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Edited Transcript of TICC earnings conference call or presentation 30-Oct-18 1:00pm GMT

Q3 2018 Oxford Square Capital Corp Earnings Call

Greenwich Nov 3, 2018 (Thomson StreetEvents) -- Edited Transcript of Oxford Square Capital Corp earnings conference call or presentation Tuesday, October 30, 2018 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Bruce L. Rubin

Oxford Square Capital Corp. - CFO, CAO, Senior VP, Treasurer, Secretary & Controller

* Debdeep Maji

TICC Management, LLC - VP

* Jonathan H. Cohen

Oxford Square Capital Corp. - CEO & Interested Director

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Conference Call Participants

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* Mickey Max Schleien

Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research & Supervisory Analyst

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Presentation

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Operator [1]

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Good morning, and welcome to the Oxford Square Capital Third Quarter 2018 Earnings Conference Call. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Jonathan Cohen, CEO. Please go ahead, sir.

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

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Good morning, and welcome, everyone, to the Oxford Square Capital Corp. Third Quarter 2018 Conference Call. I'm joined today by Saul Rosenthal, our President; and Bruce Rubin, our Chief Financial Officer.

Bruce, could you open the call today with the disclosure regarding forward-looking statements?

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Bruce L. Rubin, Oxford Square Capital Corp. - CFO, CAO, Senior VP, Treasurer, Secretary & Controller [3]

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Sure, Jonathan. Good morning. Today's conference call is being recorded, and an audio replay of the conference 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 a 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 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. To obtain copies of our latest SEC filings, please visit our website at www.oxfordsquarecapitalcorp.com (sic) [www.oxfordsquarecapital.com].

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

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

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Thanks, Bruce. To briefly recap the past quarter, we generated a positive total return of 1.8% for our shareholders during the third quarter of 2018. That return reflected a decrease in net asset value per share from $7.56 at the end of the June 2018 quarter to $7.49 per share as of September 30, 2018, as well as the effect of a $0.20 per share cash distribution.

For the quarter ended September 30, we reported GAAP net investment income of approximately $8.6 million, approximately $0.18 per share, compared to $7.7 million or $0.15 per share for the quarter ended June 30, 2018. In the third quarter of 2018, we recorded a net unrealized loss on investments of $2.3 million and a net realized gain of approximately $200,000. In total, we had a net increase in net assets from operations of $6.5 million or $0.13 per share.

Following the company's results for the third quarter, the company's Board of Directors has declared a $0.20 per share distribution for the fourth quarter payable December 31, 2018, to shareholders of record as of December 17, 2018.

On February 5, 2018, the Board of Directors authorized a stock repurchase program of $25 million. Since the program's inception through September 30, we have repurchased approximately 2.3 million shares of our common stock at a weighted average share price of $6.47 per share, totaling approximately $15.1 million. Over that period, the program has produced an accretion to NAV, to net asset value, per share of approximately $0.05.

On October 12, 2018, we amended our credit facility with Citibank, under which we increased the borrowing advance to $125 million. The company posted an additional collateral with a principal amount of $76.4 million. All other existing terms of this facility remained unchanged, with an interest rate of 3 months LIBOR plus 225 basis points.

From June 30, 2018, to September 30, the LSTA corporate loan index increased from approximately 98.1% at par to 98.6% at par. Over that same time period, corporate loan defaults remained at low levels. We note that, as of September 30, we continued to have no investments within our portfolio on nonaccrual status.

Additional information about Oxford Square Capital Corp.'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.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from Mickey Schleien of Ladenburg.

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Mickey Max Schleien, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research & Supervisory Analyst [2]

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Jonathan, looking at the level of GDP growth and CPI, et cetera, it looks like the Fed will continue to raise rates despite the volatility we're seeing in the equity markets. So my question is, when you underwrite your loan investments, on average, how much of an increase in interest rates do you assume borrowers can handle before interest coverage ratios get too low for you?

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Jonathan H. Cohen, Oxford Square Capital Corp. - CEO & Interested Director [3]

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Yes, so a good question, Mickey. We're looking at that from the perspective of overall leverage, how levered these various obligors are in the context of our investments in their debt. We're looking at the types of businesses that they engage in, how cyclical or noncyclical those businesses might be. We're looking at the underlying cash flows particularly carefully. I don't think we have a specific target that is applicable to all companies in all industries with all levels of leverage. Instead, we really do look at these on a one-by-one basis. And as of today, we're generally happy with the state of our portfolio in terms of prospective resilience to credit volatility. That said, as we've seen in the past when markets become dislocated, when credit spreads widen, when macro economic fundamentals are against us, there is inevitably an effect on the portfolio as we and others have certainly seen in the past.

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Mickey Max Schleien, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research & Supervisory Analyst [4]

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And continuing with the volatility issue. Is the volatility equity markets translating into the CLO markets and are you finding unusual dislocations there that are offering you more interesting estimated yields?

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Jonathan H. Cohen, Oxford Square Capital Corp. - CEO & Interested Director [5]

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The CLO market, Mickey, I think, has been certainly more stable over the course of the last several months than has the overall U.S. equity market. Bid-ask spreads may have widened out a bit. Prices may be a bit more volatile than they were a few months ago, but we've not seen the kind of significant volatility that we've seen in the U.S. equity markets.

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Mickey Max Schleien, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research & Supervisory Analyst [6]

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That's interesting. And my last question, Jonathan, assuming we're somewhat late in the cycle, and who knows if we are or are we not? But let's just assume we are. At a high level, can you give us some insight into how CLO equity that was issued prior to recessions in the past has performed subsequently?

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Jonathan H. Cohen, Oxford Square Capital Corp. - CEO & Interested Director [7]

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Sure, Mickey, I'm going to hand the call over to Deep Maji, who's our Lead Portfolio Manager for CLO and tranche investments.

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Debdeep Maji, TICC Management, LLC - VP [8]

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Mickey, so as we've seen and as we've talked about over the last several years on some of these conference calls, CLO equity that was issued in 2007 performed very well through the -- coming out of the crisis. Clearly, as Jonathan alluded to, going into any sort of recession and macro economic volatility, we're going to see kind of commensurate volatility within our portfolio, but CLO equities, as we saw, coming out of 2007, 2008, 2009 or coming out of 2015 performed very well through kind of periods of volatility. Clearly, there can be some mark-to-market volatility, but the overall asset class has performed, in our opinion, at this point.

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Mickey Max Schleien, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research & Supervisory Analyst [9]

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And was that driven more by pull to par sort of opportunities or more by managers taking advantage of wider spreads having -- on the asset side of the balance sheet but having the spreads locked in on the right-hand side of the balance sheet?

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Jonathan H. Cohen, Oxford Square Capital Corp. - CEO & Interested Director [10]

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It is both of those things, Mickey, certainly.

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Operator [11]

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And 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 Square Capital Corp. - CEO & Interested Director [12]

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Thank you very much. Mickey, thank you for those questions. And thanks, everyone, for their interest. We'll look forward to speaking to you again soon. Thanks very much.

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Operator [13]

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