Snoozers are Losers–Gabelli Comes a Calling-UPDATE

I just knew this had to start happening–and I am less than happy that the Gabelli funds have now figured out they can save a bunch of money by calling old outstanding perpetuals.

Gabelli Convertible and Income Securities Fund (GCV) has announced a redemption of their 6% GCV-B issue (see it here). This is going to be painful for holders of this security–currently trading at $26.55.

The call notice is here.

Investors should make sure that they don’t hold any crazy highly priced Gabelli CEF preferreds. You can peruse the CEF preferred list here and see that the Gabelli family of funds has over 20 issues outstanding (Ellsworth and Bancroft are Gabelli managed funds as well) and many have been redeemable for years. Many are trading at steep premiums.

I would suggest income investors double check their portfolios and make sure those with the largest premiums and are currently callable hit their sell list tomorrow. I am not firmly predicting they are all going to be called–BUT…….

Disclosure–I own at least 5 Gabelli issues–but I don’t believe I have the big premium issues, but I will be double checking later tonight.

UPDATE

NOTE– Gabelli Equity Trust (GAB) filed a registration statement for new issuances of common and preferred stock on 9/24/2019. Within the prospectus supplement it states that the proceeds of any preferred shares issuance will be used to redeem outstanding preferred issues. There is 1 issue at high risk of the 4 outstanding. GAB-D 5.88% is trading at $26.31 and is redeemable.

NOTE–Gabelli Dividend and Income Trust (GDV) has filed a right offering to attempt to raise $162 million in new common equity. The fund states they may use a portion to redeem the 6% GDV-D issue which is currently trading at $26.95 and is redeemable.

NOTE–Gabelli Multimedia Trust (GGT) filed a registration statement on 9/26/2019 for new issuance of common and preferred shares and state proceeds from issuance of preferred shares will be used to redeem outstanding preferreds. The 6% GGT-B issue is trading at $26.66 and is redeemable.

I didn’t go further in researching. Obviously there are numerous issues at risk here–some at absolutely huge premiums–some at more reasonable premiums. If you read through the above documents you will have to dig deep to find redemption references.

Additionally even though the funds have filed various registration statements there is no guarantee issues will be redeemed.

FED Is Increasing REPO Size

The New York FED (who performs open market operations for the FED) did a pretty giant REPO today.

They did a $73 billion overnight (1 day) repo and an additional $31 billion of 15 day transactions–totaling over $104 billion.

Previously they had hit $87 billion in a day–much less than today. Oh well–a billion here and a billion there.

What does this mean to me? Nothing much now–I guess banks are still short of cash. Normally these are only meaningful for us regular folks in hindsight–big transactions take place and later we find some institution in trouble. Time will tell. Generally I think the FED is BS’ing us in this area.

Tomorrow we find out how large the FED balance sheet has grown and we can ‘net out’ the REPO transactions and find out how much true QE they did (outright purchases of securities for long term holding)–that info is released at noon every Friday.

Here is the New York FED repo page.

Aegon Funding LLC New Baby Bond Detail

Below are the details on the new investment grade note issue from Aegon Funding LLC.

The ticker has not been announced–and may not be before trading on the NYSE–if it is announced we will post it. There is no OTC Grey market trading so one will need to call their broker if interested in a purchase prior to exchange trading.

The pricing term sheet is here.

Note this issue is senior to common stock and to any junior subordinated debt but subordinated to any or future senior debt.

Boring is Good–at Least for Me

Wednesday brought a flurry of activity on the Highland Capital Management LP bankruptcy and that activity was not really welcome. Boring is good.

While it is unlikely that the Highland Income Fund (HFRO) will be directly affected lawsuits and bankruptcys within the ‘family’ tend to ‘spill over’ into the other related securities–such as the Highland Income Fund 5.375% preferred (HFRO-A) which gives us income investors some indigestion. To watch a A1 (per Moodys) fall into the mid $24.50’s from yesterdays close of around $25.30 is never fun, especially if you are holding a full position. Fortunately shares are bouncing back some as the news is digested and they are now trading at around $24.95.

I personally stepped in and added more shares of the HFRO-A issue on top of my full position. I will be cutting back to a full position (or maybe even a little less) if we get another 10-15 cents on the share price. The good part is the original position was bought cheaply on the IPO so no harm is done yet to the pocketbook–but maybe I lost an hour of life span in the excitement.

I know that quite a few of us learned lessons here–for some of us they are lessons learned AGAIN. Primarily one has to dig deeper into the past history of the company you are investing in. In the case of Highland Capital many issues started back just after the financial crisis in 2009-2011. You have to do a pretty deep dive to dredge up the old news, but I guess we all need to do that. This in spite of the solid investment grade rating of A1 from Moodys.

Currently for those holding the preferred shares if you are uncomfortable holding the shares you might be better off exiting–the 5.375% is replaceable. While likely this will not affect the safety of the shares one never knows for sure and there is no reason to lie awake nights for 5.375%.

Highland Income Fund-More News

While this is a week old I just came across this items.

Claymore (a highland affiliate) filed suit against Credit Suisse back in 2013 and thus far has been awarded $393 million by the courts. This has not settled yet.

Any award that is received will be credited to the Highland Income Fund (82%) and Nexpoint Strategic Opportunity Fund (18%).

This would seem to be good news–at least the way I read it.

The press release is here.

Personal Portfolio Update

I added a few more shares of the Highland Income Fund 5.375% preferred (HFRO-A) just now at $24.73–this brings me overweight on the issue.

