OXSQ.NASDAQOxford Square Capital CORP
10-Q: Oxford Square Capital Corp. Reports Q3 2024 Results, Portfolio Value Declines Amidst Market Volatility
Sentiment:
Quarterly Report
Oxford Square Capital Corp. reports a decrease in portfolio value and a net loss for Q3 2024, influenced by market conditions and strategic portfolio adjustments.
Capital raiseThe company issued 5,069,789 shares of common stock through its ATM offering during the quarter, raising approximately $14.5 million net of underwriting fees and offering costs.The company entered into an amended and restated equity distribution agreement, dated August 16, 2024, with Lucid Capital Markets, LLC and Ladenburg Thalmann & Co. Inc., as the sales agents, to add Lucid Capital Markets, LLC as an additional sales agent.
Worse than expectedThe company experienced a net decrease in net assets resulting from operations, indicating worse than expected results.The company's net asset value per share decreased, indicating worse than expected results.The company reported net realized losses on investments, indicating worse than expected results.
Summary
- Oxford Square Capital Corp. (OXSQ) reported its financial results for the third quarter of 2024, showing a net decrease in net assets resulting from operations of $0.9 million.
- The company's total investment portfolio was valued at approximately $262.9 million as of September 30, 2024, a decrease from $266.9 million at the end of 2023.
- This decrease was primarily due to net realized losses of approximately $51.4 million, debt repayments of approximately $61.6 million, and sales of securities of approximately $4.8 million, partially offset by purchases of approximately $88.7 million and net unrealized appreciation on the investment portfolio of approximately $33.6 million.
- The company's net investment income for the quarter was $6.2 million, compared to $6.4 million in the same period last year.
- OXSQ's net asset value per share decreased to $2.35 as of September 30, 2024, from $2.55 at the end of 2023.
- The company's weighted average yield on debt investments was approximately 14.50% as of September 30, 2024.
- The company issued 5,069,789 shares of common stock through its ATM offering during the quarter, raising approximately $14.5 million net of fees.
Sentiment
Score: 4
Explanation: The document presents a mixed picture with some positive aspects like high yield and capital raising, but the overall tone is negative due to the decrease in portfolio value, net losses, and NAV decline. The company is facing challenges in a volatile market.
Positives
- The company's weighted average yield on debt investments was approximately 14.50% as of September 30, 2024.
- OXSQ raised approximately $14.5 million through its ATM offering during the quarter.
- The company's cash and cash equivalents increased to approximately $43.2 million as of September 30, 2024, from approximately $5.7 million as of December 31, 2023.
Negatives
- The company experienced a net decrease in net assets resulting from operations of $0.9 million for the quarter.
- The total fair value of the investment portfolio decreased by approximately $4 million during the nine months ended September 30, 2024.
- Net realized losses on investments were approximately $12.9 million for the quarter and $51.4 million for the nine months ended September 30, 2024.
- The company's net asset value per share decreased to $2.35 as of September 30, 2024, from $2.55 at the end of 2023.
- Three debt investments in one portfolio company were on non-accrual status as of September 30, 2024.
Risks
- Market conditions, including changes in interest rates and inflation, could materially adversely affect the company's portfolio companies and financial condition.
- The company is exposed to interest rate risks, and rising interest rates could negatively affect the fair value of its investments.
- Economic disruptions and geopolitical conflicts could negatively impact the operating results of the company's portfolio companies.
- The failure of a portfolio company or CLO vehicle to satisfy financial covenants could lead to a reduction in payments to the company.
- The company may incur expenses to seek recovery upon default or to negotiate new terms with a defaulting portfolio company or CLO vehicle.
Future Outlook
The document contains forward-looking statements regarding the company's future operating results, business prospects, and ability to achieve its investment objectives, which are subject to risks and uncertainties.
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 credit quality, size, and composition of the portfolio.
- 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, with portfolio adjustments and strategic capital raises being key responses to market conditions. The company's focus on corporate debt and CLOs aligns with broader trends in the alternative credit space, but also exposes it to risks associated with these asset classes.
Comparison to Industry Standards
- The decrease in net asset value per share from $2.55 to $2.35 indicates a challenging quarter for OXSQ, which is below the average performance of some of its peers in the BDC sector.
