Jonathan Cohen - CEO Saul Rosenthal - President Bruce Rubin - CFO Kevin Yonon - MD of Portfolio Manager.

Mickey Schleien - Ladenburg.

Good day, and welcome to the Oxford Square Capital Corp Second Quarter 2019 Earnings release and Conference Call for today July 30, 2019. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Jonathan Cohen, Chief Executive Officer.

Please, go ahead..

Thanks, very much. Good morning, everyone and welcome to the Oxford Square Capital Corp. Second Quarter 2019 Earnings Conference Call. I'm joined today by Saul Rosenthal, our President; Bruce Rubin, our Chief Financial Officer; Kevin Yonon, our Managing Director of Portfolio Manager.

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

Sure, Jonathan. Today's conference call is being recorded. An audio replay of the conference 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 Square 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 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.

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

Thanks, Bruce. On June 30, 2019, our net asset value per share stood at $6.31 compared to a net asset value per share of $6.57 as of March 31. Our total return during the quarter end of June 30 was negative 2.4%. That total return reflected the change in net asset value per share for the period as well as the impact of the monthly $6.7 distributions.

For the second quarter we recorded GAAP net investment income of approximately $12.8 million or approximately $0.27 per share compared to $8.4 million or $0.18 per share for the quarter ended March 31.

That increase was primarily due to the recognition of approximately $6.3 million of payment in kind of cumulative dividends associated with a preferred equity position held by the company. In the second quarter of 2019, we recorded net realized and unrealized depreciation on investments of approximately $20.3 million or $0.43 per share.

In total, we had a net decrease in net assets from operations of approximately $7.5 million or a $0.16 per share compared to a net increase of $12.7 million or $0.27 per share for the prior quarter. We note that as of June 30th, we continued to have no investments on non-accrual status.

During the second quarter of 2019, we made new investments of $46.4 million and we have principle repayments in sales up $30.9 million. On April 03, 2019, the company completed an underwritten public offering of $44.8 million an aggregative principle amount of our 6.25% unsecured notes which will mature on April 3th, 2026.

The 6.25% noted list in on the NASDAQ Global Select Market under the trading symbol 0XSQZ. On July 25, 2019, our Board of Directors declared monthly distributions of $6.07 per share for the months ending October, November, and December of 2019.

Additional details regarding record and payment data information can be found in our press release that was issued earlier this morning. And with that, I'd like to turn the call over to our portfolio manager, Kevin Yonon..

Thank you, Jonathan. During the quarter ended June 30th for loan market visibility stability relative to the prior six months. We believe this stability was principally driven by U.S. loan mutual fund and ETF outflows offset by new CLO issuance and lowered loan primary market new issuance.

According to leveraged commentary and data also known as LCD, a service provided by S&P global during the second quarter of 2019 U.S. loan mutual funds and ETFs experienced approximately $7 billion of outflows. Despite this, the loan secondary market was reported by new U.S.

CR issuance of approximately $34 billion and the year-over-year decline in primary market loan supply of approximately 53% driven by lower LBO M&A refinancing and dividend recapitalization volumes.

These factors resulted in the S&P/LSTA leveraged loans index modestly increasing to 96.79 at the end of the second quarter of 2019 from 96.01 at the end of the first quarter of 2019.

In this environment, we continue to focus on portfolio management strategies designed to maximize our total returns and is a permanent capital vehicle we historically have been able to pick a longer term view towards our investment strategy..

Kevin, thanks very much. We noted additional information about Oxford Square Capital Corp second quarter performance has been posted to our website at www.oxfordsquarecapital.com. And with that, operator we're happy to open the call for any questions..

Thank you. [Operator Instructions] Our first question today will come from Mickey Schleien of Ladenburg. Please go ahead..

Yes, good morning Jonathan and Kevin. I'd like to start about asking about the broad loan market. In the prepared remarks you talked about how CLO demand is offsetting the retail outflows. So, I'd like to understand how you expect CLO issuance to progress as the fed begins to cut rates which now seems likely..

Sure Mickey, thank you. CLO issuance in the primary market is currently tracking at record numbers, so at record amounts.

So, the demand and the attendant supply in the new issue market for CLO structures which in turn obviously takes demand from the primary and to a lesser sense the secondary syndicated broker loan markets continues to be and to look for the near term anyways to be quite strong..

