PIMCO Income Strategy Fund II · NYSE:PFN
PIMCO Income Strategy Fund II — Proxy Contest (July 2014)
26 slides from PIMCO Income Strategy Fund II's proxy contest presentation, Jul 14, 2014
Slide 1: Proxy Contest for Preferred Shares Trustees
PIMCO Income Strategy Fund PIMCO Income Strategy Fund II Proxy Contest for Preferred Shares Trustees July 14, 2014 Presentation to ISS Brigade Capital Management, LP.
Slide 2: Background
Background Brigade is proposing to nominate candidates for two seats on the board of trustees of PIMCO Income Strategy Fund (“PFL” or a “Fund”) and one seat on the board of trustees of PIMCO Income Strategy Fund II (“PFN” or a “Fund”). If elected, Brigade’s nominees would comprise two of eight board
Slide 3: Brigade Capital Management, LP
Brigade Capital Management, LP. (“Brigade”) Brigade is an asset management firm specializing in high yield and distressed debt investing with over $16 billion of assets under management. Brigade specializes in credit investing. It seeks long term growth of capital throughout market environments with
Slide 4: PIMCO Funds
PIMCO Funds PIMCO Income Strategy Fund (PFL) and PIMCO Income Strategy Fund II (PFN) Description: Seek high current income, consistent with capital preservation. Fund Highlights: Ordinarily invest in a diversified portfolio of floating and/or fixed-rate debt instruments. Flexibility: Have the flexib
Slide 5: Reason for Solicitation
Reason for Solicitation Despite attractive alternative sources of financing, neither PFL nor PFN have taken meaningful steps to redeem the Preferred Shares for several years. The Funds’ failure to redeem the Preferred Shares is in stark contrast to ARP redemptions effected by other taxable closed en
Slide 6: Economics of ARPs redemption
Economics of ARPs redemption The Auction Rate Preferred Securities (ARPs / AMPs ) currently pay interest at the PENALTY rate: Maximum (7-day LIBOR +125bp, 7-day LIBOR *1.50). The Funds’ financing cost is among the highest across the peer group. PFN’s and PFL’s penalty rate formula is different from
Slide 7: Economics of ARPs redemption (contd.)
Economics of ARPs redemption (contd.) Many competitors have redeemed their ARPs (either completely or substantially), because of the alternative lower-cost financing available and the dysfunctional ARPs market. Longer-term financing is available at SIMILAR rates. Eaton Vance issued 3yr Preferred Sha
Slide 8: Overall ARPs Redemptions
Overall ARPs Redemptions Source: The Investor’s Guide to Closed-End Funds (June, 2013), Thomas J. Herzfeld Advisors, Inc. *
Slide 9: Closed-End Fund ARPs Redemptions
Closed-End Fund ARPs Redemptions Source: The Investor’s Guide to Closed-End Funds (June, 2013), Thomas J. Herzfeld Advisors, Inc. *
Slide 10: ARPs redemptions - Investment Advisor
ARPs redemptions - Investment Advisor Source: The Investor’s Guide to Closed-End Funds (June, 2013), Thomas J. Herzfeld Advisors, Inc. As of May 2013, more than 89% of ARPs issued by taxable closed-end funds have been redeemed or are pending. (*Note: latest data is not readily available due to disco
Slide 11: Selective Comparable Fund Families
Selective Comparable Fund Families Most other competitors (except Eaton Vance) do not currently use ARPs. Even Eaton Vance has redeemed 80% of their ARPs. Some Eaton Vance funds have replaced 100% of ARPs with other forms of financing. A REFINANCING AND A REDEMPTION OR REPURCHASE OF THE ARPs WOULD,
Slide 12: Case 1: Western Asset
Case 1: Western Asset Western Asset Premier Bond Fund Recommends Shareholders of Auction Rate Preferred Shares (“ARPS”) Approve Amendments to Bylaws to Facilitate Issuer Tender Offer for ARPS NEW YORK, March 21, 2014 - Western Asset Premier Bond Fund (NYSE:WEA) today announced that the Board of Trus
Slide 13: Case 2: Pioneer Investments
Case 2: Pioneer Investments Pioneer Investments Announces At-Par Redemption of All Outstanding Auction Market Preferred Shares of Pioneer High Income Trust BOSTON -- February 11, 2014 Pioneer Investments announced today that Pioneer High Income Trust (NYSE: PHT) plans to redeem all of its outstandin
Slide 14: Case 3: BlackRock
Case 3: BlackRock BlackRock Closed-End Term Trusts Review of Liquidity for Outstanding Auction Rate Preferred Shares New York, November 7, 2013 – BlackRock currently has five closed-end funds with auction rate preferred shares (“ARPS”) outstanding, BlackRock Municipal 2018 Term Trust (NYSE: BPK), Bl
Slide 15: Case 3: BlackRock (contd.)
