HMS Income Fund, a publicly registered non-traded business development company advised by a Hines affiliate and sub-advised by an affiliate of Main Street Capital Corporation, has filed a preliminary proxy statement with the SEC proposing a new advisory agreement where Main Street would become the sole adviser of the fund. The company also named a new CEO and board member, and disclosed a suspension of distributions, citing impacts of the COVID-19 pandemic.
The new investment advisory agreement must be approved by the BDC’s stockholders, who will vote at the upcoming 2020 annual meeting.
According to the proxy, the advisers entered into an asset purchase agreement on June 26, 2020. The agreement provides that MSC Adviser, an affiliate of Main Street, will acquire substantially all of the assets of HMS Adviser, an affiliate of Hines, related to its management of HMS Income Fund.
The transaction is subject to certain terms including the resignations of Gregory Geib, Peter Shaper and Janice Walker from the board and the appointment of two new disinterested directors.
In addition, if approved, Main Street CEO Dwayne Hyzak will be appointed CEO and president of the BDC, Brent Smith as chief financial officer and treasurer, and Jason Beauvais as senior vice president, general counsel and chief compliance officer.
The company’s name will also change from HMS Income Fund to MSC Income Fund Inc.
Yesterday, HMS disclosed that it appointed Hyzak to the board of directors and its pricing committee following the resignation of Nicholas Meserve.
The company also named Janice Walker as CEO and chairman following the planned resignation of Sherri Schugart, whose resignation was part of Hines’ executive succession plan that was announced in May 2019.
Main Street has served as the BDC’s sub-adviser and been represented on the board since the company’s launch in 2012. The company plans to undertake a liquidity event between four to six years after the end of the fund’s capital raise and has been its considering options.
“We believe Main Street’s experience in managing one of the top performing publicly traded business development companies in the market will serve HMS investors well,” the company said in a letter to shareholders. “These are just a few of the many reasons we chose to launch HMS with Main Street as its sub-adviser, and their transition to sole adviser represents a natural next step in the evolution of the fund.”
If the transition is approved, the annual asset management fee will be reduced from 2 percent to 1.75 percent.
HMS also disclosed that it is suspending distributions, citing impacts of the COVID-19 pandemic. “We are taking this action in order to preserve fund liquidity and protect against the uncertainty inherent in today’s market,” the company stated.
“This suspension is not dependent on or related to the proposed adviser transition to Main Street, and any further adjustments to our distribution will be communicated in a timely manner,” the company added.
Once regular distributions are reinstated, the fund plans to move from a quarterly distribution declaration to a monthly declaration “in order maintain flexibility to reinstate a distribution if and when market circumstances change.”
HMS Income Fund invests in and lends to a portfolio of small and mid-size companies throughout the United States and oversees a portfolio of approximately $1 billion of investments in 124 companies.
The company’s initial offering closed in December 2015 after raising approximately $601.2 million, including proceeds from the distribution reinvestment plan of approximately $22 million. The company’s second offering closed on September 2017 and raised approximately $242.2 million, including approximately $110.5 million in DRIP proceeds, as of March 31, 2020.