JPMorgan Senior Secured Loan Fund Limited

Transcription

1 JPMorgan Senior Secured Loan Fund Limited FOR PROFESSIONAL CLIENTS ONLY OCTOBER 2013 JPMorgan Senior Secured Loan Fund Limited New closed-ended company with focus on income from a portfolio of senior secured loans Target dividend yield in the first financial period of 5 per cent.* Dividends intended to be paid bi-annually moving to quarterly after first year London Stock Exchange Main Market Prospectus to be published November 2013 Deadline for Placing and Open Offer December 2013 This document sets out a brief overview of a potential investment opportunity, the proposed JPMorgan Senior Secured Loan Fund Limited, ( the Company ). The information in this document, which is for background purposes only, is preliminary in nature and is subject to change, verification and updating. It does not constitute an offer or solicitation to any person in any jurisdiction to purchase or sell any investment. Definitive investment decisions should be based solely on the prospectus or similar admission document which may be issued at a later date in connection with the Company and not on information contained in this document. No information in this document should be construed as providing financial, investment or other professional advice. The information contained herein is for the sole use of its intended recipient and may not be copied or otherwise distributed or published. No final decision has been made to proceed with an offering. Such a decision will be taken only after assessing market feedback and prevailing market conditions. No orders are being accepted for shares in the Company. *Targets and aims provided are the Investment Manager s targets and aims only and are not necessarily part of the Company s investment objective and policies to be stated in the Prospectus. There is no guarantee that these will be achieved. Targets are for the first financial period only and are based on the yields, costs and other attributes exhibited by a model portfolio as at October 2013 and are subject to change.

2 JPMorgan Senior Secured Loan Fund Limited For Professional Clients only October 2013 JPMorgan Senior Secured Loan Fund Limited As the US economy improves, investors are anticipating the withdrawal of quantitative easing. Investors seeking healthy yields with a measure of protection in a rising interest rate environment are turning to senior secured loans. Senior secured loans can offer offer better yields than investment grade bonds and are linked to LIBOR such that they automatically rise with interest rates. JPMorgan Senior Secured Loan Fund Limited ( the Company ) will aim to meet investor demand for yield by actively targeting income with protection against rising interest rates by investing in a portfolio of mainly US senior secured loans. The Company will have a secondary objective of capital appreciation. Targeting a dividend yield of 5p per share in the first financial period, the Investment Manager will aim to capture the different income and return opportunities presented by loans through application of a strategy that has produced excess returns over numerous high yield market cycles. The strategy brings together: An experienced team of high yield managers, three of whom have worked together for 25 years and through three recessions A value-oriented, bottom-up research process using fundamental credit analysis to identify opportunities Active allocation of the portfolio across issuers, ratings and industry sectors A closed-ended structure allows these cyclical opportunities to be captured by providing a stable asset base. Annualised total returns % 1 1 year 3 years 5 years Since inception 2 J.P. Morgan Loan Strategy Credit Suisse Leveraged Loan Index Outperformance As at 30 September Source. J.P. Morgan/Credit Suisse. 2 Inception: October Please see track record disclaimer on back page. Opportunistically capturing income and returns across the market cycle J.P. Morgan, the Company s Investment Manager, sees close historic links between the credit cycle and the broad economic cycle. In the Investment Manager s view, a distinct boom and bust pattern provides different sets of opportunities and risks for credit strategies. The Investment Manager believes the market cycle can be divided into four phases with distinct risks and opportunities. Trough Initial rally Mid-cycle Late cycle Weak economy Rising defaults Little new loan issuance Well paid to take risk Yield and total return from rotating to loans on wide discounts/high yields Rapidly rising prices Reopening new issue market Paid to hold risk Potential for very strong returns as market rallies Economic, credit fundamentals improve New issues Prices rise modestly Balance portfolio as market normalises More selective on higher risk positions New issue under-writing standards fall Tighter spreads Lower risk premium for riskier credits

3 What are secured loans? Secured loans (also known as bank loans or leveraged loans) are loans made to businesses which often have below investment-grade credit ratings. They are typically senior, secured by the debtor s assets or by operating assets of borrowing companies and rank first in priority of payment in the capital structure, ahead of unsecured debt. % of total capitalisation Senior secured loans High yield bonds and/or Subordinated mezzanine debt Preferred equity Common equity 30 50% 20 30% 20 40% First Loss Secured loans are typically structured, arranged and administered by one or several commercial or investment banks. They are then sold to other banks or institutional investors such as the Company who invest in them for their unique attributes. Companies issue loans to supplement capital structure or to refinance existing debt obligations. Source: Credit Suisse. The case for investing in senior secured loans Senior secured loans meet investor requirements for a combination of reasonable yield with little interest rate duration, which mitigates the risk of rising interest rates. Loans compare favourably versus alternative asset classes such as high yield bonds and equities. They offer additional security through collateral backing, defensive positioning in rising interest rate environments (given their floating rate coupon) and diversification within a broad portfolio. Income Rate exposure Security Senior Secured Loans 1 st lien High yield bonds Equities Cash payment Floating (LIBOR based) Paid quarterly Limited rate duration 5-8 year terms Low spread duration Secured Senior ranking More comprehensive covenants Cash payment Fixed coupon Semi-annual Moderate rate duration 7-10 year terms Moderate spread duration Generally unsecured Lower ranking Less restrictive covenants Dividends Cash or stock Uncertain Rate duration: N/A Open ended terms Spread duration: N/A None

