NUO shareholders reject Saba’s board nominees and its declassification proposal.

Saba Capital, the closed-ended fund activist hedge fund, has been targeting the Nuveen Ohio Quality Municipal Income Fund (NUO). The activist holds about 8.7% of the Fund and proposed to appoint its own nominees to Saba’s board of trustees.

It also sought to declassify NUO’s board of trustees.

Declassification is a strategy to force all the fund’s directors to seek re-election every year. As per normal procedure, the trustees retire on a staggered basis.

NUO

The primary objective of the Fund is current income exempt from both regular federal income taxes and Ohio personal income taxes. The secondary objective is the enhancement of portfolio value. The fund invests in municipal securities that are exempt from federal, Ohio state, and local income taxes. It invests at least 80% of its managed assets in securities rated, at the time of investment, investment-grade (Baa/BBB or better by S&P, Moody’s, or Fitch) or, if they are unrated, are judged by the manager to be of comparable quality. However, the fund may invest up to 20% of its managed assets in municipal securities rated below investment quality.  Upto 10% of its managed assets could be below B-/B3 or of comparable quality.

Moreover, the fund uses leverage.

However, NUO has consistently traded at a discount to its NAV, through the fund has a steady record of distributions. According to fund management, the fund NAV has appreciated by 20% since 1991, in addition to the distributions.

NUO shareholders hand Saba Capital a defeat

The fund announced December 16 that at its Annual Meeting of Shareholders held on December 5, 2019, the shareholders voted overwhelmingly to re-elect the Fund’s current trustees.

Shareholders also rejected nominees proposed by hedge fund Saba Capital and its affiliates. Further, they also rejected Saba’s proposal to declassify the Fund’s Board.

“In rejecting Saba’s declassification proposal, NUO shareholders affirmed our view that closed-end funds are fundamentally different from public operating companies,” said Terence J. Toth, Chair of the NUO Board of Trustees. “A classified board structure helps protect closed-end funds from disruptive attacks by activist investors seeking short-term benefits at the expense of a fund and its long-term shareholders.”

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