Blackstone/GSO LnFin - Final Results - Part 3
21/04/2016 17:45
- Part 3: For the preceding part double click ID:nRSU9863Vb
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. We determined materiality for the Company to be E6,500,000, which is 2% of net asset value. We agreed with the Audit Committee that we would report to that committee all audit differences in excess of
E130,000 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.
An overview of the scope of our audit 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 directly by the audit engagement team.
Matters on which we are required to report by exception
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 by the Company; or•
the financial statements are not in agreement with the accounting records and returns. We have nothing to report in respect of these matters.
Our duty to read other information in the Annual Report Under International Standards on Auditing (UK and Ireland), we are required to report to you if, in our opinion, information in the annual report is:• materially inconsistent with the information in the audited financial statements; or• apparently
materially incorrect based on, or materially inconsistent with, our knowledge of the Company acquired in the course of performing our audit; or• otherwise misleading. In particular, we are required to consider whether we have identified any
inconsistencies between our knowledge acquired during the audit and the Directors' statement that they consider the annual report is fair, balanced and understandable and whether the annual report appropriately discloses those matters that we communicated
to the Audit Committee which we consider should have been disclosed. We confirm that we have not identified any such inconsistencies or misleading statements.
Respective responsibilities of Directors and auditor As explained more fully in the Directors' Responsibility Statement, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an
opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors. We also comply with
International Standard on Quality Control 1 (UK and Ireland). Our audit methodology and tools aim to ensure that our quality control procedures are effective, understood and applied. Our quality controls and systems include our dedicated professional
standards review team and independent partner reviews. 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/or those further matters we have expressly agreed to report to them on in our engagement letter 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.
Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an
assessment of: whether the accounting policies are appropriate to the Company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall
presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements and to identify any information that is
apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our
report.
Andrew Isham
for and on behalf of Deloitte LLP
Chartered Accountants
St Helier, Jersey
Channel Islands
21 April 2016
STATEMENT OF FINANCIAL POSITION
As at 31 December 2015
As at As at 31 December 2014*
31 December 2015
Notes E E
ASSETS
Cash and cash equivalents 5 &12 252,610 86,944
Other receivables 62,365 21,223
Financial assets at fair value through profit or loss 3 &12 326,032,708 299,277,149
TOTAL ASSETS 326,347,683 299,385,316
LIABILITIES
Expenses payable 4 (377,323) (433,756)
TOTAL LIABILITIES (377,323) (433,756)
NET ASSETS ATTRIBUTABLE TO EQUITY SHAREHOLDERS 325,970,360 298,951,560
NET ASSET VALUE PER EURO SHARE 0.98 0.99
* For the period from 30 April 2014 (date of incorporation) to 31 December
2014.
These financial statements were authorised and approved for issue by the
Directors on 21 April 2016 and signed on their behalf by:
Director: Charlotte Valeur
Director: Gary Clark
The accompanying notes form an integral part of the financial statements.
STATEMENT OF COMPREHENSIVE INCOME
For year end 31 December 2015
For year end For period end
31 December 2015 31 December 2014*
Notes E E
Realised gain on foreign exchange 504 248
Income/expense from financial assets at fair value through profit or loss 26,220,359 (1,672,851)
TOTAL REVENUE/(EXPENSE) 26,220,863 (1,672,603)
Administration fee 4 (260,006) (109,841)
Directors' fees 4 (252,500) (89,334)
Legal fees (207,582) (44,110)
Audit fee 4 (100,742) (80,000)
Operating expenses (624,047) (252,552)
TOTAL OPERATING EXPENSES (1,444,877) (575,837)
Interest expense (3,856) -
TOTAL COMPREHENSIVE INCOME/LOSS FOR THE YEAR ALL ATTRIBUTABLE TO SHAREHOLDERS 24,772,130 (2,248,440)
EARNINGS/LOSS PER SHARE 13
Earnings/Loss per Euro share 0.08 (0.01)
* For the period from 30 April 2014 (date of incorporation) to 31 December
2014.
These financial statements were authorised and approved for issue by the
Directors on 21 April 2016 and signed on their behalf by:
Director: Charlotte Valeur
Director: Gary Clark
The accompanying notes form an integral part of the financial statements.
