UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D/A
Under the Securities Exchange Act of 1934
(Amendment No. 21)*
BlackRock ESG Capital Allocation Term Trust
(Name of Issuer)
Common Shares, $0.001 par value
(Title of Class of Securities)
09262F100
(CUSIP Number)
Saba Capital Management, L.P.
405 Lexington Avenue
58th Floor
New York, NY 10174
Attention: Michael D'Angelo
(212) 542-4635
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
March 6, 2024
(Date of Event Which Requires Filing of This Statement)
If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), Rule 13d-1(f) or Rule 13d-1(g), check the following box. [ ]
(Page 1 of 8 Pages)
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* The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).
| CUSIP No. 09262F100 | SCHEDULE 13D/A | Page 2 of 8 Pages |
| 1 | NAME OF REPORTING PERSON Saba Capital Management, L.P. |
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| 2 | CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP |
(a) ☐ (b) ☐ |
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| 3 | SEC USE ONLY |
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| 4 | SOURCE OF FUNDS OO (see Item 3) |
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| 5 | CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDING IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) |
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| 6 | CITIZENSHIP OR PLACE OF ORGANIZATION Delaware |
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| NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH: |
7 | SOLE VOTING POWER -0- |
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| 8 | SHARED VOTING POWER 27,559,755 |
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| 9 | SOLE DISPOSITIVE POWER -0- |
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| 10 | SHARED DISPOSITIVE POWER 27,559,755 |
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| 11 | AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH PERSON 27,559,755 |
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| 12 | CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES | ☐ | |
| 13 | PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 27.05% |
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| 14 | TYPE OF REPORTING PERSON PN; IA |
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The percentages used herein are calculated based upon 101,893,121 shares of common stock outstanding as of 12/31/23, as disclosed in the company's N-CSR filed 3/6/24
| CUSIP No. 09262F100 | SCHEDULE 13D/A | Page 3 of 8 Pages |
| 1 | NAME OF REPORTING PERSON Boaz R. Weinstein |
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| 2 | CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP |
(a) ☐ (b) ☐ |
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| 3 | SEC USE ONLY |
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| 4 | SOURCE OF FUNDS OO (see Item 3) |
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| 5 | CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDING IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) |
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| 6 | CITIZENSHIP OR PLACE OF ORGANIZATION United States |
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| NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH: |
7 | SOLE VOTING POWER -0- |
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| 8 | SHARED VOTING POWER 27,559,755 |
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| 9 | SOLE DISPOSITIVE POWER -0- |
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| 10 | SHARED DISPOSITIVE POWER 27,559,755 |
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| 11 | AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH PERSON 27,559,755 |
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| 12 | CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES | ☐ | |
| 13 | PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 27.05% |
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| 14 | TYPE OF REPORTING PERSON IN |
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The percentages used herein are calculated based upon 101,893,121 shares of common stock outstanding as of 12/31/23, as disclosed in the company's N-CSR filed 3/6/24
| CUSIP No. 09262F100 | SCHEDULE 13D/A | Page 4 of 8 Pages |
| 1 | NAME OF REPORTING PERSON Saba Capital Management GP, LLC |
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| 2 | CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP |
(a) ☐ (b) ☐ |
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| 3 | SEC USE ONLY |
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| 4 | SOURCE OF FUNDS OO (see Item 3) |
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| 5 | CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDING IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) |
☐ | |
| 6 | CITIZENSHIP OR PLACE OF ORGANIZATION Delaware |
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| NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH: |
7 | SOLE VOTING POWER -0- |
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| 8 | SHARED VOTING POWER 27,559,755 |
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| 9 | SOLE DISPOSITIVE POWER -0- |
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| 10 | SHARED DISPOSITIVE POWER 27,559,755 |
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| 11 | AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH PERSON 27,559,755 |
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| 12 | CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES | ☐ | |
| 13 | PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 27.05% |
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| 14 | TYPE OF REPORTING PERSON OO |
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The percentages used herein are calculated based upon 101,893,121 shares of common stock outstanding as of 12/31/23, as disclosed in the company's N-CSR filed 3/6/24
| CUSIP No. 09262F100 | SCHEDULE 13D/A | Page 5 of 8 Pages |
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Item 1. |
SECURITY AND ISSUER |
