Oxford Square Capital - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 total investment income was approximately $10.2M, down slightly q/q from $10.3M and down y/y from ~$12.3M; Net Investment Income (NII) was ~$6.0M ($0.09/share) vs $6.2M ($0.10/share) in Q3 and $7.8M ($0.13/share) in Q4 2023.
• NAV/share declined to $2.30 (from $2.35 in Q3 and $2.55 a year ago), as unrealized appreciation (+~$42.1M) largely offset sizable realized losses (~$44.8M), yielding a net increase in net assets from operations of ~+$3.3M.
• Board maintained the monthly distribution at $0.035 for April–June 2025, signaling payout stability despite sub-100% NII coverage this quarter ($0.09 NII/share vs $0.105 distributed).
• Loan market backdrop improved in Q4; weighted average debt yield rose to 15.8% (from 14.5% in Q3), while CLO equity effective yield fell to 8.8% and cash distribution yield rose to 16.2%.
• No analyst Q&A on the call; near-term stock catalysts include dividend continuity, rising loan yields, and any updates on realized loss trajectory and credit migrations.

What Went Well and What Went Wrong

• What Went Well

  • Rising asset yields and constructive market tone: “U.S. loan market performance improved versus the prior quarter” with loan prices up and distress ratio down; debt yield increased to 15.8% q/q.
  • CLO cash flows robust: weighted average cash distribution yield on cash income producing CLO equity investments increased to 16.2% vs 15.3% in Q3, supporting income stability.
  • Credit metrics improved on debt side: non‑accrual debt investments decreased from three (one portfolio company) in Q3 to one in Q4; preferred equity non‑accrual also edged lower ($4.6M vs $4.8M).

• What Went Wrong

  • Earnings softness: NII fell to ~$6.0M ($0.09/share) from ~$6.2M ($0.10/share) q/q and $7.8M ($0.13/share) y/y; total investment income ticked down to ~$10.2M from ~$10.3M q/q and ~$12.3M y/y.
  • Realized losses elevated: Q4 saw ~$44.8M realized losses, only partially offset by ~$42.1M unrealized gains, contributing to continued NAV pressure (down to $2.30).
  • CLO effective yield compressed: weighted average effective yield on CLO equity fell to 8.8% (from 9.6% in Q3), a headwind if sustained.

Transcript

Operator (participant)

Good morning, ladies and gentlemen, and welcome to the Oxford Square Capital Corp Fourth Quarter 2024 Earnings Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you need assistance, please press star zero for the operator. This call is being recorded on Friday, February 28th, 2025. I would now like to turn the conference over to Mr. Jonathan Cohen. Please go ahead.

Jonathan Cohen (CEO)

Good morning, everyone. Welcome to the Oxford Square Capital Corp Fourth Quarter 2024 Earnings Conference Call. I'm joined today by Bruce Rubin, our Chief Financial Officer, and Kevin Yonon, our Managing Director and Portfolio Manager. Bruce, could you open the call with a disclosure regarding forward-looking statements?

Bruce Rubin (CFO)

Sure, Jonathan. Today's conference 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 this morning. Please note that this call is the property of Oxford Square Capital Corp., and the unauthorized rebroadcast of this call in any form is strictly prohibited. At this point, please direct your attention to the customary disclosure in 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. We ask that you refer to the most recent filings with the SEC for important factors that can cause actual results to differ materially from those indicated in these projections. Do not undertake to update our forward-looking statements unless required to do so by law.

To obtain copies of our latest SEC filings, please visit our website at www.oxfordsquarecapital.com. With that, I'll turn the presentation back up to Jonathan.

Jonathan Cohen (CEO)

Thank you, Bruce. For the quarter-end of December, Oxford Square's net investment income was approximately $6 million or $0.09 per share, compared with $6.2 million or $0.10 per share for the prior quarter. Our net asset value per share is $2.30, compared to a net asset value per share of $2.35 for the prior quarter. During the quarter, we distributed $0.105 per share to our common stock shareholders. For the Fourth Quarter, we recorded total investment income of approximately $10.2 million, as compared with approximately $10.3 million for the prior quarter. In the Fourth Quarter, we recorded combined net unrealized and realized losses on investments of approximately $2.7 million or $0.04 per share, compared to combined net unrealized and realized losses on investments of approximately $7.1 million or $0.11 per share for the prior quarter.

During the Fourth Quarter, our investment activity consisted of purchases of approximately $25.1 million, sales of $7 million, and repayments of approximately $15 million. During the quarter ended December, we issued a total of approximately 1.8 million shares of our common stock, pursuant to an at-the-market offering resulting in net proceeds of approximately $5 million. On February 27th, our Board of Directors declared monthly distributions of $0.035 per share for each of the months ending April, May, and June of 2025. Additional details regarding record and payment date information can be found in our press release that was issued this morning. With that, I'll turn the call over to Kevin Yonon.

Kevin Yonon (Managing Director and Portfolio Manager)

Thank you, Jonathan. During the quarter-ended December 31st, U.S. loan market performance improved versus the prior quarter. U.S. loan prices, as defined by the Morningstar LSTA U.S. Leveraged Loan Index, increased from 96.71% par as of September 30th to 97.33% par as of December 31st. According to LCD, during the quarter, there was some pricing dispersion, with BB-rated loan prices increasing 48 basis points, B-rated loan prices increasing 74 basis points, and CCC-rated loan prices decreasing 373 basis points on average. While the 12-month trailing default rate for the loan index increased to 0.91% at principal amount at the end of the quarter, from 0.8% at the end of September, we note that out-of-court restructurings, exchanges, and subpar buybacks, which are not captured in this cited default rate, remain elevated.

Additionally, the distressed ratio, defined as the percentage of loans with prices below 80% of par, ended the quarter at 3.02% compared to 3.43% at the end of the Third Quarter. During the quarter-ended December 31, 2024, U.S. Leveraged Loan primary market issuance, excluding amendments and repricing transactions, was $96.7 billion, representing a 75% increase versus the quarter-ended December 31, 2023. This was driven by higher non-refinancing issuance, including M&A and LBO activity, and opportunistic activity, including refinancings and the funding of dividends, versus the prior year comparable quarter. At the same time, U.S. loan fund inflows, measured by Lipper, were approximately $5.5 billion for the quarter-ended December 31. We continue to focus on portfolio management strategies designed to maximize our long-term total return, and as a permanent capital vehicle, we historically have been able to make a longer-term view towards our investment strategy.

With that, I will turn the call back over to Jonathan.

Jonathan Cohen (CEO)

Thanks very much, Kevin. We note that additional information about Oxford Square's Fourth Quarter performance has been posted to our website at www.oxfordsquarecapital.com. Operator, with that, we're happy to open the call for any questions.

Operator (participant)

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press the star followed by the one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by two. If you are using a speakerphone, please lift the hands up before pressing any keys. Ladies and gentlemen, as a reminder, if you have any questions, please press star one now. There appear to be no questions. I will turn the call back over to Mr. Cohen for closing comments.

Jonathan Cohen (CEO)

Thanks very much. I'd like to thank everyone for their participation on this call, and we look forward to speaking again soon. Thanks very much.

Operator (participant)

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.