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Bought a Term Preferred

I added a starter position to my bucket just now—not the safe bucket CEF preferred I wanted to buy, but a buy just the same.

I added shares of Priority Income Fund 6% term preferred (PRIF-H)–which has a mandatory redemption in 2026. I paid $23.26 which means that my yield to maturity is around 9%.

Of course Priority Income Fund is an interval fund which owns CLOs – not unlike Eagle Point Credit (ECC) or Oxford Lane (OXLC), but in my opinion a safer option. I am aware that folks dislike the fund because it is managed by Prospect Capital (PSEC) which is NOT a well respected company–irrespective of personal options on Prospect Capital, Priority has performed well and has an asset coverage ratio of over 300%.

17 thoughts on “Bought a Term Preferred”

  1. Comparing PRIF-D and -H:
    H has a much shorter maturity, D has a much better CY. The difference in YTM favors D but not by enough to care after discounting for the additional HTM time. Considering market and credit risks, it would seem like the shorter maturity would get you out sooner, but who knows when things could turn sour?

    Looking at the charts I see both are thinly traded. The most striking difference is that H might have started its march to par, whereas D looks weak. Without a parent chart, it’s hard to guess from these charts what the market’s opinion is of the company. The CYs suggest a cautious opinion.

    I can appreciate Tim’s choice of H based primarily on capturing the YTM ASAP. If I weren’t in a hurry and thought risk was low, D looks good for the CY.

  2. From my spreadsheet. Data from Tim’s summary page. I’ve added the YTM. Pick your sweet spot among these term preferreds.
    name, term pfd, cum?, perp?, maturity, quarterly, par, fixed, fixed, last, coupon, CY, call, YTM
    PRIF-D TP Y N 6/30/29 Q 25 Fix Fix 22.57 7.000% 7.754% 3/31/22 YTM: 9.84%
    PRIF-F TP Y N 6/30/27 Q 25 Fix Fix 23.42 6.625% 7.072% 2/25/23 YTM: 9.21%
    PRIF-G TP Y N 6/30/26 Q 25 Fix Fix 23.73 6.250% 6.584% 3/19/23 YTM: 9.07%
    PRIF-H TP Y N 12/31/26 Q 25 Fix Fix 23.34 6.000% 6.427% 5/6/23 YTM: 9.10%
    PRIF-I TP Y N 6/30/28 Q 25 Fix Fix 22.21 6.125% 6.894% 6/17/24 YTM: 9.91%
    PRIF-J TP Y N 12/31/28 Q 25 Fix Fix 22.19 6.000% 6.760% 8/10/24 YTM: 9.48%
    PRIF-L TP Y N 3/31/29 Q 25 Fix Fix 22.55 6.375% 7.068% 2/28/25 YTM: 9.28%

  3. Just looking at the Dec 31 semi annual report this fund has a couple of interesting attributes. Most notably the bulk of the fund’s liabilites are in the form of $255M in prefered stock and $50M in Sr debt (round numbers). This capital structure would seem to advantagle preferred equity considerably particulary when compared to funds that have baby bonds above the preferred equity.

    I did note that 8% of assets are reported to be in CCC or lower rated securities. This seems high and compares to 6.6% at Eagle Point Credit.

    Also it should be noted that this fund has a very high allocation to CLO Equity vs CLO debt. As such one should compare it to Eagle Point Credit rather than Eable Point Income IMO (or Oxford Lane vs Oxford Square). This is fine with me as I prefer CLO equity over debt in this environment, but the equity is riskier.

    If you include the preferred equity and treat it as debt you get a total assets to debt ratio of 350% for this fund.

    The fund certianly has interesting attributes.

    1. The fact that it is an interval fund with gated exits for common equity would also seem to benefit preferred equity which can be sold at any time in the open market. It seems that preferred equity is the in the sweet spot of the captial structure for this fund.

  4. All my accounts are back to equity highs except my big one and it’s literally only a couple dollars shy. What a difference a couple of weeks make. Going to give this 2-3 weeks to percolate and decide whether I want to make any substantive shifts in where funds are allocated.

    1. yazzer–yes 2 of my accounts hit new all time highs yesterday–with one large account lagging by about a 1/2% right now.

  5. why do you consider it a safer option than the others?

    just the asset coverage? I really have not dug into PRIF much.

    1. Z—yes the asset coverage is somewhat higher and they have held the NAV of the common shares pretty steady (relatively).

  6. I see these posts and it makes me want to do some buys, but right now I am in a time out, LoL
    Which is probably a good thing.
    Our mm fund which is at T Rowe and has the most liquidity has not transferred to FIDO yet. I expect after the partial call of the Trinity BB gets settled around May 17th it will finally be transferred.
    Something for others to keep in mind if you’re thinking of moving accounts to other brokers

    1. I went all into CDs this week instead of branching out. That said, I have another large sized tranche of items maturing 5/13 and 5/15 (JPM and US Treasury bonds). Gives me 10 or 12 days to ponder where to put those funds…

    2. Charles–it is just part of my SLOW shift to a few more risk assets. I am in no hurry as the 5.35% on CDs and about the same on my money markets has been a very satisfying investment.

  7. I own some of the H, J & K series so if things go south, we will be in the same boat.

    1. Agreed with New — I own some I & J series, and you buying some H makes me feel a bit better. I will be glad, though, when the mandatory redemption dates hit.

      1. I have not looked into these, but one thought that comes to mind is if the management has any skin in the game? Meaning do they own of the common or the preferred.

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