Enterprising Investor
2 months ago
Vistra to Acquire Equity Interests of Vistra Vision LLC from Minority Investors (9/18/24)
Vistra to become the sole owner of Vistra Vision
Highlights
- Transaction, consisting of the acquisition of the entire 15% equity interest in Vistra Vision currently owned by affiliates of Nuveen and Avenue, is expected to close on Dec. 31, 2024.
- Net present value cash purchase price, which will be paid in installments over two years from the closing date, of $3.085 billion(1), subject to adjustment based on the amount of Vistra Vision dividends received by the minority investors prior to closing.
- Increases upside related to nuclear, solar, and battery assets, as well as its retail business currently majority owned and operated by Vistra.
- Transaction is expected to significantly exceed the company's mid-teens levered return thresholds and is forecasted to be immediately accretive to shareholders.
- Vistra remains committed to its long-term net leverage target of less than 3x(2) and continues to expect to execute at least $2.25 billion of share repurchases in 2024 and 2025, and at least $1 billion of additional share repurchases in 2026(3).
IRVING, Texas, Sept. 18, 2024 /PRNewswire/ -- Vistra Corp. (NYSE: VST) today announced that it has executed definitive agreements with affiliates of Nuveen Asset Management, LLC, and Avenue Capital Management II, L.P., to acquire their combined 15% equity interest in Vistra Vision LLC. This will result in Vistra being the sole owner of its Vistra Vision subsidiary, which includes its zero-carbon nuclear, energy storage, and solar generation assets, as well as its retail business.
Vistra President and CEO Jim Burke stated, "This is another key milestone in the evolution of our company. Through this transaction we are simplifying the overall structure by acquiring the minority interest at an attractive valuation and increasing our shareholder's ownership to 100% of highly valuable, carbon-free assets in the key growing markets across the U.S."
Burke concluded, "Vistra believes its strength is its integrated model of pairing a large fleet of dispatchable generation assets with best-in-class retail and commercial operations, ensuring customers are served in a reliable, affordable, and sustainable manner. Vistra continues to be well-positioned to assist with the growing power needs across our country."
Transaction Structure
Vistra will acquire the 15% equity interest collectively owned by Nuveen and Avenue for an undiscounted purchase price of $3.248 billion in cash, which it expects to pay in five installments of $1.18 billion on Dec. 31, 2024, $114 million on June 30, 2025, $1.0 billion on Dec. 31, 2025, $54 million on June 30, 2026, and $900 million on Dec. 31, 2026. The net present value of the purchase price as of Dec. 31, 2024, discounted at a 6% interest rate, is $3.085 billion.
Additionally, if Nuveen and Avenue receive less than $165 million in dividends from Vistra Vision for the remainder of 2024, then the amount of the installment payable on Dec. 31, 2024, will be adjusted upward by the difference, and if they receive dividends in excess of $165 million, then the amount will be adjusted downward by the difference.
Vistra's Capital Allocation Plan Unchanged
The agreement does not impact or change Vistra's capital allocation priorities. Vistra remains committed to its long-term net leverage target of less than 3x2. Vistra also continues to expect to execute at least $2.25 billion of share repurchases in 2024 and 2025 and at least $1 billion in 20263, as well as pay $300 million in aggregate common dividends in each year 2024-20263.
Conditions and Timing
The transaction, which is not subject to any regulatory approvals, is expected to close on Dec. 31, 2024.
Advisors
Citi is serving as financial advisor, and Latham & Watkins LLP and Sidley Austin LLP are serving as legal advisors to Vistra.
Evercore and PJT Partners are serving as financial advisors and Kramer Levin Naftalis & Frankel LLP is serving as legal advisor to Nuveen and Avenue.
About Vistra Vision LLC
Assets owned by Vistra Vision LLC consist of the Beaver Valley, Comanche Peak, Davis-Besse, and Perry nuclear generation facilities with total capacity of approximately 6.4 GW, the Vistra Zero renewables and energy storage business, and Vistra's retail business. As of June 30, 2024, total debt outstanding and cash on hand at Vistra Vision LLC were approximately $3.55 billion and $375 million, respectively.
About Vistra
Vistra (NYSE: VST) is a leading Fortune 500 integrated retail electricity and power generation company that provides essential resources to customers, businesses, and communities from California to Maine, including the key markets of ERCOT, PJM and ISO New England. Based in Irving, Texas, Vistra is a leader in the energy transformation with an unyielding focus on reliability, affordability, and sustainability. The company safely operates a reliable, efficient, power generation fleet of natural gas, nuclear, coal, solar, and battery energy storage facilities while taking an innovative, customer-centric approach to its retail business. Learn more at https://www.vistracorp.com.
(1) Calculated as of Dec. 31, 2024, utilizing a 6% discount rate.
(2) Excluding any non-recourse debt at Vistra Zero and any benefit from margin deposits.
(3) Subject to board authorization.
https://www.prnewswire.com/news-releases/vistra-to-acquire-equity-interests-of-vistra-vision-llc-from-minority-investors-302252376.html
Enterprising Investor
9 months ago
NAV: $1.87 (2/29/24)
No change in the Energy Harbor Corp position.
