High-yield/macroeconomics (fka YIELD)

[Democritus_of_Abdera]

VTA – A loan participation fund...

I have decided to initiate a position in VTA (Van Kampen Dynamic Credit Opportunities). It is a closed end fund with close to a 5% discount to net asset value. At a current price of about $15.25 and a monthly distribution of $0.145/share it yields about 11% (fully taxable as ordinary income, unfortunately).

I believe that the loan participation market has stabilized and that now is a good time to start a position. Time will tell if I have guessed right. VTA is large enough to have good liquidity for the volumes that I will be buying and selling. Net assets are about $1,250M.

I have chosen VTA from the available loan participation funds largely because it is a new fund (established on 6/26/07) and I suspect that they have been able to purchase senior loans that others were forced to sell in the recent buyer’s market. Note that this logic should not be carried too far. In fact, they had deployed about $900M prior to July 31, 2007 (when the market was still strong); another $700M between July and Oct 2007, when discounts were not as serious as they are now; and then a final $150M between Oct 2007 and Jan 2008. At the end of January they had about $40M left to deploy and stay below the maximum 33% leverage allowable with borrowed funds (to my knowledge they have not issued preferred stock which would allow them to go to 50% leverage). These numbers have been obtained from their quarterly schedules of portfolio holdings.

Background

For those interested in a quick snapshot of VTA statistics, I recommend: http://www.etfconnect.com/select/fundpages/other.asp?MFID=178941

A list of similar loan participation funds can be obtained at: http://www.closed-endfunds.com/FundSelector/Classifications.fs#ClassDetailResults (Then going to the "Loan Participation Funds" hyperlink in the list.)

The VTA prospectus (Form 497,filed June 26, 2007; CIK 0001393662) can be obtained at: http://www.sec.gov/Archives/edgar/data/1393662/000095013707009322/c13889fe497.txt