Oxford Square Capital Q1 2023 Earnings Report

Oxford Square Capital EPS Results

• Actual EPS: $0.13
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Oxford Square Capital Revenue Results

• Actual Revenue: $12.94 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Oxford Square Capital Announcement Details

• Quarter: Q1 2023
• Date: 5/2/2023
• Time: N/A
• Conference Call Date: Tuesday, May 2, 2023
• Conference Call Time: 9:00AM ET

Oxford Square Capital (NASDAQ:OXSQ) is a business development company, operates as a closed-end, non-diversified management investment company. It is a private equity and mezzanine firm. The firm invests in both public and private companies. It invests in secured and unsecured senior debt, subordinated debt, junior subordinated debt, preferred stock, common stock and syndicated bank loans. The firm primarily invests in debt and/or equity securities of technology-related companies that operate in the computer software, Internet, information technology infrastructure and services, media, telecommunications and telecommunications equipment, semiconductors, hardware, technology-enabled services, semiconductor capital equipment, medical device technology, diversified technology, and networking systems sectors. It concentrates its investments in companies having annual revenues of less than $200 million and a market capitalization or enterprise value of less than $300 million. The firm invests between $5 million and $30 million per transaction. It seeks to exit its investments within 7 years. It serves as the investment adviser to TICC. Oxford Square Capital Corp., formerly known as TICC Capital Corp., was founded in 2003 and is headquartered in Greenwich, Connecticut.

Oxford Square Capital Q1 2023 Earnings Call Transcript

[Operator]

Good morning

[Speaker 1]

or good afternoon all and welcome to the Oxford Square Capital Corp's First Quarter 2023 Earnings Conference Call. My name is Adam and I'll be your operator for today. I will now hand the floor over to Saul Rosenfield to begin. So, Saul, please go ahead when you are ready.

[Speaker 2]

Thank you, operator, and good morning, everyone. Welcome to the Oxford Square Capital Corp Q4 2022 earnings conference call. I'm joined today by Bill Sheridan, our Chief Financial Officer and Kevin Young, our Managing Director and Portfolio Manager. Ernest, would you please open our call with a disclosure regarding following our consent statement?

[Speaker 3]

Sure, Saul. Today's conference call is being recorded. An audio replay of the conference call will be available for 30 days. Replay information is included in our press release that was issued this morning. Please note that this call is the property of Oxford Square Capital Club.

[Speaker 3]

Any unauthorized rebroadcast of this call in any form is strictly prohibited. At this point, please direct your attention to the customary disclosure in this morning's press release regarding forward looking information. Today's conference call includes forward looking statements and projections that reflect the company's current views With respect to, among other things, future events and financial performance, we ask that you refer to our most recent filings with the SEC for important factors that can cause actual results to differ materially from those indicated in these projections. We do not undertake to update our forward looking statements unless record for today. To obtain copies of our latest SEC filings, please visit our website at www.oxfordsquarecapital.com.

[Speaker 3]

With that, I'll turn the call back over to Saul.

[Speaker 2]

Thank you, Bruce. For the quarter ended March 31, Oxford Square's net investment income was approximately $6,500,000 or $0.13 per share, which is unchanged from the prior quarter. Our net asset value per share stood at $2.80 compared to We have asset value per share of $2.78 from the prior quarter. For the Q1, we recorded total investment income of approximately $12,900,000 as compared to approximately $11,900,000 in the prior quarter. That increase in total investment income was principally driven by an increase in interest income from our loan portfolio.

[Speaker 2]

In the Q1, we recorded net unrealized depreciation on investments of approximately $220,000 or less than $0.01 per share Compared to net unrealized depreciation on investments of approximately $29,400,000 or $0.59 per share from the prior quarter, There were no realization events during the Q1. During the Q1, our investment activity consisted of purchases of approximately $8,200,000 End repayments of approximately $310,000 there were no sales during the quarter. As of March 31, we held cash and cash equivalents of approximately $10,800,000 On April 23, 2023, our Board of Directors declared monthly distributions of $0.035 per share for each of the months ending July, August September 2023. Additional details regarding record and cumulative information can be found in our press release that was issued this morning. I'll turn the call over to our portfolio manager, Kevin Warren, to discuss the loan market.

[Speaker 4]

Thank you, Saul. During the quarter ended March 31, 2023, the U. S. Loan market performance improved versus the prior quarter. U.