4 JPMorgan Senior Secured Loan Fund Limited For Professional Clients only October 2013 Company features Indicative Portfolio Characteristics Yield to maturity 6.15% Current yield 6.03% Average price Average credit rating The Managers B1/B2 Effective duration 1.33 Indicative Diverse Sector Breakdown, % 20.0% 15.0% 10.0% 5.0% 0.0% Media/Telecom Information Technology Gaming/Leisure Healthcare Food/Tobacco Food and Drug Transportation Energy Financial The Company will be managed by James Shanahan and William Morgan; both are based in Cincinnati and are senior portfolio managers for J.P. Morgan s High Yield Group. Mr. Shanahan has 27 years of experience in high yield and distressed investments. He became an employee of J.P. Morgan Asset Management in March 2005 and prior to that time held the same role at Banc One High Yield Partners, LLC since 1998 and Pacholder Associates, Inc. since Mr. Shanahan holds an Honors B.A. from Xavier University and a J.D. from the University of Cincinnati College of Law. Mr. Morgan is responsible for overseeing high yield, loans and distressed strategies. A J.P. Morgan employee since 2005, he held the same role at Banc One High Yield Partners, LLC and Pacholder Associates, Inc. Mr. Morgan holds a B.A. in history from Kenyon College and a M.B.A. from Xavier University. Manufacturing Consumer Durables Service Metals/Minerals Forest Products/ Containers Retail Utility Housing Chemicals Consumer Non-Durables Aerospace Indicative quality distribution Indicative top 5 holdings Term Loan Country Weight Aptalis Pharma Inc United States 2.00% AVAYA Inc United States 2.00% First Data Corp United States 2.00% Harland Clarke Holds Corp United States 2.00% Visant Corp United States 2.00% Investment terms Fund type and domicile Listing Board Gearing Issue price Guernsey investment company London Main Market Fully independent Up to 20 per cent. tactical gearing 100p Opening NAV 98.25p Dividends Management fee Intended to be paid bi-annually in first year / quarterly thereafter 75bps Expected ongoing charges 30bps Life Discount management Marketing November 2013 Launch December 2013 Hedging Ba & higher B Caa & lower Not rated Continuation vote at third AGM and every 3rd AGM thereafter A redemption offer for up to 50 per cent. will be made if the discount averages more than 5 per cent. in the 3 months to the financial year end in any year; share buy-back authority of per cent. subject to Directors discretion and compliance with Guernsey company law (including solvency test) Fully hedged to sterling

5 JPMorgan Senior Secured Loan Fund Limited For Professional Clients only October 2013 Key features London Main Market listed closed-ended fund invested mainly in senior secured loans IPO price: 100p Initial NAV: 98.25p Initial target dividend of 5p in first financial period Diversified portfolio of primarily senior secured loans together with high yield bonds and stressed credit of mainly US companies Up to 20 per cent. in non US and Canadian investments Short term tactical gearing up to 20 per cent. of NAV Target fund size in excess of 100million Management fee of 75bps on lower of NAV and market capitalisation No performance fee Buyback powers of per cent. Up to 50 per cent. redemption offer if discount exceeds 5 per cent. on average over a 3 month period to financial year end Continuation vote at 3rd AGM and every 3rd AGM thereafter

