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Earnings Transcript for XFLT - Q1 Fiscal Year 2023

Kimberly Flynn: I'm pleased to be with you today to discuss the quarterly performance for XFLT. We did just file our semiannual report with the SEC yesterday. So we're pleased to be talking with you today. Investors should read the XFLT prospectus, specifically the risk considerations and any SEC filings to the extent that you have questions before investing in XFLT.
Let's cover a few of the important disclosures as we get going. The fund and the information that we're going to share with you today is forward-looking. And so bear that in mind, investors should not place undue reliance upon forward-looking statements. We also include in the materials performance for prior quarters any of the performance information quoted does represent past performance and past performance does not guarantee future results and current performance or future performance could be higher or lower than any of the performance information shared with you all today. We've got a lot to cover. So I would love to get right into it. :
If you have questions, please let us know. You can enter your questions. You see at the bottom of your screen, the tool bar, there's a Q&A. Any time you have a question, enter it there, and we will respond real time, we'll also take questions at the end of the prepared questions and topics for our speakers. :
And if you don't get your question answered, please feel free to contact me or my colleagues, Steven Perry, and we can spend more time together doing so. If you do have additional information that you would like to find on our firm or on the fund itself, please go to xainvestments.com. There's a wealth of information, specifically in the Knowledge Bank. And registrants to the webinar today will receive a replay if you're interested in that. :
My colleague, Steven Perry, is joining this presentation. Steven runs product management for XFLT, and he is going to cover the financial highlights. And as you're familiar, Gretchen, who is the Senior Portfolio Manager joins us again. And so we're really happy to have Gretchen and Steven share their knowledge. Gretchen is going to focus in on the loan market and the CLO market and some of the challenges and opportunities that we observe in the market today. And Steven, if you have any questions, as I mentioned about the fund or any specific product management topics, he's your person and don't hesitate to reach out to us after today's webinar. :
We're going to cover a number of questions and topics. So we'll get right to it. You probably are familiar with the Octagon team already, but it does -- it's worth noting that Octagon, they're leaders in the below investment-grade credit market and they have a long track record managing and investing in CLOs. Our fund XFLT, was launched in September 2017, which was the first opportunity for investors to get access in a registered fund format to what Octagon does so well. Octagon today manages north of $34 billion in assets under management and -- yes. So if you have any questions on Octagon, please just let us know.:
We're going to cover a lot of things that are kind of top of mind given some of the volatility in the past quarter. We're going to talk about things like the regional bank failures and whether or not that impacted this marketplace. And then we'll get into how XFLT is doing from a performance perspective and from a distribution perspective. So without further ado, we'll speak a little bit now about the funds, facts and figures. :
And I would love to turn the presentation over to Steven Perry. Thanks, Steven. :
Steven Perry: Awesome. Thank you, Kim. Thanks for that intro, and thanks for everyone taking the time to be here today and to listen and we'll go over a few highlights for XFLT before we get into the Q&A session. XFLT ended the quarter at about $401 million in total managed assets. Today, it's about $405 million and $241 million in net assets. The fund does trade at a premium, allowing us to grow the fund, allowing us to realize scale efficiencies in the secondary market.
