Business Context and Reporting Period
Company: Gladstone Investment Corporation
Filing Type: Form 8-K (Current Report)
Date of Report: August 14, 2018
Event: Entry into a material definitive agreement to sell 2,600,000 shares of 6.375% Series E Cumulative Term Preferred Stock due 2025. The transaction is expected to close on or about August 22, 2018.
Key Financial Metrics and Transaction Details
- Offering Size: 2,600,000 shares of Series E Term Preferred Stock.
- Public Offering Price: $25.00 per share.
- Over-Allotment Option: Underwriters granted a 30-day option to purchase up to an additional 390,000 shares.
- Dividend Rate: Fixed annual rate of 6.375% of the liquidation preference ($1.5938 per share per year), payable monthly.
- Liquidation Preference: $25.00 per share plus accrued but unpaid dividends.
- Redemption Date: Mandatory redemption required on August 31, 2025.
- Underwriters: BMO Capital Markets Corp. and Janney Montgomery Scott, LLC.
Material Changes and Strategic Actions
The filing details a material modification to the rights of security holders and a strategic capital restructuring:
- Dividend Restrictions: The Company is prohibited from issuing dividends or distributions on Common Stock while Series E shares are outstanding unless all accrued and unpaid dividends on the Series E shares are paid in full.
- Board Representation: Holders of Series E shares, together with holders of other preferred stock, have the exclusive right to elect two directors. If dividends are in arrears for two full years, preferred holders gain the right to elect a majority of the Board.
- Refinancing Plan: The Company announced plans to redeem all outstanding Series B (6.75%) and Series C (6.50%) Term Preferred Shares. This redemption is contingent upon the successful completion of the Series E offering and will be funded by net proceeds from the Series E offering plus borrowings under the Company's credit facility.
Guidance, Risks, and Contingencies
- Forward-Looking Statements: The filing contains forward-looking statements regarding future performance and the closing of the transaction, which are subject to risks and uncertainties.
- Asset Coverage Requirements: The Company must maintain minimum Asset Coverage ratios under Sections 18 and 61 of the 1940 Act. Failure to maintain this ratio may trigger a mandatory redemption of preferred stock.
- Penalty for Non-Redemption: If the Company fails to redeem the Series E shares on the mandatory redemption date (August 31, 2025), the dividend rate will increase by 3.00% per annum.
- Optional Redemption: The Company may redeem the shares in whole or in part on or after August 31, 2020.
Investor Verification Checklist
- Verify the closing date of the Series E offering (expected August 22, 2018) and the actual amount of capital raised.
- Confirm the execution of the redemption of Series B and Series C preferred shares using the proceeds from the Series E offering.
- Review the Company's current Asset Coverage ratio to ensure compliance with the 1940 Act requirements.
- Monitor the declaration of the first monthly dividend, expected to be paid on September 30, 2018.
- Assess the impact of the new 6.375% dividend obligation on the Company's cash flow and ability to pay common stock dividends.