REG - Riverstone Credit - Half-year Report & Unaudited Financial Statements
11/08/2022 07:00
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RNS Number : 6368V Riverstone Credit Opps. Inc PLC 11 August 2022
Riverstone Credit Opportunities Income Plc
Interim Report and Unaudited Interim Condensed Financial Statements
For the six months ended 30 June 2022
We lend to companies that build and operate the infrastructure used to
generate, transport, store and distribute both renewable and conventional
sources of energy, and companies that provide services to that infrastructure.
We also lend to companies seeking to facilitate the energy transition by
decarbonising the energy, industrial and agricultural sectors, building
sustainable infrastructure and reducing or sequestering carbon emissions.
We seek to ensure that our investments are having a positive impact on climate
change by structuring each deal as either a Green Loan or a
Sustainability-Linked Loan, documented using industry best practices.
Company number: 11874946
All capitalised terms are defined in the list of defined terms in the list of
defined terms below unless separately defined.
Riverstone Credit Opportunities Income Plc is an externally managed
closed-ended investment company listed on the London Stock Exchange.
The Company's Ordinary Shares were admitted to the Specialist Fund Segment of
the London Stock Exchange plc's Main Market and incorporated and registered on
11 March 2019 in England and Wales with an unlimited life.
INVESTMENT MANAGER
The Company's Investment Manager is Riverstone Investment Group LLC, which is
controlled by affiliates of Riverstone Holdings LLC ("Riverstone").
Riverstone was founded in 2000 and is currently one of the world's largest and
most experienced investment firms focused on energy, power, infrastructure and
decarbonisation. The firm has raised over $43 billion of capital and committed
approximately $44 billion to over 200+ investments in North America, South
America, Europe, Africa, Asia and Australia. Headquartered in New York,
Riverstone has built a global platform with additional offices located in
Menlo Park, Houston, London, Amsterdam and Mexico City. Since its founding,
the Firm has grown its presence significantly and currently employs over 90
professionals worldwide.
The registered office of the Company is 27-28 Eastcastle Street, London, W1W
8DH.
Key Financials
NAV as at 30 June 2022 $93.74m
NAV per Share as at 30 June 2022 $1.02
Market capitalisation as at 30 June 2022 $76.90m
Share price at 30 June 2022 $0.84
Total comprehensive income for period ended 30 June 2022 $3.83m
EPS for the period ended 30 June 2022 4.18 cents
Distribution per share with respect to the period ended 30 June 2022 4.0 cents
Highlights
· The NAV at 30 June 2022 was $1.02 per share.
· Distributions of 4.0 cents per share approved with respect to the
period ended 30 June 2022.
· 3 full realisations, 1 new investment and 2 upsized investments
executed in the period ended 30 June 2022.
INVESTMENT OBJECTIVE
The Company seeks to generate consistent Shareholder returns predominantly in
the form of income
distributions, principally by making senior secured loans to energy-related
companies.
The Company lends to companies working to drive change and deliver solutions
across the energy sector, spanning renewable as well as conventional sources,
with a primary focus on infrastructure assets. The Company's aim is to build a
portfolio that generates an attractive and consistent risk adjusted return for
investors.
INVESTMENT POLICY
The Company seeks to achieve its investment objective through investing
primarily in a diversified portfolio of direct loans to companies that build
and operate the infrastructure used to generate, transport, store and
distribute both renewable and conventional sources of energy, and companies
that provide services to that infrastructure. We also lend to companies
seeking to facilitate the energy transition by decarbonising the energy,
industrial and agricultural sectors, building sustainable infrastructure and
reducing or sequestering carbon emissions. We seek to ensure that our
investments are having a positive impact on climate change by structuring each
deal as either a Green Loan or a Sustainability-Linked Loan, documented using
industry best practices.
Further details on the Company's investment strategy, investment restrictions
and distribution policy are outlined in the Company's Annual Report for the
year ended 31 December 2021.
Chairman's Statement
Overview
On behalf of the Board, I am pleased to present this interim report for the
six months ended 30 June 2022, which reflects strong performance by RCOI.
During the period, RCOI has continued to pursue its strategy of originating,
executing, and managing a diverse portfolio of senior secured
well-collateralised loans to companies seeking to advance the energy
transition by decarbonising energy infrastructure and infrastructure services.
Furthermore, our growing record of attractive realisations has continued
apace.
Our strategic re-balancing towards energy transition reflects not only the
developed world's secular trend towards net zero, but also our belief that
this focus presents a significant opportunity to provide a compelling total
return through a combination of current yield and asset growth.
The investment manager's strategy focuses deliberately on asset-based lending,
conservative LTVs and structurally protective features in senior secured,
short duration, 100% floating rate loans, to mitigate risk as well as to
optimise yield. This approach supports our ambition to deliver annual returns
to shareholders of 8-10%. Since our IPO in May 2019 and pro forma for the
second quarter dividend, we have delivered 25.5% NAV total return and 20.57
cents in dividends paid.
Our loan portfolio is diversified and of outstanding quality, including water
infrastructure company Blackbuck Resources; plastic recycling firm Circulus
Holdings; London listed maritime infrastructure operator Harland & Wolff;
and chemical technology firm Streamline Innovations. We remain focused on
steady yield and principal preservation and remain disciplined in our
investment approach.
Shortly after the period end, RCOI re-initiated a share buyback programme, in
recognition of the fact that the current share price does not, in our view,
reflect the value of the portfolio and strategy. The buyback underlines the
Board's confidence of the strategy's high performing and differentiated
approach.
As we are faced with a strong energy market backdrop, we remain very
optimistic about the investment opportunity set, given the market environment
for energy investments is as strong as we have seen it since the IPO in May
2019.
On behalf of all the Board, I would like to thank our shareholders for their
continuing support.
Key Developments
RCOI's NAV has remained robust during the period under review, with a current
NAV per share of $1.02 (31 December 2021: $1.02).
In the first half of 2022, there was one new investment, Harland & Wolff,
a London-listed infrastructure operator engaged in the development and
operation of strategic maritime assets across the United Kingdom. This loan
has been structured as a Green Loan following the Green Loan Principles and a
Sustainability-Linked Loan with performance indicators focused on social
responsibility. In addition, the loan to Streamline Innovations, a sponsor
backed leader in environmentally advanced treatment solutions and equipment
for hydrogen sulphide was successfully upsized bringing the total amount
committed by RCOI to $13.8m. There were also three full realisations in the
beginning of 2022. Signet Maritime Corporation was fully realised in April
2022 with a 14.5 per cent gross IRR and 1.33x gross MOIC; Roaring Fork
Midstream was fully realised in June 2022 resulting in a 21.3 per cent gross
IRR and a 1.16x gross MOIC respectively; in addition, Imperium3 NY, LLC was
realised in April 2022 resulting in a 32.5 per cent gross IRR and 1.25x gross
MOIC. For Imperium3 NY, LLC, RCOI will retain its share of non-dilutable
equity warrants which provides meaningful upside to this investment. Our
pipeline of investment opportunities continues to remain robust, focused on
energy infrastructure, infrastructure services and energy transition
opportunities.
Performance
The Company reported a profit of $3.8 million for the period ending 30 June
2022 as a result of income received from the investment portfolio and changes
in the portfolio's valuations. The Net Asset Value ("NAV") of the Company
remained solid and ended the period at $1.02 per share. The Company paid
income of 3.70 cents per share to investors, achieving its stated dividend
target. The Company has now delivered NAV total returns of 25.5% to investors
since inception and 20.57 cents of income, including the dividend for the
second quarter of 2022.
The current unrealised portfolio remains profitable at an average 1.13x Gross
MOIC. Characteristics of RCOI's investment strategy, particularly the focus on
a conservative LTV, a diversified sector and end-user base, as well as
structured incentives for early repayment, have assisted the portfolio in its
ability to limit the impact of broad market fluctuations on performance.
RCOI has executed 20 direct investments since inception and cumulatively
invested $178 million of capital since the IPO in May 2019. The realised
investments, now comprising 12, have delivered for the trust an average IRR of
18.8%. Our capital has facilitated corporate transitions, leading to earlier
than expected refinancings on a number of transactions. This has left the
trust modestly underinvested, despite a continually strong pipeline and
favourable macro environment for our strategy.
The Board is extremely pleased with our highly diversified and dynamic
portfolio of investments and the robust pipeline of new opportunities. Our
focus on decarbonising energy infrastructure and infrastructure services will
continue into the future, but the portfolio we have now is already making a
big impact. Just as we had with more traditional energy companies, we are
finding that businesses at the forefront of energy transition find our first
lien, short-duration, floating rate product highly appealing and a good fit
for their development plans.
