RNS Number:4434C
Caliber Global Investment Ltd
20 August 2007
August 20, 2007
Caliber Global Investment Limited ("Caliber" or the "Company")
Quarterly Report and Accounts for the Three Month Period from April 1, 2007 to
June 30, 2007
Highlights
* Net loss for the third quarter to June 30, 2007 of $30.1m (March 31, 2007:
net loss $8.8m) after an impairment charge of $37.1m, a result of sustained
market weakness during the period
* Loss per share of $1.23 for the period (March 31, 2007: Loss per share
$0.36)
* No dividend can be paid this quarter, due to effects of impairment charge
on distributable earnings
* Net Asset Value ("NAV") of $5.55 per share at June 30, 2007 (March 31,
2007: $6.30)
* Reflecting further severe market disruption since the period end, NAV
(estimated and unaudited) at July 31, 2007 expected to be in the range of
$1.50 to $2.50
* Following a strategic review, as previously announced, an Extraordinary
General Meeting is to be held on August 30, 2007 to approve resolutions
authorising the return of invested capital to shareholders
* Financing facilities have, or are in the process of being, restructured
post period end, stabilising the portfolio
* Caliber does not believe that recent declines in market pricing are a fair
reflection of fundamental credit performance
Overview
Trading conditions for Caliber deteriorated materially during the latter part of
the quarter ending 30 June 2007, a trend that has intensified since the period
end. Since December 31, 2006 the price of investment grade 2006 vintage US
residential mortgage backed securities ("RMBS"), as measured by the ABX 2006-2
BBB- index has fallen 57% to 41c on the dollar (July 31, 2007). Between March
31, 2007 and June 30, 2007 the index fell 14%, from 71c to 61c on the dollar and
during July by a further 20c on the dollar. Through June and July, weakness that
had once been mostly confined to US sub prime RMBS also spread more broadly to
the global credit markets.
During the period under review, the failure and or liquidation of a number of
funds investing in RMBS, either directly or through collateralised debt
obligations ("CDO") products, placed massive strains upon an already weak
market. Weakness in the corporate credit market towards the end of the quarter
placed further strain upon bank balance sheets. These factors contributed to a
significant reduction in liquidity within the credit markets. These markets
included both the US and European ABS markets, which represented 61.3% and 38.7%
of Caliber's portfolio respectively at the period end.
During this period of market turbulence Caliber has endeavoured, where possible,
to avoid selling into weak markets in order to maintain fundamental value in the
portfolio, while recognising the need to maintain cash balances at prudent
levels to meet funding obligations. This has been reflected in a decrease in
the investment portfolio from $908 million to $824 million. Net realised gains
of $2.4 million, reflect the fact that asset sales were made at points of
relative strength during the period.
Although there was relatively little new information to change our view of the
inherent credit fundamentals of the Caliber portfolio, and indeed there have
been no defaults in the portfolio during the period or post period end, market
pricing nevertheless declined materially. This had an impact in particular on
NAV. The substantial majority of the decline in NAV per share, from $6.30 to
$5.55, over the period ended June 30, 2007 remains unrealised. Subsequent to the
period end, with market conditions worsening considerably across global credit
markets, the NAV is likely to have fallen further, with the estimated and
unaudited NAV for July expected to be in the range of $1.50 to $2.50. It should
be stressed that Caliber's policy of obtaining independent third party prices
for securities in the portfolio continues. Given the current disruption in the
financial markets and low levels of liquidity, any estimated NAV should not be
taken either as a guide to the likely disposal price in the current environment
or at any point in the future. However, as at June 30, 2007, approximately 60%
by value of the securities in the portfolio remained priced at above 95c on the
dollar.
Dividend
Caliber's policy is to pay dividends solely out of distributable earnings and to
distribute substantially all distributable earnings as dividends. Given the
continued impact of impairment charges on distributable earnings no dividend can
be paid in the current quarter.
Future dividend policy is subject to review, as the orderly return of capital to
shareholders, to be considered at the forthcoming EGM, effectively envisages the
cessation of dividend payments as they may represent a less effective way of
optimising returns to shareholders. If shareholders approve the resolutions at
the forthcoming EGM and the reduction of capital is subsequently approved by the
court, it is therefore likely that any future distributions to shareholders will
be in the form of capital rather than in the form of dividends.
Investment Portfolio
As of June 30, 2007 the investment portfolio of approximately $824 million
(March 2007: $908 million) comprised 271 (March 2007: 279) individual
investments at an average position size of $3.0 million (March 2007: $3.3
million).
During the quarter eight investments were sold, spread evenly across the
quarter. These sales reflected a desire to improve cash balances in an uncertain
market environment. No new investments were made during the quarter.
These sales did not impact the proportion of Caliber's investment portfolio
invested in the US which remained at 61 per cent. Sector allocation and the
percentage of investment grade securities also remained broadly similar to the
previous quarter.
Sector Profile
Sector Value % Unrealised gains/losses
RMBS 483,790,136 58.7% (60,228,073)
CMBS 182,603,194 22.2% (1,367,582)
Other ABS 123,792,242 15.0% (449,129)
Other 34,169,309 4.1% 478,271
Total $824,354,881 100.0% (61,566,513)
Geographical Profile
Region Value % Unrealised gains/losses
US 504,963,099 61.3% (60,884,089)
Europe 84,528,967 10.2% (491,600)
UK 234,862,815 28.5% (190,824)
Total $824,354,881 100.0% (61,566,513)
Credit Rating Profile
Credit rating Value % Unrealised gains/losses
Investment Grade 627,681,664 76.1% (50,769,254)
Sub-investment Grade 145,486,757 17.7% (11,180,345)
Unrated 51,186,460 6.2% 383,086
Total $824,354,881 100.0% (61,566,513)
US RMBS portfolio by rating
Rating Band Holding % of US RMBS % of Total Unrealised Gains/ Impairment Average Price
Portfolio Portfolio (Losses) ($m) Charge
($m) (cents)
($m)
A 69.8 16.4% 8.5% (5.9) - 91
BBB 296.4 69.8% 36.0% (43.8) (26.3) 77
BB 50.7 11.9% 6.1% (11.1) (8.4) 62
Unrated 8.1 1.9% 1.0% 0.6 (1.8) NA
Total 425.0 100.00% 51.6% (60.2) (36.5)
Of the US RMBS portfolio 86.2% is rated investment grade. During the quarter 13
securities in the overall portfolio were downgraded by Moody's, Fitch or
Standard & Poors and one security was upgraded. After June 30, 2007 21
securities were downgraded and three securities were upgraded. All of the
securities downgraded during the quarter and after the period end were US RMBS
securities and those upgraded were European CMBS and RMBS securities.
US RMBS portfolio by vintage
Vintage Holding % of US RMBS % of Total Unrealised Impairment Average Price
Portfolio Portfolio Losses Charge
($m) ($m) ($m) (cents)
2003 0.5 0.1% 0.1% (0.3) - 60
2004 89.7 21.1% 10.9% (11.2) (4.5) 83
2005 304.0 71.5% 36.9% (40.8) (19.7) 77
2006 30.8 7.2% 3.7% (7.9) (12.3) 48
425.0 100% 51.6% (60.2) (36.5)
Approximately 67% of the impairment charge relates to either second lien 2005
transactions or first lien 2006 investments.
US RMBS 2006 vintage by rating
Rating Band Holding % of US RMBS % of Total Unrealised Gains/ Impairment Average Price
Portfolio Portfolio (Losses) Charge
($m) ($m) ($m) (cents)
A 1.6 0.4% 0.2% (0.8) - 68
BBB 18.8 4.4% 2.3% (5.7) (5.9) 61
BB 6.6 1.6% 0.8% (1.2) (4.9) 43
Unrated 3.8 0.9% 0.5% (0.2) (1.5) NA
Total 30.8 7.2% 3.7% (7.9) (12.3)
In the US RMBS 2006 vintage, the market has witnessed further significant
pricing declines at all rating levels.
