SEC Form N-CSR filed by Invesco Senior Income Trust

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number

 

Invesco Senior Income Trust

(Exact name of registrant as specified in charter)

 

1555 Peachtree Street, N.E., Suite 1800

Atlanta, Georgia 30309

(Address of principal executive offices) (Zip code)

 

Glenn Brightman

1555 Peachtree Street, N.E.,

Suite 1800 Atlanta, Georgia 30309

(Name and address of agent for service)

 

Registrant’s telephone number, including area code: (713)

Date of fiscal year end: 2/29

Date of reporting period: 2/29/2024

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VVR

 

Managed Distribution Plan Disclosure

On September 19, 2023, the Board of Trustees (the “Board”) of Invesco Senior Income Trust (the “Trust”) approved an amendment to the Trust’s Managed Distribution Plan (the “Plan”) whereby the Trust will pay its monthly dividend to common shareholders at a stated fixed monthly distribution amount of $0.043 per share. Previously, on January 19, 2023 and September 20, 2022, the Board approved amendments whereby the Trust paid its monthly dividends to common shareholders at a stated fixed monthly distribution amount of $0.039 per share and $0.032 per share, respectively. Prior to these changes under the Plan, the Trust paid a monthly dividend to common shareholders at a stated fixed monthly distribution amount of $0.026 per share. The effective date of the Plan is October 1, 2020.

 The Plan is intended to provide shareholders with a consistent, but not guaranteed, periodic cash payment from the Trust, regardless of when or whether income is

earned or capital gains are realized. If sufficient investment income is not available for a monthly distribution, the Trust will distribute long-term capital gains and/or return of capital in order to maintain its managed distribution level under the Plan. A return of capital may occur, for example, when some or all of the money that shareholders invested in the Trust is paid back to them. A return of capital distribution does not necessarily reflect the Trust’s investment performance and should not be confused with “yield” or “income.” No conclusions should be drawn about the Trust’s investment performance from the amount of the Trust’s distributions or from the terms of the Plan. The Plan will be subject to periodic review by the Board, and the Board may amend the terms of the Plan or terminate the Plan at any time without prior notice to the Trust’s shareholders. The amendment or termination of the Plan could have an adverse effect on the market price of the Trust’s common shares.

 The Trust will provide its shareholders of record on each distribution record date with a Section 19 Notice disclosing the sources of its dividend payment when a distribution includes anything other than net investment income. The amounts and sources of distributions reported in Section 19 Notices are only estimates and are not being provided for tax reporting purposes. The actual amounts and sources of the amounts for tax reporting purposes will depend upon the Trust’s investment experience during its full fiscal year and may be subject to changes based on tax regulations. The Trust will send shareholders a Form for the calendar year that will tell them how to report these distributions for federal income tax purposes. Please refer to “Distributions” under Note 1 of the Notes to Financial Statements for information regarding the tax character of the Trust’s distributions.

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Management’s Discussion of Trust Performance

 

 

the market. Both the broadly syndicated and private credit markets provided options for issuers to address liquidity shortfalls or extend/refinance near-term maturities during the calendar year. Given these current fundamentals, the par weighted default rate at the end of the fiscal year remained not far from cycle lows, at 1.41%, while the percentage of loans trading below 80 declined to just 3.35%, a good signal that credit stress in the market is contained. That being said, the loan market is expected to experience moderately increasing levels of defaults, with most forecasts between a 3.0% to 4.0% trailing twelve months default rate by 2024, on par with the long-term average default rates.

 The surprisingly constructive macroeconomic backdrop enabled lower rated loans to outperform higher rated loans in both price advances and total returns during the fiscal year, with the average loan price increasing from $91.89 at the start of the calendar year ($93.49 at the start of the fiscal year) to $95.74 at the end of the fiscal year, with gains most pronounced amongst the B and CCC cohorts. As loan market conditions improved, access to the primary market expanded but remained most accommodating for higher quality issuers. For the calendar year, 62.3% of gross issuance came from issuers rated B† or below, versus 75.4% the prior year. Refinancing activity was the dominant transaction type, growing 168% versus the prior year, however, new issuance for uses beyond managing maturities was limited by the dearth of acquisition activity in the private equity and corporate realms. Net new issuance of $81.8 billion (bn) was down 50% versus prior year. Reflective of the selective funding environment, leveraged buyouts financed with loans during 2023 calendar year featured the lowest leverage levels since 2010 and the highest sponsor equity contributions on record. Despite sparse new issuance, collateralized loan obligation (CLO) origination remained strong with US CLOs having priced $139.3bn (or $116.2bn across 322 structures during the calendar year. Of that, $108.1bn (or $88.4bn came from structures that purchase broadly syndicated loans (BSL) while the remainder came from structures that purchase middle market/private credit loans. CLO formation served as a critical pillar of support for loan demand during 2023 both for the fiscal and calendar years.

