TIDMCIFU
RNS Number : 5646D
Carador Income Fund PLC
27 April 2017
RNS Announcement
Carador Income Fund plc
27 April 2017
FOR IMMEDIATE RELEASE
ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE FINANCIAL
YEARED 31 DECEMBER 2016
NOT FOR RELEASE, DISTRIBUTION OR PUBLICATION DIRECTLY, OR
INDIRECTLY, TO U.S. PERSONS OR IN THE UNITED STATES, AUSTRALIA,
CANADA OR JAPAN.
A copy of the Company's Annual Report and Audited Financial
Statements for the year ended 31 December 2016 as set out below,
will be posted to the shareholders of the Company and will shortly
be available on the Company's website http://www.carador.co.uk
CARADOR: INVESTMENT OBJECTIVE
The investment objective of Carador Income Fund PLC (the
"Company" or "Carador") is to produce attractive and stable
returns, with low volatility compared to equity markets, by
investing in a diversified portfolio of senior notes of
collateralised loan obligations ("CLOs"), collateralised by senior
secured bank loans and equity and mezzanine tranches of CLOs.
The Company's shares have a listing on the premium segment of
the Official List of the UK Listing Authority and are admitted to
trading on the Main Market of the London Stock Exchange
("LSE").
CHAIRMAN'S REPORT
Performance
I am pleased to present the Annual Report and Accounts for the
Company for the financial year ended 31 December 2016.
Surprising political developments did little to discourage the
equity and credit markets from reaching new highs, and credit
markets recording the best annual returns in over a half
decade.([1]) The biggest political story was the U.S. presidential
election in which Donald Trump defeated a better-financed and
heavily-favoured Hillary Clinton. Similar to the Brexit vote, the
market's initial reaction was negative, though the sell-off was
short lived. Investors have judged the incoming administration to
be business friendly and markets promptly reversed course. It
remains to be seen whether "Trumponomics" will overcome the
low-inflation, low-growth period the U.S. has been stuck in, but
deregulation and fiscal expansion should be supportive of growth.
While the markets are responding in the affirmative, the U.S. still
faces the headwinds of ageing demographics, declining productivity
gains and a stronger dollar.
Performance was strong across the board in the credit markets.
Senior loans returned 9.88%, registering the best year since 2010.
High yield bonds outperformed senior loans, returning 18.37% - the
asset class's best year since 2009. Senior loans rated below B-,
including defaulted credits, gained 26.79% last year. Metals &
mining loans soared 39.46% to lead all sectors, followed closely by
the energy sector, which gained 37.22%.(1) U.S. CLOs ended the year
strong with BB and B post-crisis tranches returning 21.73% and
23.61%, respectively, and average equity prices gaining 13.53%.[2]
The risk-on trade clearly rewarded investors in 2016.
The European speculative-grade markets closed 2016 on a solid
note but lagged their U.S. counterparts. European loans gained
6.52% and European high yield bonds returned 9.63% over the year.
Despite the region's underperformance, returns have been remarkably
consistent with the U.S.(1)
During the 12-month period, the Company generated a total NAV
return of 22.67%, including dividends.[3]
The Company's shares closed 2016 at US$0.7163, a 7.73% discount
to the NAV at 31 December 2016. The annualised dividend yield based
on the last four declared dividends was 13.26%.(3)
US$ Share Quarterly Performance Based on Declared
Dividends.(3)
Start Declared Dividend Quarterly
NAV End NAV for the Quarter Total NAV
Quarter US$ US$ US$ Return %
---------- --------- --------- ------------------ ------------
Q1 2016 $0.7231 $0.6576 $0.0225 -5.95%
Q2 2016 $0.6576 $0.6908 $0.0225 8.47%
Q3 2016 $0.6908 $0.7466 $0.0225 11.33%
Q4 2016 $0.7466 $0.7763 $0.0275 7.66%
Cash Flow and Dividends
In January 2016, the Board announced a target annual dividend of
$0.090 per share for the year to be distributed evenly in four
quarterly payments. It was also anticipated that a higher dividend
could be achieved.
Cash Flow and Dividends (continued)
The Company generated an estimated total net income of $0.0982
per share for the period from 1 January 2016 to 31 December 2016
and the Board declared total dividends of $0.0950 per share for the
year. The Company also generated an estimated income reserve of
$0.0032 per share for the year. Since 2013, the Company has
accumulated approximately $9.9 million of undistributed net income
that has been reinvested.
On the basis of current market conditions, the Directors have
announced a dividend target for 2017 of $0.090 per share to be
distributed evenly in four quarterly payments. Dividends are
expected to be covered from net cashflows (after reinvestment of a
proportion of the cashflows from Income Notes in accordance with
the Company's investment policy).
To the extent estimated income in excess of $0.090 is required
to be distributed for the financial year to 31 December 2017 to
enable the Company to continue to meet the 85% income distribution
requirement to be treated as an excluded security under the rules
on Non Mainstream Pooled Investments, such income would be included
in the dividend for the fourth quarter period in 2017.
Annual Declared Dividends per US$ Share and Net Cashflow
Coverage of Net Income.
Dividend Net Cashflow
Year Declared Cover
------- --------- ------------
2009 7.0c 1.85x
2010 7.2c 1.46x
2011 11.3c 1.48x
2012 14.8c 1.48x
2013 13.1c 1.19x
2014 10.0c 1.10x
2015 10.0c 1.34x
2016 9.5c 1.41x
Material Events
On 22 April 2016, the Company released its Annual Financial
Report and Accounts for the twelve months ended 31 December
2015.
At the annual general meeting ("the AGM") of the Company held on
22 June 2016, shareholders approved the following ordinary and
special resolutions:
Ordinary Resolutions
1. Receipt and consideration of the Directors' report and the
financial statements of the Company for the financial year ended 31
December 2015 and the report of the auditors thereon;
2. Re-appointment of KPMG as auditors of the Company;
3. Authorisation of the Directors to fix the remuneration of the
auditors of the Company;
4. Re-election of Edward D'Alelio as a Director of the
Company;
5. Re-election of Werner Schwanberg as a Director of the
Company;
6. Re-election of Fergus Sheridan as a Director of the
Company;
7. Re-election of Adrian Waters as a Director of the Company;
and
8. Authorisation of the Board to allot and issue up to
54,325,334 shares (or, if lower, such number of shares as represent
10 per cent of the shares of the Company in issue at the date of
the AGM), such authority to expire at the conclusion of the next
annual general meeting of the Company unless previously renewed,
varied or revoked by the Company in general meeting.
Special Resolutions
9. Authorisation of the Board to allot and issue up to
54,325,334 shares (or, if lower, such number of shares as represent
10 per cent of the shares in issue at the date of the AGM) without
having previously to offer such shares to shareholders of the
Company on a pre-emptive basis, such authority to expire at the
conclusion of the next annual general meeting of the Company unless
previously renewed, varied or revoked by the Company in general
meeting.
10. Adoption of the new objects clauses presented at the annual
general meeting as the objects clauses of the Company to the
exclusion of all existing objects clauses and the adoption of the
constitution of the Company presented at the annual general meeting
to the exclusion of the existing memorandum and articles of
association of the Company.
Material Events (continued)
On 26 August 2016, the Company announced its Unaudited Interim
Results for the period ended 30 June 2016. The Company amended this
announcement to incorporate minor changes on 30 August 2016.
On 30 November 2016, the Company announced that the Directors
will consider whether or not to offer shareholders potential
redemption opportunities on a more frequent basis than as set out
in the articles of association of the Company (the "Articles"). The
Articles provide for circumstances where the directors have a
discretion to offer redemption opportunities to shareholders every
five years. Going forward, the Directors intend to consider every
two and a half years whether to put an ordinary resolution to
shareholders to approve a redemption opportunity for up to 100 per
cent of the shares in issue, subject to any necessary changes to
the Articles being approved. Any such redemption opportunities
would be made available at the Directors' discretion and would be
implemented through the creation of a repurchase pool.
Outlook
We enter 2017 with optimism, though we continue to anticipate
volatility given uncertain political conditions, full valuations
and a steady removal of monetary support. Overall, non-commodity
corporate fundamentals remain mostly healthy. However, with over
70% of loans trading at par or higher, the arbitrage of CLO primary
issues has become very tight. This augurs well for the refinancing
or resetting of certain of the Company's investments, as a lower
cost of funding can help offset spread tightening on underlying CLO
portfolios.
As a result of US risk retention rules becoming effective in
December 2016, the number of managers issuing new CLOs has
declined. However, managers with larger platforms are likely to
continue to be active in the CLO space and we don't expect a
meaningful drop in the US CLO supply for 2017.
The portfolio attributable to the Company was, as of 31 December
2016, 71.7% invested in Income Notes, 24.5% in Mezzanine Notes and
3.8% in cash or cash equivalents. GSO / Blackstone Debt Funds
Management LLC (the "Investment Manager") believes that this
portfolio allocation supports the current dividend policy and
future NAV growth.
Werner Schwanberg
Chairman
26 April 2017
INVESTMENT MANAGER'S REVIEW
For the twelve month period ended 31 December 2016
We are pleased to present our review of 2016 and our outlook for
2017. Some highlights include:
-- declared dividend income of $0.095 per share equivalent to a
historic dividend yield of 13.26% based on the last four declared
dividends;[4]
-- the portfolio's Income Note investments continue to deliver
strong performance with robust cashflow generation, enabling the
Company to increase its dividend per share for 2016 above the
target annual dividend of $0.090 per share;
-- the NAV total return was 22.67% over the year, outperforming
the Credit Suisse Leveraged Loan Index by 12.79% and the Credit
Suisse High Yield Bond Index by 4.3%;[5]
-- the portfolio has been actively traded during the year with
over $156 million invested in long-dated Income Notes and $148
million sold as the portfolio transitioned out of short-dated CLO
Income Notes and low-yielding pre-crisis CLO debt; and
-- as of the year-end, the portfolio NAV comprised 74.9% of
Income Notes, of which 99.3% were post-crisis and 25.1% of
Mezzanine Notes, of which 100% were post-crisis. All the existing
pre-crisis Income Notes in the portfolio had been called and were
almost fully repaid.
Bank Loan Market Overview
The senior loan market enjoyed an overwhelmingly strong
technical backdrop. With record CLO issuance, the first sustained
retail inflows in nearly three years and persistent international
institutional interest, demand for loans is at a multi-year high.
Net loan issuance, however, remains muted and exacerbates the
technical imbalance. Gross issuance of senior loans reached a
3-year high of $485 billion during 2016, but nearly two-thirds of
issuance was applied to repricing or refinancing
transactions.[6]
Senior loan valuations continued their upward trend. The average
price of the Credit Suisse Leveraged Loan Index ("CS Loan Index")
rose to a 19-month high of $97.18 ($97.68 excluding defaults) at
the end of December from $91.43 at 31 December 2015 ($93.18
excluding defaults). More importantly for the loan market, at year
end, roughly 70% of outstanding loans traded above par and were at
risk of repricing due to the lack of call protection inherent in
the asset class. During 2016, the discount margin (3-year life)
narrowed to 461bp from 643bp, dropping below 500bp for the first
time since the summer of 2014.[7]
Speculative grade default rates fell to the lowest level since
March 2014. JP Morgan strategists report the par-weighted loan
default rate closed the year at 1.5% from 1.7% at the end of 2015.
Excluding commodities, the loan default rate fell to 0.5%.(6)
CLO Market Overview
With an impressive end to the year, global CLO issuance
surpassed 2016 issuance projections. The U.S. market saw $72
billion of issuance through 156 CLOs, versus 2015's $97.9 billion
through 191 CLOs. In Europe, CLO managers issued EUR16.8 billion
through 41 transactions, which not only surpassed the EUR13.6
billion / 33 deals issued in 2015 but also represented the third
highest year of issuance since 2001.(8) Strategists anticipate 2017
CLO issuance to remain in line with 2016 and generally forecast
$50-75 billion of issuance in the U.S. and EUR15-20 billion in
Europe.
In addition to primary issuance, the CLO market was vigorously
working to refinance and reset outstanding deals. During 2016,
refinancing / reset volume totalled $42.4 billion in the U.S. and
EUR3.6 billion in Europe. This compares to 2015's totals of $10.2
billion in the U.S. and EUR0.3 billion in Europe. Activity was
heavily weighted to the fourth quarter, when 77% of U.S. and 92% of
European transactions occurred.[8]
CLO Market Overview (continued)
CLO liability costs generally tightened across both the U.S. and
European primary market throughout the year. New issue AAA spreads
reached Libor+141bp in the U.S. and Euribor+96bp in Europe by
year-end.[9] In the secondary market, CLO equity valuations
increased significantly with the average U.S. CLO post-crisis
equity price gaining 135% and average European post-crisis equity
up 8.8% in 2016.[10] Discount Margins ("DMs") also tightened
globally across the capital structure, with both U.S. and European
post-crisis CLO debt tranches trading at or near their 52-week lows
by the end of 2016.[11]
Portfolio Update
Carador ended the year with a total of 63 different investments
across 53 CLOs managed by 17 different investment managers. This
represents a look-through exposure to approximately 1,080
individual corporates. The exposure is, however, concentrated in a
smaller number of larger issuers, as the table below illustrate,
with 326 of those companies accounting for 75% of the Carador
portfolio.
Look-Through Loan Exposure
Number of Issuers % Exposure
----------------- ----------
51 25%
149 50%
326 75%
545 90%
1,082 100%
The portfolio has been actively traded, taking advantage of the
rally during the last part of the year to reduce exposure to more
risky assets. As of year-end, Carador's oil and gas exposure was
less than 1.3% on a look-through basis of CLO Income Notes, versus
2.7% exposure in January.
As per the below table, Carador sold $147.9 million notional
mostly from short-dated CLO equities and low-yielding pre-crisis
CLO debt and bought $156.9 million notional of longer dated CLO
equities focused on top-tier managers. We believe that investing in
top-tier managers, with sufficient depth of resources, has become
increasingly important after the implementation of U.S. risk
retention requirements in December 2016. We also believe that
larger manager groups often attract a lower cost of CLO finance and
they tend to see a better refinancing or reset opportunities.
Trading Activity
2016 Par (US$) 2.0 Equity 2.0 B (US$) 1.0 BB (US$)
(US$)
----- -------------------- --------------------- ------------------------------ ----------------------------
Buy 156,857,776 156,857,776 - -
Sell 147,950,000 98,800,000 12,850,000 36,300,000
The Company was largely focused on secondary opportunities
throughout the first three quarters of 2016. However, Carador
opportunistically added primary issues as a result of the
availability of attractive arbitrage as top-tier CLO managers were
motivated to print deals before the U.S. risk retention rules were
implemented.
As at 31 December 2016 the portfolio breakdown by CLO 1.0, CLO
2.0, Income Notes and Mezzanine Notes was as follows:
Investment Type % of December 2016
NAV
--------------------------- -------------------
CLO 1.0 Mezzanine Notes 0.00%
CLO 2.0 Mezzanine Notes 24.49%
CLO 1.0 Income Notes 0.49%*
CLO 2.0 Income Notes 71.25%
Cash and Cash Equivalents 3.78%
* All the existing pre-crisis Income Notes in the portfolio have
been called and are almost fully repaid.
Trading Activity (continued)
As at 31 December 2016, the Company's largest exposures to loan
managers were as follows:
% of % of
Rank Manager Portfolio Rank Manager Portfolio
------- --------------------- ----------- ------- ------------------------ -----------
BNP Paribas Asset
1 GSO / Blackstone 35.9% 6 Management 6.3%
AEGON USA Investment
2 Neuberger Berman 12.4% 7 Management 4.0%
VOYA Alternative
3 BlackRock 9.1% 8 Asset Management 3.8%
Apidos Capital American Capital
4 Management 8.1% 9 Leveraged Finance 2.6%
Highbridge Principal
5 Strategies 7.1% 10 Ares Capital Management 2.5%
The Company's top ten look-through exposure to corporate
borrowers is detailed in the table below(1) :
31 December 2016
Issuer Rating Sector %
First Data Corp Ba3/BB Financial Intermediaries 1.07%
Valeant Pharmaceuticals Ba3/BB- Healthcare 1.01%
Calpine Corp Ba2/BB Utilities 0.85%
Community Health Ba3/BB- Healthcare 0.82%
Albertson Ba2/BB Food and Drug 0.75%
Avago Technologies Ba1/BBB- Information Technology 0.71%
Dell Inc Baa3/BBB Information Technology 0.70%
Scientific Games Ba3/B+ Leisure Goods/Activities 0.67%
Transdigm Ba2/B Aerospace 0.67%
Asurion Corp B1/B+ Insurance 0.66%
31 December 2015
Issuer Rating Sector %
Valeant Pharmaceuticals Ba1/BB Healthcare 1.10%
First Data Corp B1/BB Financial Intermediaries 0.94%
Community Health Ba2/BB Healthcare 0.86%
Numericable SAS B1/B+ Cable Television 0.82%
Avago Technologies Ba1/BBB Information Technology 0.82%
Calpine Corp Ba3/BB Utilities 0.74%
Asurion Corp Ba3/B Insurance 0.72%
Formula One Group B2/B Leisure Goods/Activities 0.62%
Scientific Games Ba3/BB- Leisure Goods/Activities 0.61%
Cablevision Systems
Corp Baa3/BB+ Cable Television 0.60%
The Company's financial assets exposed to credit risk were
concentrated, in order of exposure, in the following industries(1)
:
31 December
31 December 2016 2015
Business equipment & services 7.37% Business equipment & services 8.71%
Electronics / Electric 6.95% Healthcare 8.04%
Healthcare 6.85% Electronics / Electric 6.60%
Telecommunications 4.00% Retailers (except food and drug) 5.25%
Retailers (except food and drug) 3.70% Chemicals / Plastics 4.25%
Utilities 3.69% Cable Television 4.18%
Financial Intermediaries 2.92% Telecommunications 3.92%
Chemicals / Plastics 2.91% Utilities 3.66%
Cable Television 2.85% Financial Intermediaries 3.44%
Lodging and Casinos 2.62% Oil and Gas 3.27%
Containers and glass products 2.62% Leisure Goods/Activities/Movies 3.22%
Leisure Goods/Activities/Movies 2.49% Lodging and Casinos 3.10%
Trading Activity (continued)
31 December 2016
(continued) 31 December 2015 (continued)
Building and Development 2.38% Containers and glass products 2.52%
Drugs 2.34% Automotive 2.44%
Broadcast Radio & Television 2.06% Building and Development 2.23%
Industrial Equipment 1.88% Industrial Equipment 2.16%
Aerospace and Defense 1.70% Aerospace and Defense 2.05%
Food Products 1.52% Broadcast Radio & Television 1.89%
Oil and Gas 1.49% Food / Drug Retailers 1.74%
Automotive 1.43% Drugs 1.66%
Food / Drug Retailers 1.19% Air Transport 1.66%
Air Transport 0.96% Publishing 1.54%
Food Service 0.92% Food Products 1.32%
Publishing 0.90% Non-Ferrous Metals / Minerals 1.29%
Business equipment & services 0.80% Conglomerates 1.25%
(1) Forms an integral part of the audited financial
statements
The Investment Manager implements a rigorous investment process,
which, we believe, will continue to produce opportunities in the
current environment.
Outlook
Most sell-side strategists are forecasting a continuation of the
market's strong performance. The median 2017 total return forecast
for senior loans is 5.5% with a few strategists expecting lower,
but still positive, returns. History supports the median
strategists' projections. Annual returns for senior loans have
exhibited some auto-correlation. In other words, strong years like
2016 are often followed by another year of solid returns. In fact,
the senior loan market is less likely to produce a negative return
following an excellent year than it is when the prior year's
returns are lower. The sample size is small but it follows that
some investors will either chase returns or feel comfortable that
the backdrop is advantageous to taking additional credit risk.
We believe two themes will dominate at the beginning of 2017 -
supply/demand imbalance and repricing activity. First, demand for
senior loans continues to overwhelm new, net supply of senior
loans. For 10 consecutive months, quantifiable demand for loans
(CLO issuance and retail flows) has exceeded net supply
(approximated by the change in the size of the S&P/LSTA Loan
Index). Given a fairly modest pipeline, this is unlikely to change
over the near term. This technical backdrop supports loan
valuations and has recently pushed over 70% of loans above par.
Consequently, repricing activity has recently surged given the
issuer-friendly environment. January has already surpassed the
prior monthly record set in January 2013, according to S&P. As
long as the market remains calm amidst a faster increase in the Fed
funds rate relative to the prior two years, we expect issuers to
continue to reprice their loans. In 2013, issuers were able to
shave 27bp off the average cost of their debt. If that is
replicated in 2017, repricing will offset some of the increase in
the Libor base rate that results from Fed rate hikes.
Since the announcement of the final risk retention rules in the
US, the number of managers issuing new CLOs has declined, resulting
in a more concentrated CLO market. We expect managers with larger
pre-existing CLO platforms, such as GSO, will fare better than
smaller players. While implementation of the rules in the US may
hinder issuance in the short-term, the market has prepared well for
these rules, and so the drop in issuance is unlikely to be
meaningful.
The U.S. CLO market may face some challenges as elevated loan
prices reduce par building opportunities, and increased Libor and
continued loan refinancing and repricing activity both put pressure
on weighted average spread tests and may erode equity cashflows.
However, we believe that Carador will continue to benefit from the
value gained through the potential refinancings of certain CLO
equity positions.
Looking forward we will continue to rotate the Income Note
portfolio towards longer dated deals as we believe these
investments will represent more attractive relative value
opportunities. At the same time, we will selectively reposition our
Mezzanine exposure and opportunistically look into redemption
opportunities for older vintages deals when economically
efficient.
Risk Management
The Company's portfolio of CLO investments is managed to
minimise default risk and potential loss through credit analysis
performed by the Investment Manager's experienced credit research
team. Achieving diversity is part of the Company's investment
objective. Each investment is assessed with a view to providing
diversification in terms of underlying assets, issuer, sector, and
maturity profile.
The Company invests in a minimum of 20 separate transactions
with a maximum exposure per investment, at the time of investment,
of 20% of its net asset value (the "Net Asset Value"). The Company
also limits its exposure to transactions managed by the same
portfolio manager to 15% of the Net Asset Value, at the time of
investment. However, if the portfolio manager is an affiliate of
the Investment Manager, this limit is increased to 60% of the Net
Asset Value, at the time of investment.
The Company may invest in assets which are denominated in Euro
and Sterling as well as U.S. Dollars, however the Base Currency of
the Company is the U.S. Dollar. The Company therefore may have an
exposure to changes in the exchange rate between the U.S. Dollar
and the Euro/GBP which, if unhedged, has the potential to have a
significant effect on returns. The Directors believe that it is in
the best interests of Shareholders for the Company to engage in
currency hedging solely to reduce the risk of currency fluctuations
and the volatility of returns which may result from such currency
exposure. This may involve hedging, at the level of the Company,
the Euro/GBP assets to U.S. Dollars. As at the year end the Company
had no non-U.S. Dollar exposure.
The Company only uses currency and other hedging techniques for
the purposes of efficient portfolio management in accordance with
the requirements of the Central Bank. The Company has no intention
of using the currency hedging facility for the purposes of currency
speculation for its own account.
Please also refer to note 10 for a fuller description of the
risks involved in an investment in the Company.
GSO / Blackstone Debt Funds Management LLC
26 April 2017
DIRECTORS' REPORT
PRINCIPAL ACTIVITIES
The Company was incorporated on 20 February 2006 as a
closed-ended limited liability investment company under the laws of
Ireland and is authorised by the Central Bank of Ireland ("Central
Bank"). The Company continues to be registered and domiciled in
Ireland and the Company's shares are premium listed on the Official
List of the UK Listing Authority and admitted to trading on the
Main Market of the London Stock Exchange.
INVESTMENT OBJECTIVE
The Company's investment objective is to produce attractive and
stable returns with low volatility compared to equity markets, by
investing in a diversified portfolio of Senior Notes ("Senior
Notes") of collateralised loan obligations ("CLOs"), collateralised
by senior secured bank loans and equity ("Equity") and mezzanine
tranches ("Mezzanine") of CLOs. CLOs are debt securities backed by
a diversified pool of underlying assets. The CLO uses the cash
flows from this portfolio of assets to back the issuance of
multiple classes of rated debt securities which, together with the
income notes, are used to fund the purchase of the underlying
assets.
INVESTMENT POLICY
The Company invests in cash flow CLO transactions, managed by
portfolio managers with proven track records. It seeks to achieve
diversification across asset classes, geography, manager, and
maturity profile. Each CLO investment is collateralised by a
diverse pool of fixed income assets, which may include:
-- senior secured bank loans;
-- investment grade loans;
-- project finance debt;
-- asset-backed securities or other asset-backed
obligations;
-- mortgage-backed securities; and/or
-- debt securities issued by other CLOs.
The Company may also invest in other collective investment
schemes for the purposes of gaining exposure to the types of CLO
transactions described above, or otherwise to pursue the investment
objective and policy of the Company.
