Interim report including condensed interim consolidated financial statements 2013 Interim report including condensed interim consolidated financial statements Interim report including condensed interim consolidated financial statements 2013 Carador Income Fund PLC Carador Income Fund PLC Contents
Overview 01 Carador: investment objective 02 Chairman’s report
Business review 04 Investment Manager’s review
08 Statement of Directors’ responsibilities and interim management report 09 Independent review report to Carador Income Fund PLC
Unaudited financial statements and notes 11 Unaudited condensed interim consolidated Group and Company statements of financial position 12 Unaudited condensed interim consolidated Group and Company statements of comprehensive income 13 Unaudited condensed interim consolidated Group and Company statement of changes in equity 14 Unaudited condensed interim consolidated Group and Company statements of cash flows 15 Notes to the unaudited condensed interim consolidated financial statements
Other information – unaudited 45 Schedule of investments – Company 48 Schedule of investments – Consolidated 60 Management and administration 01 Overview
Carador: investment objective Carador Income Fund PLC
The Company’s investment objective is to produce attractive and stable returns with low volatility compared to equity markets by investing in a diversified portfolio of senior notes of collateralised loan obligations (“CLOs”), collateralised by senior secured bank loans, equity and mezzanine tranches of CLOs.
The Company is admitted to trading on the London Stock Exchange (“LSE”). Carador Income Fund PLC 02 Interim report including condensed interim consolidated financial statements 2013 Chairman’s report
I am pleased to present the Interim report including unaudited per share. See below for information on dividends declared and condensed interim consolidated financial statements for Carador paid during the period. Income Fund PLC (“Carador” or the “Company”) for the six months ended 30 June 2013. Cash flow and dividends As commented above, notwithstanding the significant volume of The first half of 2013 has been a period of some mild volatility loan refinancing in the market the Company continued to benefit for Carador and the markets to which it is exposed. The period up from relatively high cash flows on the income note component until late May was characterised by slow and steady improvement of the portfolio. During the second quarter of 2013 the average in the US macroeconomic environment accompanied by annualised cash payments, based on quarter end valuation, received significant volumes of loan refinancing and repricing as borrowers by Carador income notes ranged from 7.37% to 72.57% (weighted took advantage of excess loan demand to lower their cost of average 33.84%). The equivalent numbers for the last quarter of funding. However, from late May, anticipation around the tapering 2012 ranged from 14.21% to 62.81% (weighted average 32.02%). of quantitative easing has led to some nervousness in the markets The continuing strength of the cash flows allowed the Company to with a general sell off in the global credit markets in June. declare a dividend of US$0.0340 for each of the first two quarters while at the same time maintaining largely stable cash flow cover. Notwithstanding some market volatility, returns have remained resilient over the six-month period, with the US leveraged loan The Company made the following dividend announcements market delivering a total return of 2.81% as measured by the in respect of Q4 2012 and the first half of 2013 dividends: Credit Suisse Leveraged Loan Index; this surpassed the Credit Suisse US High Yield Index, which returned 1.52%, however, • On 22 January 2013, the Board declared a dividend of the S&P 500 Index outperformed both those indexes with a total US$0.0163 per US Dollar share in respect of the period from return of 13.83% and, even though down in June, it still ended 1 November 2012 to 31 December 2012. This dividend was with its strongest first half year since 1998. The Carador total paid on 6 February 2013; return, including dividends paid, was 1.76% based on NAV.(1) • On 22 April 2013, the Board declared a dividend of Performance US$0.0340 per US Dollar share in respect of the period from The first half of 2013 has demonstrated the benefits, in the 1 January 2013 to 31 March 2013. This dividend was paid current market environment, of having a diverse portfolio and on 9 May 2013; and a balance between CLO income notes and CLO mezzanine notes. In particular, the significant volume of loan refinancing in • On 11 July 2013, the Board declared a dividend of the first quarter of 2013 has been a positive for the Company’s US$0.0340 per US Dollar share in respect of the period from mezzanine note investments, which have benefited from the more 1 April 2013 to 30 June 2013. This dividend was paid on rapid repayment of the CLO notes and the shorter expected life 31 July 2013. of the mezzanine notes, leading to a commensurate increase in their value. Conversely, the expectation of a shorter duration for Net cash flow coverage of dividends many CLOs has lead to a decline in the valuation of our income 2.5 notes as the market factors in fewer years of cash flow. On 2.06x 2.0 1.87x 1.85x 1.72x balance this has meant the Company’s portfolio has remained 1.60x 1.49x 1.46x1.57x1.51x1.54x1.52x 1.5 1.42x1.38x 1.40x broadly NAV stable while still benefiting from robust cash flows. 1.30x 1.35x1.29x1.27x 1.0 Looking at the performance in more detail the Company started 0.5 the year with a NAV per US Dollar share of US$1.0261 and 0 ended the first half at US$0.9940, a 3.1% decline in the NAV 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 09 09 09 09 10 10 10 10 11 11 11 11 12 12 12 12 13 13
1 Source: Credit Suisse, Bloomberg. The volatility of the indices reflected Quarterly declared dividends above and elsewhere in this report may be materially different from that of the performance of Carador. In particular, Carador does not Cents per US Dollar share have direct exposure to leveraged loans, but rather its exposure comes 4.5 4.30c through its ownership of CLO securities. In addition, these indices 4.0 3.80c 3.40c employ different investment guidelines and criteria than Carador; 3.5 3.20c3.30c 3.40c3.40c 3.00c as a result, Carador’s exposure to leveraged loans may differ 3.0 2.80c 2.5 2.25c significantly from the securities or other assets that comprise the 2.08c 2.10c2.10c 2.0 1.73c 1.67c 1.78c indices. The performance of these indices has not been selected to 1.45c represent an appropriate benchmark to compare to the performance 1.5 1.24c 1.0 of Carador, but rather is disclosed to allow for comparison of the 0.5 performance of Carador to that of well-known, relevant indices. 0 A summary of the investment guidelines of these indices is available 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q upon request. Annualised data for the indices uses the geometric mean. 09 09 09 09 10 10 10 10 11 11 11 11 12 12 12 12 13 13 03 Overview
Material events On 24 May 2013, a circular was sent to shareholders in respect On 16 April 2013, the Company announced the resignation of of proposals to: Claudio Albanese, due to external work commitments, from the Board of Directors. The Directors thanked Mr Albanese for his • increase the Company’s exposure to primary CLO income contribution to the success of the Company over the last seven years. note transactions compared with the current concentration on secondary CLO positions; On 12 March 2013, the Company increased its investment in the • replace the 2017 continuation vote with a redemption income notes of Gale Force 4 CLO Ltd (“Gale 4”) and as a result opportunity, at the Directors’ discretion, for investors in 2017 the Company now holds the majority of the risks and rewards (and every five years thereafter) if the shares have traded of the residual income notes of this entity. Under accounting at an average discount to NAV in excess of 5% over the guidance Carador is required to consolidate Gale Force 4 CLO Ltd 12-month period prior to 30 April in the relevant year; from 12 March 2013. At the period end the consolidated interim • amend the articles of association of the Company (the financial statements include two subsidiaries, Gale 4 and ING “Articles”) to replace the winding-up vote to take place in Investment Management II CLO Ltd (“ING CLO”). ING CLO and 2021 with a continuation vote to be held in 2022 (and every Gale 4 (the “SPVs”) together with the Company form the Group. 10 years thereafter); • amend the Company’s dividend policy such that the Company The Board and the Investment Manager evaluate the performance will not be required to pay out all net income each year and to of Carador’s investments in the above subsidiaries on the same use this flexibility for the purposes of making more consistent basis as its investments in other income notes by assessing the quarterly dividend payments; subsidiaries’ contribution by reference to coupon income earned • permit the issue of 500 million shares on a non-pre-emptive and the net change in fair value of the investments rather than by basis; and evaluating each subsidiary’s performance by reference to a full look- • amend the Investment Manager’s performance fee hurdle. through evaluation of the underlying positions in each subsidiary. With effect from 1 January 2014, the Hurdle Rate, which is currently 12-month US Dollar Libor, plus 2% will be changed From the perspectives of both Carador and the Group, the net to the higher of: (i) 12-month US Dollar Libor; and (ii) 4% in income and net asset values are the same and it is the Board and each case plus 2%. Investment Manager’s view that the most appropriate evaluation of the performance of the business during the period is achieved At the extraordinary general meeting held on 26 June 2013 by assessing performance through the eyes of Carador itself as (the “EGM”) any resolutions required to implement the above this is the way in which the business is managed. proposals were approved.
At the annual general meeting of the Company held on 26 June 2013, Outlook shareholders approved the following ordinary and special resolutions: Following a shareholder consultation early in 2013 we called an EGM in June to propose some changes to some of the Ordinary business structural features of the Company. We were pleased with 1. To receive and consider the Directors’ report and the financial the shareholder turnout for the EGM and strong shareholder statements of the Company for the year ended 31 December support expressed for all the proposed resolutions. The 2012 and the report of the auditors thereon. Investment Manager believes these changes allow the Company 2. To re-appoint KPMG as auditors to the Company. to take advantage of the market opportunities that have arisen 3. To authorise the Directors to fix the remuneration of the auditors. in the primary CLO market as well as continue to take advantage 4. To re-elect Mr Edward D’Alelio as a Director of the Company. of secondary market opportunities.
Special business Undoubtedly 2012 marked the end of the recovery of the 5.1 To consider and, if thought fit, pass the following as an US CLO market to a more normalised state and the significant ordinary resolution: “RESOLVED THAT, for the period rerating experienced over the last few years is unlikely to be concluding on 26 June 2014, the Board be and is hereby repeated in the near term. Nevertheless the Investment Manager authorised to allot such number of shares in the Company believes the Company is well positioned to continue to offer as is the equivalent of up to 10% of the issued share capital investors the potential for an attractive dividend income stream of the Company as at 26 June 2013”. with some capital upside from the current portfolio and new 5.2 To consider and, if thought fit, pass the following as a special investment opportunities over the medium term. resolution: “RESOLVED THAT, for the period concluding on 26 June 2014, the Board be and is hereby authorised to Werner Schwanberg allot the shares referred to in item 5.1 above without having Chairman previously to offer such shares to shareholders on a 28 August 2013 pre-emptive basis”. Carador Income Fund PLC 04 Interim report including condensed interim consolidated financial statements 2013 Investment Manager’s review
The Chairman’s review provides a concise summary of how the The first half of 2013 ended with total new US loan issuances of Company has performed in the first half of 2013. In the review US$351.89 billion of which US$267.40 billion were institutional below we look at the main drivers of that performance: the US tranches compared with total institutional new issuances of bank loan market; the US CLO market; and the Carador portfolio. US$295.10 million for the whole of 2012. The strong demand We then look at the outlook for 2013 and beyond. has kept the US loan market buoyant with total returns of 2.81% on the CS Leverage Loan Index for the period, despite a minor Some highlights of the first half of 2013 include: correction in June of -0.55%. As a consequence of the demand, the weighted average institutional spreads in the primary loan • Aggregate declared dividends of US$0.0503 per share; market fell from L+467.25 in 2012 to L+375.68 by the end of June 2013(2)(3). • Total NAV return of 1.76%; The lagging 12-month default ended the period at 1.37%, • US Dollar shares ended June at a premium to NAV of comfortably below the historic average rate of 3.3%((3)). 2.11% having traded at an average premium over the In addition, the loan “maturity wall” has continued to move out half year of 3.98%; as many companies have refinanced their debt given market conditions. Loan maturities due before the end of 2014 are now • 70% shareholder turnout for the EGM on 26 June with approximately US$14 billion with the more significant refinancing 98% or above voting in favour of all resolutions; requirements having been pushed out to 2017 to 2020.
• Active portfolio management with approximately CLO market overview US$84 million total market value traded across 21 different The first half of 2013 has seen US$41.8 billion of primary trades; and US CLO issuance, compared with a total of US$55.4 billion for the whole of 2012(4). With US$18.0 billion still reported in the • The Company ended the half with a portfolio that had a pipeline, 2013 is looking likely to reach post-crisis records with look-through exposure to over 1,450 different companies. most commentators expecting US$60-US$70 billion of issuance by the year end(5). In addition, the European market saw a Bank loan market overview welcome return of primary activity with US$3.1 billion of new With a backdrop of steady first half US macroeconomic progress issuance in the first half of 2013(6). While both markets have the US credit markets have continued to benefit from a benign faced regulatory obstacles during 2013 it is undoubtedly default environment and the continued low interest rate regulation that continues to limit new CLO creation in Europe. environment. However, the demand for yield continued where it left off in 2012 with the US loan market starting 2013 in robust US CLO issuance 1996 to 30 June 2013(4) form with demand considerably exceeding the supply available US$ bn from new issues. Demand came from both new CLO creation 120 and retail loan fund inflows. This excess of demand over supply 105 96 led to a tightening of the primary loan market all in yield levels 100 by approximately 1% for the first quarter of 2013(1). Borrowers 80 which had refinanced during the financial crisis took advantage 61 60 55 of the tightening in credit spreads to refinance relatively 42 39 expensive loans and it was this wave of repricing and refinancing 40 24 24 in the loan market during the first five months of the year that 17 20 17 20 21 20 13 7 have had most impact on the Carador portfolio. 2 4 0 0 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 1H More recently the comments and expectations around the 13 tapering of quantitative easing by the US Federal Reserve have led to some credit market volatility and the June sell-off in the loan market appears to have reduced the chance of further loan repricing in the short term and added some volatility to loan prices in the secondary market which, in general, we believe is positive for new CLO creation and existing CLOs that still have the ability to reinvest. 2 S&P Capital IQ, Loan Stats, January 2013 3 S&P Capital IQ, Loan Stats, June 2013 4 wells Fargo, The CLO Salamgundi, 27 June 2013 5 Morgan Stanley, CLO Insights, 8 July 2013 1 S&P Capital IQ, Loan Stats, March 2013 6 J.P. Morgan, Global ABS/CDO Weekly Snapshot, 28 June 2013 05 Business review
The pace of US loan refinancing and repricing in the first five Cash flow performance of the Carador income note portfolio has months of the year have, in turn, led to a significant increase in the remained strong although this will decline as each CLO reaches repayment levels of CLO senior notes. The S&P LSTA Leverage the end of its life and we do expect the second half of the year Loan Index experienced a 31.39% prepayment level in the first to see continuing pressure on income note returns as the senior half alone, compared with the 38.31% prepayment rate for the CLO notes are repaid and the impact of repricing and repayment whole of 2012(7). As the most senior CLO notes have been more of the first half flow through to the income notes. The table below rapidly repaid so the expected life of the mezzanine CLO notes shows the average cash distribution for 2012 and the first six has shortened. This “pull to par” effect on the mezzanine notes, months of 2013 for US and European CLO income notes and discussed in our 2012 accounts, has been a significant contributor while clearly vintage is relevant for performance, particularly to our 2013 year to June performance. We expect this trend to on early deals which are substantially now past reinvestment continue as older CLOs reach the end of their reinvestment period periods, the median cash on cash distributions for pre-crisis although we have seen some slowdown in repayment rates in US CLOs remain attractive: the last two months of the half. Although the recent volatility has seen some widening in the CLO debt tranches spreads, particular in the last quarter, the overall period saw further tightening from the end of 2012 across the majority of the structure.(8)
Median CLO income note distributions as a percentage of par amount by CLO vintage(8) US CLOs european CLOs Vintage Median distribution Median distribution Median distribution Median distribution Dec 12 to Jun 13 Jan 12 to Dec 12 Dec 12 to Jun 13 Jan 12 to Dec 12 2004 – 6.4% 1.4% 2005 8.1% 23.7% 7.6% 2.7% 2006 14.2% 31.5% 12.7% 5.5% 2007 18.3% 34.9% 8.8% 4.8% 2008 – 9.5% 4.2% 1.6%
Carador has been a significant beneficiary of the strength of Average annualised cash flows on income notes(9) the income note distributions. The graph opposite illustrates % the weighted average annualised cash on cash returns of the 40 Carador income note portfolio over the last three and a half 35 years. While there has been a fall in the weighted average 30 income note cash flows since the fourth quarter of 2012, a 28% 25 annual income distribution remains an attractive cash flow and 20 is significantly above the median returns for the all pre-crisis 15 vintages set out in the table above. 10 5 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 2010 2010 2010 2010 2011 2011 2011 2011 2012 2012 2012 2012 2013 2013
7 S&P Capital IQ, Loan Stats, January 2013 9 Source: Intex, GSO. Annualised cash flow on outstanding income notes 8 Morgan Stanley, CLO Market Tracker, July 2013 held by Carador weighted by par values Carador Income Fund PLC 06 Interim report including condensed interim consolidated financial statements 2013 Investment Manager’s review continued
Portfolio update Outlook The portfolio ended June with a total of 75 different investments As discussed in the shareholder circular of 24 May 2013 we across 60 CLOs managed by 26 different investment managers. believe that the opportunity to deploy significant capital in the This represents a look-through exposure to over 1,450 different secondary CLO market at attractive returns will diminish over companies. The exposure is, however, concentrated in a the next few years. In contrast, the primary CLO market has smaller number of larger issuers with 297 of those companies recovered dramatically over the last 18 months and primary CLO accounting for 75% of the Carador portfolio. The portfolio income notes may now offer higher risk adjusted internal rates continues to be actively managed as we look at relative value of return than those currently available in the secondary market. opportunities across the CLO universe. In the first half we sold We believe the scale that Carador has in the market will allow US$25.9 million of investments in seven trades and bought it to deploy capital in the primary market at attractive levels US$58.5 million in 14 trades. particularly where it chooses to make a lead income note investment. Consequently we do envisage the portfolio will We have continued to seek clarity on the likely call date of as evolve to include more primary CLO investments over the many of our secondary investments as possible. The most certain coming months and years. way to achieve this clarity is to own the call option over the CLO. This generally requires ownership of in excess of 50% of the We also believe that short dated mezzanine notes from income notes. The Company now owns in excess of 50% of the pre-financial crisis CLOs continue to offer significant upside on ING Investment Management II Preferred Notes and Gale Force 4 a yield to maturity given the imbedded pull to par value of these Income Notes, both of which are now accounted for under discounted assets. In particular, where the Company has visibility financial reporting standards as subsidiaries of Carador. Both of the likely call timing, IRRs can be very attractive. positions have been built up over time and this has also allowed us to accumulate discounted positions in the mezzanine notes of We continue to closely follow the evolving European primary CLO both CLOs. Over the coming months and years we envisage that market and believe we will see opportunities here in due course Carador will increasingly take such stakes to allow the Company for clean, post-financial crisis loan portfolios. to gain the maximum visibility of the duration of income note cash flows and to allow the Company to act strategically in the As we look beyond 2013 it is reasonable to expect the acquisition of discounted mezzanine and senior notes. Company’s returns to revert to a more normalised profile than the exceptional returns achieved in recent years. We believe The Carador portfolio comprises two main components: income that profile, supported by a benign US default outlook over the notes at 48.46%; and mezzanine notes at 51.03%. We feel medium term, should be an attractive low double digit NAV total broadly comfortable with this allocation and while the exact return largely distributed as dividends.(10) allocation may vary going forward we believe the current allocation represents a reasonable balance between NAV stability Risk management and income generation. The Company’s portfolio of CLO investments is managed to minimise default risk and potential loss through credit analysis Carador portfolio by tranche as at 30 June 2013 performed by the Investment Manager’s experienced credit research team. Achieving diversity is part of the Company’s investment objective. Each investment is assessed with a view Income notes (unrated) 48.46% to providing diversification in terms of underlying assets, issuer, sector, geography and maturity profile. Mezzanine notes (original rating A/BBB/BB/B) The Company invests in a minimum of 20 separate transactions 51.03% with a maximum exposure per investment, at the time of Cash investment, of 20% of the net asset value. The Company also 0.51% limits its exposure to transactions managed by the same portfolio manager to 15% of the net asset value, at the time of investment. However, if the portfolio manager is an affiliate of the Investment
Manager, this limit is increased to 60% of the net asset value, at the time of investment. Investment NAV Mezzanine notes (original rating A/BBB/BB/B) US$276,021,960 Income notes (unrated) US$262,096,321 10 This is a target and not a forecast and there can be no guarantee or assurance that the target will be met. 07 Business review
As at the half year end, the Company primarily has exposure to assets denominated in US Dollars and therefore has no currency hedges in place.
