Duff & Phelps funds extend offers to purchase some preferreds

By Jennifer Chiou

New York, June 4 - DNP Select Income Fund Inc. and Duff & Phelps Utility and Corporate Bond Trust Inc. extended their offers to purchase some of their preferred shares to 5 p.m. ET on June 18 from June 4, according to a news release.

DNP is offering to purchase for cash its remarketed preferred stock and auction preferred stock with an aggregate liquidation preference of up to $200 million at a price equal to (a) $96,000 per series D remarketed preferred with a $100,000 liquidation preference, (b) $96,000 per series E remarketed preferred with a $100,000 liquidation preference, (c) $24,000 per series TH auction preferred with a $25,000 liquidation preference and (d) $24,000 per series F auction preferred with a $25,000 liquidation preference.

Duff & Phelps is offering to purchase for cash its outstanding auction market preferreds, series TH7, with an aggregate liquidation preference of up to $47.5 million at a price equal to $24,000 per preferred with a $25,000 liquidation preference.

Holders of preferreds that are accepted for purchase will also receive accrued dividends.

As of 1 p.m. ET on June 4, holders had tendered $62.65 million aggregate liquidation preference of the DNP preferreds, consisting of 218 series D remarketed preferreds, 398 series E remarketed preferreds, eight series TH auction preferreds and 34 series F auction preferreds, as well as $5.3 million of the Duff & Phelps preferreds.

According to the news release, the funds do not plan to further extend the offers.

On May 14, shareholders voted on charter amendments that would permit the funds to negotiate a lower rating on their preferred shares in exchange for being allowed to draw more debt to refinance the preferreds.

At the May 10 annual meeting of the funds, the proposed amendments to the charter received the required aggregate vote of Duff & Phelps' common and preferred shareholders and the separate class vote, and those amendments are now in effect. The proposed amendments to DNP's charter also received a favorable vote of DNP's common and preferred shareholders but were defeated in the separate class vote; thus, those amendments were not approved.

The two closed-end registered investment companies advised by Chicago-based Duff & Phelps Investment Management Co. provided the update in a press release on their efforts to provide additional liquidity to holders of preferreds in light of the persistent failures in the auction markets.

As previously reported, each fund has retired a portion of its preferreds with debt under a credit facility but has been unable to refinance additional preferreds with debt.

The funds cannot incur debt or enter into reverse repurchase agreements without departing from the guidelines established by the two principal rating agencies. Another factor restraining the funds from refinancing preferred shares with debt is that the Investment Company Act of 1940 requires a fund to have 300% asset coverage for its senior debt at the time of any new borrowings.

The funds' charters permit departures from the rating agency guidelines but only if the rating agencies confirm in writing that the departures would not adversely affect the then-current rating of the preferreds.

In 2009, when the funds received the confirmation from the rating agencies to permit them to enter into their existing credit facilities, one of the rating agencies imposed a limitation that, in order to maintain the AAA rating on the preferreds, no more than 60% of the funds' leverage could be in the form of debt.

On Dec. 12, the board of directors of the funds charged the adviser with formulating a proposed amendment to the funds' charters that would permit the funds to negotiate an arrangement with the rating agencies under which the funds could accept a lower rating on the preferreds in exchange for being allowed to draw a higher percentage of debt leverage.

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