The Company seeks to have minimal exposure to CLOs where the
underlying assets comprise of unsecured corporate bonds (investment
grade or otherwise). The Company will limit investment in synthetic
CLO transactions, at the time of investment, to 25% of the NAV. It
is intended that the Company's investments comprise of Equity and
Mezzanine tranches in actively managed portfolios, with a variety
of portfolio managers. The Company may also invest in senior
tranches of leveraged loan CLOs where attractive opportunities can
be identified. Such opportunities may include investments in senior
tranches of CLOs in respect of which the collateral consists of fee
streams due to portfolio managers from underlying leverage loan
CLOs. The Company may invest in new issue CLO transactions in the
primary market, and transactions in the secondary market where
attractive opportunities can be identified.
The Company's portfolio of CLO investments is actively managed
to minimise default risk and potential loss through comprehensive
credit analysis performed by the experienced credit research team
in the Investment Manager, and use of the Investment Manager's
proprietary risk management systems. Achieving efficient diversity
is central to the Company's investment objective. Each investment
is assessed with a view to providing diversification.
The Company invests in a minimum of 20 separate transactions,
with a maximum exposure per investment, at the time of investment,
of 20% of the NAV. The Company also limits its exposure to
transactions managed by the same portfolio manager to 15% of the
NAV, at the time of investment. However, if the portfolio manager
is the Investment Manager or an affiliate of the Investment
Manager, this limit is increased to 60% of the NAV, at the time of
investment. The Investment Manager analyses all transactions at the
underlying portfolio level, identifying any concentration in terms
of issuer, sector, geography and maturity profile. The Investment
Manager's analysis also takes into consideration the correlation
among different underlying securities to avoid concentrations of
risk.
There is no restriction as to the geographical composition of
the underlying portfolios, but it is currently significantly
weighted towards the United States.
INVESTMENT POLICY (continued)
The functional currency of the Company is US Dollar as the
Directors have determined that this reflects the Company's primary
economic environment. The presentational currency of the Company is
also US Dollar. Investments acquired for the Company's portfolio
are currently all denominated in US Dollar.
The investment objective of the Company may not be altered
without the prior written approval of all shareholders or a special
resolution of shareholders in a general meeting.
Any material change to the investment policy of the Company may
only be made with the prior approval, by special resolution, of
shareholders.
Investment restrictions
In accordance with the requirements of the UK Listing Authority
and the Central Bank, the Company has adopted the following
additional investment restrictions:
-- distributable income will be principally derived from
investment activity;
-- the Company will not conduct any trading activity;
-- a maximum of 20% of the value of the NAV of the Company may
be invested in the securities of any one issuer (related companies
within a group of companies shall be deemed to be one issuer);
-- a maximum of 15% of the NAV of the Company may be invested in
other listed investment companies;
-- the Company will not take legal or management control of the
issuers of the underlying investments, nor shall the Company
acquire any shares carrying voting rights which would enable it to
exercise significant influence over the management of an issuing
body;
-- no more than 20% of the NAV of the Company may be kept on
cash deposit with any one institution;
-- the Company may not invest more than 20% of its NAV in other
collective investment schemes, of which no more than 20% of its NAV
may be invested in other open-ended collective investment schemes;
no more than 10% of its NAV may be invested in closed-ended
collective investment schemes; no more than 10% of its NAV may be
invested in fund of funds; and no more than 10% of its NAV may be
invested in unregulated collective investment schemes. No issue or
purchase commission may be charged to the Company where investments
are made in collective investment schemes managed by the Investment
Manager or by an associated or related company of the Investment
Manager, and where the Investment Manager receives a commission by
virtue of an investment in a collective investment scheme, this
commission must be paid into the Company;
-- for the purposes of the above limits, related entities (where
50% or more of the voting rights or paid up capital of one entity
are held or owned directly or indirectly by another entity) are
regarded as a single issuer;
-- the Company shall not invest in real estate or directly in
physical commodities;
-- dividends will not be paid unless they are covered by net
income received from, and/or net realised and unrealised capital
gains deriving from, the Company's investments;
-- the Company may borrow up to 25% of its NAV from time to time
for short term or temporary liquidity purposes, and may grant
collateral to secure borrowings. The Company may not have any
long-term or structural borrowings;
-- the Company may hedge corporate credit risk through the use
of short sales, credit default swaps, options and other methods
where the underlying assets relate to single issuers for the
broader indices and may thereby be leveraged up to a total limit of
10% of its NAV; and
-- the Company may not acquire more than 20% of any class of
security issued by any single issuer. This restriction does not
apply to debt securities.
Any change in the above investment restrictions shall be subject
to the prior approval of the Central Bank.
INVESTMENT POLICY (continued)
Investment restrictions (continued)
The above limits apply at the time of the purchase of the
investment. If these limits are exceeded for reasons beyond the
control of the Company, the Company shall adopt as a priority for
its sales transactions the remedying of the position taking account
of the interests of the shareholders. In the event of any breach of
these investment restrictions, the Board of Directors (the "Board")
will as soon as practicable make an announcement on a Regulatory
Information Service provider and subsequently write to
shareholders, if appropriate.
REVIEW OF DEVELOPMENT OF THE BUSINESS AND FUTURE
DEVELOPMENTS
A detailed review of the business and future developments of the
Company is included in the Investment Manager's report.
RESULTS FOR THE FINANCIAL YEAR AND STATE OF AFFAIRS
The financial position and results for the financial year are
set out in the statement of financial position and in the statement
of comprehensive income.
The profit for the financial year attributable to participating
equity shareholders amounted to US$79,153,810 (31 December 2015:
loss of US$41,409,323).
The Company made the following announcements on dividends
relating to the year ended 31 December 2016:
-- On 22 January 2016, the Board declared a dividend of
US$0.0250 per US Dollar share in respect of the period from 1
October 2015 to 31 December 2015. The dividend was paid on 10
February 2016 to shareholders on the share register as at the close
of business on 5 February 2016. The amount paid in respect of this
dividend was US$13,581,333.
-- On 21 April 2016, the Board declared a dividend of $0.0225
per U.S. Dollar Share in respect of the period from 1 January 2016
to 31 March 2016. This dividend was paid on 4 May 2016 to
shareholders on the share register as at the close of business on
29 April 2016. The amount paid in respect of this dividend was
US$12,223,201.
-- On 21 July 2016, the Board declared a dividend of US$0.0225
per US Dollar share in respect of the period from 1 April 2016 to
30 June 2016. The dividend was paid on 3 August 2016 to
shareholders on the share register as at the close of business on
29 July 2016. The amount paid in respect of this dividend was
US$12,223,201.
-- On 20 October 2016, the Board declared a dividend of
US$0.0225 per US Dollar share in respect of the period from 1 July
2016 to 30 September 2016. The dividend was paid on 2 November 2016
to shareholders on the share register as at the close of business
on 28 October 2016. The amount paid in respect of this dividend was
US$12,223,200.
-- On 19 January 2017, the Board declared a dividend of
US$0.0275 per US Dollar share in respect of the financial period
from 1 October 2016 to 31 December 2016. The dividend was paid on 1
February 2017 to shareholders on the share register as at the close
of business on 27 January 2017. The amount paid in respect of this
dividend was US$14,939,467.
Please see note 17 for other important events during the
financial year.
TRANSACTIONS INVOLVING DIRECTORS
Please refer to note 4 and note 9 for details of transactions
involving Directors.
EVENTS SINCE FINANCIAL YEAR
Please refer to note 18 "Subsequent Events" for details of the
important events occurring after the reporting date.
DIRECTORS
The names of the persons who were Directors at any time during
the financial year are set out in the section entitled "Management
and Administration". As at 31 December 2016, all five Directors are
non-executive, each of whom, apart from Ed D'Alelio, are
independent of the Investment Manager. No Director has a service
contract with the Company. The Directors have each entered into a
letter of engagement with the Company setting out the terms of
their appointment, copies of which are available for review by the
shareholders.
DIRECTORS' AND COMPANY SECRETARY'S INTERESTS
Neither the Directors (including family interests) nor the
company secretary, State Street Fund Services (Ireland) Limited
(the "Company Secretary"), have any shareholdings in the Company as
at 31 December 2016.
MANAGEMENT ARRANGEMENTS
The Investment Manager acts as investment manager of the Company
pursuant to the terms of the deed of novation dated 10 July 2013
and effective as of 14 July 2013 between the Company, GSO Capital
Partners International LLP ("GSO CPI") and the Investment Manager,
which novated the amended and restated investment management
agreement dated 9 August 2011 between GSO CPI and the Company, (the
"Investment Management Agreement").
The management fees and other fees payable to the Investment
Manager are disclosed in note 4. After due consideration of the
investment experience, resources and reputation of the Investment
Manager as a whole, it is the opinion of the Directors that the
continuing appointment of the Investment Manager on the terms
agreed is in the interest of shareholders as a whole. The
Investment Management Agreement may be terminated on six-months'
notice by either party and may also be terminated by either party
with immediate effect on the occurrence of certain events,
including: (i) if an order has been made or an effective resolution
passed for liquidation of the other party; (ii) if a receiver or
similar officer has been appointed in respect of the other party or
its assets or the other party becomes subject to an administration
order; (iii) if the other party enters into an arrangement with its
creditors, or any of them or the other party is or is deemed to be
unable to pay its debts; (iv) if the other party ceases or
threatens to cease to carry on its business or threatens to make
any material alteration to the nature of its business as carried
out on the date of the investment management agreement; or (v) if
the other party commits a material breach of its obligations under
the investment management agreement and such breach (if capable of
being remedied) is not remedied within 28 days of receiving notice
of the breach. The duration of the Investment Manager's appointment
has not been fixed.
ACCOUNTING RECORDS
The Directors are responsible for ensuring that adequate
accounting records, as outlined in Sections 281 to 285 of the
Companies Act 2014, are kept by the Company. To achieve this, the
Directors have employed a service organisation, State Street Fund
Services (Ireland) Limited (the "Administrator"). The accounting
records are maintained at the Company's registered office at 78 Sir
John Rogerson's Quay, Dublin 2, Ireland.
PRINCIPAL RISKS, UNCERTAINTIES, RISK MANAGEMENT OBJECTIVES AND
POLICIES
The Company's investment objective is to produce attractive and
stable returns with a low volatility compared to equity markets, by
investing in a diversified portfolio of Senior Notes of CLOs,
collateralised by senior secured bank loans and Equity and
Mezzanine tranches of CLOs. Investment in the Company carries with
it a degree of risk including, but not limited to, business risks
and the risks associated with financial instruments, referred to in
note 10 of these financial statements and the Investment Manager's
review. The primary business risk is the risk that the Company may
not achieve its investment objective. Meeting that objective is a
target but the existence of such an objective should not be
considered as an assurance or guarantee that it can or will be
met.
A summary of the primary risks relating to the Company are:
-- The past performance of the Company is not necessarily
indicative of, and cannot be relied upon as a guide to, the future
performance of the Company.
-- In calculating its NAV, the Company may be required to rely
on estimates of the value of securities in which the Company
invests which are unaudited or subject to little verification or
other due diligence.
-- There are risks related to CLO securities, including
leveraged credit risk, the potential for interruption and deferral
of cash flow, asset/liability mismatch risk, currency risk,
volatility risk, liquidity risk, reinvestment risk and risks
associated with collateral.
-- The success of the Company is significantly dependent on the
expertise of the Investment Manager and the Investment Manager's
ability to source CLOs which are suitable to be held in the
Company's portfolio.
-- There can be no assurance that the Investment Manager will be
able to accurately predict the future course of price movements and
performance of securities.
-- Restrictions on withdrawal of capital means that shareholders
must be prepared to bear the risks of owning an interest in the
shares for an extended period of time.
-- The market price of the shares can fluctuate and there is no
guarantee that the market prices of shares will reflect fully their
underlying NAV.
COMPANY CORPORATE GOVERNANCE
Introduction
The Company is subject to and complies with Irish statute
including the Companies Act 2014, with the Listing Rules of the UK
Listing Authority, and with the voluntary Corporate Governance Code
for Collective Investments Schemes and Management Companies issued
by the Irish Funds Industry Association in December 2011 (the
"Irish Code").
The Listing Rules of the UK Listing Authority requires the
Company to apply the main principles of the UK Corporate Governance
Code (the "UK Code") published by the Financial Reporting Council
(the "FRC") in September 2014, and the Board is required to report
to shareholders on how it has done so. The UK Code can be found at:
https://www.frc.org.uk/Our-Work/Codes-Standards/Corporate-governance/UK-Corporate-Governance-Code.aspx
The Irish Code is a voluntary code that was issued by the Irish
Funds Industry Association in December 2011 and was adopted by the
Company in 2012.
The Irish Code provides a framework for the organisation and
operation of funds to ensure that funds operate efficiently and in
the interests of shareholders. A copy of the Irish Code can be
found at:
http://www.irishfunds.ie/media-centre/news-archive/67-corporate-governance-code-and-faqs/faqs.
The Board considers that the Company has complied with the main
provisions contained in the Irish Code and the UK Code, (except as
outlined in the sections entitled "Compliance with the UK Code" and
"Compliance with the Irish Code") and throughout this accounting
period and that it complies with corporate governance requirements
in Ireland. The paragraphs below describe how the relevant
principles of corporate governance are applied by Carador.
In the opinion of the Directors, the Annual Report and the
Audited Financial Statements are fair, balanced and understandable
and provide the information necessary for the shareholders to
assess the Company's performance, business model and strategy.
The Board
The Board currently consists of five non-executive Directors,
each of whom, apart from Ed D'Alelio, is independent of the
Investment Manager. Werner Schwanberg is the Chairman of the Board
(the "Chairman"). The Board accepts collective responsibility for
the decisions of the Board. The Board had 4 scheduled board
meetings during the financial year ended 31 December 2016 (see the
table below) and between these formal meetings, there was regular
contact between the Board, the Investment Manager, the Company
Secretary and the Company's brokers. The Directors are kept fully
informed of investment and financial controls and other matters
that are relevant to the business of the Company and should be
brought to the attention of the Directors.
The Directors, where necessary in the furtherance of their
duties, have access to independent professional advice at the
expense of the Company.
The attendance record of Directors at the meetings for the
financial year ended 31 December 2016 is set out below:
Meetings and Formal Ad Hoc Board Audit Committee Remuneration
attendances by Board Meetings Meetings Committee
Director
-------------------- ---------------- ------------- ---------------- -------------
Number of Meetings
Held 4 2 3 1
Werner Schwanberg 4 1 N/A N/A
Fergus Sheridan 4 2 3 1
Adrian Waters 4 2 3 N/A
Edward D'Alelio 4 1 N/A 1
Nicholas Moss 4 2 3 1
-------------------- ---------------- ------------- ---------------- -------------
The Board has a breadth of experience relevant to the Company
and the Directors believe that any changes to the Board's
composition can be managed without undue disruption. With any new
Director appointment to the Board, consideration will be given as
to whether an induction process is appropriate and upon any such
appointment the new Director would be available to meet
shareholders upon request. There is a robust process in place for
ensuring the Board has the right information at the right time and
in the right format to enable the Directors to make informed
decisions. The Chairman sets the Board agenda, assisted by the
Company Secretary. An annual board timetable is prepared by the
Company Secretary to map out the flow of key report/items submitted
to the Board and to ensure that sufficient time is allocated for
discussions and material issues. Directors may request any agenda
items to be added that they consider appropriate for Board
discussion.
The Board (continued)
Additionally, each Director is required to inform the Board of
any potential or actual conflicts of interest prior to Board
discussion.
Questions arising at any meeting shall be determined by a
majority of votes. In case of an equality of votes, the Chairman
shall have a second or casting vote. A Director may, and the
Company Secretary on the requisition of a Director shall, at any
time summon a meeting of the Directors. The quorum necessary for
the transaction of business of the Directors may be fixed by the
Directors, and unless so fixed at any other number shall be
two.
The primary focus at Board meetings is a review of the overall
business of the Company including investment policy, investment
performance, risks affecting the Company (investment and other) and
other matters (including, but not limited to, administration,
corporate governance and compliance, marketing/investor relations,
peer group information and industry issues). The Board evaluates
Board composition and considers the tenure of each Director on an
annual basis and believes that the mix of skills (including
investment and accounting skills), experience, ages and length of
service are appropriate to the requirements of the Company. The
Board conducts an annual performance evaluation of the Board, its
committees and individual Directors. The evaluation of the Board
considers, among other things, the balance of experience, skills,
independence, knowledge and time commitments of the Board and how
it works together as a unit. The Chairman leads a discussion among
the Board through the use of a questionnaire, and the feedback from
each Board member to the questions posed by the questionnaire are
recorded in meeting minutes. In addition to this annual performance
review of the Board, a formal review of the performance of the
Board, the individual Directors and the Chairman is carried out
every three financial years.
Directors' duties and responsibilities
The duties and responsibilities of the Directors cover the
following areas:
-- statutory obligations and public disclosure;
-- strategic matters and financial reporting;
-- oversight of management and personnel matters;
-- risk assessment and management, including reporting, monitoring, governance and control; and
-- other matters having a material effect on the Company.
Nomination/remuneration committees
There was no nomination committee in the financial year ended 31
December 2016, as it is not considered appropriate at the present
time. A remuneration committee was established on 6 April 2011. The
Board has adopted a documented terms of reference in respect of the
remuneration committee evidencing all delegated authorities given
to its members. The Chairman of the remuneration committee is
Edward D'Alelio. Nicholas Moss and Fergus Sheridan are the other
members of the committee.
The functions of the remuneration committee are as follows:
1. responsibility for the preparation of recommendations to the
Board regarding the remuneration of the members of the Board;
2. provide support and advice to the Board on determining an
overall remuneration policy of the Company that is consistent with
the objectives, values and interests of the Company and reflects
comparable compensation levels of the peer universe for the
Company;
3. oversee and review the implementation of the remuneration policy of the Company; and
4. perform any other activities as the Board deems necessary or appropriate.
Pricing committee
The Company's pricing policy was approved at the board meeting
on 27 August 2013. This policy and its associated process replaced
the previously defined process, which was undertaken by the pricing
committee. The current process is implemented by the Investment
Manager, which reports to the Pricing Liaison Director and the
Administrator on a monthly basis. Edward D'Alelio was appointed as
Pricing Liaison Director at a board meeting on 24 April 2013.
Audit committee
The Audit committee comprised of Adrian Waters, Fergus Sheridan
and Nicholas Moss for the financial year ended 31 December 2016.
The Audit committee examines, amongst other things, the
effectiveness of the internal systems, the annual report and
financial statements and interim report of the Company, and aims to
identify significant risks facing the Company. It also oversees the
remuneration and engagement of KPMG (the "Auditor"), as well as the
Auditor's independence and any non-audit services provided by them.
Please see the Audit Committee's report for further details in
relation to its role and responsibilities.
Internal controls
The Board is ultimately responsible for the system of internal
controls for the Company, identifying significant risks facing the
Company and oversight of the system of controls to mitigate them.
The Board confirms that there is an ongoing process for
identifying, evaluating and managing the significant risks faced by
the Company. The Audit committee assists the Board in discharging
these responsibilities.
This process has been in place for the financial year under
review and up to the date of approval of this annual report and
financial statements and is reviewed by the Board and accords with
the Irish Code and the UK Code. The Board has reviewed the
effectiveness of the system of internal controls. In particular, it
has reviewed and updated the process for identifying and evaluating
the significant risks affecting the Company and the policies by
which these risks are managed. The principal financial instrument
risks are described on pages 53 to 58. The Board has also
identified the following additional risks and uncertainties:
Principal risks How is the risk managed?
-------------------------------------- ------------------------------------
Investment and portfolio
-------------------------------------- ------------------------------------
The Investment Manager
conducts a rigorous investment
process for each potential
investment. The individual
underlying loans for each
CLO are mapped against
Sufficiency of the Investment the Investment Manager's
Manager's investment process internal ratings of each
The Investment Manager's loan that the Investment
due diligence of potential Manager otherwise covers
investments may not appropriately to allow for a deep dive
highlight issues in underlying into the construction of
loans, the CLO manager or the CLO. The Investment
the structure of the deal. Manager reviews the track
Further, the Investment Manager's record and style of the
models may not have appropriate CLO manager and assesses
assumptions. This may result the structure of the deal
in underperformance by a quantitatively and qualitatively.
deal and negatively impact Only investments that have
cashflows for the portfolio. been approved by the Investment
Credit Risk can arise from Committee may be invested
an insufficient investment in.
process. The Investment Manager
Market liquidity regularly reviews its model
There is no guarantee that assumptions to reflect
the Investment Manager will changes to the market and
be able to make suitable outlook. The assumptions
investments with risk and reflect positive, base,
return characteristics that negative and stress scenarios.
fit within the investment The Investment Manager
strategy of the Company, is constantly in touch
or that the Investment Manager with the market to identify
will be able to dispose of potential buying and selling
investments in a timely manner, opportunities in the primary
if required. In rotating and secondary market. Because
the portfolio or seeking of the Investment Manager's
new investments, the only position in the market,
available investments with the Investment Manager
an appropriate risk profile has good visibility into
may yield lower rates of potential opportunities.
return than have historically The Investment Manager
been achievable and may thus may utilise the liquidity
adversely affect the Company's facility for new purchases,
overall returns. as required.
Principal risks How is the risk managed?
-------------------------------------- ------------------------------------
Investment and portfolio
Change in laws or regulation Changes in laws or regulation
with impact on the portfolio are monitored by the Board
Changes in the laws or regulations on an ongoing basis, with
that govern CLOs, may have the assistance of external
an adverse effect on the counsel.
performance of the Company's The Company continues to
investment portfolio and await clarification from
the returns achieved by the ESMA and the Central Bank
Company. on impacts to non-EU AIFMs,
In particular, the impact such as the Investment
of the retention requirements Manager, which may cause
under Directive 2011/61/EU the retention requirement
of the European Parliament under AIFMD to become applicable
and of the Council of 8 June to the Company. The Board
2011 ("AIFMD") is currently is closely monitoring any
unknown but may have a material developments and will take
impact on the Company's investment action, if necessary, once
portfolio. clarification is provided.
Implementation of risk retention See further details on
rules in the US may have page 23.
negative implications on The Investment Manager
the supply of CLOs in the continues to monitor primary
market. issuance and secondary
availability of potential
investments. The Investment
Manager will evaluate potential
investments utilising its
robust investment management
process.
Counterparty default risk The Investment Manager
The Company's main counterparty for the most part trades
risk arises from trades, via DTC or Euroclear, which,
including physical securities, on the whole, limits counterparty
made by the Investment Manager. risk. A small part of the
If a counterparty were to portfolio includes physical
default there may be adverse securities. Physical securities
impacts to the Company's are delivered against payment
performance. thus mitigating counterparty
risk.
Interest rate The revolving credit facility
The Company has a floating is in place to fund potential
rate revolving credit facility investments and to provide
and as such the financial a buffer against liquidity
performance of the Company requirements. As reported,
may adversely be affected the credit facility is
in the event that interest undrawn.
rates rise. Assets and liabilities
Changes to interest rates in CLOs are floating rate
may affect the CLOs. notes, thus interest rate
changes are inherently
accounted for.
Other
-------------------------------------- ------------------------------------
Regulatory, legal and compliance The Board monitors compliance
risk information provided by
The Company may not achieve its service providers and
full compliance with all monitors ongoing legal
applicable legislation leading and regulatory developments
to regulatory, reputational in Ireland and the UK,
or financial consequences. as well as developments
Further a service provider coming from the UK Listing
may experience a regulatory, Authority. The Company
legal or compliance breach has a comprehensive compliance
that could impact the Company. monitoring programme to
seek to ensure full compliance
with applicable legislation
and regulation relevant
to the Company.
Operational risk The Board regularly monitors
Inadequate or failed internal the performance of service
processes of the Company providers' compliance and
or the Company's service the Company's compliance
providers, people, and systems, with applicable legal and
or from external causes (deliberate, regulatory requirements
accidental or natural). This from the Central Bank and
may result in direct financial UK Listing Authority. As
losses or reputational damages discussed in the section
leading to longer-term financial "Regulatory, legal and
consequences. compliance risk", the Company
has a comprehensive compliance
monitoring programme to
seek to ensure full compliance
with applicable legislation
and regulation relevant
to the Company.
Principal risks How is the risk managed?
-------------------------------------- ------------------------------------
Other
-------------------------------------- ------------------------------------
Reputational risk The Board regularly monitors
There is a risk that as a the performance of service
result of inadequate or failed providers' compliance and
internal processes of the the Company's compliance
Company or the Company's with applicable legal and
service providers, and systems, regulatory requirements
or from external causes (deliberate, from the Central Bank and
accidental or natural), the UK Listing Authority. As
Company's regulators may discussed in the section
issue financial or non-financial "Regulatory, legal and
penalties or fines that could compliance risk", the Company
irrevocably harm the Company's has a comprehensive compliance
reputation. monitoring programme to
Additionally, negative press seek to ensure full compliance
on the Company, its Directors with applicable legislation
or service providers may and regulation relevant
negatively impact the Company. to the Company.
The Company and its service
providers regularly monitor
press mentions and will
take appropriate action
as required to respond
to or otherwise address
negative press.