STATEMENT OF CHANGES IN EQUITY
For year end 31 December 2015
Notes E
AT 31 DECEMBER 2014 298,951,560
TRANSACTIONS WITH SHAREHOLDERS
Issue of shares 7 30,107,652
Redemption of shares 7 -
Distribution to Shareholders (27,860,982)
TOTAL TRANSACTIONS WITH SHAREHOLDERS 2,246,670
Profit for the year all attributable to Shareholders 24,772,130
TOTAL COMPREHENSIVE INCOME FOR THE YEAR ALL ATTRIBUTABLE TO SHAREHOLDERS 24,772,130
AT 31 DECEMBER 2015 325,970,360
For the period ended 31 December 2014
Notes E
AT 30 APRIL 2014 -
TRANSACTIONS WITH SHAREHOLDERS
Issue of shares 7 301,200,000
Redemption of shares 7 -
TOTAL TRANSACTIONS WITH SHAREHOLDERS 301,200,000
Loss for the period all attributable to Shareholders (2,248,440)
TOTAL COMPREHENSIVE LOSS FOR THE PERIOD ALL ATTRIBUTABLE TO SHAREHOLDERS (2,248,440)
AT 31 DECEMBER 2014* 298,951,560
* For the period from 30 April 2014 (date of incorporation) to 31 December
2014.
The accompanying notes form an integral part of the financial statements.
STATEMENT OF CASH FLOW
For year end 31 December 2015
Year end 2015 Year end 2014*
E E
STATEMENT OF CASH FLOWS
Total comprehensive income/loss attributable to Shareholders before distributions 24,772,130 (2,248,440)
Adjustments for
Movement in financial assets at fair value through profit or loss 3,243,967 1,672,851
OPERATING CASH FLOWS BEFORE MOVEMENTS IN WORKING CAPITAL
Movement in receivables (41,142) (21,223)
Movement in payables (56,433) 433,756
Cash inflow from movements in working capital (97,575) 412,533
NET CASH GENERATED FROM/USED IN OPERATING ACTIVITIES 27,918,522 (163,056)
Investing activities
Purchase of investments (29,999,526) (300,950,000)
NET CASH USED IN INVESTING ACTIVITIES (29,999,526) (300,950,000)
Financing activities
Proceeds from subscriptions 30,107,652 301,200,000
Distribution (27,860,982) -
NET CASH GENERATED BY FINANCING ACTIVITIES 2,246,670 301,200,000
NET INCREASE IN CASH AND CASH EQUIVALENTS 165,666 86,944
Cash and cash equivalents at the start of the year/period 86,944 -
CASH AND CASH EQUIVALENT AT THE END OF THE YEAR/ PERIOD 252,610 86,944
Interest received 29,464,326 -
* For the period from 30 April 2014 (date of incorporation) to 31 December
2014.
The accompanying notes form an integral part of the financial statements.
NOTES TO THE FINANCIAL STATEMENTS
For year end 31 December 2015
1 GENERAL
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 Euro shares were
admitted to the SFS of the LSE on 23 July 2014 and from 17 April 2015 the
CISE.
For the year under review, 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 predominately to floating rate
senior secured loans directly and indirectly through CLO Income Notes. The
Company seeks to achieve its investment objective solely through exposure to
BGCF.
At 31 December 2015, all shares in issue were Euro shares. The Company may
issue one or more additional classes of shares in accordance with the Articles
of Association.
2 SIGNIFICANT ACCOUNTING POLICIES
2A STATEMENT OF COMPLIANCE
The Company's financial statements are prepared in accordance with
International Financial Reporting Standards ("IFRS") as adopted by the EU and
also in accordance with Jersey company law.
The Company qualifies as an investment entity under IFRS 10, therefore it is
not required to prepare consolidated financial statements. Instead in
accordance with IFRS 10, it prepares individual financial statements only with
its investment in its Lux Subsidiary measured at fair value through profit or
loss.
Further details of consolidation and non consolidation judgements are provided
in note 2L.
2B BASIS OF PREPARATION
The Company's financial statements have been prepared on a historical cost
basis, except for financial instruments measured at fair value through profit
or loss.
