Sequoia Economic Infrastructure Income Fund Ltd.

Net Asset Value • Mar 15, 2024

National Storage Mechanism | Additional information

RNS Number : 9336G

Sequoia Economic Infra Inc Fd Ld

15 March 2024

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

15 March 2024

Sequoia Economic Infrastructure Income Fund Limited

("SEQI" or the "Company")

Monthly NAV and portfolio update

The NAV per share for SEQI, the specialist investor in economic infrastructure debt, marginally decreased to 93.44 pence per share from the prior month's NAV per share of 93.54 pence, representing a decrease of 0.10 pence per share.

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

	pence per share
31 January 2024 NAV	93.54
Interest income, net of expenses	0.72
Asset valuations, net of FX movements	-0.89
Accretion from share buyback	0.07
29 February 2024 NAV	93.44

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

Market Summary

During February 2024, central banks across the UK, US and EU maintained policy rates at 5.25%, 5.50% and 4.00%, respectively. Sovereign yields increased by 0.3% in all three regions during the same period, which extends the trend of increasing 10-year sovereign yields since the recent temporary decline ending in December 2023.

Interest rates in the UK are currently expected to fall by up to 2% over the next two to three years, based on forward market interest rates. The US Federal Reserve has also indicated that rates are likely at their peak and could be cut later in 2024 if inflation continues to fall towards the Fed's 2% target. The markets also expect the European Central Bank (ECB) to start cutting rates later in 2024. This interest rate environment reflects continued expectation for lower inflation across our markets in the future, which should position our portfolio positively.

Share buybacks

The Company bought back 9,180,021 of its ordinary shares at an average purchase price of 81.07 pence per share in February 2024. The Company first started buying shares back in July 2022 and has bought back 130,961,825 ordinary shares as of 29 February 2024 with the buyback continuing into March 2024. This share repurchase activity continues to contribute positively to NAV growth. The rate at which SEQI buys back shares will vary depending on various factors, including the level of our share price discount to NAV.

Portfolio update

The Company currently has strong liquidity, with cash of £98.27 million, compared to undrawn investment commitments of £36.1 million. The Company's revolving credit facility (RCF) of £325 million is also undrawn. The Company's policy in the current environment is to operate with little or no leverage, but the RCF can be used to manage the potential misalignment of new investments versus the repayment of existing investments.

The Company's invested portfolio consisted of 53 private debt investments and 3 infrastructure bonds, diversified across 8 sectors and 30 sub-sectors. It had an annualised yield-to-maturity (or yield-to-worst in the case of callable bonds) of 10.1% (January 2024: 9.9%) and a cash yield of 7.9% (excluding deposit accounts). The weighted average portfolio life remains short and is approximately 3.9 years. Private debt investments represented 97.8% of the total portfolio, allowing the Company to capture illiquidity yield premiums. The Company's invested portfolio currently consists of 42.8% [1] floating rate investments and remains geographically diversified with 52.7% located across the USA, 24.7% in the UK, 22.5% in Europe, and 0.1% in Australia/New Zealand.

During February 2024, the decline in asset valuations by 0.89 pence per share was mostly attributable to the rise of 10-year government bond yields across all three regions, which can inversely impact the valuation of the investments. These unrealised mark-to-market adjustments in the portfolio resulting from interest rates having risen since loans were made should reverse over time as the loans approach their repayment date (the "pull-to-par" effect), assuming there are no performance-related adjustments required to their value. As at 29 February 2024, the positive effect of pull-to-par is estimated to be worth approximately 4.0p per share over the course of the life of the Company's investments.

At month end, approximately 100% of the Company's NAV consisted of either Sterling assets or was hedged into Sterling. The Company has adequate liquidity to cover margin calls, if any, on its hedging book. The Company entered into a $90 million interest rate swap in October 2023 with a maturity of seven years to lock in a portion of the current high rates being paid by borrowers. The Company also continues to monitor attractive opportunities to lock in higher interest rates on a tactical basis.