US RMBS 2nd lien by rating
Rating Band Holding % of US RMBS % of Total Unrealised Gains/ Impairment Average Price
Portfolio Portfolio (Losses) Charge
($m) ($m) ($m) (cents)
A 0 0.0% 0.0% - - NA
BBB 14.0 3.3% 1.7% (2.0) (10.4) 50
BB 3.9 0.9% 0.5% - (2.0) 25
Unrated 0 0.0% 0.0% - - NA
Total 17.9 4.2% 2.2% (2.0) (12.4)
Portfolio pricing distribution
US portfolio European portfolio (includes UK)
Price Total number of Number of % of total Number of positions % of total
positions positions portfolio by portfolio by
market value market value
Less than or equal 23 23 3.0% 0 0.0%
to 50c
50c-60c 4 4 0.9% 0 0.0%
60c-70c 23 23 5.9% 0 0.0%
70c-80c 18 18 5.0% 0 0.0%
80c-90c 37 37 12.1% 0 0.0%
90c-95c 30 30 11.3% 0 0.0%
Greater than 95c 118 53 21.9% 65 38.1%
Other* 18 12 1.2% 6 0.6%
Total 271 200 61.3% 71 38.7%
*Includes all unrated securities, real estate loans, corporate loans and equity
investments.
Impairment
The impairment charge of $37.1 million represents further falls in the market
value of previously impaired securities, unrealised losses on newly designated
impaired securities and unrealised losses at the end of the period which have
subsequently crystallised following the disposal of the security after the
period end. In determining whether a security is impaired the investment
manager, board of directors and auditors review the performance of the
underlying collateral, external rating agency analysis and market pricing. An
impairment charge has been taken against 34 positions (March 31, 2007: 10) out
of a total of 271 positions in the portfolio. 87.5% of the securities in the
portfolio remain unimpaired.
The following table analyses the impairment charge across different areas of the
portfolio:
Security type Underlying External rating Market value Sales post Total impairment
collateral agency actions period end charge
performance
($m) ($m) ($m) ($m) ($m)
US public (26.9) (4.2) (2.6) (2.8) (36.5)
securities
Private - - - (0.6) (0.6)
securities
Total (26.9) (4.2) (2.6) (3.4) (37.1)
Funding
Caliber is almost entirely funded via its committed, non-recourse, non-cross
default, funding facilities, totalling $940 million (with only $3 million of
financing via repurchase agreements as at August 17, 2007). Each committed
facility is negotiated with the lending bank on a bi-lateral basis, but broadly
comprises pre-agreed eligibility criteria that the portfolio being funded must
meet. The advance rate for each line is typically a function of either a rating
agency model, the market value of the securities or both.
The key risks to Caliber arising from the above funding facilities, and
exacerbated in the current market conditions, include:
* Securities fall outside of the eligibility criteria due to downgrades by
the external rating agencies - these securities would not be eligible for
funding and therefore require that Caliber fund these securities - thus
reducing free cash.
* As the portfolio winds down, portfolio composition or performance tests
are breached. Failure to correct these breaches would lead to an event of
default, allowing the lender to enforce against their collateral and
potentially sell assets into a distressed market in order to repay their
loan with the proceeds.
* The mark to market value of the portfolio falls considerably, requiring
margin payments to be made on mark to market funding lines - thus reducing
cash available in Caliber.
After the period end, although the funding facilities have remained in
compliance with their relevant covenants, the four committed funding facilities
have been or are in the course of being restructured. Given the disruption
currently seen in the credit markets Caliber has sought to renegotiate each of
these facilities in order to mitigate or negate the above risks and provide
Caliber with a more stable funding platform. Taking each funding facility in
turn:
Assabet Funding Limited - Assabet and the funding bank have agreed to the
following, subject to formal approval by the board of the bank:
* Caliber will pay the bank $10 million as a final margin payment and
there will be no further margin calls.
* The cost of funds will increase from cost of funds + 50 bps to cost of
funds + 70 bps.
* The underlying portfolio will cease to be actively managed and the
portfolio will enter into amortization with certain disposals of assets being
made from time to time and with all principal and excess spread being used to
repay the bank funding and other amounts due to the bank.
* In lieu of an additional requirement of approximately $17 million of
margin due in late August, the bank will be entitled to approximately 22c in
every dollar realized after all outstanding financing has been repaid.
Tormes Asset Funding Limited - It has been agreed with the funding bank that the
undrawn commitment will be cancelled and no new securities may be sold into the
facility. Additionally all portfolio limits and tests will no longer apply. Most
of the excess interest and all principal payments will be used to repay interest
and principal on the borrowings from the bank.
Crown Woods Limited - It has been agreed in principal with the funding bank that
covenants regarding portfolio concentration and ratings will no longer apply,
undrawn commitment will be cancelled and no new securities may be sold into the
facility. However the level of borrowings against the portfolio will still be
based on the latest market value of the securities. This amendment is currently
being documented and awaiting rating agency sign-off, which is expected shortly.
Amber Funding Limited - It has been agreed in principal with the funding bank
that covenants regarding portfolio concentration and ratings will no longer
apply, undrawn commitment will be cancelled and no new securities can be sold
into the facility. This amendment is currently being documented and awaiting
rating agency sign-off, which is expected shortly.
All other material terms of each of the facilities remain unchanged.
Additional Post Balance Sheet Events
The market weakness that previously had been confined to primarily to the US
RMBS market spread more broadly across global credit and equity markets. Global
liquidity was also materially reduced as evidenced by disruption to commercial
paper markets and central bank intervention.
Within the global securitisation markets, rating agency downgrades, forced
portfolio liquidations, fund failures and other factors, relating both directly
to the US mortgage market and wider developments, have contributed to material
price declines in the US and to a lesser extent European securitisation markets.
Since June 30, 2007 Caliber has sold approximately $114 million of securities
(US public securities $19 million, European public securities $62 million and
other loans, debt securities or equity instruments $33 million.) In total, 38
positions have been sold for a net profit of $0.1 million, compared to the June
30, 2007 market values. These sales crystallised a loss of approximately $2
million when compared to the amortised cost of the positions.
The sales of the securities post period end together with the renegotiation of
the funding facilities are intended to stabilise the portfolio in challenging
market conditions and in particular reduce Caliber's exposure to further falls
in market values. Changes to the funding facilities and sustained market turmoil
may impact the timing of capital distributions to shareholders, should the
resolutions be approved at the EGM.
Strategy
On June 28, 2007 Caliber announced the outcome of its strategic review and
concluded that an orderly disposal of the investment portfolio over a period of
approximately 12 months and return of capital would be in the best interest of
shareholders. On August 7, 2007 the circular to shareholders was dispatched
detailing two ordinary resolutions to be voted on at the EGM on August 30, 2007.
The two ordinary resolutions are:
That the investment objective of the Company be amended to be: "The investment
objective of the Company is to manage the sale of the Company's investment
portfolio and to maximise the return of invested capital to shareholders during
the 12 months ending on August 30, 2008."
"That the Investment Management Agreement be amended pursuant to the Deed of
Amendment dated August 3, 2007."
Additionally, the EGM will vote on a special resolution:
"That the share premium account of the Company shall be reduced to $250,000 and
converted into a capital realisation reserve from which there shall be repaid in
cash to shareholders on each record date as determined by the directors of the
Company for this purpose such aggregate net proceeds as may be realised from the
disposal by the Company of its investments and such capital realisation reserve
shall accordingly be reduced from time to time by such amounts as are returned
to shareholders and application for confirmation of such reduction of capital
shall be made to the Royal Court of Guernsey at such time as the Directors may
in their absolute discretion determine to be appropriate having regard to the
Company's investment objective at such time."
For further information please contact:
Investors and analysts:
Cambridge Place Investment Management LLP
Elizabeth Wade
+44 (0) 20 7938 5700
Media:
Financial Dynamics
Ed Gascoigne-Pees
+44 (0) 20 7269 7132
About Caliber
The Company is a Guernsey-incorporated investment company listed on the London
Stock Exchange (CLBR). The Company's current investment objective is to preserve
capital and provide stable returns to shareholders, both in the form of
dividends and capital growth. It seeks to achieve this primarily through
investment in a diversified portfolio of: (i) residential mortgage-backed
securities, (ii) commercial mortgage-backed securities, (iii) other asset-backed
securities, (iv) loans, (v) other debt securities or related instruments, (vi)
investments in companies and issuers which are exposed to or undertake mortgage
and/or credit activities, (vii) interests in real estate, and (viii) synthetic
securities or instruments which are referenced to any of the foregoing. A change
to the investment objective is to be proposed to shareholders at an
extraordinary general meeting on August 30, 2007. The Company's investment
manager is CPIM.
www.caliberglobal.com
The following is an extract from the quarterly report and accounts of Caliber
Global Investment Limited for the three month period from April 1, 2007 to June
30, 2007.
