Tetragon Financial Group Limited (TFG) is a Guernsey closed-ended investment company traded on Euronext Amsterdam by NYSE Euronext under the ticker symbol "TFG".
In this quarterly update, unless otherwise stated, we report on the consolidated business incorporating TFG, Tetragon Financial Group LP and Tetragon Financial Group Master Fund Limited.(1) References to "we" are to Polygon Credit Management LP, TFG's investment manager.
Q2 2008 results at a glance:
- Overview: The portfolio continued to perform well in Q2 2008 with strong cash receipts underpinning stable income and earnings.
Financial Results:
- Net Income: Consolidated Q2 2008 net income remained stable quarter-on-quarter at $45.8 million.
- Cash Receipts: Cash generation on the investment portfolio in Q2 2008 of $118.0 million contributed to first half cash receipts of approximately $192.0 million. This exceeded the rate at which income was recognized on the portfolio, with the excess being accounted for as a pay-down of principal.
- Earnings per Share: EPS for Q2 2008 matched Q1 2008 at approximately $0.36 per share. The EPS for the first half of 2008 was approximately $0.73 per share.
- Net Assets and NAV per Share: Consolidated net assets continued to grow as a result of retained earnings. Net assets grew to $1.32 billion as of June 30, 2008, or $10.44 per share, up from $10.25 per share three months earlier.
- Dividend: On July 30, 2008 the Board of Tetragon Financial Group Limited declared a dividend of $0.15 per share in respect of Q2 2008, which will be payable on August 26, 2008. Please refer to the website for additional information regarding the dividend, including the Optional Stock Dividend Plan.
- IRRs: The weighted-average IRR ended the quarter at 16.6%, up approximately 0.6% from the end of Q1 2008 and back to the same level as at the start of the year. The increase during the second quarter reflected, among other things, the continuation of the positive impact of spread widening, our managers' ability to buy loans at a discount in the secondary market, as well as a positive LIBOR rate re-set mismatch.
- Life-to-Date Net Loss Reserves: (2) Excess loss reserves increased, with approximately $137.0 million of excess loss reserves having been factored into our IRR calculations as of June 30, 2008. At the end of Q1 2008, excess loss reserves were $116.0 million.
- Leverage: One of our objectives in 2008 has been to use excess cash to reduce the leverage of the company. Strong cash receipts enabled a further reduction in corporate leverage during Q2 2008. As of June 30, 2008, net borrowings (total borrowings less cash and amounts due from brokers) were approximately $69.0 million down from approximately $153.0 million at the end of Q1 2008.
- Incentive Fee: The hurdle rate for Q3 2008 has been reset at 5.4354% (Q2: 5.3316%) as per the process outlined in TFG's 2007 Audited Financial Statements and in accordance with TFG's investment management agreement. (3)
- Corporate Structure: As of June month-end, the TFG corporate structure was simplified as the remaining investors in TFGLP had exchanged their limited partnership interests on a one-for-one basis for shares in TFG. TFGMF is now 100% owned by TFG. We believe this change should simplify our financial reporting, increase transparency, facilitate greater liquidity in TFG shares and reduce our administrative costs. -- Tetragon Financial Group Limited
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