SCHEDULE: TD Bank Amends Muni Fund Fee Agreements

Toronto-Dominion Bank has amended fee agreements for several BlackRock MuniYield Quality Funds, introducing temporary waivers on leverage and asset coverage ratios.

Summary

• This filing is an amendment (Amendment No. 1) to a Schedule 13D, originally filed on July 5, 2022, concerning Series W-7 Variable Rate Demand Preferred Shares (VRDP Shares) of BLACKROCK MUNIYIELD MICHIGAN QUALITY FUND, INC.
• The amendment relates to an update of the fee agreement, originally dated June 16, 2020, which has been amended by an Omnibus Amendment to Fee Agreements dated October 23, 2026.
• The reporting persons are Toronto Dominion Investments, Inc., Toronto Dominion Holdings (U.S.A.), Inc., TD Group US Holdings LLC, and The Toronto-Dominion Bank.
• These entities collectively beneficially own 2,319.00 shares, representing 100% of the class of securities.
• The Omnibus Amendment introduces temporary waivers for the period from November 5, 2026, through January 31, 2027, which may be extended.
• These waivers include a temporary increase in the allowable Effective Leverage Ratio (ELR) to 48% and a waiver for maintaining a Minimum VRDP Shares Asset Coverage of 208% for specific BlackRock funds.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this as a neutral to slightly negative filing, primarily due to the temporary waivers on leverage and asset coverage ratios, indicating potential underlying financial strain or a need for flexibility.

Positives

• The amendment ensures continued operational flexibility for the affected BlackRock MuniYield Quality Funds by temporarily adjusting leverage and asset coverage requirements.
• The fee agreements are being updated, indicating ongoing engagement and management of the relationship between TD Bank and the funds.

Negatives

• The need for waivers on Leverage Ratio (ELR) and Minimum VRDP Shares Asset Coverage suggests that the funds may be operating close to or exceeding their standard financial covenants.
• The temporary nature of these waivers (until January 31, 2027, with potential extensions) implies that the underlying issues causing these waivers may persist.
• The filing indicates that if the Minimum VRDP Shares Asset Coverage is not met, the funds must commence redemption of VRDP Shares, which could impact liquidity and shareholder value.

Risks

• Failure to cure the Effective Leverage Ratio or Minimum VRDP Shares Asset Coverage within the specified periods could lead to mandatory redemptions of VRDP Shares.
• The reliance on waivers suggests potential financial stress or market conditions impacting the funds' ability to meet standard financial covenants.
• The extension of these waivers is subject to mutual written consent, introducing uncertainty regarding the duration of the relief.

Future Outlook

The filing indicates a temporary adjustment period for leverage and asset coverage ratios for specific BlackRock MuniYield funds, lasting from November 5, 2026, through January 31, 2027, with the possibility of extension. Upon expiration, the original terms of the fee agreements will be reinstated.

Management Comments

• The parties agree that solely for the period from and including November 5, 2026 and through and including January 31, 2027, as such period may be extended by the mutual written consent by each Fund and the Liquidity Provider (the ELR Waiver Effective Period), Section 6.18 of each Agreement listed on Schedule B hereto, is hereby amended by deleting the paragraph therein and replacing in its stead the following: SECTION 6.18. Leverage Ratio. Unless the Fund receives the prior written consent of the Liquidity Provider, the Funds Effective Leverage Ratio shall not exceed 48%; provided, however in the event that the Fund's Effective Leverage Ratio exceeds 48% as of the close of business on any Business Day, the Fund shall cause its Effective Leverage Ratio to be 48% or lower within fifteen (15) Business Days (Effective Leverage Ratio Cure Period).
• The parties agree that during the Minimum VRDP Shares Asset Coverage Waiver Effective Period, Section 6.23 of Agreement number 4 listed on Schedule B hereto, which relates to BlackRock MuniYield Quality Fund, Inc. (MQY) is hereby amended by deleting the paragraph therein and replacing in its stead the following: SECTION 6.23. Maintenance of Minimum VRDP Shares Asset Coverage. The Fund shall maintain Minimum VRDP Shares Asset Coverage of 208% or, if it does not cure a failure to maintain the Minimum VRDP Shares Asset Coverage by the Minimum VRDP Shares Asset Coverage Cure Date, the Fund shall immediately commence a redemption of VRDP Shares...

Industry Context

StockSavvy.ai notes that amendments to fee agreements and waivers of financial covenants are not uncommon in the fixed-income fund space, particularly during periods of market volatility or when specific funds approach regulatory or contractual limits. This filing reflects a proactive measure by TD Bank and the BlackRock funds to manage potential covenant breaches and ensure continued operations.

Comparison to Industry Standards

• The standard Leverage Ratio (ELR) for similar variable rate demand preferred share facilities often ranges from 100% to 150% of net assets, making the temporary waiver to 48% for the ELR a significant deviation.
• Minimum VRDP Shares Asset Coverage requirements typically aim for a buffer, with 208% being a common benchmark. The need for a waiver suggests that some funds may be struggling to maintain this level, which is a concern.
• Competitors in the municipal bond fund sector, such as PIMCO or Nuveen, may face similar pressures, but the specific details of their covenant structures and waivers would need to be examined on a case-by-case basis.

Stakeholder Impact

• Shareholders of the affected BlackRock MuniYield Quality Funds may experience increased risk due to the temporary relaxation of leverage and asset coverage requirements, potentially leading to higher volatility or, in the worst case, forced redemptions.
• Creditors and counterparties to TD Bank and the funds are impacted by the temporary adjustments to financial covenants, which alter the risk profile of their agreements.

Next Steps

• The affected BlackRock MuniYield Quality Funds must ensure their Effective Leverage Ratio is at or below 48% within fifteen (15) Business Days if it exceeds this level during the waiver period.
• The funds must also maintain Minimum VRDP Shares Asset Coverage of 208% or commence redemption of VRDP Shares if the cure date is missed.
• The waivers are in effect until January 31, 2027, and may be extended by mutual written consent.
• Upon expiration of the waiver periods, the original terms of the fee agreements will be reinstated.

Key Dates

Recommendation

The filing indicates a temporary adjustment to financial covenants for specific municipal bond funds, which introduces some uncertainty and potential risk. While not a severe negative, the need for waivers suggests the funds are operating under pressure. A 'hold' recommendation reflects a cautious approach, awaiting further clarity on the sustainability of the funds' financial health beyond the waiver period.

Keywords

VRDP Shares, Fee Agreement Amendment, Leverage Ratio Waiver, Asset Coverage Waiver, Municipal Bond Fund, Toronto-Dominion Bank, BlackRock MuniYield