The major banks' retreat from the lower end of the lending market is a familiar theme to anyone who watched the rise of payday loans companies after the financial crisis. Another major beneficiary of this trend has been the so-called 'direct lenders' to small businesses, and Ranger Direct Lending is hoping to capitalise on this trend as it seeks to raise up to £155m in a main market listing next month.
The investment trust, which will be managed by Texas-based asset manager Ranger Capital, plans to use funds from the IPO to buy portfolios of loans made to small businesses in the US by direct lenders outside the traditional banking sector, a market which was worth $50bn (£34bn) last year. The group may also invest in direct lending in other jurisdictions, and spend up to 10 per cent of its capital on shares in the direct lending platforms themselves.
Ranger Capital will focus on debt instruments yielding 12-13 per cent a year, but clearly believes it can pass on the higher interest rates charged by direct lenders to Ranger shareholders. Once the funds are fully invested (and management fees are deducted) the trust is hoping to pay a dividend yield of 10 per cent on the float price, payable in quarterly instalments. At least 75 per cent of the loan portfolio - which will comprise a range of financing situations and issuers - will be secured against commercial assets or by personal guarantees.
