Tetragon Financial Group Limited (TFG) : Performance Report for Period Ended 31 March 2012
LONDON, April 26, 2012 /PRNewswire/ --
Tetragon Financial Group Limited (TFG) is a Guernsey closed-ended investment company traded on NYSE Euronext in Amsterdam under the ticker symbol "TFG."(1) In this report we provide an update on TFG's results of operations for the period ending March 31, 2012.
- Executive Summary:
TFG posted another strong quarter of results, although as expected the pace of growth has slowed compared to the dramatic recovery period of early 2011.
- Earnings per Share: TFG generated EPS of $0.46 during Q1 2012 (Q4 2011: $0.69).
- Distributions: TFG declared a Q1 2012 dividend of $0.105 per share, unchanged from Q4 2011. The company also used over $9.1 million to buy back shares below NAV during the quarter.
- Net Asset Value ("NAV"): Rose to $1,510.1 million or $13.12 per share at Q1 2012, the highest level to date, and an increase of 3.2%, on a per share basis, from Q4 2011.
Figure 1 below shows an historical summary of TFG's Net Assets, NAV per share and share price.
TFG Consolidated Net Assets ($MM) and NAV per Share (1)
Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009
Consolidated Net Assets ($ MM) $1,289.0 $1,319.0 $1,348.0 $1,142.0 $723.4
NAV / Share $10.25 $10.44 $10.69 $9.06 $5.75
Price/ Share $5.20 $4.75 $5.00 $2.87 $1.01
Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010
Consolidated Net Assets ($ MM) $693.1 $720.8 $807.0 $867.0 $909.40 $1,018.6
NAV / Share $5.50 $5.71 6.47 $7.02 $7.44 $8.43
Price/ Share $1.18 $1.90 $3.91 $4.50 $4.14 $4.39
Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012
Consolidated Net Assets ($ MM) $1,137.5 $1,298.0 $1,368.3 $1,413.6 $1,474.4 $1,510.1
NAV / Share $9.47 $10.85 $11.52 $12.06 $12.71 $13.12
Price/ Share $5.70 $7.60 $8.30 $6.40 $6.25 $7.10
- Source: NAV per share based on TFG's financial statements as of the relevant quarter-end date; TFG's closing share price data as per Bloomberg as of the last trading day of each quarter. Please note that the NAV per share reported as of each quarter-end date excludes any shares held in treasury as of that date.
- Net Income: Consolidated net income of $53.4 million for Q1 2012 (Q4 2011: consolidated net income of $80.3 million).
This Performance Report constitutes TFG's interim management statement as required pursuant to Section 5:25e of the Netherlands Financial Markets Supervision Act (Wet op het financieel toezicht, "FMSA"). Pursuant to Section 5:25e and 5:25m of the FMSA, this report is made public by means of a press release and has been filed with the Netherlands Authority for the Financial Markets (Autoriteit Financiele Marketen) and also made available to the public by way of publication on the TFG website (http://www.tetragoninv.com).
- Executive Summary (continued):
- Asset Breakdown: The figures below illustrate the split of net assets by asset class at the end of Q1 2012 ($1,510,100,263) and Q4 2011 ($1,474,355,249), respectively.
Q1 2012 TFG's Net Asset Breakdown
Q1 2012 $1,510,100,263
U.S. CLOs $1,044,065,006 $1,510,100,263 100%
Euro CLOs $116,213,800
CLO Mezz $1,308,650
Direct Loans $120,342,760
Asset Managers $10,066,576
Real Estate Funds $7,477,705
Cash Less Net Liabilities $210,625,766
Q4 2011 TFG's Net Asset Breakdown
Q4 2011
U.S. CLOs $1,024,016,687 $1,474,355,249 98%
Euro CLOs $123,363,841
Direct Loans $107,122,589
Asset Managers $7,643,641
Real Estate Funds $2,407,367
Cash Less Net Liabilities $209,801,124
Investment Portfolio Performance Highlights
TFG's U.S. CLO and direct loan portfolios continued to perform strongly in Q1 2012, although the comparatively small European CLO portfolio continued to underperform.
- Cash Flows: TFG generated $102.6 million of cash flows from its CLO equity investment portfolio in Q1 2012 (Q4 2011: $113.2 million).
- Collateral Performance: TFG's average CLO portfolio statistics performed well during Q1 2012 with low default and CCC-asset holding levels. This was driven by continued improvements in the credit quality of TFG's U.S. CLOs, which offset the credit deterioration experienced by TFG's European CLOs.
- CLO Returns: Weighted-average IRRs on CLO equity investments remained broadly unchanged at 17.5% (Q4 2011: 17.6%) with U.S. average IRRs increasing to 19.7% while the average IRR of TFG's European CLOs declined to below 8.0%.
- Executive Summary (continued):
Investment Portfolio Performance Highlights (continued):
Figure 3 below shows an historical summary of the weighted-average IRR on TFG's CLO equity investments.
Weighted-Average IRR on TFG's CLO Investments (1)
Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009
ALL TFG Weighted-Average IRR on TFG's CLO
Investments 16.0% 16.6% 16.9% 13.8% 10.6%
U.S. U.S. IRR 16.5% 17.2% 17.5% 14.4% 11.3%
EUR EUR IRR 14.5% 14.6% 14.7% 11.4% 7.8%
Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010
ALL TFG Weighted-Average IRR on TFG's CLO
Investments 9.2% 10.3% 11.9% 12.3% 13.1% 13.7%
U.S. U.S. IRR 10.4% 12.4% 14.1% 14.3% 14.9% 15.8%
EUR EUR IRR 4.8% 2.0% 2.5% 3.5% 4.2% 4.6%
Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012
ALL TFG Weighted-Average IRR on TFG's CLO
Investments 15.1% 15.8% 16.3% 16.8% 17.6% 17.5%
U.S. U.S. IRR 17.0% 17.8% 18.4% 18.8% 19.6% 19.7%
EUR EUR IRR 6.7% 8.0% 8.1% 8.4% 8.6% 7.9%
- Source: TFG as of the outlined quarter-end date.
- New CLO Equity Investments: During Q1 2012 we continued to be active in the primary CLO market, investing $42.3 million into two new CLO equity positions, including a $19.4 million majority position in the equity tranche of a new issue CLO managed by LCM, LCM X. During the course of Q1 2012, we also sold a small U.S. CLO equity position, totaling approximately $0.2 million, at a price which generated a 50.2% realized IRR (including interim cash flows).
- New CLO Mezzanine Debt Investments: As mentioned in previous reports, early in Q1 2012 we invested approximately $1.1 million in a mezzanine debt tranche of a U.S. CLO already represented within TFG's CLO equity portfolio. The investment continues to perform as expected and is current on all interest payments.(2)
- Direct Loans: TFG held direct loans with a fair value of $120.3 million at the end of Q1 2012, up from $107.1 million as of the end of Q4 2011. The direct loan portfolio performed well during this period, experiencing no defaults and benefiting from market value gains.
- Real Estate Investments: During Q1 2012 TFG invested a further $5.1 million into GreenOak-managed real estate.
We continue to seek to diversify the investment portfolio across asset classes and types, industries, geographies and investment duration.
- Executive Summary (continued):
Asset Management Segment: Q1 2012 saw continued growth in both asset management businesses.
We believe that TFG owning or having stakes in asset management businesses may provide repeatable income streams and reduced fees paid to third-party managers.
LCM: LCM continued to perform well during Q1 2012, with all of LCM Cash Flow CLOs(3) that were still within their reinvestment periods(4) continuing to pay senior and subordinated management fees. With the addition of LCM X, LCM's total loan assets under management rose to over $3.7 billion (Q4 2011: $3.4 billion).
LCM Asset Management LLC - CLO AUM - $MM
Deal Name Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012
Pre-Acquisition
CLOs 2,353.7 2,340.5 2,314.0 2,268.2 2,238.1 2,161.2 2,075.8 2,035.9 1,984.6
Post-Acquisition
CLOs 0.0 0.0 0.0 671.1 671.3 1,322.5 1,323.0 1,323.2 1,725.0
Total 2,354 2,341 2,314 2,939 2,909 3,484 3,399 3,359 3,710
GreenOak: In Q1 2012 GreenOak achieved dramatic growth of its assets under management, with closings for its U.S. and Japanese funds and the winning of an investment mandate over a significant portfolio of European real estate related securities.
