Western Asset High Income Fund II Inc. Authorizes Rights Offering
- The transferable rights offering may benefit the Fund and its stockholders by providing additional capital for pursuing the Fund's investment objective of maximizing current income and capital appreciation.
- Increasing the Fund's assets will provide additional capital for use in pursuing the Fund’s investment objective.
- The Rights are expected to trade 'when issued' on the NYSE beginning on January 25, 2024.
- The estimated Subscription Price has not yet been determined.
Insights
The announcement by Western Asset High Income Fund II Inc. (HIX) of a transferable rights offering (the 'Offer') represents a strategic move to increase the Fund's capital, which can be deployed towards achieving its investment objectives. By potentially expanding the Fund's asset base, the Fund aims to maximize current income and, secondarily, capital appreciation, which could resonate positively with investors focused on income-generating assets.
It's crucial to note that an enlarged asset base may lead to a more favorable expense ratio. This is due to fixed operational costs being spread over a larger pool of assets, which can result in reduced costs for investors when expressed as a percentage of assets under management. Moreover, the Offer could enhance the liquidity of the Fund's shares on the NYSE, potentially making the stock more attractive to a broader range of investors and facilitating price discovery.
The pricing mechanism of the Offer, pegged at a discount to recent trading prices or net asset value (NAV), is designed to incentivize participation by existing shareholders and could be seen as an opportunity to acquire shares at a perceived discount. However, investors should be aware of market volatility and the impact it may have on the Subscription Price and the value of the acquired shares post-Offer.
Transferable rights offerings like the one proposed by HIX are a mechanism used by funds to raise additional capital while giving existing shareholders the opportunity to maintain or increase their stake at a potentially advantageous price. The rights offering is also a signal to the market regarding the fund management's confidence in their strategy and the potential for future growth.
Investors should consider the historical performance of HIX and the broader high-income fund market segment. The demand for income-generating investments is often influenced by the prevailing interest rate environment and economic outlook. If the market anticipates rising interest rates, the attractiveness of high-income funds could be affected, as alternative income sources become more competitive.
An increase in liquidity post-Offer may be viewed positively by the market, as it generally allows for more efficient trading and better price stability. However, the increased number of shares could also dilute existing shareholders if the influx of capital does not result in proportional value creation. The rights trading period will also be a critical time for the market to assess the perceived value of the Offer, which could influence the Fund's share price dynamics in the short term.
The Offer's structure, which includes a primary subscription and an over-subscription privilege, is a common approach in rights offerings. It is designed to reward loyal shareholders with the chance to increase their holdings before the general market. The legal framework governing such offers ensures that they are communicated through a prospectus supplement, providing transparency and regulatory compliance.
Legal considerations also extend to the trading of rights on the NYSE, which must adhere to strict exchange rules to ensure fair and orderly trading. The conditions stipulated by the Board of Directors regarding the over-subscription privilege and the exclusion of secondary market rights holders from this privilege are standard provisions that protect the integrity of the offering and prevent potential abuses.
Prospective and current investors should closely review the terms outlined in the prospectus supplement to understand their rights and the implications of the Offer. The legal language and conditions can significantly impact the attractiveness and success of the Offer and any deviations from industry norms or past offerings by the Fund should be scrutinized.
Franklin Templeton Fund Adviser, LLC (formerly known as Legg Mason Partners Fund Advisor, LLC) and Western Asset Management Company, LLC (“Western Asset”), each an indirect wholly-owned subsidiary of Franklin Resources Inc. and the Fund’s investment adviser and subadviser, respectively, believe that the Offer may benefit the Fund and its stockholders in several ways. Among other benefits, increasing the Fund’s assets will provide additional capital for use in pursuing the Fund’s investment objective of maximizing current income, with a secondary objective of capital appreciation to the extent consistent with the Fund’s primary objective. An increase in Fund assets may also have a positive impact on the Fund’s expense ratio, as fixed costs will be distributed over a larger asset base. In addition, the additional shares of common stock issued could increase the liquidity of the shares of common stock on the New York Stock Exchange (“NYSE”), where the shares of common stock are traded.
A summary of the terms of the Offer is set out below:
- Each stockholder will receive one transferable right (the “Right”) for each share of common stock held on January 29, 2024 (the “Record Date”).
- Three Rights plus the final subscription price per share of common stock (the “Subscription Price”) will be required to purchase one additional share of common stock (the “Primary Subscription”); however, stockholders who held fewer than three common shares on the Record Date will be entitled to subscribe for one common share. Fractional shares will not be issued.
