Vpc Specialty Lending In... Share Discussion Threads

[redhill9] 08/2/2024 11:55

Brucie5,

VSL was plodding along paying a 2p per quarter dividend until one or two large shareholders became active in seeking to force a closing of the discount by distribution of the NAV. After a good deal of too-ing and fro-ing a liquidation was approved although (I think) many shareholders had mixed views on this and would have been happy for the status quo and the regular dividend payments to continue into the future.

[chucko1] 08/2/2024 11:55

Waterloo, indeed. At no stage have they firmly stated that they intend selling at these prices - which are automatic given the valuation methods agreed with their auditors. They explain how some of the key inputs have come to be in a world of little data. Frankly, this still cannot fully explain the drastic cut in valuation in December.

But on the other hand, they are talking about "liquidity" as though they will simply chuck out the equities at these low prices - to benefit, one must presume, the shoutier/larger shareholders?

[chucko1] 08/2/2024 11:49

It might pay to read and reread yesterday's full statement from VSL. Not the RNS with the brief details, but the delayed posting of the fuller announcement on their web site. Strangely, the link to it on the from page was not available for quite a few hours, but it could be found elsewhere within the site. Because I had no opportunity to scrutinise this, I was likely overly down on the share on my initial posting.

I suggested some possible IRRs at the new lower price of 60p. Given that I was able to buy some at 58p or lower this morning, I have bought a few back.

Just because this is a bit of a shambles, particularly from a communications point of view, does not mean that it is a basket case. In fact, it's fun.

Back to the first paragraph - why read and reread it? It seems to me that every clause was delivered with great care, essentially defending the whole eCommerce outcome but also trying to deliver a positive outlook. What they messed up on was explaining (they did not) how it came to pass that the eCommerce loss taken in December was so large. The reasons why are hinted at in the annual summary, which was not in the RNS that was out at the not normal 9.00am (not unique for their NAV, and although usually at 7.00am as expected, they have had a number of variations on this).

So they kicked out an appalling monthly statement without thinking what effect it might have. Maybe they simply could not give a damn.

[waterloo01] 08/2/2024 11:47

Smidge, look forward to the reply. As some have said earlier, my impression is that they are being prudent re NAV and are taking more mark to market prices, which are reflective on the realisable value.

[redhill9] 08/2/2024 11:47

Something I don't think they've explained unless I've completely missed it.

Last year they said (in a RNS announcement, I think?) that they expected the first capital distribution to be either late 2023 or Q1/2024. Then it was announced quite recently that any capital distribution had been delayed due to waiting on a response from HMRC.

I'd assumed they were holding cash for distribution pending this HMRC response but it now appears they've used all available cash to reduce debt earlier than required (although presumably having budgeted for paying the next 2p dividend).

It seems a contradiction to say they're waiting on HMRC for the go-ahead to distribute while having already spent the cash?

[smidge21] 08/2/2024 11:45

For my part, the VSL structure was always vulnerable to events; running a liquid potential liability (the currency hedge) over illiquid assets is asking for trouble - which Truss delivered. Having to fund FX losses by transferring assets across programmes is needless hassle. Whether there is appetite across investors / the Manager for an unhedged programme is unclear.

I have a call with the Manager to discuss contrasts between the Nov and Dec reports: the rise in expenses and the shift in the maturity profile. I want also to explore how much of the NAV write-down represents irrecoverable loss.

Im curious to explore with the Manager, programme changes which could the IT being kept going

More anon

[brucie5] 08/2/2024 11:43

Thanks all.

redhill98 Feb '24 - 11:35 - 1596 of 1596
0 0 0
Brucie5,
I don't think "annuity" is in any way an accurate description of a share that is in liquidation mode and probably won't exist in 3-4 years.
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Yes, my question was based on a wishful hypothetical, as one who cannot understand why discount to NAV should be of any/much concern to investors buying for income, such that the trust should actually need to be wound up, if dividend story is still basically intact. Surely, PIs have ample universe of growth of shares to choose from if pure "capital growth" is main priority?

Whereas I WOULD be very unhappy if good income generating assets had now to be sold at fire-sale prices, simply because management have signalled that they will take anything to get rid.

But perhaps this is not how it works? Very happy to be educated.

[redhill9] 08/2/2024 11:35

Brucie5,
I don't think "annuity" is in any way an accurate description of a share that is in liquidation mode and probably won't exist in 3-4 years.

