REG - Blackstone Loan Fin - Annual Financial Report
28/04/2023 07:00
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RNS Number : 7835X Blackstone Loan Financing Limited 28 April 2023
28 APRIL 2023
FOR IMMEDIATE RELEASE
RELEASED BY BNP PARIBAS S.A., JERSEY BRANCH FINAL RESULTS ANNOUNCEMENT
THE BOARD OF DIRECTORS OF BLACKSTONE LOAN FINANCING LIMITED ANNOUNCE FINAL
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2022
Blackstone Loan Financing Limited
Annual Report and Audited Financial Statements for the Year Ended 31 December
2022
A Note From Our Chair
2022 was an eventful year for the global economy. A combination of macro
events, including the Russia-Ukraine conflict, rising inflation and subsequent
coordinated monetary policy tightening by central banks tempered investor
sentiment.
Despite this backdrop, the Company delivered a total return per ordinary share
of 5.22% on a Published NAV basis, ending the period with a NAV of €0.9081
per share. On an IFRS NAV basis, the Company returned a total return per
ordinary share of (19.19)%, ending the period with a NAV of €0.6784 per
share. The difference between the Published and IFRS NAV return is the
differing valuation bases, with the main driver being the discount rate used.
Refer to below for details on the key assumptions that significantly
contribute to the valuation divergence.
The Board is cautiously optimistic for 2023, encouraged by recent improving
macroeconomic data and falling energy prices. The Board is also cognisant of
the impact that ongoing interest rate hikes is expected to have on credit
performance. The Board gains comfort from the robust investment approach of
the Company's Portfolio Adviser and their ability to select an underlying
portfolio of high-quality borrowers, supported by strong underlying
protections.
All of us on the Board thank our Shareholders for participating in the
consultation process that took place after year end.
As noted below, I am due to rotate off the Board at the 2023 AGM (expected to
be held in July). It has been a pleasure to serve on the Board for the last 9
years as Chair of the Company. I will leave the Chair position in the very
capable hands of Mr Steven Wilderspin, who will be appointed as Chair
following the 2023 AGM.
Charlotte Valeur
Chair
27 April 2023
Strategic Report
About the Company
The Company was incorporated on 30 April 2014 as a closed-ended investment
company limited by shares under the laws of Jersey and is authorised as a
listed fund under the Collective Investment Funds (Jersey) Law 1988. The
Company continues to be registered and domiciled in Jersey. The Company's
ordinary shares are quoted on
the Premium Segment of the Main Market of the LSE.
The Company has a wholly-owned Luxemburg subsidiary, Blackstone / GSO Loan
Financing (Luxembourg) S.à r.l., which has an issued share capital of
2,000,000 Class A shares and 1 Class B share. As at 31 December 2022, all of
the Class A and Class B shares were held by the Company together with
239,550,782 Class B CSWs issued by the Lux Subsidiary. The Lux Subsidiary
invests in PPNs issued by BCF, which in turn invests in CLOs and loans.
Refer to below for more details on the Company's purpose, values and principle
activities.
As outlined in the Company's Prospectus, the Company's investment objective is
to provide Shareholders with stable and growing income returns and to grow the
capital value of the investment portfolio by exposure to floating rate senior
secured loans and bonds directly and indirectly through CLO securities and
investments in Loan Warehouses. The Company seeks to achieve its investment
objective through exposure (directly or indirectly) to one or more companies
or entities established from time to time ("Underlying Companies"), such as
BCF.
Refer to below for more details on the Company's investment policy and
strategy, which form the 'business model' of the Company.
Elements of the Company's investment strategy
How does the Company's investment strategy help achieve its investment The Board, through delivery of the Company's strategy and investment approach
objectives? of the Portfolio Adviser, seeks to generate returns for its Shareholders, in
order to meet the Company's investment objectives, as explained below.
How does the Board measure success in delivery of the Company's investment The Board monitors and measures the Company's performance on an ongoing and
strategy? consistent basis in accordance with its KPIs as set out in this Annual Report,
whilst also taking into consideration the Company's values as noted below.
Which principal risks and emerging risks affect the ability of the Company to The Board actively monitors the risks which could impact the ability of the
deliver its investment strategy? Company to deliver its investment strategy. A description of the key principal
and emerging risks identified and how the Board assesses, monitors, measures
and reports these risks is set out below.
How does the Company's investment strategy maintain or improve its ability to The Company has achieved an annualised IFRS NAV and Published NAV total return
deliver value to its Shareholders? since inception of 4.41% and 8.07% respectively.
In addition, despite not forming part of the Company's investment strategy,
the Company seeks to generate regular cash income by paying out a stable and
attractive dividend as well as offering the potential for capital
appreciation. On 23 January 2023, the Board announced that the Company has
adopted a dividend policy targeting a total 2023 annual dividend of between
€0.08 and €0.09 per ordinary share. Refer to below for further details.
Reconciliation of IFRS NAV to Published NAV
At 31 December 2022, there was a difference between the NAV per ordinary share
as disclosed in the Statement of Financial Position, €0.6784 per ordinary
share ("IFRS NAV") and the published NAV, €0.9081 per ordinary share, which
was released to the LSE on 23 January 2023 ("Published NAV"). The
reconciliation is provided below and in Note 16 in the notes to the financial
statements. The difference between the two valuations is entirely due to the
different valuation bases used, as explained in detail below.
Valuation policy for the Published NAV
The Company publishes a NAV per ordinary share on a monthly basis in
accordance with its Prospectus. The valuation process in respect of the
Published NAV incorporates the valuation of the Company's CSWs and underlying
PPNs (held by the Lux Subsidiary). These valuations are, in turn, based on the
valuation of the BCF portfolio using a CLO intrinsic calculation methodology
per the Company's Prospectus, which we refer to as a "mark to model" approach.
As documented in the Prospectus, certain "Market Colour" (market clearing
levels, market fundamentals, BWIC, broker quotes or other indications) is not
incorporated into this methodology. This valuation policy is deemed to be an
appropriate way of valuing the Company's holdings and of tracking the
long-term performance of the Company as the underlying portfolio of CLOs held
by BCF are comparable to held to maturity instruments, and the Company expects
to receive the benefit of the underlying cash flows over the CLOs' entire life
cycles.
Refer to the 'Shareholder Consultation' section in the Chair's Statement for
proposals regarding the future valuation policy of Directors.
Valuation policy for the IFRS NAV
For financial reporting purposes on an annual and semi-annual basis, to comply
with IFRS as adopted by the EU, the valuation of BCF's portfolio is at fair
value using models that incorporate Market Colour at the year-end date, which
we refer to as a "mark to market" approach. IFRS fair value is the price that
would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants as at the measurement date and
is an "exit price" e.g. the price to sell an asset. An exit price embodies
expectations about the future cash inflows and cash outflows associated with
an asset or liability from the perspective of a market participant. IFRS fair
value is a market-based measurement, rather than an entity-specific
measurement and so incorporates general assumptions that market participants
are applying in pricing the asset or liability, including assumptions about
risk.
Both the mark to model Published NAV and mark to market IFRS NAV valuation
bases use modelling techniques and input from third-party valuation
specialists.
Key Performance Indicators
IFRS NAV Published NAV
NAV((1)) €0.6784 €0.9081
(31 Dec 2021: €0.9154) (31 Dec 2021: €0.9407)
NAV total return((1)) (19.19)% 5.22%
(31 Dec 2021: 16.87%) (31 Dec 2021: 21.82%)
Discount((1)) (1.98)% (26.77)%
(31 Dec 2021: (13.43)%) (31 Dec 2021: (15.75)%)
Dividend €0.08 €0.08
(31 Dec 2021: €0.08) (31 Dec 2021: €0.08)
Further information on the reconciliation between the IFRS NAV and the
Published NAV can be found in Note 16 in the notes to the financial
statements. Refer to 'Discount management' in the Chair's Statement below for
the latest share price discount to the Published NAV.
Performance
Ticker IFRS NAV Published NAV Share price((( 1 (#_ftn1) ))) Discount Discount Dividend yield
per ordinary share per ordinary share IFRS Published
NAV NAV
BGLF
31 Dec 2022 €0.6784 €0.9081 €0.6650 (1.98)% (26.77)% 12.03%((3))
31 Dec 2021 €0.9154 €0.9407 €0.7925 (13.43)% (15.75)% 10.09%
BGLP*
31 Dec 2022 £0.6006 £0.8040 £0.5888 (1.96)% (26.77)% 12.03%((3))
31 Dec 2021 £0.7697 £0.7608 £0.6750 (12.30)% (11.28)% 10.07%
* BGLP is the ticker for the Company's Sterling Quote and has been presented
for information purposes only.
LTM 3-Year Annualised Since Inception Cumulative Since
Return((1)) Annualised Inception
BGLF IFRS NAV (19.19)% 0.93% 4.41% 43.96%
BGLF Published NAV 5.22% 8.55% 8.07% 92.54%
BGLF ordinary share Price (6.56)% 3.35% 5.05% 51.67%
The Company is not managed in reference to a benchmark, however commentary to
market indices and market performance is detailed in the Portfolio Adviser's
report below.
Dividend and other key data
Whilst not forming part of the Company's investment objective or investment policy, it is currently intended that dividends are payable in respect of each calendar quarter, two months after the end of that quarter, dependent on the solvency position and the amount of stated capital available for distribution.
On 21 January 2022, the Board announced that the Company had adopted a dividend policy targeting a total 2022 annual dividend of between €0.07 and €0.08 per ordinary share, to consist of quarterly payments of €0.0175 per ordinary share for the first three quarters and a final quarter payment of a variable amount to be determined at that time. In accordance with the Company's dividend policy, the Board declared dividends of €0.0175 per ordinary share for the first three quarters of 2022 and a dividend of €0.0275 per ordinary share for the fourth quarter.
On 23 January 2023, the Board also announced that it is targeting a total 2023
annual dividend of between €0.08 and €0.09 per ordinary share, which will
consist of quarterly payments of €0.02 per ordinary share for the first
three quarters and a final quarter payment of a variable amount to be
determined at that time.
Ordinary share dividends for the year ended 31 December 2022
Amount per ordinary share
Period in respect of Date Declared Ex-dividend Date Payment Date
€
1 Jan 2022 to 31 Mar 2022 25 Apr 2022 5 May 2022 9 Jun 2022 0.0175
1 Apr 2022 to 30 Jun 2022 21 Jul 2022 28 Jul 2022 26 Aug 2022 0.0175
1 Jul 2022 to 30 Sept 2022 21 Oct 2022 3 Nov 2022 2 Dec 2022 0.0175
1 Oct 2022 to 31 Dec 2022 23 Jan 2023 2 Feb 2023 3 Mar 2023 0.0275
Ordinary share dividends for the year ended 31 December 2021
Amount per ordinary share
Period in respect of Date Declared Ex-dividend Date Payment Date
€
1 Jan 2021 to 31 Mar 2021 23 Apr 2021 6 May 2021 4 Jun 2021 0.0175
1 Apr 2021 to 30 Jun 2021 21 Jul 2021 5 Aug 2021 3 Sep 2021 0.0175
1 Jul 2021 to 30 Sept 2021 21 Oct 2021 28 Oct 2021 26 Nov 2021 0.0175
1 Oct 2021 to 31 Dec 2021 24 Jan 2022 3 Feb 2022 4 Mar 2022 0.0275
Year highs and lows
2022 2022 2021 2021
High
Low
High
Low
Published NAV per ordinary share €0.9657 €0.9035 €0.9407 €0.8534
BGLF Share Price (last price) €0.8000 €0.6400 €0.8250 €0.6400
BGLP Share Price (last price) £0.6750 £0.5650 £0.7300 £0.5700
Schedule of investments
As at 31 December 2022
Nominal Market % of net asset
holdings
value
value
€
Investment held in the Lux Subsidiary:
CSWs 239,550,782 290,426,295 96.29
Shares (2,000,000 Class A and 1 Class B) 2,000,001 7,294,874 2.42
Other net assets 3,893,808 1.29
Net assets attributable to Shareholders 301,614,977 100.00
As at 31 December 2021
Nominal Market % of net asset
holdings
value
value
€
Investment held in the Lux Subsidiary:
CSWs 267,088,098 411,170,727 97.43
Shares (2,000,000 Class A and 1 Class B) 2,000,001 6,798,832 1.61
Other net assets 4,030,018 0.96
Net assets attributable to Shareholders 421,999,577 100.00
Schedule of significant transactions
Date of transaction Transaction type Quantity Amount
€
CSWs held by the Company - ordinary share class
7 Feb 2022 Redemption (7,759,353) (12,436,223)
12 May 2022 Redemption (7,954,304) (13,330,696)
20 Jun 2022 Subscription 2,336,756 2,336,756
5 Aug 2022 Redemption (9,629,396) (15,755,887)
5 Aug 2022 Subscription 2,930,048 2,930,048
4 Nov 2022 Redemption (9,803,082) (15,770,614)
4 Nov 2022 Subscription 2,342,015 2,342,015
The proceeds of the redemptions are used to fund dividends and share buy
backs, and to cover other administrative costs. The Company subscribes to CSWs
in order for the Lux Subsidiary to further invest in PPNs issued by BCF.
Chair's Statement
Dear Shareholders,
Company returns and net asset value
( (#_ftn2)
4)
The Company delivered an IFRS NAV total return per ordinary share of (19.19)%
over 2022, ending the period with a NAV of €0.6784.
On a Published NAV basis, the Company delivered a total return per ordinary
share of 5.22% during 2022, ending the year with a NAV of €0.9081. The
return was composed of dividend income 8.83% and of net portfolio movement of
(3.61)%. Refer to below for the calculation of the IFRS and Published NAV
total return.
As highlighted above, the Company uses different valuation policies to
determine Published and IFRS NAV. As at 31 December 2022, the variance between
Published and IFRS NAV was €0.2297 per share, which is primarily associated
with the discount rates used under the two methodologies. The table below
further explains the rationale regarding the differences in the assumptions
that have contributed to the variance as at 31 December 2022.
During 2022, the Company's performance on a Published NAV basis was supported,
through its investment in BCF, by robust distributions from the underlying CLO
and loan portfolio. CLO distributions have continued to benefit from
refinancing and reset activity during 2021/2022 as well as the absence of CLO
CCC basket breaches, which could cause diversions of cash flows away from CLO
equity. However, the portfolio (primarily the loans directly held by BCF and
those CLOs that have exited their reinvestment periods, as reflected in the
mark-to-market loss of €70m loss in the Statement of Comprehensive Income)
was not immune to broader loan market movements, noting that European and US
loans returned -3.3%(5) (#_ftn3) and -1.1%(5) (#_ftn4) , respectively, over
the year as discussed in more detail in the Portfolio Adviser's Review.
The Company paid four dividends to ordinary Shareholders during 2022, totaling
€0.08 per share, which is at the upper end of the 2022 dividend target of
€0.07 - €0.08 per share. The increased dividend paid in the fourth quarter
is a result of the strong continued and expected cash flows of the underlying
portfolio. Looking ahead to 2023, the Board has announced an elevated dividend
policy that targets a total annual dividend of €0.08 - €0.09( (#_ftn5) 6),
which represents a potential 12.5% increase to dividend per share. Details of
all dividend payments can be found within the 'Dividend and other key data'
section at the front of this financial report.
To remind investors, the Company's dividends are funded from the cash flows
generated by the Company's underlying CLO and loan portfolio held within BCF.
The Board considers three strategic priorities when allocating these cash
flows:
· Paying a sustainable dividend sufficiently covered by cash generated,
that does not erode the capital of theCompany over time;
· Providing funds to implement the Board's share buyback policy;
and
· Reinvesting surplus cash proceeds in order to grow the
Company's NAV over time.
First of all, the Board's framework considers both realised and
forward-looking expectations of underlying cash flows to derive a target range
for the dividend for the coming year. The Board then considers the Company's
share price and calculations of the NAV per share in order to allocate budgets
for share buybacks and re-investment.
Historical BGLF NAV and share price
The graph shows cumulative Published NAV and ordinary share price total
returns and cumulative returns on European and US loans( (#_ftn6) 7).
[Graphs and charts are included in the published Annual Report and Audited
Financial Statements which is available on the Company's website
at http://blackstone.com/bglf
(https://www.blackstone.com/our-businesses/registered-products#c=blackstone-gso-loan-financing-limited)
]
Historical BCF default loss rate
The graph shows the default loss rate, which incorporates asset recovery,
within the BCF portfolio and the default loss rate of European and US loans(
(#_ftn7) 8).
[Graphs and charts are included in the published Annual Report and Audited Financial Statements which is available on the Company's website at
http://blackstone.com/bglf (https://www.blackstone.com/our-businesses/registered-products#c=blackstone-gso-loan-financing-limited)
]
Market conditions
After a relatively strong start to the year, financial markets succumbed to
volatility over 2022 as headwinds gathered. Central banks became more hawkish
amid growing concerns over persistent inflation caused by rising energy
prices, supply chain disruptions and Russia's invasion of Ukraine. A risk-off
sentiment gripped the market, pushing credit spreads to widen as recession
risk increased.
Against this backdrop, the loan market outperformed high yield and investment
grade markets. Credit metrics for below investment grade companies remained
healthy over the year, but as the year progressed, profit margins began to be
squeezed due to inflationary pressures.
Looking ahead, despite rising interest rates, we expect floating rate credit,
a natural interest rate and inflation hedge, to perform well and anticipate a
promising environment for investors within leveraged loans and CLOs. Although
reported GDP figures point toward the view of a recession, a trend of
generally positive corporate earnings surprises so far this year, coupled with
a strong labour market could provide a foundation for economic stability.
Discount management
The share price discount to Published NAV widened from 15.75% on 31 December
2021 to 26.77% on 31 December 2022. The share price discount to IFRS NAV
narrowed from a discount of 13.43% on 31 December 2021 to 1.98% on 31 December
2022. During 2022, the Company repurchased 16,406,180 shares for €11,478,926
at an average discount of 22.95% using available cash with the goal of
reducing the volatility and quantum of discount. As of 31 March 2023, the
share price discount to Published NAV was 18.95%. As a Board, we regularly
weigh the balance between maintaining liquidity of the shares, the stability
and quantum of any discount and the desire of Shareholders to see the ordinary
shares trade as closely as possible to their inherent value. Please see the
announcement dated 23 January 2023 for more details.
Shareholder Consultation
On 26 January 2023, the Company announced it would undertake a Shareholder
Consultation on potential policy amendments in light of the prevailing and
persistent discount to NAV at which the Company's shares trade and with a view
to broadening investor interest in the Company's shares and maximising
Shareholder total return. An announcement was made on 17 March 2023, covering
the following results of the Shareholder Consultation:
- It was discussed that there are times when reinvestment by the Company
into BCF may be unattractive but direct investment in primary market CLOs
managed and controlled by the Portfolio Adviser may still be attractive. The
Board believes such flexibility to be in the interests of Shareholders and
will propose a change to the Company's investment policy to allow such
investment to be put forward at the time of the Company's AGM expected to be
held in July 2023.
- The Board will continue to monitor the situation and consult with
Shareholders and if there is no significant improvement in the discount, the
Board will consider putting forward a continuation vote alongside the AGM in
2024. In the period between now and the 2024 AGM, the Board will continue to
use all tools at its disposal, principally its buyback policy, in an effort to
mitigate the share price discount to NAV while taking into account the market
environment for CLOs.
- Shareholders expressed concern that the mark to model approach,
whilst reflective of the hold to maturity nature of retention assets, was not
a good benchmark for assessing current market risk and therefore whether the
Company's shares are trading at discount or premium to the risk of the
underlying assets. The Board is considering these points and believes there is
merit in adopting a mark to market valuation methodology for the monthly
published NAV at a time when the NAV derived from both methodologies are
broadly aligned.
Transition away from LIBOR
The transition away from LIBOR to SOFR primarily impacts BCF's US CLO
portfolio, which accounts for 43.6% of BCF's NAV as of year-end. Blackstone
has been working through amendments to transition the liabilities of the US
CLOs it manages, including those in BCF's US CLO portfolio, from LIBOR to
SOFR. It is anticipated that BCF's US CLOs will transition to SOFR on 30 June
2023, either by amendment or the LIBOR Act. If the transition occurs on such
date, BCF's US CLOs will first utilise SOFR on the July 2023 interest
determination dates and the first payments to debt holders in such CLOs based
on SOFR will occur on the October 2023 payment dates. Under normal market
conditions, the Portfolio Adviser expects the impact to BCF's US CLO equity
positions to be relatively muted due to the ability to refinance and the
expectation of converging forward rates and applicable credit spread
adjustments on loans in transition.
Recent market events
Local, regional, or global events such as bank failures (e.g. Silicon Valley
Bank), conflicts (e.g., Russia/Ukraine), acts of terrorism, public health
issues like pandemics or epidemics (e.g., COVID-19), recessions, or other
economic, political and global macro factors and events could lead to a
substantial economic downturn or recession in the US and global economies and
have a significant impact on the Company and its investments. The recovery
from such downturns is uncertain and may last for an extended period of time
or result in significant volatility and many of the risks discussed herein
associated with an investment in the Company may be increased. The Board
continues to monitor noteworthy market events and developments on a continuous
basis.
Ongoing conflict in Ukraine
The Board and the Portfolio Adviser are deeply saddened by the ongoing
humanitarian crisis in Ukraine. When the conflict first commenced, the Board
engaged the Portfolio Adviser to understand any expected impacts to BCF's
portfolio. BCF did not and currently does not, have any direct exposure to
issuers domiciled in Russia, Ukraine or Belarus and the vast majority of
underlying loan issuers in the portfolio had very limited exposure with
respect to revenue and EBITDA. Within Europe, there are a small handful of
issuers identified with marginally higher revenue exposure and the Portfolio
Adviser remains comfortable on the credit quality of these issuers going
forward. In the US loan portfolio, revenue exposure to Russia remains even
lower versus Europe.
ESG
The practice of responsible investing remains a key focus for investors and
for Blackstone. The Board regularly engages with the Company's Portfolio
Adviser regarding their ESG policy. Blackstone has committed to being a
responsible investor for over 35 years and is a signatory to the PRI. This
commitment is affirmed across the organisation and guides its approach to
investing.
Whilst the Company is currently exempt from the requirement to report against
the TCFD recommendations, the Board continues to actively discuss ESG matters
with BX Credit with a view of obtaining meaningful information to provide to
Shareholders. The Board fully acknowledges the importance of the TCFD
recommendations and expects the companies to which BCF provides finance to be
compliant in their reporting against TCFD recommendations, as may be required
by applicable law or regulation. We continue to liaise with BCF on progress in
this area.
Refer to the Portfolio Adviser's Review below for further details on the
Portfolio Adviser's ESG policy.
During 2022, the Board has undertaken various actions as part of its
commitment on ESG, namely:
- the Board continues to participate in the Board apprentice
scheme as outlined below;
- the Board has made inquiries of its key service providers principally
via a questionnaire which includes questions regarding aspects of ESG. The
responses to the questionnaire are reviewed by the Management and Engagement
Committee;
- the Board has liaised with BX Credit to gain an understanding of
their ongoing ESG initiatives and processes; and;
- the Board has considered the impact of its own carbon emissions with
a view to determining a process for carbon offsetting which will be progressed
during 2023.
The Board
Good governance remains at the heart of our work as a Board and is taken very
seriously. The Board believes that the Company maintains high standards of
corporate governance. The Board was very active during the period, convening a
total of 15 Board meetings and 13 Committee meetings (excluding 12 NAV Review
Committee meetings), as well as undertaking a virtual due diligence meeting
with the Portfolio Adviser in October 2022, the agenda for which covers risk
and compliance, risk oversight monitoring, finance and accounting and the
wider market. The Board also met with the BCF Board at the same time.
During the period, the Board and its advisers have met frequently, with the
Company's advisers providing general updates as well as recommendations on
pertinent matters such as the Company's share repurchase programme. The Board
deems the careful consideration of such matters to be critical to ensuring the
long-term success of the Company, particularly in light of the challenges and
uncertainty faced since the start of 2022.
The work of the Board is also assisted by the Audit Committee, NAV Review
Committee, Management Engagement Committee, the Remuneration and Nomination
Committee, the Risk Committee and the Inside Information Committee.
The Company is a member of AIC and adheres to the AIC Code which is endorsed
by the FRC and meets the Company's obligations in relation to the UK Code.
In terms of composition, Mr Gary Clark and I have informed the Board of our
intention to retire at the Company's next AGM as we will have both reached
nine years of service. The Company also announced the appointment of Mr Giles
Adu as non-executive director, which is now confirmed to be effective from the
date of 2023 AGM. The Board has given consideration to Chair succession and
believes it to be in the best interests of the Company that Mr Steven
Wilderspin be appointed as the new Chair following the 2023 AGM.
Refer to below for further details on these changes.
Shareholder communications
During 2022, using our Portfolio Adviser and Brokers, the Board continued its
programme of engagement with current and prospective Shareholders. The Board
sincerely hopes that you found the monthly factsheets, quarterly letters,
quarterly update webcasts and market commentary valuable. The Board is always
pleased to have contact with Shareholders, and welcomes any opportunity to
meet with you and obtain your feedback. Refer to more details on Shareholder
engagement under Section 172(1) statement below and to the 'Shareholder
Consultation' section in the Chair's Statement.
Prospects and opportunities in 2023
The Board maintains an optimistic but cautious outlook heading into 2023, as
markets continue to react swiftly to macroeconomic data and central bank
actions. Global economies have proven resilient so far, but persistent
inflation suggests that central banks will keep rates higher for longer. The
Board expects additional volatility until rates stabilise. Furthermore, the
recent failures of Silicon Valley Bank (SVB) and Credit Suisse has perpetuated
volatility with an expectation of tightening of financial conditions as banks
and other lenders become more conservative. That said, corporate fundamentals
are expected to remain solid, supported by better-than-feared earnings and
stable interest coverage ratios. The Board gains comfort from the robust
investment approach of the Company's Portfolio Adviser and their ability to
select an underlying portfolio of high-quality borrowers, supported by strong
underlying protections.
The Board wishes to express its thanks for the support of the Company's
Shareholders.
Charlotte Valeur
Chair
27 April 2023
Portfolio Adviser's Review
Bank loan market overview
The global loan market started 2022 in a fundamentally good position following
the strong economic recovery in 2021 that generated record supply and healthy
risk adjusted returns across the asset class. However, the resurgence came to
a halt in February with Russia's invasion of Ukraine and as the market
realised that inflation would be more persistent than originally thought.
Supply chain issues remained as a major headwind for issuers although they
eased as the year progressed. Loans were also caught up in the UK's LDI
pension crisis which swept through global credit markets.
Despite the barrage of headwinds, investors generally viewed loans as a safe
haven against the most pressing concern of 2022: rising inflation and interest
rates. The Federal Funds rate started the year off at 0.00% to 0.25% and by
year-end, reached 4.25% to 4.50%, representing one of the most aggressive
tightening policies in history. Similarly, the ECB hiked base rates in the
Eurozone from (0.50)% to 2.00% during the year. The S&P 500 recorded its
worst annual return since 2008 at (18.8)% as a result. By comparison, loans
outperformed other debt and equity markets in 2022, generally due to their
floating rate nature. Total returns for European and US loans ended the year
at (3.3)% and (1.1)% respectively versus high yield at (11.6)% in Europe and
(11.2)% in the US. Average prices for the European and US leveraged loan
indices fell to €91.56 and $91.89 from €98.71 and $98.39 at the end of
2021, respectively.
Loan outperformance came against a thin primary pipeline and global loan
volume stood at just $505 billion (€473 billion) in 2022, roughly half of
that during 2021's record breaking year. Issuance was weighted toward higher
quality issuers looking to term out maturities.
Turning to fundamentals, many companies reported 'better-than-feared' earnings
in 2022 after strong refinancing activity post COVID-19 left balance sheets in
good shape. Still, rising credit concerns pushed spreads across European and
US loans (represented by 3-year discount margin) wider by 248bp and 213bp to
661bp and 652bp respectively as the year progressed. Rolling 12 month loan
defaults ticked up in the second half of 2022, ending the year at 1.1% in the
US and 1.9% in Europe, although these remain within the 10-year historical
averages of 2.2% for both regions( (#_ftn8) 9).
Looking ahead to 2023 and despite kicking off the year with a more
constructive market tone, we expect ongoing volatility as credit markets
adjust to the higher-for-longer narrative and digest the recent bank failures
of SVB and Credit Suisse. We expect credit fundamentals to remain solid and
for corporates to continue to access debt capital markets to both refinance
and raise new debt. Interest coverage ratios have remained stable through all
signs of volatility in the market and reported earnings could continue to
deliver.
CLO market overview
In stark contrast to the prior year, throughout 2022, the CLO market
experienced numerous headwinds but nonetheless, ended the year with robust
primary issuance of €28 billion in Europe and $129 billion in the US.
2022's CLO issuance volume marked the third largest year on record(10)
(#_ftn9) , following a record year of issuance in 2021 and brought the total
outstanding volume of CLOs globally to nearly $1.1 trillion( (#_ftn10) 11).
That was despite technically driven volatility at the top of the CLO debt
stack, due in part to LDI-related weakness. Reduced demand from US and
Japanese banks( (#_ftn11) 12), the dominant buyers of CLO AAAs( (#_ftn12) 13),
was another factor.
Underlying the full year headline issuance volume, the running spread between
assets and liability costs (known as CLO arbitrage) came under pressure in the
second half of the year, due in part to the sustained high cost of liabilities
as some dominant buyers of CLO AAAs remained side-lined following the
LDI-related, technically driven secondary market sell off in CLO AAAs. While
the impact of a diminished spread arbitrage on CLO equity performance can be
offset to some degree through the purchase of discounted loans, capturing that
price arbitrage during periods of volatility requires access to warehouse
financing that remains open and available for use, which is not always the
case across all managers. Issuance in 2022 skewed heavily to larger, more
established managers and demonstrates advantages of greater access to
warehouse financing in order to better achieve an attractive equity
arbitrage.
Within the broad market, the weighted average cost of capital for new issue
European CLOs widened by 134 basis points to 324 basis points and similarly by
132 basis points to 311 basis points for US CLOs over 2022. The higher cost of
debt resulted in a lower net interest margin, to CLO equity investors of new
issue deals. However, as noted above, the expected return in new issue CLOs is
based on buying loans at discounted prices, thereby benefitting from the
'pull-to-par' effect, in addition to the traditional return from net interest
margin.
Though volatility creates a challenging environment for primary CLO creation,
it also provides opportunities for more seasoned vintages of CLOs to improve
performance through portfolio rotation into higher quality and or wider spread
loans, which highlights a key benefit of the CLO structure and its long term,
non-mark-to-market financing, particularly for those CLOs which have longer
remaining reinvestment periods.
Despite that rating downgrades outpaced upgrades, CLO fundamentals remained
resilient throughout the year, underscoring the impact of active management on
the portfolio quality and robustness of CLO structures. Commonly used
measures of CLO portfolio quality showed improvements as managers have been
taking advantage of the volatility in order to improve quality, as measured by
reduced exposures to CCC-rated assets and stable WARF levels. Caa-rated
buckets in European CLOs finished 2022 at 3.1% on average, down from 3.6% at
the end of 2021, and in the US, Caa-rated buckets ended the year at 3.7%,
compared to 4.1% at the end of 2021. Similarly, WARFs ended the year at 2892
in Europe and 2833 in the US, below the 5-year averages of 2924 and 2897,
respectively.
While volatility and technical factors have become a more constant market
feature, we believe that we are at the start of a period of transition where
the CLO primary market and CLO formation will continue to be more heavily
influenced by fundamental credit performance as well as liability performance,
as measured by rating stability and liquidity.
Additionally, looking forward, returns across floating rates assets, including
senior loans and CLOs, should continue to benefit from further central bank
rate hikes in 2023. We expect the focus from managers to be on preservation of
capital through active risk management.
Portfolio update - BCF
From the beginning of the year, BCF's CLOs were well insulated from
dislocations related to rising inflation and interest rates. At Blackstone, we
first identified inflation as a potential issue in 2021 by observing labour
and input costs in our portfolio companies. Our belief that inflation would
prove stickier than many expected influenced much of the trading within our
portfolios over the past year. We leveraged our expansive network of CFOs to
discuss corporate fundamentals and expectations, providing valuable insight.
At the same time, we continued to stress test the issuers in our portfolios
with higher forward looking base rates. Each quarter, our credit research team
re-underwrites each loan and provides guidance on the timing and expected
probability of defaults or downgrades to CCC on a loan-by-loan basis. While
our view on the credit environment has shifted to a more cautious perspective
and our expectations of downgrades and defaults have risen in the past year,
these increases are modest and remain well within CLO limits. To date, higher
default and downgrade assumptions have not caused any of BCF's CLOs to
experience a disruption of cash flows and our analysis shows this to be the
case even in stressed scenarios.
For the first half of the year, much of the focus within BCF's loan portfolio
was on exiting tail risk names amidst the mounting macro headwinds. Our
investment focus has shifted to rotate up in quality to protect against rating
risk, credit risk and price migration, turning to issuers from defensive
sectors in what we call 'good neighbourhoods' with secular tailwinds and
robust cash generation.
As the year progressed, volatility continued to be a central theme, catalysed
by a shock to the UK gilt markets following the UK government's proposed
mini-budget announcement. In our view, the general re-pricing of risk created
a buying opportunity and a compelling relative value opportunity for cross
border issuers. Simultaneously, BCF continued to pare back exposure to lower
quality assets to get ahead of any downgrades and preserve distributions
within the CLO portfolio. Consistent with this approach, BCF's industry
concentration is led by a 16.7% weighting towards healthcare at year-end, a
defensive sector with strong pricing power, beneficial given an environment of
interest rate rises and inflationary pressure. By comparison, sectors with
elevated risk to consumer spending, such as leisure/travel entertainment,
remain outside of the top five industry concentration.
The graph below shows the top five industry concentrations for the BCF
portfolio as of 31 December 2022(14) (#_ftn13) .
[Graphs and charts are included in the published Annual Report and Audited
Financial Statements which is available on the Company's website
at http://blackstone.com/bglf
(https://www.blackstone.com/our-businesses/registered-products#c=blackstone-gso-loan-financing-limited)
]
As of the end of 2022, BCF remains a defensively positioned portfolio of 675
loan issuers diversified across 29 sectors and 26 countries. The portfolio
remains concentrated around B1-B2 rated issuers and holds 4.6% Caa-rated
assets (at the facility level), which is broadly flat from the start of the
year. In line with the market, the portfolio's average loan price declined to
around €90 and $98 from €98 and $100 at the end of last year. Assets
priced below €/$80 increased from 0.5% at the start of the year to 6.4% at
the end of December. We see minimum refinancing risk in the portfolio as loan
maturities are generally wrapped around 2028.
BCF's portfolios demonstrated strong collateral quality metrics compared to
the market and peer managers in 2022. With respect to defaults during the
year, the BCF portfolio maintained a lower default rate of 0.54% compared to
the European and US loan indices of 1.90% and 1.10%( (#_ftn14) 15),
respectively. According to data available at the end of January( (#_ftn15)
16), Blackstone's CLOs outperformed the peer average amongst the largest
managers in terms of IDT cushions and other similar tests( (#_ftn16) 17). The
IDT is the ratio of a CLO's assets to its liabilities and is a widely used
measure of portfolio quality. A breach of the test diverts cash flows, which
would have otherwise been paid to equity holders to protect debt holders and
the 'cushion' is the margin of safety to the breach level. These are important
tests that ensure equity distributions are well protected, the Company's
income is well supported and dividends remain well covered. To note, the
Company's year-on-year dividend cover increased from 1.32 times to 1.63 times
at year-end 2022.
