Good morning, and welcome to the Oxford Square Capital Corp. First Quarter 2019 Earnings Release and Conference 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..

Thank you very much. Good morning everyone and welcome to the Oxford Square Capital Corp. first quarter 2019 earnings conference call. I'm joined today by Saul Rosenthal, our President; Bruce Rubin, our Chief Financial Officer; and Kevin Yonon, Managing Director and Portfolio Manager.

Bruce, could you please open the call today 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 website at www.oxfordsquarecapital.com. With that, I'll turn the presentation back to Jonathan..

Thank you, Bruce. On March 31, 2019 our net asset value per share stood at $6.67 compared to a net asset value per share of $6.60 as of December 31. Our total return generated during the quarter ended March 31 was 4.1%.

That total return reflected the change in net asset value per share for the period, as well as the impact of a $0.20 per share distribution. For the first quarter, we recorded GAAP net investment income of approximately $8.4 million or approximately $0.18 per share compared to $8.5 million or $0.18 per share for the quarter ended December 31.

In the first quarter of 2019, we recorded a net unrealized depreciation on investments of $5.7 million and a net realized loss of approximately $1.3 million. In total, we had a net increase in net assets from operations of $12.7 million or $0.27 per share.

On April 3, 2019 we completed and underwritten public offering of $42.5 million in aggregate principal amount for 6.25% unsecured notes due 2026. On April 9, we issued an additional $2.3 million an aggregate principal amount of the 6.25% notes pursuant to the underwriters partial exercise of their overallotment option.

These notes will mature on April 30, 2026. The 6.25% notes are listed on the NASDAQ Global Select Market under the trading symbol OXSQZ. On April 23, 2019 our Board of Directors declared monthly distributions of $0.067 per share for the months ending July, August and September of 2019.

Additional details regarding record and payment date information can be found in our press release that was issued earlier this morning. We note that as of March 31, we continue to have no investments on non-accrual status. And with that, I'll turn the call over to our Managing Director and Portfolio Manager, Kevin Yonon..

Thank you, Jonathan. During the quarter ending March 31, the loan market exhibited strength versus the end of 2018. We believe the move higher in U.S. loan prices during the first quarter of 2019 was principally driven by increased Cielo issuance, slower U.S. loan mutual fund and ETF outflows, and lower loan primary market issuance.

According to Leveraged Commentary and Data also known as LCD, a service provided by S&P Global, during the first quarter of 2019 the U.S. loan mutual funds and ETF experienced approximately 10 billion of outflows. Despite this, the loan secondary market was supported by strong new U.S.

Cielo issuance of approximately 28 billion and a year-over-year decline in primary market loan supply of approximately 40% driven by lackluster new issuance and lower refinancing activity.

These factors resulted in the S&P/LSTA leverage loan index increasing to 96.41 at the end of the first quarter of 2019 from 93.84 at the end of the fourth quarter of 2018.

In this environment, we continue to focus on portfolio management strategies designed to maximize our total return, focusing on both first and second lien corporate loans as well as CLO equity and as a permanent capital vehicle, we historically have been able to take a longer term view towards our investment strategy..

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

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

I have a couple of questions today.

Given the portfolios, CLO Investments, could you walk us through why we didn't see more appreciation in NAV per share given that in the first quarter leveraged loan prices recuperated almost all of their decline from the fourth quarter?.

We did have reasonably strong appreciation principally, unrealized appreciation in our CLO equity book that was partially offset by marks-to-market on the leveraged loan book..

And within the leverage loan book was there a discrepancy between marks on first and second or first lien versus second lien investments..

Not especially so, Mickey, no..

My final question is could you give us a sense of where you see optimal leverage for the company in the current market environment..

We have not yet published a target leverage figure for Oxford Square, Mickey. We think that the capital that we raised in the form of this baby bond issuance will be productive for us. We think that it goes a considerable way towards getting us to a more optimal leverage ratio.

But in terms of the ultimate leverage ratio, we don't have a specific number in mind. It is certainly a lower figure than it would have otherwise been in the absence of our participation in the CLO equity market..

Understand. And in terms of the proceeds from the recent debt offering, do you expect a meaningful amount of that to go toward paying down the credit facility..

No Mickey, we don't. We've actually principally targeted that for new investment..

For new investment. That's great. Those are all my questions this morning. Thank you..

The next question comes from Christopher Testa with National Securities Corp. Please go ahead..

I'm just a little bit touching on what Mickey was asking. Now obviously, CLO equity prices haven't rebounded the way loan prices have.

Jonathan just wondering if you could give some color on how much CLO equity opportunity you're seeing in the secondary market that maybe still mark under 50?.

A considerable amount, Chris. The dislocation that we saw in this indicated corporate loan market towards the end of the fourth quarter of 2018 has continued to sort of reverberate around the CLO equity market and particularly the secondary market for CLO equity.

So we continue to see a considerable number of opportunities across that asset class priced below 50, there is a fair amount that's obviously paper that's outside of its reinvestment period that has -- has shorter reinvestment period remaining inside of that structure but there is a fair amount out there that continues to be -- I'm not sure, I'd use the word dislocated but opportunistically available..

And staying on that, Jonathan, do you think that there has there been anything you've observed in terms of more divergence between kind of what you'd consider a Tier 1 collateral manager versus Tier 2 and Tier 3.

Given that the market still seems a little skittish, despite the loan price rebound?.

Very much so Mickey - Chris, excuse me that's a good observation. We have seen a continuation of a trend that was very much in evidence towards the end of last year, which is this divergence in liability spreads between first, second and third tier managers or managers that are perceived to be in the first second or third tier.

So yes that dynamic persists..

And I know that GAAP yield was down quarter-over-quarter on the CLOs, which as expected. The cash yield was actually up quarter-over-quarter.

Is this simply a function of fewer resets and refis and one-time upfront cash costs during the quarter?.

Sure, Chris. It's principally a function of the assumptions and the methodology that goes into the calculation of the effective yield and the composition of our various profiles across our portfolio..

Yes, no, I know the effect of yield.

I was just referring to the cash yield being up quarter-over-quarter was that just because you had fewer one-time costs in the first quarter pertaining, so let's say resets to refis?.

Yes Chris, absolutely so, we had some resets in refis in previous quarters that just as you say have now rolled off..

And was there anything else contributing to that, any part watches or call deals?.

Sure, I think one trend Chris that's worth focusing on is that managers particularly the best CLO collateral managers have been building spread over the last several months, availing themselves of opportunities in the secondary syndicated loan market. So that's a trend that again is a fairly important one..

And last one from me if I may then I’ll hop back in queue. There continues to just be consistent loan fund outflows obviously they're not nearly as extreme as what they were in the fourth quarter, but the outflows continue. Just wondering why you think this isn't weighing on loan prices which you’re seeing to continue to be rallying.

And if you think that if this trend does continue that it will eventually weigh on loan prices at least to some smaller degree than what it did in the fourth quarter?.

Sure Chris, I think it's the combination of the CLO new issuance market being fairly healthy and soaking up supply in the primary and secondary market for syndicated loans, U.S. syndicated corporate loans and also just various other pockets of capital emerging to take up supply of loans. There's a persistent demand for yield in the marketplace..

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

Thanks very much. I'd like to thank everybody on the call and listening on the replay for their interest and participation 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..