BDC Gladstone Capital Corporation Prices Baby Bonds

The latest baby bond to be issued continues the march of lower coupons for junk rated companies.

Business development company Gladstone Capital has priced their new issue of baby bonds with a 5.375% coupon. We normally would say this is totally inadequate for the risk presented–but it is so much the normal low coupon in this low interest rate environment, why even bother. It simply is either adequate for an investor or it isn’t–each person needs to decide.

The good part of this issue is it matures in 2024 and we like shorter dated maturities. We will have to ponder owning this one–just don’t know.

There will be no OTC Grey market trading, but there is a chance you can pick up shares early off your brokers ‘bond desk’ with the CUSIP number.

When it does begin to trade on the exchange it will trade under ticker GLADL

The pricing term sheet can be read here.

2whiteroses was on this one quick 2 hours ago.

20 thoughts on “BDC Gladstone Capital Corporation Prices Baby Bonds”

  1. Picked up some GLADL (CUSIP 376535704) through Schwab bond desk at 24.87. Holding a full allocation on NEWTL. BTW, GLADL YTW is about 1% higher and YTM about 0.4% higher than NEWTL at 25.85.

    1. Warren–your broker must be smartening up–that is pretty quick for a baby bonds just priced.

      1. Tim- Schwab has been pretty good about getting early trades. It took their desk an hour to get an ask. Actually made two purchases in two different Schwab accounts. Each purchase was from a different trader. So there is a market.

        1. I just spent 15 minutes listening to blah blah blah from TDA as to why they cannot do anything on this one, including because it’s “below investment grade.” not until it’s trading on an exchange… Quite honestly, that’s what I expected, so I was surprised Schwab had a way.

          1. We have accounts at TDA, and have had similar problems. It hasn’t been a big issue since they don’t typically hold these type of higher risk fixed income.

  2. Surprised they can price this so far below NEWTL 2024 5.75% which just IPOed a couple months ago. NEWT is just as good of a BDC so there shouldn’t be a premium for GLAD bonds.

  3. I think a good area to buy is below 24.25, yield would equal 6% total return in a simple equation.
    For a 6.5% total return, a buy at 23.60 would do it.
    Do your due diligence after all i’m only human.

    1. Newman–I am thinking along your lines–I would be most interested at a decent discount. Do I think we will see that discount? Nope.

      1. Gladd has a current yield of 5.85%. To get that current yield it would need to trade down to around $23 per share. Not sure, I would hold Gladd here, my guess is that will continue to head south.

        1. I focus more on YTW. In the case of GLADD (which I own) YTW/YTC is 3.39% @ 26.00 (last trade) with about a year to go. With interest rates unlikely to change much I expect GLAD will redeem at call. For my personal calculations, I’m rotating out of GLADD into GLADL with about a 2% higher YTW.

            1. Steve – As you’ve figured out, there’s different measurements of “yield” and to generalize, using current yield as the only measure can dangerously distort what you will get if you’re buying callable bonds or preferred trading at a premium and expect to hold to maturity…. As Warren pointed out, YTC (or YTW which is the same but might take into account various call dates when a bond is callable at a declining premium over time) and YTM are better measures because they take into account the loss you will experience at the call date….. They take the guess work out of the impact of buying at a premium and getting called out at “par.” BTW, Landlord Investor, looking at NEWTL from point of view of YTW and YTM explains why your direct comparison of GLADL to NEWTL doesn’t hold up… IMHO, NEWT is a better credit than GLAD, but at 25.85, NEWTL (which I own) is trading at 3.79% YTW and 4.95% YTM. At par, GLADL is of course at 5.375% to both, hence imho reasonably priced as a lesser but still decent credit.

              1. 2whiteroses – I hope this is not too much of a detail/weeds post. My numbers are a bit different, and I’m trying to figure out why so I can refine my calculations. For NEWTL@25.85 I come up with YTC=4.33%. On this side of the ex date (10/11) I see a full 2 years of interest from 8/1/19 to call on 8/1/21 (8 payments) = $2.875. Minus the premium over par the net return is $2.03. $2.03/25.85/(1.81 years to call) gives 4.33% annual yield. If you have some thoughts I’d appreciate it.

        2. SteveA–I have had it on my list to sell–need to put a post it note on my monitor. Unfortunately I have a pot load of issues I would like to sell–big capital gains, but don’t have many places to go with the $$

      1. I will pass. Gladstone is a Mario Gabelli Wannabee IMHO. He is smart enough never on the brink of BK. In times of stress, he has reduced dividends to the common. A few weeks ago, HFRO-A, a Moody A- rated preferred, according to QNL.com, it could be QID, just paid its first quarterly dividend. 5.375%, it is trading just a tad above par. I am trying to add some more. Arbitrage Trader wrote an article on Gladstone. His recommendation is AFINP, from the relatively new REIT, which Rida Morwa (preferred: AFINP) and Dane Bowler LONG (I did not want to read Bowler). Brad Thomas lumped AFIN (common) and the fake Global Net Lease (GNL) as yield trap. Then for preferreds, it still can make sense. Took a quick look at the 10Q, AFIN is actually doing better than prior Q in 2018 and 6 month. AFINP has one notch higher priority than the common. They could reduce their pro forma dividend from a lofty 7.65% or so. I may sell a little more of my Colony Capital preferred which got pumped up by Rida et. al. to buy the AFINP.

        1. Johncal – At first I was going to say you’re comparing apples to oranges when you’re comparing the yield on a 5 year piece of paper vs that on a perpetual preferred, but then it dawned on me when you talked about Arb Trader’s article that you’re confusing GOOD with GLAD… Arb was comparing GOOD’s new perpetual with other perpetuals. He was not recommending or comparing AFINP or HFRO-A to GLAD’s new 5 year baby bond… It’s a mistake to be looking at issues like these as a rationale for thinking GLADL is mispriced at 5.375%…. You may or may not like GLAD as a credit, but I would bet if you compared GLAD to AFIN (something I haven’t done), I’d bet you favor GLAD by a whole lot even though they, too, are apples to oranges as comparable.

          1. 2whiteroses,
            I absolutely agree with you that AFIN is certainly more dicey or riskier than Glad. Yes, I was thinking of GOOD, which was the embarrassment of Mr. Gladstone. I remember the history of call the N but had no money to call. Then GOODO and GOODP paying juicy dividends. I suppose I could be biased remembering the humble days of Gladstone. I sold some of my GOODM on the basis of YTC. I know that I should wait as GOODM has lots of meat on the bone. Then if I forget, it could be even worse, e.g. my WFC-T.
            For quality, I loaded up another 400 shares of HFRO-A. I should just pay the ask price early on. It closed $25.23 vs what I picked up at $25.19. Despite its bad “sentiment”, it could become credible with just 1 dividend (QDI recognized by Schwab) could convince the doubters that this not so well known fund actually has the ability to pay. Now I have 800 shares balancing out the less pristine position such as all shipper preferreds, some Colony Capital preferreds and perhaps AFINP. I really not that worried about AFINP. Debt to equity not scary. They have turned around and they can always reduce the dividends to the commons. IMHO, DS-D (that golf thing) is perhaps riskier.
            On HFRO-A, Schwab did book the dividends as QDI.

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