Conflicts of interest
The Company and its service The Board has implemented
providers may have conflicts a Connected Party Transaction
of interest that arise from Policy that is annually
time to time. In particular, reviewed and approved.
connected party transactions Under the policy, the Board
by the service providers must satisfy itself semi-annually
may create a potential conflict that the arrangements concerning
of interest that is adverse connected party transactions
to interests of the Company are appropriate and complied
or its investors. with, and that any connected
party transactions entered
into during the period
comply with the Connected
Party Transaction Policy.
Connected party transactions
must be reviewed by the
pricing liaison Director
and Administrator.
Cybersecurity risk
The Company and its service The Board has a cybersecurity
providers may have inadequate policy that is reviewed
systems, policies and procedures and approved at least annually.
in place to detect and prevent On a quarterly basis, the
or respond adequately to Board receives confirmation
cybersecurity threats and from the service providers
breaches that may result that there have been no
in financial and reputational cybersecurity breaches
implications for the Company. as part of the service
provider reports to the
Board. Annually, the Board
conducts due diligence
on each service provider
to ascertain the adequacy
of the service provider's
cybersecurity programme.
The Board also monitors
ongoing cybersecurity developments
in Europe and the US.
Delegated activities
As there is delegation of daily operational activity, described
below, the Company has no direct internal audit function. The Board
receives regular reporting from the service providers to the
Company and conducts an annual review of the service providers. The
internal control systems seek to keep the Company within its risk
appetite.
The Board has delegated the responsibility for (i) management of
the Company's investment portfolio, (ii) provision of custody
services and (iii) administration, registrar and corporate
secretarial functions of the Company including independent
calculation of the NAV and production of the independently audited
annual report and financial statements. Whilst the Board delegates
responsibility, it retains accountability for the functions it
delegates and is responsible for the systems of internal control.
Formal contractual agreements have been put in place between the
Company and providers of these services. Compliance reports are
provided on a quarterly basis by the Administrator.
Corporate responsibility
The Company's business is concerned with investment. It
considers the ongoing concerns of its shareholders by open and
regular dialogue with and through the appointed Investment Manager
and the Company's brokers.
The Company does not have any employees.
Going concern statement
In accordance with provision C.1.3 of the UK Code, after making
enquiries and given the nature of the Company and its investments,
the Directors are satisfied that it is appropriate to continue to
adopt the going concern basis in preparing the financial statements
and, after due consideration, the Directors are satisfied that the
Company has the resources to continue in business for a period of
12 months from the date of approval of the financial statements (26
April 2017). However, as detailed in the viability statement there
is uncertainty arising from the potential repurchase opportunity.
The going concern statement should be read in conjunction with the
Company's viability statement.
Viability statement
In accordance with provision C.2.2 of the UK Code, at least
annually, the Board conducts a robust assessment of the principal
risks facing the Company, including those that would threaten its
business model, future performance, solvency and liquidity. The
Directors have considered each of the Company's principal risks and
uncertainties detailed on pages 15 to 17, in particular the risk
arising from the possible application of the retention requirements
under AIFMD and the impact of such changes that could materially
affect the ability of the Company to pursue its investment
objective and policy. The Directors also considered the Company's
policy for monitoring, managing and mitigating its exposure to
these risks. This assessment involved an evaluation of the
potential impact on the Company of these risks occurring. Where
appropriate, the Company's financials were subject to a scenario
analysis in order to analyse the effect on the Company's cash flows
and other key financial metrics.
While provision C.2.2 of the UK Code requires Directors to
assess the prospects of the Company over a period significantly
longer than twelve months, exceptions are permitted in rare
circumstances. The Board conducted this review for a period
covering the next twelve months taking into account the uncertainty
surrounding the retention requirement under AIFMD and the potential
for a shareholder repurchase opportunity.
The Directors have a reasonable expectation that the Company
will be able to continue in operation and meet its liabilities as
they fall due over the next 12 months. This is based on the
assessment of the principal risks facing the Company and the
scenario analysis based assessment of the Company's prospects.
While there is uncertainty surrounding the potential repurchase
opportunity, the Directors believe that should a repurchase
opportunity be presented to Shareholders, it is unlikely that
elections for repurchase will constitute a material part of the
shares. The Directors believe that this is supported by the
announcement in November 2016 that they may consider offering
Shareholders potential repurchase opportunities on a more frequent
basis. Subject to any necessary changes to the Articles being
approved, the Directors intend to consider every two and a half
years whether to put an ordinary resolution to shareholders to
approve a repurchase opportunity for up to 100% of the shares in
issue. The Directors believe that it is unlikely that they will
need to consider whether a winding-up resolution should instead be
put to Shareholders should the share repurchases reach 75%.
Further, the Company's only liabilities are expenses paid to
service providers. The key liabilities are linked to NAV and thus
fluctuate as the NAV of the Company increases and decreases,
subject to a minimum in certain cases. This results in the Company
being able to comfortably cover the liabilities as they fall
due.
Relations with shareholders
The Investment Manager and the Company's brokers maintain a
regular dialogue with shareholders, the feedback from which is
reported to the Board. In addition, Board members are available to
respond to shareholders' questions at the Annual General Meeting
and on an ad hoc basis if necessary.
In each financial year, the Company shall hold a general meeting
of the Company as its Annual General Meeting in Ireland. At least
twenty-one days' notice (excluding the day of mailing and the day
of the meeting) shall be given in respect of each general meeting
of the Company. The notice shall specify the venue and time of the
meeting, the business to be transacted at the meeting and that a
proxy may attend and vote on behalf of any shareholder. The
requirements for quorum and majorities at all general meetings are
set out in the articles of association of the Company (the
"Articles of Association"). An ordinary resolution is a resolution
passed by a simple majority of the votes cast and a special
resolution is a resolution passed by a majority of 75% or more of
the votes cast.
The Articles of Association provide that matters may be
determined at a meeting of shareholders on a show of hands unless a
poll is requested by five shareholders or shareholders holding 10%
or more of the shares or unless the Chairman of the meeting
requests a poll. Subject to disenfranchisement by law in the event
of noncompliance with any notice requiring disclosure of the
beneficial ownership of shares, the Articles of Association provide
that each share gives the holder one vote in relation to any
matters relating to the Company which are submitted to shareholders
for a vote by poll, and each shareholder present at a meeting has
one vote in relation to any matters relating to the Company which
are submitted to shareholders for a vote by show of hands. If there
are multiple share classes in existence, all shares of each class
have equal voting rights, except that in matters affecting only a
particular class, only shares of that class shall be entitled to
vote.
Relations with shareholders (continued)
The Board monitors the trading activity and shareholder profile
on a regular basis. Shareholder sentiment is also ascertained by
the careful monitoring of the discount/premium at which the shares
trade in the market against the Net Asset Value per share when
compared to the discounts/premiums experienced by the Company's
peer group.
The Company reports formally to shareholders twice each
financial year and a proxy voting card is sent to shareholders with
the annual report and financial statements. Additionally, the
Investment Manager's monthly reports are available to shareholders
through the Company's website. The Regulatory News Service of
the
London Stock Exchange assist in keeping shareholders
informed.
Computershare Investor Services (Ireland) Limited (the
"Registrar") monitors the voting of shareholders, and proxy voting
is taken into consideration when votes are cast at the annual
general meeting. Shareholders may contact the Directors via the
Company Secretary.
Compliance with the UK Code
Throughout the financial year ended 31 December 2016, the
Company has complied with the UK Code, with the following
exceptions:
A4.1 - The Board has considered whether a Senior Independent
Director should be appointed. In light of the fact that all
Directors are non-executive and given the size and complexity of
the Company, the Board has determined that this appointment is not
necessary.
As outlined above, the Board considers that the appointment of a
Senior Independent Director is not necessary given the size and
complexity of the Company. However, in accordance with the Irish
Code, the Board carries out an appraisal of the performance of the
overall Board and of each Director (including the Chairman) on an
annual basis, with a formal documented evaluation of the overall
Board and of each Director (including the Chairman) taking place
every three financial years. The Board considers that this
appraisal process is appropriate for the Company.
B.1 - This provision is not fully complied with as it calls for
a balance of executive and non-executive Directors and the Company
only has non-executive Directors. However, the Directors have a
broad range of experience and given the nature of the Company's
activity and outsourcing of executive functions and that the
majority of Directors are deemed to be independent under the UK
Code, it is not considered necessary to appoint executive
Directors.
B1.1 - While several Directors have served on the Board for more
than nine years from the date of their first election, the Board
considers these Directors to be independent because none of such
Directors:
-- Have been an employee of the Company or Group within the last five years;
-- Have had within the last three years, a material business
relationship with the Company either directly, or as a partner,
shareholder, Director or senior employee of a body that has such a
relationship with the Company;
-- Received or receives additional remuneration from the Company
apart from a Director's fee, participates in the Company's share
option or a performance related pay scheme, or is a member of the
Company's pension scheme;
-- Have close family ties with any of the Company's advisers, Directors or senior employees;
-- Hold cross-directorships or have significant links with other
Directors through involvement in other companies or bodies; or
-- Represent a significant shareholder.
Further, the Board considers such Directors to discharge their
director duties in an independent manner.
B2.1 - There was no Nomination Committee in the financial year
ended 31 December 2016 since the Board understands that market
practice does not require a fund of this nature to have a
nomination committee, and given the composition of the Board. The
ordinary functions of a nomination committee will be performed by
the Board as a whole.
B2.3 - This provision is complied with save that, all of the
Directors are appointed pursuant to letters of appointment for a
term which expires when the Director is (i) removed or vacates
office; (ii) resigns, or (iii) terminates his appointment. A
Director's appointment may be terminated in accordance with the
Company's Articles of Association without compensation.
B2.4 - Whilst the Company does not have a formal diversity
policy in place, diversity, including gender diversity, is
considered by the Company in the evaluation of the Board and its
performance, and will be taken into account in making any future
Board appointments.
Compliance with the UK Code (continued)
C3.6 - Since the Company does not have any employees, the
Company does not have an internal audit function. The Audit
Committee annually considers whether an internal audit function is
needed and makes a recommendation to the Board. The Board considers
that an internal audit function is not necessary, given the size
and complexity of the Company, and the use of an external
auditor.
E.1 - Since the Company does not have any employees, it is the
management team of the Investment Manager who has most regular
contact with shareholders on behalf of the Board. Comments received
from such shareholders are fed back to the Board both from the
Investment Manager and the Company's brokers. All Directors are
available to attend the Annual General Meeting, and are available
to communicate with shareholders.
Compliance with the Irish Code
The Company adopted the Irish Code with effect from 31 December
2012, and has complied with the Irish Code with the following
exception:
Paragraph 4.2 - This provision is not fully complied with as it
recommends that at least one Director be an employee, partner or
director of the promoter or Investment Manager. However, the
Directors have a broad range of experience and it is considered
that there is a good balance of skills and expertise on the Board.
In addition, the Directors are satisfied with the support and
reporting provided by the Investment Manager on an ongoing basis
such that it is not considered necessary to have a representative
of the Investment Manager on the Board.
Additional corporate governance disclosures under Irish Company
Law
The Board is ultimately responsible for overseeing the
establishment and maintenance of adequate internal control and risk
management systems of the Company in relation to the financial
reporting process. As the Company has no employees and all
Directors serve in a non-executive capacity, all functions
including the preparation of the financial statements have been
outsourced. The Company has appointed State Street Fund Services
(Ireland) Limited as its administrator consistent with the
regulatory framework applicable to investment fund companies. The
Administrator has functional responsibility for the preparation of
the interim and annual financial statements and the maintenance of
the accounting records. On appointing the Administrator, the Board
noted that it was regulated by the Central Bank and, in the Board's
opinion, had significant experience as an administrator. The Board
also noted the independence of the Administrator from the Company's
Investment Manager.
Subject to the supervision of the Board, the appointment of the
Administrator is intended to manage rather than eliminate the risk
of failure to achieve the Company's financial reporting objectives
and can only provide reasonable and not absolute assurance against
material misstatement or loss.
The Board and Audit Committee evaluates and discusses
significant accounting and reporting issues as the need arises. The
Board and Audit Committee review the financial statements prior to
their approval, though it should be noted that such review does not
include verification of information in the financial statements to
source documents. The annual financial statements are subject to an
independent audit.
Internal control and risk management systems in relation to
financial reporting
The Administrator prepares the Company's financial statements
and uses various internal controls and checklists to ensure the
financial statements include complete and appropriate disclosures
required under IFRS as adopted by the European Union and relevant
legislation.
During the financial period of these financial statements, the
Board was responsible for the review and approval of the annual
financial statements as set out in the Statement of Directors'
Responsibilities. The Board and the Audit Committee evaluate and
discuss significant accounting and reporting issues as the need
arises.
Capital structure
As at 31 December 2016, so far as the Directors are aware, no
person other than those listed below was interested, directly or
indirectly, in 5% or more of the issued share capital of the US
Dollar share class in the Company:
Number of Percentage
US$ shares of issued
share capital
Name US$ class
---------------------------------- ------------- ---------------
Nortrust Nominees Limited 83,812,843 15.43
BNY Custodial Nominees (Ireland)
Limited 73,068,121 13.45
State Street Nominees Limited 63,832,838 11.75
Vidacos Nominees Limited 42,927,089 7.90
Securities Services Nominees
Limited 36,066,790 6.64
HSBC Global Custody Nominee
(UK) Limited 35,164,974 6.47
---------------------------------- ------------- ---------------
None of the above shareholders have shareholder rights different
to those of other shareholders.
With regard to the appointment and replacement of Directors, the
Company is governed by its Articles of Association, the Companies
Act 2014, and the Listing Rules of the UK Listing Authority as
applicable to investment funds. The Articles of Association
themselves may be amended by special resolution of the
shareholders.
Powers of the Directors
The Directors are responsible for managing the business affairs
of the Company in accordance with the Articles of Association. The
Directors may delegate certain functions to the Administrator and
other parties, subject to the supervision and direction by the
Directors. The Directors have delegated the day-to-day
administration of the Company to the Administrator and the
investment management function to the Investment Manager.
The Articles of Association provide that the Directors may
exercise all the powers of the Company to borrow money, to mortgage
or charge its undertaking, property or any part thereof and may
delegate these powers to the Investment Manager. However, the
amount and circumstances in which the Company may borrow are
limited by the Central Bank's non-UCITS Notices and the limitations
set out in the Prospectus.
The Directors may at any time, and from time to time,
temporarily suspend the calculation of the NAV and the issue and
conversion of shares during:
-- any period when any of the principal markets or stock
exchanges on which a substantial part of the investments are quoted
is closed, otherwise than for ordinary holidays, or during which
dealings thereon are restricted or suspended;
-- any period when, as a result of political, economic, military
or monetary events or any circumstances outside the control,
responsibility and power of the Directors, disposal or valuation of
a substantial part of the investments is not reasonably practicable
without this being seriously detrimental to the interests of the
shareholders or if, in the opinion of the Directors, the Net Asset
Value cannot be fairly calculated; and
-- any breakdown in the means of communication normally employed
in determining the value of the investments or when for any reason
the current prices on any market of a substantial part of the
investments cannot be promptly and accurately ascertained.
Any suspension of the calculation of the NAV shall be notified
immediately to the Central Bank. All reasonable steps will be taken
to bring the period of suspension to an end as soon as possible.
Where such a suspension of the NAV is likely to continue for a
period exceeding ten business days, it will be notified by the
Company by announcement through a Regulatory Information Service.
The Directors may decline to accept any application for the issue
of shares and may cease to offer shares in the Company for
allotment or subscription for a definite period or otherwise.
RESPONSIBILITY STATEMENT
The Directors are responsible for preparing the Directors'
Report and the Company's audited financial statements in accordance
with applicable law and regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law, the Directors
have elected to prepare the financial statements in accordance with
International Financial Reporting Standards as adopted by the
European Union ("IFRS") and applied in accordance with the
provisions of the Companies Act 2014.
Section 289 of the Companies Act 2014 provides that the
Directors shall not approve the financial statements unless they
are satisfied that they give a true and fair view of the Company's
assets, liabilities and financial position as at the end of the
financial year and of the profit or loss of the Company for that
financial year.
In preparing the financial statements, the Directors are
required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable and prudent;
-- state whether the financial statements comply with IFRS as
adopted by the European Union and as applied in accordance with the
Companies Act 2014; and
-- prepare the entity financial statements on the going concern
basis unless it is inappropriate to presume that the Company will
continue in business.
Under applicable law and the requirements of the Irish Code and
the Listing Rules issued by the UK Listing Authority, the Directors
are also responsible for preparing a Directors' report and reports
relating to Directors' remuneration and corporate governance that
comply with that law and those rules. In particular, in accordance
with the Transparency (Directive 2004/109/EC) Regulations 2007, as
amended (the "Transparency Regulations"), the Directors are
required to include in their report a fair review of the business
and a description of the principal risks and uncertainties facing
the Company and a responsibility statement relating to these and
other matters, included below.
The Directors are responsible for keeping adequate accounting
records which correctly record and explain the transactions of the
Company, and which disclose with reasonable accuracy at any time
the assets, liabilities, financial position and profit or loss of
the Company, and which enable them to ensure that the financial
statements of the Company are prepared in accordance with IFRS as
adopted by the EU, and comply with the Companies Act 2014, and
enable the financial statements to be audited. They are also
responsible for safeguarding the assets of the Company, and, hence,
for taking reasonable steps for the prevention and detection of
fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website www.carador.co.uk. Legislation in the Republic of
Ireland concerning the preparation and dissemination of financial
statement may differ from legislation in other jurisdictions.
Responsibility Statement, as required by the Transparency
Regulations and UK Corporate Governance Code
Each of the Directors, whose names and functions are listed on
page 13 of this Annual Report, confirm that, to the best of that
Director's knowledge and belief:
-- the financial statements, prepared in accordance with IFRS as
adopted by the EU, and applied in accordance with the provisions of
the Companies Act 2014, give a true and fair view of the assets,
liabilities, financial position of the Company as at 31 December
2016, and its profit or loss for the financial year then ended;
-- the Directors' report contained in the Annual Report includes
a fair review of the development and performance of the business
and the position of the Company, together with a description of the
principal risks and uncertainties it faces; and
-- the Annual Report and financial statements, taken as a whole,
provides the information necessary to assess the Company's
performance, business model and strategy and is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the Company's position and performance,
business model and strategy.
CONNECTED PARTY TRANSACTIONS
The Central Bank of Ireland Non-UCITS Notices, NU 2.10 -
'Dealings by promoter, manager, partner, trustee, investment
adviser and group companies' states in paragraph one that any
transaction carried out with a collective investment scheme by a
promoter, manager, partner, trustee, investment adviser and/or
associated or group companies of these ("connected parties") must
be carried out as if negotiated at arm's length. Transactions must
be in the best interests of the shareholders.
The Directors are satisfied that there are arrangements
(evidenced by written procedures) in place, to ensure that the
obligations set out in paragraph one of NU 2.10 are applied to all
transactions with connected parties; and the Directors are
satisfied that transactions with connected parties entered into
during the period complied with the obligations set out in
paragraph one of NU 2.10.
RETENTION REQUIREMENTS UNDER AIFMD
Under AIFMD, alternative investment fund managers ("AIFM") may
only assume exposure to securitisations as defined therein on
behalf of one or more alternative investment funds ("AlFs") if the
originator, sponsor or original lender of the securitisation has
explicitly disclosed to the AIFM that it retains, on an ongoing
basis, a material net economic interest in the securitisation,
which shall not be less than 5% (the "retention requirement"). The
Company is an AIF for the purposes of AIFMD and the Investment
Manager is designated as the AIFM of the Company. The Central Bank
has noted that, in accordance with Article 67(1)(b) of AIFMD, ESMA
was required to issue advice to the European Commission on the
application of the AIFMD passport to non-EU AIFMs. If that advice
is positive, the European Commission must adopt a delegated act
specifying the date when the non-EU AIFM passport will be "turned
on". The latest advice issued by ESMA was published on 19 July
2016, although it is not clear if or when the European Commission
will adopt the delegated act envisaged under AIFMD. The Central
Bank has noted that, as of the date of these financial statements,
this process is underway and the outcome is not yet known and,
accordingly, professional investor funds such as the Company can
continue to be managed by non-EU AIFMs under the existing
transitional arrangements until the European Commission has reached
a decision. The Central Bank has stated that, at that time, this
position will be revisited and, if necessary, revised to align it
with the European Commission's decision and any transitional
arrangements provided. Accordingly, it is difficult to predict with
certainty if and when the transitional period applicable to non-EU
AIFMs will expire and if the authorisation requirements under
Article 37 of AIFMD will apply. If and when applicable, the
retention requirement could operate as a material restriction on
the investment activities of the Company. In particular, if CLOs
then held by the Company do not meet with the retention
requirement, corrective action may need to be taken to ensure
compliance with AIFMD including disposal of the CLOs, thereby
incurring additional costs and selling at a price less than would
otherwise have been the case if the CLOs had been held for the
desired length of time. In addition, the universe of CLOs which
adhere to the retention requirement may be limited and restrict the
ability of the Company to pursue its investment objective and
policy.
These and other restrictions and/or conditions imposed by AIFMD
may result in (i) the restructuring of the Company and/or its
relationships with service providers, and (ii) restrictions on the
investment activities the Investment Manager or the Company may
engage in.
AUDITORS
So far as the Directors are aware, there is no relevant audit
information of which the Company's auditors are unaware and the
Directors have taken all the steps that should have been taken as
Directors in order to make themselves aware of any relevant audit
information and to establish that the Company's auditors are aware
of that information.
The auditors, KPMG, have signified their willingness to continue
in office in accordance with Section 383(2) of the Companies Act
2014.
On behalf of the Board of Directors:
Werner Schwanberg Adrian Waters
26 April 2017
AUDIT COMMITTEE REPORT
Dear Shareholder,
I am pleased to report to you on the activities of the Audit
Committee for the financial year ended 31 December 2016.
ROLE OF THE AUDIT COMMITTEE
The Board has established a terms of reference in respect of the
composition of the Audit Committee, its role, responsibilities,
authority and evidence of the delegated authorities given to its
members (the "Terms of Reference"). The Company applies the revised
UK Code as introduced by the FRC in September 2014 which relate to
financial years commencing on or after 1 October 2014.
The Audit Committee's main roles and responsibilities include,
but are not limited to, the following:
-- monitoring the financial reporting process of the Company,
the integrity of the financial statements and any formal
announcements relating to the Company's financial performance;
-- assessing any significant financial reporting judgements;
-- reviewing and monitoring the effectiveness of the Company's
risk management and internal control arrangements;
-- monitoring the statutory audit of the annual accounts of the Company and its effectiveness;
-- reviewing the external auditor's performance, independence and objectivity;
-- making recommendations to the Board in relation to the
appointment, re-appointment and/or removal of the external auditor,
the approval of the external auditor's remuneration and the terms
of the engagement;
-- implementing policies surrounding the engagement of the
external auditor to supply non-audit services (where
appropriate);
-- contributing to a climate of discipline and control which is
aimed at reducing the opportunity for fraud;
-- reporting to the Board on how it has discharged its responsibilities; and
-- developing the long term viability statement.
In regard to the above responsibilities, I confirm, on behalf of
the Audit Committee (the "Committee"), that, to the best of our
knowledge and belief, the Committee fulfilled its responsibilities
in line with our Terms of Reference and in accordance with the UK
Code.
DELEGATION OF DUTIES
The Company has no employees as all functions, including
preparation of the financial statements, have been outsourced to
various service providers. The daily operational activities have
been outsourced to GSO / Blackstone Debt Funds Management LLC (the
"Investment Manager"), the Administrator, State Street Custodial
Services (Ireland) Limited (the "Custodian"), the Registrar and
Company Secretary (together, the "outsourced service
providers").
MEMBERSHIP OF THE COMMITTEE
The Committee was established on 17 April 2007 and consists of
Nicholas Moss, Fergus Sheridan and myself, Adrian Waters, as
chairman.
All the members of the Committee are independent non-executive
directors and the Committee has concluded that its membership meets
the requirements of C.3.1 of the UK Code. Each Committee member is
expected to be financially literate and to have knowledge of the
following key areas:
1. financial reporting principles and accounting standards;
2. the regulatory framework within which the Company
operates;
3. the Company's internal control and risk management
environment; and
4. factors impacting the Company's Financial Statements.
As a Committee, we meet at least three times a financial year.
Personnel from the Company's outsourced service providers along
with representatives of the Company's external auditor, KPMG,
attend the Committee meetings when appropriate.
In his role as a member of the Committee, each member is
available to discuss any particular matter with his fellow Board
members and, in addition, the Committee has the opportunity to meet
with KPMG without the presence of outsourced service providers. In
order to ensure that all Directors are kept up to date and informed
of the Committee's work, I provide a verbal report to the Board at
Board meetings on key matters discussed at the Committee meetings.
In addition, the minutes of all Committee meetings are available to
the Board.
