Oxford Lane Capital Corp.

Ladies and gentlemen, thank you for standing by. My name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to the Oxford Lane Capital Corp. 3rd Fiscal Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question again, press the star 1. I would now like to turn the conference over to Jonathan Pohen, CEO. You may begin.

Thank you. Good morning, everyone, and welcome to the Oxford Lane Capital Corp. Third Fiscal Quarter 2026 Earnings Conference Call. I'm joined today by Saul Rosenthal, our President, Bruce Rubin, our CFO, and Joe Kupka, Managing Director. Bruce, could you open the call with a disclosure regarding forward-looking statements?

Sure, Jonathan. Today's conference call has been recorded. An audio replay of the call will be available for 30 days. Replay information is included in that 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. We ask that you refer to our most recent file 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. 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.OxfordLaneCapital.com. With that, I'll turn the presentation back to Jonathan.

Thank you, Bruce. On December 31, 2025, our net asset value per share stood at $15.51, and compared to a net asset value per share of $19.19 as of the prior quarter. For the quarter ended December, we recorded GAAP total investment income of approximately $117.8 million, representing a decrease of approximately $10.5 million from the prior quarter. The quarter's GAAP total investment income consisted of approximately $114.3 million from our CLO equity and CLO warehouse investments, and approximately $3.5 million from our CLO debt investments and from other income. Oxford Lane reported gap net investment income of approximately $71.8 million, or 74 cents per share, for the quarter ended December, compared to approximately $81.4 million, or 84 cents per share, for the quarter ended September 30th. Our core net investment income was approximately $108.9 million, or $1.12 per share for the quarter ended December, compared with approximately $120 million, or $1.24 per share for the quarter ended September 30th. As of December 31st, we held approximately $263.1 million in newly issued or newly acquired CLO equity investments that had not yet made initial distributions to Oxford Lane. For the quarter ended December, we recorded net unrealized depreciation on investments of approximately $305.4 million and net realized losses of approximately $7 million. We had a net decrease in net assets resulting from operations of approximately $240.7 million or $2.47 per share for the third fiscal quarter. As of December 31st, the following metrics applied. We note that none of these metrics necessarily represented a total return to shareholders. The weighted average yield of our CLO debt investments at current cost was 17.3%, down from 17.4% as of September 30th. The weighted average effective yield of our CLO equity investments at current cost was 13.8%, down from 14.6% as of September 30th. The weighted average cash distribution yield of our CLO equity investments at current cost was 19%, down from 19.4% as of September 30th. 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 December, we made additional CLO investments of approximately $97.2 million, and we received approximately $85.5 million from sales and from repayments. On January 29th, our Board of Directors declared monthly common stock distributions of 20 cents per share for each of the months ending April, May, and June of 2026. We note that the Board has historically considered a range of factors in setting our monthly distributions. including the company's gap and core NII and the distributions necessary to maintain our qualifications as a RIC under the Internal Revenue Code. At the current time, and given the opportunities that the company sees in the market for CLO equity and junior debt tranche investments, the Board has concluded that it would be beneficial for the company and its shareholders to have additional capital to deploy in those markets. We support the idea of a stable or growing net asset value as a meaningful component of the return we seek to generate for shareholders. The Board believes that this reduction in distributions will support that objective, while complying with the company's requirement to distribute to shareholders each year at least 90% of its investment company taxable income as defined in the code to maintain its REC status. With that, I'll turn the call over to our Managing Director, Joe Kupka.

Thanks, Jonathan. During the quarter ended December 31st, 2025, U.S. loan market performance declined versus the prior quarter. U.S. loan price index decreased from 97.06% as of September 30th to 96.64% as of December 31st. The decrease in U.S. loan prices led to an approximate two-point decrease in median U.S. CLO equity net asset values. Additionally, we observed median weighted average spreads across loan pools within CLO portfolios decreased to 311 basis points compared to 318 basis points last quarter. The 12-month trend default rate for the loan index decreased to 1.2% by principal amount at the end of the quarter from 1.5% at the end of December 2025. We note that out-of-court restructurings, exchanges, and subpar buybacks, which are not captured in the cited default rate, remain elevated. CLO new issuance for the quarter totaled approximately $55 billion, reflecting an approximate $2 billion increase from the previous quarter. Additionally, the U.S. CLO market saw approximately $74 billion in reset and refinancing activity in Q4 2025, compared to approximately $105 billion in the previous quarter. Oxford Lane remained active this quarter, investing over $97 million in CLO equity and warehouses, During the quarter, we also led or participated in more than 10 resets and refinancings, taking advantage of tightening liability spreads to lower the cost of funding and lengthen the weighted average reinvestment period of Oxford Lane CLO equity portfolio from May 2029 to August 2029. We continue to evaluate existing investments for opportunities to improve the economics of our CLO equity positions. Our primary investment strategy during the quarter was to engage in relative value trading and seek 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 our opportunistic and uncontrained 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 towards our investment strategy. With that, I'll turn the call back over to Jonathan.

Thanks, Joe. Additional information about Oxford Lane's third quarter fiscal quarterly performance has been uploaded to our website at www.oxfordlanecapital.com. With that, the operator can now open the call for any questions.

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via speakerphone in your device, please pick up your handset to ensure that your phone is not on mute when asking your question. Again, press star 1 to join the queue. And our first question comes from the line of Mickey Schlain with Clear Street. Your line is open.

