Oxford Lane Capital (OXLC) 27 Jan 232023 Q3 Earnings call transcript

Good morning, and welcome to the Oxford Lane Capital Corp.

Third Fiscal Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]

the to turn to Cohen, me begin. let call Jonathan over CEO Now

may Jonathan, begin. So you

much. morning, XXXX very our and Capital I'm Thanks Joe Good today President; Corp. Oxford to joined Managing Chief third Lane Bruce the Kupka, Rubin, fiscal Financial Saul our quarter by earnings our call. everyone, conference Rosenthal, and Officer; welcome Director.

call forward-looking statements. Bruce, regarding could disclosure you with a open the

is the recorded. days. An attention be Jonathan. customary forward-looking information disclosure form rebroadcast audio any call of note Sure, is is unauthorized property Today's our will XX strictly press call information. that the in was this prohibited. this in to available Any the included morning's point, of being release your Lane Corp. for that issued At regarding this Replay direct conference is call in this release morning. replay Capital of call press earlier Please this Oxford please

not that respect Today's the financial indicated the results to those conference law. call with cause reflect refer SEC events ask among can things, performance. views projections. to, to current We and recent that forward-looking Company's future includes most in filings unless update forward-looking to you actual these do other statements important and our We from materially for so by our differ factors do statements undertake to that projections required with

the also we earnings During to and terms measures. in release this call, will defined use non-GAAP refer

please our website at For refer our on reconciliations posted www.oxfordlanecapital.com. definitions to and to earnings GAAP, release

presentation back over With Jonathan. that, to the I'll turn

a $X.XX of stood per our XXXX, per September XX. share Thank at of December net as you, XX, value On $X.XX to compared asset value share net asset Bruce.

$X.X of December from GAAP For million increase XX, approximately the approximately of we income recorded the million, quarter. prior representing quarter an $XX.X investment total ended

CLO $XX.X and of debt our The $X.X million from and portfolio million our investments warehouse total from approximately from other approximately quarter's investment income. income CLO consisted our equity investments and from GAAP CLO

share recorded the quarter million approximately December Oxford compared investment per XX. XX quarter for the income for or $X.XX per $XX September ended Lane of ended share approximately net GAAP or $X.XX $XX.X million to

per Our approximately quarter XX. approximately core for $X.XX September XX per the or December ended $XX.X $X.XX net income the with for quarter compared million $XX.X share million was or investment share ended

For the had $X.XX resulting from in of approximately or $XX.X operations per approximately we net losses of net million depreciation investments the ended quarter decrease total. in on December fiscal XX, a $X.X of assets for share net realized million unrealized approximately We or $XX.X $X.XX quarter. in net recorded million per third share

December metrics note of XX, the these total that metrics to shareholders. none represented We applied. As a following of return

The up down distribution XX. at XX.X%, XX.X% September was average as XX.X% XX. cost our of as current September September XX.X% weighted current yield The yield average weighted of debt our effective of of investments weighted XX.X%, was as was average down from of equity from cost investments at yield our equity from current cost XX.X%, of CLO CLO XX. investments at CLO The cash

based We each at yields to cash period that investments equity distribution we note respective distributions on cash end. or entitled receive we are on the CLO were our which calculated received the

net a XX, an to total of X.X million. offering, $XX.X pursuant of ended the During at-the-market quarter December issued proceeds our shares stock we in common of million approximately approximately resulting

each of January investments and April, of ending ended Board and Directors XX, we CLO repayments. months December made share XX, and XXXX. On stock of million $XX.X the quarter $XX.X we of the from additional declared per our million, June May monthly approximately $X.XXX common distributions During received sales of approximately for

the Director, Joe And Kupka. turn our to over with to call that, I'd Joe? Managing like

Thanks, Jonathan.