The functional currency of the Company is Euro, as its financing and
investment activities are primarily denominated in Euro. The presentation
currency of the financial statements is also the Euro.
The financial statements comprise the Company's Statement of Financial
Position, Statement of Comprehensive Income, Statement of Changes in Equity
and Statement of Cash Flows together with the related notes.
The financial statements have been prepared on a going concern basis. The
disclosures with respect to the Directors assessment on going concern are
provided in the Executive Summary.
2C INTEREST INCOME AND INTEREST EXPENSE ON CASH AND CASH EQUIVALENTS
Income receivable on cash and cash equivalents is recognised separately
through profit or loss in the Statement of Comprehensive Income, on an
effective interest rate yield basis.
2D 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.
The proceeds from the issue of shares are recognised in the Statement of
Changes in Equity, net of the incremental issuance costs.
2E FEES AND CHARGES
Expenses are charged through profit or loss in the Statement of Comprehensive
Income on an accruals basis.
2F CASH AND CASH EQUIVALENTS
Cash comprises current deposits with banks. Cash equivalents are short-term,
highly liquid investments that are readily convertible to known amounts of
cash, are subject to an insignificant risk of changes in value, and are held
for the purpose of meeting short-term cash commitments rather than for
investments or other purposes. Cash equivalents are revalued at period end
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 2015 or the period ended 31 December 2014.
2G FINANCIAL INSTRUMENTS
i. Classification
The Company classifies its financial assets and financial liabilities into
categories in accordance with IAS 39 Financial Instruments: Recognition and
Measurement.
The category of financial assets and financial liabilities at fair value
through profit or loss comprises:
Financial assets at fair value through profit and loss
Financial assets classified in this category are designated by management on
initial recognition as part of a group of financial assets which are managed
and their performance evaluated on a fair value basis, in accordance with a
documented investment strategy. The term "financial assets designated at fair
value through profit or loss" includes investments in the Subsidiary, the Lux
Subsidiary and in the PPNs. The Company's investment in its Subsidiary and Lux
Subsidiary is presented on an aggregate basis in the financial statements with
the "designated at fair value" financial assets, as all are managed together
on a fair value basis.
The PPNs are listed on the Irish Stock Exchange ("ISE") and are recorded in
the financial statements at fair value in accordance with IAS 39. The fair
value of the PPNs is based on NAV of BGCF attributable to the PPNs.
Financial assets at amortised cost
Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market and they are
carried at amortised cost. The Company includes in this category amounts
receivable from brokers and other receivables. The amortised cost of a
financial asset is the amount at which the instrument is measured at initial
recognition, its fair value, adjusted for initial direct costs, minus
principal repayments, plus or minus the cumulative amortisation, using
effective interest rate method, of any difference between the initial amount
recognised and the maturity amount, minus any reduction for impairment.
Financial liabilities at amortised cost
The Company includes in this category expenses payable, borrowings and payable
for investments purchased.
ii. Recognition and initial measurement
Financial assets and financial liabilities are measured initially at fair
value, being the transaction price, including transaction costs for items that
will subsequently be measured at amortised cost on the trade date. Transaction
costs on financial assets at fair value through profit or loss are expensed
immediately.
iii. Subsequent measurement
After initial measurement, the Company measures financial instruments
classified at fair value through profit or loss at their fair values. Changes
in fair value are recorded within "Unrealised gain on financial assets at fair
value through profit or loss" in the Statement of Comprehensive Income.
The following sources have been used to obtain fair value for the financial
assets and liabilities of the Company:
Level 3. If quoted prices are unavailable, the fair value of the
financial asset is estimated using pricing models. These pricing models apply
assumptions regarding asset specific factors and economic conditions
generally, including delinquency rates, prepayment rates, default rates,
maturity profiles, interest rates and other factors that may be relevant to
each financial asset. Where such pricing models are used, inputs are based on
market related measures at the year end date.
