REG - VPC Specialty - Half-year Report
29/09/2022 07:00
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RNS Number : 0794B VPC Specialty Lending Invest. PLC 29 September 2022
29 September 2022
VPC SPECIALTY LENDING INVESTMENTS PLC
(the "Company" or "Parent Company" with its subsidiaries (together) the
"Group")
Half-Year Report and Unaudited Financial Statements
For the Six-Month Period Ended 30 June 2022
The Board of Directors (the "Board") of VPC Specialty Lending Investments PLC
(ticker: VSL) present the Company's Half-Year Report and Unaudited Financial
Statements for the period ended 30 June 2022.
Enquiries
For further information, please contact:
Victory Park Capital via Jefferies or Winterflood (below) info@vpcspecialtylending.com
Brendan Carroll (Senior Partner and Co-Founder)
Gordon Watson (Partner)
Jefferies International Limited Tel: +44 20 7029 8000
Stuart Klein
Neil Winward
Gaudi le Roux
Winterflood Securities Limited Tel: +44 20 3100 0000
Neil Morgan
Chris Mills
Link Company Matters Limited (Company Secretary) Tel: +44 20 7954 9567
Email: VPC@linkgroup.co.uk
A copy of the Company's Half Year Report will shortly be available to view and
download from the Company's website, https://vpcspecialtylending.com
(https://vpcspecialtylending.com) . Neither the contents of the Company's
website nor the contents of any website accessible from hyperlinks on the
Company's website (or any other website) is incorporated into or forms part of
this announcement.
All page numbers below refer to the Half-Year Report on the Company's website.
Further information on VPC Specialty Lending Investments PLC is available at
https://vpcspecialtylending.com (https://vpcspecialtylending.com) .
LEI: 549300UPEXC5DQB81P34
FINANCIAL HIGHLIGHTS
RETURN SUMMARY AS AT 30 JUNE 2022
Net Asset Value per Ordinary Share
105.51p
(30 June 2021: 106.19p)
(31 December 2021: 114.14p)
NAV (Cum Income) Return
- 4.06%
(30 June 2021: + 15.12%)
(31 December 2021: + 27.60%)
Total Shareholder Return at 30 June 2021(1)
(based on share price)
- 5.21%
(30 June 2021: + 11.82%)
(31 December 2021: + 27.32%)
Dividends per Ordinary Share(2)
4.00p
(30 June 2021: 4.00p)
(31 December 2021: 8.00p)
Revenue Return
+ £13.21 million
(30 June 2021: + £9.60 million)
(31 December 2021: + £21.12 million)
Total Net Return
- £12.88 million
(30 June 2021: + £39.95 million)
(31 December 2021: + £73.21 million
Ordinary Share Price
at 30 June 2022
83.40p
(30 June 2021: 84.00p)
(31 December 2021: 92.20p)
Discount to NAV
at 30 June 2022
20.95%
(30 June 2021: 20.90%)
(31 December 2021: 19.22%)
(1)Net of issue costs.
(2)Dividends declared and paid which relate to the period.
INTRODUCTION TO THE COMPANY
VPC Specialty Lending Investments PLC (the "Company" or "VSL") provides
asset-backed lending solutions to emerging and established businesses
("Portfolio Companies") with the goal of building long-term, sustainable
income generation. VSL focuses on providing capital to vital segments of the
economy, which for regulatory and structural reasons are underserved by the
traditional banking industry. Among others, these segments include small
business lending, working capital products, consumer finance and real estate.
VSL offers shareholders access to a diversified portfolio of opportunistic
credit investments originated by non-bank lenders with a focus on the rapidly
developing technology-enabled lending sector.
The Company's investing activities are undertaken by Victory Park Capital
Advisors, LLC (the "Investment Manager" or "VPC"). VPC is an established
private capital manager headquartered in the United States with a global
presence. VPC identifies and finances emerging and established businesses
globally and seeks to provide the Company with attractive yields on its
portfolio of credit investments. VPC offers a differentiated private lending
approach by financing Portfolio Companies through asset-backed delayed draw
term loans, which is referred to as "Balance Sheet Lending," designed to limit
downside risk while providing shareholders with strong income returns. Through
rigorous due diligence and credit monitoring by the Investment Manager, the
Company generates stable income with significant downside protection.
This half year report for the period to 30 June 2022 includes the results of
the Company (also referred to as the "Parent Company") and its consolidated
subsidiaries (together the "Group"). The Company (No. 9385218) was admitted to
the premium listing segment of the Official List of the Financial Conduct
Authority ("FCA") (the "Official List") and to trading on the London Stock
Exchange's main market for listed securities (the "Main Market") on 17 March
2015, raising £200 million by completing a placing and offer for subscription
(the "Issue"). The Company raised a further £183 million via a C Share issue
on 2 October 2015. The C Shares were converted into Ordinary Shares and were
admitted to the Official List and to trading on the Main Market on 4 March
2016.
The Company's investment objectives are to:
v generate an attractive total return for shareholders of consistent
distributable income and capital growth through asset-backed lending;
v achieve portfolio diversification to emerging and established businesses
across different industries and geographies with the goal of building
long-term, sustainable value; and
v enable shareholders to benefit from equity upside through equity-linked
securities issued in conjunction with asset-backed lending.
CHAIRMAN'S STATEMENT
This report covers the half-year results for the Company for the period to
30th June 2022. Over this period, the Company delivered a total return of
-4.06% and declared quarterly dividends totalling 4.00 pence per share. While
share prices have been volatile this year, our asset value has remained stable
and, more importantly, our dividend has remained unaltered.
It has been an unpredictable and volatile macroeconomic environment. After two
years of resilience during the pandemic, 2022 has brought further economic and
geopolitical challenges. These include persistently high inflation, a rising
interest rate environment, and war in Ukraine. I am therefore encouraged that
our Investment Manager has continued to manage risk effectively while
supporting Portfolio Companies.
The Company and the Investment Manager were deeply saddened to note the death
of Her Majesty Queen Elizabeth II on 8 September 2022, and offer their sincere
condolences to The Royal Family.
THE COMPANY'S BUSINESS ACTIVITY
The Company continues to generate positive returns from its core lending
business. The core lending business, which represented 70% of the total
portfolio at 30 June 2022, is unquestionably the most important aspect.
In our last Annual Report, we highlighted that the Company benefited
significantly from its equity interests during 2021 but I feel it is important
to remind investors that they were for the most part a by-product of its core
lending activity. The equity interests have been volatile in the year to date
and their fall has led to an overall negative NAV return for the period. This
was largely because the equity interests derived from the core lending
business give us equity participation (at minimal cost) in the high-growth
technology companies to which we lend and such entities have seen their share
prices fall this year. During this review period, the proportion of our
overall portfolio represented by equity investments has reduced from 26% to
22%. This reduction is partly resulting from equity sales conducted during the
period, and partly because of market movements. Therefore, while equities
experienced a significant decline through the first six months of 2022,
particularly in terms of lower equity valuations for the technology sector, we
consider this to have had only a muted impact on the Company.
Similarly, our entry into the SPAC market in 2021 was a result of the
Investment Manager's extensive deal sourcing network in the fintech universe
and SPAC deals presented a low-cost way to capitalise on this network for the
benefit of our shareholders. SPACs raise capital in an initial public offering
and use the cash to merge with a private company and take it public, usually
within two years. However, this year, the SPAC market has struggled against
the backdrop of rising interest rates, and the derating of technology
companies. Our SPAC holdings have been no exception to this industry trend. To
date, the Company has only invested £3.9 million in SPACs, which represented
approximately 1.4% of Net Asset Value.
Returning to the core lending business, this continues to benefit from a
secure lending position, which delivered minimal capital losses and a high
level of income generation that supports regular dividend payments. Most of
the Company's asset-backed investments are delayed draw, floating rate senior
secured loans that have equity subordination. These asset-backed investments
are also backed by underlying collateral consisting of consumer loans, small
business loans, and other types of collateral.
Lastly, the Audit Committee now has a standing item dedicated to
Environmental, Social and Governance ("ESG") factors, showing the commitment
to responsibility and transparency in this space.
More information about the performance of the Company's investments can be
found in the Investment Manager's Report.
INVESTOR ENGAGEMENT
Demonstrating income resilience is also another important aspect of the
Company's approach. In June 2022, the Board of Directors undertook an
engagement exercise with a significant number of major shareholders. We took
the opportunity to ask them why they owned shares in the Company, the place
their investment occupied within their broader portfolio, and what we provided
that was most important to them. Of the shareholders we contacted, the
majority communicated that the Company's ability to deliver a stable and
predictable level of income return was overwhelmingly the most important
factor in their investment decision.
We continue to live in an era where achieving a consistent level of investment
income is no small feat, and many of our investors communicated that the
dependability of our dividend payments provided them the opportunity to invest
in other more growth-focused investments, knowing that their income targets
and requirements would continue to be met. We found our discussions with
shareholders to be both instructive and reassuring, serving as a valuable
reminder of their expectations of the Company and the importance of our income
stream. The Board will therefore continue to carry out regular engagement
exercises and solicit shareholder feedback on a regular basis.
THE COMPANY'S ESG IMPACT
As an investment trust, the Company does not itself have employees, property,
factories, and the like, and our ability to positively impact what we
contribute flows to the greatest extent from our Investment Manager and the
opportunities we are invested in through the portfolio. The Investment Manager
aims to operate and invest responsibly, ethically, and fairly and we continue
to review our environmental, social, and governance ("ESG") stance. Decisions
taken are made with due consideration to long-term sustainability and impact
on stakeholders. For example, the Directors and Investment Manager are mindful
of their carbon footprints if they are required to travel on Company business.
The Board and the Investment Manager remain committed to ensuring the
Company's culture is aligned with its stated purpose, values, and strategy.
The Company has several policies and procedures in place to assist with
maintaining a culture of good governance, including policies and procedures
relating to all aspects of diversity, including gender diversity. The Company
recognises that diversity enables it to benefit from a wider range of skills,
knowledge, experience, backgrounds, and perspectives. Through the Company's
lending and investment activities, it can have a positive impact on the world
in which we operate. Because of this, the Investment Manager is committed to
leading by example, taking a positive and progressive approach to responsible
investing, and seeking to play its part in building a more sustainable
financial system.
OUTLOOK
While the pandemic provided many challenges to navigate, the portfolio showed
its resiliency over the last six months. We believe this resilience comes from
a combination of the nature of the assets we invest in, the types of risk and
security measures we take, and the Investment Manager's credit expertise in
choosing to lend to the right people and businesses and then closely following
those borrowers. This gives us confidence that the Company's investments are
well positioned to weather continued volatility or the potential deterioration
in the credit environment which may be on the horizon.
That said, we remain in a period of heightened uncertainty, with inflation
still at worryingly high levels, and interest rates on an upward path. The
outlook is all the more challenging because interest rates have been at
historic lows for many years. We can draw a great deal of comfort from the
fact that the Company's asset-based, senior secured credit strategy was
designed to offer greater structural protections than traditional lenders,
with an emphasis on capital preservation and income generation across market
cycles. Moreover, its core lending activity - which is largely conducted on a
floating rate basis - was conducted during this low-interest rate environment,
which offers a significant element of protection as we move into an era of
higher rates.
Additionally, it has been satisfying to see the Investment Manager has raised
capital for a new fund during the review period. This demonstrates the
strength of the Investment Manager and its team, commitment to the asset
class, positive recognition of its investment philosophy and approach, and its
ability to respond to the needs of investors with innovation and conviction.
Finally, your Board and I would like to thank shareholders for their continued
support.
Graeme Proudfoot
Chairman
28 September 2022
INVESTMENT MANAGER'S REPORT
PERFORMANCE REVIEW
Despite the continued challenging societal, economic, and market activity
during the first half of the year, the Company believes the portfolio remains
in a strong position due to the protections structured into the balance sheet
investments.
During the period, the Company generated a total return of -4.06% for
shareholders, declared dividends for the period of 4.00 pence per share and
the NAV per share as at 30 June 2022 was 105.51. The Company generated gross
revenue returns of 5.88% as a percentage of NAV in the first half of 2022 from
the Company's balance sheet investments, continuing the strong performance
trend of the past few years. Gross capital returns of -8.15% were primarily
driven by unrealised losses from the Company's privately-held and publicly
traded equity investments. Finance costs were -0.76% and operating expenses
and management fees were -0.97% for the period. A full summary of the returns
can be found below:
PORTFOLIO UPDATE
Overall, the Company is seeing an increase in demand for private debt as a
practical alternative to growth equity financing for emerging businesses. As
geopolitical issues and continued market uncertainty have dampened start-up
funding globally in the first half of 2022, the evidence suggests that
growth-stage companies are increasingly turning to debt financing to support
their expansion plans. The Company encountered a similar trend during the
Global Financial Crisis in 2008, where businesses began increasingly looking
for non-traditional sources of capital. The Company expects this trend to
continue.
The Company's asset backed investment portfolio primarily consists of senior
secured floating rate credit facilities with interest rate floors typically in
the 1.0% to 2.0% range. Recent moves in interest rates have positively
affected revenue returns as rates on the Company's facilities reset on a
monthly basis. In the last few months, short-term interest rates have
increased materially, reaching 2.29% for three-month rates (at 30 June 2022).
Further rises in short-term rates would continue to increase the revenue
returns in the near term but could potentially lead to greater credit risk as
portfolio companies start to see a corresponding increased interest expense.
In June, the Company took the opportunity to increase its credit reserves
under IFRS9 by 18.9% or £2,351,199 during the period. In keeping with the
Company's IFRS9 policy, these reserves are reviewed each month to assess the
likelihood of incurring any loss either (i) in the normal course of events, or
(ii) in an adverse scenario. Given the continued volatility and uncertainty
evident in the macroeconomic environment, the Company continued to attribute a
probability weighting of 100% to the likelihood of a "Stress Scenario". The
Company will continue to review the IFRS9 reserves each month to determine the
need for any further changes.
