N-Q 1 fp0031447_nq.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM N-Q

 

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED

MANAGEMENT INVESTMENT COMPANY

 

811-23247

(Investment Company Act File Number)

 

XAI Octagon Floating Rate & Alternative Income Term Trust

(Exact Name of Registrant as Specified in Charter)

 

321 North Clark Street, Suite 2430

Chicago, IL 60654

(Address of Principal Executive Offices)

 

John P. McGarrity, Esq.

XA Investments LLC

321 North Clark Street, Suite 2430

Chicago, IL 60654

(Name and Address of Agent for Service)

 

(312) 374-6930

(Registrant’s Telephone Number)

 

Date of Fiscal Year End: September 30

 

Date of Reporting Period: October 1, 2017 - December 31, 2017

 

 

 

Item 1. Schedule of Investments.

 

XAI Octagon Floating Rate & Alternative Income Term Trust (XFLT)

 

Schedule of Investments

 

December 31, 2017 (Unaudited)      

 

   Coupon(a)    

Reference Rate

& Spread

   

Maturity

Date

   Principal Amount   Value 
CORPORATE BONDS - 3.35%* (2.24% of Total Investments)          
Diversified Telecommunication Services - 0.51% (0.35% of Total Investments)          
Consolidated Communications, Inc., Senior Unsecured   6.50%          10/01/2022   $250,000   $225,625 
Frontier Communications Corp., Senior Unsecured   10.50%          09/15/2022    250,000    188,750 
Total Diversified Telecommunication Services                    500,000    414,375 
                            
Hotels, Restaurants & Leisure - 1.32% (0.88% of Total Investments)                         
Golden Nugget, Inc., Senior Unsecured(b)   8.75%          10/01/2025    1,000,000    1,047,656 
Mattel, Inc., Senior Unsecured(b)   6.75%          12/31/2025    23,000    23,272 
Total Hotels, Restaurants & Leisure                    1,023,000    1,070,928 
                            
Pharmaceuticals - 1.08% (0.72% of Total Investments)                           
Valeant Pharmaceuticals International, Inc., Senior Unsecured(b)   9.00%          12/15/2025    400,000    416,880 
Valeant Pharmaceuticals International, Inc., Senior Unsecured(b)   6.13%          04/15/2025    500,000    457,678 
Total Pharmaceuticals                    900,000    874,558 
                            
Internet Software & Services - 0.32% (0.21% of Total Investments)                         
Veritas US, Inc. / Veritas Bermuda, Ltd., Senior Unsecured(b)   10.50%          02/01/2024    250,000    260,625 
                            
Industrial Conglomerates - 0.12% (0.08% of Total Investments)                           
Williams Scotsman International, Inc., Senior Secured(b)   7.88%          12/15/2022    95,000    97,870 
                            
Total Corporate Bonds (Cost $2,641,075)                    2,768,000    2,718,356 
                            
SECURED SECOND LIEN LOANS - 12.27% (8.19% of Total Investments)(c)                           
Chemicals - 0.29% (0.19% of Total Investments)                           
Utex Industries, Inc., Initial Term Loan   8.82%    1M US L + 7.25%    05/22/2022    250,000    236,457 
                            
Electronic Equipment, Instruments & Components - 0.31% (0.21% of Total Investments)                           
LTI Holdings, Inc., Initial Term Loan   10.32%    1M US L + 8.75%    05/16/2025    250,000    253,125 
                            
Hotels, Restaurants & Leisure - 2.53% (1.69% of Total Investments)                         
Affinity Gaming, LLC, Initial Term Loan   9.73%    3M US L + 8.25%    01/31/2025    392,857    397,112 
Casablanca US Holdings, Inc., Initial Term Loan   10.38%    3M US L + 9.00%    03/31/2025    833,333    845,833 
Golden Entertainment, Inc., Term B Facility Loan   8.51%    1M US L + 7.00%    10/20/2025    800,000    805,000 
Total Hotels, Restaurants & Leisure                    2,026,190    2,047,945 
                            
Insurance - 2.15% (1.44% of Total Investments)                           
Asurion, LLC, Replacement B-2 Term Loan   7.57%    1M US L + 6.00%    08/04/2025    1,700,000    1,745,152 
                            
Media - 1.49% (1.00% of Total Investments)                           
MediArena Acquisition B.V., Dollar Term B Loan   10.34%    3M US L + 9.00%    08/13/2022    500,000    485,250 
Red Ventures, LLC & New Imagitas, Inc., Term Loan   9.57%    1M US L + 8.00%    11/08/2025    725,000    722,738 
Total Media                    1,225,000    1,207,988 

 

 

 

   Coupon(a)    

Reference Rate

& Spread

    

