Blackstone Loan Financing (BGLF) has announced that following extensive consultation with external advisors, the trust has unanimously recommended to shareholders to vote in favour of a managed wind-down. While BGLF has generated strong performance over its nine-year life, the board felt that the current factors weighing on the trust are sufficient to justify its wind-down. These factors include: The market capitalisation and liquidity of the shares, and the company’s structure, as well as the sustained c.30% discount that the trust now trades on. The board acknowledge that a sustained discount will also limit reinvestment opportunities and ability to grow the trust via issuance.
If voted through, the wind-up will be done in an orderly fashion, with capital being returned to shareholders as and when the underlying CLO’s are matured or redeemed in a manner that maximises shareholder value. Note that while the wind-up process is undertaken the board intend to maintain BGLF’s listing, and its current dividend target. The board intends to publish a shareholder circular by the end of September 2023 which will detail the EGM in which they will seek shareholder approval.
[QD comment: It is always sad to see the investment trust universe shrink, especially when one considers BGLF’s long-term success, with a five-year NAV return of c.65%. Yet the board’s decision to pursue a wind up is tacit acknowledgment that there has been a paradigm shift in the global interest rate regime. One in which bonds yield much more, default risk may be climbing, and strategies launched in the heydays of ultra-low interest rates will have to contend which powerful headwinds, in the form of structurally higher interest rates.
Typically, we would like to see boards of successful investment trusts power through periods of difficulty, rather than throwing in the towel when the going gets tough. However, in the case of BGLF we are more sympathetic. The market environment today is starkly different to that of BGLF’s IPO. Investors may also have to wait years for a similar environment to be presented, given how unprecedentedly supportive global monetary policy has been these last nine years. While the board could have tried to implement a share buyback policy to close the discount and improve liquidity, given the volume of cash that they may have needed to burn through to close a greater than 30% discount, it may be more efficient (and in practice a very comparable approach) to simply wind up the trust in a way that is designed to maximise shareholder value.]