Monday , October 18 2021

Gladstone Capital Corporation: This 6.125% Baby Bond started trading on NASDAQ – Gladstone Capital (NASDAQ: GLAD)



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Introduction

In this article, we want to introduce a new bond for babies issued by Gladstone Capital Corp. (NASDAQ: GLAD).

Our goal is purely to inform you about the product by refraining from an investment recommendation. Even if the product is not of interest to us and our financial goals, it's definitely worth a look.

The new problem

Before we delve into our brief analysis, here is a link to the 497AD Filing by Gladstone Capital Corporation.

Source: SEC.gov

For a total of 2 million notes issued, total gross revenue for the company is $ 50 million. You can find some relevant information about the new baby bond in the table below:

Source: Author's Worksheet

Gladstone Capital Corporation 6,125% of notes due in 2023 (NASDAQ: GLADD) pay fixed interest at a rate of 6.125%. The new edition has no Standard & Poor's rating, but is expected to be rated "A-" by the Egan-Jones Ratings Company. The GLADD is called from 11/01/2020 and is due on 11/01/2023. The GLADD is currently trading slightly above its face value and has a yield of 5.63% interest and a yield of 5.91 until maturity. The interest paid on this bond of the baby is not eligible for the preferential rate of 15% to 20%. This results in the "qualified equivalent" YTC and YTM around 4.69% and 4.93%, respectively.

Here is the Yield-to-Call curve of the product:

Source: Author's Worksheet

Ranking

  • structurally subordinated to all existing and future debts and other liabilities of any of the Company's subsidiaries, including, without limitation, US $ 110.8 million in loans outstanding on November 1, 2018, under the credit facility.

The company

Gladstone Capital Corporation, incorporated on May 30, 2001, is a closed, non-diversified management investment company that operates as a business development company (BDC). The Company's goals are to achieve and increase current income by investing in debt securities of established companies that it believes will provide stable earnings and cash flow to pay expenses, make principal and interest payments on its indebtedness and distribute to shareholders who grow. over time, and provide its shareholders with a long-term capital appreciation in the value of its assets by investing in equity securities of established companies that it believes can grow over time to allow the sale of its equity investments for gain capital.

The company is focused on investing in midsize companies in the United States. It has investments in the south, midwest, west and northeast of the United States. Its portfolio allocation includes investments in debt and equity investments. Its debt investments include investments in secured first-pound debt, securitized second-pound debt and unsecured debt. Its investments in equity interests include investments in preferred shares and common / equivalent shares. The Company offers management assistance services to the companies in its portfolio.

The company invests in sectors such as health, education and childcare; diversified / conglomerate manufacturing; diversified service / conglomerate; oil and gas; drink, food and tobacco; car; diversified natural resources, precious metals and minerals, cargo transportation, buildings and real estate; leisure, fun, movies and entertainment; personal and non-durable consumer products; printing and publishing; telecommunications; machinery; transmission and entertainment; textiles and leather; finance; electronics and others. Its subsidiaries are Gladstone Business Loan, LLC, Sunshine Media Group, Inc. and Defiance Integrated Technologies, Inc. Gladstone Management Corporation is the Company's consultant.

Source: Reuters.com | Gladstone Capital Corporation

Gladstone Investment Corporation (NASDAQ: GAIN), a non-diversified, externally managed, investment management company, Gladstone Commercial Corporation (NASDAQ: GOOD), a real estate investment fund that owns industrial, commercial and retail property leased and selectively does Industrial Mortgage Loans and long-term commercial properties, and Gladstone Land Corporation (NASDAQ: LAND), a real estate investment fund that invests in agricultural land located in major US agricultural markets, are affiliated investment companies of Gladstone Capital Corp.

Below you can see a chart of common stock prices, GLAD:

Source: Tradingview.com

While the above text provides us with a stepping stone in terms of background information, this does not mean anything without looking at some numbers:

Source: Cefdata.com

Capital Structure

Below you can see a summary of the capital structure of Gladstone Capital Corp. from its Quarterly Report in June 2018. You can also see how the capital structure has evolved historically.

