TIDMSED
RNS Number : 9464F
Saltus European Debt Strategies Ltd
22 June 2012
SALTUS EUROPEAN DEBT STRATEGIES LIMITED
(The "Company") (Registered in Guernsey - Number 46912)
Registered Office:
2(ND) FLOOR, REGENCY COURT, GLATEGNY ESPLANADE,
ST PETER PORT, GUERNSEY GY1 3NQ
TELEPHONE: +44 1481 720321 FACSIMILE: +44 1481 716117
E-MAIL: Funds@bfgl.com
For immediate Release 22(nd) June 2012
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Posting of circular convening 2012 annual general meeting
including recommended proposals for a restructuring of the
Company
A circular has been posted today convening the annual general
meeting ("AGM") for Saltus European Debt Strategies Limited (the
"Company") to be held on 13 July 2012.
Summary of Proposals
The Board recognises that a significant proportion of
Shareholders would like to have their capital redeemed whilst other
significant Shareholders have recently approached the Board
expressing support for continuing but with a revised investment
strategy. The proposals to be put to Shareholders, the key elements
of which are summarised below, are designed to address both groups
without disadvantaging either.
-- Business to be conducted at the AGM comprises both ordinary
business and special business. The special business will include
resolutions to restructure the Company to create a share class to
enable a managed wind down and return of capital to those
shareholders who wish to have their shares redeemed ("Run-Off
Shares"), whilst providing the alternative of a continuation class
for those investors who prefer to remain invested ("Ordinary
Shares").
-- The new investment objective and policy in relation to the
Ordinary Shares will be to generate a gross internal rate of return
of at least 20 per cent. per annum over the life of the Ordinary
Shares by acquiring and actively managing secondary hedge fund
positions, both of a credit and distressed orientated nature as
well as illiquid and unquoted equity positions.
-- If the Proposals are approved, the Board expects to make an
initial distribution of approximately 40% of the Company's capital
attributable to the Run-Off Shares in November 2012.
-- Proposed equity fund raising to be conducted in the autumn to
ensure that the net asset value attributable to the Ordinary Shares
is at least GBP35m. All of the Ordinary Shares will be
re-designated as Run-Off Shares and the entire Company wound down
if the equity fundraise is not completed by 31 December 2012 or
fewer than 40% of existing Shareholders elect to participate in the
continuation class.
-- The Board intends to change the basis of valuation of the
portfolio to reflect the amended investment objectives of the
Company. It will engage independent third party valuation agents
(instead of relying on valuations by underlying managers) to assess
fair market values and recovery expectations of the Company's
investments. Whilst the adoption of such a policy is not expected
to have a material impact on the carrying value of that element of
the Company's portfolio which has known redemption dates, it is
more likely to lead to a significant reduction in the carrying
value of the Company's Long Lock Funds and Liquidating Share
Classes.
-- The Board intends to seek admission of the Ordinary Shares to
trading on the Specialist Fund Market and to delist them from
listing under Chapter 14 of the Listing Rules on the Official List.
The Run-Off Shares will be unlisted to reduce costs.
-- If the Proposals are approved, a continuation vote will be
held in respect of the continuation class at the time of the second
annual general meeting following the AGM (requiring at least 50% to
vote in favour for the Company to continue) and thereafter every
year (requiring at least 75% to vote in favour).
For further information please contact:
Jon Macintosh
Saltus Partners LLP
+44 20 7499 0200
Ed Gascoigne-Pees
FTI Consulting Group Ltd
+44 20 7269 7132
Posting of circular convening 2012 annual general meeting
including recommended proposals for a restructuring of the
Company
A circular has been posted today convening the annual general
meeting ("AGM") of Saltus European Debt Strategies Limited (the
"Company") to be held at the Company's offices, 2(nd) Floor Regency
Court, Glategny Esplanade, St Peter Port Guernsey GY1 3NQ at 10am
on 13 July 2012.
As announced in outline by the Company on 23 May 2012, the
business to be conducted at the AGM comprises both ordinary
business, such as the approval of theannual accounts and the
reappointment of directors and auditors and also special business,
including resolutions to restructure the Company to enable a
managed wind down and return of capital to those shareholders who
would like this option whilst providing the alternative of a
continuation class, subject to the Company being able to raise
fresh equity to give it sufficient critical mass (together, the
"Proposals"). If these proposals are not approved by the requisite
majority of shareholders of the Company ("Shareholders"),
Shareholders will also be afforded the opportunity to vote on a
managed wind-down of the Company with no continuation class
alternative.
