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Waterfall extends deadline for Pollen Street Secured bid

24 March 2020

Shareholders’ hopes of an agreed bid for Pollen Street Secured Lending have not entirely faded with Waterfall Asset Management extending its offer deadline for the loan fund by a month.

Shareholders’ hopes of a bid for Pollen Street Secured Lending (PSSL ) have not entirely faded with Waterfall Asset Management extending its offer deadline for the loan fund by a month.

The ‘put up or shut’ deadline for Waterfall to firm up or withdraw its offer was due to expire at 5pm today but the Takeover and Mergers Panel has agreed to give the US credit specialist until 21 April.

Waterfall tabled an indicative 900p per share cash offer on 25 February. Since then it has had to contend with a stock market crash caused by the coronavirus pandemic and fund manager Pollen Street Capital’s refusal to give it all the information it wants to do due diligence on its bid.

After jumping 56p to 884p when the offer was announced, PSSL shares have plummeted to 493p, up 36p or early 8% today.

Although Waterfall is thought highly likely to cut its offer after the sudden bear market correction, the company insists it wants to do a deal. 

‘Despite the current highly uncertain economic and market conditions due to the Covid-19 pandemic and the potential impact this may have on PSSL’s portfolio, Waterfall remains committed to pursuing a possible cash offer and looks forward to receiving from PSSL the necessary information required to undertake due diligence,’ the company told the stock market.

There was no response from Pollen Street Capital or PSSL’s board which has been locked in a bitter row over Waterfall’s approach.

On the day the offer was announced, PSSL’s board sacked Pollen Street Capital (PSC), accusing it of trying to frustrate a bid for the £339m trust in order to retain the £13.9m management contract. It later threatened to sue the firm.

In response Pollen Street Capital claimed the information requested was excessive. It called on shareholders to appoint a representative to the ‘confrontational’ board.

Amid the deep uncertainty over markets and its future, PSSL’s shares have fallen to a 52% discount below their estimated net asset value of 958p, according to Morningstar.

Christopher Brown, analyst at JPMorgan Cazenove, the trust’s joint broker, has argued this offers a potential each-way bet: either from Waterfall offering more than the current share price; or, if the bid is withdrawn, the debt fund being likely to be wound down and shareholders’ money returned at a level much closer to the NAV.

The collapse in the trust’s share price comes as investors worry about prospects for all bond and loan funds facing a coronavirus induced recession it is feared could trigger a corporate debt crisis and credit crunch. 

‘We estimate that the current price assumes a 37.5% permanent loss in the investment portfolio with no recoveries,’ Brown said today. 

‘We would expect PSC as lender to be working closely with its borrowers in these difficult times,’ he said. 

Brown added that a further delay was possible if Waterfall and the board decided to wait until markets had calmed down.

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