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As ‘Senior Security’ Holders You Have to Love It

A4I posted a prospectus supplement from Oxford Lane Capital (OXLC) in the Reader Alert section today which reminded me why I love the term preferreds from OXLC (and Eagle Point Credit Company).

The supplement was simply an update on their ongoing ‘at the money’ offering of common shares. Amazingly in the period of 6/4/2020 to 9/7/2021 there were 33.6 million shares sold for net proceeds of around $205 million. I love it!!

As most of you know the company which is a closed end management company has to maintain at least a 200% asset coverage ratio on their ‘senior securities’ (preferred stock and debt–although various companies have different requirements). This means when the company continually sells common shares they are protecting ‘us’–the senior holders. We want investors to love the common shares–we want them to keep piling in to keep us safe–common shareholders being low on the claims list in case of liquidation.

As an aside–I would never touch the common shares–the dividend may be 10% or so, but the returns over the life of the company have been terrible. Since 2010 when the company was formed and IPO’ed at $20.00 you now have a market price of $7.22–no thanks.

11 thoughts on “As ‘Senior Security’ Holders You Have to Love It”

  1. Thank you Tim and group for your invaluable contribution to this great site…

    I have ECCB ECCX OXLCM etc (other bargain favorites scattered about/ purchased a few months after 3/20). Any thoughts on call risk?

    1. Thanks Mr G – glad to have you here. Certainly there is high call risk on ECCB which is callable on 10/31/2021 and with a 7.75% coupon. They sold a 6.50% coupon (ECCC) recently so they have plenty of incentive to call ECCB. ECCX is kind of a coin toss as it has a coupon of 6.6875% and their newer issue from March has a 6.675% (ECCW). High call risk on the OXLCM as it has a coupon of 6.75% and they have issued at 6% just last month. If I were you I would tried to move to issues at a lower coupon and longer 1st call date–of course their prices are sky high. Or maybe sell and sit tight for the next new issue. Not great answers – I know it is tough to sell these coupons for lower coupons.

      1. Tim – to add to the call risk on ECCB, the ECCC issue did say a possible Use of Proceeds would be to call ECCB on 10/31… No obligation to do so but it was mentioned as a likely use.

  2. To me, this is also a reminder that investors have to be careful about chasing yield, loading the boat, or whatever phrase you want to pick. Anything that is paying that kind of yield on the common and has ‘performed’ the way it has on the common side of the ledger, has very elevated risk that needs to be understood. I like term preferred’s as well, but prefer to hold a limited number of shares in a spread of them (i.e., OCCIO, OXLCP, PRIF-G, etc.) rather than loading up on just one of them. This nearly-free money won’t last forever.

    1. A4I–as I have outlined before I have many of the term preferreds–some from each company–not all the issues. Don’t ‘load the boat’ with any, but scatter them about. I also have gotten used to doing a review of their monthly reports (not that they could lie to me).

      1. Oh I understand…Was speaking generally in my post, not directly replying to you specifically. It is interesting though, that these folks like to issue term pfd’s instead of the flavor w/o stated maturity dates. Ever heard of the rationale behind that other than it does make them more attractive and seemingly carrying a bit less risk?

        1. A4I–I think it is just one more item from the ‘bag of tricks’. No sure where they would have to price a ‘perpetual’—much higher I would think. The term preferred with a monthly payment probably gets them a coupon a % lower.

          1. Many thanks to both Tim and A4I. After selling all my FATBY following Gridbird, except tiny 100 shares, I realize that the market loves FATBY and perhaps even FAT for now. It seems that the company may issue 5 times as many preferreds as opined by Gridbird. No regrets. Then I concentrate on what to buy. It is TIME for me NOT to behave like a former “subscriber” of Rida Morwa or for that matter many of the SA subscription sellers. Among all the outstanding jewels, I like OCCIO, call protected. So I bought 300 shares and know that this is one of the safest things. When I looked at eREITS, it went down after a bump up. Following Tim, I also bought more of AAR-C . With FATBP proceeds, I bought another 100 shares of ATLEP slightly below par. Many thanks!

            1. Glad to help, John. Our OCCIO positions are small and definitely in the speculative camp. Taking a look at maybe getting back into something ECC related.

              All the best to you and yours.

            2. John, yes, I got my buck and a couple quick monthly divis and exploited the secondary and got out. I hit my goal and exited. It may be fine and climb higher, but in one years time it goes from a “going concern” to a high calorie binge acquisition made me stick with my plan. But its all what one wants or intent when buying and or selling.
              But I know you like the choppy ocean waters, and I played the flip game of SB-C to SB-D for an instant happy meal flip of a dimes difference in pricing this morning. I know you are an SB fan and I own both preferreds. GSL-B still giving an attractive entry point basically below par since divi is declared and being kicked out in a few weeks. And its already accruing next divi.

              1. Hi Gridbird, do you see any problems trading any of the old Ameren or Alabama preferreds with the new rule 15c2-11?
                Thanks in advance B/L

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