Moving down, we see average volume for the quarter was about $173,000. We're pleased to see this remain high as it's a good sign of health and wellness of the fund in the secondary market, allowing liquidity for shareholders. Down a bit. Leverage ended the quarter at 41.3%. It's a little high, but we typically shoot for the 38% to 40%. The fund does have a fairly attractive leverage structure, and we'll get into that in the Q&A as well. :
NAV ended the quarter at $6.32, still slightly depressed due to the mark-to-market prices of the loans and CLO equity in the portfolio. As of last night's close, it's down a little bit more to $6.19. Distributions for the quarter were $0.073. We'll also dig into those distributions as they were recently announced on May 1, an increase to $0.085. I also want to highlight the number of holdings in the portfolio at 454 holdings, very diversified portfolio across industries and sectors. And then you'll note down in the left corner, the top 10 holdings represent about 12.47% of the fund. :
We'll move on to the next slide. This details the portfolio composition over time. Octagon does a nice job moving and shifting between the various asset classes in the portfolio, you'll see a shift between CLO equity and CLO debt. Sometimes the senior loans will be toggled up. In this quarter, you'll note Octagon recognized some attractive opportunities in the high-yield bond sector, and that's a higher allocation than we have seen in the past, which we can talk about later as well. :
We'll move on to the next one and talk about XFLT net returns. It's important to note that the NAV reflects decreases due to unrealized losses associated with the mark-to-market valuation changes of CLO equity and senior loans, CLO debt included, but it also reflects the net investment income of the fund. It's important to note that some of these depressed prices are due to the mark-to-market unrealized losses. So looking at the quarter-to-date, NAV returned 4.22% and price returned 5.2%. The benchmark, the Morningstar LSTA Leveraged Loan 100, returned 2.86% during the quarter. If you look at the 1-year and 3-year, it could paint a little bit of a different picture 3 years ago, we'll all remember well was the volatility driven by COVID. But it's also important to note the 5-year total returns and since inception. We'll move on, talk about how the fund is doing in the secondary market. :
Historically, XFLT has traded at an inception to date premium of 3.28%. And as of last Friday, had a premium of 4.51%. This reflects how investors feel about the fund in the secondary market, willing to pay above net asset value to access the fund. This premium also allows the fund to issue more shares in the secondary market to grow the front. And we'll also talk about that in the Q&A section a little bit later. :
Move on to price NAV history a little bit further. We like to put this with the backdrop of the general equity markets, how is it doing in comparison to that. The S&P 500 is obviously not the benchmark of the fund, but it's a nice proxy to understand what's going on in the marketplace. You'll note that the S&P is ticking up slightly through May 19, and we've seen XFLT lag a little bit to that. But again, related to the marks of the portfolio, Yes. That's all I had on that one. :
So we'll move to volume. We like to see volume high. It's a good sign for the health and wellness of the fund. Investors have liquidity in the marketplace. The quarter, you'll remember, was about 172,000 -- 173,000 shares on average. If you note the last 30 and 60 days on this slide, that's inclusive of the month of May through the 19th. That elevated volume is likely related to the increased level of distribution that was announced on May 1, payable June 1. So we like to see good volume for the fund in the secondary market. :
The last thing I'll touch on before we get into the Q&A, it is XFLT versus the benchmark rates. It's no surprise that benchmark rates have been raising significantly, and it's been raised by 5 percentage points since the start of 2022. It's important to note that XFLT has substantially all of its assets in floating rate instruments. And so that's a nice buoy for the investment income that the fund is going to earn. It's also important to note that the liability stack on XFLT is primarily floating rate. :
There is a portion of the liabilities that are fixed income in the form of preferred and we'll also dig into those benefits in the Q&A section. But it's nice that the portfolio can keep pace with the rising rate environment that we've been in. That's the brief overview. We'll take into some of the Q&A. So Kim, unless you want to highlight anything else, I'll turn it back over to you. :
Kimberly Flynn: No. Thanks, Steven. Appreciate it. We're going to start with the financial highlights. And I mentioned that the semiannual was filed with the SEC yesterday. It is up and available on our website. So if you wanted to look more closely at the funds, financial statements, please do so, Steven, if you could just cover some of the highlights worth noting for participants in today's webinar, that would be great.
Steven Perry: Yes. Absolutely. So you heard me talk about some of the growth of the fund. So that's due to the fund trading at a premium, and the fund is able to issue more shares out into the secondary market. Through the end of the quarter, XFLT issued 427,000 shares for total net proceeds of about $2.9 million. Subsequent to quarter end, and the distribution notice, XFLT through the 19th of May has issued about 1.5 million additional shares. And this is important for the scale efficiencies of the fund, it's going to drive down the cost to shareholders. It's going to increase the liquidity in the secondary market. I talked about the monthly distributions. The latest distribution declared on May 1 was an increase of 16.44% over the $0.073 per share, and it was increased to $0.085 per share. We can dig into -- and there's another question here where while we dig into the reasons and the thought process on why the distribution was increased.
