REG-M&G Credit Income Investment Trust plc Annual Financial Report
28/03/2024 07:15
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M&G Credit Income Investment Trust plc (MGCI)
Annual Financial Report
28-March-2024 / 07:00 GMT/BST
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LEI: 549300E9W63X1E5A3N24
M&G CREDIT INCOME INVESTMENT TRUST PLC
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2023
AND
NOTICE OF ANNUAL GENERAL MEETING
M&G Credit Income Investment Trust plc announces its annual results for
the year ended 31 December 2023 and the publication of its annual report
and accounts for the same period, which includes the notice of Annual
General Meeting.
Chairman’s statement
Performance
I am pleased to report that your Company achieved its benchmark of paying
an annualised dividend yield of SONIA plus 4% for 2023, while also
increasing its NAV. It is also gratifying that UK Investor Magazine gave
the Company its 2023 award for the Best Debt Income Investment Trust.
The opening NAV on 1 January 2023 (adjusted for the last dividend for
2022) was 92.56p per Ordinary Share and the NAV on 31 December 2023
(adjusted for the last dividend for 2023) was 94.07p per Ordinary Share.
Including dividends paid, the NAV total return for the year to 31 December
2023 was 10.4%, compared to our benchmark return of 9.0%. The
outperformance of the NAV came from tightening credit spreads which drove
capital growth and from strong income returns supported by higher yielding
private assets. The portfolio was substantially protected from interest
rate rises and rate-driven volatility by the use of interest rate hedges:
these remain an integral part of the Company’s investment strategy.
Your Company’s portfolio (including irrevocable commitments) at the year
end was 54% invested in private (not listed) assets, with an additional
amount of some 10% in illiquid publicly listed assets which are intended
to be held to maturity. The latter part of the year saw a reduction in the
overall exposure to private assets as older positions matured;
sufficiently attractive new opportunities did not present themselves.
Share buybacks and discount management
Your board remains committed to seeking to ensure that the Ordinary Shares
trade close to NAV in normal market conditions through buybacks and
issuance of Ordinary Shares. During the year, the Company bought back
1,613,783 shares pursuant to the zero discount policy initially announced
on 30 April 2021. On 31 December 2023 the Ordinary Share price was 92.2p,
representing a 4.2% discount to NAV as at that date.
I am pleased that demand after the period end has enabled your Company to
begin to issue Ordinary Shares again. As at 27 March 2024, a total of
300,000 Ordinary Shares had been re-issued from treasury at a premium to
NAV.
Amendment of Articles of Association
The success to date of our zero discount policy gave our shareholders the
confidence to defer the opportunity to realise the value of some or all of
their Ordinary Shares at NAV per Ordinary Share less costs (the ‘Liquidity
Opportunity’) in 2023 as set out in your Company’s Articles of Association
(the ‘Articles’). The Articles were duly amended at a general meeting on
15 June 2023 and the next Liquidity Opportunity will now occur at, or
within the twelve months prior to, the 2028 annual general meeting unless
shareholders direct by way of a special resolution not to offer such
Liquidity Opportunity. Our Investment Manager thus now has an extended
window in which to take account of the attractive opportunities it expects
to continue to occur in volatile markets.
Dividends
Your Company paid four quarterly interim dividends in respect of the year
ended 31 December 2023 at an annual rate of SONIA plus 4%, calculated by
reference to the adjusted opening NAV as at 1 January 2023. These totalled
7.96p per Ordinary Share, which represented a dividend yield of 8.6% on
the Ordinary Share price at 31 December 2023. Your Company’s Investment
Manager continues to believe that an annual total return, and thus
ultimately a dividend yield, of SONIA plus 4% will continue to be
achievable although there can be no guarantee that this will occur in any
individual year.
