Chenavari Capital Solutions has published interim accounts covering the six months to the end of March 2016. The NAV as at 31 March 2016 was GBP121.6 million with a NAV per Share of 93.31 pence. Total dividends during the period were 4 pence per Share, the NAV total return for the period was -1.17%. The shares were quoted at 86.50 pence per Share at 31 March 2016 which reflects a discount of 7.3%. With dividends reinvested, the share price total return for the period was -7.19%.
The investment manager’s report says performance over the period underperformed the target return of the Company due to the following circumstances.
- The Company’s exposure to Portugal experienced a mark-down in December 2015 due to:
An extreme widening in the bank counterparty CDS due to a partial “bail-in” of the bank’s senior unsecured bonds;
A crystallisation of defaults in the transaction in December after minimal credit events to date. The increase in defaults meant that credit events were materially in line with the Investment Advisor’s initial underwriting base case scenario at this stage in the transaction; and
A liquidating hedge fund being a forced seller of bonds in these challenging circumstances.
Against this backdrop, the higher default rate has not continued in the March 2016 reporting and the March 2016 cash flow on the position led to a significant profit due to the lower valuation that in part drove the NAV gains that month.
- Credit spreads widening significantly in January and February 2016 against a backdrop of market fear over Chinese growth and the continued stress in the commodity complex. This led to capital markdowns on the corporate loan regulatory capital positions that are held by the Company. There has been no deterioration in credit performance in these transactions.
In January 2016 the Company invested EUR4 million in junior instruments in a short term loan warehousing transaction backed by a portfolio of leveraged corporate loans. Senior finance was provided by a leading global bank and financial services.
The portfolio provides exposure to primarily European and UK corporates with ratings at or higher than B-. The portfolio is diversified with an expected maximum concentration of 4% by group of borrowers. The junior instruments represent first loss risk and the Company expects the thickness of the tranche (approximately 20%) to provide a resilient feature.
CCSL : Chenavari hit by Portuguese bank bail in