For the 6 months ended March 31, net investment income was $0.47 and unrealized losses was $0.10. That unrealized loss number, it is better than previous quarters as the fund was able to realize some gains during the quarter. And it looks like a negative number, but -- well, it is a negative number, but it's important to note that even though a CLO position may show as a loss from a realized loss or gain standpoint, it does not necessarily mean it has a negative IRR. And that CLO position in and of itself may have had a positive return. :
Moving down for the 6 months ended March 31 ratio of net investment income to average net assets was 14.69%. And then finally, we wanted to give you some info on the weighted average current yields of the market price of the portfolio. Given that these prices are depressed, you'll note that CLO equity is yielding 23.3%, CLO debt, almost 13%, the loans are almost up to 10% and the bonds are close to 7%. :
It's important to note these are the yields and those are not in net IRRs. We always want to be thoughtful about how about future losses and how we're calculating those net IRR. So these are weighted average current yields on market price as of March 31. :
Kimberly Flynn: Okay. Steven, you mentioned that the ATM program was active during the quarter, helping grow the fund and drive some of those efficiencies. But can you talk a little bit about how the fund has grown its common share base over the last several years. I just think a larger sort of look-back perspective would be helpful?
Steven Perry: Yes, absolutely. So you've heard me talk about the ATM. The ATM is when the funds are at a premium and there's sufficient volume, the ATMs able to issue additional shares off its registration statement or the shelf. And so that's a slow trickle on effect where the fund slowly grows and grows and grows. In the past, we -- there have also been three follow-on equity offerings or overnight offerings where the fund is able to grow in a more chunky manner. And you'll note those kind of big increases of the dark blue net assets on the chart we're looking at here.
Additionally, we've been able to scale the size of the credit facility as size of the fund scales. In the low rate environment, the credit facility is really attractive borrowing rate that -- or that some of our competitor funds don't have access to due to the nature of the assets. And then in 2021, we added the preferred shares. So it's important to note that we're growing the common base too, the fund has been able to grow accretively, benefiting the common shareholders. :
Kimberly Flynn: Steven, how do you think about the cost of leverage? Because you mentioned that the interest rates have moved higher significantly in the last year. So how is the fund managing its cost of leverage? And is it still attractive?
Steven Perry: Yes. Great question. So the credit facility that XFLT has is floating rate and the preferreds that XFLT has are fixed rate. And so as the cost of leverage has been slowly increasing on the floating rate credit facility, XFLT has the preferred outstanding. The retail preferreds at 6.5% and the unique convertible preferreds at 6%. So as the credit facility becomes more expensive over time with increasing of rates, there's analysis done to issue more convertible preferreds? Do we take those down, how do we manage that. And so a lot of the competitors have -- on the loan side have floating rate credit facilities. And then on the CLO side, they have the fixed rate preferreds. And so XFLT really tries to focus in on the most efficient borrowing rate that we can get, keep those costs down and utilize that arbitrage to bring in more net investment income.
As you can see, the retail preferred trade pretty well in the secondary market, close to par or above par. And then the convertible preferreds on this slide, they're showing 3.5 million shares outstanding. However, subsequent to March 31, the fund has issued an additional -- or those were converted and the fund now has 10 million in convertible preferreds outstanding. So that's how we're thinking about leverage. :
Kimberly Flynn: Great. We talked about the benefit of a fund like this, having both the asset side and the liability side floating. And so it's kind of a natural advantage that XFLT has relative to other fixed income products that the leverage still has been beneficial as rates have risen. The yields on the asset side have also increased and does allow us to maintain an attractive net investment income, as you say, Steven.