GreenOak - AUM calculations
AUM
Q4 2010 Q4 2011 Q1 2012
Europe 505 491 1,602
U.S. - 96 114
Japan - 17 16
Total GreenOak AUM 505 605 1,732
- Corporate-Level Performance Details:
- Capital Distributions: TFG's Board approved a dividend of $0.105 per share with respect to Q1 2012, unchanged from the prior quarter. As of March 31, 2012, inclusive of the dividend declared with respect to Q1 2012, the rolling 12-month dividend growth rate (year-on-year) was 20.6%. (5)
Since its public listing, TFG has distributed or declared a cumulative amount of approximately $1.89 per share via quarterly dividends. In addition, TFG's NAV per share, as reported each quarter, among other things, reflects value created for shareholders via the repurchase of shares below NAV. During Q1 2012, TFG repurchased a total of 1,357,627 shares at an aggregate cost of approximately $9.1 million, at an average price of $6.73 per share. Since the inception of the buy-back program in 2008, TFG has repurchased a total of 17,458,169 shares, at an aggregate cost of approximately $91.1 million, at an average price of $5.22 per share. Please refer to Figure 6 and Figure 7 for a summary of TFG's historical NAV per share, dividend distributions, and share buy-back program.
Quarterly TFG NAV per Share and Cumulative Dividends per Share (DPS) ($) (1)
Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009
NAV / Share $10.08 $10.29 $10.03 $10.25 $10.44 $10.69 $9.06 $5.75
Cumulative DPS $ 0.15 $ 0.30 $ 0.45 $ 0.60 $ 0.75 $ 0.90 $ 0.93 $ 0.96
NAV / Share Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010
Cumulative DPS $5.50 $5.71 6.47 $7.02 $7.44 $8.43
$ 0.99 $ 1.02 $ 1.08 $ 1.14 $ 1.22 $ 1.30
NAV / Share Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012
Cumulative DPS $9.47 $10.85 $11.52 $12.06 $12.71 $13.12
$ 1.39 $ 1.48 $ 1.58 $ 1.68 $ 1.79 $ 1.89
- Source: NAV per share and Cumulative DPS as per TFG's financial disclosures for each relevant quarter-end date. The cumulative DPS reflect dividends announced with respect to each relevant quarter. Please note that dividends announced with respect to each quarter are typically not distributed to shareholders until the beginning of the following quarter. Please note further that the NAV per share reported as of each quarter-end date excludes any shares held in treasury as of that date.
- Corporate-Level Performance Details (continued):
- Capital Distributions (continued):
Quarterly TFG Share Repurchases (in '000s) (1)
Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009
Quarterly # of Shares Repurchased
(in '000s) 586 233 732 1,000 484
Average Purchase Price of Shares
Repurchased $ 6.44 $ 4.79 $ 5.62 $ 3.37 $ 1.60
Quarterly # of Shares Repurchased
(in '000s) Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010
Average Purchase Price of Shares
Repurchased 94 85 1,758 1,378 1,582 1,815
$ 1.10 $ 1.25 $ 3.22 $ 3.87 $ 4.67 $ 4.27
Quarterly # of Shares Repurchased
(in '000s) Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012
Average Purchase Price of Shares
Repurchased 967 662 1,287 1,695 1,432 1,358
$ 5.23 $ 7.25 $ 7.84 $ 6.73 $ 6.23 $ 6.73
- The Average Purchase Price of Shares Repurchased is a weighted-average using the number of shares repurchased each quarter and including commissions.
Performance Fee
A performance fee of $13.9 million was accrued in Q1 2012 in accordance with TFG's investment management agreement and based on a "Reference NAV" of Q4 2011. The hurdle rate for Q2 2012 incentive fee has been reset at 3.1160% (Q1 2012: 3.2304%) as per the process outlined in TFG's 2011 Audited Financial Statements and in accordance with TFG's investment management agreement.(6)
- Investment Portfolio Performance Details:
- CLO Portfolio Size: At the end of Q1 2012 the estimated total fair value of TFG's CLO equity investment portfolio was approximately $1,160.3 million ($1,044.1 million of U.S. and $116.2 million of European investments), up from $1,147.4 million as of the end of the prior quarter ($1,024.0 million of U.S. and $123.4 million of European investments). TFG's total indirect exposure to leveraged loans through its CLO equity investments was approximately $18.8 billion as ofthe end of Q1 2012.(7)
- CLO Portfolio Composition: 78 transactions as of the end of Q1 2012, up from 77 as of the end of the prior quarter, reflecting the closing of two new issue CLO equity investments and the sale of one position. The number of deals in the portfolio increased to 69 from 68 as of the end of the prior quarter. The number of external CLO managers remained unchanged from Q4 2011, at 27.(8)
- CLO Collateral Performance: At the end of Q1 2012, approximately 97% of TFG's CLO investments were passing their junior-most O/C tests, weighted by fair value.(9) Similarly, 64 or approximately 93% were passing when weighted by the number of deals. Both of the foregoing statistics were unchanged from the end of the prior quarter.
100% of TFG's U.S. CLOs were passing their junior-most O/C tests (note that U.S. CLOs represented approximately 90.0% of the total fair value of TFG's CLO equity investment portfolio as of March 31, 2012).(10)(11) In comparison, the market-wide average of U.S. CLOs estimated to be passing their junior O/C tests as of the end of Q1 2012 was approximately 96.0% (when measured on a percentage of deals basis).(12) Please refer to Figure 8 below for a summary of TFG's investments' historical junior O/C test performance.
TFG's Gross Investment and Operating Cash Flows ($MM) vs. % of CLOs Passing
Junior-Most O/C Tests (1)(2)
ALL DEALS
Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009
Gross Cash Receipts from Investments ($MM) $ 74.0 $ 118.0 $ 77.7 $ 75.6 $ 47.1
% CLOs Passing Junior-Most O/C Test (# Deals) 100% 100% 100% 95% 60%
Cash Flows from Operations ($MM) $ 63.5 $ 90.1 $ 102.0 $ 67.5 $ 42.2
Gross Cash Receipts from
Investments ($MM) Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010
% CLOs Passing Junior-Most O/C Test
(# Deals) $ 31.9 $ 35.3 $ 38.4 $ 51.1 $ 60.9 $ 71.8
Cash Flows from Operations ($MM) 58% 60% 68% 80% 84% 88%
$ 36.6 $ 27.7 $ 32.5 $ 20.5 $ 43.2 $ 55.3
Gross Cash Receipts from
Investments ($MM) Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012
% CLOs Passing Junior-Most O/C Test
(# Deals) $ 78.9 $ 90.9 $ 102.4 $ 105.1 $ 113.2 $ 102.7
Cash Flows from Operations ($MM) 94% 95% 96% 96% 94% 93%
$ 34.8 $ 52.2 $ 30.2 $ 78.7 $ 92.8 $ 80.7
- The percentage of TFG's CLOs passing their junior-most O/C tests has been calculated as the ratio of the number of deals passing their junior O/C tests to the total number of CLO deals held by TFG as of the applicable quarter-end date.
- Gross Cash Receipts from Investments refer to the actual cash receipts collected during each quarter from TFG's CLO investments. Cash Flows from Operations refer to cash inflows from investments less expenses and net cash settlements on FX and credit hedges.
- Investment Portfolio Performance Details (continued):
- CLO Portfolio Credit Quality: The weighted-average WARF across all of TFG's CLO equity investments stood at approximately 2,588 as of the end of Q1 2012. Each of these foregoing statistics represents a weighted-average summary of all of our 69 deals.(13) Each individual deal's metrics will differ from these averages and vary across the portfolio.
