Priority Income Fund Term Preferreds on Sale

The Priority Income Fund (no publicly trading) is a closed end fund which holds collateralized loan obligations (CLOs).

There are 5 outstanding issues of term preferreds from Priority Income Fund and most of them have gone ‘on sale’ during the last month.

The issues are generally down 4-5% since highs reached in September. For instance the PRIF-C 6.625% issue is trading at $24.70 after hitting a high in the $26.20 area.

Shares went ex-dividend on 12/12 for payment on 12/31/2019–so there is no accrual in the shares.

Disclosure–I own the PRIF-D 7% issue. Additionally I’m looking to see if I want to add the PRIF-C issue now (both are small – less than full positions).

Being a CEF Priority Income Fund must maintain a 200% coverage ratio and they are currently at around 400% (at least last time I calculated it), but are assets are ‘level 3’–meaning the value is not directly observable so each investor should do their own due diligence as many may not be comfortable holding CLO related securities.

I expect Priority to issue more term preferreds in the months and years ahead as this is their method of utilizing leverage.

You can check all the outstanding issue here.

15 thoughts on “Priority Income Fund Term Preferreds on Sale”

  1. Tim,

    I discovered this nugget on how PRIF’s manager Prospect values CLOs at their BDC PSEC (on BDC Reporter). Any concern that PRIF’s NAV is over-stated due to accounting peculiarities compared to other CLO CEFs? Could account for PRIF’s relative outperformance on NAV to peers:

    “ Then there’s Prospect Capital (PSEC), which has $5.653bn of investment assets, of which $0.851mn is in the form of structured products, aka CLOs, or 15%.

    Historically, PSEC has valued its CLO investments in an idiosyncratic way and using a different methodology than its peers, so there may be no material impact on its IIIQ results.”

    1. Landlord–I ALWAYS have concerns with CLO valuations–doesn’t matter which of the companies it it.

      I see prif-d just popped–if it holds they can have mine as I bought the C issue a couple days ago.

      1. I actually view these as more of a buy and hold to maturity. Swapped out of my PSEC baby bond PBC for these and think PRIF is both the higher YTW and has greater safety from a higher asset coverage covenant and shorter maturity.

  2. PNNT took over the funds? I own 300 shares B,D,C. Will see if this pans out in a few years if they can stumble to maturity.

    1. Smitty–right now these are ok to hold–if they pop strongly I would probably let mine go.

  3. I look at them and decided too much risk for me. I own other preferreds of closed end funds that are publicly traded.

  4. Yeah, it’s on sale, but it’s bottom shelf.

    I can’t pull the trigger on this one, despite the coverage ratio.

    1. Jacob–not everything is for everyone. I got a few shares of 2 issues–but you can be certain I am not wed to them–on the other I have no reason to believe they won’t work out decently.

  5. Anyone know the details of Destra Capital’s distribution relationship with Priority Income Fund? In November, Priority Income Fund severed the ties. On another note, I did look at 1 year posting of NAV #s, and they mainly are going down.
    I exited my PRIF investments last Fall.

  6. Thanks Tim. I purchased a 1/2 position of PRIF-C @ $24.72. I’m wary of CLO-related securities, but the coverage ratio removes a lot of the worry.

  7. Perhaps, just wild guess, the recent increase of margin requirement on all PRIF preferreds by IB triggered those sell offs?

  8. Tim, tried picking up some of the D past week or so but there was next to no volume. Thanks for the heads up, will look again.

    1. D–I see it is thin and the spread is kind of wide–might try the C. I just picked up a little prif-c which has traded over 5,000 shares today and the spread is only 2 cents.

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