Outlook
The technical backdrop in fixed income markets remains strong: all-in bond
yields continue to compare favourably to other asset classes. Sterling
Investment Grade and High Yield credit spreads are (at time of writing)
the tightest they have been in close to two years which reflects the
strength of the technical tailwind and future optimism for the ‘soft
landing’ narrative. Despite this creating a slightly more challenging
environment in which to deploy capital, your Company’s board believes
there is still attractive value to be found in credit and that the current
backdrop favours an active management approach. As it has done since
inception, the Investment Manager will use capital gains from the
portfolio to help achieve its return and dividend objectives, as set out
above in the section entitled ‘Dividends’. The currently undrawn £25
million credit facility is available to take advantage of investment
opportunities as they occur.
David Simpson
Chairman
27 March 2024
Financial highlights
Key data
As at As at
31 December 31 December
2023 2022
Net assets (£’000) 135,285 135,109
Net asset value (NAV) per Ordinary Share 96.21p 94.99p
Ordinary Share price (mid-market) 92.2p 92.1p
Discount to NAVa 4.2% 3.0%
Ongoing charges figurea 1.28% 1.22%
Return and dividends per Ordinary Share
Year ended Year ended
31 December 31 December
2023 2022
Capital return 3.3p (6.0)p
Revenue return 6.0p 4.2p
NAV total returna 10.4% (1.7)%
Share price total returna 9.5% (2.8)%
Total dividends declaredb 7.96p 5.35p
a Alternative performance measure. Further information can be found on
pages 113 to 114 of the full Annual Report and Accounts.
b The total dividends declared in respect of each financial year equated
to a dividend yield of SONIA plus 4% on the adjusted opening NAV.
Investment manager’s report
We are pleased to provide commentary on the factors that have had an
impact on our investment performance during 2023. In particular we discuss
the performance and composition of the portfolio.
In 2023 the course of financial markets was dominated by interest rates
and interest rate expectations, as central banks pressed ahead with the
sharpest and most aggressive rate hikes seen since the 1980s. This saw
volatility persist throughout the year as economies grappled with the
impact of elevated inflation and the transition to a higher interest rate
regime. After a positive start, by the end of the first quarter the
collapse of Silicon Valley Bank in the US and the emergency rescue of
Credit Suisse in Switzerland had sparked turmoil in the global banking
sector. This resulted in a flight to perceived ‘safe-haven’ assets which
saw government bonds rally and left investors contemplating whether
central banks would be forced to halt interest rate hikes in order to
prevent a wider financial collapse. However, widespread contagion in
either Europe or the US failed to materialise, leading market volatility
to reduce and paving the way for investor sentiment to improve. Having
moved notably wider during this episode, investment grade credit spreads
then tightened from Q2 onwards, signalling improved investor confidence.
Whilst investor capital was being reallocated to the fixed income market
to seek out attractive all-in yields, new supply remained constrained with
issuers having issued debt in prior years in anticipation of increased
financing costs. This supply/demand imbalance kept credit spreads
well-anchored despite tightening financial conditions and a more
challenging economic backdrop. In view of this, portfolio activity in the
first half of the year focussed on reducing risk and increasing credit
quality as we rotated out of tighter yielding public bonds, redeploying
proceeds into comparable or higher rated asset backed securities (ABS) and
collateralised loan obligations (CLOs) at new issue. We also paid down the
outstanding loan balance on the Company’s credit facility. Into the middle
of the year we added attractively priced private assets into the portfolio
as the pipeline of opportunities picked up. In selling down corporate
bonds and reallocating capital into private and alternative sectors of the
fixed income market, we were able to achieve a significant spread pick-up
and improve both the overall yield and credit quality of the portfolio.