Bond positions remains at two:
Ohio Air Quality Development Authority, Ohio, Pollution Control Revenue Bonds, FirstEnergy Generation Corporation Project, Refunding Series 2009D, 3.375%, 8/01/29, (Mandatory Put 9/15/21)
Ohio Air Quality Development Authority, Ohio, Pollution Control Revenue Bonds, FirstEnergy Nuclear Generation Project, Refunding Series 2009A, 4.750%, 6/01/33, (Mandatory Put 6/01/22)
https://documents.nuveen.com/Documents/Nuveen/Viewer.aspx?uniqueId=123c6c32-9e8a-4a27-834e-988409fda6e3
Enterprising Investor
9 months ago
Vistra Receives Approval from Federal Energy Regulatory Commission on Energy Harbor Acquisition (2/19/24)
This marks the final regulatory approval needed in the acquisition process
IRVING, Texas, Feb. 19, 2024 /PRNewswire/ -- Vistra (NYSE: VST) has now received approval from the Federal Energy Regulatory Commission (FERC) to acquire Energy Harbor.
Vistra announced last March that the purchase of Energy Harbor, which includes a 4,000-megawatt nuclear generation fleet and retail business of ~1 million customers, presents a unique opportunity to accelerate the growth of Vistra's zero-carbon generation portfolio.
FERC's approval, which was received Friday afternoon, was the last regulatory approval needed for the companies to close the transaction.
Vistra anticipates closing in the coming weeks.
About Vistra
Vistra (NYSE: VST) is a leading Fortune 500 integrated retail electricity and power generation company based in Irving, Texas, providing essential resources for customers, commerce, and communities. With operations in 20 states and the District of Columbia, Vistra combines an innovative, customer-centric approach to retail with safe, reliable, and efficient power generation. Learn more at vistracorp.com.
https://www.prnewswire.com/news-releases/vistra-receives-approval-from-federal-energy-regulatory-commission-on-energy-harbor-acquisition-302065005.html
Enterprising Investor
9 months ago
NAV: $1.78 (1/31/24)
No change in the Energy Harbor Corp position.
Bond positions remains at two:
Ohio Air Quality Development Authority, Ohio, Pollution Control Revenue Bonds, FirstEnergy Generation Corporation Project, Refunding Series 2009D, 3.375%, 8/01/29, (Mandatory Put 9/15/21)
Ohio Air Quality Development Authority, Ohio, Pollution Control Revenue Bonds, FirstEnergy Nuclear Generation Project, Refunding Series 2009A, 4.750%, 6/01/33, (Mandatory Put 6/01/22)
https://documents.nuveen.com/Documents/Nuveen/Default.aspx?uniqueId=123c6c32-9e8a-4a27-834e-988409fda6e3
Enterprising Investor
12 months ago
NAV: $1.78 (11/30/23)
No change in the Energy Harbor Corp position.
Bond positions remains at two:
Ohio Air Quality Development Authority, Ohio, Pollution Control Revenue Bonds, FirstEnergy Generation Corporation Project, Refunding Series 2009D, 3.375%, 8/01/29, (Mandatory Put 9/15/21)
Ohio Air Quality Development Authority, Ohio, Pollution Control Revenue Bonds, FirstEnergy Nuclear Generation Project, Refunding Series 2009A, 4.750%, 6/01/33, (Mandatory Put 6/01/22)
https://documents.nuveen.com/Documents/Nuveen/Default.aspx?uniqueId=123c6c32-9e8a-4a27-834e-988409fda6e3&_gl=1*owhs2c*_ga*NDM5NjM3ODg2LjE3MDI2MTQ3NzU.*_ga_1WKSRHJ2VB*MTcwMjYxNDkyOS4xLjAuMTcwMjYxNDkzMS41OC4wLjA.
Enterprising Investor
1 year ago
NAV: $1.77 (10/31/23)
No change in the Energy Harbor Corp position.
Bond positions have been reduced to two:
Ohio Air Quality Development Authority, Ohio, Pollution Control Revenue Bonds, FirstEnergy Generation Corporation Project, Refunding Series 2009D, 3.375%, 8/01/29, (Mandatory Put 9/15/21)
Ohio Air Quality Development Authority, Ohio, Pollution Control Revenue Bonds, FirstEnergy Nuclear Generation Project, Refunding Series 2009A, 4.750%, 6/01/33, (Mandatory Put 6/01/22)
https://documents.nuveen.com/Documents/Nuveen/Default.aspx?uniqueId=123c6c32-9e8a-4a27-834e-988409fda6e3
Enterprising Investor
1 year ago
Vistra Receives Nuclear Regulatory Commission Approval to Own & Operate Three Energy Harbor Nuclear Plants (9/29/23)
Approval marks important milestone in acquisition process
IRVING, Texas, Sept. 29, 2023 /PRNewswire/ -- Vistra (NYSE: VST) and Energy Harbor today received approval from the Nuclear Regulatory Commission (NRC) to transfer the operating licenses of Energy Harbor's three nuclear plants – Beaver Valley, Davis-Besse, and Perry – to Vistra.
Vistra announced in March that it intended to accelerate the growth of its zero-carbon generation portfolio through the purchase of Energy Harbor, including its 4,000-megawatt nuclear generation fleet and retail business of ~1 million customers, pending regulatory approvals.
"This is an important step in the acquisition process and is evidence of Vistra's strong technical and financial qualifications, as we have demonstrated over the past 30+ years with our Comanche Peak Nuclear Power Plant," said Jim Burke, Vistra president and CEO. "We are excited about this opportunity to invest in nuclear power, which plays a critical and unique role in our nation's responsible energy transition as a baseload, carbon-free source of power."