U.S. as loan XX.XX% par of defined of XX.XX% of September volatile. XX, December to December as ended U.S. by Loan market increased Morningstar par LSTA the XXXX, of U.S. prices, November quarter to XX as Leveraged XX. of from of dropping the as During par before the XX.XX% was Index loan XX

was end with XXX BB-rated quality basis pricing loan During basis points XX-month principal there by prices of from basis the XXXX. the decreased dispersion rate basis at quarter of end single XXX related The XX for the points average. loan to index on significant basis and default increasing at points points the decreasing trailing loan quarter, amount prices credit to increasing the prices XX CCC-rated B-rated September loan points XX

a below as percentage X% the of loans ended a the quarter par, of at compared Additionally, of at X.X% approximately end price September the defined XX% ratio XXXX. with distressed to

approximate U.S. CLO The to an U.S. X.X%. over-collateralization asset in cushions in flat equity X% at values. loan prices Median approximately median led remained increase junior net increase

CLO to Additionally, spreads basis XXX average we pools observed modestly XXX loan basis within quarter. compared our weighted portfolios, increased last points points to

the market quarter. the in secondary continues Lane be Oxford during active to

the place of in new issued quarter. added during equity took While most market, activity secondary our CLO we the investments two

lengthened equity trading Our reinvestment investment strategy the relative portfolio. engage to during the period quarter of average and weighted Oxford in was value Lane's CLO

a we historically investment we strategy. current an maximize have continue our take U.S. vehicle, continue total to to to utilize able environment, return. the across view been a strategy intend capital opportunistic equity, we and CLO CLO investment permanent towards And debt to warehouses longer-term long-term look In and as market unconstrained as to our

Jonathan. With over that, to turn back I'll call the

Joe. Thanks very much,

www.oxfordlanecapital.com. has uploaded at Additional quarter information third website Lane's Oxford been our performance to about

And to call the with that, any to open happy are questions. operator, up we

Mickey Schleien Instructions] you. Ladenburg. question [Operator Thank We first have our from of

open. now is line Your

appears a your interest down, and quite Good and climbing your rates broadly outlook what cycle, the experienced everyone. haven't we is with while more actually CLO economic market et GDP this in year? Yes. a for these speaking, it in Jonathan, that In experience slowing which we're firm's normal context inflation long markets, and cetera. morning, in considering

Well, thank morning. you, Mickey. Good

a that forecast. based said, we That comes really positions. potentials control. rates. not we rise firm think an know, under continuation of broadly see I you for have trends, to in a which which inflation means macro large are macroeconomic investments we makes But hopefully, additional As and We're the forecasts macro on macro-based current looking fundamentals certainly don't directional take

potential right have of see the a fair additional amount spread now. uncertainty there's But corporate syndicated think widening. loan to I We

in but remain specific of opportunistic not trying terms investment say remain having approach. a So generally can We're outlook, high conviction in of specific predicated things degree macro to on a our our are macro to are in decisions, those outlook. I trying a around we flexible

you in in the question, – supply demand market market loans for supply terms the of equilibrium market primary is I how loans Jonathan. within speaking, understand. behaving? the of on following developing this And the Broadly that how up CLO do year? And and the see

for let over we driver which been to that me the liability a primary it market principal broadly. year has discuss The or is volatile turn little over bit so. last pricing the Mickey. Sure, to of But the see a course more Joe bit

Sure.

silver of to into some definitely So to towards prices silver we XXX. liability banks wide last deals stock and end starting wide get with we've of the the some pricing [indiscernible] come price pretty start the as have the plus seen plus year, space seen AAAs see as beginning Since tight year, done in of XXX.

