NEW YORK, Oct. 31, 2019 /PRNewswire/ -- Clear Harbor
Asset Management, LLC ("Clear Harbor"), a significant stockholder
of Garrison Capital Inc. ("Garrison Capital" or the
"Company")(NASDAQ: GARS), today announced that it has delivered a
letter to the Board of Directors (the "Board") of the Company
expressing its concerns with the Company's persistent
underperformance. Despite considerable effort to work
constructively with the Company to address the concerns facing
Garrison Capital, the Board has failed to take substantive steps to
improve Company performance and refuses to hold management
accountable for its repeated failures.
The full text of the letter to the Board follows:
October 31, 2019
Garrison Capital Inc.
1290 Avenue of the Americas, Suite 914
New York, New York 10104
Attention: Board of Directors
Dear Members of the Board of Directors:
Clear Harbor Asset Management, LLC ("Clear Harbor" or "we") is a
significant investor in Garrison Capital Inc. ("Garrison" or the
"Company"), beneficially owning approximately 1.25% of the
Company's outstanding common stock. Clear Harbor is a Registered
Investment Advisor managing over $700
million in assets with considerable experience in value
investing across the capital structure as well as significant
experience investing in Business Development Corporations ("BDCs").
We are writing to you publicly to express our continued
dissatisfaction with the Board of Directors' (the "Board") lack of
meaningful response and progress in addressing the pressing issues
facing the Company, despite our considerable effort to engage
privately with the Company.
Over the past year, we have repeatedly expressed our concerns
with Garrison's performance in multiple meetings and letters to
management. In this dialog, we proposed solutions to close the wide
valuation gap between market value and net asset value, which would
provide some relief from the stock's severe underperformance.
We would like to thank Brian Chase,
Garrison's Chief Operating Officer, for taking the time to hear our
recommendations and we credit management for taking some initial
remedial steps over the past several years. Unfortunately, these
actions are too little too late and have failed to adequately
address the Company's issues. In fact, the stock continues to
suffer new lows.
Most recently, we met with Mr. Chase and Joseph Morea, Garrison's lead independent
director. The purpose of this meeting was to alert the Board's
independent directors of our concerns. The meeting concluded with
assurances from Mr. Morea that investors would receive feedback
from the Board's independent directors on an action plan to address
the Company's performance issues. We were also told that we
would be given the opportunity to present our views to Joseph Tansey, Chief Executive Officer and
Chairman of the Board; however, nearly two months have now passed
since that meeting, and despite our attempts to follow up on these
matters, we have heard nothing.
Background
Since 2015, book value per share has fallen from $13.98 to $10.30. Over the past four quarters alone,
book value deteriorated by over $1
per share. Since peaking in 2014, book value per share at Garrison
has now declined for twenty consecutive quarters. This
abysmal performance is occurring in what is by nearly all measures
a historically benign credit environment. If this adverse
credit deterioration is occurring deep into an economic expansion,
we question how Garrison's portfolio will perform in a
recession.
Furthermore, Garrison has not covered its dividend payments from
operating income. The failure to cover the dividend is even more
notable as the Company increased its leverage from 50%
equity/assets in 2015 to only 32% today. We are particularly
concerned that the Company chose to ramp up leverage by upsizing a
CLO last year, given how late in the cycle the loan asset class is,
coupled with increasingly thin spreads and intense
competition.
Clearly, the market shares our assessment of the troubled
situation at Garrison. In the last 12 months, Garrison stock
is down 4% on a total return basis while the index of US Investment
Companies is up 11%. Garrison stock currently trades at 65% of net
asset value, which is down from 69% at year-end 2017, 75% at
year-end 2016 and 87% year-end 2015.
Liquidation is the Best Solution to Preserving Stockholder
Value
After five years of failing to earn anywhere near your cost of
capital, the market has clearly lost confidence in Garrison, as
evidenced by the stock's steep discount to book value.
Therefore, the logical path for Garrison at this point is an
orderly liquidation. We believe stockholders have suffered
enough and deserve to at least recover the difference between the
market price of the stock and liquidation value.
We recommend that a new, highly qualified independent investment
advisor with liquidation expertise be appointed to oversee this
process. As you are of course aware, the investment advisory
agreement with Garrison Capital Advisers provides that either a
vote of the Company's directors, a vote of a majority of
stockholders, or the investment advisor can terminate the agreement
on 60 days' notice. As a fiduciary to stockholders, we
believe the Board has a responsibility to either vote to terminate
the investment advisory agreement or call a special meeting of
stockholders and allow stockholders to decide the fate of their
Company.
As we previously communicated to management, we are highly
skeptical that a strategic transaction for Garrison can provide
greater stockholder value than an orderly liquidation. The
market has decided that externally managed BDCs present significant
conflicts of interest and consequently generally tend to trade
below their net asset value. Furthermore, the problems of
scale and external management cannot simply be solved by combining
two sub-scale externally managed entities. There have been a number
of combinations in the BDC investment community over the last
couple of years that have not enhanced stockholder value. For
example, in August 2019, Crescent
Capital BDC, Inc. agreed to acquire Alcentra Capital Corporation
("Alcentra") for a combination of cash and equity. Adjusting
for the cash component of the acquisition, Alcentra now trades
below 70% of pro-forma combined entity NAV. It is our opinion that
transactions of a similar nature are unlikely to recover value for
Garrison stockholders. Moreover, stockholders cannot wait for
an extended and speculative sale process which might result in no
viable bids and places us closer to, if not outright into, a
general credit downturn.
There have been a number of transactions over the years
involving externally managed entities in which the interests of the
external manager and stockholders diverge. We intend to be vigilant
in our review of any strategic action undertaken by Garrison to
ensure the interests of public stockholders come first.
It has been our long standing practice to work quietly with the
management teams and Boards of companies in which we invest.
In the past, we have been successful in discreetly working
behind the scenes, as it is not our intention to draw attention to
ourselves, but rather, to have constructive, impactful
relationships with our portfolio companies. However, the situation
at Garrison today requires a different action.
We are committed stockholders and it is our priority to work
with the Company – not against it – in doing what is best for all
stockholders; however, we believe we have exhausted all reasonable
attempts to get management and the Board to recognize the need for
immediate action. We believe the Board's inaction and unwillingness
to hold management and its external manager accountable for the
Company's continued poor performance is a clear breach of the
Board's fiduciary duties. Based on the Company's frustrating lack
of response and meaningful action to date, we are evaluating all
options to protect the interests of stockholders.
We are available to discuss the matters raised in this letter at
your convenience.
Reserving all rights.
Sincerely,
Steven Shaw and Jonathan Shafter
Clear Harbor Asset Management, LLC
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SOURCE Clear Harbor Asset Management, LLC