The Company only uses currency and other hedging techniques for the purposes of efficient portfolio management in accordance with the requirements of the Central Bank. The Company has no intention of using currency hedging for the purposes of currency speculation for its own account.
Please also refer to page 8 for a fuller description of the risk involved in an investment in the Company.
Important events post-balance sheet date On 11 July 2013, the Company announced that it had agreed to the novation of the Investment Management Agreement from GSO Capital Partners International LLP (“GSO CPI”) to GSO / Blackstone Debt Funds Management LLC (“GSO / Blackstone DFM”) with effect from 14 July 2013.
On 11 July 2013, the Board declared a dividend of US$0.0340 per US Dollar share in respect of the period from 1 April 2013 to 30 June 2013. This dividend was paid on 31 July 2013.
GSO / Blackstone Debt Funds Management LLC 28 August 2013 Carador Income Fund PLC 08 Interim report including condensed interim consolidated financial statements 2013 Statement of Directors’ responsibilities and interim management report
Responsibility Statement of the directors in A summary of the primary risks relating to the Company are: respect of the half-yearly financial report Each of the Directors, whose names and functions are listed in • The past performance of the Company is not necessarily the management and administration section on page 60 of the indicative of, and cannot be relied upon as a guide to, Interim report confirm that, to the best of each person’s the future performance of the Company. knowledge and belief: • In calculating its net asset value, the Company may, if broker (a) the condensed interim consolidated and Company financial quotes are not available, be required to rely on estimates of statements comprising the condensed statements of financial the value of securities in which the Company invests which position, condensed statements of comprehensive income, are unaudited or subject to little verification or other condensed statement of changes in equity and condensed due diligence. statements of cash flow and the related explanatory notes have been prepared in accordance with IAS 34 Interim • There are risks related to CLO securities, including leveraged Financial Reporting as adopted by the EU. credit risk, the potential for interruption and deferral of cash flow, asset/liability mismatch risk, currency risk, volatility risk, (b) the interim management report, specifically the Investment liquidity risk, reinvestment risk and risks associated Manager’s report, note 13 and note 20, includes a fair review with collateral. of the information required by: • The success of the Company is significantly dependent on (i) Regulation 8(2) of the Transparency (Directive 2004/109/ the expertise of the Investment Manager and the Investment EC) Regulations 2007, being an indication of important Manager’s ability to source CLOs which are suitable to be events that have occurred during the first six months of held in the Company’s portfolio. the financial year and their impact on the condensed set of financial statements; and a description of the principal • There can be no assurance that the Investment Manager risks and uncertainties for the remaining six months of the will be able accurately to predict the future course of price year; and movements and performance of securities.
(ii) Regulation 8(3) of the Transparency (Directive 2004/109/ • Restrictions on withdrawal of capital mean that shareholders EC) Regulations 2007, being related party transactions must be prepared to bear the risks of owning an interest in that have taken place in the first six months of the current the shares for an extended period of time. financial year and that have materially affected the financial position or performance of the entity during that • The market price of the shares can fluctuate and there is no period; and any changes in the related party transactions guarantee that the market prices of shares will reflect fully described in the last annual report that could do so. their underlying net asset value.
INTERIM MANAGEMENT REPORT Please also refer to note 13 for a fuller description of the risks involved in an investment in the Company. Principal risks, uncertainties, risk management objectives and policies The Directors expect the risks outlined above and in note 13 to The Company’s investment objective is to produce attractive and be reflective of the six-month period ending 31 December 2013. stable returns with a low volatility compared to equity markets, by investing in a diversified portfolio of senior notes of collateralised Werner Schwanberg loan obligations (“CLOs”) collateralised by senior secured bank Fergus Sheridan loans and equity and mezzanine tranches of CLOs. Investment Adrian Waters in the Group carries with it a degree of risk including, but not Edward D’Alelio limited to, business risks and the risks associated with financial Nicholas Moss instruments, referred to in note 13 of these financial statements and the Investment Manager’s review on pages 04 to 07. The 28 August 2013 primary business risk is the risk that the Group may not achieve its investment objective. Meeting that objective is a target but the existence of such an objective should not be considered as an assurance or guarantee that it can or will be met. 09 Independent review report to Carador Income Fund PLC
Introduction Our responsibility We have been engaged by the Company to review the Our responsibility is to express to the Company a conclusion condensed set of financial statements in the half-yearly financial on the condensed Group and Company financial statements report for the six months ended 30 June 2013 which comprises in the half-yearly financial report based on our review. the condensed Group and Company statements of financial position, condensed statements of comprehensive income, Scope of review condensed statement of changes in equity and condensed We conducted our review in accordance with International statements of cash flow and the related explanatory notes. Standard on Review Engagements (UK and Ireland) 2410 We have read the other information contained in the half-yearly Review of Interim Financial Information Performed by the financial report and considered whether it contains any apparent Independent Auditor of the Entity issued by the Auditing Practices misstatements or material inconsistencies with the information Board. A review of interim financial information consists of in the condensed set of financial statements. making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review This report is made solely to the Company in accordance with procedures. A review is substantially less in scope than an audit the terms of our engagement to assist the Company in meeting conducted in accordance with International Standards on the requirements of the Transparency (Directive 2004/109/EC) Auditing (UK and Ireland) and consequently does not enable Regulations 2007 (“the TD Regulations”). Our review has been us to obtain assurance that we would become aware of all undertaken so that we might state to the Company those matters significant matters that might be identified in an audit. we are required to state to it in this report and for no other Accordingly, we do not express an audit opinion. purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for Conclusion our review work, for this report, or for the conclusions we Based on our review, nothing has come to our attention have reached. that causes us to believe that the condensed Group and Company financial statements in the half-yearly Group and Directors’ responsibilities Company report for the six months ended 30 June 2013 The half-yearly financial report is the responsibility of, and has are not prepared, in all material respects, in accordance with been approved for circulation to shareholders by the Directors. IAS 34 as adopted by the EU, the TD Regulations and the The Directors are responsible for preparing the half-yearly Transparency Rules of the Central Bank of Ireland. financial report in accordance with the TD Regulations and the Transparency Rules of the Central Bank of Ireland.
As disclosed in note 2, the annual financial statements of the Group and Company are prepared in accordance with IFRSs as adopted by the EU. The Directors are responsible for ensuring that the condensed Group and Company financial statements Colm Clifford included in this half-yearly financial report has been prepared in For and on behalf of KPMG accordance with IAS 34 Interim Financial Reporting as adopted Chartered Accountants, Statutory Audit Firm by the EU. 1 Harbourmaster Place, IFSC, Dublin 1, Ireland
28 August 2013 Carador Income Fund PLC 10 Interim report including condensed interim consolidated financial statements 2013 Unaudited financial statements and notes
Unaudited financial statements and notes 11 Unaudited condensed Group and Company statements of financial position 12 Unaudited condensed Group and Company statements of comprehensive income 13 Unaudited condensed Group and Company statement of changes in equity 14 Unaudited condensed Group and Company statements of cash flows 15 Notes to the unaudited condensed interim consolidated financial statements 11 Financial statements Unaudited condensed Group and and notes Company statements of financial position As at 30 June 2013
Group Company Group Company 30 June 2013 30 June 2013 31 December 2012 31 December 2012 Notes US$ US$ US$ US$ Assets Cash and cash equivalents 6 210,680,296 2,744,523 95,280,133 30,996,834 Due from broker and other receivables 960,242 960,242 2,078,583 107,167 Financial assets designated at fair value through profit or loss 3, 13 1,212,574,433 471,060,356 956,698,281 520,409,073 Investment in subsidiaries designated at fair value through profit or loss 3, 9, 13 – 67,057,925 – 28,383,782 Total Assets 1,424,214,971 541,823,046 1,054,056,997 579,896,856 Liabilities Expenses payable 5 2,914,179 1,885,390 23,159,917 22,514,996 Due to broker 37,319,383 – 8,978,309 – Financial liabilities designated at fair value through profit or loss 3, 8, 13 844,043,753 – 464,536,911 – Total Liabilities 884,277,315 1,885,390 496,675,137 22,514,996 Net Assets attributable to participating equity shareholders 539,937,656 539,937,656 557,381,860 557,381,860 Net Asset Value per participating US Dollar share US$0.9940 US$0.9940 US$1.0261 US$1.0261
The accompanying notes form an integral part of the unaudited condensed Group and Company interim financial statements. Carador Income Fund PLC 12 Interim report including condensed interim consolidated financial statements 2013 Unaudited condensed Group and Company statements of comprehensive income For the period ended 30 June 2013
Group Company Group and Company 30 June 2013 30 June 2013 30 June 2012 Notes US$ US$ US$ Interest income on cash and cash equivalents 8,475 913 1,679 Miscellaneous income 82,830 82,830 – Net gain/(loss) on derivative financial instruments and foreign exchange (2,504) (2,504) 247,503 Net gain on financial assets designated at fair value through profit or loss 4 32,630,490 15,206,722 67,978,927 Net loss on financial liabilities designated at fair value through profit or loss (14,973,524) – – Total revenue 17,745,767 15,287,961 68,228,109
Performance fees 5 (603,640) (452,526) (7,809,304) Investment management fee 5 (5,692,733) (3,760,802) (2,534,076) Custodian fee 5 (39,206) (39,206) (29,807) Administration fee 5 (248,481) (196,838) (138,764) Directors’ fees 5 (179,572) (179,572) (165,698) Audit fee 5 (71,574) (71,574) (70,888) Operating expenses 5 (1,029,121) (706,003) (461,662) Total operating expenses (7,864,327) (5,406,521) (11,210,199) profit for the period all attributable to the participating equity shareholders 9,881,440 9,881,440 57,017,910 Total Comprehensive Income for the period AlL attributable to participating equity shareholders 9,881,440 9,881,440 57,017,910
Earnings Per Share 15 Basic earnings per € share** – – €0.12 Basic earnings per US Dollar share US$0.02 US$0.02 US$0.13 Basic earnings per US Dollar C share* – – US$0.08 * US Dollar C Class – Admitted to the Official List and to trading on the London Stock Exchange’s Main Market on 15 December 2011, converted to US Dollar shares on 26 March 2012 and delisted on 26 March 2012. ** € Class – Admitted to the Official List and to trading on the London Stock Exchange’s Main Market on 12 April 2006, converted to US Dollar shares on 29 May 2012 and delisted on 29 May 2012.
The accompanying notes form an integral part of the unaudited condensed Group and Company interim financial statements. 13 Financial statements Unaudited condensed Group and and notes Company statement of changes in equity For the period ended 30 June 2013
Group and Company Notes US$ AT 31 DECEMBER 2011 338,412,879 TRANSACTIONS WITH PARTICIPATING EQUITY SHAREHOLDERS Issue of participating shares 7 91,882,771 Redemption of participating shares 7 (91,882,771) Dividends to participating equity shareholders 18 (22,009,659) TOTAL TRANSACTIONS WITH PARTICIPATING EQUITY SHAREHOLDERS (22,009,659) Profit for the period all attributable to participating equity shareholders 57,017,910 TOTAL COMPREHENSIVE INCOME FOR THE period ALL ATTRIBUTABLE TO PARTICIPATING EQUITY SHAREHOLDERS 57,017,910 AT 30 June 2012 373,421,130
At 31 December 2012 557,381,860 TRANSACTIONS WITH PARTICIPATING EQUITY SHAREHOLDERS Issue of participating shares 7 – Redemption of participating shares 7 – Dividends to participating equity shareholders 18 (27,325,644) TOTAL TRANSACTIONS WITH PARTICIPATING EQUITY SHAREHOLDERS (27,325,644) Profit for the period all attributable to participating equity shareholders 9,881,440 TOTAL COMPREHENSIVE INCOME FOR THE period ALL ATTRIBUTABLE TO PARTICIPATING EQUITY SHAREHOLDERS 9,881,440 AT 30 June 2013 539,937,656
The issue and the redemption of participating shares include the non-cash switches between the share classes of US$Nil (June 2012: US$91,882,771).
The accompanying notes form an integral part of the unaudited condensed Group and Company interim financial statements. Carador Income Fund PLC 14 Interim report including condensed interim consolidated financial statements 2013 Unaudited condensed Group and Company statements of cash flows For the period ended 30 June 2013
Group Company Group and Company 30 June 2013 30 June 2013 30 June 2012 US$ US$ US$ Cash flows from operating activities Profit for the period all attributable to the participating equity shareholders 9,881,440 9,881,440 57,017,910 Adjustments for non-cash items and working capital: (Decrease)/increase in payables (20,844,753) (20,629,606) 3,216,846 Increase in receivables (778,992) (853,075) (1,514,982) Net (loss)/gain on financial assets at fair value 21,862,454 27,426,509 (35,955,091) Net unrealised loss on subsidiary at fair value – 3,584,947 – Net loss on financial liabilities at fair value 8,612,960 – – Net cash inflow from operating activities 18,733,109 19,410,215 22,764,683 Cash flows used in investing activities Purchase of investments (336,527,262) (57,980,226) (162,524,385) Purchase of investment in subsidiary – net of cash acquired** 24,898,371 (4,100,000) – Disposal and paydowns of investments 447,399,465 41,743,344 108,026,359 Net cash inflow/(outflow) used in investing activities 135,770,574 (20,336,882) (54,498,026) Cash flows from financing activities Dividends to participating equity shareholders (27,325,644) (27,325,644) (22,009,659) Issue of shares net of costs* – – – Proceeds from redemption on debt securities issued (11,777,876) – – Net cash outflow from Financing activities (39,103,520) (27,325,644) (22,009,659) Net increase/(decrease) in cash and cash equivalents 115,400,163 (28,252,311) (53,743,002) Cash and cash equivalents at the beginning of the period 95,280,133 30,996,834 68,979,533 Cash and cash equivalents at the end of the period 210,680,296 2,744,523 15,236,531
* Issue of shares excludes non-cash switches between the share classes of US$Nil (June 2012: US$91,882,771). ** The amount of cash which was acquired as part of Gale Force 4 CLO Ltd (“Gale 4”), on 12 March 2013, was US$24,898,371.
The accompanying notes form an integral part of the unaudited condensed Group and Company interim financial statements. 15 Financial statements Notes to the unaudited condensed and notes interim consolidated financial statements For the period ended 30 June 2013
1 GENERAL
Carador Income Fund PLC (“Carador”) or (the “Company”) is a closed-ended limited liability investment company domiciled and incorporated under the laws of Ireland with variable capital pursuant to the Companies Acts, 1963 to 2012 of Ireland. It was incorporated on 20 February 2006 under registration number 415764. The Company is authorised by the Central Bank of Ireland (“Central Bank”) pursuant to Part XIII of the Companies Act, 1990. It is admitted to the Official List of the UK Listing Authority with a premium listing and to trading on the Main Market of the London Stock Exchange.
The Company’s investment objective is to produce attractive and stable returns with low volatility compared to equity markets by investing in a diversified portfolio of senior notes of collateralised loan obligations (“CLOs”) collateralised by senior secured bank loans, equity and mezzanine tranches of CLOs.
As at 30 June 2013, all shares in issue were US Dollar shares. The Company may issue one or more additional classes of shares on prior notice to and clearance by the Central Bank.
Consolidation of ING Investment Management CLO II Ltd AND GALE FORCE 4 CLO LTD As explained in the 2012 annual report, on 30 August 2012, Carador made an additional acquisition of the preference notes in a structured vehicle called ING Investment Management CLO II Ltd, a special purpose vehicle (“ING CLO”) incorporated in the Cayman Islands. This resulted in the Company obtaining the majority of the residual risks and rewards of the ING CLO, in accordance with SIC (Standings Interpretation Committee – the body that provides guidance in relation to accounting standards) Interpretation 12 Consolidation – Special Purpose Entities (“SIC 12”). As a result the Company consolidated the ING CLO from 30 August 2012 in preparing its Group financial statements.
On 12 March 2013, Carador made an additional acquisition in the income notes of a structured vehicle called Gale Force 4 CLO Ltd, a special purpose vehicle (“Gale 4”) incorporated in the Cayman Islands. This resulted in the Company obtaining the majority of the residual risks and rewards of Gale 4, in accordance with SIC 12. As a result, the Company consolidated the SPV from 12 March 2013 in preparing its Group financial statements (see note 9 for further details).
The ING CLO and Gale 4 (the “SPVs”) together with the Company form the Group.
2 SIGNIFICANT ACCOUNTING POLICIES
2a Statement of compliance These condensed Group and Company interim financial statements for the six months ended 30 June 2013, have been prepared in accordance with IAS 34 (Interim Financial Reporting) as endorsed by the EU. The condensed interim financial statements do not contain all of the information and disclosures required in the full annual financial statements and should be read in conjunction with the financial statements of the Company and the ING CLO for the year ended 31 December 2012, which have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU. The accounting policies applied by the Group and Company in these condensed interim financial statements are the same as those applied by the Company and the ING CLO in its financial statements for the year ended 31 December 2012, as described in those annual financial statements except for the below changes in accounting policies. The financial information presented herein does not amount to statutory financial statements that are required by Section 7 of the Companies (Amendment) Act, 1986 to be annexed to the annual return of Carador.
The consolidated financial statements of Carador for the year ended 31 December 2012, together with the independent auditor’s report thereon, have been filed with the Irish Registrar of Companies following the Company’s annual general meeting on 26 June 2013 and are also available on the Company’s website. The auditor’s report on those financial statements was unqualified. Carador Income Fund PLC 16 Interim report including condensed interim consolidated financial statements 2013 Notes to the unaudited condensed interim consolidated financial statementscontinued For the period ended 30 June 2013
2 SIGNIFICANT ACCOUNTING POLICIES continued
2b Basis of preparation The Group and Company financial statements have been prepared on a historical cost basis, except for financial instruments classified at fair value through profit or loss that have been measured at fair value. All significant accounting policies apply to the Group and Company unless otherwise stated.
The functional currency of the Company is US Dollar, as the Directors have determined that this reflects the Company’s primary economic environment. The presentation currency of the Group and Company’s financial statements is also US Dollar.
The interim condensed financial statements comprise the consolidated Group and Company statements of financial position, the consolidated Group and Company statements of comprehensive income, the consolidated Group and Company statement of changes in equity and the consolidated Group and Company statements of cash flows together with the related notes.
