Priority Income Fund (non traded) keeps right on churning out new shares—and I like it.
PRIF is a closed end fund and the leverage they use in the fund is composed of almost all term preferred stock–with 1 perpetual tossed into the mix. Simply the more common shares they sell the better asset coverage we have for our holdings–I hold 2 of the term preferred’s. Of course being a closed end fund they must maintain a 200% coverage on senior securties (debt and/or preferred stock). As of 6/30/2022 PRIF had coverage of 295%.
Let’s say a closed end fund such as this gets into trouble and has to redeem some preferred stock at par to satisfy the 200% requirement. Troubles continue, and more preferred must be redeemed. There is no clause for senior bonds that I am aware of. It seems possible that preferreds continue to get redeemed while bonds circle the drain….making preferreds “senior” to the bonds. I know I must be missing something here??
I was under the impression CEFs needed 300% coverage on bonds and 200% on preferreds. The bonds would have to be redeemed ahead of the preferreds.
Somebody correct me if I’m wrong.
Stacking–yes bonds need 300% with a CEF—your second question (bonds would have to be redeemed first) I don’t know–sounds like a little research is in order. As I mentioned to Retired above typically a CEF trys to sell all the common shares they can to up the coverage–and PRIF is doing a good job of that.
Retired–my experience from bad in the 2007-2010 period is they will try to sell all the common shares they can to prop up the coverage rather than redeeming shares.
Here is something I wrote in 2011 on Seeking Alpha on the topic.
https://seekingalpha.com/article/265958-preferred-shares-of-these-4-cefs-for-a-conservative-outlook
Thanks Tim and Stacking…good stuff.
Thank you Tim.
Hmmmm….I own about 250 shs of the K. Noticed that the shares jumped today, but many weak hands have been selling relentlessly lately. Shares have been all over the place, but I continue to hold and collect divvys.
I own small positions (which I swap frequently) but cautiously not more.
How much below 295% and how close to 200% do you think they are now given what we’ve seen in the markets? Probably dangerously closer to 200% than to 295%? If so, couldn’t they drop sharply when hitting 200?
Dd–not close at all. Their NAV has been holding up fairly well–they don’t own common stocks.
Tim, part of why their NAV is holding up is that their CLO portfolio is not exchange traded. So the markings might not reflect the current reality. Investors have to go on faith that PRIF marks them to reality. Maybe they do, maybe they don’t. Not nearly the same as an Mutual Fund or ETF that has actively traded underlying securities.
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What about now? Preferred shares and bonds are crashing. Are they in financials?