responsible-investing/.
Riverstone's Approach to ESG
As one of the most experienced private investment firms within
the energy, power and infrastructure sectors, Riverstone recognises
the ever-increasing importance of ESG and has made the proactive
implementation of ESG initiatives one of its highest priorities.
Riverstone takes its fiduciary responsibility to investors very
seriously and believes that a strong commitment to addressing ESG
factors is critical to the success of its funds, portfolio
companies and firm. By devoting substantial internal and external
resources towards ESG matters, Riverstone has developed clear
processes that take account of leading industry standards.
Riverstone believes this effort helps it to make sustainable,
ethical and socially responsible decisions over the long run.
ESG RESOURCES AT RIVERSTONE
Riverstone has an ESG Committee comprised of a cross-functional
set of leaders from across the firm as well as a partner from our
external ESG advisor which sets the standard for ESG protocols and
policies for its portfolio companies and firm. In addition,
Riverstone's investment teams are responsible for applying an ESG
lens to pre-investment decision making and post-investment
monitoring.
Riverstone's ESG Committee meets on a quarterly basis to drive
Riverstone's ESG strategy forward and provide leadership with
respect to a range of matters.
To support execution of our ESG strategy internally, Riverstone
has also established an internal working group of individuals from
each of our offices that are responsible for advancing firmwide ESG
initiatives and practices.
OUR ESG POLICY
Riverstone has an ESG policy that sets out its approach to
handling key ESG factors, such as natural resource management,
health and safety, community and stakeholder impact, climate
change, greenhouse gas emissions, governance, among many others.
This policy helps inform the ESG considerations that are relevant
to the management of our portfolio companies from initial due
diligence all the way through to an exit, and the operation of
Riverstone's own business. Since inception, Riverstone has
continuously evolved its ESG policy in conjunction with third party
ESG experts to strive towards best practices across the board. A
copy of Riverstone's ESG policy is available online:
https://www.riverstonellc.com/media/1189/Riverstone_ESG_Policy_Statement.pdf
POLICY IMPLEMENTATION
To implement its ESG Policy, Riverstone has established
institutional processes that support the high standards that it has
set for itself. These procedures were developed to achieve several
key objectives related to ESG, including:
1) Providing Riverstone personnel and its portfolio companies
with training and the resources to ensure that those portfolio
companies can provide the necessary ESG support appropriately
2) Identifying potential risks and mitigants before an investment is made
3) Immediate assistance with the identification of any issues
that may arise and track ongoing performance through portfolio
monitoring
4) Evaluating and tracking portfolio companies' execution of
opportunities to improve current practices at our portfolio
companies and firm
CLIMATE CHANGE
The energy industry is currently at an inflection point, and the
need to address climate change risks and facilitate a transition
towards lower carbon forms of energy continues to accelerate. The
reshaping of the regulatory environment driven by international
treaties such as the Paris Agreement, changing patterns of energy
demand and the emergence of new technologies have all disrupted the
existing energy landscape, while creating new opportunities in the
market. In 2020, the COVID-19 pandemic and its impact on energy
demand added further to the drivers for long-term change. Climate
change, and our response to it, therefore remains at the heart of
our business.
At Riverstone, we recognise the importance of the
recommendations published by the Task Force for Climate-related
Financial Disclosures (TCFD) in helping companies improve
transparency on climate-related risks and opportunities, as well as
developing robust climate resilience.
The actions we took in 2020 to address climate change
included:
Governance
Riverstone has tasked senior personnel with oversight and
management of emerging risks and opportunities to support
formalised governance of climate change issues. Climate issues are
now central to the acquisition, ownership and divestment of our
companies.
Strategy
We have developed our climate strategy, which builds on insight
into market trends informed by our understanding of emerging
climate policy, and our view of structural shifts in commodity
supply and demand as experienced investors in the energy and
infrastructure sectors.
Riverstone is working with our portfolio companies where climate
change presents material risks or opportunities. We have increased
our level of engagement with these portfolio companies, both at
board level and through our ESG deal leads, to help them understand
climate-related risk, and to build strategies to mitigate these
risks (such as increased exposure to carbon pricing) and capture
opportunity (for example pivoting operations of certain companies
towards renewable energy). Climate change is now central to our
investment thesis, and enhanced engagement with portfolio companies
ensures we continue to protect and enhance value for our
investors.
Risk Management
Riverstone has worked with external subject matter experts to
conduct enhanced climate risk and opportunity screening on a number
of our portfolio companies across the energy sectors and
geographies in which we operate. The assessment covers the risks
arising from changes to the climate itself, as well as the risks
and opportunities associated with the move to a low carbon economy,
under both "business-as-usual" and "low carbon" scenarios.
Using the findings of our screening, we have developed guidance
to support our investment teams throughout the investment cycle
to:
n Ensure timely and appropriate mitigation and management of
climate-related risk are implemented in our investments, and
n Capture climate-related opportunity as it arises.
This guidance is available for each of our target sectors and
comprises a high-level briefing on how climate risk and opportunity
manifests in each and a checklist of questions related to key
climate-related financial risks and opportunities to be used to
evaluate our companies.
Metrics and Targets
In addition to calculating a carbon footprint of our own
operations, one of the ESG Minimum Expectations (ESG-MEs) is that
our portfolio companies calculate a greenhouse gas (GHG) baseline,
and annually report and monitor GHG emissions. From this
established baseline, portfolio companies will be able to measure
GHG emission reductions over time, to help ensure the climate
impacts of our businesses are minimised over time. Riverstone
recognises there is a significant amount of work to be done with
its portfolio companies on this front and will make it a priority
for 2021.
ESG: 2020 in Review
In its 2019 ESG report, Riverstone set out of a number of
overarching ESG objectives. Its achievements through 2020 against
these objectives, and other ESG issues addressed during the year,
are summarised below.
DUE DILIGENCE AND INITIAL INVESTMENT
-- Developed a toolkit to complement our existing process for
the evaluation of ESG risks and opportunities in due diligence and
during our Investment Committee process
-- Established ESG Minimum Expectations (or "ESG-MEs") as a set
of key performance indicators against which both potential new
investments and existing portfolio companies can assess their
performance
PORTFOLIO MONITORING
-- Introduced procedures to increase direct engagement with our
portfolio companies on ESG risks and opportunities and achieve
greater depth and consistency of responses to ESG portfolio
questionnaires
-- Measured all Riverstone portfolio companies against its established ESG-MEs
-- ESG due diligence scorecards discussed during our Investment
Committee process are now carried into formalised ESG monitoring
scorecards
-- ESG management incorporated as a criteria in performance
reviews of responsible Riverstone professionals
CLIMATE CHANGE
-- Developed a strategy informed by the recommendations of the
Taskforce for Climate related Financial Disclosures (TCFD) to
evaluate potential risks that climate change may pose to our
current portfolio, assessed how our portfolio companies can seek to
reduce their impact on climate change and identified opportunities
for Riverstone to capitalise on the energy transition to generate
strong financial returns for investors
-- Assessed how Riverstone portfolio companies can seek to
reduce their impact on climate change
-- Identified opportunities for Riverstone to capitalise on the
energy transition to generate strong financial returns for
investors
EXTERNAL REPORTING
-- Riverstone became a signatory to the UN PRI in June 2020 and
committed to the PRI's six core principles
ESG AT RIVERSTONE
-- Created an internal working group that meets on a quarterly
basis to identify and drive internal ESG initiatives within our
firm including on greenhouse gas emissions and diversity &
inclusion
-- Published a commitment to diversity and inclusion (D&I)
and created a roadmap for executing other important D&I
initiatives
-- Completed an evaluation of our firm's greenhouse gas
emissions from our own operations and developed an offset
strategy
COVID-19 RESPONSE
-- Prioritised safety and welfare of its employees and the
employees and contractors of its portfolio companies, as well as
the wider communities in which they operate
-- Implemented remote working and safety measures in line with
government and public health guidelines within the firm and across
its portfolio companies
ESG in Practice
The careful evaluation of ESG issues is a mandatory component
for the underwriting of all RCOI investments. Furthermore,
Riverstone investment professionals conduct a comprehensive
evaluation of ESG considerations throughout the lifecycle of an
investment. These steps are summarised below:
RISK IDENTIFICATION
-- Use Riverstone's deep industry expertise and materiality
assessments (which provide standard risk criteria tailored to each
investment sector) to identify relevant ESG risks and mitigating
factors for each new potential investment
DUE DILIGENCE
-- Early engagement with the management team and advisors to
understand the "ESG landscape" for a potential investment
-- Engage third party experts to evaluate specific risks and areas of concern
-- Thorough evaluation of key ESG risks for each potential
investment and determination of whether appropriate mitigants can
be implemented
INVESTMENT COMMITTEE
-- Complete ESG risk assessment as part of the Investment
Committee memo for potential investments, within the context of the
investment's broader risk analysis
-- Review third party ESG assessments and reference checks
-- Determine whether a potential investment has any ESG risks that are "dealbreakers"
-- Robust discussion at Investment Committee of the ESG risk evaluation scorecard
-- Go/no go investment decision
ONGOING MONITORING AND PORTFOLIO MANAGEMENT
-- Health, safety, environmental (HSE) and other material ESG
issues as part of Riverstone's participation on the board of
portfolio companies
-- Annual portfolio review through ESG questionnaires with
portfolio company follow-up based on responses received
-- All portfolio companies are subject to periodic assessment of
foreign bribery risks and regular reporting and training required
for those portfolio companies identified as facing higher levels of
risk
-- Portfolio companies ensure regular training and compliance
reviews are undertaken including, where necessary, by third party
legal teams
EXIT
-- Where appropriate, make relevant ESG disclosures and evaluate
whether potential buyers' ESG standards comply with all applicable
laws with regard to, for example, employees and decommissioning of
assets and infrastructure
DIVERSITY AND INCLUSION
Riverstone is committed to fostering a culture of inclusion by
encouraging diversity and inclusivity (D&I) among our
workforce.
It is Riverstone's goal to create an environment within the firm
and to encourage the creation of an environment at its portfolio
companies in which diverse backgrounds, perspectives, and personnel
are represented throughout its business.
Riverstone has implemented or is in the process of implementing
a number of important D&I initiatives at the firm,
including:
-- Establishing a D&I committee, which will hold regular
meetings to review and improve D&I at Riverstone and throughout
its portfolio
-- Partnering with an historically black college or university
to bring interns to Riverstone's US offices for training and an
introduction to the private equity industry
-- Making D&I part of its diligence process when we first
evaluate a company and, following the initial investment,
monitoring the company to assess performance against Riverstone's
D&I expectations
-- Working with its recruiting firms to ensure that we see diverse candidates pools
-- Working towards aligning its practices with the Institutional
Limited Partners Association's D&I roadmap and their Diversity
in Action initiative
-- Ongoing evaluation of its training to ensure it focuses on
unconscious bias and provides concrete tools to mitigate the
negative effects of bias
-- Establishing a set of minimum expectations for its service
providers and requiring each of them to meet such requirements
A copy of Riverstone's Diversity and Inclusion Policy is
available online:
https://www.riverstonellc.com/media/1252/commitment-to-diversity-inclusion-090720.pdf
ESG in Practice within RCOI's Portfolio: Aspen Power
Partners
Each of the ESG activities described within this report have
been undertaken for each of RCOI's portfolio companies. We have set
out below an example of how this has been applied in practise with
one of our more recent investments, Aspen. Aspen was incubated in
2020 by solar and storage industry veterans serving as operating
partners of Energy Impact Partners ("EIP") to co-develop, acquire,
construct and manage distributed energy portfolios in attractive
markets across the United States. In December 2020, Riverstone
Credit Partners ("RCP") provided a $20 million first lien delayed
draw Term Loan to Aspen, to scale growth and secure Tier 1 solar
panels and receive the 26% federal solar Investment Tax Credit
("ITC") by year-end.
RCP's first lien term loan includes strong lender and structural
protections. Proceeds from the initial draw were used primarily to
purchase Tier 1 bifacial solar panels for a 57MW portfolio in
Maine.
Future draws will be subject to lender consent and used to fund
refundable interconnect deposits to the utility companies.
Community solar refers to local solar facilities shared by
multiple subscribers that receive credit on their electricity bills
for their share of power produced. Rooftop solar panels are still
out of reach for many people due to rental availability, zoning,
space constraints, roof structures, and costs. Today, just 34% of
US homes are eligible for rooftop solar panels. Community solar
opens solar power up to anyone who pays a power bill and typically
provides subscribers with cost savings of 10-15% off of their
annual electricity costs(1) .
The community solar model continues to grow with strong
regulatory support. In the next five years, the United States is
set to add as much as 3.4 GW of community solar capacity. That is
expected to create enough energy to power 650,000 homes.1 Based on
the average electricity usage for an American household, the solar
energy generated for one community solar subscription has the
environmental equivalent of:
- 208 trees planted(2)
- 9,766 fewer pounds of coal burned2
- 19,638 fewer miles driven2
Aspen has a strong commitment to sustainability and we look
forward to continuing our partnership on their growing community
solar portfolio.
(1) https://www.arcadia.com/article/what-is-community-solar
(2)
https://cleanchoiceenergy.com/new/what-is-community-solar
Board Diversity
The Board strongly believes that having diversity in skills,
experience and gender has significant benefits. The Board currently
comprises three Independent Directors based on merit-based
qualifications, while also having gender balance (2 male and 1
female Board members).
The Company's policy on diversity is further detailed in the
Corporate Governance Report below.
Employees and Officers of the Company
The Company does not have any employees and therefore employee
policies are not required. The Directors of the Company are
detailed below.
Principal Risks and Uncertainties
Under the FCA's Disclosure and Transparency Rules, the Directors
are required to identify those material risks to which the Company
is exposed and take appropriate steps to mitigate those risks.
Risks relating to the Company are disclosed in the Company's
prospectus which is available on the Company's website
www.riverstonecoi.com.
The Company's assets consist of investments, through SPVs,
within the global energy industry, with a particular focus on
opportunities in the global E&P and midstream energy
sub-sectors. Its principal risks are therefore related to market
conditions in the energy sector in general, but also the particular
circumstances of the businesses in which it is invested. The
Investment Manager seeks to mitigate these risks through active
asset management initiatives and by carrying out due diligence work
on potential targets before entering into any investments.
The Board thoroughly 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. The Board 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.
For each material risk, the likelihood and consequences are
identified, management controls and frequency of monitoring are
confirmed and results reported and discussed at the quarterly Board
meetings.
The key areas of risk faced by the Company and mitigating
factors are summarised below:
1. The ability of the Company to meet the target dividend will
depend on the Investment Manager's ability to identify and manage
suitable investments in accordance with the Investment Policy. The
Investment Manager's primary focus is direct lending to top class
middle-market energy-related companies, a growing investment
universe with limited competition capable of generating attractive
risk-adjusted returns.
2. The Company will only lend to Borrowers in the global energy
sector, and such single industry concentration could affect the
Company's ability to generate returns, and adverse market
conditions in that sector may delay or prevent the Company from
making appropriate investments that generate attractive returns.
The Company will invest broadly across energy subsectors globally,
with a primary focus on infrastructure businesses and going forward
those with decarbonisation strategies in North America. The Company
will make investments that are compliant with the Investment
Manager's ESG policy.
3. The absence of a substantial secondary market and liquidity
for the Company's investments means that the Company may be unable
to realise value from its investments and investors could lose all
or part of their investment. The Investment Manager executes proper
due diligence on each potential investment before recommending the
commitment of funds.
4. The Ordinary Shares may trade at a discount to NAV per Share
for reasons including but not limited to market conditions,
liquidity concerns and actual or expected Company performance. As
such, there can be no guarantee that attempts to mitigate such
discount will be successful or that the use of discount control
mechanisms will be possible, advisable or adopted by the Company.
It is the intention of the Board for the Company to buy back its
own shares if the share price is trading at a material discount to
NAV, providing that it is in the interests of Shareholders to do
so.
5. The ongoing COVID-19 pandemic has led to a decline in global
commerce and travel, thereby causing reductions in near-term demand
for energy, especially within oil and gas. This may negatively
affect the Company's Borrowers and the long-term impacts remain
unknown. The Investment Manager has contacted all Borrowers to make
sure that they have the appropriate plans and resources in place to
prioritise the health and safety of their employees, as well as to
assess supply chain disruptions and ensure the normal operations of
their business.
6. The Investment Manager will be subject to investment advisory
regulatory oversight in the United States. Failure of the
Investment Manager or other Riverstone entities to comply with US
regulatory requirements could prevent the Investment Manager from
providing services to the Company under the Investment Management
Agreement to the detriment of investors in the Company. The
Investment Manager closely monitors and reacts to any developments
in regulatory requirements, under consultation with appropriate
parties.
7. Any change in the tax status of the Company, its SPVs, or the
tax status of Borrowers, or in taxation legislation or practice
generally (whether in the UK, US or elsewhere) could affect the
value of the investments held by the Company, alter the post-tax
returns to Shareholders, or affect the tax treatment for
Shareholders of their investments in the Company and returns
therefrom. The Investment Manager closely monitors and reacts to
any developments in taxation legislation, under consultation with
appropriate parties.
8. There is a risk of non-compliance with laws and regulations.
The Company has established policies and procedures designed to
assist personnel, entities and businesses in which it invests with
complying with applicable laws and regulations.
9. The Investment Manager is dependent upon the expertise of key
personnel in providing investment management services to the
Company. The Investment Manager is well resourced and has access to
the wider skills and expertise at Riverstone.
10. The Company has appointed third party service providers and
failure by any service provider to carry out its obligations could
have a materially detrimental impact on the operation of the
Company. Service providers have been selected and engaged based on
due diligence and references including consideration of their
internal controls and expertise. The Company has established a
Management Engagement Committee to review the performance of the
service providers on an ongoing basis.
11. Any loss of data or security breach of the Company's IT
systems could have adverse impacts on the operations and reputation
of the Company. The Investment Manager has risk management
strategies, systems, policies and procedures to seek to prevent
cyber incidents, as well as established business continuity
plans.
Going Concern
The Company's cash balance at 31 December 2020 was $5.4 million,
which is sufficient to cover its existing liabilities of $0.9
million, dividend of $1.8 million with respect to the quarter ended
31 December 2020 and any foreseeable expenses in the 16 months to
30 June 2022, being the period of assessment covered by the
Directors.
The outbreak of COVID-19 has had a negative impact on the global
economy. As this situation is both unprecedented and continues to
evolve, it raises some uncertainties and additional risks for the
Company.
The Directors and Investment Manager are actively monitoring
this and its potential effect on the Company and its underlying
investments. In particular, they have considered the following
specific key potential impacts:
-- unavailability of key personnel at the Investment Manager or Administrator;
-- increased volatility in the fair value of investments;
-- disruptions to business activities of the underlying investments; and
-- recoverability of income and principal and allowance for expected credit losses.
In considering the above key potential impacts of COVID-19 on
the Company and its underlying investments, the Investment Manager
has assessed these with reference to the mitigation measures
in place. At the Company level, the key personnel at the
Investment Manager and Administrator have successfully implemented
business continuity plans to ensure business disruption is
minimised, including remote working, and all staff are continuing
to assume their day-to-day responsibilities. At the underlying
investment level, there are various risk mitigation plans in place,
including the use of social distancing and personal protective
equipment, to ensure business activities are maintained as far as
possible.
As further detailed in note 4 to the financial statements, the
Investment Manager uses a third party valuation provider to perform
a full independent valuation of the underlying investments. The
Investment Manager has also assessed the recoverability of income
due from the underlying investee
companies and has no material concerns. Additionally, the
Investment Manager and Directors have considered the cash flow
forecast and a reverse stress test to determine the term over which
the Company can remain viable given its current resources.
Based on the assessment outlined above, including the various
risk mitigation measures in place, the Directors do not consider
that the effects of COVID-19 have created a material uncertainty
over the assessment of the Company as a going concern.
On the basis of this review, and after making due enquiries, the
Directors have a reasonable expectation that the Company has
adequate resources to continue in operational existence for at
least 16 months to 30 June 2022, being the period of assessment
covered by the Directors. Accordingly, they continue to adopt the
going concern basis in preparing the financial statements.
Longer Term Viability
As required by the AIC Code, the Directors have assessed the
prospects of the Company over a longer period than required by the
going concern provision. The Company's investments have a maximum
term of 7 years and are expected to have a contractual duration of
3 to 5 years from inception, therefore the Board chose to conduct a
review for a period of three years to 31 December 2023. On a
rolling basis, the Directors will evaluate the outcome of the
investments and the Company's financial position as a whole. While
an unprecedented and long-term decline in the global energy sector
could threaten the Company's performance, it would not necessarily
threaten its viability.
In support of this statement, the Directors have taken into
account all of the principal risks and their mitigation as
identified in the Principal Risk and Uncertainties section above,
the nature of the Company's business; including the cash reserves
and money market deposits at the SPVs, the potential of its
portfolio of investments to generate future income and capital
proceeds, and the ability of the Directors to minimise the level of
cash outflows, if necessary. The most relevant potential impacts of
the identified Principal Risks and Uncertainties on viability were
determined to be:
-- The ability of the Company to meet the target dividend will
depend on the Investment Manager's ability to identify and manage
suitable investments in accordance with the Investment Policy.
