Q2 2023 Oxford Lane Capital Corp Earnings Call
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Good morning, everyone I would like to welcome you to the Oxford Lane Capital Corp, Second fiscal quarter 2023 earnings Conference call.
My name is breaker and I will be your event specialist operating today's cool.
After the Speakers' remarks, you have the opportunity to ask a question to do so please press star followed by the number one when your telephone keypad.
If you change your mind any time, please press star two.
Operator assistance, Please press star zero.
I would now like to hand, the call live up to our host of today's cool so rental to begin. So so please go ahead when you're ready.
Thank you operator, and good morning, everyone welcome to the Oxford Lane Capital Corp, Second fiscal quarter 2023 earnings Conference call.
And today by Bruce Rubin, our Chief Financial Officer, and that'd be margin, our senior managing director and portfolio manager.
Jonathan Cohen, our CEO is traveling today.
Bruce would you. Please open our call with the disclosure regarding forward looking statements sure saw today's conference call is being recorded and 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 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.
I ask that you refer to our most recent filings with the SEC are 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.
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 over to solve thank you Bruce.
On September 30 of 2022, our net asset value per share stood at $4 93.
Compared to a net asset value per share of $5 seven.
As of June 32022.
For the quarter ended September 30, we recorded GAAP total investment income of approximately $64 $7 million, representing an increase of approximately $1 $2 million from the prior quarter.
The quarter's GAAP total investment income from our portfolio consisted of approximately $61 $7 million from our CLO equity and CLO warehouse investments.
And approximately $3 million from our CLO debt investments and from other income.
Ultimately recorded GAAP net investment income of approximately $36 million or 23 per share for the quarter ended September 30, compared to approximately $38 7 million or 26 cents per share for the quarter ended June 30th.
Our core net investment income was approximately $51 1 million or 33 cents per share for the quarter ended September 30.
Compared with approximately $82 $1 million or <unk> 55 per share for the quarter ended June 30.
For the quarter ended September 30, we recorded net realized losses of approximately $6 $5 million and net unrealized depreciation on investments of approximately $25 $5 million or 21 per share in total.
We had a net increase in net assets, resulting from operations of approximately $3 $9 million or approximately <unk> <unk> per share for the second fiscal quarter.
As of September 30 of the following metrics applied and 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 15, 1% up from 13, 1% as of June 30.
The weighted average effective yield of our CLO equity investments at current cost was 16, 1% up from 15, 9% as of June 30.
And the weighted average cash distribution yield of our CLO equity investments at current cost was 22, 1% down from 29, 4% as of June 30, primarily resulting from the loss of the benefit of LIBOR floors for the underlying assets.
We note that the cash distribution yield calculated on our CLO equity investments are based on the cash distributions, we received on which we were entitled to receive at each respective period end.
During the quarter ended September 30th we shouldn't we issued a total of approximately $8 1 million shares of our common stock pursuant to an aftermarket offering resulting in net proceeds of approximately $49 $2 million.
During the quarter ended September 30, we made additional CLO investments of approximately $119 $4 million and we received approximately $12 million from sales and repayments.
On October 27, our board of directors declared monthly common stock distributions of $7.05 per share for each of the months ending January February and March 2023.
I'll turn the call over to our portfolio manager deep module.
Thank you saw during the quarter ended September 32012, the U S loan market was volatile U S loan prices as defined by the Morningstar L. S. T. A U S leveraged loan index increased from 90 to one 6% of par as of June 30 to 95, 5% of par as of August 12th before dropping to 90, 192% of par.
As of September 30th According to LCD during the quarter, there was pricing dispersion related to credit quality with double B rated loan prices, increasing 119 basis points or 1.26% single B rated loan prices decreasing 42 basis points or 0.5% four 5% and Triple C rated loan prices decreasing 132 basis points.
Our $1 six 2% on average 12 month trailing default rate for the Morningstar Alistair U S. Leveraged loan index increased airport, 9% by principal amount at the end of the quarter from 0.28% as of.
At the end of June of 2022.
Additionally, the distress ratio defined as a percentage of loans with the price below 80% of par ended the quarter at approximately 6% compared with $3 six 5% at the end of June .
The drop in U S loan prices led to an approximate 2% of par decline in U S. CLO equity net asset values median junior over Collateralization cushions remained flat at approximately $4 six 9% compared to 468% last quarter.
We observed loan pools within the CLO portfolio is modestly increase the weighted average spreads to 351 basis points compared to 349 basis points last quarter.
