Q3 2020 Oxford Square Capital Corp Earnings Call

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Good morning, everyone and welcome to the Oxford Square Capital Corp, Third quarter 2020 earnings Conference call I'm.

I'm joined today by Saul Rosenthal, our President Bruce Rubin, our Chief Financial Officer, Kevin Young in our managing director and portfolio manager.

Bruce could you open the call today with the disclosure regarding forward looking statements.

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 earlier. This morning. Please note that this call is the property of Oxford Square capital Corp. any unauthorized.

<unk> is rebroadcast of this call in any form is strictly prohibited.

Oh Boy, please direct your attention to the customary disclosure in this mornings 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.

Financial performance, we ask that you refer to our most recent filings with the EPS equally important factors that could cause actual results could differ materially from those included in these projections we.

We do not undertake up good all forward looking statements unless required to do so by law to obtain copies of our latest actually see filings. Please visit our website at Www Dot, Oxford square capital Dot Com with that I'll turn the presentation back to John [laughter]. Thank you Bruce for the quarter ended September Thirtyth, Oxford squares net investment income.

Was nine cents per share and our net asset value per share stood at $3.85 compared to net investment income per share of nine cents, the net asset value per share of $3.54 in the prior quarter.

For the third quarter 2020, we recorded total investment income of approximately $8.2 million as compared to approximately $2.3 million in the prior quarter.

Third quarter of 2020, we recorded net unrealized depreciation on investments of approximately $20.9 million or 42 cents per share compared to net unrealized depreciation on investments were approximately $19 million or 38 cents per share for the prior quarter.

For the third quarter, we recognized realized losses on investments of approximately $4.4 million or nine cents per share compared to realized losses of $2.8 million or six cents per share for the prior quarter.

In total for the third quarter, we had a net increase in net assets from operations of approximately $20.8 million or 42 cents per share compared to a net increase in net assets from operations of $20.6 million or 41 cents per share for the prior quarter [laughter] during the third.

Third quarter 2020, our investment activity consisted of purchase purchases of approximately $18.3 million.

Sales of approximately $8.3 million and repayments of approximately $600000.

We note that as of September Thirtyth, we continue to hold to that investment incomes on nonaccrual status. We also hold preferred equity investments in one of our portfolio companies on nonaccrual status.

On October 22nd 2020, our board of Directors declared monthly distributions of 3.5 cents per share for the months ended January February and March of 2021.

Additional details regarding record and payment date information can be found in our press release that was issued earlier this morning.

In light of current economic and market conditions include including as a result of the global crisis caused by the spread of the Covidien virus. We believe that no reliance should be placed on these distributions representing the prospect for any particular level of common stock distributions for any periods in the future and with that I'll turn the.

Call over to our portfolio manager, Kevin you on it Kevin.

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During the quarter ended September 32020, U.S. loan market strengthened versus the quarter ended June 32020.

You echelon prices as defined by the S&P LSTA leverage loan index increased from 89 spot, 80% par as of June 32, a quarterly high of 93.96% on September 16th before declining to 93 spot one 8% on September Thirtyth corn.

According to LCD during the quarter license burden related to credit quality continued with double B rated loan prices increasing to spot too precise b rated loan prices, increasing 3.5% and triple C rated loan prices, increasing its about 6% on average.

The 12 month trailing default rate for the S&P LSTA elaborate about index increased to four spot one 7% by parts Bald mountain at the end of the quarter after starting the quarter, 3.23% by principal amount.

Additionally, the distressed ratio defined as a percentage of loans with a crisis below 80% core ended the quarter at approximately 5% compared to 8% on June thirtyth after peaking up 67% on March 23rd.

September Thirtyth year to date primary market issuance of approximately 203 billion was 15.8% below issuance during the comparable period in 2019.

Moreover, U.S. loan fund outflows as measured by Lipper have moderated with 2.9 billion of outflows for the quarter ended September thirtyth versus approximately 4 billion of outflows for the quarter ended June thirtyth.

In this environment, we continue to focus on portfolio management strategies designed to maximize our long term total return, but a permanent capital vehicle. We historically have been able to take a longer term view towards our investment strategy.

Kevin Thank you very much.

Additional information about Oxford squares third quarter performance has been posted to our website at Www Dot, Oxford square capital Dot com and with that operator, we're happy to open the discussion for any questions.

Well now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys.

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Our first question today comes from Mickey Schleien with Ladenburg.

Oh, yes, good morning, everyone.

Question Hey.

Hey, good morning, a question for Kevin This year, the feds financing facilities, which were introduced after the pandemic began have boosted the high yield market and that's a lot borrowers to refinance the refinancing or at least some of their loans with bonds.

How does that dynamic affecting the loan mark it's a supply and demand equilibrium and what is your outlook for it in terms of its its technical and fundamental factors.

Sure Mickey I mean, we've seen the dynamic that you've just described in terms of available supply for our investment strategy. We feel as if there is sufficient supply both the primary and secondary markets.

For us to continue to execute in terms of how things may play out in the future in terms of the interplay between those various elements, it's extraordinarily difficult to say and we frankly wouldn't speculate.

Hi, Jonathan if you look at the price the price of the leveraged loan market. It's implying you know defaults of six 7% is that sort of your operating assumption as you make investments or are you more pessimistic more optimistic how generally.

How do you feel about credit going into next year.

I think maybe we would apply a higher level of specificity.

Then to say that the overall market will likely return I've sat level of default rate over a certain period of time I think we're going to see a continuation of what we've seen thus far which is a tremendous level of bifurcation and deviation between and amongst different industries in between and amongst different companies.

Depending on their individual prospects. The current state of the World is as you well know is I think fairly uncertain, but there has been and I think there will continue to be a realignment.

In terms of market risk and sector risk and corporate risk depending on how these various industries and companies are are positioned and where their operating.

And Jonathan is that bifurcation, you know providing Oxford.

Opportunities and let's call them quote unquote distressed deals.

Deals that you think ultimately our or good money and are you taking advantage of that.

We're looking and we have always looked at individual opportunities Mickey that would be characterized as distressed opportunities, but as you know we haven't historically participated in a meaningful way in the distressed markets.

Okay, and just a couple of balance sheet question, Sean a certain trials and you know what is the outlook for Oxford square to put back into place some sort of credit facility since that could.

Reduce the cost of your debt capital, which couldn't and and increase your leverage and ultimately improve your and I are yielding you know everything else remaining equal.

Sure Mickey without wanting to be very specific about that that's something that we look at fairly regularly. So as you know we have we've issued a baby bonds. Those are the only significant liabilities on our balance sheet at this moment, but as you say different aspects or different parts of the credit markets.

Provide us the ability to lower our cost of capital and we certainly continue to look at those kinds of things.

Do you think that the terms available to you on on those other facilities or you know would be accretive at this point in time to Oxford's earnings.

Where are there to arise an opportunity for us to.

Issue accretive dad or take out a great accretive indebtedness, we would certainly look very serious it seriously it doing so okay.

Okay and my last question Jonathan.

Picture is there any impediment besides the necessary approvals for you to consider merging Oxford square and Oxford Lane, which could you could have some certain benefits such as reducing relative operating expenses for the two companies.

It's an interesting question Mickey not one that I'm really able to address though.

That's it for me this morning, Thanks for your time.

All right. Thanks very much appreciate it.

Seeing no further questions I'd like to turn the call back over to Jonathan Cohen for any closing remarks.

All right operator, well. Thank you very much we appreciate everyone's time and interest in Oxford Square Capital Corp.

And we look forward to speaking to you again very soon thank you very much.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.