Even with challenging market conditions for CLO origination, BCF invested in
five new issue CLOs in 2022, three in Europe and two in the US, bringing the
number of originated CLOs within the portfolio to 49 spanning 9 vintage years,
reemphasising the wholesale exposure investors experience through this
vehicle. Given interest rate movements throughout the year, the expected
return for recent new issue deals is in part based on the pull-to-par effect,
with underlying assets being bought at a discount. This is in addition to the
traditional return from spread arbitrage (as explained previously), which were
temporarily squeezed toward the end of the year due to a timing mismatch
between the base rates used for assets and liabilities, and we expect this to
normalise over time as interest rates stabilise. Despite this, CLO
distributions remained robust and have maintained uninterrupted cash flows
from each CLO since inception. BCF's weighted average remaining reinvestment
period was 1.9 years at the end of 2022, providing ample runway to actively
reinvest in loans, taking advantage of both lower prices and generally wider
spreads in the current environment.
Looking forward, BCF will, as always, prioritise managing its portfolio to
effectively navigate through the market turbulence, while opportunistically
issuing new CLOs when we believe the economics are attractive. We will
continue to leverage our wealth of resources and experience across numerous
credit cycles to invest in a prudent manner that is supportive of CLO returns
to investors.
The graph below shows the current IDT cushion for Blackstone's European CLOs
and US CLOs compared to peers
as of 31 December 2022((18)).
[Graphs and charts are included in the published Annual Report and Audited
Financial Statements which is available on the Company's website
at http://blackstone.com/bglf
(https://www.blackstone.com/our-businesses/registered-products#c=blackstone-gso-loan-financing-limited)
]
CLO portfolio positions
Current Closing / Deal Position Owned % of BCF NAV Reinvest. Period Current Asset Coupon( (#_ftn17) 19) Current Liability Cost( (#_ftn18) 20) Current Net Interest Margin NIM Distributions Through Last Payment Date( (#_ftn19) 20) % of Tranche
Portfolio
[Expected Close] Date Size (M) Left (Yrs) 3M Prior
(M)
Ann. Cum.
Phoenix Park Jul-14 € 417 € 22.4 1.2% 0.3 4.94% 3.31% 1.63% 1.85% 13.7% 113.1% 51.4%
Dartry Park Mar-15 425 25.6 1.2% 2.3 4.60% 3.26% 1.35% 2.04% 13.1% 102.1% 51.1%
Tymon Park Dec-15 415 21.9 1.4% 2.6 5.14% 3.22% 1.92% 2.13% 15.4% 105.3% 51.0%
Elm Park May-16 520 30.7 1.8% 2.8 4.98% 3.05% 1.93% 2.21% 16.1% 102.6% 56.1%
Griffith Park Sep-16 456 25.0 1.7% 0.4 4.92% 3.29% 1.63% 1.96% 11.3% 70.3% 53.4%
Clarinda Park Nov-16 417 22.2 1.3% 2.1 4.97% 3.50% 1.47% 1.90% 11.8% 71.0% 51.2%
Palmerston Park Apr-17 365 23.1 0.9% 0.0 4.43% 3.06% 1.37% 1.91% 13.4% 74.1% 53.3%
Clontarf Park Jul-17 317 27.9 1.1% 0.0 4.67% 3.52% 1.14% 1.58% 13.8% 73.4% 66.9%
Willow Park Nov-17 412 22.5 0.9% 0.0 4.58% 2.91% 1.67% 2.03% 17.2% 83.8% 60.9%
Marlay Park Mar-18 413 23.7 1.0% 0.0 4.63% 2.63% 2.00% 2.29% 19.1% 86.7% 60.0%
Milltown Park Jun-18 409 23.2 1.2% 0.0 4.75% 2.80% 1.95% 2.29% 18.4% 79.7% 65.0%
Richmond Park Jul-18 430 44.4 1.2% 0.0 4.74% 3.10% 1.65% 1.97% 17.0% 72.3% 68.3%
Sutton Park Oct-18 408 23.1 1.7% 0.4 4.84% 3.42% 1.42% 1.84% 17.3% 66.7% 66.7%
Crosthwaite Park Feb-19 516 31.8 2.0% 2.7 4.75% 3.53% 1.22% 1.10% 15.4% 58.6% 64.7%
Dunedin Park Sep-19 422 24.4 1.3% 3.4 4.88% 3.59% 1.29% 1.65% 22.3% 70.9% 52.9%
Seapoint Park Nov-19 403 20.7 1.8% 1.4 4.56% 3.62% 0.94% 1.52% 14.4% 39.6% 70.5%
Holland Park Nov-19 426 37.6 1.8% 1.4 5.03% 3.67% 1.36% 1.57% 11.5% 34.5% 72.1%
Vesey Park Apr-20 403 23.6 2.2% 1.9 4.98% 3.69% 1.29% 1.49% 18.5% 47.0% 80.3%
Avondale Park Jun-20 409 21.9 1.4% 3.2 4.84% 3.87% 0.97% 0.95% 39.5% 100.9% 63.0%
Deer Park Sep-20 355 19.7 1.4% 3.3 5.01% 3.18% 1.82% 1.94% 35.4% 73.5% 71.9%
Marino Park Dec-20 323 16.4 1.6% 1.0 4.81% 2.98% 1.82% 2.28% 18.7% 33.9% 71.4%
Carysfort Park Apr-21 405 24.2 2.0% 2.6 5.02% 3.26% 1.76% 1.88% 17.9% 28.0% 80.7%
Rockfield Park Jul-21 403 23.1 2.0% 2.5 4.96% 3.08% 1.88% 2.12% 17.8% 21.6% 80.0%
Dillon's Park Sep-21 406 25.2 2.1% 3.3 5.06% 3.14% 1.92% 2.02% 16.9% 17.7% 84.0%
Cabinteely Park Dec-21 404 22.7 1.8% 3.6 4.90% 3.65% 1.25% 1.70% 15.7% 14.1% 75.6%
Otranto Park Mar-22 443 34.6 2.7% 3.9 4.96% 3.83% 1.13% 1.91% 14.0% 8.8% 100.0%
Clonmore Park Aug-22 341 23.0 1.5% 4.1 5.20% 3.86% 1.34% 0.26% n/a n/a 100.0%
Edmondstown Park( (#_ftn20) 21) Dec-22 379 31.1 2.6% 4.6 5.68% 5.58% 0.10% n/a n/a n/a 100.0%
Grippen Park Mar-17 $ 576 $ 28.7 1.0% 0.0 7.39% 6.00% 1.38% 1.43% 14.7% 82.3% 100.0%
Thayer Park May-17 523 26.3 1.4% 3.3 7.47% 5.77% 1.70% 1.68% 15.1% 82.2% 100.0%
Catskill Park May-17 986 53.9 1.6% 0.0 7.46% 5.85% 1.62% 1.71% 15.1% 82.0% 50.1%
Dewolf Park Aug-17 614 30.6 1.4% 0.0 7.48% 5.53% 1.95% 2.00% 15.9% 81.5% 50.1%
Gilbert Park Oct-17 1,022 49.8 2.2% 0.0 7.43% 5.76% 1.67% 1.73% 15.5% 77.2% 51.6%
Long Point Park Dec-17 611 28.4 1.5% 0.0 7.44% 5.50% 1.94% 1.77% 19.9% 95.3% 51.6%
Stewart Park Jan-18 874 88.7 1.5% 0.0 7.41% 5.55% 1.86% 1.93% 14.2% 67.2% 50.8%
Cook Park Apr-18 1,025 51.6 2.8% 0.3 7.48% 5.42% 2.05% 1.86% 17.5% 79.2% 50.1%
Fillmore Park Jul-18 561 29.1 1.8% 0.5 7.46% 5.50% 1.96% 1.93% 17.6% 74.1% 50.1%
Harbor Park Dec-18 715 38.2 2.5% 1.1 7.45% 5.70% 1.75% 1.67% 15.2% 58.1% 50.1%
Southwick Park Aug-19 503 25.1 1.9% 1.6 7.47% 5.63% 1.84% 1.78% 17.0% 53.6% 54.3%
Beechwood Park Dec-19 816 47.1 3.3% 4.0 7.32% 5.68% 1.64% 1.62% 16.9% 47.7% 50.1%
Allegany Park Jan-20 506 29.1 2.2% 4.1 7.34% 5.72% 1.62% 1.66% 14.8% 41.0% 59.9%
Harriman Park Apr-20 501 28.1 2.3% 3.3 7.33% 5.75% 1.58% 1.61% 25.7% 64.2% 61.1%
Cayuga Park Aug-20 399 22.0 1.9% 3.5 7.35% 5.51% 1.85% 1.69% 30.6% 66.7% 66.2%
Point Au Roche Park Jun-21 457 25.5 1.9% 3.6 7.43% 5.74% 1.69% 1.77% 19.9% 25.9% 70.0%
Peace Park Sep-21 661 37.5 2.9% 3.8 7.38% 5.71% 1.67% 1.50% 19.8% 20.9% 72.0%
Whetstone Park Dec-21 506 27.5 2.2% 4.1 7.42% 5.70% 1.72% 1.74% 21.8% 18.9% 61.2%
Boyce Park Mar-22 762 43.0 3.4% 4.3 7.52% 5.63% 1.89% 3.66% 20.7% 12.8% 60.8%
Tallman Park May-21 410 2.1 0.2% 3.3 7.42% 5.77% 1.65% 1.70% 21.9% 30.5% 5.0%
Wehle Park Apr-22 547 2.4 0.2% 4.3 7.43% 5.81% 1.62% 3.38% 28.7% 15.9% 5.0%
Redeemed Or Region Vintage Sale/ BCF Position Current Valuation as Realised IRR Ann. Distribution
Fully Sold CLOs
Redemption Date
Prior To Exit (m)
% of BCF NAV( (#_ftn21) 22)
To Date( (#_ftn22) 23)
Through Last Payment( (#_ftn23) 24)
Myers Park U.S. 2018 Mar-21 $26.4 N/A 11.1%* 16.4%
Greenwood Park U.S. 2018 Mar-21 $53.9 N/A 19.0%* 19.7%
Orwell Park Europe 2015 May-21 € 24.20 N/A 13.8%* 23.5%
Stratus 2020-2 U.S. 2020 Jun-21 $24.2 N/A 37.6% 93.3%
Niagara Park U.S. 2019 Aug-21 $22.1 N/A 16.6%* 14.9%
Sorrento Park Europe 2014 Oct-21 € 29.50 N/A 9.7%* 18.2%
Castle Park Europe 2014 Oct-21 € 24.00 N/A 11.7%* 23.3%
Dorchester Park U.S. 2015 Oct-21 $44.5 0.01% 11.5%* 20.5%
Buckhorn Park U.S. 2019 Feb-22 $15.2 N/A 16.0%* 19.5%
As of 31 December 2022, the Company was invested in accordance with its and
BCF's investment policy and was diversified across 675 issuers (2021: 727)
through directly held loans and the CLO portfolio, across 26 countries (2021:
30) and 29 different industries( (#_ftn24) 25) (2021: 29). No individual
borrower represented more than 2% of the overall portfolio at the end of
December 2022 and December 2021.
Key Portfolio Statistics
% of Current WA Current WA Liability( (#_ftn27) 26) WA Remaining
NAV( (#_ftn25) 26)
Asset Coupon( (#_ftn26) 27)
RPs (CLOs)
EUR CLOs 44.71% 4.88% 3.44% 1.9 Years
US CLOs 43.47% 7.42% 5.66% 1.7 Years
Directly Held Loans (less leverage) 18.48% 5.61% 3.01% n/a
CLO Warehouses 0.23% 5.82% 3.03% n/a
Net Cash & Expenses -6.89% - - n/a
Top 10 industries
(28) (#_ftn28)
Industry % of portfolio
31 December 2022
Healthcare and pharmaceuticals 16.7%
Services business 10.2%
High tech industries(29) (#_ftn29) 8.8%
Banking, finance, insurance and real estate (FIRE) 8.0%
Media broadcasting and subscription 7.1%
Construction and building 5.8%
Hotels, gaming and leisure 5.5%
Chemicals, plastics and rubber 5.1%
Telecommunications 4.6%
Services consumer 4.6%
Industry % of portfolio
31 December 2021
Healthcare and pharmaceuticals 16.5%
High tech industries(29) (#_ftn30) 10.4%
Services business 10.0%
Banking, finance, insurance and real estate (FIRE) 7.3%
Media broadcasting and subscription 6.2%
Hotels, gaming and leisure 5.6%
Construction and building 5.5%
Chemicals, plastics and rubber 5.1%
Services consumer 4.4%
Telecommunications 4.1%
Top 5 Countries( (#_ftn31) 30)
Country % of portfolio
31 December 2022
United States 52.6%
France 9.0%
United Kingdom 8.6%
Netherlands 6.3%
Germany 5.5%
Country % of portfolio
31 December 2021
United States 48.2%
United Kingdom 10.2%
France 9.0%
Netherlands 6.9%
Germany 5.7%
Top 20 issuers( (#_ftn32) 31)
# Facilities Portfolio Par (€M) Total Par Outstanding (€M) Moody's Industry Country WA Price WA Spread WA Coupon (All-In Rate) WA Maturity (Years)
Ziggo 5 259 7,873 Media Broadcasting and Subscription Netherlands 89.8 3.07% 4.47% 6.3
VodafoneZiggo is a leading operator in the Netherlands that provides fixed,
mobile and integrated communication and entertainment services to consumers
and businesses. The company was created as a result of a JV between Liberty
Global & Vodafone.
Numericable 10 223 12,706 Media Broadcasting and Subscription France 87.7 3.53% 5.21% 4.1
Numericable is one of the largest telecommunications operators in France by
revenues and number of subscribers, with major positions in residential fixed,
residential mobile, business-to business, wholesale and media.
Masmovil 4 207 6,050 Telecommunications United Kingdom 94.8 4.13% 6.24% 5.0
Masmovil is the fourth largest telecommunications operator in Spain and offers
fixed line, mobile, and Internet services to customers in Spain. In 2022,
Masmovil and Orange signed a binding agreement to combine the two businesses.
The transaction will need regulatory approval and is expected to close in
Sep-23.
Virgin Media 6 201 8,387 Media Broadcasting and Subscription United States 95.0 2.90% 5.34% 6.0
Virgin Media O2 is an integrated communications provider of mobile, broadband
internet, video and fixed-line telephony services to residential customers and
businesses in the United Kingdom. The company was created as a result of a JV
between Liberty Global & Telefonica.
WS Audiology 2 197 3,176 Healthcare and Pharmaceuticals Denmark 90.0 3.92% 7.19% 3.2
WS Audiology was created following the completion of the merger between
Sivantos and Widex. The combined company operates in over 125 markets and
holds the third position in the hearing aid market globally.
EG Group 6 194 5,994 Retail United Kingdom 92.2 4.21% 7.00% 2.3
EG Group is a leading global independent convenience retail and fuel station
operator with a fuel, convenience retail and Food-to-Go offering with
partnerships with leading brands such as Esso, BP, Shell, Starbucks, Burger
King, KFC, Greggs, Subway, and Pizza Hut, among others.
Thyssenkrupp Elevators 3 190 4,454 Capital Equipment Germany 95.9 3.71% 5.58% 4.6
Thyssenkrupp Elevators is the fourth largest global market leader for elevator
and escalator technology. The company designs, manufacturers, installs,
services, and modernises elevators, escalators, and platform lifts.
ION Trading Technologies 3 181 3,925 Banking, Finance, Insurance and Real Estate (FIRE) Ireland 94.7 4.47% 7.76% 5.3
ION is a global financial software and services company that provides high
performance trading solutions to banks, hedge funds, brokers and other
financial institutions, across electronic fixed income, currencies, equities,
derivatives and commodities markets.
AkzoNobel 2 170 4,688 Chemicals, Plastics and Rubber United States 96.8 2.91% 5.85% 2.8
AkzoNobel Specialty Chemicals is a global specialty chemicals manufacturer
focused on applications in home & personal care, agriculture & food,
paints & coatings, natural resources, polymer specialties and renewable
fibers.
Ineos Quattro 5 168 4,896 Chemicals, Plastics and Rubber United States 91.7 2.65% 4.67% 3.5
Ineos Quattro, through its subsidiaries, manufactures chemicals such as PVC,
caustic soda, styrene plus derivatives, aromatics and acetyls. Ineos Quattro
serves customers worldwide.
UPC 5 164 4,529 Media Broadcasting and Subscription United States 96.3 2.80% 4.80% 6.2
UPC is a cable operator in Switzerland, Poland & Slovakia. It offers
broadband, tv and mobile services.
Allied Universal 4 158 6,500 Services Business United States 91.2 3.76% 6.52% 5.4
Allied Universal is the largest provider of security systems and services
globally, serving North America, Europe, the Middle East, Africa, Asia Pacific
and Latin America.
Paysafe 4 153 2,390 Banking, Finance, Insurance and Real Estate (FIRE) United States 90.4 2.95% 5.19% 5.7
( )
Paysafe is a leading specialised payments platform, with revenues derived from
Payment Processing, eWallets, and eCash accounts. Paysafe is a global leader
in the Gaming eCash segment, digital gambling wallets, and the Merchant
Acquirer segment in the US, with a presence in Europe also.
Froneri 2 152 4,619 Beverage, Food and Tobacco United States 95.0 2.17% 4.14% 4.1
Froneri is a global ice cream manufacturer with its headquarters in North
Yorkshire, England. It is the second largest ice cream producer by volume in
the world, after Unilever. Froneri was created in 2016 as a joint venture
between Nestle and PAI Partners to combine their ice cream activities.
Independent Vetcare 3 137 2,114 Healthcare and Pharmaceuticals United Kingdom 93.8 4.07% 6.36% 3.1
Independent Vetcare is the largest veterinary practice group in Europe. The
company generates the majority of its revenue in the UK, where it is the
market leader, and is also present in Sweden, the Netherlands, Finland,
Germany, Norway, Denmark, Switzerland and North America.
Medline 3 135 11,412 Healthcare and Pharmaceuticals United States 94.4 3.36% 6.77% 5.8
Project Mozart (Medline) is the largest US-based privately held manufacturer
and distributor of healthcare supplies to hospitals, post-acute settings,
physician offices and surgery centers. The company manufactures
Medline-branded products and distributes externally sourced items from other
healthcare manufacturers. Medline has 25+ manufacturing facilities and 50+
distribution centers across North America.
Ineos Finance 8 132 6,149 Chemicals, Plastics and Rubber Luxembourg 96.8 2.56% 5.03% 4.1
Ineos Finance, through its subsidiaries, manufactures chemicals primarily in
the Olefins and Polymers chains as well as associated chemical intermediate
derivatives across the Oxides, Oligomers, Nitriles and Phenol chains. Ineos
Finance serves customers worldwide
Zayo 3 131 5,584 Telecommunications United States 80.9 3.11% 6.51% 4.2
Zayo is a global provider of bandwidth infrastructure services, including dark
fiber, lit fiber, and carrier neutral colocation and interconnection. In July
2012, the combination of Zayo and AboveNet created the largest high bandwidth
infrastructure service provider in the US. Since that time, Zayo has remained
active in acquisitions with a strong track record of achieving synergy
targets.
Telenet International 3 131 3,800 Media Broadcasting and Subscription Belgium 95.2 2.20% 4.04% 5.9
Telenet is one of the largest cable operators in Belgium that provides
internet, TV, fixed and mobile telephony to consumers and businesses in
Flanders and Brussels. It also provides mobile telephony services in the
Wallonia region.
McAfee 2 131 6,403 High Tech Industries United States 94.4 3.89% 6.63% 6.2
McAfee is the one of the largest security software vendors globally. McAfee is
a major player in the consumer security market, with a focus on consumer
endpoint protection. McAfee simplifies the complexity of threat detection and
response by correlating events, detecting new threats, reducing false
positives, automating and prioritizing incident response, and creating
workflows that result in remediation.
Regulatory update
Blackstone continues to monitor operational resilience and business continuity
risk and there is an ongoing focus on enhancing and strengthening the
operational resilience framework.
On 6 April 2022, the European Commission adopted the Delegated Regulation (as
amended from time to time) supplementing EU Regulation (EU) 2019/2088 (the
"SFDR") with regard to the regulatory technical standards ("RTS") specifying
the details of the content and presentation of the information in relation to
the principle of "do no significant harm", information in relation to
sustainability indicators and adverse sustainability impacts, and the content
and presentation of the disclosure regarding the promotion of environmental or
social characteristics (Article 8 SFDR) and sustainable investment objectives
(Article 9 SFDR) in pre-contractual documents, on websites and in periodic
reports. The SFDR RTS have applied since 1 January 2023. BX Credit continues
to monitor regulatory developments with regards to SFDR. Interest limitation
rules, implemented as part of Directive 2016/1164/EU (the so-called Anti-Tax
Avoidance Directive), apply to certain EU CLO issuers with respect to their
accounting periods commencing on or after 1 January 2022. To date, the
interest limitation rules have not adversely impacted BX Credit's CLO
business.
Risk management
Given the natural asymmetry of fixed income, our experienced credit team
focuses on truncating downside risk and avoiding principal impairment and
believes that the best way to control and mitigate risk is by remaining
disciplined in all market cycles and by making careful credit decisions while
maintaining adequate diversification.
BCF's portfolio is managed to minimise default risk and credit related losses,
which is achieved through in-depth fundamental credit analysis and diversified
portfolios in order to avoid the risk of any one issuer or industry adversely
impacting overall performance. As outlined in the Portfolio Update section,
BCF is broadly diversified across issuers, industries and countries.
BCF's base currency is denominated in Euro, though investments are also made
and realised in other currencies. Changes in rates of exchange may have an
adverse effect on the value, price or income of the investments of BCF. BCF
may utilise different financial instruments to seek to hedge against declines
in the value of its positions as a result of changes in currency
exchange rates.
Through the construction of solid credit portfolios and our emphasis on risk
management, capital preservation and fundamental credit research, we believe
the Company's investment strategy will continue to be successful.
Blackstone responsible investing approach
The importance of responsible investing
Blackstone seeks to incorporate Environmental, Social and Governance ("ESG")
principles to develop strong, resilient companies and assets that deliver
long-term value for our investors. We believe integrating ESG factors into the
investment process has the potential to create value for our investors through
operational and financial performance improvements at the portfolio company
level and identifying attractive thematic investment opportunities at the
sector level. We are committed to incorporating ESG into our operating
philosophy and applicable investment decision-making processes.
Across our corporate and investment activities, we have identified ESG topics
that we believe can most affect our ability to build strong companies of
enduring value. We continue to make progress on ESG initiatives related to our
core themes, decarbonization, diversity, equity and inclusion and strong
governance, while seeking to generate attractive returns.
We aim to integrate ESG across Blackstone. We have a robust, well-staffed
effort in ESG focused on using ESG tools to enhance the value of our
investments, consistent with our fiduciary responsibilities to our clients.
Our senior leadership and Board of directors are highly supportive and engaged
on ESG.
Objectives
Blackstone's responsible investing objectives are outlined below:
Integration
The integration of material ESG factors into our applicable investment
decisions and ownership is an important part of fulfilling our mission to
create strong returns for our investors. Based on our experience, we think
that consideration of ESG factors not only enhances our assessment of risk and
value creation - it helps us identify opportunities for transformation. We
believe that our ESG program can strengthen companies, drive value, enhance
returns and help to create better outcomes for people and communities.
Engagement
We regularly engage with our limited partners, investors, portfolio companies
and stakeholders, and industry through membership and/or participation of
organizations such as the PRI and the TCFD. We seek to partner with select
portfolio companies to implement best practices through offering tools,
training, and expertise; manage material ESG factors; implement
Blackstone-specific initiatives; and measure progress.
Reporting
We aim to be transparent with our investors and other stakeholders about
Blackstone's responsible investing initiatives, successes and goals.
Blackstone reports its ESG initiatives on its website at
https://www.blackstone.com/our-impact/an-integrated-approach-to-esg/. We value
regular, frequent engagement with our stakeholders on ESG matters.
Approach and responsibilities
As investors, we aim to make our companies and assets more resilient and
competitive through capturing ESG opportunities and managing ESG risks to
drive value for our investors. Blackstone considers relevant ESG issues both
during the due diligence of potential investments and throughout our ownership
period and expect our portfolio companies to manage ESG risks responsibly.
Refer to Blackstone's ESG Policy for additional information.
Dr Jean Rogers, Founder and Former CEO of the Sustainability Accounting
Standards Board (SASB), joined Blackstone in December 2021 as Global Head of
ESG. Dr Rogers oversees Blackstone's corporate ESG team, leading strategy,
integration, reporting and engagement. She partners closely with our business
unit heads of ESG, operational and asset management teams and other functional
groups across Blackstone.
Blackstone's Sustainability team led by James Mandel, Blackstone's Chief
Sustainability Officer, provides oversight and management of Blackstone's
sustainability program. Individual business unit's ESG teams develop and
implement a dedicated ESG program for their investments and related
initiatives, with support and guidance from the Corporate ESG team, to drive
long-term value.
Rita Mangalick is the Global Head of ESG for BX Credit and oversees the ESG
policy integration, reporting, engagement and value creation initiatives for
BX Credit. Ms Mangalick is supported by members of the BX Credit ESG team as
well as ESG leads across BX Credit's key business functions.
Additionally, BX Credit has an ESG Working Group that includes senior
representatives from BX Credit's Investment, Institutional Client Solutions
("ICS"), Asset Management and Legal and Compliance teams and is chaired by Ms
Mangalick. The BX Credit ESG Working Group meets quarterly and discusses a
variety of ESG-related topics, including, as applicable: review of
investments; investor requests; market trends and newly adopted or pending
legislation, rules, and regulation; and revisions and/or amendments to BX
Credit ESG Policy. Below is a visual of Blackstone's integrated ESG team
approach:
[Graphs and charts are included in the published Annual Report and Audited
Financial Statements which is available on the Company's website at
http://blackstone.com/bglf (http://blackstone.com/bglf) ]
Blackstone ESG Team
BX Credit's commitment to ESG
BX Credit's focus on ESG stems from our commitment to prudent investing and
our culture that prioritizes value creation and robust corporate governance.
We seek to consider material ESG risks and opportunities throughout the
diligence process and seek opportunities to enhance the sustainability profile
of our investments to improve investor returns and drive value, where
applicable. We incorporate relevant ESG principles into our investment process
with approaches tailored to our various strategies.
BX CREDIT recognizes the value that incorporating material ESG factors in our
investment research creates, both in terms of mitigating risk and enhancing
long-term performance across our various investments. To that end, BX CREDIT
integrates review and consideration of material ESG factors into its
decision-making processes, as summarized below:
Comprehensive Due Diligence
To integrate ESG due diligence into our investment process, it is important
for our team to have a deep understanding of the material ESG factors to
review in due diligence, to be educated on emerging trends in ESG and to
appreciate relevant KPIs to evaluate. We have learned that these topics can
vary significantly across industries and therefore BX Credit partnered with a
third-party ESG consultant to create a sector-specific tool based on the
Sustainability Accounting Standards Board ("SASB") standards that provide a
framework to conduct ESG due diligence. The proprietary tool helps our teams
identify material ESG risks that may impact a company's performance, so that
we are able to focus our diligence on assessing these risks in a more targeted
fashion to drive value for our investors. The tool includes industry-specific
due diligence questions, potential KPIs to track, detailed guidance on
considerations for evaluating the topic and recommended resources for
additional research. Guided by sector materiality, we further refine the
relevant ESG factor considerations within the investment process based on the
investment strategy, asset class, and the nature of the transactions.
Investment Committee Engagement and Documentation
When an investment is brought to investment committee, material ESG
considerations and risks arising from diligence will be described in an ESG
analysis section within the appropriate investment committee materials and
discussed in the relevant investment committee forum as applicable. If
material ESG concerns are identified, BX Credit may seek to remedy the
situation via additional due diligence, the hiring of specialist advisors, or
further discussions with company management.
Active Post-Investment Monitoring
On an ongoing basis, investment teams monitor the performance of BX Credit's
investments, which includes, but is not limited to, assessing financial,
operational, industry-specific and material ESG-related factors, as
applicable. Periodically, BX Credit investment teams will update the
investment committee on the performance of issuers and highlight any material
ESG concerns or opportunities that warrant investment committee discussion,
both in the context of the company's industry and on a stand-alone basis.
Blackstone plans to reduce carbon emissions:
At its level, Blackstone has calculated corporate, operational scope 1, scope
2 and select scope 3 (excludes financed emissions) emissions. This information
can be found on page 27( (#_ftn33) 32) of our ESG Update. Blackstone is also
in the process of assessing the carbon emissions of its portfolio companies
where it has majority ownership and board control.
Blackstone recognizes the attractive market/economic opportunity of investing
in companies that are supporting the energy transition to drive long-term
value for our investors. Blackstone believes that supporting its portfolio
companies on environmental factors creates value. It has a history of
generating value for its companies through improvements in efficiency of
energy usage and shifting consumption to cleaner energy sources. Starting in
2021, Blackstone began seeking to reduce carbon emissions by 15% on average
across certain new investments( (#_ftn34) 33) where it controls energy usage
within the first three years of ownership. The target may not apply to certain
categories of investment and emissions reduction may be measured on a carbon
intensity basis (versus an absolute reduction). These initiatives are believed
to have the potential to result in significant cost savings and operational
improvements for portfolio companies to create value.
ESG Disclaimer
ESG initiatives described in these disclosures related to Blackstone's
portfolio, portfolio companies, and investments (collectively, "portfolio
companies") are aspirational and not guarantees or promises that all or any
such initiatives will be achieved. Statements about ESG initiatives or
practices related to portfolio companies do not apply in every instance and
depend on factors including, but not limited to, the relevance or
implementation status of an ESG initiative to or within the portfolio company
the nature and/or extent of investment in, ownership of, control or influence
exercised by Blackstone with respect to the portfolio company and other
factors as determined by investment teams, corporate groups, asset management
teams, portfolio operations teams, companies, investments, and/or businesses
on a case by case basis. In particular, the ESG initiatives or practices
described in these disclosures are less applicable to or not implemented at
all with respect to Blackstone's public markets investing businesses,
specifically, Credit, Hedge Fund Solutions (BAAM) and Harvest. In addition,
Blackstone will not pursue ESG initiatives for every portfolio company. Where
Blackstone pursues ESG initiatives for portfolio companies, there is no
guarantee that Blackstone will successfully enhance long term Shareholder
value and achieve financial returns. There can be no assurance that any of the
ESG initiatives described in these disclosures will exist in the future, will
be completed as expected or at all, or will apply to or be implemented
uniformly across Blackstone business units or across all portfolio companies
within a particular Blackstone business unit. Blackstone may select or reject
portfolio companies or investments on the basis of ESG related investment
risks, and this may cause Blackstone's funds and/or portfolio companies to
underperform relative to other sponsors' funds and/or portfolio companies
which do not consider ESG factors at all or which evaluate ESG factors in a
different manner. Any selected investment examples, case studies and/or
transaction summaries presented or referred to in these disclosures are
provided for illustrative purposes only and should not be viewed as
representative of the present or future success of ESG initiatives implemented
by Blackstone or its portfolio companies or of a given type of ESG initiatives
generally. There can be no assurances that Blackstone's investment objectives
for any fund will be achieved or that its investment programs will be
successful. Past performance is not a guarantee of future results. While
Blackstone believes ESG factors can enhance long term value, Blackstone does
not pursue an ESG based investment strategy or limit its investments to those
that meet specific ESG criteria or standards, except with respect to products
or strategies that are explicitly designated as doing so in their Offering
Documents or other applicable governing documents. Any such ESG factors do not
qualify Blackstone's objectives to seek to maximize risk adjusted returns.
Some, or all, of the ESG initiatives described in these disclosures may not
apply to the Company's investments and none are binding aspects of the
management of the assets of the Company. The Company does not promote
environmental or social characteristics, nor does it have sustainable
investments as its objective.
Blackstone Ireland Limited
27 April 2023
Strategic Overview
Purpose
The Company's purpose is to provide permanent capital to BCF, a company
established by BIL as part of its loan financing programme, with a view to
generating stable and growing total returns for Shareholders through dividends
and value growth.
The Board delivers the Company's purpose by working in line with its values,
which form the backbone of what the Company does and are an important part of
its culture.
Values
Integrity and trust - The Company seeks to act with integrity in everything it
does and to be trustworthy. It seeks to uphold the highest standards of
professionalism driven by its corporate governance processes.
Transparency - The Company aims to ensure that all of its activities are
undertaken with utmost transparency and openness to sustain trust.
Opportunity - The ability to see and to seize opportunities which are in the
best interests of its Shareholders.
As an investment company, the Company aims to maintain and deliver attractive
and sustainable returns for its Shareholders.
Principal activities
The Company was incorporated on 30 April 2014 as a closed-ended investment
company limited by shares under the laws of Jersey and is authorised as a
listed fund under the Collective Investment Funds (Jersey) Law 1988. The
Company continues to be registered and domiciled in Jersey. The Company's
ordinary shares are quoted on the Premium Segment of the Main Market of the
LSE.
The Company's authorised share capital consists of an unlimited number of
shares of any class. As at
31 December 2022, the Company's issued share capital was 444,578,522 ordinary
shares. The Company also held 38,324,272 ordinary shares in treasury.
The Company has a wholly-owned Luxemburg subsidiary, Blackstone / GSO Loan
Financing (Luxembourg) S.à r.l., which has an issued share capital of
2,000,000 Class A shares and 1 Class B share. As at 31 December 2022, all of
the Class A and Class B shares were held by the Company together with
239,550,782 Class B CSWs issued by the Lux Subsidiary. The Lux Subsidiary
invests in PPNs issued by BCF, which in turn invests in CLOs and loans.
The Company is a self-managed company. BIL acts as Portfolio Adviser to the
Company and pursuant to the Advisory Agreement, provides advice and assistance
to the Company in connection with its investment in the CSWs.
BNP Paribas S.A., Jersey Branch acts as Administrator, Company Secretary,
Custodian and Depositary to the Company.
Investment objective
As outlined in the Company's Prospectus, the Company's investment objective is
to provide Shareholders with stable and growing income returns and to grow the
capital value of the investment portfolio by exposure to floating rate senior
secured loans and bonds directly and indirectly through CLO securities and
investments in Loan Warehouses. The Company seeks to achieve its investment
objective through exposure (directly or indirectly) to one or more companies
or entities established from time to time ("Underlying Companies"), such as
BCF.
Investment policy
Overview
As outlined in the Company's Prospectus, the Company's investment policy is to
invest (directly, or indirectly through one or more Underlying Companies) in a
diverse portfolio of senior secured loans (including broadly syndicated,
middle market or other loans, such investments being made by the Underlying
Companies directly or through investments in Loan Warehouses, bonds and CLO
Securities) and generate attractive risk-adjusted returns from such
portfolios. The Company intends to pursue its investment policy by investing
(through one or more subsidiaries) in profit participating instruments (or
similar securities) issued by one or more Underlying Companies.
Each Underlying Company will use the proceeds from the issue of the profit
participating instruments (or similar securities), together with the proceeds
from other funding or financing arrangements it has in place currently or may
have in the future, to invest in: (i) senior secured loans, bonds, CLO
Securities and Loan Warehouses; or (ii) other Underlying Companies which,
themselves, invest in senior secured loans, bonds, CLO Securities and Loan
Warehouses. The Underlying Companies may invest in European or US senior
secured loans, bonds, CLO Securities, Loan Warehouses and other assets in
accordance with the investment policy of the Underlying Companies. Investments
in Loan Warehouses, which are generally expected to be subordinated to senior
finance provided by third-party banks, will typically be in the form of an
obligation to purchase preference shares or a subordinated loan. There is no
limit on the maximum US or European exposure. The Underlying Companies do not
invest substantially directly in senior secured loans or bonds domiciled
outside North America or Western Europe.