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This Amendment No. 21 amends and supplements the statement on Schedule 13D filed with the SEC on 11/1/22, as amended by Amendment No. 1 filed 12/12/22, Amendment No. 2 filed 3/9/23, Amendment No. 3 filed 3/16/23, Amendment No. 4 filed 3/24/23, Amendment No. 5 filed 4/26/23, Amendment No 6 filed 5/19/23, Amendment No. 7 filed 6/22/23, Amendment No. 8 filed 6/30/23, Amendment No. 9 filed 9/19/23, Amendment No.10 filed 10/6/23, Amendment No. 11 filed 10/19/23, Amendment No.12 filed 11/7/23, Amendment No.13 filed 11/17/23, Amendment No.14 filed 12/1/23, Amendment No.15 filed 12/11/23, Amendment No.16 filed 12/21/23, Amendment No. 17 filed 12/26/23, Amendment No. 18 filed 1/18/24, Amendment No. 19 filed 2/7/24 and Amendment No. 20 filed 2/20/24; with respect to the common shares of BlackRock ESG Capital Allocation Term Trust. This Amendment No. 21 amends Items 3, 4, 5 and 7 as set forth below. |
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Item 3. |
SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION |
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Funds for the purchase of the Common Shares were derived from the subscription proceeds from investors and the capital appreciation thereon and margin account borrowings made in the ordinary course of business. In such instances, the positions held in the margin accounts are pledged as collateral security for the repayment of debit balances in the account, which may exist from time to time. Since other securities are held in the margin accounts, it is not possible to determine the amounts, if any, of margin used to purchase the Common Shares reported herein. A total of approximately $415,051,633 was paid to acquire the Common Shares reported herein. |
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Item 4. |
PURPOSE OF TRANSACTION |
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Item 4 is hereby amended and supplemented as follows: On March 6, 2024, Saba Capital Master Fund, Ltd. filed a complaint (the "Complaint") in the United States District Court's Southern District of New York against the Issuer and each of the ten incumbent members of the Issuer's Board (the "Incumbents") - R. Glenn Hubbard, W. Carl Kester, Cynthia L. Egan, Frank J. Fabozzi, Lorenzo A. Flores, Stayce D. Harris, J. Phillip Holloman, Catherine A. Lynch, Robert Fairbairn, and John M. Perlowski - seeking rescission and to invalidate as unlawful under the Investment Company Act of 1940 the Issuer's bylaw provisions where, in an uncontested election in which the Incumbents run for election unopposed, the bylaw requires that the Incumbents garner only the vote of a plurality of the shares voted in the election, but in a contested election, a candidate must win the votes of a majority of all outstanding shares, which includes the shares represented by those who choose not to vote (the "Entrenchment Bylaw"). The foregoing summary of the Complaint does not purport to be complete and is qualified in its entirety by reference to the full text of the Complaint, a copy of which is attached as Exhibit 5 and is incorporated by reference herein. In connection with the Complaint, among other things, Saba Capital Management, L.P. released a press release, a copy of which is attached as Exhibit 7 and is incorporated by reference herein. |
| CUSIP No. 09262F100 | SCHEDULE 13D/A | Page 6 of 8 Pages |
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Item 5. |
INTEREST IN SECURITIES OF THE ISSUER |
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(a) |
See rows (11) and (13) of the cover pages to this Schedule 13D/A for the aggregate number of Common Shares and percentages of the Common Shares beneficially owned by each of the Reporting Persons. The percentages used herein are calculated based upon 101,893,121 shares of common stock outstanding as of 12/31/23, as disclosed in the company's N-CSR filed 3/6/24. |
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(b) |
See rows (7) through (10) of the cover pages to this Schedule 13D/A for the number of Common Shares as to which each Reporting Person has the sole or shared power to vote or direct the vote and sole or shared power to dispose or to direct the disposition. |
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(c) |
The transactions in the Common Shares effected since the Schedule 13D/A filing on 2/20/24 by the Reporting Persons, which were all in the open market, are set forth in Schedule A, and are incorporated herein by reference. |
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(d) |
The funds and accounts advised by Saba Capital have the right to receive the dividends from and proceeds of sales from the Common Shares. |
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(e) |
Not applicable. |
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| Item 7. | MATERIAL TO BE FILED AS EXHIBITS | ||
| Exhibit 5: | Complaint | ||
| Exhibit 7: | Press Release |
| CUSIP No. 09262F100 | SCHEDULE 13D/A | Page 7 of 8 Pages |
SIGNATURES
After reasonable inquiry and to the best of his or its knowledge and belief, each of the undersigned certifies that the information set forth in this statement is true, complete and correct.
Date: March 8, 2024
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SABA CAPITAL MANAGEMENT, L.P. By: /s/ Michael D'Angelo |
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Name: Michael D'Angelo Title: Chief Compliance Officer |
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SABA CAPITAL MANAGEMENT GP, LLC By: /s/ Michael D'Angelo Name: Michael D'Angelo Title: Authorized Signatory |
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BOAZ R. WEINSTEIN By: /s/ Michael D'Angelo |
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Name: Michael D'Angelo |
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Title: Attorney-in-fact* |
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* Pursuant to a power of attorney dated as of November 16, 2015, which is incorporated herein by reference to Exhibit 2 to the Schedule 13G filed by the Reporting Persons on December 28, 2015, accession number: 0001062993-15-006823 |
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| CUSIP No. 09262F100 | SCHEDULE 13D/A | Page 8 of 8 Pages |
Schedule A
This Schedule sets forth information with respect to each purchase and sale of Common Shares which were effectuated by Saba Capital since the filing of the Schedule 13D/A on 2/20/24. All transactions were effectuated in the open market through a broker.
