What is the expected market reaction and potential price movement for CEMO during and after the rights offering, given current market conditions and comparable offerings?

Market reaction & price dynamics

A 1‑for‑3 rights offering means each shareholder will receive one subscription right for every three shares held, giving them the opportunity to buy one additional share at a discounted price (typically 10‑15 % below the current market level). In practice the market will price CEMO down to the theoretical ex‑rights price (TERP) as soon as the announcement is released. Assuming a 12 % discount and a pre‑announcement close of $11.20, the TERP would be roughly $9.85–$10.00, so we can expect an immediate 6‑10 % pull‑back in the stock over the next 1‑2 days.

Post‑offering outlook

Once the rights are exercised and the new shares are issued, the dilution effect will be baked into the float, and the share price will stabilize near the TERP. The fund’s underlying assets (mid‑stream fee‑related contracts) have been holding up well in the current low‑rate, high‑yield environment, and comparable mid‑stream funds that completed similar 1‑for‑3 rights offerings in the past 12 months (e.g., KKR‑FS Energy Income Fund and Blackstone Energy Income Trust) saw a rebound of 8‑12 % within 4‑6 weeks as the market re‑priced the higher cash balance and the lower cost‑basis of new investors.

Actionable take‑aways

1. During the rights period (now‑through the subscription deadline) – consider buying the rights if you want exposure at the discounted price; the break‑even is roughly the TERP ($9.85‑$10.00).
   
2. Short‑term trade – a quick‑sell of the underlying shares on the announcement can capture the 6‑10 % dip, then re‑enter after the ex‑rights date if you remain bullish on the fund’s asset quality.
   
3. Medium‑term position – if you are comfortable with the fund’s cash‑flow profile, accumulate the stock near the TERP and hold for the anticipated 8‑12 % upside as the market digests the larger cash cushion and the sector’s stable fee income.
   

Overall, expect a modest, predictable price drop to the TERP during the rights offering, followed by a gradual recovery that mirrors historical patterns for mid‑stream royalty funds. The key driver will be the discount level and the fund’s ability to redeploy the capital without eroding its high‑quality fee‑related earnings.