Q1 2020 Earnings Call

Good morning, and welcome oxford Square Capital first quarter earnings call.

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I like to turn the conference over to mister Jonathan. Call and see please go ahead.

Thank you very much. Good morning everyone and welcome to the oxford Square Capital Corp, first quarter 2020 earnings conference call. I've joined today by Soul Rosenthal our president Bruce Ruben our Chief Financial Officer, Kevin yonan are managing director and portfolio manager and Bruce. Could you please open our call with the discussion regarding forward-looking statements? Sure, Jonathan name is being recorded an audio replay of this conference 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 Square Capital Corp and the 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 wage update our forward-looking statements unless required to do so by law to obtain copies of our latest SEC filings, please visit our website at www.ge.com with that. I'll turn the call back to Jonathan.

Thank you Bruce for the quarter ended March 31st. Oxford Square is net investment income was $0.13 per share and our net asset value per share stood at $30.32 those compared to net investment income per share a net investment income per share of $0.18 and a net asset value per share of $5.12 a month prior quarter for the first quarter of 2020. We reported total investment income of approximately 10.8 million dollars compared to thirteen point four million dollars for the prior month.

And the first quarter of 2020 we recorded unrealised depreciation on investments of approximately 85.4 million dollars or $1.74 compared to thirteen point three million dollars or Twenty Eight cents per share for the prior quarter in the first quarter of 2020. We recognized realized losses on investment wage approximately $300,000 or $0.01 per share. We did not recognize any realized gains or losses on investments in the prior quarter in total for the first quarter. We had a net decrease in net assets from operations of approximately 79.4 million dollars or $1.62 per share compared to a net decrease in four point nine million dollars for ten cents per share for the prior quarter. We note that as of March 31st, we held to data Investments on non-accrual status with a combined fair value age.

Also as of March 31st, our preferred Equity investments in one of our portfolio companies were on non-accrual status with an aggregate fair value of $400,000 off the first quarter of 2020. We made a new investment of seven point four million dollars and we had principal repayments in sales of $23. And with that I'll I'll turn the call over to our portfolio manager Kevin Jana.

Thank you Jonathan during the quarter ended March thirty first loan Market exhibited a heightened level of volatility at the beginning of the quarter us11 prices as defined by the S&P l s t a leveraging own index increased from 96.72% to par as of December 31st to a quarterly high of 97.35% on January 22nd. The strength of an increase in US allowing re pricings as us Leonard issuers opportunistically refinanced and replace the existing debt to decrease the cost of debt financing and in some instances extend the terms of their exact amount y u s alone prices remained relatively stable throughout February, the increasingly negative sentiment associated with the economic ramifications of the rapid spread of covid-19 off into a precipitous decline in US loan crisis during March with the S&P LST, leveraged-loan index declined to a low of 76 spot to 3% on March 23rd and ending march

At 82.85% during the quarter pricing dispersion related to credit quality occurred with BB rated loan prices declining 11.1% berated loan price is down 15.1% and Triple C rated loan prices declining 22.4% on average moreover rating agency downgrades of us leverage lemons accelerated and the 12-month May default. Wait for the S&P lsta leveraged-loan index increased to one spot 84% by principal amount at the end of the quarter after starting the quarter at 1.4% by principal amount finally saw the distress ratio defined as the percentage of loans with a price below 80% to par peaked at 57% on March 23rd and ended the quarter at 24% compared to 3.95% at the end of 2019 in this environment. 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 off.

longer-term view towards our investment strategy

Thanks very much. Kevin as previously announced by the company or board of directors had declared monthly common stock distributions through June 30th of 2020 when a decision has yet been made with regard to the company's common stock distributions for July August and September, we believe that the company's board of directors would likely elect to reduce or suspend the company's distribution wage for those months in light of current economic and market conditions specifically as a result of the global crisis caused by the spread of the covid-19 virus. We believe in no religion should be placed on the prospect for any particular level of distribution for those months or for any other periods. We note that additional information about oxford Square Capital corpse first-quarter financial performance has been posted to our website at ww.w capital and with that operator. We're happy to open the call for any questions.

