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TICC’s Delay in Scheduling its Annual Meeting Demonstrates TICC’s Appalling Governance Practices
TICC Chairman’s Significant Wealth Accumulation and Failure to Purchase TICC Shares for Four Years Shows Shocking Lack of Alignment Between the Board and Stockholder Interests
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Net Asset Value per Share Destruction at TICC (Graphic: Business Wire)
TSLX encourages interested stakeholders to visit the website, www.changeTICCnow.com, to view other materials relating to TSLX’s efforts to effect positive change at TICC to maximize stockholder value.
A copy of the letter follows:
Board of Directors
Dear Members of the Board,
As one of the largest stockholders of
It has been 46 days since we last sent a letter expressing our serious concerns about the continuing destruction of stockholder value at TICC. During this time, you have refused to engage with us on our proposals, or present viable alternatives, to address the long-term underperformance and value destruction that a combination of TICC Management, LLC’s (the “External Manager”) investment decisions, and the Board of Directors’ own complacency, have wrought. Your unwillingness to work collaboratively with your stockholders is yet another sign of a conscious and dedicated refusal to respect the Company’s true owners and your duty to represent our interests.
As we approach the release of the Company’s first quarter earnings, we feel it is important to raise a number of critical and fundamental questions regarding the future of TICC. Stockholders deserve answers. It is crucial that the Board provides a comprehensive plan of action as to how it will prioritize value creation for stockholders now and in the future. Specifically, we request that you address the following questions:
1. What is the Board doing to address the continuing and rapid deterioration of the value of CLO equity investments held by TICC?
2. What is the Board doing to reverse the significant and sustained net asset value (“NAV”) per share deterioration that TICC has suffered?
3. Why has the Board failed to set the date of, and file relevant materials for, the 2016 annual meeting of TICC stockholders consistent with the Company’s past practice in prior years?
4. What is the Board doing to address the misalignment of its director and stockholder interests?
RAPID DETERIORATION OF CLO INVESTMENT VALUE
In the hands of TICC’s External Manager and the current Board of
Directors, the total return on the Company’s stock has underperformed every
significant measure – including relative performance compared
to the BDC Composite1,
These consistent poor returns and ongoing deterioration of NAV per share are in part a result of a failed investment strategy into CLO equity. This not only distorts management fees but also contributes to the unsustainable nature of TICC’s dividend. As investors know well, TICC has consistently distributed investor capital as part of its dividend policy.
The reality of the CLO market debunks TICC’s claim that the dividend can be supported by the cash flows from the Company’s CLO investments. The facts are clear: as illustrated in Appendix B, cash-on-cash distributions have been decreasing on a significant proportion of the CLO equity portfolio, with an astounding decline of almost 10% quarter over quarter. Further, over-collateralization cushions have compressed, creating additional risk to future distributions. This will only lead to further pressure on TICC and its dividend.
TICC has failed to follow through on its commitment to pursue a new investment strategy. However, the External Manager continues to reap significant fees that remain excessive and inappropriate for the existing portfolio of assets while simultaneously destroying the value of the Company. We believe that a change in strategy will be insufficient and fail to see how the current External Manager has the resources or capabilities to execute a new strategy given its poor track record with respect to illiquid private credit. This is again an instance where TICC makes a weak attempt to appease stockholders without enacting any real change.
NAV PER SHARE DESTRUCTION AT TICC
Since our first communication with you in
It is no surprise then that stockholders continue to suffer from a share price that has closed below NAV per share for the past 598 consecutive days3 and now trades at just 80.9% of NAV4 per share. The Board has yet to offer any credible plan to address this destruction of NAV per share, while the Company’s stockholders continue to suffer from this inaction. And yet despite the stock trading below NAV, the Board has failed to authorize an ongoing stock repurchase program -- further evidence of the Board’s unwillingness to directly address the continued destruction of NAV per share.
FAILURE TO SCHEDULE STOCKHOLDER MEETING
Historically, TICC has held its annual meeting no later than
TICC is preventing stockholders from having the opportunity to voice
their concerns to management at the annual meeting and to exercise their
right to vote on critical proposals that directly affect their company.
This includes the ability of stockholders to vote for a much needed
change to the Board. Simply put, we believe that the Board is delaying
the annual meeting to prevent stockholders from voting in favor of
TSLX’s highly qualified director nominee, Mr.
