N-Q 1 fp0045239_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: April 1, 2019 – June 30, 2019

 

 

 

Item 1. Schedule of Investments.

 

XAI Octagon Floating Rate & Alternative Income Term Trust

 

Schedule of Investments

June 30, 2019 (Unaudited)      

 

      Reference Rate  Maturity  Principal   
   Coupon(a)  & Spread  Date  Amount  Value
CORPORATE BONDS - 0.84%* (0.54% of Total Investments)                 
Energy Equipment & Services - 0.59% (0.38% of Total Investments)              
McDermott Technology Americas, Inc. / McDermott Technology US, Inc., Senior Unsecured(b)   10.63%   N/A   05/01/2024   $500,000   $468,275 
                        
Wireless Telecommunication Services - 0.25% (0.16% of Total Investments)              
Digicel Group One, Ltd., Senior Secured First Lien(b)   8.25%   N/A   12/30/2022    257,000    141,350 
Digicel Group Two, Ltd., Senior Unsecured(b)   8.25%   N/A   09/30/2022    243,000    53,460 
Total Wireless Telecommunication Services                500,000    194,810 
                        
Total Corporate Bonds (Cost $923,541)               $1,000,000   $663,085 
                        
SECURED SECOND LIEN LOANS(c) - 11.96% (7.68% of Total Investments)               
Commercial Services & Supplies - 0.98% (0.63% of Total Investments)              
AVSC Holding Corp., Initial   9.83%   3M US L + 7.25%   09/01/2025    805,556    767,960 
                        
Communications Equipment - 0.42% (0.27% of Total Investments)              
Global Tel Link Corp.   10.65%   1M US L + 8.25%   11/29/2026    347,222    334,201 
                        
Construction & Engineering - 0.96% (0.62% of Total Investments)              
Brookfield WEC Holdings, Inc., Initial   9.15%   1M US L + 6.75%   08/03/2026    748,810    757,003 
                        
Health Care Providers & Services - 1.26% (0.81% of Total Investments)               
Albany Molecular Research, Inc., Initial   9.40%   1M US L + 7.00%   08/30/2025    126,466    126,150 
CVS Holdings I LP, Initial   9.16%   1M US L + 6.75%   02/06/2026    102,612    103,253 
Gentiva Health Services, Inc., Initial   11.50%   3M US L + 7.00%   07/02/2026    752,980    760,510 
Total Health Care Providers & Services                982,058    989,913 
                        
Hotels, Restaurants & Leisure - 0.47% (0.30% of Total Investments)               
Affinity Gaming, Initial   10.65%   1M US L + 8.25%   01/31/2025    392,857    373,705 
                        
Insurance - 2.19% (1.40% of Total Investments)                  
Asurion LLC, Replacement B-2   8.90%   1M US L + 6.50%   08/04/2025    1,700,000    1,722,321 
                        
Real Estate Investment Trusts (REITs) - 1.03% (0.66% of Total Investments)              
Capital Automotive LP, Initial Tranche B   8.41%   1M US L + 6.00%   03/24/2025    807,643    808,152 
                        
Software - 3.81% (2.45% of Total Investments)                  
EagleView Technology Corp.   9.90%   1M US L + 7.50%   08/14/2026    442,623    424,918 
McAfee LLC, Initial   10.90%   1M US L + 8.50%   09/29/2025    875,000    883,750 
MH Sub I LLC, Amendment No. 2 Initial   9.90%   1M US L + 7.50%   09/15/2025    750,000    750,000 
Misys, Ltd., Dollar Term Loan   9.65%   1M US L + 7.25%   06/13/2025    950,000    940,700 
Total Software                3,017,623    2,999,368 
                        
Transportation Infrastructure - 0.84% (0.54% of Total Investments)            
Drive Chassis Holdco LLC, B   10.83%   3M US L + 8.25%   04/10/2026    687,838    659,465 
                        
Total Secured Second Lien Loans (Cost $9,541,871)               $9,489,607   $9,412,088 

 

 

 

      Reference Rate  Maturity  Principal   
   Coupon(a)  & Spread  Date  Amount  Value
SENIOR SECURED FIRST LIEN LOANS(c) - 61.63% (39.57% of Total Investments)           
Aerospace & Defense - 1.26% (0.81% of Total Investments)                 
Constellis Holdings LLC, B   7.58%   3M US L + 5.00%   04/21/2024   $758,642   $568,982 
Maxar Technologies, Inc., Initial B   5.16%   1M US L + 2.75%   10/04/2024    467,286    421,141 
Total Aerospace & Defense                1,225,928    990,123 
                        
Airlines - 0.68% (0.44% of Total Investments)                 
Allegiant Travel Co., Class B   7.07%   3M US L + 4.50%   02/05/2024    391,776    391,533 
LifeMiles Finance, LLC / LifeMiles, Ltd., Initial Term Loan   7.90%   1M US L + 5.50%   08/18/2022    143,484    143,125 
Total Airlines                535,260    534,658 
                        
Automobiles - 0.49% (0.32% of Total Investments)                 
Truck Hero, Inc., Initial   6.15%   1M US L + 3.75%   04/22/2024    413,214    387,648 
                        
