UDF IV Shareholders Approve Merger With Ready Capital Corporation
Based on the voting results certified by United Development Funding IV’s inspector of elections, First Coast Results Inc., UDF IV shareholders approved the previously announced merger with Ready Capital Corporation (NYSE: RC) at the UDF IV special shareholder meeting held yesterday.
UDF IV is a Maryland real estate investment trust formed primarily to generate current interest income by investing in secured loans and producing profits from investments in residential real estate.
“We thank our shareholders for their support of our merger with Ready Capital,” said Jim Kenney, managing trustee and chief executive officer of UDF IV. “This is an exciting milestone for UDF IV and the trust’s shareholders, and we are pleased to be one step closer to realizing the immediate value and potential long-term upside that we believe this transaction will deliver to our shareholders. The trust’s board of trustees and I look forward to moving expeditiously to complete the merger.”
According to very recent reporting by AltsWire, NexPoint Real Estate Opportunities LLC had submitted a competing proposal to UDF IV’s board ahead of the special meeting. NexPoint said its confidential proposal mirrored many elements of the Ready Capital merger but provided 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 claimed that its offer contemplated balance sheet distributions that could 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 entitled Ready Capital to 100% of the CVR loan proceeds until it has recovered $13.3 million net, and thereafter, shareholders would only receive credit for 60% of additional net recoveries, which UDF IV estimates to be as much as $20 million.
NexPoint had also asked shareholders to take no voting action until the UDF IV board had fully assessed NexPoint’s proposal and engaged meaningfully in discussions with NexPoint.
Nevertheless, shareholders went ahead with yesterday’s vote. With it, a total of 18,781,459 shares of beneficial interest, or 61.2%, of the 30,677,003 shares issued and outstanding as of the Jan. 6, 2025, record date were voted at the special meeting. Shareholders of approximately 58.3% of shares outstanding as of the record date, representing 95.3% of the votes cast, voted to approve the merger.
The merger is expected to close in the first quarter of 2025, subject to customary closing conditions.
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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