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Questions and answers due to the fact that the fund Scandinavian Credit Fund I AB (publ) is waiting for redemption as of December 15, 2022

Due to the press release that Scandinavian Credit Fund I is waiting for redemption as of December 15, 2022, we have collected questions and answers related to the event below.

UPDATE: Those who sent redemptions before Nov 10 that were to be redeemed at the rate 2022-12-01 with settlement date around 12-12-2022, will they not get their money now or is there a delay?

Those who sent in redemptions before the cut-off point on November 10th will receive 12.43 percent of the money now and the remaining amount pro rata as the fund's liquidity allows at the NAV rate as of December 1. The fund company sends the money today (2022-12-16) to Mangold, who then sends it on to securities institutes for deposit in custody. When the money reaches the depository depends on how long it takes the securities institution to make this transfer.

Background

The fund has currently issued profit-sharing loans corresponding to a value of approx. SEK 3 billion.

The reason for this is that during a period the Fund received a greater number of notifications about premature redemption (withdrawal) of profit share certificates from fund unit owners.

The responsible manager notes that the fund lacks opportunities to carry out early redemptions (meet withdrawals) according to the investors' request without the risk of significantly disadvantaging other investors in the fund.

In light of the above information, the board of management company Finserve Nordic AB has decided the following regarding the Fund.

- With the support of clauses 10.1 – 10.3 of the Fund's General Terms and Conditions, the Fund waits to redeem profit-sharing certificates and places a temporary closure on the Fund with regard to subscriptions and early redemption of profit-sharing certificates. For the notifications of early redemption received before 23:59 on 9 December 2022, the payments to the fund unit owners who requested redemption will be divided and carried out continuously as the Fund's liquidity allows

-Deferred redemption during the closed period must be distributed pro rata between fund unit owners as the Fund can liquidate positions or engagements in an orderly manner and without significant inconvenience to other fund unit owners. Deferred redemption must, according to point 10.3 compared to 4.11 of the General Terms and Conditions, take place at the NAV rate determined at the end of the month that falls closest before the requested redemption date.

-The fund will not charge performance-based fees during the period of the temporary closure.

The Board will continuously monitor developments and make the necessary decisions on how to handle future redemption transactions.

What is the background to the decision?

The fund is an AIF fund where the underlying asset is bilateral loans to companies with a maturity of up to 48 months. This means that in the event of abnormally large market disturbances and/or abnormally large early redemptions, the fund cannot meet these as normal, see more under the heading "How does the fund's

liquidity?". Conditions for Refunds and Redemptions can be found in the General Terms and Conditions. It also states the restrictions that apply when redeeming and under which conditions the profit-sharing loans can be terminated early at the request of the Fund, i.e. the conditions for closing the Fund.

Information brochure and General terms and conditions:

informational

Terms and Conditions

 

How does it affect the holders of Profit Share Loans?

We are doing this to protect all holders of the Fund. It is of absolute importance, and a requirement under the law, to treat all holders equally. Therefore, we take our responsibility in this situation and postpone premature redemption of profit share loans. Requests for early redemption received after this decision will not be accepted by the fund. Redemption must, according to point 10.3 compared to 4.11 of the General Terms and Conditions, take place at the NAV rate determined at the end of the month that falls closest before the redemption date. The fund will also not accept new subscriptions and deposits into the fund during the period that the fund is closed.

How is the return on profit share loans affected for those who choose not to withdraw their money?

The fund will continue to generate returns just as usual as the underlying loans are not affected by the request for early redemption.

The board and the manager of the fund see good opportunities ahead for the asset type direct loans and that, given that liquidity is restored, the fund can continue to give good returns and reach set return targets.

What is the Fund's Investment Strategy?

The Fund's strategy is to find investment opportunities through Lending. Possible Lenders are, for example, companies that are in some form of expansion, need financing for investment, restructuring, refinancing bridge financing, management of generational shifts or seasonal needs. The fund's lending objects are primarily found in Scandinavia and Finland.

The loans that are provided are normally secured by a pledge, surety or similar. In special cases, unsecured loans can be granted. The fund always carries out a careful assessment of the Borrower, pledged securities and pledges. The fund seeks borrowers with a documented history of operating profit, cash flow or events that lead to positive cash flow as well as repayment ability and security for the loans. The investment strategy is that at least 50 percent of the Portfolio is invested in Credits.

The term of the loan agreements is up to 4 years. The total risk thus depends on the Borrowers' profile and on other investments that the Fund makes. The fund has a diversified portfolio, which leads to risk spreading, directly or indirectly via underlying collateral. Borrowers are evaluated and approved by the fund's investment committee following a systematic credit process. The fund's return depends, among other things, on the lending ratio in the Portfolio and can vary over time. The fund strives to systematically enter into engagements with Borrowers whose expected return is positive in relation to the credit risk that the engagement entails. The individual commitments are weighed against each other in order to achieve an effectively balanced credit risk for the Fund as a whole. Direct loans have a low correlation with other markets.

The portfolio may consist of the following assets:

(i) invoices and other claims, (ii) credit claims (direct lending in accordance with the Fund's Credit Policy), (iii) fund units, (iv) interest and credit-related derivatives, (v) shares and share-related derivatives, (vi) interest-bearing instruments such as bonds , (vii) currency and currency-related derivatives, and (viii) bank deposits.

How has the investment strategy worked since the fund's inception in 2016?

Information on historical performance, development and volatility is provided in regular reports to Investors. The information is also available on the Fund's website, www.kreditfonden.se and www.finserve.se

An investment in the Fund and its underlying corporate loans has little correlation to other asset classes and has a place in all well-diversified portfolios over time.

