Downing One VCT Plc Downing One Vct Plc: Publication Of Prospectus And Circular

 
TIDMDDV1 
 
   Downing ONE VCT plc ("the Company") 
 
   LEI: 213800R88MRC4Y3OIW86 
 
   19 September 2019 
 
   Publication of Prospectus & Circular 
 
   The Company has today issued a prospectus relating to an offer for 
subscription for ordinary shares of 1p each in the Company ("New 
Shares") to raise up to GBP15 million (the "Offer") (equivalent to 
approximately 18,225,190 Shares), following the approval of the 
prospectus from the Financial Conduct Authority. The Offer also includes 
an overallotment facility to issue up to a further GBP25 million worth 
of New Shares. 
 
   The Offer will open at 9.00 a.m. on 20 September 2019 and will close at 
3.00 pm on 3 April 2020 for the 2019/2020 tax year and 3.00 pm on 30 
April 2020 for the 2020/2021 tax year, or earlier if the Offer is fully 
subscribed. The board of the Company reserves the right to close the 
Offer earlier or to extend the Offer (to no later than 31 August 2020). 
 
   In addition, the Company has also published a Circular (the "Circular") 
seeking shareholders' approval for matters in connection with the Offer, 
and the related party transactions described below, at a general meeting 
to be held at 11.00 a.m. on 6 November 2019 convened in accordance with 
a notice contained in the Circular (the "General Meeting"). 
 
   Related Party Transactions 
 
   The Company has entered into a number of related party transactions 
under Listing Rule 11.1.7 with Downing LLP, the Company's investment 
adviser. These transactions are conditional upon shareholders' approval 
of resolutions to be considered at a general meeting to be held at 11.00 
a.m. on 6 November 2019. 
 
   1.    Promotion Agreement 
 
   In respect of the proposed Offer, it is proposed that Downing LLP will 
be appointed by the Company as promoter pursuant to an agreement 
("Promoter's Agreement") as has been the case under previous offers made 
by the Company. 
 
   Under the proposed Promoter's Agreement, the Company will pay to Downing 
LLP a promoter's fee of (i) 2.5% of the NAV per Offer Share for each 
Offer Share subscribed under the Offer by, and issued to, investors 
where no Adviser commission is payable (ii) 4.5% of the NAV per Offer 
Share for each Offer Share subscribed under the Offer where Adviser 
commission is payable (save to the extent this is rebated in full). The 
Company shall also be responsible for paying 0.25% per annum of the Net 
Asset Value of the Offer Shares to Downing LLP for a maximum of five 
years, from which Downing LLP will pay annual trail commission to those 
intermediaries entitled to receive it. At Downing LLP's discretion, the 
trail commission may be waived in favour of additional upfront 
commission of 0.75%. 
 
   2.   Amendments to the Investment Advisory arrangements 
 
   The following amendments to the existing Investment Advisory Agreement 
with Downing LLP are proposed. 
 
   (a)  Investment advisory fee 
 
   The basic investment advisory fee charged by Downing LLP to the Company 
has been 1.8% of net assets per annum since the Merger in 2013. This 
level is below the standard fees in the VCT market which typically range 
between 2.0% and 2.5% per annum. While the Board is mindful that 
Shareholders will not welcome an increased basic advisory fee, the Board 
recognises the considerable additional workload that comes with 
operating in the younger growth business sector and believes that it is 
in the best interest of the Company that it has an investment adviser 
that is remunerated at proper market rates as this will help it to 
attract highest quality investment executives. 
 
   It is therefore proposed that Downing LLP's annual management charge is 
increased from 1.8% to 2.0% per annum with effect from 1 October 2019. 
 
   (b)  Reduction in running costs cap 
 
   It is proposed that the existing annual expenses cap, above which 
Downing LLP will bear the running costs of the Company (including 
irrecoverable VAT but excluding any amount payable in respect of the 
Performance Incentive), is reduced from 2.75% to 2.6% of the Company's 
net assets. The Board believes that level this is one of the lowest 
running costs caps currently provided by any VCT adviser/manager to a 
VCT and gives Shareholders comfort that the annual running costs can 
never rise to an unreasonable level. 
 
   The running costs of the Company for the past three years have been as 
set out in the table below: 
 
 
 
 
                  Year Ended       Year Ended      Year Ended 
                 31 March 2019    31 March 2018   31 March 2017 
Running Costs    GBP2.7 million  GBP2.4 million  GBP2.4 million 
% of NAV                   2.4%            2.4%            2.5% 
 
 
   Whilst in previous years the running costs have not reached the level of 
the current annual expenses cap, the Board considers the certainty 
afforded to Shareholders by the further reduction to be a positive 
benefit. Subject to Shareholders' approval the new cap will come into 
effect from 1 October 2019. 
 
   (c)   Arrangement and Monitoring fees 
 
   It is customary in the venture capital industry that companies receiving 
investments pay arrangement fees on completion of fundraising. For 
investments made by the Company, some of these fees are likely to be 
paid to third parties and some to Downing LLP. These fees will be borne 
by all the shareholders of the investee company and so some will 
ultimately be borne by the Company's Shareholders. The Board has put in 
place limits on the level of arrangement fees, and ongoing monitoring 
fees, that Downing LLP can charge to the Company's investee businesses. 
 
