Alcentra European Floating Rate Income (AEFS) has announced its annual results for the year ended 31 March 2020, which show a significant decline in NAV during the period (from 103.61p as at 31 March 2019 to 82.68p as at 31 March 2020 – a fall of 20.2%). The majority of the NAV decline occurred in March 2020 and directly reflected the turmoil in the markets around the world from the impact of coronavirus. The investment managers report provides the following key highlights:
- AEFS’s Sterling NAV per Ordinary Share declined during the 12 months to 31 March 2020 from 104.05p to 84.69p as published in RNS. This was predominantly driven by market specific conditions during the period;
- In latter quarters of 2019, AEFS’s NAV per share enjoyed a relatively steady growth which continued to January 2020 this was due to the broadly stable market conditions with good loan issuance and robust demand.
- The dividend has grown from 4.46p for the 12 months ending March 2019 to 4.59p the 12 months ending March 2020. This was predominantly driven by exceptional dividend payment in relation to Q4 2019, in that 0.18p per share was paid out of capital.
- Q1 2020 saw unprecedented market disturbances due to global spread of COVID-19, the market for new loan issuance experienced closures with scant new deals pricing. Similarly CLO formation was muted, with only three deals pricing early in the month and with market closure to issuances towards the end of March 2020.
- The share price has fallen from 97.0p to 77.0p over the period, with the discount to NAV as of 31 March 2020 standing at -6.86%. Much of this drop can be attributed to the Company’s performance in March of -17.18% gross. During the month, concerns about the impact of the COVID-19 virus outbreak evolved from an initial focus on the risk of a supply shock driven by Asian shutdowns to concerns about the impact of the pandemic on businesses globally. As a result of this, European loan prices were down -14% for the month. There were signs of improvement towards the end of the month that continued on into April as prices rallied in response to the unveiling of extraordinary fiscal stimulus and monetary support measures.
- The default rate for the 12 months ending March 2020 remained broadly stable at 0.43%, however the impact of the COVID-19 on certain corporates is likely to lead to an increase from this low level. We believe businesses where travel and mobility restrictions as well as working capital unwinds are causing near term liquidity pressures are the most likely to bring this figure up – with S&P now forecasting an 8% default rate for the European market in 2020. However, the final figure on defaults and 2020 performance will be directly correlated with the duration and severity of the outbreak.