-- The Company will only lend to Borrowers in the global energy
sector, and such single industry concentration could affect the
Company's ability to generate returns, and adverse market
conditions in that sector may delay or prevent the Company from
making appropriate investments that generate attractive
returns.
-- The absence of a substantial secondary market and liquidity
for the Company's investments means that the Company may be unable
to realise value from its investments and investors could lose all
or part of their investment.
Each quarter, the Board reviews threats to the Company's
viability utilising the risk matrix and updates as required due to
recent developments and/or changes in the global market. The
Board
relies on periodic reports provided by the Investment Manager
and Administrator regarding risks faced by the Company. When
required, experts are utilised to gather relevant and necessary
information, regarding tax, legal, and other factors.
The Investment Manager considers the future cash requirements of
the Company before funding portfolio companies. Furthermore, the
Board receives regular updates from the Investment Manager on the
Company's cash position, which allows the Board to maintain its
fiduciary responsibility to the Shareholders and, if required,
limit funding for existing commitments.
The Board considered the Company's viability over the three year
period, based on a working capital model prepared by the Investment
Manager. The working capital model forecasts key cash flow drivers
such as capital deployment rate, investment returns, and operating
expenses. In connection with the preparation of the working capital
model, capital raises, realisations, and, dividend payments and/or
share repurchases were assumed to not occur during the three year
period, unless
already predetermined. In addition, the Board reviews credit
market availability, but no such financing has been assumed.
Despite the prolonged downturn in the price of oil and gas and
the poor performance of the trading price of the Ordinary Shares,
the Investment Manager believes that the investment outlook for the
Company remains attractive, in particular in light of its increased
focus on renewable energy and decarbonisation investments, in each
case with strong ESG processes in place.
Based on the aforementioned procedures and the existing internal
controls of the Company and Investment Manager, the Board has
concluded there is a reasonable expectation that the Company will
be able to continue in operation and meet its liabilities as they
fall due over the three-year period of the assessment.
In support of this statement, the Directors have taken into
account all of the principal risks and their mitigations as
identified in the Principal Risk and Uncertainties section above,
the nature of the Company's business; including the cash reserves
and money market deposits of the Company and its SPVs, the
potential of its portfolio of investments to generate future income
and capital proceeds, and the ability of the Directors to minimise
the level of cash outflows, if necessary.
Directors' Responsibilities Pursuant to Section 172 of the
Companies Act 2006
The Directors are responsible for acting in a way that they
consider, in good faith, is the most likely to promote the success
of the Company for the benefit of its members. In doing so, they
should have regard for the needs of stakeholders and the wider
society. Key decisions are those that are either material to the
Company or are significant to any of the Company's key
stakeholders, as described below. The below key decisions were made
or approved by the Directors during the year, with the overall aim
of promoting the success of the Company while considering the
impact on its members, stakeholders and the wider society as
outlined in the ESG section above.
Investment policy
The Company invests in a diversified portfolio of direct and
indirect investments in loans, notes, bonds and other debt
instruments. The Investment Manager adopts a responsible investing
approach which takes into account the Company's ESG principles and
strategy, as outlined in detail in the ESG sections within the
Strategic Report and Investment Manager's Report. The Board has
reviewed and approved the investment policy. The Board and the
Investment Manager monitor the concentration of the investment in
the SPVs on a quarterly basis to ensure compliance with the
investment policy. The Company completed 6 investments (2019: 8)
and 4 realisations (2019: 1) during the year.
Dividends
The Board has reviewed and approved dividends of 7.0 cents per
share with respect to the year (2019: 2.57 cents per share with
respect to the period) and will target dividends equal to a yield
of between 8 percent and 10 percent per annum on the issue price at
IPO.
Repurchase of own shares
On 30 April 2020 the Board announced that a share buy-back
programme be initiated. The repurchase of shares has allowed the
Company to return some of its uncommitted capital to shareholders
and reduce the discount to NAV. During the year, the Company
repurchased 8,454,617 Ordinary Shares as part of this buy-back
programme.
Board Committees
The Board's Audit and Risk Committee, Nomination Committee and
Management Engagement Committee continue to ensure a good corporate
governance framework for the Company. The Chairman of each
committee will attend the AGM to answer any questions on their
committee's activities.
Engagement with Shareholders
As further disclosed in the Corporate Governance Report below,
the Company reports to Shareholders in a number of formal ways,
including its Annual Report, Interim Report and regulatory news
releases, all of which are approved by the Board. In addition, the
Company's website was updated during the year and contains
comprehensive information for Shareholders and the Company's AGM
provides a forum for Shareholders to meet and discuss issues with
the Directors.
Annual General Meeting
The AGM of the Company will be held at 14.00 BST on 19 May 2021
at the offices of Hogan Lovells International LLP, Atlantic House,
Holborn Viaduct, London EC1A 2FG. Details of the resolutions to be
proposed at the AGM, together with explanations, will appear in the
notices of meetings to be distributed to Shareholders in April
2021. As a matter of good practice, all resolutions will be
conducted on a poll and the results will be announced to the market
as soon as possible after the AGM.
Subject to COVID-19 guidance and restrictions at the time of the
AGM, it is expected that members of the Board will be in attendance
and will be available to answer Shareholder questions.
On behalf of the Board
Reuben Jeffery, III
Chairman
17 February 2021
Investment Manager's Report
Focused on capitalising on the growing investment universe in
the middle-market for energy lending with a primary focus on
infrastructure businesses and going forward those with
decarbonisation strategies in North America
ABOUT THE INVESTMENT MANAGER
Appointed in May 2019, the Investment Manager, an affiliate of
Riverstone, will seek to generate consistent shareholder returns
predominantly in the form of income distributions, principally by
making senior secured loans to energy-related businesses. The
Company will seek to achieve its investment objective predominantly
through investing in a diversified portfolio of direct and indirect
investments in loans, notes, bonds and other debt instruments,
including convertible debt, issued by borrowers operating in the
energy sector. Riverstone's investment professionals have a
combination of industry knowledge, financial expertise and
operating capabilities. The Company will also benefit from the
guidance and input provided by non-Riverstone Credit Team members
of Riverstone's credit investment committee who will be involved in
the Company's investment process. The Company believes that
Riverstone's global network of deep relationships with management
teams, investment banks and other intermediaries in the energy
sector will lead to enhanced sourcing and deal origination
opportunities for the Company.
INVESTMENT PORTFOLIO SUMMARY
The Investment Manager has reviewed numerous opportunities
within the Investment Guidelines since RCOI's admission. As of 31
December 2020, the Company holds nine direct investments; four for
midstream companies, two for exploration and production companies,
two for infrastructure services companies and one for an energy
transition company, as further discussed below. Two direct
realisations occurred during the year ended 31 December 2020; one
exploration and production company and one infrastructure services
company. Additionally, RCOI opportunistically purchased two loans
in the secondary market during Q3 2020, most of which settled in Q4
2020. The secondary loans were for a midstream and downstream
company and fully realised in Q4 2020. The Investment Manager
continues to maintain a strong pipeline of investment opportunities
and expects to make a number of further commitments. RCOI, when
making a new investment, will receive an allocation of the
investment in accordance with the limitations illustrated in the
Company's Investment Restrictions. The determination of what
percentage they will receive will be pro rata to the available
capital for all of the RCP funds that are eligible to participate
in the investment.
In the descriptions that follow, yield to maturity is inclusive
of all upfront fees, original issue discounts, drawn spreads and
prepayment penalties through the stated maturity of the loan. Most
loans have incentives to be called early. A portion of the loans
have a "payment-in-kind" feature for drawn coupons for a limited
time period. Similarly, some of the loans have a "delayed-draw"
feature that allows the borrower to call capital over time, but
always with a hard deadline. Loans that are committed are loans
with signed definitive documentation where a structuring fee and/or
original issue discount have been earned and the Company earns an
undrawn spread. Loans that are invested are loans with signed
definitive documentation where a structuring fee and/or original
issue discount have been earned, the Company has funded the loan to
the borrower and the Company is earning a drawn coupon.
Project Yellowstone - RCOI participated in a $25.0 million
upsize of RCP's commitment to a $105.0 million first lien term loan
for a privately-owned, midstream company that provides fluids
management, primarily produced water hauling, flow-back management,
and salt-water disposal infrastructure in the SCOOP, STACK, and
MERGE plays in Central Oklahoma. RCP closed the initial $105.0
million financing in November 2018. The term loan upsize closed in
May 2019.
At closing, $5.8 million was committed by RCOI and is fully
invested. The first lien term loan has a maturity of November 2021
and an all-in expected yield to maturity of 13.6% on a fully drawn
basis.
Use of proceeds was to fund an acquisition.
As of 31 December 2020, the full commitment has been
invested.
Ascent Energy - RCOI participated in a $55.0 million first lien
delayed-draw term loan to a sponsor-backed exploration &
production company with operations focused in the Northern Delaware
Basin of New Mexico. The term loan closed in June 2019.
At closing, $13.3 million was committed by RCOI. The first lien
term loan has a maturity of June 2020 and an all-in expected yield
to maturity of 13.7% on a fully drawn basis. On 23 December 2020,
RCP sold $20mm of the first lien term loan to an affiliate of the
borrower at a price of 100.5. This sale settled in early January
2021, and RCOI's remaining commitment is $8.2 million.
Use of proceeds from the credit facility is to fund capital
expenditures in Lea County, NM subject to compliance with an
Approved Plan of Development and to pay fees, costs and expenses
related to the term loan.
As of 31 December 2020, the full $8.2 million commitment has
been invested.
Project Mariners - RCOI participated in a $140.0 million first
lien delayed-draw term loan for a privately-owned company that
provides vessel and logistic services including tugboat, ship
assist, and escort services, and cargo handling and towing
predominantly focused on the energy sector.
The Company is headquartered in Houston, TX with navigation
centres in Ingleside, TX, Brownsville, TX, Pascagoula, MS, and
Jacksonville, FL as well as a shipyard and repair facility in
Pascagoula, MS. The term loan closed in July 2019.
At closing, $14.9 million was committed by RCOI which was
reduced to $12.2 million via a secondary sale. The first lien term
loan has a maturity of July 2022 and an all-in expected yield to
maturity of 12.6% on a fully drawn basis. In April 2020, RCP
provided a new $7.0 million pari passu revolver and the term loan
was upsized by $3.0 million to $143.0 million. RCOI committed an
additional $1.0 million to the Revolver and a third party provided
the entire term loan upsize.
As part of a $22.5 million sale leaseback that closed in January
2021, RCOI's revised invested capital is $9.3 million.
Use of proceeds was to fund the recapitalisation of the Company
to settle all indebtedness, fund the refurbishment of two motor
vessels, and to pay fees, costs and expenses related to the term
loan.
As of 31 December 2020, the full commitment has been
invested.
Pursuit Oil & Gas - RCOI participated in a $50.0 million
first lien delayed-draw term loan to a sponsor-backed exploration
& production company with operations focused in the dry gas
window of the Eagle Ford Basin. The term loan closed in July
2019.
At closing, $12.3 million was committed by RCOI. The first lien
term loan has a maturity of July 2021 and an all-in expected yield
to maturity of 13.3% on a fully drawn basis.
Use of proceeds from the credit facility is to fund capital
expenditures in Webb and La Salle Counties, other capital
expenditures relating to existing and future upstream assets, and
operating expenses.
As of 31 December 2020, the full commitment has been
invested.
Caliber Midstream - RCOI participated in a $10.0 million upsize
of RCP's commitment to a $65.0 million first lien Holdco term loan
for a sponsor-backed Bakken focused midstream company that provides
crude oil and natural gas gathering and processing, produced water
transportation and disposal, and freshwater sourcing and
transportation. RCP closed the initial $65.0 million financing in
June 2018. The term loan upsize closed in August 2019.
At closing, $3.4 million was committed by RCOI. The first lien
HoldCo term loan has a maturity of June 2022 and an all-in expected
yield to maturity of 11.8% on a fully drawn basis.
Use of proceeds, combined with an Opco revolving credit facility
draw, was to fund an acquisition.
As of 31 December 2020, the full commitment has been
invested.
EPIC Propane - RCOI participated in a $75.0 million first lien
delayed-draw term loan to a sponsor-backed midstream company that
will provide propane purity offtake transportation to the Houston,
TX export market. The term loan closed in December 2019.
At closing, $14.8 million was committed by RCOI. The first lien
term loan has a maturity of December 2022 and an all-in expected
yield to maturity of 11.6% on a fully drawn basis.
Use of proceeds from the credit facility is for the construction
of a new propane pipeline from Robstown and Corpus Christi, TX to
Sweeney, TX.
As of 31 December 2020, the full commitment has been
invested.
Salt Creek Midstream - RCOI originally participated in a $75
million first lien delayed-draw term loan for a sponsor-backed
midstream company that provides crude gathering, storage and
blending services to a diversified footprint of producers in the
core of the Delaware Basin. The term loan closed in March 2020.
At closing, $13.7 million was committed by RCOI. The first lien
term loan originally had a maturity of March 2023 and an all-in
expected yield to maturity of 11.7% on a fully drawn basis. As part
of a fulsome amendment and in exchange for covenant relief, the
borrower paid down $40 million of principal as well as interest and
fees on 28 December 2020. The remaining $35 million remains in a
first lien senior-secured position, of which RCOI's commitment is
$6.4 million. As part of the paydown, the maturity date was amended
to March 2024.
Use of proceeds from the credit facility is to fund
construction, operation, and maintenance costs of the crude
system.
As of 31 December 2020, the full $6.4 million commitment has
been invested.
Project Boulder II - RCOI originally participated in a
recapitalisation of a sponsor-backed company that is the leading
specialty rental provider of containers and mobile asset management
solutions across the energy, industrial, refining, and
petrochemical industries. The term loan closed October 2020.
At closing, $7.4 million was committed by RCOI. The first lien
term loan has a maturity of October 2024 and an all-in expected
yield to maturity of 10.4% on a fully drawn basis. Following the
sale of the Company's offshore business, $3.2 million of RCOI's
outstanding principal was repaid on 3 December 2020, with the
residual $4.2 million investment remaining in a first lien
senior-secured position with sub 3x leverage.
As of 31 December 2020, the full $4.2 million commitment has
been invested.
Aspen Power Partners - RCOI participated in a $20.0 million
first lien delayed-draw term loan to a community solar development
company. Led by operating partners of a private equity sponsor, the
company acquires, constructs, and manages community solar
portfolios across attractive markets in the United States. The term
loan closed in December 2020.
At closing, $6.9 million was committed by RCOI. The first lien
term loan has a maturity of December 2021 and an expected all-in
yield to maturity of 13.3% for RCOI on a fully drawn basis.
Use of proceeds from the credit facility is for the purchase of
Safe Harbor solar panels and refundable interconnection payments
for a community solar portfolio in Maine.
As of 31 December 2020, $3.4 million has been invested.
Secondary Market Trades - RCOI opportunistically purchased two
loans in the secondary market during Q3 2020, most of which settled
in Q4 2020. As new private investment opportunities arose, such as
Project Boulder II and Aspen Power Partners, RCOI fully exited
these loans during Q4 2020. In total, RCOI invested $13.4 million
and realised $13.6 million, which represented a 10.5% IRR and 1.01x
MOIC.
Two direct investments were realised during 2020. CIG Logistics,
a $8.7 million first lien commitment made in January 2020 with a
September 2020 maturity, was repaid early by a new source of
financing. RCOI received $8.9 million on the $8.7 million invested
which represents a 64.0% IRR and a 1.02x Multiple on Invested
Capital. Mallard Exploration, a $13.8 million first lien commitment
made in November 2019 with a November 2022 maturity, was repaid
early by the sponsor-backed operator. RCOI received $7.7 million on
the $6.8 million invested which represents a 35.9% IRR and a 1.13x
Multiple on Invested Capital.
The Investment Manager continues to believe that this is a
market where patience and a disciplined approach to investing are
likely to be well rewarded.
SUBSEQUENT EVENTS AND OUTLOOK
RCOI's portfolio continues to generate value for shareholders
through a combination of current income and capital gains, despite
a prolonged period of economic and commodity price headwinds. The
Investment Manager remains focused on adapting to broader macro
conditions and underwriting transactions that have advantageous
attributes to protect against the downside.
Commodity prices improved materially during the fourth quarter
as coronavirus vaccine administration began. However, longer term
global supply and demand dynamics continue to remain uncertain as
vaccination pace continues to face challenges and travel remains
relatively restricted. These dynamics create a robust transaction
pipeline, and the Investment Manager will continue to focus on
investments with the ability to generate attractive risk-adjusted
returns. In addition, the Investment Manager will also seek to
identify opportunities that can capitalise on secular trends around
energy transition longer-term.
Since the end of the fourth quarter 2020, RCOI has participated
in the investment below.
U.S. Shipping Corporation - RCOI participated in a $165.0
million first lien term loan to a private midstream company that is
a leading provider of long haul marine transportation services for
chemical, petroleum, and clean petroleum product cargoes in the
U.S. Jones Act trade operating along the U.S. Gulf, East and West
Coasts. At closing 10 February 2021, $6.5 million was committed by
RCOI. The first lien term loan has a maturity of February 2024 and
an expected all-in yield to maturity of 11.6% for RCOI on a
fully-drawn basis.
As of 31 December 2020, RCOI is 78% committed and 74% invested.
After Q1 2021 activity mentioned above, RCOI is currently 83%
committed and 79% invested. The Company currently has $15.8 million
of capital available for investments. Since inception, the Company
has also repurchased approximately 8.5 million of its own ordinary
shares. The investment pipeline remains strong such that we expect
the remaining balance of RCOI to be committed in Q1 2021. In each
deal, RCOI will invest pro rata to other RCP managed vehicles based
on their available capital.
Investment Gross Committed Invested Gross Gross Gross MOIC
(initial investment Capital Capital Realised Unrealised Realised
date) Capital Value Capital &
Unrealised
Value
($'000) ($'000) ($'000) ($'000) ($'000)
--------------------- ------------------- ------------- -------------- ------------- ------------- -------------
Project Yellowstone 5,820 5,820 925 6,378 7,302 1.25x
13 Jun 2019
Ascent Energy 13,298 13,298 7,064 8,438 15,502 1.17x
18 Jun 2019
Project Mariners 13,233 13,233 3,950 11,515 15,465 1.17x
11 Jul 2019
Pursuit Oil & Gas 12,313 12,313 1,800 12,462 14,262 1.16x
23 Jul 2019
Caliber Midstream 3,375 3,375 361 3,612 3,973 1.18x
01 Aug 2019
EPIC Propane
Pipeline 14,813 14,813 1,223 15,243 16,466 1.11x
19 Dec 2019
SCM Intermediate
Crude 13,720 13,720 9,014 6,455 15,469 1.13x
06 Mar 2020
Project Boulder II 7,350 7,350 3,350 4,356 7,706 1.05x
01 Oct 2020
Aspen Power Partners 6,895 3,367 106 3,370 3,476 1.03x
28 Dec 2020
Total Current
Portfolio 90,817 87,289 27,793 71,829 99,621 1.15x
--------------------- ------------------- ------------- -------------- ------------- ------------- -------------
Board of Directors
Reuben Jeffery, III
CHAIRMAN
Mr. Jeffery has a broad range of financial services experience
and in addition brings extensive insight into the US political and
regulatory environment. He is chairman of Sumitomo Mitsui Banking
Corporation Americas Holdings, Inc. and is a former of non-execute
director of Barclays PLC. He was previously the President and CEO
of Rockefeller Financial Services, Inc. Mr. Jeffery has served in
the US government as Under Secretary of State for Economic, Energy
and Agricultural Affairs, as Chairman of the Commodity Futures
Trading Commission, and as a special assistant to the President on
the staff of the National Security Council.
Before his government service, Mr. Jeffery spent 18 years at
Goldman Sachs & Co where he was Managing Partner of Goldman
Sachs in Paris and led the firm's European Financial Institutions
Group in London. Prior to joining Goldman Sachs, Mr. Jeffery was a
corporate attorney with Davis Polk & Wardwell.
Mr. Jeffery is a graduate of Yale University and holds an M.B.A.
and J.D. from Stanford University.
Emma Davies
DIRECTOR, CHAIR OF AUDIT AND RISK COMMITTEE
Ms. Davies is co-Head of Octopus Ventures.
Ms. Davies has over 20 years experience as an investor and
portfolio manager. Her most recent role was Head of Direct
Investments at Marylebone Partners; before this she was the Head of
Property and Infrastructure at The Welcome Trust, where she also
helped to manage their public markets portfolio. She was formerly
CIO of Big Society Capital and ran the European investments team
for Perry Capital.
Ms. Davies is a non-executive director of Baillie Gifford
European Growth Trust. Ms. Davies is a graduate of Oxford
University and holds an MSc from the London School of
Economics.