Settled investments

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

• An additional senior loan for £6 million to Workdry, the UK's leading provider of essential and emergency water handling infrastructure solutions;

• An additional senior loan for €4 million to Native Dancer; a student accommodation building in Leiden, The Netherlands; and  

• An additional senior loan for $2 million to SL 4000 Connecticut LLC (formerly known as Whittle Schools). The financing was provided to support the forbearance extension and provide additional funding until August 2024 to enable re-tenanting or sale of the building.

The following investments sold or repaid in February 2024

• A full sale of the Company's remaining stub of Windstream bonds for $2 million; a high-speed broadband provider based in the US.

Non-performing loans

During February 2024, the Company received [a further] distribution of £2 million from the administrators of Simple Energy Limited (the parent of Bulb Energy). This receipt takes the total expected recovery on the loan to Bulb to £53.3 million (including both the expected future payment from Bulb as announced on 6 December 2023, and the equity in Zoa valued at cost) compared to a loan amount of £55 million at the time of default with the Company's recovery on its initial loan now nearing 100%. Further recoveries are expected.

The portfolio remains highly diversified, with the average loan representing about 1.6% of the total portfolio and the largest 4.4% as at February 2024.

Further updates will be provided to shareholders in the future when material developments occur.

Portfolio Summary (15 largest settled investments)

Investment name	Currency	Type	Ranking	Value £m(2)	Sector	Sub-sector	Cash-on-cash yield (%)	Yield to maturity/worst (%)
Infinis Energy	GBP	Private	Senior	59.7	Renewables	Landfill gas	5.44	6.32
AP Wireless Junior	EUR	Private	Mezz	59.6	Digitalisation	Telecom towers	4.52	7.79
Workdry	GBP	Private	Senior	56.0	Utility	Utility Services	8.94	8.93
Project Sienna	GBP	Private	Senior	56.0	Other	Waste-to-Energy	9.80	9.92
Project Tyre	USD	Private	Senior	53.9	Transport - vehicles	Specialist shipping	11.17	10.99
Hawkeye Solar	USD	Private	HoldCo	52.2	Renewables	Solar & wind	8.90	9.86
Expedient Data	USD	Private	Senior	51.5	Digitalisation	Data centers	10.95	10.94
Roseton	USD	Private	Senior	51.5	Power	Other Electricity Generation	10.32	10.32
Kenai HoldCo 2024	EUR	Private	HoldCo	49.2	Power	Base load	0.00	11.83
Sacramento Data	USD	Private	Senior	44.2	Digitalisation	Data centers	7.43	8.66
Project Nimble	EUR	Private	HoldCo	43.3	Digitalisation	Data centers	8.66	11.57
Euroports 2nd Lien 2030	EUR	Private	Mezz	42.8	Transport - systems	Port	11.68	11.68
Scandlines	EUR	Private	HoldCo	41.1	Transport - systems	Ferries	6.77	7.40
Tracy Hills TL 2025	USD	Private	Senior	40.8	Other	Residential infra	11.86	11.86
Project Shark	CHF	Private	HoldCo	40.4	Digitalisation	Data centers	8.99	8.99

Note (2) - excluding accrued interest.

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

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

LEI: 2138006OW12FQHJ6PX91

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

For further information please contact:

Sequoia Investment Management Company		+44 (0)20 7079 0480
Steve Cook
Dolf Kohnhorst
Randall Sandstrom
Anurag Gupta
Matt Dimond
Jefferies International Limited		+44 (0)20 7029 8000
Gaudi Le Roux
Stuart Klein
Teneo (Financial PR)		+44 (0)20 7260 2700
Martin Pengelley
Elizabeth Snow
Sanne Fund Services (Guernsey) Limited		+44 (0) 20 3530 3107
(Company Secretary)
Matt Falla
Lisa Garnham

About Sequoia Economic Infrastructure Income Fund Limited

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

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Note (1) - inclusive of interest rate swap.

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