8-K: Oxford Square Capital Issues $65M 7.75% Notes Due 2030

Oxford Square Capital Corp. has issued $65 million in 7.75% Notes due 2030, with an option for underwriters to purchase an additional $9.75 million.

Summary

• Oxford Square Capital Corp. (the Company) and U.S. Bank Trust Company, National Association, as trustee, entered into a Fourth Supplemental Indenture on August 7, 2025.
• The Fourth Supplemental Indenture relates to the Company's issuance of $65,000,000 aggregate principal amount of its 7.75% Notes due 2030 (the Notes).
• Underwriters have an overallotment option to purchase up to an additional $9,750,000 aggregate principal amount of Notes within 30 days of July 31, 2025.
• The Notes will mature on July 31, 2030, with the entire outstanding principal payable on this date.
• The Notes bear interest at a rate of 7.75% per annum, accruing from August 7, 2025.
• Interest payment dates for the Notes are January 31, April 30, July 31, and October 31 of each year, commencing October 31, 2025.
• The Notes are redeemable in whole or in part at the Company's option on or after July 31, 2027, at a redemption price of 100% of the outstanding principal amount plus accrued and unpaid interest.
• The Company expects to use the net proceeds from this offering to primarily repay indebtedness, acquire investments in accordance with its investment objective, and for other general corporate purposes.
• The Notes are expected to be listed on the NASDAQ Global Select Market under the trading symbol OXSQH.
• New covenants have been added to the Indenture, requiring the Company to comply with specific sections of the Investment Company Act of 1940 regarding asset coverage and dividend declarations for the benefit of Note Holders.
• If the Company ceases to be subject to Exchange Act reporting requirements, it agrees to furnish audited annual and unaudited quarterly financial statements to Note Holders and the Trustee.

Sentiment

Score: 7

Explanation: The issuance of new notes is a standard financing activity for a BDC. The terms appear reasonable for the current market, and the proceeds are earmarked for strategic purposes like debt repayment and investment, which are generally positive. However, it also increases leverage, which is a neutral to slightly negative factor depending on the company's existing debt profile and investment success.

Positives

• Successful issuance of $65 million in notes, potentially up to $74.75 million, indicating market confidence in the company's debt.
• The 7.75% interest rate provides a clear, fixed cost of capital for the company, offering predictability in financing expenses.
• Proceeds will be used for debt repayment, investment acquisition, and general corporate purposes, which can strengthen the balance sheet and support strategic growth initiatives.
• Listing on the NASDAQ Global Select Market (OXSQH) enhances liquidity and visibility for the new notes, potentially attracting a broader investor base.
• New covenants ensure compliance with key provisions of the Investment Company Act of 1940, providing additional protection and transparency for noteholders.

Negatives

• Issuance of new debt increases the company's overall leverage and future interest payment obligations, which must be serviced regardless of investment performance.
• The fixed 7.75% interest rate, while predictable, could become less favorable if market interest rates decline significantly in the future, potentially limiting the company's ability to refinance at lower rates.

Risks

• The Company's ability to service the 7.75% interest payments and repay the principal on July 31, 2030, is dependent on its future financial performance, investment returns, and overall economic conditions.
• Continuous compliance with Sections 18(a)(1)(A) and 18(a)(1)(B) of the Investment Company Act of 1940, as modified by Section 61(a), regarding asset coverage and dividend declarations, is a critical regulatory requirement.
• The Trustee's reliance on information furnished by The Depository Trust Company (DTC) and its limited responsibility regarding beneficial owners' records could introduce operational complexities for individual noteholders.
• Potential for changes in market interest rates could impact the relative attractiveness or cost-effectiveness of the fixed-rate notes over their term.

Future Outlook

The Company expects to use the net proceeds from this offering to primarily repay indebtedness, acquire investments in accordance with its investment objective, and for other general corporate purposes. The Notes are expected to be listed on the NASDAQ Global Select Market under the trading symbol OXSQH.

Management Comments

• The Company expects to use the net proceeds from this Offering to primarily repay indebtedness, acquire investments in accordance with its investment objective and for other general corporate purposes.

Industry Context

This debt offering by Oxford Square Capital Corp., a business development company (BDC), is consistent with the industry practice of BDCs utilizing various forms of debt financing to fund their investment activities and manage their capital structure. The fixed-rate nature of these notes provides predictable financing costs, which is a common strategy in periods of interest rate volatility or for locking in long-term funding. The listing on NASDAQ enhances market access and liquidity for the notes, aligning with broader trends of increased transparency and accessibility in corporate debt markets.

Comparison to Industry Standards

• The 7.75% interest rate for notes due 2030 is within the typical range for unsecured notes issued by BDCs, reflecting current market conditions and the company's credit profile. For example, similar BDCs like Ares Capital Corporation (ARCC) or Main Street Capital Corporation (MAIN) have issued notes with comparable maturities and rates, adjusted for their specific credit ratings and market timing.
• The $25 denomination is standard for retail-friendly debt offerings by BDCs, making the notes accessible to a broader investor base compared to institutional-only debt.
• The inclusion of an overallotment option is a common feature in public offerings, allowing underwriters to cover over-allotments and stabilize the offering price.

Corporate Governance

Stakeholder Impact

• **Shareholders:** Potential for enhanced company value if the capital is deployed effectively to generate returns exceeding the cost of debt. However, increased leverage could also introduce additional financial risk.
• **Noteholders (New):** Will receive fixed interest payments of 7.75% annually and repayment of principal on July 31, 2030, subject to the company's financial health. Their rights are governed by the Indenture and protected by specific covenants.
• **Existing Creditors:** The issuance of new senior securities could potentially impact the seniority or recovery prospects of other existing unsecured creditors, depending on the specific terms of their existing debt instruments. However, the notes are designated as 'Senior Securities'.
• **Company Management:** Gains additional capital for strategic initiatives, but also assumes responsibility for managing the increased debt load and ensuring compliance with new covenants and regulatory requirements.

Next Steps

• The Notes are expected to be listed on the NASDAQ Global Select Market under the trading symbol OXSQH.
• The Company will make quarterly interest payments on January 31, April 30, July 31, and October 31, commencing October 31, 2025.
• The Company may redeem the Notes, in whole or in part, on or after July 31, 2027.

Key Dates

Recommendation

The filing details a routine debt offering by Oxford Square Capital Corp. to raise capital for general corporate purposes, including debt repayment and new investments. While the capital raise itself is a positive for liquidity and strategic flexibility, the terms of the notes (7.75% interest, 2030 maturity) are generally in line with market expectations for a BDC of this profile. There are no extraordinary positive or negative surprises that would warrant a 'buy' or 'sell' recommendation based solely on this filing. The increased leverage is a factor to monitor, but the stated use of proceeds for debt repayment and investment acquisition suggests a balanced approach. Therefore, a 'hold' recommendation is appropriate, pending further analysis of the company's overall financial performance and investment portfolio.

Keywords

Oxford Square Capital Corp., OXSQ, Notes, Debt Offering, 7.75% Notes due 2030, Corporate Debt, SEC Filing, Investment Company Act, Fixed Income, Capital Raise, NASDAQ, Supplemental Indenture