Edward Cumming-Bruce
DIRECTOR, CHAIR OF NOMINATION COMMITTEE
Mr. Cumming-Bruce is the Vice Chairman of Gleacher Shacklock
LLP, which he joined in August 2003. Prior to this, he worked for
12 years at Dresdner Kleinwort Wasserstein where he held a number
of senior positions including a Co-Head of Global Telecoms
Investment Banking, Co-Head of UK Investment Banking and Global
Head of Equity Capital Markets.
Mr. Cumming-Bruce has extensive experience advising a range of
major European companies on capital markets and restructuring
transactions as well as mergers and acquisitions. Prior to Dresdner
Kleinwort Wasserstein, he worked at Schroders.
Mr. Cumming-Bruce is a graduate of Oxford University.
Report of the Directors
The Directors present their Annual Report and audited financial
statements for the Company for the year ended 31 December 2020. The
Corporate Governance Report below forms part of this report.
Details of the Directors who held office during the year and as
at the date of this report are given above.
Capital Structure
To enable the Company to obtain a certificate to commence
business and to exercise its borrowing powers under section 761 CA
2006, on 11 March 2019, 1 E Share of GBP1 and 50,000 shares of GBP1
each were allotted to Riverstone Investment Group LLC and paid up
in full, as Management Shares. The E Share and Management Shares
grant the registered holders the right to receive notice of and to
attend but, except where there are no other shares of the Company
in issue, not to speak or vote at any general meeting of the
Company. The Management Shares were redeemed in full on 28 May
2019. The E Shares are not redeemable.
As at 31 December 2020, the Company's issued share capital
comprised 91,545,383 Ordinary Shares (2019: 100,000,000) and 1 E
Share (2019: 1). Ordinary Shareholders are entitled to all
dividends paid by the Company and, on a winding up, provided the
Company has satisfied all of its liabilities, the Shareholders are
entitled to all of the surplus assets of the Company.
Ordinary Shareholders are entitled to attend and vote at all
general meetings of the Company and, on a poll, to one vote for
each Ordinary Share held.
Authority to Purchase Own Shares
The current authority of the Company to make market purchases of
up to 14.99 percent of its issued share capital expires at the
conclusion of the Company's AGM on 19 May 2021. A special
resolution will be proposed at the forthcoming AGM seeking renewal
of such authority until the next AGM (or 19 August 2022, whichever
is earlier). The price paid for the shares will not be less than
the nominal value or more than the maximum amount permitted to be
paid in accordance with the rules of the UK Listing Authority in
force at the date of purchase. This power will be exercised only
if, in the opinion of the Directors, a repurchase would be in the
best interests of Shareholders as a whole. Any shares repurchased
under this authority will either be cancelled or held in treasury
at the discretion of the Board for future resale in appropriate
market conditions.
The Directors believe that the renewal of the Company's
authority to purchase shares, as detailed above, is in the best
interests of Shareholders as a whole and therefore recommend
Shareholders to vote in favour of this special resolution.
Major Interests in Shares
Significant shareholdings as at 31 December 2020 are detailed
below.
Ordinary Shares held %
31 December 2020
-------------------------------------------------------- -----------------------------
Riverstone Credit Opportunities Income Coinvestment LP 18.47
ND Capital Investments 10.68
Newton Investment Management 10.68
Brooks Macdonald Asset Management 8.54
Alder Investment Management 8.01
AXA Investment Managers 7.47
Weiss Asset Management 6.91
Polar Capital 4.80
Jupiter Asset Management 4.27
JPMorgan Securities 3.90
Ironsides Partners 3.26
-------------------------------------------------------- -----------------------------
In addition, the Company also provides the same information as
at 29 January 2021, being the most current information
available.
Ordinary Shares held %
29 January 2021
-------------------------------------------------------- -----------------------------
Riverstone Credit Opportunities Income Coinvestment LP 18.47
ND Capital Investments 10.68
Newton Investment Management 10.68
Alder Investment Management 8.01
Brooks Macdonald Asset Management 8.01
AXA Investment Management 7.47
Weiss Asset Management 6.91
Polar Capital 4.80
Jupiter Asset Management 4.27
JPMorgan Securities 3.90
Metage Capital Management 3.69
-------------------------------------------------------- -----------------------------
Companies Act 2016 Disclosures
In accordance with Schedule 7 of the Large and Medium Sized
Companies and Groups (Accounts and Reports) Regulations 2008, the
Directors disclose the following information:
-- the Company's capital structure is detailed in note 8 to the
financial statements and all Shareholders have the same voting
rights in respect of the share capital of the Company, except that
the holders of E Shares have no right to speak or vote at any
general meeting of the Company, unless there are no other shares of
the Company in issue. There are no restrictions on voting rights
that the Company is aware of, nor any agreement between holders of
securities that result in restrictions on the transfer of
securities or on voting rights;
-- there exist no securities carrying special rights with regard
to the control of the Company;
-- the Company does not have an employees' share scheme;
-- the rules concerning the appointment and replacement of
Directors are contained in the Company's Articles of Association
and the Companies Act 2006;
-- there exist no agreements to which the Company is party that
may affect its control following a takeover bid; and
-- there exist no agreements between the Company and its
Directors providing for compensation for loss of office that may
occur because of a takeover bid.
Investment Trust Status
The Directors intend at all times to conduct the affairs of the
Company so as to enable it to qualify as an investment trust for
the purposes of section 1158 of the Corporation Tax Act 2010, as
amended and the Investment Trust (Approved Company) (Tax)
Regulations 2011. In particular, the Company must not retain in
respect of any accounting year or period an amount which is greater
than 15 percent of its eligible investment income.
Diversity and Business Review
A business review is detailed in the Investment Manager's Report
above and the Company's policy on diversity is detailed in the
Corporate Governance Report below.
Directors' Indemnity
Directors' and Officers' liability insurance cover is in place
in respect of the Directors. The Company's Articles of Association
provide, subject to the provisions of UK legislation, an indemnity
for Directors in respect of costs which they may incur relating to
the defence of any proceedings brought against them arising out of
their positions as Directors, in which they are acquitted or
judgement is given in their favour by the Court.
Except for such indemnity provisions in the Company's Articles
of Association and in the Directors' letters of appointment, there
are no qualifying third party indemnity provisions in force.
Global Greenhouse Gas Emissions
As an investment trust, the Company's own direct environmental
impact is minimal. The Company has no greenhouse gas emissions to
report from its operations, nor does it have responsibility for any
other emissions producing sources under the Companies Act 2006
(Strategic Report and Directors' Reports) Regulations 2013.
Risks and Risk Management
The Company is exposed to financial risks such as price risk,
interest rate risk, credit risk and liquidity risk and the
management and monitoring of these risks are detailed in note 15 to
the financial statements.
Independent Auditor
The Directors will propose the reappointment of Ernst &
Young LLP as the Company's Auditor and resolutions concerning this
and the remuneration of the Company's Auditor will be proposed at
the AGM.
At the time that this report was approved, so far as each of the
Directors are aware:
-- there is no relevant audit information of which the Auditor is unaware; and
-- they have taken all the steps they ought to have taken to
make themselves aware of any audit information and to establish
that the Auditor is aware of that information.
Annual Report
As disclosed in the Audit and Risk Committee Report below, the
Audit and Risk Committee have given due consideration that the
Annual Report, taken as a whole, is fair, balanced and
understandable. Therefore the Board is of the opinion that the
Annual Report provides the information necessary for Shareholders
to assess the performance, strategy and business model of the
Company.
The Board recommends that the Annual Report, the Report of the
Directors and the Independent Auditor's Report for the year ended
31 December 2020 are received and adopted by the Shareholders and a
resolution concerning this will be proposed at the AGM.
Dividend
For the quarter ending 31 December 2020 the Board has
recommended a dividend of $1.8 million, equivalent to 2.0 cents per
share with respect to the quarter ended 31 December 2020, as
disclosed in note 14 to the financial statements. This brings the
total dividend declared with respect to the year to 31 December
2020 to 7.0 cents per share.
Subsequent Events
There have been no significant subsequent events, as disclosed
in note 18 to the financial statements.
Strategic Report
A review of the business and future outlook, going concern
statement and the principal risks and uncertainties of the Company
have not been included in this report as they are disclosed in the
Strategic Report above.
On behalf of the Board
Reuben Jeffery, III
Chairman
17 February 2021
Directors' Remuneration Report
This report has been prepared by the Directors in accordance
with the requirements of the Companies Act 2006 and the Large and
Medium-sized Companies and Groups (Accounts and Reports)
Regulations 2008. A resolution to approve the Directors'
Remuneration Report will be proposed at the Company's AGM on 19 May
2021. At the AGM on 21 May 2020, shareholders voted 100.0 percent
in favour to approve the Directors' Remuneration Report for the
period ended 31 December 2019.
The Company's Auditor is required to give their opinion on the
information provided on Directors' remuneration below and this is
explained further in its report to Shareholders below. The
remainder of this report is outside the scope of the external
audit.
Annual Statement from the Chairman of the Board
The Board, which is profiled above, consists solely of
non-executive Directors and is considered to be entirely
independent. The Board considers at least annually the level of the
Board's fees, in accordance with the AIC Code.
Remuneration Policy
As at the date of this report, the Board comprised 3 Directors,
all of whom are non-executive. Due to the size of the Company and
the Board, there is not a separate Remuneration Committee. Being
wholly comprised of non-executive Directors, the whole Board
considers these matters.
Each Director receives a fixed fee per annum based on their
roles and responsibility within the Company and the time commitment
required. It is not considered appropriate that Directors'
remuneration should be performance related and none of the
Directors are eligible for pension benefits, share options, long
term incentive schemes or other benefits in respect of their
services as non-executive Directors of the Company.
The maximum annual limit of aggregate fees payable to the
Directors was set at the time of its incorporation on 11 March 2019
at GBP500,000 per annum. The Chairman will be entitled to an
additional fee of GBP10,000 per annum and the Audit and Risk
Committee Chair will be entitled to an additional fee of GBP5,000
per annum. The Board may grant special remuneration to any Director
who performs any special or extra services to or at the request of
the Company.
The Articles of Association provide that all of the Directors
who are Directors at the date of the notice covering each AGM shall
retire from office and each Director may offer themselves for
re-election, in accordance with corporate governance best
practice.
All of the Directors have been provided with letters of
appointment, subject to re-election by Shareholders.
A Director's appointment may at any time be terminated by and at
the discretion of either party upon written notice. A Director's
appointment will automatically end without any right to
compensation whatsoever if they are not re-elected by the
Shareholders. A Director's appointment may also be terminated with
immediate effect and without compensation in certain other
circumstances. Being non-executive Directors, none of the Directors
have a service contract with the Company.
The Company's Remuneration Policy was approved at its first AGM
on 21 May 2020, with shareholders voting 93.4 percent in favour and
6.6 percent of votes against. The terms and conditions of
appointment of non-executive Directors are available for inspection
from the Company's registered office.
Annual Report on Remuneration (Audited Information)
The table below shows all remuneration earned by each individual
Director during the year/period:
Paid in the Paid in the period
year to 31 December to 31 December
2020 2019
$ $
Reuben Jeffery, III (Chairman)
- GBP45k p.a. 56,821 43,160
Emma Davies (Audit & Risk Committee
Chair) - GBP40k p.a. 50,507 38,364
Edward Cumming-Bruce (Nomination
Committee Chair) - GBP35k p.a. 44,194 33,569
Total 151,522 115,093
------------------------------------- ---------------------------------- --------------------------------
Amounts paid to Directors as reimbursement of travel and other
incidental expenses during the year/period were:
Paid in the year to 31 December 2020 Paid in the period to 31 December 2019
$ $
Reuben Jeffery, III 12,204 50,000
Edward Cumming-Bruce - 245
Total 12,204 50,245
---------------------- ------------------------------------- ---------------------------------------
None of the Directors received any other remuneration or
additional discretionary payments during the year from the Company
(2019: $Nil).
Directors' Interests (audited information)
Directors who held office during the year and had interests in
the Ordinary Shares of the Company as at 31 December 2020 are given
in the table below. There were no changes to the interests of each
Director as at the date of this report.
Ordinary Shares of $0.01 each held at 31 Ordinary Shares of $0.01 each held at 31
December 2020 December 2019
Reuben Jeffery, III 50,000 25,000
Emma Davies 45,000 25,000
Edward Cumming-Bruce 50,000 25,000
---------------------- ---------------------------------------------- ----------------------------------------------
Relative Importance of Spend on Pay
The remuneration of the Directors with respect to the year
totalled $151,522 (2019: $115,093) in comparison to dividends paid
or declared to Shareholders with respect to the year of $6.7
million (2019: $2.6 million).
Company Performance
The graph in the annual report compares the total return to
Shareholders compared to the AIC Investment Trust Direct Lending
sector index, which is not sector specific to energy. The
performance of the AIC Investment Trust Direct Lending sector index
is shown as a market reference for investors.
On behalf of the Board
Reuben Jeffery, III
Chairman
17 February 2021
Directors' Responsibilities Statement
The Directors are responsible for preparing the Annual Report
and the 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 Company financial statements in
accordance with IFRS, in conformity with the Companies Act. 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 affairs of the Company and of the profit or loss for
the Company for that year.
In preparing these financial statements, the Directors are
required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and accounting estimates that are reasonable and prudent;
-- state whether they have been prepared in accordance with IFRS
in conformity with the Companies Act, subject to any material
departures disclosed and explained in the financial statements;
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business; and
-- prepare a Report of the Directors, a Strategic Report and
Directors' Remuneration Report which comply with the requirements
of the Companies Act 2006.
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 Act 2006. 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 ensuring that the Annual Report, taken as a whole, is fair,
balanced and understandable and provides the information necessary
for Shareholders to assess the Company's performance, business
model and strategy.
Website Publication
The Directors are responsible for ensuring the Annual Report and
the financial statements are made available on a website. Financial
statements are published on the Company's website in accordance
with legislation in the UK governing the preparation and
dissemination of financial statements, which may vary from
legislation in other jurisdictions. The maintenance and integrity
of the Company's website is the responsibility of the Directors.
The Directors' responsibilities also extend to the ongoing
integrity of the financial statements contained therein.
Directors' Responsibilities Pursuant to DTR4
The Directors confirm that to the best of their knowledge:
-- the Company's financial statements have been prepared in
accordance with IFRS in conformity with the Companies Act and give
a true and fair view of the assets, liabilities, financial position
and profit and loss of the Company; and
-- the Annual Report includes a fair review of the development
and performance of the business and the financial position of the
Company, together with a description of the principal risks and
uncertainties that they face.
On behalf of the Board
Reuben Jeffery, III
Chairman
17 February 2021
Corporate Governance Report
This Corporate Governance Report forms part of the Report of the
Directors as further disclosed above. The Board operates under a
framework for corporate governance which is appropriate for an
investment company. The Company is not required to comply with the
UK Listing Rules, however as a matter of good corporate governance,
the Company voluntarily complies with the provisions of the Listing
Rules applicable to closed-ended investment companies.
The Company became a member of the AIC with effect from 28 May
2019 and has therefore put in place arrangements to comply with the
AIC Code and, in accordance with the AIC Code, complies with the UK
Code. The AIC Code and the AIC Guide are available on the AIC's
website, www.theaic.co.uk. The UK Code is available on the
Financial Reporting Council's website, www.frc.org.uk.
The AIC Code, as explained by the AIC Guide, addresses all the
principles set out in the UK Code, as well as setting out
additional principles and recommendations on issues that are of
specific relevance to investment companies such as the Company. The
Board considers that reporting against the principles and
recommendations of the AIC Code, by reference to the AIC Guide,
provides better information to Shareholders.
The Company has complied with the recommendations of the AIC
Code and the relevant provisions of the UK Code, except as set out
below.
The UK Code includes provisions relating to:
-- the role of the chief executive;
-- executive directors' remuneration; and
-- the need for an internal audit function.
For the reasons set out in the AIC Guide, and as explained in
the UK Code, the Board considers that the above provisions are not
currently relevant to the position of the Company, being an
externally managed investment company, which delegates most
day-to-day functions to third parties.
The Company does not have a chief executive or any executive
directors. The Company has not established a separate remuneration
committee as the Company has no executive officers, nor has it
established a Senior Independent Director due to the size of the
Board and the Company. The Board is satisfied that any relevant
issues that arise can be properly considered by the Board.
The Company has no employees or internal operations and has
therefore not reported further in respect of these provisions. The
need for an internal audit function is discussed in the Audit and
Risk Committee Report.
The Board
The Company is led and controlled by a Board of Directors, which
is collectively responsible for the long-term success of the
Company. It does so by creating and preserving value, and has as
its foremost principle acting in the interests of Shareholders.
The Company believes that the composition of the Board is a
fundamental driver of its success, as the Board must provide strong
and effective leadership of the Company. The current Board was
selected, as their biographies illustrate, to bring a breadth of
knowledge, skills and business experience to the Company. The
non-executive Directors provide independent challenge and review,
bringing wide experience, specific expertise and a fresh objective
perspective.
As at the date of this report, the Board consists of three
non-executive Directors, all of whom are independent of the
Company's Investment Manager. All Directors were appointed on 2
April 2019 and served throughout the year. The AIC Code requires
that Directors be subject to an annual election by shareholders,
and the Directors comply with this requirement. All of the
Directors shall offer themselves for re-election at the forthcoming
AGM. Having considered their effectiveness, demonstration of
commitment to the role, length of service, attendance at meetings
and contribution to the Board's deliberations, the Board approves
the nomination for re-election of all of the Directors.
At each subsequent AGM of the Company, each of the Directors at
the date of the notice convening the AGM shall retire from office
and may offer themselves for election or re-election by the
Shareholders, in accordance with corporate governance best
practice.
The Chairman of the Board is independent and is appointed in
accordance with the Company's Articles of Incorporation. Mr.
Jeffery is considered to be independent because he:
-- has no current or historical employment with the Investment Manager;
-- has no current directorships or partnerships in any other
investment funds managed by the Investment Manager; and
-- is not an executive of a self-managed company or an
ex-employee who has left the executive team of a self-managed
company within the last five years.
The Board meets at least four times a year for regular,
scheduled meetings and should the nature of the activity of the
Company require it, additional meetings may be held, some at short
notice. At each meeting, the Board follows a formal agenda that
covers the business to be discussed. The primary focus at Board
meetings is a review of investment performance and associated
matters such as asset allocation, share price discount/premium
management, investor relations, peer group information, gearing,
industry issues and principal risks and uncertainties in particular
those identified in the Strategic Report above.
The Board may request to be supplied in a timely manner with
information by the Investment Manager, Administrator, Company
Secretary and other advisers in a form and of a quality to enable
it to discharge its duties.
The Company has adopted a share dealing code for the Board and
will seek to ensure compliance by the Board and relevant personnel
of the Investment Manager and other third party service providers
with the terms of the share dealing code.
Our Culture
The Board discussed the Company's culture over the course of the
year. It was agreed that the Company's culture is built around that
of the Investment Manager, with a focus on long lasting
relationships with a diverse investor base; sustainable investment
excellence; and a world class team demonstrating extensive industry
knowledge. The Board will continue to monitor the Company's culture
on an annual basis through continued engagement with shareholders
and management.
Diversity Policy
The Board monitors developments in corporate governance to
ensure the Board remains aligned with best practice especially with
respect to the increased focus on diversity. The Board acknowledges
the importance of diversity, including gender, for the effective
functioning of the Board and commits to supporting diversity in the
boardroom. It is the Board's ongoing aspiration to have a well
diversified representation. The Board also values diversity of
business skills and experience because Directors with diverse
skills sets, capabilities and experience gained from different
geographical backgrounds enhance the Board by bringing a wide range
of perspectives to the Company.
As at the date of this report, the Board comprised 2 men and 1
woman, all non-executive Directors who are considered to be
independent of the Investment Manager and free from any business or
other relationship that could materially interfere with the
exercise of their independent judgement.
The Investment Manager has a diverse employee base and continues
to dedicate recruiting resources to increasing diversity across all
positions and levels.
Board Tenure and Re-election
As the Company was incorporated on 11 March 2019, no issues have
arisen to be considered by the Board with respect to long tenure.
In accordance with the AIC Code, in the event that any Director,
including the Chairman, shall have been in office (or on
re-election would at the end of that term of office) for more than
nine years the Company will consider further whether there is a
risk that such a Director might reasonably be deemed to have lost
independence through such long service. The Board will consider its
composition and succession planning on an ongoing basis. All
Directors will stand for annual re-election at each AGM. In
accordance with the AIC Code, the Board recognises that Directors
serving nine years or more may appear to have their independence
impaired. However, the Board may nonetheless consider Directors to
remain independent and will provide a clear explanation within
future Annual Report and Financial Statements as to its
reasoning.
A Director who retires at an AGM may, if willing to continue to
act, be elected or re-elected at that meeting. If, at a general
meeting at which a Director retires, the Company neither re-elects
that Director nor appoints another person to the Board in the place
of that Director, the retiring Director shall, if willing to act,
be deemed to have been re-elected unless at the general meeting it
is resolved not to fill the vacancy or unless a resolution for the
re-election of the Director is put to the meeting and not passed.
Directors are appointed under letters of appointment.
Duties and Responsibilities
The Board has overall responsibility for the Company's
activities, including reviewing its investment
activity, performance, business conduct and policy. The
Directors also review and supervise the Company's delegates and
service providers, including the Investment Manager.
