BH CREDIT CATALYSTS LIMITED
MONTHLY SHAREHOLDER REPORT: JUNE 2014
YOUR ATTENTION IS DRAWN TO THE DISCLAIMER AT THE END OF THIS DOCUMENT
BH Credit Catalysts Limited Overview
Manager: BH Credit Catalysts Limited ("BHCC") is a closed-ended investment company,
registered and incorporated in Guernsey on 19 October 2010 (Registration
Brevan Howard Capital Management LP Number: 52520).
("BHCM")
BHCC invests all of its assets (net of short-term working capital) in the
Administrator: ordinary shares of Brevan Howard Credit Catalysts Master Fund Limited (the
"Fund").The investment manager of the Fund is DW Investment Management, LP
Northern Trust International Fund ("DWIM").
Administration Services (Guernsey) Limited
("Northern Trust") BHCC was admitted to the Official List of the UK Listing Authority and to
trading on the Main Market of the London Stock Exchange on 14 December 2010.
Corporate Brokers:
J.P. Morgan Securities Ltd
Total Assets
Dexion Capital Plc
$241 mm1
Listing:
1. As at 30 June 2014 by BHCC's administrator, Northern Trust.
London Stock Exchange(Premium Listing)
Summary Information
BH Credit Catalysts Limited NAV per Share (as at 30 June 2014)
Share Class NAV (USD mm) NAV per Share
USD Shares 54.9 $13.92
GBP Shares 185.7 £13.97
BH Credit Catalysts Limited NAV per Share % Monthly Change
USD Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD
2011 1.78 1.55 0.91 2.14 -0.03 -2.16 0.50 -0.37 -0.96 -0.50 -1.49 -0.50 0.81
2012 0.64 1.15 2.36 1.51 1.17 -0.10 1.38 1.39 1.65 0.80 0.73 1.26 14.83
2013 1.73 0.24 1.19 1.07 1.74 -0.52 0.16 1.07 1.18 1.68 1.70 1.52 13.50
2014 1.07 1.43 0.49 1.51 0.85 1.47 7.01
GBP Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD
2011 1.74 1.54 0.95 2.08 0.05 -2.16 0.51 -0.33 -0.93 -0.50 -1.49 -0.47 0.89
2012 0.64 1.15 2.40 1.50 1.22 -0.06 1.40 1.36 1.62 0.81 0.75 1.26 14.95
2013 1.76 0.27 1.20 1.05 1.81 -0.52 0.18 1.06 1.13 1.71 1.68 1.54 13.62
2014 1.08 1.43 0.53 1.51 0.88 1.48 7.11
Source: Fund data is provided by the administrator of the Fund, International
Fund Services (Ireland) Limited. BHCC NAV and NAV per Share data is provided
by BHCC's administrator, Northern Trust. BHCC NAV per Share % Monthly Change
is calculated by BHCM. BHCC NAV data is unaudited and net of all investment
management fees (2% annual management fee and 20% performance fee) and all
other fees and expenses payable by BHCC.
NAV performance is provided for information purposes only. Shares in BHCC do
not necessarily trade at a price equal to the prevailing NAV per Share.
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
ASC 820 Asset Valuation Categorisation* Brevan Howard Credit Catalysts Master Fund Limited
Unaudited Estimates as at 30 June 2014
% of Gross Market Value*
Level 1 55
Level 2 41
Level 3 4
Source: BHCM
* These estimates are unaudited and have been calculated by BHCM using the
same methodology as that used in the most recent audited financial statements
of the Fund. These estimates are subject to change.
Level 1: This represents the level of assets in the portfolio which are
priced using unadjusted quoted prices in active markets that are accessible
at the measurement date for identical, unrestricted assets or liabilities.
Level 2: This represents the level of assets in the portfolio which are
priced using either (i) quoted prices that are identical or similar in
markets that are not active or (ii) model-derived valuations for which all
significant inputs are observable, either directly or indirectly in active
markets.
Level 3: This represents the level of assets in the portfolio which are
priced or valued using inputs that are both significant to the fair value
measurement and are not observable directly or indirectly in an active
market.
Performance Review for the Fund The information in this section has been provided to BHCC by DWIM.
