SCI targets over US$100 million for PCI portfolio

September 29, 2020
At the Extraordinary General Meeting, Sygnus Credit Investments outlined its purpose for the Additional Public Offering. Management further stated that the objective for release is this year.

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:

  1. Unscheduled Investment Exit: Exited US$10.3 million investment in Q3 March 2020
  2. 50% Lower Fair Value from investments carried at fair value through P&L
  3. 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:

  1. 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
  1. 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
  1. 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
  1. Speed of execution SCI brings to Portfolio Companies.

Rationale for SCI’s APO as noted by Management:

  1. 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
  1. 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
  1. Dividend Enhancement:
    • “Base” dividends plus supplemental dividends as portfolio “seasoning” occurs in steady state.
  1. 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)
  1. Protect and Support Existing Portfolio Company Investments:
    • Working capital, acquisition finance, credit enhanced investments etc.

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