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PSource Struct Debt (PSD)

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Thursday 05 April, 2012

PSource Struct Debt

Winding Down Proposals

RNS Number : 9588A
PSource Structured Debt Limited
05 April 2012
 



PSOURCE STRUCTURED DEBT LIMITED

WINDING DOWN PROPOSALS

5 APRIL 2012

 

Further to its announcement of 30 March 2012, PSource Structured Debt Limited announces further details of its proposals for a managed winding down and consequential changes of the Company's investment objective and policy, and amendments to the investment management and management agreements.

 

The Proposals

Subject to the Resolution being duly passed, the Company will implement the Proposals, which comprise the following components.

Change of the Investment Objective and Policy

It is proposed that the Investment Objective and Policy be replaced by the following:

"The Company will be managed with a view to realising its existing investments comprised in its Portfolio in an orderly and timely manner (such realisations to be effected in such manner as the Investment Manager may determine, acting in its discretion under the control and supervision of the Board) and return the proceeds of such realisations to shareholders at such times and from time to time and in such manner as the Board may in its absolute discretion determine.

The Company will not make any new investments, but may at the Board's discretion invest in or advance additional funds to or otherwise participate in the financial restructuring of companies in which the Company has Investments at the Restatement Date and to use its discretion to hold cash or short-term money market instruments from time to time for such purposes as the Board determines appropriate, including for the payment of dividends, the meeting of expenses, and the funding of share buybacks. Cash will be held in accounts with institutions which are rated BBB (or above) by Standard & Poor's or an equivalent rating by another reputable agency (or wholly owned subsidiary of such institutions).

The Company will not enter into long term borrowing, but reserves the right to use overdraft facilities on a short term basis for liquidity management purposes."

The Winding Down

During the Winding Down, the Company will continue actively to seek the realisation of Investments. The timing and value of such realisations will be subject to asset-specific factors and to market conditions.

Specifically the Company's ability to realise maximum value for Shareholders will be dependent on a successful exit of its investment in Parabel.

The potential timing and value realisable from Parabel and other investments will be regularly monitored by the Board and Shareholders will be informed of all material developments through a Company announcement to a RIS.

Shareholders should expect that, under the terms of the Winding Down, the Board will be committed to distributing as much of the available cash as quickly as reasonably practicable, having regard to cost efficiency and working capital requirements. However, in order to minimise the administrative burden and costs, whilst returns of cash are expected to be made regularly, this will not necessarily be as soon as cash becomes available.

The Board currently envisages returning capital to Shareholders by way of dividends, share buybacks or tender offers. Details of any such proposals and any resolutions required to implement them will be circulated by the Board as and when it considers, at its sole discretion, that the Company has sufficient funds to return capital to shareholders.

No Liquidator will initially be appointed and the Portfolio will continue to be managed by the Investment Manager (under the control and supervision of the Board).

Costs

The Board has taken, and will continue to take, such measures as it believes are available to reduce the costs borne by the Company. Specifically the Board has:

● negotiated amendments to the Management Agreement and Investment Management Agreement, which are described in detail below;

● amended or given notice of termination of the arrangements with a number of the Company's other service providers; and

● reduced the aggregate Directors' fees payable in the year ended 31 March 2013 by 37.4% to £67,000.

Continuation of listing

During the Winding Down it is expected that the Shares would continue to be admitted to the Official List and to trading on the London Stock Exchange until such time as the Company no longer meets the requirements of the Listing Rules (in particular by reason of not having an adequate spread of investment risk).

The Board believes that maintaining the listing of the Shares is in the best interests of Shareholders for the following reasons:

● the listing should allow the Shares to remain eligible for ISAs and SIPPs;

● the listing will allow for the maintenance of a daily market price in the Shares, as required by certain Shareholders, and allows for continued trading in the Shares; and

● maintaining the listing may help prevent certain Shareholders from breaching their own investment restrictions, for example where they are required to hold listed securities or instruments with daily liquidity.

