Oxford Square (OXSQ) Earnings Call Transcript

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DATE

Tuesday, March 3, 2026 at 9 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Jonathan H. Cohen
• Portfolio Manager — Kevin P. Yonon

TAKEAWAYS

• Net Investment Income -- $5.4 million, or $0.07 per share, compared to $5.6 million, or $0.07 per share, in the prior quarter.
• Net Asset Value Per Share -- $1.69, declining from $1.95 in the prior quarter.
• Total Investment Income -- $10.4 million, up from $10.2 million in the prior quarter.
• Distributions to Shareholders -- $0.105 per share during the quarter; the board declared monthly distributions of $0.035 per share for April, May, and June 2026.
• Combined Net Unrealized and Realized Losses -- $18.3 million, or $0.22 per share, compared to $7.5 million, or $0.09 per share, in the previous quarter.
• Investment Activity -- $18 million in purchases and $7.4 million in repayments during the quarter.
• Common Stock Issued via ATM Offering -- 4.3 million shares for net proceeds of $7.9 million.
• Portfolio Focus -- "Investments were focused on first lien loans, generally B2B loans."
• Market Context -- "U.S. leveraged loan primary market issuance...was $70.7 billion, representing a 27% decrease" from the comparable prior-year quarter, driven by lower refinancing and LBO activity, partly offset by higher M&A and dividend activity.
• U.S. Loan Market Performance -- U.S. loan prices fell from 97.06% to 96.64% of par.
• Distress Ratio -- 4.34% at quarter end, up from 2.88% at the prior quarter end.
• Loan Fund Outflows -- $3.2 billion during the quarter, according to Lipper.
• Unrealized Depreciation Source -- "A good portion of that was the CLO equity portion of the book...mainly a markdown of the CLO equity portion."

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RISKS

• Combined net unrealized and realized losses increased to $18.3 million, or $0.22 per share, from $7.5 million, or $0.09 per share, in the prior quarter, with management attributing this "mainly a markdown of the CLO equity portion."
• Net asset value per share declined to $1.69 from $1.95 sequentially, reflecting portfolio value pressures.
• The distress ratio rose to 4.34% from 2.88%, indicating "a market increase" in the proportion of loans trading below 80% of par.
• Management acknowledged the software sector is experiencing "real concern" in both the private credit and syndicated loan markets and noted "wider U.S. syndicated corporate loan spreads and lower pricing for the LSTA index."

SUMMARY

Oxford Square Capital Corp. (NASDAQ:OXSQ) reported a sequential decline in net asset value per share and an increase in combined realized and unrealized portfolio losses, citing challenges in CLO equity valuations. The company raised $7.9 million through at-the-market share issuance, while maintaining stable net investment income and increasing total investment income quarter over quarter. Distributions per share were maintained, with board-declared monthly dividends announced for the upcoming quarter.

• Management confirmed new investments centered on first lien, business-to-business loans and cited ongoing opportunities despite broader market volatility.
• The quarter's $18 million of investment purchases exceeded repayments of approximately $7.4 million.
• Market context featured a 27% year-over-year drop in U.S. leveraged loan issuance and substantial loan fund outflows, signaling a challenging environment for credit-focused asset managers.
• Management said, "the state of the software market right now, the software private credit market and the syndicated loan markets in that sector are reflecting real concern, no question about it," underlining sector-specific stress affecting portfolio performance.

INDUSTRY GLOSSARY

• First Lien Loan: A loan secured by a senior claim on a borrower's assets, with repayment priority over other forms of debt.
• CLO (Collateralized Loan Obligation): A securitized investment vehicle backed by a pool of corporate loans, often leveraged, with varying levels of risk and return among its tranches.
• Distress Ratio: The percentage of loans in a market trading below 80% of par value, signaling heightened credit stress or anticipated default risk.
• ATM (At-the-Market) Offering: A mechanism by which a company issues new shares incrementally into the open market, based on prevailing market prices.

Full Conference Call Transcript

Jonathan Cohen: Thanks, Bruce. For the quarter ended December, Oxford Square's net investment income was approximately $5.4 million or $0.07 per share compared with approximately $5.6 million or $0.07 per share in the prior quarter. Our net asset value per share stood at $1.69 compared to a net asset value per share of $1.95 for the prior quarter. During the quarter, we distributed $0.105 per share to our common stock shareholders. For the fourth quarter, we recorded total investment income of approximately $10.4 million as compared to approximately $10.2 million in the prior quarter.

