NEW YORK--(BUSINESS WIRE)--TPG Specialty Lending, Inc. (“TSLX”; NYSE:TSLX), a specialty finance company focused on lending to middle-market companies, today issued a letter to TICC Capital Corp.’s (“TICC”; NASDAQ:TICC) Chairman of the Board, Mr. Steven Novak, calling out the self-serving actions of the Board and its lack of alignment with stockholders’ best interests. In the letter, TSLX outlines how the Board has failed TICC stockholders and how stockholders would benefit from a new, best-in-class external adviser.
A copy of the letter follows:
Mr. Steven Novak
Chairman of the Board
TICC Capital Corp.
8 Sound Shore Drive, Suite 255
Greenwich, CT 06830
Dear Mr. Novak,
We are writing as the largest single stockholder of TICC Capital Corp (“TICC” or the “Company) in response to your latest public letter of July 28, 2016, in which we believe that, once again, you are blatantly misleading stockholders. We think it’s time to finally set the record straight and end the fear tactics you continue to wield against your stockholders.
We simply reject that you are a true representative of stockholder interests. We note that your purchase of 5,000 shares in May 2016, following our public letters, for an investment of $26,401, was the first time you acquired shares in almost eight years. Only under threat of proxy contest did you hold your nose and break a near decade of avoiding the very stockholders you now purport to represent.
TPG Specialty Lending (“TSLX”) has never once indicated that we encourage or support the reduction of TICC’s dividend. In fact, we have advocated for a more sustainable dividend policy, one that would provide stockholders with greater value and a true return. We believe the clearest path forward is to replace the current management team with one that can source and manage assets that earn a return to meet its dividend.
Your leadership has overseen investment returns for stockholders that are so poor it is almost incomprehensible. However, you and the TICC Board have clung to the life raft of false promises about the future of a clearly unsustainable dividend.
The fact is that your Board has shown a shocking misunderstanding of investment fundamentals mixed with a craven focus on personal interests. You have delivered abysmal total returns, halved the core of your stockholders’ investment (net asset value) and are now paying a dividend independent analysts almost universally call unsustainable. 1
How can you claim this disguised liquidation is a sustainable or fair way to deliver value to stockholders?
The stockholders of TICC deserve directors that will put them first, and an external adviser that will create true value. Last fall, you delivered a “teach-in” session for stockholders on your phony dividend. Let us return the favor on the basics of investing.
The facts are clear: in the first quarter of 2016, TICC management generated net investment income (“NII”) equivalent to 5% of net asset value (“NAV”), but TICC has paid out a dividend equal to 20% of NAV.
Your materials have consistently ignored the underlying nature of the assets TICC owns, which are primarily broadly syndicated securities. This creates a distortion when comparing TICC to BDCs that instead focus on bespoke, directly originated investments. For example, even though we expect to see an increase in the fair value of the broadly syndicated and readily accessible assets held in TICC’s portfolio during the quarter, this has no influence on the future earning power of TICC. The fact is the existing portfolio of assets does not generate sufficient income to support the current dividend policy. We are confident that you will attempt to use any fictional gain to further confuse stockholders with arcane and misleading references to accounting rules.
We are equally confident that stockholders will continue to recognize the simple facts. NAV is directly impacted by TICC’s ability to earn its dividend – something TICC has yet to prove it is capable of doing in a sustainable manner.
We regret to state that we have lost all confidence in the Board and the management team’s ability to either protect our investment or generate significant future returns. In our eyes, you are no longer a credible adviser and we believe other stockholders feel similarly.
Your reputation and the reputations of the other directors at TICC are on the line in this fight. It is clear that you and other “independent” board members are more than willing to throw that away to desperately protect a failing adviser given the Company has paid the Board in excess of $2.8 million in fees while stockholder returns have been less than treasuries2.
Let us remind you of the indefensible actions the Board and management team have taken, all at the expense of their stockholders:
- Collection of Oversized Fees
The external adviser has collected over $141.4 million in management and incentive fees from stockholders’ investment over the past 12+ years. Mr. Novak, you personally collected more than $1 million in Board-related compensation, all while NAV decreased by 57% since TICC’s IPO in 2003. The Board and management team continue to benefit from stockholders’ investment while TICC has delivered abysmal returns, underperforming the BDC Composite by 192% since 20033. How can you defend lining your own pockets like this while stockholders’ investments suffer?
