VSL shareholders offered alternative to discount-dependent tender offer
Shareholders in VPC Speciality Lending Investments (VSL) have been asked to consider an alternative to the discount-dependent tender offer which is set to take place in 2023.
Long-term VSL investors Metage Capital and Staude Capital have written to the investment trust’s other shareholders following a series of “constructive discussions” which they have had with the VSL board.
In June 2020, VSL shareholders agreed to undertake a discount-dependent tender offer for 25 per cent of the company’s shares immediately following the 2023 annual general meeting.
However, Metage and Staude have raised concerns about the volatility of VSL’s net asset value (NAV) and the “stubbornly wide” discount between the company’s NAV and its share price.
As a result of this, the two investors have suggested replacing the discount-dependent tender offer with a periodic 100 per cent realisation opportunity via a run-off share class.
This would take place every five years, and would “enable shareholders to remain invested knowing that they have access to liquidity at net asset value in the future”, Metage and Staude said.
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“We do not envisage the premature sale of assets, but to provide the opportunity to receive returns of capital in the normal life cycle of the underlying investments,” said Metage and Staude in the letter to investors.
“This would enable shareholders to benefit from the same returns received by the private funds managed by Victory Park Capital.
“We believe that the first of these realisation elections should replace the 2023 tender proposal. Further, we recommend that this realisation opportunity should be offered at least every fifth year thereafter. This would enable shareholders to remain invested knowing that they have access to liquidity at net asset value in the future.
“Mechanisms like this have become increasingly common in the investment trust sector and have proved highly effective in managing discounts. Indeed, when used well, they have even facilitated the subsequent growth of investment companies.”
VSL has been working to reduce its discount for the past two years through share buybacks, investor roadshows and by shifting from peer-to-peer lending to balance sheet-focused assets.
Via discussions with other shareholders, representatives from Metage and Staude concluded that the discount between the company’s share price and NAV per share is both too wide and too volatile, which means that any returns from the company are likely to be outweighed by discount volatility.
Shareholders also told them that they were concerned about the possibility that further buybacks and tender offers would lead to the de-facto control of the company by its manager.
The alternative proposal would allow shareholders to realise returns similar to the underlying NAV performance and would eliminate the discount risk for longer-term investors, the letter said.
Metage and Staud confirmed that the VSL board is “actively engaged” with their concerns.
An informal meeting of institutional and professional shareholders has been mooted to discuss this further.
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