Q1
ALL CLOs 2012 Q4 2011 Q3 2011 Q2 2011 Q1 2011 Q4 2010
Caa1/CCC+ or Below Obligors: 6.2% 7.0% 7.0% 7.2% 7.6% 8.3%
WARF: 2,588 2,624 2,614 2,642 2,664 2,671
Q2
ALL CLOs Q3 2010 2010 Q1 2010 Q4 2009 Q3 2009 Q2 2009 Q1 2009
Caa1/CCC+ or
Below Obligors: 9.6% 10.5% 11.1% 12.0% 12.6% 11.6% 11.4%
WARF: 2,658 2,706 2,762 2,809 2,813 2,800 2,758
Q1
US CLOs 2012 Q4 2011 Q3 2011 Q2 2011 Q1 2011 Q4 2010
Caa1/CCC+ or Below Obligors: 4.8% 5.5% 5.5% 5.8% 6.5% 6.9%
WARF: 2,504 2,533 2,522 2,542 2,591 2,622
Q2
US CLOs Q3 2010 2010 Q1 2010 Q4 2009 Q3 2009 Q2 2009 Q1 2009
Caa1/CCC+ or
Below Obligors: 7.9% 8.4% 9.4% 12.0% 12.8% 11.9% 12.1%
WARF: 2,610 2,648 2,719 2,799 2,824 2,831 2,810
Q1
EUR CLOs 2012 Q4 2011 Q3 2011 Q2 2011 Q1 2011 Q4 2010
Caa1/CCC+ or Below Obligors: 11.1% 12.3% 12.0% 12.3% 11.4% 13.1%
WARF: 2,900 2,948 2,941 2,997 2,914 2,837
Q2
EUR CLOs Q3 2010 2010 Q1 2010 Q4 2009 Q3 2009 Q2 2009 Q1 2009
Caa1/CCC+ or
Below Obligors: 15.3% 17.4% 16.8% 15.6% 12.0% 10.8% 8.8%
WARF: 2,817 2,898 2,907 2,845 2,779 2,696 2,587
- TFG and Market Default Rates: TFG's lagging 12-month corporate loan default rate rose to 0.8% during Q1 2012.(14) By geography, TFG's U.S. CLO equity and direct loan investments registered a lagging 12-month default rate of 0.5%, with European CLO equity investments at 2.3%. By comparison, the lagging 12-month U.S. institutional loan default rate rose to 0.21% by principal amount as of March 31, 2012, according to S&P/LCD, up from approximately 0.17% during the prior quarter.(15) The lagging 12-month default rate for the S&P European Leveraged Loan Index (ELLI) stood 5.3% as of the end of March 31, 2012.(16) Please refer to Figure 9 on the following page for a historical summary of TFG's CLO equity and direct loan investments' default performance.
- Investment Portfolio Performance Details (continued):
TFG and U.S. Market-Wide Trailing 12-Month Default Rates (i)(ii)
Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009
TFG Trailing 12-Month Loan Rate 0.8% 1.3% 1.5% 2.5% 4.0%
S&P/LCD Trailing 12-Month Default Rate 1.1% 1.7% 1.9% 3.8% 7.8%
TFG Trailing 12-Month Loan Rate Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010
S&P/LCD Trailing 12-Month Default Rate 5.1% 6.7% 6.5% 4.9% 3.6% 2.2%
9.2% 9.8% 9.6% 5.8% 4.0% 3.6%
TFG Trailing 12-Month Loan Rate Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012
S&P/LCD Trailing 12-Month Default Rate 1.7% 1.1% 0.8% 0.6% 0.4% 0.8%
1.9% 1.1% 0.9% 0.3% 0.2% 0.2%
(i) Source: TFG as of the outlined quarter-end date. The calculation of TFG's lagging 12-month corporate loan default rate does not include certain underlying investment collateral that was assigned a "Selective Default" rating by one or more of the applicable rating agencies. Such Selected Defaults are included the S&P/LCD lagging 12-month U.S. institutional loan default rate discussed above. Furthermore, TFG's CLO equity and direct loan investment portfolio includes approximately 9.1% CLOs with primary exposure to European senior secured loans and such loans are included in the calculation of TFG's corporate default rate.
(ii) Source: S&P/LCD Quarterly Review as of the outlined quarter-end date.
- Direct Loan Investments: As of March 31, 2012, TFG owned liquid U.S. bank loans with an aggregate par amount of approximately $122.2 million and total fair value of $120.3 million. The underlying businesses performed well during the quarter, with the loan portfolio trading up to approximately 99% of par from an average price of 96% of par, and with no defaults registered in the portfolio. For the quarter, there were net realized gains of approximately $0.1 million. In addition, the portfolio earned $1.4 million of interest income and discount premium during the first quarter.
- Real Estate Investments: TFG has funded a small portion of its investment capital commitments to GreenOak's investment projects, totaling approximately $7.5 million from inception through the end of Q1 2012 to finance investments in Japan, the U.S., and Europe.
- Asset Management Platform Details:
- LCM Developments: LCM's operating results and financial performance remained strong throughout Q1 2012, with all LCM Cash Flow CLOs that were within their reinvestment periods(17) current on their senior and subordinated management fees as of March 31, 2012. Taking into account all LCM-managed vehicles, the gross income for Q1 2012 for LCM totaled $4.4 million. Pre-tax profit for the entire LCM business, of which TFG owns 75%, was approximately $2.0 million as of the same period (2011 quarterly average of $2.1 million). TFG continues to leverage and benefit from the LCM team's expertise in the ongoing management of the company's direct loan investment portfolio.
LCM Asset Management Performance Snapshot
Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
2012 2011 2011 2011 2011 2010 2010 2010 2010
Gross Fee Income ($MM) $4.4 $4.3 $4.4 $3.9 $3.8 $3.4 $3.0 $2.9 $3.3
Pre-tax Income ($MM) $2.0 $2.2 $2.2 $1.9 $1.9 $1.1 $1.4 $1.4 $1.9
- GORE Real Estate Developments: GreenOak continued to execute on its business growth strategy, including the addition of significant new investment management and advisory engagements. The company had a second closing of its U.S. fund and the first closing of a Japanese fund in Q1 2012. GreenOak also added significant assets under management by winning a mandate to manage a large portfolio of European real estate related securities. Additionally, GreenOak brought on certain investment professionals which previously managed those assets.
GreenOak's investment team is actively building a pipeline of interesting opportunities in the United States, Japan and Europe, which we expect to continue to materialize over the next several quarters.
We continue to seek to grow and expand our asset management businesses and capabilities as we further our efforts to transition the company to a broadly diversified financial services firm that benefits from diverse income streams. We continue to review potential market opportunities in this regard.
- Loan and CLO Market Developments:
- U.S. leveraged loan defaults pick-up but remain below the historical average: The U.S. lagged 12-month loan default rate rose to 0.21% by principal amount as of March 31, 2012, up slightly from 0.17% as of Q4 2011.(18) The early April 2012 default of Hawker Beechcraft caused this rate to rise to 0.51% by principal amount, a level which nonetheless remains well-below the historical average.(19)
- U.S. prepayment rate accelerates, European repayments slow: During Q1 2012, the U.S. S&P/LSTA Leveraged Loan Index quarterly repayment rate rose to 7.6% from 4.1% during Q4 2011, fueled by re-financing activity.(20) The S&P European Leveraged Loan Index quarterly repayment rate, on the other hand, declined to €2.9 billion during Q1 2012, down from €7.8 billion in Q4 2011.(21)
- "Maturity wall" reduction continues: During Q1 2012, U.S. S&P/LSTA Index issuers repaid or extended approximately $39.0 billion of loan maturities due by the end of 2015, up from $14.4 billion in Q4 2011.(22) This reduction was dominated by amend-to-extends and high yield bond take-outs.(23)
- Loan prices rise amid strong market conditions: U.S. secondary loan prices rose during Q1 2012 resulting in a 3.76% U.S. S&P/LSTA Leveraged Loan Index return.(24) The S&P European Leveraged Loan Index ("ELLI") index also gained, returning 4.36% (excluding currency effects), as investor sentiment improved and as low new issuance volumes and repayments led to a pick-up in demand.(25)
- U.S. loan issuance up on the quarter, European volumes subdued: Institutional U.S. loan issuance more than doubled to approximately $68.0 billion during Q1 2012, up from $25.5 billion in Q4 2011.(26) European primary institutional loan issuance also rose modestly quarter-over-quarter, with €3.1 billion of leveraged loans issued in Q1 2012, compared with €2.6 billion in Q4 2012.(27)
- U.S. CLO O/C ratios improve while European weakness continues: During Q1 2012, O/C ratios of U.S. CLOs strengthened on average. According to Morgan Stanley, the median junior O/C test cushion for U.S. CLOs increased to 4.09% as of March 31, 2012(28) up from 3.88% as of the end of the prior quarter.(29) The median junior O/C test cushion for European CLOs, however, decreased to 0.95% as of the end of Q1 2012,(30) down from 1.76% as of the end of Q4 2011.(31)
- CLO debt prices post quarter-on-quarter gains: Average secondary U.S. CLO debt prices rose across the capital structure at the end of Q1 2012 versus the prior quarter, with particularly significant price gains registered by mezzanine tranches, originally rated A to BB.(32)
- Primary arbitrage CLO issuance momentum builds: U.S. arbitrage CLO issuance rose during Q1 2012 as 16 transactions totaling approximately $6.4 billion were priced, up from 10 deals totaling $4.3 billion issued during Q4 2011.(33) Furthermore, as noted by multiple research desks, the relative steepness of the current new issue U.S. CLO credit curve versus comparable asset classes leaves potential for both further spread tightening and credit curve flattening in new issue CLO spreads, which may be expected to support CLO issuance volumes by enhancing arbitrage levels.
