Letter to Shareholders

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF SUCH JURISDICTION

5 March 2020

Pollen Street Secured Lending plc ("PSSL" or the "Company")

Part 1 - Letter to Shareholders

In Part 2 of this document we set out our detailed response to the announcement put out by Pollen Street Capital on Monday. It is a long and detailed response, by necessity, because there are a number of important issues to cover and a listed company is required under the Takeover Code and Listing Rules to only publish information that is fair and not misleading. We believe that this tells you the correct version of events to date and we strongly encourage you to read it in full if you want to know what has really been going on.

In summary:

1 The Board believes that the Manager, Pollen Street Capital, is trying to ensure that this bid will not proceed. In doing so it is playing games with the due diligence materials and painting a misleading picture of how matters are proceeding. The bottom line is that we want to investigate this potential offer with Waterfall but after the best part of two months we currently cannot give them any meaningful due diligence materials. To tell shareholders that there is a data room populated with 2000 or so documents is quite true. But what that statement does not add is that:

· the documents are heavily redacted;

· a significant number are historic and/or irrelevant; and

· whilst we cannot be certain, due to the nature of the material provided, it would seem that it largely relates to just a small proportion of the Company's portfolio. We have asked for confirmation from Pollen Street Capital that the material is complete but have received no reply.

In short, the data room is of no meaningful use whatsoever and a complete waste of time. As you may imagine we are pretty fed up with this and you should be too. This is trying to deny you the opportunity of a possible offer at 900p per share which you may or may not accept but ultimately you should be entitled to consider it.

2 To justify its predicament, we understand that the Manager is portraying the Board as uncommercial, legalistic and unprepared to enter into constructive dialogue.

We have no axe to grind in respect of this potential unsolicited cash bid. We are an independent Board who are not conflicted by this potential offer. It is not us who face the prospect of losing an investment management agreement (which paid out £13.9 million in the year ended 31 December 2018) if the potential bid goes through.

We want access to our own material, we want to assess it with relevant advisers (including Pollen Street Capital if they are prepared to cooperate and perform their duties properly) and decide what is appropriate to share with Waterfall and what is not. To suggest otherwise is complete nonsense and just a smokescreen to justify more and more unnecessary delay.

3 With regard to imposing "unnecessary operational restrictions" on the Manager, all the Board has done was say to the Manager that it wanted to approve certain transactions above certain limits in order to fulfil its obligations under the Takeover Code and whilst a possible offer is under consideration. This is a standard practice which should have been straightforward and uncontroversial but instead has been blown out of all proportion.

4 Consistent with the above was the early release of very sensitive information about our dividend policy by Pollen Street Capital. We did not know about the announcement until after it was published. We had not as a Board agreed to increase the dividend. It is completely misleading to say that the Board had by an agreed protocol consented to the release of this type of material information about its dividend policy.

5 The Company has obtained a QC's opinion that the Manager was in breach of the IMA. In the circumstances, the Board concluded that it was entirely justified in serving notice of termination of the IMA. The Board decided not to terminate the IMA summarily in the spirit of being commercially minded and not wishing to leave the Company without an appointed investment manager. Indeed, the Board hoped that the Manager might cooperate. However, in light of the Manager's continued intransigence we continue to reserve all our rights.

Conclusion

The Board is considering all of its options in light of the above.

It goes without saying that the Board wishes very much that it had not found itself driven to spending time airing these differences with the Manager, and hopes that the Manager will start cooperating with the Board - and that shareholders will encourage it to do so. The Board is currently taking legal and other advice on its options to progress the Possible Offer and to ensure that the portfolio is managed in the best interests of the Company and its shareholders. If the Manager continues to fail to produce the documentation and other information requested, then the Board anticipates that it will need to commence legal proceedings to enforce its rights, including potentially issuing a court claim to obtain due diligence materials. Further updates will be provided at the appropriate time.

Enquiries:

Brunswick Group LLP (communications adviser to PSSL) +44(0)20 7404 5959

Nick Cosgrove/Pip Green

Smith Square Partners LLP (financial adviser to PSSL) +44(0)20 3696 7260

Ben Mingay/John Craven

Liberum Capital Limited (corporate broker to PSSL) +44(0)20 3100 2000

Gillian Martin/Cameron Duncan/Owen Matthews

Disclaimer

Smith Square Partners LLP, which is authorised and regulated by the Financial Conduct Authority in the United Kingdom, is acting exclusively for PSSL and for no one else in connection with the Possible Offer and will not be responsible to anyone other than PSSL for providing the protections afforded to its clients or for providing advice in connection with the Possible Offer referred to in this announcement.