HOW THE AUDIT COMMITTEE HAS DISCHARGED ITS RESPONSIBILITIES
In the financial year under review, the Audit Committee has met
three times, attendance at which is set out in the Directors
report. The Committee meetings focused on the following key
areas:
Monitoring the integrity of the financial statements including
significant judgements
-- The Committee reviewed the appropriateness of the Company's
accounting principles and policies, and monitored changes to, and
compliance with, accounting standards on an ongoing basis;
-- Prior to recommending their publication to the Board, the
Committee reviewed the Unaudited Condensed Interim Consolidated
Financial Statements ("Unaudited Interim Report") for the six month
period ended 30 June 2016, having previously discussed the
Unaudited Interim Report with the outsourced service providers and
KPMG. The Committee compared the results with management accounts
and budgets, focusing on key areas of judgements; and
-- The Committee reviewed, prior to making any recommendations
to the Board, the Annual Report and Audited Financial Statements
("Annual Report") for the financial year ended 31 December 2016. In
undertaking this review, the Committee discussed with outsourced
service providers and KPMG the critical accounting policies and
judgements that have been applied.
KPMG reported to the Committee on any misstatements that they
had found during the course of their work and confirmed that under
ISAs (UK and Ireland), no material misstatements were
identified.
The Committee considered the requirements of the UK Code, in
line with best practice reporting. The Committee specifically
reviewed the annual report and financial statements to conclude
whether the financial reporting is fair, balanced, understandable,
comprehensive and consistent with (i) prior year reporting; and
(ii) how the Board assesses the performance of the Company's
business during the financial year, as required for companies with
a Premium Listing under the UK Corporate Governance Code. As part
of this review, the Committee considered if the annual report and
financial statements provided the information necessary to
shareholders to assess the Company's performance, strategy and
business model and reviewed the description of the Company's key
performance indicators.
The Committee presented its conclusions to the Board and the
Board concluded that it considered the annual report and financial
statements, taken as a whole, to be fair, balanced and
understandable and provides the information necessary for the
shareholders to assess the Company's performance, business model
and strategy.
SIGNIFICANT ACCOUNTING MATTERS
During the financial year, the Committee considered key
accounting issues, matters and judgements regarding the Company's
financial statements and disclosures including those relating
to:
Valuation of Financial Assets at Fair Value through Profit or
Loss
Valuation of financial assets is considered a significant matter
and is monitored by the Investment Manager, the Administrator, the
Custodian, the Committee and the Board of Directors. The Committee
receives and reviews reports on the processes for the valuation of
assets on a regular basis. The Committee may propose or recommend
changes based on their review of the reports for their
consideration, including the adequacy of the relevant disclosures
in the financial statements. The Committee discussed the valuation
process and methodology with the Investment Manager in August 2016
as part of the review of the Interim Report. The Investment Manager
carries out a valuation monthly and provides a detailed valuation
report to the Company. The Committee met with the external auditor
at the time at which the Committee reviewed and agreed the external
auditor's audit plan in January 2017 and, in particular, discussed
the audit approach on the valuation. Following discussion, the
Committee were satisfied that the judgements made and methodologies
applied were objective and appropriate and that the appropriate
accounting treatment has been adopted. KPMG report to the Committee
on their assessment of the Company's valuation methodologies and
procedures applied financial year on financial year, as well as the
consideration if the valuation of assets is fairly stated. Please
see further details outlined in notes 2, 3 and 10 to the financial
statements.
Assessment of Consolidation Requirements
For the Unaudited Interim Report and the Annual Report, relevant
discussions and analysis was undertaken on behalf of the Committee
by the Investment Manager in relation to the Company's holdings in
subordinated tranches of CLOs and the definition of control under
IFRS 10. The Committee discussed the assessment of the
consolidation requirements with the Investment Manager in August
2016 as part of the review of the Interim Report. The Investment
Manager carries out this assessment semi-annually and reports to
the Company. The Committee met with the external auditor at the
time at which the Committee reviewed and agreed the external
auditor's audit plan in January 2017 and, in particular, discussed
the audit approach on the assessment of the consolidation
requirements.
The Committee critically reviewed, evaluated and agreed, having
consulted with the Investment Manager, that the Company meets the
definition of an Investment Entity and availed of the Investment
Entity Amendment under IFRS 10. Furthermore, analysis was performed
on behalf of the Committee by the Investment Manager to establish
the existence of any subsidiaries at financial year end under IFRS
10. Following discussion with KPMG, and the deliberations of the
Committee, we were satisfied that the financial statements deal
appropriately with each of the areas of judgement and applicable
IFRS 10 and IFRS 12 requirements. Based on this assessment, the
Board has concluded that at financial year end, the Company has
four subsidiaries for financial reporting purposes, Keuka Park CLO
Ltd 2013-1A, Neuberger Berman CLO XVII Ltd 2014-17X, Pinnacle Park
CLO Ltd 2014-1A and Sheridan Square CLO Ltd in accordance with IFRS
10. Please see further details outlined in notes 2 and 8 to the
financial statements.
Assessment of Risks and Uncertainties
The risks associated with the Company's financial instruments,
as disclosed in the financial statements, particularly in note 10,
represent a key accounting disclosure. The Committee critically
reviews, on the basis of input from the outsourced service
providers, the process of ongoing identification and measurement of
these risks disclosures.
Other Matters
Prior to preparation of the 2016 Annual Report and the financial
year end audit, the Committee considered the effect of any key new
reporting requirements impacting the Company. During the financial
year, the Committee received communications from the outsourced
service providers and from KPMG on other accounting matters
including tax, audit fees, anti-money laundering procedures, as
well as a representation letter and Unaudited Interim Report.
RISK MANAGEMENT AND INTERNAL CONTROLS
The Board as a whole is responsible for the Company's system of
internal control; however, the Committee assists the Board in
meeting its obligations in this regard. The daily operational
activities of the Company were delegated to the outsourced service
providers and, as a result, the Company has no direct internal
audit function and instead places reliance on the external and
internal audit controls applicable to the outsourced service
providers as regulated entities. However, the Committee receives
confirmations from the outsourced service providers that no
material issues have arisen in respect of the system of internal
controls and risk management operated within the Company's
outsourced service providers. The Committee confirms that this is
an ongoing process in order to manage the significant risks faced
by the Company. We deem that, to date, there are no significant
issues in this area which need to be brought to your attention.
EXTERNAL AUDIT
It is the responsibility of the Committee to monitor the
performance, independence, objectivity and re-appointment of KPMG.
In January 2017, the Committee met with KPMG who presented their
Audit Strategy and Plan for the financial year; the Committee
agreed the audit plan for the financial year, highlighting the key
financial statement and audit risks, to seek to ensure that the
audit was appropriately focused.
KPMG attends our Committee meetings throughout the financial
year, as appropriate, which allows the opportunity to discuss any
matters the auditor may wish to raise without the Investment
Manager or other outsourced service providers being present. KPMG
provides feedback at each Committee meeting on topics such as the
key accounting matters, mandatory communications and the control
environment.
KPMG was formally appointed as the Company's auditor for the
2010 financial year end audit following a competitive tender
process during 2010. The lead audit partner is rotated every five
financial years to ensure continued independence and
objectivity.
The Committee continues to be satisfied with the performance of
KPMG. We have therefore recommended to the Board that KPMG, in
accordance with agreed terms of engagement and remuneration, should
continue as the Company's auditor at the forthcoming Annual General
Meeting.
EXTERNAL AUDIT (continued)
In advance of the commencement of the annual audit, the
Committee reviewed a statement provided by KPMG confirming their
independence within the meaning of the regulations and professional
standards. In addition, in order to satisfy itself as to KPMG's
independence, the Committee undertook a review of the auditor
compensation and the balance between audit and non-audit fees.
It is also the responsibility of the Committee to approve the
guidelines for using the external auditors for non-audit work, and
to annually assess the work done to ensure that the independence of
the external auditors is maintained and to ensure appropriate
disclosures of these services are included in the annual report.
The Committee is the first point of call for discussion with the
auditor when required. Annually, the Committee reviews the schedule
of audit and non-audit fees of the auditor with particular regard
to the auditors' independence and objectivity. The Committee has
agreed the types of permitted and non-permitted non-audit services
and those which require explicit pre-approval. During the financial
year, the value of non-audit services provided by KPMG amounted to
US$33,170 plus VAT (2015: US$33,170 plus VAT). Whilst non-audit
services as a proportion of audit services amount to approximately
16.98% (2015: 16.90%), the overall quantum of non-audit services is
not considered to be material. Please refer to note 4 for more
details.
On 17 June 2016, new EU rules, Statutory Instrument No.312 of
2016, on statutory audit became applicable. The new rules establish
a list of non-audit services that cannot be provided by the
statutory auditor and imposes limitations on the fees charged for
non-audit services. In addition to the review for ensuring
compliance with the new EU rules, the Audit Committee performs an
assessment of any threats to independence and the safeguards in
place to mitigate such threats before providing approval for the
provision of any non-audit services. The audit committee is
satisfied with the charge for non audit services during the
financial year in proportion to audit fees.
COMMITTEE EFFECTIVENESS
The effectiveness of the Committee is reviewed on an annual
basis by both the Board and the Committee itself. Following such
reviews, I am pleased to advise that the Committee is considered to
continue to operate effectively and efficiently.
A member of the Committee will be available to shareholders at
the forthcoming Annual General Meeting of the Company to answer any
questions relating to the role of the Committee.
Yours sincerely
Adrian Waters
On behalf of the Audit Committee
26 April 2017
STATEMENT OF CUSTODIAN'S RESPONSIBILITIES AND CUSTODIAN'S REPORT
TO THE SHAREHOLDERS
We have enquired into the conduct of the Company for the
financial year ended 31 December 2016, in our capacity as Custodian
to the Company.
This report including the opinion has been prepared for and
solely for the shareholders in the Company, in accordance with the
Central Bank of Ireland's (the "Central Bank") Non-UCITS Notice 7
("Non-UCITS Notice 7"), and for no other purpose.
We do not, in giving this opinion, accept or assume
responsibility for any other purpose or to any other person to whom
this report is shown.
RESPONSIBILITIES OF THE CUSTODIAN
Our duties and responsibilities are outlined in the Non-UCITS
Notice 7. One of those duties is to enquire into the conduct of the
Company in each annual accounting period and report thereon to the
shareholders.
Our report shall state whether, in our opinion, the Company has
been managed in that period in accordance with the provisions of
the Company's Memorandum and Articles of Association and the
Non-UCITS Notices. It is the overall responsibility of the Company
to comply with these provisions. If the Company has not so
complied, we as Custodian must state why this is the case and
outline the steps which we have taken to rectify the situation.
BASIS OF CUSTODIAN OPINION
The Custodian conducts such reviews as it, in its reasonable
opinion, considers necessary in order to comply with its duties as
outlined in Non-UCITS Notice 7 and to ensure that, in all material
respects, the Company has been managed:
(i) in accordance with the limitations imposed on the investment
and borrowing powers of the Company by the provisions of its
memorandum and articles of association and by the Central Bank
under the powers granted to the Central Bank by the Companies Act
2014; and
(ii) otherwise in accordance with the Company's memorandum and
articles of association and the Companies Act 2014.
OPINION
In our opinion, the Company has been managed during the
financial year, in all material respects:
(i) in accordance with the limitations imposed on the investment
and borrowing powers of the Company by the Memorandum and Articles
of Association and by the Central Bank under the powers granted to
it by Part 24 of the Companies Act 2014; and
(ii) otherwise in accordance with the provisions of the
Memorandum and Articles of Association and Part 24 of the Companies
Act 2014.
State Street Custodial Services (Ireland) Limited
78 Sir John Rogerson's Quay
Dublin 2
Ireland
26 April 2017
INDEPENT AUDITOR'S REPORT TO THE SHAREHOLDERS OF CARADOR INCOME
FUND PLC
Opinions and conclusions arising from our audit
1 Our opinion on the financial statements is unmodified
We have audited the financial statements of Carador Income Fund
PLC (the "Company") for the year ended 31 December 2016 which
comprise the statement of financial position, the statement of
comprehensive income, the statement of changes in equity, the
statement of cash flows and notes, comprising a summary of
significant accounting policies and other explanatory information.
The financial reporting framework that has been applied in their
preparation is Irish law and International Financial Reporting
Standards ("IFRS") as adopted by the European Union. Our audit was
conducted in accordance with International Standards on Auditing
("ISAs") (UK & Ireland).
In our opinion, the financial statements:
-- give a true and fair view of the assets, liabilities and
financial position of the Company as at 31 December
2016 and of its profit for the year then ended;
-- have been properly prepared in accordance with IFRS as
adopted by the European Union; and
-- have been properly prepared in accordance with the
requirements of the Companies Act 2014.
2 Our assessment of risks of material misstatement
In arriving at our audit opinion above on the financial
statements, the risk of material misstatement that has had the
greatest effect on our audit was as follows:
Valuation of financial assets at fair value through profit or
loss of US $406m (2015: US$380m)
Please refer to the Report of the Audit Committee on page 24,
the accounting policy on page 37 and notes 3, 8 and 10 to the
financial statements.
The risk
The Company had 96.2% (2015: 96.7%) of its net assets as at 31
December 2016 invested into Collateralised Loan Obligations
('CLOs"). As described in the Report of the Audit Committee on page
25, the valuation of the Company's investments in these CLOs, given
that they represent the majority of the Company's net assets, is a
significant area of our audit. The valuation of this asset class is
based on prevailing market information (broker price approach) at
the valuation date. There is a risk that the prices in respect of
these investments held by the Company may not be reflective of fair
value.
Our response
Our audit procedures in respect of the valuation of the
Company's investments in the CLOs included, but were not limited
to: updating our understanding and critical assessment of the
design and implementation of the valuation methodologies and
valuation processes established by the Directors; obtaining the
broker quotations as used by the Investment Manager and
recalculating the valuation of the investments using the broker
price approach; and with the assistance of a KPMG valuation
specialist, assessing whether the valuation of the Company's
investments was within an acceptable range of fair values and
consideration of post year end valuation of the Company's
investments along with purchases and sales pre and post financial
year end for evidence of management bias.
With the involvement of a KPMG valuation specialist, for the
assessment of whether the valuation of the Company's investments
was within an acceptable range, our substantive testing included
the determination of an independent fair value reference for 100%
of the mezzanine tranche investments. For the equity tranche
securities, we performed individual securities valuation testing
through fundamental cash flow analysis on a sample of equity
tranche investments held as at year end, along with the performance
of a market review analysis.
We also considered the adequacy of the Company's disclosures
(see note 2N) in relation to: the use of judgments and estimates in
determining the fair value of investments; the Company's investment
valuation policies adopted; and fair value disclosures in note 3
and note 10 to the financial statements for compliance with IFRS as
adopted by the EU.
We confirmed that there were no matters identified during our
audit work in relation to the valuation of financial assets through
profit or loss that we wanted to bring to the attention of the
Audit Committee.
3 Our application of materiality and an overview of the scope of
our audit
The materiality for the financial statements as a whole was set
at US$4.2 million (2015: US$3.9 million). This has been determined
using a benchmark of the Company's net assets (of which it
represents 1% (2015: 1%)) as at 31 December 2016 which we
determined, in our professional judgment, to be one of the
principal benchmarks within the financial statements relevant to
the Shareholders of the Company in assessing financial performance,
and this is also a generally accepted auditing benchmark used for
companies in this industry.
We report to the Audit Committee all corrected and uncorrected
misstatements we identified through our audit with a value in
excess of US$0.2 million (2015: US$0.2 million), in addition to
other audit misstatements below that threshold that we believe
warranted reporting on qualitative grounds.
Our assessment of materiality has informed our identification of
significant risks of material misstatement and the associated audit
procedures performed in the area detailed above. Those procedures
have been designed to provide reasonable assurance that the
financial statements, taken as a whole, are free from material
misstatements.
Other than the valuation work noted above, the audit procedures
have been undertaken and performed by the audit team based in
Dublin.
4 We have nothing to report on the disclosures of principal
risks
Based on the knowledge we acquired during our audit, we have
nothing material to add or draw attention to, in relation to:
-- the Directors' viability statement on page 18, concerning the
principal risks, their management, and, based on that, the
Directors' assessment and expectations of the Company continuing in
operation over the next twelve months to 30 April 2018; and
-- the disclosures in note 2 of the financial statements
concerning the use of the going concern basis of preparation.
5 We have nothing to report in respect of the matters on which
we are required to report by exception
ISAs (UK & Ireland) require that we report to you if, based
on the knowledge we acquired during our audit, we have identified
information in the Annual Report that contains a material
inconsistency with either that knowledge or the financial
statements, a material misstatement of fact, or that is otherwise
misleading.
In particular, we are required to report to you if:
-- we have identified any inconsistencies between the knowledge
we acquired during our audit and the Directors' statements that
they consider the Annual Report and financial statements as a whole
is fair, balanced and understandable and provided information
necessary for Shareholders to assess the Company's position and
performance, business model and strategy; or
-- the Report of the Audit Committee does not appropriately
disclose those matters that we communicated to the Audit
Committee.
The Listing Rules of the UK Listing Authority require us to
review:
-- the Directors' statement, set out on page 18, in relation to
going concern and longer-term viability;
-- the part of the Corporate Governance Statement on pages 13 to
21 relating to the Company's compliance with the provisions of the
UK Corporate Governance Code specified for our review; and
-- certain elements of disclosures in the report to Shareholders
by the Board of Directors' Remuneration Committee.
In addition, the Companies Act requires us to report to you if,
in our opinion, the disclosures of Directors' remuneration and
transactions specified by law are not made.
6 Our conclusions on other matters on which we are required to
report by the Companies Act 2014 are set out below
We have obtained all the information and explanations which we
consider necessary for the purpose of our audit. In our opinion,
the accounting records of the Company were sufficient to permit the
financial statements to be readily and properly audited and the
financial statements are in agreement with the accounting
records.
In our opinion, the information given in the Directors' Report
is consistent with the financial statements and the description in
the Corporate Governance Statement of the main features of the
internal control and risk
6 Our conclusions on other matters on which we are required to
report by the Companies Act 2014 are set out below (continued)
management systems in relation to the process for preparing the
financial statements is consistent with the financial
statements.
In addition we report, in relation to information given in the
Corporate Governance Statement on pages 13 to 21, that:
-- based on knowledge and understanding of the Company and its
environment obtained in the course of our audit, no material
misstatements in the information identified above have come to our
attention; and
-- based on the work undertaken in the course of our audit, in
our opinion:
- the description of the main features of the internal control
and risk management systems in relation to the process for
preparing the financial statements, and information relating to
voting rights and other matters required by the European
Communities (Takeover Bids Directive 2004/25/EC)) Regulations 2006
and specified by the Companies Act 2014 for our consideration, are
consistent with the financial statements and have been prepared in
accordance with the Companies Act 2014; and
- the Corporate Governance Statement contains the information
required by the Companies Act 2014.
Basis of our report, responsibilities and restrictions on
use
As explained more fully in the Directors' Responsibilities
Statement set out on page 22, the Directors are responsible for the
preparation of the financial statements and for being satisfied
that they give a true and fair view. Our responsibility is to audit
and express an opinion on the financial statements in accordance
with applicable law and ISAs (UK & Ireland). Those standards
require us to comply with the Financial Reporting Council's Ethical
Standards for Auditors.
An audit undertaken in accordance with ISAs (UK & Ireland)
involves obtaining evidence about the amounts and disclosures in
the financial statements sufficient to give reasonable assurance
that the financial statements are free from material misstatement,
whether caused by fraud or error. This includes an assessment of:
whether the accounting policies are appropriate to the Company's
circumstances and have been consistently applied and adequately
disclosed; the reasonableness of significant accounting estimates
made by the Directors; and the overall presentation of the
financial statements.
In addition, we read all the financial and non-financial
information in the Annual Report to identify material
inconsistencies with the audited financial statements and to
identify any information that is apparently materially incorrect
based on, or materially inconsistent with, the knowledge acquired
by us in the course of performing the audit. If we become aware of
any apparent material misstatements or inconsistencies, we consider
the implications for our report.
Whilst an audit conducted in accordance with ISAs (UK &
Ireland) is designed to provide reasonable assurance of identifying
material misstatements or omissions, it is not guaranteed to do so.
Rather, the auditor plans the audit to determine the extent of
testing needed to reduce to an appropriately low level the
probability that the aggregate of uncorrected and undetected
misstatements does not exceed materiality for the financial
statements as a whole. This testing requires us to conduct
significant audit work on a broad range of assets, liabilities,
income and expense as well as devoting significant time of the most
experienced members of the audit team, in particular the engagement
partner responsible for the audit, to subjective areas of the
accounting and reporting.
Our report is made solely to the Company's Shareholders, as a
body, in accordance with section 391 of the Companies Act 2014. Our
audit work has been undertaken so that we might state to the
Company's Shareholders 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
Shareholders as a body, for our audit work, for this report, or for
the opinions we have formed.
Vincent Reilly
for and on behalf of
KPMG
Chartered Accountants, Statutory Audit Firm
1 Harbourmaster Place
IFSC
Dublin1 Ireland
26 April 2017
STATEMENT OF FINANCIAL POSITION
As at 31 December 2016
31 December 31 December
2016 2015
Notes US$ US$
----------------------------------- --------- ------------ ------------
ASSETS
Cash and cash equivalents 5, 10 16,682,060 28,044,711
Other receivables 10 1,357,374 17,981
Financial assets at fair
value through profit or loss* 3, 8, 10 405,793,835 379,662,763
TOTAL ASSETS 423,833,269 407,725,455
----------------------------------- --------- ------------ ------------
LIABILITIES
Expenses payable 4 2,092,950 1,868,391
Payable for investments purchased - 13,019,620
TOTAL LIABILITIES 2,092,950 14,888,011
----------------------------------- --------- ------------ ------------
NET ASSETS ATTRIBUTABLE TO PARTICIPATING
EQUITY SHAREHOLDERS 421,740,319 392,837,444
---------------------------------------------- ------------ ------------
NET ASSET VALUE PER PARTICIPATING US
DOLLAR SHARE 0.7763 0.7231
---------------------------------------------- ------------ ------------
* Balances include investment in unconsolidated subsidiaries.
Please refer to note 8 for further detail.
These financial statements were authorised and approved for
issue by the Directors on 26 April 2017 and signed on their behalf
by:
Werner Schwanberg Adrian Waters
The accompanying notes form an integral part of the financial
statements.
STATEMENT OF COMPREHENSIVE INCOME
For the financial year ended 31 December 2016
31 December 31 December
2016 2015
Notes US$ US$
------------------------------------ ------ ------------ --------------
Interest income on cash
and cash equivalents 2 2,854 2,336
Miscellaneous income 44,237 166,783
Net loss on foreign exchange 2 (34,446) (13,184)
Net gain/(loss) on financial
assets at fair value through
profit or loss 2 86,289,722 (32,880,390)
------------------------------------ ------ ------------ --------------
TOTAL REVENUE/(EXPENSE) 86,302,367 (32,724,455)
------------------------------------ ------ ------------ --------------
Investment management fees 4 (5,107,521) (6,342,328)
Custodian fees 4 (63,136) (71,388)
Administration fees 4 (291,977) (350,126)
Directors' fees 4, 9 (344,249) (329,640)
Auditor's fees 4 (199,529) (200,033)
Other operating expenses 4 (955,823) (1,239,107)
------------------------------------ ------ ------------ --------------
TOTAL OPERATING EXPENSES (6,962,235) (8,532,622)
------------------------------------ ------ ------------ --------------
OPERATING PROFIT/(LOSS)
BEFORE FINANCE COSTS 79,340,132 (41,257,077)
------------------------------------ ------ ------------ --------------
Facility costs 11 (151,994) (145,306)
Interest expense (34,328) (6,940)
-------------------------------------------- ------------ --------------
TOTAL FINANCE COSTS (186,322) (152,246)
-------------------------------------------- ------------ --------------
PROFIT/(LOSS) FOR THE FINANCIAL
YEAR ALL ATTRIBUTABLE TO PARTICIPATING
EQUITY SHAREHOLDERS 79,153,810 (41,409,323)
-------------------------------------------- ------------ --------------
TOTAL COMPREHENSIVE INCOME/(EXPENSE)
FOR THE FINANCIAL YEAR ALL ATTRIBUTABLE
TO PARTICIPATING EQUITY SHAREHOLDERS 79,153,810 (41,409,323)
EARNINGS(LOSS) PER SHARE
Earnings/(loss) per US 13 US$0.15 US$(0.08)
Dollar share
------------------------------------ ------ ------------ --------------
The accompanying notes form an integral part of the financial
statements.
STATEMENT OF CHANGES IN EQUITY
For the financial year ended 31 December 2016
31 December
Notes 2016
US$
---------------------------------------------- ------------ -----------------
AT 31 DECEMBER 2014 488,572,102
---------------------------------------------- ------------ -----------------
TRANSACTIONS WITH PARTICIPATING EQUITY
SHAREHOLDERS
Distributions to participating equity
shareholders 16 (54,325,335)
TOTAL TRANSACTIONS WITH PARTICIPATING
EQUITY SHAREHOLDERS (54,325,335)
---------------------------------------------- ------------ -----------------
Loss for the financial year all attributable
to participating equity shareholders (41,409,323)
---------------------------------------------- ------------ -----------------
TOTAL COMPREHENSIVE EXPENSE FOR THE
FINANCIAL YEAR ALL ATTRIBUTABLE TO
PARTICIPATING EQUITY SHAREHOLDERS (41,409,323)
AT 31 DECEMBER 2015 392,837,444
---------------------------------------------- ------------ -----------------
TRANSACTIONS WITH PARTICIPATING EQUITY
SHAREHOLDERS
Distributions to participating equity
shareholders 16 (50,250,935)
TOTAL TRANSACTIONS WITH PARTICIPATING
EQUITY SHAREHOLDERS (50,250,935)
Profit for the financial year all
attributable to participating equity
shareholders 79,153,810
---------------------------------------------- ------------ -----------------
TOTAL COMPREHENSIVE INCOME FOR THE
FINANCIAL YEAR ALL ATTRIBUTABLE TO
PARTICIPATING EQUITY SHAREHOLDERS 79,153,810
AT 31 DECEMBER 2016 421,740,319
---------------------------------------------- ------------ -----------------
The accompanying notes form an integral part of the financial
statements.
