--- title: Q3 2019 Commentary - Being There (Reprised) description: We are seeing a widening disparity in credit quality, which requires a fixed income investor to be increasingly circumspect. image: https://blog.crossingbridgefunds.com/hubfs/being%20there.jpg --- [![CrossingBridge Funds](https://blog.crossingbridgefunds.com/hubfs/CrossingBridge_January2019%20Theme/Images/download.png)](https://www.crossingbridgefunds.com/) - About - [About Us](https://www.crossingbridgefunds.com/about-us) - [Our Team](https://www.crossingbridgefunds.com/team) - [Approach](https://www.crossingbridgefunds.com/our-approach/) - Funds - [Ultra Short Duration Fund](https://www.crossingbridgefunds.com/ultra-short-duration-fund) - [Low Duration High Income Fund](https://www.crossingbridgefunds.com/low-duration-high-yield-fund) - [Responsible Credit Fund](https://www.crossingbridgefunds.com/responsible-credit-fund) - [RiverPark Strategic Income Fund](https://www.crossingbridgefunds.com/riverpark-strategic-income-fund) - [Nordic High Income Bond Fund](https://www.crossingbridgefunds.com/nordic-high-income-bond-fund) - [Insights](https://blog.crossingbridgefunds.com/blog) - [Contact](https://www.crossingbridgefunds.com/contact/) - About - [About Us](https://www.crossingbridgefunds.com/about-us) - [Our Team](https://www.crossingbridgefunds.com/team) - [Approach](https://www.crossingbridgefunds.com/our-approach/) - Funds - [Ultra Short Duration Fund](https://www.crossingbridgefunds.com/ultra-short-duration-fund) - [Low Duration High Income Fund](https://www.crossingbridgefunds.com/low-duration-high-yield-fund) - [Responsible Credit Fund](https://www.crossingbridgefunds.com/responsible-credit-fund) - [RiverPark Strategic Income Fund](https://www.crossingbridgefunds.com/riverpark-strategic-income-fund) - [Nordic High Income Bond Fund](https://www.crossingbridgefunds.com/nordic-high-income-bond-fund) - [Insights](https://blog.crossingbridgefunds.com/blog) - [Contact](https://www.crossingbridgefunds.com/contact/) # Q3 2019 Commentary - Being There (Reprised) October 21, 2019 We do not have a strong view on whether economic growth will continue or a recession is imminent. Many investors are also uncertain. Hence, we are seeing a widening disparity in credit quality, which requires a fixed income investor to be increasingly circumspect. For investors who have been less discerning, the rise in volatility and bifurcation of the market presents the potential for price declines and portfolio losses; for investors who, like us, have significant “dry powder”, it represents future opportunity. *****Being There (Reprised)1***** ***President****: Mr. Chairman, to stimulate growth, I think we need more aggressive monetary policy rather than fostering growth through temporary incentives!* ***Fed Chairman****: As long as the roots are not severed, all is well. And all will be well in the garden.* ***President****: In the garden?* ***Fed Chairman****: Yes. In the garden, growth has it seasons. First comes spring and summer, but then we have fall and winter. And then we get spring and summer again.* We do not have a strong view on whether economic growth will continue or a recession is imminent. Many investors are also uncertain. Hence, we are seeing a widening disparity in credit quality, which requires a fixed income investor to be increasingly circumspect. For investors who have been less discerning, the rise in volatility and bifurcation of the market presents the potential for price declines and portfolio losses; for investors who, like us, have significant “dry powder”, it represents future opportunity. **Merrill Lynch Option Volatility Estimate (MOVE) Index****2** ![](https://blog.crossingbridgefunds.com/hubfs/image-19.png) During 3Q19, Treasury bond volatility3 continued to increase sharply. This appears to reflect investors’ concerns regarding the ongoing lunge and parry of trade negotiations between the U.S. and China as well as the deceleration of the global economy. **Federal Excess Reserves****4** ![](https://blog.crossingbridgefunds.com/hubfs/image-20.png) Since the end of 2015, the Fed’s efforts to normalize policy, shifting from Quantitative Easing to Quantitative Tightening, may have pushed natural rates beyond neutral.5 In July 2019, the Fed lowered interest rates for the first time since 2008. This reversal in policy likely reflects concern that escalating trade tensions, combined with continued monetary tightening, might tip the economy into a recession. Toward the end of 3Q19, the Fed was compelled to provide additional liquidity to the repo market 6 when rates spiked, a circumstance that may have been caused by the Fed’s tightening policy.  