On December 18, 2020, Andrew Kerai, co-portfolio manager of RiverNorth Specialty Finance Corporation talked about the credit markets on The NAVigator.
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Definitions & Disclosures
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.
Middle Market is the segment of American businesses with annual revenues roughly in the range of $10 million to $1 billion, although some definitions set a higher top on the range.
Yield refers to the earnings generated and realized on an investment over a particular period of time.
Corporate Bonds are debt securities that are issued by a company and sold to investors.
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.
A Liquid Market is a market with many available buyers and sellers and comparatively low transaction costs.
A Yield Curve is a line that plots yields (interest rates) of bonds having equal credit quality but differing maturity dates.
High-Yield Bonds are bonds that pay higher interest rates because they have lower credit ratings than investment grade bonds.
A Syndicated Loan is financing offered by a group of lenders—referred to as a syndicate—who work together to provide funds for a single borrower. The borrower can be a corporation, a large project, or a sovereign government.
High-Yield Syndicated Loan is a syndicated loan whose credit rating is generally below investment grade.
Public Market is the term is most commonly used to describe securities that are available on an exchange or an over-the-counter market.
Private Credit is an asset defined by non-bank lending where the debt is not issued or traded on the public markets.
Alpha used in finance as a measure of performance, is the excess return of an investment relative to the return of a benchmark index.
Private Capital is money provided to a business as a loan or equity investment that does not come from an institutional source, such as a bank or government entity, or from the public through selling stock on a stock exchange.
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.
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.
Bank Loan Market - or "leveraged loan" market, as it is sometimes known – comprises debt from companies with below–investment grade credit ratings. Bank loans are typically secured with a lien on the company’s assets.
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.
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