Investment limits and risk diversification
The Company's investment strategy is to implement its investment policy by
investing directly or indirectly through the Underlying Companies, in a
portfolio of senior secured loans and bonds or in Loan Warehouses containing
senior secured loans and bonds and in connection with such strategy, to own
debt and equity tranches of CLOs and in the case of European CLOs and certain
US CLOs, to be the risk retention provider in each.
The Underlying Companies may periodically securitise a portion of the loans or
a Loan Warehouse in which they invest, into CLOs which may be managed either
by such Underlying Company itself, by BIL or BLCS (or one of their
affiliates), in their capacity as the CLO manager.
Where compliance with the European Risk Retention Requirements is sought
(which may include both EUR and US CLOs), the Underlying Companies will retain
exposures of each CLO, which may be held as:
· CLO Income Notes equal to: (i) between 51% and 100% of the CLO
Income Notes issued by each such CLO in the case of European CLOs; or (ii) CLO
Income Notes representing at least 5% of the credit risk relating to the
assets collateralising the CLO in the case of US CLOs (each of (i) and (ii),
(the "horizontal strip"); or
· Not less than 5% of the principal amount of each of the tranches
of CLO Securities in each such CLO (the "vertical strip").
In the case of deals structured to be compliant with the European Risk
Retention Requirements, the applicable Underlying Company may determine that,
due to its role as an "originator" with respect to such transaction, such
Underlying Company should also comply with the US Risk Retention Regulations.
In addition, an Underlying Company may invest in CLOs, such as middle market
CLOs, which are not exempt from the US Risk Retention Regulations and as a
result, may be required to retain exposure to such CLOs in accordance with
such rules. In such a scenario, the Underlying Company will retain exposures
to such transactions for the purpose of complying with the US Risk Retention
Regulations, which may be held as:
· CLO Income Notes representing at least 5% of the fair market
value of the CLO Securities (including CLO Income Notes) issued by such CLO
(the "US horizontal strip");
· A vertical strip; or
· A combination of a vertical strip and US horizontal strip.
To the extent attributable to the Company, the value of the CLO Income Notes
retained by Underlying Companies in any CLO will not exceed 25% of the
Published NAV of the Company at the time of investment.
Investments in CLO Income Notes and Loan Warehouses are highly leveraged.
Gains and losses relating to underlying senior secured loans will generally be
magnified. Further, to the extent attributable to the Company, the aggregate
value of investments made by Underlying Companies in vertical strips of CLOs
(net of any directly attributable financing) will not exceed 15% of the
Published NAV of the Company at the time of investment. This limitation shall
apply to Underlying Companies in aggregate and not to Underlying Companies
individually.
Loan Warehouses may eventually be securitised into CLOs managed either by an
Underlying Company itself or by BIL or BLCS (or one of their affiliates), in
their capacity as the CLO Manager. To the extent attributable to the Company,
the aggregate value of investments made by Underlying Companies in any single
externally financed warehouse (net of any directly attributable financing)
shall not exceed 20% of the Published NAV of the Company at the time of
investment and in all externally financed warehouses taken together (net of
any directly attributable financing) shall not exceed 30% of the Published NAV
of the Company at the time of investment. These limitations shall apply to
Underlying Companies in aggregate and not to Underlying Companies
individually.
The following limits (the "Eligibility Criteria") apply to senior secured
loans and bonds (and to the extent applicable, other corporate debt
instruments) directly held by any Underlying Company (and not through CLO
Securities or Loan Warehouses):
Maximum Exposure % of an Underlying Company's
gross asset value
Per obligor 5
Per industry sector 15
(With the exception of one industry, which may be up to 20%)
To obligors with a rating lower than B-/B3/B- 7.5
To second lien loans, unsecured loans, mezzanine loans and high yield bonds 10
For the purposes of these Eligibility Criteria, "gross asset value" shall mean
gross assets, including any investments in CLO Securities and any undrawn
commitment amount of any gearing under any debt facility. Further, for the
avoidance of doubt, the "maximum exposures" set out in the Eligibility
Criteria shall apply on a trade date basis.
Each of these Eligibility Criteria will be measured at the close of each
business day on which a new investment is made and there will be no
requirement to sell down in the event the limits are breached at any
subsequent point (for instance, as a result of movement in the gross asset
value or the sale or downgrading of any assets held by an Underlying Company).
In addition, each CLO in which an Underlying Company holds CLO Securities and
each Loan Warehouse in which an Underlying Company invests will have its own
eligibility criteria and portfolio limits. These limits are designed to ensure
that: (i) the portfolio of assets within the CLO meets a prescribed level of
diversity and quality as set by the relevant rating agencies that rate
securities issued by such CLO or (ii) in the case of a Loan Warehouse, that
the warehoused assets will eventually be eligible for a rated CLO. The CLO
Manager will seek to identify and actively manage assets which meet those
criteria and limits within each CLO or Loan Warehouse. The eligibility
criteria and portfolio limits within a CLO or Loan Warehouse may include the
following:
· A limit on the weighted average life of the portfolio;
· A limit on the weighted average rating of the portfolio;
· A limit on the maximum amount of portfolio assets with a rating
lower than B-/B3/B-; and
· A limit on the minimum diversity of the portfolio.
CLOs in which an Underlying Company may hold CLO Securities or Loan Warehouses
in which an Underlying Company may invest also have certain other criteria
and limits, which may include:
· A limit on the minimum weighted average of the prescribed
rating agency recovery rate;
· A limit on the minimum amount of senior secured assets;
· A limit on the maximum aggregate exposure to second lien loans,
high yield bonds, mezzanine loans and unsecured loans;
· A limit on the maximum portfolio exposure to covenant-lite
loans;
· An exclusion of project finance loans;
· An exclusion of structured finance securities;
· An exclusion on investing in the debt of companies domiciled in
countries with a local currency sub-investment grade rating; and
· An exclusion of leases.
This is not an exhaustive list of the eligibility criteria and portfolio
limits within a typical CLO or Loan Warehouse and the inclusion or exclusion
of such limits and their absolute levels are subject to change depending on
market conditions. Any such limits applied shall be measured at the time of
investment in each CLO or Loan Warehouse.
Changes to Investment Policy
Any material change to the investment policy of the Company would be made only
with the approval of ordinary Shareholders.
It is intended that the investment policy of each substantial Underlying
Company will mirror the Company's investment policy, subject to such
additional restrictions as may be adopted by a substantial Underlying Company
from time to time. The Company will receive periodic reports from each
substantial Underlying Company in relation to the implementation of such
substantial Underlying Company's investment policy to enable the Company to
have oversight of its activities.
If a substantial Underlying Company proposes to make any changes (material or
otherwise) to its investment policy, the Directors will seek ordinary
Shareholder approval of any changes which are either material in their own
right or when viewed as a whole together with previous non-material changes,
constitute a material change from the published investment policy of the
Company. If ordinary Shareholders do not approve the change in investment
policy of the Company such that it is once again materially consistent with
that of such substantial Underlying Company, the Directors will redeem the
Company's investment in such substantial Underlying Company (either directly
or if the Company's investment in a subsidiary is invested by such subsidiary
in such substantial Underlying Company (either directly or through one or more
other Underlying Companies), by redeeming the securities held by the Company
in such subsidiary and procuring that the subsidiary redeems its investment in
such substantial Underlying Companies (either directly or through one or more
other Underlying Companies)), as soon as reasonably practicable but at all
times subject to the relevant legal, regulatory and contractual obligations.
The Board considers BCF to be a substantial Underlying Company.
Company borrowing limit
The Company will not utilise borrowings for investment purposes. However, the
Directors are permitted to borrow up to 10% of the Company's Published NAV for
day-to-day administration and cash management purposes. For the avoidance of
doubt, this limit only applies to the Company and not the Underlying
Companies.
In accordance with the Company's Prospectus, the Company may use hedging or
derivatives (both long and short) for the purposes of efficient portfolio
management. It is intended that up to 100% (as appropriate) of the Company's
exposure to any non-Euro assets will be hedged, subject to suitable hedging
contracts being available at appropriate times and on acceptable terms.
The Company has exposure to non-Euro assets through its investment in the
Underlying Company which has hedging arrangements in place to protect against
unfavourable currency fluctuation.
Investment strategy
Whether the senior secured loans, bonds or other assets are held directly by
an Underlying Company or via CLO Securities or Loan Warehouses, it is intended
that, in all cases, the portfolios will be actively managed (by the Underlying
Companies or the CLO Manager, as the case may be) to minimise default risk and
potential loss through comprehensive credit analysis performed by the
Underlying Companies or the CLO Manager (as applicable).
Vertical strips in CLOs in which Underlying Companies may invest are expected
to be financed partly through term finance for investment-grade CLO
Securities, with the balance being provided by the relevant Underlying Company
investing in such CLO. This term financing may be full-recourse, non-mark to
market, long-term financing which may, among other things, match the maturity
of the relevant CLO or match the reinvestment period or non-call period of the
relevant CLO. In particular and although not forming part of the Company's
investment policy, the following levels of, or limitations on, leverage are
expected in relation to investments made by Underlying Companies:
· Senior secured loans and bonds may be levered up to 2.5x with
term finance;
· Investments in "first loss" positions or the "warehouse equity"
in Loan Warehouses will not be levered;
· CLO Income Notes will not be levered;
· Investments in CLO Securities rated B- and above at the time of
issue may be funded entirely with term finance; and
· Investments in a vertical strip may be levered 6.0-7.0x, with
term finance as described above.
To the extent that they are financed, vertical strips are anticipated to
require less capital than horizontal strips, which is expected to result in
more efficient use of the Underlying Companies' capital. In addition, since
the return profile on financed vertical strips is different to retained CLO
Income Notes, BX Credit believes that vertical strips may be more robust
through a market downturn, although projected IRRs may be slightly lower.
However, an investment in vertical strips is not expected to impact the
Company's stated target return. From time to time, as part of its ongoing
portfolio management, the Underlying Companies may sell positions as and when
suitable opportunities arise. Where not bound by risk retention requirements,
it is the intention that the Underlying Companies would seek to maintain
control of the call option of any CLOs securitised.
With respect to investments in CLO Securities, while the Underlying Companies
maintain a focus on investing in newly issued CLOs, it will also evaluate the
secondary market for sourcing potential investment opportunities in CLO
Securities.
Whilst the intention is to pursue an active, non-benchmark total return
strategy, the Company is cognisant of the positioning of the loan portfolios
against relevant indices. Accordingly, the Underlying Companies will track the
returns and volatility of such indices, while seeking to outperform them on a
consistent basis. In-depth, fundamental credit research dictates name
selection and sector over-weighting/under-weighting relative to the benchmark,
backstopped by constant portfolio monitoring and risk oversight. The
Underlying Companies will typically look to diversify their portfolios to
avoid the risk that any one obligor or industry will adversely impact overall
returns. The Underlying Companies also place an emphasis on loan portfolio
liquidity to ensure that if their credit outlook changes, they are free to
respond quickly and effectively to reduce or mitigate risk in their portfolio.
The Company believes this investment strategy will be successful in the future
as a result of its emphasis on risk management, capital preservation and
fundamental credit research. The Directors believe the best way to control and
mitigate risk is by remaining disciplined in market cycles, by making careful
credit decisions and maintaining adequate diversification. The portfolio of
the Underlying Companies in which the Company invests (through its
wholly-owned subsidiary) remains broadly divided between European CLOs and US
CLOs.
Refer to above for an understanding of the different elements of the
investment strategy.
The Company incorporates ESG factors as part of its investment strategy where
applicable. Refer to above for further details. The Company operates with Euro
as its functional currency. A significant proportion of the portfolio of
assets held by Underlying Companies to which the Company has exposure may,
from time to time, be denominated in currencies other than Euro. The
Underlying Companies utilise different financial instruments to seek to hedge
against declines in the value of its portfolio as a result of changes in
currency exchange rates.
Section 172(1) statement
The Company, being a member of the AIC, complies with Provision 5 of the AIC
Code and consequently voluntarily complies with section 172(1) of the UK
Companies Act 2006 to act in a way that promotes the success of the Company
for the benefit of its Shareholders as a whole, having regard to (amongst
other things):
a) the likely consequences of any decision in the long-term;
b) the need to foster the Company's business relationships with
suppliers, customers and others;
c) the impact of the Company's operations on the community and the
environment;
d) the desirability of the Company maintaining a reputation for high
standards of business conduct; and
e) the need to act fairly as between members of the Company.
The Board maintains a reputation for high standards of business conduct and
endeavors to act fairly as between members of the Company by acting with
integrity and establishing trust as referred to in the Company's values.
Additionally, the Company complies with the Principles and Provisions of the
AIC Code as detailed in the Statement of Compliance with Corporate Governance
below. Information on how the Board has engaged with its stakeholders and
promoted the success of the Company, whilst having regard to the above, is
outlined below. This covers the key decisions the Board has taken during the
year.
Stakeholder engagement
Shareholders
Why we engage How we engage
Shareholders provide the necessary capital for the Company to pursue its The Board engages with its Shareholders by:
purpose and strategy as outlined in the Company's Prospectus.
a) publishing:
i. announcements on the LSE, including:
The Company also aims to ensure its long-term success and sustainability
through its Shareholder relationships, based on transparency and openness and · the Company's Published NAV performance, announced on a monthly basis;
thereby fostering Shareholder confidence. This in-turn benefits the liquidity
of the Company's shares and the Company's reputation as an esteemed market · The Company's IFRS NAV performance will be announced on a quarterly basis
participant. as from April 2023;
· updated dividend guidance, as announced with regard to the Company's
dividend policy on 23 January 2023;
ii. monthly performance reports, on the Company's website, covering
the performance of the Company and its underlying portfolio and including
information on the composition of the underlying portfolio;
iii. monthly market commentary reports issued by BX Credit and published
on the Company's website covering US and EU loan, high yield and CLO
performance figures with commentary, as well as the market outlook;
iv. quarterly investor reports, published on the Company's website,
which provide an overview of the Company's and the Underlying Company's
quarterly results, together with a market overview;
v. the Company's Half-Yearly Financial Report and the Annual Report
and Audited Financial Statements;
vi. the Company's Key Information Document and a memorandum on costs;
vii. ad-hoc reports, on the Company's website, as and when required to
provide further insights into the relevant market situation;
b) the Board and representatives of the Portfolio Adviser holding
investor calls to provide market updates;
c) communications between Directors and individual Shareholders took
place during 2022, specifically a Shareholder lunch where Shareholders were
invited to discuss matters including liquidity, the share buy-back programme
and discount management more broadly.
d) The Board held a Shareholder Consultation on potential policy
amendments in light of the prevailing and persistent discount to net asset
value at which the Company's shares trade and with a view to broadening
investor interest in the Company's shares and maximising Shareholder total
return.
e) the Board engaging with its Shareholders through its Portfolio
Adviser and Brokers who communicate pertinent information from any discussions
they have had with the Company's Shareholders. Such discussions focussed for
example on the Company's share price discount level and CLO performance; and
f) written communication with Shareholders in response to queries
received, as applicable.
Additionally, the Board (including the different committee Chairs) is
available at the AGM to answer questions in their areas of responsibility and
the Chair encourages Shareholders to contact her or any other Director with
any queries or comments they may have.
Outcome
The Board believes that following the issue of publications as listed in point
(a) above and its interactions as outlined in points (b), (c), (d), (e) and
(f) during 2022, Shareholders have received relevant information allowing them
to make informed decisions about their shareholding(s) and have been able to
engage with the Company and its advisers on any matters they consider
relevant.
During the year, actions taken by the Board following on from Shareholder
discussions include:
- renewal of the share repurchase programme, refer to the Directors'
Report below and the share repurchase programme coverage on below;
- the Board, brokers and Portfolio Adviser discussing liquidity and
discount management on both an ongoing and frequent basis;
- Shareholder Consultation took place to discuss the
distribution/reinvestment of excess income, potential exit opportunity and
valuation methodology used; and
- Amendments to the NAV factsheets by publishing the IFRS NAV on a
quarterly basis as from April 2023 on the LSE.
There was no impact on the Directors' remuneration as a result of the above
discussions.
During 2022, all Directors were kept informed of Shareholder engagement, as
necessary, so that they are aware of and understand the views communicated.
Any pertinent matters were followed up on by the Board and Shareholder views
were continually considered as part of the Directors' decision-making
processes.
Service providers
Why we engage How we engage
As an investment company with no employees, the Company is reliant on its The Board engages with its Portfolio Adviser on an on-going basis through:
service providers to conduct its business. The Board considers the Portfolio
Adviser, the Administrator and the Registrar to be critical to the Company's a) regular communication with representatives as required, such as
day-to-day operations. telephone and email correspondence, discussing ad-hoc matters which may arise;
b) monthly meetings to receive updates on the performance of the
portfolio;
The Board views the Company's other service providers, such as brokers,
auditors and lawyers as being highly important in enabling the Company to meet c) quarterly board meetings to receive detailed updates on, but not
its regulatory and legal requirements as necessary. limited to, the loan and CLO markets and activity updates for the Underlying
Company. These include discussions about capital inflows, performance of
current investments and return attribution;
d) an annual due diligence meeting with senior representatives of the
Portfolio Adviser held virtually in 2022; and
e) ad-hoc meetings to discuss various day-to-day operational matters or
strategic matters.
The Board engages with its Administrator on an on-going basis including:
a) regular communication with representatives, such as telephone and
email correspondence, to discuss any ad-hoc matters;
b) monthly meetings to discuss the Published NAV as computed by the
Administrator;
c) quarterly Board meetings at which the Board receives accounting,
company secretarial and compliance updates and liaises with the Administrator
on any pertinent matters;
d) production of the Company's Half-Yearly Financial Report and Annual
Report and Audited Financial Statements;
e) ad-hoc meetings to discuss various day-to-day operational matters;
and
f) annual service review meetings.
The Company's Registrar is responsible for maintaining the Company's share
register and for processing any corporate actions. The Registrar's reports
are available via an online platform.
The Board receives quarterly reports in person from the Company's Registrar on
key matters. The Company otherwise engages as necessary with the Registrar via
email and telephone.
Outcome
Through its engagement with its service providers during 2022, the Board
confirms it has received appropriate and timely advice and guidance, together
with responses to any query raised. There were no material actions resulting
from engagement from service providers. The Board's engagement during 2022
with its service providers enabled it to help facilitate the effective running
of the Company and therefore to determine that the Company is well managed and
its operations and internal controls are effective, efficient and compliant.
Underlying company
Why we engage How we engage
The Board's purpose and strategy is implemented through investment in the The Board engages with the Portfolio Adviser and the Board of directors of the
Underlying Company, BCF. Understanding the capital requirements, specifically Underlying Company to understand their capital requirements and performance.
the timing and quantum, of the Underlying Company is important to the Board It does so through the methods described above.
to ensure the Company can provide capital as required and so that redemptions
of CSWs are appropriately factored in so as to not adversely impact the
operations of the Underlying Company.
The Board also held a virtual meeting with the board of BCF during 2022.
Additionally, understanding the performance of the Underlying Company is vital
to ensuring the Company can deliver on its investment objective of income and
capital appreciation.
Outcome
During 2022, the Board has kept abreast of capital requirements and the
performance of the Underlying Company (BCF). It has reviewed BCF's past
performance and contributing factors to that past performance together with
their prospective outlook. From this process, the Board has considered the
effectiveness of the Portfolio Adviser and in doing so, ensured the execution
of the investment strategy of the Company over the longer term.
Wider society
Why we engage How we engage
As a responsible corporate citizen the Company recognises that its operations The Board welcomes the views of stakeholders to remain current in their
have an environmental footprint and an impact on wider society. understanding of stakeholder views relating to environmental and social
matters.
The Board seeks to uphold the highest standards of professionalism and
corporate governance and embraces diversity, inclusion and ESG. The Board
expects the same from its service providers and asks its service providers to
provide an overview of their diversity and ESG policies on an annual basis, as
part of the Company's service provider evaluation.
Mr Clark is responsible for ESG matters at Board-level.
In endeavouring to exemplify best corporate governance practice, the Board
aims to positively influence BX Credit and the wider corporate and economic
environment and inspire stakeholder trust.
Outcome
The Board is conscious of the importance of good governance, including
diversity, inclusion and ESG specifically and seeks to positively influence
the wider society and its service providers. During 2022, the Board liaised
with BX Credit to advance their ESG initiatives and processes for upholding
high standards of ESG, responsible investing and governance; such discussions
remain ongoing as ESG procedures and requirements evolve.
Regulators
Why we engage How we engage
The Board engages with its main regulator, the JFSC, and other regulators to The Company primarily interacts with its main regulator through formal
ensure business is conducted in line with their expectations and the evolving submissions of information on a periodic basis (for example, periodic
regulatory framework. financial statements).
The Company engages more formally with its regulators on an ad-hoc basis, via
its Compliance Officer.
The Board also receives detailed quarterly legal, regulatory and compliance
updates.
Outcome
During 2022, the Company complied with regulatory and statutory rules,
maintained an open and transparent form of communication with its regulators
and the Board received appropriate and timely advice and guidance, together
with responses to any query the Board had. During the year, the Company had no
material communications with its regulators.
Corporate Activity
The principal decisions taken below are the ones that the Board considers have
the greatest impact on the Company's long-term success. The Board considers
the factors outlined under the Section 172(1) statement and the wider
interests of stakeholders as a whole in all decisions it takes on behalf of
the Company.
Dividend policy
Description
On 24 January 2022, the Board announced that the Company had adopted a
dividend policy targeting a total 2022 annual dividend of between €0.07 and
€0.08 per ordinary share, to consist of quarterly payments of €0.0175 per
ordinary share for the first three quarters and a final quarter payment of a
variable amount to be determined at that time. In accordance with the
Company's dividend policy, the Board declared dividends of €0.0175 per
ordinary share for the first three quarters of 2022 and a dividend of
€0.0275 per ordinary share for the fourth quarter.
On 23 January 2023, the Board announced that the Company has adopted a
dividend policy targeting a total 2023 annual dividend of between €0.08 and
€0.09 per ordinary share, which will consist of quarterly payments of
€0.02 per ordinary share for the first three quarters and a final quarterly
payment of a variable amount to be determined at that time.
Impact on long-term success Stakeholder considerations
Amending the dividend to ensure the long-term sustainability of the Company. Stakeholders are provided with a degree of certainty as to the level of
At the same time, the dividend policy provides sufficient flexibility to pay Shareholder dividends and the sustainability of the Company is also enhanced.
more or less for Q4 dependent on the year's results.
Share Repurchase Programme
Description
From 1 January 2022 to 31 December 2022, the Company undertook 118 share
repurchases and repurchased a total of 16,406,180 ordinary shares at a
weighted average price of €0.6997 per ordinary share. The repurchased shares
were held in treasury during 2022 and remain in treasury.
On 27 September 2021, the Company announced that it had appointed its Joint
Brokers to manage a Share Repurchase Programme to repurchase ordinary shares
within certain pre-set parameters, to begin on 1 October 2021 and run until
21 January 2022.
On 17 June 2022, the Company announced that the above-described Share
Repurchase Programme had been renewed until 27 July 2022.
On 28 July 2022, the Company announced that the above described Share
Repurchase Programme had been renewed until 20 October 2022.
On 21 October 2022, the Company announced that the Share Repurchase Programme
would be renewed until 20 January 2023.
On 23 January 2023, the Company announced that the Share Repurchase Programme
would be renewed until 3 May 2023.
During the period 1 January 2023 to 27 April 2023, the Company has repurchased
1,839,619 shares at a total cost of €1,228,191 (excluding fees and
commissions).
Impact on long-term success Stakeholder considerations
· Increasing the NAV per ordinary share; The Board believes that undertaking repurchases of ordinary shares helps to
address any imbalance between the supply of, and demand for, the ordinary
· Aiming to reduce the discount to NAV which ordinary shares are trading; shares.
and
· Reducing share price volatility.
Risk Overview
Each Director is aware of the risks inherent in the Company's business and understands the importance of identifying, evaluating and monitoring these risks. The Board has adopted procedures and controls to enable it to manage these risks within acceptable limits and to meet all of its legal and regulatory obligations.
The Board considers the process for identifying, evaluating and managing any significant risks faced by the Company on an ongoing basis and these risks are reported and discussed at Board meetings. It ensures that effective controls are in place to mitigate these risks and that a satisfactory compliance regime exists to ensure all applicable local and international laws and regulations are upheld.
Risk appetite
The Board's strategic risk appetite is to balance the amount of income
distributed by the Company by way of dividend with the opportunity to reinvest
the returns received from the underlying CLO investments in further CLO
equity. The Board seeks to ensure that the dividend policy is sustainable.
Where the Company's share price is at a material discount to the NAV per
ordinary share the Board may decide to repurchase shares in accordance with
its share buyback policy instead of, or as well as, reinvestment into CLOs.
When considering other risks, the Board's risk appetite is effectively
governed by a cost benefit analysis when assessing mitigation measures.
However, at all times the Company will seek to follow best practice and remain
compliant with all applicable laws, rules and regulations.
Statement on risk management and internal controls
Board acknowledgements Commentary
The Board is responsible for the Company's risk management and internal Refer to below for a description of risk management and internal controls.
control systems and for reviewing their effectiveness.
The Board is responsible for the ongoing process for identifying, evaluating Refer to the section below for a description of the principal risks faced by
and managing the principal risks faced by the Company. the Company and how the Board assesses, monitors, measures and reports on
those risks.
The Board ensures the internal control systems of its key service providers As explained below, the Board relies on the control environment of its key
are regularly reviewed and have been in place for the year under review and up service providers and reviews them on an ongoing basis. The Board also reviews
to date of this Annual Report. the performance of the Portfolio Adviser and its key service providers on an
annual basis, as outlined below.
Principal risks and uncertainties
As recommended by the Risk Committee, the Board has adopted a risk management
framework to govern how the Board identifies existing and emerging risks,
determines risk appetite, identifies mitigation and controls and how the Board
assesses, monitors, measures and reports on risks.
The Board's strategic risk appetite is to balance the amount of income
distributed by the Company by way of dividend with the opportunity to reinvest
the returns received from the underlying CLO investments in further CLO
equity. The Board seeks to ensure that the dividend policy is sustainable.
Where the Company's share price is at a material discount to the NAV per share
the Board may decide to repurchase shares in accordance with its share buyback
policy instead of, or as well as, reinvestment into CLOs.
When considering other risks, the Board's risk appetite is effectively
governed by a cost benefit analysis when assessing mitigation measures.
However, at all times the Company will seek to follow best practice and remain
compliant with all applicable laws, rules and regulations.
The Board reviews risks at least twice a year and receives deep-dive reports
on specific risks as recommended by the Risk Committee. Throughout the period
under review, the Board considered a set of sixteen main risks which have a
higher probability and a significant potential impact on performance,
strategy, reputation or operations (Category A risks). Of these, the five
risks identified below were considered the principal risks faced by the
Company where the combination of probability and impact was assessed as being
most significant. The Board also considered twelve other less significant
existing or emerging risks (Category B risks) which are monitored on a watch
list.
During the year, the day-to-day impact of the COVID-19 pandemic on the
Company's investments and the operations of its service providers decreased.
After Russia's invasion of Ukraine, the Portfolio Adviser reviewed the
underlying portfolio of companies that the Company is exposed to and
identified a very small number whose revenue and earnings might be impacted by
the conflict. These positions have been closely monitored by the Portfolio
Adviser and opportunities have been taken to trim the exposure, so it is now
negligible. More recently, the macro-economic environment has deteriorated,
with rising inflation and interest rates and the Portfolio Adviser has focused
on positioning the underlying portfolio appropriately. The Portfolio Adviser
has closely monitored these positions and managed their risk accordingly.
Refer to above for further details. The commentary below describes the factors
affecting each of the principal risks during the year.
Principal risk Commentary
Investment performance
A key risk to the Company is unsatisfactory investment performance due to an 2022: Increased probability, stable impact.
economic downturn along with continued political uncertainty which could
negatively impact global credit markets and the risk reward characteristics
for CLO structuring. This could directly impact the performance of the
underlying CLOs that the Company invests in and it could also result in a In early 2022, credit markets were initially impacted by the Russian invasion
reduced number of suitable investment opportunities and/or lower Shareholder of Ukraine, but the Company's exposure was limited. As the year progressed,
demand. focus turned to more negative macro-economic developments with increasing
inflation and interest rates. The Portfolio Adviser continued to actively
manage the CLO portfolios to orientate them for this environment.
The Board takes comfort from the pedigree of BX Credit as Portfolio Advisers
and their ability to trade and manage risk in the portfolios in difficult
circumstances, as demonstrated in the GFC and in the height of the COVID-19
pandemic.
See comments from the Portfolio Adviser on Risk Management above.
Share price discount to NAV per ordinary share
The price of the Company's shares may trade at a discount relative to the 2022: Increased probability, stable impact.
underlying net asset value of the shares.
After the Russian invasion of Ukraine, the discount moved out to the 19.8% to
This can be for a number of reasons, including the inherent lack of liquidity 21.0% range and did not recover as macro-economic concerns then weighed on the
in the underlying investments and the shares, relatively poor investment share price.
performance compared to peers and/or market perceptions of the inherent value
of the Company's portfolio.
The Board kept measures to improve the discount under review during the year
and continued buying back the Company's shares. Evidence suggests that this
has at least helped dampen the volatility of the discount. More recently,
after the year-end, the Board has conducted a Shareholder Consultation
regarding other measures as explained above and in the Chair's Statement.
Investment valuation
The investment in the Lux Subsidiary is accounted for at fair value through 2022: Increased probability, stable impact.
profit or loss and the investment in PPNs issued by BCF held by the Lux
Subsidiary are at fair value. Investments in BCF (the PPNs) are illiquid
investments, not traded on an active market and are valued using valuation
techniques determined by the Directors. Because the underlying CLO investments The Directors use their judgement, with the assistance of the Portfolio
held by BCF are held to maturity for risk retention purposes, they are valued Adviser, in selecting an appropriate valuation technique and refer to
using a mark-to-model methodology, described in the Company's Prospectus, that techniques commonly used by market practitioners. The board of directors of
is, based upon many assumptions. BCF likewise use their judgement in determining the valuation of investments
and underlying CLOs and equity tranches retained by BCF. Independent valuation
service providers are involved in determining the fair value of underlying
CLOs.
The valuation of the Company's investments therefore requires significant
judgement and there is a risk that they are incorrectly valued due to
calculation errors or incorrect assumptions.
An alternative mark-to-market methodology for valuation has been used by the
directors for financial reporting purposes twice a year. This is to comply
with accounting standards that focus on fair value between a willing buyer and
a willing seller at each reporting date. From January 2023, the mark-to-market
valuation has been provided quarterly alongside the mark-to-model valuation,
along with the key assumptions behind each methodology, to give investors more
information.
See also proposals regarding valuation policy resulting from the Shareholder
Consultation below and in the Chair's statement.
Income distribution model
The Company receives cash flows from its underlying exposure to debt and CLO 2022: Increased probability, stable impact.
investments held by BCF. Each underlying CLO will pay out a mixture of income
and capital return over its life. BCF aims to distribute most of the proceeds
that it receives from CLO investments to the Company (via PPNs) whilst
reinvesting some of the proceeds back into CLOs to maintain capital invested. The Directors use their judgement, with the assistance of the Portfolio
In turn, the Company aims to distribute income received to Shareholders, in Adviser, in setting the Company's distribution policy to ensure that it is
accordance with its distribution policy, as well as fund buy backs of the appropriate given the performance of the underlying CLOs.
Company's shares in accordance with its share buy-back policy. Any surplus is
then reinvested on a discretionary basis by the Board.
Based upon the modelling of cash flows provided by the Portfolio Adviser, the
Board were able to pay a dividend of €0.08 per ordinary share for 2022 and
There is a risk that the distribution policy at the Company level may be too as outlined in the Chair's Statement above have announced an increased target
generous or re-investment may not be sufficient, resulting in the erosion of range for 2023 of €0.08 to €0.09 per ordinary share.
underlying capital invested.
Operational
The Company has no employees, systems or premises and is reliant on its 2022: Increased probability, stable impact.
Portfolio Adviser and other service providers for the delivery of its
investment objective and strategy.
This risk has been increased in the year as there has been some staff turnover
and strategic pressures on key service providers.
Going concern
The Directors have considered the Company's investment objective, risk
management and capital management policies, its assets and the expected income
from its investments while factoring in the continuing economic impact from
the inflationary environment, increasing interest rates and the impact of
Russia's invasion of Ukraine. The Directors have also considered the principal
risks as outlined above and have concluded that these do not have any impact
on the going concern status of the Company. The Directors are of the opinion
that the Company is able to meet its liabilities and ongoing expenses as they
fall due and they have a reasonable expectation that the Company has adequate
resources to continue in operational existence for the foreseeable future.
Accordingly, these financial statements have been prepared on a going concern
basis and the Directors believe it is appropriate to continue to adopt this
basis for a period of at least 12 months from the date of approval of these
financial statements.
Viability statement
At least once a year the Directors carry out a robust assessment of the
principal risks facing the Company, including those that would threaten its
business model, future performance, solvency and liquidity. The Directors also
assess the Company's policies and procedures for monitoring, managing and
mitigating its exposure to these risks. In assessing viability, the
Directors have considered on an individual basis, each of the principal risks
of the Company as detailed above along with the evolution of market, economic
and political conditions, the Company's current position, investment objective
and strategy and the performance of the Portfolio Adviser, and hence how these
could impact the cash flows received by BGLF from its Lux Subsidiary and
ultimately from BCF.
The Directors believe that the principal risk most likely to impact viability
is that relating to investment performance. As explained above, the Company's
underlying investment exposure is to the investment portfolio of BCF. BCF's
portfolio comprises the following categories of investments: (i) CLO Debt and
CLO Income Notes securitised by BCF, (ii) a portfolio of senior secured loans
and bonds and (iii) preference shares. The majority of CLO investments in the
portfolio have a non-call period of approximately two years from their
origination date and cannot be redeemed until these expire.
The directors considered two extreme market scenarios.
1. Scenario 1 included assumptions which mirrored the global financial
crisis, namely:
EUR CLOs US CLOs
Prepayment rate 7.5% for first 2 years; 25% thereafter 10% for first 2 years; 25% thereafter
Constant default rate 2.0% for next 2 years 2.0% for next 2 years
Recovery rate 60% for next 2 years 60% for next 2 years
Re-investment price 90 for first 6 months; 95 for the next year; 99.5 thereafter 90 for first 6 months; 95 for the next year; 99.5 thereafter
Elevated CCC basket stress
10% 10%
· CLO warehouses assume no cash flows for the first three years,
followed by 14% yield cash flows on 50% impaired principal.
· The revolving facility assumes a 10% haircut on cash flows from the
loan balance for the first three years, no haircuts are assumed for the
following two years.
2. Scenario 2 included assumptions which incorporated severe spread
stress, namely:
EUR CLOs US CLOs
Prepayment rate 40% for first 2 years; 25% thereafter 40% for first 2 years; 25% thereafter
Constant default rate 1.65% 1.65%
Recovery rate 60% 60%
Reinvestment spread 3.0% over SoFR 2.90% over SoFR
Reinvestment rate 100 100
· Assumes no adjustment to the 14% statically yielding CLO warehouse
cash flows.
· For the revolver, an average coupon of 3.25% was applied to a static
financing vehicle based on an approximated historical run rate.
The Directors also considered other key risks on top of the above, as outlined
above, and concluded that these risks do not impact the resilience or
sustainability of the Company's business model. Whilst each of these key risks
could have an impact on the long-term sustainability of the Company, the
Directors concluded that each was sufficiently mitigated and would therefore
not impact the viability of the Company over a five-year period.
