[Apologies that we didn’t spot this earlier but it was buried in the company’s AGM announcement]

After talking to the manager (Riverstone Investment Group LLC), its sub-manager, Breakwall Capital LLC, its advisers and certain significant shareholders, Riverstone Credit Opportunities’ board has determined that a managed wind-down of the portfolio at this time is in the best interests of shareholders.

Shareholders had a cash exit opportunity this year anyway and within that, a minimum ongoing size condition of $50m of NAV. Following discussions with some significant shareholders it seems likely to the board that the fund would be too small to be viable.

The board also notes that if the fund shrinks:

• Although the investment performance has been in line with its objectives, delivering strong income returns to shareholders, the shares have for the past few years persistently traded at a discount to its net asset value, and the company expects that this discount would likely be exacerbated were the company to decrease further in size.
• The company’s ongoing fixed operating costs would be spread across a smaller number of ordinary shares.
• It would be harder to take advantage of attractive investment opportunities in the future.

Accordingly, the board is recommending that shareholders vote in favour of the wind-down resolutions at the AGM so that such managed wind-down commences immediately, avoiding the need for the company to publish a further circular or to incur the significant associated additional costs, administrative burdens and delay.

The proposed changes to the investment policy involved in adopting the wind-down investment policy require the consent of the lender under the $15.0m senior secured revolving credit facility (RCF). The lender’s consent has been sought, and is expected to be given well in advance of the Annual General Meeting, alongside an amendment to the terms of the terms of the RCF to allow the company to utilise the RCF on a limited basis during a managed wind-down to optimise cash flows. The company currently has no drawings under the RCF.

If the proposed managed wind-down is approved at the AGM, from the conclusion of the AGM:

The investment objective and investment policy would become to realise the assets on a timely basis with the aim of making progressive returns of cash to holders of shares as soon as practicable.

The manager would expect generally to realise the loans in the portfolio by holding them until they come to term and returning the resulting proceeds to shareholders. The manager may also dispose of loans in the secondary market where it considers this to be in the best interests of the company, including through sales to other funds, vehicles or managed accounts advised or managed by the investment manager or Breakwall.

The company would maintain its listing on the Specialist Fund Segment and continue to conduct its affairs (including as regards payment of dividends) so as to qualify as an investment trust for the purposes of section 1158 of the Corporation Tax Act 2010, in each case for as long as the board believes such status to be practicable and cost-effective for shareholders.

The precise mechanism for the return of cash would be at the discretion of the board, but may include (subject to compliance with all applicable legal requirements) a combination of capital distributions, tender offers, mandatory share redemptions and share repurchases. The return of proceeds may require further shareholder approvals, depending on the methods used.

As of 31 March 2024, being the latest practicable date prior to the publication of this document, approximately 94.4% (by value) of the portfolio was made up of loans, with the balance of the portfolio consisting of equity or equity like positions. The weighted average remaining contractual tenor of the loans in the portfolio is 1.86 years, but the weighted average expected remaining tenor of the loans is between six months and one year. Accordingly, the company expects to realise and return to shareholders proceeds in respect of up to 90% within one year of entering into a managed wind-down.

[QD comment: This is very disappointing. This is a good fund that – as the statement says – has done a good job for investors. I strongly suspect that the issue, as it has been with many other funds, is the cost disclosure issue that is encouraging professional investors to exit the sector, coupled with the fund’s SFS listing that discourages retail investors from buying it.]

RCOI : Riverstone Credit Opportunities proposes managed wind down