Yes, good morning, everyone. Jonathan, CLO equity funds have been very weak over the last year, even on a total return basis. And over the time, we've seen tighter loan spreads, and while CLO liability spreads have been relatively stable, and that's pressured the returns on CLO equity. Some of that trend is being attributed to captive CLO funds, which are accepting lower, you know, standalone equity returns because they internalize the management and incentives fees. Could you give us a sense of what share of the primary market is represented by these captive funds?

Joe, do you want to take a look? estimate of that.

Yeah, it's hard to say, given we don't have specific insight into that. I would say 2025 was probably a more balanced year since the arbitrage was still relatively attractive. Some third party continued to issue primary. I expect in 2026, the majority of that issuance, if it continues, will be from these captive funds, just given the compressed arbitrage.

And how do you assess the impact of those funds on the outlook for CLO equity returns for third-party investors like Oxford Lane. And do you think this is a secular trend, which permanently reduces expected returns for the equity crunch?

I mean, it's really impossible to know, Mickey. The behavior of the world's largest credit investors and whether they're manifesting a portion of their strategies in these captive CLO funds is these captive equity funds is just extraordinarily difficult to try to predict. That is certainly a potential factor in terms of future likely performance for CLO equity tranche investments, but I think there are a great deal of other factors that are equally or perhaps even more important.

Okay. If I could follow up. You know, looking ahead, it seems like the constructive case for CLO equity is would require more new money loan issuance from, you know, improved M&A activity, which could help balance the loan market and perhaps widen loan spreads without a recession. So with that in mind, what's your outlook on the balance of supply and demand in the loan market, you know, this year, maybe next year?

We would like to think, Mickey, based on historical norms, that that balance will be restored, at least to some extent. over that timeframe.

All right. Those are all my questions this morning. I appreciate your time. Thank you.

Mickey, thanks very much.

Our next question comes from the line of Eric Zulik with Lucid Capital Markets. Your line is open.

Thanks. Good morning, everyone. Wanted to start with a question just on the kind of reduction in the dividend level. And, you know, the way I hear you, Jonathan, is, you know, one of the big opportunities you see for Oxford Lane going forward is to continue taking advantage of the secondary market and attractive pricing and returns there. And that's one of the driving factors for the magnitude of the dividend cut and not so much your view into where the earnings power of the fund is going. Is that correct?

It's an interesting question, Eric, because we have never adhered to the dictum that we need to focus solely on the primary market or solely on the secondary market. For the last 15 years or so, we've had the flexibility, the investment flexibility, to vacillate between those two opportunity sets. And at the moment, we are seeing what we consider to be generally strong opportunities in the secondary market for a host of reasons, many of which are related to what may be a fundamental supply-demand imbalance in the secondary market on a flow-of-funds basis. But to answer your question, the answer is we see probably more opportunities in the secondary than in the primary market. And given that we believe we are one of the world's largest market participants in the secondary market, we are trying to position ourselves to take advantage of those. Thanks.

And just a bit of a follow-up on that one. You know, the opportunities that you're seeing in the secondary market, I would assume an opportunity to find things at discounts that if they perform well would have a pull-the-par effect, which would kind of help in terms of your goal of, Supporting them in and I'm sorry that the NAV and potentially I Mean that as well. Is that right?

Yes, Eric. I think that's definitely one of the profiles were Focusing on previously in times of more benign environments. You see a healthy premium to nap based on trading levels in this environment with the arbitrage at or Near historic types you see that nap compressor tough or sometimes even flip so the optionality, you can really see that optionality in terms of capturing that NAV, whether that's through a reset plays or just liquidation of the CLO. So yeah, there's definitely potential to support the NAV with those profiles.

And then for my next question, I haven't fully gone through and, you know, fine tuned my forward estimates, but just kind of quick back to the calculations. you know, would suggest that the earnings power of the fund is still, you know, in excess of the distribution, the new distribution level that you've disclosed. So is there potential then for a, you know, special dividend at some point, you know, over the next year or so? And if so, would that be on a calendar year or based on your fiscal year, which ends, you know, March of each year? How would you think about that?

We think about that, Eric, principally in terms of maintaining compliance with the RIC test under the code, under the tax code. So to the extent necessary or to the extent that we want or need to reflect the earnings level of the fund in the distributions, yes, it is certainly possible that we declare a special dividend or or modify the existing rate of distribution to comport with those fundamentals.

Got it. And timing on that, when you do your request, is it calendar year or is it based on your fiscal year reporting? I can't recall how that's done.

Fiscal, so March. Fiscal.

Gotcha. Thanks. And last one for me, either Jonathan or Joe, if you could just kind of frame the current opportunity for resets and refis in your portfolio and and how that could potentially support cash flow going forward.

Yeah, this year should be a very active year in terms of resets and refis for us. This past year, 2025, was also very active. We participated or led about 70 resets or refinancings. We have a few in Q1 and Q2 that are rolling off non-call. And starting in July, we have, you know, a lot of our portfolio rolling off that we see AAA spreads generally in the 130s or 140s, just based on where AAAs were two years ago when we initially issued those deals. So just based on the timing, we see a lot to take some kind of action on.

Right. Market fundamentals permitting. Yes, of course. Yes, excellent.

Okay. Thanks, guys. I appreciate you taking my questions today. That's all.

Thank you, Eric. Take care.

There are no further questions at this time. I would like to turn the call back over to our CEO, Jonathan Cohen, for closing remarks.

Thank you very much. I'd like to thank everybody on the line and everybody who's listening to the replay for their interest in Oxford Lane Capital Corp and their participation on this call. Thank you very much.

Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect.