Blackstone/GSO LnFin - Final Results - Part 2
21/04/2016 17:45
- Part 2: For the preceding part double click ID:nRSU9863Va
Companies in aggregate and not to Risk Retention Companies
individually.
Loan Warehouses may eventually be securitised into CLOs managed either by a
Risk Retention Company itself or by DFME or DFM (or one of their affiliates),
in its capacity as the CLO Manager. To the extent attributable to the Company,
the aggregate value of investments made by Risk Retention Companies in any
single externally financed warehouse (net of any directly attributable
financing) shall not exceed 20% of the NAV of the Company at the time of
investment, and in all externally financed warehouses taken together (net of
any directly attributable financing) shall not exceed 30% of the NAV of the
Company at the time of investment. These limitations shall apply to Risk
Retention Companies in aggregate and not to Risk Retention Companies
individually.
The following limits (the "Eligibility Criteria") apply to senior secured
loans (and, to the extent applicable, other corporate debt instruments)
directly held by any Risk Retention Company (and not through CLO Securities or
Loan Warehouses):
Maximum exposure % of a Risk Retention Company'sgross asset value
Per obligor 5
Per industry sector 15(with the exception of one industrywhich 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 a Risk Retention
Company).
In addition, each CLO in which a Risk Retention Company holds CLO Securities
and each Loan Warehouse in which a Risk Retention 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 rating
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 a Risk Retention Company may hold CLO Securities or Loan
Warehouses in which a Risk Retention Company may invest are also expected to
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.
Company Borrowing Limit
The Company will not utilise borrowings for investment purposes. However, the
Directors will be permitted to borrow up to 10% of the 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 Risk Retention Companies.
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 non-Euro assets will be hedged,
subject to suitable hedging contracts being available at appropriate times and
on acceptable terms.
Changes to Investment Policy
Any material change to the investment policy of the Company would be made only
with the approval of Shareholders.
It is intended that the investment policy of each Substantial Risk Retention
Company will mirror the Company's investment policy, subject to such
additional restrictions as may be adopted by a Substantial Risk Retention
Company from time to time. The Company will receive periodic reports from each
Substantial Risk Retention Company in relation to the implementation of such
Substantial Risk Retention Company's investment policy to enable the Company
to have oversight of its activities. If a Substantial Risk Retention Company
proposes to make any changes (material or otherwise) to its investment policy,
the Directors will seek 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 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 Risk Retention Company, the Directors
will redeem the Company's investment in such Substantial Risk Retention
Company (either directly or, if the Company's investment in a subsidiary is
invested by such subsidiary in such Substantial Risk Retention Company (either
directly or through one or more other Risk Retention Companies), by redeeming
the securities held by the Company in such subsidiary and procuring that the
subsidiary redeems its investment in such Substantial Risk Retention Company
(either directly or through one or more other Risk Retention Companies)), as
soon as reasonably practicable but at all times subject to the relevant legal,
regulatory and contractual obligations.
2) Disapplication of Pre-Emption Rights and Approval of the Issue of shares
Further to the announcement made by the Company on 14 December 2015, in which
the Company stated that it was considering raising additional capital through
an issue of new shares, Directors sought and were granted Shareholder approval
for the disapplication of pre-emption rights, and approval of the issue of, up
to 500 million shares (which may be issued as either Euro Shares of U.S.
Dollar Shares).
3) Adoption of New Articles of Association
New Articles of Association were adopted which, along with minor amendments to
reflect recent legislative amendments to the Companies (Jersey) Law 1991 (as
amended) ("the Companies Law), permit the Directors (at their discretion) to
determine that the annual report and half yearly report of the Company shall
be published on the Company's website rather than sent by post.
4) Subscription for shares by an entity in the Blackstone Group
In the event that a fundraising was undertaken, Shareholder approval was
sought, and granted, that an entity in the Blackstone Group, a related party
of the Company under the UK Listing Rules, could subscribe for shares under
such a fundraising.
PUBLICATION OF PROSPECTUS
On 31 March 2016, the Company issued a prospectus in connection with a
12-month placing programme in respect of up to 500 million Placing Shares,
which may be issued as either Euro Shares or U.S. Dollar Shares.
At an EGM held on 29 February 2016, Shareholders approved the disapplication
of pre-emption rights for the issue of up to 500 million Shares by the
Company.
Whilst there is no immediate intention to issue further Shares, Shareholders'
approval was sought in order to enable the Directors to promptly respond to
investor demand and conduct future fund raises in a cost efficient manner
without needing to convene an additional extraordinary general meeting.
In conjunction with the disapplication of pre-emption rights, the Prospectus
is now being published in order that Shares can be issued when demand arises
which cannot be satisfied through the secondary market and to enable the
Company to meet its growth strategy.
CORPORATE GOVERNANCE REPORT
Statement of compliance with Corporate Governance
The Company, being traded on the SFS rather than having a Premium Listing on
the Official List of the UKLA, is not subject to Listing Rule 9.8.6 which
requires companies to report against the UK Corporate Governance Code (the "UK
Code").
However, recognising the importance of sound corporate governance, the Board
has voluntarily committed to comply with both the UK Code and the AIC Code of
Corporate Governance for Jersey-domiciled member companies as published by the
Association of Investment Companies in February 2015 (the "AIC Code") by
reference to the AIC Corporate Governance Guide for Investment Companies (the
"AIC Guide").
Having considered the principles and recommendations of the AIC Code, the
Board believes the AIC Code addresses all of the principles set out in the UK
Code as well as additional principles and recommendations on issues that are
of specific relevance to the Company and will provide better information to
Shareholders.
The Board can therefore confirm that during the year ended 31 December 2015,
the Company has complied with the recommendations of the AIC Code and the
relevant provisions of the UK Code as detailed below.
For the reasons set out in the AIC Guide and given the size and nature of
operations of the Company, that it is a self-managed investment fund with no
executive employees and that the providers of outsourced services have their
own internal audit functions, the Board considers the below provisions of the
UK Code not to be relevant and therefore has not reported further on them.
i. the role of the Chief Executive;
ii. Executive Directors' remuneration; and
iii. the need for an internal audit function.
The Company will provide details if it is going to consider them in the
future.
Copies of the AIC Code, the AIC Guide and the UK Code can be found on the
respective organisations' web sites www.theaic.co.uk and www.frc.org.uk.
The Board
The Board consists of four non-executive Directors.
The Board meets at least four times a year and, in addition, is in regular
contact with the Adviser, the Administrator and the Company Secretary.
Furthermore, the Board requires to be supplied with information in a timely
manner from the Adviser, the Company Secretary and other advisers in a form
and of a quality appropriate for it to be able to discharge its duties.
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:
i. statutory obligations and public disclosure;
ii. strategic matters and financial reporting;
iii. risk assessment and management including reporting, compliance,
governance, monitoring and control; and
iv. 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 the day to day operational activities of the
Company to the Administrator and Company Secretary. The Board reserves the
powers of decisions relating to the determination of investment policy, the
approval of changes in strategy, capital structure, statutory obligations,
public disclosure and the entering into any material contracts by the
Company.
CORPORATE GOVERNANCE REPORT (CONTINUED)
Board Attendance
The following table shows the number of meetings held by the Board and each
committee for the year ended 31 December 2015 as well as the number of
attendances at each meeting.
Meeting Total CharlotteValeur PhilipAustin GaryClark Joanna Dentskevich
Quarterly Board 4 4 4 4 4
Ad-hoc Board 10 9 6 10 9
Audit Committee 4 4 N/A 4 4
Management Engagement Committee 1 1 1 1 1
NAV Review Committee 12 7 7 9 8
Remuneration and Nomination Committee 2 2 2 2 2
Risk Committee 4 4 4 4 4
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 purposes of assessing compliance with principle 1 and 2 of the AIC
Code, the Board considers all of the current Directors as independent. Mr
Austin is a director of Blackstone / GSO Debt Funds Europe Limited, which is
an affiliate of the Adviser and, as such, is deemed not to be independent
under the UKLA Listing Rules.
The Directors consider that there are no factors, as set out in principle 1 or
2 of the AIC Code, which compromise their independence, other than stated
above, and that they all contribute to the affairs of the Company in an
adequate manner. The Board reviews the independence of all Directors annually.
The Company Secretary, through its representative, 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, and is responsible for ensuring that the correct
Board procedures are followed and advises the Board on corporate governance
matters.
Committees of the Board
The Board has established five committees, an Audit Committee, a Management
Engagement Committee, a NAV Review Committee, a Nomination and Remuneration
Committee and a Risk Committee. Each committee has formally delegated duties
and responsibilities within written terms of reference.
Audit Committee
The Audit Committee comprises all Directors, with the exception of Mr Austin
and is chaired by Mr Clark. Mr Austin has the right to attend all Audit
Committee meetings. The terms of reference state that the Audit Committee will
meet not less than three times a year and will meet Deloitte at least once a
year. The report of the role and activities of this committee and its
relationship with Deloitte is contained in the Audit Committee Report.
Management Engagement Committee
The Management Engagement Committee comprises all Directors and is chaired by
Ms Valeur.
The terms of reference state that the Management Engagement Committee shall
meet not less than once a year and will have responsibility for monitoring and
reviewing the Adviser's performance and recommend to the Board whether the
continued appointment of the Adviser is in the best interests of the Company
and Shareholders.
NAV Review Committee
The NAV Review Committee comprises all Directors and is chaired by Mr Clark.
The terms of reference state that the NAV Review Committee shall meet at least
one a month to review and consider the Company's NAV calculation, fact sheet
and applicable stock exchange announcements.
Remuneration and Nomination Committee
The Remuneration and Nomination Committee comprises all Directors and is
chaired by Ms Valeur.
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 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 on the Board, as well as identifying,
nominating and recommending for approval of the Board, candidates to fill
Board vacancies as they arise.
Director Re-Election and Tenure
The Remuneration and Nomination Committee has considered the question of a
policy on Board tenure. It is 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. As provided for in the AIC Code
and in order to phase future retirements and appointments, as all the
Directors were appointed at the same time, the Board has not at this stage
adopted any specific limits to terms, but expects to rotate Board members over
the coming years. The Board has adopted a policy whereby all Directors will be
put up for re-election every year, accordingly all Directors will be put
forward for re-election at the forthcoming AGM.
Risk Committee
The Risk Committee comprises all Directors and is chaired by Ms Dentskevich.
The terms of reference of state that the Risk Committee shall meet at least
four times a year. The activities of this committee is contained in the Risk
Committee Report.
Board Diversity
The Board believes in and values the importance of a broad range of skills,
experience and diversity, including gender, for the effective functioning of
the Board, all of which are considered when determining the optimum
composition of the Board.
Internal Controls
The Board has applied principle 15 of the AIC Code by establishing a
continuous process for identifying, evaluating and managing the significant
risks that the Company faces and as such regularly reviews the process put in
place from the start of the financial period to the date of approval of this
report. The Board is responsible for the Company's system of internal control
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.
In compliance with principle 15 of the AIC Code, the Board regularly reviews
the effectiveness of the Company's system of internal control. The Board's
monitoring covers all controls, including financial, operational and
compliance controls and risk management. It is based principally on reviewing
reports from the Adviser and BGCF to consider whether significant risks are
identified, evaluated, managed and controlled and whether any significant
weaknesses are promptly remedied and indicate a need for more extensive
monitoring. The Board has also performed a specific assessment for the purpose
of this report. This assessment considers all significant aspects of internal
control arising during the period covered by the report. The Audit Committee
assists the Board in discharging its review responsibilities.
During the course of its review of the system of internal control, the Board
has not identified nor been advised of any failings or weaknesses which it has
determined to be significant. Therefore, a confirmation in respect of
necessary actions has not been considered appropriate.
The Board is also responsible for setting the overall investment policy and
monitors the services provided by the Adviser at regular Board meetings. The
Board receives regular compliance reports from the Adviser, the Administrator
and the Company Secretary.
Custody of assets was undertaken by State Street Custodial Services (Jersey)
Limited (the "Custodian") up to 31 December 2015. As previously stated, on 1
January 2016, BNPP was appointed Custodian and the custody of assets was
transferred to BNPP.
The Directors clearly define the duties and responsibilities of their agents
and advisers, whose appointments are made after due consideration and monitors
their on-going performance. All of the Company's agents and advisers maintain
their own systems of internal control on which they report to the Board. The
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 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 Management Engagement Committee has been appointed to consider the
continuation of engagement of the relevant service providers. The Directors
are satisfied that the continued appointment of the relevant service providers
are 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 Adviser,
including their own internal controls and procedures, provide sufficient
assurance that a sound system of risk management and internal control, to
safeguard the Shareholders' investment and the Company's assets, is
maintained. An internal audit function specific to the Company is therefore
considered unnecessary. Full details are set out in the Audit Committee
Report.
The Company has appointed Fidante Partners Europe Limited and Nplus 1 Singer
Advisory LLP (the "Joint Bookrunners") as its corporate brokers. Together with
these parties, the Adviser assists the Board in communicating with the
Company's major Shareholders.
RISK COMMITTEE REPORT
Membership
The Risk Committee was established on 2 October 2014 and comprises Ms
Dentskevich (Chair), Mr Austin, Mr Clark and Ms Valeur.
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 and
other non-financial risks such as operational risk.
Responsibilities
During 2015, the Risk Committee reviewed its effectiveness and further defined
and clarified its' mandate to ensure effective operation in conjunction with
the Audit Committee and as a result its key responsibilities, amongst others,
were identified as being:
· to ensure the Company's compliance with its investment objectives,
policies, restrictions and borrowing limits;
· to ensure that appropriate policies and reporting exists for the
monitoring of the Company's key risks;
· to develop and ensure a risk register documenting identified risks, their
mitigants, likelihood and impact is maintained, reviewed regularly by the
Board with action points and newly identified risks being appropriately dealt
with;
· to define risk review activities regarding investment decisions,
transactions and exposures for approval by the Board; and
· to ensure due regard is given to all regulation, codes, rules and laws
that the Company is subject to.
Committee Meetings
The Committee meets at least four times a year and where appropriate will
invite its advisers or other external experts to provide the Committee with
input where deemed necessary.
Underlying Investments and Investment Monitoring
The Company's current investment policy is to invest in Profit Participating
Notes issued by BGCF, the proceeds of which it uses to invest predominantly in
North American and Western European domiciled senior secured loans and CLO
Income Notes it has itself securitised.
At investment, DFME, in its capacity as CLO Manager to BGCF, through
eligibility criteria, ensures the portfolio of assets meet a prescribed level
of diversity and quality. In addition, the Company monitors issuer, country,
sector and rating concentrations on a monthly basis with any breach of
investment policy, borrowing limits or operational breach being reported to
the Board on occurrence.
Risk Register
During the year, a risk register was compiled which is considered by the Board
to be a live working document of the Company to monitor any changes in
identified risks and as a means in which any potential risks can be
appropriately discussed and actioned. The risk register also acts as a tool
to enable identification of the principal risks facing the Company.
In December 2015, the Risk Committee met to approve the register and agree its
further development for 2016.
Conclusion
In these early stages of the Company's life, along with the post year end
changes to the structure as detailed in the Directors Report, the
establishment of the Risk Committee has enabled the Board to effectively focus
on potential risks as they manifest and when necessary put in place suitable
mitigants.
The Risk Committee differentiates between principal risks which may impact the
longer term viability of the Company and shorter term volatility which is a
natural consequence of the markets.
The Risk Committee has been supported by both BGCF and its Adviser in the task
and to date no significant issues have arisen.
Joanna Dentskevich
Risk Committee Chair
21 April 2016
STATEMENT OF DIRECTORS' RESPONSIBILITY
The Directors are responsible for preparing the Annual Report and Financial
Statements, in accordance with applicable laws and regulations.
The Companies Law requires the Directors to prepare financial statements for
each financial year which give a true and fair view of the state of affairs of
the Company at the end of the year and of the profit or loss of the Company
for that year. Under the Companies Law the Directors have prepared the
Company's financial statements in accordance with International Financial
Reporting Standards ("IFRS"), as adopted by the European Union (the "EU").
In preparing these financial statements, the Directors are required to:
· select suitable accounting policies and then apply them consistently;
· make judgements and estimates that are reasonable and prudent;
· state whether applicable accounting standards have been followed, subject
to any material departures disclosed and explained in the financial
statements; and
· prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping proper books of account that
disclose with reasonable accuracy at any time the financial position of the
Company, and enable them to ensure that its financial statements are prepared
in accordance with applicable IFRS as adopted by the EU and comply with the
Companies Law, as amended. They are also responsible for safeguarding the
assets of the Company. They have general responsibility for taking such steps
as are reasonably open to them to prevent and detect fraud and other
irregularities.
Legislation in Jersey concerning the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
Each of the Directors confirm that, to the best of that Director's knowledge
and belief:
· the financial statements, prepared in accordance with IFRS as adopted by
the EU, give a true and fair view of the assets, liabilities and financial
positions of the Company as at 31 December 2015, and its profits for the year
then ended;
· the Strategic report and the Directors' report includes a fair review of
the information required by DTR 4.1.8 (indication of important events up to 31
December 2015 and a description of principal risks and uncertainties);
· the Strategic report and the Directors' report includes a fair review of
the information required by DTR 4.1.9 and 4.1.10 (analysis of the development
and performance of the Company aided by the use of key performance indicators;
and where appropriate information relating to environmental factors);
· the Strategic report and the Directors' report includes a fair review of
the information required by DTR 4.1.11 (disclosure of important events that
have occurred after 31 December 2015; future developments; financial risk
management objectives and policies and Company exposure to price, credit,
liquidly and cash flow risk); and
· the annual report and financial statements, taken as a whole, provides
the information necessary to assess the Company's performance, position,
business model and strategy and is fair, balanced and understandable.
Charlotte Valeur
Gary Clark
Chair
Audit Committee Chair
21 April 2016
DIRECTORS' REMUNERATION REPORT
Dear Shareholder
This report provides relevant information in respect of the Directors'
remuneration.
Directors' Remuneration
The Directors' remuneration for the year is as follows:
Annual fee£ Additional fee£ Total fee for the year ended31 December 2015£ Total fee for the period ended
31 December 2014
£
Ms Charlotte Valeur 50,000 - 50,000 27,671
Mr Philip Austin 35,000 - 35,000 19,370
Mr Gary Clark 35,000 5,000 40,000 22,137
Ms Joanna Dentskevich 35,000 5,000 40,000 22,137
Total Directors' emoluments 165,000 91,315
Mr Clark and Ms Dentskevich receive an additional fee of £5,000 for the
additional responsibilities and time commitment involved in chairing the Audit
and Risk Committees respectively. Directors' remuneration is payable
quarterly in Sterling.
No other remuneration or compensation was paid or is payable by the Company
during the period to any of the Directors. There has been no change to the
Company's remuneration policy as detailed below.
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.
Remuneration Policy
Directors fees are determined by the Remuneration and Nomination Committee
under the terms of the remuneration policy (the "Remuneration Policy")
approved on 16 April 2015, as derived from the Company's Articles of
Association.
No Director is involved in deciding their own remuneration and remuneration
received reflects their duties, responsibilities and the value of the
Directors' time. As such the Remuneration Policy allows for the Chairs of the
Board, the Audit Committee and the Risk Committee to receive additional
remuneration.
