By Daniel Lanyon on 14th November 2016
The direct lending specialist investment trust has had a good year, partly thanks to the strong US dollar, and is aiming to launch new shares despite its current discount to net asset value.
The £236m Ranger Direct Lending investment trust is planning to raise up to £40m through the issuing of new C shares in December, according to regulatory filings.
The closed-ended fund last raised money through a £23.2m placing of new zero dividend preference Z shares (ZDP) on 4 November and £30m back in July 2016 via another ZDP issue. It expects the proceeds of the former to be deployed by the end of December.
Launched in May 2015, the investment trust is focused on investing in loans originated by direct lending platforms that are generally secured against assets with a typically low duration of around two years.
It has been one of the best performers among the direct and p2p/marketplace lending investment trusts in 2016 so far. Up until the end of September, the fund’s net asset value [NAV] returns are 6.8 per cent expressed in dollars which is marginally behind the run rate of 7.4 per cent required to hit its dividend target.
However, the fund has primarily US dollar exposure and is unhedged, therefore returns for UK investors have been significantly boosted by sterling’s weakness, with the share price up 18.7 per cent in sterling since the beginning of 2016.
Analysts at Numis Securities say it is unusual, however, to see a fund seeking to raise additional capital when its ordinary shares are trading on a discount.
“[Also] it is still deploying capital from its ZDP issue. Ranger is currently trading at a 6.5 per cent discount meaning that smaller investors would be better off buying shares in the market, rather than participating in a fundraising. However, trading liquidity is limited and the register is dominated by institutional investors,” Numis said.
The investors with the largest number of shares in the fund include: 34.9 per cent Invesco , 12.7 per cent BMO, 5.7 per cent Aviva and 4.6 per cent M&G, who Numis says, may favour the large size of a secondary issue.
The portfolio is a mixture of debt instruments in a disciplined manner in line with its targeted net returns of 12 to 13 per cent across a diversified portfolio of 12 platforms. Secured lending accounts for more than 75 per cent. of the invested portfolio, across various categories including secured SME lending, real estate loans, equipment finance and platform collateralised debt.
The fund’s managers also say they intend to implement a placing programme for C Shares and ordinary shares to enable it to raise additional capital in the 12-month period from the date of publication of the prospectus.
It recently added a new secured SME lending company and an established lending business in the secured medical lending sector.
Ranger actively selects loans from the platforms it invests and seeks to invest in assets with returns of 12-13 per cent (after expected write-offs. It targets a dividend yield of 10 per cent.
A prospectus containing full details of the new issue is expected to be published in the week commencing 21 November 2016 and it is anticipated to close in early December.