XAI Octagon Floating Rate & Alternative Income Term Trust (XFLT) 26 May 222022 Q1 Earnings call transcript

The broadcast is now starting. All attendees are in a listen-only mode.

Good morning and welcome to the XAI Octagon Floating Rate & Alternative Income Term Trust quarterly webinar. My name is Robert Chenoweth, Product Specialist at XA Investments and I'll be your moderator. In today's webinar, we will provide a first quarter update for XFLT and take questions from the audience.

are of. disclosures there make like begin, aware you we a I'd few to Before discussed does information accounting The today advice. regulatory tax, or legal, not constitute investment or as This offer be should security. considered information to not sell buy any an review Investors selling. purchasing are or before an advised make to independent guarantee carry of not can results. past performance loss Investments future and a does risk of right. All

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joined Portfolio from a member Gretchen we're oversees We're is Investment Serves Committee. investment So Lam Octagon's credit across and Investors. a CLOs structured as Kimberly Octagon Gretchen global Director Octagon structured Flynn. activities. products group. for their the and today a joined and XXXX was is Head Managing of today strategies. by Kim Manager Previously, joined in firm's also by product and Partner at Development at leading Nuveen, Founding responsible Investments, development Credit XA Kim all business of Product

the also download today. So replay, can with you presentation email topics we'll off receive the notice, that discuss on you'll have When website our webinar prepared we and well. questions you as this my

of here. work cover of we'll so and kind can we'll today what keep this a yes, as summary moving So

investor. rooted XXXX track with They're of and relative a is XX assets record Octagon aggression Their with fundamental grade experienced years Octagon under since credit credit has team leading credit a focused an So they're exceeding investment value works, of process management analysis. on in billion. and a below investment $XX review [ph] institutional that's quick where

to and So over her I'm Kim it XFLT. discussion with going to that, start hand she'll on

with us some thank We're of with questions some get past, Great, Robert. XFLT you'll in been you some to this overview slides. those to secondary market. the us additional the joining an We've also we who've of quarter's see going to for in familiar content presentation that in the added respond you, start

we're to So open your always and feedback to your questions.

stand the to Market of accretive things to please of fashion managed and by $XXX the positive a helps for X/XX/XXXX. or point interests fund, is in And Leverage the at few A through health to highlights, highlight, in reach grown. our, We've that as and At an the the assets wellness A continued add funds to discuss. couple Robert at me to Total think fund any you'd The if in out of has trading program. like So quarter, secondary we for million is the anywhere it's and the driving secondary market daily XXX,XXX, think from to XX%. average continue market. to potential I us to under volume be important investor daily range The which for indicator shares XXX,XXX volume. new is can overall the buyers largely driven XXX,XXX. drive sellers just shares

rate those X/XX flows. the monthly distributions this current as think which average lower The The cash regular through important was distribution it's of paid equity. We asset unique has in cheaply, we mix results the that's a in is CLO funds distribution and CLO competitor XXth cost is $X.XXX to its that given invest borrow been that maintain at more a debt credit that XFLT regular also leverage rate. relative to facility, to of One that $XX.XX. advantages can steady

$XX.XX. it's close As of night's last

in fairly current of rate So the NAV. distribution on close terms

One specifically number XXX the north of of holdings of is that as things now grown, point out, XXX. has fund the the

positions not hasn't that represents about changed example, CLO XX.XX%, Octagon holdings CLO asset you CLO allocation lumpy to the pieces equity while new you the top it It debt and the acquiring in surprisingly buying the CLO of below, overall top that see, getting and While XX the access that our all those those way necessarily do for see pie equity. be, be equity. can goes of can chart in XX

pricing current And the and asset market. market number below par XX.X. so the increase in to the will with of equity it consequently, in cover CLO her in We'll remarks price, fund's holdings. is about what impact Gretchen in a has Average debt loans and talk loan resulted this. CLO pricing

quarter, of terms the strategic asset being in think the X/XX allocation has of designed and were XX.X%. turn that terribly only loan upon reason large next change debt. has I'll as now a slide. changed observed The the senior asset a is you to not the CLO opportunities Octagon loans this In in allocation, has portfolio. Composition the keep the of that reflects I portion for and Senior much, acted it's the to

