|By PR Newswire||
|January 31, 2014 02:03 AM EST||
LONDON, January 31, 2014 /PRNewswire/ --
Tetragon Financial Group Limited (TFG) is a Guernsey closed-ended investment company traded on the NYSE Euronext in Amsterdam under the ticker symbol "TFG".
In this update, unless otherwise stated, we report on the consolidated business incorporating TFG and Tetragon Financial Group Master Fund Limited.(1)
TFG announces its intention to repurchase TFG non-voting shares up to a maximum value of $50 million. Deutsche Bank will act as dealer manager in the tender offer, which will use a modified Dutch auction structure. Details of this planned tender offer will be announced shortly.
Supplemental Information to the Monthly Update for December 2013
Set forth below, we provide additional information explaining the recalibration of certain inputs used in the determination of the fair value of TFG's CLO equity investments.
Fair Value Determination for TFG's CLO Equity Investments:
In accordance with the valuation policies set forth on TFG's website, the values of its CLO equity investments are determined using a third-party cash flow modeling tool. The model contains certain assumption inputs that are reviewed and adjusted as appropriate to factor in how historic, current and potential market developments (examined through, for example, forward-looking observable data) might potentially impact the performance of TFG's CLO equity investments. Since this involves modeling, among other things, forward projections over multiple years, this is not an exercise in recalibrating future assumptions to the latest quarter's historical data.
Subject to the foregoing, when determining the U.S. GAAP-compliant fair value of TFG's portfolio, the company seeks to derive a value at which market participants could transact in an orderly market and also seeks to benchmark the model inputs and resulting outputs to observable market data when available and appropriate. Please refer to the 2012 Annual Report for a more detailed description of the cash flow projection and discounting process.
Forward-looking CLO Equity Cash Flow Modeling Assumptions Recalibrated in Q4 2013:
The Investment Manager reviews and, when appropriate, adjusts in consultation with TFG's audit committee, the CLO equity investment portfolio's modeling assumptions as described above. At the end of Q4 2013, certain key assumptions relating to defaults were recalibrated. Those relating to recoveries, prepayments and reinvestment prices were unchanged from the previous quarter.
U.S. CLOs - default assumptions recalibrated
For the U.S. deals, near-term default assumptions were unchanged but medium-term default multiples were reduced to base case to reflect, among other things, the effective resolution of the so-called "maturity wall" issue as well as the perceived return to a more normalized credit cycle after the financial crisis. These changes, which are detailed in the table below, result in base case default assumptions being applied for all future periods. This had a positive impact on the undiscounted future projected cash flows of the U.S. deals.
Variable Year Current Assumptions Prior Assumptions CADR 1.0x WARF-implied 1.0x WARF-implied 2013-14 default rate (2.2%) default rate (2.2%) 1.0x WARF-implied 1.25x WARF-implied 2015-17 default rate (2.2%) default rate (2.7%) 1.0x WARF-implied 1.0x WARF-implied Thereafter default rate (2.2%) default rate (2.2%) Recovery Rate Until deal maturity 73% 73% Prepayment Rate Until deal 20.0% p.a. on loans; 20.0% p.a. on loans; maturity 0.0% on bonds 0.0% on bonds Reinvestment Price Until deal maturity 100% 100%
European CLOs - default assumptions recalibrated
For the European deals, elevated default multiples were previously maintained in the near and medium term. In light of some positive developments, such as more optimistic default projections by rating agencies and the perception of progress towards a more normalized credit cycle in Europe, the medium term multiple was reduced to base case and the very near term multiple to 1.25x base case. This had a positive impact on the undiscounted future projected cash flows of the European deals.
Variable Year Current Assumptions Prior Assumptions CADR 1.25x WARF-implied 1.5x WARF-implied 2013-2014 default rate (2.6%) default rate (3.1%) 1.0x WARF-implied 1.25x WARF-implied 2015-2017 default rate (2.1%) default rate (2.6%) 1.0x WARF-implied 1.0x WARF-implied Thereafter default rate (2.1%) default rate (2.1%) Recovery Rate Until deal maturity 68% 68% Prepayment Rate Until deal 20.0% p.a. on loans; 20.0% p.a. on loans; maturity 0.0% on bonds 0.0% on bonds Reinvestment Price Until deal maturity 100% 100%
These key average assumption variables include the modeling assumptions disclosed as a weighted average (by U.S. dollar amount) of the individual deal assumptions, aggregated by geography (i.e. U.S. and European). Such weighted averages may change from month to month due to movements in the amortized costs of the deals, even without changes to the underlying assumptions. Each individual deal's assumptions may differ from this geographical average and vary across the portfolio.
The reinvestment price, assumptions about reinvestment spread and reinvestment life are also input into the model to generate an effective spread over LIBOR. Newer vintage CLOs may have a higher weighted-average reinvestment spread over LIBOR or shorter reinvestment life assumptions than older deals. Across the entire CLO portfolio, the reinvestment price assumption of 100% for U.S. deals and European deals with their respective assumed weighted-average reinvestment spreads, generates an effective spread over LIBOR of approximately 289 bps on broadly syndicated U.S. loans, 272 bps on European loans, and 328 bps on middle market loans.
