SME Loan Fund PLC (The) Circular re: General Meeting (5891B)

TIDMSMEF

RNS Number : 5891B

SME Loan Fund PLC (The)

05 April 2017

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART IN OR INTO THE UNITED STATES, CANADA, AUSTRALIA, JAPAN OR SOUTH AFRICA OR ANY JURISDICTION FOR WHICH THE SAME COULD BE UNLAWFUL. THE INFORMATION CONTAINED IN THIS ANNOUCNEMENT DOES NOT CONSTITUTE AN OFFER OF SECURITIES FOR SALE IN ANY JURISDICTION, INCLUDING IN THE UNITED STATES, CANADA, AUSTRALIA, JAPAN OR SOUTH AFRICA.

5 April 2017

THE SME LOAN FUND PLC

(THE "COMPANY" OR "SMEF")

Circular re: General Meeting

Introduction

Further to its announcements on 21 February 2017 and 8 March 2017 regarding proposals for the future of the Company, the Company announces that a circular containing further details of those proposals is being posted to Shareholders today (the "Circular"). The circular also contains a notice convening a general meeting of the Company for 1.00 p.m. on 27 April 2017 at which resolutions will be proposed to:

   --           approve changes to the Company's investment objective and investment policy, 
   --           adopt the new articles of association of the Company; and 

-- authorise the Board to allot up to 250 million Ordinary Shares and/or C Shares pursuant to a share issuance programme and disapply pre-emption rights in respect of the issue of such shares.

A summary of the Proposals is set out below and further details are set out in the Circular. Copies of the Circular have been submitted to the National Storage Mechanism and will shortly be available for inspection at www.morningstar.co.uk/uk/nsm and on the Company's website (www.thesmeloanfund.com). Words and expressions defined in the Circular have the same meanings when used in this announcement unless the context requires otherwise.

Background to, and Reasons for, the Proposals

The Board believes that, following the appointment of SQN Capital Management, LLC and its UK subsidiary SQN Asset Management Limited as the Company's investment managers with effect from 1 April 2017, the Company now has access to a broader range of investment management skills. The Board is proposing, therefore, to make certain changes to the Company's investment objective and investment policy so that the Company can benefit from this broader range of skills and continue to provide attractive returns to Shareholders.

Having reviewed the operation of the Company's discretionary six-monthly redemption facility for up to 20 per cent. of its issued share capital at a redemption price equal to 99.5 per cent. of the net asset value per Ordinary Share and, in particular, the need to build up cash balances in advance of a redemption date in order to be able to satisfy redemption requests, the Directors concluded that the redemption facility is an inefficient and inflexible structure that is not well-suited to the less liquid assets in which the Company invests. Accordingly, the Directors used their discretion and decided not to implement the first potential redemption opportunity at 31 March 2017 and are proposing that the Company adopt the New Articles which remove the provisions relating to the six-monthly redemption facility.

The Directors recognise the importance to Shareholders of increasing the size of the Company in order to increase the liquidity of its Shares in the secondary market. The secondary placing of the Ordinary Shares (representing 48 per cent. of the Company's issued share capital) previously held by GLI Finance Limited principally with new investors (both institutional and wealth managers) in March 2017 has broadened the Shareholder base significantly and has already led to a material improvement in the market liquidity of the Ordinary Shares and a narrowing of the discount at which the Ordinary Shares are trading relative to their net asset value. The Directors believe that the Company's prospects for issuing further Shares in due course have been enhanced significantly by that secondary placing and the appointment of the New Managers and will be further enhanced if Shareholders approve the proposed changes to the investment objective and investment policy and the adoption of the New Articles. Accordingly, the Directors are seeking Shareholder approval at the General Meeting to enable the Company to create a share issuance programme for up to 250 million Ordinary Shares and/or C Shares. If approved, and subject to publication of a prospectus by the Company, the Share Issuance Programme may be implemented by way of a series of placings and tap issues and, potentially, open offers, offers for subscription and/or intermediaries offers. The Directors recognise, however, that there are no guarantees that the Company can increase its size substantially. For this reason, the Directors are seeking to include in the New Articles a provision for a continuation resolution (by way of an ordinary resolution) if the Company's net assets at 31 December 2019 are less than GBP250 million.