As always, the Board and the manager remain vigilantly focused on managing the
portfolio to ensure long-term value creation for our shareholders. We look to
the future with confidence.
Reuben Jeffery, III
Chairman
10 August 2022
Investment Manager's Report
ABOUT THE INVESTMENT MANAGER
Appointed in May 2019, the Investment Manager, an affiliate of Riverstone,
will seek to generate consistent shareholder returns predominantly in the form
of income distributions principally by making green and sustainability-linked,
senior secured loans to energy-related businesses. Loans are classified as
Green Loans when they support environmentally sustainable economic activity
and Sustainability Linked Loans when they contain sustainability performance
targets or other equivalent metrics to be monitored. We lend to companies
working to drive change and deliver solutions across the energy sector,
spanning renewable as well as conventional sources, with a primary focus on
infrastructure assets. Our aim is to build a portfolio that generates an
attractive and consistent risk adjusted return for our investors.
The Company will seek to achieve its investment objective predominantly
through investing in a diversified portfolio of direct and indirect
investments in loans, notes, bonds, and other debt instruments, including
convertible debt, issued by Borrowers operating in the energy sector.
Riverstone's investment professionals have a combination of industry
knowledge, financial expertise, and operating capabilities. The Company will
also benefit from the guidance and input provided by non-Riverstone Credit
Team members of Riverstone's credit investment committee who will be involved
in the Company's investment process. The Company believes that Riverstone's
global network of deep relationships with management teams, investment banks
and other intermediaries in the energy sector will lead to enhanced sourcing
and deal origination opportunities for the Company.
INVESTMENT STRATEGY
The Investment Manager will seek to leverage the wider Riverstone platform to
enhance its investment strategy through the opportunities presented and the
synergies gained from being part of one the largest dedicated energy focused
private equity firms.
The key elements of the Investment Manager's investment strategy in relation
to the Company and its SPVs are summarised below.
CORE STRATEGY - DIRECT LENDING
The Investment Manager will be primarily focused on originating opportunities
from small to middle-sized energy companies in what the Riverstone team call
the ''Wedge''; companies too small for the capital markets and without the
conforming credit metrics that allow access to the commercial bank market.
All investments directly originated by the Company's SPVs are expected to
involve providing primary capital to the Borrower, after having completed a
thorough and comprehensive due diligence process. In each case the Riverstone
team will be able to influence terms and conditions. In many cases, direct
investments are expected to be held solely by the Company's SPVs, in some
cases alongside Other Riverstone Funds. In others, the Company's SPVs (and
Other Riverstone Funds) may be a member of a syndicate arranged by a third
party.
The Investment Manager expects that lending investments made directly by the
Company's SPVs will have a contractual duration of three to five years from
inception and an expected duration of one to two years. The maximum term of
any investment made by the Investment Manager will be 7 years. Many of the
loans, however, are short term floating rate loans with floating rate coupons
that are indexed to LIBOR or SOFR as well as contain rate floors. Despite the
current inflationary environment with interest rates already rising and
potential to continue in the next few years, this does not result in a decline
in value in our loans.
ComplEmentary Strategies - Capital Relief and Market-Based Opportunities The
Investment Manager may be presented with opportunities to acquire from banks'
so-called ''non-conforming'' loans which can no longer be held on bank balance
sheets. The Investment Manager expects that such ''capital relief''
transactions will be secondary in nature, will typically be based on public
due diligence information and will typically not allow the Company to
influence the underlying terms of the relevant Investment. The Investment
Manager expects that, in capital relief transactions, the Company may
participate as part of a broader syndicate of third-party lenders. The
Investment Manager expects capital relief transactions made by the Company's
SPVs to have a duration of one to three years from inception and an expected
duration of less than 12 months.
Riverstone believes that the same trends which make it difficult for smaller
Borrowers to access capital markets may create attractive opportunities for
investors such as the Company to acquire syndicated loans and bonds in the
open market at risk-adjusted returns that match or exceed the returns
available from direct lending opportunities. In such circumstances, the
Company's SPVs may make selected investments in the secondary market for
syndicated loans and bonds where the Investment Manager believes that such
instruments offer suitable risk adjusted returns.
The Investment Manager expects market-based opportunities generally to be
secondary in nature, typically to be based on public due diligence information
and may, typically, not allow the Company any influence on the underlying
terms of the investment. The Investment Manager expects market-based
opportunities will typically involve the Company's SPVs being part of a
broader syndicate of lenders.
INVESTMENT PORTFOLIO SUMMARY
The Investment Manager has reviewed numerous opportunities within the
Investment Guidelines since RCOI's admission. As of 30 June 2022, the Company
holds eight direct investments across energy infrastructure &
infrastructure services and energy transition assets as further discussed
below. In addition, RCOI holds the warrants of one investment where the loan
was fully realised. Three realisations occurred during the period ended 30
June 2022. The Investment Manager continues to maintain a strong pipeline of
investment opportunities and expects to make a number of further commitments
across the infrastructure, infrastructure services and energy transition
sectors. RCOI, when making a new investment, will receive an allocation of the
investment in accordance with the limitations illustrated in the Company's
Investment Restrictions. The determination of what percentage they will
receive will be pro rata to the available capital for all of the RCP funds
that are eligible to participate in the investment.
In the descriptions that follow, yield to maturity is inclusive of all upfront
fees, original issue discounts, drawn spreads and prepayment penalties through
the stated maturity of the loan. Most loans have incentives to be called
early. A portion of the loans have a "payment-in-kind" feature for drawn
coupons for a limited time period. Similarly, some of the loans have a
"delayed-draw" feature that allows the borrower to call capital over time, but
always with a hard deadline. Loans that are committed are loans with signed
definitive documentation where a structuring fee and/or original issue
discount have been earned and the Company earns an undrawn spread. Loans that
are invested are loans with signed definitive documentation where a
structuring fee and/or original issue discount have been earned, the Company
has funded the loan to the borrower and the Company is earning a drawn coupon.
Riverstone expects that every loan it makes will advance the cause of Energy
Transition one way or another. For new green energy infrastructure, or
conversion of older assets to a more sustainable use, we will make "Green
Loans." For existing hydrocarbon related businesses, we will make
"Sustainability-Linked Loans" that tie loan economics to meeting specific
sustainability performance targets. Both structures will be based on LSTA
guidelines and be subject to second party opinions from Sustainable Fitch.
Harland & Wolff - RCOI participated in a $70.0 million first lien Green
Term Loan to a publicly listed infrastructure operator engaged in the
development and operation of strategic maritime assets across the United
Kingdom.
At closing on 9 March 2022, $11.8 million was committed by RCOI and $7.9
million was drawn of the $35 million committed facility tranche. The first
lien term loan has a maturity of September 2023 and an estimated all-in yield
to maturity of 13.2 percent for RCOI on a fully-drawn basis. Proceeds from
the term loan will be utilised to fund working capital and capital
expenditures associated with the fabrication of wind turbine generator jackets
for the NnG offshore wind project, to repay existing indebtedness, to fund an
interest reserve account, and to pay transaction fees & expenses. The
Company will also grant Riverstone detachable warrants over new ordinary
shares in the Company ("Warrants") as part of this transaction. A total of
8,665,380 Warrants will be issued, of which 2,970,987 warrants are for RCOI.
The term loan has been structured as a Green Loan following the Green Loan
Principles published by the LMA, APLMA, and LSTA and a Sustainability-Linked
Loan with performance indicators focused on social responsibility. Harland
& Wolff is incentivised to upscale its group-wide apprenticeship programme
aimed at the local communities in which it operates. Harland & Wolff plans
to build on its success to-date and seeks further contracts within the
renewables and "green maritime" sectors, such as fabrication contracts for
offshore wind and hydrogen projects, new vessel builds, retrofits with
sustainability credentials and other such contracts that would promote the UK
Government's agenda to achieving Net Zero by 2050.
As of 30 June 2022, $10.1 million of the $11.8 million commitment has been
invested.
Streamline Innovations - RCOI participated in a $20.0 million first lien
delayed-draw Sustainability-Linked Term Loan to a sponsor-backed leader in
environmentally-advanced treatment solutions and equipment for hydrogen
sulphide (H2S) in energy, renewable fuels, wastewater, landfill gas, biogas,
and industrial processes.
At closing on 23 November 2021, $6.9 million was committed by RCOI and $1.7
million was drawn at closing. The first lien term loan has a maturity of
November 2024 and an estimated all-in yield to maturity of 11.1 percent for
RCOI on a fully-drawn basis. The term loan is structured as a
Sustainability-Linked Loan, whereby the loan pricing steps up unless a
sustainability target is met that is tied to new construction of H2S treating
plants, which eliminate poisonous H2S gas and reduce toxic sulphur dioxide
(SO2) emissions by eliminating routine flaring.
