Abrdn Income Credit Strategies Fund (ACP-PA)

Press Release - ACP to acquire IVH:

Delaware Ivy High Income Opportunities Fund announces Board approval of reorganization with abrdn Income Credit Strategies Fund

PHILADELPHIA, August 11, 2022--(BUSINESS WIRE)--Today, Delaware Ivy High Income Opportunities Fund (the "Acquired Fund"), a New York Stock Exchange-listed closed-end fund trading under the symbol "IVH", announced that its Board of Trustees (the "Board") approved the reorganization of the Acquired Fund into abrdn Income Credit Strategies Fund (the "Acquiring Fund"), a New York Stock Exchange-listed closed-end fund trading under the symbol "ACP" (the "Reorganization").

https://finance.yahoo.com/news/delaware-ivy-high-income-opportunities-211500126.html

Its appears that ACP has increased the quality of its holdings and in doing so has reduced its net income. This may have been done as a requirement of its lending covenants. The distributions were for a long time were solely income and in the past couple of months have included return of capital or capital gains. This raises the issue of a distribution cut in the near future. I believe that we are in a long haul of depressed asset prices meaning that the NAV and price will not increase substantially for a long period and it may not be realistic to expect the fund to continue to pay 18%, especially in light of the fact that this yield is substantially higher than comparable CEFs. The income portion of the distribution has been around $.07 to.$08 per share so a cut to $.08 to $.09 would be realistic and would still yield 12.5% to 14%, a very attractive amount considering it comes from solely income, the UNII is zero and the distribution is safe. On the other side of the coin the fund was established in 2010 and paid $.11 for a few months, but since 2011 has always paid $.12. However I would expect a cut and for the long term holders possible increase in a few years if lending standards loosen and it can acquire lower quality paper.

I have held ACP for a few years, selling it only with the recent offering and over last few weeks, I consider it to be one of the few CEFs which can pay a dividend from income and consistently trades at a premium. Its only draw back is the BBB paper which it holds and the fact it is primarily European.

On Wednesday it traded down almost 30% on a volume of over 1 million shares, 10x its normal daily amount. The next 2 sessions it rose. It also held is price on Friday when at the end of the day when the major averages fells precipitously at the end of the day, something which has not occurred anytime during this crisis.

Correspondingly many of the other CEFs which I follow experienced the same price action, 20-40% reduction on extreme volume.

A possible explanation for this could be forced deleveraging, but the subsequent NAVs did not reflect this. Also comparable price action was seen in CEFs which use no leverage such as USA.

Another explanation could be a classic capitulation in the group. If so we may have seen a bottom and hopefully a stabilization in CEFs.

ACP lowers dividend to $0.10/month from $0.12/month. Issues statement that it should be good until the end of the year [unless....]. x-div 9/18, pay 9/30...

Market initially reacted negatively [as expected] this morning to news with -$0.50 off their MktPrc....

My current analysis data COB last Friday] shows a report card grade of 79 with a power reading of 82 [should go lower with announcement]. I show it at 10star and has a 7.86 star rating for the last 13wk's....

Disclosure: Some of us continue to hold a maximum allowable phase #2 position [4%-6% of portfolio] in ACP after taking some CapGain [last month] currently....

Comments:
1... WSJ had a great article on Tuesday on closed end funds. Something to read if investing in CEF's....
2... In down markets, ACP will continue to be a good hold [Dividend remains >10% for any down or corrective markets] for current investors....

One single opinion of the many I am sure....

The lending covenants of all CEFs require the fund to maintain a specified asset level. It looks as though ACP has outstanding debt in the amount of $72 million per the last annual statement. Note 7 of the Annual Report indicates that it's present lending covenants require it to maintain assets in the amount of $100 million, The NAV bottomed so far at $7.62 and with 17 million shares outstanding that translates into an asset value of $129,540,000.

The covenants usually require that the fund must reduce debt by selling assets into a distressed market and prohibits the fund from making distributions until the breach is cured.

The crucial NAV number seems to be around $5.88 below which the asset value drops below $100 million.

If this week has only been a bear market rally and we are in for further deterioration, I would get out of ACP as the NAV starts to show a further precipitous drop.

More troubling is the fact that the debt holders are in a superior position to the shareholders and if NAV falls below 4.23 the fund is bankrupt, our shares are worth $0.00 and all assets will go to the debt holders. This is not impossible in that the high NAV ACP was 12.31 just a few weeks ago and fell 4.69 to 7.62 in that short period. A comparable drop from today's NAV puts the number at 3.38.

Of course, this can all be avoided if you purchase a fund with no leverage such as USA.

The point being remain vigilant in these times.

If we liked ACP [and have it in portfolio] and our current "Average" MktPrc paid is less than 11.33, it is time to "double up" [within the 6% max requirement for any one stock in our portfolio's]. Currently, ACP [after completing their RO] is up for the week in MktPrc $0.35/sh and only down -$06 in NAV. The MktPrc may go lower tomorrow since very few investors like to buy any security on Friday [we don't know what news announcements could be made over the weekend that would affect our securities in our portfolio's]....
Remember the "MATH". If a investor is currently 30% cash [for example], then we are only 70% invested. Therefore, if we have only 4% invested in ACP currently, we would really only be invested <3%. This is the time to pick and choose selectively [by analysis] our new investments and dump those older securities in our portfolio not performing to any markets rise. My analysis data shows a "BUY"...