Q2 2022 Oxford Square Capital Corp Earnings Call
Thanks, very much good morning, everyone and welcome to the Oxford Square Capital Corp, Second quarter 2022 earnings Conference call I'm joined today by Saul Rosenthal, our President Bruce Rubin, Our Chief Financial Officer, and Kevin Younan, our managing director and portfolio manager Bruce could you called the open the call. This morning with the disclosure regarding forward looking statements.
Thanks very much. Good morning, everyone. Welcome to the Oxford Square Capital Corp. 2nd quarter, 2022 earnings conference call. I'm joined today by Saul Rosenthal, our president, Bruce Rubin, our chief financial officer in Kevin Youngin, our managing director and portfolio manager. Bruce, could you call the open the call this morning with the disclosure regarding forward-looking statements? Sure, Johnson. Thank you. Today's conference call is being recorded. The North-Ear replay of the conference call will be available 30 days.
Sure Jonathan Thank you.
Today's conference call is being recorded and audio replay of the conference call will be available for 30 days replay information is included in our press release issued this morning. Please note that this call is the property of Oxford Square Capital Corp. Any unauthorized rebroadcast of this call in any form is strictly prohibited.
Replay information is included in our press release as it issued this morning. Please note that this call is the property of Oxford Square Capital Court, any unauthorized rebroadcast of this call and any form is strictly prohibited. For this point, please direct your attention to the customer 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.
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.
Two 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 today.
We ask that you refer to our most recent fileings with the SEC for important factors that can cause actual results to differ materially from those indicated in these projections.
We do not undertake to update our fold-looking statements unless required to do so by law. To obtain copies of our latest SEC fileings, please visit our website, www.OctoredSquareCapel.com. With that, I'll turn the presentation back off to Jonathan. With that, I'll turn the presentation back off to Jonathan.
Good day copies of our latest S. E. T filings. Please visit our website at Www Dot, Oxford square capital Dot Com with that I'll turn the presentation back over to Jonathan.
Thanks, Chris for the quarter ended June 30th Oxford Square as net investment income was approximately $4 $3 million or <unk> <unk> per share, which was unchanged from the prior quarter, our net asset value per share stood at $3 67.
Thanks, Bruce. For the quarter ended June 30th, Oxford squares net investment income was approximately $4.3 million or $0.9 per share, which was unchanged from the prior quarter. Our net asset value per share stood at $3.67 as compared to a net asset value per share of $4.65 for the prior quarter.
As compared to a net asset value per share of $4 65 for the prior quarter for.
For the second quarter, we recorded total investment income of approximately $9 $9 million, which was unchanged from the prior quarter.
For the second quarter, we recorded total investment income of approximately 9.9 million dollars which was unchanged from the prior quarter.
In the second quarter, we recorded net unrealized depreciation on investments of approximately $46 $2 million or <unk> 93 per share compared to net unrealized depreciation on investments of approximately $13 $5 million or 27 per share for the prior quarter.
In the second quarter, we recorded net unrealized depreciation on investments of approximately $46.2 million or 93 cents per share compared to net unrealized depreciation on investments of approximately $13.5 million or 27 cents per share for the prior quarter.
In the second quarter, we recorded realized losses on investments of approximately $1 $5 million or <unk> <unk> per share compared to realized gains of $1 million or <unk> <unk> per share for the prior quarter.
In the second quarter we recorded realize losses on investments of approximately $1.5 million or $3 cents per share for the prior quarter.
During the second quarter, our investment activity consisted of purchases of approximately $26 $9 million and sales and repayments of approximately $9 6 million.
During the second quarter, our investment activity consisted of purchases of approximately $26.9 million and sales and repayments of approximately $9.6 million.
As of June 30th, we held cash and cash equivalents of approximately $23 $2 million.
As of June 30th, we held cash and cash equivalents of approximately $23.2 million.
On July 20, <unk>, our board of directors declared monthly distributions of $3.05 per share for each of the months ending October November and December of 2022.
