Sequoia Economic Infrastructure Income Fund Ltd.

Net Asset Value • Sep 15, 2023

National Storage Mechanism | Additional information

RNS Number : 5015M

Sequoia Economic Infra Inc Fd Ld

15 September 2023

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

15 September 2023

Sequoia Economic Infrastructure Income Fund Limited

("SEQI" or the "Company")

NAV update

The NAV per share for SEQI, the specialist investor in economic infrastructure debt, increased to 92.98 pence per share from the prior month's NAV per share of 92.41 pence, representing an increase of 0.57 pence per share.

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

	pence per share
31 July 23 NAV	92.41
Interest income, net of expenses	0.84
Asset valuations, net of FX movements	-0.32
Accretion from share buyback	0.05
31 August 23 NAV	92.98

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

The market has become increasingly convinced that the Fed's tightening cycle is potentially over, with five to six rate cuts predicted in 2024. The UK and European Central Banks are expected to increase interest rates by 25 basis points to 5.50% and 4.25% and later this month, as the Bank of England announced that interest rates are "close to their peak" but that they may still have further to rise. The data shows that inflation is still showing signs of abating, with annual inflation falling around two-thirds since last summer. The desired 2% inflation target is not expected to be realised until mid-2025.

Although US, UK and European high yield bonds all posted positive returns in August (and slightly outperformed government bonds across all three regions), the Investment Advisor expects some continued market volatility in the higher interest rate environment and therefore remains committed to high credit quality investments with yields currently ranging from 9% to 11%.  The Company's portfolio also currently consists of 55% floating rate investments and its yield-to-maturity is 11.7% (up from 54% and 10.2% in August 2022).

The most recent data provided by the International Monetary Fund (IMF) indicates moderate real GDP growth rates for the aforementioned regions. Specifically, the US is projected to achieve a growth rate of 1.8%, while the Eurozone and the UK are expected to see growth rates of 0.9% and 0.4% respectively. The Investment Adviser believes the US infrastructure market enjoys a positive outlook, which is well supported by its bipartisan legislation, such as the Infrastructure Bill and the Inflation Reduction Act. More than half of the Company's portfolio is currently invested in the US (50.4%) and the pipeline of opportunities remains strong in the US.

Share buybacks

The Company continued to repurchase shares and bought back 6,290,808 of its ordinary shares at an average purchase price of 80.72 pence per share in August 2023. The Company first started buying shares back in August 2022 and has bought back 79,970,553 ordinary shares as of 31 August 2023. The Board and the Investment Adviser remain confident in the Company's NAV, which is updated monthly through an independent valuation and has expected upside over time from the pull-to-par effect. The rate at which SEQI buys back shares will vary depending on various factors, including the level of SEQI's share price discount to NAV. The Company believes that buying in shares at greater discounts will generate shareholder value over the long term.

Portfolio update

In August 2023, the Company joined a syndicate of lenders to participate in the $865m Senior Secured Term Loan B refinancing of majority of the assets of Generation Bridge, LLC and all the assets of Generation Bridge II, LLC. The new portfolio "Generation Bridge Northeast, LLC" is comprised of eight (non-coal) thermal power generation facilities across NYISO J, NYISO ROS and ISO NE, consisting of two baseload facilities, one load following facility and five peaking assets. The Company has invested $40m in a Senior Secured Term Loan B credit facility borrowed by Generation Bridge Northeast, LLC.

The Company is attractively positioned from a liquidity perspective with cash of £84.2m available, compared to undrawn commitments on existing investments of £33.6m. The Company is currently not geared and its revolving credit facility is undrawn, resulting in additional capacity to manage future volatility in exchange rates, while simultaneously reducing cash drag on non-invested capital. The Company also has an active pipeline of new investments with attractive yields in the current interest rate environment and intends to draw on the revolving credit facility when appropriate while prudently balancing its capital allocation. Further updates will be provided to shareholders upon the completion of these deals during the autumn of 2023. The pipeline is diversified by sector, sub-sector, and jurisdiction, with yields currently ranging from 9% to 11%.

