Funding Circle fund ups CitiBank facility by £16m

By Daniel Lanyon on Thursday 26 July 2018

Editor's PickAlternative Lending

The investment trust is looking to keep its leverage high and re-establish its dividend target following a cut in guidance last month.

Funding Circle fund ups CitiBank facility by £16m
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The £352m Funding Circle SME Income fund has increased the size of an existing leverage facility with Citibank from approximately £50m to approximately £66m, according to regulatory filings.

Launched in December 2015, the Funding Circle SME Income fund entered into a formal agreement with Citibank back in January  to help achieve the investment trust’s target dividend yield of 6-7 per cent per annum. However, last month its dividend target was cut with the fund’s managers citing increased hedging costs and lower gearing.

This was due to a former deal providing capital from the European Investment Bank beginning to amortise resulting in its leverage reducing down to 45 per cent - from a target of 50 per cent - with likely further scope to fall further.

The fund said in a statement that it expects to drawdown the additional £16m under the leverage facility during August, with proceeds to be utilised for new originations in the UK and Europe and that this should increase leverage back to its former level.

“On full drawdown of the additional funds, the Company's look-through leverage is expected to increase from approximately 45 per cent to approximately 49 per cent, consistent with the Board's approved leverage limit of 50 per cent of [net asset value] NAV. The leverage facility provided by Citibank London is expected to begin amortising in January 2019,” it said.

In the initial deal the fund contributed a portfolio of existing UK small business loans at par and in return received ‎the £50m of cash that was then deployed.

Shortly after the recent dividend cut warning BlackRock, the world’s largest asset manager, increased its holding in the Funding Circle SME Income fund to £50m.

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