PAXS - Weekly Closed-End Fund Roundup: VFL Tender Offer (July 24 2022)

• 21 out of 23 CEF sectors positive on price and 22 out of 23 sectors positive on NAV last week.
• Saba scores a victory against VFL.
• VFL will tender 50% of its shares in December.

Author’s note: This article was released to CEF/ETF Income Laboratory members on July 25th, 2022. Please check latest data before investing.

The Weekly Closed-End Fund Roundup will be put out at the start of each week to summarize recent price movements in closed-end fund [CEF] sectors in the last week, as well as to highlight recently concluded or upcoming corporate actions on CEFs, such as tender offers. Data is taken from the close of Friday, July 22nd, 2022 .

Weekly performance roundup

21 out of 23 sectors were positive on price (up from 12 last week) and the average price return was 1.89% (up from 0.00% last week). The lead gainer was MLPs (+3.44%) while California Munis lagged (-0.28%).

21 out of 23 sectors were positive on NAV (up from 11 last week), while the average NAV return was +2.09% (up from -0.44% last week). The top sector by NAV was MLPs (+3.52%) while the weakest sector by NAV was Single-state Munis (+0.34%).

The sector with the highest premium was Taxable Munis (+0.20%), while the sector with the widest discount is MLPs (-14.22%). The average sector discount is -5.02% (down from -4.81% last week).

The sector with the highest premium/discount increase was Emerging Market Income (+0.65%), while Real Estate (-1.63%) showed the lowest premium/discount decline. The average change in premium/discount was -0.19% (down from +0.47% last week).

The sector with the highest average 1-year z-score is MLPs (+0.68), while the sector with the lowest average 1-year z-score is Senior Loans (-0.97). The average z-score is -0.30 (down from -0.25 last week).

The sectors with the highest yields are Asia Equity (14.75%), Global Equity (11.78%), and Emerging Market Income (10.72%). Discounts are included for comparison. The average sector yield is +8.36% (down from +8.51% last week).

Individual CEFs that have undergone a significant decrease in premium/discount value over the past week, coupled optionally with an increasing NAV trend, a negative z-score, and/or are trading at a discount, are potential buy candidates.

Conversely, individual CEFs that have undergone a significant increase in premium/discount value in the past week, coupled optionally with a decreasing NAV trend, a positive z-score, and/or are trading at a premium, are potential sell candidates.

Recent corporate actions

These are from the past month. Any new news in the past week has a bolded date:

June 30, 2022 | Gabelli Global Utility & Income Trust Rights Offering Concludes Raising $9.4 Million. The Board of Trustees of The Gabelli Global Utility & Income Trust ( GLU ) (the “Fund”) announces the completion of its transferable rights offering (the “Offering” or “Offer”). Preliminary results indicate that the Fund will issue approximately 591,000 common shares, resulting in gross proceeds to the Fund of approximately $9.4 million, assuming the over-subscription privilege is exercised. Pursuant to the Offer, the Fund issued one transferable right (a “Right”) for each share of common stock held by shareholders of record (record date shareholders) as of May 12, 2022 . Holders of Rights were entitled to purchase common shares by submitting four Rights and $16.00 for each common share to be purchased (the “subscription price”). The Offer expired at 5:00 PM Eastern Time on June 29, 2022 and the Rights no longer trade on the NYSE American. Preliminary results indicate that the Fund received total subscriptions of approximately $9.4 million (including over-subscription requests and notices of guaranteed delivery). The new common shares will be issued on or about June 30, 2022. [ Rights offering announcement ]

June 30, 2022 | XAI Octagon Floating Rate & Alternative Income Term Trust Closes Private Placement of Convertible Preferred Shares and Registered Direct Placement of Common Shares. XAI Octagon Floating Rate & Alternative Income Term Trust (the “Trust”) ( XFLT ), a diversified, closed-end management investment company with an investment objective to seek attractive total return with an emphasis on income generation across multiple stages of the credit cycle, has closed its previously announced private placement of 400,000 shares of the Trust's 6.00% Series 2029 Convertible Preferred Shares due June 2029, liquidation preference $25.00 per share, and registered direct placement of 1,450,000 common shares of beneficial interest at a price of $6.90 per share. As a result, the Trust received net proceeds from the transactions of approximately $19.2 million. The Trust intends to use the net proceeds from the offerings to invest in accordance with its investment objective and policies, to pay down outstanding borrowings under its credit facility and/or for general working capital purposes.

