Tuesday, mezzanine debt specialist and fund manager Intermediate Capital Group PLC (ICP.L) said its core income for the 12 months to March 31 is anticipated to be in line with market expectations. In a trading update ahead of its full year results, the company said provisions for the second half of the year will be materially higher than in the first half.
In January, the company had said that it expects second-half core income to be slightly lower than the first half, as the company does not accrue rolled-up interest on impaired assets. Core income is interest income and fee income less related operating expenses.
The company noted on Tuesday that majority of its portfolio companies continue to perform satisfactorily despite the challenging economic conditions across the company's key markets. ''…17 of our top 20 assets are performing at, or above, last year's level. In addition, all of our 10 largest equity investments are performing above last year's level. Together these assets account for close to half of our portfolio,'' the company said.
The company invests alongside private equity sponsors and management teams. Its investors include insurance companies, pension funds, sovereign investors and endowments. Mezzanine groups provide finance that stands between bank debt and equity and many private equity groups were forced to use more expensive mezzanine loans during the credit crisis in the absence of bank debt.
Intermediate Capital said that for the portfolio as a whole, there has been little change in the last six to nine months, with 71% of the companies performing at, or above, the prior year level.
Although, the company's largest assets performed well, the performance of the weakest companies has deteriorated further. However, overall, the company still expects the default rate for the year to be about 4%. Due to the poor performance of the weaker assets and the ongoing weakness of sterling, the company expects that provisions for the second half of the year will be materially higher than in the first half.
The company had reportedly said in January that it expected provisions for bad loans to increase in the six months to March 2009, as the downturn made repayment difficult for many companies it had lent money to.
The company remains comfortable with its banking agreements for the year and its balance sheet is liquid, with about GBP 315 million of unused debt facilities and only GBP 20 million of debt repayment scheduled in the year to March 2010.
The company expressed satisfaction over the progress of its Recovery Fund and said it is on track to achieve a second close in the first half of the next financial year.
Intermediate Capital said it continues to invest selectively in the secondary market for senior loans through third party funds.
The full year results are scheduled to be published on June 2.
ICP.L closed Monday's regular trade at 363.00 pence, up 14.25 pence or 4.09%, on 831,384 shares.
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