The Board is clearly stalling, just as it did when scheduling its prior
special meeting of stockholders to replace the External Manager, which,
after much delay, was finally held in
LACK OF ALIGNMENT BETWEEN BOARD AND STOCKHOLDERS
The Board has consistently acted in its own self-interest and is further
entrenching itself by delaying the annual meeting. The lack of alignment
is not surprising – consider that the chairman,
We informed Mr. Novak on
Now we are faced with a second costly proxy contest that will only be an additional expense to stockholders so TICC can continue to desperately protect its failing External Manager and self-interested Directors. We urge stockholders to consider these simple facts about Mr. Novak:
1. As of
2. Mr. Novak’s 14,474 shares have a current market value of
3. Mr. Novak’s annual compensation as a director at TICC has grown at a compound annual rate of 24.3% since 2010, while over the same period TICC stockholders have seen their shares underperform the BDC Composite by 9.2% on an annualized basis.
4. Mr. Novak was even awarded
Stockholders should question how Mr. Novak can be entrusted with the representation of stockholder interests given his incredible wealth accumulation, astonishing history of acting in the best interest of the External Manager and total failure to align his interests with stockholders.
Stockholders deserve answers now more than ever. With poor financial performance, the deterioration of NAV per share, declining values in the CLO equity portfolio, and an overall lack of transparency, TICC needs to begin to prioritize stockholders’ interests and recognize their true ownership of the Company.
We remain steadfast in the belief that terminating the investment advisory agreement and reconstituting the Board would bring about the change necessary to unlock stockholder value. We urge the Board to schedule the annual meeting of stockholders promptly so that stockholders have the opportunity to vote on a new Board slate and to terminate the investment advisory agreement between TICC and its failed External Manager.
As always, we welcome the opportunity to immediately engage in a constructive dialogue with you and to address any questions or concerns you may have. Once the aforementioned issues are addressed, we believe there is a bright path ahead for TICC and its stockholders.
The time for change and accountability is now.
|Very truly yours,|
|TPG SPECIALTY LENDING, INC.|
|Joshua E. Easterly|
|Chairman and Co-Chief Executive Officer|
|Co-Chief Executive Officer|
APPENDIX A: TICC Relative Indexed Total Return
|TICC Relative Underperformance|
Total Return (%)8
|6.1 %||(3.6)%||2.0 %||228.3%||10.2%||(15.9)%||(3.2)%||(22.1)%||(189.1)%||(7.5)%|
|S&P 500||1.7 %||0.2 %||38.1%||157.8%||8.1%||(11.5)%||(7.0)%||(58.2)%||(118.7)%||(5.3)%|
|U.S. Treasuries||3.2 %||2.4 %||5.6%||66.0%||4.2%||(13.0)%||(9.2)%||(25.8)%||(26.9)%||(1.5)%|
|Investment Grade Debt||6.7 %||3.0 %||10.1%||97.5%||5.7%||(16.5)%||(9.9)%||(30.3)%||(58.4)%||(3.0)%|
|High Yield Debt||7.1 %||(1.8)%||6.0%||109.0%||6.2%||(16.8)%||(5.1)%||(26.2)%||(69.9)%||(3.5)%|
APPENDIX B: Performance Statistics, TICC CLO Equity Portfolio (Selected Constituents)11
|CLO Equity Position||
|% Change||% Change|
|Weighted Average of Selected Constituents|
|Cash on Cash Distribution||(10.9)%||(18.9)%|
|Junior Overcollateralization Cushion||(17.0)%||(20.8)%|
AMMC CLO XII, Ltd. - $6,460,715 Fair Value13
Cash on Cash Distribution14
Junior Overcollateralization Cushion15
