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| So we feel good about the performance of the loan market and that should translate into strong CLO performance as well |
| Another way shareholders benefit as we continually grow the trust is Octagon is getting more proceeds to deploy into the assets that they think have the best value and best opportunity for shareholders |
| So we are really pleased with the performance of the trust inception to-date and especially over the last year and last quarter |
| And against the benchmark, it looks really, really positive |
| As you will note, the returns are very strong for the quarter, for the 1 year, annualized |
| It will benefit hopefully the distributions and the total returns of the fund |
| So, we are very encouraged by what we are seeing in the market thus far this year and very optimistic for the market going forward |
| We have also made an improvement if you will |
| The broadly syndicated leveraged loan market returned in excess of 13% last year at CLO tranches also exhibited very strong performance with BB CLO tranches posting at an almost 25% return last year |
| Of notes borrower performance continues to surprise to the upside |
| Today, the leveraged loan market continues to trade at attractive levels offering investors of roughly 9% yield and we also think CLO equity is quite attractive in the current environment and have been endeavoring to invest there, in both the primary and secondary market |
| Primary equity is again attractive to us given the recent tightening of liability costs |
| That being said, the market has also had a very strong start to 2024 |
| So, very good positive numbers for the trust |
| That being said, the early data that we have seen points to another strong quarter for loan borrower performance with low single digit revenue growth and margin expansion leading to mid-single digit EBITDA growth |
| So All in all, still some very attractive opportunities in both the loan and CLO tranche markets |
| And I think that in the end, it benefits the performance of the fund |
| So, that’s a terrific story |
| They have more than a 25-year track record |
| And unlike most listed closed end funds, when a fund is trading at a premium, we think it’s really attractive to do these accretive share issuances |
| And this was driven by the relatively resilient fundamental performance of loan borrowers |
| We have also placed few series of convertible preferred shares, where we feel we get very favorable pricing compared to other avenues of raising preferred shares in the marketplace |
| Of notes and in contrast to much of 2022 and 2023, the new issue equity arbitrage looks attractive again |
| So you will note those as very favorable leverage in cost when compared to similar funds out in the marketplace |
| And so we think we have positioned the trust pretty competitively on the cost of leverage and we continue to monitor that maintain it as you do note on the slide, the cost of leverage from Q3 to Q4 did increase |
| We have touched on the at-the-market that’s constantly dripping shares out into the market and an accretive value to shareholders |
| Lauren Law Sure, it is safe to say that the loan and CLO tranche markets exhibited very robust performance in 2023 |
| And by our estimates, equity performing even slightly better than that, though performance certainly varied across different equity profiles |
| So those are the two main ways that I think shareholders benefit |
| The CLO market is off to a really robust start in 2024 in terms of activity |
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| Particularly large expectations as recession fears, receded as you mentioned |
| So, they seem very constrained cash flow, increased competition and this has really weighed on structures and valuations in that sector |
| Particularly when you think about the bottom end of the credit spectrum, borrowers that are very fully levered and having trouble generating cash at these base rate |
| So, certainly a headwind for the market, but something that we do think is manageable at expected levels |
| But over the course of the last 12 months to 18 months, they have really seen a lot of increased competition, which has taken some of their market share |
| The impact of falling rates is also a manageable issue here |
| But there are there are still stressors out there |
| That being said, there are certain sectors which have been under a bit more scrutiny |
| But I think it’s hard to ignore |
| So, long story short, we are relatively calm about the prospect for lower rates, particularly in 2024 |
| As an example, a decrease in short-term rates would result in lower interest income on the trust loan portfolio, though this would be partially offset by a decrease in the cost of leverage associated with the trust credit facility, as its interest expense is also floating rate |
| The downward sloping nature of the forward interest rate curve, a decrease in short-term rates would have some income, some impact, excuse me, on the income generated by the trust underlying portfolio of assets |
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