Launch of Guernsey-domciled floating rate fund

Alcentra, a European division of BNY Mellon Asset Management, has announced its intention to launch a Guernsey-domiciled European Floating Rate Income Fund in early 2012, which is to be listed on the main market of the London Stock Exchange.

Initial proposals are that the fund will invest predominantly in senior secured loans and floating rate senior secured bonds issued by European corporates, with an aim to produce a quarterly dividend of 5.5% per annum in the first year of full investment.

Further plans include a significant proportion of the portfolio to be sourced at a discount to par, thus allowing an opportunity for capital gains, and no leverage used to achieve returns. Subject to investor demand, sterling and euro currency share classes will be available at launch.

The overall aim is to raise at least £150 million. Alcentra confirms that once fully invested, the portfolio will be diversified into around 60 investments spread across 15 industries, with no single borrower exposure of more than 5%.

The annual management fee will be 0.7% of net asset value per annum with no incentive or performance fee. Operating costs are not expected to exceed 0.30% and costs of issue will be limited to 2% of gross issue proceeds. Alcentra and affiliates are expected to invest into this launch at least €10 million.

David Forbes-Nixon, Alcentra’s chairman and CEO commented, "We believe that current market conditions offer an extraordinary opportunity for investors. Since the global financial crisis in 2008, corporate balance sheets have strengthened and the leverage employed by sub-investment grade corporate borrowers in the United States and Europe has fallen. Yet the return on loans at new issue has risen over this period. We believe that lenders today are being paid more for taking less risk." 

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