Good morning, and welcome to the Oxford Square Capital First Quarter 2021 Earnings Call. . Please note that this event is being recorded. Now I'd like to turn the call over to Mr. Jonathan Cohen, CEO. Please go ahead..

Thanks very much. Good morning, everyone, and welcome to the Oxford Square Capital Corp. First Quarter 2021 Earnings Conference Call. I'm joined today by Saul Rosenthal, our President; Bruce Rubin, our Chief Financial Officer; Kevin Yonon, our Managing Director and Portfolio Manager.

Bruce, could you 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..

Thanks, Bruce. For the quarter ended March 31, Oxford Square's net investment income was approximately $4.8 million or $0.10 per share. And our net asset value per share stood at $4.88 per share compared to net investment income of approximately $4.7 million or $0.10 per share and a net asset value per share of $4.55 for the prior quarter.

For the first quarter of 2021, we recorded total investment income of approximately $9.4 million as compared to approximately $8.6 million in the prior quarter.

In the first quarter of 2021, we recorded net unrealized appreciation on investments of approximately $31 million or $0.63 per share compared to net unrealized accretion -- appreciation of investments of approximately $35.7 million or $0.72 per share for the prior quarter.

In the first quarter, we recorded realized losses on investments of approximately $14.1 million or $0.28 per share compared to realized losses of $700,000 or $0.02 per share for the prior quarter.

In total, for the first quarter, we had a net increase in net assets from operations of approximately $21.8 million or $0.44 per share compared to a net increase in net assets from operations of $39.7 million or $0.80 per share for the prior quarter.

During the first quarter of 2021, our investment activity consisted of purchases of approximately $32.9 million, sales of approximately $1.8 million and repayments of approximately $16.4 million.

As of March 31, we held cash and cash equivalents of approximately $39.7 million against which there were unsettled purchases of approximately $10.9 million, which settled in April of 2021..

Thank you, Jonathan. During the quarter ended March 31, 2021, the U.S. loan market strengthened versus the quarter ended December 31, 2020. U.S. loan prices, as defined by the S&P/LSTA Leveraged Loan Index, increased from 96.19% of par as of December 31 to 97.55% of par on March 31 after peaking at 97.81% on February 25.

According to LCD, during the quarter, pricing dispersion related to credit quality continued with BB-weighted going prices increasing 0.21%, B-rated loan prices increasing 0.55% and CCC-rated loan prices increasing 4.92% on average.

The 12-month trailing default rate for S&P/LSTA Leveraged Loan Index decreased to 3.15% by principal amount at the end of the quarter after starting the quarter at 3.3%.

Additionally, the distress ratio, defined as the percentage of loans with a price below 80% of par, ended the quarter at 1.13% compared to 2.2% on December 31, after peaking at 57% on March 23, 2020.

During the quarter ended March 31, primary market issuance of approximately $182 billion was well ahead of approximately $88 billion during the comparable quarter in 2020. This was driven by strong refinancing, repricing, M&A and LBO activities during the quarter. Moreover, U.S.

loan fund inflows, as measured by Lipper, were $9.86 billion for the quarter ended March 31 versus total outflows of approximately $19 billion for 2020. We continue to focus on portfolio management strategies designed to maximize our long-term total return.

And as a current capital vehicle, we historically have been able to take a longer-term view towards our investment strategy..

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

. First question comes from Mickey Schleien with Ladenburg..

Jonathan, given the strength in the loan markets, Jonathan, I'd like to ask what caused the decline in the CLO portfolio's cash yield from the fourth quarter to the first quarter..

Certainly. Our COO, portfolio manager, Deep Maji, will answer that question..

Mickey, as you know, on the asset side, we're experiencing some level of spread compression, so that was one factor. We also did affect 2 resets as well as 2 refinancings on our portfolio. 2 of them are controlled positions that Oxford Square holds and majority positions, so they're very, very sizable.

And as you know, as part of the resets or refinancings, often case, that first period there may be when you pay for expenses. There may be a little bit lower cash flow to pay for the expenses associated with those refinancings or resets.

So I think the combination of spread compression that we're seeing on the asset side as well as just some of these onetime events was the driver of the slightly lower cash yield.

That being said, the amount of cash flow diversion that our portfolio experienced declined quarter-over-quarter fairly significantly in light of the strength and improvement in credit fundamentals across the market broadly..

I appreciate that. That's helpful.

And given what you just said, when we think about portfolio allocation, how would you characterize the risk-adjusted returns available in CLOs versus corporate loans? And do you envision continuing to operate with nonqualified assets meaningfully above the regulatory limit?.

Sure, Mickey. The risks and returns associated with the stated corporate loan market and the CLO tranche market, both of which we participate in at Oxford Square, have certain similarities and certain points of overlap. But they're also different in some fairly fundamental ways.

CLO equity, specifically, is not only a levered investment in certain parts of the syndicated corporate loan market, it is also fundamentally an arbitrage between the cost of capital and the use of proceeds on a levered basis within the structures of these various CLO vehicles.

And the difference is between and amongst those vehicles give rise to differences in turn in terms of the risk return profiles within each CLO structure. So there are points of overlap, but they're also fundamentally different.

In terms of our strategy for CLO investment at Oxford Square, we do intend to continue with the asset class and with exposure to the asset class. We haven't publicly announced or published any specific target as to the percentage of the portfolio we're intending to be represented by CLO tranche investments..

Okay. I understand. Jonathan, just a couple more sort of more housekeeping questions.

What was the main -- or what were the main drivers of this quarter's realized loss?.

Sure, Mickey. There were two names specifically that were exited that were previously reflected as unrealized losses that were realized in the March quarter..

Can you give us those names?.

Sure.

Imagine Print Solutions and Kevin, the other one?.

AMMC. AMMC..

Okay.

And Jonathan, what is your view on the target debt-to-equity ratio for Oxford Square?.

We haven't published or publicly discussed a specific target, Mickey.

I think what we've tried to do historically and certainly what we are trying to do now is to be responsive to the market to take into account the risks and return opportunities that we see available to us, both on the syndicated corporate loan side and on the CLO tranche investing side and to try to essentially run the portfolio's leverage profile in a way that reflects those dynamics.

But we haven't come out publicly and stated a particular target yet..

All right.

And lastly, what is the status of your undistributed taxable income?.

We'd have to revert back, Mickey. We don't have that figure to hand..

All right..

So we can follow up separately and get you those figures..

Yes, that would be helpful. Those are all my questions this morning. I appreciate your time. And I'll be in touch to get that UTI number later today..

This concludes our question-and-answer session. Now I'd like to turn the conference back over to Mr. Cohen for closing remarks. Please go ahead..

Thank you, operator, and I'd like to thank everybody on the call and everybody who's listening to the replay for their interest in Oxford Square Capital Corp. We look forward to speaking to you again soon. Thank you..

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