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 publicly-traded closed-end management investment company that operates as a registered investment company under the Investment Company Act of 1940. The company's primary objective is to maximize its portfolio's total return. Oxford Lane Capital Corp. seeks an attractive risk-adjusted total return by primarily investing in debt and equity tranches of Collateralized Loan Obligation (CLO) vehicles.

The mission of Oxford Lane Capital Corp. is to provide investors with a diversified investment opportunity in the CLO market. By investing in CLO vehicles collateralized by a diverse portfolio of senior loans, Oxford Lane Capital Corp. aims to generate attractive risk-adjusted returns while minimizing exposure to real estate loans, mortgage loans, and consumer-based debt.

Oxford Lane Capital Corp. has a seasoned management team consisting of individuals with extensive experience in the investment and financial sectors. Leading the team is Jonathan H. Cohen, who serves as the Chief Executive Officer and Interested Director. Cohen brings a wealth of industry knowledge and expertise to his role, allowing him to effectively guide the company's investment strategy. Saul Barak Rosenthal J.D. holds the position of President and Interested Director at Oxford Lane Capital Corp. With a solid legal background and specialized knowledge in investment management, Rosenthal plays a crucial role in overseeing the company's operations and driving its growth. His expertise ensures that the company's activities are conducted in accordance with applicable regulations and industry best practices.

Oxford Lane Capital Corp. has demonstrated fluctuations over the past few years. The company's revenue figures are influenced by various factors, including market conditions, the performance of its investments in Collateralized Loan Obligation (CLO) vehicles, and prevailing interest rates. These variables collectively impact the company's ability to generate revenue and drive its financial performance.

When considering the valuation of Oxford Lane Capital Corp., it is essential to compare the company's metrics with its industry peers. Due to the nature of the CLO market and Oxford Lane Capital Corp.'s specific investment focus, valuation metrics may differ from traditional valuation methods. Factors such as the company's net asset value (NAV), market capitalization, and price-to-earnings (P/E) ratio are commonly used to assess Oxford Lane Capital Corp.'s valuation. However, it is essential to note that valuing closed-end investment companies may require a deeper analysis of their investment portfolios, underlying assets, and income streams.

Oxford Lane Capital Corp. operates in the asset management industry, specifically focusing on investments in the CLO market. The broader asset management industry encompasses various players, including investment firms, mutual funds, and closed-end funds.

Oxford Lane Capital Corp. holds a unique position focusing on CLO investments in the asset management industry. CLOs have become an alternative investment strategy due to their potential for generating attractive risk-adjusted returns.

Competitive positioning is crucial to analyzing Oxford Lane Capital Corp.'s industry dynamics. The company's expertise in CLO investments, disciplined investment approach, and ability to navigate changing market conditions contribute to its competitive advantages. Understanding the competitive landscape and identifying any advantages or disadvantages relative to peers is essential for evaluating Oxford Lane Capital Corp.'s prospects.

Oxford Lane Capital Corp. has several growth opportunities within its investment focus on CLO vehicles. As the CLO market evolves, Oxford Lane Capital Corp. can capitalize on emerging trends and market conditions to drive growth.

The company's competitive advantages, including its experience in managing CLO investments, access to deal flow, and expertise in credit analysis, position Oxford Lane Capital Corp. to pursue attractive investment opportunities. By leveraging its knowledge and relationships in the market, Oxford Lane Capital Corp. can identify potential high-yield assets and enhance its portfolio's performance.

Exploring new market segments, expanding investment offerings, and diversifying revenue streams are potential avenues for Oxford Lane Capital Corp.'s growth. By staying vigilant in monitoring market trends and adapting its investment strategy, Oxford Lane Capital Corp. can maximize its potential to generate attractive risk-adjusted returns for investors.

Oxford Lane Capital Corp. faces various risks and challenges that could impact its performance. Understanding these risks is crucial for investors considering an Oxford Lane Capital Corp investment. Market risk, including volatility and fluctuations in interest rates, is a primary concern for Oxford Lane Capital Corp. Changes in the broader economic landscape and financial markets can affect the performance of its investment portfolio and subsequently impact returns.

Credit risk is another significant consideration for Oxford Lane Capital Corp., as its investments are primarily in debt and equity tranches of CLO vehicles. Assessing and managing credit risk through diligent credit analysis, diversification, and active monitoring of investments is vital for Oxford Lane Capital Corp.'s risk management strategies.

Regulatory changes and compliance requirements pose additional challenges for Oxford Lane Capital Corp. Staying abreast of evolving regulations and implementing robust compliance measures are essential for the company's operations and reputation.

Furthermore, Oxford Lane Capital Corp. faces competition from other investment firms operating in the asset management industry. Monitoring industry trends, maintaining competitive advantages, and delivering consistent value to investors are key factors in overcoming these competitive challenges.

Oxford Lane Capital Q3 2024 Earnings Call Transcript

[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.