Caliber Global Investment Limited
Consolidated income statement (unaudited)
For the period from April 1, 2007 to June 30, 2007 and for the period from April
1, 2006 to June 30, 2006
Note 3 months ended 9 months ended
June 30, June 30, June 30, June 30,
2007 2006 2007 2006
(unaudited) (unaudited) (unaudited) (unaudited)
$000 $000 $000 $000
Operating income
Interest income 4 19,171 17,183 61,750 46,301
Gains on investments 5 2,604 291 3,433 499
Losses on investments 5 (165) (1,557) (1,549) (1,826)
Movement in gains on derivatives - 472 - 574
Movement in losses on derivatives (2,664) (155) (3,302) (331)
Net foreign exchange gains/(losses) 888 (213) 702 57
Total operating income $19,834 $16,021 $61,034 $45,274
Operating expenses
Interest expense 6 (9,863) (8,975) (33,301) (25,536)
Provision for impairment of 8 (37,068) - (52,803) -
investments
Other operating expenses (2,988) (1,912) (7,499) (5,478)
Total operating expenses $(49,919) $(10,887) $(93,603) $(31,014)
Net (deficit)/profit $(30,085) $5,134 $(32,569) $14,260
Earnings per ordinary share
Basic $ (1.2268) $ 0.2524 $ (1.3280) $ 0.8498
Diluted $ (1.2268) $ 0.2521 $ (1.3280) $ 0.8461
Weighted average ordinary shares outstanding
Basic Number Number Number Number
24,523,810 20,337,520 24,523,810 16,779,173
Diluted Number Number Number Number
24,523,810 20,364,043 24,523,810 16,853,317
See notes to the interim financial information
Consolidated statement of changes in equity (unaudited)
For the period from October 1, 2006 to June 30, 2007 and for the period from
October 1, 2005 to June 30, 2006
Accumulated (deficit)/profit
Ordinary Amount Net unrealized Distributable Non-distributable Total equity
Shares gains/(losses)
Number $000 $000 $000 $000 $000
Balance at September 30, 15,000,000 $140,467 $(4,820) $3,950 $279 $139,876
2005 (audited)
Issuance of ordinary 9,523,810 100,000 - - - 100,000
shares
Share options issued - 571 - - - 571
Costs related to issuance
of ordinary shares - (5,863) - - - (5,863)
Net unrealized gain on
available-for-sale
securities - - 133 - - 133
Dividends paid - - - (12,600) - (12,600)
Net profit - - - 13,761 499 14,260
Balance at June 30, 2006 24,523,810 $235,175 $(4,687) $5,111 $778 $236,377
(unaudited)
Costs related to issuance - 23 - - - 23
of ordinary shares
Net unrealized loss on
available-for-sale
securities - - (1,790) - - (1,790)
Dividends paid - - - (4,905) - (4,905)
Net profit - - - 7,724 195 7,919
Balance at September 30, 24,523,810 $235,198 $(6,477) $7,930 $973 $237,624
2006 (audited)
Net unrealized loss on
available-for-sale
securities - - (55,090) - - (55,090)
Dividends paid - - - (13,733) - (13,733)
Net deficit - - - (36,002) 3,433 (32,569)
Balance at June 30, 2007 24,523,810 $235,198 $(61,567) $(41,805) $4,406 $136,232
(unaudited)
See notes to interim financial information.
Consolidated balance sheet (unaudited)
As at June 30, 2007
Note June 30, September 30,
2007 2006
(unaudited) (audited)
$000 $000
Assets
Cash at bank 9 80,213 71,742
Available for sale securities 8 792,864 996,922
Loans and receivables 8 31,491 60,843
Other assets 6,543 8,477
Total assets $911,111 $1,137,984
Liabilities
Bank overdrafts and loans 6 768,536 879,487
Payables for securities purchased - 14,678
Trade and other payables 6,343 6,195
Total liabilities $774,879 $900,360
Net assets $136,232 $237,624
Equity
Share capital - -
Share premium account 233,916 233,916
Share options 11(b) 1,282 1,282
(Accumulated deficit)/Retained earnings (37,399) 8,903
Unrealized loss on available-for-sale securities 8 (61,567) (6,477)
Equity attributable to equity holders of the Group $136,232 $237,624
The interim financial information was approved by the Board of Directors on
August 17, 2007.
Signed on behalf of the Board of Directors by:
Haruko Fukuda OBE Anthony Hall
Director Director
See notes to interim financial information.
Consolidated cash flow statement (unaudited)
For the period from October 1, 2006 to June 30, 2007 and for the period from
October 1, 2005 to June 30, 2006
Note 9 months ended 9 months ended
June 30, 2007 June 30, 2006
(unaudited) (unaudited)
$000 $000
Net cash from operating activities 10 (10,838) 6,753
Investing activities
Purchases of asset-backed securities (133,982) (261,866)
Proceeds on sale of asset-backed securities and paydowns 260,247 119,308
Cash flows from investing activities $126,265 $(142,558)
Financing activities
Proceeds from issuance of ordinary shares - 100,000
Costs related to issuance of ordinary shares - (5,292)
(Decrease)/increase in borrowings under repurchase (322,154) 127,377
agreements
Increase/(decrease) in bank borrowings 208,821 (43,333)
Dividends paid to shareholders (13,733) (12,600)
Cash flows from financing activities $(127,066) $166,152
Net (decrease)/increase in cash and cash equivalents (11,639) 30,347
Cash and cash equivalents at beginning of period 22,090 9,963
Cash and cash equivalents at end of period 9 $10,451 $40,310
9 months ended 9 months ended
June 30, 2007 June 30, 2006
(unaudited) (unaudited)
$000 $000
Interest received 62,445 47,323
Interest paid (35,479) (25,468)
See notes to interim financial information.
Notes to the interim financial information
For the period ended June 30, 2007
1. General information
Caliber Global Investment Limited (the "Company") was registered on May 4, 2005
with registered number 43124 and is domiciled in Guernsey, Channel Islands, and
commenced its operations on June 13, 2005. The Company is a closed-ended
investment company with limited liability formed under the Companies Law of
Guernsey and its shares are listed on the London Stock Exchange. The registered
office of the Company is Dorey Court, Admiral Park, St Peter Port, Guernsey, GY1
3BG, Channel Islands. "Group" is defined as the Company and its subsidiaries,
see Note 3 (c) below.
The principal activities of the Group include the investing in and managing a
globally diversified portfolio of mortgage backed and other asset backed
securities and loans. The Group's investment objective is to preserve capital
and provide stable returns to shareholders, both in the form of dividends and
capital growth. It intends to achieve this through investing primarily in
mortgage-backed and other asset-backed securities and loans. Income will be
generated from the difference between income received and interest expense plus
any gains arising from the sale of assets. The Group utilises funding facilities
in order to enhance returns to shareholders. The Group mitigates its exposure to
interest rate and currency fluctuations through the use of hedging arrangements.
The Group's investment objective, the means by which it will able to achieve
this and its use of funding facilities is affected by the matters described
elsewhere in this report.
The Group's investment management activities are managed by its Investment
Manager, Cambridge Place Investment Management LLP (the "Investment Manager").
The Group has entered into an Investment Management Agreement (the "Investment
Management Agreement") under which the Investment Manager manages its day-to-day
investment operations, subject to the supervision of the Group's Board of
Directors. The Group has no direct employees. For its services, the Investment
Manager receives an annual management fee (which includes a reimbursement of
expenses) and a quarterly performance related fee. The Group has no ownership
interest in the Investment Manager. The Group is administered by Kleinwort
Benson (Channel Islands) Fund Services Limited, ("the Administrator").
Investors Fund Services (Ireland) Limited ("IFS") provides certain
administration services to the Group under a sub-administration agreement
between IFS, the Administrator and the Group.
On June 13, 2005 the Group issued 15,000,000 ordinary shares in its Initial
Public Offering at a price of $10 per share, for net proceeds of $140.5 million.