The second half of the year began on a positive footing as a notable
deceleration in inflation in Europe and the US saw ‘soft landing’
expectations drive a strong rally in risk assets, supported by good news
all round from an economic standpoint. However, early summer optimism lost
momentum as concerns grew that central banks’ determination to bring
inflation under control with restrictive policies would keep interest
rates elevated for a prolonged period. Portfolio activity remained quiet
in the third quarter as we continued to favour the up-in- quality trade,
selectively adding public and private new issues and taking exposure in an
attractively priced secondary market securitisation. Private asset
repayments saw cash returned to the portfolio which we invested into the
daily dealing M&G Senior Asset Backed Credit Fund as we waited for
suitably priced public and private opportunities to arise. October saw a
dramatic escalation in geopolitical tensions in the Middle East after an
attack by Hamas militants led Israel to declare war on the group, adding
another layer of complexity to an already uncertain economic outlook. The
initial aftermath saw a flight to quality and perceived ‘safe- haven’
assets, with government bonds then whipsawing as macro and geopolitics
vied for pole position in driving markets. Corporate earnings continued to
show companies performing more robustly than many expected and economies
remained resilient, with a wider global recession failing to materialise,
although the UK did slip into a technical recession in the final quarter
of the year. As we moved into November, the lack of a wider regional
escalation in the Israel-Hamas conflict assuaged investors’ concerns
substantially. Sentiment was bolstered by the easing of inflationary
pressures, optimism about forthcoming rate cuts by central banks and a
potential economic ‘soft landing’. The year ended with a powerful
two-month rally in bond and equity markets which saw credit spreads
compress, driving strong portfolio returns into the close of the year.
Consequently, this also created a more challenging environment in which to
add assets to the portfolio that, in our opinion, would provide attractive
risk-adjusted returns. We concluded that the most attractive relative
value was in both public and private ABS new issues, which offered a
significant spread pick-up versus equivalently rated corporate bonds. Into
the market strength we also took the opportunity to sell holdings in
issuers that had tightened too far relative to their credit fundamentals.
Whilst we continue to be shown a high number of private investment
opportunities, those we have found attractive reduced into the close of
the year, largely on credit quality or pricing grounds. The funded private
asset portion of the portfolio decreased over the period to 53.8% (versus
57.0% at 31 December 2022), largely in the second half of the year as
repayments outweighed new activity. We actively monitor the portfolio for
signs of distress and currently have exposure to three issuers amounting
to 0.82% of the latest NAV, which are either in technical default or at
some stage of a restructuring process. These positions are already
marked-to-market within your Company’s latest NAV. The increase in
exposure since the first half of the year (0.2%) is due to two private
assets (from the same issuer) having a ‘Defaulted’ rating assigned
internally. This decision was taken following a cash flow crunch at the
issuer during which the coupon payment for December was missed. M&G is
working with the issuer toward a solution that should see coupon payments
resume in Q2 2024, at which point our expectation would be for ratings to
be reinstated. It should be noted that the position is over-
collateralised and no loss on principal is expected, whilst any missed
interest is expected to be capitalised and therefore remain to the
portfolio’s benefit. As at 31 December 2023, the average overall credit
quality of the portfolio remains comfortably investment grade at BBB.
Outlook
The early part of 2024 has seen corporate bonds and equities continue to
rally on expectations for rate cuts and the successful navigation of a
‘soft landing’. Conversely, government bonds have sold off since the start
of the year, completely reversing the significant tightening seen in the
wake of December’s dovish pivot. The has come amidst concerns about the
pace of disinflation and the implication for the timing and depth of cuts
from the Fed, which have been heightened by the release of two consecutive
stronger than expected US CPI reports. This has, however, done little to
dampen investor enthusiasm for risk and the technical backdrop in fixed
income remains strong, with all-in bond yields still screening favourably
to other asset classes. The general risk-on tone and supply/demand
imbalance in corporate bond markets has resulted in a significant
tightening in credit spreads. There is also a lot of capital currently
invested in money market funds which looks likely to make its way into
corporate bond funds once overnight interest rates reduce, providing an
additional tailwind which should keep credit spreads anchored. It is in
such market conditions, when corporate bond spreads are looking expensive,
that our flexibility in being able to invest across a diverse range of
alternative asset classes and private credit has the potential to offer an
attractive return premium to public markets.
