May 21, 2024

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NexPoint Delivers Update on United Development Funding IV, Addresses UDFI’s Reaction to Tender Offer

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DALLAS, Dec. 22, 2020 /PRNewswire/ — NexPoint Advisors, L.P. (jointly with its affiliate marketers “NexPoint”) issued an update currently on United Development Funding IV (“UDFI” or the “Company”) pursuing the Company’s response to an present from the NexPoint Strategic Alternatives Fund (“NHF”) to order any and all shares of beneficial desire (“Shares”) of UDFI (the “Offer”).

NHF introduced the Provide on December 14, 2020. By means of the Offer, NHF is trying to find to enhance its financial investment in UDFI and encourage price generation over the extensive phrase, even though giving instant liquidity for shareholders fascinated in providing their Shares. In reaction to the Provide, UDFI issued a press release on December 17, 2020 recommending that shareholders reject the Offer you. In the release, the Firm manufactured a quantity of baseless assertions about NexPoint, several of which NexPoint formerly corrected.

Neither the Organization nor its Board of Trustees (the “UDFI Board”) has addressed recent worries about the absence of transparency and accountability at UDFI the Corporation has as an alternative centered on producing bogus claims. NexPoint believes this approach—especially in reaction to requests to uphold basic and elementary obligations to shareholders—only augments concerns about the management and oversight of UDFI.

NexPoint is yet committed to marketing prolonged-expression value at UDFI and thus supplies the next update and accompanying presentation. The update contains: (1) corrections to the baseless assertions designed in the December 17 press launch issued by UDFI in response to the Offer you and (2) more facts on likely dangers to UDFI’s underlying small business that, in the absence of standard data on the Company, are amongst the elements applied by NexPoint to assess its expenditure and identify the greatest study course of motion to restore worth at UDFI. This update is supported by the timeline of essential activities in the accompanying presentation.

1. Corrections to Baseless Assertions in UDFI’s Response to the Give:

In its reaction to the Offer you, UDFI continues to make baseless assertions about NexPoint’s purported function in the prior financial investment activities and ongoing authorized issues involving Kyle Bass and Hayman Cash Administration, L.P. (“Bass/Hayman”) and the Business.

  • The “serious concerns” lifted about NexPoint’s purported link to Bass/Hayman’s buying and selling and similar commentary with regards to UDFI have no advantage. As beforehand stated, NexPoint and its affiliate marketers have been in no way associated in the alleged “short and distort scheme.” Even further, NexPoint obviously communicated to UDFI that it experienced no desire in interfering in the ongoing litigation amongst UDFI and Bass/Hayman. In a letter sent to the UDFI Board in July, NexPoint expressly said that it was open up to any proposals regarding the preservation of UDFI’s claims versus those individuals.

UDFI falsely promises that both the Offer and NexPoint’s guides and information demand from customers are only makes an attempt to “divert focus and sources from [UDFI’s] substantially extra urgent issues.”

  • The Business has failed to supply any substantive monetary facts to shareholders due to the fact November 2015. Soon after several requests for transparency were ignored, NexPoint submitted a publications and documents need (the “Demand”) to the UDFI Board in August 2020, in search of entry to primary facts that shareholders are entitled to obtain in buy to identify the economic ailment of UDFI and the price of its Shares.
  • From Nasdaq delisting UDFI Shares in 2017, to the Securities and Exchange Fee (“SEC”) deregistering all UDFI securities previously this yr, it has been complicated for UDFI shareholders to offer Shares. Recognizing these difficulties, NHF commenced the Offer as a way to maximize its possession, while furnishing a liquidity choice to shareholders fascinated in advertising an or else illiquid safety.
  • In all its attempts, NexPoint’s intent has been to restore transparency and accountability at UDFI to promote benefit development. NexPoint believes these matters ought to be the Company’s most urgent concerns.

UDFI implies the Provide undervalues its Shares, in spite of delivering no sign of an proper valuation.

  • UDFI argues that the Give price tag of $1.10 per Share undervalues the Company’s Shares, but it delivers no guidance for that statement, and certainly for decades has unsuccessful to generate any info about its economic condition or success of operations that would allow a reasonable investor to make an educated valuation dedication.

2. More Information and facts on Opportunity Pitfalls to UDFI’s Fundamental Business:

Current events involving UDFI’s biggest borrower and the borrower’s officers may well represent sizeable hazard to UDFI’s underlying enterprise.

