Author: Innovative Income Investor

Have the small bankers-community and regional bankers–been lagging in their recognition of bad commercial real estate loans? Their modified loans are substantially fewer than the big banks–with about $500 billion in loans coming due this year are we about to see some major write-offs?

This article provides some food for thought–and that is all it really provides. Personally I exited most bankers earlier in the year–waiting for more ‘shoes to drop’ (although they may well never drop). Never hurts to ponder the ‘what ifs’.

This morning we got some pretty hot producer price numbers—not that these will stop the FOMC from lowering rates next week. As typical the FOMC had their finger in the air and know that not delivering a cut would cause dramatic consternation in markets. On the other hand it gives a bit more ‘cover’ to pause cuts in 2025. To keep markets ‘happy’ maybe they will slow the runoff of the balance sheet by $20 or $30 billion monthly–this would help markets have the ability to soak up some of the trillions of deficit spending and resultant debt issuance by the treasury.

Regardless of what the Fed does in the next few months the 10 year treasury yield has started moving higher and is now at 4.30%–up from the election ‘sugar high’ low yield of 4.14% just a week and a half ago. Could it be that with the election over investors are starting to worry once again about the massive treasury deficits next year?

These are important questions for income investors. Certainly many of us just want a nice, safe 5-7% and if share prices move around so be it. But watching capital erode during a time of uncertainty is never ‘comfortable’–in particular at times when the money market and CDs will still pay us 4.50% or so. A decent argument for sitting tight right now and letting some of the smoke clear.

Some comments have been occurring on the new term preferred from Pearl Diver Credit (PDCC) (the new issue has not yet been priced). The question some folks have is why invest in a new CLO company that is externally managed? There are plenty of tried and tested companys in the space–no need for a new investment option. I agree—I have issues from Eagle Point Income (EIC), Priority Income Fund (PRIF), Carlyle Credit Income Fund (CCIF), Oxford Lane (OXLC), Eagle Point Institutional (EII) and from newer player Sound Point Meridian (SPMC) most of which have proven management (except Sound Point Merdian which maybe I could have done without). At this moment I don’t have any of the Eagle Point Credit term preferreds or baby bonds (ECC) in my holdings for some reason. So while new companys are always welcome to issue term preferreds and short duration baby bonds until they get some history behind them I won’t be buying Pearl Diver and I am even considering unloading my Sound Point Meridian for the same reason.

CLO owner and CEF Pearl Diver Credit (PDCC) has announced they are selling a new term preferred stock issue with a mandatory redemption in 2029.

PDCC is new to me and certainly to the exchange traded preferred marketplace–this is their 1st issuance. The fund just went public in July, 2024 when they sold 2.2 million shares at $20/share.

PDCC held net assets of approximately $127 million after their public offering–no leverage was employed at this time. At the time of this new term preferred offering net assets were $134 million–with no leverage employed.

It is expected that net assets will be around $161 million after giving effect to this new term preferred offering. So the new offering is expected to be around 1 million shares.

The preliminary prospectus can be read here.