Maturity

Date

    Principal Amount   Value 
SECURED SECOND LIEN TERM LOANS (continued)            
Real Estate Investment Trusts (REITs) - 1.08% (0.72% of Total Investments)            
Capital Automotive LP, New Term Loan   7.57%    1M US L + 6.00 %     03/17/2025    $850,000   $871,250 
                               
Software - 4.26% (2.84% of Total Investments)                              
Finastra Group Holdings Limited, Dollar Term Loan   8.73%    3M US L + 7.25 %     06/13/2025     1,700,000    1,700,425 
McAfee, LLC, Initial Term Loan   10.07%    1M US L + 8.50 %     09/29/2025     1,000,000    1,000,630 
Micro Holding Corp. & MH Sub I, LLC, Term Loan   9.09%    3M US L + 7.50 %     08/16/2025     750,000    750,938 
Total Software                       3,450,000    3,451,993 
                               
Transportation Infrastructure - 0.16% (0.10% of Total Investments)                              
Direct Chassislink, Inc., Term Loan(d)   N/A     L + 6.00 %     06/15/2023     123,711    125,567 
                               
Total Secured Second Lien Loans (Cost $9,937,264)                       9,874,901    9,939,477 
                               
SENIOR SECURED FIRST LIEN LOANS - 60.41% (40.32% of Total Investments)(c)                              
Aerospace & Defense - 0.96% (0.64% of Total Investments)                              
Constellis Holdings, LLC, Term B Loan   6.69%    3M US L + 5.00 %     04/21/2024     770,254    777,957 
                               
Auto Components - 1.37% (0.92% of Total Investments)                              
Bright Bidco B.V., Term B Loan   6.19%    1M US L + 4.50 %     06/30/2024     698,246    702,316 
Navistar, Inc., Tranche B Term Loan   4.90%    1M US L + 3.50 %     11/06/2024     407,718    408,864 
Total Auto Components                       1,105,964    1,111,180 
                               
Automobiles - 0.62% (0.41% of Total Investments)                              
Truck Hero, Inc., Initial Term Loan   5.64%    3M US L + 4.00 %     04/21/2024     498,747    498,592 
                               
Beverages - 0.54% (0.36% of Total Investments)                              
Sunshine Investments BV, Facility B3 Loan(d)   N/A     L + 3.25 %     03/31/2025     440,238    438,587 
                               
Building Products - 0.87% (0.58% of Total Investments)                              
SRS Distribution, Inc., Term B-4 Loan   4.94%    3M US L + 3.25 %     08/25/2022     698,219    700,837 
                               
Chemicals - 0.58% (0.39% of Total Investments)                              
Utex Industries, Inc., Initial Term Loan(d)   5.57%    L + 4.00 %     05/22/2021     478,966    468,587 
                               
Communications Equipment - 1.80% (1.20% of Total Investments)                              
Global Tel Link Corp., Term Loan(d)   N/A     L + 4.00 %     05/22/2020     466,667    467,544 
Intelsat Jackson Holdings S.A., Term B-4 Loan(d)   N/A     L + 4.50 %     01/02/2024     253,165    255,960 
Mitel US Holdings, Inc., Incremental Term Loan(d)   N/A     L + 3.75 %     09/25/2023     725,000    730,742 
Total Communications Equipment                       1,444,832    1,454,246 
                               
Construction & Engineering - 0.93% (0.62% of Total Investments)                              
Brand Energy & Infrastructure Services, Initial Term Loan   5.61%    3M US L + 4.25 %     06/21/2024     747,494    749,923 
                               
Diversified Financial Services - 1.74% (1.16% of Total Investments)                              
Deerfield Holdings Corp., Term B Loan(d)   N/A     L + 3.25 %     12/04/2024     500,000    500,625 
Pi US Mergerco, Facility B1 Loan(d)   N/A     L + 3.50 %     12/15/2024     433,498    432,956 
VFH Parent, LLC, Initial Term Loan   5.13%    3M US L + 3.75 %     12/30/2021     473,684    477,237 
Total Diversified Financial Services                       1,407,182    1,410,818 
                               
Diversified Telecommunication Services - 4.15% (2.77% of Total Investments)                              
Centurylink Escrow, LLC, Initial Term B Loan   4.32%    1M US L + 2.75 %     01/31/2025     500,000    481,720 
Frontier Commuunications, Term B-1 Loan   5.32%    1M US L + 3.75 %     06/15/2024     498,747    477,550 

 

 

 

 

   Coupon(a)    

Reference Rate

& Spread

   

