BDC TICC Capital (NASDAQ:TICC) has sold a new shorter duration baby bond issue with a coupon of 6.50%. TICC will use the proceeds from the offering to redeem a portion of the 7.50% 2012 Convertible Notes which are due 11/1/2017.
The new baby bonds will have a maturity date of 3/30/2024 and will have an optional call period which becomes effective 3/30/2020. The income stream, of course, is interest and thus the payments will not qualify for preferential tax treatment for the investor.
Being a BDC TICC is required to maintain a 200% asset coverage ratio on their debt, which is always an attractive feature of baby bonds from this asset class as it provides an added level of safety that isn’t available on securities issued by REITS, utilities or other regular C Corp issuers. Additionally, while the coupon is fairly meager the short maturity date in 2024 means that we may have an interest in this issue for our portfolio. While we are able to buy current issues with coupons that are superior to this new issue very few of them are trading at or below $25.
Investors should be aware that a good portion of the TICC portfolio is composed of CLOs (collateralized loan obligations). We do not personally have a problem with this fact, but there are some investors that shy away from these instruments as CLOs can be complex debt holdings. We suggest that those interested in this new issue should research CLOs to help them understand what a collateralized loan obligation is all about.
Remember this is a baby bond and likely will not trade on the OTC Grey market prior to permanent trading on the NASDAQ.