The Directors may delegate certain functions to other parties.
In particular, the Directors have delegated responsibility for
management of the Company's portfolio of investments to the
Investment Manager.
The Board retains direct responsibility for certain matters,
including (but not limited to):
-- approving the Company's long term objective and any decisions
of a strategic nature including any change in investment objective,
policy and restrictions, including those which may need to be
submitted to Shareholders for approval;
-- reviewing the performance of the Company in light of the
Company's strategy objectives and budgets ensuring that any
necessary corrective action is taken;
-- the appointment, overall supervision and removal of key
service providers and any material amendments to the agreements or
contractual arrangements with any key delegates or service
providers;
-- approving quarterly dividends and the Company's dividend policy;
-- approving any transactions with "related parties" for the
purposes of the Company's voluntary compliance with the applicable
sections of the UK Listing Rules;
-- the review of the Company's valuation policy;
-- the review of the Company's corporate governance arrangements; and
-- approving any actual or potential conflicts of interest.
The Directors have access to the advice and services of the
Administrator, who is responsible to the Board for ensuring that
Board procedures are followed and that it complies with applicable
law and regulations of the LSE. Where necessary, in carrying out
their duties, the Directors may seek independent professional
advice and services at the expense of the Company. The Company
maintains Directors' and officers' liability insurance in respect
of legal action against its Directors on an ongoing basis.
The Board's responsibilities for the Annual Report are set out
in the Directors' Responsibility Statement. The Board has
responsibility for ensuring that the Company keeps proper
accounting records which disclose with reasonable accuracy at any
time the financial position of the Company and which enable it to
ensure that the financial statements comply with applicable
regulation. It is the Board's responsibility to present a fair,
balanced and understandable Annual Report, which provides the
information necessary for Shareholders to assess the performance,
strategy and business model of the Company. This responsibility
extends to the half-yearly financial reports, quarterly portfolio
valuations and other price-sensitive public reports.
Directors' attendance at Board and Committee Meetings
One of the key criteria the Company uses when selecting
non-executive Directors is their confirmation prior to their
appointment that they will be able to allocate sufficient time to
the Company to discharge their responsibilities in a timely and
effective manner.
The Board formally met 10 times during the year.
Directors are encouraged when they are unable to attend a
meeting to give the Chairman their views and comments on matters to
be discussed, in advance. In addition to their meeting commitments,
the non-executive Directors also liaise with the Investment Manager
whenever required and there is regular contact outside the Board
meeting schedule.
Attendance is further set out below:
Audit and Management
Risk Nomination Engagement
Board Committee Committee Committee Tenure as
Meetings Meetings Meetings Meetings at 31 December
(max 10) (max 4) (max 1) (max 1) 2020
Director A B A B A B A B
------------------------ ----- ----- ------ ----- ------ ----- ------ ------ -----------------
Reuben Jeffery, 1 year
III 10 10 4 4 1 1 1 1 9 months
1 year
Emma Davies 10 10 4 4 1 1 1 1 9 months
1 year
Edward Cumming-Bruce 10 10 4 4 1 1 1 1 9 months
Column A: indicated the number of meetings held during the
year.
Column B: indicates the number of meetings attended by the
Director during the year.
A quorum is comprised of any two or more members of the Board
from time to time, to perform administrative and other routine
functions on behalf of the Board, subject to such limitations as
the Board may expressly impose on this committee from time to
time.
Committees of the Board
The Board believes that it and its committees have an
appropriate composition and blend of skills, experience,
independence and diversity of backgrounds to discharge their duties
and responsibilities effectively. The Board is of the view that no
one individual or small group dominates decision-making. The Board
keeps its membership, and that of its committees, under review to
ensure that an acceptable balance is maintained, and that the
collective skills and experience of its members continue to be
refreshed. It is satisfied that all Directors have sufficient time
to devote to their roles and that undue reliance is not placed on
any individual.
Each committee of the Board has written terms of reference,
approved by the Board, summarising its objectives, remit and
powers, which are available on the Company's website and reviewed
on an annual basis. All committee members are provided with
appropriate induction on joining their respective committees, as
well as on-going access to training. Minutes of all meetings of the
committees are made available to all Directors and feedback from
each of the committees is provided to the Board by the respective
committee Chairmen at the next Board meeting. The Chairman of each
committee attends the AGM to answer any questions on their
committee's activities.
The Board and its committees are supplied with regular,
comprehensive and timely information in a form and of a quality
that enables them to discharge their duties effectively. All
Directors are able to make further enquiries of management whenever
necessary, and have access to the services of the Company
Secretary.
Audit and Risk Committee
The Audit and Risk Committee is chaired by Ms. Davies and
comprises all of the non-executive Directors. The Audit and Risk
Committee, the Investment Manager, the Administrator and the
external auditor, Ernst & Young LLP, have held discussions
regarding the audit approach and identified risks. The external
auditor attends Audit and Risk Committee meetings and a separate
private meeting is held routinely with the external auditor to
afford them the opportunity of discussions without the presence of
management. The Audit and Risk Committee activities are contained
in the Report of the Audit and Risk Committee below.
Nomination Committee
The Nomination Committee meets at least once a year pursuant to
its terms of reference. The Nomination Committee is chaired by Mr.
Cumming-Bruce and comprises all of the non-executive Directors.
The Nomination Committee is convened for the purpose of
considering the appointment of additional Directors as and when
considered appropriate. The Nomination Committee recognises the
continuing importance of planning for the future and ensuring that
succession plans are in place. In considering appointments to the
Board, the Nomination Committee will take into account the ongoing
requirements of the Company and evaluate the balance of skills,
experience, independence, and knowledge of each candidate.
Therefore, appointments will be made on personal merit and against
objective criteria with the aim of bringing new skills and
different perspectives to the Board whilst taking into account the
existing balance of knowledge, experience and diversity.
In the case of candidates for non-executive directorships, care
will be taken to ascertain that they have sufficient time to fulfil
their Board and, where relevant, committee responsibilities. The
Board believes that the terms of reference of the Nomination
Committee ensure that it operates in a rigorous and transparent
manner. The Board believes that, as a whole, it comprises an
appropriate balance of skills, experience and knowledge. The Board
also believes that diversity of experience and approach, including
gender diversity, amongst Board members is of great importance and
it is the Company's policy to give careful consideration to issues
of Board balance and diversity when making new appointments.
The Nomination Committee has reviewed the composition, structure
and diversity of the Board, succession planning, the independence
of the Directors and whether each of the Directors has sufficient
time available to discharge their duties effectively. The Committee
and the Board confirm that they believe that the Board has an
appropriate mix of skills and backgrounds and was selected with
that in mind, that a majority of Directors should be considered as
independent in accordance with the provisions of the AIC Code and
that all Directors have the time available to discharge their
duties effectively.
Accordingly, the Board recommends that Shareholders vote in
favour of the election of all Directors at the upcoming AGM of the
Company.
Management Engagement Committee
The Management Engagement Committee is chaired by Mr. Jeffery
and comprises all of the non-executive Directors. The Management
Engagement Committee meets at least once a year pursuant to its
terms of reference.
The Management Engagement Committee provides a formal mechanism
for the review of the performance of the Investment Manager and the
Company's other advisors and service providers. It carries out this
review through consideration of a number of objective and
subjective criteria and through a review of the terms and
conditions of the advisors' appointments with the aim of evaluating
performance, identifying any weaknesses and ensuring value for
money for the Shareholders. On 18 November 2020, the Management
Engagement Committee formally reviewed the performance of the
Investment Manager and other service providers and confirmed that
performance had been satisfactory to date.
The AIC Code recommends that companies appoint a Remuneration
Committee, however the Board has not deemed this necessary, as
being wholly comprised of non-executive Directors, the whole Board
considers these matters.
Board Performance and Evaluation
In accordance with Provision 26 of the AIC Code, the Board is
required to undertake a formal and rigorous evaluation of its
performance on an annual basis. Such an evaluation of the
performance of the Board as whole, the Audit and Risk Committee,
the Nomination Committee, the Management Engagement Committee,
individual Directors and the Chairman will be carried out under the
mandate of the Nomination Committee. The Board believes that the
current mix of skills, experience, knowledge and age of the
Directors is appropriate to the requirements of the Company.
On 18 November 2020, the Management Engagement Committee
conducted an internal evaluation of the Board, the Audit and Risk
Committee and individual Directors. This was in the form of
performance appraisal, questionnaires and discussion to determine
effectiveness and performance in various areas, as well as the
Directors' continued independence and tenure. This process was
facilitated by the Company Secretary. The review concluded that the
overall performance of the Board and Audit and Risk Committee was
satisfactory and the Board was confident in its ability to continue
to govern the Company effectively.
New Directors receive an induction on joining the Board and
regularly meet with the senior management employed by the
Investment Manager both formally and informally to ensure that the
Board remains regularly updated on all issues. All members of the
Board are members of professional bodies and serve on other Boards,
which ensures they are kept abreast of the latest technical
developments in their areas of expertise.
The Board arranges for presentations from the Investment
Manager, the Company's brokers and other advisors on matters
relevant to the Company's business. The Board will assess the
training needs of Directors on an annual basis.
Internal Control and Financial Reporting
The Directors acknowledge that they are responsible for
establishing and maintaining the Company's system of internal
control and reviewing its effectiveness. Internal control systems
are designed to manage rather than eliminate the failure to achieve
business objectives and can only provide reasonable but not
absolute assurance against material misstatements or loss. However,
the Board's objective is to ensure that the Company has appropriate
systems in place for the identification and management of risks.
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 or liquidity. As
further explained in the Audit and Risk Committee Report, the risks
of the Company are outlined in a risk matrix which was reviewed and
updated during the year. The Board continually reviews its policy
setting and updates the risk matrix at least quarterly to ensure
that procedures are in place with the intention of identifying,
mitigating and minimising the impact of risks should they
crystallise.
The key procedures which have been established to provide
internal control are that:
-- the Board has delegated the day-to-day operations of the
Company to the Administrator and Investment Manager; however, it
retains accountability for all functions it delegates;
-- the Board clearly defines the duties and responsibilities of
the Company's agents and advisors and appointments are made by the
Board after due and careful consideration. The Board monitors the
ongoing performance of such agents and advisors and will continue
to do so through the Management Engagement Committee;
-- the Board monitors the actions of the Investment Manager at
regular Board meetings and is given frequent updates on
developments arising from the operations and strategic direction of
the underlying investee companies;
-- the Administrator provides administration and company secretarial services to the Company.
The Administrator maintains a system of internal control on
which they report to the Board; and
-- the Board has reviewed the need for an internal audit
function and has decided that the systems and procedures employed
by the Administrator and Investment Manager, including their own
internal controls and procedures, provide sufficient assurance that
an appropriate level of risk management and internal control, which
safeguards Shareholders' investments and the Company's assets, is
maintained. An internal audit function specific to the Company is
therefore considered unnecessary.
Internal controls over financial reporting are designed to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
reporting purposes. The Administrator and Investment Manager both
operate risk controlled frameworks on a continual ongoing basis
within a regulated environment. The Administrator formally reports
to the Board quarterly through a compliance report and holds the
International Standard on Assurance Engagements (ISAE) 3402 Type 2
certification. This entails an independent rigorous examination and
testing of their controls and processes. The Investment Manager
formally reports to the Board quarterly including updates within
Riverstone and also engages with the Board on an ad-hoc basis as
required. No weaknesses or failings within the Administrator or
Investment Manager have been identified.
The systems of control referred to above 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 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. This process has been in place for
the year under review and up to the date of approval of this Annual
Report and financial statements. It is reviewed by the Board and is
in accordance with the FRC's internal control publication: Guidance
on Risk Management, Internal Control and Related Financial and
Business Reporting.
Investment Management Agreement
The Investment Manager has been appointed as the sole investment
manager of the Company and the SPVs. Pursuant to the Investment
Management Agreement, the Investment Manager has responsibility for
and discretion over investing and managing the Company's and the
SPVs' direct and indirect assets, subject to and in accordance with
the Company's investment policy. The Investment Manager is entitled
to delegate all or part of its functions under the Investment
Management Agreement to one or more of its affiliates. A summary of
the fees paid to the Investment Manager are given in note 12 to the
financial statements.
The Investment Manager's appointment is terminable by the
Investment Manager or the Company on not less than 12 months'
notice, such notice not to expire prior to the third anniversary of
Admission. The Investment Management Agreement may be terminated
with immediate effect and without compensation, by either the
Investment Manager or the Company if the other party has gone into
liquidation, administration or receivership or has committed a
material breach of the Investment Management Agreement.
The Company has delegated the provision of all services to
external service providers whose work is overseen by the Management
Engagement Committee at its regular scheduled meetings. Each year,
a detailed review of performance pursuant to their terms of
engagement is undertaken by the Management Engagement
Committee.
The Board as a whole reviewed the Company's compliance with the
UK Code, the Listing Rules, the Disclosure Guidance and
Transparency Rules and the AIC Code. In accordance with Listing
Rule 15.6.2(2)R and having formally appraised the performance and
resources of the Investment Manager, in the opinion of the
Directors the continuing appointment of the Investment Manager on
the terms agreed is in the interests of the Shareholders as a
whole. The Board is pleased with the performance of the investment
manager, based on the selection of high quality E&P and
midstream investments.
Relations with Shareholders
The Board welcomes Shareholders' views and places great
importance on communication with its Shareholders. The Company's
AGM provides a forum for Shareholders to meet and discuss issues
with the Directors of the Company. The Chairman and other Directors
are also available to meet with Shareholders at the AGM to hear
their views and discuss any issues or concerns, including in
relation to Board composition, governance and strategy, or at other
times, if required.
The Company reports formally to Shareholders in a number of
ways; regulatory news releases through the London Stock Exchange's
Regulatory News Service, announcements are issued in response to
events or routine reporting obligations. Also, an Interim Report
will be published each year outlining performance to 30 June and
the Annual Report will be published each year for the year ended 31
December, both of which will be made available on the Company's
website. In addition, the Company's website contains comprehensive
information, including company notifications, share information,
financial reports, investment objectives and policy, investor
contacts and information on the Board and corporate governance.
Shareholders and other interested parties can subscribe to email
news updates by registering online on the website.
The Directors and Investment Manager receive informal feedback
from analysts and investors, which is presented to the Board by the
Company's Broker. The Company Secretary also receives informal
feedback via queries submitted through the Company's website and
these are addressed by the Board, the Investment Manager or the
Company Secretary, where applicable.
Other Stakeholders
The wider stakeholders of the Company comprise its service
providers, investee companies and suppliers and the Board
recognises and values these stakeholders.
As an investment trust with no employees the Company's
relationship with its service providers, including the Investment
Manager, is of particular importance. Service providers have been
selected and engaged based on due diligence and references
including consideration of their internal controls and expertise.
The Company has established a Management Engagement Committee, who
will review the performance of each service provider annually and
provide feedback as appropriate, to maintain good working
relationships.
The Company's investment helps to ensure that the investee
companies have the resources to perform well, which helps to drive
the local economies in which these companies are located.
Responsible investing principles have been applied to each of the
investments made, which ensures that appropriate due diligence has
been conducted and that the terms of the investments are clearly
set out and agreed with investee companies in advance. During the
year, the Investment Manager contacted all Borrowers to make sure
that they have the appropriate plans and resources in place to
prioritise the health and safety of their employees in light of the
COVID-19 pandemic, as well as to assess supply chain disruptions
and ensure the normal operations of their business.
The Board recognises that relationships with suppliers are
enhanced by prompt payment and the Company's Administrator, in
conjunction with the Investment Manager, ensures all payments are
processed within the contractual terms agreed with the individual
suppliers.
Whistleblowing
The Board has considered arrangements by which staff of the
Investment Manager or Administrator may, in confidence, raise
concerns within their respective organisations about possible
improprieties in matters of financial reporting or other matters.
It has concluded that adequate arrangements are in place for the
proportionate and independent investigation of such matters and,
where necessary, for appropriate follow-up action to be taken
within their organisation.
By order of the Board
Reuben Jeffery, III
Chairman
17 February 2021
Audit and Risk Committee Report
The Audit and Risk Committee, chaired by Ms. Emma Davies,
operates within clearly defined terms of reference, which are
available from the Company's website, and include all matters
indicated by Disclosure Guidance and Transparency Rule 7.1, the AIC
Code and the UK Code. Its other members are Mr. Reuben Jeffery, III
and Mr. Edward Cumming-Bruce. Members of the Audit and Risk
Committee must be independent of the Company's external auditor and
Investment Manager. Although Mr. Reuben Jeffery, III is Chairman of
the Company, the Board believes that it is appropriate for him to
be a member of the Audit and Risk Committee, given the size of the
Company's Board. The Audit and Risk Committee will meet no less
than three times in a year, and at such other times as the Audit
and Risk Committee Chair shall require, and will meet the external
auditor at least once a year.
The Committee members have considerable financial and business
experience and the Board has determined that the membership as a
whole has sufficient recent and relevant sector and financial
experience to discharge its responsibilities and that at least one
member has competence in accounting or auditing.
Responsibilities
The main duties of the Audit and Risk Committee are:
-- to monitor the integrity of the Company's financial
statements and regulatory announcements relating to its financial
performance and review significant financial reporting
judgements;
-- to report to the Board on the appropriateness of the
Company's accounting policies and practices;
-- to consider the ongoing assessment of the Company as a going
concern and assessment of longer term viability;
-- to review the valuations of the Company's investments
prepared by the Investment Manager, and provide a recommendation to
the Board on the valuation of the Company's investments;
-- to oversee the relationship with the external auditor,
including agreeing their remuneration and terms of engagement,
review their reporting, monitoring their independence, objectivity
and effectiveness, ensuring that any non-audit services are
appropriately considered, and making recommendations to the Board
on their appointment, reappointment or removal, for it to put to
the Shareholders in general meeting;
-- to monitor and consider annually whether there is a need for
the Company to have its own internal audit function;
-- to keep under review the effectiveness of the Company's
internal controls, including financial controls and risk management
systems;
-- to review and consider the UK Code, the AIC Code, and the AIC
Guidance on Audit Committees; and
-- to report to the Board on how it has discharged its responsibilities.
The Audit and Risk Committee is aware that certain sections of
the Annual Report are not subject to formal statutory audit,
including the Chairman's Statement, the Investment Manager's Report
and certain sections of the Directors' Remuneration Report.
Financial information in these sections is reviewed by the Audit
and Risk Committee.
The Audit and Risk Committee is required to report its findings
to the Board, identifying any matters on which it considers that
action or improvement is needed, and make recommendations on the
steps to be taken.
The external auditor was invited to attend the Audit and Risk
Committee meetings at which the Annual Report and Interim Financial
Report were considered. They have the opportunity to meet with the
Committee without representatives of the Investment Manager or
Administrator being present at least once per year.
Financial Reporting
The primary role of the Audit and Risk Committee in relation to
financial reporting is to review with the Administrator, the
Investment Manager and the external auditor and report to the Board
on the appropriateness of the Annual Report and financial
statements and Interim Financial Report, concentrating on, amongst
other matters:
-- the quality and acceptability of accounting policies and practices;
-- the clarity of the disclosures and compliance with financial
reporting standards and relevant financial and governance reporting
requirements;
-- material areas in which significant judgements have been
applied or where there has been discussion with the external
auditor including going concern and viability statement;
-- whether the Annual Report and financial statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for Shareholders to assess the Company's performance, business model and strategy; and
-- any correspondence from regulators in relation to financial reporting.
To aid its review, the Audit and Risk Committee considers
reports from the Administrator and the Investment Manager and also
reports from the external auditor on the outcomes of their
half-year review and annual audit.
Meetings
During the year ended 31 December 2020, the Audit and Risk
Committee met four times formally and there was ongoing liaison and
discussion between the external auditor and the Audit and Risk
Committee Chair with regards to the audit approach and the
identified risks.
The matters discussed at those meetings include:
-- review of the terms of reference of the Audit and Risk Committee for approval by the Board;
-- review of the accounting policies and format of the financial statements;
-- review and approval of the audit plan of the external auditor;
-- discussion and approval of the fee for the external audit;
-- detailed review of the valuations of the Company's investment
portfolio and recommendation for approval by the Board;
-- detailed review of the Interim Report and quarterly portfolio
valuations, and recommendation for approval by the Board;
-- assessment of the independence of the external auditor;
-- assessment of the effectiveness of the external audit process as described below; and
-- review of the Company's key risks and internal controls.
After the year ended 31 December 2020, the Audit and Risk
Committee met on 17 February 2021 to review the results of the
audit and to consider and approve the Annual Report.
Significant Areas of Judgement Considered by the Audit and Risk
Committee
The Audit and Risk Committee has determined that a key risk of
misstatement of the Company's financial statements relates to the
valuation of its investments at fair value through profit or loss,
in the context of the judgements necessary to evaluate market
values of the underlying investments. There is also an inherent
risk of management override as the Investment Manager's Profit
Share is calculated based on revenue recognition and the NAV, as
disclosed in note 12 to the financial statements. The Investment
Manager is responsible for calculating the NAV with the assistance
of the Administrator, prior to approval by the Board.