[Speaker 4]

S. Loan prices, as defined by the Morningstar LSTA U. S. Levered Loan Index, Increased from 19.44 percent of par as of December 31 to 94.71 percent of par as of February 9 before dropping to 93.38 percent apart as of March 31. According to LCD, during the quarter, there were some pricing dispersion related to credit quality With BB rated loan prices increasing 17 basis points or 0.18%, B rated loan prices increasing 165 basis points 1.78 percent and CCC rated loan prices increasing 2 70 basis points or 3.64% on average.

[Speaker 4]

The 12 month trailing default rate for the MorningStar LS TA U. S. Leveraged Loan Index increased to 1.35% by principal amount at the end of the quarter from 0.72% at the end of December 2022. Additionally, the distress ratio, defined as During the quarter ended March 31, 2023, primary market issuance was approximately $45,000,000,000 representing a 61% decline versus the quarter ended March 31, 2022. This was driven by lower M and A and LBO activity, partly offset by higher refinancing activity.

[Speaker 4]

At the same time, U. S. Loan fund outflows, as measured by Lipper, For approximately $8,200,000,000 for the quarter ended March 31, 2023, we continue to focus on portfolio management strategies Designed to maximize our long term total return and as a permanent capital vehicle, we historically have been able to take a longer term view towards our investment strategy. With that, I will turn the call back over to Saul.

[Speaker 2]

Thank you, Kevin. Additional information about Oxford Square Capital Corp. 1st quarter performance has been posted to our website at www.oxwoodsquarecapital.com. And with that, operator, we will now open the discussion for questions. Thank

[Speaker 5]

And

[Speaker 1]

Our first question today comes from Mickey Schleien from Ladenburg. Mickey, please go ahead. Your line is open.

[Speaker 5]

Good morning, everyone. Saul, it looks like about half of your CLO investments are beyond their reinvestment period. And I'd like to ask and understand what percentage of those are also failing their weighted average life test?

[Speaker 2]

Hang on a second. Let's punch up that information. Actually, we have one of our senior investment team members here with us. I'm sorry, Mickey. We actually don't have that specific readily handy, but we're happy to follow-up offline.

[Speaker 5]

Okay. I'll follow-up with you. But my understanding is that for the market overall, a significant number of those CLOs beyond the reinvestment period are failing their weighted average life tests. And with CLO liability spread Still quite wide, meaning the refinancing and reset opportunity is limited. When we think about those CLOs And there are managers looking to buy short duration loans to meet the weighted average life test.

[Speaker 5]

How do you see So, will CLO cash flow is developing assuming everything else remains equal?

[Speaker 2]

Right. I'm going to turn the call to Kumar Danovsher, senior member of our Investment Team Q.

[Operator]

Hey, Mickey. Right. As you noted, that is a part of the CLO structure. However, within the indentures, there's also a lot of Different profiles that allow CLO managers to continue to reinvest despite being outside of the reinvestment period if the way that we track the test is failing. Some of them are one touch tests where they could sell as long as they maintain and improve.

[Operator]

And given the current conditions in the secondary market, managers are deliberately seeing ample opportunities to buy loans that fit their criteria and kind of continue to let them reinvest and expand and build our portfolio.

[Speaker 5]

Okay. That's helpful. I also see that 4 out of the Fund 21 CLOs have negative Junior OC Cushions, but only $100,000 of cash flow was diverted, which looks like only about 1% of The total cash flow for that segment, could you help us understand that relationship?

[Operator]

Right. So there's only 2 partial diversions for roughly, I think, $60,000 total number. And some of those tests won't apply after the deals are out of the reinvestment period.

[Speaker 5]

Okay. That's helpful. That's it for me. Yes.

[Speaker 2]

Okay. Thank you.

[Speaker 5]

No, go ahead,

[Speaker 2]

I was just going to say that, as Suman was saying, that the test Points for the investment business, that may not be applicable. In other words, they're refilling the OC test, and yet still out of full payment. I think that was the point.

[Speaker 5]

Okay. That's helpful. That's it for me this morning. Thank you for your time.

[Speaker 2]

Great. Thank you, Mickey. Operator, any other questions?

[Speaker 1]

And as we have no further questions at this time, I'll hand it back to Saul for any concluding remarks.

[Speaker 2]

Thank you. Well, thank you, everyone, for joining us at this point for Square Capital's Q1 2023 earnings conference call. And we look forward to updating you on our next call. Thank you, operator.

[Speaker 1]

This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.