Oxford Square Capital Corp Q3 2025 Earnings Call - Navigating Portfolio Growth Amid Marked Investment Losses

Jonathan Cohen, Executive (likely CEO), Oxford Square Capital Corp: Good morning, everyone, and welcome to the Oxford Square Capital Corp third quarter 2025 earnings conference call. This is Jonathan Cohen, and I’m joined today by Saul Rosenthal, our President; Bruce Rubin, our CFO; and Kevin Yonan, our Managing Director and Portfolio Manager. Bruce, could you open the call with a disclosure regarding forward-looking statements?

Bruce Rubin, CFO, Oxford Square Capital Corp: Sure, Jonathan. Today’s conference call is being recorded, and audio replay of the conference call will be available for 30 days. Replay information is included in our press release as issued this morning. Please note that this call is the property of Oxford Square Capital Corp., and the 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.

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, Executive (likely CEO), Oxford Square Capital Corp: Thank you, Bruce. For the quarter-ended September, Oxford Square’s net investment income was approximately $5.6 million, or $0.07 per share, compared with approximately $5.5 million, or $0.08 per share, in the prior quarter. Our net asset value per share stood at $1.95 compared to a net asset value per share of $2.06 for the prior quarter. During the quarter, we distributed $0.105 per share to our common stock shareholders. For the third quarter, we recorded total investment income of approximately $10.2 million, as compared to approximately $9.5 million in the prior quarter. In the third quarter, we recorded combined net unrealized and realized losses on investments of approximately $7.5 million, or $0.09 per share, compared to combined net unrealized and realized losses on investments of approximately $1.1 million, or $0.01 per share, for the prior quarter.

During the third quarter, our investment activity consisted of purchases of approximately $58.1 million and repayments of approximately $31.3 million. During the quarter-ended September, we issued a total of approximately 5.4 million shares of our common stock, pursuant to an aftermarket offering resulting in net proceeds of approximately $11.8 million. During the quarter, we issued $74.8 million of 7.75% unsecured notes due July of 2030, and we fully repaid the remaining balance of $34.8 million of our 6.25% unsecured notes due April of 2026. On October 30th, our board of directors declared monthly distributions of $0.035 per share for each of the months ending January, February, and March of 2026. 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 Yonan. Kevin?

Kevin Yonan, Managing Director and Portfolio Manager, Oxford Square Capital Corp: Thank you, Jonathan. During the quarter ended September 30th, U.S. loan market performance was stable versus the prior quarter. U.S. loan prices, as defined by the Morningstar LSTA U.S. Leveraged Loan Index, decreased slightly from 97.07% of par as of June 30th to 97.06% of par as of September 30th. According to LCD, during the quarter, there was some pricing dispersion, with BB-rated loan prices decreasing 11 basis points, B-rated loan prices increasing 37 basis points, and CCC-rated loan prices decreasing 227 basis points on average. According to PitchBook LCD, 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. Additionally, the default rate, including various forms of liability management exercises, which are not captured in the cited default rate, remained at an elevated level of 4.32%.

The distress ratio, defined as a percentage of loans with prices below 80% of par, ended the quarter at 2.88% compared to 3.06% at the end of June. During the quarter ended September 30th, 2025, U.S. leveraged loan primary market issuance, excluding amendments and repricing transactions, was $133.7 billion, representing a 22% increase versus the quarter ended September 30th, 2024. This was driven by higher refinancing activity, partly offset by lower non-refinancing issuance, including lower M&A and LBO activity versus the prior year comparable quarter. At the same time, U.S. loan fund outflows, as measured by LIPR, were approximately $540 million for the quarter ended September 30th. 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-term view towards our investment strategy.

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

Jonathan Cohen, Executive (likely CEO), Oxford Square Capital Corp: Thank you, Kevin. Additional information about our third quarter performance has been posted to our website at www.oxfordsquarecapital.com. With that, operator, we’re happy to open the call for any questions.

Conference Call Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the two. If you’re using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Eric Zuick from Lewisid Capital Markets. Please go ahead.

Jonathan Cohen, Executive (likely CEO), Oxford Square Capital Corp: Thanks. Good morning, guys.

Morning, Eric. Hey, Jonathan. Wanted to start with maybe a question. You noted the nice net portfolio growth in the quarter, and I think one of the stronger quarters of purchase activities you had in a while. So wondering if you could just talk maybe a little bit about what types of investments you found attractive during the quarter, maybe a little bit of kind of color into what you added to the portfolio.

