Compass Diversified Holdings Sells a New Preferred Issue

Compass Diversified Holdings (NYSE:CODI) has priced a new issue of fixed-to-floating rate preferred shares.

They have sold 4,000,000 shares (with an additional 600,000 shares available for overallotment) with an initial fixed rate of 7.875% which will remain in place until 4/30/2028 when the coupon will begin to float, assuming it has not been redeemed, at a rate of 3 month Libor plus a spread of 4.985%.

The terms are fairly typical being cumulative with quarterly dividends.  The issue does have a “tax event” clause that may cause the shares to be redeemed with a 1% premium in the event of tax law changes that cause CODI to be taxed as a c corporation.  Additionally in the event of a “fundamental change” the company may be required to redeem the shares at a 1% premium.

Proceeds from the offering will be used to repay the company’s revolver and for general corporate purposes.

The term sheet for the issue filed with the SEC can be found here.

The shares will begin trading immediately on the OTC Grey Market under the ticker CMPDP.  The permanent ticker will be CODI-B when it begins to trade on the NYSE.

CODI has another preferred series outstanding (CODI-A) which is a 7.25% coupon but is fixed rate and non cumulative.  Shares are trading at $23.45.

It should be noted that Compass is organized as a LLC which means they will be issuing a K-1 for these preferred shares.  Investors should understand the ramifications of holding these shares in a retirement account–as they say “see your tax advisor”.

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