Calamos Investments recently completed the first closed-end fund initial public offering (IPO) since November 2014, and it was a smashing success. The Calamos Dynamic Convertible and Income Fund raised $555 million by selling 22.2 million shares at $25 apiece. If the IPO’s underwriters exercise their option in full to purchase more shares, then the fund will have raised more than $638 million. And since the fund is expected to use approximately 28% leverage, the fund’s assets under management (AUM) may exceed $845 million.
First Convertible Fund Since 2007
Typical mutual funds are considered “open-end” funds, in that they are not limited in the number of shares that may issue, and they accept new investments and honor redemption requests on a daily basis. “Closed-end” funds, by contrast, issue all of their shares via IPO at their inception, and the shares then trade on an exchange like shares of stock.
The Calamos Dynamic Convertible and Income Fund began trading March 27 on the Nasdaq under the ticker symbol “CCD,” and is the first convertible securities fund to launch since 2007.
CCD is designed to offer total return through a combination of capital appreciation and current income, and it pursues these goals primarily by investing in convertible and income-producing securities, including high-yield bonds. The fund will also “opportunistically” write options on a portion of its securities, in order to generate income and “attempt to achieve a more favorable reward/risk profile.”
One unique aspect of CCD is that it has a planned termination date in the year 2030. The fund will terminate on its 15th anniversary unless its term is extended or eliminated by the fund’s board of trustees. The board can either extend the fund’s term by one year or eliminate the term altogether.
“With the launch of CCD, Calamos Investments continues its legacy of innovation and shareholder focus within the closed-end fund marketplace,” said Calamos CEO John P. Calamos in a statement from the company. “We are pleased to offer investors a product that draws upon the firm’s nearly four-decades of leadership in convertible securities in a way that is both innovative and timely.”
CCD plans to pay its first monthly distribution within 90 days of its IPO, and it will seek to provide “predictable, monthly distributions” thereafter. According to a March 27 press release, the fund will utilize a level distribution policy.
Wells Fargo Securities, Ameriprise Financial Services, BofA Merrill Lynch, and RBC Capital Markets were the lead underwriters of the new fund’s IPO. If these underwriters don’t exercise their options in full, Calamos and its affiliates will have an opportunity to buy an additional $20 million worth of its shares “under certain predetermined criteria for a limited period.”
For more information, visit the fund’s page at calamos.com.