Summary of XFLT-PA Q4 2025 Earnings Call

1Key Financial Results and Metrics

NAV Performance: For Q4 2025, the Net Asset Value (NAV) decreased by 4.65%, while the share price fell by 5.4%. This contrasts with the leveraged-loan benchmark index, which rose by 1.84%.

CLO Equity Pricing: The mark price for CLO equity was reported at $45.18, significantly lower than CLO debt, which was priced at 99.48%.

Distribution Cuts: XFLT cut its distribution by 14% at the beginning of January 2026, following similar cuts by competitors, indicating a challenging income environment.

2Strategic Updates and Business Highlights

Asset Allocation: XFLT's portfolio consists of approximately 40% CLO equity, 10% CLO debt, and 50% loans. This diversified approach is intended to mitigate risks associated with CLO equity volatility.

Leverage Strategy: The fund's leverage cost has decreased, with a typical leverage ratio between 35% and 38%. The issuance of an institutional preferred in October helped lower overall borrowing costs.

Market Positioning: XFLT is positioned to capitalize on market volatility, particularly in the software sector, where it has limited exposure (4.6%).

3Forward Guidance and Outlook

Market Conditions: The outlook remains cautious due to ongoing volatility in the CLO and loan markets, particularly influenced by concerns over the software sector and AI impacts. However, fundamentals for many borrowers remain healthy.

CLO Market Dynamics: New CLO issuance in 2025 was robust, contributing positively to existing holdings. The expectation is for CLOs to eventually catch up with tighter spreads, although this may take time.

4Bad News, Challenges, or Points of Concern

CLO Equity Weakness: The primary challenge has been the continued decline in CLO equity prices, which has negatively impacted overall fund performance.

Competitive Pressures: Many competitor funds have announced significant distribution cuts, leading to wider discounts in the secondary market. XFLT was trading at a 27% discount to NAV, a historic low.

Market Volatility: Concerns about liquidity in the broader credit market, particularly related to BDCs, have created crosswinds affecting investor sentiment and market dynamics.

5Notable Q&A Insights

CLO Equity Pricing: The average price of CLO equity was not disclosed but typically trades in the $0.80 range, emphasizing the complexity of valuation.

Default and Recovery Analysis: XFLT invests in managers with historically lower defaults and higher recoveries compared to market averages, indicating a focus on quality.

Governance and Shareholder Engagement: Management emphasized a commitment to shareholder interests, with active governance and responsiveness to investor feedback. There is openness to discussions about share repurchases, although no immediate plans were announced. Overall, while XFLT navigates a challenging market environment with strategic positioning and a diversified portfolio, concerns about CLO equity performance and competitive pressures remain significant.