Angel Oak Financial Strategies Income Term Fund Rights Offering Widens Discount, Making It More Interesting

Angel Oak Financial Strategies Income Term Fund (NYSE:FINS) offers exposure to investment-grade debt offerings through its closed-end fund structure. The fund is a niche market segment that provides mostly higher-quality investments. Its rights offering has widened the discount, making it more interesting for investors.

The Angel Oak Financial Strategies Income Term Fund (NYSE:FINS) is a closed-end fund that provides investors with exposure to higher-quality investment-grade debt offerings, primarily from the financial sector. Recently, the fund has expanded its investment policy to include some exposure to non-bank institutions while maintaining a majority allocation to investment-grade rated instruments. As of the latest update, the fund's rights offering, which began on April 21, 2025, is set to expire on May 14, 2025.

The fund's rights offering has widened the discount, making it more interesting for investors. The current discount stands at -8.47%, which is trading around its longer-term average. The subscription price for the rights offering will be determined on the expiration date, based on a formula that considers the average of the last reported sales price of the fund's common shares. If the formula price is less than 90% of the fund's net asset value (NAV) per common share, the subscription price will be 90% of the NAV. The estimated subscription price has not yet been determined, but it is expected to be around 94% of the NAV.

The proceeds of the rights offering will be reduced by a sales load payable by the fund. The advisor has waived a portion of its management fee for six months, reducing it from 1.35% to 1%. This slight positive adjustment does not significantly impact the overall management fee, which is already on the higher end. The fund's leverage is 26.4%, which would bring the fund's total expense ratio up to 3.99%.

The fund's investment objective is to provide current income with a secondary objective of total return. It focuses on a financials sector debt-centric strategy, which has low historical correlations to other areas of the market. The fund highlights access to niche market opportunities in community bank debt and small-cap non-bank financial institutions. It also focuses on an investment-grade sector with high regulatory oversight and historically low default rates.

The fund's distribution yield is 9.92%, with the NAV rate at 9.09%. The average coupon is 6.49%, and net investment income coverage has been around 54%. The fund's leverage is primarily achieved through reverse repurchase agreements and senior notes. The interest rate for reverse repurchase agreements has been 6%, down from 6.14%, and is expected to decrease further with the Fed's recent 100 basis point cut.

In conclusion, the fund's current discount makes it more interesting for investors to consider as the rights offering expiration approaches. However, it is not necessarily a bargain. The discount is only trading around its longer-term average, and assuming a 1-4% estimated NAV hit, the discount will actually be a bit tighter toward parity with its NAV than it is today. For investors looking for exposure to this type of fund, it could still be a decent time to consider adding. For those holding shares and wanting to participate, it currently makes sense to do so, as you'll get a slight discount to the current market price. However, it will be important to monitor the fund going into the last few days before the expiration, as brokers may have their own internal cutoff times for participation.

References:
[1] https://seekingalpha.com/article/4785310-fins-rights-offering-widens-discount-making-more-interesting