It remains to be seen whether the Federal Reserve pivot will offset macro headwinds (accelerated by trade skirmishes) and forestall an inevitable recession. We remain fervent in our belief that business cycles are a natural state and that recessions, though painful, are not wholly bad. They serve to reduce the excesses in the system. Today, the greatest excess may be the misallocation of capital enabled by low interest rates.7 At quarter-end, the Greek 10-year government bond yield was 1.32%, the lowest level in more than 20 years, and, for the first time in its history, the country recently issued debt (13-week bills) with a negative yield; the European debt crisis of 2012, when investors were worried about the potential default of the PIIGS,8 appears to be a distant memory. **Net IG and HY Issuer Downgrades - Rolling LTM****9** ![](https://blog.crossingbridgefunds.com/hubfs/image-21.png) We have also seen misallocation of capital in corporate credit. Companies have been all too willing to take advantage of cheap financing and lenient terms to make acquisitions, pay dividends and fund large share repurchases. These excesses in corporate debt are beginning to “come home to roost”. Over the last several quarters, net high yield downgrades have approached the levels last seen in 2016. In 2018, there was a modest level of net upgrades among investment grade issuers, but, in the most recent quarter, downgrades began to outnumber upgrades. Unlike 2015-16, the current period of high yield downgrades has been nearly evenly split between energy-related and non-energy credits 10 suggesting the deterioration has taken place in a broader portion of the U.S. economy. In the trenches, we have observed multiple examples of credit deterioration in industries ranging from chemicals to boilers, lumber to printing equipment; the most common theme is economic uncertainty and trade tensions.11 **High Yield Bonds with 5pt+ Monthly Declines****12** ![](https://blog.crossingbridgefunds.com/hubfs/image-23.png) Concurrent with this increase in net credit downgrades in the high yield market, there has been a sharp increase in bonds experiencing monthly price declines of five points or more. Taking a “shoot first and ask questions later” approach, investors have increasingly sold bond positions as soon as companies reported shortfalls in performance or were perceived to be subject to the increasing risk posed by the potentially toxic combination of elevated leverage and a slowing economy. **1****st** **Lien Leveraged Loans with 5pt+ Monthly Declines****13** ![](https://blog.crossingbridgefunds.com/hubfs/image-24.png) As has been the case with high yield bonds, the incidence of leveraged loans experiencing monthly price declines of five points or more has also increased sharply. The buyers of leveraged loans are predominantly14 Collateralized Loan Obligations (“CLOs”).15  Although to date the rise in volatility has been somewhat muted, the diversification and credit quality tests that govern CLOs will typically force CLO managers to sell as credit quality and price deterioration occur, fueling greater volatility.  **% of Loans Trading Below 90 in US CLO****16** ![](https://blog.crossingbridgefunds.com/hubfs/image-27.png) The portion of underlying leveraged loans supporting CLOs that are trading below 90 has more than doubled from less than 3% in 2018 to over 8% at present. Since the end of 1Q19, the rise in loans trading at 90 or below has coincided with a decline in LIBOR. Because the interest rate on a floating rate loan can be reset, typically every three months, a decline in LIBOR should have minimal impact on the loan’s price.17 Thus, when a loan falls below 90, it implies that the market credit spread has increased to reflect an increase in risk. Investors in CLOs and leveraged loan mutual funds have taken misguided comfort in the fact that floating rate loans have little sensitivity