Priority Income Fund Finally Prices New Term Preferred Issue

We have been waiting for Priority Income Fund to price a new term preferred stock for about 2-3 months. The company initially announced the plan to sell a new issue, but market turmoil prevented the closed end fund from drumming up enough demand in December, at least at the coupon they wanted, and the new issue was ‘pulled’. Finally they have gotten the job done.

The issue priced at a coupon of 6.625% with 1.4 million shares being offered. There will be 210,000 more shares available for over allotment. The ticker for this new issue will be PRIF-C. The issue will trade on the OTC Grey market, but the temporary ticker has not yet been announced.

The new issue will have a mandatory redemption in 2024. The shares are unrated, but the company is organized as a CEF and as such is required to maintain a 200% asset coverage ratio. NOTE that they company had a 900% asset coverage ratio earlier in 2018, but with new term preferreds we estimate the coverage ratio will be at 406%.

The company has 2 current issues outstanding. The PRIF-A issue has a coupon of 6.375% with a mandatory redemption in 2025. This issue is trading at $24.74. The PRIF-B issue has a coupon of 6.25% and has a mandatory redemption in 2023.

We would expect the older issues to fall in price on the news of the new issue as they are now competing against a new issue with a superior coupon. Investors may have a chance at buying the older issues at equivalent current yields.

The Priority Income Fund is a non traded CEF and as such due diligence is a bit more of a challenge as compared to a normally publicly traded issue.

The company press release on the new issue is here.

The pricing term sheet can be read here.

20 thoughts on “Priority Income Fund Finally Prices New Term Preferred Issue”

  1. Tim and group, CEFs and BDCs distinctions appear blurred at times. Using PRIF as an example, while organized as a CEF, their public disclosure is limited at best. In delineating “safety”, and as a practical matter, is there a meaningful difference between a CEF like PRIF that does not report publicly and a BDC such as PRC w underlying assets that are non-publicly traded? Been researching and reading though having one of those I don’t know what I don’t know moments.

    1. Good question. I have no definitive answer but can offer my opinion. This is almost certainly a black box full of CLOs and other high yield speculative investments. All is fine and dandy until it’s not. Prospect is gambling with your money, not theirs, while they pay themselves to manage it.

      1. Thank you P. It’s a good point and Tim has also repeatedly hammered this out re CEFs excluding BDCs. It’s been a while since the last serious downturn. My cure for my risk-related A.D.D.: S&P’s near 40-year experience rating indicates a batch of B+ rated securities will have a 21.97% default rate over ten years. 24.81% for B. I mean – that’s sobering. Of course if you’re charging fees and managing other peoples money…

        1. If they do hit pay dirt on speculation, the private money will cash in big time and you get 6.625% and Prospect gets paid no matter what. I agree we could face a real problem unwinding all the risky debt that got piled up on yield hungry investors. This issue may be fine for some people but personally don’t like the risk/reward balance as I believe it heavily favors the other parties. This one looks three degrees of separation, IF I wanted to take on the risk, I would want the reward.

  2. There should be a Grey Sheet symbol tomorrow. Egan Jones rated this AA (bahhh) so you know its perfectly “safe”:
    February 20, 2019 – Priority Income Fund, Inc. (the “Company”) today announced that it has priced an underwritten public offering of 1,400,000 shares of 6.625% Series C Term Preferred Stock due 2024 (the “Preferred Stock”) at a public offering price of $25.00 per share, which will result in net proceeds to the Company of approximately $33.7 million after payment of underwriting discounts and commissions and estimated offering expenses payable by the Company. In addition, the Company has granted the underwriters a 30-day option to purchase up to an additional 210,000 shares of Preferred Stock to cover overallotments, if any.
    The Company has applied to list the Preferred Stock on the New York Stock Exchange (“NYSE”) under the ticker symbol “PRIFC”. If the application is approved, trading on the NYSE in the Preferred Stock is expected to begin within 30 days following the issuance date of the Preferred Stock. The Preferred Stock has been assigned a private rating of “AA” by Egan-Jones Ratings Co.

      1. Thank you Tim! I know someone at Priority and you got the Grey Sheet symbol before he did!!! Wishing you profitable investing, Nomad

    1. Egan Jones AA, why that’s just like the Good Housekeeping Seal of approval!

      This issue is actually a good barometer of market sentiment. When relatively weak issues like this can come to market on these terms it says to me “OVERBOUGHT”. Very little of interest, to me, as a buyer at current levels. Glad I did a lot of buying in December. Will wait until the next market crisis. It will surely come.

    1. Good question…externally managed by people from Prospect Capital though.

  3. My guess is the older issues have little risk of being called on their call date because the newer issue has a higher coupon and they would call that one first when they could. Therefore, if the price of the older issues drops enough so that the yield is similar to the new issue’s coupon, I might nibble on it.

  4. Tim-
    I have a hard time getting excited about term preferreds and PRIF’s issues are no exception. The PRIF-a’s have a call date of 6/30/21 and the b’s can be called on 10/23/20. Issuers seem to trade the redemption feature for short call dates…and they don’t waste time making the call when it benefits them. I think a long term investor is better off building a portfolio with better credits offering longer call dates.

    1. Chenny–each investor has the needs and their risk/reward tolerance. I love term preferreds personally–I don’t like longer dated maturities (i.e. perpetual preferreds) nearly as much, assuming I can get a reasonable return on shorter dated items–but that is just me. I made my 1st investment in 1971 and have been through all sorts of cycles since–thus I have formed and opinion of what seems to work pretty well for me.

      1. Tim, I think you are embellishing a bit. 1970s? Im pretty sure the stock market wasnt even created yet back then. 🙂

        1. Grid–I was 17 at the time and mom had to sign off on my account. I am certain she had no idea what she was signing–a stay at home mom with 8 kids married to a mailman had no idea what a stock was–only savings bonds.

          1. I’m impressed, that took remarkable determination for a 17 year old in 1971. Wasn’t easy for anybody to invest back in those days. Too your point of what works for an individual, we both probably have a longer term perspective than most but I think we invest very differently. Different stokes for different folks.

            1. P–no just 2 brothers who thought they knew it all–1 of the 2 companies went broke. The other was sold just a few years ago–it was Winnebago–a local star company in Iowa at the time.

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