It is seldom that you can garner a relatively safe 9% yield on an income issue (in this case a Trust Preferred issue) in this age of rock bottom interest rates, but that is the case with little known Glacier Water Services 9 1/16% Trust Preferred Shares (OTC:GWSVP).
Glacier Water Services (GWSV.PK) is a small company with annual revenue of approximately $100 million. The company is about as straightforward as they come---they provide mainly 1 product---they provide and service water filtration vending machines--and at last count had almost 19,000 machines, in 42 states.
If you have not heard of the company before it is no surprise. The company purposely delisted their shares from the American Exchange in 2005---the company could not meet the requirement for having at least 300 public shareholders and thus chose to be delisted and trade only on the 'pink sheets'. Because of this decision the requirement for SEC filings was dropped and the company provides very little information for the investing public. At the time of delisting the company had 37 public common shares holders and 70 public Trust Preferred holders (NO--this isn't a typo--107 total public shareholders).
A bit of history is in order given the minimal amount of public information that is readily available.
The first available SEC 10K filings are from 1996 and at that time the company had just over 9,100 water vending machines installed in retail locations. The company had 3.4 million common shares outstanding at this time with cash flow of near $3/share. The company paid no dividends. Additionally the company had $11 million of debt outstanding at this time. The company had grown by near 100% (to $46 million in 1996) since 1992 and ended 1996 with 282 employees.
Jump ahead to late 1997 when the company formed the 'Trust' to purchase the Junior Subordinated Debentures from the company and to sell 3.4 million Glacier Water Trust 9 1/16% Preferred shares (the shares we are talking about here). The debentures mature in 2028 while the Trust Preferred shares became callable at $25/share plus accrued dividends in 2003. The proceeds from the Debentures were used to payoff outstanding short term borrowings of the company and for further expansion.
Moving ahead to November, 2005 (the last quarter in which the company filed with the SEC) we find the company now has annualized sales in the $75 million dollar range with over 15,000 machines installed. Cash flow has remained more than adequate to support the business.
Next moving ahead to the quarter ending October 3, 2010 we find the company now has annualized sales in the $100 million range with near 19,000 machines installed. Cash flow remains strong and the company is generally paying an annual common stock dividend.
The Trust Preferred shares have traded in the same manner as all preferred shares during the last 5 years--meaning generally stable with a plunge in late 2008 and crawling back through 2009-2010.
The daily volume on this issue is very thin--only around 1,500 shares. As with all preferreds this means that you must use limit orders and given that the shares are callable at $25 it is dangerous to pay more than $25 plus accrued dividends on this issue. The shares regularly bounce between $24.50 and $25.50 because of the thinness of the trade. You must be willing to wait a day or 2 to get these shares at the correct price.
We mentioned at the start of this article that we believe these shares are 'relatively safe'. We have owned and watched these shares for a number of years and are quite comfortable with the general lack of information. If you are one that is not comfortable with somewhat minimal information then these are the not the shares for you. One item that gives some comfort is that Richard Kayne (Chairman and Founder of Kayne, Anderson Capital--a $12 billion asset management firm) is on the board of directors as well as available audit statements from KPMG.