to movement in interest rates, but these loans still have risks associated with high leverage, future credit deterioration and diminished lender protection (given the prevalence of covenant-lite credit agreements). **U.S. CLO Issuance and Leverage Ratios****18** ![](https://blog.crossingbridgefunds.com/hubfs/image-28.png) It is often said that it is the job of bankers to “feed the dogs what they’ll eat.” With the steady issuance of CLOs and the growth of leveraged loan funds, their portfolio managers have become increasingly tolerant of ever-higher leverage ratios. Further, they have given undue credence to EBITDA add-backs19 that reflect the promises of issuers to grow revenues, cut costs and capture synergies. A recent UBS study20 shows that among 2015 and 2016 vintage B-rated loans, actual leverage in the two years following issuance is more than double the future estimated leverage ratio at the time of issuance.21 Thus, leveraged loans, largely held by CLOs, are much riskier than generally acknowledged. The excesses of the leveraged loan market will be a ticking time bomb for some and an opportunity for others. Taking into account the current environment and our expectations, we have been: - Eliminating second lien loans22 and becoming more cautious with respect to first-lien loans. - Proactively selling credits when they begin to show deterioration. - Focusing on instruments at the top of capital structures with strong asset coverage, which we believe are appropriately priced for potential volatility and process risk. - Identifying event-driven opportunities with processes that can be analyzed and a range of outcomes handicapped. Nevertheless, we believe pockets of opportunity exist as reflected by our increase in exposure to the energy industry. In 2015/16, we felt that valuations did not reflect the uncertainty remaining in proving out reserves and executing production plans. Now we have the benefit of actual results. Some opportunities have caught our eye. The CrossingBridge Low Duration High Yield Fund’s allocation to the energy sector was only 0.17% at the beginning of this year, but has grown to 2.95% as of September 30th. Contrary to some beliefs, oil prices are not highly correlated to economic growth or movement in the value of the U.S. dollar. Over the last 20 years, the quarterly correlation of oil prices to U.S. gross domestic product and the U.S. dollar is 0.195 and -0.236, respectively.23 Regardless, we believe our energy investments provide an excellent source of yield that compensates for the expected future volatility and risk, especially given our focus on investing at the top of the capital structure. Below, we discuss new energy-related positions purchased during the quarter. *CITGO Holding (CITHOL)24* – CITHOL is the holding company for a large US-based oil refiner. The company is ultimately owned by the government of Venezuela, but, per U.S. federal law, the country has no direct control of the assets or cash flows.  On July 16th, 2019, the company announced a refinancing transaction by which it proposed to redeem its 10.75% Secured Notes due 2/15/20 with the proceeds from issuance of new notes and a new term loan.  A conditional notice of redemption was also issued for the Notes at around this time with an anticipated redemption date of August 16th.  The company successfully priced the new notes and loan on July 24th, at which time we began purchasing the called Notes for the CrossingBridge Low Duration High Yield Fund on July 29th. *EP Energy LLC (EPENEG)25*– EP Energy is an independent exploration and production company engaged in unconventional onshore oil and gas production in South Texas (Eagle Ford basin), Western Texas (Permian basin) and Northeastern Utah (Uinta basin). As has been the case with all E&P companies, EP has been buffeted by the prolonged and continuing period of commodity price decline and volatility over the last five years. Given the large capital expenditures required to maintain production and high interest expense due to the company’s heavy debt load, the company has not been able to cover fully these costs for the last 2.5 years, necessitating additional debt issuance and debt-for-debt exchanges to put off defaults. Having analyzed the company’s reported reserves and stress-tested