1. Background to the Proposals
In August 2009, in view of the Company's poor performance during
the financial crisis of 2008-9 and theilliquidity of the investment
portfolio and following consultation with Shareholders at the time,
the directors of the Company (the "Directors" or the "Board")
agreed to put to Shareholders at the 2012 AGM a resolution relating
to the termination of the Company. In the Company's accounts for
the year ended 31 December 2011, the Board confirmed its intention
to:
"present a vote at the forthcoming Annual General Meeting to
consider the Company's future. Accordingly, a special resolution
will be proposed at the Annual General Meeting to this effect."
However, since the publication of those accounts, as the Company
announced on 23 May 2012, the Boardwas approached by a major
unconnected investor, Hatteras Master Fund LP, who indicated its
desire to purchase a significant stake in the Company and that it
would be supportive of a continuing share class which would have an
amended investment objective focused on acquiring and actively
managing secondary hedge fund positions, both of a credit and
distressed orientated nature as well as illiquid and unquoted
equity positions. Since the date of that announcement, Hatteras
Funds has purchased Shares carrying approximately 10 per cent of
the voting rights in the capital of the Company.
In light of the views expressed by Hatteras Funds and certain
other Shareholders to whom Saltus Partners LLP (the Sub-Manager)
has spoken, the Board recognises that there is potentially
significant demand for a continuation class. At the same time, the
Board acknowledges that there is also a significant pool of
Shareholders who would like their capital returned. The Board is
therefore seeking to put proposals to Shareholders which address
both of these positions and which are intended to put those
Shareholders who would like their capital returned in no worse a
position than if Shareholders had voted for a managed winding-down
of the Company.
2. Summary of the Proposals
The key elements of the Proposals, which provide for a managed
wind down for those shareholders who wishto have their shares
redeemed and for a continuation class for those who prefer to
remain invested, comprise:
-- amendments to the investment objective of the existing share
class (the "Ordinary Shares"), conditionally upon the completion of
an equity fundraise, to focus on acquiring and actively managing a
diversified portfolio of assets purchased at a discount to their
fair value both in the credit and distressed securities arena and
illiquid and unquoted equity positions;
-- an equity fundraise by way of issue of Ordinary Shares to
ensure that the net asset value attributable to the Ordinary Shares
following completion of the fundraise is at least GBP35 million
(the "Equity Fundraise");
-- the de-listing of the Ordinary Shares from the Official List
of the UK Listing Authority (the "Official List") and the main
market (the "Main Market") of London Stock Exchange plc (the "LSE")
and their admission to trading on the Specialist Fund Market (the
"SFM"), a market of the LSE;
-- the creation (by way of re-designation) of a new unlisted
class of Shares (the "Run-Off Shares") with the objective of
achieving a managed wind-down of the assets attributable to that
class; and
-- an opportunity for Shareholders to elect whether to continue
to hold Ordinary Shares or have their Ordinary Shares re-designated
as Run-Off Shares at the time of the Equity Fundraise (the "Share
Re-designations").
If either:
-- the Equity Fundraise is not completed in accordance with its
terms on or before 31 December 2012; or
-- the Directors announce publicly that there is no realistic
prospect of the Equity Fundraise being completed by 31 December
2012,
all of the Ordinary Shares will (subject to applicable law and
regulation) be automatically re-designated as Run-Off Shares and
the Ordinary Shares' listing will be cancelled.
If the Proposals are not approved by Shareholders, a special
resolution to effect a managed winding down will be put to
Shareholders. The Proposals are further described in paragraphs 3-9
below.
3. Further details of the Ordinary Shares under the Proposals
The opportunity
The credit boom during the years leading up to the market
turmoil of 2007 and 2008 saw the launch of many hedge funds and
funds of funds whose mandate was to invest in credit instruments,
including corporate, credit, structured credit and real estate
credit markets.
