管理層發言
Good morning, and thank you for attending the Oxford Lane Capital Corp. announces net asset value and selected financial results for the second fiscal quarter and declaration of distributions on common stock. My name is Braca, and I will be your moderator for today. Operator provided instructions. I would now like to pass the conference over to your host, Jonathan Cohen, Chief Executive Officer at Oxford Lane Capital Corp. Thank you. You may proceed, Jonathan.
Good morning, everyone, and welcome to the Oxford Lane Capital Corp.'s Second Fiscal Quarter 2026 Earnings Conference Call. I'm joined today by Saul Rosenthal, our President; Bruce Rubin, our CFO; and Joe Kupka, our Managing Director. Bruce, could you open the call with the disclosure regarding forward-looking statements?
Thank you, Jonathan. Today's conference call is being recorded. An audio replay of the 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 Lane 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 can 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. During this call, we will use terms defined in the earnings release and also refer to non-GAAP measures. For definitions and reconciliations to GAAP, please refer to our earnings release posted on our website at www.oxfordlanecapital.com. With that, I'll turn the presentation back over to Jonathan.
Thank you, Bruce. On September 30, our net asset value per share stood at $19.19 compared to a net asset value per share of $20.60 as of the prior quarter. All prior quarter per share amounts being discussed during this call have been adjusted to reflect the 1-for-5 reverse stock split of our common stock, which became effective on September 5. For the quarter ended September, we reported GAAP total investment income of approximately $128.3 million, representing an increase of approximately $4.3 million from the prior quarter. The quarter's GAAP total investment income consisted of approximately $124.6 million from our CLO equity and CLO warehouse investments and approximately $3.7 million from our CLO debt investments and from other income. Oxford Lane recorded GAAP net investment income of approximately $81.4 million or $0.84 per share for the quarter ended September compared to approximately $75.1 million or $0.80 per share for the quarter ended June. Our core net investment income was approximately $120 million or $1.24 per share for the quarter ended September compared with approximately $112.4 million or $1.19 per share for the quarter ended June. As of September 30, we held approximately $366 million in newly issued or newly acquired CLO equity investments that had not yet made their initial distributions to Oxford Lane. For the quarter ended September, we recorded net unrealized depreciation on investments of approximately $68.5 million and net realized losses of approximately $18.1 million. We had a net decrease in net assets resulting from operations of approximately $5.3 million or $0.05 per share for the second fiscal quarter. As of September 30, the following metrics applied. We note that none of these metrics necessarily represented a total return to shareholders. The weighted average yield of our CLO debt investments at current cost was 17.4%, up from 16.9% as of June 30. The weighted average effective yield of our CLO equity investments at current cost was 14.6%, down from 14.7% as of June 30. The weighted average cash distribution yield of our CLO equity investments at current cost was 19.4% down from 21.6% as of June 30. We note that the cash distribution yields calculated on our CLO equity investments are based on the cash distributions we received or which we were entitled to receive at each respective period end. During the quarter ended September, we issued a total of approximately 700,000 shares of our common stock pursuant to an at-the-market offering, resulting in net proceeds of approximately $14.5 million. During the quarter ended September, we repurchased a total of approximately 1.2 million shares of our common stock pursuant to our share repurchase program for approximately $20.5 million. During the quarter ended September, we made additional CLO equity investments of approximately $145.2 million, and we received approximately $173.5 million from sales and from repayments. On October 24, our Board of Directors declared monthly common stock distributions of $0.40 per share for each of the months ending January, February and March of 2026. With that, I'll turn the call over to our Managing Director, Joe Kupka. Joe?