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 retirement from office. There is also no
entitlement for an alternate Director to receive a fee from the Company.
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 up to £5,000 per Director per
year for reasonable travelling, hotel and other expenses incurred 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 fee payable to the Directors is £300,000 per
annum.
Directors' Interests
As at the year end and the date of approval of the financial statements,
Directors held the following number of Euro shares in the Company:
Euro shares of no par value
Charlotte Valeur -
Philip Austin -
Gary Clark 25,000
Joanna Dentskevich -
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 one month's written notice with no compensation payable upon leaving
office for whatever reason.
Ms Charlotte Valeur
On behalf of the Nomination and Remuneration Committee
21 April 2016
AUDIT COMMITTEE REPORT
The Board has appointed an Audit Committee which operates within clearly
defined terms of reference.
The Audit Committee comprises all Directors, with the exception of Mr Austin
and the Chair of the Audit Committee has recent and relevant financial
experience. The Audit Committee met four times during the year.
Representatives of Deloitte, as the Company's Auditor, the Administrator and
the Company's Compliance Officer were invited to the meetings as appropriate.
In addition to these formal meetings, the Chair of the Audit Committee has
visited the offices of the Adviser to assess the operations and controls of
the Adviser and to assess in particular what reliance the Audit Committee can
place on the Adviser both directly and indirectly via BGCF. The Chair has also
held a discussion with the valuers of the CLO equity to understand the process
and the level of independence embedded therein.
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:
i. monitoring the integrity of the financial statements;
ii. report to the Board on any significant financial reporting issues and
judgements;
iii. reviewing and monitoring the effectiveness of the Company's risk
management and internal control arrangements;
iv. monitoring the statutory audit of the annual accounts of the Company
and its effectiveness;
v. reviewing the external auditor's performance, independence and
objectivity;
vi. making recommendations to the Board in relation to the appointment,
re-appointment and/or removal of the external auditor, the approval of the
external auditor's remuneration and the terms of the engagement;
vii. implementing policies surrounding the engagement of the external
auditor to supply non-audit services, where appropriate;
viii. to review and challenge where necessary significant accounting policies
and practices; and
ix. reporting to the Board on how it has discharged its responsibilities.
The Committee's terms of reference are published on the Company's website
www.blackstone.com.
How the Audit Committee has discharged its responsibilities
In the year under review, the Audit Committee has met four times. The
Committee meeting focused on the following key areas:
Monitoring the integrity of the Financial Statements including significant
judgements
i. We reviewed the appropriateness of the Company's accounting principles
and policies, and monitored changes to, and compliance with, accounting
standards on an ongoing basis;
After the year end we had further meetings; and
ii. We reviewed, prior to making any recommendations to the Board, the
Annual Report and Audited Financial Statements for the year ended 31 December
2015. In undertaking this review, we discussed with our Service Providers and
Deloitte the critical accounting policies and judgements that have been
applied.
Deloitte reported to the Committee on any misstatements that they had found
during the course of their work and confirmed that under ISA (UK and Ireland)
no material amounts remained unadjusted.
As requested by the Board, we also reviewed the Annual Report and were able to
confirm to the Board that, in our view, the Annual Report, taken as a whole,
was fair, balanced and understandable and provided the information necessary
for Shareholders to assess the Company's performance, business model and
strategy.
Significant accounting matters
During the period the Committee considered key accounting issues, matters and
judgements regarding the Company's financial statements and disclosures
including those relating to:
SIGNIFICANT AREA HOW ADDRESSED
Assessment of consolidation and related disclosure requirements The Audit Committee has considered non-compliance of the accounting treatment of investments and the consolidation requirements for the Company and its investee entities and the related disclosures in accordance with the provisions of IFRS 10 and IFRS 12.
