In this article, we want to shed light on the newest preferred stock issued by Gabelli Multi-Media Trust (GGT). This is the last exchange-traded fixed-income security for 2019, completely overlapping the situation that formed last year. An environment of a bunch of new 5% and below 5% preferred stocks begins to settle permanently and even though the product may not be of interest to us and our financial objectives, it definitely is worth taking a look at.
The New Issue
Before we submerge into our brief analysis, here is a link to the 497 Filing by Gabelli Multi-Media Trust – the prospectus.
For a total of 1M shares issued, the total gross proceeds to the company are $25M. You can find some relevant information about the new preferred stock in the table below:
The Gabelli Multi-Media Trust Inc 5.125% Series G Cumulative Preferred Shares (NYSE: GGT-G) pays a fixed dividend at a rate of 5.125% and has a par value of $25. The new preferred stock is not rated by Standard & Poor’s but is anticipated to be rated an “A2” from Moody’s Investors Service. The new IPO is callable 5 years after the settlement date, which is expected to be 12/20/2019. The newly issued preferred stock is currently trading a little above its par value at a price of $25.32. This translates into a 5.06% current yield and a 4.87% yield-to-call.
Here is the product’s Yield-to-Call curve:
The Gabelli Multimedia Trust is a closed-end, non-diversified management investment company whose investment objective is long term growth of capital, with income as a secondary objective. The Fund seeks opportunities for long-term growth presented in the global telecommunications, media, publishing, and entertainment industries. The Fund will also invest in companies participating in emerging technological advances in interactive services and products.
Source: Gabelli.com | The Gabelli Multi-Media Trust
Below, you can see a price chart of the common stock, GGT:
While the text above provides us with a stepping stone in terms of information about the fund, it means nothing without looking at some numbers:
The Fund’s investment advisor is Gabelli Funds, LLC. Other closed-end funds from the same investment advisory are GDV, GLU, GCV, GGZ, BCV, ECF, GGO, GAB, GUT, GDL, GRX, GNT, and GGN.
The “Gabelli Family”
The chart below shows some relevant information about the other 25 preferred stocks, issued by “The Gabelli Funds.” Three issues, however, were called for redemption for December 26, 2019, so they won’t take part in the following bubble charts. Still, you can find some information about them in the table below:
To give a better idea of where the new preferred stock stands in comparison with its relative peer group, you can see the chart below. It presents the preferred stocks from the group by their % of par and current yield.
An observation could be made that almost all of these securities trade at a current yield between 5.00% and 5.80%, which makes the newly issued GGT-G slightly overvalued than the rest of the Gabelli preferred stocks, with its 5.13% Current Yield. Now let’s exclude those with a call risk, which means I’ll leave only these issues with a positive Yield-to-Call.
The picture has changed a bit, as most of the issues trade at the current yield of between 5.00% and 5.30% yearly. From this point of view, the new IPO now seems fairly priced to the rest issues. I want to add one more point of view, a chart by Years-to-Call and Yield-to-Call with the securities that have not reached their call date yet. In other words, the Yield curve in the peer group, by their Yield-to-Worst:
With 4.92% YTC, GGT-G is one of the best preferred stocks by YTW, along with GNT-A and GAB-K with their 4.84% and 4.83% YTC, respectively. It has to be noted that GNT-A has 3 years to their call dates, while as a new IPOs, GGT-G and GAB-K have two years more. As for the rest, they are far from the first three by this indicator, but with their nominal yields that are very close to the new preferred stock, it is very likely they will trade at their Current Yield, which is very close to GGT-G’s, around 5.10%.
Here I want to insert that GLU-B will no longer be a 7% issue. Together with GDL-C, these are the two issues that its dividend rate is not fixed. GLU-B pays a various dividend rate that means “the Board will determine and publicly announce at least 30 days prior to the end of the fourth payment date since the IPO a fixed annual dividend rate that will apply for the next two years and will repeat the same for the remaining years. This dividend has to be no less than 4.00% or greater than 7.00%.” GLU-B had paid its last quarterly distribution on the 7% yearly basis for the last time on December 26 and will be reset to an annual rate of 4.00%. This will significantly reduce its returns to a Current Yield and YTC of 3.87% and 3.14%, respectively.