As discussed in the Chairman's Statement above, the SPAC market has struggled
amidst recent market volatility and rising interest rates. Overall, SPAC
losses in the Company are largely unrealized and inception-to-date performance
remains at £2.43 million (0.83% of the Company's NAV as at 30 June 2022).
Bakkt Holdings, Inc. ("BKKT"), a digital asset platform based in the United
States, represents a large portion of losses in the first half of 2022.
Despite volatility in the market, the Company has recognized positive
inception-to-date returns on the BKKT investment equal to 0.73% of the
Company's NAV as at 30 June 2022. The BKKT trading lock-up expires in October
2022, giving the Company additional flexibility in managing the position.
PORTFOLIO COMPOSITION
The Company continued to implement the strategy of deploying capital across a
broad range of Portfolio Companies with a diversity of geographies, borrower
types and credit quality. Below are the breakouts of the Company's portfolio
composition as at 30 June 2022:
Gross Asset Allocation(1)
Debt 70%
Common Stock 5%
Preferred Stock 13%
Warrant 4%
Convertible Debt 7%
Cash 1%
Investment Exposure by Sector(2)
Fintech 69%
e-Commerce 25%
Legal Finance 3%
SPAC 3%
Investment Exposure, Geography(2)
United States 66%
Europe 11%
Latin America 14%
Asia 9%
(1)Percentages calculated on a look-through basis to the Company's investee
entities and SPVs.
(2)Calculations using gross asset exposure and not reduced for gearing.
Excludes cash.
SUMMARY HIGHLIGHTS FOR THE FIRST HALF OF 2022
v January 2022: VPC Impact Acquisition Holdings III, INC. ("VPCC"), a special
purpose acquisition company sponsored by Victory Park Capital and Dave, Inc.
(NASDAQ: DAVE) announced that the business combination closed following
approval by VPCC stockholders. On 17 January 2022, one of the Company's
privately-held investments, Beforepay, closed its IPO and began trading on the
Australian Stock Exchange under the ticker B4P.
v February 2022: The Company declared its 15th consecutive dividend of 2.00p
for the three-month period to 31 December 2021.
v March 2022: VPC Impact Acquisition Holdings II (NASDAQ:VPCB) ("VPCB"), a
special purpose acquisition company sponsored by VPC Impact Acquisition
Holdings Sponsor II, LLC ("VPC Sponsor"), an affiliate of Victory Park Capital
("VPC"), and FinAccel, the parent company of Kredivo, the leading AI- enabled
digital consumer credit platform in Southeast Asia, announced the mutual
termination of their previously announced business combination agreement. On
31 March 2022, the Company paid its 16th consecutive dividend of 2.00 pence
per share.
v April 2022: On 28 April 2022, the Company released its 2021 Annual Report,
which can be found on the Company's website.
v June 2022: The Company announced that at its Annual General Meeting held on
13 June 2022, all the resolutions set out in the Notice of Annual General
Meeting were passed by the requisite majority. On 14 June 2022, the Company
declared its 17th consecutive dividend of 2.00 pence per share for the
three-month period to 31 March 2022.
SUBSEQUENT EVENTS
v July 2022: On 12 July 2022, one of the Company's privately-held investments,
WeFox (formerly known as Finance Fox), announced that it raised $400 million
in a Series D round of funding, giving the German company a post-money
valuation of $4.5 billion. The unrealised gain from the renewed valuation was
accounted for in the Company's June NAV minus a 20% liquidity discount. Also
on 12 July 2022, one of the Company's privately-held investments, Pattern
Brands, announced that it raised $25 million in a Series B fundraising, on top
of the $60 million of acquisition capital brought in last year, led by new
investors Toba Capital, Verlinvest, and BAM Elevate, alongside existing
investors Primary, RRE Ventures, and Victory Park Capital. The unrealised gain
from the renewed valuation was accounted for in the Company's June NAV minus a
20% liquidity discount.
v August 2022: On 3 August 2022, ZeroFox, Inc., a VPC portfolio company and an
enterprise software-as-a-service leader in external cybersecurity, reported
the closing of its previously announced business combination with L&F
Acquisition Corp ("L&F"), a special purpose acquisition company, and ID
Experts Holdings, Inc. ("IDX"). On 4 August 2022, the combined company began
trading under NASDAQ: ZFOX. Victory Park Capital was proud to be part of
ZeroFox's journey, particularly in a challenging SPAC market environment.
RISKS AND UNCERTAINTIES
Although there are several risks and uncertainties, the Company believes that
the most significant include:
v Rising interest rates: While the Company's investment portfolio primarily
consists of floating rate credit facilities with interest rate floors, changes
in interest rates could affect our investments, the profitability of the
portfolio companies, and that of the underlying borrowers, potentially leading
to lower returns or changes in repayments or default rates of the underlying
borrowers.
v Potential risk of refinancing: The Company retains a right of first refusal
("ROFR") to match the credit facility terms offered by any third party on most
of the Company's investments. In an instance where the market pricing and
underlying risk for these deals are not in line with the Company's investment
objectives, the Company will not exercise the ROFRs. The Company has a
significant pipeline of undrawn capacity as well as new deal flow that allows
the team to quickly reinvest the liquidity generated by a potential
refinancing event in the near term. The increasingly competitive environment
might affect the ability to quickly reinvest capital if this trend continues
over the long term.
v Potential changes in credit risk: There is inherent risk in the Company's
underlying investments of a borrower default and a majority of the underlying
exposure is in the U.S. Given the short duration of the collateral in the
portfolio, the underly portfolio companies continue to generate sufficient
cash flow.
INVESTMENT MANAGER UPDATE
VPC had a robust first half of 2022. As at 1 August 2022, VPC's team included
48 employees across its locations in Chicago, New York, Los Angeles, Miami,
Austin, and London. During the second quarter of 2022, VPC made several middle
to senior-level hires across its investor relations, middle office, and front
office teams. The Investment Manager continues to operate in a hybrid
workplace, with employees working from the office and home for three and two
days per week, respectively.
As it relates to portfolio management, the Investment Manager remains focused
on proactive risk management and controls across its portfolio. Senior
management holds multiple calls each week and the investment team is in
regular contact with Portfolio Companies to proactively monitor risk and
performance. Further, in June 2022, VPC's Asset Backed Opportunistic Credit
("ABOC") strategy held its final close on approximately $2.4 billion across
its commingled vehicles and separately managed accounts. The Investment
Manager is gratified by the strong support shown by its existing and new
investors.
In June 2022, the Company declared its 17th consecutive quarterly dividend
payment of 2.00p per share for the three-month period to 31 March 2022. In an
era where high levels of income are increasingly hard to maintain, the Company
is proud of its proven track record of earning consistently high returns for
investors while protecting downside risk via credit enhancement and deep
structuring expertise.
OUTLOOK
At the time of writing, the global economic outlook remains uncertain. The
after-effects of the heart of the COVID-19 pandemic have given way to fears of
persistently high inflation and negative global growth. Central banks are
under pressure to fight inflation, which has resulted in interest rates rising
to levels not seen in decades. In addition, the invasion of Ukraine by Russia
has led to increased market volatility and widespread sanctions on Russian
assets and individuals, contributing to a spiking oil price and concern over
long-term energy valuations. The Company continues to monitor these risks
closely and will do its best to make sure the portfolio can perform regardless
of the economic environment, by offering capital protection and income
generation throughout various market cycles.
As the Company navigates through the uncertainty, the Team exercises caution.
The Company structures and underwrites investments with a focus on downside
protection in addition to stress-testing collateral across various scenarios.
For example, while the Company's investment portfolio primarily consists of
floating rate credit facilities with interest rate floors, a rising interest
rate environment has the potential to affect investments, the profitability of
the Portfolio Companies (and that of the underlying borrowers), potentially
leading to lower returns or changes in repayments or default rates of the
underlying borrowers.
From a purely macroeconomic standpoint, we believe that the current
portfolio's main advantages include the floating rate, shorter duration, and
fully amortising underlying collateral. While the quality of the underlying
credit performance of balance-sheet investments is critical, it is also
important to emphasise the additional layers of protection beyond direct asset
security. Due to the structured nature of the Company's balance-sheet
investments, including (in most cases) corporate guarantees and significant
first-loss protection, investments are generally not affected by changes in
credit performance until a platform defaults and all corporate resources
(separate from the borrowing base of loan collateral) are exhausted. In
addition to monitoring credit performance, the team monitors the overall
corporate performance of all Portfolio Companies, including attending board
meetings as an observer and having weekly update calls with management.
Historically, private debt as an asset class has been seen as a stable choice
in times of volatility. With an uncertain market environment and an especially
volatile past few years, allocators have been increasingly turning to private
debt for insulation from broader market shifts. Returns are also giving
participants even more confidence in this asset class, particularly
considering recent volatility in the public markets. Private debt has
continued to exhibit strong performance, and the Company believes capital
allocation to private debt could eventually overtake real estate. With
inflation reaching new heights and interest rates on the rise, the Company
believes inflows to private debt - and specifically strategies focused on
asset-backed lending - will continue as investors seek alternatives to
traditional fixed income. VPC's asset-backed, senior secured credit strategy
aims to offer higher yields and greater structural protections than
traditional lenders, with an emphasis on capital preservation and income
generation across market cycles.
Victory Park Capital Advisors, LLC
Investment Manager
28 September 2022
DIRECTORS' RESPONSIBILITY STATEMENT
FOR THE SIX-MONTH PERIOD ENDED 30 JUNE 2021
The Directors acknowledge responsibility for the Half-Year Financial Report
and confirm that to the best of their knowledge:
(a) the unaudited consolidated financial statements have been prepared in
accordance with UK-adopted IAS 34 'Interim Financial Reporting' and give a
true and fair view of the assets, liabilities, financial position, and profit
for the period of the Group as required by the Disclosure Guidance and
Transparency Rules ("DTR") 4.2.4 R;
(b) the Interim Management Report (including the Chairman's Statement and
the Investment Manager's Report) includes a fair review of the information
required by DTR 4.2.7 R (indication of important events that have occurred
during the six-month period to 30 June 2022 and their impact on the set of
consolidated financial statements and a description of the principal risks and
uncertainties for the remaining six months of the financial year); and
(c) the Half-Year Financial Report includes a fair review of the
information concerning related party transactions as required by DTR 4.2.8 R.
Signed on behalf of the Board by:
Graeme Proudfoot
Chairman
28 September 2022
INTERIM MANAGEMENT REPORT
FOR THE SIX-MONTH PERIOD ENDED 30 JUNE 2022
CAUTIONARY STATEMENT
This Interim Management Report has been prepared solely to provide additional
information to shareholders to assess the strategies of the Company and its
subsidiaries (together "the Group"). The Interim Management Report should not
be relied on by any other party or for any other purpose.
The Interim Management Report contains certain forward-looking statements.
These statements are made by the Directors in good faith based on the
information available to them up to the time of their approval of the
Half-Year Financial Report but such statements should be treated with caution
due to the inherent uncertainties, including both economic and business risk
factors, underlying any such forward-looking information.
ACTIVITIES
The activities of the Group are described in the Chairman's Statement and in
the Investment Manager's Report. Refer to the Chairman's Statement on page 6
and the Investment Manager's Report on pages 8 through 10 of the Half-Year
Financial Report. Further refer to Note 1 to the consolidated financial
statements.
STRATEGY AND INVESTMENT OBJECTIVES
The important events that have occurred during the period under review and the
key factors influencing the consolidated financial statements are described in
the Chairman's Statement and in the Investment Manager's Report.
Refer to the Chairman's Statement on page 6 and the Investment Manager's
Report on pages 8 through 10 of the Half-Year Financial Report.
GOING CONCERN
As stated in Note 2 to the consolidated financial statements, the Directors
are satisfied that the Group has sufficient resources to continue in operation
for the foreseeable future, a period not less than 12 months from the date of
this Half-Year Report. Accordingly, they continue to adopt the going concern
basis in preparing the consolidated financial statements.
PRINCIPAL RISKS AND UNCERTAINTIES
There are a number of potential risks and uncertainties which could have a
material impact on the Group's performance over the remaining six months of
the financial period and could cause actual results to differ materially from
expected and historical results. Refer to the Investment Manager's Report on
pages 8 through 10 of the Half-Year Financial Report as well as Note 5 to the
consolidated financial statements for the potential risks and uncertainties.
The principal risks and uncertainties are consistent with those disclosed in
the Annual Report for the year ended 31 December 2021 which can be found on
the Company's website.
FINANCIAL PERFORMANCE
The financial and operational highlights of the Group can be found on pages 3
through 4 of the Half-Year Financial Report.