The ensuing market turmoil saw prices fall to record lows in
many cases and was combined with a significant reduction in market
liquidity. This caused many investors to submit redemption requests
for these funds, which were often unable to be honoured because of
the reduced demand for illiquid assets and the poor performance of
the underlying companies and vehicles.
More than three years later, many of these hedge funds still own
significant positions in such assets andinvestors who had not
previously expected to find themselves locked up in illiquid
investments have experienced poor returns in many cases, as well as
frustration that they are unable to monetise their investments. A
secondary market for these assets has developed which has seen
prices of these instruments frequently trading at significant
discounts to the stated value of the investments and, in the
opinion of the Sub-Manager, to the fair value of these investments.
As time has gone by, the value of these investments has continued
to diminish. With liquidation processes taking longer than
expected, investors are increasingly becoming frustrated and
looking to sell their holdings at prices which the Sub-Manager
believes represent compelling value for patient investors who are
able to hold such illiquid assets.
Investment objective and investment policy
Upon the Share Re-designations becoming effective (as described
more fully in paragraph 5 below):
-- the investment objective in relation to the assets and
liabilities attributable to the Ordinary Shares (the "Ordinary
Shares Pool") will be to generate a gross internal rate of return
of at least 20 per cent. per annum over the life of the Ordinary
Shares class from that date; and
-- the investment policy in relation to the Ordinary Shares Pool
will be to invest in a diversified portfolio of assets purchased at
a discount to fair value. The portfolio is expected to comprise
interests in funds of hedge funds, hedge funds, structured products
and individual assets and portfolios of assets, both in the credit
and distressed securities arena and illiquid and unquoted equity
positions. The Company may also invest in longer lock-up funds
purchased at discounts to fair value in the secondary market. The
Directors intend to maintain a diversified pool of assets in the
Ordinary Shares Pool and no individual underlying asset will
account for more than 10 per cent. of the Ordinary Shares Pool at
the point of purchase.
Dividend policy
The Board has no current intention of paying any dividend on the
Ordinary Shares. This policy will be subject to regular review by
the Directors.
Discount management provisions
As a listed closed-ended share class, there is always the
possibility of the Ordinary Shares on occasion trading at a
discount to their net asset value. However, the Directors have
given detailed consideration to the discount risk and how this can
be managed.
Basis of valuation
The Company will adopt a revised basis of valuation, as is
explained in further detail in paragraph 7 below. The Directors
believe this revised basis is likely to result in the Company's
share price more closely following the stated NAV than has
previously been the case.
Continuation vote
Holders of Ordinary Shares ("Ordinary Shareholders") will be
afforded the opportunity to vote to continue as an investment class
at the time of the second annual general meeting of the Company
following implementation of the Proposals and at each subsequent
annual general meeting. At the time of the second annual general
meeting of the Company following the AGM, not less than 50 per cent
of Ordinary Shareholders voting on the resolution will be required
to vote in favour of the resolution in order for the Company to
continue as an investment class. That percentage will increase to
75 per cent at each subsequent annual general meeting.
If Ordinary Shareholders do not vote in favour of continuation
at the relevant time, the investment policy of the Ordinary Share
class will be amended so as to achieve a managed wind-down of the
Ordinary Share Pool.
Purchases of Ordinary Shares by the Company
A special resolution will be put to Shareholders at the AGM to
grant the Directors authority to make market purchases, subject to
the Equity Fundraise being completed in accordance with its terms,
of up to 14.99 per cent. of the Company's issued Ordinary Shares. A
renewal of the authority to make purchases of Ordinary Shares will
be sought from Shareholders at each subsequent annual general
meeting of the Company. For the avoidance of doubt, no Ordinary
Shares will be repurchased using this authority prior to the
completion of the Equity Fundraise in accordance with its
terms.
Notwithstanding the above discount management provisions,
Ordinary Shareholders should not expect that they will necessarily
be able to realise, within a period which they would otherwise
regard as reasonable, their investment in the Company, nor can they
be certain that they will be able to realise their investment on a
basis that necessarily reflects the value of the Ordinary Share
Pool.
Specialist Fund Market (SFM) Admission
Conditional upon (and immediately following) completion of the
Equity Fundraise in accordance with its terms, the Company intends
to cancel the listing of the Ordinary Shares on the Official List
and the Main Market and seek admission to trading of those shares
on the SFM.
