UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number (811-22543)
KKR Income Opportunities Fund
(Exact name of registrant as specified in charter)
555 California Street, 50th Floor
San Francisco, CA 94104
(Address of principal executive offices) (Zip code)
Annette ODonnell-Butner
KKR Credit Advisors (US) LLC
555 California Street, 50th Floor
San Francisco, CA 94104
(Name and address of agent for service)
(415) 315-3620
Registrants telephone number, including area code
Date of fiscal year end: October 31, 2022
Date of reporting period: April 30, 2022
Item 1. Reports to Stockholders.
KKR Income Opportunities Fund
Semi-Annual Report
April 30, 2022
Income Opportunities Fund |
April 30, 2022 (Unaudited) | |||
1 | ||||
4 | ||||
11 | ||||
12 | ||||
13 | ||||
14 | ||||
15 | ||||
16 | ||||
26 |
The KKR Income Opportunities Fund (the Fund) files its complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year. For periods ending on or prior to January 31, 2019, the Fund has filed a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. For periods ending on or after April 30, 2019, the Fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT within sixty days after the end of the period. The Funds Forms N-Q and Forms N-PORT are available on the Commissions website at www.sec.gov or on request by calling 1-800-SEC-0330.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities, as well as information relating to how a Fund voted proxies relating to portfolio securities during the most recent year ended June 30 will be available (i) without charge, upon request, by calling 855-862-6092; and (ii) on the Commissions website at http://www.sec.gov.
INFORMATION ABOUT THE FUNDS TRUSTEES
The proxy statements and annual reports include information about the Funds Trustees and are available without charge, upon request, by calling 855-862-6092 and by visiting the Commissions website at www.sec.gov or the Funds website at www.kkrfunds.com/kio.
Income Opportunities Fund |
April 30, 2022 (Unaudited) | |||
Management Discussion of Fund Performance
Looking Back on the Markets April 30, 2022
As we began to witness this January, 2022 was certainly going to look and feel very different than the year prior. Closing out 2021 the market began to grapple with discrepancies in perception versus reality after a year of unprecedented and record-breaking issuance, performance and deal activity. January quickly snapped us back to the staunch reality of inflationary pressures, a hawkish Fed and an increasingly tepid market environment. Many of the markets performance drivers over the last 24 months were borne out of the crisis manifested from the onset of COVID-19 in the first quarter of 2020. We are now starting to witness expansive ripple effects unfold as the Fed sits between a rock and a hard place to combat historically high levels of inflation and a devastating war in Europe that has sent geopolitical shockwaves through the global markets.
The S&P is off to its worst start since 1939 and the NASDAQ has sold off nearly 21% as of April 30th,1 catapulting a shutdown of the IPO market and igniting a new fear of slowing growth. On the credit side, the globalization of markets over the last decade, which also fueled growth, is starting to experience the impacts of the impending Fed unwind. Although we have been highlighting this for some time, it is now apparent due to the exacerbated market conditions which have prompted volatility in asset pricing, currencies and FX derivatives and fund flows across the ecosystem. Importantly, this market is now highlighting the decoupling of the stock market and credit markets which will be an important dynamic for portfolio construction and asset allocation across investment portfolios. Additionally, given the intrinsic relationship between fund flows and market making this event kick started a domino effect on the heels of Russias invasion of Ukraine the primary credit calendar froze and universally stalled capital markets activities. This resulted in the redirection of deal flow from issuers and simultaneously ignited private credit market activity. We are now experiencing credit moving from one segment of the market as a result of the volatility and decoupling effect to another segment privates. Private credit investors have been excited about this recent flow as it brings forth bigger businesses and capital structures to lend to. On the rate side, the short end of the curve first experienced considerable movement and then flipped to the long end in the last weeks of April. Long duration assets such as investment grade bonds and high yield BBs endured rate pain while floating rate leveraged loans weathered the mark to market storm, ending the quarter near flat. As a stark pall of uncertainty ensued, cash reserves continued to increase and pending mergers and acquisitions sought to find a new capital base and home. However, it is important to highlight that the increased dispersion in the market is more tied to technical headwinds than it is to fundamentals.
As the March 16th Federal Open Market Committee (FOMC) meeting grew near, we saw the market find more of its footing, albeit cautiously and almost akin to a sigh of relief, as Fed Chair Powell finally confirmed what the market and market participants already were expecting: a 25 basis point increase to the Federal Funds rate. With the FOMC meeting under our belts and now the great debate focused on how many hikes we could potentially see in 2022, the global credit markets continued to recalibrate with large inflows into bank loans and outflows out of high yield. The outsized swath of flows, both institutional and retail, were moderated by the on-going supply demand imbalance technical in the market, which we will discuss further in this note. While Russias attack on Ukraine, coupled with inflation and a rising rate environment have introduced additional complexity for market participants to navigate, the demand for consistent income, down-side protection and preservation of capital remains persistent and is arguably even more important than ever before. Furthermore, the current rotation from fixed to floating interest rates has been an asset allocation call versus a specific credit thesis or selection. Market participants are shifting into floating rate for the sake of the floating rate over the quality of the credit and over liquidity. This lack of acknowledgement highlights favoring a technical attribute over credit selection and also confirms that the market is not experiencing a traditional flight to quality, which often happens in markets wrought with concern and lack of conviction. In many cases, the exact opposite is happening as the loan market has a higher concentration of single B assets and lower rated assets than the high yield or investment grade markets.
1
Income Opportunities Fund |
April 30, 2022 (Unaudited) | |||
Notwithstanding the exogenous shock the crisis in Ukraine has catalyzed across the global markets, and in Europe in particular, the market volatility has been orderly until recently in Q2. There continues to be growing anxiety around what the future holds. It is important to remember there is still plenty of dry powder sitting on the sidelines assessing the markets moves but simultaneously the market construct has created less incentive for investors to lean into risk.
Overall, the U.S. has been more insulated from the immediate shocks of the geopolitical crisis, although, not immune. In Europe, the conflict has already taken a toll, most notably stunting growth which many believe is likely to eventually lead to a recession. Globally, we have been witnessing the severe impact on commodity prices, currency depreciation coupled with foreign exchange volatility, and further exacerbation to existing inflationary headwinds. On the whole, U.S. Bank Loans closed out the first quarter nearly flat at -0.10%,2 demonstrating the greatest resilience across asset classes. At the same time, European Bank Loans ended the quarter -0.50%,3 CLO Liabilities -0.33%,4 U.S. High Yield -4.51%,5 and European High Yield -4.83%6 on a total return basis as of March 31, 2022. As we compared public liquid credit returns to private credit returns, which are in the low single digits for the first quarter, it has become clear there is dispersion between asset classes.
The market ride is likely to continue to be bumpy but we think it is prudent to stick with conviction, fundamentals and seek out opportunity through the volatile moments. The globalization of markets we have witnessed has created an influential interdependency amongst a broad range of macroeconomic inputs that can result in volatility. In the same vein, this globalization effect has also prompted a decoupling amongst market segments such as fund flows and stocks and credit that will take some time to filter through the system. With the market still demanding a show me fundamental results story as corporate earnings roll in, acute attention paid on margin compression, currency fluctuations and the long-term net effects of slowing growth, we believe there could be real dispersion on the horizon. We are living through an environment where the Fed has openly acknowledged there is a need to actively dampen consumer demand to temper inflation but the supply side headwinds cannot be controlled by the Fed, further spotlighting the interconnectedness and globalization of the markets. If inflation continues to stay elevated coupled with slowing growth, credit should become an even larger portion of an investment portfolio.
Overall, we think this all points to the perpetual need for a diverse and sustainable approach to investing in corporate credit, an approach that marries the fundamentals and bottom up analysis with the swift ability to act, pivot and execute across a holistic set of solutions and broad range of market segments and capital bases. As a result, we have real time access to market movements that inform our views and promote our ability to execute with speed and certainty across all of our core competencies. At our core we are long term fundamental credit investors focused on delivering consistent returns with downside protection. The scale and breadth of KKRs global portfolio means that our team is in the market all day, every day, sharing insights globally and working collaboratively to identify, extract and underwrite value. That is one element that is unique to us we operate as one global team and the value of leadership and teamwork is unparalleled when it all comes together in a challenging environment. Given this market is going to test the time of patience, we believe it is important to have dry powder to lean in when there is volatility, scaled capital to address a multitude of investment scenarios and to remember to stay focused on the long term goal delivering for our clients.
Background and Fund Performance
KKR Income Opportunities Fund (KIO or, the Fund) is a diversified, closed-end fund that trades on the New York Stock Exchange under the symbol KIO. The Funds primary investment objective is to seek a high level of current income with a secondary objective of capital appreciation. The Fund seeks to achieve its investment objectives by employing a dynamic strategy of investing in a targeted portfolio of loans and fixed-income instruments (including derivatives) of U.S. and non-U.S. issuers and implementing hedging strategies in order to seek to achieve attractive risk-adjusted returns. Under normal market conditions, KIO will invest at least
2
Income Opportunities Fund |
April 30, 2022 (Unaudited) | |||
80% of its assets in loans and fixed-income instruments or other instruments, including derivative instruments, with similar economic characteristics. The Fund expects to invest primarily in first and second lien secured loans, unsecured loans and high-yield corporate debt instruments of varying maturities.
As of April 30, 2022, the Fund held 75.02% of its net assets in first and second-lien leveraged loans, 80.81% of its net assets in high-yield corporate debt, 2.67% of its net assets in preferred and common stock. KIOs investments represented obligations and equity interests in 140 positions across a diverse group of industries. The top ten issuers represented 47.7% of the Funds net assets while the top five industry groups represented 62.46% of the Funds net assets. The Funds Securities and Exchange Commission 30-day yield was 9.95%.
Business Updates
We thank you for your partnership and continued investment in KIO. We look forward to continued communications and will keep you apprised of the progress of KIO specifically and the leveraged finance market place generally. Fund information is available on our website at kkrfunds.com/kio.
