Update: RiverNorth Capital and Income Fund, Inc. Non-Transferable Rights Offering
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Insights
The rights offering announced by RiverNorth Capital and Income Fund, Inc. represents a strategic move to raise capital while potentially offering an opportunity for existing shareholders to increase their investment at a potentially favorable price. The structure of the offering, with the subscription price set at either 90% of the net asset value or 95% of the market price, whichever is higher, suggests a discount mechanism that could incentivize participation. However, investors should be mindful of the dilutive effect of such offerings, as an increase in the number of shares could lead to a decrease in existing shareholders' equity percentage unless they fully exercise their rights.
From a market perspective, the non-transferability of the rights could limit liquidity and marketability, which might be a drawback for some investors who prefer more flexible investment options. Additionally, the exclusion of rights shares from the Q2 repurchase offer may influence investor decisions, as it delays the potential for immediate liquidity provided by repurchase offers. The long-term performance will hinge on the effective deployment of the raised capital into the private credit assets and the Fund's ability to manage the associated risks, particularly given the inherent volatility and credit risk in small business loans and BDC investments.
With an interval fund structure, RiverNorth Capital and Income Fund's rights offering could appeal to investors seeking exposure to alternative credit assets, which often come with less correlation to traditional asset classes. This can be an attractive diversification strategy, especially in times of market uncertainty. The Fund's focus on unique private credit assets, including small business whole loans originated by Square Loans and debt securities issued by BDCs, taps into a niche market that is not readily accessible to the average investor.
However, the complexity and risk associated with these types of investments require a thorough understanding of the underlying assets. The performance of these assets can be significantly impacted by economic shifts and interest rate changes. While the Fund's past performance has been described as attractive, it's important for investors to consider the risks and lack of liquidity associated with interval funds and the specific credit instruments within the Fund's portfolio.
Legally, the rights offering is structured within the framework of the SEC's regulations, specifically under an effective shelf registration statement. This provides a level of regulatory oversight and investor protection. The Fund has also taken measures to ensure compliance with the Investment Company Act of 1940 by making periodic repurchase offers, which is a requirement for interval funds. Prospective participants should review the prospectus supplement and accompanying prospectus carefully to understand the terms and conditions, including the risks associated with the investment and the fact that the Alternative Credit Instruments are not rated by NRSROs, implying a higher credit risk akin to 'junk' bonds.
It is also noteworthy that the Fund is not continuously issuing stock, which means the rights offering is a time-sensitive opportunity for investors to act. The non-entitlement to distributions for the months of March and April for shares issued in connection with the rights offering is another legal nuance that should be considered, as it affects the immediate income potential from newly acquired shares.
The proceeds from the offering will be deployed according to the Fund’s investment objective into the portfolio of unique, hard to access private credit assets including small business whole loans originated by Square Loans and debt securities issued by business development companies and closed end funds. Exposure to these less correlated, “off the run” asset classes has been a significant driver of the Fund’s attractive long-term net asset value performance.
In this offering, the Fund will issue non-transferable rights (the “Rights”) to its stockholders of record as of April 1, 2024 (the “Record Date” and such stockholders, “Record Date Stockholders”) allowing the holder to subscribe for new shares of common stock of the Fund (the “Primary Subscription”). Record Date Stockholders will receive one Right for each share of common stock held on the Record Date. For every three Rights held, a holder of Rights may buy one new share of common stock of the Fund. The number of Rights to be issued to a Record Date Stockholder will be rounded up to the nearest number of Rights evenly divisible by three. Fractional shares will not be issued upon the exercise of the Rights. Accordingly, new Common Shares may be purchased only pursuant to the exercise of Rights in integral multiples of three.
Record Date stockholders who fully exercise their Rights will be entitled to subscribe for additional shares of common stock (“Over-Subscription Shares”), subject to the limitations set forth in the prospectus supplement. The Over-Subscription Shares will be allocated pro rata to stockholders who over-subscribe based on the number of Rights originally issued to them. The Fund may increase the number of shares of common stock subject to subscription by up to
The subscription price per share of common stock will be determined based upon a formula equal to
Record Date Stockholders who exercise their Rights will not be entitled to distributions payable during March or April 2024 on shares issued in connection with the rights offering, but they will be entitled to distributions payable during May 2024 on these shares.
As a reminder, the Fund is an interval fund that makes periodic repurchase offers under Rule 23c-3 under the Investment Company Act of 1940 of at least
The rights offering will be made pursuant to the Fund’s currently effective shelf registration statement on file with the Securities and Exchange Commission (“SEC”) and only by means of the prospectus supplement and accompanying prospectus. The Company expects to mail subscription certificates evidencing the subscription rights and a copy of the prospectus supplement and accompanying prospectus for the rights offering shortly following the Record Date. The securities described in this release may not be sold nor may offers to purchase be accepted prior to the time the prospectus supplement and accompanying prospectus are filed with the SEC.