In the fourth quarter, we recorded combined net unrealized and realized losses on investments of approximately $18.3 million or $0.22 per share compared to combined net unrealized and realized losses on investments of approximately $7.5 million or $0.09 per share in the prior quarter. During the fourth quarter, our investment activity consisted of purchases of approximately $18 million and repayments of approximately $7.4 million. During the quarter ended December, 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 $7.9 million.

On February 26, 2026, our Board of Directors declared monthly distributions of $0.035 per share for each of the months ending April, May and June of 2026. We note that 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 Yonon.

Kevin P. Yonon: Thank you, Jonathan. During the quarter ended December 31, the U.S. loan market performance declined versus the prior quarter. U.S. loan prices, as defined by the Morningstar LSTA U.S. Leveraged Loan Index decreased slightly from 97.06% of par as of September 30 to 96.64% of par as of December 31. According to LCD, during the quarter, there was some pricing dispersion with BB-rated loan prices decreasing 8 basis points, B-rated loan prices increasing 18 basis points and CCC-rated loan prices decreasing 265 basis points on average. According to PitchBook LCD, the 12-month trailing default rate for the loan index decreased to 1.23% by principal amount at the end of the quarter from 1.47% at the end of September.

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 3.35%. The distress ratio, defined as a percentage of loans with prices below 80% of par, ended the quarter at 4.34% compared to 2.88% at the end of September. During the quarter ended December 31, 2025, U.S. leveraged loan primary market issuance, excluding amendments and repricing transactions, was $70.7 billion, representing a 27% decrease versus the quarter ended December 31, 2024. This was driven by lower refinancing and LBO activity, partly offset by higher M&A and dividend activity versus the prior year comparable quarter.

At the same time, U.S. loan fund outflows, as measured by Lipper, were approximately $3.2 billion for the quarter ended December 31. We continue to focus on portfolio management strategies designed to maximize our long-term total return. 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: Thank you, Kevin. Additional information about Oxford Square's fourth 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.

Operator: [Operator Instructions] And our first question is from the line of Erik Zwick with Lucid Capital Markets.

Erik Zwick: I wanted to start with a question. You mentioned the $18 million of new investment purchases during the quarter. Curious if you could just add a little maybe detail into what you bought and what you're currently finding attractive in the market.

Kevin P. Yonon: Sure. So broadly, the investments were focused on first lien loans, generally B2B loans. Going forward into this quarter, I mean, obviously, the primary market has certainly slowed down just given the volatility associated with certain things. But I think we're definitely seeing opportunities in the primary and the secondary, just given the way the markets are trading.

Erik Zwick: Got it. And maybe kind of the back end of that question, if I dig in a little bit deeper. You mentioned there in the prepared comments, the distressed ratio up to -- I don't have the exact estimate, 4-point-something percent, up from 2-point something. So a market increase there. I'm wondering if, from your perspective, is that reflective of some of the volatility we've seen and concerns in the software market? If not, what else is driving that? And two, has this -- is this creating some of the opportunity for you to maybe find some good investment opportunities at lower prices today?

Jonathan Cohen: The answer, I think, Erik, is yes to both questions. Certainly, the state of the software market right now, the software private credit market and the syndicated loan markets in that sector are reflecting real concern, no question about it. There's also, I think, a more general pushback against the growth in the private credit asset class that we've been seeing for the past several years. All of that is manifesting in somewhat more recently wider U.S. syndicated corporate loan spreads and lower pricing for the LSTA index. So the answer certainly from our perspective anyways is yes.

Erik Zwick: That's helpful. And last one for me. Wondering if you could just describe a little bit the unrealized depreciation in the quarter, what was the primary driver there?

Unknown Executive: Erik, yes, that was -- a good portion of that was the CLO equity portion of the book. As you know, it had a very challenging year-end quarter, and that was mainly a markdown of the CLO equity portion of the book.

Jonathan Cohen: Principally unrealized.

Operator: And with no further questions in queue, I will now hand the call back over to CEO, Jonathan Cohen.

Jonathan Cohen: Thank you very much. I'd like to thank everyone on the call now, listening to this call and also everyone listening to the replay for their interest in Oxford Square, and we look forward to speaking to you again soon. Thanks very much.

Operator: Thank you again for joining us today. This does conclude today's conference call. You may now disconnect.

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