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Third Avenue cancels plans to put assets in liquidating trust

BBG headline

The interesting sub-plot to Third Avenue's shutdown is how they've tried to avoid liquidating assets.

It's an open ended trust so by law investors should be able to get their money back. They asked the SEC to transfer the junk bonds to a liquidating trust while giving investors shares in the trust as redemptions.

The SEC refused but they went and did it anyway. It would have been a precedent-setting move.

Here's how the WSJ explained it.

Third Avenue used an unusual legal strategy to effectively halt redemptions without obtaining an order of authorization from the U.S. Securities and Exchange Commission, a person familiar with the matter said. The firm paid out all redemption requests through Dec. 8, the night before it closed the fund, then transferred all of its investments to a liquidating trust, which issued interests to be distributed to shareholders in the now-defunct fund.Third Avenue argued that the distribution of the shares in the trust would count as a full redemption, meaning the fund wouldn't legally have halted distributions, the person familiar with the matter said. Shareholders in the trust will have no redemption rights and will be repaid as-and-when Third Avenue decides to sell assets in the trust.The firm presented the strategy to the SEC hours before announcing it publicly and didn't obtain the regulator's approval, the person said.

In any case, they've backed down.

Update: ...or not.

The full statement is up now and it says they have an exemptive order from the SEC that says they don't have to liquidate.

So it actually looks like the SEC backed down.

"As a result of the exemptive order, redemptions are suspended for all shareholders, and as with the previous Liquidating Trust structure, the Adviser will be able to conduct an orderly liquidation without having to resort to forced selling of securities at reduced or disadvantaged prices."

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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