RM Secured Direct Lending (RMDL), which specialises in secured debt investments, announces its results for the year ended 31 December 2020. On a total return basis, the NAV increased by 3.1% and we note that the shares ended the year at a 6.7% discount (they began the year at a 1.7% premium).
RMDL has a diversified portfolio of £122.7m invested across 35 loans across 14 sectors. Over 2020, it made eight new investments totalling £26m during the year.
‘Investments within the asset finance, healthcare and food sectors have delivered robust returns throughout the year’
“The investment manager, in conjunction with the board, made the immediate decision to cease new lending in early March 2020 with all focus from the manager on ensuring the portfolio performed through the second and third quarters whilst awaiting news on the vaccine development. It is a testament to the credit processes, the lending model and portfolio companies themselves that the main RMDL loans were serviced through this period.
Investments within the asset finance, healthcare and food sectors have delivered robust returns throughout the year however the largest portfolio exposure is to accommodation with hotels (27.6%) and student accommodation (12.3%) investments, which were adversely affected by the national restrictions during the year. Despite the significant challenges, these loans have generally performed well.
Total income generation for the year was £10.9 million and this was split between cash pay and PIK 82.5%. At the year-end, the loan portfolio had £122.7m (2019: £131.2m ) of investments across 35 Loans (2019: 34) well-diversified by borrower and sector with investments predominantly completed within the UK.
There were eight new investments and a number of repayments and divestments that totalled £34.6 million during the year, demonstrating the successful execution of the business strategy, as the company has resumed making loans, receiving interest and has been successfully repaid by borrowers. Overall, the gross portfolio yield increased to 9.37% as of 31 December 2020 (2019: 8.84%).
The portfolio is focused on private debt which as at 31 December 2020 represented 98% of the portfolio and we favour this asset class as the manager can document investor protections in the form of loan covenants and receive an illiquidity premium offering an enhanced yield to investors than those available in the public markets.
The portfolio is focused on defensive sectors with tangible asset backing giving high levels of protection should there be an economic downturn. Loan to value (“LTV”) is limited with a blended leverage averaging 68.3% across the portfolio. 46.8% of the portfolio is either senior secured or CBILS guaranteed to give enhanced downside protection. Construction risk has increased to (two) loans totalling £8.3 million which is within the 20% of gross assets construction limit.
In the annual report for the year ended 31 December 2019, RM noted that opportunities supported by major structural or socio-demographic drivers will be the most significant areas of opportunity for RMDL.
We still believe this to be the case and over the short and medium-term we will further focus our efforts on capital deployment to the key areas of Social & Environmental Infrastructure. Historically approximately 40% of RMDL’s capital has been allocated to these two areas. In addition, these areas align to sustainable development goals where capital from RMDL can make an impact. RM Funds has been working with The Good Economy, a leading social advisory firm, who have helped design an impact measurement and management framework.“
RMDL: Resilient annual results from RM Secured Direct Lending