One other day with egg on my face. Immediately, Vertical Capital Revenue (VCIP) introduced that forward of their pending closing with Carlyle, the fund had liquidated most of their portfolio of residential mortgage entire loans (which was a situation of closing) for a 17% low cost to their final reported NAV on 6/30, a full 11 days in the past. In their very own phrases:
Primarily based upon the anticipated proceeds from this sale, which resulted in combination proceeds decrease than the ebook worth of the mixed belongings as a result of vital sale wanted to facilitate the Transaction, the Fund has adjusted its internet asset worth per share (“NAV”) from $9.96 as final reported on June 30, 2023, to $8.27 as of at this time.
Huh? Looks like there should be a typo or a phrase was deleted between vital and sale as there’s an additional area in there.
The portfolio belongings are residential mortgages, most of them are fastened fee, charges have moved barely up in latest weeks however not sufficient to justify that low cost. The outdated administration, Oakline Advisors, is type of an odd shell that’s most likely checked out at this level and the board of trustees barely personal any inventory (0.18% as a gaggle). The incentives to execute a full aggressive public sale to get greatest execution simply most likely weren’t there, somebody bought a steal. Carlyle does not care both, they only need to be handed a checking account with money in it, does not matter to them how a lot is within the checking account, they’ll undergo with their tender and subsequent funding on the worth of the money account. Unsure how administration or the board of trustees can get away with having a shareholder vote a month in the past to approve the transaction based mostly on such a defective mark. However that is above my head.
What does it appear like from right here?
Primarily based on the press launch, seems just like the deal will shut by the top of the month, this may all occur fairly rapidly. Shortly after the deal closes, Carlyle (from the administration firm, not the fund) can pay $0.96/share in money to shareholders after which will tender for $25MM at NAV. If we assume the market is totally pricing within the $0.96/share cost, everybody tenders in full, my math comes up with a proforma value of $7.26/share or 88% of NAV. Please verify my math.
The opposite CLO fairness funds commerce above NAV. It should take time (6-12 months?) for Carlyle to ramp the portfolio up from zero, add some leverage, and so on., to get to the purpose the place it seems like certainly one of different CLO fairness funds. The world may change within the meantime. However Carlyle needs to be incentivized to make this commerce near NAV, they’re one of many largest CLO managers, they need the captive CLO fairness automobile to develop that enterprise. In its present measurement, VCIF is simply too small to perform that, if it trades at or above NAV, Carlyle will be capable of challenge shares accretively and everyone seems to be completely satisfied.
Disclosure: I personal shares of VCIF