|Ares XXV CLO Ltd. - $6,975,000 Fair Value|
|Cash on Cash Distribution||4.1%||3.8%||3.4%||3.6%||2.8%||(20.9)%||(30.7)%|
|Junior Overcollateralization Cushion||4.2%||4.2%||3.7%||3.8%||2.5%||(34.0)%||(40.0)%|
|Ares XXVI CLO Ltd. - $4,229,521 Fair Value|
|Cash on Cash Distribution||5.2%||5.0%||4.4%||4.7%||3.8%||(18.5)%||(25.9)%|
|Junior Overcollateralization Cushion||4.0%||4.1%||3.6%||3.6%||2.3%||(36.7)%||(43.0)%|
|Ares XXIX CLO Ltd. - $5,284,986 Fair Value|
|Cash on Cash Distribution||5.8%||4.9%||4.6%||4.5%||3.9%||(13.7)%||(31.8)%|
|Junior Overcollateralization Cushion||3.9%||3.9%||3.3%||3.3%||2.4%||(29.3)%||(39.1)%|
|Benefit Street Partners CLO II, Ltd. - $15,380,095 Fair Value|
|Cash on Cash Distribution||5.6%||7.5%||6.4%||6.4%||5.1%||(19.9)%||(9.0)%|
|Junior Overcollateralization Cushion||4.7%||4.7%||4.7%||4.8%||3.1%||(35.7)%||(33.5)%|
|Carlyle GMS CLO 2013-2, Ltd. - $5,932,128 Fair Value|
|Cash on Cash Distribution||6.1%||7.0%||5.6%||6.4%||5.5%||(14.3)%||(9.5)%|
|Junior Overcollateralization Cushion||5.3%||5.3%||5.3%||5.0%||4.9%||(0.4)%||(6.1)%|
|Carlyle GMS CLO 2014-4, Ltd. - $14,914,501 Fair Value|
|Cash on Cash Distribution||11.7%||5.6%||4.6%||5.2%||4.2%||(18.1)%||(64.0)%|
|Junior Overcollateralization Cushion||4.5%||4.6%||4.7%||4.8%||4.6%||(3.8)%||2.0%|
|Catamaran CLO 2012-1 Ltd. - $5,500,000 Fair Value|
|Cash on Cash Distribution||5.1%||4.5%||4.8%||4.6%||3.8%||(18.1)%||(26.2)%|
|Junior Overcollateralization Cushion||4.8%||4.9%||4.9%||4.3%||2.5%||(41.4)%||(48.1)%|
|Catamaran CLO 2013-1 Ltd. - $4,900,000 Fair Value|
|Cash on Cash Distribution||6.2%||5.9%||5.7%||5.3%||5.4%||0.7%||(13.4)%|
|Junior Overcollateralization Cushion||4.9%||4.9%||5.0%||4.6%||4.7%||2.8%||(3.4)%|
|Cedar Funding II CLO, Ltd. - $10,125,000 Fair Value|
|Cash on Cash Distribution||3.8%||4.3%||3.3%||3.7%||3.5%||(5.6)%||(9.9)%|
|Junior Overcollateralization Cushion||5.4%||5.4%||5.1%||5.0%||4.5%||(11.1)%||(17.7)%|
|CIFC Funding 2012-1, Ltd. - $5,610,000 Fair Value|
|Cash on Cash Distribution||6.0%||6.3%||5.4%||5.2%||5.1%||(2.1)%||(15.3)%|
|Junior Overcollateralization Cushion||5.6%||5.3%||5.3%||5.3%||4.9%||(7.6)%||(13.3)%|
|Halcyon Loan Advisors Funding 2012-2 Ltd. - $3,450,000 Fair Value|
|Cash on Cash Distribution||7.8%||6.7%||6.6%||7.2%||6.5%||(10.6)%||(17.4)%|
|Junior Overcollateralization Cushion||5.6%||5.6%||5.1%||5.2%||3.4%||(33.8)%||(39.2)%|
|Hull Street CLO Ltd. - $2,350,000 Fair Value|
|Cash on Cash Distribution||8.5%||7.7%||6.8%||6.2%||5.0%||(19.2)%||(40.7)%|
|Junior Overcollateralization Cushion||4.7%||4.8%||4.7%||4.2%||2.6%||(37.9)%||(45.4)%|
|Ivy Hill Middle Market Credit Fund VII, Ltd. - $10,181,692 Fair Value|
|Cash on Cash Distribution||5.1%||5.1%||4.8%||5.3%||4.8%||(8.4)%||(4.8)%|
|Junior Overcollateralization Cushion||5.3%||5.3%||5.4%||5.4%||5.5%||1.3%||4.6%|
|Marea CLO, Ltd. - $4,816,787 Fair Value|
|Cash on Cash Distribution||4.6%||3.1%||4.1%||4.1%||3.3%||(20.7)%||(29.2)%|
|Junior Overcollateralization Cushion||5.5%||5.3%||4.8%||4.2%||4.2%||(0.9)%||(24.2)%|
|MidOcean Credit CLO IV - $6,840,000 Fair Value|
|Cash on Cash Distribution||3.6%||3.8%||3.2%||3.6%||3.3%||(9.1)%||(9.1)%|
|Junior Overcollateralization Cushion||5.1%||5.1%||5.2%||4.2%||3.0%||(29.7)%||(42.5)%|
|Mountain Hawk III CLO, Ltd. - $4,530,618 Fair Value|
|Cash on Cash Distribution||4.9%||4.7%||4.8%||4.8%||3.1%||(35.9)%||(37.8)%|
|Junior Overcollateralization Cushion||9.7%||9.5%||9.6%||8.0%||6.6%||(17.0)%||(32.0)%|
|Shackleton 2013-IV CLO, Ltd. - $8,269,561 Fair Value|
