XAI Octagon Floating Rate & Alternative Income Term Trust (XFLT) 6 Dec 242024 Q3 Earnings call transcript

Welcome to the XFLT Third Quarter Update Webinar. Thank you so much for joining us today.

We are excited to get to the prepared remarks, but I do have a few brief housekeeping items that we want to cover.

So let me start with some brief introductions. I'm Kevin Davis with XA Investments. and the sales up head distribution firm. for I today Law portfolio from happy to who Lauren joined be senior I'm Octagon, by is manager. a structured the and joined in credit Octagon's investment She strategies. firm overseas XXXX

outlook, the we XA to who be through is Kim walking highlights and leverage CLO asset Today, she's Investments. joined the be quarter spreads And by us covering the the then going in fundamentals. Flynn, of fund. Kim also from loan will the the well objectives performance and President market are the as market and colleague, class my from distributions as investment

Before we higher the or past current that performance to few want address be a get -- future performance is performance quoted. does we may not presentation. have Certainly, guarantee talking into results throughout presentation, do will and lower disclosures performance we we important the that be than the about

discussing statements. the you materials all be We the encourage general market to and not also on statements. reliance of disclosures should will undue the Investors We forward-looking outlook forward-looking presentation. review contain do place

then one last housekeeping box at item. And the bottom -- the screen. note the of Please so Q&A

please questions, And will if have also you don't answer remarks. please free into you will your and for you. contact them feel questions answered, get we to and up answers open we any for If in real box, of those end do prepared the the to best me We'll our type them time. at directly, question the get

fund, on on that educational of and website in-house xainvestments.com class the working to things please more materials at and our on asset general find Lastly, firm XA. check our some information our we're about the out

that likely begin I'll work familiar of a of already do. the started. with are call Octagon. Most get the overview Credit great Octagon of they some you on and let's brief So with

firm management. and launched has XXXX, format. has CLO to XFLT, fund we'll firm, AUM today, those nearly Octagon's an in For which registered been in of first available fund and $XX in 'XX newer industry since they're CLO a discussing X/XX publicly and leader billion be The be issuance to the of was of strategy around September as was

and going So address some today the the speakers just that bottom you questions questions And of we've screen. topics for quick into the the presentation. type prepared please for reminder, got to speakers, do we're Q&A throughout a have them at box the the if

let Kim highlights you Kim, EXLP's So me the recent discuss with with financial performance? and from the Flynn. quarter begin can that, us through walk

Absolutely.

fiscal you with Just everybody, XX, to report xainvestments.com. to our fund's And publications, remind the so we all year-end earnings we'd we is good news strong have year. The fiscal report, that look at report encourage performance any finished at of a is period. our to annual take the September semi-annual the just for

X September XX, income ended the For was months $.X.XX. net investment

talk growth the distributions this for in Throughout transaction of The fund $XX.X going and the scale the accretive that seen significantly common we're and an the look you've for about to equity of grown shareholders. and the to benefit million, about at-the-market through opportunities resulting net has program fund continue the fund we'll to monthly distribution. to in quarter, proceeds period,

that So let on me hold off topic.

and a And Monday in that with the reasons we'll December that evening to recently about was on a made talk release change declaration. for press a distribution We the XFLT's for increase million, September a beginning period significant moment. million. total from just year We started we with about assets did under end $XXX the where of $XXX the XX the at managed

CLO with overall of market what the in $XXX yields bonds debt, today. $XXX CLO attractive million remains give loans high-yield you market to $XX.XX, just how then north at sense on, senior the equity touch million. Today, XX% of and we very to like we of thing at kind One a see yields

loans, income CLO a of basis. As do in mix a shareholders debt CLO it to invests and strong for deliver XFLT equity. risk-adjusted you and the And know, on all senior goal in is combination,

go bit So little we'll more talk about a performance now next if the to we'll slide.