June 29, 2022 | XAI Octagon Floating Rate & Alternative Income Term Trust Announces Private Placement of Convertible Preferred Shares and Registered Direct Placement of Common Shares. XAI Octagon Floating Rate & Alternative Income Term Trust (the “Trust”) (NYSE: XFLT), a diversified, closed-end management investment company with an investment objective to seek attractive total return with an emphasis on income generation across multiple stages of the credit cycle, has entered into a Purchase Agreement with certain institutional investors for the purchase and sale of 400,000 shares of the Trust's 6.00% Series 2029 Convertible Preferred Shares due June 2029 (the “Convertible Preferred Shares”), liquidation preference $25.00 per share. The Trust expects to receive net proceeds (before expenses) from the sale of the Convertible Preferred Shares of approximately $9.3 million. The offering is expected to close on or about June 30, 2022, subject to the satisfaction of customary closing conditions. In addition, pursuant to Purchase Agreement, the investors have agreed to purchase up to 800,000 additional shares of Convertible Preferred Shares, at one or more subsequent closings on or before June 30, 2023 as determined by the Trust in its discretion. The Convertible Preferred Shares pay a quarterly dividend at a fixed annual rate of 6.00% of the liquidation preference, or $1.50 per share, per year. The Trust is required to redeem, out of funds legally available therefor, all outstanding Convertible Preferred Shares on June 30, 2029, or the “Term Redemption Date,” at a price equal to the liquidation preference plus an amount equal to accumulated but unpaid dividends and distributions, if any, on such shares (whether or not earned or declared, but excluding interest on such dividends) to, but excluding, the Term Redemption Date. At any time on or after June 30, 2024, at the Trust’s sole option, the Trust may redeem, from time to time, the Convertible Preferred Shares in whole or in part, out of funds legally available for such redemption, at a price per share equal to the sum of the liquidation preference plus an amount equal to accumulated but unpaid dividends, if any, on such shares (whether or not earned or declared, but excluding interest on such dividends) to, but excluding, the date fixed for such redemption. Each holder of a Convertible Preferred Share shall have the right, at such holder’s option, to convert any such Convertible Preferred Share, at any time on or after the date six months after the issuance date of the Convertible Preferred Share (the “Convertibility Date”) and prior to the close of business on the business day immediately preceding the Term Redemption Date, into such number of common shares of beneficial interest (“Common Shares”) equal to the liquidation preference of the Convertible Preferred Share plus an amount equal to all unpaid dividends and distributions on such Share accumulated to (but excluding) the date of exercise, divided by the Conversion Price. The “Conversion Price” is the greater of [i] the market price per Common Share, represented by the five-day volume-weighted average price (“VWAP”) per Common Share ending on the trading day immediately preceding the date of exercise, or [ii] the Trust’s most recently reported net asset value per Common Share immediately prior to the date of exercise. The Convertible Preferred Shares will not be listed on any exchange and may not be transferred without the consent of the Trust.

June 13, 2022 | Cornerstone Strategic Value Fund, Inc. Announces Completion Of Rights Offering. Cornerstone Strategic Value Fund, Inc. (the “Fund”) (NYSE American: CLM ) (CUSIP: 21924B302) is pleased to announce the completion of its one-for-three rights offering which expired on Friday, June 10, 2022 (the “Offering”). The Offering was over-subscribed. Under the terms of the Offering, record date stockholders were entitled to purchase one newly issued share of common stock of the Fund for every three rights held. The subscription price for each newly issued share was determined to be $8.27 which, under the terms of the prospectus, was equal to the greater of [i] 112% of net asset value per share as calculated at the close of trading on the date of expiration of the Offering and [ii] 65% of the market price per share at such time. Based on preliminary results provided by the Fund's subscription agent, the Fund received requests for approximately $783 million of its shares. The Fund anticipates issuing over-subscription shares under the additional subscription privilege. If the aggregate number of shares subscribed for under the additional subscription privilege exceeds the number of excess shares, the excess shares will be allocated as described in the prospectus. The subscription price is lower than the original estimated subscription price of $10.09. Under the prospectus, any excess payment received from a stockholder will, unless otherwise indicated on the subscription certificate received from such stockholder, be applied towards the purchase of unsubscribed shares. It is anticipated that shares will be issued on or about Thursday, June 16, 2022. Stockholders are encouraged to contact their broker regarding the specifics of their account. Newly issued shares will not be entitled to the Fund’s distribution to stockholders for the month of June 2022.

