BROKER firm Numis has offered its take the dispute between Ranger Direct Lending and Oaktree Capital Management, stating that Ranger’s decision not to wind down the fund is “interesting”.
Oaktree released a letter this week calling for the Ranger to wind down its investment trust due to a series of concerns over its financial viability.
However, Ranger’s board members quickly responded with a letter of their own, in which they criticised Oaktree’s “short term considerations” and reassured shareholders that the issues outlined in the Oaktree letter were already being handled.
“It is interesting to see that the Board appears to have dismissed the possibility of a wind-down, especially given the views of a large shareholder and the presence of other value orientated shareholders on the register,” said Ewan Lovett-Turner, director of investment companies research at Numis.
“The fund has a concentrated shareholder register with the largest shareholders, according to Bloomberg, being: 27.7 per cent Invesco; 18.6 per cent Oaktree; 9.2 per cent Lim Advisors; 9.2 per cent Credit Suisse; and 6.7 per cent City Financial.
“It will therefore be interesting to see what proposals the Board puts forward in the results of its review.”
Lovett-Turner’s investment note went on to speculate on the possible outcome of Ranger’s ongoing legal battle with Princeton, stating that Numis expects to see “a strengthening, or change, in management team, given that the ill-fated investment has led to concerns about Ranger’s due diligence process.”
He added that there is currently “little clarity” on how the Princeton issue will be resolved, adding that the legal battle may end up absorbing further cash from the Ranger fund.
Numis pointed out that Ranger’s share price demonstrated some volatility after the letters were released. The price reached a high of 840p, before falling back after the Board’s announcement. The shares closed up 6 per cent on 806p, representing a discount of approximately 14 per cent.
“Even though there remains potential for corporate action we believe the 14 per cent discount carries significant risk, given the issues in the portfolio and the potential difficulties in obtaining a consensus between shareholders and the Board,” added Lovett-Turner.
Numis also noted that if the Ranger fund is wound-up prior to the repayment date then the fund’s ZDP shares “will only be entitled to receive their accrued entitlement to the date of winding up”.
Ranger currently has 53m (£59.8m assets) ZDPs outstanding after it issued £30m in ZDPs in July 2016 with a gross redemption yield (GRY) of 5.0 per cent and a further £23.8m in November 2016 with a GRY of 4.52 per cent. The ZDPs have a final capital entitlement of 127.63p in July 2021, equivalent to £67.6m. The ordinary shares have net assets of $212m (£152m).