Interim Management Statement

RNS Number : 5529P

Queen's Walk Investment Limited

20 July 2010

 



Queen's Walk Investment Limited (the "Company")

 20 July 2010

This interim management statement relates to the period from 31 March 2010 to 20 July 2010 and has been prepared solely in order to comply with the requirement (pursuant to the EU Transparency Directive as implemented by the Disclosure and Transparency Rules) for an interim management statement to be made by the Company no earlier than 9 June 2010 and no later than 19 August 2010. The Company is currently in the process of preparing its quarterly report for the period ended 30 June 2010 which is expected to be released in September 2010.  Unless otherwise noted herein, the financial information provided in this interim management statement (and the asset valuations underlying that financial information) are as at 31 March 2010 and such financial information (and underlying valuations) will be stated as at a more recent date in the Company's forthcoming quarterly report.

Performance Summary

As at 31 March 2010, the Company's NAV was €3.73 per share up from a NAV of €3.69 per share as at 31 December 2009 due to fair value write-ups of €0.1 million. The investment portfolio continued to generate more cash than the amount estimated by the Company between 1 April 2010 and 30 June 2010. Cash proceeds received from investments of €6.7 million in the quarter exceeded the estimate of €4.0 million. During the quarter ended 30 June 2010, the Company also realised additional cash proceeds of €10.5 million from the sale of the Gate 06-1 and Gate 05-2 SME portfolios and one bond from the ABS bond portfolio.

The Company has made substantial progress in its strategy of repaying its financing facility and increasing exposure to ABS ("asset-backed securities") bonds.  On 6 April 2010, the Company fully repaid its loan facility, which had an outstanding balance of €29.5 million as at 31 March 2009.  The final repayment, nine months ahead of schedule, removes all leverage from the balance sheet. 

During the quarter ended 31 March 2010, the Company invested €6.5 million in purchasing ABS bonds which accounted for 15.3% by net asset value of the investment portfolio at the end of that quarter. Between 31 March 2010 and 30 June 2010 the Company invested a further €11.3 million purchasing ABS bonds, increasing the total nominal value of the ABS bond portfolio to €46.3 million as at 30 June 2010. The Company intends to continue its strategy of purchasing ABS bonds in order to deliver an improved risk/reward profile to investors. 

The elimination of debt repayments is expected to free up additional cash to fund the Company's growth in future quarters.  The Company expects the ABS bond portfolio to increase as a percentage of overall assets in coming quarters, and for residual income assets to fall as a proportion of overall assets.  In line with this goal, the Company sold the Gate 06-1 and Gate 05-2 SME portfolios subsequent to the March 2010 quarter end at levels that were accretive to NAV.

Investment Portfolio

The tables below summarise the Company's investment portfolio as at 31 March 2010.

Portfolio Composition by Jurisdiction as at 31 March 2010*

*By reference to underlying asset jurisdiction, except for SMEs, where the jurisdiction of the originator is used .  Figures stated as a percentage of the fair value of the Company's  investment portfolio including accrued interest. 

Jurisdiction	%
Portugal	36.0%
Germany	24.3%
UK	17.0%
Holland	12.2%
Italy	9.7%
France	0.7%
Switzerland	0.1%

Portfolio Composition by Asset Type as at 31 March 2010*

*By reference to underlying asset collateral. Figures stated as a percentage of the fair value of the Company's investment portfolio including accrued interest.

Portfolio Composition
Prime	46.8%
SME	30.3%
Investment Grade Bonds	15.3%
SubPrime	5.8%
NearPrime	1.8%

As at 30 June 2010, the securitisations to which the Company had exposure through its residual income investment portfolio, in alphabetical order, were:

Issuer	Description of Underlying Assets
Alba 2005-1 plc	UK non-conforming* and buy-to-let residential mortgages
Alba 2006-1 plc	UK non-conforming residential mortgages, primarily first-ranking
Amstel Corporate Loan Offering BV 2006-1	Middle market corporate loans
Cheyne CLO Investments I Limited	Investment grade CLOs
Cheyne High Grade ABS CDO, Ltd	Investment grade ABS CDOs with exposure to the US sub-prime mortgage market
Eirles Three Limited (Tranche 236B)	SME loans
Eurosail 2006-1 plc	UK non-conforming and buy-to-let residential mortgages
Lusitano Mortgages No. 1 plc	First-ranking, fully amortising Portuguese residential mortgages
Lusitano Mortgages No. 2 plc	First-ranking, fully amortising Portuguese residential mortgages
Lusitano Mortgages No. 3 plc	First-ranking, fully amortising Portuguese residential mortgages
Magellan Mortgages No. 1 plc	First ranking, fully amortising Portuguese residential mortgages
Newgate Funding plc	UK non-conforming residential mortgages, primarily first-ranking
RASC Series 2006-KS2 Trust	US Sub-prime residential mortgages, primarily first-ranking
RMAC 2004-NSP4 plc	UK non-conforming residential mortgages, primarily first-ranking
RMAC 2005 NS3 plc	UK non-conforming residential mortgages, primarily first-ranking
RMAC 2005 NS4 plc	UK non-conforming residential mortgages, primarily first-ranking
Sestante Finance S.R.L.	First-ranking prime Italian residential mortgages

*Non-conforming relates to subprime and near prime residential mortgages.