In addition, in the following chart, you can see a comparison between GGT’s other preferred stocks and the fixed-income securities benchmark, the iShares U.S. Preferred Stock ETF (PFF). Generally, there is nothing in between GGT-E, GGT-B, and the ETF. After all, as very tiny issues, they don’t take part in PFF’s holdings.
The chart below contains all preferred stocks in the Closed-End Fund – Equity sector (according to Finviz.com), regardless of their type of dividend rate, with a par value of $25, by their yield-to-call and their current yield. It must be remarked that this is again only Gabelli funds.
All Investment Grade Preferred Stocks
The last chart contains all preferred stocks that pay a fixed dividend rate, have a par value of $25, an investment-grade rating, and a positive Yield-to-Call.
To see where the newly issued preferred stock stands on the real Yield curve, we’ll have to include some more filters: the preferred stocks don’t have to be callable and have to trade above par value.
Asset Coverage Ratio
Pursuant to the 1940 Act, the Fund generally will not be permitted to declare any dividend, or declare any other distribution, upon any outstanding common shares, purchase any common shares, or issue preferred shares, unless, in every such case, all preferred shares issued by the Fund have at the time of declaration of any such dividend or distribution or at the time of any such purchase or issuance an asset coverage of at least 200% (“1940 Act Asset Coverage Requirement”) after deducting the amount of such dividend, distribution, or purchase price, as the case may be. As of the date of this Prospectus Supplement, all of the Fund’s outstanding preferred shares are expected to have asset coverage on the date of issuance of the Series G Preferred Shares of approximately 294%.
In addition to the 1940 Act Asset Coverage Requirement, the Fund is expected to be subject to certain restrictions on investments imposed by guidelines of one or more rating agencies that are expected to issue ratings for the Series G Preferred Shares. See “Special Characteristics and Risks of the Series G Preferred Shares — Risks — Credit Rating Risk” in this Prospectus Supplement. As a condition of the underwriters’ obligations to purchase the Series G Preferred Shares, the Series G Preferred Shares must be rated at a minimum level by Moody’s Investors Service, Inc. (“Moody’s”).
Use of Proceeds
The Fund estimates the total net proceeds of the offering to be $48,148,000, based on the public offering price of $25.00 per share and after deduction of the underwriting discounts and commissions and estimated offering expenses payable by the Fund. The Fund will use a portion of the net proceeds from the offering of Series G Preferred Shares to redeem all of the Fund’s outstanding 6% Series B Preferred Shares. The distributions on the 6% Series B Preferred Shares are cumulative from the date of original issuance thereof, and are payable quarterly on March 26, June 26, September 26, and December 26 of each year. The Series B Preferred Shares have been called for redemption for December 26, 2019 for an aggregate redemption price of $19,775,350.
Addition to the iShares Preferred and Income Securities ETF
With the current market capitalization of only $25M, GGT-G cannot be an addition to the iShares Preferred and Income Securities ETF, which is important to us due to its influence on the behavior of all fixed-income securities.
Another very quality preferred stock from “the Gabelli family.” Rated with an “A2” by Moody’s (an analog for “A” by S&P), slightly leveraged company, only 26%, and an asset coverage ratio of 294%. It is fairly priced by Current Yield to the rest of its peer group, but with its 4.87% Yield-to-Call, it is one of the three preferred stocks with the highest Yield-to-Worst. Furthermore, it has the highest YTW when compared to all other investment-grade preferred stocks, while the rest are even with a lower rating (BBB+, BBB, and BBB-). In the background of the series of preferred stocks, priced below 5%, and some are even below-investment with a nominal of 5% (AT&T’s T-A), GGT-G seems a very decent security. As a disadvantage can be noted the small issue of only 1M shares and the very likely low liquidity that will follow.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.