RELATED PARTY TRANSACTIONS
Related party transactions are disclosed in Note 13 to the consolidated
financial statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2022
(UNAUDITED) (UNAUDITED) (AUDITED)
30 JUNE 2022 30 JUNE 2021 31 DECEMBER 2021
NOTES £ £ £
Assets
Cash and cash equivalents 3,603,872 12,827,525 6,300,572
Cash posted as collateral 6,657,120 2,038,095 4,133,588
Derivative financial assets - - 2,069,698
Interest receivable 4,715,312 4,174,208 4,708,481
Dividend and distribution receivable 4,362 3,763 3,996
Other assets and prepaid expenses 4,869,842 2,699,365 2,877,815
Loans at amortised cost 3,7 259,567,849 291,351,321 279,339,002
Investment assets designated as held at fair value through profit or loss 3 134,486,636 107,162,812 141,797,222
Total assets 413,904,993 420,257,089 441,230,374
Liabilities
Management fee payable 8 434,554 168,635 155,399
Performance fee payable 8 - 7,047,774 12,913,280
Derivative financial liabilities 6,326,320 3,692,219 1,508,675
Unsettled share buyback payable - 169,147 -
Deferred income 99,607 192,170 174,603
Other liabilities and accrued expenses 1,655,146 1,066,774 1,550,415
Dividend and distribution payable 5,565,528 - -
Notes payable 6 106,175,885 112,385,146 107,267,260
Total liabilities 120,257,040 124,721,865 123,569,632
Total assets less total liabilities 293,647,953 295,535,224 317,660,742
Capital and reserves
Called-up share capital 20,300,000 20,300,000 20,300,000
Share premium account 161,040,000 161,040,000 161,040,000
Other distributable reserve 112,779,146 112,779,136 112,779,146
Capital reserve (24,468,269) (20,053,701) 1,667,026
Revenue reserve 22,689,448 20,221,752 20,615,367
Currency translation reserve 1,256,135 1,220,777 1,213,245
Total equity attributable to shareholders of the Parent Company 293,596,460 295,507,964 317,614,784
Non-controlling interests 15 51,493 27,260 45,958
Total equity 293,647,953 295,535,224 317,660,742
Net Asset Value per Ordinary Share 9 105.51p 106.19p 114.14p
The financial statements on pages 13 to 41 were approved by the Board of
Directors on 28 September 2022 and signed on its behalf by:
Graeme Proudfoot
Chair
28 September 2022
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE SIX-MONTH PERIOD ENDED 30 JUNE 2022
(UNAUDITED) (UNAUDITED) (UNAUDITED)
REVENUE CAPITAL TOTAL
NOTES £ £ £
Revenue
Net gain (loss) on investments 4 - (23,605,365) (23,605,365)
Foreign exchange gain (loss) - (215,548) (215,548)
Interest income 4 13,625,589 - 13,625,589
Other income 4 5,645,129 - 5,645,129
Total return 19,270,718 (23,820,913) (4,550,195)
Expenses
Management fee 8 1,990,424 - 1,990,424
Performance fee 8 - - -
Credit impairment losses (recoveries) 7 - 2,313,947 2,313,947
Other expenses 1,023,217 - 1,023,217
Total operating expenses 3,013,641 2,313,947 5,327,588
Finance costs 3,051,940 - 3,051,940
Net return on ordinary activities before taxation 13,205,137 (26,134,860) (12,929,723)
Taxation on ordinary activities - - -
Net return on ordinary activities after taxation 13,205,137 (26,134,860) (12,929,723)
Attributable to:
Equity shareholders 13,205,137 (26,134,860) (12,930,158)
Non-controlling interests - 435 435
Return per Ordinary Share (basic and diluted) 4.75p (9.39)p (4.65)p
Other comprehensive income
Currency translation differences - 47,990 47,990
Total comprehensive income 13,205,137 (26,086,870) (12,881,733)
Attributable to:
Equity shareholders 13,205,137 (26,092,405) (12,887,268)
Non-controlling interests - 5,535 5,535
The total column of this statement represents the Group's statement of
comprehensive income, prepared in accordance with UK-adopted International
Accounting Standards and with the requirements of the Companies Act 2006 as
applicable to companies reporting under those standards. The supplementary
revenue and capital columns are both prepared under guidance published by the
Association of Investment Companies ("AIC"). All items in the above Statement
derive from continuing operations. Amounts in Other comprehensive income may
be reclassified to profit or loss in future periods.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE SIX-MONTH PERIOD ENDED 30 JUNE 2021
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE PERIOD ENDED 30 JUNE 2021
(UNAUDITED) (UNAUDITED) (UNAUDITED)
REVENUE CAPITAL TOTAL
NOTES £ £ £
Revenue
Net gain (loss) on investments 4 - 38,544,646 38,544,646
Foreign exchange gain (loss) - (1,667,217) (1,667,217)
Interest income 4 14,989,688 9,781 14,999,469
Other income 4 2,994,307 - 2,994,307
Total return 17,983,995 36,887,210 54,871,205
Expenses
Management fee 8 1,780,159 - 1,780,159
Performance fee 8 1,693,853 5,353,921 7,047,774
Credit impairment losses 7 - 1,102,970 1,102,970
Other expenses 2,084,520 82,389 2,166,909
Total operating expenses 5,558,532 6,539,280 12,097,812
Finance costs 2,826,965 - 2,826,965
Net return on ordinary activities before taxation 9,598,498 30,347,930 39,946,428
Taxation on ordinary activities - - -
Net return on ordinary activities after taxation 9,598,498 30,347,930 39,946,428
Attributable to:
Equity shareholders 9,598,498 30,339,877 39,938,375
Non-controlling interests - 8,053 8,053
Return per Ordinary Share (basic and diluted) 3.25p 10.27p 13.52p
Other comprehensive income
Currency translation differences - (1,119) (1,119)
Total comprehensive income 9,598,498 30,346,811 39,945,309
Attributable to:
Equity shareholders 9,598,498 30,338,888 39,937,386
Non-controlling interests - 7,923 7,923
The total column of this statement represents the Group's statement of
comprehensive income, prepared in accordance with UK-adopted International
Accounting Standards and with the requirements of the Companies Act 2006 as
applicable to companies reporting under those standards. The supplementary
revenue and capital columns are both prepared under guidance published by the
Association of Investment Companies ("AIC"). All items in the above Statement
derive from continuing operations. Amounts in Other comprehensive income may
be reclassified to profit or loss in future periods.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2021
(AUDITED) (AUDITED) (AUDITED)
REVENUE CAPITAL TOTAL
NOTES £ £ £
Revenue
Net gain (loss) on investments 4 - 67,114,995 67,114,995
Foreign exchange gain (loss) - (2,049,374) (2,049,374)
Interest income 4 33,158,150 524,984 33,158,150
Other income 4 4,419,620 - 4,419,620
Total return 37,577,770 65,065,621 102,643,391
Expenses
Management fee 8 3,802,097 - 3,802,097
Performance fee 8 3,733,910 9,179,370 12,913,280
Credit impairment losses 7 - 3,636,142 3,636,142
Other expenses 3,212,166 159,909 3,372,075
Total operating expenses 10,748,173 12,975,421 23,723,594
Finance costs 5,706,429 - 5,706,429
Net return on ordinary activities before taxation 21,123,168 52,090,200 73,213,368
Taxation on ordinary activities - - -
Net return on ordinary activities after taxation 21,123,168 52,090,200 73,213,368
Attributable to:
Equity shareholders 21,123,168 52,060,604 73,183,772
Non-controlling interests - 29,596 29,596
Return per Ordinary Share (basic and diluted) 7.55p 18.62p 26.17p
Other comprehensive income
Currency translation differences - (11,496) (11,496)
Total comprehensive income 21,123,168 52,078,704 73,201,872
Attributable to:
Equity shareholders 21,123,168 52,052,083 73,175,251
Non-controlling interests - 26,621 26,621
The total column of this statement represents the Group's statement of
comprehensive income, prepared in accordance with UK-adopted International
Accounting Standards and with the requirements of the Companies Act 2006 as
applicable to companies reporting under those standards. The supplementary
revenue and capital columns are both prepared under guidance published by the
Association of Investment Companies ("AIC"). All items in the above Statement
derive from continuing operations. Amounts in Other comprehensive income may
be reclassified to profit or loss in future periods.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX-MONTH PERIOD ENDED 30 JUNE 2022
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
CALLED UP SHARE OTHER CURRENCY TOTAL NON-
SHARE PREMIUM DISTRIBUTABLE CAPITAL REVENUE TRANSLATION SHAREHOLDERS' CONTROLLING TOTAL
CAPITAL ACCOUNT RESERVE RESERVE RESERVE RESERVE EQUITY INTERESTS EQUITY
£ £ £ £ £ £ £ £ £
Opening balance at 1 January 2022 20,300,000 161,040,000 112,779,146 1,667,026 20,615,367 1,213,245 317,614,784 45,958 317,660,742
Amounts paid on buyback of Ordinary Shares - - - - - - - - -
Contributions by non-controlling interests - - - - - - - - -
Distributions to non-controlling interests - - - - - - - - -
Return on ordinary activities after taxation - - - (26,135,295) 13,205,137 - (12,930,158) 435 (12,929,723)
Dividends declared and paid - - - - (11,131,056) - (11,131,056) - (11,131,056)
Other comprehensive income (loss)
Currency translation differences - - - - - 42,890 42,890 5,100 47,990
Closing balance at 30 June 2022 20,300,000 161,040,000 112,779,146 (24,468,269) 22,689,448 1,256,135 293,596,460 51,493 293,647,953
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX-MONTH PERIOD ENDED 30 JUNE 2021
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
CALLED UP SHARE OTHER CURRENCY TOTAL NON-
SHARE PREMIUM DISTRIBUTABLE CAPITAL REVENUE TRANSLATION SHAREHOLDERS' CONTROLLING TOTAL
CAPITAL ACCOUNT RESERVE RESERVE RESERVE RESERVE EQUITY INTERESTS EQUITY
£ £ £ £ £ £ £ £ £
Opening balance at 1 January 2021 20,300,000 161,040,000 116,520,960 (50,393,578) 21,847,960 1,221,766 270,537,108 19,337 270,556,445
Amounts paid on buyback of Ordinary Shares - - (3,741,824) - - - (3,741,824) - (3,741,824)
Contributions by non-controlling interests - - - - - - - - -
Distributions to non-controlling interests - - - - - - - - -
Return on ordinary activities after taxation - - - 30,339,877 9,598,498 - 39,938,375 8,053 39,946,428
Dividends declared and paid - - - - (11,224,706) - (11,224,706) - (11,224,706)
Other comprehensive income
Currency translation differences - - - - - (989) (989) (130) (1,119)
Closing balance at 30 June 2021 20,300,000 161,040,000 112,779,136 (20,053,701) 20,221,752 1,220,777 295,507,964 27,260 295,535,224
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2021
(AUDITED) (AUDITED) (AUDITED) (AUDITED) (AUDITED) (AUDITED) (AUDITED) (AUDITED) (AUDITED)
CALLED UP SHARE OTHER CURRENCY TOTAL NON-
SHARE PREMIUM DISTRIBUTABLE CAPITAL REVENUE TRANSLATION S HAREHOLDERS' CONTROLLING TOTAL
CAPITAL ACCOUNT RESERVE RESERVE RESERVE RESERVE EQUITY INTERESTS EQUITY
£ £ £ £ £ £ £ £ £
Opening balance at 1 January 2021 20,300,000 161,040,000 116,520,960 (50,393,578) 21,847,960 1,221,766 270,537,108 19,337 270,556,445
Amounts paid on buyback of Ordinary Shares - - (3,741,814) - - - (3,741,814) - (3,741,814)
Contributions by non-controlling interests - - - - - - - - -
Distributions to non-controlling interests - - - - - - - - -
Return on ordinary activities after taxation - - - 52,060,604 21,123,168 - 73,183,772 29,596 73,213,368
Dividends declared and paid - - - - (22,355,761) - (22,355,761) - (22,355,761)
Other comprehensive income
Currency translation differences - - - - - (8,521) (8,521) (2,975) (11,496)
Closing balance at 31 December 2021 20,300,000 161,040,000 112,779,146 1,667,026 20,615,367 1,213,245 317,614,784 45,958 317,660,742
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX-MONTH PERIOD ENDED 30 JUNE 2022
(UNAUDITED) (UNAUDITED) (AUDITED)
30 JUNE 2022 30 JUNE 2021 31 DECEMBER
2021
£ £ £
Cash flows from operating activities:
Total comprehensive income (12,881,733) 39,945,309 73,201,872
Adjustments for:
-- Interest income (13,625,589) (14,999,469) (33,158,150)
-- Dividend and distribution income (5,645,129) (2,994,307) (4,419,620)
-- Finance costs 3,051,940 2,826,965 5,706,429
-- Exchange losses 215,548 1,667,217 2,049,374
Total (28,884,963) 26,445,715 43,379,905
Loss (gain) on investment assets designated as held at fair value through 25,665,146 (38,544,646) (67,354,436)
profit or loss
(Gain) loss on derivative financial instruments (38,465,735) 10,980,503 (6,131,547)
Decrease in other assets and prepaid expenses (1,992,027) (1,810,217) (1,988,667)
(Decrease) increase in performance fee payable (12,913,280) 3,007,689 63,158
Increase in management fee payable 279,155 76,394 8,873,195
Decrease in deferred income (74,996) (61,233) (78,800)
Increase (decrease) in accrued expenses and other liabilities 63,958 (701,861) 250,148
Interest received 13,618,758 14,438,308 32,062,716
Purchase of loans (21,754,375) (104,041,783) (129,180,445)
Redemption or sale of loans 67,164,260 101,968,924 145,742,133
Impairment of loans (1,583) 1,102,970 3,636,142
Net cash inflow from operating activities 5,019,848 12,860,763 29,273,502
Cash flows from investing activities:
Investment income received 5,644,763 2,994,356 4,419,436
Purchase of investment assets designated as held at fair value through profit (18,841,577) (24,402,638) (51,430,977)
or loss
Sale of investment assets designated as held at fair value through profit or 14,851,369 5,874,872 30,929,189
loss
Decrease of cash posted as collateral (2,523,532) (898,095) (2,993,588)
Net cash outflow from investing activities (868,977) (16,431,505) (19,075,940)
Cash flows from financing activities:
Dividends distributed (5,565,528) (11,224,706) (22,355,761)
Treasury shares repurchased - (3,572,677) (3,741,814)
(Decrease) increase in note payable (1,091,375) 27,250,133 21,180,077
Finance costs paid (3,011,167) (2,391,251) (5,739,082)
Net cash outflow from financing activities (9,668,070) 10,061,499 (10,656,580)
Net change in cash and cash equivalents (5,517,199) 6,490,757 (459,018)
Exchange gains on cash and cash equivalents 2,820,499 (79,261) 343,562
Cash and cash equivalents at the beginning of the period 6,300,572 6,416,028 6,416,028
Cash and cash equivalents at the end of the period 3,603,872 12,827,524 6,300,572
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX-MONTH PERIOD ENDED 30 JUNE 2022
1. GENERAL INFORMATION
VPC Specialty Lending Investments PLC (the "Company" or "Parent Company") with
its subsidiaries (together "the Group") is focused on asset backed lending to
emerging and established businesses with the goal of building long-term,
sustainable income generation. The Group focuses on providing capital to vital
segments of the economy that are underserved by the traditional banking
industry, including small businesses, working capital products, consumer
finance and real estate, among others. The Group executes this strategy by
identifying investment opportunities across various industries and geographies
to offer shareholders access to a diversified portfolio of opportunistic
credit investments originated by non-bank lenders with a focus on the rapidly
developing technology-enabled lending sector. The Parent Company, which is
limited by shares, was incorporated and domiciled in England and Wales on 12
January 2015 with registered number 9385218. The Parent Company commenced its
operations on 17 March 2015 and intends to carry on business as an investment
trust within the meaning of Chapter 4 of Part 24 of the Corporation Tax Act
2010.
