Newer closed end fund (CEF) OFS Credit Company (NASDAQ:OCCI) has announced the intention to sell a new issue of term preferred stock. Recall the company tried to sell this issue last November just as the markets went into a tailspin.
The pricing for the new issue has not been announced, but the permanent ticker will be OCCIP. No OTC Grey Market ticker has been announced as of yet.
The new issue will pay monthly dividends and will have an early redemption period beginning in 2022 followed by mandatory redemption in 2026.
Being a closed end fund OCCI will be required to maintain a asset coverage ratio of 200% on senior securities (debt and preferred stock). At the current time the company has no debt or preferred outstanding and thus at this time has no leverage in use.
The company just went public last October with an initial stock offering of 2.5 million shares at $20/share. With the proceeds of the IPO the company purchased a portfolio of CLOs (collateralized loan obligations). As most readers know we are not major fans of these types of investments–not that they are necessarily bad, but they are “level 3” which means we have to ‘trust’ management to let us know the value of the assets–we can not observe the asset values on any exchange. Note that we own a small position in a term preferred from Eagle Point Credit Company (NASDAQ:ECC) which is a very similar type of company.
Given the lack of leverage being used by the company at this time it is likely that buying and holding this new issue is ok for now, but being that the company is new it should go without saying that it should be watched.
NOTE–This issue is not OFS Capital (NASDAQ:OFS), which is a BDC, but it is related. OFS Capital LLC is the asset manager for OFS Credit and OFS Credit Company and OFS Capital also share management.