RIA makes lowball offer for former Schorsch BDC shares

A registered investment adviser with a history of making lowball offers to investors in struggling alternative investments is on the prowl again, this time targeting the Business Development Corp. of America, which was sold in 2016 by the partnership led by Nicholas Schorsch to private equity investors.

MacKenzie Capital Management, with close to $170 million in assets, has been buying distressed nontraded real estate investment trusts and other alternative investments for decades, and in an Aug. 9 letter offered investors of Business Development Corp. $2.50 per share, or two-thirds less than its reported net asset value at the end of June of $7.43 per share.

And MacKenzie, which operates through its RIA MCM Advisers, is trying to sweet-talk investors. "Good news!" states the letter, signed by chief investment officer Robert Dixon. "You can finally get your cash out of Business Development Corporation of America and finally regain control of your money."

Business Development Corp. of America is a nontraded business development company with a $2.6 billion investment portfolio, primarily consisting of senior loans to middle-market companies at the end of last year.

Business development companies work like banks and raise capital from investors to lend to small and midsize private companies, and sectors for those loans, including energy and restaurants, have been particularly hard hit during the pandemic.

Dixon, who did not return a call on Thursday to comment, cites a variety of other reasons why investors should consider the offer. Those include the BDC's limited ability to repurchase shares from investors, as well as a lower distribution rate. Distributions are similar to dividends, and Dixon notes that the BDC cut its distribution in 2020 to 40 cents per share from 65 cents.

"If you act today, you can get your cash now and reduce your uncertainty, fees, expenses and other headaches," Dixon writes. The Mackenzie offer expires Sept. 13.

Such offers are commonly referred to as "mini-tenders" in the industry because they are for less than a 5% stake in the company and therefore are not reported to the Securities and Exchange Commission. According to Robert A. Stanger & Co. Inc., the boards of such nontraded REITs and BDCs typically recommend investors reject the offers.

The CEO of the BDC, Richard Byrne, did not return a call on Thursday to comment.

Investments like the Business Development Corp. of America are not listed on an exchange and therefore extremely difficult to sell, with a very thin secondary market. The BDC began raising money in 2011 and was originally sold to investors at $10 per share. 

Benefit Street Partners, the credit investment arm of Providence Equity Partners, a private equity firm, bought the BDC's adviser five years ago from AR Global, the private real estate partnership and REIT manager majority owned by Schorsch.