As at 30 June 2010, the ABS Bond portfolio consisted of 46 bonds at a cost of €26.1 million and a nominal value of €46.3 million.  The following tables detail the European ABS bonds purchased by the Company up to 30 June 2010.  The weighted average rating of the ABS bond portfolio (based on the invested amount) is approximately BB+.

Percentage of Portfolio by Cost Price (as at 30 June 2010)

Rating by Vintage1	2004	2005	2006	2007	Total
AAA	4.5%	5.2%	6.6%	7.8%	24.1%
AA	0.4%	2.4%	14.0%	1.8%	18.6%
A	4.6%	4.8%	11.7%	6.4%	27.6%
BBB	0.0%	6.3%	5.7%	4.5%	16.4%
BB and Below	0.0%	1.4%	9.5%	2.5%	13.4%
Total	9.5%	20.1%	47.4%	23.0%	100.0%

1.     Vintage reflects the issue date of the bond.  Rating at time of purchase.

Percentage of Portfolio by Cost Price (as at 30 June 2010)

Rating¹ by Type	UK  Prime RMBS²	UK Buy To Let RMBS2	UK Non-Conforming RMBS	Euro Prime RMBS	UK CMBS3	Euro CMBS	SME	Total
AAA	0.0%	0.0%	12.9%	0.0%	6.4%	4.8%	0.0%	24.1%
AA	0.0%	10.1%	1.8%	0.4%	0.0%	6.3%	0.0%	18.6%
A	0.9%	1.0%	9.7%	0.0%	8.4%	7.6%	0.0%	27.6%
BBB	3.1%	0.0%	1.0%	0.0%	5.3%	4.3%	2.8%	16.4%
BB and Below	0.0%	0.0%	1.7%	0.0%	2.3%	9.4%	0.0%	13.4%
Total	4.0%	11.1%	27.1%	0.4%	22.4%	32.3%	2.8%	100.0%

1.     Rating at time of purchase

2.     Residential Mortgage Backed Securities

3.     Commercial Mortgage Backed Securities

Outlook

In the coming quarters, the Company will continue to focus on its ABS bond portfolio with the aim of improving its overall risk-reward profile. The Company plans to use the quarterly cash received from investments, which has been freed up from debt repayment, to further its strategy of selectively purchasing mis-priced bonds in the ABS markets, especially in the mezzanine segment of the market. The Company is of the view that mezzanine bonds offer strong relative value, though cash-flow payments are lower in the short term because they repay no principal until related senior bonds are repaid.

The Company currently expects that market volatility over the coming months should create opportunities to purchase undervalued ABS bonds.  The Company intends to only invest in bonds whose price is considered depressed due to technical and liquidity issues.

The Company remains vigilant in monitoring the progress of Portuguese assets in light of the continued concerns over the sovereign markets in Southern Europe. The Company believes that high credit spreads should have no direct impact on the Company's mortgage portfolios because most mortgage loans are indexed to short-term Euribor rates. The key risk to asset value remains an increase in unemployment and consequential mortgage defaults as a result of government austerity measures.

The Company estimates cash balances of approximately €6.0 million at 30 June 2010.  The Company projects cash flow of approximately €4.0 million per quarter for the coming quarters.  As at 1 June 2010, the loss adjusted gross cash flow forecast is €168.0 million over the remaining life of the portfolio.

Investor Enquiries:

Public Relations:

Caroline Villiers / James Wallis

M:Communications        Tel: [phone]

Website:

www.queenswalkinv.com

[e-mail]

Investor Relations:

Natalie Withers / Hannah Attride

Cheyne Capital              Tel: [phone]

About Queen's Walk Investment Limited:

Queen's Walk Investment Limited (the "Company") is a Guernsey-incorporated investment company listed on the Official List of the UK Listing Authority and traded on the London Stock Exchange. The Company invests primarily in a diversified portfolio of subordinated tranches of asset-backed securities, including the unrated "equity" or "first loss" residual income positions typically retained by the banks or other financial institutions which have originated the loan assets that collateralise a securitisation transaction. The Company makes such investments where its investment manager, Cheyne Capital Management (UK) LLP ("Cheyne Capital"), considers the coupon or cash flows from the investment to be attractive relative to the credit exposure of the underlying asset collateral.

Disclaimer

This document contains forward-looking statements with respect to the financial condition, results and business of the Company.  By their nature, forward-looking statements involve risk and uncertainty.  The Company's actual future results may differ materially from the results expressed or implied in these forward-looking statements.

Any projections or analysis provided in this statement to assist the recipient in evaluating the matters described herein may be based on subjective assessments and assumptions and may use one among alternative methodologies that produce different results.  Accordingly, any projections or analysis should not be viewed as factual and should not be relied upon as an accurate prediction of future results.  Furthermore, to the extent permitted by law, neither the Company nor any of its agents, service providers or professional advisers assume any liability or responsibility nor owes any duty of care for any consequences of any person acting or refraining to act in reliance on the information contained in this statement or for any decision based on it.

 

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