On May 11, 2006 the Group issued 9,523,810 ordinary shares in a Follow On at a
price of $10.50 per share, for net proceeds of $94.7 million.
2. Fundamental uncertainty
On June 28, 2007 the Board announced that the Company had completed its
strategic review and had concluded that the Company should pursue an orderly
return of all of its capital to investors over the next 12 months in order to
maximize value for shareholders. On August 30, 2007 shareholders will be asked
to vote on two ordinary resolutions and one special resolution, which would have
a material impact on the company. The first ordinary resolution is to change the
investment objective of the Company to "manage the sale of the Company's
investment portfolio and to maximize the return of invested capital to
shareholders during the 12 months ending on August 30, 2008." and the second
ordinary resolution is to approve a reduction of capital. A positive vote of 75%
of the shareholders or their representatives voting by proxy at the
extraordinary general meeting is required to pass the two resolutions. The
special resolution is to approve that the share premium account of the Company
shall be reduced to $250,000 and converted into a capital realisation reserve.If
the shareholders vote positively then the presentation of the financial
statements for the year ending September 30, 2007 may change significantly as
the going concern basis for the preparation of the financial statements may no
longer be applicable. The following are possible changes to the financial
statements:
* Unrealised losses on securities may be presented in the
income statement as the company may not be able to
demonstrate that it has the ability or the intention to hold these hold
securities until their anticipated repayment.
* Capitalised costs associated with the financing facilities
may be written-off to the income statement
* A provision for liquidation costs may be charged to the income statement
The following table shows how the income statement for the nine months ending
June 30, 2007 would be presented if the resolutions presented to shareholders on
August 30, 2007 had been passed prior to the June 30, 2007.
9 months ended
June 30, 2007
(unaudited)
$000
Operating income
Interest income 61,750
Gains on investments 3,433
Losses on investments (1,549)
Movement in gains on derivatives -
Movement in losses on derivatives (3,302)
Net foreign exchange gains 702
Total operating income $61,034
Operating expenses
Interest expense (33,301)
Provision for impairment of investments (116,277)
Provision for liquidation costs (2,000)
Other operating expenses (8,116)
Total operating expenses $(159,694)
Net deficit $(98,660)
Earnings per ordinary share
Basic $ (4.0230)
Diluted $ (4.0230)
Weighted average ordinary shares outstanding Number
Basic 24,523,810
Diluted 24,523,810
In addition, as detailed in note 12, further information relating to subsequent
events is included in the Investment Manager's report, with particular reference
to an update on the Group's financing facilities where renegotiations are
complete subject to some further approvals. The withholding of any approvals may
impact on the timing of the Group's proposal to make an orderly return of
capital to shareholders.
3. Significant accounting policies
a) Statement of compliance
The interim financial information has been prepared in accordance to the
recognition and measurement principles of International Financial Reporting
Standards (IFRS) and interpretations adopted by the International Accounting
Standards Board (IASB).
b) Basis of preparation
The interim financial information is presented in US dollars and rounded to the
nearest thousand. The interim financial information is for the period from April
1, 2007 to June 30, 2007. The comparative figures in respect of the Consolidated
Income Statement and the Consolidated Statement of Changes in Equity are for the
period from April 1, 2006, to June 30, 2006 and the Consolidated Cash Flow
Statement are for the period from October 1, 2005, to June 30, 2006. They are
prepared on a fair value basis for available for sale investments, with fair
value changes being taken directly to reserves. Derivatives are also recognised
on a fair value basis, with fair value changes being recognised in the Income
Statement. Any other financial assets and financial liabilities are stated at
amortised cost.
A Company-only balance sheet has been prepared but not included in these
financial statements as the results and reserves of the Company are not
materially different from those of the consolidated Group.
The preparation of financial information in accordance with the recognition and
measurement principles of IFRS requires management to make judgments, estimates
and assumptions that affect the application of policies and the reported amounts
of assets and liabilities, income and expense. The estimates and associated
assumptions are based on historical experience and various other factors that
are believed to be reasonable under the circumstances, the results of which form
the basis of making the judgments about carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period, or in the period
of the revision and future periods if the revision affects both current and
future periods.
The accounting policies have been applied consistently by the Group and the
Company.
c) Basis of consolidation
The consolidated interim financial information comprises the financial
information of Caliber Global Investment Limited and its subsidiaries for the
period from April 1, 2007 to June 30, 2007. Subsidiaries are consolidated from
the date on which control is transferred to the Company and cease to be
consolidated from the date on which control is transferred from the Company.
Control exists when the Company has the power, directly or indirectly, to govern
the financial and operating policies of an entity so as to obtain benefits from
its activities. Minority interests represent interests held by outside parties
in the consolidated subsidiaries.
At June 30, 2007 the Company's subsidiaries consisted of its interests in Amber
Funding Limited, Assabet Funding Limited, Crown Woods Limited, O.F.L. Limited,
Tormes Asset Funding Limited and Serval Asset Funding Limited. The ordinary
share capital of these companies is held by outside parties and the Company has
no associated voting rights. The Company retains control over these companies
through its retention of the residual risks and rewards of the assets
transferred to these companies. In accordance with Standing Interpretations
Committee Interpretation 12 (Special Purpose Entities), the Company consolidates
these entities as it retains control of them and retains the residual risks and
rewards of ownership of them.
At June 30, 2007 the Company has consolidated the results of Serval Asset
Funding Limited, a special purpose entity which purchases securities from and
provides loans to structured finance entities. To fund the purchases and loans
the company is able to borrow under a multi user #200 million revolving credit
facility provided by a US bank and issue notes to the Company. The borrowings
under the facility rank senior to the notes issued to the Company.
Intragroup balances, and any unrealized gains and losses or income and expenses
arising from intragroup transactions, are eliminated in preparing the
consolidated financial information. Unrealized gains arising from transactions
with jointly controlled entities are eliminated to the extent of the Group's
interest in the entity. Unrealized losses are eliminated in the same way as
unrealized gains, but only to the extent that there is no evidence of
impairment.
d) Foreign currency translation
Transactions in foreign currencies, other than US$, are translated at the
foreign currency exchange rate ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies are translated to US
dollars at the foreign currency closing exchange rate ruling at the balance
sheet date. Foreign currency exchange differences arising on translation and
realized gains and losses on disposals or settlements of monetary assets and
liabilities are recognised in the income statement. Non-monetary assets and
liabilities denominated in foreign currencies that are measured at fair value
are translated to US dollars at the foreign currency exchange rates ruling at
the dates that the values were determined. Foreign currency exchange differences
relating to investments at fair value through the income statement and
derivative financial instruments are included in gains and losses on investments
and gains and losses on derivatives, respectively.
All other foreign currency exchange differences relating to monetary items,
including cash and cash equivalents are presented separately in the income
statement.
e) Financial instruments
Financial assets and liabilities are recognised on the Group's balance sheet
when the Group becomes a party to the contractual provisions of the instrument.
(i) Investments
IAS 39 establishes specific categories into which all financial assets and
liabilities must be classified. The classification of financial instruments
dictates how these assets and liabilities are subsequently measured in the
financial statements. There are four categories of financial assets: assets at
fair value through the income statement, available for sale, loans and
receivables and held to maturity.
A regular way purchase of financial assets is recognised using trade date
accounting. From this date any gains and losses arising from changes in fair
value of the financial assets or financial liabilities are recorded.
Financial instruments are measured initially at fair value (transaction price)
plus, in case of a financial asset or financial liability not at fair value
through the income statement, transaction costs that are directly attributable
to the acquisition or issue of the financial asset or financial liability.
Transaction costs on financial assets and financial liabilities at fair value
through the income statement are expensed immediately, while on other financial
instruments they are amortised. Subsequent to initial recognition, all
instruments classified at fair value through the income statement are measured
at fair value with changes in their fair value recognised in the income
statement. Financial investments held by the Group classified as available for
sale are stated at fair value, with any resultant gain or loss being recognised
directly in equity, except for impairment losses and, in the case of monetary
items such as debt securities, foreign exchange gains and losses. The fair value
of debt securities classified as available for sale is determined through
third-party broker quotes for each investment.
Financial assets classified as loans and receivables are carried at amortised
cost using the effective interest rate method, less impairment losses, if any.