References:
1. | Bloomberg as of April 29, 2022. |
2. | S&P LSTA and KKR Credit Analysis as of March 31, 2022. |
3. | S&P LCD and KKR Credit Analysis as of March 31, 2022. |
4. | S&P LSTA and KKR Credit Analysis as of March 31, 2022. |
5. | ICE BofAML and KKR Credit Analysis as of March 31, 2022. |
6. | S&P LCD and KKR Credit Analysis as of March 31, 2022. |
3
Income Opportunities Fund |
April 30, 2022 (Unaudited) | |||
Issuer | Asset | Reference Rate & Spread |
Interest Rate |
Maturity Date |
Country | Currency | Par | Fair Value | Footnotes | |||||||||||||
Leveraged Loans - 75.02% | ||||||||||||||||||||||
Aerospace & Defense - 8.96% | ||||||||||||||||||||||
Amentum Services Inc |
TL 2L 12/21 | SOFR (6M) + 7.50% | 8.53% | 2/15/2030 | USA | USD | 1,965,870 | $ | 1,918,296 | (b) | ||||||||||||
EaglePicher Technologies LLC |
TL 2L 02/18 | LIBOR (1M) + 7.25% | 8.01% | 3/8/2026 | USA | USD | 1,957,223 | 1,781,073 | ||||||||||||||
Sequa Corp |
TL 1L 07/20 | LIBOR (3M) + 6.75% | 7.75% | 11/28/2023 | USA | USD | 5,745,343 | 5,754,938 | (a) | |||||||||||||
Sequa Corp |
TL 2L 07/20 | LIBOR (3M) + 10.75% | 11.75% | 4/28/2024 | USA | USD | 17,878,559 | 17,824,924 | (a) | |||||||||||||
Alternative Carriers - 1.74% | ||||||||||||||||||||||
Segra |
TL 1L B 08/21 | LIBOR (1M) + 4.50% | 5.51% | 10/4/2028 | USA | USD | 5,358,131 | 5,261,845 | ||||||||||||||
Apparel, Accessories & Luxury Goods - 4.95% | ||||||||||||||||||||||
Varsity Brands Inc |
TL 1L 11/17 | LIBOR (1M) + 3.50% | 4.50% | 12/16/2024 | USA | USD | 15,608,913 | 15,069,157 | ||||||||||||||
Application Software - 9.69% | ||||||||||||||||||||||
Applied Systems Inc |
TL 2L 02/21 | LIBOR (3M) + 5.50% | 6.51% | 9/19/2025 | USA | USD | 100,874 | 101,054 | ||||||||||||||
Misys Ltd |
TL 1L 04/17 | LIBOR (3M) + 3.50% | 4.74% | 6/13/2024 | USA | USD | 4,342,649 | 4,223,573 | ||||||||||||||
Misys Ltd |
TL 2L 04/17 | LIBOR (3M) + 7.25% | 8.49% | 6/13/2025 | USA | USD | 8,063,622 | 7,778,049 | ||||||||||||||
Solera LLC |
TL 2L 06/21 | LIBOR (1M) + 8.00% | 9.00% | 6/4/2029 | USA | USD | 11,074,727 | 11,028,546 | ||||||||||||||
TIBCO Software Inc |
TL 2L 02/20 | LIBOR (1M) + 7.25% | 8.02% | 3/3/2028 | USA | USD | 6,360,103 | 6,364,078 | ||||||||||||||
Auto Parts & Equipment - 1.62% | ||||||||||||||||||||||
Innovative XCessories & Services LLC |
TL 1L 02/20 | LIBOR (3M) + 4.25% | 5.00% | 3/5/2027 | USA | USD | 4,395,756 | 4,093,548 | ||||||||||||||
Rough Country LLC |
TL 2L 07/21 | LIBOR (3M) + 6.50% | 7.51% | 7/30/2029 | USA | USD | 841,950 | 821,954 | ||||||||||||||
Broadcasting - 3.55% | ||||||||||||||||||||||
NEP Broadcasting LLC |
TL 1L 05/20 | LIBOR (3M) + 8.25% | 9.25% | 6/1/2025 | USA | USD | 1,598,060 | 1,646,002 | (b) | |||||||||||||
NEP Broadcasting LLC |
TL 1L B 09/18 | LIBOR (1M) + 3.25% | 4.01% | 10/20/2025 | USA | USD | 2,052,320 | 2,018,970 | ||||||||||||||
NEP Broadcasting LLC |
TL 2L 09/18 | LIBOR (1M) + 7.00% | 7.76% | 10/19/2026 | USA | USD | 7,365,230 | 7,127,406 | ||||||||||||||
Building Products - 1.15% | ||||||||||||||||||||||
DiversiTech Holdings Inc |
TL 2L B 12/21 | LIBOR (3M) + 6.75% | 7.76% | 12/15/2029 | USA | USD | 1,381,023 | 1,346,497 | ||||||||||||||
Oldcastle BuildingEnvelope Inc |
TL 1L B 04/22 | SOFR (3M) + 4.50% | 5.30% | 4/29/2029 | USA | USD | 305,870 | 293,762 | ||||||||||||||
VC GB Holdings Inc (Visual Comfort) |
TL 2L 06/21 | LIBOR (3M) + 6.75% | 7.76% | 7/23/2029 | USA | USD | 1,927,630 | 1,851,730 | ||||||||||||||
Construction & Engineering - 4.57% | ||||||||||||||||||||||
Brand Energy & Infrastructure Services Inc |
TL 1L 05/17 | LIBOR (3M) + 4.25% | 5.40% | 6/21/2024 | USA | USD | 3,345,354 | 3,188,155 | ||||||||||||||
Total Safety US Inc |
TL 1L B 07/19 | LIBOR (6M) + 6.00% | 7.01% | 8/18/2025 | USA | USD | 5,405,167 | 5,268,930 | ||||||||||||||
USIC Holdings Inc |
TL 2L 05/21 | LIBOR (1M) + 6.50% | 7.26% | 5/14/2029 | USA | USD | 431,521 | 429,363 | ||||||||||||||
Yak Access LLC |
TL 1L B 05/18 | LIBOR (3M) + 5.00% | 5.51% | 7/11/2025 | USA | USD | 5,792,935 | 5,035,769 | (a) | |||||||||||||
Construction Machinery & Heavy Trucks - 1.79% |
|
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Accuride Corp |
TL 1L B 10/17 | LIBOR (3M) + 5.25% | 6.26% | 11/17/2023 | USA | USD | 5,804,995 | 5,458,960 | ||||||||||||||
Data Processing & Outsourced Services - 0.27% |
|
|||||||||||||||||||||
West Corp |
TL 1L 09/17 | LIBOR (3M) + 4.00% | 5.00% | 10/10/2024 | USA | USD | 889,851 | 835,534 |
See accompanying notes to financial statements.
4
Income Opportunities Fund |
April 30, 2022 (Unaudited) | |||
Issuer | Asset | Reference Rate & Spread |
Interest Rate |
Maturity Date |
Country | Currency | Par | Fair Value | Footnotes | |||||||||||||||
Department Stores - 1.76% |
| |||||||||||||||||||||||
Belk Inc |
TL 1L 02/21 | LIBOR (3M) + 7.50% | 8.50% | 7/31/2025 | USA | USD | 459,875 | $ | 454,701 | (a) | ||||||||||||||
Belk Inc |
TL 1L EXIT 02/21 | 8.00% PIK, 5.00% |
13.00% | 7/31/2025 | USA | USD | 8,232,031 | 4,916,087 | (a) (d) (e) | |||||||||||||||
Diversified Metals & Mining - 0.72% |
| |||||||||||||||||||||||
Foresight Energy LLC |
TL 1L A 06/20 | LIBOR (1M) + 8.00% | 9.50% | 6/30/2027 | USA | USD | 2,191,606 | 2,191,606 | (a) (b) | |||||||||||||||
Diversified Support Services - 1.31% |
| |||||||||||||||||||||||
Access CIG LLC |
TL 2L 02/18 | LIBOR (1M) + 7.75% | 8.21% | 2/27/2026 | USA | USD | 1,292,375 | 1,284,840 | ||||||||||||||||
VFS Global Services Pvt Ltd |
TL 1L B 06/17 | PIBOR (1M) + 4.00% | 4.72% | 7/29/2024 | LUX | GBP | 2,156,712 | 2,687,746 | ||||||||||||||||
Education Services - 2.21% |
| |||||||||||||||||||||||
Jostens Inc |
TL 1L 12/18 | LIBOR (3M) + 5.50% | 6.51% | 12/19/2025 | USA | USD | 6,719,765 | 6,719,765 | ||||||||||||||||
Electronic Equipment & Instruments - 3.72% |
| |||||||||||||||||||||||
Excelitas Technologies Corp |
TL 2L 10/17 | LIBOR (3M) + 7.50% | 8.50% | 12/1/2025 | USA | USD | 11,291,720 | 11,327,007 | (a) | |||||||||||||||
Financial Exchanges & Data - 0.20% |
| |||||||||||||||||||||||
IntraFi Network LLC |
TL 2L 11/21 | LIBOR (1M) + 6.25% | 6.75% | 11/5/2029 | USA | USD | 623,220 | 617,571 | ||||||||||||||||
Health Care Equipment - 4.04% |
| |||||||||||||||||||||||
Drive DeVilbiss Healthcare LLC |
TL 1L 03/21 | 4.00% PIK, LIBOR (3M) + 5.50% |
10.51% | 6/1/2025 | USA | USD | 7,395,185 | 7,111,690 | (d) (e) | |||||||||||||||
Orchid Orthopedic Solutions LLC |
TL 1L 02/19 | LIBOR (3M) + 4.50% | 5.51% | 3/5/2026 | USA | USD | 5,686,770 | 5,174,961 | ||||||||||||||||
Health Care Facilities - 0.50% |
| |||||||||||||||||||||||
ScionHealth |
TL 1L B 12/21 | LIBOR (1M) + 5.25% | 6.01% | 12/17/2028 | USA | USD | 1,742,513 | 1,533,411 | (a) | |||||||||||||||
Health Care Services - 0.07% |
| |||||||||||||||||||||||
Paradigm Acquisition Corp |
TL 2L 10/18 | LIBOR (3M) + 7.50% | 7.85% | 10/26/2026 | USA | USD | 213,465 | 210,263 | ||||||||||||||||
Hotels, Resorts & Cruise Lines - 2.14% |
| |||||||||||||||||||||||
B&B Hotels SAS |
TL 1L B3A 01/20 | EURIBOR (6M) + 3.87% | 3.87% | 7/31/2026 | FRA | EUR | 2,427,830 | 2,449,894 | ||||||||||||||||
B&B Hotels SAS |
TL 1L B4 03/21 | EURIBOR (6M) + 5.50% | 5.50% | 7/31/2026 | FRA | EUR | 1,159,680 | 1,218,003 | ||||||||||||||||
Piolin BidCo SAU |
TL 1L B 05/20 | EURIBOR (3M) + 7.50% | 7.50% | 9/16/2026 | ESP | EUR | 2,682,184 | 2,840,662 | ||||||||||||||||
Household Products - 0.24% |
| |||||||||||||||||||||||
Polyconcept North America Inc |
TL 1L B 08/16 | LIBOR (6M) + 4.50% | 6.00% | 8/16/2023 | USA | USD | 723,202 | 721,242 | ||||||||||||||||
Human Resource & Employment Services - 0.89% |
| |||||||||||||||||||||||
SIRVA Worldwide Inc |
TL 1L 07/18 | LIBOR (3M) + 5.50% | 6.30% | 8/4/2025 | USA | USD | 1,854,854 | 1,744,491 | ||||||||||||||||
SIRVA Worldwide Inc |
TL 2L 07/18 | LIBOR (3M) + 9.50% | 10.42% | 8/3/2026 | USA | USD | 1,149,740 | 978,716 | ||||||||||||||||
Industrial Machinery - 1.50% |
| |||||||||||||||||||||||
CPM Holdings Inc |
TL 2L 10/18 | LIBOR (1M) + 8.25% | 8.71% | 11/16/2026 | USA | USD | 1,321,319 | 1,314,712 | ||||||||||||||||
Engineered Machinery Holdings Inc |
TL 2L 08/21 | LIBOR (3M) + 6.00% | 7.01% | 5/21/2029 | USA | USD | 289,880 | 289,880 | ||||||||||||||||
SPX Corp |
TL 1L B 03/22 | SOFR (1M) + 4.50% | 5.83% | 3/18/2029 | USA | USD | 3,016,820 | 2,945,171 | ||||||||||||||||
IT Consulting & Other Services - 3.57% |
| |||||||||||||||||||||||
PSAV Inc |
TL 1L B1 12/20 | 0.25% PIK, LIBOR (6M) + 3.25% |
4.50% | 3/3/2025 | USA | USD | 6,707,625 | 6,265,357 | (d) (e) | |||||||||||||||
PSAV Inc |
TL 1L B3 12/20 | 10.00% PIK, 5.00% |
15.00% | 10/15/2026 | USA | USD | 2,073,086 | 2,360,737 | (d) (e) | |||||||||||||||
PSAV Inc |
TL 2L 02/18 | LIBOR (3M) + 7.25% | 8.25% | 9/1/2025 | USA | USD | 2,530,890 | 2,246,165 |
See accompanying notes to financial statements.