Building Products - 1.09% (0.70% of Total Investments)                 
SRS Distribution, Inc., Initial   5.65%   1M US L + 3.25%   05/23/2025    892,134    854,406 
                        
Chemicals - 0.59% (0.38% of Total Investments)                  
Innovative Water Care Global Corp., Initial   7.33%   3M US L + 5.00%   02/27/2026    492,223    465,766 
                        
Commercial Services & Supplies - 3.43% (2.20% of Total Investments)               
Allied Universal Holdco LLC, B(d)(e)   N/A   L + 4.25%   06/26/2026    567,645    564,806 
Belfor Holdings, Inc., Initial   6.40%   1M US L + 4.00%   04/06/2026    653,121    656,387 
Dun & Bradstreet Corp., Initial Borrowing   7.40%   1M US L + 5.00%   02/06/2026    961,744    961,446 
Harland Clarke Holdings Corp., Initial   7.08%   3M US L + 4.75%   11/03/2023    600,573    517,495 
Total Commercial Services & Supplies                2,783,083    2,700,134 
                        
Communications Equipment - 1.83% (1.18% of Total Investments)              
Global Tel Link Corp.   6.65%   1M US L + 4.25%   11/29/2025    461,760    440,787 
Intelsat Jackson Holdings S.A., Term B-4 Loan   6.90%   1M US L + 4.50%   01/02/2024    1,000,000    1,001,960 
Total Communications Equipment                1,461,760    1,442,747 
                        
Construction & Engineering - 0.69% (0.44% of Total Investments)               
Brookfield WEC Holdings, Inc., Initial   5.90%   1M US L + 3.50%   08/01/2025    540,271    538,920 
                        
Construction Materials - 0.30% (0.19% of Total Investments)               
Anvil International LLC, Initial   7.33%   3M US L + 5.00%   05/28/2026    238,532    233,165 
                        
Containers & Packaging - 0.98% (0.63% of Total Investments)                   
Berry Global, Inc., U(d)   N/A   L + 2.50%   05/15/2026    775,893    770,159 
                        
Distributors - 1.60% (1.03% of Total Investments)                   
BCPE Empire Holdings, Inc., Initial(d)(e)   N/A   L + 4.00%   06/11/2026    428,850    426,705 
United Natural Foods, Inc., Initial   6.65%   1M US L + 4.25%   10/22/2025    995,000    831,323 
Total Distributors                1,423,850    1,258,028 
                        
Diversified Consumer Services - 2.91% (1.87% of Total Investments)               
Cast & Crew Payroll LLC, Initial(d)   N/A   L + 4.00%   02/09/2026    500,000    501,625 
Staples, Inc., 2019 Refinancing New B-1   7.60%   3M US L + 5.00%   04/16/2026    997,729    956,413 
Travelport Finance S.a.r.l., Initial   7.54%   3M US L + 5.00%   05/29/2026    886,897    832,433 
Total Diversified Consumer Services                2,384,626    2,290,471 

 

 

 

      Reference Rate  Maturity  Principal   
   Coupon(a)  & Spread  Date  Amount  Value
SENIOR SECURED FIRST LIEN LOANS(c) (continued)               
Diversified Financial Services - 1.09% (0.70% of Total Investments)               
Financial & Risk US Holdings, Inc., Initial Dollar   6.15%   1M US L + 3.75%   10/01/2025   $882,345   $855,045 
                        
Diversified Telecommunication Services - 2.78% (1.78% of Total Investments)               
Altice France S.A., USD TLB-13 Incremental   6.39%   1M US L + 4.00%   08/14/2026    814,091    795,774 
Sorenson Communications LLC, Initial   8.83%   3M US L + 6.50%   04/29/2024    229,770    229,961 
Syniverse Holdings, Inc., Tranche C   7.40%   1M US L + 5.00%   03/09/2023    772,347    708,628 
WideOpenWest Finance LLC, Eighth Amendment B   5.65%   1M US L + 3.25%   08/18/2023    462,947    451,605 
Total Diversified Telecommunication Services                2,279,155    2,185,968 
                        
Electronic Equipment, Instruments & Components - 1.81% (1.16% of Total Investments)            
ConvergeOne Holdings, Corp., Initial   7.40%   1M US L + 5.00%   01/04/2026    435,403    413,089 
Mavenir Systems, Inc., Initial   8.42%   1M US L + 6.00%   05/08/2025    741,880    737,243 
Triton Solar US Acquisition Co., Initial   8.33%   3M US L + 6.00%   10/29/2024    291,536    271,493 
Total Electronic Equipment, Instruments & Components                1,468,819    1,421,825 
                        
Energy Equipment & Services - 2.31% (1.48% of Total Investments)              
KCA Deutag US Finance LLC, 2018 Extended   9.08%   3M US L + 6.75%   02/28/2023    986,325    737,979 
McDermott International, Inc.   7.40%   1M US L + 5.00%   05/12/2025    652,044    640,737 
Waterbridge Midstream Operating LLC, Initial(d)   N/A   L + 5.75%   06/22/2026    452,586    441,271 
Total Energy Equipment & Services                2,090,955    1,819,987 
                        