Source: Morningstar.com | Company Balance Sheet

The Gladstone Family

There are 7 outstanding preferred shares traded on NASDAQ issued by a "Gladstone Company".

Source: author database

A better idea of ​​group earnings of peers can be found in the following bubble charts. As it is a security term, I will compare GLADD only with the term preferred stock:

  • For years until maturity and yield to maturity

Source: Author Database

  • Throughput to connect and throughput to maturity

Source: Author Database

We can see that not only does the newborn bond baby have one of the highest incomes for the worst, but it is also maturing sooner than its positive YTC "siblings." In addition, GLADD is higher in the capital structure, which undoubtedly makes it the group's best choice.

Sectorial Comparison

The image below contains all bonuses for babies and long-term preferred shares that pay a fixed distribution fee in the sector & # 39; Closed Financing – Financing & # 39; (according to Finviz.com) for its interest income and income to maturity.

  • For years until maturity and yield to maturity

Source: Author Database

  • Throughput to connect and throughput to maturity

Source: Author Database

Source: Author Database

Securities with Fixed Nominal Term

The chart below contains all the preferred shares and bonuses for infants that are traded on the national stock exchanges, pay fixed distribution and are less than 10 years old until maturity with a positive YTC.

  • For years until maturity and yield to maturity

Source: Author Database

  • Throughput to connect and throughput to maturity

Source: Author Database

If we take a closer look at the main group:

Source: Author's Worksheet

Business Development Companies

The table below contains all the baby bonds and preferred shares issued by BDCs by their YTC and YTM:

  • For years until maturity and yield to maturity

Source: Author Database

  • Throughput to connect and throughput to maturity

Source: Author Database

For a better idea, the main group:

Source: Author Database

Asset coverage ratio

On April 10, 2018, our Board of Directors, including a "required majority" (as defined in Section 57 (O) of the 1940 Act), approved the modified asset coverage requirements set forth in Section 61 (A). (2) of the 1940 Act, as amended by the SBCAA. As a result, the Company's asset coverage requirements for senior securities will be changed from 200% to 150%, effective one year after the Board of Directors' approval date, ie April 10, 2019. Under the current coverage pattern of assets of 200%, we can borrow or issue senior securities in the amount of US $ 1.00 for each US $ 1.00 of capital of the Company. As of April 10, 2019, under the 150% asset coverage standard, we may borrow or issue senior notes in the amount of US $ 2.00 for each US $ 1.00 of the Company's capital. This reduction in the asset coverage ratio will allow us to double the amount of debt we may incur and therefore the risk of an investment in us may increase. In addition, our management fee is based on our average gross assets, which include investments made with loan proceeds, and as a result, if we incur additional leverage, the management fees paid to the Consultant would increase. Notwithstanding the modified asset coverage ratio under the 1940 Act described above, we continue to be subject to a minimum asset coverage requirement of 200% in respect of certain provisions of our 2024 series credit line and preferred stock. If we fall below the minimum 200% asset coverage requirement, we may, under certain circumstances, be required to pay all outstanding indebtedness under our Credit Facility and redeem our 2024 Series Preferred Stock. In addition, if we are below the minimum requirement of 200% asset coverage, we may need to renegotiate our Credit Facility and issue an additional series of preferred preferred shares with a lower requirement for asset coverage. Such events, if they occur, may have a material adverse effect on our business, financial condition, results of operations and cash flows.

Source: 497 Filed by Gladstone Capital Corporation

We intend to use the net proceeds of this offering to pay a portion of the outstanding amount under the Credit Facility to fund new investment opportunities and other general corporate purposes. As of November 1, 2018, we had approximately US $ 110.8 million of outstanding debt in our Credit Facility.

Source: 497 Filed by Gladstone Capital Corporation

Conclusion

This is an informative article on the new GLADD baby bond. With these articles, we want to pay attention to all the new preferred shares and bonuses for babies, and they are a good guide to what to expect from your income portfolio.

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Disclosure: We have no positions on any of the aforementioned shares and we have no plans to start positions in the next 72 hours.

I wrote this article myself and it expresses my own opinions. I'm not getting any compensation for it (other than Alpha Seeking). I have no business relationship with any company whose actions are mentioned in this article.

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