- U.S. CLO equity distributions remain robust: U.S. CLO equity tranches saw continued strong distributions, supported by a low default environment, LIBOR floors, and the ability of managers to build excess spread and par via below-par reinvestments, among other factors.
- Fair Value Determination for TFG's CLO Equity Investments:
- In accordance with the TFG's valuation policies as set forth on the company's website, the values of TFG's CLO equity investments are determined using a third-party cash flow modeling tool. The model contains certain assumption inputs that are reviewed and adjusted as appropriate to factor in how historic, current and potential market developments (examined through, for example, forward-looking observable data) might potentially impact the performance of TFG's CLO equity investments. Since this involves modeling, among other things, forward projections over multiple years, this is not an exercise in recalibrating future assumptions to the latest quarter's historical data.
- Subject to the foregoing, when determining the U.S. GAAP-compliant fair value of TFG's portfolio, the company seeks to derive a value at which market participants could transact in an orderly market and also seeks to benchmark the model inputs and resulting outputs to observable market data when available and appropriate. Please refer to the Annual Report for a more detailed description of the cash flow projection and discounting process.
- Forward-looking CLO Equity Cash Flow Modeling Assumptions Unchanged vs. Q4 2011:
- The Investment Manager reviews, and adjusts in consultation with TFG's audit committee, as appropriate, the CLO equity investment portfolio's modeling assumptions as described above. At the end of Q1 2012, these key assumptions were unchanged from the previous quarter.
- The key average assumption variables have been summarized in the table below. The modeling assumptions disclosed below are a weighted average (by U.S. dollar amount) of the individual deal assumptions, aggregated by geography (i.e., U.S. and European). Each individual deal's assumptions may differ from this geographical average and vary across the portfolio.
U.S. CLOs - Unchanged
Variable Year Current Assumptions
CADR
2012-2013 1.0x WARF-implied default rate (2.2%)
2014 1.5x WARF-implied default rate (3.3%)
2015-2016 1.5x WARF-implied default rate (3.3%)
Thereafter 1.0x WARF-implied default rate (2.2%)
Recovery Rate
Until deal maturity 72%
Prepayment Rate
Until deal maturity 20.0% p.a. on loans; 0.0% on bonds
Reinvestment Price
2012 98%
Thereafter 100%
- Forward-looking CLO Equity Cash Flow Modeling Assumptions Unchanged vs. Q4 2011 (continued):
European CLOs - Unchanged
Variable Year Current Assumptions
CADR
2012-2014 1.5x WARF-implied default rate (3.1%)
Thereafter 1.0x WARF-implied default rate (2.1%)
Recovery Rate
Until deal maturity 68%
Prepayment Rate
Until deal maturity 20.0% p.a. on loans; 0.0% on bonds
Reinvestment Price
Until deal maturity 100%
- Application of Discount Rate to Projected CLO Equity Cash Flows and ALR:
- In determining the applicable rates to use to discount projected cash flows, an analysis of observable risk premium data is undertaken. During Q1 2012 certain observable data and research, covering both CLO equity and debt tranches (including originally BB and BBB-rated debt tranches), suggested that risk premia on U.S. CLO equity declined. For example, according to Citibank research, the spread on originally BB-rated tranches declined from approximately 11.5% at the end of 2011 to 10.0% at the end of Q1 2012. We believe that TFG's discount rates for U.S. CLOs of 20.0% for strong deals, and 25.0% for the others, continued to represent an appropriate spread over mezzanine tranches.
- Per Citibank, European originally BB-rated tranche yields also moved tighter to less than 21.0% from 23.5% at 2011 year-end. Given the ongoing uncertainty surrounding Europe, TFG maintained its discount rate for all European deals at 30.0%.
- As a general rule, where the discount rate being applied to the future cash flows is greater than the IRR on a particular deal, the fair value for that deal will be lower than its amortized cost. The difference between these two figures, on an aggregate basis across the CLO equity portfolio has been characterized as the "ALR Fair Value Adjustment" or "ALR". Through the process described above, as of the end of Q1 2012, the total ALR stands at $120.7 million, consisting of $16.5 million for U.S. deals and $104.2 million for European deals, as compared to $128.7 million at the end of Q4 2011 ($20.4 million for U.S. deals and $108.3 million for European deals).
- The average carrying value of TFG's U.S. CLO equity investments, which accounted for approximately 90.0% of the CLO equity investment portfolio by fair value, was approximately $0.77 on the dollar at end of Q1 2012, down from $0.78 on the dollar at the end of Q4 2011.
- Application of Discount Rate to Projected CLO Equity Cash Flows and ALR (continued):
- The average carrying value of the European deals fell from €0.44 per Euro as of the end of Q4 2011 to €0.40 per Euro as of the end of Q1 2012. It is important to note, however, that significant dispersion of carrying values exists across transactions within each geographic grouping, particularly in the case of Europe, with a range of carrying values of €0.04 to €0.67 per Euro.
- As discussed in the Annual Report, the applicable discount rate for the new vintage deals (issued after 2010) is determined with reference to each deal's specific IRR, which, in the absence of other observable data points, is deemed to be the most appropriate indication of the current risk premium on these structures. At the end of Q1 2012, the weighted average discount rate (and IRR) on these deals was 13.2%. Such deals represented approximately 9.4% of the CLO equity portfolio by fair value. We will continue to monitor observable data on these newer vintage transactions to determine whether the IRR remains the appropriate discount rate.
- Hedging Activity:
As of March 31, 2012, TFG had no direct credit hedges in place, but employed certain foreign exchange rate and "tail risk" interest rate hedges to seek to mitigate its exposure to Euro-USD foreign exchange risk and a potential significant increase in U.S. inflation and/or nominal interest rates, respectively. We review our hedging strategy on an on-going basis as we seek to address identified risks to the extent practicable and in a cost-effective manner.
- Further Notice
Please be advised that the Investment Manager is now registered as an investment adviser under U.S. Investment Advisers Act of 1940.
- Summary and Outlook:
Q1 2012 saw TFG post another strong quarter of results with each segment of the business performing well. Although the pace of NAV growth slowed during Q1 2012 compared with the growth seen during 2011, this was not unexpected as some of the conditions which had driven prior performance in the CLO portfolio began to normalize. Strong cash flows from the CLO portfolio also continued to underpin capital distributions to shareholders through the dividend and ongoing share buyback program.
LCM and GreenOak continued to add assets during the quarter. LCM's assets under management increased to over $3.7 billion whilst GreenOak, the other component of our asset management platform, further strengthened its business and added approximately $1.1 billion in assets under management during Q1 2012.
Going forward, the improved tone of the capital markets as well as continued positive trends in the U.S. leveraged loan and CLO markets, support our constructive view on the performance outlook for our existing U.S. CLO and direct loan portfolios, despite lingering global macroeconomic downside risks. We expect that our European CLO equity portfolio, however, may continue to face headwinds resulting from the region's poor growth prospects and residual fiscal issues. As stated previously TFG will continue to seek to take steps to diversify its investment portfolio across asset classes, types and geographies.
In addition to providing TFG with attractive new investment opportunities, the positive U.S. loan market may be beneficial for our asset management platform, as LCM seeks to raise fresh third party capital via CLO issuance during the remainder of 2012. So long as the CLO market is conducive to new deals, we believe that LCM may be able to bring to market further transactions, as it seeks to replace deals that are currently amortizing and increase its fee-generating assets under management. The growth of TFG's asset management platform remains a central goal for us, as we believe that it will strengthen and diversify TFG's income streams, creating value for the company's shareholders. We believe that TFG is well-positioned to capitalize on future opportunities in this space and to gain from potential synergies across the investment and asset management businesses.
- Quarterly Investor Call
We will host a conference call for investors on May 2, 2012 at 15:00 BST/10:00 EDT to discuss Q1 2012 results and to provide a company update.