STATEMENT OF CASH FLOWS
For the financial year ended 31 December 2016
31 December 31 December
2016 2015
Notes US$ US$
-------------------------------------------------- -------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Profit/(loss) for the financial
year all attributable to participating
equity shareholders 79,153,810 (41,409,323)
Adjustments for non-cash items
and working capital:
Increase/(decrease) in payables 2,4,10 224,559 (18,801)
Increase in receivables 2,10 (1,339,393) (17,981)
Net (gain)/loss on financial
assets at fair value 2,10 (25,581,028) 100,339,186
NET CASH INFLOW FROM OPERATING
ACTIVITIES 52,457,948 58,893,081
------------------------------------------ ------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments* (193,510,157) (81,773,650)
Disposal and paydowns of investments 163,916,116 94,492,259
Movement in cash equivalents 5 16,024,377 -
------------------------------------------ ------- -------------- --------------
NET CASH (OUTFLOW)/INFLOW FROM
INVESTING ACTIVITIES (13,569,664) 12,718,609
------------------------------------------ ------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to participating
equity shareholders 16 (50,250,935) (54,325,335)
NET CASH OUTFLOW FROM FINANCING
ACTIVITIES (50,250,935) (54,325,335)
------------------------------------------ ------- -------------- --------------
Net (decrease)/increase in cash
and cash equivalents (11,362,651) 17,286,355
CASH AND CASH EQUIVALENTS AT
THE BEGINNING OF THE FINANCIAL
YEAR 28,044,711 10,758,356
------------------------------------------ ------- -------------- --------------
CASH AND CASH EQUIVALENTS AT
THE OF THE FINANCIAL YEAR 16,682,060 28,044,711
------------------------------------------ ------- -------------- --------------
* Balances include investment in unconsolidated subsidiaries.
Please see note 8 for further detail.
The accompanying notes form an integral part of the financial
statements.
NOTES TO THE FINANCIAL STATEMENTS
For the financial year ended 31 December 2016
1 GENERAL
Carador Income Fund PLC is a closed-ended limited liability
investment company domiciled and incorporated under the laws of the
Republic of Ireland with variable capital pursuant to the Irish
Companies Act 2014. It was incorporated on 20 February 2006 under
registration number 415764. The Company is authorised by the
Central Bank of Ireland ("Central Bank"), pursuant to Part 24 of
the Companies Act 2014. It is admitted to the Official List of the
UK Listing Authority with a premium listing and is admitted to
trading on the Main Market of the London Stock Exchange.
The Company's investment objective is to produce attractive and
stable returns, with low volatility compared to equity markets, by
investing in a diversified portfolio of senior notes of
collateralised loan obligations ("CLOs") collateralised by senior
secured bank loans and equity and mezzanine tranches of CLOs.
At 31 December 2016, all shares in issue were US Dollar shares.
The Company may issue one or more additional classes of shares on
prior notice to and clearance by the Central Bank.
2 SIGNIFICANT ACCOUNTING POLICIES
2A STATEMENT OF COMPLIANCE
The Company's financial statements are prepared in accordance
with International Financial Reporting Standards ("IFRS") as issued
by the International Accounting Standards Board ("IASB") as adopted
by the European Union and also in accordance with Irish Company
Law.
2B ADOPTION OF NEW ACCOUNTING STANDARDS AND AMMENTS, INCLUDING
ACCOUNTING POLICY CHANGES
The Company has consistently applied the accounting requirements
to all periods presented in these financial statements. The Company
adopted the following new standards during the year ended 31
December 2016:
Investment Entities: Applying the Consolidation Exception
(Amendments to IFRS 10, IFRS 12 and lAS 28). These amendments,
clarify that an investment entity may provide investment-related
services to third parties - even if those activities are
substantial to the entity - as long as the entity continues to meet
the definition of an investment entity. The amendments are
effective for annual periods beginning on or after 1 January 2016.
The Company is satisfied that it meets both the required criteria
and typical characteristics of an investment entity. The relevant
disclosures are included in note 8. The adoption of these new
amendments does not have a significant impact on its financial
statements.
Amendment to IAS1 "Presentation of Financial Statements
Disclosure Initiative" this amendment introduces five narrow-focus
improvements to the disclosure requirements that relate to
materiality, order of the notes, subtotals, accounting policies and
disaggregation. The amendment is not expected to have any impact on
the Company's financial position, performance but may result in a
variation of disclosures in its financial statements.
There were no other new requirements that impacted the Company's
financial statements.
2C BASIS OF PREPARATION
The Company's financial statements have been prepared on a
historical cost basis, except for financial instruments measured at
fair value through profit or loss.
The functional currency of the Company is US Dollar (US$), as
the Directors have determined that this reflects the Company's
primary economic environment. The presentation currency of the
financial statements is also US Dollar.
The financial statements comprise the Company's statement of
financial position, statement of comprehensive income, statement of
changes in equity and statement of cash flows together with the
related notes. These notes also incorporate financial instrument
related disclosures which are required by IFRS 7 that are contained
in the Annual Report in the section entitled "Investment Manager's
review".
The Company qualifies as an investment entitiy and, therefore,
the Company does not consolidate subsidiaries but accounts for them
at fair value through profit or loss.
The Company's management has made an assessment of the Company's
ability to continue as a going concern and is satisfied that the
Company has the resources to continue for the foreseeable
future.
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
2C BASIS OF PREPARATION (continued)
While there is uncertainty surrounding the potential repurchase
opportunity, the Directors believe that should a repurchase
opportunity be presented to Shareholders, it is unlikely that
elections for repurchase will constitute a material part of the
shares. The Directors believe that this is supported by the
announcement in November 2016 that they may consider offering
Shareholders potential repurchase opportunities on a more frequent
basis. Subject to any necessary changes to the Articles being
approved, the Directors intend to consider every two and a half
years whether to put an ordinary resolution to shareholders to
approve a repurchase opportunity for up to 100% of the shares in
issue. The Directors believe that it is unlikely that they will
need to consider whether a winding-up resolution should instead be
put to Shareholders should the share repurchases reach 75%.
Further, the Company's only liabilities are expenses paid to
service providers. The key liabilities are linked to NAV and thus
fluctuate as the NAV of the Company increases and decreases,
subject to a minimum in certain cases. This results in the Company
being able to comfortably cover the liabilities as they fall
due.
The Directors have concluded that these circumstances do not
represent a material uncertainty which may cast significant doubt
upon the Company's ability to continue as a going concern, and that
the Directors have a reasonable expectation that the Company will
continue in operational existence for the foreseeable future. For
these reasons, they continue to adopt the going concern basis in
preparing the annual financial statements.
2D INTEREST INCOME AND INTEREST EXPENSE ON CASH AND CASH
EQUIVALENTS
Income receivable on cash and cash equivalents is recognised
separately through profit or loss in the statement of comprehensive
income, on an effective interest rate basis.
2E PARTICIPATING EQUITY SHARES
The shares of the Company are classified as equity based on the
substance of the contractual arrangements and in accordance with
the definition of equity instruments under IAS 32. The proceeds
from the issue of participating shares are recognised in the
statement of changes in equity, net of the incremental issuance
costs.
2F FEES AND CHARGES
Expenses are charged through profit or loss in the statement of
comprehensive income on an accruals basis.
2G CASH AND CASH EQUIVALENTS
Cash comprises current deposits with banks. Cash equivalents are
short-term, highly liquid investments that are readily convertible
to known amounts of cash, are subject to an insignificant risk of
changes in value, and are held for the purpose of meeting
short-term cash commitments rather than for investments or other
purposes.
2H NET GAIN/(LOSS) ON FINANCIAL ASSETS AT FAIR VALUE THROUGH
PROFIT OR LOSS
Net gain/(loss) on financial assets at fair value through profit
or loss consists of coupons received and both realised and
unrealised gains and losses on financial assets at fair value
through profit or loss, calculated as described in note 2I(iii).
For the purposes of the statement of cash flows, the coupon income
is considered an operating activity.
2I FINANCIAL INSTRUMENTS
(i) Classification
The Company classifies its financial assets and financial
liabilities into categories in accordance with IAS 39 Financial
Instruments: Recognition and Measurement.
The category of financial assets and financial liabilities at
fair value through profit or loss comprises:
Financial assets at fair value through profit or loss other than
those held for trading
Financial assets classified in this category are designated by
management on initial recognition as part of a group of financial
assets which are managed and their performance evaluated on a fair
value basis, in accordance with a documented investment strategy.
The term "financial assets designated at fair value through profit
or loss" includes investments in collateralised loan obligations.
IFRS 10's Investment Entity Amendment also requires subsidiaries to
be accounted for at fair value through profit or loss in accordance
with IAS 39.
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
2I FINANCIAL INSTRUMENTS (continued)
Financial assets at amortised cost
Loans and receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active
market, and they are carried at amortised cost. The Company
includes in this category cash and cash equivalents and other
receivables. The amortised cost of a financial asset is the amount
at which the instrument is measured at initial recognition (its
fair value) adjusted for initial direct costs, minus principal
repayments, plus or minus the cumulative amortisation, using an
effective interest rate method, of any difference between the
initial amount recognised and the maturity amount, minus any
reduction for impairment. The Company includes in this category
expenses payable and amounts payable for investments purchased.
(ii) Recognition and initial measurement
Financial assets and financial liabilities are measured
initially at fair value, being the transaction price, including
transaction costs for items that will subsequently be measured at
amortised cost, on the trade date, which is the date on which the
Company becomes a party to the contractual provisions of the
instrument. Transaction costs on financial assets at fair value
through profit or loss are expensed immediately.
(iii) Subsequent measurement
After initial measurement, the Company measures financial
instruments classified at fair value through profit or loss at
their fair values. Changes in fair value are recorded within "Net
gain/(loss) on financial assets at fair value through profit or
loss" in the statement of comprehensive income.
The following sources have been used to obtain the fair value
for the financial assets and liabilities of the Company:
Level 1. Where quoted prices in an active market are available
for the financial assets and liabilities, these are used to
determine fair value of the respective financial instrument.
Level 2. Where the market for a financial instrument is not an
active market, the fair value on subsequent measurement is obtained
through broker price quotations or through the use of pricing
services. Regarding the broker price quotation valuation technique,
the fair value is derived through an average of at least two or
more broker quotes with outliers (if any) removed prior to
calculation, and also including in this average calculation binding
offer and actual trade prices (if any). This valuation technique
uses observable inputs that require no significant adjustment based
on unobservable inputs, therefore resulting in Level 2
classification; and
Level 3. This category includes all instruments for which the
broker price quotation valuation technique (as described above)
includes inputs not based on observable data and the unobservable
inputs have a significant effect on the instrument's valuation.
All other financial instruments not at fair value are measured
on an amortised cost basis.
(iv) Offsetting financial instruments
Financial assets and liabilities are offset and the net amount
reported in the statement of financial position where there is a
legally enforceable right to offset the recognised amounts and
there is an intention to settle on a net basis, or realise the
assets and settle the liability simultaneously. For the financial
year ended 31 December 2016, there were no financial assets or
liabilities subject to enforceable, master netting arrangements or
similar agreements which would require disclosure.
(v) Derecognition
The Company derecognises a financial asset when the contractual
rights to the cash flows from the financial asset expire or it
transfers the financial asset and the transfer qualifies for
derecognition in accordance with IAS 39. The Company derecognises a
financial liability when the obligation specified in the contract
is discharged, cancelled or expires.
2J FOREIGN CURRENCY
Transactions in foreign currencies are translated at the foreign
currency exchange rate to the functional currency at the rate
ruling at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are translated to US
Dollar at the foreign currency closing exchange rate ruling at the
reporting date. Foreign currency exchange differences relating to
investments at fair value through profit or loss are included in
"Net gain/(loss) on financial assets at fair value through profit
or loss" and "Net loss on foreign exchange" in the statement of
comprehensive income respectively. All other foreign currency
exchange differences relating to monetary items, including cash,
are presented in "Net loss on foreign exchange" in the statement of
comprehensive income.
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
2K TAXATION
Income tax expense is recognised through profit or loss in the
statement of comprehensive income except to the extent that it
relates to items recognised directly in equity or in other
comprehensive income.
Current tax is the expected tax payable or receivable on the
taxable income or loss for the financial year, using tax rates
enacted or substantially enacted at the reporting date, and any
adjustment to tax payable in respect of previous periods.
Under current law and Irish practice, the Company qualifies as
an investment undertaking under Section 739B of the Taxes
Consolidation Act 1997 and is not therefore chargeable to Irish tax
on its relevant income or relevant gains. See note 15 for further
details.
2L DISTRIBUTIONS
Distributions to the holders of participating shares are
recorded through the statement of changes in equity when they are
declared to shareholders.
2M OPERATING SEGMENTS
An operating segment is a component of the Company that engages
in business activities from which it may earn revenues and incur
expenses, whose operating results are regularly reviewed by the
Company's chief operating decision makers and for which discrete
financial information is available. The chief operating
decision-makers for the Company are the Investment Manager and the
Directors. In considering the segments of the Company, the Company
has considered the information reviewed by the Company's Chief
Operating Decision-
Makers and determined that there is only one operating segment
in existence.
2N SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES
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. Actual results may differ
from these estimates.
Estimates and underlying assumptions are required on an ongoing
basis. Revisions to estimates are recognised prospectively.
Fair value
In accordance with IFRS 13, the Company applies the definition
of fair value, being 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 in the
principal or, in its absence, the most advantageous market to which
the Company has access at that date. The fair value of a liability
reflects its non-performance risk.
When the fair value of financial assets and financial
liabilities recorded in the statement of financial position cannot
be derived from active market quotations, they are determined using
valuation techniques including the use of broker prices.
See note 3 for further details of the fair value hierarchy
levels at 31 December 2016 and 31 December 2015.
Application of IFRS 10, its related IE Amendment and IFRS 12
The Directors are satisfied that the Company meets the
definition of an investment entity, and has also concluded that its
investments in Keuka Park CLO Ltd 2013-1A, Neuberger Berman CLO
XVII Ltd 2014-17X, Pinnacle Park CLO Ltd 2014-1A and Sheridan
Square CLO Ltd meet the definition of a subsidiary in accordance
with IFRS 10, with the remaining CLOs in which the Company invests
meeting the definition of structured entities in accordance with
IFRS 12. These conclusions are further detailed in note 8 Interest
in Other Entities.
2O NEW STANDARDS AND INTERPRETATIONS APPLICABLE TO FUTURE
REPORTING PERIODS
New standards, amendments and interpretations issued but not
effective in 2016 and not early adopted.
The Company has considered all the upcoming International
Accounting Standards Board's ("IASB's") standards including those
not yet endorsed by the EU. The below standards are those deemed to
have relevance to the Company and will be adopted from their EU
effective dates.
IFRS 9 "Financial instruments", effective for annual periods
beginning on or after 1 January 2018 with early adoption permitted,
specifies how an entity should classify and measure financial
assets and liabilities, including some hybrid contracts. The
standard improves and simplifies the approach for classification
and measurement of financial assets compared with the requirements
of IAS 39. Most of the requirements in IAS 39 for classification
and measurement of financial liabilities were carried forward
unchanged.
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
2O NEW STANDARDS AND INTERPRETATIONS APPLICABLE TO FUTURE
REPORTING PERIODS (continued)
New standards, amendments and interpretations issued but not
effective in 2016 and not early adopted.(continued)
The standard applies a consistent approach to classifying
financial assets and replaces the numerous categories of financial
assets in IAS 39, each of which had its own classification
criteria. The standard is not expected to have a significant impact
on the Company's financial position or performance, as it is
expected that the Company will continue to classify the majority or
almost all of its financial assets as being at fair value through
profit or loss.
IFRS 15 "Revenue from Contracts with Customers" was issued in
May 2014 and will become effective for periods beginning on or
after 1 January 2018. The new standard is not expected to have any
significant impact on the Company's financial position, performance
or disclosures in its financial statements.
3 FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
As described in the accounting policies note, the Company has
financial assets designated at fair value through profit or loss.
The financial instruments recognised at fair value are analysed
between those whose fair value is based on:
-- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
-- Level 2: inputs other than quoted prices included in Level 1
that are observable for the asset or liability, either directly (as
prices) or indirectly (derived from prices). This category includes
instruments valued using: quoted market prices in active markets
for similar instruments; quoted market prices for identical or
similar instruments in markets that are considered less than
active; or other valuation techniques in which all significant
inputs are directly or indirectly observable from market data.
-- Level 3: inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
The table below analyses financial instruments measured at fair
value at the reporting date by the level in the fair value
hierarchy into which the fair value measurement is categorised. The
amounts are based on the values recognised in the statement of
financial position. All fair value measurements below are
recurring.
As at As at
31 December 31 December
2016 2015
US$ US$
--------- ------------- -------------
Level 1 - -
Level 2 341,359,581 135,326,564
Level 3 64,434,254 244,336,199
--------- ------------- -------------
405,793,835 379,662,763
--------- ------------- -------------
The Company determines the fair value for the collateralised
loan obligations using independent, unadjusted indicative broker
quotes. A broker quote is not generally a binding offer. The
categorisation of the collateralised loan obligations is dependent
if the broker quotes reflect actual current market transactions, or
if they are indicative prices based on the broker's valuation
models, depending on the significance and observability of the
inputs to the model.
The Investment Manager can challenge the marks that come from
the independent brokers if they appear off-market or
unrepresentative but has no discretion to disregard a mark if a
broker dealer does not adjust it after a challenge.
For collateralised loan obligations that have been categorised
as Level 2, fair value has been determined using independent broker
quotes based on observable inputs. If it could not be verified that
the valuation is based significantly on observable inputs, then the
investments would fall into Level 3.
The Company considers observable data to be that market data
that is readily available, regularly distributed or updated,
reliable, not proprietary, and provided by independent sources that
are actively involved in the relevant market.
For each class of assets and liabilities not measured at fair
value in the statement of financial position but for which fair
value is disclosed, the Company is required to disclose the level
within the fair value hierarchy which the fair value measurement
would be categorised and a description of the valuation technique
and inputs used in the technique.
3 FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS (continued)
For the financial years ended 31 December 2016 and 31 December
2015, cash and cash equivalents, other receivables, expenses
payable and payable for investments purchased whose carrying
amounts approximate to fair value, were classified as Level 2
within the fair value hierarchy.
Transfers between Level 1, 2 and 3
There were no transfers between Level 1 and Level 2 during the
financial year (2015: no transfers). Where transfers between levels
arise, they are deemed to occur at the end of the reporting
period.
At 31 December 2016, collateralised loan obligations with a fair
value of US$64,434,254 were classified as Level 3. The reduction in
the Level 3 assets reflects the lower dispersion in the indicative
broker quotes, given the improvement in the market liquidity during
the financial year. At 31 December 2015, certain collateralised
loan obligations with a fair value of US$244,336,199 were
transferred from Level 2 to Level 3. The change in the
classification level was a result of decreased liquidity in the
market and wider spreads reflected by a broader spectrum of
indicative broker quotes, which were factors that indicated that
the broker quotes were not based on observable prices.
For Level 3 instruments, the factors taken into consideration
include the spread differential within the different broker quotes
received as well as other market information, such as trades,
portfolio composition and other market considerations.
The following table shows a reconciliation from the opening
balances to the closing balances for fair value measurements in
Level 3 of the fair value hierarchy as at 31 December 2016:
Collateralised
Loan Obligations
US$
-------------------------------------------- ------------------
Balance at 1 January 2016 244,336,199
Net gain on financial assets at fair value
through profit or loss 2,640,450
Purchases 5,444,864
Disposal and paydowns of investments (73,964,227)
Transfers into Level 3 10,224,358
Transfers out of Level 3 (124,247,390)
Balance at 31 December 2016 64,434,254
-------------------------------------------- ------------------
Change in unrealised gains or losses (net gain) for the
financial year included in profit or loss for the collateralised
loan obligations within Level 3 of the fair value hierarchy
amounted to US$5,509,157. These gains and losses are included in
the net gain/(loss) on financial assets at fair value through
profit or loss of the statement of comprehensive income.
The following table shows a reconciliation from the opening
balances to the closing balances for fair value measurements in
Level 3 of the fair value hierarchy as at 31 December 2015:
Collateralised
Loan Obligations
US$
----------------------------- ------------------
Balance at 1 January 2015 -
Transfers into Level 3 244,336,199
Balance at 31 December 2015 244,336,199
----------------------------- ------------------
The table below sets out information about significant
unobservable inputs used at 31 December 2016 in measuring financial
instruments categorised as Level 3 in the fair value hierarchy.
Sensitivity
to changes in
Fair significant
Asset Value Unobservable Weighted unobservable
Class US$ Inputs Ranges Average inputs
-------- ----------- ------------- ----------- --------- ---------------------
1% increase/decrease
will have
a fair value
Income Broker 6.70% - impact of
Notes 64,434,254 Quotes 92.00% 64.98% +/- US$644,343
64,434,254
-------- ----------- ------------- ----------- --------- ---------------------
3 FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS (continued)
The table below sets out information about significant
unobservable inputs used at 31 December 2015 in measuring financial
instruments categorised as Level 3 in the fair value hierarchy.
Sensitivity
to changes in
significant
Asset Fair Value Unobservable Weighted unobservable
Class US$ Inputs Ranges Average inputs
----------- ------------------- ------------- ---------- --------- ---------------------
1% increase/decrease
will have
a fair value
Mezzanine Broker 52.33% impact of
Notes 47,008,180 Quotes - 87.38% 73.11% +/- US$463,374
1% increase/decrease
will have
a fair value
Income Broker 28.10% impact of
Notes 197,328,019 Quotes - 94.00% 57.93% +/- US$1,973,280
244,336,199
----------- ------------------- ------------- ---------- --------- ---------------------
The above analysis also gives an approximation of the
sensitivity of the different asset classes to market risk as at 31
December 2016 and 31 December 2015 that seems reasonable
considering the current market environment and the nature of the
Company's assets' main underlying risks. This sensitivity analysis
presents an approximation of the potential effects of events that
could have been reasonably expected to occur as at the reporting
date.
4 OPERATING EXPENSES
INVESTMENT MANAGER
The Investment Manager is entitled to receive a base management
fee from the Company of 1.5% per annum of the NAV of the Company,
calculated and payable monthly in arrears. The base management fee
will be reduced to take into account any fees received by the
Investment Manager or any of its associates or affiliates as a
result of managing any collective investment scheme that the
Company invests in or as a result of managing any CLO or collective
investment scheme that the Company invests in, if such investment
is or has been made in the primary market (i.e. the market in which
investors have the first opportunity to buy a newly issued
security). Please see note 9 for details of deals managed by the
Investment Manager or its affiliates and whether they were sourced
in the primary or secondary market. The Investment Manager fees for
the year ended 31 December 2016 amounted to US$5,107,521 (31
December 2015: US$6,342,328).
The Investment Manager is entitled to a performance fee in
respect of the US Dollar shares equivalent to 13% of the amount by
which the value of the financial year end NAV per US Dollar share
plus dividends per US Dollar share paid in the period exceeds the
value of the NAV per US Dollar share, as increased by the
performance fee hurdle rate (as defined below) plus 2%, as at the
end of the most recent previous completed accounting reference
period or, if greater, the NAV per US Dollar share as at the end of
the previous completed accounting reference period in respect of
which a performance fee was paid.
The performance fee hurdle rate is the greater of 12 month US
Dollar LIBOR or 4%.
If a US Dollar share performance fee was not paid in respect of
the previous accounting reference period, US Dollar Libor shall be
the annualised annually compounded US Dollar London Inter-Bank
Offered Rate for 12-month deposits in respect of all previous
relevant accounting periods since such US Dollar share performance
fee was last paid.
The performance fee is accrued on a monthly basis and is paid
annually within 14 days of receipt of the calculation by the
Company from State Street Fund Services (Ireland) Limited (the
"Administrator").
The calculation of the performance fee is verified by State
Street Custodial Services (Ireland) Limited (the "Custodian").
There were no performance fees paid for the year ended 31 December
2016 (31 December 2015: US$Nil)
The Company also reimburses the Investment Manager for all
out-of-pocket expenses reasonably incurred in the performance of
its duties.
ADMINISTRATOR AND CUSTODIAN
The Administrator and Custodian shall be entitled to receive
aggregate fees of up to 0.10% per annum of the NAV of the Company
for the provision, respectively, of administration, accounting,
trustee and custodial services to the Company, subject to a minimum
monthly fee of US$10,000. The overall charge for the
above-mentioned fees for the Company for the financial years ended
31 December 2016 and 31 December 2015 and the amounts due at 31
December 2016 and 31 December 2015 are disclosed below for
information purposes.
