Good morning, and welcome to the Oxford Lane Capital Corp. Third Fiscal Quarter Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Jonathan H. Cohen, Chief Executive Officer.

Please go ahead..

Thanks very much. Good morning, everyone, and welcome to the Oxford Lane Capital Corp. third 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 today with our disclosure regarding forward-looking statements?.

Sure, Jonathan. Thank you. 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 could 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 to - on our website at www.oxfordlanecapital.com. With that, I will turn the presentation over to Jonathan..

Thanks, Bruce. On December 31, 2020, our net asset value per share stood at $5.44 compared to a net asset value per share of $3.88 per share as of September 30, 2020. For the quarter ended December 31, we recorded GAAP total investment income of approximately $31.4 million, representing an increase of approximately $1.3 million from the prior quarter.

The quarter’s GAAP total investment income from our portfolio consists of $29.2 million from our CLO equity investments and $2.2 million from our CLO debt investments and from other income.

Oxford Lane also reported GAAP net investment income of approximately $18.9 million, or $0.21 per share for the quarter ended December 31 compared to approximately $18.2 million, or $0.21 per share for the quarter ended September 30.

Our core net investment income was approximately $33.5 million, or $0.37 per share for the quarter ended December 31 compared with approximately $20.3 million, or $0.24 per share for the quarter ended September 30.

During the quarter ended December 31, we issued a total of approximately 4.5 million shares of our common stock pursuant to an at-the-market offering, resulting in net proceeds of approximately $23.6 million..

Thank you, Jonathan. During the quarter ended December 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 93.2% of par as of September 30 to approximately 96.2% of par as of December 31. As of January 29, 2021, the loan index stood at approximately 97.35% of par.

Given the rally in U.S. loan prices, the percentage of the loan index that traded at a price of par or higher increased approximately 13% as of December 31, 2020. As of January 29, the percentage of the loan index that trades at prices of par or higher is approximately 40%.

In addition, the percentage of the loan index that trades at prices of 80% of par or below, which is a common measure of distress improved to approximately 2% as of December 31, 2020 from 5% at the end of September. During the quarter, the increase in the U.S. loan market pricing led to an increase in U.S.

CLO equity net asset values, which became broadly positive again. According to Wells Fargo, as of December 30, 2020, the median U.S. CLO equity NAV improved to approximately 40% of par..

Thanks very much, Deep. We note that additional information about Oxford Lane’s third fiscal quarter performance has now been uploaded to our website at www.oxfordlanecapital.com. And with that, operator, we are happy to poll for any questions..

We will now begin the question-and-answer session. The first question comes from Mickey Schleien of Ladenburg. Please go ahead..

Good morning, everyone.

Can you hear me, Jonathan?.

Yes, Mickey. Good morning..

Good morning. Jonathan, couple of high-level questions.

How do you feel about the loan markets equilibrium when you think about the market having from what I have read over 100 CLO warehouses in place versus the current level of M&A and LBO activity?.

Do you mean, Mickey, how do we feel about the demand for U.S.

syndicated corporate loans in light of the current base of CLOs in formation?.

Yes. Supply and demand is essentially what I am asking about and potentially the impact on spreads..

Sure.

Deep, do you want to see if you can address Mickey’s question?.

Sure, of course. I think we see, as you mentioned, there are a lot of warehouses opened. And I think that’s a result of the healthy demand for CLO liabilities in the marketplace.

AAA spreads continue to tighten at the top of the capital structure and we have seen demand for AAs through BBs continue to be strong over the course of the first month of the year. And that’s what the backdrop of new issue loans applied being relatively robust and healthy at the current moment.

So, we think the CLO market is in – is very strong right now and we expect that trend to continue..

Thank you for that. And last year - I want to ask about the outlook for this year. Last year, we saw CLO equity cash returns supported by wider spreads helping offset credit deterioration.

Now we are later in the cycle downgrades are certainly dropping very sharply from what we saw in the spring of last year and now defaults are expected to peak very soon.

With that in mind, how do you see CLO equity cash and effective yields progressing this year?.

Sure, Mickey. We haven’t published any kind of specific set of estimates, but certainly we’ve seen LIBOR floors, helping cash – equity cash flows from U.S. CLO structures. That’s a fairly persistent trend. Trend defaults, as you know, tend to be somewhat backward looking. Again, we don’t have a specific set of projections for the U.S.

CLO debt or equity markets for the remainder of this year. But certainly to Deep’s comment, the new issue market seems fairly healthy right now as you referenced the statistic, there is quite a lot of new issues in formation..

Thank you for that.

Jonathan, looking ahead, what – broadly speaking, what do you believe are the key developments needed in the loan and CLO market for OXLC’s portfolio to be valued at pre-pandemic sort of levels?.

Well, the key thing, I think, Mickey, for that question is that OXLC’s portfolio is quite different from where it stood a year or two or even 6 or 9 months ago. So, the portfolio continues to change.

And one of the defining characteristics of our portfolio management strategy is to rotate the portfolio to be active in the secondary market to be a participant as appropriate in the primary market and warehousing market.

So we are not sort of targeting any specific level of valuation for any asset that we hold, we are continuously rotating and rebuilding the portfolio in order to maximize its value at any moment in time..

And in terms of capital, Jonathan, your debt to equity now is around 0.4, which is historically at the low end or quite low end for Oxford Lane.

Are you considering – and with a backdrop of a strong loan and CLO market, you could argue that that number could even go down some more if you don’t do anything? Are you considering adding some additional debt to the balance sheet to grow going forward?.

Sure, Mickey. We are always looking at our capital structure. We are always looking to optimize the type of debt, the duration of the debt and the price that we pay for that debt, the interest rate cost of capital associated with the debt.

That said, I think, generally speaking, we are happy to stay well below our statutory maximum so far as leverage on the book is concerned just given the prospect for volatility in the markets generally..

Understand. That’s it for me this morning. I appreciate your time as always. Thank you..

Thank you, Mickey, very much..

This concludes our question-and-answer session. I would like to turn the conference back over to Jonathan Cohen for any closing remarks..

Operator, thanks very much. I would like to thank everyone for their participation and their interest in Oxford Lane Capital Corp. 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..