Why don't we segue to Gretchen now, so the markets, we've been dealing with slower economic growth for a little while, rising rates, recession concerns. Can you give us some insight into how the loan market performed? And talk a little bit about relative performance of loans to other asset classes, if you could, Gretchen. :
Gretchen Mae Lam: Absolutely happy to, Kim, and good morning to all listeners. Nice to have you with us today. Thanks for taking the time. I'll start with loans in the first quarter and really despite the volatility that we saw in March. Both the loan and CLO markets performed quite well. Loans were up almost 3.25% with about 1 point of price appreciation running through that return number. There was, in the quarter, very limited new loan issuance coming to market and fairly robust CLO issuance at the same time, and this created both limited supply and relatively robust demand for loans, both of which supported prices in the quarter. Interest income, of course, benefited from the increase in LIBOR and SOFR that we've spoken about. The increase in those reference rates just within the quarter, was about 40 basis points. Loans are yielding today, plus or minus 10% which is historically very, very high and even in excess of the yields we're seeing today in high-yield corporate bonds.
CLOs in the quarter similarly performed well. It's worth noting, despite the price volatility we may have seen in the trading prices of CLO equity. CLO equity cash distributions have been ticking up sequentially quarter-over-quarter. January distributions were higher on average than October in the market and April distributions were meaningfully higher than January. And this is driven by a -- certainly an increase in the weighted average spread being generated by the underlying loans in these CLOs as well as an improvement in the basis between 1-month reference rates and 3-month reference rates, which had been for much of 2022 a headwind to distributions. :
Debt tranches in particular, BBs, which as a reminder, comprised as of [ 3/31 ], about 16% of XFLT's assets. They returned over 3.5% in the quarter. And CLO debt, of course, just like the loan allocation, benefits directly from this upward trajectory of LIBOR and SOFR that we've seen over the last year. And by the way, both LIBOR and SOFR sit above 5% today. LIBOR is at -- 3-month LIBOR is at just under 5.5%. 3 months SOFR just under 5.25%. We are now seeing current cash yields in our CLO debt book in the 11% to 13% range, which is extraordinarily robust relative to history. :
Kimberly Flynn: Great. So how does Octagon think about the underlying lows and the underlying sector exposures in the CLO debt and CLO equity portions of the portfolio? And how does Octagon -- like what systems do you have, Gretchen, to evaluate those underlying loans and to manage that risk?
Gretchen Mae Lam: Yes, absolutely. When looking at CLOs, the challenge as an investor is not accessing data. There is an abundance, some might say an overabundance of data available to use as part of your diligence process. The challenge is really harnessing that data and analyzing it in a way that facilitates better investment decisions. At Octagon, we have a number of systems that we use, many of which are proprietary, which allow us to look through to and evaluate the underlying loan positions in a really granular way to look at the composition and the distribution of risk of the underlying loan portfolios, how those portfolios evolve based on the trading and portfolio management decisions of the collateral manager for the CLO. And just as a small example, we receive on a daily basis every morning, an automated alert every day, which lists any loan that is held in any CLO that we own that moves in price that day by more than 5 points.
So we can see where the underlying loan risks are emerging within the CLOs that we own real time long before the next month's reporting package comes out. And it allows us to really drill down and figure out how these underlying portfolios of loans are seasoning and whether that's a result of conscious portfolio management decisions on the part of the collateral manager or whether that's a result of poor credit decisions that were made by the collateral manager previously. :
Our systems also scrape all of the market trading data that we're receiving from the various trading desks and the dealers across the entire CLO market. And all of that data is consolidated into 1 system and 1 dashboard that allows us to kind of determine what the best price to pay for a CLO tranches or the best price to sell a CLO tranche. And at the XFLT fund level, we also have a number of dashboards that kind of build up and consolidate all of the portfolio, all of the assets that XFLT owns and allows us to track a large number of fund level statistics on a daily basis. :
Kimberly Flynn: Okay. That's helpful, Gretchen. So I think now that we understand kind of how you monitor, how you actively manage. Let's talk about the financial performance of loan borrowers in the first quarter of this year and maybe address how CLO collateral managers performed in this environment.
