Arena Investors Calls for Greater Transparency from Terra Property Trust and Seeks Explanation for the Company's Downgraded Debt

Rhea-AI Summary

Arena Investors, LP, holding $5 million in Terra Property Trust's (NYSE: TPTA) 6.00% notes due 2026, has expressed deep concern over the continuous downgrades of these notes and Terra's lack of transparency. The notes, initially rated BBB- by Egan-Jones in June 2021, have been downgraded to B as of May 31, 2024. Arena highlights an alarming increase in Non-Performing Loans from $89 million in June 2023 to $192 million in June 2024.

Despite multiple attempts to gather information on Terra's portfolio performance, Arena reports that Terra has consistently declined to answer questions or provide requested information. Terra has also refused one-on-one investor calls since November 2023, citing ongoing evaluations of a direct listing or conversion to a non-traded REIT. In response, Arena is considering forming an ad hoc group of noteholders to protect their rights and evaluate further action.

Positive

• None.

Negative

• Terra Property Trust's notes downgraded from BBB- to B by Egan-Jones
• Non-Performing Loans increased from $89 million to $192 million in one year
• Company refuses to provide information or answer investor questions
• Terra has suspended one-on-one investor calls since November 2023
• Potential formation of ad hoc noteholder group to protect investor rights

Insights

Financial Analyst

This letter from Arena Investors to Terra Property Trust (TPTA) highlights significant red flags for investors. The repeated downgrades of TPTA's notes from BBB- to B by Egan-Jones is alarming, indicating a substantial increase in credit risk. The surge in Non-Performing Loans from $89 million to $192 million in just one year is particularly concerning, suggesting deteriorating asset quality.

TPTA's lack of transparency and refusal to engage with investors is a major governance issue. This behavior could lead to a loss of investor confidence and potentially impact TPTA's ability to raise capital in the future. The formation of an ad hoc noteholder group could result in legal actions or forced disclosures, further pressuring TPTA's management.

Investors should be cautious about TPTA's financial health and management practices. The company's evasive behavior might indicate more severe underlying problems than what's currently visible.

Corporate Governance Expert

TPTA's actions raise serious corporate governance concerns. The company's refusal to engage in one-on-one investor calls and provide detailed information is a breach of best practices in shareholder communication. The prolonged "evaluation" of a direct listing or REIT conversion without updates appears to be a stalling tactic to avoid transparency.

The board's failure to address investor concerns and provide necessary disclosures is a dereliction of fiduciary duty. This lack of accountability could expose TPTA to shareholder lawsuits and regulatory scrutiny. The potential formation of an ad hoc noteholder group signals escalating investor dissatisfaction, which could lead to activist interventions or forced changes in management and board composition.

These governance failures significantly increase TPTA's risk profile and could negatively impact its cost of capital and overall market valuation.

• Arena publishes letter outlining concerns with Terra's downgraded notes due 2026
• Letter outlines how Terra has neglected to respond to requests for information, failing to uphold its responsibilities to investors

NEW YORK, Sept. 6, 2024 /PRNewswire/ -- Arena Investors, LP ("Arena") on behalf of its investors, holders of $5 million in aggregate principal amount of 6.00% notes due 2026 of Terra Property Trust, Inc. ("Terra") (NYSE: TPTA), today sent a letter to the Terra Board of Directors expressing its concerns with the lack of response to questions around the repeated downgrades of the Notes.

As referenced in the letter, at the time of the initial offering and Arena's purchase in June 2021, the Notes were rated BBB- by Egan-Jones Rating Company ("Egan-Jones"). As of May 31, 2024, the Notes are rated B by Egan-Jones. Arena has attempted to engage with Terra for nearly one year, having made multiple requests for additional information on the deterioration in Terra's performance, all of which went unaddressed by Terra.

As noted in the letter and in response to a lack of engagement by Terra, Arena is considering forming an ad hoc group of noteholders to protect their rights and evaluate further necessary action.