reserve coverage of the debt based on changing oil prices, we concluded that, in the inevitable restructuring, it seemed highly likely that the 1st Lien Guaranteed Senior Secured Reserve-Based Revolving Credit Facility due 2021, fully drawn in August 2019, would be fully covered by the “proven developed producing” reserves. Thus, it was our view that a reorganization would result in the loan being rolled into a super-priority debtor-in-possession (“DIP”) financing during Chapter 11 or left in place, at the top of the balance sheet, to be refinanced or converted into a secured exit loan at the end of the bankruptcy. We purchased a portion of the loan, with a coupon of LIBOR + 250 basis points, shortly before the company filed Chapter 11. As expected, the company filed on October 3, 2019 with a proposed Plan of Reorganization that includes repayment in full (with all accrued interest) or conversion of the loan into a new secured loan. Post-reorganization, the company, benefitting from its reduced interest burden, should have the financial ability to optimize development of its large energy reserves. *Fieldwood Energy LLC (FIEENE)26* – Fieldwood is an independent exploration and production company engaged in oil and gas production, primarily in the shallow waters of the Gulf of Mexico. The company filed a pre-packaged Chapter 11 in February 2018 and emerged in April 2018, having reduced debt by about 50%. The company also received a $525 mm equity infusion to permit it to acquire and develop deep-water reserves it agreed to purchase prior to filing bankruptcy. With its dramatically reduced leverage, our analysis showed that, in most scenarios, the company would be able to fund its necessary capital expenditures, pay scheduled interest and generate free cash flow solely based on its shallow water production. Moreover, a discounted cash flow analysis of the shallow water proven developed producing reserves showed that these reserves fully covered the debt that we purchased. The acquisition and development of deep-water reserves should permit the company, following upfront investment, to increase total reserves, double production and improve cash flow, likely resulting in a further improvement in credit quality. During 3Q19, we purchased the company’s 1st Lien Exit Term Loan at an average yield-to-maturity of 12.22%. Fall is here and “winter is coming”27   ![image-18](https://blog.crossingbridgefunds.com/hs-fs/hubfs/image-18.png?width=174&name=image-18.png) David Sherman and the Cohanzick team **Endnotes** 1 *Being There*, a book by Jerzy Kosinski (1970), was subsequently adapted into a film in 1979 starring Peter Sellers. In the movie, a simpleminded, sheltered gardener unwittingly becomes a trusted advisor to a powerful businessman and, ultimately, the President of the United States. 2 The Merrill Lynch Option Volatility Estimate (MOVE) Index is a yield curve-weighted index of the volatility implied by 1-month Treasury options for the 2-year, 5-year, 10-year and 30-year Treasury bonds. 3 Merrill Lynch Option Volatility Estimate Index, Bloomberg 4 Federal Excess Reserves, St. Louis Federal Reserve 5 A Federal Funds Rate that neither stimulates nor restrains economic growth is referred to as the “natural” or “equilibrium” rate.  Additional discussion may be found in our 1Q 2019 Commentary entitled “Responsive or Reactive?” [https://blog.crossingbridgefunds.com/blog/cbldx-quarterly-commentary-q1-2019](https://blog.crossingbridgefunds.com/blog/cbldx-quarterly-commentary-q1-2019) 6 A repo takes place when a borrower that needs cash for a short period, typically overnight, deposits securities, often Treasury Notes, with a lender to borrow an equivalent amount of cash. The repo rate is the difference in price of the securities at the time of deposit and the price at which the borrower agrees to repurchase them. The repo rate is usually aligned closely with the Federal Funds Rate, 1.90% on September 30, 2019. In mid-September, however, the repo rate rose sharply, as high as 10%. Several explanations have been offered. Federal corporate tax payments were due on September 16 causing greater demand for cash. This coincided with a Treasury Department auction through which $78 billion in cash was used to purchase government securities, reducing the