Closed End Fund Gabelli Utility Trust Sells a Quality Preferred Issue
By: Tim McPartland,
The Gabelli Utility Trust (NYSE:GUT), a closed end fund (CEF), has sold a quality, investment grade, preferred stock. The shares are rated A1 by Moodys.
As is normal for a preferred stock offering from a CEF the company must maintain a 200% asset coverage ratio. Per the prospectus GUT will have a asset coverage ratio of 336% after the issuance of the new shares.
With the investment grade credit rating comes a fairly low coupon of 5.375%. The shares are cumulative with respect to dividends and are perpetual in duration (they have no maturity date). Additionally, the share are redeemable in 5 years at the option of the issuer.
GUT has an additional preferred stock outstanding which carries a 5.625% coupon and is trading at a price of $25.81.
This issue is for only the most conservative investor. Interest rate risk is high (share price will fall when interest rates rise), but the leverage requirements lend a great deal of safety to the issue.
The issue is now trading on the OTC Grey market under the temporary ticker GABUP at around $25.06/share. Our primer for Grey Market trading is here.