Maturity

Date

    Principal Amount   Value 
SENIOR SECURED FIRST LIEN TERM LOANS (continued)          
Diversified Telecommunication Services (continued)          
Liberty Cablevision of Puerto Rico, LLC, Term B Loan   4.86%    3M US L + 3.50%     01/07/2022  $132,065   $127,773 
Neustar, Inc., Term B-2 Loan   5.15%    3M US L + 3.75%     08/08/2024     700,000    705,600 
Radiate Holdco, LLC, Closing Date Term Loan(d)   N/A     L + 3.00%     02/01/2024     366,216    363,144 
Syniverse Holdings, Inc., Initial Term Loan   4.57%    1M US L + 3.00%     04/23/2019     500,000    490,835 
Wide Open West Finance, LLC, Refinancing Term B Loan   4.75%    1M US L + 3.25%     08/18/2023     723,188    715,731 
Total Diversified Telecommunication Services                      3,420,216    3,362,353 
                              
Electronic Equipment, Instruments & Components - 0.61% (0.41% of Total Investments)                             
LTI Holdings, Inc., Initial Term Loan   6.32%    1M US L + 4.75%     05/16/2024     492,513    494,359 
                              
Energy Equipment & Services - 2.24% (1.50% of Total Investments)                             
FTS International, LLC, Initial Term Loan   6.32%    1M US L + 4.75%     04/16/2021     423,410    412,401 
Seadrill Partners Finco, LLC, Initial Term Loan   4.69%    3M US L + 3.00%     02/21/2021     1,745,455    1,405,091 
Total Energy Equipment & Services                      2,168,865    1,817,492 
                              
Health Care Providers & Services - 3.34% (2.23% of Total Investments)                             
AMGH Holding Corp., New Term Loan   5.67%    3M US L + 4.00%     04/28/2022     972,537    971,807 
Community Health Systems, Inc., Incremental Term H Loan   4.48%    3M US L + 3.00%     01/27/2021     221,290    210,885 
Diplomat Pharmacy, Inc., Initial Term B Loan(d)   N/A     L + 4.50%     12/20/2024     279,503    280,901 
Heartland Dental Care, LLC, Term Loan(d)   N/A     L + 4.75%     08/01/2023     500,000    506,565 
Parexel International Corp., Initial Term Loan   4.57%    1M US L + 3.00%     09/27/2024     246,875    247,853 
US Renal Care, Inc., Initial Term Loan   5.94%    3M US L + 4.25%     12/30/2022     498,728    490,833 
Total Health Care Providers & Services                      2,718,933    2,708,844 
                              
Hotels, Restaurants & Leisure - 3.04% (2.03% of Total Investments)                             
Amaya Gaming Group, Inc., Initial Term B-3 Loan   5.19%    3M US L + 3.50%     08/01/2021     498,721    501,215 
CEC Entertainment, Term B Loan(d)   4.82%    L + 3.25%     02/12/2021     589,614    551,707 
ClubCorp Holdings, Inc., Term B Loan   4.94%    3M US L + 3.25%     09/18/2024     215,152    215,858 
Intrawest Resorts Holdings, Inc., Initial Term Loan   4.82%    1M US L + 3.25%     07/31/2024     475,000    478,268 
Kingpin Intermediate Holdings, LLC, Initial Term Loan   5.73%    3M US L + 4.25%     07/03/2024     249,373    251,867 
Town Sports International, Inc., Initial Term Loan   5.07%    1M US L + 3.50%     11/15/2020     498,701    465,977 
Total Hotels, Restaurants & Leisure                      2,526,562    2,464,892 
                              
Household Products - 0.62% (0.41% of Total Investments)                             
TKC Holdings, Inc., Initial Term Loan   5.67%    2M US L + 4.25%     02/01/2023     498,802    502,075 
                              
Independent Power/Renewable Electricity Producers - 0.41% (0.27% of Total Investments)                             
Compass Power Generation, LLC, Term Loan   5.39%    3M US L + 3.75%     12/20/2024     330,435    332,361 
                              
Industrial Conglomerates - 1.44% (0.96% of Total Investments)                             
Blout International, Inc., Initial Term Loan   5.61%    1M US L + 4.25%     04/12/2023     750,000    758,205 
CIRCOR International, Inc., Initial Term Loan(d)   N/A     L + 3.50%     12/11/2024     407,489    405,961 
Total Industrial Conglomerates                      1,157,489    1,164,166 
                              
Insurance - 0.62% (0.41% of Total Investments)                             
Hyperion Refinance S.a.r.l, Initial Dollar Term Loan(d)   5.06%    L + 3.50%     12/20/2024     500,000    500,000 
                              
Internet Software & Services - 2.76% (1.84% of Total Investments)                             
Canyon Valor Companies, Inc., Initial Dollar Term Loan   5.94%    3M US L + 4.25%     06/16/2023     748,125    755,921 
EIG Investors Corp., Refinancing Loan   5.46%    3M US L + 4.00%     02/09/2023     480,696    483,402 

 

 

 

   Coupon(a)    

Reference Rate

& Spread

 

 

Maturity

Date

  

