Good day and welcome to the Oxford Lane Capital Corp. fourth fiscal 2021 earnings release conference call. All participants will be in a listen-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note, this event is being recorded.

I would now like to turn the conference over to Jonathan Cohen, CEO. Please go ahead..

Thanks very much. Good morning everyone. Welcome to the Oxford Lane Capital Corp. fourth fiscal quarter 2021 earnings conference call. I am joined today by Saul Rosenthal, our President, Bruce Rubin, our Chief Financial Officer and Deep Maji, our Senior Managing Director and Portfolio Manager.

Bruce, could you open the call with the disclosures regarding forward-looking statements?.

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 earlier this morning. Please note that this call is the property of Oxford Lane Capital Corp.

Any 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 to refer to our most recent filings with the SEC for important factors that can cause actual results to differ materially from those indicated in these projections. 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 and reconciliations to GAAP, please refer to our earnings release posted on our website at www.oxfordlanecapital.com. With that, I will turn the presentation back over to Jonathan..

Thanks Bruce. On March 31, 2021, our net asset value per share stood at $5.94 compared to a net asset value per share of $5.44 per share as of December 31, 2020. For the quarter ended March 31, we recorded GAAP total investment income of approximately $36.1 million, representing an increase of approximately $4.7 million from the prior quarter.

The quarter's GAAP total investment income from our portfolio consisted of $34.7 million from our CLO equity investments and $1.4 million from our CLO debt investments and from other income.

Oxford Lane also recorded GAAP net investment income of approximately $21.6 million or $0.23 per share for the quarter ended March 31 compared to approximately $18.9 million or $0.21 per share for the quarter ended December 31.

Our core net investment income was approximately $44.9 million or $0.47 per share for the quarter ended March 31, compared with approximately $33.5 million or $0.37 per share for the quarter ended December 31.

During the quarter ended March 31, we issued a total of approximately 7.2 million shares of our common stock, pursuant to an at-the-market offering, resulting in net proceeds of approximately $46.4 million. For the quarter ended March 31, we recorded net realized losses of approximately $2.1 million or $0.02 per share.

We recorded net unrealized appreciation of approximately $41.9 million or $0.44 per share. We had a net increase in net assets resulting from operations of approximately $61.4 million or $0.65 per share for the fourth fiscal quarter. As of March 31, the following metrics applied.

We note that none of these metrics represented a total return to shareholder. The weighted average yield of our CLO debt investments at current cost was 11.2%, up from 10.5% as of December 31. The weighted average GAAP effective yield of our CLO equity investments at current cost was 15.7%, up from 14.5% as of December 31.

And the weighted average cash distribution yield of our CLO equity investments at current cost was 23.8%, up from 22.2% as of December 31. We 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 March 31, we made additional CLO investments of approximately $175.9 million and we received approximately $62.5 million from sales and repayments. On April 15, 2021, the final redeemed all of the outstanding series 2023 term preferred stock at a redemption amount of approximately $57.2 million or $25.07 per share.

On April 29, our Board of Directors declared monthly common stock distributions of $0.0675 per share for each of the months of July, August and September 2021. With that, I will turn the call over to our Portfolio Manager, Deep Maji..

Thank you Jonathan. During the quarter ended March 31, the U.S. loan market continued to strengthen. U.S. loan prices, as defined by the S&P/LSTA Leveraged Loan Index, increased from approximately 96.2% of par as of December 31, 2020 to approximately 97.6% of par as of March 31, 2021. Given the rally in U.S.

loan prices, the percentage of the loan index that traded at prices of 80% of par or below, which is a common measure of distress, improved to approximately 1% as of March 31, 2021 from 2% at the end of 2020. During the quarter, the increase in U.S. loan market pricing led to an increase in U.S. CLO equity net asset values.

According to Wells Fargo, as of March 31, 2021, the median U.S. CLO equity NAV improved to 50.1% of par from 40.3% of par as of December 30, 2020. During the first quarter of 2021, the percentage of U.S. CLO transactions failing one of their cash flow diversion tests continued to show improvement quarter-over-quarter.

According to Bank of America, approximately 9% of outstanding U.S. CLOs were failing at least one of their cash flow diversion tests during the first quarter of 2021, which improved from approximately 17% as of the previous quarter. Additionally, given the tightening in U.S.

CLO debt spreads, particularly at the top of the CLO capital structure, we have seen an increase in aggregate U.S. CLO activity in the primary market across new issue, reset and refinancing transactions during the quarter. Given the track of new issued CLO equity arbitrage, we made four new primary CLO equity investments during the quarter.

Additionally during the past quarter, three of the CLOs where we held equities reset their liabilities and six CL's refinanced their liabilities.

Given the strength in loan prices, we also optionally redeemed several CLOs where we believe we realized some of these deals current NAV was a better outcome versus effecting a refinancing or reset and we rotated this capital into new investments.