a obviously sign. that's good So

warehouses the amount outstanding. terms of continue to just In we see equilibrium, supply a of decent

potentially of look as those on – could price, price effect bound the a have that will liabilities. range so to And

that just against coming So banks up continued in. the might bump force of

So equilibrium how out we'll the that quarters. in see couple kind of plays of next

your were time investments yields higher than that and understand. recall estimated can't on Can CLO portfolio. equity on And I deviation debt currently is it? expand can a take of I in Yes, what's when how noticed you yields, you which – advantage case I CLO driving the

in the equity And of have waterfall we're making at the the specifically looking at But are prospect, Well, in to that CLO of always waterfall. or from a the the principle certainly a operation invested properties CLO yield, respect indenture, the interest-only with component. looking – We've various of We're but actively obviously, with CLO we're against CLO looking we're equity the debt debt. framework these the tranches invested looking the debt in this of we've environment. investments structure at informs on context focus and a tranches, tranches. of different looking is return for tranches, provides also current with tranche at operation principle investments we Mickey, which fundamentally equity generally the turn, at focus

inverse CLO is at But the happening Jonathan, driving what's given the now, would driving risk to that? the difference? debt I equity their estimated right mean average, higher but profile, than what's on least be you expect yields

Sure.

the referring effective I average to weighted think yields. GAAP you're

those a various of So current prices of portfolio. is I that And to equity the debt providing obviously, may drive our opportunity a for purchase GAAP have a measure pretty moments point that just necessarily reflection us set. calculation a was different Not our purchased state or that's market tranche the market. different We at would time current in tranches an going of with dramatically. when the tranche

volatile increased what unrealized Okay. were fair a factors three reported Jonathan, down that $X.XX points during fund that the the and portfolio relationship XX values not price actually the but driving during December? very the about in collateral months of quarter, the was average the quarter but share basis the understand the it of depreciation. linear, is per main I ending

XX, equity which structures. to tranches those market for that factors. Mickey, some CLO during the periods be supply may correlated prices, as may pools reside collateral simply It's December the of we that the hold not, essentially market pricing are you characteristics of well particularly and say, These various or as within CLO demand

quarter? the extent one-month do flows rate to have affecting of and or between that pace what the Okay. flows calendar year? in three-month dramatic this Jonathan, dynamic SOFR see how cash cash which [fourth] been impact And the LIBOR did you spread increases, And and

going in based for had Sure. see We we're I quarter, that's the meaningful for a forward It what but but quarter. this That's it obviously that just projection available bit on seeing. a curves, stabilizing tightening pretty a sure. forward, see publicly next the effect

diverted haven't question. seen which noticed million that $X And cash were for almost I my this of quarter Okay. while. a last flows we

with like the continue risk how large tripping to you I'd this downgrade? potentially do understand agencies managers year portfolio's how So CCC CCC bucket rating the see their much And average to limits is? in

Sorry.

and me Let Mickey. go answer that question ahead for

have diversions That don't with we're of as flow for speed to we monitor of Mickey of obviously Operator, closely. a the the ahead rating Mickey to happy to or specific said, of issue other go as We the are – referenced, sensitive XXXX. question now. cash the and we to downgrades the continue remainder by CCC the downgrades for speed dynamics projection – agencies market referred

Matthew from of of Riley. comes B. line Howlett the question next Our

Your line is open.

question. my taking for Thanks everybody. Good morning,

was the up with I OC, mean, Just see outweighing, that's on note, – XXX. downgrades I given that, OC mean what's I a higher over-collateralization just stable what market? on follow Is in management? was reinvestment, was that's environment? junior that's stable going junior portfolio the stable Can we impressed that be – how on to that upgrades the allowing in really to tranches are in good the and CLO the staying why you it – portfolio the just downgrade elaborate

Sure.

though their we within still see starting even are So to downgrades, basket. allowable are CCCs X.X% the

if you see as that even under long stays see impact in So X.X%, OC the increase won’t as an CCCs ratio. you it

and way CLO with out and healthy XX%, par a leveraged just the those and build ratios. are discount loan purchasing able this going XX%, good market, build to environment that's par Additionally, OC build loans just by in XX%, to at just a given managers

you the you And said when you've of done continuing sort reinvestment noticed on – pushing quarter. I new period. just extending you that look I that – you it keep think out? a – extended – to you in I said the last lengthen – that at the reinvestment [bought] period? job two I something in Yes, great buying mean, issues right. improving way that mean really year set Is You've

Sure, Matt.