There are no financial assets or liabilities at fair value through profit or
loss using level 1 or level 2 sources.
iv. Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the
Statement of Financial Position where there is a legally enforceable right to
offset the recognised amounts and there is an intention to settle on a net
basis, or realise the assets and settle the liability simultaneously. For the
year ended 31 December 2015 and the period ended 31 December 2014, there were
no financial assets or liabilities subject to enforceable, master netting
arrangements or similar agreements which require disclosure.
v. Derecognition
The Company derecognises a financial asset when the contractual rights to the
cash flows from the financial asset expire or it transfers the financial asset
and the transfer qualifies for derecognition in accordance with IAS 39. The
Company derecognises a financial liability when the obligation specified in
the contract is discharged, cancelled or expires.
2H FOREIGN CURRENCY
Transactions in foreign currencies are translated at the foreign currency
exchange rate to the functional currency at the rate ruling at the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies
are translated to Euro at the foreign currency closing exchange rate ruling at
the Statement of Financial Position date. Foreign currency exchange
differences relating to investments at fair value through profit or loss are
included in "unrealised gain on financial assets at fair value through profit
or loss" in the Statement of Comprehensive Income. All other foreign currency
exchange differences relating to monetary items, including cash, are presented
in "unrealised (loss)/gain foreign exchange" in the Statement of Comprehensive
Income.
2I TAXATION
Income tax expense is recognised through profit or loss in the Statement of
Comprehensive Income except to the extent that it relates to items recognised
directly in equity or in other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or
loss for the year, using tax rates enacted or substantially enacted at the
reporting date, and any adjustment to tax payable in respect of previous
periods.
The Company is subject to Jersey tax at a rate of 0%.
2J DISTRIBUTIONS
Distributions to the Shareholders are recorded through the statement of
changes in equity when they are declared to Shareholders.
2K OPERATING SEGMENTS
The Company only engages in one business activity from which it may earn
revenues and incur expenses and whose operating results are regularly reviewed
by the Company's chief operating decision-makers and for which discrete
financial information is available. The chief operating decision-makers for
the Company are the Directors and the only segment is the investment by the
Company into BGCF.
2L SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES
The preparation of the financial statements requires management to make
judgements, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets, liabilities, income
and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are required on an ongoing basis.
Revisions to estimates are recognised prospectively.
i Fair value
For the fair value of all financial instruments held, the Company determines
fair values using valuation techniques.
For year ended 31 December 2015, there were internal valuation techniques
used. The investments are recorded at fair value and are designated as assets
at fair value through profit or loss. The fair value of the investments is
based on their cost plus or minus the profit or loss generated by BGCF, in
accordance with the underlying NPA. Accordingly the Directors have classified
these securities as level 3.
ii. Non-consolidation of BGCF
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:
i. The investor has existing rights that give it the ability to direct
the relevant activities that significantly affect the investee's returns;
ii. The investor has exposure or rights to variable returns from its
involvement with the investee; and
iii. The investor has the ability to use its power over the investee to
affect the amount of the investor's returns.
In the case of BGCF, the relevant activities are the investment decisions made
by it. However, in the Company's case the power to influence or direct the
relevant activities is not attributable to the Company. The Company does not
have the ability to direct or stop investments by BGCF therefore it does not
have the ability to control the variability of returns.
Accordingly, BGCF has been determined not to be a subsidiary undertaking as
defined under IFRS 10 and the Company's investment in the PPNs issued by BGCF
are accounted for at fair value through profit or loss. The Board has also
considered the non-voting B2 shares held by its Subsidiary which also do not
give that entity the right to control the operations and activities of BGCF.
iii. Non-consolidation of the Subsidiary undertaking
At 31 December 2014, the Company had one subsidiary undertaking as defined
under IFRS 10, Blackstone / GSO Loan Financing 2 Limited (the "Subsidiary").
The Subsidiary was dissolved effective 23 December 2015.
At 31 December 2015, the Company had one subsidiary undertaking as defined
under IFRS 10, Blackstone / GSO Loan Financing (Luxembourg) S.a.r.l. (the "Lux
Subsidiary").
In the case of the Lux Subsidiary, the relevant activities are the investment
decisions which are made by it. Power over its relevant activities is
attributed to the Company through its 100% ownership. The impact of this
ownership is that it gives the Company the ability to direct or stop
investments by the Lux Subsidiary and hence the decision making power.