On July 21, our Board of Directors declared monthly distributions of three and a half cents per share for each of the months ending October , November and December of 2022.
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 and portfolio manager, Kevin you're on and to discuss the loan market Kevin. Thank you Robyn.
Additional details regarding record of 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 manager, Kevin Youngin, to discuss the loan market. Kevin, thank you for having me.
During the quarter ended June 32022 U S loan market exhibited weakness versus the quarter ended March 31, 2022 U S loan prices as defined by the S&P <unk> leveraged loan index decreased from 90, 760% of par as of March 31 to 92, 6% of par as of June 30.
During the quarter in June 30th, 2022, the US loan market exhibited weakness versus the quarter ended March 31st, 2022. US loan prices as defined by the S&P LSTA Levitable Index decreased from 97.60% of par as in March 31st, to 92.16% of par as in June 30th. The US loan market has been in the same way as in March 31st, March 31st, 2022, the US loan market has been in the same way as in March 31st, March 31st, 2022, the US loan market has been in the same way as in March 31st, March 31st, 2022, the US loan market has been in the same way as in March 31st,
According to LCD during the quarter, there was pricing dispersion related to credit quality with double B rated loan prices decreasing 399 basis points or 4.06% B rated loan prices decreasing 596 basis points or six 8% and triple C rated loan prices decreasing 740.
According to LCD, during the quarter, there was pricing dispersion related to credit quality, with double B-rated loan prices decreasing 399 basis points, or 4.06%, B-rated loan prices decreasing 596 basis points, or 6.08%, and CCC-rated loan prices decreasing 744 basis points, or 8.37% on average. The 12-month trailing default rate for the S&P LSTA Leverage Loan Index is $2.9 million.
Four basis points or 837% on average.
The 12 month trailing default rate for the S&P <unk> leveraged loan index increased to <unk> two 8% by principal amount at the end of the quarter from 0.19% at the end of March 2022.
increased to 0.28% by principal amount at the end of the quarter from 0.19% at the end of March 2022.
Additionally, the distressed ratio defined as a percentage of loans with a price below 80% of par ended the quarter at approximately $3 six 5% compared to 155% at the end of March 2022.
Additionally, the distress ratio, defined as the percentage of loans with a price below 80% of par, ended the quarter at approximately 3.65%, compared to 1.55% at the end of March 2022.
During the quarter ended June 32022 primary market issuance was approximately 56 billion, representing a 48% decline versus the quarter ended June 32021. This.
During the quarter ended June 30, 2022, primary market issuance was approximately $56 billion, representing a 48% decline versus the quarter ended June 30, 2021.
This was driven by lower refinancing M&A and LBO activity.
At the same time U S loan fund outflows as measured by Lipper or approximately $2 9 billion for the quarter ended June 30th.
This was driven by lower refinancing, M&A, and LBO activity.
At the same time, US loans fund outflows as measured by Lipper, or approximately $2.9 billion for the quarter into June 30.
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 a longer term view towards our investment strategy.
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 a longer-term view towards our investment strategy.
Thanks, very much Kevin.
Additional information about Oxford square as second 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 call for any questions.
Thanks very much, Kevin. Additional information about Oxford Square's second quarter performance has been posted to our website at www.OxfordSquareCapital.com. And with that operator, we're happy to open the call for any questions.
Thank you if you would like to ask a question. Please press star followed by one on your telephone keypad now if you change your mind. Please press star followed by <unk> and what I'm trying to ask your questions. Please ensure your sign is unmated lately.
Thank you. If you would like to ask a question, please press start, followed by one on your telephone keypad. Now, if you change your mind, please press start, followed by two. And when I'm about to ask your question, please ensure your phone is unmuted locally. Our first question comes from Mickey Schlein, from Leydenberg. Your line is now open, Mickey.
First question it comes from Mickey Schlein from Ladenburg. Your line is now open Mickey.
Hey, Good morning, everyone can you hear me Jonathan.
Good morning Mickey.
