Highlights Ironsides’ Nominees’ Poor Track Record
and Self-Interested Proposals
Fifth Street Senior Floating Rate Corp. (NASDAQ:FSFR) (“FSFR” or
the “Company”) announced today that it has filed and is mailing a
letter to stockholders in connection with the Company’s 2016 Annual
Meeting of Stockholders to be held on April 7, 2016.
The letter highlights the FSFR Board of Directors’ efforts to
drive enhanced performance as well as the expertise of its
directors, including the two standing for re-election at the 2016
Annual Meeting, Ivelin Dimitrov and Brian Dunn.
The letter goes on to cite the many risks of the proposals, as
well as the poor track record of the nominees, put forth by
Ironsides Partners Special Situations Master Fund II L.P.
(“Ironsides”). Specifically, the letter outlines:
- The less than stellar track record of MVC Capital, Inc. during
Ironsides’ founder and CIO Robert Knapp’s lengthy leadership tenure
on its board of directors, which includes poor operating
performance and inability to timely file its financials with the
Securities and Exchange Commission (“SEC”);
- Richard Cohen’s repeated rejections as a nominee to other
boards of directors; and
- Ironsides’ misleading statements about a possible FSFR sale or
business combination, which would almost certainly not be in the
best interests of all FSFR stockholders.
This letter and other, previously mailed materials regarding the
Board of Directors’ recommendations for the FSFR 2016 Annual
Meeting, including a Fact Sheet outlining the key reasons to
support FSFR’s Board and nominees, have been filed with the SEC,
and can be found on the Investor Relations section of the Company’s
website at fsfr.fifthstreetfinance.com.
The full text of the letter follows:
Dear Fellow Stockholder,
In just a few short weeks, you will be asked to make an
important decision regarding the future of Fifth Street Senior
Floating Rate Corp. (“FSFR” or the “Company”).
On April 7, 2016, at this year’s Annual Meeting of Stockholders,
FSFR stockholders will be faced with a stark choice: to support the
Company’s director nominees, with their intimate knowledge of our
business and commitment to creating value for all stockholders; or
to elect the nominees of one dissident, short-term stockholder, who
bring a poor track record and little to no relevant experience that
is not already well represented on FSFR’s Board of Directors.
We urge you to protect the value of your investment by voting
the WHITE proxy card for FSFR’s experienced and
highly qualified director nominees, and against the disruptive and
harmful proposals put forward by Ironsides Partners Special
Situations Master Fund II L.P. (“Ironsides”).
THE FSFR BOARD AND ITS NOMINEES ARE
HIGHLY ENGAGED, EXPERIENCED AND ALIGNED WITH
STOCKHOLDERS
The FSFR Board of Directors and management team are focused on
enhancing value for all FSFR stockholders. We have taken—and will
continue to take—substantial steps to drive strong performance and
profitable growth across the Company. FSFR has very carefully
considered the composition of its Board of Directors. Your seven
directors are talented, seasoned professionals, each of whom brings
an array of experience and expertise vital to the Company’s
success.
FSFR’s directors, including Ivelin Dimitrov and
Brian Dunn, who are up for election at the
upcoming Annual Meeting, are committed to promoting value for all
stockholders and continuing to execute on a number of strategic
priorities to drive enhanced value for all FSFR stockholders. Under
the Board’s guidance, the Company has continually stood out among
its peer group—a group of 18 externally managed BDCs—in the
following ways:
- One of the lowest base management fees among
its BDC peers, with only one out of the 18 peer companies paying a
lower fee;
- An efficiency ratio of total non-interest
expenses to total investment income of 37.6%, below the 40.2%
median ratio for its peer group; and
- An expense ratio of total non-interest
expenses to average assets of only 2.5%, with only three of 18
peers reporting a lower ratio.
The Company’s nominees continue to be critical for FSFR to
maintain its strong position compared to its peers and executing on
the Company’s strategy to enhance value for all stockholders.
- Ivelin M. Dimitrov: As CEO of FSFR and CIO of
the Fifth Street platform, Mr. Dimitrov’s knowledge of the
Company’s business, operations and strategy is unparalleled. He is
deeply invested in the Company’s success and brings substantial
experience in financial analysis, underwriting, valuation and
investment research.