Principal

Amount

   Value 
SENIOR SECURED FIRST LIEN TERM LOANS (continued)          
Internet Software & Services (continued)          
Veritas US Inc., Initial Dollar Term B-1 Loan   6.19%    3M US L + 4.50%    01/27/2023   $997,487   $999,153 
Total Internet Software & Services                    2,226,308    2,238,476 
                            
IT Services - 4.82% (3.22% of Total Investments)                           
Avaya, Inc., Initial Term Loan(d)   N/A     L + 4.75%    12/13/2024    972,603    955,991 
Convergeone Holdings Corp., Term Loan   6.45%    3M US L + 4.75%    06/20/2024    747,494    748,114 
Optiv, Inc., Initial Term Loan   4.63%    3M US L + 3.25%    02/01/2024    772,990    721,780 
SCS Holdings I, Inc., Term B Loan   5.82%    1M US L + 4.25%    10/30/2022    731,694    734,438 
West Corporation, Term B Loan   5.35%    1M US L + 4.00%    10/10/2024    746,911    748,464 
Total IT Services                    3,971,691    3,908,787 
                            
Machinery - 0.57% (0.38% of Total Investments)                           
Husky Injection Molding Systems, Ltd., New Term Loan   4.82%    1M US L + 3.25%    06/30/2021    462,120    463,982 
                            
Media - 4.24% (2.83% of Total Investments)                           
Ancestry.com, Inc., Term Loan(d)   N/A     L + 3.25%    10/19/2023    490,566    492,558 
Formula One, Facility B3 Loan   4.57%    1M US L + 3.00%    02/01/2024    700,000    703,353 
Learfield Communications Holdings, Inc.                           
Incremental Term Loan(d)   N/A     L + 3.25%    12/01/2023    218,064    219,699 
Initial Term Loan(d)   N/A     L + 3.25%    12/01/2023    29,968    30,155 
MediArena Acquisition B.V., Dollar Term B Loan   7.09%    3M US L + 5.75%    08/13/2021    498,711    494,722 
Red Ventures, LLC & New Imagitas, Inc., Term Loan   5.57%    1M US L + 4.00%    11/08/2024    997,500    995,754 
William Morris Endeavor Entertainment, LLC & IMG Worldwide Holdings, LLC, Term Loan   4.64%    3M US L + 3.25%    05/06/2021    498,741    500,736 
Total Media                    3,433,549    3,436,977 
                            
Metals & Mining - 0.85% (0.56% of Total Investments)                           
Big River Steel, Closing Date Term Loan   6.69%    3M US L + 5.00%    08/23/2023    498,750    502,491 
Oxbow Carbon, LLC, Tranche B Term Loan(d)   N/A     L + 3.75%    01/04/2023    181,818    182,727 
Total Metals & Mining                    680,568    685,218 
                            
Oil, Gas & Consumable Fuels - 1.18% (0.79% of Total Investments)                           
Citgo Holding, Inc., Term Loan(d)   N/A     L + 8.50%    05/12/2018    949,870    958,182 
                            
Personal Products - 1.30% (0.87% of Total Investments)                           
CNT Holdings III Corp., Term Loan   4.88%    2M US L + 3.25%    01/22/2023    498,741    481,285 
Revlon Consumer Products Corp., Initial Term B Loan   5.07%    1M US L + 3.50%    09/07/2023    773,043    572,291 
Total Personal Products                    1,271,783    1,053,576 
                            
Pharmaceuticals - 2.38% (1.59% of Total Investments)                           
Endo Pharmaceuticals Holdings, Inc., Initial Term Loan   5.88%    1M US L + 4.25%    04/27/2024    997,494    1,002,481 
HLF Financing US, LLC, Term Loan   7.07%    1M US L + 5.50%    02/15/2023    931,494    928,289 
Total Pharmaceuticals                    1,928,987    1,930,770 
                            
Professional Services - 0.92% (0.61% of Total Investments)                           
Tempo Acquisition, LLC, Initial Term Loan   4.57%    1M US L + 3.00%    05/01/2024    748,120    745,001 
                            
Road & Rail - 0.91% (0.61% of Total Investments)                           
YRC Worldwide, Inc., Term B-1 Loan   10.07%    1M US L + 8.50%    07/26/2022    744,009    740,021 
                            
Software - 7.59% (5.07% of Total Investments)                           
Blackboard, Inc., Term B-4 Loan   6.35%    3M US L + 5.00%    06/30/2021    498,737    493,281 

 

 

 

   Coupon(a)    

Reference Rate

& Spread

   

Maturity

Date

  