5
Income Opportunities Fund |
April 30, 2022 (Unaudited) | |||
Issuer | Asset | Reference Rate & Spread |
Interest Rate |
Maturity Date |
Country | Currency | Par | Fair Value | Footnotes | |||||||||||||||||
Leisure Facilities - 2.26% |
| |||||||||||||||||||||||||
United PF Holdings LLC |
TL 1L 01/20 | LIBOR (3M) + 4.00% | 5.33% | 12/30/2026 | USA | USD | 6,569,108 | $ | 6,380,246 | |||||||||||||||||
United PF Holdings LLC |
TL 1L 06/20 | LIBOR (3M) + 8.50% | 9.51% | 12/30/2026 | USA | USD | 489,929 | 497,278 | ||||||||||||||||||
Life Sciences Tools & Services - 1.82% |
| |||||||||||||||||||||||||
PAREXEL International Corp |
TL 2L 07/21 | LIBOR (1M) + 6.50% | 7.26% | 11/15/2029 | USA | USD | 5,637,180 | 5,552,622 | (b) | |||||||||||||||||
Marine Ports & Services - 1.70% |
| |||||||||||||||||||||||||
Direct ChassisLink Inc |
TL 2L B 04/19 | LIBOR (3M) + 6.75% | 7.74% | 4/10/2026 | USA | USD | 5,202,637 | 5,170,121 | ||||||||||||||||||
Oil & Gas Equipment & Services - 0.06% |
| |||||||||||||||||||||||||
Caprock Midstream LLC |
TL 1L B 10/18 | LIBOR (1M) + 4.75% | 5.51% | 11/3/2025 | USA | USD | 197,787 | 197,540 | ||||||||||||||||||
Research & Consulting Services - 0.15% |
| |||||||||||||||||||||||||
TMF Group Holding BV |
TL 2L 12/17 | EURIBOR (6M) + 6.87% | 6.87% | 5/4/2026 | NLD | EUR | 440,830 | 459,415 | ||||||||||||||||||
Security & Alarm Services - 1.37% |
| |||||||||||||||||||||||||
Monitronics International Inc |
TL 1L EXIT 08/19 | LIBOR (3M) + 7.50% | 8.75% | 3/29/2024 | USA | USD | 5,362,194 | 4,155,701 | ||||||||||||||||||
Specialized Consumer Services - 0.46% |
| |||||||||||||||||||||||||
Learning Care Group Inc |
TL 1L B 05/20 | LIBOR (6M) + 8.50% | 9.52% | 3/13/2025 | USA | USD | 1,272,151 | 1,284,872 | (a) | |||||||||||||||||
Learning Care Group Inc |
TL 2L 03/18 | LIBOR (6M) + 7.50% | 8.50% | 3/13/2026 | USA | USD | 124,840 | 124,060 | (a) | |||||||||||||||||
Specialty Chemicals - 5.35% |
| |||||||||||||||||||||||||
Aruba Investments Inc |
TL 2L 10/20 | LIBOR (6M) + 7.75% | 8.50% | 11/24/2028 | USA | USD | 1,841,010 | 1,832,956 | ||||||||||||||||||
Flint Group GmbH |
TL 1L B 04/14 | 0.75% PIK, EURIBOR (3M) + 4.25% |
5.75% | 9/21/2023 | DEU | EUR | 1,141,533 | 1,162,065 | (d) (e) | |||||||||||||||||
Flint Group GmbH |
TL 1L B3 05/15 | 0.75% PIK, EURIBOR (3M) + 4.25% |
5.75% | 9/21/2023 | DEU | EUR | 9,279 | 9,446 | (d) (e) | |||||||||||||||||
Flint Group GmbH |
TL 1L B4 11/15 | 0.75% PIK, EURIBOR (3M) + 4.25% |
5.75% | 9/21/2023 | DEU | EUR | 86,890 | 88,452 | (d) (e) | |||||||||||||||||
Flint Group GmbH |
TL 1L B5 02/17 | 0.75% PIK, EURIBOR (3M) + 4.25% |
5.75% | 9/21/2023 | DEU | EUR | 144,205 | 146,799 | (d) (e) | |||||||||||||||||
Flint Group GmbH |
TL 1L B6 03/17 | 0.75% PIK, EURIBOR (3M) + 4.25% |
5.75% | 9/21/2023 | DEU | EUR | 104,877 | 106,764 | (d) (e) | |||||||||||||||||
Flint Group GmbH |
TL 1L B7 04/14 | 0.75% PIK, EURIBOR (3M) + 4.25% |
5.75% | 9/21/2023 | DEU | EUR | 100,036 | 101,835 | (d) (e) | |||||||||||||||||
Vantage Specialty Chemicals Inc |
TL 1L B 10/17 | LIBOR (3M) + 3.50% | 4.62% | 10/28/2024 | USA | USD | 9,899,295 | 9,585,834 | ||||||||||||||||||
Vantage Specialty Chemicals Inc |
TL 2L 10/17 | LIBOR (3M) + 8.25% | 9.25% | 10/27/2025 | USA | USD | 3,339,659 | 3,258,254 | ||||||||||||||||||
Trucking - 0.68% |
||||||||||||||||||||||||||
Kenan Advantage Group Inc/The |
TL 2L 08/21 | LIBOR (1M) + 7.25% | 8.01% | 9/1/2027 | USA | USD | 2,135,010 | 2,078,966 | ||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||
TOTAL LEVERAGED LOANS (amortized cost $234,220,171) |
238,034,473 | $ | 228,320,017 |
See accompanying notes to financial statements.
6
Income Opportunities Fund |
April 30, 2022 (Unaudited) | |||
Issuer | Asset | Maturity Date |
Country | Currency | Par | Fair Value | Footnotes | |||||||||||||||||
High Yield Securities - 80.81% |
||||||||||||||||||||||||
Airlines - 1.45% |
||||||||||||||||||||||||
American Airlines Group Inc |
3.75% 03/2025 | 3/1/2025 | USA | USD | 4,942,000 | $ | 4,418,024 | (h) | ||||||||||||||||
Alternative Carriers - 1.55% |
||||||||||||||||||||||||
Zayo Group LLC |
6.13% 03/2028 | 3/1/2028 | USA | USD | 5,637,000 | 4,728,400 | (h) | |||||||||||||||||
Apparel, Accessories & Luxury Goods - 0.42% |
||||||||||||||||||||||||
Varsity Brands Inc |
8.00% 12/2024 | 12/22/2024 | USA | USD | 1,270,000 | 1,270,000 | (b) (h) | |||||||||||||||||
Application Software - 1.96% |
||||||||||||||||||||||||
Cision Ltd |
9.50% 02/2028 | 2/15/2028 | USA | USD | 6,449,000 | 5,959,295 | (h) | |||||||||||||||||
Auto Parts & Equipment - 2.30% |
||||||||||||||||||||||||
BBB Industries LLC |
9.25% 08/2025 | 8/1/2025 | USA | USD | 2,585,000 | 2,706,934 | (h) | |||||||||||||||||
Wheel Pros Inc |
6.50% 05/2029 | 5/15/2029 | USA | USD | 5,638,000 | 4,292,266 | (h) | |||||||||||||||||
Automotive Retail - 1.39% |
||||||||||||||||||||||||
Mavis Discount Tire Inc |
6.50% 05/2029 | 5/15/2029 | USA | USD | 4,846,000 | 4,222,344 | (h) | |||||||||||||||||
Biotechnology - 0.84% |
||||||||||||||||||||||||
Intercept Pharmaceuticals Inc |
3.25% 07/2023 | 7/1/2023 | USA | USD | 157,000 | 151,505 | ||||||||||||||||||
Radius Health Inc |
3.00% 09/2024 | 9/1/2024 | USA | USD | 2,468,000 | 2,398,588 | ||||||||||||||||||
Broadcasting - 1.24% |
||||||||||||||||||||||||
Spotify USA Inc |
0.00% 03/2026 | 3/15/2026 | USA | USD | 4,598,000 | 3,766,912 | (c) | |||||||||||||||||
Building Products - 12.37% |
||||||||||||||||||||||||
Acproducts Inc (aka Cabinetworks) |
6.38% 05/2029 | 5/15/2029 | USA | USD | 11,955,000 | 7,189,199 | (h) | |||||||||||||||||
LBM Borrower LLC |
6.25% 01/2029 | 1/15/2029 | USA | USD | 6,181,000 | 5,037,948 | (h) | |||||||||||||||||
LBM Borrower LLC |
7.75% 04/2027 | 4/1/2027 | USA | USD | 8,493,000 | 7,272,216 | (h) | |||||||||||||||||
MI Windows and Doors Inc |
5.50% 02/2030 | 2/1/2030 | USA | USD | 1,064,000 | 921,637 | (h) | |||||||||||||||||
Oldcastle BuildingEnvelope Inc |
9.50% 04/2030 | 4/15/2030 | USA | USD | 300,000 | 274,095 | (h) | |||||||||||||||||
PrimeSource Building Products Inc |
5.63% 02/2029 | 2/1/2029 | USA | USD | 4,817,000 | 3,703,584 | (h) | |||||||||||||||||
PrimeSource Building Products Inc |
6.75% 08/2029 | 8/1/2029 | USA | USD | 6,177,000 | 4,954,028 | (h) | |||||||||||||||||
SRS Distribution Inc |
6.00% 12/2029 | 12/1/2029 | USA | USD | 7,724,000 | 6,787,002 | (h) | |||||||||||||||||
SRS Distribution Inc |
6.13% 07/2029 | 7/1/2029 | USA | USD | 1,706,000 | 1,507,660 | (h) | |||||||||||||||||
Cable & Satellite - 2.72% |
||||||||||||||||||||||||
CSC Holdings LLC (Altice USA) |
5.00% 11/2031 | 11/15/2031 | USA | USD | 806,000 | 624,448 | (h) | |||||||||||||||||
CSC Holdings LLC (Altice USA) |
5.75% 01/2030 | 1/15/2030 | USA | USD | 4,702,000 | 3,910,865 | (h) | |||||||||||||||||
RCN Grande (Radiate) |
6.50% 09/2028 | 9/15/2028 | USA | USD | 4,251,000 | 3,746,236 | (h) | |||||||||||||||||
Commercial Printing - 1.69% |
||||||||||||||||||||||||
Multi-Color Corp |
10.50% 07/2027 | 7/15/2027 | USA | USD | 4,146,000 | 4,006,694 | (h) | |||||||||||||||||
Multi-Color Corp |
5.88% 10/2028 | 11/1/2028 | USA | USD | 1,240,000 | 1,136,072 | (h) | |||||||||||||||||
Commodity Chemicals - 2.45% |
||||||||||||||||||||||||
Cornerstone Chemical Co |
6.75% 08/2024 | 8/15/2024 | USA | USD | 2,883,000 | 2,565,524 | (h) | |||||||||||||||||
SI Group Inc |
6.75% 05/2026 | 5/15/2026 | USA | USD | 6,041,000 | 4,934,500 | (h) |
See accompanying notes to financial statements.