Good morning everyone. Can you hear me Jonathan? Yes, good morning Mickey.
Hi, Ed.
Jonathan could you give us some idea as to what trends youre seeing in terms of your borrowers and the collateral public wearers and the CLO in terms of their revenues and margins. So far this year.
Hi. Jonathan, could you give us some idea as to what trends you're seeing in terms of your borrowers and the collateral obligors and the CLOs in terms of their revenues and margins so far this year?
Sure I'm going to.
I hand, the call over Mickey to the deep who can talk a little bit about what we're seeing within the collateral pools of the various CLO structures that we invest in.
Sure, I'm going to hand the call over, Mickey, to Deep who can talk a little bit about what we're seeing within the collateral pools of the various CLO structures that we invest in. Kevin Males or Chi-Man? Thanks, Mickey. Yeah, so I think, yeah, we've seen borrowers, you know, we're poor earnings, I would say, that generally speaking, earnings have been stable. That being said, there has been some weaker guidance or later this year.
Kevin May also China.
Thanks Mickey.
Yeah, So I think we've seen borrowers.
Fourth quarter earnings I would say that generally speaking your earnings have been stable that being said there has been some weaker guidance guidance for later this year.
I think.
Generally speaking the expectation was that earnings were going to be a little bit weaker into the second quarter earnings that were starting to those are just starting to kind of come out now, but they've actually been a little bit ahead of what we expected and Kevin.
I think generally speaking, the expectation was that earnings were going to be a little bit weaker into the second quarter earnings that were starting to kind of come out now, but they've actually been a little bit ahead of what we expected. Kevin. Specifically in our corporate loan portfolio, we haven't yet received Q2 results for our portfolio. Those results are due in the next month or so. However, when you look at Q1 results, you'll see that the financials are going to be going to be a little bit more ahead of what we expected. Q1 results. Q1 results.
Specifically in our corporate loan portfolio.
We haven't yet received Q2 results for our portfolio. That's those results are due in the next month or so however, when you look at Q1 results as well as the commentary that were provided by certain management teams as deep were saying through Q1 earnings and revenues generally were flat.
as well as the commentary that were provided by certain management teams. As Deep was saying, through Q1, earnings and revenues generally were flat. Margins are generally holding in there. However, there has been commentary, which we've heard sort of across the market just regarding inflation and the impact on wages, supply chain disruptions and potential future impacts on margins.
Margins are generally holding in there. However, there has been commentary.
Which we've heard sort of across the market just regarding inflation and the impact on wages.
Supply chain disruptions and potential future impacts on margin so I.
I think thats, where we are at this point.
Yes.
Thank you for that and with that in mind.
I think that's where we are at this point.
What what's your outlook for the loan and CLO markets for the balance of this year going into next year.
Thank you for that and with that in mind, what's your outlook for the loan and CLO markets for the battles of this year going into next year when we consider the level of inflation and the potential for the economy to slow down as the Fed tightens even more?
When we consider the level of inflation.
And.
The potential for the economy to slow down as the fed tightens even more.
Sure Mickey we don't have as stated or published target for.
Sure, Mickey, we don't have a stated or published target for loan prices, default rates, triple-seat downgrades, or any of the other metrics that we focus on and think about in the context of direct loan investing and COLO equity tronch investing.
For loan prices default rates Triple C downgrades or any of the other metrics that we focus on and think about in the context of direct loan investing in CLO equity tranche investing.
The real issue from our perspective as to what greater or lesser extent the loan market has already discounted some of these variables and some of this potential dislocation going into the latter part of the year the loan market today, having rallied about 125 to 150 basis points off its recent low of <unk>.
The real issue from our perspective is to what greater or lesser extent the loan market has already discounted some of these variables and some of this potential dislocation going into the latter part of the year. The loan market today having rallied about 125 or 150 basis points off its recent low of circa 92 is clearly at a discount, trading in a discounted part of the question is the sufficiency of that discount?
92.
