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A Small Sale and a Small Buy

I couldn’t resist selling 1/3rd of my Bridgewater Bancorp (BWB) 5.875% perpetual preferred stock (BWBBP). I sold for $19.20/share.

I had written on 11/20/2023–‘My Fixation with Bridgewater Bancorp Preferred Stock’. With shares trading that day at $15.52 I lamented that their shares were true laggards–I bought more at that price.

I ended that article with this – ‘Note that I am ‘talking my book’–this is not a recommendation, but at 9.55% current yield the risk/reward seems good – I would think a 10-20% capital gain is attainable in the next 3 months or so (plus dividends)‘.

I would like to say I am a damned genius – but we all know better. This is more of a blind squirrel finding a nut.

Nothing wrong with BWB – I just lightened up a bit and instantly redeployed the proceeds.

I bought another small taste of XAI Floating Rate Term Trust 6.50% (XFLT-A) term preferred. I paid $24.30. With mandatory redemption on 3/31/2026 this provides a yield to maturity easily over my 8% hurdle. I had been watching this one since I already own more than a full position–but added a little more when 2whiteroses made note of the ‘bargain price’. This issue should trade around $25 plus accrued dividends. The issue goes ex-dividend in about 2 weeks (January 12 or so) so at $24.30 it is a true bargain.

I will update the ‘laundry list’ spreadsheet.

22 thoughts on “A Small Sale and a Small Buy”

  1. I recently bought these bonds, all with a YTM over 8%
    – HPP 3.25% 2030
    – RTL 4.5% 2028
    – PRAA 5% 2029

  2. After reading this article, I decided to put in a bid for XFLT-A and was filled for 100 shares at $24.28, a minimal starter position. Will add if price weakens to $24 or below before XD date.

  3. XFLT – wants to go Perpetual ” CHICAGO, December 19, 2023 – XAI Octagon Floating Rate & Alternative Income Term Trust (the “Trust”) (NYSE: XFLT) announced today that its special meeting of shareholders (the “Special Meeting”) has been adjourned to January 24, 2024 at 10:00 a.m. Central time with respect to all proposals to allow more time for shareholders to vote.

    At the Special Meeting, Trust shareholders are being asked (i) to approve a new investment sub-advisory agreement among the Trust, XA Investments LLC and Octagon Credit Investors, LLC (“Proposal 1”) and (ii) to approve an amendment to the Trust’s Agreement and Declaration of Trust to cause the Trust to become a perpetual fund by eliminating the requirement that it terminate operations on or about December 31, 2029, unless extended as permitted by the Declaration of Trust (“Proposal 2” and, together with Proposal 1, the “Proposals”). Could the affirmative vote to affect / change XFLT_-A ?

    1. Nikolas–yes they have had trouble getting the votes–in fact I just voted my shares today (preferreds vote as well). I have not found any reference to any change in the 2026 mandatory redemption, but am still going through documents.

    2. Nikolas, You have to ask why they want to change? These term dated trusts sometimes have an issue maintaining asset value or liquidating by the term date. Now XFLT isn’t due to end until 2029 so they have plenty of time but I think a couple other funds have done the same thing.
      I would be interested in what Stanford chemist or Nick Ackerman if they follow this fund

      1. Charles–to me the reasons for change are obvious–it’s all about the money. If it terminates revenue is lost to managers–I don’t need to look further than that.

        1. You make it sound nefarious – since the fund is successful and rarely trades at a discount, isn’t making it perpetual good for both shareholders and the fund manager? Why would you want them to terminate it?

          1. A lot of elevator and escalator rides have taken place in a short period of time. It is nice to put some $$ in a shorter term investment where it doesn’t have a lot of volatility and is pinned. If XFLT-A was perpetual, it would have fluctuated several dollars just like all the other preferreds this past year. Instead it fluctuated < $1. I also feel uneasy where the investments are largely unrated, floating, and very high fund expenses.

            1. There was no proposal to make XFLT-A perpetual – the proposal concerns the fund itself.

          2. David–fyi–I voted for making it a perpetual fund. As long as I found no evidence of affect on my term preferred it is of no consequence. Make note I have no interest in the common shares.

      2. I voted no with my shares. Pushing it farther out or perpetually raises the specter of it becoming one of Ridas favorite issues because price will drop and issuance will climb.

        Term preferred is still okay and perhaps letting them do this plan on XFLT common can help shore up the preferred so a couple perspectives are warranted if you just hold the preferred only.

        1. Legend:

          XFLT is already one of Rida’s favorites (see below).

          Of course the closed end fund managers/sponsors want to make XFLT perpetual. They earn a monster $7.1M in annual fees on this $515M fund. Damn good work if you can get it with that sky-high 1.7% annual management fee.

