It might be possible to do this liquidation in a way that Leonard T. might be more willing to accept. Let all the shareholders as of a certain date (say 7/1/16) be given a choice: They can bail out or they can remain with FSC. If they want to leave, then FSC will pay those people off. My guess is that 60 percent of the shares will be liquidated while 40 percent will chose to stay. This leaves Leonard T. with a business development company (FSC) with roughly $1 billion in assets; much smaller than before but still a going concern.
What all this is coming to is that there is really one way to make everybody happy and that is to LIQUIDATE Fifth Street Finance. This provides a number of advantages:
First, it provides all current shareholders with a gain of $3/share or about $450 million in all.
Second, it provides Leonard T. with an additional $100 million in net worth that he can use to help pay off claimants. It brings his liquid net worth from his FSC shares alone to nearly $300 million.
Third, I think it is clear that virtually none of the existing shareholders want him or trust him to remain as manager. This lets everybody go bye-bye and invest their money in whatever other investment they can find.
They can always buy FSFR if they prefer Leonard T. to do the work.
I repeat that the only solution to all these lawsuits that will provide the greatest recovery for everybody concerned is to liquidate the company as close to current net asset value as possible.
Here is the problem with your analysis: You simply have no idea how much Leonard T. has borrowed to pay for all those shares of FSC and FSFR he owns.I happen to agree that $200M sounds like a good estimate.
Also, if FSAM goes down the tubes because of all the structural changes you want to see at FSC, then he is going to face more lawsuits than you can count with respect to FSAM.
This is very encouraging. I am surprised though that you did not take this "devastating" information directly to the U.S. Securities And Exchange Commission or to the U.S. Department of Justice. Criminal prosection of FSAM becomes a very real possibility at that point.
Is there any indication that RiverNorth Capital has given up on its attempt to restructure FSC?
I ask that because the price of FSAM stock has also taken a beating today, which is what you would expect if people thought that FSC was going to fire FSAM.
Note that FSAM is continuing to get crushed. Closing price of $1.75, down almost 90 percent from ipo price of $17, on very heavy volume, considering there are only about 6M shares outstanding.