The Highland Income Fund (NYSE:HFRO) is a closed-end fund managed by Highland Capital Management Fund Advisors, L.P. The Fund seeks to provide a high level of current income, consistent with the preservation of capital.
Focused on floating rate securities, real estate securities, secured and unsecured fixed-rate loans and corporate bonds, mezzanine securities, structured products, convertible and preferred securities, and equities (public and private)
October 26, 2021 – Highland Income Fund (NYSE:HFRO) (“HFRO” or the “Fund”) issued the following update on its investment in Creek Pine Holdings, LLC (“Creek Pine”). The Fund invested in Creek Pine through TexMark Timber Treasury, L.P. (“Triple T”), a joint venture with CatchMark Timber Trust (NYSE:CTT) (“CTT”) and a group of institutional investors. Affiliated funds managed by NexPoint Advisors, L.P. (the “NexPoint Funds”) were also included in the investment. HFRO initially invested $180 million, representing the majority of the $200 million invested across the platform between HFRO and the NexPoint Funds. As of September 30, 2021, the platform’s total investment was valued at $293 million, with HFRO’s portion valued at $264 million.
On October 15, 2021, CTT announced that it had reached an agreement with its Triple T joint venture partners, including HFRO, for CTT to redeem its common equity interest in Triple T. This follows the previously announced sale of 300,000 acres of timberlands by Triple T for $497 million in cash. The sale was announced by CTT on September 1, 2021. The announcement indicated that the proceeds from the sale were primarily to be used to reduce leverage and pay down part of the preferred partnership interests. The 300,000 acres sold represents a portion of the 1.1 million acres of East Texas timberlands owned by Triple T.
As part of these transactions, HFRO and the NexPoint Funds redeemed $180 million, plus an early call premium. HFRO received its pro-rata share in the amount of $167 million. The Fund received the cash on October 15, 2021.
The balance of HFRO’s original investment after this redemption was converted into common equity in a new venture formed with a small group of institutional investors. The new entity now owns the remaining portion of the Triple T assets following the sale of 300,000 acres announced in September.
The parties involved in the new venture alongside the Fund are sophisticated institutional investors that manage private investment vehicles. Together they have significant experience owning and managing timber assets. With this expertise, the new venture intends to increase efficiencies and drive revenue for the property under a more favorable capital structure. A formal announcement introducing the new venture is expected in 2022.
August 19, 2021 – The Highland Income Fund (HFRO) holds various CLO equity positions in its portfolio. There was a recent monetization event in underlying securities of certain CLO equity holdings that contributed to performance. This resulted in a NAV increase of approximately $23.9 million, which was reflected in the NAV reported on August 19, 2021.
July 23, 2021 – The Highland Income Fund (NYSE:HFRO) (“HFRO”), a closed-end investment company managed by Highland Capital Management Fund Advisors, L.P. (the “Adviser”), announced an update in the case against Credit Suisse, AG, Cayman Islands Branch, and Credit Suisse Securities (USA), LLC (“Credit Suisse”).
On June 28, 2021, the 134th Judicial District Court (the “Court”) issued a judgment against Credit Suisse, awarding $121 million to Claymore Holdings LLC (“Claymore”), the entity formed to pursue the collective claims on behalf of HFRO and the NexPoint Strategic Opportunities Fund (NYSE:NHF)(“NHF”) (together the “Funds”).
The Court entered the judgment on remand—a result of the Texas Supreme Court’s April 2020 ruling, which upheld the prior findings that Credit Suisse committed fraud but remanded the case to the trial court to enter a new damages award.
On July 23, 2021, Credit Suisse filed a notice of appeal of the June 28 judgment. The matter now will be reviewed by the Dallas Court of Appeals, which ruled unanimously in favor of Claymore in the last round of appeals.
The total aggregate award, which, as of June 28, stood at $121 million, consists of damages and prejudgment interest. The award will continue to accrue interest until the appeals process is exhausted. Any final judgment amount would be reduced by attorney fees and other litigation-related expenses. The net proceeds would then be allocated to the Funds based on respective damages (approximately 82% to HFRO and 18% to NHF). As legal proceedings are ongoing and all recoveries remain contingent, no award amount has been recorded in the Funds’ net asset values at this time.
