Oxford Lane Capital Corp.
Q3 2017 Earnings Call Transcript

Published: 7 Feb 2017

[Operator:]

Good morning, and welcome to the Oxford Lane’s Third Fiscal Quarter Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Jonathan Cohen. Please go ahead.

[Jonathan Cohen:]

Thanks very much, good morning and welcome everyone to the Oxford Lane Capital Corp third fiscal quarter 2017 earnings conference call. I’m joined today by Saul Rosenthal, our President; Bruce Rubin, our Chief Financial Officer and Treasurer. And Bruce, could you please open the call with the discussion regarding forward-looking statements?

[Bruce Rubin:]

Of course, Jonathan. Today’s 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 released 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. I would also like to call your attention to the customary disclosure in our press release this morning regarding forward-looking information. Today’s conference call includes forward-looking statements and projections and we ask that you refer to our most recent filings at the SEC for important factors that could cause actual results to differ materially from 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.oxlc.com. With that, I’ll turn the presentation back over to Jonathan.

[Jonathan Cohen:]

Thanks, Bruce. At December 31, 2016, our net asset value per share stood at $10.74 compared with a net asset value per share at September 30 of $9.94. For the quarter ended December 31, we recorded GAAP total investment income of approximately $14.7 million representing an increase of approximately $1.2 million compared to the quarter ended September 30, 2016. That increase in GAAP investment income for the quarter was primarily driven by continued strong performance within our CLO equity portfolio during the quarter. The December quarter’s GAAP income from our portfolio was produced as follows

[Deep Maji:]

Thank you, Jonathan. During the quarter ended December 31, 2016, we saw continued strength in the syndicated corporate loan prices with S&P/LSTA leverage loan index increasing from 95.12% as of September 30, 2016 to 98.06% as of December 30, 2016. Correspondingly, we saw an improvement in CLO equity and debt prices from September of 2016 as NAVs of our CLO equity tranches generally increased. As of February 3, 2017, the S&P/LSTA leverage loan index stood at 98.14%. Additionally, during the quarter, we saw a continued focus on CLO refinancing activity as CLO liability spreads generally tightened. CLO liability spreads continue to tighten as there has been an increase in demand for floating-rate assets as three-month LIBOR has increased over the past few months. Additionally, we have seen a corresponding meaningful tightening in corporate loan spreads as issuers seek to reduce the borrowing costs and take advantage of current market conditions in the corporate loan market. We continue to monitor the market for refinancing opportunities on the CLO liabilities of our CLO equity positions. This option will help mitigate some of the spread compression we are seeing on the asset side and improved cash flows to our CLO equity positions over their respective lives. We believe that the CLO market continues to present us with a compelling investment opportunity set, especially as we continue to see a broad dispersion in pricing across vintages and profiles. Since we began investing in the CLO market, we are focused on both the primary and secondary markets and have varied our emphasis according to which offered better relative value at various times. We continue to make investments in CLO warehouses, which allow collateral managers to purchase assets patiently in the primary market and opportunistically in the secondary market. We continue to pursue our CLO investment strategy, where we see opportunities to generate attractive current cash flows and/or the potential for capital appreciation. Additionally, we continue to actively manage our portfolio as we see attractive sales opportunities in the secondary market. While we continue to generally focus on longer dated CLO equity with longer reinvestment periods that should have additional time to build par value and invested in wider credit spreads compared to today’s corporate loan environment. We continue to invest in a wide – we continue to evaluate a variety of different CLO equity and debt profiles that we believe may provide us with attractive risk-adjusted returns.

[Jonathan Cohen:]

Thanks very much Deep. We note that additional information about Oxford Lane’s third fiscal quarter performance has been posted to our website at www.oxlc.com. With that, operator, we’re happy to open the lines for any questions.

[Operator:]

Thank you. [Operator Instructions] The first question is from Mickey Schleien of Ladenburg.

[Mickey Schleien:]

Yes. Good morning everyone. Jonathan, we saw this amazing rally in the leverage loan markets last year. This year, at least in terms of first-lien leverage loans, we are actually starting to see a little bit of widening. So I’m curious how the CLO markets have behaved so far this year?

[Jonathan Cohen:]

Generally speaking, Mickey, the market year-to-date and even towards the end of last year – last calendar year 2016, the defining characteristic has probably been this wave of refinancing’s. So, the ability for CLO managers to get tighter liability pricing has been the defining trend in our view.

[Mickey Schleien:]

Very well, Jonathan, one follow-up question. I’d like to understand what the rationale was for the Board to declare dividends all the way out to September as opposed to going out perhaps to June and then re-evaluating the market at that point?

[Jonathan Cohen:]

Sure, Mickey. The Board considered our financial projections, they considered the state of the market, they considered the impact of various dividend levels on our cash flow, and decided upon this alternative.

[Mickey Schleien:]

All right, thank you. Those are all my questions today.

[Jonathan Cohen:]

Thanks very much. Operator, any other questions?

[Operator:]

[Operator Instructions] There are no other questions at this time.

[Jonathan Cohen:]

All right. We like to thank everybody very much for their interest and their participation in this conference call. We look forward to speaking to you again soon. Thanks very much.

[Operator:]

Conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.