See the article below for further news.

This is not a recommendation to follow me–if these types of things make you too nervous you should not add to any holdings you have and should evaluate current news and act according to your risk tolerance.

Large Share Dump on Highland Income Fund Preferred – Updated News

A large block sell just took the Highland Income Fund 5.375% preferred down 40 cents to $24.89 or so–HFRO-A.

UPDATE

There is an old issue with a Highland Fund going back to 2011. I don’t believe this should have any affect on the Highland Income Fund–but I’m not a lawyer. I hold the preferred in multiple accounts

Here is a link to the article

Thanks to mcg and C Malcolm for pointing out news.

Investcorp Credit Management BDC Inc. Reopens a Baby Bond

Investcorp Credit Management BDC, Inc (ICMB) is selling shares of a 6.125% note issue with a maturity date in 2023. ICMB is a BDC.

This issue was previously issued by CM Finance, which was purchased by Investcorp.

The issue trades under CMFNL and closed on Tuesday at $25.62–maybe it will take a hit on this reopening. Details of the original issue can be seen here.

The new prospectus is here–and the number of bonds to be sold is not yet known.

Washington Prime Group Refinances Debt

REIT Washington Prime Group (WPG) has refinanced 4 properties at the rock bottom rate of 3.67%– interest only loan due in 2029. The company paid off a 7.50% coupon note.

It would appear that the press release was squarely aimed at Brad
Thomas who has claimed the company has little access to low cost capital.

We only mention this because the company has 2 preferred issues outstanding with current yields of around 8.50%. These issues can be seen here. These are not in our personal wheelhouse–but for the more adventuresome maybe there is opportunity.

The company press release can be read here.

AEGON Funding Company LLC to Sell Subordinated Notes

Aegon Funding Company LLC will be selling a new issue of subordinated notes with a maturity date in 2049. These will likely be investment grade, but I don’t see a current rating from Moody’s or Standard and Poor’s.

AEGON Funding is a division of AEGON NV, the giant Dutch insurer.

The parent company has 2 outstanding issues which can be seen here.

The preliminary prospectus can be seen here.

As the name implies this issue will rank senior to common stock, but junior to any senior and/or secured debt in the capital stack.

Will Let Go of Vornado Preferred Tomorrow

Some of these preferred prices are almost too good to be true.

Tomorrow if the current price is available I will sell the Vornado 5.70% preferred (VNO-K) issue that I wrote about last week here.

I paid $25.26 for the issue last week and it closed today at $25.61. It is currently callable and is split (S&P has them a notch under investment grade while Moodys has them low investment grade) investment grade.

The next quarterly dividend is to be paid 1/1/2020 and is about 36 cents–so it makes no sense to hold at this point. I bought only 365 shares, but I will take my profit and wait for another entry.

Other investment grade issues that folks here are playing with are the State Street 6% STT-E issue, the Capital One Financial 6.70% COF-D issue and the Northern Trust 5.85% issue (NTRSP). Each of these is redeemable only on a dividend payment date–so once a pay date is past one can buy with some confidence they will have it for the full next quarter. At this moment each them is a bit expensive–meaning each is more than 1 dividend payment date above $25.

For the Forensic Investor

PLEASE DO NOT TAKE THIS WRITING AS A NEGATIVE–BUT INSTEAD SOMETHING TO PONDER–AND FOR THOSE WITH THE TIME TO DO SOME FORENSIC RESEARCH MAYBE THEY WILL FIND SOME INTERESTING DATA. MAYBE ALL IS FINE–BUT I ‘SMELL A RAT’ SOMEWHERE IN HERE.

B. Riley Financial (RILY) has been taking down quite a lot of debt and most recently sold 2 million shares of preferred stock. As I look on their last 10Q I see a line entry for $250 million in “loans receivable” listed in their assets–up from $38 million a year ago. I am not certain what this is all about.

We know that B Riley has bought some strange businesses over the last number of years such as magicJack which has proven to be successful–at least that is what has been reported.

But really B Riley caught my eye when they floated theMaven (MVEN) a $68 million loan back in June. For those not familiar with theMaven it is an internet platform where writers publish their articles etc. Brad Thomas originally claimed he was moving his ’empire’ to theMaven and even did a video of himself interviewing Jim Heckman–the founder of theMaven. I had contact with Brad and explained what to expect if he went that route. Of course Brad ignored me and started at theMaven–then after a few months he found out exactly what I had conveyed to him and he left them.

Has Bryant Riley been caught up in the glitz and glamour of Jim Heckman? The slick talking of Ross Levinson?

I watch Jim Heckman because my wife worked at one of his previous companies which went belly up. I have a decent idea of how this guy operates.

So since I am always squeezed for time I invite others to do a little research for all of us.

This is not about theMaven this is about how many millions in loans is B Riley making to theMaven. Given that B Riley has only $250 million in equity will a $50 or $100 million write down on loans cause a little consternation?

Here are some starting points.

Click here to google Jim Heckman and Ross Levinson. This will give you days and days worth of entertaining reading.

theMaven SEC filings provide lots of insight into what they are up to–they have recently purchased theStreet (Jim Cramers company) and licensed Sports Illustrated–all on borrowed money. Mind you that theMaven has not made a quarterly SEC 10Q filing for 1 1/2 years.

Thats all one needs to do some decent research. THIS IS NOT A WARNING—this is just a ‘I smell a rat’–and for folks holding B Riley baby bonds and preferred you may want to do some reading.