Since the UK Listing Authority abolished secondary listings
under Chapter 14 of the Listing Rules for investment entities in
2008 (except for those entities with securities already listed
under that Chapter) the Company's listing under Chapter 14 has been
something of an anomaly. Accordingly, the Directors believe that
the Proposals present an opportune time to seek admission of the
Ordinary Shares to trading on a different market.
The Board currently believes that the SFM is the most
appropriate exchange on which the Ordinary Shares should be traded.
The Board believes that given the size, nature and potential
ownership structure of the Company, admission to the SFM will
enable the Company to fulfil its investment policy in an efficient
manner, reducing costs, and in particular without the costs and
delays associated with corporate transaction rules which a premium
listing under Chapter 15 of the Listing Rules would be likely to
bring.
The SFM is an EU-regulated market operated by the LSE. The
continuing obligations of the SFM are broadly similar to those of
Chapter 14 of the Official List.
4. Further details of the Run-Off Shares
Investment objective and investment policy
Upon the Share Re-designations becoming effective, the
investment objective and policy of the Companyin relation to the
assets and liabilities attributable to the Run-Off Shares (the
"Run-Off Shares Pool") is to realise the Run-Off Shares Pool's
existing investments in an orderly and timely manner, with a view
to distributing cash to holders of Run-Off Shares ("Run-Off
Shareholders") pro rata to their holdings of Run-Off Shares at
appropriate times as sufficient investments are realised. The
Company will not make any new investments in the Run-Off Pool other
than to meet pre-existing commitments or in cash or cash
equivalents pending distribution of cash to Run-Off Shareholders.
The Company may, however, make follow-on investments which it
believes are necessary to protect the value of existing
investments.
Unlisted shares
As the costs of maintaining a listing are significant and
Run-Off Shareholders are likely to derive little benefit from it
due to the expected illiquidity of trading in the Run-Off Shares
(which would be likely to become even more pronounced as the size
of the class reduced) it is not proposed to list the Run-Off
Shares.
Compulsory redemption mechanism
Under the Proposals, the return of cash to Run-Off Shareholders
will be effected through the compulsory redemption of Run-Off
Shares on a pro rata basis to all Run-Off Shareholders. All Run-Off
Shareholders will be treated equally under the compulsory
redemptions. Under current UK taxation law and practice,
redemptions of shares should constitute a disposal for the purposes
of UK capital gains tax. As part of the Proposals, Shareholders are
being requested to approve an amendment to the Company's Articles
of Incorporation in order to permit the Directors to compulsorily
redeem a percentage of the Company's Run-Off-Shares on an ongoing
basis in their absolute discretion as a means of returning cash to
Shareholders through the wind-down process.
Return of cash to shareholders and liquidity profile
The Company's gross assets currently comprise cash and limited
partnership interests in a variety of credit hedge funds. The
liquidity of these funds varies from being redeemable at certain
fixed frequency intervals, to funds which were established as
closed ended entities with capital returned when the underlying
investments of those funds are realised ("Long Lock Funds"), to
funds which were originally open-ended but have subsequently closed
to redemption and have gone into run-off, again with capital
returned when the underlying investments are realised and capital
distributed ("Liquidating Share Classes").
The Company has outstanding capital commitments to three Long
Lock Funds, totalling EUR1,473,148 and $93,735, and which may be
called at any time.
Based on the various liquidity terms of Company's holdings and
taking into account redemptions alreadyplaced and outstanding
capital commitments, the Board believes that the timeframe for the
cumulative realisation of the Company's assets is likely to be as
follow:
By 30 September 2012 27.0%
By 31 December 2012 42.2%
By 31 March 2013 46.7%
By 30 June 2013 50.1%
By 30 September 2013 56.3%
Longer 100.0%
The above analysis is based on the Company's allocations and
prevailing exchange rates as at 30 May 2012and the Company's net
assets at that date and takes into account all information
available at the date of this circular relating to the redemption
terms applicable to the Company's assets including notice periods,
gate events, redemption restrictions and anticipated settlement
periods, so that the figures shown reflect anticipated
distributable cash at each date. Shareholders should note that it
is not based on formal valuations and is therefore subject to
change.