The cost efficiency of retaining the listing of the Shares during the Winding Down will continue to be monitored and reviewed by the Board on an ongoing basis. The Board may propose a cancellation of that listing before it ceases to comply with the Listing Rules although any such proposal, if ahead of an appointment of a Liquidator, would be subject to approval of Shareholders. It is not currently possible for the Board to provide Shareholders with an estimated timing for such a delisting proposal, as it has no certainty as to the evolution of the Portfolio's spread of investment risk during the Winding Down.

Once investments have been realised such that the Board believes that the Company then no longer fulfils, or will no longer fulfil, the requirements of the Listing Rules for the continued admission of the Shares on the Official List, the Board will notify the UK Listing Authority and the London Stock Exchange and request the suspension and subsequent cancellation of the listing and trading of the Shares. As soon as reasonably practicable thereafter, the Board will convene a meeting of Shareholders to consider a resolution for the winding up of the Company, and if such a resolution is required by the Listing Rules, a resolution for the cancellation of the Company's listing.

In the event that the Proposals are not approved the Board will give consideration to the eligibility of the Shares for continued admission to the Official List. The Board does not consider that the Portfolio currently has an adequate spread of investment risk to enable ongoing compliance with the Listing Rules and therefore, absent any material developments at the Portfolio level and in particular a material reduction of the size of the Company's investment in Parabel, it is likely that the Company will be ineligible for continued admission to the Official List and a delisting will be required.

Amendments to Investment Management Agreement and Management Agreement

If the Resolution is approved by the Shareholders, it is proposed that the Company makes certain amendments to the Investment Management Agreement and Management Agreement as summarised below.

Change of the Investment Objective and Policy

Management of the Portfolio by the Investment Manager will change so that the Investment Manager will (i) not make any new investments (other than additional funds advanced to or other participation in the financial restructuring of the Investments, and cash and near cash equivalent securities) and (ii) will manage the existing investments with a view to realising such investments in an orderly and timely manner.

Change of the Termination Provisions

The Agreements will be amended so that either the Company or the Investment Manager or Manager (as relevant) can terminate the relevant agreement by giving to the other written notice to be effective on 31 March 2013. The Agreements would be further amended so that at any time after 31 March 2013, notice in writing will take immediate effect. Except as described below, the termination provisions of the Agreements will otherwise be unaltered.

Management fee

The Management Agreement will be amended so that the annual management fee would be paid at the rate of 2 per cent. per annum of NAV for 12 months and will thereafter drop to a rate of 1.25 per cent. per annum of NAV. The management fee will continue to be accrued daily and calculated and paid monthly.

Performance Fee

The basis for calculating the performance fee will not change.

The Company will waive the condition (agreed in January 2009 and summarised above) that any performance fee payments would be deferred until such date as the Company has resumed payment of dividends to Shareholders.

The Manager (and in turn the Investment Manager) has agreed to waive 25 per cent. (being US$ 1,395,296) of its entitlement to the deferred Performance Fee. The Manager (and in turn the Investment Manager) has further agreed that it will only be entitled to receive the remaining 75 per cent. (being US$ 4,185,888) of its entitlement to the deferred Performance Fee if following such waiver:

● Parabel is the subject of an IPO whereby its shares are listed on either NASDAQ or the NYSE or another stock exchange approved by the Company, and the proceeds of such IPO are distributed to the Company by PetroTech; or

● more than 50 per cent. of the shares of common stock in Parabel, attributable to the Company by virtue of its investment in PetroTech, are sold by private sale and the proceeds of such sale net of the proportion of expenses of PetroTech in respect of such sale attributable to the Company which were sold are distributed to the Company by PetroTech.

The Manager (and in turn the Investment Manager) has agreed that if any additional Performance Fee becomes due to it following the date of this document, it will be paid such amount only if one of the events above occurs prior to termination of the Management Agreement (and in turn the Investment Management Agreement) in accordance with its terms. Any further entitlement to Performance Fees would be subject to the Company achieving a trigger NAV per Share, which as at the date of this document was $2.23 and will continue to compound at 5% per annum. By way of comparison the NAV per Share as at 29 February 2012 was $1.27.