Food Products - 2.15% (1.38% of Total Investments)            
8th Avenue Food & Provisions, Inc.(d)   N/A   L + 3.75%   10/01/2025    500,000    499,530 
Give and Go Prepared Foods Corp., 2017   6.65%   1M US L + 4.25%   07/29/2023    258,116    236,017 
H-Food Holdings LLC, 2018 Incremental B-2   6.40%   1M US L + 4.00%   05/23/2025    497,500    491,371 
Sage Borrowco LLC, B   7.13%   3M US L + 4.75%   06/20/2026    465,560    466,724 
Total Food Products                1,721,176    1,693,642 
                        
Health Care Equipment & Supplies - 1.67% (1.07% of Total Investments)            
Curium BidCo S.a.r.l., B(d)   N/A   L + 4.00%   06/26/2026    379,315    377,418 
Femur Buyer, Inc., Initial   6.98%   3M US L + 4.25%   03/05/2026    937,321    939,664 
Total Health Care Equipment & Supplies                1,316,636    1,317,082 
                        
Health Care Providers & Services - 7.94% (5.10% of Total Investments)            
Air Medical Group Holdings, Inc., 2018 New   6.65%   1M US L + 4.25%   03/14/2025    498,111    467,228 
BW NHHC Holdco, Inc., Initial   7.40%   1M US L + 5.00%   05/15/2025    775,581    715,473 
Envision Healthcare Corp., Initial   6.15%   1M US L + 3.75%   10/10/2025    497,776    438,665 
Gentiva Health Services, Inc., Closing Date Initial   6.19%   1M US L + 3.75%   07/02/2025    837,091    837,091 
Phoenix Guarantor, Inc., Initial   6.92%   1M US L + 4.50%   03/05/2026    666,055    662,558 
Radiology Partners, Inc., B   7.36%   3M US L + 4.75%   07/09/2025    976,595    973,549 
Regionalcare Hospital Partners Holdings, Inc., B   6.90%   1M US L + 4.50%   11/16/2025    1,023,895    1,017,127 
US Anesthesia Partners, Inc., Initial(d)   N/A   L + 3.00%   06/23/2024    52,493    51,312 
Verscend Holding Corp., B   6.90%   1M US L + 4.50%   08/27/2025    1,087,971    1,087,296 
Total Health Care Providers & Services                6,415,568    6,250,299 
                        
Health Care Technology - 1.26% (0.81% of Total Investments)               
athenahealth, Inc., B   7.05%   3M US L + 4.50%   02/11/2026    995,092    991,778 
                        
Hotels, Restaurants & Leisure - 2.93% (1.88% of Total Investments)               
Bulldog Purchaser, Inc., Initial(e)   6.22%   1M US L + 3.75%   09/05/2025    84,729    83,564 
Casablanca US Holdings, Inc., Amendment No. 2 Initial   6.58%   3M US L + 4.00%   03/29/2024    835,644    810,574 
NPC International, Inc., Initial   5.94%   1M US L + 3.50%   04/19/2024    130,187    104,476 

 

 

 

      Reference Rate  Maturity  Principal   
   Coupon(a)  & Spread  Date  Amount  Value
SENIOR SECURED FIRST LIEN LOANS(c) (continued)            
Hotels, Restaurants & Leisure (continued)               
PCI Gaming Authority, B Facility   5.40%   1M US L + 3.00%   05/29/2026   $241,453   $241,704 
Red Lobster Management LLC, Initial   7.65%   1M US L + 5.25%   07/28/2021    743,503    732,819 
United PF Holdings LLC(e)   6.90%   1M US L + 4.50%   06/10/2026    333,628    333,211 
Total Hotels, Restaurants & Leisure                2,369,144    2,306,348 
                        
Household Products - 0.89% (0.57% of Total Investments)               
American Greetings Corp., Initial   6.82%   1M US L + 4.50%   04/06/2024    702,623    700,431 
                        
Industrial Conglomerates - 0.71% (0.45% of Total Investments)               
Sundyne US Purchaser, Inc., Initial   6.40%   1M US L + 4.00%   05/15/2026    265,306    265,306 
WireCo WorldGroup, Inc., Initial   7.40%   1M US L + 5.00%   09/29/2023    292,411    291,900 
Total Industrial Conglomerates                557,717    557,206 
                        
Internet Software & Services - 3.00% (1.93% of Total Investments)               
EIG Investors Corp., 2018 Refinancing   6.27%   3M US L + 3.75%   02/09/2023    435,557    432,020 
Ellie Mae, Inc.   6.53%   3M US L + 4.00%   04/17/2026    772,088    768,868 
Imperva, Inc.   6.41%   1M US L + 4.00%   01/12/2026    500,000    496,565 
Veritas US, Inc., New Dollar B   6.83%   1M US L + 4.50%   01/27/2023    733,050    665,705 
Total Internet Software & Services                2,440,695    2,363,158 
                        