To adopt IFRS 10 and to be exempt from preparing consolidated financial
statements, the Company must meet the definition of an investment entity. The
Company is satisfied that it meets both the required criteria and typical
characteristics of an investment entity:
a It has met the required criteria as follows:
i. It has obtained funds from one or more investors for the purpose of
providing those investors with investment management services;
ii. It has committed to its investors that its business purpose is to
invest funds solely for returns from capital appreciation, investment income
or both; and
iii. It measures and evaluates the performance of its investments on a fair
value basis.
b In addition, the Company has concluded that it has all the following
typical characteristics of an investment entity, namely:
i. It has exposure to more than one investment;
ii. It has multiple investors;
iii. The majority of its investors are not related parties; and
iv. It has ownership interests in the form of equity.
Accordingly, the Lux Subsidiary has not been consolidated under IFRS 10 and is
accounted for at fair value through profit or loss. The Subsidiary was not
consolidated as at 31 December 2014 for the same reasons as those outlined
above.
2M NEW STANDARDS AND INTERPRETATIONS APPLICABLE TO FUTURE REPORTING PERIODS
New standards, amendments and interpretations issued and effective for the
financial year beginning 1 January 2015
There are no new standards, amendments or interpretations issued and effective
for the financial year beginning 1 January 2015 that have a significant impact
on the Company.
New standards, amendments and interpretations issued but not effective for the
financial year beginning 1 January 2015 and not early adopted
IFRS 9 "Financial Instruments", addressed the classification, measurement and
recognition of financial assets and financial liabilities and will become
effective for the periods beginning on or after 1 January 2018. IFRS 9
requires financial assets to be classified into two measurement categories:
those measured at fair value and those measured at amortised cost. The
determination is made at initial recognition. The classification depends on
the entity's business model for managing its financial instruments and the
contractual cash flow characteristics of the instrument. For financial
liabilities, IFRS 9 retains most of the IAS 39 requirements. The main change
is that, in cases where the fair value option is taken for financial
liabilities, the part of a fair value change due to an entity's own credit
risk is recorded in other comprehensive income rather than the income
statement, unless this creates an accounting mismatch. The Company is yet to
assess IFRS 9's full impact.
IFRS 10 "Consolidated Financial Statements", IFRS 12 "Disclosures of Interests
in Other Entities" and IAS 27 "Separate Financial Statements" amendments were
issued in September 2014 and will become effective for the periods beginning
on or after 1 January 2016. The amendments clarify the following: exemption
from preparing consolidated financial statements; a subsidiary providing
services that relate to the parent's investment activities; application of the
equity method by a non-investment entity investor to an investment entity
investee and disclosure requirements relating to an investment entity
measuring all of its subsidiaries at fair value. These amendments are not
expected to have any impact on the Company's financial position or performance
but may result in extra disclosures.
IAS 1 "Presentation of Financial Statements" amendment was issued in December
2014 and will become effective for period beginning on or after 1 January
2016. The amendment introduces five narrow-focus improvements to the
disclosure requirements that relate to materiality, order of the notes,
subtotals, accounting policies and disaggregation. The amendment is not
expected to have any impact on the Company's financial position, performance
but may result in a variation of disclosures in its financial statements.
3 FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
As described in the accounting policies note, the Company has financial assets
at fair value through profit or loss. The financial instruments recognised at
fair value are analysed between those whose fair value is based on:
Level 1: quoted prices, unadjusted, in active markets for identical assets or
liabilities;
Level 2: inputs other than quoted prices included in level 1 that are
observable for the asset or liability, either directly, as prices, or
indirectly, derived from prices. This category includes instruments valued
using: quoted market prices in active markets for similar instruments; quoted
for identical or similar instruments in markets that are considered less than
active; or other valuation techniques in which all significant inputs are
directly or indirectly observable from market data.
Level 3: inputs for the asset or liability that are not based on observable
market data (unobservable inputs).
For year ended 31 December 2015 and the period ended 31 December 2014 all
financial instruments were classified as level 3 within the fair value
hierarchy.
