Oxford Square Capital Corp.
Q3 2015 Earnings Call Transcript

Published: 7 Nov 2015

[Operator:]

Good morning, and welcome to the TICC Capital Corp’s Third Quarter 2015 earnings conference call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Jonathan Cohen, Chief Executive Officer. Please go ahead, sir.

[Jonathan Cohen:]

Thank you. Good morning, and welcome everyone to the TICC Capital Corp’s third quarter 2015 earnings conference call. I'm joined today by Saul Rosenthal, our President and Chief Operating Officer, and Bruce Rubin, our Chief Financial Officer and Treasurer. Bruce, could you open the call today with a discussion regarding forward-looking statements?

[Bruce Rubin:]

Sure 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 TICC 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 can cause actual results to differ materially from those 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.ticc.com. Please note, that we will not be conducting a Q&A at the end of this call. With that, I'll turn the call back over to Jonathan.

[Jonathan Cohen:]

Thanks Bruce. For the third quarter of 2015, TICC reported GAAP total investment income of approximately $23.1 million, representing a decrease of approximately $600,000 from the second quarter's $23.7 million figure. Third quarter GAAP income from our portfolio was distributed as follows, approximately $14.1 million from our debt investments, approximately $8.6 million from our CLO equity investments, and approximately $400,000 from all other income. Income from our debt investments was up $1.2 million for the quarter, income from our CLO equity investments was down by $1.0 million, and all other income was down by approximately $900,000 from the prior quarter. We also reported GAAP net investment income of approximately $10.9 million, or $0.18 per share for the third quarter of 2015, roughly flat with the second quarter's $0.18 per share on a GAAP NII basis. Our taxable income, which we estimate approximates our cash income is generally higher, generally substantially higher than GAAP NII, due to the accounting for CLO equity investments under GAAP, and for the quarter equated to $10.5 million, or $0.34 per share. This Core NII represents that portion of our estimated annual taxable income available for distribution to common shareholders that we estimate to be attributable to the quarter. The company's Board of Directors has declared a distribution of $0.29 per share for the fourth quarter of this year, payable on December 31, 2015 to shareholders of record as of December 16th. For the quarter ended September 30, 2015, we also recorded net realized capital gains of approximately $400,000, and net unrealized depreciation of approximately $41.0 million. Our CLO positions suffered significant price declines during the quarter. As a result of those realized gains and unrealized losses, we had a net decrease in net assets resulting from operations of approximately $29.7 million, or $0.50 per share for the quarter. Our weighed average credit rating on a fair value basis stood at 2.2 at the end of the third quarter of 2015, compared to 2.1 at the end of the second quarter of 2015. As a reminder, our credit rating system is based on a 1 to 5 scale, with a lower number representing a stronger credit quality. At September 30, 2015, our net asset value per share stood at $7.81, compared with a net asset value at the end of the second quarter of $8.60. During the third quarter of 2015, we made additional investments totaling approximately $66.3 million. The additional investments consisted of approximately $63.4 million in corporate securities, and $2.9 million in CLO equity. Also for the third quarter of 2015, we recognized portfolio exits of approximately $47 million, $47.0 million from repayments, sales and amortization payments on our investments. As of September 30, 2015, the following weighted average yields were calculated. The weighted average yield of our debt investments at current cost stood at approximately 7.2%, compared with 7.6% as of June 30, 2015. And the weighted average effective yield on our CLO equity investments at current cost stood at approximately 11.3%, compared with 12.6% as of June 30, 2015. The weighted average yield of cash income producing CLO equity investments at current costs was approximately 25.4%, compared with that same figure, 25.4% as of June 30, 2015. We note that the cash yield calculated on the CLO equity investments is based on the cash distribution we received, or were entitled to receive at each respective period end, and excludes the CLO equity investments which have not yet made their respective inaugural payments. We note that as of September 30, we held no investments on non-accrual status. From an investment strategy perspective, we note that our strategies since the credit crisis of 2008-2009 has been a consistent one. We have maintained a focus on maximizing our exposure to senior secured corporate loans on a direct basis, by lower risk corporate loans, and on an indirect basis by a higher risk CLO debt and equity. We have and continue to view our overall leverage on our CLO exposure as two parts of one strategy. We have maintained a high level of CLO debt and equity exposure over the past several years, close to our 30% statutory maximum. That strategy is intended to produce high risk adjusted returns, based on the credit worthiness of the underlying collateral pools within each CLO structure, set against a relatively low weighted average cost of debt capital, which has been available to issuers within the CLO market. We have pursued a relatively active trading strategy within that market, and given the returns generated on our CLO debt and equity investments since our initiation of the strategy in 2009, we believe it has been a successful one. At the same time, and consistent with our broader strategy over the past several years, we have more recently maintained a relatively high statutory leverage ratio of approximately 1