Oaktree Releases Open Letter to Ranger Shareholders

Recent Events Highlight Urgent Need for Board Refresh


Funds managed by Oaktree Capital Management, L.P. (“Oaktree”), an approximately 19% shareholder of Ranger Direct Lending Fund PLC (LON: RDL) (“Ranger” or “RDLF” or “the Company”), today released an open letter to Ranger shareholders.

The full text of the letter follows:

June 6, 2018

Dear fellow Ranger shareholders,

As you know, Oaktree, as holder of approximately 19% of RDLF shares, believes the Ranger Board’s track record of poor stewardship and value destruction demonstrates that urgent change is needed. Recent events have served to reinforce our view. Specifically:

  • The Board’s failure to meaningfully engage with a number of significant Zero Dividend Preference (“ZDP”) shareholders demonstrates that the Board never seriously considered strategic options – including exploring a wind-down of RDLF – and, in our view, calls into question the accuracy of the Board’s prior statements about the ZDPs;
  • Despite the Board promising to publish a circular with the details of the Ares investment management proposal as soon as possible after it was announced on May 1, shareholders have still not seen a circular or received any further significant details regarding the proposal;
  • It appears to us that the Board has either (i) yet again failed to act in a timely manner, proving its lack of competence and inability to deliver; or (ii) intentionally delayed providing the details of an unattractive Ares proposal in an attempt to avoid board changes at the AGM on June 19.

Failure to Engage with ZDP Holders Exposes the Board’s Inadequate Process

Oaktree read with great interest the letter to the Board from Staude Capital, owner of 2.9% of the ZDP shares of Ranger Direct Lending ZDP plc (“ZDP”), released on May 29. Staude stated that they are “greatly concerned by the proposals put forward by the RDLF Board.”

Oaktree has engaged with a number of the largest ZDP holders, who have confirmed to us that the Board has failed to engage with them in any significant way or to seek their feedback regarding the Ares proposal. These holders all shared Oaktree’s concern over the future deterioration of their collateral under the Ares proposal and indicated their willingness to engage with the Board regarding a mutually-agreeable repayment solution.

In its April 24 letter titled, “Response to Oaktree,” the Board claimed that the obligations to ZDP shareholders were one of their arguments against a wind-down. This has always been a red herring, in our view, because as Staude clearly articulates the ZDPs will need to be addressed in all future outcomes of the company, not just a wind-down. Moreover, Oaktree’s own conversations with ZDP holders reveal strong alignment with ordinary shareholders, and Oaktree believes there is a reasonable middle ground to be achieved in a wind-down scenario. The fact that the Board did not speak with these large ZDP holders exposes the inaccurate nature of its statements about the wind-down proposal and shows that the Board never actually considered alternative strategic options, including the exploration of a wind-down. Institutional Shareholder Services (“ISS”) agreed with this assessment when it recently wrote “The dissidents might be correct in their assumption the company did not conduct a full exploration of strategic alternatives…”

Board Continues to Delay giving Further Details of the Ares Proposal

It has been 36 days since the Board announced its proposal of Ares as the new investment manager for RDLF on May 1, and yet shareholders have yet to see a circular and or receive any further significant details about the proposed terms of the Ares arrangement or the investment strategy. We suspect the Board’s delay in publishing the circular may in fact be intentional to avoid revealing an unattractive proposal for shareholders ahead of the AGM.

Oaktree believes that a best-practice proposal would include either (i) a cash-out option for dissenters or (ii) consideration paid to shareholders by Ares in exchange for the benefits it will receive from the investment management contract. Oaktree further believes shareholders should receive at least Net Asset Value, which in our view the Board could easily realize as part of a wind-down. We fear that the Board’s failure to publish the circular including the details of the Ares proposal since it was originally announced indicates that it has failed to negotiate a fair deal on behalf of shareholders.

Board Refresh Urgently Needed to Avoid Further Value Destruction

Ranger released a disappointing March Monthly Update on 15 May, revealing new write-downs of two large investments with principal amounts totaling approximately $1 million USD. Ranger has failed to specify the platforms to which these write-downs relate. This deteriorating portfolio performance is particularly troubling when coupled with the Board’s delays and lack of transparency.

