# Pollen Street Secured Lending Possible offer from Waterfall Asset Management, LLC

- Link: https://www.directorstalkinterviews.com/pollen-street-secured-lending-possible-offer-from-waterfall-asset-management-llc/412806399
- Published: 2020-02-25T07:24:28+00:00
- Author: Giles Arbor

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:

 1. 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.
 2. 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.
 3. 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.

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