In May 2022, RCOI participated in a $25.0 million upsize of the investment,
which now qualifies as a Green Loan, bringing the total loan size to $45.0
million. As part of the upsize, Sustainable Fitch provided a Second Party
Opinion ("SPO") on the Green Loan to Streamline. The SPO verifies the Term
Loan's alignment to the LSTA Green Loan Principles with the transaction being
compliant with the four pillars of the LSTA Green Loan Principles and aligned
with the LSTA category of pollution and prevention.
As of 30 June 2022, $6.8 million of the $13.8 million commitment has been
invested.
Circulus Holdings - RCOI participated in a $100.0 million first lien Green
Term Loan to a sponsor-backed recycler of low-density polyethylene ("LDPE")
for use in food-grade packaging, injection moulding applications, bags, films
and other high-end products.
At closing on 23 August 2021, $12.3 million was invested by RCOI. The term
loan has a maturity of August 2024 and an expected all-in yield to maturity of
13.5%. Following the closing, a portion was sold to a third party in Q4 2021.
The term loan was RCP and RCOI's first investment documented as a "Green Loan"
per LSTA guidelines, with use of proceeds tied to specific green initiatives
and carefully tracked to ensure compliance. RCP and RCOI intend to use similar
lending structures for qualifying companies going forward.
Use of proceeds was to build additional plants across the US.
As of 30 June 2022, the full remaining commitment of $9.2 million is invested.
Blackbuck Resources - RCOI participated in a $50.0 million first lien
delayed-draw Sustainability-Linked Term Loan to a sponsor-backed water
infrastructure company focused on providing E&P operators with a one-stop
shop for all things related to water management, including treatment,
gathering, recycling, storage and disposal. At closing on 30 June 2021, $9.9
million was committed by RCOI. The first lien term loan has a maturity of June
2024 and an estimated all-in yield to maturity of 11.9% for RCOI on a
fully-drawn basis.
The term loan was RCP and RCOI's first investment documented as a
"Sustainability-Linked Loan" per LSTA guidelines, with pricing step-ups tied
to meeting specific sustainability performance targets ("SPTs") set by the
Company's board. For Blackbuck, the SPTs were related to the number of
truckloads of water (and the resulting emissions) that could be removed from
the highways from their activities. RCP and RCOI intend to use similar
lending structures for qualifying companies going forward. Use of proceeds was
primarily to refinance existing indebtedness and growth capex.
In June 2022, the loan was upsized $7.0 bringing the total facility to $57.0
million. The proceeds, along with incremental equity, will be used to fund
growth capex associated with new contracts.
Sustainable Fitch, a division of Fitch Group focused on ESG, provided a Second
Party Opinion ("SPO") on the Sustainability-Linked Loan to Blackbuck. The SPO
considers the loan to be aligned with the five pillars of the LSTA
Sustainability-Linked Loan Principles.
As of 30 June 2022, $10.2 million of the $11.6 million commitment has been
invested.
Imperium3 New York, Inc - RCOI participated in a $63.0 million first lien
delayed-draw term loan to a lithium-ion battery company that will
commercialise high performing lithium-ion batteries by developing a
large-scale manufacturing facility in Endicott, NY. In addition to having a
first lien on the manufacturing assets, the credit facility is supported by
two parent guarantors: Charge CCCV ("C4V"), which is a research and
development company based in Binghamton, New York with patented discoveries in
battery composition, and Magnis Energy Technologies Limited ("Magnis") [ASX:
MNS]. Once producing at scale, the company will be the first U.S. battery cell
supplier not captive to an original equipment manufacturer and supply various
underserved industrial end-markets.
At closing on 16 April 2021, $6.8 million was committed by RCOI and $5.4
million was drawn at closing. Following the close 20% of the funded investment
was sold to a third party. The first lien term loan has a maturity of April
2025 and an estimated all-in yield to maturity of 22.1% for RCOI on a
fully-drawn basis. The yield is made up of upfront fees, a drawn coupon and
exit fees that are higher than the average in the rest of the portfolio.
Use of proceeds was primarily to construct the manufacturing facility.
In April 2022, the Company fully refinanced this loan with a new source of
financing, resulting in a 32.5 percent realised IRR and 1.25x realised MOIC.
Additionally, the Company will retain our non-dilutable equity warrants which
provides meaningful upside to this investment.
Hoover Circular Solutions - RCOI originally participated in a recapitalisation
of a sponsor-backed company that is the leading specialty rental provider of
containers and mobile asset management solutions across the energy,
industrial, refining, and petrochemical industries. The Borrower went through
a rebranding and refocus on sustainability. The term loan closed October 2020.
At closing, $7.4 million was committed by RCOI. The first lien term loan has a
maturity of October 2024 and an all-in expected yield to maturity of 10.4% on
a fully drawn basis. Following the sale of the Company's offshore business,
$3.2 million of RCOI's outstanding principal was repaid on 3 June 2020, with
the residual $4.2 million investment remaining in a first lien senior-secured
position with sub 3x leverage. A portion of the commitment was paid down, with
interest and fees, in the first half of 2021.
As of 30 June 2022, the remaining $3.8 million commitment has been invested.
FS Crude, LLC - RCOI originally participated in a $75 million first lien
delayed-draw term loan for a sponsor-backed midstream company that provides
crude gathering, storage and blending services to a diversified footprint of
producers in the core of the Delaware Basin. The term loan closed in March
2020.
At closing, $13.7 million was committed by RCOI. The first lien term loan
originally had a maturity of March 2023 and an all-in expected yield to
maturity of 11.7% on a fully drawn basis. As part of a fulsome amendment and
in exchange for covenant relief, the Borrower paid down $40 million of
principal as well as interest and fees on 28 December 2020. The remaining $35
million remains in a first lien senior-secured position, of which RCOI's
commitment is $6.4 million. As part of the paydown, the maturity date was
amended to March 2024.
Use of proceeds from the credit facility was to fund construction, operation,
and maintenance costs of the crude system.
As of 30 June 2022, the remaining $6.4 million commitment has been invested.
EPIC Propane - RCOI participated in a $75.0 million first lien delayed-draw
term loan to a sponsor-backed midstream company that will provide propane
purity offtake transportation to the Houston, TX export market. The term loan
closed in June 2019.
At closing, $14.8 million was committed by RCOI. The first lien term loan has
a maturity of December 2022 and an all-in expected yield to maturity of 11.6%
on a fully drawn basis.
Use of proceeds from the credit facility was for the construction of a new
propane pipeline from Robstown and Corpus Christi, TX to Sweeney, TX.
As of 30 June 2022, the full $14.8 million commitment has been invested.
Caliber Midstream - RCOI participated in a $10.0 million upsize of RCP's
commitment to a $65.0 million first lien Holdco term loan for a sponsor-backed
Bakken focused midstream company that provides crude oil and natural gas
gathering and processing, produced water transportation and disposal, and
freshwater sourcing and transportation. RCP closed the initial $65.0 million
financing in June 2018. The term loan upsize closed in August 2019.
At closing, $3.4 million was committed by RCOI. The first lien HoldCo term
loan had a maturity of June 2022 and an all-in expected yield to maturity of
11.8% on a fully drawn basis.
Use of proceeds, combined with an Opco revolving credit facility draw, was to
fund an acquisition.
In March 2021, Caliber Midstream Partners' (the "Company" or "OpCo") largest
customer, Nine Point Energy, terminated their midstream contract with Caliber
and subsequently filed for Chapter 11 bankruptcy. In April 2021, RCOI and
other RCP affiliates purchased a small allocation of the OpCo revolving credit
facility with a maturity in June 2023. In May 2021, RCP and other HoldCo
Lenders completed a recapitalisation of Caliber resulting in HoldCo Term Loan
Lenders receiving substantially all of the equity in HoldCo. In March 2022,
the Company and OpCo lender closed the restructuring with the OpCo lenders
receiving ~100% of the equity. Following the restructuring, new management was
hired, a new contract was executed and there remains increased focus on cost
cutting initiatives and new revenue opportunities.
As of 30 June 2022, the full $4.0 million commitment has been invested.
SUMMARY AND OUTLOOK
The backdrop for the broader energy sector remains strong, continuing the
trend seen at the beginning of 2022. Given our focus on energy infrastructure,
infrastructure services and energy transition assets, RCOI is well-diversified
and poised to take advantage of the investment opportunity brought about by
the convergence of two market phenomena, namely the consistent growing demand
for sources of energy and the concurrent need to meet global "net-zero"
targets.
The realisations made in the period have resulted in ample liquidity to deploy
into the energy infrastructure and infrastructure pipeline of opportunities.