7
Income Opportunities Fund |
April 30, 2022 (Unaudited) | |||
Issuer | Asset | Maturity Date |
Country | Currency | Par | Fair Value | Footnotes | |||||||||||||
Construction & Engineering - 0.62% |
||||||||||||||||||||
Maxim Crane Works LP / Maxim Finance Corp |
10.13% 08/2024 | 8/1/2024 | USA | USD | 1,913,000 | $ | 1,901,465 | (h) | ||||||||||||
Construction Materials - 4.49% |
||||||||||||||||||||
Cemex Materials LLC |
7.70% - 07/2025 | 7/21/2025 | USA | USD | 12,842,000 | 13,667,098 | (h) | |||||||||||||
Data Processing & Outsourced Services - 2.24% |
||||||||||||||||||||
West Corp |
8.50% 10/2025 | 10/15/2025 | USA | USD | 2,002,000 | 1,795,924 | (h) | |||||||||||||
Xerox Business Services /Conduent |
6.00% 11/2029 | 11/1/2029 | USA | USD | 5,451,000 | 5,021,843 | (h) | |||||||||||||
Electronic Components - 3.23% |
||||||||||||||||||||
CommScope Inc |
6.00% 06/2025 | 6/15/2025 | USA | USD | 5,545,000 | 4,858,806 | (h) | |||||||||||||
CommScope Inc |
7.13% 07/2028 | 7/1/2028 | USA | USD | 5,466,000 | 4,366,186 | (h) | |||||||||||||
CommScope Inc |
8.25% 03/2027 | 3/1/2027 | USA | USD | 711,000 | 605,217 | (h) | |||||||||||||
Health Care Equipment - 0.93% |
||||||||||||||||||||
Haemonetics Corp |
0.00% 03/2026 | 3/1/2026 | USA | USD | 3,563,000 | 2,830,447 | (c) | |||||||||||||
Health Care Facilities - 2.16% |
||||||||||||||||||||
CHS/Community Health Systems, Inc. |
6.13% 04/2030 | 4/1/2030 | USA | USD | 1,997,000 | 1,644,679 | (h) | |||||||||||||
CHS/Community Health Systems, Inc. |
6.88% 04/2028 | 4/1/2028 | USA | USD | 2,725,000 | 2,142,191 | (h) | |||||||||||||
CHS/Community Health Systems, Inc. |
6.88% 04/2029 | 4/15/2029 | USA | USD | 1,484,000 | 1,303,783 | (h) | |||||||||||||
LifePoint Hospitals Inc |
5.38% 01/2029 | 1/15/2029 | USA | USD | 1,727,000 | 1,478,744 | (h) | |||||||||||||
Hotels, Resorts & Cruise Lines - 11.34% |
||||||||||||||||||||
Carnival Corp |
5.75% 03/2027 | 3/1/2027 | USA | USD | 10,373,000 | 9,410,386 | (h) | |||||||||||||
Carnival Corp |
6.00% 05/2029 | 5/1/2029 | USA | USD | 4,931,000 | 4,432,920 | (h) | |||||||||||||
NCL Corp Ltd |
1.13% 02/2027 | 2/15/2027 | USA | USD | 405,000 | 355,792 | (h) | |||||||||||||
NCL Corp Ltd |
3.63% 12/2024 | 12/15/2024 | USA | USD | 4,074,000 | 3,794,850 | (h) | |||||||||||||
NCL Corp Ltd |
6.13% 03/2028 | 3/15/2028 | USA | USD | 689,000 | 621,037 | (h) | |||||||||||||
Royal Caribbean Cruises Ltd |
5.50% 04/2028 | 4/1/2028 | USA | USD | 9,336,000 | 8,535,065 | (h) | |||||||||||||
Viking Cruises Ltd |
5.00% 02/2028 | 2/15/2028 | USA | USD | 5,092,000 | 4,602,913 | (h) | |||||||||||||
Viking Cruises Ltd |
7.00% 02/2029 | 2/15/2029 | USA | USD | 3,084,000 | 2,748,661 | (h) | |||||||||||||
Industrial Conglomerates - 1.23% |
||||||||||||||||||||
Unifrax I LLC / Unifrax Holding Co |
5.25% 09/2028 | 9/30/2028 | USA | USD | 2,959,000 | 2,613,507 | (h) | |||||||||||||
Unifrax I LLC / Unifrax Holding Co |
7.50% 09/2029 | 9/30/2029 | USA | USD | 1,387,000 | 1,139,150 | (h) | |||||||||||||
Industrial Machinery - 1.14% |
||||||||||||||||||||
SPX Corp |
8.75% 04/2030 | 4/1/2030 | USA | USD | 3,832,000 | 3,456,732 | (h) | |||||||||||||
Insurance Brokers - 4.57% |
||||||||||||||||||||
Alliant Holdings I Inc |
5.88% 11/2029 | 11/1/2029 | USA | USD | 1,655,000 | 1,545,464 | (h) | |||||||||||||
National Financial Partners Corp |
6.88% 08/2028 | 8/15/2028 | USA | USD | 13,892,000 | 12,360,754 | (h) | |||||||||||||
Integrated Oil & Gas - 0.94% |
||||||||||||||||||||
Occidental Petroleum Corp |
4.10% 02/2047 | 2/15/2047 | USA | USD | 1,990,000 | 1,659,839 | ||||||||||||||
Occidental Petroleum Corp |
4.20% 03/2048 | 3/15/2048 | USA | USD | 1,448,000 | 1,202,267 |
See accompanying notes to financial statements.
8
Income Opportunities Fund |
April 30, 2022 (Unaudited) | |||
Issuer | Asset | Maturity Date |
Country | Currency | Par | Fair Value | Footnotes | |||||||||||||||||
Leisure Facilities - 3.74% |
||||||||||||||||||||||||
ClubCorp Club Operations Inc |
8.50% 09/2025 | 9/15/2025 | USA | USD | 7,605,000 | $ | 7,083,449 | (h) | ||||||||||||||||
Merlin Entertainments PLC |
6.63% 11/2027 | 11/15/2027 | IRL | USD | 4,653,000 | 4,290,974 | (h) | |||||||||||||||||
Oil & Gas Storage & Transportation - 4.34% |
||||||||||||||||||||||||
Genesis Energy |
5.63% 06/2024 | 6/15/2024 | USA | USD | 5,316,000 | 5,219,887 | ||||||||||||||||||
Genesis Energy |
6.50% 10/2025 | 10/1/2025 | USA | USD | 2,842,000 | 2,703,666 | ||||||||||||||||||
Global Partners LP / GLP Finance Corp |
6.88% 01/2029 | 1/15/2029 | USA | USD | 863,000 | 842,462 | ||||||||||||||||||
Global Partners LP / GLP Finance Corp |
7.00% 08/2027 | 8/1/2027 | USA | USD | 1,377,000 | 1,347,766 | ||||||||||||||||||
NGL Energy Partners LP / NGL Energy Finance Corp |
7.50% 02/2026 | 2/1/2026 | USA | USD | 3,277,000 | 3,092,636 | (h) | |||||||||||||||||
Pharmaceuticals - 0.47% |
||||||||||||||||||||||||
Revance Therapeutics Inc |
1.75% 02/2027 | 2/15/2027 | USA | USD | 1,616,000 | 1,417,030 | ||||||||||||||||||
Real Estate Services - 0.80% |
||||||||||||||||||||||||
Redfin Corp |
0.00% 10/2025 | 10/15/2025 | USA | USD | 3,483,000 | 2,433,746 | (c) | |||||||||||||||||
Specialty Stores - 5.55% |
| |||||||||||||||||||||||
Douglas Holding AG |
6.00% 04/2026 | 4/8/2026 | DEU | EUR | 10,461,000 | 9,937,922 | (h) | |||||||||||||||||
Douglas Holding AG |
8.25% 10/2026 | 10/1/2026 | DEU | EUR | 7,624,161 | 6,942,655 | (e) (h) | |||||||||||||||||
Trading Companies & Distributors - 2.64% |
| |||||||||||||||||||||||
TruckPro LLC |
11.00% 10/2024 | 10/15/2024 | USA | USD | 6,091,000 | 6,405,539 | (h) | |||||||||||||||||
White Cap Construction Supply Inc |
6.88% 10/2028 | 10/15/2028 | USA | USD | 1,787,000 | 1,639,689 | (h) | |||||||||||||||||
|
|
|
|
|||||||||||||||||||||
TOTAL HIGH YIELD SECURITIES (amortized cost $277,136,067) |
278,644,161 | $ | 245,939,117 |
See accompanying notes to financial statements.
