Interval Funds
Jul 16. 15:25
Invesco Advisers, Inc. Registers the Invesco Dynamic Credit Opportunity Fund

Invesco Advisers, Inc., an adviser operated by global asset manager Invesco, registered the Invesco Dynamic Credit Opportunity Fund (the "Fund") on 5/7/21, a closed-end interval fund that will focus primarily on opportunistic credit securities globally, including secured and unsecured floating- and fixed-rate loans, and other debt obligations including those of higher yield and higher risk.
The Fund's objective is to seek a high level of current income, with the secondary objective of capital appreciation.
Notably, the Fund is a conversion from an existing predecessor fund, VTA, a closed-end fund that has consistently beat its benchmarks but was also trading at 8.26% below net asset value (NAV) as of its last annual report this past February.
Why Convert to an Interval Fund?
The Fund is one of four interval fund conversions since November 2020, and is perhaps the most unique of the four.
Unlike interval funds, that can only be redeemed back to the funds themselves and thus always trade at NAV, closed-end fund shares can only be sold on exchanges and are thus subject to market pricing. As a result closed-end fund shares are typically issued at a premium, after which shares are generally traded on exchanges at a discount to NAV, meaning investors intending to exit must face the reality of selling shares for less than they're actually worth.
Enter Saba Capital. Back in May, Saba bought more than 16% of issued common stock in VTA at a significant discount, becoming a beneficial owner of the Fund.
The same day the purchase posted, Saba, the Fund, and Invesco agreed that the Fund would stop issuing common shares immediately. The Fund would also commit to commence a tender offer this coming September and purchase 20% of outstanding common shares at a 1.5% discount to NAV. This will likely result in a one-year turnaround in the neighborhood of $7m for Saba as long as VTA's NAV holds up for another two months. Since the original purchase in May, VTA is up 1.12%.
Furthermore, if the Fund's shareholders agree, then VTA will convert to an interval fund after the tender offer closes, and offer at least two quarterly repurchases of 10% of outstanding shares at NAV in 2022. If shareholders agree, the new interval fund will continue to buy shares at NAV going forward.
We aren't sure why shareholders would balk at this deal. Instead of waiting for a reduced discount to dump VTA shares on an exchange, as is the reality with closed-end funds, shareholders are presented with 3 liquidity events in less than a year where they can redeem shares at or close to NAV.
We expect to see more interval fund conversions of this nature in the coming year.
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