Western Asset High Yield Defined Opportunity Fund Converts to Perpetual Pending Tender Offer

Western Asset High Yield Defined Opportunity Fund (HYI) is a closed-end fund that has transitioned to a perpetual structure with a pending tender offer. The fund was initially invested in the high-yield space, but its new structure will allow it to continue investing in the high-yield market without a specific term. This change is consistent with the Western Asset fund sponsor's strategy of adapting to market conditions.

Western Asset High Yield Defined Opportunity Fund (HYI), a closed-end fund traded on the New York Stock Exchange, has announced a significant structural change. Stockholders approved a proposal to convert the Fund to a perpetual structure, eliminating its original term scheduled to end on September 30, 2025 [1].

The Fund will conduct a tender offer for up to 100% of its outstanding shares at a price per share equal to 100% of the Fund’s net asset value per share on the day the tender offer expires. The tender offer is expected to commence on or about June 20, 2025, with an expiration time of 5:00 p.m., New York City time, on or about July 21, 2025, unless extended [1].

If the Fund maintains at least $75 million of net assets following the tender offer, it will change its name to "Western Asset High Yield Opportunity Fund Inc." and retain its ticker symbol "HYI". If less than $75 million remains, the Fund will proceed to liquidate on or about September 30, 2025 [1].

The Fund’s investment manager, Franklin Templeton Fund Adviser, LLC, has agreed to waive 20 basis points of its annual management fee for one year following the proposal’s approval [1].

This transition aligns with Western Asset’s strategy of adapting to market conditions. The Fund’s investment objective remains high income, with capital appreciation as a secondary objective. The Fund emphasizes team management and extensive credit research expertise to identify attractively priced securities, primarily focusing on high-yield corporate debt [2].

The Fund’s current positioning has an effective duration of 3.24 years, making it relatively less interest rate sensitive due to the high-yield debt it carries. The portfolio is diversified across a range of primarily below-investment-grade rated debt instruments, with around 86% allocated to BB or lower [2].

Investors should review the offer to purchase and tender offer statement when these documents are filed and become available. The Fund’s Shares are traded on the New York Stock Exchange, and similar to stocks, Fund share prices will fluctuate with market conditions [1].

References:
[1] https://www.stocktitan.net/news/HYI/western-asset-high-yield-defined-opportunity-fund-inc-announces-9h8s21pdulhq.html
[2] https://seekingalpha.com/article/4794166-hyi-potential-switch-perpetual-pending-tender-offer