Q2 2022 Oxford Lane Capital Corp Earnings Call
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Hello, and welcome to the Oxford Lane Capital Corp, Second fiscal quarter earnings 2022 Conference call. My name is Alex and I will be cool, it's Nathan Nicole today.
I would like to ask a question at the end of the presentation you can press star one on your telephone keypad.
If you wish to withdraw your question you can press star two.
I'll now hand over to your host Jonathan Cohen from Oxford, Oxford Lane, Chief Executive Officer.
[noise] dolson over to you.
Thanks, very much good morning, everyone and welcome to the Oxford Lane Capital Corp, Second fiscal quarter 2022 earnings Conference call I'm joined today by Saul Rosenthal, our President Bruce Rubin, our Chief Financial Officer, and deep Maggi, our senior managing director and portfolio manager Bruce could you open the call with the disclosure regarding forward looking.
Sure Jonathan today's call is being recorded the 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 at this point. Please direct your attention to the <unk>.
Estimated 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.
Important factors that could cause actual results to differ materially from those indicated in these projections.
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 Dot, Oxford Lane capital Dot com with that.
I'll turn the presentation back to Jonathan.
Thank you Bruce on September 30th 'twenty, 'twenty, one our net asset value per share stood at $6 97, compared to a net asset value per share of $6.56 as of June 30th 2021.
For the quarter ended September we recorded GAAP total investment income of approximately $45.2 million, representing an increase of approximately three and a half million dollars from the prior quarter.
The quarter's GAAP total investment income from our portfolio consisted of $43 $6 million from our CLO equity investments and $1.6 million from our CLO debt investments and from other income.
Oxford Lane also recorded GAAP net investment income of approximately $26 $8 million or 24 cents per share for the quarter ended September 30th compared to approximately $25 $3 million or 25 cents per share for the quarter ended June.
Our core net investment income was approximately $41 million or <unk> 36 per share for the quarter ended September 30th compared with approximately $42 $4 million or <unk> 41 per share for the quarter ended June 30th.
During the quarter ended September 30th we issued a total of approximately eight 7 million shares of our common stock pursuant to an at the market offering resulting in net proceeds of approximately $62 million for the quarter ended September 30, we reported net unrealized net realized gains of approximately $5 $8 million or.
Five per share we recorded net unrealized depreciation on investments of approximately $32 $7 million or 29 cents per share.
We had a net increase in net assets, resulting from operations of approximately $65 $3 million or <unk> 58 per share for the second fiscal quarter.
As of September 30th 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 13, 3% down from 13, 6% as of June 30th.
The weighted average effective yield of our CLO equity investments at current cost was 16, 3% unchanged from 16, 3% as of June 30, the weighted average cash distribution yield of our CLO equity investments at current cost was 27, 7% unchanged from June 30th.
Note that the cash distribution yields calculated on our CLO equity investments are based on the cash distributions, we received for which we were entitled to receive at each respective period end.
During the quarter ended September we made additional CLO investments of approximately $322 $8 million and we received approximately $89 $7 million from sales and repayments in.
In addition, during the quarter ended September we completed an underwritten public offering of 20 of two 7 million shares of our newly designated 6% series 2029 term preferred stock at a public offering price of $25 per share raising approximately $65 million in net proceeds.
On October 28, our board of directors declared monthly common stock distributions of seven five cents per share for each of the months of January February and March.
2022.
With that I'll turn the call over to our portfolio manager deep magic.
Thank you Jonathan during the quarter ended September 30th 2021 the U S loan market modestly strengthened versus the quarter ended June 30th 2021 U S loan prices as defined by the S&P L. S. T. A leveraged loan index increased from $98 three 7% of par as of June 30th to 90, 862% of par as of September.
30th According to <unk> during the quarter double B rated loan prices increased 13 basis points I think it'll be rated loan prices increased four basis points and Triple C rated loan prices increased 26 basis points on average the 12 month trailing default rate for the S&P L. T. A leveraged loan index decreased to 35 basis points by principal amount at the end of the.
Quarter after starting the quarter at 1.25% note that this rate is just 14 basis points above the post global financial crisis Love. Additionally, distrust ratio defined as a percentage of loans with the price of Brent below 80% of par ended the quarter at approximately 77, 2% the lowest level in nearly seven years and below level.
And in June of 2020.
During the quarter the increase in loan U S loan prices led to an increase in U S. CLO equity net asset values. According to wells Fargo. During the quarter. The median U S. CLO equity NAV modestly improved from approximately 59% of par to approximately 61% of par while the median over Collateralization cushion increase from 354 basis points to 373 basis points.
Additionally, according to Wells Fargo loan pools within CLO portfolios generally maintained a weighted average spread of 340 basis points compared to 341 basis points.
The previous quarter is heavier supply in the loan market continued to weigh on spreads.
Issuance in the CLO primary market continues at a historical place year to date through September 30th at approximately 130 billion on new issue deals had priced in the primary market compared to the prior full year record of 129 billion set in 2018, and approximately a $191 billion of refinancings and resets in price in the primary market compared to the prior full year record of a 167.
