(Update) Ranger Direct Lending (RDL) has surrendered to investors’ demands to wind up and return money to shareholders after Ares Capital Management, the US investment group the loan fund’s board wanted to be its new fund manager, withdrew, discouraged by the hostility of rebel shareholders, saying it no longer wanted the job.
Any hopes the board chaired by Christopher Waldron has of ending an increasingly bitter battle with activist investors Oaktree Capital Management and LIM Advisors is likely to be short lived, however.
Although US activist Oaktree is pleased at the decision to wind up Ranger, which will enable it to gain a big uplift on its recent investment, it is said by sources to be disappointed at what it sees as the board’s ineffectiveness and its opposition to the two non-executive directors it wants elected at next week’s annual general meeting.
Oaktree is preparing to publish its fifth open letter to shareholders in the £128 million investment company to press home its advantage and argue its case.
In its statement the Ranger board said it had ‘concluded that in the interests of certainty and protecting shareholder value the company should move to realise its assets in an orderly manner.’
It pinned the blame for Ares’ decision on Oaktree and LIM, who hold 29.4% of the shares, saying their demands for changes to the board had scared the US fund manager by demonstrating that the process of switching the portfolio from its current fund manager Ranger Alternative Management would be far from smooth.
It urged shareholders to vote against the four nominees that both Oaktree and LIM had put forward for election to the board at the agm next week, claiming this would be ‘wholly inappropriate … given that their sponsors have led a campaign containing a significant number of inaccurate statements which has culminated in Ares’ withdrawal.
‘In consequence, other shareholders will not have the opportunity to vote on proposals that the independent directors continue to believe would create the greatest long-term value for shareholders as a whole,’ it added.
There has been no response so far from LIM, which is seeking to remove Waldron, in addition to appointing two new non-execs whom it believes would help the board in overseeing fund managers and recovering assets from Princeton Alternative Income, the failed investment that is at the root of the distressed fund’s problems.
An orderly wind-up of Ranger's assets is expected to take up to two years but the board said it would only pursue it if the current independent directors still commanded a majority on the board after the meeting on 19 June.
If a wind-up goes ahead the board said it would speak to the company's zero dividend preference shareholders as well as the holders of its ordinary shares. The zero investors are important as they will need to be paid off before distributions of capital can be made to ordinary shareholders.
Ranger Direct’s climbdown potentially avoids another embarrassing corporate governance row for Invesco Perpetual, the fund manager involved in an ugly dispute with the board of Invesco Perpetual Enchanced Income (IPE) over fund fees.
Invesco owns 28% of Ranger through the UK equity income funds and Perpetual Income & Growth (PLI) investment trust managed by Mark Barnett. Barnett, who invests in several alternative lending funds in addition to Ranger, was believed to have been in favour of the switch to Ares. His support enabled RDL’s board to say it had the support of 39% of ordinary shareholders, although Oaktree and LIM questioned this claim.
Ranger sacked fund manager Ranger Alternative Management for its disastrous investment in Princeton Alternative Income, an offshore fund that was the biggest investor in Argon Credit, a lending platform that collapsed in December 2016. The loss damaged performance with the shares losing 3.7% over three years – even with dividends included – and hit sentiment with the stock trading 19% below net asset value as investors shied away.
Ranger’s board has engaged in a lengthy legal battle with Princeton but was criticised by Oaktree and LIM for its slow response. It said it would continue to 'actively engage in those proceedings'.
The 12% yielding RDL shares gained 14p to close 1.8% up at 806p.