The strategy's objective since inception in 2007 has been to obtain attractive annual returns over the long term through a blend of income and capital appreciation by allocating between defensive high yield bonds and senior/secured floating rate loans. KDP believes that this strategy allows for the flexibility to move into what it assesses to be the optimum asset allocation depending on the prevailing environment.
The KDP Credit Strategy actively allocates across two asset classes:
DEFENSIVE HIGH YIELD BONDS (0-100% ALLOCATION)
- Focus on better quality segment of the high yield market: target rating of BB-/B+ equivalents
- Minimum KDP Issuer Default Risk Ranking of 3/5 (B3/B- Rating Agency Equivalent) for all purchases
- Focus on substantial companies: typically > $50MM Cash Flow (EBITDA)
- Conservative portfolio management style: Strong emphasis on diversification with issuers <2% of strategy assets at of purchase, industries <15%
SENIOR SECURED LOANS (0-100% ALLOCATION)
- Typically same credit quality and diversification requirements as Defensive High Yield Bonds
- Strategy may purchase Leveraged Loans with DRRs of lower than 3/5 provided they have a KDP Leveraged Loan Recover Ranking (RR) of A (100% Expected Recovery).
OPPORTUNISTIC CREDIT SECURITIES (0-25% ALLOCATIONS)
- Comprised of securities such as second lien loans, defaulted bonds, convertible bonds, convertible preferred securities, or distressed.
- Benchmarks: BofA Merrill Lynch High Yield BB/B Non-Distressed and Credit Suisse Institutional Leveraged Loan Index and the J.P. Morgan BB/B Leveraged Loan Index.