Principal

Amount

   Value 
SENIOR SECURED FIRST LIEN TERM LOANS (continued)          
Software (continued)        
Cvent, Inc., Term B Loan   5.32%    1M US L + 3.75%    11/29/2024   $221,343   $221,343 
Digicert Holdings, Inc., Term Loan   6.13%    3M US L + 4.75%    10/31/2024    1,000,000    1,012,080 
Finastra Group Holdings Limited, Dollar Term Loan   4.98%    3M US L + 3.50%    06/13/2024    748,125    749,943 
Greeneden U.S. Holdings II, LLC, Initial Dollar Term B-2 Loan   5.44%    3M US L + 3.75%    12/01/2023    750,000    753,750 
Idera, Inc., Initial Term Loan   6.57%    1M US L + 5.00%    06/29/2024    498,771    497,524 
Legalzoom.com, Inc., Initial Term Loan(d)   5.94%    L + 4.50%    11/21/2024    566,288    564,872 
McAfee, LLC, Term Loan(d)   6.07%    L + 4.50%    09/30/2024    859,044    855,668 
Micro Holding Corp. & MH Sub I, LLC, Term Loan   5.34%    3M US L + 3.75%    08/16/2024    498,750    499,872 
Project Leopard Holdings, Inc., Term Loan   7.19%    3M US L + 5.50%    07/07/2023    498,750    501,558 
Total Software                    6,139,808    6,149,891 
                            
Specialty Retail - 3.80% (2.53% of Total Investments)                           
J Crew Group, Inc., Amended Term Loan   4.72%    3M US L + 3.22%    03/05/2021    2,001,019    1,194,608 
Office Depot, Inc., Initial Term Loan(d)   8.40%    L + 7.00%    11/08/2022    686,910    688,628 
Payless, Inc.                           
Tranche A-1 Term Loan(d)   N/A     L + 8.00%    02/10/2022    363,467    359,832 
Tranche A-2 Term Loan(d)   N/A     L + 9.00%    08/10/2022    650,000    613,437 
Petsmart, Inc., Term B-2 Loan   4.57%    1M US L + 3.00%    03/05/2022    274,297    218,667 
Total Specialty Retail                    3,975,692    3,075,172 
                            
Technology Hardware, Storage & Peripherals - 0.61% (0.41% of Total Investments)                           
Oberthur Technologies of America Corp., Facility B1 Loan   5.44%    3M US L + 3.75%    01/10/2024    498,744    492,509 
                            
Textiles, Apparel & Luxury Goods - 1.06% (0.71% of Total Investments)                           
Varsity Brands Holding Co., Inc., Initial Term Loan(d)   N/A     L + 3.50%    12/15/2024    851,351    855,608 
                            
Wireless Telecommunication Services - 1.54% (1.03% of Total Investments)                           
Digicel International Finance, Ltd., Initial Term B Loan   5.31%    1M US L + 3.75%    05/25/2024    498,750    500,620 
Sable International Finance, Ltd. & Coral US Co-Borrower, LLC, Term B-3 Loan   5.07%    1M US L + 3.50%    01/31/2025    750,000    750,353 
Total Wireless Telecommunication Services                    1,248,750    1,250,973 
                            
Total Senior Secured First Lien Loans (Cost $48,996,690)                    50,537,062    48,942,412 
                            
CLO DEBT(c)- 24.64% (16.44% of Total Investments)                           
Apidos, Series 2017-28A(b)         3M US L + 5.50%    01/20/2031    1,000,000    1,000,000 
Babson, Ltd., Series 2013-IA(b)         3M US L + 5.20%    01/20/2028    250,000    247,500 
Carlyle Global Market Strategies, Ltd.                           
Series 2017-2A(b)         3M US L + 5.25%    01/18/2029    1,000,000    1,000,000 
Series 2017-3A(b)         3M US L + 5.50%    10/15/2030    2,500,000    2,500,093 
CIFC Funding, Ltd.                           
Series 2012-2RA(b)         3M US L + 5.45%    01/20/2028    1,000,000    990,705 
Series 2015-1A(b)         3M US L + 6.00%    01/22/2031    500,000    500,000 
Series 2017-2A(b)         3M US L + 5.95%    04/20/2030    500,000    505,623 
Series 2017-5A(b)         3M US L + 6.10%    11/16/2030    1,000,000    999,252 
Dryden, Ltd., Series 2018-53A(b)         3M US L + 5.30%    01/15/2031    1,000,000    1,000,000 
Goldentree Loan Opportunities, Ltd., Series 2017-11A(b)         3M US L + 5.40%    01/18/2031    750,000    750,000 
GoldentTree Loan Management, Ltd., Series 2017-1A(b)         3M US L + 5.60%    04/20/2029    1,000,000    903,371 
Highbridge Loan Management, Ltd.                           
Series 2017-11A(b)         3M US L + 7.85%    05/06/2030    1,000,000    995,684 
Series 2014-3A(b)         3M US L + 6.50%    07/18/2029    1,000,000    1,024,271 

 

 

 

   Coupon(a)    

