NOT FOR RELEASE, PUBLICATION OR
DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY,
IN, INTO OR FROM THE UNITED STATES OF AMERICA, AUSTRALIA, CANADA, JAPAN, NEW
ZEALAND, THE REPUBLIC OF SOUTH
AFRICA, ANY MEMBER STATE OF THE EEA OR ANY OTHER
JURISDICTION WHERE TO DO SO WOULD
CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF SUCH
JURISDICTION
THIS ANNOUNCEMENT CONTAINS INSIDE
INFORMATION
8 February 2022
TWENTYFOUR INCOME FUND
LIMITED
(a non-cellular company limited by shares incorporated in the
Island of Guernsey under the Companies (Guernsey) Law 2008, as
amended, with registered number 56128 and registered as a
Registered Closed-ended Collective Investment Scheme with the
Guernsey Financial Services Commission. LEI
549300CCEV00IH2SU369)
UK MORTGAGES LIMITED
(a closed-ended investment company incorporated with limited
liability under the laws of Guernsey with registered number 60440
and registered as a Registered Closed-ended Collective Investment
Scheme with the Guernsey Financial Services Commission. LEI:
549300388LT7VTHCIT59)
Proposed
Merger
The Boards of TwentyFour Income Fund Limited (“TFIF”) and UK
Mortgages Limited (“UKML”) announce they have agreed the terms of a
proposed merger of the two companies. The merger will be effected
by way of a scheme of reconstruction of UKML, consisting of the
winding-up of UKML, the transfer of UKML's assets to TFIF and the
issue of new ordinary shares by TFIF to UKML's shareholders (the
“Scheme”).
It is expected that the Scheme will be completed by the end of
the current financial quarter. UKML has granted TFIF exclusivity in
relation to UKML's portfolio until the expected date of completion
of the Scheme.
The UKML Board considers the Scheme to be in the best interest
of UKML and its shareholders as a whole. Both Boards have
consulted with certain major shareholders of the two companies, all
of whom have been supportive. Shareholders of an aggregate
circa.47% of UKML’s shares have provided written support for the
Scheme.
Both Boards believe that the Scheme has compelling strategic,
operational and financial rationale, which includes the
following.
Creating market
leading listed credit fund |
- Strengthened market position due to greater scale and combined
asset management and securitisation expertise.
- Expected enlarged group: circa.£720m NAV(1),
circa.7.2% gross mark-to-market yield(2).
- 11 investment professionals at TwentyFour Asset Management LLP
(“TwentyFour”) focussed on the combined entity.
|
Combining
complementary portfolios with attractive characteristics |
- TFIF’s evolving strategy seeks the yield premium for lower
liquidity, recognising that sourcing attractive risk-adjusted
returns has become more challenging.
- Merger provides access to UKML’s stable income generating
assets consistent with TFIF's approach and previously underwritten
by TwentyFour.
- Merger expected to diversify the sources of income for the
combined entity.
|
Enhanced return
profile |
- Combined earnings expected to be a strong underpin to annual
dividend target of at least 6p per share(3).
- Merger expected to be NAV accretive over medium term.
- TFIF annualised total NAV return of 7.7% since launch.
|
Access to high
quality originators |
- Combined group better placed to capitalise on existing
counterparty relationships across the asset-backed securities
market
- Consolidated focus on TwentyFour’s future origination.
|
Increased
liquidity with a more diverse shareholder register |
- Increased liquidity expected in the secondary market given
greater scale and increased weighting in FTSE indices.
- High quality and more diverse shareholder register with scope
to appeal to a broader universe of potential investors.
|
Synergies expected
to create value for shareholders |
- Cost efficiencies and economies of scale expected as a result
of the merger.
- Lower combined OCR and KID cost ratio expected over time.
|
Additionally, the Scheme is expected to have the following
specific benefits for UKML shareholders:
Compelling value
proposition |
- Significant uplift in market value for UKML's portfolio,
currently estimated at circa.15% (1), from the
elimination of the current circa.8% discount to UKML’s NAV at which
UKML's shares are trading, and competitive acquisition value.
|
Retain exposure to
high quality assets as part of a broader and more diversified
investment mandate |
- Greater stability anticipated in earnings, dividend and capital
performance as part of TFIF’s broader investment policy with proven
track record.
- Maintain exposure to UKML’s assets which are well positioned to
offer an attractive risk/return profile, especially within the
wider TFIF portfolio which principally provides floating rate
exposure.
