TPG Specialty Lending (TSLX), the listed business development company, set out its stall in the fight to acquire TICC Capital Corp on Wednesday.
Josh Easterly, co-chief executive officer of TSL Advisor, which oversees TSLX, said his firm was not in the business of being a public market equity activist. The primary motivation behind a renewed bid was not fee income but establishing a “culture of accountability” and delivering real value to shareholders.
“We have reluctantly assumed this role with respect to TICC as our industry is going through an inflexion point,” he said during a conference call discussing TSLX’s third quarter results.
“We believe our ecosystem can only thrive in a culture that fosters real value creation for shareholders.”
Easterly’s comments appear to reflect frustration that TSLX’s bid in September was rejected out of hand by TICC’s directors who instead agreed to pursue a sale to Benefit Street Partners.
Since TSLX made its first bid of a stock-for-stock transaction at 87 percent of TICC’s Net Asset Value (NAV), it has upped its offer to 90 percent.
“Five out of six of TICC’s own equity analysts have called on its board to pursue a more robust sales process to maximise shareholder value,” Easterly said.
Easterly also argued that TICC’s current portfolio, primarily comprised of liquid loans and CLO equity, was ill-suited for a BDC strategy.
BDC managers that invest significantly in these assets destroy shareholder value, he claimed, adding that if TSLX ultimately emerged as the successful bidder it would rotate TICC’s portfolio in less liquid but higher earning credit investments that have superior risk-adjusted returns.
Easterly also hit back at comments about the motivation behind the TSLX bid: “Over the past few months, there has been several groundless accusations implying that incremental fee income is the primary motivation behind our TICC proposal. Our discipline and capital raising, despite closing above NAV every day since our IPO and our ongoing shareholder repurchase programme, speak greatly of our commitment to our shareholder alignment.
“The motivation behind our TICC proposal is to establish a culture of accountability and delivering real value to shareholders – both goals that will ultimately promote the advancement of our sector.
“It’s now time for the TICC board of directors to hold themselves accountable and act in their shareholders’ best interests by engaging in a substantive discussion with us.”
During the call, an analyst questioned a meeting between industry representatives, including Easterly, and Mary Jo White, commissioner of the Securities and Exchange Commission (SEC), ahead of new legislation being drawn up for BDCs.
“The gossip channel is alive and well,” Easterly said.
A diverse set of members of the industry did have a productive meeting with White, he admitted, but the SEC still had questions.
“I think the feeling right now is that it has decent support, bipartisan support, and we hope that will continue. We think that it’s a good thing for all participants in the industry, specifically issuers and shareholders,” he said.
Meanwhile, Ian Simmons has agreed to join TSLX as its new chief financial officer effective 30 November. He brings 20 years of experience in accounting, finance and asset management to the position, Easterly said.
Most recently, Simmons spent 10 years in the financial institutions group at Bank of America Merrill Lynch. He takes over from Alan Kirshenbaum, who stepped down in the second quarter.
Analysts called TSLX’s third quarter strong against a backdrop of general market volatility. The BDC invested in six new portfolio companies and made five add-ons of existing investments. Gross originations were $184.8 million for the quarter.
For the three months ended 30 September, the manager generated a return on average equity based on net investment income of 12.1 percent, and a year to date figure of 11.3 percent.
The company had a net investment income per share of $0.48, up from $0.46 in the second quarter. Net realised and unrealised losses stood at $0.31 per share. The net asset value per share was $15.62 for the quarter, down on $15.84 for the second quarter. The company paid the same distribution per share it has for the previous three quarters at $0.39.