Putting it very simply, I see there are three things to consider:
1. How much of the latest NAV of 83.22p will actually be distributed as capital?
2. How much dividend income will be distributed during liquidation?
3. What are the phased timescales of 1. and 2. above?

As I said yesterday, at the current share price I still intend holding (although with less confidence in the management than I did have!).

Perhaps stating the obvious, but I think the January NAV and monthly update might make things a little clearer. I suspect they may have tried to get the bad news regarding disposals and revaluations out of the way, but that may just be wishful thinking.

[rogerrail] 08/2/2024 11:35

My understanding is that currently it will be as per the last NAV ie 83p per share which is based on realisable valuations, less fees plus revenue which will decrease over time with asset disposals ( dividends included in revenue).

[wilwak] 08/2/2024 11:31

I’m well down on the share price but fortunately have a few years of good dividends to offset that capital loss. Overall I’m in profit (just).

I’m sitting tight and hoping for an 80p+ return plus dividends.

These windups can actually turn out quite well.

At the current share price I’m actually a strong buyer.

[rogerrail] 08/2/2024 11:29

Revenue for yr ending Dec23 was just under 14p per share so there is no apparant issue as regards cover for an 8p div.

[brucie5] 08/2/2024 10:46

Supposing VSL called off this self-evidently counterproductive attempt to return value by winding up of shares, could this become effectively an annuity with current c.13% dividend stream? Or are we in some way being told that the income is unsustainable?

Unless there is a way back from that decision that can reverse the damage, or those trusting the judgment and assets of the company this has obviously turned into a huge value trap.

[wllmherk] 08/2/2024 10:42

When all the investments are finally sold/liquidated how much is likely to be returned to Shareholders, I would be interested in the views of others?

This is far and away my worst investment this year, down over 25% and that is saying something as I also hold VOD. This is also my first Investment Company undertaking a managed wind down.

wllm :)

[williamcooper104] 08/2/2024 10:29

Yep but look at Blackstones behaviour at SONG - they wouldn't do that on the listed US markets

[wilwak] 08/2/2024 10:18

I don’t think the handling of all this is going to do Victory Park Capital’s general reputation any good at all. What on earth were they thinking?

So far we’re seeing destruction of shareholder value and shareholders unable to exit due to the huge discount.

I honestly didn’t expect this from VPC.

[chucko1] 08/2/2024 00:18

RR, I agree 100%. The activist hedge funds and the supine board should be hung. Did they not appreciate the clear illiquidity of some of the assets and not contemplate an alternative strategy? Extraordinary. Only they, and not the shareholders, could have any tangible knowledge on that matter, especially regarding the mechanics of how selling such a position when in combination with debt instruments could actually be effected.

Question: which of these two boards is the more hapless?

a) VSL
b) EPIC

[chucko1] 08/2/2024 00:13

NB, I think they have in their entirety. There is zero cash as a part of GAV. It is possible that the explanation for there being no reduction in investments as a % of NAV, despite the markdown, is due to the recent repayment being both entirely debt instruments, but also being used to repay their borrowings. Not just the borrowing associated with the individual debt instrument, but more besides. This would tally with their repeated comments about reducing cash drag.

Now, if these were all realised on the balance sheet in December (we will not know until they publish results), it is faintly possible that what I would have expected to be now 22% could be the stated 27%, owing to the above. It's tricky to get to that number, but it is just possible. I have done a few calculations and it would require that recent gross sales proceeds + maturities of 20% of GAV were all posted in December and that they were all debt sales/maturities.

If that were the case, then all we are seeing is the entire destruction of the eCommerce investment portfolio (not the debt part), which might be of some comfort, strangely.

And yet the eCommerce ETF in the US has not lost value in 2023 even if it lost 50% if taking 2021 as the base.

-------------------------------------------------

Now, after writing the above, I decided not to post it as I have a funny feeling that something must be being missed. So I went back to my model (not having opened it earlier), and it reminded me that a key input is the Company Level Look-through Gearing Ratio. And lo and behold, yes, it fell from 0.16 to 0.10 from Nov to Dec (and from 0.19 in Oct). This entirely explains the first paragraph and reminds me of an old adage of mine - write a damned good model and it will teach you something in the future - not the other way around.

