CEF Priority Income Fund Announces New Term Preferred

Closed end fund (CEF) Priority Income Fund has announced a new issue of term preferred stock with a fixed coupon of 6.375%. This new issue joins 4 other issues that the company has outstanding.

Priority must maintain a leverage ratio of 200% or above being a closed end fund and after applying the new issue term preferred to the ratio calculation it appears they will be in the 360% area. We maintain approximate leverage ratios on CEFs here.

Priority Income Fund is a non-traded CEF.

Thanks to J Antelo for catching this issue on Reader Initiated Alerts.

Disclosure that I own some of the PRIA-D 7% issue.

The pricing term sheet can be found here.

30 thoughts on “CEF Priority Income Fund Announces New Term Preferred”

  1. I held my nose and bought a modest 400 at $24.77. In love with the terms, not the company. That is putting the tail and of the dog, but Im light in term dated issues.

  2. Please read the prospectus carefully. tim has these rated C also…for a reason. The Priority Fund hold hard to price or mark-to-market obligation, many of them of a private and non-secondary market to reflect the prices. The verbiage reads something like, ‘ the best efforts of the management to price the contents of the fund’. This is what the 200% of market value is based upon? I can not price my optimism or confidence into my portfolio; so ‘caveat emptor’.
    Glancing in on occasion from my perch and trying to fulfill the call to just stick to market and research info. Here’s a couple of ‘relativity’ ideas:
    Some of the IG prefs way down near $20 are probably a good second choice to CDs and $Mkt. or close in laddering?? Somewhere back in the subliminal murrmuring was this same feeling on deeply discounted CN prefs. Value Prefs? Somewhere in between is the truth. Depends on your views and near term future needs of your cash pool.
    Lastly, as reminder and this has proven true for at least ten years: Don’t confuse treasury yield movements, anywhere on the curve, to Inflation Expectations. Maybe a very long term smoothed curve can help with that view, but it is hindsight and now not relevant with Fin Enj. Seems this is still being used interchageably. We’ve applied blackhole relativity to money. I’m getting to the point where the long term treasury yield is a non-issue if the Myth of Mr. Market accurately reflects Inflation when I’m dead and gohn!
    Best to All!

  3. What are the implications of this fund being private (i.e. how does this preferred differ from a preferred on a publicly traded CEF)? Seems like the coupon is higher than other CEFs

    1. xwords59–the only real implications as far as I am concerned is that daily market prices are missing. The company has all of the SEC filing requirements of other CEFs. I think this makes folks a bit hesitant to buy the preferreds. Of course this is not the best of the CEFs–a long way from it. They are a CLO (collateralized loan owner) which is a black box of sorts since all assets held are level 3 (I call them the “trust me” assets-just trust management to value the assets).

      The company is affiliated with Prospect Capital (PSEC), which is good AND bad. PSEC has been less than stellar.

      As long as the coverage ratio remains fairly high and the economy remains decent I am a holder of some of these term preferreds–simply a risk/reward deal.

  4. Doing the math, i find that the D issue at (25.45) yield to call 3/2022 is 6.27 is slightly better.
    Whereas the new issue E will yield 6.375 at (25.00) to call 10/2021
    The difference is the D issue has a longer 1st call date
    Does that make sense?
    Disclosure, I have been offloading weak issues due to memory of last years drop in Nov-Dec.. eg sold all my RIlYG and RILYN issues

    1. Hi Newman–Yes I show D at 6.15% YTC–but what’s 15 basis points. I show the B issue at 6.78% and the A at 6.50%. C is at 5.65%. Of course this assumes calls as soon as possible and I don’t think they will call the 6.25% B next year or the A the year after—that would imply they could float new issues around 5.75% (of course whoe knows what happens to interest rates in the next 2 years–we don’t even know what will happen in the next 2 days).

      1. Thanks Tim, I went back to QOL and saw the B issue at 6.25 not 6.875
        So , my eyes need checking and even the D is still at 6.3 not 6.15
        Here is my math , disclosure , i was a C student in math, yet made a decent living as an Accountant. Life is funny that way.
        The D issue has 10 more pymnts of .4375 to call date. D issue is priced at 25.40 for example. take the .40 cents off the 25.40, divide that by the next 10 payments and you get 4 cents to be subtracted from each pymnt of .4375=.3975
        Multiply the .3975 by 4 ( to get an annual dividend) = 1.59…divided by $ 25 call price and you get 6.36%
        Am i funny or what?

        1. Newman–I don’t do the math—I simply have a formula on google sheets. If you are a bean counter you are probably right. My formula calculates by days–I’ve always noted it close–but not always exact.

        2. Isn’t that calculated under straight line?
          all formulas run under constant yield. (which may not be the correct methodology here because of the record date structures, not an interest payment accruing daily. I did a sheet to compensate for the difference years ago, and you would be surprised at home much as difference it made in the YTM/YTC calculation because the timeframe is so much more compressed. (since out of the 365 days in a year, only 4 matter)

          1. Newman, My son graduated 2 1/2 years early and Summa Cum Laude, but I always said I graduated Summa Cum Lucky. So to me your math is at least a B+. Tim’s google sheet formula is more or less the same as your calcs which are as Justin points out – straight line. It’s a perfectly legitimate methodology.

            I run three YTCs/YTWs: straight line, QDI adjusted and IRR. The QDI adjustment has obvious benefits for creating an apples to apples comaprison between qualified and non-qualified YTCs. The IRR is different in that the calc is sensitive to the entirety of a dividend on the day it is paid – or more accurately, the ex-date. Quite useful if arbitraging between like/kind preferreds, especially in the same company with exactly the same credit profile. I’ll be happy to share any intel on this if you’re interested.