Liberum Capital Limited, which is authorised and regulated by the Financial Conduct Authority in the United Kingdom, is acting exclusively for PSSL and for no one else in connection with the Possible Offer and will not be responsible to anyone other than PSSL for providing the protections afforded to its clients or for providing advice in connection with the Possible Offer referred to in this announcement.

Part 2 - Detailed response of the Company to the statement made by PSC Credit Holdings LLP on 2 March 2020

Dear Shareholders

Introduction

We refer to:

1 the announcement released by the Company on 25 February 2020, titled "Statement regarding: Possible Offer for the Company; Notice of termination of the Investment Management Agreement; Clarification of the Final Dividend";

2 the initial statement released by PSC Credit Holdings LLP ("Pollen Street Capital" or "PSC" or the "Manager") on 25 February 2020, titled "Announcement regarding Possible Offer for Pollen Street Secured Lending plc"; and

3 the further statement released by the Manager on 2 March 2020, titled "Pollen Street Capital's further statement on PSSL" (the "PSC Statement").

This open letter has been written to respond to the PSC Statement and to ensure that all of the Company's shareholders are provided with the same information relating to (i) the Possible Offer (referred to below), (ii) the actions and behaviours of the Manager against the background of the Possible Offer and (iii) the key issues that have led the board of directors (the "Board") to conclude that serving 12 months' notice of termination of the Investment Management Agreement ("IMA") was the most appropriate course of action given the circumstances that the Manager has put the Board in.

The PSC Statement contains a large number of factually incorrect and/or misleading statements and criticisms. The chronology set out in the annex to the PSC Statement is also both incomplete and inaccurate in its descriptions. However, the Board has concluded that it would not be a helpful or appropriate use of its time, or that of the shareholders, to engage in a line by line rebuttal of the PSC Statement. Instead, the Board thought it would be helpful to shareholders to correct some of the most serious errors in the PSC Statement, and to explain in more detail the Company's position.

As an opening matter, the Board totally rejects the assertion that it has refused to engage with the Manager or has been confrontational. As is explained in more detail below, the Board has simply endeavoured to progress the Possible Offer, in compliance with relevant laws and market practice, and to ensure that the Company's rights are upheld. The Board has been faced with an obstructive and uncooperative Manager which has made the position of the Board very difficult.

Background

The Board would like to emphasise to shareholders that:

· the Board is an independent and unconflicted board of a FTSE 250 listed investment trust, whose duties are to act in the best interests of the Company and its shareholders; the actions taken, and to be taken, by the Board are motivated only with those duties in mind;

· conversely, the Manager has found itself in a position of a serious conflict of interest in light of the Possible Offer as it stands to lose a substantial investment management agreement with the Company should the Possible Offer proceed to completion;

· the Board did not solicit the possible cash offer by funds advised by Waterfall Asset Management, LLC ("Waterfall") for the entire issued share capital of the Company at a price of 900 pence per share (the "Possible Offer");

· given the Company's status as a listed investment trust and the Possible Offer referred to above, the Board is required to comply with a number of obligations, as well as its fiduciary duties under the Companies Act 2006. The Board must be able to effectively monitor and manage the performance of its agents and key service providers, which include the Manager. Crucially in connection with the Possible Offer, the City Code on Takeovers and Mergers (the "Takeover Code") requires the Board to act in the interests of the Company as a whole and not deny its shareholders the opportunity to decide on the merits of the Possible Offer;

· the Board has engaged suitably experienced advisers who are assisting it, and will continue to assist it, in the consideration and evaluation of the Possible Offer and to ensure that the Board complies with its legal and regulatory obligations (including confidentiality obligations) in the context of the Possible Offer; and

· the Manager is an agent of the Company. The Company's assets, and information and documentation relating to those assets, belong to the Company and not the Manager and the Board is entitled to ask for this information from the Company's agent at any time.