The NRC's thorough and timely review of the license transfer application brings this transaction closer to completion. To finalize the acquisition, Vistra awaits a decision from the Federal Energy Regulatory Commission (FERC) on its request for approval of the transaction.
Vistra continues to target closing the transaction before the end of the year.
About Vistra
Vistra (NYSE: VST) is a leading Fortune 500 integrated retail electricity and power generation company based in Irving, Texas, providing essential resources for customers, commerce, and communities. With operations in 20 states and the District of Columbia, Vistra combines an innovative, customer-centric approach to retail with safe, reliable, diverse, and efficient power generation. Learn more at vistracorp.com.
https://www.prnewswire.com/news-releases/vistra-receives-nuclear-regulatory-commission-approval-to-own--operate-three-energy-harbor-nuclear-plants-301943374.html
Enterprising Investor
2 years ago
Nuveen Intermediate Duration Municipal Term Fund Announces Termination and Liquidation (4/03/23)
NEW YORK--(BUSINESS WIRE)--Nuveen Intermediate Duration Municipal Term Fund (NYSE: NID) completed its termination and liquidation following the close of business on March 31, 2023. The termination and liquidation was performed in accordance with the fund’s investment objectives and organizational documents, consistent with the fund’s previously announced liquidation plans.
Nuveen Intermediate Duration Municipal Term Fund launched on December 5, 2012 as an intermediate duration strategy that invested primarily in municipal securities, the income from which is exempt from regular federal income tax. The fund had a primary investment objective to provide a high level of current income exempt from regular federal income tax and a secondary objective to seek additional total return. NID was designed to liquidate and distribute its then-current net assets to shareholders upon termination on or before March 31, 2023.
As previously announced, NID owned securities of Energy Harbor Corp. (ENGH) that represented approximately 12.8% of the fund’s common assets as of March 31, 2023. The securities of ENGH, upon the fund’s termination, were transferred to a liquidating trust intended to facilitate the orderly disposition of those assets.
Upon the fund’s termination, NID had a final extended net asset value (NAV) of $13.4154 per common share. In its liquidation, the fund paid a cash distribution of $11.6956 per common share to all fund shareholders. Additionally, the fund distributed one unit of Nuveen Intermediate Duration Municipal Term Fund Liquidating Trust per common share of NID owned by each shareholder on the liquidation date. Upon its formation on March 31, 2023, the liquidating trust had an NAV equal to $1.7198 per unit.
Per share details are as follows:
Total value of final liquidating distributions (1): $13.4154
Cash distribution: $11.6956
- Estimated taxable amount of cash distribution: $11.6306
- Estimated tax-exempt amount of cash distribution: $.0650
Per share value of liquidating trust units (1): $1.719
Over its ten-year term, the fund paid 121 regular distributions totaling in the aggregate $6.0315 per share, which equates to an average annual distribution rate of 4.08% on NAV and 3.90% on market price. The annualized total return on NAV for shareholders who invested at the initial public offering was 3.66% and the total return on market price was 3.13%.
Shareholders may recognize a gain or loss for U.S. tax purposes as a result of the liquidation. Nuveen does not provide tax advice; investors should consult a professional tax advisor regarding their specific tax situation.
Important Information About the Liquidating Trust
Holders of liquidating trust units may obtain a copy of the Trust Instrument governing the liquidating trust and periodic reports of the liquidating trust on www.nuveen.com/NID. The liquidating trust intends to disclose its net asset value per unit and the positions held in the trust each calendar quarter. Additional information, including dispositions and expenses, will be provided annually.
Unitholders will not have rights to sell, transfer or otherwise dispose of or in any way encumber their liquidating trust units other than pursuant to a transfer by operation of law (e.g., upon the death of the shareholder or as required by law or an order of a court of competent jurisdiction). The liquidating trust units will not be offered to the public or traded on an exchange. The liquidating trust exists solely for the purpose of liquidating the securities transferred to it and distributing the proceeds from disposition of, and income from, those securities to the trust’s unitholders (i.e., former fund shareholders). The trustee of the liquidating trust, Nuveen Fund Advisors, LLC, will make regular efforts to dispose of the securities of ENGH held in the trust and to make timely distributions to the trust’s unitholders. Because of Nuveen’s effective status as a substantial minority owner of ENGH and other rights, and the consequent limitations on its ability to sell the liquidating trust’s ENGH securities, it is not presently possible to predict when the liquidating trust will be able to liquidate its ENGH holdings and make a final cash distribution to its unitholders.
The trust will not charge any management fees but may incur reasonable expenses in connection with its operation. The liquidating trust is not expected to issue tax reporting on Form 1099 like NID but instead will follow trust reporting tax conventions and is expected to issue tax statements annually. The trust will be treated as a grantor trust for federal income tax purposes.
Nuveen is a leading sponsor of closed-end funds (CEFs) with $54 billion of assets under management across 55 CEFs as of 31 Dec 2022. The funds offer exposure to a broad range of asset classes and are designed for income-focused investors seeking regular distributions. Nuveen has more than 35 years of experience managing CEFs.
About Nuveen
Nuveen, the investment manager of TIAA, offers a comprehensive range of outcome-focused investment solutions designed to secure the long-term financial goals of institutional and individual investors. Nuveen has $1.1 trillion in assets under management as of 31 Dec 2022 and operations in 27 countries. Its investment specialists offer deep expertise across a comprehensive range of traditional and alternative investments through a wide array of vehicles and customized strategies. For more information, please visit www.nuveen.com.