   An amendment is proposed regarding the structure of arrangement fees 
charged by Downing LLP to investee companies on new investments. Under 
the Company's existing Investment Advisory Agreement, Downing LLP is 
entitled to charge arrangement and monitoring fees to investee companies 
subject to certain caps. It is proposed that those caps be amended as 
set out below in order to eliminate charges that are disproportionality 
borne by Shareholders and to ensure a better fit for the variety of 
current transactions. 
 
   As stated within the existing Investment Advisory Agreement, Downing LLP 
is entitled to receive arrangement fees (capped at 3.0% of amounts 
invested unless specifically approved by the Board) and monitoring fees 
(capped at the higher of (a) 0.75% of the sum invested per annum and (b) 
GBP10,000 per annum, in respect of each of the Company's investments) 
from investee companies. 
 
   This was previously modified between the Board and Downing to the extent 
that Downing LLP is entitled to receive arrangement fees (capped at 2.0% 
of the sums invested by the Company, with any excess paid to the 
Company) and monitoring fees (capped at the higher of GBP10,000 per 
annum or 0.5% of the cost of the investment, in respect of each of the 
Company's investments) from investee companies. 
 
   It is proposed that the arrangement be updated going forward, such that 
Downing LLP will receive arrangement fees up to a maximum of 3.0% of 
sums invested in any one investee company subject to an average overall 
cap of 2.0% across all investee companies of sums invested at the time 
of investment and a basic monitoring fee of 0.5%. To the extent an 
arrangement fee of less than 2.0% is charged to a particular investee 
company, Downing LLP will be entitled to an additional monitoring fee 
equal to 50% of the shortfall up to a maximum of 0.5%. 
 
   Average arrangement and monitoring fee percentages charged to investee 
companies in the previous three years are set out below: 
 
 
 
 
                    Year Ended 31     Year Ended 31 March  Year Ended 31 March 
                      March 2019             2018                 2017 
Arrangement fee                 2.0%                 1.8%                 2.0% 
Monitoring fee                  0.5%                 0.5%                 0.5% 
 
 
   Subject to Shareholders' approval, these new arrangements will come into 
effect from 1 October 2019. 
 
   3. Performance Incentive Scheme 
 
   The Board proposes that Downing LLP is entitled to receive a performance 
incentive fee equal to 20% of the realised gains on any exit from new 
investments made since 1 April 2019 ("New Investments") where, and to 
the extent that, the following conditions are met: 
 
   (a)  The Internal Rate of Return ("IRR") of all New Investments at the 
year-end exceeds the hurdle rate of 5% per annum (based on audited 
valuations and including realised and unrealised gains and losses and 
all investment income, measured from 1 April 2019) ("IRR Hurdle"); and 
 
   (b)  The Total Return per share at the year-end exceeds the Base Value 
per share ("Base Value Hurdle"). The Base Value per Share is set at the 
Total Return per share (NAV plus dividends paid since the date of the 
merger) as at 31 March 2019, being 109.8p per Share. 
 
   If any amount is not paid in a year when an investment is realised 
because the IRR Hurdle and/or Base Value Hurdle are not met, such 
amounts are deferred and can be paid in a future year if and when the 
IRR Hurdle and Base Value are both met again. Additionally, the amounts 
payable under this proposed scheme are only paid to the extent that the 
IRR Hurdle and Base Level are exceeded, and no payment will be made 
which would cause either hurdle to cease to be met. 
 
   It is intended that Downing LLP will allocate a substantial proportion 
of these potential fees to specific individuals within the Downing LLP 
organisation. The Board will monitor this to ensure that it is the case. 
 
   If a similar performance incentive arrangement had been in place since 1 
April 2016, it is unlikely that a performance incentive fee would have 
been paid to date. 
 
   The Board considers this arrangement to be typical of the venture 
capital industry, having reviewed a number of alternative structures in 
place in the VCT market and believes it should achieve the intended goal 
of incentivising the Investment Adviser whilst representing value for 

money for the Company through the requirement to meet challenging 
year-on-year hurdles. 
 
   Downing LLP, as a related party of the Company under the Listing Rules, 
cannot vote (and, as it does not hold any Shares in the Company, would 
not be entitled to vote) on Resolutions 4 and 6, which approves the 
above arrangements, to be proposed at the General Meeting. Downing LLP 
will take all reasonable steps to ensure that its associates (including 
any of its members, partners or employees) will also not vote on 
Resolutions 4 and 6 to be proposed at the General Meeting. 
 
   The Prospectus has been approved by the Financial Conduct Authority and 
will shortly be available to view at the online viewing facility of the 
National Storage Mechanism at the following website address: 
http://www.morningstar.co.uk/uk/NSM 
 
   Copies of the Prospectus and Circular are available, free of charge from 
the Company's registered office, St. Magnus House, 3 Lower Thames Street, 
London EC3R 6HD and on Downing's website at 
https://www.downing.co.uk/assets/d1-prospectus 
 
   https://www.downing.co.uk/assets/d1-circular 
 
 
 
 

(END) Dow Jones Newswires

September 19, 2019 13:00 ET (17:00 GMT)

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