OXSQ.NASDAQOxford Square Capital CORP
10-Q: Oxford Square Capital Corp. Reports First Quarter 2024 Results
Sentiment:
Quarterly Report
Oxford Square Capital Corp. reports a net decrease in net assets resulting from operations for the first quarter of 2024, driven by net realized losses and unrealized depreciation.
Capital raiseThe company issued 324,122 shares of common stock through its ATM offering, raising $923,000.
Worse than expectedThe company reported a net decrease in net assets resulting from operations, which is worse than the net increase reported in the same period last year.The company's net asset value per share decreased, indicating a decline in the value of its assets.The company experienced net realized losses and net unrealized depreciation, which negatively impacted its financial performance.
Summary
- Oxford Square Capital Corp. reported a net decrease in net assets resulting from operations of $1.8 million for the three months ended March 31, 2024.
- This compares to a net increase of $6.3 million for the same period in 2023.
- The decrease was primarily due to net realized losses of $8.1 million and a net change in unrealized depreciation of $0.2 million.
- Total investment income was $10.7 million, down from $12.9 million in the prior year period.
- The company's net asset value per share decreased to $2.42 from $2.55 at the end of the previous quarter.
- The company's debt investments had a weighted average yield of 13.94% as of March 31, 2024.
- The company had six debt investments on non-accrual status with a fair value of $2.0 million as of March 31, 2024.
Sentiment
Score: 4
Explanation: The document presents a mixed picture with some positive aspects like the high yield on debt investments, but the overall tone is negative due to the decrease in net assets, net realized losses, and the increase in non-accrual loans. The company is facing challenges, and the outlook is uncertain.
Positives
- The company's debt investments had a weighted average yield of 13.94% as of March 31, 2024.
- The company issued 324,122 shares of common stock through its ATM offering, raising $923,000.
Negatives
- The company experienced a net decrease in net assets resulting from operations of $1.8 million.
- Total investment income decreased to $10.7 million.
- The company recognized net realized losses of $8.1 million.
- The company's net asset value per share decreased to $2.42.
- Six debt investments were on non-accrual status with a fair value of $2.0 million.
Risks
- The company is exposed to interest rate risks, which could negatively affect the fair value of investments.
- Market volatility and economic conditions may lower performance or impair the company's ability to achieve its investment objective.
- The company's portfolio may be concentrated in a limited number of portfolio companies, which subjects the company to a risk of significant loss.
- Various social and political circumstances may contribute to increased market volatility and economic uncertainties.
- The Israel-Hamas war and the conflict between Russia and Ukraine could adversely affect the company's business, operating results, and financial condition.
Future Outlook
The company expects that future debt investments will generally be made at variable rates. The company may in the future hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contracts.
Management Comments
- Management believes that the analysis is indicative of the company's existing interest rate sensitivity, but it does not adjust for changes in the credit quality, size and composition of the portfolio, and other business developments.
- Management recognized that any controls and procedures, no matter how well designed and operated can provide only reasonable assurance of achieving the desired control objectives.
Industry Context
The report reflects the challenges faced by BDCs in a volatile market environment, including interest rate risk and credit risk. The company's focus on corporate debt and CLOs is consistent with broader trends in the alternative credit space, but also exposes it to specific risks associated with these asset classes.
Comparison to Industry Standards
- The decrease in net asset value per share and the increase in non-accrual loans are concerning and may indicate underperformance compared to industry benchmarks.
- The weighted average yield on debt investments of 13.94% is relatively high, which could be a positive indicator if the company can manage the associated risks effectively.
- The company's reliance on Level 3 inputs for fair value measurements is common in the BDC space, but it also highlights the illiquidity of its investments and the potential for valuation uncertainty.
- Compared to other BDCs, Oxford Square's portfolio composition with a significant allocation to CLO equity investments is a higher risk strategy, which can lead to higher volatility in returns.
