SCHEDULE: abrdn Fund Receives Temporary Waiver on Key Financial Covenants from Toronto-Dominion Bank

abrdn National Municipal Income Fund has secured a temporary waiver from Toronto-Dominion Investments, Inc. regarding its asset coverage and effective leverage ratio requirements for its Muni-MultiMode Preferred Shares until October 15, 2025.

Summary

• The filing is Amendment No. 4 to a Schedule 13D, updating beneficial ownership information for Toronto-Dominion Investments, Inc., Toronto Dominion Holdings (U.S.A.), Inc., TD Group US Holdings LLC, and The Toronto-Dominion Bank (collectively, the "Reporting Persons") in abrdn National Municipal Income Fund.
• The amendment primarily discloses waivers granted by Toronto-Dominion Investments, Inc. to abrdn National Municipal Income Fund concerning the fund's obligations related to its Asset Coverage level and Effective Leverage Ratio.
• These waivers apply to Series 2049-2 (CUSIP No. 24610T702) and Series 2049-3 (CUSIP No. 24610T801) Muni-MultiMode Preferred Shares.
• The waiver period commenced on July 15, 2025, and will continue until October 15, 2025.
• The Reporting Persons collectively beneficially own 990.00 shares of the specified preferred share classes, representing 100% of the class.

Sentiment

Score: 3

Explanation: The sentiment is negative due to the necessity for abrdn National Municipal Income Fund to obtain waivers on critical financial covenants, indicating underlying financial stress or underperformance. While the waiver itself provides temporary relief, it highlights a concerning financial position for the fund.

Positives

• The granting of waivers by Toronto-Dominion Investments, Inc. provides abrdn National Municipal Income Fund with a temporary reprieve from immediate compliance with its Asset Coverage level and Effective Leverage Ratio requirements, potentially preventing a technical default or forced redemption of the preferred shares.

Negatives

• The necessity for abrdn National Municipal Income Fund to seek waivers on critical financial covenants (Asset Coverage level and Effective Leverage Ratio) indicates potential underlying financial stress or underperformance within the fund.
• Relaxing these covenants, even temporarily, suggests the fund is currently not meeting or is at risk of not meeting its financial obligations as defined in the preferred share agreements.

Risks

• The fund's inability to meet its Asset Coverage level and Effective Leverage Ratio requirements poses a significant risk to its financial stability and the value of its preferred shares.
• Failure to rectify the underlying issues leading to the waivers by October 15, 2025, could lead to further covenant breaches, potential defaults, or more drastic measures.
• The temporary nature of the waiver means the fund must improve its financial metrics within a short timeframe to avoid future issues.

Future Outlook

The waivers granted for the Asset Coverage level and Effective Leverage Ratio are temporary, extending only until October 15, 2025. This implies that abrdn National Municipal Income Fund is expected to address and resolve the underlying issues affecting these financial metrics by this date to regain compliance with its preferred share covenants.

Industry Context

This filing highlights challenges faced by a municipal income fund, specifically regarding its ability to maintain required asset coverage and leverage ratios. Such waivers are uncommon and typically signal financial strain within a fund, which can be a broader concern for the closed-end fund and municipal bond sectors if systemic. The involvement of a major financial institution like Toronto-Dominion Bank as a significant preferred shareholder underscores the importance of these covenants in structured finance products.

Corporate Governance

Legal Proceedings

• During the last five years, The Toronto-Dominion Bank and its affiliates, and to the best knowledge of The TD Entities none of the executive officers, directors, or controlling persons of the TD Entities, have been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or were a party to a civil proceeding of a judicial or administrative body of competent jurisdiction as a result of which such person was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws, or finding any violation with respect to such laws.

Stakeholder Impact

• Shareholders of abrdn National Municipal Income Fund, particularly holders of the Muni-MultiMode Preferred Shares, are directly impacted as the waivers indicate potential financial distress and a temporary relaxation of protective covenants.
• The Toronto-Dominion Bank, as the beneficial owner of 100% of the preferred shares, is directly involved in granting these waivers, reflecting its role as a key creditor/investor.

Next Steps

• abrdn National Municipal Income Fund is expected to take actions to improve its Asset Coverage level and Effective Leverage Ratio to comply with its preferred share covenants by October 15, 2025, when the current waiver period expires.

Key Dates

Recommendation

Keywords

SEC filing, Schedule 13D Amendment, abrdn National Municipal Income Fund, Muni-MultiMode Preferred Shares, MMP Shares, Toronto-Dominion Bank, financial covenant waiver, asset coverage, leverage ratio, beneficial ownership, preferred shares, investment fund