Closed end fund Priority Income Fund has registered a new offering of Term Preferred Shares.
The new issue will be PRIF-G, if it is sold. Priority has a habit of registering new issues and then waiting weeks and weeks before consummating the deal. We shall see when this one finally is launched. If it is sold it will trade on the OTC grey market prior to moving to the NYSE.
Priority Income Fund is a Collateralized Loan Obligation (CLO) holder so folks need to try to understand the company a bit before jumping in to this investment.
Priority Income Fund, which is a non traded fund, currently has 6 Term Preferreds outstanding. You can see them here. While the issues had traded weakly previously at this time they are all trading around $25.
As a CEF the company must have a asset coverage ratio of at least 200%–as of 12/31/2020 the ratio is about 295%. Obviously after this offering the coverage ratio will be reduced somewhat.
The new issue preliminary prospectus can be read here.
Disclosure–I own the PRIF-F 6.625% issue–50% position.
What were the tax characteristics of the preferred distributions in 2020? I can’t seem to find this on their website.
David – for 2019 was around 7% return of capital and 93% ordinary income. For 2020 it is 100% return of capital for the 1st 6 months and 100% ordinary income for the last 6 months. This is for the common shares–I assume preferreds are the same.
https://assets.website-files.com/5dd730c4b9c85c11ca7a9558/602bf3e1c8d369430e479b43_Form%208937%20-%202020%20-%20Priority%20Income%20Fund%2C%20Inc.%20-%20signed.pdf
I don’t think that’s a valid assumption, and of course the Form 8937 doesn’t address QD or QBI percentage 🙁
Any whispers on pricing? I’m guessing it will be good (for the company) and that’s what was driving the recent pop in their preferreds. Or it could be the other way around. The pop in their preferreds is opening an opportunity for them to issue more.
Recently sold PRIF-F the problems with CLOs haven’t been fixed. Would’ve kept it awhile longer if I knew they would have a new issue at a lower rate
The only thing I will add is that the issues typically have a shorter term maturity which seem to add to the sand granules on the scale of decision making.
Hi Tim, the F popped up to 25.40 or so, I’ve got a GTC to snag a 7% gain, we’ll see, OK holding for a while. Also holding the C in a couple of accounts for a while and OK with the up and down, but stop limits. OK with it. Thanks for the heads up.
Original D – I have become somewhat more comfortable holding some of their preferreds. I am no fan of CLO stocks–the common, but the preferred can go in my higher yield bucket.
Agreed that the preferred and debt of some of these CLO funds are ok to hold. The asset coverage rules give you safety despite the drama of the underlying CLOs, and the covenants in these are pretty strongly in investors’ favor. We have seen OXLC destroy their common to forcibly redeem one of their term preferreds at par when they failed the leverage test. My concern with these funds is that there would be such an extreme meltdown that is so fast and so extreme that the leverage rules and covenants wouldn’t save the preferred and debt investors. But if these things didn’t blow up last year during the COVID panic, they probably aren’t going to blow up ever. Of course, the common is NOT recommended – as the historical examples show, the common WILL get destroyed at some point. Priority is a little special because it doesn’t have a publicly traded common. I like ECCB as the common acts as a leading indicator for problems in the preferred and a sacrificial lamb to raise capital if the preferreds or baby bonds get in leverage trouble. I stay away from the others.
RJZ–agree in full. I was more than worried about Covid ‘blowups’ but we haven’t see it yet. Of course we could have some zombie companies out there living off government handouts.