Oxford Lane Capital Corp. (NASDAQ:OXLC) Q4 2023 Earnings Call Transcript

Oxford Lane Capital Corp. (NASDAQ:OXLC) Q4 2023 Earnings Call Transcript May 16, 2023

Jonathan Cohen: Good morning, everyone. Welcome to the Oxford Lane Capital Corp. Fourth Fiscal Quarter 2023 Earnings Conference Call. I’m joined today by Saul Rosenthal, our President; Bruce Rubin, our Chief Financial Officer; and Joe Kupka, our Managing Director. Bruce, could you please open our call with a disclosure regarding forward-looking statements?

Bruce Rubin: Sure, Jonathan. Today’s conference call is being recorded. The 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. 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 could 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. For definitions and reconciliations to GAAP, please refer to our earnings release posted on our website at www.oxfordlanecapital.com. With that, I’ll turn the presentation back to Jonathan.

Jonathan Cohen: Thanks very much, Bruce. On March 31, 2023, our net asset value per share stood at $4.61 compared to a net asset value per share of $4.63 as of December 31, 2022. For the quarter ended March, we recorded GAAP total investment income of approximately $66.5 million, representing a decrease of approximately $1.2 million from the prior quarter. The quarter’s GAAP total investment income from our portfolio consisted of approximately $62.8 million from our CLO equity and CLO warehouse investments and approximately $3.6 million from our CLO debt investments and from other income. Oxford Lane recorded GAAP net investment income of approximately $37.4 million or $0.22 per share for the quarter ended March, compared to approximately $41.4 million or $0.26 per share for the quarter ended December.

Our core net investment income was approximately $37.5 million or $0.22 per share for the quarter ended March compared with approximately $50.1 million or $0.31 per share for the quarter ended December 31. For the March quarter, we recorded net realized losses of approximately $4.9 million in net unrealized depreciation on investments of approximately $3.5 million or $0.05 per share in total. We had a net increase in net assets resulting from operations of approximately $29 million or $0.17 per share for the fourth fiscal quarter. As of March 31, the following metrics applied. We note that none of these metrics represented a total return to shareholders. The weighted average yield of our CLO debt investments at current cost was 18%, up from 16.6% as of December 31.

The weighted average effective yield of our CLO equity investments at current cost was 15.8%, up from 15.7% as of December 31. The weighted average cash distribution yield of our CLO equity investments at current cost was 16.5%, down from 18.6% as of December. We note that the cash distribution yields calculated on our CLO equity investments are based on the cash distributions we received or which we were entitled to receive at each respective period end. During the quarter ended March, we issued a total of approximately 3.9 million shares of our common stock pursuant to an aftermarket offering, resulting in net proceeds of approximately $22.6 million. During the quarter ended March, we made additional CLO investments of approximately $117.4 million.

And we received approximately $24.8 million from sales and from repayments. On May 10, our Board of Directors declared monthly common stock distributions of $0.08 per share for each of the months ending July, August and September 2023. And with that, I’ll turn the call over to Joe Kupka.

Joe Kupka: Thank you, Jonathan. During the quarter ended March 31, 2023, U.S. loan market performance improved versus the prior quarter. U.S. loan prices as defined by the Morningstar LSTA US Leveraged Loan Index increased from 92.44% of par as of December 31 to 94.71% of par as of February 9, before dropping to 93.38% of par as of March 31. According to LTV during the quarter, there was some pricing dispersion related to credit quality with BB-rated loan prices increasing 17 basis points, B-rated loan prices increasing 165 basis points and CCC-rated loan prices increasing 270 basis points on average. The 12 month strong default rate for the 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 the percentage of loans with the price below 80% of par ended the quarter at 6.3% compared to approximately 7.4% at the end of December 2022. The increase in U.S. loan prices led to an approximate 10% increase in median U.S. CLO equity net asset values. Median junior over-collateralization cushions declined 0.2% to approximately 4.5%. Additionally, we observed loan pools within CLO portfolios modestly increased their weighted average spreads to 357 basis points compared to 354 basis points last quarter. Oxford Lane continued to be active in the secondary market during the quarter. While most of our activity took place in the secondary market, we added two new issued CLO equity investments and one new issued CLO debt investment 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 CLO investment strategy across U.S. CLO equity, debt and warehouses as we look to maximize our long-term total return. And as a permanent capital vehicle, we have historically been able to take a longer-term view towards our investment strategy. With that, I’ll turn the call back over to Jonathan.

Jonathan Cohen: Thanks, Joe. We note that additional information about Oxford Lane’s fourth quarter performance has been uploaded to our website at www.oxfordlanecapital.com. And with that, we’re happy operator to open the call for any questions.

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Q&A Session

Operator: Thank you. [Operator Instructions] And our first question today comes from Mickey Schleien from Ladenburg. Mickey, your line is open. Please go ahead.

Operator: The next question comes from Matthew Howlett from B. Riley. Matthew your line is open. Please go ahead.

Operator: This concludes today’s Q&A session. So I now hand the call back over to CEO, Jonathan Cohen for some concluding remarks.

Jonathan Cohen: Thank you very much, operator. I’d like to thank everybody who listened to the call today and who listens to the call on the replay. We look forward to speaking to you again soon. Thanks very much.