4 OPERATING EXPENSES (continued)
DIRECTORS' FEES AND OTHER EXPENSES
The Company's Directors are entitled to a fee in remuneration
for their services as Directors at a rate to be determined from
time to time by the remuneration committee of the Company and
disclosed in the financial statements.
Operating expenses are disclosed separately in the Statement of
Comprehensive Income.
Accruals excluding audit, Directors and other professional fee
accruals as at 31 December 2016 and 31 December 2015 are detailed
in the table below.
As at As at
31 December 31 December
2016 2015
ACCRUAL US$ US$
---------------------------- ------------- -------------
Investment management fees 1,354,568 936,299
Custodian fees 5,165 11,871
Administration fees 24,535 54,121
Commitment fees 22,750 22,750
Interest payable 3,278 18,171
Other operating expenses 347,966 585,068
---------------------------- ------------- -------------
1,758,262 1,628,280
---------------------------- ------------- -------------
The remaining balance of the expense accrual consists of
auditors' fees of US$188,336 (31 December 2015: US$171,456)
inclusive of VAT, Directors' fees and other professional fees of
US$146,352 (31 December 2015: US$68,655).
During the financial year ended 31 December 2016, Directors'
fees amounted to US$324,040 (31 December 2015: US$309,431) plus out
of pocket expenses of US$20,209 (31 December 2015: US$20,209), of
which US$Nil (31 December 2015: US$Nil) remained payable at the
financial year end.
AUDITORS FEES
The Company incurred the following audit, assurance and tax fees
(including expenses) during the financial year of which US$139,045
(31 December 2015: US$139,395) was outstanding at the financial
year end.
Financial Financial
year ended year ended
31 December 31 December
2016** 2015**
US$ US$
------------------------------- ------------- -------------
Audit of financial statements 139,045 139,395
Other assurance services* 23,174 23,233
Tax advisory services*** 33,170 33,170
195,389 195,798
------------------------------- ------------- -------------
* The above amounts were paid to the statutory auditor for work
undertaken by them in relation to the review of the interim
financial statements.
** The above amounts incurred for the financial years ended 31
December 2016 and 31 December 2015 are before the inclusion of
VAT.
*** Tax advisory fees are included in other operating expenses
in the Statement of Comprehensive Income.
5 CASH AND CASH EQUIVALENTS
Cash and cash equivalents balances are held with State Street
Bank and Trust Company and also consist of an investment in
Blackrock Money Market Fund which is a short-term, highly liquid
investment amounting to US$16,024,377.
6 PARTICIPATING SHARES
US DOLLAR SHARES
The authorised share capital of the Company shall not be less
than the currency equivalent of EUR2 represented by two subscriber
shares and the maximum issued share capital shall not be more than
the currency equivalent of EUR500 billion divided into an
unspecified number of non-redeemable shares. As at 31 December
2016, the issued share capital consisted of 543,253,359 US Dollar
shares (31 December 2015: 543,253,359) and the subscriber shares
referred to below.
Voting rights
The Company has issued two subscriber shares of EUR1 each. These
shares do not participate in the profits of the Company. Holders of
US Dollar shares participate in the profits of the Company and have
voting rights with shareholders having one vote in respect of each
whole share held.
6 PARTICIPATING SHARES (continued)
ISSUED PARTICIPATING SHARE
The share capital consisted of 543,253,359 shares as at 31
December 2016 and 31 December 2015. There were no shares issued and
no shares converted during the financial year ended 31 December
2016 or 31 December 2015.
CAPITAL MANAGEMENT
The Company is closed-ended. At the EGM on 26 June 2013, a
resolution was passed which provides that at the annual general
meeting to be held in the financial year 2022 and in every tenth
financial year thereafter, the Directors will propose a special
resolution to the effect that the Company continue for a further
ten financial years. If the continuation vote is not passed, the
Directors are required to formulate proposals to be put to
shareholders to wind-up, reorganize or reconstruct the Company.
The Company's objectives for managing capital are:
-- to invest the capital in investments meeting the description,
risk exposure and expected return indicated in
its Prospectus;
-- to achieve consistent returns while safeguarding capital by
investing in CLOs backed by corporate loans or holding cash;
-- to maintain sufficient liquidity to meet the expenses of the
Company and to meet distribution commitments; and
-- to maintain sufficient size to make the operation of the
Company cost-efficient.
The Directors will distribute all or part of the Company's net
income (after reasonable expenses and retaining an element of cash
flow receipts on Income Notes of CLOs) received from the underlying
investments as quarterly dividends in January, April, July and
October each financial year. The Directors aim to make consistent,
quarterly dividend payments, and may use any retained net income to
assist in implementing this policy.
Further to the EGM on 26 June 2013 and in accordance with the
current provisions of the Articles of Association the Company
shareholders may, at the Directors' discretion, be offered a
redemption opportunity in 2017 for up to 100 per cent of the shares
in issue if the shares have traded at an average discount to net
asset value in excess of 5% over the 12 month period prior to 30
April 2017 ("discount trigger realisation mechanism"). In the event
that the discount trigger realisation mechanism is not activated,
the Directors may at their discretion propose an ordinary
resolution to shareholders at the AGM in 2017 to approve a
redemption opportunity for up to 100 per cent of the shares in
issue.
The Articles provide that, after 2017, the Directors will, every
five years, consider at their discretion whether or not to offer
redemption opportunities to shareholders on the same basis.
The Directors have determined that they would like to consider
whether or not to offer Shareholders potential redemption
opportunities on a more frequent basis. Accordingly, whilst the
discount trigger realisation mechanism described above will occur
every five years, the Directors intend to consider every two and a
half years whether to put an ordinary resolution to shareholders to
approve a redemption opportunity for up to 100 per cent of the
shares in issue, subject to any necessary changes to the Articles
being approved. Any such redemption opportunities would be made
available at the Directors' discretion and would be implemented
through the creation of a Repurchase Pool in the same manner
described below.
7 SOFT COMMISSIONS
There are no agreements for the provision of any services by
means of soft commission.
8 INTERESTS IN OTHER ENTITIES
INTERESTS IN UNCONSOLIDATED STRUCTURED ENTITIES
IFRS 12 defines a structured entity as an entity that has been
designed so that voting or similar rights are not the dominant
factor in deciding who controls the entity, such as when any voting
rights relate to the administrative tasks only and the relevant
activities are directed by means of contractual agreements.
A structured entity often has some of the following features or
attributes:
(a) restricted activities;
(b) a narrow and well defined objective;
(c) insufficient equity to permit the structured entity to
finance its activities without subordinated financial support;
and
(d) financing in the form of multiple contractually linked
instruments that create concentrations of credit or other
risks.
Involvement with unconsolidated structured entities
The Company has concluded that CLOs in which it invests, that
are not subsidiaries for financial reporting purposes, meet the
definition of structured entities because:
-- the voting rights in the CLOs are not the dominant rights in
deciding who controls them, as they relate to administrative tasks
only;
-- each CLO's activities are restricted by its Prospectus;
and
-- the CLOs have narrow and well-defined objectives to provide
investment opportunities to investors.
Subsidiary undertakings
At 31 December 2016, the Company had four (31 December 2015:
four) subsidiary undertakings for financial reporting purposes that
are also structured entities. They are Keuka Park CLO Ltd 2013-1A,
Neuberger Berman CLO XVII Ltd 2014-17X, Pinnacle Park CLO Ltd
2014-1A and Sheridan Square CLO Ltd (31 December 2015: Voya
Investment Management CLO II Ltd, Sheridan Square CLO Ltd, Babson
CLO Ltd 2013-IX and Keuka Park CLO Ltd 2013-1A). The investment in
Babson CLO Ltd 2013-IX was sold during the financial year. Voya
Investment Management CLO II was also redeemed during the year. The
number of shareholdings in Neuberger Berman CLO Ltd 2014-17X and
Pinnacle Park CLO Ltd 2014-1A did not change during the financial
year but the non call period on both of these investments expired,
resulting in the Company achieving power, as described below, over
these investments. To meet the definition of a subsidiary under the
single control model of IFRS 10, the investor has to control the
investee within the meaning of IFRS10.
Control involves power, exposure to variability of returns and a
linkage between the two:
(i) The investor has existing rights that give it the ability to
direct the relevant activities that significantly affect the
investee's returns;
(ii) The investor has exposure or rights to variable returns
from its involvement with the investee; and
(iii) The investor has the ability to use its power over the
investee to affect the amount of the investor's returns.
In the case of the subsidiary undertakings listed above (the
"entities"), the relevant activities of each are the investment
decisions which are made by their asset managers. Power over the
entities' relevant activities is attributed to the Company through
a call option it has, as the holder of the majority of the
preference shares of each of these entities. The impact of these
call options is that it gives the Company the ability to direct or
stop the early termination of each of the subsidiary deals, and
hence, decision making power on the life of the deals, and
therefore the ability to control the variability of returns.
The Company is also considered to have contingent power over the
four entities, due to the fact that it may remove any of the
subsidiaries' asset managers in certain contingent circumstances as
the Company is the majority holder of the preference shares. It can
therefore be considered that the Company has contingent power which
may impact the variability of returns in the future.
To determine control, there has to be a linkage between power
and the exposure to the variable returns. The main linkage arises
from the call options which allow the Company to control the
continual payments of returns, and it is therefore an indication of
linkage between power and variability in returns.
8 INTERESTS IN OTHER ENTITIES (continued)
INTERESTS IN UNCONSOLIDATED STRUCTURED ENTITIES (continued)
Subsidiary undertakings (continued)
The other investments of the Company are not considered to be
subsidiaries due to the lack of control held by the Company. For
the avoidance of doubt, the Company is subject to an investment
restriction as set out in the Directors' report in the section
entitled "Investment Restrictions" which states that the Company
will not take legal or management control of the issuers of the
underlying investments, nor shall the Company acquire any shares
carrying voting rights which would enable it to exercise
significant influence over the management of an issuing body. The
"control" referred to above for financial reporting purposes does
not equate to "legal or management control" or the acquisition of
shares which would enable the Company to exercise "significant
influence over the management of an issuing body" within the
meaning of the investment restriction.
Investment entity status
To continue to avail of the exemption in IFRS 10 from the
requirement to prepare consolidated financial statements, the
Company must meet the definition of an investment entity. The
Company is satisfied that it meets both the required criteria and
typical characteristics of an investment entity.
8 INTERESTS IN OTHER ENTITIES (continued)
INTERESTS IN STRUCTURED ENTITIES
Below is a summary of the Company's holdings in non subsidiary
unconsolidated structured entities as at 31 December 2016:
% of
Total
Financial
Range Average Carador's Assets Maximum
of the at
size Notional Holding Fair exposure
of SEs Of Value
Line item in statement No of Notional SEs Fair through to
of Value losses
Structured financial Nature Investments in US$m in US$m in Profit in Other
Entity position US$m or Loss US$m
("SE")
------------ ----------- ----------------------- ------------ --------- --------- ---------- ---------- --------- ----------
Mezzanine
Note CLOs
------------ ----------- ----------------------- ------------ --------- --------- ---------- ---------- --------- ----------
North
America
------------ ----------- ----------------------- ------------ --------- --------- ---------- ---------- --------- ----------
Broadly Syndicated
sub-
Financial Investment
assets at Grade Secured
fair value Loans
through
profit Non
or loss - USD 15 400-620 497 86 21.18% 86 recourse*
----------- ------------------------------------ ------------ --------- --------- ---------- ---------- --------- ----------
Financial assets at fair
value
Total
Mezzanine through profit Non
Note CLOs or loss 15 400-620 497 86 21.18% 86 recourse*
------------ ------------------------------------ ------------ --------- --------- ---------- ---------- --------- ----------
Income Note
CLOs
------------ ----------- ----------------------- ------------ --------- --------- ---------- ---------- --------- ----------
North
America
------------ ----------- ----------------------- ------------ --------- --------- ---------- ---------- --------- ----------
Broadly Syndicated
sub-
Financial Investment
assets at Grade Secured
fair value Loans
through
profit Non
or loss - USD 41 33-734 468 235 57.88% 235 recourse*
----------- ------------------------------------ ------------ --------- --------- ---------- ---------- --------- ----------
Financial assets at fair
value
Total
Income through profit Non
Note CLOs or loss 41 33-734 468 235 57.88% 235 recourse*
------------ ------------------------------------ ------------ --------- --------- ---------- ---------- --------- ----------
Total 56 321**
-------------------------------------------------- ------------ --------- --------- ---------- ---------- --------- ----------
The Company has a percentage range of 0.03% - 45.46% notional
holding out of the entire outstanding notional balances of the
structured entities as at 31 December 2016.
During the financial year ended 31 December 2016, the Company
did not provide financial support to the unconsolidated structured
entities and has no intention of providing financial or other
support.
* The investments are non-recourse securities with no contingent
liabilities, where the Company's maximum loss is capped at the
current carrying value.
** The Company's total fair value holding of its unconsolidated
structured entity subsidiaries set out on the next page, plus the
total fair value holding in non-subsidiary unconsolidated
structured entities, as above, agrees to the financial assets at
fair value through profit or loss in the statement of financial
position.
Interests in unconsolidated structured entity subsidiaries as at
31 December 2016:
% of
Total
Financial
Range Average Carador's Assets Maximum
of the at
size Notional Holding Fair exposure
of SEs of Value
Line item No of Notional SEs Fair through to
in Value losses
statement
of
Structured financial Nature Investments in US$m in US$m in Profit in Other
Entity position US$m or Loss US$m
("SE")
------------ ----------- ------------ ------------ --------- --------- ---------- ---------- --------- ----------
Mezzanine
Note CLOs
------------ ----------- ------------ ------------ --------- --------- ---------- ---------- --------- ----------
North
America
------------ ----------- ------------ ------------ --------- --------- ---------- ---------- --------- ----------
Broadly
Syndicated
sub-
Financial Investment
assets at Grade
fair value Secured
Loans
through
profit Non
or loss - USD 2 413-725 569 17 4.19% 17 recourse*
----------- ------------------------- ------------ --------- --------- ---------- ---------- --------- ----------
Financial
assets at
fair value
Total
Mezzanine through profit Non
Note CLOs or loss 2 413-725 569 17 4.19% 17 recourse*
------------ ------------------------- ------------ --------- --------- ---------- ---------- --------- ----------
Income Note
CLOs
------------ ----------- ------------ ------------ --------- --------- ---------- ---------- --------- ----------
North
America
------------ ----------- ------------ ------------ --------- --------- ---------- ---------- --------- ----------
Broadly
Syndicated
sub-
Financial Investment
assets at Grade
fair value Secured
Loans
through
profit Non
or loss - USD 5 413-725 556 68 16.75% 68 recourse*
----------- ------------------------- ------------ --------- --------- ---------- ---------- --------- ----------
Financial
assets at
fair value
Total
Income through profit Non
Note CLOs or loss 5 413-725 556 68 16.75% 68 recourse*
------------ ------------------------- ------------ --------- --------- ---------- ---------- --------- ----------
Total 7*** 85**
--------------------------------------- ------------ --------- --------- ---------- ---------- --------- ----------
The Company has a percentage range of 0.30% - 5.65% notional
holding out of the entire outstanding notional balance of its
subsidiaries as at 31 December 2016.
During the financial year ended 31 December 2016, the Company
made 1 sale of investments in the subsidiary holdings: Babson CLO
Ltd 2013-IX amounting to US$11,760,000 (31 December 2015: US$Nil).
Voya Investment Management CLO II was also redeemed during the year
receiving proceeds of US$15,124,149. As already explained above
under the heading "Subsidiary undertakings", the number of
subsidiaries held is 4 (31 December 2015: 4).
For the financial year ended 31 December 2016, the Company did
not provide financial support to its unconsolidated structured
entity subsidiaries and has no intention of providing financial or
other support.
* The investments are non-recourse securities with no contingent
liabilities, where the Company's maximum loss is capped at the
current carrying value.
** The Company's total fair value holding of its unconsolidated
structured entity subsidiaries (above), plus the total fair value
holding in non-subsidiary unconsolidated structured entities, as
set out on page 47, agrees to the financial assets at fair value
through profit or loss in the statement of financial position.
***This refers to the number of investments on a tranche level
that the Company has on its 4 unconsolidated structured entity
subsidiaries.
Below is a summary of the Company's holdings in non subsidiary
unconsolidated structured entities as at 31 December 2015:
% of
Total
Financial
Range Average Carador's Assets Maximum
of the at
size Notional Holding Fair exposure
of SEs Of Value
Line item in statement No of Notional SEs Fair through to
of Value losses
Structured financial Nature Investments in US$m in US$m in Profit in Other
Entity position US$m or Loss US$m
("SE")
------------ ----------- ----------------------- ------------ --------- --------- ---------- ---------- --------- ----------
Mezzanine
Note CLOs
------------ ----------- ----------------------- ------------ --------- --------- ---------- ---------- --------- ----------
North
America
------------ ----------- ----------------------- ------------ --------- --------- ---------- ---------- --------- ----------
Broadly Syndicated
sub-
Financial Investment
assets at Grade Secured
fair value Loans
through
profit 30. Non
or loss - USD 23 107-879 456 116 61% 116 recourse*
----------- ------------------------------------ ------------ --------- --------- ---------- ---------- --------- ----------
Financial assets at fair
value
Total
Mezzanine through profit Non
Note CLOs or loss 23 107-879 456 116 30.61% 116 recourse*
------------ ------------------------------------ ------------ --------- --------- ---------- ---------- --------- ----------
Income Note
CLOs
------------ ----------- ----------------------- ------------ --------- --------- ---------- ---------- --------- ----------
North
America
------------ ----------- ----------------------- ------------ --------- --------- ---------- ---------- --------- ----------
Broadly Syndicated
sub-
Financial Investment
assets at Grade Secured
fair value Loans
through
profit 48. Non
or loss - USD 29 33-717 460 184 55% 184 recourse*
----------- ------------------------------------ ------------ --------- --------- ---------- ---------- --------- ----------
Financial assets at fair
value
Total
Income through profit Non
Note CLOs or loss 29 33-717 460 184 48.55% 184 recourse*
------------ ------------------------------------ ------------ --------- --------- ---------- ---------- --------- ----------
Total 52 300**
-------------------------------------------------- ------------ --------- --------- ---------- ---------- --------- ----------
The Company has a percentage range of 0.2% - 46% notional
holding out of the entire outstanding notional balances of the
structured entities as at 31 December 2015.
During the financial year ended 31 December 2015, the Company
did not provide financial support to the unconsolidated structured
entities and has no intention of providing financial or other
support.
* The investments are non-recourse securities with no contingent
liabilities, where the Company's maximum loss is capped at the
current carrying value.
** The Company's total fair value holding of its unconsolidated
structured entity subsidiaries set out on the next page, plus the
total fair value holding in non-subsidiary unconsolidated
structured entities, as above, agrees to the financial assets at
fair value through profit or loss in the statement of financial
position.
Interests in unconsolidated structured entity subsidiaries as at
31 December 2015:
% of
Total
Financial
Range Average Carador's Assets Maximum
of the at
size Notional Holding Fair exposure
of SEs of Value
Line item No of Notional SEs Fair through to
in Value losses
statement
of
Structured financial Nature Investments in US$m in US$m in Profit in Other
Entity position US$m or Loss US$m
("SE")
------------ ----------- ------------ ------------ --------- --------- ---------- ---------- --------- ----------
Mezzanine
Note CLOs
------------ ----------- ------------ ------------ --------- --------- ---------- ---------- --------- ----------
North
America
------------ ----------- ------------ ------------ --------- --------- ---------- ---------- --------- ----------
Broadly
Syndicated
sub-
Financial Investment
assets at Grade
fair value Secured
Loans
through
profit Non
or loss - USD 2 413-725 569 16 4.22% 16 recourse*
----------- ------------------------- ------------ --------- --------- ---------- ---------- --------- ----------
Financial
assets at
fair value
Total
Mezzanine through profit Non
Note CLOs or loss 2 413-725 569 16 4.22% 16 recourse*
------------ ------------------------- ------------ --------- --------- ---------- ---------- --------- ----------
Income Note
CLOs
------------ ----------- ------------ ------------ --------- --------- ---------- ---------- --------- ----------
North
America
------------ ----------- ------------ ------------ --------- --------- ---------- ---------- --------- ----------
Broadly
Syndicated
sub-
Financial Investment
assets at Grade
fair value Secured
Loans
through
profit Non
or loss - USD 4 215-725 460 64 16.89% 64 recourse*
----------- ------------------------- ------------ --------- --------- ---------- ---------- --------- ----------
Financial
assets at
fair value
Total
Income through profit Non
Note CLOs or loss 4 215-725 460 64 16.89% 64 recourse*
------------ ------------------------- ------------ --------- --------- ---------- ---------- --------- ----------
Total 6*** 80**
--------------------------------------- ------------ --------- --------- ---------- ---------- --------- ----------
The Company has a percentage range of 1.6% - 7.9% notional
holding out of the entire outstanding notional balance of its
subsidiaries as at 31 December 2015.
During the financial year ended 31 December 2015, the Company
purchased Keuka Park CLO Limited 2013-1A at a cost of US$18,446,500
(31 December 2014: US$Nil). The Company made no sales of
investments in the subsidiary holdings (31 December 2014:
US$23,258,400). As already explained above under the heading
"Subsidiary undertakings", the number of subsidiaries grew from 1
to 4 during the year due to the expiration of the relevant non call
periods.
For the financial year ended 31 December 2015, the Company did
not provide financial support to its unconsolidated structured
entity subsidiaries and has no intention of providing financial or
other support.
* The investments are non-recourse securities with no contingent
liabilities, where the Company's maximum loss is capped at the
current carrying value.
** The Company's total fair value holding of its unconsolidated
structured entity subsidiaries (above), plus the total fair value
holding in non-subsidiary unconsolidated structured entities, as
set out on page 49, agrees to the financial assets at fair value
through profit or loss in the statement of financial position.
*** This refers to the number of investments on a tranche level
that the Company has on its 4 unconsolidated structured entity
subsidiaries.
9 RELATED PARTY TRANSACTIONS AND KEY MANAGEMENT PERSONNEL
TRANSACTIONS WITH ENTITIES WITH SIGNIFICANT INFLUENCE
The following note summarises related parties and related party
transactions during the financial year. GSO / Blackstone Debt Funds
Management LLC acts as Investment Manager to the Company (the
"Investment Manager"). Investment management fees earned by the
Investment Manager amounted to US$5,107,521 (31 December 2015:
US$6,342,328), of which US$1,354,568 (31 December 2015: US$936,299)
was outstanding at the financial year end. No performance fees were
earned by the Investment Manager during the financial year (31
December 2015: US$Nil), nor were there any performance fees
outstanding at 31 December 2016 or 31 December 2015.
TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL
The Directors of the Company and the Investment Manager are the
key management personnel as they are the persons who have the
authority and responsibility for planning, directing and
controlling the activities of the Company for the financial year
ended 31 December 2016.
During the financial year ended 31 December 2016, the Company
incurred Directors' fees for services as Directors and
out-of-pocket expenses of US$344,249 (31 December 2015:
US$329,640), of which US$Nil (31 December 2015: US$Nil) was
outstanding at the financial year end.
No Director, nor the Company Secretary, had any beneficial
interest in the shares of the Company during the financial year
ended 31 December 2016 or 31 December 2015.
The following Directors' fees were incurred during the financial
year and the amounts for each financial year are shown in both EUR
and US Dollar equivalent:
Financial Financial Financial Financial
year ended year ended year ended year ended
31 December 31 December 31 December 31 December
2016 2016 2015 2015
EUR US$ Equivalent EUR US$ Equivalent
Werner Schwanberg 64,200 70,847 61,100 69,472
Adrian Waters 57,060 62,967 50,960 57,943
Fergus Sheridan 57,060 62,967 52,060 59,194
Edward D'Alelio 58,260 64,292 55,960 63,628
Nicholas
Moss 57,060 62,967 52,060 59,194
------------------- ------------ --------------- ------------ ---------------
293,640 324,040* 272,140 309,431*
------------------- ------------ --------------- ------------ ---------------
* The above amount excludes out-of-pocket expenses for the
Directors of US$20,209 (31 December 2015: US$20,209).
TRANSACTIONS WITH OTHER RELATED PARTIES
At 31 December 2016, current employees and accounts managed or
advised by the Investment Manager and its affiliates within the
credit-focused business unit of the Blackstone Group L.P. hold
200,000 US Dollar shares (31 December 2015: 2,271,934 US Dollar
shares) which represents approximately 0.04% (31 December 2015:
0.42%) of the issued shares of the Company.