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Trade Date |
Buy/Sell |
Shares |
Price |
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2/20/2024 |
Buy |
91,079 |
16.66 |
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2/21/2024 |
Buy |
23,672 |
16.72 |
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2/22/2024 |
Buy |
43,233 |
16.96 |
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2/23/2024 |
Buy |
65,882 |
17.05 |
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2/26/2024 |
Buy |
246,840 |
17.08 |
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2/27/2024 |
Buy |
278,093 |
17.13 |
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2/28/2024 |
Buy |
34,662 |
16.99 |
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2/29/2024 |
Buy |
49,946 |
17.13 |
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3/1/2024 |
Buy |
133,395 |
17.20 |
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3/6/2024 |
Buy |
53,685 |
16.92 |
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3/7/2024 |
Buy |
36,450 |
17.07 |
Exhibit 5
UNITED STATES DISTRICT COURT
sSOUTHERN DISTRICT OF NEW YORK
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Plaintiff, v. BLACKROCK ESG CAPITAL ALLOCATION TRUST; R. GLENN HUBBARD, W. CARL KESTER, CYNTHIA L. EGAN, FRANK J. FABOZZI, LORENZO A. FLORES, STAYCE D. HARRIS, J. PHILLIP HOLLOMAN, CATHERINE A. LYNCH, ROBERT FAIRBAIRN, and JOHN M. PERLOWSKI, in their capacity as Trustees of the BlackRock ESG Capital Allocation Trust,
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) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) |
COMPLAINT |
Plaintiff Saba Capital Master Fund, Ltd. ( "Saba"), for its Complaint against defendants BlackRock ESG Capital Allocation Trust ("ECAT" or the "Trust"), R. Glenn Hubbard, W. Carl Kester, Cynthia L. Egan, Frank J. Fabozzi, Lorenzo A. Flores, Stayce D. Harris, J. Phillip Holloman, Catherine A. Lynch, Robert Fairbairn, and John M. Perlowski, in their capacity as trustees of ECAT (the "Trustee Defendants") (collectively with ECAT, "Defendants"), states as follows:
NATURE OF THE ACTION
1. This action arises from the Trustee Defendants' brazen misuse of corporate machinery to entrench themselves as members of ECAT's Board of Trustees (the "Board"). Seeking to avoid the prospect of being replaced, ECAT's Board adopted and maintained a bylaw provision that strips away any realistic prospect for a shareholder to elect trustees other than the entrenched incumbents. The Trustee Defendants' illegal bylaw holds challenger candidates to adifferent standard than they hold themselves: In an uncontested election in which the incumbents run for election unopposed, the bylaw requires that the incumbents garner only the vote of a plurality of the shares voted in the election. By contrast, in a contested election, a candidate must win the votes of a majority of all outstanding shares, which includes the shares represented by those who choose not to participate in the vote ("Entrenchment Bylaw").
2. The Entrenchment Bylaw denies Saba-or, for that matter, any shareholder-any meaningful opportunity to mount a challenge to the election of the Trustee Defendants. The Bylaw effectively guarantees that the election will "fail," i.e., that no nominee (neither Saba's nominees nor the incumbent Trustee Defendants) will receive the votes needed under the Entrenchment Bylaw to be elected. As a result, the Entrenchment Bylaw ensures that the Trustee Defendants will remain improperly in their seats as unelected "holdover" trustees in perpetuity-that is, until resignation or death.
3. ECAT has a recent, repeated history of failed elections, despite intense efforts to solicit votes. That history confirms that the voting standard established by the Entrenchment Bylaw is realistically unattainable, preclusive of the shareholder franchise, and operates to entrench the incumbent Trustee Defendants in their Board seats.
4. Saba brings this suit to vindicate its shareholder rights under the Investment Company Act of 1940 ("ICA"), in advance of ECAT's July 2024 annual shareholder meeting in which seven incumbent Trustee Defendants will stand for election-none of whom has ever previously been elected by a vote of ECAT's shareholders. On February 15, 2024, Saba provided ECAT with notice of its intent to nominate candidates to replace the seven Trustee Defendants up for election.
5. As confirmed by ECAT's failed 2023 elections, the application of the Entrenchment Bylaw's voting standard has preordained the results of the 2024 election as well: No candidate will be able to obtain the votes of a majority of all outstanding shares, and the seven Trustee Defendants will retain their seats as holdovers. The Entrenchment Bylaw thus continues to frustrate Saba's shareholder right, and the right of all shareholders, to elect trustees without improper interference from the incumbent Trustee Defendants.
6. By establishing a voting standard that deprives shareholders of any real, meaningful opportunity to elect Trustees, the Entrenchment Bylaw violates the requirement of § 16 of the ICA that all directors be "elected to that office by the holders of the outstanding voting securities of such company." 15 U.S.C. § 80a-16(a) (emphasis added).
7. By guaranteeing failed elections, and thereby keeping unelected incumbents (including incumbents who have never been elected by shareholders) in their Board seats as holdovers, the Entrenchment Bylaw further contravenes § 16's requirement that shareholders have a meaningful opportunity to elect trustees annually. See id. (mandating that directors be elected at "an annual . . . meeting" and that even classified boards be organized such that "the term of office of at least one class shall expire each year").