For investments that have been categorised as level 3, fair value of the PPNs
is based on NAV of BGCF attributable to the PPNs. The fair value of the
ordinary shares held in the Lux Subsidiary and in BGCF are deemed to
approximate their cost.
The following table shows the movement in level 3 of the fair value hierarchy
for the year ended 31 December 2015:
Financial assets at fair value through
profit or loss
E
Opening balance 299,277,149
Purchases 29,999,526
Total unrealised gains or losses in comprehensive income (3,243,967)
Closing balance 326,032,708
The following table shows the movement in level 3 of the fair value hierarchy
for the period ended 31 December 2014:
Financial assets at fair value through
profit or loss
E
Opening balance -
Purchases 300,950,000
Total unrealised gains or losses in comprehensive income (1,672,851)
Closing balance 299,277,149
For each class of assets and liabilities not measured at fair value in the
statement of financial position but for which fair value is disclosed, the
Company is required to disclose the level within the fair value hierarchy
which the fair value measurement would be categorised and a description of the
valuation technique and inputs used in the technique.
For year ended 31 December 2015 and the period ended 31 December 2014 cash and
cash equivalents, other receivable and expenses payable whose carrying amounts
approximate to fair value, were classified as level 2 within the fair value
hierarchy.
Transfers between level 1, 2 and 3
There were no transfers between level 1, level 2 and level 3 during the year
(2014: none).
To provide information to Shareholders the following is a summary of the
inputs used as at 31 December 2015 in valuing the financial instruments
carried at fair value by BGCF:
BGCF Level 1 Level 2 Level 3 Total Fair Value
E E E E
Financial assets at fair value through profit or loss:
Designated at fair value through profit or loss:
- Investments - 137,816,910 185,090,584 322,907,494
Held for trading
Derivative financial assets - - - -
Total financial assets - 137,816,910 185,090,584 322,907,494
Financial liabilities at fair value through profit or loss:
Designated at fair value through profit or loss:
PPNs - - (311,012,708) (311,012,708)
Held for trading
Derivative financial liabilities - (939,403) - (939,403)
Total financial liabilities - (939,403) (311,012,708) (311,952,111)
There were no transfers between level 1 and level 2 of the fair value
hierarchy during the year end.
To provide information to Shareholders the following is a summary of the
inputs used as at 31 December 2014 in valuing the financial instruments
carried at fair value by BGCF:
BGCF Level 1 Level 2 Level 3 Total Fair Value
E E E E
Financial assets at fair value through profit or loss:
Designated at fair value through profit or loss:
- Investments - 451,627,773 135,541,185 587,168,958
Held for trading
Derivative financial assets - 33,785 - 33,785
Total financial assets - 451,661,558 135,541,185 587,202,743
Financial liabilities at fair value through profit or loss:
Designated at fair value through profit or loss:
PPNs - - (284,277,149) (284,277,149)
Held for trading
Forward purchase agreements - (288,660) - (288,660)
Total financial liabilities - (288,660) (284,277,149) (284,565,809)
There were no transfers between level 1 and level 2 of the fair value
hierarchy during the period.
The following table shows the movement in level 3 of BGCF's fair value
hierarchy for year ended 31 December 2015:
BGCF Financial assets atfair value through profit or loss Financial liabilities at fair value through profit or loss
E E
Opening balance 135,541,185 (284,277,149)
Transfer in Level III 8,601,799 -
Transfer out Level III (34,043,005) -
Total unrealised gains or losses in comprehensive income (13,678,417) 3,243,967
Purchases/Issuances 161,640,730 (29,979,526)
Sales (72,758,928) -
Realised loss (212,780) -
Closing balance 185,090,584 (311,012,708)
The following table shows the movement in level 3 of BGCF's fair value
hierarchy for the period ended 31 December 2014:
BGCF Financial assets atfair value through profit or loss Financial liabilities at fair value through profit or loss
E E
Opening balance - -
Total unrealised gains or losses in comprehensive income (10,381,597) 1,672,851
Purchases/Issuances 193,911,717 (285,950,000)
Sales (48,406,664) -
Realised loss 417,729 -
Closing balance 135,541,185 (284,277,149)
BGCF's policy is to recognise transfers into and transfers out of fair value
hierarchy levels as of the last day of the accounting period.
