Last week I ruminated on why investors might want to take a closer look at Ranger Direct Lending, a troubled alternative lender which is trading at a 30% plus discount to NAV. It’s currently locked in arbitration with a big lending platform it worked – called Princeton – and we should be hearing more about this negotiation any time now. Overall though, I think the bad news is already in the share price of the fund – famous last words!

Today I want to dig a tiny bit into the zeros, which were issued in two tranches back in 2016, the first slug came in the summer worth £25m, with a second wave in October for 330m. The first issue was priced at 100p per zero, with the October tranche priced slightly higher at £1,035 per share.

Like all zero’s this essentially like a debt owed by the fund. By my current estimates the fund has a net value of £179m, with no other ranking senior debts. The zero’s are thus first in line to get paid back their £55m lent on the 31 July 2021, at a share price of 127.63 pence per share. As of today, the mid price of the fairly illiquid zero’s is £1.02 with a likely purchase price closer to £1.03. By my back of the fag packet calculations that makes just over 3.5 years left to go with a net return of just under 6% per annum. Crucially the zero’s look fairly well covered with £179m of assets to drawn down on, which implies cover of well over 3.25 times.

Now obviously zero’s are not the same as ultra-secure debt and there are plenty of things that could wrong at Ranger. The Princeton deal could unwind very badly and the share price could sink even further. There could be another can of worms on another platform. Again, that is possible though I think unlikely. But I come back to that level of cover. Things would have to go very badly wrong to obliterate that net asset value ENTIRELY. Possible but I would suggest highly improbable. If you are willing to run those (small) risks then an annual compound of return 5.8% doesn’t look bad.

My guess though is that it might be worth waiting a short while, to see what happens with Princeton. The ticker for the zero is RDLZ.