The Manager (and in turn the Investment Manager) has agreed that (subject to applicable law) if any Performance Fee (including the balance of deferred Performance Fee) becomes payable to the Manager under the Management Agreement (and in turn the Investment Manager under the Investment Management Agreement), the Company may, at its absolute discretion, discharge its obligation to pay such amount by transferring to the Manager (and in turn the Investment Manager) of shares in PetroTech or Parabel (to the extent directly held by the Company at the time of payment) in number, as agreed between the Company, the Manager and the Investment Manager, having an aggregate value equal to the Performance Fee due to the Manager under the Management Agreement (and in turn the Investment Manager under the Investment Management Agreement), calculated by reference to:

● The price per share at which shares of common stock of Parabel were offered in respect of IPO; or

● The price per share at which shares in Parabel were sold by private sale.

In each case, the calculation of the aggregate value of any PetroTech and/or Parabel shares delivered to the Manager (and in turn to the Investment Manager) will take into account the proportion of the expenses of PetroTech in respect of the IPO or private sale attributable to those shares and the proportion of the taxes attributable to those shares that would have been incurred by PetroTech had the allocable proceeds of the IPO or private sale been distributed to the Company which will be the "Additional Value Considerations".

The Manager (and in turn the Investment Manager) has agreed that if no event as set out above has occurred prior to the termination of the Management Agreement (or Investment Management Agreement, as relevant) the Company may satisfy the whole of its obligation to pay any Performance Fee due or which may in future become due by transferring to the Manager (and in turn the Investment Manager) of shares in Parabel and/or PetroTech (to the extent directly held by the Company at the time of payment) having an aggregate value equal to the amount of such Performance Fee calculated on the basis that one share of common stock of Parabel is valued at US$8.70 plus any Additional Value Considerations, provided that in the event that within six (6) months of the date of transfer of shares in payment of the Performance Fee hereunder, either an IPO or private sale (the "Revaluation Events") has occurred or there is a binding contract or agreement for the same, the number of shares in PetroTech and/or Parabel Inc., as applicable, required to pay in full the Performance Fee then due and owing will be recalculated using the per share Parabel Inc. value used in such applicable Revaluation Event (and subject to any Additional Value Considerations). To the extent that the recalculated number of such payment shares is greater than the number of payment shares previously transferred to the Manager, the Company will transfer to the Manager (and in turn to the Investment Manager) such number of shares as equals the difference between the two share calculations. To the extent that the recalculated number of such payment shares is lower than the number of payment shares previously transferred to the Manager, the Manager (following a transfer from the Investment Manager) shall transfer to the Company such number of shares as equals the difference between the two share calculations. The obligations referred to in the previous two sentences are referred to in this Agreement as the "True Up Obligation".

The Manager and Investment Manager have agreed with the Company to execute all such documents and to do all such acts and things as for the time being lie within their power as may be reasonably required, taking into consideration applicable law and their obligations to treat all customers fairly, in furtherance of a transfer of such shares in PetroTech Holdings or Parabel to the Manager (and in turn the Investment Manager).

The Manager and Investment Manager have acknowledged and agreed for the avoidance of doubt that the Performance Fee payable to the Manager (and in turn to the Investment Manager) by the Company may be reduced if an event as set out above occurs and the aggregate value or amount (the "Relevant Value") calculated as set out above of the Company's retained holding of shares in PetroTech or Parabel or the proceeds of sale as the case may be is less than the amount of Performance Fee due to the Manager, the amount of Performance Fee due and payable will not exceed the Relevant Value and may be satisfied in full by transfers in accordance with the above.

The Manager and Investment Manager have acknowledged and agreed that such shares in PetroTech or Parabel, as referred to above, shall be subject to the same lock-up period (if any) and any other relevant restrictions as that apply to any shares in PetroTech or Parabel, as applicable, held by the Company following the occurrence of either of the events set out above.

Subject to the True Up Obligation the Manager and Investment Manager have agreed that upon completion of the transfer of shares of PetroTech and/or Parabel, if the Management Agreement (and the Investment Management Agreement) has been terminated, the Company shall have no further obligation to pay any amount by way of Performance Fee.