strong both had a to NAV the year-to-date, Both the which the and We've is the performance basis X-year column. on is the a relative second period, which benchmark. for and column third price

marketplace Here, for LSTA XXX Index, a benchmark in Leveraged our Morningstar Loan which is senior the benchmark is common loans. the

reminder, doesn't exist, a as equity CLO vintage not with using given a actually equity. we're one index Just because differences CLO the of

returns loan the reference reason always used we It's that same from of is equity. does the the changes NAV. current we for questions note get prices why trust basis. in the reflect one And investments, marketing XA holdings believe NAV daily about has a At the of to mark-to-market in CLO portfolio the time daily the these on benchmark do transparency. things have NAV XFLT the the the fund the NAV index. And and does fund, -- of we that reflect time senior So part a

I associated equity to there move bear pricing around. CLO And with mind, terms of of equity, CLO of in some model-driven normal securities valuation losses But are unrealized, underscore those equity. is this for as in the unrealized equity for that CLO CLO such, kind change

cash a for it's and high-yielding buy trust drive can instrument, for it significant shareholders. You the production equity flow very CLO and because

while of current quarters. last in the So be that NAV the had market CLO frankly, market lower we've pricing the equity volatility, few the some may and the for reflecting

to is that like still the this CLO explain equity And or of the these are we volatile NAV time than for that of when phenomenon investments in we this we it cash remember the CLO structure buying investments is closed-end you're and on the a market because the get the equity actual the that's price time a reflective NAV. these for normal those pricing from investments. fund in optimal of best of securities terms sort to see structure basis investments. current do of high producing the more is of level why because types structure those But of Just flow questions cost and

look returns excess if price, about X-year excess benchmark return on about and are X.X% we above at period, the X.X%. The a there's it's on -- NAV the

So job in a has managing the we're with year. done Octagon pleased XXXX terrific fund the calendar the performance.

That's great.

So made? you referenced was earlier had a we on press the press distribution announced release that address that XFLT why Can Monday. in that you change reduced release.

Yes.

that 'XX. per So share. distribution the payable paying. going steady distribution X.X% level November as May X.X% at December been payments maintained on was to XFLT share to from is Monday, $X.XXX X, the December level. lower previously of per had than amount a did is X, of that common the It XX% declare to distribution $X.XXX we we lower, of XX That's 'XX XXXX. monthly record This date be shareholders a

was So distribution let's talk why a little change made. the bit about

we has know, an policy, and want distribution income-based to you we're the what As fund earning. distribute

we going XXX% there's investment to Now the fund income. year variability did be fiscal distribute for last net XXXX, the

doesn't results, is but performance a necessary. change future guarantee past that's why Now

over You in years. see here Fed last what doing the front has the of of couple you been

base in the points. the resulting the total basis fund months rate Most of XX that you in and of enjoyed in an XFLT rate higher stair Fed the benefited in Fed the the past recently, sort benefit cut twice see has decline X base orange funds step overall rate higher the of that really from marching earnings. base

So as be income we anticipated change for needed base result, a net the a will the on based to and that make fund, investment lower rate.

seen, for the compression the press we've much We've lot market there's also in spread market. of for debt the in a for addition to for decline, demand CLO also the equity, also that we've so that high-yielding base there's noted because release And demand in means loans in assets. seen CLO rate

the X most these and rate is $X.XXX declaration distribution compression making resulting decline Fed a share. resulted us the demand change factors together, So rate, has the which the increased in the recent in per the spread in to

So such. hopefully, decision the why helps made this the Kevin, as explain timing and we

Yes.