The Directors have assessed the prospects of the Company over the five-year
period to 30 April 2028 which the Directors have determined constitutes an
appropriate period to provide its viability statement. The Directors
regularly receive financial forecasts from the Portfolio Adviser presented on
a quarterly basis for at least the next four to five years. The Directors
believe that financial forecasts to support its investment strategy can be
subject to changes dependent upon investment performance, deployment of
capital and regulatory, legal and tax developments for which the impact
beyond a five-year term is difficult to assess. In addition, the extent to
which macro-economic, political, social, technological and regulatory changes
beyond a five-year term may have a plausible impact on the Company
are difficult to envisage.
The Directors continue to regularly review the Company's dividend policy, but
at present are satisfied that the outcomes modelled by the Portfolio Adviser
under extreme market scenarios will allow the Company to generate sufficient
cash flow to meet the dividend policy and ensure that the Company is able to
meet its liabilities, as they fall due. Should the Company need to take action
to mitigate the threats to viability, it will consider reduction in the
dividend to ensure continued viability.
On the basis of this assessment of the principal risks facing the Company and
the modelled extreme market scenarios by the Portfolio Adviser used to assess
the Company's prospects and in the absence of any unforeseen circumstances,
the Directors confirm that they have a reasonable expectation that the Company
will be able to continue in operation and meet its liabilities as they fall
due over the five-year period of their assessment. However, it is worth noting
that there is no intention for the life of the Company to be limited to this
five-year period.
Performance Analysis
IFRS NAV performance analysis for the years ended 31 December 2022 and
31 December 2021 - contributors to change
[Graphs and charts are included in the published Annual Report and Audited
Financial Statements which is available on the Company's website at
https://blackstone.com/bglf (https://blackstone.com/bglf) ]
Further commentary on the Company's performance is contained in the Chair's
Statement and the Portfolio Adviser's Review.
Published NAV performance analysis for the years ended 31 December 2022 and 31 December 2021 - contributors to change
[Graphs and charts are included in the published Annual Report and Audited
Financial Statements which is available on the Company's website at
https://blackstone.com/bglf]
Further commentary on the Company's performance is contained in the Chair's
Statement and the Portfolio Adviser's Review.
Other Information
Valuation methodology
As noted above, the Published NAV and the IFRS NAV may diverge because of
different key assumptions used to determine the valuation of the BCF
portfolio. Key assumptions which are different between the two bases as at 31
December 2022 and 31 December 2021 are detailed below:
Asset Valuation methodology Input IFRS Published NAV IFRS Published NAV
NAV NAV
31 December 2022 31 December 2021
CLO securities Discounted cash flows *Constant default rate
2.0% 2.0% 2.0% 2.0%
Conditional prepayment rate
20% 25% 25% 25%
Reinvestment spread (bps over LIBOR/SoFR)
363.99 360.36 350.04 360.32
Recovery rate loans
65.00% 65.00% 60.00% 60.00%
Recovery lag (Months)
- - - -
Discount rate 25.30% 15.00% 12.75% 14.00%
All of the assumptions above are based on weighted averages.
* Deal level constant default rate
Certain assumptions which underpin the year-end Published NAV, such as
reinvestment spread and the discount rate, are generally more conservative
than those underlying in the IFRS NAV. The below table further explains the
rationale regarding the differences in the assumptions that significantly
contributed to the valuation divergence as at 31 December 2022.
Assumptions IFRS NAV Published NAV
Discount Rate Intended to reflect the market required rate of return for similar securities Based on the expected rate of return for a newly originated CLO equity security on a hold to maturity basis. The expected rate of return is based on a long-term market average and is periodically reviewed and updated to the extent of secular changes in the market. Discount rates increased 100bps relative to the prior year, as prolonged market volatility led to a re-rating of expected long-term returns.
and is informed by market research, BWICs, market colour for comparable
transactions and dealer runs. The discount rate may vary based on underlying
loan prices, exposure to distressed assets or industries, manager performance
and time remaining in reinvestment period. Discount rates have widened
materially relative to Quarter 4 2021, as higher rates, higher spreads, and
increased inflation expectations negatively impacted credit markets.
Source of the Company's dividend - ordinary class
The Company through its investments in the Lux Subsidiary receives income, on
a quarterly basis, on the PPNs held by the latter in BCF, which continues to
generate positive cash flows from its CLO income note investments and from its
portfolio of directly held and warehoused loans.
The Company redeems CSWs on a quarterly basis to transfer the income from the
Lux Subsidiary. As detailed above, the Company redeemed 35,146,135 CSWs in the
Lux Subsidiary during the year with a fair value of €57,293,420 to fund the
quarterly dividends.
Alternative Investment Fund Managers' Directive
The AIFMD requires certain information to be made available to investors in
AIFs before they invest and requires that material changes to this information
be disclosed in the annual report of each AIF. There has been no material
changes (other than those reflected in these financial statements) to this
information requiring disclosure.
Alternative Performance Measures
In accordance with ESMA Guidelines on APMs, the Board has considered which
APMs are included in the Annual Report and Audited Financial Statements and
require further clarification. An APM is defined as a financial measure of
historical or future financial performance, financial position or cash flows,
other than a financial measure defined or specified in the applicable
financial reporting framework. APMs included in the financial statements,
which are unaudited and outside the scope of IFRS, are detailed in the table
below.
Published NAV total return per ordinary share** Published NAV per ordinary share** (Discount) / Premium per ordinary share
Definition The increase in the Published NAV per ordinary share plus the total dividends Gross assets less liabilities (including accrued but unpaid fees) determined BGLF's closing share price on the LSE less the Published NAV per ordinary
paid per ordinary share during the period, with such dividends paid being in accordance with the section entitled "Net Asset Value" in Part I of the share as at the period end, divided by the Published NAV per ordinary share as
re-invested at NAV, as a percentage of the NAV per ordinary share as at period Company's Prospectus, divided by the number of ordinary shares at the at that date
end relevant time
Reason NAV total return summarises the Company's true growth over time while taking The Published NAV per ordinary share is an indicator of the intrinsic value of The discount or premium per ordinary share is a key indicator of the
into account both capital appreciation and dividend yield the Company. discrepancy between the market value and the intrinsic value of the Company
Target 11%+ Not applicable Maximum discount of 7.5%
Performance
2022 5.22% 0.9081 (26.77)%*
2021 21.82% 0.9407 (15.75)%
2020 (0.22)% 0.8435 (20.57)%
2019 14.46% 0.9187 (10.20)%
2018 6.70% 0.8963 (15.21)%
* Refer to details on management of the discount in the Chair's Statement.
** Published NAV is an APM from which these metrics are derived.
A reconciliation of the above-mentioned APMs to the most directly reconcilable
line items presented in the financial statements for the year ended 31
December 2022 is presented below:
Published NAV total return per ordinary share
31 December 2022 31 December 2021
Opening Published NAV per ordinary share (A) €0.9407 €0.8435
Adjustments per ordinary share (B) €(0.0253) €0.0122
Opening IFRS NAV per ordinary share (C=A+B) €0.9154 €0.8557
Closing Published NAV per ordinary share (D) €0.9081 €0.9407
Adjustments per ordinary share (E) €(0.2297) €(0.0253)
Closing IFRS NAV per ordinary share (F=D+E) €0.6784 €0.9154
Dividends paid during the year (G) €0.0800 €0.0775
Published NAV total return per ordinary share
(H=(D-A+G)/A) 5.04% 20.71%
Impact of dividend re-investment (I) 0.18% 1.11%
Published NAV total return per ordinary share with dividends re-invested
(J=H+I)
5.22% 21.82%
IFRS NAV total return per ordinary share
(K=(F-C+G)/C) (17.15)% 16.03%
Impact of dividend re-investment (L) (2.04)% 0.84%
IFRS NAV total return per ordinary share with
dividends re-invested (M=K+L) (19.19)% 16.87%
Refer to Note 16 for further details on the adjustments per ordinary share.
Published NAV per ordinary share
31 December 2022 31 December 2021
Published NAV per ordinary share (A) €0.9081 €0.9407
Adjustments per ordinary share (B) €(0.2297) €(0.0253)
IFRS NAV per ordinary share (C=A+B) €0.6784 €0.9154
Refer to Note 16 for further details on the adjustments per ordinary share.
(Discount)/Premium per ordinary share
31 December 2022 31 December 2021
Published NAV per ordinary share (A) €0.9081 €0.9407
Adjustments per ordinary share (B) €(0.2297) €(0.0253)
IFRS NAV per ordinary share (C=A+B) €0.6784 €0.9154
Closing share price as at 31 December per the LSE (D) €0.6650 €0.7925
Discount to Published NAV per ordinary share
(E=(D-A)/A) (26.77)% (15.75)%
Discount to IFRS NAV per ordinary share
(F=(D-C)/C) (1.98)% (13.43)%
Refer to Note 16 for further details on the adjustments per ordinary share.
Significant events after the reporting period
Dividends
On 23 January 2023, the Board declared a dividend of €0.0275 per ordinary
share in respect of the period from 1 October 2022 to 31 December 2022 with an
ex-dividend date of 2 February 2023. A total payment of €12,182,391 was
processed on 3 March 2023.
On 23 January 2023, the Board also announced that it is targeting a total 2023
annual dividend of between €0.08 and €0.09 per ordinary share, which will
consist of quarterly payments of €0.02 per ordinary share for the first
three quarters and a final quarter payment of a variable amount to be
determined at that time.
On 25 April 2023, the Board declared a dividend of €0.02 per ordinary share
in respect of the period from
1 January 2023 to 31 March 2023 with an ex-dividend date of 4 May 2023. The
dividend will be paid on 2 June 2023.
Share Repurchase Programme
Repurchase of ordinary shares
During the period from 1 January 2023 to 27 April 2023, the Company
repurchased 1,839,619 shares at a total cost of €1,228,191 (excluding fees
and commissions).
Investment Policy Change
On 10 February 2023, the Board announced that BCF had notified them of a
proposed change to BCF's investment policy. The proposed change to the
investment policy will enable BCF (or an underlying company through which it
invests) to hold minority equity positions in addition to majority equity
positions and/or debt positions in European and US CLOs, which would all be in
Blackstone managed and controlled CLOs. Accordingly, BCF (or any underlying
company through which it invests) may not be the risk retention provider in
respect of certain CLOs in which it comes to hold a minority equity position
(in such circumstances, the risk retention will be held by another Blackstone
affiliated entity in compliance with UK and European risk retention rules).
These changes took effect on 9 March 2023.
Shareholder Consultation
On 26 January 2023, the Company announced it would undertake a Shareholder
Consultation on potential policy amendments in light of the prevailing and
persistent discount to NAV at which the Company's shares trade and with a view
to broadening investor interest in the Company's shares and maximising
Shareholder total return. Since that announcement the Board, the Portfolio
Adviser and the Company's joint financial advisers and brokers have consulted
with Shareholders and incorporated the view of Blackstone, which together
represent 78% of the share capital of the Company. The Shareholder
Consultation set out to cover the following topics: reinvestment/distribution
of excess net income including expanding the Company's remit to enable direct
primary market investment and a potential exit opportunity. During the
consultations the topic of the Company's NAV valuation methodology was also
discussed. An announcement was made on 17 March 2023, covering the results of
the Shareholder Consultation and a summary of proposals.
Reinvestment/Distribution of Excess Net Income
In general, the Shareholders consulted were comfortable with the current
approach taken to the allocation of excess net income between reinvestment,
dividend distribution and share buybacks. It was however recognised that there
are times when reinvestment by the Company into BCF may be unattractive but
direct investment in primary market CLOs managed and controlled by the
Portfolio Adviser may still be attractive. At present the Company is unable to
make such direct investments. The Board believes such flexibility to be in the
interests of Shareholders and will propose a change to the Company's
investment policy to allow such investment to be put forward at the time of
the Company's AGM expected to be held in July 2023. Further details will be
set out in the Notice of AGM.
Potential Exit Opportunity
The Shareholder Consultation discussed various potential exit opportunities.
There was variation in feedback with no consensus whether such an exit
opportunity should be offered. In general, there was no consensus for the
creation of a run-off share class to sit alongside a continuing share class
given the potential reduced liquidity of both such share classes. There was
some appetite, but not consensus, for the entire fund being placed into run
off. As at 31 January 2023, 67% of BCF's assets were in CLO securities which
must be held to maturity under EU retention regulations. Any run-off of BCF,
in whole or part, would therefore take place over a number of years as the
portfolio matures. There was concern from a number of Shareholders that the
slow decline of the BCF's asset base over such an extended timeframe may
reduce Shareholder liquidity. The Board and its advisers have evaluated
Shareholder feedback, considered these issues at length and sought to balance
various views whilst cognisant of the evergreen nature of the Company. In
summary, the Board does not currently believe that an immediate exit
opportunity would be in the best interests of the Company and Shareholders as
a whole. The Board will continue to monitor the situation and consult with
Shareholders and if there is no significant improvement in the discount the
Board will consider putting forward a continuation vote alongside the AGM in
2024. In the period between now and the 2024 AGM, the Board will continue to
use all tools at its disposal, principally its buyback policy, in an effort to
mitigate the share price discount to NAV while taking into account the market
environment for CLOs.
Valuation Methodology
At the Initial Public Offering of the Company in July 2014, the Company
adopted a mark to market valuation methodology for all its assets. In the
March 2016 Placing Programme prospectus the valuation methodology for CLO
equity tranches was amended to that of mark to model. During the Shareholder
Consultation a number of Shareholders expressed concern that the mark to model
approach, whilst reflective of the hold to maturity nature of retention
assets, was not a good benchmark for assessing current market risk and
therefore whether the Company's shares are trading at discount or premium to
the risk of the underlying assets. The Board is considering these points and
believes there is merit in adopting a mark to market valuation methodology at
a time when the NAV derived from both methodologies are broadly aligned. The
Company will make a further announcement at the time of any change in
valuation approach.
Board changes
Mr Gary Clark and Ms Charlotte Valeur have informed the Board of their
intention to retire at the Company's next AGM as they will have reached nine
years of service. The Company also announced the appointment of
Mr Giles Adu as non-executive director, which is now confirmed to be effective
from the date of 2023 AGM. As approved in the Remuneration and Nomination
Committee meeting held on 27 April 2023, Mr Steven Wilderspin will be
appointed in the role of Chair following the 2023 AGM.
Refer to below for more details on the above changes.
Related parties
There have been no material changes to the nature of related party
transactions. Refer to Note 19 for information on related party transactions.
Outlook
It is the Board's intention that the Company will pursue its investment
objective and investment policy as detailed above. Further comments on the
outlook for the Company for the 2023 financial year and the main trends and
factors likely to affects its future development, performance and position are
contained within the Chair's Statement and the Portfolio Adviser's Review.
Directors' Biographies
The Directors appointed to the Board as at the date of approval of this Annual
Report and Audited Financial Statements are:
Charlotte Valeur
Position: Chair of the Board (non-executive and independent director,
resident in Jersey)
Date of appointment: 13 June 2014
Ms Charlotte Valeur has over 35 years of experience in finance, primarily as
an investment banker in Capital Markets in Denmark and the UK. She is an
experienced FTSE Chair, Non-Executive Director and corporate governance
expert. Ms Charlotte Valeur's current appointments include her roles as NED of
listed company Digital 9 Infrastructure Plc, NED of Laing O'Rourke
Construction Ltd and NED of The Bankers Investment Trust PLC.
Ms Charlotte Valeur previously held roles as Chair of FTSE 250 Kennedy Wilson
Europe Real Estate Plc, Chair of DW Catalyst Fund Ltd, NED of Renewable Energy
Generation Plc, NED of Phoenix Spree Deutschland Ltd, NED of
JPMorgan Convertibles Income Fund, NED of FTSE 250 3i Infrastructure Plc and
NED of NTR Plc.
Ms Charlotte Valeur is also a Trustee of the Institute of Neurodiversity and
Chair and founder of Board Apprentice. She is a member of the London Stock
Exchange Primary Markets Group, serves on the Advisory Board of the Moller
Institute, Churchill College, University of Cambridge and is a visiting
Professor in Governance at University of Strathclyde. Ms Charlotte Valeur was
previously the Chair of the UK Institute of Directors.
Gary Clark, ACA
Position: Chair of the Remuneration and Nomination Committee and NAV Review
Committee; Senior Independent Director (non-executive and independent
director, resident in Jersey)
Date of appointment: 13 June 2014
Mr Gary Clark acts as an independent non-executive director for a number of
investment managers including Emirates NBD, abrdn Standard Capital and ICG.
Until 1 March 2011, he was a managing director at State Street and their head
of Hedge Fund Services in the Channel Islands. Mr Gary Clark, a Chartered
Accountant, served as chairman of the Jersey Funds Association from 2004 to
2007 and was managing director at AIB Fund Administrators Limited when it was
acquired by Mourant in 2006. This business was sold to State Street in 2010.
Prior to this, Mr Gary Clark was managing director of the futures broker, GNI
(Channel Islands) Limited in Jersey.
A specialist in alternative investment funds, Mr Gary Clark was one of several
practitioners involved in a number of significant changes to the regulatory
regime for funds in Jersey, including the introduction of both Jersey's Expert
Funds Guide and Jersey's Unregulated Funds regime.
As a Chartered Accountant with over 30 years' experience in financial
services, including many years focused on running fund administration
businesses in alternative asset classes, Mr Gary Clark brings a wealth of
highly relevant experience, at both board level and as an executive, in fund /
asset management operations, including in particular valuation, accounting and
administrative controls and processes.
Heather MacCallum, CA
Position: Chair of the Audit Committee (non-executive and independent
director, resident in Jersey)
Date of appointment: 7 September 2017
Ms Heather MacCallum is a Chartered Accountant and was a partner of KPMG
Channel Islands for 15 years before retiring from the partnership in 2016.
Ms Heather MacCallum now holds a portfolio of non-executive directorships
including abrdn Latin American Income Fund Limited and Invesco Bond Income
Plus Limited, both of which are investment companies listed on the London
Stock Exchange. She is the Chair of Jersey Water, an unlisted Jersey utility
company.
She is a member of the Institute of Directors and the Institute of Chartered
Accountants of Scotland (ICAS). She is also a past president of the Jersey
Society of Chartered and Certified Accountants.
With 20 years' experience gained in a global professional services firm, Ms
Heather MacCallum brings financial experience including technical knowledge of
accounting and auditing, especially in the context of financial services, and
in particular the investment management sector.
Steven Wilderspin, FCA, IMC
Position: Chair of the Risk Committee (non-executive and independent
director, resident in Jersey)
Date of appointment: 11 August 2017
Mr Steven Wilderspin, a qualified Chartered Accountant, has been the Principal
of Wilderspin Independent Governance, which provides independent directorship
services, since 2007. He has served on a number of private equity, property
and hedge fund boards as well as commercial companies.
Mr Steven Wilderspin is a director of FTSE 250 GCP Infrastructure Investments
Ltd, a director of FTSE 250 HarbourVest Global Private Equity Limited and a
director of Phoenix Spree Deutschland Limited. Mr Steven Wilderspin previously
served as the Chairman of the Audit and Risk Committee of FTSE 250 3i
Infrastructure plc.
From 2001 until 2007, Mr Steven Wilderspin was a director of fund
administrator Maples Finance Jersey Limited where he was responsible for fund
and securitisation structures. Before that, from 1997, Mr Steven Wilderspin
was Head of Accounting at Perpetual Fund Management (Jersey) Limited.
Mr Steven Wilderspin has significant listed corporate governance experience,
particularly in the area of risk management, so is well placed to lead the
board through the development of its risk framework.
Mark Moffat
Position: Non-executive and independent director (resident in UK)
Date of appointment: 8 January 2019
Mr Mark Moffat has been involved in structuring, managing and investing in
CLOs for over 20 years. Mr Mark Moffat left GSO Capital Partners LP, part of
the credit businesses of The Blackstone Group L.P., in April 2015 to pursue
other interests.
Whilst at GSO, Mr Mark Moffat was a senior managing director and the portfolio
manager responsible for investing in structured credit and co-head of the
European activities of the Customised Credit Strategies division.
Mr Mark Moffat joined GSO in January 2012 following the acquisition by GSO of
Harbourmaster Capital Management Limited where he was co-head. Prior to
joining Harbourmaster in 2007, Mr Mark Moffat was head of European debt and
equity capital markets and the European CLO business of Bear Stearns. At Bear
Stearns, Mr Mark Moffat was responsible for the origination, structuring and
execution of CLOs in Europe over a seven-year period. Prior to Bear Stearns,
Mr Mark Moffat was global head of CLOs at ABN AMRO and a director in the
principal finance team of Greenwich NatWest.
With over 20 years of experience structuring, managing and investing in CLOs,
Mr Mark Moffat brings a deep knowledge of how CLO structures and markets
perform over the credit cycle.
Directors' Report
The Directors present the Annual Report and Audited Financial Statements for the Company for the year ended 31 December 2022.
Directors
The Directors of the Company on the date the financial statements were
approved are listed above. All Directors were directors of the Company
throughout the year ended 31 December 2022.
The Board and employees
The Board currently comprises three male and two female Directors. The Company
has no employees; therefore, there is nothing further to report in respect of
gender representation within the Company.
Full details of the Company's policy on 'Board diversity' can be found in the
Corporate Governance Report below.
Share capital
The Company's share capital consists of an unlimited number of shares. As at
31 December 2022, the Company had 444,578,522 ordinary shares in issue and
38,324,272 ordinary shares in treasury (31 December 2021: 460,984,702 ordinary
shares in issue and 21,918,092 ordinary shares in treasury).
Share Repurchase Programme
At the 2021 AGM, held on 23 July 2021, the Directors were granted authority to
repurchase up to 14.99% of the issued share capital as at the date of the 2021
AGM for cancellation or to be held as treasury shares. Under this authority,
during the year ended 31 December 2021, the Company purchased 7,722,373 of its
ordinary shares of no par value at a total cost of €6,101,156. These
ordinary share are being held as treasury shares.
At the Company's 2021 AGM, the Company received Shareholder approval to resell
up to 46,880,707 Shares held by the Company in treasury. Under this authority,
these Shares are permitted to be sold or transferred out of treasury for cash
at a price representing a discount to Net Asset Value per ordinary share not
greater than the discount at which such Shares were repurchased by the
Company. To-date, no shares have been resold by the Company under this
authority.
At the 2022 AGM, held on 17 June 2022, the Directors were granted authority to
repurchase up to 14.99% of the issued share capital as at the date of the 2022
AGM for cancellation or to be held as treasury shares. Under this authority,
during the year ended 31 December 2022, the Company purchased 16,406,180 of
its ordinary shares of no par value at a total cost of €11,478,926. These
ordinary share are being held as treasury shares.
At the Company's 2022 AGM, the Company received Shareholder approval to resell
up to 45,932,470 shares held by the Company in treasury. Under this authority,
these shares are permitted to be sold or transferred out of treasury for cash
at a price representing a discount to net asset value per ordinary share not
greater than the discount at which such shares were repurchased by the
Company. To date, no shares have been resold by the Company under this
authority.
Authority to allot
At the 2022 AGM, the Directors were granted authority to allot, grant options
over, or otherwise dispose of up to 45,932,470 ordinary shares (being equal to
10.00% of the Shares in issue at the date of the AGM). This authority will
expire at the 2023 AGM.
Shareholders' interests
As at 31 December 2022, the Company had been notified, in accordance with
Chapter 5 of the Disclosure Guidance and Transparency Rules (which covers the
acquisition and disposal of major shareholdings and voting rights), of the
following Shareholders with an interest of greater than 5% in the Company's
issued share capital:
Number of voting rights notified to the Company Percentage of voting rights as per notification
Shareholder Date notified
BlackRock Inc 8 January 2020 109,488,727 22.78%
Quilter plc 16 December 2022 89,305,931 20.02%
Blackstone Treasury Asia Pte Ltd 9 January 2020 43,000,000 8.95%
During 1 January 2023 to 27 April 2023*, the Company had been notified as
follows:
Number of voting rights notified to the Company Percentage of voting rights as per notification
Shareholder Date notified
Quilter plc 1 February 2023 87,305,931 19.71%
Border to Coast Pensions Partnership 16 January 2023 24,000,000 5.36%
* Only two TR1 Notifications were received from the period of 1 January 2023
to 27 April 2023. No notification has been received from BlackRock Inc and
Blackstone Treasury Asia Pte Ltd post the year end.
Statement of disclosure of information to the auditor
The Directors who held office as at the date of approval of this Directors'
Report confirm that, so far as they are each aware, there is no relevant audit
information of which the Company's auditor is unaware and that they have taken
the steps that they ought to have taken as Directors to make themselves aware
of any relevant audit information and to establish that the Company's auditor
is aware of that information.
Financial risk management
The Company is exposed to market risk (including interest rate risk, currency
risk and price risk), credit risk and liquidity risk arising from the
financial instruments it holds and the markets in which it invests. Refer to
Note 10 for further details.
Modern slavery
The Company would not fall into the scope of the UK Modern Slavery Act 2015
(as the Company does not have any turnover derived from goods and services) if
it was incorporated in the UK. Furthermore, as a closed-ended investment
company, the Company has no employees and its supply chain is considered to be
low risk given that suppliers are typically professional advisers based in any
of the Channel Islands, Ireland or the UK. Based on these factors, the Board
has considered that it is not necessary for the Company to make a slavery and
human trafficking statement.
Gary Clark
Director
27 April 2023
Corporate Governance Report
Statement of compliance with corporate governance
The Board of the Company has considered the Principles and Provisions of the
AIC Code. The AIC Code addresses the Principles and Provisions set out in the
UK Code, as well as setting out additional Provisions on issues that are of
specific relevance to the Company, as an investment company.
The Board considers that reporting against the Principles and Provisions of
the AIC Code, which has been endorsed by the FRC and supported by the Jersey
Financial Services Commission provides more relevant information to
Shareholders.
The Company has complied with the Principles and Provisions of the AIC Code as
they apply to the Company.
The AIC Code is available on the AIC website (www.theaic.co.uk
(http://www.theaic.co.uk) ). It includes an explanation of how the AIC Code
adapts the Principles and Provisions set out in the UK Code to make them
relevant for investment companies.
The Board
The Board consists of five non-executive directors. Their biographies can be
found above.
The Board meets at least four times a year and is in regular contact with the
Portfolio Adviser, the Portfolio Manager, the Administrator and the Company
Secretary. Furthermore, the Board is supplied with information in a timely
manner from the Portfolio Adviser, Portfolio Manager, the Company Secretary
and other advisers in a form and of a quality appropriate for it to be able
to discharge its duties.
Board apprentices
The Board participates in the Board Apprentice scheme and took on two Board
Apprentices during 2022. The Board considers this a valuable exercise in
mentoring already accomplished individuals to be future directors, fostering
equality and developing board culture.
Duties and responsibilities
The Board has overall responsibility for maximising the Company's success by
directing and supervising the affairs of the business and meeting the
appropriate interests of Shareholders and relevant stakeholders, while
enhancing the value of the Company and also ensuring the protection of
investors. A summary of the Board's responsibilities is as follows:
· statutory obligations and public disclosure;
· strategic matters and financial reporting;
· risk assessment and management including reporting, compliance,
governance, monitoring and control; and
· other matters having a material effect on the Company.
The Board is responsible to Shareholders for the overall management of the
Company. The Board has delegated certain operational activities of the Company
to the Portfolio Adviser, Administrator and Company Secretary. The Board
reserves the power of decisions relating to the determination of investment
policy, the approval of changes in strategy, capital structure, statutory
obligations and public disclosure, and the entering into of any material
contracts by the Company.
Board attendance
The following table shows the number of meetings held by the Board and each
committee for the year ended 31 December 2022, as well as the Directors' and
Committee Members' attendance.
Meeting Total Charlotte Gary Steven Wilderspin Heather MacCallum Mark
Valeur
Clark
Moffat
Quarterly Board 4 4 4 4 4 4
Ad Hoc Board 7 4 6 7 5 5
Ad Hoc board (Dividend Declaration)
4 1 3 3 4 4
Audit Committee 5 N/A 4 5 5 5
Management Engagement Committee
2 2 2 2 2 2
NAV Review Committee 12 N/A 11 10 11 10
Remuneration and Nomination Committee
2 2 2 2 2 2
Risk Committee 4 4 4 4 4 4
Inside Information Committee*
0 N/A* N/A* N/A* N/A* N/A*
*The Inside Information Committee is a committee of any two Directors.
Chair
The Chair is responsible for leadership of the Board, ensuring its
effectiveness on all aspects of its role and setting its agenda. The Chair is
also responsible for ensuring that the Directors receive accurate, timely and
clear information and for effective communication with Shareholders.
Board independence
For the purpose of assessing compliance with principle G, provisions 10 and 13
of the AIC Code, the Board considers all of the current Directors to be
independent.
The Directors consider that there are no factors, as set out in provision 13
in the AIC Code, which compromise the other Directors' independence and that
all Directors contribute comprehensively to the affairs of the Company. The
Board reviews the independence of all Directors annually. The Company
Secretary acts as secretary to the Board and Committees and in doing so,
assists the Chair in ensuring that all Directors have full and timely access
to all relevant documentation, organises induction of new Directors, is
responsible for ensuring that the correct Board procedures are followed and
advises the Board on corporate governance matters.
Board evaluation
During 2022, the Board engaged Satori Board Review ("Satori") to conduct an
external board evaluation, which included the performance of its committees.
The Company does not have any other business relationships with Satori. The
evaluation considered guidance outlined in the AIC Code, with account taken of
other best practice guidance. The evaluation consisted predominantly of
creation, issuance and collation of survey question responses, interviews with
the Directors of the Company and key representatives of the Company's service
providers and observation of Board and Committee meetings.
The results of the board evaluation were positive and a number of limited
recommendations were made to further enhance the good governance of the
Company. The recommendations have formed a part of the Board's rolling action
plan.
Committees of the Board
The Board has established six committees: an Audit Committee, a Management
Engagement Committee, a NAV Review Committee, a Remuneration and Nomination
Committee, a Risk Committee, and an Inside Information Committee. Each
committee has formally delegated duties and responsibilities within written
terms of reference. These are available on the Company's website,
blackstone.com/bglf, under "Terms of Reference".
The current committee memberships are detailed below.
Audit Committee
The Audit Committee comprises all Directors, except Ms Charlotte Valeur and is chaired by Ms Heather MacCallum.
The terms of reference state that the Audit Committee will meet not less than
three times a year and will meet with the Auditor at least once a year. The
report on the role and activities of this committee and its relationship with
the Auditor is included in the Audit Committee Report below.
Management Engagement Committee
The Management Engagement Committee comprises all Directors and is chaired by Ms Charlotte Valeur.
The terms of reference state that the Management Engagement Committee shall
meet at least once a year; will have responsibility for monitoring and
reviewing the Portfolio Adviser's along with other service providers'
performance and will recommend to the Board whether the continued appointment
of the Portfolio Adviser and other service providers is in the best interests
of the Company and Shareholders.
NAV Review Committee
The NAV Review Committee comprises all Directors, except Ms Charlotte Valeur and is chaired by Mr Gary Clark.
The terms of reference state that the NAV Review Committee shall meet at least
once a month to review and consider the Company's NAV calculation, fact sheet
and related stock exchange announcement(s).
Remuneration and Nomination Committee
The Remuneration and Nomination Committee comprises all Directors and is chaired by Mr Gary Clark.
The terms of reference state that the Remuneration and Nomination Committee
will meet not less than twice a year and shall be responsible for all aspects
of the appointment and remuneration of Directors. The remuneration duties of
the committee include determining and agreeing with the Board the framework or
broad policy for the remuneration of the Directors and to review its ongoing
appropriateness and relevance.
The nomination duties of the committee include regularly reviewing the
structure, size and composition of the Board, including the balance of skills,
experience, independence and knowledge, as well as identifying, nominating and
recommending for the approval of the Board, candidates to fill Board vacancies
as they arise.
Director Re-Election and Tenure
The Remuneration and Nomination Committee and the Board are strongly committed
to striking the correct balance between the benefits of continuity and those
that come from the introduction of new perspectives to the Board.
It is the intention of the Board that each Director will retire after no
longer than nine years in their role and the Board has adopted a policy
whereby all Directors will be put up for re-election every year in line with
the AIC Code. Each of the Directors has demonstrated a strong commitment to
the Company and the Board believes each Director's re-election to be in the
best interests of the Company. Accordingly, all Directors will be put forward
for re-election at the forthcoming AGM, except for Ms Charlotte Valeur and Mr
Gary Clark.
The Company announced on 3 April 2023 that Mr Gary Clark, who has served as a
non-executive director of the Company since its IPO, intends to retire at the
Company's 2023 AGM, having reached nine years of service. Ms Charlotte Valeur
who has also served as a non-executive director and Chair of the Company since
its IPO, has also informed the Board of her intention to retire at the
Company's next AGM. The Board wishes to thank Mr Gary Clark and Ms Charlotte
Valeur for their significant contribution to the Company over that time and
wish them every success in their future endeavours.
Board succession
The Board maintains a succession planning matrix covering the Directors'
skills, the Board's diversity and the Directors' expected year of retirement
should they hold office for nine years. The matrix is used by the Remuneration
and Nomination Committee to identify any additional skills that would benefit
the Board and to help the Remuneration and Nomination Committee establish when
to begin recruiting for any new directors. The Board also keeps its
diversity under review.
The Committee commenced a recruitment process in October 2022 with the
intention to identify candidates for anticipated Board succession in 2023. The
Board engaged Nurole, an external market leading recruiter to manage the
process. Nurole has no other connection to the Company or any individual
Director. The recruitment process focused not only on the qualifications of
each potential candidate but also on each candidates' independence and
ensuring that no appointment would create conflicts of interest.
Nurole received a significant number of applications out of which nine
individuals were shortlisted. Following interviews, three candidates were
invited to meet the Portfolio Adviser. The Committee agreed that the decision
on appointment should lie with the three members of the Committee that will be
the continuing Directors of the Company and they chose Mr Giles Adu as the
successful candidate. Mr Giles Adu has over 30 years' experience in financial
markets and real estate investment across fixed-income sales and trading,
alternative investment fund structuring, capital raising and property
investment, structuring and financing. The Committee did consider the fact
that Mr Giles Adu was married to Ms Charlotte Valeur over 10 years ago, but
taking into account their respective circumstances and the principals and
provisions of the AIC Code, concluded that Mr Giles Adu was and would remain
independent on his appointment to the Board.
A proper and thorough process was followed in the appointment of Mr Giles Adu
as a non-executive director of the Company, which will be effective as from
the date of the 2023 AGM. Overall, the Board was impressed with the quality
and calibre of all the candidates and had passed on their thanks to all those
who participated in the process.
During 2023, the Board discussed succession of the Chair and concluded it to
be in the best interests of the Company to appoint an existing director to the
role of Chair. In a Remuneration and Nomination Committee meeting held on 27
April 2023, Mr Steven Wilderspin was recommended to the Board as the new Chair
following the AGM in 2023. At a Board meeting held on the same date, the Board
approved the recommendation of the Remuneration and Nomination Committee.
Further consideration will be given to the appointment of an additional
director later in the year.
Risk Committee
The Risk Committee comprises all Directors and is chaired by Mr Steven Wilderspin.
The terms of reference state that the Risk Committee shall meet at least two
times a year. The activities of this committee are outlined in the Risk
Committee Report below.
Inside Information Committee
The Inside Information Committee comprises any two members of the Board.
The Inside Information Committee is responsible for considering whether
anything brought to its attention constitutes inside information and
monitoring the disclosure and control of such information.
Board diversity
The Board believes in and values the importance of a broad range of skills,
experience and diversity, including gender and cultural or ethnic background,
for the effective functioning of the Board, all of which are considered when
determining the optimum composition of the Board. Board appointments are based
on merit as well as being an appropriate fit for the Company.