|Cash on Cash Distribution||6.5%||6.5%||5.7%||5.5%||4.8%||(13.4)%||(25.8)%|
|Junior Overcollateralization Cushion||4.4%||4.5%||4.6%||4.2%||2.8%||(33.3)%||(36.9)%|
|Telos CLO 2013-3, Ltd. - $5,416,666 Fair Value|
|Cash on Cash Distribution||6.0%||5.8%||5.8%||5.6%||5.3%||(6.1)%||(12.6)%|
|Junior Overcollateralization Cushion||5.0%||5.2%||5.2%||5.3%||4.9%||(8.2)%||(2.3)%|
|Telos CLO 2013-4, Ltd. - $4,600,445 Fair Value|
|Cash on Cash Distribution||5.4%||5.2%||5.1%||4.9%||6.0%||23.0%||10.3%|
|Junior Overcollateralization Cushion||4.8%||4.9%||4.9%||5.0%||4.0%||(19.2)%||(16.3)%|
|Windriver 2012-1 CLO, Ltd. - $4,277,998 Fair Value|
|Cash on Cash Distribution||4.8%||5.6%||4.4%||5.0%||4.1%||(17.1)%||(13.6)%|
|Junior Overcollateralization Cushion||5.3%||5.4%||5.1%||5.3%||5.4%||2.5%||2.8%|
Note on presentation: The 21 selected CLO
equity investments represent 75.0% by number and 79.8% by fair value of
TICC’s CLO equity portfolio as of
The following 5 investments (representing 17.9% by number and 13.1% by
fair value of TICC’s CLO equity portfolio as of
The following 2 investments (representing 7.1% by number and 7.1% by
fair value of TICC’s CLO equity portfolio as of
Information set forth herein includes forward-looking statements. These
forward-looking statements include, but are not limited to, statements
regarding TSLX’s proposed business combination transaction with
Such forward-looking statements are inherently uncertain, and
stockholders and other potential investors must recognize that actual
results may differ materially from TSLX’s expectations as a result of a
variety of factors including, without limitation, those discussed below.
Such forward-looking statements are based upon management’s current
expectations and include known and unknown risks, uncertainties and
other factors, many of which TSLX is unable to predict or control, that
may cause TSLX’s plans with respect to TICC, actual results or
performance to differ materially from any plans, future results or
performance expressed or implied by such forward-looking statements.
These statements involve risks, uncertainties and other factors
discussed below and detailed from time to time in TSLX’s filings with
Risks and uncertainties related to the proposed transaction include, among others, uncertainty as to whether TSLX will further pursue, enter into or consummate the transaction on the terms set forth in the proposal or on other terms, potential adverse reactions or changes to business relationships resulting from the announcement or completion of the transaction, uncertainties as to the timing of the transaction, adverse effects on TSLX’s stock price resulting from the announcement or consummation of the transaction or any failure to complete the transaction, competitive responses to the announcement or consummation of the transaction, the risk that regulatory or other approvals and any financing required in connection with the consummation of the transaction are not obtained or are obtained subject to terms and conditions that are not anticipated, costs and difficulties related to the integration of TICC’s businesses and operations with TSLX’s businesses and operations, the inability to obtain, or delays in obtaining, cost savings and synergies from the transaction, unexpected costs, liabilities, charges or expenses resulting from the transaction, litigation relating to the transaction, the inability to retain key personnel, and any changes in general economic and/or industry specific conditions.