mentioned, The at the spread for they've loan as through all impacting here you spread talk the explain Can XFLT? market, seen market, referenced. let's that. compression very how is CLO some to that Lauren Lauren, of demand Kim So assets. high-yielding compression look strong Kim experienced we've the

to. on in the year. the demand major broadly floating for And Spread question, reflect assets. theme extremely has syndicated market rate loan the this as a you Sure. leveraged Happy been strong market compression has experienced

in So it's and of overall, -- outpacing this a the really this given trust loans, that supply demand surprising lower to this with ways. few the that's impacts spreads that dynamic. But isn't leading

loans of half are leverage syndicated broadly almost owned loans instruments. callable leverage -- broadly trust today the One, the are by syndicated assets

happening of and throughout market, these loans can XXXX. means ratherly in what's tightening that that's refinanced balance the been So a -- be

interest number have of loans of of of think refinance another the spread saying slide, or lower of to XX% as is highlight we that's XX% I repriced I X/XX, their just think to outstanding that loans. way closer on as November been

shortage loan The supply has tighter. meant are that issue issue new spreads new loan of also

has at XX So where coming points excess On we loan are basis supply balance, of tighter this loans, in spreads. compression new they year. experienced the do of see market of spread

been it's meaningful. So

through trust its is compression is CLO spread by in way impacted holding second the of The which equity.

expense debt. distribution, its income equity the of it its on is loans, simply underlying the on which CLO quarterly CLO portfolio the borrowed receives interest between earns the So a that difference less pays

for the distribution. compression spread loan So reduces available the value in market

period, So equity subject however, non-call well. loans, after debt to holdings, for CLO is X-year refinancing a callable generally an CLO tranches X-year and there as non-call our for because are while also our to offset eligible contrast in that securities those are

loan the So refinanced offset serving a after expiration what CLO non-call being and we've in spreads. to year liability the lot an period, compression as this that's seen a of is is

on some trust and served has the to and loans. this very has equity the a So held spread by benefited the as meaningful compression important of offset the

that. for you Thank Yes.

over the So slight loan you let's And performance leverage the please sort of of and step can markets the quarter? discuss take CLO back. last a

strong quarter broadly Both quarter. in really year-to-date, syndicated returning leveraged just loan performance have loans the And the streak and you markets That's excess continues very the loan actually in exhibited it's through X%. and performance accelerated. November, in frankly, third of with strong even continued strong the a where and through over stronger if X.X% market has of CLO and performance year-to-date X/XX, end forward the of third fast

generated year. of have while earlier, distributions similarly throughout that very course strong the have index experienced also and refinancing mentioned equity Kim eligible quarter, were equity as there's in strong performance. strong a CLO quarter performance year-to-date. the no to tranches CLOs very reset almost and X.X% very, total to posted reference, the some this BB returns CLO in continued for make return strong and profiles real And

in increase throughout an Lauren. So let's you, to potential this you CLO Can and a the earlier, And trust? year. but observed number explain with of reset has referenced the resets stick it you we've the benefit the

term. just large lower reset been Again, new always, longer leads the this CLO, the like often driver income rate, in leads describe Sure. liabilities, because this more to distributions accretive Resets can be And the on reinvestment what extension that holders trust. have equity period but often simply it's X-year a market the of the to CLO the often for year. and distribution of debt, interest rate take a And very of streams it the flexibility lowering often to refinancing step you're activity to a manager. activity and the back to very the very, of interest a robust and of to CLO CLO's of not is, interest contractual type that more a

typically equity volatile. less Longer is

CLO X/X experiences. it's -- it's we for attractive profiles been So the equity Of to of the means It we in really been positive health as a global About reset I for trust. see holders. reset, think equity really note, it experience good of have the should year-to-date, return and price that's those total in but things combined less equity all is trust return discussing. has volatility able and very own worth these to generate the had

new you in evolve expect activity CLO CLO reset do between how the to refinancing and balance So then issuance net and XXXX?