The interim condensed financial statements for the period ended 30 June 2012 were prepared on a company only basis, as the Company did not at that date have any subsidiaries for financial reporting purposes. On 30 August 2012, Carador made an additional acquisition of the preference notes of the ING CLO, a special purpose vehicle incorporated in the Cayman Islands, and on 12 March 2013 made an additional acquisitions of the income notes of Gale 4, a special purpose vehicle incorporated in the Cayman Islands (together the “SPVs”). These acquisitions resulted in the Company obtaining the majority of the residual risks and rewards of the SPVs, in accordance with SIC 12. As a result the Company consolidated the ING CLO from 30 August 2012 and Gale 4 from 12 March 2013 in preparing its Group financial statements.
The preparation of the financial statements requires management to make judgements, estimates and assumptions that effect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
When the fair value of financial assets and financial liabilities recorded in the statement of financial position cannot be derived from active market quotations or other observable inputs, they are determined using valuation techniques including the use of broker prices and discounted cash flow models. The inputs to these models are taken from observable sources where possible but where this is not feasible, a degree of judgement is required in establishing fair values. The judgements include consideration of liquidity and model inputs such as credit risk, correlation and volatility. Changes in assumptions relating to these factors could affect the reported fair value of financial instruments. The models are calibrated regularly and tested for validity using prices from any observable current market transactions in the same instrument or based on observable market data. During the period ended 30 June 2013, there were no internal valuation models used as the fair value of the financial assets and liabilities was able to be derived from inputs that were observable either directly (as prices) or indirectly (derived from prices). For a number of the financial liabilities in the Group financial statements (the debt securities issued by the SPVs) valuation techniques that included the use of inputs that are observable were used. For the purposes of the fair value hierarchy, the Directors do not consider the use of these inputs to be significant to the valuation, hence the Directors have included these securities in Level 2.
The Company’s management has made an assessment of the Company’s ability to continue as a going concern and is satisfied that the Company has the resources to continue in business for the foreseeable future. Furthermore, the management is not aware of any material uncertainties that may cast significant doubt upon the Company’s ability to continue as a going concern. Therefore, the financial statements continue to be prepared on the going concern basis.
2C BASIS OF CONSOLIDATION These condensed interim consolidated financial statements comprise the financial statements of the Company and its subsidiaries, the ING CLO, a company incorporated in the Cayman Islands as a special purpose vehicle and Gale 4, a company incorporated in the Cayman Islands also as a special purpose vehicle. The Company consolidates the SPVs by virtue of it obtaining the majority of the ownership risks of the SPVs in accordance with SIC Interpretation 12, Consolidation – Special Purpose Entities. The Company consolidates the results and financial position of the SPVs with effect from the date of acquisition of the majority of its risks and rewards, being 30 August 2012 and 12 March 2013 respectively. 17 Financial statements and notes
2 SIGNIFICANT ACCOUNTING POLICIES continued
2D Changes in accounting policies and disclosures The accounting policies applied by the Group and Company in these condensed interim consolidated financial statements are the same as those applied by the Company and the ING CLO in their financial statements as at and for the year ended 31 December 2012, as described in those annual financial statements, except for the application for the new requirements as set out below.
Change in accounting policy IFRS 13, Fair Value Measurement effective for periods beginning on or after 1 July 2012, establishes a single framework for measuring fair value and making disclosures about fair value measurements, when such measurements are required or permitted by other IFRSs. In particular, it unifies the definition of fair value as the price at which an orderly transaction to sell an asset or to transfer a liability would take place between market participants at the measurement date. It also replaces and expands the disclosure requirements about fair value measurements in other IFRSs, including IFRS 7 Financial Instruments: Disclosures. Notwithstanding the above, the changes had no significant impact on the measurements of the Group’s assets and liabilities.
IAS 34 “Interim Financial Reporting” (amendment to revise disclosure of fair value information), was effective for periods beginning on or after 1 January 2013. The amendment to IAS 34 requires entities to make most of the annual disclosures about the fair value of financial instruments arising from IFRS 13 and IFRS 7, in condensed interim financial statements. The Group and Company have implemented these disclosure requirements. The amendment did not have any impact on the Group and Company’s financial position or performance.
IAS 1, “Presentation of Financial Statements” (amendments to revise the way other comprehensive income is presented), effective for periods beginning on or after 1 July 2012. The amendments to IAS 1 retain the option to present profit or loss and other comprehensive income in either a single statement or in two separate but consecutive statements. However, the amendments to IAS 1 require additional disclosures to be made in other comprehensive income such that items of other comprehensive income are grouped into two categories: (a) items that will not be reclassified subsequently to profit or loss; and (b) items that will be reclassified subsequently to profit or loss when specific conditions are met. Income tax on items of other comprehensive income is required to be allocated on the same basis. The presentation of items of other comprehensive income is modified accordingly. The amendment did not have any impact on the Group and Company’s financial position or performance.
2E New Standards and interpretations not adopted A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 January 2013. The Directors have reviewed all upcoming standards and have set out below those that may have some impact on the Group. The Group will apply the new requirements from their IASB effective dates, subject to EU endorsement.
In November 2009, the IASB issued IFRS 9 (2009), Financial Instruments, which was followed by IFRS 9 (2010) in October 2010. Both parts are effective for annual periods beginning after 1 January 2015. The standard provides guidance on the classification and measurement of financial assets and liabilities. IFRS 9 has not yet been endorsed by the EU and the Group is currently assessing the impact of the standards.
IFRS 10, Consolidated Financial Statements effective for annual reporting periods beginning on or after 1 January 2014. The standard establishes principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. IFRS 10 replaces the consolidation requirements in SIC 12, Consolidation – Special Purpose Entities and IAS 27 Consolidated and Separate Financial Statements.
IFRS 12, Disclosure of Interests, effective 1 January 2014: IFRS 12, Disclosure of Interests in Other Entities is a new and comprehensive standard on disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles.
In October 2012, the IASB issued Investment Entities (Amendment to IFRS 10, IFRS 12 and IAS 27), effective for annual periods beginning on or after 1 January 2014. This amendment has not yet been endorsed by the European Union. The Group is currently assessing the impact of all of the above new standards.
There are no other standards, interpretations or amendments to existing standards that are not yet effective that would be expected to have a significant impact on the Group. Carador Income Fund PLC 18 Interim report including condensed interim consolidated financial statements 2013 Notes to the unaudited condensed interim consolidated financial statementscontinued For the period ended 30 June 2013
3 FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
As described in the accounting policies note, the Group and Company has financial assets and financial liabilities designated at fair value through profit or loss and derivative financial instruments held for trading. The following table shows financial instruments recognised at fair value, analysed between those whose fair value is based on:
– Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
– Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices); and
– Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The following tables show an analysis of the financial instruments recorded at fair value by level of the fair value hierarchy at 30 June 2013 and 31 December 2012:
COMPANY 30 June 2013 Level 1 Level 2 Level 3 Total US$ US$ US$ US$ FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS Financial assets designated at fair value through profit or loss Collateralised loan obligations – 471,060,356 – 471,060,356 Investment in subsidiaries – 67,057,925 – 67,057,925 – 538,118,281 – 538,118,281
Group 30 June 2013 Level 1 Level 2 Level 3 Total US$ US$ US$ US$ FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS Financial assets designated at fair value through profit or loss Collateralised loan obligations – 471,062,880 – 471,062,880 Equities – 2,930,298 – 2,930,298 ING CLO senior secured loans – 326,263,372 – 326,263,372 Gale 4 senior secured loans – 412,317,883 – 412,317,883 – 1,212,574,433 – 1,212,574,433 FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS Financial liabilities designated at fair value through profit or loss ING CLO debt securities – (452,753,869) – (452,753,869) Gale 4 debt securities – (391,289,884) – (391,289,884) – (844,043,753) – (844,043,753) 19 Financial statements and notes
3 FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS continued
COMPANY 31 December 2012 Level 1 Level 2 Level 3 Total US$ US$ US$ US$ FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS Financial assets designated at fair value through profit or loss Collateralised loan obligations – 520,409,073 – 520,409,073 Investment in subsidiary – 28,383,782 – 28,383,782 – 548,792,855 – 548,792,855
Group 31 December 2012 Level 1 Level 2 Level 3 Total US$ US$ US$ US$ FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS Financial assets designated at fair value through profit or loss Collateralised loan obligations – 522,966,028 – 522,966,028 Equities – 2,930,960 – 2,930,960 ING CLO senior secured loans – 430,801,293 – 430,801,293 – 956,698,281 – 956,698,281 FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS Financial liabilities designated at fair value through profit or loss ING CLO debt securities – (464,536,911) – (464,536,911) – (464,536,911) – (464,536,911)
For collateralised loan obligations (including investment in subsidiaries) and loans that have been categorised as Level 2, fair value has been determined using independent broker quotes based on observable inputs.
The Group considers the loans to be most appropriately categorised as Level 2, as the fair values have been determined by dealer price quotations where available, based on observable data.
For debt securities and derivative valuations (if any) the Group and Company uses widely recognised valuation models. For these financial instruments, inputs into models are market observable and therefore the debt securities are included within Level 2.
The Group and Company considers observable data to be that market data that is readily available, regularly distributed or updated, reliable, not proprietary, and provided by independent sources that are actively involved in the relevant market.
Transfers between levels There were no transfers between levels during the period (2012: no transfers).
For assets and liabilities not carried at fair value through profit or loss, the Directors consider that, given their short-term nature, the carrying value is a good approximation of fair value. Carador Income Fund PLC 20 Interim report including condensed interim consolidated financial statements 2013 Notes to the unaudited condensed interim consolidated financial statementscontinued For the period ended 30 June 2013
4 NET GAIN ON FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS
The split between the income and capital of net gain on financial assets designated at fair value through profit or loss according to the Prospectus was as follows: Group Company Group and Company 30 June 2013 30 June 2013 30 June 2012 US$ US$ US$ Net gain on financial assets designated at fair value through profit or loss Income* 56,171,304 44,311,591 30,645,509 Capital (23,540,814) (29,104,869) 37,333,418 32,630,490 15,206,722 67,978,927
* The above income is not shown on an effective interest rate basis. The income element is the coupon received on the senior and mezzanine tranches, and the allocation to income from the cash flows received on the equity tranches in compliance with the investment manager’s allocation model as outlined in the prospectus.
For the purposes of the cash flow statement the coupon income is considered as a cash flow from operating activities.
5 FEES
Company GSO Capital Partners International LLP (the “Investment Manager”) or (“GSO”) is entitled to receive a management fee from the Company of 1.5% per annum of the net asset value of the Company, calculated and payable monthly in arrears. The base management fee will be reduced to take into account any fees received by the Investment Manager or any of its associates or affiliates as a result of managing any collective investment scheme that the Company invests in or as a result of managing any CLO that the Company invests in, if such investment is or has been made in the primary market (i.e. the market in which investors have the first opportunity to buy a new security).
The Investment Manager is entitled to a performance fee in respect of the US Dollar shares equivalent to 13% of the amount by which the value of the financial year-end net asset value per US Dollar share plus dividends per US Dollar share paid in the period exceeds the value of the net asset value per US Dollar share, as increased by the Hurdle Rate (as defined below) plus 2%, as at the end of the most recent previous completed accounting reference period or, if greater, the net asset value per US Dollar share as at the end of the previous completed accounting reference period in respect of which a performance fee was paid.
The “Hurdle Rate” shall be 12-month US Dollar Libor plus 2% as at the last business day of the relevant accounting reference period.
Provided that if a US Dollar share performance fee was not paid in respect of the previous accounting reference period, US Dollar Libor shall be the annualised annually compounded US Dollar London Inter-Bank Offered Rate for 12-month deposits in respect of all previous relevant accounting periods since such US Dollar share performance fee was last paid.
The performance fee is accrued on a monthly basis and is paid annually within 14 days of receipt of the calculation by the Company from State Street Fund Services (Ireland) Limited (the “Administrator”).
The calculation of the performance fee is verified by State Street Custodial Services (Ireland) Limited (the “Custodian”).
The Company also reimburses the Investment Manager for all out-of-pocket expenses reasonably incurred in the performance of its duties.
Please refer to note 19 for further information on performance fees. 21 Financial statements and notes
5 FEES continued
Administrator and custodian The Administrator and Custodian shall be entitled to receive aggregate fees of up to 0.10% per annum of the net asset value of the Company for the provision, respectively, of administration, accounting, trustee and custodial services to the Company, subject to a minimum monthly fee of US$10,000. The fees of the Administrator and Custodian shall be calculated and accrued at each NAV calculation date and shall be payable monthly in arrears. The overall charge for the above-mentioned fees for the Company for the periods ended 30 June 2013 and 30 June 2012 and the amounts due at 30 June 2013 and 30 June 2012 are disclosed below for information purposes.
Directors’ fees and other expenses The Company’s Directors are entitled to a fee in remuneration for their services as Directors at a rate to be determined from time to time by the Directors and disclosed in the financial statements. During the period ended 30 June 2013, the Company paid Directors’ fees of US$179,572 (30 June 2012: US$165,698) of which US$Nil (31 December 2012: Nil) was outstanding at the period end.
During the period ended 30 June 2013 the Company incurred other operating expenses of US$706,003 (30 June 2012: US$461,662) of which US$102,330 (31 December 2012: US$2,171) was outstanding at period end.
FEE DETAILS Group Company Group and Company 30 June 2013 30 June 2013 30 June 2012 US$ US$ US$ Charge Performance fees 603,640 452,526 7,809,304 Investment management fee 5,692,733 3,760,802 2,534,076 Custodian fee 39,206 39,206 29,807 Administration fee 248,481 196,838 138,764
Group Company Group Company 30 June 2013 30 June 2013 31 December 2012 31 December 2012 US$ US$ US$ US$ accrual Performance fees 603,319 452,205 21,116,263 20,963,173 Investment management fee 1,911,221 1,199,392 1,732,755 1,276,887 Custodian fee 29,829 29,829 7,238 7,238 Administration fee 198,522 150,580 40,971 35,145 Carador Income Fund PLC 22 Interim report including condensed interim consolidated financial statements 2013 Notes to the unaudited condensed interim consolidated financial statementscontinued For the period ended 30 June 2013
5 FEES continued
SUBSIDIARies The expenses presented in the Group financial statements include in addition to the expenses of Carador as described above the expenses of the SPVs. The most significant of these expenses are the investment management fee and the incentive fee.
The asset manager of the ING CLO will receive a quarterly fee, payable in arrears, equal to an aggregate 0.50% per annum on the quarterly asset amount consisting of a senior asset management fee of 0.20% per annum plus a subordinated asset management fee of 0.30% per annum.
In addition to the base asset management fee, the asset manager of the ING CLO will receive an incentive asset management fee, equal to 0.125% per annum on the quarterly asset amount but only if preference shares have received an annualised internal rate of return of at least 12.0%. The fee shall only be payable in accordance with the Priority of Payments as defined in the ING CLO’s prospectus (“Priority of Payments”), and be limited to 65% of available excess interest proceeds and 65% of available excess principal proceeds (after all the debt securities have been repaid).
The collateral manager of Gale 4 will receive a quarterly servicing fee, equal to an aggregate fee of 0.55% per annum of the quarterly average aggregate collateral balance, consisting of a base fee of 0.15% per annum and a subordinated fee of 0.4% per annum.
In addition to the quarterly servicing fee the collateral manager will receive an incentive servicing fee equal to 0.125% per annum of the average aggregate collateral balance on the first and last day of the quarter but only if the income note holders have received an internal rate of return of at least 12% per annum. The fee shall be payable in accordance with the Priority of Payments as defined in the Prospectus, if there is insufficient funds available to pay the fees the amounts will be deferred until sufficient funds are available to make payment in accordance with the Priority of Payments.
6 CASH AND CASH EQUIVALENTS
Company cash balances and the cash balances of Gale 4 are held with State Street Bank and Trust Company. The cash balances of the ING CLO are held with U.S. Bank National Association (“US Bank”). 23 Financial statements and notes
7 PARTICIPATING SHARES
US DOLLAR AND EURO SHARES The authorised share capital of the Company shall not be less than the currency equivalent of €2 represented by two subscriber shares and the maximum issued share capital shall not be more than the currency equivalent of €500 billion divided into an unspecified number of shares of no par value. As at 30 June 2013, the issued share capital consists of 543,253,359 US Dollar shares (31 December 2012: 543,253,359) and the subscriber shares referenced below.
Voting rights The Company has issued two subscriber shares of €1 each. These shares do not participate in the profits of the Company. Holders of US Dollar shares participate in the profits of the Company and have voting rights with shareholders having one vote in respect of each whole share held.
ISSUED PARTICIPATING SHARES – GROUP AND Company US Dollar shares ISSUED SHAREs (NO. OF SHARES) Balance at 31 December 2012 543,253,359 Issue during the period – Conversion during the period – Balance at 30 June 2013 543,253,359
Euro shares US Dollar shares US Dollar C shares ISSUED SHAREs (NO. OF SHARES) Balance at 31 December 2011 13,914,839 312,627,079 76,839,740 Issued during the period – – – Conversion during the period (13,914,839) 106,426,279 (76,839,740) Balance at 30 June 2012 – 419,053,358 –
PARTICIPATING EQUITY Group and Company US Dollar Class US$ Balance at 1 January 2013 557,381,860 Profit for the period all attributable to participating equity shareholders 9,881,440 Issue of participating shares – Redemption and conversion of participating shares – Dividends to participating equity shareholders (27,325,644) Balance at 30 June 2013 539,937,656 Carador Income Fund PLC 24 Interim report including condensed interim consolidated financial statements 2013 Notes to the unaudited condensed interim consolidated financial statementscontinued For the period ended 30 June 2013
7 PARTICIPATING SHARES CONTINUED
PARTICIPATING EQUITY Group and Company continued Euro Class US Dollar Class US Dollar C Class Total US$ US$ US$ US$ Balance at 31 December 2011 11,197,768 253,182,777 74,032,334 338,412,879 Profit for the period all attributable to participating equity shareholders 2,154,654 48,676,343 6,186,913 57,017,910 Issue of participating shares – 91,882,771 – 91,882,771 Redemption of participating shares (12,431,921) – (79,450,850) (91,882,771) Dividends to participating equity shareholders (920,501) (20,320,761) (768,397) (22,009,659) Balance at 30 June 2012 – 373,421,130 – 373,421,130
The issue and the redemption of participating shares include the non-cash switches between the share classes of US$Nil (June 2012: US$91,882,771).
Capital management The Company is closed ended. At the annual general meeting to be held in the year 2022 and in every tenth year thereafter, the Directors will propose a special resolution to the effect that the Company continue for a further ten years. If the continuation vote is not passed, the Directors are required to formulate proposals to be put to shareholders to wind-up, reorganise or reconstruct the Company.
At the EGM on 26 June 2013, a resolution was passed to replace the 2017 continuation vote with a redemption opportunity, at the Directors’ discretion, for investors in 2017 (and every five years thereafter) if the shares have traded at an average discount to NAV in excess of 5% over the 12-month period prior to 30 April in the relevant year.
The Company has no externally imposed capital requirements, except for the initial subscriber share capital.
