Oxford Lane Capital - Earnings Call - Q1 2026
July 23, 2025
Transcript
Moderator (participant)
Morning and thank you all for attending the Oxford Lane Capital Corp announcement net asset value and selected financial results for the first fiscal quarter and declaration of distributions on common stocks. My name is Brisa and I will be your moderator for today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to pass the conference over to your host, Jonathan Cohen, CEO at Oxford Lane Capital Corp. Thank you. You may proceed, Jonathan.
Jonathan Cohen (CEO)
Thank you. Good morning, everyone, and welcome to Oxford Lane Capital Corp's first fiscal quarter of 2026 earnings conference call. I'm joined today by Bruce Rubin, our Chief Financial Officer, and Joe Kupka, our Managing Director. Bruce, could you open the call today with a disclosure regarding forward-looking statements?
Bruce Rubin (CFO)
Sure, Jonathan. Today's 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, and the unauthorized reproduction of this call in any form is strictly prohibited. At this point, please direct your attention to the customary disclosure of 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. The asset you're referring to in the most recent filing puts the SEC for important factors that can cause taxable results to differ materially from those indicated in the projection. 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 of reconciliation to GAAP, please refer to our earnings release posted this morning at www.oxfordlanecapital.com. With that, I'll turn the stage and place it back to Jonathan.
Jonathan Cohen (CEO)
Thanks, Bruce. On June 30th, 2025, our net asset value per share stood at $4.12, compared to a net asset value per share of $4.32 as of the previous quarter. For the quarter ended here, we recorded GAAP total investment income of approximately $124 million, representing an increase of approximately $2.8 million from the prior quarter. The quarter's GAAP total investment income consisted of approximately $117.4 million from our CLO equity investments and CLO warehouse investments, and approximately $6.6 million from our CLO debt investments and from other income. Oxford Lane recorded GAAP net investment income of approximately $75.1 million, or $0.16 per share, for the quarter ended June 30th, compared to approximately $75.4 million, or $0.18 per share, for the quarter ended March 31st.
Our core net investment income was approximately $112.4 million, or $0.24 per share, for the quarter ended June, compared with approximately $95.8 million and $0.23 per share for the quarter ended March. As of June 30th, we held approximately $701.5 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 depreciation on investments of approximately $40.2 million and net realized losses of approximately $8.8 million. We had a net increase in net assets resulting from operations of approximately $26.1 million, or $0.06 per share, for the first fiscal quarter. As of June 30th, we note that the following metrics applied. We also note that none of these metrics necessarily represented a total return to shareholders.
The weighted average yield of our CLO debt investments at current cost was 16.9%, up from 15.9% as of March 31st. The weighted average effective yield of our CLO equity investments at current cost was 14.7%, down from 15.9% as of March 31st. The weighted average cash distribution yield of our CLO equity investments at current cost was 21.6%, up from 20.5% as of March 31st. You 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, we issued a total of approximately $25.8 million shares of our common stock, pursuant to the net-to-market offering, resulting in net proceeds of approximately $116.4 million.
During the quarter ended June, we made additional CLO investments of approximately $441.8 million, and we received approximately $120.7 million from sales and from repayments. On July 22nd, our Board of Directors authorized a one-for-five reverse stock split and declared monthly common stock distributions of $0.08 per share for each of the months ending October, November, and December of 2025. With that, I'll turn the call over to our Managing Director, Joe Kupka.
Joe Kupka (Managing Director)
Thanks, Jonathan. During the quarter ended June 30th, 2025, U.S. loan market performance improved versus the prior quarter. U.S. loan price index increased from 96.31% as of March 31st to 97.07% as of June 30th. The increase in U.S. loan prices led to an approximate six-point increase in median U.S. CLO equity net asset values. Additionally, we observed median weighted average spread defaults loan pools within CLO portfolios decreased by 327 basis points, compared to 330 basis points last quarter. The 12-month drawing default rates for the loan index increased to 1.11% by principal amount at the end of the quarter, from 0.82% at the end of March. We note that out-of-quarter structurings, exchanges, and club car buybacks, which are not captured in the cited default rates, remain elevated.
CLO new issuance for the quarter totaled approximately $51 billion, reflecting an approximate $3 billion increase from the prior quarter, keeping pace with the first half of 2024, a record-breaking year. Additionally, the U.S. CLO market saw approximately $53 billion in reset and refinancing activity in Q2 of 2025, compared to approximately $105 billion in the previous quarter. Oxford Lane remained active this quarter, investing over $441 million in CLO equity, debt, and warehouses, while participating in opportunistic resets and refinancings. As a function of our overall activity during the quarter, we were able to lengthen the weighted average reinvestment period of Oxford Lane's CLO equity portfolio from November 2028 toJanuary 2029. Our primary investment strategy during the quarter was to engage in relative value trading and seek to lengthen the weighted average reinvestment period of Oxford Lane's CLO equity portfolio.
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. As a permanent capital vehicle, we've historically been able to take a longer-term view to our current investment strategy. With that, I'll turn the call back over to Jonathan.
Jonathan Cohen (CEO)
Thanks very much, Joe. Additional information about Oxford Lane's first fiscal quarter performance has been uploaded to our website at www.oxfordlanecapital.com. We are happy to open the call operator for any questions.
Moderator (participant)
Thank you. If you would like to ask a question, you can do so by pressing star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. To ask a question, please press star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking a question. We will pause briefly whilst questions are registered. The first question we have comes from Eric Spitzer with Leafwood Capital and Management. Please go ahead. Your line is open.