As the commodity market overall remains strong and given the strong returns of
the realisations, we are poised to continue to provide stable cashflows and an
attractive yield. We will therefore continue to target similar investment
opportunities through our Green Loans and Sustainability Linked Loans with
sustainability performance targets. Additionally, despite the recent increase
in inflation and rise in interest rates, our floating rate loans are all based
in LIBOR or SOFR with floors and don't decline in value as interest rates are
likely to rise.
Based on the current unfunded commitments, recent deal activity and potential
new investment opportunities, the Investment Manager believes RCOI will remain
close to fully committed throughout 2022.
BUSINESS REVIEW
GOING CONCERN
As at 30 June 2022, the Company's cash balance was $4.5 million, in addition
to cash balances held at the SPVs of $8.8 million. The Directors and
Investment Manager expect that this is sufficient to cover existing
liabilities of $0.8 million, total unfunded commitments of $10.1m, the
distribution of $1.8 million with respect to the quarter ended 30 June 2022
and any foreseeable expenses for the period to 31 December 2023, being a
period of at least 12 months from approval of the financial statements.
The Directors and Investment Manager expect that proceeds from loan interest
repayments and realisation of investments will enable the Company to continue
to pay quarterly distributions for the foreseeable future.
The Covid-19 pandemic has caused severe disruptions in the global economies
and capital markets. The pandemic may also continue to materially and
adversely impact the performance of the global economy, the Company's
operations and investments in the future. The conflict between Ukraine and
Russia has also had, and is expected to continue for some time to have,
substantial additional impacts on the global economy, particularly in respect
of inflation rates. Given the on-going nature of both the Covid-19 pandemic
and the conflict between Ukraine and Russia, it is currently not possible to
determine the potential scale and scope of the ultimate effects on the global
economy, capital markets, and the Company's operations and investments. As the
situation around both continues to evolve, these will remain risks to the
Company.
The Directors and Investment Manager are actively monitoring these situations
and their potential effect on the Company and its underlying investments. In
particular, they have considered the following specific key potential impacts:
· unavailability of key personnel at the Investment Manager or
Administrator;
· increased volatility in the fair value of investments;
· disruptions to business activities of the underlying investments;
and
· recoverability of income and principal and allowance for expected
credit losses.
In considering the above key potential impacts of COVID-19 and the conflict
between Ukraine and Russia on the Company and its underlying investments, the
Investment Manager has assessed these with reference to the mitigation
measures in place.
As further detailed in note 4 to the financial statements, the Investment
Manager uses a third-party valuation provider to perform a full independent
valuation of the underlying investments. The Investment Manager has also
assessed the recoverability of income due from the underlying investee
companies and has no material concerns. Additionally, the Investment Manager
and Directors have considered the cash flow forecast and a reverse stress test
to determine the term over which the Company can remain viable given its
current resources.
Based on the assessment outlined above, including the various risk mitigation
measures in place, the Directors do not consider that the effects of COVID-19
and the conflict between Ukraine and Russia to have created a material
uncertainty over the assessment of the Company as a going concern.
On the basis of this review, and after making due enquiries to the Investment
Manager, the Directors have a reasonable expectation that the Company has
adequate resources to continue in operational existence for the period to 31
December 2023, being a period of assessment covered by the Directors and at
least 12 months from approval of the financial statements. Accordingly, they
continue to adopt the going concern basis in preparing the financial
statements.
PRINCIPAL RISKS AND UNCERTAINTIES
The Company's assets consist of investments, through SPVs, within the global
energy industry, with a particular focus on opportunities in the global
E&P and midstream energy sub-sectors. The Company also focuses on energy
transition, infrastructure and infrastructure services by structuring deals
as either a Green Loan or a Sustainability-Linked Loan. Its principal risks
are therefore related to market conditions in the energy sector in general,
but also the particular circumstances of the businesses in which it is
invested. The Investment Manager seeks to mitigate these risks through active
asset management initiatives and by carrying out due diligence work on
potential targets before entering into any investments.
The Board thoroughly considers the process for identifying, evaluating and
managing any significant and emerging risks faced by the Company on an ongoing
basis and has performed a robust assessment of those risks, which are reported
and discussed at Board meetings. The Board ensures that effective controls are
in place to mitigate these risks and that a satisfactory compliance regime
exists to ensure all applicable local and international laws and regulations
are upheld. The principal risks are consistent with those set out in the 2021
Annual Report.
For each material risk, the likelihood and consequences are identified,
management controls and frequency of monitoring are confirmed and results
reported and discussed at the quarterly Board meetings.
The key areas of risk faced by the Company and mitigating factors are
summarised below:
1. The Ordinary Shares may trade at a discount to NAV per Share for
reasons including but not limited to market conditions, liquidity concerns and
actual or expected Company performance. As such, there can be no guarantee
that attempts to mitigate such discount will be successful or that the use of
discount control mechanisms will be possible, advisable or adopted by the
Company. To mitigate this risk, the Investment Manager closely monitors and
identifies the reasons for significant fluctuations, and considers the
Company's share buyback programme when applicable and in the interests of
Shareholders.
2. The ability of the Company to meet the target distribution will depend
on the Investment Manager's ability to find investments that generate
sufficient and consistent yield to support the Target Distribution. The
Investment Manager will identify and manage suitable investments in accordance
with the Investment Policy, market conditions and the economic environment. To
mitigate this risk, the Company's Investment Policy and investment
restrictions enable the Company to build a diversified energy portfolio that
should deliver returns that are in line with the Target Distribution range.
3. The ability of the Company to achieve its investment objectives is
dependent on the Investment Manager sourcing and making appropriate
investments for the Company. Investment returns will depend upon the
Investment Manager's ability to source and make successful investments on
behalf of the Company. To mitigate this risk, the Investment Manager believes
sourcing investments is one of its competitive advantages. The Investment
Manager is well resourced and has access to the wider skills and expertise at
Riverstone whose personnel have years of experience in the global energy
sector.
4. Environmental exposures and existing and proposed environmental
legislation and regulation may adversely affect the operations of Borrowers.
Delay or failure to satisfy any regulatory conditions or other applicable
requirements could prevent the Company from acquiring certain investments or
could hinder the operations of certain Borrowers. To mitigate this risk, The
Investment Manager implements monitoring and quality control procedures to
mitigate the occurrence of any violation of safety/health and environmental
laws. The Investment Manager has a clear ESG policy which is implemented and
reviewed by the Board.
5. The Company's investment objective requires it to invest in loans that
are likely to be both illiquid and scarce. If there is an adverse change in
the underlying credit, then the ability of RCOI to recover value may be
impaired. To mitigate this risk, the Company primarily originates shorter
duration senior secured loans with protective provisions. In some instances
the loans incentivise early repayment.
6. The valuations used to calculate the NAV on a quarterly basis will be
based on the Investment Manager's unaudited estimated fair market values of
the Company's investments and may be based on estimates which could be
inaccurate. To mitigate this risk, the Investment Manager has an extensive
valuation policy and also has engaged the independent valuation services of
Houlihan Lokey on a quarterly basis.
7. In today's global technological environment, the Company, its
investments and its engaged service providers are subject to risks associated
with cyber security. The effective operation of the Investment Manager and the
businesses of Borrowers are likely to be highly dependent on the availability
and operation of complex information and technological systems. To mitigate
this risk, The Audit Committee Chairman monitors cyber security risk and best
practices and cyber security due diligence is performed on each potential
borrower.
8. The Company may be exposed to fluctuations and volatility in commodity
prices through investments it makes, and adverse changes in global supply and
demand and prices for such commodities may adversely affect the business,
results of operations, and financial condition of the Company. To mitigate
this risk, the Investment Manager intends to create a diversified portfolio
across various energy subsectors, commodity exposures, technologies and
end-markets to provide natural synergies that aim to enhance the overall
stability of the portfolio.
9. The Company will only lend to Borrowers in the global energy sector and
such single industry concentration could affect the Company's ability to
generate returns. Adverse market conditions in the energy sector may delay or
prevent the Company from making appropriate investments. The ongoing
coronavirus pandemic has led to a decline in global commerce and travel,
thereby causing reductions in the near-term demand for energy especially
within oil and gas, and long-term impacts remain unknown for the Company's
Borrowers. To mitigate this risk, the Investment Manager intends to create a
diversified portfolio across various energy subsectors, commodity exposures,
technologies and end-markets to provide natural synergies that aim to enhance
the overall stability of the portfolio.
10. The performance of the Company may be affected by changes to interest
rates and credit spreads. To mitigate this risk, the Investment Manager
assesses credit risk and interest rate risk on an ongoing basis and closely
monitors each investment with the assistance of each respective management
team and the engaged service providers.
The principal risks outlined above remain the most likely to affect the
Company in the second half of the year.