The Board has a policy that aims to have a minimum of 40% of either gender
represented on the Board and also recognises the importance of inclusivity in
its diversity policy. The Board aims to ensure compliance with its policy in
respect of any appointments to the Board, including ethnic diversity.
The below tables set out the Board's composition as at 31 December 2022 in
terms of gender identity and ethnic background. The below text compares this
against the targets prescribed by Listing Rule 9.8.6R (9)(a).
Number of board members Percentage of the board Senior positions on the board (CEO, CFO, SID and Chair)*
Men: 3 60% Gary Clark - Chair of the Remuneration and Nomination Committee, Chair of the
NAV Review Committee and Senior Independent Director
Steven Wilderspin - Chair of the Risk Committee
Women: 2 40% Charlotte Valeur - Chair of the Board
Heather MacCallum - Chair of the Audit Committee
Not specified/prefer not to say N/A N/A
*The Company does not have executive management.
Number of board members Percentage of the board Senior positions on the board (CEO, CFO, SID and Chair)*
White British or other White (including minority-white groups) 5 100% Gary Clark - Chair of the Remuneration and Nomination Committee, Chair of the
NAV Review Committee and Senior Independent Director
Steven Wilderspin - Chair of the Risk Committee
Charlotte Valeur - Chair of the Board
Heather MacCallum - Chair of the Audit Committee
Mixed/Multiple Ethnic Groups Nil N/A N/A
Asian/Asian British Nil N/A N/A
Black/African/Caribbean/Black British Nil N/A N/A
Other ethnic group, including Arab Nil N/A N/A
Not specified/ prefer not to say Nil N/A N/A
*The Company does not have executive management.
Internal controls
The Board has applied "principle O" of the AIC Code by establishing a
continuous process for identifying, evaluating and managing the principal
risks that the Company faces. The Board is responsible for the Company's
system of internal controls and for reviewing its effectiveness. Such a system
is designed to manage rather than eliminate the risk of failure to achieve
business objectives and can only provide reasonable and not absolute assurance
against material misstatement or loss.
The Board obtains comfort that the controls environment is effective in a
number of ways. It receives and reviews independent reports regarding the
control environments of key service providers Blackstone (Portfolio Adviser),
BNP Paribas (Company Secretary and Depositary) and Link (Registrar). The
auditor reports on any control findings from the audit and regular compliance
reports are received from the Company's compliance officer. The Board also
carry out annual due diligence visits to the Portfolio Adviser in Dublin to
discuss amongst other matters, controls, risk, compliance and valuations.
The Audit Committee assists the Board in discharging its monitoring
responsibilities.
During the course of the Board's review of the system of internal controls, it
has not identified nor been advised of any failings or weaknesses which it has
determined to be significant. Therefore, no confirmation in respect of
necessary actions has been made.
The Directors clearly define the duties and responsibilities of their agents
and advisers, whose appointments are made after due consideration and monitor
their ongoing performance, which is done with the assistance of the Management
Engagement Committee. All of the Company's agents and advisers maintain their
own systems of internal control on which they report to the Board. These
systems are designed to ensure effectiveness and efficient operation, internal
control and compliance with laws and regulations. In establishing the systems
of internal control, regard is paid to the materiality of relevant risks, the
likelihood of costs being incurred and the costs of control. It follows,
therefore, that the systems of internal control can only provide reasonable
but not absolute assurance against the risk of material misstatement or loss.
The Directors are satisfied that the continued appointment of the relevant
service providers is in the best interests of the Shareholders.
The Board has reviewed the need for an internal audit function and has decided
that the systems and procedures employed by the Administrator and Portfolio
Adviser, including their own internal controls and procedures, provide
sufficient assurance that a sound system of risk management and internal
control, to safeguard the Shareholders' investment and the Company's assets,
is maintained. An internal audit function specific to the Company is therefore
considered unnecessary. Full details are set out in the Audit Committee Report
below.
The Company has appointed N+1 Singer Advisory LLP and Winterflood Securities
Limited as its joint brokers. Together with the brokers, the Portfolio Adviser
assists the Board in communicating with and understanding the views of the
Company's Shareholders.
Risk Committee Report
Membership
The Risk Committee comprises Mr Steven Wilderspin (Chair), Ms Charlotte
Valeur, Ms Heather MacCallum,
Mr Gary Clark and Mr Mark Moffat.
Key Objectives
The Risk Committee has been established to assist the Board in its oversight
of risk through ensuring the Company maintains a high standard of risk
identification, monitoring and management so as to minimise investment risks
and any other risks not covered by the Audit Committee.
Responsibilities
The Risk Committee's key responsibilities are:
· ensuring the Company's compliance with its investment objectives,
policies, restrictions and borrowing limits;
· ensuring that appropriate policies and reporting exists for the
monitoring of the Company's key risks;
· developing and maintaining a risk register documenting identified risks,
their mitigants, likelihood and impact, which is reviewed regularly by
the Board with action points and newly identified risks being appropriately
dealt with;
· defining risk review activities regarding investment decisions,
transactions and exposures for approval by the Board; and
· ensuring due regard is given to all regulations, codes, and laws
that the Company is subject to.
Committee Meetings
In 2022, the Risk Committee met on four occasions. The specific areas of focus
for the Committee during the year included:
· The ongoing impact of the COVID-19 pandemic. The Committee reviewed the
operational resilience of the Company's key service providers to ensure that
they could continue providing services throughout the year, particularly
during periods of lockdown. The Committee reviewed all of the Company's risks
through the lens of the pandemic to ensure that any new or heightened risk was
identified and appropriately dealt with. Other than the heightened operational
risk, the most material increase in risk related to the sustainability of the
Company's dividend and level of the Company's share price discount to
Published NAV. These areas were addressed by the Board as described above.
· ESG. ESG was a major topic of discussion for the Committee and the
wider Board during the year. See further information above.
· LIBOR transition. The Committee reviewed the impact of the
transition of the interest reference rate for its underlying CLO assets and
liabilities from LIBOR to alternatives such as SoFR. BX Credit has a project
team that is managing this transition across its wider business. The impact on
the Company as assets and liabilities transition over time is not expected to
be material.
· Virtual due diligence visit. The Committee carried out a virtual
due diligence visit to the Portfolio Adviser's Dublin office, including a
meeting with the BCF board. The Committee focused on governance, valuation,
compliance and risk management topics.
Risk Monitoring
Being internally managed, the Company is responsible for both portfolio and
risk management. However, due to the nature of the investment and the limited
ability to look through, traditional market and credit risk techniques do not
apply at the Company level. That said, the Board engages, annually and as
required, with the board of BCF and discusses with them key areas of risk.
Investment risk management and monitoring, to ensure the successful pursuance
of our investment objective, is therefore mainly through the Company's monthly
NAV reporting process and the monitoring of investment restrictions and
eligibility criteria as carried out by the Depositary.
Steven Wilderspin
Risk Committee Chair
27 April 2023
Directors' Remuneration Report
Directors' remuneration
This report provides relevant information in respect of the Directors'
remuneration.
The tables below outlines the remuneration the Directors were entitled to
during the year ended 31 December 2022 for their services.
Total fixed remuneration Total fixed remuneration
for the year ended for the year ended
31 December 2022
31 December 2021
£ £
Charlotte Valeur 62,000 61,000
Gary Clark 46,750 46,000
Heather MacCallum 50,250 49,500
Steven Wilderspin 45,250 44,500
Mark Moffat 38,750 38,000
Total Directors' Remuneration 243,000 239,000
Total Directors' Remuneration (€) 281,337 284,347
The Chairs of the Management Engagement Committee, NAV Review Committee,
Remuneration and Nomination Committee, Audit Committee and Risk Committee each
received additional fees, which are included in the amounts above, for the
additional responsibilities and time commitment required in undertaking these
roles. Additionally, the Senior Independent Director received additional fees
for the additional responsibilities and time commitment required in
undertaking this role.
The Remuneration and Nomination Committee increased each of the Directors fees
for services provided by £750 with the exception of the Chair's fee which was
increased by £1,000. These changes were effective from
1 January 2022.
Directors' remuneration is payable in Sterling quarterly in arrears. No other
remuneration (fixed or variable) or compensation was paid or is payable by the
Company during the year to any of the Directors. There has been no change to
the Company's remuneration policy.
The Company has no employees, accordingly, there is no difference in policy on
the remuneration of Directors and the remuneration of employees. No Director
is entitled to receive any remuneration which is performance-related.
The Remuneration and Nomination Committee reviews the Remuneration Policy and
Directors' remuneration on an annual basis.
Remuneration policy
Directors' fees are determined by the Remuneration and Nomination Committee
under the terms of the remuneration policy (the "Remuneration Policy")
approved on 3 November 2021, as derived from the Company's Articles of
Association. The Remuneration and Nomination Committee also considers the
remuneration levels of similar companies and consults external remuneration
consultants where this is deemed appropriate. No such external remuneration
consultants were engaged during the year.
The Remuneration and Nomination Committee consists of all Directors and is
involved in deciding Directors' remuneration and ensuring that remuneration
received reflects the Directors' duties, responsibilities and the value of
their time.
The Company does not provide pensions or other retirement or superannuation
benefits, death or disability benefits, or other allowances or gratuities to
the Directors or specified connected parties. The Remuneration Policy also
prohibits payments to a Director for loss of office or as consideration for,
or in connection with, his or her retirement from office. Whilst the
Remuneration Policy permits part of their fee to be paid in the form of
fully-paid up shares in the capital of the Company, the Directors' fees are
not currently paid this way.
In addition, the Remuneration Policy allows for reasonable travel, hotel and
other expenses incurred by the Directors in the course of performing their
duties or from their performance of a special service on behalf of the
Company.
The limit for the aggregate fees payable to the Directors is £300,000 per
annum.
Directors' interests
The Directors held the following number of ordinary shares in the Company as
at the year-end:
Shares Type As at 31 December 2022 As at 31 December 2021
Charlotte Valeur Ordinary 11,500 11,500
Gary Clark Ordinary 168,200 168,200
Heather MacCallum Ordinary - -
Steven Wilderspin Ordinary 20,000 20,000
Mark Moffat Ordinary 771,593 771,593
On 9 January 2023, Mr Mark Moffat disposed of 29,799 shares in the Company,
held in his Stocks & Shares ISA Account, and simultaneously acquired
29,799 shares in the Company, via his Fund & Share Account.
There has been no other changes to the Directors' Interests as at the date of
the approval of these financial statements.
Service contracts and policy on payment of loss of office
No Director has a service contract with the Company. The Directors have each
entered into a letter of engagement with the Company setting out the terms of
their appointment. Directors' appointments may be terminated at any time by
giving three month's written notice, with no compensation payable upon leaving
office for whatever reason.
Gary Clark
Remuneration and Nomination Committee Chair
27 April 2023
Audit Committee Report
Audit Committee
The Audit Committee comprises Ms Heather MacCallum, Mr Mark Moffat, Mr Steven
Wilderspin and Mr Gary Clark and is chaired by Ms Heather MacCallum. Ms
Heather MacCallum has recent and relevant financial experience in accounting
and auditing and the Audit Committee as a whole has competence relevant to the
sector in which the Company operates.
In addition to formal meetings, the Audit Committee has worked with the
Portfolio Adviser and Auditor to assess the operations and controls of BCF and
to assess in particular what reliance the Audit Committee can place on the
control environment. The Chair has also had a number of discussions with the
Auditor, the Portfolio Adviser and the Administrator around the annual audit
and half year financial reporting processes.
Role of the Audit Committee
The function of the Audit Committee is to ensure that the Company maintains
high standards of integrity, financial reporting and internal controls.
The Audit Committee's main roles and responsibilities include, but are not
limited to, the following:
· monitoring the integrity of the financial statements and any formal
announcements relating to the Company's financial performance;
· reviewing and reporting to the Board on any significant financial
reporting issues and judgements;
· reviewing and monitoring the effectiveness of the Company's risk
management and internal control arrangements;
· monitoring the statutory audit of the annual financial statements of
the Company and its effectiveness;
· reviewing the external auditor's performance, independence and
objectivity;
· making recommendations to the Board in relation to the appointment,
reappointment and/or removal of the external auditor, the approval of the
external auditor's remuneration and the terms of the engagement;
· implementing policies surrounding the engagement of the external auditor
to supply non-audit services, where appropriate;
· reviewing and challenging where necessary significant accounting
policies and practices; and
· reporting to the Board on how it has discharged its responsibilities.
How the Audit Committee has discharged its responsibilities
The Audit Committee met five times during the year. Representatives of the
Portfolio Adviser, Company's auditor and the Administrator were invited to the
meetings as appropriate.
Monitoring the integrity of the financial statements including significant judgements
The Audit Committee reviewed the Company's Annual Report and Audited Financial
Statements for the year ended 31 December 2021 and the Half Yearly Financial
Report for the six months ended 30 June 2022 prior to discussion and approval
by the Board and the significant financial reporting issues and judgements
which they contain. The Audit Committee also reviewed the external auditor's
reports thereon, which were discussed with the Auditor. The Audit 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.
After the year end, the Audit Committee had further meetings and reviewed,
prior to making any recommendations to the Board, the Annual Report and
Audited Financial Statements for the year ended
31 December 2022. In undertaking this review, the Audit Committee discussed
with the Auditor, the Portfolio Adviser and the Administrator the critical
accounting policies and judgements that have been applied.
The Auditor reported to the Committee on any non-trivial misstatements that
they had found during the course of their work and confirmed that under ISA
(UK) no material amounts remained unadjusted.
As requested by the Board, the Audit Committee also reviewed the Annual Report
and are able to confirm to the Board that, in our view, the Annual Report,
taken as a whole, is fair, balanced and understandable and provided the
information necessary for Shareholders to assess the Company's position,
performance, business model and strategy.
Significant accounting matters
The Committee considered the key accounting issues, matters and judgements
regarding the Company's 2022 Annual Report and Financial Statements and
disclosures including those relating to:
Significant Area How addressed
Valuation of investments The investment in the Lux Subsidiary is accounted for at fair value through
profit or loss and the investment in PPNs issued by BCF held by the Lux
Subsidiary are at fair value. Investments in BCF (the PPNs) are illiquid
investments, not traded on an active market and are valued using valuation
techniques determined by the Directors and classified as Level 3 under IFRS 13
"Fair Value Measurement."
Valuation is therefore considered a significant area and is monitored by the
Board, the Audit Committee, the Portfolio Adviser and the Administrator. The
Audit Committee receives and reviews reports on the processes for the
valuation of investments. Following discussion, the Audit Committee was
satisfied that the judgements made and methodologies applied were prudent and
appropriate and that an appropriate accounting treatment has been adopted in
accordance with IFRS 9.
Please see Notes 2, 6, 10 and 16 in the financial statements for further
details.
Assessment of risks and uncertainties
The risks associated with the Company's financial instruments, as disclosed in
the financial statements, particularly in Note 10, represent a key accounting
disclosure. The Audit Committee and the Risk Committee review critically, on
the basis of input from the service providers, the process of ongoing
identification and measurement of these risks disclosures.
Evaluation of the Audit Committee
During 2022, the Board engaged Satori Board Review ("Satori") to conduct an
external board evaluation, which included the performance of the Audit
Committee. Refer to above for further details on this evaluation.
Other matters
During the year, the Committee considered compliance with relevant
legislation, performance metrics and related disclosures in the Company's
financial statements.
Risk management and internal controls
The Board as a whole is responsible for the Company's system of internal
controls; however, the Audit Committee assists the Board in meeting its
obligations in this regard. The daily operational activities of the Company
were delegated to its service providers and as a result, the Company has no
direct internal audit function and instead places reliance on the external and
internal audit controls of the service providers as regulated entities.
However, the Audit Committee reviews periodic reports from the service
providers to ensure that no material issues have arisen in respect of the
system of internal controls and risk management operated by the Company's
service providers. The Committee confirms that this is an ongoing process
conducted in order to manage the risks faced by the Company. The Audit
Committee deems that, to date, there are no significant issues in this area
which need to be brought to your attention.
External Audit
It is the responsibility of the Audit Committee to monitor the performance,
independence, objectivity and re-appointment of the Auditor. The Audit
Committee met with Deloitte LLP ("Deloitte") to consider the audit strategy
and plan for the audit. The audit plan for the reporting period was reviewed,
including consideration of the key financial statement and audit risks, to
seek to ensure that the audit was appropriately focused.
The Auditor attends the Audit Committee meetings throughout the year, as
applicable, which allows the opportunity to discuss any matters the Auditor
may wish to raise without the Portfolio Adviser or other service providers
being present. The Auditor provides feedback at relevant Audit Committee
meetings on topics such as the key accounting matters, mandatory
communications and the control environment. The Audit Committee also discusses
the performance of the Auditor independently of the Auditor.
Deloitte was formally appointed as Auditor for the Company's 2014 period-end
audit following a competitive tender process during 2014. The lead audit
partner is rotated every five years to ensure continued independence and
objectivity; consequently a new lead audit partner has been in place since the
interim review to 30 June 2019.
The Audit Committee reviews the performance of the Auditor and considers audit
quality as part of that review. Consequently, the Audit Committee is satisfied
with the performance of the Auditor and concluded that it was in the best
interests of the Company to recommend the re-appointment of the Auditor. The
Audit Committee has therefore recommended to the Board that the Auditor, in
accordance with agreed terms of engagement and remuneration, should continue
as the Company's auditor after the forthcoming Annual General Meeting.
Accordingly, a resolution proposing the reappointment of Deloitte as the
Company's auditor will be put to the Shareholders at the 2023 AGM.
In advance of the commencement of the annual audit, the Audit Committee
reviewed a statement provided by the Auditor confirming their independence as
defined under relevant regulation and professional standards. In addition, in
order to satisfy itself regarding the Auditor's independence, the Audit
Committee undertook a review of the Auditor's compensation and the balance
between audit and non-audit fees.
During 2022, the Audit Committee reviewed its policy with respect to non-audit
services and continually monitored the level of non-audit services provided by
the Auditor to ensure alignment and compliance with best practice. The
Company's policy sets out the permitted types of non-audit services that can
be provided by Deloitte, which are consistent with the FRC's Revised Ethical
Standard (2019). All proposed non-audit services required explicit approval
from the Audit Committee. During the year, Deloitte were contracted to review
the Company's interim financial statements. Audit fees for the year ended 31
December 2022 increased by 31.60% compared to 2021 (refer to Note 3 for
further details). Audit-related services increased by 21.59% year on year.
These items have been given due consideration by the Audit Committee, who
reviewed inter-alia the role of the respective engagement teams and the
independence of individuals from the audit engagement team and concluded it
was satisfied the Auditor had acted in an independent and professional manner.
Heather MacCallum
Audit Committee Chair
27 April 2023
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report and Audited
Financial Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors have elected to prepare the
financial statements in accordance with IFRS, as adopted by the EU. Under
company law the Directors must not approve the financial statements unless
they are satisfied that they give a true and fair view of the state of the
affairs of the Company and of the profit or loss of the Company for that year.
In preparing these financial statements, International Accounting Standard 1
requires that Directors:
· properly select and apply accounting policies;
· present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable information;
· provide additional disclosures when compliance with the specific
requirements in IFRS as adopted by the EU are insufficient to enable users to
understand the impact of particular transactions, other events and conditions
on the Company's financial position and financial performance; and
· make an assessment of the Company's ability to continue
as a going concern.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements comply with The Companies
(Jersey) Law 1991. They are also responsible for safeguarding the assets of
the Company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website.
Legislation in Jersey governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
Each of the Directors, whose names are listed above, confirms that, to the
best of that Director's knowledge and belief:
· the financial statements, prepared in accordance with
International Financial Reporting Standards as adopted by the European Union,
give a true and fair view of the assets, liabilities, financial position and
profit or loss of the Company;
· the Strategic report includes a fair review of the development
and performance of the business and the position of the Company, together with
a description of the principal risks and uncertainties that they face; and
· the annual report and audited financial statements, taken as a
whole, are fair, balanced and understandable and provide the information
necessary for Shareholders to assess the Company's position and performance,
business model and strategy.
Charlotte Valeur Heather MacCallum
Director Director
27 April 2023 27 April 2023
Independent Auditor's Report to the Shareholders of Blackstone Loan Financing
Limited
Report on the audit of the financial statements
1. Opinion
In our opinion the financial statements of Blackstone Loan Financing Limited
(the 'company'):
· give a true and fair view of the state of the company's affairs
as at 31 December 2022 and of its loss for the year then ended;
· have been properly prepared in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the European Union; and
· have been properly prepared in accordance with Companies (Jersey)
Law, 1991.
We have audited the financial statements which comprise:
· the statement of financial position;
· the statement of comprehensive income;
· the statement of changes in equity;
· the statement of cash flows; and
· the related notes 1 to 21.
The financial reporting framework that has been applied in their preparation
is applicable law and IFRSs as adopted by the European Union.
2. Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) (ISAs (UK)) and applicable law. Our responsibilities under those
standards are further described in the auditor's responsibilities for the
audit of the financial statements section of our report.
We are independent of the company in accordance with the ethical requirements
that are relevant to our audit of the financial statements in the UK,
including the Financial Reporting Council's (the 'FRC's') Ethical Standard as
applied to listed public interest entities, and we have fulfilled our other
ethical responsibilities in accordance with these requirements. The non-audit
services provided to the company for the year are disclosed in note 3 to the
financial statements. We confirm that we have not provided any non-audit
services prohibited by the FRC's Ethical Standard to the company.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
3. Summary of our audit approach
Key audit matters The key audit matter that we identified in the current year was the valuation
of investments in the Luxembourg subsidiary.
Within this report, key audit matters are identified as follows:
Newly identified
Increased level of risk
Similar level of risk
Decreased level of risk
Materiality The materiality that we used in the current year was €6,000,000 which was
determined on the basis of Net Assets Value of the company.
Scoping All of the audit work to respond to the risks of material misstatement was
performed directly by the audit engagement team.
Significant changes in our approach There are no significant changes in our approach in the current year.
Materiality
The materiality that we used in the current year was €6,000,000 which was
determined on the basis of Net Assets Value of the company.
Scoping
All of the audit work to respond to the risks of material misstatement was
performed directly by the audit engagement team.
Significant changes in our approach
There are no significant changes in our approach in the current year.
4. Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors'
use of the going concern basis of accounting in the preparation of the
financial statements is appropriate.
Our evaluation of the directors' assessment of the company's ability to
continue to adopt the going concern basis of accounting included:
· Carrying out the following on the forecasts provided by the
directors:
- Testing the arithmetic accuracy and integrity of the model used for
preparation of the forecasts;
- Assessing whether the cash flows included in the forecast were in line
with relevant agreements and market expectations; and
- Assessing the other key inputs used in the forecasts for reasonableness
and consistency with prior years and industry norms.
· Evaluating the forecasts prepared by the directors in prior years
to assess whether they are in line with actual results in current year;
· Evaluating the directors' assessment of the impact of the
principal risks faced by the company and its regulatory and liquidity
requirements, and the continuing economic impact from the inflationary
environment and increasing interest rates.
· Assessing the appropriateness of the going concern disclosures in
the financial statements.
Based on the work we have performed, we have not identified any material
uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the company's ability to continue
as a going concern for a period of at least twelve months from when the
financial statements are authorised for issue.
In relation to the reporting on how the company has applied the UK Corporate
Governance Code, we have nothing material to add or draw attention to in
relation to the directors' statement in the financial statements about whether
the directors considered it appropriate to adopt the going concern basis of
accounting.
Our responsibilities and the responsibilities of the directors with respect to
going concern are described in the relevant sections of this report.
5. Key audit matters
Key audit matters are those matters that, in our professional judgement, were
of most significance in our audit of the financial statements of the current
period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) that we identified. These matters
included those which had the greatest effect on: the overall audit strategy,
the allocation of resources in the audit; and directing the efforts of the
engagement team.
These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
5.1. Valuation of investments in the Luxembourg subsidiary
Key audit matter description The company's investments in Blackstone / GSO Loan Financing (Luxembourg)
S.a.r.l. ("the Luxembourg subsidiary") totalling €297,721,169 (2021:
€417,969,559), consists of 239,550,782 Cash Settled Warrants ("CSWs"),
2,000,000 Class A shares and 1 Class B share (31 December 2021: 267,088,098
CSWs, 2,000,000 Class A shares and 1 Class B share) as detailed in note 6 to
the financial statements. These investments are accounted at fair value
through profit and loss.
The Luxembourg subsidiary invests all its capital and proceeds from CSWs in
Profit Participating Notes ("PPNs") issued by Blackstone Corporate Funding
Designated Activity Company ("BCF" or the "Originator"). The fair value of the
CSWs and the Class A and Class B shares is based substantially on the fair
value of the PPNs issued by BCF, which are illiquid, not traded on an active
market, and are valued using valuation techniques determined by the directors
and classified as level III under IFRS: Fair Value Measurement ("IFRS 13").
We therefore consider BCF as the principal source of risks and rewards for the
company with BCF's financial situation represented by its Net Asset Value as
the main component for the fair valuation of the investments.
Reviewing risk monitoring, performance, and the investments' valuation for the
company, requires an assessment of the positions within BCF, including its
direct and indirect investment in CLO income notes and Senior secured loans
and bonds. To assess these positions, the directors use their judgement, with
the assistance of the Adviser, in selecting an appropriate valuation technique
and refer to techniques commonly used by market practitioners. Assumptions are
made based on quoted market rates adjusted for specific features of any
instrument.
Valuation of investments accounted at fair value is therefore a key area of
judgement and has a significant impact on the Net Assets Value ("NAV") which
is the most significant Key Performance Indicator ("KPI") of the company and
has a direct effect on the recognition of gains and losses on investments.
There is a risk that the third-party valuer has used an incorrect methodology,
inaccurate data is supplied by the CLO Manager of the Originator or
inappropriate assumptions are used concerning market information. The key
assumptions include discount, prepayment, reinvestment and default rates.
Refer to Audit Committee Report, Significant Accounting Policies and Note 6 to
the Financial Statements.
How the scope of our audit responded to the key audit matter In response to this key audit matter:
· We obtained an understanding of and tested the relevant controls over
the valuation process of the company.
· We assessed the valuation methodology for the financial instruments
issued by BCF against industry standards and IFRS 13.
· We obtained confirmations from third-party custodians for the
securities held by the company.
· We involved our financial instruments specialists to review the
procedures performed over the valuation of investments.
· We involved our CLO valuation specialists to assess the conclusions
reached by the auditors of BCF, by comparing information and assumptions used
by the directors to information available from external independent reliable
sources such as Bloomberg or Intex, including any impact of discount / premium
to NAV.
· We tested the calculation of the change in value of investments for
the year and its recognition in the statement of comprehensive income.
· We assessed the appropriateness of disclosures (including disclosures
related to sensitivity) in accordance with requirements of IFRS 13.
Key observations Based on the work performed we conclude that the valuation of investments in
the Luxembourg subsidiary is appropriate.
6. Our application of materiality
6.1. Materiality
We define materiality as the magnitude of misstatement in the financial
statements that makes it probable that the economic decisions of a reasonably
knowledgeable person would be changed or influenced. We use materiality both
in planning the scope of our audit work and in evaluating the results of our
work.
Based on our professional judgement, we determined materiality for the
financial statements as a whole as follows:
Materiality €6,000,000 (2021: €8,400,000)
Basis for determining materiality 2% of the company's Net Asset Value (2021: 2% of the company's Net Asset
Value)
Rationale for the benchmark applied Net Asset Value is the key performance indicator of the company and is
therefore selected as the appropriate benchmark.
6.2. Performance materiality
We set performance materiality at a level lower than materiality to reduce the
probability that, in aggregate, uncorrected and undetected misstatements
exceed the materiality for the financial statements as a whole. Performance
materiality was set at 70% of materiality for the 2022 audit (2021: 70%). In
determining performance materiality, we considered our risk assessment, the
quality of the company's control environment, and our past experience of the
audit, which has indicated a low number of corrected and uncorrected
misstatements identified in prior periods.
6.3. Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all
audit differences in excess of €300,000 (2021: €420,000), as well as
differences below that threshold that, in our view, warranted reporting on
qualitative grounds. We also report to the Audit Committee on disclosure
matters that we identified when assessing the overall presentation of the
financial statements.
7. An overview of the scope of our audit
7.1. Scoping
Our audit was scoped by obtaining an understanding of the entity and its
environment, including internal control, and assessing the risks of material
misstatement. Audit work to respond to the risks of material misstatement was
performed by the audit engagement team with the participation of the BCF
auditor.
7.2. Our consideration of the control environment
A third-party administrator maintains the books and records of the company.
Our audit therefore included obtaining an understanding of the controls at
this service organisation, to the extent that they are relevant to the
company.
7.3. Our consideration of climate-related risks
In planning our audit, we considered the potential financial impacts on the
company and its financial statements of climate change and the transition to a
low carbon economy. We considered the directors' assessment of climate risks
and opportunities as described in the Strategic Report above together with our
cumulative knowledge and experience of the company and the environment in
which it operates. We assessed the disclosures about critical judgements and
key sources of estimation uncertainty as outlined in note 2.13, including the
potential impact of climate change on those judgements and estimates. We have
considered whether information included in the climate-related disclosures in
the annual report is materially consistent with the financial statements and
our understanding of the business.
7.4. Working with other auditors
We engaged with Deloitte Ireland, the auditor of BCF to assist us with testing
of the valuation of the investment in the Luxembourg subsidiary. We directed
their work for our purpose through issuing referral instructions and
communicating materiality to be used. We held meetings with the auditor at
several points during the audit, and we reviewed their audit procedures and
conclusions on the PPNs and other balances in BCF's company only Statement of
Financial Position.
8. Other information
The other information comprises the information included in the annual report,
other than the financial statements and our auditor's report thereon. The
directors are responsible for the other information contained within the
annual report.
Our opinion on the financial statements does not cover the other information
and we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the course of the audit, or otherwise
appears to be materially misstated.
If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether this gives rise to a
material misstatement in the financial statements themselves. If, based on the
work we have performed, we conclude that there is a material misstatement of
this other information, we are required to report that fact.
We have nothing to report in this regard.
9. Responsibilities of directors
As explained more fully in the directors' responsibilities statement, the
directors are responsible for the preparation of the financial statements and
for being satisfied that they give a true and fair view, and for such internal
control as the directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the directors are responsible for
assessing the company's ability to continue as a going concern, disclosing as
applicable, matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the company or
to cease operations, or have no realistic alternative but to do so.
10. Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
A further description of our responsibilities for the audit of the financial
statements is located on the FRC's website at:
www.frc.org.uk/auditorsresponsibilities
(http://www.frc.org.uk/auditorsresponsibilities) . This description forms part
of our auditor's report.
11. Extent to which the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and
regulations. We design procedures in line with our responsibilities, outlined
above, to detect material misstatements in respect of irregularities,
including fraud. The extent to which our procedures are capable of detecting
irregularities, including fraud is detailed below.
11.1. Identifying and assessing potential risks related to
irregularities
In identifying and assessing risks of material misstatement in respect of
irregularities, including fraud and non-compliance with laws and regulations,
we considered the following:
· the nature of the industry and sector, control environment and
business performance including the design of the company's remuneration
policies, key drivers for directors' remuneration, bonus levels and
performance targets;
· results of our enquiries of the third-party administrator, the
directors and the audit committee about their own identification and
assessment of the risks of irregularities, including those that are specific
to the company's sector;
· any matters we identified having obtained and reviewed the company's
documentation of their policies and procedures relating to:
o identifying, evaluating and complying with laws and regulations and
whether they were aware of any instances of non-compliance;
o detecting and responding to the risks of fraud and whether they have
knowledge of any actual, suspected or alleged fraud;
o the internal controls established to mitigate risks of fraud or
non-compliance with laws and regulations;
· the matters discussed among the audit engagement team and relevant
internal specialists, including tax and valuations specialists regarding how
and where fraud might occur in the financial statements and any potential
indicators of fraud.
As a result of these procedures, we considered the opportunities and
incentives that may exist within the organisation for fraud and identified the
greatest potential for fraud in the valuation of investments in the Luxembourg
subsidiary. In common with all audits under ISAs (UK), we are also required to
perform specific procedures to respond to the risk of management override.
We also obtained an understanding of the legal and regulatory framework that
the company operates in, focusing on provisions of those laws and regulations
that had a direct effect on the determination of material amounts and
disclosures in the financial statements. The key laws and regulations we
considered in this context included the Companies (Jersey) Law, 1991, Listing
Rules, and tax legislation.
In addition, we considered provisions of other laws and regulations that do
not have a direct effect on the financial statements but compliance with which
may be fundamental to the company's ability to operate or to avoid a material
penalty. These included the Jersey Financial Services Commission (JFSC)
regulatory requirements.
11.2. Audit response to risks identified
As a result of performing the above, we identified valuation of investments in
the Luxembourg subsidiary as a key audit matter related to the potential risk
of fraud. The key audit matters section of our report explains the matters in
more detail and also describes the specific procedures we performed in
response to that key audit matter.
In addition to the above, our procedures to respond to risks identified
included the following:
· reviewing the financial statement disclosures and testing to
supporting documentation to assess compliance with provisions of relevant laws
and regulations described as having a direct effect on the financial
statements;
· enquiring of the third-party administrator, the audit committee and
the company secretary concerning actual and potential litigation and claims;
· performing analytical procedures to identify any unusual or
unexpected relationships that may indicate risks of material misstatement due
to fraud;
· reading minutes of meetings of those charged with governance and
reviewing correspondence with the JSFC; and
· in addressing the risk of fraud through management override of
controls, testing the appropriateness of journal entries and other
adjustments; assessing whether the judgements made in making accounting
estimates are indicative of a potential bias; and evaluating the business
rationale of any significant transactions that are unusual or outside the
normal course of business.
We also communicated relevant identified laws and regulations and potential
fraud risks to all engagement team members including internal specialists, and
remained alert to any indications of fraud or non-compliance with laws and
regulations throughout the audit.
Report on other legal and regulatory requirements
12. Corporate Governance Statement
The Listing Rules require us to review the directors' statement in relation to
going concern, longer-term viability and that part of the Corporate Governance
Statement relating to the company's compliance with the provisions of the UK
Corporate Governance Code specified for our review.
Based on the work undertaken as part of our audit, we have concluded that each
of the following elements of the Corporate Governance Statement is materially
consistent with the financial statements and our knowledge obtained during the
audit:
· the directors' statement with regards to the appropriateness of
adopting the going concern basis of accounting and any material uncertainties
identified set out above;
· the directors' explanation as to its assessment of the company's
prospects, the period this assessment covers and why the period is appropriate
set out above;
· the directors' statement on fair, balanced and understandable
above;
· the board's confirmation that it has carried out a robust
assessment of the emerging and principal risks set out above;
· the section of the annual report that describes the review of
effectiveness of risk management and internal control systems set out above;
and
· the section describing the work of the audit committee set out
above.
13. Matters on which we are required to report by exception
13.1. Adequacy of explanations received and accounting
records
Under the Companies (Jersey) Law, 1991 we are required to report to you if, in
our opinion:
· we have not received all the information and explanations we require
for our audit; or
· proper accounting records have not been kept, or proper returns
adequate for our audit have not been received from branches not visited by us;
or
· the financial statements are not in agreement with the accounting
records and returns.
We have nothing to report in respect of these matters.
14. Other matters which we are required to address
14.1. Auditor tenure
Following the recommendation of the audit committee, we were appointed by the
shareholders on 4 July 2014 to audit the financial statements for the year
ending 31 December 2014 and subsequent financial periods. The period of total
uninterrupted engagement including previous renewals and reappointments of the
firm is 9 years, covering the years 31 December 2014 to 31 December 2022.
14.2. Consistency of the audit report with the additional
report to the audit committee
Our audit opinion is consistent with the additional report to the audit
committee we are required to provide in accordance with ISAs (UK).
