Company: PRIF-PJ
Filing Date: 2025-03-26
Form Type: N-2
Source: 0001554625-25-000027
Chunk: 24

Company: Priority Income Fund, Inc.
Filing Date: 2025-03-26
Form: N-2
Chunk 24
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 feature of the portfolios of the CLOs in which we invest, and is aimed at minimizing the effect of potential credit deterioration. Typical guidelines require broad investment variety by issuer and industry. Individual CLO portfolios will generally consist of a large number of issuers in various industries.

Returns to investors in the equity classes of CLOs depend on a number of factors. One of the principal drivers is the number and timing of defaults in the portfolio, as well as recovery rates on any defaulted Senior Secured Loans. Other factors which contribute to return performance are correlation among assets, portfolio purchase price, repayment rate, reinvestment interest rate, trading gains/losses, test levels, frequency of payment on assets and liabilities, and timing of allocation of cashflows.

The Senior Secured Loan market is characterized by various factors, including:

• Seniority. A Senior Secured Loan typically has a first lien, or sometimes second lien, on the borrower’s assets and ranks senior in a borrower’s capital structure to other forms of debt or equity. As such, that loan maintains the senior-most claim on the borrower’s assets and cash flow, and, we believe should, all other things being equal, offer the prospect of a more stable and lower-risk investment relative to other debt and equity securities issued by the borrower.

• Consistent long-term performance. Senior Secured Loans have provided positive cash yields in all years since 1997, and only three full years (2008, 2015, and 2022) of negative returns including mark-to-market volatility. Senior Secured Loans provided a 2-year return of 7.5% in 2008 and 2009 despite the market downturn. (4)

• Floating rate instruments. A Senior Secured Loan typically contains a floating interest rate versus a fixed interest rate, which we believe provides some measure of protection against the risk of increases in interest rates and inflation. Also, the debt tranches of a CLO have floating interest rates as well, which provides a partial matching of changes in the interest rates on the CLO’s assets and liabilities.

• Low default-rate environment. The default rate on all Senior Secured Loans included in the S&P/LSTA Leveraged Loan Index has averaged 2.10% from January 1, 2003 through February 28, 2025. (5) The S&P/LSTA Leveraged Loan Index reflects the market-weighted performance of a selection of U.S. dollar-denominated institutional Senior Secured Loans.

(4) Source: S