Profile

Overview

The Hastings Income Trust (HIT) provides an investment vehicle for retail investors to access the Hastings Yield Fund, a wholesale entity. The Hastings Yield Fund (HYF) provides exposure to investments in high yield securities such as loans and hybrid equities. These loans and hybrid equities investments are predominantly derived from infrastructure privatisation and general industrial assets, representing Hastings' expertise in these types of assets.

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Assets

Portfolio update - Hastings Yield Fund (HYF)

The half year to 31 December 2009 saw a number of updates to the Hastings Yield Fund's portfolio, including:

-          the repayment in full of Santos' Franked Unsecured Equity Listed Securities (FUELS). The Hastings Yield Fund invested $7 million in the investment grade rated FUELS in September 2004 and held the investment through to repayment in September 2009. The holding period return generated for the Hastings Yield Fund was 7.62 percent per annum including franking tax credits;

-          the completion of amendments to the junior floating rate loan issued by DCA Group. In July 2009 following an approach from DCA Group's owner, CVC Capital Partners, Hastings negotiated and agreed to a financial restructuring which included a senior debt repayment from the divestment of certain non-core assets together with covenant headroom improvements. The restructuring resulted in the increase in the instrument's expected return through the introduction of a repayment premium that ratchets up to a 16 percent premium to face value payable upon maturity giving the Hastings Yield Fund the opportunity to realise a capital gain. Hastings also negotiated a $324,000 consent fee which was fully passed on to the Hastings Yield Fund. The expected look-forward return for the DCA Group investment has increased from 11.67 percent per annum to 15.12 percent per annum;

-          the completion of amendments to the mezzanine floating rate note issued by Wesbeam. This included the extension of the maturity date to July 2011 in return for continued cash interest servicing as scheduled, the introduction of a repayment premium of up to an 8 percent premium to face value payable upon maturity and a new set of financial covenants to provide enhanced protection for the Hastings Yield Fund. The expected look-forward return for the Wesbeam investment has increased from 12.83 percent per annum to 16.83 percent per annum;

-          the completion of amendments to the convertible floating rate note issued by Perth Airport as part of a wider senior debt refinancing exercise. The overall quantum of senior debt was increased with more restrictive interest servicing tests in return for an increase in the cash margin from 5.75 percent per annum to 7.50 percent per annum ratcheting up to 8.75 percent per annum as well as a repayment premium ratcheting up to a 4.75 percent premium to face value payable upon maturity. Hastings also negotiated a $336,000 consent fee which was fully passed on to the Hastings Yield Fund. The expected look-forward return for the Perth Airport investment has increased from 12.16 percent per annum to 14.60 percent per annum;

-          the successful completion of the $1.8 billion recapitalisation of Babcock & Brown Infrastructure. As part of the recapitalisation approvals Babcock & Brown Infrastructure has been renamed to Prime Infrastructure Holdings Limited (Prime Infrastructure). The Hastings Yield Fund held investments in two securities issued by Prime Infrastructure, the Subordinated Prime Adjusting Reset Convertible Securities (SPARCS) and the Exchangeable Preference Shares (EPS). The recapitalisation is a very positive outcome for the SPARCS given it is now anticipated the SPARCS will be realised in full via cash redemption by the next reset date of 17 November 2010. Consequently, the previous fair value accounting adjustment applied to the SPARCS has been fully written back. EPS holders received in cash all accrued interest that had been previously capitalised and have been converted to equity in the recapitalised business. Hastings will seek to divest the stapled securities over an extended period to ensure orderly exit. In addition, EPS holders have recourse to Prime Infrastructure's Australian Energy Transmission & Distribution assets which could deliver additional cash upon realisation of those assets; and

-          the refinancing by Inexus of its £461 million senior and junior debt facilities. Originally due to mature in August 2010, Inexus successfully extended the term of its facilities by two years to August 2012. In return for agreeing to the refinancing, junior lenders received an upfront fee equal to 1.00 percent of total commitments and an increase in the credit margin to 4.50 percent per annum stepping up to 5.25 percent per annum in September 2010 and 6.00 percent per annum in September 2011. Following completion of the refinancing, the Hastings Yield Fund divested £10 million of its £15 million investment in Inexus' £35 million junior floating rate loan at face value plus accrued interest. Consequently, the fair value accounting adjustment applied to investment has been reversed. The divested portion of the Inexus investment realised a return of 8.73 percent per annum.

As at 31 December 2009, the Hastings Yield Fund comprised the following high yield securities:

(1) Listed on the New Zealand Stock Exchange.