REG - Sequoia Econ Infra - NAV and Investment Update

Sequoia Economic Infrastructure Income FundAnnouncement

17/06/2024 07:15

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RNS Number : 5533S  Sequoia Economic Infra Inc Fd Ld  17 June 2024

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART IN OR INTO
THE UNITED STATES

17 June 2024

Sequoia Economic Infrastructure Income Fund Limited

("SEQI" or the "Company")

 

Monthly NAV and portfolio update

The NAV per share for SEQI, the specialist investor in economic infrastructure
debt, increased to 94.30 pence per share from the prior month's NAV per share
of 92.46 pence, representing an increase of 1.84 pence per share.

A full attribution of the changes in the NAV per share is as follows:

                                        pence per share
 30 April NAV                             92.46
 Interest income, net of expenses                 0.82
 Asset valuations, net of FX movements            0.98
 Subscriptions / share buybacks            0.04
 31 May NAV                                94.30

 

The valuation of most fixed rate instruments (which represents 58.6% of the
portfolio) has increased during May 2024 due to the marginal reduction in risk
free rates and a sustained reduction in benchmark spreads for certain
instruments, predominantly in the utility and power/energy sectors. This has
also resulted in a reduction in the pull to par from 4.2 pence per share in
April 2024 to 3.8 pence per share in May 2024. The Investment Adviser also
expects abating inflation to provide a foundation for steadier credit markets,
highlighting that the long-term outlook on inflation and base rates points
towards a beneficial tailwind to the Company's NAV, as falling rates would
typically increase asset valuations.

 

As the Company is approximately 100% currency-hedged, it does not expect to
realise any material FX gains or losses over the life of its investments.
However, the Company's NAV may include unrealised short-term FX gains or
losses, driven by differences in the valuation methodologies of its FX hedges
and the underlying investments - such movements will typically reverse over
time.

 

Market Summary

During May 2024, central banks across the UK, US and Eurozone maintained
policy rates at 5.25%, 5.50% and 4.00%, respectively. On 06 June 2024, the
Eurozone announced the first rate cut of 0.25% to 3.75%, as CPI inflation has
declined in the region to 2.4% as at April 2024. On 12 June 2024, the Federal
Reserve held rates steady in the US and signalled that just one rate cut is to
be expected by the end of the year. In the UK, the next policy rates
announcement will be held on 20 June 2024 and the markets have priced in at
least one rate cut by the end of the year.

 

Five-year sovereign debt yields were down marginally in the UK and US by 0.5%
and 0.2% respectively, and up marginally by 0.1% to 2.7% in the Eurozone
during May 2024. In the UK, the most recent data on annual CPI inflation shows
that it has fallen to its lowest level in almost three years, as prices rose
by 2.3% in April 2024, down from 3.2% in March 2024. Inflation is also
trending in the right direction in the US, down from 3.8% in March 2024 to
3.6% in April 2024. CPI inflation is expected to return closer to the 2%
target by the end of the year across all three regions, mainly due to the
unwinding of energy-related base effects.

 

Share buybacks

The Company bought back 4,250,968 of its ordinary shares at an average
purchase price of 79.48 pence per share in May 2024. The Company first started
buying shares back in July 2022 and has bought back 159,797,411 ordinary
shares as of 31 May 2024, with the buyback continuing into June 2024. This
share repurchase activity by the Company continues to contribute positively to
NAV accretion. The rate at which SEQI buys back shares will vary depending on
various factors, including the level of our share price discount to NAV.

Portfolio update

 

The Company has drawn £15.0 million on its revolving credit facility (RCF) of
£325.0 million during May 2024 and currently has cash of £41.2 million
(inclusive of RCF drawings), and undrawn investment commitments of £46.2
million. The RCF was utilised during May 2024 to manage cashflows through the
timing of new investments against the repayment of existing investments.