9
Income Opportunities Fund |
April 30, 2022 (Unaudited) | |||
Issuer | Asset | Rate | Maturity Date |
Country | Currency | Shares | Fair Value | Footnotes | ||||||||||||||||||
Equity & Other Investments - 2.67% |
||||||||||||||||||||||||||
Diversified Metals & Mining - 1.48% |
| |||||||||||||||||||||||||
Foresight Energy LLC |
Common Stock | USA | USD | 320,381 | $ | 4,515,459 | (a) (b) | |||||||||||||||||||
Hotels, Resorts & Cruise Lines - 1.03% |
| |||||||||||||||||||||||||
Hilton Grand Vacations Inc |
Common Stock | USA | USD | 67,230 | 3,148,381 | |||||||||||||||||||||
Oil & Gas Equipment & Services - 0.15% |
| |||||||||||||||||||||||||
Proserv Group Parent LLC |
Common Stock | GBR | USD | 114,010 | 44,215 | (b) | ||||||||||||||||||||
Proserv Group Parent LLC |
Preferred Stock | GBR | USD | 36,249 | 409,047 | (b) | ||||||||||||||||||||
Packaged Foods & Meats - 0.00% |
| |||||||||||||||||||||||||
CTI Foods Holding Co LLC |
Common Stock | USA | USD | 955 | | (a) (b) | ||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||
TOTAL EQUITY & OTHER INVESTMENTS (Cost $8,429,611) |
538,825 | $ | 8,117,102 | |||||||||||||||||||||||
Trade Claim - 0.12% |
| |||||||||||||||||||||||||
Health Care Facilities - 0.12% |
| |||||||||||||||||||||||||
Quorum Health Corp |
Trade Claim | USA | USD | 3,964,000 | $ | 365,481 | (a) (b) | |||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||
TOTAL TRADE CLAIM (Cost $1,868,424) |
3,964,000 | $ | 365,481 | |||||||||||||||||||||||
Money Market Funds - 2.03% |
| |||||||||||||||||||||||||
U.S. Government Securities - 2.03% |
| |||||||||||||||||||||||||
Morgan Stanley |
2.60% | 12/31/2031 | USA | USD | 6,163,322 | $ | 6,163,322 | |||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||
TOTAL MONEY MARKET FUNDS (Cost $6,163,322) |
6,163,322 | $ | 6,163,322 | |||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||
TOTAL INVESTMENTS (Cost $527,817,605) - 160.65% |
527,344,781 | $ | 488,905,039 | |||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||
LIABILITIES EXCEEDING OTHER ASSETS, NET - (60.65)% |
(184,579,215 | ) | ||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||
NET ASSETS - 100.00% |
$ | 304,325,824 | ||||||||||||||||||||||||
|
|
TL | Term loan |
DD | Delayed draw term loan |
1L | First lien |
2L | Second lien |
(a) | Security considered restricted. |
(b) | Value determined using significant unobservable inputs. |
(c) | Zero coupon bond. |
(e) | Represents a payment-in-kind (PIK) security which may pay interest/dividend in additional par/shares. |
(h) | Securities exempt from registration pursuant to Rule 144A under the Securities Act of 1933, as amended. These securities may only be resold to qualified institutional buyers in transactions exempt from registration. |
See accompanying notes to financial statements.
10
Income Opportunities Fund |
April 30, 2022 (Unaudited) | |||
Statement of Assets and Liabilities
As of April 30, 2022 (Unaudited)
Assets |
||||
Investments, at value (cost $521,654,283) |
$ | 482,741,717 | ||
Cash and cash equivalents |
7,881,082 | |||
Dividends and interest receivable |
8,751,644 | |||
Receivable for investments sold |
8,289,824 | |||
|
|
|||
Total assets |
507,664,267 | |||
|
|
|||
Liabilities |
||||
Credit facility |
147,946,922 | |||
Mandatorily redeemable preferred shares (net of deferred offering costs of $599,413) |
49,400,587 | |||
Payable for investments purchased |
4,212,561 | |||
Trustees fees |
1,144,378 | |||
Investment advisory fees |
466,261 | |||
Other accrued expenses |
167,734 | |||
|
|
|||
Total liabilities |
203,338,443 | |||
|
|
|||
Commitments and Contingencies (Note 7) |
||||
Net assets |
$ | 304,325,824 | ||
|
|
|||
Net Assets |
||||
Paid-in capital (unlimited shares authorized $0.001 par value) |
$ | 362,194,274 | ||
Accumulated deficit |
(57,868,450 | ) | ||
|
|
|||
Net assets |
$ | 304,325,824 | ||
|
|
|||
Net asset value, price per share |
||||
(20,340,315 shares) |
$ | 14.96 | ||
|
|
See accompanying notes to financial statements.
11
Income Opportunities Fund |
April 30, 2022 (Unaudited) | |||
For the Six Months Ended April 30, 2022 (Unaudited)
Investment income |
||||
Interest income |
$ | 17,727,673 | ||
Payment-in-kind interest |
904,144 | |||
Other income |
143,280 | |||
|
|
|||
Total investment income |
18,775,097 | |||
|
|
|||
Expenses |
||||
Investment advisory fees |
2,853,852 | |||
Preferred shares interest expense |
981,771 | |||
Credit facility interest expense |
602,029 | |||
Legal fees |
192,379 | |||
Tax expense |
131,873 | |||
Administration fees |
86,190 | |||
Trustees fees |
70,090 | |||
Term loan fees |
59,929 | |||
Custodian fees |
42,552 | |||
Audit and tax fees |
39,627 | |||
Shareholder reporting expense |
37,384 | |||
Other expenses |
136,437 | |||
|
|
|||
Total expenses |
5,234,113 | |||
|
|
|||
Net investment income |
13,540,984 | |||
|
|
|||
Realized and unrealized gains (losses) |
||||
Net realized gains on |
||||
Investments |
701,489 | |||
Foreign currency transactions |
(295,489 | ) | ||
|
|
|||
Net realized gains |
406,000 | |||
Net change in unrealized depreciation on |
||||
Investments |
(37,794,511 | ) | ||
Foreign currency translation |
(311,604 | ) | ||
Deferred Trustees fees |
32,089 | |||
|
|
|||
Net change in unrealized depreciation |
(38,074,026 | ) | ||
|
|
|||
Net realized and unrealized losses |
(37,668,026 | ) | ||
|
|
|||
Net decrease in net assets resulting from operations |
$ | (24,127,042 | ) | |
|
|
See accompanying notes to financial statements.
12
Income Opportunities Fund |
April 30, 2022 (Unaudited) | |||
Statements of Changes in Net Assets
Six Months Ended April 30, 2022 (Unaudited) |
Year Ended October 31, 2021 |
|||||||
(Decrease) increase in net assets resulting from operations |
||||||||
Net investment income |
$ | 13,540,984 | $ | 28,489,442 | ||||
Net realized gains |
406,000 | 13,343,980 | ||||||
Net change in unrealized (depreciation) appreciation |
(38,074,026 | ) | 22,725,701 | |||||
|
|
|
|
|||||
Net (decrease) increase in net assets resulting from operations |
(24,127,042 | ) | 64,559,123 | |||||
Distributions to shareholders from |
||||||||
Net investment income |
(12,814,398 | ) | (25,628,796 | ) | ||||
|
|
|
|
|||||
Total distributions |
(12,814,398 | ) | (25,628,796 | ) | ||||
|
|
|
|
|||||
Net (decrease) increase in net assets |
(36,941,440 | ) | 38,930,327 | |||||
Net assets |
||||||||
Beginning of period |
341,267,264 | 302,336,937 | ||||||
|
|
|
|
|||||
End of period |
$ | 304,325,824 | $ | 341,267,264 | ||||
|
|
|
|
See accompanying notes to financial statements.
13
Income Opportunities Fund |
April 30, 2022 (Unaudited) | |||
Six Months Ended April 30, 2022 (Unaudited) |
||||
Cash Flows from Operating Activities: |
||||
Net decrease in net assets resulting from operations |
$ | (24,127,042 | ) | |
Adjustments to reconcile net decrease in net assets resulting from operations to net cash used in operating activities: |
||||
Proceeds from sales of investments |
96,615,450 | |||
Purchases of investments |
(98,858,709 | ) | ||
Net change in unrealized depreciation of investments |
37,794,511 | |||
Net accretion of premiums and discounts |
(961,280 | ) | ||
Payment-in-kind interest |
(904,144 | ) | ||
Net realized gain from investments |
(701,489 | ) | ||
Net change in unrealized depreciation on foreign currency translation |
311,604 | |||
Net realized gain on investments (foreign currency related) |
(82,376 | ) | ||
Amortization of deferred offering costs |
39,583 | |||
Net change in unrealized appreciation on Deferred Trustees fees |
(32,089 | ) | ||
Changes in assets and liabilities: |
||||
Decrease in payable for investments purchased |
(27,196,947 | ) | ||
Decrease in receivable for investments sold |
13,973,970 | |||
Increase in dividends and interest receivable |
(2,226,165 | ) | ||
Decrease in other accrued expenses |
(487,867 | ) | ||
Increase in Trustees fees payable |
58,840 | |||
Decrease in investment advisory fees payable |
(21,395 | ) | ||
|
|
|||
Net cash used in operating activities |
(6,805,545 | ) | ||
|
|
|||
|
|
|||
Cash Flows from Financing Activities |
||||
Proceeds from credit facility |
26,600,000 | |||
Cash dividends paid to shareholders |
(12,814,398 | ) | ||
Paydown of credit facility |
(9,851,108 | ) | ||
|
|
|||
Net cash provided by financing activities |
3,934,494 | |||
|
|
|||
Effect of exchange rate changes on cash |
(266,850 | ) | ||
|
|
|||
Net increase in cash and cash equivalents |
(3,137,901 | ) | ||
|
|
|||
Cash and Cash Equivalents |
||||
Beginning balance |
11,018,983 | |||
|
|
|||
Ending balance |
$ | 7,881,082 | ||
|
|
|||
Supplemental disclosure of cash flow information: |
||||
Cash paid for interest expense |
$ | 1,732,842 |
See accompanying notes to financial statements.
