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Alcentra EurFltRt Fd (AEFS)


Wednesday 11 December, 2019

Alcentra EurFltRt Fd

Portfolio Update

RNS Number : 5273W
Alcentra European Fltng Rate Inc Fd
11 December 2019

Alcentra European Floating Rate Income Fund Limited


Market Commentary


The Fund was up +0.44% (gross) in November, slightly behind the Credit Suisse Western European Leveraged Loan Index ("CS WELLI") (hedged to GBP) which returned 0.50%[1], but ahead of the Credit Suisse Western European Leveraged Loan Index excluding USD which returned 0.33%[2] for the month.

The European Loan market saw a recovery from the softness in the prior month. This was driven by solid demand from newly priced CLOs as they look to ramp ahead of year-end, while at the same time new loan issuance declined, meaning buyers targeted the secondary market. In addition, the market also benefitted from a recovery in demand for some specific credits that saw weakness in prior periods (e.g. GTT, Akzo Nobel, Misys, Ammeraal). Some of these assets benefited from improved investor sentiment following more positive earnings announcements, as well as a better bid for USD assets.

November was a quieter month for new loan issuance, with the market beginning to slow down as we approach year-end. Volumes for the month of €5.1bn were c.-21% below last year[3], with the main driver of issuance being add-ons to existing loans, either to fund M&A or pay dividends, rather than new financings. As with the prior month M&A driven volumes accounted for 40% of activity, while refinancings/recaps accounted for 56%[4]. This leaves year to date new issuance volume at €80.1bn, -16% on the same period last year[5]. For the month, average new issue spreads stood at 366bps at a price of 99.49 (c.383bps 3 year DM)[6], although with relatively low volumes overall this is not a reflection of overall market spreads. We now expect the market to continue to slow into year-end. The S&P forward pipeline currently stands at €5.66bn[7].

The CLO new issue market saw a slower month with €2.8bn of new deals pricing, -30% year on year[8]. The recent widening in CLO liability costs has again begun to put some pressure on the arbitrage and drove the slowdown in the month. That being said, year to date CLO formation now stands at €29.0bn, +6% on the prior year and now ahead of 2018's full year record of €27.3bn[9]. Overall the CLO new issue market remains resilient with steady issuance expected to continue and driving support for European Leveraged Loans.

The S&P default rate for the 12 months ending November rose to 0.45%. It was also restated to 0.27% (from the original S&P reported figure of 0.00%) for September and October[10]. This was done to reflect recent restructurings in Deoleo (September), Survitec (November) and Doncasters (November) which S&P have now formally classified as defaults. Overall, the default rate remains well below the long term average although this increase moves the figure closer toward our expected return in the medium term to a more normalised 1.5% - 2.0% rate. This is backed up by the S&P distress ratio (share of performing issuers trading below 80) which stood at 3.26% at the end of November[11].Despite some increase in volatility in the month due to a weaker USD market technical and some underperformance in weaker credits, the market should remain solid overall. Loan issuance is expected to slow down, while CLO demand should remain. We will continue to focus on strong credit selection in order avoid weaker loans and look to outperform the market through avoiding riskier holdings.


Portfolio Manager's Commentary


The top performing credits for the month were generally assets that recovered after seeing weakness in previous periods. The top performer was a telecommunications service provider that traded up 12.73% on the back of positive news around an asset sale. The second best performing credit was a specialist financial services that was up 3.74% after reporting strong results.


The worst performing credit was a software services business that traded -3.59% lower after a ratings downgrade. The second worst performing credit was a Technology Services businesses that was down -3.41% on the back of lower market quotes, on no new credit news.




For further information please contact:

Alcentra Limited

Simon Perry                            +44 20 7367 5272



An accompanying factsheet which includes the information above as well as wider commentary on the investments made by the Fund can be found on the Fund's website


Background Information

Alcentra European Floating Rate Income Fund Limited, a Guernsey Authorised Closed-Ended Collective Investment Scheme, regulated by the Guernsey Financial Services Commission and listed on the Main Market of the London Stock Exchange invests predominantly in senior secured loans and senior secured bonds issued by European corporates and targets returns (net of fees and expenses) of 7% to 10% per annum. The Fund targets a dividend yield of 5.5 pence per £1.00 issue price of the initial offering of shares in the Fund for the first full year of investment, paid quarterly.


