John Hancock Completes Distribution of $1.8 Billion to Shareholders
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John Hancock Completes Distribution of $1.8 Billion to Shareholders of All Outstanding Preferred Shares of Closed-End Funds
Final set of redemption checks mailed today
John Hancock Funds today mailed the final set of redemption checks to shareholders of outstanding preferred shares issued by its seven closed-end funds. Specifically, checks were mailed for the John Hancock Patriot Premium Dividend II (PDT), series B, with a total of 500 shares outstanding.
Each John Hancock fund has been able to redeem 100 percent of its outstanding Auction Rate Preferred Securities (ARPS), distributing $1.8 billion to preferred shareholders. As previously announced, each fund is replacing the ARPS with debt leverage.
Redemptions of John Hancock ARPS began in May and continued through the month of June.
“Restoring liquidity to shareholders of our auction rate preferred securities has been our goal ever since the industry-wide auction failures began on February 13th,” said Keith F. Hartstein, President & CEO of John Hancock Funds. “We are grateful for the efforts of dozens of people, including our fund board and management at John Hancock and our parent company Manulife Financial, who worked diligently to find a solution consistent with the interests of both our common and preferred shareholders.”
“Although we take great pride in the fact that John Hancock Funds is the largest issuer of closed-end funds to completely resolve its ARPS situation, we also want to counsel investors and financial advisors that our situation was very unique,” Mr. Hartstein said. “There were two key factors that made the board’s decisions possible. The first was our belief that the auction rate process is broken and is unlikely ever to be restored. As a result, funds are likely to continue paying max cap rates on their ARPS, plus other related expenses, for the foreseeable future.”
He continued: “The second key factor is that each of our funds had existing coverage ratios of just less than 300 percent. That is well above the required 200 percent for preferred leverage and within manageable reach of the 300 percent required for debt leverage under the Investment Company Act of 1940. Had the funds’ coverage ratios been below 250 to 260 percent, refinancing with debt would not have been an option at all, as it would have resulted in a significant reduction of investment income to the funds. Thus, because of the existing high coverage ratios, replacing the preferred financing with bank debt required only modest de-leveraging.”
On May 7, John Hancock Funds announced the refinancing of five leveraged closed-end taxable equity funds, and the redemption of approximately $1.6 billion of outstanding preferred shares issued by those funds: Tax-Advantaged Dividend Income (HTD), Preferred Income (HPI), Preferred Income II (HPF), Preferred Income III (HPS), and Patriot Premium Dividend II (PDT). On May 20, John Hancock Funds announced the refinancing of $86 million of ARPS issued by John Hancock Investors Trust (JHI), a leveraged closed-end bond fund. On June 6, John Hancock Funds announced that it had refinanced $89 million of ARPS issued by the John Hancock Income Securities Trust (JHS), a leveraged closed-end bond fund.
In each case, a senior secured credit facility provided by a commercial bank was used to redeem and replace 100 percent of the ARPS, and to change the form of leverage from ARPS to debt.
Source: John Hancock Funds
