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Tetragon Financial Group Limited (TFG): Supplemental Information To The Monthly Update For December 2012

LONDON, January 31, 2013 /PRNewswire/ --

Tetragon Financial Group Limited (TFG) is a Guernsey closed-ended investment company traded on the NYSE Euronext in Amsterdam under the ticker symbol "TFG".

In this update, unless otherwise stated, we report on the consolidated business incorporating TFG and Tetragon Financial Group Master Fund Limited. [ 1]

In this update, we provide additional information on "U.S. GAAP NAV per Share" and a new metric, "Pro forma fully diluted NAV per Share".  We believe this new metric (described below in section 1.2) may be helpful in illustrating the potential impact of various share changes on Net Asset Value ("NAV") per Share and we intend to include the item in future reporting.  We also explain the recalibration of certain inputs used in the determination of the fair value of TFG's CLO equity investments.

1. NAV per Share movements

The figure below shows how U.S. GAAP NAV per Share and pro forma fully diluted NAV per Share metrics have evolved over the last four quarters.

                                          Q1 2012 Q2 2012 Q3 2012 Q4 2012
    US GAAP NAV per Share                   13.12   13.75   14.29   16.41
    Pro Forma Fully Diluted NAV per Share   13.12   13.75   14.29   14.91

 

1.1 U.S. GAAP NAV per Share movements:

NAV per Share calculated under U.S. Generally Accepted Accounting Principles ("U.S. GAAP") for TFG as at December 31, 2012 was $16.41, up from $14.91 as at November 30, 2012.  Two events significantly contributed to the increase in U.S. GAAP NAV per Share in December.  Firstly, as announced on December 7, 2012, in conjunction with a "modified Dutch auction" tender offer (the "Offer"), TFG purchased 15,384,615 TFG non-voting shares at a price of $9.75 for $150 million.  As the purchase price of the Offer was significantly below the prevailing U.S. GAAP NAV per Share this had the impact of increasing U.S. GAAP NAV per Share by $0.85.

Secondly, as at December 31, 2012, certain inputs into the CLO valuation model were recalibrated, including forward-looking default assumptions and discount rates utilized in the determination of the applicable fair value of each deal.  The net impact of these changes was to increase fair value and thus to increase the U.S. GAAP NAV per Share by $0.50 on a net basis.  A description of these changes is set forth below in section 2.      

    Gross Impact on Fair Value           U.S. CLOs    EUR CLOs     Total
                                         $ (millions) $ (millions) $ (millions)
    Recalibration of Default Assumptions         20.1         -1.1           19
    Recalibration of Discount Rates              45.3          7.1         52.4
    Total                                        65.4            6         71.4

1.2 Pro Forma Fully Diluted NAV per Share:

We have also included in the December 2012 monthly update the calculation of a "Pro forma fully diluted NAV per Share" to seek to reflect certain potential changes to the total non-voting shares over the next few years, which may be utilized in the calculation of NAV per Share.  Specifically, the number of shares used to calculate U.S. GAAP NAV per Share has been adjusted to incorporate:

  • Shares which have been used as consideration for the acquisition of Polygon Management L.P. and applicable stock dividends relating thereto, and which are held in escrow and are expected to be released and incorporated into the U.S. GAAP NAV per Share over a five year period. [2]
  • The number of shares corresponding to the applicable intrinsic value of the options issued to the Investment Manager at the time of the company's IPO with a strike price of $10.00, to the extent such options are in the money at period end. As of December 31, 2012, the TFG share price was $9.67 and therefore such options were out of the money. [3]

The Pro forma fully diluted NAV per Share was $14.65 at 2012 year-end based on 110.64 million shares outstanding in respect of such calculation as outlined in the table below.   As at December 31, 2012, the U.S. GAAP NAV per Share is $16.41 based on 98.80 million shares outstanding.   As of December 31, 2012 TFG had approximately 133.75 million shares legally issued and outstanding.

The table below illustrates the three measures of shares described above - legal shares issued and outstanding, U.S. GAAP shares outstanding and pro forma fully diluted shares.  Legal shares issued and outstanding is used, for example, in TFG's monthly reporting, including to applicable regulatory authorities.

                                        Dec 31 2012
    Shares Reconciliation               Shares (millions)
 
    Legal Shares Issued and Outstanding            133.75 
    Less: Shares Held In Subsidiary                 16.60 
    Less: Shares Held In Treasury                    6.50 
    Less: Escrow Shares                             11.84 
    U.S. GAAP Shares Outstanding                    98.80 
    Add: Manager (IPO) Share Options                    0 
    Add: Escrow Shares                              11.84 
    Pro Forma Fully Diluted Shares                 110.64

2. Fair Value Determination for TFG's CLO Equity Investments:

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