In addition to these factors, other factors that may affect TSLX’s plans, results or stock price are set forth in TSLX’s Annual Report on Form 10-K and in its reports on Forms 10-Q and 8-K.
Many of these factors are beyond TSLX’s control. TSLX cautions investors that any forward-looking statements made by TSLX are not guarantees of future performance. TSLX disclaims any obligation to update any such factors or to announce publicly the results of any revisions to any of the forward-looking statements to reflect future events or developments.
Third Party-Sourced Statements and Information
Certain statements and information included herein have been sourced from third parties. TSLX does not make any representations regarding the accuracy, completeness or timeliness of such third party statements or information. Except as expressly set forth herein, permission to cite such statements or information has neither been sought nor obtained from such third parties. Any such statements or information should not be viewed as an indication of support from such third parties for the views expressed herein. All information in this communication regarding TICC, including its businesses, operations and financial results, was obtained from public sources. While TSLX has no knowledge that any such information is inaccurate or incomplete, TSLX has not verified any of that information. TSLX reserves the right to change any of its opinions expressed herein at any time as it deems appropriate. TSLX disclaims any obligation to update the data, information or opinions contained herein.
Proxy Solicitation Information
The information set forth herein is provided for informational purposes
only and does not constitute an offer to purchase or the solicitation of
an offer to sell any securities. TSLX intends to file a preliminary
proxy statement with the
TSLX STRONGLY ADVISES ALL STOCKHOLDERS OF TICC TO READ THE TSLX PROXY STATEMENT AND ITS OTHER PROXY MATERIALS AS THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. SUCH TSLX PROXY MATERIALS WILL BECOME AVAILABLE AT NO CHARGE ON THE SEC’S WEB SITE AT HTTP://WWW.SEC.GOV AND ON TSLX’S WEBSITE AT HTTP://WWW.TPGSPECIALTYLENDING.COM. IN ADDITION, TSLX WILL PROVIDE COPIES OF THE PROXY STATEMENT WITHOUT CHARGE UPON REQUEST. REQUESTS FOR COPIES SHOULD BE DIRECTED TO TSLX’S PROXY SOLICITOR AT TPG@MACKENZIEPARTNERS.COM.
The participants in the solicitation are TSLX and
Security holders may obtain information regarding the names,
affiliations and interests of TSLX’s directors and executive officers in
TSLX’s Annual Report on Form 10-K for the year ended
1 BDC composite index comprised of ACAS, AINV, ARCC, FSC, GBDC, HTGC, MAIN, MCC, NMFC, PNNT, PSEC, SLRC, TCAP, TCRD and BKCC
2 See Appendix A for further detail
3 Calculated based on TICC’s daily closing price as a percentage of the then latest reported net asset value per share. Calculation includes both trading and non-trading days
4 Calculated based on TICC’s closing price of
6 Form 10-K/A filed on
7 Mr. Novak has purchased no additional shares on a net
basis. Mr. Novak owned 14,474 shares as of the Form DEF14A filed on
8 Total return calculation includes share price appreciation and cumulative dividends paid
9 TICC and benchmark returns indexed to
10 BDC Composite comprised of ACAS, AINV, ARCC, BKCC, FSC, GBDC, HTGC, MAIN, MCC, NMFC, PNNT, PSEC, SLRC, TCAP, and TCRD
Note: Market data as of
11 Source: Intex Solutions
12 Q1 represents CLO distributions made in February, March, or April, depending on each structure’s payment schedule. Subsequent periods represent each successive three month increment from Q1
13 Fair value amounts as of
14 Cash on Cash Distribution calculated as quarterly payment divided by the original notional balance of the equity tranche
15 Junior overcollateralization cushion represents coverage for the most junior debt in each CLO as of the test date. The overcollateralization test measures the principal balance of the assets held by a CLO against each of the various classes of its liability structure. A failure to satisfy the overcollateralization test could result in the redirection of cash flows to the more senior classes of securities until the tests are satisfied
TPG Specialty Lending
Lucy Lu, 212-601-4753
Luke Barrett, 212-601-4752
Tom Johnson, 212-371-5999
Pat Tucker, 212-371-5999