Quick Notes on the HIX Rights Offering (NYSE: HIX)

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Author’s Note: This article was released to members of the CEF/ETF Earnings Lab on April 5, 2022 as part of the Weekly CEF Roundup, with some updated numbers.

HIX’s rights offering is live

High Western Asset Income Fund II (NYSE: HIX) offer of rights is currently in progress. Here are the main details of the offer:

  • Each shareholder will receive one transferable right (the “Right”) for each Common Share held on April 8, 2022 (the “Record Date”).
  • Three Rights plus the final subscription price per common share (the “Subscription Price”) will be required to purchase one additional common share (the “Principal Subscription”).
  • The Subscription Price will be determined based on a formula equal to 92.5% of the average of the last reported sale price per Common Share of the Fund on the NYSE on the Expiry Date (as defined below) and each of the previous four trading days. (the “Formula Price”). However, if the price of the formula is less than 90% of the net asset value per common share at the close of trading on the NYSE on the expiry date, the subscription price will be 90% of the net asset value of the Fund per common stock at the close of trading on the NYSE that day. Shareholders on the record date who fully exercise their rights in the primary subscription will be eligible for an over-subscription privilege entitling such shareholders to subscribe for any additional ordinary shares not purchased under the primary subscription, subject to certain limitations, awards and the right of the board of directors to eliminate the oversubscription privilege. Holders of rights acquired on the secondary market cannot benefit from the oversubscription privilege.
  • The Rights are expected to trade “when issued” on the NYSE beginning April 6, 2022, and the Fund’s common stock is expected to trade “ex-rights” on the New York Stock Exchange beginning April 6, 2022. April 7, 2022. The rights are expected to begin trading for normal settlement on the NYSE (NYSE: HIX RT) on or about April 8, 2022. The offer expires at 5:00 p.m. May 6, 2022, unless extended (the “Expiration Date”).

In summary, it is a transferable 1 for 3 offer with a subscription price of upper 92.5% of the average closing price of the market in the 5 days preceding the expiry date, i.e. 90% of the NAV.

Somewhat surprisingly, HIX actually rallied a few days after the initial announcement of the rights offering, closing at a low discount of -0.80%. I say surprising because rights offerings tend to have a negative effect on the share price of an EFC over the rights offering period. In our initial member report (Weekly Closed-End Fund Roundup: HIX Rights Offering, SPE Tender Results (April 3, 2022)), we advised holders to sell HIX due to its impending rights offering.

As usual, I would recommend HIX holders to sell now and redeem the fund later at a higher discount.

Fast forward a few weeks later, and we can see that bypassing the ex-rights date was the optimal game again.

Data by YCharts

Subscription strategy

What about investors who held HIX after the ex-rights date and now have HIX rights?

As we have seen for previous offers, the floor often acts as a magnet drawing the CEF discount close to it as the expiration date approaches. As the discount approaches the bottom, it becomes less and less advantageous to subscribe to new shares, and the rights also lose value. We therefore generally recommend investors who hold until the ex-rights date but who do not wish to increase the number of their shares in the CEF to sell their rights as soon as possible.

For those wishing to subscribe to new HIX shares, remember that if HIX trades below a -10% discount at expiration, a don’t need to subscribe because it would be cheaper to buy the fund on the open market. At that time, the rights would also become worthless.

As of April 26, 2022, HIX closed with a discount of -9.08%, which means that we are now quite close to the -10% bottom. As expected, the rights are now almost worthless as the underwriting profit has become marginal.



Interestingly, the intrinsic value of the Rights is still around $0.018, which means the Rights are currently only a fraction (around 25%) of their intrinsic value. This could suggest that the market is not optimistic about the value of the rights on the expiry day (this would happen if the fund went down at a -10% discount). Or it may just be a very large rights holder who is not interested in subscribing and just wants to sell them on the market all at once. I won’t be interested in the potential call rights arbitrage anyway just because of the discount floor which makes the rights liable to lose all value if the discount exceeds -10% at the expiry of the May 6, 2022.


HIX’s rights offering isn’t going so well for managers. Given the closeness of the discount to the floor, I expect few investors to subscribe and the fund to fail in its objective of significantly increasing its AUM. Yet, I still prefer these types of rights offerings to more dilutive rights offerings that have no floor subscription price. For the latter type, investors are effectively forced to subscribe, which leads to a dilution of the net asset value/share despite an increase in total assets under management. As it stands, the HIX offer should result in minimal dilution to net asset value per share, which is positive for shareholders in the long term despite the short-term drop in share price.

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It is the combination of these factors that has allowed our Revenue generator portfolio to massively outperform our fund benchmark ETF of CEF (YYY) while also delivering growing income (around 10% CAGR).


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Forward-looking statements The matters discussed in this report, as well as in future oral and …