Sure. We’ll present the answer to that question, Eric, in essentially two parts. The first with Joe Kupka on the CLO side of the book, and the second on the leveraged loan side. Joe?

Joe Kupka, CLO Manager, Oxford Square Capital Corp: Hey, Eric. Yeah, so we were able to purchase a couple CLO equity pieces. They were both long-dated. Top-tier managers that we felt good about. Steady, predictable cash flow that we expect to hold for quite a while, just similar to what we’ve done in the past, just good. Relative value, long-dated CLO equity.

Jonathan Cohen, Executive (likely CEO), Oxford Square Capital Corp: As you know, Eric, from our perspective, the best hedge in this asset class really is duration. The longer the reinvestment period, the greater we think everything else held constant, should be the level of protection against economic dislocation or financial markets disruption. Kevin?

Kevin Yonan, Managing Director and Portfolio Manager, Oxford Square Capital Corp: Sure. And on the loan side, we had a fairly active quarter focused sort of in two parts. First is mostly on sort of relatively higher quality credits with lower spreads in the market, but that generate decent yield to maturities, as well as some opportunistic trades, which are somewhat less liquid names, where you’re able to capture a bit more spread at prices below par.

Jonathan Cohen, Executive (likely CEO), Oxford Square Capital Corp: Thanks. I appreciate the call from all three of you there. Maybe kind of turning that question to looking forward a little bit now as you look at your pipeline for potential new additions here in Q4, what is that split looking at maybe between CLO and loans and then yield activity? Or kind of what does the yield look like in a portfolio relative to maybe kind of current average portfolio yield?

Sure, Eric. As of our reporting date, we are. We’ve hit the maximum in terms of our ability to add additional CLO equity without rotating the portfolio. From a portfolio management perspective, I think you could reasonably assume that any additional purchases on the CLO equity or junior debt tranche side of the book are going to be accompanied by appropriate levels of sales. In terms of what we’re seeing in the new issue and secondary market on the leveraged loan book, Kevin?

Kevin Yonan, Managing Director and Portfolio Manager, Oxford Square Capital Corp: Sure. We will continue to focus both on the primary and secondary market for leveraged loans. On the primary side, from our perspective in terms of what’s interesting, it’s been a bit of a slower market. More sort of higher quality, much lower spread credits are out there participating in the primary. I would anticipate, just as kind of has happened over the last many quarters, that we focus more on the secondary market and more on situations where you’re less sort of liquid credits in the secondary market where we can capture a bit more spread. And just given the way the sort of loan market’s been trading, we can capture a lot of these at par or below at this point, which just presents a decent opportunity for us going forward.

Jonathan Cohen, Executive (likely CEO), Oxford Square Capital Corp: Thanks. Switching gears a little bit, I noticed the cash and equivalents balance at the end of the quarter moved up to $51 million. Looks like it’s a little bit higher than it’s been in the past. Anything to take note of there? Is that more just kind of a timing issue?

I think it’s principally timing as a result, Eric, of the ATM issuances.

Got it. That makes sense. Kind of curious, given that the level at which the stock is trading today and there’s some preferences for institutional investors to have stock they invest in have higher prices, have you given any thought to a reverse stock split similar to what we did at Oxford Lane?

We like to think, Eric, that we’re giving thought to any viable idea on a continuous basis.

Makes sense. Last one for me, and then I’ll step aside. It’s been a couple of quarters now since the NII has covered the dividend. Just curious from your seat, what levers do you have at your disposal on either the income or expense side to improve the run rate of NII in the near to midterm?

We’re running a relatively lightly levered portfolio at the moment relative to our statutory limitation. That’s certainly one element that’s probably worthy of consideration, but there are certainly others.

Got it. Jonathan, Kevin, Joe, I appreciate all the commentary today. That’s it for me.

Thank you, Eric, very much. Thank you.

Conference Call Operator: If there are no further questions at this time, I will now turn the call over to Jonathan Cohen. Please continue.

Jonathan Cohen, Executive (likely CEO), Oxford Square Capital Corp: We’d like to thank everybody on the call and listening on the replay for their interest and for their participation. We look forward to speaking to you again soon. Thanks very much.

Conference Call Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.