 At fiscal yields remain robust on both a historical and relative value basis, with average loan coupons continuing to outyield the average coupon for high-yield bonds. Given the price of senior loans at the end of the fiscal year, they provided a 9.39% yield (represented by the yield to life).

 During the fiscal year, the Trust employed leverage, which allowed us to enhance the Trust’s yield while keeping credit standards

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high relative to the benchmark. As of the close of the fiscal year, leverage accounted for approximately 31% of the Trust’s total assets. Leverage involves borrowing at a floating short-term rate and reinvesting the proceeds at a higher rate. Unlike other fixed-income asset classes, using leverage in conjunction with senior loans does not involve the same degree of risk from rising short-term interest rates since the income from senior loans generally adjusts to changes in interest rates, as do the rates which determine the Trust’s borrowing costs. (Similarly, should short-term rates fall, borrowing costs also would decline.) For more information about the Trust’s use of leverage and the associated risks, see the Notes to Financial Statements later in this report.

 During the fiscal year ended February 29, 2024, , and were the largest contributors to the Fund’s absolute performance, while , and were the largest detractors from absolute performance. On an industry basis, the service, transportation, and manufacturing industries provided the largest contributors to absolute return, while broadcasting was the only detractor from absolute performance.

 In managing the Trust, we take a multi-strategy approach to private credit – allocating across direct lending, broadly syndicated loans and special situations, seeking to take advantage of market opportunities and potential market inefficiencies. We seek to efficiently allocate risk within the portfolio in order to maximize risk-adjusted returns through five different considerations consisting of credit selection, sector migration, risk positioning, asset selection and trading.

 The common thread across the Trust’s strategies (broadly syndicated loans, direct lending and special situations) is its focus on senior secured floating rate loans. We believe this aspect provides capital preservation potential given these loans are senior and secured in the capital structure which has historically resulted in lower volatility with higher recovery rates versus unsecured high-yield bonds and equity. Meanwhile, the loan coupons are floating rate, meaning they have very little interest rate risk relative to traditional fixed income investments and sensitivity in rising rate environments, as was the case during the fiscal year.

 The senior loan asset class behaves differently from many traditional fixed-income investments. The interest income generated by a portfolio of senior loans is usually determined by a fixed credit spread over a reference rate. Because senior loans generally have a very short duration and the coupons, or interest rates, are usually adjusted every 30 to 90 days as the reference rate changes, the yield on the portfolio adjusts. Interest rate risk refers to the tendency for traditional fixed-income prices to decline when interest rates rise. For senior loans, however, interest rates and income are variable, and the prices of loans are therefore less sensitive to interest

rate changes than traditional fixed-income bonds. As a result, senior loans can provide a natural hedge against volatile interest rates.

 We are monitoring interest rates, the market, economic and geopolitical factors that may impact the direction, speed and magnitude of changes to interest rates across the maturity spectrum, including the potential impact of monetary policy changes by the US Federal Reserve and other central banks. If interest rates rise or fall faster than expected, markets may experience increased volatility, which may affect the value and/or liquidity of certain of the Trust’s investments and the market price of the Trust’s shares.

 As always, we appreciate your continued participation in Invesco Senior Income Trust.

 

† Standard & Poor’s, Fitch Ratings, Moody’s. A credit rating is an assessment provided by a nationally recognized statistical rating organization (NRSRO) of the creditworthiness of an issuer with respect to debt obligations, including specific securities, money market instruments or other debts. Ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest); ratings are subject to change without notice. indicates the debtor was not rated and should not be interpreted as indicating low quality. For more information on rating methodology, please visit spglobal.com, fitchratings.com and ratings.moodys.com.

