Core Viewpoint - XAI Octagon Floating Rate & Alternative Income Trust has declared a monthly distribution of $0.060 per share, reflecting a 14.29% decrease from the previous month's distribution of $0.070 per share [1][2]. Distribution Details - The distribution is payable on January 30, 2026, to shareholders of record as of January 15, 2026 [1][3]. - The new distribution amount results in an annualized distribution rate of 15.00% based on market price and 13.48% based on NAV as of December 31, 2025 [2]. Investment Objective and Portfolio - The Trust aims for attractive total returns with a focus on income generation across various stages of the credit cycle, primarily investing in floating-rate credit instruments [2][10]. - The Trust's income generation has been negatively impacted by recent Federal Reserve rate cuts and interest rate spread compression [2]. Tax and Distribution Characteristics - Distributions may come from net investment income, capital gains, or a return of capital, and shareholders should not assume distributions are solely from net income [3][6]. - The Trust is subject to a 4% excise tax if it fails to distribute at least 98% of its ordinary income and capital gains by year-end [5]. Management and Advisory - XA Investments LLC serves as the Trust's investment adviser, focusing on providing access to alternative investment strategies [12][14]. - Octagon Credit Investors, LLC acts as the investment sub-adviser, specializing in below-investment grade corporate credit investments [16].

Financial Data and Key Metrics Changes - The company reported adjusted net investment income of $0.56 per share and adjusted net income of $0.64 per share for Q2 2025, with annualized returns on equity of 13.1% and 15.1% respectively [7] - Total investments decreased to $3.3 billion from $3.4 billion in the prior quarter due to net repayment activity [27] - The net asset value (NAV) per share increased to $17.17, up from $17.04 as of March 31 [12] Business Line Data and Key Metrics Changes - The company provided total commitments of $289 million and total fundings of $209 million across 13 new investments and four upsizes in Q2 [18] - Approximately 30% of commitments were sourced outside the sponsored channel, with the remaining 70% from traditional sponsor-backed finance [18] Market Data and Key Metrics Changes - The M&A market saw a 31% decline in loan volume in Q2 compared to Q1, marking the lowest levels since 2023 [13] - The company noted a significant reduction in exposure to older pre-2022 vintages, with only 29% of the portfolio by cost compared to 59% for public BDC sector averages [23] Company Strategy and Development Direction - The company anticipates a shift in focus from credit quality to dividend coverage as portfolio yields decline [10] - The management emphasized the importance of sourcing differentiated investment opportunities to maintain robust dividend coverage, which exceeded the base dividend by 22% in Q2 [10][11] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism that credit issues are predominantly behind the company, with expectations of improved non-accruals and a focus on dividend coverage moving forward [10][68] - The company highlighted the need for a longer runway for portfolio company earnings to grow in the current economic environment [14] Other Important Information - The board approved a base quarterly dividend of $0.46 per share and a supplemental dividend of $0.05 per share related to Q2 earnings [12] - The company maintained a strong balance sheet with approximately $1.1 billion of unfunded revolver capacity [28] Q&A Session Summary Question: How does the company manage portfolio diversification related to risk? - The CEO emphasized the importance of idiosyncratic underwriting and the company's strong track record in risk management [43][44] Question: What are the attractive investment themes currently? - The CEO mentioned a preference for off-the-run, non-sponsor investments, such as speculative pharma and asset-based lending, which tend to offer better returns [46][48] Question: How does the company view the impact of non-traded BDCs on loan spreads? - The CEO expressed concerns about the potential for lower ROEs in the sector due to increased competition and complacency among investors [53][60] Question: What is the outlook for non-sponsored transactions? - The company is generally positive about second-half activity, with a robust pipeline across both sponsor and non-sponsor activities [90] Question: What changes have been observed in terms and documentation for new investments? - The company has not seen changes in documentation standards or covenant packages over the last few quarters [92]