Closed End Fund Gabelli Dividend & Income Trust Sells a Preferred Issue

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The Gabelli Dividend & Income Trust, (NYSE:GDV), a closed end fund (CEF), has sold a high quality preferred share offering with a low coupon of 5.25%.  Given that the issue is rated Aa3 by Moodys the low coupon in the present yield environment should be expected.

The trust is using the proceeds for general corporate purposes, which means they can use the proceeds in any manner they determine is suitable.  GDV has stated in the prospectus that the proceeds will NOT be used to redeem either of their other 2 preferred issues outstanding, both of which are redeemable now.  Both issues are trading substantially above $25 and while the company says they will not redeem them we would not hang our hat on that statement and would stay away from them.  You can compare other preferred issues of GDV on our “swaps” pages here.

GDV being a CEF is required to have a asset coverage ratio on their preferred shares of at least 200% and after this offering it is estimated that they will have a coverage ratio of over 400%.  We recall back in 2008/2009 Gabelli came close to falling below the required asset coverage ratio and we suspect that they are maintaining a high coverage ratio with this history in mind.  A market panic or black swan event can change CEF asset values quickly as the leverage used to a positive advantage when a market is rising cut asset valuations quickly in a falling market.

This issue began trading on the OTC Grey Market today under the temporary OTC ticker of GDVVP and has not traded below $25 reflecting the strong demand for quality yield.  For those interested in buying new issues on the OTC Grey market our primer can be found here.

Further details of this issue can be found here.

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