#19, Stephanie Setyadi, Partner, Ivy Hill Asset Management

Shiloh Bates:

Hi, I’m Shiloh Bates, and welcome to the CLO Investor Podcast. CLO stands for Collateralized Loan Obligations, which are securities backed by pools of leveraged loans. In this podcast, we discuss current news in the CLO industry, and I interview key market players. Today I’m speaking with Stephanie Setyadi, a partner at Ivy Hill Asset Management, which is a portfolio company of Ares Capital Corp. She gave me two case studies for the types of businesses that can be found in CLOs. One company was a software business, and the other was an insurance brokerage. And we talked about businesses that don’t fit in the Ares credit box. We recorded this episode on March 13th, before tariffs and recessionary risks had materially increased market volatility. In the interest of full disclosure, my firm invests in multiple Ivy Hill managed CLOs. If you’re enjoying the podcast, please remember to Share, Like, and Follow. And now, my conversation with Stephanie Setyadi. Stephanie, thanks so much for coming on the podcast.

Stephanie Setyadi:

Thanks for having me, Shiloh. Happy to be here.

Shiloh Bates:

Why don’t we start off by you telling us a little bit about your background and how you ended up working in private credit at Ares?

Stephanie Setyadi:

Sure. So, I began my career on the buy side straight out of school in a credit training program at a large mutual fund. I did that for a couple years, and then I actually moved to the sell side after that, and this was during the structured finance boom back in the mid-2000s. So, I actually spent a couple years as a CLO banker at Credit Suisse. That obviously came to a very abrupt end in late 2008, and the future of structured finance at the time was very much uncertain. Luckily for me, Ares was one of the few firms actually hiring during the GFC, as they were looking to acquire some middle market CLOs that were being divested and bring them onto the private credit or the direct lending platform. So, in mid-2009, I joined the firm and I actually had this hybrid role.

I covered industries and portfolio companies and looked at new deals, but I also helped onboard and manage these middle market CLOs, as those structures were new to the Ares direct lending platform at the time. It was a great fit for me. I was able to get back into fundamental credit but also utilize the experience and knowledge that I gained in CLOs. And so fast forward 15+ years later, it’s gone by in a flash really, but I’m now a partner at the firm and I continue to be involved both on the credit side as well as our strategic efforts, such as our middle market CLO issuance and management.

Shiloh Bates:

Were the CLOs that you acquired, were those from Allied?

Stephanie Setyadi:

So, some of them are from Allied. Yes. Some of them were from Wells Fargo who was divesting them. Wachovia at the time was exiting the business.

Shiloh Bates:

So, there’s a lot of private credit managers out there. Maybe tell us a little bit about your platform and how you guys see yourself as differentiated.

Stephanie Setyadi:

We’ve been doing this a long time, so we absolutely have the experience, but I think what really sets us apart is our scale, and particularly our origination and sourcing capabilities, which allows us to be highly selective. We also focus on all market sizes. Some direct lenders focus on one end of the market or the other, but we cover the spectrum. We focus on the core middle market. We can play for sure in the upper middle market as well as the lower end, and that allows us to find the best risk-adjusted return opportunities in all market environments. We also have a large incumbent portfolio numbering over 550 names today, and that provides us opportunities for additional capital deployment even when the M&A market is slow, as it has been. And then lastly, we have a robust portfolio management approach with a large team dedicated purely to restructurings, which I think is critical to be investing in this space. So, all these things, those are what sets us apart. It all comes with time and tenure. It’s not easily replicable, but that’s I think what differentiates us and what drives the track record that we can be proud of.

Shiloh Bates:

And just definitionally, I mean, how would you guys describe core middle market versus upper middle market?

Stephanie Setyadi:

I think people have different types of definitions for that, but core middle market, call it anywhere of 30 to 75 million of EBITDA, maybe up to a 100 or so, upper middle market over 100 million, and then lower middle market at the lower end of that scale.