Gretchen Mae Lam: Sure. I will start with the good news, which is among the corporate loan borrowers that we track. In the first quarter, both revenues and EBITDA profitability have continued to grow on a year-over-year basis on average versus 2022. The bad news is that, first, that growth is over the last few quarters, decelerating even while inflation headwinds, both in terms of operating costs and also cost of debt interest are, for the most part, continuing.
And second, we are seeing far more dispersion of performance across the 1,400 borrowers, loan borrowers, corporate loan borrowers in the loan market. meaning that while it's great that the average revenues are growing on average and EBITDA is growing on average, it appears that there is a larger percentage of the loan market where those companies are actually seeing declines in their revenues or in their EBITDA on a year-over-year basis. And that creates a risk and an opportunity. :
What does that mean for CLO managers. At this point in the credit cycle, we have seen that those managers that have outperformed have done so by avoiding the left tail of that risk distribution. We want to see CLO managers actively manage the riskiest loans in their CLOs. We want them to be nimble in identifying, deteriorating corporate performance early so that they can reduce exposure to those loans before the rest of the market. :
The managers who have outperformed in the current environment have been those that have avoided defaults but at the same time, have also taken advantage of the broader macro picture, the broader environment where loans are trading today at $0.93, $0.94 on the dollar and credit spreads have similarly trended higher, trended wider. :
Both of those things, first, the opportunity to buy loans at discounts to par; and second, the widening loan coupons are long-term accretive to loan returns and to CLO equity returns. The trick is that those 2 things usually happen at the same time as a third thing, which is increasing loan defaults. And loan defaults, of course, are a headwind to returns. And so we're looking for managers who can benefit from one and two and really avoid or mitigate the impacts of number three. :
One important note here is a bit of an aside, it is very difficult for our CLO managers to do what we want them to do once the reinvestment period of the CLO ends and the CLO prohibits that active trading, active risk management that we would want to see in the current environment. And for that reason, we have been very consciously reducing XFLT's exposure to deals that have passed their reinvestment period or are coming up on the end of their reinvestment period. And today, the exposure of the fund among it's equity book to deals that are beyond its reinvestment period is less than 10%, well below the market average. :
Kimberly Flynn: Thanks, Gretchen. Steven, I think you mentioned in your opening remarks that you were going to address the distribution change for XFLT. And we did have a question also come in online from one of the funds long-time investors just about the recent increase in the funds distribution rate. Steven, could you just comment on the prior distribution rate, I know it was held level or held at the same monthly pay level. And then it was just announced that we changed that. I suppose with the rate environment, it was not a surprise to investors that we ended up increasing the distribution rate. But could you talk about the new distribution rate what informs that and how you think about that level of distribution?
Steven Perry: Yes, absolutely. So XFLT has an income-based distribution policy. And as a regulated investment company, we seek to pay out all of its net investment income over the course of its fiscal year. As you noted, there were 31 level distributions at $0.073. And with the rate increases with some of the headwinds subsiding like the discrepancy between 1-month and 3-month LIBOR that trickles them to the CLO equity. We noted that XFLT was earning at a higher rate than it was being paid out. And so on May 1, XFLT declared an update -- an increased distribution of about 16.5% to the $0.085 per share. That level as of May 19 was about 15.77% distribution rate and 16.4% on NAV.
So what we're doing is we are looking at what the fund is earning. We're understanding if there's an undistributed net investment income that needs to be pushed out prior to year-end. We are trying to manage that distribution level to be consistent for our shareholders. :
We attribute a lot of that to the rise in rates, the subsiding of some of the headwinds. And then you heard Gretchen mentioned the CLO equity distributions have been healthy over the past few cycles, and that's helping drive that. :
Kimberly Flynn: Thanks, Steven. I think that really addresses the question. But if there's anybody on the line with additional questions, we're happy to take those. Gretchen, back to you. So XFLT has a number of different opportunities across different types of investments. Where do you think relative value is today in CLO debt, CLO equity loans and high yield?
