The disruption risk extended across multiple sectors, and a clear divergence has emerged in what the market is willing to underwrite. The loan market slowed but remained open for higher-quality borrowers, while perceived lower-quality issuers were either postponed or punished with a much higher cost of capital. Spreads widened through February and March as markets digested sector-specific stress, geopolitical uncertainty, persistent inflation, and a softer macro sentiment.

Despite this backdrop, conditions continue to favour the first lien, floating rate syndicated loan asset class. Loans were among the more resilient areas of the market during the quarter, underscoring their defensive characteristics in periods of volatility. A senior position in the capital structure, contractual cash flows, and floating-rate exposure remain valuable attributes in an uncertain environment. On an all-in yield basis, current conditions continue to support attractive income profiles, particularly when paired with disciplined credit selection.

While $100+ WTI was not our base case, we have been cognizant of a weakening macro backdrop ahead of recent geopolitical developments. We have remained focused on capital preservation and positioning the portfolio toward resilient, essential businesses with stable capital structures in a no-growth environment. We have been explicit in our shift “up in quality,” and Q1 reinforced the value of that approach, with BB-rated loans outperforming and higher-quality credits demonstrating greater durability in a stressed environment.