Gladstone Capital to Offer Baby Bonds

Business development company Gladstone Capital (NASDAQ:GLAD) has announced a new offering of baby bonds with a maturity date of 2023.  Final pricing has not been announced

This is something new and different from a BDC that has historically issued term preferreds.  Unlike the term preferreds that paid monthly dividends this issue will pay quarterly interest–we prefer monthly, but we have an interest just the same.

The new issue will trade with a ticker of GLADD when they begin to trade–there will likely be no OTC Grey market trading.

The preliminary prospectus can be read here.

Remember the issue will be only required to maintain an asset coverage ratio of 150% effective 4/10/2019 meaning we have lost a little safety with the company.

Thanks to Eugene for the heads up–he watches these items closely.

16 thoughts on “Gladstone Capital to Offer Baby Bonds”

  1. Thanks, Tim! I am a day trader and I watch all preferred stocks and baby bonds closely everyday. So I can help with all of these.

    Eugene.

    1. Eugene–I am able to watch 15 minutes here and 15 minutes there–my work has been busy til now–starting to slow a bunch.

  2. Tim, any thoughts on SPKEP? I unloaded mine back in June but bought again at $22.80 recently, and now see that it is still sinking, so wondering if there is some looming bad news or what… I do note they announced the next div in Dec. which is a plus, but it seems investors are running from it anyway. Thanks for your (and anyone else’s) thoughts.

    1. Hi Leonard — someone asked on another thread earlier and this was my response. Also they released earnings tonight and they were decent for Spark–so will write on them tonight.

      I am going to write on the portfolio with the Spark Energy preferreds next.

      I held as much as 1000 shares of spkep, but cut it back on the last pop–I still painfully hold shares.

      I think we are in the ‘prove it’ part of the Spark Energy business. 2 quarters ago they had really crappy earnings. Then last quarter was ok. Tomorrow they report earnings and I expect them to be decent (based on what they have publicly said–which isn’t much). I am hopeful this will provide a lift of a buck or two on the preferred over the course of the next month–if not I have to consider my next move. This has easily been my worst holding in years and I think it is relatively safety–BUT apparently I am in the minority.

    2. Tim and Leonard, SPKEP has been an excellent spin-cycle flip for me this year. I have bought and sold this preferred 3 seperate Times; buying shortly after the dividend paid and then selling into the strength before the issue goes EX (I even picked up 1 div). This is the earn8ngs statement and I encourage you to do your OWN DEEP DUE DILIGENCE before investing any money you cannot afford to lose:
      Spark Energy, Inc. Reports Third Quarter 2018 Financial Results

      GlobeNewswire•November 1, 2018
      Acquired 60,000 residential RCEs; on track to exceed high end of cost reduction guidance

      HOUSTON, Nov. 01, 2018 (GLOBE NEWSWIRE) — Spark Energy, Inc. (“Spark” or the “Company”) (SPKE), an independent retail energy services company, today reported financial results for the quarter ended September 30, 2018.

      Key Highlights

      Achieved $18.6 million in Adjusted EBITDA, $45.8 million in Retail Gross Margin, and a $18.8 million in Net Income for the third quarter
      Expects to exceed upper end of cost reduction guidance range by 10 to 20 percent
      Total RCE count of 979,000 as of September 30, 2018
      Acquired 60,000 residential RCEs subsequent to the close of fiscal third quarter 2018
      “Our third quarter was highlighted by continued improvement in organic customer acquisitions as well as significant strides in realizing the brand and platform consolidations that we expect to lead to stronger margins,” said Nathan Kroeker, Spark Energy’s President and Chief Executive Officer. “Efforts to improve customer mix and migrate customers to more cost-effective billing platforms are more than halfway complete and our cost saving actions are tracking ahead of our expectations.”

      Kroeker continued, “Since the closing of our third quarter, we announced our acquisition of up to 60,000 residential RCEs in the Midwest and Mid-Atlantic regions. This acquisition will be immediately accretive to 2018 earnings and will require minimal integration activity.”

      Summary Third Quarter 2018 Financial Results

      For the quarter ended September 30, 2018, Spark reported Adjusted EBITDA of $18.6 million compared to Adjusted EBITDA of $19.6 million for the quarter ended September 30, 2017. This decrease of $1.0 million was driven by a lower Retail Gross Margin.

      For the quarter ended September 30, 2018, Spark reported Retail Gross Margin of $45.8 million compared to Retail Gross Margin of $50.6 million for the quarter ended September 30, 2017. This decrease of $4.8 million is primarily attributable to lower natural gas volumes and electricity unit margins.

      Net income for the quarter ended September 30, 2018, was $18.8 million compared to net income of $12.9 million for the quarter ended September 30, 2017. The increase in performance compared to the prior year was primarily the result of non-cash gains on our derivative instruments.

      Liquidity and Capital Resources

      ($ in thousands) September 30, 2018
      Cash and cash equivalents $ 42,796
      Senior Credit Facility Availability (1) 19,281
      Subordinated Debt Availability (2) 15,000
      Total Liquidity $ 77,077

      (1) Subject to Senior Credit Facility borrowing base and covenant restrictions.
      (2) The availability of the Subordinated Facility is dependent on our Founder’s financial position and liquidity.