The full text of the letter follows:

September 4, 2024

Board of Directors
Terra Property Trust, Inc.
205 West 28th Street, 12th Floor
New York, NY 10001

Dear Members of the Board of Directors:

We write for Arena Investors, LP on behalf of its investors ("Arena" or "we"), holders of $5 million in aggregate principal amount of 6.00% notes due 2026 (the "Notes") of Terra Property Trust, Inc. ("Terra" or the "Company"). We are deeply concerned with the continuous downgrades of the Notes and the significant lack of transparency that we have encountered from Terra in our attempts to obtain information from you regarding the Notes.

Arena is a global institutional asset manager that provides creative solutions for those seeking capital in special situations, including for those who cannot be served by conventional institutions. At the time of the initial offering and Arena's purchase in June 2021, the Notes were rated BBB- by Egan-Jones Rating Company ("Egan-Jones"). As of May 31, 2024, the Egan-Jones rating is B. During this same period, there has been an alarming increase in Non-Performing Loans from $89 million in June 2023 to $192 million in June 2024. This deterioration in performance is distressing and necessitates immediate and comprehensive disclosure. Instead, Terra has wholly failed to uphold its responsibilities to its investors by denying Arena access to critical information on the Company's performance.

For nearly one year, and on several occasions, Arena has attempted to gather sufficient information to permit it to evaluate the state of the portfolio. On each occasion, Terra has declined to answer any of Arena's questions or respond to Arena's requests for information. Since November 20, 2023, Terra has also refused to take any further one-one-one investor calls, alleging such calls are restricted due to ongoing evaluations of a direct listing or conversion to a non-traded REIT. Yet nearly a year has passed with no tangible progress or updates on these matters.

Since November 20, 2023, the only information Terra has provided to investors has been two brief conference calls held on May 21, 2024, and August 26, 2024, during which the Company refused any and all investor questions. This lack of engagement is not only unacceptable, it also severely undermines investor confidence. In response, Arena is considering forming an ad hoc group of noteholders to protect our rights.

Maintaining your current approach is detrimental to investor trust and could have severe repercussions for Terra's credibility and financial stability. We urge you to rectify this situation promptly by engaging more transparently and providing investors with the necessary information to evaluate the state of the Company.

Best regards,

Lawrence Cutler, COO

cc: U.S. Bank National Association, as Trustee

About Arena Investors, LP:
Arena Investors, LP is an institutional asset manager founded in partnership with The Westaim Corporation (TSXV: WED). With $3.5 billion of invested and committed assets under management as of June 30, 2024, and a team of over 180 employees in offices globally, Arena provides creative solutions for those seeking capital in special situations, alongside operational capabilities to manage and improve businesses. The firm brings individuals with decades of experience, a track record of comfort with complexity, the ability to deliver within time constraints, and the flexibility to engage in transactions and business operations that cannot be addressed by banks and other conventional financial institutions. See www.arenaco.com for more information.

Contact:
Prosek Partners:
Joshua Clarkson
pro-arena@prosek.com

Arena Investors and its affiliates:
Parag Shah
ir@arenaco.com

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SOURCE Arena Investors, LP

FAQ

What is the current rating of Terra Property Trust's (TPTA) 6.00% notes due 2026?

As of May 31, 2024, Terra Property Trust's (TPTA) 6.00% notes due 2026 are rated B by Egan-Jones Rating Company, downgraded from the initial BBB- rating in June 2021.

How much has Terra Property Trust's (TPTA) Non-Performing Loans increased from June 2023 to June 2024?

Terra Property Trust's (TPTA) Non-Performing Loans have increased from $89 million in June 2023 to $192 million in June 2024, representing a significant deterioration in performance.

Why has Terra Property Trust (TPTA) suspended one-on-one investor calls since November 2023?

Terra Property Trust (TPTA) has refused one-on-one investor calls since November 20, 2023, citing ongoing evaluations of a direct listing or conversion to a non-traded REIT as the reason for the restriction.

What action is Arena Investors considering in response to Terra Property Trust's (TPTA) lack of transparency?

Arena Investors is considering forming an ad hoc group of noteholders to protect their rights and evaluate further necessary action in response to Terra Property Trust's (TPTA) lack of transparency and engagement.