The Board’s woefully slow response to the Princeton debacle, which led to massive shareholder value loss, underscores the risk of inexperienced, slow-moving, and reactive oversight in specialty finance companies. We believe that shareholders simply cannot afford to wait for the “next Princeton” to unfold under the current Board – the Board must be strengthened immediately.

To this end, proxy advisors ISS and Glass Lewis both recognize the need for change at the Ranger Board in light of RDLF’s poor performance and legitimate concerns about the current Board’s stewardship. In making their recommendations, they state (emphasis added)1:

  • Overall, in light of the Fund’s generally poor performance since its inception, and the clear dissatisfaction of major shareholders with the Fund’s returns, as well as concerns with regard to the effectiveness of the current directors’ stewardship over the last three years, we’re inclined to conclude that an opportunity exists to enhance the board’s oversight, shareholder representation and investor perspective.” (Glass Lewis)
  • "Ranger is an investment vehicle that has underperformed peers since IPO; weak due diligence on its largest investment seems to be the root of the problem." (ISS)
  • The issues with Princeton, asset valuation and apparent lapses in the process to replace the manager would indicate some board refreshment is warranted. The board, however, has not yet announced a commitment to that refreshment.” (ISS)
  • The Dissidents have expressed legitimate concerns with the Fund’s poor performance since inception and with the significant discount to NAV at which the Fund’s shares have traded. We also believe the Dissidents have identified potential governance issues given that the CEO of the Fund’s investment manager sits on the board and that the board has not sought to refresh its membership or perspective despite the Fund’s poor performance. In that respect, the addition of new, qualified directors who have been nominated by significant shareholders may indeed be warranted and in the interests of all shareholders.” (Glass Lewis)

Although both proxy advisors have clearly expressed that change is needed on the Ranger Board, we are disappointed that ISS in particular overlooked the obvious opportunity we have presented to implement that change by adding our highly qualified nominees.

Oaktree Nominees Would Significantly Strengthen the Board

To fortify the Board’s oversight and experience, Oaktree has nominated two highly qualified directors for election to the Board at the Company’s upcoming AGM on June 19: Greg Share and Dominik Dolenec. Messrs. Share and Dolenec have a combined 40 years of experience in specialty finance, restructuring, and corporate governance. Our nominees would bring valuable resources to the Board at this critical juncture and would serve as best-in-class stewards of capital for RDLF stakeholders.

Despite our view that a wind-down is the lowest-risk and highest-return alternative for shareholders, Oaktree’s nominees are committed to exploring all strategic alternatives for the Company in order to maximize value. If, after review, it is determined that appointing a new manager is in the best interests of shareholders then our nominees would significantly bolster the Board’s ability to effectively negotiate a best practice proposal with potential new managers including Ares, given our nominees' deep relevant experience and relationships in the specialty finance sector.

The time for change is now -- please vote FOR resolutions 8 and 9 for our highly qualified nominees Greg Share and Dominik Dolenec, who will be committed to driving value for shareholders, to be appointed to the Board. The Annual General Meeting takes place on Tuesday, June 19, 2018, and it is important to vote before Friday, June 15, 2018 to have your voice heard.

If shareholders have questions, or need assistance in voting shares, please call: Georgeson, +44 (0) 207 019 7032 or email anthony.kluk@georgeson.com.

/s/ Patrick M. McCaney
Patrick M. McCaney
Managing Director and Portfolio Manager
Value Equities
Oaktree Capital Management, L.P.

About Oaktree

Oaktree is a leader among global investment managers specializing in alternative investments, with $121 billion in assets under management as of March 31, 2018. The firm emphasizes an opportunistic, value-oriented and risk-controlled approach to investments in credit, private equity, real assets and listed equities. The firm has over 900 employees and offices in 18 cities worldwide. For additional information, please visit Oaktree’s website at http://www.oaktreecapital.com/.

1 Permission to quote from these reports has been neither requested nor granted

Short Name: Oaktree
Category Code: DOC
Sequence Number: 648821
Time of Receipt (offset from UTC): 20180606T055947+0100


Sard Verbinnen & Co
John Christiansen
+1 (415) 618-8750
Conrad Harrington
+44 (0) 20 3178 8914


Sard Verbinnen & Co
John Christiansen
+1 (415) 618-8750
Conrad Harrington
+44 (0) 20 3178 8914