SQN Secured Income Fund plc
(LSE: SSIF) (the "Company" or "SSIF")
Continuation Vote and Notice of General Meeting
The Board of SQN Secured Income Fund plc (LSE: SSIF) (the "Company"), a specialist secured lending income investment trust, announces that a circular (the "Circular") containing a notice convening a general meeting (the "General Meeting") of the Company to consider the continuation of SSIF has today been posted to shareholders.
Introduction and background
SSIF is a closed-ended UK investment trust whose ordinary shares are admitted to trading on the Specialist Fund Segment of the Main Market of the London Stock Exchange. It was launched in September 2015 and since April 2017 has been managed by companies within the SQN Group. Dawn Kendall joined the SQN Group in 2017 and was appointed as the lead manager responsible for SSIF in April 2017.
The Company's investment objective is to provide Shareholders with attractive risk adjusted returns, principally in the form of regular, sustainable dividends, through investment predominantly in a range of secured loans and other secured loan-based instruments originated through a variety of channels and diversified by way of asset class, geography and duration.
The Directors acknowledge that the Company has not, since launch, scaled in the manner the Board, the manager and Shareholders had hoped. The Directors have been considering the future of the Company in the light of this. In addition, under the articles of association of the Company (the "Articles"), as the Company did not have a Net Asset Value of at least £250 million as at 31 December 2019, the Directors are required to convene a general meeting to propose an ordinary resolution to Shareholders to approve the continuation of the Company as an investment trust (the "Continuation Resolution"). If the Continuation Resolution does not pass, the Directors are required under the Articles to convene a further general meeting of the Company to be held within 90 days of the date of the General Meeting to consider a special resolution to approve the voluntary winding up or other reconstruction of the Company.
The purpose of the Circular is to explain to Shareholders why the Board does not believe the Company can continue in its current form indefinitely and why the Directors are recommending Shareholders vote against the Continuation Resolution at the General Meeting convened for 19 June 2020.
Future of the Company
Over the past few months, the Board has been considering the future of the Company, and consulting with larger Shareholders, and in particular has been discussing the available viable options for addressing the challenges the Company faces, including size, scalability, liquidity and the discount to NAV at which the Shares have been trading. As a result of these discussions, the Board does not believe the Company can continue in its current form indefinitely and is recommending that Shareholders vote against continuation of the Company.
Regardless of the outcome of the General Meeting, the Board intends to undertake a strategic review into the future of the Company and in particular intends to examine the likely returns to Shareholders and timing of any managed wind down of the investment portfolio compared to other options to return capital to Shareholders or the creation of a more liquid investment in a larger vehicle that would be listed on the London Stock Exchange. The Board intends to consult on the possible strategic options both prior to and following the General Meeting.
Shareholders should note that, if the Company enters a managed wind down of its portfolio, the Company is unlikely to be able to realise the full value of its investment portfolio and return the proceeds to Shareholders for at least a period of between three and four years, and possibly longer, given the illiquid nature of the Company's investments.
As at 30 April 2020, the weighted average maturity of the Company's loan book is 2.62 years, with the longest maturity being 5.88 years. The Company cannot demand early repayment of these loans (except in the event of a borrower default) and has to await the repayment of the loans in accordance with their terms. Further, the Board anticipates that one of the effects of the Coronavirus pandemic will be that many borrowers seek to extend the maturities on their loans and/or request additional facilities as borrowers respond to the impact of the pandemic on their operations. The Company will need to consider providing such facilities, even during a managed wind down, to preserve the value of loans already advanced. Accordingly, there can be no certainty as to the value or timing of the returns Shareholders will receive as a result of any managed wind down process or other form of reconstruction.
Investment management arrangements
Further to the Board's announcement on 30 April 2020, it is the Board's intention to appoint KKV Investment Management Ltd ("KKV") as the Company's portfolio manager to coincide with the appointment of KKV as portfolio manager of SQN Asset Finance Income Fund Limited. The date of appointment is expected to be on or around 1 June 2020. KKV is a newly formed investment management company under the UK Asset Management arm of Kvika Banki. Kvika Banki is an Icelandic publicly traded specialist bank focusing on asset management and investment services. KKV will be led by Dawn Kendall, who will be the lead portfolio manager responsible for SSIF. Under an agreement between KKV and SQN, it is intended that the employees of SQN Capital Management (UK) Limited will transfer to KKV at the same time as KKV is appointed portfolio manager of SSIF and SQN Asset Finance Income Fund Limited.
The Board and KKV have agreed that the management of SSIF would transfer to KKV on the same commercial terms as are currently in place. The Board believes it is important to ensure the services of Dawn Kendall and her team are retained in order to most efficiently manage the Company's portfolio and to maximise Shareholder value throughout any wind down or reconstruction process. KKV has undertaken to negotiate in good faith with the Board appropriate amendments to the management agreement to reflect the managed wind down or reconstruction proposals that are developed as a consequence of the strategic review and subsequently approved by Shareholders and, as appropriate, to align KKV's management fees to incentivise the maximum return to Shareholders.
The general meeting has been convened for 11.00 a.m. on 19 June 2020 to be held at the offices of Dickson Minto W.S., 17 Charlotte Square, Edinburgh EH2 4DF. All Shareholders are entitled to attend, speak and vote on the Continuation Resolution to be proposed at the General Meeting, which will be proposed as an ordinary resolution. An ordinary resolution requires a simple majority of Shareholders entitled to vote and present in person or by proxy to vote in favour in order for it to be passed. In the light of the Coronavirus pandemic and Government guidance, including the rules on physical distancing and avoiding public gatherings of more than two people ("Lockdown Restrictions"), Shareholders are strongly discouraged from attending the General Meeting and indeed entry will be refused if the law and/or Government guidance so requires. In such circumstances, the Company will make arrangements to ensure that the minimum number of Shareholders required to form a quorum will attend the General Meeting in order that the meeting may proceed and the business concluded. The Board considers these revised arrangements to be in the best interests of Shareholders in the current circumstances.
The Board strongly encourages all Shareholders to exercise their votes in respect of the General Meeting in advance by completing and returning the Form of Proxy enclosed with the Circular. In addition, CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so for the General Meeting by using the procedures described in the CREST Manual (available via www.euroclear.com/CREST). This should ensure that your votes are registered in the event that physical attendance at the General Meeting is not possible or restricted.
The Directors recommend voting against the Continuation Resolution. Regardless of whether the Continuation Resolution is passed, the Directors will convene a further general meeting of the Company in order to consider a special resolution to approve the voluntary winding up or other reconstruction of the Company. As explained above, it is anticipated that an orderly wind down process may take between three and four years and there can be no guarantee as to the quantum or timing of returns to Shareholders as a result of any such process.
The document will shortly be available for inspection on the National Storage Mechanism website: https://data.fca.org.uk/#/nsm/nationalstoragemechanism
For further information please contact:
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SQN Asset Management Limited
tel: +44 1932 575 888
William Marle / Giles Rolls
tel: +44 20 7220 0500
Kepler Partners LLP
Hugh van Cutsem
tel: +44 20 3384 8790
Charles Ryland/Henry Wilson
tel: +44 20 7466 5000
This announcement contains information which, prior to its disclosure, was considered inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 (MAR). The person responsible for arranging for the release of this announcement on behalf of the Company is Kevin Robins of Elysium fund management limited.
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