The conference call may be accessed by dialing +44(0)20-7162-0025 and +1-334-323-6201 (a passcode is not required). Participants may also register for the conference call in advance via the following link https://eventreg1.conferencing.com/webportal3/reg.html?Acc=247751&Conf=183416.
A replay of the call will be available for 30 days by dialing +44(0)20-7031-4064 and +1-954-334-0342, access code 915874 and as an MP3 recording on the TFG website.
Expected Upcoming Events Date
Q1 2012 Ex-Dividend Date April 26, 2012
Q1 2012 Dividend Record Date April 30, 2012
Quarterly Investor Call May 2, 2012
April 2012 Monthly Report May 21, 2012 (approx)
Q1 2012 Dividend Payment Date May 22, 2012
TETRAGON FINANCIAL GROUP
Financial Highlights
Q1 2012 Q4 2011 Q3 2011
Net income ($MM) $53.4 $80.3 $67.3
EPS ($) $0.46 $0.69 $0.57
CLO Cash receipts ($MM) (1) $102.7 $113.2 $105.1
CLO Cash receipts per share ($) $0.89 $0.97 $0.89
Net cash balance ($MM) $224.8 $211.5 $155.6
Net assets ($MM) $1,510.1 $1,474.4 $1,413.6
Number of shares outstanding (million) (2) 115.1 116.0 117.2
NAV per share ($) $13.12 $12.71 $12.06
NAV per share movement (% from prior quarter) 3.2% 5.4% 4.7%
DPS ($) $0.105 $0.105 $0.10
Weighted average IRR on completed transactions (%) 17.5% 17.6% 16.8%
Number of CLO investments (3) 78 77 75
ALR Fair Value Adjustment ($MM) ($120.7) ($128.7) ($118.0)
Quarterly
Net income ($MM) Q2 2011 Q1 2011 Q4 2010 Average
EPS ($) $88.1 $174.7 $132.0 $99.3
CLO Cash receipts ($MM) (1) $0.74 $1.46 $1.09 $0.83
CLO Cash receipts per share ($) $102.4 $90.9 $78.9 $98.9
Net cash balance ($MM) $0.86 $0.76 $0.66 $0.84
Net assets ($MM) $67.7 $147.0 $140.6 $157.9
Number of shares outstanding (million) (2) $1,368.3 $1,298.0 $1,137.5 $1,367.0
NAV per share ($) 118.8 119.6 120.1 117.8
NAV per share movement (% from prior quarter) $11.52 $10.85 $9.47 $11.62
DPS ($) 6.2% 14.6% 12.3% 7.7%
Weighted average IRR on completed
transactions (%) $0.10 $0.09 $0.09 $0.10
Number of CLO investments (3) 16.3% 15.8% 15.1% 16.5%
ALR Fair Value Adjustment ($MM) 75 74 70 75
($133.8) ($155.7) ($258.0) ($152.5)
(1) Gross cash receipts from CLO portfolio.
(2) Excludes shares held in treasury.
(3) Excludes CDO-squared and ABS CDO transactions written off in October 2007. TFG
continues to hold the economic rights to 3 of these written-off transactions.
TETRAGON FINANCIAL GROUP
Quarterly Statement of Operations as at 31 March 2012
Q1 Q4 Q3 Q2
2012 2011 2011 2011
Statement of Operations ($MM) ($MM) ($MM) ($MM)
Interest income 57.5 55.1 53.6 52.0
CLO management fee income 4.4 4.3 4.4 3.9
Other income 1.3 2.9 0.8 1.5
Investment income 63.2 62.3 58.8 57.4
Management and performance fees (19.5) (28.6) (24.3) (31.2)
Admin/ custody and other fees (4.8) (7.6) (9.0) (4.1)
Total operating expenses (24.3) (36.2) (33.3) (35.3)
Net investment income 38.9 26.1 25.5 22.1
Net change in unrealised appreciation in investments 16.2 58.5 50.5 65.0
Realised gain on investments 0.1 0.3 - -
Realised and unrealised gains/(losses) from hedging and fx (0.7) (3.3) (7.1) 2.4
Net realised and unrealised gains from investments and fx 15.6 55.5 43.4 67.4
Income taxes (0.6) (0.7) (1.1) (1.0)
Noncontrolling interest (0.5) (0.6) (0.5) (0.4)
Net increase in net assets from operations 53.4 80.3 67.3 88.1
TETRAGON FINANCIAL GROUP
Balance Sheet as at 31 March 2012
Mar-12
$MM
Assets
Investments in securities, at fair value 1,299.4
Intangible assets - CLO management contracts 0.1
Cash and cash equivalents 224.8
Amounts due from brokers 12.6
Derivative financial assets - interest rate swaptions 7.0
Other receivables 2.7
Total Assets 1,546.6
Liabilities
Amounts payable for purchase of investments 7.7
Other payables and accruals 18.2
Amounts payable on Treasury Shares 0.5
Amounts payable on Share Options 2.4
Income and deferred tax payable 1.8
Derivative financial assets - forward contracts 5.3
Total Liabilities 35.9
Net Assets Before Noncontrolling Interest 1,510.7
Noncontrolling interest 0.6
Total Equity Attributable to TFG 1,510.1
TETRAGON FINANCIAL GROUP
Statement of Cash Flows for the period ended 31 March 2012
Mar-12
$MM (YTD)
Operating Activities
Operating cash flows before movements in working capital after
dividends paid to Guernsey feeder 83.2
Change in payables/receivables (2.5)
Cash flows from operating activities 80.7
Investment Activities
Proceeds on sales of investments
- Proceeds on sale of CLOs 0.2
Purchase of investments
- Purchase of CLO Equity (42.3)
- Purchase of CLO Mezz (1.1)
- Purchase of bank loans (17.5)
- Investments in Real Estate (5.1)
- Investments in Asset Managers (2.4)
Maturity and prepayment of investments 14.8
Cash flows from operating and investing activities 27.3
Amounts due from broker 3.3
Net Purchase of shares (5.5)
Dividends paid to shareholders (12.1)
Cash flows from financing activities (14.3)
Net increase in cash and cash equivalents 13.0
Cash and cash equivalents at beginning of period 211.5
Effect of exchange rate fluctuations on cash and cash equivalents 0.3
Cash and cash equivalents at end of period 224.8
CLO Equity Portfolio Details
As of March 31, 2012
Original Deal End of Wtd Avg Original
Invest. Cost Closing Year of Reinv Spread Cost of Funds
Transaction Deal Type ($MM USD) (1) Date Maturity Period (bps)(2) (bps)(3)
Transaction 1 EUR CLO 37.5 2007 2024 2014 315 55
Transaction 2 EUR CLO 29.7 2006 2023 2013 350 52
Transaction 3 EUR CLO 22.2 2006 2022 2012 368 58
Transaction 4 EUR CLO 33.0 2007 2023 2013 361 48
Transaction 5 EUR CLO 36.9 2007 2022 2014 349 60
Transaction 6 EUR CLO 33.3 2006 2022 2012 345 51
Transaction 7 EUR CLO 38.5 2007 2023 2013 348 46
Transaction 8 EUR CLO 26.9 2005 2021 2011 337 53
Transaction 9 EUR CLO 41.3 2007 2023 2013 350 50
Transaction 10 EUR CLO 27.0 2006 2022 2012 334 50
EUR CLO Subtotal: 326.3 345 52
Transaction 11 US CLO 20.5 2006 2018 2012 370 45
Transaction 12 US CLO 22.8 2006 2019 2013 355 46
Transaction 13 US CLO 15.2 2006 2018 2012 356 47
Transaction 14 US CLO 26.0 2007 2021 2014 367 49
Transaction 15 US CLO 28.1 2007 2021 2014 412 52
Transaction 16 US CLO 23.5 2006 2020 2013 394 46
Transaction 17 US CLO 26.0 2007 2021 2014 349 40
Transaction 18 US CLO 16.7 2005 2017 2011 341 45
Transaction 19 US CLO 1.2 2005 2017 2011 341 45
Transaction 20 US CLO 26.6 2006 2020 2012 420 52
Transaction 21 US CLO 20.7 2006 2020 2012 398 53