Financial liabilities, other than those at fair value through the income
statement, are measured at amortised cost using the effective interest rate
method.
The fair value of financial instruments is based on their quoted market prices
at the balance sheet date without any deduction for estimated future selling
costs. Financial assets are priced at current bid prices, while financial
liabilities are priced at current asking prices. If a quoted market price is not
available on a recognised stock exchange or from a broker/dealer for
non-exchange-traded financial instruments, the fair value of the instrument is
estimated using valuation techniques, including use of recent arm's length
market transactions, reference to the current fair value of another instrument
that is substantially the same, discounted cash flow techniques, option pricing
models or any other valuation technique that provides a reliable estimate of
prices obtained in actual market transactions.
The fair value of derivatives that are not exchange-traded is estimated at the
amount that the Group would receive or pay to terminate the contract at the
balance sheet date taking into account current market conditions (volatility,
appropriate yield curve) and the current creditworthiness of the counterparties.
Specifically, the fair value of a forward contract is determined as a net
present value of estimated future cash flows, discounted at appropriate market
rates on the valuation date. The fair value of an option contract may be
determined by applying a binomial option valuation model.
Unquoted equity securities
For unquoted equity securities independent valuations are received from an
independent investment bank who value the securities using appropriate private
equity valuation techniques. These include discounted cash flow models, together
with applicable price/earnings ratios for similar listed companies to estimate
the fair value of the securities.
(ii) Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the
substance of the contractual arrangements entered into. An equity instrument is
any contract that evidences a residual interest in the assets of the Group after
deducting all of its liabilities.
(iii) Bank borrowings
Interest bearing bank loans and overdrafts are recorded as the amount of the
proceeds received, net of direct issue costs. Finance charges, including
premiums payable on settlement or redemption and direct issue costs, are
accounted for on an accruals basis to the income statement using the effective
interest rate method and are added to the carrying amount of the instrument to
the extent that they are not settled in the period in which they arise.
(iv) Derivative financial instruments and hedge accounting
The Group may use derivative financial instruments to hedge its exposure to
foreign exchange and interest rate risks arising from operational, financing and
investment activities. However derivatives that do not qualify for hedge
accounting are accounted for as trading instruments. Derivative financial
instruments are recognised initially at cost. Subsequent to initial recognition,
derivative financial instruments are stated at fair value. The gain or loss on
re-measurement to fair value is recognised immediately in the income statement.
However, where derivatives qualify for hedge accounting, recognition of any
resultant gain or loss depends on the nature of the item being hedged.
The fair value of interest rate swaps is the estimated amount that the Group
would receive or pay to terminate the swap at the balance sheet date, taking
into account current interest rates and the current creditworthiness of the swap
counterparties. The fair value of forward exchange contracts is their quoted
market price at the balance sheet date, being the present value of the quoted
forward price. Financial assets and liabilities are offset and the net amount is
reported within assets and liabilities where there is a legally enforceable
right to set off the recognised amounts and there is an intention to settle on a
net basis, or realize the asset and settle the liability simultaneously.
Cashflow hedges
Where a derivative financial instrument is designated as a hedge of the
variability in cashflows of a recognised asset or liability, or a highly
probable forecasted transaction, the effective part of any gain or loss on the
derivative financial instrument is recognised directly in equity. When the
forecasted transaction subsequently results in the recognition of a
non-financial asset or non-financial liability, or the forecast transaction for
a non-financial asset or non-financial liability, the associated cumulative gain
or loss is removed from equity and included in the initial cost or other
carrying amount of the non-financial asset or liability. If a hedge of a
forecasted transaction subsequently results in the recognition of a financial
asset or a financial liability, the associated gains and losses that were
recognised directly in equity are reclassified into the income statement in the
same period or periods during which the asset acquired or liability assumed
affects the income statement (i.e. when interest income or expense is
recognised).
For cashflow hedges, other than those covered by the preceding two policy
statements, the associated cumulative gain or loss is removed from equity and
recognised in the income statement in the same period or periods during which
the hedged forecast transaction affects the income statement. The ineffective
part of any gain or loss is recognised immediately in the income statement.
When a hedging instrument expires or is sold, terminated or exercised, or the
Group revokes designation of the hedge relationship but the hedged forecast
transaction is still expected to occur, the cumulative gain or loss at that
point remains in equity and is recognised in accordance with the above policy
when the transaction occurs. If the hedged transaction is no longer expected to
take place, the cumulative unrealized gain or loss recognised in equity is
recognised immediately in the income statement.
Hedge of monetary assets and liabilities
Where a derivative financial instrument is used to hedge economically the
foreign exchange exposure of a recognised monetary asset or liability, no hedge
accounting is applied and any gain or loss on the hedging instrument is
recognised in the income statement.
Fair value hedges
Changes in fair value of derivatives that qualify and are designated as fair
value hedges are recorded in the income statement, together with changes in the
fair value of the hedged asset or liability that are attributable to the risk
being hedged.
If the hedge no longer meets the criteria for hedge accounting, the fair value
hedging adjustment cumulatively made to the carrying value of the hedged item
is, for items carried at amortised cost, amortised over the period to maturity
of the previously designated hedge relationship using the effective interest
rate method. For available-for-sale items this fair value hedging adjustment
remains in equity until the hedged item affects the income statement.
If the hedged item is sold or repaid, the unamortised fair value adjustment is
recognised immediately in the income statement.
Embedded derivatives
Derivatives embedded in other financial instruments or other host contracts are
treated as separate derivatives when their risks and characteristics are not
closely related to those of host contracts and the host contracts are not
carried at fair value with unrealized gains or losses reported in the income
statement.
Credit default swaps
Credit default swaps are contracts in which the Group pays or receives premium
flows in return for the counterparty accepting or selling all or part of the
risk of default or failure to pay of a reference entity on which the swap is
written. Where the Group has bought protection the maximum potential loss is the
value of the premium flows the Group is contracted to pay until maturity of the
contract. Where the Group has sold protection the maximum potential loss is the
nominal value of the protection sold.
Credit default swaps are stated at market value. The net income or expense on
the swap agreements entered into by the Group is reflected in the income
statement. Unrealized gains are reported as an asset and unrealized losses are
reported as a liability in the balance sheet. Changes in the market value are
reflected in the Income Statement in the period in which they occur.
(v) Specific instruments
Cash and cash equivalents
Cash comprises cash balances and call deposits with banks. Cash equivalents are
short-term highly liquid investments that are readily convertible to known
amounts of cash, are subject to an insignificant risk of changes in value, and
are held for the purpose of meeting short-term cash commitments rather than for
investment or other purposes. Bank overdrafts that are repayable on demand and
form an integral part of the Group's cash management are included as a component
of cash and cash equivalents for the purpose of the statement of cash flows.
Repurchase and reverse repurchase agreements
Securities purchased under agreements to resell ("repurchase agreements") and
securities sold under agreements to repurchase ("reverse repurchase agreements")
are treated as collateralised financing transactions and are carried at the
amounts at which the securities were acquired or sold plus accrued interest,
which approximates fair value. It is the Group's policy to take possession of
securities purchased under agreements to resell. Interest earned on securities
owned on reverse repurchase agreements and interest expense on securities sold,
not yet purchased and repurchase agreements are included in the income
statement.
Securities sold short and associated securities borrowing
Securities sold short are those positions where the Group has sold a security
that it does not own in anticipation of a decline in the market value of the
security and are classified as liabilities held for trading. To enter a short
sale, the Group may need to borrow the security for delivery to the buyer. On
each day obligations to deliver securities borrowed by the Group to fulfil its
short sale contracts are marked to market and an unrealized gain or loss is
recorded in gains and losses on investments in the income statement. While the
transaction is open the Group will also incur an expense for any dividends or
interest that will be paid to the lender of the securities.
(vi) Derecognition of financial assets and liabilities
The Company and Group derecognise a financial asset when the contractual rights
to the cash flows from the financial asset expire or it transfers the financial
asset and the transfer qualifies for derecognition in accordance with IAS 39.
The Company and Group use the first in first out ("FIFO") method to determine
realized gains and losses on derecognition. A financial liability is
derecognised when the obligation specified in the contract is discharged,
cancelled or expired.
f) Impairment
Financial assets that are stated at cost or amortised cost are reviewed at each
balance sheet date to determine whether there is objective evidence of
impairment. If any such indication exists, an impairment loss is recognised in
the income statement as the difference between the asset's carrying amount and
the present value of estimated future cash flows discounted at the financial
asset's original effective interest rate.
