KKV secured loan shocks investors with yet another depreciation warning

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New name KKV secured loan (KKVL) has warned that further asset depreciation may be needed, just weeks after shareholders voted to keep the struggling investment company.

Shareholders in the high-yield leasing fund, formerly known as SQN Asset Finance Income, suffer another blow after the £ 67million company warns it has “identified concerns about the leasing ‘valuation of certain assets’ in the portfolios of ordinary shares and C-shares during its year-end audit.

In the ordinary equity portfolio, £ 54m in assets relate to manager Dawn Kendall, a former fund manager of SQN Capital who took over management of the trust with the support of Icelandic bank Kvika Bank after leaving the group. . Another £ 4million of assets in the C share portfolio are under review.

“The portfolio manager’s review of the portfolio is ongoing and it is likely that additional assets may also be affected,” the trust said in a statement to the stock market.

The board of directors works with the manager “to understand the nature of the manager’s concerns, identify all the assets affected and better understand the potential impact” on the net asset value (NAV) of the portfolio.

Stifel analyst Anthony Stern called on the KKVL to urgently clarify the situation and consider bringing forward next year’s continuation vote, which as it stands said the company had little chance of winning.

“Unfortunately, the announcement does not provide any indication of the concerns or the quantum, leaving shareholders in the dark.” Therefore, the range could be a modest provision against those £ 54million of assets for a total loss.

“The figure of £ 54million is equivalent to 15p per share and the latest net asset value was 61.7 pence (the equivalent is 2.9 pence per share for Class C), or about a quarter of the net asset value of the common share. The comment “it is likely that additional assets may also be affected” is clearly a cause for concern, “he said.

Net asset value has already fallen 12.1% this year, but the share price has fallen 78%, leaving common stocks to trade at a 69% discount to the asset value.

Guernsey-based investment firm has been hit by a succession of write-downs on the value of its loans leading to boards of directors of SQN and his stable mate SQN Guaranteed Income (SSIF) having chosen to nominate KKV, although the latter’s investors have since voted to liquidate the £ 40million fund after it failed to meet its £ 250million target and they decided it was too small to remain viable.

Kendall could have a job to maintain the KKVL after a split result in his continuation vote in late July. Surprisingly, 61% of common stock holders voted to maintain their share class which will continue to trade for at least 12 months but will be subject to a follow-up vote in 2021. However, 69, 1% of C shareholders voted against continuing their portfolio and it will now go into liquidation and their money returned.

The vote was unexpected because common stocks have a higher proportion of non-performing and stressed loans in the portfolio and stocks trade at a larger discount than C stocks.


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