 

As at 31 May 2024, 57.1% of the portfolio comprised of senior secured loans
and 51.6% remained in defensive sectors (Renewables, Digitalisation, Utility
and Accommodation). The Company's invested portfolio consisted of 54 private
debt investments and 2 infrastructure bonds, diversified across 8 sectors
and 30 sub-sectors. It had an annualised yield-to-maturity
(or yield-to-worst in the case of callable bonds) of 10.37% and a cash yield
of 8.20% (excluding deposit accounts). The weighted average portfolio life
remains short and is approximately 3.7 years. This short duration means that
as loans mature, the Company can take advantage of higher yields in the
current interest rate environment.

 

Private debt investments represented 94.2% of the total portfolio, allowing
the Company to capture illiquidity yield premiums. The Company's invested
portfolio currently consists of 41.4% 1  (#_ftn1) floating rate investments
and remains geographically diversified with 51.9% located across the USA,
26.8% in the UK, 21.2% in Europe, and 0.1% in Australia/New Zealand.

 

The portfolio remains highly diversified by sector and size, with the average
loan representing about 1.6% of the total portfolio and the largest loan is
4.2% of NAV as at 31 May 2024.

 

At month end, approximately 100% of the Company's NAV consisted of either
Sterling assets or was hedged into Sterling. The Company has adequate
liquidity to cover margin calls, if any, on its hedging book. During May 2024,
the Company also entered into an additional interest rate swap for £30
million with a maturity of 2.5 years to lock in a portion of the current high
interest rates being paid by borrowers and to allow tactical management of the
portfolio's fixed rate exposure.

 

Settled investments in May 2024

 

SEQI continues to carefully scrutinise new investment opportunities in a
disciplined manner alongside other uses of proceeds such as share buybacks and
ensuring it has significant liquidity on its RCF. Aside from these uses of
capital, the following investments settled in May 2024 (excluding small loan
drawings of less than £0.5 million):

 

• The Investment Adviser proactively restructured the balance sheet of the
Active Care Group, a UK healthcare business. As part of this restructuring,
SEQI has provided additional funding of £34.8 million as a senior secured
loan named ACG BidCo Limited and restructured and replaced the existing loan
Montreux HoldCo Facility with an equivalent loan on extended terms to a newly
established entity, Gadwall Holdings Limited. Following the restructuring,
SEQI is the majority equity owner of the new holding company. SEQI's total
exposure now, through the two loans, is valued at £74.8 million, or 5.2% of
NAV as at 31 May 2024. These are not classified as non-performing loans;

• A purchase of Brightline East LLC HoldCo bonds for $50 million, a
privately owned passenger rail project in Florida. The borrower refinanced the
entire capital structure, which included Brightline Trains Florida LLC bonds
(which SEQI previously held) with new OpCo debt of $2.2 billion and HoldCo
debt of $1.3 billion; and

• An additional senior loan for $5.0 million to Westinghouse, a leading
provider of infrastructure services to operating nuclear power generating
facilities across the US.

 

 

Investments (exceeding £0.5 million) sold or repaid in May 2024

 

• A full repayment of Brightline Trains Florida LLC bonds for $20 million at
a redemption price of 104 cents due to the refinancing of the bond, as stated
above.

 

Non-performing loans

 

The Investment Adviser continues to actively manage its non-performing loans
with the loans being independently marked to market by PwC as part of the
monthly review process. Further updates will be provided to shareholders in
the future when material developments occur.