Given the positive mood music, the first few months of the year have seen
a deluge of new issuance as companies look to lock in financing costs
which are the lowest they have been since mid-2022. We’ve previously
highlighted the sizeable debt maturity wall due in 2024, however this now
looks less ominous with refinancing risk reduced given how far spreads
have moved and indices of high-yield bonds and speculative-grade loans
showing signs of growing investor confidence. This has improved the
outlook for market liquidity and indicators of volatility have returned to
pre-pandemic levels. Despite the loosening in financial conditions, debt
burdens and refinancing schedules of issuers remain a key component of our
credit analysis process. Overall, we see the general outlook for
investment grade sterling credit as a positive one, with recent upwardly
revised UK economic growth forecasts and the progress on disinflation
providing an improved backdrop for corporate fundamentals.
In a year full of electoral events across the globe, both domestic and
foreign politics are poised to play a central role in financial markets in
2024. In the UK, a general election is expected in the second half of the
year and recent events have shown how sensitive market participants can be
to surprises in fiscal policy. In the US, the outcome of November’s
election has the potential to cause ripples on a global scale regarding
issues such as trade, climate, and defence policy. Geopolitical tensions
are as heightened as they have been for decades as the Russia-Ukraine war
moves into its third year, whilst the ongoing conflict between Israel and
Hamas threatens to engulf the Middle East. We have already seen the impact
to commercial shipping and should tensions between Palestinian backers and
Israel’s Western allies spill over further, the threat to global trade and
oil prices could significantly impact an already precariously positioned
global economy.
At current spread levels we continue to favour moving up in credit quality
when investing in public markets. In addition, where opportunities permit
we will look to sell existing public bond holdings, realising capital
gains and reinvesting proceeds into new private investments. This rotation
into higher yielding private assets with stronger structural protections
would further improve the credit quality of the portfolio. Pricing in
private credit markets remains competitive and we are happy to remain
disciplined in adding assets into the portfolio only where we feel we are
compensated appropriately for the level of risk taken. In such a well bid
market, M&G’s track record and scale is a competitive advantage that
allows us to negotiate attractive terms and security packages with
borrowers. We also have the experience and expertise to provide bespoke
solutions in response to borrower requirements, with the added complexity
of such deals allowing us to attract a higher return premium. We have
entered the year with the portfolio cautiously positioned, with access to
a £25 million credit facility and a further £10 million invested in a
AAA-rated, daily dealing ABS fund, ready to be reallocated should market
volatility present us with attractive opportunities.
M&G Alternatives Investment Management Limited
27 March 2024
Portfolio analysis
Top 20 holdings
Percentage of portfolio
of investmentsa
As at 31 December 2023 2022
M&G European Loan Fund 11.48 11.73
M&G Senior Asset Backed Credit Fund 4.89 -
Delamare Finance FRN 1.279% 19 Feb 2029 1.76 1.65
M&G Lion Credit Opportunity Fund IV 1.57 -
Hammond Var. Rate 28 Oct 2025 1.42 1.37
Millshaw SAMS No. 1 Var. Rate 15 Jun 2054 1.33 1.40
Atlas 2020 1 Trust Var. Rate 30 Sep 2050 1.32 1.34
Signet Excipients Var. Rate 20 Oct 2025 1.29 1.25
RIN II FRN 1.778% 10 Sep 2030 1.27 1.45
Regenter Myatt Field North Var. Rate 31 Mar 2036 1.23 1.27
Grover Group Var. Rate 30 Aug 2027 1.21 -
Gongga 5.6849% 2 Aug 2025 1.17 1.19
Income Contingent Student Loans 1 2002-2006 FRN 1.17 1.09
2.76% 24 Jul 2056
Aria International Var. Rate 23 Jun 2025 1.16 -
Citibank FRN 0.01% 25 Dec 2029 1.15 1.17
STCHB 7 A Var. Rate 25 Apr 2031 1.15 1.20
Finance for Residential Social Housing 8.569% 04 1.13 1.13
Oct 2058
Whistler Finco 1% 30 Nov 2028 1.12 -
Project Grey 1% 30 Apr 2025 1.11 -
DCC Treasury 2014 Limited 1% 21 May 2024 1.03 -
Total 38.96
a Including cash on deposit and derivatives.