Is clearly at a discount trading at a discount to par. The question is the sufficiency of that discount relative to these economic variables and on that front, we don't have a specific view.
relative to these economic variables. And on that front, we don't have a specific view.
Jonathan in terms of the.
Portfolio.
Do you see more.
Jonathan, in terms of the portfolio, do you see more relative attractiveness in the loan market, given what you just said or in silo equity, and is that affecting your portfolio's allocation to an extent?
Relative attractiveness in the loan market given what you just said or in CLO equity and is that affecting your portfolio's allocation to any extent.
The answer Mickey I think as both although in different ways certainly.
The answer I think is both, although in different ways, certainly. The CLO market is broadly, I would say, less liquid, generally speaking, than the larger parts of the syndicated corporate loan market that lack of liquidity can occasionally lead to opportunity. At the same time, some of the less liquid, syndicated corporate loan names have also shown some interesting price movements.
The CLO market is broadly I would say less liquid generally speaking than than the larger parts of the syndicated corporate loan market that lack of liquidity can occasionally lead to two opportunity.
At the same time some of the less liquid syndicated corporate LOE names.
Have also shown.
Some interesting price movements. So the short answer Mickey is that we are monitoring both and we're continuing to invest in both.
So the short answer to making is that we're monitoring both and we're continuing to invest in both.
Okay.
Thank you. Our next question comes from Steve <unk> from financial writer Steven Your line is now open.
Thank you. Our next question comes from Steven Bavaria from Financial Writer. Steven, your line is now open.
Oh, Hi, Jonathan.
I wanted to ask you a little bit more about the drop in the deep from one quarter to the next I know this has kind of seen as a knee jerk negative by a lot of retail investors, but I know, it's a bit more nuanced than that and could you explain or give your thoughts on how.
Oh, hi, Jonathan. I wanted to ask you a little bit more about the drop in the NAD from one quarter to the next. I know this kind of is seen as a knee jerk negative by a lot of retail investors, but I know it's a bit more nuanced than that. And could you explain or give your thoughts on how? And could you explain or give your thoughts on how?
Often I mean your own portfolio, even though on the secondary market. It's now perhaps mark down if you were to sell it your loans are all 98% or more of them probably are still performing and you'll collect them at par.
Often, I mean, your own portfolio, even though in the secondary market, it's now perhaps marked down if you were to sell it. But your loans are all 98% or more of them, probably you're still performing and you'll collect them as part.
So when you do that.
Youre able to go back into the market and buy new loans in the secondary market, even cheaper prices than perhaps is justified.
So when you do that, if you're able to go back into the market and buy new loans in the secondary market, even cheaper prices than perhaps is justified,
That can actually be a benefit for you folks right I mean, we often hear that CLO and loan investor professional loan investors do better during turbulent times when secondary prices are down.
That can actually be a benefit for you folks, right? I mean, we often hear that CLOs and loan investor, professional loan investors do better during turbulent times when secondary prices are down, than they do in more normal times. Can you see what I'm getting at? Can you give me a little bit of your take on that, how you do it?
Than they do in more normal times, you'll see what I'm getting at and can you give me a little bit of your take on that how you how you view it.
Sure Steve. Thank you very much for the question I think the question very neatly encapsulates.
Sure, Steve. Thank you very much for the question. I think the question very neatly encapsulates a great deal of the philosophy around investing in syndicated corporate loans and CLO tranches in times of economic dislocation and price volatility across the loan market broadly. So yes, we're in fundamental agreement with what you've just said.
A great deal of the philosophy around investing in syndicated corporate loans.
And CLO tranches in times of economic dislocation and price volatility across the loan market broadly so.
Yes, we're in fundamental agreement with what you've just said, which is that to the extent that we don't see a dramatic increase in corporate loan defaults.
which is that to the extent that we don't see a dramatic increase in corporate loan defaults, we have the prospect certainly of seeing some accretive pull to par, which can be...
We have the prospect certainly I'm seeing some accretive pull to par.
Which can be.
