Mr. Patrick Wood reports

DELPHX PROVIDES OPERATIONAL UPDATE FOR INDUSTRY-FIRST CRS PRODUCT; LAUNCH TERMS IN FINAL STAGE

Delphx Capital Markets Inc. is providing an operational update in advance of significant launch-related milestones scheduled for the remainder of 2023.

As previously reported, outside counsel had completed the main documentation required for the launch of the company's novel credit rating security (CRS) product, which will give bond holders and traders the ability to position against potential rating changes on existing bonds. This will be the first product of its kind in the structured products market. Delphx has now completed all document approvals and prelaunch requirements with its custodian and other service providers. The company is currently working with two qualified institutional buyers (QIBs) to negotiate the terms and conditions of the first commercial transaction.

This first transaction was rescheduled by a few weeks in order to complete some additional requirements from partner organizations, to select an underlying bond and negotiate pricing which is representative of target portfolio holders. The company's wholly owned broker dealer is acting as placement agent for this first transaction, which also includes the onboarding of the two QIBs. Delphx plans to complete this first transaction in early Q4 2023, with additional announcements expected on a consistent basis as other pending transactions and partnerships develop through the remainder of the year and into 2024. In addition to the two QIBs participating in the company's inaugural transaction, Delphx is pleased to report that it is in late-stage discussions with large hedge funds and dealers regarding adoption and strategic alignment of the company's industry-first CRS product on a larger scale. The focus has been on continuous adoption and use of the CRS product as transactions begin.

Bond default and downgrade cycles go hand in hand, and all of the major rating agencies have raised their expectations for a rising default/downgrade cycle into 2024, with higher-than-average default rates through at least the next 12 to 15 months. Under this scenario, according to Fitch, peak default rates are expected to rise from less than 3 per cent to 4.5 to 6.5 per cent in 2024. Extending out even further, Moody's recently posted data showing that high-yield debt issuers have a record $1.87-trillion of debt maturing in the period running from 2024 to 2028, up 27 per cent from a similar study last year. Of particular importance for Delphx, the single B category accounts for 62 per cent of total maturities during this time frame, according to Moody's, putting the bulk of coming refinancing risk (and potential downgrades) directly in the company's CRS target market.

Chief executive officer commentary

"The timing of our CRS solution is perfectly aligned with emerging multiyear trends in the debt markets," explained Delphx CEO Patrick Wood. "The next couple of years are going to provide tremendous opportunities on both sides of the CRS trade -- offering protection for the more vulnerable parts of a portfolio manager's holdings, while also giving more speculative investors the opportunity to significantly boost returns. Defaults are relatively rare, but downgrades are common, particularly during the kind of economic conditions predicted by the major rating agencies.

"There doesn't seem to be a topic without heated debate in the fixed-income market right now, with very wide opinion on the trajectory of rates, soft versus hard landing, government spending, and a host of other factors combining to create heightened volatility. With the completion of our first CRS trade, we will be handing the industry a new way to turn these opinions into actionable transactions in areas not previously available. Our launch will showcase a major change in the way that managers can reduce risk or stretch for above average yield, creating trading desk opportunities for these two major goals of fixed-income investors. We are inviting all institutional holders of bond portfolios and opportunistic traders to test our product to see first-hand the benefits of our CRS solution. We will be back with additional updates in the near future as our launch program commences."

About Delphx Capital Markets Inc.

Delphx is a technology and financial services company focused on developing and distributing the next generation of structured products. Through its special purpose vehicle Quantem LLC, the company enables fixed-income dealers to offer new private placement securities that optimally transfer and diffuse credit risk, while allowing the enhancement of returns. The new Delphx securities will enable dealers and their qualified institutional investors (QIBs) accounts to competitively structure, sell and make markets in:

• Collateralized put options (CPOs) that provide rating change protection for underlying corporate bonds;
• Collateralized reference notes (CRNs) that enable hedge funds and others to take on rating downgrade exposure of an underlying corporate bond in exchange for attractive returns.

All CPOs and CRNs are fully collateralized and held in custody by BNY Mellon. CPOs and CRNs are proprietary products created and owned by DelphX Capital Markets.

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