Oxford Lane Capital Corp.

Good afternoon, ladies and gentlemen. Thank you for joining today's Oxford Lane Capital Core 4th Fiscal Quarter 2024 Earnings Call. My name is Tia, and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. If you would like to ask a question, please press star 1 on your telephone keypad. I would now like to pass the call over to your host, Saul Rosenthal. Please proceed.

Thank you, Tia, and hello, everyone, and welcome to the Oxford Lane Capital Corp. 4th Fiscal Quarter 2024 Earnings Call. I'm joined today by Bruce Rubin, our Chief Financial Officer, and Brian Alexa, Senior Member of our CLO Investment Team. Note that Jonathan Cohen, our CEO, is traveling today. Bruce, would you please open our call with a disclosure regarding forward-looking statements?

Sure, Saul. Today's conference call is being recorded. In order, a replay of the call will be available for 30 days. Replay information is included in our press release that was issued earlier this afternoon. 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, direct your attention to the customary disclosure in the 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. The SEC referred 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. We do not undertake to update our forward-looking statements unless required to do so by law. During this call, we'll 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.OxfordLaneCapital.com. With that, I'll turn the presentation back over to Saul. Thank you, Bruce.

On March 31, 2024, our net asset value per share stood at $4.90 compared to a net asset value per share of $4.82 at the previous quarter. For the quarter ended March 31, we recorded GAAP total investment income approximately $82.6 million, representing an increase of approximately $3.4 million from the prior quarter. The quarter's gap total investment income consisted of approximately $76.3 million from our CLO equity and CLO warehouse investments, and approximately $6.3 million from our CLO debt investments and other income investments. Oxford Lane recorded cap net investment income of approximately $51 million or $0.22 per share for the quarter ended March 31st compared to approximately $48.7 million or $0.23 per share for the quarter ended December 31st. Our core net investment income was approximately $79.9 million for the quarter or $0.35 per share compared with approximately $82.7 million or $0.39 per share for the quarter ended December 31st. The quarter ended March 31. We recorded net unrealized appreciation on investments of approximately $17.7 million and net realized losses of approximately $1.2 million. We had a net increase in net assets resulting from operations of approximately $67.5 million or 30 cents per share for the fourth fiscal quarter. As of March 31st, the following metrics applied, and we note that none of these metrics represents a total return to shareholders. The weighted average yield of our CLO debt investments at current cost was 17.1%, up from 16.6% as of December 31st. The weighted average effective yield of our CLO equity investments at current cost was 16.9%, up from 16.5% as of December 31st. The weighted average cash distribution yield of our CLO equity investments at current cost was 23.5%, down from 24% as of December 31st. And we note that the cash distribution yields calculated on our CLO equity investments are based on the cash distributions we received or which we were entitled to receive at each respective period end. During the quarter ended March 31st, we issued a total of approximately 18.6 billion shares of our common stock pursuant to an at-the-market offering, resulting in net proceeds of approximately $94.7 million. During the quarter ended March 31st, we made additional CLO investments of approximately $225.2 million, and we received approximately $19 million from sales and repayments. Today, our Board of Directors declared a 12.5% increase in monthly common stock distributions to $0.09 per share for each of the months ending July, August, and September 2024. With that, I'll turn the call over to Brian Alexis, Senior Member of our Investment Team.

Thank you, Saul. When the quarter ended March 31, 2024, U.S. loan market performance improved versus the prior quarter. U.S. loan prices, as defined by the Morningstar LSTA U.S. Leverage Loan Index, increased from 96.23% as of December 31st, 2023 to 96.73% as of March 31st. The increase in U.S. loan prices led to an approximate five-point increase in median U.S. CLO equity net asset values. Additionally, we observed median weighted average spreads across loan pools within CLO portfolios decreased to 368 basis points compared to 372 basis points last quarter. The 12-month trailing default rate for the loan index decreased to 1.1% by principal amount at the end of the quarter from 1.5% at the end of December 2023. We note that out-of-court restructurings, exchanges, and subpar buybacks, which are not captured in the cited default rate, remain elevated. Additionally, the distress ratio, defined as the percentage of loans with a price below 80% of par, ended the quarter at 3.5%. compared to approximately 4.5% at the end of December 2023. CLO new issuance during the quarter totaled approximately $49 billion, an increase of $17 billion from the prior quarter, setting the pace nearly 45% ahead of last year's issuance as CLO liabilities continued to tighten throughout the quarter. Oxford Lane continued to be active this quarter, trading over $300 million notional of CLO equity and junior debt in the secondary market, and adding three new issues CLO equity investments in the primary market. As a function of our overall activity in both markets this quarter, we were able to lengthen the weighted average reinvestment period of Oxford Lane's CLO equity portfolio from April 2026 to July 2026. Our investment strategy during the quarter was to engage in relative value trading and to lengthen the weighted average reinvestment period of Oxford Lane's CLO equity portfolio. In the current market environment, we intend to continue to utilize an opportunistic and unconstrained CLO investment strategy across 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 toward our investment strategy. With that, I will turn the call back over to Saul.

Thank you, Brian. Additional information about Oxford Lane's fourth quarter performance? has been uploaded to our website at www.OxfordLaneCapital.com. And with that, operator, we will now take questions.

We will now begin the QA session. If you would like to ask a question, please press star followed by one on your touch-tone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly to allow questions to generate in queue. The first question comes from the line of Mickey Stein with Lattenburg. Please proceed.

Yes, good afternoon, everyone. A couple of questions from me. With the tightening of CLO liabilities we've seen this year, How do the economics look now in the primary market versus the secondary market and the opportunity for you to refinance and reset and rotate positions which are beyond the reinvestment period into new positions? Sure, Mickey.

Yeah, very good question, and Brian will address it.

Yeah, sure. Mickey, as you noted, it has been a good opportunity to take advantage of the tightened liabilities, especially where refis and resets are concerned. As far as the primary market is concerned, it is kind of a push and pull between tightening liabilities and rising asset prices. The rising asset prices make the primary market slightly more challenging, while tightening liabilities obviously make it easier to get deals done. So that push and pull is something we monitor every day. But as you stated, we have taken advantage of the Titan liabilities to restructure some of our refinance and reset some of the post-reinvestment deals especially. Okay, I understand.

Obviously, I haven't had a chance to review the results yet for the quarter or the investor presentation. But looking at the deck from the last quarter, I counted about a dozen positions that which were still in the early investment period and where the AAA spread was meaningfully above sort of 150 basis points, which I think is where the market is now. I want to ask if that sounds about right to you, and how would you describe the potential impact on Oxford of refinancing or resetting those positions today?

Yeah, Mickey, in positions where we hold majority, those liabilities are something we're very carefully monitoring. I can't speak to any individual positions, but we are actively monitoring all of those positions for moneyness as far as refi and reset opportunities go. And we've been in an active dialogue with all of our CLO managers, as well as various dealers to look at resetting and refiing those liabilities where possible.

Okay. I appreciate that. Those are all my questions this afternoon. Thank you for your time. Thank you, Mickey.

Thank you. There are no additional questions left at this time. I will pass the call back to Saul Rosenthal.

Thank you, Tia. And thank you, everyone, for joining today's call and listening to our fourth fiscal quarter results. And we look forward to speaking to you again soon. Thank you.

That concludes today's conference call. Thank you. You may now disconnect your line.