The Company’s objectives for managing capital are: – to invest the capital in investments meeting the description, risk exposure and expected return indicated in its Prospectus; – to achieve consistent returns while safeguarding capital by investing in CLOs backed by corporate loans or holding cash; – to maintain sufficient liquidity to meet the expenses of the Company and to meet dividend commitments; and – to maintain sufficient size to make the operation of the Company cost-efficient. 25 Financial statements and notes
8 Financial liabilities designated at fair value through profit or loss
The financial liabilities designated at fair value through profit or loss in the Group financial statements, represent the portion of the debt securities in the SPVs not currently held by Carador. The SPVs funded their investment in the underlying loans through the issue of debt securities; the senior and mezzanine pay a floating rate of interest to the holders of the securities paid in accordance with the Priority of Payments, with the equity tranche receiving the residual cash proceeds available after the payment of the operating expenses and the interest on the senior and mezzanine securities. The debt securities of ING CLO and Gale 4 have a contractual maturity of August 2020 and August 2021. The debt securities are limited recourse debt obligations of the SPVs. The debt securities are secured on their respective portfolio of loans and outlined in the consolidated schedule of investments (see note 3 for further details). Each class of debt securities ranks pari passu with the other debt securities within the class. The debt securities are payable solely from amounts received in respect of the portfolio of loans pledged as collateral in the vehicle. If the amounts received in respect of the collateral are insufficient to make payments, the available funds will be paid out in line with the subordination of the debt securities. The breakdown of the debt securities is:
Group Company Group Company 30 June 3013 30 June 2013 31 December 2012 31 December 2012 US$ US$ US$ US$ ING CLO Senior 297,762,081 – 299,234,006 – Mezzanine 138,744,288 – 145,537,905 – Equity 16,247,500 – 19,765,000 – Gale 4 Senior 316,864,497 – – – Mezzanine 54,798,247 – – – Equity 19,627,140 – – – 844,043,753 – 464,536,911 –
9 Acquisition of subsidiary
On 12 March 2013, the Company made a further 12.09% investment in the income notes of Gale 4, a special purpose vehicle incorporated in the Cayman Islands, bringing its total investment in the income notes (equity tranche) to 58.89%, the Company’s intention is to hold the investment for capital appreciation and income flows and manage the investment on a fair value basis only. However, this further investment resulted in the Company having the majority of the residual interests under SIC 12, resulting in the requirement to consolidate its investment in Gale 4 as a subsidiary from 12 March 2013.
In the period from acquisition to 30 June 2013, Gale 4 as a subsidiary contributed revenue of US$1,014,999 and profit of US$954,474 to the Group’s results. The Directors believe that the disclosure of the revenue and profit for the subsidiary as though the acquisition had occurred on 1 January 2013 to a satisfactory level of precision would be impracticable. Carador Income Fund PLC 26 Interim report including condensed interim consolidated financial statements 2013 Notes to the unaudited condensed interim consolidated financial statementscontinued For the period ended 30 June 2013
9 Acquisition of subsidiary CONTINUED
Identifiable assets acquired and liabilities assumed on acquisition of Gale 4 at 12 March 2013 US$ Senior secured loans 403,739,873 Cash and cash equivalents 28,998,371 Due from broker and other receivables 2,507,916 Debt securities issued (383,686,757) Other payables (16,587,813) Net assets acquired 34,971,590
Consideration US$ Cash transferred 4,100,000 Existing holding in Gale 4 30,871,590 Total consideration 34,971,590 Goodwill –
The amount of cash that was transferred on 12 March 2013 as consideration for the further acquisition of income notes in Gale 4 was US$4,100,000. The fair value of the existing Company’s holding just prior to that date was US$30,871,590. On the date of acquisition, the fair value of the total consideration was equal to the net assets acquired and hence no goodwill arose on the acquisition.
At 30 June 2013, the Group statement of cash flows shows the purchase of investment in the Gale 4 subsidiary, net of cash acquired of US$24,898,371. This is the total cost of the purchase of the income notes paid during the period, net of the cash acquired as part of that acquisition.
At 30 June 2013, the total investment in subsidiaries consisted of: • ING CLO consisted of the investment in the preference shares of US$16,490,000 (31 December 2012: US$20,060,000) and the Class C notes US$2,808,871 (31 December 2012: US$Nil) and the Class D notes US$13,897,399 (31 December 2012: US$8,323,782).
• Gale 4 consisted of the investment in the income notes of US$21,064,480 and the Class E notes of US$12,797,175. In the prior year Carador’s investment in Gale 4 was treated as a simple investment and not as a subsidiary. US$ Investment in subsidiary at 1 January 2013 28,383,782 Acquisitions 42,259,090 Disposals – Net losses* (3,584,947) Investment in subsidiary at 30 June 2013 67,057,925
* The movement in the fair value of the investment in subsidiary is reflected in the net losses on financial assets designated at fair value through profit or loss in the statement of comprehensive income. During 2013, the Group earned coupon income of US$4,371,856 from the two subsidiaries held during the period in addition to the unrealised loss shown above, resulting in a net contribution to the profit of the Group from the two subsidiaries of US$786,909. 27 Financial statements and notes
9 Acquisition of subsidiary CONTINUED
Acquisitions during the year ended 2012 On 30 August 2012, the Company made a further 12% investment in the preference shares of the ING CLO, a special purpose vehicle incorporated in the Cayman Islands, bringing their total investment in the preference shares (equity tranche) to 50.37%. This further investment resulted in the Company having the majority of the residual interests under SIC Interpretation 12, “Consolidation – Special Purpose Entities” resulting in the requirement to consolidate its investment as a subsidiary. Subsequent to this, on 9 October and 26 November 2012, the Company further invested in the mezzanine tranches of the SPV.
In the period to 30 June 2013, the ING CLO contributed revenue of US$1,442,806 and loss of US$167,565 to the Group’s results (four months to 31 December 2012, revenue of US$1,220,179 and profit of US$270,637). In addition to the net gains and losses on the investment in subsidiaries, Carador also receives coupons from their investments.
10 SOFT COMMISSIONS
There are no agreements for the provision of any services by means of soft commission.
11 OFF BALANCE SHEET ARRANGEMENTS
There are no off balance sheet arrangements during the period. The investments are non-recourse securities with no contingent liabilities, where the Group and Company’s maximum loss is capped at the current carrying value.
12 RELATED PARTY TRANSACTIONS AND KEY MANAGEMENT PERSONNEL
COMPANY TRANSACTIONS WITH ENTITIES WITH SIGNIFICANT INFLUENCE In accordance with IAS 24 “Related Party Disclosures” the following note summarises related parties and related party transactions during the period. GSO Capital Partners International LLP acts as Investment Manager to the Company (the “Investment Manager”). Investment management fees earned by the Investment Manager amounted to US$3,760,802 (30 June 2012: US$2,534,076), of which US$1,199,392 (31 December 2012: US$1,276,887) was outstanding at the period end. Performance fees of US$452,526 (30 June 2012: US$7,809,304) were also earned by the Investment Manager, of which US$452,205 (31 December 2012: US$20,963,173) was outstanding at the period end.
TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL During the period ended 30 June 2013, the Company incurred Directors’ fees for services as Directors and out-of-pocket expenses of US$179,572 (30 June 2012: US$165,698), of which Nil (31 December 2012: Nil) was outstanding at the period end. The listing of the members of the Board of Directors is shown on page 60.
No Director, nor the Company Secretary, had any beneficial interest in the shares of the Company during the period ended 30 June 2013 or during the year ended 31 December 2012.
TRANSACTIONS WITH OTHER RELATED PARTIES During the period no current employees of the Investment Manager acquired (/disposed of) any US Dollar shares.
At 30 June 2013, current employees of the Investment Manager and its affiliates hold 12,524,424 US Dollar shares (31 December 2012: 12,524,424 US Dollar shares) which represents approximately 2.31% (31 December 2012: 2.31%) of the issued shares of the Company.
The Company may invest in other entities and transactions that are managed directly or indirectly by the Investment Manager or any of its affiliates and as at 30 June 2013, 42.43% (31 December 2012: 41.93%) of the Company’s underlying investments are managed in this way and these are listed below: Carador Income Fund PLC 28 Interim report including condensed interim consolidated financial statements 2013 Notes to the unaudited condensed interim consolidated financial statementscontinued For the period ended 30 June 2013
12 RELATED PARTY TRANSACTIONS AND KEY MANAGEMENT PERSONNEL CONTINUED
CLO Investments managed by GSO and affiliates 30 June 2013 Investment Investment Manager Callidus Debt Partners CLO Fund Ltd 5X D GSO / Blackstone Debt Funds Management LLC Callidus Debt Partners CLO Fund Ltd 5X INC GSO / Blackstone Debt Funds Management LLC Callidus Debt Partners CLO Fund Ltd 6X D GSO / Blackstone Debt Funds Management LLC Callidus Debt Partners CLO Fund Ltd 6A INC GSO / Blackstone Debt Funds Management LLC Callidus Debt Partners CLO Fund Ltd 7A SUB GSO / Blackstone Debt Funds Management LLC Columbus Park CDO Ltd 2008 2008-1A SUB GSO / Blackstone Debt Funds Management LLC Central Park CLO Ltd 2011 2011-1A SUB GSO / Blackstone Debt Funds Management LLC Gale Force CLO Ltd 2005-1X E GSO / Blackstone Debt Funds Management LLC Gale Force CLO Ltd 2006-2A SUB GSO / Blackstone Debt Funds Management LLC Gale Force CLO Ltd 2006-2X E GSO / Blackstone Debt Funds Management LLC Gale Force CLO Ltd 2007-3A D GSO / Blackstone Debt Funds Management LLC Gale Force CLO Ltd 2007-3A E GSO / Blackstone Debt Funds Management LLC Gale Force CLO Ltd 2007-3X D GSO / Blackstone Debt Funds Management LLC Gale Force CLO Ltd 2007-4A E GSO / Blackstone Debt Funds Management LLC Gale Force CLO Ltd 2007-4A INC GSO / Blackstone Debt Funds Management LLC Gramercy Park CLO Ltd 2012-1X D GSO / Blackstone Debt Funds Management LLC Inwood Park CDO Ltd Blackstone Debt Advisors Inwood Park CDO Ltd 2006-1A E Blackstone Debt Advisors Inwood Park CDO Ltd 2006-1A D Blackstone Debt Advisors Marine Park CLO Ltd 2012-1X D GSO / Blackstone Debt Funds Management LLC Prospect Park CDO Ltd Blackstone Debt Advisors Riverside Park CLO Ltd 2011-3X SNR GSO / Blackstone Debt Funds Management LLC Sheridan Square CLO Ltd 2013-1A F GSO / Blackstone Debt Funds Management LLC Tribeca Park CLO Ltd 2008-1A SUB GSO / Blackstone Debt Funds Management LLC
CLO Investments managed by GSO and affiliates 31 December 2012 Investment Investment Manager Callidus Debt Partners CLO Fund Ltd 5X D GSO / Blackstone Debt Funds Management LLC Callidus Debt Partners CLO Fund Ltd 5X INC GSO / Blackstone Debt Funds Management LLC Callidus Debt Partners CLO Fund Ltd 6X D GSO / Blackstone Debt Funds Management LLC Callidus Debt Partners CLO Fund Ltd 6A INC GSO / Blackstone Debt Funds Management LLC Callidus Debt Partners CLO Fund Ltd 7A SUB GSO / Blackstone Debt Funds Management LLC Columbus Park CDO Ltd 2008-1A SUB GSO / Blackstone Debt Funds Management LLC Central Park CLO Ltd 2011-1A SUB GSO / Blackstone Debt Funds Management LLC Gale Force CLO Ltd 2005-1X E GSO / Blackstone Debt Funds Management LLC Gale Force CLO Ltd 2006-2A SUB GSO / Blackstone Debt Funds Management LLC Gale Force CLO Ltd 2006-2X E GSO / Blackstone Debt Funds Management LLC Gale Force CLO Ltd 2006-2X SUB GSO / Blackstone Debt Funds Management LLC Gale Force CLO Ltd 2007-3A E GSO / Blackstone Debt Funds Management LLC Gale Force CLO Ltd 2007-3A INC GSO / Blackstone Debt Funds Management LLC Gale Force CLO Ltd 2007-3A D GSO / Blackstone Debt Funds Management LLC Gale Force CLO Ltd 2007-3X COM GSO / Blackstone Debt Funds Management LLC Gale Force CLO Ltd 2007-3X D GSO / Blackstone Debt Funds Management LLC Gale Force CLO Ltd 2007-4A E GSO / Blackstone Debt Funds Management LLC Gale Force CLO Ltd 2007-4A INC GSO / Blackstone Debt Funds Management LLC Gramercy Park CLO Ltd 2012-1X D GSO / Blackstone Debt Funds Management LLC Inwood Park CDO Ltd 2006-1A SUB Blackstone Debt Advisors Inwood Park CDO Ltd 2006-1X SUB Blackstone Debt Advisors Inwood Park CDO Ltd 2006-1A E Blackstone Debt Advisors Marine Park CLO Ltd 2012-1X D GSO / Blackstone Debt Funds Management LLC Morningside Park CLO Ltd 2010-1X GSO / Blackstone Debt Funds Management LLC Prospect Park CDO Ltd 2006-1X SUB Blackstone Debt Advisors Prospect Park CDO Ltd 2006-1I SUB Blackstone Debt Advisors Riverside Park CLO Ltd 2011-3X SNR GSO / Blackstone Debt Funds Management LLC Tribeca Park CLO Ltd 2008-1A SUB GSO / Blackstone Debt Funds Management LLC 29 Financial statements and notes
12 RELATED PARTY TRANSACTIONS AND KEY MANAGEMENT PERSONNEL CONTINUED
GROUP TRANSACTIONS WITH SUBSIDIARIES The ING CLO, a company incorporated in the Cayman Islands as a special purpose vehicle is considered a related party. The Company consolidates the results and financial position of ING CLO with effect from the date of acquisition of the risks and rewards, being 30 August 2012.
From the date the Company obtained control over the operations of ING CLO to the period end date, the Company received US$2,332,827 in coupon payments from ING CLO.
Gale 4, a company incorporated in Cayman Islands as a special purpose vehicle is considered a related party. The Company consolidates the results and financial position of Gale 4 with effect from the date of acquisition of the risks and rewards, being 12 March 2013.
From the date the Company obtained control over the operations of Gale 4 to the period end date, the Company received US$2,162,463 in coupon payments from Gale 4.
Transactions with entities with significant influence and key management personnel of the SUBSIDIARIES ING Alternative Asset Management LLC acts as the Investment Manager to ING CLO. Its fees consist of a senior investment management fee, a subordinated investment manager fee and a subordinated incentive fee. From the date the Company obtained control over the operations of the SPV to the period end date, the Group incurred investment management fees totalling US$1,347,431, of which US$594,384 was outstanding at period end (December 2012: US$455,868).
GSO Debt Funds Management LLC acts as the Collateral Manager to Gale 4. Its fees consist of a base investment management fee, a subordinated investment manager fee and a subordinated incentive servicing fee. From the date the Company obtained control over the operations of Gale 4 to the period end date, the Group incurred investment management fees totalling US$735,614, of which US$268,560 was outstanding at period end.
The Directors of the SPVs are not entitled to receive any Directors’ fees for their services as Directors.
13 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS
Introduction Risk is inherent in the Group’s activities but it is managed through a process of ongoing identification, measurement and monitoring, subject to risks limits and other controls. The process of risk management is critical to the Group’s continuing profitability. The Group is exposed to market risk (which includes currency risk, interest rate risk and other price risk), and credit risk arising from the financial instruments it holds. Given the Company’s capital structure as a closed-ended fund, it is not exposed to redemption risk relating to its own shares in issue. However, its financial assets include investments in collateralised loan obligations and derivative contracts (if any) traded over-the-counter which are not traded in an organised public market and which may be illiquid.
The risk management monitoring process for the Group is highly correlated to the risk management process at the Company level as the Investment Manager considers the risk and concentrations on a look-through basis at the Company level for the CLOs in addition to the Company. The SPVs are also restricted to investing in accordance with the guidelines and strategy set out in their prospectus. Carador Income Fund PLC 30 Interim report including condensed interim consolidated financial statements 2013 Notes to the unaudited condensed interim consolidated financial statementscontinued For the period ended 30 June 2013
13 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS CONTINUED
Risk management structure The Board of Directors is ultimately responsible for identifying and controlling risks. The Investment Manager also carries out ongoing monitoring of the risk. As a result, there are separate bodies for managing and monitoring risks.
Risk measurement and reporting system The Group and Company’s risks are measured using a method which reflects both the expected loss likely to arise in normal circumstances and unexpected losses, which are an estimate of the ultimate actual loss based on models. The models make use of the probabilities derived from historical experience, adjusted to reflect the economic environment.
Monitoring and controlling risks at the Company level is primarily performed based on limits established by the Board. These limits reflect the business strategy and market environment of the Company as well as the level of risk that the Company is willing to accept. In addition, the Company monitors and measures the overall risk-bearing capacity in relation to the aggregate risk exposure across risk types and activities.
Risk mitigation The Group has investment guidelines that set out its overall business strategies, its tolerance for risk and its general risk management philosophy (separately at both the Company and subsidiary level) and has established processes to monitor and control economic hedging transactions in a timely and accurate manner. The Group may use derivatives and other instruments only in connection with its risk management activities, but not for trading purposes.
Excessive risk concentration Concentration arises when a number of counterparties are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentration indicates the relative sensitivity of the Group’s performance to developments affecting a particular issuer, Manager, asset class or geographical location.
In order to avoid excessive concentration of risk, the Company’s policies and procedures include specific guidelines to focus on maintaining a diversified portfolio. Identified concentration of credit risks are controlled and managed accordingly.
Carador’s investment guidelines specify, among others, that the Company must invest in a minimum of 20 separate investments with a maximum exposure per investment, at the time of investment, of 20% of the net asset value of the Company. The Company also limits its exposure to transactions managed by the same portfolio manager to 15% of the net asset value, at the time of investment. However, if the portfolio manager is an affiliate of the Investment Manager, this limit is increased to 60% of the net asset value at the time of investment.
The concentration risk at 30 June 2013 and 31 December 2012 is disclosed below in note 13 (A)(iii) and 13 (B).
(a) Market risk Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices and includes interest rate risk, foreign currency risk and other price risks. The Group may use derivative instruments to hedge the investment portfolio against currency risk.
The Group’s investments are in collateralised loan obligations vehicles and senior secured loans of the consolidated SPVs. The CLO vehicles typically have no significant assets other than the loans as collateral. Accordingly, payments on the CLO securities are payable solely from the cash flows from the collateral, net of all management fees and other expenses. Payments to the Group as a holder of Income Notes and/or Mezzanine Notes of CLO vehicles are met only after payments due on the senior notes (and, where appropriate, the mezzanine notes) have been made in full. 31 Financial statements and notes
13 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS CONTINUED
(a) Market risk continued The following table shows the securities held by the Group which are susceptible to market risk arising from uncertainties about interest rates, foreign currency fluctuation and future prices of the instruments.
Group Company Group Company 30 June 2013 30 June 2013 31 December 2012 31 December 2012 US$ US$ US$ US$ Financial assets designated at fair value through profit or loss 1,212,574,433 471,060,356 956,698,281 520,409,073 Investment in subsidiary designated at fair value through profit or loss – 67,057,925 – 28,383,782 Debt securities issued (844,043,753) – (464,536,911) –
(i) Interest rate risk The Group is exposed to interest rate risk on the loans held and on a look-through basis to the underlying assets in the CLOs.
