Sequoia Economic Infrastructure Income Fund Ltd.

Net Asset Value • Jun 17, 2024

National Storage Mechanism | Additional information

RNS Number : 5533S

Sequoia Economic Infra Inc Fd Ld

17 June 2024

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

17 June 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, increased to 94.30 pence per share from the prior month's NAV per share of 92.46 pence, representing an increase of 1.84 pence per share.

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

	pence per share
30 April NAV	92.46
Interest income, net of expenses	0.82
Asset valuations, net of FX movements	0.98
Subscriptions / share buybacks	0.04
31 May NAV	94.30

The valuation of most fixed rate instruments (which represents 58.6% of the portfolio) has increased during May 2024 due to the marginal reduction in risk free rates and a sustained reduction in benchmark spreads for certain instruments, predominantly in the utility and power/energy sectors. This has also resulted in a reduction in the pull to par from 4.2 pence per share in April 2024 to 3.8 pence per share in May 2024. The Investment Adviser also expects abating inflation to provide a foundation for steadier credit markets, highlighting that the long-term outlook on inflation and base rates points towards a beneficial tailwind to the Company's NAV, as falling rates would typically increase asset valuations.

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 May 2024, central banks across the UK, US and Eurozone maintained policy rates at 5.25%, 5.50% and 4.00%, respectively. On 06 June 2024, the Eurozone announced the first rate cut of 0.25% to 3.75%, as CPI inflation has declined in the region to 2.4% as at April 2024. On 12 June 2024, the Federal Reserve held rates steady in the US and signalled that just one rate cut is to be expected by the end of the year. In the UK, the next policy rates announcement will be held on 20 June 2024 and the markets have priced in at least one rate cut by the end of the year. 

Five-year sovereign debt yields were down marginally in the UK and US by 0.5% and 0.2% respectively, and up marginally by 0.1% to 2.7% in the Eurozone during May 2024. In the UK, the most recent data on annual CPI inflation shows that it has fallen to its lowest level in almost three years, as prices rose by 2.3% in April 2024, down from 3.2% in March 2024. Inflation is also trending in the right direction in the US, down from 3.8% in March 2024 to 3.6% in April 2024. CPI inflation is expected to return closer to the 2% target by the end of the year across all three regions, mainly due to the unwinding of energy-related base effects.

Share buybacks

The Company bought back 4,250,968 of its ordinary shares at an average purchase price of 79.48 pence per share in May 2024. The Company first started buying shares back in July 2022 and has bought back 159,797,411 ordinary shares as of 31 May 2024, with the buyback continuing into June 2024. This share repurchase activity by the Company continues to contribute positively to NAV accretion. 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 has drawn £15.0 million on its revolving credit facility (RCF) of £325.0 million during May 2024 and currently has cash of £41.2 million (inclusive of RCF drawings), and undrawn investment commitments of £46.2 million. The RCF was utilised during May 2024 to manage cashflows through the timing of new investments against the repayment of existing investments.

As at 31 May 2024, 57.1% of the portfolio comprised of senior secured loans and 51.6% remained in defensive sectors (Renewables, Digitalisation, Utility and Accommodation). The Company's invested portfolio consisted of 54 private debt investments and 2 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 10.37% and a cash yield of 8.20% (excluding deposit accounts). The weighted average portfolio life remains short and is approximately 3.7 years. This short duration means that as loans mature, the Company can take advantage of higher yields in the current interest rate environment.

Private debt investments represented 94.2% of the total portfolio, allowing the Company to capture illiquidity yield premiums. The Company's invested portfolio currently consists of 41.4% [1] floating rate investments and remains geographically diversified with 51.9% located across the USA, 26.8% in the UK, 21.2% in Europe, and 0.1% in Australia/New Zealand.

The portfolio remains highly diversified by sector and size, with the average loan representing about 1.6% of the total portfolio and the largest loan is 4.2% of NAV as at 31 May 2024.

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. During May 2024, the Company also entered into an additional interest rate swap for £30 million with a maturity of 2.5 years to lock in a portion of the current high interest rates being paid by borrowers and to allow tactical management of the portfolio's fixed rate exposure.