IT Services - 2.00% (1.29% of Total Investments)               
Avaya, Inc., Tranche B   6.65%   1M US L + 4.25%   12/15/2024    239,170    228,408 
Rackspace Hosting, Inc., B   5.58%   3M US L + 3.00%   11/03/2023    500,000    460,750 
ThoughtWorks, Inc., Replacement   6.40%   1M US L + 4.00%   10/11/2024    211,801    211,405 
West Corp., Initial B   6.52%   3M US L + 4.00%   10/10/2024    726,144    676,526 
Total IT Services                1,677,115    1,577,089 
                        
Media - 2.15% (1.38% of Total Investments)               
MediArena Acquisition B.V., Dollar B   8.35%   3M US L + 5.75%   08/13/2021    740,949    734,466 
Nexstar Broadcasting, Inc., B(d)   N/A   L + 2.75%   06/19/2026    276,941    275,902 
Quad/Graphics, Inc., B   7.41%   1M US L + 5.00%   02/02/2026    308,365    306,823 
Red Ventures, LLC, TLB   N/A   L + 3.00%   11/08/2024    374,862    373,509 
Total Media                1,701,117    1,690,700 
                        
Oil, Gas & Consumable Fuels - 0.41% (0.27% of Total Investments)               
Permian Production Partners LLC, Initial Advances   8.41%   1M US L + 6.00%   05/20/2024    433,088    324,816 
                        
Pharmaceuticals - 0.15% (0.09% of Total Investments)               
Mallinckrodt International Finance S.A., 2018 Incremental   5.53%   3M US L + 3.00%   02/24/2025    128,295    115,265 
                        
Professional Services - 0.42% (0.27% of Total Investments)               
National Intergovernmental Purchasing Alliance Company AKA Omnia Partners, Initial Term Loans   6.35%   3M US L + 3.75%   05/23/2025    338,208    332,925 
                        
Real Estate Management & Development - 0.58% (0.37% of Total Investments)            
Forest City Enterprises LP, Initial   6.40%   1M US L + 4.00%   12/08/2025    457,237    458,381 
                        
Road & Rail - 0.62% (0.40% of Total Investments)            
YRC Worldwide, Inc., Term B-1 Loan   10.90%   1M US L + 8.50%   07/26/2022    499,252    490,281 

 

 

 

      Reference Rate  Maturity  Principal   
   Coupon(a)  & Spread  Date  Amount  Value
SENIOR SECURED FIRST LIEN LOANS(c) (continued)               
Software - 7.31% (4.69% of Total Investments)               
Carbonite, Inc., Initial(d)   N/A   L + 3.75%   03/26/2026   $500,000   $500,415 
Datto, Inc., Cov-Lite TLB   6.58%   3M US L + 4.25%   04/02/2026    143,236    143,594 
DiscoverOrg LLC, Initial   6.90%   1M US L + 4.50%   02/02/2026    738,060    734,370 
Idera, Inc., Initial   6.91%   1M US L + 4.50%   06/28/2024    54,545    54,386 
LegalZoom.com, Inc., 2018   6.90%   1M US L + 4.50%   11/21/2024    559,171    559,523 
McAfee LLC, B USD   6.15%   1M US L + 3.75%   09/30/2024    836,713    835,014 
Perforce Software, Inc., B(d)   N/A   L + 4.50%   06/12/2026    533,683    532,349 
Project Alpha Intermediate Holding, Inc., 2019 Incremental   6.78%   3M US L + 4.25%   04/26/2024    374,365    371,557 
Project Leopard Holdings, Inc., 2018 Repricing   6.70%   6M US L + 4.50%   07/07/2023    491,269    489,633 
TIBCO Software, Inc.(d)   N/A   L + 4.00%   06/12/2026    702,097    702,975 
Upland Software, Inc.(d)   N/A   L + 4.00%   06/26/2026    825,846    824,814 
Total Software                5,758,985    5,748,630 
                        
Specialty Retail - 1.42% (0.91% of Total Investments)               
Bass Pro Group LLC, Initial   7.40%   1M US L + 5.00%   09/25/2024    760,360    725,033 
Payless, Inc.                       
Tranche A-1   14.50%   1M US L + 9.00%   02/10/2022    359,832    179,916 
Tranche A-2   15.50%   3M US L + 10.00%   08/10/2022    643,500    209,138 
Total Specialty Retail                1,763,692    1,114,087 
                        
Textiles, Apparel & Luxury Goods - 1.52% (0.98% of Total Investments)            
Champ Acquisition Corp., Initial   7.83%   3M US L + 5.50%   12/19/2025    548,014    541,164 
Elevate Textiles, Inc., Initial   7.58%   1M US L + 5.00%   05/01/2024    712,796    655,772 
Total Textiles, Apparel & Luxury Goods                1,260,810    1,196,936 
                        
Wireless Telecommunication Services - 0.66% (0.42% of Total Investments)            
Digicel International Finance, Ltd., Initial B   5.78%   3M US L + 3.25%   05/27/2024    597,734    517,040 
                        
Total Senior Secured First Lien Loans (Cost $50,574,437)               $51,022,232   $48,495,144 
                        