      Dividend

      Spark’s Board of Directors declared quarterly dividends of $0.18125 per share of Class A common stock payable on December 14th, 2018, and $0.546875 per share of Series A Preferred Stock payable on January 15, 2019.

      Business Outlook

      Kroeker concluded, “As we look to fiscal 2019, we expect to see the benefits of improved customer mix and normalized RCE counts. We expect our Adjusted EBITDA to positively reflect the success of our synergy and cost reduction initiatives. Year-to-date we have implemented significant general and administrative cost savings, and we will continue to evaluate opportunities to improve long-term profitability.”

      Conference Call and Webcast

      Spark will host a conference call to discuss third quarter 2018 results on Friday, November 2, 2018, at 10:00 AM Central Time (11:00 AM Eastern).

      A live webcast of the conference call can be accessed from the Events & Presentations page of the Spark Energy Investor Relations website at http://ir.sparkenergy.com/events-and-presentations. An archived replay of the webcast will be available for twelve months following the live presentation.

      About Spark Energy, Inc.

      Spark Energy, Inc. is an established and growing independent retail energy services company founded in 1999 that provides residential and commercial customers in competitive markets across the United States with an alternative choice for their natural gas and electricity. Headquartered in Houston, Texas, Spark currently operates in 19 states and serves 94 utility territories. Spark offers its customers a variety of product and service choices, including stable and predictable energy costs and green product alternatives.

      We use our website as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Investors should note that new materials, including press releases, updated investor presentations, and financial and other filings with the Securities and Exchange Commission are posted on the Spark Energy Investor Relations website at ir.sparkenergy.com. Investors are urged to monitor our website regularly for information and updates about the Company.
      Contact: Spark Energy, Inc.
      Investors:
      Christian Hettick, 832-200-3727
      Media:
      Kira Jordan, 832-255-7302

      1. Hi Nomad–yes I have read the report and find it acceptable in terms of performance.

        I wish my shares were flips–alas I have held virtually all year–not really much of a loss in a diversified portfolio, but just the same a loss. With this release I am holding onto shares and may add a bit more in the morning if it stays down.

        1. Hi Tim and Nomad, CFRA rates this as a STRONG BUY with risk rating: HIGH. FIDO rates its financial heath above 97 out of 100 but gives overall analyst sentiment as BEARISH. All this is before tonight earning release.

      2. Congrats on the flips Nomad. Just shows even poor performing issues can make one money. But I will have to cheer from the sidelines. I have a “No fake utility” investing law. Since I believe in the Singapore justice system, punishment would be too penal for me if I broke this law.

        1. Fidelity keeps me out as they won’t let me buy spkep as it is fix-floater and I can’t be bothered to call in.

          1. Yes, I had the same issue with FIDO. In another account with TD I was able to buy it as any other stock. I do not know the logic of FIDO on this one and few others such as many MLP closed end funds.

        2. Grid, I have some hard and fast investing “laws” I adhere to as well:
          1) Stay away from all investments in transportation companies (planes, boats, cars, shipping freighters, trucks etc)
          2) Don’t buy anything I don’t understand
          3) Do my own deep due diligence
          4) Don’t invest in damaged companies and “hope” stocks
          5) Don’t every guess
          6) Take ownership of each position and never blame anyone but yourself for investing mistakes
          7) Diversify so that any one position is initially no more than 5% of the portfolio
          8) Do not invest in companies that have more debt than equity
          9) Invest for the future but focus on the present
          10) Keep learning and listening to people that have a clear vision of what real risk and a portfolio should look like (like you Tim)
          Finally… I’d rather be out of the market wishing I was in than in the market wishing I was out
          Wishing everyone profitable investing, Nomad

  3. To change the subject a bit. I hold some GSprB face 6.2%. The issue is callable and indeed most of my shares were called a few months ago. This thing is listed at $26.05. Who in their right mind would pay that much premium for something that’s already been partially called!! Anyway, I’m thinking of selling my shares and swapping them for GSprN with a face of 6.3% and listed at $25.60 with a first call sometime in 2021. Not thrilled about paying over list but this seems like a reasonable swap. Only other thing stopping me is it’s in a taxable account and my cost basis on the GSprB shares is $15.50 purchased in 2008.

    1. Hi Jerseyvinny, The swap makes sense even with the tax issue because if it is called you have to pay the tax on the difference between $25. and $15.5, which is not much different from the difference between $26 and $15.5. But you have to consider this in view of your overall tax situation and make your own decision.

    2. But for the tax impact I would make the switch; otherwise hold. That said, if you can do some tax loss harvesting to offset the gain then no tax on selling the B. This is the time of year to be looking to harvest tax losses.

      N is a good choice.

      Also appreciate that with rates now higher there is much less chance that GS will call the B.

  4. FRC-E
    7% IG QDI
    is being called by First Republic Bank on 12-28-18
    Hate to lose this one.

    RB

    1. The good (almost) always die young. But year-end tax selling is around the corner. Be on the look out for some deals.

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