I am studying the newer Carlyle Credit Income Fund 8.75 % Term Preferred (CCIA) for a potential small position. It meets my hurdle–high yield, monthly payer and mandatory redemption in 2028.
This fund is newer, although technically it has been around for a long while–in a completely different form. The fund was previously the Vertical Income Fund which was bought by Carlyle recently–the portfolio sold off and the fund rebranded as a CLO owner.
The fund is small – about $150 million (including proceeds of this term preferred offering), but I suspect they will grow the assets fast–these funds make their living on fees–and the larger they are the more the fees.
This fund can be compared to Eagle Point Credit (ECC) or Oxford Lane (OXLC)–they own collateralized loan obligations–typically the equity tranche (meaning the higher risk tranch). Because they are organized as a closed end fund they are required to have asset coverage ratio of 200% for preferred shares. With this new term preferred CCIF should have about 300% coverage as the new preferred is their only leverage.
The main difference when comparing these companys is size and history. ECC and OXLC are much larger and have been around for years.
Currently shares are trading around $25.40 and this is where they are likely to stay for a while as Eagle Point Credit who bought 800,000 in a private placement on 11/21/2023 for $24.25 has been selling shares in the $25.40-$25.60 area–this may keep the share price tamped down for a while.
Haven’t bought this yet–but probably will take a small position.
The issue has a coupon of
Funny Tim, I had looked at this one the last couple days but I am pretty much out of dry powder until next wave of payments hit the accounts in about 2 weeks. Trying to decide if I should by some baby bonds which most for the yield I want are out to 2050’s for call. I did buy some SPNT-B today which I feel it will be called in 2026 at first reset date. CHSCL is down from what I paid for it. if I had the funds I would buy another tranche as I am comfortable with it.
Like it but not over par unless yielding over 8%. Watching closely.
Maybe going with CCIA, but .65 over par, may wait for closer to $25 at great yield over 8.5%
I bought a very small amount. I am 65% fixed income and 35% everything else with very little dry powder at the moment. I want to keep that balance 65/35 balance as it provides me enough monthly income and being 75 with no time to recoup losses I am comfortable with that balance. Interest rates could change that balance a bit down the road, we’ll see.
Do you consider this to be overlapping to XFLT-A? Even with the 1940 Act protection, I have an eye toward keeping exposure to the CLO space limited at best…. I’ve not looked at CCIA.
I agree 2white. With names like RIV or even NCZ, I will have a massive allocation, feeling very confrontable sleeping at night. With CLO or privates, I would keep the allocation small for the most part.
CLO entities- I don’t care what the historical data shows. The CLO complex has had so much growth it is difficult to wrap my mind around it. Any super stress event could have an impact we cant imagine.
Private holdings. A) are the marks good and B) how much of a haircut would be required to sell the assets to reduce leverage?
Hey 2White – These are certainly comparable funds, but the CCIF is focused on CLO Equity only. XFLT only has about 27% CLO equity. XFLT has much more exposure to what one might call private sr secured loans (45%) and CLO debt (17%). One could argue that XFLT is more balanced and more diversified across capital structures. CCIF is much more like a fund that invests bank equity. FWIW
Thnx, AW….. by your description, it sounds as though CCIF would be categorized as more risky than XFLT…… I’ll stick with XFLT-A as my CLO exposure, although I consider SAR to also have CLO exposure as well, but by memory, their exposure is a bit more difficult to uncover because it’s in joint ventures and their relatively large investment in a CLO fund of some sort… I’m thinking though CLO exposure is probably much broader across the board today than it used to be, plus I know that theoretically CLOs now have more built in safety valves than they used to have….
Hey 2White – this goes under the FWIW category. Helps me to keep it straight by writing it down more than anything…
The thing is that CLOs are not a monolithic thing. Not to put too fine of a point on it, (and I know it is obvious) but there is CLO debt and CLO equity.
The equity is the residual claim on the cash flows just like with a common stock.
An analogy is to think of a CLO as a Virtual Bank. The assets of both a Real Bank and a Virtual Bank are a pool of loans, and these assets are financed with liabilities.
A Real Bank has liabilities comprised of various tranches of notes & also deposits. Some of these notes might be A rated, and others might be BBB rated.
The Real Bank earns it’s interest income from the loans and pays its depositors and note holders. The rest after other expenses is net income. Some of this Net Income is paid out in dividends/buybacks to Real Bank Equity the rest is kept within the bank as retained earnings (or more commonly wasted by management).
The Virtual Bank also has various tranches of notes. Some will be AAA, AA, A, BBB, BB and so forth. There are, however, no depositors. So there can be no bank run. The Virtual Bank pays all of it’s income after expenses to the noteholders and the rest goes to pay the Virtual Bank Equity holders. None of the Net Income is kept as retained earnings (so management can’t do anything stupid with it). The fact that there are no short term liabilities and no retained earnings are key advantages of the Virtual Bank over the Real Bank.
Like Real Banks, different Virtual Banks will have different assets and different management.
So one may differential between CLO debt and CLO equity in terms of capital structure and also differentiate between CLOs based on their assets and their manager.
CLO AAA, AA debt could be compared to Treasuries or Agencies and could belong in the same portfolio as Treasuries or Agencies.
CLO BBB could be compared to BBB notes for example REIT notes or MLP notes and could fit into the same portfolio.
CLO BB or B – well that is Junk and belongs in a Junk Bond portfolio.
CLO equity could be compared to bank equity. This could belong in a portfolio which could contain bank common equity.
To the question have CLOs gotten better over time? The reference here is the global financial crisis. The answer is yes structures have improved, but a more important differentiator among CLOs is the nature of the underlying assets.
