The Portfolio follows a long only strategy that seeks to deliver attractive risk-adjusted returns and stable income while emphasizing preservation of capital and capital appreciation. OCP targets primarily Senior Secured Loans of non-investment grade issuers that are typically:
- Most senior position in an issuer's capital structure
- Backed by a first claim on assets and/or cash flow
- Floating-rate, based on a spread above LIBOR
OCP generally makes investments in senior secured loans and other senior debt obligations that are actively traded and meet the following criteria:
- Strong market positions, attractive and sustainable business models, and high quality management teams;
- Significant levels of asset and/or cash flow coverage resulting in principal protection; and
- Attractive total return potential through a combination of current income and/or capital appreciation
Because the Portfolio consists primarily of floating rate assets, the Fund is intended to protect capital and generate enhanced return through capital appreciation and increasing cash flow in the event that interest rates rise. Senior Loans typically pay a quarterly coupon that references 3-month LIBOR plus a fixed credit spread. As a result, as rates rise, borrowers’ loan payments increase, which may result in higher current income for the Portfolio. In addition, rising interest rates have historically had minimal negative impact on Senior Loans’ market value as their floating rate feature mutes interest rate duration risk.
Risk management strategies include, but are not limited to, diversification, intensive research, and portfolio construction. In addition, it is intended that the majority (and not less than 90%) of Portfolio investments denominated in foreign currencies will be hedged to the Canadian dollar.