And Jonathan, do you think that trend will hold as rates come down, in other words there has been strong demand and until the end of last year everyone was looking for rates to go up.

I'm just trying to understand whether the mindset of the market will switch at some point and this demand will dissipate?.

Sure Mickey, it's a very fair point.

And certainly, to your point we've seen CLO liability spreads widened out over the course of this year which has been and should continue to be a dampener to new issuance, none-the-less new issuance continues to be very strong and deals continue to be printed in part on the back of capital pulls that have been raised, risk retention capital pulls and other types of pulls of capital that have been raised with the expressed purpose for investing in structures like these.

So, that has been an offset. But we'll see, we don’t have a strong view as to what CLO issuance is likely to be over the course of the next 12 or 24 months but certainly it's tracking at a very strong level right now..

Okay, I understand.

And Jonathan, given that CLOs on a relative basis compared to retail or a higher proportion of demand, how was that affecting CLO terms and structures in the primary market?.

So, we've seen Mickey, some push back on some aspects both in terms of the CLO structures themselves and also in terms of loan covenant and that continues.

But the market I would categorize is reasonably stable with respect to the terms and conditions attached to these various indenting structures both specifically corporate loan indenting structures and the CLO indentions themselves..

Okay. I want to switch gears to CLO equity values. In the prepared remarks you mentioned that the loan market was relatively stable and it's recuperated from the most part from the fourth quarter selloff. But CLO equity values seem to be really lagging. And I do see that your effective yields were down pretty meaningfully this quarter.

So, what factors -- what are the factors that are affecting CLO equity values that is not impacting the broader loan market?.

Sure Mick, I'm going to turn this question over to Debdeep Maji..

Hi Mickey, how are you? So, what we've seen in CLO equity pricing is that over the last three months there's been some widening and kind of risk premium associated with CLO equity which has caused this some level of mark downs just because people are associating in greater level of yields in that targeted investment CLO equity structures.

That's been primarily due to while the overall loan market is unstable, there have been a handful of loans yield what we would view as an idiosyncratic events where there have been a couple of loans that have defaulted in the industry over the last three months.

So, as we look at the tails of our portfolios as you know loans within our CLO structures that are trading at prices of 80 or below 80 or 85. There has been a modest uptick in that and that's caused some level of additional risk premium associated with CLO equity tranches which has caused bit after widen out..

So, if I could paraphrase, are you seeing that CLO equity investors are simply being more pessimistic about the outlook for the loan market and the loan market itself?.

I wouldn’t necessarily ascribe that thinking to CLO investors I think that risk premium is the premier as risk as Deep mentioned has increased over the course of the last quarter or two.

But these things in our experience making have tended to ebb and flow risk aversion or the embracing of risk tends to go back and forth during any particular part of any particular cycle. I should mention like that we had no diversion of any cash flows to equity in any of our CLO structures at Oxford Square during the quarter..

Okay. Just a couple of more questions, if I might more sort of a housekeeping items.

What were the main drivers of your unrealized depreciation this quarter?.

Sure. Hi Mickey, it's Mike Testa, I'm the controller here. Going on in details of unrealized depreciation, it was primarily CLO equity investments at July. We also had a reversal of the turnaround impact of that $6.3 million dividend income pick capitalization; those are the two main drivers there..

And in terms of that pick dividend, what who which borrower is that from?.

Mike Testa:.

.:.

Unitek, okay. And Jonathan, since we don’t have the schedule of investments, what where does Premiere Global stand, those the first or the second name were more pretty more market pretty distress levels last quarter.

How is that progressing and what's the outlook?.

Sure, Mickey. The SLI will be out with the queue tomorrow but that those line items didn’t move appreciably in the second quarter..

Okay, that's it from me. I appreciate your time this morning, thank you..

Alright, thanks very much Mickey..

This will conclude our question and answer session. At this time, I'd like to turn the conference back over to Mr. Jonathan Cohen for closing remarks..

Thanks, very much. And I'd like to thank everyone on the call for their continued interest in Oxford Square Capital Corp. we look forward to speaking to you again soon. Thanks..

The conference has no concluded. We thank you for attending today's presentation. You may now disconnect..