• Fund to Conduct “Modified Dutch Auction” Exchange Offer for up to 15 Million Common Shares in Exchange for Preferred Shares and Cash; Offer Price Between $10.00 and $12.00 per Share Represents a Premium of 20%-44% Over Current Market Price
• Fund Declares Monthly Distribution, Announces Distribution Change in Conjunction with Exchange Offer
• Fund Continues REIT Conversion Process, Anticipates Qualifying as a REIT in Q1 2021
NexPoint Strategic Opportunities Fund (NYSE:NHF) (“NHF” or the “Fund”), a closed-end fund managed by NexPoint Advisors, L.P. (the “Adviser”), today announced its plan to conduct an issuer tender offer pursuant to Rule 13e-4 under the Securities Exchange Act of 1934 (the “Exchange Act”) for up to 15 million of its common shares (“Shares”), at a maximum aggregate purchase price of $150 million, in exchange for consideration consisting of approximately 80% preferred shares (“Preferred Shares”) and 20% cash (collectively, the “Exchange Offer”). The Preferred Shares are expected to be rated by a nationally recognized statistical rating organization and listed on the New York Stock Exchange (“NYSE”).1
The Fund’s Board of Trustees (the “Board”) authorized the Exchange Offer on October 13, 2020. The Exchange Offer is expected to commence the week of October 19, 2020, or as soon thereafter as practicable.
Information on the Exchange Offer and “Modified Dutch Auction” Procedure
The Fund will conduct the Exchange Offer through a procedure called a “Modified Dutch Auction.” For a common shareholder choosing to participate in the Exchange Offer, this procedure allows the shareholder to select a price, within a set price range, at which they are willing to sell their Shares. The proposed price range for the Exchange Offer is $10.00-$12.00 per Share. After all tendering shareholders indicate their respective sale prices, the Fund
will pay the lowest price indicated that will permit the Fund to purchase as many Shares as possible, up to the maximum aggregate purchase price of $150 million.
For example, if the lowest price indicated is $10.00 per Share, the Fund will purchase 15 million Shares. Conversely, if the lowest price indicated is $12.00 per Share, the Fund will purchase 12.5 million Shares. The maximum aggregate purchase price for all Shares will be $150 million, regardless of the actual purchase price per Share.
NHF will purchase all Shares at the same purchase price, as required by Exchange Act rules; however, the Exchange Offer is conditioned on, among other things, shareholders validly tendering (and not properly withdrawing) Shares representing an aggregate purchase price of at least $75 million, regardless of the purchase price per Share, prior to the offering’s expiration date.2 The Exchange Offer will only be made to NHF’s current shareholders.
Exchange Offer’s Potential Benefits to Shareholders
Both the Adviser and the Board believe the Exchange Offer is in the best interest of all shareholders, for the following reasons:
(i) It will allow a significant number of shareholders to exchange their Shares at a premium to the current market price. The tender range is 20%-44% above the latest closing price of $8.36 per Share. Further, the proposed maximum aggregate purchase price of $150 million represents 27% of the Shares currently outstanding at the maximum purchase price of $12.00 per Share, and at the minimum purchase price of $10.00 per Share represents 33% of the Shares currently outstanding.3
(ii) It has the potential to narrow the trading discount to NAV.
(iii) It will significantly increase the NAV per Share of the Fund for Shares that remain outstanding after the completion of the Exchange Offer. A fully subscribed offering will increase NAV per Share by approximately 11%-20% based on current NAV and the proposed auction range.
Use of Preferred Shares, Other Exchange Offer Details
While Modified Dutch Auction tender offers are typically satisfied in cash payment, the Preferred Share component of the Exchange Offer supports the REIT conversion process that is currently underway. The issuance of Preferred Shares will allow NHF to retain liquidity necessary to transition its assets to comply with REIT tax status and ultimately convert to a diversified REIT.
The Exchange Offer supersedes the repurchase program that was announced on April 24, 2020. Accordingly, no further repurchases will be made under the repurchase program.
