Proposed Merger

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: [phone]

UKML
Chris Waldron, Chairman
Via Numis

Numis, Financial Adviser and Corporate Broker to UKML
Nathan Brown / Vicki Paine
Tel: [phone]

Northern Trust International Fund Administration Services (Guernsey) Limited
Company Secretary
Tel: [phone]

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.