NAV Slashed Forward of Carlyle Closing


One other day with egg on my face.  Right this moment, Vertical Capital Earnings (VCIP) introduced that forward of their pending closing with Carlyle, the fund had liquidated most of their portfolio of residential mortgage complete loans (which was a situation of closing) for a 17% low cost to their final reported NAV on 6/30, a full 11 days in the past.  In their very own phrases:

Primarily based upon the anticipated proceeds from this sale, which resulted in combination proceeds decrease than the e book worth of the mixed belongings because of the important  sale wanted to facilitate the Transaction, the Fund has adjusted its internet asset worth per share (“NAV”) from $9.96 as final reported on June 30, 2023, to $8.27 as of right now.

Huh?  Looks as if there have to be a typo or a phrase was deleted between important and sale as there’s an additional house in there.

The portfolio belongings are residential mortgages, most of them are mounted price, charges have moved barely up in latest weeks however not sufficient to justify that low cost.  The outdated administration, Oakline Advisors, is type of an odd shell that’s most likely checked out at this level and the board of trustees barely personal any inventory (0.18% as a bunch).  The incentives to execute a full aggressive public sale to get finest execution simply most likely weren’t there, somebody received a steal.  Carlyle does not care both, they simply wish to be handed a checking account with money in it, does not matter to them how a lot is within the checking account, they will undergo with their tender and subsequent funding on the worth of the money account.  Undecided how administration or the board of trustees can get away with having a shareholder vote a month in the past to approve the transaction based mostly on such a defective mark.  However that is above my head.

What does it seem like from right here? 

Primarily based on the press launch, seems to be just like the deal will shut by the top of the month, this may all occur fairly rapidly.  Shortly after the deal closes, Carlyle (from the administration firm, not the fund) pays $0.96/share in money to shareholders after which will tender for $25MM at NAV.  If we assume the market is totally pricing within the $0.96/share fee, everybody tenders in full, my math comes up with a proforma value of $7.26/share or 88% of NAV.  Please verify my math.

The opposite CLO fairness funds commerce above NAV.  It’s going to take time (6-12 months?) for Carlyle to ramp the portfolio up from zero, add some leverage, and so on., to get to the purpose the place it seems to be like certainly one of different CLO fairness funds.  The world may change within the meantime.  However Carlyle must be incentivized to make this commerce near NAV, they’re one of many largest CLO managers, they need the captive CLO fairness car to develop that enterprise.  In its present dimension, VCIF is just too small to perform that, if it trades at or above NAV, Carlyle will have the ability to problem shares accretively and everyone seems to be comfortable.

Disclosure: I personal shares of VCIF


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