Directors' Responsibilities Statement
The Directors are responsible for preparing this Interim Report in accordance
with applicable law and regulations.
The Directors confirm that to the best of their knowledge:
· The unaudited interim condensed financial statements have been
prepared in accordance with UK-adopted IAS 34 Interim Financial Reporting; and
· The Chairman's Statement, Investment Manager's Report and the
notes to the condensed financial statements include a fair review of the
information required by:
i. DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being
an indication of important events that have occurred during the period and
their impact on the unaudited interim condensed financial statements; and a
description of the principal risks and uncertainties for the remaining six
months of the year; and
ii. DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being
related party transactions that have taken place in the period and that have
materially affected the financial position and performance of the Company
during that period.
On behalf of the Board
Reuben Jeffery, III
Chairman
10 August 2022
Independent Review Report
to Riverstone Credit Opportunities Income Plc
Conclusion
We have been engaged by Riverstone Credit Opportunities Income Plc ('the
Company') to review the condensed set of financial statements in the Interim
Report for the six months ended 30 June 2022 which comprises the Condensed
Statement of Financial Position, the Condensed Statement of Comprehensive
Income, the Condensed Statement of Changes in Equity, the Condensed Statement
of Cash Flows and related notes 1 to 15. We have read the other information
contained in the Interim Report and considered whether it contains any
apparent misstatements or material inconsistencies with the information in the
condensed set of financial statements.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the Interim Report
for the six months ended 30 June 2022 is not prepared, in all material
respects, in accordance with UK-adopted International Accounting Standard 34
and the Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements 2410 (UK) "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" issued by the Financial Reporting
Council. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. A review is
substantially less in scope than an audit conducted in accordance with
International Standards on Auditing (UK) and consequently does not enable us
to obtain assurance that we would become aware of all significant matters that
might be identified in an audit. Accordingly, we do not express an audit
opinion.
As disclosed in note 2, the annual financial statements of the Company are
prepared in accordance with UK-adopted international accounting standards. The
condensed set of financial statements included in this Interim Report has been
prepared in accordance with UK-adopted International Accounting Standard 34,
"Interim Financial Reporting".
Conclusions Relating to Going Concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis of Conclusion section of this report,
nothing has come to our attention to suggest that management have
inappropriately adopted the going concern basis of accounting or that
management have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
this ISRE, however future events or conditions may cause the entity to cease
to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the Interim Report in accordance
with the Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
In preparing the Interim Report, the directors are responsible for assessing
the Company's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the Company or
to cease operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial information
In reviewing the Interim Report, we are responsible for expressing to the
Company a conclusion on the condensed set of financial statements in the
half-yearly financial report. Our conclusion, including our Conclusions
Relating to Going Concern, are based on procedures that are less extensive
than audit procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
This report is made solely to the Company in accordance with guidance
contained in International Standard on Review Engagements 2410 (UK) "Review of
Interim Financial Information Performed by the Independent Auditor of the
Entity" issued by the Financial Reporting Council. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other
than the Company, for our work, for this report, or for the conclusions we
have formed.
Mike Gaylor
Ernst & Young LLP
London
10 August 2022
Condensed Statement of Financial Position
As at 30 June 2022
30 June 2022 31 December 2021
Note $'000 $'000
Non-current assets
Investments at fair value through profit or loss 4 87,292 87,125
87,292 87,125
Current assets
Loan interest receivable 4 1,407 1,418
Dividends receivable 4 1,199 674
Trade and other receivables 6 208 97
Cash and cash equivalents 4,482 4,884
7,296 7,073
Current liabilities
Trade and other payables 7 (846) (898)
Net current assets 6,450 6,175
Net assets 93,742 93,300
Equity
Share capital 8 915 915
Capital redemption reserve 8 85 85
Other distributable reserves 8 91,179 91,179
Retained earnings 1,563 1,121
Total Shareholders' funds 93,742 93,300
Number of Shares in issue at period/year end 91,545,383 91,545,383
Net assets per share (cents) 12 102.40 101.92
The interim condensed financial statements were approved and authorised for
issue by the Board of Directors on 10 August 2022 and signed on its behalf by:
Reuben Jeffery,
III
Emma Davies
Chairman
Director
The accompanying notes below form an integral part of these interim condensed
financial statements.
Condensed Statement of Comprehensive Income
For the six months ended 30 June 2022 (Unaudited)
For the six months ended For the six months ended
30 June 2022
30 June 2021
Note Revenue Capital Total Revenue Capital Total
$'000 $'000 $'000 $'000 $'000 $'000
Investment gain / (loss)
Change in fair value of investments at fair value through profit or loss 4 - 167 167 - (898) (898)
- 167 167 - (898) (898)
Income
Investment income 4 4,837 - 4,837 4,516 - 4,516
4,837 - 4,837 4,516 - 4,516
Expenses
Directors' fees and expenses 14 (94) - (94) (83) - (83)
Other operating expenses (530) - (530) (498) - (498)
Profit share 10 (559) - (559) (444) - (444)
Total expenses (1,183) - (1,183) (1,025) - (1,025)
Operating profit / (loss) for the period 3,654 167 3,821 3,491 (898) 2,593
Finance income
Interest income 7 - 7 1 - 1
Total finance income 7 - 7 1 - 1
Profit / (loss) for the period before tax 3,661 167 3,828 3,492 (898) 2,594
Tax 11 - - - - - -
Profit / (loss) for the period after tax 3,661 167 3,828 3,492 (898) 2,594
Profit / (loss) and total comprehensive income for the period 3,661 167 3,828 3,492 (898) 2,594
Profit / (loss) and total comprehensive income attributable to: - - -
Equity holders of the Company 3,661 167 3,828 3,492 (898) 2,594
Earnings per share
Basic and diluted earnings per Share (cents) 12 0.18 4.18 0.98 2.83
4.00 3.81
All 'Revenue' and 'Capital' items in the above statement derive from
continuing operations. No operations were acquired or discontinued in the
period.
The 'Total' column of this statement is the profit and loss account of the
Company and the 'Revenue' and 'Capital' columns represent supplementary
information prepared under guidance issued by the Association of Investment
Companies. Profit / (loss) for the period after tax also represents Total
Comprehensive Income.
The accompanying notes below an integral part of these interim condensed
financial statements.
All capitalised terms are defined in the list of defined terms below unless
separately defined.
Condensed Statement of Changes in Equity
For the six months ended 30 June 2022 (Unaudited)
For the six months ended Share capital Capital redemption reserve Other distributable reserves Retained earnings Total
30 June 2022
Note $'000 $'000 $'000 $'000 $'000
Opening net assets attributable to Shareholders 915 85 91,179 1,121 93,300
Total comprehensive income for the period - - - 3,828 3,828
Interim distributions paid in the period 13 - - - (3,386) (3,386)
Closing net assets attributable to Shareholders 915 85 91,179 1,563 93,742
After taking account of cumulative unrealised losses of $308k and other
distributable reserves and distributions made, the total distributable
reserves as at 30 June 2022 were $93,050k.
For the six months ended Share capital Capital redemption reserve Other distributable reserves Retained earnings Total
30 June 2021
$'000 $'000 $'000 $'000 $'000
Opening net assets attributable to shareholders 915 85 91,179 3,351 95,530
Total comprehensive income for the period - - - 2,594 2,594
Interim distributions paid in the period 13 - - - (3,387) (3,387)
Closing net assets attributable to shareholders 915 85 91,179 2,558 94,737
After taking account of cumulative unrealised gains of $621k and other
distributable reserves and distributions made, the total reserves
distributable by way of a distribution as at 30 June 2021 were $93,116k.
The accompanying notes below form an integral part of these interim condensed
financial statements.
Condensed Statement of Cash Flows
For the six months ended 30 June 2022 (Unaudited)
Note For the six months ended For the six months ended
30 June 2022
30 June 2021
$'000 $'000
Cash flows from operating activities
Operating profit for the financial period 3,821 2,593
Adjustments for:
Movement in fair value of investments 4 (167) 898
Investment income 4 (4,837) (4,516)
Movement in payables (52) (242)
Movement in receivables (111) (108)
Loan interest received 4 2,778 2,672
Dividends received 1,550 1,797
Bank interest received 3 1
Net cash generated from operating activities 2,985 3,095
Cash flows from investing activities
Investment additions 4 - (563)
Net cash (used in) / generated from investing activities - (563)
Cash flows from financing activities
Distributions paid 13 (3,386) (3,387)
Net cash used in financing activities (3,386) (3,387)
Net movement in cash and cash equivalents during the period (401) (855)
Cash and cash equivalents at the beginning of the period 4,883 5,374
Cash and cash equivalents at the end of the period 4,482 4,519
The accompanying notes below form an integral part of these interim condensed
financial statements.