Lastly, we opened several non-mark-to-market CLO warehouses with Tier 1 CLO managers to allow these managers to aggregate loan assets patiently with a view to a CLO take-out later this year. In the current market environment, we intend to continue to utilize an opportunistic and unconstrained CLO investment strategy across U.S.

CLO equity, debt and warehouses as we look to maximize our long term total return. And as a permanent capital vehicle, we have historically been able to take a longer term view towards our investment strategy. With that, I will turn the call back over to Jonathan..

Thanks Deep. We note that additional information about Oxford Lane's fourth fiscal quarter performance has been uploaded to our website at www.oxfordlanecapital.com. With that, we will now open the call for any questions..

[Operator Instructions]. And the first question comes from Mickey Schleien with Ladenburg. Please go ahead..

Good morning everyone.

Jonathan, considering your portfolio structure in terms of the CLOs that are still within their non-call date and those that are past it, how quickly do you think managers can refinance or reset their liabilities to help offset the spread compression we are seeing on the asset side?.

Hi Mickey. This is Deep. Yes..

Hi Deep..

Hi. We have several that are coming off of their non-call date, some of the 2019 vintage equity that we bought specifically in the new issue market. So we are assessing every situation where a deal is coming, rolling off its non-call date and looking to refinance or reset those liabilities, if it makes sense.

The AAA market has widened out from the types that we saw in February a bit. So we are making kind of thoughtful decisions and trying to patiently term these out into new structures. But we do think the market is attractive and to the extent that it makes sense, we are going to continue to effect resets and refinancing on our portfolio..

Okay. Thank you for that, Deep.

And when we think of the high-level activity in CLOs which is attracting new managers, could you help us understand how you evaluate new CLO managers before you go ahead and decide to make an investment with them?.

Sure, Mickey. We have the benefit of being fairly active in this asset class for a long period of time.

So when we are evaluating a transaction, the various elements that we consider certainly include the manager's capability, the manager's behavior historically, the manager's ability to create value for the benefit of the structure and for the tranche that we are investing in.

But it also includes a great many other things, the assets within the structure, the liability, pricing and the overall structure of the indenture itself. These are, as you know, fairly complex instruments with many, many elements to consider and we don't take of a sort of or we hope we don't take an overly simplistic view of manager capabilities.

There are certain managers that have a tendency to perform better in certain types of market and we try to consider those nuances as we are evaluating overall structures..

Jonathan, would it be fair to say based on what you just explained that it would be unusual for Oxford to invest in a manager's first CLO?.

It's not our common practice. It's not something that we do very frequently. But that said, if that manager for CLO represented a particularly compelling investment for us, we would look seriously doing that..

Okay. One sort of last high-level questions, Jonathan. Given the economy's apparent strength, I would suppose the Fed will likely begin to raise rates in the not-too-distant future. You know, who knows exactly when. But LIBOR is now well below the typical floor on a leverage loan.

So when the Feds starts to raise rates, that will eventually cause a squeeze on the CLO arbitrage.

What tactics do you expect CLO managers will use to help alleviate that trend?.

Sure. So what you will see happen is, obviously a deal is outside of its non-call period, the CLO manager and equity holder may have the ability to refinance its liability. And generally what we have seen historically is, when rates rise often spreads will compress not only on the assets but also on the liabilities as well.

So the all-in cost of debt for these issuers will remain somewhat consistent. So there's various tactics. But between what you would expect to happen on the liability side, assuming that these deal can refinance, we would expect to see a healthy level of refinancing activity into a rising rate environment..

With the caveat, of course, Mickey, that economic uncertainties purveyed this asset class as they do many other asset classes and predicting the future arc of either manager behavior or asset pricing or defaults or spread compression or expansion, those things are extraordinarily difficult to do and we are not attempting to do those things at the moment, on this call in any case..

Sure. And Jonathan, based on what you just said, would it be reasonable then to assume that Oxford itself wouldn't want to take a position on the direction of interest rates.

In other words, you wouldn't try to hedge that through your own balance sheet, whether in some sort of derivative or something like that?.

We have not done that historically, Mickey. We are not undergoing serious consideration of trying to hedge interest rate risk at the moment. But of course, CLO structures, by their nature, are floating rate on both the asset and the liability side.

And we have the ability to enjoy at least some level depending on the structure, of internal hedging based upon that balance between assets and liabilities within the structure, again depending on all sorts of other factors which, as you know, are difficult to predict..

Sure. That's it for me. I appreciate you taking my questions..

Sure, Mickey. Absolutely. And just reverting back to your question about investing in a first time manager, just to be clear, that's something that we haven't done any time in recent history. We would be open to the prospect of it, structure and deal terms depending but it's not something that we have done in quite some time..

Understand. Thank you for that follow-up, Jonathan. I appreciate it..

Thank you Mickey..

I see there are no further questions, so this concludes our question-and-answer session. I would now like to turn the conference back over to Jonathan Cohen for any closing remarks..

Thank you operator. I would like to thank everybody who is participating in this call or listening to the replay for their interest in Oxford Lane Capital Corp. and we look forward to speaking to you again soon. Thanks very much..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..