Oxford Lane Capital Corp. Q2 FY2025 earnings call

• Net asset value per share on September 30, 2024 was $4.76 vs $4.91 prior quarter.
• GAAP total investment income for the quarter ended September was ~$105.1 million, with components from CLO equity, warehouse, debt, and other income.
• GAAP net investment income and core net investment income figures provided.
• Net unrealized depreciation and realized gains noted.
• Metrics for CLO debt and equity yields and cash distribution yields shared.
• ~48.1 million shares issued, ~$540M in CLO investments made, ~$160.2M from sales/repayments.
• Joe Kupka discussed U.S. loan market improvement, CLO market activity including new issuance, reset/refinancing, and Oxford Lane's active participation, including lengthening the weighted average reinvestment period of the equity portfolio from November 2026 to September 2027.

As of September 30, 2024, net asset value per share was $4.76 vs $4.91 prior quarter. GAAP total investment income for the quarter ended September was ~$105.1 million, up ~$15.4M from prior quarter. This included ~$98.3M from CLO equity and CLO warehouse investments and ~$6.8M from CLO debt and other income. GAAP net investment income was ~$67.2 million or $0.22 per share, core net investment income was ~$99.4 million or $0.32 per share. Net unrealized depreciation on investments was ~$52.5 million and net realized gains were ~$3.2 million. Weighted average yield of CLO debt investments was 17.3% (down from 17.4% prior), weighted average effective yield of CLO equity was 16.5% (down from 16.8% prior), weighted average cash distribution yield of CLO equity was 24.1% (down from 26.9% prior). During the quarter, ~48.1 million shares of common stock were issued, ~$540M in additional CLO investments made, and ~$160.2M received from sales/repayments.

Management intends to continue to utilize its opportunistic and unconstrained CLO investment strategy across U.S. CLO equity, debt, and warehouses to maximize long-term total return, taking a longer term view as a permanent capital vehicle.

Q: Could you provide commentary on the split between primary market purchases versus secondary in new investments and weigh the attractiveness of those sources from a risk-reward perspective?

A: Joe Kupka said it was mainly primary activity, with ~$180M in warehouse investments and ~$270M in primary, and ~$90M in secondary. Continues to see attractive opportunities in both secondary and primary, with primary arbitrage improving and secondary having good value across tenor and manager spectrum.

Q: How do you expect a lower short term interest rate environment to impact the portfolio and management?

A: Jonathan Cohen said there's likely no meaningful change in portfolio management, but a diminishment in interest rates may reduce risk associated with U.S. syndicated loan default rates due to better refinancing possibilities.

Q: Thoughts on why more stressed loans are going to out-of-court resolutions rather than courts?

A: Jonathan Cohen mentioned it's a recent phenomenon, with companies seeing rate cuts coming and wanting to stave off payment default, and interplay with lender consortiums.

Q: Commentary on the factors driving the $52.5 million unrealized depreciation?

A: Jonathan Cohen explained it's an interplay of GAAP accounting measures, considering fair value reduction offset by current cash flows of the CLO and gap decrease of current cost, and offered to go into more depth offline if needed