Thanks, Jonathan. During the quarter ended September 30, 2025, U.S. loan market performance remained steady versus the prior quarter. The U.S. loan price index decreased from 97.07% as of June to 97.06% as of September 30. Against this backdrop, median U.S. CLO equity net asset values rose approximately 20 basis points. Additionally, we observed median weighted average spreads across loan pools within CLO portfolios decreased to 318 basis points compared to 327 basis points last quarter. The 12-month trailing default rate for the loan index increased to 1.47% by principal amount at the end of the quarter from 1.11% at the end of June 2025. We note that out-of-court restructurings, exchanges and subpar buybacks, which are not captured in the cited default rate, remain elevated. CLO new issuance for the quarter totaled approximately $53 billion, reflecting an approximate $2 billion increase from the previous quarter. Additionally, the U.S. CLO market saw approximately $105 billion in reset and refinancing activity in Q3 2025 compared to approximately $53 billion in the previous quarter. Oxford Lane remained active this quarter, investing over $145 million in CLO equity, debt and warehouses. During the quarter, we also directed or participated in more than 25 resets and refinancings taking advantage of tightening liability spreads to lower the cost of funding and lengthen the weighted average reinvestment period of Oxford Lane's CLO equity portfolio from January 2029 to May 2029. We continue to evaluate existing investments for opportunities to improve the economics of our CLO equity positions. Our primary investment strategy during the quarter was to engage in relative value trading and seek to lengthen the weighted average reinvestment period of Oxford Lane's CLO equity portfolio. In the current market environment, we intend to continue to utilize our opportunistic and unconstrained CLO investment strategy across U.S. CLO equity, debt and warehouses as we look to maximize our long-term total return. And as a permanent capital vehicle, we have historically been able to take a longer-term view towards our investment strategy. With that, I'll turn the call back over to Jonathan.
Thank you, Joe. Additional information about Oxford Lane's second fiscal quarter performance has been uploaded to our website at www.oxfordlanecapital.com. And with that, operator, we're happy to open the call up for any questions.
分析師問答
Operator provided instructions. And the first question we have comes from Mickey Schleien with Clear Street.
Jonathan, how would you characterize trends in loan spreads in October relative to September?
So I think year-to-date, the year was dominated by this repricing wave. Through October, we've definitely seen a softness in the loan market with the LSTA selling off a bit. So that put a bit of a pause on the repricing wave. With that said, now the loan market is about over 40% trading above par. So I don't expect the repricing wave we've seen year-to-date to continue at this pace, but I think there's still a bit of repricing activity to come.
Okay. My next question relates to cash yield. What drove the decrease in the CLO equity portfolio's cash yield quarter-to-quarter? And how do we reconcile that against an increase in your core NII?
So the decrease in the cash yields was driven by two factors. One, we performed a lot of these resets and refinancings, which in the short term take a bit of a hit to the cash yield just because of the expenses coming out. But the main driver was just this repricing wave that compressed the arbitrage across all CLO equity vehicles and across the whole market. In terms of the core net investment income, that number tends to move around a bit due to first-time payers, which we've had a significant amount of these past several quarters, and also repayments in terms of liquidated CLOs.
That's helpful, Joe. First Brands filed for bankruptcy at the very end of the quarter, and as we know, it was widely held among many CLOs with some having over a 1% allocation to it. So I'd like to understand what was the impact of its bankruptcy on your portfolio's value?
I would say it was pretty muted overall, even though there were some CLOs that had 1% positions. Overall, the average position was somewhere between 20 to 30 basis points. So there wasn't a significant impact, I would say, just given the diversified nature of CLOs in general. We also didn't see a huge impact to OC ratios, especially considering the robust OC ratios we've had in our portfolio.
Yes, that was actually my next question. I'm sorry.
No, sorry. Go ahead.
No, I was going to ask about the OC cushion, which, as you said, held up. Do you expect it to have a modest impact on portfolio yields going forward? I'm referring to First Brands.
We don't really make those sorts of public pronouncements, Mickey, but I think Joe's comments sort of frame the issue from our point of view.
Okay. And Jonathan, if First Brands wasn't a big driver, what—apart from loan spread compression, what drove this quarter's realized and unrealized losses?