Updates to Monthly Distribution
In addition to the Exchange Offer, the Fund announced today its regular monthly distribution on its common stock of $0.05 per Share. The distribution will be payable on October 31, 2020 to shareholders of record at the close of business October 26, 2020. The new monthly distribution of $0.05 per Share represents an indicated distribution rate of 3.5% based on the current NAV and an indicated distribution rate of 7.2% based on the market price.3
The Fund has reduced the monthly dividend to $0.05 per Share in connection with the Exchange Offer and in response to evolving market conditions for real estate sector assets. The Adviser views this adjustment as appropriate while NHF prepares to pay out both the cash portion of the Exchange Offer consideration and the dividends on the Preferred Shares issued as part of the Exchange Offer.
Update on REIT Conversion Process
Earlier this year, shareholders approved the proposal to covert the Fund from a registered investment company to a diversified REIT. The Adviser, together with the Board, believes converting the Fund to a diversified REIT provides the best path to increase shareholder value over time. Shareholders likewise supported this path in voting to approve the conversion proposal.
The conversion to a diversified REIT is expected to provide a number of benefits to shareholders, including: the potential to provide investors with a superior risk adjusted return4 compared to equity, fixed income, and distressed debt markets through real estate investments over the next decade; the potential to reduce the Fund’s historic discount to NAV, as REITs have, on average, traded more favorably relative to NAV than closed-end funds; and the potential to provide greater liquidity for shareholders, among other benefits.
The Exchange Offer announced today further reflects the Adviser’s and Board’s commitment to delivering value to shareholders. It is part of a continued approach to narrow NHF’s discount while successfully transitioning the Fund’s assets to qualify as a REIT.
The Adviser anticipates that the Fund will achieve REIT tax status in the first quarter of 2021.
Additional Information on Exchange Offer
Once filed, additional information on the Exchange Offer will be available at www.sec.gov and will mailed to shareholders on or about October 26, 2020.
Any questions about the Exchange Offer or requests for assistance in tendering Shares can be directed to the Fund’s Information Agent, AST Fund Solutions, LLC. The Fund’s Information Agent can be reached toll-free at (800) 829-6554.
About the NexPoint Strategic Opportunities Fund (NHF)
The NexPoint Strategic Opportunities Fund (NYSE:NHF) is a closed-end fund managed by NexPoint Advisors, L.P. that is in the process of converting to a diversified REIT. On August 28, 2020, shareholders approved the conversion proposal and amended the Fund’s fundamental investment policies and restrictions to permit the Fund to pursue its new business. The Fund is in the process of realigning its portfolio so that it is no longer an
“investment company” under the Investment Company Act of 1940 (the “1940 Act”) and expects to apply to the Securities and Exchange Commission (the “SEC”) for an order under the 1940 Act declaring that the Fund has ceased to be an investment company (the “Deregistration Order”) in the first half of 2021.
For more information visit www.nexpointgroup.com/nexpoint-strategic-opportunities-fund/.
About NexPoint Advisors, L.P.
NexPoint Advisors, L.P. is an SEC-registered adviser on the NexPoint alternative investment platform. It serves as the adviser to a suite of funds and investment vehicles, including a closed-end fund, interval fund, business development company, and various real estate vehicles.
For more information visit www.nexpointgroup.com.
1Shares may be listed on another national stock exchange.
2The Exchange Offer’s expiration date will be determined upon commencement of the offering.
3Current NAV and latest closing Share price as of October 14, 2020.
4Risk-adjusted return is a calculation of the potential profit from an investment that takes into account the degree of risk associated with such investment. One measure of risk-adjusted return is the Sharpe ratio, which is a measurement of return or profit per unit of risk. The Sharpe ratio measures the return or profit that exceeds the risk-free rate, per unit of risk as measured by the standard deviation. This is calculated by taking the return of the investment, subtracting the risk-free rate, and then dividing this by the investment’s standard deviation.
