Oxford Lane Capital Q3 2024 Earnings Report

Oxford Lane Capital EPS Results

• Actual EPS: $0.39
• Consensus EPS: $0.27
• Beat/Miss: Beat by +$0.12
• One Year Ago EPS: $0.31

Oxford Lane Capital Revenue Results

• Actual Revenue: $79.20 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Oxford Lane Capital Announcement Details

• Quarter: Q3 2024
• Date: 1/26/2024
• Time: Before Market Opens
• Conference Call Date: Friday, January 26, 2024
• Conference Call Time: 9:00AM ET

Oxford Lane Capital (NASDAQ:OXLC) is a closed-end management investment company that primarily focuses on investing in middle-market collateralized loan obligations (CLOs). The firm seeks to generate attractive risk-adjusted returns through investments in a diversified portfolio of senior secured corporate loans. Oxford Lane Capital’s strategy emphasizes both stability and income generation by acquiring CLO securities across varied tranches, with an emphasis on equity and subordinated notes that offer a higher yield profile.

The company’s investment approach centers on thorough credit analysis and active portfolio management. Leveraging a partnership with leading asset managers, Oxford Lane Capital identifies CLO structures backed by pools of broadly syndicated loans to U.S. companies. The firm allocates capital across multiple CLO managers and vintages to mitigate concentration risk and to capture market inefficiencies in the middle-market lending space. Its portfolio is designed to benefit from both current income—through the interest payments on underlying loans—and potential capital appreciation arising from credit upgrades or market volatility.

Since its inception in late 2014, Oxford Lane Capital has sought to deliver consistent distributions to shareholders. The company completed its initial public offering in November 2014 and has since evolved its portfolio mix in response to changing credit conditions and evolving regulatory environments. Oxford Lane Capital’s structure as a registered closed-end fund provides shareholders with transparent monthly reporting and a clear framework for assessing underlying asset performance.

Governance and investment oversight are provided by Oxford Lane Capital Management, LLC, together with established CLO managers that bring deep credit expertise and structuring capabilities. The board of directors comprises industry veterans with extensive backgrounds in asset management, credit markets, and corporate governance. Through this experienced leadership team, Oxford Lane Capital aims to maintain rigorous risk controls while pursuing its income-oriented investment objectives in the U.S. middle-market debt arena.

Oxford Lane Capital Q3 2024 Earnings Call Transcript

Key Takeaways

• Net asset value per share rose slightly to $4.82 as of December 31, 2023, from $4.81 at September 30.
• GAAP total investment income increased by $4.8 million to $79.2 million for the quarter, and core net investment income was $82.7 million (or $0.39 per share).
• Weighted average yields on CLO debt investments were 16.6% (down from 18.5%), while CLO equity effective yield rose to 16.5% and cash distribution yield stood at 24%.
• Oxford Lane issued 10.8 million shares in an aftermarket offering, raising $52.2 million, and deployed $113.9 million into new CLO investments during the quarter.
• Management intends to remain opportunistic and unconstrained, focusing on relative value trading and lengthening the reinvestment period across CLO equity, debt, and warehouse investments.

[Operator]

Good morning

[Speaker 1]

or good afternoon all and welcome to the Oxford Lane Capital Corp Announces Net Asset Value and Selected Financial Results for the 3rd Fiscal Quarter Call. I I'll now hand the floor to CEO, Jonathan Cohen, to begin. So Jonathan, please go ahead when you're ready.

[Speaker 2]

Thanks very much. Good morning, everyone. Welcome to the Oxford Lane Capital Corp. 3rd fiscal quarter 2024 earnings conference call. I'm joined today by Saul Rosenthal, our President Bruce Rubin, our Chief Financial Joe Kopka, our Managing Director.

[Speaker 2]

Bruce, could you open the call with a disclosure regarding forward looking statements? Sure, Jonathan. Today's conference call

[Speaker 3]

is being recorded. An audio replay of the call will be available for 30 days. Replay information is included in our press release that was issued earlier this morning. Please note that this call is the property of Oxford Lane Capital Corp. Any unauthorized rebroadcast of this call in any form is strictly prohibited.

