Corporate Loan Obligations

Corporate Loan Obligations (CLO) constitute approximately 15-20% of AFN’s total investment portfolio. We invest in debt obligations of middle market corporations, partnerships and other entities in the form of first and second lien loans, mezzanine loans and bridge facilities, which we collectively refer to as leveraged loans because of the high proportion of debt typically in the capital structure of the borrowing entities, as well as in high yield debt securities. We have access to leveraged loan investments generated by Cohen & Company through our management agreement. The Cohen & Company leveraged loan product line focuses on middle market issuers in industries characterized by relatively low volatility and leverage levels, such as consumer products and manufacturing. In general, the borrowers of these loans are borrowing funds in connection with leveraged buyouts of their companies. Our investments in leveraged loans may take the form of an investment in loan participations.

The market for leveraged loans to middle market companies, which are estimated to have approximately $1.3 trillion of total loans outstanding (according to Standard and Poor's) offers attractive risk-adjusted investment opportunities relative to loans to larger companies that are syndicated among large groups of lenders (broadly syndicated). Leveraged loans of middle market companies possess inherent structural and credit protections that make them well suited to support more favorable covenant and security packages than is customary in broadly syndicated loans. In addition, based on Cohen Brothers’ experience, leveraged loans to middle market companies typically offer higher upfront fees and higher returns to the lenders relative to broadly syndicated loans. We believe that the credit characteristics of middle market leverage loans will continue to be favorable as borrower leverage levels and defaults have remained relatively low according to Standard & Poor’s.