So let’s turn the time machine back to 2006.
Let’s say we are in 2006 and people are pooling together mortgages on the asset side of the ledger. Let’s call this a CMO.
Let’s say also that in 2006 people were pooling together bank loans on the asset side of the ledger. Let’s call this a CLO.
The assets of the CMO is a static pool or mortgages which does not change over the life of the CMO. Mortgages are not very well diversified and generally were poorly underwritten in those days. We all know that these CMOs blew up. Firms like RWT, CIM, NLY and ABR are making these kind of structures today. They also retain the equity on their balance sheets. Each of these have different focus areas among different types of mortgages.
The assets of the CLO is a pool of bank loans which is not static – this pool of loans is actively managed. Bank loans are secured first lien below investment grade loans made to large public corporations and are underwritten to much higher standards than mortgages. These are the same bank loans that are in ETFs like BKLN. The pool of bank loans is diversified across many different companies and many different industries. They also all have variable interest rates, so there is no interest rate risk. It is simply not the same as a pool of mortgages. ECC, OXLC and CCIF purchase the equity in this type of CLO to make up their funds.
Private Credit funds and BDCs invest in CLOs which use loans made to midmarket firms. I personally view these loans as risker thank syndicated bank loans made to large public corporations.
During the GFC these two entities performed very differently.
As a matter of risk profile, this is personal, but I view the CEFs as a no go. This is mostly because of the fees that are charged to common equity. I am comfortable with preferred equity in CLO Equity funds that invest in large syndicated bank loans. I am comfortable with debt of BDCs.
I also have about 3% of my assets in Bitcoin – so there is a reference for you in terms of risk tolerance.
I have 1k shares @ $25.16. I’m hesitant to buy too much over $25 due to the ability to call it 10/31/25. I also have 4k shares of the issuing fund, CCIF. My preference right now for preferred in the space is EICB. While the yield is lower and first call is sooner (7.75%, 7/30/25), it’s trading a little below $25 and EICB is less risky, IMO.
Like you, I’m also a fan of the debt over equity in the CLO marketplace. I have been adding to small positions in EICA and EICB.
I like EICB too – Have accumulated a larger than normal position for me – 1100 shares at $24.97 avg. I typically limit positions in the $25 preferreds and BBs at 800 shares.
Thanks to you and a lot of people on this site I have really started to appreciate the safety of CEF preferred shares. I’m curious though, why are a bunch of them not rated by Moody’s and S&P? I know some are like RIV-A and OPP-A.
Fund has to pay to get them rated. Some decide not worth it while others don’t want to get a bad rating.
It took me years to invest in CEF funds. Just started this year also.
Hi Tim. I like it as well. Thanks for the heads up about eagle point, I wasn’t aware of that. Who knows how to predict these things… but it could pop into the close today if ETFs are forced buyers. I have some shares ready to sell if it happens.
You want silly prices?! No problem, I am happy to sell “silly.”
Unlike silly equities, fixed income has gravity, eventually..
Tim when I looked at this I left it because it was a new, smaller fund, but also because the CEF seems to have had issues. Have you dug into what is going on at the CEF. There was an acquisition earlier in the year prior to this public offering of this preferred issue.
I went back and looked at this fund the story has changed in a good way.
The story behind the fund is that the Carlyle entity took over a different fund in July 2023. The legacy fund had a lot of things like residential credit and other other assets – these doing belong in a CLO fund. They have exited all of these legacy positions and have focused in on CLO Equity. It is important to note that they have invested in CLOs that only have exposure to bank loans to corporations – rather than asset level debt like mortgages for example.
What is interesting is that Carlyle own 41% of the shares in the CEF. From listening to the recent quarterly call the Carlyle ownership position is at the corporate level and not at a fund or subsidiary level. I view this as a very favorable thing for preferred shareholders as they are Sr to Carlyle’s position. So there is an implied embedded put to some degree. The idea being that the preferred are money good as long as Carlyle owns their equity position.
They have relatively few CCC credits within the various CLO positions. Also, and what is notable, is that the average reinvestment period for the CLOs is quite long at 3 years. I think these factors are probably due to the relative newness of the fund, but we can also watch these metrics evolve over time.
On the call they compare themselves to Eagle Point Credit and Oxford Lane Capital. So let’s look at the CEF yields using quantum online:
ECC – 17.68%, OXLC – 19.43%, CCIF – 12.29%
This CEF level yield differential is discussed on the call. The way it is explained is that has a higher cost of debt capital (true) so the dividend is lower. Carlyle also has a better name. Does this explain 500 bps? I would doubt it. The Carlyle put might explain it, however.
More interesting is the relative yields in the preferred. All three have fixed coupon, callable, cumulative term preferred issues trading now. All 3 pay monthly. They all have similar asset ratio requirements per 1940 Act.
ECCC 6.5% 2031 Term Preferred with CY 7.53% YTM 9.03%
OXLCN 7.125% 2029 Term Preferred with CY 7.68% YTM 8.79%
CCIA 8.75% 2028 Term Preferred with CY 8.53% YTM 8.09%
The key conclusion is that in a world in which CCIA and ECCC exist – there does not seem to be much of a reason to own the OXLCN preferred at all.
I use Excel Yield() function for YTM – your results may vary, I find this good enough for comparisons like this.
For me the CEFs are a no go, but I will invest in the term preferred.
Personally I look at it from a total return standpoint – so I prefer the higher YTM, however, the Carlyle ownership in CCIF is compelling. Personally, I will be looking at future filings from CCIF and watching CCIA prices. I would want to keep an eye on Carlyle and if they start selling their CCIF, I might review ownership of CCIA.
FWIW