• Filing date: 30 Oct 2020
• Price at time of writing: $9.43
• Lower limit price: $10.00
• Upper limit price: $12.00
• Maximum profit: $254.43
• Expiration date: 10 Dec 2020
• Filing: Link

NexPoint Strategic Opportunities Fund (NHF) have filed to conduct an exchange offer in which holders of common stock (valued at time of writing at $9.43) will be exchanged for $10 – $12 worth of consideration, paid as a combination of preferred shares and cash. Oversubscriptions will be prorated but an odd lot provision exempts holders of odd lots from proration.

This works in the same way as a Dutch Auction odd lot tender offer, with the exception of 80% of the consideration being paid as preferred shares instead of cash (5.50% Series A Cumulative Preferred Shares), valued for the purpose of the exchange at their liquidation preference value of $25. Any fractional preferred shares awarded will be rounded down and any residual consideration paid as cash.

Example settlement assuming 99 shares tendered at $12:

• $1,188 value of common stock exchanged (99 x 12)
• 38 preferred shares awarded ((1,188 * 0.8)/25, rounded down), valued at $950
• $238 cash received to make up rest of consideration (1,188 – 950)

The max profit indicated is subject to additional risks compared to an odd lot tender offer as a result of most of the consideration being awarded as preferred shares:

• Liquidity risk – preferred shares may be harder to sell than common equity.
• Market risk – if the market values the preferred shares received at a discount or premium to the liquidation preference value of $25 used in the exchange calculation, the market value of your consideration received may be lower or higher than indicated, directly impacting profitability. In the event of the preferred trading at a sufficient discount participation in the offer could be loss making (though this would imply the preferred shares were mispriced).

Prospective investors are reminded to conduct their own due diligence to ensure they are comfortable bearing the risks associated with the transaction.

Our thanks to the community members who emailed us to highlight this exchange offer.