RM Infrastructure Income EGM

As announced by the Company on 6 September 2023, the board of directors (the “Board”) has decided to put forward details to Shareholders for the implementation of a managed wind-down of the Company (the “Managed Wind-down”).

A circular (the “Circular”) to convene a General Meeting (“GM”) containing details of the proposals in respect of the Managed Wind-down is expected to be published today and a copy of will be submitted to the National Storage Mechanism and will shortly be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism. The Circular will also be available on the Company’s website https://rm-funds.co.uk/rm-infrastructure-income/.

Background to the Managed Wind-down

Although the Company has demonstrated strong NAV total return performance over the longer term (4.97 per cent. and 31.72 per cent. over one year and five years, respectively, to 31 October 2023) and generated a high net interest income in excess of the annual dividend target of 6.5 pence per share[1], the discount to NAV per Share at which the Shares trade has been both wide and persistent despite measures taken by the Board to seek to address this through the use of buybacks and the provision of a periodic realisation opportunity. This, coupled with the small scale of the Company and the low levels of liquidity in the Company’s shares has restricted the Company’s ability to grow.

As set out in the Company’s announcement on 23 May 2023, in April 2023 the Board received a non-binding indicative proposal which involved a combination of all the Company’s assets with another investment company managed by Gravis Capital Partners (as disclosed on 11 August 2023). The combination was proposed to be structured under section 110 of the Insolvency Act 1986 with no option, partial or otherwise, for you as a shareholder to elect to receive cash.

The proposal was considered alongside a wide array of potential options under a broader review of the Company’s future strategy: a potential continuation of the Company’s existing investment policy and strategy, a full or partial exit opportunity, a combination of the Company’s assets with another suitable investment company or fund and a managed wind-down. The Board consulted with Shareholders on these options and concluded that a partial exit opportunity would only exacerbate the challenges the Company faces, as it would further reduce the size of the Company.

Following the receipt of the first proposal, the Board received two additional business combination proposals, as described in the Company’s announcement on 10 July 2023.

Having considered the various proposals in detail, the Board concluded that no better option existed which was likely to receive the required Shareholder consent, and on 6 September 2023, the Board announced its decision to put forward a proposal for a managed wind-down of the Company.

The Investment Manager provided a run-off profile of the portfolio to Shareholders during the Shareholder consultation in the third quarter of 2023. This showed an expected maturity profile of the Company’s Loans and a forecasted weighted average remaining life of circa 1.7 years (as of 31 October 2023) with liquidation of the Company occurring in the second half of 2027. The Investment Manager has since then discussed with the Board an incentive structure to accelerate capital repayments to Shareholders via management initiatives and developed a capital acceleration incentive proposal, details of which are set out in section 3 of the Circular. The Investment Manager believes that the maturity profile of the run-off portfolio could be reduced with proactive management and as a result the weighted average remaining life reduced to less than one year (as of 31 October 2023). Shareholders would benefit from such acceleration as follows:

·      circa £72 million of Loans returned quicker or circa 70 per cent. of total portfolio Loans;

·      potential shorter maturity to December 2026;

·      a significant amount of capital returned during 2024;

·      a Net Present Value to Shareholders versus the Shareholder consultation portfolio repayment profile of circa £7.5 million assuming a discount rate of 9 per cent.; and

·      a reduction of forecasted management fees of circa £0.77 million.

In order to implement the Proposal, Shareholders are requested to approve revisions to the investment objective and policy of the Company to restate the policy to facilitate the Company’s assets being realised in an orderly manner in order to maximise shareholder value.

The Board believes that a carefully managed process of divesting assets and periodically returning capital is in Shareholders’ best interests. In the Board’s view, there is insufficient Shareholder support for an alternative as evidenced during the Shareholder consultation.

Amendments to Investment Objective and Policy

In order for the Company to follow the Managed Wind-down process, it would be necessary to amend the Company’s Investment Objective and Policy. Therefore, the Company proposes to amend its investment objective and is proposing that the Company’s investment objective be restated as follows: “The Company aims to conduct an orderly realisation of the assets of the Company, to be effected in a manner that seeks to achieve a balance between returning cash to Shareholders promptly and maximising value.”. The full text of the proposed Investment Objective and Policy is in the Circular published today.