15. Use of our report
This report is made solely to the company's members, as a body, in accordance
with Article 113A of the Companies (Jersey) Law, 1991. Our audit work has been
undertaken so that we might state to the company's members those matters we
are required to state to them in an auditor's report and for no other purpose.
To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the company's members as a
body, for our audit work, for this report, or for the opinions we have formed.
Marc Cleeve, BA, FCA
For and on behalf of Deloitte LLP
Recognised Auditor
St Helier, Jersey
27 April 2023
Statement of Financial Position
As at 31 December 2022
As at As at
31 December 2021
1 January 2021
As at
31 December 2022 Represented* Represented*
Notes € € €
Cash and cash equivalents 6,259,400 5,671,436 20,725,819
Other receivables 5 52,219 47,415 151,038
Financial assets at fair value through profit or loss - Lux Co
6 297,721,169 417,969,559 388,000,146
Financial assets at fair value through profit or loss - CLOs
- - 549,437
Total assets 304,032,788 423,688,410 409,426,440
Payables 8 (723,734) (442,584) (351,277)
Intercompany loan 7 (1,694,077) (1,246,249) (869,988)
Total liabilities (2,417,811) (1,688,833) (1,221,265)
Net assets 15,16 301,614,977 421,999,577 408,205,175
Capital and reserves
Stated capital 9 447,542,762 459,044,783 471,465,875
Retained loss (145,927,785) (37,045,206) (63,260,700)
Shareholders' equity 301,614,977 421,999,577 408,205,175
Net asset value per ordinary share 15 0.6784 0.9154 0.8557
These financial statements were authorised and approved for issue by the
Directors on 27 April 2023 and signed on their behalf by:
Charlotte Valeur Heather MacCallum
Director Director
* The Company has elected to change its accounting policy to present the
assets and liabilities by order of decreasing liquidity in line with IAS 1.
The comparative figures in the Statement of Financial Position have been
represented by order of decreasing liquidity. Refer to Note 2.3 for further
information.
The accompanying notes below form an integral part of the financial statements.
Statement of Comprehensive Income
For the year ended 31 December 2022
Year ended Year ended
31 December 2021
31 December 2022
Notes € €
Income
Realised (loss)/gain on foreign exchange (15) 72,560
Net (loss)/gain on financial assets at fair value through profit or loss - Lux 6
Co
(70,894,563) 63,418,195
Net gain on financial assets at fair value through profit or loss - CLOs 6
- 586,087
Income distributions from CLOs - 207,431
Total income (70,894,578) 64,284,273
Expenses
Operating expenses 3 (1,393,632) (1,356,960)
Loan interest expense 7 (23,400) (16,909)
Bank interest expense (17,978) (99,656)
Total expenses (1,435,010) (1,473,525)
(Loss)/profit before taxation (72,329,588) 62,810,748
Taxation 2.11 - -
(Loss)/profit after taxation (72,329,588) 62,810,748
Total comprehensive (loss)/income for the year attributable to Shareholders
(72,329,588) 62,810,748
Basic and diluted (loss)/earnings per ordinary share 14
(0.1587) 0.1334
The Company has no items of other comprehensive income and therefore the
loss/profit for the year is also the total comprehensive loss/income.
All items in the above statement are derived from continuing operations. No
operations were discontinued during the year.
The accompanying notes on below form an integral part of the financial
statements
Statement of Changes in Equity
tFor the year ended 31 December 2022
Notes Stated capital Retained loss Total
€ € €
Shareholders' equity
at 1 January 2022 9 459,044,783 (37,045,206) 421,999,577
Total comprehensive loss for the year attributable to Shareholders
- (72,329,588) (72,329,588)
Transactions with owners
Dividends 18 - (36,552,991) (36,552,991)
Ordinary shares repurchased 9 (11,502,021) - (11,502,021)
(11,502,021) (36,552,991) (48,055,012)
Shareholders' equity
at 31 December 2022 9 447,542,762 (145,927,785) 301,614,977
For the year ended 31 December 2021
Notes Stated capital Retained loss Total
€ € €
Shareholders' equity
at 1 January 2021 9 471,465,875 (63,260,700) 408,205,175
Total comprehensive income for the year attributable to Shareholders
- 62,810,748 62,810,748
Transactions with owners
Dividends 18 - (36,595,254) (36,595,254)
Ordinary shares repurchased 9 (12,421,092) - (12,421,092)
(12,421,092) (36,595,254) (49,016,346)
Shareholders' equity
at 31 December 2021 9 459,044,783 (37,045,206) 421,999,577
The accompanying notes below form an integral part of the financial statements.
Statement of Cash Flows
For the year ended 31 December 2022
Year ended Year ended
31 December 2022 31 December 2021
Notes € €
Cash flow from operating activities
Total comprehensive (loss)/income for the year attributable to Shareholders
(72,329,588) 62,810,748
Adjustments to reconcile (loss)/profit after tax to net cash flows:
- Unrealised loss/(gain) on financial assets at fair value through
profit and loss
92,214,092 (50,415,131)
- Realised gain on financial assets at fair value through profit
and loss
(21,319,529) (13,738,221)
Purchase of financial assets at fair value through profit or loss
(7,608,819) (18,884,567)
Proceeds from sale of financial assets at fair value through profit or loss
56,962,646 53,617,941
Changes in working capital
(Increase)/decrease in other receivables (4,804) 103,625
Increase in payables 281,150 91,307
Net cash generated from operating activities 48,195,148 33,585,702
Cash flow from financing activities
Ordinary shares repurchased (including costs) 9 (11,502,021) (12,421,092)
Increase in intercompany loan 17 447,828 376,261
Dividends paid 18 (36,552,991) (36,595,254)
Net cash used in financing activities (47,607,184) (48,640,085)
Net increase/(decrease) in cash and cash equivalents
587,964 (15,054,383)
Cash and cash equivalents at the start of the year 5,671,436 20,725,819
Cash and cash equivalents at the end of the year 6,259,400 5,671,436
The accompanying notes below form an integral part of the financial statements.
Notes to the financial statements
For the year ended 31 December 2022
1 General information
The Company is a closed-ended limited liability investment company domiciled
and incorporated under the laws of Jersey with variable capital pursuant to
the Collective Investment Funds (Jersey) Law 1988. It was incorporated on 30
April 2014 under registration number 115628. The Company's ordinary shares are
quoted on the Premium Segment of the Main Market of the LSE and the Company
has a premium listing on the Official List of the FCA. The Company's C Shares
were quoted on the SFS of the Main Market of the LSE until 6 January 2020 and
converted to ordinary shares on 7 January 2020.
The Company's investment objective is to provide Shareholders with stable and
growing income returns and to grow the capital value of the investment
portfolio by exposure to floating rate senior secured loans and bonds directly
and indirectly through CLO Securities and investments in Loan Warehouses. The
Company seeks to achieve its investment objective through exposure (directly
or indirectly) to one or more companies or entities established from time to
time.
As at 31 December 2022, the Company's stated capital comprised 444,578,522
ordinary shares of no par value (31 December 2021: 460,984,702), each carrying
the right to 1 vote; 38,324,272 ordinary shares held in treasury (31 December
2021: 21,918,092). The Company may issue one or more additional classes of
shares in accordance with the Articles of Association.
The Company has a wholly owned Luxemburg subsidiary, Blackstone/GSO Loan
Financing (Luxembourg) S.à r.l., which has an issued share capital of
2,000,000 Class A shares and 1 Class B share held by the Company as at
31 December 2022 and 31 December 2021. The Company also holds 239,550,782
Class B CSWs as at 31 December 2022 (31 December 2021: 267,088,098) issued by
the Lux Subsidiary.
The Company's registered address is IFC 1, The Esplanade, St Helier, Jersey,
JE1 4BP, Channel Islands.
2 Significant accounting policies
2.1 Basis of preparation and statement of compliance
The Annual Report and Audited Financial Statements (the "Annual Report") are
prepared in accordance with the Disclosure Guidance and Transparency Rules of
the FCA and with International Financial Reporting Standards (IFRS) as adopted
by the EU. The financial statements give a true and fair view of the Company's
affairs and comply with the requirements of the Companies (Jersey) Law 1991,
as amended.
The principal accounting policies applied in the preparation of these
financial statements are set out below. These policies have been applied
consistently to the Company's financial statements for all years presented
except for the adoption of new and amended standards as set out below.
New standards, amendments and interpretations issued and effective for the financial year beginning 1 January 2022
There were no new standards, amendments or interpretations that are effective
for the financial year beginning
1 January 2022 which the Directors consider to have a material impact on the
financial statements of the Company.
New standards, amendments and interpretations issued but not effective for the financial year beginning 1 January 2022 and not early adopted
The following standards will become effective in future accounting periods and
are relevant to the Company:
1. Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS
Practice Statement 2) - effective as from 1 January 2023
2. Definition of Accounting Estimate (Amendments to IAS 8) - effective as
from 1 January 2023
However, the Directors believe that the application of the above amendments
will not have a material impact on the Company's financial statements.
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 at the end of each reporting period.
The Company's functional currency is the Euro, which is the currency of the
primary economic environment in which it operates. The Company's performance
is evaluated and its liquidity is managed in Euro. Therefore, Euro is
considered as the currency that most faithfully represents the economic
effects of the underlying transactions, events and conditions. The financial
statements are presented in Euro, except where otherwise indicated.
2.2 Going concern
The Directors have considered the Company's investment objective, risk
management and capital management policies, its assets and the expected income
from its investments while factoring in the continuing economic impact from
the inflationary environment, increasing interest rates and the ongoing impact
of Russia's invasion of Ukraine. The Directors are of the opinion that the
Company is able to meet its liabilities and ongoing expenses as they fall due
and they have a reasonable expectation that the Company has adequate resources
to continue in operational existence for the foreseeable future. Accordingly,
these financial statements have been prepared on a going concern basis and the
Directors believe it is appropriate to continue to adopt this basis for a
period of at least 12 months from the date of approval of these financial
statements.
2.3 Change in accounting policy
The Company has elected to change its accounting policy to present the assets
and liabilities by order of decreasing liquidity in line with IAS 1.
Under the previous accounting policy the company presented its assets and
liabilities allocated between current and non-current. The Company does not
have a traditional "operating cycle" because it is set up in order to hold
assets on a long term basis to allow its Shareholders to gain access to the
returns from underlying investments. Amounts are recovered from the Company's
investments on an ad-hoc basis to allow it to pay dividends and undertake
other transactions with Shareholders, and therefore the presentation of a
"current" portion of assets is considered to be of limited relevance to users
of the accounts. Presentation of a current portion of the assets is also not
relevant to an understanding of the liquidity position of the company because
the assets are all considered to be highly liquid whereas as shown in note 6,
only a small portion of the Financial assets at fair value through profit or
loss - Lux Co were collected within 12 months of the prior year reporting date
(and only this portion should have been presented as current under the
previous accounting policy).
Accordingly, a presentation by order of liquidity would provide a more
reliable and more relevant information on the financial position of the
Company. Furthermore the ad-hoc nature of the redemptions means that a
reliable estimate of the amounts expected to be collected within 12 months
after the reporting date is challenging, and any estimates are subject to
significant change. Therefore the Directors consider that presentation of
assets and liabilities in order of liquidity presents information that is
reliable and more relevant to users.
The comparative figures in the statement of financial position have been
represented by order of decreasing liquidity.
There have been no other changes in the accounting policies during the year.
2.4 Critical accounting judgements and estimates
The preparation of the financial statements in conformity with IFRS requires
management to make judgements, estimates and assumptions that affect items
reported in the Statement of Financial Position and Statement of Comprehensive
Income. It also requires management to exercise its judgement in the process
of applying the Company's accounting policies. Uncertainty about these
assumptions and estimates could result in outcomes that require a material
adjustment to the carrying amount of assets and liabilities affected in future
periods.
Estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to estimates are recognised prospectively.
Estimates
(a) Fair value
For the fair value of all financial instruments held, the Company determines
fair values using appropriate techniques.
Refer to above, Note 2.9 and Note 12 for further details on the significant
estimates applied in the valuation of the Company's financial instruments and
the underlying financial instruments in BCF. Refer to Note 6 and Note 12 for
sensitivity analysis for unobservable inputs.
Judgements
(b) Non-consolidation of the Lux Subsidiary
The Company meets the definition of an investment entity as defined by IFRS 10
and is required to account for its investments at fair value through profit or
loss.
The Company has multiple unrelated investors and holds multiple investments in
the Lux Subsidiary. The Company has been deemed to meet the definition of an
investment entity per IFRS 10 as the following conditions exist:
· the Company has obtained funds for the purpose of providing
investors with investment management services;
· the Company's business purpose, which has been communicated
directly to investors, is investing solely for returns from capital
appreciation, investment income, or both; and
· the performance of investments made through the Lux Subsidiary
are measured and evaluated on a fair value basis.
The Company controls the Lux Subsidiary through its 100% holding of the voting
rights and ownership. The Lux Subsidiary is incorporated in Luxembourg.
Refer to Note 11 for further disclosures relating to the Company's interest in
the Lux Subsidiary.
(c) Non-consolidation of BCF
To determine control, there has to be a linkage between power and the exposure
to risks and rewards. The main link from ownership would allow a company to
control the payments of returns and operating policies and decisions of a
subsidiary.
To meet the definition of a subsidiary under the single control model of IFRS
10, the investor has to control the investee.
Control involves power, exposure to variability of returns and a linkage
between the two:
· the investor has existing rights that give it the ability to direct
the relevant activities that significantly affect the investee's returns;
· the investor has exposure or rights to variable returns from
its involvement with the investee; and
· the investor has the ability to use its power over the investee
to affect the amount of the investor's returns.
In the case of BCF, the relevant activities are the investment decisions made
by it. However, in the Lux Subsidiary's case, the power to influence or direct
the relevant activities of BCF is not attributable to the Lux Subsidiary. The
Lux Subsidiary does not have the ability to direct or stop investments by BCF;
therefore, it does not have the ability to control the variability of returns.
Accordingly, BCF has been determined not to be a subsidiary undertaking as
defined under IFRS 10 and the Lux Subsidiary's investment in the PPNs issued
by BCF are accounted for at fair value through profit or loss.
2.5 Income
Interest income and expense is recognised under IFRS 9 separately through
profit or loss in the Statement of Comprehensive Income, on an effective
interest rate yield basis.
2.6 Shares in issue
The shares of the Company are classified as equity, based on the substance of
the contractual arrangements and in accordance with the definition of equity
instruments under IAS 32 Financial Instruments: Presentation ("IAS 32").
The proceeds from the issue of shares are recognised in the Statement of
Changes in Equity, net of the incremental issuance costs.
Share repurchased by the Company are deducted from equity. No gain or loss is
recognised in the Statement of Comprehensive Income on the purchase, sale or
cancellation of the Company's own equity instruments. The consideration paid
or received is recognised directly in the Statement of Changes in Equity.
Shares repurchased are recognised on the trade date.
2.7 Fees and charges
Expenses are charged through profit or loss in the Statement of Comprehensive
Income on an accruals basis.
2.8 Cash and cash equivalents
Cash comprises current deposits with banks.
Cash equivalents are short-term, highly liquid investments that are readily
convertible to known amounts of cash and are subject to an insignificant risk
of changes in value. Cash equivalents are revalued at the end of the reporting
period using market rates and any increases/decreases are recognised in the
Statement of Comprehensive Income. There were no such holdings during the year
ended 31 December 2022 (31 December 2021: nil).
2.9 Financial instruments
Investments and other financial assets
(i) Initial recognition
The Company recognises a financial asset or a financial liability in its
Statement of Financial Position when and only when, the Company becomes party
to the contractual provisions of the instrument. Purchases and sales of
investments are recognised on the trade date - the date on which the Company
commits to purchase or sell the investment.
(ii) Classification
The Company classifies its financial assets in the following measurement
categories:
· those to be measured subsequently at fair value (either through
OCI, or through profit or loss); and
· those to be measured at amortised cost.
The classification depends on the entity's business model for managing the
financial assets and the contractual terms of the cash flows.
For assets measured at fair value, gains and losses are either to be recorded
in profit or loss or OCI. For investments in equity instruments that are not
held for trading, this will depend on whether the company has made an
irrevocable election at the time of initial recognition to account for the
equity instrument at FVTOCI.
The Company reclassifies debt instruments when and only when its business
model for managing those assets changes.
(iii) Measurement
At initial recognition, the Company measures a financial asset at its fair
value plus, in the case of a financial asset not at FVTPL, transaction costs
that are directly attributable to the acquisition of the financial asset.
Transaction costs of financial assets carried at FVTPL are expensed in profit
or loss.
Debt instruments
Subsequent measurement of debt instruments depends on the Company's business
model for managing the asset and the cash flow characteristics of the asset.
The Company's business model is to manage its debt instruments and to evaluate
their performance on a fair value basis. The Company's policy requires the
Portfolio Adviser and the Board to evaluate the information about these
financial assets on a fair value basis together with other related financial
information. Consequently, these debt instruments are measured at fair value
through profit or loss.
Equity instruments
The Company subsequently measures all equity investments at fair value.
Dividends from such investments are recognised in profit or loss as other
income when the Company's right to receive payments is established.
Changes in fair value of financial assets at FVTPL are recognised in "net
gain/(loss) on financial assets at fair value through profit or loss" in the
Statement of Comprehensive Income.
(iv) Derecognition
Financial assets are derecognised when the rights to receive cash flows from
the investments have expired or the Company has transferred substantially all
risks and rewards of ownership.
(v) Fair value estimation
Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date.
As at 31 December 2022, the Company held 239,550,782 CSWs, 2,000,000 Class A
shares and 1 Class B share issued by the Lux Subsidiary (the "Investments")
(31 December 2021: 267,088,098 CSWs, 2,000,000 Class A shares and 1 Class B
share). These Investments are not listed or quoted on any securities exchange,
are not traded regularly and, on this basis, no active market exists. The
Company is not entitled to any voting rights in respect of the Lux Subsidiary
by reason of their ownership of the CSWs, however, the Company controls the
Lux Subsidiary through its 100% holding of the shares in the Lux Subsidiary.
The fair value of the CSWs and the Class A and Class B shares are based on the
net assets of the Lux Subsidiary which is based substantially in turn on the
fair value of the PPNs issued by BCF.
The Company determines the fair value of the CLOs held directly using third
party valuations.
(vi) Valuation process
The Directors have held discussions with BIL in order to gain comfort around
the valuation of the CLOs, the underlying assets in the BCF portfolio and
through this, the valuation of the PPNs and CSWs as of the Statement of
Financial Position date.
The Directors, through ongoing communication with the Portfolio Adviser
including quarterly meetings, discuss the performance of the Portfolio Adviser
and the underlying portfolio and in addition review monthly investment
performance reports. The Directors analyse the BCF portfolio in terms of the
investment mix in the portfolio. The Directors also consider the impact of
general credit conditions and more specifically credit events in the US and
European corporate environment on the valuation of the CSWs, PPNs and the BCF
portfolio.
Portfolio
The Directors discuss the valuation process to understand the methodology
regarding the valuation of its underlying portfolio and direct CLO holding,
both comprising Level 3 assets. The majority of Level 3 assets in BCF are
comprised of CLOs. In reviewing the fair value of these assets, the Directors
look at the assumptions used and any significant fair value changes during the
period under analysis.
Net asset value
The IFRS NAV of the Company is calculated by the Administrator based on
information from the Portfolio Adviser and is reviewed and approved by the
Directors, taking into consideration a range of factors including the
unaudited IFRS NAV of both the Lux Subsidiary and BCF, and other relevant
available information. The other relevant information includes the review of
available financial and trading information of BCF and its underlying
portfolio, advice received from the Portfolio Adviser and such other factors
as the Directors, in their sole discretion, deem relevant in considering a
positive or negative adjustment to the valuation.
The estimated fair values may differ from the values that would have been
realised had a ready market existed and the difference could be material.
The fair value of the CSWs and the Class A and Class B shares are assessed on
an ongoing basis by the Board.
Financial liabilities
(vii) Classification
Financial liabilities include payables which are held at amortised cost using
the effective interest rate method.
The effective interest method is a method of calculating the amortised cost of
a financial liability and of allocating interest expense over the relevant
period. The effective interest rate is the rate that exactly discounts
estimated future cash payments (including all fees and points paid or received
that form an integral part of the effective interest rate, transaction costs
and other premiums or discounts) through the expected life of the financial
liability, or where appropriate a shorter period, to the net carrying amount
on initial recognition.
(viii) Recognition, measurement and derecognition
Financial liabilities are measured initially at their fair value plus any
directly attributable incremental costs of acquisition or issue. Gains and
losses are recognised in the Statement of Comprehensive Income when the
liabilities are derecognised.
The Company derecognises a financial liability when the obligation specified
in the contract is discharged, cancelled or expires.
2.10 Foreign currency translations
Transactions in foreign currencies are translated at the foreign exchange rate
ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies at the Statement of Financial Position date
are translated to Euro at the foreign exchange rate ruling at that date.
Foreign exchange differences arising on translation are recognised in the
Statement of Comprehensive Income.
Foreign currency gains and losses are included in profit or loss on the
Statement of Comprehensive Income as part of "Realised (loss)/gain on foreign
exchange".
2.11 Taxation
Profit arising in the Company for the year of assessment will be subject to
Jersey tax at the standard corporate income tax rate of 0% (31 December 2021:
0%).
2.12 Dividends
Dividends to Shareholders are recorded through the Statement of Changes in
Equity when they are declared to Shareholders.
3 Operating expenses
Year ended Year ended
31 December 2022 31 December 2021
€ €
Administration fees 323,962 344,439
Directors' fees (see Note 4) 281,337 284,347
Audit fees and audit related fees 263,980 206,098
Professional fees 226,777 196,132
Brokerage fees 128,494 131,271
Sundry expenses 76,014 116,987
Regulatory fees 61,161 43,897
Registrar fees 31,907 33,789
1,393,632 1,356,960
Administration fees
Under the administration agreement, the Administrator is entitled to receive
variable fees based on the Published NAV of the Company for the provision of
administrative and compliance oversight services and a fixed fee for the
provision of company secretarial services. The overall charge for the
above-mentioned fees for the Company for the year ended 31 December 2022 was
€323,962 (31 December 2021: €344,439) and the amount due at 31 December
2022 was €80,685 (31 December 2021: €83,690).
Advisory fees
Under the Advisory Agreement, the Portfolio Adviser is entitled to receive out of pocket expenses, all reasonable third-party costs and other expenses incurred in the performance of its obligations. On this basis, the Portfolio Adviser recharged €18,847 to the Company (31 December 2021: nil). This amount has been included under professional fees.
Audit and non-audit fees
The Company incurred €263,980 (31 December 2021: €206,098) in audit and audit-related fees during the year of which €169,062 (31 December 2021: €106,003) was outstanding at the year end.
The Company did not incur any non-audit fees during the year (31 December 2021: nil). The table below outlines the audit and audit related services received during the year.
Year ended Year ended
31 December 2022 31 December 2021
€ €
Audit of the Company 175,987 133,732
Audit-related services - review of interim financial report 87,993 72,366
Total audit and audit-related services 263,980 206,098
Professional fees
For the year ended 31 December 2022, professional fees comprised €53,968 (2021: €63,503) in legal fees and €172,809 (2021: €132,629) in other professional fees.
4 Directors' fees
The Company has no employees. The Company incurred €281,337 (31 December
2021: €284,347) in Directors' fees (consisting exclusively of short-term
benefits) during the year of which €68,470 (31 December 2021: €71,165) was
outstanding at the year end. No pension contributions were payable in respect
of any of the Directors.
Refer to the Directors' remuneration report above for further details on the
Directors' remuneration and their interests.
5 Other receivables
As at As at
31 December 2022 31 December 2021
€ €
Prepayments 52,219 47,415
52,219 47,415
6 Financial assets at fair value through profit or loss
As at As at
31 December 2022 31 December 2021
€ €
Financial assets at fair value through profit or loss - Lux Co 297,721,169 417,969,559
Financial assets at fair value through profit or loss - Lux Co consists of
239,550,782 CSWs, 2,000,000 Class A shares and 1 Class B share issued by the
Lux Subsidiary (31 December 2021: 267,088,098 CSWs, 2,000,000 Class A shares
and 1 Class B share issued by the Lux Subsidiary).
CSWs
The Company has the right, at any time during the exercise period (being the
period from the date of issuance and ending on earlier of the 3 February 2046
or the date on which the liquidation of the Lux Subsidiary is closed), to
request that the Lux Subsidiary redeems all or part of the CSWs at the
redemption price (see below), by delivering a redemption notice, provided that
the redemption price will be due and payable only if and to the extent that
(a) the Lux Subsidiary will have sufficient funds available to settle its
liabilities to all other ordinary or subordinated creditors, whether
privileged, secured or unsecured, prior in ranking to the CSWs, after any such
payment, and (b) the Lux Subsidiary will not be insolvent after payment of the
redemption price.
The redemption price is the amount payable by the Lux Subsidiary on the
redemption of CSWs outstanding, which shall be at any time equal to the fair
market value of the ordinary shares (that would have been issued in case of
exercise of all CSWs), as determined by the Board on a fully diluted basis on
the date of redemption, less a margin (determined by the Board on the basis of
a transfer pricing report prepared by an independent advisor), and the
redemption price for each CSW shall be obtained by dividing the amount
determined in accordance with the preceding sentence by the actual number of
CSWs outstanding.
If at the end of any financial year there is excess cash, as determined in
good faith by the Lux Subsidiary board (but for this purpose only), the Lux
Subsidiary will automatically redeem, to the extent of such excess cash, all
or part of the CSWs at the redemption price provided the requirements in the
previous paragraph are met, unless the Company notifies the Lux Subsidiary
otherwise. For the avoidance of doubt, to the extent the subscription price
for the CSWs to be redeemed has not been paid at the time the CSWs were
issued, the subscription price for such CSWs to be redeemed shall be deducted
from the Redemption Price.
CSWs listed in an exercise notice may not be redeemed.
Class A and Class B shares held in the Lux Subsidiary
Class A and Class B shares are redeemable and have a par value of one Euro per
ordinary share. Class A and Class B Shareholders have equal voting rights
commensurate with their shareholding.
Class A and Class B Shareholders are entitled to dividend distributions from
the net profits of the Lux Subsidiary (net of an amount equal to five per cent
of the net profits of the Lux Subsidiary which is allocated to the general
reserve, until this reserve amounts to ten per cent of the Lux Subsidiary's
nominal share capital).
Dividend distributions are paid in the following order of priority:
· Each Class A share is entitled to the Class A dividend, being a
cumulative dividend in an amount of not less than 0.10% per annum of the face
value of the Class A shares.
· Each Class B share is entitled to the Class B dividend (if any),
being any income such as but not limited to interest or revenue deriving from
the receivable from the PPN's held by the Lux Subsidiary, less any
non-recurring costs attributable to the Class B shares.
Any remaining dividend amount for allocation of the Class A dividend and Class
B dividend shall be allocated pro rata among the Class A shares.
The Board does not expect income in the Lux Subsidiary to significantly exceed
the anticipated annual running costs of the Lux Subsidiary and therefore does
not expect that the Lux Subsidiary will pay significant, or any, dividends
although it reserves the right to do so.
Fair value hierarchy
IFRS 13 requires an analysis of investments valued at fair value based on the
reliability and significance of information used to measure their fair value.
The Company categorises its financial assets according to the following fair
value hierarchy detailed in IFRS 13 that reflects the significance of the
inputs used in determining their fair values:
· Level 1: Quoted market price (unadjusted) in an active market
for an identical instrument.
· Level 2: Valuation techniques based on observable inputs,
either directly (i.e., as prices) or indirectly (i.e., derived from prices).
This category includes instruments valued using: quoted market prices in
active markets for similar instruments; quoted prices for identical or similar
instruments in markets that are considered less than active; or other
valuation techniques where all significant inputs are directly or indirectly
observable from market data.
· Level 3: Valuation techniques using significant unobservable
inputs. This category includes all instruments where the valuation technique
includes inputs not based on observable data and the unobservable variable
inputs have a significant effect on the instrument's valuation. This category
includes instruments that are valued based on quoted prices for similar
instruments where significant unobservable adjustments or assumptions are
required to reflect differences between the instruments.
31 December 2022 Level 1 Level 2 Level 3 Total
€ € € €
Financial assets at fair value through profit or loss - Lux Co
- - 297,721,169 297,721,169
31 December 2021 Level 1 Level 2 Level 3 Total
€ € € €
Financial assets at fair value through profit or loss - Lux Co
- - 417,969,559 417,969,559
The Company determines the fair value of the financial assets at fair value
through profit or loss - Lux Co using the unaudited IFRS NAV of the Lux
Subsidiary and the audited IFRS NAV of BCF.
The Company determines the fair value of any CLOs held directly using third
party valuations. The Portfolio Adviser can challenge the marks if they appear
off-market or unrepresentative of fair value.
During the years ended 31 December 2022 and 31 December 2021, there were no
reclassifications between levels of the fair value hierarchy.
The Company's maximum exposure to loss from its interests in the Lux
Subsidiary and indirectly in BCF is equal to the fair value of its investments
in the Lux Subsidiary.
Financial assets at fair value through profit or loss reconciliation
The following table shows a reconciliation of all movements in the fair value
of financial assets - Lux Co categorised within Level 3 between the start and
the end of the reporting period:
31 December 2022
€
Balance as at 1 January 2022 417,969,559
Purchases - CSWs 7,608,819
Sale proceeds - CSWs (56,962,646)
Realised gain on financial assets at fair value through profit or loss 21,319,529
Unrealised loss on financial assets at fair value through profit or loss (92,214,092)
Balance as at 31 December 2022 297,721,169
Realised gain on financial assets at fair value through profit or loss 21,319,529
Total change in unrealised gain on financial assets for the year (92,214,092)
Net loss on financial assets at fair value through profit or loss - Lux Co (70,894,563)
31 December 2021
€
Balance as at 1 January 2021 388,000,146
Purchases - CSWs 18,608,735
Sale proceeds - CSWs (52,057,517)
Realised gain on financial assets at fair value through profit or loss 15,115,024
Unrealised gain on financial assets at fair value through profit or loss 48,303,171
Balance as at 31 December 2021 417,969,559
Realised gain on financial assets at fair value through profit or loss 15,115,024
Total change in unrealised gain on financial assets for the year 48,303,171
Net gain on financial assets at fair value through profit or loss - Lux Co 63,418,195
The following table shows a reconciliation of all movements in the fair value
of financial assets - CLOs categorised within Level 3 during the year ended 31
December 2021. All investments in CLOs were disposed during the year ended 31
December 2021.
31 December 2021
€
Balance as at 1 January 2021 549,437
PIK capitalised 275,832
Sale proceeds - CLOs (1,411,356)
Realised loss on financial assets at fair value through profit or loss - CLOs (1,525,873)
Unrealised gain on financial assets at fair value through profit or loss - 2,111,960
CLOs
Balance as at 31 December 2021 -
Realised loss on financial assets at fair value through profit or loss - CLOs (1,525,873)
Total change in unrealised loss on financial assets for the year - CLOs 2,111,960
Net loss on financial assets at fair value through profit or loss - CLOs 586,087
Refer to above, Note 2.9 and Note 12 for valuation methodology of financial
assets at fair value through profit and loss.
The Company's investments, through the Lux Subsidiary, in BCF are untraded and
illiquid. The Board has considered these factors and concluded that there is
no further need to apply a discount for illiquidity as at the end of the
reporting period.
Quantitative information of significant unobservable inputs and sensitivity
analysis to significant changes in unobservable inputs - Level 3
The significant unobservable inputs used in the fair value measurement of the
financial assets at fair value through profit or loss - Lux Co within Level 3
of the fair value hierarchy together with a quantitative sensitivity analysis
as at 31 December 2022 and 31 December 2021 are as shown below:
Asset Class Fair Value Unobservable Inputs Ranges Weighted average Sensitivity to changes in significant unobservable inputs
€
CSWs 290,426,295 Undiscounted NAV of N/A N/A 20% increase/decrease will have a fair value impact of +/-
BCF €58,085,259
Class A and Class B shares 7,294,874 Undiscounted NAV of the N/A N/A 20% increase/decrease will have a fair value impact of +/-
Lux Subsidiary €1,458,975
Total as at
31 December 2022 297,721,169
Asset Class Fair Value Unobservable Inputs Ranges Weighted average Sensitivity to changes in significant unobservable inputs
€
CSWs 411,170,727 Undiscounted NAV of N/A N/A 20% increase/decrease will have a fair value impact of +/-
BCF € 82,234,145
Class A and Class B shares 6,798,832 Undiscounted NAV of the N/A N/A 20% increase/decrease will have a fair value impact of +/-
Lux Subsidiary € 1,359,767
Total as at
31 December 2021 417,969,559
Refer to Note 12 for financial and other information on BCF including
sensitivity analysis.
7 Intercompany loan
As at As at
31 December 2022 31 December 2021
€ €
Intercompany loan - payable to the Lux Subsidiary 1,694,077 1,246,249
The intercompany loan - payable to the Lux Subsidiary is a revolving unsecured
loan between the Company and the Lux Subsidiary. The intercompany loan has a
maturity date of 13 September 2033 and is repayable at the option of the
Company up to the maturity date. Interest is accrued at a rate of 1.6% per
annum and is payable annually only when a written request has been provided to
the Company by the Lux Subsidiary. During the year ended 31 December 2022,
loan interest expense incurred by the Company was €23,400 (2021: €16,909).
8 Payables
As at As at
31 December 2022 31 December 2021
€ €
Professional fees 142,314 86,425
Administration fees 80,685 83,690
Directors' fees 68,470 71,165
Audit fees 169,062 106,003
Intercompany loan interest payable 59,242 35,842
Payable on share buyback 160,322 -
Other payables 43,639 59,459
Total payables 723,734 442,584
All payables are due within the next twelve months.
9 Stated capital
Authorised
The authorised share capital of the Company is represented by an unlimited number of shares of any class at no par value.
Allotted, called up and fully-paid
Ordinary shares Number of shares Stated capital
€
As at 1 January 2022 460,984,702 459,044,783
Shares repurchased during the period and held in treasury (16,406,180) (11,502,021)
Total ordinary shares as at 31 December 2022 444,578,522 447,542,762
Allotted, called up and fully-paid
Ordinary shares Number of shares Stated capital
€
As at 1 January 2021 477,023,331 471,465,875
Shares repurchased during the period and held in treasury (16,038,629) (12,421,092)
Total ordinary shares as at 31 December 2021 460,984,702 459,044,783
Ordinary shares
At the 2021 AGM, held on 23 July 2021, the Directors were granted authority to
repurchase up to 14.99% of the issued share capital as at the date of the 2021
AGM for cancellation or to be held as treasury shares. Under this authority,
and that of the previous AGM, the Company purchased 16,038,629 of its ordinary
shares of no par value at a total cost of €12,421,092 (inclusive of
transaction costs of £24,864). These ordinary share are being held as
treasury shares.
At the Company's 2021 AGM, the Company received Shareholder approval to resell
up to 46,880,707 Shares held by the Company in treasury. Under this authority,
these Shares are permitted to be sold or transferred out of treasury for cash
at a price representing a discount to Net Asset Value per ordinary share not
greater than the discount at which such Shares were repurchased by the
Company. To-date, no shares have been resold by the Company under this
authority.
At the 2022 AGM, held on 17 June 2022, the Directors were granted authority to
repurchase up to 14.99% of the issued share capital as at the date of the 2022
AGM for cancellation or to be held as treasury shares. Under this authority,
during the year ended 31 December 2022, the Company purchased 16,406,180 of
its ordinary shares of no par value at a total cost of €11, 502,021
(inclusive of transaction costs of £23,095)). These ordinary share are being
held as treasury shares.
