REG - Sequoia Econ Infra - NAV and Investment Update

Sequoia Economic Infrastructure Income FundAnnouncement

15/03/2024 07:00

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RNS Number : 9336G  Sequoia Economic Infra Inc Fd Ld  15 March 2024

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART IN OR INTO
THE UNITED STATES

15 March 2024

Sequoia Economic Infrastructure Income Fund Limited

("SEQI" or the "Company")

 

Monthly NAV and portfolio update

The NAV per share for SEQI, the specialist investor in economic infrastructure
debt, marginally decreased to 93.44 pence per share from the prior month's NAV
per share of 93.54 pence, representing a decrease of 0.10 pence per share.

A full attribution of the changes in the NAV per share is as follows:

                                        pence per share
 31 January 2024 NAV                        93.54
 Interest income, net of expenses       0.72
 Asset valuations, net of FX movements      -0.89
 Accretion from share buyback                0.07
 29 February 2024 NAV                       93.44

 

 

As the Company is approximately 100% currency-hedged, it does not expect to
realise any material FX gains or losses over the life of its investments.
However, the Company's NAV may include unrealised short-term FX gains or
losses, driven by differences in the valuation methodologies of its FX hedges
and the underlying investments - such movements will typically reverse over
time.

 

Market Summary

 

During February 2024, central banks across the UK, US and EU maintained policy
rates at 5.25%, 5.50% and 4.00%, respectively. Sovereign yields increased by
0.3% in all three regions during the same period, which extends the trend of
increasing 10-year sovereign yields since the recent temporary decline ending
in December 2023.

 

Interest rates in the UK are currently expected to fall by up to 2% over the
next two to three years, based on forward market interest rates. The US
Federal Reserve has also indicated that rates are likely at their peak and
could be cut later in 2024 if inflation continues to fall towards the Fed's 2%
target. The markets also expect the European Central Bank (ECB) to start
cutting rates later in 2024. This interest rate environment reflects continued
expectation for lower inflation across our markets in the future, which should
position our portfolio positively.

 

 

Share buybacks

The Company bought back 9,180,021 of its ordinary shares at an average
purchase price of 81.07 pence per share in February 2024. The Company first
started buying shares back in July 2022 and has bought back 130,961,825
ordinary shares as of 29 February 2024 with the buyback continuing into March
2024. This share repurchase activity continues to contribute positively to NAV
growth. The rate at which SEQI buys back shares will vary depending on various
factors, including the level of our share price discount to NAV.

Portfolio update

 

The Company currently has strong liquidity, with cash of £98.27 million,
compared to undrawn investment commitments of £36.1 million. The Company's
revolving credit facility (RCF) of £325 million is also undrawn. The
Company's policy in the current environment is to operate with little or no
leverage, but the RCF can be used to manage the potential misalignment of new
investments versus the repayment of existing investments.

 

The Company's invested portfolio consisted of 53 private debt investments and
3 infrastructure bonds, diversified across 8 sectors and 30 sub-sectors. It
had an annualised yield-to-maturity (or yield-to-worst in the case of
callable bonds) of 10.1% (January 2024: 9.9%) and a cash yield of 7.9%
(excluding deposit accounts). The weighted average portfolio life remains
short and is approximately 3.9 years. Private debt investments represented
97.8% of the total portfolio, allowing the Company to capture illiquidity
yield premiums. The Company's invested portfolio currently consists of
42.8% 1  (#_ftn1) floating rate investments and remains geographically
diversified with 52.7% located across the USA, 24.7% in the UK, 22.5% in
Europe, and 0.1% in Australia/New Zealand.

During February 2024, the decline in asset valuations by 0.89 pence per share
was mostly attributable to the rise of 10-year government bond yields across
all three regions, which can inversely impact the valuation of the
investments. These unrealised mark-to-market adjustments in the portfolio
resulting from interest rates having risen since loans were made should
reverse over time as the loans approach their repayment date (the
"pull-to-par" effect), assuming there are no performance-related adjustments
required to their value. As at 29 February 2024, the positive effect of
pull-to-par is estimated to be worth approximately 4.0p per share over the
course of the life of the Company's investments.

 

At month end, approximately 100% of the Company's NAV consisted of
either Sterling assets or was hedged into Sterling. The Company has adequate
liquidity to cover margin calls, if any, on its hedging book. The Company
entered into a $90 million interest rate swap in October 2023 with a maturity
of seven years to lock in a portion of the current high rates being paid by
borrowers. The Company also continues to monitor attractive opportunities to
lock in higher interest rates on a tactical basis.

