NexPoint Submits Competing Proposal for UDF IV in Ongoing Dispute
By Staff
In the latest in the ongoing saga, NexPoint Real Estate Opportunities LLC has submitted a competing proposal to the board of trustees of United Development Funding IV, a non-traded real estate investment trust, ahead of the special meeting of UDF IV shareholders to vote on the proposed merger of UDF IV with Ready Capital (NYSE: RC). The meeting is scheduled for March 4, 2025.
According to NexPoint, their submitted confidential proposal mirrors many elements of the Ready Capital merger but provides shareholders with superior economic terms, including enhanced balance sheet distributions, full entitlement to contingent value rights, or CVR, loan proceeds and potentially large indemnification reimbursements. NexPoint also claims that their offer contemplates balance sheet distributions that NexPoint believes will provide shareholders with a higher pre-closing dividend than the Ready Capital merger. Shareholders would also receive 100% of the net principal and interest recovered on the CVR loans.
By comparison, NexPoint says that the Ready Capital merger entitles Ready Capital to 100% of the CVR loan proceeds until it has recovered $13.3 million net, and thereafter, shareholders only receive credit for 60% of additional net recoveries, which UDF IV estimates to be as much as $20 million.
Additionally, NexPoint has proposed to cease further indemnification payments for the imprisoned management team and recipients of the improper indemnity payments associated with the SEC disgorgement and intends to recover those improperly advanced legal fees and indemnity payments, with 100% of net recoveries being distributed to shareholders.
In connection with the proposal, NexPoint commented: “Given the indefensible lack of engagement by the UDF IV Board with one of its largest shareholders, NexPoint will not vote at the March 4 special meeting on the proposed Ready Capital transaction. We implore UDF IV to postpone the meeting by one month to properly evaluate our superior proposal, which offers a better economic outcome for shareholders and would finally end the litany of governance failures at UDF IV, including fraud, disclosure violations, poor performance and persistent illiquidity. We urge the UDF IV board to give our proposal full consideration consistent with its fiduciary duty, and we hope to engage in meaningful discussions expeditiously.”
NexPoint has also asked shareholders to take no voting action until the UDF IV board has fully assessed NexPoint’s proposal and engaged meaningfully in discussions with NexPoint and has stated that shareholders who have already cast their vote may withdraw their vote by reaching out to their broker.
The dispute between NexPoint and UDF IV goes back to 2018 when the SEC ordered UDF executives to pay $8.3 million for misleading investors by failing to disclose that it could not pay its distributions and was using money from a newer fund to pay distributions to investors in an older fund.
In 2022, NexPoint sued UDF IV, alleging that the UDF advisers and executives used shareholder funds to pay for their SEC settlement obligations and then lied about it. In February 2024, NexPoint followed up stating that it was still seeking “to rectify the harm that shareholders have endured for years” and that it “intends to continue to push for a full election of all independent trustees.”
In June 2024, UDF IV pushed back on NexPoint’s nominees. NexPoint quickly responded, encouraging shareholders to vote for its board nominees. In December of 2024, independent proxy advisory firm Egan Jones recommended that shareholders vote for NexPoint nominees.
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