In view of the Company's investments and the nature of the
assets, no adjustment to the NAV of the investments has been made,
as this is deemed equivalent to fair value.
The Audit and Risk Committee reviews, considers and, if thought
appropriate, recommends for the purposes of the Company's financial
statements, valuations prepared by the Investment Manager in
respect of the investments.
As outlined in note 4 to the financial statements, the total
carrying value of the investments at fair value through profit or
loss at 31 December 2020 was $88.5 million (2019: $91.5
million).
On a quarterly basis, the Investment Manager provides a detailed
analysis of the NAV. This analysis is considered and challenged by
the Audit and Risk Committee and subsequently approved by the
Board. The Audit and Risk Committee has satisfied itself that the
key estimates and assumptions used in the valuation model are
appropriate and that the investments have been fairly valued.
The valuation for each individual investment held by the SPVs is
determined by reference to common industry valuation techniques,
including comparable public market valuation, comparable merger and
acquisition transaction valuation, and discounted cash flow
valuation, as detailed in notes 2 and 4 to the financial
statements.
The valuation process and methodology was discussed with the
Investment Manager and with the external auditor at the Audit and
Risk Committee meetings held on 19 February 2020 and 17 February
2021. Due to the illiquid and subjective nature of the Company's
investments, the Investment Manager uses an independent third party
valuation provider to prepare quarterly valuations and has provided
a detailed valuation report to the Company at each quarter.
Profit Share payable to the Investment Manager is based in part
on NAV and calculated in accordance with the Investment Management
Agreement, as summarised in note 12 to the financial statements.
The Investment Manager sets out a schedule of revenue and capital
profits on a quarterly and year-to-date basis, from which the
Profit Share payable by the Company may be derived. This schedule
is reviewed by the Administrator quarterly and by the Auditor
semi-annually. As the Audit and Risk Committee comprises all Board
members, the allocation of revenue profits between potential
dividend payments to Shareholders and Profit Share payable to the
Investment Manager may be considered by the full Board at regular
Board meetings.
The external auditor has explained the results of their audit
work on valuations in the Independent Auditor's Report below. There
were no adjustments proposed that were material in the context of
the Annual Report and financial statements as a whole.
Risk Management
The Board is accountable for carrying out a robust assessment of
the principal risks facing the Company, including those threatening
its business model, future performance, solvency and liquidity. On
behalf of the Board, the Audit and Risk Committee reviews the
effectiveness of the Company's risk management processes. The
Company's risk assessment process and the way in which significant
business risks are managed is a key area of focus for the Audit and
Risk Committee. The work of the Audit and Risk Committee was driven
primarily by the Company's assessment of its principal risks and
uncertainties as set out in the Strategic Report. The Audit and
Risk Committee receives reports from the Investment Manager and
Administrator on the Company's risk evaluation process and reviews
changes to significant risks identified.
Internal Audit
The Audit and Risk Committee considers at least once a year
whether or not there is a need for an internal audit function.
Currently, the Audit and Risk Committee does not consider there to
be a need for an internal audit function, given that there are no
employees in the Company and all outsourced functions are with
parties who have their own internal controls and procedures.
External Audit
Ernst & Young LLP has been the Company's external auditor
since the Company's incorporation. This is the second year of
audit.
The external auditor is required to rotate the audit partner
every five years. There are no contractual obligations restricting
the choice of external auditor and the Company will put the audit
services contract out to tender at least every ten years. Under
Companies Law, the reappointment of the external auditor is subject
to Shareholder approval at the AGM. The Audit and Risk Committee
will continue to monitor the performance of the external auditor on
an annual basis and will consider their independence and
objectivity, taking account of appropriate guidelines. In addition,
the Committee Chair will continue to maintain regular contact with
the lead audit partner outside the formal Committee meeting
schedule, not only to discuss formal agenda items for upcoming
meetings, but also to review any other significant matters.
The Audit and Risk Committee reviews the scope and results of
the audit, its cost effectiveness and the independence and
objectivity of the external auditor, with particular regard to the
level of any non-audit fees. Notwithstanding such services, the
Audit and Risk Committee considers Ernst & Young LLP to be
independent of the Company and that the provision of such non-audit
services is not a threat to the objectivity and independence of the
conduct of the audit.
To further safeguard the objectivity and independence of the
external auditor from becoming compromised, the Audit and Risk
Committee are aware of the EU Directive that imposes a cap on fees
to be charged by a company's external auditor for non-audit
services at 70 percent of the average statutory audit fees for the
previous 3 years. This precludes Ernst & Young LLP from
providing certain services such as valuation work or the provision
of accounting services and also sets a presumption that Ernst &
Young LLP should only be engaged for non-audit services where they
are best placed to provide those services, for example the interim
review and reporting accountant services. Note 10 details services
provided by Ernst & Young LLP during the year.
To fulfil its responsibility regarding the independence of the
external auditor, the Audit and Risk Committee considers:
-- discussions with or reports from the external auditor
describing its arrangements to identify, report and manage any
conflicts of interest; and
-- the extent of non-audit services provided by the external auditor.
To assess the effectiveness of the external auditor, the
committee reviews:
-- the external auditor's fulfilment of the agreed audit plan and variations from it;
-- discussions or reports highlighting the major issues that
arose during the course of the audit; and
-- feedback from other service providers evaluating the performance of the audit team.
During 2021, Ernst & Young LLP reported a breach of the
rules of the FRC Ethical Standards to the Audit and Risk Committee.
The breach occurred as a result of the provision of prohibited
non-audit services by Ernst & Young LLP in relation to the
review of the Company's Key Investor Information Document, which is
required to be produced by the Investment Manager under the
Alternative Investment Fund Managers Directive ('AIFMD'), where the
Company is viewed to have benefited from those services. In
considering this matter, the Audit Committee concluded that the
independence of Ernst & Young LLP was not impaired, reflecting
that there is no impact of the services on the Company's financial
statements, the fact that the work was undertaken by personnel who
were wholly separate to the audit team, and that no reliance was
placed by the audit team on the output of the services.
In light of the above, the Audit and Risk Committee is satisfied
that the non-audit services performed during 2021 have not impaired
the independence of Ernst & Young LLP in its role as external
auditor. Further information on non-audit fees is provided in note
10 to the Financial Statements below.
The Audit and Risk Committee is satisfied with Ernst & Young
LLP's effectiveness and independence as external auditor having
considered the degree of diligence and professional scepticism
demonstrated by them. Having carried out the review described
above, and having satisfied itself that the external auditor
remains independent and effective, the Audit and Risk Committee has
recommended to the Board that Ernst & Young LLP be reappointed
as external auditor for the year ending 31 December 2021.
The Audit and Risk Committee has provided the Board with its
recommendation to the Shareholders on the re-appointment of Ernst
& Young LLP as external auditor for the year ending 31 December
2021. Accordingly, a resolution proposing the reappointment of
Ernst & Young LLP as our external auditor will be put to
Shareholders at the AGM.
On behalf of the Audit and Risk Committee
Emma Davies
Audit and Risk Committee Chair
17 February 2021
Independent Auditor's Report
to the Members of Riverstone Credit Opportunities Income Plc
Opinion
We have audited the financial statements of Riverstone Credit
Opportunities Income Plc (the "Company") for the year ended 31
December 2020 which comprise the Statement of Financial Position,
the Statement of Comprehensive Income, the Statement of Changes in
Equity, Statement of Cash Flows and the related notes 1 to 18,
including a summary of significant accounting policies. The
financial statements have been prepared in accordance with
International Accounting Standards in conformity with the
requirements of the Companies Act 2006.
In our opinion, the financial statements:
-- give a true and fair view of the Company's affairs as at 31
December 2020 and of its profit for the period then ended;
-- have been properly prepared in accordance with International
Accounting Standards in conformity with the requirements of the
Companies Act; and
-- have been prepared in accordance with the requirements of the Companies Act 2006.
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. Taking into consideration the
breach of FRC's Revised Ethical Standard 2019 Section 5.40 as
explained in the 'Other matters we are required to address' section
below, 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 FRC's Ethical
Standard as applied to public interest 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.
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:
-- Confirming our understanding of the Directors' going concern
assessment process and also engaging with the Investment Manager
early to ensure all key factors were considered in their
assessment;
-- Discussing with the Investment Manager and the Directors'
whether events or conditions exist that, individually or
collectively, may cast significant doubt on the entity's ability to
continue as a going concern.
-- Obtaining the Directors' going concern assessment and
ascertaining that this covers a period of at least twelve months
from the date of approval of the financial statements.
-- Reviewing the assumptions used in the cash-flow, stress and
reverse stress tests prepared by the Investment Manager and
Directors, including in response to the COVID-19 pandemic, and
challenged the assumptions made by them in the preparation of these
tests. We also considered the likelihood of the occurrence of the
reverse test scenario.
-- Reviewing the Directors' assessment of the principal risks
facing the Company, including those that would threaten its
business model, future performance, solvency or liquidity and
comparing them to our understanding of the Company's risks.
-- Challenging whether the Directors' statements in relation to
going concern required under the Listing Rules of the UK Listing
Authority are consistent with our own knowledge and understanding
of the business.
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 the period
assessed by the Directors, being the period to 30 June 2022, more
than 12 months from the date the financial statements were
authorised for issue.
In relation to the Company's reporting on how they have 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. However, because not all future events or
conditions can be predicted, this statement is not a guarantee as
to the Company's ability to continue as a going concern.
Overview of our audit approach
Key audit
matters * Risk of incorrect calculation and allocation of the
profit share payable to the Investment Manager
* Risk of incorrect valuation of investments and
resulting impact on the income statement
* Risk of incomplete or inaccurate revenue recognition
with respect to payment in kind ('PIK') interest
-----------------------------------------------------------------
Materiality
* Overall materiality of $955k which represents 1% of
net assets.
------------------ -----------------------------------------------------------------
An overview of the scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and
our allocation of performance materiality determine our audit scope
for the Company. This enables us to form an opinion on the
financial statements. We take into account: size, risk profile, the
organisation of the Company and effectiveness of controls,
including controls and changes in the business environment when
assessing the level of work to be performed.
As a result of COVID-19, we were unable to meet physically with
the Investment Manager and management's valuation specialists in
person during the course of our audit. These meetings were
conducted virtually and all audit queries were discussed over video
conferencing. The audit team encountered no difficulties in
connecting virtually with the Investment Manager, Administrator or
the Directors and were able to execute the audit fieldwork
effectively.
Key audit matters
Key audit matters are those matters that, in our professional
judgment, 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 our opinion
thereon, and we do not provide a separate opinion on these
matters.
Risk Our response to the Key observations
risk communicated
to the Audit
Committee
-------------------------- ------------------------------------------------------------------ ----------------------
Risk of incorrect We obtained an understanding Our audit procedures
calculation and of the Investment did not identify any
allocation Manager and Administrator's material errors or
of the profit share processes and controls omissions regarding
payable to the surrounding the profit the calculation and
Investment share calculation, allocation of the
Manager ($668k, by performing a walkthrough profit share payable
2019: in which we evaluated to the Investment
$67k) the design and implementation Manager.
Refer to the Audit of controls.
and Risk Committee
Report (above); We examined the profit
Accounting share model for consistency
policies (below); with respect to the
and Note 12 of the terms outlined in
Financial the agreements, with
Statements the assistance of
(below). EY modelling specialists.
Per the terms of
the We recalculated the
Investment profit share payable
Management to the Investment
Agreement ('IMA') Manager for the year
and the prospectus and agreed the rates
('the agreements'), used within the calculation
a profit share is to the agreements.
payable to the
Investment We agreed key inputs
Manager at a rate of the model to supporting
of 20% where the evidence, considering
Company's additional audit procedures
distributable required to be performed
income over these inputs,
exceeds an amount where relevant.
equal to 4% of the
Company's capital. We verified that each
An additional of the performance
profit conditions laid out
share of 10% is in the agreements
payable have been met, by
where the Company's comparing the Company's
distributable distributable income
income to the Company's capital.
exceeds an amount
equal to 8% of the We verified that the
Company's capital. capital loss adjustment
Certain aspects of has been correctly
the terms within calculated in line
the with the terms of
agreements, are the agreements.
subject
to interpretation We confirmed that
in their the profit share had
application. been appropriately
As the agreements allocated to the revenue
are open to column of the Statement
interpretation, of Comprehensive Income
there is a risk with respect to the
that nature of the Company's
the model used to income receipts to
calculate the date and the basis
profit of calculation for
share payable does the profit share.
not accurately
reflect
the terms of the
agreement.
There is also
incentive
for the Investment
Manager to
manipulate
the model to
increase
the profit share
payable
to them. The
Investment
Manager does not
receive
any remuneration
other
than the profit
share
------------------------------------------------------------------ ----------------------
Risk of incorrect We obtained an understanding Our audit procedures
valuation of of the Investment did not identify any
investments Manager's processes material errors or
and resulting and controls surrounding omissions regarding
impact the trade processing the valuation of
on the income and valuation of investments investments.
statement by performing a walkthrough
($88,548k, 2019: in which we evaluated
$91,541k) the design and implementation
Refer to the Audit of controls.
and Risk Committee We obtained the valuation
Report (above); models for the related
Accounting assets to assess whether
policies (below); the valuation methodology
and Note 4 of the adopted is consistent
Financial with the requirements
Statements of IFRS 13 and IPEV
below). guidelines.
The Company We performed the following
invests, procedures for each
via other wholly of the underlying
owned assets, using the
entities, in senior assistance of EY valuation
secured loans and specialists for a
other unlisted sample of these assets:
securities * We challenged the appropriateness of assumptions used
issued by borrowers in the application of the valuation models including
operating in the the discount rate used in the yield analysis
energy performed by management's specialist.
sector.
Third party
valuation * We performed corroborative calculations and compared
specialists prepare our results to those determined by management's
valuations in specialist.
accordance
with International
Financial Reporting We verified key inputs
Standard 13 ('IFRS used within the valuation
13') Fair Value models to supporting
Measurement documentation.
and International We have considered
Private Equity and the impact of COVID-19
Venture Capital throughout the procedures
Valuation performed on the valuation
('IPEV) guidelines of investments, by
with certain inputs challenging whether
determined by the the valuation methodologies
Investment Manager, and assumptions used
and are reported to remained appropriate.
the Board We recalculated the
quarterly. unrealised gains/(losses)
The valuation of for the period, considering
the our procedures performed
investments is over the valuation
material, of investments.
complex and include
judgments and
significant
estimates. There is
therefore a risk
that
the valuation of
investments
is materially
misstated.
Unrealised gains or
losses are
calculated
as the difference
between the fair
value
of the investment
and the book cost
and contribute to
a significant
portion
of the capital
returns
in the Statement of
Comprehensive
Income.
------------------------------------------------------------------ ----------------------
Risk of incomplete We obtained an understanding Our audit procedures
or inaccurate of the Investment did not identify any
revenue Manager and Administrator's material errors or
recognition with processes and controls omissions regarding
respect surrounding the calculation the recognition of
to PIK interest and recognition of PIK interest.
(nil, PIK interest by performing
2019: $764k) a walkthrough in which
Refer to the we evaluated the design
Accounting and implementation
policies (below); of controls.
and Note 4 of the We confirmed that
Financial no PIK interest had
Statements been recorded at the
(below). intercompany level
An intercompany by performing the
loan following procedures:
has been made to * reviewed the intercompany loan schedule and verified
Riverstone that there were no outstanding PIK balances due at
International the year end.
Credit
Corporation
('RICC') * recalculated the interest income, vouching key inputs
which accrues to supporting documentation, and compared this to the
interest amount recorded per the financial statements.
at a rate of 9.27%
per annum. Interest
is also receivable * vouched a sample of cash interest repayments in the
from the loans year to bank statements.
made,
via the SPVs, to
investee For the PIK interest
companies. There is accrued at an investee
the possibility for company level, we:
interest to be paid * Obtained the administrator's calculations of PIK
in the form of a interest;
payment-in-kind
('PIK') at both an
intercompany and * Agreed key inputs to underlying supporting
investee documentation; and
company level.
Due to the nature
of the underlying * Recalculated the expected PIK interest and compared
investee companies, this to the amount recorded by the Administrator.
there is a degree
of estimation
required In order to assess
to assess the reasonableness and
likelihood recoverability of
that any PIK the accrued PIK interest,
interest we assessed the performance
accrued, will be of the underlying
recoverable investee companies,
with repayment of with reference to
the principal loan. our procedures performed
There is therefore over the valuation
a risk that any PIK of investments.
interest accrued
may
not be fully
realisable.
The Company's
investment
objective is to
generate
consistent
shareholder
returns, and it is
therefore important
that revenue is
accurately
recognised in order
for investors to
assess
whether the Company
is meeting this
objective
.
------------------------------------------------------------------ ----------------------
Our key audit matters are consistent with those reported in our
2019 Auditor's Report.
Our application of materiality
We apply the concept of materiality in planning and performing
the audit, in evaluating the effect of identified misstatements on
the audit and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually
or in the aggregate, could reasonably be expected to influence the
economic decisions of the users of the financial statements.
Materiality provides a basis for determining the nature and extent
of our audit procedures.
We determined materiality for the Company to be $955k, which is
1% of net assets. We have derived our materiality calculation based
on net assets as we consider it is the most relevant measure to the
stakeholders of the Company.
Performance materiality
The application of materiality at the individual account or
balance level. It is set at an amount to reduce to an appropriately
low level the probability that the aggregate of uncorrected and
undetected misstatements exceeds materiality.
On the basis of our risk assessments, together with our
assessment of the Company's overall control environment, our
judgment was that performance materiality was 75% of our planning
materiality, namely $716k. We have set performance materiality at
this increased percentage based on the fact that there were no
material prior year misstatements. We have also confirmed that the
internal control environment is consistent with the prior year and
there have been no significant changes in circumstances.
Reporting threshold
An amount below which identified misstatements are considered as
being clearly trivial.
We agreed with the Audit Committee that we would report to them
all uncorrected audit differences in excess of $48k, which is set
at 5% of planning materiality, as well as differences below that
threshold that, in our view, warranted reporting on qualitative
grounds.
We evaluate any uncorrected misstatements against both the
quantitative measures of materiality discussed above and in light
of other relevant qualitative considerations in forming our
opinion.
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, except to the extent otherwise explicitly stated
in this report, 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 there is 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 the other
information, we are required to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act
2006
In our opinion the part of the Directors' Remuneration Report to
be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of
the audit:
-- the information given in the strategic report and the
Directors' report for the financial year for which the financial
statements are prepared is consistent with the financial
statements; and
-- the strategic report and Directors' report have been prepared
in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Company
and its environment obtained in the course of the audit, we have
not identified material misstatements in the Strategic Report or
Directors' Report.
We have nothing to report in respect of the following matters in
relation to which the Companies Act 2006 requires us to report to
you if, in our opinion:
-- adequate accounting records have not been kept, or returns
adequate for our audit have not been received from branches not
visited by us; or
-- the financial statements and the part of the Directors'
Remuneration Report to be audited are not in agreement with the
accounting records and returns; or
-- certain disclosures of Directors' remuneration specified by law are not made; or
-- we have not received all the information and explanations we require for our audit.
Corporate Governance Statement
As the Company is listed on the Specialist Fund Segment of the
London Stock Exchange, the Directors have voluntarily complied with
the UK Corporate Governance Code (the "Code") and have prepared a
Corporate Governance Statement in accordance with the Disclosure
Guidance and Transparency Rules of the Financial Conduct Authority
("FCA").
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
Statement 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 or our knowledge obtained during the audit:
-- Directors' statement with regards to the appropriateness of
adopting the going concern basis of accounting and any material
uncertainties identified set out in the Strategic Report;
-- Directors' explanation as to its assessment of the Company's
prospects, the period this assessment covers and why the period is
appropriate set out in the Strategic Report;
-- Directors' statement on fair, balanced and understandable set
out in the Report of the Directors;
-- Board's confirmation that it has carried out a robust
assessment of the emerging and principal risks set out in the
Strategic Report;
-- The section of the Annual Report that describes the review of
effectiveness of risk management and internal control systems set
out in the Corporate Governance Report; and
-- The section describing the work of the Audit and Risk Committee set out above.
Responsibilities of Directors
As explained more fully in the Directors' responsibilities
statement set out above, 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.
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.
Explanation as to what extent 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 below, to detect irregularities,
including fraud. The risk of not detecting a material misstatement
due to fraud is higher than the risk of not detecting one resulting
from error, as fraud may involve deliberate concealment by, for
example, forgery or intentional misrepresentations, or through
collusion. The extent to which our procedures are capable of
detecting irregularities, including fraud is detailed below.
However, the primary responsibility for the prevention and
detection of fraud rests with both those charged with governance of
the Company and management.
-- We obtained an understanding of the legal and regulatory
frameworks that are applicable to the Company and determined that
the most significant are International Accounting Standards, the
Companies Act 2006 and UK Corporate Governance Code and relevant
tax compliance regulation, Section 1158 of the Corporation Tax Act
2010.