Nuveen Securities, LLC, member FINRA and SIPC.
The information contained on the Nuveen website is not a part of this press release.
FORWARD-LOOKING STATEMENTS
Certain statements made or referenced in this release may be forward-looking statements. Actual future results or occurrences may differ significantly from those anticipated in any forward-looking statements due to numerous factors. These include, but are not limited to: market developments, including the timing of distributions and other events identified in this press release; legal and regulatory developments; and
other additional risks and uncertainties.
EPS-2821645PR-E0423W
1 Calculated as of the close of business on March 31, 2023.
Contacts
For more information, please visit Nuveen’s CEF homepage www.nuveen.com/closed-end-funds or contact:
Financial Professionals:
800-752-8700
Investors:
800-257-8787
https://www.businesswire.com/news/home/20230403005547/en/
Enterprising Investor
2 years ago
Going Nuclear with Nuveen (3/21/23)
Special situations in two Nuveen Closed-End Funds
Today I’d like to profile a developing special situation in two liquidating Nuveen closed-end funds. Explaining the situation requires some background info and history, so get ready to read about Midwestern nuclear plants and public corruption.
Let’s start at the beginning. FirstEnergy solutions was an Ohio utility operating multiple nuclear power plants and coal-fired power generation stations in Ohio and Pennsylvania. The company filed for bankruptcy in 2018, a casualty of excess debt and slumping power markets. As part of its plan to emerge from bankruptcy, FirstEnergy proposed decommissioning three nuclear facilities, two in Northern Ohio and one in Western Pennsylvania.
The Ohio congressional majority and governor were aghast at this plan, and passed legislation subsidizing Ohio nuclear and coal-fired power plants to the tune of $1.3 billion, Ohio taxpayers be damned. FirstEnergy reversed course on the closures and emerged from bankruptcy as “Energy Harbor Corp.” in early 2020. FirstEnergy’s major creditors were the large fixed-income focused investment manager Nuveen Asset Management and private equity/distressed investor Avenue Capital Group. Following the restructuring, the majority of Energy Harbor shares were held by Nuveen and Avenue.
Then, a scandal broke. It turned out the $1 billion and change that certain Ohio lawmakers so generously bestowed on Energy Harbor was not given purely out of a desire to protect the jobs of hardworking Ohioans. Rather, it was a quid pro quo for $61 million in donations that FirstEnergy had given to an organization controlled by Ohio Speaker of the House Larry Householder. The organization, called “Generation Now,” spent lavishly on the 2018 election favoring candidates friendly toward coal-powered generation and nuclear subsidies. And what an “investment” it turned out to be, paying off >20x! But the scheme came crashing down in June 2020, and five members of the Ohio Congress were indicted by US Attorneys. In March 2021, Ohio repealed the nuclear subsidies. Just weeks ago, Larry Householder was convicted of racketeering. A good summary the entire affair can be found here.
I first became aware of Energy Harbor in late 2020 when I noticed a strange new security trading over-the-counter with the ticker ENGH. I purchased a token number of shares. At the time, shares were trading in the $20s. There wasn’t any public investor relations site, just an inbox were one could request access to a company dataroom. Which of course, I did. The dataroom revealed a profitable and cash-generating company with a great deal of cash on hand. At say, $27, the company was trading at an EV/EBITDA ratio of around 3x, and it been busy repurchasing blocks of shares. The only worrying aspect was the company’s language around the nuclear subsidies it had been receiving. If, as expected, the subsidies went away in short order, the company’s profitability would be materially reduced. I spent a few months thinking about Energy Harbor, but ultimately decided not to buy more shares. I couldn’t come to a firm conclusion about the company’s long-term prospects or normalized profitability, so I held off. The September 2021 SEC rule change on non-reporting securities caused Energy Harbor shares to fall to the expert market, making transacting in the shares far more difficult. Shares traded rarely, but they gradually trended upward. The passage of the Infrastructure Bill, with its price floors for nuclear power generation, heartened investors and sent Energy Harbor shares into the $70s.
The strong performance of Energy Harbor shares actually wound up creating a headache for Nuveen. Many of Nuveen’s muni bond CEFs continued to hold Energy Harbor shares received following the bankruptcy proceedings. Last month a Bloomberg article came out detailing the potential risks. The article pointed out how unusual it was for these stodgy closed-end municipal bond funds to hold such a large allocation to a highly illiquid equity security and the difficulty that Nuveen might encounter in attempting to sell its Energy Harbor holdings.
Back to Energy Harbor. Earlier this month, Vistra Energy announced it would acquire Energy Harbor, creating a power generation giant with a national fleet of renewable power assets. Energy Harbor would be acquired for a combination of cash and stock in a new Vistra subsidiary, “Vistra Vision.” Nuveen and Avenue would receive a combination of cash and a 15% interest in Vistra Vision, while all other Energy Harbor shareholders would receive around $85 per share in cash.
Here’s where the special situation comes in. Once Vistra buys Energy Harbor, Nuveen CEFs holding Energy Harbor shares will receive cash and their proportional interest in Vistra Vision. So Nuveen will achieve a partial monetization of its Energy Harbor holdings. (While Energy Harbor shares are functionally impossible for Nuveen to sell, Vistra Vision interests are even less liquid as interests in a private business. However, they will likely produce yearly cash flow as Vistra Vision distributes earnings back to the parent company and minority holders.) I don’t know why Nuveen couldn’t negotiate to be paid entirely in cash rather than receive a partial interest in a private company. It doesn’t seem to leave Nuveen investors much better off. At least with Energy Harbor there was always hope of an eventual IPO or cash buyout to achieve liquidity. With Vistra Vision, it could be a decade or longer before they can cash out. Unless, perhaps, Vistra intends to list a portion of Vistra Vision at some point? They have not indicated they will, but it’s a possibility.