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The Subscription Price will be determined based upon a formula equal to
92.5% of the average of the last reported sales price per share of the Fund’s common stock on the NYSE on the Expiration Date (as defined below) and each of the four preceding trading days (the “Formula Price”). If, however, the Formula Price is less than90% of the net asset value per share of common stock at the close of trading on the NYSE on the Expiration Date, then the Subscription Price will be90% of the Fund’s net asset value per share of common stock at the close of trading on the NYSE on that day. The estimated Subscription Price has not yet been determined. - Record date stockholders who fully exercise their Rights in the Primary Subscription will be eligible for an over-subscription privilege entitling these stockholders to subscribe for any additional shares of common stock not purchased pursuant to the Primary Subscription, subject to certain limitations, allotment and the right of the Board of Directors to eliminate the over-subscription privilege. Holders of Rights acquired in the secondary market may not participate in the over-subscription privilege.
- The Rights are expected to trade “when issued” on the NYSE beginning on January 25, 2024, and the Fund’s shares of common stock are expected to trade “Ex-Rights” on the New York Stock Exchange beginning on January 26, 2024. The Rights are expected to begin trading for normal settlement on the NYSE (NYSE: HIX RT) on or about February 1, 2024.
- The Offer expires at 5:00 PM Eastern Time on February 26, 2024, unless extended (the “Expiration Date”).
- The definitive terms of the Offer will be made through a prospectus supplement and accompanying prospectus. The final terms of the Offer may be different from those set out above.
The Fund expects to mail subscription certificates evidencing the Rights and a copy of the prospectus supplement and accompanying prospectus for the Offer to record date stockholders on or about January 31, 2024. Financial advisers may send notices to stockholders shortly thereafter. Inquiries regarding the Offering should be directed to the Information Agent, Georgeson LLC at 866-856-2826 .
The Fund has declared a monthly distribution payable on March 1, 2024 with a record date of February 22, 2024. Any shares of common stock issued after February 22, 2024 as a result of the Offer will not be record date shares for the Fund’s monthly distribution to be paid on March 1, 2024 and will not be entitled to receive such distribution.
The Offer will be made pursuant to the Fund’s effective registration statement on file with the Securities and Exchange Commission (the “SEC”), which was declared effective by the SEC on March 23, 2022. The registration statement enables the Fund to sell from time to time, in one or more offerings, the Fund’s common shares and subscription rights to purchase the Fund’s common shares. The Offer will be made only by means of a prospectus supplement and accompanying prospectus.
The information herein is not complete and is subject to change. This document does not constitute an offer to sell, or a solicitation of an offer to buy, any of the Fund’s securities in any jurisdiction where the offer or sale is not permitted. This document is not an offering, which can only be made by a prospectus supplement and accompanying prospectus. Investors should consider the Fund’s investment objectives, risks, charges and expenses carefully before investing. The base prospectus will contain this and additional information about the Fund, and the prospectus supplement will contain this and additional information about the Offer, and should be read carefully before investing. Shares of closed-end investment companies, such as the Fund, frequently trade at a discount from their net asset value. The market price of the Fund’s shares is determined by a number of factors, several of which are beyond the control of the Fund. Therefore, the Fund cannot predict whether its shares will trade at, below, or above their net asset value.
A copy of the Fund’s Current Report to Stockholders may be requested by contacting 1-888-777-0102 or by visiting franklintempleton.com. All investments involve risks, including possible loss of principal. The Fund is actively managed, but there is no guarantee that Western Asset’s investment decisions will produce the desired results. For portfolio management discussions, including information regarding the Fund’s investment strategies, please view the most recent Annual or Semi-Annual Report to Stockholders which can be found at franklintempleton.com or sec.gov.
About Western Asset
Western Asset is one of the world’s leading fixed-income managers with 50 years of experience and
Western Asset is an independent specialist investment manager of Franklin Templeton.
About Franklin Templeton
Franklin Resources, Inc. is a global investment management organization with subsidiaries operating as Franklin Templeton and serving clients in over 150 countries. Franklin Templeton’s mission is to help clients achieve better outcomes through investment management expertise, wealth management and technology solutions. Through its specialist investment managers, the company offers specialization on a global scale, bringing extensive capabilities in fixed income, equity, alternatives and multi-asset solutions. With more than 1,300 investment professionals, and offices in major financial markets around the world, the
Category: Fund Announcement
Source: Franklin Resources, Inc.
Source: Legg Mason Closed End Funds
View source version on businesswire.com: https://www.businesswire.com/news/home/20240119679938/en/
Media: Lisa Tibbitts
+1 (904) 942-4451
Lisa.Tibbitts@franklintempleton.com
Source: Franklin Resources, Inc. and Legg Mason Closed End Funds
FAQ
What is the ticker symbol for Western Asset High Income Fund II Inc.?
What is the purpose of the transferable rights offering announced by HIX?
When will the Rights begin trading for normal settlement on the NYSE?
What is the Record Date for the transferable rights offering?
What is the over-subscription privilege mentioned in the PR?
