VPC Specialty Lending’s target dividend remains under pressure, dips further into reserves

The closed-ended alternative lending fund has reported its second dividend of year, again below its 2p target and also dipped further into its reserves to partly pay it. 

The Victory Park Capital (VPC) Specialty Lending Investments Trust has again used its reserve cash to partly fund its latest quarterly dividend, according to regulatory filings to the London Stock Exchange.

This is second time the fund has dipped into reserves to pay its dividend. The first time being back in June when not only did it reduce its dividend from 2p to 1.5p per share but it paid 0.19p of the pay out from its reserves.

Now it will use 0.5p, for the 1.5p pay out to investors, from its reserves for the dividend and therefore not revert back to its 2p target amount. The dividend will be paid on 20 September 2016 to shareholders. The ex-dividend date is 25 August 2016.

According to AltFi Data, VPC Specialty Lending had outperformed the broader UK marketplace lending space, as measured by the Liberum AltFi Returns index (the LARI) since its launch back in March 2015 until recently.

Performance of VPC Speciality Lending NAV since launch vs LARI

Source: AltFi Data

Monica Tepes, director of investment company research at Cantor Fitzgerald, says the past quarter's dividend cut was communicated as a non-structural issue from cash drag and higher debt facility fees although this now looks less certain.

“It’s definitely not good news nor an improvement on the previous quarter when they declared a 1.5p dividend having generated 1.31p of cash,” she said.

The trust was launched back in March 2015 and like many of its peers such as P2P Global Investments, it initially moved to a hefty premium. However, due to a ramp up in bearishness in markets in general in 2016 and more specific concerns around the platforms that originate the loan’s business model, it now sits on a a near 20 per cent, a little of its wiest discount since launch.

The trust is on a discount of 18.1 per cent to net asset value, which converts to 12-month backward looking yield of 9.8 per cent.

Performance of premium/ discount since launch

Source: AIC

The fund also recently annouced that it would seek greater exposure from balance sheet lending platforms over market place lending platforms. 

Currently, the fund’s exposure across platforms is: 22.8 per cent in Avant; 11.6 per cent in Funding Circle UK; 10.6 per cent in Borro; 10 per cent in Prosper; and 9.8 per cent in Funding Circle US loans. The overall portfolio has a weighted average coupon of 16.25 per cent (18.64 per cent marketplace and 12.96 per cent  balance sheet) and life of 20 months. It provides exposure to 567,466 loans with an average size of $3,943.