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Edited Transcript of OXLC earnings conference call or presentation 2-May-19 1:00pm GMT

Q4 2019 Oxford Lane Capital Corp Earnings Call

May 6, 2019 (Thomson StreetEvents) -- Edited Transcript of Oxford Lane Capital Corp earnings conference call or presentation Thursday, May 2, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Bruce L. Rubin

Oxford Lane Capital Corp. - Corporate Secretary, Treasurer, Controller & CFO

* Debdeep Maji

Oxford Lane Capital Corp. - Senior MD & Portfolio Manager

* Jonathan H. Cohen

Oxford Lane Capital Corp. - CEO & Director

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Presentation

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Operator [1]

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Good morning and welcome to the Oxford Lane Capital Corp. fourth fiscal quarter earnings release and conference call. (Operator Instructions) Please note, this event is being recorded. I would like to now turn the conference over to Jonathan Cohen, CEO. Please go ahead.

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Jonathan H. Cohen, Oxford Lane Capital Corp. - CEO & Director [2]

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Thanks very much. Good morning, everyone, and welcome to the Oxford Lane Capital Corp. 4th Fiscal Quarter 2019 Earnings Conference Call. I'm joined today by Bruce Rubin, our Chief Financial Officer; and Deep Maji, our Senior Managing Director and Portfolio Manager. Bruce, could you open the call today with the disclosure regarding forward-looking statements?

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Bruce L. Rubin, Oxford Lane Capital Corp. - Corporate Secretary, Treasurer, Controller & CFO [3]

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Sure, 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 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.

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 and to obtain copies of our latest SEC filings, please visit our website at www.oxfordlanecapital.com.

With that, I'll turn the presentation back to Jonathan.

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Jonathan H. Cohen, Oxford Lane Capital Corp. - CEO & Director [4]

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Thanks, Bruce. On March 31, 2019, our net asset value per share stood at $8.32 compared to a net asset value per share of $7.56 as of December 31. Our total return generated during the quarter ended March 31 equaled 15.4%. That return reflected the change in net asset value per share for the period as well as impact of a $0.405 per share distribution.

For the quarter ended March 31, we reported GAAP total investment income of approximately $23.5 million representing income -- an increase of approximately $700,000 from the prior quarter.

Fourth fiscal quarter's GAAP total investment income from our portfolio was approximately $22 million from our CLO equity investments and approximately $1.5 million from our CLO debt investments and from other income.

Oxford Lane also reported GAAP net investment income of approximately $13.5 million or $0.34 per share for the quarter ended March 31 compared to $12.3 million or $0.33 per share for the quarter ended December 31.

Our core net investment income was approximately $20.8 million or $0.53 per share for the quarter ended March 31, compared to $17.7 million or $0.47 per share for the quarter ended December 31.

During the quarter ended March 31, we issued a total of approximately 4.3 million shares of our common stock pursuant to an at-the-market offering resulting in net proceeds of approximately $42.2 million.

For the quarter ended March 31, we recorded a net realized loss of approximately $5 million or $0.13 per share and the net unrealized depreciation of approximately $29.6 million or $0.75 per share.

We had a net increase in net assets resulting from operations of approximately $38.1 million or $0.96 per share for the fourth fiscal quarter.

As of March 31, the following metrics apply: We note that none of these values represented a total return to shareholders; the weighted average yield of our CLO debt investments at current cost was 11.7%, up from 11.2% as of December 31; the weighted average GAAP effective yield of our CLO equity investments at current cost was 15.7%, down from 15.8% as of December 31; the weighted average cash yield of our CLO equity investments at current cost was 20.3%, up from 19.8% as of December 31.

We note that the cash 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 March 31, we made additional CLO equity -- CLO investments of approximately $154.4 million, and we received $89.3 million from sales and repayments of our CLO investments.

With that, I will turn the call over to our Portfolio Manager, Deep Maji.

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Debdeep Maji, Oxford Lane Capital Corp. - Senior MD & Portfolio Manager [5]

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Thank you, Jonathan. During the quarter ending March 31, the U.S. loan market as measured by the S&P/LSTA Leveraged Loan Index increased from a price of 93.84% of par to 96.41% of par as of March 31, 2019.

We believe that the recovering U.S. loan prices during the first quarter principally driven by the increased U.S. CLO issuance and demand, slower U.S. loan mutual fund and ETF outflows, several large loan pay downs and a blended-forward primary loan calendar. However, the market continued to lag the broader markets and as such, according to Wells Fargo's CLO research, the median U.S. CLO equity in that asset value was estimated to be 48.1% as of April 1, 2019, which remains approximately 20 points below the October 1, 2018 level of 78.2%.

As we mentioned last quarter, we believe that the fundamentals across the U.S. loan market continue to be stable. U.S. loan default rate remains low.

According to Leveraged Commentary and Data, also known as LCD, a service provided by S&P Global, the S&P/LSTA Leveraged Loan Index trailing 12-month default rate is approximately 0.93% by principal amount, which is the lowest level in more than 7 years and remains well below the total average of approximately 3% according to LCD. The loan maturity wall continues to be termed out.

According to LCD, there are approximately $90 billion of loan scheduled to be repaid by year-end 2021. This aggregate amount represent less than 10% of the overall size of the S&P/LSTA Leveraged Loan Index.

Lastly, the current corporate loan market continues to be stable. The share of performing loans in the S&P/LSTA Leveraged Loan Index priced below $0.80 on the dollar, stood at 2.5% as of March 31, 2019, according to LCD. This figure has decreased from 2.7% as of December 2018 and remains well below the post-crisis highs of 12.1% in February of 2016.

In the first quarter of 2019, U.S. CLO new issuance resumed from a subdued levels at the end of 2018.

According to LCD, U.S. CLO new issuance was approximately $29 billion in the first quarter, which compared to $32 billion from the same period in 2018. Over the past year, the weighted average cost of CLO debt financing for a typical 5-year reinvestment period, new-issued CLO has increased from approximately out of 140 in the first quarter of 2018 to approximately out of 200 by the end of the first quarter of 2019. The confluence of the recent increase in U.S. loan prices and no material improvement in CLO debt spreads continued to put pressure on an already challenged new-issued CLO equity arbitrage.

As such, we continue to find interesting opportunities in the secondary CLO market, which is where we are primarily focused.

As we mentioned last quarter, we believe that this is an attractive environment for CLO equities.

According to LCD, as of April 23, 2019, approximately 23% of S&P/LSTA Leveraged Loan Index traded at a price at par or higher. This environment may allow CLO managers to drive performing loans assets in the secondary market at discounts par, which may build CLO asset value and spread over time, ultimately accruing to the benefit of CLO equities.

We continue to generally position our portfolio in longer reinvestment period equity positions, which allow our CLO managers to take advantage of the market environment like we have today. That being said, we continue to evaluate a variety of CLO equity profiles available to us in the secondary market.

With that, I'll turn the call back over to Jonathan Cohen.

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Jonathan H. Cohen, Oxford Lane Capital Corp. - CEO & Director [6]

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Thanks very much, Deep. We note that additional information about Oxford Lane's fourth quarter fiscal performance has been uploaded to our website at www.oxfordlanecapital.com.

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

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Operator [7]

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(Operator Instructions)

This concludes our question-and-answer session.

I would like to turn the conference back over to Jonathan Cohen for any closing remarks.

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Jonathan H. Cohen, Oxford Lane Capital Corp. - CEO & Director [8]

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Thanks very much, operator. And I'd like to thank everyone for their interest in Oxford Lane Capital Corp. and we look forward to speaking to you again soon. Thanks, very much.

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Operator [9]

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