Expanded its inventory and receivables financing business during September quarter

Durrant Pate/Contributor

Sygnus Credit Investment (SCI) has racked up another record profitable quarter with more net profits going to shareholders in the Jamaican publicly listed specialty private credit investment company operating throughout the Caribbean.

Net profit attributable to shareholders increased by 8.0 per cent or US$120,000 to a September first quarter record of US$1.63 million compared to US$1.51 million for the comparable period of 2021. Earnings per share (EPS) amounted to US$0.28 vis-a-vis US$0.25 for the first quarter of 2021.

Diluted earnings per share was US$0.27 cents vs US$ 0.25 last year. SCI reports that its core revenues or total investment income grew by 24.7 per cent or US$450,000 to another first quarter record of US$2.27 million in comparison to the US$1.82 million recorded for the same period last year.

Dividend being reaped from Puerto Rican investment

This performance was driven primarily by a record private credit portfolio with higher yielding assets generating higher interest income and US$693,700 from the investment in Acrecent Financial Corporation of Puerto Rico (AFC), referred to as Puerto Rico Credit Fund (PRCF) investment income.

This amount is formally carried on the income statement as part of fair value gains since the financials of AFC does not meet the accounting standards to be consolidated all the way up to SCI. However, SCI’s higher interest income was offset by higher interest expense, resulting in lower net interest income relative to last year.

The management of SCI explains, “this outcome reflected two things: first, a much higher use of debt relative to last year albeit at a cheaper cost (interest rate on current debt lower than last year and are (locked-in) to fund the acquisition of AFC; and second, since AFC was not consolidated, there is no corresponding interest income offsetting the interest expense associated with the AFC asset. Thus, the PRCF investment income compensates for this apparent ‘gapping’ in net interest income”.

Phase II of the integration of AFC into SCI following its 93.7 per cent acquisition on February 28, 2022, is continuing towards completion within the next few months. The positive financial results for the quarter were driven by a record portfolio of private credit investments income from the underlying value of the investment in AFC, continued disciplined investment origination and the structuring of investments with adequate downside protection to manage risk exposures.

Credit portfolio remains resilient

According to the management, “SCI’s private credit portfolio remains resilient and well positioned to navigate the ongoing volatility of a high inflation, high interest environment, with a robust, lowly leveraged balance sheet and a robust pipeline of investments.” However, operating expenses are going up with total operating expenses for the quarter increasing by 29.3 per cent or US$203,700 to US$899,500 compared to US$695,800 last year.

This result was driven primarily by higher management fees and higher corporate services fees related to larger assets under management. Management fees and corporate services fees were a combined 72.0 per cent of operating expenses relative to 74.7 per cent in 2021.

There were no performance fees charged for this period relative to US$50,900 in 2021. Excluding management fees and corporate services fees, operating expenses were US$252,300, up US$76,500 or 43.5 per cent% when compared to US$175,700 in September 2021.

This result was driven primarily by higher professional fees which increased by US$65,300 or 159.1 per cent some of which were related to non-recurring items. SCI’s core activities generated an efficiency ratio of 39.5 per cent during the quarter under review, which was within the threshold level of 40.0 per cent compared to 38.2 per cent for 2021.

The Group’s management expense ratio (MER) was 2.5 per cent, which was within the target threshold level of 2.85 per cent, vs 3.1 per cent for last year. Last year’s MER was impacted by performance fees, and amounted to 2.7 per cent when adjusted for those fees.

More capital being sought

SCI has advanced the discussions with its international financing partners to secure large credit facilities that will allow for the creation of new revenue streams, while it embarks on unlocking the true potential of the private credit channel across the English, Dutch and Spanish-speaking Caribbean.

The group expanded its inventory and receivables financing business during the quarter with more than 75 per cent of its originations across the English and Dutch-speaking Caribbean region falling into this category.