14
Income Opportunities Fund |
April 30, 2022 (Unaudited) | |||
Six Months Ended April 30, 2022 (Unaudited) |
Year Ended October 31, | |||||||||||||||||||||||
2021 | 2020 | 2019 | 2018 | 2017 | ||||||||||||||||||||
Per share operating performance(1) |
||||||||||||||||||||||||
Net asset value, beginning of period |
$ | 16.78 | $ | 14.86 | $ | 15.57 | $ | 17.24 | $ | 18.38 | $ | 17.67 | ||||||||||||
(Loss) income from investment operations |
||||||||||||||||||||||||
Net investment income |
0.67 | 1.40 | 1.39 | 1.49 | 1.51 | 1.59 | ||||||||||||||||||
Net realized and unrealized (losses) gains |
(1.86 | ) | 1.78 | (0.60 | ) | (1.66 | ) | (0.07 | ) | 0.71 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total from investment operations |
(1.19 | ) | 3.18 | 0.79 | (0.17 | ) | 1.44 | 2.30 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Distributions from |
||||||||||||||||||||||||
Net investment income |
(0.63 | ) | (1.26 | ) | (1.50 | ) | (1.50 | ) | (1.55 | ) | (1.59 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total distributions |
(0.63 | ) | (1.26 | ) | (1.50 | ) | (1.50 | ) | (1.55 | ) | (1.59 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Dilutive effect of rights offering |
| | | | (1.03 | ) | | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net asset value, end of period |
$ | 14.96 | $ | 16.78 | $ | 14.86 | $ | 15.57 | $ | 17.24 | $ | 18.38 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total return# |
(7.33)% | 36.24% | (3.58)% | 7.55% | 2.84% | 18.08% | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Ratios to average net assets |
||||||||||||||||||||||||
Expenses |
3.19% | 3.12% | 3.73% | 3.38% | 3.17% | 2.74% | ||||||||||||||||||
Net investment income |
8.25% | 8.49% | 9.65% | 9.07% | 8.63% | 8.74% | ||||||||||||||||||
Supplemental data |
||||||||||||||||||||||||
Market value/price |
$ | 13.58 | $ | 16.67 | $ | 13.25 | $ | 15.39 | $ | 15.77 | $ | 16.87 | ||||||||||||
Price discount |
(9.22)% | (0.66)% | (10.83)% | (1.16)% | (8.53)% | (8.22)% | ||||||||||||||||||
Net assets, end of period (000s) |
$ | 304,326 | $ | 341,267 | $ | 302,336 | $ | 316,670 | $ | 350,601 | $ | 280,373 | ||||||||||||
Portfolio turnover rate |
17.55% | 78.62% | 72.87% | 62.19% | 56.20% | 84.06% |
(1) | Per share calculations were performed using average shares. |
# | Total return is computed based on New York Stock Exchange market price of the Funds shares and excludes the effect of brokerage commissions. Dividends and distributions are assumed to be reinvested at the prices obtained under the Funds dividend reinvestment plan. |
See accompanying notes to financial statements.
15
Income Opportunities Fund |
April 30, 2022 (Unaudited) | |||
1. | Organization |
KKR Income Opportunities Fund (the Fund) was organized on March 17, 2011 as a statutory trust under the laws of the State of Delaware. The Fund is a closed-end registered management investment company, which commenced operations on July 25, 2013. The Fund seeks to generate a high level of current income, with a secondary objective of capital appreciation. The Fund is diversified for purposes of the Investment Company Act of 1940, as amended (the 1940 Act). KKR Credit Advisors (US) LLC serves as the Funds investment adviser (the Adviser).
2. | Summary of Significant Accounting Policies |
Basis of Presentation The accompanying financial statements are presented in accordance with accounting principles generally accepted in the United States of America (GAAP) and are stated in United States (U.S.) dollars. The Fund is an investment company following accounting and reporting guidance in Financial Accounting Standards Board Accounting Standards Codification Topic 946, Financial Services Investment Companies. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in these financial statements. Actual results could differ from those estimates.
Valuation of Investments The Board of Trustees (the Board) of the Fund has adopted valuation policies and procedures to ensure investments are valued in a manner consistent with GAAP as required by the 1940 Act. The Board has delegated primary responsibility in ensuring these valuation policies and procedures are followed, including those relating to fair valuation, to the Adviser.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters, or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments complexity for disclosure purposes.
Assets and liabilities recorded at fair value on the Statement of Assets and Liabilities are categorized based upon the level of judgment associated with the inputs used to measure their value. Hierarchical levels, as defined under GAAP, are directly related to the amount of subjectivity associated with the inputs to fair valuations of these assets and liabilities, and are as follows:
Level 1 Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
The types of assets generally included in this category are common stocks listed in active markets.
Level 2 Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar instruments in active markets, and inputs other than quoted prices that are observable for the asset or liability.
The types of assets and liabilities generally included in this category are high yield securities and certain leveraged loans.
Level 3 Inputs are unobservable for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.
16
Income Opportunities Fund |
April 30, 2022 (Unaudited) | |||
The types of assets generally included in this category are certain leveraged loans, common stocks not actively traded and preferred stocks not actively traded.
A significant decrease in the volume and level of activity for the asset or liability is an indication that transactions or quoted prices may not be representative of fair value because in such market conditions there may be increased instances of transactions that are not orderly. In those circumstances, further analysis of transactions or quoted prices is needed, and a significant adjustment to the transactions or quoted prices may be necessary to estimate fair value.
The availability of observable inputs can vary depending on the financial asset or liability and is affected by a wide variety of factors, including, for example, the type of product, whether the product is new, whether the product is traded on an active exchange or in the secondary market, and the current market condition. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Fund in determining fair value is greatest for instruments categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Funds assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and consideration of factors specific to the asset. The variability of the observable inputs affected by the factors described above may cause transfers between Levels 1, 2 and/or 3, which the Fund recognizes at the beginning of the period during which the inputs change.
Many financial assets and liabilities have bid and ask prices that can be observed in the marketplace. Bid prices reflect the highest price that the Fund and others are willing to pay for an asset. Ask prices represent the lowest price that the Fund and others are willing to accept for an asset. For financial assets and liabilities whose inputs are based on bid-ask prices, the Fund does not require that fair value always be a predetermined point in the bid- ask range. The Funds policy is to allow for mid-market pricing and adjust to the point within the bid-ask range that meets the Funds best estimate of fair value.
Depending on the relative liquidity in the markets for certain assets, the Fund may transfer assets to Level 3 if it determines that observable quoted prices, obtained directly or indirectly, are not available.
Investments are generally valued based on quotations from third party pricing services, unless such a quotation is unavailable or is determined to be unreliable or inadequately representing the fair value of the particular assets. In that case, valuations are based on either valuation data obtained from one or more other third party pricing sources, including broker dealers selected by the Adviser, or will reflect the Valuation Committees good faith determination of fair value based on other factors considered relevant. For assets classified as Level 3, valuations are based on various factors including financial and operating data of the company, company specific developments, market valuations of comparable companies and model projections.
Certain unfunded investments in delayed draw term loans and revolving lines of credit may at times be priced at less than par value resulting in a financial liability in the Schedule of Investments. These values are temporary and the funding of the commitment will result in these investments valued as financial assets.
For the six months ended April 30, 2022, there have been no significant changes to the Funds fair value methodologies.
Investment Transactions Investment transactions are accounted for on the trade date, the date the order to buy or sell is executed. Amortization and accretion is calculated using the effective interest method over the holding period of the investment. Realized gains and losses are calculated on the specific identified cost basis.
Cash and Cash Equivalents Cash and cash equivalents includes cash on hand, cash held in banks and highly liquid investments with original maturities of three or fewer months. Cash equivalents consist solely of money
17
Income Opportunities Fund |
April 30, 2022 (Unaudited) | |||
market funds with financial institutions. As of April 30, 2022, the Fund was invested in the Morgan Stanley Institutional Liquidity Government Portfolio Institutional Class.
Foreign Currency Transactions The books and records of the Fund are maintained in U.S. dollars. All investments denominated in foreign currency are converted to the U.S. dollar using prevailing exchange rates at the end of the reporting period. Income, expenses, gains and losses on investments denominated in foreign currency are converted to the U.S. dollar using the prevailing exchange rates on the dates when the transactions occurred.
The Fund bifurcates that portion of the results of operations resulting from changes in foreign exchange rates on investments and interest from the fluctuations arising from changes in market prices of securities held.
Distributions to Shareholders Distributions are declared and paid monthly and distributable net realized capital gains, if any, are declared and distributed at least annually. Distributions to shareholders are recorded on the ex-dividend date.
Term Loan Income Term Loan Income consists of transaction fees including, but not limited to, assignment, transfer, administration and amendment fees. Fee and other income is recorded when earned, and is recognized in Other income on the Statement of Operations.
Income Taxes The Fund has elected to be treated and has qualified, and intends to continue to qualify in each taxable year, as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended, and in conformity with the Regulated Investment Company Modernization Act of 2010. The Fund will not be subject to federal income tax to the extent the Fund satisfies the requirements under Section 851 of the Internal Revenue Code, including distributing all of its gross investment company taxable income and capital gains to its shareholders based on the Funds fiscal year end of October 31.
To avoid imposition of a 4.00% excise tax on undistributed income applicable to regulated investment companies, the Fund intends to declare each year as dividends in each calendar year at least 98.00% of its net investment income (earned during the calendar year) and 98.20% of its net realized capital gains (earned during the twelve months ended October 31) plus undistributed amounts, if any, from prior years.
The Fund evaluates tax positions taken or expected to be taken in the course of preparing the Funds tax returns to determine whether it is more-likely-than-not (i.e., greater than 50.00%) that each tax position will be sustained upon examination by a taxing authority based on the technical merits of the position. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. Management has analyzed the Funds tax positions and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions for the open tax years (2018-2021). However, managements conclusions regarding tax positions taken may be subject to review and adjustment at a later date based on factors including, but not limited to, examination by tax authorities, on-going analysis of and changes to tax laws, regulations and interpretations thereof.
As of April 30, 2022, the Fund did not have a liability for any unrecognized tax benefits. The Fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Statement of Operations. During the six months ended April 30, 2022, the Fund did not incur any interest or penalties.
18
Income Opportunities Fund |
April 30, 2022 (Unaudited) | |||
3. | Risk Considerations |
The Fund invests mainly in leveraged loans, high yield securities, common stocks not actively traded and preferred stocks. These investments may involve certain risks, including, but not limited to, those described below:
COVID-19 and Global Economic and Market Conditions The Fund is materially affected by market, economic and political conditions and events, such as natural disasters, epidemics and pandemics, wars, supply chain disruptions, economic sanctions, globally and in the jurisdictions and sectors in which it invests or operates, including factors affecting interest rates, the availability of credit, currency exchange rates and trade barriers. For example, COVID-19 has adversely impacted, and any future outbreaks could adversely impact, the markets and economy in general, including the companies in which the Fund invests, and could harm Fund performance. Epidemics and pandemics, such as the COVID-19 outbreak, have and may further result in, among other things, travel restrictions, closure of international borders, certain businesses and securities markets, restrictions on securities trading activities, quarantines, supply chain disruptions and reduced consumer demand, as well as general concern and uncertainty. The COVID-19 outbreak has had, and will continue to have, a material adverse impact on the global economy, including the U.S. economy, as cross border commercial activity and market sentiment have been negatively impacted by the outbreak and government and other measures seeking to contain its spread. Market, economic and political conditions and events are outside the Advisers control and could adversely affect the liquidity and value of the Funds investments and reduce the ability of the Fund to make attractive new investments.
