Q3 2025 Oxford Square Capital Corp EarningsCall

David Brown: Hi, I'm calling for Oxford Square Capital, please. All right. May I know the spelling of your first and last name? Sure. First name David. D-A-V-I-D. Last name Brown. B-R-O-W-N. The company name? Aiera. A-I-E-R-A. All right. Thank you. I'll join you now. Thank you.

Nice net portfolio growth in the quarter and I think one of the stronger quarters of purchase activities you had in a while so wondering if you could just talk maybe a little bit about what types of investments are you found attractive during the quarter or maybe a little bit of kind of color into after what you added to the portfolio.

Sure will.

We'll present the answer to that question Eric in essentially two parts. The first with Joe Kupka on the CLO side of the book and the second on the leveraged loan side, Jeff Eric Yeah. So we were able to purchase a couple CLO equity pieces.

They were both long dated.

Top tier managers that we felt good about so steady.

Predictable cash flow that we expect.

Hold for quite a while just have.

Similar to what we've done in the past just good relative.

Relative value long dated CLO equity.

And as you know Eric from our perspective the.

The best hedge in this asset class really is duration that the the longer the reinvestment period are the greater we think everything else held constant.

Should be the level of protection against economic dislocation or financial market disruption.

Kevin sorry, and on the loan side, we had a fairly active quarter focused sort of in two parts.

First is mostly on sort of relatively higher quality credits.

Lower spreads in the market, but that generate decent.

The maturities as well as some opportunistic trades.

Which are somewhat less liquid names they have what youre able to capture a bit more spread at prices below par.

Okay.

Thanks, I appreciate that color from from all three of you there maybe kind of turning that question Youre looking forward a little bit now as you look at your pipeline for potential new additions here in <unk>, what is that split looking at maybe between CLO and loans and then.

Yield activity or kind of what is it the yields look like in the portfolio relative to maybe kind of current average portfolio.

Sure Eric So as of our reporting date, we are we are.

We've hit the maximum in terms of our ability to add additional CLO equity without rotating the portfolio.

So from a portfolio management perspective, I think you could reasonably assume that any additional purchases on the CLO equity or junior debt tranche side of the book are going to be accompanied by appropriate levels of sales in terms of what we're seeing in the new issue and secondary market on the leveraged loan book Kevin.

Sure. So what we will continue to focus both on the primary and secondary market for leveraged loans on the primary side.

From our perspective in terms of what's interesting it's been a bit of a slower market more sort of higher quality and much lower spread credits are out they're participating in the primary so I would anticipate just as kind of has happened over the last many quarters that we focus more on the secondary market and more on situations where it is.

You're less sort of liquid credits.

In the secondary market that where we can capture a bit more spread.

And just given the way that it sort of low market has been trading we can capture a lot of these are at par or below at this point, which presents a decent opportunity for us going forward.

Yeah.

Thanks, and then just switching gears, a little bit I noticed the <unk>.

Cash and equivalents balances ended the quarter moved up to $51 million like it looks like it's a little bit higher than it's.

Been in the past or anything to take note of there is it more just kind of a timing issue.

I think it's principally timing as a result, Eric of the the ATM issuances.

Got it that makes sense.

Kind of curious given that the level at which the stock is trading today and there's some preferences for institutional investors to have.

Starting to invest and have higher prices curious have you given any thought to a reverse stock split is similar to what we did at Oxford Lane.

We like to thank Eric that we're giving thought to any viable idea and.

On a continuous basis.

It makes sense and last one for me and then I'll step aside.

<unk> been a couple of quarters now since that NII has covered the dividend just curious from your seat what levers do you have at your disposal on either income or expense side to improve the run rate of NII in the near to midterm.

Well, we're running a relatively lightly levered portfolio at the moment relative to our statutory limitation.

That's certainly one element, it's probably worthy of consideration, but there are certainly others.

Got it Jonathan Kevin Joe I appreciate all the commentary today, that's it for me.

Thank you Eric very much thank you.

There are no further questions at this time I will now turn the call over to Jonathan Cohen. Please continue.

We'd like to thank everybody on the call and listening on the replay for their interest in there for <unk> and for their participation.