availability of cash for repo. In response, the Fed stepped in to offer its own repo trades in order to keep repo rates closer to the Federal Funds Rate. 7 A point we touched on in our 2Q 2019 Commentary entitled “Rise of the Living Dead” [https://blog.crossingbridgefunds.com/blog/cbldx-quarterly-commentary-q2-2019](https://blog.crossingbridgefunds.com/blog/cbldx-quarterly-commentary-q2-2019) 8 Portugal, Ireland, Italy, Greece and Spain. Greece required bailout loans in 2010, 2012 and 2015 provided by the IMF, the Eurogroup and the ECB. 9 Bloomberg, Corporate Ratings screen 10 Bloomberg, Corporate Ratings screen 11 Specific examples are worth noting: - *Chemical producer/distributor (private)* – A global, value-added distributor of specialty minerals and additives has seen a decline in revenue growth for the past three quarters due to reductions in pricing and volume. With broadly diversified end markets, weakness appears directly related to the global economic slowdown as well as a disruption in one major end market segment due to recent consolidation. Operating margins have also compressed due to lower volume and higher raw material costs. Moody’s downgraded the company’s 1st lien loan to B3 in in September 2018 and S&P downgraded in to CCC+ in August 2019. Since its most recent peak at 98.75 in May 2019, the 1st lien loan has fallen to a low of 80.25 at the end of 3Q19. The company has good liquidity and can withstand a more significant decline in performance and still cover capital expenditures and debt service, but leverage has increased, driving the credit downgrades and, likely, causing CLOs to sell their positions. - *Boiler manufacturer (private)* – A leading producer of commercial, residential and industrial boilers, the company has experienced three successive quarters of declining revenues and EBITDA because of slow growth/declines in three business segments and a sharp drop off in sales of boilers primarily used in commercial and industrial settings. Management attributes the decline in sales and backlog to customer delays, particularly of large capital projects. Management also attributes a decline in margins to a 36% year-over-year increase in steel prices due the increase in tariffs. The company has responded through price increases and cost cutting initiatives including reductions in headcount. The company has been focused on expansion of sales in China, but ongoing trade tensions call this into question. Both Moody’s and S&P cut the company’s credit rating during 3Q19. The company’s bonds began the year in the upper 90s, but they fell as low as 91 in 3Q19 before rebounding to the mid-90s recently. The company has reasonable liquidity to withstand the weak environment extending for several quarters, but leverage is increasing and the outlook is uncertain, suggesting that the bond’s price is more likely to fall than rise. - *Northwest Hardwoods* – In a recent Wall Street Journal article (‘It’s a Crisis’; Lumber Mills Slash Jobs as - Trade War Cuts Deep, September 26, 2019), the CEO of Northwest Hardwoods said, “We feel stuck in a much larger chess match” in discussing the impact of the trade war between the U.S. and China. A leading producer of hardwood used in furniture, flooring, cabinetry, etc. the company is feeling the impact of a 40% decline in exports of hardwood lumber to China and is closing two U.S. plants that employ 100 people. The slowing Chinese economy has reduced demand for hardwood furniture and the U.S.-imposed tariffs and rising anti-American sentiment has caused Chinese furniture manufactures to source hardwoods from other countries, potentially permanently displacing U.S. hardwood in the Chinese market. Downgraded by Moody’s twice this year, the company’s bonds were already at distressed levels, in the low 70s at the beginning of 2019, but have recently fallen into the upper 50s as investors have grown increasingly concerned that an inability to cover interest expense will precipitate a restructuring. - *Printing equipment manufacturer (private)* – The company added leverage to make an acquisition in early 2018, but a sharp decline in customer orders beginning in 4Q18 caused leverage to skyrocket as last-twelve months’ EBITDA fell nearly to break-even by 2Q19. Bonds began the year in the upper 90s, but, at the end of 3Q19, were quoted in the low 40s as liquidity appeared to tighten and the company seemed increasingly likely to default on an upcoming interest payment. With the company’s competitors experiencing similar declines, customers, facing an uncertain economic environment, have appear to have decided to delay new equipment orders. 