The Group's investment manager is Victory Park Capital Advisors, LLC (the
"Investment Manager"), a US Securities and Exchange Commission registered
investment adviser. The Investment Manager also acts as the Alternative
Investment Fund Manager of the Group under the Alternative Investment Fund
Managers Directive ("AIFMD"). The Parent Company is defined as an Alternative
Investment Fund and is subject to the relevant articles of the AIFMD.
The Group will invest directly or indirectly into available opportunities,
including by making investments in, or acquiring interests held by, third
party funds (including those managed by the Investment Manager or its
affiliates). Direct investments may include consumer loans, SME loans,
advances against corporate trade receivables and/or purchases of corporate
trade receivables ("Debt Instruments") originated by platforms which engage
with and directly lend to borrowers ("Portfolio Companies"). Such Debt
Instruments may be subordinated in nature, or may be second lien, mezzanine or
unsecured loans. Indirect investments may include investments in Portfolio
Companies (or in structures set up by Portfolio Companies) through the
provision of credit facilities ("Credit Facilities"), equity or other
instruments. Additionally, the Group's investments in Debt Instruments and
Credit Facilities may be made through subsidiaries of the Parent Company or
through partnerships or other structures. The Group may also invest in other
specialty lending related opportunities through any combination of debt
facilities, equity or other instruments.
As at 30 June 2022, the Parent Company had equity in the form of 382,615,665
Ordinary Shares, 278,276,392 Ordinary Shares in issue and 104,339,273 Ordinary
Shares in Treasury (31 December 2021: 382,615,665 Ordinary Shares, 282,647,364
Ordinary Shares in issue and 99,968,301 Ordinary Shares in Treasury; 30 June
2021: 382,615,665 Ordinary Shares, 278,276,392 Ordinary Shares in issue and
104,339,273 Ordinary Shares in Treasury). The Ordinary Shares are listed on
the premium segment of the Official List of the UK Listing Authority and trade
on the London Stock Exchange's main market for listed securities.
Citco Fund Administration (Cayman Islands) Limited (the "Administrator") is
the administrator of the Group. The Administrator is responsible for the
Group's general administrative functions, such as the calculation and
publication of the Net Asset Value ("NAV") and maintenance of the Group's
accounting records.
For any terms not herein defined, refer to Part X of the IPO Prospectus. The
Parent Company's IPO Prospectus dated 26 February 2015 is available on the
Parent Company's website, www.vpcspecialtylending.com
(http://www.vpcspecialtylending.com) .
2. SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies followed by the Group are set out in Note 2
of the Annual Report for the year ended 31 December 2021.
Basis of preparation
The consolidated financial statements present the financial performance of the
Group and Company for the six-month period ended 30 June 2022. These
statements have been prepared in accordance with the Disclosure Guidance and
Transparency Rules of the Financial Conduct Authority and UK-adopted IAS34
'Interim Financial Reporting.'
The consolidated financial statements for the period ended 30 June 2022 have
not been audited or reviewed by the Group's auditors and do not constitute
statutory financial statements as defined in Section 434 of the Companies Act
2006. They do not include all financial information required for full annual
financial statements. The consolidated financial statements and the
comparative financial statements have been prepared using the accounting
policies adopted in the audited financial statements for the year ended
31 December 2021.
The Directors have reviewed the financial projections of the Group and Company
from the date of this report, which shows that the Group and Company will be
able to generate sufficient cash flows in order to meet its liabilities as
they fall due. In assessing the Group's and Company's ability to continue as a
going concern, the Directors have considered the Company's investment
objective, risk management policies, capital management, the nature of its
portfolio and expenditure projections.
Additionally, the Directors have considered the risks arising of reduced asset
values and economic disruption caused by unforeseen geopolitical events,
including war, terrorist attacks, natural disasters, and ongoing pandemics,
which could create economic, financial, and business disruptions. The
Investment Manager has also performed a range of stress tests and demonstrated
to the Directors that even in an adverse scenario of depressed markets that
the Group could still generate sufficient funds to meet its liabilities over
the next twelve months. The Directors believe that the Group has adequate
resources, an appropriate financial structure and suitable management
arrangements in place to continue in operational existence for the foreseeable
future being a period of at least twelve months from the date of this report.
Based on their assessment and considerations above, the Directors have
concluded that the financial statements of the Group and Company should
continue to be prepared on a going concern basis and the financial statements
have been prepared accordingly.
Where presentational guidance set out in the Statement of Recommended Practice
("SORP") for investment trusts issued by the Association of Investment
Companies ("AIC") in November 2014 and updated in October 2019 with
consequential amendments is consistent with the requirements of IFRS, the
Directors have sought to prepare the consolidated financial statements on a
basis compliant with the recommendations of the SORP.
The Parent Company and Group's presentational currency is Pound Sterling (£).
Pound Sterling is also the functional currency because it is the currency of
the Parent Company's share capital and the currency which is most relevant to
the majority of the Parent Company's shareholders. The Group enters into
forward currency Pound Sterling hedges where operating activity is transacted
in a currency other than the functional currency.
Critical accounting estimates
The preparation of financial statements in conformity with international
accounting standards requires the Group to make judgements, estimates and
assumptions that affect the application of accounting policies and the
reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the
reporting period. Although these estimates are based on the Directors' best
knowledge of the amount, actual results may differ ultimately from those
estimates.
The areas requiring a higher degree of judgement or complexity and areas where
assumptions and estimates are significant to the financial statements, are in
relation to expected credit losses and investments at fair value through
profit or loss. These are detailed below.
Estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimates are revised and in any future periods affected.
Measurement of the expected credit loss allowance
The calculation of the Group's ECL allowances and provisions against loan
commitments and guarantees under IFRS 9 is highly complex and involves the use
of significant judgement and estimation. This includes the formulation and
incorporation of multiple forward-looking economic conditions into ECL to meet
the measurement objective of IFRS 9. The most significant estimates that are
discussed below are considered to be the expected life of the financial
instrument, what is considered to be a significant increase in credit risk to
affect a movement between stages, and the effect of potential future economic
scenarios.
Base case and stress case cash flow methodology under IFRS 9
Each loan in the Group's investment portfolio is analysed to assess the
likelihood of the Group incurring any loss either (i) in the normal course of
events, or (ii) in a stress scenario. Given that these positions are typically
secured by specific collateral and often further secured by guarantees from
the operating business, the analysis looks at the impacts on both the specific
collateral, as well as any obligations of the operating business to understand
how the Group's investment would fair in each scenario. The collateral
performance assumptions for each transaction are established using all
available historical performance data on the specific asset pool being
assessed, supplemented by additional sources as needed.
Base case
To establish the base case model, a representative portfolio is established
based on the specific nature of the underlying collateral. The expected cash
flows are assessed based on the relevant collateral parameters which will vary
based on the specific asset class being assessed. In certain instances the
collateral cash flows may entail the presumed sale of collateral assets to
third parties based on expected market values. Cash flow and market
assumptions are based on a combination of (1) historical collateral data, (2)
management forecasts, (3) proxy data from comparable assets or businesses, and
(4) judgement from the investment professionals based on general research and
knowledge.
The model is then burdened with the following costs: (1) servicing costs which
broadly reflect the expected costs of either (i) engaging a backup servicer
to wind down the portfolio, or (ii) of operating the business through a
liquidation; (2) upfront liquidation costs to reflect potential expenses
associated with moving into liquidation; and (3) ongoing liquidation costs to
reflect incremental costs born to oversee the liquidation.
The last input component is the terms of the Group's investment, which
includes the applicable advance rate and interest rate which are based on the
prevailing terms and circumstances of the facility.
The representative portfolio is deemed to reflect the most reliable and
relevant information available about the portfolio attributes and expected
performance. As part of the ongoing investment monitoring and risk management
process, the Investment Manager is monitoring performance on the underlying
collateral on a monthly basis to identify whether performance indicators are
trending positively or negatively, and how much cushion exists compared to
contractual covenant trigger levels. Any such changes would be reviewed to
determine whether an adjustment is required to the model assumptions.
For the Group's asset backed balance sheet investments, the Investment Manager
performs a similar analysis as with our financial services asset backed
balance sheet investments, though in those cases we are assessing the likely
return on legal sector investments based on historical data and expert
judgement and stressing the return and/or loss expectation on those platforms.
In general, those assets by their nature tend to be uncorrelated across both
the macro economy as well as across the portfolio(s), which has an impact on
the range of outcomes factored into the model.
Stress case
Once the Base Case scenario is established, one or more "Stress Case"
scenario(s) is (are) created for each transaction. The Stress Case is
established by stressing the inputs that are most directly tied to outcomes to
an extent consistent with a severe recession or comparably severe
deterioration in the investment position. The primary driver of collateral
value for many asset classes is the loss rates on the underlying receivables
as these have the most direct impact on liquidation outcomes. For other asset
classes it may include revenue yields, market values, or other economic
variables. Certain variables with less significant impacts on the cash flow
outcomes may be held constant to enhance model explanatory power. Stress
variables may be adjusted to reflect the fact that stress will emerge (and
dissipate) over a period of time rather than having an immediate and constant
impact.
Establishing Impairment Reserves
Once the model has been run at the stressed scenario, if the cash flows
continue to support the payment of all VPC principal and interest after the
burdens of servicing and liquidation costs, the portfolio is deemed to have
adequate coverage based solely on direct collateral. If there is a shortfall
in principal payments, a further assessment is done to note whether there are
any excluded variables that need to be considered in determining the need for
reserves on the position, including other additional credit enhancements
provided in each deal (i.e., corporate guarantees, boot collateral, etc.).
Such assessment would consider the likelihood of a scenario that could pose a
loss or impairment and the expected magnitude of such loss in order to
determine the appropriate reserve level.
IFRS 9 calls for an assessment of the probability of default over the upcoming
12 months, and thus VPC will also provide a view of the probability of such a
severe scenario occurring in the next 12 months for each of the investments
which are at risk of incurring a loss (as some of the variables will vary
between investments). VPC reviews macroeconomic data and central bank
indicators to assess the probability of a recession or stress scenario over a
forward looking 12-month horizon. Such information may be supplemented with
additional investment level or macroeconomic information to determine the
appropriate probabilities of stress (most commonly any such adjustments would
be to apply additional likelihood of stress). In certain instances, the
assessed impairment reserves are constant across all scenarios, this most
commonly occurs when the assessed impairment reserves are zero. In these
instances there shall be no need to assess probability weightings as it would
not impact the overall analysis.
Valuation of unquoted investments
The valuation of unquoted investments and investments for which there is an
inactive market is a key area of judgement and may cause material adjustment
to the carrying value of those assets and liabilities. The unquoted equity
assets are valued on periodic basis using techniques including a market
approach, costs approach and/or income approach. The valuation process is
collaborative, involving the finance and investment functions within the
Investment Manager with the final valuations being reviewed by the Board's
Audit and Valuation Committee. The specific techniques used typically include
earnings multiples, discounted cash flow analysis, the value of recent
transactions, and, where appropriate, industry rules of thumb. The valuations
often reflect a synthesis of a number of different approaches in determining
the final fair value estimate. The individual approach for each investment
will vary depending on relevant factors that a market participant would take
into account in pricing the asset. Changes in fair value of all investments
held at fair value are recognised in the Consolidated Statement of
Comprehensive Income as a capital item. On disposal, realised gains and losses
are also recognised in the Consolidated Statement of Comprehensive Income as a
capital item. Transaction costs are included within gains or losses on
investments held at fair value, although any related interest income, dividend
income and finance costs are disclosed separately in the Consolidated
Financial Statements. The ultimate sale price of investments may not be the
same as fair value. Refer to Note 3.
Critical accounting judgments
Judgement is required to determine whether the Parent Company exercises
control over its investee entities and whether they should be consolidated.
Control is achieved where the Parent Company has the power to govern the
financial and operating policies of an investee entity so as to obtain
benefits from its activities. The Parent Company controls an investee entity
when the Parent Company is exposed to, or has rights to, variable returns from
its investment and has the ability to affect those returns through its power
over the entity. At each reporting date, an assessment is undertaken of
investee entities to determine control. In the intervening period, assessments
are undertaken where circumstances change that may give rise to a change in
the control assessment. These include when an investment is made into a new
entity, or an amendment to existing entity documentation or processes. When
assessing whether the Parent Company has the power to affect its variable
returns, and therefore control investee entities, an assessment is undertaken
of the Parent Company's ability to influence the relevant activities of the
investee entity. These activities include considering the ability to appoint
or remove key management or the manager, which party has decision making
powers over the entity and whether the manager of an entity is acting as
principal or agent. The assessment undertaken for entities considers the
Parent Company's level of investment into the entity and its intended
long-term holding in the entity and there may be instances where the Parent
Company owns less than 51% of an investee entity but that entity is
consolidated. Further details of the Parent Company's subsidiaries are
included in Note 14.
The Group's investments in associates all consist of limited partner interest
in funds. There are no significant restrictions between investors with joint
control or significant influence over the associates listed above on the
ability of the associates to transfer funds to any party in the form of cash
dividends or to repay loans or advances made by the Group.
3. FAIR VALUE MEASUREMENT
Financial instruments measured and reported at fair value are classified and
disclosed in one of the following fair value hierarchy levels based on the
significance of the inputs used in measuring its fair value:
Level 1 - Quoted prices (unadjusted) in active markets for identical assets
and liabilities;
Level 2 - Inputs other than quoted prices included in Level 1 that are
observable for the asset or liability, either directly (as prices) or
indirectly (derived from prices); and
Level 3 - Pricing inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
An investment is always categorised as Level 1, 2 or 3 in its entirety. In
certain cases, the fair value measurement for an investment may use a number
of different inputs that fall into different levels of the fair value
hierarchy. In such cases, an investment's level within the fair value
hierarchy is based on the lowest level of input that is significant to the
fair value measurement. The assessment of the significance of a particular
input to the fair value measurement requires judgment and is specific to the
investment.
