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GCP Asset Backed Income expects to slow rate of deployment into new investments

Over GCP Asset Backed Income’s (GABI) annual results period to 31 December 2019, the company advanced loans of £89.4m advanced against 29 projects with a further £40.3m secured against five projects, advanced post year end.

Over the period:

  • Total shareholder return for the year of 10.2% (31 December 2018: 9.1%) and an annualised total shareholder return since IPO of 8.3%; and
  • NAV per ordinary share of 102.33 pence at 31 December 2019 increasing from 101.74 pence in the prior year.

Asset backed lending

GABI’s manager describes asset backed lending as follows: “Asset backed lending is an approach to structuring investments used to fund infrastructure, industrial or commercial projects and asset financing. Asset backed lending relies on the following to create security against which investment can be provided:

–    the intrinsic value of physical assets; and/or

–    the value of long-term, contracted cash flows generated from the sale of goods and/or services produced by an asset.

Asset backed lending is typically provided to a project company, a corporate entity established with the specific purpose of owning, developing and operating an asset. Financing is provided to the Project Company with recourse solely to the shares held in, and assets held by, that project company.

Cash generation to service loans and other financing relies on the monetisation of the goods and/or services that a project company’s assets provide. Lenders implement a security structure that allows them to take control of the Project Company and its assets to optimise the monetisation of goods and/or services associated with such assets if the project company has difficulties complying with its financing terms.

Typically, an asset backed lending structure involves a number of counterparties, who enter into contractual relationships with the project company that apportion value and risk through providing services (e.g. operations and maintenance) associated with the development, ownership and/or operations of an asset. In structuring an asset backed loan, the project company will seek to ensure risks (and associated value) are apportioned to those counterparties best able to manage them. This ensures the effective pricing and management of risks inherent in the asset. Further, it also means the residual risks (and potential rewards) being taken by the Project Company are well understood by the parties providing finance to such company.”

Rate of deployment into new investments to slow down

“The manager notes the current economic climate with regard to Covid-19  and the impact that this will have on the wider economy, potential supply chains and ability of business to meet contractual obligations. With this in mind and after discussion with the board, the manager will be looking to slow down its rate of deployment into new investments.

The group has cash available at present as well as access to its RCF facility, which expires in August 2020 and can be extended for a further twelve months. The group remains well capitalised and has the capacity to fund any attractive deals that may arise. However, the manager is mindful that these transactions would need to meet additional downside sensitivities to see them through the current environment.

The manager continues to work on an attractive pipeline of opportunities with both new and existing borrowers. The pipeline transactions mirror the current portfolio in terms of yield, size and sectors.

In the coming months, the manager will be working with existing and new borrowers to ensure deadlines on transactions are well managed and are met.

All potential borrowers working on pipeline transactions with the group will be conscious of the risks involved in starting new projects given the disruption from the Covid-19 outbreak. Therefore, whilst the manager is not anticipating significant deterioration in the pipeline overall, some transactions are likely to fall away or be delayed. The manager remains confident that new opportunities will become available and that the Group will be able to deploy available funds efficiently in the future once the market readjusts.”

GABI: GCP Asset Backed Income expects to slow rate of deployment into new investments

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