The Company's invested portfolio consisted of 57 private debt investments and 3 infrastructure bonds across 8 sectors and 27 sub-sectors. It had an annualised yield-to-maturity (or yield-to-worst in the case of callable bonds) of 11.7% and a cash yield of 7.8%. The weighted average portfolio life remains short and is approximately 3.4 years. Private debt investments represented 97.3% of the total portfolio. The Company's invested portfolio remains geographically diverse with 50.4% located across the US, 25.6% in the UK, 23.9% in Europe, and 0.1% in Australia/New Zealand.

Investors are reminded that declines in unrealised mark-to-market adjustments should reverse over time as the investments approach their repayment date (the "pull-to-par" effect), assuming there are no performance related adjustments required to their value. As at 31 August 2023, the pull-to-par is estimated to be worth approximately 6.7p/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 on its hedging book.

The following investments settled in August 2023 (excluding small loan drawings of less than £0.5m):

• A senior loan for $40m to Generation Bridge Northeast LLC, owners of electric power generation facilities totalling more than 5,900 MW of installed capacity located in the USA (yield-to-maturity 9.2%);

• A senior loan for $5.0m on Tracy Hills Holdings Company LLC Facility B to finance the separate undrawn revolving credit facility (total commitment $15.0m). Tracy Hills is a residential infrastructure project in California (yield-to-maturity 11.8%); and

• An additional loan for $3.0m to SL 4000 Connecticut LLC (formerly known as Whittle Schools) to finance the extension of the forbearance period including funding of the senior debt accrued interest and 12 months of operating cost reserves. 4000 Connecticut LLC is a large building in Washington DC renovated for an educational institution tenant which is currently vacant and is being marketed for leasing or sale.

No investments sold or prepaid in August 2023

• A full repayment on Generation Bridge II LLC for $32.4m; an acquisition facility for a non-coal conventional power asset portfolio in the USA; and

• The full sale of Samhällsbyggnadsbolaget (SBB) i Norden AB bonds for €12.6m; a social infrastructure property company listed on the Nasdaq Stockholm (Large Cap).

Non-performing loans

The Investment Adviser continues to actively manage its two non-performing loans (which together represent 3.3% of NAV) with the loans independently marked to market by PwC as part of the monthly valuation process. Further updates will be provided to shareholders in the future when developments occur.

Ordinary Portfolio Summary (15 largest settled investments)

Investment name	Currency	Type	Ranking	Value £m(1)	Sector	Sub-sector	Cash-on-cash yield (%)	Yield to maturity / worst (%)
AP Wireless US Holdco	USD	Private	HoldCo	57.7	TMT	Telecom towers	6.16	10.06
AP Wireless Junior	EUR	Private	Mezz	57.1	TMT	Telecom towers	4.67	8.39
Infinis Energy	GBP	Private	Senior	56.2	Renewables	Landfill gas	5.78	7.17
Lightspeed Fibre Group Ltd	GBP	Private	Senior	55.8	TMT	Broadband	6.71	15.67
Project Tyre	USD	Private	Senior	54.1	Transport assets	Specialist shipping	10.75	10.75
Hawkeye Solar HoldCo 2030	USD	Private	HoldCo	51.4	Renewables	Solar & wind	9.02	10.04
Expedient Data Centers Senior	USD	Private	Senior	50.7	TMT	Data centers	11.03	11.35
Workdry	GBP	Private	Senior	50.0	Utility	Utility services	8.43	8.43
Tracy Hills TL 2025	USD	Private	Senior	49.2	Other	Residential infra	11.82	11.82
Kenai HoldCo 2024	EUR	Private	HoldCo	46.1	Power	Base load	0.00	31.48
Montreux HoldCo Facility	GBP	Private	HoldCo	45.5	Accommodation	Health care	17.57	23.42
Sacramento Data Centre Senior	USD	Private	Senior	44.4	TMT	Data centers	7.47	8.66
Madrid Metro	EUR	Private	HoldCo	43.3	Transport assets	Rolling stock	1.46	8.64
Project Nimble	EUR	Private	HoldCo	42.8	TMT	Data centres	8.78	11.63
Scandlines Mezzanine 2032	EUR	Private	HoldCo	40.8	Transport	Ferries	6.81	7.51

Note (1) - 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

Greg Taylor

Anurag Gupta

Jefferies International Limited                                                       +44 (0)20 7029 8000

Gaudi Le Roux

Stuart Klein

Teneo (Financial PR)                                                                        +44 (0)20 7353 4200

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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