VPC Specialty Lending (VSL) has released its annual results for the year ended 31 December 2022. During the period, VSL’s NAV per share decreased by 6.97% on a total return basis, comprising a NAV per share reduction from 114.14p to 98.19p, plus the 8.00p of dividends paid in 2022, while the share price fell from 92.20p to 83.10p. Dividends paid during the year were in line with the target dividend of 8.00p per year set out in the IPO Prospectus, and were fully covered by the revenue returns (and paying dividends in line with the target continues to be the near-term target of the company).
The manager says that it was a year of significantly different investment performance between the debt and equity portfolios. Credit performance was resilient and, during the year, the weighted average coupon on VSL’s asset backed investments increased to 14.65% at 31 December 2022 from 10.41% at 31 December 2021 as VSL saw a rise in short-term interest rates. Key financial highlights are as follows:
- Gross Revenue Return of 12.63% offset by Gross Capital Return of -15.13% for the year;
- Total Net Asset Value (NAV) return of -6.97% for the year and 56.91% from inception-to-date;
- Total Shareholder return of -1.19% for the year and 38.69% from inception-to-date;
- Strong performance of the asset backed lending investments with revenue returns of 10.70%; and
- The Company declared its 20th consecutive quarterly dividend of 2.00p per share for the three-month period to December 2022 in February 2023.
25% Exit opportunity to be replaced by offer of managed wind down
VSL’s Board made a commitment to shareholders in 2020 to offer an exit opportunity, for up to 25% of the shares in issue, following the June 2023 Annual General Meeting, should VSL’s shares continue to trade at an average discount greater than 5% over the first quarter of 2023. Three measures of future performance were also put in place in 2020, with the intention of offering the 25% Exit Opportunity in the event that all three measures could not be met. Various steps were taken from 2020 through 2022 to reduce the discount to NAV and while some of these bore fruit, the discount to NAV nonetheless remained stubbornly wide.
The board says that it recognised in 2022 that two of its three measures of future performance would be achieved, but the third measure – reducing the discount to NAV – would not be met. The Board and its advisers took the view that the 25% Exit Opportunity alone would not have a lasting impact on the discount and that it might have a potentially detrimental impact on the Company’s Shareholders. If the 25% Exit Opportunity was realised, the Company would shrink in size, resulting in the Company’s shares potentially becoming less liquid and the ratio of fees and other costs potentially increasing as a proportion of NAV. After further consultation with its major Shareholders, the Board announced on 22 December 2022 that it would be in the best interests of the Company and Shareholders to put forward formal proposals to Shareholders for a managed wind-down of the entire Company instead of the 25% Exit Opportunity.
The Company expects shortly to issue a circular inviting shareholders to vote on two resolutions – the first to approve revisions to the investment policy of the Company so that the Company’s assets can be realised in an orderly manner in order to provide a managed exit over time for all Shareholders; and the second (to be voted on by independent shareholders) to approve proposed amendments to the terms of the Investment Management Agreement between the Company and the Investment Manager, principally concerning the way in which the Investment Manager is remunerated. The purpose of this is to reflect the change in the Company’s investment objective and policy and to better align the interests of the Shareholders and the Investment Manager. The resolution relating to the Investment Management Agreement will be voted on by independent shareholders only because it is a related party transaction under the Listing Rules
Portfolio/operational highlights of the year
- January 2022: Dave Inc., a banking app on a mission to build products that level the financial playing field reported the closing of its previously announced business combination with VPC Impact Acquisition Holdings III, Inc.. On 5 January 2022, the combined company began trading under the NASDAQ ticker symbol: “DAVE”.
- January 2022: The Company partially exited its equity investment in Kueski, Inc., realising a gain on the sale of $4.37m, which was included in the NAV of the Company on 31 December 2021.
- January 2022: On 17 January 2022, one of the Company’s privately held investments, Beforepay, closed its IPO and began trading on the Australian Stock Exchange under the ticker “B4P”.
- February 2022: The Company declared its 16th consecutive dividend of 2.00 pence per share for the three months to 31 December 2021.
- March 2022: VPC Impact Acquisition Holdings II (NASDAQ: VPCB) (“VPCB”), a special purpose acquisition company sponsored by VPC Impact Acquisition Holdings Sponsor II, LLC, an affiliate of Victory Park Capital and FinAccel, the parent company of Kredivo, the leading AI-enabled digital consumer credit platform in Southeast Asia, announced the mutual termination of their previously announced business combination agreement.
- June 2022: The Company declared its 17th consecutive dividend of 2.00p per share for the three months to 31 March 2022.
- July 2022: The Company invested in one new asset backed investment, Loyal Foundry Holdings, Inc. (“Loyal Foundry”). Loyal Foundry is a leading global platform of non-gaming mobile apps.
- August 2022: ZeroFox Inc., a VPC portfolio company and an enterprise software-as-a-service leader in external cybersecurity reported the closing of its previously announced business combination with L&F Acquisition Corp (“L&F”), a special purpose acquisition company, and ID Experts Holdings Inc. (“IDX”). On 4 August 2022, the combined company began trading under the NASDAQ ticker symbol: “ZFOX”.
- August 2022: The Company declared its 18th consecutive dividend of 2.00p per share for the three months to 30 June 2022.
- November 2022: The Company declared its 19th consecutive dividend of 2.00p per share for the three months to 30 September 2022.
- December 2022: After further consultation with its major Shareholders, the Board determined that it would be in the Company’s best interests and Shareholders to put forward formal proposals to Shareholders for a managed wind-down of the Company instead of the 25% Exit Opportunity. A circular with further details will be published shortly.