Following the Share Re-designations, the Board and the Manager
will seek to distribute to the Run-Off Shares as much of the
available cash in the Run-Off Shares Pool as quickly as reasonably
practicable having regard to cost efficiency and working capital
requirements. Accordingly, it is expected that overall, in order to
minimise the administrative burden, three or four distributions
should be made over the course of the next two years and thereafter
dependent upon the timing and quantum of realisations received from
the Company's Long Lock Funds and Liquidating Share Classes.
Subject to the Proposals being approved by Shareholders, the Board
expects to make an initial distribution of approximately 40 per
cent in November 2012 for those shareholders electing for the
Run-Off Shares.
It is currently anticipated that approximately 55 per cent of
the Company's capital attributable to the Run-Off Shares will be
distributed within twelve months. The majority of the balance is
unknown because it comprises Long Lock Funds (44 per cent.) and
Liquidating Share Classes (11 per cent.) where the timing of the
return of capital to the Company is at the behest of the underlying
managers. Most of this amount is tied up in Long Lock Funds whose
general performance has been positive and whose prospects the Board
believes remain attractive.
5. Further details of the Share Re-designations
Shareholders will be offered the opportunity to elect to have
all or some of their Ordinary Shares re-designated as Run-Off
Shares at or around the same time as the publication of the
prospectus in connection with the Equity Fundraise, provided that
(so as not to disadvantage those Shareholders who would like their
capital returned promptly) Shareholders will be offered an
opportunity to elect with re-designations taking place by no later
than mid-October whether or not such prospectus is published.
At the relevant time, the Directors will announce further
details and the mechanics of the Share Re-designations (including
how to make the election) and circulate forms of election to
Shareholders.
If either:
-- the Equity Fundraise is not completed in accordance with its
terms on or before 31 December 2012; or
-- the Directors announce publicly that there is no realistic
prospect of the Equity Fundraise being completed by 31 December
2012,
subject to applicable law and regulation, all of the Ordinary
Shares will be automatically re-designated asRun-Off Shares.
6. Further details of the Equity Fundraise
The Directors have determined that the Ordinary Share class
should only be maintained if the Companycan raise sufficient
capital so as to ensure that the class has an appropriate total
expense ratio.
It is therefore proposed that the Company undertake an equity
fundraise prior to 31 December 2012 by way of a placing of Ordinary
Shares. Although the full terms of the Equity Fundraise will need
to be set out in the terms of a Prospectus Directive compliant
prospectus, the Directors anticipate its principal terms to be as
follows:
-- a placing of up to 250 million Ordinary Shares at a placing price to be determined;
-- the Equity Fundraise will be conditional upon (inter alia):
-- at least 40 per cent of existing Shareholders (by value) not
electing to have their Ordinary Shares re-designated as Run-Off
Shares at the time of the Equity Fundraise; and
-- the Ordinary Shares Net Asset Value post the Equity Fundraise
being at least GBP35 million (after the costs and expenses of the
Equity Fundraise).
The Directors will seek to ensure that the placing price for the
Equity Fundraise is as close to the net asset value per Ordinary
Share as possible.
The Directors currently anticipate that a prospectus in relation
to the Equity Fundraise will be published in August 2012, with the
Equity Fundraise being completed in September 2012.
7. Changes in the basis of valuation
The Board intends, as part of the Proposals, to change the basis
upon which the Company's investment portfolio is valued. The Board
may apply discretion in the application of the revised basis of
valuation at its sole authority.
The Company's portfolio currently comprises assets which, under
IFRS 7, have been categorised as Level 2 assets, being assets which
do not have quoted prices but have inputs (in this instance prices
provided by the underlying funds as notified to the Company by the
relevant fund manager or the relevant administrator) that are
observable either directly (i.e. as prices) or indirectly (i.e.
derived from prices). Whilst these valuations may be appropriate in
relation to the underlying managers' investment objectives and time
horizons for their funds and the current investment strategy of the
Company, the Board considers that, in the context of the proposed
revised strategy for the Company, it is appropriate to apply a
policy that reflects fair market values and recovery expectations.
This incorporates a methodology that utilises, among other factors,
the present value of expected future recoveries, discounted at a
rate appropriate for the level of uncertainty over quantum and
timeframe. Whilst the adoption of such a policy is not expected to
have a material impact on the carrying value of that element of the
Company's portfolio which has known redemption dates, it is more
likely to lead to a significant reduction in the carrying value of
the Company's Long Lock Funds and Liquidating Share Classes.
