Sequoia Economic Infrastructure Income Fund Ltd.

Net Asset Value • Aug 15, 2024

National Storage Mechanism | Additional information

RNS Number : 4897A

Sequoia Economic Infra Inc Fd Ld

15 August 2024

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

15 August 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 93.93 pence per share from the prior month's NAV per share of 93.57 pence, (being the 30 June 2024 cum-income NAV of 95.29 less the dividend of 1.71875 pence per share declared in respect of the quarter ended 30 June 2024 and payable on 23 August 2024), representing an increase of 0.36 pence per share.

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

	pence per share
30 June NAV	95.29
Interest income, net of expenses	0.75
Asset valuations, net of FX movements	-0.48
Subscriptions / share buybacks	0.09
Dividends	-1.72
31 July NAV	93.93

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.

California License

As announced on 16 July, the Investment Adviser is pleased to announce that Sequoia IDF Holdings S.A. the wholly owned subsidiary of SEQI, has received a finance lender license under the Californian Financing Law which should enable the Company to increase its pipeline in California and provide an origination advantage over other non-bank lenders.

Refinancing of Revolving Credit Facility

On 18 July, the Investment Adviser announced that SEQI has successfully refinanced the Company's existing, multi-currency Revolving Credit Facility ("RCF") which was due to mature in November 2024. The new £300 million multi-currency RCF is provided by JPMorgan Chase Bank, N.A., London Branch. The RCF has a lower borrowing cost of 190 basis points over SONIA (or equivalent), compared to 200 basis points over SONIA (or equivalent) on the prior facility. An arrangement fee will be payable upfront in addition to a commitment fee on the undrawn portion of the new RCF.

Market Summary

Earlier this month, the US reported a weaker-than-expected July 2024 jobs report (employers added just 114,000 jobs in July - 35% fewer than expected - and unemployment, now at 4.3%, is the highest since October 2021) which sparked a sharp sell-off in global equities during the start of August 2024 and stoked recession fears. Whilst noting that global stocks have recovered recently and fears of a recession in the US have slightly eased, the Investment Adviser remains confident in the quality of the portfolio in the event of a recession, as it has prioritised defensive sectors (such as Digitalisation, Accommodation, Utilities and Renewables) and has not chased yield at the expense of credit quality. As of July 2024, 53.2% of the portfolio is in defensive sectors with just under 60% of the Company's loans being senior secured loans.

On 1 August 2024, the Bank of England reduced its base rate by 0.25% to 5.0%, marking the first rate cut since March 2020, driven by easing inflation which met the Bank of England's 2.0% target in June 2024. The European Central Bank has maintained rates at 3.75%, after reducing them by 0.25% during June 2024. Base rates have also remained unchanged in the US at 5.50%, however, there is consensus amongst market participants that a potential rate cut may occur in September 2024. This has also been priced into Futures on the Secured Overnight Financing Rate (SOFR) and the Federal funds rates, which measure expectations of Federal Reserve monetary policy moves.

In the UK, CPI inflation has risen from 2.0% in June 2024 to 2.2% in July 2024 and is expected to rise slightly further by the end of the year, mainly due to stubbornly high services inflation (rising hotel and restaurant costs) which is currently 5.7% year on year. The Office for Budget Responsibility (OBR) expects inflation to average out at 2.2% for 2024 as a whole, before dropping to 1.5% for the duration of 2025. In the Eurozone, CPI inflation rose to 2.6% in July 2024, up 0.1% from the previous month. In the US, CPI inflation was 2.9% in July 2024, easing slightly from 3.0% in June 2024.

Whilst the investment adviser is currently locking in higher interest rates (60.6% of portfolio is in fixed rate investments as of July 2024), inflation is past its peak levels in all of the Fund's investment jurisdictions and is expected to remain below the 2.0% target across all three regions by 2026. As inflation abates, the likelihood of future interest rate cuts increases, which makes alternative investments such as infrastructure more attractive when compared to liquid credit. Once a downwards trend toward a lower interest rate environment unfolds, this will be supportive of fixed rate loans and bonds, as it will accelerate their pull-to-par. Further, as short-term rates begin to fall, yield curves will become less inverted or turn positive again, supporting a bid for risk in the market.

