TCA Fund Management Group has published the prospectus for TCA Credit Liquidity Fund (TCA CLF), a feeder fund for TCA Global Credit Master Fund.
TCA CLF will be listed as a closed-end investment company through an initial public offering (IPO) on the AIM market of the London Stock Exchange, with admission expected to occur by August of this year, and will be eligible for inclusion in ISAs.
The IPO is targeting to raise USD25 million (GBP15 million), with shares issued at 100p per share.
The Master Fund began making investments in 2010 and currently has an established portfolio with investments in approximately 130 companies and a total NAV of approximately USD185 million (as at 31 May 2014). It seeks to achieve uncorrelated absolute returns, specialising in short term senior secured lending to small, mainly listed companies. Avoiding high risk jurisdictions, the Master Fund operates only in countries that offer well-established senior creditor legal rights, i.e. the US, Canada, Australia, the UK and parts of northern Europe.
Despite the improvement in global liquidity since the global financial crisis in 2008 and notwithstanding the recent boom in IPOs in the London markets, the funding environment for small companies remains challenging. The Master Fund focuses on meeting this demand for capital from SMEs and distressed companies.
The Master Fund has a solid four year track record achieving positive returns in every month since establishment. Historic annualised returns, net of fees, have been 12 per cent to 24 per cent whilst volatility has been low when compared with equities (S&P 500) or high-yield debt (ML High Yield Master II). The overall return over the period from 1 April 2010 to 31 May 2014 was 93.5 per cent and the average annualised return was circa 17.17 per cent.
The TCA CLF will target net returns to investors of c.10 to 12 per cent. Typically, if the return is 12 per cent, four per cent will be reinvested back into the Master Fund and eight per cent will be paid out as a dividend. With investors showing a preference for income compared to higher risk capital growth opportunities, the directors of TCA CLF believe that it should be attractive for investors looking for above average income yields.
Bob Press, CEO of TCA Fund Management Group, says: “The lending environment for SMEs has been particularly tough since the 2008 crisis, with banks often reluctant to lend because their balance sheets are unsound or because regulators have constrained them. Against this backdrop, between 2005 and 2013 there has been increased loan demand from SMEs. The TCA Credit Liquidity Fund is well positioned to take advantage of this gap in the market and we are excited about this offering on the public market.”