The Company may invest in other entities and transactions that
are managed directly or indirectly by the Investment Manager or any
of its affiliates and as at 31 December 2016, 35.89% (31 December
2015: 33.32%) of the Company's underlying investments are managed
in this way and these are listed below:
9 RELATED PARTY TRANSACTIONS AND KEY MANAGEMENT PERSONNEL (continued)
CLO INVESTMENTS MANAGED BY GSO/BLACKSTONE AND AFFILIATES
2016
Investment Investment Manager Market
---------------------------- ---------------------- ----------
Adirondack Park CLO Ltd GSO / Blackstone Debt Secondary
2013-1A E Funds Management LLC
Birchwood Park CLO Ltd GSO / Blackstone Debt Primary*
2014-1X INC Funds Management LLC
Bowman Park CLO Ltd 2014-1X GSO / Blackstone Debt Secondary
Funds Management LLC
Burnham Park CLO Ltd GSO / Blackstone Debt Primary
2014-1A Funds Management LLC
Callidus Debt Partners GSO / Blackstone Debt Secondary
CLO Fund Ltd 5X INC Funds Management LLC
Callidus Debt Partners GSO / Blackstone Debt Secondary
CLO Fund Ltd 7A SUB Funds Management LLC
Dorchester Park CLO Ltd GSO / Blackstone Debt Primary
2015-1X SUB Funds Management LLC
Keuka Park CLO Ltd 2013-1A GSO / Blackstone Debt Secondary
E Funds Management LLC
Keuka Park CLO Ltd 2013-1A GSO / Blackstone Debt Secondary
SUB Funds Management LLC
Pinnacle Park CLO Ltd GSO / Blackstone Debt Secondary
2014-1A SUB Funds Management LLC
Sheridan Square CLO Ltd GSO / Blackstone Debt Primary
2013-1A F Funds Management LLC
Sheridan Square CLO Ltd GSO / Blackstone Debt Secondary
2013-1A INC Funds Management LLC
Seneca Park CLO Ltd 2014-1X GSO / Blackstone Debt Primary
SUB Funds Management LLC
Stewart Park CLO Ltd GSO / Blackstone Debt Primary
2015-1X SUB Funds Management LLC
Thacher Park CLO Ltd GSO / Blackstone Debt Secondary
2014-1X SUB Funds Management LLC
Taconic Park CLO Ltd GSO / Blackstone Debt Primary
2016-1A SUB Funds Management LLC
Tryon Park CLO Ltd 2013-1X GSO / Blackstone Debt Secondary
E Funds Management LLC
Tryon Park CLO Ltd 2013-1X GSO / Blackstone Debt Secondary
SUB Funds Management LLC
Treman Park CLO Ltd 2015-1A GSO / Blackstone Debt Secondary
Funds Management LLC
Webster Park CLO Ltd GSO / Blackstone Debt Primary
2015-1X SUB Funds Management LLC
CLO INVESTMENTS MANAGED BY GSO/BLACKSTONE AND AFFILIATES
2015
Investment Investment Manager Market
---------------------------- ---------------------- ----------
Adirondack Park CLO Ltd GSO / Blackstone Debt Secondary
2013-1A E Funds Management LLC
Birchwood Park CLO Ltd GSO / Blackstone Debt Primary*
2014-1X INC Funds Management LLC
Callidus Debt Partners GSO / Blackstone Debt Secondary
CLO Fund Ltd 5X INC Funds Management LLC
Callidus Debt Partners GSO / Blackstone Debt Secondary
CLO Fund Ltd 7A SUB Funds Management LLC
Dorchester Park CLO Ltd GSO / Blackstone Debt Primary
2015-1X SUB Funds Management LLC
Gale Force CLO Ltd 2007-3A GSO / Blackstone Debt Secondary
E Funds Management LLC
Keuka Park CLO Ltd 2013-1A GSO / Blackstone Debt Secondary
E Funds Management LLC
Keuka Park CLO Ltd 2013-1A GSO / Blackstone Debt Secondary
SUB Funds Management LLC
Pinnacle Park CLO Ltd GSO / Blackstone Debt Secondary
2014-1A SUB Funds Management LLC
Sheridan Square CLO Ltd GSO / Blackstone Debt Primary
2013-1A F Funds Management LLC
Sheridan Square CLO Ltd GSO / Blackstone Debt Secondary
2013-1A INC Funds Management LLC
Seneca Park CLO Ltd 2014-1X GSO / Blackstone Debt Primary
SUB Funds Management LLC
Stewart Park CLO Ltd GSO / Blackstone Debt Primary
2015-1X SUB Funds Management LLC
Thacher Park CLO Ltd GSO / Blackstone Debt Secondary
2014-1X SUB Funds Management LLC
Tryon Park CLO Ltd 2013-1X GSO / Blackstone Debt Secondary
E Funds Management LLC
Tryon Park CLO Ltd 2013-1X GSO / Blackstone Debt Secondary
SUB Funds Management LLC
Webster Park CLO Ltd GSO / Blackstone Debt Primary
2015-1X SUB Funds Management LLC
* Partial in primary.
9 RELATED PARTY TRANSACTIONS AND KEY MANAGEMENT PERSONNEL
(continued)
TRANSACTION WITH SUBSIDIARIES
As at 31 December 2016, the Company had four subsidiaries for
financial reporting purposes: Pinnacle Park CLO Ltd 2014-1A,
Sheridan Square CLO Ltd, Neuberger Berman CLO XVII Ltd 2014-17X and
Keuka Park CLO Ltd 2013-1A, all of which are special purpose
vehicles incorporated in the Cayman Islands that are therefore
related parties. The subsidiaries are unconsolidated subsidiaries
and the Company's investment in these vehicles is detailed in note
2c and note 8, which include the different mezzanine and equity
tranches held in the four of them.
The Company received US$22,922,175 in coupon payments from the
subsidiaries for the financial year ended 31 December 2016 (31
December 2015: US$21,727,432). There were realised losses arising
during the financial year amounting to US$8,263,500 (31 December
2015: US$Nil). The movement in unrealised losses on subsidiary
holdings amounted to US$66,813,776 during the financial year (31
December 2015: US$27,872,228).
During the financial year ended 31 December 2016, the Company
made 1 sale of investments in the subsidiary holdings: Babson CLO
Ltd 2013-IX (31 December 2015: Nil). Voya Investment Management CLO
II was also redeemed during the year. However, the number of
subsidiaries held by the Company as at 31 December 2016 is 4 (31
December 2015: 4).
The value of the subsidiary holdings at 31 December 2016 was
US$84,724,423 (31 December 2015: US$79,330,636).
10 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS
INTRODUCTION
Risk is inherent in the Company's activities but it is managed
through a process of ongoing identification, measurement and
monitoring, subject to risks limits and other controls. The process
of risk management is critical to the Company's continuing
profitability. The Company is exposed to market risk (which
includes interest rate risk, currency risk and other price risk),
liquidity and credit risk arising from the financial instruments it
holds. Given the Company's permanent capital structure as a
closed-ended fund, it is not exposed to redemption risk relating to
its own shares in issue. The Articles provide that, after 2017, the
Directors will, every five years, consider at their discretion
whether or not to offer redemption opportunities to shareholders on
the same basis. The Directors have determined that they would like
to consider whether or not to offer Shareholders potential
redemption opportunities on a more frequent basis. Accordingly,
whilst the discount trigger realisation mechanism described above
will occur every five years, the Directors intend to consider every
two and a half years whether to put an ordinary resolution to
shareholders to approve a redemption opportunity for up to 100 per
cent of the shares in issue, subject to any necessary changes to
the Articles being approved. Any such redemption opportunities
would be made available at the Directors' discretion and would be
implemented through the creation of a Repurchase Pool. Financial
assets do include investments in collateralised loan obligations
which are not traded in an organised public market and which may be
illiquid.
The Investment Manager considers the risk and concentrations on
a look-through basis level for the CLOs.
RISK MANAGEMENT STRUCTURE
The Board of Directors is ultimately responsible for identifying
and controlling risks but relies on its delegated service
providers, (the Investment Manager, Custodian, Administrator and
Registrar), to carry out ongoing management and monitoring of
risks.
RISK MEASUREMENT AND REPORTING SYSTEM
The Company's risks are measured using a method which reflects
both the expected loss likely to arise in normal circumstances and
unexpected losses, which are an estimate of the ultimate actual
loss based on models. The models make use of the probabilities
derived from historical experience, adjusted to reflect the
economic environment.
Monitoring and controlling risks is primarily performed based on
limits established by the Board. These limits reflect the business
strategy and market environment of the Company as well as the level
of risk that the Company is willing to accept. In addition, the
Company monitors and measures the overall risk-bearing capacity in
relation to the aggregate risk exposure across risk types and
activities.
10 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
RISK MITIGATION
The Company has investment guidelines that set out its overall
business strategies, its tolerance for risk and its general risk
management philosophy and has established processes to monitor and
control economic hedging transactions in a timely and accurate
manner. The Company may use derivatives and other instruments only
in connection with its risk management activities, but not for
trading purposes.
EXCESSIVE RISK CONCENTRATION
Concentration arises when a number of counterparties are engaged
in similar business activities, or activities in the same
geographic region, or have similar economic features that would
cause their ability to meet contractual obligations to be similarly
affected by changes in economic, political or other conditions.
Concentration indicates the relative sensitivity of the Company's
performance to developments affecting a particular issuer, manager,
asset class or geographical location.
In order to avoid excessive concentration of risk, the Company's
policies and procedures include specific guidelines to focus on
maintaining a diversified portfolio. Identified concentration of
credit risks are controlled and managed accordingly.
The Company's investment guidelines specify, among others, that
the Company must invest in a minimum of 20 separate investments
with a maximum exposure per investment, at the time of investment,
of 20% of the NAV of the Company. The Company also limits its
exposure to transactions managed by the same portfolio manager to
15% of the NAV, at the time of investment. However, if the
portfolio manager is the Investment Manager or an affiliate of the
Investment Manager, this limit is increased to 60% of the NAV at
the time of investment.
The concentration risk at 31 December 2016 and 31 December 2015
is disclosed below in note 10 (A)(iii), 10 (B) and in the
Investment Manager's Review on pages 4 to 8.
(A) MARKET RISK
Market risk is the risk that the fair value or future cash flows
of a financial instrument will fluctuate because of changes in
market prices and includes interest rate risk, currency risk and
other price risks. The Company may use derivative instruments to
hedge the investment portfolio against currency risk.
The Company's investments are in collateralised loan obligations
vehicles. The CLO vehicles typically have no significant assets
other than the loans as collateral. Accordingly, payments on the
CLO securities are payable solely from the cash flows from the
collateral, net of all management fees and other expenses. Payments
to the Company as a holder of Income Notes and/or Mezzanine Notes
of CLO vehicles are met only after payments due on the Senior Notes
(and, where appropriate, the mezzanine notes) have been made in
full.
The following table shows the securities held by the Company
which are most susceptible to market risk arising from
uncertainties about interest rates, foreign currency fluctuation
and future prices of the instruments.
As at As at
31 December 31 December
2016 2015
US$ US$
--------------------------------- ------------ ------------
Collateralised loan obligations 321,069,412 300,332,127
Investment in subsidiaries 84,724,423 79,330,636
--------------------------------- ------------ ------------
TOTAL INVESTMENTS AT FAIR
VALUE 405,793,835 379,662,763
--------------------------------- ------------ ------------
(i) Interest rate risk
The Company is exposed to interest rate risk on collateralised
loan obligations held by the Company and on a look-through basis to
the underlying assets in the CLOs.
The majority of the Company's financial assets are Income Notes
and Mezzanine tranches of cash flow CLOs. The Company's investments
have exposure to interest rate risk but this is limited to floating
LIBOR-based exposure for the CLO's assets.
The following table shows the portfolio profile at 31 December
2016 and 31 December 2015:
31 December 31 December
2016 2015
----------------------------- ------------ ------------
Investments with a floating
interest rate 100% 100%
------------ ------------
FINANCIAL ASSETS AT FAIR VALUE THROUGH
PROFIT OR LOSS 100% 100%
------------------------------------------- ------------
10 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
(A) MARKET RISK (continued)
(i) Interest rate risk (continued)
The following table shows the Directors' best estimate of the
sensitivity of the portfolio to stressed changes in interest rates,
with all other variables held constant. The table assumes parallel
shifts in the respective forward yield curves.
31 December 2016 31 December
2015
effect on net assets effect on
net assets
Possible reasonable and profit or loss and profit
or loss
change in rate US$ US$
-------------------- --------------------- ------------
1% 12,068,226 9,462,616
-1% 11,477,884 16,478,185
-------------------- --------------------- ------------
(ii) Currency risk
Investments acquired for the Company's portfolio are denominated
in US Dollars. However, the Company may also invest in underlying
assets which are denominated in currencies other than the U.S.
Dollar (e.g., the Euro). Accordingly, the value of such investments
may be affected, favourably or unfavourably predominately, by
fluctuations in currency rates and which, if unhedged, could have
the potential to have a significant effect on returns. To reduce
the impact on the Company of currency fluctuations and the
volatility of returns which may result from currency exposure, the
Investment Manager may hedge the currency exposure of the assets of
the Company with the use of derivative financial instruments.
The Company is exposed to very limited currency risk, as the
vast majority of the Company's assets and liabilities are currently
denominated in US Dollars. As a result, the Company did not have
any foreign exchange forward contracts at the financial year ended
31 December 2016 (December 2015: US$Nil).
The total net exposure to foreign currencies at the reporting
date was as follows:
31 December 31 December
2016 2015
EXPOSURE TO FOREIGN EXCHANGE US$ US$
RATES
------------------------------ ------------ ------------
EUR Exposure
Cash and cash equivalents 117,413 77,527
------------------------------ ------------ ------------
EUR Exposure 117,413 77,527
------------------------------ ------------ ------------
GBP Exposure
Cash and cash equivalents 156,066 186,157
------------------------------ ------------ ------------
GBP Exposure 156,066 186,157
------------------------------ ------------ ------------
TOTAL EXPOSURE 273,479 263,684
------------------------------ ------------ ------------
Possible 31 December 2016 31 December 2015
change effect on effect on
in net assets net assets
exchange net exposure and profit net exposure and profit
rate or loss or loss
US$ US$ US$ US$
---------- ------ ------------- ------------ ------------- --------------
Euro/US
Dollar +/-5% 117,413 (+/-) 1,298 77,527 (+/-) 884
GBP/US
Dollar +/-5% 156,066 (+/-) 2,025 186,157 (+/-) 2,881
---------- ------ ------------- ------------ ------------- --------------
(iii) Other price risks
The risk that the fair value or future cash flows of a financial
instrument will fluctuate because of changes in market prices
(other than those arising from interest rate risk or currency
risk), whether those changes are caused by factors specific to the
individual financial instrument or its issuer, or factors affecting
all similar financial instruments traded in the market. The
Directors do not believe that the returns on investments are
correlated to any specific index or other price variable.
10 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
(A) MARKET RISK (continued)
(iii) Other price risks (continued)
The table below analyses the Company's concentration of other
price risk by subsector in the secured loan asset class and by
geographical area.
31 December 31 December
2016 2015
By asset class US$ US$
Broadly syndicated sub-investment
grade secured loans - North America 397,438,835 371,750,263
Broadly syndicated sub-investment
grade secured loans - Ireland 8,355,000 7,912,500
-------------------------------------- ------------ ------------
405,793,835 379,662,763
-------------------------------------- ------------ ------------
If the value of investments was to increase or decrease by 1%,
the impact on the NAV of the Company would be +/-US$4,057,938
(2015: +/- US$3,796,628).
(B) CREDIT RISK
Credit risk is the risk that one party to a financial instrument
will cause a financial loss for the other party by failing to
discharge an obligation. It is the Company's policy to enter into
financial instruments with a range of reputable counterparties.
Therefore, the Company has a diversified portfolio to reduce credit
risk.
The table below analyses the Company's maximum credit exposure
to credit risk for the components of the statement of financial
position.
31 December 31 December
2016 2015
US$ US$
--------------------------- ------------ ------------
Cash and cash equivalents 16,682,060 28,044,711
Other receivables 1,357,374 17,981
Financial assets at fair
value through profit or
loss 405,793,835 379,662,763
--------------------------- ------------ ------------
423,833,269 407,725,455
--------------------------- ------------ ------------
The cash and substantially all of the assets of the Company are
held by the Custodian or one or more of its sub-custodians.
Bankruptcy or insolvency of the Custodian or its sub-custodians may
cause the Company's rights with respect to securities held by the
Custodian or its sub-custodians to be delayed or limited. The
Company or its sub-custodians monitor its risk by monitoring the
credit quality and financial positions of the Custodian. State
Street Corporation is the parent company of the Custodian, State
Street Custodial Services (Ireland) Limited, and the long-term
rating of State Street Corporation as at 31 December 2016 was A1
(Source: Moody's) (31 December 2015: A2).
Breakdown by country of incorporation at 31 December 2016 and 31
December 2015:
31 December 31 December
2016 2015
US$ US$
---------------- ------------ ------------
Cayman Islands 397,438,835 371,750,263
Ireland 8,355,000 7,912,500
---------------- ------------ ------------
405,793,835 379,662,763
---------------- ------------ ------------
The table below summarises the Company's portfolio
concentrations as of 31 December 2016 and 31 December 2015:
Maximum Average
portfolio holdings portfolio holdings
of a single of a single
asset asset
% of total % of total
portfolio portfolio
------------------ ------------------- -------------------
31 December 2016 4.53% 1.59%
31 December 2015 6.14% 1.72%
------------------ ------------------- -------------------
10 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
(B) CREDIT RISK (continued)
The below table summarises the portfolio by asset class and
ratings of the portfolio as of 31 December 2016 and 31 December
2015:
31 December 2016 31 December
2015
By asset class US$ US$
------------------------- ----------------- -----------------
CLO 1.0 Mezzanine Notes - 32,819,612
CLO 2.0 Mezzanine Notes 103,270,576 99,183,685
CLO 1.0 Income Notes 2,050,667 23,358,259
CLO 2.0 Income Notes 300,472,592 224,301,207
------------------------- ----------------- -----------------
405,793,835 379,662,763
------------------------- ----------------- -----------------
For the purposes of the asset class breakdown above, the
Mezzanine CLO investments were originally rated A/BBB/BB/B and
Income Notes were non-rated ("NR"). CLO 1.0 notes refers to the old
vintage CLOs (Vintage 2006 - 2007), while CLO 2.0 notes refer to
the new vintage CLO investments post crisis (Vintage 2013 -
2015).
The Company's portfolio is partly invested in the income notes
tranches of CLOs which are subject to potential non-payment and are
by definition, non-rated securities. The Company assesses the
quality of non-rated assets based on a fundamental analysis of the
underlying loans in the respective portfolios. The terms and
conditions of the underlying CLOs and the implications of other
rights on the CLOs are reviewed to determine any impact on the
expected cash flow from the underlying CLO.
With the exception of investments in Mezzanine CLO notes, the
Company will typically be in a first loss or subordinated position
with respect to realised losses on the collateral of each CLO
investment. The leveraged nature of the Income Notes and the
Mezzanine Notes, in particular, magnifies the adverse impact of
collateral defaults.
The Company may be adversely impacted by an increase in its
credit exposure related to investing and other activities. The
Company is exposed to the potential for credit-related losses that
can occur as a result of an individual, counterparty or issuer
being unable or unwilling to honour its contractual obligations.
These credit exposures exist within financing relationships,
commitments and other transactions. These exposures may arise, for
example, from a decline in the financial condition of a
counterparty, from entering into swap or other derivative contracts
under which counterparties have obligations to make payments to us,
from a decrease in the value of securities of third parties that
the Company holds as collateral, or from extending credit through
guarantees or other arrangements. As the Company's credit exposure
increases, it could have an adverse effect on the Company's
business and profitability if material unexpected credit losses
occur.
The Investment Manager assesses the credit risk of the CLOs on a
look-through basis to the underlying loans in each CLO. The
Investment Manager seeks to provide diversification in terms of
underlying assets, issuer section, geography and maturity
profile.
(C) LIQUIDITY RISK
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 does not have any long-term or structural
borrowings. The Company's unleveraged capital structure reflects
the long-term investment strategy and matches the illiquidity of
the underlying investments.
On 19 December 2013, as detailed in note 11, the Company entered
into a revolving credit facility with State Street Bank and Trust
Company. The facility will be available for general corporate
purposes and will not be utilised to leverage the investment
portfolio.
As at 31 December 2016 and 31 December 2015, working capital
liquidity risk was reduced by the availability of the credit
facility referred to above. This credit facility is available if
needed to meet liabilities (of an amount up to US$30 million) when
they fall due. See note 11 for more details.
10 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
(C) LIQUIDITY RISK (continued)
Given the Company's permanent capital structure as a
closed-ended fund, it is not exposed to redemption risk during the
life of the fund. However, at the EGM on 26 June 2013, a resolution
was passed that at the annual general meeting to be held in the
financial year 2022 (and in every tenth financial year thereafter),
the Directors will propose a special resolution to the effect that
the Company continue for a further ten financial years. If the
continuation vote is not passed, the Directors are required to
formulate proposals to be put to shareholders to wind-up,
reorganise or reconstruct the Company. The shareholders also
approved the introduction of a 5-yearly repurchase opportunity as
follows: if shares have traded at an average discount to the Net
Asset Value per share of the relevant class in excess of 5% over
the preceding twelve month period, or such other date as may be set
out in the Prospectus, an investor may be offered, subject to
certain conditions that are set out in the Prospectus and the
requirements of the Central Bank, to realise their shares through a
repurchase pool.
In accordance with the current provisions of the Articles, the
Company shareholders may, at the Directors' discretion, be offered
a redemption opportunity in 2017 for up to 100 per cent of the
shares in issue if the shares have traded at an average discount to
net asset value in excess of 5% over the 12 month period prior to
30 April 2017 ("discount trigger realisation mechanism"). In the
event that the discount trigger realisation mechanism is not
activated, the Directors may at their discretion propose an
ordinary resolution to shareholders at the AGM in 2017 to approve a
redemption opportunity for up to 100% of the shares in issue.
The Articles provide that, after 2017, the Directors will, every
five years, consider at their discretion whether or not to offer
redemption opportunities to shareholders on the same basis.
The Directors have determined that they would like to consider
whether or not to offer Shareholders potential redemption
opportunities on a more frequent basis. Accordingly, whilst the
discount trigger realisation mechanism described above will occur
every five years, the Directors intend to consider every two and a
half years whether to put an ordinary resolution to shareholders to
approve a redemption opportunity for up to 100% of the shares in
issue, subject to any necessary changes to the Articles being
approved. Any such redemption opportunities would be made available
at the Directors' discretion and would be implemented through the
creation of a Repurchase Pool.
The Company's financial instruments include investments in
collateralised debt obligations and derivative contracts (if any)
traded over-the-counter which are not traded in an organised public
market and which may be illiquid.
All liabilities of the Company are due within one financial
year.
11 CREDIT FACILITY
On 19 December 2013, the Company agreed a bilateral senior
secured committed 364 day short term revolving credit facility (the
"Initial Facility") with State Street Bank and Trust which expired
on 18 December 2014. On 19 November 2014, 17 December 2015 and 19
December 2016, the Company renewed this facility again resulting in
a new expiry date of 14 December 2017 (the "Renewed Facility", and
each together with the Initial Facility, the "Facility"). The
Facility limit is determined as the lowest of: (a) US$30 million
for the Renewed Facility, (b) 10% of the NAV, (c) 20% of the
adjusted NAV, and (d) the maximum amount of financial indebtedness
that the Borrower is permitted to incur as determined in accordance
with: (i) its constitutional documents, (ii) any resolution of the
members, (iii) its investment policy, and (iv) any law, rule or
regulation applicable to the Borrower.
Adjusted NAV means, the NAV of the Borrower excluding (without
double counting); (a) the amount by which the aggregate current
market value of investments relating to a single issuer exceeds 10%
of the NAV of the Borrower, (b) the aggregate market value of any
investments in relation to which there is not at least two
independent valuations (other than any primary investments which
have been acquired within the preceding twelve months, and (c) the
aggregate value of any Income Notes, each as determined by the
Administrator following the publication of the NAV on a regulatory
information service.
11 CREDIT FACILITY (continued)
The Facility is available for general corporate purposes and may
be used to make new purchases, but is intended to leverage the
investment portfolio. Borrowings under the Facility are restricted
to a maximum period of 364 days. The Facility is governed by a
conservative structure whereby the maximum Loan-to-Value ("LTV") is
10% of total NAV and maximum 20% of the adjusted NAV (unrated notes
to be excluded). The NAV of the Company must at all times be at
least US$250m. The Facility is secured by a first priority security
interest in all of the Carador portfolio investments (including
cash agreements).
The following fees applied to the Facility: An upfront fee of
10bps, a commitment fee of 30bps on the unused portion of the
Facility and an interest rate of LIBOR plus 180bps.
There were no draw downs on the Facility during the financial
year ended 31 December 2016.
The only amount to be paid in relation to the credit facility at
31 December 2016 were the commitment fee and the interest charge as
disclosed below.
The Company made the following draw downs on the Facility during
the financial year ended 31 December 2015:
Start Date End Date Credit Drawn
----------- ----------- -------------
15/01/2015 22/01/2015 US$8M
22/01/2015 28/01/2015 US$5M
30/01/2015 05/02/2015 US$4M
26/02/2015 04/03/2015 US$2.5M
05/03/2015 11/03/2015 US$4.5M
During the financial year, the Company was charged a commitment
fee of US$106,887 (31 December 2015: US$104,987) of which US$22,750
(31 December 2015: US$22,750) remained unpaid at 31 December 2016,
and an interest charge of US$45,107 (31 December 2015: US$40,319)
of which US$3,278 (31 December 2015: US$18,171) remained unpaid at
31 December 2016. These fees are included in facility costs in the
statement of comprehensive income and expenses payable in the
statement of financial position.