that or will general the So going allocation forward CLO healthy purposes view of CLO without roughly necessarily sell about. on that so is CLO into returns generating together equity talked mix to remain optimal debt risk of out positions is in results generating loans, of having that the and today The see flows inflows increase monthly imagine did we at other the reason those for also fund positive mix Octagon composition returns from this view assets of remain the and and adjusted enhance XX.X. allows on you that constructive to debt for to and having would an and the the mix they basis same. that to cash X.X aftermarket of shift portfolio the And a a is goal we inception the

returns to refer X.X%, quarter, of this I'll the right, X.XX%. since for benchmark performance inception returns, of price returns X.X% far terms In NAV

did you in if and quarter, of and price both you we the in reflecting are returns this see quite investors and reflection quarter the negative XFLT the in in benchmark quarter where for the the NAV's values held NAV fund. of pricing bit total CLO be returns particular XFLT, appreciate terms market are that driven a the equity can some given of of by In any changes the

that has with risk provide the biggest of that So CLO NAV. daily think in you investment important pricing We we transparency the is risks remind CLO of that terms of of reflected, one the associated but XFLT the I a mark-to-market in investors, investing is equity that's equity.

and to do obviously valuation model-driven decreases equity. a values, that associated pertaining as returns for with in the so so loan here corresponding decline, unrealized And will for losses CLO reflect the NAV leveraged NAV way. a see changes CLO values are decline put, you CLOs portfolio Simply

is A assets close-end period. really risk to So we for investors an think also on it understand In risk have a can income these be a this important from CLO to I investors. holder for that, lot can of that of of really buy mark-to-market it's important particular, funds and makes of investments period focus mark-to-market buyer talk long-term be because to you that income. sense this category but you funds about but close end

in about talk that we'll Q&A. and with Gretchen more So the

premium on to Moving discount.

X.X% to XFLT strong last Here, XX% In moves a This date has was secondary quite had about inception a XXXX, been we've trading. around about months bit. The premium. shown has premium. that in market the XX a it

depressed the a of night, -- NAV. last a and a X.XX% of at that is As trading depressed fund price off was X% premium, but

are entry and everyone's performance the So going point subjective different. fund. they where where came into be is to on, Everybody's they is based

And so we that. appreciate

for the pricing talking in that of things with what XFLT CLO of of the of a investors. XFLT communication daily CLO helpful its asset that class of transparency One equity, we because were the because terms its we just that's NAV about is think tool

even that, have periods pricing you is through navigating clear, like the So we're that this one that quarter. when

just dramatic is the XX. of on I think in In terms Slide obviously nothing Slide XXXX the We've really news, on recovery, to -- shown, there's the think off I XX. in bottom the, note

we've CLO considered floating fed are and the floating This in assets, loans floating rate rate with obviously seen equity fund invests rate securities. and also and debt quarter, two increases rate CLO

particularly rates as they have moved will LIBOR floors. past as benefit they So

visible, for benefit will for rate that future increases more think investors. I be So

of scale see that overall Let's expectation the just the the for and we growth, bars talk scale. investors you this green and think we've that would has just the shareholders. fund is health continue expenses on and helpful for terms highlight at this way leverage and reduced and to the -- market that gives to mentioned the XX, market. is economies the months this through volume, asset a What our the, use accretive fund Slide that the terms breakdown level of XX, sources. grown the I trading of in in the means of a Slide increased some volume size in can for fund the Slide wellness the the you of secondary is is grow in in we for last fund that observed XX in XX think is fund

because the this is As have of compared at rates, loans, to borrowings, the allocation senior $X.XX to an that preferreds floating mentioned, advantage the cost is I significant average we bank $X.XX.

to allocations are borrowing. to use funds able typically Our that healthy have competitor CLO equity bank not

has. It leverage a this results So of advantage cost X.XX. a XFLT lower in at is that average strategic overall

of The of last being XFLT fund better flexibility. preferreds was alignment fund management preferreds allows the have that team and because the the It's does regulatory the year XX%. being limit issuance liabilities it other is did the the the benefit assets increased liabilities of portfolio leveraged, that of a the

target to gives it of in headroom through to dynamic in periods. this helps terms managing forms all is that communicated zone, and have in of two provides managing significant the and we've XX%, it leverage volatile room leverage which way. the that a in past also fund XX% for The you to we've portfolio head So stayed

and means is GAAP these all and I all on Next rate. income distribution think slide to you the regular at know, current distribution just distribution distribution today's distributions. here the market, of looking In The the make the that income-based history, steady same underscore an May XXth this and represented and level rate we're that importance about is at end as XX.XX% declaration policy distributions. uses price XFLT NAV

here discussion And and stop outlook so with can get into we Gretchen. I'll market

know receiving we've topics that a from Great, deeper this we've of investors. and we're dive that of to kind like excellent job. thank some in worked going common Excellent, are on that questions hit mentioned little going been into a And webinar you, Kim. lot you I you there forward