We look forward to speaking to you again soon thanks very much.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

Jonathan H. Cohen: Good morning, everyone, and welcome to the Oxford Square Capital Corp. Q3 2025 Earnings Conference Call. This is Jonathan H. Cohen, and I'm joined today by Saul B. Rosenthal, our President, Bruce L. Rubin, our CFO, and Kevin Yonon, our Managing Director and Portfolio Manager. Bruce, could you open the call with a disclosure regarding forward-looking statements?

Bruce L. Rubin: Sure, Jonathan. 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 as issued this morning. Please note that this call is the property of Oxford Square Capital Corp., and the 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. We ask that you refer to our most recent filings 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 forward-looking statements unless required to do so by law.

Bruce L. Rubin: To obtain copies of our latest SEC filings, please visit our website at www.oxfordsquarecapital.com. With that, I'll turn the presentation back to Jonathan.

Jonathan H. Cohen: Thank you, Bruce. For the quarter ended September, Oxford Square's net investment income was approximately $5.6 million or $0.07 per share, compared with approximately five and a half million dollars or $0.08 per share in the prior quarter. Our net asset value per share stood at $1.95 compared to a net asset value per share of $2.06 for the prior quarter. During the quarter, we distributed $0.105 per share to our common stock shareholders. For Q3, we recorded total investment income of approximately $10.2 million as compared to approximately $9.5 million in the prior quarter.

Jonathan H. Cohen: In Q3, we recorded combined net unrealized and realized losses on investments of approximately $7.5 million or $0.09 per share, compared to combined net unrealized and realized losses on investments of approximately $1.1 million or $0.01 per share for the prior quarter. During Q3, our investment activity consisted of purchases of approximately $58.1 million and repayments of approximately $31.3 million. During the quarter ended September, we issued a total of approximately 5.4 million shares of our common stock pursuant to an at-the-market offering, resulting in net proceeds of approximately $11.8 million.

Jonathan H. Cohen: During the quarter, we issued $74.8 million of 7.75% unsecured notes due July 2030. We fully repaid the remaining balance of $34.8 million of our 6.25% unsecured notes due April 2026. On 30 October, our board of directors declared monthly distributions of $0.035 per share for each of the months ending January, February, and March 2026. 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 manager, Kevin Yonon. Kevin.

Kevin Yonon: Thank you, Jonathan. During the quarter ended 30 September, US loan market performance was stable versus the prior quarter. US loan prices, as defined by the Morningstar LSTA US Leveraged Loan Index, decreased slightly from 97.07% of par as of 30 June to 97.06% of par as of 30 September. According to LCD, during the quarter, there was some pricing dispersion, with double B-rated loan prices decreasing 11 basis points, B-rated loan prices increasing 37 basis points, and triple C-rated loan prices decreasing 227 basis points on average. According to PitchBook LCD, the 12-month trailing default rate for the loan index increased to 1.47% by principal amount at the end of the quarter from 1.11% at the end of June.

Kevin Yonon: Additionally, the default rate, including various forms of liability management exercises, which are not captured in the cited default rate, remained at an elevated level of 4.32%. The distress ratio, defined as the percentage of loans with prices below 80% of par, ended the quarter at 2.88% compared to 3.06% at the end of June. During Q3 2025, US leveraged loan primary market issuance, excluding amendments and repricing transactions, was $133.7 billion, representing a 22% increase versus Q3 2024. This was driven by higher refinancing activity, partly offset by lower non-refinancing issuance, including lower M&A and LBO activity versus the prior year comparable quarter.

Kevin Yonon: At the same time, US loan fund outflows, as measured by LIPR, were approximately $540 million for the Q3 ended 30 September. We continue to focus on portfolio management strategies designed to maximize our long-term total return. As a permanent capital vehicle, we historically have been able to take a longer-term view towards our investment strategy. With that, I will turn the call back over to Jonathan.

Jonathan H. Cohen: Thank you, Kevin. Additional information about our Q3 performance has been posted to our website at www.oxfordsquarecapital.com. With that, operator, we are happy to open the call for any questions.

Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the 1 on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the 2. If you're using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Erik Zwick from Lucid Capital Markets. Please go ahead.

Erik Zwick: Thanks. Good morning, guys.

Jonathan H. Cohen: Morning, Erik.