Gretchen Mae Lam: Sure. Across the asset classes, the XFLT invest in, we think that CLO debt in particular, is very compelling at current levels. In XFLT, the CLO debt that we mostly own is the BB rated tranche on Page 9 in the deck, you can see the asset allocation of XFLT over time. And you can see that we've increased the allocation to CLO debt over the last 6 months or so, and we will likely continue to do so going forward.
The BBs held in XFLT, as we said earlier, have a current yield on average of almost 13% and then on top of that, they're marked in the low 90s today, which offers meaningful upside in excess of that almost 13% current yield should those positions pull to par over time. And we think that's really interesting. That's really compelling, and it creates return potential that is really closer to a level that we would have seen for CLO equity not too long ago. We've also modestly increased our high-yield bond exposure. It sits at about 4% today. :
We think the bonds can be interesting selectively where they allow us to capture price discount. Many of our recent bond purchase purchases were at discounts of $0.80 to $0.90 on the dollar. And we can do that without increasing credit risk. Now this often comes at the expense of coupon, meaning these are typically lower coupon bonds. But since we have very nice robust income streams, interest income streams coming from both the loan and the CLO debt allocations we're comfortable with that. :
Kimberly Flynn: Gretchen, Steven mentioned that the fund has some unrealized losses due to pricing of some of the assets in the portfolio. So this question is talking just about like current trading levels. We understand that loans and CLO debt have been trading at discounted levels, what's driving the pricing right now in the market?
Gretchen Mae Lam: Yes. It's absolutely correct. The leveraged loan index trades today around $0.93 on the dollar. CLO debt also trades at a meaningful discount to par, really across all tranches and even the highest quality CLO BBs trade today in the low $0.90 range. This is not atypical for periods of volatility. The secondary prices do move up and down. The simple reason why is that credit risk premiums have widened across all assets. And we can point to 100 reasons why that is both fundamental and technical, but of course, the clouded economic backdrop and the risk of recession is, in our view, the primary explanation for the wider credit spreads that we've seen in the leverage credit debt over the last year.
Worth noting though, it's really important to underscore that loans are an asset class that is prepayable for the most part at any point at the option of the issuer, the borrower. And that creates a really important dynamic and opportunity for investors in loans to recycle proceeds into these discounted loan assets and to take advantage of the current trading price of loans in the secondary market. And that's a really important thing, both for the loan allocation in XFLT as well as the CLO allocation in XFLT since those CLO managers are doing that same thing within their CLOs. :
Kimberly Flynn: Yes. I also think it underscores why active management is important in this space. it would be challenging to be a passive loan investor today. Let's talk about in prior webinars, I think you've talked about the fact that defaults have been at near historic lows for a while, sort of much lower than we've seen historically. But we're starting to see, I think, an uptick in the first quarter of 2023. So Octagon is a CLO collateral manager and for some of the CLOs that XFLT invests in, how CLO collateral managers offset the impact of defaults? Or how do you think about defaults in the current environment?
Gretchen Mae Lam: Yes. It feels like we've been talking for a long, long time about our expectation that defaults will tick up. And here we are in the first quarter, we finally saw that happen. The last 12-month loan default rate as calculated by the LSTA sits at approximately 1.3%. And by the way, that 1.3% compares to a multi-decade average of about 2.6%. So even though we've seen defaults tick up, they still sit at about half of the long-term average today on an LTM basis. We expect to end the year higher than 1.3% and probably higher than 2.6%, frankly. And many publishing research analysts are looking at 2023 default, some are between 3% and 3.5% by year-end, which we think is probably a reasonable expectation, a reasonable range. As I mentioned earlier, for loans and CLO tranches in the long term, defaults bad, volatility good.