Shiloh Bates:

Got it. So, one of the things I wanted to cover with you today is that often when I’m educating people about CLOs, I find the first place to start is just what are the underlying assets in the CLO? So there might be 100 different private credit loans that go in there, and I was hoping we could just maybe walk through a case study or two, and I understand it’ll be on a no-names basis, but maybe just to give our listeners a sense for the kinds of loans that are going into your CLO vehicles.

Stephanie Setyadi:

Sure. At a high level, it’s primarily first lien, senior secure loans to private middle market companies and nearly all sponsor backed. These are all true cashflow loans. So, they’re EBITDA based and as I mentioned, it covers the entire EBITDA spectrum from call it a 10-million-dollar EBITDA company, all the way to hundreds of millions of dollars of EBITDA. One thing too that is different for us in the middle market versus some other players is that we run highly diverse portfolios. So, you’re going to see well over 100 loans in each CLO. Some other middle market portfolios might be more chunky than that. Our average borrower sizes are around, call it half a percentage point. That obviously benefits a diversification in the event any one negative credit event happens. And as far as a case study, I can tell you about a loan that we’ve been in, an asset we’ve been in, for years now.

And this is a software company and software is an industry that we like a lot and have a lot of experience doing investing in and had a lot of success. So, a top-tier software sponsor was acquiring this company. And what we liked about it was all the things that you see in good software companies: a reliable revenue stream based on SaaS subscription model, sticky customer relationships, very high switching costs, and therefore high customer retention metrics, a diverse blue chip customer base, and favorable industry tailwinds, meaning there was a white space for the company to continue to grow. And typically, what we do for these types of opportunities is we obviously look at what we like about it, and that’s basically what I just described, and that’s our investment thesis, and we’re going to pursue that opportunity in a two-stage process.

The first is we’re going to screen it with our committee, assuming we like the business, and talk about it with our investment committee members and figure out what are the risks in the business. Obviously, although we like software a lot, there’s some key risks and sometimes there are more than others. So, we’ll talk about those risks and figure out what is our diligence path, how are we going to mitigate those risks. For this particular company, competition was a big one, although it did have a leading market position, it still competed against larger providers of end-to-end software solutions, as well as smaller providers offering point solutions, as well as homegrown solutions that customers were using such as Excel-based software. And what we did is we were able to find out how the company differentiates itself, and that could be done through customer calls. It can be done through market research reports that a consultant would commission.

It could be done through GLG or basically industry calls to industry experts. And we found that the company itself differentiated itself by offering high quality software in a very niche market with very significant switching costs. And that was demonstrated through historical customer and retention rates. And the industry itself was demonstrating strong growth as customers were transitioning away from homegrown solutions to more sophisticated software. And there was also opportunity to penetrate the existing customer base through cross-selling. As far as some other risks that we identified, even though we avoid highly cyclical industries, this particular company was selling to some cyclical end markets, such as chemicals and manufacturing. But we found that this company was still diversified across various end markets. So, you would expect that not every market would cycle at once and was even more diversified by end customer. And more importantly than that is that this software was so critical to a company’s business that even in a softer macro environment, we did not see that customers would be willing to switch out the software just because they had to use it to continue to operate.

And then finally, because of the SaaS or subscription-based model, it’s not tied to customer revenue or customer volumes, implying that any general macro weakness should not have a large impact in the company’s revenue base. So, there were some other risks as well, but that’s just giving you a flavor of some of the things that we look at, some of the diligence that we do. We typically have sell-side materials that we’re looking at because these are typically still in the auction stage. So, we’ll have weeks maybe or even months to do our work, do our analysis, and come up with ways that we’re going to get comfortable with some of these risks. And then assuming that everything checks out, and we like what we’ve seen as far as diligencing all of these risks, we’re going to bring it back to investment committee for final approval. So that’s what happened. ARCC won the lead mandate for that transaction and it’s been in our portfolio ever since.

Shiloh Bates:

So ARCC is your publicly traded BDC?

Stephanie Setyadi:

Correct. Yes.