June 13, 2022 | Cornerstone Total Return Fund, Inc. Announces Completion Of Rights Offering. Cornerstone Total Return Fund, Inc . (the “Fund”) (NYSE American: CRF ) (CUSIP: 21924U300) is pleased to announce the completion of its one-for-three rights offering which expired on Friday, June 10, 2022 (the “Offering”). The Offering was over-subscribed. Under the terms of the Offering, record date stockholders were entitled to purchase one newly issued share of common stock of the Fund for every three rights held. The subscription price for each newly issued share was determined to be $7.95 which, under the terms of the prospectus, was equal to the greater of [i] 112% of net asset value per share as calculated at the close of trading on the date of expiration of the Offering and [ii] 65% of the market price per share at such time. Based on preliminary results provided by the Fund's subscription agent, the Fund received requests for approximately $410 million of its shares. The Fund anticipates issuing over-subscription shares under the additional subscription privilege. If the aggregate number of shares subscribed for under the additional subscription privilege exceeds the number of excess shares, the excess shares will be allocated as described in the prospectus. The subscription price is lower than the original estimated subscription price of $9.69. Under the prospectus, any excess payment received from a stockholder will, unless otherwise indicated on the subscription certificate received from such stockholder, be applied towards the purchase of unsubscribed shares. It is anticipated that shares will be issued on or about Thursday, June 16, 2022. Stockholders are encouraged to contact their broker regarding the specifics of their account. Newly issued shares will not be entitled to the Fund’s distribution to stockholders for the month of June 2022.

Upcoming corporate actions

These are from the past month. Any new news in the past week has a bolded date:

July 22, 2022 | Delaware Investments National Municipal Income Fund Announces Self-Tender Offer for up to Fifty Percent of Its Shares. Today, Delaware Investments National Municipal Income Fund (the “Fund”), a NYSE American listed closed-end fund trading under the symbol “ VFL ,” announced that its Board of Trustees has authorized an issuer tender offer to purchase for cash up to 10,478,347 of its common shares, representing fifty percent of its issued and outstanding common shares, with a par value of $0.01 per share. The tender offer will commence on November 14, 2022 and purchases will be made at a price per share equal to 99% of the Fund’s net asset value per share as of the close of trading on the first business day after the expiration of the offer. If more shares are tendered than the amount the Board has authorized to purchase, the Fund will purchase a number of shares equal to the offer amount on a pro-rated basis. The commencement of the tender offer is pursuant to an agreement between the Fund and Saba Capital Management, L.P. (“Saba”) and certain associated parties. Pursuant to the agreement, Saba has agreed to be bound by certain standstill covenants. The Fund has been advised that Saba will file copies of the relevant standstill agreement with the U.S. Securities and Exchange Commission (“SEC”) as exhibits to its Schedule 13D.

June 28, 2022 | SALIENT MIDSTREAM & MLP FUND ANNOUNCES PLANNED REORGANIZATION. Salient Midstream & MLP Fund (the "Fund") (NYSE: SMM ) announced today that its Board of Trustees determined to reorganize SMM into Salient MLP & Energy Infrastructure Fund ("SMLPX") (the reorganization of SMM into SMLPX is the "Reorganization"). SMLPX is an open-end fund that is a series of Salient MF Trust with approximately $849 million in net assets and is also managed by Salient Capital Advisors, LLC, the investment adviser of SMM, using a similar investment strategy. After careful consideration of a variety of factors and alternatives, the Board of Trustees determined that it would be in the best interest of shareholders to merge SMM into SMLPX. The proposal to merge SMM into SMLPX will require the approval of SMM shareholders. This press release is not intended to, and does not constitute an offer to purchase or sell shares of SMM or SMLPX (together, the "Funds") nor is this press release intended to solicit a proxy from any shareholder of the Funds. The solicitation of the purchase or sale of securities or of proxy to effect the Reorganization will only be made by a definitive Proxy Statement/Prospectus. The Proxy Statement/Prospectus has yet to be filed with the U.S. Securities and Exchange Commission (the "SEC"). After the Proxy Statement/Prospectus is filed with the SEC, it may be amended or withdrawn. The Proxy Statement/Prospectus will not be distributed to shareholders of SMM unless and until a Registration Statement comprising of the Proxy Statement/Prospectus becomes effective with the SEC.

