Ranger Direct Lending fund expecting substantial dividend cut

The closed-ended investment trust has seen a tricky 2017 with legal fees and cash drag now hitting income payouts.

The £220m Ranger Direct Lending fund could see its dividend pay-out for the second half of 2017 fall to nearly half of that in the first six months of the year, according to a statement by Ranger.

The cost of legal fees, relating to its holding in the Princeton fund, together with downward revisions to the expected returns from other platforms are set to “inevitably weigh on short-term returns” as will cash drag as funds are reallocated away from closing platforms into new investments.

It is expecting NAV returns in H2 2017 to average 0.4 per cent-0.5 per cent per month (c.5-6 per cent pa), and then recover to 0.6 per cent-0.7 per cent per month (c.7 per cent-9 per cent pa) in 2018, assuming the resolution of Princeton this year.

As a result aggregate dividends of c.25p are expected for H2 2017, compared to 46p in H1.

The firm estimates that legal fees associated with Princeton will reduce NAV growth by approximately 15 basis points ("bps") per calendar month for the rest of 2017. Higher loss reserves against other consumer loan platforms will also detract from returns.

The first six months of 2017 saw a 4.05 per cent appreciation in the investment trust’s net asset value [NAV] but its share price has also fallen to a substantial discount to NAV" following the announcement in April of the impairment to the Argon loan portfolio held within the Company's Princeton fund investment.

The lack of clarity surrounding this impairment, analysts at Numis Securities say, and the unwillingness of Princeton to supply detailed information to the Company or Deloitte, the Company's auditors, have added to investor uncertainty.

“The Board has made it clear that the Argon bankruptcy/Princeton fund issues are likely to weight on returns and the dividend for some time. Investor uncertainty has been reflected in the wide discount, currently 24 per cent.”

“We do not expect Ranger’s discount to narrow until there greater certainty over Princeton and cash flows start being consistently received from the Argon bankruptcy, as well as a re-establishment of the returns/dividends towards target levels. In addition, it is disappointing that some other areas of the portfolio are underperforming.”