CLO DEBT(c)(f)- 22.46% (14.42% of Total Investments)               
Anchorage Capital CLO 2018-10, Ltd., Series 2018-10A(b)   8.35%   3M US L + 5.75%   10/15/2031    500,000    471,649 
Apidos CLO XXVIII, Series 2017-28A(b)   8.09%   3M US L + 5.50%   01/20/2031    1,000,000    939,314 
Atrium XIV LLC, Series 2018-14A(b)   8.25%   3M US L + 5.65%   08/23/2030    500,000    473,475 
CIFC Funding 2015-I, Ltd., Series 2015-1A(b)   8.59%   3M US L + 6.00%   01/22/2031    500,000    484,750 
CIFC Funding 2017-II, Ltd., Series 2017-2A(b)   8.54%   3M US L + 5.95%   04/20/2030    500,000    485,248 
CIFC Funding 2017-V, Ltd., Series 2017-5A(b)   8.69%   3M US L + 6.10%   11/16/2030    1,000,000    970,789 
Dryden 64 CLO, Ltd., Series 2018-64A(b)   8.20%   3M US L + 5.60%   04/18/2031    500,000    468,343 
GoldenTree Loan Management US CLO 1, Ltd., Series 2017-1A(b)   8.19%   3M US L + 5.60%   04/20/2029    1,000,000    819,256 
GoldenTree Loan Opportunities XI, Ltd., Series 2015-11A(b)   8.00%   3M US L + 5.40%   01/18/2031    750,000    689,859 
Halcyon Loan Advisors Funding 2018-2, Ltd., Series 2018-2A(b)   9.75%   3M US L + 6.90%   01/22/2031    500,000    507,758 
HPS Loan Management 11-2017, Ltd., Series 2017-11A(b)   10.42%   3M US L + 7.85%   05/06/2030    1,000,000    920,146 
Madison Park Funding XVII, Ltd., Series 2015-17A(b)   10.07%   3M US L + 7.48%   07/21/2030    1,000,000    858,568 
Marble Point CLO XI, Ltd., Series 2017-2A E(b)   8.20%   3M US L + 5.60%   12/18/2030    1,000,000    899,767 
Neuberger Berman CLO XIV, Ltd., Series 2013-14A(b)   9.03%   3M US L + 6.45%   01/28/2030    1,000,000    957,203 
OZLM Funding, Ltd., Series 2012-1A(b)   9.26%   3M US L + 6.67%   07/23/2029    1,000,000    993,952 
OZLM XXII, Ltd., Series 2018-22A(b)   7.89%   3M US L + 5.30%   01/17/2031    500,000    455,262 
Sound Point CLO II, Ltd., Series 2013-1A(b)   8.09%   3M US L + 5.50%   01/26/2031    250,000    235,846 
Sound Point CLO XVIII, Ltd., Series 2017-4A(b)   8.09%   3M US L + 5.50%   01/20/2031    500,000    470,642 

 

 

 

      Reference Rate  Maturity  Principal   
   Coupon(a)  & Spread  Date  Amount  Value
CLO DEBT(c)(f) (continued)                       
Symphony CLO XVIII, Ltd., Series 2016-18A(b)   8.94%   3M US L + 6.35%   01/23/2028   $1,500,000   $1,454,754 
Symphony CLO XXI, Ltd., Series 2019-21A(b)   9.11%   3M US L + 6.75%   07/15/2032    1,000,000    1,000,000 
THL Credit Wind River 2017-4 CLO, Ltd., Series 2017-4A(b)   8.32%   3M US L + 5.80%   11/20/2030    500,000    478,863 
THL Credit Wind River 2019-1 CLO, Ltd., Series 2019-1A(b)   9.31%   3M US L + 6.72%   04/20/2031    750,000    744,290 
Voya CLO 2013-1, Ltd., Series 2013-1A(b)   9.08%   3M US L + 6.48%   10/15/2030    1,000,000    954,620 
Voya CLO 2013-2, Ltd., Series 2013-2A(b)   8.18%   3M US L + 5.60%   04/25/2031    1,000,000    937,266 
Total CLO Debt (Cost $18,615,704)               $18,750,000   $17,671,620 
                        
