In the process of managing the portfolio to reduce leverage to the current levels losses of US$1 million have been realized. This represents about 5% of the aggregate value of Fortress Notes (or 5c per Fortress Note).
"Assuming that the remaining senior loans in the portfolio continue to generate their expected interest income and there are no further significant declines in the market value of senior loans, the portfolio should generate sufficient cash after absorbing the losses realised to date to enable Macquarie Fortress to continue to pay interest on Fortress Notes equal to its original return objective."
A decision regarding whether the interest payment will be made to investors or retained in the portfolio as protection against further significant loan price declines will be made nearer to the payment date based on all of the available information at that time, Lucas says.
Lucas says that senior loans have demonstrated more price stability in the last few days after declining 4% in July, which was nearly twice as much as any previously recorded monthly decline.
However, the fund is still looking at a 20%-25% reduction in net asset value, and "the most recent prices imply that the reduction is at the top end of this range."
"This represents a total reduction (including realised and unrealised losses) of approximately $7 million in the aggregate value of Fortress Notes or NZ$0.25 per Fortress Note."
Lucas says the reduction in net asset value is substantially unrealised but represents the theoretical outcome if the entire loan portfolio was to be liquidated at current market prices.
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