-- We understood how the Company is complying with those
frameworks by making enquiries of the Investment Manager, Company
Secretary, and also the Directors including the Chair of the Audit
and Risk Committee. We corroborated our understanding through our
review of board minutes, papers provided to the Audit and Risk
Committee and correspondence received from regulatory bodies.
-- We assessed the susceptibility of the Company's financial
statements to material misstatement, including how fraud might
occur by considering the key risks impacting the financial
statements. We identified a fraud and management override risk in
relation to the incorrect calculation and allocation of the profit
share payable to the Investment Manager and in relation to the
incorrect valuation of unquoted investments. Our audit
procedures
stated above in the 'Key audit matters section' of this
Auditor's report were performed to address these identified fraud
risks.
-- Based on this understanding we designed our audit procedures
to identify non-compliance with such laws and regulations. Our
procedures involved journal entry testing, with a focus on manual
journals and journals indicating large or unusual transactions
based on our understanding of the business and focused testing, as
referred to in the key audit matters section above.
A further description of our responsibilities for the audit of
the financial statements is located on the Financial Reporting
Council's website at
https://www.frc.org.uk/auditorsresponsibilities. This description
forms part of our auditor's report.
Other matters we are required to address
-- Following the recommendation from the Audit and Risk
Committee, we were appointed by the Board on 2 April 2019 to audit
the financial statements for the period ending 31 December 2019 and
subsequent financial periods. We signed an engagement letter on 24
October 2019.
The period of total uninterrupted engagement including previous
renewals and reappointments is two years, covering the period
ending 31 December 2019 and year ending 31 December 2020.
-- As part of our audit, we identified that certain non-audit
services related to the year to 31 December 2020, and prohibited
under the FRC Revised Ethical Standard Section 5.40, had been
undertaken. This related to the provision of review services
relating to the Company's Key Investor Information Document
('KIID'), required to be produced by the Investment Manager under
the Alternative Investment Fund Managers Directive (AIFMD). We
notified the Audit and Risk Committee of this breach in February
2021. The evaluation of whether our independence was impaired
included consideration of the safeguards to independence in
connection with the services and the nature of the services. The
review service was undertaken by a separate team from the audit
team and does not present a self-review threat as the subject
matter reviewed as part of this service does not form part of the
financial statements. In addition, the work had no element of an
advocacy threat We therefore consider this to be a minor breach of
the FRC Revised Ethical Standard Section 5.40 and we do not
consider our independence to be impaired. The Audit and Risk
Committee agreed with our conclusion and their consideration of
this breach is set out in the Audit and Risk Committee Report.
-- The audit opinion is consistent with the additional report to
the Audit and Risk Committee.
Use of our report
This report is made solely to the Company's members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
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.
Mike Gaylor (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory
Auditor
London
17 February 2021
Notes:
1. The maintenance and integrity of the Riverstone Credit
Opportunities Income Plc web site is the responsibility of the
Directors; the work carried out by the auditors does not involve
consideration of these matters and, accordingly, the auditors
accept no responsibility for any changes that may have occurred to
the financial statements since they were initially presented on the
web site.
2. Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions .
Statement of Financial Position
As at 31 December 2020
31 December 2020 31 December 2019
Note $'000 $'000
-----
Non-current assets
Investments at fair value through profit or loss 4 88,548 91,541
-------------------------------------------------- ----- ----------------- -----------------
88,548 91,541
Current assets
Loan interest receivable 4 1,315 1,485
Dividends receivable 4 1,135 -
Trade and other receivables 6 84 102
Cash and cash equivalents 5,374 8,549
-------------------------------------------------- ----- ----------------- -----------------
7,908 10,136
Current liabilities
Trade and other payables 7 (926) (326)
-------------------------------------------------- ----- ----------------- -----------------
Net current assets 6,982 9,810
Net assets 95,530 101,351
-------------------------------------------------- ----- ----------------- -----------------
Equity
Share capital 8 915 1,000
Capital redemption reserve 8 85 -
Other distributable reserves 8 91,179 97,000
Retained earnings 9 3,351 3,351
Total Shareholders' funds 95,530 101,351
-------------------------------------------------- ----- ----------------- -----------------
Number of Shares in issue at year/period end 91,545,383 100,000,000
Net assets per share (cents) 13 104.35 101.35
-------------------------------------------------- ----- ----------------- -----------------
The financial statements of the Company were approved and
authorised for issue by the Board of Directors on 17 February 2021
and signed on its behalf by:
Reuben Jeffery, III Emma Davies
Chairman Director
The accompanying notes below form an integral part of these
financial statements.
Statement of Comprehensive Income
For the year ended 31 December 2020
For the year ended For the period from
31 December 2020 11 March 2019 to 31 December 2019
Note Revenue Capital Total Revenue Capital Total
$'000 $'000 $'000 $'000 $'000 $'000
--------------- ----- ------------------------- ---------------- -------- -------------------- ---------------- --------
Investment
gain
Change in fair
value of
investments
at fair value
through
profit or
loss 4 - 742 742 - 777 777
--------------- ----- ------------------------- ---------------- -------- -------------------- ---------------- --------
- 742 742 - 777 777
Income
Investment
income 4 8,460 - 8,460 3,452 - 3,452
--------------- ----- ------------------------- ---------------- -------- -------------------- ---------------- --------
8,460 - 8,460 3,452 - 3,452
Expenses
Directors'
fees and
expenses 16 (164) - (164) (165) - (165)
Other
operating
expenses (992) - (992) (778) - (778)
Profit share 12 (668) - (668) (67) - (67)
Total expenses (1,824) - (1,824) (1,010) - (1,010)
Operating
profit for
the
year/period 6,636 742 7,378 2,442 777 3,219
Finance income
Interest
income 55 - 55 132 - 132
--------------- ----- ------------------------- ---------------- -------- -------------------- ---------------- --------
Total finance
income 55 - 55 132 - 132
Profit for the
year/period
before tax 6,691 742 7,433 2,574 777 3,351
Tax 11 - - - - - -
--------------- ----- ------------------------- ---------------- -------- -------------------- ---------------- --------
Profit for the
year/period
after tax 6,691 742 7,433 2,574 777 3,351
Profit and
total
comprehensive
income for
the
year/period 6,691 742 7,433 2,574 777 3,351
Profit and
total
comprehensive
income
attributable
to:
Equity holders
of the
Company 6,691 742 7,433 2,574 777 3,351
Earnings per
share
--------------- ----- ------------------------- ---------------- -------- -------------------- ---------------- --------
Basic and
diluted
earnings per
Share (cents) 13 6.83 0.76 7.59 2.57 0.78 3.35
--------------- ----- ------------------------- ---------------- -------- -------------------- ---------------- --------
All 'Revenue' and 'Capital' items in the above statement derive
from continuing operations. No operations were acquired or
discontinued in the year.
The 'Total' column of this statement is the profit and loss
account of the Company and the 'Revenue' and 'Capital' columns
represent supplementary information prepared under guidance issued
by the Association of Investment Companies. Profit for the period
after tax also represents Total Comprehensive Income.
The accompanying notes below form an integral part of these
financial statements.
Statement of Changes in Equity
For the year ended 31 December 2020
For the year
ended Capital Other
31 December redemption distributable Retained
2020 Share capital Share premium reserve reserves earnings Total
Note $'000 $'000 $'000 $'000 $'000 $'000
---------------- ----- -------------- -------------- ---------------- --------------- ---------------- --------
Opening net
assets
attributable
to
Shareholders 1,000 - - 97,000 3,351 101,351
Repurchase and
cancellation
of share
capital 8 (85) - 85 (5,821) - (5,821)
Total
comprehensive
income for the
year - - - - 7,433 7,433
Interim
dividends paid
in the year 14 - - - - (7,433) (7,433)
Closing net
assets
attributable
to
Shareholders 915 - 85 91,179 3,351 95,530
---------------- ----- -------------- -------------- ---------------- --------------- ---------------- --------
After taking account of cumulative unrealised gains of $1,519k,
other distributable reserves and distributions made, the total
reserves distributable by way of a dividend as at 31 December 2020
were $93,011k.
For the period
from
11 March 2019 Capital Other
to 31 December redemption distributable Retained
2019 Share capital Share premium reserve reserves earnings Total
$'000 $'000 $'000 $'000 $'000 $'000
----------------- -------------- -------------- ----------------- ---------------- ----------------- --------
Opening net
assets
attributable to
Shareholders - - - - - -
Issue of
Management
shares 65 - - - - 65
Redemption of
Management
shares (65) - - - - (65)
Issue of share
capital 1,000 99,000 - - - 100,000
Share issue costs - (2,000) - - - (2,000)
Cancellation of
share premium
account - (97,000) - 97,000 - -
Profit and total
comprehensive
income for the
period - - - - 3,351 3,351
Closing net
assets
attributable to
Shareholders 1,000 - - 97,000 3,351 101,351
------------------ -------------- -------------- ----------------- ---------------- ----------------- --------
The share premium account was cancelled by a court order dated
16 July 2019. The amount standing to the credit of the share
premium account of the Company, less any issue expenses set off
against the share premium account, was cancelled and credited to
distributable reserves. This amount shall be capable of being
applied in any manner in which the Company's profits available for
distribution, as determined in accordance with the Companies Act
2006, are able to be applied.
After taking account of cumulative unrealised gains of $777k and
other distributable reserves, the total reserves distributable by
way of a dividend as at 31 December 2019 were $99,574k.
The accompanying notes below form an integral part of these
financial statements.
Statement of Cash Flows
For the year ended 31 December 2020
For the year ended For the period from
Note 31 December 2020 11 March 2019 to 31 December 2019
$'000 $'000
----------------------------------------------------- ----- ------------------- -----------------------------------
Cash flows from operating activities
Operating profit for the financial year/period 7,378 3,219
Adjustments for:
Movement in fair value of investments 4 (742) (777)
Investment income 4 (8,460) (3,452)
Movement in payables 600 326
Movement in receivables (4) (80)
Loan interest received 4 6,429 1,203
Dividends received 1,830 -
Bank interest received 77 110
----------------------------------------------------- ----- ------------------- -----------------------------------
Net cash generated from operating activities 7,108 549
Cash flows from investing activities
Investment additions 4 - (90,000)
Investment proceeds 4 2,971 -
----------------------------------------------------- ----- ------------------- -----------------------------------
Net cash generated from/(used in) investing
activities 2,971 (90,000)
Cash flows from financing activities
Dividends paid 14 (7,433) -
Repurchase and cancellation of share capital 8 (5,821) -
Issue of share capital - 100,000
Payment of issue costs - (2,000)
-----------------------------------
Net cash (used in)/generated from financing
activities (13,254) 98,000
Net movement in cash and cash equivalents during the
year/period (3,175) 8,549
Cash and cash equivalents at the beginning of the
year/period 8,549 -
----------------------------------------------------- ----- ------------------- -----------------------------------
Cash and cash equivalents at the end of the
year/period 5,374 8,549
----------------------------------------------------- ----- ------------------- -----------------------------------
The accompanying notes below form an integral part of these
financial statements.
Notes to the Financial Statements
For the year ended 31 December 2020
1. General Information
The Company was incorporated and registered in England and Wales
on 11 March 2019 with registered number 11874946 as a public
company limited by shares under the Companies Act 2006
(the "Act"). The principal legislation under which the Company
operates is the Act. The Directors intend, at all times, to conduct
the affairs of the Company so as to enable it to qualify as an
investment trust for the purposes of section 1158 of the
Corporation Tax Act 2010, as amended.
2. Significant accounting policies
Basis of preparation
The financial statements have been prepared in accordance with
international accounting standards in conformity with the
requirements of the Companies Act 2006. Where presentational
guidance set out in the AIC SORP is consistent with the
requirements of IFRS, the Directors have sought to prepare the
financial statements on a basis compliant with the recommendations
of the AIC SORP. In particular, supplementary information which
analyses the Statement of Comprehensive Income between items of a
revenue and capital nature has been presented alongside the total
Statement of Comprehensive Income.
The Company was formed on 11 March 2019, so comparative
information in the financial statements covers the period from 11
March 2019 to 31 December 2019, but during that period the
meaningful activities of the Company took place from the Company's
listing on the London Stock Exchange on 28 May 2019 to 31 December
2019.
The annual financial statements have been prepared on the
historical cost basis, as modified for the measurement of certain
financial instruments at fair value through profit or loss. The
principal accounting policies are set out below.
Foreign currencies
The functional currency of the Company is US Dollar reflecting
the primary economic environment in which the Company operates,
that being the E&P and midstream energy sectors, where most
transactions are expected to take place in US Dollar. Additionally,
the Ordinary Shares of the Company are listed in US Dollars.
The Company has chosen US Dollar as its presentation currency
for financial reporting purposes.
Transactions during the year, including income and expenses, are
translated into US Dollar at the rate of exchange prevailing on the
date of the transaction. Monetary assets and liabilities
denominated in currencies other than US Dollar are retranslated at
the functional currency rate of exchange ruling at the reporting
date. Non-monetary items that are measured in terms of historical
cost in a currency other than US Dollar are translated using the
exchange rates as at the dates of the initial transactions.
Non-monetary items measured at fair value in a currency other
than US Dollar are translated using the exchange rates at the date
when the fair value was determined. Foreign currency transaction
gains and losses on financial instruments classified as at fair
value through profit or loss are included in profit or loss in the
Statement of Comprehensive Income as part of the "Change in fair
value of investments at fair value through profit or loss".
Exchange differences on other financial instruments were immaterial
and have been included as other operating expenses in the Statement
of Comprehensive Income.
Financial instruments
In accordance with IFRS 9, financial assets and financial
liabilities are recognised in the Company's Statement of Financial
Position when the Company becomes a party to the contractual
provisions of the instrument. Financial assets and financial
liabilities are only offset and the net amount reported in the
Statement of Financial Position and Statement of Comprehensive
Income when there is a currently enforceable legal right to offset
the recognised amounts and the Company intends to settle on a net
basis or realise the asset and liability simultaneously.
Financial assets
When financial assets are recognised initially, they are
measured at fair value. Fair value is defined as 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.
a) Investments at fair value through profit or loss
i. Classification and measurement
The Company's investments are classified as held at fair value
through profit or loss as they are managed in a portfolio of assets
on a fair value basis. Financial assets held at fair value through
profit or loss are initially recognised at fair value, which is
taken to be their cost, and are subsequently valued at fair
value.
ii. Fair value estimation
The SPVs hold and manage the Company's underlying investments,
which are valued at fair value, based on IPEV Valuation Guidelines
and on IFRS. The fair value of the SPVs is considered to be their
net asset value incorporating a valuation of the underlying
investments. The Directors believe that this is appropriate,
as:
-- the underlying investments within the SPVs are held on a fair
value basis as described below and have taken into account risks to
fair value, inclusive of liquidity discounts, through appropriate
discount rates;
-- the Company wholly owns the SPVs and thus is entitled to all of their economic rights; and
-- the Directors take all these items into consideration and
would make adjustments to net asset value, if deemed necessary.
Valuation process
The Investment Manager is responsible for proposing the
valuation of the assets held by the Company through the SPVs and
the Directors are responsible for reviewing the Company's valuation
policy and approving the valuations.
Valuation adviser
Due to the illiquid and subjective nature of the Company's
underlying investments, the Investment Manager uses a third party
valuation provider to perform a full independent valuation of the
underlying investments. This includes the third party valuation
provider selecting the valuation methodology and/or comparable
companies; identifying the cash flows and appropriate discount rate
utilised in a yield analysis; and providing a final value range to
the Investment Manager. The valuation adviser independently values
the assets and provides analyses to support the methodology in
addition to presenting calculations used to generate output.
b) Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand
deposits and other short-term highly liquid investments with an
original maturity of three months or less that are readily
convertible to a known amount of cash and are subject to an
insignificant risk of changes in value.
c) Trade receivables
Trade receivables are classified as financial assets at
amortised cost. They are measured at amortised cost less impairment
assessed using the simplified approach of the expected credit loss
model based on current circumstances and expectations of future
losses.
A financial asset is derecognised (in whole or in part)
either:
-- when the Company has transferred substantially all the risks and rewards of ownership; or
-- when it has neither transferred nor retained substantially
all the risks and rewards and when it no longer has control over
the assets or a portion of the asset; or
-- when the contractual right to receive cash flow has expired.
Financial liabilities
d) Trade payables
Trade payables are classified as financial liabilities at
amortised cost.
Equity
The Company's Ordinary Shares are classified as equity and upon
issuance, the fair value of the consideration received is included
in equity. Share issue costs were capped at 2 percent of the gross
issue proceeds of the IPO and are shown in equity as a deduction
from share premium. All other share issue costs of the Company,
which were otherwise chargeable to equity, were borne by the
Investment Manager.
Repurchase of Ordinary Shares for cancellation
The cost of repurchasing Ordinary Shares including the related
stamp duty and transactions costs is charged to the 'Other
distributable reserves' and dealt with in the Statement of Changes
in Equity. Share repurchase transactions are accounted for on a
trade date basis. The nominal value of ordinary share capital
repurchased and cancelled is transferred out of 'Share capital' and
into the 'Capital redemption reserve'.
Dividends
Dividends payable are recognised as distributions in the
financial statements when the Company's obligation to make payment
has been established.
Income recognition
Dividend income is recognised when the Company's entitlement to
receive payment is established. Interest income is recognised on an
accruals basis. Interest income due, but not received, is
capitalised with the principal amount of the loan and may
subsequently be reclassed as loan interest receivable, when the
distribution is imminent. Dividend and interest income is allocated
to Revenue within the Statement of Comprehensive Income.
Expenses
Expenses include legal, accounting, auditing and other operating
expenses. They are recognised on an accruals basis in the Statement
of Comprehensive Income in the year/period in which they are
incurred.
Expenses are charged through the Revenue account except those
which are capital in nature, including those which are incidental
to the acquisition, disposal or enhancement of an investment, which
are accounted for through the Capital account.
Taxation
It is the intention of the Directors to conduct the affairs of
the Company so that it satisfies the conditions in section 1158
Corporation Tax Act 2010 and the Investment Trust (Approved
Company) (Tax) Regulations 2011 for it to be approved by HMRC as an
investment trust.
In respect of each accounting period for which the Company is
and continues to be approved by HMRC as an investment trust, the
Company will be exempt from UK corporation tax on its chargeable
gains and its capital profits from creditor loan relationships. The
Company will, however, be subject to UK corporation tax on its
income (currently at a rate of 19 percent).
In principle, the Company will be liable to UK corporation tax
on its dividend income. However, there are broad-ranging exemptions
from this charge which would be expected to be applicable in
respect of most of the dividends the Company may receive.
A company that is an approved investment trust in respect of an
accounting period is able to take advantage of modified UK tax
treatment in respect of its "qualifying interest income" for an
accounting period. It is expected that the Company will have
material amounts of qualifying interest income and that it may,
therefore, decide to designate some or all of the dividends paid in
respect of a given accounting period as interest distributions.
To the extent that the Company receives income from, or realises
amounts on the disposal of, investments in foreign countries it may
be subject to foreign withholding or other taxation in those
jurisdictions. To the extent it relates to income, this foreign tax
may, to the extent not relievable under a double tax treaty, be
able to be treated as an expense for UK corporation tax purposes,
or it may be treated as a credit against UK corporation tax up to
certain limits and subject to certain conditions.
Deferred tax is the tax expected to be payable or recoverable on
temporary differences between the carrying amounts of assets and
liabilities in the financial statements and the corresponding tax
bases used in the computation of taxable profit. Deferred tax
liabilities are generally recognised for all taxable temporary
differences and deferred tax assets are recognised to the extent
that it is probable that taxable profits will be available against
which deductible temporary differences can be utilised.
Deferred tax liabilities are recognised for taxable temporary
differences arising on investments, except where the Company is
able to control the timing of the reversal of the difference and it
is probable that the temporary difference will not reverse in the
foreseeable future. Deferred tax is calculated at the tax rates
that are expected to apply in the period when the liability is
settled or the asset is realised. Deferred tax is charged or
credited to the Statement of Comprehensive Income except when it
relates to items charged or credited directly to equity, in which
case the deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to set off tax assets against tax
liabilities and when they relate to income taxes levied by the same
taxation authority and the Company intends to settle its current
tax assets and liabilities on a net basis. Deferred tax assets and
liabilities are not discounted.
New and amended standards and interpretations not applied
Accounting standards and interpretations have been published and
will be mandatory for the Company's accounting periods beginning on
or after 1 January 2021 or later periods. The impact of these
standards is not expected to be material to the reported results
and financial position of the Company.
Going Concern
The Company's cash balance at 31 December 2020 was $5.4 million,
which is sufficient to cover its existing liabilities of $0.9
million, dividend of $1.8million with respect to the quarter ended
31 December 2020 and any foreseeable expenses in the 16 months to
30 June 2022, being the period of assessment covered by the
Directors.
After making enquiries, the Directors have a reasonable
expectation that the Company has adequate resources to continue in
operational existence for at least 16 months to 30 June 2022, being
the period of assessment covered by the Directors. In making this
assessment, they have considered the effects of COVID-19 as
outlined in the Strategic Report above, including the various risk
mitigation measures in place and do not consider this to have a
material impact on the assessment of the Company as a going
concern. Accordingly, the Company continues to adopt the going
concern basis of accounting in preparing the financial
statements.