12 J.P. Morgan Research 13 J.P. Morgan Research 14 According to Goldman Sachs, at 68%, CLOs’ share of the U.S. institutional primary leveraged loan market is at its highest level since 2002. This compares to 41% in 2011. *The Credit Trader – Trade Tensions Regain the Upper Hand*, Goldman Sachs, August 1, 2019. 15 CLO’s are actively managed pools of loans, the cash flows of which are securitized into debt and equity-like tranches that permit fixed income investors to invest based on their risk/return parameters. CLOs are subject to periodic testing to ensure that the CLO manager is maintaining an appropriate level of risk and is properly diversified. 16 Morgan Stanley Research and Bloomberg 17 A loan with interest rates that reset every three months will have a duration of approximately 0.25. This is a measure of price sensitivity to changes in interest rates. 18 UBS Research and S&P LCD Data 19 EBITDA is use as a heuristic measurement of unlevered pretax cash flow before capital investment. EBITDA is an acronym for earnings before interest, taxes, depreciation and amortization. 20 *Global Strategy – Leveraged loans: how much do credit ratings understate the risks?,* UBS, October 1, 2019 21 At the time of issuance estimated leverage for these 2015/16 B rated loans was expected to be 3.5-3.7x Debt/EBITDA, but the actual ratio was 7.5-7.7x in the second year after issuance. The addbacks and adjustments at the time of issuance were not yet realized. 22 As of September 30, 2019, the CrossingBridge Low Duration High Yield Fund held no second lien loans. 23 Bloomberg Data 24 In the CrossingBridge Low Duration High Yield Fund, our position in CITGO represented 0.00% on 6/30/19 and 0.00% on 9/30/19. 25 In the CrossingBridge Low Duration High Yield Fund, our position in EP Energy represented 0.00% on 6/30/19 and 1.82% on 9/30/19. 26 In the CrossingBridge Low Duration High Yield Fund, our position in Fieldwood Energy represented 0.00% on 6/30/19 and 1.09% on 9/30/19. 27 “Winter Is Coming” is the motto of House Stark, one of the Great Houses of Westeros in the HBO television series and book series by George R.R. Martin*, Game of Thrones*. The meaning behind these words is one of warning and constant vigilance. The Starks, being the lords of the North, strive to always be prepared for the coming of winter, which hits their lands the hardest.   ### Recent Posts ### Posts By Topic - [Market Observations](https://blog.crossingbridgefunds.com/blog/tag/Market-Observations) - [Quarterly Commentary](https://blog.crossingbridgefunds.com/blog/tag/Quarterly-Commentary) ## Funds [CrossingBridge Ultra-Short Duration Fund (CBUDX)](https://www.crossingbridgefunds.com/ultra-short-duration-fund) [CrossingBridge Low Duration High Income Fund (CBLDX)](https://www.crossingbridgefunds.com/low-duration-high-income-fund) [CrossingBridge Responsible Credit Fund (CBRDX)](https://www.crossingbridgefunds.com/responsible-credit-fund) [RiverPark Strategic Income Fund (RSIIX)](https://www.crossingbridgefunds.com/riverpark-strategic-income-fund) [CrossingBridge Nordic High Income Bond Fund (NRDCX)](https://www.crossingbridgefunds.com/nordic-high-income-bond-fund) ## Subscribe to Insights #### [Next Q4 2019 Commentary - Active Patience Quarterly Commentary](https://blog.crossingbridgefunds.com/blog/q4-2019-commentary-active-patience) #### [Previous Q2 2019 Commentary - Rise of the Living Dead Quarterly Commentary](https://blog.crossingbridgefunds.com/blog/cbldx-quarterly-commentary-q2-2019) ![CrossingBridge Funds](https://blog.crossingbridgefunds.com/hubfs/CrossingBridge_January2019%20Theme/Images/footer-logo.png) --- **Address** 427 Bedford Road, Suite 220 Pleasantville, NY 10570 **Disclosure** [Form ADV](https://www.adviserinfo.sec.gov/IAPD/content/ViewForm/crd_iapd_stream_pdf.aspx?ORG_PK=286594) [Terms of Use & Disclaimers](https://www.crossingbridgefunds.com/terms-of-use) [Privacy Policy](https://www.crossingbridgefunds.com/privacy-policy) **Get In Touch** P: (914) 741-1515 [Contact Us](https://www.crossingbridgefunds.com/contact) --- ### The prospectus for the CrossingBridge Ultra-Short Duration Fund, CrossingBridge Low Duration High Income Bond Fund, CrossingBridge Responsible Credit Fund, CrossingBridge Nordic High Income Bond Fund, and RiverPark Strategic Income Fund can be found by clicking here.  