Notes to the Unaudited Interim Condensed Financial Statements
For the six months ended 30 June 2022
1. General Information
The Company was incorporated and registered in England and Wales on 11 March
2019 with registered number 11874946 as a public company limited by shares
under the Companies Act 2006
(the ''Act''). The principal legislation under which the Company operates is
the Act. The Directors intend, at all times, to conduct the affairs of the
Company so as to enable it to qualify as an investment trust for the purposes
of section 1158 of the Corporation Tax Act 2010, as amended.
2. Basis of preparation
The condensed financial statements have been prepared in accordance with
UK-adopted IAS 34 Interim Financial Statements. Where presentational guidance
set out in the AIC SORP, 2021 edition, is consistent with the requirements of
UK-adopted IAS, the Directors have sought to prepare the condensed financial
statements on a basis compliant with the recommendations of the AIC SORP. In
particular, supplementary information which analyses the Statement of
Comprehensive Income between items of a revenue and capital nature has been
presented alongside the total Statement of Comprehensive Income.
The same accounting policies, presentation and methods of computation are
followed in these condensed financial statements as were applied in the
preparation of the Company's annual financial statements for the year ended 31
December 2021. These accounting policies will be applied in the Company's
financial statements for the year ended 31 December 2022.
The Company's annual financial statements were prepared on the historic cost
basis, as modified for the measurement of certain financial instruments at
fair value through profit or loss and in accordance with UK-adopted
international accounting standards ('IAS') and with those parts of the
Companies Act 2006 applicable to companies under UK-adopted IAS.
These condensed financial statements do not constitute statutory accounts as
defined in section 434 of the Companies act and do not include all information
and disclosures required in an Annual Report. They should be read in
conjunction with the Company's Annual Report for the year ended 31 December
2021.
The Company's Annual Report for the year ended 31 December 2021 included an
unqualified audit report that did not reference any matters by way of emphasis
and did not contain any statements under sections 498 (2) and (3) of the
Companies Act 2006. A copy of this annual report has been delivered to the
Registrar of Companies.
Going concern
As at 30 June 2022, the Company's cash balance was $4.5 million, in addition
to cash balances held at the SPVs of $8.8 million. The Directors and
Investment Manager expect that this is sufficient to cover existing
liabilities of $0.8 million, total unfunded commitments of $10.1m, the
distribution of $1.8 million with respect to the quarter ended 30 June 2022
and any foreseeable expenses for the period to 31 December 2023, being a
period of at least 12 months from approval of the financial statements.
The Directors and Investment Manager expect that proceeds from loan interest
repayments and realisation of investments will enable the Company to continue
to pay quarterly distributions for the foreseeable future.
After making enquiries, the Directors have a reasonable expectation that the
Company has adequate resources to continue in operational existence to at
least 31 December 2023, being a period of assessment covered by the Directors
and at least 12 months from the approval of the condensed financial
statements. In making this assessment, they have considered the effects of
COVID-19 and the conflict between Ukraine and Russia as outlined in the
Business Review, including the various risk mitigation measures in place and
do not consider these to have had a material impact on the assessment of the
Company as a going concern. Accordingly, the Company continues to adopt the
going concern basis of accounting in preparing the interim financial
statements.
Segmental Reporting
The chief operating decision-maker, who is responsible for allocating
resources and assessing performance of the operating segments, has been
identified as the Board of Directors, as a whole. The key measure of
performance used by the Board to assess the Company's performance and to
allocate resources is the Company's Net Asset Value, as calculated under
UK-adopted IAS, and therefore no reconciliation is required between the
measure of profit or loss used by the Board and that contained in the Interim
Report.
The Company invests in corporate entities as a single segment and therefore,
for management purposes, the Company is organised into one main operating
segment. All of the Company's current income is derived from within the United
States. All of the Company's non-current assets are located in the United
States. Due to the Company's nature, it has no customers.
Seasonal and Cyclical Variations
The Company's results do not vary as a result of seasonal activity.
3. Significant accounting judgements, estimates and assumptions
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.
Judgements, estimates and assumptions are continually evaluated and are based
on management experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances.
Judgements include the assessment of the Company as an Investment Entity as
defined in IFRS 10 'Consolidated Financial Statements' and the assessment of
the SPVs as structured entities.
Estimates and assumptions that are significant to the financial statements
include the valuation of the investments as detailed in note 4 and the
potential impact of climate change.
Further details of these judgements, estimates and assumptions made by the
Directors are given in the annual financial statements for the year ended 31
December 2021.
4. Investments at fair value through profit or loss
For the six months ended For the year ended
30 June 2022
31 December 2021
Loans Equity Total Loans Equity Total
$'000 $'000 $'000 $'000 $'000 $'000
Opening balance 60,049 27,076 87,125 60,049 28,499 88,548
Restructuring 213 (213) - - - -
Investment addition / (proceeds) - - - - 563 563
Unrealised movement in fair value of investments - 167 167 - (1,986) (1,986)
60,262 27,030 87,292 60,049 27,076 87,125
The Company's investment in its SPVs comprises a loan investment and an equity
investment, as set out above. The SPVs subsequently invest in a diversified
portfolio of direct and indirect investments in loans, notes, bonds and other
debt instruments.
Interest receivable on the loan investment at 30 June 2022 was $1.4m (31
December 2021: $1.4m and the dividend receivable on the equity investment at
30 June 2022 was $1.2m (31 December 2021: $0.7m). The total unfunded
commitments of the Company as at 30 June 2022 is $10.1m (31 December 2021:
$8.4m)
Reconciliation of investment income recognised in the period
For the six months ended For the six months ended
30 June 2022
30 June 2021
$'000 $'000
Movement in loan interest receivable (11) 88
Loan interest received as cash 2,778 2,672
Total loan interest recognised in the period 2,767 2,760
Dividend income 2,070 1,756
Total investment income recognised in the period 4,837 4,516
Fair value measurements
As disclosed on pages 67 and 68 of the Company's Annual Report for the year
ended 31 December 2021, IFRS 13 "Fair Value Measurement" requires disclosure
of fair value measurement by level. The level of fair value hierarchy within
the financial assets or financial liabilities ranges from level 1 to level 3
and is determined on the basis of the lowest level input that is significant
to the fair value measurement.
The fair value of the Company's investments are ultimately determined by the
fair values of the underlying investments. Due to the nature of the
investments, they are always expected to be classified as level 3 as the
investments are not traded and contain unobservable inputs. There have been no
transfers between levels during the six months ended 30 June 2022 (31 December
2021: none).
Valuation methodology and process
The Directors base the fair value of investment in the SPVs on the fair value
of their assets and liabilities, adjusted if necessary, to reflect liquidity,
future commitments, and other specific factors of the SPVs and Investment
Manager. This is based on the components within the SPVs, principally the
value of the SPVs' investments, in addition to cash and short-term money
market fixed deposits. Any fluctuation in the value of the SPVs' investments
held will directly impact on the value of the Company's investment in the
SPVs.
The Investment Manager's assessment of fair value of investments held by the
SPVs is determined in accordance with IPEV Valuation Guidelines. When valuing
the SPVs' investments, the Investment Manager reviews information provided by
the underlying investee companies and other business partners and applies IPEV
methodologies, to estimate a fair value as at the date of the Statement of
Financial Position.
Initially, acquisitions are valued at the price of recent investment.
Subsequently, and as appropriate, the Investment Manager values the
investments on a quarterly basis using common industry valuation techniques,
including comparable public market valuation, comparable merger and
acquisition transaction valuation and discounted cash flow valuation. The
techniques used in determining the fair value of the Company's investments
through its SPVs are selected on an investment by investment basis so as to
maximise the use of market based observable inputs. Due to the illiquid and
subjective nature of the Company's underlying investments, the Investment
Manager uses a third-party valuation provider to perform a full independent
valuation of the underlying investments.
Quantitative information of significant unobservable inputs - Level 3 - SPV
30 June 2022 Valuation Unobservable Range / weighted
Description $'000 technique input average
SPV 87,292 Adjusted net asset value NAV 87,292
Discount for lack of liquidity 0%
The Directors believe that it is appropriate to measure the SPVs at their
adjusted net asset value, incorporating a valuation of the underlying
investments which has taken into account risks to fair value, inclusive of
liquidity discounts, through appropriate discount rates.
Sensitivity analysis to significant changes in unobservable inputs within
Level 3 hierarchy
The significant unobservable inputs used in the fair value measurement
categorised within Level 3 of the fair value hierarchy together with a
quantitative sensitivity analysis as at 30 June 2022 are as shown below:
Sensitivity Effect on
Description Input used fair value
$'000
SPV Discount for lack of liquidity +/- 3% -/+ 2,619
The Company's valuation policy is compliant with both UK-adopted IAS and IPEV
Valuation Guidelines and is applied consistently. As the Company's investments
are generally not publicly quoted, valuations require meaningful judgment to
establish a range of values, and the ultimate value at which an investment is
realised may differ from its most recent valuation and the difference may be
significant.