[Speaker 3]

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 required to do so by law. During this call, we will use terms defined in the earnings release and also refer to non GAAP measures.

[Speaker 3]

For definitions and reconciliations to GAAP, please refer to our earnings release posted on our website www.oxfordlancapital.com. With that, I'll turn the presentation back to Jonathan.

[Speaker 2]

Thank you, Bruce. On December 31, 2023, our net asset value per share stood at $4.82 compared to a net asset value of $4.81 per share as of September 30. For the quarter ended December, we recorded GAAP total investment income of approximately $79,200,000 representing an increase of approximately $4,800,000 from the prior quarter. The quarter's GAAP total investment income consisted of approximately $73,600,000 from our CLO Equity and CLO Warehouse Investments and approximately $5,700,000 from our CLO debt investments and from other income. Oxford Lane reported GAAP net investment income of approximately $48,700,000 or $0.23 per share for the quarter ended December, compared to approximately $44,800,000 or $0.23 per share for the quarter ended September 30.

[Speaker 2]

Our core net investment income was approximately $82,700,000 or $0.39 per share for the quarter ended December, compared with approximately $79,700,000 or $0.41 per share for the quarter ended September. For the quarter ended December, we recorded net unrealized appreciation on investments of approximately 6,700,000 And net realized losses of approximately $3,100,000 or $0.02 net per share. We had a net increase in net assets resulting from operations of approximately $52,400,000 or $0.25 per share for the 3rd fiscal quarter. As of December 31, the following metrics applied. We note that none of these metrics Represented a total return to shareholders.

[Speaker 2]

The weighted average yield of our CLO debt investments at current cost was 16.6%, down from 18.5% as of September 30. The weighted average effective yield of our CLO equity investments at current cost was 16.5%, up from 16.3% as of September 30. The weighted average cash distribution yield of our CLO equity investments at current cost was 24%, down from 25% as of September 30. We note that the cash distribution yields calculated on our CLO equity investments are based on the cash distributions we received which we were entitled to receive at each respective period end. During the quarter ended December, we issued a total of approximately 10,800,000 shares of our common stock pursuant to an aftermarket offering, resulting in net proceeds of approximately $52,200,000 During the quarter ended December, we made additional CLO investments of approximately $113,900,000 and we received approximately $30,200,000 from sales and repayments.

[Speaker 2]

On January 25th, our Board of Directors declared monthly stock distributions of $0.08 per share for each of the months ending April, May June of 2024. With that, I'll turn the call over to our Managing Director, Joe Kupka. Jeff?

[Speaker 4]

Thanks, Jonathan. During the quarter ended December 31, 2023, U. S. Loan market performance improved versus the prior quarter. U.

[Speaker 4]

S. Loan prices as defined by the Morningstar LSTA U. S. Leveraged Loan Index increased from 95.56% as of September 30 to 96.23 percent as of December 31. The increase in U.

[Speaker 4]

S. Loan prices led to an approximate 6 point increase in median U. S. CLO equity net asset values. Additionally, we observed loan pools within CLO portfolios marginally increased their weighted average spreads to 372 basis points compared to 370 basis points last quarter.

[Speaker 4]

Despite the increase in loan prices, The 12 month trailing default rate for the loan index increased to 1.5% by principal amount at the end of the quarter from 1.3% at the end of September. Additionally, the distress ratio defined as the percentage of loans with a price below 80% of par ended the quarter at 4.5% compared to approximately 4.4% at the end of September. CLO new issuance during the quarter totaled approximately $32,000,000,000 an increase of $4,000,000,000 from the prior quarter. The $116,000,000,000 of issuance in 2023 trailed the 100 $29,000,000,000 of issuance in 2022. However, CLO liabilities have continued to tighten through the New Year, which should improve new issue arbitrage and issuance going forward.

