Business Context and Reporting Period
Company: Flaherty & Crumrine Preferred Securities Income Fund Incorporated
Filing Type: Form 8-K (Current Report)
Date of Report: January 20, 2017
Event: Announcement of changes to the Fund's investment policies effective February 21, 2017.
Key Financial Metrics
This filing is a current report regarding policy changes and does not contain financial statements. No data is provided regarding revenue, profit, cash flow, margins, debt, or liquidity.
Material Changes Versus Prior Period
The Fund is modifying its investment policy regarding credit ratings and asset allocation:
- Old Policy: Required at least 80% of securities acquired to be rated investment grade. Allowed up to 20% in below-investment-grade securities if rated at least Ba3/BB-/BB- or issued by an entity with investment-grade senior debt.
- New Policy: Requires at least 90% of managed assets to be either rated investment grade or issued by companies with investment-grade issuer/senior unsecured debt ratings.
- Reasoning: Rating methodologies have evolved since the 2008-2009 financial crisis, resulting in lower ratings for preferred securities despite credit strengthening. Investment-grade rated preferreds now comprise only ~62% of the market (down from 90% pre-crisis).
Guidance, Outlook, and Risks
Impact of Changes:
- The Fund is now authorized to purchase below investment-grade preferred securities from investment-grade issuers.
- Subject to a 10% limit, the Fund may purchase securities rated below Ba3/BB-/BB- even if the issuer or senior debt is below investment grade.
- Management Intent: While the new policy permits acquiring securities rated B and below, the investment adviser has no current intention of doing so.
- Holdings Composition: More than 10% of holdings may be issued by companies with below investment-grade ratings, as the Fund is not required to dispose of securities if they are downgraded after purchase.
Investor Verification Checklist
- Verify the effective date of the new policy (February 21, 2017).
- Confirm the shift from an 80% to a 90% threshold for investment-grade or issuer-rated assets.
- Review the Fund's actual portfolio composition to assess exposure to below-investment-grade securities under the new 10% flexibility limit.
- Monitor future filings for any actual purchases of securities rated B or below, despite the current lack of intent.