Important Notices

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.


This report is aimed at existing investors in the fund and has not been approved by any competent regulatory authority.

The information contained in this document is given as at the date of its publication (unless otherwise marked) and is based on past performance. Past performance is not a guide to future performance and the value of investments and investment value can go down as well as up. The future performance of the Fund will depend on numerous factors which are subject to uncertainty. Including changes in market conditions and interest rates and exchange rates and in response to other economic, political or financial developments, investment return and principal value of your investment will fluctuate, so that when your investment is sold, the amount you receive could be less than what you originally invested. Past or current yields are not indicative of future yields.

This document does not contain any representations, does not constitute or form part of any solicitation of any offer to sell or invitation to purchase any securities of the Fund, nor shall it or any part of it or the fact of its distribution form the basis of or be relied upon in connection with any contract therefor, and does not constitute a recommendation regarding the securities of the Fund. Nothing in this document should be construed as a profit or dividend forecast.

This document includes statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements include, without limitation, statements typically containing words such as "believes", "considers", "intends", "expects", "anticipates", "targets", "estimates", "will", "may", or "should" and words of similar import. The forward-looking statements are based on the beliefs, assumptions and expectations of future performance and market development of Alcentra Limited ("Alcentra"), taking into account information currently available and made as at the date of this document. These can change as a result of many possible events or factors, not all of which are known or within Alcentra's control. If a change occurs, the Fund's business, financial condition, liquidity and results of operations may vary materially from those expressed in the forward-looking statements. By their nature, forward-looking statements involve known and unknown risks and uncertainties. Forward-looking statements are not guarantees of future performance. Alcentra qualifies any and all of the forward-looking statements by these cautionary factors. Please keep this cautionary note in mind while reading this document.

An investment in the Fund is suitable only for investors who are capable of evaluating the merits and risks of such an investment and who have sufficient resources to be able to bear losses (which may equal the whole amount invested) that may result from such an investment. An investment in the Fund should constitute part of a diversified investment portfolio. Accordingly, typical investors in the Fund are expected to be sophisticated and/or professional investors who understand the risks involved in investing in the Fund.

Alcentra gives no undertaking to provide recipients of this document with access to any additional information, or to update this document or any additional information, or to correct any inaccuracies in it which may become apparent including in relation to any forward-looking statements. The distribution of this document shall not be deemed to be any form of commitment on the part of Alcentra to proceed with any transaction.

This document is issued by Alcentra Limited, which is authorised and regulated in the United Kingdom by the Financial Conduct Authority and whose registered address is at 160 Queen Victoria Street, London, United Kingdom, EC4V 4LA.

BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may also be used as a generic term to reference the Corporation as a whole or its various subsidiaries generally.

© 2019 The Bank of New York Mellon Corporation. All rights reserved. Trademarks and logos belong to their respective owners.


[1] Credit Suisse Western European Leveraged Loan Index, All Denom, hedged to GBP, 31 November 2019

[2] Credit Suisse Western European Leveraged Loan Index, Non USD, hedged to GBP, 31 November 2019

[3] S&P Global Market Intelligence, LCD Global Interactive Loan Volume Report, 30 November 2019

[4] S&P Global Market Intelligence, LCD Global Interactive Loan Volume Report, 30 November 2019

[5] S&P Global Market Intelligence, LCD Global Interactive Loan Volume Report, 30 November 2019

[6] S&P Global Market Intelligence, LCD European Weekly, 29 November 2019

[7] S&P Global Market Intelligence, October Pipeline, 1 December 2019

[8] S&P Global Market Intelligence, CLO Historical Stats, 1 December 2019

[9] S&P Global Market Intelligence, CLO Historical Stats, 1 December 2019

[10] S&P Default Ratio, 1 December 2019

[11] S&P Distress Ratio, 1 December 2019

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit

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