Climate Change Data

Environmental Metrics

ESG Focus Areas

• Environmental, Social and Governance (ESG)

Climate Goals & Targets

Environmental Challenges

• Persistent share price discount to NAV
• Challenging CLO Equity arbitrage
• Challenging macro environment and rising liquidity issues
• Weak economic growth
• Increase in the tiering of the corporate credit market
• Geopolitical hurdles
• Attractive investment opportunities within the European consumer space are limited

Mitigation Strategies

• Annual liquidity process including share repurchases
• Investment in vertical risk retentions
• Rebalancing towards senior CLO tranches
• Conservative and pre-emptive independent valuation methodology
• Rebalancing towards BB and B tranches once geopolitical hurdles are lifted
• Looking for portfolio opportunities in the Irish mortgage loans sector

Supply Chain Management

Climate-Related Risks & Opportunities

Environmental Metrics

Climate Goals & Targets

Environmental Challenges

• Share price discount relative to NAV.
• Liquidity remained subdued in Q4 2020.
• Supply chain disruptions leading to price increases affecting certain sectors and companies.

Mitigation Strategies

• Enhanced dividend policy and quarterly special distributions.
• Rebalancing investment strategy towards liquid and tradable European ABS/CLOs.
• Share buybacks (though none occurred in 2021).
• Hedging instruments.
• Exiting certain idiosyncratic names to reduce default risk.

Supply Chain Management

Climate-Related Risks & Opportunities

Environmental Metrics

ESG Focus Areas

• Not disclosed

Environmental Achievements

• Not disclosed

Social Achievements

• Not disclosed

Governance Achievements

• Issued its inaugural Sustainability Report and established its proprietary ESG Rating model.

Climate Goals & Targets

Environmental Challenges

• The unexpected Russian invasion of Ukraine in February 2022, contributing to the global energy and food crisis and fuelling inflation. Global markets have had an extremely busy year oscillating between risk-on and off moods.
• Declining prices of loans during 2022, particularly in Q2 2022, mainly a generic repricing of credit risk.
• Increased proportion of underlying loans priced below 70% of par value.
• Slower than expected sales in SpRED.
• Significant widening of spreads on CLOs and ABS tranches and heightened volatility.

Mitigation Strategies

• The Portfolio Manager continued to focus on three key pillars: Clear Investment Strategy, Clear and Attractive Return Targets, and Maximising Shareholders Value.
• Completed the exit from the Private Asset Backed Finance strategy and is progressing on the Company’s exit from SpRED.
• Active approach to trading to mitigate mark-to-market moves.
• Raised cash level above 10% to capture investment opportunities.
• Raised default rate assumptions to match current recession risk and market expectations.
• Repositioning the portfolio more defensively to preserve/improve credit quality while maintaining yields and increasing exposure to less cyclical sectors.

Supply Chain Management

Supplier Audits: Not disclosed

Responsible Procurement

• Not disclosed

Climate-Related Risks & Opportunities

Physical Risks

• Not disclosed

Transition Risks

• Not disclosed

Opportunities

• Not disclosed

Reporting Standards

Frameworks Used: Null

Certifications: Null

Third-party Assurance: Not disclosed

UN Sustainable Development Goals

• Not disclosed

Not disclosed

Sustainable Products & Innovation

• Not disclosed

Awards & Recognition

• Not disclosed

Environmental Metrics

Climate Goals & Targets

Environmental Challenges

• High level of volatility in markets, particularly in March 2023.
• Slower selling process for SpRED exposure.
• Expected further deterioration in European leveraged loan market credit quality with further rating downgrades and pick up in default risk.

Mitigation Strategies

• Careful avoidance of rating migration in leverage loan portfolios and work on improving credit quality.
• First retention financing trade in Q2 2023 with a third-party European CLO manager.
• Preventive action to minimize credit quality deterioration in leveraged loan market.
• Deploying capital in European ABS and CLOs.

Supply Chain Management

Climate-Related Risks & Opportunities

Environmental Metrics

Climate Goals & Targets

Environmental Challenges

• Increase in default risk in CLO investments.
• Geopolitical tensions increasing risk of exogenous market shocks.
• Higher real rates likely to engineer structurally higher defaults.
• Looser covenants and loans repricing at tighter credit spreads in European Leveraged Loan market.
• Growing geopolitical risk (Russia-Ukraine war, Middle East tensions).

Mitigation Strategies

• Preventive actions to minimize default risk in CLO investments.
• Stress scenario analysis and use of derivative instruments to hedge against exogenous market shocks.
• Cautious leverage management to reduce risk of enforced unwind.
• Active management of exposure to specific credits and sectors (e.g., reducing Altice/SFR exposure).
• Continuous monitoring of collateral quality and sector-specific risks.
• Cautious implementation of hedging strategies to mitigate geopolitical risks.

Supply Chain Management

Climate-Related Risks & Opportunities

Reporting Standards

Frameworks Used: AIC Code

Third-party Assurance: Deloitte LLP