Objective evidence that a financial asset is impaired includes observable data
that comes to the attention of the Group about any of the following loss events:
1) Significant financial difficulty of the issuer or obligor;
2) A breach of contract, such as a default or delinquency in
interest or principal payments, granting to the borrower a concession that the
lender would not otherwise consider;
3) It becomes probable that the borrower will enter bankruptcy,
administration or other analogous financial reorganisation; or
4) The disappearance of an active market for that financial
asset because of financial difficulties.
When a decline in the fair value of an available-for-sale financial asset has
been recognised directly in equity and there is objective evidence that the
asset is impaired, the cumulative loss that had been recognised directly in
equity is recognised in the income statement even though the financial assets
have not been derecognised. The amount of the cumulative loss that is recognised
in the income statement is the difference between the acquisition cost and the
current fair value, less any impairment loss on that financial asset previously
recognised in the income statement.
Calculation of recoverable amount
The recoverable amount of the Group's investments in loans and receivables
carried at amortised cost is calculated as the present value of estimated future
cash flows, discounted at the original effective interest rate (i.e. the
effective interest rate computed at initial recognition of these financial
assets). Receivables with a short duration are not discounted.
The recoverable amount of other assets is the greater of their net selling price
and value in use. In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to
the asset. For an asset that does not generate largely independent cash inflows,
the recoverable amount is determined for the cash-generating unit to which the
asset belongs.
Reversals of impairment
If in a subsequent period the amount of an impairment loss recognised on a
financial asset carried at amortised cost decreases and the decrease can be
linked objectively to an event occurring after the write-down, the write-down is
reversed through the income statement.
An impairment loss in respect of an investment in an equity instrument
classified as available for sale is not reversed through the income statement.
If the fair value of a debt instrument classified as available for sale
increased and the increase can be objectively related to an event occurring
after the impairment loss was recognised in the income statement, the impairment
loss shall be reversed, with the amount of the reversal recognised in the income
statement.
In respect of other assets, an impairment loss is reversed if there has been a
change in the estimates used to determine the recoverable amount.
An impairment loss is reversed only to the extent that the asset's carrying
amount does not exceed the carrying amount that would have been determined, net
of depreciation or amortisation, if no impairment loss had been recognised.
g) Trade and other payables
Trade and other payables are stated at cost.
h) Provisions
A provision is recognised in the balance sheet when the Group has a present
legal or constructive obligation as a result of a past event, and it is probable
that an outflow of economic benefits will be required to settle the obligation.
If the effect is material, provisions are determined by discounting the expected
future cash flows at a pre-tax rate that reflects current market assessments of
the time value of money and, where appropriate, the risks specific to the
liability.
i) Share capital
The initial set up costs of the Group have been charged to the share premium
account and the expenses directly related to the Follow On.
j) Revenue and expenses
Revenue is recognised to the extent that it is possible that economic benefits
will flow to the Group and the revenue can be reliably measured. Deferred
financing costs represent costs associated with the issuance of certain
securities and are amortised over the term of such financing using effective
yield methodology. Expenses are accounted for an on accruals basis.
Dividend income is recognised in the income statement on the date the entity's
right to receive payments is established which, in the case of quoted
securities, is usually the ex-dividend date.
Interest income is recognised in the income statement as it accrues, using the
effective interest rate method. Interest income and expense is recognised in the
income statement as it accrues, using the original effective interest rate of
the instrument calculated at the acquisition or origination date. Interest
income includes the amortisation of any discount or premium, transaction costs
or other differences between the initial carrying amount of an interest-bearing
instrument and its amount at maturity calculated on an effective interest rate
basis.
Interest income on debt instruments at fair value through the income statement
is accrued using the original effective interest rate and classified to the
interest income line item within the income statement. Interest income is
recognised on a gross basis, including withholding tax, if any. In preparing the
original effective interest rate, the Board has made its best estimate of the
expected inflows on the investments held. Such estimates and associated
assumptions are based on historical experience and various other factors that
are believed to be reasonable under the circumstances. Actual timing and amounts
of future inflows on these investments may differ from these estimates.
Expenses are charged to the income statement except for expenses incurred on an
acquisition of an investment which are included within the cost of that
investment. Expenses arising on the disposal of investments are deducted from
the disposal proceeds.
k) Dividend income
Dividend income relating to exchange-traded equity investments is recognised in
the income statement on the ex-dividend date.
In some cases, the Group may receive or choose to receive dividends in the form
of additional shares rather than cash. In such cases the Group recognises the
divided income for the amount of the cash dividend alternative with the
corresponding debit treated as an additional investment.
Income distributions from private equity investments and other investment
companies are recognised in the income statement as dividend income when
declared.
l) Net financing costs
Net financing costs comprise interest payable on financing facilities calculated
using the effective interest rate method, dividends on redeemable preference
shares, interest receivable on funds invested, dividend income, foreign exchange
gains and losses, and gains and losses on hedging instruments that are
recognised in the income statement.
m) Taxation
The Group is classed as exempt for taxation purposes under the Income Tax
(Exempt Bodies) (Guernsey) Ordinance, 1989 and as such incurs a flat fee
(presently #600 per annum). No other taxes are incurred in Guernsey.
n) Dividends payable
Dividends payable on ordinary shares are recognised in the statement of changes
in equity.
o) Ancillary costs
Ancillary costs incurred in the arrangement of financing facilities are
capitalised and amortised from the date the facilities are available for use to
the termination date of the financing facility. The remaining lives of the
facilities, based on current commitments, are as follows:
* Amber Funding Limited 15 months
* Assabet Funding Limited Three years
* Crown Woods Limited 15 months
* Serval Asset Funding Limited 15 months
* Tormes Asset Funding Limited 15 months
4. Interest income
3 months ended 3 months ended
June 30, 2007 June 30, 2006
(unaudited) (unaudited)
$000 $000
Interest income arises from:
Cash and cash equivalents 455 340
Investments in asset-backed securities 18,281 16,666
Investments in loans and receivables 435 177
Total interest income $19,171 $17,183
9 months ended 9 months ended
June 30, 2007 June 30, 2006
(unaudited) (unaudited)
$000 $000
Interest income arises from:
Cash and cash equivalents 1,124 583
Investments in asset-backed securities 58,624 45,418
Investments in loans and receivables 2,002 300
Total interest income $61,750 $46,301
5. Gains and losses on debt and equity investments
3 months ended 3 months ended
June 30, 2007 June 30, 2006
(unaudited) (unaudited)
$000 $000
Net gains and losses on debt investments 5,801 (787)
Net gains and losses on equity investments - -
Net gains and losses on debt and equity investments $5,801 $(787)
Realized gains on investments 2,604 291
Realized gains (foreign exchange) 3,362 536
Total gains $5,966 $827
Realized losses on investments (165) (1,557)
Realized losses (foreign exchange) - (57)
Total losses $(165) $(1,614)
9 months ended 9 months ended
June 30, 2007 June 30, 2006
(unaudited) (unaudited)
$000 $000
Net gains and losses on debt investments 12,049 (1,120)
Net gains and losses on equity investments - -
Net gains and losses on debt and equity investments $12,049 $(1,120)
Realized gains on investments 3,433 499
Realized gains (foreign exchange) 10,203 554
Total gains $13,636 $1,053
Realized losses on investments (1,549) (1,826)
Realized losses (foreign exchange) (38) (347)
Total losses $(1,587) $(2,173)
6. Interest expense and sources of funding
3 months ended 3 months ended
June 30, 2007 June 30, 2006
(unaudited) (unaudited)
$000 $000
Interest expense arises from:
Committed financing 5,814 5,240
Sale and repurchase agreements 219 2,022
Commercial paper borrowings 3,830 1,713
Total finance costs $9,863 $8,975
9 months ended 9 months ended
June 30, 2007 June 30, 2006
(unaudited) (unaudited)
$000 $000
Interest expense arises from:
Committed financing 15,877 17,021
Sale and repurchase agreements 6,504 4,529
Commercial paper borrowings 10,920 3,986
Total finance costs $33,301 $25,536
June 30, 2007 September 30, 2006
(unaudited) (audited)
$000 $000
Sources of funding:
Committed financing 457,360 366,196
Sale and repurchase agreements 6,098 327,701
Commercial paper borrowings 305,078 185,590
$768,536 $879,487
In the company only balance sheet the bank borrowings would be presented as
intercompany loans with the subsidiaries referred to in Note 7. All borrowings
are secured on specific assets. Collateral pledged against securities sold under
agreements to repurchase amounts to US$8.0 million approximately at June 30,
2007 (US$371 million approximately at September 30, 2006).
