First Trust Senior Floating Rate 2022 Target Term Fund (the
"Fund") (NYSE: FIV) has decreased its regularly scheduled monthly
common share distribution to $0.0153 per share from $0.0178 per
share. The distribution will be payable on November 16, 2020, to
shareholders of record as of November 3, 2020. The ex-dividend date
is expected to be November 2, 2020. The monthly distribution
information for the Fund appears below.
First Trust Senior
Floating Rate 2022 Target Term Fund (FIV):
Distribution per share:
$0.0153
Distribution Rate based on the October 19,
2020 NAV of $9.17:
2.00%
Distribution Rate based on the October 19,
2020 closing market price of $8.57:
2.14%
Decrease from previous distribution of
$0.0178:
-14.04%
The majority, and possibly all, of this distribution will be
paid out of net investment income earned by the Fund. A portion of
this distribution may come from net short-term realized capital
gains or return of capital. The final determination of the source
and tax status of all distributions paid in 2020 will be made after
the end of 2020 and will be provided on Form 1099-DIV.
The Fund is a diversified, closed-end management investment
company. The Fund's investment objectives are to seek a high level
of current income and to return $9.85 per common share of
beneficial interest ("Common Share") of the Fund (the original net
asset value ("Original NAV") per Common Share before deducting
offering costs of $0.02 per Common Share) to the holders of Common
Shares on or about February 1, 2022 (the "Termination Date"). The
Fund, under normal market conditions, pursues its objectives by
primarily investing at least 80% of its Managed Assets in a
portfolio of senior secured floating-rate loans of any maturity.
"Managed Assets" means the total asset value of the Fund minus the
sum of its liabilities, other than the principal amount of
borrowings. There can be no assurance that the Fund's investment
objectives will be achieved.
As a result of the sharp and sudden economic shock resulting
from the unprecedented shut down of significant parts of the U.S.
economy in March due to the COVID-19 pandemic, the value of the
Fund's assets experienced a significant decline. Consequently, the
Fund was required to sell assets and pay down outstanding
indebtedness in order to remain in compliance with applicable
limitations on leverage imposed on the Fund by applicable law.
While the market for the Fund's assets has improved, sales of the
Fund's investments during the downturn had a negative impact on the
Fund's NAV. In addition, due to the Federal Open Market Committee
lowering the Federal Funds target rate to 0%-.25% from 1.50% -
1.75% in March 2020, LIBOR rates declined significantly which
reduced the income earning potential of the Fund and its ability to
increase NAV through withholding Fund income. As a result, based on
current market conditions and expectations, the Fund believes that
it is unlikely to achieve its objective of returning $9.85 per
Common Share upon its termination. The ultimate NAV of the Fund
that will be returned to shareholders upon termination of the Fund
will be dependent on a number of factors including, but not limited
to, the severity of the economic contraction, the level of income
earned in the portfolio, default losses experienced in the
portfolio, trading losses in the portfolio and the use of leverage.
As indicated above, the recent decline in interest rates, with
3-month LIBOR falling to 0.23% as of September 30, 2020 from 1.45%
as of March 31, 2020, has reduced the income generated by the
portfolio. Moreover, the portfolio management team anticipates
actively reducing the Fund's leverage and shifting the portfolio
composition to shorter dated higher quality holdings as the Fund
approaches its termination date. As a result of these actions,
investors should anticipate periodic reductions in the Fund's
distribution per share going forward.
First Trust Advisors L.P. ("FTA") is a federally registered
investment advisor and serves as the Fund's investment advisor. FTA
and its affiliate First Trust Portfolios L.P. ("FTP"), a FINRA
registered broker-dealer, are privately-held companies that provide
a variety of investment services. FTA has collective assets under
management or supervision of approximately $149 billion as of
September 30, 2020 through unit investment trusts, exchange-traded
funds, closed-end funds, mutual funds and separate managed
accounts. FTA is the supervisor of the First Trust unit investment
trusts, while FTP is the sponsor. FTP is also a distributor of
mutual fund shares and exchange-traded fund creation units. FTA and
FTP are based in Wheaton, Illinois.
Past performance is no assurance of future results. Investment
return and market value of an investment in the Fund will
fluctuate. Shares, when sold, may be worth more or less than their
original cost. There can be no assurance that the Fund’s investment
objectives will be achieved. The Fund may not be appropriate for
all investors.
Principal Risk Factors: Securities held by a fund, as well as
shares of a fund itself, are subject to market fluctuations caused
by factors such as general economic conditions, political events,
regulatory or market developments, changes in interest rates and
perceived trends in securities prices. Shares of a fund could
decline in value or underperform other investments as a result of
the risk of loss associated with these market fluctuations. In
addition, local, regional or global events such as war, acts of
terrorism, spread of infectious diseases or other public health
issues, recessions, or other events could have a significant
negative impact on a fund and its investments. Such events may
affect certain geographic regions, countries, sectors and
industries more significantly than others. The outbreak of the
respiratory disease designated as COVID-19 in December 2019 has
caused significant volatility and declines in global financial
markets, which have caused losses for investors. The COVID-19
pandemic may last for an extended period of time and will continue
to impact the economy for the foreseeable future.