Transaction 22 US CLO 37.4 2007 2021 2014 423 53
Transaction 23 US CLO 19.9 2007 2021 2013 367 66
Transaction 24 US CLO 16.9 2006 2018 2012 357 46
Transaction 25 US CLO 20.9 2006 2018 2013 373 46
Transaction 26 US CLO 27.9 2007 2019 2013 373 43
Transaction 27 US CLO 23.9 2007 2021 2014 508 51
Transaction 28 US CLO 7.6 2007 2021 2014 508 51
Transaction 29 US CLO 19.1 2005 2018 2011 441 66
Transaction 30 US CLO 12.4 2006 2018 2012 469 67
Transaction 31 US CLO 9.3 2005 2017 2012 330 52
Transaction 32 US CLO 24.0 2007 2021 2014 323 59
Transaction 33 US CLO 16.2 2006 2020 2012 346 56
Transaction 34 US CLO 22.2 2006 2020 2012 356 50
Transaction 35 US CLO 23.6 2006 2018 2012 430 52
Transaction 36 US CLO 28.4 2007 2021 2013 426 46
Transaction 37 US CLO 9.3 2005 2017 2011 321 50
Transaction 38 US CLO 23.7 2007 2021 2013 333 42
Transaction 39 US CLO 7.8 2005 2017 2011 365 70
Transaction 40 US CLO 13.0 2006 2020 2011 414 39
Transaction 41 US CLO 22.5 2006 2020 2013 360 48
Transaction 42 US CLO 22.4 2007 2021 2014 370 47
Transaction 44 US CLO 22.3 2006 2018 2012 312 54
Transaction 45 US CLO 23.0 2006 2018 2012 315 46
Transaction 46 US CLO 21.3 2007 2019 2013 336 51
Transaction 47 US CLO 28.3 2006 2021 2013 337 47
Transaction 48 US CLO 23.0 2006 2019 2013 353 46
Transaction 49 US CLO 12.6 2005 2017 2011 331 40
Transaction 50 US CLO 12.3 2006 2018 2012 340 40
Transaction 51 US CLO 18.0 2007 2020 2013 374 53
Transaction 52 US CLO 0.3 2003 2015 2008 274 93
Transaction 53 US CLO 0.6 2004 2016 2011 301 61
Transaction 54 US CLO 0.5 2005 2017 2012 336 56
Transaction 55 US CLO 0.3 2005 2017 2011 328 39
Transaction 56 US CLO 23.0 2007 2019 2014 363 42
Transaction 57 US CLO 0.6 2007 2019 2014 363 42
Transaction 58 US CLO 21.8 2007 2019 2014 373 49
Transaction 59 US CLO 0.4 2007 2019 2014 373 49
Transaction 60 US CLO 18.8 2010 2021 2014 413 198
Transaction 61 US CLO 29.1 2007 2021 2014 330 45
Transaction 62 US CLO 25.3 2007 2020 2013 370 42
Transaction 63 US CLO 27.3 2007 2021 2013 360 53
Transaction 64 US CLO 15.4 2007 2021 2013 414 38
Transaction 65 US CLO 26.9 2006 2021 2013 357 47
Transaction 66 US CLO 21.3 2006 2020 2013 339 49
Transaction 67 US CLO 27.3 2007 2022 2014 336 46
Transaction 68 US CLO 19.3 2006 2020 2013 436 48
Transaction 69 US CLO 28.2 2007 2019 2013 414 44
Transaction 70 US CLO 24.6 2006 2020 2013 309 52
Transaction 71 US CLO 1.7 2006 2018 2012 340 40
Transaction 72 US CLO 4.8 2007 2019 2014 363 42
Transaction 73 US CLO 1.9 2007 2019 2014 363 42
Transaction 74 US CLO 5.5 2007 2019 2014 373 49
Transaction 75 US CLO 32.7 2011 2022 2014 405 168
Transaction 76 US CLO 1.9 2006 2018 2012 315 46
Transaction 77 US CLO 14.5 2011 2023 2016 395 212
Transaction 78 US CLO 22.9 2012 2023 2015 467 217
Transaction 79 US CLO 19.4 2012 2022 2015 457 215
US CLO Subtotal: 1,212.6 378 62
Total CLO Portfolio: 1,538.9 371 60
Current Current Jr- Jr-Most O/C Annualized ITD Cash
Cost of Funds Most O/C Cushion at (Loss) Gain Received as
Transaction (bps)(4) Cushion(5) Close(6) of Cushion(7) IRR(8) %of Cost(9)
Transaction 1 58 (3.28%) 3.86% (1.50%) - 29.6%
Transaction 2 53 0.75% 3.60% (0.53%) 10.1% 52.2%
Transaction 3 62 3.25% 5.14% (0.30%) 12.4% 94.1%
Transaction 4 47 3.51% 5.76% (0.44%) 13.8% 63.4%
Transaction 5 60 2.47% 5.74% (0.70%) 7.8% 41.5%
Transaction 6 61 (1.04%) 4.70% (0.98%) 6.2% 49.7%
Transaction 7 48 (1.60%) 3.64% (1.05%) 4.6% 31.9%
Transaction 8 55 (1.67%) 4.98% (1.00%) 10.7% 87.1%
Transaction 9 45 0.72% 6.27% (1.11%) 6.7% 32.8%
Transaction 10 52 (1.33%) 4.54% (1.04%) 8.0% 32.7%
EUR CLO Subtotal: 54 0.10% 4.84% (0.90%) 48.5%
Transaction 11 45 5.32% 4.55% 0.14% 20.6% 132.0%
Transaction 12 46 5.63% 4.45% 0.22% 20.5% 125.9%
Transaction 13 47 5.89% 4.82% 0.19% 20.2% 136.7%
Transaction 14 50 3.93% 5.63% (0.33%) 17.5% 101.0%
Transaction 15 48 3.21% 4.21% (0.21%) 27.7% 147.1%
Transaction 16 45 3.08% 4.44% (0.23%) 20.4% 131.3%
Transaction 17 40 4.54% 4.24% 0.06% 22.4% 127.1%
Transaction 18 45 5.67% 4.77% 0.14% 19.3% 149.4%
Transaction 19 45 5.67% 4.77% 0.14% 23.1% 143.7%
Transaction 20 52 3.59% 5.28% (0.31%) 21.4% 147.8%
Transaction 21 52 3.08% 4.76% (0.30%) 19.2% 121.1%
Transaction 22 53 3.20% 5.00% (0.36%) 20.3% 112.7%
Transaction 23 66 3.24% 4.98% (0.36%) 20.0% 120.5%
Transaction 24 47 4.88% 4.17% 0.13% 16.7% 102.8%
Transaction 25 46 5.79% 4.13% 0.32% 21.5% 128.5%
Transaction 26 44 3.74% 4.05% (0.06%) 18.0% 101.0%
Transaction 27 51 9.93% 6.11% 0.73% 31.8% 169.0%
Transaction 28 51 9.93% 6.11% 0.73% 41.2% 85.8%
Transaction 29 81 4.43% 4.82% (0.06%) 18.9% 137.2%
Transaction 30 68 1.35% 5.16% (0.66%) 17.5% 110.7%
Transaction 31 50 3.24% 5.02% (0.26%) 16.0% 143.2%
Transaction 32 59 4.30% 5.57% (0.28%) 19.0% 105.9%
Transaction 33 72 4.28% 6.99% (0.45%) 14.4% 114.9%
Transaction 34 50 4.60% 6.66% (0.39%) 17.8% 114.2%
Transaction 35 52 1.96% 5.00% (0.53%) 20.6% 139.4%
Transaction 36 56 2.14% 5.18% (0.60%) 19.4% 110.3%
Transaction 37 52 4.04% 4.34% (0.05%) 15.8% 127.5%
Transaction 38 42 4.33% 5.07% (0.14%) 26.5% 158.4%
Transaction 39 84 3.35% 3.15% 0.03% 9.3% 76.7%
Transaction 40 39 N/A N/A N/A 22.2% 140.8%
Transaction 41 49 4.49% 4.71% (0.04%) 21.0% 131.0%
Transaction 42 48 4.63% 3.92% 0.14% 19.7% 109.1%
Transaction 44 59 2.10% 4.16% (0.35%) 12.0% 97.5%
Transaction 45 46 2.67% 4.46% (0.34%) 10.6% 75.2%
Transaction 46 51 3.03% 4.33% (0.27%) 9.6% 59.2%
Transaction 47 43 3.52% 4.34% (0.15%) 20.7% 131.4%
Transaction 48 46 2.98% 5.71% (0.51%) 16.5% 92.8%
Transaction 49 39 3.16% 3.94% (0.12%) 13.1% 92.3%
Transaction 50 39 3.00% 4.25% (0.22%) 13.4% 88.1%
Transaction 51 53 4.10% 4.47% (0.08%) 20.6% 116.6%
Transaction 52 271 11.44% 3.20% 0.93% 278.6% 681.4%
Transaction 53 71 10.12% 4.00% 0.83% 37.7% 251.4%
Transaction 54 56 4.98% 3.69% 0.19% 59.7% 598.1%
Transaction 55 40 4.65% 3.59% 0.16% 61.7% 560.5%
Transaction 56 42 4.66% 4.53% 0.03% 22.3% 128.1%
Transaction 57 42 4.66% 4.53% 0.03% 47.5% 568.3%
Transaction 58 49 3.62% 4.04% (0.09%) 24.6% 130.8%
Transaction 59 49 3.62% 4.04% (0.09%) 51.4% 777.9%
Transaction 60 198 4.50% 4.50% -0.01% 10.1% 15.6%
Transaction 61 45 3.06% 4.04% (0.20%) 16.6% 86.9%
Transaction 62 42 4.27% 5.20% (0.19%) 21.0% 124.1%
Transaction 63 53 2.81% 4.78% (0.42%) 17.2% 102.1%
Transaction 64 38 N/A N/A N/A 20.7% 88.3%
Transaction 65 48 2.66% 4.96% (0.43%) 13.4% 76.5%
Transaction 66 49 3.69% 4.05% (0.07%) 21.1% 132.2%
Transaction 67 45 4.46% 4.38% 0.02% 19.3% 106.8%
