Good day. And welcome to the Oxford Lane Capital Corp Third Fiscal Quarter Earnings Call. [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 and welcome to the Oxford Lane Capital Corp third fiscal quarter 2020 earnings conference call.

I'm joined today by Saul Rosenthal, our President; Bruce Rubin, our CFO; and Deep Maji, our Senior Managing Director and Portfolio Manager.Bruce, could you please open the call today with a disclosure 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 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 on our website, www.oxfordlanecapital.com.With that, I'll turn the presentation back over to Jonathan..

Thanks Bruce. On December 31, 2019, our net asset value per shares stood at $6.81, compared to a net asset value per share of $6.63 as of September 30. Our total return generated during the quarter ended December 31, equaled 8.8%.

That return reflected the change in net asset value per share for the period, as well as the impact of $0.405 per share of distributions.For the quarter ended December, we recorded GAAP total investment income of approximately $32.4 million, representing an increase of $4 million from the prior quarter.

The quarter's GAAP total investment income from our portfolio consisted of $30.8 million from our sale of equity investments and $1.6 million from our CLO debt investments and from other income.Oxford Lane also recorded GAAP net investment income of approximately $20 million or $0.32 per share for the quarter ended December compared to $16.7 million or $0.31 per share for the quarter ended September 30.

Our core net investment income was approximately $39.1 million, or $0.62 per share for the quarter ended December 31, compared to $24.2 million, or $0.45 per share for the quarter ended September 30.During the quarter ended December, we issued a total of approximately 9.1 million shares of our common stock pursuant to an at-the-market offering resulting in net proceeds of approximately $79.1 million.

For the quarter ended December, we recorded a net realized loss of approximately $1.6 million or $0.03 per share, and net unrealized depreciation of $400,000 or $0.01 per share.We had a net increase in net assets resulting from operations of approximately $18.8 million or $0.30 per share for the third fiscal quarter.

As of December 31, the following metrics applied. We note that none of these metrics represented a total return to shareholders.The weighted average yield of our CLO debt investments at current cost was 12.4%, up from 10.4% as of September 30.

The weighted average GAAP effective field of our CLO equity investments at current cost was 16.4%, which was unchanged as from the figure of 16.4% as of September 30.The weighted average cash distribution yield of our CLO equity investments at current cost was 25.2%, up from 22.1% as of September 30.

We note that the cash distribution yields calculated on our CLO equity investments are based on the cash distributions we received, for which we were entitled to receive at each respective period end.During the quarter ended December 31, we made additional CLO investments broadly of approximately $106.4 million, and we received $16.2 million from sales and repayments of our CLO investments.With that, I'll turn the call over to our Portfolio Manager, Deep Maji..

Thank you, Jonathan. During the quarter ended December 31, 2019, the U.S. loan market continued to exhibit price dispersion. U.S. loan prices as defined by the S&P/LSTA leverage loan index declined from 96.32% of par at the beginning of the quarter to a low of 95.35% of par at the beginning of November.This decline in loan prices seeped into U.S.

CLO tranch pricing as lower loan prices caused a decrease in U.S. CLO equity net asset values, as well as market value coverage ratios, which is an important valuation metrics used to determine CLO debt prices.As a result, we saw an increase in secondary supply CLO junior debt particularly at the end of October and into November.

As the quarter progressed, U.S. loan prices began to stabilize at the end of November.By the end of the year, U.S. CLO junior debt prices increased, as loan prices recovered from their decline earlier in the quarter. The S&P/LSTA leveraged loan index ended the year at 96.72% of par and median U.S.

CLO equity has increased from approximately 35% of par as of November 04, 2019 to 51% of par as of January 02, 2020 according to Wells Fargo Research.That being said, U.S. CLO equity yields in secondary markets have not meaningfully tightened and remain wide to historic levels. Thus far in 2020, U.S. CLO debt spreads have continued to tighten.

We have seen strong demand from our investors for shorter dated, as well as longer dated CLO AAA rated tranches with shorter dated CLO AAA's tightening meaningfully, we have seen an increase in U.S.

CLO refinancing activities, as CLO equity investors look to lower their existing CLO's weighted average cost of debt to improve future CLO equity cash flows, thereby increasing the value of their CLO equity holding.We continue to evaluate and have selectivity purchased a wide variety of CLO equity and junior debt profiles over the past quarter to take advantage of the current market.

