Latest Auction Pricing for Nontraded REITs and BDCs

January 24, 2020 | James Sprow | Blue Vault

The nontraded BDCs that regularly offer self tenders at or near the most recent NAV do not elicit third-party tender offers, most likely because their shareholders have an alternative to selling their shares at steep discounts. However, the self tenders by the BDCs can be significantly over-subscribed, in which case the shares tendered are only repurchased on a pro-rata basis. For example, FS Energy & Power Fund’s recent self-tender that expired on January 6, 2020, repurchased only 9.1% of the shares tendered, on a pro-rata basis. In simple terms, if a shareholder tendered 1,000 shares, only 91 shares would have bee repurchased. An earlier self-tender by the same BDC that expired on October 2, 2019, resulted in 9.4% of the tendered shares being repurchased. Thus, at these rates, the shareholders wishing to totally liquidate their shares would be tendering for several years to achieve full liquidation. (In theory, a shareholder tendering all shares each quarter and having only 10% of the shares repurchased in any given quarter would never achieve full liquidity! The math is discouraging and can lead shareholders to accept steep discounts to NAVs.)

In the cases of most third-party tender offers, the nontraded REIT management will issue a statement of opinion, urging shareholders to not tender their shares. Their letters to shareholders point out the steeply discounted prices that the third parties are offering, along with the self-evident comments that the third parties are hoping to make a profit when the programs eventually provide full liquidity.

In the table below, we show bids for nontraded REIT and BDC shares on the auction site at Central Trade & Transfer. Bid prices can rise as the auction approaches its closing date. In this table, the January 23 close date was within hours, meaning the final bid prices had probably approached their highest level. The discounts to the most recently announced NAVs per share ranged from 20% to 56%. Third-party tender offers had discounts to recent NAVs ranging from 29% to 62%.

The two BDCs that had self tenders in January did not have third party tender offers competing with the self tenders, but shareholders were still offering their shares to be sold on the auction site.

The Central Trade & Transfer website is at www.cttauctions.com.

Sources:  Central Trade & Transfer, SEC, Blue Vault