So questions. looking forward prepared to the

to we'll Gretchen. first go one Now

factors several the markets. are there So affecting

COVID another we're in high inflation, market outbreak Europe, all the I rate think in sleep this? has you hearing questions. war news the to hikes, loan quarter? any the this reacted And about in China. Two did interest get in first How

which which to of and market course your first second US floor quarter, since In XX provisions these investment rate other that your Robert, yield up. low are being about Loans was all. down Not any in essentially a the loan down bonds X.X% to many as loan rate results outperformed fact down tackle over enough, additional LIBOR loans S&P flat X.X%, in driven The morning every reference reset quarter good that down component quarter. I'll the Thanks, grade more outperformance rate answer either the or large were treasuries the basis was X.X%. were the paid classes. in high the loan absent question quarter, rates interest floating duration. rates were asset first question. now. points, in very know, compares would reference may And move over you and by bonds, a to reference were X.X% overlay believe when part down SOFR, incorporate have coupons which We materially investors

other no And this yield low outperform first loans of the investment caused was grade classes. terms income duration as has fixed rising such or duration higher relative in quarter performance exception versus corporate the historically bonds asset loans rates. Now, other of of to periods high assets in

XXXX, market at loan to May, priced that seen Russian market have near-term fared about other Now the of which asset into incidentally But economic most the market has level later of as approximately on invasion drift of lows better and still in concerns April quarter, loan fourth we the pandemic classes. and lower. have loan which market the almost seen is growth than certainly caused the of the today Ukraine the same last has the and such the the the was volatility. exact $X, quarter time $X.XX And outside is

Great. rate traditional we in market, And that. so kind the of That's it. for Loans thought, thank performed? with CLOs now way CLOs, an interesting to environment, look rising classes you how outperforming at CLO versus the have the asset

the which debt no also a we NAVs. high the equity as CLO believe to tracks basis down versus in the index sub asset X.X%. turn CLOs, to about well point, CLOIE tranche which floating again, low digit while in in performance CLO in movement which have classes third CLO party saw to Similar return yield loans quarter, price trenches was in other there's quarter. have CLO result quarter, that equity the mid-single the equity that about driven by drives negative Sure. return in which the quarter, index in were BB of a points and rate fared XX lost coupons The compared a double

CLO so And quarter. the performance main equity of was in driver that the

Thank Great. you.

about in was previous this It like up I know saying, I issuance. come seems So has next quarter, another record issuance quarters. each topic

looks chart the different. little So a

record we loans both slowed saw QX. in can you that XXXX in So and issuance right, but it for top see in CLOs, as

how investors? So loan issuers and affect this does

very on also the loan Even loan other new demand certainly with in refinancings. creation, well quite record as all result last and the CLO resets year. high CLO and was strong market The as We really at and -- buyers of strong mutual on pretty cranking which last loan had holders. have as Yeah. supply the the asset year inflows a market, was of have strong we're this both CLOs levels year, loans as for as loans of CLO cylinders new issuance the both retail cross pressure been XXXX the cases over of in though, healthy course seeing funds, still of This historically is as levels issuance pretty seen year. selling versus the such lower of loans issuance where heavy loans, both from we well

mutual in order of high yield of positions sell to their seen priced these high might has generally yield which mutual have For that loans high they fund assets up may higher own we bond are that funds example, What instead and outflows. a to selling in is XX% yield of their duration-driven redemptions to loans, for meet high than look those many their yield. observed

loan holders than by the broad speaks asset some really a loans that most are these XXX which point the redemptions. cross think financing. from presents in lower which of It's And these the for of opportunity fact being at prices the are so type that discount is we used that liquid think on the mark-to-market of to which this non of trading this prices. for and the largest, LXXX is meet the which pressure to selling observation this full an up managers put secondary locked CLOs, to is by CLO an opportunity market underscored benefit And buy long-term has currency that loans, loans fact index, as I course managers high Index, quality loans of

seeing some most loans. of large in liquid particular pressure And so these they're

love you with talk Excellent. so into I when a the much. pricing. hearing opportunities, little about Thank which buying we'll you depressed about, later get