The majority of the Company’s financial assets are Income Notes and mezzanine tranches of cash flow OCL s. The Group’s investments have exposure to interest rate risk but this is limited to floating Libor-based exposure for the CLO’s assets. The Investment Manager considers the interest rate risk at Group level to be the same as at the Company level, as the subsidiaries, the SPVs, have floating interest rate assets and liabilities, with the interest on the debt securities being paid only to the extent of the net income received.
The following table shows the Directors’ best estimate of the sensitivity of the portfolio to stressed changes in interest rates, with all other variables held constant. The table assumes parallel shifts in the respective forward yield curves.
Group Company Group Company 30 June 2013 30 June 2013 31 December 2012 31 December 2012 Possible effect on net assets effect on net assets effect on net assets effect on net assets reasonable and profit or loss and profit or loss and profit or loss and profit or loss change in rate US$ US$ US$ US$ -1% (14,357,439) (14,357,439) (20,196,219) (20,196,219) 1% 21,904,264 21,904,264 21,429,161 21,429,161
The following table shows the portfolio profile at 30 June 2013 and 31 December 2012:
Group Company Group Company 30 June 2013 30 June 2013 31 December 2012 31 December 2012 Investments with a floating interest rate 100% 100% 100% 100% Investments with a fixed interest rate – – – – Financial assets designated at fair value through profit or loss 100% 100% 100% 100% Debt securities with a floating interest rate 100% 100% 100% – Carador Income Fund PLC 32 Interim report including condensed interim consolidated financial statements 2013 Notes to the unaudited condensed interim consolidated financial statementscontinued For the period ended 30 June 2013
13 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS CONTINUED
(a) Market risk continued (ii) Currency risk Investments acquired for the Group’s portfolio are predominantly denominated in US Dollar. However, the Group may also invest in underlying assets which are denominated in currencies other than the US Dollar (e.g. the Euro). Accordingly, the value of such assets may be affected, favourably or unfavourably, by fluctuations in currency rates and which, if unhedged, could have the potential to have a significant effect on returns. To reduce the impact on the Group of currency fluctuations and the volatility of returns which may result from currency exposure, the Investment Manager may hedge the currency exposure of the assets of the Company.
As at 30 June 2013 and 31 December 2012, the Group’s investments are fully denominated in US Dollar (the functional currency of the Company). In addition, all of the shares in issue are denominated in US Dollar. The Group is therefore exposed to very limited currency risk, as the vast majority of the Group’s assets and liabilities are denominated in US Dollar. As a result, the Group currently does not use foreign exchange forward contracts to manage its currency exposure.
30 June 2013 31 December 2012 Possible 30 June 2013 effect on net assets 31 December 2012 effect on net assets change in net exposure and profit or loss net exposure and profit or loss exchange rate US$ US$ US$ US$ Euro/US Dollar +/–5% 72,318 (+/-987) 133,515 (+/– 1,848) GBP/US Dollar +/–5% 191,563 (+/-3,051) – –
The exposure of the Group to EUR and GBP is as a result of cash holdings representing the full exposure shown above.
At 30 June 2013 and 31 December 2012 the Group and Company did not have any open forward contracts.
(iii) Other price risks The risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market. The Directors do not believe that the returns on investments are correlated to any specific index or other price variable.
The table below analyses the Group’s concentration of other price risk by subsector in the secured loan asset class.
Group Company Group Company 30 June 2013 30 June 2013 31 December 2012 31 December 2012 US$ US$ US$ US$ Broadly syndicated loans – Europe 25,370,440 – 8,345,248 – Broadly syndicated loans – North America 1,183,408,310 538,118,281 945,422,073 548,792,855 Broadly syndicated loans – Singapore 865,385 – – – Equities 2,930,298 – 2,930,960 – 1,212,574,433 538,118,281 956,698,281 548,792,855 33 Financial statements and notes
13 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS CONTINUED
(a) Market risk continued (iii) Other price risks continued The table below analyses the Group’s concentration of market price risk by geographical area.
Group Company Group Company 30 June 2013 30 June 2013 31 December 2012 31 December 2012 US$ US$ US$ US$ Europe 25,370,440 – 8,345,248 – North America 1,186,338,608 538,118,281 948,353,033 548,792,855 Other 865,385 – – – 1,212,574,433 538,118,281 956,698,281 548,792,855
(B) CREDIT RISK Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. It is the Group’s policy to enter into financial instruments with a range of reputable counterparties. Therefore, the Group has a well-diversified portfolio to reduce credit risk.
The table below analyses the Group’s maximum credit exposure to credit risk for the components of the statement of financial position, the amount reflected for the financial assets designated at fair value through profit or loss excludes the equities which are not subject to credit risk. Group Company Group Company 30 June 2013 30 June 2013 31 December 2012 31 December 2012 US$ US$ US$ US$ Cash and cash equivalents 210,680,296 2,744,523 95,280,133 30,996,834 Financial assets designated at fair value through profit or loss 1,209,644,135 471,060,356 953,767,321 520,409,073 Investment in subsidiary designated at fair value through profit or loss – 67,057,925 – 28,383,782 Due from broker and other receivables 960,242 960,242 2,078,583 107,167 1,421,284,673 541,823,046 1,051,126,037 579,896,856
The cash and substantially all of the assets of the Company are held by the Custodian. Bankruptcy or insolvency of the Custodian may cause the Company’s rights with respect to securities held by the Custodian to be delayed or limited. The Company monitors its risk by monitoring the credit quality and financial positions of the Custodian. State Street Corporation is the parent company of the Custodian, State Street Custodial Services (Ireland) Limited and the long-term rating of State Street Corporation as at 30 June 2013 and 31 December 2012 was A1. The derivative financial instruments, if any, are transacted with State Street Bank London whose parent Company is also State Street Corporation which has a long-term rating of A1. The cash of the ING CLO (30 June 2013: US$157,383,566) is held with US Bank, the trustee for ING CLO, which has a long-term credit rating of A1 as at 30 June 2013 and 31 December 2012. The cash and cash equivalents held by Gale 4 (30 June 2013: US$50,552,207) are held by State Street Corporation, which has a credit rating of A1. Carador Income Fund PLC 34 Interim report including condensed interim consolidated financial statements 2013 Notes to the unaudited condensed interim consolidated financial statementscontinued For the period ended 30 June 2013
13 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS CONTINUED
(B) CREDIT RISK continued The Investment Manager assesses the credit risk of the CLOs on a look-through basis to the underlying loans in each CLO. The Investment Manager seeks to provide diversification in terms of underlying assets, issuer section, geography and maturity profile. The below graph shows the concentration of credit risk by industry for the CLO investments on a look-through basis at 30 June 2013.
Healthcare 11%
Business equipment and services 8%
Electronics/electric 5%
Retailers (except food and drugs) 5%
Financial intermediaries 4%
Cable television 4%
Chemicals/plastics 4%
Leisure goods/activities/movies 3%
Automotive 3%
Telecommunications 3%
Other 50%
The top 10 exposures on a look-through basis for the CLO investments are disclosed below on the 30 June 2013:
Issuer Rating Sector % 1 hCA Ba3/BB Healthcare 1.00 2 aramark B1/BB- Food service 1.00 3 First Data B1/B+ Financial intermediaries 0.95 4 huntsman International Ba1/BB+ Chemicals/plastics 0.77 5 rPI Finance Trust (Royalty Pharma) Baa2/BBB- Financial intermediaries 0.75 6 Sungard Data Systems Ba3/BB Financial intermediaries 0.71 7 Texas Competitive Electric Caa3/CCC Utilities 0.70 8 Mediacom Ba3/BB- Cable television 0.70 9 asurion Ba2/B+ Insurance 0.68 10 Delta Airlines Ba2/BB Air transport 0.68
It should be noted that both the industry concentration and the top ten exposures on a look-through basis, reflect the position of both the Company and the Group. 35 Financial statements and notes
13 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS CONTINUED
(B) CREDIT RISK continued The Group also quantifies the exposure to the credit risk of all CLO investments based on the country of registration (not necessarily asset exposure): Group Company Group Company 30 June 2013 30 June 2013 31 December 2012 31 December 2012 US$ US$ US$ US$ Cayman Islands 471,500,149 538,118,281 523,425,957 548,792,855 United States 700,330,520 – 424,927,076 – Europe 25,370,440 – 8,345,248 – Canada 14,507,939 – – – Singapore 865,385 – – – 1,212,574,433 538,118,281 956,698,281 548,792,855
The table below summarises the Group’s portfolio concentrations as at 30 June 2013 and 31 December 2012.
Maximum portfolio Average holdings of a single asset portfolio holdings % of total portfolio % of total portfolio Group 30 June 2013 1.98% 0.21% Company 30 June 2013 4.44% 1.08% Group 31 December 2012 2.47% 0.31% Company 31 December 2012 4.29% 1.09%
The table below summarises the portfolio by asset class and ratings of the portfolio as of 30 June 2013 and 31 December 2012.
Group Company Group Company 30 June 2013 30 June 2013 31 December 2012 31 December 2012 By asset class: US$ US$ US$ US$ Senior CLO – – 3,712,789 1,845,114 Mezzanine CLO 246,518,515 276,021,960 193,002,811 220,697,313 Income Notes CLO 224,541,841 262,096,321 326,250,428 326,250,428 ING CLO Loans – Investment grade 1,940,427 – 1,019,485 – – Non-investment grade 320,779,089 – 427,207,157 – – Non-rated 3,546,380 – 2,574,651 – Gale 4 Loans – Investment grade 3,952,422 – – – – Non-investment grade 383,901,990 – – – – Non-rated 24,463,471 – – – Equities 2,930,298 – 2,930,960 – 1,212,574,433 538,118,281 956,698,281 548,792,855
For the purposes of the asset class breakdown above, the Senior CLO investments were originally rated AAA/AA CLO notes, Mezzanine CLO investments were originally rated A/BBB/BB and Income Notes were Non Rated (“NR”). Carador Income Fund PLC 36 Interim report including condensed interim consolidated financial statements 2013 Notes to the unaudited condensed interim consolidated financial statementscontinued For the period ended 30 June 2013
13 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS continued
(B) CREDIT RISK continued The Company’s portfolio is partly invested in the Income Notes tranches of cash flow collateralised loan obligations which are subject to potential non‑payment and are by definition, non-rated securities. The Company assesses the quality of non-rated assets based on a fundamental analysis of the underlying loans in the respective portfolios and the effect of the liabilities and terms and conditions determined in the relevant CLO document in the expected cash flow allocation to the non-rated tranche.
With the exception of investments in senior and mezzanine CLO notes, the Company will typically be in a first loss or subordinated position with respect to realised losses on the collateral of each CLO investment. The leveraged nature of the Income Notes and the Mezzanine Notes, in particular, magnifies the adverse impact of collateral defaults.
The Group may be adversely impacted by an increase in its credit exposure related to investing and other activities. The Group is exposed to the potential for credit-related losses that can occur as a result of an individual, counterparty or issuer being unable or unwilling to honour its contractual obligations. These credit exposures exist within financing relationships, commitments, derivatives and other transactions. These exposures may arise, for example, from a decline in the financial condition of a counterparty, from entering into swap or other derivative contracts under which counterparties have obligations to make payments to us, from a decrease in the value of securities of third parties that the Group holds as collateral, or from extending credit through guarantees or other arrangements. As the Group’s credit exposure increases, it could have an adverse effect on the Group’s business and profitability if material unexpected credit losses occur.
Any reduction in value of the loans held by the subsidiaries designated at fair value through profit or loss and related to credit risk will be borne by the debt securities holders of the SPVs. The debt securities holders are fully exposed to the credit risk of the underlying collateral. Therefore, there is no additional direct credit risk to the Company from the loans but only indirectly through Carador’s investment in the SPVs.
(c) Liquidity risk Liquidity risk is defined as the risk that the Group may not be able to settle or meet its obligations on time or at a reasonable price.
The Company does not currently use leverage and as a result it has no financing subject to margin calls which may force the Company to liquidate assets. The Company’s unleveraged capital structure reflects the long-term investment strategy and matches the illiquidity of the underlying investments.
The Company is closed ended. At the annual general meeting to be held in the year 2022 and in every tenth year thereafter, the Directors will propose a special resolution to the effect that the Company continue for a further ten years. If the continuation vote is not passed, the Directors are required to formulate proposals to be put to shareholders to wind-up, reorganise or reconstruct the Company.
Given the Company’s permanent capital structure as a closed-ended fund, it is not exposed to redemption risk. However, the Company’s financial instruments include investments in collateralised debt obligations and derivative contracts (if any) traded over-the-counter which are not traded in an organised public market and which may be illiquid.
The Group’s obligations to holders of debt securities are directly secured and limited recourse with respect to the assets and cash flows of the SPVs and therefore the SPVs do not bear any liquidity risk in respect of the debt securities issued.
The SPVs’ approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, this is achieved by matching the maturity of the loans invested in with the maturity of the debt securities and by the structure of the SPVs. 37 Financial statements and notes
13 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS continued
(c) Liquidity risk continued The debt securities issued are carried at fair value through profit or loss. The ultimate amount repaid to the note holders will depend on the proceeds from the loans.
All substantial risks and rewards associated with the financial assets and liabilities are ultimately borne by the note holders.
Gross Between Between Carrying contractual Less than one to two two to five More than June 2013 amount cash flows one year years years five years Liabilities US$ US$ US$ US$ US$ US$ ING CLO Debt securities issued 452,753,869 511,501,855 2,976,902 2,976,902 8,930,707 496,617,343 Gale 4 Debt securities issued 391,289,884 497,804,371 4,317,139 4,317,139 12,951,416 476,218,677 Total 844,043,753 1,009,306,226 7,294,041 7,294,041 21,882,123 972,836,020
Gross Between Between Carrying contractual Less than one to two two to five More than December 2012 amount cash flows one year years years five years Liabilities US$ US$ US$ US$ US$ US$ Debt securities issued 464,536,911 485,316,387 3,181,912 3,181,912 9,545,736 469,406,827
As at 30 June 2013, all of the Group’s liabilities were due within three months with the exception of the debt securities issued by the SPVs (31 December 2012: ING CLO).
14 STOCKLENDING
The Group did not enter into any stocklending transactions during the period (2012: none).
15 EARNINGS PER SHARE
The EPS is calculated by dividing the profit for the period attributable to the participating shareholders by the weighted average number of shares outstanding in the period.
Period ended 30 June 2013 – GROUP AND COMPANY US Dollar Class US$ Profit for the period attributable to the participating equity shareholders 9,881,440 Number of ordinary shares for basic earnings per share 543,253,359 Basic Earnings Per Share US$0.02
For the period ended 30 June 2013, there are no potential ordinary shares in existence at the period end, hence no diluted EPS is shown. Carador Income Fund PLC 38 Interim report including condensed interim consolidated financial statements 2013 Notes to the unaudited condensed interim consolidated financial statementscontinued For the period ended 30 June 2013
15 EARNINGS PER SHARE continued
Period ended 30 June 2012 – GROUP AND COMPANY Euro Class US Dollar Class US Dollar C Class* € US$ US$ Profit for the period attributable to the participating equity shareholders 1,655,835 48,676,343 6,186,913 Number of ordinary shares for basic earnings per share 13,914,839 363,799,170 76,839,740 Basic Earnings Per Share 0.12 0.13 0.08
* US Dollar C Class – Admitted to the Official List and to trading on the London Stock Exchange’s Main Market on 15 December 2011, converted to US Dollar shares on 26 March 2012 and delisted on 26 March 2012.
The Directors consider the key performance indicators for the Company to be the net asset value, net asset value per share and the quarterly dividends.
16 SEGMENTAL REPORTING
As required by IFRS 8, Operating Segments, the information provided to the Board of Directors and Investment Manager, who are the Chief Operating Decision Makers, can be classified in the following segments for the six months ended 30 June 2013:
Consists of the US Dollar Class.
Information about reportable segments
Period ended 30 June 2013 US Dollar Class US$ Net gain on financial assets designated at fair value through profit or loss 15,206,722 Operating expenses (5,406,521) Total profit for reportable segments 9,800,201 Reconciliation of reportable segment to profit or loss Total profit for reportable segments 9,800,201 Other profit or loss – unallocated amounts Interest income on cash and cash equivalents and miscellaneous income 83,743 Net loss on foreign exchange (2,504) Profit before tax for the period 9,881,440 Financial assets designated at fair value through profit or loss 471,060,356 Investment in subsidiary designated at fair value through profit or loss 67,057,925 Due from broker and other receivables 960,242 Cash and cash equivalents 2,744,523 Expenses payable (1,885,390) 39 Financial statements and notes
16 SEGMENTAL REPORTING continued
Information about reportable segments continued For the period ended 30 June 2012, information was classified in the following segments:
Core share classes – consists of the Euro and US Dollar Class. period ended 30 June 2012 Core Share Classes US Dollar C Class* Total US$ US$ US$ Net gain on financial assets designated at fair value through profit or loss 61,115,230 6,863,697 67,978,927 Net gain on derivative financial instruments and foreign exchange 247,503 – 247,503 Operating expenses (10,533,415) (676,784) (11,210,199) Total profit for reportable segments 50,829,318 6,186,913 57,016,231 Reconciliation of reportable segment to profit or loss Total profit for reportable segments 57,016,231 Other profit or loss – unallocated amounts Interest income on cash and cash equivalents 1,679 Profit before tax for the period 57,017,910 Financial assets designated at fair value through profit or loss 520,409,073 – 520,409,073 Investment in subsidiary designated at fair value through profit or loss 28,383,782 – 28,383,782 Due from the broker and other receivables 107,167 – 107,167 Cash and cash equivalents 30,996,834 – 30,996,834 Expenses payable (22,514,996) – (22,514,996)
* US Dollar C Class – Admitted to the Official List and to trading on the London Stock Exchange’s Main Market on 15 December 2011, converted to US Dollar shares on 26 March 2012 and delisted on 26 March 2012.
For the periods ended 30 June 2013 and 30 June 2012, the Group’s primary exposure was to North America.
17 TAXATION
Company Under current law the Company qualifies as an investment undertaking under Section 739B of the Taxes Consolidation Act 1997 and is not therefore chargeable to Irish tax on its relevant income or relevant gains. No stamp, transfer or registration tax is payable in Ireland on the issue, redemption or transfer of shares in the Company. Dividends and interest on securities issued in countries other than Ireland may be subject to taxes including withholding taxes imposed by such countries. The Company may not be able to benefit from a reduction in the rate of withholding tax by virtue of the double taxation agreement in operation between Ireland and other countries. The Company may not therefore be able to reclaim withholding tax suffered by it in particular countries.
