Invesco Senior Income Trust: Private Placement of Variable Rate Demand Mode Preferred Shares
Alpha InspirationFriday, Oct 25, 2024 12:41 pm ET
2min readInvesco Senior Income Trust (VVR) has recently announced the successful pricing and private placement of two series of Variable Rate Demand Mode Preferred Shares (VRDMs), Series A and Series B, to qualified institutional buyers under Rule 144A of the Securities Act. The trust issued a total of $100 million in preferred shares, with $50 million allocated to each series. The proceeds from this issuance will be used to fully redeem $100 million of its outstanding Variable Rate Demand Preferred Shares (Series W-7).
The newly issued Series A and Series B VRDMs carry a term redemption date of November 1, 2034, subject to mandatory redemption by the fund. Dividends for these shares will be set weekly based on the rates established by the fund's remarketing agent, with a predetermined maximum rate that increases if remarketing efforts are unsuccessful for an extended period. Each VRDM series comes with a liquidity feature, allowing holders to have their shares repurchased by a liquidity provider if their sell orders are unmet during remarketing.
These preferred shares are senior to the fund's common shares regarding liquidation and dividend payments, while they rank junior to the fund's borrowings. The private placement does not include registration under the Securities Act, limiting the offering to a select group of institutional buyers. Invesco Ltd., the parent company, manages a significant portfolio, totaling approximately $1.795 trillion in assets as of September 30, 2024, across various investment strategies. Investors are advised that there are risks associated with investing in closed-end funds, including potential trading discounts or premiums to net asset value.
The liquidity feature of the VRDMs mitigates the risk of unmet sell orders during remarketing periods by providing holders with an option to have their shares repurchased by a liquidity provider. This ensures that investors have a safety mechanism in place to address potential liquidity concerns.
The predetermined maximum dividend rate increase mechanism impacts the VRDMs' pricing and attractiveness over time. As remarketing efforts become unsuccessful for extended periods, the maximum dividend rate increases, making the VRDMs more attractive to yield-seeking investors. However, this mechanism also introduces potential risks, as it may lead to higher dividend payments and increased costs for the fund.
The seniority of the VRDMs in the capital structure influences their liquidation and dividend payment priorities compared to common shares. As senior preferred shares, the VRDMs have priority over common shares in liquidation and dividend payments, ensuring that they are paid before common shareholders in the event of a liquidation or dividend distribution. This structure provides additional security for VRDM holders.
The private placement of VRDMs under Rule 144A of the Securities Act limits the offering to a select group of institutional buyers, which may impact the fund's accessibility and liquidity. As the offering is not registered under the Securities Act, the VRDMs are not available for purchase by retail investors. This limitation may result in a smaller investor base and potentially lower trading volumes, which could affect the fund's liquidity and marketability.
In conclusion, Invesco Senior Income Trust's recent private placement of Variable Rate Demand Mode Preferred Shares offers an attractive investment opportunity for yield-seeking institutional investors. The VRDMs' liquidity features, seniority in the capital structure, and potential for increasing dividend rates make them an appealing option for investors seeking stable income and capital appreciation. However, investors should carefully consider the risks associated with investing in closed-end funds and the specific characteristics of the VRDMs before making a decision.
The newly issued Series A and Series B VRDMs carry a term redemption date of November 1, 2034, subject to mandatory redemption by the fund. Dividends for these shares will be set weekly based on the rates established by the fund's remarketing agent, with a predetermined maximum rate that increases if remarketing efforts are unsuccessful for an extended period. Each VRDM series comes with a liquidity feature, allowing holders to have their shares repurchased by a liquidity provider if their sell orders are unmet during remarketing.
These preferred shares are senior to the fund's common shares regarding liquidation and dividend payments, while they rank junior to the fund's borrowings. The private placement does not include registration under the Securities Act, limiting the offering to a select group of institutional buyers. Invesco Ltd., the parent company, manages a significant portfolio, totaling approximately $1.795 trillion in assets as of September 30, 2024, across various investment strategies. Investors are advised that there are risks associated with investing in closed-end funds, including potential trading discounts or premiums to net asset value.
The liquidity feature of the VRDMs mitigates the risk of unmet sell orders during remarketing periods by providing holders with an option to have their shares repurchased by a liquidity provider. This ensures that investors have a safety mechanism in place to address potential liquidity concerns.
The predetermined maximum dividend rate increase mechanism impacts the VRDMs' pricing and attractiveness over time. As remarketing efforts become unsuccessful for extended periods, the maximum dividend rate increases, making the VRDMs more attractive to yield-seeking investors. However, this mechanism also introduces potential risks, as it may lead to higher dividend payments and increased costs for the fund.
The seniority of the VRDMs in the capital structure influences their liquidation and dividend payment priorities compared to common shares. As senior preferred shares, the VRDMs have priority over common shares in liquidation and dividend payments, ensuring that they are paid before common shareholders in the event of a liquidation or dividend distribution. This structure provides additional security for VRDM holders.
The private placement of VRDMs under Rule 144A of the Securities Act limits the offering to a select group of institutional buyers, which may impact the fund's accessibility and liquidity. As the offering is not registered under the Securities Act, the VRDMs are not available for purchase by retail investors. This limitation may result in a smaller investor base and potentially lower trading volumes, which could affect the fund's liquidity and marketability.
In conclusion, Invesco Senior Income Trust's recent private placement of Variable Rate Demand Mode Preferred Shares offers an attractive investment opportunity for yield-seeking institutional investors. The VRDMs' liquidity features, seniority in the capital structure, and potential for increasing dividend rates make them an appealing option for investors seeking stable income and capital appreciation. However, investors should carefully consider the risks associated with investing in closed-end funds and the specific characteristics of the VRDMs before making a decision.
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