GRAPEVINE, Texas, Dec. 17, 2020 (GLOBE NEWSWIRE) — United Development Funding IV (“UDF IV” or the “Trust”) announced that it recommends Trust shareholders reject the unsolicited tender offer made by hedge fund NexPoint Strategic Opportunities Fund (the “Offeror”) to purchase all Trust common shares (the “Shares”) for $1.10 per share (the “Tender Offer”).
The Trust’s Board of Trustees (the “Board”) has reviewed the terms and conditions of the Tender Offer, considered other information relating to the Trust’s portfolio of assets, current financial condition and future opportunities and evaluated various other factors it deemed relevant, such as its knowledge of the Offeror and its affiliates, including James Dondero, NexPoint Advisors and Highland Capital Management, L.P. (collectively, “NexPoint/Dondero”).
The Trust recommends shareholders reject the Tender Offer for the reasons described below.
- Shareholders who tender their Shares pursuant to the unsolicited tender offer may be deprived of the potential opportunity to realize the long-term value of their investment in the Trust, as well as restitution from Bass/Hayman.
The Board believes that the tender offer price of $1.10 per share represents a substantial discount to the current value of the Trust. In fact, the Offeror acknowledges in its Offer to Purchase that the tender offer price may not be reasonable.
- The Board has serious concerns that NexPoint/Dondero’s principal interests in taking over the Trust may be to protect the participants in the illegal short and distort fraud scheme perpetrated against the Trust.
The Trust was the victim of an illegal “short and distort” fraud scheme beginning in 2015 in which notorious hedge fund manager J. Kyle Bass (“Bass”) and his fund, Hayman Capital Management, L.P. (collectively, “Bass/Hayman”), anonymously published disparaging, false, and misleading statements about the Trust’s business operations to, among other things: (1) drive down the Trust’s stock price; (2) profit from its large short positions in the Trust; (3) destroy the Trust’s business; and (4) buy up Trust assets at fire sale prices. The Trust has spent the last five years fighting for restitution for its shareholders from Bass/Hayman on many fronts—including in ongoing litigation against Bass/Hayman.
Based on, among other things, discovery in the Bass/Hayman litigation and statements made by Mr. Dondero, the Trust is aware of meaningful connections among Bass/Hayman and NexPoint’s affiliates. So much so, that when NexPoint/Dondero previously approached the Trust about taking over Trust management, the Trust expressed its concerns and requested information from NexPoint/Dondero regarding their agreements and relationships with Bass/Hayman and others the Board believes may have been involved in the illegal short and distort fraud scheme. The Board’s concerns and its reasons for such concerns are explained in the Board’s July 22, 2020 letter to NexPoint Advisors, L.P., a copy of which is available at udfiv.com, responding to a letter from NexPoint Advisors seeking to discuss management of the Trust with the Board. Despite being asked several times to answer a conflict-of-interest questionnaire to ensure that NexPoint/Dondero’s intentions were not harmful to the Trust, NexPoint/Dondero have not provided the requested information.
As described in a bankruptcy court filing made by the creditors of Highland Capital Management, L.P., James Dondero has a long history of mistreating investors in companies that he controls. Dondero and his affiliates have been found by a variety of courts, arbitration panels, and administrative tribunals to have breached their fiduciary duties to investors, engaged in intentional fraudulent transfers, willful misconduct, and self-dealing, and/or siphoned off assets of their affiliate companies.
As the Trust continues to successfully pursue its claims against Bass/Hayman, NexPoint/Dondero have sought to increase the pressure on the Trust, including by repeatedly demanding improper and unlawful access to the Trust’s books and records and commencing a litigation campaign against the Trust. The Board believes the tender offer represents NexPoint/Dondero’s next step in a series of actions to divert attention and resources from the Trust’s much more pressing concerns.
- There is no guarantee that the Tender Offer can or will be completed on the timing, if at all, contemplated in the Tender Offer.
A number of facts reduce the likelihood that the Tender Offer will be consummated. The consummation of the Tender Offer is subject to the satisfaction, or waiver by the Offeror, of a number of conditions. For example, the Offeror conditioned the Tender Offer on the Board’s waiver of the ownership limitations in the Trust’s Declaration of Trust. The Board is not prepared to waive these limitations. In addition, the Offeror may terminate the Tender Offer before or on any scheduled expiration date without purchasing any Shares.
- Shareholders that tender their Shares will no longer receive distributions from the Trust, most recently paid at an annualized rate of 0.26 per share, with respect to their tendered Shares.
Shareholders are urged to consult with their own financial, tax, accounting and legal advisors, and to exercise caution with respect to the Tender Offer.
Shareholders should be aware that they are not required to tender any Shares to the Offeror. To reject the Tender Offer, a shareholder should simply ignore it. A Shareholder that has already agreed to tender its Shares pursuant to the Tender Offer may withdraw any tender of shares up until January 13, 2021 (as described in the Tender Offer materials).
The Trust requests that a copy of this news release be included with all distributions of materials relating to the Tender Offer.
This press release contains forward-looking statements relating to United Development Funding IV and the Tender Offer that are based on management’s current expectations and estimates, and are not guarantees of future performance or future events. Such forward-looking statements generally can be identified by our use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” or other similar words. Readers should be aware that there are various factors, many of which are beyond the Trust’s control, which could cause actual results to differ materially from any forward-looking statements made in this correspondence. Accordingly, readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this correspondence. Forward-looking statements in this document speak only as of the date on which such statements were made, and the Trust undertakes no obligation to update any such statements that may become untrue because of subsequent events.
About United Development Funding IV
United Development Funding IV is a Maryland real estate investment trust. UDF IV was formed primarily to generate current interest income by investing in secured loans and producing profits from investments in residential real estate. Additional information about UDF IV can be found on its website at www.udfiv.com. UDF IV may disseminate important information regarding its operations, including financial information, through social media platforms such as Twitter, Facebook and LinkedIn.