It was primarily loan spread compression, Mickey. I don't really think there was a secondary or tertiary element that was nearly as pronounced as that fact.
And within the realized losses, Jonathan, could you give us a sense of—you're obviously trading and looking for some value plays. What's appealing to you? What are you trading out of? And what are you trading into that's driving those realized losses?
With about 300 line items, Mickey, you can appreciate, of course, that we're not really pursuing thematic trading strategies. We're typically selling things we think we can sell well, and we're buying things that we think we can buy better.
And a couple more questions, if I might. What would you say is the current level of AAA CLO debt, Jonathan, in the market? And could you quantify the remaining opportunity in your portfolio to refinance or reset liabilities?
Sure. So currently, Tier 1 AAA spreads are around 119, the best level currently. In terms of resets, that number is in the low 120s in terms of our go-forward opportunities. We were very active this quarter, resetting and refinancing any of our in-the-money positions. I don't expect that level of activity to be repeated this quarter. But starting next quarter and into next year, we see several more CLOs come out of their non-call period, which we see as a lot of opportunity for continued resetting and refinancing.
And portfolio rotation.
Right, right. And I see that your average AAA spread is 133. So there has to be at least a handful that are in the money, right, Joe?
Yes, exactly.
We would, yes, I think so.
Okay. And lastly, and I appreciate your patience. Could you give us a sense of your target balance sheet leverage ratio under these current market conditions? I mean it's pretty low right now.
Sure, Mickey. We don't publish or announce a target leverage ratio by virtue of the fact that there are so many variables for us to consider, principally amongst them, the overall level of leverage on our balance sheet, which, as you referenced, I think, is on the relatively low side at the moment. But most profoundly, the cost of capital and ultimately, the use of proceeds. So we don't have a target that's specifically higher than where we're sitting right now. But as you can imagine, we're looking at that cost of capital, and we're looking at those uses of proceeds, essentially on a real-time basis.
Let me ask it a different way, Jonathan. Are you open to operating at a little bit higher leverage to take advantage of all the opportunities in the market, given how much volatility we're seeing?
Yes, we are open to that possibility.
Your next question comes from Steven Bavaria with Inside the Income Factory.
Jonathan, Steve Bavaria here. You guys obviously were the first ones to bring CLOs, previously an institutional asset class, to the retail market. And while it was a while ago, I'd say we're all—certainly my readers are still scrambling to catch up with what is a complex asset class and how to analyze it, especially within a closed-end fund wrapper, so to speak. One of the things that comes up a lot, and I'm not sure I even have it right, but you could help me. It seems because you're required to pay out 90% or so of your pretax income as a distribution and an even higher percentage of any capital gains, you're not in a position like a regular bank. CLOs, unlike regular banks, can't—and you certainly can't—set up reserves for future loan losses the way JPMorgan and others normally do. So it would seem, if I'm right, that a lot of the losses in CLOs kind of appear at the end when the CLOs are winding down, that you're often forced to pay out distributions that in fact are not going to be fully earned once a particular CLO winds down. If that's correct, then you're always going to have a certain amount of NAV erosion that's normal. In judging you, we should be looking at your total return, your total distribution minus any NAV erosion. And if that number is still an attractive number, then that's fine. Am I looking at that right? Is that essentially the proper lens to be evaluating your performance in?
We believe so, Steve. That's certainly how we view our mandate and how we run the portfolio within Oxford Lane. We are a total return-focused investor. The manifestation of that return can appear through the income that we receive from our CLO equity and junior debt investments. It can appear in the form of capital gains, potentially. It can appear to the investor through the distributions they receive and changes in the NAV, which can be positive or negative for any period. Certainly, we've had individual years where the total return has greatly exceeded the amount of the distribution. And we've had years where the total return has not equaled the amount of distribution, and therefore there's been mathematically a diminishment to the NAV in those periods. From a philosophical point of view, Steve, you're thinking of it in a manner that's aligned with our own.