7. Subsidiaries
The following entities are deemed to be subsidiaries of Caliber Global
Investment Limited as it retains control over these entities through its
retention of the residual risks and rewards of the assets transferred to, or
purchased from, these entities. The ordinary share capital of these entities is
held by outside parties and the Group has no associated voting rights. The
subsidiaries each have minimal ordinary share capital and therefore minority
interests are immaterial. The subsidiaries provide the funding referred to in
Note 6.
Name of subsidiary Place of incorporation Proportion of Proportion Method used to account
(or registration) and ownership of voting for investment
operation power
Amber Funding Limited Republic of Ireland - - Purchase method
Assabet Funding Limited Jersey - - Purchase method
Crown Woods Limited Republic of Ireland - - Purchase method
O.F.L. Limited Jersey - - Purchase method
Serval Asset Funding Limited Republic of Ireland - - Purchase method
Tormes Asset Funding Limited Republic of Ireland - - Purchase method
See Note 3 (c) above.
8. Investments
Available-for-sale securities
The following is a summary of the Group's available-for-sale securities at June
30, 2007 (unaudited):
Gross unrealized Weighted average
Current Amortised Gains Losses Carrying S&P Coupon Expected Years to
face amount cost basis value Rating Expected
% Yield % Maturity
$000 $000 $000 $000 $000
RMBS - Rated 596,275 536,487 1,270 (62,066) 475,691 BBB- 8.25 9.10 2.17
RMBS - Unrated 698,244 7,530 818 (250) 8,098 NR 5.32 24.42 3.05
CMBS - Rated 223,355 176,158 137 (1,233) 175,062 BBB 7.02 6.98 3.73
CMBS - Unrated 7,542 7,813 - (271) 7,542 NR 7.64 18.30 3.26
Other ABS - 122,619 122,473 231 (289) 122,415 BBB 7.93 7.41 4.03
Rated
Other ABS - 1,351 1,769 - (391) 1,378 NR 16.57 16.57 8.00
Unrated
$1,649,466 $852,230 $2,456 $(64,500) $790,186
The following is a summary of the Group's available-for-sale securities at
September 30, 2006 (audited):
Gross unrealized Weighted average
Current Amortised Gains Losses Carrying S&P Coupon Expected Years to
face amount cost basis value Rating Expected
% Yield % Maturity
$000 $000 $000 $000 $000
RMBS - Rated 660,201 637,918 2,233 (8,161) 631,990 BBB- 7.42 8.66 2.99
RMBS - Unrated 697,496 13,788 1,490 (2,108) 13,170 NR - 22.09 2.92
CMBS - Rated 325,795 272,528 217 (694) 272,051 BBB 6.50 6.60 5.10
CMBS - Unrated 1,871 1,899 - (28) 1,871 NR - 9.24 2.18
Other ABS - 75,617 75,539 200 (8) 75,731 BBB 7.51 7.56 4.68
Rated
$1,760,980 $1,001,672 $4,140 $(10,999) $994,813
The expected yield is based on the US 1 month LIBOR rate as at June 30, 2007 and
September 30, 2006, respectively, and the expected yield over LIBOR of the
securities.
Equity securities
The following is a summary of the Group's equity securities at June 30, 2007
(unaudited):
Cost Carrying value
$000 $000
Equity (See Note 11 (e)) 2,201 2,678
$2,201 $2,678
Carrying value
Total Available-for-sale securities $792,864
The following is a summary of the Group's equity securities at September 30,
2006 (audited):
Cost Carrying value
$000 $000
Equity (See Note 11 (e)) 1,727 2,109
$1,727 $2,109
Carrying value
Total Available-for-sale securities $996,922
The Group has made investments in the equity of three unquoted leasing companies
based in the United States. These investments were made in October 2005, January
2006 and March 2006 respectively. The Group has also made an investment in a
European real estate fund, managed by an independent third party. The initial
investment in the fund was made in April 2006 with subsequent investments in
July and November 2006. Independent third party valuations of these investments
have been received and the carrying value reflects these valuations.
As at June 30, 2007 the equity investments have been revalued by an independent
investment bank. The total unrealized loss on these investments is $396,000. The
fair value of these companies has been determined using discounted cash flow
models using actual results and management reforecasts compared to the original
projections at the time of the acquisitions. The fair value of these equity
investments is dependent on the profitability of the companies, which is a
function of the volume of leases entered into and their credit performance.
These investments were sold post period end.
The company has reviewed the latest available financial report of the European
real estate fund and the current carrying value as at June 30, 2007 is $682,720.
This investment was sold post period end.
In June 2006 the company received warrants as part of a subordinated
participation in a revolving warehouse facility. In December 2006 the warrants
were exercised and exchanged for shares in the company. Exercising the warrants
crystallised a gain of $120,000. These shares were sold post period end.
Loans and receivables
The following is a summary of the Group's loans and receivables portfolio as at
June 30, 2007 (unaudited):
Gross unrealized Weighted average
Current Amortised Gains Losses Carrying S&P Coupon Expected Years to
face amount cost basis value Rating Expected
Yield Maturity
$000 $000 $000 $000 $000 % % Yrs
Real estate 18,523 18,557 - - 18,557 NR 8.80 8.80 1.09
loans
Corporate loans 12,934 12,934 - - 12,934 NR 11.60 11.79 5.35
$31,457 $31,491 - - $31,491
The following is a summary of the Group's loans and receivables portfolio as at
September 30, 2006 (audited):
Gross unrealized Weighted average
Current Amortised Gains Losses Carrying S&P Coupon Expected Years to
face amount cost basis value Rating Expected
Yield Maturity
$000 $000 $000 $000 $000 % % Yrs
Real estate 40,289 39,580 - - 39,580 NR 7.96 11.49 4.10
loans
Corporate loans 21,450 21,263 - - 21,263 NR 11.11 11.29 3.33
$61,739 $60,843 - - $60,843
Impairment of securities
As at June 30, 2007 unrealised losses of US$37,068,060 have been recognised
following a review of the portfolio for impairment and transferred from equity
to the income statement. As at June 30, 2007 the total impairment charges for
the nine months ending on June 30, 2007, based on the fair value of the
securities, was $52,803,250.
As at March 31, 2007 unrealised losses of US$15,117,252 have been recognised
following a review of the portfolio for impairment and transferred from equity
to the income statement.
As at December 31, 2006 unrealised losses of $187,500 associated with one
corporate loan have been transferred from equity to the income statement.
Unrealised losses of US$430,438 were recognised following a review of the
portfolio for impairment and transferred from equity to the income statement.
As at September 30, 2006 unrealised losses of $637,000 associated with one
unrated RMBS security, have been transferred from equity to the income
statement. As at September 30, 2006 unrealised losses of $187,500 associated
with one corporate loan have been transferred from equity to the income
statement.
A total of $19.6 million of income has been recognised on the impaired
securities since purchase, as at June 30, 2007. For the nine months ended June
30, 2007 $9.1 million of income has been recognised.
Valuations
Investments are reported at Fair Value at the reporting date, based on
valuations received from independent third parties. Fair value represents the
amount for which an asset could be exchanged between knowledgeable, willing
parties in an arm's length transaction. In estimating fair value, the
independent parties use a methodology that is appropriate in light of the
nature, facts and circumstances of the investment and its materiality in the
context of the total portfolio. Methodologies are applied consistently from
period to period, except where a change would result in a better estimation of
fair value.
As at June 30, 2007 independent valuations were received for 100% of the
portfolio, including real estate and corporate loans.
