Update Presentation with Larry Holzenthaler. January 2016

Transcription

1 Update Presentation with Larry Holzenthaler January 2016

2 Reminder Loans Have First Priority Loans have priority over Bonds, Preferred Shares, Common Equity Most senior tranche of the capital structure Highest Senior Loans Priority of Claim Senior Subordinated Debt Junior Subordinated Debt Preferred Equity Common Equity Lowest 1

3 Consistently Positive Returns Senior Loan Index positive returns 22 of the past 24 years Senior Loan Index = Credit Suisse Leveraged Loan Index. Source: Credit Suisse, as at December 31,

4 SSF.UN Portfolio Update Well Diversified 178 investments in portfolio Issuers from >15 industries Large & Liquid Investments $400 mill. average facility size Issuers with broad investor following and support from top-tier underwriters Focus on Credit Portfolio is B rated on average Symphony manages credit by seeking out loans with high levels of asset coverage, significant cash flow and strong covenant & security packages Portfolio Breakdown Dec 31, 2015 Material 3.0% Oil & Gas 1.7% Cash 3.5% Technology Other 4.1% 19.6% Telecom 5.6% Banking & Finance 6.3% Hotels, Restaurants, Leisure 6.8% Cons Prod 7.4% Media 8.3% Services 9.6% Healthcare 12.5% Retail 11.6% Attractive Distributions 7.4% distribution yield on TSX:SSF.UN closing price (11 Jan. 2015) 4.6% NAV return since inception (1 Nov Dec. 2015) vs 4.1% for CS Loan Index 3

5 Pressure in the HY Bond Market Weakness in Energy and Mining HY issues have impacted HY market generally Historical 1-yr forward return for HY Index has been 13.2% for periods when spreads were in the bps range (747 bps as of 31 Dec 2015) Index LT Avg Spread = 583 bps Energy/Materials at Credit Crisis levels Current Index Spread = 747 bps Source: Credit Suisse. Spread = Spread-to-Worst for the Credit Suisse High Yield Index. Index LT Avg Spread is the average month-end Spread-to-Worst for the Credit Suisse High Yield Index, from 31 Jan Dec Historical 1-yr forward return is the median total return for the Credit Suisse High Yield Index for the 1 year periods following month-ends when Spread-to-Worst was in the indicated range. 4

6 Loans Under Pressure By Association Similar issues in Loans have brought spreads back to levels last seen during SSF.UN s November 2011 IPO Historical 1-yr forward return for Loan Index has been 8.3% for periods when spreads were in the bps range (643 bps as of 31 Dec 2015) Index LT Avg Spread = 459 bps Energy/Materials at Credit Crisis levels Current Index Spread = 643 bps Source: Credit Suisse. Spread = 3 yr. Discount Margin for the Credit Suisse Leveraged Loan Index. Index LT Avg Spread is the average month-end 3 yr. Discount Margin for the Credit Suisse Leveraged Loan Index, from 31 Jan Dec Historical 1-yr forward return is the median totalreturn for the Credit Suisse Leveraged Loan Index for the 1 year periods following month-ends when 3 yr. Discount Margin was in the indicated range. The Credit Suisse Leveraged Loan Index is designed to mirror the investable universe of the $USdenominated leveraged loans rated by Moody s/s&p as Baa1/BB+ or Ba1/BBB+ or lower. Loan issuers are domiciled in developed countries and loans are funded term loans with tenure of at least one year. 5

7 Investor Concerns Overstated China GDP slowdown: Most Loan issuers have a domestic focus; little direct exposure outside of U.S. As a result China GDP should not be a major factor for Loan performance Commodities weakness: Energy/Materials segment of Loan/HY markets has rightly been under pressure Other sectors experiencing a somewhat misplaced knock-on effect Perceived HY Bond Fund Blowup, December 2015 Third Avenue Focused Credit Fund (approx. $1 bn AUM) illiquid holdings in small or distressed HY Bonds; very poor performance in 2015 Dec. 2015: Unable to provide liquidity to meet redemptions; suspended redemptions and fund went into liquidation Broad fallout as investors extrapolated this fund s specific issues to other HY Bond funds; to a lesser extent Loans were also impacted Source: Thomson Reuters Datastream as at January 8,