So you for thank that.

going we're question back to a question. I this Kim go next for get lot. to this Next question

billion $XX.X So XXth loan fed rate attracted quarterly record. XFLT? retail How their considerable a monthly like largest quarter, rate which consecutive affect attention inflows second recorded on first rate in loans hikes, have the funds and strategy do marks Kim the hikes around inflows floating the

Great.

in of I floors levels the a left are I hikes part articles is, graph that commonly I'm income. increasing is observed. corner in of just of floating a press of marketplace, in talking loans, what in actually the what or highlight that is and prior And see that talking senior address to experiences to rate Robert's of think prior slide, gets part dynamic the inflows terms if that to of the Robert is technical about you here result concerns the rate frustration on higher LIBOR true. want in that I going in reason So And there's attributed we've questions the the and think refer about confusion the and lower lot to to investors cycles, lot of or about place based loans,

for XX with we've at rate rate difference observed expectation the which points of the a future be I The debt think equity. and I this at but hikes and already is floating have CLO loans basis senior and so the cycle, expectation rate that causing rate height take speed hikes. rate there the lot the marketplace to hikes, will think by future happened look also a people investments, that's of rate second hikes CLO including what's

there Another so fed income? next reflected this quickly or it of if reflected be should LIBOR okay, source going them, distribution be see impact. that quarter? raises of month's LIBOR a Is question rates, but be following here above my or we're of floors that the a impact month about will floors, So the in reflected longer is you're don't largely it in lag. I no that the talked immediate you is, bit how is below those to when

that in frustrated would pace. past senior cycles, And keep they investors it has loans so thinking I because bought some that think rate

other associated types of that So you're is you're when in equity debt, income CLO similar reasons. in can the be lags for sort extent investing CLO with to understand there and investing also the dynamics investing -- when CLO of you're there assets in there equity, increasing it, the to are these

and -- on payments basis. CLO quarterly a are made And you equity, so if distribution recall,

well. associated So time there with may as some that be lags

source And you why expectation, look to investors I be the is income, can for that and invested it rate to floating of this think, is consecutive in of investors see why a speaking that the benefit assets floating might and inflows nature. that continue. generally expectation so And should securities rate

paper put so that And we together. white a have whole we

types a that we have of if in the knowledge time specifics, paper. but in dynamics, please some my get goes an that you're bank look at curious take want mind the if go -- and mentioned, assets. I bear So don't you'll And I it to the some these specifics apologies, as investor to about all into the of of into to of

Great. Thank you. Thank you much. very

asset of a I some class know loan versus asset more So we the about classes. income traditional little returns talked earlier bit fixed the

CLO other income senior a compare What classes, asset some are So loans on risk basis? give producing and with as the seeing? far you debt us as insight adjusted can we return

Okay.

on CLO useful. Slide We've are So then ratio. ratios, XX, which had about questions, there and next is the and about risk this The index for return talk on -- actually actually just a and debt. here next BB lot marketplace index showing confusion think the is we for both slide that in the I we're loans plots, sharp and is of showing the

we is obviously index. grade attractive, you middle plots basis return here of income for you the ratio shown US be not that for a other at how with sharp think, is than investors, the look So then the slide other retirees senior this different they're risk that maybe equities. CLO at more estate this point out. the per which of high treasuries risk is higher of higher and And source debt look of ratio on real just bonds an in passive pack think better than not a sharp see income. But loans a would and nearly of or or a active the the oriented return concern there, illustrates even I it back BB but investment risk forms yield, the unit I returns higher if than than one go which And manager, as

tolerance, standard for And I measured the risk visual so, kind depending this helps you bottom. think being on through, risk so your think on of deviation

