MLP Oaktree Capital (NYSE:OAK) has priced the new preferred unit offering we mentioned yesterday at 6.625%. It is anticipated that this issue will be investment grade.
The distributions on these units are NON-CUMULATIVE, but generally the terms are normal terms. Quarterly payments, perpetual, 5 year optional redemption time frame and NON Qualified distributions.
Holders of this issue will receive a K-1 at tax time.
At this time we don’t know if we have an interest. The coupon is decent for this level of quality, but we are more apt to wait and see how it trades over the next 6-9 months before committing. If we do buy some it will be a smaller position.
Shares will trade under the ticker OAK-D on the NYSE, but for now will trade for a week (plus or minus a day) under the temporary OTC Grey Market ticker OKTRU. Trading should start today, although some will not be able to trade it until Monday as their brokerage will not have it set up in their system.
The pricing term sheet can be found here.
I own the bonds of Oaktree Speciality Lending (OSLE, OCSLL), which is a subdivision of Oaktree Capital. They are 6 and 10 yrs out, which is a little ways out, so they have traded down a bit. That is when I have picked some up. Overall, I think they are safe with the parent managing over 100 billion in assets.
I run a daily report of term dated preferreds and baby bonds due in under 10 yrs and when they drop near $25 is when I look at them.
Is Mr. Lucky feeling lucky on any of them to buy? Its tough times out there for what I am willing to buy. I have resorted to looking at “ manufactured term dated “ issues. In other words buying perpetuals or long dated issues and hoping the market continues to believe they get called.
I have seen too many perpetual ones that have dropped too far too fast, and hence I won’t own them, as they can continue their cycle of lower lows.
The nice thing about term dated (forced redemption) is that as long as they dont go bankrupt, the company will pay me in full. For any investor that wants to sell them way under par… in x years it will go back to par, or investors could make bank in capital gains when they are redeemed. I have faith that the average investor just wont sell these way below par because of that fact.
There just arent too many term dated ones that I trust. But doubly hard on me is most are not QDI, so I just dont have a spot for them due to my tax bracket. I have a couple though. Certainly like them though. I certainly have seen some perpetuls crater, but I have somehow avoided all them. But staying out of Reits, Shippers, and Mreits over the years has helped as they are more jumpier.
Perpetual, non-cumulative, non-QID, and the K-1 from Hell, all for 6 5/8. How can anyone say no?
And I do mean it about the K-1. Of the several dozen K-1s I deal with each year OAK is the worst. And I use tax prep software. Even so, I don’t have a large enough position to justify the additional time, so I look to sell before the end of the calendar year.
Hi Bob—fully understood. But I love Oaktree and may take a tiny position if it traded down somewhat in the months ahead.
Can a K-1 be avoided if you buy and sell a K-1 security before receiving any dividends/distributions, or once you own it for a second, it generates a K-1 ?
As I recall if you buy and then sell without receiving a distribution then you won’t have to worry about filing a K-1 with your taxes. Just report capital gains/losses as usual. This happened to me with EPD and it seems like I remember getting a K-1 in the mail with all zeros which I tossed into the circular file.
As a follow up, I just dug out my taxes for 2016, and 1) I bought EPD in a taxable account in early 2016 and then sold a few days later without receiving their quarterly distribution, and 2) a K-1 for tax year 2016 was eventually generated and received in the mail, but 3) the K-1 is all zeros (boxes 1 – 20). Thus, I did not bother entering this information when filing my 1040 using TurboTax, and of course the capital gain was shown in my Etrade tax package. BTW, the reason for the quick trade was that I got lucky and bought EPD at a little under $19 in early 2016 and then sold a few days for a nice gain, but in hindsight I wish I had just held it as I’m doing now.
Once you own it for a second, it does generate a K-1.
Amy–you are correct unfortunately (unfortunate you have to endure the paperwork). Unfortunately sometimes they go on for a year or two after you sell.