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.
Details of this issues can be found here
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.
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