RiverNorth Opportunities Fund to Offer Preferred

Closed end fund Rivernorth Opportunities Fund (RIV) has announced a new issue of preferred stock. The issue will be perpetual and cumulative.

These new shares are rated A1 by Moody’s so of course we are looking at a relatively modest coupon.

The company has $336 million in assets and (correction) with $31 million in leverage as of 1/31/2022. (see 2whiteroses note below with info from Moody’s).

The preliminary prospectus can be found here.

21 thoughts on “RiverNorth Opportunities Fund to Offer Preferred”

      1. A couple of folks who post here actually work in the industry or have contacts who do. Almost like those who have access to a bloomberg terminal and those who don’t. There is probably not a publicly available place to look at this info yet.

        Often the info starts a tad high and goes down a bit but that was with interest rates going down/low. Now it could possibly be the reverse. At 6% I find this preferred interesting.

        1. Thanks! Are you a buyer?
          Hard to resist 6% for an A type credit with 5 years call protection.

          1. Yes. I think I am. I am unsure how much though. It is not a qualified dividend so I will have to compare it to things like SR-A which are which is 5.9% but a lower rating. I really need to examine the spreadsheets and get the lay of the land before buying with all the changes that have been going on. Now that taxes have been paid I can continue buying and increasing my income.

            So seeing it is on the grey right now and unbuyable, with rates going up, it’s first payment a ways away, etc.. I think I have time right now to study things more. Most everything just got done going ex-div over the last 1-2 months so I have a couple of week period here to dig in before missing out on the next payment/div.

    1. It seems this new paper gave people another reason to liquidate the two OPP preferreds. I thought a yield of 5.5% vs 30-YR below 3% was a gift. Wrong.

  1. Opting for Treasury ibonds right now – 7.12% until the next adjustment at the end of the month (max $10k, plus tax refund – if I get one).

    1. Maybe wait until Tuesday April 12 to find out what the new rate will be on iBonds in May. Treasury quarterly rate to be announced then and we will know what the iBond will pay beginning in May. Likely higher than 7.12%.

    1. Joel, your link isn’t even to the right fund. This is the fund: https://www.rivernorthcef.com/the-fund

      Collateral looks okay to me, although I would say it’s worth understanding what shorting they are doing. But unless something goes catastrophically wrong, I wouldn’t be very concerned about the preferred.

      1. KC, You’re right. I looked at the more conservative sister MUTUAL fund instead of the CEF with a similar name and more aggressive posturing with leverage. Of course the MF has no leverage. Leverage on leverage can be punished (volatile) if there is a panic. Yes it is cumulative, even if suspended for a while for a workout.
        As I mentioned, I think there will come a time of leveraged CEFs of leveraged CEFs SPACs and Junk Package markdowns will ripple thru the yield hungry population then may be a good time to look to gain the contract’s protections…at a better price. Compare that to say, Gabelli Utility CEF. Not all of these Prefs are created equal.
        ALL of the Prefs of CEFs would be the first things to look at.
        Happy Hunting!

        1. You may be misunderstanding the SPAC market due to the craze that ended about a year ago. Pre-deal SPACs trading below redemption value are low risk and can lock in a modest IRR, with the potential for a bonus upside on a deal. If one chooses to do so, this is a pretty conservative investment strategy.

          As for the rest of a CEF portfolio, if the portfolio is highly liquid, there is not much cause for concern for the preferred stock. Collateral ratios have to be kept in check on a quarterly basis, so it would take quite a meltdown in the financial markets to become impaired. I always distinguish the preferreds with higher quality collateral and coverage (e.g., pretty much all of the Gabelli funds) compared to the truly questionable ones such as Priority Income, which own leveraged structured investments that may or may not be liquid when the time comes.

  2. Perpetual Preferred in a rising interest rate environment…there’s a bridge I want to sell also

    1. It depends on what it offers us. If this puppy comes out at 6%.. and is A1 rated.. that is very appealing. When interest rates trend down again in the future and I think they will this preferred could be selling for 26.50-27 pretty easily. I don’t know about others but I am not a fan of stretching for yield if I have to pay very close attention to companies who are risker. I know I will never learn any negative news first and will have to sell at quite a loss. One mistake can ruin a lot of stretching for yield if it backfires.

