Vpc Specialty Lending In... Share Discussion Threads

[rambutan2] 29/9/2022 22:31

All looking in good shape and fairly positive. Apart from quite how they do the FX, which I think they should at least acknowledge, I'm a happy holder.

Pdf of presentation and the full interim doc here:

[santangello] 29/9/2022 11:36

......and share price well behind the NAV.

[spectoacc] 29/9/2022 09:39

Missed that, thanks. Agree good, with a reminder about VSL's loans being floating rate and hence benefitting from rate rises, but not sure this part necessary!

"The Company and the Investment Manager were deeply saddened to note the death of Her Majesty Queen Elizabeth II on 8 September 2022, and offer their sincere condolences to The Royal Family."

[waterloo01] 29/9/2022 09:35

Reassuring update.

[mwj1959] 19/9/2022 16:05

One way or another investors are likely to have the potential for taking out part or all of their holding at somewhere around NAV while getting a chunky coupon while waiting for that to occur. And buying at a 20%+ discount means that you get 20%+ protection from any declines in NAV. Throw in a 10% annual dividend (based on 8p dividend at 80p share price) and you've got a further 10% downside protection. So, risk / reward looks pretty attractive here imho, particularly now that the SPAC element of the NAV is now only c.3%.

[waterloo01] 15/9/2022 19:23

Interesting article

[spectoacc] 15/9/2022 18:47

Always take Citywire articles with a pinch of salt, but:

[chucko1] 15/9/2022 17:56

Then take the run up in share price as we approach the 5yr "liquidity" option, then wait, then reinvest and wait some more. Weak hands will present you money on a plate as you do this.

The risk of course is poor performance with some capital destruction along the way. This would occur upon meaningful credit losses. So far, the management appear more than competent at avoiding this.

In terms of the comments that have been made about dividend coverage - this is testimony to the ignorance, bordering upon stupidity, of the commentators involved. EPS has been volatile so there will have been periods where the dividend has not been covered. So bloody what? We are where we are now and the value of the equities has been written down to a fraction of what they were a year or so back - so there will be almost zero aggregate losses going forward. (hardly a revelation - sensible people will have valued this with zero valued attached to these SPACs, for example). So all we should care about is the earning power of the credit portfolio. The gross return has been a pretty steady 1% per month. Now, even a maths dullard could see that this is greater than the dividend rate, even assuming an NAV at par rather then at the 104p it is currently estimated to be. And to further illuminate this point, note how the NAV has grown the past few years as they continually earn more than they pay out. It's not witchcraft.

Contrary to what the agitators express, I love the weakness of VSL. I get a 10-11% yield rather than an 8% yield. But if people want to suppress the discount from time to time, I see it as something to trade, not see it as an exit. Tis share is too high quality to sell and be done with. In that respect, anything that differs from a blunt wind down is welcome.

[scrwal] 15/9/2022 16:47

For a small investor like me or any investor, it seems that taking the 100% option is the choice even if the market has reluctantly reduced the discount , or sell if the discount is eliminated purely on the grounds that after the plan is closed next year the share price may well revert back to the large discount for the next five years until the next 100% option is available.

[rambutan2] 15/9/2022 14:26

guitarsolo, but the mkt worries what the nav will actually be by the time the exit opp arrives ie you have no certainty. Will a struggling US economy start to hit the loans that VSL makes? And result in that nav shrinking from where it is today.

[feddie] 15/9/2022 10:24

One thing to note is that although the dividend is covered by the total return (earning + NAV increase), slide 9 in their latest investors presentation shows a 0.93 dividend cover, which one could assume is the full 2021 cash dividend cover excluding NAV increase. Showing 0.93 without clearly explaining the complete picture is probably spooking investors. I was unable to find the full dividend cover in their monthly reports and latest annual report.

[guitarsolo] 15/9/2022 10:02

So basically what I said then Feddie?! Whilst we can see what the plan is, trying to force a share price to do something should be (I say should be) an anathema to investing on the stock market.

[feddie] 15/9/2022 08:57

The five-yearly 100% exit or the 25% tender offer proposals are meant to incentivise the narrowing of the discount to the point that exercising them would render no gain. In theory, they are designed to never be used, just because they exist.

[guitarsolo] 15/9/2022 08:32

Accepting Waterloo's point that the discount to NAV would (in theory) reduce or substantially disappear if we got close to the exit date, can someone explain why this wouldn't just be the most obvious carry trade on the market?! You sell 25% of your holding at NAV (minus costs), but then buy back at the actual share price if it is well under the NAV. Is this just a smoke and mirrors threat to force the NAV discount to close?

[mwj1959] 14/9/2022 09:31

my mistake...

[rambutan2] 13/9/2022 20:35

mwj, you incorrectly state "the Board's current proposal of a 25% tender at a 5% discount next year". The tender will be offered at nav (minus costs) if the shares trade at above a 5% discount for a predetermined set period.

[rambutan2] 13/9/2022 20:32

Typically, the citywire piece gets its facts badly wrong:

"These revealed investors’ concern that VSL’s 2p quarterly dividends were not covered by earnings..."

