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.