Market Discount Risk The price of the Funds common shares of beneficial interest will fluctuate with market conditions and other factors. Shares of closed-end management investment companies frequently trade at a discount from their net asset value, which may increase the risk of loss.
Leverage Risk Leverage is a speculative technique that may expose the Fund to greater risk and increased costs. When leverage is used, the net asset value and market price of the Funds shares and the Funds investment return will likely be more volatile.
Market Risk Bond markets rise and fall daily. As with any investment with performance tied to these markets, the value of an investment in the Fund will fluctuate, which means that shareholders could lose money.
Interest Rate Risk Interest rates will rise and fall over time. During periods when interest rates are low, the Funds yield and total return also may be low. Changes in interest rates also may affect the Funds share price and a sharp rise in interest rates could cause the Funds share price to fall. The longer the Funds duration, the more sensitive to interest rate movements its share price is likely to be.
Credit Risk The Fund is subject to the risk that a decline in the credit quality of an investment could cause the Fund to lose money or underperform. The Fund could lose money if the issuer or guarantor of an investment fails to make timely principal or interest payments or otherwise honor its obligations.
Liquidity Risk A particular investment may be difficult to purchase or sell. The Fund may be unable to sell illiquid securities at an advantageous time or price.
Prepayment and Extension Risk The Funds investments are subject to the risk that the investments may be paid off earlier or later than expected. Either situation could cause the Fund to hold investments paying lower than market rates of interest, which could hurt the Funds yield or share price.
19
Income Opportunities Fund |
April 30, 2022 (Unaudited) | |||
High Yield Risk High yield securities and unrated securities of similar credit quality (sometimes called junk bonds) that the Fund may invest in are subject to greater levels of credit and liquidity risks. High yield securities are considered primarily speculative with respect to the issuers continuing ability to make principal and interest payments.
Foreign Investment Risk The Funds investments in securities of foreign issuers may involve certain risks that are greater than those associated with investments in securities of U.S. issuers. These include risks of adverse changes in foreign economic, political, regulatory and other conditions; changes in currency exchange rates (the currencies will decline in value relative to the U.S. dollar or, in the case of hedging positions, the U.S. dollar will decline in value relative to the currency being hedged) or exchange control regulations (including limitations on currency movements and exchanges); differing accounting, auditing, financial reporting and legal standards and practices; differing securities market structures; and higher transaction costs. These risks may be heightened in connection with investments in emerging markets.
Issuer Risk The value of securities may decline for a number of reasons that directly relate to the issuer, such as its financial strength, management performance, financial leverage and reduced demand for the issuers goods and services, as well as the historical and prospective earnings of the issuer and the value of its assets.
4. | Agreements |
Investment Advisory Agreement The Adviser provides day-to-day portfolio management services to the Fund and has discretion to purchase and sell investments in accordance with the Funds objectives, policies, and restrictions. For the services it provides to the Fund, the Adviser receives an annual fee, payable monthly by the Fund, in an amount equal to 1.10% of the Funds average daily Managed Assets (the Investment Advisory Fee). Managed Assets means the total assets of the Fund (including any assets attributable to borrowings for investment purposes) minus the sum of the Funds accrued liabilities (other than liabilities representing borrowings for investment purposes).
During periods when the Fund is using leverage, the Investment Advisory Fee paid to the Adviser will be higher than if the Fund does not use leverage because the Investment Advisory Fee paid is calculated based on the Funds Managed Assets, which includes the assets purchased through leverage.
During the six months ended April 30, 2022, the Adviser earned an Investment Advisory Fee of $2.9 million.
Administrator, Custodian and Transfer Agent U.S. Bancorp Fund Services, LLC (Fund Services or Administrator), doing business as U.S. Bank Global Fund Services, serves as the Funds administrator pursuant to an administration agreement under which the Administrator provides administrative and accounting services.
U.S. Bank N.A. (the Custodian) serves as the Funds custodian pursuant to a custody agreement. The Custodian is an affiliate of Fund Services.
Fund Services serves as the Funds transfer agent pursuant to a transfer agency agreement.
Deferred Trustees Compensation The Fund has a Deferred Trustees Compensation plan (the Plan) that allows the Independent Trustees to defer compensation to a future payment period. The compensation is invested in shares of the Fund. The value of a participating Independent Trustees deferral account is based on the shares of deferred amounts as designated by the participating Independent Trustees. Changes in the value of the Independent Trustees deferral account are included in the Statement of Operations. The accrued obligations under the Plan, including unrealized appreciation (depreciation), are included on the Statement of Assets and Liabilities.
Other Certain officers of the Fund are also officers of the Adviser. Such officers are paid no fees by the Fund for serving as officers of the Fund.
20
Income Opportunities Fund |
April 30, 2022 (Unaudited) | |||
5. | Fair Value |
The following table presents information about the Funds assets measured at fair value on a recurring basis as of April 30, 2022, and indicates the fair value hierarchy of the inputs utilized by the Fund to determine such fair value:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Leveraged loans |
$ | | $ | 217,011,491 | $ | 11,308,526 | $ | 228,320,017 | ||||||||
High yield securities |
| 244,669,117 | 1,270,000 | 245,939,117 | ||||||||||||
Preferred stocks |
| | 409,047 | 409,047 | ||||||||||||
Common stocks |
3,148,381 | | 4,925,155 | 8,073,536 | ||||||||||||
Cash equivalents |
6,163,322 | | | 6,163,322 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 9,311,703 | $ | 461,680,608 | $ | 17,912,728 | $ | 488,905,039 | ||||||||
|
|
|
|
|
|
|
|
The following are the details of the restricted securities held by the Fund:
Issuer | Asset | Par/Shares | Cost | Fair Value | Acquisition Date |
% of Net Assets |
||||||||||||||||
Common Stock |
||||||||||||||||||||||
Foresight Energy LLC |
Common Stock |
320,381 | $ | 3,568,044 | $ | 4,515,459 | 6/30/2020 | 1.48% | ||||||||||||||
CTI Foods Holding Co LLC |
Common Stock |
955 | 112,798 | | 5/3/2019 | 0.00% | ||||||||||||||||
Leveraged Loans |
||||||||||||||||||||||
Sequa Corp |
TL 1L 07/20 |
5,745,343 | 5,594,808 | 5,754,938 | 7/31/2020 | 1.89% | ||||||||||||||||
Sequa Corp |
TL 2L 07/20 |
17,878,559 | 18,015,390 | 17,824,924 | 7/31/2020 | 5.86% | ||||||||||||||||
Yak Access LLC |
TL 1L B 05/18 |
5,792,935 | 5,630,798 | 5,035,769 | 6/29/2018 | 1.65% | ||||||||||||||||
Belk Inc |
TL 1L 02/21 |
459,875 | 454,814 | 454,701 | 2/24/2021 | 0.15% | ||||||||||||||||
Belk Inc |
TL 1L EXIT 02/21 |
8,232,031 | 5,132,608 | 4,916,087 | 2/24/2021 | 1.62% | ||||||||||||||||
Foresight Energy LLC |
TL 1L A 06/20 |
2,191,606 | 2,191,606 | 2,191,606 | 6/30/2020 | 0.72% | ||||||||||||||||
Excelitas Technologies Corp |
TL 2L 10/17 |
11,291,720 | 11,297,070 | 11,327,007 | 11/17/2017 | 3.72% | ||||||||||||||||
ScionHealth |
TL 1L B 12/21 |
1,742,513 | 1,626,020 | 1,533,411 | 12/17/2021 | 0.50% | ||||||||||||||||
Learning Care Group Inc |
TL 1L B 05/20 |
1,272,151 | 1,249,265 | 1,284,872 | 5/21/2020 | 0.42% | ||||||||||||||||
Learning Care Group Inc |
TL 2L 03/18 |
124,840 | 121,958 | 124,060 | 2/11/2021 | 0.04% | ||||||||||||||||
Trade Claim |
||||||||||||||||||||||
Quorum Health Corp |
3,964,000 | 1,871,035 | 365,481 | 7/7/2020 | 0.12% | |||||||||||||||||
|
|
|
|
|||||||||||||||||||
Total |
$ | 56,866,214 | $ | 55,328,315 | ||||||||||||||||||
|
|
|
|
(1) | Refer to the Schedule of Investments for more details on securities listed. |
21
Income Opportunities Fund |
April 30, 2022 (Unaudited) | |||
The following is a reconciliation of the investments in which significant unobservable inputs (Level 3) were used in determining value:
Leveraged Loans |
High Yield Securities |
Preferred Stocks |
Common Stocks |
|||||||||||||
Balance as of October 31, 2021 |
$ | 9,485,763 | $ | | $ | 409,050 | $ | 4,697,082 | ||||||||
Transfer into Level 3 |
| 1,271,003 | | | ||||||||||||
Purchases |
1,906,894 | | | | ||||||||||||
Sales and paydowns |
(21,523 | ) | | | | |||||||||||
Settlements |
12,190 | 4,246 | | | ||||||||||||
Net change in (depreciation)/appreciation |
(75,096 | ) | (5,249 | ) | (3 | ) | 228,073 | |||||||||
Net realized gains |
298 | | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance as of April 30, 2022 |
$ | 11,308,526 | $ | 1,270,000 | $ | 409,047 | $ | 4,925,155 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net change in (depreciation)/appreciation on investments held at April 30, 2022 |
$ | (85,855 | ) | $ | (5,249 | ) | $ | (3 | ) | $ | 228,073 | |||||
|
|
|
|
|
|
|
|
The following table presents additional information about valuation techniques and inputs used for investments that are measured at fair value and categorized within Level 3 as of April 30, 2022:
Financial Asset |
Fair Value | Valuation Technique(1) |
Unobservable Inputs(2) |
Range (Weighted |
||||||||
Leveraged Loans |
$ | 11,308,526 | Yield Analysis | Yield | 9% -11% (10%) | |||||||
Discount Margin | 3% - 4% (4%) | |||||||||||
EBITDA Multiple | 2.0x - 13.5x (10.0x) | |||||||||||
Net Leverage | 0.3x - 7.6x (5.5x) | |||||||||||
Common Stocks |
$ | 4,925,155 | Market Comparables | FWD EBITDA | 2.0x - 11.4x (2.1x) | |||||||
Illiquidity Discount | 15% - 20% (15%) | |||||||||||
Discounted Cash Flows | WACC | 25% | ||||||||||
High Yield Securities |
$ | 1,270,000 | Yield Analysis | Yield | 8% | |||||||
Discount margin | 1% | |||||||||||
EBITDA multiple | 13.1x | |||||||||||
Net leverage | 10.7x | |||||||||||
Preferred Stocks |
$ | 409,047 | Market Comparables | LTM Revenue | 12.5x | |||||||
Illiquidity Discount | 20% | |||||||||||
FWD EBITDA | 11.4x |
(1) | For the assets that have more than one valuation technique, the Fund may rely on the techniques individually or in aggregate based on a weight ascribed to each one ranging from 0.00%-100.00%. When determining the weighting ascribed to each valuation methodology, the Fund considers, among other factors, the availability of direct market comparables, the applicability of a discounted cash flow analysis and the expected hold period and manner of realization for the investment. These factors can result in different weightings among the investments and in certain instances, may result in up to a 100.00% weighting to a single methodology. |
(2) | The significant unobservable inputs used in the fair value measurement of the Funds assets and liabilities may include the last twelve months (LTM) EBITDA multiple, weighted average cost of capital, discount margin, probability of default, loss severity and constant prepayment rate. In determining certain of these inputs, management evaluates a variety of factors including economic, industry and market trends and |
22
Income Opportunities Fund |
April 30, 2022 (Unaudited) | |||
developments, market valuations of comparable companies, and company specific developments including potential exit strategies and realization opportunities. Significant increases or decreases in any of these inputs in isolation could result in significantly lower or higher fair value measurement. |
(3) | Weighted average amounts are based on the estimated fair values. |
6. | Investment Transactions |
The cost of investments purchased and the proceeds from the sale of investments, other than short-term investments, for the six months ended April 30, 2022 were as follows:
Purchases |
$ | 96,581,335 | ||
Sales |
$ | 89,318,363 |
There were no purchases or sales of U.S. Government securities.