- Continue to benefit from the securitisation expertise developed
by TwentyFour over UKML’s life.
|
Enhanced scale,
liquidity and discount control |
- Part of a larger, more liquid, Premium listed investment
company.
- Benefit from TFIF’s realisation opportunity in Q4-22 and three
yearly thereafter.
|
Attractive
alternative to managed wind down |
- If UKML is unable to narrow its discount in the short term,
UKML will need to consider its options for the future. A sale
of UKML's assets is likely to mean that UKML's would cease to have
access to the high-quality assets in the UKML portfolio in the
future.
- The illiquid nature of the UKML assets means that any managed
wind-down is likely to be a drawn-out process as accelerated
portfolio sales may not maximise value.
|
Improved
costs |
- Cost ratio of combined entity expected to be approximately 1%
compared to UKML’s standalone ratio of circa.3%(4)
|
Transaction
structured to defer potential tax liability |
- The mechanics of the Scheme are designed with the intention of
allowing certain UKML shareholders subject to UK tax to continue to
receive investment returns without triggering an immediate
liability to capital gains tax.
|
The terms of the Scheme can be summarised as follows:
- TFIF will acquire the assets comprising a “Rollover Pool” of
UKML, being its undertaking, cash and other assets remaining after
such cash and other net current assets of UKML have been set aside
in a “Liquidation Pool” of a value sufficient to meet outstanding
current and future liabilities including contingent liabilities of
UKML, UKML’s costs of the Scheme and a retention to meet unknown
and unascertained liabilities of UKML.
- The consideration for the transfer of the Rollover Pool to TFIF
will be satisfied through the issuance to UKML shareholders of new
TFIF shares at a price representing a 1.25% premium to the NAV per
TFIF share as at the calculation date for the Scheme.
- The proposed acquisition value per UKML Share will be 84p per
UKML Share, less UKML's costs in relation to the Scheme and the
retention to meet unknown and ascertained liabilities, divided by
the total number of UKML Shares in issue (excluding any shares held
in treasury) as at the Calculation Date, subject to certain
adjustments in accordance with the Scheme. Based on the most
recent estimate of UKML's costs in relation to the proposed Scheme
and the retention, the illustrative acquisition value per UKML
Share is estimated at 83.32 pence per
UKML Share.
- The Scheme is an "all share" merger and there is no cash
alternative. Overseas UKML Shareholders whom UKML, TFIF and
the Liquidators of UKML have agreed are unable to lawfully receive
TFIF shares will have the TFIF shares that they would otherwise be
entitled to under the Scheme sold on their behalf by a market maker
following completion of the Scheme.
- Assuming the Scheme proceeds as expected, UKML does not intend
to declare any further dividends on its shares. The new TFIF shares
will be entitled to receive all dividends declared by TFIF with a
record date subsequent to the Scheme calculation date.
- TFIF and UKML have each agreed to bear their own costs in
relation to the Scheme.
The Scheme is subject to a number of conditions, including UKML
shareholder approval. It is intended that the Scheme will be
completed by the current quarter end and further announcements
regarding the Scheme and the necessary shareholder documentation
will be made in due course.
Enquiries:
TFIF
Trevor Ash, Chairman
Via Numis
Numis, Financial Adviser and Corporate Broker to TFIF
Hugh Jonathan / Matt Goss
Tel: 020 7260 1000
UKML
Chris Waldron, Chairman
Via Numis
Numis, Financial Adviser and Corporate Broker to UKML
Nathan Brown / Vicki Paine
Tel: 020 7260 1000
Northern Trust International Fund Administration Services
(Guernsey) Limited
Company Secretary
Tel: 01481 745001
Notes:
(1) These figures are provided for illustrative purposes only,
on the basis that the calculation date of the Scheme had been
7 February 2022 and do not represent
forecasts. The TFIF NAV, and therefore UKML shareholders’
entitlements under the Scheme, may materially change up to the
effective date. The illustrative uplift in market value for UKML
shareholders is also based on closing share prices as at
7 February 2022.
(2) This figure is indicative and based on TwentyFour
modelling.
(3) This is a target only and not a profit forecast. There can
be no assurance that this target will be met or that TFIF will make
any distributions at all. This target return should not be taken as
an indication of TFIF’s expected or actual current or future
results. TFIF’s actual return will depend upon a number of factors,
including but not limited to the size of its portfolio and the
TFIF’s total expense ratio. UKML Shareholders should decide for
themselves whether or not the return is reasonable and
achievable.