To obtain a hardcopy of the prospectus, call 855-552-5863. Per rule 30e-3, the fiscal [Q1 holdings](https://blog.crossingbridgefunds.com/hubfs/Regulatory/FY_Q1_Holdings.pdf) and [Q3 holdings](https://blog.crossingbridgefunds.com/hubfs/Regulatory/FY_Q3_Holdings.pdf) can be found by clicking on the respective links.   Please read and consider the prospectus(es) carefully before investing.   ### **Any performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by calling 914-741-1515. 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NOTHING ON THIS WEBSITE SHOULD BE CONSIDERED A SOLICITATION TO BUY OR AN OFFER TO SELL SHARES OF THE FUND IN ANY JURISDICTION WHERE THE OFFER OR SOLICITATION WOULD BE UNLAWFUL UNDER THE SECURITIES LAWS OF SUCH JURISDICTION. ### **CrossingBridge Funds’ Disclosure: MUTUAL FUND & ETF INVESTING INVOLVES RISK. PRINCIPAL LOSS IS POSSIBLE. INVESTMENTS IN FOREIGN SECURITIES INVOLVE GREATER VOLATILITY AND POLITICAL, ECONOMIC AND CURRENCY RISKS AND DIFFERENCES IN ACCOUNTING METHODS. INVESTMENTS IN DEBT SECURITIES TYPICALLY DECREASE IN VALUE WHEN INTEREST RATES RISE. THIS RISK IS USUALLY GREATER FOR LONGER-TERM DEBT SECURITIES. INVESTMENT IN LOWER-RATED AND NON-RATED SECURITIES PRESENTS A GREATER RISK OF LOSS TO PRINCIPAL AND INTEREST THAN HIGHER-RATED SECURITIES. BECAUSE THE FUND MAY INVEST IN ETFS AND ETNS, THEY ARE SUBJECT TO ADDITIONAL RISKS THAT DO NOT APPLY TO CONVENTIONAL MUTUAL FUND, INCLUDING THE RISKS THAT THE MARKET PRICE OF AN ETF'S AND ETN'S SHARES MAY TRADE AT A DISCOUNT TO ITS NET ASSET VALUE ("NAV"), AN ACTIVE SECONDARY TRADING MARKET MAY NOT DEVELOP OR BE MAINTAINED, OR TRADING MAY BE HALTED BY THE EXCHANGE IN WHICH THEY TRADE, WHICH MAY IMPACT A FUND'S ABILITY TO SELL ITS SHARES. THE VALUE OF ETN'S MAY BE INFLUENCED BY THE LEVEL OF SUPPLY AND DEMAND FOR THE ETN, VOLATILITY AND LACK OF LIQUIDITY. THE FUND MAY INVEST IN DERIVATIVE SECURITIES, WHICH DERIVE THEIR PERFORMANCE FROM THE PERFORMANCE OF AN UNDERLYING ASSET, INDEX, INTEREST RATE OR CURRENCY EXCHANGE RATE. DERIVATIVES CAN BE VOLATILE AND INVOLVE VARIOUS TYPES AND DEGREES OF RISKS, AND, DEPENDING UPON THE CHARACTERISTICS OF A PARTICULAR DERIVATIVE, SUDDENLY CAN BECOME ILLIQUID. INVESTMENTS IN ASSET BACKED, MORTGAGE BACKED, AND COLLATERALIZED MORTGAGE BACKED SECURITIES INCLUDE ADDITIONAL RISKS THAT INVESTORS SHOULD BE AWARE OF SUCH AS CREDIT RISK, PREPAYMENT RISK, POSSIBLE ILLIQUIDITY AND DEFAULT, AS WELL AS INCREASED SUSCEPTIBILITY TO ADVERSE ECONOMIC DEVELOPMENTS. INVESTING IN COMMODITIES MAY SUBJECT THE FUND TO GREATER RISKS AND VOLATILITY AS COMMODITY PRICES MAY BE INFLUENCED BY A VARIETY OF FACTORS INCLUDING UNFAVORABLE WEATHER, ENVIRONMENTAL FACTORS, AND CHANGES IN GOVERNMENT REGULATIONS. SHARES OF CLOSED-END FUND FREQUENTLY TRADE AT A PRICE PER SHARE THAT IS LESS THAN THE NAV PER SHARE.  THERE CAN BE NO ASSURANCE THAT THE MARKET DISCOUNT ON SHARES OF ANY CLOSED-END FUND PURCHASED BY THE FUND WILL EVER DECREASE OR THAT WHEN THE FUND SEEK TO SELL SHARES OF A CLOSED-END FUND IT CAN RECEIVE THE NAV OF THOSE SHARES.  THERE ARE GREATER RISKS INVOLVED IN INVESTING IN SECURITIES WITH LIMITED MARKET LIQUIDITY.** ### **DEFINITIONS: THE S&P 500, OR SIMPLY THE S&P,** IS A STOCK MARKET INDEX THAT MEASURES THE STOCK PERFORMANCE OF 500 LARGE COMPANIES LISTED ON STOCK EXCHANGES IN THE UNITED STATES. THE **ICE BOFA INVESTMENT GRADE INDEX** TRACKS THE PERFORMANCE OF US DOLLAR DENOMINATED INVESTMENT GRADE RATED CORPORATE DEBT PUBLICALLY ISSUED IN THE US DOMESTIC MARKET.  THE **ICE BOFA HIGH YIELD INDEX** TRACKS THE PERFORMANCE OF US DOLLAR DENOMINATED BELOW INVESTMENT GRADE RATED CORPORATE DEBT PUBLICALLY ISSUED IN THE US DOMESTIC MARKET.  **EBITDA** IS A COMPANY'S EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION, AND AMORTIZATION IS AN ACCOUNTING MEASURE CALCULATED USING A COMPANY'S EARNINGS, BEFORE INTEREST EXPENSES, TAXES, DEPRECIATION, AND AMORTIZATION ARE SUBTRACTED, AS A PROXY FOR A COMPANY'S CURRENT OPERATING PROFITABILITY.  