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Nexpoint Submits Offer to Assume Management of ARC’s BDCA

NexPoint Advisors LP has submitted a management proposal to the board of Business Development Corporation of America, a non-traded business development company sponsored by AR Global, the successor business to AR Capital.

NexPoint’s proposal to BDCA includes a permanent 50 percent reduction of the company’s management and incentive fee arrangements, as well as the implementation of its stockholder loyalty program, under which NexPoint provides a 2 percent match to stockholders that invest through the program and retain their shares for at least one year. The proposal also includes the direct investment of at least $50 million in BDCA shares.

As reported by The DI Wire last month, AR Global agreed to sell all of its membership interests in the advisor of BDCA to Benefit Street subsidiary, BSP Acquisition I LLC. Benefit Street Partners is the credit investment arm of Providence Equity. The specific terms of the proposed strategic transaction, which is still subject to shareholder approval, have not been disclosed.

BDCA shares, which originally sold for $10.00 each and include an 8 percent dividend payment, have an estimated net asset value of $8.84. Two weeks ago, BDCA shares were purchased on the secondary market for $7.36 each, a 16.7 percent discount to NAV.

NexPoint believes NAV will increase under its proposal, and combined with the proposed fee discounts, would provide more than $175 million of total fee savings over the next 10 years, assuming an 8 percent annual return.

The firm said that it has submitted “extensive” due diligence directly to the independent directors of the special committee, including Edward Rendell, Randolph Read and Leslie Michelson, which included a letter of intent and four supplemental responses comprising more than 200 pages. To date, the BDCA board has not responded to any of NexPoint’s requests to meet and discuss its proposal.

“We believe the board is not giving due consideration to our proposal because the board’s interests are aligned with management, but not with the interests of the stockholders. We believe [Benefit Street Partners] has agreed to pay management a $150 million windfall upon approval of its proposal. Public filings state that BSP has no intention of lowering any management or incentive fees paid by stockholders. $150 million equates to almost 10 percent of the company’s net assets, which in our view should be directed for the benefit of the company’s stockholders,” NexPoint said.

If appointed as investment adviser to the company, NexPoint said that it will work “diligently” with the board and the company’s current management to implement a smooth transition.

NexPoint currently manages approximately $17 billion in net assets and is affiliated, through common ownership, with Highland Capital Management, a Dallas-based investment management firm and distributor of non-traded alternative investments.

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