Ravensource Fund : Letter to Unitholders - June 30, 2023

MANAGEMENT'S LETTER TO UNITHOLDERS

FOR THE SEMI-ANNUALPERIOD ENDED JUNE 30, 2023

NOTICE TO READER

The purpose of Ravensource's Management's Letter to Unitholders is to impart information and analysis to aid Ravensource's unitholders in the understanding of their investment. This letter is a supplemental report to the financial statements, Management Report on Fund Performance ("MRFP"), Annual Information Form ("AIF") and the Independent Review Committee ("IRC") report. You can get a copy of the aforementioned documents and the Fund's proxy voting policies and proxy voting record by calling [phone], by writing to us at Stornoway Portfolio Management 30 St. Clair Avenue West, Suite 901, Toronto, ON M4V 3A1, by visiting our website at www.ravensource.ca, or the SEDAR+ website at www.sedarplus.ca.

A Note on Forward-Looking Statements

This document may contain forward-looking statements relating to anticipated future events, results, decisions, opportunities, risks or other matters. Forward-looking statements are predictive in nature requiring us to make assumptions and subject to inherent risks and uncertainties. Our forward-looking statements may not prove to be accurate, and the factors that could cause actual events, results, etc. may differ materially from expectations, estimates or intentions. These risk factors include market and general economic conditions, regulatory developments, the effects of competition in the geographic and business areas the fund may invest and others as detailed in Ravensource's Annual Information Form. Forward-looking statements are not guarantees of future performance. For these reasons, it is important that readers do not place undue reliance on our forward- looking statements and should be aware that Ravensource may not update any forward-looking statements.

About the Ravensource Fund

The Ravensource Fund is a closed-end trust whose units trade on the TSX under the symbol RAV.UN. The principal objective of Ravensource is to achieve absolute long-term returns through investing in out-of-favor and deep-value North American securities. Ravensource's investments fall primarily in three strategies:

1. Distressed Opportunities: Investing in corporate debt, creditor claims and/or equity securities of companies, that are in, perceived to be in, or emerging from financial distress at a price materially different from what we believe to be the underlying fundamental value of the securities.
2. Alternative Credit: Investing in corporate debt, on either a primary or secondary basis, that is reasonably expected to be repaid at or above par at or before its stated maturity in a manner consistent with the terms of its indenture and earn a yield that we believe is attractive given the underlying credit risk.
3. Special Situations Equities: Investing primarily in Canadian and U.S. small- and mid-cap equities that have catalysts to bridge the gap between market price and intrinsic value.

About Stornoway Portfolio Management ("Stornoway")

Stornoway was appointed the Fund's Investment Manager on July 1, 2008 to execute Ravensource's investment mandate. Stornoway took over the management of Ravensource from Pat Hodgson. Pat was our partner, an extraordinary investor and a true buccaneer who in 2003 transitioned Ravensource from investing in debt of Asian companies - the Fund was formerly The First Asia Fund - to focus on North American securities. Pat left us with a tremendous legacy that forms the guiding principles we embrace in managing Ravensource.

Stornoway is a Toronto-based,employee-owned investment management firm focused on investing in distressed securities and other deep-value,out-of-favour investment opportunities that withstand a thorough and disciplined analytical rigor prior to investing and active involvement thereafter. The Stornoway Team is comprised of Scott Reid, Daniel Metrikin, and Alex Gelmych. Our bios and our approach to investing can be found on the Ravensource website. In addition to Ravensource, Stornoway manages the Stornoway Recovery Fund LP ("SRFLP"), a limited partnership that invests in opportunities that arise from companies that are in or near financial distress.

Past investment performance by the Ravensource Fund is not indicative of future results and there cannot be any assurances that its investment objectives will be achieved. This letter is not a solicitation to invest.

MANAGEMENT'S LETTER TO UNITHOLDERS

$300,000
$250,000							$246,449
							$218,755
$200,000
$150,000
$100,000
$50,000
Jun-08	Jun-10	Jun-12	Jun-14	Jun-16	Jun-18	Jun-20	Jun-22
	Ravensource Fund NAV 1	S&P/TSX Composite Total Return Index

23% greater wealth creation

Dear Fellow Unitholders,

Ravensource Fund's ("Ravensource" or the "Fund") net asset value ("NAV") per unit increased by 1.4% over the first half of 2023, versus a 5.7% increase in the TSX.

The first half of 2023 saw our investees continue their march towards revitalization, with notable progress along the way. Some achievements were transformational in nature: Crystallex was given the greenlight by the U.S. to run the sale process for PDVH / CITGO, a critical step accelerating our pursuit of a potential 200%+ return on our largest investment, and Firm Capital Apartment REIT began selling assets at prices well above what is reflected in the market value of their shares. Some achievements were more normal course, such as Kiwetinohk Energy proving consistent performance as a revitalized entity. And after a rocky start, Spark Power and Algoma are finally showing the green shoots of a turnaround, however both have a lot of wood still to chop and remain far behind schedule.

Our focused drive has not blinded us to our recent poor results. It has taken much longer to affect the change we envisioned and turn that change into dollars. Take Kiwetinohk. The company has reported three quarters of significantly higher production rates, yet the stock is trading roughly flat from where it was when it listed in January 2022 and at a steep discount to its peers. We do not know when the market will be convinced of KEC's merit, however, we do know that a company that has grown its cash flow from $114 million at listing to just under $300 million today is worth a whole lot more.

