PIMCO UNII Reports

[retiredat48]

Some words of wisdom, attributable to Capecod...



--At 12/31 PDI purposefully entered over $1billion notional counterintuitive swaps that CONSUME large amounts of NII. In return, PDI received a lot of cash --- NOT NII --- but just as good for paying distributions. Consequently, at 12/31 PDI held 15.7% cash ($673mm).....more than double most similar funds. 3 months later cash was down to $511, still plenty to cover monthly distributions totaling $57mm for many months EVEN ASSUMING THE OTHER $7.5 BILLION ASSETS EARN NOTHING!



Obviously, fund boards can do what they please "in the best interests of shareholders," but based on this data, it seems unlikely they NEED to cut the distribution.



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--Complex portfolios require complex analysis. Currently there are a lot of complicating factors contributing to low NII disclosures. That does not, however, mean there are insufficient cash flows to cover distributions. Consider...



1. Earnings --- if not NII --- are being generated. In April, PDI NAV increased 8c AFTER taking the 22c ex-date hit. NAV increased 30c in April before the distribution.



2. About 40+% of conventional portfolio assets have floating rates that reset with a 1-6 month lag. Increased interest income from recent Fed hikes has not arrived yet because of the reset lags --- but the fund board knows what is coming and can be counted on.



3. The "front leg" of interest rate swaps cannot be counted as NII until paid, but it exists, is computable, and although not reportable NII, it can provide boards with assurance that they WILL have the NII to maintain distributions. Of particular consequence, ALL PDI U$ swaps are now annual or semi-annual pay. There may be enormous non-disclosable NII locked up for a long time.



4. PDI has been holding a $1.1 billion notional 3mo SOFR short futures position. Recent Fed hikes have generated significant NON-NII margin cash flows and ultimately distributable cash gains. More future distribution coverage that can't be disclosed as NII.





5. ...



_________________________

Thanks Dick...



R48

[Deleted]

The PIMCO UNII report for May is now out, seen via www.pimco.com/en-us/investments/closed-end-funds . The coverage numbers for the taxable CEFs have improved altho none have reached 100% yet ... and how accurately/fully these may indicate the occurance and size of future distributions has been debated elsewhere.

edit: There is other possibly helpful information occasionally escaping the PIMCO black cube, such as the 19a's in recent months for PFN which have caused me to retreat greatly from it. And remember above all ... that the CEF share market-price is being set by investors and not by PIMCO, perhaps at times irrationally and emotionally so.

--- Frank

[Deleted]

Our friend at the Cape continues to post a variety of informative helpful comments at SA and also at the Fido Community Forum. There's a particularly interesting comment just now at the Fido Forum in the current "CEF Holdings" thread which relates to the PIMCO reported UNII:

Okay....in a very informative discussion with Nick Ackerman over on SA under his article on WDI and PDO, Nick provided seemingly definitive evidence that cash flows from interest rate swaps are (capital) gains and losses rather than interest income or expense. ONE of the immediate consequences of this clarification seems to be that UNII reports are ABSOLUTELY valueless in assessing the ability of a CEF to cover its distributions. Potentially huge positive or negative cash flows recorded as gains or losses may overwhelm positive or negative UNII.

QUESTION I'll be asking Nick tomorrow: does this characterization of swap cash flows still stand if the swap is specified as a hedge? Too tired tonight.

Regards, Dick


I believe that the SA article referred to is seen (but thru a paywall?) at seekingalpha.com/article/4607057-wdi-and-pdo-pumping-out-11-percent-plus-distribution-yields . Note that this article was publically released in mid-May so some of its data now may be a bit stale. And in the article's comments section, don't overlook clicking on the "see more replies" button in order to get a full picture.  Disclosure: I've happily owned WDI for some time now, more so than for PDO.

--- Frank

[anitya]

Today, both PDI and PAXS NAVs were up 0.55% while PDO NAV is down 0.8%. That is a 1.35% difference in 1 day NAV movement. What are they feeding PDO to be down so much today?