Sygnus Credit Investments is positioning itself to play a major role in financing the recovery and growth of Caribbean middle-market firms, as it ends its 2020 financial year in June on a high.

The investment company says it remains well placed from a liquidity, funding profile and capital standpoints to provide financing for the recovery and growth of middle-market firms throughout the Caribbean. This will be done while proactively managing the risks of its diversified portfolio of investments.

Sygnus boasted of record core revenues and core earnings while reporting marginally lower than record net profits for the financial year ended June 30, 2020. The company’s core revenues or total investment income grew by 39.8 per cent or US$1.28 million to a record US$4.50 million for the 2020 financial year.

This compares with US$3.22 million for the financial year ending June 30, 2019. Core earnings or net investment income grew by 37.1 per cent or just over US$820,000 to record US$3.03 million for 2020, versus US$2.21 million in 2019.

FINANCING MIDDLE MARKET MAIN DRIVER FOR POSITIVE PERFORMANCE

The positive financial performance of Sygnus was mainly driven by a record origination of private credit investments across the Caribbean. This, in keeping with its mandate to drive the velocity of financing for middle-market companies, via the alternative investment channel.

According to Sygnus, “the results were partially adversely impacted by the one-off conversion of J$1.2 billion to US dollars being part proceeds of new Jamaican dollar debt that was raised and part proceeds of Jamaican dollar investments that were exited during the third quarter. The results were also impacted by the one-off unscheduled investment exit of US$10.30 million during the third quarter, due to the onset of COVID-19.”

The company noted in its just released 2020 annual report that the impact of the global COVID-19 pandemic on its business is an ongoing evaluation process as the crisis unfolds. Net profit attributable to shareholders was US$1.97 million for 2020, marginally below the record US$2.05 million for 2019 by 3.8 per cent or US$778,000.

Total operating expenses increased by just over US$459,000 or 45.5 per cent to US$1.47 million for 2020 versus US$1.01 million in 2019. This increase was driven primarily by higher management fees, which rose by almost US$299,000 or 42.3 per cent, in accordance with a 60.0 per cent growth in assets under management.

BIG JUMP IN NET FX LOSS

There was a big jump in net foreign exchange (FX) loss, which ballooned to US$1.04 million for 2020 coming from US$219,000 the year before. This year’s loss was primarily driven by the one-off conversion of $1.2 billion to US dollar being part proceeds of new Jamaican dollar debt raised and part proceeds of Jamaican dollar investments exited during the third quarter.

Net FX loss during the third quarter was US$714,000 amid a volatile FX market. As a result of the conversion, Sygnus’ net Jamaican dollar exposure was reduced from US$13.81 million in 2019 to US$3.17 million in 2020.

Arising from this, the company’s expected credit loss for 2020 increased to just over US$101,000 compared with US$74,000 for 2019. During the third quarter of the just ended 2020 financial year, one of the portfolio company’s investments with a value of US$1.43 million was moved to Stage 3 or the default category.

PORTFOLIO RESTRUCTURING

This reclassification was done as the private credit investment terms for this portfolio company is being changed/restructured to better align its business prospects with the current global COVID-19 pandemic. The restructuring exercise was still ongoing as at the end of the 2020 financial year and represented Sygnus’ first restructuring since inception after two-and-a-half years without any credit=related issues.

The discounted value of the collateral for this portfolio company was larger than Sygnus’ outstanding investment, which resulted in nil expected credit loss being reflected for this investment as at the just ended financial year.

The non-performing investment rate was 2.7 per cent of Sygnus’ total portfolio company investments. In this case the portfolio company with a value of US$1.24 million falls under the enhanced monitoring category, with an expected credit loss of US$18,000.

Sygnus reports that it does not have any realised losses from defaulted investments.