After years of suffering from a tumultuous interest rate environment, macro forces have finally aligned in favor of agency mortgage REITs. Dynex Capital (DX) and AGNC Investment (AGNC) each reported huge gains in 2025 with massive comprehensive income and book value growth. Additional macro developments, which we will detail later, portend a similarly strong 2026. Despite this strength, I would caution investors that the sharp gains are one-time in nature and that both AGNC and DX are slightly overvalued ev ...

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Gladstone Investment (NasdaqGS:GAIN) Q3 2026 Earnings call February 04, 2026 08:30 AM ET Company ParticipantsCatherine Gerkis - Director of Investor Relations and ESGChristopher Nolan - SVPDavid Dullum - PresidentDavid Gladstone - Chairman and CEOMickey Schleien - Managing Director of Equity ResearchTaylor Ritchie - CFOConference Call ParticipantsNone - AnalystOperatorAs a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. David Gladstone, Chief Executive Officer. ...

Group 1: Credit Market Overview - Tightening credit spreads present opportunities for fixed income investors, with investment-grade credit tightening by 10 basis points and high-yield by 30 basis points during Q3 [1] - Emerging markets (EM) debt has gained attention, with credit spreads narrowing by 78 basis points year-over-year and 40 basis points in Q3 [2] - A positive outlook for credit is expected to persist into 2026, supported by stable corporate leverage, strong margins, and lower U.S. consumer debt levels compared to pre-pandemic [3] Group 2: Investment Options - The Vanguard Total Corporate Bond ETF Shares (VTC) offers exposure to investment-grade corporate bonds, with a 30-day SEC yield of 4.75% and a low expense ratio of 0.03% [4] - The Vanguard Emerging Markets Government Bond Index Fund ETF Shares (VWOB) provides diversified exposure to EM debt, featuring a 0.15% expense ratio [5]

Core Viewpoint - The $3 trillion shadow banking industry is exhibiting "bubble-like characteristics" that could potentially lead to a global financial shock, according to Fitch Ratings [1]. Group 1: Market Concerns - The recent $12 billion collapse of First Brands and warnings from two regional US banks about bad loans have raised concerns about underlying issues in the private credit market [2]. - The private credit market has grown by 50% in recent years, with the IMF estimating that banks globally have approximately $4.5 trillion in exposure to private credit players [3]. Group 2: Risk Factors - Fitch notes that private credit is transitioning from a niche product to a significant asset class, increasing in both scale and complexity, which could expose the financial system to unexpected risks [4][5]. - The involvement of individual investors alongside major banks and fund managers, along with increased leverage among borrowers, are contributing to the bubble-like trends [5]. - "Spread compression," where investors accept lower yields on risky investments, may indicate weaker lending standards [6]. Group 3: Current Market Dynamics - Despite the emerging risks, Fitch has not observed "classic bubble signs," as investors are still cautious in pricing high-risk credit [7]. - Banks' exposure to risky borrowers is primarily indirect, and they possess limited liquidity risk, allowing them to withdraw funds from private credit vehicles if necessary [7]. Group 4: Economic Outlook - Signs of an economic slowdown in the US could lead to increased defaults among heavily indebted borrowers, particularly in sectors like auto parts and used cars [8].

Financial Data and Key Metrics Changes - The company generated net investment income (NII) and realized gains of $0.44 per share in Q1 2025, down from $0.54 per share in Q4 2024, comprised of $0.40 of NII and $0.04 of realized capital gains [5][20] - The NAV per share decreased to $14.16 as of March 31, 2025, from $14.99 as of December 31, 2024, representing a 5.5% decline [7][22] - Recurring cash flows for Q1 2025 were $16,500,000 or $0.71 per share, compared to $16,100,000 or $0.82 per share in Q4 2024 [8][9] Business Line Data and Key Metrics Changes - The decline in NII was primarily due to a significant drop in SOFR and spread compression on syndicated loans, adversely impacting earnings from the CLO equity portfolio [6][15] - The company deployed approximately $120,000,000 of gross capital across 27 CLO debt purchases and nine CLO equity purchases during Q1 2025 [13] - The trailing twelve-month default rate decreased slightly to 80 basis points as of March 31, remaining well below the historical average of 2.6% [16][17] Market Data and Key Metrics Changes - CLO issuance in Q1 2025 was $49,000,000,000, down from $59,000,000,000 in Q4 2024, but still healthy by historical standards [18] - The S&P UBS Leveraged Loan Index generated a total return of 60 basis points during Q1 2025, with a recent increase of 1.8% for the year as of May 23 [14] Company Strategy and Development Direction - The company is focused on capitalizing on market volatility by purchasing CLO debt and equity at discounted prices, which is expected to yield positive returns over time [11][24] - The management aims to extend the weighted average remaining reinvestment period of the CLO equity portfolio and seeks longer reinvestment period opportunities [18] Management's Comments on Operating Environment and Future Outlook - Management indicated that the decline in NII is largely driven by the drop in short-term rates, and the new distribution rate reflects the company's near to medium-term earnings potential [24] - The company believes it is well-positioned to continue generating strong returns for shareholders despite current market conditions [25] Other Important Information - The company declared three monthly distributions of $0.13 per share for the third quarter of 2025, a decline from previous distributions [9][21] - As of April 30, 2025, the company had $33,000,000 of cash and undrawn revolver capacity available for investment [19][22] Q&A Session Summary Question: About the reduction in dividend distribution - Management clarified that the reduction in dividend distribution is due to changes in SOFR and not related to capital losses, emphasizing that the majority of the portfolio is CLO BBs which fluctuate with rates [26][36] Question: Clarification on CLOs and default rates - Management confirmed that the change in distribution rate is principally driven by the change in SOFR, with no credit-related issues affecting the portfolio [35][37]