- The company's expense ratio of 11.17% is relatively high, which may indicate higher operating costs compared to some peers.
Related Party Transactions
- The company pays Oxford Square Management a base management fee and incentive fees.
- The company reimburses Oxford Funds for certain expenses under the Administration Agreement.
- The company may co-invest with its affiliates in negotiated investment opportunities.
Stakeholder Impact
- Shareholders experienced a decrease in net asset value per share.
- Shareholders may be concerned about the increase in non-accrual loans and the net realized losses.
- The company's ability to make distributions may be affected by its financial performance and asset coverage requirements.
- The company's employees and management are subject to a Code of Business Conduct and Ethics to avoid conflicts of interest.
Next Steps
- The company intends to continue to operate so as to qualify to be taxed as a RIC under the Code.
- The company will continue to monitor the quality of its debt investment portfolio.
- The company may in the future hedge against interest rate fluctuations by using standard hedging instruments.
Key Dates
| Date | Description |
|---|---|
| 2013-03-19 | Acquisition date of Carlyle Global Market Strategies CLO 2013-2, Ltd. CLO subordinated notes. |
| 2013-10-23 | Acquisition date of Cedar Funding II CLO, Ltd. CLO subordinated notes. |
| 2014-04-11 | Acquisition date of Telos CLO 2014-5, Ltd. CLO subordinated notes. |
| 2015-01-13 | Acquisition date of UniTek Global Services, Inc. common equity. |
| 2016-05-11 | Acquisition date of Madison Park Funding XIX, Ltd. CLO subordinated notes. |
| 2017-01-24 | Acquisition date of CIFC Funding 2014-3, Ltd. CLO subordinated notes. |
| 2017-01-27 | Acquisition date of Venture XVII, Ltd. CLO subordinated notes. |
| 2017-04-12 | Date of completion of an underwritten public offering of approximately $64.4 million in aggregate principal amount of the 6.50% Unsecured Notes. |
| 2017-05-03 | Acquisition date of Zais CLO 6, Ltd. CLO subordinated notes. |
| 2017-05-12 | Acquisition date of West CLO 2014-1, Ltd. CLO subordinated notes. |
| 2017-05-15 | Acquisition date of Cedar Funding VI CLO, Ltd. CLO subordinated notes. |
| 2018-06-26 | Acquisition date of Viant Medical Holdings, Inc. first and second lien senior secured notes. |
| 2018-08-03 | Acquisition date of CLEAResult Consulting, Inc. second lien senior secured notes. |
| 2018-08-09 | Acquisition date of Verifone Systems, Inc. first lien senior secured notes. |
| 2018-08-01 | Acquisition date of Sound Point CLO XVI, Ltd. CLO subordinated notes. |
| 2018-11-20 | Acquisition date of Global Tel Link Corp. second lien senior secured notes. |
| 2019-04-03 | Date of completion of an underwritten public offering of approximately $44.8 million in aggregate principal amount of 6.25% Unsecured Notes. |
| 2019-04-05 | Acquisition date of Atlas Senior Loan Fund XI, Ltd. CLO subordinated notes. |
| 2019-06-26 | Acquisition date of UniTek Global Services, Inc. Series B Preferred Stock, Series B Senior Preferred Stock, and Series B Super Senior Preferred Stock. |
| 2019-10-01 | Acquisition date of Premiere Global Services, Inc. first lien senior secured notes, replacement revolver, and second lien senior secured notes. |
| 2020-05-08 | Acquisition date of Venture 39 CLO, Limited CLO subordinated notes. |
| 2020-05-22 | Acquisition date of Madison Park Funding XVIII, Ltd. CLO subordinated notes. |
| 2020-12-07 | Acquisition date of Venture 35 CLO, Limited CLO subordinated notes. |