Source: State Street
Geographical exposure
Percentage of portfolio of investments
as at 31 December 2023 (2022)*
Percentage of portfolio of investments
United Kingdom 53.60% (54.44%)
Europe 35.55% (30.61%)
United States 6.31% (8.46%)
Global 2.28% (2.36%)
Australasia 2.26% (4.13%)
* Excluding cash on deposit and derivatives.
Source: M&G and State Street
Portfolio overview
As at 31 December 2023 2022
% %
Cash on deposit 0.90 0.36
Public 45.59 42.01
Asset-backed securities 17.50 15.34
Bonds 23.20 26.67
Investment funds 4.89 -
Private 53.80 57.01
Asset-backed securities 5.08 5.22
Bonds 2.35 2.30
Investment funds 13.05 11.73
Loans 18.89 22.62
Private placements 2.28 2.14
Other 12.15 13.00
Derivatives (0.29) 0.62
Debt derivatives (0.33) 0.72
Forwards 0.04 (0.10)
Total 100.00 100.00
Source: State Street
Credit rating breakdown
As at 31 December 2023 2022
% %
Unrated (0.29) 0.62
Cash and investment grade 81.48 75.90
Sub-investment grade 18.81 23.48
Total 100.00 100.00
Source: State Street.
For the detailed breakdown of the credit ratings of the investment
portfolio, please refer to page 101 of the full Annual Report and Accounts
in note 13 to the Financial Statements.
Top 20 holdings %
as at 31 December 2023 Company description
Open-ended fund managed by M&G which invests in
leveraged loans issued by, generally,
substantial private companies located in the UK
M&G European Loan Fund and Continental Europe. The fund’s objective is
to create attractive levels of current income
11.48% for investors while maintaining relatively low
volatility of NAV. (Private)
Open-ended fund managed by M&G investing in a
diversified pool of investment grade ABS. In
usual market conditions, the fund will invest
M&G Senior Asset Backed predominantly in senior traches of ABS, with 80%
Credit Fund expected to be of a credit rating of at least
AA– or higher. The latest average credit rating
4.89% of the underlying portfolio is AAA. The daily
dealing fund is used by the Investment Manager
as an alternative to holding cash. (Public)
Delamare Finance FRN Floating-rate, senior tranche of a CMBS secured
1.279% 19 Feb 2029 by the sale and leaseback of 33 Tesco
superstores and 2 distribution centres. (Public)
1.76%
Open-ended fund managed by M&G which invests
M&G Lion Credit primarily in high grade European ABS with on
Opportunity Fund IV average AA risk. The fund seeks to find value in
credits which offer an attractive structure or
1.57% price for their risk profile. (Private)
Secured, bilateral real estate development loan
Hammond Var. Rate 28 Oct backed by a combined portfolio of 2 office
2025 assets leased to an underlying roster of global
corporate tenants. (Private)
1.42%
Millshaw SAMS No. 1 Var. Floating-rate, single tranche of an RMBS backed
Rate 15 Jun 2054 by shared-appreciation mortgages. (Public)
1.33%
Atlas 2020 1 Trust Var. Floating-rate, senior tranche of a bilateral
Rate 30 Sep 2050 RMBS transaction backed by a pool of Australian
equity release mortgages. (Private)
1.32%
Signet Excipients Var. Fixed-rate loan secured against 2 large
Rate 20 Oct 2025 commercial premises in London, currently leased
to 2 FTSE listed UK corporations. (Public)
1.29%
RIN II FRN 1.778% 10 Sep Mixed CLO (AAA). Consists primarily of senior
2030 secured infrastructure finance loans managed by
RREEF America L.L.C. (Public)
1.27%
PFI (Private Finance Initiative) floating-rate,
Regenter Myatt Field amortising term loan relating to the already
North Var. Rate 31 Mar completed refurbishment and ongoing maintenance
2036 of residential dwellings and communal
infrastructure in the London borough of Lambeth.
