Ranger Capital Group (RCG) announced that it intends to list Ranger Direct Lending Fund plc on the London Stock Exchange on Monday (13 April). The Texas-based firm is seeking £135 million (€186.7 million; $197.5 million) for a listed investment trust that will source loans from a range of direct lenders focused on the secured debt market.
The issue could be increased to £155 million and the offer is expected to begin trading in early May. The fund was well-received in pre-marketing, Bill Kassul, a partner at Ranger Alternative Investments, an affiliate of RCG and the investment manager for the planned direct lending vehicle, told PDI.
Kassul described the lending strategy by comparing it with lending via peer-to-peer (P2P) platforms. Ranger Alternatives has invested in loans through P2P platforms but it picks and chooses from the deals offered. With institutional investors putting large commitments passively to work via online platforms, yields have fallen, Kassul explained, making the direct lenders that Ranger has a relationship, more attractive.
Kassul said that Ranger has established relationships with seven lenders and already invests alongside them and the assets for the new listed vehicle will also be sourced through these lenders. Five more lenders are going through Ranger’s due diligence process and could be added to the sourcing pool by the end of the year.
Interface Financial Group, an international factoring firm which operates in nine countries, is one of the lenders that the new vehicle will source loans from. The facilities offer pre-financing for invoices with the firm funding a certain percentage upfront, and the balance minus a fee paid when the bill is settled. If the invoice is not paid, IFG has security over other invoices owed to the borrower, Kassul said.
Ranger has also established a loan sourcing agreement with Princeton Alternative Funding, which sources and finances loans by tapping into the credit rating database maintained by its parent, Microbilt, a US small business and consumer credit rating agency, said Kassul.
Lending through firms like IFG and Princeton will allow Ranger Alternative to cherry-pick the best deals, said Kassul. Average secured loans will be around $104,000 with a 24-month average term and 18-month average duration, he added.
To start with, around 90 percent of the loans sourced by Ranger Direct Lending will be US-related, until more direct lending firms agree to partner with the vehicle.
Ranger opted to list in London because the investment trust structure meets the requirements of the firm’s strategy much more than the comparable vehicles in the US. With further C-share offerings planned down the line, the vehicle will be able to raise more capital as and when its needed, rather than target a large volume of capital that would take time to deploy, explained Kassul. He added that the investor base the firm has met with in London has also been much more knowledgeable about credit strategies and P2P lending than some investors in the US.
The planned fund will be able to leverage with debt of up to 50 percent of net asset value (NAV). Acknowledging that the leverage is lower than most other comparable vehicles which often go up to one times NAV, Kassul said that the majority of Ranger’s targeted returns will come from interest payments on loans and that more leverage is not necessary.
Investors in the new fund will receive quarterly income distributions. That income will be accrued from returns that are targeted at around 12 or 13 percent of the principal. After expenses and management fees, the vehicle will target dividends that equate annually to 10 percent of the issue price.
Around 75 percent of the assets controlled by the planned vehicle will be secured. The fund will also potentially commit up to 10 percent of capital raised into equity investments in the direct lending firms that it lends via, to benefit from possible valuation boosts driven by the Ranger partnership, Kassul said.