7. | Commitments and Contingencies |
The Fund may enter into certain credit agreements, of which all or a portion may be unfunded. The Fund had no unfunded commitments as of April 30, 2022.
Under the Funds organizational documents, its officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In the normal course of business, the Fund enters into contracts that contain a variety of representations that provide general indemnifications. The Funds maximum liability exposure under these arrangements is unknown, as future claims that have not yet occurred may be made against the Fund. However, based on experience, management expects the risk of loss to be remote.
8. | Federal Income Taxes |
The timing and characterization of certain income, capital gains, and return of capital distributions are determined annually in accordance with federal tax regulations, which may differ from GAAP. As a result, the net investment income and net realized gains (losses) on investment transactions for a reporting period may differ significantly from distributions during such period. These book to tax differences may be temporary or permanent in nature. To the extent these differences are permanent, they are charged or credited to paid-in capital, accumulated net investment income or accumulated net realized gains (losses), as appropriate, in the period in which the differences arise.
As of October 31, 2021, the following permanent differences have been reclassified (to)/from the following accounts:
Undistributed Net Investment Income |
Accumulated Net Realized Loss |
Paid-in Capital | ||
$182,810 | $(33,226) | $(149,584) |
The tax character of distributions declared for the year ended October 31, 2021 and the six months ended April 30, 2022, were as follows:
Ordinary Income |
Total | |||||||
October 31, 2021 |
$ | 25,628,796 | $ | 25,628,796 | ||||
April 30, 2022* |
$ | 12,814,398 | $ | 12,814,398 |
* | The final tax character of any distribution declared during the six months ended April 30, 2022 will be determined in January 2023 and reported to shareholders on IRS Form 1099-Div in accordance with federal income tax regulations. |
23
Income Opportunities Fund |
April 30, 2022 (Unaudited) | |||
As of October 31, 2021, the components of accumulated losses on a tax basis for the Fund are as follows:
Undistributed Ordinary Income |
Net Unrealized Appreciation |
Other Temporary Differences |
Total Accumulated Losses | |||
$3,694,270 | $815,095 | $(25,436,375) | $(20,927,010) |
Net capital losses earned may be carried forward indefinitely and must retain the character of the original loss. During the year ended October 31, 2021, the Fund utilized capital loss carry-forwards of $13.4 million. As of October 31, 2021, the Fund had non-expiring capital loss carry-forwards of $24.2 million.
As of October 31, 2021, the total cost of securities for federal income tax purposes and the aggregate gross unrealized appreciation and depreciation for securities held by the Fund are as follows:
Federal To Cost |
Aggregate Gross Unrealized Appreciation |
Aggregate Gross Unrealized Depreciation |
Net Unrealized Appreciation | |||
$517,805,317 | $13,853,096 | $(13,038,001) | $815,095 |
9. | Credit Facility |
In October 2019, the Fund entered into a credit agreement (the State Street Credit Facility) with State Street Bank and Trust Company (State Street). The State Street Credit Facility provides for loans to be made in U.S. dollars and certain foreign currencies to an aggregate amount of $160.0 million, with an accordion feature that allows the Fund, under certain circumstances, to increase the size of the facility to a maximum of $225.0 million. The Fund may reduce or terminate the commitments under the State Street Credit Facility with three business days notice. State Street is required to provide the Fund with 270 days notice prior to terminating the State Street Credit Facility.
Prior to December 30, 2021, interest on the State Street Credit Facility was generally based on the London Interbank Offered Rate (LIBOR), or with respect to borrowings in foreign currencies, on a base rate applicable to such currency borrowing, plus a spread of 0.75%. On December 30, 2021, the Fund amended the State Street Credit Facility to replace the LIBOR with the Secured Overnight Financing Rate and added an additional spread adjustment of 0.12%-0.33% for borrowings denominated in the British pound. The Fund also pays a commitment fee on any unused commitment amounts between 0.15% and 0.25%, depending on utilization levels. As of April 30, 2022, the Fund was in compliance with the terms of the State Street Credit Facility.
The components of interest expense, average interest rates (i.e., base interest rate in effect plus the spread) and average outstanding balances for the Funds credit facilities for the six months ended April 30, 2022 were as follows:
Stated interest expense |
$ | 590,418 | ||
Unused commitment fees |
11,611 | |||
|
|
|||
Total interest expense |
$ | 602,029 | ||
|
|
|||
Weighted average interest rate |
0.83 | % | ||
Average borrowings |
$ | 142,189,560 |
24
Income Opportunities Fund |
April 30, 2022 (Unaudited) | |||
10. | Mandatorily Redeemable Preferred Shares |
On October 15, 2019, the Fund issued 10-year mandatorily redeemable preferred shares (the MRPS). The Fund authorized and issued 2.0 million MRPS with a total liquidation value of $50.0 million. The final redemption date of the MRPS is October 31, 2029. The Fund makes quarterly dividend payments on the MRPS at an annual dividend rate of 3.81%. The fair value of MRPS approximates its par value as of April 30, 2022. This fair value is based on Level 2 inputs under the fair value hierarchy.
Offering costs incurred in connection with the issuance of MRPS have been recorded, and are being deferred and amortized through the final redemption date of the MRPS. The amortization of these costs is included in preferred shares interest expense in the Statement of Operations.
25
Income Opportunities Fund |
April 30, 2022 (Unaudited) | |||
VOTING RESULTS FROM THE MARCH 18, 2022 SHAREHOLDER MEETING
At the Annual Meeting of Shareholders held on March 18, 2022, shareholders approved the election of Catherine B. Sidamon-Eristoff as a Class II Trustee to the Board of Trustees to serve a three year term expiring in 2025 based on the following results:
Total Outstanding Shares |
22,340,315 | |||
Total Shares Voted |
16,997,974 | |||
For |
16,547,980 | |||
Withheld |
449,994 |
At the Annual Meeting of Shareholders held on March 18, 2022, preferred shareholders approved the election of Tobin V. Levy as a Class II Trustee to the Board of Trustees to serve a three year term expiring in 2025 based on the following results:
Total Outstanding Shares |
2,000,000 | |||
Total Shares Voted |
1,040,000 | |||
For |
1,040,000 | |||
Withheld |
0 |
26
(b) Not applicable
Item 2. Code of Ethics.
Not applicable for semi-annual report.
Item 3. Audit Committee Financial Expert.
Not applicable for semi-annual report.
Item 4. Principal Accountant Fees and Services.
Not applicable for semi-annual report.
Item 5. Audit Committee of Listed Registrants.
Not applicable for semi-annual report.
Item 6. Investments.
(a) Schedule of Investments is included as part of the report to shareholders filed under Item 1 of this Form.
(b) Not applicable.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable for semi-annual report.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable for semi-annual report.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
No purchases were made during the reporting period by or on behalf of the registrant or any affiliated purchaser, as defined in Rule 10b-18(a)(3) under the Exchange Act (17 CFR 240.10b-18(a)(3)), of shares or other units of any class of the registrants equity securities that is registered by the registrant pursuant to Section 12 of the Exchange Act (15 U.S.C. 781).
Item 10. Submission of Matters to a Vote of Security Holders.
There have been no material changes to the procedures by which shareholders may recommend nominees to the registrants board of trustees since the registrant last provided disclosure in response to this item.
Item 11. Controls and Procedures.
(a) The registrants principal executive officer and principal financial officer have concluded, based on their evaluation of the registrants disclosure controls and procedures as of a date within 90 days of the filing date of this report on Form N-CSR, that the design and operation of such procedures are effective to provide reasonable assurance that information required to be disclosed by the investment company on Form N-CSR is recorded, processed, summarized and reported within the time periods specified in the Commissions rules and forms.
(b) There have been no changes in the registrants internal control over financial reporting during the six months ended April 30, 2022 that materially affected, or are reasonably likely to materially affect, the registrants internal control over financial reporting.
Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies
The registrant did not engage in securities lending activities during the fiscal period reported on this Form N-CSR.
Item 13. Exhibits.
(a)(1) Not applicable.
(a)(3) Not applicable.
(a)(4) Not applicable.
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 are filed herewith.
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.
KKR Income Opportunities Fund | ||
By /s/ Eric Mogelof | ||
Eric Mogelof, President | ||
Date June 29, 2022 |
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 /s/ Eric Mogelof | ||
Eric Mogelof, President | ||
Date June 29, 2022 | ||
By /s/ Thomas Murphy | ||
|
Thomas Murphy, Treasurer, Chief Accounting Officer & Chief Financial Officer | |
Date June 29, 2022 |