Timbercreek Senior Mortgage Investment Corporation Provides Update on Proposed Transition to Public Company Regulatory Regime

Toronto Stock Exchange: MTG

TORONTO, Aug. 7, 2013 /CNW/ - Timbercreek Senior Mortgage Investment Corporation (the "Corporation") provided today an update on its proposed transition (the "Proposed Transition") from the Canadian securities regulatory regime for investment funds (the "Investment Fund Regime") to the regulatory regime for non-investment fund reporting issuers (the "Public Company Regime").

The board of directors of the Corporation (the "Board") has previously called a special meeting of all shareholders (the "Special Meeting") to, among other things, consider approving the Proposed Transition. This decision is a pro-active response to the Canadian Securities Administrators' ("CSA")  proposed regulatory changes to mortgage investment rules governing non-redeemable investment funds published on March 27, 2013 (the "Proposed Regulatory Change").  The Proposed Regulatory Change, if implemented, will impact issuers such as the Corporation that are classified as investment funds pursuant to Canadian securities laws. Among the proposed changes is a new restriction prohibiting any investment fund from investing in mortgages other than mortgages that are fully and unconditionally guaranteed by the government of Canada, the government of a province or territory of Canada or by an agency of such government ("Guaranteed Mortgages").

Since inception, the Corporation has successfully generated stable, monthly distributions as well as a stable net asset value for its investors by maintaining a diversified portfolio of shorter term, customized first mortgage loans to experienced borrowers.  In that context, the Board believes that it is in the best interest of the Corporation and its shareholders to continue the Corporation's current investment objectives and strategy under the Public Company Regime, to avoid the potential restrictions to the business of the Corporation if the Proposed Regulatory Change is implemented.

Following the Proposed Transition, the Corporation would continue to qualify as a mortgage investment corporation ("MIC") under the Income Tax Act (Canada) and would maintain the same investment objectives and strategies.

The Board is of the view that the Proposed Transition provides shareholders a number of benefits, including:

• the Corporation's ability to continue its operation in accordance with existing investment objectives and strategies;
• the elimination of the trailer fee paid on Class A Shares will leave more of the income generated by the Corporation at any relevant time to be available for distribution to investors;
• the grant of typical shareholder voting rights;
• increased frequency of financial reporting;
• the potential for research analyst coverage which does not cover investment funds; and
• increased stability of capital resulting from  the elimination of the redemption feature.

The Corporation is now in a position to provide further details on the various matters that the shareholders will be asked to consider and if thought fit, approve at the Special Meeting. Such matters will include the Proposed Transition and certain consequential amendments to the share rights and articles to give effect to and implement the Proposed Transition (the "Amendment to Articles"), including (i) the replacement of all existing redemption rights of all classes of shares with a one-time redemption right (subject to a maximum of 15% per class of outstanding shares, the same limit applicable to the annual redemption right) following the effective date of the Amendment to Articles, (ii) the creation of a new class of Common Shares, (iii) the mandatory exchange of the Class A Shares, Class B Shares, Class I Shares and Class J Shares into the new Common Shares, and (iv) the repurchase (for nominal value) of the voting shares that are currently not held publicly, resulting in the Common Shares being the only class of shares of the Corporation after completion of the Proposed Transition. The Common Shares will be voting and fully participating shares, and will be listed on the Toronto Stock Exchange.

The Class A Shares will be exchanged into Common Shares at the ratio of 1 to 1 and the Class B Shares, Class I Shares and Class J Shares will be exchanged into the Common Shares at a ratio equal to the quotient obtained by dividing the net redemption value of that class on a per share basis by the net redemption value of a Class A Share on the last business day immediately preceding the exchange date.

At the Special Meeting, and in conjunction with the Proposed Transition, Shareholders will also be asked to consider and if thought fit, approve a new management agreement to be entered into with Timbercreek Asset Management Inc. ("Timbercreek"), and to terminate its current management agreement with Timbercreek Asset Management Ltd., a wholly-owned subsidiary of Timbercreek. The new management agreement will be reflective of the changes brought on by the transition of the Corporation from an investment fund to a Public Company Regime issuer, particularly the change to the management fee from 1.0% of net assets to 0.85% of gross assets, as well as termination provisions and other terms that are comparable to existing mortgage investment corporations governed under the Public Company Regime. No termination fee will be payable for the termination of the existing management agreement. The new management agreement will continue to provide that, for each mortgage and loan the Corporation invests in, all origination and placement fees paid by the borrower to the lender will be remitted to the Corporation (such fees, along with interest generated on the loans, comprise the cash flow from which the Corporation makes distributions to investors).

In addition, Shareholders will be asked to approve the appointment of Ugo Bizzarri, Andrew Jones and Ed Boomer to the board of directors of the Corporation. Messrs. Bizzarri and Jones are officers of Timbercreek, and Mr. Boomer is an independent director. The Board currently consists of Messrs. Glenn Shyba, Steven Scott and Robert Douglas, each of whom are independent directors, and Mr. Blair Tamblyn, CEO of Timbercreek. If the resolution relating to the appointment of the three new directors is approved, the Corporation will have a board of 7 directors, of which a majority will be independent, and the audit committee will be comprised of independent members only. In addition, all mortgage investments made by the Corporation would continue to first require approval by an independent mortgage advisory committee, which reviews each mortgage investment opportunity with a view to assessing the strength of the security covenants and the payment and default risks associated with that mortgage.

The Corporation has retained TD Securities Inc., CIBC World Markets Inc. and Raymond James Ltd. to act as soliciting dealers and financial advisors to the Corporation during the Proposed Transition.

The Board expects the meeting date to be on or about September 9, 2013 and if approved, to be effective the following day upon filing of the Amendment to Articles. A notice of meeting and management information circular, containing additional details about the special resolutions to be considered at the meeting, and the Corporation's view of the benefits of the Proposed Transition, is currently scheduled to be mailed to all registered shareholders on or about August 14, 2013.

SOURCE: Timbercreek Senior Mortgage Investment Corporation

Carrie Morris 
Investor Relations 
416-800-1552 
[email protected]