PDI Share Offering

The PIMCO Dynamic Income Fund (PDI) is going through a fixed-price secondary offering at $24.69 where they are selling 3.75m of shares into the market scheduled to close on the 8th. This is around 6% of the current float. Normally, funds do ATM rather than fixed-price offerings. The way this works is that the underwriter will sell shares into the market so long as the price is above the NAV (they are not allowed to do it otherwise). If the price is below the NAV the fund would be doing a dilutive rights offering rather than an ATM offering (in any case, it’s unlikely for PIMCO to do this even if PDI moves to a discount). Two key takeaways here. First, there will be selling pressure over the next 3 days so expect PDI to trade weak. Secondly, the offering is accretive to NAV – nothing major but also not something to worry about.

Somewhat painfully the share price went up 1.5% (nearly all of it is due to premium rising) for those who bought PDI yesterday. The fund is likely to open quite a bit lower in the morning. As of about 10 minutes ago there was a live offer of $24.35 – live because I bought some shares to test the depth and the depth was higher than the indicated number. $24.35 is 5.8% below where the price closed on Monday. At that level the premium is 3.8% (versus 10.2% on Monday close). The premium is not going to stay there because PCI closed at a 7.7% premium so either the PCI premium will move lower or the PDI premium will move back up. Most likely it will be something in between.

One advantage of buying here is that there is a floor on the premium because they can’t continue to sell shares into the market if the price falls below the NAV. If the NAV stays steady around $23.46 that means that the downside on Tuesday is 3.65% from the $24.35 live offer (again, as of 10 minutes ago). Judging by the pre-market move of 6% lower much of the ATM offering is already priced in so it would be surprising to see the fund move much closer to $23.46 – you might get some panicked sells by people who aren’t sure what’s going on but there will be lots of others looking to buy at around $23.50 – 24 and that will support the price.