Segmental reporting
The chief operating decision-maker, who is responsible for
allocating resources and assessing performance of the operating
segments, has been identified as the Board of Directors, as a
whole. The key measure of performance used by the Board to assess
the Company's performance and to allocate resources is the
Company's Net Asset Value, as calculated under IFRS, and therefore
no reconciliation is required between the measure of profit or loss
used by the Board and that contained in the Annual Report.
For management purposes, the Company is organised into one main
operating segment, which invests through its SPVs in a diversified
portfolio of debt instruments, issued by Borrowers operating in the
energy sector.
All of the Company's current income is derived from within the
United States.
All of the Company's non-current assets are located in the
United States.
Due to the Company's nature, it has no customers.
3. Significant accounting judgements, estimates and assumptions
The preparation of the financial statements requires management
to make judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts of
assets, liabilities, income and expenses.
Estimates and judgements are continually evaluated and are based
on management experience and other factors, including expectations
of future events that are believed to be reasonable under the
circumstances.
Judgements
In the process of applying the Company's accounting policies,
management has made the following judgements, which have the most
significant effect on the amounts recognised in the financial
statements:
Assessment as an Investment Entity
IFRS 10 "Consolidated Financial Statements" sets out the
following 3 essential criteria that must be met, if a company is to
be considered as an Investment Entity:
1. it must obtain funds from multiple investors for the purpose
of providing those investors with investment management
services;
2. it must commit to its investors that its business purpose is
to invest funds solely for returns from capital appreciation,
investment income, or both; and
3. it must measure and evaluate the performance of substantially
all of its investments on a fair value basis.
In satisfying the second essential criteria, the notion of an
investment time frame is critical and an Investment Entity should
have an exit strategy for the realisation of its investments. Also
as set out in IFRS 10, further consideration should be given to the
typical characteristics of an Investment Entity, which are
that:
-- it should have more than one investment, to diversify the
risk portfolio and maximise returns;
-- it should have multiple investors, who pool their funds to
maximise investment opportunities;
-- it should have investors that are not related parties of the entity; and
-- it should have ownership interests in the form of equity or similar interests.
The Directors are of the opinion that the Company meets the
essential criteria and typical characteristics of an Investment
Entity. Therefore the SPVs are measured at fair value through
profit or loss, in accordance with IFRS 9 "Financial Instruments".
Fair value is measured in accordance with IFRS 13 "Fair Value
Measurement".
Assessment of the SPVs as structured entities
The Company considers the SPVs to be structured entities as
defined by IFRS 12 "Disclosure of Interests in Other Entities".
Transfer of funds by the SPVs to the Company is determined by the
Investment Manager. The risks associated with the Company's
investment in the SPVs are disclosed in note 15. The summarised
financial information for the Company's investment in the SPVs is
disclosed in note 4.
Estimates and assumptions
The area involving a high degree of judgement or complexity and
where assumptions and estimates are significant to the financial
statements has been identified as the risk of misstatement of the
valuation of the investments (see note 4). Revisions to accounting
estimates are recognised in the year in which the estimate is
revised and in any future years affected. The Board's determination
of whether a discount or premium should be applied to the net asset
value of the SPV involves a degree of judgement due to the nature
of the underlying investments and other assets and liabilities and
the valuation techniques and procedures adopted by the SPV.
The resulting accounting estimates will, by definition, seldom
equal the related actual results.
4. Investments at fair value through profit or loss
For the year ended For the period from
31 December 2020 11 March 2019 to
31 December 2019
Loans Equity Total Loans Equity Total
$'000 $'000 $'000 $'000 $'000 $'000
------------------------------- -------- ------- -------- ------- ------- -------------------------------
Opening balance 62,864 28,677 91,541 - - -
Additions - - - 62,100 27,900 90,000
Capitalised interest - - - 764 - 764
Repayment of capitalised
interest (764) - (764) - - -
Investment proceeds (2,051) (920) (2,971) - - -
Unrealised movement
in fair value of investments - 742 742 - 777 777
60,049 28,499 88,548 62,864 28,677 91,541
------------------------------- -------- ------- -------- ------- ------- -------------------------------
The Company's investment in its SPVs comprises a loan investment
and an equity investment, as set out above. The SPVs invest in a
diversified portfolio of direct and indirect investments in loans,
notes, bonds and other debt instruments.
Interest receivable on the loan investment at 31 December 2020
was $1,315k (2019: $1,485k) and the dividend receivable on the
equity investment at 31 December 2020 was $1,135k (31 December
2019: $nil). The total unfunded commitments of the Company as at 31
December 2020 is $4.2m (2019: $36.4m)
Reconciliation of investment income recognised in the year
For the period from
For the year ended 31 December 2020 11 March 2019 to 31 December 2019
$'000 $'000
------------------------------------------- ------------------------------------ -----------------------------------
Movement in loan interest receivable at
year/period end (170) 1,485
Loan interest received as cash 5,665 1,203
Capitalised loan interest - 764
------------------------------------------- ------------------------------------ -----------------------------------
Total loan interest recognised in the
year/period 5,495 3,452
Dividend income 2,965 -
Total investment income recognised in the
year/period 8,460 3,452
------------------------------------------- ------------------------------------ -----------------------------------
Total cash received in relation to interest income in the year
was $6,429k (2019: $1,203k). This comprises $5,665k (2019: $1,203k)
of loan interest recognised in the year and $764k (2019: $nil) of
amounts capitalised in the prior period.
Fair value measurements
IFRS 13 requires disclosure of fair value measurement by level.
The level of fair value hierarchy within the financial assets or
financial liabilities is determined on the basis of the lowest
level input that is significant to the fair value measurement.
Financial assets and financial liabilities are classified in their
entirety into only one of the following 3 levels:
-- Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities;
-- Level 2 - inputs other than quoted prices included within
Level 1 that are observable for the assets or liabilities, either
directly (i.e. as prices) or indirectly (i.e. derived from prices);
and
-- Level 3 - inputs for assets or liabilities that are not based
on observable market data (unobservable inputs).
The determination of what constitutes 'observable' requires
significant judgement by the Company. The Directors consider
observable data to be market data that is readily available,
regularly distributed or updated, reliable and verifiable, not
proprietary, and provided by independent sources that are actively
involved in the relevant market.
The only financial instruments held at fair value are the
instruments held by the Company in the SPVs, which are fair valued
at each reporting date. The Company's investments have been
classified within level 3 as the investments are not traded and
contain unobservable inputs. The Company's investments are all
considered to be level 3 assets.
Due to the nature of the investments, they are always expected
to be classified as level 3. There have been no transfers between
levels during the year (2019: none). Any transfers between the
levels would be accounted for on the last day of each financial
period.
Valuation methodology and process
The Directors base the fair value of investment in the SPVs on
the fair value of their assets and liabilities, adjusted if
necessary, to reflect liquidity, future commitments, and other
specific factors of the SPVs and Investment Manager. This is based
on the components within the SPVs, principally the value of the
SPVs' investments, in addition to cash and short-term money market
fixed deposits. Any fluctuation in the value of the SPVs'
investments held will directly impact on the value of the Company's
investment in the SPVs.
The SPVs' investments are valued using the techniques described
in the Company's valuation policy, as outlined in note 2. The
Investment Manager's assessment of fair value of investments held
by the SPVs is determined in accordance with IPEV Valuation
Guidelines. When valuing the SPVs' investments, the Investment
Manager reviews information provided by the underlying investee
companies and other business partners and applies IPEV
methodologies, to estimate a fair value as at the date of the
Statement of Financial Position.
Initially, acquisitions are valued at the price of recent
investment. Subsequently, and as appropriate, the Investment
Manager values the investments on a quarterly basis using common
industry valuation techniques, including comparable public market
valuation, comparable merger and acquisition transaction valuation
and discounted cash flow valuation. The techniques used in
determining the fair value of the Company's investments through its
SPVs are selected on an investment by investment basis so as to
maximise the use of market based observable inputs. As disclosed in
note 2, due to the illiquid and subjective nature of the Company's
underlying investments, the Investment Manager uses a third party
valuation provider to perform a full independent valuation of the
underlying investments.
Quantitative information of significant unobservable inputs -
Level 3 - SPV
31 December 2020 Valuation Unobservable Range / weighted
Description (unaudited) technique input average
$'000
------------- ----------------- ------------------------- ------------------------------- -----------------
SPV 88,548 Adjusted net asset value NAV $88,548k
Discount for lack of liquidity 0%
------------- ----------------- ------------------------- ------------------------------- -----------------
The Directors believe that it is appropriate to measure the SPVs
at their net asset value, incorporating a valuation of the
underlying investments which has taken into account risks to fair
value, inclusive of liquidity discounts, through appropriate
discount rates.
Sensitivity analysis to significant changes in unobservable
inputs within Level 3 hierarchy
The significant unobservable inputs used in the fair value
measurement categorised within Level 3 of the fair value hierarchy
together with a quantitative sensitivity analysis as at 31 December
2020 are as shown below:
Sensitivity Effect on
Description Input used fair value
$'000
------------- -------------------------------- ------------ -----------
SPV Discount for lack of liquidity +/- 3% -/+ 2,656
-------------- ------------------------------- ------------ -----------
The Company's valuation policy is compliant with both IFRS and
IPEV Valuation Guidelines and is applied consistently. As the
Company's investments are generally not publicly quoted, valuations
require meaningful judgment to establish a range of values, and the
ultimate value at which an investment is realised may differ from
its most recent valuation and the difference may be
significant.
For the year ended 31 December 2020, the valuations of the
Company's investments, through its SPVs, are detailed in the
Investment Manager's Report.
Fair value
Weighted sensitivity to a 100
Investment Investments at Fair Value as of Valuation Unobservable Average bps increase in the
Industry Type 31/12/2020 technique(s) input(s) Range (a) discount rate
$'000 Low High $'000
---------------- ------------ -------------------------------------- ------------- ------------- ----- ----- --------- ----------------------
Senior
Exploration & Secured Discounted Discount
Production Loans 20,757 cash flow rate 11% 15% 13% (149)
Senior
Secured Discounted Discount
Midstream Loans 31,320 cash flow rate 9% 20% 13% (369)
Public EBITDA
Equity 33 comparables multiple 6.5x 8.0x 7.3x
Senior
Infrastructure Secured Discounted Discount
Services Loans 15,366 cash flow rate 7% 19% 13% (197)
Equity Appraisal NA NA
Rights 268 value NA NA
Energy Senior NA NA NA
Transition Secured Latest round
Loans 3,367 of financing NA NA
71,111(b) (715)
(a) Calculated based on fair values. Weighted average is not
applicable for industry categories with only one investment.
(b) The difference between the fair value of the SPVs of
$88,548k and the fair value of the underlying investments at 31
December 2020 is due to cash balances of $19,228k and residual
liabilities of $1,791k, held within the SPVs.
The below table shows fair value sensitivities to a 100 BPS
increase in the discount rate used for each industry as at 31
December 2019.
Fair value
sensitivity to a
Investments at 100 BPS increase
Fair Value as of in the discount
31 December 2019 Valuation Unobservable rate
Industry $'000 technique(s) input(s) Weighted Average $'000
------------------- ------------------ ------------------ ------------------ ----------------- ------------------
Exploration & Discounted cash
Production 14,383 flow Discount rate 12% (621)
Discounted cash
Midstream 13,831 flow Discount rate 10% (402)
Discounted cash
Services 12,294 flow Discount rate 11% (456)
------------------- ------------------ ------------------ ------------------ ----------------- ------------------
40,508
The difference between the fair value of the SPVs of $91,541k
and the fair value of the underlying investments at 31 December
2019 is due to cash balances of $52,422k and residual liabilities
of $1,389k, held within the SPVs.
5. Unconsolidated subsidiaries
The following table shows subsidiaries of the Company. As the
Company is regarded as an Investment Entity as referred to in note
3, these subsidiaries have not been consolidated in the preparation
of the financial statements:
Ownership interest as at 31 Ownership interest as at 31
Investment Place of business December 2020 December 2019
------------------------------ ------------------- ------------------------------ ------------------------------
Held directly
Riverstone International
Credit Corp. USA 100% 100%
Riverstone International
Credit L.P. USA 100% 100%
Held indirectly
Riverstone International
Credit - Direct L.P. USA 100% 100%
------------------------------- ------------------ ------------------------------ ------------------------------
The registered office of the above subsidiaries is c/o The
Corporation Trust Company, Corporation Trust Center, 1209 Orange
Street, Wilmington, Delaware 19801.
The amounts invested in the Company's unconsolidated
subsidiaries during the year and their carrying value at 31
December 2020 are as outlined in note 4. This comprised $88,548,000
invested in Riverstone International Credit Corp. at 31 December
2020 (2019: $90,000,000), which was subsequently transferred to
Riverstone International Credit - Direct L.P. to fund underlying
investments. During the year, $22,109,000 was invested in
Riverstone International Credit L.P. to fund underlying
investments, and $22,109,000 was returned to the Company following
the realisation of its underlying investments. As at 31 December
2020, the amount invested in Riverstone International Credit L.P.
was $nil (2019: $nil). The Company intends to fund further
underlying investments through its unconsolidated subsidiaries.
There are no restrictions on the ability of the Company's
unconsolidated subsidiaries to transfer funds in the form of cash
dividends or repayment of loans.
6. Trade and other receivables
31 December 2020 31 December 2019
$'000 $'000
Prepayments 56 39
VAT receivable 26 41
Debtors 2 -
Bank interest receivable - 22
--------------------------- ----------------- -----------------
84 102
7. Trade and other payables
31 December 2020 31 December 2019
$'000 $'000
---------------------- ----------------- -----------------
Profit share payable 668 67
Other payables 258 259
926 326
8. Share capital
Capital Other
Issued and fully Number of shares redemption distributable
Date paid issued Share capital reserve reserves Total
---------- ------------------- ------------------- -------------- ------------------ ------------------ --------
GBP GBP'000 GBP'000 GBP'000 GBP'000
1 January 2020 1 - - - -
31 December 2020 1 - - - -
------------------------------- ------------------- -------------- ------------------ ------------------ --------
USD $'000 $'000 $'000 $'000
1 January 2020 100,000,000 1,000 - 97,000 98,000
Repurchase and cancellation of
Ordinary Shares (8,454,617) (85) 85 (5,821) (5,821)
-------------------------------
31 December 2020 91,545,383 915 85 91,179 92,179
------------------------------- ------------------- -------------- ------------------ ------------------ --------
On 11 March 2019, 1 E Share of GBP1 was allotted to Riverstone
Investment Group LLC and paid up in full to enable the Company to
obtain a certificate to commence business and to exercise its
borrowing powers under section 761 CA 2006. The E Share is not
redeemable and grants the registered holder the right to receive
notice of and to attend but, except where there are no other shares
of the Company in issue, not to speak or vote at any general
meeting of the Company.
As at 31 December 2020 the Company's issued share capital
comprises 91,545,383 Ordinary Shares (2019: 100,000,000) and 1 E
Share (2019: 1). Ordinary Shareholders are entitled to all
dividends paid by the Company and, on a winding up, provided the
Company has satisfied all of its liabilities, the Shareholders are
entitled to all of the surplus assets of the Company.
During the year, the Company repurchased 8,454,617 Ordinary
Shares as part of its buy-back programme. Further details regarding
the Company's purchase of its own shares are in the Chairman's
Statement above.
9. Retained earnings
For the year ended For the period from
31 December 2020 11 March 2019 to 31 December 2019
Revenue reserve Capital reserve Total Revenue reserve Capital reserve Total
$'000 $'000 $'000 $'000 $'000 $'000
---------------------------- ---------------- ---------------- -------- ---------------- ---------------- ------
Opening balance 2,574 777 3,351 - - -
Profit and total
comprehensive income in
the year/period 6,691 742 7,433 2,574 777 3,351
Interim dividends paid in
the year (7,433) - (7,433)
Closing balance 1,832 1,519 3,351 2,574 777 3,351
---------------------------- ---------------- ---------------- -------- ---------------- ---------------- ------
10. Audit fees
Other operating expenses include fees payable to the Company's
Auditor, which can be analysed as follows:
For the year ended For the period from
31 December 2020 11 March 2019 to 31 December 2019
$'000 $'000
-------------------------------------------------- ------------------- -----------------------------------
Fees to the Company's Auditor
for audit of the statutory financial statements 216 196
for other audit related services 27 26
for non-audit services 16 -
-------------------------------------------------- ------------------- -----------------------------------
259 222
In the prior period the Company's Auditor was paid $234k in
relation to work on the listing of the Company which is included in
share issue costs. During the year, the Auditor invoiced an amount
of $12k in relation to VAT services also provided during the
Company's listing in the prior period, which has been recognised as
a non-audit service expense in the current year.
Other fees paid to the Company's Auditor for other audit related
services of $27k were in relation to a review of the Interim Report
and fees paid for other non-audit services of $4k were in relation
to regulatory advisory services. As further disclosed in the Audit
and Risk Committee Report, Ernst & Young LLP reported an
independence breach during the year, occurring as a result of the
provision of prohibited non-audit services in relation to these
regulatory advisory services. Other than as noted above, the
services are non-recurring and permissible as non-audit
services.
11. Tax
As an investment trust, the Company is exempt from UK
corporation tax on capital gains arising on the disposal of shares.
Capital profits from its loan relationships are exempt from UK tax
where the profits are accounted for through the Capital column of
the Statement of Comprehensive Income, in accordance with the AIC
SORP.
The Company has made a streaming election to HMRC in respect of
distributions and is entitled to deduct interest distributions paid
out of income profits arising from its loan relationships in
computing its UK corporation tax liability. Therefore, no tax
liability has been recognised in the financial statements.
For the year ended For the period from
31 December 2020 11 March 2019 to 31 December 2019
Revenue Capital Total Revenue Capital Total
$'000 $'000 $'000 $'000 $'000 $'000
------------------------------------------------- -------- -------- ------ ------------- ------------- ---------
UK Corporation tax charge on profits for the - - - - - -
year / period at 19% (2019: 19%)
For the year ended For the period from
31 December 2020 11 March 2019 to 31 December 2019
Revenue Capital Total Revenue Capital Total
$'000 $'000 $'000 $'000 $'000 $'000
------------------------------------------------- -------- -------- ------ ------------- ------------- ---------
Return on ordinary activities before taxation 6,691 742 7,433 2,574 777 3,351
Profit on ordinary activities multiplied by
standard rate of corporation tax in the UK of
19% (2019: 19%) 1,271 141 1,412 489 148 637
Effects of:
Non-taxable investment gains on investments - (141) (141) - (148) (148)
Non-taxable dividend income (563) - (563) - - -
Tax deductible interest distributions (708) - (708) (489) - (489)
-------------------------------------------------
Total tax charge - - - - - -
As at 31 December 2020 the Company had no unprovided deferred
tax assets or liabilities. At that date, based on current estimates
and including the accumulation of net allowable losses, the Company
had no unrelieved losses.
Deferred tax is not provided on capital gains and losses arising
on the revaluation or disposal of investments because the Company
meets (and intends to continue to meet for the foreseeable future)
the conditions for approval as an Investment Trust company.
12. Profit Share
Under the Investment Management Agreement, the Investment
Manager will not charge any base or other ongoing management fees,
but will be entitled to reimbursement of reasonable expenses
incurred by it in the performance of its duties. The Investment
Manager will receive from the Company, a Profit Share based on the
Company's income, as calculated for UK tax purposes and the
Company's Capital Account. The Profit Share will be payable
quarterly at the same time as the Company pays its dividends,
subject to an annual reconciliation in the last quarter of each
year.
The amount payable in respect of the annual Profit Share will
be:
a) an amount equal to 20 percent of the amount by which the
Distributable Income exceeds an amount equal to 4 percent of the
Company's Capital Amount; plus
b) an additional amount equal to 10 percent of the amount by
which the Distributable Income exceeds an amount equal to 8 percent
of the Capital Amount.
The Capital Amount is equal to the gross proceeds of the issue
of Ordinary Shares at IPO, plus the net proceeds of any future
issues of Ordinary Shares, less any amounts expended by the Company
on share repurchases and redemptions or, following the option to be
given to Shareholders around the time of the Company's AGM in 2024
to elect to convert all or some of their shares into Realisation
Shares.
Annual reconciliation and cap
At the end of the Company's first full financial year ending 31
December 2020, and at the end of each subsequent financial year,
the Profit Share will undergo an annual reconciliation. In the
event that the annual reconciliation results in a reduction of the
aggregate Profit Share payable to the Investment Manager, the
Profit Share payable in the fourth quarter will be reduced to no
less than zero by the relevant amount, with any remaining reduction
carried forward to Profit Shares otherwise payable in respect of
future quarters. In addition, the amount payable to the Investment
Manager as a Profit Share in any year will be limited to a maximum
of 5 percent of the prevailing NAV.