Loans always come before shares in a bankruptcy. This means that if a company goes bankrupt or is forced to draw up a balance sheet, the lender can still have great values left in the company as loans always go before shareholders' capital.

How does the Fund's liquidity work?

Liquidity risk for a company is the risk that the company cannot fulfill its payment obligations at the due date, i.e. that the Fund lacks liquid funds to pay, for example, invoices or redemption amounts to Investors on time. The risk arises because the Fund finances itself by issuing Profit Share Loans, which entail payment obligations towards the Investors. The risk may increase if the Fund finds it difficult to raise capital. Liquidity risk can also arise in the Fund's Portfolio, if the assets the Fund has invested in would be difficult to dispose of or if the Fund finds it difficult to liquidate the Portfolio or if it takes longer than expected to liquidate positions and sell investments.

Liquidity risk means for a bond the risk that it is not possible to sell the bond early. Under normal market conditions, the Market Guarantor offers a purchase price for those who want to sell early.

Although bonds in the form of Dividend Loans have become more established recently, the secondary market is still limited. There is therefore a risk that the liquidity of the Profit Share Loans is low, and that they are traded at a price below the issue price. Sometimes it can be difficult or impossible to sell Profit Share Loans during the term and it is then illiquid. This can, for example, occur in the event of strong market movements, changes in liquidity, changes in regulations, hedging ("hedging") of positions, market disruptions, communication interruptions or other events which may lead to difficulties in trading at reasonable rates or due to the market place concerned being closed, or that trade is subject to restrictions for a certain period of time.

What happens to my early redemption request in November and as of December 9? With the support of points 10.1 – 10.3 of the General terms and conditions regarding the Fund's possibility to wait to redeem profit-sharing loans, the board decides that the Fund shall handle requests for early redemption that have already been received in such a way that the payments to the investors who requested redemption are divided and carried out continuously in rate as the fund's liquidity allows.

Payments during the period must be distributed pro rata between investors as the Fund can liquidate positions or engagements in an orderly manner and without significant inconvenience to other investors. Redemption must, according to point 10.3 compared to 4.11 of the General Terms and Conditions, take place at the NAV rate determined at the end of the month that falls closest before the redemption date.

 

How long will it take before my entire early redemption request is completed?

It is dependent on the maturity structure of the fund on underlying assets which are bilateral loans to companies with a maturity of up to 48 months and the ability of the borrowers to refinance their loans under prevailing market conditions. The average duration of the fund is approx. 17 months.

The maturity structure and the possibility for borrowers to refinance their loans are decisive for how long it will take, but based on the information we have right now, the assessment is that it could take up to 4 months or earlier depending on the loan portfolio.

Does the same apply to all holders of Profit Loans regardless of where you bought them?

Yes, that applies regardless of where you bought the Profit Loan.

Can I withdraw my early redemption request?

Yes, it is possible if the board of the Fund approves it. The form for withdrawing the request for early redemption is available on the fund's website.

How does the Fund's secondary market work?

The profit share loans are listed on the regulated market Nordic AIF Sweden - the segment under Main Regulated at NGM in Stockholm and they are freely transferable under Swedish law. The profit share loan's ISIN code is SE 0007897384. However, there may be restrictions that follow from laws in other countries or from Swedish law. Under normal market conditions, the Market Guarantor will offer buy and sell rates for anyone who wants to trade in Profit Share Loans outside the scope of redemption.

However, the secondary market and liquidity may be limited.

It should be noted that the difference between the purchase price and the selling price ("spread") for the profit share loans can change continuously. It should also be noted that during certain time periods it may be difficult or impossible to set purchase prices and selling prices, which may make it difficult or impossible to buy or sell Profit Sharing Loans prematurely.

The market guarantor is ABG Sundal Collier ASA (the "Market Guarantor"). In accordance with a contractual agreement, the market guarantor has undertaken to provide a secondary market for the Profit Share Loan under normal market conditions and ordinary trading hours. The market guarantor provides liquidity by continuously offering, on its own behalf, buy and sell rates for Investors who wish to buy or sell Profit-sharing loans.

Regular information about the Fund Information about the Fund's risk and liquidity management, illiquid assets and the Fund's current risk profile as well as information about financial leverage is provided semi-annually in connection with annual and interim reports that are published on the Fund's website, http://www.kreditfonden.se and http://www.finserve.se. Furthermore, it takes place through ongoing press releases from the Fund. If you want ongoing information, you register here:

https://news.cision.com/se/scandinavian-credit-fund-i

Those who sent redemptions after 10 Nov until 2022-12-09, will these receive the redemption rate which will be 2023-01-02 regardless of whether the payment is made in January, February, March, etc.?

Yes that is correct.

Do you handle any redemptions now that come in after 12/10/2022? So if someone submits now, they are not handled at all or do they end up in a queue behind those who requested redemption before 2022-12-09?

The fund does not handle any redemptions at all after the December cut-off point and they will not be queued up. Investors who wish to withdraw money in connection with the reopening of the fund are welcome to submit early redemption requests once the fund has reopened. Which will be communicated on the web and press release.

You had outflows of approx. SEK 164 million as of 12/01/2022, how much was the actual outflow in mid-January?

The request for early redemption received before the cut-off point on December 9 was approximately SEK 213 million.

You are writing about an estimated schedule of 4 months to handle outstanding redemptions received before 2022-12-09, how much do you expect to be paid out in January, February, March and April respectively?

As we receive liquidity from amortization and interest, we will repay and communicate that to investors and the market. Our hope is that it will take at most 4 months, but we are working to shorten that time.

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Emma Westerberg

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