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The company’s January Presentation highlighted the continued delivery and stability in the business. In our report Vive la difference, published 15 February 2022, we focused on RECI’s French exposures, which account for 37% of commitments and three of the top-10 commitments. We reviewed the geographical and sector risk diversification, and growth opportunity benefits that this brings to RECI investors. We also noted the competitive advantages of the manager in this area, noting particularly its structuring of complex deals and certainty of finance. We used case studies from its €1bn+ cumulative lending to illustrate these advantages.

  • RECI in France: RECI’s exposure to France brings investors geographical diversification, which is important for risk management, and exposure to COVID-19 restrictions and interest rate moves. It leads to greater sector diversification and a different (lower risk/return) investment profile. It also provides new growth options, should the UK slow.
  • Cheyne’s competitive advantages: Our reports use case studies to highlight Cheyne’s competitive advantages in structuring complex deals and providing certainty in finance (especially compared with potentially complex syndicates of other providers) as well as looking at the portfolio mix and exposure.
  • Valuation: RECI continues its steady recovery from COVID-19 lows, and now trades at a 2.9% premium to NAV, slightly below the five-year, pre-pandemic average. RECI has continued to pay its annualised 12p dividend, generating a dividend yield of 7.8%, which is expected to be covered by earnings.
  • Risks: Any lender is exposed to credit risks. We believe RECI has appropriate policies to reduce the probability of default. Its average loan to value (LTV) is 63%, and most loans are senior-secured, providing a downside cushion. Some assets are illiquid. In the short term, investor sentiment could be an issue.
  • Investment summary: RECI generates an above-average dividend yield from well-managed credit assets. Management has confirmed no change to dividend policy, showing its confidence in its sustainability. Bond pricing includes a discount, reflecting uncertainty, which should unwind when conditions normalise. Market-wide credit risk is currently above-average, but RECI’s strong liquidity and debt restructuring expertise should allow it time to manage problem accounts. Borrowers, to date, have injected further equity into deals.
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