Eric Spitzer (Analyst)
Thanks. Good morning, everyone. You've indicated that the CLO market continues to remain robust on the issuing side. Wondering if you could just, as you scan the market today, looking at both primary and secondary opportunities, maybe a little commentary into how you're weighing the opportunities for each versus each other.
Joe Kupka (Managing Director)
Sure. I think we're still seeing value in both primary and secondary. It's something we reevaluate every single day to make sure we're picking the right profile. Tier one long-dated equity has definitely caught a very strong bid, so we still feel comfortable creating that profile in the primaries, knowing how strong it is facing the secondary. In the secondary, we've been targeting a bit lower-tier managers that trade significantly wider, as well as reset and refinancing opportunities as well.
Eric Spitzer (Analyst)
Thanks. Just curious, as you evaluate, maybe kind of a two-part question. One, as the CLO market continues to grow and see strong issuance, are there new managers coming into the market? How do you evaluate those as well as maybe existing managers that you haven't worked with before and deciding to work with them?
Joe Kupka (Managing Director)
Yeah. Generally, we will wait for a manager to at least complete a few deals and evaluate their performance before stepping in. We can usually pick up their paper in the secondary at various factors yield. It's definitely something we keep a close eye on, all the new entrants to the space and new managers.
Jonathan Cohen (CEO)
Right. Most of our primary market activity, Eric, and our warehousing activity does tend to be with the largest, best-regarded tier one managers.
Eric Spitzer (Analyst)
Got it. Thanks. You mentioned in the prepared remarks, I think it's $705 million of new issue CLOs that are on the balance sheet that have yet to make their first cash distribution. Just in terms of your expectation, would you expect most of those to make their first payments either in the current quarter of 2025 or the final quarter of the year?
Joe Kupka (Managing Director)
Yeah. The majority of those will be in the following quarter, and they kind of sell off the first signal, still a significant amount in the quarter ending 12/31 and ends 3/31 the following year.
Eric Spitzer (Analyst)
Right. Thanks. With regard to the unrealized depreciation that was recorded during the most recently completed quarter, could you just maybe provide a little color in terms of how much of that was market-related versus any specific CLO developments?
Joe Kupka (Managing Director)
No, no real specific CLO developments to highlight, I would say. There were some short-dated deals that diverted and took a mark-to-market loss. Generally, it's just a function of the mark-to-market of those assets declining as payments come out. The total return is still positive on those assets, but you just see a slight mark-to-market decline on assets.
Eric Spitzer (Analyst)
Right.
Joe Kupka (Managing Director)
As you know, Eric, we're focused primarily on total return. How that total return manifests, whether it's in cash flow, payments we get down the IO waterfall, or principal recovery down the PO waterfall, or gains that we make by trading in the secondary markets, buying in the primary, we are essentially indifferent to the way that we generate the total return, but the total return itself is the objective.
Eric Spitzer (Analyst)
Yeah, I think that's a good point. Your historical returns certainly demonstrate that. I wonder if you could maybe just add a little bit more in terms of how you view your competitive advantage, relative to your kind of unconstrained investment philosophy, and how that positions you better versus some of your peers.
Jonathan Cohen (CEO)
Sure. As you know, we run essentially a completely unconstrained investment mandate, meaning that we have the ability, the mandate, and the capability of participating in warehouses, participating in the primary market, which we do on a very large scale, and participating on a particularly large scale in the secondary market. We own a tier one managed deal, tier two managed deals, some tier three managed deals, deals that are well within their reinvestment periods, and deals that are outside of their reinvestment periods. I think it is that breadth to our portfolio in terms of the various profiles that we're willing to engage in that has been particularly beneficial to us over a long period of time.
Eric Spitzer (Analyst)
Thanks. One final one from me, and I'll step aside. It seems like the economic data that we continue to see here in the U.S. continues to be positive. There's still a lot of uncertainty. From your seat, from what you're able to see as you continue to look into your existing CLO portfolio as well as new opportunities, is there anything on the horizon as to the ability that you can see that gives you any pause or concern with regard to the kind of future performance?
Jonathan Cohen (CEO)
Nothing specific, Eric. I mean, as you know, CLOs are essentially pools of U.S. syndicated corporate loans, large pools, roughly about $0.5 billion a piece, consisting of highly diversified collateral pools of U.S. syndicated corporates. Those corporate loans are obviously issued by a larger U.S. corporation. To some significant extent, the success of this asset class is tied to the performance of the U.S. economy, the global economy, and the performance of U.S. corporations. There are lots and lots of offsets to that dynamic and to that construct by virtue of the architecture of these CLO structures. At the end of the day, we are investing in U.S. corporations. The success of the U.S. economy, the success of the U.S. corporate sector, those are clearly important elements.
Eric Spitzer (Analyst)
Thanks. I appreciate all the commentary today.
Jonathan Cohen (CEO)
Thank you, Eric.
Moderator (participant)
Thank you. I can confirm that that's the case on our question and answer session. I'd like to turn it back to our CEO, Mr. Cohen, for some final closing comments.
Jonathan Cohen (CEO)
Thank you. I'd like to thank everybody who's participated in this call or who's listening in the replay for their interest in Oxford Lane. We look forward to speaking to you in the future. Thanks very much.
Moderator (participant)
With that, I can confirm that we're concluding today's conference call with Oxford Lane Capital Corp. Thank you all for your participation. Enjoy the rest of your day, and you may now.