1.23% (Private)
Floating-rate, senior tranche of a
Grover Group Var. Rate 30 securitisation of receivables originated by a
Aug 2027 leading European technology subscription
platform. (Private)
1.21%
Gongga 5.6849% 2 Aug Structured Credit trade by Standard Chartered
2025 referencing a US$2bn portfolio of loans to
companies domiciled in 36 countries. (Private)
1.17%
Income Contingent Student Floating-rate, mezzanine tranche of a portfolio
Loans 1 2002-2006 FRN comprised of income- contingent repayment
2.76% 24 Jul 2056 student loans originally advanced by the UK
Secretary of State for Education. (Public)
1.17%
Floating-rate, senior tranche of a
Aria International Var. securitisation of invoice receivables originated
Rate 23 Jun 2025 by a specialist digital recruitment platform.
(Private)
1.16%
Citibank FRN 0.01% 25 Dec Floating-rate, mezzanine tranche of a regulatory
2029 capital transaction backed by a portfolio of
loans to large global corporates, predominantly
1.15% in North America. (Private)
Floating-rate, mezzanine tranche in a regulated
STCHB 7 A Var. Rate 25 capital securitisation where the portfolio
Apr 2031 consists of 36 loans, secured on the undrawn
Limited Partner (LP) investor capital
1.15% commitments. (Private)
Finance for Residential
Social Housing 8.569% 04 High grade (AA/Aa3), fixed-rate bond backed by
Oct 2058 cash flows from housing association loans.
(Public)
1.13%
Whistler Finco 1% 30 Nov Floating-rate, senior secured term loan lending
2028 to an outdoor media infrastructure owner which
invests and manages a large billboard portfolio
1.12% in the UK, Netherlands, Spain, Ireland and
Germany. (Private)
Floating-rate, senior secured position in a
Project Grey 1% 30 Apr bilateral real estate loan to fund the
2025 acquisition and refurbishment of an office block
in the London CBD. (Private)
1.11%
DCC Treasury 2014 Limited Fixed coupon, private placement note. DCC is
1% 21 May 2024 Ireland’s largest publicly traded business
support services company. It operates across
1.03% four divisions: LPG, Retail & Oil, Technology
and Healthcare, in 20 countries. (Private)
Annual General Meeting
The Company's Annual General Meeting will be held at the offices of M&G
Alternatives Investment Management Limited, 10 Fenchurch Avenue, London
EC3M 5AG at 10:00 am on Tuesday, 21 May 2024. The formal Notice of AGM can
be found within the Annual Report.
Further Information
The full Annual Report and Accounts can be obtained from the Company's
website at 1 www.mandg.co.uk/creditincomeinvestmenttrust or by contacting
the Company Secretary at 2 mandgcredit@linkgroup.co.uk.
A copy of the Annual Report and Accounts will be submitted shortly to the
National Storage Mechanism ("NSM") and will be available for inspection at
the NSM, which is situated
at: 3 https://data.fca.org.uk/#/nsm/nationalstoragemechanism, in
accordance with DTR 6.3.5(1A) of the Financial Conduct Authority's
Disclosure Guidance and Transparency Rules.
ENDS
Neither the contents of the Company's website nor the contents of any
website accessible from hyperlinks on this announcement (or any other
website) is incorporated into, or forms part of, this announcement.
══════════════════════════════════════════════════════════════════════════
Dissemination of a Regulatory Announcement, transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
══════════════════════════════════════════════════════════════════════════
ISIN: GB00BFYYL325, GB00BFYYT831
Category Code: ACS
TIDM: MGCI
LEI Code: 549300E9W63X1E5A3N24
OAM Categories: 1.1. Annual financial and audit reports
Sequence No.: 312409
EQS News ID: 1869267
End of Announcement EQS News Service
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