Instead in 2017.
Offshore land was able to take advantage of the strength in the primary market. This quarter does it make nine new issue CLO equity investments refinancing five deals to lower the cost of debt financing of those deals and the resetting to deal.
As a function of our activity in the primary market. This quarter, we were able to lengthen the weighted average reinvestment period of Oxford Lane CLO equity portfolio in September of 2023% in March of 2024.
From a trading perspective, we had one of our busiest quarters to date as Jonathan mentioned, we were able to source investments in both the primary and secondary markets with over 50% of our purchases in the primary market on a market value basis.
And the current market environment, we intend to continue to utilize an opportunistic and unconstrained CLO investment strategy across the 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 will turn the call back over to Jonathan.
Thanks, very much deep we note that additional information about Oxford Lane's second fiscal quarter performance has been uploaded to our website at Www Dot, Oxford Lane capital Dot com with that operator, we're happy to poll for any questions.
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Thank you Kim will now start the Q&A session. As a reminder, if you'd like to ask a question you can press star one on your telephone keypad. If you decide to withdraw your question compressed Stasi.
I can't we have a question from Matthew Howlett from Brian Lee.
Matthew Your line is now open.
Good morning, and thank you for taking my question.
Jonathan do you have a question with the access here you know the 6% comp.
<unk> preferred here and I think that's a record low for the company I think you have a 24 debt maturity. That's callable how are you thinking about.
Issuing and looking at the capital structure going forward given.
These new low rates that you're achieving do you think over time could they liked it they go lower or would you look to extend duration.
Okay.
Thank you Matthew for the question historically, we've taken I think are opportunistic approach to raising both equity and debt. We're looking at the cost of capital of our equity. We're looking certainly at the cost of capital of the debt.
And we're trying to make sure that we stay in balance we're ensuring that we stay in balance so far as our preferred level levels of leverage are concerned at any given moment against those things we're looking for.
Very carefully at the opportunities that we're looking at what we can buy and the risk adjusted returns we can achieve in the primary market with respect to our warehousing activity and certainly in the secondary market, where we continue to be very active so to answer your question. Matthew we don't have a specific target in mind.
In terms of our cost of capital on the debt side.
But as you note the market has provided us, especially recently with opportunities to raise longer term capital had at a cost of capital that we think is sufficiently compelling it but in terms of our future target, we haven't really spoken to that.
Got you. Thank you.
Very active in the quarter was one of the biggest quarters in terms of deployment and seal equity when you look at the new issue calendar in the air again, which are lower cost of capital do you expect that to be sustained do you think you'll.
Take more share given your armed with again, a lower looks like cheaper access to the capital market is just talk a little bit about what can we expect in terms of capital appointment here look in the next few quarters out.
Sure we've seen Matthew the continuation of a very robust primary market, coupled with you know significantly elevated levels of trading activity.
In the secondary market, where we continue to be quite active.
So far as the primary market is concerned our thesis is that some of this primary market activity is likely being driven by the transition from LIBOR to chauffeur. So there may be some.
Diminishment in that concurrent with that event.
But at the same time, we think that the arbitrage is compelling and we think the risk adjusted return has and continues to be compelling not only for us is principally equity investors, but really down the entire capital stack. So are part of our thesis is that.
This market has been and should continue to remain reasonably healthy.
That said, we've seen dislocations in the past and we've tried to prepare ourselves for those possibilities.
Gotcha and I guess my last question, if I could put one more in there you'll look you look at the returns and she'll equity they've just been superb.
Your your GAAP yields are in the non tech high.
High teens and cash is way above that.
As an article in the Wall Street Journal about kill equity returns have surpassed <unk> equity.
Looking forward in this asset class how long do you think these yields are sustainable does did things tightened eventually as people catch on to the strength of the asset class just talk a little time to work.
Your first mover towards that you are the largest buyer of it how long are these yields get it would be main you are going to be.
The available for someone like you to go in.
Have you. It's an excellent question. It's one that we do not have the answer for we started investing in CLO tranches as junior debt equity tranches back in 2009, we launched Oxford Lane in early 2011, and as you note our level of activity our scale and our scope have increased.
<unk>. Since then we have tried to stay ahead of our competition in terms of our research our analytics.
Our ability to source transactions and assets.
But in terms of of the.
Duration of the current market that is an extraordinarily difficult thing to try to estimate and we probably wouldnt try.
Okay, well congrats on a great quarter, congrats on the dividend increase.
Thank you very much Matthew we appreciate the questions.
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Okay. Thank you Matthew.
Just one left for Monday, if you do wish to ask a question you can press star one on your telephone keypad.
Yeah.
Okay, we no longer have any more questions. So I'll hand back to Jonathan for any closing remarks Donaldson over to you.
All right well I'd like to thank everybody for their interest in Oxford Lane Capital Corp, and their participation on this call. We look forward to speaking to you again soon thanks very much.
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Thank you for joining today's call you may now disconnect.
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