Let’s Watch The Gabelli Multimedia Trust

While updating the asset coverage ratios on the CEF preferreds tonight a glaring issue jumped out at me relative to the Gabelli Multimedia Trust (GGT). This CEF has 2 preferred issues outstanding.

On 6/30/2020 the trust had an asset coverage ratio of 200%–this is down from 297% on 12/31/2019. WOW–close call. The fund is required to have a 200% (or more) coverage ratio on the last day of each quarter–if not, they have a 60 day cure period after which they are required to redeem some level of their preferred shares to cure the asset coverage default. Of course we know that if they don’t cure the coverage default they are not allowed to pay dividends to common holders or make common share buybacks–not a position you want to be in when you have a declared level dividend policy of 10%.

But did you know that the fund can force redemption, at $25/share plus accrued dividends, BEFORE the 1st optional redemption date to cure a coverage default? Well they can.

Now in this instance this is bothersome-neither issue of the GGT preferreds have reached the optional redemption period yet. The GGT-E 5.125% issue is trading at $26.04 and the GGT-G 5.125% issue is trading at $26.40–they have traded at this level for a few months–I’m not sure they would have traded here if folks knew they had a potential redemption hanging over their head. Their respective optional redemption dates don’t arrive until 2022 and 2024.

You might say ‘why don’t they buy some shares on the open market?’ This would reduced the size of their portfolio while raising the asset coverage ratio–this may be possible, but up until now their policy is to buy on the open market only under $25/share and earlier in the year they did do a little buying of preferreds down in the $22-$23 area–but it was a minimal number of shares.

Data on the asset coverage ratio can be found here.

The good news is that on 6/30/2020 the net asset value was $6.14 and right now it is $7.15—so trouble was averted–for now. If Mario Gabelli was smart he would start looking to sell common shares soon–get while the getting is good Mario.

Here is my concern for this issue. Markets tumble and don’t spring back OR markets remain level and the 10% dividend eats into assets reducing coverage (over time).

Let’s see what happens here–minimally an educational study.

My source for the forced redemption comes from the original prospectus which can be found on the individual security pages linked above.

18 thoughts on “Let’s Watch The Gabelli Multimedia Trust”

  1. Relevant to nothing said in this thread except it being Gabelli, yesterday I got an email from them with info on what seems to me to be a jumping the shark kind of fund of theirs that I was unaware of, The Gabelli Pet Parents Fund… Really??? The investment world needs this??? It’s had a great year though….

    “As we continue to navigate an extraordinary year, we’d like to share with you an update on the Gabelli Pet Parents Fund.

    “Companion pet ownership is at an all-time high, and innovation is driving growth for many of the companies in our portfolio….”

    1. Tim, looking for ex-div spreadsheet and I don’t see it on you site in last couple of days. Is it out of favor in this market?
      JDC

      1. Tim,
        I just saw your 11/5 post noting that ex-div page was inordinately time consuming. Thanks for the update and hope to see it soon.
        JDC

  2. Tim, thanks for all that you do and the website. I get the Leverage Analysis monthly updates for the Gabelli CEFs here:
    https://gab-misc-pdfs.s3.us-east-2.amazonaws.com/LevAnalysis.pdf
    I should be looking at the SEC filed docs rather than trusting the PDF that Gabelli posts in their website. For June 30, the PDF I downloaded conveyed 254% coverage for GGT.
    Best regards from No. 12 to the grandson of the ace that went 14 innings for my Black-n-OldGold (coincidently in 1914)

    1. Thanks Green-n-Gold. Strange they would have differing ratios–but in the end a large market downdraft would put them in a bit of a hurt–so sell common shares now when things are good.

      1. Hi Tim, the coverage ratio for GGT appears to be correct in the PDF posted in the Gabelli website; it is consistent with the coverage ratio I derived from the numbers in the filed SEC doc (link you provided). But perhaps I am missing something.
        From the info I have collected (every month but for Aug 2020, which I missed), the lowest GGT coverage ratio was on March 31, 2020 – 222%.
        Again, thank you for your guidance on CEF pfds and educating on us their safety.
        Best regards, No. 12

  3. If memory serves, Gabelli had this problem during the GFC, and to increase the asset coverage ratio they issued massive amounts of new common. Sorry, don’t remember which fund.

    1. I believe it was GGN or GNT that did the common dilution back in the day. Tim wrote an article on it many years ago – maybe he can refresh us.

  4. Any other Gabelli funds are in the same position, that they have to sell common shares to maintain coverage ratio ? Is cutting dividend is also a cure from this problem a possibility ? TY

    1. razorbackea–yes–good article. Gabelli has done a few redemptions lately and in each instance they have reduced the size of the fund and moved the coverage ratio higher. The last few calls they have made were made possible by selling assets–for whatever reason they chose not to do a ‘refi’ new preferred. For instance the Gabelli Dividend and Income 5.875% preferred (GDV-A) called 9/25/202–it was over $75 million to call.

      https://innovativeincomeinvestor.com/security/gabelli-dividend-income-trust-5-875-series-a-cumulative-preferred-shares/

      So they reduced assets by the amount of the call–no new preferred (or debt) undertaken for the call–net result is increased coverage.

      Thanks for the link.

    1. billo–I hold a little of one of the issues so was kind of shocked when I dug deeper and found the ability to force early redemption.

    1. Qniform–it is educational as well–I had never checked if they could force early redemption.

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