 

 

Scott Baskind

Thomas Ewald - Lead

Philip Yarrow

See important Trust and, if applicable, index disclosures later in this report.

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Your Trust’s Long-Term Performance

Results of a $10,000 Investment

Past performance cannot guarantee future results.

 Performance shown in the chart does not reflect deduction of taxes a shareholder would pay on Trust distributions or sale of Trust shares.

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Supplemental Information

 

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Dividend Reinvestment Plan

closed-end

 

You may increase your shares in your Trust easily and automatically with the Plan.

Shareholders who participate in the Plan may be able to buy shares at below-market prices when the Trust is trading at a premium to its net asset value (NAV). In addition, transaction costs are low because when new shares are issued by the Trust, there is no brokerage fee, and when shares are bought in blocks on the open market, the per share fee is shared among all participants.

You will receive a detailed account statement from Computer share Trust Company, N.A. (the Agent), which administers the Plan. The statement shows your total Distributions, date of investment, shares acquired, and price per share, as well as the total number of shares in your reinvestment account. You can also access your account

The Agent will hold the shares it has acquired for you in safekeeping.

 

 

If you own shares in your own name, your purchase will automatically enroll you in the Plan. If your shares are held in “street name” – in the name of your brokerage firm, bank, or other financial institution – you must instruct that entity to participate on your behalf. If they are unable to participate on your behalf, you may request that they reregister your shares in your own name so that you may enroll in the Plan.

 

 

If you haven’t participated in the Plan in the past or chose to opt out, you are still eligible to participate. Enroll by visiting by calling toll-free 800 341 2929 or by notifying us in writing at Invesco Funds, Computer-share Trust Company, N.A., P.O. Box 43078, Providence, RI 02940-3078. If you are writing to us, please include the Trust name and account number and ensure that all shareholders listed on the account sign these written instructions. Your participation in the Plan will begin with the next Distribution payable after the Agent receives your authorization, as long as they receive it before the “record date,” which is generally 10 business days before the Distribution is paid. If your authorization arrives after such record date, your participation in the Plan will begin with the following Distribution.

 

 

If you choose to participate in the Plan, your Distributions will be promptly reinvested for you, automatically increasing your shares. If the Trust is trading at a share price that is equal to its NAV, you’ll pay that amount for your reinvested shares. However, if the Trust is trading above or below NAV, the price is determined by one of two ways:

 

 

There is no direct charge to you for reinvesting Distributions because the Plan’s fees are paid by the Trust. If the Trust is trading at or above its NAV, your new shares are issued directly by the Trust and there are no brokerage charges or fees. However, if the Trust is trading at a discount, the shares are purchased on the open market, and you will pay your portion of any per share fees. These per share fees are typically less than the standard brokerage charges for individual transactions because shares are purchased for all participants in blocks, resulting in lower fees for each individual participant. Any service or per share fees are added to the purchase price. Per share fees include any applicable brokerage commissions the Agent is required to pay.

 

 

The automatic reinvestment of Distributions does not relieve you of any income tax that may be due on Distributions. You will receive tax information annually to help you prepare your federal income tax return.

 

 

You may withdraw from the Plan at any time by calling 800 341 2929, by visiting invesco.com/ or by writing to Invesco Funds, Computer share Trust Company, N.A., P.O. Box 43078, Providence, RI 02940-3078. Simply indicate that you would like to withdraw from the Plan, and be sure to include your Trust name and account number. Also, ensure that all shareholders listed on the account sign these written instructions. If you withdraw, you have three options with regard to the shares held in the Plan:

The Trust and Computer share Trust Company, N.A. may amend or terminate the Plan at any time. Participants will receive at least 30 days written notice before the effective date of any amendment. In the case of termination, Participants will receive at least 30 days written notice before the record date for the payment of any such Distributions by the Trust. In the case of amendment or termination necessary or appropriate to comply with applicable law or the rules and policies of the Securities and Exchange Commission or any other regulatory authority, such written notice will not be required.

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The Trust’s holdings are subject to change, and there is no assurance that the Trust will continue to hold any particular security.

Data presented here are as of February 29, 2024.

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Consolidated Schedule of Investments

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