A **BASIS POINT (BP)** IS 1/100 OF ONE PERCENT.  **PARI-PASSU** IS A LATIN TERM THAT MEANS 'ON EQUAL FOOTING' OR 'RANKING EQUALLY'. IT IS AN IMPORTANT CLAUSE FOR CREDITORS OF A COMPANY IN FINANCIAL DIFFICULTY WHICH MIGHT BECOME INSOLVENT. IF THE COMPANY'S **DEBTS** ARE **PARI PASSU**, THEY ARE ALL RANKED EQUALLY, SO THE COMPANY PAYS EACH CREDITOR THE SAME AMOUNT IN INSOLVENCY.  **LIBOR** IS THE AVERAGE INTERBANK INTEREST RATE AT WHICH A SELECTION OF BANKS ON THE LONDON MONEY MARKET ARE PREPARED TO LEND TO ONE ANOTHER.  **YIELD TO MATURITY (YTM) **IS THE TOTAL RETURN ANTICIPATED ON A BOND (ON AN ANNUALIZED BASIS) IF THE BOND IS HELD UNTIL IT MATURES.  **FREE CASH FLOW (FCF) **IS THE CASH A COMPANY PRODUCES THROUGH ITS OPERATIONS, LESS THE COST OF EXPENDITURES ON ASSETS. IN OTHER WORDS, FREE CASH FLOW IS THE CASH LEFT OVER AFTER A COMPANY PAYS FOR ITS OPERATING EXPENSES AND CAPITAL EXPENDITURES. **DURATION **IS A MEASURE OF THE SENSITIVITY OF THE PRICE OF A BOND OR OTHER DEBT INSTRUMENT TO A CHANGE IN INTEREST RATES.  **DEBTOR-IN-POSSESSION (DIP)** FINANCING IS IS A SPECIAL KIND OF FINANCING MEANT FOR COMPANIES THAT ARE IN BANKRUPTCY. ONLY COMPANIES THAT HAVE FILED FOR BANKRUPTCY PROTECTION UNDER CHAPTER 11 ARE ALLOWED TO ACCESS DIP FINANCING, WHICH USUALLY HAPPENS AT THE START OF A FILING. DIP FINANCING IS USED TO FACILITATE THE REORGANIZATION OF A DEBTOR-IN-POSSESSION (THE STATUS OF A COMPANY THAT HAS FILED FOR BANKRUPTCY) BY ALLOWING IT TO RAISE CAPITAL TO FUND ITS OPERATIONS AS ITS BANKRUPTCY CASE RUNS ITS COURSE.  **YIELD TO CALL (YTC) **REFERS TO THE RETURN A BONDHOLDER RECEIVES IF THE BOND IS HELD UNTIL THE CALL DATE, WHICH OCCURS SOMETIME BEFORE IT REACHES MATURITY. The SEC yield is a standard yield calculation developed by the U.S. Securities and Exchange Commission (SEC) that allows for fairer comparisons of bond funds. It is based on the most recent 30-day period covered by the fund's filings with the SEC. The yield figure reflects the dividends and interest earned during the period after the deduction of the fund's expenses. It is also referred to as the "standardized yield". **Business Development Companies (BDCs)** are investment vehicles that provide funding to small, medium-sized, and financially distressed companies, aiming to help them grow and regain financial stability. ### **Fund holdings and sector allocations are subject to change and should not be considered recommendations to buy or sell any security. ANY DIRECT OR INDIRECT REFERENCE TO SPECIFIC SECURITIES, SECTORS, OR STRATEGIES ARE PROVIDED FOR ILLUSTRATIVE PURPOSES ONLY.  When pertaining to Commentaries posted by CrossingBridge, it REPRESENTS THE PORTFOLIO MANAGER’S OPINION AND IS AN ASSESSMENT OF THE MARKET ENVIRONMENT AT A SPECIFIC TIME AND IS NOT INTENDED TO BE A FORECAST OF FUTURE EVENTS OR A GUARANTEE OF FUTURE RESULTS. THIS INFORMATION SHOULD NOT BE RELIED UPON BY THE READER AS RESEARCH OR INVESTMENT ADVICE REGARDING THE FUND OR ANY SECURITY IN PARTICULAR. SPECIFIC PERFORMANCE OF ANY SECURITY MENTIONED IS AVAILABLE UPON REQUEST.  ** ### **DIVERSIFICATION DOES NOT ASSURE A PROFIT NOR PROTECT AGAINST LOSS IN A DECLINING MARKET.** ### A STOCK IS A TYPE OF SECURITY THAT SIGNIFIES OWNERSHIP IN A CORPORATION AND REPRESENTS A CLAIM ON PART OF THE CORPORATION'S ASSETS AND EARNINGS. A BOND IS A DEBT INVESTMENT IN WHICH AN INVESTOR LOANS MONEY TO AN ENTITY THAT BORROWS THE FUND FOR A DEFINED PERIOD OF TIME AT A FIXED INTEREST RATE. A STOCK MAY TRADE WITH MORE OR LESS LIQUIDITY THAN A BOND DEPENDING ON THE NUMBER OF SHARES AND BONDS OUTSTANDING, THE SIZE OF THE COMPANY, AND THE DEMAND FOR THE SECURITIES. THE SECURITIES AND EXCHANGE COMMISSION (SEC) DOES NOT APPROVE, ENDORSE, NOR INDEMNIFY ANY SECURITY.  DURATION IS A MEASURE OF SENSITIVITY OF THE PRICE OF A BOND OR OTHER DEBT INSTRUMENT TO A CHANGE IN INTEREST RATES OR CREDIT SPREADS. ### TAX FEATURES MAY VARY BASED ON PERSONAL CIRCUMSTANCES. CONSULT A TAX PROFESSIONAL FOR ADDITIONAL INFORMATION. ### Crossingbridge advisors, LLC is the Adviser to The CrossingBridge ultra-short duration fund, the crossingbridge low duration high yield fund, the crossingbridge Responsible credit fund and the riverpark strategic income fund which are distributed by QUASAR DISTRIBUTORS, LLC.