8. Application of the Entrenchment Bylaw to ECAT's anticipated July 2024 election further violates § 16's mandate that "at least two-thirds of the directors then holding office shall have been elected to such office by the holders of the outstanding voting securities of the company." See id. ("vacancies occurring between [shareholder] meetings may be filled in any otherwise legal manner if immediately after filling any such vacancy at least two-thirds of the directors then holding office shall have been elected to such office by the holders of the outstanding voting securities of the company at such an annual or special meeting"). ECAT's seven unelected incumbent Trustees-i.e., 70% of the Board-will remain on the Board when yet another election fails as a result of the Entrenchment Bylaw, in violation of § 16's requirement that, even when some Board seats are filled temporarily by means other than election, at least two- thirds of the Board must be elected by the shareholders.
9. The Entrenchment Bylaw also violates the requirements of § 18(i) of the ICA that every share of issued stock be a "voting stock," which the statute defines as stock that "presently entitl[es] the owner or holder thereof to vote for the election of directors of a company." 15 U.S.C. §§ 80a-18(i), 80a-2(a)(42). The preclusive voting standard imposed by the Entrenchment Bylaw effectively deprives any shareholder of the ability to vote for the election of directors. Additionally, by giving disproportionate voting rights to the minority of shares cast in favor of the incumbent Trustees, the Entrenchment Bylaw is contrary to § 18(i)'s requirement that every stock "have equal voting rights with every other outstanding voting stock." 15 U.S.C. § 80a-18(i).
10. The Trustee Defendants' efforts to entrench themselves in power run directly contrary to the ICA's policies and purposes, including its stated purpose of protecting shareholders from investment companies that (1) are "organized, operated, [or] managed . . . in the interest of directors, officers, investment advisers, depositors, or other affiliated persons thereof" and (2) "issue securities containing inequitable or discriminatory provisions, or fail to protect the preferences and privileges of the holders of their outstanding securities." 15 U.S.C. §§ 80a-1(b)(2), (3).
11. To prevent the Trustee Defendants from continuing with their brazen assault on Saba's shareholder franchise, Saba respectfully requests that the Court declare that the Entrenchment Bylaw violates §§ 16 and 18(i) of the ICA and rescind the illegal Bylaw pursuant to § 46(b) of the ICA.
PARTIES
12. Plaintiff Saba is a Cayman Islands exempted company that, with other investment funds, are collectively the beneficial owners of 25.89% of ECAT.
13. Defendant BlackRock ESG Capital Allocation Trust is a Maryland business trust, listed on the New York Stock Exchange under ticker symbol "ECAT," which conducts substantial business in New York.
14. Defendant R. Glenn Hubbard is a citizen of New York, a current trustee of ECAT, and has been a trustee of a complex of approximately 70 funds managed by BlackRock Investors, LLC ("BlackRock funds") since 2007.
15. Defendant W. Carl Kester is a citizen of Massachusetts, a current trustee of ECAT, and has been a trustee of the BlackRock funds since 2007.
16. Defendant Cynthia L. Egan is a citizen of Florida, a current trustee of ECAT, and has been a trustee of the BlackRock funds since 2016.
17. Defendant Frank J. Fabozzi is a citizen of Maryland, a current trustee of ECAT, and has been a trustee of the BlackRock funds since 2007.
18. Defendant Lorenzo A. Flores is a citizen of California, a current trustee of ECAT, and has been a trustee of the BlackRock funds since 2021.
19. Defendant Stayce D. Harris is a citizen of California, a current trustee of ECAT, and has been a trustee of the BlackRock funds since 2021.
20. Defendant J. Phillip Holloman is a citizen of Ohio, a current trustee of ECAT, and has been a trustee of the BlackRock funds since 2021.
21. Defendant Catherine A. Lynch is a citizen of Virginia, a current trustee of ECAT, and has been a trustee of the BlackRock funds since 2016.
22. Defendant Robert Fairbairn is a citizen of New York, a current trustee of ECAT, and has been a trustee of the BlackRock funds since 2018.
23. Defendant John M. Perlowski is a citizen of New Jersey, a current trustee of ECAT, and has been a trustee of the BlackRock funds since 2015.
JURISDICTION AND VENUE
24. This Court has jurisdiction over the subject matter of this action pursuant to Section 44 of the ICA, 15 U.S.C. § 80a-43, 28 U.S.C.A. § 1331, and 28 U.S.C. § 1391(b).
25. This Court has personal jurisdiction over ECAT because it has sufficient minimum contacts within the District as to render the exercise of jurisdiction over Defendants by this Court permissible under traditional notions of due process; 15 U.S.C. § 80a-43, including because Defendants transact business in this District; and the law of the State of New York, including N.Y. C.P.L.R. § 302, including by conducting continuous and systematic business in this District, by causing harm to Saba in this District, and because this action arises out of events and transactions in this District.
26. Venue is proper in this judicial district pursuant to 15 U.S.C. § 80a-43 and 28
U.S.C. §§ 1391(b)-(c) because ECAT transacts business in this District, a substantial part of the events giving rise to the claim occurred in this District, Saba has been harmed in this District, and the Defendants are subject to personal jurisdiction in this District.