Case 3: BlackRock (contd.) In order to provide additional flexibility for each Term Trust to potentially continue to conduct partial redemptions of ARPS in the future, the Boards today announced an amendment to each Term Trust’s ARPS Statement of Preferences. The amendment eliminates a requirement t
Slide 16: Case 4: Eaton Vance
Case 4: Eaton Vance Eaton Vance-sponsored Funds have been leaders in providing liquidity to APS holders by replacing APS with alternative sources of Fund leverage. At the time of the auction market failure, 29 Funds had $5.0 billion of outstanding APS. As of February 3, 2014, the Funds have redeemed
Slide 17: Fund's Nominees
Fund’s Nominees Mr. Alan Rappaport: Mr. Rappaport formerly served as Chairman and President of the private banking division of Bank of America and as Vice Chairman of U.S. Trust. He is currently an Advisory Director of an investment banking firm. Mr. Rappaport is a trustee of the funds in the Allian
Slide 18: Brigade's Nominee – Alan Bruce Miller
Brigade’s Nominee – Alan Bruce Miller Allan Bruce Miller co-founded and built the largest bankruptcy, finance and restructuring legal practice in the U.S. during the years between 1969 and 2005 and retired from his position as Senior Partner of Weil, Gotshal & Manges LLP in 2005. He led the restruct
Slide 19: Brigade's Nominee – Alan Bruce Miller (contd.)
Brigade’s Nominee – Alan Bruce Miller (contd.) Mr. Miller’s presence on the board of PFL would help improve PFL’s corporate governance as Mr. Miller is an accomplished attorney and has extensive experience as a board member on boards of various public and private companies. In addition, Brigade beli
Slide 20: Brigade's Nominee – Marti Murray
Brigade’s Nominee – Marti Murray Ms. Murray has thirty years of experience in the financial services industry with specific expertise in the distressed debt and bankruptcy arenas. Ms. Murray began her financial services career at Bank of America where she received formal credit training and was a re
Slide 21: Brigade's Nominee – Marti Murray (contd.)
Brigade’s Nominee – Marti Murray (contd.) Ms. Murray’s presence on the boards of the Funds would help improve the Funds’ ability to make financial decisions and the Funds’ financial planning as Ms. Murray has a wealth of financial advisory, financial restructuring and consulting experience, as well
Slide 22: Conclusion
Conclusion The incumbent Preferred Shares nominees have failed to take steps to address ARP liquidity concerns. Other closed-end funds have taken advantage of alternative financing sources to redeem ARPs, especially in this current historically low interest rate environment. However, there is no evi
Slide 23: Appendix
i a APPENDIX
Slide 24: Timeline
Timeline Nov. 12, 2010 - PFL and PFN, referred to together as the Funds, disclose in their joint 2010 proxy statement that the next annual meeting is anticipated to be held in Dec. 2011. July 14, 2011 - Brigade requests a meeting with the Funds’ CEO to discuss concerns regarding Preferred Shares and
Slide 25: Timeline (contd.)
Timeline (contd.) Feb. 17, 2012 - The Massachusetts Superior Court finds in favor of Brigade and orders the Funds to hold the annual meeting as soon as possible and to hold future annual meetings within 12 months of the prior annual meeting. The Funds appeal and the case is ultimately transferred to
Slide 26: Timeline (contd.)
Timeline (contd.) January 27, 2014 - Mr. Goldman voluntarily resigns as a trustee of PFL and PFN, leaving a Preferred Shares trustee vacancy on each board. April 2014 - At Brigade’s request, Brigade commences discussions with representatives of the Funds, Allianz Global Investors Fund Management LLC
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