Activist investor Stilwell puts forward nominees for ABDC board

The activist investor is taking a stand after Alcentra’s mid-market lending vehicle didn’t buy back 10% of its stock in 2018.

The Stilwell Group, an activist hedge fund, is waging a proxy contest for representation on Alcentra Capital Corporation’s (ABDC) board, according to a Securities and Exchange Commission filing.

New York-based Stilwell has nominated candidates for the business development company’s board. The two nominees are Corissa Porcelli, Stilwell’s director of research, and Michelle Bergman, founder of financial services law firm Bergman Law. Kerry Campbell is Stilwell’s alternate nominees. Campbell is the founder of financial litigation and investment management consulting firm Kerry Campbell.

“Alcentra Capital is always open to and interested in considering ideas that may enhance stockholder value or its governance,” the firm said in an email. “Our Nominating and Corporate Governance Committee reviews Board composition on an ongoing basis to ensure it has the optimal mix of experience, expertise and perspectives to represent the best interests of all stockholders.”

The Stilwell Group declined to comment.

The hedge fund currently holds 8.1 percent of the ABDC’s stock, slightly down from the 8.8 percent Stilwell held in April. It initially acquired 7.2 percent of the business development company’s stock in December 2017. Stilwell told ABDC that if it did not repurchase 10 percent of its stock, the activist investor would nominate its own board nominees.

ABDC responded to a self-described “challenging 2017” – which saw a total of $1.37 earnings per share loss for the year – in February 2018 by changing strategies, one from a focus of mezzanine debt investments to lower mid-market companies to a vision centred around senior loan investments in larger companies and selectively picked private equity-backed companies where there is a clear buy-and-build thesis.

Alcentra’s US direct lending arm has exited multiple legacy positions and redeployed $100 million into investments that fall within parameters of the new strategy, firm chairman and chief executive Vijay Rajguru said on the third-quarter earnings call.

The firm’s EPS has trended in a slightly more favourable direction, having posted two quarters of positive results out of the three quarters reported for 2018. In 2017, the firm posted three quarters of EPS losses.

ABDC’s number of non-accrual loans remain high, though, according to BDC Collateral. On a fair value basis, 4.19 percent of the portfolio is on non-accrual, as of 30 September, while that figure is 8.32 percent at cost.