24 Apr 2018 13:54
Funds managed by Oaktree Capital Management, L.P. (“Oaktree”), an 18.56% shareholder of Ranger Direct Lending Fund PLC (LON: RDL) (“Ranger” or “RDL” or “Company”), sent a letter to the Ranger Board of Directors on April 11, 2018 regarding its ongoing strategic review process proposing that the Board implement a wind-down strategy for the Company.
The full text of the letter is as follows:
April 11, 2018
Ranger Direct Lending Board of Directors (“Board”):Mr. Christopher WaldronMr. Jonathan SchneiderDr. Matthew MulfordMr. Scott Canon
CC: Mr. Gavin Kelly, Kinmont Advisory
Dear Directors of Ranger Direct Lending,
As you know, funds managed by Oaktree Capital Management, L.P. (“Oaktree”) have recently disclosed an 18.56% ownership stake in Ranger Direct Lending plc (“Company” or “Ranger” or “RDL”), making us the Company’s second largest shareholder. We are writing to you in the context of RDL’s ongoing strategic review process and as a follow-up to our team’s phone conversation today with Chairman Christopher Waldron and Gavin Kelly.
Oaktree’s Increasing Concerns over Ranger’s Viability
Since our prior discussion with Mr. Waldron in February, Oaktree has further deliberated about Ranger’s future and how we can best support the Company and its Board. In light of your invitation for Oaktree to make a proposal for the investment management contract, we contemplated a range of possibilities for Ranger including a continuation of or change in strategy based on information available in the public domain. Unfortunately, after careful consideration we could not see a viable path forward that either Oaktree or indeed any other investment manager could propose for the vehicle for a number of fundamental reasons:
Ranger is a sub-scale platform and its shares are too illiquid to attract large institutional investors, especially in light of its persistent trading discount to Net Asset Value; Ranger operates in niche asset classes that are becoming increasingly competitive and are difficult to scale; Ranger’s return targets are increasingly difficult to achieve in the current credit market environment; Ranger’s Princeton exposure is highly troubled and there is currently no resolution in sight; Ranger is below its high-water mark; Introducing a new manager adds meaningful transition risk to Ranger shareholders, especially in light of the ongoing Princeton legal process; Adding a co-manager also adds meaningful risk in that it may lead to suboptimal decision-making and misaligned incentives; Ranger’s evergreen vehicle structure is not ideally suited to its specialty credit strategies; The UK listing of a predominantly North American credit portfolio is an historical anomaly and has little capital markets rationale going forward.We have now come to the conclusion that RDL shareholders’ interests are best served by winding down the Company and returning its capital to its shareholders, which represents both the lowest risk and highest return path forward. Oaktree urges the Board to recommend the wind-down of RDL to its shareholders as its preferred option in the ongoing strategic review process.
Ease of Winding-Down
It is important to note the relative ease and low cost of winding-down Ranger compared to many other investment trusts. First, Ranger’s investment portfolio is relatively short-duration, and if the Company simply ceases recycling its capital into new loans, the vast majority of the portfolio will convert to cash within eighteen months. Second, there would be a very limited human resources impact because Ranger employs only a nominal corporate staff, given that it originates all of its loans via third party platforms. And third, the impact to Ranger’s sourcing platforms is expected to be very limited given that they are generally well-funded by numerous other funds, including an increasing number of Ranger’s better-capitalized competitors.
Oaktree’s Resources to Support the Board
We would strongly support such a recommendation from you and would offer to work with you in three important ways:
We would publicly endorse the Board’s decision and put the full weight of our shareholding and Oaktree’s reputation behind it; We would work with you to re-incentivize the current Ranger management team and Board to fully align their interests with those of all RDL shareholders; We are willing to support the wind-down effort by nominating up to two highly qualified nonexecutive directors to join the Board at your invitation. Aside from committing valuable resources, we believe that RDL shareholders would take comfort from such additional oversight.We would appreciate if you could kindly respond by April 18, 2018, after which date we will consider making this letter public in order to engage openly with a broader group of stakeholders.
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 $100 billion in assets under management as of December 31, 2017. The firm emphasizes an opportunistic, value-oriented and risk-controlled approach to investments in distressed debt, corporate debt (including high yield debt and senior loans), control investing, convertible securities, real estate and listed equities. Headquartered in Los Angeles, the firm has over 900 employees and offices in 18 cities worldwide. For additional information, please visit Oaktree’s website at www.oaktreecapital.com.
Contacts
Sard Verbinnen & CoJohn Christiansen+1 (415) 618-8750jchristiansen@sardverb.comORConrad Harrington+44 (0) 20 3178 8914charrington@sardverb.com
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