              1. Justin, The difference can be surprising. Assuming a 10% differential between one’s ordinary and QDI tax rates, a QDI 5.5% is equivalent to a taxable of about 6.1% – in terms of what you’re left with post-IRS. Only one factor of many on a buy, though a significant one. Also when grouped into various risk categories, very useful in making apples to apples income decisions when trimming or reallocating.

                1. 2wr just quite correctly pointed out the “10% differential” should read 10 percentage points – as in for example 15% QDI v 25% ordinary. Too many Mai Tais.

        3. Newman – Isn’t it a lot easier to put all the data into a bond calculator and figure exact yields? See what you get when you take your math to https://gpi.fidelity.com/ftgw/interfaces/pyc/ You can figure yield to call, yield to maturity and you can even take out accumulated but not paid dividends to figure stripped yield…. You’re stuck figuring current yield on your own, but this does all the rest for you. Note, I really should have done a calc using your numbers to show you what you get, but, I’m having a lazy day..

          1. Thanks Tim and 2WR,

            That Fidelity calculation was unknown to me till now.
            Knowledge is a satisfying feeling.
            I did the formula on this and got a satisfactory outcome.
            BTW, I called Fido and asked about their take on zero commission trading.
            The fellow said Fido will be releasing news on this shortly.

            1. My personal hope, although I doubt it will happen, is Fidelity takes a measured approach on no commissions rather than the panic response we saw from other brokers this week and if they can find a way, to offer two options:

              1. No commissions (but also not participating in price improvement and sharing of rebates from payment for order flow – and perhaps a less attractive sweep option)

              2. Current structure with a higher interest rate on the sweep account and participating in price improvement

              I am perfectly fine with option 2 – as the price improvements cut my commissions basically in half and I do tend to have a decent amount uninvested in my sweep account and the higher rates make a difference

              My worry is they follow the no commission crowd then make it up by lowering cash sweep rates and eliminating price improvement / better fills. I guess we will see

      2. I am reading all of the discussion about YTC, and the concern appears to be overstated. If the issue is selling at a premium, I am going to sell the issue prior to the call date (6 months is my target) in order to capture the premium. If the issue is trading at a discount to the call price, then obviously I will hold onto the issue in anticipation of capturing the gain at the call price.

        Given the above, I am going the buy the issue that provides me the higher payment in order to maximize my return as long as I hold the stock–assuming that I am comfortable with holding the stock until the first call date. Am I missing something or is it the difference between theory and real world practice?

        1. dan–yes I currently own the d, but after reviewing yield to worst I may make a change to A or B.

          1. I believe that I did buy one of its preferreds way back. Now I can’t seem to get quote for any of its preferreds in Schwab.com or Fidelity. The symbol, PRIA-C, A, or any of these were not recognized at QOL.com. Yet, there was a SA article from Arbitrage Trader, using the exact nomenclature as you did.
            https://seekingalpha.com/article/4250394-priority-income-fund-take-look-6_625-percent-term-preferred-stock-ipo
            I bought more UTG and LOAN common today. Rubicon Associates had several positive on LOAN.

              1. Gary Hargreaves and Tim,
                THANKS! Yep, PRIF-C works on QOL.com and Fidelity. Thanks for the hardwork, Tim. Actually I did place the earlier ones in Doug Le Du’s engine. This one is not as dicey as LTS, which announced that it has Knight (a small brokerage) cooperating. LTS commons dropped in closing, LTS-A up. As I recall, LTS board has authorized to issue more Preferreds any time. Can’t believe that LOAN I bought up all day throughout 6 month or so, closed down taking all the upcoming Ex dividend declared tomorrow. Best to stay with preferreds or solid eREIT, or ARCC, it seems.
                Or as opined by Steve A in Doug’s, CA tax free Muni Bonds or Vanguard CA long term (a little riskier if the 10 year US Treasury stops sliding or CA Intermediate term (which I have significant position) may work well with huge CA tax and huge Federal tax, disallowing all the state taxes these days with limit of $10,000 for all Schedule A items (now no more itemized).

                1. At 12:48 pm PDT, just minutes from market closing, while I was eating my brunch, Doug Le Du wrote an email, the temporary symbol for the PRIORITY E (PRIF-E) is PYMFP. Both Schwab and Fidelity recognize the symbol and trading. 20,655 shares sold today. Perhaps equal number of shares sold yesterday. BID 24.80 ask 24.95. The coupon is the same as the A, with shorter duration as opined by Tim. There is a 8 day or so accrued dividend for A vs. the new E. I definitely will not bid above $24.80. Then these days, market makers can be greedy, except the new RILY preferred, RILYP. In due course, I suppose my overpaying should be okay as time goes on. It is also recognized by QNO.com.

                  1. Thin volume for PRIF-E or PYMFP (temporary symbol). At this time, 14,325 shares traded. Bid $24.85 Last close 24.86. I have an order for just 200 shares at Schwab, changed to $24.85. I then bid another 200 shares when see BID volume 2000. No, paid too much again. The new bid is $24.80. Oh well, time will cure minor errors, stake dinner for one perhaps. I do believe that this hidden jewel found by Tim is reasonably safe. Egan Jones rating, certainly not as credible as the big 3. On a relative basis, AA- is a heck of better than BBB+ or – from Egan. Just MHO.

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