incremental diversifying risk the by You are portfolio. on taking

you'd trade-off or a so The is that it's introducing you and add where is you're you generating you're to rationale for the Let's and and equity, debt, this has that of I is XFLT BB her and loans risk do helm due going But portfolio also this the in add partly what doing show going the current from improve in be the take returns. start potentially by we good CLO even that. higher invest vintage, say to CLO CLO in team portfolio be the just equity, Gretchen equity dynamic how CLO we change are issued. chart that as some is The reason generating allows there's on have no also on be that's benchmark to incomes. over design, CLOs are the mix index, those of potentially octagon don't is why a mix to higher thoughts, the nature able loans, CLO to Robert, at time, market are passive would these quarter-to-quarter, we to to of opportunities. of the because that Octagon of upon and was managing opportunity debt advantage sets and goal and Those my measures current mentioned, that

got We've Kim. it. Appreciate you, Great. questions more for two

So double here. a

asset So over went you just classes.

Now XFLT specifically. about let's talk

XFLT So its the peer fund's valuations And you relative second question, and how performed has how CLO can fund NAV performance? impact explain may group? equity to

Yes.

group So let's about the peer talk first.

in the or category, and it equity. given what floating debt those also investments, rate a there get is loan So that all loan, more it subset CLO with grouped CLO rate tends to six true senior in invest would in is because Within comparables, I the funds that seven, XFLT call floating category. close

of So doing list outperform is we're this is return the not the and loan going just the of CLO you debt just to talked introducing comfortable senior risk take income. equity, but benefit the and additional the doesn't what if group, while because slide, I CLO about, really XFLT additional you're but it peer peers, that,

would senior inception. the XFLT it loan since has and expect loan the benchmark would way you outperform senior funds So that

that would performance, invest fund. in ways, there it level at it the as XFLT marketplace, a for of make peer senior over the relative more a because And as we XXX% Because sense XFLT focus has have well. risk So CLO funds performance, CLO that the amount secondary to it not in equity. is And benefit It tend again, the approach that the of peer same in Octagon's how of typically the and behaves of unique another look when Robert some necessarily you at looking going we trades the terms but I made group. to a we're it's exactly different and at invests to be in positioning institutional return this very particularly we're thoughtful level was we're of does returns same income strategy. and once to of in was marketplace. time, is And the not isn't loans, or XFLT comfortable adjusted have healthy the that XFLT that over distributions trading with time looking NAV because because that sustainability fund asset in the market mix performance, talk about

can than going funds the you in it's also other not to equity. less A positioning. talk to a that perform CLO couple XXX% volatile of XFLT's to one moment. invested We I outperform is about advantages be a fund in, in of add of would a The equity. point the that expect loan can so perform in And middle is and senior CLO XFLT the degree

up. you Thank much, so Gretchen Great. you're

two a So the we've bit. set to then part going for just you. stage question we're here got a And

and X.XX%, least expected low, just XX for is all-time to last it's XXXX term. rate is which off the loan month the at So remain near default the only low

manager you you question what do So, and of how value one, as seen recently? an two, opportunities active kind add have loan buying

same on than dollar the market the market the XXth you XX less It's a rate on low. long-term for trailing today the as default basis. trading at at one LTM loan the the extraordinarily Sure. month said, is $X.XX and average is of time,

Now, of from borrowers. said, we do we've And clear, levels the year as move defaults to remaining in the very, though, up below corporate And the dispersion more to we averages. we've expect do expect in that low the certainly first seen that far historical you've quarter. be seen over very last thus still earnings

price reinvest at a that into any However the And, time. convexity discounted cash just XX% the given allows prices year. market to secondary loan it's have real that worth as of managers to typically over trading noting XX% loans price experiences prepayments of loans reminder, lower in

a prepayments in $XX that just in a million by assets, CLO just assets with say loan XX% of dollar, some generates loan $XXX So million put to with that on currency million manager which of to numbers $X.X in provide turn $X.XX go around then the the additional then is top in in equity credit than average, CLO benefit of the relatively may value have given purchased the fund and a for that, for notional newly And on loans these investors. that of loans higher wider other spreads, CLO. on coupon held the

like investors be can the long generated CLO, notional take benefit term. income grow both of in manager mitigated, which as stream as well by advantage in the this to So as loans, the value both a periods equity of the can loans as credit losses of skilled the long these increase CLO

Thank the Gretchen. of about XFLT the you, Great. provide. so on know topic of can active I Kim, to It's see an that we advantages, competitive kind manager funds. nice talked advantages just

So of about let's talk advantages of those competitor XFLT some and features the compare to the there funds. how

Sure.