  • As claimed by D Magazine, on December 1, 2020 the FBI raided the property of Sean Terry, main running officer of household developer Centurion American (“Centurion”), UDFI’s most significant borrower. Centurion and linked debtors represented 62% of UDFI loans as of September 30, 2015, with one more 5% of exposure by using loans originated by UDFI affiliates held in UDFI’s portfolio. Although the stories do not disclose the foundation of the FBI’s action, representatives from the federal legislation enforcement agency verified that brokers were lawfully existing and that they executed a search warrant and removed things from the spot.
  • In addition, there are important Centurion projects facing important scrutiny, which also current problems. These include things like a $1 billion advancement undertaking in Farmers Department, Texas that is substantially delayed. On July 28, 2020, the challenge was reviewed at a Farmers Department Metropolis Council meeting during which Centurion representatives, like Mr. Terry, went before the council to demonstrate the delays. The subsequent venture critique was remarkably contentious in the public assembly, the Farmers Branch mayor accused a councilman of being “bought and sold” on the venture. These allegations and the challenges raised about the task advise credit score possibility stemming from UDFI’s most significant borrower, which could expose UDFI to substantial risk of decline and be a serious risk to its underlying small business.

The SEC’s modern deregistration buy further more boundaries shareholders’ potential to attain information and facts about the Firm.

  • UDFI’s ongoing failure to comply with reporting prerequisites inevitably led the SEC to challenge its August 12 deregistration purchase, which mentioned “substantial purpose to question that [UDFI] will return to compliance and keep away from delinquencies in the potential.”
  • In the absence of any public disclosure, UDFI shareholders have constrained skill to obtain facts on the Company. This supports NexPoint’s submission of the Need and ongoing endeavours to obtain standard data about the Corporation.

There are many other scenarios of present and past authorized affairs and enforcement actions that incorporate to fears about the management and oversight of UDFI.

  • UDFI arrived at a settlement with the SEC in 2018 pursuing a multiyear investigation about the use of certain money and relevant trader disclosures. The Organization was subject to an SEC enforcement action, which resulted in the payment of a fantastic of more than $8 million. The settlement also involved fines to person executives who, in accordance to the SEC, “knew or should have regarded that they had misled investors about the use of money and the nature and position of loans created to developers.”
  • Stemming from the exact incident, the Community Organization Accounting Oversight Board (“PCAOB”) also imposed sanctions on Whitley Penn LLP (“WP”), UDFI’s former auditor, in an buy issued in March 2020. The buy also imposed sanctions on particular WP personnel concerned in UDFI’s audit, just one of which was barred from getting associated with a registered community accounting firm by the PCAOB.
  • UDFI ongoing its failure to comply with SEC reporting demands for two many years next its 2018 SEC settlement. The Organization cited its incapacity to keep an auditor amongst the explanations for its reporting deficiencies.
  • The Business is concerned in a lawsuit versus federal staff members that is presently pending. In a current filing, the governing administration responded that the Enterprise is attempting to “interfere with legitimate regulation enforcement activity” in “a very active ongoing criminal investigation.”

NexPoint has lifted concerns about the administration and oversight of UDFI in an try to return the Company to a path toward worth generation. These challenges carry on to mature, augmented by the Company’s resistance to requests for transparency and the probable hazards that continue to emerge close to UDFI’s underlying organization. Still, NexPoint is dedicated to marketing long-phrase worth, and therefore programs to go on its initiatives to get hold of basic fiscal details and increase accountability. In the meantime, adhering to an prolonged and ongoing period of uncertainty, the Provide from NHF gives shareholders with an rapid liquidity alternative, though making it possible for NHF to maximize its ownership.

About NexPoint Advisors, L.P.

NexPoint Advisors, L.P. is an SEC-registered adviser on the NexPoint choice investment decision system. It serves as the adviser to a suite of money and financial investment vehicles, like a shut-end fund, interval fund, company growth business, and various genuine estate vehicles. For a lot more details go to www.nexpointgroup.com

Dangers and Disclosures

This document is for informational functions only and is neither an supply to order nor a solicitation of an give to provide any popular shares of advantageous interest of UDFI or any other securities. The provide to invest in frequent shares of valuable desire of UDFI will only be designed pursuant to the Offer you to Buy, the Assignment Kind and associated paperwork. THE TENDER Give Products (Such as THE Provide TO Order, THE ASSIGNMENT Form AND Specified OTHER TENDER Provide Documents) Consist of Vital Info. SHAREHOLDERS OF UDFI ARE URGED TO Examine THESE Documents Thoroughly Mainly because THEY Comprise Vital Details THAT Such SHAREHOLDERS Need to Think about Right before Making ANY Decision Pertaining to TENDERING THEIR SHARES. Investors and security holders could get a free copy of these statements by directing these requests to the Information Agent by calling toll-absolutely free at (800) 331-7543, or by checking out www.udfitenderoffer.com.

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Supply NexPoint Advisors, L.P.

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