BlackRock CEFs renew share repurchase programs
In this week’s Weekly Closed-End Fund Roundup, we noted that BlackRock announced the renewal of share purchases in its closed-end fund line-up.
According to the press release:
Certain BlackRock Closed-End Funds Announce Renewal of Share Repurchase Programs
September 05, 2019 05:30 PM Eastern Daylight Time
NEW YORK–(BUSINESS WIRE)–BlackRock Advisors, LLC announced today that the Boards of Directors/Trustees of sixty four BlackRock municipal, taxable fixed-income, and equity closed-end funds (the “Funds”) have authorized the renewal of open market share repurchase programs (the “Repurchase Programs”). Under each Fund’s current Repurchase Program, each Fund may repurchase, through November 30, 2019, up to 5% of its outstanding common shares (based on common shares outstanding on November 30, 2018) in open market transactions. Pursuant to the Board’s renewal of the Repurchase Programs, commencing on December 1, 2019, each Fund may repurchase up to 5% of its outstanding common shares (based on common shares outstanding on November 30, 2019) in open market transactions through November 30, 2020. The Repurchase Programs seek to enhance shareholder value by purchasing Fund shares trading at a discount from their net asset value (“NAV”) per share, which could result in incremental accretion to a Fund’s NAV.
The Funds that have authorized the renewal of a Repurchase Program are as follows:
BlackRock California Municipal Income Trust
BlackRock Investment Quality Municipal Trust, Inc.
BlackRock Long-Term Municipal Advantage Trust
BlackRock Maryland Municipal Bond Trust
BlackRock Massachusetts Tax-Exempt Trust
BlackRock Muni Intermediate Duration Fund, Inc.
BlackRock Muni New York Intermediate Duration Fund, Inc.
BlackRock MuniAssets Fund, Inc.
BlackRock Municipal Bond Trust
BlackRock Municipal Income Investment Quality Trust
BlackRock Municipal Income Investment Trust
BlackRock Municipal Income Quality Trust
BlackRock Municipal Income Trust
BlackRock Municipal Income Trust II
BlackRock MuniEnhanced Fund, Inc.
BlackRock MuniHoldings California Quality Fund, Inc.
BlackRock MuniHoldings Fund, Inc.
BlackRock MuniHoldings Fund II, Inc.
BlackRock MuniHoldings Investment Quality Fund
BlackRock MuniHoldings New Jersey Quality Fund, Inc.
BlackRock MuniHoldings New York Quality Fund, Inc.
BlackRock MuniHoldings Quality Fund, Inc.
BlackRock MuniHoldings Quality Fund II, Inc.
BlackRock MuniVest Fund, Inc.
BlackRock MuniVest Fund II, Inc.
BlackRock MuniYield Arizona Fund, Inc.
BlackRock MuniYield California Fund, Inc.
BlackRock MuniYield California Quality Fund, Inc.
BlackRock MuniYield Fund, Inc.
BlackRock MuniYield Investment Fund
BlackRock MuniYield Investment Quality Fund
BlackRock MuniYield Michigan Quality Fund, Inc.
BlackRock MuniYield New Jersey Fund, Inc.
BlackRock MuniYield New York Quality Fund, Inc.
BlackRock MuniYield Pennsylvania Quality Fund
BlackRock MuniYield Quality Fund, Inc.
BlackRock MuniYield Quality Fund II, Inc.
BlackRock MuniYield Quality Fund III, Inc.
BlackRock New York Municipal Bond Trust
BlackRock New York Municipal Income Quality Trust
BlackRock New York Municipal Income Trust
BlackRock New York Municipal Income Trust II
The BlackRock Strategic Municipal Trust
BlackRock Virginia Municipal Bond Trust
Taxable Fixed-Income Funds
BlackRock Taxable Municipal Bond Trust
BlackRock Core Bond Trust
BlackRock Corporate High Yield Fund, Inc.
BlackRock Credit Allocation Income Trust
BlackRock Enhanced Government Fund, Inc.
BlackRock Floating Rate Income Strategies Fund, Inc.
BlackRock Floating Rate Income Trust
BlackRock Income Trust, Inc.
