First Trust Advisors L.P. (“FTA”) announced today that its
Leveraged Finance Investment Team, portfolio manager for the First
Trust Senior Floating Rate Income Fund II (NYSE: FCT), First Trust
Senior Floating Rate 2022 Target Term Fund (NYSE: FIV) and First
Trust High Yield Opportunities 2027 Term Fund (NYSE: FTHY) (each a
“Fund” or collectively, the “Funds”), will release an update on the
market and the Funds for financial advisors and investors. The
update will be available Wednesday, November 18, 2020, at 5:00
P.M. Eastern Time until 11:59 P.M. Eastern Time on Friday, December
18, 2020. To listen to the update, follow these
instructions:
-- Dial: (888) 203-1112; International (719)
457-0820; and Passcode # 6281160. The update will be available from
Wednesday, November 18, 2020, at 5:00 P.M. Eastern Time until 11:59
P.M. Eastern Time on Friday, December 18, 2020.
FCT is a diversified, closed-end management investment company.
The Fund's primary investment objective is to seek a high level of
current income. As a secondary objective, the Fund attempts to
preserve capital. The Fund pursues these investment objectives by
investing primarily in senior secured floating-rate corporate loans
(“Senior Loans”). Under normal market conditions, the Fund will
invest at least 80% of its Managed Assets in lower grade debt
instruments. "Managed Assets" means the total asset value of the
Fund minus the sum of its liabilities, other than the principal
amount of borrowings. There can be no assurance that the Fund's
investment objectives will be achieved.
FIV is a diversified, closed-end management investment company.
The Fund's investment objectives are to seek a high level of
current income and to return $9.85 per common share of beneficial
interest ("Common Share") of the Fund (the original net asset value
("Original NAV") per Common Share before deducting offering costs
of $0.02 per Common Share) to the holders of Common Shares on or
about February 1, 2022 (the "Termination Date"). The Fund, under
normal market conditions, pursues its objectives by primarily
investing at least 80% of its Managed Assets in a portfolio of
Senior Loans of any maturity.
As a result of the sharp and sudden economic shock resulting
from the unprecedented shut down of significant parts of the U.S.
economy in March due to the COVID-19 pandemic, the value of the
Fund's assets experienced a significant decline. Consequently, the
Fund was required to sell assets and pay down outstanding
indebtedness in order to remain in compliance with applicable
limitations on leverage imposed on the Fund by applicable law.
While the market for the Fund's assets has improved, sales of the
Fund's investments during the downturn had a negative impact on the
Fund's NAV. In addition, due to the Federal Open Market Committee
lowering the Federal Funds target rate to 0%-.25% from 1.50% -
1.75% in March 2020, LIBOR rates declined significantly which
reduced the income earning potential of the Fund and its ability to
increase NAV through withholding Fund income. As a result, based on
current market conditions and expectations, the Fund believes that
it is unlikely to achieve its objective of returning $9.85 per
Common Share upon its termination. The ultimate NAV of the Fund
that will be returned to shareholders upon termination of the Fund
will be dependent on a number of factors including, but not limited
to, the severity of the economic contraction, the level of income
earned in the portfolio, default losses experienced in the
portfolio, trading losses in the portfolio and the use of leverage.
As indicated above, the recent decline in interest rates, with
3-month LIBOR falling to 0.23% as of September 30, 2020 from 1.45%
as of March 31, 2020, has reduced the income generated by the
portfolio. Moreover, the portfolio management team anticipates
actively reducing the Fund's leverage and shifting the portfolio
composition to shorter dated higher quality holdings as the Fund
approaches its termination date. As a result of these actions,
investors should anticipate periodic reductions in the Fund's
distribution per share going forward.
FTHY is a diversified, closed-end management investment company.