Anyway, there are two Nuveen CEFs that are liquidating in short order. Each has a meaningful proportion of its assets in Energy Harbor shares, and each trades at a discount to liquidation value. Let’s take a look at each.
Nuveen Intermediate Duration Municipal Term Fund - NID
“NID” is a Nuveen CEF with a market value of $605 million. The fund will liquidate at the end of March. Reported NAV is $13.55 and shares last traded at $12.89 for a discount of 4.9%. The last day of trading for NID is this Friday, March 24. As of February 28, shares of Energy Harbor made up 11.6% of NID’s assets. Nuveen valued these shares at $76.58, indicating the fund holds around 962,000 Energy Harbor shares.
Of NID’s $13.55 per share in net assets (the “net” is superfluous as the fund has paid off all borrowings) Energy Harbor shares account for $1.57 in value. Shareholders should expect to receive the non-Energy Harbor portion of NID’s value just days into April. Accounting for maybe 0.5% in trading slippage, that’s $11.92 in cash. Energy Harbor shares will be transferred to a non-traded, non-transferable liquidating trust for the benefit of NID holders. Vistra’s acquisition of Energy Harbor is currently projected to close on October 31, with Nuveen receiving $21.31 in cash per share, plus interests in Vistra Vision valued at $63.69 per share. This works out to another 44 cents per NID share. That’s $12.36 in proceeds. Assuming the $63.69/Energy Harbor share Vistra Vision value is reasonable, that’s another $1.30 per share in value per NID share for total value of $13.66, 6% higher than today. Given the swift (one-weekish) return of 92% of one’s investment, that’s an impressive IRR of 172%.
“But Dave,” you say, “that’s a ridiculous claim. It’s not like anyone can actually sell their interest in the liquidating trust in October. Not for $1.30 per share, not for anything! It’s totally illiquid! Investors are stuck waiting around for the Vistra Vision investment to be sold or acquired!”
And you’re right, of course. Thanks for keeping me humble. Instead, let’s model out the IRR under 3 scenarios: baseline, optimistic, and pessimistic.
Baseline: Vistra Vision is listed on a major exchange/sold back to Vistra/sold to a third party/otherwise disposed of in 5 years. Its value appreciates 5% yearly and it pays a distribution of 6% of its value at the end of each year representing distributable earnings. In this case, total distributions are $14.47 and the IRR is 29%.
Optimistic: Vistra Vision is listed on a major exchange/sold back to Vistra/sold to a third party/otherwise disposed of in 3 years. Its value appreciates 6% yearly and it pays a distribution of 8% of its value at the end of each year representing distributable earnings. In this case, total distributions are $14.26 and the IRR is 40%.
Pessimistic: Vistra Vision is listed on a major exchange/sold back to Vistra/sold to a third party/otherwise disposed of in 7 years. Its value appreciates 2% yearly and it pays a distribution of 3% of its value at the end of each year representing distributable earnings. In this case, total distributions are $14.15 and the IRR is 18%.
Of course, there’s also the disaster scenario under which something goes horribly wrong at Vistra vision and both the potential interim distributions and ultimate realized value are badly impaired. I don’t view this as all that likely given the business model here (baseline power generation and renewables, and all the government support and social zeitgeist behind each) but it is of course a risk.
As with any liquidation play and especially those that rely on a large return of capital very early on, the going-in price is incredibly important. For instance, paying up by 3% versus the current NID trading price crashes the IRR in the baseline scenario to 17%. Taxes are also a consideration. Typically, the transfer of property to a liquidating trust is treated as a taxable distribution, with future distributions of principal exempted from tax up to the value of the property originally transferred to the liquidating trust. But I am NOT a tax advisor so don’t take my word for it.
For investors willing to hold a completely illiquid liquidating trust for a period of up to several years, NID appears to be attractively priced, assuming Vistra Vision is at least middling in its economic performance. Many investors will look at the prospect of holding some weirdo trust and say “Not for me!” and that’s also fine! In fact, it’s what creates the opportunity for the willing.
So that was NID. There’s also:
Nuveen Intermediate Duration Quality Municipal Term Fund - NIQ
“NIQ” is another smaller yet similar Nuveen muni CEF with a market value of $164 million. NAV is $13.01 and recent trading was at $12.48. Energy Harbor shares made up 4.4% of NIQ’s net asset value as of February 28. NIQ will liquidate at the end of June. This liquidation is simpler than NID, given the much smaller allocation to Energy Harbor shares. But since the liquidation date is still >3 months away, it has some interest rate risk that NID doesn’t. The same liquidating trust structure will apply to NIQ’s energy harbor shares. Using the same assumptions I did with NID, I get the following prospective IRRs assuming no change in the value of the NIQ bond portfolio between now and liquidation.
