As set out below, Pollen Street Secured Lending (LON:PSSL) has received an approach to acquire all of its issued share capital at 900 pence per share, subject to confirmatory due diligence and certain other standard conditions. Since PSC Credit Holdings LLP was notified of this approach on 8 January 2020 the Board has been unable to obtain from the Manager all of the Company’s own documentation and information, which has been requested, to allow the Board to make its own proper assessment of what due diligence materials to pass on to the potential offeror. Further, a number of other serious governance issues have arisen. The Board does not believe that it is possible to continue running a listed investment company in this way and has accordingly served 12 months’ notice of termination of the Investment Management Agreement.
Possible Offer for the Company
The Board of PSSL announces it is in discussions regarding a possible cash offer by funds advised by Waterfall Asset Management, LLC for the entire issued and to be issued share capital of the Company. There can be no certainty that any firm offer will be made.
Under the terms of the Possible Offer, PSSL shareholders would be entitled to receive 900 pence per PSSL share in cash and retain the dividend of 12.0 pence per share declared in respect of the three month period to 31 December 2019. The Possible Offer has the support of PSSL’s largest shareholder, Invesco Asset Management Limited; further details are set out below.
The Possible Offer Price represents an 8.7 per cent. premium to last night’s closing share price of 828 pence and a 4.8 per cent. discount to the ex-income NAV per share of 945.13 pence as at 31 December 2019.
The Board of PSSL has confirmed to Waterfall that the Possible Offer is at a value the Board of PSSL would be minded to recommend, should a firm intention to make an offer pursuant to Rule 2.7 of the Code be announced on the terms contained in the Possible Offer, and has therefore agreed that Waterfall should be provided with access to due diligence materials.
Waterfall has received an irrevocable undertaking from PSSL’s largest shareholder, Invesco, to support the Possible Offer, should a formal offer be made. The irrevocable undertaking is in respect of Invesco’s entire holding representing approximately 24.6 per cent. of PSSL’s issued ordinary share capital. Further details regarding the irrevocable undertaking are set out in the Appendix.
In accordance with Rule 2.6(a) of the Code, Waterfall is required, by not later than 5.00 pm on 24 March 2020, either to announce a firm intention to make an offer for the Company in accordance with Rule 2.7 of the Code or to announce that it does not intend to make an offer for the Company, in which case the announcement will be treated as a statement to which Rule 2.8 of the Code applies. This deadline can be extended only with the consent of the Panel on Takeovers and Mergers in accordance with Rule 2.6(c) of the Code.
As a consequence of this announcement, an offer period has now commenced in respect of PSSL in accordance with the rules of the Code and the attention of shareholders is drawn to the disclosure requirements of Rule 8 of the Code, which are summarised below.
This announcement has been made with the consent of Waterfall and Invesco. Invesco is acting on behalf of its discretionary managed clients.
a) For the purposes of Rule 2.5(a) of the Code, Waterfall has reserved the right to make an offer on less favourable terms than those set out in this announcement:
b) with the agreement or recommendation of the Board of PSSL;
c) where a reduction in the offer terms is required to reflect a Q4-19 Dividend where any part of the Q4-19 Dividend is uncovered by PSSL’s income; or
following an announcement by PSSL of a whitewash transaction pursuant to the Code.
Notice of Termination of the Investment Management Agreement
The Board of PSSL announces that it has today served 12 months’ notice in writing on the Manager to terminate the Investment Management Agreement in light of what the Board considers to be (and has been advised are) serious, repeated and ongoing breaches of the Manager’s obligations under the IMA, which would justify serving notice of summary termination. These breaches have occurred against the background of what the Board believes is a position of conflict of interest which the Manager has found itself in over the response to the Possible Offer referred to above, but the Board believes the Manager’s behaviour also reflects deeper issues in its approach to its obligations to the Company. The basis of termination has been considered at length by the Board and is designed to allow time for the Company to consider all of its options going forward, reserving all of its rights in the meantime.
Given Pollen Street Secured Lending’s status as a listed investment trust and the Possible Offer referred to above, the Board is required to comply with a number of obligations, as well as its fiduciary duties under the Companies Act 2006. In accordance with the principles of good corporate governance set out in the AIC Code of Corporate Governance, the Board is responsible for identifying circumstances in which the Manager should refer to the Board for approval before undertaking certain transactions; pursuant to the Listing Rules, and in accordance with the basic principles of agency, the Board must be able to effectively monitor and manage the performance of its agents and key service providers, which includes the Manager. Under the Takeover Code, the Board must allow shareholders the opportunity to consider an offer which it believes is capable of recommendation.
Since the Board informed the Manager of the Possible Offer on 8 January 2020:
- The Manager has failed to deliver to the Board a significant amount of the Company’s own information relating to the Company and its investments, which has been repeatedly requested by the Board, including refusing to identify to the Board the assets in which the Company is invested. These materials are required by the Board (amongst other things) to allow it and its advisers to determine the nature and extent of information that should be shared with the potential offeror, Waterfall, to permit Waterfall to undertake confirmatory due diligence, as is customary in the context of a possible recommended offer.
- The Manager has repeatedly failed to confirm whether, since 8 January 2020, it has complied with the directions of the Board to seek the Board’s prior approval for certain matters whilst the Possible Offer is being considered.
- The Manager has published information about the Company’s dividend without the Board’s prior knowledge and approval, which necessitated the release of an urgent announcement to the market to correct and clarify its position. Further information on the dividend is set out below.
Given the above, it is the Board’s unanimous view that it is unsustainable to continue to operate a listed investment company in this way. The Board is also concerned about discharging its duties properly in the face of this type of behaviour from its appointed investment manager.
Statement regarding Q4-2019 Dividend
The Board wishes to see further evidence that an increase in quarterly dividend is sustainable, including seeing the impact of redeployment of the Castlehaven sale proceeds. The Board also wishes to see an increase in the revenue reserve. It is therefore declaring an unchanged dividend of 12.0 pence per share in respect of the three month period to 31 December 2019.
Simon King, Pollen Street Secured Lending Chairman, commented:
“This decision to give notice to terminate has been taken after very serious consideration.
In the face of a possible offeror’s interest in exploring a recommended offer for the Company, the Manager has not, in the Board’s unanimous view, given the assistance which is reasonably to be expected in such circumstances. The Board believes that, while portfolio performance has been satisfactory, it is not acceptable to withhold Company information from the Board, publish very material information about the Company without Board approval and fail to confirm compliance with clear and important instructions from the Company, its client.
Accordingly, the Pollen Street Secured Lending Board considers that it is appropriate to give the Manager 12 months’ notice of termination (whilst reserving the Company’s rights) and to explore alternative arrangements for the Company.”
PSSL is being advised by Smith Square Partners LLP and Stephenson Harwood LLP and Liberum Capital Limited is acting as corporate broker to the Company.
A further announcement regarding the possible offer will be made in due course as appropriate.