BlackRock Debt Strategies Fund (DSU) – Odd Lot Tender Offer – $80 Gain

Current Price – $11.61

Offer Price – $12.36

Upside – 6.5% or $80 for odd lot holders

Expiration Date – 13th of April, 2018

SEC Filling

 

DSU is trading at 8% discount to NAV and is offering to purchase up to 10% of shares at 98% of NAV. This tender will most likely be oversubscribed, thus this trade is probably only for odd-lots.

Fund’s NAV has stayed in a narrow range of $12.6-$12.7 per share and is unlikely to deviate significantly before tender expiration as majority of portfolio is corporate loans and bonds. Thus cash-out price of $12.36/share +-$0.1 is quite certain in this case.

Tender document says that “the Fund may accept all Shares tendered by stockholders who own, beneficially or of record, an aggregate of not more than 99 Shares and who tender all of their Shares, before pro rating Shares tendered by other stockholders”. Tender offers carried out by BlackRock Enhanced Government Fund in 2016 and 2017 had the same ‘may’ phrase, but odd-lots were accepted without proration in both cases. So I am hoping the same will be applied for this BlackRock fund as well.

As there is no mention of guaranteed delivery, shares might need to settle before the tender offer expiration (17th of April). Therefore position needs to be established 3 days before the tender expiration. Brokers might also have earlier deadlines for submitting shares.

13 COMMENTS

  1. Vincent

    Do you have any idea about a likely proration result? I’m wondering if buying more than 99 shares is a good idea, because the share price fluctuation is limited. But if the proration outcome could be something like 20% it is not worth it I think.

    1. dt

      I expect it will be oversubscribed, however one should be able to liquidate the not accepted part approximately at current prices.

      Saba Capital Management (activist investor in CEF space) is involved with this name and has 13% of all outstanding shares. I assume they will tender everything as their strategy is to buy CEF at discounts and then to press management to close this gap.
      See their latest letter here: https://www.sec.gov/Archives/edgar/data/1051003/000090266417003886/p17-2009sc13da.htm

  2. FM W

    DT, I received notice under “mandatory action”. So I do not need to submit my choice like the other tender cases? If I bought 99 shares it will automatically submit for odd lot tender is that true? Thank you.

    1. dt

      I do not think this will be mandatory action – election choices should be given at a later stage and you will need to make a choice to participate in the tender.

  3. M G

    I am using IB, how do I go about letting them know? Do I just call them up? (Very new to this!)

  4. Michael Lax

    under account management, look under support and you should see the corporate actions tool

  5. M G

    would one be able to buy multiple 99 lot batches assuming one has multiple accounts in various brokerages?

    Or if I have multiple sub accounts (ira) within the same brokerage?

    1. dt

      This used to be possible few years ago and number of arbitrageurs had multiple accounts even with the same broker to exploit odd lot opportunities. I know for a fact this is no longer possible with IB. But having accounts at different brokers might still work, though I have not tried this. It is difficult to see how and why someone would bother to track and match odd lot owners between different brokers. I am not even sure that brokers supply full information on who are the beneficial owners of the tendered shares for the company.

  6. greg lia

    At Fidelity it was Social Security number driven. So I have been able to do 3 in the past: my own, wife’s, and daughters, but NOT my own regular and my own IRA. Good question on on accounts at a separate brokerage accounts. Not sure what mechanism would prevent, but hopefully DT or others with such experience will chime in

  7. M

    Did odd lots get looked after in this tender with no proration @dt? Heavily oversubscribed ~25m tendered vs 5m available which is unsurprising given the upside.

  8. Dan T

    “Therefore, in accordance with the terms and conditions of the Tender Offer, the Fund will purchase Shares from all tendering stockholders on a pro rata basis, after disregarding “odd lots” and fractions, based on the number of Shares properly tendered (“Pro-Ration Factor”). The final results of the Tender Offer are provided in the table below.”

Comments are closed.