Recent activist or other CEF news

These are from the past month. Any new news in the past week has a bolded date:

July 8, 2022 | Virtus Convertible & Income Fund II Announces Payment of Previously Declared Monthly Common Share Distribution; Reconfirms August 1 Distribution. Virtus Convertible & Income Fund II (NYSE: NCZ ), a closed-end fund, announced today that it will begin to process its monthly distribution of $0.0375 per common share, which was previously scheduled to be paid on July 1 to shareholders of record as of June 13, 2022. In addition, the Fund's Board has declared the monthly distribution of $0.0375 per common share for payment on August 1 to shareholders of record as of July 11, 2022 (ex-dividend date of July 8, 2022).

July 1, 2022 | Virtus Convertible & Income Fund II Postpones Monthly Distribution on Common Shares. Virtus Convertible & Income Fund II (NYSE: NCZ ), a closed-end fund, today announced that it has postponed payment of its monthly distribution of $0.0375 per share that was scheduled to be paid on July 1 and has postponed declaration of its monthly distribution of $0.0375 per share that was scheduled to be declared on July 1 for payment on August 1. Recent market dislocations have caused the values of the Fund's portfolio securities to decline and, as a result, the Fund's asset coverage ratio for total leverage as of June 30, as calculated in accordance with the Investment Company Act of 1940, was below the 200% minimum asset coverage guideline. Compliance with the asset coverage ratio is required by the Fund's governing documents for declaration or payment of the monthly dividends. As a result, the Fund is not authorized to declare or pay its monthly distributions until the coverage ratio is in compliance. The Fund intends to resume declaration and payment of its monthly distributions once its coverage ratio is in compliance.

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Distribution changes announced this month

These are sorted in ascending order of distribution change percentage. Funds with distribution changes announced this month are included. Any distribution declarations made this week are in bold. I've also added monthly/quarterly information as well as yield, coverage (after the boost/cut), discount and 1-year z-score information. I've separated the funds into two sub-categories, cutters and boosters.

Cutters

Boosters

(Note: PDO boosted its distribution for July which hasn't been updated in CEFConnect's database yet).

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Commentary

1. VFL tender offer

Saba has scored another victory, this time against Delaware Investments National Municipal Income Fund ( VFL ). This was a quick victory for Saba given that their original 13D filing (indicating active intent) was only filed on February 15, 2022.

Most recently , Saba reported owning 3.4M shares of VFL, which would make it a 16.3% owner (and the largest owner) of the fund.

After last Friday's close, VFL announced that it would conduct at tender offer for 50% of shares at 99% of NAV. The offer will commence on November 14, 2022 and expire sometime between December 12 and December 16.

As expected, VFL popped (+6.21% as of time of writing) on news of the tender offer given that the fund closed at a discount of -8.45% last Friday. The intraday discount is now under -3%, so there isn't much juice left in this orange for arbitrageurs looking to take part in the tender offer.

For current holders of VFL, I would recommend selling now and reaping the quick profit from the announcement, or else selling just before the expiry of the offering. I wouldn't recommend holding past the expiry date because there is a strong chance that VFL's discount would widen back out when the tender offer concludes (the 5-year average discount is -10.63%).

This is especially considering that as part of deal for the tender offer, Saba has entered into a standstill agreement to tender all of its VFL shares as well as to withdraw all of its nominations to the fund board. In other words, the tender offer is VFL's "ransom" paid to Saba to stop the activist from campaigning against it. The tender offer will shrink VFL's AUM by at least 50%, but the managers are probably making the calculated bet that that is the least undesirable outcome compared to an outright liquidation or takeover.

Long-term shareholders of VFL shouldn't really be impacted, in fact may even see a slight boost in the NAV/share as the shares would be repurchased at 99% of NAV (i.e., at a -1% discount). There may be a slight uptick in the expense ratio if fixed costs get spread over a smaller asset base.

What's Saba's next target? We discussed recently that it has already achieved a victory against Salient Midstream & MLP Fund ( SMM ), a Tactical Income-100 portfolio holding.

Looking at Saba's recent filings, possible targets may be:

• Delaware Enhanced Global Dividend and Income Closed Fund ( DEX ): Saba owns 10.3% (approx. $8.8M) of this global stock/bond fund, which trades at a discount of -13.70%.
• Templeton Global Income Fund ( GIM ): Saba owns 31.1% (approx. $142M) of this global bond fund, which trades at a discount of -5.40%.0

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