The Group's investments in funds are subject to the terms and conditions of
the respective fund's offering documentation. The investments in funds are
primarily valued based on the latest available financial information. The
Investment Manager reviews the details of the reported information obtained
from the funds and considers: (i) the valuation of the fund's underlying
investments; (ii) the value date of the NAV provided; (iii) cash flows
(calls/distributions) since the latest value date; and (iv) the basis of
accounting and, in instances where the basis of accounting is other than fair
value, fair valuation information provided by the funds. If necessary,
adjustments to the NAV are made to the funds to obtain the best estimate of
fair value. The funds in which the Group invests are close-ended and unquoted.
No adjustments have been determined to be necessary to the NAV as provided as
at 30 June 2022 as this reflects fair value under the relevant valuation
methodology. The NAV is provided to investors only and is not made publicly
available.
Valuation of equity securities
Fair value is determined based on the Group's valuation methodology, which is
either determined using market comparables, discounted cash flow models or
recent transactions.
Under the Enterprise Valuation Waterfall Analysis, the Group estimates the
fair value of a portfolio company using traditional valuation methodologies
including market, income, and cost approaches, as well as other applicable
industry-specific approaches and then waterfall the enterprise value over the
portfolio company's securities in order of their preference relative to one
another. Some or all the traditional valuation methodologies are weighted
based on the individual circumstances of the portfolio company to determine an
estimate of the enterprise value. The traditional valuation methodologies
consist of valuation estimates based on: valuations of comparable public
companies, recent sales of private and public comparable companies,
discounting the forecasted cash flows of the portfolio company, estimating the
liquidation or collateral value of the portfolio company's assets, third-party
valuations of the portfolio company or its assets, considering offers from
third-parties to buy the portfolio company, estimating the value to potential
strategic buyers and considering the value of recent investments in the equity
securities of the portfolio company. To determine the enterprise value of a
portfolio company, its historical and projected financial results, as well as
other factors that may impact value, such as exposure to litigation, loss of
significant customers or other contingencies are considered. This financial
and other information is generally obtained from the Group's portfolio
companies, and in most cases represents unaudited, projected, or pro-forma
financial information.
In using a valuation methodology based on the discounting of forecasted cash
flows of the portfolio company, significant judgment is required in the
development of an appropriate discount rate to be applied to the forecasted
cash flows. When applicable, a weighted average cost of capital approach is
used to derive a discount rate that takes into account i) the risk-free rate
ii) the cost of debt for creditworthiness and iii) the cost of equity for
performance risk. The three inputs to the discount rate are based on
third-party market studies, portfolio company interest rates, and an overall
understanding of the inherent risk in the cash flows. The remaining
assumptions incorporated in the valuation methodologies used to estimate the
enterprise value consist primarily of unobservable Level 3 inputs, including
management assumptions based on judgment. For example, from time to time, a
portfolio company has exposure to potential or actual litigation. In
evaluating the impact on the valuation for such items, the amount that a
market participant would consider in estimating fair value is considered.
These estimates are highly subjective, based on the Group's assessment of the
potential outcome(s) and the related impact on the fair value of such
potential outcome(s). A change in these assumptions could have a material
impact on the determination of fair value.
In using a valuation methodology based on comparable public companies or sales
of private or public comparable companies, significant judgment is required in
the application of discounts or premiums to the prices of comparable companies
for factors such as size, marketability and relative performance. Related to
the use of private company transactions, when a portfolio company closes on
new equity, the new round's implied valuation is used in valuing the equity
investment. The use of an equity round includes gaining an understanding of
the resulting rights between equity classes, and when applicable, a discount
related to rights and preference differences is applied to the implied
valuation. In addition, when a portfolio company has significant reason to
believe an equity round is closing in the near future, a weighted-probability
approach with the applicable discounts may be used. Under the yield analysis
approach, expected future cash flows are discounted back using a discount
rate. The discount rate used incorporates market-based yields for similar
credits to the public market and the underlying risk of the individual credit.
Due to the inherent uncertainty of determining the fair value of Level 3
assets that do not have a readily available market value, the fair value of
the assets may differ significantly from the values that would have been used
had a ready market existed for such assets and may differ materially from the
values that may ultimately be received or settled. Further, such assets are
generally subject to legal and other restrictions or otherwise are less liquid
than publicly traded instruments. If the Group were required to liquidate a
portfolio investment in a forced or liquidation sale, the Group may realise
significantly less than the value at which such investment had previously been
recorded.
The selection of appropriate valuation techniques may be affected by the
availability of relevant inputs as well as the relative reliability of the
inputs. In some cases, one valuation technique may provide the best indication
of fair value while in other circumstances, multiple valuation techniques may
be appropriate. The results of the application of the various techniques may
not be equally representative of fair value, due to factors such as
assumptions made in the valuation.
In some situations, the Group may determine it appropriate to evaluate and
weigh the results to develop a range of possible values, with the fair value
based on the Group's assessment of the most representative point within the
range.
Investments may be classified as Level 2 when market information becomes
available, yet the investment is not traded in an active market and/or the
investment is subject to transfer restrictions, or the valuation is adjusted
to reflect illiquidity and/or non-transferability.
The Group, at times, may hold Level 1 investments and will use the available
market quotes to value the investments. As noted above, these investments may
include an illiquid period in which the investment does not have the ability
to trade and will be classified as Level 2.
Fair value disclosures
The following table analyses the fair value hierarchy of the Group's assets
and liabilities measured at fair value at 30 June 2022:
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
INVESTMENT ASSETS DESIGNATED TOTAL LEVEL 1 LEVEL 2 LEVEL 3
AS HELD AT FAIR VALUE £ £ £ £
Preferred Stock 52,591,726 - - 52,591,726
Convertible Notes 23,667,939 - - 23,667,939
Common Stock 19,769,130 3,473,696 6,706,650 9,588,784
Warrants 19,362,631 - - 19,362,631
Investments in funds 19,095,209 - - 19,095,209
Total 134,486,635 3,473,696 6,706,650 124,306,289
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
DERIVATIVE FINANCIAL ASSETS TOTAL LEVEL 1 LEVEL 2 LEVEL 3
£ £ £ £
Forward foreign exchange contracts - - - -
Total - - - -
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
DERIVATIVE FINANCIAL LIABILITIES TOTAL LEVEL 1 LEVEL 2 LEVEL 3
£ £ £ £
Forward foreign exchange contracts 6,326,320 - 6,326,320 -
Total 6,326,320 - 6,326,320 -
There were no movements between Level 1 and Level 2 fair value measurements
during the period ended 30 June 2022 and no investment fair value transferred
from Level 3 to Level 2 during the period.
The following table analyses the fair value hierarchy of the Group's assets
and liabilities measured at fair value at 30 June 2022:
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
INVESTMENT ASSETS DESIGNATED TOTAL LEVEL 1 LEVEL 2 LEVEL 3
AS HELD AT FAIR VALUE £ £ £ £
Investments in funds 11,653,612 - - 11,653,612
Equity securities 95,509,200 - 23,359,474 72,149,726
Total 107,162,812 - 23,359,474 83,803,338
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
DERIVATIVE FINANCIAL ASSETS TOTAL LEVEL 1 LEVEL 2 LEVEL 3
£ £ £ £
Forward foreign exchange contracts - - - -
Total - - - -
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
DERIVATIVE FINANCIAL LIABILITIES TOTAL LEVEL 1 LEVEL 2 LEVEL 3
£ £ £ £
Forward foreign exchange contracts 3,692,219 - 3,692,219 -
Total 3,692,219 - 3,692,219 -
There were no movements between Level 1 and Level 2 fair value measurements
during the period ended 30 June 2022 and £6,419,396 of investment fair value
transferred from Level 3 to Level 2 during the period.
The following table analyses the fair value hierarchy of the Group's assets
and liabilities measured at fair value at 31 December 2021:
(AUDITED) (AUDITED) (AUDITED) (AUDITED)
INVESTMENT ASSETS DESIGNATED TOTAL LEVEL 1 LEVEL 2 LEVEL 3
AS HELD AT FAIR VALUE £ £ £ £
Investments in funds 12,531,090 - - 12,531,090
Common stock 49,501,940 11,992,005 21,201,450 16,308,485
Preferred stock 38,090,065 - - 38,090,065
Warrant 20,984,976 - 1,120,366 19,864,610
Convertible debt 20,689,151 - - 20,689,151
Total 141,797,222 11,992,005 22,321,816 107,483,401
(AUDITED) (AUDITED) (AUDITED) (AUDITED)
TOTAL LEVEL 1 LEVEL 2 LEVEL 3
DERIVATIVE FINANCIAL ASSETS £ £ £ £
Forward foreign exchange contracts 2,069,698 - 2,069,698 -
Total 2,069,698 - 2,069,698 -
(AUDITED) (AUDITED) (AUDITED) (AUDITED)
DERIVATIVE FINANCIAL LIABILITIES TOTAL LEVEL 1 LEVEL 2 LEVEL 3
£ £ £ £
Forward foreign exchange contracts 1,508,675 - 1,508,675 -
Total 1,508,675 - 1,508,675 -
The following table presents the movement in Level 3 positions for the period
ended 30 June 2022 for the Group:
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
INVESTMENTS COMMON PREFERRED CONVERTIBLE
TOTAL IN FUNDS STOCK STOCK WARRANT DEBT
£ £ £ £ £ £
Beginning balance, 1 January 2021 107,483,401 12,531,090 16,308,485 38,090,065 19,864,610 20,689,151
Purchases 17,880,810 3,556,974 3,298,146 6,482,835 535,960 4,006,895
Sales (14,851,369) (428,164) (9,718,009) (687,454) (85,744) (3,931,998)
Net change in unrealised gains (losses) 13,793,447 3,435,309 (299,838) 8,706,280 (952,195) 2,903,891
Ending balance, 30 June 2022 124,306,289 19,095,209 9,588,784 52,591,726 19,362,631 23,667,939
The following table presents the movement in Level 3 positions for the period
ended 30 June 2021 for the Group:
(UNAUDITED) (UNAUDITED)
(UNAUDITED) INVESTMENTS EQUITY
TOTAL IN FUNDS SECURITIES
£ £ £
Beginning balance, 1 January 2021 48,463,617 2,522,367 45,941,250
Purchases 24,399,408 9,462,777 14,936,631
Sales (2,908,963) (93,226) (2,815,737)
Transfers in (out) (6,419,396) - (6,419,396)
Net change in unrealised foreign exchange gains (losses) (1,936,373) (507,668) (1,428,705)
Net realised gains (losses) 142,090 - 142,090
Net change in unrealised gains (losses) 22,062,955 269,362 21,793,593
Ending balance, 30 June 2021 83,803,338 11,653,612 72,149,726
The following table presents the movement in Level 3 positions for the year
ended 31 December 2021 for the Group:
(AUDITED) (AUDITED) (AUDITED) (AUDITED) (AUDITED)
INVESTMENTS COMMON PREFERRED CONVERTIBLE
TOTAL IN FUNDS STOCK STOCK WARRANT DEBT
£ £ £ £ £ £
Beginning balance, 1 January 2021 48,463,617 2,522,367 11,072,305 19,771,889 4,996,048 10,101,008
Purchases 45,439,031 19,086,855 7,661,428 2,250,450 5,338,445 11,101,853
Sales (25,600,304) (16,220,038) (4,899,071) (1,275,157) (2,656,064) (549,974)
Net change in unrealised gains (losses) 39,181,057 7,141,906 2,473,823 17,342,883 12,186,181 36,264
Ending balance, 31 December 2021 107,483,401 12,531,090 16,308,485 38,090,065 19,864,610 20,689,151
The net change in unrealised gains (losses) is recognised within gains
(losses) on investments in the Consolidated Statement of Comprehensive Income.
Quantitative information regarding the unobservable inputs for Level 3
positions as at 30 June 2022 is given below:
FAIR VALUE AT
30 JUNE
2022 VALUATION
DESCRIPTION £ TECHNIQUE UNOBSERVABLE INPUT RANGE
Common Stock 5,404,837 Discounted Cash Flows Price to Earnings 7.0x
Price to Book 1.5x
Discount Rate 20.0%
2,733,300 Transaction Price/ Illiquidity Discount 30.0%
Recent Round Price
1,346,680 Transaction Price Cost Basis of Investment N/A
103,967 Transaction Price/ Deal Execution Risk Discount 0.44%
Recent Round Price Recent Round Price per Share $0.688
Convertible Notes 14,284,615 Discounted Cash Flows Discount Rate 23.0%
Annual Free Cash Flow Growth Rates 3.0%
5,584,298 Transaction Price Cost Basis of Investment N/A
1,985,750 Transaction Price/ Rights and Preferences Discount 0%
Recent Round Price Recent Round Price per Share $5.56
1,813,276 Transaction Price/ Recent Round Price per Share €10,530.89
Recent Round Price Illiquidity Discount 18.0%
Preferred Stock 25,584,885 Transaction Price/ Recent Round Price per Share $0.2974 - €3,671.49
Recent Round Price Rights and Preferences Discount 0% - 20%
11,068,686 Transaction Price/ Illiquidity Discount 0.0% - 20%
Recent Round Price Recent Round Price per Share $0.45 - $28.38
7,442,180 Transaction Price/ Recent Round Price per Share $1.43 - $33.55
Recent Round Price
6,121,596 Transaction Price/ Deal Execution Risk Discount 0%
Recent Round Price Recent Round Price per Share $9.71
2,374,379 Transaction Price/ Price Per Share $8.7879
Recent Round Price
Investments in Funds 19,095,209 Net Asset Value N/A N/A
Warrants 13,399,344 Black Scholes Price Per Share $0.69 - €10,530.89
Rights and Preferences Discount 0% - 40%
Risk Free Rate 2.92% - 3.01%
Term 1.78 years - 5 years
Volatility 3% - 40.0%
3,282,302 Total Enterprise Value Revenue Multiple 1.75x
2,454,183 Transaction Price/ Deal Execution Risk Discount, 20%,
Recent Round Price Recent Round Price per Share $52.01
226,802 Transaction Price/ Recent Round Price per Share, $3.30,
Recent Round Price Rights and Preferences Discount 40%
Total 124,306,289
The investments in funds consist of investments in VPC Synthesis, L.P. and VPC
Offshore Unleveraged Private Debt Fund Feeder, L.P. These are valued based on
the NAV as calculated at the balance sheet date. No adjustments have been
deemed necessary to the NAV as it reflects the fair value of the underlying
investments, as such no specific unobservable inputs have been identified. The
NAVs are sensitive to movements in interest rates due to the funds' underlying
investment in loans.