Baseline: total payout of $13.32, 15% IRR
Optimistic: total payout of $13.24, 16% IRR
Pessimistic: $13.20, 12% IRR
Not so juicy due to the lower exposure to Energy Harbor shares, but considerably less uncertainty. As for which situation is “better,” well, that’s a question for each investor to answer for himself or herself. Please keep in mind that my projections around the ultimate disposal of Energy Harbor/Vistra Vision are highly conjectural. It’s possible, if unlikely, that Energy Harbor is somehow disposed of all at once and in short order. It’s also possible that Energy Harbor neither distributes income nor is disposed of for a decade or longer, obliterating IRRs. My assumptions here could be wildly inaccurate. In other words, make your own.
Now for the some recommended reading! Several other Nuveen CEFs hold Energy Harbor shares. Some hold lots of them. No other Nuveen CEFs have yet shared plans to liquidate, but it certainly could happen. Thanks for reading and happy searching.
https://alluvial.substack.com/p/going-nuclear-with-nuveen?utm_source=direct&r=nw7jw&utm_campaign=post&utm_medium=web
Enterprising Investor
2 years ago
NID owns 965,836 shares of Energy Harbor Corp (11),(12)
(11) Common Stock received as part of the bankruptcy settlements during February 2020 for Beaver County Industrial Development Authority, Pennsylvania, Pollution Control Revenue Bonds, FirstEnergy Nuclear Generation Project, Refunding Series 2005A, 4.000%, 1/01/35, Beaver County Industrial Development Authority, Pennsylvania, Pollution Control Revenue Refunding Bonds, FirstEnergy Nuclear Generation Project, Series 2008A, 2.700%, 4/01/35, Ohio Air Quality Development Authority, Ohio, Air Quality Development Revenue Bonds, FirstEnergy Generation Corporation Project, Series 2009A, 5.700%, 8/01/20, Ohio Air Quality Development Authority, Ohio, Pollution Control Revenue Bonds, FirstEnergy Generation Project, Refunding Series 2006A, 3.750%, 12/01/23, Ohio Water Development Authority, Pollution Control Revenue Refunding Bonds, FirstEnergy Nuclear Generating Corporation Project, Series 2006B, 0.000%, 12/01/33 and Pennsylvania Economic Development Financing Authority, Exempt Facilities Revenue Bonds, Shippingport Project, First Energy Guarantor, Series 2005A, 3.750%, 12/01/40.
(12) Non-income producing; issuer has not declared an ex-dividend date within the past twelve months.
Cost $25,699,081 (or $26.61 per share).
ENGH trades on the OTC Expert Markets.
Enterprising Investor
2 years ago
World’s Top Junk-Muni Fund Is Loaded With a Rarely Traded Stock (2/16/23)
By Martin Z. Braun and Miles Weiss
(Bloomberg) -- The biggest holding in the world’s biggest high-yield municipal bond fund isn’t a municipal bond.
It’s a $1.5 billion stake in shares of Energy Harbor Corp., a thinly traded power company that’s not listed on any US stock exchange. The Nuveen High Yield Municipal Bond Fund — like many others run by the investment giant — received the stock three years ago after the company’s precursor, FirstEnergy Solutions, restructured its debts in bankruptcy.
It hasn’t been a bad investment. In fact, the shares have surged so much that it’s creating a dilemma for Nuveen — and posing a little-known risk to its investors.
That rally, coupled with an exodus of cash last year as bonds were hit by the deepest losses in decades, has left about 8% of the $18 billion high-yield fund invested in the stock. Energy Harbor shares have also become the single biggest position in 14 of Nuveen’s other muni-bond funds. All told, Nuveen owns 38 million, or 40%, of Energy Harbor’s shares, a stock that on some days isn’t even traded at all.
The concentration casts doubt on whether any of the funds could unload the shares without dragging down the price, raising the specter of a hit that would ripple across Nuveen’s holdings if investors yanked out their cash. That’s a risk not typically associated with vehicles focused on municipal bonds, a mainstay of buy-and-hold investors.
“I don’t think financial advisers and retail investors who own Nuveen’s high yield muni fund are aware of the equity risk,” said Ryan Paylor, a portfolio manager at Thomas J. Herzfeld Advisors.
“If they start redeeming, it’s going to be a problem,” he said. “It’s probably going to be difficult for them to get out of that position without really pushing the price down.”
Nuveen, a unit of Teachers Insurance and Annuity Association of America that oversees more than $1 trillion in assets, is confident that its open-end funds will be able to meet shareholder redemptions, a Nuveen spokesperson said in a statement. The funds, which disclose their holdings on Nuveen’s website, successfully navigated such a pullback last year, when bonds were hammered by losses, and the market has since largely stabilized.
Even so, the stock holdings have created some difficulties. In December, Nuveen disclosed that the high-yield fund’s holdings of certain unnamed “illiquid” assets had breached a 15% limit set by the Securities and Exchange Commission, which requires funds to detail plans for getting back below the threshold.
The stake also led Nuveen to backtrack on share buybacks it proposed as part of a plan to extend the life of two closed-end muni funds scheduled to wind down this year. Shareholders approved the repurchases, which would have given investors who wanted to a chance to exit.
But Nuveen scuttled the plans last month, saying it likely couldn’t sell the funds’ illiquid securities to raise the needed cash. On Wednesday, Nuveen identified the Energy Harbor shares as the illiquid securities, adding that, due to the firm’s status as a substantial minority shareholder and board member, federal laws prevent the funds from selling them “except under limited conditions.”
It’s reverting to the originally scheduled wind-downs, albeit with an approach that delays the full payouts until the stock can be sold. Nuveen said it couldn’t predict when that will happen. At the end of last year, the two funds held over a million Energy Harbor shares.