To the extent that a chargeable event arises in respect of a shareholder, the Company may be required to deduct tax in connection with that chargeable event and pay the tax to the Irish Revenue Commissioners. A chargeable event can include payments to shareholders, appropriation, cancellation, redemption, repurchase or transfer of shares, or a deemed disposal of shares every eight years beginning from the date of acquisition of those shares. Certain exemptions can apply. To the extent that shareholders have appropriate tax declarations in place with the Company there may be no requirement to deduct tax. Carador Income Fund PLC 40 Interim report including condensed interim consolidated financial statements 2013 Notes to the unaudited condensed interim consolidated financial statementscontinued For the period ended 30 June 2013
17 TAXATION continued
Subsidiaries The Group’s subsidiaries, the SPVs, are both Cayman Island CLOs. Under existing Cayman Island law the payments of principal and dividends will not be subject to taxation in the Cayman Islands and no withholding tax will be required on such payments to any holder of the debt securities and gains derived from the sale of debt securities will not be subject to Cayman Islands’ income or corporation tax. It is exempt from all forms of taxation in the Cayman Islands, including income, capital gains and withholding taxes.
18 Dividends
The Board declared the following dividends during the period:
PERIOD FROM 1 NOVEMBER 2012 TO 31 DECEMBER 2012 US$0.0163 per US Dollar share US$8,855,030
This dividend was paid on 6 February 2013 to shareholders on the share register as at the close of business on 1 February 2013.
PERIOD ENDED 31 MARCH 2013 US$0.0340 per US Dollar share US$18,470,614
This dividend was paid on 9 May 2013 to shareholders on the share register as at the close of business on 3 May 2013.
The Board declared the following dividend during the period ended 30 June 2012:
PERIOD ENDED 30 DECEMBER 2011 €0.0250 per Euro share €347,871 US$0.0320 per US Dollar share US$10,004,067
This dividend was paid on 6 February 2012 to shareholders on the share register as at the close of business on 3 February 2012.
Period ended 31 March 2012 €0.0250 per Euro share €347,871 US$0.0330 per US Dollar share US$10,316,694 US$0.0100 per US Dollar C share US$768,397
This dividend was paid on 26 April 2012 to shareholders on the share register as at the close of business on 23 March 2012.
19 EVENTS DURING THE period
On 9 January 2013, the Company announced that the maximum level of Directors’ remuneration had been increased by 10% for the year ending 31 December 2013 as permitted by the terms of the prospectus. The maximum level of remuneration was thereby increased to €259,545 (excluding taxes and withholdings). The purpose of this increase is to reflect the increased level of work undertaken by the Board in connection with the growth in the size of the Company.
On 22 January 2013, the Board declared a dividend of US$0.0163 per US Dollar share in respect of the period from 1 November 2012 to 31 December 2012. This dividend was paid on 6 February 2013 to shareholders on the register as at the close of business on 1 February 2013. The amount paid in respect of this dividend was US$8,855,030.
On 22 April 2013, the Board declared a dividend of US$0.0340 per US Dollar share in respect of the period from 1 January 2013 to 31 March 2013. This dividend was paid on 9 May 2013 to shareholders on the register as at the close of business on 3 May 2013. The amount paid in respect of this dividend was US$18,470,614. 41 Financial statements and notes
19 EVENTS DURING THE period continued
On 10 April 2013, Professor Claudio Albanese resigned as a Director of the Company.
At the annual general meeting of the Company held on 26 June 2013, shareholders approved the following ordinary and special resolutions:
Ordinary Resolutions 1. receipt and consideration of the Directors’ report and the financial statements;
2. re-appointment of KPMG as auditors to the Company;
3. authorisation of the Directors to fix the remuneration of the auditors;
4. re-election of Mr. Edward D’Alelio as a Director of the Company;
5. authorisation of the Board to allot such number of shares in the Company as is the equivalent of up to 10% of the issued share capital of the Company as at 26 June 2013; and
Special Resolution 1. authorisation of the Board to allot the shares referred to in ordinary resolution 5 above without having previously to offer such shares to shareholders on a pre-emptive basis.
On 24 May 2013, a circular was sent to shareholders in respect of proposals to:
• increase the Company’s exposure to primary CLO income note transactions compared with the current concentration on secondary CLO positions;
• replace the 2017 continuation vote with a redemption opportunity, at the Directors’ discretion, for investors in 2017 (and every five years thereafter) if the shares have traded at an average discount to NAV in excess of 5% over the 12-month period prior to 30 April in the relevant year;
• amend the Articles to replace the winding-up vote to take place in 2021 with a continuation vote to be held in 2022 (and every 10 years thereafter);
• amend the Company’s dividend policy such that the Company not be required to pay out all net income each year and to use this flexibility for the purposes of making more consistent quarterly dividend payments;
• permit the issue of 500 million shares on a non-pre-emptive basis; and
• amend the Investment Manager’s performance fee hurdle. With effect from 1 January 2014, the Hurdle Rate, which is currently 12-month US Dollar Libor, plus 2% will be changed to the higher of: (i) 12-month US Dollar Libor; and (ii) 4% in each case plus 2%.
At the extraordinary general meeting held on 26 June 2013, any resolutions required to implement the above proposals were approved.
No other events which require disclosure in the financial statements have occurred in respect of the Company during the period. Carador Income Fund PLC 42 Interim report including condensed interim consolidated financial statements 2013 Notes to the unaudited condensed interim consolidated financial statementscontinued For the period ended 30 June 2013
20 Explanatory note on significant movements during the period
The significant movements in the period have primarily been considered from the perspective of the Company. During the period the Company has started to consolidate Gale 4, from the acquisition date 12 March 2013, as further explained in note 9. This has resulted in the preparation of condensed interim consolidated financial statements, which has grossed up the balance sheet presented in the consolidated financial statements, but has no direct impact on the investment process of the Company as from the management perspective. The Investment Manager continues to manage all of the investments as a single portfolio of CLOs on a fair value basis.
Financial assets designated at fair value through profit or loss (including investment in subsidiary) US$538,118,281 (31 December 2012: US$548,792,855). The value of the Company financial assets designated at fair value through profit and loss is more or less in line with the December year end numbers, just showing a very slight decrease of 1.95%. The investments held increased over December but there would have been a reduction in value due to the mild volatility in the marketplace in the half year as detailed in the Chairman’s report and the Investment Manager’s review.
Cash and cash equivalents US$2,744,523 (31 December 2012: US$30,996,834). There has been a reduction in cash and cash equivalents during the period due to an increase in investments and the payment of performance fees of US$20,963,173 which was accrued at 31 December 2012 (see note 5 for more details).
Net gain on financial assets designated at fair value through profit or loss US$15,206,722 (30 June 2012: US$67,978,927). The Company had a net gain on financial assets designated at fair value through profit or loss for the period of US$15,206,722, which showed a reduction on the gains achieved in the same period in 2012. This reflects the change in market conditions as explained in the Chairman’s report and the Investment Manager’s review.
Investment management fees US$3,760,802 (30 June 2012: US$2,534,076). Investment management fees are based on a percentage of the net asset value of the Company. The fee increase from period ended 30 June 2012 to 30 June 2013 reflects the increase in the Company’s net asset value over the same time period.
21 SUBSEQUENT EVENTS
On 11 July 2013, the Board of Directors agreed to the novation of the Investment Management Agreement from GSO Capital Partners International LLP (“GSO CPI”), a limited liability partnership registered in England and Wales, to GSO / Blackstone Debt Funds Management LLC (“GSO / Blackstone DFM”), a limited liability corporation organised in the state of Delaware, USA. The change was effective from 14 July 2013. GSO CPI was retained by GSO / Blackstone DFM to provide investment advice to it in respect of the Company and so will continue to have a role in the Company. Both GSO CPI and GSO / Blackstone DFM are in the same group of companies. The change in Investment Manager did not result in a change in the investment process applied to the Company and the Company will continue to benefit from the support provided by GSO CPI, acting in its capacity as investment adviser to GSO / Blackstone DFM.
On 11 July 2013, the Board declared a dividend of US$0.0340 per US Dollar share in respect of the period from 1 April 2013 to 30 June 2013. This dividend was paid on 31 July 2013 to shareholders on the register as at the close of business on 26 July 2013. The amount paid in respect of this dividend was US$18,470,613. 43 Financial statements and notes
21 SUBSEQUENT EVENTS continued
Under Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 (“AIFMD”), alternative investment fund managers (“AIFM”) may only assume exposure to securitisations as defined therein on behalf of one or more alternative investment funds (“AIFs”) if the originator, sponsor or original lender of the securitisation has explicitly disclosed to the AIFM that it retains, on an ongoing basis, a material net economic interest in the securitisation, which shall not be less than 5% (the “retention requirement”). Carador is an AIF for the purposes of AIFMD and GSO / Blackstone Debt Funds Management LLC (the “Investment Manager”) is designated as the AIFM. As a non-EU AIFM, the Investment Manager is subject to certain provisions of AIFMD but is not yet subject to the retention requirement. The Central Bank of Ireland has indicated that a non-EU AIFM may avail of a transitional period to 22 July 2015 before it must comply in full with AIFMD. The Central Bank will keep the extent of this transition under review with a view to extending the transitional period to align with the coming into effect of Article 37 of AIFMD (i.e. the provision which allows non-EU AIFMs to become authorised under AIFMD), unless there are strong reasons not to do so in the light of intervening experience in relation to the regulation of AIFs which have non-EU AIFMs. If and when applicable, the retention requirement could operate as a material restriction on the investment activities of Carador. In particular, if CLOs then held by Carador do not meet with the retention requirement, corrective action may need to be taken to ensure compliance with AIFMD including disposal of the CLOs, thereby incurring additional costs and selling at a price less than would otherwise have been the case if the CLOs had been held for the desired length of time. These and other restrictions and/or conditions imposed by AIFMD may result in (i) the restructuring of Carador and/or its relationships with service providers, and (ii) restrictions on the investment activities the Investment Manager or Carador may engage in.
No other events which require adjustment or disclosure in the financial statements have occurred in respect of the Company subsequent to the period end.
22 APPROVAL OF THE FINANCIAL STATEMENTS
The financial statements were approved for issue to shareholders by the Directors on 28 August 2013. Carador Income Fund PLC 44 Interim report including condensed interim consolidated financial statements 2013 Other information – unaudited
Other information – unaudited 45 Schedule of investments – Company 48 Schedule of investments – Consolidated 60 Management and administration 45 Other information Schedule of investments – Company – unaudited As at 30 June 2013
Nominal Market % of net holdings value US$ asset value Collateralised debt obligations Region of trade North America Country of incorporation Cayman Islands (December 2012: 93.37%) Acas CLO Ltd 2013-1X F 5,000,000 4,630,757 0.86 American Money Management 2012-11X E 3,900,000 2,420,438 0.45 American Money Management Corp 2006-7A E 2,996,785 2,822,227 0.52 American Money Management Corp 2006-7X E 1,723,152 1,622,781 0.30 American Money Management Corp 2012-11X E 11,400,000 11,577,163 2.14 Apidos CDO 2006-4A E 4,000,000 3,721,359 0.69 Apidos CDO 2011-8A D 6,200,000 5,684,195 1.05 Apidos CDO 2012-9X E 5,000,000 5,009,869 0.93 ARES CLO Ltd 2007-11A E 5,000,000 5,003,047 0.93 ARES CLO Ltd 2007-12X E 17,392,792 17,248,215 3.19 ARES CLO Ltd 2007-3RA E 7,000,000 6,187,090 1.15 Callidus Debt Partners CLO Fund Ltd 5A INC 4,700,000 3,662,083 0.68 Callidus Debt Partners CLO Fund Ltd 5X D 2,000,000 1,758,602 0.33 Callidus Debt Partners CLO Fund Ltd 5X INC 7,000,000 5,454,167 1.01 Callidus Debt Partners CLO Fund Ltd 6A D 6,000,000 5,994,569 1.11 Callidus Debt Partners CLO Fund Ltd 6A INC 12,500,000 14,916,667 2.76 Callidus Debt Partners CLO Fund Ltd 6X D 4,000,000 3,996,379 0.74 Callidus Debt Partners CLO Fund Ltd 7A SUB 9,350,000 6,814,592 1.26 Callidus Debt Partners CLO Fund Ltd 7X SUB 4,750,000 3,461,958 0.64 Carlyle Global Market Strategies CLO Ltd 2012-2A E 5,000,000 4,978,984 0.92 Central Park CLO Ltd 2011 2011-1A SUB 2,858,500 3,034,774 0.56 Clear Lake CLO Ltd 2006 2006-1A D 6,184,393 5,552,566 1.03 Columbus Park CDO Ltd 2008 2008-1A SUB 30,000,000 23,960,000 4.44 Denali Cap CLO Ltd (Preference Shares) 2,000,000 685,000 0.13 Eaton Vance CDO Ltd 2006-8I SUB 2,500,000 2,436,250 0.45 Eaton Vance CDO Ltd 2006-8X SUB 7,799,280 7,600,398 1.41 Fairway Loan FundING Co 2006-1A B2L 7,000,000 6,484,022 1.20 Flatiron CLO Ltd 2012-1X D 11,500,000 10,974,357 2.03 Foothill CLO Ltd 2007-1X E 1,360,000 1,273,827 0.24 Foothill CLO Ltd 2007-1A E 2,840,000 2,660,051 0.49 Foothill CLO Ltd 2007-1A SUB 9,200,000 10,733,333 1.99 Franklin CLO Ltd 6X E 5,277,918 4,847,105 0.90 Galaxy CLO Ltd 2006-7X SUB 2,000,000 1,016,333 0.19 Galaxy CLO Ltd 2012-14X E 1,750,000 1,643,107 0.30 Gale Force CLO Ltd 2005-1X E 9,121,641 9,160,081 1.70 Gale Force CLO Ltd 2006-2A SUB 17,000,000 6,184,600 1.15 Gale Force CLO Ltd 2006-2X E 2,000,000 1,865,603 0.35 Gale Force CLO Ltd 2006-2X SUB 2,000,000 727,600 0.13 Gale Force CLO Ltd 2007-3A D 4,100,000 3,720,964 0.69 Gale Force CLO Ltd 2007-3A E 1,600,000 1,466,592 0.27 Gale Force CLO Ltd 2007-3A INC 7,000,000 4,884,833 0.90 Gale Force CLO Ltd 2007-3X COM 1,631,521 5,732,333 1.06 Gale Force CLO Ltd 2007-3X D 2,000,000 1,815,104 0.34 Gramercy Park CLO Ltd 2012-1X D 3,000,000 2,872,113 0.53 ING Investment Management Co 2007-4A D 1,800,000 1,656,989 0.31 ING Investment Management Co 2007-5A SUB 9,000,000 9,825,000 1.82 ING Investment Management Co 2011-1A D 3,500,000 3,239,117 0.60 Carador Income Fund PLC 46 Interim report including condensed interim consolidated financial statements 2013 Schedule of investments – Company continued As at 30 June 2013
