Closed end fund RiverNorth/DoubleLine Strategic Opportunity Fund (OPP) has priced the previously announced new preferred stock offering.
The issue priced with a coupon of 4.375%–pretty darned tasty for a A1 rated issue. This will be a ‘hot’ issue come Monday morning.
The terms are fairly standard for a perpetual preferred–optionally redeemable in about 5 years, cumulative, potentially qualified dividends (but can vary from year to year).
The issue will trade Monday morning under OTC temporary ticker OPPRP.
The pricing term sheet can be found here.
As per Quantum Online, OPPRP is actually callable as early as 2021! ie ‘The Series A Preferred may be subject to an early call in 2021 if the fund converts to an open-end management investment company. ‘
May reduce appeal to some investors in spite of the A- ratings? I guess OK to buy it below $25 but unlikely a flip candidate like some other recent well rated preferreds to trade too much higher with early callable clause
Got some shares at $24.95. Lets see what happens.
It’s trading this a.m. at Fido, just under par.
Can someone clearly explain the variable aspect of the qualified dividend? When is it taxed as a true qualified dividend (15%) and when not?
Larry,
As I understand it, some of the income from CEFs is QDI and some is not. You don’t know until after the end of year, at best. Hence the “Variable.” You just don’t know. HFRO-A is listed as Variable QDI. For 2019 I first got a 1099 from TDA showing it as 100% QDI. Then sometime later I got a “Corrected” 1099 showing it as 0% QDI. Fidelity showed it as 0% QDI from the get-go.
Caveat emptor.
The payments reflect the income from the underlying investments.
If the underlying portfolio is 100% equities, the preferred will be 100% qualified unless there is ROC.
Preferred shares take the income first, so anytime the common is less than 100% ROC, the preferred will be all dividends.
This is a fairly simplified version of fund accounting, but is true except in extreme market gyrations on fiscal year funds.
Larry–basically they must have income to be qualified. If not it is ‘return of capital’ (ROC)–basically giving you your money back, which changes your cost basis by that amount.
Many CEF issues have a level dividend they pay every quarter regardless of their performance–through good times and bad so sometimes it is return of capital and sometimes not.
For those planning to buy, are you saying this is a flip or long term hold? If it’s a flip, what’s your target sell price?
No fixed answer. My target would be whatever I can get. When it stagnates for awhile I give up. Unless it looks solid and nothing else I want to buy.
4.375% is too low to call it a long term hold, though it may become one if the market is going nowhere. Or a shorter term hold through the political volatility.
I probably wont buy closer to par I’d want an earlybird discount.
Dick–as noted by others everyone is different. Primary factor for me is ‘what is your outlook for interest rates?’. If they are going to stay low forever this is a hold forever–if they are going to rise sharply these low coupon issues will see sharp capital erosion–but income will be just fine.
This preferred may be a ‘hot issue’, but the underlying CEF is mediocre at best. Under 2% NAV return over 3 years, 6 months of distributions comprised of virtually all ROC this year, a very high distribution that will most certainly be lower for 2021, etc. I would not buy the CEF and have no opinion on the preferred issue. Just offering info, not suggesting others follow my opinion.
I am not so sure one should jump to buy this preferred. The fund is a multi-manager fund investing in other CEF funds/bdcs ( two layers of high fees) and non investment grade MBS Right now only 45% of the div is earned and the rest is ROC. Right now leverage is 25% but given the high volatility of the underlying (mostly to the downside) coupled with the managed distribution make for a melting ice cube
situation. I haven’t read the whole prospectus but when leverage goes higher the rating will go lower . They can borrow up to $75 million or up to 33 1/3% of total assets and they can pay preferred dividends if debt +pref outstanding is no more than 50% of assets. given the nature of the underlying assets a drop of 50% in the next swoon should not come as a surprise. Just my opinion that the rate (while enticing due to the current rating) is too low given the risk.
Rvert – Thank you for this concise observation. I think I have just changed my mind about even a small purchase.
TDA has it set up also. Saturday morning showing 486K sold! No price………
TDA has it set up under what symbol? I do not see it on TOS… but I do now see it under OPPRP on the website…
Is it just my suspicious mind or is there something very odd about officially pricing an issue on a Friday afternoon after the close?
According to Schwab data over 400,000 shares traded on Friday . Closing price 24.74. I was not able to make a purchase.
Thanks for the info JB–hope this price holds for Monday morning.
2wr–I can’t remember a time that an issue was priced on a Friday–let alone announced on a Friday night (officially announced with an SEC filing).
eTrade and Fido didn’t have it set up yesterday, but hope they have it by Monday as I have a high interest.
edit–eTrade now has it up.
Interesting, TD shows the symbol but when I tried to place a order it said not found
Same at Schwab but it’s not uncommon to show price action and volume prior to being able to execute a trade.
Schwab does it all the time. I see the volume and they say its not a valid symbol when you try to trade. You call the 800 number and the person that usually answers is clueless.
It’s trading now (early Monday) on TDA. Even nabbed some a tad under par. Will be curious to see how high this one goes. May flip some, probably will hold some.
With my past trading “error” getting it too early, I watch it seeing it gapped up with unspectacular volume. I spend the time analyzing my too many risky stuff, deciding that BPYU, Brookfield Property common continue to rise with huge pro forma dividends. The other Mall store seem to stop bleeding. Despite my love for anything Brookfield, I sold 300 shares of BPYU taking the loss and placed an order for 400 shares of Riverside North preferreds at $24.88 and be prepared to raise depending on market action. THANKS SO MUCH to Tim and his Best WEBSITE in this world. For the past few days, I stocked up more preferreds from Brookfield property, Tim’s SITC-A and UBP-H plus few shares of UMH-D.
Changed the order to $24.90 as shown in Schwab and Fidelity.com.
BTW, someone bought Doug Le Du’s service. Good, hope that the dividend ex date and history will improve.