27. Saba recently brought suit against ECAT in this District, also asserting claims under the ICA to obtain rescission of another one of ECAT's unlawful bylaw provisions. In that case, this Court denied ECAT's efforts to dismiss the case from this District pursuant to ECAT's forum selection clause, because that clause "categorically excludes claims 'arising out of or in connection with the federal securities laws.'" Saba Cap. Master Fund, Ltd. v. ClearBridge Energy Midstream Oppor. Fund Inc., No. 23-CV-5568 (JSR), 2023 WL 6279934, at *9 (S.D.N.Y. Sept. 26, 2023).
FACTUAL ALLEGATIONS
ECAT's Underperforming Trustees and the Entrenchment Bylaw
28. ECAT is a non-diversified, closed-end management investment company registered under the Investment Company Act of 1940, as amended.
29. ECAT was first registered with the Securities and Exchange Commission ("SEC") on or around May 28, 2021. ECAT filed subsequent amended registration statements with the SEC.
30. All ten of the current Trustee Defendants were appointed at the Trust's inception to serve on the classified Board, which is divided into three classes.
31. In July 2022, in an uncontested election, one class of the Trustee Defendants (Frank J. Fabozzi, J. Phillip Holloman, and Robert Fairbairn), were "elected" to their seats by a vote of a plurality of the shares voted.
32. In August 2023, after multiple failed elections with insufficient votes to even reach quorum, a second class of the Trustee Defendants (Cynthia L. Egan, Stayce D. Harris, Lorenzo A. Flores, and Catherine A. Lynch) continued in their seats as unelected holdovers.
33. The remaining three Trustee Defendants (R. Glenn Hubbard, W. Carl Kester, and John M. Perlowski) have never stood for election by ECAT's shareholders and will be up for election for the first time in the upcoming July 2024 annual shareholder meeting.
34. ECAT has a history of underperformance. It trades at a significant discount to its Net Asset Value ("NAV")-i.e., shares of ECAT are worth less than the combined value of the assets it owns. From January 1, 2022 to December 31, 2023, ECAT's average discount to NAV was 14.3%. The discount to NAV has been as large as 20% in 2023. ECAT's perpetual discount level since its inception indicates that the market does not have faith in its ability to add to shareholder value. The Board has also done little to address this poor performance or to lessen ECAT's discount to NAV.
35. Notwithstanding its inability to add shareholder value, the Board has entrenched itself in office by maintaining the illegal Entrenchment Bylaw that has stripped shareholders of a meaningful opportunity to elect new trustees who can effect change.
36. ECAT's Bylaws deprive Saba-or any shareholder-of any meaningful opportunity to elect Trustees. Section 11(b) of the Bylaws impose a realistically unattainable standard only in elections in which shareholders actually exercise the franchise-i.e., vote on competing trustee candidates-and not in elections where the incumbent trustees run unopposed.
37. Specifically, Section 11(b), i.e., the Entrenchment Bylaw, states: "(i) with respect to the election of Directors, other than a Contested Election, the affirmative vote of a plurality of the Shares represented in person or by proxy at any meeting at which a quorum is present shall be the act of the shareholders with respect to such matter, (ii) with respect to a Contested Election, the affirmative vote of a majority of the Shares outstanding and entitled to vote with respect to such matter at such meeting shall be the act of the shareholders with respect to such matter" (emphasis added).
38. If no candidate can garner the vote of a majority of the outstanding shares required to elect Trustees pursuant to the Entrenchment Bylaw, then the incumbents keep their seats as "holdovers."
39. Under the Entrenchment Bylaw, all shares that are not voted in a contested election are effectively counted as a vote for the incumbent, and shares that vote in favor of the incumbents enjoy disproportionate voting rights and more power to elect trustees than a majority of shares cast in favor of challengers.
40. The Entrenchment Bylaw ensures that the incumbent Trustees will improperly remain in their seats in perpetuity-that is, until resignation or death-either as unelected "holdover" trustees after a failed contested election, or as trustees "elected" by default in an uncontested election.
ECAT's History of Failed Elections Under the Entrenchment Bylaw
41. Four Trustee Defendants (Cynthia L. Egan, Lorenzo A. Flores, Stayce D. Harris, and Catherine A. Lynch) were up for election in a July 10, 2023 annual meeting of ECAT's shareholders. In advance of that election, Saba nominated four trustee candidates to replace these incumbents up for election.
42. ECAT and Saba engaged in intense proxy solicitation campaigns-including by mail and in the media-leading up to the July 10, 2023 shareholder meeting. Between May 5, 2023, when Saba filed its preliminary proxy statement with the SEC, and July 10, 2023, the initially scheduled date of the shareholder meeting, Saba and ECAT filed nearly 30 proxy-related filings with the SEC.
43. The immense resources poured into proxy solicitation proved insufficient to turn out enough votes even to reach quorum to hold the scheduled July 10, 2023 shareholder meeting, let alone for any candidate to achieve the 50%-of-outstanding-shares standard enshrined by the Entrenchment Bylaw.