Background on the Case
The case was originally filed in 2013. Following a bench trial and jury trial, the Court issued its original judgment in favor of Claymore in 2015, which was confirmed by an appellate court in 2018. An appeal of that ruling sent the case to the Texas Supreme Court, which heard the case on January 8, 2020.
On April 24, 2020, the Texas Supreme Court issued an order that affirmed in part and reversed in part the 2018 ruling from the court of appeals. In the April 2020 order, the court upheld the $40 million fraud verdict that resulted from the jury trial; however, it did not uphold the contract damages and equitable relief awarded to Claymore by the trial court following the bench trial.
In its opinion, the Texas Supreme Court noted procedural issues related to the calculation of damages among the reasons for reversing part of the appellate court ruling. It remanded the case to the trial court to determine the appropriate damages calculations and enter a new damages award, resulting in the June 28 judgment.
The case is Claymore Holdings LLC v. Credit Suisse AG, Cayman Islands Branch et al., case number DC-13-07858, in the 134th District Court in Dallas County, Texas.
DALLAS, Aug. 1, 2022 /PRNewswire/ — Highland Income Fund (NYSE: HFRO) (“HFRO” or the “Fund”) today announced its regular monthly distribution on its common stock of $0.0770 per share. The distribution will be payable on August…
DALLAS – May 2, 2022 – Highland Income Fund (NYSE: HFRO) (“HFRO” or the “Fund”) today announced its regular monthly distribution on its common stock of $0.0770 per share. The distribution…
DALLAS – April 1, 2022 – Highland Income Fund (NYSE: HFRO) (“HFRO” or the “Fund”) today announced its regular monthly distribution on its common stock of $0.0770 per share. The distribution…
DALLAS – March 18, 2022 – The Highland Income Fund (NYSE: HFRO) (“HFRO” or the “Fund”) today provided an update on its investment in Metro Goldwyn Mayer, Inc. (“MGM”). On March 17,…
DALLAS – March 1, 2022 – Highland Income Fund (NYSE: HFRO) (“HFRO” or the “Fund”) today announced its regular monthly distribution on its common stock of $0.0770 per share. The distribution…
Investment returns and principal value will fluctuate so that an investor’s shares when redeemed may be worth more or less than their original cost.
Closed-end funds, unlike open-end funds, are not continuously offered. There is a one-time public offering and once issued, shares of closed-end funds are sold in the open market through a stock exchange and frequently trade at prices lower than their net asset value, which may increase an investor’s risk of loss. Net asset value (“NAV”) is total assets less total liabilities, which includes preferred shares, divided by the number of common shares outstanding. At the time of sale, your shares may have a market price that is above or below NAV and may be worth more or less than your original investment. For additional information, please contact your investment adviser or visit www.highlandfunds.com.
Please consider the investment objectives, risks, charges, and expenses of the Highland Income Fund carefully before investing. A prospectus with this and other information about the Highland Income Fund can be found on the Literature tab above.
Registered investment companies like HFRO are subject to certain risks.
Credit Risk. The risk that HFRO could lose money if the issuer or guarantor of a fixed income security, or the counterparty of a derivatives contract or repurchase agreement, is unable or unwilling (or is perceived to be unable or unwilling) to make a timely payment of principal and/or interest, or to otherwise honor its obligations.
Illiquidity of Investments Risk. The investments made by the Fund may be illiquid, and consequently the Fund may not be able to sell such investments at prices that reflect the Investment Adviser’s assessment of their value or the amount originally paid for such investments by the Fund.
Industry Concentration Risk. HFRO must invest at least 25% of the value of its total assets at the time of purchase in securities of issuers conducting their principal business activities in the real estate industry. HFRO may be subject to greater market fluctuations than a fund that does not concentrate its investments in a particular industry. Financial, economic, business, and other developments affecting issuers in the real estate industry will have a greater effect on HFRO, and if securities of the real estate industry fall out of favor, HFRO could underperform, or its NAV may be more volatile than, funds that have greater industry diversification.
