4 May 2018 07:00
Funds managed by Oaktree Capital Management, L.P. (“Oaktree”), an approximately 19% shareholder of Ranger Direct Lending Fund PLC (LON: RDL) (“Ranger” or “RDL” or “Company”), released an open letter to Ranger shareholders today regarding the Board’s recent proposal to appoint Ares Management (“Ares”) as the new investment manager.
The full text of the letter is as follows:
May 4, 2018
Dear shareholders of Ranger Direct Lending PLC (“Ranger,” the “Company” or “RDL”),
We write to express our deep disappointment with recent actions by Ranger’s Board of Directors (the “Board”), culminating in the RNS announcement on May 1 (the “Announcement”), in which the Board announced its proposal to appoint Ares Management (“Ares”) as its new investment manager. We believe that this proposal is the result of a biased and flawed process, adds significant risk and expense to Ranger shareholders, and is further indication of the Board’s poor stewardship. The Board has made no attempt to respond to the valid fundamental concerns we raised in our publicly-released April 11 letter, and we continue to believe that a wind-down represents the clear best option for shareholders. We know many of our fellow shareholders agree.
Flawed Strategic Review Conducted by a Biased Board
The Board’s announced strategic review has been conducted in a way that we contest vigorously:
There is no evidence that the Board has seriously considered a wind-down for the benefit of all shareholders. There has been no side-by-side comparison of the benefits of a new manager arrangement relative to a low-risk, shareholder-friendly, wind-down. In our view, the Board’s engagement has been inadequate and inconsistent, notably in the failure by the Board and its advisors to honor their agreement as part of the wall-crossing procedure, specifically by advantaging certain shareholders over those with dissenting views.Inadequate and Risky Proposal to Appoint Ares to Run the RDL Portfolio
The Ares Proposal Comes with No Details to Support the Recommendation
Following a three-month review process, we are disappointed that no terms of the proposed new manager arrangements have been communicated and we do not think the Board is taking shareholder concerns seriously:
No substantive detail has been provided on the underlying investment strategy. There are no plans on how Ranger’s chronic NAV discount would be eliminated and over what timeframe. There is no information about how the RDL platform would reach viable scale under the new investment manager when RDL’s illiquidity makes it patently unattractive for most investors. There are no details on fees or the term of the management agreement. No proposal has been made on how dissenting shareholders would be cashed out if they so desired, which we have seen occur in several cases when the investment manager changes in the face of substantial shareholder opposition.Appointment of Ares as Investment Manager Carries Substantial Risk Compared to a Wind-Down
The information that Ranger has presented illustrates significant additional risk when compared to Ranger’s existing portfolio or a wind-down alternative:
Ares’ proposal represents a major departure from Ranger’s current short-dated SME whole loan mandate and carries significant new risks for shareholders, yet does not offer commensurate uplift in return profile or yields. Ares would invest in structured products that sit lower in the capital structure, i.e., in higher-risk securities, compared to Ranger’s senior secured whole loan strategy, which is risky at this point in the credit cycle when corporate defaults are at historic lows and appear bound for mean-reversion in the period ahead. Ares’ multi-year loans are much longer duration than Ranger’s portfolio, which reduces portfolio liquidity and increases exposure to the credit cycle. RDL would become a passive vehicle with a relatively small allocation within deals syndicated across the Ares platform and would not have sole ownership of the underlying loans in the case of defaults. We believe Ares would create risks related to the time it takes to reposition the RDL portfolio, including redundant fees, potential delays and a misalignment of interests arising from the 12-month Ranger Alternative Management II notice period. We are especially cautious about this departure from mandate given Ranger’s and this Board’s history – we have seen what happened when they last stepped outside their comfort zone and reached for yield by investing in Princeton.Questionable Claims Made by the Board about Shareholder Support on Ares Proposal
We question the Board’s statement that 39% of RDL shareholders support its Board’s recommendation of Ares as the new Investment Manager.
Since we published our letter dated April 11, we have received a number of inbound messages from significant shareholders who share our concerns about the future of RDL and oppose the Ares proposal. If the Board proceeds with Ares’ appointment without a cash-out option for dissenters, we consider that these dissenting shareholders could put selling pressure on RDL’s shares for the foreseeable future.RDL’s Board has a Poor Track Record of Stewardship, Lacks Relevant Experience and Has Lost the Confidence of Shareholders
We view the mishandling of the strategic review process as only the latest in a series of missteps that have led to value destruction and a loss of shareholder confidence:
Since its IPO in May 2015, RDL has significantly underperformed a range of equity and bond indices. This Board presided over the Princeton debacle, which resulted in massive destruction of value for all shareholders and continues to contaminate the RDL portfolio with no resolution in sight. This Board took little tangible action to take control of the Princeton situation until almost a year later when the NAV discount broke through 30%. This Board’s expertise in speciality lending is limited, with only one current board member having a directly relevant track record in this field.Oaktree has given serious consideration to the future of RDL and how we could leverage our extensive credit and restructuring expertise to assist the Company for the benefit of all stakeholders. Regretfully, we believe shareholders have been repeatedly let down by the Board and have now lost faith in continued stewardship of this Board.
We urge shareholders to express their views to the Board, in order to ensure that the Board considers the benefits of a winding down option as an alternative to the Ares proposal.
Sincerely,
/s/ Patrick M. McCaneyPatrick M. McCaneyManaging Director and Portfolio ManagerValue EquitiesOaktree Capital Management, L.P.
About Oaktree
Oaktree is a leader among global investment managers specializing in alternative investments, with $121 billion in assets under management as of March 31, 2018. The firm emphasizes an opportunistic, value-oriented and risk-controlled approach to investments in credit, private equity, real assets and listed equities. The firm has over 900 employees and offices in 18 cities worldwide. For additional information, please visit Oaktree’s website at http://www.oaktreecapital.com/.
Sard Verbinnen & CoJohn Christiansen+1 (415) 618-8750jchristiansen@sardverb.comORConrad Harrington+44 (0) 20 3178 8914charrington@sardverb.com
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