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RM Secured Direct Lending: DEEP DIVE

RM Secured Direct Lending shifts focus to non-cyclical sectors amid market volatility

"Late-stage lending can be advantageous for the company as lending rates can rise," the firm said.
OVERVIEW: RMDL The Big Picture
The firm has a cautious outlook on wider economy
  • £105mln of investments across 35 loans

  • Portfolio credit quality and borrower performance in line with expectations

  • Trust shifting investment stance towards non-cyclical sectors

  • More than £30mln of near-term investment opportunities


What RM Secured Direct Lending does:

RM Secured Direct Lending PLC (LON:RDML) is a UK-based closed-ended investment trust focused on secured debt.  

The company aims to generate attractive and regular dividends through loans sourced or originated by its asset management arm, RM Capital Markets Limited, with a degree of inflation protection through index-linked returns where appropriate.

The loans the company invests in are mainly secured against such assets as real estate, plant and machine or income streams like account receivables.

As of the end of December 2018, the company had £105mln of investments across 35 loans with an average gross yield of 8.55% and an average life of 3.5 years.

The largest loans by drawn amounts across the portfolio were in forecourt operators, business services, telecommunications, healthcare, automotive parts, manufacturing, asset finance, childcare and student accommodation.

What it owns:

The group owns RM Capital Markets Limited, which provides advisory, capital raising and risk management services, a direct lending platform, and currency and fixed income trading services.

Within RM Capital Markets is credit asset management business, RM Funds, a fixed-income specialist with a focus on secured lending and debt investments.

RM Secured Direct Lending has the VT RM Alternative Income Fund, which invests primarily in listed equities within the alternative income sector, including real estate investment trusts and other trusts in areas such as asset lending, direct lending, peer-to-peer lending, infrastructure debt and equity, property, structured credit investments and renewables.

Inflection points:

  • The net asset value at the end of December was 96.98p, down 1.22p than the end of November, reflecting the payment of a dividend of 1.625p each, positive net interest income net of expenses of 0.62p and a decrease in portfolio valuations of 0.22p.
  • Portfolio credit quality and borrower performance currently in line with expectations
  • In the quarter ended December 31, there was one significant repayment (Exterion Media) one refinancing (Children’s Nurseries) and new investments in property bridging (3); receivables financing; Praetura Asset Finance and in a hostel property in Glasgow
  • RM Secured Direct Lending shifting its investment stance towards non-cyclical sectors as it thinks the world economy is slowing, expects market volatility to be “elevated in the first half” and predicts equity markets will remain weak. The company said it believes it is "moving into the later stages of the business cycle and as a consequence our positioning should remain defensive with a bias towards noncyclical sectors". "Late-stage lending can be advantageous for the company as lending rates can rise, however, caution is warranted as these areas can still be affected by asset price declines," it said. 
  • More than £30mln of near-term opportunities eyed across the renewable energy, student accommodation, receivables and asset finance, and real estate sectors.
  • The trust remains highly selective of the investments it pursues given the cautious outlook it has on the wider economy.

What analysts think:

Following the trust’s fourth quarter update, analysts at Liberum said: “The company has generated a NAV total return of 5.5% over the year. Performance in Q4 2018 was impacted by volatility in wider credit markets which resulted in mark-to-market declines in the more liquid parts of the portfolio. These reduced NAV by 0.48% in the quarter and the company expects the prices to recover as the market stabilises. There has been no financial covenant breaches in the portfolio. Net interest income generated by the portfolio over the year was 7.0p per share (equivalent to 7.1% NAV return before portfolio valuation reduction).” 

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RM Secured Direct Lending Timeline

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