Due diligence in relation to the Possible Offer

The assertion in the PSC Statement that the information requested from the Manager by the Board "was to be provided to Waterfall, a competitor business, without appropriate and customary contractual confidentiality protections" is false, as is the statement that "it is still unclear to PSC what protections against misuse of information have been put in place". In fact, the Manager was provided weeks ago with a copy of the relevant confidentiality agreement with Waterfall, as explained below.

It is entirely customary for a potential offeror to seek to undertake a due diligence process in connection with a possible takeover. The Board believes, having taken advice from its financial adviser Smith Square Partners LLP ("SSP"), that Waterfall's proposal is genuine and serious and, accordingly, is one that the Board would be minded to recommend should Waterfall make a formal offer on the terms of the Possible Offer. Therefore, the Board has agreed in principle that Waterfall should be provided with access to due diligence materials.

Waterfall sent the Company a due diligence request list (the "DD Request") to allow it to perform confirmatory due diligence in respect of the Company and its portfolio and the Company and Waterfall entered into a legally binding confidentiality agreement (the "Confidentiality Agreement") to protect the Company's information that would be shared with Waterfall as part of this process.

The Board shared the DD Request with the Manager on 9 January 2020. It has been made clear to the Manager that, in the first instance, the Board wants to have sight of the Company's own information and documentation so that it (in consultation with its advisers) could form a view as to what would be appropriate to share with Waterfall. There has been no suggestion that the Board would simply hand over all of the Company's information and documentation to Waterfall without a careful, considered review. Instructions on how to upload documents to the virtual data room set up on behalf of the Company (the "VDR") were also shared with the Manager.

The Manager's initial response was unhelpful. No information or documentation was provided to the Board. Instead, the Manager agreed to provide just 5 of 67 items requested by the Board and of the remaining requested information and/or documentation the Manager stated that 48 items were "PSC proprietary information - not to be shared" or simply stated that it was "off market to share this level of information with a bidder". According to the Manager, "PSC proprietary information" included, among other things, a list of the Company's own investments, the Company's own audit reports and copies of the Company's own anti-bribery and other compliance policies. The Manager also considered it to be "off market" to confirm whether there is any actual or pending litigation ongoing in relation to the Company or to provide information about any contracts that are material to the Company's group that contain change of control provisions - just two examples of highly relevant information in the context of a potential recommended takeover.

The Manager continued to hinder the release of the Company's own information to it by only agreeing to make the information and/or documentation available to the Company in a physical data room at the Manager's office, presumably so that it could control the Board's access to the materials. It also made the release of any information to the Company conditional on Waterfall entering into a new confidentiality agreement and the Company agreeing a costs indemnity letter, the provisions of which would allow it, in effect, to stop the Possible Offer.

There was no need for the Manager to have its own confidentiality agreement - any information and/or documentation that is provided to Waterfall for due diligence belongs to the Company and would therefore be protected by the Confidentiality Agreement already entered into. Anyway, the Manager already has the benefit of market-standard confidentiality provisions in the IMA. Further, the confidentiality agreement the Manager sought was, in the Board's view, uncommercial and contained overly wide non-compete provisions.

There was also no need for the Manager to have a separate costs indemnity letter - the Manager already has the benefit of a market-standard indemnity in the Investment Management Agreement. The provisions of the costs indemnity letter requested by the Manager were much wider than a usual indemnity and sought to absolve the Manager of responsibility for the underlying documents to be provided as well as imposing other unreasonable obligations on the Company.

Notwithstanding the above, in an effort to progress matters, the Company negotiated and agreed with Waterfall (and provided to the Manager) a revised confidentiality agreement that gave further protections to the Manager and made the revised confidentiality agreement directly enforceable by the Manager. A copy of the confidentiality agreement dated 27 January 2020 will be made available on the Company's website shortly.