- The weighted average yield on debt investments of 14.50% is relatively high, suggesting a focus on higher-yielding, potentially riskier assets compared to some other BDCs.
- The company's reliance on CLO equity investments, which constitute 39.3% of its portfolio, is higher than some of its peers, indicating a higher exposure to structured credit markets.
- The net realized losses of $51.4 million for the nine months ended September 30, 2024, are significant and suggest that the company has been actively managing its portfolio in response to market conditions, which is a common strategy among BDCs.
- The company's asset coverage for borrowed amounts at 226% is above the minimum requirement of 150% for BDCs, indicating a conservative approach to leverage compared to some of its peers.
Related Party Transactions
- The company pays Oxford Square Management a base investment advisory fee and incentive fees.
- The company pays Oxford Funds for administrative services.
- 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 received distributions, but the source of these distributions may be a return of capital.
- The company's performance is subject to market risks, which could impact future returns for shareholders.
- The company's employees 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 intends to comply with the applicable provisions of the Code pertaining to RICs to make distributions of taxable income sufficient to relieve it of substantially all federal income taxes.
- The company will continue to monitor the performance of its portfolio companies and CLO investments.
Key Dates
| Date | Description |
|---|---|
| 2013-03-19 | Carlyle Global Market Strategies CLO 2013-2, Ltd. CLO subordinated notes acquired. |
| 2013-10-23 | Cedar Funding II CLO, Ltd. CLO subordinated notes acquired. |
| 2014-04-11 | Telos CLO 2014-5, Ltd. CLO subordinated notes acquired. |
| 2015-01-13 | UniTek Global Services, Inc. common equity acquired. |
| 2016-05-11 | Madison Park Funding XIX, Ltd. CLO subordinated notes acquired. |
| 2017-01-24 | CIFC Funding 2014-3, Ltd. CLO income notes acquired. |
| 2017-01-27 | Venture XVII, Ltd. CLO subordinated notes acquired. |
| 2017-04-12 | The Company completed an underwritten public offering of approximately $64.4 million in aggregate principal amount of the 6.50% Unsecured Notes. |
| 2017-05-03 | Zais CLO 6, Ltd. CLO subordinated notes acquired. |
| 2017-05-12 | West CLO 2014-1, Ltd. CLO subordinated notes acquired. |
| 2017-05-15 | Cedar Funding VI CLO, Ltd. CLO subordinated notes acquired. |
| 2017-06-14 | The SEC issued an order permitting the Company and certain of its affiliates to complete negotiated co-investment transactions in portfolio companies. |
| 2018-07-27 | Venture XX, Ltd. CLO subordinated notes acquired. |
| 2018-08-01 | Sound Point CLO XVI, Ltd. CLO subordinated notes acquired. |
| 2018-08-03 | CLEAResult Consulting, Inc. second lien senior secured notes acquired. |
| 2018-08-09 | Verifone Systems, Inc. first lien senior secured notes acquired. |
| 2018-10-31 | HealthChannels, Inc. (f/k/a ScribeAmerica, LLC) first lien senior secured notes acquired. |
| 2018-11-20 | Global Tel Link Corp. second lien senior secured notes acquired. |
| 2019-04-03 | The Company completed an underwritten public offering of approximately $44.8 million in aggregate principal amount of 6.25% Unsecured Notes. |
| 2019-04-05 | Atlas Senior Loan Fund XI, Ltd. CLO subordinated notes acquired. |
| 2019-06-26 | UniTek Global Services, Inc. preferred stock acquired. |
| 2019-10-01 | Premiere Global Services, Inc. first lien and second lien senior secured notes acquired. |
| 2020-05-08 | Venture 39 CLO, Limited CLO subordinated notes acquired. |
| 2020-05-22 | Madison Park Funding XVIII, Ltd. CLO subordinated notes acquired. |
| 2020-12-07 | Venture 35 CLO, Limited CLO subordinated notes acquired. |
