RM Secured Direct Lending (RMDL) plans to list on the London Stock Exchange's main market later this month, and if the move goes ahead it will be only the third investment company to launch an initial public offering (IPO) this year. Hadrian's Wall Secured Investments (HWSL) ended an IPO drought in June and earlier this week BB Healthcare Trust (BBHC) raised £150m, albeit short of its £200m target.
RM Secured Direct Lending will invest in UK small- to medium-sized enterprise (SME) commercial loans, secured against a range of assets, including equipment, plant and machinery, real estate and income streams. It will target a yield of 6.5 per cent for the year to 31 December 2018 and thereafter once it is fully invested - and in the interim an annualised yield of 4 per cent. RM Secured Direct Lending is aiming to raise up to £100m from an issue of up to 100m shares priced at 100p each.
The trust will invest in senior, subordinated, unitranche and mezzanine debt instruments in the form of loans, notes, leases, bonds or convertible bonds. The typical investment size of the loans made will be £2m-£10m, and cover a loan period between three and 15 years. These will be sourced directly rather than through peer-to-peer platforms.
The trust will have an annual management charge of 0.875 per cent of its net asset value (NAV), and its managers estimate it will have an ongoing charge of between 1.25 and 1.5 per cent.
James Robson, chief investment officer of RM Capital, said: "Secured lending offers excellent risk-adjusted returns in a part of the market underserved by banks and other non-bank lenders. RM has the capability to originate and source loans across a broad range of sectors with robust security packages offering stable and predictable returns, while also enabling the growth and development of well-established SMEs who are the backbone of the UK economy."
James Carthew, research director at QuotedData, said the trust's prospective yield of 6.5 per cent is attractive and the loan size it is targeting differentiates it from other debt-focused investment trusts.
"£2m-£10m is relatively chunky," he said. "These aren't the kind of loans that end up in collateralised loan obligations (CLOs), rather the next tier down. But it's the tier above what investment companies such as Funding Circle SME Income Fund (FCIF) or SME Loan Fund (SMEF) would put their money into.
"The size of the SME corporate debt market in the UK is enormous, way bigger than the market cap of all these [debt investment trusts] put together, so there's scope for this sector to grow considerably."
However there are a number of risks that prospective investors should be aware of. A recession could hurt the trust's underlying businesses and increase borrower defaults, while if the trust takes a long time to get fully invested this might be detrimental to its yield prospects.
"It's hard to tell how it will trade after launch," adds Mr Carthew. "The underlying portfolio is not particularly liquid, but that goes for most of these debt funds. It's a long-term investment product - not something you should be thinking of trading in and out of."
The offer for subscription closes on 9 December, with dealing on the London Stock Exchange due to commence on 15 December. RM Secured Direct Lending's list of authorised distributors are: AJ Bell, Interactive Investor, Redmayne Bentley Stockbrokers, RM Capital Markets, Saga Share Direct and Selftrade.
BB Healthcare Trust, meanwhile, will invest the proceeds of its IPO in listed healthcare companies globally in sub-sectors including pharmaceuticals, biotechnology, medical devices and equipment. It is targeting a dividend for the period from incorporation to 30 November 2017 of 3.5p a share, after which it will set a target dividend each financial year equal to 3.5 per cent of its NAV on the last day of its preceding financial year, which it will pay twice a year.
BB Healthcare Trust will aim to beat the total return of the MSCI World Healthcare Index in sterling and generate a double-digit total shareholder return a year over a rolling three year period.
