Q1 2021 Oxford Square Capital Corp Earnings Call

Good morning, and welcome.

Two of the Oxford Square capital first quarter 2021 of the earnings call.

All participants will be in most of all of those do you need assistance. Please signal conference specialist by pressing the star key followed by the Ebola.

After the presentation on the opportunity to ask questions. Please.

Please vote for this is that the gain recorded.

I'll take the part of the call over what's the Jonathan Collins CEO. Please go ahead.

Thanks, very much good morning, everyone and welcome to the Oxford Square Capital Corp, first quarter 2021 earnings conference call I'm joined today by Salt Rosenthal, our President Bruce Rubin, Our Chief Financial Officer, Kevin you're on and our managing director and portfolio manager.

Bruce could you open the call today with the disclosure regarding forward looking statements sure. Jonathan Today's conference calls for recorded an order of a replay of the conference call will be available for 30 day repo.

The information is included in our press release that was issued earlier. This morning. Please note. The this call is the property of the Oxford Square Capital Corp. Any unauthorized rebroadcast of this call in any form of 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 include.

The 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 do not undertake to update all of them.

Looking statements on the.

That's required to do so by law to obtain copies of our latest SEC filings. Please visit our website www, the Oxford square capital Dot Com with that I'll turn the presentation back to Jonathan.

Thanks Bruce.

For the quarter ended March 31, Oxford square as net investment income was approximately $4 $8 million or <unk> 10 per share and our net asset value per share of stood at $4.88 per share compared to net investment income of approximately $4 $7 million for 10 cents per share.

The net asset value per share of $4 55 for the prior quarter.

For the first quarter of 2020. One we recorded total investment income of approximately nine point for millions of dollars as compared to approximately $8 $6 million in the prior quarter and the <unk>.

First quarter of 2021, we reported net unrealized appreciation on investments of approximately $31 million or 63 per share compared to net unrealized depreciation or appreciation on investments of approximately $35 $7 million or 72 cents per share for the prior quarter.

In the first quarter, we reported realized losses on investments of approximately $14 $1 million or 28 cents per share compared to realized losses of $700000 or two cents per share for the prior quarter.

Total for the first quarter, we had a net increase of net assets from operations of approximately $21 $8 million or <unk> 44 per share compared to a net increase of net assets from operations of $39 $7 million or 80 cents per share for the prior quarter.

During the first quarter of 2021, our investment activity consisted of purchases of approximately $32 $9 million sales of approximately $1.8 million and repayments of approximately $16 $4 million.

As of March 31st we held cash and cash equivalents of approximately $39 $7 million against which there were unsettled purchases of approximately $10 $9 million, which settled in April of 2021.

On April 22021, our board of directors declared monthly distributions of $3.05 per share for each of the months ending July August and September of 2021.

Additional details regarding record and payment date information can be found in our press release that was issued this morning with that I'll turn the call over to our portfolio of manager, Kevin you and to discuss the loan market generally.

Jonathan during the quarter ended March 31, 2021 of the U S loan market strengthened versus the quarter ended December 31 2020.

U S non prices as defined by the S&P <unk> leveraged loan index increased from $96. One nine per cent of par as of December 31% to 97% of five five per cent of par on March 31st after peaking at 97% by eight 1% on February 25.

According to LCD during the quarter pricing dispersion related to credit quality continued with double B rated loan prices, increasing because of your spot two 1% B rated loan prices increasing zero for about five five per cent.

The C rated loan prices increasing for about 92% on average.

The 12 month trailing the fault rate for the S&P L. S. T. The leveraged loan index decreased the three spot one five per cent by principal amount at the end of the quarter after starting the quarter at 343%.

Additionally, the distress ratio defined as the percentage of loans, where the price below 80% of par ended the quarter at one spot one three per cent compared to two 2% on December 31st after peaking at 57% on March 23 2020.

During the quarter ended March 31st primary market issuance of approximately 182 billion well ahead of approximately 88 million during the comparable quarter in 2020.

This was driven by strong refinancing repricing M&A and LBO activity during the quarter. Moreover, you must of loan fund inflows as measured by the liver or nine slide eight 6 billion for the quarter ended March 31st versus total outflows of approximately $19 billion for 2020.

We continue to focus on portfolio management strategies designed to maximize out of long term total return and as the current capital vehicle. We historically have been able to take a longer term view towards our investment strategy.

Kevin Thanks, very much operator.

We note that additional information about Oxford square capital Corp's first quarter performance has been posted to our website at Www Dot, Oxford square capital Dot Com and with that we're now happy to open the call up for any questions.

Well now begin the question and answer session.

The question of My Press Star then one on you touched on the phone could use of the speakerphone. Please pick up of your handset before pressing the keys.

Well, it's all of your question. Please press Star then two.

At this time, we'll pause momentarily to assemble the roster.

First of all asking for me.

Your line of blame the Burns. Please go ahead.

Good morning, Jonathan Hope, everyone, there is doing well.

Thank you Jonathan given yeah, given the strengths in the loan markets Johnson I'd like to ask what caused the decline in the CLO portfolio of cash yields from the fourth quarter for the first quarter.

Certainly.

Our CLO portfolio manager the Maggi will answer that question Nicky. Thank you for sure.

Mickey as you know are on the asset side, we're experiencing some level of spread compression. So that was one factor all of it.

So did affect two resets as well as two refinancings on a portfolio of two of the more control positions of Oxford square of holds the majority of positions. So they're a very fairly sizable and as you know as part of those resets of refinancings opt in case. The first period there may be one of you pay for.

Expenses, there might be a low but lower cash flow to the to pay for the expenses associated with those refinancings of resets. So I think the combination of spread compression that we're seeing on the asset side as well as all of just you know some of these one time events was the driver of the slightly lower cash yields that the.

<unk> said the amount of cash flow diversion that our portfolio experience declines quarter over quarter fairly significantly in light of the strength and the improvement in credit fundamentals across the market broadly.

No I appreciate that the that's helpful and given what you just said when we think about portfolio allocation of how.

How would you characterize the risk adjusted returns available in C O lows.

Versus corporate loans, and do you envision continuing to operate with nonqualified asset.

You know meaningfully above the regulatory limit.

Sure Mickey the risks and returns associated with the stated corporate loan market.

And the CLO tranche market, both of which we participate in at Oxford Square.

Have certain similarities and certain.

Points of overlap, but there are also different in some fairly fundamental ways CLO equity specifically.

Is not only a levered investment in certain parts of the syndicated corporate loan market. It is also fundamentally an arbitrage between the cost of capital and the use of proceeds on a levered basis within the structures of these various CLO vehicles.

And the difference is between and amongst those vehicles give rise to differences in turn.

In terms of the risk return profiles within each CLO the structure.

There are points of overlap, but they're also fundamentally different.

In terms of our strategy.

For CLO investment at Oxford Square.

We do intend to continue.

With the asset class and with exposure to the asset class, we haven't published publicly announced or published any specific target as to the percentage of the the portfolio, where we're intending to be represented by CLO tranche investments.

Okay I understand the Jonathan just a couple of more sort of more housekeeping questions. What was the main or what were the main drivers of this quarters realized loss.

Sure.

Sure Mickey there were there were two name of specifically the were exited that were previously reflected as unrealized losses there.

Debt were realized in the March quarter.

Yeah.

Can you give us those names.

Sure.

Imagine for solutions and Kevin Kevin.

And I'm sorry.

Okay and Jonathan.

What is your view on the target debt to equity ratio for Oxford Square.

We haven't published.

Published or publicly discussed a specific target Mickey I think what we've tried to do historically and certainly what we are trying to do now is to be responsive to the market to take into account the the risks and return opportunities that we see available to us both on the syndicated corporate loan side.

And on the CLO tranche of investing side and to try to essentially re.

Run the portfolios.

Leverage profile in a way that reflects those dynamics, but we haven't come out publicly and state of that particular target yet.

Alright, and lastly, what is the status of your undistributed taxable income.

We'd have to revert back Mickey we don't have that figure to hand.

Alright.

The we can we can follow up separately and get you those figures.

Yeah that would be helpful. Those are all my questions. This morning, I appreciate your time and I'll be in touch to get that UTI number of later today alright.

Alright, thanks, very much we appreciate it.

Welcome. Thanks.

This concludes the question answer session I would like to turn the conference back over the months of calling for closing remarks. Please go ahead.

Thank you operator, and I'd like to thank everybody on the call and everybody who's listening to the replay for their interest in Oxford Square Capital Corp. We look forward to speaking to you again soon thank you.

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