If the illiquidity discount of the convertible debt valued based on discounted
cash flows increased / decreased by 10% it would have resulted in an increase
/ decrease to the total value of those securities of £7,750,481, which would
affect the Net gain / (loss) on investments within the capital return column
of the Consolidated Statement of Comprehensive Income.
If the illiquidity discount of the preferred stock valued based on discounted
cash flows increased / decreased by 10% it would have resulted in an increase
/ decrease to the total value of those securities of £3,890,725, which would
affect the Net gain / (loss) on investments within the capital return column
of the Consolidated Statement of Comprehensive Income.
If the volatility rate used for the warrants valued based on a Black Scholes
increased / decreased by 10% it would have resulted in an increase / decrease
to the total value of those equity securities of £1,802,586, which would
affect the Net gain / (loss) on investments within the capital return column
of the Consolidated Statement of Comprehensive Income.
If the price of all the investment assets held at period end, including
individually those mentioned above, had increased / decreased by 10% it would
have resulted in an increase / decrease in the total value the investments in
funds and equity securities of £12,430,629 which would affect the Net gain /
(loss) on investments within the capital return column of the Consolidated
Statement of Comprehensive Income.
Assets and liabilities not carried at fair value but for which fair value is
disclosed
The following table presents the fair value of the Group's assets and
liabilities not measured at fair value through profit and loss at 30 June
2022 but for which fair value is disclosed. The carrying value has been used
where it is a reasonable approximation of fair value:
(UNAUDITED) (UNAUDITED)
CARRYING FAIR MARKET VALUE
VALUE
£ £
Assets
Loans 259,567,849 259,567,849
Total 259,567,849 259,567,849
The following table presents the fair value of the Group's assets and
liabilities not measured at fair value through profit and loss at 30 June
2021 but for which fair value is disclosed. The carrying value has been used
where it is a reasonable approximation of fair value:
(UNAUDITED) (UNAUDITED)
CARRYING FAIR MARKET VALUE
VALUE
£ £
Assets
Loans 291,351,321 291,351,321
Total 291,351,321 291,351,321
The following table presents the fair value of the Group's assets and
liabilities not measured at fair value through profit and loss at 31 December
2021 but for which fair value is disclosed:
(AUDITED) (AUDITED)
CARRYING FAIR MARKET VALUE
VALUE
£ £
Assets
Loans 279,339,002 279,339,002
Total 279,339,002 279,339,002
For all other assets and liabilities not carried at fair value, the carrying
value is a reasonable approximation of fair value.
4. INCOME AND GAINS ON INVESTMENTS AND LOANS
(UNAUDITED) (UNAUDITED) (AUDITED)
30 JUNE 30 JUNE 31 DECEMBER
2022 2021 2021
£ £ £
Other Income
Distributable income from investments in funds 1,937,039 644,529 1,265,158
Interest income from investment assets 3,490,818 2,349,778 2,088,723
Other income 217,272 - 1,065,739
Total 5,645,129 2,994,307 4,419,620
(UNAUDITED) (UNAUDITED) (AUDITED)
30 JUNE 30 JUNE 31 DECEMBER
2022 2021 2021
£ £ £
Net gains (losses) on investments
Realised (loss) gain on sale of investments 2,059,781 (1,616,556) (239,441)
Unrealised gains on investment in funds 3,435,309 269,362 7,141,906
Unrealised gains on equity securities (29,100,455) 39,891,840 60,212,530
Total (23,605,365) 38,544,646 67,114,995
5. FINANCIAL INSTRUMENTS AND ASSOCIATED RISKS
Introduction
Risk is inherent in the Group's activities, but it is managed through a
process of ongoing identification, measurement and monitoring, subject to risk
limits and other controls. The Group is exposed to market risk (which includes
currency risk, interest rate risk and other price risk), credit risk and
liquidity risk arising from the financial instruments held by the Group.
Risk management structure
The Directors are ultimately responsible for identifying and controlling
risks. Day to day management of the risks arising from the financial
instruments held by the Group has been delegated to Victory Park Capital
Advisors, LLC as Investment Manager to the Parent Company and the Group.
The Investment Manager regularly reviews the investment portfolio and industry
developments to ensure that any events which impact the Group are identified
and considered. This also ensures that any risks affecting the investment
portfolio are identified and mitigated to the fullest extent possible.
The Group has no employees, and the Directors have all been appointed on a
Non-Executive basis. Whilst the Group has taken all reasonable steps to
establish and maintain adequate procedures, systems and controls to enable it
to comply with its obligations, the Group is reliant upon the performance of
third-party service providers for its executive function. In particular, the
Investment Manager, the Custodian, the Administrator, the Corporate Secretary
and the Registrar will be performing services which are integral to the
operation of the Group. Failure by any service provider to carry out its
obligations to the Group in accordance with the terms of its appointment could
have a materially detrimental impact on the operation of the Group.
In seeking to implement the investment objectives of the Parent Company while
limiting risk, the Parent Company and the Group are subject to the investment
limits restrictions set out in the Credit Risk section of this note.
Liquidity risk
Liquidity risk is defined as the risk that the Group may not be able to settle
or meet its obligations on time or at a reasonable price. Ordinary Shares are
not redeemable at the holder's option.
The maturities of the non-current financial liabilities are disclosed in Note
6.
The Investment Manager manages the Group's liquidity risk by investing
primarily in a diverse portfolio of assets. At 30 June 2022, 16% of the loans
had a stated maturity date of less than a year (31 December 2021: 10%; 30 June
2021: 2%).
The Group and Parent Company continuously monitor for fluctuation in currency
rates. The Parent Company performs stress tests and liquidity projections to
determine how much cash should be held back to meet potential future to
obligations to settle margin calls arising from foreign exchange hedging.
6. NOTE PAYABLE
The Group entered into contractual obligations with a third party to
structurally subordinate a portion of the principal directly attributable to
existing investments. The cash flows received by the Group from the underlying
investments are used to pay the lender principal, interest, and draw fees
based upon the stated terms of the Credit Facility. Unless due to a fraudulent
act, as defined by the Credit Facilities, none of the Group's other investment
assets can be used to satisfy the obligations of the Credit Facilities in the
event that those obligations cannot be met by the subsidiaries. Each
subsidiary with a Credit Facility is a bankruptcy remote entity.
The table below provides details of the outstanding debt of the Group at 30
June 2022:
OUTSTANDING
INTEREST PRINCIPAL
30 JUNE 2022 (UNAUDITED) RATE £ MATURITY
Credit Facility 03-2021 3.95%+1M LIBOR 87,230,610 1 March 2027
Total 87,230,610
The table below provides details of the outstanding debt of the Group at 30
June 2021:
OUTSTANDING
INTEREST PRINCIPAL
30 JUNE 2021 (UNAUDITED) RATE £ MATURITY
Credit Facility 03-2021 3.95%+1M LIBOR 74,323,590 1 March 2027
Total 74,323,590
The table below provides details of the outstanding debt of the Group at 31
December 2021:
OUTSTANDING
INTEREST PRINCIPAL
31 DECEMBER 2021 (AUDITED) RATE £ MATURITY
Credit Facility 03-2021 3.95%+1M LIBOR 87,432,895 1 March 2027
Total 87,432,895
The Group entered into contractual obligations with a third party to
structurally subordinate a portion of principal directly attributable to an
existing loan facility. The Group is obligated to pay a commitment fee and
interest to the third party on the obligation as interest is paid on the
underlying loan facility. In the event of a default on the loan facility, the
third party has first-out participation rights on the accrued and unpaid
interest as well as the principal balance of the note.
The table below provides details of the outstanding first-out participation
liabilities of the Group at 30 June 2022:
OUTSTANDING
PRINCIPAL
30 JUNE 2022 (UNAUDITED) £ MATURITY
First-Out Participation 03-2017 18,945,275 1 January 2024
Total 18,945,275
The table below provides details of the outstanding first-out participation
liabilities of the Group at 30 June 2021:
OUTSTANDING
PRINCIPAL
30 JUNE 2021 (UNAUDITED) £ MATURITY
First-Out Participation 03-2017 20,244,010 1 January 2024
First-Out Participation 04-2019 17,817,546 1 January 2024
Total 38,061,556
The table below provides details of the outstanding first-out participation
liabilities of the Group at 31 December 2021:
OUTSTANDING
PRINCIPAL
31 DECEMBER 2021 (AUDITED) £ MATURITY
First-Out Participation 03-2017 18,181,601 1 January 2024
First-Out Participation 04-2019 1,652,764 1 January 2024
Total 19,834,365
The table below provides the movement of the notes payable for the period
ended 30 June 2022:
NOTES
PAYABLE
(UNAUDITED) £
Beginning balance, 1 January 2022 107,267,260
Purchases 8,599,600
Sales (21,346,505)
Net change in unrealised foreign exchange gains (losses) 11,655,530
Ending balance, 30 June 2022 106,175,885
The table below provides the movement of the notes payable for the period
ended 30 June 2021:
NOTES
PAYABLE
(UNAUDITED) £
Beginning balance, 1 January 2021 86,087,183
Purchases 155,710,709
Sales (128,460,576)
Net change in unrealised foreign exchange gains (losses) (952,170)
Ending balance, 30 June 2021 112,385,146
The table below provides the movement of the notes payable and securities sold
under agreements to repurchase for the year ended 31 December 2021 for the
Group.
NOTES
PAYABLE
(AUDITED) £
Beginning balance, 1 January 2021 86,087,183
Purchases 179,944,080
Sales (163,403,782)
Net change in unrealised foreign exchange gains (losses) 4,639,779
Ending balance, 31 December 2021 107,267,260
7. IMPAIRMENT OF FINANCIAL ASSETS AT AMORTISED COST
The table below provides details of the investments at amortised cost held by
the Group for the period ended 30 June 2022 under IFRS 9:
COST BEFORE LOANS CARRYING
ECL ECL WRITTEN-OFF VALUE
(UNAUDITED) £ £ £ £
Loans at amortised cost 274,347,352 14,779,503 - 259,567,849
Total 274,347,352 14,779,503 - 259,567,849
The table below provides details of the investments at amortised cost held by
the Group for the period ended 30 June 2021 under IFRS 9:
COST BEFORE LOANS CARRYING
ECL ECL WRITTEN-OFF VALUE
(UNAUDITED) £ £ £ £
Loans at amortised cost 300,945,981 9,549,220 45,440 291,351,321
Total 300,945,981 9,549,220 45,440 291,351,321
The table below provides details of the investments at amortised cost held by
the Group for the year ended 31 December 2021 under IFRS 9:
COST BEFORE LOANS CARRYING
ECL ECL WRITTEN-OFF VALUE
(AUDITED) £ £ £ £
Loans at amortised cost 291,802,975 12,463,973 - 279,339,002
Total 291,802,975 12,463,973 - 279,339,002
Credit impairment losses
The credit impairment losses of the Group for the six months ended 30 June
2022 comprised of the following under IFRS 9:
CREDIT IMPAIRMENT LOSSES
30 JUNE 2022
(UNAUDITED) £
Loan recovered (1,583)
Change in loan loss reserve 2,315,530
Currency translation -
Credit impairment losses 2,313,947
The credit impairment losses of the Group for the six months ended 30 June
2021 comprised of the following under IFRS 9:
CREDIT IMPAIRMENT LOSSES
30 JUNE 2021
(UNAUDITED) £
Loans written off 45,440
Change in expected credit losses 1,060,061
Currency translation on expected credit losses (2,531)
Credit impairment losses 1,102,970
The credit impairment losses of the Group for the year ended 31 December 2021
comprises of the following under IFRS 9:
CREDIT IMPAIRMENT LOSSES
31 DECEMBER 2021
(AUDITED) £
Loans recovered (358,867)
Change in expected credit losses 3,974,814
Currency translation on expected credit losses 20,195
Credit impairment losses 3,636,142
Impairment of loans written off
Impairment charges of loans written off (recovered) £(1,583) (31 December
2021: £(358,867); 30 June 2021: £45,440) are included in credit impairment
losses on the Consolidated Statement of Comprehensive Income.
Provision for expected credit losses
As at 30 June 2022, the Group has created a reserve provision on the
outstanding principal of the Group's loans of £14,779,503 (31 December 2021:
£12,463,973; 30 June 2021: £9,549,220), which have been recorded in the
Group's Consolidated Statement of Financial Position and are included in
Credit impairment losses on the Consolidated Statement of Comprehensive
Income.
