Loans available to UK-based small and medium-sized enterprises (SME) in the UK have lagged behind funding for bigger corporations in the eight years since the 2008 crisis rocked financial markets.
This is where RM Secured Direct Lending comes in: the investment trust wants to raise £100 million in its London IPO to serve this unaddressed market, while targeting a tasty 6.5 per cent yield.
The trust reckons it can generate regular and attractive dividends by investing in direct loans to UK-based companies. Looking at groups with good cash flow visibility, earnings and strong management teams, the trust will typically loan between £2-10 million to be repaid over 3-15 years, with real assets and cash flow used as security where possible.
Targeting £100 million, management reckons the shares will sell for 100p in the IPO and will be trading on 15 December. Founded in 2010, the investment manager has since transacted over £50 billion in bonds and loans.
Highly visible long-term yield
Investors can look forward to a highly visible long-term dividend yield of 6.5 per cent on the 100p issue price when it's fully invested, expected to be paid in the year to 31 December 2018.
The proceeds will be deployed six to nine months after its admission to the market. Of course, the target comes with a heavy risk warning, but the group's looking to pay out a 4 per cent yield in its maiden reporting period.
'Secured lending offers excellent risk-adjusted returns in a part of the market under-served by banks and other non-bank lenders,' explains chief investment officer James Robson.
'RM has the capability to originate and source loans across a broad range of sectors with robust security packages which offer stable and predictable returns, while also enabling the growth and development of well-established SMEs, which are the backbone of the UK economy.'
Armed with a £136 million deliverable pipeline, £74 million of which is in a seed portfolio, the group will have a diversified market base - initially spanning agriculture, consumer discretionary and hospitality, transport, technology, media and telecoms, energy and waste, property, healthcare, industrial and micro SMEs.
The group will look to provide capital at attractive levels - for example, RMDL loaned £10 million to a UK based energy group that was be paid off in regular instalments over its six year term, with 9.1 per cent coupons.