This press release shall not constitute an offer to sell or constitute a solicitation of an offer to buy.
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RiverNorth Capital and Income Fund, Inc.
The investment objective of the Fund is to seek a high level of current income. Fund had approximately
The Fund is a closed-end fund and does not continuously issue stock for sale as open-end mutual funds do. The Fund now trades in the secondary market. Investors wishing to buy or sell stock need to place orders through an intermediary or broker. The share price of a closed-end fund is based on the market value.
Risk is inherent in all investing. Investing in any investment company security involves risk, including the risk that you may receive little or no return on your investment or even that you may lose part or all of your investment. Therefore, before investing in the shares of common stock, you should consider the risks as well as the other information in the prospectus, annual report, and semi-annual report.
Past performance is no guarantee of future results.
Definitions:
Business Development Companies (“BDCs”) are organizations that invest in small- and medium-sized companies as well as distressed companies. A BDC helps small- and medium-sized firms grow in the initial stages of their development.
Square Loans (small business whole loans) is an invitation-only advance on the sales that retailers make through Square's point of sales system. It's essentially a merchant cash advance, meaning that you pay a fixed fee rather than interest and repay the funds with a percentage of your daily sales.
See the Prospectus for a more detailed description of Fund risks.
The profitability of specialty finance and other financial companies is largely dependent upon the availability and cost of capital funds and may fluctuate significantly in response to changes in interest rates, as well as changes in general economic conditions. If the borrower of Alternative Credit (as defined below) in which the Fund invests is unable to make its payments on a loan, the Fund may be greatly limited in its ability to recover any outstanding principal and interest under such loan, as (among other reasons) the Fund may not have direct recourse against the borrower or may otherwise be limited in its ability to directly enforce its rights under the loan, whether through the borrower or the platform through which such loan was originated, the loan may be unsecured or under collateralized, and/or it may be impracticable to commence a legal proceeding against the defaulting borrower. Substantially all of the Alternative Credit in which the Fund invests will not be guaranteed or insured by a third party. In addition, the Alternative Credit Instruments in which the Fund may invest will not be backed by any governmental authority. Prospective borrowers supply a variety of information regarding the purpose of the loan, income, occupation, and employment status (as applicable) to the lending platforms. As a general matter, platforms do not verify the majority of this information, which may be incomplete, inaccurate, false, or misleading. Prospective borrowers may misrepresent any of the information they provide to the platforms, including their intentions for the use of the loan proceeds. Alternative Credit Instruments are generally not rated by the nationally recognized statistical rating organizations (“NRSROs”). Such unrated instruments, however, are considered to be comparable in quality to securities falling into any of the ratings categories used by such NRSROs to classify "junk" bonds (i.e., below investment grade securities). Accordingly, the Fund’s unrated Alternative Credit Instrument investments constitute highly risky and speculative investments similar to investments in “junk” bonds, notwithstanding that the Fund is not permitted to invest in loans that are of subprime quality at the time of investment. Although the Fund is not permitted to invest in loans that are of subprime quality at the time of investment, an investment in the Fund’s Shares should be considered speculative and involving a high degree of risk, including the risk of loss of investment. There can be no assurance that payments due on underlying loans, including Alternative Credit, will be made.
Diversification does not ensure a profit or a guarantee against loss.
The Fund’s investment objectives, risks, charges, and expenses must be considered carefully before investing. The Fund’s prospectus and most recent periodic reports contain this and other important information about the investment company and may be obtained by visiting rivernorth.com/literature or by calling 844.569.4750. Read the Prospectus carefully before investing.
RiverNorth Capital Management, LLC
RiverNorth is an investment management firm founded in 2000 that specializes in opportunistic strategies in niche markets where the potential to exploit inefficiencies is greatest. RiverNorth is the manager to multiple registered and private funds.
Not FDIC Insured | May Lose Value | No Bank Guarantee
Marketing services provided by ALPS Distributors Inc. ALPS and RiverNorth are not affiliated.
RiverNorth® is a registered trademark of RiverNorth Capital Management, LLC.
©2000-2024 RiverNorth Capital Management, LLC. All rights reserved.
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RiverNorth CEF Investor Relations
800-646-0148, Option 1
CEF@rivernorth.com
Source: RiverNorth Capital and Income Fund, Inc.
FAQ
What is the purpose of RiverNorth Capital and Income Fund, Inc.'s (RSF) non-transferable rights offering?
When will the subscription period for the rights offering end?
What determines the subscription price per share of common stock in the offering?
Are stockholders exercising their Rights eligible for Q2 repurchase offers?
When will stockholders exercising their Rights be eligible for Q3 repurchase offers?