Shiloh Bates:

So, was the initial transaction then, was it a leveraged buyout, was a company taken private? Or was a company acquired from founders? Or what was the initial reason for you guys to lend money to the company?

Stephanie Setyadi:

It was a leveraged buyout. It was actually the sponsor buying it from another sponsor. It was a small company at the time, so it was a change of control.

Shiloh Bates:

That’s a business presumably that the sponsor felt really good about its growth prospects. I think on average, maybe, do businesses trade out 10 times EBITDA? Is that for a decent business that’s growing at a moderate clip, is that what you’d say? Or higher?

Stephanie Setyadi:

Could easily be higher than that. Low double digits. It depends on the industry. It depends on the growth prospects. I would say anything less than 10 times, it’s definitely a lower growth type of industry. So, we’d like to see industries that probably trade in the low teens to high teens.

Shiloh Bates:

And then at a 20% loan to value, where do you get paid for taking that risk?

Stephanie Setyadi:

It definitely depends on the size of the company, the industry, market environment. It was a small company at the time, so we were able to get that premium pricing despite the lower LTV. And obviously the market has changed a lot. So, these days a typical uni-tranche type pricing would be, call it 450 to 500 over SOFR. That’s come in significantly.

Shiloh Bates:

And so, in 2025, this is still a loan that’s on your books?

Stephanie Setyadi:

Correct. We’ve been able to stay invested in it as it’s grown. It’s done five acquisitions since. Still the same sponsor but has added five targets, and we’ve provided add-on financing, so have grown with the company as it has scaled, which is something that we’re proud to do. I mean, that’s the benefit of having that incumbent portfolio. We can get in early with a company when it’s small and stay invested with it and be able to scale with it over time.

Shiloh Bates:

So, for a borrower that has the ability to borrow from the broadly syndicated or traded market versus going the private credit route, one of the advantages of going private credit is that it’s just more flexible. So, there’s only one lender that the borrower or the private equity firm needs to work with. And so, for an in acquisitive company, like what you just described, the private credit’s probably the better solution there, even though it’s going to be more expensive than the broadly syndicated market. Is that how we should think about it?

Stephanie Setyadi:

Yeah, absolutely. There’s a lot of benefits to accessing the private credit market. That certainty of execution at close, the flexibility that can be provided by one or a handful of lenders, not only at close, but down the road. Amendments, additional financings like we just discussed. And it’s really a partnership-type of model versus broadly syndicated world, which you’re dealing with a 100+ lenders sometimes, and it’s just a different type of transaction. Each market has its pluses and minuses, and certainly in the upper middle market, sponsors are going to look at both and dual track processes and figure out what works for them. But the private credit world definitely has its benefits.

Shiloh Bates:

One of the things that I make sure is clear in our investors’ minds is that when they see technology as an industry in CLOs, and oftentimes it’s, call it 10 to 14% of total CLO AUM, just to make sure it’s totally clear that this is not a couple of guys in a garage with a business plan and a dream. This is entrenched software with a business that has probably, at a minimum, 15 million of cashflow a year. So maybe that’s a hundred million of revenue. So, these are established leaders in their space. They’re not fly-by-night companies.

Stephanie Setyadi:

Absolutely. Yeah. These are companies that have a product that is mission critical to an end user, an end company’s business. So, it could be something like an ERP system, for example. It could be something that facilitates business to business transactions, anything that really plays a critical role in a company’s operations.

Shiloh Bates:

So, will this ultimately leave your books when the company either goes public and repays the term loan or the company is sold to another private equity firm? What’s the end game here?

Stephanie Setyadi:

So that could happen, but something like this where we’ve been in it for some time, we know it really well. What we’ll typically try to do is stay involved in the next financing. So, if it does get sold to another private equity sponsor, we’re going to be, hopefully, first in line to pitch that financing to the next sponsor.

Shiloh Bates:

Great. And so, then along the way, could you just let us know what you guys do for valuations? That would be every quarter, or how often you do it, and what’s the process there, just so people know?