Erik Zwick: Hey, Jonathan. Wanted to start with maybe a question. You noted the, you know, nice net portfolio growth in the quarter, and I think one of the stronger quarters of purchase activities you had in a while. Wondering if you could just talk maybe a little bit about what types of investments, you found attractive during the quarter, or maybe a little bit of kinda color into to what you added to the portfolio.

Jonathan H. Cohen: Sure. We'll present the answer to that question, Erik, in essentially two parts. The first, with Joe Kupka on the CLO side of the book, and the second, on the leveraged loan side.

Joe Kupka: Joe?

Joe Kupka: Hey, Erik. Yeah, we were able to purchase a couple CLO equity pieces. They were both long-dated, top-tier managers that we felt good about. You know, steady, predictable cash flow that we expect to hold for quite a while just to, you know, similar to what we've done in the past, just good, relative value long-dated CLO equity.

Jonathan H. Cohen: As you know, Erik Zwick, from our perspective, the best hedge in this asset class really is duration, that the longer the reinvestment period, the greater we think everything else held constant, should be the level of protection against economic dislocation or financial markets disruption. Kevin?

Kevin Yonon: Sure. On the loan side, we had a fairly active quarter, focused sort of in two parts. First is mostly on sort of relatively higher quality credits, with lower spreads in the market, but that generate, you know, decent yield to maturities, as well as some opportunistic trades, which are somewhat less liquid names of where you're able to capture a bit more spread at prices below par.

Erik Zwick: Thanks. I appreciate the color from all three of you there. Maybe kind of turning that question and looking forward a little bit now as you look at your pipeline for potential new additions here in Q4, what is that split looking at maybe between CLO and loans? Then, you know, yield activity, or kind of what does the yields look like in a portfolio relative to maybe kind of current average portfolio yield? Sure, Erik Zwick. As of our reporting date, we are We've hit the maximum in terms of our ability to add additional CLO equity without rotating the portfolio.

Jonathan H. Cohen: From a portfolio management perspective, I think you could reasonably assume that any additional purchases on the CLO equity or junior debt tranche side of the book are going to be accompanied by appropriate levels of sales. In terms of what we're seeing in the new issue and secondary market on the leveraged loan book, Kevin?

Kevin Yonon: Sure. You know, what we will continue to focus both on the primary and secondary market for leveraged loans. On the primary side, you know, from our perspective in terms of what's interesting, it's been a bit of a slower market, more sort of higher quality, much lower spread credits are out there participating in the primary. I would anticipate just as kind of has happened over the last many quarters, that we focus more on the secondary market and more on situations where, you know, less sort of liquid credits in the secondary market that where we can capture a bit more spread.

Kevin Yonon: Just given the way the sort of loan market's been trading, we can capture a lot of these at par or below at this point, which is, you know, presents a decent opportunity for us going forward.

Erik Zwick: Thanks. Switching gears a little bit, I noticed the cash and equivalents balance at the end of the quarter moved up to $51 million. It looks like it's a little bit higher than it's been in the past. Anything to take note of there? Is that more just kind of a timing issue? I think it's principally timing as a result, Erik, of the ATM issuances. Got it. That makes sense. Kind of curious, given that the level at which the stock is trading today and, you know, there's some preferences for, you know, institutional investors to, you know, have stocks they invest in have higher prices. Curious, have you given any thought to a reverse stock split similar to what we did at Oxford Lane Capital Corp.?

Jonathan H. Cohen: We like to think, Erik, that we're giving thought to any viable idea on a continuous basis. Makes sense. Last one for me, and then I'll step aside. It's been a couple quarters now since the NII has covered the dividend. Just curious from your seat, you know, what levers do you have at your disposal on either the income or expense side to improve, you know, the run rate of NII in the near to midterm? Well, we're running a relatively lightly levered portfolio at the moment, relative to our statutory limitation. That's certainly one element that's probably worthy of consideration, but there are certainly others. Got it. Jonathan, Kevin, Joe, I appreciate all the commentary today. That's it for me. Thank you, Erik, very much. Thank you.

Operator: There are no further questions at this time. I will now turn the call over to Jonathan Cohen. Please continue.

Jonathan H. Cohen: We'd like to thank everybody on the call and listening on the replay for their interest and for their participation. We look forward to speaking to you again soon. Thanks very much.

Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.