The Manager eventually made approximately 2,000 documents available in the VDR on 11 February 2020. However:

· these documents were only made available after (i.e. the following day) the Board, having exhausted all other options, threatened to terminate the IMA and make the current situation public. Contrary to what the Manager says in the PSC Statement, it was actually the Company that first raised the possibility of consulting shareholders, and this was not something that PSC had mentioned until some time after the Company had done so;

· the majority of the documents provided by the Manager are heavily redacted, including details and information relating to the Company itself;

· the Company's counterparties are otherwise referred to in code and no identifying information has been provided to the Board;

· many of the documents which have been included appear designed only to give the impression of compliance with the DD Request. For example: copies of historic documents that were terminated and/or replaced or amended many years ago; long lists of rejected loans that were offered to borrowers but never originated and are therefore non-existent loans; large accounting and NAV Excel files that have been converted to .pdf files so that it is not possible to view the full content of the Excel file; other Excel files that appear to have key rows and/or columns of information hidden or removed;

· it is not possible to determine how complete the due diligence materials are - in fact, the Board believes, based on the dates of the documents provided, that the Manager has only provided agreements that largely relate to just a small proportion of the Company's portfolio; and

· a large number of key documents remain outstanding - for example, a list of the Company's own assets.

The Board, through its advisers, has raised a number of queries with the Manager in relation to the contents of the VDR but, almost 3 weeks later, those queries remain unanswered. Even documents held by third parties such as the Company's depositary agent have not been provided because the relevant third party is stating that it does not have Manager approval to provide them.

The result of this is that almost two months after the DD Request was first shared with the Manager, the Board is still not in a position to progress due diligence, or the Possible Offer more generally, with Waterfall.

In the circumstances, it is in the Board's view simply wrong to suggest that the Manager has made any meaningful and constructive attempt to populate the VDR properly and comprehensively.

Interim operational thresholds

Mindful of its obligations, and the obligations of the Manager, under Rule 21 of the Takeover Code to ensure that no action is taken which may result in frustrating the Possible Offer or denying shareholders the opportunity to decide on the merits of the Possible Offer, the Board suggested on 8 January 2020 a set of interim operational thresholds requesting Board approval until such time as the Board and the Manager could agree any more appropriate, different thresholds. In the interim, the Board asked the Manager to confirm that it would comply with the suggested thresholds.

The Board notes that in the PSC Statement these interim operational thresholds are referred to as unnecessary "Operational Restrictions". That is incorrect. It was expressed in clear terms to the Manager that the Board has no intention of restricting, preventing or amending the Company's investment objectives or its ordinary course of business, but in light of the Possible Offer and its obligations under the Takeover Code, the Board must be aware of, and consider carefully, any transactions that may fall within the ambit of Rule 21 of the Takeover Code. Notwithstanding the obligations of the Takeover Code, this is something that the Board is entitled to do pursuant to the terms of the IMA.

Until 10 February 2020 the Manager refused to give the requested confirmation that it would comply with the Board's request. When the Manager did give the confirmation, it expressly limited that to a period of 14 days. Its counterproposals offered the Board no meaningful oversight in respect of the Company's transactions and indeed specifically excluded disposals - this was of particular concern to the Board given the disposal of Castlehaven for approximately €250 million on 23 August 2019 which the Board was not informed of prior to the announcement of the disposal. After protracted correspondence, in early February 2020, the Manager started to contact the Board to seek approval (with very short deadlines) of certain proposed transactions. However:

· the Manager failed to release sufficient details of the proposed transactions to the Board to enable the Company to give its approval, including even the names of the underlying companies/platforms through which investments are proposed to be made;

· in the event, some of these proposed transactions are substantial, and the Board is consulting with the Takeover Panel (with the little information it has been given);

· the Manager has repeatedly failed to confirm whether it has complied with the Board's interim operational thresholds to date.

Nonetheless, the Board has not in fact refused to approve any of the proposed transactions when its consent has been sought.

The Manager has indicated in correspondence that it has no confidence that the Board will not share information about these potential transactions with Waterfall. This is highly disrespectful to the Board which at no point has indicated that this information would just be shared with Waterfall. The Manager is under a legal obligation as an agent and pursuant to the terms of the IMA to provide this information to the Company, regardless of what the Manager thinks are the merits of doing so. Refusing to do so is a breach of the Manager's obligations to the Company and of principles of good governance, as the Manager is preventing the Board from maintaining effective oversight of the Company's portfolio.

The Manager's assertions that the interim operational thresholds would cause the Company to breach existing contractual obligations or hinder the ordinary course of business of the Company are unfounded, not least because it assumes - quite without any justification - that the Board would seek to block actions which appear to be in the ordinary course of business or otherwise appropriate for the Company to undertake. All the Board has asked for is the opportunity to consider whether or not to give approval for certain transactions in the context of its own legal and regulatory obligations. As matters stand, the Manager is refusing to acknowledge the right of the Board to ask for this. This refusal is understandably a matter of great concern to the Board.

