Eagle Growth and Income Opportunities Fund Provides Update on Status of Liquidation
The Eagle Growth and Income Opportunities Fund (NYSE: EGIF) has initiated its liquidation process, following a plan adopted by its Board. The Fund has liquidated its portfolio and invested its assets in a U.S. Treasury money market fund. Ongoing litigation is threatening the Fund from its former investment adviser, Four Wood Capital Advisors, regarding claims tied to a rejected merger proposal. Liquidating distributions will occur soon, pending the determination of a required reserve for these claims. The shares will cease trading on the NYSE post-liquidation.
- The Fund has liquidated its portfolio and invested assets in a safe U.S. Treasury money market fund.
- New management structure under First Eagle Alternative Credit is seen as beneficial.
- Threatened litigation from Four Wood Capital Advisors could lead to significant financial liabilities.
- A substantial reserve for contingent liabilities will limit immediate distributions to shareholders.
BOSTON, July 02, 2020 (GLOBE NEWSWIRE) -- Eagle Growth and Income Opportunities Fund (the "Fund") (NYSE: EGIF) today provided an update on the status of the Fund's liquidation.
As previously announced on May 27, 2020, pursuant to a Plan of Liquidation (the "Plan") adopted by the Fund's Board of Trustees (the "Board"), the Fund has commenced the process of winding up its affairs. The Fund has sold all of its portfolio holdings and its assets have been invested in a U.S. Treasury money market fund.
In connection with the Fund's liquidation, the Board is required to discharge or make reasonable provision for the Fund's claims and obligations, including potential claims and obligations. As part of this process, the Board is reviewing certain potential claims (the "Contingent Liabilities") threatened by the Fund’s former investment adviser, Four Wood Capital Advisors, LLC (“FWCA”), and its parent, Four Wood Capital Partners, LLC (“FWCP” and, collectively with FWCA, “Four Wood”) arising in connection with a decision by a majority of the Fund’s Trustees, after months of review, to pursue a strategic alternative for the Fund other than the one for which FWCA would have received compensation.
Background to Dispute
Over a number of years, the Fund’s Independent Trustees took a series of steps to address the Fund’s fees and certain performance issues that had arisen under the management of FWCA.1 These issues included performance that lagged the Fund’s peers. In 2018, the Independent Trustees negotiated a 20-basis point reduction in the advisory fee charged by FWCA. The Independent Trustees also negotiated a
In November 2018, without consulting the Independent Trustees, Four Wood obtained a proposal (the “Merger Proposal”) to merge the Fund with an unaffiliated closed-end registered investment company, which would have resulted in FWCA’s receipt of significant compensation if the merger had been consummated. FWCA and its principal advocated that the Board approve the Merger Proposal. The Independent Trustees evaluated the Merger Proposal through the summer of 2019. The Independent Trustees requested, received and reviewed extensive due diligence information from the proposed acquiring fund and its investment adviser. In assessing the Merger Proposal, the Independent Trustees considered the differences between the Fund and the acquiring fund in terms of the investment product that shareholders would receive—in particular, (i) the fact that the acquiring fund does not have a limited term, as does the Fund, and therefore the merger would have deprived shareholders of the right to receive their proportionate share of the Fund’s net assets at a specified future date, eliminating any discount to net asset value that may have existed at that time and (ii) the fact that the Fund and the acquiring fund had distinct investment strategies and exposures.
When the Fund’s advisory agreement with FWCA was up for renewal in May 2019, the Independent Trustees chose not to extend the agreement for a full year, as permitted by the Investment Company Act of 1940, and instead extended the agreement only for a three-month period, in order to provide time for further consideration of strategic options for the Fund.
In July 2019, the Board received a joint proposal (the “Advisory Proposal”) from First Eagle Alternative Credit, LLC (then known as THL Credit Advisors LLC) ("First Eagle" or the "Adviser") and Eagle Asset Management, Inc. (“Eagle”), the Fund’s existing sub-adviser. The Independent Trustees were already knowledgeable about the Adviser from their oversight and service as board members of First Eagle Senior Loan Fund (formerly, THL Credit Senior Loan Fund), for which the Adviser serves as investment adviser. The Independent Trustees noted that the Advisory Proposal maintained the Fund’s independent existence and its limited term feature and enhanced the Fund’s existing investment strategies. The Independent Trustees also noted that the Advisory Proposal was projected, including as a result of an expense limitation offered by the Adviser and Eagle and as a result of the Adviser's ability to provide services in house without the need for the outsourcing employed by Four Wood, to lower the Fund’s total expense ratio by up to 12 basis points. The Independent Trustees negotiated with the Adviser and Eagle a further reduction of five basis points in the expense cap offered by the Adviser and Eagle. Following additional discussions with the Adviser and Eagle and responses to the Independent Trustees’ questions and requests for information, the Board appointed the Adviser and Eagle as the Fund’s investment adviser and sub-adviser, respectively, effective August 31, 2019. The Fund’s advisory agreement with FWCA expired August 30, 2019 pursuant to its terms.