The Audit Committee critically reviewed reports from the Adviser and Administrator, as well as evaluating and consulting with them and with the auditors, and have concluded that the Company is not required to consolidate BGCF as it does not have control of
the entity either through the non-voting, non-profit participating B2 shares or the PPNs. Accordingly investments are recognised at fair value through profit or loss. Please see further details provided in note 2 to the financial statements. Consideration
was also given to the disclosures provided with respect to BGCF including details of the underlying investments, leverage and financial instruments disclosures including classification levels. Disclosures have been provided from the financial statements
of BGCF to provide details of the activities and operations of BGCF as a non consolidated entity.
Valuation of investments and recognition of gains and losses Valuation of financial assets is considered a significant matter and is monitored by the Adviser, the Administrator, the Custodian, the Audit Committee and the Board. The Audit Committee receives and reviews reports on the processes for the valuation of
assets. Following discussion, we were satisfied that the judgements made and methodologies applied were prudent and appropriate and that an appropriate accounting treatment has been adopted in accordance with IFRS 13. Please see further details outlined
in notes 2, 3 and 12 to the financial statements.
Revenue recognition/gains and losses on investments There is limited additional management judgement exercised over this as the subjectivity is dealt with by agreeing the valuation methodology for investments (see above).
Assessment of Risks and Uncertainties
The risks associated with the Company's financial instruments, as disclosed in
the financial statements, particularly in note 12, represent a key accounting
disclosure. The Committee critically reviews, on the basis of input from the
Service Providers, the process of ongoing identification and measurement of
these risks disclosures.
Other Accounting Matters
During the year, the Committee received communications from the Service
Providers and from Deloitte on other accounting matters including tax, audit
fees, anti-money laundering procedures and a representation letter.
Risk management and internal controls
The Board as a whole is responsible for the Company's system of internal
controls; however, the Audit Committee and the Risk Committee assist the Board
in meeting its obligations in this regard. The daily operational activities of
the Company were delegated to the Service Providers and as a result the
Company has no direct internal audit function and instead places reliance on
the external and internal audit controls applicable to the Service Providers
as regulated entities. However, the Committee receives confirmations from the
Service Providers that no material issues have arisen in respect of the system
of internal controls and risk management operated within the Company's Service
Providers. The Committee confirms that this is an ongoing process in order to
manage the significant risks faced by the Company. We deem that, to date,
there are no significant issues in this area which need to be brought to your
attention.
External audit
It is the responsibility of the Audit Committee to monitor the performance,
independence, objectivity and re-appointment of Deloitte. The Audit Committee
met with Deloitte to consider the audit strategy and plan for the audit. The
audit plan for the period was reviewed including consideration of the key
financial statement and audit risks, to seek to ensure that the audit was
appropriately focused.
Deloitte attends the Audit Committee meetings throughout the year, which
allows the opportunity to discuss any matters the auditor may wish to raise
without the Adviser or other Service Providers being present. Deloitte
provides feedback at each Audit Committee meeting on topics such as the key
accounting matters, mandatory communications and the control environment.
Deloitte was formally appointed as the Company's auditor for the 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.
The Audit Committee continues to be satisfied with the performance of
Deloitte. We have therefore recommended to the Board that Deloitte, in
accordance with agreed terms of engagement and remuneration, should continue
as the Company's auditor at 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 2016 AGM.
In advance of the commencement of the annual audit, the Audit Committee
reviewed a statement provided by Deloitte confirming their independence within
the meaning of the regulations and professional standards. In addition, in
order to satisfy itself as to Deloitte's independence, the Audit Committee
undertook a review of the auditor compensation and the balance between audit
and non-audit fees.
The Audit Committee has agreed the types of permitted and non-permitted
ongoing non-audit services and those which require explicit prior approval.
During the year Deloitte were contracted to provide services related to the
prospectus update and consideration of the Luxembourg subsidiary established.
The value of non-audit services provided by Deloitte and charged in the period
amounted to approximately E30,000. The overall quantum of non-audit services
and the one-off fees incurred for this work in 2015 and the first quarter of
2016 in the role of reporting accountants and tax advisor related to the
prospectus and subsidiary restructure is material to the overall audit fee.