Portfolio update

The Company has drawn £35.8 million on its revolving credit facility (RCF) of £325.0 million during July 2024 and currently has cash of £111.9 million (inclusive of interest income and RCF drawings), and undrawn investment commitments of £58.9 million. The RCF is utilised to manage cashflows through the timing of new investments against the repayment of existing investments.

As at 31 July 2024, the Company's invested portfolio consisted of 54 private debt investments and 2 infrastructure bonds, diversified across 8 sectors and 30 sub-sectors. 59.1% of the portfolio comprised of senior secured loans. It had an annualised yield-to-maturity (or yield-to-worst in the case of callable bonds) of 10.20% and a cash yield of 8.10% (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. The portfolio pull to par has also declined from 3.7 pence per share in June 2024 to 3.4 pence per share in July 2024.

Private debt investments represented 94.3% of the total portfolio, allowing the Company to capture illiquidity yield premiums. The Company's invested portfolio currently consists of 39.4% [1] floating rate investments and remains geographically diversified with 49.6% located across the USA, 27.7% in the UK, 22.6% 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.

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.

Settled investments in July 2024

SEQI continues to carefully scrutinise new investment opportunities arising from the repayment of loans in a disciplined manner alongside other uses of proceeds such as share buybacks and ensuring it has significant liquidity on its RCF. The following investments settled in July 2024:

The following investments (exceeding £0.5 million) repaid in July 2024:

A full repayment of $48.5 million on Senior loan Perc HoldCo, who specialise in energy efficiency assets linked to steel production at two steel mills in the USA.

The following investments (exceeding £0.5m) were made in July 2024:

The Company has closed a Senior Holdco loan facility for €29.5 million to Project Crystal, a market leader in providing diagnostic imaging and radiotherapy services delivered via numerous operating clinics across Germany. The business is underpinned by a stable regulatory environment, the essentiality of such services in delivering high quality medical care and strong barriers to entry.

Share buybacks

The Company bought back 10,371,404 of its ordinary shares at an average purchase price of 80.28 pence per share in July 2024. The Company first started buying back shares in July 2022 and has bought back 178,190,799 ordinary shares as of 31 July 2024, with the buyback continuing into July 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.

Non-performing loans

The Investment Advisor continues to actively manage its existing non-performing loans with the loans being independently marked to market by PwC as part of the monthly review process. We will continue to provide updates to shareholders on a monthly basis.

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	62.8	Renewables	Landfill gas	5.18	5.56
AP Wireless Junior	EUR	Private	Mezz	60.5	Digitalisation	Telecom towers	4.43	7.35
Workdry	GBP	Private	Senior	56.0	Utility	Utility Services	8.94	8.93
Project Sienna	USD	Private	Senior	55.7	Other	Waste-to-Energy	9.86	10.22
Hawkeye Solar	USD	Private	HoldCo	52.7	Renewables	Solar & wind	8.68	9.38
Kenai HoldCo 2024	EUR	Private	HoldCo	52.4	Power	Base load	0.00	10.08
Project Tyre	USD	Private	Senior	51.8	Transport assets	Specialist shipping	11.03	10.67
Expedient Data	USD	Private	Senior	50.6	Digitalisation	Data centers	10.95	10.95
Roseton	USD	Private	Senior	49.4	Power	Other Electricity Generation	10.32	10.32
Sacramento	USD	Private	Senior	44.1	Digitalisation	Data centers	7.27	8.17
Project Nimble	EUR	Private	HoldCo	43.4	Digitalisation	Data centers	8.46	10.72
Euroports	EUR	Private	Mezz	42.7	Transport	Port	10.72	10.54
Scandlines	EUR	Private	HoldCo	41.5	Transport	Ferries	6.59	6.80
Gadwall Holdings (3)	GBP	Private	HoldCo	41.4	Accommodation	Health care	0.00	36.22
Tracy Hills	USD	Private	Senior	40.1	Other	Residential Infra	11.86	11.86

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. The combined value of both loans to the Group equates to 5.2% of the NAV.

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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