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.