Amendment to the Investment Management Agreement

The Company proposes to amend the Investment Management Agreement, once the Proposal has been approved, so that the management fee will continue to be calculated at the rate of 0.875 per cent. of NAV per annum (payable monthly in arrears), but subject to a minimum fee of £33,300 payable monthly in arrears, subject to renegotiation with the Board, until the earlier of (i) the Company’s liquidation; (ii) the value of the Company’s portfolio (excluding cash and other liquid assets) being less than or equal to £35 million; or (iii) 31 December 2026. Further details on the proposed amendments to the Investment Management Agreement are set out in the Circular.

The proposed amendment to the Investment Management Agreement constitutes a related party transaction to which the modified requirements for smaller related party transactions in the Listing Rules apply (LR11.1.10R). Under the smaller related party transaction rules, there is no requirement for Shareholders to vote on the amendment. However, as a matter of good corporate governance, the Company has consulted with its major Shareholders on the terms of the proposed amendment as to the best interests of Shareholders. The Company has also received written confirmation from a sponsor that the terms of the proposed amendment are fair and reasonable as far as the Shareholders are concerned.

Shareholder returns

The Board will keep Shareholders informed of its intentions concerning returns of capital, mechanisms for which may include tender offers, other schemes for the return of capital and/or the buying back of Shares as the portfolio is realised. Throughout the managed wind-down, the Board will follow the principle of seeking to balance the optimum scale and accompanying costs to the Company of the relevant method of return with the desire to accomplish that return as quickly as practicable, without eroding the value to be distributed.

Amounts becoming available for return will come from contractual repayments of Loans by borrowers to the Company and from the disposal of portfolio assets, potentially after the repayment and cancellation of some or all of the Company’s bank facilities.

The Board also expects to continue paying dividends at the current rate of 6.5 pence per share[2] until the commencement of the managed wind-down. Thereafter, the Company expects not to be able to keep paying dividends at the current rate. The Company will instead pay dividends only as required to maintain investment trust status. As the Company’s portfolio reduces in size its fixed costs will become a greater proportion of its income.

The Company intends to maintain its investment trust status and listing during this managed realisation process prior to the Company’s eventual liquidation. Maintaining the listing would allow Shareholders to continue to trade Shares during the managed wind-down of the Company.

Unless there are other proposals which it considers to be in the Company’s best interests at the relevant time, the Board also expects to propose that the Company enters into members’ voluntary liquidation at a point when the realisations and returns of capital have caused the Company to become too small to justify the costs of retaining a listing for its Shares or otherwise at a point when the Board considers the Company’s remaining portfolio would be likely to cease, in the near term future, to continue to provide a spread of investment risk that is reasonable in the prevailing circumstances. Any such proposed liquidation process would require separate Shareholder approval.

General Meeting

The Proposal is conditional on the approval by Shareholders of the Resolution to be proposed at the General Meeting which has been convened for 10 a.m. on 20 December 2023.

The Resolution will be proposed as an ordinary resolution. An ordinary resolution requires a majority of members entitled to vote and present in person or by proxy to vote in favour in order for it to be passed.

The formal notice convening the General Meeting, to be held at the offices of Travers Smith LLP, 10 Snow Hill, London EC1A 2AL on 20 December 2023 at 10 a.m., is set out in the Circular.

Consequences of the Proposal not being approved

The Board regards the orderly realisation of the Company’s assets as the best strategic option for Shareholders. However, should Shareholders reject the proposed amendment to the investment policy to facilitate a managed wind-down of the Company, the Board and the Investment Manager will continue to fulfil the existing investment objective and policy and work to identify alternative options for the future of the Company.

Recommendation

The Board considers that the Proposal is in the best interests of the Company and its Shareholders as a whole. In the opinion of the Board the proposed amendments to the Investment Management Agreement are fair and reasonable as far as Shareholders are concerned.

Accordingly, the Board unanimously recommends that Shareholders vote in favour of the Resolution to be proposed at the General Meeting.