[Speaker 4]

Oxford Lane continued to be active during the quarter. While most of our activity took place in the secondary market this quarter, we added 1 new issue CLO equity investment, 1 new issue CLO debt investment and one new warehouse during the quarter. Our investment strategy during the quarter was to engage in relative value trading and to lengthen the weighted average reinvestment period of Oxford Lane's CLO equity portfolio. In the current market environment, we intend to continue to utilize an opportunistic and unconstrained investment strategy across U. S.

[Speaker 4]

CLO equity debt and warehouses as we look to maximize our long term total return. And as a permanent call. We've historically been able to take a longer term view towards our investment strategy. With that, I'll turn the call back over to Jonathan.

[Speaker 2]

Thanks, Joe. Additional information about Oxford Lane's 3rd quarter performance has been uploaded to our website, www.oxfordlanecapital.com. And with that, operator, we're happy to open the call up for any questions.

[Speaker 1]

Thank you. Call. And our first question today comes from Mickey Schleien from Ladenburg. Mickey, your line is open. Please go ahead.

[Speaker 1]

Yes.

[Speaker 5]

Good morning, everyone. Jonathan, in the Good remarks. I think you mentioned that CLO debt liability spreads are compressing. How what are your expectations for that Trent to continue in order to offset the decline in leverage loan spreads, which are also compressing And thereby protecting the arbitrage this year?

[Speaker 2]

We don't really have a view, Mickey. I mean, that's more of a macro factor. And in terms of the forward pricing outlook for CLO debt tranches, which in turn as you rightly note feeds into the Quality of a new issue arbitrage and therefore the robustness of the forward calendar. We'd obviously like to see those things happen, but we have no

[Speaker 5]

Okay. If I can follow-up then, what are your expectations For the portfolio's CLO investments that are beyond their reinvestment period in terms of the ability to have those called now that spreads are And what proportion of those investments are you in a controlled position?

[Speaker 4]

Sure. We've already begun that process, Just taking advantage of rising NAVs and the tightening liabilities. So we're starting to have the discussions. It's kind of a case by case basis Depending on the current status of the CLO, we're going to look to call some deals, reset when we can And kind of take it case by case. Obviously, regarding your first question, there's going to be this push and pull in the market as a lot of the post Reinvestment CLOs try to get something done.

[Speaker 4]

So I think we'll be range bound, but we kind of take what the market gives us in terms of when we want to reset first call.

[Speaker 5]

I understand. And my last question, what sort of average recovery rate assumption Are you using in the portfolio to calculate your estimated yields? And how has that the decline in the rate of those recoveries impact

[Speaker 2]

Sure, Mickey. I don't think we have historically disclosed those figures Publicly, but in any case, it's a range. I mean, as we're calculating those likelihoods, We're looking at a range of possibilities and probabilities that are in turn dependent on, in some cases, The individual portfolio compositions of the underlying collateral pools and the structure of the indentures themselves. So it isn't as if we have sort of a single calculation that fits every profile. We've got a range of calculations that we hope Allow us to make good decisions around a very wide array of different CLO profiles.

[Speaker 5]

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

[Speaker 2]

Thank you, Mickey, very much.

[Speaker 1]

The next question comes from Matt Howlett from B. Riley Securities. Matt, your line is open. Please go ahead.

[Operator]

Good morning, everyone. This is Michael Schafer on for Max. Most cash flow conversion down a little bit over half. But curious if you could detail the trend there, what that looks like quarter to date?

[Speaker 4]

Yes, sure. So we had a large payer in particular that kind of just through the self curing mechanisms CLO in combination with improving market conditions turned off its diversion, so started to pay. It's hard to project out diversions for next quarter, a lot

[Speaker 2]

of it Right. And we generally don't do that. But as you say, we were down about half in terms of the quantum of diversion quarter over quarter.

[Operator]

Thank you.

[Speaker 2]

Thank you very much. Thank you for your question.

[Speaker 1]

I show no further questions. And I will now turn the call back over to Jonathan Cohen, CEO.

[Speaker 2]

Wonderful. Well, thank you very much. I'd like to thank everyone who participated in this call and everyone who's listening on the replay of the call for their interest and their participation. We look forward to speaking to you again soon. Thanks very much.