| 2020-12-11 | Acquisition date of Octagon Investment Partners 49, Ltd. CLO subordinated notes. |
| 2021-01-07 | Acquisition date of Affinion Insurance Solutions, Inc. first lien senior secured notes. |
| 2021-01-22 | Acquisition date of Careismatic Brands, Inc. second lien senior secured notes. |
| 2021-03-18 | Acquisition date of Convergint Technologies, LLC second lien senior secured notes. |
| 2021-04-16 | Acquisition date of RSA Security, LLC second lien senior secured notes. |
| 2021-05-20 | Date of completion of an underwritten public offering of approximately $80.5 million in aggregate principal amount of 5.50% Unsecured Notes. |
| 2021-06-01 | Acquisition date of Dryden 43 Senior Loan Fund CLO subordinated notes. |
| 2021-06-03 | Acquisition date of ConvergeOne Holdings, Inc. second lien senior secured notes. |
| 2021-06-04 | Acquisition date of ConvergeOne Holdings, Inc. first lien senior secured notes. |
| 2021-06-30 | Acquisition date of Carlyle Global Market Strategies CLO 2021-6, Ltd. CLO subordinated notes. |
| 2021-10-14 | Acquisition date of Help/Systems Holdings, Inc. second lien senior secured notes. |
| 2021-10-20 | Acquisition date of Magenta Buyer, LLC second lien senior secured notes. |
| 2022-01-20 | Acquisition date of Quest Software, Inc. first and second lien senior secured notes. |
| 2022-02-10 | Acquisition date of Dodge Data & Analytics, LLC first and second lien senior secured notes. |
| 2022-05-17 | Acquisition date of Magenta Buyer, LLC first lien senior secured notes. |
| 2022-06-24 | Acquisition date of Veritas USA, Inc. first lien senior secured notes. |
| 2022-10-06 | Acquisition date of Help/Systems Holdings, Inc. first lien senior secured notes. |
| 2022-11-15 | Acquisition date of Convergint Technologies, LLC first lien senior secured notes. |
| 2023-02-01 | Acquisition date of Kofax, Inc. first lien senior secured notes. |
| 2023-07-24 | The Company redeemed $40.0 million in aggregate principal amount of the 6.50% Unsecured Notes. |
| 2023-08-22 | The Company entered into Amendment No. 1 to that certain Equity Distribution Agreement dated August 1, 2019 with Ladenburg Thalmann & Co. |
| 2023-09-11 | The Company redeemed $10.0 million in aggregate principal amount of the 6.50% Unsecured Notes. |
| 2023-11-03 | The Company redeemed $7.0 million in aggregate principal amount of the 6.50% Unsecured Notes. |
| 2023-11-15 | Acquisition date of Gulf Stream Meridian 4 Ltd. CLO subordinated notes. |
| 2023-12-07 | Acquisition date of Venture 35 CLO, Limited CLO subordinated notes. |
| 2023-12-15 | Acquisition date of Ares XLIV CLO Ltd. CLO subordinated notes. |
| 2023-12-21 | The Company redeemed the remaining $7.4 million aggregate principal amount of 6.50% Unsecured Notes. |
| 2024-01-17 | Acquisition date of Bain Capital Credit CLO 2017-2, Ltd. CLO subordinated notes. |
| 2024-01-18 | Acquisition date of Access CIG, LLC first lien senior secured notes. |
| 2024-01-31 | Acquisition date of Shearers Foods, LLC first lien senior secured notes. |
| 2024-03-20 | Alvaria, Inc. completed a recapitalization. |
| 2024-03-31 | End of the reporting period. |
| 2024-04-30 | Distribution payable date. |
| 2024-05-31 | Distribution payable date. |
| 2024-06-28 | Distribution payable date. |
| 2024-07-31 | Distribution payable date. |
| 2024-08-30 | Distribution payable date. |
| 2024-09-30 | Distribution payable date. |
Keywords
Business Development Company, BDC, Collateralized Loan Obligation, CLO, Corporate Debt, Investment Income, Net Asset Value, Leveraged Loans, Credit Risk, Financial Results
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