BDC Gladstone Investment Corporation Issues Term Preferred Stock

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Business development company Gladstone Investment Corporation (NASDAQ:GAIN) has issued a term preferred stock in a “refinancing” transaction.  A term preferred stock, unlike a perpetual preferred stock, has a mandatory redemption date.

As longtime readers know we love term preferred stock, although we are not always fond of the issuers.  Gladstone Investment Corporation is a so, so business development company (BDC) that has been around since 2005.  The company’s financials have never been better than mediocre and being a BDC they make plenty of risky loans to smaller companies which always is dicey proposition.  That being said investors have to remember that by buying this new term preferred you are NOT buying common shares in the company and the level of risk you are incurring is much reduced as compared to the common shares.  Additionally, being a business development company (which is also a closed end investment company), GAIN must maintain an asset coverage ratio of 200% and this requirement provides a huge margin of safety for the preferred shares.

This new issue has a coupon of 6.25% and has a mandatory date of 9/30/2023. There is an optional redemption available to the company beginning 9/30/2018.  Dividends are paid monthly, which is always a positive.  Most often term preferred issues have a optional redemption period starting 2-3 years after issuance instead of the 5 year period typically found in perpetual issues.  Remember in all issuances of preferred stock or debt issues there are trade offs and in the case of term preferreds you have a “date certain” for maturity, but you trade off the “call free” time frame to a shorter period of time.


GAIN has announced that with the proceeds of the new offering they will be redeeming their outstanding 7.125% term preferred (NASDAQ:GAINP) which has a mandatory redemption date of 2/28/2017 and is optionally redeemable now.

The company has 2 additional term preferred issues outstanding at this time with coupons of 6.50% (NASDAQ:GAINN) and 6.75% (NASDAQ:GAINO).  You can compare them on our “swaps” page here.

Shares of this issue are trading on the OTC Grey market now under the ticker GADDP.  For a primer on trading on the OTC market please go here.

Further details of this issue can be found here.

To get more information on preferred stocks, screen them, set up your own portfolio and receive email alerts, go to now.

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