6 Contacts Phil Hopkins Investment Fund Sales Tel: +44(0) Simon Gaunt Investment Fund Sales Tel: +44(0) Jonathan Crabtree Investment Fund Sales Tel: +44(0) James Bedford Investment Trusts Sales Tel: +44(0) Dan Howe Investment Trusts Sales Tel: +44(0) Regina Shmerlin Investment Trusts Sales Tel: +44(0) IMPORTANT INFORMATION THE CONTENTS OF THIS DOCUMENT ARE STRICTLY CONFIDENTIAL AND MAY NOT BE COPIED, DISTRIBUTED, PUBLISHED OR REPRODUCED IN WHOLE OR IN PART, OR DISCLOSED, DISTRIBUTED OR MADE AVAILABLE BY RECIPIENTS TO ANY OTHER PERSON. ANY RECIPIENT OF THESE MATERIALS AGREES TO KEEP PERMANENTLY CONFIDENTIAL ALL INFORMATION HEREIN NOT ALREADY IN THE PUBLIC DOMAIN. TRACK RECORD: THE INCLUSION OF THE MODEL PERFORMANCE FIGURES (J.P. MORGAN LOAN STRATEGY) IS FOR ILLUSTRATIVE PURPOSES ONLY. The information should not be relied upon to make investment decisions. Model performance has been calculated by carving out the leveraged loan portion from a representative account of the J.P. Morgan High Yield strategy. Unlike an actual performance record, the model performance does not reflect actual trading, liquidity constraints, fees and other costs. No representation is being made that any portfolio will or is likely to achieve profits or losses similar to those shown in this document. Performance results are gross of investment management fees. J. P. Morgan Asset Management results are unaudited and non-aimr compliant. Past performance is no guarantee of comparable future results. This document sets out a brief overview of the proposed JPMorgan Senior Secured Loan Fund Limited (the Company ). The information in this document, which is for background purposes only, is preliminary in nature and is subject to change, verification and updating. This document is an advertisement and does not constitute a prospectus, offering memorandum, or offer or solicitation to any person in any jurisdiction to purchase or sell any investment. No information set out in or referred to in connection with this document is intended to form the basis of any contract of sale, investment decision or any decision to purchase any securities, nor should such information be construed as providing financial, investment or other professional advice. This document should not be considered by the recipient as a recommendation relating to the acquisition or disposal of investments. It is recommended that recipients of these materials seek their own independent legal, tax, financial and other advice. This document does not contain sufficient information to support an investment decision and investors should ensure that they obtain all available relevant information before making any investment. Investment decisions should be based solely on the prospectus which may be issued at a later date in connection with the Company and not on information contained in this document. When made available, copies of the prospectus may be obtained, subject to applicable law, for collection free of charge from the registered office of the Company. Copies of the prospectus will also be available, for inspection only, from the National Storage Mechanism at The distribution of these materials in certain jurisdictions may be restricted by law and persons into whose possession these materials come should inform themselves about and observe any relevant restrictions in the jurisdictions in which they reside or conduct business. In particular, these materials are not for publication or distribution, directly or indirectly, in, into or from the United States, Canada, Australia South Africa or Japan or to any US person (as defined in Regulation S under the United States Security Act of 1933, as amended (the Securities Act )). Any failure to comply with relevant restrictions may constitute a violation of securities laws. The Company will not be registered under the United States Investment Company Act of 1940, as amended (the Investment Company Act ) and investors will not be entitled to the benefits of that Act. The securities and interests described in this document (when issued) will not be registered under the Securities Act, or the laws of any state or other jurisdiction of the United States. Consequently, such securities may not be offered, sold or otherwise transferred (directly or indirectly) within the United States or to or for the account or benefit of US persons. No public offering of the securities is being made in the United States. This document may include statements that are, or may be deemed to be, forward-looking statements. In some cases, such forward-looking statements can be identified by the use of forward-looking terminology, including the terms targets, believes, estimates, anticipates, expects, intends, may, will or should or, in each case, their negative or other variations or comparable terminology. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are not guarantees of future performance. The Company s actual performance, results of operations, internal rate of return, financial condition, liquidity, distributions to shareholders and the development of its financing strategies may differ materially from the impression created by any forward-looking statements contained in this document. Target returns are targets only and there is no guarantee that the Company will achieve such targets. Past performance is no guarantee of future performance. Illustrative portfolio data is provided for information only and the Company s portfolio and the returns derived from such portfolio may differ. The value of any investments and the income from them may fall as well as rise and investors may not get back the amount invested. Investments in senior secured loans may involve a higher element of risk due to the riskier credit profiles of borrowers versus investment grade issuers. Changes in exchange rates may cause the value of underlying overseas investments to go down as well as up. The opinions expressed are those held by JPMorgan Asset Management (UK) Limited (the Investment Manager ) at the time of going to print and are subject to change. Subject to any obligation under the Financial Services and Markets Act 2000, as amended, (FSMA) and any other legal or regulatory obligation, neither the Investment Manager nor any of its affiliates accepts any liability or responsibility whatsoever for the accuracy or completeness of, nor make any representation or warranty (express or implied) with respect to, the information contained in these materials or any publicly available information. No final decision has been made to proceed with an offering. Such a decision will be taken at the complete discretion of the Investment Manager and only after assessing market feedback and prevailing market conditions. This document is only directed to persons believed by JPMorgan Asset Management (UK) Limited to be investment professionals as defined in Article 19 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, high net worth companies, unincorporated associations and other persons as defined in Article 49 of that Order and to others to whom it can lawfully be distributed or given, inside the United Kingdom, without approval by an authorised persons. Persons who do not have professional experience in matters relating to investments should not rely on it and any other person should not act on such information. This document is issued in the UK and has been approved solely for the purposes of section 21(2)(b) of the FSMA by JPMorgan Asset Management (UK) Limited which is authorised and regulated by the Financial Conduct Authority. Registered in England No Registered address: 25 Bank Street, Canary Wharf, London E14 5JP. By accepting and reading this document and/or attending any presentation to which this document relates, you will be deemed to have represented, warranted and undertaken for the benefit of the Company, the Investment Manager, Panmure Gordon (UK) Limited and their respective affiliates that (a) you are outside the United States, are not a US person (b) you have read and agree to comply with the contents of this notice, you will keep the information in this document and delivered during any accompanying presentation and all information about the Company confidential, and (c) you are permitted, in accordance with all applicable laws, to receive such information. LV JPM /13