BlackRock Limited Duration Income Trust
BlackRock Multi-Sector Income Trust
BlackRock Debt Strategies Fund, Inc.
BlackRock Energy and Resources Trust
BlackRock Enhanced Capital and Income Fund, Inc.
BlackRock Enhanced Equity Dividend Trust
BlackRock Enhanced Global Dividend Trust
BlackRock Health Sciences Trust
BlackRock Enhanced International Dividend Trust
BlackRock Resources & Commodities Strategy Trust
BlackRock Science and Technology Trust
BlackRock Utilities, Infrastructure & Power Opportunities Trust
The amount and timing of any repurchases under each Fund’s Repurchase Program will be determined either at the discretion of the Fund’s management or pursuant to predetermined parameters and instructions subject to market conditions. There is no assurance that any Fund will repurchase shares in any particular amounts. A Fund’s repurchase activity will be disclosed in its shareholder report for the relevant fiscal period. Any repurchases made under any Fund Repurchase Program will be made on a national security exchange at the prevailing market price, subject to exchange requirements and certain volume and timing limitations and other regulations under federal securities laws.
A few members have asked me or in the chat that they received a notification of this press release and wasn’t sure what it meant or what they had to do about it. In short: you don’t have to do anything if you hold any of these funds.
Why is BlackRock doing this?
Why are the funds doing this? It is definitely a shareholder-friendly move as, as stated in the press release, “purchasing Fund shares trading at a discount from their net asset value (“NAV”)… could result in incremental accretion to a Fund’s NAV”. This accretion occurs because when the fund repurchases its shares, it is selling its assets at par, but repurchasing shares at a discount. In terms of mechanics, it is like the reverse of a dilutive rights offering.
As a simplified example, let’s say that an unleveraged CEF has 10 million shares outstanding with a NAV of $10, for $100 million in assets. The fund is trading at $9, or a discount of -10%. For the fund to purchase 5% of its shares (0.5 million), it would need 0.5 million * $9 = $4.5 million, which it would obtain by selling off $4.5 million of its assets. The fund is now left with $95.5 million assets on 9.5 million shares, or a NAV of $10.0526 per share, or an overall accretion of 0.526%.
Of course, this does have the affect of reducing manager’s AUM, so even with the acknowledgement that BlackRock is one of the better (albeit not particularly exciting) CEF fund sponsors out there, the cynical take would be that this program is just one of the defenses that BlackRock employs against activist investors – kind of a “don’t target our funds, we’re doing what’s right for shareholders!” move.
Of course, BlackRock is currently embroiled in a fight with the activist firm, Saba Capital Management. Most recently, Saba issues an Open Letter to the Board of MNE, BQH and BTZ demanding that they release the results of recent shareholder votes calling for tender offers at the CEFs. This Wall Street Journal article “Boaz Weinstein Hedge Fund Spars With BlackRock and Neuberger” (subscription required) goes into more detail about the current drama!
Repurchases not going to move the needle much
In any case however, these repurchase programs really don’t move the needle too much – except, perhaps, for providing the perception that the discount is being supported by the program which I guess could be a benefit in and of itself.
The reason I say this is because the repurchase amounts are relatively small, only up to 5% of total outstanding shares. Even all of these shares were repurchased at a generous -10% discount, this still only adds +0.526% to the NAV/share of the fund, as our calculation above showed.
Moreover, remember that the program is just a permission to repurchase shares and not an obligation. Take BlackRock Enhanced Equity Dividend Trust (BDJ) for example, which we currently own in our Income Generator portfolio. BDJ repurchased a grand total of zero (0) shares last year under its repurchase program! The year before, it repurchased 1.4 million shares, which is decent but only a small fraction of the 187 million shares it still has outstanding. Even if purchased at an average discount of -10%, this would have added less than +0.1% to the NAV in terms of accretion. BDJ is also fairly very liquid at 400K shares traded daily, so these purchases aren’t going to push up the market price of the fund higher, either.
(Source: BDJ annual report, 12/2018).
Still, better than nothing I suppose?
In summary: no action needed if you own any of the BlackRock funds mentioned in this press release.
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Disclosure: I am/we are long THE PREMIUM PORTFOLIOS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.