Oxford Lane Capital Prices New Term Preferred-Correction

UPDATE/Correction–dividend is monthly at .1302/month–1.5625/annually.

Oxford Lane Capital (OXLC) has priced their previously announced term preferred stock issue.

The issue will carry a fixed rate coupon of 6.25%, will be cumulative, but non qualified. This issue in unrated.

The company plans to use the proceeds and to possibly redeem some of the 7.50% OXLCO term preferred. The new issue is 3.5 million shares plus an over allotment of 525,000–this is enough to call all of the OXLCO issue if desired.

The issue trades immediately under OTC Grey market ticker of OXCPP.

The pricing term sheet can be see here

Thanks to Nomadicmist, Fabrib and Steve all of whom were right on top of this announcement and within 1 minute of each other in posting.

37 thoughts on “Oxford Lane Capital Prices New Term Preferred-Correction”

  1. Clarifications on OXCPP terms:
    monthly div payments of $0.1302
    Annual total div of $1.5625
    1st Call 2/28/23
    Term maturity date 2/28/27

    1. Thanks JDC–yes you have it right–old age zone out I guess–I added a correction note.

  2. I like term preferred, and CLOs don’t scare me, but this is just a ridiculously low yield for the this security. These guys have gotten in trouble with leverage before, and one of their previous term preferred was forcibly called early to regain leverage compliance. The good news is that leverage rules worked and saved the preferred shareholders in that incident a few years ago. The bad news is that this particularly management team hasn’t really proven itself to be worthy of such a low coupon rate.

    1. Interesting. Can you tell me a little about how that went? Were they able to sell CLOs in the secondary market to raise funds to buyback preferreds or did they issue more common stock?

      The asset coverage covenant is the whole key to the safety of these preferreds so nice to know that has been tested and sounds like it was successful. Of course, may be different in a recession when it won’t be so easy to access liquidity to regain compliance.

      1. So I couldn’t find an article on the OXLC meltdown, but as I remember it from living it real time, they sold CLO assets to redeem their preferred in order to cure their leverage breach, rather than issue common stock. Here’s an article from Tim from years ago talking about a Gabelli fund that got in trouble and sold common rather than dumping assets:

        https://seekingalpha.com/article/265958-preferred-shares-of-these-4-cefs-for-a-conservative-outlook

        So, since CLO’s aren’t that liquid, the danger is that they wouldn’t be able to sell enough CLOs to get leverage under control. So they would turn to common stock issuance, which would leave the common owners holding the bag. So the two questions are, 1) could one of these CLO funds evaporate so fast that the preferred don’t get redeemed and 2) who is buying ECCA in the 26s when it could be forcibly redeemed early at 25.00? And another takeaway is that the CLO CEF common stock is more of a speculation than an investment, as the common could face this forced dilution quicker than you can blink an eye.

    1. Eddie – you want to fill in the details as to why you say that? Don’t forget this one is a term preferred due in 2027, so it has similar characteristics as the RILY baby bonds, leaving the major difference to be the positioning in the corporate cap structure that a note holder has over a preferred holder. Is that what you’re getting at?

  3. Just bought at $24.80 w E*TRADE. Weird that their website won’t quote it, but will via the app. No issues placing the trade through the app. Apparently not available yet on Vanguard and I don’t feel like calling and dealing with one of their reject agents that wasn’t good enough for a real brokerage firm.

  4. Fidelity reps say they have a policy of no gray market trading and looks like it will be 30 days till a trade can be placed. Is this a new policy, does anyone know. If so, I guess I will have to get an account elsewhere..

    1. Wendy – I think someone at Fidelity told you wrong. I just bought AINGZ
      this morning and I think its still on the Gray Market. Usually you have to
      wait a day or so, and then they can take your order. You should call back
      and ask to speak to someone in the fixed income section. I bet you can buy it tomorrow from Fidelity.

      1. And then, when that doesn’t work, try calling Fidelity fixed income again and getting someone else… imho the answers received are very person centric and subject to variation one to the next.

      2. Thanks Bigbear. I will try again on the new Oxford Lane issue but if they are historically slow on new issues maybe I should still consider moving to another no trade fee brokerage. Any thoughts?