(4) Combined cost ratio indicative and based on TwentyFour
modelling. UKML standalone cost ratio as published in UKML’s key
information document published in January
2021.
IMPORTANT INFORMATION
The final terms of the Scheme will be detailed in documentation
to be published in due course, and those final terms may be
different than those described in this announcement. The
Scheme will be subject to certain conditions, which if not
satisfied or waived, will mean that the Scheme will not
proceed. Nothing in this announcement shall form the basis of
or constitute any offer or invitation to sell or issue, or any
solicitation of any offer to purchase or subscribe for any shares
or any other securities nor shall it (or any part of it) or the
fact of its distribution, form the basis of, or be relied on in
connection with, any contract therefor.
None of TFIF's or UKML's shareholders or prospective investors
in either company, should base any financial decision on this
announcement. Acquiring investments to which this
announcement relates may expose an investor to a significant risk
of losing all of the amount invested. Persons considering
making investments should consult an authorised person specialising
in advising on such investments. This announcement does not
constitute a recommendation concerning shares in either TFIF or
UKML. The value of shares can decrease as well as increase.
Nothing contained herein constitutes or should be construed as
(i) investment, tax, financial, accounting or legal advice (ii) a
representation that any investment or strategy is suitable or
appropriate to individual circumstances or (iii) a personal
recommendation.
Numis Securities Limited (“Numis”), which is authorised and
regulated in the United Kingdom by
the Financial Conduct Authority (“FCA”), is acting for TFIF and
UKML and for no one else in connection with the Scheme and will not
regard any other person as its client and will not be responsible
to anyone other than TFIF or UKML for providing the protections
afforded to clients of Numis or for advising any such person in
connection with the contents of this announcement or the
Scheme.
This announcement does not constitute an offer or solicitation
to acquire or sell any securities in either of TFIF or UKML. This
announcement is not for distribution in or into the United States or to any US Person,
Australia, Canada, Japan, New
Zealand, the Republic of South
Africa, any European Economic Area state or any other
jurisdiction in which its distribution may be unlawful. A “US
Person” is any person who is not a “Non-United States Person” as
defined in US Commodity Futures Trading Commission Rule 4.7. This
announcement is not an offer of securities for sale in the United States or elsewhere. The securities
of TFIF and UKML have not been and will not be registered under the
United States Securities Act of 1933, as amended (the “Securities
Act”), and may not be offered or sold in the United States unless registered under the
Securities Act or pursuant to an exemption from such registration.
Neither TFIF or UKML has been and will be registered under the US
Investment Company Act of 1940, as amended, and investors are not
entitled to the benefits of that Act. There has not been and there
will be no public offering of the either TFIF or UKML's securities
in the United States.
Forward looking statements
The information contained in this announcement contains certain
‘forward-looking statements’ with respect to TFIF and UKML's
expectations relating to the future financial condition,
performance, results, strategy and objectives of TFIF following the
implementation of the Scheme. For example, statements
containing words such as ‘may’, ‘will’, ‘should’, ‘continue’,
‘aims’, ‘estimates’, ‘projects’, ‘believes’, ‘intends’, ‘expects’,
‘plans’, ‘pursues’, ‘seeks’, ‘targets’ and ‘anticipates’, and words
of similar meaning or the negative thereof, may be
forward-looking. By their nature, all forward-looking
statements involve risk and uncertainty because they are based on
information available at the time they are made, including current
expectations and assumptions, and relate to future events and
circumstances which may be or are beyond TFIF's or UKML's control,
including among other things statements relating to the expected
benefits of the proposed Scheme.
TFIF's actual future financial condition, performance and
results may differ materially from the plans, goals, strategy and
expectations set forth in the forward-looking statements and undue
reliance should not be placed on forward-looking statements.
Except to the extent otherwise required by applicable law, none of
TFIF, UKML or TwentyFour are under any obligation to update any of
the forward-looking statements contained in this announcement or
any other forward-looking statements they may respectively make.
Past performance is not an indicator of future results and unless
expressly stated otherwise, no statement contained or referred to
in this announcement is intended to be a profit forecast, estimate
or projection of TFIF's future results.
Any shareholder action required in connection with the proposed
Scheme will only be set out in documents sent to or made available
to UKML's shareholders and any decision made by such shareholders
should be made solely and only on the basis of information provided
in those documents.