DEF 14A: Western Asset Global Corporate Defined Opportunity Fund Inc. Proposes Conversion to Perpetual Fund

Western Asset Global Corporate Defined Opportunity Fund Inc. is seeking stockholder approval to convert to a perpetual fund by eliminating its term and liquidation policy, contingent on maintaining at least $50 million in net assets after a tender offer.

Summary

• Western Asset Global Corporate Defined Opportunity Fund Inc. (GDO) is proposing to convert from a term fund to a perpetual fund.
• This conversion requires stockholder approval to amend the fund's charter and eliminate its fundamental policy to liquidate on December 2, 2024.
• The proposal is contingent upon the fund maintaining at least $50 million in net assets after a tender offer for 100% of the outstanding shares at net asset value (NAV).
• If the proposal is approved, the fund will conduct a tender offer in September 2024.
• If less than $50 million remains after the tender offer, the proposal will be cancelled, and the fund will liquidate as planned.
• If the proposal is approved and effective, the fund's name will change to Western Asset Global Corporate Opportunity Fund Inc., but the ticker symbol will remain GDO.
• Franklin Templeton Fund Adviser, LLC (FTFA) will waive 10 basis points of its annual management fee for two years following stockholder approval.
• The fund's board recommends voting FOR the proposal, believing it offers stockholders the flexibility to remain invested or exit at NAV.
• The fund has outperformed its benchmark, the Bloomberg Global Aggregate Index, since inception and during the 1-, 5-, and 10-year periods ended December 31, 2023.
• The fund may consider conducting one or more Follow-on Offerings, subject to Board oversight and approval.

Sentiment

Score: 7

Explanation: The document presents a balanced view, highlighting both the potential benefits and risks of the proposed conversion. The fee waiver and tender offer are positive signals, but the inherent conflict of interest and market risks temper the overall sentiment.

Positives

• Stockholders have the option to remain invested in the fund or exit at NAV through the tender offer.
• The fund has a history of outperforming its benchmark, the Bloomberg Global Aggregate Index.
• The fund has delivered attractive regular distributions to stockholders since inception.
• The fund's strategy is differentiated, focusing on the global corporate bond universe with an investment-grade credit quality.
• The fee waiver of 10 basis points for two years will reduce the fund's expense ratio.
• The conversion to perpetual would allow more time for bonds trading below par value to potentially appreciate in value as they approach maturity.
• The fund may consider conducting one or more Follow-on Offerings, subject to Board oversight and approval.

Negatives

• If the proposal is approved, stockholders who do not tender their shares must sell them at market price, which may be at a premium or discount to NAV.
• Management has a conflict of interest because they will receive fees for a longer period if the proposal is approved, although this is partially mitigated by the fee waiver.
• There is no guarantee that the fund will achieve its investment objectives.
• The proposal could have a negative impact on the market price of the Funds shares, which would adversely impact stockholders seeking to sell their shares.

Risks

• The fund is subject to credit risk, inflation risk, call risk, and interest rate risk.
• The fund may invest up to 35% of its managed assets in lower-rated high-yield bonds, which are subject to greater liquidity and credit risk.
• Leverage may result in greater volatility of NAV and market price.
• The fund may invest in derivative instruments, which can be illiquid and increase losses.
• There is no assurance that the Fund will conduct a Follow-on Offering.

Future Outlook

If the proposal is approved and the fund maintains at least $50 million in net assets after the tender offer, the fund will convert to a perpetual fund and change its name. The fund may also consider conducting one or more Follow-on Offerings, subject to Board oversight and approval.

Management Comments

• The Board and Management believe that the Proposal is in the best interests of the Fund and its stockholders because it provides stockholders with the flexibility to remain invested in the Fund or exit the Fund at NAV dependent on their specific investment needs.
• Management views favorably the current market conditions and opportunities for global corporate bonds generally.
• Management believes that global corporate bonds provide investors with income opportunities via improving credit conditions and the potential for high real yields.

Industry Context

The conversion of term funds to perpetual funds is a trend in the closed-end fund industry, allowing funds to continue operating and generating fees for management. This proposal aims to provide liquidity to shareholders while potentially extending the fund's life.

Comparison to Industry Standards

• Several closed-end funds have considered or undergone similar conversions from term to perpetual structures.
• BlackRock and Nuveen have sponsored similar proposals for their closed-end funds.
• The success of these conversions often depends on the fund's performance, market conditions, and the level of shareholder participation in the tender offer.
• The 10 basis point fee waiver is a common incentive offered to shareholders to offset potential conflicts of interest and the costs associated with the conversion.

Stakeholder Impact

• Stockholders will have the opportunity to vote on the proposal and tender their shares at NAV.
• Management will continue to receive fees, albeit at a reduced rate for two years if the proposal is approved.
• The fund's investment strategy is not expected to change materially.

Next Steps

• Stockholders will vote on the proposal at the Special Meeting on June 7, 2024.
• If approved, the fund will conduct a tender offer in September 2024.
• The fund will monitor the level of net assets remaining after the tender offer to determine if the conversion will proceed.
• The Board will consider potential Follow-on Offerings.

Key Dates

Keywords

perpetual fund, tender offer, liquidation, corporate bonds, closed-end fund, proxy statement, management fee, investment, GDO