The Fund’s investment objective is to provide current income. Under
normal market conditions, the Fund will seek to achieve its
investment objective by investing at least 80% of its managed
assets in high yield debt securities of any maturity that are rated
below investment grade at the time of purchase or unrated
securities determined by First Trust Advisors L.P. (“FTA”) to be of
comparable quality. High yield debt securities include U.S. and
non-U.S. corporate debt obligations and Senior Loans. Securities
rated below investment grade are commonly referred to as “junk” or
“high yield” securities and are considered speculative with respect
to the issuer’s capacity to pay interest and repay principal. There
can be no assurance that the Fund will achieve its investment
objective or that the Fund’s investment strategies will be
successful.
First Trust Advisors L.P. ("FTA”) is a federally registered
investment advisor and serves as the Fund’s investment advisor. FTA
and its affiliate First Trust Portfolios L.P. (“FTP”), a FINRA
registered broker-dealer, are privately-held companies that provide
a variety of investment services. FTA has collective assets under
management or supervision of approximately $147 billion as of
October 31, 2020 through unit investment trusts, exchange-traded
funds, closed-end funds, mutual funds and separate managed
accounts. FTA is the supervisor of the First Trust unit investment
trusts, while FTP is the sponsor. FTP is also a distributor of
mutual fund shares and exchange-traded fund creation units. FTA and
FTP are based in Wheaton, Illinois.
Investment return and market value of an investment in the Funds
will fluctuate. Shares, when sold, may be worth more or less than
their original cost. There can be no assurance that the Funds’
investment objectives will be achieved. The Funds may not be
appropriate for all investors.
Principal Risk Factors: Securities held by a fund, as well as
shares of a fund itself, are subject to market fluctuations caused
by factors such as general economic conditions, political events,
regulatory or market developments, changes in interest rates and
perceived trends in securities prices. Shares of a fund could
decline in value or underperform other investments as a result of
the risk of loss associated with these market fluctuations. In
addition, local, regional or global events such as war, acts of
terrorism, spread of infectious diseases or other public health
issues, recessions, or other events could have a significant
negative impact on a fund and its investments. Such events may
affect certain geographic regions, countries, sectors and
industries more significantly than others. The outbreak of the
respiratory disease designated as COVID-19 in December 2019 has
caused significant volatility and declines in global financial
markets, which have caused losses for investors. The COVID-19
pandemic may last for an extended period of time and will continue
to impact the economy for the foreseeable future.
The Funds are subject to various risks including: the Funds will
typically invest in senior loans rated below investment grade,
which are commonly referred to as "junk" or "high-yield" securities
and considered speculative because of the credit risk of their
issuers. Such issuers are more likely than investment grade issuers
to default on their payments of interest and principal owed to the
Funds, and such defaults could reduce the Funds’ NAV and income
distributions. An economic downturn would generally lead to a
higher non-payment rate, and a Senior Loan may lose significant
market value before a default occurs. Moreover, any specific
collateral used to secure a Senior Loan may decline in value or
become illiquid, which would adversely affect the Senior Loan’s
value.
The Senior Loan market has seen an increase in loans with weaker
lender protections which may impact recovery values and/or trading
levels in the future. The absence of financial maintenance
covenants in a loan agreement generally means that the lender may
not be able to declare a default if financial performance
deteriorates. This may hinder the Funds’ ability to reprice credit
risk associated with a particular borrower and reduce the Funds’
ability to restructure a problematic loan and mitigate potential
loss. As a result, the Funds’ exposure to losses on investments in
Senior Loans may be increased, especially during a downturn in the
credit cycle or changes in market or economic conditions.
Many financial instruments use or may use a floating rate based
upon the London Interbank Offered Rate (LIBOR), which is being
phased out by the end of 2021. There remains some uncertainty
regarding the future utilization of LIBOR and the nature of any
replacement rate.
FIV’s and FTHY’s limited term may cause it to invest in
lower-yielding securities or hold the proceeds of securities sold
near the end of its term in cash or cash equivalents, which may
adversely affect the performance of the Fund or the Fund’s ability
to maintain its dividend.