The Fund will typically invest in senior loans rated below
investment grade, which are commonly referred to as "junk" or
"high-yield" securities and considered speculative because of the
credit risk of their issuers. Such issuers are more likely than
investment grade issuers to default on their payments of interest
and principal owed to the Fund, and such defaults could reduce the
Fund's NAV and income distributions. An economic downturn would
generally lead to a higher non-payment rate, and a senior loan may
lose significant market value before a default occurs. Moreover,
any specific collateral used to secure a senior loan may decline in
value or become illiquid, which would adversely affect the senior
loan's value.
The senior loan market has seen an increase in loans with weaker
lender protections which may impact recovery values and/or trading
levels in the future. The absence of financial maintenance
covenants in a loan agreement generally means that the lender may
not be able to declare a default if financial performance
deteriorates. This may hinder the Fund's ability to reprice credit
risk associated with a particular borrower and reduce the Fund's
ability to restructure a problematic loan and mitigate potential
loss. As a result, the Fund's exposure to losses on investments in
senior loans may be increased, especially during a downturn in the
credit cycle or changes in market or economic conditions.
In the event a borrower fails to pay scheduled interest or
principal payments on a senior loan held by the Fund, the Fund will
experience a reduction in its income and a decline in the value of
the senior loan, which will likely reduce dividends and lead to a
decline in the net asset value of the Fund's common shares. If the
Fund acquires a senior loan from another lender, for example, by
acquiring a participation, the Fund may also be subject to credit
risks with respect to that lender. Although senior loans may be
secured by specific collateral, the value of the collateral may not
equal the Fund's investment when the senior loan is acquired or may
decline below the principal amount of the senior loan subsequent to
the Fund's investment. Also, to the extent that collateral consists
of stock of the borrower or its subsidiaries or affiliates, the
Fund bears the risk that the stock may decline in value, be
relatively illiquid, and/or may lose all or substantially all of
its value, causing the senior loan to be under collateralized.
Therefore, the liquidation of the collateral underlying a senior
loan may not satisfy the issuer's obligation to the Fund in the
event of non-payment of scheduled interest or principal, and the
collateral may not be readily liquidated.
Many financial instruments use or may use a floating rate based
upon the London Interbank Offered Rate (LIBOR), which is being
phased out by the end of 2021. There remains some uncertainty
regarding the future utilization of LIBOR and the nature of any
replacement rate.
The Fund's limited term may cause it to invest in lower-yielding
securities or hold the proceeds of securities sold near the end of
its term in cash or cash equivalents, which may adversely affect
the performance of the Fund or the Fund's ability to maintain its
dividend.
A second lien loan may have a claim on the same collateral pool
as the first lien or it may be secured by a separate set of assets.
Second lien loans are typically secured by a second priority
security interest or lien on specified collateral securing the
Borrower's obligation under the interest. Because second lien loans
are second to first lien loans, they present a greater degree of
investment risk. Specifically, these loans are subject to the
additional risk that the cash flow of the Borrower and property
securing the loan may be insufficient to meet scheduled payments
after giving effect to those loans with a higher priority. In
addition, loans that have a lower than first lien priority on
collateral of the Borrower generally have greater price volatility
than those loans with a higher priority and may be less liquid.
Because the assets of the Fund will be liquidated in connection
with its termination, the Fund may be required to sell portfolio
securities when it otherwise would not, including at times when
market conditions are not favorable, or at a time when a particular
security is in default or bankruptcy, or otherwise in severe
distress, which may cause the Fund to lose money. Although the Fund
has an investment objective of returning Original NAV to Common
Shareholders on or about the Termination Date, the Fund may not be
successful in achieving this objective. The return of Original NAV
is not an express or implied guarantee obligation of the Fund.
There can be no assurance that the Fund will be able to return
Original NAV to Common Shareholders, and such return is not backed
or otherwise guaranteed by the Advisor or any other entity.
The Fund's portfolio is also subject to credit risk, interest
rate risk, liquidity risk and prepayment risk. Interest rate risk
is the risk that fixed-income securities will decline in value
because of changes in market interest rates. Credit risk is the
risk that an issuer of a security will be unable or unwilling to
make dividend, interest and/or principal payments when due and that
the value of a security may decline as a result. Credit risk may be
heightened for the Fund because it invests in below investment
grade securities. Liquidity risk is the risk that the fund may have
difficulty disposing of senior loans if it seeks to repay debt, pay
dividends or expenses, or take advantage of a new investment
opportunity. Prepayment risk is the risk that, upon a prepayment,
the actual outstanding debt on which the Fund derives interest
income will be reduced. The Fund may not be able to reinvest the
proceeds received on terms as favorable as the prepaid loan.
The risks of investing in the Fund are spelled out in the
shareholder reports and other regulatory filings.
The information presented is not intended to constitute an
investment recommendation for, or advice to, any specific person.
By providing this information, First Trust is not undertaking to
give advice in any fiduciary capacity within the meaning of ERISA,
the Internal Revenue Code or any other regulatory framework.
Financial professionals are responsible for evaluating investment
risks independently and for exercising independent judgment in
determining whether investments are appropriate for their
clients.
The Fund's daily closing New York Stock Exchange price and net
asset value per share as well as other information can be found at
www.ftportfolios.com or by calling 1-800-988-5891.
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version on businesswire.com: https://www.businesswire.com/news/home/20201020006243/en/
Press Inquiries Jane Doyle 630-765-8775 Analyst Inquiries Jeff
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630-915-6784
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