Application of Discount Rates to Projected CLO Equity Cash Flows:
Pre-crisis U.S. CLO Equity - discount rates reduced from 15% to 13%
In determining the applicable rates to use to discount projected cash flows, an analysis of observable risk premium data is undertaken. As had been noted over a number of prior quarters, observable risk premia such as BB and BBB CLO tranche spreads have been reducing with BB spreads on U.S. deals, for example, edging down to 5.3% in December 2013.(2)
Since the end of Q1 2013, BB and BBB spreads on U.S. deals have both reduced by approximately 1.0% (3) and have exhibited a relatively low level of volatility at these reduced levels. Accordingly, TFG's U.S. discount rates on pre-crisis transactions have been reduced to 13% from 15%, also reflecting compression of equity discount rates over mezzanine tranches as well as other observable factors. The future movement of mezzanine tranche spreads as well as the likely range of spreads of equity discount rates over such spreads, among other factors, will continue to be monitored in coming quarters.
European CLO Equity - discount rates reduced from 20% to 17%
European BB-rated tranche yields have also continued to follow a downward trajectory, reaching approximately 7.5% in December 2013.(4) This is now just over 2% higher than the U.S. equivalent (see above), and notwithstanding the potential higher risks connected with the ongoing Eurozone issues, is reflective of certain other observable data (such as improving deal performance) and anecdotal evidence pointing to a reduction in the differential between discount rates in the two geographies. Consequently, the discount rate applied to European deal projected cash flows has been reduced to 17% from 20%. As a result, the differential between the discount rates used on U.S. pre-crisis deals and European deals has fallen from 4% to 3%. The observable range of European risk premia over the U.S. equivalent, among other factors, will continue to be monitored in coming quarters.
Historically, we have characterized the difference arising where fair value is lower than the amortized cost for the portfolio, which can occur when the discount rates used to discount future cash flows when determining fair value are higher than the modeled IRRs, as the "ALR Fair Value Adjustment" or "ALR". For European deals at the end of Q4 2013, the ALR stood at $38.9 million, compared to $51.0 million at the end of Q3 2013. As explained in prior releases, the ALR is now zero for U.S. deals.
2010 - 2013 CLO Equity - discounted using deal IRR
The applicable discount rate for newer vintage deals is determined with reference to each deal's specific IRR, which, in the absence of other observable data points, is deemed to be the most appropriate indication of the current risk premium on these structures. At the end of Q4 2013, the weighted-average discount rate (and IRR) on these deals was 11.6%. Such deals represented approximately 17.7% of the CLO equity portfolio by fair value (up from 16.9% at the end of Q3 2013). We will continue to monitor observable data on these newer vintage transactions to determine whether the IRR remains the appropriate discount rate.
Effect on fair value and net income of recalibration of certain inputs into the CLO model:
1. TFG invests substantially all its capital through a master fund, Tetragon Financial Group Master Fund Limited ("TFGMF") in which it holds a 100% share.
2. Citi Global Structured Credit Strategy - 13 December 2013
3. Citi Global Structured Credit Strategy - 9 April 2013
4. Citi Global Structured Credit Strategy - 13 December 2013
Overall, the net impact of the recalibration of certain forward-looking default assumptions and discount rates described above led to an overall increase in fair value of the total CLO equity portfolio of approximately $68.2 million, or $51.1 million in bottom line net income.
"Once customers get a year into their IoT deployments, they start to realize that they may have been shortsighted in the ways they built out their deployment and the key thing I see a lot of people looking at is - how can I take equipment data, pull it back in an IoT solution and show it in a dashboard," stated Dave McCarthy, Director of Products at Bsquare Corporation, in this SYS-CON.tv interview at @ThingsExpo, held November 1-3, 2016, at the Santa Clara Convention Center in Santa Clara, CA.
Dec. 2, 2016 11:15 PM EST Reads: 861
20th Cloud Expo, taking place June 6-8, 2017, at the Javits Center in New York City, NY, will feature technical sessions from a rock star conference faculty and the leading industry players in the world. Cloud computing is now being embraced by a majority of enterprises of all sizes. Yesterday's debate about public vs. private has transformed into the reality of hybrid cloud: a recent survey shows that 74% of enterprises have a hybrid cloud strategy.
Dec. 2, 2016 11:15 PM EST Reads: 1,670
@DevOpsSummit taking place June 6-8, 2017 at Javits Center, New York City, is co-located with the 20th International Cloud Expo and will feature technical sessions from a rock star conference faculty and the leading industry players in the world. @DevOpsSummit at Cloud Expo New York Call for Papers is now open.
Dec. 2, 2016 10:30 PM EST Reads: 1,720
IoT is rapidly changing the way enterprises are using data to improve business decision-making. In order to derive business value, organizations must unlock insights from the data gathered and then act on these. In their session at @ThingsExpo, Eric Hoffman, Vice President at EastBanc Technologies, and Peter Shashkin, Head of Development Department at EastBanc Technologies, discussed how one organization leveraged IoT, cloud technology and data analysis to improve customer experiences and effici...