However this has been considered including the role of the respective
engagement teams and the independence of individuals from the audit engagement
team and the Audit Committee are satisfied that the auditors have acted in an
independent and professional manner and that so far they have been best placed
to provide the reporting accountant and tax advisory work for the Company.
A member of the Audit Committee will be available to Shareholders at the
forthcoming AGM of the Company to answer any questions relating to the role of
the Audit Committee.
Yours sincerely
Mr Gary Clark
On behalf of the Audit Committee
21 April 2016
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF BLACKSTONE / GSO LOAN FINANCING
LIMITED
Opinion on financial statements of Blackstone / GSO Loan Financing Limited In our opinion the financial statements:• give a true and fair view of the state of the Company's affairs as at 31 December 2015 and of the Company's profit for the year then ended;• have been properly prepared in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the European Union; and• have been properly prepared in accordance with the Companies (Jersey) Law, 1991. The financial statements comprise the Statement of Financial Position, the Statement of
Comprehensive Income, the Statement of Changes in Equity, the Statement of Cash Flow and the related notes 1 to 20. The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the European Union.
Going concern We have reviewed the Directors' statement that the Company is a going concern. We confirm that:• we have concluded that the Directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate; and•
we have not identified any material uncertainties that may cast significant doubt on the Company's ability to continue as a going concern. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the
Company's ability to continue as a going concern.
Our assessment of risks of material misstatement The assessed risks of material misstatement described below are those that had the greatest effect on our audit strategy, the allocation of resources in the audit and directing the efforts of the engagement team:
Risk How the scope of our audit responded to the risk
Compliance with consolidation requirementsCompliance of accounting treatment of investments relating to consolidation requirements for the Company and BGCF as its investee entity and related disclosures in accordance with the provisions of IFRS 10 Consolidated Financial Statements and IFRS 12 Disclosure of Interests in Other Entities is essential for the presentation of the financial statements to give a true and fair view of the financial position and results of the Company and management is required to make significant judgements in this area. • We inquired of management on regulatory matters and reviewed the legal framework, contractual terms, transactions and overall relationship between the Company, either directly or indirectly through its subsidiary and BGCF.• We assessed the review
performed by management on the ability for the Company or its subsidiary to control BGCF. This considered the legal agreements and the activities of the Company in the year.• We assessed the adequacy and quality of the IFRS 12 disclosures against best
practice using our technical compliance tools and experience in other listed entities.
Valuation of Investments and recognition of gains and lossesInvestments in BGCF are illiquid investments, not traded on an active market and are valued using valuation techniques determined by the Directors and classified as level III under IFRS 13 Fair Value Measurement. Valuation is therefore a key area of judgement and has a significant impact on the Net Assets Value which is the most significant Key Performance Indicator of the Company and has a direct effect on the recognition of gains and losses on investments. • We assessed the valuation methodology for the financial instruments issued by BGCF against industry standards and IFRS 13.• As the financial information used to determine the fair value of the investments is that of BGCF, we have reviewed the 2015
audited financial statements of BGCF and related audit procedures performed by the auditor of BGCF. We instructed BGCF's auditor to report to us on a full audit scope after we reviewed their audit plan for the year ended 31 December 2015. We also
physically met with BGCF's auditor to review and discuss their working papers.• We involved a member of our specialist complex financial instruments team to review the valuation of investments and related disclosures in the financial statements.•
We tested the valuation by comparing information and assumptions used by management to information available from external independent sources such as Bloomberg or Intex.• We reviewed the calculation of the profit on investments for the period and
recognition in profit or loss.The description of risks above should be read in conjunction with the significant issues considered by the Audit Committee. Our audit procedures relating to these matters were designed in the context of our audit of the
financial statements as a whole, and not to express an opinion on individual accounts or disclosures. Our opinion on the financial statements is not modified with respect to any of the risks described above, and we do not express an opinion on these
individual matters.
Our application of materiality We
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