Dividend

On 22 January 2020, aware of the Possible Offer and that the Board was minded to recommend an offer on those terms, the Manager proceeded to publish a statement that it had recommended to the Board an increase in dividend to 15 pence per share per quarter. This statement was made without the Board's prior knowledge or approval. Although, in December 2019, a recommendation had been made by the Manager to the Board concerning the Company's prospective dividend, the Board had not yet considered, much less reached a decision on, the recommendation. The fact that the recommendation had been made was confidential between the Manager and the Board. The Manager cannot have believed it to be appropriate, in the face of the discussions then ongoing between the Board and the Manager, and the Possible Offer, to publicise what the Manager had recommended but which had yet to be decided by the Board.

More specifically, contrary to what the Manager has suggested in its announcement of 25 February 2020, there was no "pre-existing protocol" for the release of such information by the Manager, namely information about advice given by the Manager to the Board before any decision by the Board. Although the Manager had previously released fact sheets, that was at a time when the fact sheets did not contain such significant information in the context of the Possible Offer. The statement potentially created a false impression in the market that a decision had been or would be taken to increase the Company's next dividend, which resulted in the Company having to release an urgent announcement to the market to correct and clarify its position.

In the Board's view, this incident exemplifies the current issues it is facing. A diligent manager, and certainly one aware of the possibility of a recommended takeover offer, would not publish material information to the market, concerning an increase in dividend, and which could impact any possible offer, without first obtaining the Board's approval.

As further explained in the announcement made by the Company on 25 February 2020, the Board wishes to see further evidence that an increase in quarterly dividend is sustainable, including seeing the impact of redeployment of the Castlehaven sale proceeds. The Board also wishes to see an increase in the revenue reserve. To date, the Manager has not provided this additional information to the Board for its consideration.

Breach of the IMA

It is correct that the Board alleged at a relatively early stage that the Manager was in breach of the IMA. This was justified in the face of intransigence by the Manager since the very beginning of this process. In light of the above matters (amongst others), including the failure to provide the Company's own documents, the Board has received legal advice, including from a leading Queen's Counsel, that the Manager has breached the IMA. The Board does not propose to go into the details of the confidential and legally privileged advice it has received, but does not consider there to be any serious doubt about this, and does not understand the Manager to be seriously disputing this. In any event, as has already been announced, having carefully considered the matter and taken appropriate advice, the Board has already terminated the IMA on 12 months' notice, which does not require the Company to demonstrate any breach (although the Company's rights in that respect are fully reserved).

Conclusion

In the Board's view, for the reasons outlined above, the Manager has attempted, throughout the process, and in the PSC Statement, to give the impression of constructive engagement whilst in fact being obstructive and unhelpful.

It goes without saying that the Board wishes very much that it had not found itself driven to spending time airing these differences with the Manager, and hopes that the Manager will start cooperating with the Board - and that shareholders will encourage it to do so. Whilst the Board has sought to engage constructively with the Manager, however, it is mindful that the Manager is seriously conflicted as it is potentially going to lose a substantial investment management contract. It would not be reasonable or proper in those circumstances to delegate the progression of the Possible Offer to the Manager, which would find it difficult to set aside its own interests and prioritise the duties that it owes to the Company and its shareholders. The Board has therefore sought to maintain an appropriate level of control and oversight over the Possible Offer and over the Manager's actions and behaviour in order to manage that conflict and ensure that the Possible Offer is not unduly frustrated or delayed. In light of the Manager's behaviour to date, as outlined in this letter, the Board believes that this approach was appropriate and necessary.

The Board is currently taking legal and other advice on its options to progress the Possible Offer and to ensure that the portfolio is managed in the best interests of the Company and its shareholders. If the Manager continues to fail to produce the documentation and other information requested, then the Board anticipates that it will need to commence legal proceedings to enforce its rights, including potentially issuing a court claim to obtain due diligence materials. The Board is also considering the future arrangements for the Company. Further updates will be provided at the appropriate time.

Yours sincerely,

Simon King

Chairman