NEW YORK--(BUSINESS WIRE)--Georgica Advisors LLC and Selz Capital LLC, both stockholders of TICC Capital Corp. ("TICC") (NASDAQ:TICC), announced today that they have sent a letter to Steve Novak, Chairman of a Special Committee of TICC's Board of Directors. The letter notes that Georgica Advisors and Selz Capital strongly support the previously announced agreement between TICC Management, LLC and Benefit Street Partners (“BSP”). The letter also recommends that following the close of the BSP transaction, TICC consider implementing a share repurchase program, subject to Board approval.
The full text of the letter follows:
September 28, 2015
Dear Mr. Novak,
We are writing to express our views with respect to the previously announced transaction between TICC Management, LLC and Benefit Street Partners (BSP).
There has been a lot of noise surrounding a number of proposed transactions for TICC Capital and its privately owned management company. As the collective owners and/or managers of approximately 1 million TICC shares and also as long time professional investors, we strongly believe that the best deal for shareholders of the variations proposed (or suggested) is the one that the Special Committee of TICC’s Board has negotiated with Benefit Street Partners (BSP), the affiliate of Providence Equity. We think this proposal can also be improved upon with a commitment to have the company purchase or tender for a fixed percentage of the then outstanding shares on an annual basis at a discount of no less than 5% of the then stated book value per share. We elaborate further on our stock repurchase recommendations at the end of this letter.
We summarize below what we do not like about the various proposals that have been put forth in the public media. It is worth noting that other than the BSP proposal, none of these constitutes a firm offer to buy or commit to a deal; they are merely proposals which may slow down the process and increase the level of expenses, which will ultimately be borne by TICC shareholders. We also state unequivocally that our only interest in this or any TICC transaction is the long term, combined total return (dividends plus capital appreciation) we can earn as investors in the company. Our only allegiance is to shareholders.
The TPG Specialty Lending (TSLX) proposal:
This proposal is for the acquisition of the company, TICC (presumably followed in the future by a change in the external manager as well) through an exchange of shares with TICC receiving a slight premium to its current share price (approximately 7%) in TSLX shares. The problem here is that we exchange our shares at a meaningful discount to book value (18%) for shares of TSLX that are trading at a premium to book value. While this transaction may be accretive for TSLX shareholders it is immediately dilutive to us. In addition, the newly issued shares to TICC will have a run rate dividend that is significantly below the current dividend that we are receiving (9% vs. 16.5%) on the market price of the two stocks. We would also be swapping a stock with one of the lowest expense ratios in the industry (TICC) for shares in an entity with one of the highest. In other words, for an apparent, immediate premium of less than $.50/share, we are giving up over $1/share in book value and an estimated $.50 /share in annual dividends. This is simply not a deal that appeals to us.
The Raging Capital recommendation:
This fund, one of the largest shareholders of the company, wants TICC to put its deal with BSP on hold, hire an investment banker, and put the company up for sale. Under different circumstances, we would consider supporting this recommendation, especially if we thought that the company (TICC) could command a meaningful premium to book value (which we doubt) or if we believed that an entrenched management team was looking to keep their jobs rather than enhance shareholder value. But here, TICC management has effectively ceded control to a new entity which it legitimately believes has a plan to substantially reduce the operating expenses of the company and, more importantly, to reposition the portfolio over the long term to earn higher returns on TICC’s equity. BSP has apparently worked with TICC over many months to thoroughly conduct due diligence and to develop a transition plan that will reposition the portfolio into higher yielding assets. Both new and old management have agreed to invest a total of $20 million in TICC (approximately 5% of the outstanding shares) through open market purchases of the stock—which we regard as a sign of good faith. PERHAPS MOST IMPORTANTLY FOR US AS SHAREHOLDERS IS THAT OUR BACK OF THE ENVELOPE CALCULATION OF IMMEDIATE EXPENSE SAVINGS FOR TICC BASED ON LOWER MANAGEMENT FEES AND BSP’S LIKELY ABILITY TO REFINANCE A SIGNIFICANT PORTION OF THE LIABILITY SIDE OF TICC’S BALANCE SHEET, SUGGESTS RUN-RATE SAVINGS OF APPROXIMATELY $10 MILLION ANNUALLY, or about $.16/SHARE, WHICH ALONE WOULD ALLOW FOR A DIVIDEND INCREASE TO $1.32 FROM THE CURRENT $1.16. If BSP can also improve asset returns using its origination platform, we think the dividend can move even higher over time and that the stock will be rerated positively by the market.
Given all of the above, we agree with Raging Capital that management should be laser focused and fully committed to seeing TICC stock trade at or above book value as well as to enhancing book value per share. Therefore, in order to fully support and enhance the TICC-BSP proposal, we ask both parties to implement our recommendation to repurchase shares in the market (subject to Board approval) whenever the discount widens to more than 15% and to agree to tender for a minimum of 5% of the outstanding shares (excluding those held by insiders) at a discount of no less than 5% of book value on an annual basis. If all of the above cost savings, asset yield increases and stock repurchases do not succeed in improving the total return to shareholders; we would then likely support a shareholder proposal to offer the company for sale. But, based on what we view as reasonable expectations for higher earnings and dividends, now is not the time.
Richard Reiss, Chairman, Georgica Advisors, LLC
Bernard Selz, Chairman, Selz Capital, LLC
About Georgica Advisors LLC
Georgica Advisors LLC is a privately owned investment manager. The firm invests in the public and private equity markets. Georgica Advisors was founded in 1997 and is based in the New York City.
About Selz Capital LLC
Selz Capital LLC is a New York-based investment manager. Trading and investment advisory services are the main operations of the firm, which operates under the guidance and supervision of founding partner Bernard Selz.