Yesterday I wrote a bit on the closed end funds that invest primarily in CLO’s (collateralized loan obligations) and the question of asset coverage ratios has come up.
I do a quick and dirty asset coverage ratio on this page for the CEF’s. Some of the asset coverages shown on this page are directly from the companies—others are my calculations based on an occasional glance at the most recent company data and like all these things if 10 of us calculated the ratio we would have 10 answer. My intention is to be close–not necessarily 100% correct.
So how does one get the asset coverage ratio? Well in the case of most of the closed end funds that invest in Level 1 securities (stocks and quoted bonds) we can simply look at a monthly publication from the fund company. Gabelli which has many funds and who also has the Ellsworth Growth and Income Fund and the Bancroft Fund makes it very easy for us–they publish the coverages each month. You can see the page here. I have this page linked on the ‘Education’ page here.
But on the other hand the CLO companies make it more difficult–some never mention their ratios at all–others mention it occasionally. For instance Priority Income Fund always publishes the coverage ratio with each prospectus they publish–and they publish plenty of those. Here is a snip from their most recent prospectus —
Our asset coverage on a pro forma basis after giving effect to the issuance of $39.5 million of shares of Series J Term Preferred Stock including overallotments, on August 10, 2021 and August 18, 2021, the redemption of approximately $36.7 million of shares of Series A Term Preferred Stock on August 11, 2021 as described under “Recent Events,” as well as the issuance of $35 million of shares of Series K Cumulative Preferred Stock in this offering and the assumed redemption of approximately $25.5 million of shares of Series E Term Preferred Stock, with respect to the Preferred Stock, is approximately 262%. The table below summarizes our pro forma asset coverage per unit.
Now when we get to the other CLO CEF’s we sometimes have to do a little more work. Here is an example of an easy one to calculate.
OFS Credit Company (OCCI) is a smaller holder of CLO’s. Data below is from their semi-annual report for the 6 months ending 4/30/2021.
The report shows approximately $126 million in total assets (investments and cash).
The company has issued term preferred stock issues–2 issues to be utilized as leverage. The 2 issues are here. The liquidation preference (some say par value) of these 2 issues are about $46 million. They have a couple million of other ‘payables’ outstanding–but NO debt.
So the coverage ratio is simply $123 million (I subtracted the $3 million in payables they owed) divided by $46 million – so 267% of coverage on 4/30/2021. This means that as investors we have plenty of assets to cover us–we have 1st claim on the assets since they have no debt.
Obviously some of the other CLO holders have financials that are a bit more complex than this small company–but in general calculating the coverage ratio calculations are similar.