XAI Octagon Floating Rate & Alternative Income Trust Q2 2025 Earnings Call Transcript Analysis

XAI Octagon Floating Rate & Alternative Income Trust (XFLT) Q2 2025 Earnings Call Transcript: Kevin Davis, Managing Director, and Kimberly Flynn, Partner & President, discuss the macro environment for leveraged loans and CLO markets, credit spreads, and the impact of interest rate changes on the portfolio. Kim Flynn presents financial highlights, fund performance, and comparisons with other CLO-focused products. The presentation includes forward-looking statements and past performance does not guarantee future results.

On August 26, 2025, XAI Octagon Floating Rate & Alternative Income Trust (XFLT) held its second quarter earnings call, providing insights into the macro environment for leveraged loans and CLO markets, credit spreads, and the impact of interest rate changes on the portfolio. The call featured Kevin Davis, Managing Director, and Kimberly Flynn, Partner & President, who discussed the financial highlights and fund performance.

Financial Highlights

Kimberly Flynn, President of XA Investments, reported that the second quarter saw significant pressure on CLO debt and equity listed closed-end funds, a carryover from the first quarter's tariff-related pressure. In response, XFLT reduced its monthly distribution by 9.09% from $0.077 to $0.070, effective July 1. This adjustment aimed to realign the fund's distributions with the returns of capital. XFLT received an overall Morningstar 5-star rating, as well as 5-star ratings for the 3-year and 5-year periods. The fund's current yields for CLO equity are north of 20%, and CLO debt current yields are about 10.51%. The loan market is yielding about 7.86%, and bonds are yielding around 5.85%.

Macro Environment and Market Outlook

Lauren Kristen Law, Senior Portfolio Manager at Octagon Credit, discussed the performance of loans in the second quarter, noting that the market rebounded after the initial volatility caused by tariff implementation. The U.S. broadly syndicated leveraged loan market returned about 2.6% during the quarter. Risk assets, particularly CCC loans, outperformed higher-rated counterparts due to corporate M&A and high-yield market activity.

Law also provided an outlook on the broader economic conditions impacting borrowers. The U.S. economy remains supportive of levered credit, with steady growth expectations and a stable labor market. However, there are pockets of stress in the lower-end consumer market. Overall, the environment remains supportive of levered credit.

Forward-Looking Statements and Disclosures

The presentation included forward-looking statements and disclosures, emphasizing that past performance does not guarantee future results. Investors were encouraged to review all general disclosures and contact the firm for further information.

Conclusion

The earnings call provided a comprehensive overview of XFLT's performance and the broader market conditions impacting leveraged loans and CLO markets. The fund's leadership highlighted the challenges and opportunities in the current market, offering insights into the fund's strategy and outlook.

References:

[1] https://seekingalpha.com/article/4816929-xai-octagon-floating-rate-and-alternative-income-trust-xflt-q2-2025-earnings-call-transcript