Reference Rate

& Spread

   

Maturity

Date

  

Principal

Amount

   Value 
CLO DEBT(c) (continued)        
Madison Park Funding, Ltd., Series 2017-17A(b)      3M US L + 7.48 %   07/21/2030   $1,000,000   $973,759 
Marble Point, Ltd., Series 2017-1A(b)        3M US L + 5.60 %   12/18/2030    1,000,000    989,066 
Neuberger Berman, Ltd., Series 2017-14A(b)        3M US L + 6.45 %   01/28/2030    1,000,000    1,015,772 
OHA Credit Partners, Ltd., Series 2017-15A(b)        3M US L + 5.30 %   01/20/2030    500,000    494,917 
OZLM Funding, Ltd., Series 2012-1A(b)        3M US L + 6.67 %   07/23/2029    1,000,000    1,021,223 
Sound Point, Ltd., Series 2017-4A(b)        3M US L + 5.50 %   01/20/2031    500,000    500,000 
Symphony, Ltd., Series 2016-18A(b)        3M US L + 6.35 %   01/23/2028    1,000,000    1,028,610 
THL Credit Wind River, Series 2017-4A(b)        3M US L + 5.80 %   11/20/2030    500,000    499,956 
Voya, Ltd., Series 2013-1A(b)        3M US L + 6.48 %   10/15/2030    1,000,000    1,022,529 
Total CLO(c) Debt (Cost $19,930,851)                        19,962,331 
                            
CLO EQUITY(c)(e)- 46.83% (31.25% of Total Investments)                           
Anchorage Capital, Ltd., Series 2014-3A(b)        Estimated yield of 15.34 %   04/28/2026    2,000,000    1,106,964 
Apidos, Series 2017-28A(b)        Estimated yield of 10.39 %   01/20/2031    3,500,000    3,237,500 
Ares, Ltd., Series 2017-46A(b)(f)          Estimated yield of 12.77 %(f)   01/15/2030    4,050,000    3,888,000 
Carlyle Global Market Strategies, Ltd., Series 2013-1A(b)         Estimated yield of 12.07 %   08/14/2030    3,500,000    2,811,147 
CIFC Funding, Ltd., Series 2017-5A(b)         Estimated yield of 12.32 %   11/16/2030    3,000,000    2,787,081 
Dryden, Ltd., Series 2014-34A(b)         Estimated yield of 07.93 %   10/15/2026    5,000,000    2,706,225 
Goldentree Loan Opportunities, Ltd., Series 2015-11A(b)         Estimated yield of 14.15 %   04/18/2027    2,500,000    1,777,000 
Madison Park Funding, Ltd., Series 2015-18A(b)         Estimated yield of 06.90 %   10/21/2027    4,000,000    3,920,552 
Marble Point, Ltd., Series 2017-2A(b)         Estimated yield of 11.63 %   12/18/2030    3,000,000    2,718,300 
OZLM, Ltd.                           
Series 2017-16A(b)         Estimated yield of 09.03 %   05/16/2030    1,250,000    1,138,435 
Series 2017-19A(b)         Estimated yield of 12.20 %   11/22/2030    3,500,000    3,238,921 
RR 1, LLC, Series 2017-1A(b)         Estimated yield of 11.18 %   07/15/2029    4,500,000    4,014,067 
Taconic Park, Series 2016-1A(b)         Estimated yield of 14.44 %   01/20/2029    4,000,000    3,152,864 
Voya, Ltd., Series 2017-4A(b)         Estimated yield of 10.56 %   10/15/2030    1,500,000    1,442,708 
Total CLO Equity(c)(e) (Cost $38,470,208)                         37,939,764 
                     Shares      
MONEY MARKET MUTUAL FUNDS - 2.34% (1.56% of Total Investments)                           
Invesco Short Term Investments Trust Treasury Portfolio, Institutional Class                           
(1.176% 7-Day Yield)                    1,893,449    1,893,449 
Total Money Market Mutual Funds (Cost $1,893,449)                    1,893,449    1,893,449 
                            
Total Investments - 149.84% (Cost $121,869,537)                         121,395,789 
Liabilities in Excess of Other Assets - (1.87)%                         (1,511,203)
Leverage Facility - (47.97)%                         (38,865,000)
Net Assets - 100.00%                        $81,019,586 

 

*Amounts above are shown as a percentage of net assets as of December 31, 2017.

