IMH Secured Loan Fund IPO: Management Wants to Come Out of Hibernation

My securities law firm represents several IMH investors, some of them unaccredited investors who never should have been allowed to purchase the fund in the first place. A large percentage of these investors purchased the IMH Secured Loan Fund from brokers registered with Independent Financial Group. My clients want their money back as soon as possible. The quickest way to accomplish this was to cash out at the price of $1,000 per unit as part of the tender offer from MacKenzie Patterson Fuller (MPF) which expired on April 26, 2010. Admittedly, the $1,000 per unit price is a steep discount from the $4,406.86 per unit book value reported by IMH in the Form 10-K recently filed with the SEC for the period ending December 31, 2009. However, investors currently have no way to sell or redeem their units at this or any other price. The next opportunity for investors to sell their units may be as part of an initial public offering (IPO)–assuming the company’s restructuring plan is approved by investors and the company can pull off a successful IPO under what may prove to be very challenging market conditions. IMH management anticipates that the initial IPO price will be set at a discount to the book value per share price.

There is at least one group lead by LGM Capital Partners LLC that is opposing IMH’s plan and advising members to vote against the reorganization. On May 18, 2010, “The Committee to Protect IMH Secured Loan Fund” filed a statement with the SEC advising members to reject management’s restructuring plan. Additional information was filed by the committee on May 20, 2010. Click here to download the committee’s “talking points” which was intended for use by broker dealers when advising customers about IMH management’s proposal.

Investors have until 5. p.m. on June 14, 2010, to cast their vote on management’s proposal to restructure the company. If management’s plan is approved, investors will be allowed to exchange one ownership unit for 220.3419 shares of Class B or Class C common stock. When investors cast their vote, they must elect whether to receive Class B stock, Class C stock, or some combination of the two. Those who do not make an election will automatically receive Class B common stock in exchange for their membership units.

Even investors who plan to vote against the restructuring plan should make an election, just in case the plan is approved.

Many investors are understandably confused about the different classes of shares. Investors who elect to receive Class B shares will receive a fixed percentage of series B-1, B-2 and B-3 stock. Class B shares cannot be sold immediately after the IPO. Series B-1 shares can be sold 6 months after the IPO. Series B-2 shares can be sold 9 months after the IPO, while Series B-3 shares may not be sold until 12 months after the IPO. Class C shares, on the other hand, can be sold immediately after the IPO. Investors who want to liquidate their investment at the next available opportunity may want to convert some or all of their units into Class C shares, rather than Class B shares. Investors who can afford to hold onto their investment long-term and are optimistic about the company’s prospects may want to choose Class B shares.

Below is a chart that was presented to investors during a video produced by IMH’s management in support of the restructuring plan.

Click on image to enlarge.


manager's video chart1.JPG.

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