On 30 November 2018, IMF Bentham Limited (ASX: IMF) announced the launch of IMF’s second US Fund (FUND 4) with a maximum initial size of US$500 million. Following the release of this news, the share price of the company decreased by 0.714 percent as on 30 November 2018.
As per the release, the structure of Fund 4 will provide investors an option to roll over into a second series on the same terms as the first series, which will uplift the overall size of Fund 4 to US$1bn. The company has received binding commitments of US$375 million for the first closing. The company is expecting to finalize the second closing of remaining US$125 million investment before the end of 2018.
The structure of the Fund 4 is comprised of series of managed accounts which will, together with IMF, make investments in US litigation finance opportunities through jointly owned special purpose vehicles. The company has recently completed an Institutional Placement and Share Purchase Plan (SPP), and a conditional issue of new bonds which has raised around A$100 million. IMF is planning to use its internal cash resources to fund its capital commitment to Fund 4.
Bentham Capital Management (BCM) is a wholly owned subsidiary of IMF and it has become a registered investment adviser with the Securities Exchange Commission. BCM is going to earn management fees on deployed third-party capital from Fund 4 at rates between 1.68 percent and 2.15 percent per annum with a dollar-weighted average rate of 1.83 percent per annum.
BCM is also going to earn performance fees per investment which will be calculated on a life of fund basis. The Performance fees are going to be 20% of the profit up to an investor internal rate of return (IRR) of 20% and 30% on all remaining profits.
By earning management fees and performance fees through Fund 4, IMF’s cash flow profile is expected to improve. Further, the company’s cash flow profile will also improve through participation in equity returns equally with external investors.
The company is considering the adjusted risk-return structure of Fund 4 to be the preferred model for the group moving forward and further, the company will try to replicate this for the next Rest of the World fund (Fund 5) which is targeted for the second half of FY 2019. US law firm Katten Muchin Rosenman LLP is engaged with IMF to provide advice in relation to this transaction.
In FY 2018, the Net loss after tax of the company was $7.8 million which was a profit of $15.4 million in 2017, representing a 150% decline. The basic and diluted loss per share of the company was 6.4 percent, representing a decreased 171 percent from earnings per share of 9.0 cents over the prior year.
In the last six months, the share price of the company increased by 2.19 percent as on 29 November 2018. IMF’s shares traded at $2.780 with a market capitalization of circa $572.9 million as on 30 November 2018 (AEST 2:52 PM).
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