I've mentioned already put is have together in two of number think of of comparison them that I because a of to mentioned And some One this distinct that. webinar. different. earlier the the asset help because we on ways we leverage how clarify costs. is advantages So mix I this XFLTs

and allocation at and to down that's cost loan brings senior allows can Our overall us X.X% X.XX%. to we have facility leverage where the to leverage a borrow

focused equity to get CLO to borrowings relative those attractive very very, very So CLO impossible difficult CLO if on funds. exposures. debt,

is When or debt, We cost. and in an in are with more also ALPS, XFLT transparency, loans, with funds obviously for Typically NAV. SS&C comes using times CLO also market equity. are an bonds fund. for close there's unique a which CLO is robust daily left So costly. on Market it valuation the process valuation expert with involved baby two eye preferreds being the its to work very is of

funds, valuation distinct internally. quarterly portfolio done CLO driver to assets. estimates monthly a allocation, some the The that's for advantage it's is to So done and focused With CLO have not by mentioned, equity valuation relative party, for which these our I that's advantages. as of third those typically a

base to way typically equity fact higher significant that, out loan important CLO higher senior can it's management no performance paying It's but CLO to and is than only are funds performance are non-institutions exposure, fee. with fees. fees. and do Octagon fees XFLT point because performance XFLT the X.X% fees. so access flat they there of charges a without Another the for there With

So what given attractive, we've is rate talked the a distribution given does that's result we portfolio attractive. believe that that about, in allocations

May of average. price that XX.XX% higher to on and market the which was was CLO on relative funds, it X, have distribution XX.XX% As rates

one widely. the I that's of pointed quite can Premium out. differences this vary level So trading,

in valued. the All how funds, a these trade view about including XFLT talked is CLO of because premium. what allocations of we of assets terms that My partly are at have tend to

of volatility XX%. of because in and of those these some these associated and the distribution of the market are assets with up investors partly rates value losses given north bidding that are unrealized the attractive of price And mark-to-market declines funds,

Thank you prepared to for that, to go question Last going Kim. is Gretchen.

a we and how to reacted come war talked we're to So Europe. and markets your full circle COVID kind of in about first the Gretchen, here. going inflation question,

outlook outlook. CLO the in So is touch forward? going now markets your on loan for maybe we can What

Sure.

facing headwinds no the there's that corporate doubt current think in borrowers environment. I are

sentiment of face the on rest of well We and will of fed borrowers positioned the the year to out. as corporate there's how highly the strength time, and will consumer be play continue US same to lot actions are At and a uncertainty. very uncertainty focused this the to

discussed well who think are previous debt strong sheets outperform. well we in companies been out have fall do coverage, of robust worth we've the and pickers have this we will managers is that which As traders corporate far to that difficult suited on today balance is over course generally become successful calls, as rising credit extended are raising large part, active environment been interest year. in and very the certainly more think will particularly This prices liquid, rates pointing maturities with thus for

We expect continue. to performance corporate a broad dispersion of

and widened fallen, losses loan have But the time it we We best this perform who to and CLO poised same prices are well expect the technical defaults at continue. spreads in avoiding be XXXX. in both have will macro managers who to volatility of avoiding can credit credit point while entry loan and believe driven and attractive market advantage and the take

Great. All right.

reminder, a your few but audience So would toolbox time. if like can question just as so to got a it's in you we'll and do But you started. I've submit webinar ahead a get question here. go here,

will go blocked looks Lynch a for XFLT Lynch you into here, Do see any with this of to purchases recently first Kim, their happened? clients. like one Let's have insight Merrill client. Merrill why you this

give Luckily but secondary with us Lynch, official at Sure. market. investors team you. the we the before it IPO received markets Lynch that's and funds, for the opportunity our an in close-in the did actually Merrill connect were Yes. email informed from both by Merrill responsible capital Robert, thank to days we

funds, funds not. did Merrill have that a the to long It seeks most has years Merrill to up end at I way coverage will So in say now it Lynch their coverage they that about by close news that products. mutual Merrill and started end terms a of overdue. ETFs. of give ago. Lynch And is process to coverage moved heads process, cover us Merrill good year close Lynch ago with now funds close recently commitment Lynch's CIO that level past here, they the had their all for a think the end which I in said was made

