(Bloomberg) -- The municipal-bond market’s largest high-yield fund is poised to offload its biggest position — equity shares of a power company called Vistra Vision LLC.
Nuveen LLC has reached an agreement to sell its 11% stake in Vistra Vision to Vistra Corp., in a deal expected to close in December, according to statement late Wednesday. The transaction will total about $3.25 billion, including a share from Avenue Capital Management.
After the sale is completed, Texas-based Vistra will become the sole owner of its subsidiary Vistra Vision and Nuveen will receive payments it can reinvest into its municipal-bond funds. Vistra is a developer and owner of power plants and the best performing stock in the S&P 500 Index this year.
Nuveen’s muni funds had received the unusual equity holdings after Vistra Vision’s predecessor, FirstEnergy Solutions, cut its debts in bankruptcy years ago. The power company made up 8.4% of Nuveen’s $16.5 billion high-yield municipal bond fund as of Aug. 31, according to holdings information listed on the firm’s website.
“We want to generate tax-exempt income for the funds and this position doesn’t do that,” said Dan Close, the head of municipal investments at Nuveen. “This has been a fantastic driver of total returns, but it’s time to move on and use the expertise of our muni team to find a new set of opportunities.”
High-yield municipal bonds have seen a 7.5% return so far this year, outperforming the broader municipal market by more than 5 percentage points and beating most other fixed-income asset classes, according to data compiled by Bloomberg.
“This is part of a broader initiative to diversify previously concentrated positions,” Close said. He reiterated the group is continues to have a “willingness to take on key conviction trades.”
--With assistance from Martin Z. Braun.
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