Closed End Fund Gabelli Global Small & Mid Cap Value Trust Sells a Preferred
By: Tim McPartland,
Gabelli Global Small & Mid Cap Value Trust (NYSE:GGX) has issued a 5.45% cumulative, perpetual preferred stock.
As the modest coupon would indicate this issue is of high quality. It is expected to be rated A2 by Moodys (although the rating is not finalized as of the moment). The Gabelli family of closed end funds has numerous preferred issues outstanding and all of them are rated either A1, A2 or Aa3–all very high ratings. Closed end funds are required to maintain an asset coverage ratio of at least 200% on their preferred shares which provides a nice level of safety for the holders of the preferred shares.
Dividends on this issue are cumulative, meaning that if for any reason they are not paid they will have to accrue the dividends and pay them later. Additionally, since there is no maturity date they are considered perpetual and well might not ever be redeemed by the company.
The shares should start trading on the OTC Grey market today or Monday under the temporary ticker GBBLP. For those not familiar with buying preferred shares on the OTC Grey Market we have a short “primer” here.
Investors should remember that just because an issue is of high quality doesn’t mean that the price will not go down. If at some point in the future interest rates rise, the value of the stock will likely fall—this is normal for all income securities.