said, reinvestment be, are there will with the if we across asset structures sort think As as lot even of you a investor fundamental know, means we we class. that's periods around. reinvestment broadly that a periods, invest are which opportunities thesis the periods part seek can that of very shorter I the to we is, of are or be transactions longer of opportunistic and look That we that as purely are reinvestment partial discrete to outside

no hear to that rally, their with stuff issue. Certainly it it year-to-date. going time Do if sheet, get and on Do the they Oxford Is on credit balance asked are given the loans Lane, said, been they And been good that a their reports to – that again you bank on them see I issue like for these market it? opportunity curve the and [indiscernible] time then the with that hung these and any call Oxford you does and indifferent the forward an there's in out? leverage on of about need press steepening. balance of equity opportunistic you banks is today curve sheets Two, are investment for JPMorgan’s lot three, you create an steepener some securitize did or does credit Lane? foresee to

Matt. Sure,

garbled. I first that? first you think the mind part question little the was repeating Do question bit – your of a

On loan just leveraged today? price

sure. Oh,

within good over basis was in for up year-end, XX since the CLO is LSTA So index which obviously pools little now, generally U.S. collateral bit We're roughly XXX loan U.S. that right the a syndicated index structures. corporate news points. just is

I – investment have question banks terms yes, so your some the was of In these these who about other on think of warehouses. pressure

individual Now, loans.

Matt, I to view significant enter see pools, way risk of of loans the current loan, our extent into CLO reward current that the loans at as well mean, prices as risk collateral that the So they're return going that that begin characteristics the their particular obligors, reflect is that to or of corporate those collateral state numbers market. pools U.S. those those both to

So not market anything of we've worried trend. sort broadly as it's a that about

single that CCCs And and then is been been Am that widening Bs? curve. Bs, on Got I you hearing I AAAs some and last correctly you. single mean steepening? credit the the there's

Are quarter? you to decrease bit the while catching this you the loans a CCCs so – referring rated are saw higher

Yes.

Yes.

add So somewhat that's to because CCCs. these definitely they just of to constrained a challenge for CLOs on are ability in terms

still So keeping quality manager, it's environment, in our a but they're on ability they'll in still in limited. is you this structurally know, build we're any still able up long par, the be definitely opportunity close and as as to, discussions we and eye in structures with think move Matt to as something marketplaces manage it. CCC CLO to able be Right, obviously, harvest to going are

Right. Got it improvement first, I the the with that very is guess, just And given question to job and really last I great the NII. and where covering was dividend the mean is trading pleased your you. stock coverage see nothing any there's impressive to just near-term yield. even that nothing covering really don't on it. have you sheet, really the We impressive really balance debt you're the need do. There's fixed on in and It's rate just really really the long-term. is

no open series in sheet really any there's balance of just need and management, on like And to those moving shape feel keep good really terms just up. are along. in you So of you

Sure, Matt.

our side the maturities that the sheet. that equity sheet, challenge various asset balance incremental look, duration, the it's balance of think, balance our the sheet right between of between a right indebtedness, the capital, of the side always additional and have raising balance raising on striking I cost of our balance liability of striking indebtedness, indebtedness those pieces we and

an us in state we're the need that the ongoing we our about all for balance current regard, time. process. It's something yes. is But that sheet, to of that comfortable reasonably So think with

just I for are mean the well see and asset point, you Yes. of I side managed would other price with [indiscernible] it. the leveraging], [is starting you to very

managing of and taking the for forward obviously would great the questions. look company. to Thanks I balance just you a job commend on So sheet my

Matt, you, Thank much. very

Thank you.

further no have We questions.

now Jonathan like back for our final Cohen hand I'd call to So to some the remarks. CEO,

speaking today, thank very everyone I'd to Oxford forward soon. operator. very their the interest Thanks much, on We to for you Capital in look you much. call call listening replay to Corp. everyone like Lane again the on Thank to

joining. Thank you you now today's That have Please a lovely conclude lines. your day, call. and for does may disconnect