Alternative proposal to the 2023 tender offer of VPC Specialty Lending Investments Plc.

LONDON, September 12, 2022 /PRNewswire/ — About September 12, 2022Staude Capital and Metage Capital have sent a letter to investors in VPC Specialty Lending Investments Plc (LSE: VSL).

The full text of the letter is as follows:

September 12, 2022

To our fellow institutional and professional investors at VPC Specialty Lending Investments Plc. (the company”),

Subject: Consultation of the shareholders and the Board of Directors of the Company on possible alternative proposals to the public tender offer accompanied by a discount in 2023

We are writing this letter to inform you of the constructive discussions we have had with the board of directors and a significant proportion of shareholders regarding the issues facing the company and the current offer offered with a discount next year. In addition, we submit an alternative proposal for consideration and recommend that an informal meeting of institutional and professional shareholders of the Company be convened to agree on the best way forward.

Background

Portfolios managed by the investment teams of Meter Capital Limited¹ and Staude Capital Limited² have been long-time shareholders of the Company since 2016 and 2017 respectively. June 2020the Company has agreed to launch a discount tender offer for 25% of the outstanding shares immediately following the 2023 Annual General Meeting (the “2023 Tender Proposal”).

The 2023 tender proposal, along with a number of performance-based measures and additional marketing efforts, have been introduced to address the discount between the Company’s net asset value per share and its share price. Despite these steps and the strong investment performance, the discount on the Company’s shares remains stubbornly wide. We therefore thought it was time to engage with other institutional and professional shareholders, who are independent of the Company’s investment manager, to understand their perspective on the Company and to determine whether the Proposed Tender 2023 was still appropriate and sufficient to achieve its objective.

Main challenges facing society

From our discussions with other shareholders, three key questions emerged:

1. Delivery: the discount between the Company’s share price and its net asset value per share is both too large and too volatile. This has the effect that the returns of the Company’s stable credit portfolio are offset by the volatility of the discounts;
2. Dividend covered: any proposal to remedy the discount must maintain a covered dividend for income investors; and
3. Crawling control: a universal concern expressed by independent shareholders was the risk that further takeovers and takeover bids would lead to de facto control of the Company by its manager, through his ability to vote the shares held by the SVS Opportunity Fund GP LP.

Our alternative proposal

As a result of these meetings, we believe there is strong and widespread support from independent shareholders for the introduction of a 100% periodic realization possibility, via a run-off class of shares. This may be listed or unlisted depending on the needs of the shareholders. We do not envisage the premature sale of assets, but to provide the possibility of receiving returns of capital within the normal life cycle of the underlying investments. This would allow shareholders to benefit from the same returns received by private funds managed by Victory Park Capital.

We believe that the first of these Achievement Elections should replace the 2023 Tender Proposal. Further, we recommend that this Achievement Opportunity be offered at least every five years thereafter. This would allow shareholders to stay invested knowing that they have access to liquidity at net asset value in the future. Such mechanisms have become increasingly common in the investment trust industry and have proven to be very effective in managing downgrades. Indeed, when used well, they have even facilitated the subsequent growth of investment companies.

We believe that a permanent and long-term resolution of society’s discounting problem requires a thoughtful structural solution along the lines of our proposal. Specifically, compared to the current status quo of ad hoc takeover bids and corporate buyouts, our proposal has the following key advantages:

• This would allow shareholders to ultimately realize returns similar to the performance of the underlying net asset value and eliminate discount risk for longer-term investors;
• By diverting income and capital payments to an achievement and continuation pool, exiting shareholders do no harm to shareholders who remain invested. In contrast, generating the cash needed to meet the 2023 tender opportunity could leave the remaining portfolio less liquid and with a greater focus on equity investments with no income; and
• By assuring shareholders that there will always be periodic opportunities to realize their investment at net asset value, the issue of the Manager’s creeping control over the Company becomes less of a concern.

The Board’s response and our recommendation for an informal meeting of shareholders

To its credit, the Board of Directors has been actively engaged in responding to our concerns and our proposal and has consulted with a number of shareholders for their views. We understand that the Company will present its own thoughts on the 2023 tender proposal in due course. As various ideas are under consideration, we believe it would be best to hold an informal meeting of institutional shareholders and professionals to discuss the issues facing the Corporation and the merits of the various possible solutions. This will avoid unnecessarily incurring the cost of drafting formal documentation without broad shareholder support.

We are happy to discuss our proposal with any interested institutional or professional investor and encourage you to contact us using the details below.

Yours faithfully,

[1] Meterage Capital Limited is a company registered in England and Wales with registration number 03525123. Its registered office is at 20 Farringdon Street, 8th Floor, LondonEC4A 4AB.

[2] Staude Capital Limited is an appointed representative of Mirabella Advisers LLP. Staude Capital Limited’s investment staff are seconded to Mirabella Financial Services LLP which acts as investment manager for the funds which are shareholders of the Company. Staude Capital Limited is a company incorporated in England with registration number 10236669. Its registered office is at Old Anglo House, Mitton StreetStourport-on-Severn, Worcestershire, EnglandDY13 9AQ.

SOURCE Staude Capital; Capital Stage