44. Without enough votes for even a quorum, on July 11, 2023, ECAT adjourned the shareholder meeting to July 25, 2023.
45. Active proxy solicitation efforts continued following the adjournment.
46. The July 25, 2023 meeting, however, was once again adjourned to August 7, 2023 after ECAT failed to reach a quorum yet again.
47. When ECAT failed to turn out enough votes to reach quorum for a third time, ECAT called off the 2023 election altogether and the four Trustee Defendants up for election remained in their seats as unelected holdovers.
48. The illegal, preclusive nature of the Entrenchment Bylaw is confirmed by the outcome of ECAT's recent, repeated failed elections.
BlackRock's Hypocrisy about the Entrenchment Bylaw
49. ECAT is managed by BlackRock Advisors, LLC, which is a subsidiary of BlackRock, Inc. ("BlackRock").
50. BlackRock is a self-proclaimed leader in corporate governance and periodically publishes the BlackRock Investment Stewardship Global Principles ("BlackRock Principles") and BlackRock Investment Stewardship Proxy Voting Guidelines for U.S. Securities ("BlackRock Voting Guidelines") with recommendations and guidelines on how investors should vote to protect their interests and promote "sound corporate governance."1
51. In the BlackRock Principles, BlackRock notes that shareholders have "certain fundamental rights" and "should have the right to: Elect, remove, and nominate directors." It continues that "shareholder voting rights should be proportionate to economic ownership-the principle of 'one share, one vote' helps to achieve this balance."
52. The BlackRock Principles further emphasize that "directors should stand for election on a regular basis, ideally annually. In our experience, annual director elections allow shareholders to reaffirm their support for board members and/or hold them accountable for their decisions in a timely manner."
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1 https://www.blackrock.com/corporate/literature/fact-sheet/blk-responsible-investment-engprinciples-global.pdf; https://www.blackrock.com/corporate/literature/fact-sheet/blk- responsible-investment-guidelines-us.pdf.
53. Meanwhile, the BlackRock Voting Guidelines contain issue-specific proxy voting guidelines on "boards and directors" and "shareholder protections," including the following:
• Classified Board of Directors/Staggered Terms: "Directors should be re-elected annually; classification of the board generally limits shareholders' rights to regularly evaluate a board's performance and select directors."
• Majority Vote Requirements: "Directors should generally be elected by a majority of the shares voted. We note that majority voting may not be appropriate in all circumstances, for example, in the context of a contested election or those with concentrated ownershipstructures."
• Contested Director Elections and Special Situations: "We will evaluate the actions that the company has taken to limit shareholders' ability to exercise the right to nominate dissident director candidates, including those actions taken absent the immediate threat of a contested situation. [BlackRock] may take voting action against directors where those actions are viewed as egregiously infringing on shareholder rights."
54. While BlackRock espouses these principles when it is an investor or shareholder, it has different standards when it acts as fund manager. For example, the ECAT Trustees serve staggered terms and stand for election only every three years-in blatant contradiction to its own recommendation that directors stand for reelection annually. And-in direct contradiction to BlackRock's recommendation that directors be elected by a "majority of the shares voted"-the Entrenchment Bylaw imposes an unattainable "majority of the shares outstanding" standard for challengers who dare try to unseat the incumbent Trustees.
FIRST CLAIM FOR RELIEF
(Rescission Under the Investment Company Act)
55. Saba repeats and realleges each of the allegations contained in paragraphs 1 through 54 above as if set forth in full herein.
56. The ICA provides a private right of action for a party to a contract that violates the ICA to seek rescission of that violative contract. Saba Cap. Cef Oppors. 1, Ltd. v. Nuveen Floating Rate Income Fund, 88 F.4th 103, 115 (2d Cir. 2023).
57. ECAT's Bylaws constitute a binding contract between Saba and ECAT.
58. The Entrenchment Bylaw violates the ICA by establishing a standard that deprives shareholders of any meaningful opportunity to elect trustees, and makes it realistically unattainable for challengers to unseat incumbent trustees, thereby allowing incumbents who are not elected to that office to serve as trustees on ECAT's Board. This standard contravenes the ICA's mandate that "[n]o person shall serve as a director of a registered investment company unless elected to that office by the holders of the outstanding voting securities of such company," and that directors stand for election annually or, at minimum, that "the term of office of at least one class [of directors] shall expire each year." 15 U.S.C. § 80a-16. Applying the standard at ECAT's 2024 annual meeting, at which seven unelected incumbent Trustee Defendants will be up for election, also violates the ICA's mandate that "at least two-thirds of the directors then holding office shall have been elected to such office by the holders of the outstanding voting securities of the company." Id.