8 US Economy Remains Healthy US GDP: Consensus estimates: modest but respectable 2.5% real GDP growth in Leading indicators support continued US GDP growth Fed interest rate policy: Lack of Fed direction on interest rates caused market concerns in st Fed Funds rate hike announced Dec. 17, 2015; market expects 1.0% -1.25% Fed Funds target by year-end Health of Credit Market: Despite issues in the Energy and Materials space, Fitch forecasts 2016 defaults at 2.5%, up from of 2% in but still below the 25-year average of 3.5% Loan credit environment remains benign Source: 1) Reuters Poll, 21 Dec. 2015; 2) Reuter s Poll, 20 Dec. 2015; 3) Fitch, 17 Dec default estimate is preliminary. 7

9 US Economic Growth Supportive of Credit US GDP growth estimates pared back in Q4/2015, although outlook still positive Jan. 8 non-farm payrolls beat expectations (292,000 vs. 200,000 consensus) Leading economic indicators suggest continuation of US economic expansion. Leading Indicators Point to Continuing US Economic Expansion Downturns indicate pending recession Upturns indicate continued expansion Source: Thomson Reuters Datastream as at January 8,

10 Senior Loan Coupons Approaching Lift-Off Fed Funds target increased to % in December month LIBOR has more than doubled since October 2015 to 62 bps currently Q consensus: Fed Funds target at % after three 2016 rate hikes Once LIBOR increases beyond 100 bps, 90%+ of portfolio coupons begin to float SSF.UN Loan Portfolio: 22% floats at LIBOR > 75 bps + 68% floats at LIBOR > 100 bps 3 mo LIBOR=62 bps Source: Thomson Reuters Datastream as at January 8,

11 Loans Are Well-Positioned for Rising Rates Loans have among the highest yields and lowest durations of any debt asset class Yield to Maturity (%) 10% 8% 6% 4% 2% 0% Treasury Bills Yield and Duration Comparison Lower Interest Rate Risk Senior Loans Higher Yield HY Bonds Treasury Notes IG Corp Bonds Global Bonds Duration (years) Source: Credit Suisse, Bank of America Merrill Lynch as at December 31, Note: Benchmarks used were the Credit Suisse Leveraged Loan Index, Bank of America Merrill Lynch High Yield Master II Index, Bank of America Merrill Lynch U.S. Corporate Index, Bank of America Merrill Lynch Global Broad Market Index, Bank of America Merrill Lynch Unsubordinated U.S. Treasury/Agency Master Index, and the Bank of America Merrill 10 Lynch U.S. Treasury Bill Index.

12 Disclosure Certain statements contained in this document constitute forward-looking information within the meaning of Canadian securities laws. Forward-looking information may relate to matters disclosed in this document and to other matters identified in public filings relating to the Fund, to the future outlook of the Fund and anticipated events or results and may include statements regarding the future financial performance of the Fund. In some cases, forward-looking information can be identified by terms such as may, will, should, expect, plan, anticipate, believe, intend, estimate, predict, potential, continue or other similar expressions concerning matters that are not historical facts. Actual results may vary from such forward-looking information. Investors should not place undue reliance on forwardlooking statements. These forward-looking statements are made as of the date hereof and we assume no obligation to update or revise them to reflect new events or circumstances. You will usually pay brokerage fees to your dealer if you purchase or sell units of the Fund on the Toronto Stock Exchange or alternative Canadian trading system (an exchange ). If the units are purchased or sold on an exchange, investors may pay more than the current net asset value when buying units of the investment fund and may receive less than the current net asset value when selling them. There are ongoing fees and expenses associated with owning units of an investment fund. An investment fund must prepare disclosure documents that contain key information about the Fund. You can find more detailed information about the Fund in the public filings available at The indicated rates of return are the historical annual compounded total returns including changes in unit value and reinvestment of all distributions and do not take into account certain fees such as redemption costs or income taxes payable by any securityholder that would have reduced returns. Investment funds are not guaranteed, their values change frequently and past performance may not be repeated. Past performance is no guarantee of future results. All investments carry a certain degree of risk, including loss of principal, and there is no assurance that an investment will provide positive performance over any period of time. Symphony Asset Management LLC (Symphony) is an investment advisor registered with the U.S. Securities and Exchange Commission and is an indirect subsidiary of Nuveen Investments, Inc. Strategies shown may not be available in certain jurisdictions. Recipients should inform themselves about and observe any applicable legal requirements. This presentation is not investment advice nor a legal opinion. It is presented only to provide information about Symphony investment strategies and the firm s views on market opportunities. Such information may change without notice. Symphony manages other strategies that are not discussed herein; this presentation is limited to discussing those that exemplify the investment management capabilities of Symphony for the purposes of this presentation. Certain information was obtained from sources that Symphony believes to be reliable; however, there is no guarantee of its accuracy. 11