| 2020-12-11 | Octagon Investment Partners 49, Ltd. CLO subordinated notes acquired. |
| 2021-01-07 | Affinion Insurance Solutions, Inc. first lien senior secured notes acquired. |
| 2021-01-22 | Careismatic Brands, Inc. second lien senior secured notes acquired. |
| 2021-03-18 | Convergint Technologies, LLC second lien senior secured notes acquired. |
| 2021-04-16 | RSA Security, LLC second lien senior secured notes acquired. |
| 2021-05-18 | Alvaria, Inc. first lien senior secured notes acquired. |
| 2021-05-20 | The Company completed an underwritten public offering of approximately $80.5 million in aggregate principal amount of 5.50% Unsecured Notes. |
| 2021-06-01 | Dryden 43 Senior Loan Fund CLO subordinated notes acquired. |
| 2021-06-03 | ConvergeOne Holdings, Inc. second lien senior secured notes acquired. |
| 2021-06-04 | ConvergeOne Holdings, Inc. first lien senior secured notes acquired. |
| 2021-06-30 | Carlyle Global Market Strategies CLO 2021-6, Ltd. CLO subordinated notes acquired. |
| 2021-10-14 | Help/Systems Holdings, Inc. second lien senior secured notes acquired. |
| 2021-10-20 | Magenta Buyer, LLC second lien senior secured notes acquired. |
| 2022-01-20 | Quest Software, Inc. first and second lien senior secured notes acquired. |
| 2022-02-10 | Dodge Data & Analytics, LLC first and second lien senior secured notes acquired. |
| 2022-05-17 | Magenta Buyer, LLC first lien senior secured notes acquired. |
| 2022-06-24 | Veritas USA, Inc. first lien senior secured notes acquired. |
| 2022-10-06 | Help/Systems Holdings, Inc. first lien senior secured notes acquired. |
| 2022-11-15 | Convergint Technologies, LLC first lien senior secured notes acquired. |
| 2023-02-01 | Kofax, Inc. first lien senior secured notes acquired. |
| 2023-07-24 | The Company redeemed $40.0 million in aggregate principal amount of the 6.50% Unsecured Notes. |
| 2023-08-16 | The Company entered into an amended and restated equity distribution agreement. |
| 2023-08-22 | The Company entered into Amendment No. 1 to that certain Equity Distribution Agreement. |
| 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 | Gulf Stream Meridian 4 Ltd. CLO subordinated notes acquired. |
| 2023-12-15 | Ares XLIV CLO Ltd. CLO subordinated notes acquired. |
| 2023-12-21 | The Company redeemed the remaining $7.4 million aggregate principal amount of 6.50% Unsecured Notes. |
| 2024-01-18 | Access CIG, LLC first lien senior secured notes acquired. |
| 2024-01-31 | Shearers Foods, LLC first lien senior secured notes acquired. |
| 2024-02-10 | Dodge Data & Analytics, LLC first lien senior secured notes acquired. |
| 2024-03-20 | Alvaria, Inc. completed a recapitalization. |
| 2024-05-08 | ConvergeOne Holdings, Inc. common equity acquired. |
| 2024-05-22 | Michael Baker International, Inc. first lien senior secured notes acquired. |
| 2024-06-13 | Careismatic Brands, Inc. common equity warrants acquired. |
| 2024-06-04 | ConvergeOne Holdings, Inc. first lien senior secured notes acquired. |
| 2024-07-08 | Nielsen Consumer, LLC first lien senior secured notes acquired. |
| 2024-07-29 | Global Tel Link Corp. first lien senior secured notes acquired. |
| 2024-08-14 | McAfee Enterprise, LLC (f/k/a Magenta Buyer, LLC) completed a recapitalization. |
| 2024-08-16 | The Company entered into an amended and restated equity distribution agreement. |
| 2024-08-21 | Allegro CLO XII, Ltd. CLO subordinated notes acquired. |
| 2024-09-27 | OCP CLO 2024-37, Ltd. CLO subordinated notes acquired. |
| 2024-11-05 | The number of shares of the issuers common stock, $0.01 par value, outstanding as of November 5, 2024, was 67,892,181. |
Keywords
Business Development Company, BDC, Collateralized Loan Obligation, CLO, Corporate Debt, Investment Portfolio, Net Asset Value, Leveraged Loans, Financial Results, Interest Rates
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