 

(a)The rate shown is the coupon as of the end of the reporting period.
(b)Security exempt from registration under Rule 144A of the Securities Act of 1933. Total market value of Rule 144A securities amounts to $60,206,076, which represents approximately 74.31% of net assets as of December 31, 2017. Such securities may normally be sold to qualified institutional buyers in transactions exempt from registration.
(c)Variable rate investment. Interest rates reset periodically. Interest rate shown reflects the rate in effect at December 31, 2017. For securities based on a published reference rate and spread, the reference rate and spread are indicated in the description above. Certain variable rate securities are not based on a published reference rate and spread but are determined by the issuer or agent and are based on current market conditions. These securities do not indicate a reference rate and spread in their description above.
(d)All or a portion of this position has not settled as of the period end. The interest rate shown represents the stated spread over the London Interbank Offered Rate ("LIBOR" or "L") or the applicable LIBOR floor; the Fund will not accrue interest until the settlement date, at which point LIBOR will be established when the loan settles.
(e)CLO subordinated notes and income notes are considered CLO equity positions. CLO equity positions are entitled to recurring distributions which are generally equal to the remaining cash flow of payments made by underlying securities less contractual payments to debt holders and fund expenses. The effective yield is estimated based upon the current projection of the amount and timing of these recurring distributions in addition to the estimated amount of terminal principal payment. Effective yields for the Company's CLO equity positions are updated generally once a quarter or on a transaction such as a partial sale, add-on purchase, refinancing or reset. The estimated yield and investment cost may ultimately not be realized.
(f)This security is unsettled and does not accrue interest until the settle date.

 

 

 

XAI Octagon Floating Rate & Alternative Income Term Trust (XFLT)

Notes to Quarterly Schedule of Investments

December 31, 2017 (Unaudited)

 

1. ORGANIZATION

 

XAI Octagon Floating Rate & Alternative Income Term Trust (the "Trust") is a newly-organized, diversified, closed-end management investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"). The Trust commenced operations on September 27, 2017.

 

XA Investments LLC serves as the investment adviser to the Trust and is responsible for overseeing the Trust's overall investment strategy and its implementation. Octagon Credit Investors, LLC, serves as the investment sub-adviser of the Trust and is responsible for investing the Trust's assets.

 

The investment objective of the Trust is to seek attractive total return with an emphasis on income generation across multiple stages of the credit cycle. There can be no assurance that the Trust will achieve its investment objective, and an investor could lose some or all of its investment.

 

The Trust seeks to achieve its investment objective by investing in a dynamically managed portfolio of opportunities primarily within the private credit markets. Under normal market conditions, the Trust will invest at least 80% of its Managed Assets (as defined in the Trust's Prospectus dated September 27, 2017) in floating rate credit instruments and other structured credit investments.

 

2. SIGNIFICANT ACCOUNTING POLICIES

 

Use of Estimates: The preparation of the schedule of investments in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") requires management to make estimates and assumptions that affect the reported amounts and disclosures in the schedule of investments during the period reported. Actual amounts may differ from those estimates, and the valuations reflected in the schedule of investments may differ from the value the Trust ultimately realizes upon sale of the holdings. The Trust is considered an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies in the Financial Accounting Standards Board Accounting Standards Codification Topic 946. The schedule of investments has been prepared as of the close of the New York Stock Exchange ("NYSE") on December 29, 2017.

 

Portfolio Valuation: The net asset value per common share of the Trust is determined daily, on each day that there is a regular trading session on the NYSE as of the close of regular trading. The Trust's net asset value per common share is calculated by dividing the value of the Trust's total assets, less its liabilities, by the number of shares outstanding and rounding the result to the nearest full cent.

 

Securities Transactions and Investment Income: Investment security transactions are accounted for on a trade date basis. Dividend income is recorded on the ex-dividend date. Realized gains and losses from securities transactions and unrealized appreciation and depreciation of securities are determined using the identified cost basis method for financial reporting purposes.

 

 

 

Fair Value Measurements: The Trust discloses the classification of its fair value measurements following a three-tier hierarchy based on the inputs used to measure fair value. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability that are developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity's own assumptions about the assumptions market participants would use in pricing the asset or liability that are developed based on the best information available.

 

Various inputs are used in determining the value of the Trust's investments as of the end of the reporting period. When inputs used fall into different levels of the fair value hierarchy, the level in the hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The designated input levels are not necessarily an indication of the risk or liquidity associated with these investments.

 

These inputs are categorized in the following hierarchy under applicable financial accounting standards:

 

Level 1 – Unadjusted quoted prices in active markets for identical investments, unrestricted assets or liabilities that the Trust has the ability to access at the measurement date;
Level 2 – Quoted prices which are not active, quoted prices for similar assets or liabilities in active markets or inputs other than quoted prices that are observable (either directly or indirectly) for substantially the full term of the asset or liability; and
Level 3 – Significant unobservable prices or inputs (including the Trust's own assumptions in determining the fair value of investments) where there is little or no market activity for the asset or liability at the measurement date.