Given the tightening in CLO liabilities, we believe the opportunities in U.S. CLO equity will continue to provide us with attractive investment opportunities.With that, I will turn the call back over to Jonathan..

Thanks Deep. We note that additional information about Oxford Lane's third fiscal quarter performance has been uploaded to our website at www.oxfordlanecapital.com. And with that operator, we're happy to open the call up for any questions..

[Operator Instructions] Our first question comes from Mickey Schleien from Ladenburg. Please go ahead..

Jonathan lately we're seeing a bit more of a risk on mentality with lower rated credits outperforming more highly rated credits. But I do see that the portfolios Junior OC cushion declined a little quarter-to-quarter.

So given that backdrop, what's your level of concern regarding the potential for CCC bucket violations in general, and the potential for cash flow diversions?.

Mickey, thanks very much. CCC baskets are one element that we monitor closely and that we consider as we're looking to purchase CLO junior debt and equity in the secondary market or when we're looking to sell CLO equity in the secondary market as well.

I wouldn't say that we are overly concerned at this moment with the prospect for widespread CCC basket violations across the landscape or across our portfolio. Generally speaking, that is a parameter that we think will be able to be managed reasonably well by our respective collateral managers..

And I realized my next question is going to be difficult to answer, but to what extent do you believe the Coronavirus could impact the fundamentals of the leveraged loan market and therefore the CLO market?.

Sure Mickey. I think that the prospects for Coronavirus pandemic are serious and worthy of consideration. I wouldn't say that we have sufficient information at this point in the virus's progress to make an informed decision about the broader economic impacts that the virus might ultimately cause..

All right, a couple more questions if I can.

What were the main factors that caused the large quarter-to-quarter increase in the CLO equity adjustments used to calculate core NII?.

Hi Mickey, so there are a couple things that drove the higher core so, we had one of our larger positions, as you can look at the presentation in the previous quarter, we had a fair amount that kind of made its initial payment this quarter, given the capital raising prospects that we also did during the third quarter.

Some of those investments - sorry, during the quarter ended September 30. Many of those investments came online in the quarter ending December 31.So I think it was mostly timing. There was a little bit of nuance, the payments that we received in October tended to be higher than the payments we had seen the previous quarter.

That was a little bit due to some one month three months mismatch and liabilities, which favored equity in the October distributions.

We've seen that kind of become a little bit more normalized in some of the January payment.But I would say most of the driver and the higher core was from the inaugural distributions from one of our larger primary investments that we did earlier in the year, as well as some of the secondary investments that we made in the previous quarter..

So given what you said and all of the moving parts involved, is it core NII or quarterly core NII of roughly $0.60 to sort of run rate that the portfolio can generate or directionally is would this be sort of above average in your opinion?.

Well, it's certainly above historical averages Mickey in terms of our prospects for similar levels of cash flows and similar levels of core NII. We generally don't make those kinds of projections..

All right, my last question Jonathan.

Just looking at January of this year, how would you characterize the trading patterns and the performance of CLO equity at this point, just looking at the last month?.

Strong, strong, Deep you want to expand on that?.

Sure. I would say that the increase in loan prices that we saw into the end of December continued into the beginning of January. That being said the last week or so has been a little bit sideways just given I think some of the impacts of - as you mentioned the Coronavirus sort brought a kind of macro volatility.

But I would say generally speaking, January has been a strong month. Yes..

So taking that into consideration, and I'll stop here, Jonathan. Calendar 2019 was obviously volatile and interesting. The broader loan market in general did quite well. CLO equity seems to have persistently lagged for several quarters.

Do you think we're sort of in a situation where CLO equity investors are getting more comfortable and we are seeing sort of a catch up of CLO equity to the broader loan market?.

It may be the case Mickey.

CLO equity and junior debt investing, which we've been involved in now for a very long time has historically been a less liquid, less efficient, more easily dislocated asset class than the broader credit market or even the syndicated corporate loan market.So, some of that dislocation and some of that inefficiency, those are things that we feel can benefit us and which we feel has benefited us over time.

But yes, you may have a point which is that this market continues to become somewhat more efficient, capital inflows have increased and to the extent that the CLO market broadly becomes a more mature market, more sophisticated market and more liquid market, our hope is that we will continue to participate in the same ways that we have historically, but perhaps on a larger scale?.

I understand. Those are my questions for this morning. I appreciate all of your time. Thank you..

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

All right, well, operator, thank you. I'd like to thank everybody on this call for their interest in Oxford Lane. 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..