Interest Rate Risk. The risk that debt securities, and HFRO’s net assets, may decline in value because of changes in interest rates. Generally, debt securities will decrease in value when interest rates rise and increase in value when interest rates decline.
Leverage Risk. Leverage may increase the risk of loss, cause fluctuations in the market value of HFRO’s portfolio to have disproportionately large effects or cause our NAV to decline faster than it would otherwise.
Ongoing Monitoring Risk. On behalf of the several Lenders, the Agent generally will be required to administer and manage the Senior Loans and, with respect to collateralized Senior Loans, to service or monitor the collateral. Financial difficulties of Agents can pose a risk to the Fund.
Pandemics and Associated Economic Disruption. An outbreak of respiratory disease caused by a novel coronavirus was first detected in China in December 2019 and subsequently spread internationally. This coronavirus has resulted in the closing of borders, enhanced health screenings, healthcare service preparation and delivery, quarantines, cancellations, disruptions to supply chains and customer activity, as well as general anxiety and economic uncertainty. It is not known how long any negative impacts, or any future impacts of other significant events such as a substantial economic downturn, will last. Health crises caused by outbreaks of disease, such as the coronavirus, may exacerbate other preexisting political, social, and economic risks. This outbreak, and other epidemics and pandemics that may arise in the future, could negatively affect the global economy, as well as the economies of individual countries, individual companies, and the market in general in significant and unforeseen ways. For example, a widespread health crisis such as a global pandemic could cause substantial market volatility, exchange trading suspensions and closures, which could adversely affect HFRO’s performance, the performance of the securities in which HFRO invests, lines of credit available to HFRO and may lead to losses on your investment in HFRO. In addition, the increasing interconnectedness of markets around the world may result in many markets being affected by events or conditions in a single country or region or events affecting a single or small number of issuers.
Real Estate Market Risk. HFRO is exposed to economic, market and regulatory changes that impact the real estate market generally and through its investment in NFRO REIT Sub, LLC (the “REIT Subsidiary”), which may cause HFRO’s operating results to suffer. Several factors may prevent the REIT Subsidiary’s properties and other real estate-related investments from generating sufficient net cash flow or may adversely affect their value, or both, resulting in less cash available for distribution, or a loss, to us. These factors include: national, regional and local economic conditions; changing demographics; the ability of property managers to provide capable management and adequate maintenance; the quality of a property’s construction and design; increases in costs of maintenance, insurance, and operations (including energy costs and real estate taxes); potential environmental and other legal liabilities; the level of financing used by the REIT Subsidiary and the availability and cost of refinancing; potential instability, default or bankruptcy of tenants in the properties owned by the REIT Subsidiary; the relative illiquidity of real estate investments in general, which may make it difficult to sell a property at an attractive price or within a reasonable time frame. The full extent of the impact and effects of the recent outbreak of COVID-19 on the future financial performance of HFRO, and specifically, on its investments and tenants to properties held by its REIT Subsidiary, are uncertain at this time. The outbreak could have a continued adverse impact on economic and market conditions and trigger a period of global economic slowdown.
Senior Loans Risk. The risk that the issuer of a senior may fail to pay interest or principal when due, and changes in market interest rates may reduce the value of the senior loan or reduce HFRO’s returns. The risks associated with senior loans are similar to the risks of high yield debt securities. Senior loans and other debt securities are also subject to the risk of price declines and to increases in interest rates, particularly long-term rates. Senior loans are also subject to the risk that, as interest rates rise, the cost of borrowing increases, which may increase the risk of default. In addition, the interest rates of floating rate loans typically only adjust to changes in short-term interest rates; long-term interest rates can vary dramatically from short-term interest rates. Therefore, senior loans may not mitigate price declines in a long-term interest rate environment. HFRO’s investments in senior loans are typically below investment grade and are considered speculative because of the credit risk of their issuers.