Four Wood has threatened litigation against the Fund, the Independent Trustees and First Eagle. FWCA claims the Fund, the Independent Trustees and First Eagle are liable to FWCA based on a variety of legal theories arising from the claimed failure of the Board, on behalf of the Fund, to approve the Merger Proposal, from the expiration of the Fund's advisory agreement with FWCA and from the selection of First Eagle to replace FWCA. FWCP also has threatened to bring derivative claims on behalf of the Fund against the Independent Trustees and First Eagle on similar legal theories. The parties deny all of the claims threatened against them.
Liquidating Distributions; Reserve
In accordance with the Plan and as required by applicable law, the Board must determine an amount of the Fund's net assets to be reserved by the Fund and not immediately distributed to the Fund's shareholders (the "Reserve") to provide for these Contingent Liabilities, certain estimated but as yet un-invoiced expenses of the Fund and the estimated expenses of operating a liquidating trust to hold the Reserve and the Contingent Liabilities (the "Liquidating Trust"). The amount of the Reserve has not yet been determined as certain expenses of operating a liquidating trust have not been finalized, but it is expected to be substantial, as the amount of the Reserve is expected to be based upon the amount of damages that Four Wood has alleged and not the Independent Trustees’ view of the merits of the potential claims. Amounts related to the threatened litigation comprise the largest single component of the Reserve.
As previously announced, it is anticipated that the Fund's liquidating distributions will be comprised of one or more cash distributions plus a 1:1 per share interest in the Liquidating Trust. The liquidating distributions together will represent substantially all of the Fund's net assets at the time of liquidation.
Once the amount of the Reserve has been determined, the Fund will issue another press release announcing the amount of the Reserve, the date on which the Fund will close its transfer books and the effective date for determining the shareholders of the Fund entitled to receive liquidating distributions from the Fund (the "Closing Date"). The Fund’s shares will continue trading on the New York Stock Exchange through the Closing Date and will be suspended from trading before the open of trading on the business day following the Closing Date, after which time there will be no secondary market for the Fund's shares. It is currently anticipated that the Fund could commence paying one or more liquidating distributions beginning approximately one week after the Closing Date.
The Liquidating Trust will make distributions to beneficiaries of the Liquidating Trust (i.e., those shareholders of the Fund on the Closing Date who will receive interests in the Liquidating Trust or their permitted transferees) to the extent consistent with maintaining sufficient assets to pay potential liabilities. The Plan provides that, as soon as reasonably practicable after such time as all Contingent Liabilities are paid or otherwise cease to become liabilities of the Liquidating Trust, any remaining assets of the Liquidating Trust, including any remaining amounts of the Reserve, will be distributed to beneficiaries of the Liquidating Trust. In light of the threatened litigation by Four Wood, it is currently not possible to predict whether or when the Liquidating Trust could distribute any such assets or amounts to its beneficiaries.
Shareholders will not have the right to sell, transfer, or otherwise dispose of or in any way encumber the interests they receive in the Liquidating Trust, except by operation of law or death of the shareholder, or as required by law or order of a court of competent jurisdiction. The interests in the Liquidating Trust will not be offered to the public and will not be traded.
Shareholders may recognize gain or loss for U.S. tax purposes as a result of the liquidation. Gain or loss will generally be measured as the difference between the sum of the cash liquidation distributions and fair value of the equity interest in the Liquidating Trust received, and the shareholder's tax basis in the shares of the Fund. The Fund does not provide tax advice and investors should consult their individual tax adviser regarding the tax treatment applicable to a liquidating distribution and any other payments received in connection with the liquidation.
About Eagle Growth and Income Opportunities Fund
The Fund is a diversified, closed-end management investment company that is advised by First Eagle Alternative Credit, LLC and sub-advised by Eagle Asset Management, Inc.
About First Eagle Alternative Credit, LLC
First Eagle Alternative Credit is an alternative credit investment manager for both direct lending and broadly syndicated investments through public and private vehicles, collateralized loan obligations, separately managed accounts and co-mingled funds. First Eagle Alternative Credit maintains a variety of advisory and sub-advisory relationships across its investment platforms. First Eagle Alternative Credit is a wholly owned subsidiary of First Eagle Investment Management, LLC.
About Eagle Asset Management, Inc.
Founded in 1984, Eagle provides an array of fundamental equity and fixed income strategies designed to meet long-term goals of institutional and wealth clients. Eagle's multiple independent investment teams overseeing separately managed accounts and funds have the autonomy to pursue investment decisions guided by their unique philosophies and strategies.
Forward-Looking Statements
Statements included herein may constitute "forward-looking statements", which relate to future events or our future performance or financial condition. These statements are not guarantees of future performance, condition or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in our filings with the Securities and Exchange Commission. The Fund undertakes no duty to update any forward-looking statements made herein.
Contact the Fund at 1.833.845.7513 or visit the Fund's website at http://feacegif.com for additional information.
Contact
Andrew Park
First Eagle Alternative Credit, LLC
212.829.3126
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1 Steven A. Baffico, the principal of FWCA, was not an Independent Trustee (a person who was not an “interested person,” as that term is defined in Section 2(a)(19) of the Investment Company Act of 1940, of the Fund) at the time these actions were taken.
FAQ
What is the Eagle Growth and Income Opportunities Fund's liquidation plan?
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