          Of course I would read the fine print on XLFT+A before assuming it is mandatory redeemable on 9/30/26, as they disclose the dreaded “in certain circumstances” in the Annual Report:

          “Shares became redeemable at the Trust’s option at the close of business on March 31, 2023, and are subject to mandatory redemption by the Trust in certain circumstances. On or after September 30, 2026, the Trust may redeem in whole, or from time to time in part, outstanding Series 2026 Term Preferred Shares at a redemption price per share equal to the per share liquidation preference of $25.00 per share, plus accumulated and unpaid dividends, if any, through the date of redemption.

          But the XFLT+A 6.5% preferred does look very safe. It costs the fund only $2.6M in annual dividend payments while the fund earned $35M in net investment income during its most recent fiscal year. Of course, potentially lower interest rates will hurt this fund’s floating rate investment income in 2024.

          Rida’s most recent love-fest article on XFLT:


          1. “Of course I would read the fine print on XLFT+A before assuming it is mandatory redeemable on 9/30/26, as they disclose the dreaded “in certain circumstances” in the Annual Report”

            Not sure why you say that. It IS mandatorily redeemable. There is no assumption. Read the Prospectus

            The Trust is required to redeem all of the outstanding 2026 Preferred Shares on March 31, 2026 at a redemption price equal to $25 per share plus an amount equal to accumulated but unpaid dividends, if any, to, but excluding, the date of redemption. The Trust cannot effect any amendment, alteration or repeal of its obligation to redeem all of the 2026 Preferred Shares on March 31, 2026 without the prior unanimous consent of the holders of 2026 Preferred Shares.

            If the Trust fails to maintain an asset coverage ratio of at least 200% (as described in this Prospectus Supplement), the Trust will redeem a portion of the outstanding 2026 Preferred Shares in an amount at least equal to the lesser of (1) the minimum number of 2026 Preferred Shares necessary to cause the Trust to meet its required asset coverage ratio and (2) the maximum number of 2026 Preferred Shares that the Trust can redeem out of cash legally available for such redemption. At any time on or after March 31, 2023, at the Trust’s sole option, the Trust may redeem the 2026 Preferred Shares in whole or in part at a redemption price per share equal to the sum of the $25 liquidation preference per share plus an amount equal to accumulated but unpaid dividends, if any, on the 2026 Preferred Shares.

          2. Kid – I don’t read Rida–and while the fund performance overall is somewhat important because I want them solvent I see no reason whatsoever to think the mandatory redemption won’t take place. On every issue ever sold they have various language that could give them an ‘out’ one really can’t react to every sentence with remote possibilities or all the ‘stash’ would be in the mayonaise jar buried in the backyard.

            And yes as I commented to Charles yesterday–follow the money–why they want to go to perpetual on the fund–easy money in the bank.

            1. Again, I have to disagree with the aspersions being cast on fund management here. It doesn’t really hurt them if the fund is terminated since they could just start “XAI Octagon FR & Alt Income Term Trust II” and keep collecting their fees. Since the fund usually trades at a premium (like all CLO CEFs except CCIF?), terminating it would harm smaller shareholders, who would get NAV for their shares instead of being able to sell for NAV+premium. If the fund regularly traded at a discount, it would be the opposite and termination would be shareholder friendly.

              1. “they could just start “XAI Octagon FR & Alt Income Term Trust II” and keep collecting their fees. ”

                While technically true – the likelihood that they would have all the current shareholders invest in their new product is not high

                So yes, converting to a perpetual fund does enrich the fund managers which is why they are pushing it and why they are spending money by having a firm make calls and solicit votes for this approval

                I don’t own the fund but the preferred and I voted for them going perpetual, No sweat off my back and to me it benefits the preferreds

              2. David–no problem. I didn’t cast aspersions on the management—and even if I did we all have opinions and while some are very different (opinions) that is life – we all have opinions and properly presented all are welcome here.

          3. Thanks, KT, for the post. It did make me go back to review the prospectus once again regarding mandatory redemption in 2026. I have to admit that there’s language in there that requires some serious study to really understand what can and cannot take place and under what circumstances… That fuzzy, difficult to interpret language seems to center around that begins under “Voting Rights,” p S-24 of https://www.sec.gov/Archives/edgar/data/1703079/000121390021017797/s131290_424b2.htm#T04. There’s no way in h**l I’m going to hang myself out as being expert enough to definitively interpret that language OR to understand the motivation behind it being inserted into the prospectus in the first place.. It’s unusual imho, but it also seems to be for the most part discussing what is probably a singular, unlikely to occur circumstance, and even then, one where a whole lot of things would have to occur and/or be voted upon by more XFLT-A shareholders than you could normally get to vote on anything before the 2026 date could be altered… It does make you wonder though – what did they see when they wrote the prospectus that made them include this unusual language?

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