 

Settled investments

 

SEQI continues to carefully scrutinise new investment opportunities in a
disciplined manner alongside other uses of proceeds such as share buybacks and
ensuring it has adequate liquidity on its RCF. Aside from these uses of
capital, the following investments settled in February 2024 (excluding small
loan drawings of less than £0.5 million):

 

• An additional senior loan for £6 million to Workdry, the UK's leading
provider of essential and emergency water handling infrastructure solutions;

• An additional senior loan for €4 million to Native Dancer; a student
accommodation building in Leiden, The Netherlands; and

• An additional senior loan for $2 million to SL 4000 Connecticut LLC
(formerly known as Whittle Schools). The financing was provided to support the
forbearance extension and provide additional funding until August 2024 to
enable re-tenanting or sale of the building.

 

The following investments sold or repaid in February 2024

 

• A full sale of the Company's remaining stub of Windstream bonds for $2
million; a high-speed broadband provider based in the US.

 

Non-performing loans

 

During February 2024, the Company received [a further] distribution of £2
million from the administrators of Simple Energy Limited (the parent of Bulb
Energy). This receipt takes the total expected recovery on the loan to Bulb to
£53.3 million (including both the expected future payment from Bulb as
announced on 6 December 2023, and the equity in Zoa valued at cost) compared
to a loan amount of £55 million at the time of default with the Company's
recovery on its initial loan now nearing 100%. Further recoveries are
expected.

 

The portfolio remains highly diversified, with the average loan representing
about 1.6% of the total portfolio and the largest 4.4% as at February 2024.

 

Further updates will be provided to shareholders in the future when material
developments occur.

 

Portfolio Summary (15 largest settled investments)

 Investment name          Currency  Type     Ranking    Value £m((2))    Sector                Sub-sector                    Cash-on-cash yield (%)  Yield to maturity/worst (%)
 Infinis Energy           GBP       Private  Senior   59.7               Renewables            Landfill gas                  5.44                    6.32
 AP Wireless Junior       EUR       Private  Mezz     59.6               Digitalisation        Telecom towers                4.52                    7.79
 Workdry                  GBP       Private  Senior   56.0               Utility               Utility Services              8.94                    8.93
 Project Sienna           GBP       Private  Senior   56.0               Other                 Waste-to-Energy               9.80                    9.92
 Project Tyre             USD       Private  Senior   53.9               Transport - vehicles  Specialist shipping           11.17                   10.99
 Hawkeye Solar            USD       Private  HoldCo   52.2               Renewables            Solar & wind                  8.90                    9.86
 Expedient Data           USD       Private  Senior   51.5               Digitalisation        Data centers                  10.95                   10.94
 Roseton                  USD       Private  Senior   51.5               Power                 Other Electricity Generation  10.32                   10.32
 Kenai HoldCo 2024        EUR       Private  HoldCo   49.2               Power                 Base load                     0.00                    11.83
 Sacramento Data          USD       Private  Senior   44.2               Digitalisation        Data centers                  7.43                    8.66
 Project Nimble           EUR       Private  HoldCo   43.3               Digitalisation        Data centers                  8.66                    11.57
 Euroports 2nd Lien 2030  EUR       Private  Mezz     42.8               Transport - systems   Port                          11.68                   11.68
 Scandlines               EUR       Private  HoldCo   41.1               Transport - systems   Ferries                       6.77                    7.40
 Tracy Hills TL 2025      USD       Private  Senior   40.8               Other                 Residential infra             11.86                   11.86
 Project Shark            CHF       Private  HoldCo   40.4               Digitalisation        Data centers                  8.99                    8.99

Note (2) - excluding accrued interest.

Disclaimer: the dividend increase is a target and not a profit forecast

 

The Company's monthly investor report and additional portfolio disclosure will
be made available at: https://www.seqi.fund (https://www.seqi.fund/)

LEI: 2138006OW12FQHJ6PX91

This announcement is not for publication or distribution, directly or
indirectly, in or into the United States of America. This announcement is not
an offer of securities for sale into the United States.  The securities
referred to herein have not been and will not be registered under the U.S.
Securities Act of 1933, as amended, and may not be offered or sold in the
United States, except pursuant to an applicable exemption from registration.
No public offering of securities is being made in the United States.

For further information please contact:

 

 Sequoia Investment Management Company         +44 (0)20 7079 0480
 Steve Cook
 Dolf Kohnhorst
 Randall Sandstrom
 Anurag Gupta
 Matt Dimond

 Jefferies International Limited               +44 (0)20 7029 8000
 Gaudi Le Roux
 Stuart Klein

 Teneo (Financial PR)                          +44 (0)20 7260 2700
 Martin Pengelley
 Elizabeth Snow

 Sanne Fund Services (Guernsey) Limited        +44 (0) 20 3530 3107
 (Company Secretary)
 Matt Falla
 Lisa Garnham

 

About Sequoia Economic Infrastructure Income Fund Limited

The Company seeks to provide investors with regular, sustained, long-term
distributions and capital appreciation from a diversified portfolio of senior
and subordinated economic infrastructure debt investments. The Company is
advised by Sequoia Investment Management Company Limited.

 

 

 

(#_ftnref1) Note (1) - inclusive of interest rate swap.

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