At the Company's 2022 AGM, the Company received Shareholder approval to resell
up to 45,932,470 shares held by the Company in treasury. Under this authority,
these shares are permitted to be sold or transferred out of treasury for cash
at a price representing a discount to net asset value per ordinary share not
greater than the discount at which such shares were repurchased by the
Company. To date, no shares have been resold by the Company under this
authority.
As at 31 December 2022, the Company had 444,578,522 ordinary shares in issue
and 38,324,272 ordinary shares in treasury (31 December 2021: 460,984,702
ordinary shares in issue and 21,918,092 ordinary shares in treasury).
Refer to Note 21 for further details on repurchases of ordinary shares under
the 2022 AGM authority subsequent to the reporting period. This authority will
expire at the 2023 AGM. The Directors intend to seek annual renewal of this
authority from Shareholders.
Voting rights - ordinary shares
Holders of ordinary shares have the right to receive income and capital from
assets attributable to such class. Ordinary Shareholders have the right to
receive notice of general meetings of the Company and have the right to attend
and vote at all general meetings.
Dividends
The Company may, by resolution, declare dividends in accordance with the
respective rights of the Shareholders, but no such dividend shall exceed the
amount recommended by the Directors. The Directors may pay fixed rate and
interim dividends.
A general meeting declaring a dividend may, upon the recommendation of the
Directors, direct that payment of a dividend shall be satisfied wholly or
partly by the issue of Ordinary shares or the distribution of assets and the
Directors shall give effect to such resolution.
Except as otherwise provided by the rights attaching to or terms of issue of
any shares, all dividends shall be apportioned and paid pro rata according to
the amounts paid on the Shares during any portion or portions of the period in
respect of which the dividend is paid. No dividend or other monies payable in
respect of any Share shall bear interest against the Company.
The Directors may deduct from any dividend or other monies payable to a
Shareholder all sums of money (if any) presently payable by the holder to the
Company on account of calls or otherwise in relation to such shares.
Any dividend unclaimed after a period of 10 years from the date on which it
became payable shall, if the Directors so resolve, be forfeited and cease to
remain owing by the Company.
Refer to above on how dividends are funded and to Note 21 for dividends
declared after the year end.
Repurchase of ordinary shares
The Board intends to seek annual renewal of this authority from the Ordinary
Shareholders at the Company's AGM, to make one or more on-market purchases of
shares in the Company for cancellation or to be held as Treasury shares. The
Board may, at its absolute discretion, use available cash to purchase shares
in issue in the secondary market at any time.
Rights as to capital
On a winding up, the Company may, with the sanction of a special resolution
and any other sanction required by the Companies Law, divide the whole or any
part of the assets of the Company among the Shareholders in specie provided
that no holder shall be compelled to accept any assets upon which there is a
liability. On return of assets on liquidation or capital reduction or
otherwise, the assets of the Company remaining after payments of its
liabilities shall subject to the rights of the holders of other classes of
shares, to be applied to the Shareholders equally pro rata to their holdings
of shares.
Capital management
The Company is closed-ended and has no externally imposed capital
requirements. The Company's capital as at 31 December 2022 comprises
Shareholders' equity at a total of €301,614,977 (31 December 2021:
€421,999,577). The Company's objectives for managing capital are:
· to invest the capital in investments meeting the description, risk
exposure and expected return indicated in its prospectus;
· to achieve consistent returns while safeguarding capital by investing
via the Lux Subsidiary in BCF and other Underlying Companies;
· to maintain sufficient liquidity to meet the expenses of the Company
and to meet dividend commitments; and
· to maintain sufficient size to make the operation of the Company
cost efficient.
The Board monitors the capital adequacy of the Company on an on-going basis
and the Company's objectives regarding capital management have been met. Refer
to Note 10C Liquidity Risk for further discussion on capital management,
particularly on how the distribution policy is managed.
10 Financial risk management
These are components of the Company's principal risk regarding investment
performance as outlined above. This, in turn, links to the Portfolio Adviser's
section on Risk Management. The Company is exposed to market risk (including
interest rate risk, currency risk and price risk), credit risk and liquidity
risk arising from the financial instruments it holds and the markets in which
it invests.
10A Market risk
Market risk is the current or prospective risk to earnings or capital of the
Company arising from changes in interest rates, foreign exchange rates,
commodity prices or equity prices. The Company holds three investments,
denominated in Euro, in the Lux Subsidiary in the form of CSWs, Class A and
Class B shares. The CSWs are the main driver of the Company's performance.
Financial market disruptions may have a negative effect on the valuations of
BCF's investments and, by extension, on the NAV of the Lux Subsidiary and the
Company and/or the market price of the Company's Euro shares, and on liquidity
events involving BCF's investments. Any non-performing assets in BCF's
portfolio may cause the value of BCF's portfolio to decrease and, by
extension, the NAV of the Lux Subsidiary and the Company. Adverse economic
conditions may also decrease the value of any security obtained in relation to
any of BCF's investments.
A sensitivity analysis is shown below disclosing the impact on the IFRS NAV of
the Company, if the fair value of the Company's investments at the year-end
increased or decreased by 20%. This level of change is considered to be
reasonably possible based on observations of past and possible market
conditions. For appreciation of the underlying exposure of BCF, refer to Note
12.
Year ended Increase by Decrease by
20%
20%
31 December 2022
€ € €
Financial assets held at fair value through
profit or loss:
CSWs 290,426,295 348,511,554 232,341,036
Class A and Class B shares 7,294,874 8,753,849 5,835,899
297,721,169
Year ended Increase by Decrease by
20%
20%
31 December 2021
€ € €
Financial assets held at fair value through
profit or loss:
CSWs 411,170,727 493,404,872 328,936,582
Class A and Class B shares 6,798,832 8,158,598 5,439,066
417,969,559
The calculations are based on the investment valuation at the Statement of
Financial Position date and are not representative of the period as a whole,
and may not be reflective of future market conditions.
Note 12 is an extract taken from BCF's audited financial statements for the
year ended 31 December 2022. The Company does not have any further visibility
of more granular sensitivity disclosure at BCF level.
i. Interest rate risk
Interest rate movements affect the fair value of investments in fixed interest
rate securities and floating rate loans and on the level of income receivable
on cash deposits.
The interest income received by the Lux Subsidiary from investments held at
fair value through profit or loss is the interest income on the PPNs received
from BCF. Its calculation is dependent on the profit generated by BCF as
opposed to interest rates set by the market. Interest rate sensitivity
analysis is presented for BCF in Note 12 since any potential movement in
market interest rates will impact BCF's holdings which in turn will impact the
interest income received by the Lux Subsidiary on the PPNs.
The following tables detail the Company's interest rate risk as at 31 December
2022 and 31 December 2021:
31 December 2022 Interest bearing Non-interest bearing Total
€ € €
Assets
Cash and cash equivalents 6,259,400 - 6,259,400
Financial assets at fair value through profit or loss
- 297,721,169 297,721,169
Total assets 6,259,400 297,721,169 303,980,569
Liabilities
Intercompany loan (1,694,077) - (1,694,077)
Payables - (723,734) (723,734)
Total liabilities (1,694,077) (723,734) (2,417,811)
Total interest sensitivity gap 4,565,323
31 December 2021 Interest bearing Non-interest bearing Total
€ € €
Assets
Cash and cash equivalents 5,671,436 - 5,671,436
Financial assets at fair value through profit or loss
- 417,969,559 417,969,559
Total assets 5,671,436 417,969,559 423,640,995
Liabilities
Intercompany loan (1,246,249) - (1,246,249)
Payables - (442,584) (442,584)
Total liabilities (1,246,249) (442,584) (1,688,833)
Total interest sensitivity gap 4,425,187
As at 31 December 2022 and 31 December 2021, the majority of the Company's
interest rate exposure arose in the fair value of the underlying BCF portfolio
which is largely invested in senior secured loans of companies predominantly
in Western Europe or North America. Most of the investments in senior secured
loans carry variable interest rates and various maturity dates. Refer to Note
12 which details BCF's exposure to interest rate risk.
ii. Currency risk
Foreign currency risk is the risk that the values of the Company's assets and
liabilities are adversely affected by changes in the values of foreign
currencies by reference to the Company's base currency. The functional
currency of the Company and its Lux Subsidiary is the Euro.
The Company and the Lux Subsidiary are not subject to significant foreign
currency risk since the majority of their investments are denominated in Euro
and their share capital are also denominated in Euro. Refer to Note 12 which
details BCF's exposure to currency risk. BCF hedges US CLO equity exposure by
reference to mark to model valuations incorporated in the Published NAV as
defined above.
In 2021, the Company was exposed to currency risk on its investments in the
directly held CLOs which were all disposed in 2021. To reduce the impact on
the Company of currency fluctuations and the volatility of returns which may
result from currency exposure, the Company may hedge the currency exposure of
the directly held CLOs of the Company with the use of derivatives. The Company
did not have any derivatives at the year-end (2021: nil).
iii. Price risk
Price risk is the risk that the value of the Company's indirect investments in
BCF through its holding in the Lux Subsidiary does not reflect the true value
of BCF's underlying investment portfolio. BCF's portfolio may at any given
time include securities or other financial instruments or obligations which
are very thinly traded, for which a limited market exists or which are
restricted as to their transferability under applicable securities laws. These
investments may be extremely difficult to value accurately.
Further, because of overall size or concentration in particular markets of
positions held by BCF, the value of its investments which can be liquidated
may differ, sometimes significantly, from their valuations. Third-party
pricing information may not be available for certain positions held by BCF.
Investments held by BCF may trade with significant bid-ask spreads. BCF is
entitled to rely, without independent investigation, upon pricing information
and valuations furnished to BCF by third parties, including pricing services
and valuation sources.
Absent bad faith or manifest error, valuation determinations in accordance
with BCF's valuation policy are conclusive and binding. In light of the
foregoing, there is a risk that the Company, in redeeming all or part of its
investment while BCF holds such investments, could be paid an amount less than
it would otherwise be paid if the actual value of BCF's investment was higher
than the value designated for that investment by BCF. Similarly, there is a
risk that a redeeming BCF interest holder might, in effect, be over-paid at
the time of the applicable redemption if the actual value of BCF's investment
was lower than the value designated for that investment by BCF, in which case
the value of BCF interests to the remaining BCF interest holders would be
reduced. Refer to Note 12 for further details.
The Board monitors and reviews the Company's NAV production process on an
ongoing basis.
10B Credit risk
Credit risk is the risk that a counterparty to a financial instrument will
fail to discharge an obligation or commitment that it has entered into with
the Company. The Board has in place monitoring procedures in respect of credit
risk which is reviewed on an ongoing basis.
The Company's credit risk is attributable to its cash and cash equivalents,
other receivables and financial assets at fair value through profit or loss.
An allowance for impairment is made where there is an identified loss event
which, based on previous experience, is evidence of a reduction in the
recoverability of the cash flows.
BIL monitors for the Company, the Lux Subsidiary, BCF and its subsidiaries the
creditworthiness of financial institutions with whom cash is held, or with
whom investment or derivative transactions are entered into, on a regular
basis.
The carrying amounts of financial assets best represent the maximum credit
risk exposure at the Statement of Financial Position date. At the reporting
date, the Company's financial assets exposed to credit risk amounted to the
following:
As at As at
31 December 2022 31 December 2021
€ €
Cash and cash equivalents 6,259,400 5,671,436
Financial assets at fair value through profit or loss 297,721,169 417,969,559
Total assets 303,980,569 423,640,995
The Company is exposed to a potential material singular credit risk in the
event that it requests a repayment of the CSWs from the Lux Subsidiary and
receives an acceptance of that repayment request. Under the CSW agreement
between the Company and the Lux Subsidiary, any payment obligation by the Lux
Subsidiary to the Company is conditional upon the receipt of an equivalent
amount by the Lux Subsidiary which is derived from the PPNs issued by BCF. The
Board is aware of this risk and the concentration risk to the Lux Subsidiary
and indirectly to BCF.
Additionally, under the Profit Participating Note Issuing and Purchase
Agreement ("PPNIPA") between the Lux Subsidiary and BCF, if the net proceeds
from a liquidation of the collateral obligations as defined in the PPNIPA
available to unsecured creditors of BCF (the "Liquidation Funds") are less
than the aggregate amount payable by BCF in respect of its obligations to its
unsecured creditors, including to the Lux Subsidiary and the other parties to
the PPNIPA (such negative amount being referred to as a "shortfall"), the
amount payable by BCF to the Lux Subsidiary and the other parties to the
PPNIPA in respect of BCF's obligations under the PPNs will be reduced to such
amount of the Liquidation Funds which is available in accordance with the
regulatory requirements and the senior debt restrictive covenants to satisfy
such payment obligation upon the distribution of the Liquidation Funds among
all of BCF's unsecured creditors on a pari passu and pro rata basis, and shall
be applied for the benefit of the Lux Subsidiary and the other parties to the
PPNIPA. In such circumstances the other assets of BCF will not be available
for the payment of such shortfall, and the rights of the Lux Subsidiary and
the other parties to the PPNIPA to receive any further amounts in respect of
such obligations shall be extinguished and the Noteholders and the other
parties to the PPNIPA may not take any further action to recover such amounts.
During the years ended 31 December 2022 and 31 December 2021 all cash was
placed with BNP Paribas S.A., as Custodian. The ultimate parent of BNP Paribas
S.A. is BNP Paribas which is publicly traded with a credit rating of A+
(Standard & Poor's).
The credit risk associated with debtors is limited to other receivables.
Credit risk is mitigated by the Company's policy to only undertake significant
transactions with leading commercial counterparties. It is the opinion of the
Board that the carrying amounts of these financial assets represent the
maximum credit risk exposure as at the reporting date.
The Board continues to monitor the Company's exposure to credit risk and holds
no collateral over any of those balances. Refer to Note 12 which details BCF's
exposure to credit risk.
10C Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulties in
realising assets or otherwise raising funds to meet financial commitments.
The Company has been established as a closed-ended vehicle. Accordingly, there
is no right or entitlement attaching to the Company's shares that allows them
to be redeemed or repurchased by the Company at the option of the Shareholder.
This significantly reduces the liquidity risk of the Company.
Under the terms of the unsecured PPNs issued to its investors, BCF is
contractually obliged to ensure that its portfolio is managed in accordance
with the Company's investment objective and policy. In the event that BCF
fails to comply with these contractual obligations, the Company, through the
Lux Subsidiary, could elect for the unsecured PPNs to become immediately due
and repayable to it from BCF, subject to any applicable legal, contractual and
regulatory restrictions. Given the nature of the investments held by BCF there
is no guarantee and indeed, it is highly unlikely that the applicable legal,
contractual and regulatory restrictions would permit BCF to immediately repay
the unsecured PPNs on the Company making such an election.
If the Company were to elect for the unsecured PPNs to be repaid, BCF's
failure to fully comply with its contractual obligations to do so or BCF being
restricted from doing so by law, regulation or contract could have a
significant adverse effect on the Company's business, financial condition,
results of operations and/or the market price of the shares.
The PPNs are unsecured obligations of BCF and amounts payable on the PPNs will
be made solely from amounts received in respect of the assets of BCF available
for distribution to its unsecured creditors. BCF is permitted to incur
leverage in the form of secured debt by way of one or more revolving credit
facilities. Such secured debt will rank ahead of the PPNs in respect of any
distributions or payments by BCF. In an enforcement scenario under any
revolving credit facility, the provider(s) of such facilities will have the
ability to enforce their security over the assets of BCF and to dispose of or
liquidate, on their own behalf or through a security trustee or receiver, the
assets of BCF in a manner which is beyond the control of the Company. In such
an enforcement scenario, there is no guarantee that there will be sufficient
proceeds from the disposal or liquidation of BCF's assets to repay any amounts
due and payable on the PPNs and this may adversely affect the performance of
the Company's business, financial condition and results of operations.
Consequently, in the event of a materially adverse event occurring in relation
to BCF or the market generally, the ability of the Company to realise its
investment and prevent the possibility of further losses could, therefore, be
limited by its restricted ability to realise its investment via the Lux
Subsidiary in BCF. This delay could materially affect the value of the PPNs
and the timing of when BCF is able to realise its investments, which may
adversely affect the Company's business, financial condition, results of
operations and/or the market price of the shares.
The liquidity profile of BCF as at 31 December 2022 is in Note 12.
To meet the Company's target dividend, the Company will require sufficient
payments from the CSWs held and in the event these are not received, the Board
has the discretion to determine the amount of dividends paid to Shareholders.
11 Interests in other entities
Interests in unconsolidated structured entities
IFRS 12 "Disclosure of Interests in Other Entities" defines a structured
entity as an entity that has been designed so that voting or similar rights
are not the dominant factor in deciding who controls the entity, such as when
any voting rights relate to the administrative tasks only and the relevant
activities are directed by means of contractual agreements. A structured
entity often has some of the following features or attributes:
· restricted activities;
· a narrow and well-defined objective;
· insufficient equity to permit the structured entity to finance
its activities without subordinated financial support; and
· financing in the form of multiple contractually linked
instruments that create concentrations of credit or other risks.
Involvement with unconsolidated structured entities
The Directors have concluded that the CSWs and voting shares of the Lux
Subsidiary in which the Company invests, but that it does not consolidate,
meet the definition of a structured entity.
The Directors have also concluded that BCF also meets the definition of a
structured entity.
The Directors have concluded that CLOs, that are not subsidiaries for
financial reporting purposes, meet the definition of structured entities
because:
· the voting rights in the CLOs are not dominant rights in deciding who
controls them, as they relate to administrative tasks only;
· each CLO's activities are restricted by its Prospectus; and
· the CLOs have narrow and well-defined objectives to provide
investment opportunities to investors.
Interests in subsidiary
As at 31 December 2022, the Company owns 100% of the Class A and Class B
shares in the Lux Subsidiary comprising 2,000,000 Class A shares and one Class
B share (31 December 2021: 2,000,000 Class A shares and one Class B share).
The Lux Subsidiary's principal place of business is Luxembourg.
Other than the investments noted above, the Company did not provide any
financial support for the years ended 31 December 2022 and 31 December 2021,
nor had it any intention of providing financial or other support.
The Company has an intercompany loan payable to the Lux Subsidiary as at 31
December 2022. Refer to Note 7 for further details.
12 Financial and other information on BCF
The Board has provided the following information on BCF, which has been
extracted from its audited financial statements for the year ended 31 December
2022, as it believes this will provide further insight to the Company's
Shareholders into the operations of BCF, the asset mix in its portfolio and
the risks to which BCF is exposed.
As at 31 December 2022, the Lux Subsidiary held a 33.8% (31 December 2021:
33.8%) interest in the PPNs issued by BCF. The disclosures have not been
apportioned according to the Lux Subsidiary's PPN holding, as the Board
believes to do so would be misleading and not an accurate representation of
the Company's investment in BCF.
Principal activities
BCF was established as an originator vehicle under European risk retention
rules for CLO securitisations. It may also invest in senior secured loans,
either directly or indirectly through CLO warehouses and risk retention
companies. BCF is funded by proceeds from the issuance of PPNs together with
other financial resources available to it, such as the BCF Facility.
Investment policy
BCF's investment policy is to invest (directly, or indirectly through one or
more Underlying Companies) in a diverse portfolio of senior secured loans
(including broadly syndicated, middle market or other loans) (such investments
being made by the Underlying Companies directly or through investments in Loan
Warehouses) bonds and CLO Securities and generate attractive risk‐adjusted
returns from such portfolios. BCF intends to pursue its investment policy by
using the proceeds from the issue of PPNs (together with proceeds from other
financial resources available to it) to invest in such assets.
BCF may invest (directly or through other Underlying Companies) predominantly
in European or US senior secured loans, CLO Income Note securities (the most
subordinated tranche of debt issued by a CLO issuer), loan warehouses and
other assets. Investments in loan warehouses will typically be in the form of
an obligation to purchase preference shares or a subordinated loan. There is
no limit on the maximum European or US exposure. BCF is not expected to invest
(directly or through other Underlying Companies) in senior secured loans
domiciled outside North America or Western Europe.
A CLO is a pooled investment vehicle which may invest in a diversified group
of debt securities, in this case predominantly senior secured loans. To
finance its investments, the CLO vehicle issues debt in the form of Senior
Notes and Subordinated Equity Notes to investors. The servicing and repayment
of these notes is linked directly to the performance of the underlying
portfolio of assets. The portfolio of assets underlying the CLO Income Note
securities consist mainly of senior secured loans, mezzanine loans, second
lien loans, high yield bonds and repurchase agreements. The portfolio of
assets within BCF consists mainly of CLO Income Note securities. Distributions
on the CLO Income Note securities, by way of interest payments, are payable on
a quarterly basis on dates established in the formation documents of the CLOs.
As at 31 December 2022, BCF had exposure to two CLOs held as vertical strips
(as defined in the Company's Investment Strategy), each being 0.2% of BCF NAV.
As at 31 December 2021, BCF had exposure to one CLO held as a vertical strip
(as defined in the Company's Investment Strategy), being 0.1% of BCF NAV.
Subsidiaries
As at 31 December 2022, BCF holds the majority, or all, of the subordinated
notes issued by a number of European CLO issuers (the "Direct CLO
Subsidiaries") as follows and preference shares in Killiney Hill Park
warehouse:
Name of subsidiary Currency Deal Size % Subordinated Equity Notes Held
(million) 31 December 2022
Phoenix Park CLO DAC EUR €417 51.4%
Dartry Park CLO DAC EUR €425 51.1%
Tymon Park CLO DAC EUR €415 51.0%
Elm Park CLO DAC EUR €520 56.1%
Griffith Park CLO DAC EUR €456 53.4%
Clarinda Park CLO DAC EUR €417 51.2%
Palmerston Park CLO DAC EUR €365 53.3%
Clontarf Park CLO DAC EUR €317 66.9%
Willow Park CLO DAC EUR €412 60.9%
Marlay Park CLO DAC EUR €413 60.0%
Milltown Park CLO DAC EUR €409 65.0%
Richmond Park CLO DAC EUR €430 68.3%
Sutton Park CLO DAC EUR €408 66.7%
Crosthwaite Park CLO DAC EUR €516 64.7%
Dunedin Park CLO DAC EUR €422 52.9%
Seapoint Park CLO DAC EUR €403 70.5%
Holland Park CLO DAC EUR €426 72.1%
Vesey Park CLO DAC EUR €403 80.3%
Avondale Park CLO DAC EUR €409 63.0%
Deer Park CLO DAC EUR €355 71.9%
Marino Park CLO DAC EUR €323 71.4%
Carysfort Park CLO DAC EUR €405 80.7%
Rockfield Park CLO DAC EUR €403 80.0%
Dillon's Park CLO DAC EUR €406 84.0%
Cabinteely Park CLO DAC EUR €404 75.6%
Otranto Park* EUR €443 100.0%
Clonmore Park* EUR €341 100.0%
Edmondstown Park* EUR €379 100.0%
* New subsidiaries for the year ended 31 December 2022.
BCF holds 100% of the PPNs issued by BGCM DAC, which was established on 1
August 2019. BGCM DAC holds 100% of the Series 2 and Series 3 interests of BCM
LLC, a US manager-originator vehicle established on 14 May 2019. The
establishment of BCM LLC created a structure capable of meeting potential
demand for US CLOs from European institutional investors requiring compliance
with European risk retention rules. As at 31 December 2022, BCM LLC holds
subordinated notes in the following US CLOs (the "Indirect CLO Subsidiaries"):
Name of subsidiary Currency Deal Size % Subordinated Equity Notes Held
(million) 31 December 2022
Southwich Park CLO Limited USD $503 59.9%
Point Au Roche Park CLO Limited USD $457 61.2%
Whetstone Park CLO Limited USD $506 62.5%
Peace Park CLO Limited USD $661 71.5%
Tallman Park CLO Limited USD $410 5.0%
Beechwood Park CLO Limited USD $816 61.1%
Harriman Park CLO Limited USD $501 70.0%
Cayuga Park CLO Limited USD $399 72.0%
Allegany Park CLO Limited USD $506 66.2%
In accordance with IFRS 10 Consolidated Financial Statements, the Direct CLO Subsidiaries, the Indirect CLO Subsidiaries, BGCM DAC and BCM LLC, are all deemed to be subsidiaries of BCF and are consolidated under its financial reporting framework. As at 31 December 2022, BCM LLC held investments in the following non-consolidated US CLOs:
Name
Gilbert Park CLO Limited
Stewart Park CLO Limited
Catskill Park CLO Limited
Dewolf Park CLO Limited
Long Point Park CLO Limited
Grippen Park CLO Limited
Thayer Park CLO Limited
Cook Park CLO Limited
BCF also directly holds subordinated notes in US CLOs which it was not
responsible for originating. As at 31 December 2022, BCF had direct holdings
in the following US CLOs (together with the non-consolidated US CLOs held
through BCM LLC, the "Non-Consolidated US CLOs"):
Name
Filmore Park CLO Limited
Harbor Park CLO Limited
The directors of BCF have determined that BCF did not control the
Non-Consolidated US CLOs or US CLO warehouses held directly by BCF or through
BCM LLC, as defined in IFRS 10. Therefore, these entities have not been
consolidated for the purposes of presenting BCF's consolidated financial
statements. These investments have been classified as financial assets held at
fair value through profit or loss.
The directors of BCF do not anticipate any change in its structure or
investment objectives.
Valuation of financial instruments
As at 31 December 2022 and 2021, the loans held were broker priced through
Markit and the bond investments were valued by prices provided by IDC. The
majority of these assets were classified as Level 2 since the input into the
Markit price consisted of at least two quotes, however, a small number of
holdings priced through Markit consisted of only one quote. Such assets were
classified as Level 3. Both loans and bonds are priced at current mid prices.
The CLO Income Notes issued by the Direct CLO Subsidiaries are listed on
Euronext Dublin and are valued by a third party. The approach to valuing these
CLO Income Notes incorporates CLO specific information and modelling
techniques. Factors include (i) granular loan level data, such as the
concentration and quality of various loan level buckets, for example, second
liens, covenant lites and other structured product assets, as well as several
other factors including: discount rate, default rates, prepayment rates,
recovery rates, recovery lag and reinvestment spread (these factors are highly
sensitive and variations may materially affect the fair value of the asset),
and (ii) structural analysis on a deal by deal basis. Pricing includes checks
on all structural features of each CLO, such as the credit enhancement of each
bond and various performance triggers (including over-collateralisation tests,
interest coverage and diversion tests). Furthermore, reinvestment language
specific to each CLO deal is assessed, as well as the collateral manager's
performance and capabilities.
Investments in CLO Income Notes of US CLO Issuers, held directly or
indirectly, are valued using an equivalent methodology. Similar to the above,
valuation of such CLO Income Notes uses significant unobservable inputs and
accordingly are classified as Level 3. Investments in the CLO Income Notes of
the CLO Subsidiaries and the Non-Consolidated US CLOs, and in the preference
shares of the CLO warehouses are valued on the above basis using significant
unobservable inputs and accordingly, are classified as Level 3.
Forward purchase agreements are over-the-counter ("OTC") contracts for delayed
delivery of investments in which the buyer agrees to buy and the seller agrees
to deliver specified investments at specified prices on a specified future
date. Because the terms are not standardised, they are not traded on organised
exchanges and generally can be terminated or closed out only by agreement of
both parties to the contract. They are valued in accordance with the terms of
the forward purchase agreement and are categorised as Level 2.
A currency swap is an interest rate swap in which the cash flows are in
different currencies. Upon initiation of a currency swap, the counterparties
make an initial exchange of notional principals in the two currencies. During
the life of the swap, each party pays interest (in the currency of the
principal received) to the other. At the maturity of the swap, the parties
make a final exchange of the initial principal amounts, reversing the initial
exchange at the same spot rate. Contracts are marked-to-market daily based
upon calculations using a valuation model and are categorised as Level 2.
The PPNs and debt issued by the CLO Subsidiaries are categorised as Level 3,
as they are valued using a model which is based on the fair value of the
underlying assets and liabilities of the relevant entity.
The amortised cost of the BCF Facility equates to its fair value due to the
floating interest rates and the proximity of the maturity dates and has been
categorised as Level 2.
Receivable for investments sold and other receivables include the contractual
amounts for settlement of trades and other obligations due to BCF. Payable for
investments sold and other payables represent the contractual amounts and
obligations due by BCF for settlement of trades and expenses. All of the
receivable and payable balances are categorised as Level 2.
The following tables analyse within the fair value hierarchy BCF's financial instruments carried at fair value as at 31 December 2022 and 31 December 2021:
31 December 2022 Level 1 Level 2 Level 3 Total
€ € € €
Financial assets measured at fair value through profit or loss:
- Investments in senior secured loans and bonds
- 319,801,298 12,605,793 332,407,091
- Investments in CLO Income Notes
- - 372,888,404 372,888,404
- Investment in BGCM DAC - - 286,471,835 286,471,835
Total financial assets - 319,801,298 671,966,032 991,767,330
Financial liabilities measured at fair value through profit or loss:
- PPNs - - (863,646,976) (863,646,976)
- Derivative financial liabilities - (80,505,196) - (80,505,196)
Total financial liabilities - (80,505,196) (863,646,976) (944,152,172)
31 December 2021 Level 1 Level 2 Level 3 Total
€ € € €
Financial assets measured at fair value through profit or loss:
- Investments in senior secured loans and bonds
- 521,321,556 7,924,650 529,246,206
- Investments in CLO Income Notes
- - 508,931,719 508,931,719
- Investment in BGCM DAC - - 391,200,403 391,200,403
Total financial assets - 521,321,556 908,056,772 1,429,378,328
Financial liabilities measured at fair value through profit or loss:
- PPNs - - (1,233,581,335) (1,233,581,335)
- Derivative financial liabilities - (33,536,518) - (33,536,518)
Total financial liabilities - (33,536,518) (1,233,581,335) (1,267,117,853)
The following tables show the movement in Level 3 of BCF's fair value hierarchy for the years ended 31 December 2022 and 31 December 2021:
31 December 2022 Financial assets measured at FVTPL Financial liabilities measured at FVTPL
€ €
Opening balance 908,056,772 (1,233,581,335)
Net (loss)/gain on financial assets and liabilities measured at fair value
through profit or loss
(322,002,133) 374,808,561
Purchases/Issuances 308,514,876 (7,608,819)
Sales/Redemptions (222,603,483) 2,734,617
Closing Balance 671,966,032 (863,646,976)
31 December 2021 Financial assets measured at FVTPL Financial liabilities measured at FVTPL
€ €
Opening balance 872,834,880 (1,092,553,639)
Net gain/(loss) on financial assets and liabilities measured at fair value
through profit or loss
2,051,407 (32,418,962)
Purchases/Issuances 366,313,313 (108,608,734)
Sales/Redemptions (326,134,078) -
Movement out of Level 3 (7,008,750) -
Closing Balance 908,056,772 (1,233,581,335)
BCF's policy is to recognise transfers into and transfers out of fair value
hierarchy levels as of the last day of the accounting period. There were no
transfers between Level 1 and Level 2 of the fair value hierarchy during the
years ended 31 December 2022 or 31 December 2021.
Sensitivity of BCF Level 3 holdings to unobservable inputs
A number of holdings as at 31 December 2022 and 31 December 2021 were priced
through Markit where the input into the Markit price was only one price, so
they were classified as Level 3. These loan assets are not modelled on
analysts' prices but are from dealers' runs therefore there are no
unobservable inputs into the prices.
The CLO Income Notes were valued by a third party using a CLO intrinsic
calculation methodology and were classified as Level 3 because the valuation
technique incorporates significant unobservable inputs. The CLO prices are
determined by consideration of several factors including the following:
default rates, prepayment rates, recovery rates, recovery lag and reinvestment
spread. These factors are highly sensitive, and variations may materially
affect the fair value of the asset. These metrics are accumulated from various
market sources independent of BIL. Additionally, valuation incorporates a
review of each CLO indenture and the latest underlying CLO loan portfolio
forming various projections based on the quality of the collateral, the
collateral manager capabilities and general macroeconomic conditions. The
sensitivity of the fair values of the CLO Notes, in particular CLO Income
Notes to the traditional risk variables measured separately including market
risk and interest rate risk may not be the most appropriate analysis for this
asset class. The sensitivity to valuation assumptions including interest rates
has an interdependent impact with other significant market variables as noted
in the assumptions used for valuing CLO Income Notes. Given the values are
based on third party prices, the sensitivity to the key assumptions is not
required to be provided.
The assets classified as Level 3 represented 67.8% (2021: 63.5%) of the total
financial assets. If the price of the holdings classified as Level 3 increased
or decreased by 5% it would result in an increase or decrease in the value of
the financial assets of EUR 33,598,302 (3.39% of the total financial assets)
(2021: EUR 45,402,839 (3.18% of the total financial assets)). There also would
be an equal and opposite effect on the valuation of the PPNs (3.39%) (2021:
(3.18%)).
The financial liabilities at fair value through profit or loss consist of the
PPNs. The PPNs are valued using a model based on the fair value of the
underlying assets and liabilities. The amortised cost of the BCF Facility,
cash and cash equivalents, receivables and payables included in the underlying
assets and liabilities equate to their fair value due to the floating interest
rates and short-term nature of the balances. If the value of the underlying
assets or liabilities changes then there would be an equal and opposite effect
on the valuation of the PPNs. The BCM LLC repurchase agreement is also valued
in the same manner as the BCF Facility.
Financial instruments and associated risks
The Lux Subsidiary holds one investment in BCF in the form of PPNs. The PPNs
are the main driver of the Lux Subsidiary's performance and consequently that
of the Company. The performance of the PPNs is driven solely by the underlying
portfolio of BCF and therefore consideration of the risks to which BCF is
exposed to have also been made.
Market risk
Market risk is the current or prospective risk to earnings or capital of BCF
arising from changes in interest rates, foreign exchange rates, commodity
prices or equity prices. Market risk embodies the potential for both losses
and gains.
Market price risk arises mainly from uncertainty about future prices of
financial instruments held. It represents the potential loss BCF might suffer
through holding market positions in the face of price movements caused by
factors specific to the individual investment or factors affecting all
instruments traded in the market. In addition, local, regional or global
events may have a significant impact on BCF and the price of its investments.
As all of the financial instruments are carried at fair value through profit
or loss, all changes in market conditions will directly impact the valuation
of the PPNs.
(i) Currency risk
Foreign currency risk arises as the value of future transactions, recognised
monetary assets and monetary liabilities denominated in other currencies may
fluctuate due to changes in foreign exchange rates. Foreign exchange exposure
relating to non-monetary assets and liabilities is considered to be a
component of market price risk, not foreign currency risk. BCF's financial
statements are denominated in Euro, though investments in the US CLO
warehouses, US CLOs, and senior secured loans and bonds are made and realised
in other currencies. Changes in rates of exchange may have an adverse effect
on the value, price or income of the investments of BCF.
BIL monitors foreign currency risk on a periodic basis. Typically, derivative
contracts serve as components of BCF's asset hedging program and are utilised
primarily to reduce foreign currency risk to BCF's investments. Foreign
currency risk on non-base currency loans and bonds is minimised by the
leveraged structure of BCF and by the use of the multi-currency BCF Facility
to draw down funds. Non-base GBP and USD investments are funded by use of the
corresponding currency leverage of the BCF Facility which creates a matching
of asset and liability currency risk and minimising the impact of fluctuations
in exchange rates. Rolling currency forwards are used to manage the foreign
currency exposure of the preference shares of the US CLO warehouses, the CLO
Income Notes of the Indirect CLO Subsidiaries, Dorchester Park CLO DAC and the
Non-Consolidated US CLOs denominated in foreign currencies. The market value
of these USD positions is hedged by offsetting USD forward notional amounts to
ensure BCF is fully hedged.