12 STOCK LING
The Company did not enter into any stock lending transactions
during the financial year (31 December 2015: US$Nil).
13 EARNINGS/(LOSS) PER SHARE
The Earnings/(Loss) Per Share ("EPS") is calculated by dividing
the profit/(loss) for the financial year attributable to the
participating shareholders by the weighted average number of shares
outstanding in the financial year.
Financial Financial
year ended year ended
31 December 31 December
2016 2015
----------------------------------------- ------------ --------------
US Dollar US Dollar
Class Class
US$ US$
Profit/(loss) for the financial
year all attributable to participating
equity shareholders 79,153,810 (41,409,323)
Number of ordinary shares for
basic earnings/(loss) per share 543,253,359 543,253,359
----------------------------------------- ------------ --------------
Basic earning/(loss) per share 0.15 (0.08)
----------------------------------------- ------------ --------------
For the financial year ended 31 December 2016 and 31 December
2015, there are no potential ordinary shares in existence, hence no
diluted EPS is shown.
14 SEGMENTAL REPORTING
As required by IFRS 8, Operating Segments, the information
provided to the Board of Directors and Investment Manager, who are
the Chief Operating Decision Makers, can be classified into one
segment for the financial years ended 31 December 2016 and 31
December 2015. The only share class in issue during the financial
years ended 31 December 2016 and 31 December 2015 is the US Dollar
Class.
For the financial years ended 31 December 2016 and 31 December
2015, the Company's primary exposure was to North America related
assets (see note 10 (A)).
14 SEGMENTAL REPORTING (continued)
Major Customers
The Company regards the holders of redeemable shares as
customers, because it relies on their funding for continuing
operations and meeting its objectives. The Company's shareholding
structure is not exposed to a significant shareholder
concentration. A breakdown of shares held by employees of the
investment manager can be found in note 9. The Company's largest
holder of redeemable shares excluding shares held by employees of
the investment manager as at 31 December 2016 is outlined on page
21.
15 TAXATION
Under current law and Irish practice, the Company qualifies as
an investment undertaking under Section 739B of the Taxes
Consolidation Act 1997 and is not therefore chargeable to Irish tax
on its relevant income or relevant gains. No stamp duty, transfer
or registration tax is payable in the Republic of Ireland on the
issue, redemption or transfer of shares in the Company.
Distributions and interest on securities issued in countries other
than the Republic of Ireland may be subject to taxes including
withholding taxes imposed by such countries. The Company may not be
able to benefit from a reduction in the rate of withholding tax by
virtue of the double taxation agreement in operation between the
Republic of Ireland and other countries. The Company may not
therefore be able to reclaim withholding tax suffered by it in
particular countries.
To the extent that a chargeable event arises in respect of a
shareholder, the Company may be required to deduct tax in
connection with that chargeable event and pay the tax to the Irish
Revenue Commissioners. A chargeable event can include payments to
shareholders, appropriation, cancellation, redemption, repurchase
or transfer of shares, or a deemed disposal of shares every eight
years beginning from the date of acquisition of those shares.
Certain exemptions can apply. In the absence of an appropriate
declaration or written confirmation from the Revenue Commissioners
which confirms that no such declaration is required, the Company
will be liable for Irish tax on the occurrence of a chargeable
event.
16 DISTRIBUTIONS
The Board declared the following distributions during the
financial year:
On 22 January 2016, the Board declared a dividend of US$0.0250
per US Dollar share in respect of the period from 1 October 2015 to
31 December 2015. The dividend was paid on 10 February 2016 to
shareholders on the share register as at the close of business on 5
February 2016. The amount paid in respect of this dividend was
US$13,581,333.
On 21 April 2016, the Board declared a dividend of $0.0225 per
U.S. Dollar Share in respect of the period from 1 January 2016 to
31 March 2016. This dividend was paid on 4 May 2016 to shareholders
on the share register as at the close of business on 29 April 2016.
The amount paid in respect of this dividend was US$12,223,201.
On 21 July 2016, the Board declared a dividend of US$0.0225 per
US Dollar share in respect of the period from 1 April 2016 to 30
June 2016. The dividend was paid on 3 August 2016 to shareholders
on the share register as at the close of business on 29 July 2016.
The amount paid in respect of this dividend was US$12,223,201.
On 20 October 2016, the Board declared a dividend of US$0.0225
per US Dollar share in respect of the period from 1 July 2016 to 30
September 2016. The dividend was paid on 2 November 2016 to
shareholders on the share register as at the close of business on
28 October 2016. The amount paid in respect of this dividend was
US$12,223,200.
17 OTHER EVENTS DURING THE FINANCIAL YEAR
On 22 April 2016, the Company released its audited Annual Report
and Accounts for the full financial year 2015.
At the annual general meeting the ("AGM") of the Company held on
22 June 2016, shareholders approved the following ordinary and
special resolutions:
17 OTHER EVENTS DURING THE FINANCIAL YEAR (continued)
Ordinary Resolutions
1. Receipt and consideration of the Directors' report and the
financial statements of the Company for the financial year ended 31
December 2015 and the report of the auditors thereon;
2. Re-appointment of KPMG as auditors of the Company;
3. Authorisation of the Directors to fix the remuneration of the
auditors of the Company;
4. Re-election of Edward D'Alelio as a Director of the
Company;
5. Re-election of Werner Schwanberg as a Director of the
Company;
6. Re-election of Fergus Sheridan as a Director of the
Company;
7. Re-election of Adrian Waters as a Director of the
Company;
8. Authorisation of the Board to allot and issue up to
54,325,334 shares (or, if lower, such number of shares as represent
10 per cent of the shares of the Company in issue at the date of
the AGM), such authority to expire at the conclusion of the next
annual general meeting of the Company unless previously renewed,
varied or revoked by the Company in general meeting.
Special Resolutions
9. Authorisation of the Board to allot and issue up to
54,325,334 shares (or, if lower, such number of shares as represent
10 per cent of the shares in issue at the date of the AGM) without
having previously to offer such shares to shareholders of the
Company on a pre-emptive basis, such authority to expire at the
conclusion of the next annual general meeting of the Company unless
previously renewed, varied or revoked by the Company in general
meeting.
10. Adoption of the new objects clauses presented at the annual
general meeting as the objects clauses of the Company to the
exclusion of all existing objects clauses and the adoption of the
constitution of the Company presented at the annual general meeting
to the exclusion of the existing memorandum and articles of
association of the Company.
On 26 August 2016, the Company announced its unaudited interim
results for the period ended 30 June 2016. The Company amended this
announcement to incorporate minor changes on 30 August 2016.
On 30 November 2016, the Company announced that the Directors
would like to consider whether or not to offer shareholders
potential redemption opportunities on a more frequent basis than as
set out in the articles of association of the Company (the
"Articles"). The Articles provide for circumstances where the
directors have a discretion to offer redemption opportunities to
shareholders every five years, and the Directors intend to consider
every two and a half years whether to put an ordinary resolution to
shareholders to approve a redemption opportunity for up to 100 per
cent of the shares in issue, subject to any necessary changes to
the Articles being approved. Any such redemption opportunities
would be made available at the Directors' discretion and would be
implemented through the creation of a repurchase pool. In the run
up to April 2017, the Directors will continue to monitor the
Company's share price relative to its net asset value and any
decision whether to provide shareholders with the 2017 redemption
opportunity will be made at that time.
There were no other significant events during the financial year
which are not disclosed elsewhere which would require revision of
the figures or disclosures in the financial statements.
18 SUBSEQUENT EVENTS
On 19 January 2017, the Board declared a dividend of US$0.0275
per US Dollar share in respect of the financial period from 1
October 2016 to 31 December 2016. The dividend was paid on 1
February 2017 to shareholders on the share register as at the close
of business on 27 January 2017. The amount paid in respect of this
dividend was US$14,939,467.
There were no other significant events since financial year end
which would require revision of the figures or disclosures in the
financial statements.
19 APPROVAL OF THE FINANCIAL STATEMENTS
The financial statements were approved and authorised for issue
by the Directors on 26 April 2017.
SCHEDULE OF INVESTMENTS (unaudited)
As at 31 December 2016
Market
Nominal value % of
holdings of US$ NAV
----------------------------------- ----------- ----------- -----
COLLATERALISED LOAN OBLIGATIONS
REGION OF TRADE
North America
COUNTRY OF INCORPORATION
Cayman Islands (December 2015:
74.44%)
ACAS CLO 2013-1X F 5,000,000 4,366,062 1.04
ACAS CLO 2013-2X E 7,000,000 5,976,967 1.42
Adirondack Park CLO Ltd 2013-1A
E 5,500,000 5,202,169 1.23
Apidos CLO 2013-14A E 4,000,000 3,667,000 0.87
Apidos CLO 2013-14A F 5,000,000 4,238,854 1.01
Apidos CLO 2013-14X INC 6,060,000 3,625,900 0.86
Apidos CLO 2014-17X E 11,500,000 9,449,454 2.24
Apidos CLO 2014-18A 3,000,000 1,837,950 0.44
Apidos CLO 2015-20A 10,400,000 8,580,000 2.03
Apidos CLO 2015-20X D 1,538,462 1,479,298 0.35
ARES CLO Ltd 2013-3X SUB 21,750,000 10,041,250 2.38
Birchwood Park CLO Ltd 2014-1A 8,000,000 5,000,000 1.19
Birchwood Park CLO Ltd 2014-1X
INC 1,000,000 625,000 0.15
BNPP IP CLO Ltd 2014-1X D 16,500,000 14,366,793 3.41
BNPP IP CLO Ltd 2014-1X E 14,000,000 11,205,908 2.66
Bowman Park CLO Ltd 2014-1X 2,500,000 1,731,750 0.41
Burnham Park CLO Ltd 2014-1A 3,000,000 2,812,500 0.67
Callidus Debt Partners CLO Fund
Ltd 5A INC 4,700,000 114,367 0.03
Callidus Debt Partners CLO Fund
Ltd 5X INC 7,000,000 170,333 0.04
Callidus Debt Partners CLO Fund
Ltd 7A SUB 14,050,000 238,850 0.06
Callidus Debt Partners CLO Fund
Ltd 7X SUB 11,050,000 187,850 0.04
Carlyle Global Market Strategies
CLO Ltd 2015-1A SUB 10,000,000 7,116,667 1.69
Carlyle Global Market Strategies
CLO Ltd 2016-1A SUB 3,000,000 2,662,500 0.63
Cedar Funding CLO Ltd 2014-3A
SUB 2,000,000 1,455,000 0.34
Cedar Funding CLO Ltd 2016-5A
SUB 14,517,500 14,783,654 3.51
Dryden Senior Loan Fund 2015-38X
SUB 7,500,000 6,078,863 1.44
Dryden Senior Loan Fund 2015-41X
SUB 900,000 758,250 0.18
Dryden Senior Loan Fund 2016-45X
SUB 2,368,000 2,131,200 0.51
Eaton Vance CDO Ltd 2014-1X INC 8,000,000 4,130,000 0.98
Highbridge Loan Management 3-2014 9,031,000 6,216,338 1.47
Highbridge Loan Management 4-2015
Ltd 4,900,000 4,539,648 1.08
HPS Loan Management 10-2016 Ltd 20,550,000 18,034,680 4.27
Magnetite IX Ltd 4,882,743 3,257,278 0.77
Magnetite XI 21,980,270 17,694,117 4.19
Magnetite XIV Ltd 4,663,717 4,220,664 1.00
Magnetite XV Ltd 3,000,000 2,957,686 0.70
Magnetite XVIII Ltd 10,000,000 8,660,000 2.05
Neuberger Berman CLO Ltd 2013-14A
E 7,000,000 6,393,525 1.52
Neuberger Berman CLO Ltd 2013-14X
SUB 18,554,000 11,217,860 2.66
Neuberger Berman CLO Ltd 2013-15X
SUB 3,500,000 1,985,773 0.47
Neuberger Berman CLO Ltd 2014-16X
F 7,500,000 5,949,773 1.41
Neuberger Berman CLO Ltd 2016-21A
SUB 2,200,000 2,118,094 0.50
Neuberger Berman CLO Ltd 2016-23A
SUB 4,000,000 3,258,918 0.77
Neuberger Berman CLO Ltd 2016-23A
SUBF 114,546 101,373 0.02
SCHEDULE OF INVESTMENTS (unaudited) (continued)
As at 31 December 2016
Market
Nominal value % of
holdings of US$ NAV
--------------------------------------- ------------ ------------- --------
COLLATERALISED LOAN OBLIGATIONS
REGION OF TRADE
North America
COUNTRY OF INCORPORATION
Cayman Islands (December 2015:
74.44%)
NYLIM Flatiron CLO Ltd 2006-1X
SUB 2,000,000 350,000 0.08
Palmer Square CLO 2015-1 Ltd 2015-1A
SUB 5,000,000 4,037,500 0.96
Rampart CLO 2007 Ltd 2007-1A SUB 11,000,000 989,267 0.23
Seneca Park CLO Ltd 2014-1X SUB 6,500,000 3,802,500 0.90
Stewart Park CLO Ltd 2015-1X SUB 10,000,000 8,975,000 2.13
Taconic Park CLO Ltd 2016-1A SUB 15,000,000 13,328,250 3.16
Thacher Park CLO Ltd 2014-1X SUB 4,000,000 2,706,667 0.64
THL Credit Wind River CLO Ltd
2013-2 5,000,000 3,316,250 0.79
THL Credit Wind River CLO Ltd
2014-3 2,500,000 2,220,244 0.53
Treman Park CLO Ltd 2015-1A 4,000,000 3,040,000 0.72
Tryon Park CLO Ltd 2013-1X E 4,700,000 3,893,916 0.92
Tryon Park CLO Ltd 2013-1X SUB 12,000,000 6,539,730 1.55
VOYA Investment Management CLO
Ltd 2015-2X SUB 18,000,000 15,315,972 3.63
Webster Park CLO Ltd 2015-1X SUB 14,900,000 13,559,000 3.22
312,714,412 74.15
--------------------------------------- ------------ ------------- --------
Ireland (December 2015: 2.01%)
Dorchester Park CLO Ltd 2015-1X
SUB 10,000,000 8,355,000 1.98
--------------------------------------- ------------ ------------- --------
8,355,000 1.98
--------------------------------------- ------------ ------------- --------
TOTAL COLLATERALISED LOAN OBLIGATIONS
(DECEMBER 2015: 76.45%) 321,069,412 76.13
--------------------------------------- ------------ ------------- --------
INVESTMENT IN SUBSIDIARIES
REGION OF TRADE
North America
COUNTRY OF INCORPORATION
Cayman Islands (December 2015:
20.20%)
Keuka Park CLO Ltd 2013-1A E 8,000,000 7,286,895 1.73
Keuka Park CLO Ltd 2013-1A SUB 23,350,000 12,513,966 2.97
Neuberger Berman CLO Ltd 2014-17X
SFN 1,684,737 1,103,503 0.26
Neuberger Berman CLO Ltd 2014-17X
SUB 29,100,000 18,250,550 4.32
Pinnacle Park CLO Ltd 2014-1A
SUB 25,000,000 17,109,375 4.06
Sheridan Square CLO Ltd 2013-1A
F 11,900,000 10,076,384 2.39
Sheridan Square CLO Ltd 2013-1A
INC 12,000,000 5,730,000 1.36
Sheridan Square CLO Ltd 2013-1A
SUB 20,000,000 9,550,000 2.26
Sheridan Square CLO Ltd 2013-1X
INC 6,500,000 3,103,750 0.74
84,724,423 20.09
--------------------------------------- ------------ ------------- --------
TOTAL INVESTMENTS AT FAIR VALUE (DECEMBER
2015: 96.65%) 405,793,835 96.22
OTHER ASSETS (DECEMBER 2015: 7.14%) 18,039,434 4.28
OTHER LIABILITIES (DECEMBER 2015:
(3.79)%) (2,092,950) (0.50)
--------------------------------------- ------------ ------------- --------
TOTAL NET ASSETS ATTRIBUTABLE
TO EQUITY PARTICIPATING SHAREHOLDERS 421,740,319 100.00
--------------------------------------- ------------ ------------- --------
SUMMARY OF KEY FINANCIAL INFORMATION
(unaudited)
NAV HISTORY
Financial Financial Financial Financial Financial
year ended year ended year ended year ended year ended
31 December 31 December 31 December 31 December 31 December
3016 2015 2014 2013 2012
------------------- --------------- --------------- --------------- --------------- ---------------
US$421,740,319 US$392,837,444 US$488,572,102 US$514,219,232 US$557,381,860
NAV
NAV per share
US Dollar
class US$0.7763 US$0.7231 US$0.8993 US$0.9466 US$1.0261
Shares at
financial
year end
US Dollar
class 543,253,359 543,253,359 543,253,359 543,253,359 543,253,359
Income per
Prospectus
(inclusive
of interest
income on
cash and
cash equivalents) US$60,475,305 US$67,435,088 US$66,536,306 US$82,421,817 US$67,183,883
Value of
investments US$405,793,835 US$379,662,763 US$486,340,728 US$536,612,325 US$548,792,855
Number of
investments 68 64 70 91 92
------------------- --------------- --------------- --------------- --------------- ---------------
The financial year-end exchange rate was EUR: US$1.05265 (31
December 2015: US$1.08630). The average rate for the financial year
was EUR: US$1.10353 (31 December 2015: US$1.11035).
PORTOLIO CHANGES MATERIAL ACQUISITIONS AND DISPOSALS/PAYDOWNS
(unaudited)
for the financial year ended 31 December 2016
Quantity US$
Acquisitions purchased costs
-------------------------------------- ----------------------- ------------------------
Institutional Cash Series Plc
- Institutional US Dollar Liquidity
Fund 57,024,377 57,024,377
HPS Loan Management 10-2016
Ltd 20,550,000 18,034,680
Magnetite XI 21,980,270 16,075,548
Cedar Funding CLO Ltd 2016-5A
SUB 14,517,500 14,517,500
Taconic Park CLO Ltd 2016-1A
SUB 15,000,000 13,328,250
Magnetite XVIII Ltd 10,000,000 8,620,000
Dryden Senior Loan Fund 2015-38X
SUB 7,500,000 6,086,250
Apidos CLO 2015-20A 10,400,000 5,876,000
Highbridge Loan Management
3-2014 7,281,000 5,159,861
Birchwood Park CLO Ltd 2014-1A 8,000,000 4,160,000
Magnetite XIV Ltd 4,663,717 4,104,071
Palmer Square CLO 2015-1 Ltd
2015-1A SUB 5,000,000 3,388,000
Magnetite IX Ltd 4,882,743 3,381,300
Neuberger Berman CLO Ltd 2016-23A
SUB 4,000,000 3,232,636
Burnham Park CLO Ltd 2014-1A 3,000,000 2,812,500
Treman Park CLO Ltd 2015-1A 4,000,000 2,700,000
Carlyle Global Market Strategies
CLO Ltd 2016-1A SUB 3,000,000 2,565,000
Neuberger Berman CLO Ltd 2016-21A
SUB 2,200,000 2,145,000
Dryden Senior Loan Fund 2016-45X
SUB 2,368,000 2,131,200
Bowman Park CLO Ltd 2014-1X 2,500,000 1,737,500
Quantity US$
Disposals/Paydowns* sold proceeds
-------------------------------------- ---------------------- ------------------------
Institutional Cash Series Plc
- Institutional US Dollar Liquidity
Fund 41,000,000 41,000,000
Voya CLO II Ltd 17,000,000 15,124,149
Babson CLO Ltd 2013-IX SUB 21,000,000 11,760,000
Flatiron CLO 2014-1 Ltd 31,000,000 11,594,000
Carlyle Daytona CLO Ltd 2007-1A
B2L 12,190,753 10,492,581
ARES CLO Ltd 2007-3RA E 7,000,000 6,598,200
BNPP IP CLO Ltd 2014-1X SUB 22,300,000 6,188,250
Clear Lake CLO Ltd 2006-1A
D 6,184,393 6,159,655
Cedar Creek CLO Ltd 2013-1
SUB 10,200,000 5,409,060
Dryden Senior Loan Fund 2013-26X
SUB 6,000,000 2,857,800
Neuberger Berman CLO Ltd 2014-16X
F 5,000,000 2,839,500
ARES CLO Ltd 2014-32X E 3,750,000 2,498,250
Gale Force CLO Ltd 2007-3X
E 2,391,994 2,301,338
Saturn CLO Ltd 2007-1A D 144A 2,170,000 2,030,035
Saturn CLO Ltd 2007-1X D 2,030,000 1,899,065
ECP CLO 2014-6X Ltd 4,100,000 1,609,250
Gale Force CLO Ltd 2007-3A
E 1,530,876 1,472,244
Nantucket CLO Ltd 2006-1A E 1,500,000 1,388,550
Silvermore CLO Ltd 2014-1X
B SUB 8,300,000 871,500
Carlyle Azure CLO Ltd (Preference
Shares) 75,000 -
* Represents total of the disposals.
MANAGEMENT AND ADMINISTRATION
DIRECTORS* REGISTERED OFFICE
Werner Schwanberg (Chairman)** 78 Sir John Rogerson's Quay
Fergus Sheridan** Dublin 2
Adrian Waters** Ireland
Edward D'Alelio
Nicholas Moss** COMPANY REGISTRATION NUMBER:
415764
US Dollar shares ISIN: IE00B3D60Z08
ADMINISTRATOR AND COMPANY
SECRETARY
State Street Fund Services INVESTMENT MANAGER
(Ireland) Limited
78 Sir John Rogerson's Quay GSO / Blackstone Debt Funds
Management LLC
Dublin 2 345 Park Avenue
Ireland Floor 31
New York
CUSTODIAN NY 10154
State Street Custodial Services United States of America
(Ireland) Limited
78 Sir John Rogerson's Quay
Dublin 2 JOINT FINANCIAL ADVISER
Ireland AND JOINT CORPORATE BROKER
Fidante Partners Europe
Limited (trading as Fidante
Capital)
SOLICITORS AS TO US AND 1 Tudor Street
ENGLISH LAW
Herbert Smith Freehills London EC4Y 0AH
LLP
Exchange House United Kingdom
Primrose Street
London EC2A 2EG JOINT FINANCIAL ADVISER
United Kingdom AND JOINT CORPORATE BROKER
Nplus1 Singer Advisory LLP
SOLICITORS AS TO IRISH LAW One Bartholomew Lane
Arthur Cox London EC2N 2AX
10 Earlsfort Terrace United Kingdom
Dublin 2
D02 T380 INDEPENDENT AUDITOR
Ireland KPMG
1 Harbourmaster Place
REGISTRAR IFSC
Computershare Investor Services Dublin1
(Ireland) Limited
Herron House Ireland
Corrig Road
Sandyford Industrial Estate
Dublin 18
Ireland
* All Directors of Carador Income Fund PLC are Non-Executive Directors.
** Independent Directors.
[1] Source: Credit Suisse, as of 31 December 2016.
[2] Source: JP Morgan, as of 31 December 2016.
[3] Source: Bloomberg, 30 December 2016 share price $0.7163.
[4] Source: Bloomberg, 30 December 2016 share price $0.7163.
[5] The indices referenced may be materially different from that
of the composition of Carador. In particular, Carador does not have
direct exposure to leveraged loans, but rather its exposure comes
through its ownership of CLO securities. In addition, these indices
employ different investment guidelines and criteria than Carador;
as a result, Carador's exposure to leveraged loans is expected to
differ significantly from the securities or other assets that
comprise the indices. The performance of these indices has not been
selected to represent an appropriate benchmark to compare to the
performance of Carador, but rather is disclosed to allow for
comparison of the performance of Carador to that of well know,
relevant indices. A summary of the investment guidelines of these
indices is available upon request.
[6] Source: JP Morgan, Leveraged Loan Market Monitor 3 January
2017.
[7] Source: Credit Suisse, as of 31 December 2016.
[8] Source: S&P/LCD, as of 10 February 2017.
[9] Source: Wells Fargo, The CLO Salmagundi: 2016 - U.S. Year in
Review 3 January 2017.
[10] The indices referenced may be materially different from
that of the composition of Carador. In particular, Carador does not
have direct exposure to leveraged loans, but rather its exposure
comes through its ownership of CLO securities. In addition, these
indices employ different investment guidelines and criteria than
Carador; as a result, Carador's exposure to leveraged loans is
expected to differ significantly from the securities or other
assets that comprise the indices. The performance of these indices
has not been selected to represent an appropriate benchmark to
compare to the performance of Carador, but rather is disclosed to
allow for comparison of the performance of Carador to that of well
know, relevant indices. A summary of the investment guidelines of
these indices is available upon request.
[11] Source: Wells Fargo, The CLO Monthly Market Overview 6
January 2017.
This information is provided by RNS
The company news service from the London Stock Exchange
END
ACSOKODKDBKDFQB
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April 27, 2017 07:20 ET (11:20 GMT)
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