Dec. 2, 2016 08:30 PM EST Reads: 4,967
"We are an all-flash array storage provider but our focus has been on VM-aware storage specifically for virtualized applications," stated Dhiraj Sehgal of Tintri in this SYS-CON.tv interview at 19th Cloud Expo, held November 1-3, 2016, at the Santa Clara Convention Center in Santa Clara, CA.
Dec. 2, 2016 08:30 PM EST Reads: 348
Fact is, enterprises have significant legacy voice infrastructure that’s costly to replace with pure IP solutions. How can we bring this analog infrastructure into our shiny new cloud applications? There are proven methods to bind both legacy voice applications and traditional PSTN audio into cloud-based applications and services at a carrier scale. Some of the most successful implementations leverage WebRTC, WebSockets, SIP and other open source technologies. In his session at @ThingsExpo, Da...
Dec. 2, 2016 08:15 PM EST Reads: 1,553
The cloud competition for database hosts is fierce. How do you evaluate a cloud provider for your database platform? In his session at 18th Cloud Expo, Chris Presley, a Solutions Architect at Pythian, gave users a checklist of considerations when choosing a provider. Chris Presley is a Solutions Architect at Pythian. He loves order – making him a premier Microsoft SQL Server expert. Not only has he programmed and administered SQL Server, but he has also shared his expertise and passion with b...
Dec. 2, 2016 07:00 PM EST Reads: 3,912
"IoT is going to be a huge industry with a lot of value for end users, for industries, for consumers, for manufacturers. How can we use cloud to effectively manage IoT applications," stated Ian Khan, Innovation & Marketing Manager at Solgeniakhela, in this SYS-CON.tv interview at @ThingsExpo, held November 3-5, 2015, at the Santa Clara Convention Center in Santa Clara, CA.
Dec. 2, 2016 06:45 PM EST Reads: 3,981
As data explodes in quantity, importance and from new sources, the need for managing and protecting data residing across physical, virtual, and cloud environments grow with it. Managing data includes protecting it, indexing and classifying it for true, long-term management, compliance and E-Discovery. Commvault can ensure this with a single pane of glass solution – whether in a private cloud, a Service Provider delivered public cloud or a hybrid cloud environment – across the heterogeneous enter...
Dec. 2, 2016 06:30 PM EST Reads: 1,475
Without a clear strategy for cost control and an architecture designed with cloud services in mind, costs and operational performance can quickly get out of control. To avoid multiple architectural redesigns requires extensive thought and planning. Boundary (now part of BMC) launched a new public-facing multi-tenant high resolution monitoring service on Amazon AWS two years ago, facing challenges and learning best practices in the early days of the new service. In his session at 19th Cloud Exp...
Dec. 2, 2016 05:15 PM EST Reads: 365
The cloud promises new levels of agility and cost-savings for Big Data, data warehousing and analytics. But it’s challenging to understand all the options – from IaaS and PaaS to newer services like HaaS (Hadoop as a Service) and BDaaS (Big Data as a Service). In her session at @BigDataExpo at @ThingsExpo, Hannah Smalltree, a director at Cazena, provided an educational overview of emerging “as-a-service” options for Big Data in the cloud. This is critical background for IT and data professionals...
Dec. 2, 2016 05:00 PM EST Reads: 4,076
Today we can collect lots and lots of performance data. We build beautiful dashboards and even have fancy query languages to access and transform the data. Still performance data is a secret language only a couple of people understand. The more business becomes digital the more stakeholders are interested in this data including how it relates to business. Some of these people have never used a monitoring tool before. They have a question on their mind like “How is my application doing” but no id...
Dec. 2, 2016 04:45 PM EST Reads: 2,103
@GonzalezCarmen has been ranked the Number One Influencer and @ThingsExpo has been named the Number One Brand in the “M2M 2016: Top 100 Influencers and Brands” by Onalytica. Onalytica analyzed tweets over the last 6 months mentioning the keywords M2M OR “Machine to Machine.” They then identified the top 100 most influential brands and individuals leading the discussion on Twitter.
Dec. 2, 2016 04:45 PM EST Reads: 1,969
What happens when the different parts of a vehicle become smarter than the vehicle itself? As we move toward the era of smart everything, hundreds of entities in a vehicle that communicate with each other, the vehicle and external systems create a need for identity orchestration so that all entities work as a conglomerate. Much like an orchestra without a conductor, without the ability to secure, control, and connect the link between a vehicle’s head unit, devices, and systems and to manage the ...
Dec. 2, 2016 04:15 PM EST Reads: 364
More and more brands have jumped on the IoT bandwagon. We have an excess of wearables – activity trackers, smartwatches, smart glasses and sneakers, and more that track seemingly endless datapoints. However, most consumers have no idea what “IoT” means. Creating more wearables that track data shouldn't be the aim of brands; delivering meaningful, tangible relevance to their users should be. We're in a period in which the IoT pendulum is still swinging. Initially, it swung toward "smart for smar...
Dec. 2, 2016 04:15 PM EST Reads: 348