Stephanie Setyadi:

So yeah, we do have quarterly valuations. We’re coming upon that now for Q1. But basically, we value every single loan in the portfolio based on a few different factors. So, if it’s publicly marked, which a small subset is, then we’ll use the public marks. But more likely than not, we’ll be doing our own analysis. And that’s, a lot of times, for a name like this that’s performing, it’s going to be a yield analysis and basically, figure out what the yield should be given the leverage profile of the company and given the market yields at the time.

Shiloh Bates:

Do you guys involve a third party in that process or is it just your marks?

Stephanie Setyadi:

Yes, we will have third party valuation providers.

Shiloh Bates:

Great. So that was “anonymous software company”. Do you have another company that we could maybe chat through?

Stephanie Setyadi:

Sure. So, another industry that we like a lot is insurance brokerage. And so, this particular company, similar to the last one I just spoke about, we’ve been in it for a number of years now. Back then it was a small deal, barely double digits of EBITDA, and we came into a two-handed club deal. And this company was your traditional insurance broker focusing primarily on commercial and personal PNC insurance. What we like about the space and this company itself is that it has a very recurring revenue model that’s driven by commissions, generated by policy renewals, and that’s demonstrated by strong historical retention rates as customers typically don’t change brokers, and consistent organic revenue growth, including downturns such as Covid. The industry itself is recession resistant, and in general, it’s a growing sector given the demand for insurance products is only increasing given the complexity of businesses today.

It’s not to say the industry is not without its risks. So, for this particular company and the industry in general, it’s a roll-up strategy. There’s a lot of mom and pops out there that private equity companies are rolling up to create larger, more sophisticated platforms. And so execution and integration risk of that M&A strategy is critical to being successful here. So not only identifying them, but integrating them smoothly and quickly, that’s key. And we found that this company had a strong track record of doing that and was also able to demonstrate that these acquisitions continue to grow post-close, driven by retaining the key employees and driven by retaining those customers after the fact. It’s a competitive market. As I mentioned, there are still a lot of mom-and-pop shops out there, so it’s highly fragmented and there’s other scaled players as well.

But we found that local relationships with the end client is important in this industry. And because this company was able to build regional density in its key markets, it was able to retain those customers, grow revenues, grow client retention, and have strong organic growth, even past any of the acquisitions it has made. And then back then, because it was such a small company, one of the key risks was retaining producers or the employees that sell these policies to the end users. Being able to mitigate that risk was key for us. We were able to validate that the company has been able to retain its producers historically, and they were able to do that because they were aligning interests. And typically, that’s done by equity ownership in the company. So that’s just another example of a name in an industry that we really like and has stayed in our portfolio for a long time.

Shiloh Bates:

So, in insurance brokerage, these are just agents that are placing policies, they’re not actually taking the underlying insured risk there?

Stephanie Setyadi:

Correct. There is no underwriting risk that these brokers are taking.

Shiloh Bates:

So is the idea with a company like that that they’ll grow through these tuck-in acquisitions until, again, there’s another exit to another sponsor, or through an IPO?

Stephanie Setyadi:

Yeah, these are typically structured with DDTLs, so that’s another benefit of private credit versus the BSL market.

Shiloh Bates:

So that’s the delayed draw term loan option they have.

Stephanie Setyadi:

Yep, exactly. So, they’ll utilize that DDTL through the life of the investment and be able to add on these acquisitions post-close. In this particular case, that has happened, but it’s also changed hands to a couple other sponsors during this timeframe, and we’ve stayed invested through those as well. And the EBITDA is now into the hundreds, and we’re still part of the lending group, and hopefully we’ll stay invested.

Shiloh Bates:

So those were two companies that, as you said at the beginning of the podcast, might represent half a percent of AUM in the CLO, and I could definitely understand the merits of those and why they would work for you guys, but what are some risks that you guys focus on that just are maybe non-starters? Companies you’re going to screen out?

