SME-focused RM Secured Direct Lending (RMDL) has reported interim results to 30 June 2020. Over the period, total NAV returns amounted to (3.4%) and the market return came to (19.5%).
Chairman, Norman Crighton, noted that “This performance reflects the marking down of asset values of investments in sectors more exposed to the impact of COVID-19, including hotels, student accommodation and childcare which have been largely closed since March 2020. These values are expected to recover as businesses return to a more normal operating environment.”
Income targets met
RMDL continued to meet its income targets, with an aggregate dividend in respect of the period of 3.25p.
Discussing performance and trends over there period, Norman added: “The impact of the pandemic on the global economy has been profound and far-reaching. The company’s focus throughout this period of uncertainty has been on protecting its investments, its stakeholders and maintaining its transparent communications with its investors.
Within the portfolio, the Company’s social infrastructure assets had significant exposure to the effects of the “lockdown” with several of our portfolio companies having to temporarily cease operations. The company worked closely with its borrowers and in addition to the rapid government support actions, has assisted them where appropriate to support them through this difficult period. This support has mainly taken the form of a roll-up of a period of interest or the temporary waiving of covenants, however, there are other mechanisms such as the use of an interest reserve account. The Investment Manager’s report below breaks this down in more detail.
In addition, loans secured against physical assets are largely supported by strong sponsors which to a greater degree have facilitated payments through this period.
Reflecting the broader macro-economic risks and in tandem with other credit market assets, the share price over the Period has been volatile. The Ordinary Share price fell from 99.5 pence at the beginning of the year to reach a low of circa 60.0 pence at the nadir of the March lows. Since then, the share price has recovered, however, it has lagged the NAV movements and resulted in a larger share price to NAV discount of approximately 16% as at the period end.”
About RMDL
RMDL aims to generate attractive and regular dividends through investment in secured debt instruments of UK SMEs and mid-market corporates and/or individuals including any loan, promissory notes, lease, bond, or preference share sourced or originated by the manager with a degree of inflation protection through index-linked returns where appropriate.
Loans will generally be, but not limited to, senior, subordinated, unitranche and mezzanine debt instruments, documented as loans, notes, leases, bonds or convertible bonds. Such loans shall typically have a life of 2-10 years. In certain limited cases, Loans in which the company invests may have equity instruments attached, ordinarily, any such equity interests would come in the form of warrants or options attached to a Loan. Typically, the loans will have coupons which may be fixed, index-linked or LIBOR linked. For the purposes of this investment policy, UK SMEs include entities incorporated outside of the UK provided their assets and/or principal operations are within the UK.
Loans in which the company invests are predominantly secured against assets such as real estate or plant and machinery and/or income streams such as account receivables. The company will make loans to borrowers in a range of sectors within certain exposure limits which will vary from time to time, according to market conditions.
RMDL: RM Secured Direct Lending marks down cyclical assets most exposed to the pandemic