RANGER Direct Lending is estimating that an ongoing legal dispute with one of its holdings will push its net asset value (NAV) returns down by 15 basis points each month for the rest of the year.
The alternative finance-focused investment trust revealed in its half-yearly report that despite 4.05 per cent NAV growth during the first six months of the year, its arbitration with Princeton over the level of losses regarding a holding in Argon Credit has hit its share price.
Christopher Waldron, chairman of Ranger Direct, said the fund still sees attractive opportunities in direct lending, but was currently only investing with seven of the 13 platforms it has partnered with due to performance issues and investment capacity.
Waldron said the fund is in talks with other platforms.
As of 30 June 2017, 72 per cent of the portfolio was invested in secured debt Instruments including loans mainly to small business borrowers, and 28 per cent of the portfolio consisted of unsecured consumer loans.
“The cost of the Princeton arbitration, together with revisions to the expected returns from other platforms will inevitably weigh on short-term returns,” Waldron said.
“The company estimates that legal fees associated with Princeton will reduce NAV growth by approximately 15 basis points per calendar month for the rest of 2017.
“Higher loss reserves against other consumer loan platforms will also detract from returns, as will cash drag as funds are reallocated away from closing platforms into new investments.
“Currently, the company estimates that monthly NAV growth in the second half of 2017 will average 40-50 basis [points] and will then recover to 60-70 basis points in 2018, assuming a resolution of the Princeton issues this year.”
The investment trust is currently on a discount to NAV of 25.3 per cent.
One potential solution to reduce the fund’s current discount to NAV was share buybacks, but the board has decided to hold off on this as it would reduce any dividend, the report said.
Commenting on the results, analysts at brokerage Numis said the discount was unlikely to narrow until the Princeton legal action was resolved.
“We do not expect Ranger’s discount to narrow until there greater certainty over Princeton and cash flows start being consistently received from the Argon bankruptcy, as well as a re-establishment of the returns/dividends towards target levels,” said Ewan Lovett-Turner, director – investment companies research at Numis.
“In addition, it is disappointing that some other areas of the portfolio are underperforming.”
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