The allowance for expected credit losses comprised the following as at 30 June
2022:
30 JUNE
2022
(UNAUDITED) £
Beginning balance 1 January 2022 12,463,973
Change in expected credit losses or equivalent 2,315,530
Ending balance 30 June 2022 14,779,503
The allowance for expected credit losses comprised the following as at 30 June
2021:
30 JUNE
2021
(UNAUDITED) £
Beginning balance 1 January 2021 8,489,159
Change in expected credit losses or equivalent 1,060,061
Ending balance 30 June 2021 9,549,220
The allowance for expected credit losses comprised the following as at 31
December 2021:
31 DECEMBER
2021
(AUDITED) £
Beginning balance 1 January 2021 8,489,159
Change in expected credit losses or equivalent 3,974,814
Ending balance 31 December 2021 12,463,973
Ending balance 31 December 2021 12,463,973
Below is a breakout of the provision for expected credit losses by stage of
the ECL model as at 30 June 2022:
FINTECH E-COMMERCE LEGAL 30 JUNE
FINANCE 2022
INTERNAL GRADE (UNAUDITED) £ £ £ £
Stage 1 1,092,325 1,103,209 149,501 2,345,035
Stage 2 - - - -
Stage 3 12,434,468 - - 12,434,468
Expected credit losses 13,526,793 1,103,209 149,501 14,779,503
INTERNAL GRADE (UNAUDITED) UNITED LATIN EUROPE ASIA 30 JUNE
STATES AMERICA £ £ 2022
£ £ £
Stage 1 1,907,422 - 437,613 - 2,345,035
Stage 2 - - - - -
Stage 3 - - 12,434,468 - 12,434,468
Expected credit losses 1,907,422 - 12,872,081 - 14,779,503
Below is a breakout of the provision for expected credit losses by stage of
the ECL model as at 30 June 2021:
FINTECH E-COMMERCE LEGAL 30 JUNE
FINANCE 2021
INTERNAL GRADE (UNAUDITED) £ £ £ £
Stage 1 - - - -
Stage 2 - - - -
Stage 3 9,549,220 - - 9,549,220
Expected credit losses 9,549,220 - - 9,549,220
INTERNAL GRADE (UNAUDITED) UNITED LATIN EUROPE ASIA 30 JUNE
STATES AMERICA £ £ 2021
£ £ £
Stage 1 - - - - -
Stage 2 - - - - -
Stage 3 - - 9,549,220 - 9,549,220
Loans at amortised cost - - 9,549,220 - 9,549,220
Below is a breakout of the provision for expected credit losses by stage of
the ECL model as at 31 December 2021:
INTERNAL GRADE (AUDITED) FINTECH E-COMMERCE LEGAL 31 DECEMBER
£ £ FINANCE 2021
£ £
Stage 1 - - - -
Stage 2 - - - -
Stage 3 12,463,973 - - 12,463,973
Expected credit losses 12,463,973 - - 12,463,973
INTERNAL GRADE (AUDITED) UNITED LATIN EUROPE ASIA 31 DECEMBER
STATES AMERICA £ £ 2021
£ £ £
Stage 1 - - - - -
Stage 2 - - - - -
Stage 3 - - 12,463,973 - 12,463,973
Loans at amortised cost - - 12,463,973 - 12,463,973
8. FEES AND EXPENSES
Investment management fees
Under the terms of the Management Agreement, the Investment Manager is
entitled to a management fee and a performance fee together with reimbursement
of reasonable expenses incurred by it in the performance of its duties.
The management fee is payable in Pound Sterling monthly in arrears and is at
the rate of 1/12 of 1.0% per month of NAV (the "Management Fee"). For the
period from Admission until the date on which 90% of the net proceeds of the
Issue have been invested or committed for investment (other than in Cash
Instruments), the value attributable to any Cash Instruments of the Group held
for investment purposes will be excluded from the calculation of NAV for the
purposes of determining the Management Fee. The management fee expense of the
Group for the period is £1,990,424 (31 December 2021: £3,802,097; 30 June
2021: £1,780,159), of which £434,554 (31 December 2021: £155,399; 30 June
2021: £168,635) was payable as at 30 June 2022.
The Investment Manager shall not charge a management fee twice. Accordingly,
if at any time the Group invests in or through any other investment fund or
special purpose vehicle and a management fee or advisory fee is charged to
such investment fund or special purpose vehicle by the Investment Manager or
any of its affiliates, the Investment Manager agrees to either (at the option
of the Investment Manager): (i) waive such management fee or advisory fee due
to the Investment Manager or any of its affiliates in respect of such
investment fund or special purpose vehicle, other than the fees charged by the
Investment Manager under the Management Agreement; or (ii) charge the relevant
fee to the relevant investment fund or special purpose vehicle, subject to the
cap set out in the paragraph below, and ensure that the value of such
investment shall be excluded from the calculation of the NAV for the purposes
of determining the Management Fee payable pursuant to the above.
Notwithstanding the above, where such investment fund or special purpose
vehicle employs gearing from third parties and the Investment Manager or any
of its affiliates is entitled to charge it a fee based on gross assets in
respect of such investment, the Investment Manager may not charge a fee
greater than 1.0% per annum of gross assets in respect of any investment made
by the Parent Company or any member of the Group.
Performance fees
The performance fee is calculated by reference to the movements in the
Adjusted Net Asset Value since the end of the Calculation Period in respect of
which a performance fee was last earned or Admission if no performance fee has
yet been earned. The payment of any performance fees to the Investment Manager
will be conditional on the Parent Company achieving at least a 5.0% per annum
total return for shareholders relative to a 30 April 2017 High Water Mark.
The performance fee will be calculated in respect of each 12 month period
starting on 1 January and ending on 31 December in each calendar year (a
"Calculation Period") and provided further that if at the end of what would
otherwise be a Calculation Period no performance fee has been earned in
respect of that period, the Calculation Period shall carry on for the next 12
month period and shall be deemed to be the same Calculation Period and this
process shall continue until a performance fee is next earned at the end of
the relevant period. The performance fee expense for the period is £Nil (31
December 2021: £12,913,280; 30 June 2021: £7,047,774), of which none was
payable as at 30 June 2022 (31 December 2021: £12,913,280; 30 June 2021:
£7,047,774).
The performance fee will be equal to the lower of (i) in each case as at the
end of the Calculation Period, an amount equal to (a) Adjusted Net Asset Value
minus the Adjusted Hurdle Value, minus (b) the aggregate of all Performance
Fees paid to the Manager in respect of all previous Calculation Periods; and
(ii) the amount by which (a) 15% of the total increase in the Adjusted Net
Asset Value since the Net Asset Value as at 30 April 2017 (being the aggregate
of the increase in the Adjusted Net Asset Value in the relevant Calculation
Period and in each previous Calculation Period) exceeds (b) the aggregate of
all Performance Fees paid to the Manager in respect of all previous
Calculation Periods. In the foregoing calculation, the Adjusted Net Asset
Value will be adjusted for any increases or decreases in the Net Asset Value
attributable to the issue or repurchase of any Ordinary Shares in order to
calculate the total increase in the Net Asset Value attributable to the
performance of the Parent Company.
"Adjusted Net Asset Value" means the Net Asset Value plus (a) the aggregate
amount of any dividends paid or distributions made in respect of any Ordinary
Shares and (b) the aggregate amount of any dividends or distributions accrued
but unpaid in respect of any Ordinary Shares, plus the amount of any
Performance Fees both paid and accrued but unpaid, in each case after the
Effective Date and without duplication. "Adjusted Hurdle Value" means the Net
Asset Value as at 30 April 2017 adjusted for any increases or decreases in the
Net Asset Value attributable to the issue or repurchase of any Ordinary Shares
increasing at an uncompounded rate equal to the Hurdle. The "Hurdle" means a
5% per annum total return for shareholders.
The Investment Manager shall not charge a performance fee twice. Accordingly,
if at any time the Group invests in or through any other investment fund,
special purpose vehicle or managed account arrangement and a performance fee
or carried interest is charged to such investment fund, special purpose
vehicle or managed account arrangement by the Investment Manager or any of its
affiliates, the Investment Manager agrees to (and shall procure that all of
its relevant affiliates shall) either (at the option of the Investment
Manager): (i) waive such performance fee or carried interest suffered by the
Group by virtue of the Investment Manager's (or such relevant
affiliate's/affiliates') management of (or advisory role in respect of) such
investment fund, special purpose vehicle or managed account, other than the
fees charged by the Investment Manager under the Management Agreement; or (ii)
calculate the performance fee as above, except that in making such calculation
the NAV (as of the date of the High Water Mark) and the Adjusted NAV (as of
the NAV calculation date) shall not include the value of any assets invested
in any other investment fund, special purpose vehicle or managed account
arrangement that is charged a performance fee or carried interest by the
Investment Manager or any of its affiliates (and such performance fee or
carried interest is not waived with respect to the Group).
9. NET ASSET VALUE PER SHARE
(UNAUDITED) (UNAUDITED) (AUDITED)
AS AT AS AT AS AT
30 JUNE 30 JUNE 31 DECEMBER
2022 2021 2021
£ £ £
Net assets attributable to Shareholders of the Parent Company 293,596,460 295,507,964 317,614,784
Ordinary Shares in issue (excluding Treasury Shares) 278,276,392 278,276,392 278,276,392
Net asset value per Ordinary Share 105.51p 106.19p 114.14p
10. RETURN PER ORDINARY SHARE
Basic earnings per share is calculated using the weighted average number of
shares in issue during the year, excluding the average number of Ordinary
Shares purchased by the Parent Company and held as Treasury Shares.
(UNAUDITED) (UNAUDITED) (AUDITED)
AS AT AS AT AS AT
30 JUNE 30 JUNE 31 DECEMBER
2022 2021 2021
£ £ £
Profit for the year (12,930,158) 39,938,375 73,183,772
Average number of Ordinary Shares in issue during the year 278,276,392 280,766,314 279,617,119
Earnings per Share (basic and diluted) (4.65)p 14.22p 26.17p
The Parent Company has not issued any shares or other instruments that are
considered to have dilutive potential.
11. SHAREHOLDERS' CAPITAL
Set out below is the issued share capital of the Company as at 30 June 2022.
All shares issued are fully paid with none not fully paid:
NOMINAL
VALUE NUMBER
(UNAUDITED) £ OF SHARES
Ordinary Shares 0.01 278,276,392
Set out below is the issued share capital of the Company as at 30 June 2021.
All shares issued are fully paid with none not fully paid:
NOMINAL
VALUE NUMBER
(UNAUDITED) £ OF SHARES
Ordinary Shares 0.01 278,276,392
Set out below is the issued share capital of the Company as at 31 December
2021. All shares issued are fully paid with none not fully paid:
NOMINAL
VALUE NUMBER
(AUDITED) £ OF SHARES
Ordinary Shares 0.01 278,276,392
Rights attaching to the Ordinary Shares
The holders of the Ordinary Shares are entitled to receive, and to participate
in, any dividends declared in relation to the Ordinary Shares. The holders of
the Ordinary Shares shall be entitled to all the Parent Company's remaining
net assets after taking into account any net assets attributable to other
share classes in issue. The Shares shall carry the right to receive notice of,
attend and vote at general meetings of the Parent Company. The consent of the
holders of Shares will be required for the variation of any rights attached to
the Ordinary Shares. The net return per Ordinary Share is calculated by
dividing the net return on ordinary activities after taxation by the number of
shares in issue.
Voting rights
Subject to any rights or restrictions attached to any shares, on a show of
hands every shareholder present in person has one vote and every proxy present
who has been duly appointed by a shareholder entitled to vote has one vote,
and on a poll, every shareholder (whether present in person or by proxy) has
one vote for every share of which he is the holder. A shareholder entitled to
more than one vote need not, if he votes, use all his votes or cast all the
votes he uses the same way. In the case of joint holders, the vote of the
senior who tenders a vote shall be accepted to the exclusion of the vote of
the other joint holders, and seniority shall be determined by the order in
which the names of the holders stand in the Register.
No shareholder shall have any right to vote at any general meeting or at any
separate meeting of the holders of any class of shares, either in person or by
proxy, in respect of any share held by him unless all amounts presently
payable by him in respect of that share have been paid.
Variation of rights & distribution on winding up
Subject to the provisions of the Act as amended and every other statute for
the time being in force concerning companies and affecting the Parent Company
(the "Statutes"), if at any time the share capital of the Parent Company is
divided into different classes of shares, the rights attached to any class may
be varied either with the consent in writing of the holders of three-quarters
in nominal value of the issued shares of that class or with the sanction of an
extraordinary resolution passed at a separate meeting of the holders of the
shares of that class (but not otherwise) and may be so varied either whilst
the Parent Company is a going concern or during or in contemplation of a
winding-up.
At every such separate general meeting the necessary quorum shall be at least
two persons holding or representing by proxy at least one-third in nominal
value of the issued shares of the class in question (but at any adjourned
meeting any holder of shares of the class present in person or by proxy shall
be a quorum), any holder of shares of the class present in person or by proxy
may demand a poll and every such holder shall on a poll have one vote for
every share of the class held by him. Where the rights of some only of the
shares of any class are to be varied, the foregoing provisions apply as if
each group of shares of the class differently treated formed a separate class
whose rights are to be varied.
The Parent Company has no fixed life but, pursuant to the Articles, an
ordinary resolution for the continuation of the Parent Company will be
proposed at the annual general meeting of the Parent Company to be held in
2025 and, if passed, every five years thereafter. Upon any such resolution,
not being passed, proposals will be put forward within three months after the
date of the resolution to the effect that the Parent Company be wound up,
liquidated, reconstructed or unitised.
If the Parent Company is wound up, the liquidator may divide among the
shareholders in specie the whole or any part of the assets of the Parent
Company and for that purpose may value any assets and determine how the
division shall be carried out as between the shareholders or different classes
of shareholders.