Transaction 68 48 6.26% 4.41% 0.35% 27.0% 159.1%
Transaction 69 44 7.23% 5.61% 0.32% 25.6% 142.2%
Transaction 70 52 6.14% 6.21% (0.01%) 18.4% 107.8%
Transaction 71 39 3.00% 4.25% (0.22%) 27.2% 39.1%
Transaction 72 42 4.66% 4.53% 0.03% 18.5% 32.0%
Transaction 73 42 4.66% 4.53% 0.03% 18.5% 32.0%
Transaction 74 49 3.62% 4.04% (0.09%) 20.4% 33.4%
Transaction 75 168 4.32% 4.05% 0.35% 15.1% 13.5%
Transaction 76 46 2.67% 2.43% 0.05% 43.5% 15.6%
Transaction 77 212 5.09% 5.04% 0.16% 12.6% 0.0%
Transaction 78 217 4.69% 4.00% 3.51% 13.7% 0.0%
Transaction 79 215 4.00% 4.00% - 13.1% 0.0%
US CLO Subtotal: 63 4.06% 4.64% (0.04%) 108.1%
Total CLO
Portfolio: 61 3.22% 4.68% (0.22%) 95.5%
Notes
(1) The USD investment cost fixes the USD-EUR exchange rate of European CLOs at the
same rate to avoid the impact of skewed weightings and FX
volatility.
(2) Par weighted average spread over LIBOR or EURIBOR (as approproate) of the
underlying loan assets in each CLO's portfolio.
(3) Notional weighted average spread over LIBOR or EURIBOR (as appropriate) of the
debt tranches issued by each CLO, as of the closing date of
each transaction.
(4) Notional weighted average spread over LIBOR or EURIBOR (as appropriate) of the
debt tranches issued by each CLO, as of the most recent
trustee report date.
(5) The current junior-most O/C cushion is the excess (or deficit) of the junior-most
O/C test ratio over the test requirement, as of the
latest trustee report
available as of the report date.
(6) The junior-most O/C cushion at close is the excess (or deficit) of the
junior-most O/C test ratio over the test requirement that was
expected on each
deal's closing date. Please note that two of TFG's investments are
so called "par structures" which don't include a junior O/C test. They have
been marked by an "N/A" in the
relevant junior-most O/C test columns.
(7) Calculated by annualizing the change from the expected closing date junior-most
O/C cushion to the current junior-most O/C cushion.
(8) Calculated from TFG's investment date. Includes both historical cash flows
received to-date and prospective cash flows expected to be
received, based on
TFG's base case modeling assumptions.
(9) Inception to report date cash flow received on each transaction as a percentage
of its original cost.
<end_table>
Amount Amount Cushion Cushion Number of
Date Maturing Amortizing (Deficit) (Deficit) Investments
2010 or Earlier 0.0 0.3 0.0% <= 0% 5
2011 0.0 107.5 2.0% 0% to 2% 4
2012 0.0 327.7 4.0% 2% to 4% 30
2013 0.0 611.1 6.0% 4% to 6% 30
2014 0.0 435.5 Over 6% 7
2015 0.3 42.3
2016 0.6 14.5
2017 57.7 0.0
2018 189.6 0.0
2019 181.1 0.0
2020 253.2 0.0
2021 440.0 0.0
2022 198.7 0.0
2023 180.0 0.0
2024 37.5 0.0
2025 0.0 0.0
2026 0.0 0.0
Tetragon Financial Group Limited (TFG)
Portfolio Composition
Portfolio Held by Tetragon Financial Group Master
Fund Limited
(unless otherwise stated)
As of March 31, 2012
TFG
group
TFG group Net
TFG Share Price Net Market Assets No. of Closed CLO
Report Date ($) Cap ($MM)(1) ($MM) Equity Transactions
31 March 2012 $7.10 $817.5 $1,510.1 78 (2)
Risk Investment
Capital Fair Value
Capital Allocation by Asset Class Allocation ($MM)(2,3,4)
Broadly Syndicated Senior Secured Loans: US 76.5% $979.9
Broadly Syndicated Senior Secured Loans: Europe 9.1% $116.2
Middle Market Senior Secured Loans: US 14.4% $184.5
Total 100.0% $1,280.6
Asia
Geographic Allocation by Asset Class USA Europe Pacific Total
Broadly Syndicated Senior Secured Loans 89.4% 10.6% 0.0% 100.0%
Middle Market Senior Secured Loans 100.0% 0.0% 0.0% 100.0%
90.9% 9.1% 0.0% 100.0%
Bank
Loan
Exposure
Top 15 Underlying Bank Loan Credits (5)
Univision Communications 0.95%
First Data Corp 0.87%
HCA Inc 0.83%
Community Health 0.79%
UPC Broadband 0.76%
Charter Communications 0.72%
Federal-Mogul 0.70%
Las Vegas Sands 0.70%
Aramark Corp 0.69%
Sabre Holdings Corp 0.69%
Cablevision Systems Corp 0.66%
Huntsman ICI 0.60%
Reynolds Group 0.58%
TXU Corp 0.57%
SunGard Data Systems Inc 0.52%
EUR-USD FX: 1.33
(1) Calculated using TFG shares outstanding (net of 8.93 million shares held in
treasury and 8.52 million shares held by a subsidiary) and month end exchange
price.
(2) Excludes CDO-squared and ABS CDO transactions which were written off in October
2007. TFG continues to hold the economic rights to 3 of these written-off
transactions. Excludes TFG's investments in CLO mezzanine tranches.
(3) Excludes TFG's investments in LCM Asset Management LLC, GreenOak Real Estate LP
and GreenOak related funds or investments, and CLO mezzanine tranches.
(4) Equivalent to Investment in Securities at Fair Value in the US GAAP Financial
Statements.
(5) Includes par amount of loans held directly by TFG and also loan exposures via
TFG's CLO equity tranche investments. With respect to CLO equity tranche
investments, calculated as a percentage of total corporate loan assets that TFG
has exposure to based on its equity-based pro-rata share of each CLO's total
portfolio. All calculations are net of any single name CDS hedges held against
that credit.
An investment in TFG involves substantial risks. Please refer to the
Company's website at http://www.tetragoninv.com for
a description of the risks and uncertainties pertaining to an investment in
TFG.
This release does not contain or constitute an offer to sell or a
solicitation of an offer to purchase securities in the United States or any
other jurisdiction. The securities of TFG have not been and will not be
registered under the US Securities Act of 1933 (the "Securities Act"), as
amended, and may not be offered or sold in the United States or to US persons
unless they are registered under applicable law or exempt from registration. TFG
does not intend to register any portion of its securities in the United States
or to conduct a public offer of securities in the United States. In addition,
TFG has not been and will not be registered under the US Investment Company Act
of 1940, and investors will not be entitled to the benefits of such Act. TFG is
registered in the public register of the Netherlands Authority for the Financial
Markets under Section 1:107 of the Financial Markets Supervision Act ("FMSA") as
a collective investment scheme from a designated country. This release
constitutes regulated information ("gereglementeerde informatie") within the
meaning of Section 1:1 of the FMSA.