In the "The Carrot" we quantify that "whole lot more." The Carrot reflects our assessment of the value gap that exists today between the current price of our investments and the value we are working to capture at exit. We believe that closing these value gaps will provide our investors with superior long- term returns that will be well worth the wait.

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A material development over 2023 has been the strengthening of the Fund's balance sheet as our leverage decreased from 20.4% of total assets at the beginning of the year to 1.6% by June 30, 2023. Over the course of the year, we exited our Stelco position, began exiting our Dundee position at very attractive prices and used the proceeds to reduce the Fund's leverage.

Notably, Ravensource did not make its typical distribution to unitholders on June 30, 2023. We believe investing Ravensource's capital creates more value to investors than cash distributions. Going forward, we will regularly review and distribute the amount, if any, required for the Fund to remain tax-efficient and consider additional distributions if there is a lack of compelling investment opportunities.

The objective of this letter is to provides a closer look at our results and portfolio developments during the first half of 2023, and the opportunities, risks and challenges we see, in a candid and open manner.

The Stornoway Way

Ravensource seeks to generate superior long-term returns by investing in troubled and out-of-favour companies and profit from their revitalization. Complexity is our domain. We confront complexity with our diligence, experience, and expertise to invest in situations where others may be unable or unwilling to invest. This may take the form of securities in or emerging from financial distress, "orphan securities" that carry the stigma of former distress, or underfollowed securities with identifiable catalysts to bridge the gap between market price and intrinsic value.

Why engage with complexity? Securities left in the "too hard" pile by traditional investors often have depressed prices disconnected from their economic potential. It's our job to help "connect the dots" between a company dismissed by the market and a quality asset of strategic value.

Our success is predicated on reaching tangible milestones that mark fundamental change in our underlying investees. Often, completing the financial restructuring is only the first step. Once on strong footing, these companies can then use their financial flexibility to undertake operational evolutions that create meaningful value. Once the business has been revitalized, it is more likely to be an attractive target to strategic investors, helping to secure our exit strategy. The Stornoway Way is focused on driving these outcomes. This is what generates superior returns for you, our partners.

Investment Performance

Ravensource's investment portfolio generated a 3.1% return over the first half of 2023. The investments that materially impacted Ravensource's performance are as follows:

	YTD 2023 Gross Return	Impact on
Investment	On Investment	Fund 1
Crystallex International Corp.	18.2%	5.3%
Stelco Holdings Inc.	14.7%	1.5%
Dundee Corp.	5.4%	1.2%
Algoma Steel Group Inc.	9.7%	0.8%
Spark Power Group Inc.	(24.2%)	(0.8%)
Quad/Graphics Inc.	(7.8%)	(0.8%)
Brookfield DTLA Fund Office Trust Investor Inc.	(89.2%)	(1.6%)
Kiwetinohk Energy Corp.	(17.0%)	(3.7%)
FX, Forwards and Other 2		1.2%
Pre Expense & GPPA Investment Return		3.1%

1. Increase in NAV due to investment's gross return for the period
2. Includes the impact of foreign exchange, FX hedges, and other investments
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Crystallex International Corp. ("Crystallex")

After years of dormancy, the market price of Crystallex's Senior Notes increased by 18.2% to USD $133 per $100 Senior Note over the first half of 2023. The catalyst for this repricing was a game changing development in April as the US Government allowed the sale process of PDV Holdings ("PDVH") to proceed and indicated it would adopt a favourable policy in approving a sale. With PDVH - owner of CITGO Petroleum - likely to fetch USD $10bn+ and the US Courts cementing Crystallex's place at the front of the queue, it appears highly likely that Crystallex will finally collect the remaining USD $1.1bn owed by Venezuela by September 2024.

So, what does this mean for our Senior Notes investment? It has been 11+ long years since the Senior Notes were to mature only for Crystallex to seek insolvency protection and defer its repayment indefinitely. A PDVH sale will enable Crystallex to move past its saga with Venezuela and provide Crystallex sufficient cash to finally repay its Senior Notes with significant amounts potentially leftover for Junior Stakeholders. Given the Senior Notes have not received interest since July 2011 and, according to the governing bond indenture, accrue 9.375% interest until repaid, Crystallex owes a considerable chunk of change to its Senior Noteholders.

To quantify the potential recovery on our investment, we begin with the CCAA Court order that recognized the Senior Noteholders' entitlement to ~USD $188 per $100 Senior Note as of December 31, 2015 (the "Standstill Order"). Using its 9.375% contract rate to carry this entitlement forward, Stornoway calculates the Senior Notes are owed between USD $337 and $374 in principal and interest per $100 Senior Notes as of June 30, 2023 depending on the methodology used. We estimate that Crystallex will be able to repay us by December 2025, at which time we will be owed between USD $414 and $470 in principal and interest per $100 Senior Note. See the tree diagram below.

Despite what the bond indenture states, Junior Stakeholders may attack our claim in this zero-sum game: what is paid to Senior Noteholders lowers the amount Junior Stakeholders will receive. To increase their recovery, Junior Stakeholders are incentivized to limit the Senior Noteholder recovery to the ~USD $188 of the Standstill Order or some other amount less than our legal entitlement. If successful in denying the Senior Notes 10+ years of interest contractually owed, the Junior Stakeholders could extract a USD $200 - 300mm windfall for themselves.

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