Sygnus on track for regulatory approval to acquire Acrecent Financial Corporation

January 26, 2022

Jason Morris, Executive Vice President and Chief Investment Officer, noted that since inception Sygnus Credit Investment Limited (SCI) has focused on providing non- traditional financing and had deployed over US$146 million across more than forty-one (41) middle-market businesses across eleven (12) industries in seven (8) Caribbean countries. The Company has continued to proactively manage its risk and has no realized credit losses to date.

Management highlighted the financial performance for the FY2021. Total investment income increased 44.2% to US$6.49 million (2020: US$4.50 million) but translated in a record 154.9% increase in net profit to US$5.03 million (2020: US$1.97 million). Management also noted that net interest income constituted 98% of the total investment income for the FY2021. For the first quarter ended September 2021, SCI reported an 39.3% increase in total investment income to US$1.82 million of which 98% was generated from net interest income (2020: US$1.31 million) and generated an 88.9% increase in net profits to US$1.53 million (2020: US$797,800).

Sygnus also noted that, as at September 2021, the Company recorded a value of US$88.76 million for its Private Credit Portfolio and recorded 33 portfolio companies. The company also recorded new investment commitments of US$6.9 million. The average tenor for an investment is 2.0 years with an average yield of 12.9%. Overall, portfolio seasoning constitutes 21 exits at US$59.5 million since inception. In addition, SCI highlighted that its “Lowly leverage balance sheet provides opportunity to optimize shareholder value by prudently increasing the use of debt.” The company as at September 2021, has a debt to equity ratio of 0.35 times and is well below its target and limit of 1.25 times and 2.0 times, respectively.

Over the last 12 months SCI’s Major Milestones were:

1. Record US$27.2 million Additional Public Offering in January 2021
2. Recorded US$5.1 million in year-end Net Profit in June 2021
3. Achieved Investment Grade Credit Rating from CariCRIS of jmBBB/Stable and for the first quarter ended September 2021, recorded Net Profit of US$1.51 million.
4. Closed a Bond Raise of US$27.5 million through private placement and paid out US$1.55 million in Dividend in October 2021
5. Announced in December 2021 its intention of acquiring majority stake in a Puerto Rican private credit firm, Acrecent Financial Corporation

Jason Morris, highlighted the strategic approach to enhancing shareholder value:

1. Proactive Risk Management

1. • Preserve shareholder capital while creating value through disciplined investment strategy
   • Mainly “sponsored” portfolio company investments

2. Partnership Approach

2. • #1 source of flexible debt capital for middle-market companies across the Caribbean
   • Multiple repeat business

3. Differentiated Solutions Provider

3. • Deep cross-sector expertise to diligence and manage risk exposures
   • Ability to structure complex transactions
   • Scale and certainty of flexible debt capital to underwrite large PCI commitments (acquisitions etc)
   • Speed of execution SCI brings to Portfolio Companies

1. Increase Scale And Dry Powder:

1. 1. Minimum US$100 million private credit portfolio (Early Target)
   2. Minimum US$8 million core revenues or Total Investment Income (Early Target)
   3. Raise US$50 million in equity and debt capital by December 2021 (100% November 2021.)
   4. Obtain credit rating from CariCRIS at close to US$100 million Private Credit Investment Portfolio (100% September 2021)

2. Enhance Shareholder Value by Optimizing SCI’s Capital Structure

2. 1. Optimize use of leverage (On Track – Phase 1)
   2. Increase Return on Equity and enhance dividend payments (On Track – Phase 1)

3. Protect and Support Existing Portfolio Company Investments

3. 1. Protect: working capital and incremental credit enhanced investments (On Track)
   2. Support: capital for growth and expansion (acquisition financing, special projects etc) (On Track)

4. Complete Acrecent Acquisition- New Initiative

4. 1. Regulatory Approval (On Track)
   2. Close Transaction
   3. Integrate into SCI
   4. Optimize value creation for SCI shareholders: increased EPS, Dividends, ROE

Acquisition in Puerto Rico

SCI noted that, “Acrecent Financial Corporation is a private credit company founded in 2003 in Puerto Rico (“PR”). The company is a licensed financing as well as leasing company. SCI is acquiring a majority stake in Acrecent. The transaction is awaiting regulatory approval. Puerto Rico is a US territory with a US$100 billion economy and approximately US$31K GDP per capita. The country was approved to exit its 2017 bankruptcy on Tuesday, January 18, 2022.”

Mr. Jason Morris noted that the timeline for regulatory approval is within the “next 30 to 60 days.”

The following factors were cited as justifications for the purchase:

1. Enhanced Diversification

1. 1. US territory + Pan Caribbean
   2. Higher quality assets
   3. Enhanced earnings quality
   4. Impact Investing Themes
   5. Fast growth industries: healthcare and biopharma, information technology and industrial manufacturing.

2. Reimagine SCI’s Growth Path

2. 1. Bigger PCI market opportunity
   2. Ability to attract and build relationships with international financial partners (credit lines. Equity etc) and global institutional asset managers (co-investing underwriting and syndication of Large Private Credit Investments deals etc)

3. Aligned Business Strategy

3. 1. One of the largest private credit firms in Puerto Rico
   2. Very experienced management team: US (GE Capital, Puerto Rico and Latin America
   3. Focused on middle market and small portfolio companies

1. Management is exploring the possibility of introducing a buyback or another equivalent program to provide liquidity support to the JMD and USD shares in a thinly traded market.
2. Management is looking at opportunity in British Virgin Islands and other English and Dutch speaking Caribbean Territories and noted that, “there are several opportunities in pipeline which will be unfolded when they reach further in those transactions.” Furthermore, the Puerto Rican acquisition can give exposure to other regions.
3. SCI anticipates that acquiring Acrecent will reduce its cost of capital even further. As such SCI’s credit spread is expected to widen in this rising interest rate climate as their cost of capital is lowered.

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