      As for loss of principal on this preferred on paper does not matter as much to me as long as it keeps paying reliably and comfortably above 5.x%. Having to sell a 25 preferred share at 11 because the payments stopped is a disaster to me personally.

      1. Replying to myself. I would consider A2 ACP-A paying 5.25% to be an equivalent to this preferred above. At 24.86 it is paying 5.28% and holding up quite well. I would assume due to it’s safety and gift like yield when issued last year compared to others. I own quite a bit and not troubled seeing it worth below 25. So if this new one pays above 5.5% I think I am interested.

  3. Regarding maintaining a rating, does this seem like unusually strong language to be in a prospectus? p S-15.

    Moody’s Investors Service, Inc. (“Moody’s”) has initially rated the Perpetual Preferred Shares. For as long as Moody’s, or any other rating agency, is rating the Perpetual Preferred Shares at the Fund’s request, the Fund will use commercially reasonable efforts to maintain assets having in the aggregate a discounted value at least equal to the asset coverage requirements set by the rating agency (“Rating Agency Asset Coverage”) consistent with the then-current ratings of the Perpetual Preferred Shares. Satisfaction of Moody’s Ratings Agency Asset Coverage generally requires the Fund to have eligible assets having in the aggregate a discounted value equal to or in excess of a “Preferred Shares Basic Maintenance Amount.” Generally, the Preferred Shares Basic Maintenance Amount includes the sum of (a) the aggregate liquidation preference of the Fund’s preferred shares then outstanding (including the Perpetual Preferred Shares) and (b) certain accrued and projected payment obligations of the Fund, including without limitation any accrued and projected dividends on its preferred shares then outstanding.

  4. From Moody’s:

    RiverNorth Opportunities Fund, Inc.
    Rating Action: Moody’s assigns A1 rating to preferred shares issued by RiverNorth Opportunities Fund, Inc.
    05 Apr 2022

    New York, April 05, 2022 — Moody’s Investors Service (“Moody’s”) has assigned an A1 rating to the fixed rate perpetual preferred shares to be issued by the RiverNorth Opportunities Fund, Inc. (NYSE: RIV). The fund achieves its total return objective primarily by capitalizing on the inefficiencies in the closed-end fund space while providing exposure to other asset classes.

    The fund plans to raise about $100 million in publicly traded perpetual preferred shares. The proceeds of the transaction will be used to pay down the outstanding balance on the fund’s margin financing facility and to invest in securities in accordance with its investment strategy.

    Assignments:

    ..Issuer: RiverNorth Opportunities Fund, Inc.

    ….Perpetual Preferred Stock, Series A, $100 million (4,000,000 shares with liquidation preference of $25 per share), Assigned A1

    RATINGS RATIONALE

    The A1 preferred share rating reflects RIV’s strong risk-adjusted asset coverage, capacity to service its obligations as well as its concentrated focus on the CEF sector and other investment companies.

    Although the transaction will raise RIV’s leverage and borrowing costs significantly, it provides the fund with a permanent capital base at a relatively low cost given the prospect for higher interest rates over the near term. RIV had effective leverage of about 16% at 28 February 2022 which is expected to increase to 26% following the proposed transaction. Pro forma risk-adjusted asset coverage is expected to remain strong and comparable with Aa-rated closed-end funds. Additionally, the fund operates under the Investment Company Act of 1940 which require it to adhere to asset coverage tests that supports the Aaa subfactor score for financial policy.

    Based on the terms of the preferred stock issuance, annual preferred share dividends are expected to total close to $6 million. Although the fund’s capacity to cover its fixed charges will be weaker, we expect it to remain strong and consistent with that of A-rated peers.

    Constraining RIV’s credit profile is its concentrated exposure to the CEF, BDC and SPAC sectors. The fund benefits from diverse single issuer holdings but with over 60% of managed assets allocated to the CEF sector, RIV’s sector concentration score is weak relative to peers. While a high percentage of the fund’s portfolio is invested in publicly traded equity securities, these equities are in CEFs, special purpose acquisition companies and business development companies which are relatively small markets with average liquidity under normal market conditions.

    Moody’s also considers the priority of claim of a CEF’s security types in determining a fund’s credit profile. A one-notch downward adjustment from the senior rating profile suggested by the key factors mentioned above is made to preferred securities to reflect the subordinate position of investors holding preferred stock relative to those holding senior unsecured debt obligations.

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