Urban Exposure has announced plans to wind down the business

By Bridging Loan Directory 19th June 2020

Following the RNS announcement on 5 May 2020 of the Company’s decision to cease seeking new business and concentrate on the management of its existing portfolio of loans to maturity, the independent non-executive directors of the Company have given detailed consideration to the future of the Company and its group (the “Group”), including the potential sale of the group’s loan book, the Company’s governance arrangements and optimal corporate structure, including the potential externalisation of the Company’s management arrangements and the repayment of the loan owing from Urban Exposure Philanthropy Limited (“UEP”).

The Company now wishes to provide an update on these various matters.

Changes to Board and management

In light of the revised strategy and requirements of the Company, the board of the Company announces that its chief executive officer, Randeesh Sandhu, pictured, and its chief operating officer, Daljit Sandhu are resigning from their positions with the Company and the Group with immediate effect.

Mr and Mrs Sandhu will receive settlement payments in lieu of notice and other contractual entitlements. They are also being released from the unexpired term of the lock-ups which they entered into over their shareholdings of the Company at the time of its admission to AIM in May 2018 and their non-compete undertakings to the Group.

In addition, following the change of strategy, William McKee intends to retire as a director at the AGM expected to be convened shortly to take place in July 2020.

The Company announces that Sam Dobbyn, the Chief Financial Officer of the Company, will now take over executive management of the Group’s operations.

The Company intends that Graham Warner, previously finance director of JO Hambro Capital Management Group Limited, will be appointed as a new independent non-executive director and to take over the role of non-executive Chairman. This appointment is subject to customary nominated adviser due diligence and any disclosures required will be made at the time of his appointment.

The Company also announces that, following its change of strategy, Ravi Takhar is resigning his directorship and positions with the Company and the Group with effect from 30 June 2020 by reason of redundancy. Mr Takhar will receive a settlement payment in lieu of notice and other contractual and statutory entitlements. He is also being released from the unexpired term of the lock-ups which he entered into over his shareholdings of the Company at the time of its admission to AIM in May 2018 and his non-compete undertakings to the Group.

Each of Sam Dobbyn, Andrew Baddeley and Nigel Greenaway intend to seek re-election at the forthcoming annual general meeting (“AGM”) as directors of the Company.

Operations

The Company will now continue with implementation of its revised strategy announced on 5 May 2020 on an internally managed basis and has terminated discussions with its management team regarding the potential disposal of Urban Exposure Amco Limited (“Amco”) and the entry into by Urban Exposure Lendco Limited (“Lendco”) of a loan servicing agreement with Amco in respect of Lendco’s loan portfolio.

The senior personnel of the Group who are engaged in the day-to-day management of the Company’s loan portfolio and are experienced in dealing with the Company’s borrowers and financing partners will continue to manage those relationships going forward.

The Company concluded discussions regarding the potential sale of its loan book on the basis that, in the prevailing market environment, a sale of all or some of the loan book would not currently be as attractive to Shareholders than holding those loans to maturity.

Outlook for the Company and the portfolio

The Company believes that an orderly wind-down of the Company has the potential to produce net returns for Shareholders in a range of 70p to 83p per ordinary share on a fully diluted basis. The Company estimates that 80% of proceeds should be returned to shareholders within 7 to 15 months.

The Company anticipates making distributions to its shareholders on a quarterly basis of the net proceeds of the loans, subject to its then-existing cash requirements. Depending on the circumstances at the time, these distributions will most likely take the form of own-share tender offers which are made to all of the company’s shareholders. In addition, the Company intends to use its shareholder authority to make on-market own-share purchases at prices that are accretive to the Company’s prevailing tangible net asset value per share, subject to the then funding requirements of the Group and, at least initially, the maintenance of a £10 million cash buffer, which is expected to reduce over time. When all the loan book has matured or been sold, the Company proposes to enter into voluntary solvent liquidation.

It should be noted that these figures represent the Company’s best estimate on the basis of information currently available to it, and its expectations in respect of market conditions, and that there can be no guarantee that any such returns will be achieved by the Company, whether at all or over any specific timescale.

UEP loan

Since its announcement on 5 May 2020, the Company has retained an independent law firm to investigate the procedures followed by the Company in respect of the making of the loan made by the Group to UEP (the “UEP Loan”) and to identify the associated governance failures, which the Company expects should be completed later this month. The UEP Loan was utilised by the Harris Federation, an established children’s educational charity, to refurbish and fund the running costs of a nursery in a disadvantaged part of south-east London. There is no evidence of any deliberate wrong-doing by any person, including Mr and Mrs Sandhu, in respect of the UEP Loan, nor is the purpose of the inquiry to investigate allegations of deliberate misconduct.

The UEP Loan was advanced by the Group on the basis that it would be repaid from UEP’s fund raising activities and from contributions from the Group’s staff. Mr and Mrs Sandhu have agreed with the Company to procure that the UEP Loan is repaid in full to the Company before 31 December 2020 (the “UEP Loan Repayment Agreement”). This commitment is being secured by Mr and Mrs Sandhu by the deposit into an escrow arrangement of 2.8 million ordinary shares in the Company beneficially owned by Mr and Mrs Sandhu, with the Company being able to require the sale of the shares from escrow and the proceeds (up to the amount then owing under the UEP Loan) being used to repay the Company. Mr and Mrs Sandhu may make payment, or part payment, of the UEP Loan in advance of 31 December 2020, in which case a corresponding portion of the shares in escrow will be released to Mr and Mrs Sandhu.

The Company has also agreed to pay legal fees incurred by Mr and Mrs Sandhu in connection with advice relating to their employment by the Group and the UEP Loan of £134,000 plus VAT (the “Costs Coverage”).

The UEP Loan Repayment Agreement and the Costs Coverage each constitute a related party transaction for the purposes of Rule 13 of the AIM Rules for Companies.

2019 audited financial results

The Company expects to release its audited financial statements for 2019 on 26 June 2020.

The audited financial statements are expected to include the following information (all currently on an unaudited basis). The Group’s revenue for 2019 is expected to be £11.1 million. Operating and finance costs before fair value reductions and exceptional items are expected to be £8.3 million, with fair value reduction in contract assets costs of £2.1 million and exceptional costs of £0.5 million. The Group is expected to report profit before tax for 2019 of £0.2 million and profit after tax of £0.1 million. The Group’s tangible net asset value as at 31 December 2019 is expected to be £133.1 million, equal to 84p per ordinary share. The Group held £22.8 million of cash as at 31 December 2019.

The audited financial statements are expected to include post balance sheet notes to the effect that COVID 19 will have a material impact on the Group’s loan receivables, on the basis of a materiality threshold of £250,000, and that the Group’s goodwill will be impaired as a result of the Group pursuing an orderly wind-down strategy.