I like to track the net asset values (NAVs) of my closed-end fund holdings. A few days ago on Oct. 27, I was surprised when the NAV for the Helios Advantage Income Fund (ticker: HAV) jumped over 6.5% in one day. At first I thought this must have been a typo, but the NAV gained another two cents yesterday.
I called the fund to find out why the NAV jumped so much in one day. It turns out the fund held some asset-backed notes issued by the NextCard Credit Card Master Note Trust.
NextCard, which issued credit cards over the internet, was placed into receivership by the FDIC on February 7, 2002. There has been years of litigation to decide whether NextBank’s receivership triggered a “redemption event” under the securitization agreements. The FDIC, in its capacity as receiver, and various note holders asserted mutually exclusive claims to the NextCard Trust’s remaining funds.
The noteholders (including Helios Advantage Income Fund) eventually prevailed and a large distribution was received on Oct. 27 which explains the big jump in NAV.
The market price of HAV did not immediately react to the legal victory which to my knowledge was not reported in the financial media, but over the last few days the price of HAV has been rising to “catch up” to the higher NAV. The discount to NAV for HAV jumped from -6% to -11% on Oct. 27. Currently HAV is trading at a discount of about -8.5%.
Full Disclosure: Long HAV