HADRIAN’S Wall Secured Investments saw its net asset value (NAV) fall by 13 per cent in October, as the investment trust continues to mull its future plans.
The October NAV was 81.54p, down from 95.5p in September – a 14.6 per cent decrease. On a total return basis, including a 1.5p dividend, this equates to a 13 per cent write-down.
The losses came primarily from an increase to the provision on loans made to a series of biomass plants, as well as a loan to a renewable energy engineering company and an increase in the general IFRS 9 provision, which reflects the fund’s higher than expected defaults to date.
The two largest assets – Biomass Premium Fuels and Biomass Optimum Fuels – now make up 15.5 per cent of the fund’s portfolio, after their loan provisions were increased by £14.9m from £3.2m to £18.1m.
Hadrian’s Wall Secured Investments believe that there will still be some recovery from these assets, including from wood pellet heating systems which may be eligible for the government’s renewable heat initiative income.
The board has also set aside £2.89m as part of its promise to take “a more prudent approach to provisioning”.
“It is not surprising to see further increases to loss provisions for Hadrian’s Wall with the Board have previously delayed the announcement of the October NAV after issues with the Biomass Assets “raised questions concerning the carrying value of the assets within the portfolio and in turn the robustness of the Company’s NAV”,” said Numis analysts.
“Reflecting this uncertainty, the shares have been trading at a substantial discount and are currently trading a 62p, which represents a 23 per cent discount to the October NAV. It is difficult to assess value given the limited disclosure of the names or credit metrics of underlying holdings.”
The analysts added that the direct lending investment companies’ sector is coming under increasing pressure with many delivering disappointing returns.
“We believe there may still be a place for direct lending investment companies,” said Numis. “However, we believe that to be successful in the long-term they will need to have: sufficient scale, to diversify the portfolio and provide some trading liquidity; an experienced management team, with a relevant track-record of credit investing; and improved disclosure, to allow investors to undertake some informed analysis.”
Earlier this month, the Hadrian’s Wall Secured Investments board consulted with major shareholders and decided that the company “should not continue in its current form”. The fund’s managers are now looking at their options, including putting the company into run-off.
Over the past few years, the direct lending fund sector has seen a number of wind-downs, including RDL Realisation (formerly Ranger Direct Lending) and SME Credit Realisation (formerly Funding Circle SME Income).