 

The following is a summary of the inputs used to value the Trust's investments as of December 31, 2017:

 

Investments in Securities at Value 

Level 1 -

Quoted

Prices

  

Level 2 - Significant Observable

Inputs

   Level 3 - Significant Unobservable Inputs   Total 
Corporate Bonds  $–   $2,718,356    –   $2,718,356 
Secured Second Lien Term Loans   –    9,939,477    –    9,939,477 
Senior Secured First Lien Term Loans   –    48,942,412    –    48,942,412 
CLO Debt   –    –    19,962,331    19,962,331 
CLO Equity   –    –    37,939,764    37,939,764 
Short Term Investments   1,893,449    –    –    1,893,449 
Total  $1,893,449   $61,600,245   $57,902,095   $121,395,789 

 

The Trust recognizes transfers between the levels as of the end of the period. For the period ended December 31, 2017, the Trust did not have any transfers between Level 1 and Level 2 securities.

 

 

 

The changes of the fair value of investments for which the Trust has used Level 3 inputs to determine the fair value are as follows:

 

   CLO Debt   CLO Equity   Total 
Beginning balance at September 30, 2017  $-   $-   $- 
Purchases of investments   20,426,125    38,444,650    58,870,775 
Proceeds from sales or maturity of investments   (500,000)   -    (500,000)
Net accretion of discounts on securities   749    25,558    26,307 
Net realized gains (losses)   3,977    -    3,977 
Net change in unrealized appreciation (depreciation)   31,480    (530,444)   (498,964)
Balance as of December 31, 2017  $19,962,331   $37,939,764   $57,902,095 
                
Change in unrealized appreciation (depreciation) on investments still held as of December 31, 2017  $31,480   $(530,444)  $(498,964)

 

The following table summarizes the quantitative inputs and assumptions used for investments categorized in Level 3 of the fair value hierarchy as of the end of the reporting period. In addition to the techniques and inputs noted in the table below, according to the Trust's valuation policy, the Adviser may use other valuation techniques and methodologies when determining the Trust's fair value measurements as provided for in the valuation policy and approved by the Board. The table below is not intended to be all-inclusive, but rather provides information on the significant Level 3 inputs as they relate to the fair value measurements as of the end of the reporting period.

 

  Quantitative Information about Level 3 Value Measurements
Assets

Value as of

December 31, 2017

 Valuation Methodologies Unobservable Input Range/Weighted Average(2)
CLO Debt            19,962,331 Market Quotes NBIB(1) 90.34 - 102.90 / 99.81
CLO Equity            37,939,764 Market Quotes NBIB(1) 54.12 – 98.01 / 83.75
Total Level 3 assets            57,902,095      

 

(1)The Trust generally uses non-binding indicative bid ("NBIB") prices provided by an independent pricing service or broker on or near the valuation date as the primary basis for the fair value determination for CLO debt and equity investments, which may be adjusted for pending equity distributions as of the valuation date. These bid prices are non-binding, and may not be determinative of fair value.

 

(2)Weighted averages are calculated based on the value of investments on December 31, 2017.

 

Significant increases or decreases in any of the unobservable inputs in isolation my result in a significantly lower or higher fair value measurement.

 

 

 

Loan Participations and Assignments: The Trust may invest in loans arranged through private negotiation between one or more financial institutions. The Trust's investment in any such loan may be in the form of a participation in or an assignment of the loan. In connection with purchasing participations, the Trust generally will have no right to enforce compliance by the borrower with the terms of the loan agreement relating to the loan, nor any rights of set-off against the borrower and the Trust may not benefit directly from any collateral supporting the loan in which they have purchased the participation.

 

While some loans are collateralized and senior to an issuer's other debt securities, other loans may be unsecured and/or subordinated to other securities. Some loans may be considered illiquid, and are generally less liquid than exchange-traded debt instruments.

 

 

 

Item 2. Controls and Procedures.

 

(a)The registrant’s principal executive officer and principal financial officer have evaluated the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) as of a date within 90 days of this filing and have concluded that the registrant's disclosure controls and procedures were effective, as of that date.

 

(b)There was no change in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the registrant's last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.

 

Item 3. Exhibits.

 

Separate certifications for the registrant's principal executive officer and principal financial officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act of 1940, are attached as Ex-99.CERT.

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

XAI OCTAGON FLOATING RATE & ALTERNATIVE INCOME TERM TRUST

  

By: (Signature and Title) /s/ Theodore J. Brombach  
    Theodore J. Brombach  
Date: February 28, 2018 President and Chief Executive Officer  
    (principal executive officer)  

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

  

By: (Signature and Title) /s/ Theodore J. Brombach  
    Theodore J. Brombach  
Date: February 28, 2018 President and Chief Executive Officer  
    (principal executive officer)  
       
By: (Signature and Title) /s/ John “Yogi” Spence  
    John “Yogi” Spence  
Date: February 28, 2018 Treasurer and Chief Financial Officer  
    (principal financial officer)