If there is a dispute between any of the Company, the Manager and the Investment Manager as to amounts payable or the number or value of shares in PetroTech or Parabel to be transferred, the certificate of the auditors to the Company acting as expert shall be final and binding (absent manifest error).

The Company and the Manager have each agreed to consider in good faith any proposals which the Investment Manager may make to address and mitigate any potential tax risk that may arise as a result of the transfer of shares in PetroTech or Parabel Inc. in the payment of any Performance Fee prior to the transfer thereof to the extent that such proposed transfer shares are either non-marketable securities or are marketable securities that are subject to restriction on resale for any reason at the time of transfer. The Investment Manager has the right to waive its entitlement to such shares or designate an alternative transferee to receive such shares.

The effect of the changes to the Performance Fee will be that, subject to the occurrence of either of the events set out above, the deferred Performance Fee less the amount waived by the Manager (and in turn the Investment Manager) will be payable (and subject to the payment not exceeding the Relevant Value) even if no further dividends are payable to Shareholders.

 

Publication of Circular and General Meeting

The Proposals are subject to Shareholder approval. A circular convening a general meeting will be despatched once regulatory approvals are granted.

 

Enquiries:

 

PSource Capital Limited

Soondra Appavoo

Tel. +44 20 7925 3156

 

Numis Securities

Nathan Brown

Tel. +44 (0) 20 7260 1426

 

DEFINITIONS

Agreements: the Investment Management Agreement and the Management Agreement

Articles: the Company's articles of association

Company: PSource Structured Debt Limited

Directors or Board: the directors of the Company

EGM: the extraordinary general meeting of which notice is attached to this document

Investments: the investments excluding cash comprised in the property of the Company or any subsidiary of the Company

Investment Consultant: PSource Capital Limited

Investment Management Agreement: the investment management agreement made between the Company, the Investment Manager and the Manager, dated 31 July 2007, as amended from time to time

Investment Manager: Laurus Capital Management, LLC

Investment Objective and Policy: the investment objective and policy as set out in the Company's most recent prospectus

IPO: an initial public offering of shares in a company

Law: the Companies (Guernsey) Law 2008 (as amended from time to time)

Liquidator: such liquidator as may be appointed to carry out a liquidation of the Company

Listing Rules: the listing rules made by the UK Financial Services Authority under the Financial Services and Markets Act 2000

London Stock Exchange: London Stock Exchange plc

Management Agreement: the management agreement made between the Company and the Manager, dated 31 July 2007, as amended from time to time

Manager: PSource Capital Guernsey Limited

Managers: independent investment managers of the underlying funds in which the Company has invested, as selected by the Investment Manager

NASDAQ: The National Association of Securities Dealers Automated Quotations stock exchange

Net Asset Value or NAV: the total assets of the Company less its total liabilities (including accrued but unpaid fees) valued in accordance with the Company's accounting policies or the proportion of the same attributable to any class of Shares as the context requires

NYSE: the New York Stock Exchange

Official List: the Official List of the UK Listing Authority

Parabel: Parabel Inc. (formerly PetroAlgae Inc.)

Performance Trigger: the Performance Trigger has been achieved on a Performance Fee calculation date if on that date total return NAV per Ordinary Share is equal to or exceeds trigger NAV

Performance Fee: the performance fee payable in accordance with the Management Agreement (and in turn the Investment Management Agreement)

PetroTech: PetroTech Holdings Inc.

Portfolio: the portfolio comprising all the Investments

Proposals: the proposals set out in this document for the Winding Down, changes to the Investment Objective and Policy and amendments to the Management Agreement and Investment Management Agreement

RIS: a regulatory information service

Resolution: the ordinary resolution to be set out in the notice of the EGM approving the Proposals

Restatement Date: 5 April 2012

Shares: ordinary shares of no par value in the capital of the Company

United States, USA or US: the United States of America, its territories and possessions, any state of the United States of America and the District of Columbia

Winding Down: the proposed managed winding down of the Company as described in this document

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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