The NAV per share of BHCC USD Shares appreciated by 1.47% (net of fees and
expenses) in June, with corporate investments generating just under half of
gains while mortgage and asset-backed strategies contributed the remainder of
returns.
In the corporate portfolio, each of the three sub-strategies generated
positive returns for the month. Performing long/short positions were once
again the largest contributor for June, accounting for over 80% of overall
corporate strategy returns. The remaining 20% of the corporate returns were
fairly evenly distributed between distressed and corporate structured trades,
with a slightly higher contribution from distressed positions.
June performance in the long/short strategy was driven by modest gains across
a large number of the Fund's fundamental positions, with overall winners
outnumbering losers by approximately 1.7 to 1. The largest positive
contributors to the long/short portfolio for the month were positions in
Anadarko Petroleum, where the Fund holds a long-biased bond position, and
Caesars, where the Fund holds a number of positions both long and short.
In the Fund's distressed strategy, performance was driven largely by
long-biased holdings in TXU. In the corporate structured portfolio, June
performance echoed that of May, where bespoke synthetic CDO equity positions
drove positive returns, overcoming smaller losses in the index tranche
strategies.
Overall for the second quarter, performing long/short holdings were the
largest contributors to corporate returns, accounting for nearly 70% of
profits in the corporate portfolio. The remainder of second quarter corporate
returns were generated in nearly equal size by distressed and corporate
structured positions.
Within the mortgage- and asset-backed portfolio, the largest positive
contributions for June were derived from US residential mortgage-backed
investments, followed by European mortgage- and asset-backed positions and US
CMBS. Representation and warranty settlement related trades continued to do
well and fundamentals remain supportive for RMBS. Commercial mortgage-backed
positions contributed both as a result of overall market tightening as well
as idiosyncratic bond- and property-specific situations.
For the second quarter as a whole, US residential mortgage-backed investments
made the most significant contribution to the mortgage and asset-backed
performance, followed by monoline related trades and commercial
mortgage-backed holdings.
Investment Manager's Market Review and The information in this section has been provided to BHCC by DWIM.
Outlook
June was a constructive month for risk assets, particularly US equities,
where the S&P 500 index gained over 2% for the month. US credit spreads were
fairly range-bound, but still printed positive returns overall for June in
both investment grade (CDX IG moved from L+62bp at the end of May to L+58bp
on 30 June) and high yield (CDX HY moved from L+313bp to L+303bp). Investment
grade credit - BBB credits in particular - and leveraged loans performed the
best, benefitting from flat to tighter spreads and curve flattening over the
month. In Europe, stocks were down slightly but credit performance was
positive, in-line with the gains seen in US spreads.
In June, corporate activity continued to contribute positively to market
sentiment and momentum. While monthly announced M&A volumes declined from the
elevated levels seen in April and May, transaction volumes were still well
above recent 12 and 24 month averages.
In corporate credit markets, June primary issuance remained strong for US
credit generally and for European investment grade bonds, but away from
investment grade European new issuance was quieter. In terms of fund flows,
June was fairly mixed. There were mid-month outflows from investment grade
and high yield bond funds, but this quickly reversed by the end of the month.
For leveraged loan funds, outflows seen in previous months continued in June,
and if this pace continues leveraged loan funds could be showing year-to-date
outflows by some point in the third quarter. Despite these retail outflows,
leveraged loans continued to post solid returns in June.
In mortgage- and asset-backed markets, prices for non-agency, credit
sensitive residential mortgage bonds improved somewhat over the month of
June, as a result of positive supply/demand dynamics and perceived
progression in rep and warranty settlement negotiations. In commercial
mortgage-backed securities, June saw a large balance of vintage loans move
into special servicing (assets moved over at approximately double the average
rate seen in the last six months), although the majority of these transfers
were well telegraphed and appear to be proactive steps to manage balloon
payments.
Enquiries Northern Trust International Fund Administration Services (Guernsey) Limited
Harry Rouillard +44 (0) 1481 74 5315
Important Legal Information and Disclaimer
BH Credit Catalysts Limited ("BHCC") is a feeder fund investing in Brevan
Howard Credit Catalysts Master Fund Limited (the "Fund"). Brevan Howard
Capital Management LP ("BHCM") and DW Investment Management, LP ("DWIM") have
supplied certain information herein regarding BHCC's and the Fund's
performance and outlook.