going that in be And, Lynch coverage. we think to added funds able So were advisors be knew make Merrill to close informed the to that goals are to want they that decisions. I

that news of were again blocked. but we XFLT bad specific it its which also in happy who told reasonable the bought XFLT had within in given advisors is outline. the the research on was think its meaning own the their growth. once continued no is, who'd or wanted and system market was XFLT criteria, all that issues investors provided we The Lynch because I'm any were to the criteria, XFLT organic Merrill and performance I like seems funds. particular, We It reasons not were their secondary growth on strong and that

blocked. disappointing was the box position. of It it that it's X% about So represents

small a it's So box position had. that Merrill

impact Specifically to to our XXX the but and so have on would course blocked, advisors out Merrill expect dividend income an advisors the the size. for the that their We been on to market want accounts, also do investors the purchases million which position is edge fund. able accounts platform. cited XFLT Merrill we secondary the be but over XFLT just don't discretionary not buy only because smaller able of important all sell have days. $X.X given asked But of reinvest this Merrill to be This includes discretionary for and next our based to an Merrill and

has Merrill review through themselves reverse They uniqueness We a diligent, we XFLT hopeful going lot accessible perspective position give type can of the on and are changes. of will XFLT and review XFLTs hands all, firms a we that but forward. the this an think we with mix quarterly on but for policy liquidity a And remain that performance, they to forward. submitting pack trading some talked a fees we've to Merrill have into immediately decision, they'll call. office are competitors, quarter on after small to family about in going are investor and that go I demand has Lynch. hopeful going the to I that this we that individual highlighting And it's to its consider that make quarterly plan the independent wirehouse office Lynch, process the have implementing open from don't and advisors. away and door And really Robert, it's a will from relative as been dynamics of CIO's we track that does growth its attractive the quarter shifted the

said, and progress. see back make a can disappointing So, it's will we we're the as reverse process to go report we and able to plan as to block we through I if

fill discuss. you who and can you talk free reach feel of to more it, about very would to and do to anyone out to course I'll thank much, in we Great, and me my like best

very thank Kim. So much

this. Next audience question. for go to We'll Gretchen

So develops? X% at limits, if with tripping of about one average, a quarter particularly the CCC loan CCC CLO how you downgrade outlook over over bucket potentially upgrade, collateral the deteriorating, and rated ratio, recession B feel for do buckets on

Sure.

to which So there upgrade today, start time, noting point and on as one the agency at and, being downgrade probably are number ratio that look currently one on that downgraded. what means equal in an you to which worth of loans loan depending and, about upgraded is it's

eight high to as to in last and And the downgrade was ratio year. context to that roughly third parody full that of weeks. in March it late XXXX loan half the and Now one since rating a two that weeks six eight in now just as the of has market XXXX moved a for agencies followed

downgraded, they were through of XXXX so the the course similar managers a happened loan to in furious. those I coming over how the market in And of was was overstate percentage so but for manage those because spring XXXX, of in downgrades cannot a it Now difficult year. XXXX, and fast almost downgrades

also before that that the average today out from are distributions. that CLOs that over environment? percentages in down half in ability well double to of think of impact does I First XXXX, context triple worth the could pointing pay it's what CS mean So in, on and any today's would out it the equity on from CS triple peak pointing out a worth have today's

aggressive impact equity So there and near on, there overdue there buckets in I would still well that crop And, term XXXX are are would are those future still meaningful in before downgrading so agencies the downgrades C also, of that loans were there because triple upgrades is distributions. to our And are that happening CCC on still XXXX of, upgrades. from cushion XXXX downgrades. view say in and in rating withstand for today be now, any

to upgraded will know, that I'll that XXXX, loans. of help expect downgrades them the continue call those COVID era in, So will and we impacted be some credits that you downgrades know, offset will you that, to inflation from in

first I through. think inflation we in wake that of an number are are, that months headwinds. downgrades that in companies facing will we've seen see releases of financial recent performance related in, certainly quarter to meaningful And the increasing coming

in it's a we it basis think downgrades very at So as we and of will the often importantly the likely will pace we on back look at, outpace go-forward downgrades may will that well, upgrades see believe as be that I number we year. driven the of though, In earnings the they We these half be believe performance. we measured. that by of most relatively look