CLO EQUITY(f)(g)- 51.69% (33.18% of Total Investments)               
ALM V, Ltd., Series 2012-5A(b)   N/A   Estimated yield of 14.58%   10/18/2027    2,000,000    848,114 
Anchorage Capital CLO 1-R, Ltd., Series 2018-1RA(b)   N/A   Estimated yield of 32.37%   04/13/2031    2,400,000    2,096,976 
Anchorage Capital CLO 3-R, Ltd., Series 2014-3RA(b)   N/A   Estimated yield of 15.53%   01/28/2031    1,400,000    1,168,245 
Anchorage Capital CLO 4-R, Ltd., Series 2018-4RA(b)   N/A   Estimated yield of 15.88%   01/28/2031    3,000,000    2,565,429 
Apidos CLO XXVII, Series 2017-27A(b)   N/A   Estimated yield of 15.97%   07/17/2030    1,300,000    888,515 
Apidos CLO XXVIII, Series 2017-28A(b)   N/A   Estimated yield of 10.64%   01/20/2031    3,500,000    2,672,113 
Carlyle Global Market Strategies CLO 2013-1, Ltd., Series 2013-1A(b)   N/A   Estimated yield of 15.85%   08/14/2030    3,500,000    2,049,796 
Carlyle Global Market Strategies CLO 2016-1, Ltd., Series 2016-1A(b)   N/A   Estimated yield of 13.99%   04/20/2027    598,000    507,536 
Carlyle US CLO 2018-2, Ltd., Series 2018-2A(b)   N/A   Estimated yield of 13.50%   10/15/2031    933,000    763,179 
Catamaran CLO 2015-1, Ltd., Series 2015-1A(b)   N/A   Estimated yield of 31.77%   04/22/2027    750,000    335,175 
CIFC Funding 2017-III, Ltd., Series 2017-3A(b)   N/A   Estimated yield of 33.52%   07/30/2030    1,400,000    1,155,336 
CIFC Funding 2017-V, Ltd., Series 2017-5A(b)   N/A   Estimated yield of 13.32%   11/16/2030    3,000,000    2,538,732 
CIFC Funding 2018-I, Ltd., Series 2018-1A(b)   N/A   Estimated yield of 15.42%   04/18/2031    3,250,000    3,025,776 
CIFC Funding 2019-III, Ltd., Series 2019-3A(b)   N/A   Estimated yield of 15.53%   07/16/2032    750,000    661,081 
Dryden 34 Senior Loan Fund, Series 2014-34A(b)   N/A   Estimated yield of 0.00%   10/15/2026    5,000,000    65,750 
Madison Park Funding XVIII, Ltd., Series 2015-18A(b)   N/A   Estimated yield of 6.84%   10/21/2027    4,000,000    3,052,164 
Marble Point CLO XI, Ltd., Series 2017-2A INC(b)   N/A   Estimated yield of 14.69%   12/18/2030    3,000,000    2,172,738 
Oak Hill Credit Partners X-R, Ltd., Series 2014-10RA(b)   N/A   Estimated yield of 17.14%   12/20/2030    4,800,000    2,188,099 
OHA Credit Partners XI, Ltd., Series 2015-11A(b)   N/A   Estimated yield of 17.21%   01/20/2032    2,750,000    2,266,492 
Sound Point CLO III, Ltd., Series 2017-3A(b)   N/A   Estimated yield of 18.23%   10/20/2030    1,500,000    1,384,047 
Sound Point CLO III-R, Ltd., Series 2013-2RA(b)   N/A   Estimated yield of 18.96%   04/15/2029    1,000,000    416,510 
Sound Point CLO VI-R, Ltd., Series 2014-2RA(b)   N/A   Estimated yield of 17.70%   10/20/2031    2,000,000    863,064 
Thacher Park CLO, Ltd., Series 2014-1A(b)   N/A   Estimated yield of 1.50%   10/20/2026    6,000,000    2,050,746 
THL Credit Wind River 2016-1 CLO, Ltd., Series 2016-1A(b)   N/A   Estimated yield of 19.37%   07/15/2028    4,000,000    2,738,852 
THL Credit Wind River 2018-2 CLO, Ltd., Series 2018-2A(b)   N/A   Estimated yield of 14.58%   07/15/2030    2,500,000    2,196,758 
Total CLO Equity (Cost $43,731,958)               $64,331,000   $40,671,223 

 

   Shares   
MONEY MARKET MUTUAL FUNDS - 7.18% (4.61% of Total Investments)          
Invesco Short Term Investments Trust Treasury Portfolio, Institutional Class          
(2.209% 7-Day Yield)   5,649,806    5,649,806 
Total Money Market Mutual Funds (Cost $5,649,806)  $5,649,806   $5,649,806 
           
Total Investments - 155.76% (Cost $129,037,317)       $122,562,966 
Liabilities in Excess of Other Assets - (6.88)%        (5,409,874)
Leverage Facility (Net of $50,770 Deferred Costs) - (48.88)%        (38,464,230)
Net Assets - 100.00%       $78,688,862 

 

* Amounts above are shown as a percentage of net assets as of June 30, 2019.
(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 $59,005,928, which represents approximately 74.99% of net assets as of June 30, 2019. 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 June 30, 2019. 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 Trust will not accrue interest until the settlement date, at which point LIBOR will be established. The total cost of securities purchased on a when issued or delivery delayed basis was $6,618,994 as of June 30, 2019.
(e) This investment has an unfunded commitment as of June 30, 2019. For further details, see Note 4 to Quarterly Schedule of Investments.
(f) As a result of the use of significant unobservable inputs to determine fair value, these investments have been classified as Level 3 assets. See also Note 2 to the Quarterly Schedule of Investments for additional information.
(g) CLO subordinated 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 CLO equity positions are updated generally once a quarter or on a transaction such as an add-on purchase, refinancing or reset. The estimated yield and investment cost may ultimately not be realized.

 

All securities held as of June 30, 2019 are pledged as collateral for the Trust’s leverage facility.

