Workflow
Oxford Square Capital (OXSQ) - 2020 Q3 - Earnings Call Transcript
OXSQOxford Square Capital (OXSQ)2020-10-27 14:55

Financial Data and Key Metrics Changes - For the quarter ended September 30, the company's net investment income was 0.09pershare,andthenetassetvaluepershareincreasedto0.09 per share, and the net asset value per share increased to 3.85 from 3.54inthepriorquarter[7]−TotalinvestmentincomeforQ32020wasapproximately3.54 in the prior quarter [7] - Total investment income for Q3 2020 was approximately 8.2 million, slightly down from approximately 8.3millioninthepreviousquarter[8]−Thecompanyrecordednetunrealizedappreciationoninvestmentsofapproximately8.3 million in the previous quarter [8] - The company recorded net unrealized appreciation on investments of approximately 20.9 million or 0.42pershare,comparedto0.42 per share, compared to 19 million or 0.38pershareinthepriorquarter[8]−Realizedlossesoninvestmentswereapproximately0.38 per share in the prior quarter [8] - Realized losses on investments were approximately 4.4 million or 0.09pershare,upfrom0.09 per share, up from 2.8 million or 0.06pershareinthepreviousquarter[9]−Thenetincreaseinnetassetsfromoperationswasapproximately0.06 per share in the previous quarter [9] - The net increase in net assets from operations was approximately 20.8 million or 0.42pershare,comparedto0.42 per share, compared to 20.6 million or 0.41pershareinthepriorquarter[9]BusinessLineDataandKeyMetricsChanges−InvestmentactivityduringQ3includedpurchasesofapproximately0.41 per share in the prior quarter [9] Business Line Data and Key Metrics Changes - Investment activity during Q3 included purchases of approximately 18.3 million, sales of approximately 8.3million,andrepaymentsofapproximately8.3 million, and repayments of approximately 600,000 [10] - The company continues to hold two debt investment incomes on non-accrual status and preferred equity investments in one portfolio company also on non-accrual status [10] Market Data and Key Metrics Changes - The U.S. loan market strengthened compared to the previous quarter, with loan prices increasing from 89.88% of par to a high of 93.96% before settling at 93.18% [13] - The 12-month trailing default rate for the S&P/LSTA leveraged loan index increased to 4.17% by principal amount, up from 3.23% at the start of the quarter [14] - The distress ratio, defined as the percentage of loans priced below 80% of par, decreased to approximately 5% from 8% on June 30 [14] - Year-to-date primary market issuance was approximately 203billion,whichis15.8203 billion, which is 15.8% below the comparable period in 2019 [14] - U.S. loan fund outflows moderated to 2.9 billion for the quarter, down from approximately 4billioninthepreviousquarter[15]CompanyStrategyandDevelopmentDirection−Thecompanyfocusesonportfoliomanagementstrategiesdesignedtomaximizelong−termtotalreturn,takingalonger−termviewtowardsinvestmentstrategy[15]−Managementisexploringopportunitiestolowerthecostofcapitalthroughpotentialcreditfacilities,whichcouldimprovenetinvestmentincomeyield[24][25]Management′sCommentsonOperatingEnvironmentandFutureOutlook−Managementnotedasignificantlevelofbifurcationinthemarket,withvaryingrisksacrossdifferentindustriesandcompanies[21][22]−Thecurrenteconomicenvironmentremainsuncertain,withexpectationsofarealignmentinmarket,sector,andcorporaterisks[22]−Thecompanyislookingatdistressedopportunitiesbuthasnothistoricallyparticipatedinthedistressedmarketsinameaningfulway[23]OtherImportantInformation−TheBoardofDirectorsdeclaredmonthlydistributionsof4 billion in the previous quarter [15] Company Strategy and Development Direction - The company focuses on portfolio management strategies designed to maximize long-term total return, taking a longer-term view towards investment strategy [15] - Management is exploring opportunities to lower the cost of capital through potential credit facilities, which could improve net investment income yield [24][25] Management's Comments on Operating Environment and Future Outlook - Management noted a significant level of bifurcation in the market, with varying risks across different industries and companies [21][22] - The current economic environment remains uncertain, with expectations of a realignment in market, sector, and corporate risks [22] - The company is looking at distressed opportunities but has not historically participated in the distressed markets in a meaningful way [23] Other Important Information - The Board of Directors declared monthly distributions of 0.035 per share for January, February, and March of 2021, but management cautioned against relying on these distributions for future periods [11][12] Q&A Session Summary Question: Impact of Fed's financing facilities on loan market supply and demand - Management indicated that there is sufficient supply in both primary and secondary markets for investment strategy execution, but future dynamics are difficult to predict [19] Question: Default rate assumptions for investments - Management stated that they apply a higher level of specificity rather than a blanket assumption for default rates, noting significant variations across industries and companies [21] Question: Opportunities in distressed deals - Management is looking at individual distressed opportunities but has not historically engaged significantly in distressed markets [23] Question: Outlook for credit facilities to reduce debt capital costs - Management regularly evaluates the potential for credit facilities to lower capital costs and improve net investment income yield [24][25] Question: Impediments to merging Oxford Square and Oxford Lane - Management found the question interesting but did not provide a specific answer regarding potential mergers [26]