Private Credit, Unlocked: The First ETF Focused Exclusively on BDC Bonds With Alex Oxenham & Mike O’Brien

Question (Q): Can you give some background on BDC bonds and what makes them structurally appealing?

Alex Oxenham (AO): Business Development Companies—or BDCs—were created by an act of Congress in 1980 to provide capital to U.S. middle-market businesses. They make hundreds of loans to small and mid-sized U.S. companies. The way they’re structured is actually pretty compelling from a risk-management standpoint.

Mike O’Brien (MO): BDCs have to maintain a minimum asset coverage ratio of 150%, effectively capping their leverage to a maximum 2:1 debt-to-equity ratio. If the threshold is breached, BDCs are obliged to take corrective action, so many operate more conservatively一often voluntarily limiting leverage closer to 1:1.

AO: To cure, BDCs are likely to sell assets and reduce debt to bring the ratio back into line. So most BDCs operate well below their leverage limits to avoid this.

MO: What’s also notable is that no BDC bond has ever been impaired since their creation in 1980, including during the 2008-2009 financial crisis—which really speaks to how strong the legal framework is in supporting credit quality and investor confidence.

Q: What about the yield opportunity?

AO: BDC bonds offer a compelling income opportunity, typically trading at spreads 100- 200 basis points wider than comparable investment-grade corporate bonds. So the yield pickup allows investors to capture enhanced income without stepping into high-yield or unrated credit.

MO: The BDC bonds we target are currently 160 basis points—or 1.6%—over Treasuries. The spread over same-duration corporate bonds is about 100 basis points.

AO: Basically, investors can access higher yields without taking on disproportionate risk. You're investing in a company's bond that has legal limits on leverage, so it can never get too hot or too cold—but the spread opportunity is amazing.

Q: What are some of the other reasons BDC bonds stand out to investors?

AO: Correlation is important here. BDC bonds are tied to privately negotiated mid-market loans, so their performance一in part一follows the unique dynamics of that segment, with maybe less emphasis overall on the broader forces that move Treasuries and traditional corporate bonds.

You can get lower correlation to other fixed income sectors, which makes them a valuable diversifier when you're building income-focused portfolios. It's another layer of diversification that most investors don't have access to.

Q: What's the access challenge with BDC bonds?

AO: The challenge for most investors has been accessing this asset class efficiently. If you want to own a BDC bond, you have to analyze hundreds of loans—it's a tremendous amount of due diligence that a credit analyst would have to do. And it's just very cumbersome. Should you be doing mark-to-market analysis on 250 loans to justify your bond position in a single BDC? I think a lot of big institutions don’t do it because it's too unwieldy.

We've encountered this ourselves. When Hilton was a lot smaller, we owned quite a few of these, but as we’ve grown, it’s gotten significantly harder to do. There’s concentration risk, and the market wasn’t liquid enough.

But the opportunity expanded significantly during COVID when issuance became much more prolific. The amount of outstanding bonds now is about $60 billion, so we decided to create an ETF and an index to target this specific niche.

Q: How did you approach structuring the ETF to reach this complex market?

AO: Rather than attempting active management of individual BDC bonds, we created a rules-based index approach. The ETF一the first of its kind一seeks to track the performance of the Solactive Hilton Capital BDC Corporate Bond TR Index, which we designed in partnership with [leading index provider] Solactive AG.

MO: For the index, we're targeting senior unsecured BDC bonds—which rank above equity and most subordinated debt in the capital structure—which can offer added protection in stress scenarios.

AO: If you do it in a passive way with a well-constructed index, it offers significant diversification for an added level of comfort.

It’s a deliberate framework that captures the risk-return profile of BDC senior debt while sidestepping the structural challenges that can undermine more conventional passive strategies.

Q: Who is the HBDC ETF designed for?

AO: HBDC is built for institutions and advisors who want the economics of private credit without the operational burden of running a bespoke BDC bond book. Proper underwriting of a single BDC bond means parsing hundreds of underlying loans, monitoring asset coverage and leverage policies, tracking non-accruals, covenants, call schedules, and liquidity, then repeating that work across dozens of issuers and CUSIPs, often in $250k blocks.

For many insurance companies, pensions, OCIOs, and banks, the due-diligence lift and trading friction are the real barriers. HBDC offers a plug-and-play alternative: a passive, rules-based basket of senior BDC bonds with daily liquidity, full holdings transparency, and a 0.39% expense ratio per the prospectus. No lock-ups, no K-1s, and straightforward reporting.

MO: It also broadens access. Advisors who could not justify building an individual BDC bond sleeve because of minimum lot sizes, sourcing, and ongoing monitoring can now implement the exposure in small increments, integrate it into models, and rebalance intra-day like any ETF.

In short, institutions get scalable, index-based exposure that fits existing policy buckets, and smaller accounts finally have a practical way to participate in the space.

Q: How does the ETF align with Hilton's signature focus on a disciplined investment approach and entrepreneurial culture?

AO: In many ways, it aligns well with both. We believe the ETF addresses a clear market gap: providing institutional-quality access to an attractive asset class that has been largely overlooked by mainstream fixed income investors. And we found it using Hilton's process一because we own these securities, and we've owned them for a long time.

It’s also the first ETF exclusively in BDC bond space一it shows Hilton's willingness to develop innovative solutions when we identify compelling opportunities.

Our goal is to make this asset class more accessible to all investors.