Capital loss adjustment
If, in any financial year the Company suffers a capital loss
which (disregarding the impact of any dividends paid or payable by
the Company) causes the closing Net Asset Value per Ordinary Share
for the year to fall below the lower of: (a) US$1.00; or (b) the
closing Net Asset Value per Ordinary Share for the prior year, then
the amount of the Distributable Income for the year equal to the
amount by which the capital loss causes the Net Asset Value to fall
below that threshold amount will be ignored for the purposes of
calculating the Profit Share for that year. If the amount by which
the capital loss causes the Net Asset Value to fall below the
threshold amount is greater than the Distributable Income for the
year, then the amount of any excess will be carried forward to
following years until it is set off against Distributable Income in
full. The capital loss test will be applied as a part of the annual
reconciliation of the Profit Share.
Amounts paid or accrued as Profit Share during the year were
$668k (2019: $67k).
13. Earnings per share and Net assets per share
Earnings per share
For the year ended For the period from
31 December 2020 11 March 2019 to 31 December 2019
Revenue Capital Total Revenue Capital Total
------------------------- --------------- -------- ----------- ----------------------- ------------ ------------
Profit attributable to
equity holders of the
Company - $'000 6,691 742 7,433 2,574 777 3,351
Weighted average number
of Ordinary Shares in
issue 97,980,360 100,000,000
------------------------- --------------- -------- ----------- ----------------------- ------------ ------------
Basic and diluted
earnings per Share from
continuing operations
in the year / period
(cents) 6.83 0.76 7.59 2.57 0.78 3.35
------------------------- --------------- -------- ----------- ----------------------- ------------ ------------
There are no dilutive shares in issue.
There was no income earned on ordinary shares issued between 11
March 2019 and 28 May 2019, therefore this period has not been
included for the purpose of calculating the weighted average number
of shares above.
Net assets per share
31 December 2020 31 December 2019
---------------------------------- ----------------- -----------------
Net assets - $'000 95,530 101,351
Number of Ordinary Shares issued 91,545,383 100,000,000
----------------------------------- ----------------- -----------------
Net assets per Share (cents) 104.35 101.35
----------------------------------- ----------------- -----------------
14. Dividends declared with respect to the year
Dividend per share Total dividend
Interim dividends paid during the year ended 31 December 2020 cents $'000
-------------------------------------------------------------------- ------------------------------- ---------------
With respect to the period ended 31 December 2019 2.57 2,570
With respect to the quarter ended 31 March 2020 1.80 1,751
With respect to the quarter ended 30 June 2020 1.80 1,751
With respect to the quarter ended 30 September 2020 1.40 1,361
-------------------------------------------------------------------- ------------------------------- ---------------
7.57 7,433
-------------------------------------------------------------------- ------------------------------- ---------------
Dividend per share Total dividend
Interim dividends declared after 31 December 2020 and not accrued cents $'000
in the year
-------------------------------------------------------------------- ------------------------------- ---------------
With respect to the quarter ended 31 December 2020 2.00 1,831
-------------------------------------------------------------------- ------------------------------- ---------------
On 17 February 2021, the Board approved a dividend of 2.0 cents
per share with respect to the quarter ended 31 December 2020. The
record date for the dividend is 26 February 2021 and the payment
date is 26 March 2021.
On 27 March 2020, the Company paid its first dividend with
respect to the period ended 31 December 2019. Therefore comparative
information for this note is not relevant
15. Financial risk management
Financial risk management objectives
The Company's investing activities, through its investment in
the SPVs, intentionally expose it to various types of risks that
are associated with the underlying investee companies of the SPVs.
The Company makes the investment in order to generate returns in
accordance with its investment policy and objectives.
The most important types of financial risks to which the Company
is exposed are market risk (including price, interest rate and
foreign currency risk), liquidity risk and credit risk. The Board
of Directors has overall responsibility for the determination of
the Company's risk management and sets policy to manage that risk
at an acceptable level to achieve those objectives. The policy and
process for measuring and mitigating each of the main risks are
described below.
The Investment Manager and the Administrator provide advice to
the Company which allows it to monitor and manage financial risks
relating to its operations through internal risk reports which
analyse exposures by degree and magnitude of risks. The Investment
Manager and the Administrator report to the Board on a quarterly
basis.
Categories of financial instruments
31 December 2020 31 December 2019
$'000 $'000
-------------------------------------------------- ----------------- -----------------
Financial assets
Investment at fair value through profit or loss:
Investment in the SPVs 88,548 91,541
Other financial assets:
Cash and cash equivalents 5,374 8,549
Loan interest receivable 1,315 1,485
Dividends receivable 1,135 -
Trade and other receivables 84 102
Financial liabilities
Financial liabilities:
Trade and other payables (926) (326)
-------------------------------------------------- ----------------- -----------------
Capital risk management
The Company manages its capital to ensure that it will be able
to continue as a going concern while maximising the capital return
to Shareholders. The capital structure of the Company consists of
issued share capital, retained earnings and other distributable
reserves, as stated in the Statement of Financial Position.
In order to maintain or adjust the capital structure, the
Company may buy back shares or issue new shares. There are no
external capital requirements imposed on the Company.
During the year ended 31 December 2020, the Company had no
borrowings (2019: $nil).
The Company's investment policy is set out in the Strategic
Report.
Market risk
Market risk includes price risk, foreign currency risk and
interest rate risk.
a) Price risk
The underlying investments held by the SPVs present a potential
risk of loss of capital to the SPVs and hence to the Company. The
Company invests through the SPVs and as outlined in note 4,
investments in the SPVs are in the form of senior loans and equity
with protective provisions in place. Price risk arises from
uncertainty about future prices of underlying financial investments
held by the SPVs. As at 31 December 2020, the fair value of
investments was $88,548k (2019: $91,541k) and a 3 percent increase
/ (decrease) (2019: 3 percent) in the price of investments with all
other variables held constant would result in a change to the fair
value of investments of + / - $2,656 (2019: $2,746k). A change in
interest rates could have an impact on the price risk associated
with the underlying investee companies, which is factored into the
fair value of investments. Please refer to note 4 for quantitative
information about the fair value measurements of the Company's
Level 3 investments.
The SPVs are exposed to a variety of risks which may have an
impact on the carrying value of the Company's investments. The
SPVs' risk factors are set out in (a)(i) to (a)(iii) below.
i. Not actively traded
The SPVs' investments are not generally traded in an active
market but are indirectly exposed to market price risk arising from
uncertainties about future values of the investments held. The
underlying investments of the SPVs vary as to industry sub-sector,
geographic distribution of operations and size, all of which may
impact the susceptibility of their valuation to uncertainty.
ii. Concentration
The Company, through the SPVs, invests in the energy sector,
with a particular focus on businesses that engage in oil and gas
E&P and midstream investments in that sector. This means that
the Company is exposed to the concentration risk of only making
investments in the energy sector, which concentration risk may
further relate to sub-sector, geography, and the relative size of
an investment or other factors. Whilst the Company is subject to
the investment and diversification restrictions in its investment
policy, within those limits, material concentrations of investments
may arise.
Although the investments are in the same industry, this risk is
managed through careful selection of investments within the
specified limits of the investment policy. The investments are
monitored on a regular basis by the Investment Manager.
The Board and the Investment Manager monitor the concentration
of the investment in the SPVs on a quarterly basis to ensure
compliance with the investment policy.
iii. Liquidity
The Company's liquidity risk lies with its SPVs as the amount of
cash invested through the SPVs in the underlying investments is
dynamic in nature. The SPVs will maintain flexibility in funding by
keeping sufficient liquidity in cash and cash equivalents, which
may be invested on a temporary basis in line with the cash
management policy as agreed by the Board from time to time.
As at 31 December 2020, $19.2 million or 16.4 percent (2019:
$52.4 million or 57.4 percent) of the SPVs' financial assets, were
money market fixed deposits and cash balances held on deposit with
several A- or higher rated banks.
b) Foreign currency risk
The Company has exposure to foreign currency risk due to the
payment of some expenses in Pounds Sterling. Consequently, the
Company is exposed to risks that the exchange rate of its currency
relative to other foreign currencies may change in a manner that
has an adverse effect on the value of that portion of the Company's
assets or liabilities denominated in currencies other than the US
Dollar. Any exposure to foreign currency risk at the underlying
investment level is captured within price risk.
The following table sets out, in US Dollars, the Company'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 $ GBP Total
$'000 $'000 $'000
-------------------------------------------------- ------- ------ -------
Non-current assets
Investments at fair value through profit or loss 88,548 - 88,548
-------------------------------------------------- ------- ------ -------
Total-non current assets 88,548 - 88,548
Current assets
Loan interest receivable 1,315 - 1,315
Dividends receivable 1,135 - 1,135
Trade and other receivables 58 26 84
Cash and cash equivalents 5,374 - 5,374
-------------------------------------------------- ------- ------ -------
Total current assets 7,882 26 7,908
Current liabilities
Trade and other payables (921) (5) (926)
-------------------------------------------------- ------- ------ -------
Total current liabilities (921) (5) (926)
Total net assets 95,509 21 95,530
-------------------------------------------------- ------- ------ -------
As at 31 December 2019 $ GBP Total
$'000 $'000 $'000
-------------------------------------------------- -------- ------ --------
Non-current assets
Investments at fair value through profit or loss 91,541 - 91,541
-------------------------------------------------- -------- ------ --------
Total-non current assets 91,541 - 91,541
Current assets
Loan interest receivable 1,485 - 1,485
Trade and other receivables 61 41 102
Cash and cash equivalents 8,549 - 8,549
-------------------------------------------------- -------- ------ --------
Total current assets 10,095 41 10,136
Current liabilities
Trade and other payables (320) (6) (326)
-------------------------------------------------- -------- ------ --------
Total current liabilities (320) (6) (326)
Total net assets 101,316 35 101,351
-------------------------------------------------- -------- ------ --------
The Directors do not consider that the foreign currency exchange
risk at the balance sheet date is material and therefore
sensitivity analysis for the foreign currency risk has not been
provided.
c) Interest rate risk
The Company's exposure to interest rate risk relates to the
Company's cash and cash equivalents held directly and through the
Company's SPVs. The Company is subject to risk due to fluctuations
in the prevailing levels of market interest rates. Any excess cash
and cash equivalents are invested at short-term market interest
rates. As at the date of the Statement of Financial Position, the
majority of the Company's cash and cash equivalents were held on
interest bearing fixed deposit accounts at the SPVs. Any exposure
to interest rate risk at the underlying investment level is
captured within price risk.
The Company has no other interest-bearing assets or liabilities
as at the reporting date. As a consequence, the Company is only
exposed to variable market interest rate risk. As at 31 December
2020, cash balance held by the Company (including cash held at the
SPVs) was $24.6 million (2019: $61.0 million). A 0.5 percent
(2019:0.5 percent) increase / (decrease) in interest rates with all
other variables held constant would result in a change to interest
received of + / - $123,011 (2019: $304,855) per annum.
Liquidity risk
Ultimate responsibility for liquidity risk management rests with
the Board of Directors.
Liquidity risk is defined as the risk that the Company may not
be able to settle or meet its obligations on time or at a
reasonable price. The Company's liabilities are made up of
estimated accruals and trade creditors which are due to be settled
within 3 months of the year end.
The Company adopts a prudent approach to liquidity management
and through the preparation of budgets and cash flow forecasts
maintains sufficient cash reserves to meet its obligations.
Credit risk
Credit risk refers to the risk that a counterparty will default
on its contractual obligations resulting in financial loss to the
Company. Any exposure to credit risk at the underlying investment
level is captured within price risk.
The carrying value of the investment in the SPVs as at 31
December 2020 was $88.5 million (2019: $91.5 million).
Financial assets mainly consist of cash and cash equivalents and
investments at fair value through profit or loss. The Company's
risk on liquid funds is reduced because it can only deposit monies
with institutions with a minimum credit rating of "A-". The Company
mitigates its credit risk exposure on its investments at fair value
through profit or loss by the exercise of due diligence on the
counterparties of the SPVs and the Investment Manager.
The table below shows the material cash balances and the credit
rating for the counterparties used at the year/period end date:
31 December 2020 31 December 2019
Location Rating $'000 Location Rating $'000
--------------------- ---------- -------- ----------------- --------- ------- -----------------
Counterparty
JPMorgan Chase Bank USA A- 5,374 USA A- 8,549
--------------------- ---------- -------- ----------------- --------- ------- -----------------
The Company's maximum exposure to loss of capital at the
year/period end is shown below:
Carrying value and maximum exposure
31 December 2020 31 December 2019
$'000 $'000
-------------------------------------------------------------------------------- ----------------- -----------------
31 December 2020
Investment at fair value through profit or loss
Investments in the SPVs 88,548 91,541
Other financial assets (including cash and equivalents but excluding
prepayments) 7,852 10,097
-------------------------------------------------------------------------------- ----------------- -----------------
Gearing
As at the date of these financial statements the Company has no
gearing (2019: none).
16. Related party transactions
Directors
The Company has three non-executive Directors. Directors' fees
for the year ended 31 December 2020 amounted to $152k (2019:
$115k), of which $nil was outstanding at year end (2019: $nil).
Amounts paid to Directors as reimbursement of travel and other
incidental expenses during the year amounted to $12k (2019: $50k),
of which $nil was outstanding at year end (2019: $nil).
SPVs
During the previous period, the Company provided a loan to the
US Corp. of $62,100,000, which accrues interest at 9.27 percent.
Any interest that is unable to be repaid at each quarter end is
capitalised and added to the loan balance. Total interest in
relation to the year was $5,495,248 (2019: $3,451,691) of which
$5,664,890 was received in cash (2019: $1,202,785), $nil was
capitalised (2019: $764,200) and $1,315,064 remained outstanding at
31 December 2020 and received on 19 January 2021 (31 December 2019:
$1,485,000 outstanding, received on 10 January 2020). During the
year, $764,200 (2019: $nil) of previously capitalised interest was
repaid and the balance on the loan investment at 31 December 2020
was $60,049,295 (2019: $62,864,200).
The Company's other investments in its SPVs are made via equity
shareholdings as disclosed in note 4.
Investment Manager
The Investment Manager is an affiliate of Riverstone and
provides advice to the Company on the origination and completion of
new investments, the management of the portfolio and on
realisations, as well as on funding requirements, subject to Board
approval. For the provision of services under the Investment
Management Agreement, the Investment Manager earns a Profit Share,
as detailed in note 12. The Investment Manager is entitled to
reimbursement of any reasonable expenses incurred in relation to
management of the Company and amounts reimbursed during the year
were $115k (2019: $128k).
17 Ultimate controlling party
In the opinion of the Board, on the basis of the shareholdings
advised to them, the Company has no ultimate controlling party.
18 Subsequent events
There are no other significant subsequent events.
Glossary of Capitalised Defined Terms
Administrator means Ocorian Administration UK Limited
Admission means admission of the Ordinary Shares on 28 May 2019,
to the Official List and/or admission to trading on the Specialist
Fund Segment of the London Stock Exchange, as the context may
require
AGM means Annual General Meeting
AIC means the Association of Investment Companies
AIC Code means the AIC Code of Corporate Governance
AIC SORP means the Statement of Recommended Practice issued by
the AIC in November 2014 and updated in January 2017 for the
Financial Statements of Investment Trust Companies and Venture
Capital Trusts
Annual Report means the Company's yearly report and financial
statements for the year ending 31 December 2020
Auditor means Ernst & Young LLP or EY
Board means the Directors of the Company
Borrower means entities operating in the energy sector that
issue loans, notes, bonds, and other debt instruments including
convertible debt
CA means the Companies Act 2006 which forms the primary source
of UK company law
Capital Amount means the amount of gross proceeds of the IPO,
plus the net proceeds of any future issues of Ordinary Shares, less
any amounts expended by the Company on share repurchases and
redemptions or, following a Realisation Election, attributable to
Realisation Shares
Company or RCOI means Riverstone Credit Opportunities Income
Plc
D&C means drilling and completion
Directors means the Directors of the Company
Distributable Income means the Company's income, as calculated
for UK tax purposes
DTR means the Disclosure Guidance and Transparency Rules
sourcebook issued by the Financial Conduct Authority
E&P means exploration and production
FCA means the UK Financial Conduct Authority (or its successor
bodies)
IFRS means the International Financial Reporting Standards,
being the principles-based accounting standards, interpretations
and the framework by that name issued by the International
Accounting Standards Board, as adopted by the EU
Investment Management Agreement means the Investment Management
Agreement entered into between the Investment Manager and the
Company
Investment Manager means Riverstone Investment Group LLC
IPEV Valuation Guidelines means the International Private Equity
and Venture Capital Valuation Guidelines
IPO means the initial public offering of shares by a private
company to the public
Listing Rules means the listing rules made by the UK Listing
Authority under Section 73A of the Financial Services and Markets
Act 2000
London Stock Exchange or LSE means London Stock Exchange plc
Main Market means the main market of the London Stock
Exchange
MOIC mean multiple on invested capital
NAV or Net Asset Value means the value of the assets of the
Company less its liabilities as calculated in accordance with the
Company's valuation policy and expressed in US dollars
Ordinary Shares means ordinary shares of $0.01 in the capital of
the Company issued and designated as "Ordinary Shares" and having
the rights, restrictions and entitlements set out in the Company's
articles of incorporation
Other Riverstone Funds means other Riverstone-sponsored,
controlled or managed entities, which are or may in the future be
managed or advised by the Investment Manager or one or more of its
affiliates, excluding the SPV
PIK means payment in kind
Profit Share means the payments to which the Investment Manager
is entitled in the circumstances and as described in the notes to
the financial statements
RBL means reserved base loan
RCP means Riverstone Credit Partners
Realisation Shares means realisation shares of US$0.01 in the
capital of the Company, as defined in the prospectus
SPV means any intermediate holding or investing entities that
the Company may establish from time to time for the purposes of
efficient portfolio management and to assist with tax planning
generally and any subsidiary undertaking of the Company from time
to time
Specialist Fund Segment means the Specialist Fund Segment of the
London Stock Exchange's Main Market
UK or United Kingdom means the United Kingdom of Great Britain
and Northern Ireland
UK Code means the UK Corporate Governance Code issued by the
FRC
US or United States means the United States of America, its
territories and possessions, any state of the United States and the
District of Columbia
US Corp. means Riverstone International Credit Corp.
Directors and General Information
Directors
Reuben Jeffery, III (Chairman) (appointed 2 April 2019)
Emma Davies (Audit and Risk Committee Chair) (appointed 2
April 2019)
Edward Cumming-Bruce (Nomination Committee Chair) (appointed
2 April 2019)
all independent and of the registered office below
Registered Office Website: www.riverstonecoi.com
27-28 Eastcastle Street ISIN GB00BJHPS390
London Ticker RCOI
W1W 8DH Sedol BJHPS39
Registered Company Number
11874946
Investment Manager Registrar
Riverstone Investment Group LLC Link Asset Services
c/o The Corporation Trust Company The Registry
Corporation Trust Center 34 Beckenham Road
1209 Orange Street Beckenham
Wilmington Kent
Delaware 19801 BR3 4TU
Company Secretary and Administrator Sole Bookrunner
Ocorian Administration (UK) Limited J.P. Morgan Securities plc
27/28 Eastcastle Street 25 Bank Street
London Canary Wharf
W1W 8DH London
E14 5JP
Independent Auditor Receiving Agent
Ernst & Young LLP Link Asset Services
25 Churchill Place Corporate Actions
London The Registry
E14 5EY 34 Beckenham Road
Beckenham
Kent
Legal Adviser to the Company BR3 4TU
Hogan Lovells LLP
Atlantic House
50 Holborn Viaduct
London
EC1A 2FG
Principal Banker and Custodian
J.P. Morgan Chase Bank, N.A.
270 Park Avenue
New York
NY 10017-2014
Cautionary Statement
The Chairman's Statement and Investment Manager's Report have
been prepared solely to provide additional information for
Shareholders to assess the Company's strategies and the potential
for those strategies to succeed. These should not be relied on by
any other party or for any other purpose.
The Chairman's Statement and Investment Manager's Report may
include statements that are, or may be deemed to be,
"forward-looking statements". 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.
These forward-looking statements include all matters that are
not historical facts. They appear in a number of places throughout
this document and include statements regarding the intentions,
beliefs or current expectations of the Directors and the Investment
Manager, concerning, amongst other things, the investment
objectives and investment policy, financing strategies, investment
performance, results of operations, financial condition, liquidity,
prospects, and distribution policy of the Company and the markets
in which it invests.
By their nature, forward-looking statements involve risks and
uncertainties because they relate to events and depend on
circumstances that may or may not occur in the future.
Forward-looking statements are not guarantees of future
performance.
The Company's actual investment performance, results of
operations, financial condition, liquidity, distribution policy and
the development of its financing strategies may differ materially
from the impression created by the forward-looking statements
contained in this document.
Subject to their legal and regulatory obligations, the Directors
and the Investment Manager expressly disclaim any obligations to
update or revise any forward-looking statement contained herein to
reflect any change in expectations with regard thereto or any
change in events, conditions or circumstances on which any
statement is based.
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Policy.
END
FR SFUEFWEFSEIE
(END) Dow Jones Newswires
February 18, 2021 02:00 ET (07:00 GMT)
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