Changes to Investment Objective and Investment Policy

The following is a summary of the material changes that are being proposed to the Company's investment objective and investment policy:

-- The Company's existing investment objective and investment policy require it to invest in a range of SME loans originated principally through Investee Platforms (being loan origination platforms and finance companies in which GLI Finance Limited has an equity interest). The revised investment objective and investment policy will not include any obligations to invest through Investee Platforms, allowing the Company to source investments originated through a broader variety of channels, or to focus on SMEs. Instead, it is intended that, under its revised investment objective and investment policy, the Company will invest in a range of secured loan assets mainly through wholesale secured lending opportunities, secured trade and receivable finance and other collateralised lending opportunities. For this purpose, "loan assets" will include both direct loans as well as other instruments with loan-based investment characteristics (for example, but not limited to, bonds, loan participations, syndicated loans, structured notes, collateralised obligations or hybrid securities) and may include (subject to the limit referred to below) other types of investment (for example, equity or revenue- or profit-linked instruments).

-- Under the current investment policy, the Company's portfolio is weighted towards the UK. The revised investment policy envisages that the portfolio will be weighted towards the UK, Continental Europe and North America.

-- Several changes are proposed to the Company's investment restrictions (calculated based on the Company's gross assets at the time of investment) to reflect the proposed broader focus of its investment policy:

 
 Investment Restriction                                          Current Investment Policy   Revised Investment Policy 
  Geography 
   - Exposure to UK loan assets                                       Maximum of 70%              Minimum of 60% 
   - Minimum exposure to non-UK loan assets                                  30%                         20% 
  Duration to maturity 
  - Minimum exposure to loan assets with duration of less than 
  6 months                                                                  20%                         None 
  - Maximum exposure to loan assets with duration of 6 - 18 
  months and 18 - 36 months 
  - Maximum exposure to loan assets with duration of more than        40% in each case                  None 
  36 months 
                                                                            40%                         50% 
 Maximum single investment                                                 2.5%                         10% 
 Maximum exposure to single borrower or group                              None                         10% 
 Maximum exposure to loan assets sourced through single 
  alternative lending platform or other 
  third party originator                                                    None                        25% 
 
 Maximum exposure to any individual wholesale loan arrangement              None                        25% 
 Maximum exposure to loan assets which are neither 
  sterling-denominated nor hedged back to 
  sterling                                                                  None                        15% 
 Minimum exposure to unsecured loan assets                                  50%                         25% 
 Maximum exposure to assets (excluding cash and 
  cash-equivalent investments) which are not 
  loans or investments with loan-based investment 
  characteristics                                                           None                        10% 
--------------------------------------------------------------  --------------------------  -------------------------- 
 

-- Under the Company's existing investment policy, the Company's borrowings (including, for this purpose, borrowings by any special purpose vehicles that may be established by the Company in connection with obtaining leverage against any of its assets and, on a look-through basis, by any investee entity) are capped at 150 per cent. of its net asset value. Under the revised investment policy, the Company's borrowings will not be calculated on a look-through basis to any investee entity and, accordingly, the cap on the aggregate borrowings of the Company and any such special purpose vehicles will be reduced to 35 per cent.

Share Issuance Programme

The Directors believe that the Share Issuance Programme will have the following benefits for Shareholders:

-- the Company will be able to raise additional capital promptly, enabling it to take advantage of investment opportunities, thereby expanding and diversifying its investment portfolio;

-- an increase in the market capitalisation of the Company will help to make the Company attractive to a wider investor base;

-- it is expected that the secondary market liquidity in the Ordinary Shares will be enhanced as a result of a larger and more diversified Shareholder base;

-- the Company's competitive position should be increased by it becoming a larger market participant and through growth in its portfolio;

-- the Company's fixed running costs will be spread across a larger equity capital base, thereby reducing the Company's ongoing charges ratio; and

-- the Company has a tiered management fee which reduces from one per cent. of the Company's net asset value to 0.9 per cent. of its net asset value in excess of GBP250 million and, therefore, in the event that the Share Issuance Programme is substantially used, the Company's ongoing charges per Ordinary Share will be reduced further.

Shareholders are therefore being asked to approve, by way of the Share Issuance Programme Resolutions at the General Meeting, the issue of up to 250 million new Ordinary Shares and/or C Shares, and the disapplication of Shareholders' pre-emption rights in respect of such issues, pursuant to the Share Issuance Programme. The proposed disapplication is equivalent to approximately 475 per cent. of the Company's issued share capital at the date of this announcement.

The Company does not expect to issue New Shares pursuant to the Share Issuance Programme immediately and, in any event, the Company will be required to publish a prospectus before it can do so. The Share Issuance Programme will be flexible and may have a number of closing dates. Accordingly, it is currently expected that the prospectus will relate to the issuance of New Shares pursuant to the Share Issuance Programme by way of a series of placings and tap issues and it may also facilitate issues of New Shares by way of open offers, offers for subscription and/or intermediaries offers. The structure (in terms of the class of shares to be offered and the means by which they will be offered), size and frequency of each issue of New Shares pursuant to the Share Issuance Programme, and the price at which new Ordinary Shares are to be issued, will be determined at the sole discretion of the Directors, in consultation with Cantor Fitzgerald Europe and the New Managers.