- Brian S. Dunn: With 19 years of marketing,
logistical and entrepreneurial experience working at
consumer-oriented companies, Mr. Dunn provides invaluable guidance
and a unique perspective to our Board. Mr. Dunn’s history and
dedication to the FSFR Board provides him with important
institutional knowledge of the Company, its operations, as well as
the business and regulatory issues facing BDCs.
A VOTE FOR IRONSIDES IS A VOTE FOR RISK
AND UNCERTAINTY
Alternatively, voting for Ironsides’ nominees and supporting its
proposals, which would terminate FSFR’s existing agreement with its
investment advisor, Fifth Street Management LLC (“FSM”), would be
highly detrimental to the Company. In addition to the numerous
risks that would result from removing FSM as FSFR’s investment
advisor, Ironsides’ nominees—Robert C. Knapp and Richard W.
Cohen—bring little to the table besides the expectation that they
will support Ironsides’ value-destroying agenda. In fact, Mr. Knapp
said in a recent interview, “I’m not saying we can run the company
better…”1
ROBERT KNAPP’S QUESTIONABLE BDC TRACK
RECORD:
HISTORY AT MVC CAPITAL SUGGESTS A
NEGATIVE IMPACT ON FSFR AND ITS STOCKHOLDERS
Mr. Knapp, founder and CIO of Ironsides, has served on the board
of directors of MVC Capital Inc. (“MVC Capital” or “MVC”)—an
externally-managed BDC like FSFR—for over 13 years. During that
time he has acted as Lead Independent Director, member of the
Compensation Committee and Chairman of the Valuation Committee.
Over the course of his lengthy tenure as a key member of
the board, MVC Capital has been plagued with issues, including loss
of capital, poor credit performance, high fees and depressed
trading. His less than stellar track record has led to
multiple concerns regarding Mr. Knapp, including:
- MVC Capital has consistently maintained, and received
board approval for, higher management fees. Ironsides has
criticized FSFR’s management and incentive fee structure claiming
that Mr. Knapp will work to lower these fees should he win a seat
on the FSFR Board. Yet MVC Capital has a 1.5% management fee, as
compared with FSFR’s 1% fee, one of the lowest in the sector. MVC
also has a 20% incentive fee above a 7% hurdle and no total return
hurdle. As a board member of MVC, Mr. Knapp has not followed his
own advice, and it is clear that FSFR’s current directors are more
committed than Mr. Knapp to ensuring that management fees remain
low and closely tied to performance.
- MVC Capital has the worst efficiency ratio among the
companies in FSFR’s peer group. While FSFR’s ratio of
total non-interest expenses to total investment income was 37.6%
for the last fiscal year—and the median for FSFR’s peer group was
40.2%—MVC Capital reported an abysmal 84.8% efficiency ratio, worse
than all the companies in FSFR’s peer group by far.
- During Mr. Knapp’s time on MVC’s board, MVC Capital has
had an extremely poor trading record. Ironsides points to
FSFR’s discount to NAV as a primary concern and basis for
nominating Mr. Knapp. However, MVC Capital is currently trading at
a 48% discount to NAV—a significantly larger discount than FSFR’s
and worse than any company in FSFR’s peer group. Additionally, MVC
Capital has generally traded at a substantially larger discount
compared to FSFR’s peers on an LTM, two- and three-year average
basis. Mr. Knapp’s checkered track record at MVC Capital instills
NO CONFIDENCE that he could assist in narrowing FSFR’s discount to
NAV.
- MVC Capital’s credit performance is substantially worse
than FSFR’s peers. MVC Capital’s credit quality as
measured by realized and unrealized gains/losses as a percentage of
average assets is notably worse than what both FSFR and its peer
group have reported. Over a three-year period, FSFR has reported 2%
realized losses and its peer group reported an average of 2.4%
realized losses, while MVC Capital reported 10.8% realized losses.
This is not the kind of performance FSFR hopes to achieve as your
Board works diligently to enhance value for all stockholders.
