Saba Capital C E F Opportunities 1 v. Voya

Saba Capital C E F Opportunities 1 v. Voya

Opinion

MINUTE ENTRY

Pending before the Court is Plaintiff Saba Capital CEF Opportunities 1 Ltd.'s ("Saba") Application for Preliminary Injunction, filed on May 1, 2020 ("Application"). By Minute Entry dated May 19, 2020 (subsequently amended), the Court set the Application for an evidentiary hearing on June 18, 2020. On May 20, 2020, Defendants Voya Prime Rate Trust (the "Trust"), Voya Investments, LLC ("Voya"), Colleen D. Baldwin, John V. Boyer, Patricia W. Chadwick, Martin J. Gavin, Joseph E. Obermeyer, Sheryl K. Pressler, and Christopher P. Sullivan (the "Independent Trustees"), and Dina Santoro (the "Interested Trustee") filed a Joint Opposition to Plaintiff's Application for Preliminary Injunction. On June 1, 2020, Saba filed a Reply in Support of Plaintiff's Application for Preliminary Injunction.

The parties appeared by videoconference on June 18, 2020 and presented evidence. At the conclusion of the hearing, the Court took the matter under advisement. Having now considered the entire record, and the arguments of counsel, and for the reasons set forth herein, the Court enters its ruling granting the Application. [*2] ¹

Factual History

The foundational facts underlying the present dispute, while somewhat complicated, are not difficult to parse, and the Court adopts portions of Defendants' background statement set forth in their Joint Opposition as conforming generally to the evidence presented at hearing:

The Trust is a closed-end investment company that focuses on a high level of current income consistent with preserving capital for its shareholders by investing primarily in secured senior loans. Investors in closed-end funds tend to be long-term shareholders who desire a steady, income-like return, such as retirees. Like all registered investment companies, closed-end funds are a product of state law and federal regulation, organized under the law of a given state while also subject to the extensive requirements of the Investment Company Act of 1940 (the "ICA") [15 U.S.C. §§ 80a-1 et seq.] The Trust is organized as a business trust under the laws of Massachusetts, with its principal place of business in Scottsdale, Arizona. The Trust's loan portfolio and day-to-day operations are managed by its investment adviser, defendant Voya, an Arizona company headquartered in Scottsdale. As required by the ICA, the Trust is governed by a board of trustees [(the "Board")]. Here, [*3]  seven of the Board's eight members, or more than 87% of the trustees, are independent (the "Independent Trustees") and not affiliated with Voya . . . . The eighth Trustee is defendant Dina Santoro (collectively with the Independent Trustees, the "Trustees"), who also serves as President of Voya. Ms. Santoro is considered an "interested" trustee because she is also an employee of Voya.

In an open-end investment company, commonly known as a mutual fund, investors purchase and redeem shares of the fund in transactions directly with the fund itself, at a price equal to the fund's net asset value ("NAV") - essentially the per-share value of the fund's portfolio holdings minus expenses. By contrast, shares of closed-end funds like the Trust are issued in discrete public offerings and then trade among investors on the secondary market. The Trust's shares trade on the New York Stock Exchange. While the Trust publishes its NAV each day (like an open-end fund), its share price does not necessarily trade at the NAV (unlike the price of an open-end fund) - because the trading price on the Exchange is affected by forces of market supply and demand. Unlike mutual funds, closed-end funds do not have [*4]  to meet daily shareholder redemptions, and can thus establish a fixed asset base of longer-term investments with the use of leverage that can frequently provide greater returns than open-end funds, which need to maintain greater liquidity and have more limited ability to use leverage.

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