NexPoint challenges UDF IV merger with superior proposal, urges shareholder action

The proposed merger between United Development Funding IV (UDF IV) and Ready Capital has taken an unexpected turn, with NexPoint Advisors, L.P. submitting a competing offer that it claims provides a better financial outcome for shareholders. As the March 4, 2025, special meeting approaches, where UDF IV investors are set to vote on the Ready Capital merger, NexPoint has called for a postponement, arguing that its bid deserves full consideration.

The alternative proposal from NexPoint Real Estate Opportunities, LLC, an affiliate of NexPoint, promises superior economic terms, including higher balance sheet distributions and full shareholder entitlement to Contingent Value Rights (CVR) loan proceeds. NexPoint also intends to recover previously advanced legal fees and indemnity payments that were made under questionable circumstances. Despite these claims, the UDF IV Board of Trustees has not engaged with NexPoint, prompting the firm to take its case directly to shareholders.

The situation has intensified as NexPoint refuses to vote at the special meeting without what it considers proper evaluation of its proposal. The firm is encouraging shareholders to reconsider their stance and has launched an information campaign to highlight the advantages of its offer over the Ready Capital deal.

NexPoint vs. Ready Capital: What’s at Stake for UDF IV Shareholders?

The Ready Capital merger is positioned as a pathway to liquidity for UDF IV shareholders, but NexPoint argues that its proposal delivers greater financial benefits. One of the primary differences is the treatment of CVR loan recoveries. Under the Ready Capital agreement, Ready Capital would be entitled to the first $13.3 million of net recoveries from CVR loans, and only after that threshold is met would shareholders receive 60% of any additional recoveries. NexPoint, in contrast, offers shareholders full entitlement to the net principal and interest recovered from these loans, claiming it would lead to significantly higher payouts.

Beyond the CVR loan proceeds, NexPoint asserts that its proposal includes larger pre-closing dividends through balance sheet distributions. The firm argues that these additional distributions would immediately increase shareholder value before any transaction is finalized.

Another key point in NexPoint’s proposal is the cessation of indemnification payments linked to UDF IV’s legal and regulatory history. These payments, which have been directed toward individuals associated with past governance issues, would be stopped under NexPoint’s plan. Furthermore, NexPoint intends to recover improperly advanced legal fees and indemnity payments, with the net proceeds being distributed back to shareholders. This move, it argues, would ensure accountability while maximizing financial returns for investors.

The contrast between the two offers raises a crucial question: should UDF IV shareholders settle for the existing Ready Capital agreement, or push for what NexPoint describes as a more financially advantageous alternative?

Corporate Governance Concerns and Shareholder Frustrations

NexPoint’s challenge to the Ready Capital merger is not solely about financial terms; it also highlights broader governance concerns at UDF IV. The firm has been vocal about what it perceives as repeated governance failures, including issues related to transparency, disclosure violations, and past financial mismanagement. By offering an alternative proposal, NexPoint is positioning itself as a solution to these long-standing problems, urging shareholders to rethink their support for the Ready Capital transaction.

The lack of engagement from the UDF IV Board of Trustees has only added to the controversy. NexPoint has argued that the board has an obligation to fully evaluate all options before proceeding with a decision that could significantly impact shareholder value. The firm believes that by refusing to engage, the board is failing to uphold its fiduciary duty to act in the best interest of investors.

Next Steps: Will UDF IV Delay the Vote?

With the March 4 special meeting approaching, the pressure is mounting for UDF IV to respond to NexPoint’s demands. If the board agrees to delay the vote, it would allow for further evaluation of NexPoint’s proposal, potentially giving shareholders a clearer understanding of their options. If the board refuses to postpone, the decision will rest with investors, who must choose between the Ready Capital deal and NexPoint’s competing offer without direct engagement from the company.

NexPoint has advised shareholders to take no immediate action regarding their votes until further discussions occur. For those who have already voted, the firm has provided instructions on how they can withdraw their votes by contacting their brokers. Additionally, NexPoint has directed investors to udfaccountability.com, where they can access updates and information about the competing proposals.

Investor Sentiment and Market Implications

The battle over UDF IV’s future highlights a growing trend in shareholder activism, where investors are increasingly challenging corporate decisions to maximize their financial returns. NexPoint’s involvement has introduced an unexpected layer of complexity, putting pressure on the UDF IV Board of Trustees to justify its decision-making process.

Industry analysts have noted that NexPoint’s strategy aligns with broader efforts in the real estate investment sector to ensure shareholder interests are prioritized. The focus on recovering funds related to past governance issues also signals a shift toward increased accountability in investment management.

The final outcome of this dispute will likely set a precedent for how similar shareholder-driven challenges are handled in the future. If NexPoint succeeds in securing a delay or in convincing shareholders to reject the Ready Capital merger, it could encourage other investors to take a more proactive role in corporate decision-making. Conversely, if UDF IV proceeds with the merger without engaging with NexPoint, it could raise concerns about transparency and governance practices within the trust.

A Pivotal Moment for UDF IV Investors

As the special meeting approaches, UDF IV shareholders face a crucial decision. NexPoint’s competing offer presents an alternative path that promises enhanced financial benefits, greater accountability, and a shift away from past governance practices. However, without engagement from the UDF IV Board, shareholders must evaluate the proposals based on the available information.

The coming days will determine whether UDF IV reconsiders its stance or proceeds with the Ready Capital merger as planned. Regardless of the outcome, the ongoing dispute underscores the power of shareholder activism and the importance of corporate governance in shaping investment outcomes.