Firstly, Management commented on the financial performance for the FY2020, total investment income increased 39.8% to US$4.5 million (2019: $3.21 million) but translated in a 3.8% decline to US$1.97 million (2019: US$2.05 million). Management also noted that SCI, in just two years, “has paid/ declared a total of US$3.8 million in dividends, equivalent to 10.9% of its Share Capital.” Regarding the balance sheet, SCI utilized debt financing for the first-time during FY June 2020, after successfully raising US$15 million via a private placement. SCI entered the COVID-19 pandemic with a very strong balance sheet with low leverage and adequate Dry Powder. Dry Powder (June 2020) was US$5.5 million plus US$10.7 million in undrawn credit facilities.
Sygnus also noted that, for the FYE June 2020, the Company recorded a value of US$53.6 million for its investment portfolio, recorded US$54.7 million as investment origination, recorded 25 portfolio companies in 10 industries across 7 Caribbean Territories. The average Tenor for an investment is 2.1 years with an average yield of 12.3%. Portfolio seasoning constitutes 10 exits at US$26 million excluding unscheduled exit.
COVID-19 Impact on Sygnus 2020FY, according to Jason Morris, Chief Investment Officer:
- Unscheduled Investment Exit: Exited US$10.3 million investment in Q3 March 2020
- 50% Lower Fair Value from investments carried at fair value through P&L
- 2.7% Non-Performing Investment:
- 10 consecutive quarters with zero NPI and 1 NPI in Q3 March 2020.
- The terms of investment being restructured.
- Generally higher expected credit losses
SCI’s Strategic Approach during Pandemic Environment, according to Management:
- Proactive Risk Management:
- Preserve shareholder capital while creating value through disciplined investment strategy
- Frequent and proactive engagement with executive management of Portfolio Companies
- Short term assistance programs
- Collaborative longer-term enhancements where necessary
- Partnership Approach
- #1 source of flexible debt capital for middle market companies across the Caribbean
- Strong direct relationships: over US$50 million in additional investment commitments from existing Portfolio relationships spanning 12 Portfolio Companies/ Sponsors, across 5 territories over the past 3 years
- Unprecedented opportunity to deepen existing relationships and build new partnerships
- Differentiated Solutions Provider
- Deep cross-sector expertise to diligence and manage risk exposures
- Ability to underwrite complexity
- Scale and certainty of flexible debt capital to underwrite large PCI commitments
- Speed of execution SCI brings to Portfolio Companies.
Rationale for SCI’s APO as noted by Management:
- Increase Scale and Liquidity:
- Play leading role in financing the recovery and growth of middle-market firms
- Take advantage of risk-adjusted pipeline opportunities in high quality middle market firms
- Targeting over US$100 million for PCI portfolio, to achieve over US$8 million in total investment income in steady state.
- Credit rating from regional rating agency at US$100 million asset base
- Enhance Shareholder value by Optimizing SCI’s Capital Structure:
- Pay down US$10 million bridge notes thus reducing interest costs
- Greater access to the private debt markets and more efficient use of revolving credit facilities
- Stronger equity base to optimize the use of leverage, thus enhancing Shareholder returns
- Dividend Enhancement:
- “Base” dividends plus supplemental dividends as portfolio “seasoning” occurs in steady state.
- Provide Enhanced Access to Growth and Recovery type Financing:
- Attractive risk -reward opportunities in trade finance, acquisition finance, asset-backed finance, and infrastructure projects (e.g. LC’s, factoring, inventory financing, preference shares with PIK)
- Protect and Support Existing Portfolio Company Investments:
- Working capital, acquisition finance, credit enhanced investments etc.
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