Scandinavian Credit Fund I AB (publ) reports a NAV price for May of 38.78, which is a decrease of 14.05 % compared to the previous month. The fund's managed capital amounts to SEK 1,048 million at the end of the month.
The month's NAV price development is essentially explained by an increase in the fund's credit loss provisions according to IFRS 9. The provisions announced on June 1 amounted to SEK 229 million. The total change in provisions during May amounted to SEK 235 million. The total provisions increased from SEK 295 million in April to SEK 530 million in May, which results in a corresponding decrease in the fund's assets.
Provisions for credit losses are made in accordance with applicable accounting rules and are based on an assessment of expected credit losses at the reporting date. However, a final established credit loss can only be determined when an individual case has been legally closed and all recovery options have been explored.
The increased provision is mainly explained by two larger commitments. The largest contribution comes from a commitment that was already classified in category 3, where new information has prompted a reassessment and a significant upward adjustment of the expected credit loss. The other commitment has been reclassified to category 3, which had a smaller, but still significant, effect on the provision. Reclassification to category 3 means that a provision is made for the entire expected credit loss over the remaining term. The change relates to updated assessments of expected credit losses and does not in itself constitute realized credit losses.
The valuation of the portfolio's assets in general rose marginally during the month and liquid assets increased, but these positive contributions far outweighed the effect of the increased provisions. Therefore, the increase in provisions has a direct and significant impact on the NAV price.
Currency movements during the month were mixed and made a smaller net contribution.
*) The outcome of the portfolio is affected after the fund stops hedging both up and down depending on how currencies change.
Loans and shares in the portfolio before reserves are distributed in underlying currencies as below.
According to the model that the fund applies for provisions for credit losses on loans, the provision per category amounts to the following.
The fund does not comment on individual holdings, ongoing sales processes or specific counterparties. The reasons are partly regulatory, as the fund is listed on NGM and is subject to the Market Abuse Regulation (MAR), and partly strategic. An open disclosure of the fund's position in ongoing negotiations could directly counteract the unitholders' common interest in maximizing recovered capital. For the same reason, this letter describes the portfolio's development at an overall level rather than individual assets.
During the month, the Fund completed a sale of a credit commitment and received from a related bankruptcy estate the proceeds from the sale of the associated collateral. The sale provided approximately SEK 14 million in cash and cash equivalents. Existing provisions were at parity with the final credit loss. As part of the settlement, the Fund has provided customary guarantees to the buyer, and the agreement includes a conditional additional payment of a low single-digit million amount that may accrue to the Fund if certain conditions are met in the future.
Changed information provision
The fund intends to update the document from 2024 during the summer that describes the process and management of the fund during the liquidation. A couple of years have passed since the decision to close and liquidate the fund. The nature of the fund's portfolio has changed during that time. There is therefore reason to update the principles and processes for managing the fund.
More information and Q&A are available on the fund's website: https://kreditfonden.se and in previous monthly newsletters.