Nominal Market % of net holdings value US$ asset value Collateralised debt obligations continued Region of trade North America Country of incorporation Cayman Islands (December 2012: 93.37%) ING Investment Management Co 2012-1X E 9,000,000 8,738,843 1.62 Inwood Park CDO Ltd 2006-1X E 10,000,000 9,147,375 1.69 Inwood Park CDO Ltd 2006-1A D 4,000,000 3,737,850 0.69 Inwood Park CDO Ltd 2006-1A E 3,000,000 2,744,213 0.51 Inwood Park CDO Ltd 2006-1A SUB 1,000,000 694,667 0.13 Inwood Park CDO Ltd 2006-1X SUB 25,650,000 17,818,200 3.30 Marea CLO Ltd 2012-1X E 10,000,000 9,888,536 1.83 Marine Park CLO Ltd 2012-1X D 4,500,000 4,343,351 0.80 Mountain View CLO Ltd 2006-2X E 6,500,000 5,707,242 1.06 Mountain View CLO Ltd 2006-2X E 1,750,000 1,536,565 0.28 Mountain View Funding CLO (Preference Shares) 1,000,000 803,333 0.15 Nantucket CLO Ltd 2006-1A E 9,600,000 8,863,433 1.64 Nylim Flatiron CLO Ltd 2006-1X SUB 2,000,000 1,360,000 0.25 Octagon Investment Partners Ltd 2007-1A INC 11,500,000 12,803,333 2.37 Octagon Investment Partners Ltd 2012-1A SUB 5,000,000 4,904,159 0.91 OHA Park Avenue CLO Ltd 2007-1A SUB 10,000,000 8,300,000 1.54 Prospect Park CDO Ltd 2006-1I SUB 10,000,000 7,340,000 1.36 Prospect Park CDO Ltd 2006-1X SUB 3,000,000 2,202,000 0.41 Rampart CLO Ltd 2007-1A SUB 11,000,000 8,989,750 1.66 Riverside Park CLO Ltd 2011-3X SNR 10,000,000 9,197,899 1.70 Saturn CLO Ltd 2007-1A D 2,170,000 1,935,873 0.36 Saturn CLO Ltd 2007-1X D 2,030,000 1,788,582 0.33 Sheridan Square CLO Ltd 2013-1A F 11,900,000 10,568,939 1.96 Silverado CLO Ltd 2006-1X NOTE 6,750,000 4,320,000 0.80 Stanfield Azure CLO Ltd (Preference Shares) 75,000 3,787,500 0.70 Stanfield Azure CLO Ltd 2006-1A B1L 1,500,000 1,377,005 0.26 Stanfield Daytona CLO Ltd 2007-1A B2L 12,190,753 10,771,508 1.99 Stanfield Daytona CLO Ltd 2007-1A C1 6,150,000 4,579,700 0.85 Stanfield Daytona CLO Ltd 2007-1X C1 2,000,000 1,489,333 0.28 Stone Tower CLO Ltd 2006-4X D 2,000,000 1,987,615 0.37 Stone Tower CLO Ltd 2006-5X SUB 2,000,000 1,583,333 0.29 Stone Tower CLO Ltd 2007-6A SUB 3,000,000 3,335,000 0.62 Stone Tower CLO Ltd 2007-6X SUB 5,000,000 5,558,333 1.03 Stone Tower CLO Ltd 2007-7X SUB 7,500,000 6,250,000 1.16 Stone Tower CLO Ltd (Preference Shares) 600 667,000 0.12 Symphony CLO Ltd 2007-4A E 1,500,000 1,472,872 0.27 Tribeca Park CLO Ltd 2008-1A SUB 20,000,000 16,750,000 3.10 Venture CDO Ltd 2006-7A INC 2,000,000 2,360,000 0.44 Vitesse CLO Ltd 2006-1A B1L 6,000,000 5,625,810 1.04 Westbrook CLO Ltd 2006-1A E 3000000 2,714,010 0.50 471,060,356 87.24 Total Collateralised Debt Obligations (December 2012: 93.37%) 471,060,356 87.24 47 Other information – unaudited
Nominal Market % of net holdings value US$ asset value Investment in Subsidiaries Region of trade North America Country of incorporation Cayman Islands (December 2012: 2.74%) Gale Force 4 CLO Ltd 2007-4A INC 24,352,000 21,064,480 3.90 Gale Force 4 CLO Ltd 2007-4A E 12,900,000 12,797,175 2.37 ING Investment Management CLO II Ltd (Preference Shares) 17,000 16,490,000 3.06 ING Investment Management Co 2006-2X D 15,000,000 13,897,399 2.57 ING Investment Management Co 2006-2A C 3,000,000 2,808,871 0.52 67,057,925 12.42 Total Investment in Subsidiaries (December 2012: 2.74%) 67,057,925 12.42 TOTAL INVESTMENTS AT FAIR VALUE (DECEMBER 2012: 98.46%) 538,118,281 99.66 OTHER ASSETS (DECEMBER 2012: 5.58%) 3,704,765 0.69 OTHER LIABILITIES (DECEMBER 2012: (4.04)%) (1,885,390) (0.35) TOTAL NET ASSETS ATTRIBUTABLE TO EQUITY PARTICIPATING SHAREHOLDERS 539,937,656 100.00
All assets on the Schedule of investments are denominated in US Dollar. Carador Income Fund PLC 48 Interim report including condensed interim consolidated financial statements 2013 Schedule of investments – Consolidated As at 30 June 2013
Nominal Market % of net holdings value US$ asset value Collateralised loan and debt obligations Country of incorporation Cayman Islands (December 2012: 92.68%) Acas CLO Ltd 2013-1X F 5,000,000 4,630,757 0.86 American Money Management 2012-11X E 3,900,000 2,420,438 0.45 American Money Management Corp 2006-7A E 2,996,785 2,822,227 0.52 American Money Management Corp 2006-7X E 1,723,152 1,622,781 0.30 American Money Management Corp 2012-11X E 11,400,000 11,577,163 2.14 Apidos CDO 2006-4A E 4,000,000 3,721,359 0.69 Apidos CDO 2011-8A D 6,200,000 5,684,195 1.05 Apidos CDO 2012-9X E 5,000,000 5,009,869 0.93 ARES CLO Ltd 2007-11A E 5,000,000 5,003,047 0.93 ARES CLO Ltd 2007-12X E 17,392,792 17,248,215 3.19 ARES CLO Ltd 2007-3RA E 7,000,000 6,187,090 1.15 Callidus Debt Partners CLO Fund Ltd 5A INC 4,700,000 3,662,083 0.68 Callidus Debt Partners CLO Fund Ltd 5X D 2,000,000 1,758,602 0.33 Callidus Debt Partners CLO Fund Ltd 5X INC 7,000,000 5,454,167 1.01 Callidus Debt Partners CLO Fund Ltd 6A D 6,000,000 5,994,569 1.11 Callidus Debt Partners CLO Fund Ltd 6A INC 12,500,000 14,916,667 2.76 Callidus Debt Partners CLO Fund Ltd 6X D 4,000,000 3,996,379 0.74 Callidus Debt Partners CLO Fund Ltd 7A SUB 9,350,000 6,814,592 1.26 Callidus Debt Partners CLO Fund Ltd 7X SUB 4,750,000 3,461,958 0.64 Carlyle Global Market Strategies CLO Ltd 2012-2A E 5,000,000 4,978,984 0.92 Central Park CLO Ltd 2011 2011-1A SUB 2,858,500 3,034,774 0.56 Clear Lake CLO Ltd 2006 2006-1A D 6,184,393 5,552,566 1.03 Columbus Park CDO Ltd 2008 2008-1A SUB 30,000,000 23,960,000 4.44 Denali Cap CLO Ltd (Preference Shares) 2,000,000 685,000 0.13 Eaton Vance CDO Ltd 2006-8I SUB 2,500,000 2,436,250 0.45 Eaton Vance CDO Ltd 2006-8X SUB 7,799,280 7,600,398 1.41 Fairway Loan FundING Co 2006-1A B2L 7,000,000 6,484,022 1.20 Flatiron CLO Ltd 2012-1X D 11,500,000 10,974,357 2.03 Foothill CLO Ltd 2007-1X E 1,360,000 1,273,827 0.24 Foothill CLO Ltd 2007-1A E 2,840,000 2,660,051 0.49 Foothill CLO Ltd 2007-1A SUB 9,200,000 10,733,333 1.99 Franklin CLO Ltd 6X E 5,277,918 4,847,105 0.90 Galaxy CLO Ltd 2006-7X SUB 2,000,000 1,016,333 0.19 Galaxy CLO Ltd 2012-14X E 1,750,000 1,643,107 0.30 Gale Force CLO Ltd 2005-1X E 9,121,641 9,160,081 1.70 Gale Force CLO Ltd 2006-2A SUB 17,000,000 6,184,600 1.15 Gale Force CLO Ltd 2006-2X E 2,000,000 1,865,603 0.35 Gale Force CLO Ltd 2006-2X SUB 2,000,000 727,600 0.13 Gale Force CLO Ltd 2007-3A D 4,100,000 3,720,964 0.69 Gale Force CLO Ltd 2007-3A E 1,600,000 1,466,592 0.27 Gale Force CLO Ltd 2007-3A INC 7,000,000 4,884,833 0.90 Gale Force CLO Ltd 2007-3X COM 1,631,521 5,732,333 1.06 Gale Force CLO Ltd 2007-3X D 2,000,000 1,815,104 0.34 Gramercy Park CLO Ltd 2012-1X D 3,000,000 2,872,113 0.53 ING Investment Management Co 2007-4A D 1,800,000 1,656,989 0.31 ING Investment Management Co 2007-5A SUB 9,000,000 9,825,000 1.82 ING Investment Management Co 2011-1A D 3,500,000 3,239,117 0.60 ING Investment Management Co 2012-1X E 9,000,000 8,738,843 1.62 Inwood Park CDO Ltd 2006-1X E 10,000,000 9,147,375 1.69 Inwood Park CDO Ltd 2006-1A D 4,000,000 3,737,850 0.69 Inwood Park CDO Ltd 2006-1A E 3,000,000 2,744,213 0.51 49 Other information – unaudited
Nominal Market % of net holdings value US$ asset value Collateralised loan and debt obligations continued Country of incorporation Cayman Islands (December 2012: 92.68%) Inwood Park CDO Ltd 2006-1A SUB 1,000,000 694,667 0.13 Inwood Park CDO Ltd 2006-1X SUB 25,650,000 17,818,200 3.30 Marea CLO Ltd 2012-1X E 10,000,000 9,888,536 1.83 Marine Park CLO Ltd 2012-1X D 4,500,000 4,343,351 0.80 Mountain View CLO Ltd 2006-2X E 6,500,000 5,707,242 1.06 Mountain View CLO Ltd 2006-2X E 1,750,000 1,536,565 0.28 Mountain View Funding CLO (Preference Shares) 1,000,000 803,333 0.15 Nantucket CLO Ltd 2006-1A E 9,600,000 8,863,433 1.64 Nylim Flatiron CLO Ltd 2006-1X SUB 2,000,000 1,360,000 0.25 Octagon Investment Partners Ltd 2007-1A INC 11,500,000 12,803,333 2.37 Octagon Investment Partners Ltd 2012-1A SUB 5,000,000 4,904,159 0.91 OHA Park Avenue CLO Ltd 2007-1A SUB 10,000,000 8,300,000 1.54 Prospect Park CDO Ltd 2006-1I SUB 10,000,000 7,340,000 1.36 Prospect Park CDO Ltd 2006-1X SUB 3,000,000 2,202,000 0.41 Rampart CLO Ltd 2007-1A SUB 11,000,000 8,989,750 1.66 Riverside Park CLO Ltd 2011-3X SNR 10,000,000 9,197,899 1.70 Saturn CLO Ltd 2007-1A D 2,170,000 1,935,873 0.36 Saturn CLO Ltd 2007-1X D 2,030,000 1,788,582 0.33 Sheridan Square CLO Ltd 2013-1A F 11,900,000 10,568,939 1.96 Silverado CLO Ltd 2006-1X NOTE 6,750,000 4,320,000 0.80 Stanfield Azure CLO Ltd (Preference Shares) 75,000 3,787,500 0.70 Stanfield Azure CLO Ltd 2006-1A B1L 1,500,000 1,377,005 0.26 Stanfield Daytona CLO Ltd 2007-1A B2L 12,190,753 10,771,508 1.99 Stanfield Daytona CLO Ltd 2007-1A C1 6,150,000 4,579,700 0.85 Stanfield Daytona CLO Ltd 2007-1X C1 2,000,000 1,489,333 0.28 Stone Tower CLO Ltd 2006-4X D 2,000,000 1,987,615 0.37 Stone Tower CLO Ltd 2006-5X SUB 2,000,000 1,583,333 0.29 Stone Tower CLO Ltd 2007-6A SUB 3,000,000 3,335,000 0.62 Stone Tower CLO Ltd 2007-6X SUB 5,000,000 5,558,333 1.03 Stone Tower CLO Ltd 2007-7X SUB 7,500,000 6,250,000 1.16 Stone Tower CLO Ltd (Preference Shares) 600 667,000 0.12 Symphony CLO Ltd 2007-4A E 1,500,000 1,472,872 0.27 Tribeca Park CLO Ltd 2008-1A SUB 20,000,000 16,750,000 3.10 Venture CDO Ltd 2006-7A INC 2,000,000 2,360,000 0.44 Vitesse CLO Ltd 2006-1A B1L 6,000,000 5,625,810 1.04 Westbrook CLO Ltd 2006-1A E 3,000,000 2,714,010 0.50 471,060,356 87.24 Total Collateralised Loan and Debt Obligations 471,060,356 87.24
Investment in ING Investment Management CLO II Ltd Collateralised loan and debt obligations Country of incorporation Cayman Islands (December 2012: 1.14%) Franklin CLO Ltd 750,000 770 0.00 Hewetts Island CLO III Ltd 1,000,000 1,091 0.00 WG Horizons CLO Ltd 1,000,000 663 0.00 2,524 – Total Collateralised Loan and Debt Obligations 2,524 – Carador Income Fund PLC 50 Interim report including condensed interim consolidated financial statements 2013 Schedule of investments – Consolidated continued As at 30 June 2013
Nominal Market % of net holdings value US$ asset value Investment in ING Investment Management CLO II Ltd Equities Country of incorporation United States (December 2012: 0.52%) Caribe Media 1,546 – 0.00 Cumulus Media 2,013 5,576 0.00 MGM Holdings Inc 76,437 2,923,715 0.54 Thomas Nelson Inc 10 1,007 0.00 US Shipping 241,919 – 0.00 2,930,298 0.54 Total equities 2,930,298 0.54 Senior Secured Loans Country of incorporation Canada (December 2012: 1.56%) Brand Energy and Infrastructure Services 993,484 1,005,152 0.19 Clement Pappas and Co Inc 369,565 368,885 0.07 Husky International 1,695,521 1,690,835 0.31 MEG Energy Corp 2,839,467 2,824,442 0.52 Nelson Education Ltd 1,848,823 1,562,541 0.29 7,451,855 1.38 Country of incorporation Cayman Islands (December 2012: 0.08%) Edwards (Cayman Islands II) Ltd 437,550 437,269 0.08 Country of incorporation Germany (December 2012: 0.46%) Schaeffler KG 2,000,000 1,999,672 0.37 Country of incorporation Luxembourg (December 2012: 0.16%) Warner Chilcott 1,894,160 1,894,083 0.35 Country of incorporation Netherlands (December 2012: 0.17%) UPC Broadband Holding 971,319 978,700 0.18 Country of incorporation Singapore (December 2012: 1.07%) Flextronics International Ltd 866,069 865,385 0.16 Country of incorporation United Kingdom (December 2012: 0.71%) Mondrian Investment Partners 876,751 875,806 0.16 Tomkins plc 1,876,580 1,883,558 0.35 WorldPay Ltd 365,000 371,172 0.07 Yell Group Plc (TPI) 2,651,780 616,590 0.11 3,747,126 0.69 51 Other information – unaudited
Nominal Market % of net holdings value US$ asset value Investment in ING Investment Management CLO II Ltd Senior Secured Loans continued Country of incorporation United States (December 2012: 72.67%) 24 Hour Fitness 2,193,593 2,235,818 0.41 Academy Sports and Outdoors 1,625,343 1,632,584 0.30 Acosta Inc 1,690,399 1,695,602 0.31 Acxiom Corp 914,121 917,982 0.17 ADESA Inc 2,734,493 2,736,703 0.51 Advantage Sales and Marketing 585,060 585,972 0.11 AES Corp 1,112,182 1,114,800 0.21 Affinia Group 625,000 625,122 0.12 Affinion Group 2,183,665 2,107,904 0.39 Alaska Communications Systems 1,224,807 1,205,251 0.22 Albertson 897,750 896,694 0.17 Alcatel-Lucent SA 530,000 540,118 0.10 Alere Medical Inc 2,464,952 2,473,434 0.46 Ameristar Casinos 568,543 568,271 0.11 Applied Systems 1,014,176 1,017,804 0.19 Aramark Corp 3,224,814 3,229,360 0.60 Aspect Software 1,631,803 1,648,937 0.31 Asurion Corp 5,505,888 5,448,351 1.01 AutoTrader.com 1,491,854 1,499,497 0.28 Avis Budget Car Rental LLC 2,583,366 2,603,998 0.48 Berry Plastics Corp 2,986,019 2,985,663 0.55 Biomet 4,330,511 4,308,621 0.80 Blackboard Inc 1,970,137 2,011,269 0.37 Boyd Gaming 4,660,499 4,668,698 0.86 Brock Holdings 652,681 657,795 0.12 Calpine Corp 3,032,750 3,025,254 0.56 Capital Automotive REIT 2,740,721 2,734,478 0.51 Carestream Health 1,765,990 1,737,696 0.32 Caribe Information Investment 491,353 442,490 0.08 Catalent Pharma 3,702,432 3,675,424 0.68 Catalina Marketing Group 2,451,037 2,462,353 0.46 Celanese US Holdings LLC 2,257,757 2,294,068 0.42 Charter Communications 1,126,467 1,118,432 0.21 Chemtura Corp 1,293,209 1,295,665 0.24 Chrysler Corp 2,942,456 2,975,093 0.55 Cinemark 4,839,585 4,842,556 0.90 Commscope Inc 521,985 525,302 0.10 Community Health 6,378,719 6,397,662 1.18 Consolidated Communications 1,980,025 1,989,117 0.37 ConvaTec Ltd 1,942,453 1,950,763 0.36 CRC Health Corp 1,844,859 1,842,941 0.34 Cumulus Media 2,834,349 2,838,601 0.53 Custom Building Products 975,142 982,098 0.18 DaVita 3,060,794 3,066,507 0.57 Del Monte 2,510,449 2,498,455 0.46 Delta Airlines 6,912,500 6,972,800 1.29 Dex Media East LLC 514,256 397,700 0.07 Dex Media West LLC 703,065 596,053 0.11 Carador Income Fund PLC 52 Interim report including condensed interim consolidated financial statements 2013 Schedule of investments – Consolidated continued As at 30 June 2013
Nominal Market % of net holdings value US$ asset value Investment in ING Investment Management CLO II Ltd Senior Secured Loans continued Country of incorporation United States (December 2012: 72.67%) DineEquity 186,464 186,503 0.03 Dunkin Brands 1,610,620 1,605,294 0.30 Emdeon Inc 985,056 979,548 0.18 Emergency Medical Services Corp 1,410,200 1,410,134 0.26 Endo Pharmaceuticals 56,225 56,125 0.01 Entercom Communications 417,747 421,216 0.08 Express Scripts 2,640,000 2,643,453 0.49 Fairmount Minerals Ltd 1,833,750 1,833,552 0.34 Federal-Mogul Corp 5,372,302 5,123,036 0.95 First Data Corp 3,298,947 3,229,335 0.60 Fontainebleau 1,690,010 261,952 0.05 Foxco Acquisition 2,375,815 2,398,161 0.44 Frac Tech Services Ltd 3,821,877 3,732,073 0.69 Fram Group 626,914 615,605 0.11 Freescale Semiconductor Inc 4,511,534 4,491,146 0.83 FTD Group Inc 889,604 888,683 0.16 Global Cash Access 213,333 212,847 0.04 Global Tel Link Corp 649,606 650,386 0.12 Go Daddy Group 2,220,450 2,206,319 0.41 Golden Living 1,958,937 1,876,227 0.35 Golden Nugget Inc 495,975 481,390 0.09 Grifols SA 853,725 856,659 0.16 Gymboree Corp 859,143 827,952 0.15 Harlan Sprague Dawley Inc 425,229 379,779 0.07 HCA Inc 4,007,230 3,984,421 0.74 Health Management Associates 1,576,024 1,570,971 0.29 Hillman Group 2,930,421 2,925,297 0.54 Hubbard Broadcasting 746,999 747,784 0.14 Huntsman ICI 7,138,329 7,149,308 1.32 Idearc 1,188,002 930,562 0.17 Immucor Inc 982,600 983,659 0.18 IMS Healthcare 1,937,057 1,941,117 0.36 Ineos Group Plc 3,382,727 3,350,346 0.62 Interactive Data Corp 1,723,838 1,713,336 0.32 InVentiv 773,408 771,610 0.14 J. Crew 416,500 414,775 0.08 Jarden 1,935,072 1,942,522 0.36 JMC Steel Group 654,166 649,957 0.12 Jo-Ann Stores 1,535,195 1,539,766 0.29 Kinetic Concepts 2,273,059 2,271,272 0.42 Lamar Advertising Co 77,091 77,301 0.01 Las Vegas Sands 4,832,023 4,815,694 0.89 Level 3 Communications 595,500 601,107 0.11 Live Nation 2,092,528 2,103,513 0.39 Local TV LLC 1,021,351 1,024,722 0.19 Manitowoc Co Inc 52,805 52,886 0.01 Mediacom Broadband 1,434,783 1,429,483 0.26 Mediacom LLC 1,947,917 1,950,435 0.36 53 Other information – unaudited