 

 

 

XAI Octagon Floating Rate & Alternative Income Term Trust

Notes to Quarterly Schedule of Investments

June 30, 2019 (Unaudited)

 

1. ORGANIZATION

 

XAI Octagon Floating Rate & Alternative Income Term Trust (the “Trust”) is a 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.

 

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 in floating rate credit instruments and other structured credit investments. “Managed Assets” means the total assets of the Trust, including assets attributable to the Trust’s use of leverage, minus the sum of its accrued liabilities (other than liabilities incurred for the purpose of creating leverage).

 

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 results may differ from those estimates, and the security valuations reflected in the schedule of investments may differ from the value the Trust ultimately realizes upon sale of the securities. 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 (“ASC”) Topic 946. The schedule of investments has been prepared as of the close of the New York Stock Exchange (“NYSE”) on June 30, 2019.

 

Expense Recognition: Expenses are recorded on the accrual basis of accounting.

 

Portfolio Valuation: The net asset value per common share of the Trust is determined daily, on each day that the NYSE is open for trading, as of the close of regular trading on the NYSE (normally 4:00 p.m. ET). 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.

 

Cash & Cash Equivalents: The Trust considers its investment in a FDIC insured interest-bearing account to be cash. Cash and cash equivalents are valued at cost plus any accrued interest. The Trust maintains cash balances, which, at times may exceed federally-insured limits. The Trust maintains these balances with a high-quality financial institution.

 

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.

 

 

 

Interest income from investments is recorded using the accrual basis of accounting to the extent such amounts are expected to be collected. Amortization of premium or accretion of discount is recognized using the effective interest method. CLO equity investments recognize investment income on the accrual basis utilizing an effective interest methodology based upon an effective yield to maturity utilizing projected cash flows. ASC Topic 325-40, Beneficial Interests in Securitized Financial Assets, requires investment income from CLO equity investments and fee rebates to be recognized under the effective interest method, with any difference between the cash distribution and the amount calculated pursuant to the effective interest method being recorded as an adjustment to the cost basis of the investment. There were no fee rebates for CLO equity investments held by the Trust as of June 30, 2019.

 

Effective yields for the Trust’s CLO equity positions are monitored and evaluated on a quarterly basis. The Trust also updates a CLO equity investment’s effective yield on a transaction such as an add-on purchase, refinancing or reset involving the CLO equity investment held. The effective yield will be set to 0.00% if: (1) the aggregate projected amount of future recurring distributions is less than the amortized investment cost, and/or (2) there is significant uncertainty with respect to the timing of future residual distributions. The future distributions for CLO equity positions with a 0.00% effective yield will be recognized solely as return of capital until the aggregate projected amount of future recurring distributions exceeds the amortized investment cost.

 

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 June 30, 2019:

 

Investments in Securities at Value*  Level 1 - Quoted Prices  Level 2 - Significant Observable Inputs  Level 3 - Significant Unobservable Inputs  Total
Corporate Bonds  $–   $663,085   $–   $663,085 
Secured Second Lien Loans   –    9,412,088    –    9,412,088 
Senior Secured First Lien Loans   –    48,495,144    –    48,495,144 
CLO Debt   –    –    17,671,620    17,671,620 
CLO Equity   –    –    40,671,223    40,671,223 
Money Market Mutual Funds   5,649,806    –    –    5,649,806 
Total  $5,649,806   $58,570,317   $58,342,843   $122,562,966 

 

The Trust recognizes transfers between the levels as of the end of the period. For the period ended June 30, 2019, 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
Balance as of September 30, 2018  $17,845,594   $40,780,021   $58,625,615 
Accrued Discount/Premium   4,029    -   $4,029 
Reductions to CLO Equity Cost Basis(a)   -    (1,373,885)  $(1,373,885)
Realized Gain/(Loss)   (182,490)   (1,876,125)  $(2,058,615)
Change in Unrealized Appreciation/(Depreciation)   (870,262)   (1,109,665)  $(1,979,927)
Purchases   2,704,750    20,836,270   $23,541,020 
Sales Proceeds   (1,830,001)   (16,585,393)  $(18,415,394)
Transfer into Level 3   -    -   $- 
Transfer out of Level 3   -    -   $- 
Balance as of June 30, 2019  $17,671,620   $40,671,223   $58,342,843 
                
Net change in unrealized appreciation/(depreciation) included in the Statements of Operations attributable to Level 3 investments held at June 30, 2019  $(880,545)  $(2,081,438)  $(2,961,983)

 

(a)Reduction to cost value on CLO equity investments represents the difference between distributions received, or entitled to be received, and income earned for the nine-month period ended June 30, 2019.

 

 

 

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 Trust 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
June 30, 2019		  Valuation
Methodologies		  Unobservable
Input		  Range/Weighted
Average(2)
CLO Debt   17,671,620   Market Quotes  NBIB(1)   81.93 - 101.55 / 94.25 
CLO Equity   40,671,223   Market Quotes  NBIB(1)   1.32 – 93.10 / 63.22 
Total Level 3 assets   58,342,843            

 

(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 CLO 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 an actual transaction price. In valuing the Trust’s investments in CLO debt and CLO equity, in addition to non-binding indicative bid prices provided by an independent pricing service or broker, the Trust also may consider a variety of relevant factors as set forth in the Trust’s valuation policy, including recent trading prices for specific investments, recent purchases and sales known to the Trust in similar securities, other information known to the Trust relating to the securities, and discounted cash flows based on output from a third-party financial model, using projected future cash flows.