Stephanie Setyadi:

Highly cyclical industries. We avoid anything such as oil and gas, commodity-based sectors such as chemicals or metals, construction, anything highly discretionary like gaming or leisure. Those are typically not areas where we’re going to play. And then anything that has significant concentration and particularly customer concentration, for us that’s credit 101 and especially the smaller a company is, if you have any outsized concentration, that could be pretty meaningful. It could mean game over for these types of companies if something happens to that customer. And then also a key thing for us is what is the competitive differentiation of a company? What is its secret sauce? What’s the reason that it exists? And what would happen if the company goes away? Would people care? So those are the key questions that we ask ourselves. If we can’t answer those, we don’t really know what differentiates it. That’s going to be a non-starter. And if it has any significant concentration, definitely by customer, but also by product, if it’s a very niche product, one product type of company, that’s going to be probably a non-starter for us too.

Shiloh Bates:

And how do you view the private equity firm that’s acquiring the business? How much weight do you put on that? If it’s somebody with a great PE track record over a decade plus, or a newer private equity firm, does it matter or is it a key item for you guys?

Stephanie Setyadi:

It matters for sure. It’s definitely something that we will consider. It’s not to say that we won’t do something with a newer firm, but it’s got to check all the other boxes, and we have to have conviction around that newer private equity firm. Maybe they came from another shop before, and so we know those professionals there, but certainly a private equity shop having the experience in a particular industry. So for example, in software, we know who all the top software sponsors are. In insurance, there’s some specialized private equity firms that like that space and have intimate knowledge of it. There’s others that specialize in carve outs, for example. So, for a carve out type of transaction, and we’re going to want to see that, it’s certainly a factor that we’ll look for because that’s our ownership. We want to make sure that they know what they’re doing and we have the expertise coming in.

Shiloh Bates:

Are there any large private equity firms that do a lot of LBOs that you won’t work with? You don’t have to give me any names.

Stephanie Setyadi:

For certain firms that maybe have some reputational issues, we’ll take that into consideration for sure. We work with basically many, many sponsors. We cover, I think over 500 sponsors these days. So, a wide variety, which is good for us. So, we don’t have to rely on any one sponsor or set of sponsors. But yeah, if they’re known for being aggressive with lenders or having very loose documentation, that’s certainly something that will factor into our decision.

Shiloh Bates:

Okay, appreciate that. Just, then, maybe transitioning to market trends. So, across private credit and broadly syndicated, we’ve seen more favorable borrowing costs. That’s certainly been the trend really, since, well, dramatically, I guess over the last year or so. How is that affecting your business? And I guess it represents lower returns for investors, but maybe just describe the trend to lower borrowing costs, lower spreads, and how that’s affecting your business.

Stephanie Setyadi:

You’re right. Spreads have definitely compressed. It’s driven by the competitive market environment today, but also due to generally better credit performance than I think many of us would’ve expected. At this point we think spreads have largely bottomed out, but as you mentioned, base rates are still higher, and we believe that they will stay higher for longer. So, at the level we’re at, we’re still earning an attractive yield given that we’re 100% floating rate. At the same time for our CLOs, the fact that spreads have come in means that reliability costs have come down as well. And so that’s been a benefit for us, that equity arbitrage still definitely makes sense for us given where we are.

Shiloh Bates:

So, after these loans are originated, and if spreads have tightened in the market, I mean, how long is it before the CFO of the underlying company can come back to you and ask for a lower spread?

Stephanie Setyadi:

Usually, it’s a 6-month non-call, sometimes it could be 12 months. We’ve seen borrowers repricing for sure, sometimes twice. We think that’s largely over for the most part, especially the market recently has sold off a bit and softened a bit. A lot of loans are no longer trading above par, so hopefully that repricing wave is behind us.

