11th Feb 2008 15:15
Queen's Walk Investment Limited11 February 2008 11 February 2008 Queen's Walk Investment Limited (the "Company") Interim Management Statement This interim management statement relates to the period from 1 October 2007 to11 February 2008 and has been prepared solely in order to comply with therequirement (pursuant to the EU Transparency Directive as implemented by theDisclosure and Transparency Directive) for an interim management statement to bemade by the Company no earlier than 10 October 2007 and no later than 18February 2008. The Company is currently in the process of preparing itsquarterly report for the period ended 31 December 2007 and this is expected tobe released in early March 2008. The Company wishes to make clear that unlessotherwise noted, the financial information provided in this interim managementstatement (and the asset valuations underlying that financial information) areas at 30 September 2007 and that such financial information (and underlyingvaluations) will be stated as at a more recent date in the Company's forthcomingquarterly report. Performance Summary The current credit crisis, which began with the US sub-prime mortgage market,has been continuing for more than seven months now. As at 31 December 2007, thecredit crisis has not had a material impact on the cash flow performance of theCompany's assets. Cash flows from the Company's investment portfolio exceeded€20 million per quarter for the three quarters ending 31 December 2007. As at 30 September 2007, the company's NAV was €6.90 per share down from a NAVof €7.24 per share as at 31 March 2007. This reduction in NAV has predominantlybeen a result of write downs to the Company's US related investments. As at 30September 2007, the direct and indirect exposure to the US sub-prime mortgagesector was 2.3% of the Company's gross asset value. On 16 July 2007, the Company replaced its short term financing with a 4 year€135 million term financing facility. The financing facility has provided theCompany with a stable financing solution as it eliminates the liquidity risk ofshort-term borrowings. The net leverage ratio as at 30 September 2007 was 8.6%(after taking into account cash balances allocated to settle the tender offerand the Company's dividend). Since 18 July 2007, the Company has returned in excess of €40 million of capitalto shareholders using a combination of share buyback and tender offers. TheCompany's first tender offer for €20 million of the outstanding Ordinary Shareswas approved by shareholders on 8 October 2007. The Company's most recenttender offer, which was approved by shareholders on 8 January 2008, purchased€15 million of shares at a strike price of €5.40 per share. The Company has alsoan active programme of share buy backs underway and has purchased in excess of€6.5 million of Ordinary Shares. At present, the discount in the share price tothe 30 September 2007 NAV, is an opportunity for the Company to buy back sharesand add value for existing shareholders. Investment Portfolio The tables below summarise the Company's investment portfolio as at 30 September2007. Portfolio Composition by Jurisdiction as at 30 September 2007* Germany 13.7%Italy 9.3%Portugal 27.6%UK 39.7%US 1.1%Holland 5.3%CDO 3.3% * By reference to underlying asset jurisdiction. Figures stated as a percentageof the fair value of the Company's residual investments including accruedinterest. Portfolio Composition by Asset Type as at 30 September 2007* SME 18.9%Prime 38.8%NearPrime 19.7%SubPrime 19.2%CDO 3.3% * By reference to underlying asset collateral. Figures stated as a percentageof the fair value of the Company's residual investments including accruedinterest. As at 13 February 2008, the securitisations to which the Company has exposurethrough its investment portfolio were: Issuer Description of Underlying AssetsAlba 2005-1 plc UK non-conforming and buy-to-let residential mortgagesAlba 2006-1 plc UK non-conforming residential mortgages, primarily first-rankingAmstel Corporate Loan Offering BV Middle market corporate loans2006-1Cheyne ABS Investments I plc Investment grade ABS CDOs and total return swaps referencing ABS CDOs with exposure to the US sub-prime mortgage marketCheyne CLO Investments I Limited Investment grade CLOsCheyne High Grade ABS CDO, Ltd Investment grade ABS CDOs with exposure to the US sub-prime mortgage marketEarls Eight Limited (Tranche 312B) SME loansEirles Three Limited (Tranche SME loans227B)Eirles Three Limited (Tranche SME loans236B)Eurosail 2006-1 plc UK non-conforming and buy-to-let residential mortgagesLusitano Mortgages No. 1 plc First-ranking, fully amortising Portuguese residential mortgagesLusitano Mortgages No. 2 plc First-ranking, fully amortising Portuguese residential mortgagesLusitano Mortgages No. 3 plc First-ranking, fully amortising Portuguese residential mortgagesMagellan Mortgages No. 1 plc First ranking, fully amortising Portuguese residential mortgagesMagellan Mortgages No. 2 plc First ranking mortgage rights (or second-ranking where first-ranking is also transferred) Portuguese residential mortgagesNewgate Funding plc UK non-conforming residential mortgages, primarily first-rankingRASC Series 2006-KS2 Trust US Sub-prime residential mortgages, primarily first-rankingRMAC 2004-NSP4 plc UK non-conforming residential mortgages, primarily first-rankingRMAC 2005 NS3 plc UK non-conforming residential mortgages, primarily first-rankingRMAC 2005 NS4 plc UK non-conforming residential mortgages, primarily first-rankingSestante Finance S.R.L. First-ranking prime Italian residential mortgages The Company has not bought or sold any assets in its Investment Portfolio in theperiod from 1 October 2007 to 11 February 2008. In October 2007, the Company purchased €28 million notional of two year putoptions struck against 90% of the September 2007 value of the Halifax UK houseprice index. The hedge is currently in the money as UK house prices have fallenin the last four months. This hedge is intended to minimise portfolio losses inthe event that house prices give up the gains that have occurred since early2006. Market Outlook The credit dislocation which began in the US sub-prime mortgage market in early2007, now affects large parts of the credit markets in the US and Europe. Inthe UK, the non-conforming mortgage securitisation markets have stalled asinvestors remain concerned over weakness in the UK housing market, theappropriateness of rating agency models and the potential volatility in theprices of RMBS bonds over the coming months. Compounded with a reduction in theavailability of mortgage credit from commercial banks, UK house prices havebegun to soften and growth is likely to weaken further in 2008 and 2009. TheCompany has hedged itself against a significant downturn in house prices. With respect to the European mortgages, pre-payment rates have increased asexpected as national governments try to promote more liquid mortgage markets.To date, the credit crisis in the US sub-prime mortgage market has not affectedthe prepayment or default rates though there are broader signals that Europeanbanks have also reduced the availability of mortgage credit in the past fewmonths. The Company remains sanguine about the outlook over the coming months. Creditmarkets are unlikely to return to normality within the short term as thefinancial system continues to de-lever. There remains the potential of amaterial slowdown in economic growth in the UK and Europe. These risks shouldbe mitigated by interest rate cuts that should provide stimulus to consumerspending and the housing markets. For further information please contact: Investor Relations:Caroline Villiers +44 (0) 20 7153 1521 About the Company: Queen's Walk Investment Limited is a Guernsey-incorporated investment companylisted on the London Stock Exchange. The Company invests primarily in adiversified portfolio of subordinated tranches of asset backed securities,including the unrated "equity" or "first loss" residual income positionstypically retained by the banks or other financial institutions which haveoriginated the loan assets that collateralise a securitisation transaction. TheCompany makes such investments where its investment manager, Cheyne CapitalManagement (UK) LLP, considers the coupon or cash flows from the investment tobe attractive relative to the credit exposure of the underlying assetcollateral. The Company believes that its investment focus provides equityinvestors with exposure to a relatively new investment opportunity in this assetclass. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Real Est.cred