The table below shows the movement in shares through 30 June 2022:
SHARES IN SHARES IN
ISSUE AT THE ISSUE AT THE
FOR THE PERIOD FROM 1 JANUARY 2022 BEGINNING OF SHARES END OF
TO 30 JUNE 2022 (UNAUDITED) THE PERIOD REPURCHASED THE PERIOD
Ordinary Shares 278,276,392 - 278,276,392
The table below shows the movement in shares through 30 June 2021:
SHARES IN SHARES IN
ISSUE AT THE ISSUE AT THE
FOR THE PERIOD FROM 1 JANUARY 2021 BEGINNING OF SHARES END OF
TO 30 JUNE 2021 (UNAUDITED) THE PERIOD REPURCHASED THE PERIOD
Ordinary Shares 282,647,364 (4,370,972) 278,276,392
The table below shows the movement in shares through 31 December 2021:
SHARES IN SHARES IN
ISSUE AT THE ISSUE AT THE
FOR THE YEAR FROM 1 JANUARY 2021 BEGINNING OF SHARES END OF
TO 31 DECEMBER 2021 (AUDITED) THE PERIOD REPURCHASED THE PERIOD
Ordinary Shares 282,647,364 (4,370,972) 278,276,392
Share buyback programme
All Ordinary Shares bought back through the share buyback programme are held
in treasury as at 30 June 2022. Details of the programme are as follows:
ORDINARY AVERAGE LOWEST HIGHEST TOTAL
(UNAUDITED) SHARES PRICE PER PRICE PER PRICE PER TREASURY
DATE OF PURCHASE PURCHASED SHARE SHARE SHARE SHARES
January 2022 - 0.00p 0.00p 0.00p 104,339,273
February 2022 - 0.00p 0.00p 0.00p 104,339,273
March 2022 - 0.00p 0.00p 0.00p 104,339,273
April 2022 - 0.00p 0.00p 0.00p 104,339,273
May 2022 - 0.00p 0.00p 0.00p 104,339,273
June 2022 - 0.00p 0.00p 0.00p 104,339,273
Other distributable reserve
During the period, the Company declared and paid dividends of £Nil (31
December 2021: £Nil, 30 June 2021: £Nil) from the other distributable
reserve. Further, the cost of the buyback of Ordinary Shares as detailed above
was funded by the other distributable reserve of £Nil (31 December 2021:
£3,741,824, 30 June 2021: £3,741,824).
12. DIVIDENDS PER SHARE
The following table summarises the amounts recognised as distributions to
equity shareholders in the period:
(UNAUDITED) (UNAUDITED) (UNAUDITED)
30 JUNE 30 JUNE 31 DECEMBER
2022 2021 2021
£ £ £
2020 interim dividend of 2.00 pence per Ordinary Share paid on 1 April 2021 - 5,638,178 5,638,178
2021 interim dividend of 2.00 pence per Ordinary Share paid on 24 June 2021 - 5,586,527 5,586,527
2021 interim dividend of 2.00 pence per Ordinary Share paid on 23 September - - 5,565,528
2021
2021 interim dividend of 2.00 pence per Ordinary Share paid on 23 December - - 5,565,528
2021
2021 interim dividend of 2.00 pence per Ordinary Share paid on 31 March 2022 5,565,528 - -
2022 interim dividend of 2.00 pence per Ordinary Share Paid on 21 July 2022 5,565,528 - -
Total 11,131,056 11,224,705 22,355,761
An interim dividend of 2.00 pence per Ordinary Share was declared by the
Board on 25 August 2022 in respect of the period to 30 June 2022 and will be
paid to shareholders on 6 October 2022. The interim dividend has not been
included as a liability in these accounts in accordance with International
Accounting Standard 10: Events After the Balance Sheet Date.
13. RELATED PARTY TRANSACTIONS
Each of the Directors is entitled to receive a fee from the Parent Company at
such rate as may be determined in accordance with the Articles. Save for the
Chair of the Board, the fees are £33,000 for each Director per annum. The
Chair's fee is £55,000 per annum. The chair of the Audit and Valuation
Committee may also receive additional fees for acting as the chairman of such
a committee. The current fee for serving as the chair of the Audit and
Valuation Committee is £5,500 per annum.
All the Directors are also entitled to be paid all reasonable expenses
properly incurred by them in attending general meetings, board or committee
meetings or otherwise in connection with the performance of their duties. The
Board may determine that additional remuneration may be paid, from time to
time, to any one or more Directors in the event such Director or Directors are
requested by the Board to perform extra or special services on behalf of the
Parent Company.
As at 30 June 2022, 30 June 2021 and 31 December 2021, the Directors'
interests in the Parent Company's Shares were as follows:
(UNAUDITED) (UNAUDITED) (AUDITED)
30 JUNE 30 JUNE 31 DECEMBER
2022 2021 2021
£ £ £
Clive Peggram Ordinary Shares 333,240 333,240 333,240
Elizabeth Passey Ordinary Shares 10,000 10,000 10,000
Graeme Proudfoot Ordinary Shares 130,000 130,000 130,000
Mark Katzenellenbogen Ordinary Shares 215,000 215,000 215,000
Oliver Grundy Ordinary Shares 30,000 - 30,000
Investment management fees for the period ended 30 June 2022 are payable by
the Parent Company to the Investment Manager and these are presented on the
Consolidated Statement of Comprehensive Income. Details of investment
management fees and performance fees payable during the year are disclosed in
Note 8.
During 2022, as part of an amendment to its management agreement, the
Investment Manager continued to purchase Ordinary Shares of the Parent Company
with 20% of its monthly management fee. The Ordinary Shares were purchased at
the prevailing market price. As at 30 June 2022, the Investment Manager has
purchased 4,729,267 (31 December 2021: 4,496,991; 30 June 2021 4,039,247)
Ordinary Shares.
As at 30 June 2022, Partners and Principals of the Investment Manager held
510,000 (31 December 2021: 510,000; 30 June 2021: 510,000) Shares in the
Parent Company.
The Group has invested in VPC Offshore Unleveraged Private Debt Fund Feeder,
L.P. The Investment Manager of the Parent Company also acts as manager to VPC
Offshore Unleveraged Private Debt Fund Feeder, L.P. The principal activity of
VPC Offshore Unleveraged Private Debt Fund Feeder, L.P. is to invest in
alternative finance investments and related instruments with a view to
achieving the Parent Company's investment objective. As at 30 June 2022 the
Group owned 26% of VPC Offshore Unleveraged Private Debt Fund Feeder, L.P. (31
December 2021: 26%) and the value of the Group's investment in VPC Offshore
Unleveraged Private Debt Fund Feeder, L.P. was £1,327,188 (31 December 2021:
£1,640,256; 30 June 2021: £2,031,539).
The Group has invested in VPC Synthesis, L.P. The Investment Manager of the
Parent Company also acts as manager to VPC Synthesis, L.P. The principal
activity of VPC Synthesis, L.P. is to invest in alternative finance
investments and related instruments with a view to achieving the Parent
Company's investment objective. As at 30 June 2022 the Group owned 4% of VPC
Synthesis, L.P. (31 December 2021: 4%; 30 June 2021: 7%) and the value of the
Group's investment in VPC Synthesis, L.P. was £17,768,021 (31 December 2021:
£10,890,834; 30 June 2021: £10,890,834).
The Investment Manager may pay directly various expenses that are attributable
to the Group. These expenses are allocated to and reimbursed by the Group to
the Investment Manager as outlined in the Management Agreement. Any excess
expense previously allocated to and paid by the Group to the Investment
Manager will be reimbursed to the Group by the Investment Manager. At
30 June 2022, £32,606 was due to the Investment Manager (31 December 2021:
£23,697; 30 June 2021: £24,038) and is included in the Accrued expenses and
other liabilities balance on the Consolidated Statement of Financial Position.
14. SUBSIDIARIES
NAME PRINCIPAL ACTIVITY COUNTRY OF INCORPORATION NATURE OF INVESTMENT (UNAUDITED) (UNAUDITED) (AUDITED)
PERCENTAGE PERCENTAGE PERCENTAGE
OWNERSHIP OWNERSHIP OWNERSHIP
31 JUNE 31 JUNE 2021 31 DECEMBER
2022 2021
VPC Specialty Investment vehicle USA Limited partner interest Sole limited partner Sole limited partner Sole limited partner
Lending Investments Intermediate, L.P.
VPC Specialty Investment vehicle USA Limited partner interest Sole limited partner Sole limited partner Sole limited partner
Lending Investments Intermediate Holdings, L.P.
VPC Specialty General partner USA Membership interest Sole member Sole member Sole member
Lending Investments Intermediate GP, LLC
Fore London, L.P. Investment vehicle UK Limited partner interest Sole limited partner Sole limited partner Sole limited partner
Fore London GP, LLC General partner UK Membership interest Sole member Sole member Sole member
Duxbury Court I, L.P. Investment vehicle USA Limited partner interest 95% 95% 95%
Duxbury Court I GP, LLC General partner USA Membership interest 95% 95% 95%
Drexel I, L.P. Investment vehicle USA Limited partner interest 52% 52% 52%
Drexel I GP, LLC General partner USA Membership interest 52% 52% 52%
The subsidiaries listed above as investment vehicles are consolidated by the
Group and there is no activity to consolidate within the subsidiaries listed
as general partners.
NAME REGISTERED ADDRESS
VPC Specialty Lending Investments Intermediate, L.P. 150 North Riverside Plaza, Suite 5200, Chicago, IL 60606
VPC Specialty Lending Investments Intermediate Holdings, L.P. 150 North Riverside Plaza, Suite 5200, Chicago, IL 60606
VPC Specialty Lending Investments Intermediate GP, LLC 150 North Riverside Plaza, Suite 5200, Chicago, IL 60606
Fore London, L.P. 6th Floor, 65 Gresham Street, London, EC2V 7NQ United Kingdom
Fore London GP, LLC 150 North Riverside Plaza, Suite 5200, Chicago, IL 60606
Duxbury Court I, L.P. 150 North Riverside Plaza, Suite 5200, Chicago, IL 60606
Duxbury Court I GP, LLC 150 North Riverside Plaza, Suite 5200, Chicago, IL 60606
Drexel I, L.P. 150 North Riverside Plaza, Suite 5200, Chicago, IL 60606
Drexel I GP, LLC 150 North Riverside Plaza, Suite 5200, Chicago, IL 60606
15. NON-CONTROLLING INTERESTS
The non-controlling interests arises from investments in limited partnerships
considered to be controlled subsidiaries into which there are other investors.
The value of the non-controlling interests at 30 June 2022 represents the
portion of the NAV of the controlled subsidiaries attributable to the other
investors. As at June 2022, the portion of the NAV attributable to
non-controlling interests investments totaled £51,493 (31 December 2021:
£45,958; 30 June 2021: £27,260). In the Consolidated Statement of
Comprehensive Income, the amount attributable to non-controlling interests
represents the increase in the fair value of the investment in the period.
16. SUBSEQUENT EVENTS AFTER THE REPORTING PERIOD
The Company declared a dividend of 2.00 pence per Ordinary Share, equalling
£5,565,528 for the three-month period ended 30 June 2022 and paid the
dividend on 6 October 2022.
There were no other significant events subsequent to the period end.
SHAREHOLDER INFORMATION
FOR THE SIX-MONTH PERIOD ENDED 30 JUNE 2022
DEFINITIONS OF TERMS AND PERFORMANCE MEASURES
The Group uses the terms and alternative performance measures below to present
a measure of profitability which is aligned with the requirements of our
investors and potential investors, to draw out meaningful subtotals of
revenues and earnings and to provide additional information not required for
disclosure under accounting standards to assist users of the financial
statements in gauging the profit levels of the Group. Alternative performance
measures are used to improve the comparability of information between
reporting periods, either by adjusting for uncontrollable or one-off factors
which impact upon IFRS measures or, by aggregating measures, to aid the user
understand the activity taking place. The Strategic Report includes both
statutory and adjusted measures, the latter of which, reflects the underlying
performance of the business and provides a more meaningful comparison of how
the business is managed. APMs are not considered to be a substitute for IFRS
measures but provide additional insight on the performance of the business.
All terms and performance measures relate to past performance:
Discount to NAV - Calculated as the difference in the NAV (Cum Income) per
Ordinary Share and the Ordinary Share price divided by the NAV Cum (Income)
per Ordinary Share.
Gross Returns - Represents the return on shareholder's funds per share on
investments of the Company before operating and other expenses of the Company.
Look-Through Gearing Ratio - The aggregate gearing of the Company and any
investee entity (on a look-through basis, including borrowing through
securitisations using SPVs) shall not exceed 1.50 times its NAV (1.5x).
Market Capitalisation - Month-end closing share price multiplied by the number
of shares outstanding at month end.
NAV (Cum Income) or NAV or Net Asset Value - The value of assets of the
Company less liabilities determined in accordance with the accounting
principles adopted by the Company.
NAV (Cum Income) Return - The theoretical total return on shareholders' funds
per share reflecting the change in NAV assuming that dividends paid to
shareholders were reinvested at NAV at the time dividend was announced.
NAV per Share (Cum Income) - The NAV (Cum Income) divided by the number of
shares in issue.
Net Returns - Represents the return on shareholder's funds per share on
investments of the Company after operating and other expenses of the Company.
Premium/(Discount) to NAV (Cum Income) - The amount by which the share price
of the Company is either higher (at a premium) or lower (at a discount) than
the NAV per Share (Cum Income), expressed as a percentage of the NAV per
share.
Revenue Return - Represents the difference between the NAV (Cum Income) Return
and the NAV (Ex Income) Return as defined above.
Share Price - Closing share price at month end (excluding dividends
reinvested).
Total Shareholder Return - Calculated as the change in the traded share price
from 31 December 2021 to 30 June 2022 plus the dividends declared during the
first six months of 2022 divided by the traded share price as at 31 December
2021.
CONTACT DETAILS OF THE ADVISORS
Directors Graeme Proudfoot (Chairman)
Oliver Grundy
Mark Katzenellenbogen
Elizabeth Passey
Clive Peggram
all of the registered office below
Registered 6(th) Floor
Office
65 Gresham Street
London EC2V 7NQ
United Kingdom
Company Number 9385218
Website Address https://vpcspecialtylending.com
Corporate Brokers Jefferies International Limited
100 Bishpsgate
London EC2N 4JL
United Kingdom
Winterflood Securities Limited
Cannon Bridge House
25 Dowgate Hill
London EC4R 2GA
United Kingdom
Investment Manager and AIFM Victory Park Capital Advisors, LLC
150 North Riverside Plaza
Suite 5200
Chicago
IL 60606
United States
Company Secretary Link Company Matters Limited
Beaufort House
51 New North Road
Exeter, Devon EX4 4EP
United Kingdom
Administrator Citco Fund Administration (Cayman Islands) Limited
Harborside Plaza 10
3 Second Street, 6th Floor
Jersey City,
NJ 07311
United States
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. END IR EAENPAESAEAARecent news on VPC Specialty Lending Investments
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