Shiloh Bates:

From the perspective of CLO equity, yeah, we see it on both. So, on the one hand, the loan spreads, the assets are paying us less in terms of yield. However, we’ve been able to refinance and extend the lives of many of our CLOs with good borrowing costs. So, we care about the net difference between the two. But then if you’re a CLO debt investor, on the one hand, you probably think the economic outlook’s pretty favorable, at least that was the expectation I guess, before a couple weeks ago. So, spreads are coming in, but you probably feel pretty good about your prospects for getting repaid. Has talk of tariffs or proposed or Tweeted tariffs, has that affected your business there?

Stephanie Setyadi:

It’s hard to keep up with tariffs as it’s changing every day it seems, but it’s certainly something we’re staying on top of. We have a 50 plus person portfolio management team. We have individual deal teams that are in constant contact with management teams and sponsors. So, we’ve already done a pretty comprehensive analysis of the portfolio and we’re continuing to refine that as things change. For the most part, it looks like we have very limited exposure, and a lot of that is due to the industries we like and that we overweight, such as software and insurance brokerages and services-based types of industries. But like I said, it’s something we’ll continue to monitor. We’re doing our homework, we’re staying on top of government cost cutting or AI impacts, things like that. Everything is creating a lot of uncertainty, but the way we run our business is that we have that PM team. We have our deal teams that are in constant dialogue, so we’ll just continue to refine our analysis as we go.

Shiloh Bates:

And then one trend also in the market I think is borrowers continuing to ask for deals without financial covenants. As a lot of money has been raised in private credit, do you feel like the docs that you’re getting are still pretty good and you’re getting financial covenants when you need them, especially when the companies are a little smaller? How should we think about that dynamic?

Stephanie Setyadi:

The smaller companies absolutely will have financial covenants. The upper middle market, you’re seeing that less and less. But for us, where we play, like I said, we can pivot across the spectrum. So if we think it’s getting too competitive in the upper middle market in terms of pricing, in terms of documentation, we can go back down to the core middle market or the lower middle market and find that we’re getting better risk-adjusted opportunities there, given pricing or leverage or documentation. So, we’re very focused on docs, obviously, given what we’ve seen in the BSL market, we’re focused on getting all the named collateral protections. So even for a company that may not have a financial covenant, oftentimes those other negative covenants are more important. And so, we actually have a page in every single investment committee memo now that goes through red, yellow, green, through every single type of term, and what we’re looking for and what the document has and how we can improve upon it.

Shiloh Bates:

How many private credit CLOs does Ares usually issue in a year?

Stephanie Setyadi:

So, Ares direct lending last year started issuing CLOs for the first time in addition to Ivy Hill, which had been doing it since its inception. So, Ivy Hill is focused on resets that we’ve had a bunch of older vintage CLOs coming out of its on-call period or ending reinvestment. So, we’re looking to reset those at today’s more favorable cost of capital. And then the direct lending side, this is a newer avenue for financing, but they’re actively doing that as well and looking to do more new issue this year.

Shiloh Bates:

Does the pickup in CLO issuance on your platform, does that reflect just how big you guys are? And at some point, if you want to lever a diversified portfolio of loans, you can either go to banks, as you know, or borrow through the securitization market, so that’s a CLO. Does more CLO issuance just mean you see better financing terms from CLOs or maybe you’ve outgrown a few of your banking relationships?

Stephanie Setyadi:

I think we’ll continue to have both, to be honest. We have some very strong banking relationships and some facilities out there that we’ve had for a number of years that we’ll continue. I think it’s just more having both sources of financing as options. You never know when one market is going to be more favorable than another. And so, as the middle market CLO industry has grown in terms of investor base, in terms of interest in it, and depth of the investor, and as economics have become more compelling there as well, we’re going to continue to access that, but keep those banking relationships open as well.

Shiloh Bates:

And then just one last question. So, you mentioned Ivy Hill. Could you just explain the relationship there between Ares and Ivy Hill and what the difference is?

