BlackRock, Inc. (NYSE: BLK) is launching a new fund that is designed to essentially be a vulture in fixed income securities.  This is is technically a distressed fund being created to take advantage of the high return possibilities that have been created by the discourse and malaise of the capital and credit markets.  This also has somewhat of a limited life as a trust rather than as an indefinite closed-end or open-ended fund.  The fund raising period for the BlackRock Fixed Income Value Opportunities should be closing today if no changes were made under the prospectus or offering information.

This closed-end management investment company is an opportunistic, diversified portfolio seeking to capitalize primarily on pricing inefficiencies in deeply discounted corporate and mortgage credit securities.

The fund is not open to anyone or everyone as investors are required to have at least $1.5 million in net worth.  One of the reasons for this is that no liquid market will exist for the fund’s shares and the fund may not offer any liquidity before December 31, 2014.  It states specifically that shareholders will not have the right to cause the Fund to redeem their common shares.  The initial net asset value per share is $1,000.00 and there is also a 25 share minimum to buy in.

There is a chance that certain return of capital may occur after the first two years.  Beginning in 2011, the fund may choose to conduct annual tender offers for up to 25% of its common shares outstanding.  But that is in the sole discretion of its board of trustees.

The primary objective here is high current income, with a secondary objective of capital
appreciation. The BlackRock Fixed Income Value Opportunities will plan for a diversified portfolio, focusing initially on the large waves of forced selling and the liquidity constraints that have impacted the mortgage and credit markets.  It also intends to invest at least 80% of its assets in any combination of mortgage-related securities, asset-backed securities, US government and agency securities, senior secured floating rate and fixed rate loans, second lien or other subordinated or unsecured floating rate and fixed rate loans or deb, and credit securities that under investment grade (junk bonds).  The fund may also invest up to 20% of its assets in other securities which include common stock, convertible securities, warrants and depository receipts.

The trust does not currently anticipate using any leverage, but there are allownaces for leverage if deemed appropriate.  It is authorized to borrow money in amounts of up to 33 1⁄3% of the value of its total assets.

The total annual expense is listed as 2.00%, with 1.25% of that being management fees.  There is a sales load of 2.5% for amounts up to $149,999, which then drops to 1.75% for amounts of $150,000 to $499,999, then 1% for amounts of $500,000 to $999,999, and no load for amounts of $1 million or greater.

It is great to see that reputable firms are still willing to go create distressed or vulture funds.  There is a belief that there will be many opportunities created from the forced selling and liquidation which will occur in the coming months and years.  You just never know if the first waves of these will be all-risk or all-reward in nature.  Until true market values are set this is an issue that is still open for debate.

Jon C. Ogg
February 24, 2009

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