‘Shocking to Me’
Jerry Paul, a senior vice president at Icon Advisers, said he was surprised the funds had such a big position in illiquid securities so close to their scheduled wind downs.
“That was shocking to me,” said Paul, whose firm holds shares of both closed-end funds. “If you’re mom and pop and you thought that you were gonna get your money back and get a chance to reinvest it, that’s got to be pretty disappointing.”
Unlike those two, Nuveen’s high-yield fund is an open-end one, meaning that it must stand ready to meet shareholder redemptions on a daily basis. It’s the largest of its kind, and it swelled under manager John Miller as its bets on the riskiest municipal bonds typically delivered big returns.
It was such an investment that resulted in its stake in Energy Harbor. It initially bought municipal bonds issued for FirstEnergy, which owned and operated nuclear plants in Ohio and Pennsylvania.
In 2018, the company collapsed into bankruptcy. Nuveen’s high-yield fund held FirstEnergy debt valued at about $190 million at the time, accounting for about 1.2% of its net assets. When the company emerged from the restructuring as Energy Harbor two years later, the high-yield fund and others at Nuveen that also held such debt received stock in the company.
Stock Price Triples
The shares have been a boon for the funds. Its price has surged to $77 from $25 in March 2020, supported by strong demand for energy, rising prices and tax credits extended by President Joe Biden’s Inflation Reduction Act.
That rally came as the Federal Reserve’s aggressive interest-rate hikes were hammering bonds. As the losses piled up, investors pulled about $2.8 billion out of the fund during the first three quarters of 2022, according to SEC filings. The combination of the two forces caused the Energy Harbor stake to account for a growing share of the high-yield fund’s assets.
Last year wasn’t the first time the high-yield fund dealt with a retreat by investors. In March 2020, when the onset of the pandemic caused panic in financial markets, investors withdrew sharply from the fund, threatening to force it to sell assets into a fire sale. But Nuveen’s parent, TIAA, helped to head that off: It purchased $1.1 billion of the fund’s shares, extending it a lifeline.
https://finance.yahoo.com/news/world-top-junk-muni-fund-123000075.html
Enterprising Investor
2 years ago
Nuveen Intermediate Duration Municipal Term Fund and Nuveen Intermediate Duration Quality Municipal Term Fund Announce Additional Liquidation Details (2/15/23)
NEW YORK--(BUSINESS WIRE)--As previously announced, the Board of Trustees of Nuveen Intermediate Duration Municipal Term Fund (NYSE: NID) and Nuveen Intermediate Duration Quality Municipal Term Fund (NYSE: NIQ) have approved the liquidation of each fund upon the fund’s originally scheduled termination date. NID intends to liquidate on or before March 31, 2023, and NIQ intends to liquidate on or before June 30, 2023. Also as previously announced, as NID and NIQ approach liquidation, each fund’s common shares will continue trading on the New York Stock Exchange. NID common shares will be suspended from trading before the open of trading on March 27, 2023, and NIQ common shares will be suspended from trading before the open of trading on June 26, 2023.
Each fund owns securities of Energy Harbor Corp. (“ENGH”), consisting mostly of shares of ENGH common stock, that were received in a February 2020 bankruptcy settlement with respect to tax-exempt municipal bonds issued by ENGH’s predecessor. As of February 14, 2023, these holdings represent approximately 12.5% of NID’s common assets and approximately 4.3% of NIQ’s common assets. The current position sizes reflect significant appreciation in the value of these securities. Various funds and accounts managed by Nuveen, including NID and NIQ, collectively are a substantial minority holder of ENGH’s outstanding shares of common stock, and possess certain other rights with respect to the corporate governance of ENGH. Due to these facts, under the federal securities laws, the securities of ENGH held by Nuveen funds and accounts, including NID and NIQ, cannot be sold except under limited conditions (which are not currently satisfied) and are effectively illiquid. The funds are therefore unable to sell such shares in ordinary secondary market transactions at this time. Accordingly, it is not expected that either fund will be able to liquidate its holdings of securities of ENGH prior to its termination date.
As a result, it is expected that each fund will transfer its securities issued by ENGH and any other illiquid assets to a liquidating trust on or about the fund’s termination date. Upon termination, each fund anticipates distributing to all fund shareholders (i) cash raised from the sale of portfolio securities and (ii) interests in the liquidating trust equal in relative proportion to the percentage of the outstanding shares owned by a shareholder on the liquidation date. Shareholders will not have rights to sell, transfer or otherwise dispose of or in any way encumber the liquidating trust units they receive other than pursuant to a transfer by operation of law (e.g., upon the death of the shareholder or as required by law or an order of a court of competent jurisdiction). The liquidating trust units will not be offered to the public or traded on an exchange. Each liquidating trust will exist solely for the purpose of liquidating the securities transferred to it and distributing the proceeds from disposition of, and income from, those securities to the trust’s unitholders (i.e., former fund shareholders). The trustee of each liquidating trust will make continuing efforts to dispose of the securities of ENGH held in trust and to make timely distributions to the trust’s unitholders. Because of Nuveen’s effective status as a substantial minority owner of ENGH and other rights, and the consequent limitations on its ability to sell each liquidating trust’s ENGH securities, it is not presently possible to predict when either liquidating trust will be able to liquidate its ENGH holdings and make a final cash distribution to its unitholders.