Stephanie Setyadi:

So, Ivy Hill is a portfolio company of ARCC. It was founded in 2007 as a senior loan asset manager. The strategy back then was to be the primary source of first lien senior secured loan investments, because back then the ARCC core products were really more second lien, preferred equity, junior capital, etc. So, Ivy Hill was a primary pocket of capital for first lien middle market loans.

Shiloh Bates:

Great. Well, Stephanie, is there anything else topical in private credit that we could discuss?

Stephanie Setyadi:

I think we hit on the most topical stuff, which is tariffs and some of the never-ending policy changes that seem to be dominating the headlines, but there’s been more talk of volatility, uncertainty, potential recession, etc. But for us, I think we’ve been doing this a long time. We’ve done it through multiple cycles, and we’ve been consistent with our approach, which has served us well. So, I think if we just stick to our knitting, keep doing what we’re doing and our scale, our resources, our diversification, I think we’re well positioned to withstand whatever changes or headwinds may come our way.

Shiloh Bates:

Well, Stephanie, thanks so much for coming on the podcast. Really enjoyed our conversation.

Stephanie Setyadi:

Thanks for having me, Shiloh.

Disclosure AI:

The content here is for informational purposes only and should not be taken as legal, business, tax, or investment advice, or be used to evaluate any investment or security. This podcast is not directed at any investment or potential investors in any Flat Rock Global fund.

Definition Section

Secured overnight financing rate, SOFR, is a broad measure of the cost of borrowing cash overnight, collateralized by treasury securities.

The global financial crisis, GFC, was a period of extreme stress in the global financial markets and banking systems between mid-2007 and early 2009.

Credit ratings are opinions about credit risk. For long-term issues or instruments, the ratings lie on a spectrum ranging from the highest credit quality on one end to default or junk on the other. A AAA is the highest credit quality. A C or a D, depending on the agency issuing the rating, is the lowest or junk quality.

Leveraged loans are corporate loans to companies that are not rated investment grade.

Broadly syndicated loans are underwritten by banks, rated by nationally recognized statistical ratings organizations, and often traded among market participants.

Middle market loans are usually underwritten by several lenders with the intention of holding the instrument through its maturity.

Spread is the percentage difference in current yields of various classes of fixed income securities versus treasury bonds, or another benchmark bond measure.

A reset is a refinancing and extension of a CLO investment period.

EBITDA is earnings before interest, taxes, depreciation, and amortization. An add back would attempt to adjust EBITDA for non-recurring items.

LIBOR, the London Interbank offer rate, was replaced by SOFR on June 30, 2024.

Delever means reducing the amount of debt financing.

High yield bonds are corporate borrowings rated below investment grade that are usually fixed rate and unsecured.

Default refers to missing a contractual interest or principal payment.

Debt has contractual interest principle and interest payments, whereas equity represents ownership in a company.

Senior secured corporate loans are borrowings from a company that are backed by collateral.

Junior debt ranks behind senior secured debt and its payment priority.

Collateral pool refers to the sum of collateral pledge to a lender to support its repayment.

A non-call period refers the time in which a debt instrument cannot be optionally repaid.

A floating rate investment has an interest rate that varies with the underlying floating rate index.

RMBS are residential mortgage-backed securities.

Loan to Value, LTV, is a ratio that compares the loan amount to the enterprise value of a company.

GLG is a firm that sets up calls between investors and industry experts.

General Disclaimer Section

References to interest rate moves are based on Bloomberg data. Any mentions of specific companies are for reference purposes only and are not meant to describe the investment merits of, or potential or actual portfolio changes related to, securities of those companies unless otherwise noted. All discussions are based on US markets and US monetary and fiscal policies. Market forecasts and projections are based on current market conditions and are subject to change without notice. Projections should not be considered a guarantee. The views and opinions expressed by the Flat Rock Global speaker are those of the speaker as of the date of the broadcast and do not necessarily represent the views of the firm as a whole. Any such views are subject to change at any time based upon market or other conditions, and Flat Rock Global disclaims any responsibility to update such views. This material is not intended to be relied upon as a forecast, research, or investment advice.

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