- During Mr. Knapp’s long tenure at MVC Capital, MVC has
experienced significant loss in capital. Due to its poor
investment track record, MVC Capital’s NAV per share has declined
precipitously compared to companies in FSFR’s peer group. MVC
Capital’s NAV per share declined 13%, 18.3% and 24.9% over the past
one-, three- and five-year periods, respectively. By contrast, the
average decline of FSFR’s peer group is 4.3%, 5.9% and 8.6% over
the same periods. Additionally, FSFR experienced 26% less of a
decline in NAV over the past one-year period as compared with Mr.
Knapp’s MVC Capital.
- With Mr. Knapp on MVC’s board, MVC Capital has had
serious reporting violations with both the SEC and NYSE.
As a result of its failure to timely file its Form 10-K pursuant to
SEC rules or even hold its 2015 annual meeting of stockholders, MVC
Capital has been placed on the NYSE noncompliant issuers list, and
has had “below compliance” and “late filer” indicators added to its
ticker symbol. Surely the Lead Independent Director of a company
with such a lackluster commitment to basic regulatory compliance
would not be considered a credible candidate to serve on FSFR’s
Board.
Given the numerous issues that Mr. Knapp, in his leading role on
the MVC board, has faced and continues to face, stockholders should
consider whether Mr. Knapp—with such a poor track record—has the
expertise or ability to do better at FSFR—we believe not!
Simply put, FSFR stockholders deserve better than Mr.
Knapp.
RICHARD COHEN: WHAT DOES HE ADD THAT FSFR
DOESN’T ALREADY HAVE?
BRINGS NO RELEVANT SKILLS, EXPERIENCE OR
EXPERTISE NOT ALREADY WELL REPRESENTED ON THE FSFR BOARD AND HAS
BEEN REPEATEDLY REJECTED IN OTHER BOARD ELECTIONS
Richard Cohen, Ironsides’ other nominee, brings no experience
that is not already well represented on the FSFR Board. Given the
diversity, experience and qualifications of your Board, we are
confident that Mr. Cohen would not be a valuable addition to
FSFR. Indeed, we believe his sole role on the FSFR Board
would be to serve the interests of a single stockholder
—Ironsides—not those of all FSFR stockholders.
Given his recent nominations and failures, clearly FSFR is not
alone in questioning what value Mr. Cohen would bring to a board.
Stockholders of other companies have rejected Mr. Cohen
three out of the four times he was nominated to a board and
stockholder votes were held. This includes a board
election just last year where Ironsides also nominated Mr. Cohen
for election, along with Richard Knapp, and both were soundly
defeated by incumbent nominees.
Ironsides highlights Mr. Cohen’s experience as a lawyer and his
time serving on other corporate boards. However, your own Chairman,
Bernard D. Berman, worked as a corporate attorney for many years
and brings such perspective to the FSFR board. While we acknowledge
Mr. Cohen’s background, a number of FSFR’s Board members boast
similar resumes—including experience serving on other company
boards—and each has more extensive knowledge of FSFR and its
business than Mr. Cohen.
Plainly, the FSFR Board does not believe Mr. Cohen can
contribute as much as Mr. Dimitrov, Mr. Dunn or any other current
FSFR Board member.
IRONSIDES’ STATEMENTS ON A POSSIBLE
BUSINESS COMBINATION ARE MISLEADING
Ironsides tries to argue that one of the best ways to deliver
value to you, as an FSFR stockholder, is to sell the Company or
seek a business combination with another BDC. Such a transaction
would only benefit stockholders of the acquiring company, and would
be potentially detrimental to FSFR stockholders for a number of
reasons, including:
- A merger or business combination at any discount to NAV (as
Ironsides proposes) will result in a permanent dilution to NAV for
FSFR stockholders;
- Merging with any of the externally managed BDCs that Ironsides
contends it would “gladly accept shares from”—including Golub
Capital BDC, Goldman Sachs BDC and TPG Specialty Lending—would
actually cause FSFR’s base management fee (currently, a low fee of
1%) to increase as a result of the higher management fees at those
other BDCs (with fees ranging from 1.375% to 1.5%); and
- Merging with any BDC would expose FSFR stockholders to the
acquiring company’s credit book—many of which include volatile
energy exposure (as high as 9%), substantially greater than FSFR’s
current exposure of only 0.7%.
As noted above, Mr. Knapp recently acknowledged, “I’m
not saying we can run the company better,” and confirmed
he is only interested in the outright sale of the Company to
achieve a hoped for immediate lift in share price.1 Clearly, his
intention is to try to turn a quick profit at your expense and not
to enhance FSFR’s performance or governance, as his proposals
suggest.