Senior Loans are structured as floating rate instruments in
which the interest rate payable on the obligation fluctuates with
interest rate changes. As a result, the yield on Senior Loans will
generally decline in a falling interest rate environment, causing
the fund to experience a reduction in the income it receives from a
Senior Loan. In addition, the market value of Senior Loans may fall
in a declining interest rate environment and may also fall in a
rising interest rate environment if there is a lag between the rise
in interest rates and the reset. Many Senior Loans have a minimum
base rate, or floor (typically, a “LIBOR floor”), which will be
used if the actual base rate is below the minimum base rate. To the
extent the Funds invest in such Senior Loans, the Funds may not
benefit from higher coupon payments during periods of increasing
interest rates as it otherwise would from investments in Senior
Loans without any floors until rates rise to levels above the LIBOR
floors. As a result, the Funds may lose some of the benefits of
incurring leverage. Specifically, if the Funds’ Borrowings have
floating dividend or interest rates, their costs of leverage will
increase as rates increase. In this situation, the Funds will
experience increased financing costs without the benefit of
receiving higher income. This in turn may result in the potential
for a decrease in the level of income available for dividends or
distributions to be made by the Funds.
A second lien loan may have a claim on the same collateral pool
as the first lien or it may be secured by a separate set of assets.
Second lien loans are typically secured by a second priority
security interest or lien on specified collateral securing the
Borrower's obligation under the interest. Because second lien loans
are second to first lien loans, they present a greater degree of
investment risk. Specifically, these loans are subject to the
additional risk that the cash flow of the Borrower and property
securing the loan may be insufficient to meet scheduled payments
after giving effect to those loans with a higher priority. In
addition, loans that have a lower than first lien priority on
collateral of the Borrower generally have greater price volatility
than those loans with a higher priority and may be less liquid.
Because the assets of FIV will be liquidated in connection with
its termination, the Fund may be required to sell portfolio
securities when it otherwise would not, including at times when
market conditions are not favorable, or at a time when a particular
security is in default or bankruptcy, or otherwise in severe
distress, which may cause the Fund to lose money. Although the Fund
has an investment objective of returning Original NAV to Common
Shareholders on or about the Termination Date, the Fund may not be
successful in achieving this objective. The return of Original NAV
is not an express or implied guarantee obligation of the Fund.
There can be no assurance that the Fund will be able to return
Original NAV to Common Shareholders, and such return is not backed
or otherwise guaranteed by the Advisor or any other entity.
The debt securities in which the Funds may invest are subject to
certain risks, including issuer risk, reinvestment risk, prepayment
risk, credit risk, and interest rate risk. Issuer risk is the risk
that the value of fixed-income securities may decline for a number
of reasons which directly relate to the issuer. Reinvestment risk
is the risk that income from the Funds’ portfolio will decline if
the Funds invest the proceeds from matured, traded or called bonds
at market interest rates that are below the Funds portfolio’s
current earnings rate. Prepayment risk is the risk that, upon a
prepayment, the actual outstanding debt on which the Funds derive
interest income will be reduced. Credit risk is the risk that an
issuer of a security will be unable or unwilling to make dividend,
interest and/or principal payments when due and that the value of a
security may decline as a result. Interest rate risk is the risk
that fixed-income securities will decline in value because of
changes in market interest rates.
Use of leverage can result in additional risk and cost, and can
magnify the effect of any losses.
The risks of investing in the Funds are spelled out in the
prospectus, shareholder report and other regulatory filings.
The information presented is not intended to constitute an
investment recommendation for, or advice to, any specific person.
By providing this information, First Trust is not undertaking to
give advice in any fiduciary capacity within the meaning of ERISA,
the Internal Revenue Code or any other regulatory framework.
Financial professionals are responsible for evaluating investment
risks independently and for exercising independent judgment in
determining whether investments are appropriate for their
clients.
The Funds’ daily closing New York Stock Exchange price and net
asset value per share as well as other information can be found at
www.ftportfolios.com or by calling 1-800-988-5891.
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version on businesswire.com: https://www.businesswire.com/news/home/20201116006031/en/
Jeff Margolin, (630) 915-6784
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