The following tables set out BCF's total exposure to foreign currency risk and
the net exposure to foreign currencies of the monetary assets and liabilities
as at 31 December 2022 and 31 December 2021:
31 December 2022 British Pound United States Dollars
€ €
Investments in senior secured loans and bonds - 348,748
Investments in CLO Income Notes - 33,784,155
Investment in BGCM DAC - 286,471,835
BCF Facility (4,811,108) (6,135,502)
Cash and cash equivalents 322,070 147,350
Other assets and liabilities 1,826,029 18,798,561
Net position (2,663,009) 333,415,147
Notional amount of currency forwards - (496,440,149)
Net exposure (2,663,009) (163,025,002)
Sensitivity 10% (266,301) (16,302,500)
31 December 2021 British Pound United States Dollars
€ €
Investments in senior secured loans and bonds 29,171,010 1,357,999
Investments in CLO Income Notes - 65,384,263
Investment in BGCM DAC - 391,200,403
BCF Facility (26,315,478) (6,418,513)
Cash and cash equivalents 927,334 256,635
Other assets and liabilities (4,472,153) 18,726,134
Net position (689,287) 470,506,921
Notional amount of currency forwards - (465,769,847)
Net exposure (689,287) 4,737,074
Sensitivity 10% (68,929) 473,707
Sensitivity analysis - BCF
At 31 December 2022 and 2021, had the Euro strengthened by 10% in relation to
all currencies, with all other variables held constant, the net asset /
liability exposure would have increased by the amounts shown above for BCF.
There would be no impact on the total comprehensive income of BCF because the
fair value movement on financial liabilities would move in the opposite
direction and cancel the effect of the foreign exchange movement.
A 10% weakening of the base currency, against GBP and US Dollar, would have
resulted in an equal but opposite effect than that on the tables above, on the
basis that all other variables remain constant. These calculations are based
on historical data. Future currency movements and correlations between
holdings could vary significantly from those experienced in the past.
(ii) Interest rate risk
Interest rate risk arises from the effects of fluctuations in the prevailing
levels of market interest rates on the fair value of financial assets and
liabilities and future cash flow.
The PPNs issued by BCF are limited recourse obligations and are valued based
on the fair value of the underlying assets and liabilities. As the interest
attached to the PPNs is based on the income earned by BCF, any fluctuations in
the prevailing level of market interest rates that negatively affect the fair
value of the underlying financial assets will result in an offsetting decrease
in the fair value of the PPNs.
The interest rate risk associated with cash and cash equivalents is deemed to
be insignificant due to negligible interest rates and no expected movement.
The following tables detail BCF's exposure to interest rate risk as at 31
December 2022 and 31 December 2021. It includes the carrying value of BCF's
assets and liabilities at fair values, categorised by the type of interest
rate attached to the assets and liabilities, whether it be floating rate,
fixed or non-interest bearing:
31 December 2022 Floating rate Fixed rate Non-interest Total
bearing
€ € € €
Financial assets measured at fair value through profit or loss:
- Investments in senior secured loans and bonds
290,269,985 42,137,106 - 332,407,091
- Investments in CLO Income Notes 372,888,404 - - 372,888,404
- Investment in BGCM DAC 286,471,835 - - 286,471,835
Receivable for investments sold - - 227,275,216 227,275,216
Other receivables - - 37,133,162 37,133,162
Cash and cash equivalents 125,321,711 - - 125,321,711
Total assets 1,074,951,935 42,137,106 264,408,378 1,381,497,419
Financial liabilities measured at fair value through profit or loss:
- PPNs (863,646,976) - - (863,646,976)
- Derivative financial liabilities (80,505,196) (80,505,196)
BCF Facility (272,926,363) - - (272,926,363)
Payable for investments purchased - - (159,427,500) (159,427,500)
Other payables and accrued expenses
- - (4,983,324) (4,983,324)
Total liabilities (1,136,573,339) - (244,916,020) (1,381,489,359)
Total interest sensitivity gap (61,621,404) 42,137,106
31 December 2021 Floating rate Fixed rate Non-interest Total
bearing
€ € € €
Financial assets measured at fair value through profit or loss:
- Investments in senior secured loans and bonds
460,964,746 68,281,460 - 529,246,206
- Investments in CLO Income Notes 508,931,719 - - 508,931,719
- Investment in BGCM DAC 391,200,403 - - 391,200,403
Receivable for investments sold - - 1,002,083,571 1,002,083,571
Other receivables - - 34,873,626 34,873,626
Cash and cash equivalents 144,288,470 - - 144,288,470
Total assets 1,505,385,338 68,281,460 1,036,957,197 2,610,623,995
Financial liabilities measured at fair value through profit or loss:
- PPNs (1,233,581,335) - - (1,233,581,335)
- Derivative financial liabilities (33,536,518) (33,536,518)
BCF Facility (449,213,745) - - (449,213,745)
Payable for investments purchased - - (889,975,427) (889,975,427)
Other payables and accrued expenses - - (4,309,810) (4,309,810)
Total liabilities (1,682,795,080) - (927,821,755) (2,610,616,835)
Total interest sensitivity gap (177,409,742) 68,281,460
Sensitivity analysis
At 31 December 2022, had the base interest rates strengthened/weakened by 2%
(2021: 2%) in relation to all holdings subject to interest with all other
variables held constant, the finance income would increase/decrease by EUR
389,686 (2021: EUR 2,182,566) which would subsequently impact the amount
available for distribution as finance expense. There would be no impact on the
total comprehensive income of BCF. The interest rate sensitivity information
is a relative estimate of risk and is not intended to be a precise and
accurate number. The calculations are based on historical data. Future price
movements and correlations between securities could vary significantly from
those experienced in the current financial year.
(iii) Price risk
Price risk is the risk that the value of investments will fluctuate as a
result of changes in market prices (other than those arising from currency
risk and interest rate risk) whether caused by factors specific to an
individual investment, its issuer or all factors affecting all investments
traded in the market.
BCF attempts to mitigate asset pricing risk by using external pricing and
valuation sources and by permitting the collateral manager, subject to certain
requirements, to sell collateral obligations and reinvest the proceeds. The
CLO manager actively monitors the assets within each CLO to ensure that they
do not breach the collateral quality tests and portfolio profile tests.
Where possible, prices are received from brokers on a monthly basis. Broker
prices for loans are sourced from Markit, a composite price provider, and
broker prices for bonds are sourced from IDC.
Credit risk
Credit risk is the current or prospective risk to earnings and capital arising
from a counterparty's failure to meet the terms of any contract with BCF, or
otherwise fail to perform as agreed. The receipt of monies owed will be
subject to and dependent on the counterparty's ability to pay such monies.
BCF is therefore open to risks relating to the creditworthiness of the
counterparty. If the counterparty fails to make any cash payments required to
settle an investment, BCF may lose principal as well as any anticipated
benefit from the transaction.
Credit risk in financial instruments arises from cash and cash equivalents and
investments in debt securities, as well as credit exposures of transactions
with brokers related to transactions awaiting settlement (i.e. receivable for
investment sold and other receivables).
BIL, through its investment strategy, will endeavour to avoid losses relating
to defaults on the underlying assets. In-house credit research is used to
identify asset allocation opportunities amongst potential borrowers and
industry segments and to take advantage of episodes of market mis-pricing.
Segments and themes that are likely to be profitable are subjected to rigorous
analysis and risk is allocated to these opportunities consistent with
investment objectives. All transactions involve credit research analysts with
relevant industry sector experience.
The credit analysis performed involves developing a full understanding of the
business and associated risk of the loan or bond issuer and a full analysis of
the financial risk, which leads to an overall assessment of credit risk. BIL
analyses credit concentration risk based on the counterparty, country and
industry of the financial assets that BCF holds.
At the reporting date, BCF's financial assets exposed to credit risk are as
follows:
31 December 2022 31 December 2021
€ €
Financial assets measured at fair value through profit or loss
991,767,330 1,429,378,328
Receivables for investments sold 227,275,216 1,002,083,571
Other receivables 37,133,162 34,873,626
Cash at bank 125,321,711 144,288,470
Total 1,381,497,419 2,610,623,995
Amounts in the above tables are based on the carrying value of the financial
assets as at the reporting date.
Financial assets measured at fair value through profit or loss
BCF's investment policy is to invest predominantly in:
(i) a diverse portfolio of senior secured loans (including broadly syndicated,
middle market or other loans);
(ii) CLO Income Notes issued by the Issuer CLOs whose investments will be
focused predominantly in European and US senior secured loans; and
(iii) US CLO Income Notes (held directly or indirectly) whose investments are
focused predominantly in US senior secured loans.
The investments in senior secured loans and bonds held directly by BCF had the
following credit quality as rated by Moody's:
[Graphs and charts are included in the published Annual Report and Audited
Financial Statements which is available on the Company's website at
http://blackstone.com/bglf (http://blackstone.com/bglf) ]
The senior secured loans and bonds held directly by BCF are concentrated in
the following industries:
[Graphs and charts are included in the published Annual Report and Audited
Financial Statements which is available on the Company's website at
http://blackstone.com/bglf (http://blackstone.com/bglf) ]
In addition to the senior secured loans and bonds held directly, BCF invests
in CLO Income Notes issued by European and US CLO Issuers whose investments
are focused predominantly in European and US senior secured loans. Each CLO's
investment activities are restricted by its prospectus and the CLOs have
narrow and well-defined objectives to provide investment opportunities to
investors. In order to avoid excessive concentration of risk, the policies and
procedures of each CLO include specific guidelines to focus on maintaining a
diversified portfolio. As CLO Income Noteholder in the CLOs, BCF is exposed to
the credit risk on the underlying senior secured loans and bonds held by the
CLOs. In addition, the CLO Income Notes are limited recourse obligations of
the CLOs which are payable solely out of amounts received by the CLO in
respect of the financial assets held.
The underlying investments in senior secured loans and bonds recognised as
financial assets of BCF's Direct CLO Subsidiaries had the following credit
quality as rated by Moody's:
[Graphs and charts are included in the published Annual Report and Audited
Financial Statements which is available on the Company's website at
http://blackstone.com/bglf (http://blackstone.com/bglf) ]
The senior secured loans and bonds held by the Direct CLO Subsidiaries of BCF
are concentrated in the following industries
[Graphs and charts are included in the published Annual Report and Audited
Financial Statements which is available on the Company's website at
http://blackstone.com/bglf (http://blackstone.com/bglf) ]
The underlying investments in senior secured loans and bonds recognised as
financial assets of the Indirect CLO Subsidiaries of BCF had the following
credit quality as rated by Moody's:
[Graphs and charts are included in the published Annual Report and Audited
Financial Statements which is available on the Company's website at
http://blackstone.com/bglf (http://blackstone.com/bglf) ]
The senior secured loans and bonds held by the Indirect CLO Subsidiaries are
concentrated in the following industries:
[Graphs and charts are included in the published Annual Report and Audited
Financial Statements which is available on the Company's website at
http://blackstone.com/bglf (http://blackstone.com/bglf) ]
During the year, the Parent Company held (directly, and indirectly through BCM
LLC) CLO Income Notes in US CLOs which are not consolidated as subsidiaries.
Accordingly, the Parent Company is exposed to the credit risk on the
underlying U.S. senior secured loans and bonds held by such U.S. CLOs. In
addition, the CLO Income Notes are limited recourse obligations of the US CLOs
which are payable solely out of amounts received by the U.S. CLO in respect of
the financial assets held.
The underlying investments in senior secured loans and bonds recognised as
financial assets of the US CLOs (whose Income Notes are held directly and
indirectly by the Parent Company) had the following credit quality as rated by
Moody's:
[Graphs and charts are included in the published Annual Report and Audited
Financial Statements which is available on the Company's website at
http://blackstone.com/bglf (http://blackstone.com/bglf) ]
The underlying financial assets of the US CLOs (whose Income Notes are held
directly and indirectly by BCF)) exposed to credit risk were concentrated in
the following industries:
[Graphs and charts are included in the published Annual Report and Audited
Financial Statements which is available on the Company's website at
http://blackstone.com/bglf (http://blackstone.com/bglf) ]
Liquidity risk
Liquidity is the risk that BCF may not be able to meet its financial
obligations as they fall due. The ability of BCF to meet its obligations is
dependent on the receipt of interest and principal from the underlying
collateral portfolios. Obligations may arise from: financial liabilities at
fair value, payable for investments purchased, BCF Facility, interest payable
on CLO Income Notes, derivative financial liabilities, other payables and
accrued expenses.
At the reporting date, the financial obligations exposed to liquidity risk are
as follows:
Financial liabilities measured at fair value through profit or loss
Financial liabilities at fair value comprise PPNs issued by BCF.
All PPNs issued are limited recourse. The recourse of the noteholders, which
includes BGLF through the Lux Subsidiary, is limited to the proceeds available
to unsecured creditors at such time from the debt obligations, CLO Income
Notes and other obligations which comply with the investment policy.
Therefore, from the perspective of BCF, the associated liquidity risk of the
PPNs is reduced.
13 Segmental reporting
As required by IFRS 8 Operating Segments, the information provided to the
Board, who are the chief operating decision‐makers, can be classified into
one segment for the years ended 31 December 2022 and 31 December 2021. The
only share class in issue during the years ended 31 December 2022 and 31
December 2021 is the Euro Ordinary share class. For the years ended 31
December 2022 and 31 December 2021, the Company's primary exposure was to the
Lux Subsidiary in Europe. The Lux Subsidiary's primary exposure is to BCF, an
Irish entity. BCF's primary exposure is to the US and Europe.
14 Basic and diluted earnings per ordinary share
As at As at
31 December 2022 31 December 2021
€ €
Total comprehensive (loss)/income for the year (72,329,588) 62,810,748
Weighted average number of shares during the year* 455,759,703 470,866,902
Basic and diluted (loss)/earnings per ordinary share (0.1587) 0.1334
*Average number of shares weighted against the effect of ordinary shares
buybacks during the year (refer to note 9 for further details).
15 Net asset value per ordinary share
As at As at
31 December 2022 31 December 2021
€ €
IFRS Net asset value 301,614,977 421,999,577
Number of ordinary shares at year end 444,578,522 460,984,702
IFRS Net asset value per ordinary share 0.6784 0.9154
16 Reconciliation of Published NAV to IFRS NAV per the financial statements
As at As at
31 December 2022 31 December 2021
NAV NAV per ordinary share NAV NAV per ordinary share
€ € € €
Published NAV attributable to Shareholders
403,726,181 0.9081 433,632,455 0.9407
Adjustment - valuation (102,111,204) (0.2297) (11,632,878) (0.0253)
IFRS NAV 301,614,977 0.6784 421,999,577 0.9154
As noted above, there can be a difference between the Published NAV and the IFRS NAV per the financial statements, mainly because of the different bases of valuation. The above table reconciles the Published NAV to the IFRS NAV per the financial statements.
17 Reconciliation of liabilities arising from financing activities
As at As at
31 December 2022 31 December 2021
€ €
Opening balance 1,246,249 869,988
Increase in intercompany loan 447,828 376,261
Closing balance 1,694,077 1,246,249
18 Dividends
The Company declared and paid the following dividends on ordinary shares
during the year ended 31 December 2022:
Period in respect of Date Declared Ex-dividend Date Payment Date Amount per ordinary share Amount paid
€ €
1 Oct 2021 to 31 Dec 2021 24 Jan 2022 3 Feb 2022 4 Mar 2022 0.0275 12,658,930
1 Jan 2022 to 31 Mar 2022 25 Apr 2022 5 May 2022 9 Jun 2022 0.0175 8,038,182
1 Apr 2022 to 30 Jun 2022 21 Jul 2022 28 Jul 2022 26 Aug 2022 0.0175 7,983,136
1 Jul 2022 to 30 Sept 2022 21 Oct 2022 3 Nov 2022 2 Dec 2022 0.0175 7,872,743
Total 36,552,991
The Company declared and paid the following dividends on ordinary shares
during the year ended 31 December 2021:
Period in respect of Date Declared Ex-dividend Date Payment Date Amount per ordinary share Amount paid
€ €
1 Oct 2020 to 31 Dec 2020 21 Jan 2021 4 Feb 2021 5 Mar 2021 0.0250 11,923,083
1 Jan 2021 to 31 Mar 2021 23 Apr 2021 6 May 2021 04 June 2021 0.0175 8,345,721
1 Apr 2021 to 30 Jun 2021 21 Jul 2021 05 Aug 2021 03 Sep 2021 0.0175 8,202,374
1 Jul 2021 to 30 Sept 2021 21 Oct 2021 28 Oct 2021 26 Nov 2021 0.0175 8,124,076
Total 36,595,254
19 Related party transactions
All transactions between related parties were conducted on terms equivalent to
those prevailing in an arm's length transaction. In accordance with IAS 24
"Related Party Disclosures", the related parties and related party
transactions during the year comprised:
Transactions with entities with significant influence
As at 31 December 2022, Blackstone Treasury Asia Pte held 43,000,000 ordinary
shares in the Company (31 December 2021: 43,000,000).
Transactions with key management personnel
The Directors are the key management personnel as they are the persons who
have the authority and responsibility for planning, directing and controlling
the activities of the Company. The Directors are entitled to remuneration for
their services. Refer to Note 4 for further detail.
Transactions with other related parties
At 31 December 2022, current employees of the Portfolio Adviser and its
affiliates, and accounts managed or advised by them, hold 39,875 ordinary
shares (31 December 2021: 24,875) which represents 0.009% (31 December 2021:
0.005%) of the issued shares of the Company.
The Company has exposure to the CLOs originated by BCF, through its investment
in the Lux Subsidiary. BIL is also appointed as a service support provider to
BCF and as the collateral manager to the Direct CLO Subsidiaries. BLCS has
been appointed as the collateral manager to BCM LLC, Dorchester Park CLO
Designated Activity Company and the Indirect CLO Subsidiaries.
Transactions with Subsidiaries
The Company held 239,550,782 CSWs as at 31 December 2022 (31 December 2021:
267,088,098) following the issuance of 7,608,819 and redemption of 35,146,135
CSWs by the Lux Subsidiary. Refer to Note 6 for further details.
As at 31 December 2022, the Company held 2,000,000 Class A shares and 1 Class
B share in the Lux Subsidiary with a nominal value of €2,000,001 (31
December 2021: 2,000,000 Class A shares and 1 Class B share in the Lux
Subsidiary with a nominal value of €2,000,001).
As at 31 December 2022, the Company held an intercompany loan payable to the
Lux Subsidiary amounting to €1,694,077 (31 December 2021: €1,246,249).
20 Controlling party
In the Directors' opinion, the Company has no ultimate controlling party.
21 Events after the reporting period
The Board has evaluated subsequent events for the Company through to 27 April
2023, the date the financial statements are available to be issued, and, other
than those listed below, concluded that there are no material events that
require disclosure or adjustment to the financial statements.
Dividends
On 23 January 2023, the Board declared a dividend of €0.0275 per ordinary
share in respect of the period from 1 October 2022 to 31 December 2022 with an
ex-dividend date of 2 February 2022. A total payment of €12,182,391 was
processed on 3 March 2023.
On 25 April 2023, the Board declared a dividend of €0.02 per ordinary share
in respect of the period from
1 January 2023 to 31 March 2023 with an ex-dividend date of 4 May 2023. The
dividend will be paid on 2 June 2023.
Repurchase of ordinary shares
During the period from 1 January 2023 to 27 April 2023, the Company repurchased, under the 2022 AGM authority, 1,839,619 of its ordinary shares of no par value at a total cost of €1,228,191 (excluding fees and commissions).
Company Information
Directors Registered Office
Ms Charlotte Valeur (Chair) IFC 1
Mr Gary Clark The Esplanade
Ms Heather MacCallum St Helier
Mr Steven Wilderspin Jersey
Mr Mark Moffat JE1 4BP, Channel Islands
All c/o the Company's registered office
Portfolio Adviser Registrar
Blackstone Ireland Limited Link Asset Services (Jersey) Limited
12 Castle Street
30 Herbert Street
St Helier
2(nd) Floor
Jersey, JE2 3RT, Channel Islands
Dublin 2, Ireland
Administrator / Company Secretary / Custodian / Depositary Auditor
BNP Paribas S.A., Jersey Branch Deloitte LLP
IFC 1
PO Box 403, Gaspé House
The Esplanade 66-72 Esplanade
St Helier St Helier
Jersey JE4 8WA
JE1 4BP, Channel Islands Channel Islands
Legal Adviser to the Company (as to Jersey Law) Legal Adviser to the Company
(as to English Law)
Carey Olsen Herbert Smith Freehills LLP
47 Esplanade
Exchange House
St Helier
Primrose Street
Jersey
London
JE1 0BD, Channel Islands
EC2A 2EG
United Kingdom
Joint Broker Joint Broker
Singer Capital Markets Winterflood Investment Trusts
1 Bartholomew Lane
London, EC2N 2AX , United Kingdom The Atrium Building
Cannon Bridge House, 25 Dowgate Hill
London, EC4R 2GA, United Kingdom
Glossary
Glossary
AGMGlossary Annual General Meeting
AIC the Association of Investment Companies, of which the Company is a member
AIC Code AIC Code of Corporate Governance 2019
AIFMD Alternative Investment Fund Managers' Directive
AIF Alternative Investment Funds
APMs Alternative Performance Measures
ARRC Alternative Reference Rates Committee
BAAM Blackstone Alternative Asset Management L.P
Articles the Articles of Incorporation of the Company
BCF Blackstone Corporate Funding Designated Activity Company
BCF Facility BCF entered into a facility agreement dated 1 June 2017, as amended between
(1) BCF (as borrower), (2) Citibank Europe plc, UK Branch (as administration
agent), (3) Bank of America N.A. London Branch (as an initial lender), (4) BNP
Paribas (as an initial lender), (5) Deutsche Bank AG, London Branch (as
initial lender), (6) Citibank N.A. London Branch (as account bank, custodian
and trustee) and (7) Virtus Group LP (as collateral administrator)
BCM LLC Blackstone CLO Management LLC
BGCM DAC BGCM Designated Activity Company
BGLC Ticker for the Company's C Share Quote
BGLF or the Company Blackstone Loan Financing Limited
BGLP Ticker for the Company's Sterling Quote
BIL or the Portfolio Adviser Blackstone Ireland Limited
BLCS or the Portfolio Manager or the Rollover Portfolio Manager Blackstone Liquid Credit Strategies LLC
Board the Board of Directors of the Company
BWIC Bids Wanted In Competition
BX Credit Blackstone Alternative Credit Advisors LP or Blackstone Credit
CFO Chief Financial Officer
CSWs Cash Settlement Warrants
CLO Collateralised Loan Obligation
DTC Depositary Trust Company
DTR Disclosure Guidance and Transparency Rules
Discount / Premium calculated as the NAV per ordinary share as at a particular date less BGLF's
closing share price on the London Stock Exchange, divided by the NAV per
ordinary share as at that date
Dividend yield calculated as the last four quarterly dividends declared divided by the share
price as at the relevant date
EBITDA Earnings Before Interest, Taxes, Depreciation and Amortisation
ECB European Central Bank
ESG Environmental, social and governance
ESMA European Securities and Markets Authority
EU European Union
FAFVTPL Financial assets at fair value through profit or loss
FCA Financial Conduct Authority (United Kingdom)
Fed Federal Reserve
FRC Financial Reporting Council (United Kingdom)
FVTPL Fair value through profit or loss
FVTOCI Fair value through other comprehensive income
GDP Gross Domestic Product
GFC Global Financial Crisis
IDC International Data Corporation
IDT Interest Diversion Test
IFRS International Financial Reporting Standards
IFRS 10 IFRS 10 Consolidated Financial Statements
IFRS 13 IFRS 13 Fair Value Measurement
IFRS NAV Gross assets less liabilities (including accrued but unpaid fees) determined
in accordance with IFRS as adopted by the EU
IMF International Monetary Fund
IPO Initial Public Offering
IRR Internal Rate of Return
JFSC Jersey Financial Services Commission
LCD S&P Global Market Intelligence's Leveraged Commentary & Data
provides in-depth coverage of the leveraged loan market through real-time
news, analysis, commentary, and proprietary loan data
LDI Liability-driven investment
LIBOR London Inter-Bank Offered Rate
Loan Warehouse A special purpose vehicle incorporated for the purposes of warehousing US
and/or European floating rate senior secured loans and bonds
LSE London Stock Exchange
LTM Last twelve months
Lux Subsidiary Blackstone / GSO Loan Financing (Luxembourg) S.à r.l.
MoM Month-over-month
NAV Net asset value
NAV total return per Ordinary share Calculated as the increase / decrease in the NAV per Ordinary share plus the
total dividends paid per Ordinary share during the period, with such dividends
paid being re-invested at NAV, as a percentage of the NAV per Ordinary share
NIM Net interest margin
OC Overcollateralization
OCI Other Comprehensive Income
PMIs Purchasing Managers' Indices
PPNs Profit Participating Notes
PRI Principles for Responsible Investment
Published NAV Gross assets less liabilities (including accrued but unpaid fees) determined
in accordance with the section entitled "Net Asset Value" in Part I of the
Company's Prospectus and published on a monthly basis
Return Calculated as the increase /decrease in the NAV per Euro Ordinary share plus
the total dividends paid per Euro Ordinary share, with such dividends paid
being re-invested at NAV, as a percentage of the NAV per Euro Ordinary share.
LTM return is calculated over the period January 2022 to December 2022.
RNS Regulatory News Service
Rollover Assets The assets attributable to the Carador Income Fund plc Rollover Shares - a
pool of CLO assets from Carador Income Fund plc
Rollover Offer As announced by the Board on 28 August 2018, a rollover proposal to offer
newly issued C Shares to electing Shareholders of Carador Income Fund plc, in
consideration for the transfer of a pool of CLO assets from Carador Income
Fund plc to the Company
RP Reinvestment period
SFS Specialist Fund Segment
SOFR Secured Overnight Financing Rate
TCFD Task Force on Climate-related Financial Disclosures
UK Code UK Corporate Governance Code 2018
US United States
USD United States Dollar
US MOA United States Majority Owned Affiliate - Blackstone / GSO US Corporate Funding
Limited
Underlying Company A company or entity to which the Company has a direct or indirect exposure for
the purpose of achieving its investment objective, which is established to,
among other things, directly or indirectly, purchase, hold and/or provide
funding for the purchase of CLO Securities
UK United Kingdom
WA Weighted Average
WACC Weighted Average Cost of Capital
WAP Weighted Average Asset Price
WARF Weighted Average Rating Factor
WAS Weighted Average Spread
( 1 ) Refer to the glossary for an explanation of the terms used above and
elsewhere within this report. The calculation for the IFRS NAV per ordinary
share is found in Note 15 in the 'notes to the financial statements' and the
calculation for the IFRS and Published NAV total return and discount is found
under 'Alternative Performance Measures'. These calculations remain consistent
with prior years.
(2) Bloomberg closing price at year end.
(3) Dividend yield presented as €0.08 per annum, given the first three
quarterly dividends of €0.0175 per ordinary share and fourth quarter
dividend of €0.0275 and the share price of €0.6650 as at 31 December 2022.
(4) Past performance is not necessarily indicative of future results and there
can be no assurance that the Company will achieve comparable results, will
meet its target returns, achieve its investment objectives, or be able to
implement its investment strategy.
(5) Credit Suisse: Leveraged Loan Index for US Loans, Western European
Leveraged Loan Index (hedged to EUR) for EUR Loans as of
31 December 2022. Indices are provided for illustrative purposes only. They
have not been selected to represent benchmarks or targets for the Company. The
indices may include holdings that are substantially different than investments
held by BCF and do not reflect the strategy of BCF. Comparisons to indices
have limitations because indices have risk profiles, volatility, asset
composition, leverage and other material characteristics that may differ from
BCF. The indices do not reflect the deduction of fees or expenses.
(6) See the Company's Dividend Declaration Announcement on 23 January 2023.
(7) Credit Suisse: Leveraged Loan Index for US Loans, Western European
Leveraged Loan Index (hedged to EUR) for EUR Loans as of 31 December 2022.
Indices are provided for illustrative purposes only. They have not been
selected to represent benchmarks or targets for the Company. The indices may
include holdings that are substantially different than investments held by BCF
and do not reflect the strategy of BCF. Comparisons to indices have
limitations because indices have risk profiles, volatility, asset composition,
leverage and other material characteristics that may differ from BCF. The
indices do not reflect the deduction of fees or expenses.
(8) Credit Suisse: As of 31 December 2022. BX Credit data used for BCF
defaults, calculated on a look through basis. BCF defaults defined as (a)
missed a payment, (b) filed bankruptcy or (c) were downgraded by Moody's,
Fitch, or S&P to D. Recovery rate excluded from years with zero defaults.
Past performance is not necessarily indicative of future results and there can
be no assurance that the Company will continue to achieve comparable results
or that the Company will be able to implement its investment strategy or
achieve its investment objectives or avoid substantial losses.
(9) Default rates for the Credit Suisse Western European Leveraged Loan Index
and Credit Suisse Leveraged Loan Index as of December 2022.
(10) Pitchbook LCD, 5 January 2023.
(11) Barclays Credit Research, CLO Global Ownership Update, 21 October 2022.
(12) BofA, 2023 Year Ahead Outlook (CLO), 22 November 2022. US/Japanese banks
stepped back from the market last year (due to declining deposits and the
Fed's stress tests (US) and FX moves and LDI-rated volatility (Japanese).
(13) Barclays Credit Research, CLO Global Ownership Update, 21 October 2022.
(14) Note: Portfolio data presented using the gross par amount of assets held
directly and indirectly by BCF. The total par amount of all assets held within
each CLO and CLO warehouses are included on a fully consolidated basis and
added to those assets held directly by BCF. Subject to change and not a
recommendation to buy or sell any security. Data as of 31 December 2022,
calculated on 18 January 2023.
(15) Credit Suisse trailing twelve-month default rates as of 31 December 2022.
(16) BoA CLO Factbook as of 3 February 2023, Wells Fargo as of 4 January 2023.
(17) Junior OC Cushion, Barclays Credit Research: Leveraged Loans and CLOs
2022 Wrap as of 6 January 2023.
(18) Data as of January 2023, unless otherwise stated. Peers are defined as
the 10 largest managers of European CLOs and 15 largest managers of US CLOs,
based on assets under management, excluding BX Credit, per Creditflux as of 31
December 2022 (a) Change in IDT Cushion: Kanerai data for vintages after and
including 2013. Average vintage change in IDT between March 2020 to December
2022. Deals priced prior to March 2020 span the full time period, deals priced
in 2020/2021 span the period between deal inception to December 2022. (b)
Current IDT Cushion: Kanerai data for vintages after and including 2013.
(19) Debt tranches of certain US CLOs are referenced against SOFR. Some
proportion of US CLO collateral may be based on SOFR and subject to change
over time.
(20) Calculated on BCF's net assets as of 31 December 2022.
(21) All CLO NIMs have been impacted by recent base rate moves. In some cases,
resulting in a material mismatch between the base rates used for assets and
liabilities (Edmondstown Park). BX Credit expects this NIM to improve and to
normalise once base rates become better aligned.
(22) As of 31 December 2022, with data available as of 11 January 2023.
Certain CLOs in the process of being redeemed. The residual valuation as a %
of BCF NAV is reflective of remaining distributions to be made. Once no
remaining distributions are expected, valuation will appear as "N/A".
(23) Realised IRRs for redemptions are reflective of distributions made to BCF
to date, with data available in Intex as of 11 January 2023. IRRs may change
as further distributions to income noteholders are made. For fully sold CLOs,
realised IRR includes sale proceeds returned to BCF (reflected on a traded
basis). IRRs denoted with an * are inclusive of fee rebates (separate notes
reflecting rights to future rebates may still be held by BCF).
(24) Source: Intex, with data available as of 11 January 2023. Annualised
distributions for redeemed CLOs include return of principal; annualised
distributions for fully sold CLOs do not include sale proceeds. Top 20 Issuers
represent 14.4% of the portfolio par value, as of 31 December 2022.
(25) Portfolio data by Issuer, Industry, Country, Rating and Loan Price Bands
are presented using the gross par amount of assets held directly and
indirectly by BCF. Indirect asset holdings are held within CLOs BCF has
invested in. The total par amount of all assets held within each CLO are
included on a fully consolidated basis and added to those assets held directly
by BCF. Portfolio holdings, Rating, Country, Industry and Loan Price Band
distributions are subject to change and are not recommendations to buy or sell
any security. CLO Note and CLO warehouse investments are excluded from all
figures. Data calculated by BX Credit.
(26) Calculated on BCF's net assets as of 31 December 2022.
(27) Data for EUR and US CLOs calculated based on data available on Intex as
of 11 January 2023 for non-redeemed CLOs. Data for CLO Warehouses and Directly
Held Loans calculated by BX Credit.
(28) Portfolio data by Issuer, Industry, Country, Rating and Loan Price Bands
are presented using the gross par amount of assets held directly and
indirectly by BCF. Indirect asset holdings are held within CLOs BCF has
invested in. The total par amount of all assets held within each CLO are
included on a fully consolidated basis and added to those assets held directly
by BCF. Portfolio holdings, Rating, Country, Industry and Loan Price Band
distributions are subject to change and are not recommendations to buy or sell
any security. CLO Note and CLO warehouse investments are excluded from all
figures. Data calculated by BX Credit.
(29) Please note that the High Tech exposure is defined by Moody's as
"computer hardware, software, component equipment, consumer electronics,
semiconductor and contract manufacturers; IT services and distributors;
transaction processors." The BCF portfolio is not exposed to "start up" type
risk but rather is defensively positioned and includes established businesses
with recurring revenues.
(30) Portfolio data by Issuer, Industry, Country, Rating and Loan Price Bands
are presented using the gross par amount of assets held directly and
indirectly by BCF. Indirect asset holdings are held within CLOs BCF has
invested in. The total par amount of all assets held within each CLO are
included on a fully consolidated basis and added to those assets held directly
by BCF. Portfolio holdings, Rating, Country, Industry and Loan Price Band
distributions are subject to change and are not recommendations to buy or sell
any security. CLO Note and CLO warehouse investments are excluded from all
figures. Data calculated by BX Credit.
(31) Portfolio data by Issuer, Industry, Country, Rating and Loan Price Bands
are presented using the gross par amount of assets held directly and
indirectly by BCF. Indirect asset holdings are held within CLOs BCF has
invested in. The total par amount of all assets held within each CLO are
included on a fully consolidated basis and added to those assets held directly
by BCF. Portfolio holdings, Rating, Country, Industry and Loan Price Band
distributions are subject to change and are not recommendations to buy or sell
any security. CLO Note and CLO warehouse investments are excluded from all
figures. Data calculated by BX Credit. The top 20 issuers aggregated to 14.4%
(2021: 12.8%) of the portfolio.
(32) 2021 ESG Update can be found at:
https://www.blackstone.com/our-impact/an-integrated-approach-to-esg/
(33) Investments made on or after 1 January 2021 where the Blackstone owns the
asset and has control over energy use. For investments made or held by BX
Credit between 1 January 2021 and 11 November 2022, "owns the asset and has
control over energy use" means any investments where BX Credit obtained board
control during that time period, which has occurred in only two circumstances.
Following 11 November 2022, this commitment means investments where BX Credit
obtains board control at the time of BX Credit's original investment (and, for
greater certainty, excluding any follow-on investments that result in BX
Credit obtaining Board control). See "ESG Disclaimer" including "ESG".
A copy of the Company's Annual Financial Report will shortly be available on
the Company's website http://blackstone.com/bglf
(https://www.blackstone.com/our-businesses/registered-products#c=blackstone-gso-loan-financing-limited)
, on the National Storage
Mechanism https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) and will also be
posted to shareholders.
Neither the contents of the Company's website nor the contents of any website
accessible from hyperlinks on the Company's website (or any other website) is
incorporated into, or forms part of, this announcement.
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