[noise] enormously powerful in the context of our dual investment strategies, so while we're not.
enormously powerful in the context of our dual investment strategies. So while we're not
Saying that we expect every loan across our portfolio to repay at par we are not saying that we don't expect some increase inevitably in what has been historically, a very very low corporate loan default rate at the same time, we are expectant.
saying that we expect every loan across our portfolio to repay it far, we're not saying that we don't expect some increase inevitably in what has been historically a very, very low corporate loan to fall rate. At the same time, we are expectant that the significant majority of syndicated loans will repay it at far. And our hope and even our expectation is to benefit from that dynamic. Thank you.
That the significant majority of Cindy.
Syndicated loans will repay at par.
And our hope and even our expectation is to benefit from that dynamic just as you say.
Thank you.
Good to hear.
Thank you very much.
Thank you that concludes today's Q&A session I will now refer you back to Jonathan Cohen for further remarks.
Thank you very much operator, we would like to thank everyone, who has participated in this call or who is listening to the replay for their interest in Oxford Square Capital Corp. We look forward to speaking to you again. Thank you.
I think everyone who has participated in this call or who is listening to the reply for their interest in Oxford Square Capital Corps, we look forward to speaking to you again. Thank you.
That concludes the Oxford Square Capital Corp, second quarter 2000 <unk>.
<unk> earnings call. Thank you for your participation you may now disconnect.
Back on to the Oxford Square Caffee Court, second quarter 2022, earnings call. Thank you for your participation. You may now all disconnect.
Uh huh.
Okay.
Right.
Okay.
Okay.
Uh huh.
Okay.
Okay.
Yes.
Thank you. You be ING your ion ple for that. Thank you, the company ple that Thank. And today xfor's qu cour. Second cour 20 20, two conference cour eight today you would like question the presentation by pricing for the by one if you change your price for the by 2, not the to the, Thank much morning every one wellcome to the Oxford quare capital Court second courarter 20 20, two earning conference call in President our finannational law certain sevenven manag Director portfolio managerter call. Open the call this morning. The disclo regarding four looking statement: John , Thank you. Conference calls repcorded Re conference cour available 30 days Re information included in our press rele issu this morning. Please to this call property Ford quare capital cour. The of this call and any point prohibited this point. Please dire your ion to the CLO in this. Ning presress release rearding for looking information to the conference call includ for looking state projections that the company courren expect two other three and CI performance repfer reasoncent filings with the's C C cour factors resul to for M Ally from those indicated in the projections. We do not to looking state ments on less cour by law C filings ase the Oxford Square capital that the presentation. Thank the courarter. And 30 Oxford qu investment income was approximately four point three million dollars or nine cents per share, which were change from the prior quarter. Value per shares: $3 and 67 sent. As compared to that value per share, $4 and 65 cents for for the prior arter. forthe second quarter we repcorded investment income approximately nine point nine million dollars, which was change from the prior quarter. The second courarter we repcorded realized depreciation investments approximately forty six point two million dollars or Ninety three cents per share, compared to realiz depreciation LO investments approxim 13 in a half million dollars or 20, seven cents per Re. For the prior AR, the second courarter, we repcorded realizized law on investments approximately one point five million dollars or three cents per share, compared to realized GS of one million dollars or two cents pershare for the prior quarter. During the second quarter our investment tivity consisted purchas approxim 20, six point nine million dollars and als repayment of approximately nine point six million dollars as UN 30 we cash and cash quvalence approxim 20, three point two million dollars. July 20 first Ard Directors to ared TH dis: ributions: three have cents per share for of the mon and our no M mber 20 20, two additional tails regarding cord payment information be found in our press rele that issu this mor. That turn the call over portf Folio ag sevenvent to discuss loan mar. Thank you uring the courar and thir two thousand twent two loan market exhic the courarter March 30, first two thousand 20 two's loan prices as the 5, the lever one indenext decrease for 98%. March thir first nin two point one 6%, 30 courting during the qucourar pricing version related redit alty be ated an prices decreasing three hundred nineinety nine basis pointints or four point 6% rated