9. Current deposits with bank and brokers
June 30, September 30,
2007 2006
(unaudited) (audited)
$000 $000
Cash and cash equivalents 10,451 22,090
Cash held with brokers as collateral 69,762 49,652
$80,213 $71,742
Cash and cash equivalents comprise cash at bank and other short-term highly
liquid investments with a maturity of three months or less. Included in the cash
held with brokers as collateral is a balance of $45,000,000 (2006: $45,000,000)
which is held on deposit as security under the terms of a loan arrangement. This
deposit is available to the Group upon the repayment of amounts due under this
specific loan arrangement. Also included is a balance of US$24,761,567 (2006:
$4,651,290) which represents amounts held with other brokers as collateral.
10. Notes to cashflow statement
9 months ended 9 months ended
June 30, 2007 June 30, 2006
(unaudited) (unaudited)
$000 $000
(Deficit)/Profit from operations $(32,569) $14,260
Adjustments for:
Movement in unrealized gain on derivatives - (864)
Movement in unrealized loss on derivatives 4,029 754
Unrealized FX gain (13,196) (11,083)
Impairment losses 52,803 -
Operating cash flows before movements in working capital 11,067 3,067
Decrease in receivables 989 3,871
(Decrease)/increase in payables (2,859) 739
Decrease/(increase) in amounts paid in advance 75 (173)
Increase in cash held with brokers as collateral (20,110) (751)
Cash (used by)/provided by operations (21,905) 3,686
Net cash from operating activities $(10,838) $6,753
11. Investment Management Agreement and related party transactions
a) Investment Management Agreement
Under the terms of the Investment Management Agreement the Investment Manager is
entitled to receive from the Group an annual management fee of 1.75 per cent of
the gross equity of the Group, payable monthly in arrear. For these purposes,
"gross equity" means the aggregate gross proceeds to the Group of all issues of
shares in the capital of the Group (less any capital dividends paid or capital
distributions made by the Group). The Investment Manager is entitled to receive
a performance-related fee in respect of each incentive period which will be paid
quarterly in arrear. An incentive period comprises each successive three-month
period, except the first period was the period from admission to the London
Stock Exchange to September 30, 2005.
The performance-related fee is equivalent to 25 per cent of the amount by which
A exceeds B x C where:
A = the Group's consolidated net income before tax as shown in the Group's consolidated management accounts
for the relevant period, and before payment of the performance-related fee;
B = gross equity; and
C = the greater of (i) 2 per cent or (ii) 1 percent plus one quarter of the interest rate on ten-year US
Treasury Bonds (as at the beginning of the relevant quarter).
During the period April 1, 2007 to June 30, 2007 a management fee of $1,090,754
(April 1, 2006 to June 30, 2006: $898,972) and an incentive fee of $nil (April
1, 2006 to June 30, 2006: $191,815) was earned by the Investment Manager. At
June 30, 2007, management fees and expense reimbursements of $359,589 were due
to the Investment Manager.
b) Rebilac Limited
At the Initial Public Offering 840,000 shares of no par value were issued to
Rebilac Limited, an affiliate of, for $10 each. 1,500,000 options were granted
to Cambridge Place Investment Management LLP as a fee for its work in raising
capital for the Group. Cambridge Place Investment Management LLP subsequently
transferred these options to Rebilac Limited. The options represent the right to
purchase 1,500,000 shares in the Group. The options are fully vested and
immediately exercisable from the date of the grant at an exercise price per
share equal to $10 and will remain exercisable until the tenth anniversary of
admission and listing. Included in the expenses of issue of ordinary shares
borne by the Group is $260,849 relating to legal and professional fees incurred
in setting up Rebilac Limited.
The fair value of the options granted using a binomial option valuation model
was $0.474 per share. This equates to $711,000 and is regarded as a cost of the
Initial Public Offering.
At the Follow On, 204,297 shares of no par value were issued to Rebilac Limited
for $10.50 each. In addition 952,381 options were granted to Cambridge Place
Investment Management LLP as a fee for its work in raising capital for the
Group. Cambridge Place Investment Management LLP transferred 408,594 of these
options to Rebilac Limited on November 30, 2006. The options represent the right
to purchase 952,381 shares in the Group. The options are fully vested and
immediately exercisable from the date of the grant at an exercise price per
share equal to $10.50 and will remain exercisable until the tenth anniversary of
the Follow On. Included in the expenses of the Follow On borne by the Group is
$75,000 relating to legal and professional fees incurred in relation to Rebilac.
The fair value of the options granted using a binomial option valuation model
was $0.5994 per share. This equates to $570,837 and is regarded as a cost of the
Follow On.
No. of options Exercise price
As at April 1, 2007 2,452,381 $10.19
Granted during the 3 months ended June 30, 2007 - -
Exercised during the 3 months ended June 30, 2007 - -
Outstanding as at June 30, 2007 2,452,381 $10.19
The options will be settled with the issuance of new shares when they are
exercised.
c) Old Court Funding plc
Cambridge Place Investment Management LLP is the Investment Manager of Old Court
Funding, a commercial paper conduit, which provides funding to the Group by way
of loans on arms length terms (see Note 6 above). Cambridge Place Investment
Management LLP does not receive any fees or remuneration from Old Court Funding.
As at June 30, 2007 the amount owed to Old Court Funding was $172.7 million
(June 30, 2006: $160.9 million) and interest payable to Old Court Funding from
October 1, 2006 to June 30, 2007 was $7,282,155 (October 1, 2005 to June 30,
2006: $3,986,299). As at June 30, 2007 the amount owed to Old Court Funding in
respect of interest was $74,280 (June 30, 2006: $344,038).
d) Directors' Interests
Mr Kramer has a direct interest in 18,415 shares of the Company through his
holding in Rebilac Limited and a direct interest in options in respect of 36,830
of the ordinary shares of the Company. Mr Kramer also has an indirect interest
in 30,000 shares of the Company through a holding in Rebilac Limited and an
indirect interest in options in respect of 60,000 of the ordinary shares of the
Company. These are amongst the options initially granted at the time of the
Initial Public Offer and Follow On.
The directors' interests in the share capital of the Company were:
June 30, 2007 June 30, 2006
Miss Haruko Fukuda OBE 12,380 8,000
Mr Anthony Hall 45,000 15,000
Mr Robert Kramer 48,415 48,415
Mr Chris Waldron Nil Nil
e) Other investments of Investment Manager
Cambridge Place Investment Management LLP manages four open ended structured
credit funds (together the "SCF Funds") which have invested alongside the Group
in the three equity investments referred to in Note 8. Together the SCF Funds
and the Group have a holding of 49%, 33% and 25% of such equity investments. The
Group's effective holdings are 9.8%, 2.8% and 6.75% of the respective companies.
During December 2006 the SCF Funds increased their investment in one of the US
leasing companies to 39% of the share capital. The Group did not participate in
this investment and as a result its effective holding in the company has fallen
from 3.3% to 2.8%.
The SCF Funds also invested alongside the Group in the revolving warehouse
facility. Together those funds and the Group had an interest in 5% of the
equity, with the Group having an effective holding of 0.75%, when the warrants
were exercised. When the warrants were exercised the Group received shares as
consideration. At the time the warrants were exercised the SCF Funds made an
additional investment in the equity of the company.
As at June 30, 2007 the SCF Funds and the Group own 28.1% of the equity of the
company. The Group's new effective holding in the equity of the company is
0.37%.
f) Contingent Liabilities
As of June 30, 2007, under the terms of a share purchase agreement, following
the disposal of an interest in a UK property, the Group has guarantee
obligations to the purchaser of the asset for a maximum of #6.56million, for a
period of up to two years.
12. Subsequent events
Since June 30, 2007 the company has sold 38 investments in order to meet
anticipated cash requirements of the company and its financing facilities. The
investments which have been sold are predominantly private investments and
European securities. The private investments were sold to other funds managed by
CPIM at the latest available independent third party valuations. The European
securities sold had minimal scope for price appreciation and hence the sale of
these securities was not detrimental to the NAV of the company. Further
information relating to subsequent events is included in the Investment
Manager's report, with particular reference to the update on the Group's
financing facilities.
No. of Securities Amortised Sales
Sold Cost Proceeds
$000 $000
Security type
Private securities 21 33,242 33,778
European securities 12 62,725 62,102
US securities 5 20,613 18,597
Total 38 $116,580 $114,477
END
This information is provided by RNS
The company news service from the London Stock Exchange
END
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