Yes.

issue think -- we of at robust and creation, occurred as So true volume XXXX, CLO higher. pace. but activity been resets refinance a has very, new creation, CLO reset new and much We've issue about the have new refinancings very seen CLO

the strong activity is continued if reset pace that continue to think XXXX. demand in floating refinancing about And think and for at for highly longer, -- I higher likely rate you theme assets. means

assets reset activity. for means means Demand floating tightening continued and rate spread that and refinancing continued

think creation, think issue place see XXXX. might for new more to we where this As a versus we think in I what I saw new in CLO XXXX. is we And issue the potential probably true in change the be about CLO creation exists set up XXXX true

stems an of an the And and an in would theme driven expectation be driven from driver supply. the by accommodative really a that general deregulation. big is loan of rates this an this view uptick of increase expectation the And M&A. by in more of marginally for potential FTC lower And

I think that's really but this view, and market. for, what our I case think to we're there's the risk hoping base for today

Great. Great.

performance let's and the under borrowers look quickly trend discuss fundamentals. the So How in of third the financial hood market some quarter? did

Yes.

a previous portion market. to large leveraged of continue syndicated in borrowers exposure market. So to and Similar to loan loan perform has the the broadly quarters, Octagon

is performance, their growth, which and Really excess performance board, on of cases. not continued continue mid-single-digit financial the aggregate across performance, look revenue see when fundamental growth, margin So expansion. and borrowers fundamental most we strong average strong in growth, we revenue to in EBITDA at so but our

down, coming bottom levered the spectrum. end rates another of at credit fundamental Base credits positive especially it's the those driver credit, for

that's constructive continue XXXX. the some in we they more you're about while we but bit So in the feel third issues to looking what the into a happened expect quarter, market, still when as little both as think and to backwards I to reason also forward, are going look credit another fundamentals

to market being level the lower saw I would And point stress think is forward of the poised year year. be this than that indicators case. we to certainly, next this credit

you. Thank

income So for we've the the Instructions] several one few well investor, at throughout XFLT a is is on new had the looking appreciation? price main audience -- as generation as focused What quarter. direct this up, more fund this or came Kim, come questions of from trust. to in the today you. someone [Operator a that I'll is investment the And objective one

Yes.

from to NAV do moving So -- you I that XFLT's answered this income benefit one which not asset questions I've the fact the think generate I the think is and was the its pointing over appreciation price fund up. capital stems shareholders. this is for and with NAV and this basically question cash mix, or And basically expect and is fund of to from is price funds question objective the time flow to

appreciation. capital not is objective the So

expectations make have that I So the want for sure people to right the fund.

the that is cash And largely to Our fund XX%, asset almost portfolio. stock, loans of can you you see common goal see, as of debt income-producing any senior don't about exposure as about common make this XX% about, shareholders. is to CLO The deliver as have comprised equity is as of CLO we stock. to And flow up composition, X/XX, assets. is XX%. Lauren was talking

instruments lot to over generate a exposure have don't we appreciation that So of time. would capital

investment income objective terms So focus you can on our our is driven by in on us seeking expect deliver and of generation. to we're that

a is. had just to that people want questions understand goal make sure because what that about clarifies hope I've XFLT's I few and So that

Yes.

going Kim. with I'm stick to So you,

recently by you asked us investor share what own at of base of investor? the with Can type been different we've investors So breakdown types XFLT.

Sure. question. We -- last this on good a actually webinar, And didn't thought really was have I the we breakdown. the

hope I So investor a is start me see on to a investors don't attracted income, have lot -- individual who is to you we big institutional a the breakdown. this surprising focused don't that's base. -- you takeaway because let XFLT. we are of and all here the have We product with not

a base have in share investors. do lot -- small we a of of very as And diverse terms

change And mentioned approval recall, January, shareholders to this is fund outreach to do earlier term a process you went their I we and base. perpetual fund from go reason to investor year a to you through seek to the all your may fund. the in As you that that

has time, we the have the -- buyers. who over from because income the of good a is fund. it's slowly really and of it's really demand holders sense And our fund So coming grown and are buyers grown

our as So co-CEOs, Spence; you Ted our do on table owners. see Bombach, co-founders, and this Yogi John

holder. ownership Credit fund. fairly Point in equity Eagle see manager a space. in as CLO also beyond do the But a are You fund that, the X% institutional They well-known small

also report happy no there we activists the And are to in are fund. that

do the largely that market. think secondary trading the I in has with strong to performance

is very this and healthy, a very So investor diverse we think, base, no activists.