The transfers out of Level 3 represent holdings that were priced by Markit as
at 31 December 2014 with a single pricing source input resulting in a fair
value hierarchy classification of Level 3. However, these same holdings were
priced by Markit as at 31 December 2015 with more than one price input
resulting in a fair value hierarchy classification of Level 2. The opposite
movement in pricing sources resulted in the transfers into Level 3.
Sensitivity of level 3 holdings to unobservable inputs
Sensitivity analysis of level 3 assets is performed at BGCF's level since that
has a direct impact on the valuation of the Company's level 3 holdings.
A number of holdings in BGCF's portfolio as at 31 December 2015 were priced
through Markit. Where the input into the Markit price was 1 or less prices,
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 priced by
Thompson Reuters and were classified as level 3 as this is a single pricing
source.
The assets classified as level 3 represented 57.32% (for the period ended 31
December 2014: 23.1%) of BGCF's 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 BGCF's financial assets of E9,254,529
(2.87% of the total financial assets) (31 December 2014: E6,777,059 (1.15% of
the total financial assets)). There also would be an equal and opposite effect
on the valuation of the PPNs and the debt issued by BGCF's subsidiaries
(2.98%) (31 December 2014: (2.38%)).
The CLO Income Notes are valued by Thompson Reuters using discounted cash flow
models. The key model input assumptions are the loan prepayment rates, loan
default rates, loan recovery given default rates and reinvestment rates. These
metrics are accumulated from various independent market sources. Additionally,
Thompson Reuters review 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 financial liabilities of BGCF at fair value through profit or loss consist
of the PPNs. In the financial statements of BGCF the PPNs are valued using a
model based on the fair value of the underlying assets and liabilities. The
amortised cost of the variable fund notes and cash and cash equivalents and
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 - as discussed in the previous paragraph.
If the valuation of the element of debt issued by the subsidiaries of BGCF and
then purchased by BGCF had increased or decreased by 5% (31 December 2014: 5%)
the value of the CLO Income Notes would move by E8,555,110 (for the period
ended 31 December 2014: E4,743,259).
4 FEES
ADVISER
Under the Advisory Agreement, the Adviser is entitled to receive out of pocket
expenses, all reasonable third party costs, and other expenses incurred in the
performance of its obligations.
ADMINISTRATOR
State Street Fund Services (Jersey) Limited, as Administrator of the Company
for the year ended 31 December 2015 was entitled to receive fees of up to
0.08% per annum of the NAV of the Company for the provision, respectively, of
administration, accounting and trustee services to the Company. The overall
charge for the above-mentioned fees for the Company for year ended 31 December
2015 was E260,006 (for the period ended 31 December 2014: E109,841) and the
amount due at 31 December 2015 was E42,966 (for the period ended 31 December
2014: E109,841).
DIRECTORS' FEES
The Company's Directors are entitled to a fee in remuneration for their
services as Directors at a rate to be determined from time to time by
Remuneration Committee of the Board. During the year ended 31 December 2015,
the Company paid Directors' fees of E252,500 (for the period ended 31 December
2014: E89,334) of which E51,048 (for the period ended 31 December 2014:
E26,132) was outstanding at the year end.
AUDIT FEES
The Company incurred the following audit, assurance and tax fees during the
year of which E100,742 (for the period ended 31 December 2014 E80,000) was
outstanding at the year end.
Year ended 31 December 2015 Period ended 31 December 2014
E E
Audit of individual accounts 100,742 80,000
Non audit services 30,000 8,000
130,742 88,000
5 CASH AND CASH EQUIVALENTS
Cash and cash equivalents balances are held with the Custodian.
6 BORROWING
The Company will not utilise borrowings for investment purposes. However, the
Directors are permitted to borrow up to 10% of the NAV for day to day
administration and cash management purposes. The Company did not borrow during
the year ended 31 December 2015 or during the period ended 31 December 2014.
7 SHARES
The maximum share capital of the Company is unlimited. As at 31 December 2015,
the issued share capital consists of 331,319,700 Euro shares (for the period
ended 31 December 2014: 301,200,000).