 

Notice of Annual Results

 

SEQI will publish its final results for the year ended 31 March 2024 on
Wednesday, 26 June 2024. The Investment Adviser will host a conference call
for investors and analysts on the results at 08:00am BST on Wednesday,  26
June 2024. There will be the opportunity for participants to ask questions at
the end of the call. Those wishing to attend should register via the following
link:

 

https://stream.brrmedia.co.uk/broadcast/665ef724025b0d99d3b969ef
(https://stream.brrmedia.co.uk/broadcast/665ef724025b0d99d3b969ef)

 

 

Portfolio Summary (15 largest settled investments)

 Investment name     Currency  Type     Ranking    Value £m((2))    Sector            Sub-sector                    Cash-on-cash yield (%)  Yield to maturity/worst (%)
 Infinis Energy      GBP       Private  Senior   60.5               Renewables        Landfill gas                  5.37                    6.14
 AP Wireless Junior  EUR       Private  Mezz     60.0               Digitalisation    Telecom towers                4.50                    7.72
 Project Sienna      GBP       Private  Senior   56.6               Other             Waste-to-Energy               9.95                    10.68
 Workdry             GBP       Private  Senior   56.0               Utility           Utility Services              8.94                    8.94
 Hawkeye Solar       USD       Private  HoldCo   51.9               Renewables        Solar & wind                  8.89                    9.88
 Project Tyre        USD       Private  Senior   51.6               Transport assets  Specialist shipping           11.11                   10.75
 Expedient Data      USD       Private  Senior   51.1               Digitalisation    Data centers                  10.95                   10.95
 Roseton             USD       Private  Senior   50.4               Power             Other Electricity Generation  10.32                   10.32
 Kenai HoldCo        EUR       Private  HoldCo   50.0               Power             Base load                     0.00                    11.27
 Sacramento          USD       Private  Senior   43.9               Digitalisation    Data centers                  7.40                    8.64
 Project Nimble      EUR       Private  HoldCo   43.4               Digitalisation    Data centers                  8.57                    11.41
 Euroports 2030      EUR       Private  Mezz     42.6               Transport         Port                          11.68                   11.68
 Scandlines          EUR       Private  HoldCo   41.3               Transport         Ferries                       6.71                    7.23
 Tracy Hills 2025    USD       Private  Senior   40.4               Other             Residential infra             11.86                   11.86
 Gadwall Holdings    GBP       Private  HoldCo   40.0               Accommodation     Health care                   0.00                    37.74

Note (2) - excluding accrued interest

Note (3) - Montreux HoldCo Facility was restructured and replaced with an
equivalent loan on extended terms to a newly established entity, Gadwall
Holdings. As part of the restructuring, an additional loan for £34.8 million
was also made to ACG BidCo Limited as a senior secured loan.

 

Disclaimer: the dividend increase is a target and not a profit forecast

 

The Company's monthly investor report and additional portfolio disclosure will
be made available at: https://www.seqi.fund (https://www.seqi.fund/)

LEI: 2138006OW12FQHJ6PX91

This announcement is not for publication or distribution, directly or
indirectly, in or into the United States of America. This announcement is not
an offer of securities for sale into the United States.  The securities
referred to herein have not been and will not be registered under the U.S.
Securities Act of 1933, as amended, and may not be offered or sold in the
United States, except pursuant to an applicable exemption from registration.
No public offering of securities is being made in the United States.

For further information please contact:

 

 Sequoia Investment Management Company         +44 (0)20 7079 0480
 Steve Cook
 Dolf Kohnhorst
 Randall Sandstrom
 Anurag Gupta
 Matt Dimond

 Jefferies International Limited               +44 (0)20 7029 8000
 Gaudi Le Roux
 Stuart Klein

 Harry Randall

 Teneo (Financial PR)                          +44 (0)20 7260 2700
 Martin Pengelley
 Elizabeth Snow

 Faye Calow

 Sanne Fund Services (Guernsey) Limited        +44 (0) 20 3530 3107
 (Company Secretary)
 Matt Falla
 Devon Jenkins

 

About Sequoia Economic Infrastructure Income Fund Limited

The Company seeks to provide investors with regular, sustained, long-term
distributions and capital appreciation from a diversified portfolio of senior
and subordinated economic infrastructure debt investments. The Company is
advised by Sequoia Investment Management Company Limited.

 

(#_ftnref1) Note (1) - inclusive of interest rate swap.

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