Board of Directors
Paddy Dear
Reade Griffith
Byron Knief*
Rupert Dorey*
David Jeffrey
Greville
Ward*
*Independent Director
Shareholder Information
Registered Office of TFG and the Master Fund
Tetragon Financial Group Limited
Tetragon Financial Group Master
Fund Limited
1st
Floor Dorey Court
Admiral Park
St. Peter Port, Guernsey
Channel
Islands GYI 6HJ
Investment Manager
Tetragon Financial Management LP
399 Park Avenue, 22nd Floor
New York, NY 10022
United States of America
General Partner of Investment Manager
Tetragon Financial Management GP LLC
399 Park Avenue,
22nd Floor
New York, NY
10022
United States
of America
Investor Relations
David Wishnow / Yuko Thomas
ir@tetragoninv.com
Press Inquiries
Brunswick Group
Andrew Garfield/Gill Ackers/Pip Green
tetragon@brunswickgroup.com
Auditors
KPMG Channel Islands Ltd
20 New
Street
St. Peter Port, Guernsey
Channel Islands GYI 4AN
Sub-Registrar and Transfer Agent
Computershare
One Wall Street
New York, NY 10286
United States of America
Issuing Agent, Dutch Paying and Transfer
Agent
Kas Bank N.V.
Spuistraat 172
1012 VT Amsterdam, The Netherlands
Legal Advisor (as to U.S. law)
Cravath, Swaine & Moore LLP
One Ropemaker
Street
London EC2Y 9HR
United Kingdom
Legal Advisor (as to Guernsey law)
Ogier
Ogier House
St. Julian's Avenue
St. Peter Port,
Guernsey
Channel Islands GYI 1WA
Legal Advisor (as to Dutch law)
De Brauw Blackstone Westbroek N.V.
Claude Debussylaan 80
1082 MD
Amsterdam, The Netherlands
Stock Listing
NYSE Euronext in Amsterdam
Administrator and Registrar
State Street Guernsey Limited
1st Floor Dorey Court
Admiral Park
St. Peter Port, Guernsey
Channel Islands GYI
6HJ
ENDNOTES
(1) TFG invests substantially all its capital through
a master fund, Tetragon Financial Group Master Fund Limited ("TFGMF"), in which
it holds 100% of the issued shares. In this report, unless otherwise stated, we
report on the consolidated business incorporating TFG and TFGMF. References to
"we" are to Tetragon Financial Management LP, TFG's investment manager.
(2)
TFG's Portfolio-wide CLO equity statistics, such as the average default rate or
CCC-asset holding levels, are calculated without including TFG's investments in
CLO mezzanine debt tranches.
(3) The LCM I, LCM II, LCM III, LCM IV, LCM V,
LCM VI, LCM VIII, LCM IX, and LCM X CLOs are referred to as the "LCM Cash Flow
CLOs." The LCM VII CLO was a market value CLO previously managed by LCM, which
was liquidated commencing in 2008, and is not included in the mentioned
statistics. In addition, these statistics do not include the performance of
certain transactions that were developed and previously managed by a third-party
prior to being assigned to LCM, some of which continue to be managed by
LCM.
(4) All of LCM Cash Flow CLOs were current on their senior and
subordinated management fees except for LCM I, which is currently significantly
beyond its reinvestment period and has experienced significant
de-leveraging.
(5) The rolling 12-month dividend growth rate is calculated by
dividing the sum of the dividends per share distributed or declared over the
last 12 months by the dividends per share distributed or declared over the prior
12 months, less one.
(6)The hurdle rate is reset each quarter using 3M USD
LIBOR plus a spread of 2.647858% in accordance with TFG's investment management
agreement. Please see the TFG website, http://www.tetragoninv.com, for more
details.
(7) Includes only look-through loan exposures through TFG's CLO
equity investments.
(8) Excludes CDO-squared and ABS CDO transactions which
were written off in October 2007. TFG continues to hold the economic rights to
three of these written-off transactions.
(9) Based on the most recent trustee
reports available for both our U.S. and European CLO investments as of March 31,
2012.
(10) As of March 31, 2012, European CLOs represented approximately
10.0% of TFG's CLO equity investment portfolio; approximately 68% of the fair
value of TFG's European CLOs and 50%, when measured as a percentage of the total
number of European deals, were passing their junior-most O/C tests.
(11) As
O/C tests are breached, CLO structures may divert excess interest cash flows
away from the equity tranche holders, such as TFG, to pay down the CLO's debt
thereby curing the O/C breach via deleveraging. Accordingly, the affected
investments ceased to generate cash flows to TFG or are expected to cease
generating cash flows on the next applicable payment date. Once enough debt has
been repaid to cure the O/C test breach, distributions of excess interest cash
to equity holders may resume to the extent not precluded by the investments'
realized or unrealized losses.
(12) Morgan Stanley CLO Market Tracker,
April 4, 2012; based on a sample of 473 U.S. CLO transactions.
(13) Weighted
by the original USD cost of each investment.
(14) The calculation of TFG's
lagging 12-month corporate loan default rate does not include certain underlying
investment collateral that was assigned a "Selective Default" rating by one or
more of the applicable rating agencies. Such Selected Defaults are included the
S&P/LCD lagging 12-month U.S. institutional loan default rate discussed
above. Furthermore, TFG's CLO equity and direct loan investment portfolio
includes approximately 9.1% CLOs with primary exposure to European senior
secured loans and such loans are included in the calculation of TFG's corporate
default rate.
(15) S&P/LCD News, "With no loan defaults in March, rate
holds near all-time low," April 2, 2012.
(16) S&P/LCD News, "(EUR)
S&P ELLI: Default rate rises to 5.3% in March, "April 11, 2012. The ELLI
default rate is calculated by defining "default" as (a) an event of default,
such as a D public rating, a D credit estimate, a missed interest or principal
payment, or a bankruptcy filing; or (b) the beginning stages of formal
restructuring, such as the start of negotiations between the company and
lenders, or hiring of financial advisors.
(17) All of LCM Cash Flow CLOs were
current on their senior and subordinated management fees except for LCM I, which
is currently significantly beyond its reinvestment period and has experienced
significant de-leveraging.
(18) S&P/LCD News, "With no loan defaults in
March, rate holds near all-time low," April 2, 2012.
(19) S&P/LCD News,
"Hawker missed interest payment bumps loan default rate to 0.77% ," April 2,
2012. Hawker Beechcraft did not make the scheduled interest payment on its
secured credit facility when due on March 30, 2012 and was downgraded to D from
CC by S&P on April 2, 2012.
(20) S&P/LSTA Leveraged Lending Review 4Q
2011.
(21) S&P/LCD News, "(EUR) S&P ELLI steams ahead in 1Q12," April
10, 2012.
(22) S&P/LCD Quarterly Review, First Quarter 2012.
(23)
S&P/LCD Quarterly Review, First Quarter 2012.
(24) S&P/LCD News,
"Leveraged loans return 0.77% in March; YTD return is 3.76%," April 2,
2012.
(25) S&P/LCD News, "(EUR) S&P ELLI steams ahead in 1Q12," April
10, 2012.
(26) S&P/LCD Quarterly Review, First Quarter 2012.
(27 )
S&P/LCD Quarterly Review, First Quarter 2012.
(28) Morgan Stanley CLO
Market Tracker, April 4, 2012; based on a sample of 473 U.S. CLO
transactions.
(29) Morgan Stanley CLO Market Tracker, January 9, 2012; based
on a sample of 461 U.S. CLO transactions.
(30) Morgan Stanley CLO Market
Tracker, April 4, 2012; based on a sample of 195 European CLO
transactions.
(31) Morgan Stanley CLO Market Tracker, January 9, 2012; based
on a sample of 195 European CLO transactions.
(32) Morgan Stanley CLO Market
Tracker, April 4, 2012.
(30) Morgan Stanley CLO Market Tracker, April 4,
2012.
For further information, please contact:
TFG:
David Wishnow/Yuko Thomas
Investor Relations
ir@tetragoninv.com
Press Inquiries:
Brunswick Group
Andrew Garfield/Gill Ackers/Pip Green
tetragon@brunswickgroup.com
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