Oxford Square Capital Corp. (NASDAQ:OXSQ) Q3 2022 Earnings Conference Call November 7, 2022 9:00 AM ET

Company Participants

Jonathan Cohen - CEO
Bruce Rubin - CFO
Kevin Yonon - Managing Director and Portfolio Manager

Conference Call Participants

Operator

Good morning, and welcome to Oxford Square Capital Corp. Third Quarter 2022 Earnings Conference Call. My name is Brika, and I will be your operator for today's conference. [Operator Instructions]

I would now like to turn the call over to Jonathan Cohen for some introductory comments. So Jonathan, you may begin.

Jonathan Cohen

Thanks very much. Good morning, everyone, and welcome to the Oxford Square Capital Corp. third quarter 2022 earnings conference call. I'm joined today by Saul Rosenthal, our President; Bruce Rubin, our Chief Financial Officer; and Kevin Yonon, our Managing Director and Portfolio Manager.

Bruce, could you open the call with a discussion regarding forward-looking statements?

Bruce Rubin

Thank you, 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 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 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.

Jonathan Cohen

Thank you, Bruce.

For the quarter ended September 30, Oxford Square's net investment income was approximately $5.6 million or $0.11 per share, and our net asset value per share grew $3.34. This compares to net investment income of approximately $4.3 million or $0.09 per share and a net asset value of $3.67 for the prior quarter.

For the third quarter, we recorded total investment income of approximately $11.4 million as compared to approximately $9.9 million in the prior quarter. That increase in total investment income was principally driven by increase in interest income and income from our CLO equity investments.

In the third quarter, we recorded net unrealized depreciation on investments of approximately $16.8 million or $0.34 per share compared to net unrealized depreciation on investments of approximately $46.2 million or $0.93 per share for the prior quarter. In the third quarter, we reported realized gains on investments of approximately $56,000 compared to realized losses of $1.5 million for the prior quarter.

During the third quarter, our investment activity consisted of purchases of approximately $3.9 million and sales and repayments of approximately $12.8 million. As of September 30, we held cash and cash equivalents of approximately $14.4 million.

On October 20, our Board of Directors declared monthly distributions of $0.035 per share for each of the months ending January, February and March of 2023. Additional details regarding record and payment date information can be found in our press release that was issued this morning.

With that, I'll turn the call over to our Portfolio Manager, Kevin Yonon, to discuss the loan market.

Kevin Yonon

Thank you, Jonathan.

During the quarter ended September 30, 2022, the U.S. loan market was volatile. U.S. loan prices, as defined by the Morningstar LSTA U.S. Leveraged Loan Index, increased from 92.16% at par as of June 30 to 95.50% at par as of August 12 before dropping to 91.92% of par as of September 30.

According to LCD, during the quarter, there was pricing dispersion related to credit quality, with BB-rated loan prices increasing 119 basis points or 1.26%, derailed prices decreasing 42 basis points or 0.45% and CCC-rated loan prices decreasing 132 basis points or 1.62% on average.

The 12-month trailing default rate for the Morningstar LSTA U.S. Leverage Loan Index increased to 0.9% by principal amount at the end of the quarter from 0.28% at the end of June 2022.

Additionally, the distress ratio, defined percentage of loans with a price below 80% of par, ended the quarter at approximately 6% compared to 3.65% at the end of June 2022. During the quarter ended September 30, 2022, primary market issuance was approximately $21 billion, representing an 87% decline versus the quarter ended September 30, 2021. For the year-to-date period ended September 30, 2022, primary market issuance declined 61% versus the prior year-to-date period. This was driven by lower refinancing M&A and LBO activity.

At the same time, U.S. fund outflows, as measured by Lipper, were approximately $11.5 billion for the quarter ended September 30. We continue to focus on portfolio management strategies designed to maximize our long-term total return. And as a permanent capital vehicle, we historically have been able to take a longer view towards our investment strategy.

With that, I will turn the call back over to Jonathan.

Jonathan Cohen

Thanks, Kevin.

We note that additional information about Oxford Square's third quarter performance has been posted to our website at www. oxfordsquarecapital.com.

And with that, operator, we're happy to open the call up for any questions.

Question-and-Answer Session

Operator

[Operator Instructions]

Jonathan Cohen

Operator, we don't hear any questions.

Operator

I can confirm we have no questions. So I'd like to turn it back to Jonathan for some final remarks.

Jonathan Cohen

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

Operator

Thank you all for joining. That does conclude today's call. You may now disconnect your lines.