The rub is that they usually come hand in hand at the same time. Managers of loans, the way that, as we've discussed, the way that they can offset realized credit losses either from defaults or realized losses from trading is through first buying loans at discounted prices. And second, benefiting from the increase in interest income on the loan portfolio which managers are able to achieve in an environment where credit spreads have widened. :
In the last 12 months, 13% of the loan market has repaid at par. And so the opportunity for managers to take that par repayment, take those proceeds of a loan that repaid that may have had a coupon of SOFR plus 300 and turn around and invest it in a new loan in the secondary market, that might be trading at a price of, say, $0.95 on the dollar, and may have a coupon of SOFR plus 400 basis points and so assuming that, that newly purchased loan is outstanding for 5 years, the potential return in that scenario on the new loan is 200 basis points higher than the return on the loan that had been repaid. And so that's a really key way to over time, enhance the -- both the pull-to-par potential, creating return from that as well as the potential for increasing the interest on the loan book in a way that offsets any losses that the portfolio may suffer from defaults or trading losses. :
Kimberly Flynn: Well, good. Steven, Gretchen. This has been great. I'm going to -- I've got 2 questions, 1 for each of you to end today's session. Steven, I'm going to go to you first. Can we talk a little bit about how the fund's performance is compared to its peer group? And I know, Steven, that XFLT is -- it's not a straight senior loan fund and it's not a straight CLO equity fund, XFLT invest in a number of different asset classes, as Gretchen described. So just talk with us about relative performance.
Steven Perry: Yes. Yes. So it is that strategic mix, 50-50 of senior loans and CLO equity. A lot of times, though, you'll see analysts and investors kind of put us in the group with the mainly CLO focused closed-end funds. And so what we've done here is we've put a comparison together on some of the differences and similarities between XFLT and our competitors. So some of those differences is result in XFLT having a more unique leverage mix, where our main leverage is on that credit facility. One of our competitors does have a credit facility, but it also has preferred whereas the others all have only preferreds outstanding and can result in slightly higher in fixed cost leverage.
XFLT also, we pride ourselves on the transparency and the quality of the marks of the portfolio. We do daily NAV third-party valuation. And then again, we want to highlight that there's no performance fee. Some of the other competitors do have a performance fee and slightly higher management fees. But going back to the strategic mix of the 50-50, XFLT is performing as designed. You'll see that distribution rate on market price as of March 31 of 13.6%. It's slightly lower than the 17.4% of the more CLO focused funds. But we're also trading in the secondary market on a very comparable basis to those funds. And that 13.6%, that is using the $0.073 distribution level as of March 31. If you're looking at close of last night, the current distribution rate is about 16% on market price. :
Now those CLO focused funds, their distribution rate has ticked up to a little bit due to a slight drop in market price. But XFLT is performing as designed, seeking to produce risk-adjusted returns and provide high current income. :
Kimberly Flynn: Thanks, Steven. Gretchen, now final question is, what is your outlook for the loan in CLO markets going forward?
Gretchen Mae Lam: Sure. There's no denying the macro challenges are out there and looming and that creates opportunity for a fund like XFLT loans and CLOs have certainly seen these challenging environments before and have historically exhibited resiliency through them, over-collateralization cushions for CLO equity are well positioned to withstand any future credit losses on average. The current yields on loans and CLO debt are at very high levels historically. And in our view, the key to outperformance will be loss avoidance as well as active, nimble portfolio management.
Kimberly Flynn: Great. As always, thank you, Gretchen. Thank you, Steven. You did a great job on your first XFLT webinar.
Now to our audience, we appreciate you joining us please let us know if you have any questions. We had a couple come in online. If you'd like more information, just give us a call, Steven and I are available. And thank you so much. Hopefully, everybody has a happy Memorial Day weekend, this weekend. Thank you. :
Steven Perry: Thank you.