For the period ended 30 June 2022, the valuations of the Company's
investments, through its SPVs, are detailed in the Investment Manager's
Report.
Investments at Fair Value as of June 30, 2022 Range Fair Value Sensitivity to a 100 bps Increase In the Discount Rate
Industry (In Thousands) Valuation technique(s) Unobservable input(s) Low High (In Thousands)
41,585 Discounted cash flow Discount rate (461)
Infrastructure 6% 13%
Recovery Approach EBITDA multiple 7.0x 7.0x
20,694 Discounted cash flow Discount rate (430)
Infrastructure 8% 13%
Services Waterfall Approach NA NA NA
Black Scholes Option Discount rate 3% 3%
1,241 Public comparables EBITDA multiple (43)
Energy 30.0x 35.0x
Transition Public comparables Revenue multiple 6.0x 6.5x
$ $
(934)
63,520((a))
((a)) The difference between the fair value of the SPVs of $65.3 and the fair
value of the underlying investments at 30 June 2022 is due to cash and cash
equivalent balances of $25.7m and residual liabilities of $2.0m, held within
the SPVs.
5. Unconsolidated subsidiaries
The following table shows subsidiaries of the Company. As the Company is
regarded as an Investment Entity, these subsidiaries have not been
consolidated in the preparation of the financial statements:
Investment Place of business Ownership interest as at 30 June 2022
Held directly
Riverstone International Credit Corp. USA 100%
Riverstone International Credit L.P. USA 100%
Held indirectly
Riverstone International Credit - Direct L.P. USA 100%
The registered office of the above subsidiaries is c/o The Corporation Trust
Company, Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware
19801.
The amounts invested in the Company's unconsolidated subsidiaries during the
period and their carrying value at 30 June 2022 are as outlined in note 4.
This comprised $86,726,056 (31 December 2021: $86,805,000) invested in
Riverstone International Credit Corp., which was subsequently invested in
Riverstone International Credit - Direct L.P. and $339 invested in Riverstone
International Credit L.P. to enable these vehicles to fund underlying
investments. The Company intends to fund further underlying investments
through its unconsolidated subsidiaries.
There are no restrictions on the ability of the Company's unconsolidated
subsidiaries to transfer funds in the form of cash dividends or repayment of
loans.
6. Trade and other receivables
30 June 2022 31 December 2021
$'000 $'000
Prepayments 178 76
VAT receivable 26 21
Bank interest receivable 4 -
208 97
7. Trade and other payables
30 June 2022 31 December 2021
$'000 $'000
Profit share payable 565 668
Other payables 281 230
846 898
8. Share capital and reserves
Date Issued and fully paid Number of shares issued Share capital Capital redemption reserve Other distributable reserves Total
GBP £'000 £'000 £'000 £'000
1 January 2022 1 - - - -
30 June 2022 1 - - - -
USD $'000 $'000 $'000 $'000
1 January 2022 91,545,383 915 85 91,179 92,179
30 June 2022 91,545,383 915 85 91,179 92,179
9. Audit fees
For the six months ended For the six months ended
30 June 2022
30 June 2021
$'000 $'000
Fees to the Company's Auditor
for audit of the statutory financial statements 103 108
for other audit related services 24 28
127 136
Other operating expenses include fees payable to the Company's Auditor of
$127k (June 2021: $136k).
The fees payable to the Company's Auditor include estimated accruals
proportioned across the year for the audit of the statutory financial
statements and the fees for other audit related services were in relation to a
review of the Interim Report.
10. Profit Share
Under the Investment Management Agreement, the Investment Manager will not
charge any base or other ongoing management fees, but will be entitled to
reimbursement of reasonable expenses incurred by it in the performance of its
duties. The Investment Manager will receive from the Company, a Profit Share
based on the Company's income, as calculated for UK tax purposes and the
Company's Capital Account.
The Profit Share will be payable quarterly at the same time as the Company
pays its distributions, subject to an annual reconciliation in the last
quarter of each year, as disclosed on page 74 of the Company's Annual Report
for the year ended 31 December 2021.
Amounts charged as Profit Share during the period were $559k (30 June 2021:
$444k).
11. Tax
As an investment trust, the Company is exempt from UK corporation tax on
capital gains arising on the disposal of shares. Capital profits from its loan
relationships are exempt from UK tax where the profits are accounted for
through the Capital column of the Statement of Comprehensive Income, in
accordance with the AIC SORP.
The Company has made a streaming election to HMRC in respect of distributions
and is entitled to deduct interest distributions paid out of income profits
arising from its loan relationships in computing its UK corporation tax
liability.
Therefore, no tax liability has been recognised in the financial statements.
For the six months ended For the six months ended
30 June 2022
30 June 2021
Revenue Capital Total Revenue Capital Total
$'000 $'000 $'000 $'000 $'000 $'000
UK Corporation tax charge on profits for the period at 19% (2021: 19%) - - - - - -
For the six months ended For the six months ended
30 June 2022
30 June 2021
Revenue Capital Total Revenue Capital Total
$'000 $'000 $'000 $'000 $'000 $'000
Return on ordinary activities before taxation 3,661 167 3,828 3,492 (898) 2,594
Profit / (loss) on ordinary activities multiplied by standard rate of 696 32 728 664 (171) 493
corporation tax in the UK of 19% (2021: 19%)
Effects of:
Non-taxable investment (losses) / - (32) (32) - 171 171
gains on investments
Non-taxable dividend income (394) - (394) (334) - (334)
Tax deductible interest distributions (302) - (302) (330) - (330)
Total tax charge - - - - - -
As at 30 June 2022 the Company had no unprovided deferred tax assets or
liabilities. At that date, based on current estimates and including the
accumulation of net allowable losses, the Company had no unrelieved losses.
Deferred tax is not provided on capital gains and losses arising on the
revaluation or disposal of investments because the Company meets (and intends
to continue to meet for the foreseeable future) the conditions for approval as
an Investment Trust company.
The UK corporation tax rate is currently 19%. The UK Chancellor announced in
the March 2021 Budget that the rate will increase to 25% from April 2023. The
rate increase was substantively enacted in May 2021.
12. Earnings per share and Net assets per share
Earnings per share
For the six months ended For the six months ended
30 June 2022
30 June 2021
Revenue Capital Total Revenue Capital Total
Profit/(loss) attributable to equity holders of the Company - $'000 3,661 167 3,828 3,492 (898) 2,594
Weighted average number of Ordinary Shares in issue 91,545,383 91,545,383
Basic and diluted earnings and loss per Share from continuing operations in 4.00 0.18 4.18 3.81 (0.98) 2.83
the period (cents)
There are no dilutive shares in issue.
Net assets per share
30 June 2022 31 December 2021
Net assets - $'000 93,742 93,300
Number of Ordinary Shares issued 91,545,383 91,545,383
Net assets per Share (cents) 102.40 101.92
13. Distributions declared with respect to the period
On 10 August 2022, the Board approved a distribution of 2.0 cents per share
with respect to the quarter ended 30 June 2022. The record date for the
distribution is 19 August 2022 and the payment date is 23 September 2022.
Distribution per share Total distribution
Distributions paid during the period ended 30 June 2022 cents $'000
With respect to the quarter ended 31 December 2021 1.70 1,556
With respect to the quarter ended 31 March 2022 2.00 1,830
3.70 3,386
Distribution per share Total distribution
Interim distributions declared after 30 June 2022 and not accrued in the cents $'000
period
With respect to the quarter ended 30 June 2022 2.00
1,830
2.00
1,830
14. Related party transactions
Directors
The Company has three non-executive Directors. Directors' fees for the period
ended 30 June 2022 amounted to $76k (30 June 2021: $83k), of which $nil (31
December 2021: $nil) was outstanding at period end. Amounts paid to Directors
as reimbursement of travel and other incidental expenses during the period
amounted to $3.4k (30 June 2021 $nil), of which $nil (31 December 2021: $nil)
was outstanding at period end.
Unconsolidated subsidiaries
In 2019, the Company provided a loan to the US Corp. which accrues interest at
9.27 percent. Any interest that is unable to be repaid at each quarter end is
capitalised and added to the loan balance. Total interest in relation to the
period was $2.8m (30 June 2021: $2.8m) of which $2.8m (30 June 2021: $2.8m)
was received in cash and $1.4m remained outstanding at the period end (31
December 2021: $1.4m outstanding, received on 11 January 2022). The balance on
the loan investment at 30 June 2022 was $60.3m (31 December 2022: $60.1m).
