Market updates and sector developments

Rithm Capital has responded to a complaint filed in the Delaware Court of Chancery by the Former EMD Group regarding the proposed merger between Rithm and Sculptor Capital Management (SCI 26 July). The group comprises the founding partners of Sculptor, including Daniel Och, Harold Kelly, Richard Lyon, James O’Connor and Zoltan Varga.

The lawsuit asks the Court to enjoin Rithm and Sculptor from consummating the merger until the Boaz Weinstein Consortium is able to bid for Sculptor without restriction from the standstill obligations imposed on them by the Sculptor Special Committee. It also seeks to stop the Special Committee from enforcing the standstill restrictions against the Consortium, including provisions that have limited the Consortium's ability to communicate with stockholders and/or other potential bidders.

Additionally, the complaint seeks to prevent Rithm from voting new shares of Sculptor stock acquired from Delaware Life Insurance in a side deal facilitated by the Special Committee to influence the vote on the merger. Finally, it also seeks to reinstate the provision of the merger agreement requiring the approval of a majority of independent stockholders to effectuate the merger and to reduce the break-up fee to the substantially lesser amount to which Rithm and Sculptor had previously agreed.

The group argues that the Special Committee’s actions over the past several weeks shows that it favours the preservation of management’s jobs and compensation, at the expense of shareholder value.

However, Rithm states that it has engaged closely with Och and the other members of the group over a period of several months, negotiating extensively with them “in good faith” to have them be supportive of the transaction. The firm says it strongly disagrees with and disputes the allegations against it and remains resolute in its commitment to the pending merger, which it believes delivers “immediate value for shareholders and investors and provides high certainty to close”.

The merger agreement has received all necessary regulatory approvals and has achieved all of the appropriate consents from clients necessary to complete the transaction.

In other news…

ESG scores expanded to the US
Sustainable Fitch has launched ESG scores for the US leveraged finance market. The scores seek to provide the CLO investment community with consistent, independent assessments of the environmental and social impact of business activities, thereby enabling comparability across CLO portfolios.

Sustainable Fitch’s ESG Entity Scores offer an independent view on a leveraged finance issuer’s overall impact on the environment, society and the effectiveness of its governance. The scores are offered on an absolute scale from 0 to 100, enabling a comparable view of sustainability impact at both an entity and framework level across the leveraged finance universe.

To date, Sustainable Fitch has scored more than 1,050 individual borrowers in the US leveraged finance market, which covers 86% of the assets in Fitch-rated US CLOs on a notional basis. This complements the Sustainable Fitch coverage of more than 560 individual borrowers in the European market, which covers 96% of the assets in Fitch-rated EMEA CLOs on a notional basis.