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A further letter to Ranger Direct Lending’s shareholders from Oaktree – On 4th of May 2018, we reported on an open letter from Oaktree Capital Management to the shareholders of Ranger Direct Lending (RDL)
Click here to read a copy of the open letter and Rangers’ response.
Dear fellow Ranger shareholders,
As you know, Oaktree, as holder of approximately 19% of RDLF shares, believes the Ranger Board’s track record of poor stewardship and value destruction demonstrates that urgent change is needed. Recent events have served to reinforce our view. Specifically:
Failure to Engage with ZDP Holders Exposes the Board’s Inadequate Process
Oaktree read with great interest the letter to the Board from Staude Capital, owner of 2.9% of the ZDP shares of Ranger Direct Lending ZDP plc (“ZDP”), released on May 29. Staude stated that they are “greatly concerned by the proposals put forward by the RDLF Board.”
Oaktree has engaged with a number of the largest ZDP holders, who have confirmed to us that the Board has failed to engage with them in any significant way or to seek their feedback regarding the Ares proposal. These holders all shared Oaktree’s concern over the future deterioration of their collateral under the Ares proposal and indicated their willingness to engage with the Board regarding a mutually-agreeable repayment solution.
In its April 24 letter titled, “Response to Oaktree,” the Board claimed that the obligations to ZDP shareholders were one of their arguments against a wind-down. This has always been a red herring, in our view, because as Staude clearly articulates the ZDPs will need to be addressed in all future outcomes of the company, not just a wind-down. Moreover, Oaktree’s own conversations with ZDP holders reveal strong alignment with ordinary shareholders, and Oaktree believes there is a reasonable middle ground to be achieved in a wind-down scenario. The fact that the Board did not speak with these large ZDP holders exposes the inaccurate nature of its statements about the wind-down proposal and shows that the Board never actually considered alternative strategic options, including the exploration of a wind-down. Institutional Shareholder Services (“ISS”) agreed with this assessment when it recently wrote “The dissidents might be correct in their assumption the company did not conduct a full exploration of strategic alternatives…”
Board Continues to Delay giving Further Details of the Ares Proposal
It has been 36 days since the Board announced its proposal of Ares as the new investment manager for RDLF on May 1, and yet shareholders have yet to see a circular and or receive any further significant details about the proposed terms of the Ares arrangement or the investment strategy. We suspect the Board’s delay in publishing the circular may in fact be intentional to avoid revealing an unattractive proposal for shareholders ahead of the AGM.
Oaktree believes that a best-practice proposal would include either (i) a cash-out option for dissenters or (ii) consideration paid to shareholders by Ares in exchange for the benefits it will receive from the investment management contract. Oaktree further believes shareholders should receive at least Net Asset Value, which in our view the Board could easily realize as part of a wind-down. We fear that the Board’s failure to publish the circular including the details of the Ares proposal since it was originally announced indicates that it has failed to negotiate a fair deal on behalf of shareholders.
Board Refresh Urgently Needed to Avoid Further Value Destruction
Ranger released a disappointing March Monthly Update on 15 May, revealing new write-downs of two large investments with principal amounts totaling approximately $1 million USD. Ranger has failed to specify the platforms to which these write-downs relate. This deteriorating portfolio performance is particularly troubling when coupled with the Board’s delays and lack of transparency.
The Board’s woefully slow response to the Princeton debacle, which led to massive shareholder value loss, underscores the risk of inexperienced, slow-moving, and reactive oversight in specialty finance companies. We believe that shareholders simply cannot afford to wait for the “next Princeton” to unfold under the current Board – the Board must be strengthened immediately.
To this end, proxy advisors ISS and Glass Lewis both recognize the need for change at the Ranger Board in light of RDLF’s poor performance and legitimate concerns about the current Board’s stewardship. In making their recommendations, they state (emphasis added)1:
Although both proxy advisors have clearly expressed that change is needed on the Ranger Board, we are disappointed that ISS in particular overlooked the obvious opportunity we have presented to implement that change by adding our highly qualified nominees.
Oaktree Nominees Would Significantly Strengthen the Board
To fortify the Board’s oversight and experience, Oaktree has nominated two highly qualified directors for election to the Board at the Company’s upcoming AGM on June 19: Greg Share and Dominik Dolenec. Messrs. Share and Dolenec have a combined 40 years of experience in specialty finance, restructuring, and corporate governance. Our nominees would bring valuable resources to the Board at this critical juncture and would serve as best-in-class stewards of capital for RDLF stakeholders.
Despite our view that a wind-down is the lowest-risk and highest-return alternative for shareholders, Oaktree’s nominees are committed to exploring all strategic alternatives for the Company in order to maximize value. If, after review, it is determined that appointing a new manager is in the best interests of shareholders then our nominees would significantly bolster the Board’s ability to effectively negotiate a best practice proposal with potential new managers including Ares, given our nominees’ deep relevant experience and relationships in the specialty finance sector.
The time for change is now — please vote FOR resolutions 8 and 9 for our highly qualified nominees Greg Share and Dominik Dolenec, who will be committed to driving value for shareholders, to be appointed to the Board. The Annual General Meeting takes place on Tuesday, June 19, 2018, and it is important to vote before Friday, June 15, 2018 to have your voice heard.
If shareholders have questions, or need assistance in voting shares, please call: Georgeson, +44 (0) 207 019 7032 or email [email protected].
Sincerely,
/s/ Patrick M. McCaney
Patrick M. McCaney
Managing Director and Portfolio Manager
Value Equities
Oaktree Capital Management, L.P.
RDL : A further letter to Ranger Direct Lending’s shareholders from Oaktree
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