Nominal Market % of net holdings value US$ asset value Investment in ING Investment Management CLO II Ltd Senior Secured Loans continued Country of incorporation United States (December 2012: 72.67%) Mercury Payment Systems 980,032 1,001,780 0.19 Michael Foods 539,184 543,570 0.10 MicroSemi 886,468 890,871 0.16 Millennium Inorganic Chemicals 498,913 499,080 0.09 National Cinemedia LLC 1,227,273 1,219,006 0.23 NBTY 2,030,867 2,028,622 0.38 Neiman Marcus Group Inc 3,212,235 3,205,703 0.59 Nielsen Co 5,506,642 5,521,152 1.02 Novelis 2,145,024 2,148,689 0.40 NRG Energy 3,430,153 3,393,632 0.63 Ntelos 4,077,018 4,072,339 0.75 Nuveen Investments Inc 901,597 896,397 0.17 Open Link Financial 870,740 882,203 0.16 Orbitz 3,320,606 3,329,968 0.62 Oxbow Carbon and Minerals LLc 3,821,295 3,816,328 0.71 Penn National Gaming 3,715,678 3,732,467 0.69 Penton Media 485,177 467,661 0.09 Petco Animal Supplies 1,950,000 1,945,753 0.36 Pharmaceutical Product Development 714,161 714,116 0.13 Phillips Plastics Corp 736,922 737,408 0.14 Pilot Travel Centers 964,083 945,967 0.18 Pro Mach 586,631 584,565 0.11 Quad Graphics 2,531,399 2,514,636 0.47 Quintiles Transnational 969,472 969,714 0.18 R.H. Donnelley 509,227 397,834 0.07 Race Point Power LLC 469,791 469,993 0.09 RCN Corp 464,875 467,893 0.09 Regal Cinemas 1,950,000 1,947,175 0.36 Remy International Inc 1,264,747 1,261,884 0.23 Revlon Consumer Products Corp 632,813 637,538 0.12 Reynolds and Reynolds 966,463 966,581 0.18 Reynolds Group 4,466,250 4,472,789 0.83 Rockwood Holdings 1,029,415 1,036,826 0.19 Royalty Pharma 1,940,048 1,937,903 0.36 Sabre Holdings Corp 3,920,646 3,941,001 0.73 Sedgwick Claims Management Service Inc 986,154 985,697 0.18 Sensata Technologies 120,273 121,836 0.02 Sensus Metering 366,563 365,601 0.07 Service Master 4,394,234 4,366,043 0.81 Sinclair Broadcast Group 21,120 21,096 0.00 Skilled Healthcare Group 429,836 434,755 0.08 Spansion Inc 2,902,966 2,912,812 0.54 SunGard Data Systems Inc 4,313,744 4,334,159 0.80 Surgical Care Affiliates 1,411,125 1,411,460 0.26 Terex Corp 663,915 668,197 0.12 Tesoro Petroleum 3,600,000 3,640,477 0.67 Time Warner Telecom 3,834,632 3,826,004 0.71 Toys R Us 4,393,775 4,307,267 0.80 Carador Income Fund PLC 54 Interim report including condensed interim consolidated financial statements 2013 Schedule of investments – Consolidated continued As at 30 June 2013
Nominal Market % of net holdings value US$ asset value Investment in ING Investment Management CLO II Ltd Senior Secured Loans continued Country of incorporation United States (December 2012: 72.67%) TPF Generation Holdings 1,022,534 1,028,260 0.19 Transdigm 975,100 961,847 0.18 Transtar Industries 703,386 707,118 0.13 TransUnion LLC 1,450,461 1,454,429 0.27 TXU Corp 4,196,155 2,946,608 0.55 United Components 243,750 244,433 0.05 Univar NV 1,811,097 1,781,127 0.33 Universal Health Services 582,734 582,491 0.11 US Airways Group 2,000,000 1,995,367 0.37 US Security Associates 786,655 789,828 0.15 US Silica 245,000 245,065 0.05 Vanguard Health Systems 1,997,466 2,025,996 0.38 Vertafore 292,520 294,360 0.05 VWR International 1,704,615 1,694,297 0.31 Waste Industries 485,726 484,620 0.09 Water Pik Technologies 696,777 695,316 0.13 Weather Channel 2,244,343 2,255,053 0.42 Web.com Group 749,366 756,560 0.14 Weight Watchers International 1,995,000 2,014,741 0.37 West Corp 3,590,485 3,604,739 0.67 Zuffa LLC 2,967,115 2,945,604 0.55 308,889,282 57.22 Total Senior Secured Loans 326,263,372 60.43 Total Investment in ING Investment Management CLO II Ltd 329,196,194 60.97 Investment in Gale Force 4 CLO Ltd Senior Secured Loans Country of incorporation Canada (December 2012: Nil) Bragg Communications 1,523,438 1,534,702 0.28 Mood Media Corp 1,194,571 1,197,137 0.22 Telesat Canada 4,309,520 4,324,245 0.80 7,056,084 1.30 Country of incorporation Luxembourg (December 2012: Nil) Merlin Entertainments Group 3,000,000 3,032,100 0.56 Shield Finance Co 3,960,000 4,002,130 0.74 7,034,230 1.30 Country of incorporation Netherlands (December 2012: Nil) UPC Financing Partnership 2,728,490 2,733,460 0.51 55 Other information – unaudited
Nominal Market % of net holdings value US$ asset value Investment in Gale Force 4 CLO Ltd Senior Secured Loans continued Country of incorporation Norway (December 2012: Nil) PGS Finance Inc 4,000,000 4,018,667 0.74 Country of incorporation United Kingdom (December 2012: Nil) Alpha Topco Ltd 2,962,650 2,964,502 0.55 Country of incorporation United States (December 2012: Nil) 4L Holdings Corp 4,750,963 4,823,564 0.90 Acosta Sales and Marketing Co 1,979,443 2,003,633 0.37 AES Corp 1,528,746 1,536,808 0.28 Affinia Group Inc 1,500,000 1,504,188 0.28 Air Medical Group Holdings Inc 1,279,286 1,301,567 0.24 AlixPartners LLP 1,425,000 1,434,682 0.27 Alliant Holdings I LLC 995,000 998,389 0.18 Allied Security Holdings LLC 1,600,000 1,622,628 0.30 Allied Security Holdings LLC 2,932,566 2,950,946 0.55 Allison Transmission Inc 2,207,725 2,221,472 0.41 American Seafoods Group LLC 2,101,596 2,100,653 0.39 Aramark Corp 4,000,000 4,033,049 0.75 Armored AutoGroup Inc 4,979,579 4,975,911 0.92 Asurion LLC 1,876,932 1,864,028 0.35 Avaya Inc 1,286,545 1,136,803 0.21 Barrington Broadcasting Group LLC 1,829,999 1,831,132 0.34 Berry Plastics Corp 4,677,002 4,679,471 0.87 Biomet Inc 249,372 248,697 0.05 Blackboard Inc 2,670,119 2,742,536 0.51 Booz Allen Hamilton Inc 992,500 994,425 0.18 Bull Run 1 LLC 2,250,252 2,252,012 0.42 Burger King Corp 2,962,264 2,968,437 0.55 Burger King Corp 997,487 1,005,143 0.19 Burlington Coat Factory Warehouse Corp 3,333,200 3,339,866 0.62 Bway Corp 3,925,361 3,966,087 0.73 Cambium Learning Inc 1,000,000 890,000 0.16 Camp Systems International Holding Co 2,481,250 2,512,310 0.47 Camp Systems International Holding Co 1,750,000 1,796,302 0.33 Catalent Pharma Solutions 1,441,965 1,443,310 0.27 Catalina Marketing Corp 984,615 986,088 0.18 Celanese/BCP Crystal US Holdings Corp 4,051,274 4,092,544 0.76 Cengage Learning Acquisitions Inc – 5,334 0.00 Cequel Communications LLC 3,950,000 3,956,423 0.73 Charter Communications Operating LLC 939,234 933,209 0.17 Chinos Acquisition Corp 1,960,000 1,958,716 0.36 Chrysler Group LLC 4,926,183 4,989,091 0.92 CHS/Community Health Systems Inc 1,303,263 1,310,646 0.24 Cincinnati Bell Inc 1,618,000 1,674,630 0.31 Cinemark USA Inc 995,000 998,685 0.18 Colfax Corp 1,961,929 1,970,417 0.36 CommScope Inc 1,955,000 1,975,368 0.37 Carador Income Fund PLC 56 Interim report including condensed interim consolidated financial statements 2013 Schedule of investments – Consolidated continued As at 30 June 2013
Nominal Market % of net holdings value US$ asset value Investment in Gale Force 4 CLO Ltd Senior Secured Loans continued Country of incorporation United States (December 2012: Nil) Covanta Energy Corp 2,119,909 2,141,727 0.40 Crown Castle Operating Co 3,945,063 3,926,819 0.73 CSC Holdings LLC 2,000,000 1,997,876 0.37 CSC Holdings LLC 1,000,000 990,430 0.18 David’s Bridal Inc 1,990,000 1,995,814 0.37 Davita Inc 1,625,003 1,626,507 0.30 Deffenbaugh Group Holdings Inc – 13,673 0.00 Del Monte Foods Co 2,789,388 2,785,674 0.52 Delta Air Lines Inc 4,491,228 4,514,101 0.84 Drumm Investors LLC 2,938,268 2,844,437 0.53 Dura-Line Corp 3,000,000 3,036,167 0.56 Dura-Line Corp 1,000,000 1,014,972 0.19 Emdeon Inc 3,950,100 3,938,002 0.73 Emergency Medical Services Corp 2,417,485 2,423,696 0.45 Endo Health Solutions Inc 259,500 259,864 0.05 Energy Transfer Equity LP 3,150,000 3,165,758 0.59 EP Energy LLC 3,000,000 2,989,047 0.55 EquiPower Resources Holdings LLC 2,937,458 2,927,788 0.54 Fairway Group Acquisition Co 992,513 1,009,247 0.19 Fibertech Networks LLC 995,000 1,005,782 0.19 Fifth Third Processing Solutions 4,000,000 4,008,000 0.74 First Data Corp 2,371,366 2,319,611 0.43 First Data Corp 1,179,896 1,156,041 0.21 Fogo de Chao Churrascaria Inc 1,985,000 2,011,054 0.37 FR Brand Acquisition Corp 314,950 318,232 0.06 FR Brand Acquisition Corp 1,627,241 1,644,197 0.30 FR Brand Acquisition Corp 1,312,291 1,304,417 0.24 Freescale Semiconductor Inc 997,500 1,006,411 0.19 GCA Services Group Inc 2,000,000 2,070,517 0.38 GCA Services Group Inc 2,986,154 3,012,842 0.56 General Chemical Corp 1,533,529 1,544,578 0.29 General Nutrition Centers Inc 2,245,909 2,245,915 0.42 Genpact International 995,000 997,267 0.18 Georgia Gulf Corp 1,489,538 1,510,453 0.28 Getty Images Inc 4,477,500 4,436,355 0.82 Grifols Inc 2,990,135 3,007,896 0.56 H.J. Heinz Co 1,991,182 1,997,010 0.37 Harbourvest Partners LP 1,361,485 1,388,081 0.26 Harlan Sprague Dawley Inc 2,551,373 2,275,750 0.42 HCA Inc 1,651,085 1,646,066 0.30 HCA Inc 2,000,000 1,995,449 0.37 HCA Inc 2,561,431 2,553,278 0.47 Health Management Associates Inc 1,939,722 1,938,270 0.36 Hertz Corp 1,123,491 1,118,626 0.21 HUB International Ltd 1,485,025 1,489,978 0.28 Huntsman International LLC 2,000,000 2,006,828 0.37 Huntsman International LLC 3,125,786 3,135,884 0.58 Hupah Finance Inc 2,339,195 2,345,932 0.43 57 Other information – unaudited
Nominal Market % of net holdings value US$ asset value Investment in Gale Force 4 CLO Ltd Senior Secured Loans continued Country of incorporation United States (December 2012: Nil) Hyland Software Inc 1,410,943 1,419,082 0.26 ILC Industries 4,950,000 4,928,344 0.92 InfoGroup 1,072,500 977,985 0.18 Inmar Inc 4,835,381 4,844,044 0.90 Intralinks Inc – 1,493 0.00 Jarden Corp 2,985,000 2,989,277 0.55 JHCI Acquisition Inc 1,305,400 1,287,745 0.24 KAR Holdings Inc 1,160,166 1,169,482 0.22 Kinetic Concepts Inc 2,955,150 2,971,417 0.55 La Paloma Generating Co LLC 1,470,000 1,501,999 0.28 Las Vegas Sands LLC 425,980 425,603 0.08 Las Vegas Sands LLC 2,119,465 2,117,590 0.39 Leap Wireless International Inc 995,000 987,106 0.18 Leslie’s Poolmart Inc 1,953,560 1,989,648 0.37 Lifepoint Hospitals Inc 1,309,211 1,313,042 0.24 Live Nation Worldwide Inc 967,526 973,810 0.18 Local TV Finance LLC 997,500 1,003,196 0.19 Lodgenet 992,673 638,344 0.12 LS Power Funding Corp 1,316,667 1,328,799 0.25 Mackinaw Power Holdings LLC – 2,372 0.00 Maritime Telecom Network 1,410,000 1,319,231 0.24 Mediacom Broadband 2,858,864 2,854,861 0.53 Mediacom Broadband 1,026,877 1,025,439 0.19 MediaNews Group 69,347 69,396 0.01 MModal 1,908,315 1,865,387 0.35 MRC Global 1,679,615 1,696,558 0.31 National Cinemedia LLC 2,000,000 1,987,992 0.37 NBTY Inc 3,500,000 3,503,991 0.65 Neiman Marcus 2,000,000 2,002,326 0.37 Nexeo Solutions LLC 1,989,975 1,973,935 0.37 Nielsen Finance LLC 1,986,842 1,998,413 0.37 Nielsen Finance LLC 4,957,996 4,988,155 0.92 Nuance Communications 4,942,558 4,969,123 0.92 One Call Medical Inc 2,985,000 3,044,617 0.56 P.F. Chang’s China Bistro Inc 1,488,750 1,528,300 0.28 Party City Holdings Inc 1,985,025 1,986,777 0.37 Peacock Holding Co – 60,715 0.01 Pelican Products Inc 4,455,000 4,474,305 0.83 Peninsula Gaming LLC 1,361,579 1,364,614 0.25 Pilot Travel Centers LLC 2,892,250 2,856,104 0.53 Pinnacle Entertainment 1,975,000 1,980,102 0.37 Presidio Inc 939,856 947,103 0.18 Press Ganey Associates Inc 3,396,271 3,390,392 0.63 PSC LLC 713,838 717,242 0.13 Regal Cinemas Inc 4,946,997 4,975,273 0.92 Revlon Consumer Products Corp 835,313 841,705 0.16 Reynolds and Reynolds 225,935 226,541 0.04 Carador Income Fund PLC 58 Interim report including condensed interim consolidated financial statements 2013 Schedule of investments – Consolidated continued As at 30 June 2013
Nominal Market % of net holdings value US$ asset value Investment in Gale Force 4 CLO Ltd Senior Secured Loans continued Country of incorporation United States (December 2012: Nil) Reynolds Consumer Products 3,614,074 3,630,937 0.67 RGIS Services LLC 3,989,899 3,982,438 0.74 Rovi Solutions Corp 4,185,509 4,181,219 0.77 Rovi Solutions Corp 2,762,489 2,759,842 0.51 RPI Finance Trust 3,935,532 3,952,422 0.73 Sabre Holdings 1,764,372 1,834,577 0.34 Sabre Holdings 1,850,000 1,873,091 0.35 SafeNet Inc 479,905 482,189 0.09 Sealed Air Corp 982,500 994,186 0.18 Sensata Technologies 689,026 696,588 0.13 Sensus USA Inc 1,955,000 1,960,517 0.36 Sequa Corp 4,982,481 5,029,221 0.93 Serta Simmons Holdings LLC 1,995,000 2,019,286 0.37 ServiceMaster 2,977,519 2,947,563 0.55 Sheridan Healthcare Inc 990,025 994,109 0.18 Sheridan Production Partners 65,866 65,931 0.01 Sheridan Production Partners 813,799 814,590 0.15 Sheridan Production Partners 107,835 107,939 0.02 Silver II Borrower SCA 497,500 494,711 0.09 Six Flags Theme Parks Inc 1,347,155 1,358,783 0.25 Sophia LP 1,928,796 1,936,752 0.36 Sorenson Communications Inc 997,500 1,000,165 0.19 Sports Authority Inc 1,950,000 1,996,003 0.37 Summit Materials LLC 3,960,075 4,014,850 0.74 SunGard Data Systems Inc 3,471,877 3,486,071 0.65 SymphonyIRI Group Inc 1,083,208 1,085,438 0.20 Synagro Technologies Inc 397,537 185,249 0.03 Tallgrass Energy Partners LP 537,857 541,793 0.10 TASC Inc 642,685 642,886 0.12 TCW Group Inc 1,990,000 2,000,309 0.37 Tesoro Petroleum 2,992,500 3,000,991 0.56 Texas Competitive Electric 1,857,376 1,308,683 0.24 TPF Generation Holdings LLC – 817 0.00 Transdigm Inc 3,482,500 3,485,379 0.65 TravelClick Inc – 816 0.00 TriMark Acquisition Corp – 45,229 0.01 Truven Health Analytics Inc 1,985,000 2,000,184 0.37 United Surgical Partners International Inc 2,159,758 2,163,871 0.40 Univar Inc 4,056,881 3,985,093 0.74 Univision Communications Inc 895,098 888,721 0.16 US Airways Group 4,500,000 4,514,069 0.84 USI Holdings Corp 995,000 1,001,345 0.19 Valitas Health Services Inc 1,618,431 1,638,395 0.30 Vanguard Health Holding Co II LLC 3,891,365 3,934,540 0.73 Verint Systems Inc 1,678,193 1,695,164 0.31 Weather Channel 3,903,205 3,934,272 0.73 Weight Watchers International Inc 3,000,000 3,028,478 0.56 59 Other information – unaudited
Nominal Market % of net holdings value US$ asset value Investment in Gale Force 4 CLO Ltd Senior Secured Loans continued Country of incorporation United States (December 2012: Nil) Weight Watchers International Inc 1,000,000 1,001,500 0.19 Wendy’s/Arby’s Restaurants LLC 1,367,778 1,366,931 0.25 West Corp 1,049,059 1,067,076 0.20 WideOpenWest Finance LLC 4,987,500 5,023,863 0.93 Windstream Corp 995,000 999,309 0.19 Yankee Candle Co Inc 2,707,759 2,716,065 0.50 388,510,940 71.96 Total Senior Secured Loans 412,317,883 76.36 Total Investment in Gale Force 4 CLO Ltd 412,317,883 76.36 TOTAL INVESTMENTS AT FAIR VALUE 1,212,574,433 224.57 OTHER ASSETS 211,640,538 39.20 OTHER LIABILITIES (884,277,315) (163.77) TOTAL NET ASSETS ATTRIBUTABLE TO EQUITY PARTICIPATING SHAREHOLDERS 539,937,656 100.00 Carador Income Fund PLC 60 Interim report including condensed interim consolidated financial statements 2013 Management and administration
Directors* Registered Office Werner Schwanberg (Chairman) 78 Sir John Rogerson’s Quay Professor Claudio Albanese** (resigned 10 April 2013) Dublin 2 Fergus Sheridan** Ireland Adrian Waters** Edward D’Alelio Company Registration Number: 415764 Nicholas Moss** Euro shares ISIN: IE00B10RXS64 US Dollar shares ISIN: IE00B3D60Z08 Administrator and Company Secretary US Dollar C shares ISIN: IE00B692M025 State Street Fund Services (Ireland) Limited 78 Sir John Rogerson’s Quay Investment Manager Dublin 2 (to 14 July 2013) Ireland GSO Capital Partners International LLP 40 Berkeley Square Custodian London W1J 5AL State Street Custodial Services (Ireland) Limited United Kingdom 78 Sir John Rogerson’s Quay Dublin 2 (from 14 July 2013) Ireland GSO / Blackstone Debt Funds Management LLC 345 Park Avenue Solicitors as to US and English Law Floor 31 Herbert Smith LLP New York Exchange House NY 10154 Primrose Street United States of America London EC2A 2HS United Kingdom JOINT FINANCIAL ADVISER AND JOINT CORPORATE BROKER Solicitors as to Irish Law Dexion Capital plc Arthur Cox 1 Tudor Street Earlsfort Centre London EC4Y 0AH Earlsfort Terrace United Kingdom Dublin 2 Ireland JOINT FINANCIAL ADVISER AND JOINT CORPORATE BROKER Registrar Nplus1 Singer Advisory LLP Computershare Investor Services (Ireland) Limited One Bartholomew Lane Herron House London EC2N 2AX Corrig Road United Kingdom Sandyford Industrial Estate Dublin 18 Independent Auditors Ireland KPMG 1 Harbourmaster Place IFSC Dublin 1 Ireland
* all Directors of Carador Income Fund PLC are Non-Executive Directors. ** Independent Directors. 61 Other information – unaudited
Designed and produced by FTI Consulting www.fticonsulting.com Printed in England by Cousin Interim report including condensed interim consolidated financial statements 2013 Interim report including condensed interim consolidated financial statements Carador Income Fund PLC
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