Terms

Series

5.375% Series A Cumulative Preferred Shares

Liquidation Preference

$25.00

Coupon Rate

5.375%

Rate Type

Fixed

Annual Dividend

$1.34

Payment Frequency

Quarterly

Cumulative

Yes

Perpetual

Yes

Convertible

No

Callable

Yes

First Call Date

September 30, 2024

First Call Price

$25.00

Redemption Notice Period

30 days

Capital Stack Ranking

Junior To: All Indebtedness And Senior Securities Representing Debt Of The Trust; Pari Passu With: Any Other Series Of Preferred Shares Issued By The Trust; Senior To: Common Shares Of Highland Income Fund

Regulatory (Basel III) Call

Yes

Tax Classification

Other

Qualifies for QDI

No

Qualifies for DRD

No

Shares Offered

5,400,000

Prospectus Summary

Highland Income Fund (NYSE: HFRO), a non-diversified closed-end management investment company, is offering 5,400,000 shares of its 5.375% Series A Cumulative Preferred Shares at a $25.00 liquidation preference, with an optional call date of September 30, 2024 at par plus accrued dividends. Dividends accrue at a fixed annual rate of 5.375% ($1.34375 per share annually, or ~$0.3359 per quarter), paid on March 31, June 30, September 30, and December 31. These shares are cumulative, meaning any skipped dividends accumulate and must be paid in full before any distribution can be made to common shareholders. The Series A Preferred Shares sit above the Trust's common shares in the capital stack but are junior to all debt obligations of the Trust, including its $350 million revolving credit facility. Unlike a bank holding company structure, this is a direct closed-end fund obligation — but subordination to debt is explicit and meaningful: the Trust's obligation to pay preferred dividends is expressly subordinate to interest and principal on senior debt. There is a regulatory/RIC call provision: the Trust may redeem the preferred at any time prior to the first call date if the Board determines it is necessary to preserve the Trust's regulated investment company tax status. Additionally, mandatory redemptions can be triggered if the Trust's 1940 Act asset coverage falls below 200% and is not cured within 49 days. At the $25.00 offering price, the Series A Preferred Shares yield 5.375%. Because the issuer is a RIC (not a C-corporation), dividends are unlikely to qualify for the 15%/20% QDI preferential rate or the corporate dividends-received deduction; distributions may include ordinary income and capital gain components allocated proportionally among share classes. Record dates fall on the fifth preceding business day before each quarterly payment date. Dividends on common shares are blocked if cumulative preferred dividends are in arrears; preferred dividends are themselves blocked if the Trust's debt-level asset coverage falls below 300% (with an exception permitting preferred dividends if indebtedness coverage is at least 200% at declaration).

Summarized from the SEC prospectus filing.

Distribution History

Ranking vs. Other Preferreds

Dividend Stopper Provisions

Dividend Stopper Description

If cumulative dividends on the Series A Preferred Shares are not current, the Trust is blocked from paying dividends on its common shares; conversely, the Trust's own debt service obligations take priority over preferred dividends, meaning a breach of debt-level asset coverage tests could block preferred distributions as well.

Div Score Breakdown

Reinvesty's multi-factor safety analysis for this preferred, composite score: 52 (Average)