        1. Wendy – except for buying on the Gray market, I’ve been satisfied with Fidelity.
          However, if you venture out to buy/sell Canadian stock; then it might be better with another brokerage firm … or have some money in each camp? Just my humble opinion.

          1. Schwab is good with new grey mkt issues- trading now. Maybe change over- they usually pay money – varies depending on the size of your portfolio(s)
            I imagine this will go permanent in a lot less than 30 days…still, Fidelity will nanny you to insanity.

    2. Wendy – wait a day – you will be able to buy this online at fidelity tomorrow. There is sometimes a one day delay with new grey market otc issues. Unless it is for a hot issue, I have not noticed much difference in pricing getting in a day later. Maybe a few pennies here and there

      the rep who gave you that info gave you bad info

  5. I can see it trade on TDA website, but they won’t accept an order. Currently 24.75 x 24.80 513000 shares traded.

    1. That’s funny considering it’s no problem at their acquirer- Schwab!
      I’d call them and remind them- at fixed income desk.

  6. OXLC common stock has an yield of 17.2%!

    Is this a warning sign to avoid this preferred at this $24.8x price?

  7. I think they have to call nearly all the OXLCO. Their preferreds coverage is weak, I think below 250%, and anything less than a near total call would put them dangerously close to 200%. Any excess market volatility could then result in a margin call.

    1. Yet the updated language in the newest 497AD continues to say “The Company intends to use the net proceeds from this offering for acquiring investments in accordance with the Company’s investment objective and strategies, general working capital purposes and/or to redeem a PORTION [NOT ALL] of its outstanding 7.50% Series 2023 Term Preferred Shares.”

      1. I purchased at 25.17 this morning. Goes ex div in a few days and pays 16c this month. If it all gets called i will lose a few dollars…seems like a safe bet to me unless i am missing something.

      2. Hmmm…good point 2WR. I just checked Tim’s spreadsheet and OXLC’s preferred coverage is a skimpy 214%. I think they just reported a 2% higher NAV, so not sure if this 214% reflects the latest info but hardly matters. If they go any lower than that by increasing preferreds outstanding, they’re playing with fire.

        I wonder if the “portion” language was just a CYA in case the over-allotment is not filled. I recall a couple other times companies originally said they would only call a portion but then ended up calling 100% (SITC and ARR).

        Nonetheless, I can see why the risk/reward is appealing to some folks on OXLCO in case there isn’t a full call.

        ***Oops, just noticed the spreadsheet said preferreds coverage data is from 12/2018. Not sure what coverage is right now. If anyone knows, please post.

        1. Landlord–some of these CEFs only release data once or twice a year–will root around and see it they have something newer. Honestly Oxfords NAV has been on a relatively steep decline in recents years–they sell common shares like crazy ‘at the market’.

          1. Tim – And doesn’t the issuance of new shares impact the coverage ratio positively???? “For the quarter ended December 31, 2019, we issued a total of 9,116,419 shares of common stock pursuant to an “at-the-market” offering. After deducting the sales agent’s commissions and offering expenses, this resulted in net proceeds of approximately $78.9 million. As of January 31, 2020, we had approximately 69.0 million shares of common stock outstanding.”

            Their NAV actually went up last quarter too… 6.81 vs 6.63. Not that I’m advocating for OXLCO. Ordinarily it’s a credit I’ve looked at in the past and passed, but I’m trying to justify to myself having bot into OXLCO for short term play in the name….

            1. 2WR–with OXLC it is a moving target. 9 million common shares in quarter – kind of scary actually and the data available is usually old–i.e. 6 or 9 months.. Here is the history of NAV–

              3/31/2015 14.08
              3/31/2016 7.04
              3/31/2017 10.20
              3/31/2018 10.08
              3/31/2019 8.32
              9/30/2019 6.63

              1. This isn’t necessarily bad for preferred holders–or even for common holders–as holders have received a lot of dividends.

        2. Landlord–I am showing around 250% as of 9/30/2019–at least the way I calculate it–it could be a tad higher or lower. The company is claiming 300% as of that date.

    2. LI – yeah, it comes down to how close the company want to be to the 200% coverage ratio. A conservative management would redeem all of OXLCO. A AUM-driven management would redeem as little as possible.

      Should know soon.

      1. I trade thu Wells Fargo Advisors on line and they always have the new issues available on the OTC grey market. Last trade now $24.75.

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