 

(2)Weighted averages are calculated based on the value of investments on June 30, 2019.

 

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 the Trust has 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.

 

3. LEVERAGE

The Trust uses leverage to seek to enhance total return and income. The Trust may use leverage through (i) the issuance of senior securities representing indebtedness, including through borrowing from financial institutions or issuance of debt securities, including notes or commercial paper (collectively, “Indebtedness”), (ii) the issuance of preferred shares (“Preferred Shares”) and/or (iii) reverse repurchase agreements, securities lending, short sales or derivatives, such as swaps, futures or forward contracts, that have the effect of leverage (“portfolio leverage”). The Trust currently intends to use leverage through Indebtedness and may use Indebtedness to the maximum extent permitted under the 1940 Act. Under the 1940 Act, the Trust may utilize Indebtedness up to 33 1/3% of its Managed Assets (specifically, the Trust may not incur Indebtedness if, immediately after incurring such Indebtedness, the Trust would have asset coverage (as defined in the 1940 Act) of less than 300%). The Trust will not utilize leverage, either through Indebtedness, Preferred Shares or portfolio leverage, in an aggregate amount in excess of 40% of the Trust’s Managed Assets (including the proceeds of leverage).

 

 

 

On October 6, 2017, the Trust entered into a Credit Agreement (the “Credit Agreement”) with Sociètè Gènèrale (the “Lender”) that established a revolving credit facility (the “Facility”) of up to $40,000,000. Effective July 29, 2019, the Credit Agreement was amended to increase the capacity limit under the Facility to $45,000,000. Effective October 1, 2018, interest on the amount borrowed is based on one-month LIBOR plus 1.20%. The Trust’s borrowings are secured by eligible securities held in its portfolio of investments. The Credit Agreement includes usual and customary covenants. Among other things, these covenants place limitations or restrictions on the Trust’s ability to (i) incur other indebtedness, (ii) change certain investment policies, (iii) pledge or create liens upon the assets of the Trust. In addition, the Trust is required to deliver financial information to the Lender, maintain an asset coverage ratio of not less than 300% and maintain its registration as a closed-end management investment company.

 

For the nine months ended June 30, 2019, the average amount borrowed under the Credit Agreement and the average interest rate for the amount borrowed was $36,444,487 and 3.65%, respectively. As of June 30, 2019, the amount of such outstanding borrowings was $38,815,000. The interest rate applicable to the borrowings on June 30, 2019 was 3.70%. All securities held as of June 30, 2019 are pledged as collateral for the leverage facility.

 

The use of leverage is a speculative technique that involves special risks. There can be no assurance that the Adviser’s and the Sub-Adviser’s expectations will be realized or that a leveraging strategy will be successful in any particular time period. Use of leverage creates an opportunity for increased income and capital appreciation but, at the same time, creates special risks. Leverage exposes the Trust to greater risk and increased costs than if it were not implemented. The more leverage that is utilized by the Trust, the more exposed the Trust will be to the risks of leverage. The use of leverage by the Trust causes the net asset value of the common shares to fluctuate significantly in response to changes in interest rates and other economic indicators. As a result, the net asset value, market price and dividend rate of the common shares is likely to be more volatile than those of a fund that is not exposed to leverage. Leverage increases operating costs, which may reduce total return. The Trust pays interest on its borrowings, which may reduce the Trust’s return. Increases in interest rates that the Trust must pay on its borrowings will increase the cost of leverage and may reduce the return to common shareholders. The risk of increases in interest rates may be greater in the current market environment. During the time in which the Trust is utilizing leverage, the amount of the investment advisory fee paid by the Trust will be higher than if the Trust did not utilize leverage because the fees paid will be calculated based on the Trust’s Managed Assets (including proceeds of leverage). Common shareholders bear the portion of the management fee attributable to assets purchased with the proceeds of leverage, which means that common shareholders effectively bear the entire management fee.

 

 

 

4. UNFUNDED COMMITMENTS

The Trust may enter into certain credit agreements, all or a portion of which may be unfunded. The Trust is obliged to fund these loan commitments at the borrower’s discretion. Unfunded loan commitments and funded portions of the credit agreements are marked-to-market daily. At June 30, 2019 the Trust had an unfunded commitment shown below.

 

Security  Unfunded Commitments as of June 30, 2019 
Allied Universal Holdco LLC  $55,921 
BCPE Empire Holdings, Inc   84,048 
Bulldog Purchaser, Inc   10,154 
United PF Holdings LLC   45,597 
   $195,720 

 

 

 

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 Ex99.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: August 19, 2019 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: August 19, 2019 President and Chief Executive Officer  
    (principal executive officer)  
       
By: (Signature and Title) /s/ John “Yogi” Spence  
    John “Yogi” Spence  
Date: August 19, 2019 Treasurer and Chief Financial Officer  
    (principal financial officer)