Author’s note: This article was released to CEF/ETF Income Laboratory members on October 1, 2020. Please check the latest data before investing.
September 25, 2020 | BrandywineGLOBAL – Global Income Opportunities Fund Inc. Announces Final Results of Issuer Tender Offer for Common Stock. BrandywineGLOBAL-Global Income Opportunities Fund Inc. (BWG) (the “Fund”) announced today the final results for its issuer tender offer for up to 20% of the outstanding shares of common stock (“Shares”) of the Fund at a price equal to 99.5% of the Fund’s net asset value per Share as determined as of the close of the regular trading session of the New York Stock Exchange on September 23, 2020. The Fund’s offer expired on Tuesday, September 22, 2020 at 11:59 p.m., New York City time. Based on current information, approximately 14,111,137 Shares were duly tendered and not withdrawn. Because the number of Shares tendered exceeds 4,197,959 Shares, the tender offer is oversubscribed. Therefore, in accordance with the terms and conditions specified in the tender offer, the Fund will purchase Shares from all tendering stockholders on a pro rata basis, disregarding fractions. Payment for such Shares will be made on or about September 28, 2020. The purchase price of properly tendered Shares is $13.53 per Share, equal to 99.5% of the per Share net asset value of $13.60 as of the close of the regular trading session of the New York Stock Exchange on September 23, 2020. Shares that were not tendered will remain outstanding.
This was a tender offer to repurchase up to 20% of shares at 99.5% of NAV. Given how generous the offer condition was, the majority (around 66%) of shareholders tendered their shares, giving a final proration factor of 30%.
Tender offer profit/loss analysis
On the expiry date of the tender (September 22), BWG closed at $12.24. Meaning that for the 30% proportion of shares that were accepted for tender at $13.53, there was an instant gain of +$1.29 (+10.5%) per share, a very nice result for our Tactical Income-100 portfolio! Based on original purchase price of $12.32 on July 20, 2020, we recorded an +11.53% total return for the shares that were accepted for tender, consisting of +9.82% in capital gains and +1.70% in distributions.
However, the discount widened significantly after the tender expired and the remaining 70% of shares suffered a capital loss, which in this case negated most of the profit from the tendered shares.
This is one of the main risks of participating in tender offers: that the discount widening of the remaining shares after the tender expires offsets the gain from the accepted shares. This is why we only participate in tender offers where we are comfortable with holding the shares for the long term, if that happens.
BWG a fine hold for potential volatility ahead
As we mentioned at the time that we purchased BWG in our Tactical Income-100 portfolio, we are happy to hold onto our shares until the discount contracts back again to make it viable to offload. This is especially because BWG, as a global income fund, is quite a solid CEF to own in case of market volatility as we head towards the election. Over 50% of the fund’s portfolio is in investment-grade rated securities, as the table below shows.
Moreover, the fund holds nearly 40% in government debt (both domestic and foreign).
While the discount widening after the expiry offset much of the profit from tendering our shares, we are content with holding BWG into potential market volatility due to its diversified portfolio with 50% investment grade securities and 40% government bonds.
As of 10/6/2020, BWG closed with a discount of -14.87% and a yield of 7.30%, paid monthly. However, note that the yield is only 77% covered according to their latest earnings report, meaning that some of the payout is coming from gains or return of capital (“ROC”).
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Disclosure: I am/we are long BWG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.