Edison issues flash on EJF Investments (EJFI)

London, UK, 27 April 2020

Edison issues flash on EJF Investments (EJFI)

EJF Investments (EJFI) has announced that it will pay its 2.675p quarterly dividend on 29 May as scheduled. The decision to maintain the dividend contrasts with most of its peers, which are either suspending or reducing them. This reflects the cash-generative nature of EJFI's portfolio and that it has remained in relatively good shape. Its NAV fell by 13.6% in March, but 7.5% was FX related. COVID-19 has clouded the economic outlook and affects the high-yield credit collateral backing the CLO tranches. This in turns leads to lower valuations in the CLO equity investments that account for most of the EJFI's portfolio. However, the impact has been exacerbated by primary dealers de-risking and collateral confusion regarding what could be used for US Fed repo operations and what was eligible for the US government's Troubled Asset Relief Program. EJFI believes that with greater clarity the market disruption should subside and notes that there have been no crystallised losses in its portfolio. The current dividend yield is 7.8%.

EJFI decided to cancel most of its forward FX hedging, which led to the 7.5% FX loss. This was done to preserve liquidity and in the face of mounting margin calls due to global funding market stresses. Currently, 25% of EJFI's US-denominated assets are hedged back to GBP.

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