The Board intends to utilise independent third party valuation
agents to create qualitative analytic reports on each underlying
investment as well as a quantitative valuation to capture the time
horizon and recovery value of all underlying investments. The
methodology used will involve the following principles:
-- where available, recent transactions by third parties in the
same securities or fund interests;
-- qualitative analytic reports on each underlying fund that
seek to identify materially negative effects and reasons for
impairment;
-- the present value of expected future cash recoveries from
investments, discounted at a rate which the independent valuation
agent believes sufficiently compensates investors for the
illiquidity and risk associated with the uncertainty of timing and
quantum. The discount rate used will be reviewed from time to time
by the independent valuation agent, and may vary from investment to
investment; and
-- the nominal value where fair market value is deemed consistent with the stated NAV.
Using this valuation methodology the Board intends to publish a
quarterly NAV. It will also publish theNAV based on the underlying
manager's valuations (i.e. in accordance with the historic
accounting policy) for purposes of comparison. The Board intends to
publish the NAV for 30 June 2012 on the revised basis.
Whilst there can be no assurances that actual recovery values
will approximate estimated values nor anyassurances given that
recoveries will occur more quickly or more slowly than estimated,
the Board believes that as a result of the adoption of this basis
of portfolio valuation methodology the reported NAV of the Company
will more closely represent its present recovery value.
8. Changes to Management Fees
The management fee on the Run-off Shares will remain at 1 per
cent. of Run-Off Shares Net Asset Value.In view of the revised
basis of valuation, this is anticipated to lead to a material
reduction in the management fees charged to the Run-Off Shares.
The Board expects that the management and performance fee for
the Ordinary Shares will be higher thancurrently charged to reflect
the active management of the portfolio that will be required. Any
performance fee will be subject to reset high water mark (set from
the date of the reorganisation of the fund) and performance
provisions and will only be paid on realised cash returns over cost
generated for shareholders. Full details of these fees are to be
agreed by the Board; will be published within the prospectus to be
published in conjunction with the proposed Equity Fundraise; and
would only take effect at that time.
9. Change of name
In view of the proposed change of Company's investment objective
for the Ordinary Shares and the factthat the Company will no longer
be focused upon investing solely in European credit hedge funds, it
is proposed that the Company's name is changed to Alternative
Liquidity Solutions Limited which the Board considers better
reflects the intended future investment activities of the
Company.
10. Consequences of the Proposals not being passed and the Managed Winding-down Resolution
If the Proposals Implementation Resolution is not approved by
Shareholders, a special resolution to effect a managed winding down
of the Company will be put to Shareholders (the "Managed
Winding-down Resolution").
If the Managed Winding-down Resolution is passed, then the
rights attaching to the existing Ordinary Shares of the Company and
the investment policy of the Company will each be amended such that
Ordinary Shareholders are treated in the same manner as Run-Off
Shareholders would have been treated had the Proposals
Implementation Resolution been passed.
11. Indications of voting intention
Each of Saltus Partners and Sandalwood Securities have indicated
that they currently intend to vote in favour of the Proposals
Resolutions in respect of their entire beneficial shareholdings of
shares, being in aggregate 11,767,834 shares, representing 32.86
per cent of the total shares in issue.
12. Recommendation
The Board considers that the Proposals and the other resolutions
(in the case of the Managed Winding--down Resolution, only if the
Proposals are not approved) are in the best interests of the
Company and of Shareholders as a whole. Accordingly, the Board
unanimously recommends Shareholders to vote in favour of the
Proposals as well as the other resolutions (in the case of the
Managed Winding-down Resolution, only if the Proposals are not
approved) at the AGM, as the Directors intend to do in respect of
their entire beneficial shareholdings of 334,414 shares,
representing 1.21 per cent. of the total number of issued Shares of
the Company.
Enquiries:
Jon Macintosh
Saltus Partners LLP
+44 20 7499 0200
Ed Gascoigne-Pees
FTI Consulting Group Ltd
+44 20 7269 7132
This information is provided by RNS
The company news service from the London Stock Exchange
END
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