CLO primary market continues to be challenged with AAA is continuing to widen out Passover plus 200 basis points after temporarily tightening during the quarter CLO.
CLO, new issuance reached approximately 110 billion compared to approximately 140 billion over the same period last year, given widening liabilities and the challenging new issue of arbitrage along with limited new issue lung calendar CLO issuance is expected to be limited to the through the end of the year and is expected to come in well below last year's issuance level of.
<unk> hundred 80 billion.
Oxford Lane continues to be active in the secondary market during the quarter trading over 170 million notional CLO equity and junior debt, while most of our activity took place in the secondary market. This quarter. We added one new issue CLO equity investment during the quarter as a function of our overall market activity in both markets, we were able to lengthen the weighted average reinvestment periods of Oxford <unk>.
Equity portfolio from July of 2025 September of 2025.
The current market environment, we intend to continue to utilize an opportunistic and unconstrained CLO investment strategy across the U S CLO equity and debt in the warehouses as we look to maximize our long term total return.
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 yourself.
Additional information about Oxford Lane second fiscal quarter performance has been uploaded to our website at Www Dot, Oxford Lane capital.
Tom.
The operator will now take questions.
Operator, please open the line.
If you'd like to ask a question.
Please press star followed by the number one.
On your telephone keypad.
Okay.
Our first question comes from the line of Mickey <unk>.
Please go ahead when you're ready.
Good morning, everyone.
So you you mentioned that the portfolios.
Distress ratio climbed to five 8% and obviously loan prices were weak during the quarter, but junior Oc cushion is actually went up a little bit in your portfolio.
So can you maybe help us understand what CLO managers are doing with their portfolios and this really volatile environment to improve their cushions.
Sure Good morning Ricky.
I'll, let Jay answer that question for sure I think in this environment. Yeah. Clearly there are downgrades are occurring and I think CLO managers are looking at making relative value swaps and <unk>.
Trying to clean up their portfolio a little bit so so far we haven't seen triple piece.
Really elevated.
Some of the same levels that we saw during Covid ASIC managers are taking the time in the current environment.
Start to clean up their portfolio and maybe sell certain.
Yeah.
Stress names and make swaps into other names that they think are performed better over the over the long term in our estimation.
I understand thanks, thanks for that and a deep that the debt to EBITDA ratio in leveraged loans.
At a high of five five times in the third quarter.
So when you look at that ratio when you think about.
The likelihood that interest rates will likely go higher over the next few quarters and there's already existing pressure on borrower's EBITDA margins.
What's your view on how CLO equity cash flows will trend going into next year.
Sure.
Clearly interest rates are going higher.
And interest coverage ratios are something that we are very mindful of.
I think that you know CLO managers are assessing their portfolios across.
Yeah across various industries, and we have within each industry to kind of assess a borrower's ability to pass through costs.
And be able to kind of meet their interest.
Meet their debt service, so I think that yeah.
We feel confident that our managers are kind of making the right assessments in this sort of environment about those but clearly there is stress in the system and everyone's mindful of the.
The inflation that is in <unk>.
Packed on input costs as well as rising rates impacts on interest coverage ratios.
I understand.
And my last question is Oh, we've seen the leveraged loan downgrade to upgrade ratio accelerated I believe it's at two three times and and default. So I think as you mentioned in your prepared remarks, it climbed to almost 1% from virtually nothing a few months ago. So so with that in mind.
Where do you see defaults are trending and how do you think that will.
Affect cash flow divergence going into next year.
Yeah, Yeah of course.
And again, just a reference back.
The default rate was 28 basis points, 0.28% at June 30, and it's now as of September 39.
9%.
Just to get the numbers there.
But yes.
We're certainly aware of the collateral managers are aware of it.
We really.
Don't want to make projections.
We can pull 20 economist for where they think the economy in recession and interest rates and so forth and you'll get different answers and we're just not we're not taking a position. There. We're just aware of the fact that that's the case and obviously the more importantly, the collateral managers that we're investing with are aware of it and try to position their portfolios accordingly.
Okay I appreciate that that's it for me. This morning. Thank you for your time.
Sure. Thank you Mickey.
Yeah.
Thank you Mickey.
Now, let's turn the call back to cell Carcinomas for some closing remarks.
Thank you operator, and thank you everyone for joining today's conference call and we look forward to.
In next quarter's results on our next call. Thank you operator.
Thank you that does conclude today's call.
Thank you again for joining you may now disconnect your lines.
Yeah.
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