59. The Entrenchment Bylaw also violates the ICA's mandate that all stock must "presently entitl[e] the owner or holder thereof to vote for the election of directors of a company." 15 U.S.C. §§ 80a-18(i), 80a-2(a)(42). The preclusive voting standard imposed by the Entrenchment Bylaw effectively deprives any shareholder of the ability to vote for the election of directors. And, by allowing incumbent trustees to retain their Board seats even after they receive fewer votes than their challengers, the Entrenchment Bylaw effectively gives the votes cast in favor of incumbent trustees more voting rights and power than votes cast for the challengers-in violation of § 18(i)'s requirement that all common shares "have equal voting rights with every other outstanding voting stock." 15 U.S.C. § 80a-18(i).
60. Absent relief from the Court, Saba will be irreparably harmed by the Entrenchment Bylaw.
61. Saba has no adequate remedy at law.
SECOND CLAIM FOR RELIEF
(Declaratory Judgment)
62. Saba repeats and realleges each of the allegations contained in paragraphs 1 through 61 above as if set forth in full herein.
63. The Entrenchment Bylaw prevents Saba from exercising its right as shareholder to elect trustees to the Board of ECAT annually, to hold shares in a fund where at least two-thirds of the Board have been elected by the shareholders at an annual or special meeting, and to acquire and vote stock in ECAT with the "equal voting rights" to which such shares are entitled.
64. By adopting, maintaining, and implementing the Entrenchment Bylaw, Defendants have created a substantial and immediate controversy between the parties, of sufficient immediacy and reality to warrant declaratory relief, as to whether doing so violates § 16 and § 80a-18(i).
65. Accordingly, Saba seeks a declaratory judgment under 28 U.S.C. § 2201 et seq. to determine its rights and obligations, including whether the Entrenchment Bylaw is illegal under 15 U.S.C. § 80a-16 and § 80a-18(i), and void pursuant to 15 U.S.C. § 80a-46(a).
REQUEST FOR RELIEF
WHEREFORE, Saba respectfully requests that this Court enter a judgment in its favor as follows:
a. Declaring that the Entrenchment Bylaw violates the ICA, 15 U.S.C. § 80a-16 and § 80a- 18(i);
b. Rescinding the Entrenchment Bylaw, pursuant to 15 U.S.C. § 80a-46(b);
c. Declaring the Entrenchment Bylaw void, pursuant to 15 U.S.C. § 80a-46(a);
d. Preliminarily and permanently enjoining Defendants, their agents and representatives, and all other persons acting in concert with them, from applying the Entrenchment Bylaw; and
e. Such other and further relief as the Court may deem necessary and proper.
DEMAND FOR JURY TRIAL
Pursuant to Rule 38 of the Federal Rules of Civil Procedure, Plaintiff hereby demands a trial by jury as to all issues so triable.
| Dated: New York, New York March 6, 2024 |
Attorneys for Plaintiff |
CERTIFICATE OF SERVICE
I hereby certify that on March 6, 2024, I caused the foregoing to be electronically filed with the Clerk of the Court using CM/ECF, which will send notification of such filing to all registered participants.
/s/ Gloria Park
Gloria Park
EXHIBIT 7
Saba Launches Campaign to Improve the Boards of
10 Poorly Governed and Underperforming Closed-
End Funds Managed by BlackRock
Files Lawsuit Against BlackRock ESG Capital Allocation Term Trust for Adopting an Illegal
"Entrenchment Bylaw" that Strips Shareholders of the Opportunity to Elect New Directors
Intends to Hold BlackRock and Its Hand-Picked Board Members Accountable for Destroying
Billions in Shareholder Value
Names Incumbent Board Members Cynthia Egan, Frank Fabozzi, Robert Fairbairn, Lorenzo Flores,
Stayce Harris, R. Glenn Hubbard, J. Phillip Holloman, W. Carl Kester, Catherine Lynch and John
Perlowski as Defendants in the Lawsuit
Nominates Seven Board Candidates with Experience in Corporate Governance, Credit Markets,
Financial Services and Other Areas Required to Help Close the Funds' Large Discounts to NAV
NEW YORK--BUSINESS WIRE--Saba Capital Management, L.P. (together with its affiliates, "Saba" or "we") today announced that it has nominated seven highly qualified and independent candidates for election to the Boards of Trustees (the "Boards") of 10 BlackRock closed-end funds (collectively, the "BlackRock Funds" or the "CEFs") at their respective 2024 Annual Meetings of Shareholders (the "2024 Annual Meetings").
Additionally, Saba filed a lawsuit today in the United States District Court for the Southern District of New York (the "Court") against the BlackRock ESG Capital Allocation Term Trust (NYSE: ECAT) ("ECAT"), and all 10 incumbents to hold them accountable for adopting an illegal "Entrenchment Bylaw" that deprives shareholders of their right to elect directors annually. It is notable that these directors were already found to have violated the Investment Company Act, by enacting a separate bylaw targeted at entrenching themselves in order to protect BlackRock from being held accountable by shareholders.
Boaz Weinstein, Founder and Chief Investment Officer of Saba, commented:
"BlackRock holds itself up as a leader in corporate governance despite the fact that many of its funds, including the CEFs, entrench compromised trustees, hinder shareholders' rights and put up roadblocks when attempts are made to narrow persistent discounts to Net Asset Value ('NAV'). Last year, a leading independent proxy advisory firm chastised BlackRock for its 'abusive' governance. Saba also won a lawsuit against BlackRock that should have ended its illegal efforts to deprive shareholders of their right to vote all of their shares. Instead of following the Court's order, BlackRock is pursuing a baseless appeal. Clearly, our work is not done.