Each liquidating trust is expected to appoint Nuveen Fund Advisors, LLC as its Trustee. The trusts will not charge any management fees but may incur reasonable expenses in connection with their operation. The liquidating trusts are not expected to issue tax reporting on Form 1099 like the predecessor funds but instead will follow trust reporting tax conventions and are expected to issue tax statements annually. Nuveen does not provide tax advice; investors should consult a professional tax advisor regarding their specific tax situation.
Nuveen is a leading sponsor of closed-end funds (CEFs) with $54 billion of assets under management across 55 CEFs as of 31 Dec 2022. The funds offer exposure to a broad range of asset classes and are designed for income-focused investors seeking regular distributions. Nuveen has more than 35 years of experience managing CEFs.
For more information, please visit Nuveen’s CEF homepage www.nuveen.com/closed-end-funds or contact:
Financial Professionals:
800-752-8700
Investors:
800-257-8787
Media:
media-inquiries@nuveen.com
About Nuveen
Nuveen, the investment manager of TIAA, offers a comprehensive range of outcome-focused investment solutions designed to secure the long-term financial goals of institutional and individual investors. Nuveen has $1.1 trillion in assets under management as of 31 Dec 2022 and operations in 27 countries. Its investment specialists offer deep expertise across a comprehensive range of traditional and alternative investments through a wide array of vehicles and customized strategies. For more information, please visit www.nuveen.com.
Nuveen Securities, LLC, member FINRA and SIPC.
https://www.businesswire.com/news/home/20230215005893/en/Nuveen-Intermediate-Duration-Municipal-Term-Fund-and-Nuveen-Intermediate-Duration-Quality-Municipal-Term-Fund-Announce-Additional-Liquidation-Details
Enterprising Investor
2 years ago
Nuveen Intermediate Duration Municipal Term Fund and Nuveen Intermediate Duration Quality Municipal Term Fund Announce Liquidation Details
NEW YORK--(BUSINESS WIRE)--The Board of Trustees of Nuveen Intermediate Duration Municipal Term Fund (NYSE: NID) and Nuveen Intermediate Duration Quality Municipal Term Fund (NYSE: NIQ) have approved the liquidation of each fund upon the fund’s originally scheduled termination date. NID intends to liquidate on or before March 31, 2023, and NIQ intends to liquidate on or before June 30, 2023.
The Board of Trustees of each fund have elected not to proceed with a restructuring proposal previously approved by shareholders on October 12, 2022. The restructuring would have eliminated the termination dates for each fund, subject to various conditions including the successful completion of a tender offer for 100% of each fund’s outstanding common shares at net asset value. Each fund owns certain securities which, because of a significant increase in value, have grown to constitute a significant percentage of each fund’s common assets (approximately 12.6% of NID and 4.3% of NIQ as of January 24, 2023). These securities are currently illiquid and likely cannot be sold to generate proceeds needed to satisfy tendering shareholders. This caused the Board of each fund to conclude that, if either fund were to engage in a tender offer, the concentration of illiquid securities in the fund after such a tender would be unreasonably large and that neither fund would likely retain sufficient size after a tender to remain viable. Therefore, each Board determined that liquidation and closure, on its originally scheduled termination date, is in the best interest of each fund and its shareholders.
As the funds approach their respective termination dates, each fund will begin the orderly liquidation of its assets. As a fund’s portfolio securities are sold, the fund may deviate from its investment objective and policies. Any securities that cannot be sold within a reasonable period of time by a fund will be contributed to a liquidating trust. The liquidating trust is intended to provide an orderly disposition of such illiquid assets.
Upon termination, each fund anticipates distributing to all fund shareholders (i) cash raised from the sale of portfolio securities and (ii) interests in the liquidating trust equal in relative proportion to the percentage of the outstanding shares owned by a shareholder on the liquidation date. Interests in the liquidating trust will not trade on an exchange and may not be sold or transferred, except as permitted by applicable law. The liquidating trust will subsequently distribute cash proceeds in one or more payments as the securities in the liquidating trust can be sold or otherwise liquidated. The timing of when cash distributions will be made from the liquidating trust cannot be predicted. Shareholders may recognize a gain or loss for U.S. tax purposes as a result of the liquidation. Nuveen does not provide tax advice; investors should consult a professional tax advisor regarding their specific tax situation.
As NID and NIQ approach liquidation, each fund’s common shares will continue trading on the New York Stock Exchange. NID common shares will be suspended from trading before the open of trading on March 27, 2023. NIQ common shares will be suspended from trading before the open of trading on June 26, 2023.
Nuveen is a leading sponsor of closed-end funds (CEFs) with $54 billion of assets under management across 55 CEFs as of 31 Dec 2022. The funds offer exposure to a broad range of asset classes and are designed for income-focused investors seeking regular distributions. Nuveen has more than 35 years of experience managing CEFs.
For more information, please visit Nuveen’s CEF homepage www.nuveen.com/closed-end-funds or contact:
Financial Professionals:
800-752-8700
Investors:
800-257-8787
Media:
media-inquiries@nuveen.com
About Nuveen
Nuveen, the investment manager of TIAA, offers a comprehensive range of outcome-focused investment solutions designed to secure the long-term financial goals of institutional and individual investors. Nuveen has $1.1 trillion in assets under management as of 31 Dec 2022 and operations in 27 countries. Its investment specialists offer deep expertise across a comprehensive range of traditional and alternative investments through a wide array of vehicles and customized strategies. For more information, please visit www.nuveen.com.
https://www.businesswire.com/news/home/20230126005893/en/
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