As that is not what the letter says, which is:

"Covered dividend: any proposal to address the discount must maintain a covered dividend for income investors"

And the divs are currently well covered.

[waterloo01] 13/9/2022 19:37

I think you'll find if it gets accepted the discount to nav would disappear well in advance of an exit event. Great. You get to choose an exit or entry but the return remains superior and I'm happy to hold for both rtn and potential capital gain.

[mwj1959] 13/9/2022 18:37

SPAC exposure is c.3% (at end of July), so hardly a reason for such a large discount, which probably reflects the rising interest rate environment and expectations of an economic slowdown, which could clearly negatively impact the performance of the underlying investments and consequently the NAV. It is also a complicated vehicle, which I'm not sure that many investors (and probably some board members!) fully understand how it operates. I include myself in this, but have been happy to clip the substantial coupon for a number of years here, albeit frustrated by the widening discount in recent months (and its LT volatility). However, if given the opportunity to exit somewhere around NAV I would probably take that. Certainly the activist investor proposal seems a sensible one and I would prefer that to the Board's current proposal of a 25% tender at a 5% discount next year. It's certainly better than doing buybacks.

[jeff h] 13/9/2022 10:44

VPC Specialty Lending faces investor demand for 100% exits

VPC Specialty Lending (VSL), the high-yielding backer of loan platforms, has come under renewed pressure from shareholders to do more about its yawning share price discount.

Metage Capital and Staude Capital, which last year teamed up with Asset Value Investors (AVI) for a battle over discount controls at hedge fund Third Point Investors (TPOU), have called for the £210m VSL to offer investors a chance to take all their money out at asset value every five years.

The five-yearly 100% exit opportunity would replace the 25% tender offer the 10% dividend yielder has said will take place if its shares trade more than 5% below net asset value in the three months before next year’s annual general meeting.

Shares in the investment trust, which two years ago won a Citywire award for best-performing specialist debt fund, currently trail at a 28% discount to NAV, which Metage and Staude say means shareholders do not receive the full return of the company’s stable credit portfolio.

VSL shares jumped 6% yesterday in response to an open letter published by Metage and Staude, who have been shareholders in the company since 2016 and 2017 respectively.

Before this, the stock had fallen 11% this year but provided a total shareholder return of nearly 60% over five years, less than the 70% return generated by the underlying portfolio of loans and shares in peer-to-peer lending platforms.

The activist investors, who hold around 3% of VSL, according to Refinitiv data, say they have had discussions with other shareholders, which include Schroders, Premier Miton, AXA and Newton.

These revealed investors’ concern that VSL’s 2p quarterly dividends were not covered by earnings and that further share buybacks by the board to reduce the discount would lead to ‘creeping control’ by the fund manager, Victory Park Capital. The Chicago-based credit specialist owns 20%, according to Refinitiv.

Giving shareholders a five-year exit would make the fund manager’s dominance on the register less of a concern, say the rebels, who have proposed the fund be split into realisation and continuation pools to divide investors who want out from those who want to remain invested.

They believe the board, chaired by Graeme Proudfoot, will outline its thoughts on the planned tender offer having engaged with their proposal and consulted with other shareholders. Given the different ideas being discussed, they called for an informal meeting of investors to thrash out the best way forward.

‘This will avoid unnecessarily incurring the cost of drafting formal documentation without having widespread support amongst shareholders,’ they said.

[rogerramjett] 12/9/2022 16:47

Why is there such a discount to NAV here ?

[redhill9] 12/9/2022 12:41

It was Staude, as I recall, who pressed strongly for the tender option to be accepted by the BoD in 2020. If Staude have changed their view and now see a better opportunity for shareholders with this alternative proposal then I'm happy to follow their lead.

The market this morning certainly seems to approve the idea.

[davebowler] 12/9/2022 09:56

Liberum-

Periodic realisation proposal put forward by investors

Mkt Cap £211m | Share price 76.0p | Prem/(disc) -28.3% | Div yield 10.5%

Event

Staude Capital and Metage Capital have published a joint letter to shareholders following recent discussions with other shareholders and the board in relation to the discount-dependent tender in 2023. By way of background, the company agreed in June 2020 to carry out a tender offer for 25% of the shares following the 2023 AGM if the discount over the three-month period ending on 31 March 2023 is greater than 5%.

Staude and Metage have put forward an alternative proposal for a periodic 100% realisation opportunity, via a run-off share class. The investors believe this should replace the 2023 tender proposal and should be offered at least every fifth year thereafter. This alternative would allow shareholders to realise returns similar to the underlying NAV performance and should also not impact shareholders who wish to remain invested.

The board has apparently engaged with the proposal and has consulted with a number of shareholders. The company is due to put forward its own view on the 2023 tender proposal in due course.

Liberum view

The periodic realisation opportunity would be an equitable solution in our view. Despite strong portfolio and NAV performance, the shares have remained at a persistent discount to NAV. The board and manager have undertaken various initiatives to try and address the discount (share buybacks, contingent tenders etc), but these have had limited impact on the share rating. There are several examples of realisation opportunities within the specialist credit trust sector (Fair Oaks Fund, TwentyFour Income Fund) and we believe the structure of these funds is one of the key reasons for the stronger share rating relative to peers.