In short, pursuing a transaction along the lines of what
Ironsides has proposed might provide a convenient exit for its
short-term investment, but would almost certainly not be in the
best interests of all FSFR stockholders.
THE 2016 ANNUAL MEETING IS LESS THAN A
MONTH AWAY
VOTE THE WHITE PROXY CARD
TODAY
Please use the enclosed WHITE proxy card to vote TODAY
by telephone, by Internet, or by signing and dating the WHITE proxy
card and returning it in the postage-paid envelope
provided.
On behalf of your Board of Directors, we thank you for your
continued support.
Sincerely,
/s/ Bernard D.
Berman
/s/ Ivelin M. DimitrovBernard D.
Berman
Ivelin M. DimitrovChairman
Chief Executive Officer
|
Your Vote Is Important, No Matter How Many Or How Few
Shares You Own! |
|
If you
have questions about how to vote your shares, or need additional
assistance, |
please
contact the firm assisting us in the solicitation of proxies: |
|
INNISFREE M&A INCORPORATED |
Stockholders May Call: (877) 717-3923 (TOLL-FREE from the
U.S. and Canada) |
or
+(412) 232-3651 (from other locations) |
Banks
and Brokers May Call Collect: (212) 750-5833 |
|
REMEMBER: |
We
urge you NOT to vote using any Green proxy card sent to you by |
Ironsides, as doing so will revoke your vote on the
WHITE proxy card. |
|
If you have previously
submitted a Green proxy card sent to you by Ironsides, you can
revoke that proxy and vote for your Board of Directors’ nominees
and on the other matters to be voted on at the 2016 Annual Meeting
by voting on the enclosed WHITE proxy card. |
1 The Deal, Activist Checks into Fifth Street Senior clamoring
for sale, Jennifer Tekneci (March 9, 2016).
About Fifth Street Senior Floating Rate
Corp.
Fifth Street Senior Floating Rate Corp. is a specialty finance
company that provides financing solutions in the form of floating
rate senior secured loans to mid-sized companies, primarily in
connection with investments by private equity sponsors. FSFR's
investment objective is to maximize its portfolio's total return by
generating current income from its debt investments while seeking
to preserve its capital. The company has elected to be regulated as
a business development company and is externally managed by a
subsidiary of Fifth Street Asset Management
Inc. (NASDAQ:FSAM), a nationally recognized credit-focused
asset manager with over $5 billion in assets under
management across multiple public and private vehicles. With a
track record of over 17 years, Fifth Street's platform has the
ability to hold loans up to $250 million and structure
and syndicate transactions up to $500 million. Fifth Street
received the 2015 ACG New York Champion's Award for "Lender Firm of
the Year," and other previously received accolades include the ACG
New York Champion's Award for "Senior Lender Firm of the Year,"
"Lender Firm of the Year" by The M&A Advisor and "Lender of the
Year" by Mergers & Acquisitions. FSFR's website can be
found at fsfr.fifthstreetfinance.com.
Forward-Looking Statements
Some of the statements in this press release constitute
forward-looking statements, because they relate to future events or
our future performance or financial condition.
Forward-looking statements may include statements as to the
future operating results, dividends and business prospects of FSFR.
Words such as “believes,” “expects,” “seeks,” “plans,”
“should,” “estimates,” “project,” and “intend” indicate
forward-looking statements, although not all forward-looking
statements include these words. These forward-looking
statements involve risks and uncertainties. Actual results
could differ materially from those implied or expressed in these
forward-looking statements for any reason. Such factors are
identified from time to time in FSFR’s filings with the Securities
and Exchange Commission and include changes in the economy and the
financial markets and future changes in laws or regulations and
conditions in FSFR’s operating areas. FSFR undertakes no
obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise,
except as required by law.
CONTACT:
Investor Contact:
Robyn Friedman, Senior Vice President, Head of Investor Relations
(203) 681-3720
ir@fifthstreetfinance.com
Media Contact:
Michael Freitag / James Golden / Andrew Squire
Joele Frank Wilkinson Brimmer Katcher
(212) 355-4449
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