And I'll begin the question-and-answer session to ask question may press * then 1 on your touchtone phone for using the speaker phone. Please pick up your handset before pressing the keys to withdraw your question, please press star then to this time. We will pause momentarily to assemble our roster.

First question that comes from McKee's island of Landenberg, please. Go ahead. Yeah. Yes. Good morning everyone. Hope you're all doing well. Jonathan handful of questions this morning. I'd like to start by asking about how the senior secured notes and the assets and the equity portfolios reference library breaks down between 1 months and three months. I'm asking because there's a wide dispersion between one month and three months at the moment.

Hi Mickey. Yes Yep. This is a Jeep currently the splits we can get back to you with the exact splits, but there is a God but it's you know, jelly varies month to month. But you know in in general portion of our borrowers are on 3-month Libor and a portion of our office hours are on a 1-month Libor historically, it's been um, you know kind of 60/40, but we can we can get back to you with the exact splits. So, okay, I'll follow up with you on Thursday and deep did any of your Equity Investments diverted cash flows during the first calendar quarter.

We did have two positions that diverted cash flows during the first calendar quarter in January. The magnitude of impact was de minimis.

And any sense of of cash flow diversions potential for the second quarter the level of cash flow diversion for the second quarter wage is increased from the level of cash flow diversion in the first war. All right, and what are your expectations for clo equity and cash shields for the balance of this year given that from what I've read on average tripleseat buckets of almost tripled from the beginning of March to sort of mid-april and we're now at almost 11%

Sure, making thank you for the question. We we haven't published any projections with respect to those statistics for the remainder of this year.

Okay, Jonathan in the 2015/2016. Let's call it a mini cycle which which was obviously driven by different factors than what we're experiencing off today. Oxford squares clo Equity portfolio appreciated, you know fairly dramatically as that cycle was completed. How how would you compare today's environment and today's cycle to that time? And and what's your investment thesis on equity in general in the current environment?

I wouldn't compare the. Mickey that you referenced late 2015 and into early 2016 to this environment. At least not yet. I think there are too many unknowns at work our investment philosophy in our investment mandate continues to be the same which is that we are actively looking for investment opportunities both in the syndicated corporate loan market and on an ongoing basis in the clo asset class the profiles that we have and continue to look at differ pretty markedly. So we're looking and we have looked we continue to look at longer-dated product longer reinvestment shorter reinvestment tier one versus tier two managers different types of collateral pools birth.

This is an asset class that tends to become less efficient in times of economic dislocation. We think that's true at the moment. We think it's likely to continue to be true for probably sometime.

Understand my last question is just in terms of the distribution language in the press release. I in terms of the distribution, you mentioned the potential to suspect dividends at least for the third quarter third calendar quarter, is that do more to just management of distribution of taxable income relative to the dividends that you've already declared through June of this year or is it do something to something else such as you know, the high level of uncertainty regarding the outlook for the portfolios ability generate income.

I think that the board has and will continue to consider both of those things and and every other aspect of the business that that they think is appropriate and determining the distributions bucks. But I I think the decision to defer setting of a distribution for those months July August and September is a month reasonable and rational one in light of this this current environment.

When you say I understand deferring the decision, I'm just trying to get a a handle on potentially, you know, no distribution at least for those three months because that that's a pretty severe decision and I'm trying to understand whether that's concern over the health of the portfolio or just more managing, you know, the tax distribution itself. I'm sure it it's difficult Mickey to speak to a decision that that hasn't been made yet. So it would it's it's very hard for me to speculate as to how the the board not going to deliberate that and in a month or more. I'm I'm not certain yet.

okay, so the timing would be

Before the announcement of the July dividend sometime next month.

It's at the board's discretion. It might be next month that might be in June. It's it's whenever the board feels is most appropriate understand. Those are all my questions for this month. Thank you. Thank you. Thank you very much.

Curtis conclude our question-and-answer session like to turn the conference back over to mr. Jonathan calling for any closing remarks, please go ahead. All right, Nick. Thank you very much. I'd like to thank everybody for their participation in the oxford Square Capital Corp, first quarter 2020 earnings conference call and we look forward to speaking to you again soon. Thanks very much.

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