Andrew Kerai, co-portfolio manager of RiverNorth Specialty Finance Corporation talked about the recent investment strategy shift and improving portfolio credit quality in the COVID-19 marketplace on The NAVigator.
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Definitions & Disclosures
Net Asset Value (NAV) – The net asset value (NAV) of a fund is derived by subtracting the value of the fund's liabilities from the value of its assets, and then dividing the result by the number of shares outstanding.
Risk Adjusted-Returns - A risk-adjusted return is a calculation of the profit or potential profit from an investment that takes into account the degree of risk that must be accepted in order to achieve it.
Credit Market - Credit market refers to the market through which companies and governments issue debt to investors, such as investment-grade bonds, junk bonds, and short-term commercial paper.
Unsecured Consumer Credit - An unsecured loan is not protected by any collateral. The most common types of unsecured loan are credit cards, student loans, and personal loans.
Coupon - A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity.
Business Development Company (BDC) - A business development company (BDC) is an organization that invests in small- and medium-sized companies as well as distressed companies.
Paycheck Protection Program (PPP) - The PPP is a loan program that originated from the Coronavirus Aid, Relief,and Economic Security (CARES) Act. This is a nearly $350-billion program intended to provide American small businesses with eight weeks of cash-flow assistance through 100 percent federally guaranteed loans.
Senior Secured Loans - Senior Secured Loans (SSL), commonly referred to as bank loans or floating rate loans are short term debt obligations issued by banks and private corporations.
Great Recession/Financial Crisis of 2008 - The Great Recession is a term that represents the sharp decline in economic activity during the late 2000s. This period is considered the most significant downturn since the Great Depression.
Single B / Double BB Paper - Commercial paper is a common form of unsecured, short-term debt issued by a corporation. B /BB are non-investment grade ratings (also known as "junk") that may be assigned to a company, fixed-income security or floating-rate loan. This rating signifies that the issuer is relatively risky, with a higher than average chance of default.
See the prospectus for a more detailed description of Fund risks. Investing involves risk. Principal loss is possible.
The profitability of specialty finance and other financial companies is largely dependent upon the availability and cost of capital funds, and may fluctuate significantly in response to changes in interest rates, as well as changes in general economic conditions If the borrower of Alternative Credit (as defined below) in which the Fund invests is unable to make its payments on a loan, the Fund may be greatly limited in its ability to recover any outstanding principal and interest under such loan, as (among other reasons) the Fund may not have direct recourse against the borrower or may otherwise be limited in its ability to directly enforce its rights under the loan, whether through the borrower or the platform through which such loan was originated, the loan may be unsecured or under collateralized, and/or it may be impracticable to commence a legal proceeding against the defaulting borrower. Substantially all of the Alternative Credit in which the Fund invests will not be guaranteed or insured by a third party. In addition, the Alternative Credit Instruments in which the Fund may invest will not be backed by any governmental authority. Prospective borrowers supply a variety of information regarding the purpose of the loan, income, occupation and employment status (as applicable) to the lending platforms. As a general matter, platforms do not verify the majority of this information, which may be incomplete, inaccurate, false or misleading. Prospective borrowers may misrepresent any of the information they provide to the platforms, including their intentions for the use of the loan proceeds. Alternative Credit Instruments are generally not rated by the nationally recognized statistical rating organizations (“NRSROs”). Such unrated instruments, however, are considered to be comparable in quality to securities falling into any of the ratings categories used by such NRSROs to classify "junk" bonds (i.e., below investment grade securities). Accordingly, the Fund’s unrated Alternative Credit Instrument investments constitute highly risky and speculative investments similar to investments in “junk” bonds, notwithstanding that the Fund is not permitted to invest in loans that are of subprime quality at the time of investment. Although the Fund is not permitted to invest in loans that are of subprime quality at the time of investment, an investment in the Fund’s Shares should be considered speculative and involving a high degree of risk, including the risk of loss of investment. There can be no assurance that payments due on underlying loans, including Alternative Credit, will be made.
Diversification does not ensure a profit or a guarantee against loss.
Past performance is no guarantee of future results.