impact time don't managers be CLO in to may if take any downgrades. through CLO think credit the the the at and that follow the in wave will the some way trading reduces trading deem managers So was manage positions, to a there of do if while the a thing for of seasonality out of you those mitigates on losses, downgrades The they consolidated as there experienced of longer they a sort over those that's par CCC. time best XXXX any that out same to be and trade We mitigate effectively to more, will those were easier those that downgrades result to there of extent is downgrades. for that losses that of the those it

most CLO So, for in top of think pace impacted. able are, the that will impact. I their currently, would of be the to managers will part, to there that, mitigate there before such summary, on distributions think be meaningful I be downgrades are buckets equity effectively measured the cushions that CCC And

Excellent. All right, question. last

about at are time. We

rate loan way is are revenues outlook So we'll how last the what average, and this among margins this issuers is on your for send on do their based curve one LIBOR one increase is their Gretchen will will SOFR ability trending floors, loans. from audience, to the and above that service typically the the which on Now their meaningfully forward interest typical debt?

digit, out quite to conversation first gets digit universe think that across, I, EBITDA in noting, the our and double earnings analysis important quarter and lost growth that both We fact, loan broad in you both about Worth revenues real know, is point I to a in nominal points of but double sometimes it's growth saw issuers. you do and strong. Sure. I growth. know, think this But in

a is revenue that margins seeing average are lower on are Suggesting growth. EBITDA we However basis on percentage that growth than compressing.

all costs, the We have have level large of of able input by the been but they pricing companies to higher by input all had pass increase, to increase of of, surprised costs. that power of on higher of are not on pass the impact and the

demand that's that strong strong net-net see But quarter something but profitability slightly elasticity very year-over-year. more that we look and elastic on that out the pass of through first and year would will but, we're of watching be anticipate And course continue also on anticipate and will we average less strong, improving become as margins, revenue the enhanced growth, it compressing the may EBITDA more environment closely. to increases growth over so, price and we difficult

plus XX points input if at basis to is look and put minus started the Now P&L XXX What points. the it, that some Today LIBOR be impacts addresses, or cost expected interest? curve over X% to of you inflation. year year it's forward by LIBOR basis To around numbers about end.

in standpoint of borrower that a loans floor Now the that rise some LIBOR with associated has them. mitigated from been have most

five up coupon the standpoint as as news of part pay have loan at obviously their of at That course look you which an the move leaving servicing an still But floor. loans to until forward now of use the If that coverage with interest that go at standpoint. bar, borrower, discussed, loan up EBITDA levered three makes something their may and is we that from borrowers the the -- times is pay they of as LIBOR for rates still the robust, Maybe first difficult. more coverage of year LIBOR interest, times. debt to interest over up from times curve, example many just hit may a CLO and Good stream company holders on result So those coverage very did increasing. know, is EBITDA additional last for to income of more the additional point clearly income, the floor. interest LIBOR any in loans not moved even five five they XXXX, like generated but XFLT through the enough Kim times end still have less the than tranches to

very two Now analysis, that ignores is factors. which a simplistic really important

The companies that we've market in have company in existing borrowers assumes has rate have in has their capital seen the that extent double structure, hedges rate either into. EBITDA many first It no year-over-year flat and the it first assumes entered as interest the that Many, there grow most is quarter, hedges. the also loan or some it are assumes able debt fixed that company EBITDA no fixed and is been their debt digit. to to

soften EBITDA, the And year. on will over do will two the loan then many top borrowers we grow And things impact that, course to reduce which of that borrowers rising the of will the we continue rates. those mitigate the loan blow think think so that will of their impact to

which of that do a we year, cushion levels there's of six coverage continue of to interest But closely. to such believe times loan the watch is strong starting withstand we borrowers, because coverage approaching amount among universe So, we're publicly rates. obviously interest as from loan last this late which increasing fair reporting from

Fantastic.

at now. are right an We hour

the make please few the I to there's in link mentioned us, days. will don't to next more earlier, you send out. if everyone from you need replay sure to So hesitate anything want And I reach knows, as

presentation. Thank Those Gretchen, the were and all tell great can provided You to amazing access you you story. Kim helping information. also visuals in this big

So helpful.

Reach So and attended. out We day. have Thank out and time thank appreciate you, wonderful you taken everyone the a have so hesitate. much. you time who don’t any