And because of that requirement that you pay out most of your pretax income, even though later on you may absorb some of those losses that are normal, normal default credit losses are normal even in healthy CLOs and healthy loan portfolios, so there will always be a certain amount of NAV erosion over time that we should expect. It's then a question of determining what NAV erosion is normal and what is abnormal. Is that essentially correct?
Well, it's an opinion, so it's hard to say correct or incorrect, but it's a logically consistent opinion and one we generally share. The result of the dynamic you've described is that since 2011 when Oxford Lane Capital Corp. came public, we have pursued an active portfolio management strategy. We've committed to reviewing our portfolio on a daily or real-time basis and making determinations based on relative value and absolute value in pursuit of this total return mandate. The result is relatively high levels of trading volume, as Joe referenced earlier, because we're looking to push out our maturity windows, lengthen our reinvestment periods, and actively manage the portfolio in view of the dynamics you've described.
We now have the next question from Erik Zwick with Lucid Capital Markets.
I wanted to start, Jonathan, maybe get your view. Your spreads remain very tight in the primary market, yet there's still a great deal of uncertainty with regard to the macroeconomic outlook. There's been noted weakness in lower-end consumer credit. The impact of higher tariffs is still unknown. You had the government shutdown, which could have primary as well as secondary impact. So just curious, putting that together, do you think lenders and CLO buyers are being appropriately compensated for the level of risk in the economy today?
I wouldn't make that blanket statement. What I would say instead is that in the primary market in new CLOs that we are involved with and in the secondary market in terms of the trading opportunities we see, we have and continue to see opportunities that we believe are compelling and are providing us with an adequate level of risk-adjusted return. But there are certainly CLO transactions in the primary and secondary markets that we would not participate in because we don't think they're sufficiently compelling. Like every market, we don't buy the market; we've always been, I believe, more discerning and selective than that.
Given that commentary, has the size of the pipeline changed relative to maybe 9 to 12 months ago? Are you seeing fewer attractive risk-adjusted opportunities given some of the macroeconomic overlay? Or is it still fairly robust? And in your view, are the more attractive opportunities today in the primary or the secondary market?
Keeping in mind that a forward pipeline really only refers to the primary market — we don't know what's going to be available to us at what price in one, two or three months in the secondary market. Joe, why don't you speak a little bit to what we're seeing in the primary market right now?
I think to your question, things have definitely changed in terms of what we're focusing on. Earlier this year and last year, we were very heavily investing in the primary market. That has changed a bit. We're very focused on the secondary market now, while we're more patiently ramping in the primary and waiting for the right moment to term out some of the CLOs. So I would say we're still seeing a large number of relatively attractive opportunities, but the type of those opportunities has and continues to change rapidly given the tightening liabilities and the repricing wave we've seen.
And the macroeconomic factors, Erik, that you referenced earlier.
In terms of the net unrealized depreciation in the most recent quarter, was that more reflective of individual security fair value changes or more due to broad market factors? What were the drivers there?
I think it was more broadly based, principally predicated on the U.S. syndicated corporate loan spread compression dynamic that Joe was referencing earlier.
If we were to see spreads widen a little bit, you could certainly see some recapture of that unrealized depreciation in future periods, correct?
Ceteris paribus, yes.
I may have missed it earlier, but what is the quantity of new investments that have yet to make their first payments? Do you have that number handy?
I believe it was $366 million as of 9/30.
$366 million, Erik.
Okay. And you would expect most of those to make their first payments here in calendar 4Q?
About half to make next quarter and then the other half the following quarter.
I can confirm that does conclude the question-and-answer session. I'd like to hand it back to Jonathan Cohen for some final closing comments.
I'd like to thank everybody on the call and listening in the replay for their interest and their participation, and we look forward to speaking to you again soon. Thanks very much.
Thank you. I can confirm that does conclude today's conference call with Oxford Lane Capital Corp. Thank you all for your participation, and you may now disconnect.