ETFs? another relative So that in is expense came is, one XFLT mutual funds the or why high loan to ratio

There's of income leverage that the shareholders. for a a listed with using the CLO available, confusion fund leverage, think ETF are good enhance has mutual I some focused a obviously to a or about is listed fund expense fund uses This using closed-end its XFLT for our using reason closed-end not is to is the that an and fact one. but ratio And to that that this whereas closed-end has or a performance. leverage competitors risk tool fund the drive distributions do

our so disclosing And fee, expense our our management operating our leverage expenses ratio, we're expense. in obviously,

especially Seeking a ETFs rate forum, some And don't differences They about have in using leverage, Alpha environment. in and higher leverage. been the of XXX know, because so sometimes, think like will about we've comment you marketplace. has Those I that. averaged funds between as XFLT the in people And aren't

So and the expense it up significant is our in ratio. leverage shows expense

shareholders we charge flat sense why all you X.X%. So that to that management like have does it's XFLT fee, a I question do think get fee. that. I time. remind don't time good a performance a And that's charge of from hope I to We

in fees. they CLO charging Our performance invest that are competitors equity,

XFLT. so expense -- then funds, for in does result those higher for that ratios And typically

Kevin, of fund. question. terms difference a I think, the in the funds source for just of mix, pointed that's of But their their competitor those in for as asset our benefits terms there's out I Now strategy

agree. I Yes, Yes.

me shift question So times. Lauren. come over back a couple up of different let This has to

decline So And interest rate future rates XFLT interest rate will primarily along in with floating -- with trust earnings anticipated securities. invests the cuts?

Sure.

With rate cut will not strategist the in that floating mentioned XXXX. the points. And think a rate forward can't by more I the curve caveat basis that XX downward earlier, assets. a expects probably little Fed And the to I do as Fed, are predict in I share am I and loans the implies December, market another movement

if will see decline and So about syndicated down is broadly further. leverage half move of trust of the income continue comprised their to they loans, rates

Now on do equity the need And of portion we Holdings. to do offset the and the determination. think wait have Fed I what that Trust to CLO does make we I think the see

As discussed rates. I yields but the with questions earned about of go the so earlier, if think lot -- going by rates there's to a down, trust happen will outstanding what's

think going data to I those decisions very dependent. be are

So mode on really now, front. a in wait-and-see right that we're

others it. box. coming last Got see don't additional you in One the audience, up questions. reminder any to the if have I Q&A

think I answer. we there's -- fully quite didn't

mentioned floating fund, That's rates because because they're made question change my a and to changes I is about benefit the of have rate a spreads. And I we in that distribution fund part think think it, and down. a fund. was go -- I go when floating when comments rate natural Lauren changes we a the adjust like and managing rates in in addressed up. rates there's

it's of I the just repeating So that had. on think questions worth we've based some

negative being demand now. much spread about so compression. spread because talked of we've in seen terms right a And compression there's We've

could maybe, opposite? we mean see beneficial a talk to about of right? that if we you if the -- to thing I confirm, Lauren, that's norms, like widening were just is So historic spreads expect to spreads see you I widening do of guess

of yield holdings. to your and really reasons period. that environment, to benefit would we the of And participate the of the like to be see equity see long profiles our even in That's you we we'd have like a one more that why Yes, loan trust why on of CLO book spread in reinvestment also longer benefit of increase a in expect able resets, equity. the the would wider

the wider, on a are that. So you where of when move to capitalize of volatility those do spreads managers CLOs hit period able

would case. yes, if in wider, that spreads benefit So move we

Well, for that thank chat input so website. other additional you see thank and much in I be everyone box, I don't for on wrap. the available But webinar the you your clarification. will remind both today. our via any and will that your commentary questions replay we'll

needs of I relative outset, you. And or knowledge the your a available we reach and Thank in appreciate time our today. if under mentioned on as -- the bank. out have you is there site at additional Please certainly questions, information any