The ability to issue New Shares pursuant to the Share Issuance Programme will expire on the earliest of (i) the date being 12 months after publication of the prospectus by the Company, (ii) when all of the New Shares available for issue pursuant to the Share Issuance Programme have been issued and (iii the date being 18 months from the date on which the authorities conferred by the Share Issuance Programme Resolutions to issue New Shares pursuant to the Share Issuance Programme are passed. The Share Issuance Programme will not be underwritten.

All new Ordinary Shares issued pursuant to the Share Issuance Programme will be issued at the minimum issue prices equal to the prevailing net asset value per Ordinary Share at the time of the relevant allotment together with a premium intended at least to cover the costs and expenses of the relevant issue of new Ordinary Shares (including, without limitation, any placing commissions). Accordingly, such issues will avoid any dilution of the net asset value of the then existing Ordinary Shares held by Shareholders.

The issue price of any C Shares issued pursuant to the Share Issuance Programme will be GBP1.00 per C Share. C Shares will convert into Ordinary Shares on the occurrence of specified events or at specified times and conversion will take place on a net asset value for net asset value basis. The costs and expenses of any issue of C Shares and any other costs and expenses which the Directors believe are attributable to the C Shares will be paid out of the pool of assets attributable to the C Shares and, accordingly, an issue of C Shares will not dilute the net asset value of the then existing Ordinary Shares held by Shareholders.

The net proceeds of any issue of New Shares pursuant to the Share Issuance Programme will be used to fund investment opportunities, and/or to repay all or part of any borrowings drawn down by the Company, in accordance with the Company's investment policy.

The Company will apply for any new Ordinary Shares issued pursuant to, or arising on conversion of C Shares issued pursuant to, the Share Issuance Programme to be admitted to listing on the specialist fund segment (or, if the existing Ordinary Shares have been admitted to listing on the premium segment, the premium segment) of the Official List and to trading on the main market of the London Stock Exchange. The Company will apply for any C Shares issued pursuant the Share Issuance Programme to be admitted to listing on the standard segment of the Official List and to trading on the main market of the London Stock Exchange.

The New Shares will be issued in registered form and may be held in certificated or uncertificated form. The new Ordinary Shares (and any Ordinary Shares arising on conversion of C Shares) will rank equally with existing Ordinary Shares, including as to any right to receive dividends (save for any dividends or other distributions declared, made or paid on the Ordinary Shares by reference to a record date prior to the allotment of, or conversion into, the relevant new Ordinary Shares).

The maximum number of New Shares available pursuant to the Share Issuance Programme should not be taken as an indication of the number of New Shares that will be issued, which will depend on a wide range of factors including the Company's investment performance, the price at which the Ordinary Shares trade relative to their net asset value and general market conditions and investor sentiment. However, assuming only new Ordinary Shares are issued pursuant to the Share Issuance Programme and the Share Issuance Programme is fully subscribed, the issued share capital following the closing of the Share Issuance Programme would have increased by approximately 475 per cent. On this basis, if an existing Shareholder did not acquire any Ordinary Shares in the Share Issuance Programme, their proportionate voting interest in the Company would be diluted by 82.6 per cent. However, as stated above, New Shares will only be issued pursuant to the Share Issuance Programme at prices (in the case of an issue of Ordinary Shares) or on terms (in the case of an issue of C Shares) that avoid any dilution of the net asset value of the existing Ordinary Shares.

Change of Name

The Board has decided, subject to the resolutions approving the proposed changes to the Company's investment objective and investment policy and adopting the new Articles being passed at the General Meeting, to change the name of the Company from The SME Loan Fund plc to SQN Secured Income Fund plc with effect from 28 April 2017 to reflect the appointment of the New Managers and the changes to the Company's investment objective and investment policy.

In order to reflect the new name of the Company, the ticker for the Ordinary Shares will also be changed to SSIF with effect from 2 May 2017.

Enquiries

 
The SME Loan Fund plc        Richard Hills (Chairman)         T: [phone] 
SQN Capital Management, LLC  Jeremiah Silkowski               T: [phone] 
                              Neil Roberts 
Cantor Fitzgerald Europe     Sue Inglis (Corporate Finance)   T: [phone] 
                              Andrew Davey (Sales)            T: [phone] 
                              Ben Heatley (Sales)             T: [phone] 
Buchanan                     Charles Ryland                   T :[phone] 
                             Victoria Hayns 
 

This information is provided by RNS

The company news service from the London Stock Exchange

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April 05, 2017 02:00 ET (06:00 GMT)