On 26 November TwentyFour Income Fund issued a circular to shareholders setting out an amended investment policy and plans for a capital return. Shareholders approved these proposals at an EGM yesterday.
In the first quarter of 2016 shareholders will be given the following options:
- to retain their current investment in the Company;
- to increase their investments in the Company through an open offer of new Ordinary Shares, which will be supplemented by a placing and offer for subscription for new investors; or
- to realise all or part of their investment.
TwentyFour Income will try to drum up new investors for the fund and use the money raised to allow shares to be redeemed by the company at a 1 per cent. discount to NAV for those that want out. Any shares elected for realisation and not redeemed by the company out of the net proceeds of the proposed fund raising would be converted to Realisation Shares and the underlying assets will be sold off over time and the proceeds returned to redeeming shareholders.
The investment policy changes were outlined in the circular. The Portfolio Manager wants greater flexibility to invest in a broader range of UK and European Asset Backed Securities. The key elements of the proposed changes to the investment policy are:
to hold at least 50 Asset Backed Securities. This compares to the current policy range of 30 to 50 securities and the current actual number of 110 securities;
to scrap the requirement to invest in any fixed percentage of investment grade ABS. (current requirement at least 50 per cent. invested in aggregate in ABS which have at least one investment grade credit rating from an internationally recognised rating agency);
a new requirement (at the time any new investment is made) to be no more than 20 per cent. backed in aggregate by collateral in any single country (save that this restriction will not apply to the
Northern European Countries); and
no more than 10 per cent. invested in aggregate in instruments not deemed securities for the purposes of FSMA. This potential new allocation is intended to provide flexibility to invest in instruments that are structured in a similar manner as ABS, i.e. collateralised against a pool of assets, but may not be legally defined as “securities” because of their particular structures.
The Portfolio Manager intends to use only gradually the greater flexibility provided. It is expected that at least 40 per cent. of the Portfolio value will continue to be backed by collateral in the UK and Northern Europe and the Board notes also that ABS are currently only issued backed by collateral in three countries outside of the UK and Northern Europe (being Italy, Spain and Portugal) and therefore that the requirement that the portfolio is no more than 20 per cent. backed by collateral in a single country (other than Northern European Countries) also acts in practice as a limit on the extent to which the portfolio can be exposed to collateral in countries which are not Northern European Countries.
The Board intends, based on market conditions at the date of this document to amend the Company’s target NAV total return to between 6 and 9 per cent. per annum; and to retain the company’s target dividend of at least 6 pence per Ordinary Share in respect of the financial year ending on 31 March 2017. In respect of subsequent years, the Board intends to distribute as dividend an amount at least equal to the value of the Company’s net income. they’ll keep both of these targets under review, in particular, in the event that Sterling LIBOR rates increase significantly.
TFIF : TwentyFour Income Fund amended investment policy and capital return