Buying Kayne Anderson MLP Term Preferred

As all readers know we love term preferreds from CEFs –in particular those from Kayne Anderson MLP Investment Fund (NYSE:KYN) and Tortoise MLP Fund (NYSE:NTG) which have issued solidly investment grade senior securities (preferred stock and all debt are senior securities in the closed end fund world) over the years.

Over time the term preferreds from these issuers have ‘matured’ with their mandatory redemption feature leaving us with only 1 lonely issue with a mandatory redemption on 4/15/2020.  The remaining issue is the Kayne Anderson MLP Investment Fund 3.50% Series F Mandatory Redemption Preferred Shares (NYSE:KYN-F).   The issue became optionally redeemable in 2016.  Dividends are qualified and are cumulative.  The company is required to have an asset coverage ratio on the senior securities (debt and preferreds) of 200% and most recently the coverage ratio was 294%.

Why would you as an investor be interested in a piddling 3.50% coupon?  It is simply the safety the issue provides as it pays a very reliable 3.50% in monthly payments.  Call it a cash proxy if you would like.

KYN-F is now selling right around $25 for the first time in over 2 years–in fact today a large sell order dropped the price to $24.76 before it recovered to close at $25.02.

The price of this preferred should be pegged right at $25 for the next 20 months–no matter the level of interest rates or the strength of the economy.

The price action of the issue has been as it would be if the issue was going to be redeemed–and maybe it will be, but there is little–if any–chance of financial loss if an investor buys shares in the $25 to $25.05 area as the monthly dividend is 7.3 cents/share and holding them all the way to redemption (whenever it shall come) will provide a modest–but ultra safe return.  Any price below $25/share should be bought if possible by ultra conservative investors and those looking for a super safe home for cash potentially for the next 20 months.

We should note that Kayne Anderson is trying to merge the Kayne Anderson MLP Fund with the Kayne Anderson Energy Development Fund and the recent price action of the term preferred may be because of this potential merger.

Disclosure–we are overweight a bunch of this with a holding of 1942 shares.





13 thoughts on “Buying Kayne Anderson MLP Term Preferred”

  1. From the merger proposal FAQ:

    Q: What will happen to the shares of KYN and KED that I currently own as a result of the Reorganization?
    A: For KYN stockholders, your currently issued and outstanding shares of common and preferred stock of KYN will remain unchanged.

  2. Tim, on NTG, are the payments QDI?

    Have you had any interest in the Bulletshares term offerings? They seem akin to the IHIT security we both own but I don’t recall you mentioning them before.

    1. Hi G–actually I know little about NTG and KYN—but I would assume they would be, but this can be tricky with CEFs so I would check their website.

      I haven’t looked much at further Invesco offerings–beyond the IHIT shares which I have been happy with. When I can ‘wind down” my real work and concentrate on this stuff Invesco certainly has a lot to look at.

    2. I have owned the Bulletshares high yield offerings for a few years and they have done well. The yield is lower now though compared to when I bought them. IHIT seems to have less risky securities, but IIRC correctly is also leveraged whereas the Bulletshares are not.

      Guggenheim ran the Bulletshares when I bought them so I wonder if the same people will be running the funds now that they have been bought out. At any rate, all of the Bulletshares I have owned have finished at their target amount or a bit more so they did what they were supposed to do. Keep in mind that as they approach maturity the yield will go down as the holdings mature and they transition to cash over the last year.

      1. There are quite a few Bulletshare offerings. Was checking into some as a way to build a “CD type ladder”, since they have offerings that mature each year going out up to 10years from now. BSJJ thru BSJP are the sequential tickers, for example. They have a separate series for HY corp debt and HY bond, I believe.

        1. That’s correct. I built a short (step-ladder) from them myself on the high yield stuff. I am hoping that maybe the fees will come down some now that they are under new management.

          The yields are not so good right now, but if they hit their target price when they are rolled up you get a nice bump that makes them look better. So far all of mine have hit the target price, but that can always change I guess.

  3. Interesting about the merger. Didnt know about that. I just go straight to the coverage and debt ratings on their website and ignore the rest. It has had unusually large volume for it last couple days. It briefly dipped below par friday on heavier volume also. I was on golf course and thought if it drops below again, I will buy which I did.

    1. Hi Grid–yes in fact I see they have changed their name today. No reason this should do anything to the F issue–I have skimmed the prospectus for the merger of funds and didn’t see anything (of course sometimes as you know they bury little bits in there). My guess is some folks believe a call so have moved out—whatever–at $25 there is no risk.

  4. Tim, as a long-term investor this issue does not interest me at all. However, I will soon be managing some funds for my parents that are in their late 70’s and this is exactly the kind of investment they need! Due to rising interest rates, I will probably get them out of Vanguard bond funds and this issue will fit perfectly for them if bought right around par value. Plus, the dividends are qualified. Thanks for bringing this security to my attention.

    1. Hi kaptain lou–it will only be around for another 20 months so we will have to look elsewhere then.

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