Settled investments in May 2024

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 significant liquidity on its RCF. Aside from these uses of capital, the following investments settled in May 2024 (excluding small loan drawings of less than £0.5 million):

• The Investment Adviser proactively restructured the balance sheet of the Active Care Group, a UK healthcare business. As part of this restructuring, SEQI has provided additional funding of £34.8 million as a senior secured loan named ACG BidCo Limited and restructured and replaced the existing loan Montreux HoldCo Facility with an equivalent loan on extended terms to a newly established entity, Gadwall Holdings Limited. Following the restructuring, SEQI is the majority equity owner of the new holding company. SEQI's total exposure now, through the two loans, is valued at £74.8 million, or 5.2% of NAV as at 31 May 2024. These are not classified as non-performing loans;

• A purchase of Brightline East LLC HoldCo bonds for $50 million, a privately owned passenger rail project in Florida. The borrower refinanced the entire capital structure, which included Brightline Trains Florida LLC bonds (which SEQI previously held) with new OpCo debt of $2.2 billion and HoldCo debt of $1.3 billion; and

• An additional senior loan for $5.0 million to Westinghouse, a leading provider of infrastructure services to operating nuclear power generating facilities across the US.

Investments (exceeding £0.5 million) sold or repaid in May 2024

• A full repayment of Brightline Trains Florida LLC bonds for $20 million at a redemption price of 104 cents due to the refinancing of the bond, as stated above.

Non-performing loans

The Investment Adviser continues to actively manage its non-performing loans with the loans being independently marked to market by PwC as part of the monthly review process. Further updates will be provided to shareholders in the future when material developments occur.

Notice of Annual Results

SEQI will publish its final results for the year ended 31 March 2024 on Wednesday, 26 June 2024. The Investment Adviser will host a conference call for investors and analysts on the results at 08:00am BST on Wednesday,  26 June 2024. There will be the opportunity for participants to ask questions at the end of the call. Those wishing to attend should register via the following link:

https://stream.brrmedia.co.uk/broadcast/665ef724025b0d99d3b969ef     

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	60.5	Renewables	Landfill gas	5.37	6.14
AP Wireless Junior	EUR	Private	Mezz	60.0	Digitalisation	Telecom towers	4.50	7.72
Project Sienna	GBP	Private	Senior	56.6	Other	Waste-to-Energy	9.95	10.68
Workdry	GBP	Private	Senior	56.0	Utility	Utility Services	8.94	8.94
Hawkeye Solar	USD	Private	HoldCo	51.9	Renewables	Solar & wind	8.89	9.88
Project Tyre	USD	Private	Senior	51.6	Transport assets	Specialist shipping	11.11	10.75
Expedient Data	USD	Private	Senior	51.1	Digitalisation	Data centers	10.95	10.95
Roseton	USD	Private	Senior	50.4	Power	Other Electricity Generation	10.32	10.32
Kenai HoldCo	EUR	Private	HoldCo	50.0	Power	Base load	0.00	11.27
Sacramento	USD	Private	Senior	43.9	Digitalisation	Data centers	7.40	8.64
Project Nimble	EUR	Private	HoldCo	43.4	Digitalisation	Data centers	8.57	11.41
Euroports 2030	EUR	Private	Mezz	42.6	Transport	Port	11.68	11.68
Scandlines	EUR	Private	HoldCo	41.3	Transport	Ferries	6.71	7.23
Tracy Hills 2025	USD	Private	Senior	40.4	Other	Residential infra	11.86	11.86
Gadwall Holdings	GBP	Private	HoldCo	40.0	Accommodation	Health care	0.00	37.74

Note (2) - excluding accrued interest

Note (3) - Montreux HoldCo Facility was restructured and replaced with an equivalent loan on extended terms to a newly established entity, Gadwall Holdings. As part of the restructuring, an additional loan for £34.8 million was also made to ACG BidCo Limited as a senior secured loan.

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 Harry Randall
Teneo (Financial PR)		+44 (0)20 7260 2700
Martin Pengelley
Elizabeth Snow Faye Calow
Sanne Fund Services (Guernsey) Limited		+44 (0) 20 3530 3107
(Company Secretary)
Matt Falla
Devon Jenkins

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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