The material relating to BHCC and the Fund included in this report is provided
for information purposes only, does not constitute an invitation or offer to
subscribe for or purchase shares in BHCC or the Fund and is not intended to
constitute "marketing" of either BHCC or the Fund as such term is understood
for the purposes of the Alternative Investment Fund Managers Directive as it
has been implemented in states of the European Economic Area. This material is
not intended to provide a sufficient basis on which to make an investment
decision. Information and opinions presented in this material relating to BHCC
and the Fund have been obtained or derived from sources believed to be
reliable, but none of BHCC, the Fund, BHCM or DWIM make any representation as
to their accuracy or completeness. Any estimates may be subject to error and
significant fluctuation, especially during periods of high market volatility
or disruption. Any estimates should be taken as indicative values only and no
reliance should be placed on them. Estimated results, performance or
achievements may materially differ from any actual results, performance or
achievements. Except as required by applicable law, BHCC, the Fund, BHCM and
DWIM expressly disclaim any obligations to update or revise such estimates to
reflect any change in expectations, new information, subsequent events or
otherwise.
Tax treatment depends on the individual circumstances of each investor in BHCC
and may be subject to change in the future. Returns may increase or decrease
as a result of currency fluctuations.
You should note that, if you invest in BHCC, your capital will be at risk and
you may therefore lose some or all of any amount that you choose to invest.
This material is not intended to constitute, and should not be construed as,
investment advice. All investments are subject to risk. You are advised to
seek expert legal, financial, tax and other professional advice before making
any investment decisions.
THE VALUE OF INVESTMENTS CAN GO DOWN AS WELL AS UP. YOU MAY NOT GET BACK THE
AMOUNT ORIGINALLY INVESTED AND YOU MAY LOSE ALL OF YOUR INVESTMENT. PAST
PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE RESULTS.
Risk Factors
Acquiring shares in BHCC may expose an investor to a significant
risk of losing all of the amount invested. Any person who is in any doubt
about investing in BHCC (and therefore gaining exposure to the Fund) should
consult an authorised person specialising in advising on such investments. Any
person acquiring shares in BHCC must be able to bear the risks involved. These
include the following:
- The Fund is speculative and involves substantial risk.
- The Fund will be leveraged and will engage in speculative
investment practices that may increase the risk of investment loss. The Fund
may invest in illiquid securities.
- Past results of the Fund's investment manager are not necessarily
indicative of future performance of the Fund, and the Fund's performance may
be volatile.
- An investor could lose all or a substantial amount of his or her
investment.
- The Fund's investment manager has total investment and trading
authority over the Fund, and the Fund is dependent upon the services of the
investment manager. The use of a single advisor could mean lack of
diversification and, consequently, higher risk.
- Investments in the Fund are subject to restrictions on withdrawal
or redemption and should be considered illiquid. There is no secondary market
for investors' interests in the Fund and none is expected to develop.
- The investment manager's incentive compensation, fees and
expenses may offset the Fund's trading and investment profits.
- The Fund is not required to provide periodic pricing or valuation
information to investors with respect to individual investments.
- The Fund is not subject to the same regulatory requirements as
mutual funds.
- A portion of the trades executed for the Fund may take place on
foreign markets.
- The Fund and its investment manager are subject to conflicts of
interest.
- The Fund is dependent on the services of certain key personnel,
and, were certain or all of them to become unavailable, the Fund may
prematurely terminate.
- The Fund's managers will receive performance-based compensation.
Such compensation may give such managers an incentive to make riskier
investments than they otherwise would.
- The Fund may make investments in securities of issuers in
emerging markets. Investment in emerging markets involve particular risks,
such as less strict market regulation, increased likelihood of severe
inflation, unstable currencies, war, expropriation of property, limitations on
foreign investments, increased market volatility, less favourable or unstable
tax provisions, illiquid markets and social and political upheaval.
The above summary risk factors do not purport to be a complete
description of the relevant risks of an investment in shares of BHCC or the
Fund and therefore reference should be made to publicly available documents
and information.