Voting rights
Holders of Euro shares participate in the profits of the Company. Shareholders
have the right to attend, speak and vote at any general meetings of the
Company in accordance with the provisions of the Articles of Association and
have one vote in respect of each whole share held.
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, be applied to the Shareholders equally pro rata to their holdings of
shares.
ISSUED SHARES (NO. OF SHARES)
Euro shares*
Opening balance 301,200,000
Issue during the year 30,119,700
Balance at 31 December 2015 331,319,700
Euro shares**E
Opening balance -
Issue during the period 301,200,000
Balance at 31 December 2014 301,200,000
EQUITY
Euro shares*E
Opening balance 298,951,560
Income for the year all attributable to Shareholders 24,772,130
Issue of shares 30,107,652
Distributions to Shareholders (27,860,982)
Balance at 31 December 2015 325,970,360
Euro shares**E
Opening balance -
Loss for the period all attributable to Shareholders (2,248,440)
Issue of shares 301,200,000
Balance at 31 December 2014 298,951,560
* 30,119,700 Euro shares were issued and admitted to the SFS and CISE on
29 April 2015.
** 260,500,000 Euro shares were issued and admitted to the SFS on 23 July
2014. A further 40,700,000 Euro shares were issued and admitted to the SFS on
28 August 2014.
CAPITAL MANAGEMENT
The Company is closed ended and has no externally imposed capital
requirements.
The Company's objectives for managing capital are:
i. to invest the capital in investments meeting the description, risk
exposure and expected return indicated in its ` Prospectus;
ii. to achieve consistent returns while safeguarding capital by investing
in BGCF;
iii. to maintain sufficient liquidity to meet the expenses of the Company
and to meet distribution commitments;
and
iv. to maintain sufficient size to make the operation of the Company
cost-efficient.
Please refer to note 12 (c) Liquidity Risk for further discussion on capital
management, particularly on how the distribution policy is managed.
8 SOFT COMMISSIONS
There are no agreements for the provision of any services by means of soft
commission.
9 INTERESTS IN OTHER ENTITIES
INTERESTS IN UNCONSOLIDATED STRUCTURED ENTITIES
IFRS 12 defines a structured entity as an entity that has been designed so
that voting or similar rights are not the dominant factor in deciding who
controls the entity, such as when any voting rights relate to the
administrative tasks only and the relevant activities are directed by means of
contractual agreements. A structured entity often has some of the following
features or attributes:
i. restricted activities;
ii. a narrow and well defined objective;
iii. insufficient equity to permit the structured entity to finance its
activities without subordinated financial support; and
iv. financing in the form of multiple contractually linked instruments that
create concentrations of credit or other risks.
Involvement with unconsolidated structured entities
The Company has concluded that the PPNs and non-voting shares of BGCF in which
it invests, but that it does not consolidate, meet the definition of a
structured entity.
Interests in subsidiaries
As at 31 December 2015, the Company has a 100% notional holding of the entire
outstanding notional balance of its Lux Subsidiary (20,000 Class A shares). As
at 31 December 2014, the Company had a 100% notional holding of the entire
outstanding notional balance of its Subsidiary which was subsequently
dissolved on 23 December 2015.
The 15 Class B2 shares the Subsidiary held in BGCF were transferred in-specie
to the Company. Each share had a nominal value of E1 and a share premium of
E999,999, resulting in the in-specie transfer being valued at E15,000,000.
Other than the investments noted above the Company did not provide any
financial support for the period end 31 December 2014, nor had it any
intention of providing financial or other support. It provided a loan of
E30,000 to the Lux Subsidiary during the year ended 31 December 2015.
10 RELATED PARTY TRANSACTIONS AND KEY MANAGEMENT PERSONNEL
TRANSACTIONS WITH ENTITIES WITH SIGNIFICANT INFLUENCE
In accordance with IAS 24 "Related Party Disclosures" the related parties and
related party transactions during the year comprised an affiliate of DFME. As
at 31 December 2014 Blackstone Asia Treasury Pte held 50,000,000 shares in the
Company and has entered into a Lock-Up Agreement with the Company and Joint
Bookrunners pursuant to which Blackstone Asia Treasury Pte undertakes
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