We were alerted to a potential item with Gladstone Investment (NASDAQ:GAIN) term preferreds–there are 3 issues outstanding, by an astute reader–BlueJoseph.
GAIN (a BDC) has lowered the required asset coverage ratio from 200% to 150% for senior securities effective in about a year. BlueJoseph noted that the offering prospectus specifically noted a need to maintain a 200% asset coverage. We checked and he is correct.
Just to make sure we had the bases covered we checked with the company and the following is our question for them and their reply.
The following comment was submitted via the Gladstone Investment Corporation website.
Hello–I am wondering if the recent change in the asset coverage requirements in 2019 (from 200% to 150%) will be applied to the currently outstanding term preferred stock issues? The original offering prospectus specifically states 200% (versus a more generic wording such as “as required by law). Thanks for your help. Tim McPartland
Gladstone Investment Reply.
Good morning Tim
The change does not impact the currently outstanding term preferred stock.
As you can see GAIN IR notes that the issues are not affected. This likely means that all 3 outstanding term preferreds will have to be redeemed prior to maturity–UNLESS they maintain the 200% coverage ratio. The 6.75% (GAINO) issue is now redeemable. The 6.50% issue (GAINN) becomes redeemable on 5/31/2018 and the 6.25% issue (GAINM) on 9/30/2018.
All 3 issues do not reach ultimate mandatory redemption until 2021-2023.
So what does this mean to us that hold plenty of these? Not much as they are all trading just 2 monthly payments above liquidation preference ($25) so not much is at risk. BUT new purchases of the securities should NOT be made at high prices – i.e. $25.88 – or just understand the yield to potential call might be very small or negative.