The Company's other investments in its SPVs are made via equity shareholdings
as disclosed in note 4.
Investment Manager
The Investment Manager is an affiliate of Riverstone and provides advice to
the Company on the origination and completion of new investments, the
management of the portfolio and on realisations, as well as on funding
requirements, subject to Board approval. For the provision of services under
the Investment Management Agreement, the Investment Manager earns a Profit
Share, as disclosed in note 10 and on page 74 of the Company's Annual Report
for the year ended 31 December 2021. The Investment Manager is entitled to
reimbursement of any reasonable expenses incurred in relation to management of
the Company and amounts reimbursed during the period were $16k (31 December
2021: $31k).
15. Subsequent events
The Company re-initiated a share buyback programme in June 2022. Between the
period end and approval of these financial Statements the Company has
announced the following share buybacks.
On July 6, 2022, the Company purchased 283,452 Ordinary Shares of US$0.01
each.
On July 7, 2022, the Company purchased 143,415 Ordinary Shares of US$0.01
each.
On July 8, 2022, the Company purchased 151,978 Ordinary Shares of US$0.01
each.
With the exception of distributions declared and disclosed in note 13, there
are no other material subsequent events.
Glossary of Capitalised Defined Terms
Administrator means Ocorian Administration (UK) Limited
AGM means Annual General Meeting
AIC means the Association of Investment Companies
AIC Code means the AIC Code of Corporate Governance
AIC SORP means the Statement of Recommended Practice issued by the AIC in
November 2014 and updated in January 2017 for the Financial Statements of
Investment Trust Companies and Venture Capital Trusts
Annual Report means the Company's yearly report and financial statements for
the year ending 31 December 2021
Auditor means Ernst & Young LLP or EY
Board means the Directors of the Company
Borrower means entities operating in the energy sector that issue loans,
notes, bonds, and other debt instruments including convertible debt.
CA means the Companies Act 2006 which forms the primary source of UK company
law
Capital Amount means the amount of gross proceeds of the IPO, plus the net
proceeds of any future issues of Ordinary Shares, less any amounts expended by
the Company on share repurchases and redemptions or, following a Realisation
Election, attributable to Realisation Shares
Company or RCOI means Riverstone Credit Opportunities Income Plc
D&C means drilling and
completion
Directors means the Directors of the Company
Distributable Income means the Company's income, as calculated for UK tax
purposes
DTR means the Disclosure Guidance and Transparency Rules sourcebook issued by
the Financial Conduct Authority
ESG means environmental, social and governance
E&P means exploration and production
FCA means the UK Financial Conduct Authority (or its successor bodies)
IAS means the international accounting standards
IFRS means the International Financial Reporting Standards, being the
principles-based accounting standards, interpretations and the framework by
that name issued by the International Accounting Standards Board, to the
extent they have been adopted by the UK
Investment Management Agreement means the Investment Management Agreement
entered between the Investment Manager and the Company
Investment Manager means Riverstone Investment Group LLC
IPEV Valuation Guidelines means the International Private Equity and Venture
Capital Valuation Guidelines
IPO means the initial public offering of shares by a private company to the
public
Listing Rules means the listing rules made by the UK Listing Authority under
Section 73A of the Financial Services and Markets Act 2000
London Stock Exchange or LSE means London Stock Exchange plc
LTV means loan to value ratio
Main Market means the main market of the London Stock Exchange
MOIC means multiple on invested capital
NAV or Net Asset Value means the value of the assets of the Company less its
liabilities as calculated in accordance with the Company's valuation policy
and expressed in US dollars
Ordinary Shares means ordinary shares of $0.01 in the capital of the Company
issued and designated as "Ordinary Shares" and having the rights, restrictions
and entitlements set out in the Company's articles of incorporation
Other Riverstone Funds means other Riverstone-sponsored, controlled or managed
entities, which are or may in the future be managed or advised by the
Investment Manager or one or more of its affiliates, excluding the SPV
Profit Share means the payments to which the Investment Manager is entitled in
the circumstances and as described in the notes to the financial statements
Realisation Shares means realisation shares of US$0.01 in the capital of the
Company, as defined in the prospectus
SPV means any intermediate holding or investing entities that the Company may
establish from time to time for the purposes of efficient portfolio management
and to assist with tax planning generally and any subsidiary undertaking of
the Company from time to time
Specialist Fund Segment means the Specialist Fund Segment of the London Stock
Exchange's Main Market
UK or United Kingdom means the United Kingdom of Great Britain and Northern
Ireland
UK Code means the UK Corporate Governance Code issued by the FRC
US or United States means the United States of America, its territories and
possessions, any state of the United States and the District of Columbia
US Corp. means Riverstone International Credit Corp.
Directors and General Information
Directors
Reuben Jeffery, III (Chairman) (appointed 2 April 2019)
Emma Davies (Audit and Risk Committee Chair) (appointed 2 April 2019)
Edward Cumming-Bruce (Nomination Committee Chair) (appointed 2 April 2019)
all independent and of the registered office below
Registered Office Website: www.riverstonecoi.com (http://www.riverstonecoi.com)
27-28 Eastcastle Street ISIN GB00BJHPS390
London Ticker RCOI
W1W 8DH Sedol BJHPS39
Registered Company Number 11874946
Investment Manager Registrar
Riverstone Investment Group LLC Link Asset Services
c/o The Corporation Trust Company The Registry
Corporation Trust Center 34 Beckenham Road
1209 Orange Street Beckenham
Wilmington Kent
Delaware 19801 BR3 4TU
Company Secretary and Administrator Sole Bookrunner
Ocorian Administration (UK) Limited J.P. Morgan Securities plc
27-28 Eastcastle Street 25 Bank Street
London Canary Wharf
W1W 8DH London
E14 5JP
Independent Auditor Receiving Agent
Ernst & Young LLP Link Asset Services
25 Churchill Place Corporate Actions
London The Registry
E14 5EY 34 Beckenham Road
Beckenham
Kent
Legal Adviser to the Company BR3 4TU
Hogan Lovells LLP
Atlantic House
50 Holborn Viaduct
London
EC1A 2FG
Principal Banker and Custodian
J.P. Morgan Chase Bank, N.A.
270 Park Avenue
New York
NY 10017-2014
Swiss supplement
ADDITIONAL INFORMATION FOR INVESTORS IN SWITZERLAND
This Swiss Supplement is supplemental to, forms part of and should be read in
conjunction with the interim report for the half year ended June 30, 2022 for
Riverstone Credit Opportunities Income Plc (the "Fund").
The Fund has appointed Société Générale as Swiss Representative and Paying
Agent. The Confidential Memorandum, the Articles of Association as well as the
annual report of the Fund can be obtained free of charge from the
representative in Switzerland, Société Générale, Paris, Zurich Branch,
Talacker 50, P.O. Box 5070, CH-8021 Zurich. The paying agent of the Fund in
Switzerland is Société Générale, Paris, Zurich Branch, Talacker 50, P.O.
Box 5070, CH-8021 Zurich. The Company may offer Shares only to qualified
investors in Switzerland. In respect of the Shares distributed in and from
Switzerland, the place of performance and jurisdiction is the registered
office of the Swiss Representative.
Cautionary Statement
The Chairman's Statement and Investment Manager's Report have been prepared
solely to provide additional information for Shareholders to assess the
Company's strategies and the potential for those strategies to succeed. These
should not be relied on by any other party or for any other purpose.
The Chairman's Statement and Investment Manager's Report may include
statements that are, or may be deemed to be, "forward-looking statements".
These forward-looking statements can be identified by the use of
forward-looking terminology, including the terms "believes", "estimates",
"anticipates", "expects", "intends", "may", "will" or "should" or, in each
case, their negative or other variations or comparable terminology.
These forward-looking statements include all matters that are not historical
facts. They appear in a number of places throughout this document and include
statements regarding the intentions, beliefs or current expectations of the
Directors and the Investment Manager, concerning, amongst other things, the
investment objectives and investment policy, financing strategies, investment
performance, results of operations, financial condition, liquidity, prospects,
and distribution policy of the Company and the markets in which it invests.
By their nature, forward-looking statements involve risks and uncertainties
because they relate to events and depend on circumstances that may or may not
occur in the future. Forward-looking statements are not guarantees of future
performance.
The Company's actual investment performance, results of operations, financial
condition, liquidity, distribution policy and the development of its financing
strategies may differ materially from the impression created by the
forward-looking statements contained in this document.
Subject to their legal and regulatory obligations, the Directors and the
Investment Manager expressly disclaim any obligations to update or revise any
forward-looking statement contained herein to reflect any change in
expectations with regard thereto or any change in events, conditions or
circumstances on which any statement is based.
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