Fair Oaks Income (FAIR) announced that in light of the ongoing uncertainty in economies and markets caused by covid-19, the board has resolved to suspend the declaration of dividend payments:
“The board and the manager recognise the importance of dividends for shareholders but believe that suspension is the appropriate reaction to the unprecedented circumstances. In the near term the uncertainty will lead to rebased market assumptions as to credit performance, which is expected to materially constrain the company’s income calculated using the effective interest rate methodology and therefore would mean that any dividends declared would have to be substantially funded from the company’s capital.
It is premature to seek to quantify the fundamental impact of the pandemic, which will depend on an array of factors including the effectiveness of recently announced government intervention, but over time there is risk of underlying collateralised loan obligation (CLO) managers being required to divert cash flows from CLO subordinated notes to purchase additional loan collateral in response to increased credit downgrades and defaults. At the portfolio level the manager has also taken steps to minimise mark-to-market risk, retaining a prudent reserve of cash to cover any fx hedge and warehouse financing needs.
The dislocation in the credit markets will create investment opportunities, which is expected to be a factor in the allocation of future cash flows as the company continues to seek to maximise shareholders’ total return over the long term.
The board will keep developments under close review and make further announcements as appropriate.”
About FAIR
FAIR seeks exposure to US and European CLOs or other vehicles and structures which provide exposure to portfolios consisting primarily of US and European floating-rate senior secured loans and which may include non-recourse financing.
FAIR: Fair Oaks Income to suspend its dividend