8-K: Oxford Square Capital Corp. Prices $65 Million 7.75% Notes Due 2030

Oxford Square Capital Corp. has entered into an underwriting agreement for the issuance and sale of $65.0 million aggregate principal amount of 7.75% Notes due 2030, with an option for underwriters to purchase an additional $9.75 million.

Summary

• Oxford Square Capital Corp. (the "Company") entered into an underwriting agreement with Lucid Capital Markets, LLC, as representative of the underwriters, for a public offering of 7.75% Notes due 2030.
• The initial aggregate principal amount of notes being offered is $65.0 million.
• Underwriters have an option to purchase up to an additional $9.75 million aggregate principal amount of notes within 30 days to cover over-allotments.
• The closing of the offering is expected to occur on August 7, 2025, subject to customary closing conditions.
• The notes will bear a fixed coupon rate of 7.75% per annum, with interest payable quarterly on January 31, April 30, July 31, and October 31, beginning October 31, 2025.
• The stated maturity date for the notes is July 31, 2030.
• The notes are redeemable at the Company's option, in whole or in part, on or after July 31, 2027, at a redemption price of 100% of the outstanding principal amount plus accrued and unpaid interest.
• The notes will be issued in denominations of $25.00 and integral multiples of $25.00 in excess thereof.
• The notes received a BBBrating from Egan-Jones Ratings Company.
• The Company intends to list the notes on the NASDAQ Global Select Market under the trading symbol "OXSQH" within 30 days of the original issue date.

Sentiment

Score: 7

Explanation: The filing describes a successful debt offering, which provides capital for the company's operations and indicates continued access to capital markets. While it increases debt, it's a standard financing activity for a BDC and suggests operational continuity. The fixed interest rate provides certainty on financing costs.

Positives

• Successfully secured $65.0 million in capital through a debt offering, with potential for an additional $9.75 million, providing funding for the Company's operations and investment activities.
• The notes received a BBBrating from Egan-Jones Ratings Company, indicating a level of creditworthiness for the new debt instrument.
• The Company intends to maintain its status as a Business Development Company (BDC) and qualify as a Regulated Investment Company (RIC) under Subchapter M of the Code, which offers tax benefits.

Negatives

• The issuance of new debt increases the Company's leverage and future interest payment obligations, which will impact future earnings.
• The 7.75% fixed interest rate represents a significant ongoing cost for the Company.
• The underwriting discount of $0.78125 per Note, totaling $2,031,250 (assuming the over-allotment option is not exercised), reduces the net proceeds received by the Company from the offering.

Risks

• Enforceability of the Company's obligations under the underwriting agreement, indenture, and notes may be limited by bankruptcy, fraudulent conveyance, insolvency, reorganization, receivership, moratorium, and other laws relating to or affecting creditors' rights generally, as well as by general equitable principles.
• Rights to indemnity and contribution may be limited by federal or state securities laws or principles of public policy.
• The underwriting agreement may be terminated due to adverse market conditions, including suspension or material limitation of trading on major exchanges, disruption in securities settlement services, declaration of a moratorium on commercial banking activities, or any outbreak or escalation of hostilities, changes in financial markets, or other calamities.
• Failure to comply with applicable laws, rules, and regulations, including the Sarbanes-Oxley Act, could reasonably be expected to result in a material adverse effect on the Fund.
• Legal or governmental proceedings, or inquiries by the Securities and Exchange Commission, could adversely affect the Fund's standing as a business development company or the Investment Adviser's standing as a registered investment adviser.

Future Outlook

The Company intends to use the net proceeds from the sale of the Securities in the manner specified in its Time of Sale Prospectus and aims to maintain its status as a business development company under the 1940 Act and qualify as a regulated investment company under the Code for tax purposes.

Management Comments

• The Fund will use its best efforts to obtain the withdrawal of any order suspending the effectiveness of the Registration Statement at the earliest possible moment.
• The Fund will use commercially reasonable efforts to annually maintain a credit rating on the Notes by a nationally recognized statistical rating organization.
• The Fund will use reasonable best efforts to maintain its status as a business development company under the 1940 Act.
• The Fund will use reasonable best efforts to comply with the requirements of Subchapter M of the Code to qualify as a regulated investment company under the Code.

Industry Context

This debt offering by Oxford Square Capital Corp., a Business Development Company (BDC), is consistent with the capital-intensive nature of the BDC industry, which relies on various financing sources to fund its investment activities. BDCs typically raise capital through equity and debt offerings to originate and invest in debt and equity of private companies, often seeking to generate income for shareholders. The 7.75% coupon rate reflects current market conditions for corporate debt, particularly for BDCs which often carry higher yields due to the nature of their underlying investments.

Comparison to Industry Standards

• The 7.75% coupon rate for a 5-year note (due 2030) from a BDC like Oxford Square Capital Corp. (rated BBBby Egan-Jones) is generally in line with or slightly above the yields seen on similar debt issuances by other BDCs, reflecting the risk profile and market demand for such instruments. For example, other BDCs such as Ares Capital Corporation (ARCC) or Main Street Capital Corporation (MAIN) might issue debt at varying rates depending on their credit ratings, maturity, and prevailing interest rate environment, but 7.75% is a competitive rate for a non-investment grade BDC debt.
• The BBBrating from Egan-Jones Ratings Company is typical for BDCs, which often fall into the non-investment grade category due to their focus on lending to middle-market companies, which can be perceived as higher risk than larger, publicly traded corporations.
• The underwriting discount of $0.78125 per Note (3.125% of the $25 public offering price) is within the customary range for debt offerings of this size and type, comparable to fees charged by investment banks for similar transactions in the BDC sector.

Stakeholder Impact

• Shareholders: The debt offering increases the Company's leverage, which could impact equity returns and risk profile. However, it also provides capital for investments, potentially supporting future earnings.
• Creditors: The new 7.75% Notes due 2030 represent a new class of creditors with specific terms, including a fixed interest rate and maturity date. The BBBrating provides an indication of the credit risk.
• Company Operations: The proceeds from the offering will be used to fund the Company's investment activities, supporting its business model as a BDC.

Next Steps

• Closing of the offering is expected to occur on August 7, 2025.
• The Company intends to list the 7.75% Notes due 2030 on the NASDAQ Global Select Market under the trading symbol "OXSQH" within 30 days of the original issue date (August 7, 2025).
• The Company will make generally available to its security holders and the Representative an earnings statement or statements satisfying Section 11(a) of the Act and Rule 158 under the Act as soon as practicable.
• The Company will use commercially reasonable efforts to annually maintain a credit rating on the Notes.

Key Dates

Keywords

Oxford Square Capital Corp., OXSQ, Debt Offering, Notes, 7.75% Notes due 2030, Underwriting Agreement, Capital Raise, Business Development Company, BDC, SEC Filing, Form 8-K, Fixed-Rate Notes, Corporate Finance, Investment Company