Basically, they have paid down virtually all the debt by way of the cash received from debt assets only, and took a whopping equity loss in the eCommerce in December. In the full annual summary also published along with the monthly, they state that they are lowering values additionally in order to prepare for a non-loss equity sale, where possible - although supposedly spread out over the entire year, but I sense there may have been some cleaning up as suggested in a previous post today.

So what does this all mean?

As I see it, if I raise the annual expected investment (equity) losses from 20% per annum to 40% per annum to reflect this new information, and showing concern that there might also be equity losses in the FinTech, then also if I keep the credit losses at a high 10% per annum, then at this new share price of 60p (say), the IRR is now around the 4% mark. If the share price were 66.6p (when I did this originally), it would be -0.2%.

But the whole point of this exercise was to kill the equity assets and see what was left. This is in part the reality, it seems. But suppose with all this new information, that the losses are somewhat confined to eCommerce and that we stick at a 20% equity loss, and lower the credit loss to a more reasonable 5% per annum, then the IRR is now 13.6%. At the original share price of 66.6p, it would be 8.3% so basically, the fall in share price from 66.6p to 60p seems to have preserved the IRR taking into account the obliteration of the eCommerce equity portfolio.

This makes a lot more sense now, but you are not likely to hear this from the monthly commentary. Everything is partly explained as though it is some sort of parlour game.

[rogerrail] 07/2/2024 22:25

Quite clearly with revenue income of 14p per share, the underlying loan book is relatively stable. Even more confounding then the utter stupidity of the actions of the board and its major shareholders ( ie the overpaid leaches acting as institutional fund managers pretending to be cleverer than thou ) at putting into process a wind down leading to the very opposite to the stated aims of narrowing the discount and maximising shareholder value. In effect a wind down of such a specialised asset backed loan book is a fire sale. Even greater stupidity would now be shown in persisting with the strategy now that we understand the impact on NAV of converting unrealised valuations to realisable valuations , which is particularly vexing at a time when similar funds are increasing NAV. Surely if not reversal of the strategy a least find a different approach even if it takes longer.

[nicholasblake] 07/2/2024 18:59

Could the decrease in FI proportion be because FI maturities have been used to pay down debt?

[creme de menthe] 07/2/2024 18:37

Meaningless waffle on their website such as ".
As disclosed throughout the year, the Company’s eCommerce investments saw a decline in unrealised market value of the equity investments
driven primarily by changes in comparable multiples and the terms of potential mergers within the space. The remaining value of the
eCommerce equity positions is £3.9 million at 31 December 2023"

Total bumfluffery.

Lets hope the 83p nav is acheivable by 2026.

[nil of] 07/2/2024 16:58

The board are clueless. Thats not a general statement they genuinely dont know portfolio details and the manager is running rings around them. Needs new board members like Hignosis to correct the manager pushing the board around.

[wilwak] 07/2/2024 16:54

There’s a little more detail in the factsheet on the website

hxxps://vpcspecialtylending.com/

They seem to be saying that have written down assets to realisation values.

I’m really hoping they know what they’re doing and 80p+ will gradually be heading our way.

I still have faith and certainly won’t be selling at the current share price. I’d be adding some more if anything.

[cousinit] 07/2/2024 16:47

Looks like the current high water mark of the original performance fee from Dec '21 is the trigger for any future incentive fees. That's the equivalent of about 98p per share from here vs 83p Dec '23 NAV.

These are also subject to the overall 5% return target on the NAV from 2017 which was c93p. That's probably not dissimilar to the high water mark level once dividends are included.

So any 'angle' for the manager to be cautious on the NAV now could be capital returns via tender. Increase stake, at a chunky discount. Allow others to exit at the first opportunity via tender (or lack of confidence via the market) and if the equity stakes surprise on the upside down the line then they have a disproportionate effect on the rump...

[williamcooper104] 07/2/2024 15:57

Yep that's possible I'm annoyed at why they didn't add some more commentary/explanation with the RNS Only had a small position; and plenty of other cheap places to put it so sold out

[cousinit] 07/2/2024 15:13

Thanks everyone for the comments. Appreciate the candid assessment Chucko.

My initial instinct on seeing this was to wonder whether the manager wind down incentive fees might be baselined from this NAV. Still need to check back on that point. Some other trusts have returned capital via tender offers and took a cautious position on NAV before actually parting with cash. Clearly we don't know the mechanism yet.

Some really wide dispersion going on. Back a couple of months ago ITs were generally being sold off en masse. Several have picked up a bid since but any bad news is being punished (and often also in adjacent names).