- Defense of the Failing External Adviser
For the first time in its history, TICC’s annual meeting was not held in June. As a result of this delay, management insiders have been permitted to accumulate TICC shares at record low prices, which they presumably will vote in their own self-interest. How can you and the rest of the Board justify this? How can you defend an external adviser that has ignored the lack of earning power of TICC’s portfolio and subsequently delivered such terrible returns for stockholders? You cannot.
- Likely Violation of Federal Securities Laws
It is nearly impossible for us to trust that the Board and management team can act independently following their role in the flawed and failed transaction in 2015 that led a federal judge to find TICC to have misled stockholders and to have likely violated federal securities laws.
- Facilitation of a Value Transfer from Stockholders to the Board
Mr. Novak, in the failed 2015 transaction, you and TICC led a campaign to sell the external adviser to a third party and advocated the reduction of management fees, authorization of a share buyback program, and reconstitution of the Board. Although in that solicitation, the Special Committee of the Board indicated it believed “[n]o alternative currently exists that the Special Committee would approve or recommend because no current proposal is preferable to the status quo other than the approval of BSP as the new manager,” we do not believe that to be the case and we note that, as part of its advocacy in favor of that solicitation, the Company told Stockholders that failing to approve the BSP transaction would result in Stockholders being left with the “[s]tatus quo: higher fee structure . . . [the] same advisor, and [the] same Board.” What has changed? To us, the difference is clear. You will only support change that results in millions of dollars being paid to fellow Board members.
- Refusal to Engage with Largest Single Stockholder
In February of 2016, TSLX made it clear that we wished to avoid a costly and drawn-out proxy contest and encouraged a productive meeting with TICC to evaluate the Company’s options for a brighter future. However, TICC refused to engage with us in any meaningful way and instead left TSLX with no choice but to pursue a campaign at the annual meeting to effect real change. TICC’s unwillingness to consider terminating the external adviser to avoid a burdensome proxy contest again demonstrates its lack of interest in doing what’s best for stockholders. If you won’t listen to us, your largest single stockholder, what makes us believe you would listen to the rest of your stockholder base?
Your lack of leadership has led to terrible financial performance and an astounding decline in NAV of 57% since 2003. In our eyes, you are unfit to manage stockholders’ investment given past performance. You have destroyed substantial value at the expense of stockholders and you continue to misrepresent what a change in the external adviser could mean for stockholders. Stop lying to your stockholders! There is a promising future for TICC under new management.
TICC stockholders deserve more. TSLX intends to continue advocating for TICC stockholders’ best interests, including the pursuit of the following reforms:
- The implementation of a sustainable dividend policy
- Greater total returns for stockholders, rather than the adviser
- The authorization of a meaningful share repurchase program
- The election of new independent directors
- No restrictions on value-creating opportunities
- The appointment of a new best-in-class external adviser that prioritizes stockholders’ best interests and their investment
Stockholders deserve both a refreshed and independent Board and a capable management team and external adviser to drive growth, generate value and deliver true meaningful change. The time for a new path forward is now.
Very truly yours,
TPG SPECIALTY LENDING, INC.
Joshua Easterly
Chairman and Co-Chief Executive Officer
Michael Fishman
Co-Chief Executive Officer
TSLX’s proxy materials are also available through the SEC’s website and at www.changeTICCnow.com.
About TPG Specialty Lending
TPG Specialty Lending, Inc. (“TSLX” or the “Company”) is a specialty finance company focused on lending to middle-market companies. The Company seeks to generate current income primarily in U.S.-domiciled middle-market companies through direct originations of senior secured loans and, to a lesser extent, originations of mezzanine loans and investments in corporate bonds and equity securities. The Company has elected to be regulated as a business development company, or BDC, under the Investment Company Act of 1940 and the rules and regulations promulgated thereunder. TSLX is externally managed by TSL Advisers, LLC, a Securities and Exchange Commission registered investment adviser. TSLX leverages the deep investment, sector, and operating resources of TPG Special Situations Partners, the dedicated special situations and credit platform of TPG, with approximately $16 billion of assets under management as of March 31, 2016, and the broader TPG platform, a global private investment firm with approximately $74 billion of assets under management as of March 31, 2016. For more information, visit the Company’s website at www.tpgspecialtylending.com.
