Highland Capital Management Proposes Converting Floating Rate Opportunities Fund to Closed-End Fund Ahead of $279 Million Legal Award
Judgment against Credit Suisse Group AG could increase fund’s net assets by over 30%
DALLAS – September 25, 2017 – Highland Capital Management Fund Advisors, L.P., the retail arm of global alternative asset manager Highland Capital Management, L.P., submitted a proposal to shareholders today to convert the Highland Floating Rate Opportunities Fund, an open-end mutual fund, to a closed-end structure ahead of the appeal of a potential $279 million judgment awarded to the fund by a Dallas court. If upheld, this judgment is expected to be recorded as an asset of the fund upon exhaustion of the appeals process. The scale of this award and potential impact to the fund is highly unusual, if not unprecedented in the mutual fund industry.
Highland is therefore proactively proposing this conversion to protect shareholder value and prevent short-term speculators from capitalizing on the judgment at the expense of current shareholders of the fund.
The judgment stems from a case Highland brought against Credit Suisse Group AG in 2013 on behalf of the fund and other Highland accounts. In 2015, the case culminated in a $279 million breach of contract and fraud judgment against Credit Suisse awarded to the fund.
Credit Suisse appealed the decision, and an appellate court will review the case in October. While there can be no assurance that the judgment will be confirmed upon appeal or as to the amount, if any, that the fund will ultimately receive in connection with the judgment, Highland expects the fund’s net asset value (NAV) to increase materially net of legal expenses. The fund’s NAV currently totals $895 million.[i]
The magnitude of this judgment relative to the fund’s NAV has attracted interest from what Highland believes to be speculative investors and “litigation funders,” and Highland believes significant inflows from speculators would be dilutive to current shareholders. In addition, such activity could create a liquidity mismatch between the time the judgment is confirmed and the time the fund collects the judgment from Credit Suisse.
“Highland believes all investors have the right to the full current disclosure regarding the litigation and deserve protection from the unintended consequences of unnatural inflows and outflows. If confirmed, this award should benefit long-term shareholders over those seeking to profit solely from the litigation,” said Dustin Norris, Chief Product Strategist at Highland Capital Management. “Together with the fund’s board, we view the closed-end structure as the best way to mitigate the risk of dilutive speculation.”
Highland proposes converting the fund in the next 45 days in preparation for the upcoming appellate court hearing. The October hearing is the earliest Highland could receive confirmation of the judgment, and Highland believes the judgment will be upheld at the appellate level; however, it likely will take longer to receive the final decision.
While Highland recognizes some investors may prefer the daily liquidity provided by an open-end fund, the firm strongly believes the closed-end structure best protects shareholder value in these unique circumstances. The structure prevents shareholders’ interest in the award from being diluted by new subscriptions in the fund, while also protecting shareholders and the fund from a surge of redemptions or a liquidity mismatch scenario that could force the fund to sell otherwise advantageous positions. Further, the closed-end structure provides additional benefits such as expected savings in fees and expenses.
Highland prepared a proxy statement in conjunction with the proposal and is asking shareholders to vote in support of the conversion. Voting instructions for shareholders can be found within the proxy, which will be mailed to all shareholders and is available online at highlandfunds.com/floating-rate-opportunities-fund.
About Highland Capital Management Fund Advisors, L.P.
Highland Capital Management Fund Advisors, L.P. is the retail arm of Highland Capital Management, L.P., an SEC-registered investment adviser that, together with its affiliates, has approximately $13.7 billion of assets under management. Founded in 1993 by James Dondero and Mark Okada, Highland is one of the largest and most experienced global alternative credit managers. Highland specializes in credit strategies, including credit hedge funds, long-only funds and separate accounts, distressed and special-situation private equity, and collateralized loan obligations (CLOs). Highland also offers alternative investments, including emerging markets, long/short equities, and natural resources. Highland’s diversified client base includes public pension plans, foundations, endowments, corporations, financial institutions, fund of funds, governments, and high net-worth individuals. Highland is headquartered in Dallas, Texas and maintains offices in New York, Sao Paolo, Singapore, and Seoul. For more information visit highlandcapital.com.
Before investing, you should carefully consider the Fund’s investment objectives, risks, charges and expenses. For a copy of a prospectus or summary prospectus which contains this and other information, please visit our website at highlandfunds.com or call 1-877-665-1287. Please read the fund prospectus carefully before investing.
[i] As of September 19, 2017