Oxford Lane Capital Corp. (OXLC) Earnings Call Transcript & Summary

Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Oxford Lane Capital Corp. Announces Net Asset Value and Selected Financial Results for the First Fiscal Quarter 2027 Conference Call. [Operator Instructions] It is now my pleasure to turn the call over to Mr. Jonathan Cohen, CEO. Please go ahead.

Thank you very much. Good morning, everyone. Welcome to the Oxford Lane Capital Corp. First Fiscal Quarter 2027 Earnings Conference Call. I'm joined today by Saul Rosenthal, our President; Bruce Rubin, our CFO; and Joe Kupka, our Managing Director and Portfolio Manager. Bruce, could you open the call with the disclosure regarding forward-looking statements?

Sure, Jonathan. Today's conference call is being recorded. An 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. We ask that you refer 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 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 over to Jonathan.

Thank you, Bruce. On June 30, 2026, our net asset value per share stood at $10.74 compared to a net asset value per share of $10.56 as of the prior quarter. For the quarter ended June, we recorded GAAP total investment income of approximately $87 million, representing a decrease of approximately $6.9 million from the prior quarter. The quarter's GAAP total investment income consisted of approximately $83.7 million from our CLO equity and CLO warehouse investments and approximately $3.4 million from our CLO debt investments and from other income. Oxford Lane recorded GAAP net investment income of approximately $50.2 million or $0.51 per share for the quarter ended June, compared to approximately $54.5 million or $0.56 per share for the quarter ended March 31. Our core net investment income was approximately $93.4 million or $0.95 per share for the quarter ended June, compared with approximately $100.7 million or $1.03 per share for the quarter ended March 31. As of June 30, we held approximately $66.2 million in newly issued or newly acquired CLO equity investments that had not yet made their initial distributions to Oxford Lane. For the quarter ended June, we recorded net unrealized appreciation of investments -- on investments of approximately $54.5 million and net realized losses of approximately $28.4 million. We had a net increase in net assets resulting from operations of approximately $76.3 million or $0.78 per share for the first fiscal quarter. As of June 30, the following metrics applied. We note that none of these metrics necessarily represented a total return to shareholders. The weighted average effective yield of our CLO equity investments at current cost was 11.1%, down from 11.7% as of March 31. The weighted average cash distribution yield of our CLO equity investments at current cost was 16.3%, down from 16.7% as of March 31. 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 June 30, we made additional CLO investments of approximately $37.8 million and we received approximately $50.7 million from sales and from repayments. On July 23, our Board of Directors declared monthly common stock distributions of $0.20 per share for each of the months ending October, November, and December of 2026. With that, I'll turn the call over to our Managing Director, Joe Kupka. Joe?

Thanks, Jonathan. During the quarter ended June 30, 2026, U.S. loan market performance improved versus the prior quarter. U.S. loan price index increased from 94.63% as of March 31 to 94.96% as of June 30. The increase in U.S. loan prices led to an approximate 4-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 modestly to 302 basis points compared to 304 basis points last quarter. The 12-month trailing default rate for the loan index decreased to 0.97% by principal amount at the end of the quarter from 1.44% at the end of March. 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 $33 billion, reflecting an approximate $14 billion decrease from the previous quarter. Additionally, the U.S. CLO market saw approximately $94 billion in reset and refinancing activity in Q2 2026, compared to approximately $56 billion in the previous quarter. Oxford Lane remained active this quarter, trading over $85 million in CLO equity. During the quarter, we also led or participated in numerous resets and refinancings, taking advantage of tighter liability spreads to lower the cost of funding and lengthen the weighted average reinvestment period of Oxford Lane's equity portfolio from October 2029 to November 2029. We continue to evaluate existing investments for opportunities to improve the economics of our CLO equity positions. In the current market environment, we intend to continue to utilize our 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've 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 first fiscal quarter performance has been uploaded to our website at oxfordlanecapital.com. And with that, operator, we're happy to open the call up for questions.

[Operator Instructions] Our first question comes from the line of Erik Zwick with Lucid Capital Markets.

A few questions here. I wanted to maybe start with one of the topics Joe, kind of, mentioned there towards the end. Just in terms of the opportunities to continue executing resets and refis, it sounds like liability spreads have tightened and hopefully, they kind of remain so here for the next little bit. But can you maybe just frame, kind of, the opportunity you have here in the near term to continue improving the cost of funding in the portfolio?

Sure. I think year-to-date, we've completed about 25 resets or refinancings, kind of, taken on a case-by-case basis, whether they're going to be a refi or reset for the remainder of our book looking from the end of this quarter on. I think about 30% of our book in terms of market value could be in the money for a refi or a reset transaction through the end of the year. And then looking forward to 2027, an additional 30% of the market value. So overall, over half of our book has potential short-term optionality embedded in it.

Excellent. That's very helpful. Maybe flipping in towards the investment outlook. I know early in the year, when you kind of restructured the dividend, you mentioned you want to be able to take advantage of more investment opportunities. Curious if you could just talk maybe specifically to the secondary market, what you're seeing today in terms of liquidity. I know it was pretty slow in the first calendar quarter of the year. It sounds like it may have been a little bit better here in 2Q, but just maybe what you're seeing here and what you expect going forward? And are you seeing attractive opportunities to add to the portfolio and potentially help the future yield going forward?

Yes. Yes, we're definitely seeing an improved bid-ask spread, especially if we compare to what we saw towards the end of March. We're seeing a very interesting basis in terms of the basis between Tier 1 and Tier 2 managers. So especially if you look at some of these lower-tier managers that trade at wider yields, they can be very attractive on both a cash-on-cash and ultimate yield basis. So we're seeing a lot of opportunities just on an absolute basis and also to do some relative value trading in our portfolio.