loan prices decreasing five hundred and nin, six basis pointints or six point 8% rated LO prices decreasing 700 for four basis pointint.s eight point 3, 7% point ion month TR ING the the the lever indenext increase year point 2, 8% in the of the quar from year point 1, 9%. The March two thousand 20, two additionally distrress R the cent ANS price low 80% thepar into the courarter approximately three point 6, 5% compared to the one point 5, 5% at the end. March two thousand 20, two uring the courarter and UN 30, two thousand 20, two priimary market issu ings for proimately fifty six billion represent ING 4% line courarter and une 30, two thousand 20, one by lower Fin C and and actiy at the same time's loan out flows as by or approximately two point nine million for the courar and 30 continue cus on portfolio manage ateies our long term total return as cap be able long term to wards hour inestment strate. Thank very much. seven additional information about Oxford qu second courarter performance been possted to our web's and oxfor squareor capital T com and that operat open the call for anyty questions. Thank you, if would the question Please P for the by one now you change your Please for the by two and question, Please question from now morning every one AR morning you some what see terms of your bar and the colllater cour in the C those and terms of their reven news and and mar this year. Sure the call little that what with in the coll cour of the struct that we MA or Thank Thank barers, Court nings. I would say that earnings that has been for later this year. Thank generally that expectation was Ning were going be a little to the courarter earning that were starting other startarding out now. But the in the what we we exed seven specifically in our Court loan portfolio we haveven T rece Q2 sults for portfolio that results or in the one however, when you look at one resul the commonmentary that vided by teen the saying one earnings and reven generally marg generally holding in their. However, has been commonment ary rossthe market regarding ation, the impact on wages, five change structions and potential marg think that's we are this point. Thank Thank, Thank you for that. And with that's what's for the loan C marke for the att, the going next year. We consid the level of lation and the potential for low down the even more sure. We don't have stated or publicish for loan prices F rate, triple grr any. The other TR that we focus on and thank about in the contex direct loan investing and C? qu TR investing the real for our expected is to what gr or less exsent the loan market allalready counted some of the very abes and some of potential dis loation into the L part of the year loan market today have rally about a hundred 20, five hundred fifty BAs ints off reasoncent low niny two clearly a count ING the discoun, the questionions, the sufficiency of that discoun related to the econic arabes and on that we Don' have a specific two terms of the courportfolio see more REL the tract loan just low. That pecting portfolios allocation ex sent wer both all though certainly the C market broad would say less liquid generally spea than the large part the synicated Court loan market lastack of quid the ation to operproortunity. At the same time some of the liquid nindicated Court loan NAM have also interesting price movement. So answer that were mon TR. Both were continue invest, Thank you. Next question, coun anci, your line now Jo, a little more the in the one cour quar the next know see the ne a Re TA invtorsbut I know more new one than that and you explain all mean your Court sollio. Even on the second ary market, perha mar, you se loanans Ninety, 8% ormore of pro ly still forming and lect par. So when you do that you, if you Re able go back in into the market by new lawans in the second ary market, that even IE prices- perhaps just the 5, actually the 3- mean we all here that C loan invest ofion LO invtors D time when second ary prices down, do more normal times. I' getting your. That you do sure. Thank you very much for the question. I thank the question very. Cap lates Al of the law around investing in synindicated Court loans and C? Tr time economic dis location and price all atility across the loan market broad. So yes, fund mental agreement with what said that to the ext that we don't a increase Court loan. The F have the prox pect certainly see some be or powerful in the contex investment strateges. So not say that we expect every loan across portfolio rep were not that we Don' expect increase evit ly in what has been Tor very, very low Court LO all R the same time we are expected that signific the jor synindicated loans will repp par and even our expectation is benef from that. dy just thank you. Year you very. Thank you that con today's our four Thank you much. The thank every one participated in the call. Listening to the three the interest xford quare capital Court. We look for spea. Thank you con the xfor square second Court twent twent two Ning cour. Thank you to ation may now dis connect.