BlackRock acts as if federal law does not apply to its CEFs by blatantly ignoring the Investment Company Act. Shareholders are repeatedly deprived of their lawful voting rights, while directors avoid accountability for their own governance and performance failures.
Under the Entrenchment Bylaw, any share not voted in a contested election is counted as a vote for BlackRock. Dear reader, your eyes do not deceive you - yes, that's how BlackRock believes elections ought to be decided when their directors are challenged.
The case for immediate change at the Blackrock Funds is clear. This is why we have filed a lawsuit to protect shareholder rights and nominated slates of highly qualified and independent candidates for election to the BlackRock Funds' Boards at the 2024 Annual Meetings. Our nominees have a plan to enact changes that will return the funds to their full NAV - just like we have successfully done in dozens of prior campaigns. We believe that executing on our plan will deliver a staggering $1.3 billion gain from current prices across 10 CEFs for shareholders. Last year, I made a similar comment about the value trapped within two of the 10 CEFs at an industry conference where BlackRock executives were in the audience. From the dais, I challenged BlackRock to show me how the math wasn't 100% accurate. I followed up with a similar offer on Twitter/X but BlackRock remains silent, because they know it's true.
BlackRock must not stand in the way of shareholders recouping their financial losses. All BlackRock has to do is put aside its greed and self-interest and offer shareholders an exit at NAV, just as they offer daily for the trillions of dollars it holds in the same investments across BlackRock mutual funds and ETFs."
The BlackRock Funds for which Saba has nominated Board candidates include: the BlackRock California Municipal Income Trust (NYSE: BFZ), BlackRock Capital Allocation Term Trust (NYSE: BCAT), BlackRock ESG Capital Allocation Term Trust (NYSE: ECAT), BlackRock Health Sciences Term Trust (NYSE: BMEZ), BlackRock Innovation and Growth Term Trust (NYSE: BIGZ), BlackRock MuniHoldings New York Quality Fund (NYSE: MHN), BlackRock MuniYield New York Quality Fund (NYSE: MYN), BlackRock MuniYield Pennsylvania Quality Fund (NYSE: MPA), BlackRock New York Municipal Income Trust (NYSE: BNY) and BlackRock Science and Technology Term Trust (NYSE: BSTZ).
Saba's slate:
• Shavar Jeffries is the CEO of the KIPP Foundation and is a corporate governance expert with a 24-year career in law who has served on boards including Pzena Investment Management, KIPP Foundation, New Classrooms and Duke University.
About Saba Capital
Saba Capital Management, L.P. is a global alternative asset management firm that seeks to deliver superior risk-adjusted returns for a diverse group of clients. Founded in 2009 by Boaz Weinstein, Saba is a pioneer of credit relative value strategies and capital structure arbitrage. Saba is headquartered in New York City. Learn more at www.sabacapital.com.
IMPORTANT INFORMATION
Saba Capital Management, L.P. ("Saba Capital"), Saba Capital Master Fund, Ltd. ("SCMF"), Boaz R. Weinstein ("Mr. Weinstein," and together with Saba Capital and SCMF, "Saba") and the Nominees (as defined below, and together with Saba, the "Participants") intend to file definitive proxy statements and accompanying forms of proxy with the Securities and Exchange Commission (the "SEC") to be used in conjunction with the solicitation of proxies from the shareholders of each of BIGZ; BCAT; ECAT; BMEZ; BFZ; BSTZ; MPA; MYN; BNY; and MHN and together, the "BlackRock Funds"). Shareholders of any BlackRock Fund are advised to read the definitive proxy statement and other documents related to the solicitation of proxies with respect to such Fund by the Participants as they become available because they will contain important information. They will be made available at no charge on the SEC's website, http://www.sec.gov/.
The "Nominees" refer to (i) with respect to BIGZ, BCAT, ECAT, BMEZ, BSTZ and MPA, Mr. Gurevich, Mr. Jeffries, Ms. Raab, Mr. Diplas, Mr. Littlewood, Mr. Locala and Mr. Vindman; (ii) with respect to BFZ, Mr. Gurevich and Mr. Jeffries; (iii) with respect to MYN, Ms. Raab and Mr. Vindman; (iv) with respect to BNY, Mr. Gurevich and Ms. Raab; and (v) with respect to MHN, Mr. Jeffries and Ms. Raab.
Information about any direct or indirect interests by security holdings or otherwise of the Participants is contained in Exhibit 1 to the Form DFAN14A filed with respect to each of the BlackRock Funds by Saba Capital with the SEC on February 21, 2024. This document is available free of charge from the source indicated above.
Contacts
Longacre Square Partners
Greg Marose / Kate Sylvester, 646-386-0091
gmarose@longacresquare.com / ksylvester@longacresquare.com